BOTJ Bank of the James Financial Group Inc

Bank of the James Financial Group, Inc. (the “Company”) (NASDAQ:BOTJ), the parent company of Bank of the James (the “Bank”), a full-service commercial and retail bank, and Pettyjohn, Wood & White, Inc. (“PWW”), an SEC-registered investment advisor, today announced unaudited results of operations for the three month and six month periods ended June 30, 2023. The Bank serves Region 2000 (the greater Lynchburg MSA), and the Blacksburg, Charlottesville, Harrisonburg, Lexington, Roanoke, and Wytheville, Virginia markets.

Net income for the three months ended June 30, 2023 increased to $2.53 million or $0.56 per basic and diluted share compared with $2.29 million or $0.48 per basic and diluted share for the three months ended June 30, 2022. Net income for the six months ended June 30, 2023 was $4.52 million or $0.99 per basic and diluted share compared with $4.43 million or $0.93 per basic and diluted share for the six months ended June 30, 2022.

Robert R. Chapman III, CEO, commented: “Our Company’s focus on service excellence, strong banking relationships and financial solutions for individuals and businesses were keys to a strong financial performance in the second quarter and first half. While interest rates have had an impact on banking activity, our robust capabilities combined with our team’s commitment to ‘going the extra mile’ for clients has supported strong client retention and generated a diverse revenue stream.

“Our residential mortgage lending group turned in an exceptional performance, particularly given low home inventories and the interest rate environment. The reputation the Bank has built over the years for professional service, loan origination and timely processing has positioned the Bank as a lender of choice in our markets.

“Positive financial contributions from commercial banking reflected the strength of our relationship management and attention to providing value for clients. Integrated banking solutions that incorporate deposits, card services, and sophisticated electronic cash management products create value for clients and provide the Company with a variety of revenue sources. With sophisticated capabilities backed by experienced, responsive commercial bankers, we believe Bank of the James is well positioned to attract larger businesses and further broaden our commercial client base.

“A primary focus throughout the organization is continuous improvement in productivity and efficiency through reduced expenses to maximize the value of the revenues we generate. This focus was reflected in the second quarter of 2023 as the efficiency ratio improved to 73.0% from 74.7% a year earlier. Return on average assets increased to 1.08% from 0.89% a year earlier and return on average equity rose to 19.7% from 12.7% a year earlier.

“Maintaining strong asset quality through diligent credit management and monitoring processes has contributed to quality earnings. We believe that our asset quality and liquidity have positioned us to continue to operate safely and soundly in the current environment.

“As always, the Company and its Board of Directors pay close attention to growing shareholder value. Results in the first half of 2023 reflected increased retained earnings, total stockholders’ equity and book value. Our historical practice of issuing quarterly cash dividends to shareholders, and the completion of two share buyback programs in the past year that enhanced earnings per share by $0.03 this quarter, have contributed to providing a balanced return for shareholders.”

Second Quarter, First Half of 2023 Highlights

• Total interest income of $9.58 million in the second quarter and $18.68 million in the first half of 2023 increased 26% and 29% compared with the respective periods of 2022. The year-over-year growth primarily reflected commercial loan rate adjustments to keep pace with the rising interest rate environment, an increase in the size of the investment portfolio, and growth of retained residential mortgages.
• Net interest income increased 3% in the second quarter of 2023 and 11% in the first half of 2023 compared to the respective periods in 2022, primarily reflecting higher interest income partially offset by significantly higher interest expense in the rising rate environment.
• Net interest margin and net interest spread increased in the second quarter and first half of 2023 compared with the comparable periods of 2022.
• Total noninterest income increased to $3.44 million in the second quarter of 2023, up from $3.03 million a year earlier, primarily reflecting continuing commercial treasury services income growth and wealth management fee contributions from PWW. Noninterest income in the first half of 2023 declined slightly compared with the first half of 2022, primarily reflecting lower gains on sale of residential mortgages as the Company has retained a greater number of originated purchase mortgages.
• Loans, net of the allowance for credit losses, were $610.42 million compared with $605.37 million at December 31, 2022, highlighted by an increase in the Company’s residential mortgage loan portfolio since December 31, 2022.
• Asset quality remained strong, with a ratio of nonperforming loans to total loans of 0.07% at June 30, 2023 and minimal levels of nonperforming loans and other real estate owned (OREO).
• Total deposits grew to $867.09 million at June 30, 2023 compared with $848.14 million at December 31, 2022.
• On July 18, 2023 the Company’s board of directors approved a quarterly dividend of $0.08 per share to stockholders of record as of September 1, 2023 to be paid on September 15, 2023.
• Measures of shareholder value increased, with book value per share rising to $11.61 at June 30, 3023 from $10.85 at December 31, 2022 and total stockholders’ equity rising to $52.73 million from $50.23 million. The Company’s most recent repurchase plan was completed in the second quarter of 2023. In conjunction with a previous repurchase plan, the Company repurchased just under 4% of its outstanding common stock since August 2022.

