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What changed in John Marshall Bancorp, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of John Marshall Bancorp, 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.

+360 added−402 removedSource: 10-K (2024-03-20) vs 10-K (2023-03-23)

Top changes in John Marshall Bancorp, Inc.'s 2023 10-K

360 paragraphs added · 402 removed · 253 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

78 edited+19 added−15 removed204 unchanged
Biggest changeA rebuttable presumption of control exists if a person or company acquires 10% or more but less than 25% of any class of voting securities of an insured depository institution and either the institution has registered its securities with the SEC under Section 12 of the Exchange Act or no other person will own a greater percentage of that class of voting securities immediately after the acquisition.
Biggest changeA rebuttable presumption of control exists if a person or company acquires 10% or more but less than 25% of any class of voting securities of an insured depository institution and either the institution has registered its securities with the SEC under Section 12 of the Exchange Act or no other person will own a greater percentage of that class of voting securities immediately after the acquisition. 15 Table of Contents In addition, Virginia law requires prior approval from the Virginia BFI for (i) the acquisition by a Virginia bank holding company of more than 5% of the voting shares of a Virginia bank or any holding company that controls a Virginia bank, or (ii) the acquisition by a Virginia bank holding company of a bank or its holding company domiciled outside Virginia.
We plan to increase our market share by 6 Table of Contents selective expansion, and by establishing and marketing commercial loan, deposit and cash management products and services, with a high level of personal service, to our desired customer base. ● Maintain commercial bank, customer-centric orientation among specific segments in our communities. The banking market in the Washington, D.C.
We plan to increase our market share by selective expansion, and by establishing and marketing commercial loan, deposit and cash management products and services, with a high level of personal service, to our desired customer base. 6 Table of Contents ● Maintain commercial bank, customer-centric orientation among specific segments in our communities. The banking market in the Washington, D.C.
Specific and non-specific provisions for loan loss reserves are generally set based upon a methodology developed by management and approved by the board of directors and described more fully under “Critical Accounting Policies and Estimates” in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Form 10-K.
Specific and non-specific provisions for loan credit loss reserves are generally set based upon a methodology developed by management and approved by the board of directors and described more fully under “Critical Accounting Policies and Estimates” in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Form 10-K.
Item 1. Business General Overview John Marshall Bancorp, Inc. was organized as a Virginia corporation in 2016 to serve as the holding company for John Marshall Bank (the “Bank”). The Company and the Bank are each headquartered in Reston, Virginia (approximately 20 miles west of Washington, D.C.).
Item 1. Business General Overview John Marshall Bancorp, Inc. was organized as a Virginia corporation in 2016 to serve as the holding company for John Marshall Bank. The Company and the Bank are each headquartered in Reston, Virginia (approximately 20 miles west of Washington, D.C.).
In particular, this infrastructure reviews financial performance, trends and significant variances to budget; reviews and recommends for board approval risk limits and tolerances; reviews ongoing monitoring and reporting regarding our performance with respect to these areas of risk, including compliance with board-approved risk limits and stress-testing; ensures annual back-testing and independent validation of models at a frequency commensurate with risk level; reviews and recommends our contingency funding plan; establishes wholesale borrowing limits to be submitted to the board of directors; and reviews information and reports submitted for the purpose of identifying, investigating, and assuring remediation, to its satisfaction, of errors or irregularities, if any.
In particular, this infrastructure reviews financial performance, trends and significant variances to budget; reviews and recommends for board approval risk limits and tolerances; reviews ongoing monitoring and reporting regarding our 13 Table of Contents performance with respect to these areas of risk, including compliance with board-approved risk limits and stress-testing; ensures annual back-testing and independent validation of models at a frequency commensurate with risk level; reviews and recommends our contingency funding plan; establishes wholesale borrowing limits to be submitted to the board of directors; and reviews information and reports submitted for the purpose of identifying, investigating, and assuring remediation, to its satisfaction, of errors or irregularities, if any.
The Interagency Guidance on Sound Incentive Compensation Policies , which covers all employees that have the ability to materially affect the risk profile of financial institutions, either individually or as part of a group, is based upon the key principles that a financial institution’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the institution’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the financial institution’s board of directors.
The Interagency Guidance on Sound Incentive Compensation Policies , which covers all employees that have the ability to materially affect the risk profile of financial institutions, either individually or as part of a group, is based upon the key principles that a financial institution’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the institution’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk 21 Table of Contents management, and (iii) be supported by strong corporate governance, including active and effective oversight by the financial institution’s board of directors.
Our primary service area comprises the majority of the population and household income of the Washington-Arlington-Alexandria, DC-VA-MD-WV (“Washington, D.C.”) Metropolitan Statistical Area (“MSA”). The Washington, D.C. MSA, according to U.S. Bureau of Economic Analysis data, ranked sixth among all MSAs for 2021 gross domestic product.
Our primary service area comprises the majority of the population and household income of the Washington-Arlington-Alexandria, DC-VA-MD-WV (“Washington, D.C.”) Metropolitan Statistical Area (“MSA”). The Washington, D.C. MSA, according to U.S. Bureau of Economic Analysis data, ranked sixth among all MSAs for 2022 gross domestic product.
Our executive management team brings decades of in-market experience. Christopher W. Bergstrom, our President and Chief Executive Officer, has a banking career spanning nearly 41 years. Mr. Bergstrom joined the Company in 2018. Prior to joining the Company, Mr. Bergstrom served in executive management capacities at banks in our market area that were significantly larger than the Company. Andrew J.
Our executive management team brings decades of in-market experience. Christopher W. Bergstrom, our President and Chief Executive Officer, has a banking career spanning nearly 42 years. Mr. Bergstrom joined the Company in 2018. Prior to joining the Company, Mr. Bergstrom served in executive management capacities at banks in our market area that were significantly larger than the Company. Andrew J.
Specific goals of our investment portfolio are as follows: ● provide a ready source of balance sheet liquidity, ensuring adequate availability of funds to meet fluctuations in loan demand, deposit balances and other changes in balance sheet volumes and composition; ● serve as a means for diversification of our assets with respect to credit quality, maturity and other attributes; ● serve as a tool for modifying our interest rate risk profile pursuant to our established policies; and ● provide collateral to secure local governmental agency and business deposits.
Specific goals of our investment portfolio are as follows: ● provide a ready source of balance sheet liquidity, ensuring adequate availability of funds to meet fluctuations in loan demand, deposit balances and other changes in balance sheet volumes and composition; 11 Table of Contents ● serve as a means for diversification of our assets with respect to credit quality, maturity and other attributes; ● serve as a tool for modifying our interest rate risk profile pursuant to our established policies; and ● provide collateral to secure local governmental agency and business deposits.
These and additional mandatory and permissive supervisory actions may be taken with respect to significantly undercapitalized and critically undercapitalized institutions. The Bank met the definition of being “well capitalized” as of December 31, 2022 and 2021. Deposit Insurance. The deposits of the Bank are insured up to applicable limits by the DIF.
These and additional mandatory and permissive supervisory actions may be taken with respect to significantly undercapitalized and critically undercapitalized institutions. The Bank met the definition of being “well capitalized” as of December 31, 2023 and 2022. Deposit Insurance. The deposits of the Bank are insured up to applicable limits by the DIF.
Since the Company’s inception, banking assets in excess of $43 billion have been acquired. We believe that as financial institutions are merged with or acquired by remote, larger institutions, their customers can become further removed from the point of decision making.
Since the Company’s inception, banking assets in excess of $45 billion have been acquired. We believe that as financial institutions are merged with or acquired by remote, larger institutions, their customers can become further removed from the point of decision making.
A borrower’s ability to repay is carefully analyzed and policy generally calls for an ongoing cash flow to debt service requirement of at least 1.10:1.0. An approved list of commercial real estate appraisers selected on the basis of consistent standards has been established. Each appraisal is scrutinized in an effort to ensure current comparable market values.
A borrower’s 9 Table of Contents ability to repay is carefully analyzed and policy generally calls for an ongoing cash flow to debt service requirement of at least 1.10:1.0. An approved list of commercial real estate appraisers selected on the basis of consistent standards has been established. Each appraisal is scrutinized in an effort to ensure current comparable market values.
As of December 31, 2022 and 2021, the capital ratios of the Bank were in excess of the fully phased-in requirements. As discussed below, the Basel III capital reforms also integrated the new capital requirements into the prompt corrective action provisions under Section 38 of the FDIA.
As of December 31, 2023 and 2022, the capital ratios of the Bank were in excess of the fully phased-in requirements. As discussed below, the Basel III capital reforms also integrated the new capital requirements into the prompt corrective action provisions under Section 38 of the FDIA.
The substance or effect of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of the proposed legislation 22 Table of Contents could affect the regulatory structure under which the Company and the Bank operate and may significantly increase costs, impede the efficiency of internal business processes, require an increase in regulatory capital, require modifications to business strategies, and limit the ability to pursue business opportunities in an efficient manner.
The substance or effect of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of the proposed legislation could affect the regulatory structure under which the Company and the Bank operate and may significantly increase costs, impede the efficiency of internal business processes, require an increase in regulatory capital, require modifications to business strategies, and limit the ability to pursue business opportunities in an efficient manner.
Risks inherent in 9 Table of Contents managing a commercial real estate portfolio primarily relate to either sudden or gradual drops in property values as a result of a general or local economic downturn. A decline in real estate values can cause loan-to-value margins to increase and diminish the Bank’s equity cushion on both an individual and portfolio basis.
Risks inherent in managing a commercial real estate portfolio primarily relate to either sudden or gradual drops in property values as a result of a general or local economic downturn. A decline in real estate values can cause loan-to-value margins to increase and diminish the Bank’s equity cushion on both an individual and portfolio basis.
The Federal Reserve will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of financial institutions, such as the Company and the Bank, that are not “large, complex banking 21 Table of Contents organizations.” These reviews will be tailored to each financial institution based on the scope and complexity of the institution’s activities and the prevalence of incentive compensation arrangements.
The Federal Reserve will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of financial institutions, such as the Company and the Bank, that are not “large, complex banking organizations.” These reviews will be tailored to each financial institution based on the scope and complexity of the institution’s activities and the prevalence of incentive compensation arrangements.
Car, residential real estate and similar loans generally require advances of the lesser of 80% loan to collateral value or cost. 11 Table of Contents Investment Activities We manage our securities portfolio and cash to, in order of priority, ensure the safety and preservation of invested principal, maintain adequate liquidity and focus on yield and returns.
Car, residential real estate and similar loans generally require advances of the lesser of 80% loan to collateral value or cost. Investment Activities We manage our securities portfolio and cash to, in order of priority, ensure the safety and preservation of invested principal, maintain adequate liquidity and focus on yield and returns.
The FDIC imposed a 4.5 basis point annual surcharge on insured depository institutions with total consolidated assets of $10 billion or more. The rule granted credits to smaller banks for the portion of their regular assessments that contributed to increasing the reserve ratio from 1.15% to 1.35%.
The FDIC imposed a 4.5 basis point annual surcharge on insured depository institutions 18 Table of Contents with total consolidated assets of $10 billion or more. The rule granted credits to smaller banks for the portion of their regular assessments that contributed to increasing the reserve ratio from 1.15% to 1.35%.
Refer to the Loan Portfolio section within Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations for further information regarding the composition of our loan portfolio as of December 31, 2022 and 2021.
Refer to the Loan Portfolio section within Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations for further information regarding the composition of our loan portfolio as of December 31, 2023 and 2022.
Under the FDIA, the FDIC may terminate deposit insurance upon a 18 Table of Contents finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations as an insured depository institution, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC, subject to administrative and potential judicial hearing and review processes.
Under the FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations as an insured depository institution, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC, subject to administrative and potential judicial hearing and review processes.
Interest rate charges on this group of loans generally float at a factor at or above the prime lending rate, subject in many cases to a minimum rate. Generally, personal guarantees are required on these loans. Combined, commercial term loans and lines of credit represent approximately 2.5% of our loan portfolio as of December 31, 2022. Mortgage Lending .
Interest rate charges on this group of loans generally float at a factor at or above the prime lending rate, subject in many cases to a minimum rate. Generally, personal guarantees are required on these loans. Combined, commercial term loans and lines of credit represent approximately 2.4% of our loan portfolio as of December 31, 2023. Mortgage Lending .
We evaluate our customers’ borrowing needs and capacity to repay, in 13 Table of Contents conjunction with their character and history. Our management and board of directors place significant focus on maintaining a healthy risk profile and ensuring sustainable growth.
We evaluate our customers’ borrowing needs and capacity to repay, in conjunction with their character and history. Our management and board of directors place significant focus on maintaining a healthy risk profile and ensuring sustainable growth.
The Bank’s capital ratios exceed the thresholds required of a well capitalized institution. As of December 31, 2022, the Bank had the capacity to add over $875 million of risk-weighted assets to its balance sheet and still maintain well capitalized status. The Company has ample liquidity to meet its obligations and fund anticipated loan growth.
The Bank’s capital ratios exceed the thresholds required of a well capitalized institution. As of December 31, 2023, the Bank had the capacity to add over $890 million of risk-weighted assets to its balance sheet and still maintain well capitalized status. The Company has ample liquidity to meet its obligations and fund anticipated loan growth.
Further, all construction loans are loaded into, and managed on, a third party, nationally 10 Table of Contents recognized construction loan administration platform, which is a fintech solution that provides a unique customer experience, consistency in loan administration, and risk management through portfolio monitoring, market/asset type/borrower concentration analysis, and disbursement efficiency.
Further, all construction loans are loaded into, and managed on, a third party, nationally recognized construction loan administration platform, which is a fintech solution that provides a unique customer experience, consistency in loan administration, and risk management through portfolio monitoring, market/asset type/borrower concentration analysis, and disbursement efficiency.
Management views purchased mortgages as a managed risk means of diversifying our earning asset portfolio and achieving a yield, net of the amortized premium, superior to that which may be available in the fixed income market. At December 31, 2022, approximately 14.4% of our loan portfolio related to purchased mortgages. Other Loans .
Management views purchased mortgages as a managed risk means of diversifying our earning asset portfolio and achieving a yield, net of the amortized premium, superior to that which may be available in the fixed income market. At December 31, 2023, approximately 16.4% of our loan portfolio related to purchased mortgages. Other Loans .
We could remain an emerging growth company for up to five years, or until the earliest of (i) the end of the first fiscal year during which we have total annual gross revenues of $1.07 billion or more, (ii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt and (iii) the date on which we are deemed to be a “large accelerated filer” as defined in Exchange Act Rule 12b-2.
We could remain an emerging growth company for up to five years, or until the earliest of (i) the end of the first fiscal year during which we have total annual gross revenues of $1.07 billion or more, (ii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt and (iii) the date on which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Any non-bank subsidiaries of the Company may pay dividends to the Company periodically, subject to certain statutory restrictions. The Company may receive fees from or pay fees to its affiliated companies for expenses incurred related to certain activities performed by or for the Company for the benefit of its affiliated companies or for its benefit.
Any non-bank subsidiaries of the Company may pay dividends to the Company periodically, subject to certain statutory restrictions. 16 Table of Contents The Company may receive fees from or pay fees to its affiliated companies for expenses incurred related to certain activities performed by or for the Company for the benefit of its affiliated companies or for its benefit.
A conclusive presumption of control exists if an individual or company acquires the power, directly or indirectly, to direct the management or policies of an insured 15 Table of Contents depository institution or to vote 25% or more of any class of voting securities of any insured depository institution.
A conclusive presumption of control exists if an individual or company acquires the power, directly or indirectly, to direct the management or policies of an insured depository institution or to vote 25% or more of any class of voting securities of any insured depository institution.
At December 31, 2022, the Company and the Bank have not been made aware of any instances of noncompliance with this guidance.
At December 31, 2023, the Company and the Bank have not been made aware of any instances of noncompliance with this guidance.
Owing in large part to the presence of the United States government, the unemployment rate in the Washington, D.C. MSA has consistently been lower than that of the country as a whole. The Washington, D.C. MSA has undergone a significant amount of bank consolidation in the past several decades.
MSA had $296 billion in deposits. Owing in large part to the presence of the United States government, the unemployment rate in the Washington, D.C. MSA has consistently been lower than that of the country as a whole. The Washington, D.C. MSA has undergone a significant amount of bank consolidation in the past several decades.
The Bank’s primary service area includes Arlington, Fairfax, Loudoun and Prince William counties in Virginia, Montgomery County in Maryland and the District of Columbia. The Bank has eight full service branch offices located in these contiguous cities or counties. The Bank has one loan production office in Arlington, Virginia.
The Bank’s primary service area includes Arlington, Fairfax, Loudoun and Prince William counties in Virginia, Montgomery County in Maryland and the District of Columbia. The Bank has eight full service branch offices located in these contiguous cities or counties.
The fourth quarter of 2022 marked the thirteenth consecutive quarter that the Company had no non-performing loans, other real estate owned or loans 30 days or more past due. In each of the past five fiscal years, net charge-offs have not exceeded 0.07% of gross loans. ● Conservative balance sheet. The Company’s balance sheet provides the foundation for prudent growth.
The fourth quarter of 2023 marked the seventeenth consecutive quarter that the Company had no non-performing loans, other real estate owned or loans 30 days or more past due. In each of the past five fiscal years, net charge-offs have not exceeded 0.01% of gross loans. ● Conservative balance sheet. The Company’s balance sheet provides the foundation for prudent growth.
The CFPB is responsible for 20 Table of Contents implementing, examining, and enforcing compliance with federal consumer financial laws for institutions with more than $10 billion of assets.
The CFPB is responsible for implementing, examining, and enforcing compliance with federal consumer financial laws for institutions with more than $10 billion of assets.
The AML laws and their implementing regulations require insured depository institutions, broker-dealers, and certain other financial institutions to have policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing.
The AML laws and their implementing regulations require insured depository institutions, broker-dealers, and certain other financial institutions to have policies, procedures, and controls to detect, prevent, and report money laundering and terrorist 19 Table of Contents financing.
Our team of professionals has been an important driver of our organic growth by developing banking relationships with current and potential customers. We believe our ability to recruit and retain talented, customer service-oriented professionals has been at the core of our growing and expanding banking relationships. 5 Table of Contents ● Strong earnings.
Our team of professionals has been an important driver of our organic growth by developing banking relationships with current and potential customers. We believe our ability to recruit and retain talented, customer service-oriented professionals has been at the core of our growing and expanding banking relationships. 5 Table of Contents ● Stable profitability and completive shareholder returns earnings.
These 7 Table of Contents institutions may have the ability to finance wide-ranging advertising campaigns and may also be able to offer lower rates on loans and higher rates on deposits than we can offer.
These institutions may have the ability to finance wide-ranging advertising campaigns and may also be able to offer lower rates on loans and higher rates on deposits than we can offer.
Although the mortgage loans the Bank originates often carry amortization periods of up to 30 years, interest rate risk is controlled through balloon payments or interest rate adjustments of generally six years or less. At December 31, 2022, Bank originated 1-4 residential mortgage loans represented 6.2% of our loan portfolio.
Although the mortgage loans the Bank originates often carry amortization periods of up to 30 years, interest rate risk is controlled through balloon payments or interest rate adjustments of generally six years or less. At December 31, 2023, Bank originated 1-4 residential mortgage loans represented 7.5% of our loan portfolio.
