Market Overview

Bank of the James Announces Second Quarter, First Half 2018 Financial Results and Declaration of Dividend

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LYNCHBURG, Va., July 20, 2018 (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 the greater Lynchburg area (Region 2000), and the Charlottesville, Harrisonburg, and Roanoke, Virginia markets, today announced unaudited results for the three months and six months ended June 30, 2018.

Net income for the three months ended June 30, 2018 was $1.30 million or $0.30 per diluted share, up 65% compared with $787,000 or $0.18 per diluted share for the three months ended June 30, 2017. For the six months ended June 30, 2018, net income rose 57% to $2.42 million or $0.55 per diluted share, compared with $1.55 million or $0.35 per diluted share for the six months ended June 30, 2017.

Highlights

  • Commercial & industrial (C&I) lending and commercial real estate (CRE) lending were the major contributors to 15% growth of interest income from earning assets in the second quarter of 2018 compared with the second quarter of 2017.
  • Net interest income before the provision for loan losses was $5.80 million in the second quarter of 2018, up 13% from the second quarter of 2017, led primarily by growth in commercial lending.
  • Total noninterest income, primarily reflecting increased fee income from treasury services, income from the Company's insurance and investments business, and growth in gains on sale of residential mortgage loans, rose 20% in the second quarter of 2018 compared with the second quarter of 2017. In the first half of 2018, total noninterest income was up 27% as compared to the first half of 2017.
  • Deposits were $596.07 million, a company record, led by core deposit growth (noninterest-bearing demand, NOW, savings and money market accounts).
  • Total assets, driven primarily by a 7% year-over-year growth in net loans and loans held for sale, increased to a Company-record $655.87 million at June 30, 2018. Asset quality ratios remained strong, reflecting loan portfolio strength.
  • Measures of productivity trended positively, as Return on Average Assets (ROAA) was 0.79% for the quarter ended June 30, 2018 as compared to 0.54% for the quarter ended June 30, 2017, and Return on Average Equity (ROAE) increased to 9.67% for the quarter ended June 30, 2018 from 6.13% a year earlier. The Company's efficiency ratio was 73.3% in the second quarter of 2018, improving from 75.6% a year earlier.
  • Total stockholders' equity increased to $52.52 million at June 30, 2018 from $51.67 million December 31, 2017, and retained earnings increased to $14.17 million from $12.27 million at year-end 2017. Based on the results achieved in the first quarter, on July 17, 2018 the Company's board of directors approved a $0.06 per share dividend payable to stockholders of record on September 7, 2018, to be paid on September 21, 2018.

Robert R. Chapman III, President and CEO, commented: "Our financial results, including one of the best quarters for earnings in the Company's history, reflected the continued revenue contributions throughout the Company. Continuing gains in productivity and efficiency, as seen in higher year-over-year ROAA and ROAE and an improved efficiency ratio, are supporting our goal of generating an accelerating and predictable earnings flow. Managing interest expense while growing our deposit base, and maintaining solid loan quality have also supported earnings growth.

"Commercial lending and banking continued the positive performance of the past several quarters, and our BOTJ Investment Services team and Mortgage Lending group both had record quarters for production. Our expanded team of mortgage lenders, and continuing success in growing our reputation throughout our served markets as a mortgage origination leader led to this positive performance. Contributions from BOTJ Investment Services, gains on sale of originated mortgages, and revenue from commercial treasury services have supported growth of noninterest income."

Second Quarter, First Half 2018 Operational Review

Total interest income was $6.73 million in the second quarter of 2018, up 15% from $5.85 million a year earlier. The primary driver of interest income growth continued to be loans. Although interest expense rose year-over-year with an increase in deposits and market driven rate increases, net interest income was up 13% to $5.80 million for the quarter ended June 30, 2018 compared with a year earlier. First half 2018 net interest income increased 12% compared with a year earlier.

The Company's provision for loan losses was 29% lower in the second quarter of 2018 compared with a year earlier, and 38% lower in the first half of 2018 compared with a year earlier. Chapman noted the Company believes it continues to reserve prudently for probable loan losses, consistent with loan portfolio growth. The second quarter of 2018 loan loss provision was $315,000 compared with $445,000 in the second quarter of 2017, and the loan loss provision in the first half of 2018 was $337,000, compared with $545,000 in the first half of 2017.

