Bay Street News

Bank of the James Announces Fourth Quarter, Full Year 2018 Financial Results and Declaration of Dividend

Strong Quarterly, Yearly Earnings Growth, Commercial Lending Leads Loan Expansion

LYNCHBURG, Va., Jan. 25, 2019 (GLOBE NEWSWIRE) — Bank of the James Financial Group, Inc. (the “Company”) (NASDAQ:BOTJ), the parent company of Bank of the James, a full-service commercial and retail bank serving Region 2000 (Greater Lynchburg MSA), and the Charlottesville, Harrisonburg, and Roanoke, Virginia markets, today announced unaudited results for the three months and 12 months ended December 31, 2018.

Net income for the three months ended December 31, 2018 was $1.48 million or $0.34 per diluted share, compared with $360,000 or $0.08 per diluted share for the three months ended December 31, 2017. For the 12 months ended December 31, 2018, net income was $5.30 million or $1.21 per diluted share, compared with $2.92 million or $0.67 per diluted share for the 12 months ended December 31, 2017. Net income in the fourth quarter and full year 2017 results included the $871,000 write-down of the Company’s deferred tax assets resulting from the Tax Cuts and Jobs Act enacted in December 2017.

Robert R. Chapman III, President and CEO commented: “The Company’s financial performance in 2018 demonstrated strong and balanced contributions from all our retail, commercial, mortgage, and investment and insurance operations. We are achieving our goals for growth supported by a diversity of interest income and noninterest income sources.

“Our core Region 2000 market exhibited strength, which was enhanced in 2018 by an expanded presence in Appomattox, and a new Blacksburg mortgage office that serves the New River Valley market. Accelerating activity resulting from the geographic expansion into Charlottesville, Harrisonburg and Roanoke has enhanced revenue diversity and opened doors to growth opportunities. We are grateful for the outstanding performance by our banking team, which has been the key to driving business and retaining clients. Prudent expense management, continued asset quality, and capital management supported our goal of increasing earnings and building the Company’s value.”

Highlights

Chapman continued: “A highlight of 2018 was the Company’s deposit growth, particularly lower-cost core deposits, which enabled us to fund increased lending activity with internal resources and minimal reliance on higher-cost borrowings. In the coming year, we anticipate establishing several offices in selective locations to enhance our deposit gathering capabilities. During the past several years, our past investments in people, technology and facilities have supported productivity and growth reflected in the Company’s 2018 earnings, providing confidence in our strategy of prudent long-term growth.”

Fourth Quarter, 12 Months of 2018 Operational Review

Total interest income was $7.11 million in the fourth quarter of 2018, up 14% from $6.24 million a year earlier, primarily resulting from loan growth and adjustable rate loans that repriced to reflect rising interest rates throughout the year.

Net interest income in the fourth quarter of 2018 was $6.05 million, a 12% increase compared with the fourth quarter of 2017. For the year ended December 31, 2018, total interest income rose sharply to $26.97 million from $23.67 million a year earlier and net interest income was up 12% in 2018 compared with 2017. Interest expense in the fourth quarter and 12 months of 2018 increased compared with both periods in 2017, primarily reflecting a larger deposit base and an uptick in rates. The average rate paid on interest-bearing deposits was 0.72% in 2018 compared with 0.63% in 2017, and the Company had minimal borrowings in 2018.

“Our focus continues to be growing lower-cost core deposits to fund lending, and despite slight rate increases throughout the year, we succeeded in managing interest expense costs and were able to support lending activity with minimal use of short-term borrowings, which became considerably more expensive in 2018,” noted J. Todd Scruggs, Executive Vice President and CFO. “Although some competitors were offering higher rates on time deposits, we maintained a disciplined approach to adding time deposits.”

Net interest income after provision for loan losses in the fourth quarter of 2018 was $5.86 million compared with $5.16 million in the fourth quarter of 2017. Net interest income after provision for loan losses for the 12 months of 2018 was $22.46 million compared with $19.68 million for the 12 months of 2017. The decrease in the Company’s provision for loan losses in both the three and 12 months of 2018 compared with comparable periods in 2017, primarily reflects the strength of the Company’s asset quality. For the 12 months of 2018, the loan loss provision was $716,000, down 28% from $993,000 for the 12 months of 2017.

