Bank Of The James Announces Second Quarter, First Half 2016 Financial Results And Declaration Of Dividend

LYNCHBURG, Va., July 22, 2016 (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, 2016.

Net income for the three months ended June 30, 2016 was $1.05 million or $0.24 per diluted share compared with $957,000 or $0.28 per diluted share for the three months ended June 30, 2015. Net income for the six months ended June 30, 2016 was $1.94 million or $0.44 per diluted share compared with $1.88 million or $0.56 per diluted share for the six months ended June 30, 2015. Diluted earnings per share in the second quarter and first half 2016 reflected a 30% increase in the number of weighted average shares outstanding compared with the second quarter and first half 2015, resulting primarily from the issuance of one million new shares of the company's common stock on December 3, 2015.

Robert R. Chapman III, President and CEO, stated:  "Our second quarter and first half financial results reflected account growth and new business throughout our expanded franchise, strong production from an expanded banking team, and sound asset quality. We have been judiciously investing in people and operations to drive growth and support productivity, and feel the positive results are reflected in areas such as loan growth and expanded interest income.

"The company recently received regulatory approval to begin full-service branch banking in our successful and growing Charlottesville market, and anticipate opening this new home base in Charlottesville for commercial and retail banking operations in October or early November. Our Shenandoah Valley business, based in Harrisonburg, recently celebrated its one-year anniversary and continues to grow. The company's Roanoke business, with an expanded focus on commercial lending, is performing very well.

"Our investment in people include banking leaders in several markets. In our home base of Region 2000, a 22-year banking veteran and Appomattox native, Thomas R. Cobb, recently joined the company as Vice President and Regional Manager. We're excited to be expanding our presence in Appomattox. Successful community banking depends on a quality team of bankers and the relationships they establish and maintain. Our talented team is proving its value and helping drive growth."

Highlights
  • Interest income from earning assets increased 6% in second quarter 2016 and 7% in first half 2016 from a year earlier, primarily due to commercial and construction loan growth.
  • Net interest income was up 10% for the three months ended June 30, 2016 and 11% for the six months ended June 30, 2016 compared with the prior year's periods, reflecting interest income growth, disciplined deposit pricing, and elimination of interest expense resulting from the retirement of outstanding debt in January 2016.
  • Noninterest income increased 15% in first half 2016 compared with a year earlier, primarily reflecting consistent growth in gains on sales of purchase mortgage originations, service charges and income from treasury management and corporate credit card services, and gains on the sale of investment securities.
  • Total deposits were a company record $493.54 million, with 7% growth in non-interest bearing deposits and 3% growth in core deposits (interest- and noninterest-bearing demand accounts) from December 31, 2015.
  • Total loans, net of provision for loan losses, were a company record $452.04 million at June 30, 2016 as the company continued to build its portfolio of commercial loans. Loans held for sale at June 30, 2016 were more than double from December 31, 2015 as the company grew residential purchase mortgage originations.
  • Measures of shareholder value included a 5% increase in total stockholders' equity at June 30, 2016 from December 31, 2015, and a 41% increase from June 30, 2015 (primarily due to the issuance of new shares of common stock in December 2015) and an increase in book value per share to $11.55 compared with $11.01 at December 31, 2015 and $10.62 at June 30, 2015. The Company paid quarterly cash dividends, with a dividend yield of 1.92% based on a recent share price of $12.50.
  • Based on the results achieved in the second quarter, on July 19, 2016 the Company's board of directors approved a $0.06 per share dividend payable to shareholders of record on September 9, 2016, to be paid on September 23, 2016.

Second Quarter 2016 Operational Review

Net income of $1.05 million for the three months ended June 30, 2016 was a company record for second quarter earnings. Interest income of $5.29 million in second quarter 2016, up 6% from second quarter 2015, was also a company record. Net interest income in second quarter 2016 was $4.74 million, a 10% increase from $4.32 million in second quarter 2015.

Interest expense declined 18% to $550,000 in second quarter 2016 from $667,000 in second quarter 2015. The interest expense reduction primarily reflected the elimination of interest paid on capital notes that were retired in January 2016 following the company's common equity placement. While the company attracted more interest-bearing time deposits compared with last prior year, it maintained a stable 0.57% average rate paid on interest bearing accounts.

J. Todd Scruggs, Executive Vice President and CFO, noted: "Several quarters ago, we noted there wasn't much opportunity to decrease deposit-related interest expense in this continuing low interest rate environment, which has turned out to be a correct assessment.  Despite the low rate environment, we are pleased that the bank has been able to continue building its deposit base without the need to offer 'loss leader' pricing on interest-bearing accounts. We believe the emphasis on maintaining value-added banking relationships with clients has played an important role in supporting deposit growth."