Net interest income after provision for loan losses in the second quarter of 2018 was $5.49 million compared with $4.70 million in the second quarter of 2017. Net interest income after provision for loan losses in the first half of 2018 was $10.80 million compared with $9.43 million a year earlier.

Commercial lending growth, stable to slightly increasing rates, and expense management contributed to a 3.74% net interest margin, with a 3.60% interest spread in the second quarter of 2018, essentially stable compared with a year earlier. The Company's average earned rates on loans, including fees, was 4.72% in the second quarter of 2018, up from 4.57% in the second quarter of 2017. Average rates on total earning assets for the quarter ended June 30, 2018 were 4.33%, compared to 4.26% a year earlier.

J. Todd Scruggs, Executive Vice President and CFO, commented: "While we look to keep pace with prevailing market interest rates, we have not focused on squeezing a few basis points out of every rate fluctuation. Our commercial clients pay what we believe to be a fair rate, which reflects the added value they receive from our services and advisory capabilities. We feel this philosophy has been the key to maintaining strong margins and a high level of client retention."

Growth in core interest bearing deposits and a slight decline in higher-interest time deposits enabled the Company to achieve a 0.69% average rate paid on interest bearing deposits in the second quarter of 2018, compared with 0.63% a year earlier. "Growth in relationship banking, including linked deposits, has enabled our Company to build core deposits and manage rates," Scruggs explained. "We have tried to avoid competing for high-rate time deposit business."

Noninterest income, including gains from the sale of residential mortgages to the secondary market, revenue growth from BOTJ Investment Services, and income from the Bank's line of treasury management services for commercial customers demonstrated strong year-over-year growth. Noninterest income rose 20% to $1.44 million for the three months ended June 30, 2018 from $1.20 million for the three months ended June 30, 2017, and increased 27% to $2.63 million for the six months ended June 30, 2018 from $2.07 million for the six months ended June 30, 2017. Strong residential mortgage origination activity contributed to a pipeline of loans held for sale of $5.82 million at June 30, 2018 compared with $2.63 million at December 31, 2017, which the Company anticipates will generate gains from mortgage loan sales in the third quarter of 2018.

Chapman noted: "Mortgage lending has benefitted from trends that include strong housing demand in our markets, rising home prices, and the prospect of rising interest rates. However, we believe our ability to capture more than a fair share of market-driven activity stems from our team's outreach, and leveraging our reputation for service, convenience, and solutions. Maintaining a customer-focused, high-touch approach to the mortgage lending process earns us business and referrals. We also focus on building banking relationships with mortgage clients, making the mortgage lending process much more than a one-time transaction."

Income from service charges, fees and commissions, which included growing fee income from the Company's suite of treasury services for businesses and income from BOJT Investment Services, increased to $465,000 in the second quarter of 2018 from $443,000 in the second quarter of 2017, and to $929,000 in the first half of 2018, up from $828,000 in the first half of 2017. A continuing trend of strong residential mortgage originations generated a 46% increase in gain on sales of loans in the second quarter of 2018 compared with a year earlier, and 54% year-over-year growth in the first half of 2018 compared with the first half of 2017.

Noninterest expense for the three months ended June 30, 2018 was $5.31 million compared with $4.76 million a year earlier, primarily reflecting increased personnel expenses from a larger team of producing individuals, professional expenses, and data processing expenses. This increase was partially offset by lower expenses in categories including occupancy, equipment and marketing. In the first half of 2018, noninterest expense was $10.40 million compared with $9.25 million in the first half of 2017.

"We are very encouraged to see that the productivity from our investments in quality people and selected support systems are having a definite impact on the Company's efficiency," noted Chapman. "In addition to the strong positive year-over-year gains in return on average assets and equity, our efficiency ratio of 73.3% for the quarter was the lowest it has been in quite some time. We continue to focus on greater efficiency, but we are pleased with the trend."

Balance Sheet Review: Growth, Asset Quality

Total assets were a record $655.87 million, up from $626.34 million at December 31, 2017. The primary driver of asset growth continues to be loans held for investment, net of the allowance for loan losses, which totaled $523.73 million, up from $491.02 million at December 31, 2017. Loans held for sale were more than double the total at year-end 2017, reflecting the consistent growth of residential mortgage originations and positioning those loans for placement in the secondary market.