We actively monitor our investments on an ongoing basis to identify any material changes in the securities. We also review our securities for potential other-than-temporary impairment at least quarterly.
We actively monitor our investments on an ongoing basis to identify any material changes in the securities. We also review our securities for potential credit impairment at least quarterly.
See Item 1A, Risk Factors, of this Form 10-K for more information on emerging growth companies. Employees As of December 31, 2022, we had 139 full-time employees and 2 part-time employees. None of our employees is covered by a collective bargaining agreement.
See Item 1A, Risk Factors, of this Form 10-K for more information on emerging growth companies. Employees As of December 31, 2023, we had 133 full-time employees and 2 part-time employees. None of our employees are covered by a collective bargaining agreement.
The banking organization also cannot be an advanced approaches banking organization. As of December 31, 2022, the Bank was a qualifying community banking organization, but elected not to measure capital adequacy under the CBLR framework.
The banking organization also cannot be an advanced 17 Table of Contents approaches banking organization. As of December 31, 2023, the Bank was a qualifying community banking organization, but elected not to measure capital adequacy under the CBLR framework.
At December 31, 2022, the Bank’s statutory lending limit to any single borrower was approximately $42.5 million, subject to certain exceptions provided under applicable law. As of December 31, 2022, the Bank’s credit exposure to its largest borrower was $25.9 million. Commercial Loans .
At December 31, 2023, the Bank’s statutory lending limit to any single borrower was approximately $42.3 million, subject to certain exceptions provided under applicable law. As of December 31, 2023, the Bank’s credit exposure to its largest borrower was $25.8 million. Commercial Loans .
We actively cultivate relationships with our customers that extend beyond a single loan to a full suite of products that serve the needs of our commercial customers. Our goal is to develop long-standing connections with our customers and the communities that we serve.
We strive to provide innovative products to our customers that are value-driven. We actively cultivate relationships with our customers that extend beyond a single loan to a full suite of products that serve the needs of our commercial customers. Our goal is to develop long-standing connections with our customers and the communities that we serve.
Finally, the Bank works with highly sophisticated sponsors that are experienced, well capitalized, and positioned to manage through a downturn. As of December 31, 2022, construction and development loans made up approximately 11.0% of our loan portfolio. Commercial Term Loans . We provide funds for equipment and general corporate needs.
Finally, the Bank works with highly sophisticated sponsors that are experienced, well capitalized, and positioned to manage through a downturn. As of December 31, 2023, construction and development loans made up approximately 9.7% of our loan portfolio. 10 Table of Contents Commercial Term Loans . We provide funds for equipment and general corporate needs.
As of December 31, 2022, the Bank had over $395 million of liquid assets, defined as cash and unpledged securities, over $385 million of available secured borrowing facilities and over $75 million of available unsecured borrowing facilities. Management believes the Company’s balance sheet is well-positioned for organic growth and potential acquisitions. ● Proven ability to grow.
As of December 31, 2023, the Bank had over $179 million of liquid assets, defined as cash and unpledged securities, over $459 million of available secured borrowing facilities and $100 million of available unsecured borrowing facilities. Management believes the Company’s balance sheet is well-positioned for organic growth and potential acquisitions. ● Proven ability to grow.
Additional information can be found on our website: www.johnmarshallbank.com. Information on our website or any other website is not incorporated by reference herein and does not constitute a part of this Form 10-K. Public Information Our Securities and Exchange Commission (“SEC”) filings are available to the public on the SEC’s Internet site at http://www.sec.gov.
Information on our website or any other website is not incorporated by reference herein and does not constitute a part of this Form 10-K. 14 Table of Contents Public Information Our Securities and Exchange Commission (“SEC”) filings are available to the public on the SEC’s Internet site at http://www.sec.gov.
The Company encourages its directors and officers to participate in community, civic and charitable organizations. Management and members of our board of directors periodically review the various CRA activities of the Company, including its credit granting process and its involvement with community leaders on a personal level. Risk Management We believe that effective risk management is of primary importance.
Management and members of our board of directors periodically review the various CRA activities of the Company, including its credit granting process and its involvement with community leaders on a personal level. Risk Management We believe that effective risk management is of primary importance.
There are several ways in which the Company attempts to fulfill this commitment, including funding no-fee checking accounts, free ATM usage worldwide, mortgage products subject to maximum income limit, small business loans, financing of affordable housing projects, and becoming involved with local groups that support community outreach programs.
There are several ways in which the Company attempts to fulfill this commitment, including funding no-fee checking accounts, free ATM usage worldwide, mortgage products subject to maximum income limit, small business loans, financing of affordable housing projects, and becoming involved with local groups that support community outreach programs. 12 Table of Contents The Company encourages its directors and officers to participate in community, civic and charitable organizations.
At June 30, 2022, our deposits were $2.04 billion, ranked 18 th in the MSA and represented a 0.7% market share. Eleven of the seventeen banks ranked ahead of the Company are headquartered outside of the Washington, D.C. MSA. Our market area has experienced a significant degree of banking consolidation over the last several decades.
At June 30, 2023, our deposits were $2.05 billion, ranked 17 th in the MSA and represented a 0.7% market share. Ten of the sixteen banks ranked ahead of the Company are headquartered outside of the Washington, D.C. MSA. Our market area has experienced a significant degree of banking consolidation over the last several decades.
Certain provisions of Regulation Z require creditors to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms. Coronavirus Aid, Relief, and Economic Security Act and Consolidated Appropriations Act, 2021 .
Certain provisions of Regulation Z require creditors to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms.
At December 31, 2022, approximately 20.5% of our loan portfolio related to owner occupied commercial real estate loans, and approximately 37.1% of our loan portfolio related to managed investment commercial real estate. Stress testing remains an important component of our organization, including oversight of commercial real estate loans.
At December 31, 2023, approximately 19.4% of our loan portfolio related to owner occupied commercial real estate loans, and approximately 37.2% of our loan portfolio related to managed investment commercial real estate. Stress testing remains an important component of our organization, including oversight of commercial real estate loans.
If the overall economic climate in the United States, generally, or our market area, specifically, experiences material disruption, our borrowers may experience difficulties in repaying their loans, the collateral we hold may decrease or fluctuate in value, or become illiquid or more difficult to appraise, and the level of nonperforming loans, charge-offs and delinquencies could rise and require additional provisions for credit losses. 8 Table of Contents Our 10 largest borrowing relationships account for approximately 12.2% of our loans as of December 31, 2022.
If the overall economic climate in the United States, generally, or our market area, specifically, experiences material disruption, our borrowers may experience difficulties in repaying their loans, the collateral we hold may decrease or fluctuate in value, or become illiquid or more difficult to appraise, and the level of nonperforming loans, charge-offs and delinquencies could rise and require additional provisions for credit losses.
We compete with these institutions by focusing on our position as an independent, commercial business bank and rely upon relationships established by our officers, directors, and employees with our customers, promotional activities and specialized services tailored to meet the needs of the customers we serve. We strive to provide innovative products to our customers that are value-driven.
We compete with these institutions by focusing on our position as an independent, commercial business bank and rely upon relationships established by our officers, directors, and employees with our customers, promotional activities and 7 Table of Contents specialized services tailored to meet the needs of the customers we serve.
In October 2022, the SEC adopted a final rule directing national securities exchanges and associations, including The Nasdaq Stock Market, LLC, the exchange on which our common stock is listed, to implement listing standards that require listed companies to adopt policies mandating the recovery or “clawback” of excess incentive compensation earned by a current or former executive officer during the three fiscal years preceding the date the listed company is required to prepare an accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.
The Nasdaq Stock Market, LLC, the exchange on which our common stock is listed, enacted a listing rule that became effective in 2023 requiring listed companies to adopt policies mandating the recovery or “clawback” of excess incentive compensation earned by a current or former executive officer during the three fiscal years preceding the date the listed company is required to prepare an accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.
As of December 31, 2022, we had total consolidated assets of $2.35 billion, gross loans of $1.79 billion, total deposits of $2.07 billion and total shareholders’ equity of $212.8 million. Market Area A key factor in our ability to achieve our strategic goals and create shareholder value is the attractiveness of our market area.
As of December 31, 2023, we had total consolidated assets of $2.24 billion, gross loans of $1.86 billion, total deposits of $1.91 billion and total shareholders’ equity of $229.9 million. Market Area A key factor in our ability to achieve our strategic goals and create shareholder value is the attractiveness of our market area.
MSA’s November 2022 unemployment rate was 3.1%, the second lowest among the aforementioned MSAs. Based upon Federal Deposit Insurance Corporation (the “FDIC”) data as of June 30, 2022, the Washington D.C. MSA housed $299 billion of deposits, with the top five financial institutions controlling 65.1%.
MSA’s May 2023 unemployment rate was 2.6%, the lowest among the aforementioned MSAs. Based upon Federal Deposit Insurance Corporation (the “FDIC”) data as of June 30, 2023, the Washington D.C. MSA housed $296 billion of deposits, with the top five financial institutions controlling 68.3%.
We have demonstrated an ability to grow our loans and deposits. For the five year period ended December 31, 2022, the Company’s compound annual growth rates in assets, loans, deposits and non-interest bearing deposits were 14.9%, 12.2%, 18.2% and 22.2%, respectively.
We have demonstrated an ability to grow our loans and deposits. For the five year period ended December 31, 2023, the Company’s compound annual growth rates in assets, loans, deposits and non-interest bearing deposits were 10.0%, 9.9%, 10.9% and 13.1%, respectively.
The Company’s successful deployment of technology has enabled us to grow our balance sheet and increase returns by lowering overhead ratios. For the year ended December 31, 2022, the Company’s efficiency and overhead-to-average assets ratios were 44.2% and 1.40%, respectively. The Company’s efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income and non-interest income.
The Company’s successful deployment of technology has enabled us to grow our balance sheet and increase returns by lowering overhead ratios. For the year ended December 31, 2023, the Company’s overhead-to-average assets ratio was 1.33%. The Company’s overhead-to-average asset ratio is calculated by dividing non-interest expense by average assets.
MSA ranked second for 2022 median household income at $115,601, third in 2022 to 2027 projected population growth at 4.1% and second in the percentage of inhabitants 25 or older with a bachelor’s degree or higher educational attainment at 50%. According to the U.S. Bureau of Labor Statistics, the Washington, D.C.
MSA ranked second for 2023 median household income at $117,952, second in 2023 to 2028 projected population growth at 2.7% and first in the percentage of inhabitants 25 or older with a bachelor’s degree or higher educational attainment at 53.4%. According to the U.S. Bureau of Labor Statistics, the Washington, D.C.
In addition, approximately 67.1% of the loans in our loan portfolio were first originated during the past three years. While we believe our underwriting standards are designed to manage normal lending risks, it is difficult to assess the future performance of our loan portfolio due to the recent origination of many of our loans.
While we believe our underwriting standards are designed to manage normal lending risks, it is difficult to assess the future performance of our loan portfolio due to the recent origination of many of our loans.
Privacy Legislation . Several laws, including the Right to Financial Privacy Act and the Gramm-Leach-Bliley Act (“GLB Act”), and related regulations issued by the federal bank regulatory agencies, provide protections against the transfer and use of customer information by financial institutions.
Several laws, including the Right to Financial Privacy Act and the Gramm-Leach-Bliley Act (“GLB Act”), and related regulations issued by the federal bank regulatory agencies, provide protections against the transfer and use of customer information by financial institutions. A financial institution must provide its customers information regarding its policies and procedures with respect to the handling of customers’ personal information.
With this concentration of credit risk among a limited number of borrowers, we may face a greater risk of material credit losses if any one or several of these borrowers fail to perform in accordance with their loans, compared to a bank with a more diversified loan portfolio.
With this concentration of credit risk among a limited number of borrowers, we may face a greater risk of material credit losses if any one or several of these borrowers fail to perform in accordance with their loans, compared to a bank with a more diversified loan portfolio. 8 Table of Contents In addition, approximately 59.7% of the loans in our loan portfolio were first originated during the past three years.
The Company’s asset quality remains outstanding, with the fourth quarter of 2022 marking the 13 th consecutive quarter with no non-performing loans, other real estate owned or loans 30 or more days past due. ● Hire experienced commercial banking officers.
The Company’s asset quality remains outstanding, with the fourth quarter of 2023 marking the 17 th consecutive quarter with no non-performing loans, other real estate owned or loans 30 or more days past due. Over the past five years, ROAA was 1.00% and ROAE was 10.26%. ● Hire experienced commercial banking officers.
For the years ended December 31, 2022 and 2021, the Company recorded expense of $605 thousand and $887 thousand, respectively, for FDIC insurance premiums. Transactions with Affiliates .
For the years ended December 31, 2023 and 2022, the Company recorded expense of $1.0 million and $0.6 million, respectively, for FDIC insurance premiums. Transactions with Affiliates .
Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial non-compliance.” The Bank received a “satisfactory” CRA rating in its most recent examination. In May 2022, the federal bank regulatory agencies jointly issued a proposed rule intended to strengthen and modernize the CRA regulatory framework.
Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial non-compliance.” The Bank received a “satisfactory” CRA rating in its most recent examination. On October 24, 2023, the federal bank regulatory agencies issued a final rule to modernize their respective CRA regulations.
Further regulatory positions taken by the CFPB may influence how other regulatory agencies may apply the subject consumer financial protection laws and regulations. Cybersecurity . The federal bank regulatory agencies have adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of a financial institution’s board of directors.
The federal bank regulatory agencies have adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of a financial institution’s board of directors.
The Company’s overhead-to-average asset ratio is calculated by dividing non-interest expense by average assets. Competition The banking business is highly competitive, and we face competition in our market area from many other local, regional, and national financial institutions.
Competition The banking business is highly competitive, and we face competition in our market area from many other local, regional, and national financial institutions.
The payment of dividends, depending on the financial condition of the Bank or the Company, could be deemed to constitute such an unsafe or unsound practice. 16 Table of Contents Under the FDIA, insured depository institutions, such as the Bank, are prohibited from making capital distributions, including the payment of dividends, if after making such distributions the institution would become “undercapitalized” (as such term is used in the statute).
Under the FDIA, insured depository institutions, such as the Bank, are prohibited from making capital distributions, including the payment of dividends, if after making such distributions the institution would become “undercapitalized” (as such term is used in the statute).
Federal Reserve monetary policies have had significant effects on the operating results of commercial banks, including the Bank, in the past and are expected to do so in the future.
These policies have a significant effect on overall growth and distribution of loans, investments, and deposits, and they affect interest rates charged on loans or paid for deposits. Federal Reserve monetary policies have had significant effects on the operating results of commercial banks, including the Bank, in the past and are expected to do so in the future.
The Company’s website address is www.johnmarshallbank.com . The information on the Company’s website is not incorporated into this report or any other filing the Company makes with the SEC.
The Company’s SEC filings are posted and available at no cost on its website as soon as reasonably practicable after the reports are filed electronically with the SEC. The Company’s website address is www.johnmarshallbank.com . The information on the Company’s website is not incorporated into this report or any other filing the Company makes with the SEC.
These privacy provisions generally prohibit a financial institution from providing a customer’s personal financial information to unaffiliated parties without prior notice to and approval from the customer. Anti-Money Laundering Laws and Regulations .
Each institution 20 Table of Contents must conduct an internal risk assessment of its ability to protect customer information. These privacy provisions generally prohibit a financial institution from providing a customer’s personal financial information to unaffiliated parties without prior notice to and approval from the customer.
A change in statutes, regulations, or regulatory policies applicable to the Company or the Bank could have a material, adverse effect on the business, financial condition, and results of operations of the Company and the Bank.
A change in statutes, regulations, or regulatory policies applicable to the Company or the Bank could have a material, adverse effect on the business, financial condition, and results of operations of the Company and the Bank. 22 Table of Contents Reporting Obligations under Securities Laws The Company is subject to the periodic and other reporting requirements of the Exchange Act, including the filing of annual, quarterly, and other reports with the SEC.
Typically, we provide our remote deposit capture hardware and software to our commercial customers free of charge, which provides current and potential customers with a convenient means to bank with us. 12 Table of Contents Community Reinvestment Act The Company is committed to serving the banking needs of the communities in which we are located, including low and moderate income areas, and is a supporter of the Community Reinvestment Act (“CRA”).
Community Reinvestment Act The Company is committed to serving the banking needs of the communities in which we are located, including low and moderate income areas, and is a supporter of the Community Reinvestment Act (“CRA”).
In addition to salaries, these programs include annual bonus opportunities, a 401(k) plan with an employer matching contribution, healthcare and insurance benefits, profit sharing, flexible spending accounts, paid time off and an employee assistance program. 14 Table of Contents General Corporate Information Our principal executive offices are located at 1943 Isaac Newton Square, Suite 100, Reston, Virginia 20190 and our telephone number at that address is (703) 584-0840.
In addition to salaries, these programs include annual bonus opportunities, a 401(k) plan with an employer matching contribution, healthcare and insurance benefits, profit sharing, flexible spending accounts, paid time off and an employee assistance program.
We intend to execute on this goal by focusing on the following objectives: ● Maintain financial and credit quality discipline. We are committed to being a high performing bank, with above average growth and returns.
We intend to execute on this goal by focusing on the following objectives: ● Maintain financial and credit quality discipline. 2023 underscored the importance of consistency of purpose and a conservative balance sheet. We are committed to being a high performing bank and will strive to continue to grow our loan and deposit portfolios in a disciplined manner.
The minimum total capital to risk-weighted assets ratio (10.0%) and minimum leverage ratio (5.0%) for well capitalized status were unchanged by the final rules. In December 2017, the Basel Committee on Banking Supervision published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”).
The minimum total capital to risk-weighted assets ratio (10.0%) and minimum leverage ratio (5.0%) for well capitalized status were unchanged by the final rules.
The Bank approved 1,096 PPP loans, totaling $229.2 million during the first and second rounds of the SBA’s PPP. Effect of Governmental Monetary Policies The Company’s operations are affected not only by general economic conditions but also by the policies of various regulatory authorities.
Effect of Governmental Monetary Policies The Company’s operations are affected not only by general economic conditions but also by the policies of various regulatory authorities. In particular, the Federal Reserve regulates money and credit conditions and interest rates to influence general economic conditions.
The Company reported net income of $8.2 million for the three months ended December 31, 2022, an 8.7% increase over the $7.5 million reported for the three months ended December 31, 2021. Fourth quarter 2022 earnings represented the Company’s sixteenth consecutive quarter of record earnings.
The Company reported net income of $4.5 million for the three months ended December 31, 2023 and three months ended June 30, 2023.
Earnings per diluted share for the twelve months ended December 31, 2022 were $2.25, a 22.9% increase over the $1.83 reported for the twelve months ended December 31, 2021. ● Attractive markets. As of June 30, 2022, the most recent FDIC data available, the Washington, D.C. MSA had $299 billion in deposits.
In addition to the $0.22 per share cash dividend paid in July 2023, total return to shareholders when considering the change in book value per share and cash dividend for 2023 was $1.38 per share, an increase of 9.2%. ● Attractive markets. As of June 30, 2023, the most recent FDIC data available, the Washington, D.C.