The company's net interest margin was 3.80% and net interest spread was 3.67% for the three months ended June 30, 2016.  Our margins were relatively stable on a consecutive quarter basis with first quarter 2016, and consistent with the margin and spread in second quarter 2015. Average rates earned on loans, including fees, was 4.50% in second quarter 2016 compared with 4.60% in first quarter 2016 and 4.62% in second quarter 2015. The average rate earned on total earning assets in second quarter 2016 was 4.24%.

Net interest income increased 10% to $4.74 million for the three months ended June 30, 2016 from $4.32 million for the three months ended June 30, 2015. Increased lending activity resulted in an increase in our provision for loan losses in the second quarter, which totaled $250,000, up from the prior year and slightly higher than in first quarter 2016.

Noninterest income from fees, service charges and commissions, including gains from the sale of residential mortgages to the secondary market, and income from the bank's line of treasury management services for commercial customers, was $1.32 million in second quarter 2016 compared with $1.08 million in second quarter 2015. Gains from the company's sale of securities contributed $163,000 to noninterest income in second quarter 2016.

Noninterest expense for the three months ended June 30, 2016 was $4.25 million, an 8% increase compared with $3.94 million for the three months ended June 30, 2015, primarily reflecting costs related to the company's market expansion, including additional compensation and benefits expense, and investment in enhanced operating systems, web-based technology, security, and marketing to build the bank's branding.

First Half Operations Reflect Strong Start to 2016

Net income of $1.94 million for the six months ended June 30, 2016 reflected higher interest income, net interest income and noninterest income compared with first half 2015, with increased provisions for loan losses, noninterest expense and slightly higher income taxes.

Interest income of $10.53 million in first half 2016 was up 7% compared with $9.82 million in first half 2015. Net interest income in first half 2016 was $9.43 million, up 11% compared with $8.52 million in first half 2015, reflecting increased interest income and 15% lower interest expense, primarily reflecting interest expense management and the elimination of interest paid on capital notes subsequent to their retirement in January 2016.

The company's net interest margin was 3.84% and net interest spread was 3.71% for the six months ended June 30, 2016 compared with 3.80% and 3.66%, respectively, in first half 2015. Average rates earned on loans, including fees, was 4.55% in first half 2016 and average rates earned on total earning assets was 4.29%.

Noninterest income was $2.32 million in first half 2016, up 15% compared with $2.03 million in first half 2015. Increased gains from the sale of residential mortgages to the secondary market, other fee income, and gains on sale of securities were the primary drivers of increased noninterest income. Noninterest expense for the six months ended June 30, 2016 was $8.44 million compared with $7.62 million for the six months ended June 30, 2015, reflecting increased salaries and benefits, technology investments, marketing and operating expense increases.

Balance Sheet Review

Loans held for investment, net of the allowance for loan losses, were $452.04 million at June 30, 2016 compared with $430.45 million at December 31, 2015, and up from $412.43 million at June 30, 2015. Loans held for sale were $4.45 million at June 30, 2016 compared with $1.96 million at December 31, 2015 and $2.97 million at June 30, 2015, primarily reflecting a positive trend in residential mortgage originations and quarterly timing related to closing and selling selected loans (primarily longer-term fixed rate mortgages) to the secondary market.

The bank added approximately $6.5 million in commercial loans (primarily C&I) during the second quarter. Commercial loan balances were at June 30, 2016 were $85.91 million, up 29% from $66.29 million at June 30, 2015.

"We are very pleased with the continuing gains in commercial and industrial lending in all our markets," said Michael A. Syrek, Executive Vice President and Senior Loan Officer. "We've generated balanced growth from a variety of manufacturing and service sectors. We feel our relationship managers have been very effective in building lending relationships that also incorporate deposits, cash flow and funds management, and investment services."

Bradford Harris, Senior Vice President and Market President - Roanoke, added: "Many of the business owners we meet within our market are responding positively to a bank willing and able to work with them to provide customized financial solutions that help them manage their finances and operations more efficiently. We are also seeing a number of business owners, many of them baby boomers, looking to the future and ownership transitions. A strong relationship with a bank that has the resources to provide financial guidance and advice is proving very important to them."

Total commercial and residential real estate loans at June 30, 2016 were $266.60 million compared with $256.82 million at June 30, 2015, with the modest growth primarily reflecting conservative additions to the bank's commercial real estate portfolio. Total construction loans, led by 25% year-over-year growth in 1-4 family construction lending, were $23.58 million at June 30, 2016, up 10% from $21.49 million at June 30, 2015. An 8% year-over-year growth in consumer lines of credit was partially driven by the bank's rewards program to generate home equity borrowing by higher net worth customers with sound credit profiles.

