Bank of the James Financial (BOTJ) - 2025 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Consolidated Financial Statements This section presents the unaudited consolidated financial statements, including balance sheets, income statements, comprehensive income, cash flows, and changes in stockholders' equity, along with detailed notes explaining accounting policies, fair value measurements, securities, business segments, and loan portfolio performance for the periods ended March 31, 2025, and December 31, 2024 Consolidated Balance Sheets The Consolidated Balance Sheets show the company's financial position at March 31, 2025, compared to December 31, 2024, with total assets and deposits increasing by 3.32% to $1,011,726 thousand and $911,683 thousand respectively, driven by a strategic reversal of Insured Cash Sweep transactions and growth in cash, federal funds sold, securities, and loans, while stockholders' equity increased to $68,348 thousand Consolidated Balance Sheet Highlights | Metric | March 31, 2025 ($k) | December 31, 2024 ($k) | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | 1,011,726 | 979,244 | 3.32% | | Total Deposits | 911,683 | 882,404 | 3.32% | | Loans, net | 642,388 | 636,552 | 0.92% | | Stockholders' Equity | 68,348 | 64,865 | 5.37% | - The majority of the first quarter deposit increase was due to the reversal of transactions related to the one-way Insured Cash Sweep (ICS) program, which temporarily off-loaded deposits at year-end 2024[128] Consolidated Statements of Income Net income for the three months ended March 31, 2025, significantly decreased to $842 thousand from $2,187 thousand in the prior year, primarily due to a substantial increase in noninterest expenses, including a non-recurring consultant fee, and a shift from a credit loss recovery to a provision for credit losses, despite an 11.1% increase in net interest income from loan growth and higher yields on earning assets Income Statement Highlights | Metric | Three Months Ended March 31, 2025 ($k) | Three Months Ended March 31, 2024 ($k) | Change (%) | | :--- | :--- | :--- | :--- | | Net Income | 842 | 2,187 | -61.5% | | Earnings per Common Share | 0.19 | 0.48 | -60.4% | | Net Interest Income | 7,719 | 6,950 | 11.1% | | Provision for (recovery of) credit losses | 137 | (553) | N/A | | Noninterest Expenses | 9,826 | 8,088 | 21.5% | - Noninterest expense rose significantly due to a non-recurring fee of approximately $1,000,000 paid to a consultant for contract negotiation with a core service provider[155][173] Consolidated Statements of Comprehensive Income Comprehensive income significantly increased to $3,938 thousand for the three months ended March 31, 2025, from $851 thousand in the prior year, primarily driven by a substantial unrealized gain on securities available-for-sale in the current period, contrasting with an unrealized loss in the prior year Comprehensive Income Summary | Metric | Three Months Ended March 31, 2025 ($k) | Three Months Ended March 31, 2024 ($k) | | :--- | :--- | :--- | | Net Income | 842 | 2,187 | | Unrealized gain (loss) on securities available-for-sale (net of tax) | 3,096 | (1,336) | | Comprehensive Income | 3,938 | 851 | Consolidated Statements of Cash Flows Cash and cash equivalents increased by $21,657 thousand to $94,966 thousand at March 31, 2025, primarily driven by net cash provided by financing activities, which saw a substantial increase in deposits, and a shift from net cash used in operating activities to net cash provided by operating activities, while investing activities resulted in net cash used due to purchases of available-for-sale securities and loan originations Cash Flow Summary | Cash Flow Activity | Three Months Ended March 31, 2025 ($k) | Three Months Ended March 31, 2024 ($k) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | 763 | (1,230) | | Net cash provided by (used in) investing activities | (7,665) | 124 | | Net cash provided by financing activities | 28,559 | 14,340 | | Increase in cash and cash equivalents | 21,657 | 13,234 | | Cash and cash equivalents at end of period | 94,966 | 88,072 | - Net cash provided by financing activities was significantly boosted by a $29,279 thousand net increase in deposits during Q1 2025[16] Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased to $68,348 thousand at March 31, 2025, from $64,865 thousand at December 31, 2024, primarily