Bank of the James Announces Third Quarter, Nine Months of 2018 Financial Results and Declaration of Dividend

Strong Year-Over-Year Earnings Growth, Loan and Deposit Expansion

LYNCHBURG, Va., Oct. 19, 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 nine months ended September 30, 2018.

Net income for the three months ended September 30, 2018 was $1.40 million or $0.32 per diluted share, up 38% compared with $1.02 million or $0.23 per diluted share for the three months ended September 30, 2017. For the nine months ended September 30, 2018, net income rose 49% to $3.83 million or $0.87 per diluted share, compared with $2.56 million or $0.59 per diluted share for the nine months ended September 30, 2017.

Robert R. Chapman III, President and CEO, commented: “We continued to have balanced contributions from commercial and retail lending and banking activities, generating meaningful year-over-year interest income and non-interest income growth. Deposit growth of $47 million year-over-year, specifically an increase core deposits, reflected an ongoing focus on building full banking relationships with clients. Importantly, deposit growth has provided attractively priced financing to fund lending, and contributed to interest expense management and net interest margin improvement.”

Highlights

• Commercial real estate (CRE), construction and multi-family housing loans were major contributors to the 15% growth of interest income from earning assets in the third quarter of 2018 compared with the third quarter of 2017.
• Net interest income before the provision for loan losses was $5.99 million in the third quarter of 2018, up 13% from the third 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 continued strong gains on sales of residential mortgage loans, was up 17% in the nine months of 2018 compared with the nine months of 2017.
• Deposits increased to a record $607.45 million at September 30, 2018, led by core deposit growth (noninterest-bearing demand, NOW, savings and money market accounts).
• Total assets were a Company record $668.44 million at September 30, 2018.
• Total nonperforming loans declined 45% at September 30, 2018 from December 31, 2017, contributing to strong asset quality ratios, including an improvement of nonperforming loans to total loans of 0.44% at September 30, 2018 from 0.87% at December 31, 2017. All asset quality ratios remained strong, reflecting loan portfolio strength.
• Measures of productivity trended positively, as Return on Average Assets (ROAA) was 0.84% for the quarter ended September 30, 2018, up from 0.66% for the quarter ended September 30, 2017 (and up from 0.79% for the quarter ended June 30, 2018). Return on Average Equity (ROAE) increased significantly to 10.13% for the quarter ended September 30, 2018 from 7.75% for the quarter ended September 30, 2017 (and up from 9.67% for the quarter ended June 30, 2018). The Company’s efficiency ratio improved year-over-year.
• Total stockholders’ equity increased to $53.12 million at September 30, 2018 from $51.67 million December 31, 2017, and retained earnings rose to $15.31 million from $12.27 million at year-end 2017. Based on the results achieved in the third quarter of 2018, on October 16, 2018 the Company’s board of directors approved a $0.06 per share dividend payable to stockholders of record on November 30, 2018, to be paid on December 14, 2018.

Chapman continued: “As we have grown the Company’s loan portfolio, we believe that we have been very focused in maintaining sound asset and credit quality by applying thorough credit risk assessment and ongoing loan quality monitoring. This contributed to a 45% reduction in the dollar amount of nonperforming loans since the beginning of 2018, and improved asset quality ratios, including a meaningful reduction in the ratio of nonperforming loans to total loans since the beginning of the year. An expanded banking team, and continued traction in Roanoke, Charlottesville, Harrisonburg and most recently Appomattox and Blacksburg, while managing operating expenses and maintaining asset quality, have contributed to our long-term goals of improved returns on our asset base and generating accelerating, predictable earnings growth.”

Third Quarter, Nine Months of 2018 Operational Review

Total interest income was $6.98 million in the third quarter of 2018, up 15% from $6.07 million a year earlier. The primary driver of interest income growth in the third quarter and nine months of 2018 was an increase in loans combined with an increase in interest rates. Although interest expense rose year-over-year with an increase in deposits and market driven rate increases, net interest income was up 13% to $5.99 million for the quarter ended September 30, 2018 compared with a year earlier. Net interest income in the nine months of 2018 increased 12% compared with a year earlier.

The Company’s provision for loan losses was 5% lower in the third quarter of 2018 compared with a year earlier, and 29% lower in the nine months of 2018 compared with a year earlier. The third quarter of 2018 loan loss provision was $190,000, down from $200,000 in the third quarter of 2017, and the loan loss provision in the nine months of 2018 was $527,000, compared with $745,000 in the first nine months of 2017.

Net interest income after provision for loan losses in the third quarter of 2018 was $5.80 million compared with $5.08 million in the third quarter of 2017. Net interest income after provision for loan losses in the nine months of 2018 was $16.60 million compared with $14.52 million a year earlier.

