Item 8.
|
Financial Statements and Supplementary Data
|
The following financial
statements are filed as a part of this report:
Managements Annual Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements
Balance Sheets, December 31, 2016 and December 31, 2015
Statements of Income, Years Ended December 31, 2016 and December 31, 2015
Statements of Comprehensive Income, Years Ended December 31, 2016 and December 31, 2015
Statements of Changes in Stockholders Equity, Years Ended December 31, 2016 and December 31, 2015
Statements of Cash Flows, Years Ended December 31, 2016 and December 31, 2015
Notes to Consolidated Financial Statements
49
MANAGEMENTS ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for the preparation and fair presentation of the consolidated financial statements included in this annual report. The consolidated
financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and reflect managements judgments and estimates concerning effects of events and transactions that are
accounted for or disclosed.
Management is also responsible for establishing and maintaining adequate internal control over financial reporting.
Financials internal control over financial reporting includes those policies and procedures that pertain to Financials ability to record, process, summarize and report reliable financial data. Management recognizes that there are
inherent limitations in the effectiveness of any internal control over financial reporting, including the possibility of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control over financial
reporting can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.
In order to ensure that Financials internal control over financial reporting is effective, management regularly assesses such controls and did so most
recently for its financial reporting as of December 31, 2016. This assessment was based on criteria for effective internal control over financial reporting described in Internal Control Integrated Framework issued by the Committee of Sponsoring
Organizations (COSO) in 2013, by the Treadway Commission. Based on this assessment, management has concluded that the internal control over financial reporting was effective as of December 31, 2016.
This annual report does not include an attestation report of Financials registered public accounting firm regarding internal control over financial
reporting. Managements report was not subject to attestation by Financials registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit Financial to provide only managements report
in the annual report.
The Board of Directors, acting through its Audit Committee, is responsible for the oversight of Financials accounting
policies, financial reporting and internal control. The Audit Committee of the Board of Directors is comprised entirely of outside directors who are independent of management. The Audit Committee is responsible for the appointment and compensation
of the independent registered public accounting firm and approves decisions regarding the appointment or removal of Financials Internal Auditor. It meets periodically with management, the independent registered public accounting firm and the
internal auditors to ensure that they are carrying out their responsibilities. The Audit Committee is also responsible for performing an oversight role by reviewing and monitoring the financial, accounting and auditing procedures of Financial in
addition to reviewing Financials financial reports. The independent registered public accounting firm and the internal auditors have full and unlimited access to the Audit Committee, with or without management, to discuss the adequacy of
internal control over financial reporting, and any other matter which they believe should be brought to the attention of the Audit Committee.
|
|
|
|
|
/s/ Robert R. Chapman III
|
|
|
|
/s/ J. Todd Scruggs
|
Chief Executive Officer & President
March 21, 2017
|
|
|
|
Secretary-Treasurer (Principal Financial Officer)
March 21, 2017
|
50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Bank of the James
Financial Group, Inc.
Lynchburg, Virginia
We have audited
the accompanying consolidated balance sheets of Bank of the James Financial Group, Inc. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, changes in stockholders
equity, and cash flows for the years then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bank of the James
Financial Group, Inc. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
|
/s/ Yount, Hyde & Barbour, P.C.
|
|
Winchester, Virginia
|
March 21, 2017
|
51
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
16,938
|
|
|
$
|
15,952
|
|
Federal funds sold
|
|
|
11,745
|
|
|
|
12,703
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
28,683
|
|
|
|
28,655
|
|
|
|
|
Securities
held-to-maturity
(fair value of $3,273 in 2016 and $2,649 in 2015)
|
|
|
3,299
|
|
|
|
2,519
|
|
Securities
available-for-sale,
at fair value
|
|
|
40,776
|
|
|
|
35,996
|
|
Restricted stock, at cost
|
|
|
1,373
|
|
|
|
1,313
|
|
|
|
|
Loans, net of allowance for loan losses of $5,716 in 2016 and $4,683 in 2015
|
|
|
464,353
|
|
|
|
430,445
|
|
Loans held for sale
|
|
|
3,833
|
|
|
|
1,964
|
|
Premises and equipment, net
|
|
|
10,947
|
|
|
|
10,007
|
|
Interest receivable
|
|
|
1,378
|
|
|
|
1,248
|
|
Cash value - bank owned life insurance
|
|
|
12,673
|
|
|
|
9,781
|
|
Other real estate owned
|
|
|
2,370
|
|
|
|
1,965
|
|
Income taxes receivable
|
|
|
1,214
|
|
|
|
1,096
|
|
Deferred tax asset, net
|
|
|
2,374
|
|
|
|
1,399
|
|
Other assets
|
|
|
922
|
|
|
|
755
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
574,195
|
|
|
$
|
527,143
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
Noninterest bearing demand
|
|
$
|
102,654
|
|
|
$
|
91,325
|
|
NOW, money market and savings
|
|
|
255,429
|
|
|
|
232,864
|
|
Time
|
|
|
165,029
|
|
|
|
143,421
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
523,112
|
|
|
|
467,610
|
|
|
|
|
Capital notes
|
|
|
|
|
|
|
10,000
|
|
Interest payable
|
|
|
88
|
|
|
|
61
|
|
Other liabilities
|
|
|
1,574
|
|
|
|
1,276
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
524,774
|
|
|
$
|
478,947
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock; authorized 1,000,000 shares; none issued and outstanding
|
|
$
|
|
|
|
$
|
|
|
52
See Notes to Consolidated Financial Statements
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Common stock $2.14 par value; authorized 10,000,000 shares; issued and outstanding 4,378,436 as of
December 31, 2016 and 2015
|
|
|
9,370
|
|
|
|
9,370
|
|
Additional
paid-in-capital
|
|
|
31,495
|
|
|
|
31,495
|
|
Retained earnings
|
|
|
10,156
|
|
|
|
7,920
|
|
Accumulated other comprehensive (loss)
|
|
|
(1,600
|
)
|
|
|
(589
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
$
|
49,421
|
|
|
$
|
48,196
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
574,195
|
|
|
$
|
527,143
|
|
|
|
|
|
|
|
|
|
|
53
See Notes to Consolidated Financial Statements
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Interest Income
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
20,481
|
|
|
$
|
19,377
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
US Government and agency obligations
|
|
|
479
|
|
|
|
570
|
|
Mortgage backed securities
|
|
|
201
|
|
|
|
95
|
|
Municipals - taxable
|
|
|
199
|
|
|
|
108
|
|
Municipals - tax exempt
|
|
|
41
|
|
|
|
42
|
|
Dividends
|
|
|
67
|
|
|
|
67
|
|
Other (Corporates)
|
|
|
35
|
|
|
|
11
|
|
Interest bearing deposits
|
|
|
31
|
|
|
|
14
|
|
Federal Funds sold
|
|
|
34
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
21,568
|
|
|
|
20,302
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
NOW, money market savings
|
|
|
590
|
|
|
|
509
|
|
Time Deposits
|
|
|
1,742
|
|
|
|
1,552
|
|
Federal Funds purchased
|
|
|
4
|
|
|
|
2
|
|
FHLB borrowings
|
|
|
|
|
|
|
28
|
|
Capital notes
|
|
|
8
|
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
2,344
|
|
|
|
2,691
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
19,224
|
|
|
|
17,611
|
|
|
|
|
Provision for loan losses
|
|
|
1,612
|
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
17,612
|
|
|
|
17,329
|
|
|
|
|
|
|
|
|
|
|
Noninterest income
|
|
|
|
|
|
|
|
|
Gain on sales of loans held for sale
|
|
|
2,433
|
|
|
|
2,278
|
|
|
|
|
Service charges, fees and commissions
|
|
|
1,444
|
|
|
|
1,390
|
|
|
|
|
Increase in cash value of life insurance
|
|
|
292
|
|
|
|
269
|
|
Other
|
|
|
132
|
|
|
|
207
|
|
|
|
|
Gain on sales and calls of securities, net
|
|
|
494
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
4,795
|
|
|
|
4,193
|
|
|
|
|
|
|
|
|
|
|
54
See Notes to Consolidated Financial Statements
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Noninterest expenses
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
9,230
|
|
|
|
8,727
|
|
Occupancy
|
|
|
1,312
|
|
|
|
1,204
|
|
Equipment
|
|
|
1,287
|
|
|
|
1,275
|
|
Supplies
|
|
|
480
|
|
|
|
419
|
|
|
|
|
Professional, data processing, and other outside expense
|
|
|
2,731
|
|
|
|
2,218
|
|
Marketing
|
|
|
686
|
|
|
|
465
|
|
Credit expense
|
|
|
425
|
|
|
|
301
|
|
Other real estate expenses
|
|
|
68
|
|
|
|
122
|
|
FDIC insurance expense
|
|
|
363
|
|
|
|
331
|
|
Other
|
|
|
1,012
|
|
|
|
1,003
|
|
Amortization of tax credit investment
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses
|
|
|
17,594
|
|
|
|
16,179
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
4,813
|
|
|
|
5,343
|
|
|
|
|
Income tax expense
|
|
|
1,527
|
|
|
|
1,651
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
3,286
|
|
|
$
|
3,692
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and diluted
|
|
|
4,378,436
|
|
|
|
3,451,409
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share - basic
|
|
$
|
0.75
|
|
|
$
|
1.07
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share - diluted
|
|
$
|
0.75
|
|
|
$
|
1.07
|
|
|
|
|
|
|
|
|
|
|
55
See Notes to Consolidated Financial Statements
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net Income
|
|
$
|
3,286
|
|
|
$
|
3,692
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on securities
available-for-sale
|
|
|
(1,044
|
)
|
|
|
(255
|
)
|
Tax effect
|
|
|
354
|
|
|
|
87
|
|
Reclassification adjustment for gains included in net income (1)
|
|
|
(487
|
)
|
|
|
(49
|
)
|
Tax effect (2)
|
|
|
166
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
|
|
(1,011
|
)
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
2,275
|
|
|
$
|
3,492
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Gains are included in gain on sale of
available-for-sale
securities, net on the consolidated statements of income.
|
(2)
|
The tax effect on these reclassifications is reflected in income tax expense on the consolidated statements of income.
|
56
See Notes to Consolidated Financial Statements
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(dollars in thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shares
Outstanding
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
(Loss)
|
|
|
Total
|
|
Balance at December 31, 2014
|
|
|
3,371,616
|
|
|
$
|
7,215
|
|
|
$
|
22,919
|
|
|
$
|
5,031
|
|
|
$
|
(389
|
)
|
|
$
|
34,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,692
|
|
|
|
|
|
|
|
3,692
|
|
|
|
|
|
|
|
|
Dividends paid on common stock ($0.22 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(803
|
)
|
|
|
|
|
|
|
(803
|
)
|
|
|
|
|
|
|
|
Net proceeds from issuance of 1,000,000 shares of common stock
|
|
|
1,000,000
|
|
|
|
2,140
|
|
|
|
8,513
|
|
|
|
|
|
|
|
|
|
|
|
10,653
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
6,820
|
|
|
|
15
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200
|
)
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
4,378,436
|
|
|
$
|
9,370
|
|
|
$
|
31,495
|
|
|
$
|
7,920
|
|
|
$
|
(589
|
)
|
|
$
|
48,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,286
|
|
|
|
|
|
|
|
3,286
|
|
|
|
|
|
|
|
|
Dividends paid on common stock ($0.24 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,050
|
)
|
|
|
|
|
|
|
(1,050
|
)
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,011
|
)
|
|
|
(1,011
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
4,378,436
|
|
|
$
|
9,370
|
|
|
$
|
31,495
|
|
|
$
|
10,156
|
|
|
$
|
(1,600
|
)
|
|
$
|
49,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
See Notes to Consolidated Financial Statements
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
3,286
|
|
|
$
|
3,692
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
767
|
|
|
|
767
|
|
Net amortization and accretion of premiums and discounts on securities
|
|
|
276
|
|
|
|
110
|
|
(Gain) on sales of
available-for-sale
securities
|
|
|
(487
|
)
|
|
|
(49
|
)
|
(Gain) on call of
held-to-maturity
securities
|
|
|
(7
|
)
|
|
|
|
|
(Gain) on sales of loans held for sale
|
|
|
(2,433
|
)
|
|
|
(2,278
|
)
|
Provision for loan losses
|
|
|
1,612
|
|
|
|
282
|
|
(Gain) loss on sale of other real estate owned
|
|
|
(1
|
)
|
|
|
6
|
|
(Benefit) for deferred income taxes
|
|
|
(455
|
)
|
|
|
(74
|
)
|
Amortization of tax credit investment
|
|
|
|
|
|
|
114
|
|
(Increase) in cash value of life insurance
|
|
|
(292
|
)
|
|
|
(269
|
)
|
(Increase) in interest receivable
|
|
|
(130
|
)
|
|
|
(2
|
)
|
(Increase) in other assets
|
|
|
(167
|
)
|
|
|
(154
|
)
|
(Increase) in income taxes receivable
|
|
|
(118
|
)
|
|
|
(151
|
)
|
Increase in interest payable
|
|
|
27
|
|
|
|
3
|
|
Increase (decrease) in other liabilities
|
|
|
298
|
|
|
|
(69
|
)
|
Proceeds from sales of loans held for sale
|
|
|
85,307
|
|
|
|
79,893
|
|
Origination of loans held for sale
|
|
|
(84,743
|
)
|
|
|
(78,549
|
)
|
Valuation adjustment on other real estate owned
|
|
|
45
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
2,785
|
|
|
$
|
3,347
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchases of securities
held-to-maturity
|
|
$
|
(1,290
|
)
|
|
$
|
|
|
Proceeds from maturities and calls of securities
held-to-maturity
|
|
|
500
|
|
|
|
|
|
Purchases of securities
available-for-sale
|
|
|
(40,464
|
)
|
|
|
(27,019
|
)
|
Proceeds from maturities, calls and paydowns of securities
available-for-sale
|
|
|
9,744
|
|
|
|
1,622
|
|
Proceeds from sale of securities
available-for-sale
|
|
|
24,637
|
|
|
|
13,440
|
|
Purchases of bank owned life insurance
|
|
|
(2,600
|
)
|
|
|
|
|
(Purchase) redemption of Federal Home Loan Bank stock
|
|
|
(60
|
)
|
|
|
426
|
|
Proceeds from sale of other real estate owned
|
|
|
21
|
|
|
|
360
|
|
Origination of loans, net of principal collected
|
|
|
(35,990
|
)
|
|
|
(37,579
|
)
|
Capital improvements to other real estate owned
|
|
|
|
|
|
|
(25
|
)
|
Purchases of premises and equipment
|
|
|
(1,707
|
)
|
|
|
(1,512
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities
|
|
$
|
(47,209
|
)
|
|
$
|
(50,287
|
)
|
|
|
|
|
|
|
|
|
|
58
See Notes to Consolidated Financial Statements
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
$
|
55,502
|
|
|
$
|
68,113
|
|
Net (decrease) in federal funds purchased
|
|
|
|
|
|
|
(3,189
|
)
|
Net (decrease) in Federal Home Loan Bank advances
|
|
|
|
|
|
|
(12,000
|
)
|
Dividends paid to common stockholders
|
|
|
(1,050
|
)
|
|
|
(803
|
)
|
Proceeds from sale of 1,000,000 shares of common equity
|
|
|
|
|
|
|
10,653
|
|
Retirement of capital notes
|
|
|
(10,000
|
)
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
$
|
44,452
|
|
|
$
|
62,852
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
28
|
|
|
|
15,912
|
|
Cash and cash equivalents at beginning of period
|
|
$
|
28,655
|
|
|
$
|
12,743
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
28,683
|
|
|
$
|
28,655
|
|
|
|
|
|
|
|
|
|
|
Non cash transactions
|
|
|
|
|
|
|
|
|
Transfer of loans to other real estate owned
|
|
$
|
470
|
|
|
$
|
1,425
|
|
Fair value adjustment for securities
|
|
|
(1,531
|
)
|
|
|
(304
|
)
|
|
|
|
Cash transactions
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
2,317
|
|
|
$
|
2,688
|
|
Cash paid for taxes
|
|
|
2,100
|
|
|
|
1,875
|
|
59
See Notes to Consolidated Financial Statements
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 1 Organization
Bank of the James Financial Group, Inc. (Financial or the Company), a Virginia corporation, was organized in 2003 and is registered as
a bank holding company under the Bank Holding Company Act of 1956, as amended. Financial is headquartered in Lynchburg, Virginia. Financial conducts its business activities through the branch offices and loan production offices of its wholly owned
subsidiary bank, Bank of the James (the Bank), the Banks wholly-owned subsidiary, BOTJ Insurance, Inc.
