Bank of the James Financial (BOTJ) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the Company's unaudited consolidated financial statements, management's analysis, market risk, and internal controls Item 1. Consolidated Financial Statements This section presents the unaudited consolidated financial statements of Bank of the James Financial Group, Inc. and its subsidiaries for the periods ended June 30, 2025, and December 31, 2024, including balance sheets, income statements, comprehensive income, cash flows, and changes in stockholders' equity, along with detailed notes on accounting policies, debt, fair value measurements, securities, business segments, and credit losses Consolidated Balance Sheets This section provides a snapshot of the Company's financial position, detailing assets, liabilities, and stockholders' equity at specific reporting dates | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Total assets | $1,004,242 | $979,244 | | Total liabilities | $932,577 | $914,379 | | Total stockholders' equity | $71,665 | $64,865 | - Total assets increased by 2.56% from December 31, 2024, to June 30, 2025, primarily driven by growth in federal funds sold, securities available-for-sale, and loans[10][146] - Total deposits increased by 3.19% to $910,527,000 as of June 30, 2025, largely due to the reversal of one-way Insured Cash Sweep (ICS) placements[11][147] Consolidated Statements of Income This section outlines the Company's financial performance over specific periods, presenting revenues, expenses, and net income | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total interest income | $11,638 | $10,935 | $22,872 | $21,444 | | Total interest expense | $3,388 | $3,844 | $6,903 | $7,403 | | Net interest income | $8,250 | $7,091 | $15,969 | $14,041 | | Recovery of credit losses | $(528) | $(123) | $(391) | $(676) | | Total noninterest income | $4,075 | $4,191 | $7,358 | $7,498 | | Total noninterest expenses | $9,455 | $8,739 | $19,281 | $16,827 | | Income before income taxes | $3,398 | $2,666 | $4,437 | $5,388 | | Net Income | $2,704 | $2,148 | $3,546 | $4,335 | | Net income per common share - basic | $0.60 | $0.47 | $0.78 | $0.95 | - Net income for the three months ended June 30, 2025, increased by 25.9% year-over-year, while for the six months, it decreased by 18.2% year-over-year[173] - Net interest income increased for both the three-month (16.3%) and six-month (13.7%) periods ended June 30, 2025, driven by higher loan portfolio growth and increased yields on earning assets, coupled with an 11.9% decline in total interest expense[12][176][181] Consolidated Statements of Comprehensive Income This section details the Company's total comprehensive income, including net income and other comprehensive income components | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income | $2,704 | $2,148 | $3,546 | $4,335 | | Other comprehensive income (loss), net of tax | $1,066 | $(422) | $4,162 | $(1,758) | | Comprehensive income | $3,770 | $1,726 | $7,708 | $2,577 | - Comprehensive income significantly increased for both periods in 2025, primarily due to unrealized gains on available-for-sale securities, net of tax, which were positive $1,066,000 and $4,162,000 for the three and six months ended June 30, 2025, respectively, compared to losses in the prior year[14] Consolidated Statements of Cash Flows This section reports the cash inflows and outflows from operating, investing, and financing activities over specific periods | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $4,416 | $1,653 | | Net cash used in investing activities | $(16,449) | $(6,914) | | Net cash provided by financing activities | $16,631 | $5,050 | | Increase (decrease) in cash and cash equivalents | $4,598 | $(211) | | Cash and cash equivalents at end of period | $77,907 | $74,627 | - Net cash provided by operating activities increased significantly to $4,416,000 for the six months ended June 30, 2025, from $1,653,000 in the prior year, mainly due to adjustments reconciling net income[16] - Investing activities saw a higher net cash outflow of $16,449,000 in 2025, primarily due to increased purchases of available-for-sale securities and loan originations[16] - Financing activities provided substantially more cash, $16,631,000, in 2025, driven by a net increase in deposits and repayment of capital notes[16] Consolidated Statements of Changes in Stockholders' Equity This section tracks changes in the Company's equity accounts, including common stock, retained earnings, and comprehensive income | Metric (in thousands) | Balance at Dec 31, 2024 | Net Income (Q1 2025) | Dividends Paid (Q1 2025) | Other Comprehensive Income (Q1 2025) | Balance at Mar 31, 2025 | Net Income (Q2 2025) | Dividends Paid (Q2 2025) | Other Comprehensive Income (Q2 2025) | Balance at Jun 30, 2025 | | :-------------------- | :---------------------- | :------------------- | :----------------------- | :----------------------------------- | :---------------------- | :------------------- | :----------------------- | :----------------------------------- | :---------------------- | | Common Stock | $9,723 | - | - | - | $9,723 | - | - | - | $9,723 | | Additional Paid-in Capital | $35,253 | - | - | - | $35,253 | - | - | - | $35,253 | | Retained Earnings | $42,804 | $842 | $(455) | - | $43,191 | $2,704 | $(455) | - | $45,442 | | Accumulated Other Comprehensive (Loss) | $(22,915) | - | - | $3,096 | $(19,819) | - | - | $1,066 | $(18,753) | | Total Stockholders' Equity | $64,865 | $842 | $(455) | $3,096 | $68,348 | $2,704 | $(455) | $1,066 | $71,665 | - Total stockholders' equity increased from $64,865,000 at December 31, 2024, to $71,665,000 at June 30, 2025, primarily due to net income and positive other comprehensive income from unrealized gains on available-for-sale securities, partially offset by dividends paid[11][18] Note 1 – Basis of Presentation This note describes the geographical market, accounting principles, and key intangible assets underlying the financial statements - The Company's primary market area is Region 2000 in Central Virginia, with recent expansion into Charlottesville, Roanoke, Blacksburg, Harrisonburg, Lexington, Rustburg, Wytheville, Buchanan, and Nellysford[20] - The unaudited consolidated financial statements reflect all necessary adjustments for fair presentation as of June 30, 2025, and December 31, 2024, in conformity with GAAP[21] - An intangible asset for customer relationships, valued at $8,406,000 from the PWW acquisition, is amortized straight-line over 15 years, with a net balance of $6,445,000 as of June 30, 2025[22] Note 2 – Significant Accounting Policies and Estimates This note outlines the critical accounting policies and estimates, such as credit loss allowance and securities valuation, used in financial reporting - The financial statements rely on management estimates and assumptions, particularly for the allowance for credit losses on loans (ACLL) and the valuation of available-for-sale securities, which are susceptible to changes in regional economic conditions and interest rates[23][119] - There have been no significant changes to the application of significant accounting policies since December 31, 2024[25] Note 3 – Earnings Per Common Share (EPS) This note details the calculation of basic and diluted earnings per common share for the reported periods | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $2,704 | $2,148 | $3,546 | $4,335 | | Weighted average shares outstanding | 4,543,338 | 4,543,338 | 4,543,338 | 4,543,338 | | Earnings per common share - basic and diluted | $0.60 | $0.47 | $0.78 | $0.95 | - Basic and diluted EPS increased to $0.60 for the three months ended June 30, 2025, from $0.47 in the prior year, but decreased to $0.78 for the six months ended June 30, 2025, from $0.95 in the prior year[26][173] Note 4 – Debt (Current and Long Term) This note provides information on the Company's debt obligations, including subordinated notes and the NBB Note, and their repayment or modification - The Company repaid $10,050,000 in 3.25% fixed-rate subordinated notes on their maturity date of June 30, 2025, using parent-company cash, which is expected to save approximately $327,000 annually in interest expense[28][168] - The NBB Note, with a principal balance of approximately $8,992,000 at June 30, 2025, had its balloon payment date extended to December 31, 2026, and its interest rate lowered to 3.90% from 4.00% in June 2022[30][31] Note 5 – Fair Value Measurements This note explains the three-level hierarchy for fair value measurements and the classification of assets like available-for-sale securities and IRLCs - Fair value measurements are categorized into a three-level hierarchy based on the observability of inputs, with Level 1 for quoted prices in active markets, Level 2 for observable inputs, and Level 3 for unobservable inputs[35][39] | Asset (in thousands) | June 30, 2025 (Level 2) | June 30, 2025 (Level 3) | December 31, 2024 (Level 2) | December 31, 2024 (Level 3) | | :------------------- | :---------------------- | :---------------------- | :-------------------------- | :-------------------------- | | Securities