SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2003
BANK OF THE JAMES FINANCIAL GROUP, INC.
(Name of Small Business Issuer in its charter)
Virginia | To Be Assigned | 20-0500300 | ||
(State or other jurisdiction of incorporation or organization) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
||
615 Church Street, Lynchburg, VA | 24504 | |||
(Address of principal executive offices) | (Zip Code) |
(434) 846-2000
(Issuers telephone number, including area code)
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $4.00 par value
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. x
The issuers revenues for the fiscal year ended December 31, 2003 were $9,380,402.
The aggregate market value of the voting and non-voting common equity held by non-affiliates (for purposes of this calculation, affiliates are considered to be the directors and executive officers of the issuer) is approximately $21,297,000 (based on the March 19, 2004 trade price of $23.00 per share).
The number of shares outstanding of Common Stock, $4.00 par value as of March 26, 2004 was 1,029,267.
Transitional Small Business Disclosure Format (check one)
Yes ¨ No x
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 2004 Proxy Statement for the Annual Meeting of Shareholders, scheduled to be held on May 13, 2004, are incorporated by reference into Part III of this Form 10-KSB
BANK OF THE JAMES FINANCIAL GROUP, INC.
FORM 10-KSB
Fiscal Year Ended December 31, 2003
TABLE OF CONTENTS
PART I | 1 | |||||
Item 1. | Description of Business. | 1 | ||||
Item 2. | Description of Property. | 10 | ||||
Item 3. | Legal Proceedings. | 11 | ||||
Item 4. | Submission or Matters to a Vote of Security Holders. | 11 | ||||
PART II | 12 | |||||
Item 5. | Market for Common Equity and Related Stockholder Matters. | 12 | ||||
Item 6. | Managements Discussion and Analysis or Plan of Operation. | 13 | ||||
Item 7. | Financial Statements. | 22 | ||||
Item 8. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. | 47 | ||||
Item 8A. | Controls and Procedures | 47 | ||||
PART III | 47 | |||||
Item 9. | Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act. | 47 | ||||
Item 10. | Executive Compensation. | 48 | ||||
Item 11. | Security Ownership of Certain Beneficial Owners and Management. | 48 | ||||
Item 12. | Certain Relationships and Related Transactions. | 48 | ||||
Item 13. | Exhibits and Reports on Form 8-K. | 48 | ||||
Item 14. | Principal Accountant Fees and Services. | 49 | ||||
SIGNATURES | 50 | |||||
EXHIBIT INDEX | 52 |
THIS PAGE INTENTIONALLY LEFT BLANK
Item 1. Description of Business.
Subsequent Events
Bank of the James Financial Group, Inc. (Financial) was incorporated on October 3, 2003 under the laws of the Commonwealth of Virginia. Financial was incorporated at the direction of Bank of the James (the Bank) to serve as a bank holding company of the Bank. Effective January 1, 2004, pursuant to an Agreement and Plan of Share Exchange dated October 9, 2003 (the Agreement) between Financial and the Bank, and approved by the shareholders of the Bank at a special meeting of shareholders held on December 17, 2003, Financial acquired all of the outstanding stock of the Bank in a statutory share exchange transaction. Under the terms of the Agreement, the shares of the Banks common stock were exchanged for shares of Financial on a one-for-one basis.
Following completion of the share exchange, Financial became the successor issuer to the Bank, pursuant to Rule 12g-3 (promulgated under the Securities Exchange Act of 1934). Prior to the share exchange, the Bank was subject to the information requirements of the Exchange Act and, in accordance with Section 12(i) thereof, was required to file reports and other financial information with the Board of Governors of the Federal Reserve System (the Federal Reserve). Such reports and other information filed by the Bank with the Federal Reserve may be inspected and copied at the public reference facilities maintained by the Federal Reserve in Washington, D.C. at the Freedom of Information Office, 1st Floor of the Martin Building, 20th & C Streets, and in Richmond, Virginia at the Research Library of the Federal Reserve Bank of Richmond, 701 East Byrd Street. The last financial report filed by the Bank with the Federal Reserve was its Form 10-QSB for the quarter ended September 30, 2003, filed on November 13, 2003.
As of the date hereof, the sole business of Financial is the ownership of the capital stock of the Bank. Financial had no business until January 1, 2004 and unless otherwise noted all of the financial statements and results referenced herein refer to the results and statements of the Bank.
General
The Bank is a Virginia banking corporation headquartered in Lynchburg, Virginia and is Financials only subsidiary. The Bank was incorporated under the laws of the Commonwealth of Virginia as a state chartered bank in 1998 and began banking operations in July 1999. The Bank was organized to engage in general retail and commercial banking business.
The Bank was organized in part as a response to the loss of many of the Central Virginia, Region 2000 areas (as defined in Market Area below) local financial institutions through mergers with larger, non-local banks and bank holding companies. The organizers perceived that local customers who once relied on experienced personal attention were being forced to use 800 numbers, computerized menus, and persons in other localities who were not familiar with their needs.
The Bank opened for business on July 22, 1999 to fill this void left in the Region 2000 market. The Banks organizers recognized that an opportunity existed to create a banking institution designed exclusively for a market that expected personalized service. The idea was to build a financial institution staffed with experienced professionals who would place a high value on knowing their customers and serving their distinctive banking needs.
The Bank was capitalized by more than 2,400 shareholders that wanted a new local bank. These investors provided the initial customer base and are integral to the success of the Bank. Management believes that the key to the Banks success lies in providing Bank customers with personalized service while providing products and services that meet their banking needs.
The Bank is a community-oriented financial institution that provides varied banking services to individuals, small and medium-sized businesses, and professional concerns in Region 2000. The Bank provides a full range of services to meet the financial needs of its customers and strives to provide its customers with products comparable to statewide regional banks located in its market area, while maintaining the prompt response and level of service of a community bank. Management believes this operating strategy has particular appeal in the Banks market area. Management believes that the combination of local ownership and size allows the Bank to offer services and products specifically tailored to the needs of the community.
The Banks Principal Office is located at 615 Church Street, Lynchburg, Virginia 24504 and its telephone number is (434) 846-2000. The Bank also maintains a website at www.bankofthejames.com .
Principal Products
The Bank currently conducts business from four full-service offices. Two of the full-service offices are located in Lynchburg, Virginia, one full-service location is located in Madison Heights, Virginia, and one is located in Forest, Virginia. The Bank established a mortgage loan origination division that conducts business under the name Bank of the James Mortgage, a Division of Bank of the James primarily from the full-service branch located in Forest, Virginia. The Bank has no operating subsidiaries.
Deposit Services. The Bank offers a full range of deposit services that are typically available in most banks and savings and loan associations including checking accounts, savings accounts and other time deposits of various types, ranging from daily money market accounts to longer-term certificates of deposit. The transaction accounts and time certificates are tailored to the Banks market area at rates competitive to those offered in the area. In addition, the Bank offers its customers Individual Retirement Accounts (IRAs). All deposit accounts are insured by the Federal Deposit Insurance Corporation (the FDIC) up to the maximum amount allowed by law (generally, $100,000 per depositor, subject to aggregation rules). The Bank solicits such accounts from individuals, businesses, associations and organizations, and governmental authorities.
Lending Services . The Bank also offers a full range of short-to-medium term commercial and personal loans. Commercial loans include both secured and unsecured loans for working capital (including inventory and receivables), business expansion (including acquisition of real estate and improvements), and purchase of equipment and machinery. Consumer loans include secured and unsecured loans for financing automobiles, home improvements, education and personal investments. Additionally, the Bank originates fixed and floating-rate mortgage loans and real estate construction and acquisition loans.
Other Services . Other services offered by the Bank include safe deposit boxes, travelers checks, direct deposit of payroll and social security checks, automatic drafts for various accounts, and credit card merchant services. The Bank also has become associated with a shared network of automated teller machines (ATMs) that may be used by Bank customers throughout Virginia and the United States. The Bank operates a deposit pick-up service (under the name Better Business Banking) pursuant to which the Bank will pick-up the non-cash deposits of its business customers as needed, up to once daily.
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The Bank intends to introduce new products and services as permitted by the regulatory authorities or desired by the public. The Bank remains committed to meeting the challenges that require technology. The Bank provides its customers with access to the latest technological products, such as telephone banking and internet banking. The services allow customers to handle routine transactions using a standard touch tone telephone and via the internet at the Banks website www.bankofthejames.com .
Market Area
The Banks market area primarily consists of Region 2000, which encompasses the seven jurisdictions of the Town of Altavista, Amherst County, Appomattox County, the City of Bedford, Bedford County, Campbell County, and the City of Lynchburg. Region 2000 supports a diverse, well-rounded economy. U.S. Routes 29, 60, 221, 460 and 501 and State Routes 24 and 40 all pass through the trade area and provide efficient access to other regions of the state. Regional airport service and rail service provide additional transportation channels.
Total population in the market area equals approximately 230,000. The area is serviced by one daily newspaper and a number of radio and television stations providing diverse media outlets. The City of Lynchburg, the location of the Banks main office, has the largest population base, with approximately 66,000 persons. Median family income has continued to increase in Region 2000 during the past ten years.
Region 2000 has a broad range of services, light industry, and manufacturing plants. Principal service, industrial, research and development employers include: GE Financial Assurance (life insurance and other financial products); Centra Health, Inc. (health care services); C.B. Fleet, Inc. (medical supplies); Framatome Advanced Nuclear Power (military and nuclear); Frito-Lay, Inc. (snack foods); Weyerhaeuser Containerboard Packaging (paper board products); as well as Randolph-Macon Womans College, Sweet Briar College, Liberty University, and Lynchburg College.
Employees
As of March 9, 2004, the Bank had 65 full-time equivalent employees. None of its employees are represented by any collective bargaining agreements, and relations with employees are considered excellent.
Governmental Monetary Policies
The earnings and growth of the Bank are affected not only by general economic conditions, but also by the monetary policies of various governmental regulatory authorities, particularly the Board of Governors of the Federal Reserve System (the Federal Reserve Board). The Federal Reserve Board implements national monetary policy by its open market operations in United States government securities, control of the discount rate and establishment of reserve requirements against both member and nonmember financial institutions deposits. These actions have a significant effect on the overall growth and distribution of loans, investments and deposits, as well as the rates earned on loans, or paid on deposits.
Management of the Bank is unable to predict the effect of possible significant changes in monetary policies upon the future operating results of the Bank.