Commercial lending growth, increased rates, and relative stability in the interest rate spread contributed to a 3.80% net interest margin in the fourth quarter of 2018, up from 3.64% a year earlier. The net interest margin for the 12 months of 2018 expanded to 3.75% from 3.67% for the 12 months of 2017. The average rate spread for the 12 months ended December 31, 2018 was 3.60% and average rates on total earning assets were 4.36% compared with 4.20% for the 12 months ended December 31, 2017.

Noninterest income, including gains from the sale of residential mortgages to the secondary market, revenue contributions from BOTJ Investment Services, and income from the Bank’s line of treasury management services for commercial customers supported continued positive annual growth. Noninterest income in 2018 was $5.24 million, up 11% from $4.73 million in 2017.

Strong multi-family and single-family mortgage originations led to a record year for the Company’s mortgage division. Gains on sale from the sale of residential mortgages to the secondary market was the leading contributor to noninterest income, generating $2.92 million of income during 2018, up from $2.43 million in 2017. Service charges and fee income, including contributions from treasury services and investment management, were $2.02 million in 2018, up from $1.89 million in 2017.

Noninterest expense for the three months ended December 31, 2018 was $5.30 million compared with $4.91 million a year earlier, and for the 12 months of 2018 was $21.06 million compared with $19.05 million for the 12 months of 2017. The increase reflected increased personnel expenses from an expanded team of producing individuals, and higher occupancy, professional and data processing costs as the Company added new offices to better support business activity and generate productive growth.

During 2019, the Company plans to establish three full-service locations to generate additional business and gather deposits, and to relocate its Charlottesville limited service office, converting it to a full-service location in downtown Charlottesville. “We anticipate this investment will have a negative six to eight cent impact on after tax earnings per share during the year,” Chapman explained. “While giving customers access to the full range of Bank of the James services and capabilities, the size and staffing of these locations will emphasize efficient operation.”

The Company plans to open an office in Lexington, Virginia, serving the cities of Lexington and Buena Vista, and Rockingham County in the Shenandoah Valley. It plans to establish an office in Rustburg, the county seat of Campbell County, expanding the Company’s presence in the Region 2000 MSA, and add a second full-service office in Roanoke, which Chapman said has proven to be a very strong market for Bank of the James.

Balance Sheet Review: Growth, Asset Quality

Total assets rose to a Company-record $674.90 million at year-end 2018, rising 8% from $626.34 million at year-end 2017. The primary driver of asset growth continues to be loans held for investment, net of the allowance for loan losses, which totaled $530.02 million, up from $491.02 million at December 31, 2017. Loans held for sale were $1.67 million. Fair value of securities available-for-sale was $52.73 million compared with $55.31 million at December 31, 2017.

The Company’s commercial loan portfolio provided the Company with balanced performance and growth. Non-owner occupied commercial real estate (primarily commercial and investment property), increased 42% to $80.21 million at December 31, 2018 from $56.48 million a year earlier. Owner-occupied commercial real estate of $102.71 million was up 6% from a year earlier, and mortgages on multi-family properties increased 30% at December 31, 2018 from a year earlier. Construction and land loans, which were strong throughout 2018, were $34.37 million, down 16% from a year earlier as a number of projects were completed and loans paid down.  However, a significant number of these construction projects were retained as commercial real estate loans through permanent financing. Agricultural and consumer loans experienced double-digit growth compared with a year earlier, and residential mortgages and home equity loans were relatively stable.

Total deposits at December 31, 2018 rose to $612.11 million from $567.49 million at December 31, 2017. Much of the deposit growth reflected increased noninterest bearing demand accounts, which grew 23% to $91.36 million at December 31, 2018 from $74.10 million at December 31, 2017, and core interest bearing accounts (NOW, saving and money market), which increased to $422.72 million in 2018 from $389.09 million in 2017. Core deposits comprised approximately 69% of total deposits.

Asset quality remained strong, with a ratio of nonperforming loans to total loans of 0.55% at December 31, 2018, compared with 0.87% at December 31, 2017. Nonperforming loans declined 32% at year-end 2018 versus year-end 2017, loan charge-offs declined 49% year over year, and other real estate owned (OREO) declined 8%. The Company’s allowance for loan losses to total loans ratio declined to 0.86% at December 31, 2018 from 0.96% at December 31, 2017, reflecting continued strong loan quality.