Removed
Annualized return on average assets (“ROAA”) was 1.40% and annualized return on average equity (“ROAE”) was 15.65% for the three months ended December 31, 2022. Annualized ROAA is calculated by dividing annualized fourth quarter reported net income by quarter-to-date average assets. Annualized ROAE is calculated by dividing annualized fourth quarter reported net income by quarter-to-date average equity.
Added
Excluding the non-recurring loss on securities, net of tax and non-recurring taxes and penalties on the early surrender of Bank Owned Life Insurance policies (the “Restructuring”) of $14.6 million in the aggregate, previously disclosed in our second quarter Form 10-Q filed August 9, 2023 , the Company’s core net income (Non-GAAP) for each of the last three quarters was approximately $4.5 million during a challenging economic environment.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeMarket conditions or other events could also negatively affect the level or cost of funding, affecting our ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, and fund asset growth and new business transactions at a reasonable cost, in a timely manner, and without adverse consequences.
Biggest changeLiquidity risk can increase due to a number of factors, which include, but are not limited to, an over-reliance on a particular source of funding, changes in the liquidity needs of our depositors, an increase in borrowing by our customers, adverse regulatory actions against us, or a downturn in the markets in which our loans are concentrated. 28 Table of Contents Market conditions or other events could also negatively affect the level or cost of funding, affecting our ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, and fund asset growth and new business transactions at a reasonable cost, in a timely manner, and without adverse consequences.
A failure to effectively measure and limit the credit risk associated with our loan portfolio may result in loan defaults, foreclosures and additional charge-offs, and may necessitate that we significantly increase our allowance for loan losses, each of which could adversely affect our net income.
A failure to effectively measure and limit the credit risk associated with our loan portfolio may result in loan defaults, foreclosures and additional charge-offs, and may necessitate that we significantly increase our allowance for loan credit losses, each of which could adversely affect our net income.
As a result, our inability to successfully manage credit risk could have an adverse effect on our business, financial condition and results of operations. Our allowance for loan losses may be inadequate to absorb probable losses inherent in the loan portfolio.
As a result, our inability to successfully manage credit risk could have an adverse effect on our business, financial condition and results of operations. Our allowance for loan credit losses may be inadequate to absorb probable losses inherent in the loan portfolio.
The determination of the appropriate level of the allowance for loan losses is inherently highly subjective and requires us to use significant judgment to estimate the level of credit risk and probable losses of the institution based on an evaluation the factors and circumstances that exist as of the applicable measurement date, all of which may change materially.
The determination of the appropriate level of the allowance for loan credit losses is inherently highly subjective and requires us to use significant judgment to estimate the level of credit risk and probable losses of the institution based on an evaluation the factors and circumstances that exist as of the applicable measurement date, all of which may change materially.
Liquidity stress testing, interest rate sensitivity analysis, allowance for loan loss measurement, portfolio stress testing and the identification of possible violations of anti-money laundering regulations are examples of areas in which we are dependent on models and the data that underlie them. We anticipate that model-derived insights will be used more widely in our decision making in the future.
Liquidity stress testing, interest rate sensitivity analysis, allowance for loan credit loss measurement, portfolio stress testing and the identification of possible violations of anti-money laundering regulations are examples of areas in which we are dependent on models and the data that underlie them. We anticipate that model-derived insights will be used more widely in our decision making in the future.
If the overall economic climate in the United States, generally, or in our market specifically, experiences material disruption, our borrowers may experience difficulties in repaying their loans, the collateral we hold may decrease in value or become illiquid, and the level of nonperforming loans, charge-offs and delinquencies could rise and require significant additional provisions for loan losses.
If the overall economic climate in the United States, generally, or in our market specifically, experiences material disruption, our borrowers may experience difficulties in repaying their loans, the collateral we hold may decrease in value or become illiquid, and the level of nonperforming loans, charge-offs and delinquencies could rise and require significant additional provisions for loan credit losses.
Non-performing assets held by the Company will adversely affect our net income in various ways: ● we record interest income only on the cash basis or cost-recovery method for non-accrual loans and we do not record interest income for other real estate owned; ● we must provide for probable loan losses through a current period charge to the provision for loan losses; ● non-interest expense increases when we write down the value of properties in our other real estate owned portfolio to reflect changing market values; ● there are legal fees associated with the resolution of problem assets, as well as carrying costs, such as taxes, insurance, and maintenance fees; and ● the resolution of non-performing assets requires the active involvement of management, which can distract them from more profitable activity.
Non-performing assets held by the Company will adversely affect our net income in various ways: ● we record interest income only on the cash basis or cost-recovery method for non-accrual loans and we do not record interest income for other real estate owned; ● we must provide for loan credit losses through a current period charge to the provision for loan credit losses; ● non-interest expense increases when we write down the value of properties in our other real estate owned portfolio to reflect changing market values; ● there are legal fees associated with the resolution of problem assets, as well as carrying costs, such as taxes, insurance, and maintenance fees; and ● the resolution of non-performing assets requires the active involvement of management, which can distract them from more profitable activity.
Additionally, federal and state banking regulators, as an integral part of their supervisory function, periodically review the allowance for loan losses. These regulatory agencies may require us to increase our provision for loan losses or to recognize further loan charge-offs based upon their judgments, which may be different from ours.
Additionally, federal and state banking regulators, as an integral part of their supervisory function, periodically review the allowance for loan credit losses. These regulatory agencies may require us to increase our provision for loan credit losses or to recognize further loan charge-offs based upon their judgments, which may be different from ours.
Additionally, if economic conditions in the area deteriorate, or there is significant volatility or weakness in the economy or any significant sector of the area’s economy, our ability to develop our business relationships may be diminished, the quality and collectability of our loans may be adversely affected, our provision for loan losses may increase, the value of collateral may decline and loan demand may be reduced.
Additionally, if economic conditions in the area deteriorate, or there is significant volatility or weakness in the economy or any significant sector of the area’s economy, our ability to develop our business relationships may be diminished, the quality and collectability of our loans may be adversely affected, our provision for loan credit losses may increase, the value of collateral may decline and loan demand may be reduced.
If any of these valuations are inaccurate, our consolidated financial statements may not reflect the correct value of our OREO, if any, and our allowance for loan losses may not reflect accurate loan impairments. Inaccurate valuation of OREO or inaccurate provisioning for loan losses could have an adverse effect on our business, financial condition and results of operations.
If any of these valuations are inaccurate, our consolidated financial statements may not reflect the correct value of our OREO, if any, and our allowance for loan credit losses may not reflect accurate loan impairments. Inaccurate valuation of OREO or inaccurate provisioning for loan credit losses could have an adverse effect on our business, financial condition and results of operations.
In determining the size of our allowance for loan losses, we rely on an analysis of our loan portfolio considering historical loss experience, volume and types of loans, trends in classification, volume and trends in delinquencies and nonaccruals, economic conditions and other pertinent information.
In determining the size of our allowance for loan credit losses, we rely on an analysis of our loan portfolio considering historical loss experience, volume and types of loans, trends in classification, volume and trends in delinquencies and nonaccruals, economic conditions and other pertinent information.
While we are not dependent on any of these relationships and while none of these large relationships have directly impacted our allowance for loan losses, a deterioration of any of these large credits could require us to increase our allowance for loan losses or result in significant losses to us.
While we are not dependent on any of these relationships and while none of these large relationships have directly impacted our allowance for loan credit losses, a deterioration of any of these large credits could require us to increase our allowance for loan credit losses or result in significant losses to us.
Nevertheless, if delinquencies and defaults increase, we may be required to increase our provision for loan losses, which could have an adverse effect on our business, financial condition and results of operations.
Nevertheless, if delinquencies and defaults increase, we may be required to increase our provision for loan credit losses, which could have an adverse effect on our business, financial condition and results of operations.
Our inability to manage the amount of costs or size of the risks associated with the ownership of real estate, or write-downs in the value of other real estate owned (“OREO”) could have an adverse effect on our business, financial condition and results of operations. The Company did not have any OREO as of December 31, 2022.
Our inability to manage the amount of costs or size of the risks associated with the ownership of real estate, or write-downs in the value of other real estate owned (“OREO”) could have an adverse effect on our business, financial condition and results of operations. The Company did not have any OREO as of December 31, 2023.
The Company did not have any OREO as of December 31, 2022. Risks Related to Funding and Liquidity Our deposit portfolio includes significant concentrations and a large percentage of our deposits are attributable to a relatively small number of customers. We rely on a small number of large deposit customers, including high-average balance municipal deposits, as a source of funds.
The Company did not have any OREO as of December 31, 2023. Risks Related to Funding and Liquidity Our deposit portfolio includes significant concentrations and a large percentage of our deposits are attributable to a relatively small number of customers. We rely on a small number of large deposit customers, including high-average balance municipal deposits, as a source of funds.
Accordingly, we maintain an allowance for loan losses that represents management’s judgment of probable losses and risks inherent in our loan portfolio.
Accordingly, we maintain an allowance for loan credit losses that represents management’s judgment of probable losses and risks inherent in our loan portfolio.
We are also a “smaller reporting company,” as defined in the federal securities laws, and will remain a smaller reporting company until the fiscal year following the determination that the market value of our common stock held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter, or our annual revenues are less than $100 million during the most recently completed fiscal year and the market value of our common stock held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter.
We are also a “smaller reporting company,” as defined in the federal securities laws, and will remain a smaller reporting company until the fiscal year following the determination that the market value of our common stock held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter, or our annual revenues are less than $100 million during the most recently completed fiscal year and the market value of our common stock held 37 Table of Contents by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter.
Although we endeavor to maintain our allowance for loan losses at a level adequate to absorb any inherent losses in the loan portfolio, these estimates of loan losses are necessarily subjective and their accuracy depends on the outcome of future events.
Although we endeavor to maintain our allowance for loan credit losses at a level adequate to absorb any inherent expected losses in the loan portfolio, these estimates of loan credit losses are necessarily subjective and their accuracy depends on the outcome of future events.
These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities, frequently have smaller market shares than their competition, may be more 25 Table of Contents vulnerable to economic downturns, often need substantial additional capital to expand or compete, and may experience substantial volatility in operating results, any of which may impair their ability as a borrower to repay a loan.
These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities, frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete, and may experience substantial volatility in operating results, any of which may impair their ability as a borrower to repay a loan.
As these technologies improve in the future, we may be required to make significant capital expenditures in order to remain competitive, which may increase our overall expenses and have an adverse effect on our business, financial condition and results of operations. Interest rate shifts may reduce net interest income and otherwise negatively impact our financial condition and results of operations.
As these technologies improve in the future, we may be required to make significant capital expenditures in order to remain competitive, which may increase our overall expenses and have an adverse effect on our business, financial condition and results of operations. 30 Table of Contents Interest rate shifts may reduce net interest income and otherwise negatively impact our financial condition and results of operations.
In addition, if we are the owner or former owner of a contaminated site, we may be subject to common 32 Table of Contents law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. These costs and claims could adversely affect our business, results of operations and prospects.
In addition, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. These costs and claims could adversely affect our business, results of operations and prospects.
Federal regulations establish minimum capital requirements for insured depository institutions, including minimum risk-based capital and leverage ratios, and defines “capital” for calculating these ratios. 34 Table of Contents The Federal Reserve requires a bank holding company to act as a source of financial and managerial strength to its subsidiary banks and to commit resources to support its subsidiary banks.
Federal regulations establish minimum capital requirements for insured depository institutions, including minimum risk-based capital and leverage ratios, and defines “capital” for calculating these ratios. The Federal Reserve requires a bank holding company to act as a source of financial and managerial strength to its subsidiary banks and to commit resources to support its subsidiary banks.
Negative public opinion can adversely affect our ability to keep and attract customers and employees 42 Table of Contents and can expose us to litigation and regulatory action. Although we take steps to minimize reputation risk in dealing with our customers and communities, this risk will always be present given the nature of our business.
Negative public opinion can adversely affect our ability to keep and attract customers and employees and can expose us to litigation and regulatory action. Although we take steps to minimize reputation risk in dealing with our customers and communities, this risk will always be present given the nature of our business.
This may include increasing our reliance on Federal Home Loan Bank of Atlanta (“FHLB”) borrowing, attempting to attract additional non-brokered deposits, and selling loans. There can 28 Table of Contents be no assurance that brokered deposits will be available, or if available, sufficient to support our continued growth.
This may include increasing our reliance on Federal Home Loan Bank of Atlanta (“FHLB”) borrowing, attempting to attract additional non-brokered deposits, and selling loans. There can be no assurance that brokered deposits will be available, or if available, sufficient to support our continued growth.
Therefore, the recent and current level of delinquencies and defaults may not represent the level that may prevail 27 Table of Contents as the portfolio becomes more seasoned and may not serve as a reliable basis for predicting the health and nature of our loan portfolio, including net charge-offs and the ratio of nonperforming assets in the future.
Therefore, the recent and current level of delinquencies and defaults may not represent the level that may prevail as the portfolio becomes more seasoned and may not serve as a reliable basis for predicting the health and nature of our loan portfolio, including net charge-offs and the ratio of nonperforming assets in the future.
However, an appraisal is only an estimate of the value of the property at the time the appraisal is made, and, as real estate values may change significantly in value in relatively short periods of time (especially in periods of heightened economic uncertainty), this estimate may not accurately reflect the net value of the collateral after the loan is made.
However, an appraisal is only an estimate of the value of the property at the time the appraisal is made, and, as real estate values may 27 Table of Contents change significantly in value in relatively short periods of time (especially in periods of heightened economic uncertainty), this estimate may not accurately reflect the net value of the collateral after the loan is made.
We compete with these other financial institutions both in attracting deposits and making loans. We expect competition to continue to increase as a result of legislative, regulatory and technological changes, the continuing trend of consolidation in the financial services industry and the 29 Table of Contents emergence of alternative banking sources.
We compete with these other financial institutions both in attracting deposits and making loans. We expect competition to continue to increase as a result of legislative, regulatory and technological changes, the continuing trend of consolidation in the financial services industry and the emergence of alternative banking sources.
As a result, 26 Table of Contents construction loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property, rather than the ability of the borrower or guarantor to repay principal and interest.
As a result, construction loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property, rather than the ability of the borrower or guarantor to repay principal and interest.
Additional equity offerings may dilute the holdings of our existing shareholders or reduce the market price of our common stock, or both. Holders of our common stock are not entitled to preemptive rights or other protections against dilution. Our common stock is subordinate to our existing and future indebtedness.
Additional equity offerings may dilute the holdings of our existing shareholders or reduce the market price of our common stock, or both. Holders of our common stock are not entitled to preemptive rights or other protections against dilution. 38 Table of Contents Our common stock is subordinate to our existing and future indebtedness.
We rely on third parties to provide key components of our business infrastructure. We rely on third parties to provide key components for our business operations, such as data processing and storage, recording and monitoring transactions, online banking interfaces and services, internet connections, and network access. While we select these third-party vendors carefully, we do not control their actions.
We rely on third parties to provide key components for our business operations, such as data processing and storage, recording and monitoring transactions, online banking interfaces and services, internet connections, and network access. 32 Table of Contents While we select these third-party vendors carefully, we do not control their actions.
Our principal competitors are commercial and community banks, credit unions, savings and loan associations, mortgage banking firms and online mortgage lenders and consumer finance companies, including large national financial institutions that operate in our market.
We have many competitors. Our principal competitors are commercial and community banks, credit unions, savings and loan associations, mortgage banking firms and online mortgage lenders and consumer finance companies, including large national financial institutions that operate in our market.
As of December 31, 2022, the allowance for loan losses was $20.2 million or 1.13% of total loans, net of unearned income. 24 Table of Contents Deterioration of economic conditions affecting borrowers, new information regarding existing loans, inaccurate management assumptions, identification of additional problem loans, temporary modifications, loan forgiveness, automatic forbearance and other factors, both within and outside of our control, may result in our experiencing higher levels of nonperforming assets and charge-offs, and incurring loan losses in excess of our current allowance for loan losses, requiring us to make material additions to our allowance for loan losses, which could have an adverse effect on our business, financial condition and results of operations.
As of December 31, 2023, the allowance for loan credit losses was $19.5 million or 1.05% of total loans, net of unearned income. 24 Table of Contents Deterioration of economic conditions affecting borrowers, new information regarding existing loans, inaccurate management assumptions, identification of additional problem loans, temporary modifications, loan forgiveness, automatic forbearance and other factors, both within and outside of our control, may result in our experiencing higher levels of nonperforming assets and charge-offs, and incurring loan credit losses in excess of our current allowance for loan credit losses, requiring us to make material additions to our allowance for loan credit losses, which could have an adverse effect on our business, financial condition and results of operations.
Applicable laws, regulations, interpretations, enforcement policies and accounting principles have been subject to significant changes in recent years, and may be subject to significant future changes. Additionally, federal and state regulatory agencies may change the manner in which existing regulations are applied.
Applicable laws, regulations, interpretations, enforcement policies and accounting principles have been subject to significant changes in recent years, and may be subject to significant future changes. Additionally, federal and state 35 Table of Contents regulatory agencies may change the manner in which existing regulations are applied.
If we need to make significant and unanticipated increases in the loss allowance in the future, or to take additional charge-offs for which we have not established adequate reserves, our business, financial condition and results of operations could be adversely affected at that time.
If we need to make significant and unanticipated increases in the loss allowance in the future, or to take additional charge-offs for which we have not established adequate reserves, our business, financial condition and results of operations could be adversely affected at that time. If our non-performing assets increase, our earnings will be adversely affected.
As of December 31, 2022, commercial real estate loans represented 334.1% of our total risk-based capital and had increased 19.3% during the prior 36 months. We cannot guarantee that any risk management practices we implement will be effective to prevent losses relating to our commercial real estate portfolio.
As of December 31, 2023, commercial real estate loans represented 342.8% of our total risk-based capital and had increased 19.3% during the prior 36 months. We cannot guarantee that any risk management practices we implement will be effective to prevent losses relating to our commercial real estate portfolio.
We may be adversely affected by the lack of soundness of other financial institutions or market utilities. Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies may be interrelated as a result of trading, clearing, counterparty, and other relationships.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies may be interrelated as a result of trading, clearing, counterparty, and other relationships.
If, as a result, some investors find our common stock less attractive, there may be a less active trading market for our common stock, which could result in reductions and greater volatility in the prices of our common stock. 37 Table of Contents The market price for our common stock may be volatile.
If, as a result, some investors find our common stock less attractive, there may be a less active trading market for our common stock, which could result in reductions and greater volatility in the prices of our common stock.
We have used brokered deposits in the past, and we may continue to use brokered deposits as one of our funding sources to support future growth. As of December 31, 2022, brokered deposits represented approximately 17.0% of our total deposits. Reciprocal deposits represented an additional 10.8% of total deposits at December 31, 2022.
We have used brokered deposits in the past, and we may continue to use brokered deposits as one of our funding sources to support future growth. As of December 31, 2023, brokered deposits represented approximately 17.0% of our total deposits. Reciprocal deposits represented an additional 14.7% of total deposits at December 31, 2023.
Lack of seasoning of our loan portfolio could increase risk of credit defaults in the future. As a result of our organic growth over the past several years, as of December 31, 2022, approximately $1.20 billion, or 67.1%, of the loans in our loan portfolio were first originated during the past three years.