Commercial lending growth, increased rates, and relative stability in the interest rate spread contributed to a 3.80% net interest margin in the third quarter of 2018, up from 3.69% a year earlier. The net interest margin for the nine months of 2018 expanded to 3.73% from 3.68% in the nine months of 2017. Average rates on total earning assets for the quarter ended September 30, 2018 were 4.47%, compared to 4.20% a year earlier.

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 quarterly growth. Noninterest income rose modestly in the third quarter of 2018 compared with the third quarter of 2017, and was up more than 17% for the nine months of 2018 to $4.05 million from $3.45 million for nine months of 2017.

Ongoing strong residential mortgage origination activity supported a strong pipeline of loans held for sale, which generated gains on sale to the secondary market of $767,000 in the third quarter of 2018, compared with $694,000 in the third quarter of 2017. For the nine months of 2018, gains on the sales of loans held for sale were $2.26 million, compared with $1.66 million for the comparable period in 2017.

Chapman noted: “We have been extremely grateful for the tremendous accomplishments of our Bank of the James Mortgage team in all our served markets including our most recent establishment of a mortgage office in Blacksburg. The team’s professionalism and willingness to go the extra mile for customers, combined with a finely tuned and efficient approval and closing process, has time and again earned referrals from customers, real estate agents, and home builders.

“A focus on mortgage origination has allowed us to emphasize the service and capabilities that Bank of the James is known for, while managing the Company’s risk profile by placing closed mortgages in the secondary market. This has proven to be a very successful strategy.”

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 BOTJ Investment Services, was $547,000 in the third quarter of 2018, relatively stable compared with the third quarter of 2017, and up significantly from $465,000 in the second quarter of 2018. Income of $1.48 million for the nine months of 2018 increased from $1.38 million for the nine months of 2017.

Noninterest expense for the three months ended September 30, 2018 was $5.47 million compared with $4.98 million a year earlier, primarily reflecting increased personnel expenses from a larger team of producing individuals, equipment expense, OREO expense, and to a lesser extent, professional expenses, and data processing expenses. In the nine months of 2018, noninterest expense was $15.87 million compared with $14.24 million in the nine months of 2017.

Balance Sheet Review: Growth, Asset Quality

Total assets rose to a Company record $668.44 million. The primary driver of asset growth continues to be loans held for investment, net of the allowance for loan losses, which totaled $524.10 million, up from $491.02 million at December 31, 2017. Loans held for sale were $2.53 million. Fair market value of securities available-for-sale was $52.33 million compared with $55.31 million at December 31, 2017.

The Company’s commercial loan portfolio realized  year-over-year growth in several categories. Non-owner occupied commercial real estate (primarily commercial and investment property), increased 30% to $71.10 million at September 30, 2018 from $54.73 million a year earlier. Owner-occupied commercial real estate of $102.32 million was up 3% from a year earlier, and mortgages on multi-family properties increased 24% at September 30, 2018 from a year earlier. Construction lending, primarily reflecting continued strong residential home construction activity, was up 20% from a year earlier. 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 September 30, 2018 rose to $607.45 million from $567.49 million at December 31, 2017. Much of the deposit growth reflected increased noninterest bearing demand accounts, which grew to $89.84 million at September 30, 2018 from $74.10 million at December 31, 2017, and core interest bearing accounts (NOW, money market and savings), which increased to $329.87 million from $307.99 million during the same period. Core deposits comprised approximately 70% of total deposits.

Asset quality remained strong, with a ratio of nonperforming loans to total loans of 0.44% at September 30, 2018, compared with 0.87% at December 31, 2017. As previously noted, nonperforming loans declined 45% from December 31, 2017 levels, while total nonperforming assets, inclusive of Other Real Estate Owned (OREO), declined 31% from year-end 2017 to $4.81 million. The Company’s allowance for loan losses was $4.56 million, with a ratio of 0.86% of allowance for loan losses to total loans and a 194% loss allowance to nonperforming loans.

The Company grew measures of stockholder value. Total stockholders’ equity was $53.12 million at September 30, 2018, up from $51.67 million at December 31, 2017. Retained earnings increased to $15.31 million, up from $12.27 million at December 31, 2017. Tangible book value per share increased to $12.13 at September 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.