available-for-sale | $196,585 | $0 | $187,916 | $0 | | IRLCs - asset | $0 | $239 | $0 | $42 | - All of the Company's available-for-sale securities are classified as Level 2, while Interest Rate Lock Commitments (IRLCs) are classified as Level 3 due to unobservable inputs like the range of pull-through rates[37][38][42] - No nonrecurring fair value adjustments were recorded for collateral-dependent loans or loans held for sale at June 30, 2025, or December 31, 2024[45][46] Note 6 – Securities This note details the Company's held-to-maturity and available-for-sale securities, including unrealized gains/losses and pledged collateral | Security Type (in thousands) | Amortized Costs (Jun 30, 2025) | Fair Value (Jun 30, 2025) | Amortized Costs (Dec 31, 2024) | Fair Value (Dec 31, 2024) | | :--------------------------- | :----------------------------- | :------------------------ | :----------------------------- | :------------------------ | | Held-to-Maturity | $3,598 | $3,251 | $3,606 | $3,170 | | Available-for-sale | $220,322 | $196,585 | $216,921 | $187,916 | - As of June 30, 2025, available-for-sale securities had gross unrealized losses of $24,025,000, primarily due to market volatility and increased interest rates, but management does not expect to realize these losses[52][54][161] - The Company had no sales of available-for-sale securities during the three and six months ended June 30, 2025, compared to $8,754,000 in sales during the same periods in 2024[58] - The Company pledged approximately $49,360,000 of available-for-sale securities as collateral for public deposits, $37,000,000 with correspondent banks, and $26,000,000 for advances at the Federal Reserve Bank's discount window as of June 30, 2025[60][165] Note 7 – Business Segments This note provides financial information for the Company's Community Banking, Mortgage Banking, and Investment Advisory segments - The Company operates three business segments: Community Banking (loans, deposits), Mortgage Banking (residential mortgage originations for sale), and Investment Advisory (investment advisory and financial planning services through PWW)[61][64] | Segment (in thousands) | Segment Income Before Taxes (Q2 2025) | Segment Income Before Taxes (Q2 2024) | Segment Income Before Taxes (YTD 2025) | Segment Income Before Taxes (YTD 2024) | | :--------------------- | :------------------------------------ | :------------------------------------ | :------------------------------------- | :------------------------------------- | | Community Banking | $2,607 | $2,147 | $3,279 | $4,212 | | Mortgage Banking | $369 | $202 | $370 | $447 | | Investment Advisory | $614 | $522 | $1,187 | $1,001 | - Investment Advisory's Assets Under Management (AUM) increased to $930.0 million at June 30, 2025, from $854.0 million at December 31, 2024, due to new asset inflows and market value increases[66][191] - Community Banking's total loans held for investment, net, increased to $649.1 million at June 30, 2025, from $636.6 million at December 31, 2024, and deposits grew to $915.4 million from $882.4 million[63] Note 8 – Loans and allowance for credit losses This note details the Company's loan portfolio by segment, the allowance for credit losses, and nonperforming assets | Loan Segment (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Commercial | $70,510 | $66,418 | | Commercial Real Estate | $366,351 | $359,415 | | Consumer | $80,617 | $78,310 | | Residential | $137,919 | $139,453 | | Total loans | $655,397 | $643,596 | | Less allowance for credit losses | $6,308 | $7,044 | | Net loans | $649,089 | $636,552 | - Total loans, net of allowance, increased by 1.97% to $649,089,000 at June 30, 2025, driven by higher balances in commercial, commercial real estate, and consumer loan categories, partially offset by decreases in residential loans[148] - The allowance for credit losses decreased to $6,308,000 (0.96% of total loans) at June 30, 2025, from $7,044,000 (1.10%) at December 31, 2024, and the Company recorded a recovery of $528,000 for the three months ended June 30, 2025[80][199] - Nonperforming assets increased to $1,846,000 at June 30, 2025, from $1,640,000 at December 31, 2024, consisting of nonaccrual loans and loans past due 90 days or more and still accruing[156] - The allowance for credit losses for unfunded commitments was $678,000 at June 30, 2025, with a provision of $27,000 for the three months ended June 30, 2025[108][109] Note 9 – Recent accounting pronouncements