Lack of seasoning of our loan portfolio could increase risk of credit defaults in the future. As a result of our organic growth over the past several years, as of December 31, 2023, approximately $1.11 billion, or 59.7%, of the loans in our loan portfolio were first originated during the past three years.
Any of these factors, among others, could cause other-than-temporary impairments (“OTTI”) and realized and/or unrealized losses in future periods and declines in other comprehensive income, which could materially and adversely affect our business, financial condition or results of operations.
Any of these factors, among others, could cause expected credit losses and realized and/or unrealized losses in future periods and declines in other comprehensive income, which could materially and adversely affect our business, financial condition or results of operations.
Although we believe that we have implemented effective asset and liability management strategies to mitigate the potential adverse effects of changes in interest rates on our results of operations, any substantial or unexpected change in, or prolonged change in market interest rates could have an adverse effect on our financial condition and results of operations. 30 Table of Contents Inflation can have an adverse impact on our business and on our customers.
Although we believe that we have implemented effective asset and liability management strategies to mitigate the potential adverse effects of changes in interest rates on our results of operations, any substantial or unexpected change in, or prolonged change in market interest rates could have an adverse effect on our financial condition and results of operations.
We cannot predict the substance or effect of pending or future legislation or regulation or changes to the application of laws and regulations to us. Future changes may have an adverse effect on our business, financial condition and results of operations.
We cannot predict the substance or effect of pending or future legislation or regulation or changes to the application of laws and regulations to us. Future changes may have an adverse effect on our business, financial condition and results of operations. We are subject to stringent capital requirements, which could have an adverse effect on our operations.
Our use of third party vendors and our other ongoing third party business relationships are subject to increasing regulatory requirements and attention. We regularly use third party vendors in our business and we rely on some of these vendors for critical functions including, but not limited to, our core processing function.
We regularly use third party vendors in our business and we rely on some of these vendors for critical functions including, but not limited to, our core processing function. Third party relationships are subject to increasingly demanding regulatory requirements and attention by bank regulators.
We engage in lending secured by real estate and may be forced to foreclose on the collateral and own the underlying real estate, subjecting us to the costs and potential risks associated with the ownership of real property, or consumer protection initiatives or changes in state or federal law may substantially raise the cost of foreclosure or prevent us from foreclosing at all.
Our underwriting, review and monitoring cannot eliminate all of the risks related to these loans. 26 Table of Contents We engage in lending secured by real estate and may be forced to foreclose on the collateral and own the underlying real estate, subjecting us to the costs and potential risks associated with the ownership of real property, or consumer protection initiatives or changes in state or federal law may substantially raise the cost of foreclosure or prevent us from foreclosing at all.
Nevertheless, we could be required to maintain higher levels of capital as a result of our commercial real estate concentration, which could limit our growth, require us to obtain additional capital, and have an adverse effect on our business, financial condition and results of operations.
Nevertheless, we could be required to maintain higher levels of capital as a result of our commercial real estate concentration, which could limit our 36 Table of Contents growth, require us to obtain additional capital, and have an adverse effect on our business, financial condition and results of operations. Changes in accounting standards could materially impact our financial statements.
Our 10 largest borrowing relationships accounted for approximately 11.3% of our loans at December 31, 2022. Our largest single borrowing relationship accounted for approximately 1.4% of our loans at December 31, 2022.
Our 10 largest borrowing relationships accounted for approximately 9.1% of our loans at December 31, 2023. Our largest single borrowing relationship accounted for approximately 1.4% of our loans at December 31, 2023.
System failure or breaches of our network security, including as a result of cyber-attacks or data security breaches, could subject us to increased operating costs as well as litigation and other liabilities.
We may also be subject to potentially adverse regulatory consequences. System failure or breaches of our network security, including as a result of cyber-attacks or data security breaches, could subject us to increased operating costs as well as litigation and other liabilities.
Financial or operational difficulties of a third-party vendor could also hurt our operations if those difficulties interfere with the vendor’s ability to serve us. Replacing these third-party vendors could create significant delays and expense that adversely affect our business and performance. We are exposed to risk of environmental liabilities with respect to properties to which we obtain title.
Financial or operational difficulties of a third-party vendor could also hurt our operations if those difficulties interfere with the vendor’s ability to serve us. Replacing these third-party vendors could create significant delays and expense that adversely affect our business and performance.
These concentrations expose us to the risk that adverse developments in the real estate market, or in the general economic conditions in such areas, or the continuation of such adverse developments, could increase the levels of nonperforming loans and charge-offs, and reduce loan demand and deposit growth. In that event, we would likely experience lower earnings or losses.
These concentrations expose us to the risk that adverse developments in the real estate market, or in the general economic conditions in such areas, or the 25 Table of Contents continuation of such adverse developments, could increase the levels of nonperforming loans and charge-offs, and reduce loan demand and deposit growth.
It is the policy of the Federal Reserve that bank holding companies should generally pay dividends on common stock only out of earnings, and only if prospective earnings retention is consistent with the organization’s expected future needs, asset quality and financial condition.
It is the policy of the Reserve Bank that bank holding companies should pay cash dividends on common stock only out of income available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition.
Non-performing assets consist of non-accrual loans, loans 90 days or more past due and still accruing interest, and other real estate owned.
At December 31, 2023, we had no non-performing assets. Non-performing assets consist of non-accrual loans, loans 90 days or more past due and still accruing interest, and other real estate owned.
Our 10 largest depositor relationships accounted for approximately 17.6% of our deposits at December 31, 2022. Our largest depositor relationship accounted for approximately 3.3% of our deposits at December 31, 2022. These deposits can and do fluctuate substantially.
Our 10 largest depositor relationships accounted for approximately 16.8% of our deposits at December 31, 2023. Our largest depositor relationship accounted for approximately 3.7% of our deposits at December 31, 2023. These deposits can and do fluctuate substantially.
Employee errors could also subject us to financial claims for negligence. We maintain a system of internal controls and insurance coverage to mitigate against operational risks, including data processing system failures and errors and customer or employee fraud.
We maintain a system of internal controls and insurance coverage to mitigate against operational risks, including data processing system failures and errors and customer or employee fraud.
Third party relationships are subject to increasingly demanding regulatory requirements and attention by bank regulators. We expect our regulators to hold us responsible for deficiencies in our oversight or control of our third party vendor relationships and in the performance of the parties with which we have these relationships.
We expect our regulators to hold us responsible for deficiencies in our oversight or control of our third party vendor relationships and in the performance of the parties with which we have these relationships.
The average age by loan type for loans originated in the past three years is: commercial real estate loans—1.43 years; commercial and industrial loans—1.47 years; commercial construction loans—1.08 years; and consumer residential loans—1.31 years.
The average age by loan type for loans originated in the past three years is: commercial real estate loans—1.81 years; commercial and industrial loans—1.24 years; commercial construction loans—1.19 years; and consumer residential loans—1.50 years.
Specifically, any enhanced regulatory scrutiny of bank mergers and acquisitions and revision of the framework for merger application review may adversely affect the marketplace for such transactions, could result in future applications being delayed, impeded or restricted in certain respects.
Should we consummate an acquisition, we can provide no assurance the transaction will be approved. Specifically, any enhanced regulatory scrutiny of bank mergers and acquisitions and revision of the framework for merger application review may adversely affect the marketplace for such transactions, could result in future applications being delayed, impeded or restricted in certain respects.
Price-wage inflation may cause us to give higher than normal raises to employees and start new employees at a higher wage. Furthermore, our clients are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us.
Furthermore, our clients are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us.
These higher credit risks are further heightened when the loans are concentrated in a small number of larger borrowers leading to relationship exposure. As of December 31, 2022, we had 34 relationships with over $10 million of outstanding borrowings with us.
These types of loans also involve larger loan balances to a single borrower or groups of related borrowers. These higher credit risks are further heightened when the loans are concentrated in a small number of larger borrowers leading to relationship exposure. As of December 31, 2023, we had 27 relationships with over $10 million of outstanding borrowings with us.
The occurrence of any cyber-attack or information security breach could result in potential liability to customers, reputational damage and the disruption of our operations, and regulatory concerns, all of which could adversely affect our business, financial condition or results of operations. 41 Table of Contents The requirements of being a public company may strain our resources and divert management’s attention.
The occurrence of any cyber-attack or information security breach could result in potential liability to customers, reputational damage and the disruption of our operations, and regulatory concerns, all of which could adversely affect our business, financial condition or results of operations.
However, reputation risk, or the risk to our business, earnings and capital from negative public opinion surrounding our Company and the financial institutions industry generally, is inherent in our business.
Furthermore, maintaining our reputation also depends on our ability to protect our brand name and associated trademarks. However, reputation risk, or the risk to our business, earnings and capital from negative public opinion surrounding our Company and the financial institutions industry generally, is inherent in our business.
In some cases, we could be required to apply a new or revised standard retrospectively, or apply an existing standard differently, also retrospectively, in each case resulting in our needing to revise or restate prior period financial statements.
In some cases, we could be required to apply a new or revised standard retrospectively, or apply an existing standard differently, also retrospectively, in each case resulting in our needing to revise or restate prior period financial statements. Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact our business.
Our board of directors may determine from time to time that we need to raise additional capital by issuing additional shares of our common stock or other securities.
We may issue additional equity securities, or engage in other transactions, which could affect the priority of our common stock, which may adversely affect the market price of our common stock. Our board of directors may determine from time to time that we need to raise additional capital by issuing additional shares of our common stock or other securities.
Though we have employment agreements in place with certain members of our management team they may still elect to leave at any time.
We cannot ensure that we will be able to retain the services of any members of our management team or other key employees. Though we have employment agreements in place with certain members of our management team they may still elect to leave at any time.
During 2022, the United States experienced the highest level of inflation since the 1980s. In response, the Federal Reserve increased the federal funds target rate seven times in 2022 to 4.25% to 4.50% at December 31, 2022 compared to 0% to 0.25% at the beginning of the year. As a result, market interest rates increased during the year.
Inflation can have an adverse impact on our business and on our customers. During 2023, the United States experienced the highest level of inflation since the 1980s. In response, the Federal Reserve increased the federal funds target rate four times in 2023 to 5.25% to 5.50% at December 31, 2023. As a result, market interest rates increased during the year.
Since inception, we have focused on organic growth to achieve our past levels of revenue growth. We may not be able to sustain our historical rate of growth or may not be able to grow at all. Various factors, such as economic conditions, regulatory and other governmental concerns, and competition, may impede our business development efforts.
We may not be able to sustain our historical rate of growth or may not be able to grow at all. Various factors, such as economic conditions, regulatory and other governmental concerns, and competition, may impede our business development efforts. Further, we may be unable to attract and retain experienced bankers, which could adversely affect our organic growth.
The market price for our common stock has fluctuated, ranging between $29.65 and $19.09 per share during the 12 months ended December 31, 2022. The overall market and the price of our common stock may experience volatility.
Moreover, the overall market and the price of our common stock may experience volatility due to this lack of liquidity. The market price for our common stock has fluctuated significantly, ranging between $27.70 and $15.65 per share during the 12 months ended December 31, 2023.
This is done, in part, by recruiting, hiring and retaining bankers and other associates who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers and associates. Furthermore, maintaining our reputation also depends on our ability to protect our brand name and associated trademarks.
As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining bankers and other associates who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers and associates.
The federal banking agencies have issued guidance regarding concentrations in commercial real estate lending for institutions that are deemed to have particularly high concentrations of commercial real estate loans within their lending portfolios.
Regulatory requirements affecting our loans secured by commercial real estate could limit our ability to leverage our capital and adversely affect our growth and profitability. The federal banking agencies have issued guidance regarding concentrations in commercial real estate lending for institutions that are deemed to have particularly high concentrations of commercial real estate loans within their lending portfolios.
Our risk management framework may not be effective in mitigating risks and/or losses to us. Our risk management framework is comprised of various processes, systems and strategies, and is designed to manage the types of risk to which we are subject, including, among others, credit, market, liquidity, interest rate and compliance.
Our risk management framework is comprised of various processes, systems and strategies, and is designed to manage the types of risk to which we are subject, including, among others, credit, market, liquidity, interest rate and compliance. Our framework also includes financial or other modeling methodologies that involve management assumptions and judgment.
Secondarily, because of the complexity inherent in these approaches, misunderstanding or misuse of their outputs could similarly result in suboptimal decision making, which could have an adverse effect on our business, financial condition and results of operations. The fair value of our investment securities can fluctuate due to factors outside of our control.
Secondarily, because of the complexity inherent in these approaches, misunderstanding or misuse of their outputs could similarly result in suboptimal decision making, which could have an adverse effect on our business, financial condition and results of operations. We are exposed to risk of environmental liabilities with respect to properties to which we obtain title.
These provisions may discourage potential acquisition proposals and could delay or prevent a change in control, including under circumstances in which our shareholders might otherwise receive a premium over the market price of our shares. 39 Table of Contents An investment in our common stock is not an insured deposit and is not guaranteed by the FDIC, so you could lose some or all of your investment.
These provisions may discourage potential acquisition proposals and could delay or prevent a change in control, including under circumstances in which our shareholders might otherwise receive a premium over the market price of our shares.
Our failure to correctly and timely assess any impairments or losses with respect to our securities could have an adverse effect on our business, financial condition or results of operations. 33 Table of Contents Risks Related to our Regulatory Environment Our industry is highly regulated, and the regulatory framework, together with any future legislative or regulatory changes, may have a materially adverse effect on our operations.
Risks Related to our Regulatory Environment Our industry is highly regulated, and the regulatory framework, together with any future legislative or regulatory changes, may have a materially adverse effect on our operations.
Further, we may be unable to attract and retain experienced bankers, which could adversely affect our organic growth. If we are not able to continue our historical levels of growth, we may not be able to maintain our historical revenue trends. In addition, the Company periodically evaluates acquisition opportunities as an additional means to achieve growth.
If we are not able to continue our historical levels of growth, we may not be able to maintain our historical revenue trends. In addition, the Company periodically evaluates acquisition opportunities as an additional means to achieve growth. While we have not made any acquisitions to date, we may do so in the future.
As a result, if you acquire our common stock, you could lose some or all of your investment. We currently have no plans to pay recurring cash dividends.
As a result, if you acquire our common stock, you could lose some or all of your investment. We currently intend to pay dividends on our common stock; however, our future ability to pay dividends is subject to restrictions. There are a number of restrictions on our ability to pay dividends.
These factors include, but are not limited to, rating agency actions in respect of the securities, defaults by the issuer or with respect to the underlying securities, and changes in market interest rates and instability in the capital markets.
Other factors beyond our control including, but are not limited to, rating agency actions in respect of the securities, defaults by the issuer or with respect to the underlying securities, and instability in the capital markets can also significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities.
Such changes may result in us being subject to new or changing accounting and reporting standards. In addition, the bodies that interpret the accounting standards (such as banking regulators or outside auditors) may change their interpretations or positions on how these standards should be applied.
In addition, the bodies that interpret the accounting standards (such as banking regulators or outside auditors) may change their interpretations or positions on how these standards should be applied. These changes may be beyond our control, can be hard to predict and can materially impact how we record and report our financial condition and results of operations.
Risks Related to Our Operations We are subject to certain operational risks, including, but not limited to, customer or employee fraud and data processing system failures and errors. Employee errors and employee and customer misconduct could subject us to financial losses or regulatory sanctions and seriously harm our reputation.
The effects of such policies upon our business, financial condition and results of operations cannot be predicted. Risks Related to Our Operations We are subject to certain operational risks, including, but not limited to, customer or employee fraud and data processing system failures and errors.
Misconduct by our employees could include hiding unauthorized activities from us, improper or unauthorized activities on behalf of our customers or improper use of confidential information. It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases.
It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. Employee errors could also subject us to financial claims for negligence.
Failure to attract and retain a qualified management team and qualified key employees could have an adverse effect on our business, financial condition and results of operations. We follow a relationship-based operating model and our ability to maintain our reputation is critical to the success of our business and the failure to do so may materially adversely affect our performance.
We follow a relationship-based operating model and our ability to maintain our reputation is critical to the success of our business and the failure to do so may materially adversely affect our performance. We are a community bank, and our reputation is one of the most valuable components of our business.
Our management team and other key employees, including those who conduct our loan origination and other business development activities, have significant industry experience. We cannot ensure that we will be able to retain the services of any members of our management team or other key employees.
We are dependent on our management team and key employees. We believe that our continued growth and future success will depend on the retention of our management team and key employees. Our management team and other key employees, including those who conduct our loan origination and other 40 Table of Contents business development activities, have significant industry experience.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeE, Ste. 150 Reston, VA 20190 ​ 2011 Alexandria Branch 640 Franklin St., Suites 120 and 230 Alexandria, VA 22314 ​ 2013 Arlington Branch 2300 Wilson Blvd., Ste. 120 Arlington, VA 22201 ​ 2014 Arlington Loan Production Office 2300 Wilson Blvd., Ste. 200 Arlington, VA 22201 ​ 2022 Washington, D.C.
Biggest changeE, Suites 100, 125, 200, and 220 Reston, VA 20190 ​ 2011 1 Other Properties: ​ Reston Branch 1943 Isaac Newton Sq. E, Ste. 150 Reston, VA 20190 ​ 2011 Alexandria Branch 640 Franklin St., Suites 120 and 230 Alexandria, VA 22314 ​ 2013 Arlington Branch 2300 Wilson Blvd., Ste. 120 Arlington, VA 22201 ​ 2014 Washington, D.C.
Item 2. Properties The Company is headquartered in Reston, Virginia and conducts business through its headquarters office, eight full-service bank branches and one loan production office. The following table sets forth information regarding our offices, which are all leased. Location Year Leased Headquarters: ​ 1943 Isaac Newton Sq.
Item 2. Properties The Company is headquartered in Reston, Virginia and conducts business through its headquarters office and eight full-service bank branches. The following table sets forth information regarding our offices, which are all leased. Location Year Leased Headquarters: ​ 1943 Isaac Newton Sq.
Branch 1401 H St., NW, Ste. 702 Washington, DC 20005 ​ 2017 Loudoun Branch 842 South King St. Leesburg, VA 20175 ​ 2008 Prince William Branch 12701 Marblestone Dr., Ste. 150 Woodbridge, VA 22192 ​ 2021 Rockville Branch 11 N.
Branch 1625 K St., NW, Ste. 1050 Washington, DC 20006 ​ 2023 Loudoun Branch 842 South King St. Leesburg, VA 20175 ​ 2008 Prince William Branch 12701 Marblestone Dr., Ste. 150 Woodbridge, VA 22192 ​ 2021 Rockville Branch 11 N.
Removed
E, Suites 100, 125, 200, and 220 Reston, VA 20190 ​ 2011 1 Other Properties: ​ Reston Branch 1943 Isaac Newton Sq.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeAlthough the ultimate outcome of legal proceedings cannot be ascertained at this time, it is the opinion of management that the liabilities (if any) resulting from such legal proceedings will not have an adverse effect on the Company’s business, including its consolidated financial position, results of operations, or cash flows. 44 Table of Contents Item 4.