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 Sep 30, 2018		Three months ending Sep 30, 2017		Change			Year to date Sep 30, 2018		Year to date Sep 30, 2017		Change
Interest income	$	6,980	$	6,070		14.99	%	$	19,860	$	17,430		13.94	%
Interest expense		990		786		25.95	%		2,736		2,168		26.20	%
Net interest income		5,990		5,284		13.36	%		17,124		15,262		12.20	%
Provision for loan losses		190		200		-5.00	%		527		745		-29.26	%
Noninterest income		1,420		1,389		2.23	%		4,047		3,454		17.17	%
Noninterest expense		5,465		4,984		9.65	%		15,868		14,237		11.46	%
Income taxes		351		474		-25.95	%		949		1,172		-19.03	%
Net income		1,404		1,015		38.33	%		3,827		2,562		49.38	%
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	)		4,378,466		4,378,524		(88	)
Basic net income per share	$	0.32	$	0.23	$	0.09		$	0.87	$	0.59	$	0.28
Fully diluted net income per share	$	0.32	$	0.23	$	0.09		$	0.87	$	0.59	$	0.28

Balance Sheet at period end:	Sep 30, 2018		Dec 31, 2017		Change			Sep 30, 2017		Dec 31, 2016		Change
Loans, net	$	524,104	$	491,022	6.74		%	$	493,764	$	464,353		6.33	%
Loans held for sale		2,529		2,626	-3.69		%		1,502		3,833		-60.81	%
Total securities		56,036		61,025	-8.18		%		52,946		44,075		20.13	%
Total deposits		607,447		567,493	7.04		%		560,515		523,112		7.15	%
Stockholders' equity		53,117		51,665	2.81		%		51,792		49,421		4.80	%
Total assets		668,438		626,341	6.72		%		619,336		574,195		7.86	%
Shares outstanding		4,378,436		4,378,436	-				4,378,436		4,378,436		-
Book value per share	$	12.13	$	11.80	$	0.33		$	11.83	$	11.29	$	0.54

Daily averages:	Three months ending Sep 30, 2018			Three months ending Sep 30, 2017			Change		Year to date Sep 30, 2018			Year to date Sep 30, 2017			Change
Loans, net	$	522,944		$	487,051		7.37	%	$	511,573		$	474,455		7.82	%
Loans held for sale		3,134			3,169		-1.10	%		3,096			2,309		34.08	%
Total securities		60,281			54,791		10.02	%		61,302			53,293		15.03	%
Total deposits		602,549			551,629		9.23	%		590,319			535,203		10.30	%
Stockholders' equity		54,967			51,984		5.74	%		53,917			51,482		4.73	%
Interest earning assets		625,693			574,214		8.97	%		614,290			554,642		10.75	%
Interest bearing liabilities		519,235			436,510		18.95	%		490,947			425,959		15.26	%
Total assets		663,685			612,447		8.37	%		651,489			592,974		9.87	%

Financial Ratios:	Three months ending Sep 30, 2018			Three months ending Sep 30, 2017			Change		Year to date Sep 30, 2018			Year to date Sep 30, 2017			Change
Return on average assets		0.84	%		0.66	%	0.18			0.79	%		0.58	%	0.21
Return on average equity		10.13	%		7.75	%	2.38			9.49	%		6.65	%	2.84
Net interest margin		3.80	%		3.69	%	0.11			3.73	%		3.68	%	0.05
Efficiency ratio		73.75	%		74.69	%	(0.94	)		74.95	%		76.07	%	(1.12	)
Average equity to average assets		8.28	%		8.49	%	(0.21	)		8.28	%		8.68	%	(0.41	)

 

Allowance for loan losses:	Three months ending Sep 30, 2018			Three months ending Sep 30, 2017			Change		Year to date Sep 30, 2018			Year to date Sep 30, 2017			Change
Beginning balance	$	4,688		$	6,132		-23.55	%	$	4,752		$	5,716		-16.86	%
Provision for losses		190			200		-5.00	%		527			745		-29.26	%
Charge-offs		(324	)		(325	)	-0.31	%		(879	)		(551	)	59.53	%
Recoveries		7			13		-46.15	%		161			110		46.36	%
Ending balance		4,561			6,020		-24.24	%		4,561			6,020		-24.24	%

Nonperforming assets:	Sep 30, 2018		Dec 31, 2017		Change		Sep 30, 2017		Dec 31, 2016		Change
Total nonperforming loans	$	2,350	$	4,308	-45.45	%	$	2,334	$	2,550	-8.47	%
Other real estate owned		2,455		2,650	-7.36	%		2,639		2,370	11.35	%
Total nonperforming assets		4,805		6,958	-30.94	%		4,973		4,920	1.08	%
Troubled debt restructurings - (performing portion)		428		440	-2.73	%		444		455	-2.42	%