due to net income of $842 thousand and a significant positive adjustment from other comprehensive income of $3,096 thousand, partially offset by dividends paid Stockholders' Equity Changes | Metric | March 31, 2025 ($k) | December 31, 2024 ($k) | | :--- | :--- | :--- | | Total Stockholders' Equity | 68,348 | 64,865 | | Net Income (Q1 2025) | 842 | N/A | | Dividends paid (Q1 2025) | (455) | N/A | | Other comprehensive income (Q1 2025) | 3,096 | N/A | Notes to Consolidated Financial Statements The notes provide detailed explanations and disclosures supporting the consolidated financial statements, covering accounting policies, fair value measurements, securities, business segments, and loan portfolio analysis, including credit quality and allowance for credit losses, while also addressing recent accounting pronouncements and subsequent events Note 1 – Basis of Presentation This note outlines the company's primary market area in Central Virginia, with recent expansion into other areas, confirms the adoption of FASB ASU 2023-07 on Segment Reporting applied retrospectively with no material impact, and states that the unaudited financial statements reflect all necessary adjustments in conformity with GAAP - The company's primary market area is Region 2000 in Central Virginia, with recent expansion into Charlottesville, Roanoke, Blacksburg, Harrisonburg, Lexington, Rustburg, and Wytheville[19] - FASB Accounting Standards Update 2023-07, Segment Reporting, was adopted effective January 1, 2025, and applied retrospectively with no material impact on financial statements[20] Note 2 – Significant Accounting Policies and Estimates This note emphasizes that the consolidated financial statements are prepared using GAAP, requiring management estimates and assumptions, particularly for the allowance for credit losses on loans (ACLL), and states that no significant changes to accounting policies have occurred since December 31, 2024 - Financial statements are prepared in accordance with GAAP, requiring management estimates and assumptions, with the Allowance for Credit Losses on Loans (ACLL) being a particularly susceptible material estimate[22][23] - There have been no significant changes to the application of significant accounting policies since December 31, 2024[24] Note 3 – Earnings Per Common Share (EPS) Basic and diluted earnings per common share for the three months ended March 31, 2025, were $0.19, a decrease from $0.48 in the prior year period, with the weighted average number of shares outstanding remaining constant and no potentially dilutive shares Earnings Per Common Share Data | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net income ($k) | 842 | 2,187 | | Weighted average shares outstanding | 4,543,338 | 4,543,338 | | Earnings per common share | $0.19 | $0.48 | - There were no potentially dilutive shares outstanding as of March 31, 2025 and 2024, resulting in identical basic and diluted weighted average shares[26] Note 4 – Stock Based Compensation The company recognizes stock-based compensation costs based on fair value, with the 2018 Equity Incentive Plan allowing for the issuance of up to 250,000 shares, but no grants or awards were made or outstanding in 2024 or the three months ended March 31, 2025 - The 2018 Equity Incentive Plan permits the issuance of up to 250,000 shares of common stock for awards to key employees[28] - No grants or awards were made under the 2018 Incentive Plan in 2024 or the three months ended March 31, 2025, and no grants or awards were outstanding as of these dates[29] Note 5 – Fair Value Measurements This note details the company's fair value measurement practices, categorizing financial assets and liabilities into a three-level hierarchy based on input observability, with securities available-for-sale primarily Level 2 and Interest Rate Lock Commitments (IRLCs) Level 3, and notes no non-recurring fair value adjustments were recorded for collateral-dependent loans or loans held for sale, and no OREO existed - Financial assets and liabilities are grouped into a three-level fair value hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[32][36] - All securities available-for-sale are classified as Level 2, while Interest Rate Lock Commitments (IRLCs) are classified as Level 3[34][35] Fair Value of Financial Instruments | Asset/Liability | Carrying Amount (Mar 31, 2025, $k) | Fair