Bank of the James Financial Group, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report; the supplied filing does not provide standalone fourth-quarter results. The company is a Virginia bank holding company whose principal business is community banking, with mortgage banking and investment advisory activities. PWW, acquired on December 31, 2021, contributed results for the first time in 2022.
Financial performance
| Metric | 2022 | 2021 |
|---|---|---|
| Net interest income | $29.7 million | $27.1 million |
| Noninterest income | $13.2 million | $11.2 million |
| Net income | $9.0 million | $7.6 million |
| Basic and diluted EPS | $1.91 | $1.60 |
| Net interest margin | 3.23% | 3.14% |
| Noninterest expense | $32.7 million | $29.3 million |
| Return on average assets | 0.91% | 0.82% |
| Return on average equity | 15.59% | 11.34% |
Net income rose $1.4 million. Higher net interest income, $3.9 million of PWW advisory fees, and increased service charges and commissions were partly offset by lower mortgage-sale gains and higher expenses. Mortgage-sale gains fell to $5.3 million from $8.3 million; mortgage originations declined to $213.4 million from $331.2 million. Noninterest expense increased 11.6%, including higher compensation, data processing and professional costs, and a $362,000 check-forgery charge. Insurance coverage for that loss was under review. The efficiency ratio improved slightly to 76.23% from 76.62%.
Financial position, liquidity and capital
- Total assets were $928.6 million, down 6.0% from $987.6 million. Net loans increased 5.0% to $605.4 million; total deposits declined 4.4% to $848.1 million.
- Cash and cash equivalents fell to $61.8 million from $183.2 million, primarily reflecting lower federal funds sold, loan funding and securities purchases. Management reported $247.5 million of liquid assets and $272.3 million of available non-deposit funding capacity at year-end, subject to collateral requirements. No amounts were outstanding on the listed credit facilities.
- Uninsured deposits were $185.8 million, compared with $118.3 million in 2021. Management said it had not experienced unusual deposit or liquidity pressure through the filing date and considered liquidity sufficient.
- Available-for-sale securities had a $26.8 million net-of-tax unrealized loss at year-end, recorded in accumulated other comprehensive loss. Management attributed the decline primarily to rising rates and said it had the intent and ability to hold the securities until recovery or maturity. A forced sale at a loss could adversely affect earnings and capital.
- Stockholders’ equity declined to $50.2 million from $69.4 million, principally due to the securities valuation loss, partly offset by net income.
- The Bank was considered well-capitalized. At year-end, its CET1 and Tier 1 risk-based capital ratios were each 11.15%, total risk-based capital was 11.98%, and Tier 1 leverage was 8.98%. These are Bank-only figures; the filing says the holding company does not calculate consolidated regulatory capital ratios.
- Debt included $10.0 million of capital notes bearing 3.25% and maturing June 2025, and approximately $10.5 million of other borrowings. The NBB note’s rate was reduced to 3.90% and its balloon maturity extended to December 2026, with an approximate $8.1 million balloon payment.
- Operating cash flow was $9.3 million, down from $16.3 million. Investing activities used $88.1 million and financing activities used $42.6 million. The company paid $1.4 million in common dividends in 2022; a $0.08-per-share fourth-quarter dividend was declared in January 2023.
Material changes, outlook and risks
- Higher asset yields, with deposit costs remaining low during 2022, supported net interest income and margin. Management noted the company’s interest-rate sensitivity and previously expected gradual rate increases to benefit results; it also warned that further increases could raise deposit costs and reduce securities values. The filing does not provide specific earnings or margin guidance.
- Management anticipated that mortgage refinancing would remain limited if rates stayed above 5%–6%, with activity weighted toward home purchases. It expected PWW to contribute meaningfully, while its fee revenue remains exposed to market values and client withdrawals.
- The company adopted CECL on January 1, 2023. It estimated a $1.25–$1.75 million reduction to opening retained earnings, subject to finalization, from increased credit-loss allowances and reserves for unfunded commitments.
- Credit indicators improved: nonaccrual loans were $633,000, or 0.10% of loans, versus $954,000, or 0.16%, in 2021. The allowance was $6.3 million, or 1.02% of loans; the company recorded a $900,000 recovery of loan-loss provision. Management cautioned that higher rates or recession could increase delinquencies and credit losses. Commercial real estate exposure and geographic concentration in Virginia are key risks.
- Other material risks include interest-rate and securities valuation exposure, deposit competition and uninsured deposits, liquidity conditions, cybersecurity and third-party service disruptions, regulatory costs, and potential future capital needs. The filing also describes recent regional bank failures as a source of uncertainty.
- The company had $196.2 million of commitments to extend credit and $2.9 million of standby letters of credit at year-end. Management did not anticipate material losses from these arrangements. It reported no material pending legal proceedings.
- Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2022. The external auditor issued an unqualified opinion on the financial statements and identified the allowance’s qualitative factors as a critical audit matter; the auditor did not attest to internal control effectiveness.
Investor verification priorities
- Track deposit balances, deposit pricing, uninsured-deposit levels and actual liquidity availability, including collateral needed to access stated borrowing capacity.
- Assess the duration, unrealized losses and liquidity implications of the securities portfolio, and verify whether management’s ability and intent to hold remains intact.
- Review CECL adoption adjustments against the estimated $1.25–$1.75 million opening-equity reduction and monitor subsequent allowance changes and credit quality.
- Examine commercial real estate concentrations, large borrower relationships, loan-policy exceptions, and trends in nonperforming loans, charge-offs and recoveries.
- Verify whether the check-forgery loss is reimbursed by insurance, and monitor mortgage revenue, PWW assets under management and fee trends, and the NBB note’s 2026 balloon repayment plan.