Second Quarter, First Half of 2023 Operational Review

Net interest income after a $254,000 recovery of credit losses for the quarter ended June 30, 2023 was $7.60 million compared with net interest income after a $300,000 recovery of credit losses of $7.42 million for the quarter ended June 30, 2022. For the six months of 2023, net interest income after recovery of credit losses was $15.10 million compared with net interest income after recovery of credit losses of $14.11 million for the six months of 2022.

Total interest income increased to $9.58 million in the second quarter of 2023 compared with $7.60 million a year earlier. For the six months of 2023, total interest income was $18.68 million compared with $14.51 million for the six months of 2022. Both 2023 periods reflected moderate organic loan growth and interest rate increases.

The interest rate adjustment related to variable rate loans along with an increase in the Fed Funds rate continued to have a significant positive impact on the yields earned on interest earning assets and margins. The yield on interest earning assets in the second quarter of 2023 was 4.31%, up from 3.19% a year earlier. The interest spread was 3.08% compared with 2.93% a year earlier. Net interest margin was 3.30% in the second quarter of 2023 compared with 2.99% in the second quarter of 2022.

For the six months of 2023, the yield on interest earning assets was 4.24% compared with 3.14% for the six months of 2022. The interest spread was 3.22% compared with 2.87% for the six months of 2023 and 2022, respectively. Net interest margin was 3.40% compared with 2.92% for the six months of 2023 and 2022, respectively.

Total interest expense in the second quarter and first half of 2023 increased significantly compared with the 2022 periods, reflecting increased levels of interest-paying deposits and higher deposit rates commensurate with the prevailing interest rate environment. Total interest expense in the second quarter of 2023 was $2.24 million compared with $474,000 a year earlier, while total interest expense in the first half of 2023 was $3.69 million compared with $999,000 a year earlier.

J. Todd Scruggs, Executive Vice President and CFO, commented: “Although rising interest expense continues to put pressure on margins, we believe our decision to increase rates on new loans along with the repricing of some current variable rate loans resulted in our interest income increasing more than our interest expense. We have consistently grown deposits, which, while adding to interest expense, continue to represent the most cost-effective source to fund lending.”

Noninterest income in the second quarter of 2023 rose 14% to $3.44 million compared with $3.03 million in the second quarter of 2022. For the six months of 2023, noninterest income was $6.49 million compared with $6.67 million a year earlier. Noninterest income in both periods of 2023 was highlighted by growth in service charges, fees and commissions, which includes income from debit card activity and corporate treasury services, and wealth management fees contributed by PWW’s investment management activity. The increase was offset in part by a decrease in gains on sale of loans.

Noninterest expense in the second quarter of 2023 was $7.88 million compared with $7.59 a year earlier. The first half of 2023 noninterest expense was $15.95 million compared with $15.24 million in the first half of 2022. Both 2023 periods reflected increases in professional and outside expenses (specifically data processing fees).   The receipt in April 2023 of $287,000 in insurance proceeds related to a fraud loss in the fourth quarter of 2022 reduced our noninterest expense for both periods in 2023. In addition, the increase for the second quarter was mitigated by a decrease in salaries and employee benefits.

The Company continued to demonstrate positive productivity trends, with return on average equity (ROAE) improving to 19.65% in the second quarter of 2023 compared with 12.68% in the second quarter of 2022, while return on average assets (ROAA) was 1.08%, compared with 0.89% a year earlier. ROAE and ROAA in the first half of 2023 demonstrated similar improvement from a year earlier. The efficiency ratio improved in both periods of 2023 compared with the 2022 periods.

Balance Sheet: Liquidity, Asset Quality

Total assets were $950.90 million at June 30, 2023 compared with $928.57 million at December 31, 2022.

Loans, net of allowance for credit losses, were $610.42 million at June 30, 2023 compared with $605.37 million at December 31, 2022. Net loans decreased approximately $8 million from net loans at March 31, 2023, primarily reflecting commercial loan declines partially offset by retained residential mortgage growth.