(BOTJ-Ins.),
and through the Banks two divisions, Bank of the James
Mortgage division (Mortgage division) and BOTJ Investment Services division (Investment Services division). The Mortgage division originates conforming and
non-conforming
home mortgages
primarily in the Region 2000 area, which includes the counties of Amherst, Appomattox, Bedford and Campbell (which includes the Town of Altavista) the Town of Bedford, and the City of Lynchburg, Virginia. Financial exists primarily for the purpose
of holding the stock of its subsidiaries, the Bank and such other subsidiaries as it may acquire or establish. Financial also has one wholly-owned
non-operating
subsidiary.
Bank of the James was incorporated on October 23, 1998, and began banking operations on July 22, 1999. The Bank is a Virginia chartered bank and is
engaged in lending and deposit gathering activities in Region 2000 and other markets in Central Virginia. It operates under the laws of Virginia and the Rules and Regulations of the Federal Reserve System and the Federal Deposit Insurance
Corporation. The Banks locations consist of five branches (one of which is a limited service branch) in Lynchburg, Virginia, one in Forest, Virginia which includes the Mortgage Division, one in Madison Heights, Virginia, one in the Town of
Amherst, Virginia, one in the Town of Bedford, Virginia, one in the Town of Altavista, Virginia, and one in the Town of Appomattox. The Bank also operates one full service branch, two limited service branches and a loan production office in
Charlottesville, Virginia, a full service branch in Harrisonburg, Virginia, and a full service branch in Roanoke, Virginia.
Note 2 - Summary of
significant accounting policies
Consolidation
The consolidated financial statements include the accounts of Bank of the James Financial Group, Inc. and its wholly owned subsidiaries. All material
intercompany balances and transactions have been eliminated in consolidation.
Basis of presentation and use of estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, as well as the amounts of income and expenses during the
reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and valuation of other real
estate owned.
Cash and cash equivalents
Cash and
cash equivalents include cash and balances due from banks and federal funds sold, all of which mature within ninety days. Generally, federal funds are purchased and sold for
one-day
periods.
60
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 2 - Summary of significant accounting policies (continued)
Securities
Certain debt securities that management has the positive intent and ability to hold to maturity are classified as
held-to-maturity
and recorded at amortized cost. Trading securities are recorded at fair value with changes in fair value included in earnings. Securities not classified as
held-to-maturity
or trading, including equity securities with readily determinable fair values, are classified as
available-for-sale
and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss). Purchase premiums and discounts are
recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.
Impairment of securities occurs when the fair value of a security is less than its amortized cost. For debt securities, impairment is considered
other-than-temporary and recognized in its entirety in net income if either (1) the Bank intends to sell the security or (2) it is more likely than not that the Bank will be required to sell the security before recovery of its amortized
cost basis. If, however, the Bank does not intend to sell the security and it is not more likely than not that the Bank will be required to sell the security before recovery, the Bank must determine what portion of the impairment is attributable to
a credit loss, which occurs when the amortized cost of the security exceeds the present value of the cash flows expected to be collected from the security. If there is no credit loss, there is no other-than temporary impairment. If there is a credit
loss, other-than-temporary impairment exists, and the credit loss must be recognized in net income and the remaining portion of impairment must be recognized in other comprehensive income.
For equity securities, impairment is considered to be other-than-temporary based on our ability and intent to hold the investment until a recovery of fair
value. Other-than-temporary impairment of an equity security results in a write-down that must be included in net income. We regularly review each investment security for other-than-temporary impairment based on criteria that include the extent to
which cost exceeds market price, the duration of that market decline, the financial health of and specific prospects for the issuer, our best estimate of the present value of cash flows expected to be collected from debt securities, our intention
with regard to holding the security to maturity, and the likelihood that we would be required to sell the security before recovery.
Restricted
investments
As members of the Federal Reserve Bank (FRB) and the Federal Home Loan Bank of Atlanta (FHLBA), the Bank is required to maintain certain
minimum investments in the common stock of the FRB and FHLBA. Required levels of investment are based upon the Banks capital and a percentage of qualifying assets. The Bank also maintains stock ownership in Community Bankers Bank (CBB).
The investment in CBB is minimal and is not mandated but qualifies the Bank for preferred pricing on services offered by CBB. Based on liquidation restrictions, all of these investments are carried at cost.
Loans
Financial makes real estate, commercial and
consumer loans to customers. A substantial portion of the loan portfolio is represented by real estate loans collateralized by real estate within Region 2000. The ability of Financials debtors to honor their contracts is dependent upon the
real estate and general economic conditions in the area.
Loans that management has the intent and ability to hold for the foreseeable future or until
maturity or
pay-off
generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest
income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.
61
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 2 - Summary of significant accounting policies (continued)
Past due status
Past due status is based on the contractual terms of the loan. In all cases, loans are placed on
non-accrual
and
potentially
charged-off
at an earlier date if collection of principal or interest is considered doubtful.
Non-accrual
status
Financial stops accruing interest on a loan at the time the loan is 90 days past due unless the
credit is well-secured and in process of collection. At the time the loan is placed on
non-accrual
status, all previously accrued but not collected interest is reversed against interest income. While the loan
is classified as
non-accrual,
any payments collected are accounted for using the cost-recovery method which requires the entire amount of the payment to be applied directly to principal, until qualifying for
return to performing status. Loans may be, but are not always, returned to performing status when all the principal and interest amounts contractually due are brought current (within 90 days past due), future payments are reasonably assured, and
contractually required payments have been made on a timely basis for at least six consecutive months.
Charge-off
At
the time a loan is placed on
non-accrual
status, it is generally reevaluated for expected loss and a specific reserve, if not already assigned, is established against the loan. Consumer term loans are
typically
charged-off
no later than 120 days whereas consumer revolving credit loans are typically
charged-off
no later than 180 days. Although the goal for commercial
and commercial real estate loans is for charge off no later than 180 days, a commercial or commercial real estate loan may not be fully charged off until there is reasonable certainty that no additional workout efforts, troubled debt restructurings
or any other types of concession can or will be made by Financial.
Loans Held for Sale
Loans originated and intended for sale in the secondary market are sold, servicing released, and carried at the lower of cost or fair value, which is
determined in the aggregate based on sales commitments to permanent investors or on current market rates for loans of similar quality and type. In addition, the Company requires a firm purchase commitment from a permanent investor before a loan can
be closed, thus limiting interest rate risk. The amount of interest rate lock commitments is currently an immaterial amount.
Allowance for loan losses
The allowance for loan losses is established as losses estimated to have occurred through a provision for loan losses charged to earnings. Loan losses
are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon managements periodic review of the collectibility of the
loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
62
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 2 - Summary of significant accounting policies (continued)
The allowance consists of specific, historical and general components. The specific component relates to
loans that are classified as doubtful or substandard. For such loans that are also classified as impaired, an allowance is established when the collateral value of the impaired loan or discounted cash flows is lower than the carrying value of that
loan. The historical component covers
non-classified
loans and is based on historical loss experience adjusted for qualitative factors. A general component is maintained to cover uncertainties that could
affect managements estimate of probable losses. The general component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the
portfolio. The qualitative factors used to derive the general component of the allowance may include but are not limited to:
|
1.
|
Known improvement or deterioration in certain classes of loans or collateral;
|
|
2.
|
Trends in portfolio volume, maturity, or composition;
|
|
3.
|
Volume and trends in delinquencies and
non-accruals;
|
|
4.
|
Local economic and industrial conditions;
|
|
5.
|
Lending,
charge-off,
and collection policies; and
|
|
6.
|
Experience, ability, and depth of lending staff.
|
A loan is considered impaired when, based on current
information and events, it is probable that Financial will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining
impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as
impaired. Management determines the significance of payment delays and payment shortfalls on a
case-by-case
basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on
a loan by loan basis by evaluating the discounted cash flows or fair value of the underlying collateral, if the loan is collateral dependent.
Management considers the following four components when calculating its loan loss reserve requirement:
|
|
|
In accordance with current accounting rules (ASC 310) and the Banks impairment methodology, the Bank performs an individual impairment analysis on all loans having a principal balance greater than $100,000 (unless
related to another classified relationship or a TDR) with a risk rating of substandard, doubtful, and loss (our internal risk ratings of 7 through 9). The Bank also performs individual loan analysis and assesses potential future losses associated
with those relationships risk rated as special mention (our internal risk rating of 6).
|
|
|
|
In accordance with current accounting rules (ASC 450), the Bank examines historical
charge-off
data by segment in order to determine a portion of the reserve related to
homogeneous pools. The Bank updates its historical
charge-off
data quarterly and adjusts the reserve accordingly.
|
|
|
|
The Bank applies various risk factors, including, for example, levels of trends in delinquencies, current and expected economic conditions, and levels of and trends in recoveries of prior charge-offs.
|
63
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 2 - Summary of significant accounting policies (continued)
|
|
|
The Bank applies factors to determine the method by which to determine the general reserve for inherent losses related to the loan pool, including, for example, loan concentrations, policy and procedure changes,
national and local economic trends and conditions, and overall portfolio quality.
|
Troubled debt restructurings
In situations where, for economic or legal reasons related to a borrowers financial condition, management may grant a concession to the borrower that it
would not otherwise consider, the related loan is classified as a troubled debt restructuring (TDR). Management strives to identify borrowers in financial difficulty early and work with them to modify their loan to more affordable terms
before their loans reach nonaccrual status. These modified terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of collateral.
In cases where borrowers are granted new terms that generally (although not required to be considered a TDR) provide for a reduction of either interest or principal, management measures any impairment on the restructuring as noted above for impaired
loans. The Bank had $455 and $646 classified as TDRs as of December 31, 2016 and 2015, respectively.
Premises, equipment and depreciation
Premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation. Depreciation is provided over the
estimated useful lives of the respective assets on the straight-line basis, which range from 3 to 7 years for equipment and 10 to 39.5 years for buildings and improvements. Leasehold improvements are amortized over a term which includes the
remaining lease term and probable renewal periods. Land is carried at cost and is not depreciable. Expenditures for major renewals and betterments are capitalized and those for maintenance and repairs are charged to operating expenses as incurred.
Bank owned life insurance
Financial has purchased
life insurance policies on certain key employees. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value.
Other real estate owned
Other real estate owned consists
of properties acquired through foreclosure or deed in lieu of foreclosure. These properties are carried at fair value less estimated costs to sell at the date of foreclosure establishing a new cost basis. These properties are subsequently accounted
for at the lower of cost or fair value less estimated costs to sell. Losses from the acquisition of property in full or partial satisfaction of loans are charged against the allowance for loan losses. Subsequent write-downs, if any, are charged
against expense. Gains and losses on the sales of foreclosed properties are included in determining net income in the year of the sale. Operating costs after acquisition are expensed.
Transfers of financial assets
Transfers of financial
assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Bank put presumptively beyond reach of the
transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge
64
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 2 - Summary of significant accounting policies (continued)
or exchange the transferred assets, and (3) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the
ability to unilaterally cause the holder to return specific assets.
Fair Value of Financial Instruments
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair
value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absences of broad markets for particular items. Changes in assumptions or in market
conditions could significantly affect these estimates.
Operating Segments
While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance evaluated on
a Company-wide basis. Operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating
segment.
Retirement Plans
Employee 401(k) and
profit sharing expense is the amount of matching contributions. Deferred compensation and supplemental retirement plan expense allocates the benefits over years of service.
Income taxes
Deferred income tax assets and liabilities
are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet
assets and liabilities and gives current recognition to changes in tax rates and laws.
