Company Overview
Bank of the James Financial Group, Inc. (BOTJ) is a Virginia-based bank holding company that operates through its wholly-owned subsidiary, Bank of the James. The Bank serves the greater Lynchburg, Virginia metropolitan statistical area (MSA), referred to as Region 2000, as well as the Blacksburg, Buchanan, Charlottesville, Harrisonburg, Lexington, Nellysford, Roanoke, and Wytheville markets in Virginia.
History and Development
Bank of the James Financial Group, Inc. was incorporated under the laws of the Commonwealth of Virginia as a state-chartered bank in 1998 and began banking operations in July 1999. The bank was initially organized to engage in general retail and commercial banking business, serving individuals, small and medium-sized businesses, and professional concerns primarily in the Central Virginia, Region 2000 area. Over the years, the bank has faced several challenges, including navigating the 2008 financial crisis and adapting to changes in technology and consumer preferences. Despite these challenges, the bank has remained focused on its community banking model, providing personalized service and tailored financial solutions to its customers.
Expansion and Growth
The bank has gradually expanded its geographic footprint, opening new branches in Roanoke, Charlottesville, Harrisonburg, Blacksburg, Lexington, and Rustburg, Virginia to better serve its growing customer base. In 2021, the company made a significant move to expand its wealth management services by acquiring Pettyjohn, Wood & White, Inc., an SEC-registered investment advisory firm.
In recent years, Bank of the James has undertaken a strategic expansion plan, opening new branches and loan production offices in growth markets across Virginia. As of September 30, 2024, the Bank operated 18 full-service branches and 4 loan production offices, positioning it to capture market share and capitalize on opportunities in its expanding footprint.
Financials
Financially, Bank of the James has demonstrated resilience and consistent performance. For the year ended December 31, 2023, the company reported net income of $8.70 million, or $1.91 per diluted share, on total revenue of $41.80 million. The Bank's loan portfolio grew to $609.33 million as of December 31, 2023, up from $600.82 million a year earlier, reflecting a 1.41% increase. Deposits also expanded, reaching $878.46 million as of December 31, 2023, compared to $841.01 million at the end of 2022, a 4.43% increase.
For the most recent quarter (Q3 2024), BOTJ reported revenue of $11.14 million, up 11% year-over-year, and net income of $1.99 million, down 5% year-over-year. The decrease in net income was primarily due to higher interest expense as interest rates have risen. The company's annual operating cash flow for 2023 was $9.49 million, with annual free cash flow of $7.92 million.
Liquidity and Capital Position
The company's financial performance has been underpinned by a strong balance sheet and prudent risk management practices. As of December 31, 2023, Bank of the James reported a Tier 1 capital ratio of 12.37% and a total risk-based capital ratio of 13.38%, well above the regulatory requirements for "well-capitalized" institutions. The Bank's nonperforming assets ratio stood at 0.40% at the end of 2023, indicating a high-quality loan portfolio.
As of September 30, 2024, BOTJ's liquidity position remained strong. The company reported a debt-to-equity ratio of 0.33, cash and cash equivalents of $109.21 million, and a current ratio and quick ratio of 1.64. BOTJ has access to a $44 million collateralized line of credit with correspondent banks, a $20 million borrowing capacity with the FHLB using loans as collateral, and the ability to borrow up to $53 million in Fed funds.
Business Segments and Products
BOTJ operates several key business segments:
1. Retail Banking Segment: This is BOTJ's primary business, offering a range of retail and commercial banking services to individuals, small and medium-sized businesses, and professional customers within its market area.
2. Mortgage Banking Segment: The bank's mortgage division originates both conforming and non-conforming consumer residential mortgage loans. For the three and nine months ended September 30, 2024, mortgage origination volume totaled $31.02 million and $120.66 million, respectively, representing 84.98% and 83.02% of total mortgage loans originated.
3. Investment Services Segment: This division provides brokerage services through an agreement with a third-party broker-dealer, generating commissions on transactions and ongoing management fees.
4. Wealth Management Segment: Conducted through its wholly-owned subsidiary, Pettyjohn, Wood & White, Inc. (PWW), this segment had approximately $828 million in assets under management and advisement as of September 30, 2024.
5. Insurance Segment: BOTJ Insurance, Inc. provides insurance and annuity products to customers, although this segment generates minimal revenue.
COVID-19 Response
Despite the challenges posed by the COVID-19 pandemic, Bank of the James has navigated the uncertain environment effectively. The Bank proactively assisted customers through loan modifications and participation in the Paycheck Protection Program, helping them weather the economic disruption. As a result, the company's asset quality metrics remained strong, with a low level of nonperforming loans and charge-offs.
Future Outlook
Looking ahead, Bank of the James remains focused on organic growth, both in its core markets and through targeted expansion into adjacent regions. The company is also actively exploring strategic acquisition opportunities that could further enhance its market presence and capabilities. Management has provided guidance for 2024, expecting continued loan and deposit growth, stable net interest margins, and manageable credit costs.
Challenges and Risks
Challenges facing the company include the ongoing pressure on net interest margins due to the interest rate environment, increased competition from larger regional and national banks, and the need to invest in technology and digital banking capabilities to meet evolving customer preferences. Additionally, the Bank's geographic concentration in Virginia exposes it to economic conditions in the state, which could be impacted by broader macroeconomic factors.
Industry Trends
The banking industry has seen steady loan and deposit growth in recent years, though rising interest rates have compressed net interest margins. The industry continues to face challenges around regulatory compliance and technology investments. BOTJ operates primarily in the central Virginia Region 2000 area, encompassing the Lynchburg, Roanoke, Charlottesville, Harrisonburg, and Blacksburg markets, with recent expansions into Buchanan, Lexington, and Wytheville markets.
Conclusion
Overall, Bank of the James Financial Group, Inc. (BOTJ) has demonstrated the ability to navigate a dynamic banking landscape, leveraging its community-focused approach, prudent risk management, and strategic growth initiatives to deliver consistent financial performance. As the company continues to expand its footprint and adapt to industry changes, investors will be closely watching its ability to maintain its competitive edge and capitalize on opportunities in its markets.