Commercial real estate loans (owner occupied and non-owner occupied and excluding construction loans) were approximately $312.30 million at June 30, 2023 compared with $341.89 million at December 31, 2022. Commercial loans (primarily C&I loans) were $69.90 million at June 30, 2023 compared with $95.90 million at December 31, 2022. Commercial construction and residential construction loan portfolios grew slightly in the first half of 2023.

Michael A. Syrek, President of the Bank, commented: “The asset quality and diversity of the commercial loan portfolio continues to reflect a variety of clients and business and economic sectors. Maintaining high standards for credit quality and risk management is of utmost importance, with a strong focus on full-service banking relationships with clients.

“Emphasizing our integrated approach to commercial banking, which includes depository options and a wide range of electronic treasury and cash management services to support customers’ financial activities, has broadened customer relationships. Our sophisticated capabilities and our bankers’ expertise and commitment to service allow us to meet the banking requirements of larger corporate customers, which is an exciting development.”

Asset quality has remained strong and stable, with a ratio of nonperforming loans to total loans of 0.07% at June 30, 2023. The allowance for credit losses on loans to total loans was 1.23% at June 30, 2023 compared with 1.22% at December 31, 2022. The Bank adopted the current expected credit loss (CECL) model for calculating its allowance for credit losses on January 1, 2023.

Total nonperforming loans were $415,000 at June 30, 2023, down 34% from $633,000 at December 31, 2022. Total nonperforming assets were relatively stable at $915,000 at June 30, 2023 compared with $1.20 million at December 31, 2022.

Total deposits at June 30, 2023 were $867.09 million compared with $848.14 million at December 31, 2022. Total deposits reflected the judicious addition of time deposits, partially offset by a modest decline in core deposits (noninterest-bearing demand, NOW, savings and money market accounts). Lower-cost core deposits represented 78% of total deposits.

Maintaining strong liquidity continues to be a focus, with the addition of cash and cash equivalents in the second quarter of 2023 and the continuance of off-balance sheet options.

The Company grew measures of shareholder value. Some of these, including book value per share and stockholders’ equity, continue to be negatively impacted by market value changes in our available-for-sale securities portfolio, reflecting the impact of higher interest rates. These mark-to-market losses are excluded when calculating the Bank’s regulatory capital. The available-for-sale securities portfolio is composed primarily of securities with implicit government guarantees, including U.S. Treasuries and U.S. agency obligations, and other highly-rated debt instruments. Consequently, management does not believe that the impairment is other than temporary. The Company does not expect to realize the unrealized losses as it has the intent and ability to hold the securities until their recovery, which may be at maturity. The duration of the Company’s overall securities portfolio is approximately 6 years.

Total retained earnings were $33.22 million at June 30, 2023, up from $31.03 million at December 31, 2022. Total stockholders’ equity rose to $52.73 million at June 30, 2023 compared with $50.23 million at December 31, 2022. Book value per share increased to $11.61 at June 30, 2023 from $10.85 at December 31, 2022. The Company continued its practice of paying a quarterly cash dividend to shareholders. As previously noted, the Company’s now-completed stock repurchase programs have contributed to earnings and generated shareholder value.

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, Lexington, Lynchburg, Madison Heights, Roanoke, Rustburg, and Wytheville. 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. The Company provides investment advisory services through its wholly-owned subsidiary, Pettyjohn, Wood & White, Inc., an SEC-registered investment advisor. 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, changes in the value of real estate securing loans made by the Bank as well as the potential for the resurgence of COVID-19 and geopolitical conditions. 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.