Total deposits at June 30, 2016 were $493.54 million compared with $467.61 million at December 31, 2015. The bank continued to attract noninterest bearing deposits, which increased to $97.54 million at June 30, 2016 from $91.33 million at December 31, 2015. Demand and savings deposits increased to $332.98 million at June 30, 2016 compared with $324.19 million at December 31, 2015.

Total assets were $545.73 million at June 30, 2016 compared with $527.14 million at December 31, 2015, with growth in deposits primarily funding growth in loans partially offset by a decrease in cash and cash equivalents and a slight decline in securities available for sale, at fair value.

The company's asset quality remained strong and stable, with a 0.56% ratio of nonperforming loans to total loans at June 30, 2016. Relatively consistent with prior quarters, the company's allowance for loan losses to total loans was 1.07%. The company's allowance for loan losses as a percent of nonperforming loans increased to 192.40% at June 30, 2016 compared with 137.49% at December 31, 2015.

The company grew measures of shareholder value, including tangible book value per share and total stockholders' equity. Total stockholders' equity increased to $50.55 million at June 30, 2016, compared with $48.20 million at December 31, 2015, and up from $35.81 million compared with June 30, 2015. Retained earnings grew to $9.33 million at June 30, 2016 from $7.92 million at December 31, 2015.

Return on average assets (ROAA) was 0.79% in second quarter 2016, consistent with the prior year's second quarter. Return on average equity (ROAE) in second quarter 2016 was 8.54%, up from 7.30% in first quarter 2016, and down from 10.71% in second quarter 2015. The decline in year-over-year ROAE primarily reflected the sharp increase in outstanding shares resulting from the company's common equity issue in December 2015. The bank's regulatory capital ratios continued to exceed accepted regulatory standards for a well-capitalized institution.

Conclusion and Outlook

"The markets we serve continue to show general economic health, with education, technology development and specific areas in manufacturing making investments in growth and the future," said Chapman. "As our market presidents have reported, our ability to win business from competing institutions, rather than booming economic growth has driven our results."

He explained the bank's ability to attract customers from the largest banks, which dominate our area, is driven by superior service, customized financial solutions, experienced relationship managers and "big bank" electronic and Web-based capabilities. The exit of some community and smaller banks, mostly through acquisition, has also left a void that we as a community bank can fill, he added.

"As we have expanded into a significantly larger geographical area, we have been pleased although not entirely surprised that, as when we entered the Charlottesville market several years ago, the Bank of the James brand and positive reputation is more widespread than expected.

"The company's first half financial performance was gratifying, thanks mostly to our team of talented bankers. We continue to make new hires throughout our franchise, primarily in commercial banking but selectively in retail and mortgage banking. We are finding opportunities to bring on board experienced bankers, many with extensive relationships with businesses, individuals, and their communities, who want to be part of our mission and share our vision.

"With the current economic, housing and business outlook in our markets, we feel the remainder of 2016 should generate growth opportunities for the bank. A sharp focus on client retention and continuing commitment to the highest standards of risk management and credit quality should contribute to ongoing value for our shareholders."

About the Company

Bank of the James, a wholly owned subsidiary of Bank of the James Financial Group, Inc., serves Lynchburg, Charlottesville, Harrisonburg, Roanoke, and other markets in Virginia. The bank operates 10 full service locations, two limited service branches, two loan production offices, and an investment/insurance services division. Bank of the James Financial Group, Inc. common stock is listed under the symbol "BOTJ" on the NASDAQ Stock Market, LLC.

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.

Bank of the James Financial Group, Inc. and Subsidiaries (000's) except share data, ratios and percent data unaudited
Selected Data: Three months ending Jun 30, 2016 Three months ending Jun 30, 2015 Change Year to date Jun 30, 2016 Year to date Jun 30, 2015 Change
Interest income $   5,293   $   4,991     6.05 % $   10,528   $   9,817     7.24 %
Interest expense   550     667     -17.54 %   1,098     1,297     -15.34 %
Net interest income   4,743     4,324     9.69 %   9,430     8,520     10.68 %
Provision for loan losses   250     57     338.60 %   450     157     186.62 %
Noninterest income   1,316     1,078     22.08 %   2,324     2,025     14.77 %
Noninterest expense   4,254     3,935     8.11 %   8,444     7,615     10.89 %
Income taxes   504     453     11.26 %   922     889     3.71 %
Net income   1,051     957     9.82 %   1,938     1,884     2.87 %
Weighted average common shares outstanding - basic and diluted   4,378,436     3,371,616     29.86 %   4,378,436     3,371,616     29.86 %
Basic earnings per common share $   0.24   $   0.28   $   (0.04 ) $   0.44   $   0.56   $   (0.12 )
Fully diluted earnings per common share $   0.24   $   0.28   $   (0.04 ) $   0.44   $   0.56   $   (0.12 )