When tax returns are filed, it is highly certain that some
positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax
position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals
or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the
more-likely-than-not
recognition threshold are measured as the largest amount
of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is
reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the consolidated statements of income. At
December 31, 2016 and 2015, there were no liabilities recorded for unrecognized tax benefits.
65
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 2 - Summary of significant accounting policies (continued)
Stock options
Current accounting guidance requires the costs resulting from all share-based payments to employees be recognized in the financial statements. Stock-based
compensation is estimated at the date of grant, using the Black-Scholes option valuation model for determining fair value, and recognized over the options vesting period. As of December 31, 2016, all compensation expense related to the
Companys option plan had been recognized. The Companys ability to grant additional option shares under the 1999 Plan has expired.
Earnings
per common share
Basic earnings per common share represents income available to common stockholders divided by the weighted-average number of common
shares outstanding during the period. Diluted earnings per common share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result
from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options, and are determined using the treasury stock method.
Reclassification
Management has made certain immaterial
reclassifications to the prior year financial statements to conform to the 2016 presentation.
Comprehensive income
Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains (losses) on
available-for-sale
securities.
Marketing
The Company expenses advertising costs as incurred. Advertising expenses were $686 and $466 for 2016 and 2015, respectively.
Note 3 - Restrictions on cash
To comply with Federal
Reserve regulations, the Bank is required to maintain certain average cash reserve balances. The daily average cash reserve requirements were approximately $6,733 and $5,562 for the weeks including December 31, 2016 and 2015, respectively.
66
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 4 - Securities
A summary of the amortized cost and fair value of securities, with gross unrealized gains and losses, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency obligations
|
|
$
|
3,299
|
|
|
$
|
65
|
|
|
$
|
(91
|
)
|
|
$
|
3,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries
|
|
$
|
1,952
|
|
|
$
|
|
|
|
$
|
(119
|
)
|
|
$
|
1,833
|
|
U.S. agency obligations
|
|
|
14,332
|
|
|
|
5
|
|
|
|
(1,224
|
)
|
|
|
13,113
|
|
Mortgage-backed securities
|
|
|
12,358
|
|
|
|
|
|
|
|
(353
|
)
|
|
|
12,005
|
|
Municipals
|
|
|
10,426
|
|
|
|
55
|
|
|
|
(534
|
)
|
|
|
9,947
|
|
Corporates
|
|
|
4,132
|
|
|
|
|
|
|
|
(254
|
)
|
|
|
3,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
43,200
|
|
|
$
|
60
|
|
|
$
|
(2,484
|
)
|
|
$
|
40,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency obligations
|
|
$
|
2,519
|
|
|
$
|
130
|
|
|
$
|
|
|
|
$
|
2,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency obligations
|
|
$
|
19,606
|
|
|
$
|
3
|
|
|
$
|
(799
|
)
|
|
$
|
18,810
|
|
Mortgage-backed securities
|
|
|
10,778
|
|
|
|
4
|
|
|
|
(135
|
)
|
|
|
10,647
|
|
Municipals
|
|
|
4,984
|
|
|
|
84
|
|
|
|
(34
|
)
|
|
|
5,034
|
|
Corporates
|
|
|
1,521
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
1,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
36,889
|
|
|
$
|
91
|
|
|
$
|
(984
|
)
|
|
$
|
35,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 4 Securities (continued)
Temporarily Impaired Securities
The following tables show the gross unrealized losses and fair value of the Banks investments with unrealized losses that are not deemed to be
other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Less than 12 months
|
|
|
More than 12 months
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency obligations
|
|
$
|
1,193
|
|
|
$
|
91
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,193
|
|
|
$
|
91
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treauries
|
|
|
1,833
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
1,833
|
|
|
|
119
|
|
U.S. agency obligations
|
|
|
13,109
|
|
|
|
1,224
|
|
|
|
|
|
|
|
|
|
|
|
13,109
|
|
|
|
1,224
|
|
Mortgage-backed securities
|
|
|
11,331
|
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
|
11,331
|
|
|
|
353
|
|
Municipals
|
|
|
7,170
|
|
|
|
534
|
|
|
|
|
|
|
|
|
|
|
|
7,170
|
|
|
|
534
|
|
Corporates
|
|
|
3,878
|
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
3,878
|
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
38,514
|
|
|
$
|
2,575
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
38,514
|
|
|
$
|
2,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Less than 12 months
|
|
|
More than 12 months
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency obligations
|
|
$
|
7,160
|
|
|
$
|
353
|
|
|
$
|
10,650
|
|
|
$
|
446
|
|
|
$
|
17,810
|
|
|
$
|
799
|
|
Mortgage-backed securities
|
|
|
6,726
|
|
|
|
77
|
|
|
|
1,979
|
|
|
|
58
|
|
|
|
8,705
|
|
|
|
135
|
|
Municipals
|
|
|
2,341
|
|
|
|
25
|
|
|
|
503
|
|
|
|
9
|
|
|
|
2,844
|
|
|
|
34
|
|
Corporates
|
|
|
1,505
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
1,505
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
17,732
|
|
|
$
|
471
|
|
|
$
|
13,132
|
|
|
$
|
513
|
|
|
$
|
30,864
|
|
|
$
|
984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries.
The unrealized losses on these two investments in U.S. Treasuries at December 31, 2016 were
caused by an increase in interest rates.
The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Bank does not intend to sell
the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Bank does not consider those investments to be other-than-temporarily
impaired at December 31, 2016. Each of these two investments carries a Moodys investment grade rating of A.
68
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
U.S. agency obligations.
The unrealized losses on the 10 investments in U.S. agency obligations at
December 31, 2016 were caused by an increase in interest rates. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Bank does
not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Bank does not consider those investments to be
other-than-temporarily impaired at December 31, 2016. Each of these 10 investments carries an S&P investment grade rating of AA.
Mortgage-backed securities.
The unrealized loss on the seven investments in U.S. government agency mortgage-backed securities at December 31, 2016
was caused by an increase in interest rates. The contractual terms of those investments does not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Bank does not intend to sell
the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of the amortized cost basis, which may be maturity, the Bank does not consider those investments to be other-than-temporarily
impaired at December 31, 2016. Each of these seven investments carries an S&P investment grade rating of AA.
Municipals.
The unrealized
losses on the 13 investments in municipal obligations at December 31, 2016 were caused by an increase in interest rates. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the
amortized cost bases of the investments. Because the Bank does not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost bases, which may be
maturity, the Bank does not consider those investments to be other-than-temporarily impaired at December 31, 2016. Each of these 13 investments carries an S&P investment grade rating of AA or above.
Corporates.
The unrealized losses on the five investments in domestic corporate issued securities at December 31, 2016 were caused by an increase
in interest rates. The contractual terms of those investments does not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Bank does not intend to sell the investments and it is
not more likely than not that the Bank will be required to sell the investments before recovery of the amortized cost basis, which may be maturity, the Bank does not consider those investments to be other-than-temporarily impaired at
December 31, 2016. Each of these five investments carries an S&P investment grade rating of AA.
The amortized costs and fair values of
securities at December 31, 2016, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment
penalties.
69
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 4 Securities (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity
|
|
|
Available-for-Sale
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Values
|
|
|
Cost
|
|
|
Values
|
|
Due in one year or less
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Due after one year through five years
|
|
|
2,015
|
|
|
|
2,080
|
|
|
|
551
|
|
|
|
535
|
|
Due after five years through ten years
|
|
|
|
|
|
|
|
|
|
|
14,874
|
|
|
|
14,318
|
|
Due after ten years
|
|
|
1,284
|
|
|
|
1,193
|
|
|
|
27,775
|
|
|
|
25,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,299
|
|
|
$
|
3,273
|
|
|
$
|
43,200
|
|
|
$
|
40,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Bank received $24,637 in proceeds from sales of securities
available-for-sale
in 2016. Gross realized gains amounted to $487 and gross realized losses amounted to $0. The Bank received $13,440 in proceeds from sales of
securities
available-for-sale
in 2015. Gross realized gains amounted to $52 and gross realized losses amounted to $3.
At December 31, 2016 and 2015, securities with a carrying value of $11,756 and $11,582, respectively, were pledged as collateral for public deposits and
for other purposes as required or permitted by law.
70
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 5 - Loans and allowance for loan losses
The allowance represents an amount that, in managements judgment, will be adequate to absorb any losses on existing loans that may become uncollectible.
Managements judgment in determining the level of the allowance is based on evaluations of the collectability of loans while taking into consideration such factors as trends in delinquencies and charge-offs, changes in the nature and volume of
the loan portfolio, current economic conditions that may affect a borrowers ability to repay and the value of collateral, overall portfolio quality and review of specific potential losses. This evaluation is inherently subjective, as it
requires estimates that are susceptible to significant revision as more information becomes available.
Management has an established methodology used to
determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan losses, the Bank has segmented certain loans in the portfolio by product
type. Within these segments, the Bank has
sub-segmented
its portfolio by classes within the segments, based on the associated risks within these classes. The classifications set forth below do not correspond
directly to the classifications set forth in the call report (Form FFIEC 041). Management has determined that the classifications set forth below are more appropriate for use in identifying and managing risk in the loan portfolio.
|
|
|
Loan Segments:
|
|
Loan Classes:
|
|
|
Commercial
|
|
Commercial and industrial loans
|
|
|
Commercial real estate
|
|
Commercial mortgages owner occupied
Commercial mortgages
non-owner
occupied
Commercial construction
|
|
|
Consumer
|
|
Consumer unsecured
Consumer secured
|
|
|
Residential
|
|
Residential mortgages
Residential consumer construction
|
71
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 5 - Loans and allowance for loan losses (continued)
The evaluation also considers the following risk characteristics of each loan segment:
|
|
|
Commercial loans carry risks associated with the successful operation of a business because the repayment of these loans may be dependent upon the profitability and cash flows of the business or project. In addition,
there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much precision.
|
|
|
|
Commercial real estate loans carry risks associated with a real estate project and other risks associated with the ownership of real estate. In addition, for real estate construction loans there is a risk that the
project will not be finished according to schedule, the project will not be finished according to budget and the value of the collateral may, at any point in time, be less than the principal amount of the loan. Construction loans also bear the risk
that the general contractor, who may or may not be a loan customer, may be unable to finish the construction project as planned because of financial pressure unrelated to the project.
|
|
|
|
Consumer loans carry risks associated with the continued credit-worthiness of the borrower and the value of the collateral (e.g., rapidly-depreciating assets such as automobiles), or lack thereof. Consumer loans are
more likely than real estate loans to be immediately adversely affected by job loss, divorce, illness or personal bankruptcy. Unsecured consumer loans carry additional risks associated with the continued credit-worthiness of borrowers who may be
unable to meet payment obligations.
|
|
|
|
Residential mortgage and construction loans carry risks associated with the continued credit-worthiness of the borrower and changes in the value of the collateral. Equity lines of credit carry risks associated with the
continued credit-worthiness of the borrower and changes in the value of the collateral.
|
The Banks internal risk rating system is in
place to grade commercial and commercial real estate loans. Category ratings are reviewed periodically by lenders and the credit review area of the Bank based on the borrowers individual situation. Additionally, internal and external
monitoring and review of credits are conducted on an annual basis.
Below is a summary and definition of the Banks risk rating categories:
|
|
|
RATING 1
|
|
Excellent
|
RATING 2
|
|
Above Average
|
RATING 3
|
|
Satisfactory
|
RATING 4
|
|
Acceptable / Low Satisfactory
|
RATING 5
|
|
Monitor
|
RATING 6
|
|
Special Mention
|
RATING 7
|
|
Substandard
|
RATING 8
|
|
Doubtful
|
RATING 9
|
|
Loss
|
72
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 5 - Loans and allowance for loan losses (continued)
Based on the above criteria, we segregate loans into the above categories for special mention, substandard,
doubtful and loss from
non-classified,
or pass rated, loans. We review the characteristics of each rating at least annually, generally during the first quarter. The characteristics of these ratings are as
follows:
|
|
Pass. These are loans having risk ratings of 1 through 4. Pass loans are to persons or business entities with an acceptable financial condition, appropriate collateral margins, appropriate cash flow to
service the existing loan, and an appropriate leverage ratio. The borrower has paid all obligations as agreed and it is expected that this type of payment history will continue. When necessary, acceptable personal guarantors support the loan.
|
|
|
Monitor. These are loans having a risk rating of 5. Monitor loans have currently acceptable risk but may have the potential for a specific defined weakness in the borrowers operations and the
borrowers ability to generate positive cash flow on a sustained basis. The borrowers recent payment history may currently or in the future be characterized by late payments. The Banks risk exposure is mitigated by collateral
supporting the loan. The collateral is considered to be well-margined, well maintained, accessible and readily marketable.
|
|
|
Special Mention. These are loans having a risk rating of 6. Special Mention loans have weaknesses that deserve managements close attention. If left uncorrected, these potential weaknesses may result in
deterioration of the repayment prospects for the asset or in the Banks credit position at some future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse
classification. These loans do warrant more than routine monitoring due to a weakness caused by adverse events.
|
|
|
Substandard. These are loans having a risk rating of 7. Substandard loans are considered to have specific and well-defined weaknesses that jeopardize the viability of the Banks credit extension. The
payment history for the loan has been inconsistent and the expected or projected primary repayment source may be inadequate to service the loan. The estimated net liquidation value of the collateral pledged and/or ability of the personal
guarantor(s) to pay the loan may not adequately protect the Bank. There is a distinct possibility that the Bank will sustain some loss if the deficiencies associated with the loan are not corrected in the near term. A substandard loan would not
automatically meet our definition of impaired unless the loan is significantly past due and the borrowers performance and financial condition provide evidence that it is probable that the Bank will be unable to collect all amounts due.
|
|
|
Doubtful. These are loans having a risk rating of 8. Doubtful rated loans have all the weaknesses inherent in a loan that is classified substandard but with the added characteristic that the weaknesses make
collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is high.
|
|
|
Loss. These are loans having a risk rating of 9. Loss rated loans are not considered collectible under normal circumstances and there is no realistic expectation for any future payment on the loan. Loss
rated loans are fully charged off.
|
73
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 5 - Loans and allowance for loan losses (continued)
The Bank grants primarily commercial, real estate, and installment loans to customers throughout its market
area, which consists primarily of Region 2000 which includes the counties of Amherst, Appomattox, Bedford and Campbell, the Town of Bedford, and the City of Lynchburg, Virginia. The real estate portfolio can be affected by the condition of the local
real estate market. The commercial and installment loan portfolio can be affected by the local economic conditions.