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

CONSOLIDATED FINANCIAL INFORMATION FOLLOWS

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

Assets	(unaudited)6/30/2023				12/31/2022
Cash and due from banks	$	22,389			$	30,025
Federal funds sold		51,140				31,737
Total cash and cash equivalents		73,529				61,762
Securities held-to-maturity, at amortized cost (fair value of $3,172 in 2023 and $3,135 in 2022) net of allowance for credit loss of $0 in 2023		3,630				3,639
Securities available-for-sale, at fair value		186,625				185,787
Restricted stock, at cost		1,357				1,387
Loans, net of allowance for credit losses of $7,586 in 2023 and $6,259 in 2022		610,418				605,366
Loans held for sale		6,160				2,423
Premises and equipment, net		17,561				17,974
Interest receivable		2,525				2,736
Cash value - bank owned life insurance		21,304				19,237
Customer relationship Intangible		7,472				7,845
Goodwill		2,054				2,054
Other real estate owned		500				566
Other assets		17,761				17,795
Total assets	$	950,896			$	928,571
Liabilities and Stockholders' Equity
Deposits
Noninterest bearing demand	$	151,261			$	154,884
NOW, money market and savings		525,765				560,479
Time		190,066				132,775
Total deposits		867,092				848,138
Capital notes, net		10,040				10,037
Other borrowings		10,173				10,457
Interest payable		269				89
Other liabilities		10,590				9,624
Total liabilities	$	898,164			$	878,345
Stockholders' equity
Common stock $2.14 par value; authorized 10,000,000 shares; issued and outstanding 4,543,338 as of June 30, 2023 and 4,628,657 as of December 31, 2022		9,723				9,905
Additional paid-in-capital		35,253				36,068
Accumulated other comprehensive (loss)		(25,463	)			(26,781	)
Retained earnings		33,219				31,034
Total stockholders' equity	$	2,732			$	50,226
Total liabilities and stockholders' equity	$	950,896			$	928,571

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

	For the Three MonthsEnded June 30,								For the Six MonthsEnded June 30,
Interest Income		2023				2022				2023				2022
Loans	$	7,835			$	6,174			$	15,261			$	12,079
Securities
US Government and agency obligations		321				322				641				580
Mortgage backed securities		406				452				820				759
Municipals		304				289				604				578
Dividends		33				27				41				31
Corporates		141				143				284				251
Interest bearing deposits		93				27				241				34
Federal Funds sold		450				164				789				201
Total interest income		9,583				7,598				18,681				14,513
Interest Expense
Deposits
NOW, money market savings		662				115				1,022				241
Time Deposits		1,374				146				2,235				324
FHLB borrowings		-				-				31				-
Finance leases		21				24				44				49
Other borrowings		100				108				199				222
Capital notes		81				81				163				163
Total interest expense		2,238				474				3,694				999
Net interest income		7,345				7,124				14,987				13,514
Recovery of credit losses		(254	)			(300	)			(114	)			(600	)
Net interest income after recovery of credit losses		7,599				7,424				15,101				14,114
Noninterest income
Gains on sale of loans held for sale		1,153				1,299				2,076				3,203
Service charges, fees and commissions		955				658				1,938				1,250
Wealth management fees		1,042				961				2,048				1,976
Life insurance income		134				112				266				225
Other		160				4				160				11
Total noninterest income		3,444				3,034				6,488				6,665
Noninterest expenses
Salaries and employee benefits		4,345				4,533				8,613				8,522
Occupancy		459				432				931				903
Equipment		636				617				1,312				1,223
Supplies		133				122				281				264
Professional, data processing, and other outside expense		1,412				871				2,783				1,925
Marketing		285				247				479				439
Credit expense		209				259				405				521
Other real estate expenses, net		7				6				33				12
FDIC insurance expense		91				131				195				261
Amortization of intangibles		234				140				374				280
Other		65				234				545				890
Total noninterest expenses		7,876				7,592				15,951				15,240
Income before income taxes		3,167				2,866				5,638				5,539
Income tax expense		633				574				1,120				1,108
Net Income	$	2,534			$	2,292			$	4,518			$	4,431
Weighted average shares outstanding - basic and diluted		4,545,173				4,740,657				4,581,726				4,740,657
Net income per common share - basic and diluted	$	0.56			$	0.48			$	0.99			$	0.93

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

Selected Data:	ThreemonthsendingJun 30,2023			ThreemonthsendingJun 30,2022			Change			YeartodateJun 30,2023			YeartodateJun 30,2022			Change
Interest income	$	9,583		$	7,598			26.13	%	$	18,681		$	14,513			28.72	%
Interest expense		2,238			474			372.15	%		3,694			999			269.77	%
Net interest income		7,345			7,124			3.10	%		14,987			13,514			10.90	%
Recovery of credit losses		(254	)		(300	)		-15.33	%		(114	)		(600	)		-81.00	%
Noninterest income		3,444			3,034			13.51	%		6,488			6,665			-2.66	%
Noninterest expense		7,876			7,592			3.74	%		15,951			15,240			4.67	%
Income taxes		633			574			10.28	%		1,120			1,108			1.08	%
Net income		2,534			2,292			10.56	%		4,518			4,431			1.96	%
Weighted average shares outstanding - basic and diluted		4,545,173			4,740,657			(195,484	)		4,581,726			4,740,657			(158,931	)
Basic and diluted net income per share	$	0.56		$	0.48		$	0.08		$	0.99		$	0.93		$	0.06

