As I write this section of the 2022 annual report letter, my last year as President and CEO of The National Capital Bank of Washington, I am filled with a sense of gratitude and a feeling of accomplishment to have had the opportunity to lead such a venerable institution as the culmination of my 47- year banking career. I could not be prouder of NCB as it stands today with a dedicated and talented team of officers and staff and an array of technological tools to meet the challenges of today and tomorrow. We weathered a major pandemic and the associated economic turmoil and emerged with the strength and resources necessary to re-engage our original business plan of growth, profitability, building shareholder value and maintaining a commitment to support the communities we do business in by providing an exceptional banking experience. Your Bank stands ready to write its next chapter of success.
To lead NCB as we move forward your Board undertook an extensive executive search to identify a leader with the vision, energy, and skills to execute on our business plan. The individual we chose James (Jimmy) Olevson is a young, dynamic banker who checked all the necessary boxes. An excellent communicator, strong lending and business development skills, leadership by example, an outgoing people person with the ability to connect and a commitment to community service as a servant leader. Since joining NCB last April and assuming the responsibilities of President, Jimmy has met and exceeded expectations. He has built a rapport with staff both on a one- on -one basis and through team building activities. He has sought introductions to key client relationships. He has established himself as a quick study of the Bank’s operational and administrative functions going the extra mile to suggest viable solutions to certain operational issues. Additionally, Jimmy has played a lead role in attracting new team members for key lending, business development and operational positions and has led several cross-departmental working groups tasked with the implementation of new system or process enhancements including Connections, a CRM platform through our core banking partner FIS and redesigning workflows for underwriting and loan processing to gain greater efficiency.
After a review of the National Capital Bancorp, Inc. FY 2022 financial results which are inclusive of the Bank, Jimmy will be sharing more information on these projects and others later in this joint letter. He will also provide his thoughts and vision regarding the Bank’s strategic direction in 2023 and going forward.
2022 was characterized by rapidly rising interest rates as the Federal Reserve concluded that inflation was not transitory. This in turn raised the potential threat of a recession due to a slowdown in economic activity which coupled with an uncertain international climate driven by Russia’s invasion of Ukraine and a deterioration in U.S. and China relations negatively impacted both the stock and bond markets. In short it was again a challenging year to do business similar to 2021 but, for entirely different reasons. This again led to a mixed bag in terms of balance sheet growth resulting in a decline in deposits from 2021 as PPP related balances were spent down and depositors chased rate but, a healthy increase in loans even with PPP loan balances dramatically declining due to forgiveness. As a result of these factors earnings remained essentially unchanged from 2021.
Total assets of the Company at FYE 2022 decreased year-over-year to $644.2 million compared to $734.7 million the prior year. Total loans of $425.1 million increased by $28.7 million during the year from $396.4 million the year before. Organic loan growth for 2022 of $51 million was partially offset by PPP loan forgiveness received during the year. Asset quality remained outstanding. Total deposits decreased to $571.7 million at FYE 2022 compared to $657.1 million the year before, which included a year-end client deposit of $55 million that was transferred out in January 2022. The Company’s net interest margin contracted to 3.12% in 2022 compared to 3.22% for 2021 but, showed substantial improvement in the later part of the year. The favorable impact from the current-year interest rate increases on variable-rate loans, interest-bearing cash balances and for newly originated loans helped to soften the negative impact of significantly reduced PPP fee accretion during 2022 in comparison to 2021.
For FYE 2022, the Company reported net income of $4.59 million, or $15.98 per share, compared to $4.65 million, or $16.23 for FYE 2021. As noted earlier, solid organic loan growth during the current year helped offset the prior year’s favorable impact from the Company’s active role in PPP lending. In addition, the Company has benefitted from the interest rate increases instituted this year by the Federal Reserve. Non-interest income declined as the Company recorded a $393 thousand loss on the sale of securities in the fourth quarter of 2022 in an attempt to position the portfolio for better performance in 2023. For FYE 2022, the return on average assets and return on average equity was 0.67% and 9.29%, respectively.
As I remain on the Bank and Company Boards as a director, I am excited to continue working with Jimmy and the NCB team and optimistic about their ability to take the Bank forward to greater success in the future. I am also thankful for the consistent loyalty and support our customers demonstrate for the Bank and for the confidence our shareholders continue to place in us.
Let me start by saying how honored and excited I am to be the President and CEO of The National Capital Bank of Washington. I do not take this responsibility lightly and am excited to work with the exceptionally talented people to continue to grow the Bank while providing a strong return for our shareholders.
I joined the Bank in April 2022 and initially much of my time was spent building relationships with our internal and external partners, understanding workflows across all divisions, and learning about the staff, technology and new capabilities the Bank has invested in.
Over the last several years, NCB has launched various platforms, to include a CRM solution, Connections as Randy previously referenced. In 2022, we also initiated the Collaboration Hub, another banking innovation through FIS, which not only allows for clients to upload documents via a secure portal, but also works seamlessly in moving those documents into our core processor directly. We are still in the very early stages of maximizing efficiencies gained via Connections, the Collaboration Hub and other technology we have introduced, and I am excited to see the benefits which continue to grow.
With our foundation of talented people and technology platforms in place, the theme for 2023 of “doing more with what we have” became clear. Going forward NCB will utilize these platforms to gain efficiencies in process which will have a direct correlation to improving the Bank’s efficiency ratio. We will also be looking to grow the Bank with the right mix of assets taking advantage of new opportunities in the Asset Based Lending, Government Contracting and consumer mortgage arenas. Given the current interest rate environment and the rising cost of funds, this growth will be focused on bringing in appropriately priced relationships as we strive to deliver improved net earnings and increased shareholder value.
I am again very thankful for all that Randy has and continues to do to support me and NCB. The future is very bright for The National Capital Bank of Washington, and I look forward to celebrating our success with you for years to come.