A summary of loans, net is as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Commercial
|
|
$
|
88,085
|
|
|
$
|
76,773
|
|
Commercial real estate
|
|
|
237,638
|
|
|
|
217,125
|
|
Consumer
|
|
|
85,099
|
|
|
|
81,531
|
|
Residential
|
|
|
59,247
|
|
|
|
59,699
|
|
|
|
|
|
|
|
|
|
|
Total loans (1)
|
|
|
470,069
|
|
|
|
435,128
|
|
|
|
|
Less allowance for loan losses
|
|
|
5,716
|
|
|
|
4,683
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
464,353
|
|
|
$
|
430,445
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes net deferred loan costs of $182 and $263, respectively.
|
The amount of overdrafts reclassified as
loans was $54 and $17 as of December 31, 2016 and 2015, respectively.
The Companys officers, directors and their related interests have
various types of loan relationships with the Bank. The total outstanding balances of these related party loans at December 31, 2016 and 2015 were $15,869 and $16,674 respectively. During 2016, new loans and advances amounted to $1,186 and
repayments amounted to $1,991. It should be noted that the beginning balance as of December 31, 2015 was adjusted upward to account for the existing loan relationships maintained by individuals who were newly designated as executive officers in
2016 as defined by Regulation O.
74
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 5 - Loans and allowance for loan losses (continued)
The following tables set forth information regarding impaired and
non-accrual
loans as of December 31, 2016 and 2015:
Loans on
Non-Accrual
Status
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Commercial
|
|
$
|
915
|
|
|
$
|
483
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
Commercial Mortgages-Owner Occupied
|
|
|
855
|
|
|
|
799
|
|
Commercial
Mortgages-Non-Owner
Occupied
|
|
|
|
|
|
|
514
|
|
Commercial Construction
|
|
|
256
|
|
|
|
367
|
|
Consumer
|
|
|
|
|
|
|
|
|
Consumer Unsecured
|
|
|
|
|
|
|
31
|
|
Consumer Secured
|
|
|
80
|
|
|
|
269
|
|
Residential:
|
|
|
|
|
|
|
|
|
Residential Mortgages
|
|
|
1,292
|
|
|
|
695
|
|
Residential Consumer Construction
|
|
|
67
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
3,465
|
|
|
$
|
3,406
|
|
|
|
|
|
|
|
|
|
|
75
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 5 - Loans and allowance for loan losses (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
|
|
As of and for the Year Ended December 31, 2016
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
2016
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
With No Related Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
698
|
|
|
$
|
698
|
|
|
$
|
|
|
|
$
|
349
|
|
|
$
|
37
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgages-Owner Occupied
|
|
|
3,019
|
|
|
|
3,077
|
|
|
|
|
|
|
|
3,051
|
|
|
|
142
|
|
Commercial Mortgage
Non-Owner
Occupied
|
|
|
349
|
|
|
|
349
|
|
|
|
|
|
|
|
263
|
|
|
|
23
|
|
Commercial Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Unsecured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Secured
|
|
|
18
|
|
|
|
18
|
|
|
|
|
|
|
|
19
|
|
|
|
1
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgages
|
|
|
1,555
|
|
|
|
1,687
|
|
|
|
|
|
|
|
1,776
|
|
|
|
55
|
|
Residential Consumer Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
With an Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
1,521
|
|
|
$
|
1,521
|
|
|
$
|
1,233
|
|
|
$
|
1,351
|
|
|
$
|
81
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgages-Owner Occupied
|
|
|
1,587
|
|
|
|
1,618
|
|
|
|
249
|
|
|
|
1,232
|
|
|
|
81
|
|
Commercial Mortgage
Non-Owner
Occupied
|
|
|
74
|
|
|
|
74
|
|
|
|
20
|
|
|
|
373
|
|
|
|
6
|
|
Commercial Construction
|
|
|
169
|
|
|
|
657
|
|
|
|
76
|
|
|
|
255
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Unsecured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
Consumer Secured
|
|
|
110
|
|
|
|
110
|
|
|
|
110
|
|
|
|
150
|
|
|
|
8
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgages
|
|
|
699
|
|
|
|
736
|
|
|
|
83
|
|
|
|
675
|
|
|
|
30
|
|
Residential Consumer Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
2,219
|
|
|
$
|
2,219
|
|
|
$
|
1,233
|
|
|
$
|
1,700
|
|
|
$
|
118
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgages-Owner Occupied
|
|
|
4,606
|
|
|
|
4,695
|
|
|
|
249
|
|
|
|
4,283
|
|
|
|
223
|
|
Commercial Mortgage
Non-Owner
Occupied
|
|
|
423
|
|
|
|
423
|
|
|
|
20
|
|
|
|
636
|
|
|
|
29
|
|
Commercial Construction
|
|
|
169
|
|
|
|
657
|
|
|
|
76
|
|
|
|
269
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Unsecured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
Consumer Secured
|
|
|
128
|
|
|
|
128
|
|
|
|
110
|
|
|
|
169
|
|
|
|
9
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgages
|
|
|
2,254
|
|
|
|
2,423
|
|
|
|
83
|
|
|
|
2,451
|
|
|
|
85
|
|
Residential Consumer Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,799
|
|
|
$
|
10,545
|
|
|
$
|
1,771
|
|
|
$
|
9,610
|
|
|
$
|
464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 5 - Loans and allowance for loan losses (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
|
|
As of and for the Year Ended December 31, 2015
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
2015
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
With No Related Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,009
|
|
|
$
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgages-Owner Occupied
|
|
|
3,082
|
|
|
|
3,100
|
|
|
|
|
|
|
|
2,959
|
|
|
|
174
|
|
Commercial Mortgage
Non-Owner
Occupied
|
|
|
177
|
|
|
|
177
|
|
|
|
|
|
|
|
628
|
|
|
|
12
|
|
Commercial Construction
|
|
|
27
|
|
|
|
514
|
|
|
|
|
|
|
|
244
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Unsecured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Secured
|
|
|
20
|
|
|
|
20
|
|
|
|
|
|
|
|
21
|
|
|
|
1
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgages
|
|
|
1,997
|
|
|
|
2,027
|
|
|
|
|
|
|
|
1,466
|
|
|
|
86
|
|
Residential Consumer Construction
|
|
|
171
|
|
|
|
176
|
|
|
|
|
|
|
|
86
|
|
|
|
4
|
|
|
|
|
|
|
|
With an Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
1,180
|
|
|
$
|
1,256
|
|
|
$
|
6100
|
|
|
$
|
1,293
|
|
|
$
|
38
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgages-Owner Occupied
|
|
|
877
|
|
|
|
883
|
|
|
|
163
|
|
|
|
865
|
|
|
|
35
|
|
Commercial Mortgage
Non-Owner
Occupied
|
|
|
672
|
|
|
|
738
|
|
|
|
175
|
|
|
|
399
|
|
|
|
38
|
|
Commercial Construction
|
|
|
340
|
|
|
|
700
|
|
|
|
75
|
|
|
|
170
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Unsecured
|
|
|
31
|
|
|
|
32
|
|
|
|
31
|
|
|
|
16
|
|
|
|
1
|
|
Consumer Secured
|
|
|
190
|
|
|
|
193
|
|
|
|
153
|
|
|
|
155
|
|
|
|
10
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgages
|
|
|
650
|
|
|
|
800
|
|
|
|
87
|
|
|
|
740
|
|
|
|
42
|
|
Residential Consumer Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
1,180
|
|
|
$
|
1,256
|
|
|
$
|
610
|
|
|
$
|
2,302
|
|
|
$
|
38
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgages-Owner Occupied
|
|
|
3,959
|
|
|
|
3,983
|
|
|
|
163
|
|
|
|
3,824
|
|
|
|
209
|
|
Commercial Mortgage
Non-Owner
Occupied
|
|
|
849
|
|
|
|
915
|
|
|
|
175
|
|
|
|
1,027
|
|
|
|
50
|
|
Commercial Construction
|
|
|
367
|
|
|
|
1,214
|
|
|
|
75
|
|
|
|
414
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Unsecured
|
|
|
31
|
|
|
|
32
|
|
|
|
31
|
|
|
|
16
|
|
|
|
1
|
|
Consumer Secured
|
|
|
210
|
|
|
|
213
|
|
|
|
153
|
|
|
|
176
|
|
|
|
11
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgages
|
|
|
2,647
|
|
|
|
2,827
|
|
|
|
87
|
|
|
|
2,206
|
|
|
|
128
|
|
Residential Consumer Construction
|
|
|
171
|
|
|
|
176
|
|
|
|
|
|
|
|
86
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,414
|
|
|
$
|
10,616
|
|
|
$
|
1,294
|
|
|
$
|
10,051
|
|
|
$
|
441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 5 - Loans and allowance for loan losses (continued)
The following tables set forth the allowance for loan losses activity for the years ended December 31,
2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses and Recorded Investment in Loans
For the Year Ended December 31, 2016
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
Commercial
|
|
|
Real Estate
|
|
|
Consumer
|
|
|
Residential
|
|
|
Total
|
|
Allowance for Loan Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
1,195
|
|
|
$
|
1,751
|
|
|
$
|
1,073
|
|
|
$
|
664
|
|
|
$
|
4,683
|
|
Charge-offs
|
|
|
(328
|
)
|
|
|
(156
|
)
|
|
|
(275
|
)
|
|
|
|
|
|
|
(759
|
)
|
Recoveries
|
|
|
7
|
|
|
|
127
|
|
|
|
44
|
|
|
|
2
|
|
|
|
180
|
|
Provision
|
|
|
1,318
|
|
|
|
387
|
|
|
|
112
|
|
|
|
(205
|
)
|
|
|
1,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
2,192
|
|
|
$
|
2,109
|
|
|
$
|
954
|
|
|
$
|
461
|
|
|
$
|
5,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: Individually evaluated for impairment
|
|
$
|
1,233
|
|
|
$
|
345
|
|
|
$
|
110
|
|
|
$
|
83
|
|
|
$
|
1,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: Collectively evaluated for impairment
|
|
|
959
|
|
|
|
1,764
|
|
|
|
844
|
|
|
|
378
|
|
|
|
3,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals:
|
|
$
|
2,192
|
|
|
$
|
2,109
|
|
|
$
|
954
|
|
|
$
|
461
|
|
|
$
|
5,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: Individually evaluated for impairment
|
|
$
|
2,219
|
|
|
$
|
5,198
|
|
|
$
|
128
|
|
|
$
|
2,254
|
|
|
$
|
9,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: Collectively evaluated for impairment
|
|
|
85,866
|
|
|
|
232,440
|
|
|
|
84,971
|
|
|
|
56,993
|
|
|
|
460,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals:
|
|
$
|
88,085
|
|
|
$
|
237,638
|
|
|
$
|
85,099
|
|
|
$
|
59,247
|
|
|
$
|
470,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 5 - Loans and allowance for loan losses (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses and Recorded Investment in Loans
For the Year Ended December 31, 2015
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
Commercial
|
|
|
Real Estate
|
|
|
Consumer
|
|
|
Residential
|
|
|
Total
|
|
Allowance for Loan Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
1,235
|
|
|
$
|
2,194
|
|
|
$
|
812
|
|
|
$
|
549
|
|
|
$
|
4,790
|
|
Charge-offs
|
|
|
(294
|
)
|
|
|
(64
|
)
|
|
|
(257
|
)
|
|
|
|
|
|
|
(615
|
)
|
Recoveries
|
|
|
14
|
|
|
|
122
|
|
|
|
54
|
|
|
|
36
|
|
|
|
226
|
|
Provision
|
|
|
240
|
|
|
|
(501
|
)
|
|
|
464
|
|
|
|
79
|
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
1,195
|
|
|
$
|
1,751
|
|
|
$
|
1,073
|
|
|
$
|
664
|
|
|
$
|
4,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: Individually evaluated for impairment
|
|
$
|
610
|
|
|
$
|
413
|
|
|
$
|
184
|
|
|
$
|
87
|
|
|
$
|
1,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: Collectively evaluated for impairment
|
|
|
585
|
|
|
|
1,338
|
|
|
|
889
|
|
|
|
577
|
|
|
|
3,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals:
|
|
$
|
1,195
|
|
|
$
|
1,751
|
|
|
$
|
1,073
|
|
|
$
|
664
|
|
|
$
|
4,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: Individually evaluated for impairment
|
|
$
|
1,180
|
|
|
$
|
5,175
|
|
|
$
|
241
|
|
|
$
|
2,818
|
|
|
$
|
9,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: Collectively evaluated for impairment
|
|
|
75,593
|
|
|
|
211,950
|
|
|
|
81,290
|
|
|
|
56,881
|
|
|
|
425,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals:
|
|
$
|
76,773
|
|
|
$
|
217,125
|
|
|
$
|
81,531
|
|
|
$
|
59,699
|
|
|
$
|
435,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 5 - Loans and allowance for loan losses (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Age Analysis of Past Due Loans as of December 31, 2016
|
|
2016
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Greater
than
90 Days
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total
Loans
|
|
|
Recorded
Investment
> 90 Days &
Accruing
|
|
Commercial
|
|
$
|
283
|
|
|
$
|
5
|
|
|
$
|
78
|
|
|
$
|
366
|
|
|
$
|
87,719
|
|
|
$
|
88,085
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgages-Owner Occupied
|
|
|
1,136
|
|
|
|
72
|
|
|
|
855
|
|
|
|
2,063
|
|
|
|
88,698
|
|
|
|
90,761
|
|
|
|
|
|
Commercial
Mortgages-Non-Owner
Occupied
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
140
|
|
|
|
134,262
|
|
|
|
134,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Construction
|
|
|
|
|
|
|
|
|
|
|
256
|
|
|
|
256
|
|
|
|
12,219
|
|
|
|
12,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Unsecured
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
8,558
|
|
|
|
8,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Secured
|
|
|
531
|
|
|
|
301
|
|
|
|
|
|
|
|
832
|
|
|
|
75,700
|
|
|
|
76,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgages
|
|
|
539
|
|
|
|
161
|
|
|
|
1,063
|
|
|
|
1,763
|
|
|
|
49,525
|
|
|
|
51,288
|
|
|
|
|
|
Residential Consumer Construction
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
67
|
|
