Bank of the James Financial Group, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited consolidated statements; amounts below are in millions unless stated otherwise. The company is a Virginia community bank holding company, with community banking and mortgage origination as its reportable segments.
Financial results and position
| Metric | Q3 2021 / Sep. 30, 2021 | Comparable period / prior year-end |
|---|---|---|
| Net income | $1.881 million; diluted EPS $0.40 | Q3 2020: $1.454 million; $0.30 |
| Nine-month net income | $5.730 million; diluted EPS $1.21 | Nine months 2020: $3.270 million; $0.68 |
| Net interest income | Q3: $6.822 million; nine months: $20.280 million | Q3 2020: $6.203 million; nine months 2020: $18.257 million |
| Net interest margin | Q3: 3.11%; nine months: 3.20% | Q3 2020: 3.10%; nine months 2020: 3.27% |
| Total assets | $942.631 million | $851.386 million at Dec. 31, 2020 |
| Total deposits | $853.829 million | $764.967 million at Dec. 31, 2020 |
| Total loans, before allowance | $590.848 million | $609.090 million at Dec. 31, 2020 |
| Allowance for loan losses | $7.276 million; 1.23% of loans | $7.156 million; 1.17% at Dec. 31, 2020 |
| Cash and cash equivalents | $147.296 million | $100.886 million at Dec. 31, 2020 |
| Capital notes | $10.031 million carrying value | $10.027 million at Dec. 31, 2020 |
| Stockholders’ equity | $68.902 million | $66.732 million at Dec. 31, 2020 |
- Q3 pretax income was $2.346 million versus $1.823 million; nine-month pretax income was $7.161 million versus $4.072 million. Nine-month noninterest income was $8.305 million versus $8.039 million, while noninterest expense rose to $21.424 million from $19.876 million.
- Cash flow from operations was $8.932 million for the first nine months, compared with cash used of $0.873 million in 2020. Investing activities used $49.743 million and financing activities provided $87.221 million.
- Management reported $299.594 million of liquid assets, including cash and available-for-sale securities. Bank-only capital ratios were 8.27% leverage, 11.28% Tier 1 risk-based/CET1, and 12.34% total risk-based; the Bank exceeded well-capitalized benchmarks.
- Q3 and nine-month annualized return on average assets were 0.80% and 0.85%; return on average equity was 11.03% and 11.58%, respectively.
Material changes versus comparable periods
- Net income increased 29% in Q3 and 75% for the first nine months, primarily reflecting the absence of 2020 pandemic-related loan-loss provisions. The company recorded no provision for loan losses in the first nine months of 2021, compared with $2.348 million in 2020.
- Net interest income rose, supported by lower deposit costs and PPP fee accretion. Nine-month net interest margin fell to 3.20% from 3.27%, mainly due to lower-yielding PPP loans; management said margin pressure was expected to continue.
- Deposits grew 11.6% from year-end, partly from stimulus and PPP-related customer funds and increased market share. Loans declined 3.0%, mainly from PPP forgiveness and payoffs, normal amortization, and softer commercial loan demand.
- Available-for-sale securities increased to $152.298 million from $90.185 million at year-end. Nine-month other comprehensive loss was $2.178 million, primarily reflecting unrealized securities losses; accumulated other comprehensive loss was $0.386 million at September 30.
- Nonperforming assets decreased to $2.710 million from $3.168 million at year-end. Nonaccrual loans were $1.904 million; OREO was $0.806 million.
Outlook, risks and unusual items
- Management expected PPP runoff to support earnings through year-end 2021, while compressed net interest margins would weigh on results. It anticipated mortgage originations to remain strong through the rest of 2021, but noted that rising rates could pressure mortgage revenue. No numerical earnings or revenue guidance was provided.
- COVID-19 remains a material uncertainty. The Bank reported 191 pandemic-related loan modifications with approximately $76 million in principal outstanding after payoffs; all had returned to current status and none remained in deferment. Management identified $84.430 million of loans across specified pandemic-sensitive industries, or 14.29% of the loan portfolio.
- Management considered the allowance adequate but cautioned that worsening economic conditions could increase delinquencies, nonperforming loans, charge-offs, and required provisions. The allowance depends on estimates and judgments; the company was preparing for CECL adoption, required for it after December 15, 2022.
- Off-balance-sheet commitments included $170.567 million to extend credit and $4.336 million in letters of credit. Amounts may not be drawn, but utilization could affect liquidity. Management reported no unusual pandemic-related deposit or liquidity pressure and cited additional borrowing sources.
- The company declared a 10% stock dividend in 2021; share and per-share figures were adjusted accordingly. It paid quarterly dividends of $0.07 per share and repurchased no shares in Q3. The $10.05 million notes issued in 2020 bear 3.25% interest, mature September 30, 2025, and may be repaid in whole or part on or after September 30, 2021.
- The filing reports no material change to previously disclosed risk factors, no pending material legal proceedings beyond routine litigation, and effective disclosure controls.
Investor verification priorities
- Track loan quality, especially commercial real estate exposure, criticized loans, pandemic-sensitive industries, and whether the allowance remains adequate as economic conditions change.
- Verify deposit stability and liquidity as PPP-related funds run off, and monitor use of credit commitments and available borrowing facilities.
- Assess whether lower deposit costs and PPP fee accretion can offset ongoing margin compression as PPP balances decline and rates change.
- Review available-for-sale securities valuation and potential effects of interest-rate movements on accumulated other comprehensive income and capital.
- Confirm the treatment and timing of capital-note repayment options, future branch investment plans, and CECL implementation impacts.