Value (Mar 31, 2025, $k) | Level 1 ($k) | Level 2 ($k) | Level 3 ($k) | | :--- | :--- | :--- | :--- | :--- | :--- | | Securities Available-for-sale | 192,780 | 192,780 | - | 192,780 | - | | Derivatives - IRLCs | 188 | 188 | - | - | 188 | | Loans, net | 642,388 | 622,849 | - | - | 622,849 | | Deposits | 911,683 | 910,750 | - | 910,750 | - | - No nonrecurring fair value adjustments were recorded for collateral dependent loans with an ACLL, loans held for sale, or Other Real Estate Owned (OREO) at March 31, 2025, or December 31, 2024, as no OREO existed[41][42][46] Note 6 – Securities This note provides a detailed breakdown of the company's held-to-maturity and available-for-sale securities portfolios, showing available-for-sale securities with a fair value of $192,780 thousand and gross unrealized losses of $25,248 thousand at March 31, 2025, primarily due to market volatility and interest rate increases, with no credit-related impairment found as the company intends to hold these securities until recovery, and no sales occurred in Q1 2025 or Q1 2024 Securities Portfolio Breakdown | Security Type | Amortized Cost (Mar 31, 2025, $k) | Gross Unrealized Gains (Mar 31, 2025, $k) | Gross Unrealized Losses (Mar 31, 2025, $k) | Fair Value (Mar 31, 2025, $k) | | :--- | :--- | :--- | :--- | :--- | | Held-to-maturity | 3,602 | - | (365) | 3,237 | | Available-for-sale | 217,867 | 161 | (25,248) | 192,780 | - Unrealized losses on available-for-sale securities are primarily due to market volatility and increases in market interest rates; no credit-related impairment was found as the company intends and has the ability to hold these securities until recovery[53] - No sales of available-for-sale securities occurred during the three months ended March 31, 2025, or March 31, 2024[56] - Approximately $46,451 thousand (book value) of available-for-sale securities were pledged as collateral for public deposits as of March 31, 2025[56] Note 7 – Business Segments The company operates through three business segments: Community Banking (loans, deposits, banking services), Mortgage Banking (residential mortgage originations for sale), and Investment Advisory (investment advisory and financial planning services via Pettyjohn, Wood & White, Inc.), with performance evaluated based on segment profit and supplemental data including loans, deposits, and assets under management (AUM) - The company reports three business segments: Community Banking, Mortgage Banking, and Investment Advisory[59][60] Segment Income Before Taxes | Segment | Income before income taxes (Q1 2025, $k) | Net Income (Q1 2025, $k) | | :--- | :--- | :--- | | Community Banking | 672 | 574 | | Mortgage Banking | 1 | 1 | | Investment Advisory | 573 | 418 | Segment Financial Metrics | Segment | Metric | March 31, 2025 ($k) | December 31, 2024 ($k) | March 31, 2024 ($k) | | :--- | :--- | :--- | :--- | :--- | | Community Banking | Total loans held for investment, net | 642,388 | 636,600 | 601,100 | | Community Banking | Total deposits | 918,503 | 889,500 | 894,600 | | Investment Advisory | Assets under management (AUM) | 842,540 | 854,000 | 770,936 | Note 8 – Loans and allowance for credit losses This note details the company's loan portfolio, credit quality indicators, and allowance for credit losses (ACL), showing total loans increased to $649,409 thousand at March 31, 2025, driven by commercial real estate and consumer loans, with the ACL at $7,021 thousand (1.08% of total loans) and a provision for credit losses of $137 thousand for Q1 2025, while nonaccrual loans increased to $1,798 thousand, and the note also outlines the internal risk rating system and provides aging analysis of past due loans Loan Portfolio Composition | Loan Category | March 31, 2025 ($k) | December 31, 2024 ($k) | | :--- | :--- | :--- | | Commercial | 59,976 | 66,418 | | Commercial Real Estate | 371,299 | 359,415 | | Consumer | 80,121 | 78,310 | | Residential | 138,013 | 139,453 | | Total loans | 649,409 | 643,596 | | Less allowance for credit losses | 7,021 | 7,044 | | Net loans | 642,388 | 636,552 | Allowance for Credit Losses Activity | Metric | March 31, 2025 ($k) | March 31, 2024 ($k) | | :--- | :--- | :--- | | Allowance for Credit Losses (Ending Balance) | 7,021 | 6,920 | | Provision for (recovery of) credit losses | 28 | (501) | | Charge-Offs | (62) | (65) | | Recoveries | 11 | 74 | - The allowance for credit