|
|
7,892
|
|
|
|
7,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,638
|
|
|
$
|
539
|
|
|
$
|
2,319
|
|
|
$
|
5,496
|
|
|
$
|
464,573
|
|
|
$
|
470,069
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Age Analysis of Past Due Loans as of December 31, 2015
|
|
2015
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Greater
than
90 Days
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total
Loans
|
|
|
Recorded
Investment
> 90 Days &
Accruing
|
|
Commercial
|
|
$
|
|
|
|
$
|
244
|
|
|
$
|
483
|
|
|
$
|
727
|
|
|
$
|
76,046
|
|
|
$
|
76,773
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgages-Owner Occupied
|
|
|
425
|
|
|
|
571
|
|
|
|
426
|
|
|
|
1,422
|
|
|
|
75,549
|
|
|
|
76,971
|
|
|
|
|
|
Commercial
Mortgages-Non-Owner
Occupied
|
|
|
189
|
|
|
|
90
|
|
|
|
438
|
|
|
|
717
|
|
|
|
126,138
|
|
|
|
126,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Construction
|
|
|
|
|
|
|
|
|
|
|
367
|
|
|
|
367
|
|
|
|
12,932
|
|
|
|
13,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Unsecured
|
|
|
2
|
|
|
|
|
|
|
|
31
|
|
|
|
33
|
|
|
|
6,828
|
|
|
|
6,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Secured
|
|
|
198
|
|
|
|
68
|
|
|
|
128
|
|
|
|
394
|
|
|
|
74,276
|
|
|
|
74,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgages
|
|
|
512
|
|
|
|
468
|
|
|
|
543
|
|
|
|
1,523
|
|
|
|
48,490
|
|
|
|
50,013
|
|
|
|
|
|
Residential Consumer Construction
|
|
|
|
|
|
|
|
|
|
|
248
|
|
|
|
248
|
|
|
|
9,438
|
|
|
|
9,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,326
|
|
|
$
|
1,441
|
|
|
$
|
2,664
|
|
|
$
|
5,431
|
|
|
$
|
429,697
|
|
|
$
|
435,128
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 5 - Loans and allowance for loan losses (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Quality Information - by Class
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
2016
|
|
Pass
|
|
|
Monitor
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Totals
|
|
Commercial
|
|
$
|
83,912
|
|
|
$
|
1,473
|
|
|
$
|
301
|
|
|
$
|
1,484
|
|
|
$
|
915
|
|
|
$
|
88,085
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgages-Owner Occupied
|
|
|
83,008
|
|
|
|
2,975
|
|
|
|
101
|
|
|
|
4,677
|
|
|
|
|
|
|
|
90,761
|
|
|
|
|
|
|
|
|
Commercial
Mortgages-Non-Owner
Occupied
|
|
|
129,794
|
|
|
|
3,525
|
|
|
|
525
|
|
|
|
558
|
|
|
|
|
|
|
|
134,402
|
|
|
|
|
|
|
|
|
Commercial Construction
|
|
|
11,774
|
|
|
|
|
|
|
|
445
|
|
|
|
256
|
|
|
|
|
|
|
|
12,475
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Unsecured
|
|
|
8,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,567
|
|
|
|
|
|
|
|
|
Consumer Secured
|
|
|
76,215
|
|
|
|
|
|
|
|
|
|
|
|
317
|
|
|
|
|
|
|
|
76,532
|
|
|
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgages
|
|
|
48,366
|
|
|
|
|
|
|
|
245
|
|
|
|
2,677
|
|
|
|
|
|
|
|
51,288
|
|
|
|
|
|
|
|
|
Residential Consumer Construction
|
|
|
7,892
|
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
7,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
449,528
|
|
|
$
|
7,973
|
|
|
$
|
1,617
|
|
|
$
|
10,036
|
|
|
$
|
915
|
|
|
$
|
470,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Quality Information - by Class
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
2015
|
|
Pass
|
|
|
Monitor
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Totals
|
|
Commercial
|
|
$
|
73,831
|
|
|
$
|
290
|
|
|
$
|
1,457
|
|
|
$
|
1,195
|
|
|
$
|
|
|
|
$
|
76,773
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgages-Owner Occupied
|
|
|
68,813
|
|
|
|
1,353
|
|
|
|
2,801
|
|
|
|
4,004
|
|
|
|
|
|
|
|
76,971
|
|
|
|
|
|
|
|
|
Commercial
Mortgages-Non-Owner
Occupied
|
|
|
120,462
|
|
|
|
1,558
|
|
|
|
3,895
|
|
|
|
940
|
|
|
|
|
|
|
|
126,855
|
|
|
|
|
|
|
|
|
Commercial Construction
|
|
|
12,932
|
|
|
|
|
|
|
|
|
|
|
|
367
|
|
|
|
|
|
|
|
13,299
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Unsecured
|
|
|
6,830
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
6,861
|
|
|
|
|
|
|
|
|
Consumer Secured
|
|
|
73,825
|
|
|
|
276
|
|
|
|
50
|
|
|
|
519
|
|
|
|
|
|
|
|
74,670
|
|
|
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgages
|
|
|
47,180
|
|
|
|
|
|
|
|
|
|
|
|
2,833
|
|
|
|
|
|
|
|
50,013
|
|
|
|
|
|
|
|
|
Residential Consumer Construction
|
|
|
9,438
|
|
|
|
|
|
|
|
|
|
|
|
248
|
|
|
|
|
|
|
|
9,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
413,311
|
|
|
$
|
3,477
|
|
|
$
|
8,203
|
|
|
$
|
10,137
|
|
|
$
|
|
|
|
$
|
435,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 5 - Loans and allowance for loan losses (continued)
Troubled Debt Restructurings (TDRs)
There were no loan modifications that would have been classified as Troubled Debt Restructurings (TDR) during the twelve months ended December 31, 2016.
The following tables describe the loan modifications classified as TDRs during the twelve months ended December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
For the Twelve Months Ended
December 31, 2015
(dollars in thousands)
|
|
Troubled Debt Restructurings
During the Period
|
|
Number of
Contracts
|
|
Pre-Modification
Outstanding Recorded
Investment
|
|
|
Post-Modification
Outstanding
Recorded Investment
|
|
Commercial
|
|
1
|
|
$
|
21
|
|
|
$
|
21
|
|
Commercial Real Estate
|
|
2
|
|
$
|
456
|
|
|
$
|
456
|
|
The loans noted in the table above were modified during the periods to extend maturity only. These loans are factored into the
determination of the allowance for loan losses as of the period indicated and are included in the Banks impaired loan analysis and individually evaluated for impairment.
At December 31, 2016 and December 31, 2015, the Bank had no outstanding commitments to disburse additional funds on loans classified as TDRs.
There were no loan modifications classified as TDRs within the last twelve months that defaulted (90 days past due) during the twelve months ended
December 31, 2016 and 2015.
Note 6 - Other real estate owned
At December 31, 2016 and 2015, OREO was $2,370 and $1,965 respectively. OREO is primarily comprised of residential properties and
non-residential
properties associated with commercial relationships. As of December 31, 2016, there was $294 of consumer mortgage loans secured by residential real estate, all of which were in the process of
foreclosure. As of December 31, 2015, there were no residential real estate loans in other real estate owned. The following table represents the changes in OREO balance in 2016 and 2015.
|
|
|
|
|
|
|
|
|
OREO Changes
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Balance at the beginning of the year
|
|
$
|
1,965
|
|
|
$
|
956
|
|
Transfers from Loans
|
|
|
470
|
|
|
|
1,425
|
|
Capitalized costs
|
|
|
|
|
|
|
25
|
|
Valuation adjustments
|
|
|
(45
|
)
|
|
|
(75
|
)
|
Sales
|
|
|
(21
|
)
|
|
|
(360
|
)
|
Gain (loss) on sales
|
|
|
1
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
$
|
2,370
|
|
|
$
|
1,965
|
|
|
|
|
|
|
|
|
|
|
82
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 6 - Other real estate owned (continued)
The following table sets forth the OREO expenses in 2016 and 2015.
|
|
|
|
|
|
|
|
|
OREO Expense
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
(Gain) loss on sales
|
|
$
|
(1
|
)
|
|
$
|
6
|
|
Valuation adjustments
|
|
|
45
|
|
|
|
75
|
|
Expenses
|
|
|
24
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
68
|
|
|
$
|
122
|
|
|
|
|
|
|
|
|
|
|
Note 7 Premises and equipment
Premises and equipment at December 31, 2016 and 2015 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Land
|
|
$
|
3,302
|
|
|
$
|
3,014
|
|
Building and improvements
|
|
|
5,864
|
|
|
|
6,142
|
|
Construction in progress
|
|
|
2,098
|
|
|
|
877
|
|
Furniture and equipment
|
|
|
6,328
|
|
|
|
5,951
|
|
Leasehold improvements
|
|
|
1,611
|
|
|
|
1,611
|
|
Software
|
|
|
2,205
|
|
|
|
2,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,408
|
|
|
|
19,701
|
|
Less accumulated depreciation
|
|
|
10,461
|
|
|
|
9,694
|
|
|
|
|
|
|
|
|
|
|
Net premises and equipment
|
|
$
|
10,947
|
|
|
$
|
10,007
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization expense related to premises and equipment for the years ended December 31, 2016 and
2015 was $767 and $767, respectively.
83
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 8 - Deposits
A summary of deposit accounts is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Demand
|
|
|
|
|
|
|
|
|
Noninterest bearing
|
|
$
|
102,654
|
|
|
$
|
91,325
|
|
Interest bearing
|
|
|
147,351
|
|
|
|
117,934
|
|
Savings
|
|
|
108,078
|
|
|
|
114,930
|
|
Time, $250,000 or more (1)
|
|
|
38,865
|
|
|
|
25,190
|
|
Other time
|
|
|
126,164
|
|
|
|
118,231
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
523,112
|
|
|
$
|
467,610
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes brokered certificates of deposit of $22,044,000 as of December 31, 2016 and $10,000,000 as of December 31, 2015.
|
At December 31, 2016, maturities of time deposits are scheduled as follows:
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
|
2017
|
|
$
|
48,605
|
|
2018
|
|
|
76,290
|
|
2019
|
|
|
22,340
|
|
2020
|
|
|
9,621
|
|
2021
|
|
|
8,173
|
|
|
|
|
|
|
|
|
$
|
165,029
|
|
|
|
|
|
|
The Bank held deposits from the Companys officers, directors and their related interests of $10,167 and $7,326 at
December 31, 2016 and 2015, respectively.
Note 9 Business Segments
The Company has two reportable business segments: (i) a traditional full service community banking segment and, (ii) a mortgage loan origination
business. The community banking business segment includes Bank of the James which provides loans, deposits, investments and insurance to retail and commercial customers throughout Region 2000. The mortgage segment provides a variety of mortgage loan
products principally within Region 2000. Mortgage loans are originated and sold in the secondary market through purchase commitments from investors. Because of the
pre-arranged
purchase commitments, there is
minimal risk to the Company.
Both of the Companys reportable segments are service based. The mortgage business is a
fee-based
business while the Banks primary source of revenue is net interest income. The Bank also provides a referral network for the mortgage origination business. The mortgage business may also be in
a position to refer its customers to the Bank for banking services when appropriate.
84
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 9 Business Segments (continued)
Information about reportable business segments and reconciliation of such information to the consolidated
financial statements for years ended December 31, 2016 and 2015 was as follows:
Business Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community
|
|
|
|
|
|
|
|
|
|
Banking
|
|
|
Mortgage
|
|
|
Total
|
|
For the year ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
19,224
|
|
|
$
|
|
|
|
$
|
19,224
|
|
Provision for loan losses
|
|
|
1,612
|
|
|
|
|
|
|
|
1,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
17,612
|
|
|
|
|
|
|
|
17,612
|
|
Noninterest income
|
|
|
2,338
|
|
|
|
2,457
|
|
|
|
4,795
|
|
Noninterest expenses
|
|
|
15,695
|
|
|
|
1,899
|
|
|
|
17,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
4,255
|
|
|
|
558
|
|
|
|
4,813
|
|
Income tax expense
|
|
|
1,337
|
|
|
|
190
|
|
|
|
1,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,918
|
|
|
$
|
368
|
|
|
$
|
3,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
570,181
|
|
|
$
|
4,014
|
|
|
$
|
574,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
17,611
|
|
|
$
|
|
|
|
$
|
17,611
|
|
Provision for loan losses
|
|
|
282
|
|
|
|
|
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
17,329
|
|
|
|
|
|
|
|
17,329
|
|
Noninterest income
|
|
|
1,866
|
|
|
|
2,327
|
|
|
|
4,193
|
|
Noninterest expenses
|
|
|
14,401
|
|
|
|
1,778
|
|
|
|
16,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
4,794
|
|
|
|
549
|
|
|
|
5,343
|
|
Income tax expense
|
|
|
1,464
|
|
|
|
187
|
|
|
|
1,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,330
|
|
|
$
|
362
|
|
|
$
|
3,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
525,077
|
|
|
$
|
2,066
|
|
|
$
|
527,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10 Capital notes
During the third quarter of 2012, Financial closed the private placement of unregistered debt securities (the 2012 Offering) pursuant to which
Financial issued $10 million in principal of notes (the 2012 Notes). The 2012 Notes bore interest at the rate of 6% per year with interest payable quarterly in arrears. The 2012 Notes were scheduled to mature on April 1, 2017,
but were subject to prepayment in whole or in part on or after April 1, 2013 at Financials sole discretion on 30 days written notice to the holders. The notes were called on December 3, 2015 and paid in full on January 5, 2016.