The Company's commercial loan portfolio, primarily commercial and industrial (C&I) loans, increased 5% to $102.16 million at June 30, 2018 compared with commercial loans at June 30, 2017. Owner occupied real estate loans, led by CRE lending, increased 7% year-over-year to $155.88 million, and non-owner occupied real estate (primarily commercial and investment property) increased by 16% year-over-year to $171.57 million. Total construction lending slowed year-over-year, primarily reflecting project seasonality and a very strong 2017 for both residential and commercial real estate construction activity. Consumer loans and consumer lines of credit totals were essentially unchanged from the prior year.

Total deposits at June 30, 2018 rose to $596.07 million from $567.49 million at December 31, 2017 and $532.86 million at June 30, 2017. Noninterest bearing deposits rose to $86.76 million at June 30, 2018 from $83.96 million at March 31, 2018 and $74.10 million at December 31, 2017. Interest-bearing demand and savings deposits were $328.08 million at June 30, 2018 compared with $318.52 million at March 31, 2018 and $307.99 million at December 31, 2017. Core deposits were approximately 70% of total deposits.

Asset quality remained strong, with a nonperforming loans to total loans ratio of 0.60% at June 30, 2018, compared with 0.87% at December 31, 2017. Total nonperforming assets, inclusive of Other Real Estate Owned (OREO), declined 17% from year-end 2017 to $5.78 million. Total nonperforming loans of $3.20 million at June 30, 2018 were down 26% from $4.31 million at December 31, 2017. The Company's allowance for loan losses was $4.69 million, with a ratio of 0.89% allowance for loan losses to total loans and a 146.7% loss allowance to nonperforming loans.

The Company grew measures of stockholder value. Total stockholders' equity was $52.52 million at June 30, 2018, compared with $51.68 million at March 31, 2018 and $51.67 million at December 31, 2017. Retained earnings were $14.17 million, up from $12.27 million at December 31, 2017. Tangible book value per share increased to $12.00 at June 30, 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: "The positive impact of the investments in growth is generating revenue, and supporting new and expanded relationships with customers throughout our served markets. Looking ahead to the second half of 2018, economic conditions are positive and we have a team in place that we believe will generate continued revenue and earnings growth, and with it, enhanced value for 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 operates 13 banking offices three limited services offices, and two loan production offices in Virginia serving Altavista, Amherst, Appomattox, Bedford, 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
Jun 30,
2018
Three
months
ending
Jun 30,
2017
Change Year
to
date
Jun 30,
2018
Year
to
date
Jun 30,
2017
Change
Interest income $   6,725   $   5,851     14.94 % $   12,880   $   11,360     13.38 %
Interest expense   922     711     29.68 %   1,746     1,382     26.34 %
Net interest income   5,803     5,140     12.90 %   11,134     9,978     11.59 %
Provision for loan losses   315     445     (29.21 %)   337     545     (38.17 %)
Noninterest income   1,441     1,204     19.68 %   2,627     2,065     27.22 %
Noninterest expense   5,306     4,756     11.56 %   10,403     9,253     12.43 %
Income taxes   323     356     (9.27 %)   598     698     (14.33 %)
Net income   1,300     787     65.18 %   2,423     1,547     56.63 %
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 )   4,378,481     4,378,527     (46 )
Basic net income
per share
$   0.30   $   0.18   $   0.12   $   0.55   $   0.35   $   0.20  
Fully diluted net income
per share
$   0.30   $   0.18   $   0.12   $   0.55   $   0.35   $   0.20  


Balance Sheet at
period end:
Jun 30,
2018
Dec 31,
2017
Change Jun 30,
2017
Dec 31,
2016
Change
Loans, net $   523,730   $   491,022   6.66 % $   483,248   $   464,353     4.07 %
Loans held for sale   5,815     2,626   121.44 %   2,514     3,833     (34.41 %)
Total securities   57,394     61,025   -5.95 %   52,603     44,075     19.35 %
Total deposits   596,068     567,493   5.04 %   532,862     523,112     1.86 %
Stockholders' equity   52,524     51,665   1.66 %   51,058     49,421     3.31 %
Total assets   655,866     626,341   4.71 %   595,637     574,195     3.73 %
Shares outstanding   4,378,436     4,378,436   -     4,378,436     4,378,436     -  
Book value per share $   12.00   $   11.80   0.20   $   11.66   $   11.29   $   0.37  