and other authoritative guidance This note discusses the impact of recently issued accounting pronouncements, specifically ASU 2024-03, on the Company's financial reporting - ASU 2024-03, requiring disaggregation of income statement expenses, is effective for public business entities for annual periods beginning after December 15, 2026, and interim periods after December 15, 2027. The Company does not expect a material impact from its adoption[111] Note 10 - Subsequent Events This note confirms management's review of events occurring after the balance sheet date, with no material adjustments or disclosures required - Management has reviewed events through the financial statement issuance date and determined no subsequent events require accrual or disclosure beyond those already provided[113] Item 2. 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, highlighting key drivers of changes in assets, liabilities, equity, and earnings. It includes discussions on critical accounting policies, business overview, off-balance sheet arrangements, and detailed analysis of interest income, expense, noninterest income, noninterest expense, and credit losses CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This section warns that the report contains forward-looking statements subject to various risks and uncertainties, including economic and regulatory factors - The report contains forward-looking statements subject to risks and uncertainties, including technology problems, regulatory changes, economic conditions, geopolitical risks, liquidity, credit loss allowance adequacy, management team reliance, real estate value changes, and new accounting standards[115][117] GENERAL This section provides an overview of the Company's critical accounting policies, business activities, and strategic plans for branch expansion - The Company's financial statements are prepared in accordance with GAAP, with critical accounting policies including the Allowance for Credit Losses on Loans (ACLL) and Goodwill impairment testing[119][120][121] - Financial is a bank holding company primarily engaged in retail banking through Bank of the James, with additional activities in mortgage banking, investment services, insurance, and investment advisory services via PWW[123] - PWW, the investment advisory subsidiary, manages approximately $929,957,000 in assets as of June 30, 2025, generating revenue primarily through investment advisory fees[126][191] - The Bank plans to open additional branches, including relocating its Temporary Nellysford Branch to a permanent location in Fall 2025, and anticipates new branches to become profitable within 12 to 18 months[135][140] OFF-BALANCE SHEET ARRANGEMENTS This section describes the Company's off-balance sheet financial instruments, such as credit commitments and mortgage rate lock commitments, and associated risks - The Bank uses off-balance sheet financial instruments, including commitments to extend credit and standby letters of credit, totaling $189,294,000 at June 30, 2025, which involve credit and interest rate risk[141] - Mortgage rate lock commitments (IRLCs) are presold to third-party investors, mitigating credit or interest rate risk for the Bank[143] SUMMARY OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section summarizes the Company's financial position and operational performance, detailing changes in assets, liabilities, equity, and earnings drivers Financial Condition Summary This section summarizes the Company's balance sheet, including asset and deposit growth, loan portfolio composition, nonperforming assets, and capital levels - Total assets increased by 2.56% to $1,004,242,000 at June 30, 2025, from $979,244,000 at December 31, 2024, driven by growth in federal funds sold, available-for-sale securities, and loans[146] - Total deposits increased by 3.19% to $910,527,000, primarily due to the reversal of one-way Insured Cash Sweep (ICS) placements[147] - Total loans, net of allowance, increased by 1.97% to $649,089,000, with growth in commercial, commercial real estate, and consumer loans, partially offset by a decrease in residential loans[148] - Non-owner occupied commercial real estate loans totaled $202,147,000, or approximately 31% of total loans, with minimal exposure to large office buildings or shopping centers[151] - Nonperforming assets increased to $1,846,000 at June 30, 2025, from $1,640,000 at December 31, 2024[156] - The Bank's regulatory capital levels exceeded well-capitalized institution requirements at June 30, 2025, with a Tier 