Biggest changeAlthough the ultimate outcome of legal proceedings cannot be ascertained at this time, it is the opinion of management that the liabilities (if any) resulting from such legal proceedings will not have an adverse effect on the Company’s business, including its consolidated financial position, results of operations, or cash flows. 43 Table of Contents Item 4.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDividends On March 16, 2022, the Company declared a one-time, special cash dividend of $0.20 per outstanding share of common stock paid on May 24, 2022 to shareholders of record as of May 10, 2022.
Biggest changeDividends On April 24, 2023, the Company declared an annual cash dividend of $0.22 per outstanding share of common stock paid on July 6, 2023 to shareholders of record as of June 27, 2023.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information and Holders of Record Our common stock is currently listed on the Nasdaq Capital Market under the symbol "JMSB." As of March 16, 2023, there were 560 holders of record of our common stock and approximately 2,053 total beneficial shareholders.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information and Holders of Record Our common stock is currently listed on the Nasdaq Capital Market under the symbol "JMSB." As of March 7, 2024, there were 515 holders of record of our common stock and approximately 1,993 total beneficial shareholders.
Removed
While we have sufficient retained earnings and expect our future earnings to be sufficient to pay cash dividends, our board of directors currently intends to retain sufficient earnings for the purpose of capitalizing future growth.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table presents the annual average balance for each principal balance sheet category, and the amount of interest income or expense associated with that category, as well as corresponding average yields earned and rates paid for the years ended December 31, 2022 and 2021. ​ ​ ​ ​ ​ ​ ​ ​ 50 Table of Contents Average Balance Sheets and Interest Rates on Interest-Earning Assets and Interest-Bearing Liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ December 31, 2021 ​ ​ ​ Interest Income / Average ​ ​ Interest Income / Average (Dollars in thousands) ​ Average Balance ​ Expense ​ Rate ​ Average Balance ​ Expense ​ Rate Assets: ​ ​ ​ ​ ​ Securities: ​ ​ ​ ​ ​ Taxable ​ $ 440,899 $ 8,183 1.86 % $ 275,071 $ 4,409 1.60 % Tax-exempt (1) ​ 5,001 ​ 152 3.04 % 5,007 ​ 152 3.04 % Total securities ​ $ 445,900 ​ $ 8,335 1.87 % $ 280,078 ​ $ 4,561 1.63 % Loans, net of unearned income (2) : ​ ​ ​ ​ ​ ​ Taxable ​ 1,652,940 ​ 73,497 4.45 % 1,577,418 ​ 68,685 4.35 % Tax-exempt (1) ​ 24,211 ​ 993 4.10 % 19,631 ​ 924 4.71 % Total loans, net of unearned income ​ $ 1,677,151 ​ $ 74,490 4.44 % $ 1,597,049 ​ $ 69,609 4.36 % Interest-bearing deposits in other banks ​ $ 116,092 ​ $ 1,482 1.28 % $ 135,360 ​ $ 175 0.13 % Total interest-earning assets ​ $ 2,239,143 ​ $ 84,307 3.77 % $ 2,012,487 ​ $ 74,345 3.69 % Total non-interest earning assets ​ 36,624 ​ ​ ​ ​ 31,132 ​ ​ Total assets ​ $ 2,275,767 ​ ​ ​ ​ $ 2,043,619 ​ ​ Liabilities & Shareholders’ Equity: ​ ​ ​ ​ ​ Interest-bearing deposits ​ ​ ​ ​ ​ NOW accounts ​ $ 311,950 ​ $ 1,359 0.44 % $ 262,319 ​ $ 798 0.30 % Money market accounts ​ 395,369 ​ 3,340 0.84 % 337,993 ​ ​ 1,256 0.37 % Savings accounts ​ 108,178 ​ 504 0.47 % 83,032 ​ ​ 300 0.36 % Time deposits ​ 682,674 ​ 6,575 0.96 % 657,986 ​ ​ 4,245 0.65 % Total interest-bearing deposits ​ $ 1,498,171 ​ $ 11,778 0.79 % $ 1,341,330 ​ $ 6,599 0.49 % Federal funds purchased ​ ​ 386 ​ ​ 15 ​ 3.89 % ​ — ​ ​ — ​ — ​ Subordinated debt ​ 26,754 ​ 1,810 6.77 % 24,702 ​ 1,487 6.02 % Other borrowed funds ​ 6,175 ​ 42 0.68 % 18,375 ​ 125 0.68 % Total interest-bearing liabilities ​ $ 1,531,486 ​ $ 13,645 0.89 % $ 1,384,407 ​ $ 8,211 0.59 % Demand deposits ​ 518,284 ​ ​ ​ ​ 448,723 ​ ​ Other liabilities ​ 16,518 ​ ​ ​ ​ 13,146 ​ ​ Total liabilities ​ $ 2,066,288 ​ ​ ​ ​ $ 1,846,276 ​ ​ Shareholders’ equity ​ $ 209,479 ​ ​ ​ ​ $ 197,343 ​ ​ Total liabilities and shareholders’ equity ​ $ 2,275,767 ​ ​ ​ ​ $ 2,043,619 ​ ​ Net interest spread ​ ​ ​ ​ ​ ​ ​ 2.88 % ​ 3.10 % Net interest income and margin ​ ​ ​ ​ $ 70,662 ​ 3.16 % ​ ​ ​ $ 66,134 ​ 3.29 % (1) Income and yields for all periods presented are reported on a tax-equivalent basis using the federal statutory tax rate of 21%.
Biggest changeManagement expects net interest income and net interest margin to fluctuate based on changes in interest rates and changes in the amount and composition of the Company’s interest-earning assets and interest-bearing liabilities. 48 Table of Contents The following table presents the average balance for each principal balance sheet category, and the amount of interest income or expense associated with that category, as well as corresponding average yields earned and rates paid for the years ended December 31, 2023 and 2022. ​ Average Balance Sheets and Interest Rates on Interest-Earning Assets and Interest-Bearing Liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ December 31, 2022 ​ ​ ​ Interest Income / Average ​ ​ Interest Income / Average (Dollars in thousands) ​ Average Balance ​ Expense ​ Rate ​ Average Balance ​ Expense ​ Rate Assets: ​ ​ ​ ​ ​ Securities: ​ ​ ​ ​ ​ Taxable ​ $ 368,922 $ 7,506 2.03 % $ 440,899 $ 8,183 1.86 % Tax-exempt (1) ​ 2,351 ​ 68 2.89 % 5,001 ​ 152 3.04 % Total securities ​ $ 371,273 ​ $ 7,574 2.04 % $ 445,900 ​ $ 8,335 1.87 % Loans, net of unearned income (2) : ​ ​ ​ ​ ​ Taxable ​ 1,764,315 ​ 85,515 4.85 % 1,652,940 ​ 73,497 4.45 % Tax-exempt (1) ​ 28,190 ​ 1,164 4.13 % 24,211 ​ 993 4.10 % Total loans, net of unearned income ​ $ 1,792,505 ​ $ 86,679 4.84 % $ 1,677,151 ​ $ 74,490 4.44 % Interest-bearing deposits in other banks ​ $ 126,623 ​ $ 6,776 5.35 % $ 116,092 ​ $ 1,482 1.28 % Total interest-earning assets ​ $ 2,290,401 ​ $ 101,029 4.41 % $ 2,239,143 ​ $ 84,307 3.77 % Total non-interest earning assets ​ 32,430 ​ ​ ​ ​ 36,624 ​ ​ ​ ​ Total assets ​ $ 2,322,831 ​ ​ ​ ​ $ 2,275,767 ​ ​ ​ ​ Liabilities & Shareholders’ Equity: ​ ​ ​ ​ ​ Interest-bearing deposits: ​ ​ ​ ​ ​ NOW accounts ​ $ 299,468 ​ $ 6,804 2.27 % $ 311,950 ​ $ 1,359 0.44 % Money market accounts ​ 362,243 ​ 10,150 2.80 % 395,369 ​ 3,340 0.84 % Savings accounts ​ 69,742 ​ 831 1.19 % 108,178 ​ 504 0.47 % Time deposits ​ 842,121 ​ 29,383 3.49 % 682,674 ​ 6,575 0.96 % Total interest-bearing deposits ​ $ 1,573,574 ​ $ 47,168 3.00 % $ 1,498,171 ​ $ 11,778 0.79 % Federal funds purchased ​ ​ 302 ​ ​ 15 ​ 4.97 % ​ 386 ​ ​ 15 ​ 3.89 % Subordinated debt, net ​ 24,664 ​ 1,396 5.66 % 26,754 ​ 1,810 6.77 % Federal Reserve Bank borrowings ​ 35,663 ​ 1,707 4.79 % 6,175 ​ 42 0.68 % Total interest-bearing liabilities ​ $ 1,634,203 ​ $ 50,286 3.08 % $ 1,531,486 ​ $ 13,645 0.89 % Demand deposits ​ 447,804 ​ ​ ​ ​ 518,284 ​ ​ ​ ​ Other liabilities ​ 18,791 ​ ​ ​ ​ 16,518 ​ ​ ​ ​ Total liabilities ​ $ 2,100,798 ​ ​ ​ ​ $ 2,066,288 ​ ​ ​ ​ Shareholders’ equity ​ $ 222,033 ​ ​ ​ ​ $ 209,479 ​ ​ ​ ​ Total liabilities and shareholders’ equity ​ $ 2,322,831 ​ ​ ​ ​ $ 2,275,767 ​ ​ ​ ​ Net interest spread ​ ​ ​ ​ ​ ​ ​ 1.33 % ​ ​ ​ ​ ​ 2.88 % Net interest income and margin (Non-GAAP) ​ ​ ​ ​ $ 50,743 ​ 2.22 % ​ ​ ​ $ 70,662 ​ 3.16 % (1) Income and yields for all periods presented are reported on a tax-equivalent basis using the federal statutory tax rate of 21%.
(2) The allowance coverage ratio is calculated by dividing the allowance for loan losses at the end of the period by gross loans, net of unearned income at the end of the period.
(2) The allowance coverage ratio is calculated by dividing the allowance for loan credit losses at the end of the period by gross loans, net of unearned income at the end of the period.
The following table summarizes the Company’s asset quality as of December 31, 2022 and December 31, 2021. ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) December 31, 2022 December 31, 2021 Nonaccrual loans ​ $ — ​ $ — ​ Loans past due 90 days and accruing interest ​ — ​ — ​ Other real estate owned and repossessed assets ​ — ​ — ​ Total nonperforming assets ​ $ — ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for loan losses to nonperforming assets ​ NM ​ NM ​ Nonaccrual loans to gross loans ​ 0.00 % 0.00 % Nonperforming assets to period end loans and OREO ​ 0.00 % 0.00 % NM – Not meaningful Allowance for Loan Losses Refer to the discussion in the “Critical Accounting Policies and Estimates” section above for management’s approach to estimating the allowance for loan losses.
The following table summarizes the Company’s asset quality as of December 31, 2023 and December 31, 2022. ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) December 31, 2023 December 31, 2022 Nonaccrual loans ​ $ — ​ $ — ​ Loans past due 90 days and accruing interest ​ — ​ — ​ Other real estate owned and repossessed assets ​ — ​ — ​ Total nonperforming assets ​ $ — ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for loan credit losses to nonperforming assets ​ NM ​ NM ​ Nonaccrual loans to gross loans ​ 0.00 % 0.00 % Nonperforming assets to period end loans and OREO ​ 0.00 % 0.00 % NM – Not meaningful Allowance for Loan Credit Losses Refer to the discussion in the “Critical Accounting Policies and Estimates” section above for management’s approach to estimating the allowance for loan credit losses.
The Company did not have any nonperforming assets, which includes nonperforming loans and OREO, as of December 31, 2022 or December 31, 2021. As a result, the Company did not have any nonperforming loans, which consists of loans that are 90 days or more past due or loans placed on nonaccrual as of December 31, 2022 or December 31, 2021.
The Company did not have any nonperforming assets, which includes nonperforming loans and OREO, as of December 31, 2023 or December 31, 2022. As a result, the Company did not have any nonperforming loans, which consists of loans that are 90 days or more past due or loans placed on nonaccrual as of December 31, 2023 or December 31, 2022.
Changes in the economic assumptions underlying management’s estimates and judgments; adverse developments in the economy, on a national basis or in the Company’s market area; or changes in the circumstances of particular borrowers are criteria that could change and make adjustments to the provision for loan losses necessary.
Changes in the economic assumptions underlying management’s estimates and judgments; adverse developments in the economy, on a national basis or in the Company’s market area; or changes in the circumstances of particular borrowers are criteria that could change and make adjustments to the provision for (recovery of) credit losses necessary.
The Company did not have any nonaccrual loans as of December 31, 2022 or December 31, 2021 nor were there any loans placed on nonaccrual during those periods.
The Company did not have any nonaccrual loans as of December 31, 2023 or December 31, 2022 nor were there any loans placed on nonaccrual during those periods.
The Chief Credit Officer is responsible for establishing credit risk policies and procedures, including underwriting and hold guidelines and credit approval authority, and monitoring credit exposure and performance of the Company’s lending-related transactions. 58 Table of Contents The Company’s asset quality remained strong during the year ended December 31, 2022.
The Chief Credit Officer is responsible for establishing credit risk policies and procedures, including underwriting and hold guidelines and credit approval authority, and monitoring credit exposure and performance of the Company’s lending-related transactions. 56 Table of Contents The Company’s asset quality remained strong during the year ended December 31, 2023.
(2) The Company did not have any loans on non-accrual as of December 31, 2022 or December 31, 2021. ​ Net interest margin as presented above is calculated by dividing tax-equivalent net interest income by total average earning assets.
(2) The Company did not have any loans on non-accrual as of December 31, 2023 or December 31, 2022. 49 Table of Contents ​ Net interest margin as presented above is calculated by dividing tax-equivalent net interest income by total average earning assets.
The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column 52 Table of Contents represents the sum of the prior columns.
The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns.
The following table summarizes the Company’s loan loss experience by loan portfolio for the years ended December 31, 2022 and December 31, 2021. 59 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ December 31, 2021 ​ ​ Net ​ Net ​ Net ​ Net ​ ​ (charge-offs) ​ (charge-off) ​ (charge-offs) ​ (charge-off) (Dollars in thousands) recoveries recovery rate (1) recoveries recovery rate (1) Real estate loans: ​ ​ ​ ​ Commercial ​ $ (1) ​ (0.00) % $ (90) (0.01) % Construction and land development ​ — ​ — ​ — — ​ Residential ​ — ​ — ​ — — ​ Commercial loans ​ 2 ​ 0.00 % — — ​ Consumer loans ​ — ​ — ​ — — ​ Total ​ $ 1 ​ ​ ​ ​ $ (90) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average loans outstanding during the period ​ $ 1,677,151 ​ ​ ​ ​ $ 1,597,049 ​ Allowance coverage ratio (2) ​ ​ ​ 1.13 % 1.20 % Total net (charge-off) recovery rate (1) ​ ​ ​ 0.00 % (0.01) % Allowance to nonaccrual loans ratio (3) ​ ​ ​ NM ​ NM ​ NM – Not meaningful (1) The net (charge-off) recovery rate is calculated by dividing total net (charge-offs) recoveries during the period by average gross loans outstanding during the period.
The following table summarizes the Company’s loan credit loss experience by loan portfolio for the years ended December 31, 2023 and December 31, 2022. 57 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ December 31, 2022 ​ ​ Net ​ Net ​ Net ​ Net ​ ​ (charge-offs) ​ (charge-off) ​ (charge-offs) ​ (charge-off) (Dollars in thousands) recoveries recovery rate (1) recoveries recovery rate (1) Real estate loans: ​ ​ ​ ​ Commercial ​ $ — ​ — ​ $ (1) (0.00) % Construction and land development ​ — ​ — ​ — — ​ Residential ​ — ​ — ​ — — ​ Commercial loans ​ 2 ​ 0.01 % 2 0.00 % Consumer loans ​ — ​ — ​ — — ​ Total ​ $ 2 ​ ​ ​ ​ $ 1 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average loans outstanding during the period ​ $ 1,792,505 ​ ​ ​ ​ $ 1,677,151 ​ Allowance coverage ratio (2) ​ ​ ​ 1.05 % 1.13 % Total net (charge-off) recovery rate ​ ​ ​ 0.00 % (0.00) % Allowance to nonaccrual loans ratio (3) ​ ​ ​ NM ​ NM ​ NM – Not meaningful (1) The net (charge-off) recovery rate is calculated by dividing total net (charge-offs) recoveries during the period by average gross loans outstanding during the period.
There can be no assurance, however, that adjustments to the provision for loan losses will not be required in the future.
There can be no assurance, however, that adjustments to the provision for (recovery of) credit losses will not be required in the future.
Interest-bearing demand deposits represented 76.9% and 74.0% of total deposits at December 31, 2022 and December 31, 2021, respectively. The Company focuses on funding asset growth with deposit accounts, with an emphasis on core deposit growth, as its primary source of deposits.
Interest-bearing deposits represented 78.4% and 76.9% of total deposits at December 31, 2023 and December 31, 2022, respectively. The Company focuses on funding asset growth with deposit accounts, with an emphasis on core deposit growth, as its primary source of deposits.
(2) The Company did not have any loans on non-accrual as of December 31, 2022 or December 31, 2021. ​ Interest Income Interest income increased by $10.0 million or 13.4% to $84.3 million on a fully tax-equivalent basis for the year ended December 31, 2022 compared to $74.3 million for the year ended December 31, 2021, driven by both an increase in volume and rates on interest-earning assets.
(2) The Company did not have any loans on non-accrual as of December 31, 2023 or December 31, 2022. ​ Interest Income Interest income increased by $16.7 million or 19.8% to $101.0 million on a fully tax-equivalent basis for the year ended December 31, 2023 compared to $84.3 million for the year ended December 31, 2022, driven by both an increase in rates and volume on interest-earning assets.
Investment Securities The Company maintains a primarily fixed income investment securities portfolio that had a total carrying value of $457.0 million at December 31, 2022 and $344.8 million at December 31, 2021.
Investment Securities The Company maintains a primarily fixed income investment securities portfolio that had a total carrying value of $265.5 million at December 31, 2023 and $457.0 million at December 31, 2022.
Management conducts liquidity stress testing on a quarterly basis to prepare for unexpected adverse scenarios and contemporaneously develops mitigating strategies to reduce losses in the event of an economic downturn. The Company’s principal source of liquidity and funding is its deposit base.
Monitoring and managing both liquidity measurements is critical in developing prudent and effective balance sheet management. Management conducts liquidity stress testing on a quarterly basis to prepare for unexpected adverse scenarios and contemporaneously develops mitigating strategies to reduce losses in the event of an economic downturn. The Company’s principal source of liquidity and funding is its deposit base.
Note 16 to the Consolidated Financial Statements, included in Item 8 of this Form 10-K, contains additional discussion and analysis regarding the Company and Bank’s regulatory capital requirements. Shareholders’ equity increased $4.3 million or 2.1% to $212.8 million at December 31, 2022 compared to $208.5 million at December 31, 2021.
Note 16 to the Consolidated Financial Statements, included in Item 8 of this Form 10-K, contains additional discussion and analysis regarding the Company and Bank’s regulatory capital requirements. Shareholders’ equity increased $17.1 million or 8.0% to $229.9 million at December 31, 2023 compared to $212.8 million at December 31, 2022.