losses was 1.08% of total loans outstanding at March 31, 2025, compared to 1.14% at March 31, 2024, and 1.09% at December 31, 2024[176] Nonaccrual Loans | Nonaccrual Loans | March 31, 2025 ($k) | December 31, 2024 ($k) | | :--- | :--- | :--- | | Total Nonaccrual Loans | 1,798 | 1,640 | - The company uses an internal risk rating system (1-9) for commercial and commercial real estate loans, categorizing them from 'Excellent' (Pass) to 'Loss'[75][77] ACL on Unfunded Commitments | ACL on Unfunded Commitments | March 31, 2025 ($k) | March 31, 2024 ($k) | | :--- | :--- | :--- | | Balance | 652 | 613 | | Provision for (recovery of) credit losses | 109 | (52) | Note 9 – Recent accounting pronouncements and other authoritative guidance The company discusses two recent FASB ASUs: ASU 2024-03 (Expense Disaggregation Disclosures) and ASU 2023-09 (Income Tax Disclosures), both of which are expected to have no material impact on the consolidated financial statements upon adoption in future periods - ASU 2024-03, 'Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures,' requires public companies to disclose specific expense types; effective for annual periods beginning after December 15, 2026, with no material impact expected[97] - ASU 2023-09, 'Income Taxes (Topic 740): Improvements to Income Tax Disclosures,' requires additional income tax rate reconciliation and disaggregated tax paid information; effective for annual periods beginning after December 15, 2024, with no material impact expected[98] Note 10 – Subsequent Events Management has reviewed events through the financial statement issuance date and found no subsequent events requiring accrual or disclosure beyond what has already been presented - Management has reviewed events through the date the financial statements were available to be issued and found no other subsequent events requiring accrual or disclosure[100] Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition, including forward-looking statements, critical accounting policies, business overview, off-balance sheet arrangements, and a detailed analysis of financial results, liquidity, and capital adequacy for the three months ended March 31, 2025, compared to the prior year Cautionary Statement Regarding Forward-Looking Statements This section warns that the report contains forward-looking statements subject to risks and uncertainties, which could cause actual results to differ materially from projections, with key factors including technology problems, fraud exposure, regulatory risks, economic conditions, interest rate changes, and geopolitical tensions, and the company disclaims any obligation to update these statements - The report contains forward-looking statements that are subject to risks and uncertainties, which could cause actual results to differ materially from those projected[102][103] - Key risk factors include problems with technology, potential exposure to fraud and cyber-crime, operating and regulatory risks, government legislation and policies, economic and market forces, liquidity, adequacy of allowance for credit losses, reliance on management, changes in interest rates, real estate values, new accounting standards, and geopolitical tensions[105] - The company specifically disclaims any obligation to update forward-looking statements to reflect future events or developments[104] General This section outlines the company's critical accounting policies, particularly the Allowance for Credit Losses on Loans (ACLL) and goodwill impairment testing, and provides an overview of Financial as a bank holding company, its primary subsidiary Bank of the James, and its other business activities including mortgage banking, investment services, insurance, and investment advisory through Pettyjohn, Wood & White, Inc. (PWW), with operating results primarily driven by net interest income and affected by various noninterest income and expense factors - Critical accounting policies include the Allowance for Credit Losses on Loans (ACLL), estimated using a discounted cash flow model, and goodwill, which is tested for impairment annually on September 1[107][108] - Financial is a bank holding company, with its primary business being retail banking through Bank of the James, and other activities including mortgage banking, investment services, insurance, and investment advisory (PWW)[109] - PWW, the investment advisory