Daily averages: Three
months
ending
Jun 30,
2018
Three
months
ending
Jun 30,
2017
Change Year
to
date
Jun 30,
2018
Year
to
date
Jun 30,
2017
Change
Loans, net $   518,972   $   471,770   10.01 % $   505,794   $   468,052   8.06 %
Loans held for sale   3,706     2,347   57.90 %   3,076     1,871   64.40 %
Total securities   60,959     54,130   12.62 %   61,811     52,532   17.66 %
Total deposits   597,379     530,487   12.61 %   584,104     524,100   11.45 %
Stockholders' equity   53,913     51,483   4.72 %   53,383     51,228   4.21 %
Interest earning assets   622,956     551,552   12.95 %   608,485     544,693   11.71 %
Interest bearing liabilities   504,581     424,884   18.76 %   476,569     420,597   13.31 %
Total assets   660,578     588,167   12.31 %   645,290     580,404   11.18 %


Financial Ratios: Three
months
ending
Jun 30,
2018
Three
months
ending
Jun 30,
2017
Change Year
to
date
Jun 30,
2018
Year
to
date
Jun 30,
2017
Change
Return on average assets 0.79 % 0.54 % 0.25   0.76 % 0.54 % 0.22  
Return on average equity 9.67 % 6.13 % 3.54   9.15 % 6.09 % 3.06  
Net interest margin 3.74 % 3.74 % -   3.69 % 3.70 % (0.01 %)
Efficiency ratio 73.25 % 74.97 % (1.72 ) 75.60 % 76.83 % (1.23 )
Average equity to
average assets
8.16 % 8.75 % (0.59 ) 8.27 % 8.83 % (0.56 )


Allowance for loan losses: Three
months
ending
Jun 30,
2018
Three
months
ending
Jun 30,
2017
Change Year
to
date
Jun 30,
2018
Year
to
date
Jun 30,
2017
Change
Beginning balance $   4,671   $   5,716   (18.28 %) $   4,752   $   5,716   (16.86 %)
Provision for losses   315     445   (29.21 %)   337     545   (38.17 %)
Charge-offs   (315 )   (96 ) 227.08 %   (555 )   (226 ) 145.13 %
Recoveries   17     67   (74.63 %)   154     97   58.76 %
Ending balance   4,688     6,132   (23.53 %)   4,688     6,132   (23.53 %)


Nonperforming assets: Jun 30,
2018
Dec 31,
2017
Change Jun 30,
2017
Dec 31,
2016
Change
Total nonperforming loans $   3,195   $   4,308   (25.84 %) $   2,649   $   2,550   3.88 %
Other real estate owned   2,585     2,650   (2.45 %)   2,775     2,370   17.09 %
Total nonperforming assets   5,780     6,958   (16.93 %)   5,424     4,920   10.24 %
Troubled debt restructurings - (performing portion)   432     440   (1.82 %)   448     455   (1.54 %)
             
             
Asset quality ratios: Jun 30,
2018
Dec 31,
2017
Change Jun 30,
2017
Dec 31,
2016
Change
Nonperforming loans to
total loans
  0.60 %   0.87 % (0.27 )   0.54 %   0.54 % (0.00 )
Allowance for loan losses
to total loans
  0.89 %   0.96 % (0.07 )   1.25 %   1.22 % 0.03  
Allowance for loan losses
to nonperforming loans
  146.73 %   110.31 % 36.42     231.48 %   224.16 % 7.32  


               
Bank of the James Financial Group, Inc. and Subsidiaries
Consolidated Statements of Income
(dollar amounts in thousands, except per share amounts)
(unaudited)
               