Asset quality ratios:	Sep 30, 2018		Dec 31, 2017		Change		Sep 30, 2017		Dec 31, 2016		Change
Nonperforming loans to total loans	0.44	%	0.87	%	(0.43	)	0.47	%	0.54	%	(0.07	)
Allowance for loan losses to total loans	0.86	%	0.96	%	(0.10	)	1.20	%	1.22	%	(0.02	)
Allowance for loan losses to nonperforming loans	194.09	%	110.31	%	83.78		257.93	%	224.16	%	33.77

Bank of the James Financial Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(dollar amounts in thousands, except per share amounts)
Assets	(unaudited)
	9/30/2018				12/31/2017
Cash and due from banks	$	25,849			$	20,267
Federal funds sold		24,615				16,751
Total cash and cash equivalents		50,464				37,018
Securities held-to-maturity (fair value of $3,394 in 2018 and $5,619 in 2017)		3,703				5,713
Securities available-for-sale, at fair value		52,333				55,312
Restricted stock, at cost		1,462				1,505
Loans, net of allowance for loan losses of $4,561 in 2018 and $4,752 in 2017		524,104				491,022
Loans held for sale		2,529				2,626
Premises and equipment, net		11,862				11,890
Software, net		218				165
Interest receivable		1,876				1,713
Cash value - bank owned life insurance		13,274				13,018
Other real estate owned		2,455				2,650
Income taxes receivable		1,315				1,366
Deferred tax asset		1,840				1,418
Other assets		1,003				925
Total assets	$	668,438			$	626,341
Liabilities and Stockholders' Equity
Deposits
Noninterest bearing demand		89,844				74,102
NOW, money market and savings		329,870				307,987
Time		187,733				185,404
Total deposits		607,447				567,493
Capital notes		5,000				5,000
Interest payable		131				111
Other liabilities		2,743				2,072
Total liabilities	$	615,321			$	574,676
Stockholders' equity
Common stock $2.14 par value; authorized 10,000,000 shares; issued and outstanding 4,378,436 as of September 30, 2018 and December 31, 2017		9,370				9,370
Additional paid-in-capital		31,495				31,495
Accumulated other comprehensive loss		(3,057	)			(1,469	)
Retained earnings		15,309				12,269
Total stockholders' equity	$	53,117			$	51,665
Total liabilities and stockholders' equity	$	668,438			$	626,341

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 Nine Months
	Ended September 30,						Ended September 30,
Interest Income	2018			2017			2018			2017
Loans	$	6,460		$	5,683		$	18,329		$	16,336
Securities
US Government and agency obligations		187			131			571			365
Mortgage backed securities		62			71			196			214
Municipals		83			88			248			258
Dividends		9			7			40			42
Other (Corporates)		23			24			70			81
Interest bearing deposits		60			21			151			53
Federal Funds sold		96			45			255			81
Total interest income		6,980			6,070			19,860			17,430
Interest Expense
Deposits
NOW, money market savings		261			186			684			530
Time Deposits		597			460			1,641			1,287
FHLB borrowings		-			-			17			-
Reverse repurchase agreements		-			13			-			13
Brokered time deposits		82			77			244			201
Capital notes		50			50			150			137
Total interest expense		990			786			2,736			2,168
Net interest income		5,990			5,284			17,124			15,262
Provision for loan losses		190			200			527			745
Net interest income after provision for loan losses		5,800			5,084			16,597			14,517
Noninterest income
Gains on sale of loans held for sale		767			694			2,260			1,663
Service charges, fees and commissions		547			549			1,476			1,377
Increase in cash value of life insurance		86			86			256			259
Other		20			9			55			42
Gain on sales of available-for-sale securities		-			51			-			113
Total noninterest income		1,420			1,389			4,047			3,454

Noninterest expenses
Salaries and employee benefits		2,853			2,538			8,398			7,314
Occupancy		388			390			1,143			1,127
Equipment		414			360			1,191			1,146
Supplies		124			133			413			390
Professional, data processing, and other outside expense		761			735			2,413			2,112
Marketing		165			212			492			596
Credit expense		241			225			478			456
Other real estate expenses		110			42			236			78
FDIC insurance expense		99			94			299			285
Other		310			255			805			733
Total noninterest expenses		5,465			4,984			15,868			14,237
Income before income taxes		1,755			1,489			4,776			3,734
Income tax expense		351			474			949			1,172
Net Income	$	1,404		$	1,015		$	3,827		$	2,562
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			4,378,466			4,378,524
Net income per common share - basic	$	0.32		$	0.23		$	0.87		$	0.59
Net income per common share - diluted	$	0.32		$	0.23		$	0.87		$	0.59