subsidiary, had approximately $843 million in assets under management and advisement as of March 31, 2025[111] - Operating results depend primarily on net interest income, influenced by interest and dividend income on earning assets and interest expense on liabilities, as well as provision for credit losses, noninterest income, and noninterest expenses[112][113] - The Bank is considering additional branch locations, including properties in Nellysford and Lynchburg, with new branches generally anticipated to become profitable within 12 to 18 months[117][124] Off-Balance Sheet Arrangements The Bank engages in off-balance sheet arrangements, including commitments to extend credit and standby letters of credit, which involve credit and interest rate risk, with total commitments of $185,145 thousand at March 31, 2025, and also has rate lock commitments for mortgage loans that are presold to third-party investors, mitigating credit and interest rate risk - The Bank is party to financial instruments with off-balance sheet risk, including commitments to extend credit and standby letters of credit[120] Off-Balance Sheet Commitments | Commitment Type | March 31, 2025 ($k) | December 31, 2024 ($k) | | :--- | :--- | :--- | | Commitments to extend credit | 181,880 | 182,522 | | Letters of Credit | 3,265 | 3,507 | | Total | 185,145 | 186,029 | - Rate lock commitments for mortgage loans are presold to third-party investors, meaning the Bank is not exposed to losses or gains from interest rate changes on these commitments[123] Summary of Financial Condition and Results of Operations This section provides management's detailed discussion and analysis of the company's financial condition and results of operations for the periods presented, covering asset and liability trends, loan portfolio quality, liquidity, capital adequacy, and a comprehensive review of income and expenses Financial Condition Summary Total assets increased by 3.32% to $1,011,726 thousand at March 31, 2025, driven by growth in cash, federal funds sold, securities, and loans, while deposits also rose by 3.32% due to a strategic reversal of ICS transactions, and the loan portfolio grew with commercial real estate and consumer loans increasing, though nonperforming assets increased slightly to $1,798 thousand, consisting entirely of nonaccrual loans, and the company maintains adequate liquidity and capital, with all regulatory capital ratios exceeding well-capitalized thresholds Key Financial Condition Metrics | Metric | March 31, 2025 ($k) | December 31, 2024 ($k) | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | 1,011,726 | 979,244 | 3.32% | | Total Deposits | 911,683 | 882,404 | 3.32% | | Total Loans (excl. held for sale) | 649,409 | 643,596 | 0.90% | Loan Portfolio Composition | Loan Portfolio Composition | March 31, 2025 ($k) | Percentage | | :--- | :--- | :--- | | Commercial | 59,976 | 9.24% | | Commercial Real Estate | 371,299 | 57.17% | | Consumer | 80,121 | 12.34% | | Residential | 138,013 | 21.25% | | Total loans | 649,409 | 100.00% | - Nonperforming assets, consisting entirely of nonaccrual loans, increased to $1,798 thousand at March 31, 2025, from $1,640 thousand at December 31, 2024[139] - Liquid assets totaled $287,746 thousand at March 31, 2025, and the Bank has additional borrowing capacity from correspondent banks and the FHLBA[146] Regulatory Capital Ratios | Capital Ratio | March 31, 2025 | Regulatory Benchmark (Well Capitalized) | | :--- | :--- | :--- | | Tier 1 capital to average total assets | 9.12% | 5.000% | | Common Equity Tier 1 capital | 11.84% | 6.500% | | Tier 1 risk-based capital ratio | 11.84% | 8.000% | | Total risk-based capital ratio | 12.75% | 10.000% | Results of Operations Net income for Q1 2025 significantly decreased to $842 thousand from $2,187 thousand in Q1 2024, primarily due to a 21.5% increase in noninterest expenses (including a $1 million non-recurring consultant fee) and a shift from a credit loss recovery to a provision, while net interest income, however, increased by 11.1% to $7,719 thousand, driven by higher interest income from loan growth and increased yields, partially offset by a slight decrease in interest expense, and the net interest margin improved to 3.25%, with noninterest income slightly decreasing due to lower gains on loan sales Key Operating Results | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net