The increase of 1.15% was primarily due to an increase in the federal funds rate during the year ended December 31, 2022 when compared to the federal funds rate during the year ended December 31, 2021. The following table presents the effects of changing rates and volumes on net interest income for the periods indicated.
The increase was primarily due to higher federal funds rate during the year ended December 31, 2023 when compared to same period in 2022. 50 Table of Contents The following table presents the effects of changing rates and volumes on net interest income for the periods indicated.
Non-interest expense also includes operational expenses, such as occupancy and equipment expenses, data processing expenses, professional fees, advertising expenses and other general and administrative expenses, including FDIC assessments, and Virginia state franchise taxes.
The largest component of non-interest expense is salaries and employee benefits. Non-interest expense also includes operational expenses, such as occupancy and equipment expenses, data processing expenses, professional fees, advertising expenses and other general and administrative expenses, including FDIC assessments, and Virginia state franchise taxes.
The yield on interest-bearing deposits due from banks for the year ended December 31, 2022 was 1.28% compared to 0.13% for the year ended December 31, 2021.
The yield on interest-bearing deposits due from banks for the year ended December 31, 2023 was 5.35% compared to 1.28% for the year ended December 31, 2022.
The Company also had restricted stock and equity securities within its investment securities portfolio with total carrying values of $4.4 million and $2.1 million, respectively, as of December 31, 2022 and $5.0 million and $1.9 million, respectively, as of December 31, 2021.
The Company also had restricted stock and equity securities within its investment securities portfolio with total carrying values of $5.0 million and $2.8 million, respectively, as of December 31, 2023 and $4.4 million and $2.1 million, respectively, as of December 31, 2022. The Company did not purchase investment securities during the year ended December 31, 2023.
The increase in rates was primarily a result of the repricing of the Company’s time deposits coupled with an increase in rates offered on NOW and money market deposit accounts during the year ended December 31, 2022.
The increase in rates was primarily a result of the repricing of the Company’s time deposits coupled with an increase in rates offered on deposit accounts during the year ended December 31, 2023 as a result of an increase in benchmark interest rates.
Investment securities that we may sell prior to maturity in response to changes in management’s investment strategy, liquidity needs, interest rate risk profile or for other reasons are classified as available-for-sale.
Investment securities are classified as available-for-sale or held-to-maturity based on management’s investment strategy and management’s assessment of the intent and ability to hold the securities until maturity. Investment securities that we may sell prior to maturity in response to changes in management’s investment strategy, liquidity needs, interest rate risk profile or for other reasons are classified as available-for-sale.
For further information, see Note 11 to the Consolidated Financial Statements, included in Item 8 of this Form 10-K, for further discussion of the nature, business purpose and elements of risk involved with these off-balance sheet arrangements.
For further information, see Note 11 to the Consolidated Financial Statements, included in Item 8 of this Form 10-K, for further discussion of the nature, business purpose and elements of risk involved with these off-balance sheet arrangements. 61 Table of Contents Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not required for small reporting companies.
(3) The allowance to nonaccrual loans ratio is calculated by dividing the allowance for loan losses at the end of the period by nonaccrual loans at the end of the period. ​ The following table summarizes the allowance for loan losses by portfolio with a comparison of the percentage composition in relation to total allowance for loan losses and total loans as of December 31, 2022 and December 31, 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ Allowance ​ Percent of Allowance ​ Percent of Loans in ​ ​ for Loan ​ in Each Category to ​ Each Category to Total (Dollars in thousands) ​ Losses ​ Total Allocated Allowance ​ Loans Real Estate Loans: ​ ​ ​ Commercial ​ $ 13,205 67.48 % 62.62 % Construction and land development ​ 2,860 14.61 % 10.92 % Residential ​ 3,044 15.55 % 23.91 % Commercial - Non-Real Estate: ​ ​ Commercial loans ​ 456 2.33 % 2.52 % Consumer - Non-Real Estate: ​ ​ Consumer loans ​ 5 0.03 % 0.03 % Unallocated ​ 638 — — ​ Total ​ $ 20,208 100.00 % 100.00 % ​ 60 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ Allowance Percent of Allowance Percent of Loans in ​ ​ for Loan ​ in Each Category to ​ Each Category to Total (Dollars in thousands) ​ Losses ​ Total Allocated Allowance ​ Loans Real Estate Loans: ​ ​ Commercial ​ $ 13,091 67.48 % 58.15 % Construction and land development ​ 2,824 14.56 % 13.87 % Residential ​ 2,769 14.27 % 20.56 % Commercial - Non-Real Estate: ​ ​ Commercial loans ​ 711 3.66 % 7.38 % Consumer - Non-Real Estate: ​ ​ Consumer loans ​ 5 0.03 % 0.04 % Unallocated ​ 632 — — ​ Total ​ $ 20,032 100.00 % 100.00 % ​ Management believes that the allowance for loan losses is adequate to absorb credit losses inherent in the portfolio as of December 31, 2022.
(3) The allowance to nonaccrual loans ratio is calculated by dividing the allowance for loan credit losses at the end of the period by nonaccrual loans at the end of the period. ​ The following table summarizes the allowance for loan credit losses by portfolio with a comparison of the percentage composition in relation to total allowance for loan credit losses and total loans as of December 31, 2023 and December 31, 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ ​ Allowance ​ Percent of Allowance ​ Percent of Loans in ​ ​ for Loan Credit ​ in Each Category to ​ Each Category to Total (Dollars in thousands) ​ Losses ​ Total Allocated Allowance ​ Loans Real Estate Loans: ​ ​ ​ Commercial ​ $ 12,841 65.71 % 61.79 % Construction and land development ​ 1,787 9.14 % 9.75 % Residential ​ 4,323 22.12 % 25.99 % Commercial - Non-Real Estate: ​ ​ Commercial loans ​ 495 2.53 % 2.44 % Consumer - Non-Real Estate: ​ ​ Consumer loans ​ 97 0.50 % 0.03 % Total ​ $ 19,543 100.00 % 100.00 % ​ 58 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ Allowance Percent of Allowance Percent of Loans in ​ ​ for Loan ​ in Each Category to ​ Each Category to Total (Dollars in thousands) ​ Losses ​ Total Allocated Allowance ​ Loans Real Estate Loans: ​ ​ Commercial ​ $ 13,205 67.48 % 62.62 % Construction and land development ​ 2,860 14.61 % 10.92 % Residential ​ 3,044 15.55 % 23.91 % Commercial - Non-Real Estate: ​ ​ Commercial loans ​ 456 2.33 % 2.52 % Consumer - Non-Real Estate: ​ ​ Consumer loans ​ 5 0.03 % 0.03 % Unallocated ​ 638 — — ​ Total ​ $ 20,208 100.00 % 100.00 % ​ Management believes that the allowance for loan credit losses is adequate to absorb lifetime credit losses inherent in the portfolio as of December 31, 2023.
The following table summarizes the contractual maturities of the loans as of December 31, 2022 by loan type. Maturities are based on the final contractual payment date, and do not reflect the effect of scheduled principal repayments, prepayments, or early redemptions that may occur.
Maturities are based on the final contractual payment date, and do not reflect the effect of scheduled principal repayments, prepayments, or early redemptions that may occur.
The Company recorded a $175 thousand provision for loan losses for the year ended December 31, 2022, compared to a $3.1 million provision for the year ended December 31, 2021.
Provision Expense The Company recorded a $3.3 million recovery of provision for credit losses for the year ended December 31, 2023 compared to a $175 thousand provision for the year ended December 31, 2022.
Non-interest bearing demand deposits represented 23.1% and 26.0% of total deposits at December 31, 2022 and December 31, 2021, respectively. Interest-bearing deposits, which include NOW accounts, regular savings accounts, money market accounts, and time deposits, increased $198.3 million or 14.2% to $1.59 billion as of December 31, 2022 compared to $1.39 billion as of December 31, 2021.
Non-interest bearing demand deposits represented 21.6% and 23.1% of total deposits at December 31, 2023 and December 31, 2022, respectively. Interest-bearing deposits, which include NOW accounts, regular savings accounts, money market accounts, and time deposits, decreased $95.8 million or 6.0% to $1.50 billion as of December 31, 2023 compared to $1.59 billion as of December 31, 2022.
As a result, the Company did not have any interest income that would have been recognized on nonaccrual loans for the years ended December 31, 2022 or December 31, 2021.
As a result, the Company did not have any interest income that would have been recognized on nonaccrual loans for the years ended December 31, 2023 or December 31, 2022. The Company did not make any loan modifications to borrowers experiencing financial difficulty during the year ended December 31, 2023.
Interest Expense Interest expense increased by $5.4 million or 66.2% to $13.6 million for the year ended December 31, 2022 compared to $8.2 million for the year ended December 31, 2021, primarily due to an increase in rates and, to a lesser extent, volume of deposits.
Interest Expense Interest expense increased by $36.6 million to $50.3 million for the year ended December 31, 2023 compared to $13.6 million for the year ended December 31, 2022, primarily due to an increase in rates and, to a lesser extent, volume of deposits and other borrowed funds.
The Company had $59.9 million in maturities, calls and principal repayments on securities during 2022, which is comprised of $41.1 million of mortgage-backed securities, $12.0 million of collateralized mortgage obligation securities, $5.8 million of U.S. government and federal agency securities and $1.0 million in municipal securities. 56 Table of Contents The following table summarizes the amortized cost and fair value of the Company’s primarily fixed income investment portfolio as of December 31, 2022 and December 31, 2021, respectively. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 December 31, 2021 ​ ​ Amortized ​ Fair ​ Amortized ​ Fair (Dollars in thousands) Cost Value Cost Value Held-to-maturity ​ ​ ​ ​ U.S.
The Company had $39.3 million in maturities and principal repayments on securities during the year ended December 31, 2023, which was comprised of $34.1 million of mortgage-backed securities and $5.2 million of collateralized mortgage obligation securities. 54 Table of Contents The following table summarizes the amortized cost and fair value of the Company’s fixed income investment portfolio as of December 31, 2023 and December 31, 2022, respectively. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 December 31, 2022 ​ ​ Amortized ​ Fair ​ Amortized ​ Fair (Dollars in thousands) Cost Value Cost Value Held-to-maturity ​ ​ ​ ​ U.S.
Included in these amounts were $161.2 million and $118.1 million of public fund deposits that are collateralized by securities as of December 31, 2022 and December 31, 2021, respectively. Uninsured deposits and deposits not otherwise collateralized by securities represented 39% and 40% of total deposits, respectively, as of December 31, 2022 and December 31, 2021.
Included in these amounts were $168.7 million and $162.2 million of public fund deposits that are collateralized by securities as of December 31, 2023 and December 31, 2022, respectively. Deposits that were not insured or not collateralized by securities represented 33% and 39% of total deposits, respectively, as of December 31, 2023 and December 31, 2022.
The selected balance sheet data as of December 31, 2022 and 2021 and the selected income statement data for the years ended December 31, 2022 and 2021 have been derived from our audited consolidated financial statements included elsewhere in this Form 10-K and should be read in conjunction with the other information contained in this Form 10-K, including the information contained within this “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8 – Financial Statements and Supplementary Data.” ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands, except per share data) December 31, 2022 December 31, 2021 Balance Sheet Data: ​ ​ ​ ​ ​ ​ ​ Loans, net of unearned income ​ $ 1,789,508 ​ $ 1,666,469 ​ Allowance for loan losses ​ (20,208) ​ (20,032) ​ Total assets ​ 2,348,235 ​ 2,149,309 ​ Deposits ​ 2,067,740 ​ 1,881,553 ​ Shareholders’ equity ​ 212,800 ​ 208,470 ​ Asset Quality Data: ​ ​ ​ Net (charge-offs) recoveries to average total loans, net of unearned income (annualized) ​ 0.00 % (0.01) % Allowance for loan losses to nonperforming loans ​ NM ​ NM ​ Allowance for loan losses to total gross loans net of unearned income (1) ​ 1.13 % 1.20 % Non-performing assets to total assets ​ 0.00 % 0.00 % Non-performing loans to total loans ​ 0.00 % 0.00 % Capital Ratios (Bank level): ​ ​ ​ Total risk-based capital ratio ​ 15.6 % 15.3 % Tier 1 risk-based capital ratio ​ 14.4 % 14.0 % Leverage ratio ​ 11.3 % 11.0 % Common equity tier 1 ratio ​ 14.4 % 14.0 % Equity-to-total assets ratio ​ 10.0 % 10.8 % Income Statement Data: ​ ​ ​ Interest and dividend income ​ $ 84,066 ​ $ 74,119 ​ Interest expense ​ 13,645 ​ 8,211 ​ Net interest income ​ $ 70,421 ​ $ 65,908 ​ Provision for loan losses ​ 175 ​ 3,105 ​ Non-interest income ​ 1,691 ​ 1,719 ​ Non-interest expense ​ 31,874 ​ 32,262 ​ Income before taxes ​ $ 40,063 ​ $ 32,260 ​ Income tax expense ​ 8,260 ​ 6,799 ​ Net income ​ $ 31,803 ​ $ 25,461 ​ Shares Outstanding and Per Share Data: ​ ​ ​ Weighted average common shares (basic) ​ 13,931,841 ​ 13,581,586 ​ Weighted average common shares (diluted) ​ 14,084,427 ​ 13,879,595 ​ Common shares outstanding ​ 14,098,986 ​ 13,745,598 ​ Earnings per share, basic ​ $ 2.27 ​ $ 1.87 ​ Earnings per share, diluted ​ $ 2.25 ​ $ 1.83 ​ Book value ​ $ 15.09 ​ $ 15.17 ​ Performance Ratios: ​ ​ ​ Return on average assets ("ROAA") ​ 1.40 % 1.25 % Return on average equity ("ROAE") ​ 15.18 % 12.90 % Net interest margin (2) ​ 3.16 % 3.29 % Efficiency ratio ​ 44.2 % 47.7 % Non-interest expense to average assets ​ ​ 1.40 % ​ 1.58 % NM – Not meaningful 48 Table of Contents (1) Excluding PPP loan balances, the allowance for loan losses as a percentage of gross loans, net of unearned income was 1.13% and 1.25% at December 31, 2022 and December 31, 2021, respectively.
The selected balance sheet data as of December 31, 2023 and 2022 and the selected income statement data for the years ended December 31, 2023 and 2022 have been derived from our audited consolidated financial statements included elsewhere in this Form 10-K and should be read in conjunction with the other information contained in this Form 10-K, including the information contained within this “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8 – Financial Statements and Supplementary Data.” ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of or for the Years Ended ​ (Dollars in thousands, except per share data) December 31, 2023 December 31, 2022 Balance Sheet Data: ​ ​ ​ ​ ​ ​ ​ Loans, net of unearned income ​ $ 1,859,967 ​ $ 1,789,508 ​ Allowance for loan credit losses ​ 19,543 ​ 20,208 ​ Total assets ​ 2,242,549 ​ 2,348,235 ​ Deposits ​ 1,906,600 ​ 2,067,740 ​ Shareholders’ equity ​ 229,914 ​ 212,800 ​ Asset Quality Data: ​ ​ ​ Net (charge-offs) recoveries to average total loans, net of unearned income ​ 0.00 % 0.00 % Allowance for loan credit losses to nonperforming loans ​ NM ​ NM ​ Allowance for loan credit losses to total gross loans net of unearned income ​ 1.05 % 1.13 % Non-performing assets to total assets ​ 0.00 % 0.00 % Non-performing loans to total loans ​ 0.00 % 0.00 % Capital Ratios (Bank level): ​ ​ ​ Equity-to-total assets ratio ​ ​ 11.1 % ​ 10.0 % Total risk-based capital ratio ​ 15.7 % 15.6 % Tier 1 risk-based capital ratio ​ 14.7 % 14.4 % Common equity tier 1 ratio ​ ​ 14.7 % ​ 14.4 % Leverage ratio ​ 11.6 % 11.3 % Income Statement Data: ​ ​ ​ Interest and dividend income ​ $ 100,770 ​ $ 84,066 ​ Interest expense ​ 50,286 ​ 13,645 ​ Net interest income ​ $ 50,484 ​ $ 70,421 ​ Provision for (recovery of) credit losses ​ (3,252) ​ 175 ​ Non-interest income (loss) ​ (14,940) ​ 1,691 ​ Non-interest expense ​ 30,815 ​ 31,874 ​ Income before taxes ​ $ 7,981 ​ $ 40,063 ​ Income tax expense ​ 2,823 ​ 8,260 ​ Net income ​ $ 5,158 ​ $ 31,803 ​ Per Share Data and Shares Outstanding: ​ ​ ​ Weighted average common shares (basic) ​ 14,076,925 ​ 13,931,841 ​ Weighted average common shares (diluted) ​ 14,147,193 ​ 14,084,427 ​ Common shares outstanding ​ 14,148,533 ​ 14,098,986 ​ Earnings per share, basic ​ $ 0.37 ​ $ 2.27 ​ Earnings per share, diluted ​ $ 0.36 ​ $ 2.25 ​ Book value per share ​ $ 16.25 ​ $ 15.09 ​ Performance Ratios: ​ ​ ​ Return on average assets ("ROAA") (1) ​ 0.22 % 1.40 % Return on average equity ("ROAE") (2) ​ 2.32 % 15.18 % Net interest margin (3) ​ 2.22 % 3.16 % Non-interest expense to average assets (4) ​ ​ 1.33 % ​ 1.40 % Efficiency ratio (5) ​ 86.7 % 44.2 % 47 Table of Contents NM – Not meaningful (1) ROAA is calculated by dividing net income by year-to-date average assets.
The Company’s available-for-sale investment portfolio had an estimated weighted average remaining life of approximately 3.8 years and 4.1 years in the prevailing rate environments as of December 31, 2022 and December 31, 2021, respectively. The following table summarizes the maturity composition of our investment securities as of December 31, 2022, including the weighted average yield of each maturity band.
The held-to-maturity investment portfolio had an estimated weighted average remaining life of approximately 6.7 years and 7.3 years as of December 31, 2023 and December 31, 2022, respectively. The following table summarizes the maturity composition of our investment securities as of December 31, 2023, including the weighted average yield of each maturity band.
Our effective tax rate for the year ended December 31, 2022 was 20.6%, compared to 21.1% for the same period ended December 31, 2021.
Excluding the impact of the Restructuring, the effective tax rate for the year ended December 31, 2023 was 21.2% compared to 20.6% for the same period in 2022.
The following table summarizes non-interest expense for the years ended December 31, 2022 and December 31, 2021. ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) 2022 2021 Salaries and employee benefits expense ​ $ 20,190 ​ $ 20,411 Occupancy expense of premises ​ 1,893 ​ 1,985 Furniture and equipment expenses ​ 1,325 ​ 1,436 Advertising expense ​ 193 ​ 395 Data processing ​ 1,940 ​ 1,471 FDIC insurance ​ 605 ​ 887 Professional fees ​ 1,231 ​ 1,418 State franchise tax ​ 2,092 ​ 1,849 Bank insurance ​ 204 ​ 176 Vendor services ​ 594 ​ 574 Supplies, printing, and postage ​ 133 ​ 181 Director costs ​ 810 ​ 797 Other operating expenses ​ 664 ​ 682 Total non-interest expense ​ $ 31,874 ​ $ 32,262 ​ Non-interest expense decreased $388 thousand or 1.2% during the year ended December 31, 2022 compared to the year ended December 31, 2021.
