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Bank of the James Reports Fourth Quarter, Full Year 2013 Financial Results

Record 2013 Earnings Reflect Loan Growth, Expense Management, Strong Asset Quality

LYNCHBURG, VA -- (Marketwired) -- 01/28/14 -- Bank of the James Financial Group, Inc. (NASDAQ: BOTJ), the parent company of Bank of the James, a full-service commercial and retail bank serving the Greater Lynchburg MSA, commonly known as "Region 2000" and other markets in Central Virginia, today announced unaudited results for the three months and 12 months ended December 31, 2013.

Performance Highlights

  • Net income for the three months ended December 31, 2013 was $663,000 or $0.20 per diluted share, compared with $747,000 or $0.22 per diluted share for the three months ended December 31, 2012.
  • Net income for the 12 months ended December 31, 2013 was $3.06 million or $0.91 per diluted share, up 44% compared with $2.13 million or $0.64 per diluted share for the 12 months ended December 31, 2012.
  • Net interest income after provision for loan losses was $3.89 million in fourth quarter 2013 compared with $3.50 million in fourth quarter 2012. For the 12 months of 2013, net interest income after loan loss provision increased to $15.45 million from $13.45 million for the 12 months of 2012. Both 2013 periods reflected lower year-over-year provisions for loan losses.
  • Noninterest income from fees, service charges and commissions, including fees from the bank's expanded line of treasury management services for commercial customers, grew in 2013 to $1.35 million compared with $1.23 million in 2012.
  • Total loans, net of allowance for loan losses, rose to $339.99 million at December 31, 2013 compared with $319.92 million at December 31, 2012, primarily reflecting growth in commercial real estate and construction lending and selectively retained purchase mortgage originations.
  • The bank's focus on continued prudent credit and risk management practices was reflected in a 52% reduction in nonaccruing loans, resulting in a decline in the ratio of nonaccruing loans to total loans to 0.89% at December 31, 2013 compared with 1.95% at December 31, 2012.
  • All key asset quality ratios improved year-over-year, including a nonperforming assets to total assets ratio of 1.04% at year-end 2013 compared with 1.92% at year-end 2012.
  • Expanding its market reach in 2013, the bank established loan production offices in Charlottesville and Roanoke, Virginia.
  • For the 12 months of 2013, return on average assets (ROAA) and return on average equity (ROAE) increased year- over-year to 0.71% and 10.13%, respectively, compared with 0.50% and 7.76%, respectively, for the 12 months of 2012.
  • Book value per share was $8.85 at December 31, 2013 compared with $8.83 per share at December 31, 2012.

Robert R. Chapman III, President and CEO, commented: "Our financial performance in 2013 reflects the accomplishments of our entire team to deliver growth, combined with asset quality ratios that meet or exceed rigorous goals for balance sheet strength. Earnings in 2013 reflect meaningful year-over-year growth and balance sheet improvement, and were the highest in our company's history. Key measures of shareholder value, including ROAA, ROAE, book value and total stockholders' equity, demonstrated year-over-year increases.

"The year presented numerous opportunities and challenges that called for nimble response. Most financial institutions, including Bank of the James, felt the combined impact of the residential refinancing mortgage slowdown, commercial loan pay downs, and a low interest rate environment for much of the year, followed by interest rate uncertainty and volatility in the latter half of the year.

"We met these challenges head-on with disciplined interest expense management, operating expense control, and by building our purchase mortgage business and adding new commercial loans. We were particularly gratified by our commercial banking performance. During the year, we added 42 new business clients with loan relationships greater than $200,000 that generated $50.4 million in loan commitments. We also emphasized expanding commercial banking relationships, which generated new deposits and increased use of our full suite of fee-based commercial banking products and electronic treasury management services. Fees from these services increased tenfold year-over-year. Our mortgage division focused on replacing refinancings with purchase mortgages, which now comprise more than 70% of the division's total mortgage originations.

"As we enter 2014, we believe the bank is well positioned to grow in our Region 2000 market and generate business through our new Charlottesville and Roanoke offices. We are also implementing an increased effort on calling on customers and potential customers in Appomattox where the bank has purchased a site for future expansion. We intend to apply the disciplined principles of credit and risk management that have enabled us to maintain high quality in our loan portfolio."

Fourth Quarter 2013 Income Statement Highlights
Net income for the three months ended December 31, 2013 was $663,000 or $0.20 per diluted share, compared with $747,000 or $0.22 per diluted share for the three months ended December 31, 2012. Net income in fourth quarter 2012 included a $263,000 gain on the sale of securities, compared with a $51,000 gain on the sale of securities in the fourth quarter 2013.