On January 25, 2017, Financial closed a private placement of unregistered debt securities (the 2017 Offering) pursuant to which
Financial issued $5,000,000 in principal of notes (the 2017 Notes). The 2017 Notes bear interest at the rate of 4% per year with interest payable quarterly in arrears. The 2017 Notes are to mature on
85
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 10 Capital notes (continued)
January 24, 2022, but are subject to prepayment in whole or in part on or after January 24, 2018 at
Financials sole discretion on 30 days written notice to the holders. A portion of the proceeds from the sale of the 2017 Notes will be used to provide additional capital to the Bank.
Note 11 Other borrowings
Other borrowings
consisted of the following at December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Short Term:
|
|
|
|
|
|
|
|
|
Federal funds purchased
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
|
|
|
$
|
|
|
Maximum
month-end
outstanding balance
|
|
|
6,265
|
|
|
|
814
|
|
Average outstanding balance during the year
|
|
|
371
|
|
|
|
184
|
|
Average interest rate during the year
|
|
|
1.08
|
%
|
|
|
1.09
|
%
|
Average interest rate at end of year
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
FHLB Borrowings:
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
|
|
|
$
|
|
|
Maximum
month-end
outstanding balance
|
|
|
|
|
|
|
12,000
|
|
Average outstanding balance during the year
|
|
|
|
|
|
|
2,269
|
|
Average interest rate during the year
|
|
|
N/A
|
|
|
|
1.23
|
%
|
Average interest rate at end of year
|
|
|
N/A
|
|
|
|
N/A
|
|
Short-term borrowings may consist of securities sold under agreements to repurchase, which are secured transactions with
customers and generally mature the day following the date sold. Short-term borrowings may also include Federal funds purchased, which are unsecured overnight borrowings from other financial institutions.
Unsecured federal fund lines and their respective limits are maintained with the following institutions: Community Bankers Bank, $11,000, Zions Bank,
$4,000, PNC Bank, $6,000 and Suntrust Bank, $3,000. In addition, the Bank maintains a $5,000 reverse repurchase agreement with Suntrust whereby securities may be pledged as collateral in exchange for funds for a minimum of 30 days with a maximum of
90 days. The Bank also maintains a secured federal funds line with Community Bankers Bank whereby it may pledge securities as collateral with no specified minimum or maximum amount or term.
The Bank is also a member of the Federal Home Loan Bank of Atlanta (FHLBA). The Banks available credit through the FHLBA was $143,615 as of
December 31, 2016, the most recent calculation. The Bank must pledge collateral in order to access the FHLBA available credit. Currently the Bank has pledged to the FHLBA approximately $39,500 in
1-4
family residential mortgages which, after adjustments for the
loan-to-value
requirements by the FHLBA, would allow the Bank to access up to $31,249 in credit without
pledging any additional collateral.
As of December 31, 2016, and 2015 there are no outstanding balances on any of the credit facilities mentioned
above.
86
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 12 - Income taxes
The Company files income tax returns in the U.S. federal jurisdiction and the state of Virginia. With few exceptions, the Company is no longer subject to U.S.
federal, state and local income tax examinations by tax authorities for years prior to 2013.
Income tax expense attributable to income before income tax
expense is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Current federal income tax expense
|
|
$
|
1,983
|
|
|
$
|
1,725
|
|
Deferred federal income tax (benefit) expense
|
|
|
(456
|
)
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
1,527
|
|
|
$
|
1,651
|
|
|
|
|
|
|
|
|
|
|
Income tax expense differed from amounts computed by applying the U.S. Federal income tax rate of 34% to income before income
tax expense as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Computed expected income tax expense
|
|
$
|
1,636
|
|
|
$
|
1,817
|
|
Increase (reduction) in income tax resulting from:
|
|
|
|
|
|
|
|
|
Non-taxable
income
|
|
|
(113
|
)
|
|
|
(106
|
)
|
Non-deductible
expenses
|
|
|
4
|
|
|
|
38
|
|
Tax credit investments
|
|
|
|
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
1,527
|
|
|
$
|
1,651
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences result in deferred tax assets and liabilities as presented below:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
1,353
|
|
|
$
|
881
|
|
Unrealized loss on
available-for-sale
securities
|
|
|
824
|
|
|
|
305
|
|
OREO
|
|
|
141
|
|
|
|
124
|
|
Non-accrual
interest
|
|
|
403
|
|
|
|
432
|
|
Other
|
|
|
78
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
2,799
|
|
|
|
1,806
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
130
|
|
|
|
204
|
|
Other
|
|
|
295
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
425
|
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
2,374
|
|
|
$
|
1,399
|
|
|
|
|
|
|
|
|
|
|
87
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 13 Earnings per common share (EPS)
Basic EPS excludes dilution and is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, or resulted in the issuance of common stock that then shared in the
earnings of the entity.
The basic and diluted earnings per share calculations are as follows:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income available to stockholders
|
|
$
|
3,286
|
|
|
$
|
3,692
|
|
|
|
|
|
|
|
|
|
|
Basic EPS weighted average shares outstanding
|
|
|
4,378,436
|
|
|
|
3,451,409
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Incremental shares attributable to stock options
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS weighted-average shares outstanding
|
|
|
4,378,442
|
|
|
|
3,451,409
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.75
|
|
|
$
|
1.07
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
0.75
|
|
|
$
|
1.07
|
|
|
|
|
|
|
|
|
|
|
No option shares were excluded from the 2016 earnings per share calculation. At December 31, 2015, 636 option shares were
excluded from the 2015 earnings per share calculations because their effects were anti-dilutive.
Note 14 Retirement plans
Defined contribution benefit plan.
The Company adopted a 401(k) defined contribution plan on October 1, 2000, which is administered by the Virginia
Bankers Association. Participants have the right to contribute up to a maximum of 19% of pretax annual compensation or the maximum allowed under Section 401(g) of the Internal Revenue Code, whichever is less. The Company contributed $253 and
$217 to the plan on behalf of the employees for the years ended December 31, 2016 and 2015, respectively.
Supplemental Executive Retirement
Plan
. A Supplemental Executive Retirement Plan (SERP) was established to provide participating executives (as determined by the Companys Board of Directors) with benefits that cannot be provided under the 401(k) as a result of limitations
imposed by the Internal Revenue Code. The SERP will also provide benefits to eligible employees or their survivors, as applicable, if they die, retire, or are terminated under certain circumstances. SERP expense totaled $230 and $187 for the years
ended December 31, 2016 and 2015, respectively.
The Company funds the plan through a modified endowment contract. Income recorded for the plan
represents life insurance income as recorded based on the projected increases in cash surrender values of life insurance policies. As of December 31, 2016 and 2015, the life insurance policies had cash surrender values of approximately $12,673
and $9,781, respectively.
88
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 15 Stock option plan
On October 21, 1999, the Board of Directors adopted the 1999 Stock Option Plan for officers and employees. The ability to grant shares under
the 1999 Stock Option Plan expired on October 21, 2009. The plan expired with 25,832 shares not granted.
Stock option plan activity for the year
ended December 31, 2016 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Life (in years)
|
|
|
Value
|
|
Options outstanding, January 1, 2016
|
|
|
636
|
|
|
$
|
12.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2016
|
|
|
636
|
|
|
|
12.79
|
|
|
|
1.42
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, December 31, 2016
|
|
|
636
|
|
|
$
|
12.79
|
|
|
|
1.42
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of options exercised during 2015 was $10. The intrinsic value represents the amount by which the current
market value of the underlying stock exceeds the exercise price. This amount changes based on changes in the market value of the Companys common stock. There is no additional unrecognized compensation expense related to option awards
associated with the 1999 Stock Option Plan. No options were exercised in 2016.
The following is summarized information concerning currently outstanding
and exercisable options as adjusted for all stock dividends previously declared and paid:
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding and
Exercisable
|
|
Exercise
|
|
|
|
|
Remaining
|
|
Weighted Average
|
|
Price ($)
|
|
Number of Options
|
|
|
Contractual Life
|
|
Exercise Price ($)
|
|
12.79
|
|
|
636
|
|
|
1.42 years
|
|
|
12.79
|
|
89
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 16 Stockholders equity
The Bank is subject to certain legal and regulatory restrictions on the amount of cash dividends it may declare. Financial is a legal entity, separate and
distinct from the Bank. Financial currently does not have any significant sources of revenue other than cash dividends paid to it by its subsidiaries. Both Financial and the Bank are subject to laws and regulations that limit the payment of cash
dividends, including requirements to maintain capital at or above regulatory minimums.
In October, 2014, Financials board of directors authorized a
share repurchase program that authorized Financial to buy back up to 100,000 shares of common stock on such terms and conditions as the Company deems favorable. The plan expired in October, 2015 and no shares were repurchased under the plan.
On December 3, 2015, Financial closed a private placement of common stock pursuant to which it received gross proceeds of $11,520,000 by selling an
aggregate of 1,000,000 shares of Financials Common Stock at a price of $11.52 per share, as part of a private placement (the Common Stock Private Placement). Financial used $10,000,000 of the proceeds from the Common Stock Private
Placement to prepay in full the 2012 Notes.
Note 17 - Regulatory matters
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Companys financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Banks assets, liabilities, and certain
off-balance-sheet
items as
calculated under regulatory accounting practices. The Banks capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following
table) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital to average assets (as defined). Management believes, as of December 31, 2016 that the Bank meets all capital adequacy
requirements to which it is subject. The Banks actual regulatory capital amounts and ratios for December 31, 2016 and 2015 are also presented in the table below.
On June 7, 2012, the Federal Reserve issued a series of proposed rules that would revise and strengthen its risk-based and leverage capital requirements
and its method for calculating risk-weighted assets. The rules were proposed to implement the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. On July 2, 2013,
the Federal Reserve approved certain revisions to the proposals and finalized new capital requirements for banking organizations.
Effective
January 1, 2015, the final rules required Financial and the Bank to comply with the following new minimum capital ratios: (i) a new common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of
6.0% of risk-weighted assets (increased from the previous requirement of 4.0%); (iii) a total capital ratio of 8.0% of risk-weighted assets (unchanged from previous requirement); and (iv) a leverage ratio of 4.0% of
90
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 17 - Regulatory matters (continued)
total assets. These are the initial capital requirements, which will be phased in over a five-year period. When fully phased in on January 1, 2019, the rules will require Financial and the
Bank to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% capital conservation buffer (which is added to the 4.5% common equity Tier 1 ratio as that buffer is phased in,
effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0% upon full implementation), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation
buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of total capital to risk-weighted assets of at
least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation), and (iv) a minimum leverage
ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.
The capital conservation buffer requirement was phased in beginning
January 1, 2016, at 0.625% of risk-weighted assets, increasing each year until fully implemented at 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking
institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.
With respect to the Bank, the rules also revised the prompt corrective action regulations pursuant to Section 38 of the FDIA by
(i) introducing a common equity Tier 1 capital ratio requirement at each level (other than critically undercapitalized), with the required ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio
requirement for each category, with the minimum ratio for well-capitalized status being 8.0% (as compared to the previous 6.0% as of December 31, 2014); and (iii) eliminating the current provision that provides that a bank with a composite
supervisory rating of 1 may have a 3.0% Tier 1 leverage ratio and still be well-capitalized.
The new capital requirements also include changes in
the risk weights of assets to better reflect credit risk and other risk exposures. These include a 150% risk weight (up from 100%) for certain high volatility commercial real estate acquisition, development and construction loans and nonresidential
mortgage loans that are 90 days past due or otherwise on nonaccrual status, a 20% (up from 0%) credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable, a
250% risk weight (up from 100%) for mortgage servicing rights and deferred tax assets that are not deducted from capital, and increased risk-weights (from 0% to up to 600%) for equity exposures.
As of December 31, 2016, the most recent notification from the Federal Reserve Bank of Richmond categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action.
91
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 17 - Regulatory matters (continued)
To be categorized as well capitalized, the Bank must maintain minimum total risk-based, CET1, Tier I
risk-based and Tier I leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed the Banks category.
The capital ratios for the Bank for 2016 and 2015 are set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Actual
|
|
|
For Capital
Adequacy Purposes
|
|
|
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio (1)
|
|
|
Amount
|
|
|
Ratio
|
|
Total capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets)
|
|
$
|
56,365
|
|
|
|
11.54
|
%
|
|
$
|
42,142
|
|
|
|
> 8.625
|
%
|
|
$
|
48,861
|
|
|
|
> 10.00
|
%
|
Tier I capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets)
|
|
$
|
50,649
|
|
|
|
10.37
|
%
|
|
$
|
32,370
|
|
|
|
> 6.625
|
%
|
|
$
|
39,089
|
|
|
|
> 8.00
|
%
|
Common Equity Tier 1 capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets)
|
|
$
|
50,649
|
|
|
|
10.37
|
%
|
|
$
|
25,041
|
|
|
|
>5.125
|
%
|
|
$
|
31,759
|
|
|
|
>6.50
|
%
|
Tier I capital (leverage)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to average assets)
|
|
$
|
50,649
|
|
|
|
8.94
|
%
|
|
$
|
22,656
|
|
|
|
> 4.000
|
%
|
|
$
|
28,320
|
|
|
|
> 5.00
|
%
|
(1)
|
Includes capital conservation buffer where applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Actual
|
|
|
For Capital
Adequacy Purposes
|
|
|
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
Total capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets)
|
|
$
|
52,461
|
|
|
|
11.76
|
%
|
|
$
|
35,696
|
|
|
|
> 8.00
|
%
|
|
$
|
44,620
|
|
|
|
> 10.00
|
%
|
Tier I capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets)
|
|
$
|
47,778
|
|
|
|
10.71
|
%
|
|
$
|
26,772
|
|
|
|
> 6.00
|
%
|
|
$
|
35,696
|
|
|
|
> 8.00
|
%
|
Common Equity Tier 1 capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets)
|
|
$
|
47,778
|
|
|
|
10.71
|
%
|
|
$
|
20,079
|
|
|
|
>4.50
|
%
|
|
$
|
29,003
|
|
|
|
>6.50
|
%
|
Tier I capital (leverage)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to average assets)
|
|
$
|
47,778
|
|
|
|
9.22
|
%
|
|
$
|
20,724
|
|
|
|
> 4.00
|
%
|
|
$
|
25,905
|
|
|
|
> 5.00
|
%
|
The above tables set forth the capital position and analysis for the Bank only. Because total assets on a consolidated basis
are less than $1,000,000, Financial is not subject to the consolidated capital requirements imposed by the Bank Holding Company Act. Consequently, Financial does not calculate its financial ratios on a
92
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 17 Regulatory matters (continued)
consolidated basis. If calculated, the capital ratios for the Company on a consolidated basis would no longer be comparable to the capital ratios of the Bank because the proceeds of the private
placement do not qualify as equity capital on a consolidated basis.