The following table summarizes non-interest expense for the years ended December 31, 2023 and December 31, 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ December 31, (Dollars in thousands) 2023 2022 Salaries and employee benefits expense ​ $ 19,436 ​ $ 20,190 Occupancy expense of premises ​ 1,811 ​ 1,893 Furniture and equipment expenses ​ 1,178 ​ 1,325 Advertising expense ​ 288 ​ 193 Data processing ​ 1,936 ​ 1,940 FDIC insurance ​ 1,041 ​ 605 Professional fees ​ 329 ​ 1,231 State franchise tax ​ 2,389 ​ 2,092 Bank insurance ​ 174 ​ 204 Vendor services ​ 407 ​ 594 Supplies, printing, and postage ​ 103 ​ 133 Director costs ​ 876 ​ 810 Other operating expenses ​ 847 ​ 664 Total non-interest expense ​ $ 30,815 ​ $ 31,874 ​ Non-interest expense decreased $1.1 million or 3.3% during the year ended December 31, 2023 compared to the same period in 2022 primarily due to decreases in salaries and employee benefits expense.
Treasuries ​ $ 63,480 ​ $ 59,210 ​ $ 30,954 ​ $ 30,543 U.S. government and federal agencies ​ 38,748 ​ 34,760 ​ 34,803 ​ 34,537 Corporate bonds ​ 3,000 ​ 2,614 ​ 1,000 ​ 1,031 Collateralized mortgage obligations ​ 44,732 ​ 38,474 ​ 39,596 ​ 39,049 Tax-exempt municipal ​ 4,993 ​ 4,645 ​ 5,007 ​ 5,262 Taxable municipal ​ 608 ​ 579 ​ 1,653 ​ 1,685 Mortgage-backed ​ 238,652 ​ 217,294 ​ 127,287 ​ 127,193 Total Available-for-sale Securities ​ $ 394,213 ​ $ 357,576 ​ $ 240,300 ​ $ 239,300 ​ In the prevailing rate environments as of both December 31, 2022 and December 31, 2021, the Company’s investment portfolio had an estimated weighted average remaining life of approximately 4.5 years.
Treasuries ​ $ 44,793 ​ $ 42,977 ​ $ 63,480 ​ $ 59,210 U.S. government and federal agencies ​ 13,850 ​ 13,275 ​ 38,748 ​ 34,760 Corporate bonds ​ 3,000 ​ 2,523 ​ 3,000 ​ 2,614 Collateralized mortgage obligations ​ 40,806 ​ 34,310 ​ 44,732 ​ 38,474 Tax-exempt municipal ​ 1,380 ​ 1,231 ​ 4,993 ​ 4,645 Taxable municipal ​ 606 ​ 587 ​ 608 ​ 579 Mortgage-backed ​ 81,255 ​ 75,090 ​ 238,652 ​ 217,294 Total Available-for-sale Securities ​ $ 185,690 ​ $ 169,993 ​ $ 394,213 ​ $ 357,576 ​ In the prevailing rate environments as of both December 31, 2023 and December 31, 2022, the Company’s investment portfolio had an estimated weighted average remaining life of approximately 4.2 years and 4.5 years, respectively.
Specifically, the Company has pledged a portion of its commercial real estate and residential real estate loan portfolios to the FHLB and a portion of its commercial and industrial portfolio to the Reserve Bank. Additional borrowing capacity at the FHLB was approximately $363.4 million as of December 31, 2022.
Specifically, the Company has pledged a portion of its commercial real estate and residential real estate loan portfolios to the FHLB and the Reserve Bank. Based on collateral pledged as of December 31, 2023, the total FHLB available borrowing capacity was $436.9 million. Additional borrowing capacity with the Reserve Bank was approximately $22.8 million as of December 31, 2023.
Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements may reflect different estimates, assumptions, and judgments.
These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements may reflect different estimates, assumptions, and judgments.
The increase in state franchise taxes was due to an increase in the Bank’s equity as that is the basis the Commonwealth of Virginia uses to assess taxes on banking institutions.
The increase in FDIC insurance expense resulted from the FDIC increasing the base assessment rate for all insured depository institutions. The increase in franchise tax expense was due to an increase in the Bank’s equity as that is the basis the Commonwealth of Virginia uses to assess taxes on banking institutions.
The investment portfolio is used as a source of liquidity, interest income, and credit risk diversification, as well as to manage rate sensitivity and provide collateral for secured public funds. Investment securities are classified as available-for-sale or held-to-maturity based on management’s investment strategy and management’s assessment of the intent and ability to hold the securities until maturity.
The investment portfolio is used as a source of liquidity, interest income, and credit risk diversification, as well as to manage rate sensitivity and provide collateral for secured public funds and secured credit lines.
Deposits Total deposits increased $186.2 million or 9.9% to $2.07 billion as of December 31, 2022 compared to $1.88 billion as of December 31, 2021. Non-interest bearing demand deposits decreased $12.1 million or 2.5% to $476.7 million as of December 31, 2022 compared to $488.8 million at December 31, 2021.
Deposits Total deposits decreased $161.1 million or 7.8% to $1.91 billion as of December 31, 2023 compared to $2.07 billion as of December 31, 2022. Non-interest bearing demand deposits decreased $65.3 million or 13.7% to $411.4 million as of December 31, 2023 compared to $476.7 million at December 31, 2022.
The following table, “Tax-Equivalent Net Interest Income,” reconciles net interest income to tax-equivalent net interest income, which is a non-GAAP measure. 51 Table of Contents Tax-Equivalent Net Interest Income ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended (Dollars in thousands) December 31, 2022 December 31, 2021 GAAP Financial Measurements: ​ ​ ​ Interest Income - Loans ​ $ 74,281 ​ $ 69,415 Interest Income - Securities and Other Interest-Earning Assets ​ 9,785 ​ 4,704 Interest Expense - Deposits ​ 11,778 ​ 6,599 Interest Expense - Borrowings ​ 1,867 ​ 1,612 Total Net Interest Income ​ $ 70,421 ​ $ 65,908 ​ ​ ​ ​ ​ ​ ​ Non-GAAP Financial Measurements: ​ ​ Add: Tax Benefit on Tax-Exempt Interest Income - Loans ​ 209 ​ 194 Add: Tax Benefit on Tax-Exempt Interest Income - Securities ​ 32 ​ 32 Total Tax Benefit on Tax-Exempt Interest Income (1) ​ $ 241 ​ $ 226 Tax-Equivalent Net Interest Income ​ $ 70,662 ​ $ 66,134 (1) Tax benefit was calculated using the federal statutory tax rate of 21%.
Tax-Equivalent Net Interest Income ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ December 31, (Dollars in thousands) 2023 2022 GAAP Financial Measurements: ​ ​ ​ Interest Income - Loans ​ $ 86,435 ​ $ 74,281 Interest Income - Securities and Other Interest-Earning Assets ​ 14,335 ​ 9,785 Interest Expense - Deposits ​ 47,168 ​ 11,778 Interest Expense - Borrowings ​ 3,118 ​ 1,867 Total Net Interest Income (GAAP) ​ $ 50,484 ​ $ 70,421 ​ ​ ​ ​ ​ ​ ​ Non-GAAP Financial Measurements: ​ ​ Add: Tax Benefit on Tax-Exempt Interest Income - Loans ​ 244 ​ 209 Add: Tax Benefit on Tax-Exempt Interest Income - Securities ​ 15 ​ 32 Total Tax Benefit on Tax-Exempt Interest Income (1) ​ $ 259 ​ $ 241 Tax-Equivalent Net Interest Income (Non-GAAP) ​ $ 50,743 ​ $ 70,662 (1) Tax benefit was calculated using the federal statutory tax rate of 21%.
The increase in volume of average interest-earning assets was primarily attributable to the Company’s loan and investment portfolios. The increase in rate on interest-earning assets was primarily attributable to interest-bearing deposits due from banks, the loan portfolio, and to a lesser extent, the investment portfolio.
The increase in rate on interest-earning assets was primarily attributable to the Company’s loan portfolio and interest-bearing deposits due from banks. The increase in volume of average interest-earning assets was primarily attributable to the Company’s loan portfolio. Fully tax-equivalent interest income on loans increased by approximately $12.2 million as a result of volume growth and an increase in rate.
Treasuries ​ $ 6,000 ​ $ 5,160 ​ $ 6,000 ​ $ 5,850 U.S. government and federal agencies ​ 35,551 ​ 29,416 ​ 35,720 ​ 34,994 Collateralized mortgage obligations ​ 21,275 ​ 17,048 ​ 25,606 ​ 25,072 Taxable municipal ​ 6,073 ​ 4,709 ​ 6,089 ​ 5,895 Mortgage-backed ​ 30,516 ​ 24,828 ​ 32,094 ​ 31,447 Total Held-to-maturity Securities ​ $ 99,415 ​ $ 81,161 ​ $ 105,509 ​ $ 103,258 Available-for-sale ​ ​ ​ ​ U.S.
Treasuries ​ $ 6,001 ​ $ 5,334 ​ $ 6,000 ​ $ 5,160 U.S. government and federal agencies ​ 35,434 ​ 30,334 ​ 35,551 ​ 29,416 Collateralized mortgage obligations ​ 19,395 ​ 15,300 ​ 21,275 ​ 17,048 Taxable municipal ​ 6,057 ​ 4,956 ​ 6,073 ​ 4,709 Mortgage-backed ​ 28,618 ​ 23,608 ​ 30,516 ​ 24,828 Total Held-to-maturity Securities ​ $ 95,505 ​ $ 79,532 ​ $ 99,415 ​ $ 81,161 Available-for-sale ​ ​ ​ ​ U.S.
Fully tax-equivalent interest income on loans increased by approximately $4.9 million as a result of volume growth and an increase in rate. Average loans increased approximately $80.1 million between the years ended December 31, 2022 and December 31, 2021, which was primarily attributable to growth in the investor real estate and residential mortgage portfolios.
Average loans increased approximately $115.4 million between the years ended December 31, 2023 and December 31, 2022, which was primarily attributable to growth in the investor real estate and residential mortgage portfolios.
Additional information about this policy can be found in Note 1 of our consolidated financial statements included in Item 8 of this Form 10-K. Allowance for Loan Losses The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings.
Additional information about this policy can be found in Note 1 of our consolidated financial statements included in Item 8 of this Form 10-K.
Core deposits totaled $1.69 billion or 81.9% of total deposits and $1.64 billion or 87.1% of total deposits at December 31, 2022 and December 31, 2021, respectively. 61 Table of Contents The following table sets forth the average balances of deposits and the average interest rates paid for the years ended December 31, 2022 and 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ December 31, 2021 ​ Average ​ Average ​ (Dollars in thousands) ​ Amount ​ Rate ​ Amount ​ Rate Non-interest bearing ​ $ 518,284 ​ ​ $ 448,723 ​ Interest bearing: ​ ​ ​ ​ NOW accounts ​ 311,950 ​ 0.44 % ​ 262,319 0.30 % Money market accounts ​ 395,369 ​ 0.84 % ​ 337,993 0.37 % Savings accounts ​ 108,178 ​ 0.47 % ​ 83,032 0.36 % Time deposits ​ 682,674 ​ 0.96 % ​ 657,986 0.65 % Total interest-bearing ​ 1,498,171 ​ 0.79 % ​ 1,341,330 0.49 % Total ​ $ 2,016,455 ​ ​ $ 1,790,053 ​ ​ The following table sets forth the maturity ranges of certificates of deposit with balances of $250,000 or more as of December 31, 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 (Dollars in thousands) Total Uninsured Three months or less ​ $ 75,670 ​ $ 60,921 Over three through 6 months ​ 80,806 ​ 55,556 Over 6 through 12 months ​ 66,581 ​ 53,831 Over 12 months ​ 95,681 ​ 78,181 Total ​ $ 318,738 ​ $ 248,489 ​ The total amount of our uninsured deposits (deposits in excess of $250,000, as calculated in accordance with FDIC regulations) was estimated at $963.9 million at December 31, 2022 and $862.8 million at December 31, 2021.
Core deposits totaled $1.58 billion or 82.7% of total deposits and $1.69 billion or 81.9% of total deposits at December 31, 2023 and December 31, 2022, respectively. 59 Table of Contents The following table sets forth the average balances of deposits and the average interest rates paid for the years ended December 31, 2023 and 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ December 31, 2022 ​ Average ​ Average ​ (Dollars in thousands) ​ Amount ​ Rate ​ Amount ​ Rate Non-interest bearing ​ $ 447,804 ​ ​ $ 518,284 ​ Interest bearing: ​ ​ ​ ​ NOW accounts ​ 299,468 ​ 2.27 % ​ 311,950 0.44 % Money market accounts ​ 362,243 ​ 2.80 % ​ 395,369 0.84 % Savings accounts ​ 69,742 ​ 1.19 % ​ 108,178 0.47 % Time deposits ​ 842,121 ​ 3.49 % ​ 682,674 0.96 % Total interest-bearing ​ 1,573,574 ​ 3.00 % ​ 1,498,171 0.79 % Total ​ $ 2,021,378 ​ ​ $ 2,016,455 ​ ​ The following table sets forth the maturity ranges of certificates of deposit with balances of $250,000 or more as of December 31, 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 (Dollars in thousands) Total Uninsured Three months or less ​ $ 69,684 ​ $ 52,684 Over three through 6 months ​ 60,349 ​ 46,849 Over 6 through 12 months ​ 112,357 ​ 81,357 Over 12 months ​ 85,555 ​ 76,805 Total ​ $ 327,945 ​ $ 257,695 ​ The total amount of our uninsured deposits (deposits in excess of $250,000, as calculated in accordance with FDIC regulations) was estimated at $802.8 million at December 31, 2023 and $963.9 million at December 31, 2022.
The following table presents the Company’s composition of loans held for investment, net of deferred fees and costs, in dollar amounts and as a percentage of total gross loans as of December 31, 2022 and December 31, 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 December 31, 2021 (Dollars in thousands) Amount Percent Amount Percent Real Estate Loans: ​ ​ ​ ​ Commercial ​ $ 1,118,127 62.62 % $ 968,442 58.15 % Construction and land development ​ 195,027 10.92 % 231,090 13.87 % Residential ​ 426,841 23.91 % 342,491 20.56 % Commercial - Non Real Estate: ​ ​ ​ Commercial loans (1) ​ 44,924 2.52 % 122,945 7.38 % Consumer - Non-Real Estate: ​ ​ ​ Consumer loans ​ 529 0.03 % 586 0.04 % Total Gross Loans ​ $ 1,785,448 100.00 % $ 1,665,554 100.00 % Allowance for loan losses ​ (20,208) ​ ​ ​ (20,032) ​ Net deferred loan costs ​ 4,060 ​ ​ ​ 915 ​ Total net loans ​ $ 1,769,300 ​ ​ ​ $ 1,646,437 ​ (1) Includes gross PPP loans of $136 thousand and $69.6 million as of December 31, 2022 and December 31, 2021, respectively.
The following table presents the Company’s composition of loans held for investment, net of deferred fees and costs, in dollar amounts and as a percentage of total gross loans as of December 31, 2023 and December 31, 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 December 31, 2022 (Dollars in thousands) Amount Percent Amount Percent Real Estate Loans: ​ ​ ​ ​ Commercial ​ $ 1,146,116 61.79 % $ 1,118,127 62.62 % Construction and land development ​ 180,922 9.75 % 195,027 10.92 % Residential ​ 482,182 25.99 % 426,841 23.91 % Commercial - Non Real Estate: ​ ​ ​ ​ Commercial loans ​ 45,204 2.44 % 44,924 2.52 % Consumer - Non-Real Estate: ​ ​ ​ ​ Consumer loans ​ 560 0.03 % 529 0.03 % Total Gross Loans ​ $ 1,854,984 100.00 % $ 1,785,448 100.00 % Allowance for loan credit losses ​ (19,543) ​ ​ ​ (20,208) ​ Net deferred loan costs ​ 4,983 ​ ​ ​ 4,060 ​ Total net loans ​ $ 1,840,424 ​ ​ ​ $ 1,769,300 ​ ​ The following table summarizes the contractual maturities of the loans as of December 31, 2023 by loan type.
The stock 62 Table of Contents repurchase program will expire on August 31, 2023 or earlier if all the authorized shares have been repurchased. The Company has not repurchased any of its outstanding common stock under the program as of December 31, 2022. Liquidity Liquidity reflects a financial institution’s ability to fund assets and meet current and future financial obligations.
Under the stock repurchase program, the Company may repurchase 60 Table of Contents up to 700,000 shares of its outstanding common stock, or 5.0% of outstanding shares as of December 31, 2023. The stock repurchase program will expire on August 31, 2024 or earlier if all the authorized shares have been repurchased.
The increase in yield on the Company’s loan portfolio was primarily due to an increase in interest rates during 2022. The investment securities portfolio’s yield for the year ended December 31, 2022 was 1.87% compared to 1.63% for the year ended December 31, 2021. The increase of 0.24% was primarily due to higher yields on investment securities purchased during 2022.
The investment securities portfolio’s yield for the year ended December 31, 2023 was 2.04% compared to 1.87% for the year ended December 31, 2022. The increase was primarily due to the Company realizing the full benefit of higher yields on investment securities purchased during the latter part of the second quarter of 2022.
The following table summarizes non-interest income for the years ended December 31, 2022 and December 31, 2021. ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) 2022 2021 Service charges on deposit accounts ​ ​ ​ ​ ​ ​ Overdrawn account fees ​ $ 88 ​ $ 76 Account service fees ​ 236 ​ 186 Other service charges and fees ​ ​ Interchange income ​ 409 ​ 379 Other charges and fees ​ 247 ​ 98 Bank owned life insurance ​ 544 ​ 411 Gains on securities ​ — ​ 10 Net gains on premises and equipment ​ — ​ 29 Insurance commissions ​ 382 ​ 284 Other operating income (loss) ​ (215) ​ 246 Total non-interest income ​ $ 1,691 ​ $ 1,719 ​ Non-interest income decreased $28 thousand or 1.6% during the year ended December 31, 2022 compared to the year ended December 31, 2021.
The following table summarizes non-interest income for the years ended December 31, 2023 and December 31, 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ December 31, (Dollars in thousands) 2023 2022 Service charges on deposit accounts ​ ​ ​ ​ ​ ​ Overdrawn account fees ​ $ 82 ​ $ 88 Account service fees ​ 248 ​ 236 Other service charges and fees ​ ​ Interchange income ​ 403 ​ 409 Other charges and fees ​ 435 ​ 247 Bank owned life insurance ​ 224 ​ 544 Losses on sale of available-for-sale securities ​ (17,316) ​ — Net gains on premises and equipment ​ 16 ​ — Insurance commissions ​ 386 ​ 382 Gain on sale of government guaranteed loans ​ ​ 131 ​ ​ — Non-qualified deferred compensation plan asset gains (losses), net ​ ​ 317 ​ ​ (354) Other operating income ​ 134 ​ 139 Total non-interest income (loss) ​ $ (14,940) ​ $ 1,691 ​ Non-interest income decreased $16.6 million during the year ended December 31, 2023 compared to the same period in 2022.