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Competition
The Bank competes as a financial intermediary with other commercial banks, savings institutions, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market mutual funds and other financial institutions operating in the Region 2000 market area and elsewhere. Many of the Banks nonbank competitors are not subject to the same extensive federal regulations that govern federally-insured banks and state regulations governing state chartered banks. As a result, such nonbank competitors may have certain advantages over the Bank in providing certain services.
Virginia law permits statewide branching by banks. Consequently, the Banks market area is a highly competitive, highly branched banking market. Competition in the market area for loans to individuals, small businesses, and professional concerns, the Banks target market, is keen, and pricing is important. Most of the Banks competitors have substantially greater resources and lending limits than the Bank and offer certain services, such as extensive and established branch networks and trust services, that the Bank is not currently providing. Moreover, larger institutions operating in the Region 2000 market area have access to borrowed funds at a lower cost than are presently available to the Bank. Deposit competition is strong and comes from institutions in the market, U.S. Government securities, private issuers of debt obligations and suppliers of other investment alternatives for depositors, among other sources. As a result, the Bank has paid, and may in the future pay, above-market rates to attract deposits.
The adoption of legislation permitting nationwide interstate banking and branching and the use of financial holding companies may also increase competition in the Banks market area. See Regulation of Financial and Regulation of the Bank below.
Regulation of Financial
General . As a bank holding company registered under the Bank Holding Company Act of 1956 (the BHCA), Financial is subject to regulation by the Board of Governors of the Federal Reserve System (the Federal Reserve Board). The Federal Reserve Board has jurisdiction under the BHCA to approve any bank or non-bank acquisition, merger or consolidation proposed by a bank holding company. The BHCA generally limits the activities of a bank holding company and its subsidiaries to that of banking, managing or controlling banks, or any other activity that is so closely related to banking or to managing or controlling banks as to be a proper incident thereto.
Since September 1995, the BHCA has permitted bank holding companies from any state to acquire banks and bank holding companies located in any other state, subject to certain conditions, including nationwide and state imposed concentration limits. Banks are also able to branch across state lines, provided certain conditions are met, including that applicable state laws expressly permit such interstate branching. Virginia has adopted legislation that permits branching across state lines, provided there is reciprocity with the state in which the out-of-state bank is based.
Financial is also subject to the periodic reporting requirements of the Securities and Exchange Act of 1934, as amended (the Exchange Act), including the filing with the Securities and Exchange Commission (the SEC) of annual, quarterly and other reports on the financial condition and performance of the organization. As a reporting company under the Exchange Act, Financial is directly affected by the recently enacted Sarbanes-Oxley Act of 2002 (the SOx), which is aimed at improving corporate governance and reporting procedures and requires expanded disclosure of Financials corporate operations and internal controls. Financial is in compliance with new rules and regulations implemented pursuant to the SOx and intends to comply with any applicable rules and regulations implemented in the future. The new legislation and its implementing regulations will potentially lead to an increase in certain outside professional costs.
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Capital Requirements . The Federal Reserve Board (FRB) had adopted capital adequacy guidelines pursuant to which it assesses the adequacy of capital in examining and supervising a bank holding company and in analyzing applications to it under the BHCA. The FRBs capital adequacy guidelines are similar to those imposed on the Bank by the FRB. See Regulation of the Bank Capital Requirements.
Limits on the Payment of Dividends . Financial is a legal entity, separate and distinct from the Bank. A significant portion of Financials revenues will be from dividends paid to it by the Bank. Both Financial and the Bank are subject to laws and regulations that limit the payment of dividends, including requirements to maintain capital at or above regulatory minimums. Banking regulators have indicated that Virginia banking organizations should generally pay dividends only (1) from net undivided profits of the bank, after providing for all expenses, losses, interest and taxes accrued or due by the bank and only (2) if the prospective rate of earnings retention appears consistent with the organizations capital needs, asset quality and overall financial condition. In particular, under the current supervisory practices of the Federal Reserve Board, prior approval from the Federal Reserve Board and a supermajority of the Banks shareholders is required if cash dividends declared in any given year exceed net income for that year plus retained earnings of the two preceding years. In addition, under the FDIA, insured depository institutions such as the Bank are prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become undercapitalized (as such term is used in the statute).
The Bank generated start-up losses in its beginning years; as such the organization had negative retained earnings and was not able to pay cash dividends until recently. Although our retained earnings are now positive, dividends are not planned at this time. We believe the additional capital can be used more effectively to support future growth of the organization.
Regulation of the Bank
The Bank is subject to various state and federal banking laws and regulations that impose specific requirements or restrictions on and provide for general regulatory oversight with respect to virtually all aspects of its operations. The following is a brief summary of the material provisions of certain statutes, rules and regulations that will affect the Bank. This summary is qualified in its entirety by reference to the particular statutory and regulatory provisions referred to below.
General. The Bank is under the supervision of, and subject to regulation and examination by, the Federal Reserve Board, the FDIC, and the State Corporation Commission of Virginia Bureau of Financial Institutions (the Commission). As such, the Bank is subject to various statutes and regulations administered by these agencies that govern, among other things, required reserves, investments, loans, lending limits, acquisitions of fixed assets, interest rates payable on deposits, transactions among affiliates and the Bank, the payment of dividends, mergers and consolidations, and establishment of branch offices.
The earnings of the Bank is affected by general economic conditions, management policies and the legislative and governmental actions of the various regulatory authorities, including those referred to above.
Deposit Insurance. Section 38 of the FDIA, as amended by the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), requires that the federal banking agencies establish five capital levels for insured depository institutions - well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized - and requires or
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permits such agencies to take certain supervisory actions as an insured institutions capital level declines. In certain circumstances, a financial institutions low capital position can lead to enhanced restrictions by the FDIC. An adequately capitalized institution is restricted from accepting brokered deposits, and a significantly undercapitalized institution must develop a capital restoration plan and is subject to a number of mandatory and discretionary supervisory actions. These powers and authorities are in addition to the traditional powers of the federal banking agencies to deal with undercapitalized institutions.
As an institution with deposits insured by the Bank Insurance Fund (BIF), the Bank also is subject to insurance assessments imposed by the FDIC. In 2003 and for the first semiannual assessment period of 2004, the FDIC continued the risk based BIF assessment rate schedule of 0.0% to 0.27% of an institutions average assessment base. The actual assessment to be paid by each BIF member is based on whether the institution is considered well capitalized, adequately capitalized, or undercapitalized, as such terms have been defined in applicable federal regulations, and whether such institution is considered by its supervisory agency to be financially sound or to have supervisory concerns.
The Deposit Insurance Funds Act of 1996 (the Funds Act) was enacted on September 30, 1996. Among other provisions, the Funds Act (i) requires that certain depository institutions pay a one-time special assessment to the FDIC to capitalize the Savings Association Insurance Fund (SAIF) at its statutory required reserve ratio of 1.25% of insurable deposits, (ii) exempts certain depository institutions with SAIF-assessable deposits that meet any of several specified criteria from paying the special assessment and (iii) authorizes the Financing Corporation (FICO) to impose periodic assessments on depository institutions that are members of BIF, in addition to institutions that are members of the SAIF, in order to spread the cost of the interest payments on the outstanding FICO bonds over a larger number of institutions. Until this change in the law, only SAIF-member institutions bore the cost of funding these interest payments. FICO assessments are set quarterly and were set at 0.0168%, 0.0162%, 0.0160%, 0.0152%, and 0.0154% annually for the first, second, third, and fourth quarters of 2003 and the first quarter of 2004, respectively for both BIF and SAIF assessable deposits. The FDIC may change the rates for insurance in its discretion to ensure insurance fund solvency. Increases in FDIC insurance charges will have an adverse financial impact on the Bank.
Regulators have broad powers under current federal law to take prompt corrective action to resolve problems of insured depository institutions. The extent of the action depends on the capital adequacy and other features of the organization in question.
Capital Requirements . The various federal bank regulatory agencies, including the Federal Reserve Board, have adopted risk-based capital requirements for assessing bank capital adequacy. In addition, Virginia chartered banks must also satisfy the capital requirements adopted by the Commission. The federal capital standards define capital and establish minimum capital requirements in relation to assets and off-balance sheet exposure, as adjusted for credit risk. The risk-based capital standards currently in effect are designed to make regulatory capital requirements more sensitive to differences in risk profile among bank holding companies and banks, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Under these guidelines, assets and off-balance sheet items are assigned to broad risk categories, with each multiplied by one of several risk adjustment percentages. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items.
The minimum requirement for the ratio of total capital to risk-weighted assets (including certain off-balance sheet obligations, such as stand-by letters of credit) for a bank to be adequately capitalized is 8.0%. At least half of the risk-based capital must consist of stockholders equity (including retained earnings) and qualifying noncumulative preferred stock, less deductions for goodwill and various other intangibles (Tier 1 capital). The remainder (Tier 2 capital) generally consists of a limited amount of
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subordinated debt, certain hybrid capital instruments and other debt securities, preferred stock and a limited amount of the general valuation allowance for loan losses. No element of Tier 1 or Tier 2 capital may contain covenants, terms, or restrictions that are inconsistent with sound banking practices. The sum of Tier 1 capital and Tier 2 capital is total risk-based capital. The Tier 1 and total capital to risk-weighted asset ratios of the Bank as of December 31, 2003 were 9.6% and 10.8%, respectively, exceeding the minimums required.
The Federal Reserve Board also has adopted regulations that supplement the risk-based guidelines to include a minimum leverage ratio of Tier 1 capital to quarterly average assets (Leverage ratio) of 3.0%. The Federal Reserve Board has emphasized that the foregoing standards are supervisory minimums and that a banking organization will be permitted to maintain such minimum levels of capital only if it receives the highest rating under the regulatory rating system and the banking organization is not experiencing or anticipating significant growth. Such banks are expected to maintain capital ratios well above minimum levels. All other banking organizations are required to maintain a Leverage ratio of at least 4.0% to 5.0% of Tier 1 capital. These rules further provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain capital positions substantially above the minimum supervisory levels and comparable to peer group averages, without significant reliance on intangible assets. The tangible Tier 1 Leverage ratio is the ratio of a banking organizations Tier 1 capital, less deductions for intangibles otherwise includable in Tier 1 capital, to total tangible assets. The Leverage ratio of the Bank as of December 31, 2003 was 8.2%, exceeding the minimums required.