The Company grew measures of stockholder value. Total stockholders’ equity was $55.14 million at December 31, 2018, up from $51.67 million at December 31, 2017. Retained earnings increased to $16.52 million, up from $12.27 million at December 31, 2017. Tangible book value per share increased to $12.59 at December 31, 2018 from $11.80 at December 31, 2017. The Bank’s regulatory capital ratios continued to exceed accepted regulatory standards for a well-capitalized institution.

Chapman concluded: “We are enthusiastic about the Company’s prospects in the near term. The region’s economy has been stable and generally strong, businesses and nonprofit organizations have been active and growing, and housing markets have ranged from sound to robust. While the banking market remains competitive, we feel our commitment to providing superior service, supported by a range of sophisticated products and capabilities, has established Bank of the James as a leading choice for retail and commercial banking. We look forward to continuing on the path of delivering sound performance and building the Company’s value for customers and shareholders.”

About the Company

Bank of the James, a wholly owned subsidiary of Bank of the James Financial Group, Inc. opened for business in July 1999 and is headquartered in Lynchburg, Virginia. The bank currently services customers in Virginia from offices located in Altavista, Amherst, Appomattox, Bedford, Blacksburg, Charlottesville, Forest, Harrisonburg, Lynchburg, Madison Heights, and Roanoke. The bank offers full investment and insurance services through its BOTJ Investment Services division and BOTJ Insurance, Inc. subsidiary.  The bank provides mortgage loan origination through Bank of the James Mortgage, a division of Bank of the James. Bank of the James Financial Group, Inc. common stock is listed under the symbol “BOTJ” on the NASDAQ Stock Market, LLC.  Additional information on the Company is available at www.bankofthejames.bank.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe,” “estimate,” “expect,” “intend,” “anticipate,” “plan” and similar expressions and variations thereof identify certain of such forward-looking statements which speak only as of the dates on which they were made. Bank of the James Financial Group, Inc. (the “Company”) undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those indicated in the forward-looking statements as a result of various factors. Such factors include, but are not limited to, competition, general economic conditions, potential changes in interest rates, and changes in the value of real estate securing loans made by Bank of the James (the “Bank”), a subsidiary of the Company. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the Company’s filings with the Securities and Exchange Commission and previously filed by the Bank (as predecessor of the Company) with the Federal Reserve Board.

CONTACT: J. Todd Scruggs, Executive Vice President and Chief Financial Officer (434) 846-2000.
tscruggs@bankofthejames.com

FINANCIAL STATEMENTS FOLLOW

Bank of the James Financial Group, Inc. and Subsidiaries
Dollar amounts in thousands, except per share data
Unaudited

Selected Data: Three
months
ending
Dec 31,
2018
Three
months
ending
Dec 31,
2017
Change Year
to
date
Dec 31,
2018
Year
to
date
Dec 31,
2017
Change
Interest income $ 7,111 $ 6,235   14.05 % $ 26,971 $ 23,665   13.97 %
Interest expense   1,059   825   28.36 %   3,795   2,993   26.80 %
Net interest income   6,052   5,410   11.87 %   23,176   20,672   12.11 %
Provision for loan losses   189   248   -23.79 %   716   993   -27.90 %
Noninterest income   1,288   1,376   -6.40 %   5,235   4,727   10.75 %
Noninterest expense   5,296   4,912   7.82 %   21,064   19,046   10.60 %
Income taxes   380   1,266   -69.98 %   1,329   2,438   -45.49 %
Net income   1,475   360   309.72 %   5,302   2,922   81.45 %
Weighted average shares outstanding – basic   4,378,436   4,378,436       4,378,436   4,378,436    
Weighted average shares outstanding – diluted   4,378,436   4,378,519   (83 )   4,378,459   4,378,521   (62 )
Basic net income per share $ 0.34 $ 0.08 $ 0.26   $ 1.21 $ 0.67 $ 0.54  
Fully diluted net income per share $ 0.34 $ 0.08 $ 0.26   $ 1.21 $ 0.67 $ 0.54  

