Bank of the James Financial Group, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are with December 31, 2023. The company is a Virginia community banking group with mortgage, investment advisory and related businesses. Dollar amounts below are in millions unless noted.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net interest income | $6.950 | $7.642 |
| Noninterest income | $3.307 | $3.044 |
| Net interest income plus noninterest income | $10.257 | $10.686 |
| Net income | $2.187 | $1.984 |
| Basic and diluted earnings per share | $0.48 | $0.43 |
| Net interest margin | 3.02% | 3.48% |
| Noninterest expense | $8.088 | $8.075 |
| Net cash from operating activities | $(1.230) | $4.823 |
Net income rose 10.2% year over year. Interest income increased to $10.509 million from $9.098 million, but interest expense rose more sharply, to $3.559 million from $1.456 million. The resulting 9.1% decline in net interest income reflected higher deposit costs and a shift toward higher-cost time deposits. The company reported an annualized return on average assets of 0.90% versus 0.85%, and return on average equity of 14.69% versus 16.25%.
Financial position and liquidity
- Total assets were $984.9 million, up 1.6% from year-end. Cash and cash equivalents increased to $88.1 million from $74.8 million.
- Total deposits were $893.5 million, up $15.0 million. Noninterest-bearing demand deposits increased, while NOW, money market and savings balances declined; time deposits grew as customers locked in higher rates.
- Total loans, excluding loans held for sale, were $608.0 million, down 0.2% from year-end. Management attributed the decline to payoffs, normal amortization and reduced demand amid higher rates.
- Management reported $302.9 million of liquid assets, including cash and available-for-sale securities, and said liquidity was adequate. The bank reported no borrowings from its FHLB, correspondent or Federal Reserve borrowing sources at quarter-end; additional stated borrowing capacity included $53 million of Fed funds and about $21 million of FHLB capacity against pledged loans.
- Uninsured deposits were estimated at approximately $252 million, or 28% of total deposits. The bank’s reported capital ratios exceeded well-capitalized thresholds: leverage 9.60%, CET1 12.62%, Tier 1 risk-based 12.62% and total risk-based 13.56%.
- Capital notes were $10.0 million and other borrowings were $9.7 million at quarter-end. Available-for-sale securities had $29.1 million of pretax unrealized losses; the related accumulated other comprehensive loss was $23.0 million after tax. Management said it intended and was able to hold the securities until recovery and did not expect to be required to sell them.
Material changes and credit quality
- Net interest margin fell 46 basis points year over year. The average rate paid on interest-bearing deposits rose to 1.82% from 0.71%, while the average loan yield increased to 5.28% from 4.85%.
- Noninterest income increased 8.6%, supported by wealth management fees, life insurance income and other income. Noninterest expense was nearly flat; personnel costs increased, partly offset by lower marketing and other costs.
- The company recorded a $0.553 million recovery of credit losses, compared with a $0.140 million provision in Q1 2023. The loan allowance declined to $6.920 million from $7.412 million, or 1.14% of loans versus 1.22% at year-end. Charge-offs were $65,000 and recoveries were $74,000.
- Nonperforming assets were $558,000, all nonaccrual loans, compared with $391,000 at year-end. Past-due loans totaled $1.706 million; none were more than 90 days past due and accruing. There was no OREO and no allowance for credit losses on available-for-sale or held-to-maturity securities.
- Q1 comprehensive income was $0.851 million versus $4.567 million in Q1 2023, reflecting a $1.336 million after-tax unrealized securities loss this quarter versus a $2.583 million gain a year earlier.
- Operating cash flow was negative despite positive net income, while deposits provided $15.0 million of financing cash flow. Cash and cash equivalents increased by $13.2 million during the quarter.
Outlook, risks and other items
- No specific earnings or financial guidance was provided. Management expects the net interest margin to remain flat or compress in the near to medium term and noted that further deposit-rate increases could pressure margin and profitability.
- Management said elevated mortgage rates continue to weigh on originations and may keep mortgage-segment revenue under pressure. It expects purchase mortgages to remain a significant share of originations in the near term. PWW reported approximately $680 million in assets under management and advisement at March 31, 2024.
- The bank anticipated opening a Buchanan branch and a temporary location near Nellysford in Q2 2024, subject to the described plans and constraints; the Nellysford property’s banking-use restriction runs through September 2025. Management generally expects new branches to become profitable within 12–18 months.
- Principal disclosed risks include interest-rate and economic changes, deposit competition and liquidity conditions, real-estate collateral values, credit losses, cybersecurity and technology, regulatory and operational risks, and competition. Management reported effective disclosure controls and no material change in internal controls during the quarter. No material change to previously disclosed risk factors was reported; the company reported no pending material legal proceedings other than routine litigation.
Important facts for investors to verify
- Whether deposit pricing continues to rise and whether asset yields can keep pace, given the reported NIM compression.
- Trends in deposit composition, uninsured deposits and available contingent liquidity, including the availability and terms of borrowing capacity.
- Credit performance, including the increase in nonperforming assets, commercial real-estate exposure and the assumptions supporting the allowance and its Q1 recovery.
- The recoverability and potential liquidity impact of the securities portfolio’s unrealized losses, especially if deposit or funding conditions change.
- Whether branch expansion and mortgage and wealth-management activity deliver the expected contribution without materially increasing costs or risk.