Balance Sheet at period end: Jun 30, 2016 Dec 31, 2015 Change Jun 30, 2015 Dec 31, 2014 Change
Loans, net $   452,044   $   430,445     5.02 % $ 412,425   $ 394,573     4.52 %
Loans held for sale   4,452     1,964     126.68 %   2,972     1,030     188.54 %
Total securities   37,118     38,515     -3.63 %   31,972     26,923     18.75 %
Total deposits   493,535     467,610     5.54 %   445,386     399,497     11.49 %
Stockholders' equity   50,553     48,196     4.89 %   35,806     34,776     2.96 %
Total assets   545,730     527,143     3.53 %   492,836     460,865     6.94 %
Shares outstanding   4,378,436     4,378,436     -     3,371,616     3,371,616     -  
Book value per share $   11.55   $   11.01     0.54   $   10.62   $   10.31   $   0.31  

Daily averages: Three months ending Jun 30, 2016 Three months ending Jun 30, 2015 Change Year to date Jun 30, 2016 Year to date Jun 30, 2015 Change
Loans, net $   437,619   $   406,994     7.52 % $ 434,903   $ 402,134     8.15 %
Loans held for sale   4,457     2,199     102.68 %   3,580     1,884     90.02 %
Total securities   41,040     30,728     33.56 %   40,669     28,897     40.74 %
Total deposits   483,453     429,617     12.53 %   476,486     420,294     13.37 %
Stockholders' equity   49,351     35,834     37.72 %   49,041     35,481     38.22 %
Interest earning assets   500,942     457,569     9.48 %   494,770     452,441     9.36 %
Interest bearing liabilities   385,670     368,441     4.68 %   382,104     365,160     4.64 %
Total assets   533,648     487,074     9.56 %   527,299     481,316     9.55 %

Financial Ratios: Three months ending Jun 30, 2016 Three months ending Jun 30, 2015 Change Year to date Jun 30, 2016 Year to date Jun 30, 2015 Change
Return on average assets   0.79 %   0.79 %   -     0.74 %   0.79 %   (0.05 )
Return on average equity   8.54 %   10.71 %   (2.17 )   7.93 %   10.71 %   (2.78 )
Net interest margin   3.80 %   3.76 %   0.04     3.84 %   3.80 %   0.04  
Efficiency ratio   70.21 %   72.84 %   (2.63 )   71.84 %   72.21 %   (0.37 )
Average equity to average assets   9.25 %   7.36 %   1.89     9.30 %   7.37 %   1.93  

Allowance for loan losses: Three months ending Jun 30, 2016 Three months ending Jun 30, 2015 Change Year to date Jun 30, 2016 Year to date Jun 30, 2015 Change
Beginning balance $   4,750   $   4,746     0.08 % $   4,683   $   4,790     -2.23 %
Provision for losses   250     57     338.60 %   450     157     186.62 %
Charge-offs   (127 )   (259 )   -50.97 %   (378 )   (460 )   -17.83 %
Recoveries   14     42     -66.67 %   132     99     33.33 %
Ending balance   4,887     4,586     6.56 %   4,887     4,586     6.56 %

Nonperforming assets: Jun 30, 2016 Dec 31, 2015 Change Jun 30, 2015 Dec 31, 2014 Change
Total nonperforming loans $   2,540   $   3,406     -25.43 % $   1,908   $   3,505     -45.56 %
Other real estate owned   2,420     1,965     23.16 %   2,065     956     116.00 %
Total nonperforming assets   4,960     5,371     -7.65 %   3,973     4,461     -10.94 %
Troubled debt restructurings - (performing portion)   639     646     -1.08 %   847     376     125.27 %

Asset quality ratios: Jun 30, 2016 Dec 31, 2015 Change Jun 30, 2015 Dec 31, 2014 Change
Nonperforming loans to total loans   0.56 %   0.78 %   (0.22 )   0.46 %   0.87 %   (0.41 )
Allowance for loan losses to total loans   1.07 %   1.08 %   (0.01 )   1.10 %   1.20 %   (0.10 )
Allowance for loan losses to nonperforming loans   192.40 %   137.49 %   54.91     240.36 %   136.66 %   103.69  
                                     