Balance Sheet at period end: Dec 31,
2018
Dec 31,
2017
Change Dec 31,
2017
Dec 31,
2016
Change
Loans, net $ 530,016 $ 491,022 7.94 % $ 491,022 $ 464,353   5.74 %
Loans held for sale   1,670   2,626 -36.41 %   2,626   3,833   -31.49 %
Total securities   56,427   61,025 -7.53 %   61,025   44,075   38.46 %
Total deposits   612,043   567,493 7.85 %   567,493   523,112   8.48 %
Stockholders’ equity   55,143   51,665 6.73 %   51,665   49,421   4.54 %
Total assets   674,897   626,341 7.75 %   626,341   574,195   9.08 %
Shares outstanding   4,378,436   4,378,436     4,378,436   4,378,436    
Book value per share $ 12.59 $ 11.80 0.79   $ 11.80 $ 11.29 $ 0.51  

Daily averages: Three
months
ending
Dec 31,
2018
Three
months
ending
Dec 31,
2017
Change Year
to
date
Dec 31,
2018
Year
to
date
Dec 31,
2017
Change
Loans, net $ 525,960 $ 493,978 6.47 % $ 515,200 $ 480,138 7.30 %
Loans held for sale   3,262   3,575 -8.76 %   3,138   2,628 19.41 %
Total securities   59,647   59,719 -0.12 %   60,880   54,913 10.87 %
Total deposits   610,612   569,243 7.27 %   595,434   543,783 9.50 %
Stockholders’ equity   56,077   52,701 6.41 %   54,461   51,789 5.16 %
Interest earning assets   632,245   589,938 7.17 %   618,812   563,538 9.81 %
Interest bearing liabilities   524,878   498,858 5.22 %   499,499   478,459 4.40 %
Total assets   673,113   628,069 7.17 %   656,938   601,820 9.16 %

Financial Ratios: Three
months
ending
Dec 31,
2018
Three
months
ending
Dec 31,
2017
Change Year
to
date
Dec 31,
2018
Year
to
date
Dec 31,
2017
Change
Return on average assets 0.87 % 0.23 % 0.64   0.81 % 0.49 % 0.32  
Return on average equity 10.44 % 2.71 % 7.73   9.74 % 5.64 % 4.10  
Net interest margin 3.80 % 3.64 % 0.16   3.75 % 3.67 % 0.08  
Efficiency ratio 72.15 % 72.38 % (0.23 ) 74.14 % 74.99 % (0.85 )
Average equity to average assets 8.33 % 8.39 % (0.06 ) 8.29 % 8.61 % (0.32 )

Allowance for loan losses: Three
months
ending
Dec 31,
2018
Three
months
ending
Dec 31,
2017
Change Year
to
date
Dec 31,
2018
Year
to
date
Dec 31,
2017
Change
Beginning balance $ 4,561 $ 6,020 -24.24% $ 4,752 $ 5,716 -16.86%
Provision for losses   189   248 -23.79%   716   993 -27.90%
Charge-offs   (185)   (1,543) -88.01%   (1,064)   (2,094) -49.19%
Recoveries   16   27 -40.74%   177   137 29.20%
Ending balance   4,581   4,752 -3.60%   4,581   4,752 -3.60%

Nonperforming assets: Dec 31,
2018
Dec 31,
2017
Change Dec 31,
2017
Dec 31,
2016
Change
Total nonperforming loans $ 2,939 $ 4,308 -31.78 % $ 4,308 $ 2,550 68.94 %
Other real estate owned   2,431   2,650 -8.26 %   2,650   2,370 11.81 %
Total nonperforming assets   5,370   6,958 -22.82 %   6,958   4,920 41.42 %
Troubled debt restructurings – (performing portion)   424   440 -3.64 %   440   455 -3.30 %

Asset quality ratios: Dec 31,
2018
Dec 31,
2017
Change Dec 31,
2017
Dec 31,
2016
Change
Nonperforming loans to total loans 0.55 % 0.87 % (0.32 ) 0.87 % 0.54 % 0.33  
Allowance for loan losses to total loans 0.86 % 0.96 % (0.10 ) 0.96 % 1.22 % (0.26 )
Allowance for loan losses to nonperforming loans 155.87 % 110.31 % 45.56   110.31 % 224.16 % (113.85 )

Bank of the James Financial Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(dollar amounts in thousands, except per share amounts)

Assets (unaudited)
12/31/18
  12/31/17
               
Cash and due from banks $ 26,725     $ 20,267  
Federal funds sold   23,600       16,751  
Total cash and cash equivalents   50,325       37,018  
       