Note 18 Contingent liabilities
The Bank rents, under
non-cancelable
leases, six of its banking facilities and one commercial loan production office.
The original lease for 615 Church Street expired on July 31, 2009. On August 1, 2009, the Bank elected to enter into a new 10 year lease for this property. The Bank has 2.5 years remaining on this lease.
The Bank entered into a lease agreement for 828 Main Street with Jamesview Investments, LLC, a related party which is wholly-owned by William C. Bryant III, a
member of the Board of Directors of both Financial and the Bank. The initial term of the lease was 10 years with two five year renewal options for a total of 20 years. The Bank has 7.5 years remaining on this lease including option periods. The
total expense to be incurred by the Bank over the remaining course of the lease, including options to extend, is estimated to be $1,755.
In December
2005, the Bank entered into a lease agreement for 4935 Boonsboro Road. The initial term of the lease was five years with two five-year renewal options for a total of 15 years. The Bank has 4 years remaining on this lease and no remaining option
periods.
In September 2013, the Bank entered into a lease agreement for 1430 Rolkin Court in Charlottesville, VA. Lease payments did not begin on the
property until the upfit was completed on January 1, 2014. The initial term of the lease was five years with one five-year renewal option for a total of 10 years. The Bank has 7 years remaining on this lease including the one option period.
In July 2015, the Bank entered into a lease agreement for 225 Merchant Walk Avenue, Charlottesville, VA. Lease payments did not begin on the property
until the upfit was completed in November 2016. The initial term of the lease was 10 years with two five-year renewal options for a total of 20 years. The Bank has 20 years remaining on this lease including the two option periods.
In August 2016, the Bank entered into a land only lease for a temporary branch location at 180 Old Courthouse Road, Appomattox, VA. This initial term of the
lease was six months. This lease expired on February 28, 2017 and the Bank is leasing the property on a
month-to-month
basis.
In November 2016, the Bank entered into a lease agreement for 3564 Electric Road, Roanoke, VA. Lease payments do not begin on the property until
February 1, 2017. The initial term of the lease was five years with two five year renewal options for a total of 15 years. The Bank has 15 years remaining on this lease including the two option periods.
Rental expenses under operating leases were $569 and $530 for the years ended December 31, 2016 and 2015, respectively.
93
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 18 Contingent liabilities (continued)
The current minimum annual rental commitments under the
non-cancelable
leases in effect at December 31, 2016 are as follows:
|
|
|
|
|
Year Ending
|
|
Amount
|
|
2017
|
|
$
|
632
|
|
2018
|
|
|
643
|
|
2019
|
|
|
430
|
|
2020
|
|
|
173
|
|
2021
|
|
|
116
|
|
Thereafter
|
|
|
383
|
|
|
|
|
|
|
|
|
$
|
2,377
|
|
|
|
|
|
|
Note 19 - Financial instruments with
off-balance-sheet
risk
The Bank is not a party to derivative financial instruments with
off-balance-sheet
risks such as futures, forwards,
swaps and options. The Bank is a party to financial instruments with
off-balance-sheet
risk in the normal course of business to meet the financing needs of its customers. These instruments may involve, to
varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of these instruments reflect the extent of involvement the Bank has in particular classes of financial instruments.
Credit risk is defined as the possibility of sustaining a loss because the other party to a financial instrument fails to perform in accordance with the
terms of the contract. The Banks maximum exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual
amount of the instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for
on-balance-sheet
instruments.
The Bank requires collateral or other security to support financial instruments when it is deemed necessary. The Bank evaluates each customers
credit-worthiness on a
case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on managements
credit evaluation of the counterparty. Types of collateral vary but may include marketable securities, accounts receivable, inventory, and property, plant and equipment.
At December 31, 2016, the Bank had rate lock commitments to originate mortgage loans through its Mortgage Division amounting to approximately $4,079 and
loans held for sale of $3,833. The Bank has entered into corresponding commitments with third party investors to sell each of these loans that close. No other obligation exists. As a result of these contractual relationships with these investors,
the Bank is not exposed to losses nor will it realize gains related to its rate lock commitments due to changes in interest rates.
94
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 19 - Financial instruments with
off-balance-sheet
risk
(continued)
Financial instruments whose contract amounts represent credit risk are as follows:
|
|
|
|
|
|
|
|
|
|
|
Contract Amounts at
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Commitments to extend credit
|
|
$
|
93,247
|
|
|
$
|
90,809
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit
|
|
$
|
3,466
|
|
|
$
|
3,097
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is generally less than that involved in extending loans to
customers because the Bank generally holds deposits equal to the commitment. Management does not anticipate any material losses as a result of these transactions.
Note 20 Concentration of credit risk
The Bank has
a diversified loan portfolio consisting of commercial, real estate and consumer (installment) loans. Substantially all of the Banks customers are residents or operate business ventures in its market area consisting primarily of the Lynchburg
metropolitan area. Therefore, a substantial portion of its debtors ability to honor their contracts and the Banks ability to realize the value of any underlying collateral, if needed, is influenced by the economic conditions in this
market area.
The Bank maintains a significant portion of its cash balances with one financial institution. Uninsured cash balances as of
December 31, 2016 were approximately $3,670 which consisted of the total balances in one account at the Federal Home Loan Bank of Atlanta (FHLBA) and the balance (net of $250 FDIC coverage) held in one account at Community Bankers Bank,
one account at Suntrust, and one account at Zions Bank. Uninsured cash balances as of December 31, 2015 were approximately $3,058 which consisted of the total balances in the same accounts referenced for 2016 above.
95
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 21 Fair value measurements
Determination of Fair Value
The Company uses fair value
measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures topic of FASB ASC, the fair value of a financial instrument is
the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many
instances, there are no quoted market prices for the Companys various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation
technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and
circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.
Fair Value Hierarchy
In accordance with this guidance,
the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair
value.
|
|
|
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
|
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for
substantially the full term of the financial instrument.
|
|
|
|
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such
instruments pursuant to the valuation hierarchy:
Securities
Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would
include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or
discounted cash flow.
96
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 21 Fair value measurements (continued)
Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain
corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. Currently, all of the
Companys securities are considered to be Level 2 securities.
The following table summarizes the Companys financial assets that were
measured at fair value on a recurring basis during the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2016
|
|
Description
|
|
Balance as of
December 31,
2016
|
|
|
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
U.S. Treasuries
|
|
$
|
1,833
|
|
|
$
|
|
|
|
$
|
1,833
|
|
|
$
|
|
|
U.S. agency obligations
|
|
|
13,113
|
|
|
|
|
|
|
|
13,113
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
12,005
|
|
|
|
|
|
|
|
12,005
|
|
|
|
|
|
Municipals
|
|
|
9,947
|
|
|
|
|
|
|
|
9,947
|
|
|
|
|
|
Corporates
|
|
|
3,878
|
|
|
|
|
|
|
|
3,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
$
|
40,776
|
|
|
$
|
|
|
|
$
|
40,776
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2015
|
|
Description
|
|
Balance as of
December 31,
2015
|
|
|
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
U.S. agency obligations
|
|
$
|
18,810
|
|
|
$
|
|
|
|
$
|
18,810
|
|
|
$
|
|
|
Mortgage-backed securities
|
|
|
10,647
|
|
|
|
|
|
|
|
10,647
|
|
|
|
|
|
Municipals
|
|
|
5,034
|
|
|
|
|
|
|
|
5,034
|
|
|
|
|
|
Corporates
|
|
|
1,505
|
|
|
|
|
|
|
|
1,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
$
|
35,996
|
|
|
$
|
|
|
|
$
|
35,996
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 21 Fair value measurements (continued)
Loans held for sale
Loans held for sale are
measured at lower of cost or fair value. Under ASC 820, market value is to represent fair value. Management obtains quotes or bids on all or part of these loans directly from the purchasing financial institutions. Premiums received or to be received
on the quotes or bids are indicative of the fact that cost is lower than fair value. Because quotes and bids on loans held for sale are available in active markets, loans held for sale are considered to be Level 2.
Impaired loans
ASC 820 applies to loans measured
for impairment at an observable market price (if available), or at the fair value of the loans collateral (if the loan is collateral dependent). Fair value of the loans collateral, when the loan is dependent on collateral, is determined
by appraisals or independent valuation which is then adjusted for the cost related to liquidation of the collateral.
Loans are designated as impaired
when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected when due. The measurement of loss associated with
impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or
business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal
conducted by an independent, licensed appraiser outside of the Bank using observable market data The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable businesss
financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports. Any fair value adjustments are recorded
in the period incurred as provision for loan losses on the Consolidated Statements of Income. The carrying values of all impaired loans are considered to be Level 3.
Other Real Estate Owned
Certain assets such as
other real estate owned (OREO) are measured at fair value less cost to sell. We believe that the fair value component in its valuation follows the provisions of ASC 820.
Real estate acquired through foreclosure is transferred to other real estate owned (OREO). The measurement of loss associated with OREO is based
on the fair value of the collateral less anticipated selling costs compared to the unpaid loan balance. The value of OREO collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent,
licensed appraiser outside of the Bank using observable market data.
98
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 21 Fair value measurements (continued)
Any fair value adjustments are recorded in the period incurred and expensed against current earnings. The
carrying values of all OREO are considered to be Level 3.
The following table summarizes the Companys impaired loans and OREO measured at fair
value on a nonrecurring basis during the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2016
|
|
Description
|
|
Balance as of
December 31,
2016
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Impaired loans*
|
|
$
|
2,830
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,830
|
|
Loans held for sale
|
|
$
|
3,833
|
|
|
$
|
|
|
|
$
|
3,833
|
|
|
$
|
|
|
Other real estate
|
|
$
|
2,370
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,370
|
|
*
|
Includes loans charged down to the net realizable value of the collateral.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2015
|
|
Description
|
|
Balance as of
December 31,
2015
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Impaired loans*
|
|
$
|
2,896
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,896
|
|
Loans held for sale
|
|
$
|
1,964
|
|
|
$
|
|
|
|
$
|
1,964
|
|
|
$
|
|
|
Other real estate
|
|
$
|
1,965
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,965
|
|
*
|
Includes loans charged down to the net realizable value of the collateral.
|
99
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 21 Fair value measurements (continued)
The following table sets forth information regarding the quantitative inputs used to value
assets classified as Level 3:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative information about Level 3 Fair Value Measurements for
December 31, 2016
(dollars in thousands)
|
|
|
Fair
Value
|
|
|
Valuation Technique(s)
|
|
Unobservable Input
|
|
Range
(Weighted Average)
|
Impaired loans
|
|
$
|
2,830
|
|
|
Discounted appraised value
|
|
Selling cost
|
|
5% - 10% (6%)
|
|
|
|
|
|
|
|
|
Discount for lack of marketability and age of appraisal
|
|
0% - 25% (15%)
|
|
|
|
|
|
OREO
|
|
$
|
2,370
|
|
|
Discounted appraised value
|
|
Selling cost
|
|
5% - 10% (6%)
|
|
|
|
|
|
|
|
|
Discount for lack of marketability and age of appraisal
|
|
0% - 25% (15%)
|
|
|
|
|
Quantitative information about Level 3 Fair Value Measurements for
December 31, 2015
(dollars in thousands)
|
|
|
Fair
Value
|
|
|
Valuation Technique(s)
|
|
Unobservable Input
|
|
Range
(Weighted Average)
|
Impaired loans
|
|
$
|
2,896
|
|
|
Discounted appraised value
|
|
Selling cost
|
|
5% - 10% (6%)
|
|
|
|
|
|
|
|
|
Discount for lack of marketability and age of appraisal
|
|
0% - 45% (15%)
|
|
|
|
|
|
OREO
|
|
$
|
1,965
|
|
|
Discounted appraised value
|
|
Selling cost
|
|
5% - 10% (6%)
|
|
|
|
|
|
|
|
|
Discount for lack of marketability and age of appraisal
|
|
0% - 25% (15%)
|
Financial Instruments
Cash, cash equivalents and federal funds sold
The
carrying amounts of cash and short-term instruments approximate fair values.
Securities
Fair values of securities, excluding restricted investments in Federal Reserve Bank stock, Federal Home Loan Bank stock, and Community Bankers Bank stock
are based on quoted prices available in an active market. If quoted prices are available, these securities are classified within Level 1 of the valuation hierarchy. Level 1
100
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 21 Fair value measurements (continued)
securities would include highly liquid government bonds, mortgage products and exchange traded equities. If
quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow.
Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain
corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. Currently, all of the
Companys securities are considered to be Level 2 securities.
Restricted securities are classified as such because their ownership is
restricted to certain types of entities and there is no established market for their resale. When the stock is repurchased, the shares are repurchased at the stocks book value; therefore, the carrying amount of restricted securities
approximate fair value. Restricted securities are considered to be Level 2.
Loans
For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for
certain fixed rate loans are based on quoted market prices of similar loans adjusted for differences in loan characteristics. Fair values for other loans such as commercial real estate and commercial and industrial loans are estimated using
discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values of impaired loans are estimated as described above. The carrying values of all loans are
considered to be Level 3.
Loans held for sale are measured at the lower of cost or fair value. Fair values of loans held for sale are estimated as
described above. The carrying values of all loans held for sale are considered to be Level 2.