Further, the Federal Reserve Board and other federal banking agencies have adopted regulations to ensure that banks with significant exposure to market risk maintain adequate capital to support that exposure. Under these rules, the Federal Reserve Board must explicitly include a banks exposure to declines in the economic value of its capital due to changes in interest rates as a factor in evaluating a banks capital adequacy.
Mergers and Acquisitions. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 authorizes the Federal Reserve Board to permit adequately capitalized and adequately managed bank holding companies to acquire all or substantially all of the assets of an out-of-state bank or bank holding company, subject to certain conditions, including nationwide and state concentration limits. Banks also are able to branch across state lines, provided certain conditions are met, including that applicable state law must expressly permit such interstate branching. Virginia law permits branching across state lines, provided there is reciprocity with the state in which the out-of-state bank is based.
Financial Modernization. On November 12, 1999, financial modernization legislation known as the Gramm-Leach-Bliley Act (the Act) was signed into law. The Act, which was effective March 11, 2000, permits bank holding companies to become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. A bank holding company may become a financial holding company by filing a declaration that the bank holding company wishes to become a financial holding company if each of its subsidiary banks (i) is well capitalized under regulatory prompt corrective action provisions, (ii) is well managed, and (iii) has at least a satisfactory rating under the Community Reinvestment Act (CRA). No regulatory approval will be required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board.
The Act defines financial in nature to include securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities; and activities that the Board has determined to be closely related to banking. Subsidiary banks of a financial holding company must continue to be well capitalized and well managed
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in order to continue to engage in activities that are financial in nature without regulatory actions or restrictions, which could include divestiture of the financial in nature subsidiary or subsidiaries. In addition, a financial holding company or a bank may not acquire a company that is engaged in activities that are financial in nature unless each of the subsidiary banks of the financial holding company or the bank has a CRA rating of satisfactory or better.
Although the above laws may have a significant impact on the banking industry by promoting, among other things, competition, it is not possible for the management of the Bank to determine, with any degree of certainty, the impact of such laws on the Bank.
Community Reinvestment Act . The Bank is also subject to the requirements of the CRA. The CRA imposes on financial institutions an affirmative and ongoing obligation to meet the credit needs of their local communities, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of those institutions. Each financial institutions efforts in meeting community credit needs currently is evaluated as part of the examination process pursuant to a number of assessment factors. These factors also are considered in evaluating mergers, acquisitions and applications to open branches.
Safety and Soundness . The federal banking agencies have broad powers under current federal law to take prompt corrective action to resolve problems of insured depository institutions. The extent of these powers depends upon whether the institutions in question are well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, or critically undercapitalized, all such terms are defined under uniform regulations defining such capital levels issued by each of the federal banking agencies.
On December 19, 1991, the FDICIA was enacted into law. FDICIA requires each federal banking regulatory agency to prescribe, by regulation or guideline, standards for all insured depository institutions and depository institution holding companies relating to (i) internal controls, information systems and audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate risk exposure; (v) asset growth; (vi) compensation, fees and benefits; and (vii) such other operational and managerial standards as the agency determines to be appropriate. The compensation standards would prohibit employment contracts or other compensatory arrangements that provide excess compensation, fees or benefits or could lead to material financial loss. In addition, each federal banking regulatory agency must prescribe, by regulation or guideline, standards relating to asset quality, earnings and stock valuation as the agency determines to be appropriate. The federal banking agencies, including the Federal Reserve Board, have adopted regulations concerning standards for safety and soundness required to be prescribed by regulation pursuant to Section 39 of the FDIA. In general, the standards relate to (1) operational and managerial matters; (2) asset quality and earnings; and (3) compensation. The operational and managerial standards cover (a) internal controls and information systems, (b) internal audit systems, (c) loan documentation, (d) credit underwriting, (e) interest rate exposure, (f) asset growth, and (g) compensation, fees and benefits.
Activities and Investments of Insured State-Chartered Banks. The activities and equity investments of FDIC-insured, state-chartered banks are generally limited to those that are permissible for national banks. Under regulations dealing with equity investments, an insured state bank generally may not directly or indirectly acquire or retain any equity investment of a type, or in an amount, that is not permissible for a national bank. An insured state bank is not prohibited from, among other things, (i) acquiring or retaining a majority interest in a subsidiary, (ii) investing as a limited partner in a limited partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the banks total assets, (iii) acquiring up to 10% of the voting stock of a company that
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solely provides or reinsures directors, trustees and officers liability insurance coverage or bankers blanket bond group insurance coverage for insured depository institutions, and (iv) acquiring or retaining the voting shares of a depository institution if certain requirements are met. In addition, an insured state-chartered bank may not, directly, or indirectly through a subsidiary, engage as principal in any activity that is not permissible for a national bank unless the FDIC has determined that such activities would pose no risk to the insurance fund of which it is a member and the bank is in compliance with applicable regulatory capital requirements. Any insured state-chartered bank directly or indirectly engaged in any activity that is not permitted for a national bank must cease the impermissible activity.
Regulatory Enforcement Authority. Applicable banking laws include substantial enforcement powers available to federal banking regulators. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions, including the filing of misleading or untimely reports with regulatory authorities, may provide the basis for enforcement action.
USA Patriot Act . The USA Patriot Act became effective on October 26, 2001 and provides for the facilitation of information sharing among governmental entities and financial institutions for the purpose of combating terrorism and money laundering. Among other provisions, the USA Patriot Act permits financial institutions, upon providing notice to the United States Treasury, to share information with one another in order to better identify and report to the federal government concerning activities that may involve money laundering or terrorists activities. Interim rules implementing the USA Patriot Act were issued effective March 4, 2002. The USA Patriot Act is considered a significant banking law in terms of information disclosure regarding certain customer transactions. Although it does create a reporting obligation, the Bank does not expect the USA Patriot Act to materially affect its products, services or other business activities.
Reporting Terrorist Activities . The Federal Bureau of Investigation (FBI) has sent, and will send, our banking regulatory agencies lists of the names of persons suspected of involvement in the September 11, 2001, terrorist attacks on New York City and Washington, DC. The Bank has been asked, and may be asked again, to search its records for any relationships or transactions with persons on those lists. If the Bank finds any relationships or transactions, it must file a suspicious activity report and contact the FBI.
The Office of Foreign Assets Control (OFAC), which is a division of the Department of the Treasury is responsible for helping to ensure that United States entities do not engage in transactions with enemies of the United States, as defined by various Executive Orders and Acts of Congress. OFAC has sent, and will send, our banking regulatory agencies lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts. If the Bank finds a name on any transaction, account or wire transfer that is on an OFAC list, it must freeze such account, file a suspicious activity report and notify the FBI. The Bank has appointed an OFAC compliance officer to oversee the inspection of its accounts and the filing of any notifications. The Bank actively checks high-risk OFAC areas such as new accounts, wire transfers and customer files. The Bank performs these checks utilizing software, which is updated each time a modification is made to the lists provided by OFAC and other agencies of Specially Designated Nationals and Blocked Persons.
Mortgage Banking Regulation . The Banks mortgage banking subsidiary is subject to the rules and regulations of, and examination by the Department of Housing and Urban Development (HUD), the Federal Housing Administration (the FHA), the Department of Veteran Affairs and state regulatory authorities with respect to originating, processing, servicing and selling mortgage loans. Those rules and
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regulations, among other things, establish standards for loan origination, prohibit discrimination, provide for inspections and appraisals of property, require credit reports on prospective borrowers and, in some cases, restrict certain loan features, and fix maximum interest rates and fees. In addition to other federal laws, mortgage origination activities are subject to the Equal Credit Opportunity Act, Truth-in-Lending Act, Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, and the Home Ownership Equity Protection Act, and the regulations promulgated thereunder. These laws prohibit discrimination, require the disclosure of certain basic information to mortgagors concerning credit and settlement costs, limit payment for settlement services to the reasonable value of the services rendered and require the maintenance and disclosure of information regarding the disposition of mortgage applications based on race, gender, geographical distribution and income level.
Item 2. Description of Property.
As of March 12, 2004, the Bank conducted its business from the following four locations: i) its main banking office located at 615 Church Street, Lynchburg, Virginia (the Main Office); ii) a branch office at 5204 Fort Avenue, Lynchburg, Virginia (the Chestnut Hill Branch); iii) a branch office located at 4698 S. Amherst Highway, Madison Heights, Virginia (the Madison Heights Branch); and iv) a branch office located at 17000 Forest Road, Forest, Virginia (the Forest Branch). The Banks consumer mortgage division doing business as Bank of the James Mortgage, a Division of Bank of the James (the Mortgage Division) operates from the Forest Branch. In addition, the Bank has entered into a lease for space in a building located at 828 Main St., Lynchburg, Virginia (the Downtown Branch) and, subject to receipt of regulatory approval, anticipates opening this Branch in the summer 2004.
The Main Office . The Bank leases approximately 9,059 square feet of office space and the adjacent parking lot from W.C. English, Inc. under a Lease Agreement dated February 22, 1999. Under the terms of the lease, the Bank pays a net total of $5,855 per month for the office space and the parking lot. This space includes the addition of 1,196 square feet as of April, 2000 and 1,537 square feet in July, 2001. The Bank has exercised its option to renew this lease, the term of which shall terminate on August 31, 2009.
The Chestnut Hill Branch . The Bank purchased the Chestnut Hill Branch on August 1, 2000 through the purchase of certain real estate and improvements along with certain furniture, fixtures, and equipment contained therein (FFE) from Wachovia Bank, N.A. Wachovia Bank, N.A. previously operated a branch of its banking operations at the Chestnut Hill Branch. The Bank received regulatory approval and opened the Chestnut Hill Branch on November 13, 2000. The purchase price for the Chestnut Hill Branch was $400,000 for the real estate and improvements and $10,000 for the FFE. In renovating the Chestnut Hill Branch for use as a branch, the Bank made certain capital improvements and purchased certain additional furniture, fixtures, and equipment at an approximate cost of $200,000.
The Madison Heights Branch . In October, 2001, the Bank entered into a contract to purchase a site for a new branch bank located in Madison Heights, Virginia. Previously, Branch Banking & Trust operated a branch of its banking operations at the property acquired. The Bank purchased the Madison Heights Branch for $163,000 and spent an additional $650,000 for renovations, furniture, fixture, and equipment necessary to operate the Branch. The Bank received regulatory approval to operate this branch and opened the Branch in June, 2002.