Securities held-to-maturity (fair value of $3,515 in 2018 and $5,619 in 2017)   3,700       5,713  
Securities available-for-sale, at fair value   52,727       55,312  
Restricted stock, at cost   1,462       1,505  
Loans, net of allowance for loan losses of $4,581 in 2018 and $4,752 in 2017   530,016       491,022  
Loans held for sale   1,670       2,626  
Premises and equipment, net   13,233       11,890  
Software, net   193       165  
Interest receivable   1,742       1,713  
Cash value – bank owned life insurance   13,359       13,018  
Other real estate owned   2,431       2,650  
Income taxes receivable   1,102       1,366  
Deferred tax asset   1,755       1,418  
Other assets   1,182       925  
Total assets $ 674,897     $ 626,341  
       
Liabilities and Stockholders’ Equity      
Deposits      
Noninterest bearing demand   91,356       74,102  
NOW, money market and savings   331,298       307,987  
Time   189,389       185,404  
Total deposits   612,043       567,493  
       
Capital notes   5,000       5,000  
Interest payable   127       111  
Other liabilities   2,584       2,072  
Total liabilities $ 619,754     $ 574,676  
       
Stockholders’ equity      
Common stock $2.14 par value; authorized 10,000,000 shares; issued and outstanding      
4,378,436 as of December 31, 2017 and 2018   9,370       9,370  
Additional paid-in-capital   31,495       31,495  
Accumulated other comprehensive loss   (2,243 )     (1,469 )
Retained earnings   16,521       12,269  
Total stockholders’ equity $ 55,143     $ 51,665  
Total liabilities and stockholders’ equity $ 674,897     $ 626,341  
               

Bank of the James Financial Group, Inc. and Subsidiaries
Consolidated Statements of Income
(dollar amounts in thousands, except per share amounts)
(unaudited)

Interest Income For the Three Months
Ended December 31,
  For the Year
Ended December 31,
    2018       2017     2018     2017
Loans $ 6,507     $ 5,745   $ 24,836   $ 22,081
Securities                
US Government and agency obligations   189       185     760     550
Mortgage backed securities   60       85     256     299
Municipals   83       84     331     342
Dividends   34       31     74     73
Other (Corporates)   24       24     94     105
Interest bearing deposits   76       29     227     82
Federal Funds sold   138       52     393     133
Total interest income   7,111       6,235     26,971     23,665
                 
Interest Expense                
Deposits                
NOW, money market savings   277       192     961     722
Time Deposits   650       501     2,291     1,788
FHLB borrowings             17    
Reverse repurchase agreements                 13
Brokered time deposits   82       82     326     283
Capital notes   50       50     200     187
Total interest expense   1,059       825     3,795     2,993
                 
Net interest income   6,052       5,410     23,176     20,672
                 
Provision for loan losses   189       248     716     993
                 
Net interest income after provision for loan losses   5,863       5,162     22,460     19,679
                 
                 
Noninterest income                
Gains on sale of loans held for sale   658       771     2,918     2,434
Service charges, fees and commissions   495       485     1,871     1,759
Increase in cash value of life insurance   85       86     341     345
Other   50       34     105     76
Gain on sales of available-for-sale securities                 113
                 
Total noninterest income   1,288       1,376     5,235     4,727

Noninterest expenses              
Salaries and employee benefits   2,881       2,698     11,279     10,012
Occupancy   379       366     1,522     1,493
Equipment   409       375     1,600     1,521
Supplies   135       130     548     520
Professional, data processing, and other outside expense   813       683     3,226     2,795
Marketing   119       143     611     739
Credit expense   150       114     528     467
Other real estate expenses   (9 )     10     227     88
FDIC insurance expense   99       90     398     375
Other   320       303     1,125     1,036
Total noninterest expenses   5,296       4,912     21,064     19,046
               
Income before income taxes   1,855       1,626     6,631     5,360
               
Income tax expense   380       1,266     1,329     2,438
               
Net Income $ 1,475     $ 360   $ 5,302   $ 2,922
               
Weighted average shares outstanding – basic   4,378,436       4,378,436     4,378,436     4,378,436
               
Weighted average shares outstanding – diluted   4,378,436       4,378,519     4,378,459     4,378,521
               
Net income per common share – basic $ 0.34     $ 0.08   $ 1.21   $ 0.67
               
Net income per common share – diluted $ 0.34     $ 0.08   $ 1.21   $ 0.67