Bank owned life insurance (BOLI)
The carrying amount approximates fair value. The carrying values of all BOLI is considered to be Level 2.
Deposits
Fair values disclosed for demand deposits
(e.g., interest and noninterest checking, savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed rate certificates of deposit are
estimated using discounted cash flow analyses that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. The carrying values of all deposits are considered to be
Level 2.
FHLB borrowings
The fair value of
FHLB borrowings is estimated using discounted cash flow analysis based on the rates currently offered for borrowings of similar remaining maturities and collateral requirements. The carrying values of all FHLB borrowings are considered to be
Level 2.
101
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 21 Fair value measurements (continued)
Short-term borrowings
The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings maturing within ninety days
approximate fair value. The carrying values of all short term borrowings are considered to be Level 2.
Capital notes
Fair values of capital notes are based on market prices for debt securities having similar maturity and interest rate characteristics. The carrying values of
all capital notes are considered to be Level 2.
Accrued interest
The carrying amounts of accrued interest approximate fair value. The carrying values of all accrued interest is considered to be Level 2.
Off-balance
sheet credit-related instruments
Fair values for
off-balance
sheet, credit-related financial instruments are based on fees currently charged to enter
into similar agreements, taking into account the remaining terms of the agreements and the counterparties credit standing. Fair value of
off-balance
sheet credit-related instruments were deemed to be
immaterial at December 31, 2016 and 2015 and therefore are not included in the table below.
102
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 21 Fair value measurements (continued)
The estimated fair values, and related carrying or notional amounts, of Financials financial
instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2016 using
|
|
|
|
Carrying
Amounts
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Balance
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
16,938
|
|
|
$
|
16,938
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
16,938
|
|
Fed funds sold
|
|
|
11,745
|
|
|
|
11,745
|
|
|
|
|
|
|
|
|
|
|
|
11,745
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
40,776
|
|
|
|
|
|
|
|
40,776
|
|
|
|
|
|
|
|
40,776
|
|
Held-to-maturity
|
|
|
3,299
|
|
|
|
|
|
|
|
3,273
|
|
|
|
|
|
|
|
3,273
|
|
Restricted stock
|
|
|
1,373
|
|
|
|
|
|
|
|
1,373
|
|
|
|
|
|
|
|
1,373
|
|
Loans, net
|
|
|
464,353
|
|
|
|
|
|
|
|
|
|
|
|
468,393
|
|
|
|
468,393
|
|
Loans held for sale
|
|
|
3,833
|
|
|
|
|
|
|
|
3,833
|
|
|
|
|
|
|
|
3,833
|
|
Interest receivable
|
|
|
1,378
|
|
|
|
|
|
|
|
1,378
|
|
|
|
|
|
|
|
1,378
|
|
BOLI
|
|
|
12,673
|
|
|
|
|
|
|
|
12,673
|
|
|
|
|
|
|
|
12,673
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
523,112
|
|
|
$
|
|
|
|
$
|
524,222
|
|
|
$
|
|
|
|
$
|
524,222
|
|
Interest payable
|
|
|
88
|
|
|
|
|
|
|
|
88
|
|
|
|
|
|
|
|
88
|
|
|
|
|
|
|
Carrying
|
|
|
Fair Value Measurements at December 31, 2015 using
|
|
|
|
Amounts
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Balance
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
15,952
|
|
|
$
|
15,952
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
15,952
|
|
Fed funds sold
|
|
|
12,703
|
|
|
|
12,703
|
|
|
|
|
|
|
|
|
|
|
|
12,703
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
35,996
|
|
|
|
|
|
|
|
35,996
|
|
|
|
|
|
|
|
35,996
|
|
Held-to-maturity
|
|
|
2,519
|
|
|
|
|
|
|
|
2,649
|
|
|
|
|
|
|
|
2,649
|
|
Restricted stock
|
|
|
1,313
|
|
|
|
|
|
|
|
1,313
|
|
|
|
|
|
|
|
1,313
|
|
Loans, net
|
|
|
430,445
|
|
|
|
|
|
|
|
|
|
|
|
438,322
|
|
|
|
438,322
|
|
Loans held for sale
|
|
|
1,964
|
|
|
|
|
|
|
|
1,964
|
|
|
|
|
|
|
|
1,964
|
|
Interest receivable
|
|
|
1,248
|
|
|
|
|
|
|
|
1,248
|
|
|
|
|
|
|
|
1,248
|
|
BOLI
|
|
|
9,781
|
|
|
|
|
|
|
|
9,781
|
|
|
|
|
|
|
|
9,781
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
467,610
|
|
|
$
|
|
|
|
$
|
468,773
|
|
|
$
|
|
|
|
$
|
468,773
|
|
Capital notes
|
|
|
10,000
|
|
|
|
|
|
|
|
10,024
|
|
|
|
|
|
|
|
10,024
|
|
Interest payable
|
|
|
61
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
61
|
|
103
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 21 Fair value measurements (continued)
Fair value estimates are made at a specific point in time, based on relevant market information and
information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Banks entire holdings of a particular financial instrument. Because no market exists
for a significant portion of the Banks financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other
factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing
on-balance-sheet
and
off-balance-sheet
financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.
Significant assets that are not considered financial assets include deferred income taxes and bank premises and equipment; a significant liability that is not considered a financial liability is accrued post-retirement benefits. In addition, the tax
ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.
Financial assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair
values of Financials financial instruments will change when interest rate levels change, and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent
believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are
receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment.
Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits
and by investing in securities with terms that mitigate the Companys overall interest rate risk.
Note 22 - Impact of recently issued accounting
standards
In August 2014, the FASB issued ASU
No. 2014-15,
Presentation of Financial Statements
Going Concern (Subtopic
205-40):
Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern. This update is intended to provide guidance about managements
responsibility to evaluate whether there is substantial doubt about an entitys ability to continue as a going concern and to provide related footnote disclosures. Management is required under the new guidance to evaluate whether there are
conditions or events, considered in the aggregate, that raise substantial doubt about the entitys ability to continue as a going concern within one year after the date the financial statements are issued when preparing financial statements for
each interim and annual reporting period. If conditions or events are identified, the ASU specifies the process that must be followed by management and also clarifies the timing and content of going concern footnote disclosures in order to reduce
diversity in practice. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of ASU
2014-15
to have a material impact on its consolidated financial statements.
In January 2016, the FASB issued ASU
2016-01,
Financial Instruments Overall (Subtopic
825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in ASU
2016-01,
among other things: 1) Requires equity investments (except those accounted for under the equity method of
104
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 22 - Impact of recently issued accounting standards (continued)
accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. 2) Requires public business entities to use
the exit price notion when measuring the fair value of financial instruments for disclosure purposes. 3) Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e.,
securities or loans and receivables). 4) Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments
measured at amortized cost. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently assessing the impact
that ASU
2016-01
will have on its consolidated financial statements.
In February 2016, the FASB issued ASU
No. 2016-02,
Leases (Topic 842). Among other things, in the amendments in ASU
2016-02,
lessees will be required to recognize the following for all leases
(with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a lessees obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A
right-of-use
asset, which is an asset that represents the lessees right to use, or control the use of, a specified asset for the lease term. Under the new guidance,
lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are
effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct
financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified
retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently
assessing the impact that ASU
2016-02
will have on its consolidated financial statements.
During March 2016, the
FASB issued ASU
No. 2016-05,
Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. The amendments in this ASU clarify that a
change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require
de-designation
of that hedging relationship provided that all other
hedge accounting criteria remain intact. The amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted,
including adoption in an interim period. The Company does not expect the adoption of ASU
2016-05
to have a material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU
No. 2016-07,
Investments Equity Method and Joint Ventures (Topic
323): Simplifying the Transition to the Equity Method of Accounting. The amendments in this ASU eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership
interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a
step-by-step
basis as if the
equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the
investors previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive
adjustment of the investment is required. In addition, the amendments in this ASU require that an entity that has an available-
105
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 22 - Impact of recently issued accounting standards (continued)
for-sale
equity security that becomes qualified for the equity method
of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments are effective for all entities for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that
result in the adoption of the equity method. Early Adoption is permitted. The Company does not expect the adoption of ASU
2016-07
to have a material impact on its consolidated financial statements.
During March 2016, the FASB issued ASU
No. 2016-09,
Compensation Stock Compensation (Topic 718):
Improvements to Employee Shares-Based Payment Accounting. The amendments in this ASU simplify several aspects of the accounting for share-based payment award transactions including: (a) income tax consequences; (b) classification of
awards as either equity or liabilities; and (c) classification on the statement of cash flows. The amendments are effective for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual
periods. The Company is currently assessing the impact that ASU
2016-09
will have on its consolidated financial statements.
During June 2016, the FASB issued ASU
No. 2016-13,
Financial Instruments Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments. The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience,
current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today
will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on
available-for-sale
debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for SEC filers for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2019. The Company is currently assessing the impact that ASU
2016-13
will have on its consolidated financial statements.
During August 2016, the FASB issued ASU
No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments, to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments are effective for public business entities for fiscal
years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments should be applied using a retrospective transition method to each period presented. If retrospective application is impractical for some of
the issues addressed by the update, the amendments for those issues would be applied prospectively as of the earliest date practicable.
Early adoption is permitted, including adoption in an interim period. The Company does not expect the
adoption of ASU
2016-15
to have a material impact on its consolidated financial statements.
During January 2017,
the FASB issued ASU
No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business. The amendments in this ASU clarify the definition of a business with the objective
of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current implementation guidance in Topic 805, there are three elements of a
businessinputs, processes, and outputs. While an integrated set of assets and activities (collectively referred to as a set) that is a business usually has outputs, outputs are not required to be present. In addition, all the
inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs. The amendments in this ASU provide a screen to determine when
106
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 22 - Impact of recently issued accounting standards (continued)
a set is not a business. If the screen is not met, the amendments (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that
together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The ASU provides a framework to assist entities in evaluating whether both an input
and a substantive process are present. The amendments in this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The amendments in this ASU should be applied
prospectively on or after the effective date. No disclosures are required at transition. The Company does not expect the adoption of ASU
2017-01
to have a material impact on its consolidated financial
statements.
During January 2017, the FASB issued ASU
No. 2017-04,
Intangibles Goodwill and
Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this ASU simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill
impairment loss by comparing the implied fair value of a reporting units goodwill with the carrying amount of that goodwill. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test
by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Public business
entities that are U.S. Securities and Exchange Commission (SEC) filers should adopt the amendments in this ASU for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Public business entities that are
not SEC filers should adopt the amendments in this ASU for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on
testing dates after January 1, 2017. The Company does not expect the adoption of ASU
2017-04
to have a material impact on its consolidated financial statements.
107
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 23 Condensed financial statements of parent company
Financial information pertaining only to Bank of the James Financial Group, Inc. is as follows:
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
281
|
|
|
$
|
10,895
|
|
Taxes receivable
|
|
|
73
|
|
|
|
332
|
|
|
|
|
Investment in subsidiaries
|
|
|
49,049
|
|
|
|
47,189
|
|
|
|
|
Other assets
|
|
|
18
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
49,421
|
|
|
$
|
58,444
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
Capital notes
|
|
$
|
|
|
|
$
|
10,000
|
|
Other liabilities
|
|
|
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
10,248
|
|
|
|
|
|
|
|
|
|
|
Common stock $2.14 par value
|
|
$
|
9,370
|
|
|
$
|
9,370
|
|
Additional
paid-in-capital
|
|
|
31,495
|
|
|
|
31,495
|
|
Retained earnings
|
|
|
10,156
|
|
|
|
7,920
|
|
Accumulated other comprehensive (loss)
|
|
|
(1,600
|
)
|
|
|
(589
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
$
|
49,421
|
|
|
$
|
48,196
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
49,421
|
|
|
$
|
58,444
|
|
|
|
|
|
|
|
|
|
|
108
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 23 Condensed financial statements of parent company (continued)
|
|
|
|
|
|
|
|
|
Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Income
|
|
|
|
|
|
|
|
|
Dividends from subsidiary
|
|
$
|
600
|
|
|
$
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Interest on capital notes
|
|
|
8
|
|
|
|
600
|
|
Legal and professional fees
|
|
|
145
|
|
|
|
126
|
|
Other expense
|
|
|
126
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
279
|
|
|
|
818
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit)
|
|
|
(94
|
)
|
|
|
(278
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in undistributed income of subsidiaries
|
|
|
415
|
|
|
|
(540
|
)
|
|
|
|
|
|
|
|
|
|
Equity in undistributed income of subsidiaries
|
|
|
2,871
|
|
|
|
4,232
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,286
|
|
|
$
|
3,692
|
|
|
|
|
|
|
|
|
|
|
109
BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
(dollars in thousands, except per share data)
Note 23 Condensed financial statements of parent company (continued)
|
|
|
|
|
|
|
|
|
Statements of Cash Flows
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,286
|
|
|
$
|
3,692
|
|
|
|
|
Adjustments to reconcile net income to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Decrease (increase) in income taxes receivable
|
|
|
259
|
|
|
|
(107
|
)
|
Decrease (increase) in other assets
|
|
|
10
|
|
|
|
(9
|
)
|
(Decrease) increase in other liabilities
|
|
|
(248
|
)
|
|
|
248
|
|
Equity in undistributed net (income) of subsidiaries
|
|
|
(2,871
|
)
|
|
|
(4,232
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
436
|
|
|
$
|
(408
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
|
|
|
|
78
|
|
Dividends paid to common stockholders
|
|
|
(1,050
|
)
|
|
|
(803
|
)
|
Retirement of capital notes
|
|
|
(10,000
|
)
|
|
|
|
|
Proceeds from sale of 1,000,000 shares of common stock
|
|
|
|
|
|
|
10,653
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
$
|
(11,050
|
)
|
|
$
|
9,928
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
$
|
(10,614
|
)
|
|
$
|
9,520
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
10,895
|
|
|
|
1,375
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
281
|
|
|
$
|
10,895
|
|
|
|
|
|
|
|
|
|
|
110