The Forest Branch . In January 2003, the Bank purchased undeveloped real estate located in Forest, Virginia. The Bank has constructed facilities necessary to operate a branch Bank at this location. The net purchase price for the undeveloped real estate was $250,000. In addition, the Bank incurred costs of approximately $1,250,000 in constructing and equipping the Forest Branch. The Bank received regulatory approval and opened the Forest Branch in February 2004.
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The Downtown Branch . By a lease dated October 9, 2003, the Bank agreed to lease approximately 18,000 square feet in a building located at 828 Main Street, Lynchburg, Virginia. The lease is for a period of 10 years from the acceptance date of the lease. Provided that the Bank is not in default under the lease, the Bank shall have the option to extend the lease for two periods of five years, subject to certain rent increases set forth in the lease. Under the terms of the lease, the Bank will pay a net total of approximately $10,000 per month for the office space and parking spaces. Previously Wachovia Bank, N.A. had used the Downtown Branch as its main office for the Lynchburg market. The opening of the Downtown Branch is subject to receiving regulatory approval.
Management of the Bank continues to look for and evaluate additional locations for future branch growth and will consider opening an additional branch in the next 12 months if a suitable location is available on acceptable terms. The opening of all additional branches is contingent on the receipt of regulatory approval.
The Bank previously reported that it had an outstanding loan in the principal amount of $1,200,000 to the National D-Day Foundation, Ltd. (the Foundation) in which another financial institution was participating in the loan to the extent of $600,000 of the principal amount of the loan. The Bank previously reported that on November 8, 2002, the Foundation filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code. Although the Foundation is the only named party to the proceedings, several parties, including the Bank, were parties in interest in the proceedings. The bankruptcy was pending in the United States Bankruptcy Court for the Western District of Virginia. The United States District Court for the Western District of Virginia confirmed the Foundations Plan of Reorganization, which Plan became effective on June 3, 2003 (the Confirmed Plan).
Details concerning this event have been disclosed in the Form 10-KSB Annual Reports Pursuant to Section 13 and 15(d) of the Securities Exchange Act of 1934 and Form 10-QSB Quarterly Reports Pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934 filed by the Bank, including the Form 10-KSB for the year ended December 31, 2002 and the Forms 10-QSB for the quarters ended March 31, 2003, June 30, 2003, and September 30, 2003, all of which were filed with the Federal Reserve Board.
Since the confirmation of the plan, the Bank has received payments as required under the Confirmed Plan.
Taking the events set forth above into consideration, the Bank believes that its loan loss reserve for this loan is adequate.
Except as set forth above, the Bank is not involved in any pending legal proceedings at this time, other than routine litigation incidental to its business.
Item 4. Submission or Matters to a Vote of Security Holders.
No matters were submitted to vote to the security holders of Financial during the quarter ended December 31, 2003. The Bank submitted one matter to vote to its security holders during the quarter ended December 31, 2003.
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(a) During the quarter ended December 31, 2003, the Bank held a special meeting of shareholders on December 17, 2003 at 11:00 a.m. in Lynchburg, Virginia.
(b) The Bank did not elect directors at this special meeting.
(c) At the special meeting, the shareholders voted in favor of a proposal to approve the Agreement and Plan of Share Exchange pursuant to which the shareholders of the Bank exchanged their shares of common stock for common stock in Financial (the Proposal). At the special meeting, the number of votes for, against or withheld, as well as the number of abstentions and broker non-votes, as to the Proposal was as follows:
Number of Votes Cast For |
Number of Votes Against |
Number of Abstentions |
Number of Broker Non-Votes |
|||
560,591 | 1,875 | 950 | 0 |
Item 5. Market for Common Equity and Related Stockholder Matters.
The Common Stock of Financial is quoted on the Over the Counter Bulletin Board (OTCBB) under the symbol BOJF (BOJF.OB on some systems). The volume of trading of shares of Common Stock has not been extensive. Prior to January 2, 2004, the common stock of the Bank was traded on the OTCBB under the symbol BOTJ. All of the prices set forth in the table below are for the Banks common stock. The following table sets forth the quarterly high and low bid prices for each quarter in fiscal 2003 and 2002 for the Bank as reported by the OTC Bulletin Board (www.OTCBB.com/Nasdaq Data Products, Historical Data Service):
Fiscal 2003 |
High
|
Low
|
Fiscal 2002 |
High
|
Low
|
|||||
First Quarter |
14.65 | 13.50 |
First Quarter |
13.75 | 11.50 | |||||
Second Quarter |
17.00 | 14.25 |
Second Quarter |
14.75 | 13.05 | |||||
Third Quarter |
19.00 | 16.25 |
Third Quarter |
14.80 | 14.75 | |||||
Fourth Quarter |
26.50 | 17.60 |
Fourth Quarter |
15.50 | 12.50 |
The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. Financial declared a 10% stock dividend payable on January 27, 2004 to all shareholders of record as of January 2, 2004. The prices set forth above have not been adjusted to reflect this dividend.
As of March 22, 2004 (the most recent date available), the Common Stock traded for $23.20 per share. As of March 22, 2004, there were 1,029,267 shares of Common Stock outstanding, which shares are held by approximately 2,064 shareholders of record. Neither Financial nor the Bank prior to the formation of Financial has declared or paid a cash dividend on its Common Stock.
Financial is subject to certain restrictions imposed by the reserve and capital requirements of federal and Virginia banking statutes and regulations. Additionally, Financial intends to follow a policy of keeping retained earnings, if any, for the purpose of increasing net worth and reserves of the Bank during its initial years of operation in order to promote the Banks growth and ability to compete in its market area. As a result, Financial does not anticipate paying a cash dividend on its Common Stock in 2004.
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Item 6. Managements Discussion and Analysis or Plan of Operation.
YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2002
Cautionary Statement Regarding Forward-Looking Statements
This report contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. The words believe, estimate, expect, intend, anticipate, plan and similar expressions and variations thereof identify certain of such forward-looking statements which speak only as of the dates on which they were made. Financial undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those indicated in the forward-looking statements as a result of various factors. Such factors include, but are not limited to competition, general economic conditions, potential changes in interest rates, and changes in the value of real estate securing loans made by the Bank.
Subsequent Events
Bank of the James Financial Group, Inc. (Financial) was incorporated under the laws of the Commonwealth of Virginia on October 3, 2003 and is a bank holding company for Bank of the James (the Bank). Effective January 1, 2004, pursuant to an Agreement and Plan of Share Exchange dated October 9, 2003 (the Agreement) between Financial and the Bank, and approved by the shareholders of the Bank at a special meeting of shareholders held on December 17, 2003, Financial acquired all of the outstanding stock of the Bank in a statutory share exchange transaction. Under the terms of the Agreement, the shares of the Banks common stock were exchanged for shares of Financial on a one-for-one basis.
Following completion of the share exchange, Financial became the successor issuer to the Bank, pursuant to Rule 12g-3 (promulgated under the Securities Exchange Act of 1934).
As of the date hereof, the sole business of Financial is the ownership of the capital stock of the Bank. Financial had no business until January 1, 2004 and unless otherwise noted all of the financial results and statements referenced herein refer to the results and statements of the Bank.
Critical Accounting Policies
Financials financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The financial information contained within our statements is, to a significant extent, based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. We use historical loss factors as one factor in determining the inherent loss that may be present in our loan portfolio. Actual losses could differ significantly from the historical factors that we use in estimating risk. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would impact our transactions could change.
The allowance for loan losses is an estimate of the losses that may be sustained in our loan
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portfolio. The allowance is based on two basic principles of accounting: (i) SFAS No. 5, Accounting for Contingencies, which requires that losses be accrued when they are probable of occurring and estimable and (ii) SFAS No. 114, Accounting by Creditors for Impairment of a Loan, which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance.
Because Financial has a relatively short operating history, historical trends do not provide sufficient information to judge the adequacy of the allowance for loan losses. Therefore, management considers industry trends and peer comparisons in addition to historical experience to evaluate the allowance for loan losses.
The method for determining the allowance for loan losses is discussed more fully under Provision and Allowance for Loan Losses below.
General
The Bank is a Virginia banking corporation headquartered in Lynchburg, Virginia. The Bank was incorporated under the laws of the Commonwealth of Virginia as a state chartered bank in 1998 and began banking operations in July, 1999.
The Bank is a community-oriented financial institution that provides varied banking services to individuals, small and medium-sized businesses, and professional concerns in the Central Virginia, Region 2000 area, which encompasses the seven jurisdictions of the Town of Altavista, Amherst County, Appomattox County, the City of Bedford, Bedford County, Campbell County, and the City of Lynchburg. The Bank strives to provide its customers with products comparable to statewide regional banks located in its market area, while maintaining the prompt response and level of service of a community bank. Management believes this operating strategy has particular appeal in the Banks market area.
The Banks mission is premised on growing a profitable banking operation in a prudent manner while maintaining high quality service to its customers in Region 2000. Management of the Bank is committed to serving the banking needs of Region 2000 and has developed a marketing strategy that targets and appeals to individuals, small to medium sized businesses, and professional concerns. The Bank believes that it is currently meeting such needs and strives to create other mechanisms with which it will meet the challenges of servicing such customers in the future. Management of the Bank realizes that to remain competitive, the Bank will need to open additional branches and it continues to evaluate options regarding the establishment of additional branches. Management is cognizant of the fact that the population of the Banks market area continues to expand and the Bank should be able to grow its deposit base in the future and, as a result, increase its lending opportunities in such communities. Management also is attempting to limit interest rate risk by not making fixed rate loans in excess of five years. The Bank is also mindful of its operating expenses and expects to keep such expenses at a low level. By adhering to the above policies, management intends to enhance the Banks profitability in the upcoming year.
The Bank began operating in July, 1999. The operating results of the Bank depend primarily upon its net interest income, which is determined by the difference between (i) interest and dividend income on earning assets, which consist primarily of loans, investment securities and other investments, and (ii) interest expense on interest-bearing liabilities, which consist principally of deposits. The Banks net income also is affected by its provision for loan losses, as well as the level of its other operating income, including loan fees and service charges, gains on sales of loans and its other operating expenses, including salaries and employee benefits, occupancy expense, data processing expenses, Federal Deposit Insurance Corporation premiums, miscellaneous other expenses, franchise taxes, and income taxes.