The Bank’s primary source of funding is deposits, both interest-bearing and non-interest-bearing. To account for credit risk inherent in all loans, the Bank maintains an allowance for loan losses to absorb probable losses on existing 45 Table of Contents loans that may become uncollectible. The Bank establishes and maintains this allowance by recording a provision for loan losses against earnings.
As with most community banks, the Bank derives a significant portion of its income from interest received on loans and investments. The Bank’s primary source of funding is deposits, both interest-bearing and non-interest-bearing. To account for credit risk inherent in all loans, the Bank maintains an allowance for loan credit losses to absorb lifetime losses on existing loans.
Net interest income is affected by overall balance sheet growth, changes in interest rates and changes in the mix of investments, loans, deposits and borrowings. The Company’s interest-earning assets include loans, investment securities and interest-bearing deposits in other banks, while our interest-bearing liabilities include interest-bearing deposits and borrowings.
Net Interest Income and Net Interest Margin Net interest income is the excess of interest earned on loans and investments over the interest paid on deposits and borrowings, and is the Company’s primary revenue source. Net interest income is affected by overall balance sheet growth, changes in interest rates and changes in the mix of investments, loans, deposits and borrowings.
Non-interest Expense Generally, non-interest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing banking services. The largest component of non-interest expense is salaries and employee benefits.
These increases were partially offset by a decrease in BOLI income of $320 thousand due to the surrender of all BOLI policies as part of the Restructuring. Non-interest Expense Generally, non-interest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing banking services.
Net interest margin represents the difference between interest received and interest paid as a percentage of average total interest-earning assets. Management seeks to maximize net interest income without exposing the Company to an excessive level of interest rate risk through management’s asset and liability management policies.
Management seeks to maximize net interest income without exposing the Company to an excessive level of interest rate risk through management’s asset and liability management policies. Interest rate risk is managed by monitoring the pricing, maturity, and repricing options of all classes of interest-bearing assets and liabilities.
These include market constraints on the ability to convert assets into cash or accessing sources of funds (i.e., market liquidity) and contingent liquidity events. Changes in economic conditions or exposure to credit, market, operational, legal, and reputation risks also can affect a bank’s liquidity.
Conditions may arise in the future that could negatively impact the Company’s future liquidity position resulting in funding mismatches. These include market constraints on the ability to convert assets into cash or accessing sources of funds (i.e., market liquidity) and contingent liquidity events.
The decrease in our effective tax rate was primarily due to tax benefits realized in connection with the exercise of certain nonqualified stock options during the year ended December 31, 2022. 55 Table of Contents Discussion and Analysis of Financial Condition – Years Ended December 31, 2022 and December 31, 2021 Assets, Liabilities, and Shareholders’ Equity The Company’s total assets increased $198.9 million or 9.3% to $2.35 billion at December 31, 2022 compared to $2.15 billion at December 31, 2021.
The increase in effective tax rate between the comparative periods was due to changes in temporary differences. 53 Table of Contents Discussion and Analysis of Financial Condition – Years Ended December 31, 2023 and December 31, 2022 Assets, Liabilities, and Shareholders’ Equity The Company’s total assets decreased $105.7 million or 4.5% to $2.24 billion at December 31, 2023 compared to $2.35 billion at December 31, 2022.
The decrease in net interest margin was primarily due to an increase in the cost of interest-bearing liabilities, which more than offset the increase in yield on loans, investments, and interest-bearing deposits in other banks. The cost of interest-bearing liabilities was 0.89% for the year ended December 31, 2022 compared to 0.59% for the same period of the prior year.
On a fully tax-equivalent basis, the net interest margin was 2.22% for the year ended December 31, 2023, compared to 3.16% for the same period in 2022. The decrease in net interest margin was primarily due to increases in the cost of interest-bearing deposits, which was partially offset by an increase in yields on the Company’s interest-earning assets.
The material business operations of our organization are performed through the Bank. As a result, the discussion and analysis within this section primarily relate to activities conducted at the Bank. As with most community banks, the Bank derives a significant portion of its income from interest received on loans and investments.
Overview We are a bank holding company headquartered in Reston, Virginia primarily serving the Washington, D.C. metropolitan area. The material business operations of our organization are performed through the Bank. As a result, the discussion and analysis within this section primarily relate to activities conducted at the Bank.
The Company’s total shareholders’ equity increased $4.3 million or 2.1% to $212.8 million at December 31, 2022 compared to $208.5 million at December 31, 2021.
The Company’s total liabilities decreased $122.8 million or 5.8% to $2.01 billion at December 31, 2023 compared to $2.14 billion at December 31, 2022.
The increase in the cost of interest-bearing liabilities was primarily due to higher interest expense on deposits and our subordinated debt.
The cost of interest-bearing liabilities increased 2.19% from 0.89% for the year ended December 31, 2022 to 3.08% for the year ended December 31, 2023. The increase in the cost of interest-bearing liabilities was primarily due to higher interest expense on deposits and other borrowings.
The increase in investment securities was funded primarily by PPP loan payoffs and deposit growth. 53 Table of Contents The increase in rates on loans, investment securities, and interest-bearing deposits in other banks was primarily attributable to an increase in benchmark interest rates throughout 2022.
Average investment securities decreased approximately $74.6 million between the years ended December 31, 2023 and December 31, 2022. The increase in rates on loans, investment securities, and interest-bearing deposits in other banks was primarily attributable to an increase in benchmark interest rates since 2022.
The weighted-average yield below represents the effective yield for the investment securities and is calculated based on the amortized cost of each security. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ Amortized ​ Fair ​ Weighted-Average (Dollars in thousands) Cost Value Yield Held-to-maturity ​ ​ ​ Due in one year or less ​ $ — ​ $ — — ​ Due after one year through five years ​ 5,208 ​ 4,474 0.94 % Due after five years through ten years ​ 39,496 ​ 32,806 1.26 % Due after ten years ​ 54,711 ​ 43,881 1.39 % Total Held-to-maturity Securities ​ $ 99,415 ​ $ 81,161 1.27 % Available-for-sale ​ ​ ​ Due in one year or less ​ $ 1,929 ​ $ 1,899 3.54 % Due after one year through five years ​ 104,037 ​ 96,292 1.70 % Due after five years through ten years ​ 153,724 ​ 142,314 2.33 % Due after ten years ​ 134,523 ​ 117,071 1.82 % Total Available-for-sale Securities ​ $ 394,213 ​ $ 357,576 2.00 % ​ Loan Portfolio Gross loans net of unearned income increased $123.0 million or 7.4% to $1.79 billion as of December 31, 2022 compared to $1.67 billion as of December 31, 2021.
The weighted-average yield below represents the effective yield for the investment securities and is calculated based on the amortized cost of each security. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ ​ Amortized ​ Fair ​ Weighted-Average (Dollars in thousands) Cost Value Yield Held-to-maturity ​ ​ ​ Due in one year or less ​ $ — ​ $ — — ​ Due after one year through five years ​ 22,153 ​ 19,600 1.01 % Due after five years through ten years ​ 23,492 ​ 19,766 1.48 % Due after ten years ​ 49,860 ​ 40,166 1.39 % Total Held-to-maturity Securities ​ $ 95,505 ​ $ 79,532 1.32 % Available-for-sale ​ ​ ​ Due in one year or less ​ $ 22,248 ​ $ 21,933 2.31 % Due after one year through five years ​ 46,393 ​ 44,271 1.63 % Due after five years through ten years ​ 53,890 ​ 50,962 2.33 % Due after ten years ​ 63,159 ​ 52,827 1.74 % Total Available-for-sale Securities ​ $ 185,690 ​ $ 169,993 1.95 % ​ 55 Table of Contents Loan Portfolio Gross loans net of unearned income increased $70.5 million or 3.9% to $1.86 billion as of December 31, 2023 compared to $1.79 billion as of December 31, 2022.
The Company recorded a $175 thousand provision for loan losses for the year ended December 31, 2022, compared to a $3.1 million provision for the year ended December 31, 2021.
The Company recorded net recoveries of $2 thousand during the year ended December 31, 2023 compared to net recoveries of $1 thousand during the year ended December 31, 2022.
The increase in total assets is primarily attributable to an increase in loans net of unearned income of $123.0 million and an increase in the carrying value of the Company’s investment portfolio of $111.9 million. The increase was partially offset due to a decrease in interest-bearing deposits in banks of $47.9 million.
The decrease in total assets is primarily attributable to a decrease in available-for-sale securities and BOLI of $187.6 million and $21.2 million, respectively, partially offset by increases in loans, net of unearned income and interest-bearing deposits in banks of $70.5 million and $36.6 million, respectively.
These amounts represented 16.9% and 17.3% of total assets as of December 31, 2022 and December 31, 2021, respectively. In addition to the liquidity provided by balance sheet cash flows, the Company supplements its liquidity with additional sources such as credit lines with the FHLB, the Reserve Bank and other correspondent banks.
The level of deposits necessary to support the Company’s lending and investment activities is determined through monitoring loan demand. In addition to the liquidity provided by balance sheet cash flows, the Company supplements its liquidity with additional sources such as secured borrowing credit lines with the FHLB and the Reserve Bank.
The allowance for loan loss as a percentage of gross loans, net of unearned income was 1.13% and 1.20% as of December 31, 2022 and December 31, 2021, respectively.
At December 31, 2023, the allowance for loan credit losses was $19.5 million, or 1.05% of outstanding loans, net of unearned income, compared to $20.2 million, or 1.13% of outstanding loans, net of unearned income, at December 31, 2022.
The Company believes its allowance for loan losses is appropriate for the inherent risks and uncertainties associated with the portfolio. ​ Results of Operations – Years Ended December 31, 2022 and December 31, 2021 Overview The Company reported record net income of $31.8 million for the year ended December 31, 2022, a $6.3 million or 24.9% increase over the $25.5 million reported for the same period of 2021.
Results of Operations – Years Ended December 31, 2023 and December 31, 2022 Overview The Company reported net income of $5.2 million for the year ended December 31, 2023, a decrease of $26.6 million when compared to the same period in 2022.
In addition to net interest income, the Bank also generates income through service charges on deposits, insurance commission income, income from bank owned life insurance, and merchant services fee income. In order to maintain its operations, the Bank incurs various operating expenses which are further described within the “Results of Operations” later in this section.
In order to maintain its operations, the Bank incurs various operating expenses which are further described within the “Results of Operations” later in this section. As of December 31, 2023, the Company had total consolidated assets of $2.24 billion, total loans net of unearned income of $1.86 billion, total deposits of $1.91 billion and total shareholders’ equity of $229.9 million.
Historical results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not be indicative of results of operations or trends in operations for any future periods. Overview We are a bank holding company headquartered in Reston, Virginia primarily serving the Washington, D.C. metropolitan area.
Historical results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not be indicative of results of operations or trends in operations for any future periods. Use of Non-GAAP Financial Measures This discussion and analysis contains financial information determined by methods other than in accordance with GAAP.
The Company purchased $207.9 million of investment securities during 2022, which were comprised of $151.1 million of mortgage-backed securities, $32.3 million of U.S. Treasuries, $12.9 million of collateralized mortgage obligation securities, $9.6 million of U.S. government and federal agency securities, and $2.0 million of corporate bonds.
During the year ended December 31, 2023, the Company sold available-for-sale securities with a total par value of $173.2 million, which were comprised of $124.7 million of mortgage-backed securities, $25.1 million of U.S. government and federal agencies, $19.3 million of U.S. Treasuries, $3.5 million of municipal bonds and $0.6 million of collateralized mortgage obligations.
Increases in rates offered on NOW and money market deposit accounts and the repricing of our time deposits during the year ended December 31, 2022 also contributed to the increase in the cost of interest-bearing liabilities. The loan portfolio’s yield for the year ended December 31, 2022 was 4.44% compared to 4.36% for the year ended December 31, 2021.
The increase in the cost of interest-bearing liabilities was primarily due to a 2.21% increase in the cost of interest-bearing deposits as a result of the repricing of the Company’s time deposits coupled with an increase in rates offered on money market, NOW and savings deposit accounts since the fourth quarter of 2022.
(2) Net interest margin for all periods presented are reported on a tax-equivalent basis using the federal statutory tax rate of 21%. ​ Financial Overview General The following is a summary of the Company’s financial highlights for the year ended December 31, 2022. ● Record Earnings –The Company reported record net income of $31.8 million for the year ended December 31, 2022, a $6.3 million or 24.9% increase over the $25.5 million reported for the same period of 2021.
(2) ROAE is calculated by dividing net income by year-to-date average equity. (3) Net interest margin for all periods presented are reported on a tax-equivalent basis using the federal statutory tax rate of 21%. (4) Non-interest expense to average assets is calculated by dividing non-interest expense by average assets.
Management maintains that the Company has a strong liquidity position, but any of the factors referenced above could materially impact that in the future. Off-Balance Sheet Arrangements The Company enters into certain off-balance sheet arrangements in the normal course of business to meet the financing needs of its customers.
Changes in economic conditions or exposure to credit, market, operational, legal, and reputation risks also can affect a bank’s liquidity. Management maintains that the Company has a strong liquidity position, but any of the factors referenced above could materially impact that in the future. The Company has various contractual obligations that affect its cash flows and liquidity.
Fully tax-equivalent interest income on investment securities increased by approximately $3.8 million as a result of volume growth and rate increases. Average investment securities increased approximately $165.8 million between the years ended December 31, 2022 and December 31, 2021.
Fully tax-equivalent interest income on investment securities decreased by approximately $0.8 million as a result of volume decreases due the Restructuring that took place in July 2023, and to a lesser extent, the amortization of securities, 51 Table of Contents partially offset by rate increases.
Rate/Volume Analysis ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2022 and 2021 ​ ​ Increase ​ ​ ​ ​ ​ (Decrease) Due to ​ ​ ​ (Dollars in thousands) Volume Rate Total Increase (Decrease) Interest-earning Assets: ​ ​ ​ Securities: ​ ​ ​ Taxable ​ $ 3,043 ​ $ 731 ​ $ 3,774 Tax-exempt (1) ​ — ​ — ​ — Total securities ​ $ 3,043 ​ $ 731 ​ $ 3,774 Loans, net of unearned income: ​ ​ ​ Taxable ​ 3,420 ​ 1,392 ​ 4,812 Tax-exempt (1) ​ 131 ​ ​ (62) ​ 69 Total loans, net of unearned income (2) ​ $ 3,551 ​ $ 1,330 ​ $ 4,881 Interest-bearing deposits in other banks ​ $ (229) ​ $ 1,536 ​ $ 1,307 Total interest-earning assets ​ $ 6,365 ​ $ 3,597 ​ $ 9,962 Interest-bearing Liabilities: ​ ​ ​ Interest-bearing deposits: ​ ​ ​ NOW accounts ​ $ 218 ​ $ 343 ​ $ 561 Money market accounts ​ 341 ​ 1,743 ​ 2,084 Savings accounts ​ 117 ​ 87 ​ 204 Time deposits ​ 270 ​ 2,060 ​ 2,330 Total interest-bearing deposits ​ $ 946 ​ $ 4,233 ​ $ 5,179 Federal funds purchased ​ 15 ​ — ​ 15 Subordinated debt ​ 139 ​ 184 ​ 323 Other borrowed funds ​ (83) ​ — ​ (83) Total interest-bearing liabilities ​ $ 1,017 ​ $ 4,417 ​ $ 5,434 Change in net interest income ​ $ 5,348 ​ $ (820) ​ $ 4,528 (1) Income and yields for all periods presented are reported on a tax-equivalent basis using the federal statutory tax rate of 21%.
Rate/Volume Analysis ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2023 and 2022 ​ ​ Increase ​ ​ ​ ​ ​ (Decrease) Due to ​ ​ ​ (Dollars in thousands) Volume Rate Total Increase (Decrease) Interest-earning Assets: ​ ​ ​ Securities: ​ ​ ​ Taxable ​ $ (1,498) ​ $ 821 ​ $ (677) Tax-exempt (1) ​ (76) ​ (8) ​ (84) Total securities ​ $ (1,574) ​ $ 813 ​ $ (761) Loans, net of unearned income: ​ ​ ​ Taxable ​ 5,398 ​ 6,620 ​ 12,018 Tax-exempt (1) ​ 164 ​ ​ 7 ​ 171 Total loans, net of unearned income (2) ​ $ 5,562 ​ $ 6,627 ​ $ 12,189 Interest-bearing deposits in other banks ​ $ 744 ​ $ 4,550 ​ $ 5,294 Total interest-earning assets ​ $ 4,732 ​ $ 11,990 ​ $ 16,722 Interest-bearing Liabilities: ​ ​ ​ Interest-bearing deposits: ​ ​ ​ NOW accounts ​ $ (153) ​ $ 5,598 ​ $ 5,445 Money market accounts ​ (1,000) ​ 7,810 ​ 6,810 Savings accounts ​ (458) ​ 785 ​ 327 Time deposits ​ 5,502 ​ 17,306 ​ 22,808 Total interest-bearing deposits ​ $ 3,891 ​ $ 31,499 ​ $ 35,390 Federal funds purchased ​ — ​ — ​ — Subordinated debt ​ (118) ​ (296) ​ (414) Other borrowed funds ​ 1,429 ​ 236 ​ 1,665 Total interest-bearing liabilities ​ $ 5,202 ​ $ 31,439 ​ $ 36,641 Change in tax equivalent net interest income (Non-GAAP) ​ $ (470) ​ $ (19,449) ​ $ (19,919) (1) Income and yields for all periods presented are reported on a tax-equivalent basis using the federal statutory tax rate of 21%.
The increase in data processing fees was due to new investments in technology solutions to support our operations. ​ Income Taxes Income tax expense increased $1.5 million or 21.5% to $8.3 million for the year ended December 31, 2022 compared to $6.8 million for the year ended December 31, 2021.
The decrease in furniture and equipment expense was due to lower depreciation expense on fixed assets and lower software and equipment service expense due to contract renegotiation efforts. ​ Income Taxes Income tax expense decreased $5.4 million or 65.8% to $2.8 million for the year ended December 31, 2023 compared to $8.3 million for the year ended December 31, 2022.
Net interest income increased $4.5 million or 6.8% to $70.7 million on a fully tax-equivalent basis for the year ended December 31, 2022.
Net interest income decreased $19.9 million or 28.3% on a fully tax-equivalent basis for the year ended December 31, 2023. The decrease in net interest income was driven by the increase in the costs of interest-bearing liabilities outpacing the increase in yield on interest-earning assets.
The increase in net interest income was driven by an increase in the average balance of interest-earning assets, and to a lesser extent, an increase in yield on interest-earning assets as a result of rising interest rates during 2022.
The increase in yield on the Company’s loan portfolio was primarily attributable to an increase in yield on the Company’s variable rate loans as a result of an increase in interest rates since 2022, coupled with a higher weighted average yield on loans originated since December 31, 2022.
The ratio of non-interest expense to average assets was 1.40% for the year ended December 31, 2022 compared to 1.58% for the year ended December 31, 2021.
The loan portfolio’s yield for the year ended December 31, 2023 was 4.84% compared to 4.44% for the year ended December 31, 2022.

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