1 risk-based capital ratio of 11.38% and a total risk-based capital ratio of 12.19%[167][169] Results of Operations This section analyzes the Company's income statement, focusing on net income, net interest income, noninterest income, expenses, and credit loss recovery | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income | $2,704 | $2,148 | $3,546 | $4,335 | | Net interest income | $8,250 | $7,091 | $15,969 | $14,041 | | Noninterest income | $4,075 | $4,191 | $7,358 | $7,498 | | Noninterest expenses | $9,455 | $8,739 | $19,281 | $16,827 | | Recovery of credit losses | $(528) | $(123) | $(391) | $(676) | - Net interest income increased by 16.3% for the three months and 13.7% for the six months ended June 30, 2025, driven by higher yields on earning assets (loan rates up to 5.70% from 5.42% YoY for Q2) and a decline in interest expense[176][179][181] - Noninterest income slightly decreased for both periods, primarily due to lower other income and no gains on available-for-sale securities sales in 2025, partially offset by increased gains on loan sales and wealth management fees[176][184][192] - Noninterest expense increased by 8.2% for the quarter and 14.6% year-to-date, mainly due to higher salaries, employee benefits, and a significant rise in professional, data processing, and other outside services, including a $1,000,000 consulting fee[176][194] - The allowance for credit losses decreased, and the Bank recorded a recovery of $528,000 for the three months ended June 30, 2025, influenced by updated CECL loss models incorporating post-pandemic loss history and revised loss-rate parameters[197][198][199] - The effective tax rate for the three and six months ended June 30, 2025, was 20.43% and 20.08%, respectively, lower than the statutory rate due to tax benefits from bank-owned life insurance and tax-exempt municipal bonds[203] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there are no applicable quantitative and qualitative disclosures about market risk for the Company in this report - The Company has no applicable quantitative and qualitative disclosures about market risk in this report[212] Item 4. Controls and Procedures 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 June 30, 2025. No significant changes in internal controls over financial reporting occurred during the quarter - Financial's disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025, ensuring timely and accurate reporting of required information[213] - No significant changes occurred in the Company's internal controls over financial reporting during the quarter ended June 30, 2025[214] PART II – OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings The Company is not currently involved in any legal proceedings other than routine litigation incidental to its business - The Company is not involved in any pending legal proceedings beyond routine litigation incidental to its business[215] Item 1A. 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 - No material changes to the Company's risk factors have occurred since the Annual Report on Form 10-K for the year ended December 31, 2024[217] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This item is not applicable to the Company for the reporting period - This item is not applicable[218] Item 3. Defaults Upon Senior Securities This item is not applicable to the Company for the reporting period - This item is not applicable[218] Item 4. Mine Safety Disclosures This item is not applicable to the Company for the reporting period - This item is not applicable[218] Item 5. Other Information This item is not applicable to the Company for the reporting period - This item is not applicable[218] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications under the Sarbanes-Oxley Act and XBRL-formatted financial statements - Exhibits include certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, dated August 13, 2025[218] - The financial statements for the quarter ended June 30, 2025, are provided in eXtensible Business Reporting Language (XBRL) format[218] SIGNATURES This section contains the official signatures of the Company's principal executive and financial officers, certifying the report's accuracy SIGNATURES The report is signed on behalf of Bank of the James Financial Group, Inc. by Robert R. Chapman III, President (Principal Executive Officer), and J. Todd Scruggs, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer), both dated August 13, 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) on August 13, 2025[221][223]