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2003 Compared to 2002
The comparison of operating results for the Bank between 2003 and 2002 should be read in the context of the relatively short operating history of the Bank. The Bank began operations on July 22, 1999, opened the Chestnut Hill Branch as its second location in November, 2000, opened the Madison Heights Branch as its third location in June, 2002, opened the Forest Branch in February, 2004 as its fourth location and opened its Mortgage Division in March 2001. Thus, the results for the year ended December 31, 2002 reflect the result of operations for the Madison Heights Branch for approximately six months while the results for the year ended December 31, 2003 include results from the Madison Heights Branch for a full year.
Earnings Summary for the Bank
The net income for the Bank for the year ended December 31, 2003 was $1,416,000 or $1.51 per basic and $1.47 per diluted share compared with net income of $814,000 or $0.87 per basic and $0.85 per diluted share for the year ended December 31, 2002. Note 9 of the Financial Statements provides additional information with respect to the calculation of the Banks earnings per share.
The increase in net income of $602,000 in 2003 compared to 2002 was due in large part to the following factors: i) the Banks fixed costs were spread over a larger base of business; ii) an increase in non-interest income; and iii) an increase in the size of the loan portfolio, the Banks primary method of investment.
These operating results represent a return on average shareholders equity of 13.20% for the year ended December 31, 2003 compared to 8.55% for the year ended December 31, 2002. Return on average assets for the year ended December 31, 2003 was 1.14% compared to 0.84% in 2002.
Financial Condition Summary of the Bank
The Banks total assets were $145,011,000 at December 31, 2003, an increase of $30,940,000 or 27.1% from $114,071,000 compared with December 31, 2002. The increase may be attributed to strong deposit growth from $103,509,000 for the period ended December 31, 2002 to $133,486,000 at the end of the same period in 2003, for an increase of 29.0%. Non- interest-bearing deposits increased $2,099,000 or 14.7% from $14,321,000 at December 31, 2002 to $16,420,000 at December 31, 2003. Interest-bearing deposits increased $27,877,000 or 31.3%. from $89,189,000 at December 31, 2002 to $117,066,000 at December 31, 2003. In the fall of 2003, the Bank introduced a new savings account known as Peaks Savings. The Peaks Savings accounts pay interest at above market rates and the product was well received by Bank customers. The significant portion of the increase in interest-bearing deposits is attributable to the Peaks Savings product.
Loans, net of unearned income and the loan loss provision, increased from $85,750,000 as of December 31, 2002 to $114,604,000 as of December 31, 2003, an increase of 33.6%. This increase can be attributed to a continued low interest rate environment that made borrowing attractive to the Banks customers, the Banks increased presence in the market, and the Banks reputation for service. Cash and cash equivalents increased from $8,299,000 in 2002 to $10,217,000 in 2003. This increase was due to deposits increasing more than loans and the investment of those deposits in overnight Fed Funds which are cash equivalents. Securities available-for-sale decreased $1,514,000 in 2003 to $6,963,000 from
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$8,478,000 at December 31, 2002. Securities held to maturity (not marked to market) decreased from $8,000,000 as of December 31, 2002 to $7,993,000 as of December 31, 2003. These decreases are attributable in large part to the call or maturity of securities in the Banks portfolio.
Shareholders equity increased $1,335,000, or 13.4% from December 31, 2002 to December 31, 2003. The increase resulted from Banks operating income and was partially offset by a decrease in the value of unrealized gains on securities available for sale. At December 31, 2003 the Banks regulatory capital levels exceeded those established for well-capitalized institutions.
Net Interest Income and Net Interest Margin for the Bank
The fundamental source of the Banks revenue, net interest income, is defined as the difference between income on earning assets and the cost of funds supporting those assets. The significant categories of earning assets are loans, federal funds sold, and investment securities, while deposits represent interest bearing liabilities. The level of net interest income is impacted primarily by variations in the volume and mix of these assets and liabilities, as well as changes in interest rates when compared to previous periods of operation. Net interest income for 2003 increased $1,516,000 to $5,486,000 or 38.2% from net interest income of $3,970,000 in 2002. The growth in net interest income was due to the increase in average interest-earning assets which was the result of growth in the loan portfolio funded by the growth in deposits and an increase in the net interest margin. The net interest margin increased to 4.68% in 2003 from 4.31% in 2002. The average rate on earning assets decreased 46 basis points from 7.08% in 2002 to 6.62% in 2003 and the average rate on interest-bearing liabilities decreased from 2.91% in 2002 to 2.01% in 2003. Although the Bank cannot predict with certainty future interest rate decisions by the Federal Open Market Committee (FOMC), the Bank believes that the rates being offered on both loans and deposits can be adjusted to maintain an acceptable net interest margin.
Non-Interest Income of the Bank
Non-interest income increased to $1,626,000 (not including $15,000 in gains from sales of securities) in 2003 from $1,380,000 in 2002. The significant increase in non-interest income for 2003 was due to additional service charges on an increased number of deposit accounts plus the fees generated by the Mortgage Division. During the first three quarters of 2003, mortgage loan volume continued to be strong, driven largely by mortgage refinancing stimulated by low interest rates. This sharp increase in mortgage loans provided opportunities to establish many new banking relationships by providing more bank services and products to new customers. The Mortgage Division originated 468 mortgage loans, totaling $52,670,214 in 2003 as compared with 423 loans totaling $46,405,000 during the year ended December 31, 2002. For the year ended December 31, 2003, the Mortgage Division accounted for 5.57% of the Banks pre-tax earnings.
For the year ended December 31, 2003 non-interest income represented 17.33% of the Banks total revenues and remained steady when compared to the figure of 17.55% for the prior year. One of the Banks goals is to continue to evaluate and identify new sources of non-interest income as well as enhance existing ones. For example, to increase non-interest income, the Bank has purchased a membership interest in a limited liability company that issues title insurance policies.
Non-Interest (Operating) Expense of the Bank
Non-interest, or operating, expense was $4,405,000 in 2003 compared to $3,492,000 in 2002. The significant increase in expense can be attributed to increased occupancy expense, an increase in
16
equipment depreciation expenses, and increase in outside expenses, including costs associated with the formation of Financial, and an increase in the number of employees necessary to accommodate the Banks growth. Total personnel expense increased to $1,800,000 in 2003 from $1,454,000 in 2002 primarily as a result of staffing of the Madison Heights Branch and increased staffing at the Banks main office. Variable expenses, including data processing fees and credit expenses also increased because of the Banks growth.
While the Banks growth necessitated an increase in staff, space, and operating expenses, the Bank was able to increase its productivity and improve its efficiency ratio (that is, the cost of producing each dollar of revenue) from 65.28% in 2002 to 61.95% in 2003.
Provision and Allowance for Loan Losses for the Bank
Managements policy is to maintain the allowance for loan losses at a level sufficient to absorb the estimated losses inherent in the loan portfolio. Both the amount of the provision and the level of the allowance for loan losses are impacted by many factors, including general economic conditions, actual and expected credit losses, loan performance measures, historical trends and specific conditions of the individual borrower.
Prior to January, 2001 management provided for loan losses at a rate of 1.25%, which approximated its peer group average. Beginning in January 2001 management revised its method for determining the allowance for loan losses. At that time a loan loss provision risk rating system was formulated for commercial loans based on existing levels used by peer banks and the Banks actual experience. The tiering system (see Table 1 below) allows for each commercial loan to be classified by management based on their perceived level of risk when such factors as collateral adequacy/value, cash flow/capacity to repay debt, credit history, and other factors are taken into account.
At the Board of Directors meeting on March 15, 2001, the board voted to change the loan loss reserve percentage for commercial loans from 1.25% of the loan portfolio to the greater of 1.00% or the
17
amount determined by the tiering system set forth in Table 1. In addition, the Bank accrues a loan loss reserve of 1.50% for consumer loans and 0.50% for real estate loans. Management anticipates that the new loan loss policy will more closely approximate actual losses.
The Banks reserve for possible loan losses increased from $1,081,000 in 2002 to $1,451,000 in 2003, or 1.25% of the Banks total loan portfolio. This increase resulted from increased loan volume and the application of the Banks loan loss provision rating system discussed above.
The Bank retained the services of an external loan review firm to examine its loan portfolio in the second week of February 2002. After examination of approximately 91 loans totaling $16,933,000 in exposure, or approximately 24% of the Banks total outstanding loan balances, the results of the external loan review showed the Banks loan portfolio to be sound and the credit underwriting practices to be fully satisfactory as compared to peer group institutions.
The Bank retained the services of an external loan review firm to examine its loan portfolio in the last week of March 2003. After examination of approximately 102 loans totaling $34,240,000 in exposure, or approximately 38.6% of the Banks total outstanding loan balances, the results of the external loan review showed the Banks loan portfolio to be sound and the credit underwriting practices to be fully satisfactory as compared to peer group institutions.
The Bank again has retained the services of an external loan review firm to examine its loan portfolio. The firm will perform the examination beginning in the last week of March 2004.
In addition, the Bank currently is implementing a system whereby it will, on a quarterly basis, calculate the impairment of loans on an individual basis and make corresponding adjustment to the loan loss reserve.
Income Tax Expense of the Bank
For the year ended December 31, 2003, the Bank had a federal income tax expense of $738,000. Note 8 of the Financial Statements provides additional information with respect to current federal income tax expense and the deferred tax accounts.
Liquidity
The liquidity of Financial depends primarily on the dividends paid to it by the Bank. Payment of cash dividends by the Bank is limited by regulations of the Federal Reserve Board and is tied to the regulatory capital requirements.
The objective of liquidity management is to ensure the continuous availability of funds to meet the demands of depositors, investors and borrowers. Stable core deposits and a strong capital position are the components of a solid foundation for the Banks liquidity position.
Funding sources primarily include paid-in capital and customer-based deposits but also include borrowed funds and cash flow from operations. Management proactively has been examining alternative sources of funding, including but not limited to lines of credit, sale of investment securities, purchase of federal funds, term loans through the Federal Home Loan Bank and correspondents, and brokered certificate of deposit arrangements. Management believes that the Bank has the ability to meet its liquidity needs.
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Capital Resources
Capital adequacy is an important measure of financial stability and performance. Managements objectives are to maintain a level of capitalization that is sufficient to sustain asset growth and promote depositor and investor confidence.