Balance Sheet atperiod end:	Jun 30,2023		Dec 31,2022		Change			Jun 30,2022		Dec 31,2021		Change
Loans, net	$	610,418	$	605,366		0.83	%	$	607,322	$	576,469		5.35	%
Loans held for sale		6,160		2,423		154.23	%		4,460		1,628		173.96	%
Total securities		190,255		189,426		0.44	%		205,076		164,922		24.35	%
Total deposits		867,092		848,138		2.23	%		875,346		887,056		-1.32	%
Stockholders' equity		52,732		50,226		4.99	%		53,318		69,429		-23.21	%
Total assets		950,896		928,571		2.40	%		959,577		987,634		-2.84	%
Shares outstanding		4,543,338		4,628,657		(85,319	)		4,740,657		4,740,657		-
Book value per share	$	11.61	$	10.85	$	0.76		$	11.25	$	14.65	$	(3.40	)

Daily averages:	ThreemonthsendingJun 30,2023		ThreemonthsendingJun 30,2022		Change		YeartodateJun 30,2023		YeartodateJun 30,2022		Change
Loans	$	624,947	$	596,775	4.72	%	$	621,268	$	592,702	4.82	%
Loans held for sale		3,766		4,074	-7.56	%		3,104		3,856	-19.50	%
Total securities		222,680		232,697	-4.30	%		223,605		215,718	3.66	%
Total deposits		861,928		924,094	-6.73	%		858,429		900,192	-4.64	%
Stockholders' equity		51,712		72,489	-28.66	%		50,618		71,600	-29.30	%
Interest earning assets		892,900		957,353	-6.73	%		889,540		932,943	-4.65	%
Interest bearing liabilities		733,998		753,863	-2.64	%		729,698		747,567	-2.39	%
Total assets		944,883		1,030,984	-8.35	%		941,593		1,006,321	-6.43	%

Financial Ratios:	ThreemonthsendingJun 30,2023		ThreemonthsendingJun 30,2022		Change		YeartodateJun 30,2023		YeartodateJun 30,2022		Change
Return on average assets (1)	1.08	%	0.89	%	0.19		0.97	%	0.89	%	0.08
Return on average equity (1)	19.65	%	12.68	%	6.97		18.00	%	12.48	%	5.52
Net interest margin	3.30	%	2.99	%	0.31		3.40	%	2.92	%	0.48
Efficiency ratio (2)	73.00	%	74.74	%	(1.74	)	74.28	%	75.52	%	(1.24	)
Average equity to average assets	5.47	%	7.03	%	(1.56	)	5.38	%	7.12	%	(1.74	)
(1) annualized
(2) noninterest expense / (net interest income + noninterest income)

Allowance for credit losses:	ThreemonthsendingJun 30,2023			ThreemonthsendingJun 30,2022			Change		YeartodateJun 30,2023			YeartodateJun 30,2022			Change
Beginning balance	$	7,715		$	6,870		12.30	%	$	6,259		$	6,915		-9.49	%
Retained earnings adjustment related to impact of adoption of ASU 2016-13		-			-		0.00	%		1,245			-		N/A
Recovery of credit losses		(198	)		(300	)	-34.00	%		(58	)		(600	)	-90.33	%
Charge-offs		(19	)		(1	)	1800.00	%		(52	)		(9	)	477.78	%
Recoveries		88			47		87.23	%		192			310		-38.06	%
Ending balance		7,586			6,616		14.66	%		7,586			6,616		14.66	%

Nonperforming assets:	Jun 30,2023		Dec 31,2022		Change		Jun 30,2022		Dec 31,2021		Change
Total nonperforming loans	$	415	$	633	-34.44	%	$	855	$	954	-10.38	%
Other real estate owned		500		566	-11.66	%		761		761	0.00	%
Total nonperforming assets		915		1,199	-23.69	%		1,616		1,715	-5.77	%

Asset quality ratios:	Jun 30,2023		Dec 31,2022		Change		Jun 30,2022		Dec 31,2021		Change
Nonperforming loans to total loans	0.07	%	0.10	%	(0.03	)	0.14	%	0.16	%	(0.02	)
Allowance for credit losses to total loans	1.23	%	1.22	%	0.00		1.08	%	1.19	%	(0.11	)
Allowance for credit losses to nonperforming loans	1827.95	%	1185.47	%	642.49		773.80	%	724.84	%	48.96