For the three months ended December 31, 2013, total interest income was $4.75 million compared with $4.66 million for the three months ended December 31, 2012, primarily reflecting modest growth in income from loans. Net interest income after provision for loan losses was $3.89 million in fourth quarter 2013 compared with $3.50 million in fourth quarter 2012. The bank reduced its provision for loan losses to $250,000 in fourth quarter 2013 compared with $513,000 in fourth quarter 2012.

Interest expense declined to $607,000 in fourth quarter 2013 compared with $651,000 in fourth quarter 2012. Despite continuing pressure on margins, the bank's net interest margin expanded to 4.14% in fourth quarter 2013 compared with 4.10% in fourth quarter 2012.

J. Todd Scruggs, CFO, commented: "During a period when the banking industry has battled net interest margin declines, we have been able to offer competitive rates and also deliver value to customers that extends beyond mere pricing considerations. Our loan portfolio also reflects sensitivity to potential interest rate increases, providing the opportunity to respond to prevailing rates. We anticipate being able to maintain net interest margin in the 4%-plus range, with upside potential if interest rates increase."

Noninterest income in fourth quarter 2013 was $840,000 compared with $1.05 million in fourth quarter 2012, partially reflecting a decline in mortgage fee income as refinancing activity slowed, and a decline in gains on securities sales. Income from fees, service charges and commissions in fourth quarter 2013 increased to $371,000 compared with $319,000 in fourth quarter 2012, primarily reflecting income from commercial treasury management services.

Full Year 2013 Income Statement Highlights
For the 12 months ended December 31, 2013, net income was $3.06 million or $0.91 per diluted share compared with $2.13 million or $0.64 per diluted share for the 12 months ended December 31, 2012.

Net interest income after provision for loan losses was $15.45 million in 2013, a 15% increase compared with $13.45 million in 2012. The company's provision for loan losses was $540,000 in 2013 compared with $2.29 million in 2012, reflecting significant asset quality improvement year-over-year. Total interest expense declined to $2.44 million for the 12 months ended December 31, 2013 compared with $3.02 million for the 12 months ended December 31, 2012.

Noninterest income for the 12 months ended December 31, 2013 was $3.48 million compared with $3.62 million for the 12 months ended December 31, 2012. Mortgage fee income was comparable year-over-year as mortgage activity slowed in the second half of 2013. Income from service charges, fees and commissions increased to $1.35 million in 2013 compared with $1.23 million in 2012, partially reflecting significant growth in fees from commercial treasury management services.

Noninterest expense was $14.83 million for the 12 months ended December 31, 2013, compared with $14.39 million for the 12 months ended December 31, 2012. The 2013 total reflected an increase in compensation expenses, which included the addition of personnel in the company's Roanoke and Charlottesville offices and occupancy costs related to the new offices. Expenses related to owned real estate declined to $506,000 in 2013 compared with $798,000 in 2012 as the company continued to reduce its portfolio of foreclosed and OREO properties. It is anticipated that OREO expenses will continue to decline in 2014.

Balance Sheet Highlights and Outlook
Loans, net of allowance for loan losses, were $339.99 million at December 31, 2013 compared with $319.92 million at December 31, 2012. The loan loss allowance in 2013 was $5.19 million compared with $5.54 million in 2012.

"In addition to increased commercial real estate and construction lending activity, we added what we believe to be quality 1-4 family loans to our portfolio," Chapman noted. "Modest upward interest rate trends made it more attractive to selectively retain mortgage loans. Commercial lending added diversity to the bank's total loan portfolio. Continued balance in our portfolio is a key goal in 2014."

Total deposits at December 31, 2013 were $387.40 million compared with $399.02 million at December 31, 2012. Year-end 2012 totals partially reflected a temporary increase to professional settlement accounts related to end-of-the-year real estate and business closings. Total assets were $434.51 million at December 31, 2013 compared with $441.38 million at December 31, 2012, partially reflecting a 31% year-over-year decline in OREO. At December 31, 2013, OREO declined to $1.45 million compared with $2.11 million at December 31, 2012, reflecting steady disposition of owned properties and few assets being added to OREO.

The bank's balance sheet demonstrated continued year-over-year improvement. Total nonperforming loans declined 52% to $3.07 million compared with $6.35 million at December 31, 2012. This lowered the company's ratio of nonperforming loans to total loans to 0.89% at December 31, 2013 compared with 1.95% at December 31, 2012. Total nonperforming assets were $4.52 million at December 31, 2013, down 46.6% from $8.46 million at December 31, 2012.