Regulatory agencies measure capital adequacy utilizing a formula that takes into account the individual risk profiles of financial institutions. The guidelines define capital as Tier 1 (primarily common shareholders equity, defined to include certain debt obligations) and Tier 2 (the remainder generally consisting of a limited amount of subordinated debt, certain hybrid capital instruments and other debt securities, preferred stock and a limited amount of the general valuation allowance for loan losses). Note 14 of the Financial Statements shows the minimum capital requirements and the Banks capital position as of December 31, 2003 and 2002. As set forth in Note 14, the Banks regulatory capital levels exceed those established for well-capitalized institutions.
The Bank was initially capitalized through a public offering of its common stock, $4.00 par value per share (Common Stock), at $10.00 per share (the Offering). The Offering, which concluded in February, 1999, resulted in a capitalization of the Bank of $9,356,300. As a result of the Offering and funds generated from operations, the Bank has sufficient capital with which to operate and consequently Financial has no current plans to raise additional capital through another issuance of Common Stock or otherwise.
At December 31, 2003, shareholders equity was $11,309,000 compared to $9,973,000 at December 31, 2002. As discussed more fully in Financial Condition Summary above, the increase in shareholders equity is attributable to the net income earned in 2003.
Lending by the Bank
The Bank has comprehensive policies and procedures which cover both commercial and consumer loan origination and management of credit risk. Loans are underwritten in a manner that focuses on the borrowers ability to repay. The Banks goal is not to avoid risk, but to manage it and to include credit risk as part of the pricing decision for each product.
Total loans, net of fees and premiums and discounts and the loan loss provision, increased to $114,604,000 as of December 31, 2003 compared to $85,750,000 as of December 31, 2002. As of December 31, 2003, the Bank had $100,000 in non-accrual loans compared with $42,000 at December 31, 2002. The Bank continues to pursue an aggressive charge off policy that also yields loan recoveries.
The Banks loan portfolio consists of commercial short-term lines of credit, term loans, mortgage financing and construction loans that are used by the borrower to build or develop real estate properties, and consumer loans. The consumer portfolio includes residential real estate mortgages, home equity lines and installment loans.
Managements focus on finding alternative sources of funding discussed above is being done so that the Bank can continue to make loans and grow its loan portfolio. Continued loan growth is essential for the Bank to be viewed by its potential customers as a willing lender.
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Investment Securities of the Bank
The investment securities portfolio of the Bank is used as a source of income and liquidity. The portfolio of securities available for sale has decreased to $6,963,000 as of December 31, 2003 from $8,478,000 as of December 31, 2002. This decrease can be attributed to the call or maturity of securities in the Banks portfolio.
Deposited funds are generally invested in overnight vehicles (Fed Funds) until approved loans are funded. The decision to purchase investment securities is made based on several factors or a combination thereof, some of which are as follows:
a) The fact that yields on acceptably rated investment securities (S&P A rated or better) are significantly better than the overnight Fed Funds rate;
b) Whether demand for loan funding exceeds the rate at which deposits are growing, which leads to higher or lower levels of surplus cash;
c) Managements target of maintaining approximately 8% of the Banks total assets in a combination of Fed Funds and investment securities (aggregate of available for sale and held to maturity portfolios);
d) Whether the maturity or call schedule meets managements asset/liability plan.
Available for sale securities (as opposed to held to maturity securities) may be liquidated at any time as funds are needed to fund loans. Liquidation of securities may result in a net loss or net gain depending on current bond yields available in the primary and secondary markets and the shape of the US Treasury yield curve. Management is cognizant of its credit standards policy and does not feel pressure to maintain loan growth at the same levels as deposit growth and thus sacrifice credit quality in order to avoid security purchases.
Securities held to maturity decreased from $8,000,000 as of December 31, 2002 to $7,993,000 as of December 31, 2003. The decision to invest in securities held to maturity is based on the same factors as the decision to invest in securities available for sale except that management invests surplus funds in securities held to maturity only after concluding that such funds will not be necessary for liquidity purposes during the term of such security.
The balancing of the above factors along with the investment policy that management currently has in place contributed to the decrease in the investment securities portfolio during 2003.
Interest Rate Sensitivity
The most important element of asset/liability management is the monitoring of the Banks sensitivity to interest rate movements. The income stream of the Bank is subject to risk resulting from interest rate fluctuations to the extent there is a difference between the amount of the Banks interest earning assets and the amount of interest bearing liabilities that are prepaid, mature or reprice in specified periods. The Banks goal is to maximize net interest income with acceptable levels of risk to changes in interest rates. Management seeks to meet this goal by influencing the maturity and re-pricing characteristics of the various lending and deposit taking lines of business and by managing discretionary balance sheet asset and liability portfolios.
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Management also is attempting to limit interest rate risk by not making fixed rate loans in excess of five years. The Bank established the Mortgage Loan Division to serve potential customers that desired fixed rate loans in excess of five years. The Bank will not hold such mortgage loans on its books and thus will not be subject to the interest rate risks inherent with these fixed rate loans.
Management believes that the Bank has been successful in managing its interest rate margins despite numerous rate cuts by the FOMC since 2001. During 2003, the Banks prime rate decreased from 4.25% to 4.00%. In large part because of the decreasing interest rates, the Banks interest rate margin was under pressure and the Banks spread on earning assets to interest bearing liabilities increased from 4.17% in 2002 to 4.61% in 2003. Management combated this pressure by constantly monitoring and repricing deposits.
The Banks management monitors interest rate levels on a daily basis and meets in the form of the Asset/Liability Committee (ALCO) at a minimum of weekly or when a special situation arises (e.g., FOMC unscheduled rate change). The following reports and/or tools are used to assess the current interest rate environment and its impact on the Banks earnings and liquidity: monthly and year to date net interest margin and spread calculations, monthly and year to date balance sheet and income statements versus budget (including quarterly interest rate shock analysis), quarterly net portfolio value analysis, a weekly survey of rates offered by other local competitive institutions, and GAP Analysis.
GAP Analysis matches maturities or repricing dates of interest sensitive assets to those of interest sensitive liabilities. If a mismatch exists, it affects profitability. This tool uses a Gap to measure mismatches. Its formula is:
(Maturing Assets Maturing Liabilities)/Total Earning Assets = Gap
Each maturity term, or bucket, has a Gap. The greater the number of buckets used (i.e., the shorter the length of each maturity term), the more accurate the results. It is common to break the first year into twelve buckets, the next two years into quarterly buckets, and subsequent years into annual buckets. The Bank concentrates mainly on the following two buckets: 1 day to 1 year and 1 day to 3 years.
The Bank currently subscribes to computer simulated modeling tools made available through its core data processing firm, FinPro, to aid in GAP Analysis calculation. In addition to monitoring by the ALCO Committee, the board is informed of the current GAP situation and its effect on earnings at the monthly board meetings.
Current Trends
A variety and wide scope of economic factors affect the Banks success and earnings. Although interest rate trends are one of the most important of these factors, the Bank believes that interest rates cannot be predicted with a reasonable level of confidence and therefore does not attempt to do so with complicated economic models. Management believes that the best defense against wide swings in interest rate levels is to minimize vulnerability at all potential interest rate levels. Rather than concentrate on any one interest rate scenario, the Bank prepares for the opposite as well in order to safeguard margins against the unexpected.
The downward trend in interest rates during 2003 was due to the actions of the FOMC resulting from a slowing economy compounded by the effects of the events of September 11. As of March 22, 2004, the FOMC has stated that it would be patient with respect to future interest rate increases. Although it
21
cannot be certain, management believes that long term interest rates will either remain stable or trend upward throughout the remainder of 2004. Given the FOMCs recent statements, short term rates cannot be predicted. An increased long term interest rate is likely to have an adverse impact on the Mortgage Division, primarily due to reduced refinancing opportunities.
The following financial statements are filed as a part of this report following Item 13 below:
Independent Auditors Report |
||
Financial Statements |
||
Balance Sheets, December 31, 2003 and 2002 |
||
Statements of Operations, Years Ended December 31, 2003 and December 31, 2002 |
||
Statements of Comprehensive Income, Years Ended December 31, 2003 and December 31, 2002 |
||
Statements of Changes in Stockholders Equity, Years Ended December 31, 2003 and December 31, 2002 |
||
Statements of Cash Flows, Years Ended December 31, 2003 and December 31, 2002 |
22
BANK OF THE JAMES
Lynchburg, Virginia
Financial Statements
for years ended
December 31, 2003 and 2002
23
BANK OF THE JAMES
Page
|
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25 | ||
26 | ||
27 | ||
28 | ||
29 | ||
30 | ||
31 - 46 |
24
Report of Independent Auditors
The Board of Directors and Stockholders
Bank of the James
Lynchburg, Virginia
We have audited the accompanying balance sheets of Bank of the James as of December 31, 2003 and 2002, and the related 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 Banks management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 financial statements referred to above present fairly, in all material respects, the financial position of Bank of the James as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Cherry, Bekaert & Holland |
Lynchburg, Virginia January 9, 2004 |
25
Balance Sheets
December 31, 2003 and 2002
Assets
2003
|
2002
|
|||||
Cash and due from banks |
$ | 5,247,441 | $ | 3,803,513 | ||
Federal funds sold |
4,970,000 | 4,495,000 | ||||
|
|
|
|
|||
Total cash and cash equivalents |
10,217,441 | 8,298,513 | ||||
|
|
|
|
|||
Securities held-to-maturity |
7,993,353 | 8,000,000 | ||||
Securities available-for-sale |
6,962,845 | 8,477,818 | ||||
Loans, net |
114,603,608 | 85,749,996 | ||||
Premises and equipment, net |
3,631,725 | 2,220,514 | ||||
Community Bankers Bank stock |
55,650 | 55,650 | ||||
Federal Reserve Bank stock |
280,700 | 280,700 | ||||
Federal Home Loan Bank stock |
179,700 | 129,800 | ||||
Interest receivable |
729,137 | 613,301 | ||||
Deferred tax asset |
242,423 | 161,175 | ||||
Other assets |
113,949 | 83,620 | ||||
|
|
|
|
|||
Total assets |
$ | 145,010,531 | $ | 114,071,087 | ||
|
|
|
|
|||
Liabilities and Stockholders Equity | ||||||
Deposits |
||||||
Noninterest-bearing demand |
$ | 16,420,335 | $ | 14,320,611 | ||
NOW, money market and savings |
44,516,687 | 28,737,750 | ||||
Time |
72,549,119 | 60,451,117 | ||||
|
|
|
|
|||
Total deposits |
133,486,141 | 103,509,478 | ||||
Income taxes payable |
37,901 | 335,249 | ||||
Interest payable |
80,814 | 111,878 | ||||
Other liabilities |
97,144 | 141,185 | ||||
|
|
|
|
|||
Total liabilities |
133,702,000 | 104,097,790 | ||||
|
|
|
|
|||
Stockholders equity |
||||||
Common stock $4 par value; authorized 10,000,000 shares; issued and outstanding 935,630 shares |
3,742,520 | 3,742,520 | ||||
Additional paid-in-capital |
5,613,780 | 5,613,780 | ||||
Unrealized gain on securities available-for-sale |
12,141 | 93,279 | ||||
Accumulated earnings (deficit) |
1,940,090 | 523,718 | ||||
|
|
|
|
|||
Total stockholders equity |
11,308,531 | 9,973,297 | ||||
|
|
|
|
|||
Total liabilities and stockholders equity |
$ | 145,010,531 | $ | 114,071,087 | ||
|
|
|
|
See notes to financial statements.