Income ($k) | 842 | 2,187 | | EPS | $0.19 | $0.48 | | Return on Average Stockholders' Equity | 5.27% | 14.69% | | Return on Average Assets | 0.33% | 0.90% | Net Interest Income and Margin | Interest Metrics | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net Interest Income ($k) | 7,719 | 6,950 | | Net Interest Margin | 3.25% | 3.02% | | Total Interest Income ($k) | 11,234 | 10,509 | | Average rate on loans | 5.56% | 5.28% | | Total Interest Expense ($k) | 3,515 | 3,559 | | Average rate paid on interest-bearing deposits | 1.73% | 1.82% | Noninterest Income and Expense Summary | Noninterest Metrics | Three Months Ended March 31, 2025 ($k) | Three Months Ended March 31, 2024 ($k) | | :--- | :--- | :--- | | Noninterest Income | 3,283 | 3,307 | | Noninterest Expense | 9,826 | 8,088 | | Provision for Credit Losses | 137 | (553) | | Allowance for Credit Losses to Total Loans | 1.08% | 1.14% | | Effective Tax Rate | 18.96% | 19.65% | - The increase in noninterest expense was largely due to a non-recurring $1,000,000 fee paid to a consultant for negotiating a core service provider contract, which is expected to generate significant savings over its 65-month term[173] Quantitative and Qualitative Disclosures About Market Risk This item is marked as 'Not applicable' in the report, indicating no specific quantitative or qualitative disclosures about market risk are provided - The company states that Item 3, Quantitative and Qualitative Disclosures About Market Risk, is not applicable[182] Controls and Procedures This section confirms that management, including the principal executive and financial officers, evaluated the effectiveness of the company's disclosure controls and procedures, concluding they were effective as of March 31, 2025, with no significant changes in internal controls over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures Management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no significant changes in internal controls over financial reporting occurring during the quarter - Financial's management concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[183] - There have been no significant changes in the company's internal controls over financial reporting during the quarter ended March 31, 2025[184] PART II – OTHER INFORMATION Legal Proceedings The company is not involved in any pending legal proceedings other than routine litigation incidental to its business - The company is not involved in any pending legal proceedings at this time, other than routine litigation incidental to its business[185] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - There have been no material changes to the risk factors as previously disclosed in Part I, Item 1A of the Company's Form 10-K for the year ended December 31, 2024[186] Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This item is marked as 'Not applicable' for all sub-sections (a), (b), and (c), indicating no information to report regarding unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities - Item 2, Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities, is not applicable[188] Defaults Upon Senior Securities This item is marked as 'Not applicable' in the report, indicating no defaults upon senior securities to disclose - Item 3, Defaults Upon Senior Securities, is not applicable[187] Mine Safety Disclosures This item is marked as 'Not applicable' in the report, indicating no mine safety disclosures are required - Item 4, Mine Safety Disclosures, is not applicable[187] Other Information This item is marked as 'Not applicable' in the report, indicating no other information to disclose - Item 5, Other Information, is not applicable[189] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications under the Sarbanes-Oxley Act and XBRL formatted financial statements and notes - Exhibits include certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, and XBRL formatted financial statements and notes[189] SIGNATURES Signatures The report is signed by Robert R. Chapman III, President (Principal Executive Officer), and J. Todd Scruggs, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer), on May 15, 2025 - The report was signed by Robert R. Chapman III, President (Principal Executive Officer), and J. Todd Scruggs, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer)[193] - The signing date for the report was May 15, 2025[193]