With sufficient reserves for loan losses and a decline in problem credits, the company's allowance for loan losses to nonperforming loans was 169% at December 31, 2013 compared with 87% at December 31, 2012. The bank's "Texas Ratio" (NPAs + Troubled Debt Restructurings: Capital + Loan Loss Reserve), a measurement of asset quality, was 11.3% at December 31, 2013.

Continued improvement in asset quality and overall bank performance contributed to a return on average assets of 0.71% in 2013, up from 0.50% in 2012, and a return on average equity of 10.13% in 2013 compared with 7.76% in the 2012. Total stockholders' equity increased to $29.77 million at December 31, 2013 compared with $29.61 million at December 31, 2012.

The bank remained "well capitalized" by accepted regulatory standards, with an approximate tier 1 to average total assets ratio of 9.11%, an approximate tier 1 risk-based capital ratio of 11.93% and an approximate total risk-based capital ratio of 13.18%.

About the Company
Bank of the James, a wholly owned subsidiary of Bank of the James Financial Group, Inc., serves the greater Lynchburg, Virginia MSA, often referred to as Region 2000, and other markets in Central Virginia. The bank operates nine full service locations, two loan production offices, and an investment services division in downtown Lynchburg. The company is celebrating its 15th anniversary this year. 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 (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 Bank of the James Financial Group, Inc. 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.

FINANCIAL TABLES FOLLOW

Bank of the James Financial Group, Inc. and Subsidiaries
(000's) except ratios and percent data
unaudited



                  Three      Three               Year       Year
                 months     months                to         to
                 ending     ending               date       date
                 Dec 31,    Dec 31,             Dec 31,    Dec 31,
Selected Data:    2013       2012     Change     2013       2012     Change
----------------------------------------------------------------------------
Interest
 income        $    4,751 $    4,659    1.97% $   18,428 $   18,753   -1.73%
----------------------------------------------------------------------------
Interest
 expense              607        651   -6.76%      2,439      3,016  -19.13%
----------------------------------------------------------------------------
Net interest
 income             4,144      4,008    3.39%     15,989     15,737    1.60%
----------------------------------------------------------------------------
Provision for
 loan losses          250        513  -51.27%        540      2,289  -76.41%
----------------------------------------------------------------------------
Noninterest
 income               840      1,052  -20.15%      3,478      3,618   -3.87%
----------------------------------------------------------------------------
Noninterest
 expense            3,807      3,518    8.21%     14,578     14,144    3.07%
----------------------------------------------------------------------------
Amortization
 of tax credit
 investment           247        247    0.00%        247        247    0.00%
----------------------------------------------------------------------------
Income taxes           17         35  -51.43%      1,042        543   91.90%
----------------------------------------------------------------------------
Net income            663        747  -11.24%      3,060      2,132   43.53%
----------------------------------------------------------------------------
Weighted
 average
 shares
 outstanding    3,356,926  3,345,573    0.34%  3,353,784  3,343,210    0.32%
----------------------------------------------------------------------------
Basic net
 income per
 share         $     0.20 $     0.22 $ (0.02) $     0.91 $     0.64 $  0.27
----------------------------------------------------------------------------
Fully diluted
 net income
 per share     $     0.20 $     0.22 $ (0.02) $     0.91 $     0.64 $  0.27
----------------------------------------------------------------------------


Balance Sheet
 at period       Dec 31,    Dec 31,             Dec 31,    Dec 31,
 end:             2013       2012     Change     2012       2011     Change
----------------------------------------------------------------------------
Loans, net     $  339,994 $  319,922    6.27% $  319,922 $  318,754    0.37%
----------------------------------------------------------------------------
Loans held for
 sale               1,921        904  112.50%        904        434  108.29%
----------------------------------------------------------------------------
Total
 securities        49,628     53,369   -7.01%     53,369     56,471   -5.49%
----------------------------------------------------------------------------
Total deposits    387,398    399,015   -2.91%    399,015    374,234    6.62%
----------------------------------------------------------------------------
Stockholders'
 equity            29,772     29,613    0.54%     29,613     26,805   10.48%
----------------------------------------------------------------------------
Total assets      434,511    441,381   -1.56%    441,381    427,436    3.26%
----------------------------------------------------------------------------
Shares
 outstanding    3,364,874  3,352,725  12,149   3,352,725  3,342,418  10,307
----------------------------------------------------------------------------
Book value per
 share         $     8.85 $     8.83 $  0.02  $     8.83 $     8.02 $  0.81
----------------------------------------------------------------------------