26
Statements of Income
Years ended December 31, 2003 and December 31, 2002
2003
|
2002
|
|||||||
Interest income |
||||||||
Loans |
$ | 7,077,601 | $ | 5,851,238 | ||||
Federal funds sold |
37,633 | 100,374 | ||||||
Securities |
||||||||
U.S. Government and agency obligations |
534,764 | 359,765 | ||||||
Other |
104,412 | 210,456 | ||||||
|
|
|
|
|
|
|||
Total interest income |
7,754,410 | 6,521,833 | ||||||
|
|
|
|
|
|
|||
Interest expense |
||||||||
Federal funds purchased |
9,493 | 279 | ||||||
Deposits |
||||||||
NOW, money market and savings |
323,139 | 260,325 | ||||||
Time deposits |
1,936,046 | 2,290,804 | ||||||
|
|
|
|
|
|
|||
Total interest expense |
2,268,678 | 2,551,408 | ||||||
|
|
|
|
|
|
|||
Net interest income |
5,485,732 | 3,970,425 | ||||||
Provision for loan losses |
552,072 | 624,157 | ||||||
|
|
|
|
|
|
|||
Net interest income after provision for loan losses |
4,933,660 | 3,346,268 | ||||||
|
|
|
|
|
|
|||
Other operating income |
||||||||
Service charges, fees, and commissions |
1,610,865 | 1,379,806 | ||||||
Gain on sale of securities |
15,127 | | ||||||
|
|
|
|
|
|
|||
Total other operating income |
1,625,992 | 1,379,806 | ||||||
|
|
|
|
|
|
|||
Other operating expenses |
||||||||
Salaries and employee benefits |
1,800,169 | 1,453,617 | ||||||
Occupancy |
261,503 | 221,961 | ||||||
Equipment |
576,722 | 410,372 | ||||||
Supplies |
219,078 | 179,339 | ||||||
Outside expenses |
721,106 | 573,068 | ||||||
Marketing |
204,331 | 157,147 | ||||||
Credit expense |
217,372 | 193,807 | ||||||
Other |
404,986 | 303,005 | ||||||
|
|
|
|
|
|
|||
Total other operating expenses |
4,405,267 | 3,492,316 | ||||||
|
|
|
|
|
|
|||
Income before income taxes |
2,154,385 | 1,233,758 | ||||||
Income tax (expense) benefit |
(738,013 | ) | (419,460 | ) | ||||
|
|
|
|
|
|
|||
Net income |
$ | 1,416,372 | $ | 814,298 | ||||
|
|
|
|
|
|
|||
Income per common share - basic |
$ | 1.51 | $ | 0.87 | ||||
|
|
|
|
|
|
|||
Income per common share - diluted |
$ | 1.47 | $ | 0.85 | ||||
|
|
|
|
|
|
See notes to financial statements.
27
Statements of Comprehensive Income
Years ended December 31, 2003 and December 31, 2002
2003
|
2002
|
||||||
Net income |
$ | 1,416,372 | $ | 814,298 | |||
Other comprehensive income, net of tax |
|||||||
Unrealized gains on securities |
(71,154 | ) | 37,687 | ||||
Less: reclassification adjustment |
(9,984 | ) | | ||||
|
|
|
|
|
|||
Comprehensive income |
$ | 1,335,234 | $ | 851,985 | |||
|
|
|
|
|
See notes to financial statements.
28
Statements of Changes in Stockholders Equity
Years ended December 31, 2003 and December 31, 2002
Common
Stock |
Additional
Paid-in Capital |
Accumulated
Other Comprehensive Gain (Loss) |
Accumulated
Earnings (Deficit) |
Total
|
||||||||||||||
Balance at December 31, 2001 |
$ | 3,742,520 | $ | 5,613,780 | $ | 55,592 | $ | (919,907 | ) | $ | 8,491,985 | |||||||
Net income |
| | | 157,147 | 157,147 | |||||||||||||
Change in net unrealized gains on securities available-for-sale net of deferred taxes of $48,053 |
| | 37,687 | | 37,687 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance at December 31, 2002 |
$ | 3,742,520 | $ | 5,613,780 | $ | 93,279 | $ | (762,760 | ) | $ | 8,686,819 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income |
| | | 814,298 | 814,298 | |||||||||||||
Change in net unrealized gains on securities available-for-sale net of deferred taxes of $6,255 |
| | (71,154 | ) | | (71,154 | ) | |||||||||||
Reclassification adjustment for gains included in net income, net of income tax expense $(5,143) |
| | (9,984 | ) | | (9,984 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance at December 31, 2002 |
$ | 3,742,520 | $ | 5,613,780 | $ | 12,141 | $ | 51,538 | $ | 9,419,979 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
29
Statements of Cash Flows
Years ended December 31, 2003 and December 31, 2002
2003
|
2002
|
|||||||
Cash flows from operating activities |
||||||||
Net income |
$ | 1,416,372 | $ | 821,438 | ||||
Adjustments to reconcile net income to net cash provided by operating activities |
||||||||
Depreciation |
370,507 | 312,098 | ||||||
Net amortization and accretion of premiums and discounts on securities |
22,584 | 14,022 | ||||||
Gain on sale of available-for-sale securities |
(15,127 | ) | | |||||
Provision for loan losses |
552,072 | 624,157 | ||||||
Provision for deferred income taxes |
(6,311 | ) | (7,140 | ) | ||||
(Increase) decrease in interest receivable |
(115,836 | ) | (246,359 | ) | ||||
(Increase) decrease in other assets |
(30,329 | ) | 110,002 | |||||
Increase in income taxes payable |
(330,487 | ) | 269,560 | |||||
Increase (decrease) in interest payable |
(31,064 | ) | (8,873 | ) | ||||
Increase (decrease) in other liabilities |
(44,041 | ) | 56,941 | |||||
|
|
|
|
|
|
|||
Net cash provided by operating activities |
1,788,340 | 1,945,846 | ||||||
|
|
|
|
|
|
|||
Cash flows from investing activities |
||||||||
Purchases of securities held-to-maturity |
(5,000,000 | ) | (8,000,000 | ) | ||||
Proceeds from maturities and calls of securities held-to-maturity |
5,000,000 | | ||||||
Decrease in interest bearing deposits |
| 100,000 | ||||||
Purchases of securities available-for-sale |
(5,000,000 | ) | (6,000,000 | ) | ||||
Proceeds from maturities and calls of securities available-for-sale |
5,390,227 | 3,527,315 | ||||||
Proceeds from sale of securities available-for-sale |
1,001,000 | | ||||||
Purchase of Community Bankers Bank stock |
| (18,550 | ) | |||||
Purchases of Federal Reserve Bank stock |
| (20,150 | ) | |||||
Origination of loans, net of principal collected |
(29,486,363 | ) | (22,543,931 | ) | ||||
Recoveries on loans charged off |
80,679 | 17,913 | ||||||
Purchases of premises and equipment |
(1,781,718 | ) | (963,839 | ) | ||||
|
|
|
|
|
|
|||
Net cash used in investing activities |
(29,846,075 | ) | (33,946,642 | ) | ||||
|
|
|
|
|
|
|||
Cash flows from financing activities |
||||||||
Net increase in deposits |
29,976,663 | 37,320,689 | ||||||
|
|
|
|
|
|
|||
Net cash provided by financing activities |
29,976,663 | 37,320,689 | ||||||
|
|
|
|
|
|
|||
Increase (decrease) in cash and cash equivalents |
1,918,928 | 5,319,893 | ||||||
Cash and cash equivalents at beginning of year |
8,298,513 | 2,978,620 | ||||||
|
|
|
|
|
|
|||
Cash and cash equivalents at end of year |
$ | 10,217,441 | $ | 8,298,513 | ||||
|
|
|
|
|
|
See notes to financial statements.
30
Notes to Financial Statements
December 31, 2003 and 2002
Note 1 - Organization
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, which includes the counties of Amherst, Appomattox, Bedford and Campbell and the cities of Bedford and Lynchburg, 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 four locations consist of three in Lynchburg, Virginia, one of which is the Mortgage Division, and one in Madison Heights, Virginia.
On December 17, 2003, the Banks stockholders approved the Agreement and Plan of Share Exchange Between Bank of the James Financial Group and Bank of the James dated October 9, 2003, providing for the Bank of the James to become a wholly owned subsidiary of Bank of the James Financial Group, Inc. The transaction will become effective January 1, 2004.
Note 2 - Summary of significant accounting policies
The following is a description of the significant accounting and reporting policies the Bank follows in preparing and presenting its financial statements.
Basis of presentation
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect 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.
Cash and cash equivalents
Cash and cash equivalents include cash, due from banks and federal funds sold.
Securities
The Bank classifies its securities in three categories: (1) debt securities that the Bank has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Amortization of premiums and accretion of discounts are adjusted on a basis which approximates the level yield method; (2) debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in net income; and (3) debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from net income and reported in a separate component of stockholders equity.
The Bank does not engage in trading securities. Gains or losses on disposition of securities are based on the net proceeds and adjusted carrying values of the securities called or sold, using the specific identification method.
A decline in the market value of any available-for-sale or held-to-maturity security below cost that is deemed other than temporary is charged to net income, resulting in the establishment of a new cost basis for the security.
(continued)
31
BANK OF THE JAMES
Notes to Financial Statements
December 31, 2003 and 2002
Note 2 - Summary of significant accounting policies (continued)
Loans
Loans are carried at their principal amount outstanding. Interest income is recorded as earned on an accrual basis.