  For the Three Months   For the Six Months
  Ended June 30,   Ended June 30,
Interest Income 2018   2017   2018   2017
Loans $ 6,195   $ 5,465   $ 11,869   $ 10,653
Securities  
US Government and agency obligations   186     121     384     234
Mortgage backed securities   66     77     134     143
Municipals   83     90     165     170
Dividends   23     28     31     35
Other (Corporates)   24     30     47     57
Interest bearing deposits   56     17     91     32
Federal Funds sold   92     23     159     36
Total interest income   6,725     5,851     12,880     11,360
                       
   
Interest Expense  
Deposits  
NOW, money market savings   231     175     423     344
Time Deposits   543     425     1,044     827
FHLB borrowings   16     -     17     -
Brokered time deposits   82     61     162     124
Capital notes   50     50     100     87
Total interest expense   922     711     1,746     1,382
                       
Net interest income   5,803     5,140     11,134     9,978
                       
Provision for loan losses   315     445     337     545
                       
Net interest income after provision for loan losses   5,488     4,695     10,797     9,433
                       
   
Noninterest income  
Gains on sale of loans held for sale   873     598     1,493     969
Service charges, fees and commissions   465     443     929     828
Increase in cash value of life insurance   85     87     170     173
Other   18     24     35     33
Gain on sales of available-for-sale securities   -     52     -     62
                       
Total noninterest income   1,441     1,254     2,627     2,065
   
Noninterest expenses  
Salaries and employee benefits   2,832     2,396     5,545     4,776
Occupancy   360     365     755     737
Equipment   398     438     777     786
Supplies   140     123     289     257
Professional, data processing, and other outside expense   837     697     1,652     1,377
Marketing   187     236     327     384
Credit expense   112     137     237     231
Other real estate expenses   86     24     126     36
FDIC insurance expense   99     88     200     191
Other   255     252     495     478
Total noninterest expenses   5,306     4,756     10,403     9,253
                       
Income before income taxes   1,623     1,143     3,021     2,245
                       
Income tax expense   323     356     598     698
                       
Net Income $ 1,300   $ 787   $ 2,423   $ 1,547
                       
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     4,378,481     4,378,527
                       
Net income per common share - basic $ 0.30   $ 0.18   $ 0.55   $ 0.35
                       
Net income per common share - diluted $ 0.30   $ 0.18   $ 0.55   $ 0.35
                       

 

         
Bank of the James Financial Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(dollar amounts in thousands, except per share amounts)
         
  (unaudited)      
Assets 6/30/2018     12/31/2017
               
Cash and due from banks $ 25,717     $ 20,267  
Federal funds sold   8,132       16,751  
Total cash and cash equivalents   33,849       37,018  
               
Securities held-to-maturity (fair value of $3,448 in 2018 and $5,619 in 2017)   3,706       5,713  
               
Securities available-for-sale, at fair value   53,688       55,312  
Restricted stock, at cost   1,462       1,505  
               
Loans, net of allowance for loan losses of $4,688 in 2018 and $4,752 in 2017   523,730       491,022  
Loans held for sale   5,815       2,626  
Premises and equipment, net   11,877       11,890  
Software, net   118       165  
Interest receivable   1,755       1,713  
               
Cash value - bank owned life insurance   13,188       13,018  
Other real estate owned   2,585       2,650  
Income taxes receivable   1,339       1,366  
Deferred tax asset   1,695       1,418  
Other assets   1,059       925  
Total assets $ 655,866     $ 626,341  
               
               
Liabilities and Stockholders' Equity              
               
Deposits              
Noninterest bearing demand   86,757       74,102  
NOW, money market and savings   328,082       307,987  
Time   181,229       185,404  
Total deposits   596,068       567,493  
               
Capital notes   5,000       5,000  
Interest payable   107       111  
Other liabilities   2,167       2,072  
Total liabilities $ 603,342     $ 574,676  
               
 
Stockholders' equity  
   
Common stock $2.14 par value; authorized 10,000,000 shares; issued and outstanding 4,378,436 as of June 30, 2018 and December 31, 2017   9,370       9,370  
Additional paid-in-capital   31,495       31,495  
Accumulated other comprehensive (loss)   (2,508 )     (1,469 )
Retained earnings   14,167       12,269  
Total stockholders' equity $ 52,524     $ 51,665  
               
Total liabilities and stockholders' equity $ 655,866     $ 626,341  
               

 

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