                       Three     Three              Year      Year
                       months    months              to        to
                       ending    ending             date      date
                      Dec 31,   Dec 31,           Dec 31,   Dec 31,
Daily averages:         2013      2012   Change     2013      2012   Change
----------------------------------------------------------------------------
Loans, net           $ 333,415 $ 319,714   4.29% $ 327,652 $ 317,198   3.30%
----------------------------------------------------------------------------
Loans held for sale        770     1,109 -30.57%       883     1,109 -20.38%
----------------------------------------------------------------------------
Total securities        53,649    51,231   4.72%    51,370    57,353 -10.43%
----------------------------------------------------------------------------
Total deposits         393,852   390,340   0.90%   390,094   384,802   1.38%
----------------------------------------------------------------------------
Stockholders' equity    31,412    28,189  11.43%    30,204    27,474   9.94%
----------------------------------------------------------------------------
Interest earning
 assets                399,784   390,849   2.29%   394,551   392,855   0.43%
----------------------------------------------------------------------------
Interest bearing
 liabilities           337,207   336,040   0.35%   335,185   341,846  -1.95%
----------------------------------------------------------------------------
Total assets           439,394   430,578   2.05%   433,164   429,897   0.76%
----------------------------------------------------------------------------


                    Three     Three               Year      Year
                   months    months                to        to
                   ending    ending               date      date
                   Dec 31,   Dec 31,             Dec 31,   Dec 31,
Financial Ratios:   2013      2012     Change     2013      2012     Change
----------------------------------------------------------------------------
Return on average
 assets               0.60%     0.69%    (0.09)     0.71%     0.50%     0.21
----------------------------------------------------------------------------
Return on average
 equity               8.37%    10.51%    (2.14)    10.13%     7.76%     2.37
----------------------------------------------------------------------------
Net interest
 margin               4.14%     4.10%     0.04      4.08%     4.03%     0.05
----------------------------------------------------------------------------
Efficiency ratio     76.38%    69.53%     6.85     74.89%    73.08%     1.81
----------------------------------------------------------------------------
Average equity to
 average assets       7.15%     6.55%     0.60      6.97%     6.39%     0.58
----------------------------------------------------------------------------


                          Three    Three             Year     Year
                          months   months             to       to
                          ending   ending            date     date
Allowance for loan       Dec 31,  Dec 31,          Dec 31,  Dec 31,
 losses:                   2013     2012   Change    2013     2012   Change
----------------------------------------------------------------------------
Beginning balance        $ 4,983  $ 5,693  -12.47% $ 5,535  $ 5,612   -1.37%
----------------------------------------------------------------------------
Provision for losses         250      513  -51.27%     540    2,289  -76.41%
----------------------------------------------------------------------------
Charge-offs                 (135)    (749) -81.98%  (1,105)  (2,599) -57.48%
----------------------------------------------------------------------------
Recoveries                    88       78   12.82%     216      233   -7.30%
----------------------------------------------------------------------------
Ending balance             5,186    5,535   -6.31%   5,186    5,535   -6.31%
----------------------------------------------------------------------------


                             Dec 31, Dec 31,         Dec 31, Dec 31,
Nonperforming assets:          2013    2012  Change    2012    2011  Change
----------------------------------------------------------------------------
Total nonperforming loans    $ 3,066 $ 6,346 -51.69% $ 6,346 $10,376 -38.84%
----------------------------------------------------------------------------
Other real estate owned        1,451   2,112 -31.30%   2,112   3,253 -35.08%
----------------------------------------------------------------------------
Total nonperforming assets     4,517   8,458 -46.59%   8,458  13,629 -37.94%
----------------------------------------------------------------------------
Troubled debt restructurings
 - (performing portion)          564     572  -1.40%     572     783 -26.95%
----------------------------------------------------------------------------


                               Dec     Dec             Dec     Dec
                               31,     31,             31,     31,
Asset quality ratios:         2013    2012   Change   2012    2011   Change
----------------------------------------------------------------------------
Nonperforming loans to total
 loans                         0.89%   1.95%  (1.06)   1.95%   3.20%  (1.25)
----------------------------------------------------------------------------
Allowance for loan losses to
 total loans                   1.50%   1.70%  (0.20)   1.70%   1.73%  (0.03)
----------------------------------------------------------------------------
Allowance for loan losses to
 nonperforming loans         169.15%  87.22%  81.93   87.22%  54.09%  33.13
----------------------------------------------------------------------------

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