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

  (unaudited)    
Assets 6/30/16   12/31/15
       
Cash and due from banks $   20,918     $   15,952  
Federal funds sold   3,515       12,703  
Total cash and cash equivalents   24,433       28,655  
       
Securities held-to-maturity (fair value of $3,424 in 2016 and $2,649 in 2015)   3,309       2,519  
Securities available-for-sale, at fair value   33,809       35,996  
Restricted stock, at cost   1,373       1,313  
Loans, net of allowance for loan losses of $4,887 in 2016 and $4,683 in 2015   452,044       430,445  
Loans held for sale   4,452       1,964  
Premises and equipment, net   9,692       9,751  
Software, net   174       256  
Interest receivable   1,209       1,248  
Cash value - bank owned life insurance   9,911       9,781  
Other real estate owned   2,420       1,965  
Income taxes receivable   1,125       1,096  
Deferred tax asset, net   911       1,399  
Other assets   868       755  
Total assets $   545,730     $   527,143  
       
Liabilities and Stockholders' Equity      
Deposits      
Noninterest bearing demand   97,544       91,325  
NOW, money market and savings   235,437       232,864  
Time   160,554       143,421  
Total deposits   493,535       467,610  
       
Capital notes   -       10,000  
Interest payable   87       61  
Other liabilities   1,555       1,276  
Total liabilities $   495,177     $   478,947  
       
Commitments and contingencies      
       
Stockholders' equity      
Preferred stock; authorized 1,000,000 shares; none issued and outstanding as of June 30, 2016 and December 31, 2015   -       -  
Common stock $2.14 par value; authorized 10,000,000 shares; issued and outstanding 4,378,436 as of June 30, 2016 and December 31, 2015   9,370       9,370  
Additional paid-in-capital   31,495       31,495  
Accumulated other comprehensive income (loss)   355       (589 )
Retained earnings   9,333       7,920  
Total stockholders' equity $   50,553     $   48,196  
       
Total liabilities and stockholders' equity $   545,730     $   527,143  
               

Bank of the James Financial Group, Inc. and Subsidiaries Consolidated Statements of Income (dollar amounts in thousands, except per share amounts)
  For the Three Months Ended June 30,   For the Six Months Ended June 30,
Interest Income   2016       2015       2016       2015  
Loans $   5,007     $   4,758     $   9,985     $   9,386  
Securities              
US Government and agency obligations   125       143       264       283  
Mortgage backed securities   68       18       120       28  
Municipals - taxable   35       22       69       47  
Municipals - tax exempt   11       11       21       21  
Dividends   27       29       33       34  
Other (Corporates)   3       2       9       3  
Interest bearing deposits   9       4       15       6  
Federal Funds sold   8       4       12       9  
Total interest income   5,293       4,991       10,528       9,817  
               
Interest Expense              
Deposits              
NOW, money market savings   139       123       275       245  
Time Deposits   373       362       742       671  
Brokered time deposits   38       29       69       52  
Federal Funds purchased   -       -       4       1  
FHLB borrowings   -       3       -       28  
Capital notes 6% due 4/1/2017   -       150       8       300  
Total interest expense   550       667       1,098       1,297  
               
Net interest income   4,743       4,324       9,430       8,520  
               
Provision for loan losses   250       57       450       157  
               
Net interest income after provision for loan losses   4,493       4,267       8,980       8,363  
               
Noninterest income              
Gain on sales of loans held for sale, net   681       613       1,172       1,136  
Service charges, fees and commissions   362       348       734       666  
Increase in cash value of life insurance   65       68       130       136  
Other   45       45       60       54  
Gain on sale of available-for-sale securities, net   163       4       228       33  
               
Total noninterest income   1,316       1,078       2,324       2,025  
               
Noninterest expenses              
Salaries and employee benefits   2,162       2,128       4,399       4,211  
Occupancy   305       312       637       601  
Equipment   314       304       633       603  
Supplies   108       108       227       204  
Professional, data processing, and other outside expense   701       560       1,363       1,046  
Marketing   201       148       320       224  
Credit expense   106       63       189       136  
Other real estate expenses   4       32       5       37  
FDIC insurance expense   91       79       183       153  
Other   262       201       488       400  
Total other operating expenses   4,254       3,935       8,444       7,615  
               
Earnings before income taxes   1,555       1,410       2,860       2,773  
               
Earnings tax expense   504       453       922       889  
               
Net Income $   1,051     $   957     $   1,938     $   1,884  
               
Weighted average shares outstanding - basic and diluted   4,378,436       3,371,616       4,378,436       3,371,616  
Earnings per common share - basic and diluted $   0.24     $   0.28     $   0.44     $   0.56  

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

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