The Bank uses the allowance method in providing for possible loan losses. The provision for loan loss is based upon managements estimate of the amount needed to maintain the allowance for loan losses at an adequate level to cover known and inherent risk of loss in the loan portfolio. In determining the provision amount, management gives consideration to current and anticipated economic conditions, the growth and composition of the loan portfolio, the relationship of the allowance for loan losses to outstanding loans, and other factors. Management believes that the allowance for loan losses is adequate. While management uses the best information available to make evaluations, future adjustments may be necessary if economic and other conditions differ substantially from the assumptions used.
Interest related to non-accrual loans is recognized on the cash basis. Loans are generally placed on non-accrual status when the collection of principal and interest is 90 days or more past due.
In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Banks allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments of information available to them at the time of their examination.
Management considers loans to be impaired when based on current information and events, it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan agreement. Factors that influence managements judgments include, but are not limited to, loan payment pattern, source of repayment, and value of collateral. A loan would not be considered impaired if an insignificant delay in loan payment occurs and management expects to collect all amounts due. The major sources for identification of loans to be evaluated for impairment include past due and non-accrual reports, internally generated lists of certain risk grades, and regulatory reports of examination. Impaired loans are measured using either the discounted expected cash flow method or the value of collateral method. When the ultimate collectibility of an impaired loans principal is in doubt, wholly or partially, all cash receipts are applied to principal.
Property, equipment and depreciation
Property 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. Leasehold improvements are amortized over a term which includes the remaining lease term and probable renewal periods. Expenditures for major renewals and betterments are capitalized and those for maintenance and repairs are charged to operating expenses as incurred.
(continued)
32
BANK OF THE JAMES
Notes to Financial Statements
December 31, 2003 and 2002
Note 2 - Summary of significant accounting policies (concluded)
Income taxes
The Bank computes its income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109 (SFAS 109). Under SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered in income.
Comprehensive income
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130). SFAS 130 establishes standards for reporting and presentation of comprehensive income and its components in a full set of general purpose financial statements. SFAS 130 was issued to address concerns over the practice of reporting elements of comprehensive income directly in equity.
The Bank is required to classify items of other comprehensive income (such as net unrealized gains (losses) on securities available-for-sale) by their nature in a financial statement and present the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. It does not require per share amounts of comprehensive income to be disclosed.
In accordance with the provisions of the SFAS 130, the Bank has included in the accompanying financial statements, comprehensive income resulting from such activities. Comprehensive income consists of the net income or loss and net unrealized income or losses on securities available-for-sale. These amounts are reported net of the income tax benefit less any related allowance for realization. Also, accumulated other comprehensive income is included as a separate disclosure within the statements of changes in stockholders equity in the accompanying financial statements.
Marketing
The Bank expenses marketing costs as incurred.
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 $3,508,000 and $2,211,000 for the weeks including December 31, 2003 and 2002, respectively.
33
BANK OF THE JAMES
Notes to Financial Statements
December 31, 2003 and 2002
Note 4 - Securities
A summary of the amortized cost and carrying value of securities by maturity distribution follow:
December 31, 2003
|
|||||||||||||
Amortized
Costs |
Gross Unrealized
|
Fair Value |
|||||||||||
Gains
|
Losses
|
||||||||||||
Held to Maturity |
|||||||||||||
U.S. Government and agency obligations |
$ | 7,993,353 | $ | 5,892 | $ | (74,034 | ) | $ | 7,925,211 | ||||
|
|
|
|
|
|
|
|
|
|||||
Available-for-sale |
|||||||||||||
U.S. Government and agency obligations |
$ | 5,171,349 | $ | 38,029 | $ | (8,950 | ) | $ | 5,200,428 | ||||
Mortgage-backed securities |
1,773,100 | 8,191 | (18,874 | ) | 1,762,417 | ||||||||
|
|
|
|
|
|
|
|
|
|||||
$ | 6,944,449 | $ | 46,220 | $ | (27,824 | ) | $ | 6,962,845 | |||||
|
|
|
|
|
|
|
|
|
|||||
December 31, 2002
|
|||||||||||||
Amortized
|
Gross Unrealized
|
Fair Value |
|||||||||||
Gains
|
Losses
|
||||||||||||
Held to Maturity |
|||||||||||||
U.S. Government and agency obligations |
$ | 8,000,000 | $ | 119,265 | $ | | $ | 8,119,265 | |||||
|
|
|
|
|
|
|
|
|
|||||
Available-for-sale |
|||||||||||||
U.S. Government and agency obligations |
$ | 6,000,000 | $ | 93,770 | $ | | $ | 6,093,770 | |||||
Mortgage-backed securities |
1,332,897 | 24,991 | 1,357,888 | ||||||||||
Corporate obligations |
1,003,590 | 22,570 | | 1,026,160 | |||||||||
|
|
|
|
|
|
|
|
|
|||||
$ | 8,336,487 | $ | 141,331 | $ | | $ | 8,477,818 | ||||||
|
|
|
|
|
|
|
|
|
The amortized costs and fair values of securities at December 31, 2003, 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.
Held to Maturity |
Available-for-Sale |
|||||||||||
Amortized Cost |
Fair Values |
Amortized Cost |
Fair Values |
|||||||||
Due in one year or less |
$ | | $ | | $ | | $ | | ||||
Due after one year through five years |
| | | | ||||||||
Due after five years through ten years |
| | 5,160,357 | 5,152,341 | ||||||||
Due after ten years |
7,993,353 | 7,925,211 | 1,784,092 | 1,810,504 | ||||||||
|
|
|
|
|
|
|
|
|||||
$ | 7,993,353 | $ | 7,925,211 | $ | 6,944,449 | $ | 6,962,845 | |||||
|
|
|
|
|
|
|
|
(continued)
34
BANK OF THE JAMES
Notes to Financial Statements
December 31, 2003 and 2002
Note 4 Securities (concluded)
The Bank sold $1,000,100 of securities available-for-sale in 2003 with a realized gains on the sales totaling $15,127. There were no sales of securities in 2002.
The amortized costs of securities pledged to collateralize public deposits were approximately $2,000,000 (fair value of $2,025,300 and $1,022,130) at December 31, 2003 and 2002.
Note 5 - Loans and allowance for loan losses
A summary of loans, net is as follows:
December 31
|
||||||
2003
|
2002
|
|||||
Real estate - residential |
$ | 51,808,397 | $ | 38,832,680 | ||
Commercial loans |
45,454,947 | 32,618,948 | ||||
Installment and other |
18,790,840 | 15,379,464 | ||||
|
|
|
|
|||
Total loans |
116,054,184 | 86,831,092 | ||||
Less allowance for loan losses |
1,450,576 | 1,081,096 | ||||
|
|
|
|
|||
Net loans |
$ | 114,603,608 | $ | 85,749,996 | ||
|
|
|
|
The activity in the allowance for loan losses for 2003 and 2002 is summarized as follows:
2003
|
2002
|
|||||||
Balance at beginning of period |
$ | 1,081,096 | $ | 746,797 | ||||
Provision charged to operations |
552,072 | 624,157 | ||||||
Loan charge-off |
(263,270 | ) | (307,771 | ) | ||||
Loan recoveries |
80,678 | 17,913 | ||||||
|
|
|
|
|
|
|||
Balance at end of period |
$ | 1,450,576 | $ | 1,081,096 | ||||
|
|
|
|
|
|
Non-accrual loans were approximately $100,138 at December 31, 2003 and $42,000 at December 31, 2002. Interest income that would have been earned on non-accrual loans, if they had been current in accordance with their original terms, and the recorded interest that was included in income on these loans, was not significant for 2003 and 2002.
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 and the cities of Bedford and 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.
(continued)
35
BANK OF THE JAMES
Notes to Financial Statements
December 31, 2003 and 2002
Note 5 - Loans and allowance for loan losses (concluded)
The Banks 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, 2003 and 2002 were $2,940,851 and $2,480,227, respectively. During 2003, new loans and advances amounted to $1,446,741 and repayments amounted to $986,117. The terms and interest rates of these loans are similar to those for comparable loans with other borrowers of the Bank.
Note 6 Premises and equipment
Property and equipment at December 31, 2003 and 2002 are summarized as follows:
December 31
|
||||||
2003
|
2002
|
|||||
Land |
$ | 461,462 | $ | 210,713 | ||
Building and improvements |
892,690 | 892,690 | ||||
Construction in progress |
1,110,718 | | ||||
Furniture and equipment |
1,928,247 | 1,507,997 | ||||
Leasehold improvements |
455,285 | 455,284 | ||||
|
|
|
|
|||
4,848,402 | 3,066,684 | |||||
Less accumulated depreciation |
1,216,677 | 846,170 | ||||
|
|
|
|
|||
Net property and equipment |
$ | 3,631,725 | $ | 2,220,514 | ||
|
|
|
|
Note 7 - Deposits
A summary of deposit accounts is as follows:
December 31
|
||||||
2003
|
2002
|
|||||
Demand |
||||||
Non-interest bearing |
$ | 16,420,335 | $ | 14,320,611 | ||
Interest bearing |
23,749,513 | 25,619,087 | ||||
Savings |
20,767,173 | 3,118,663 | ||||
Time, $100,000 or more |
15,968,815 | 14,645,716 | ||||
Other time |
56,580,305 | 45,805,401 | ||||
|
|
|
|
|||
$ | 133,486,141 | $ | 103,509,478 | |||
|
|
|
|
(continued)
36
BANK OF THE JAMES
Notes to Financial Statements
December 31, 2003 and 2002
Note 7 Deposits (concluded)
At December 31, 2003, maturities of time deposits are scheduled as follows:
Year Ending |
Amount
|
||
2004 |
$ | 57,508,609 | |
2005 |
6,906,318 | ||
2006 |
2,020,335 | ||
2007 |
3,650,930 | ||
2008 and thereafter |
2,462,928 | ||
|
|
||
$ | 72,549,120 | ||
|
|
Note 8 - Income taxes
Income tax expense attributable to income before income tax expense is summarized as follows:
December 31
|
|||||||
2003
|
2002
|
||||||
Current federal income tax expense |
$ | 781,086 | $ | 413,149 | |||
Deferred federal income tax expense (benefit) |
(43,073 | ) | 6,311 | ||||
|
|
|
|
|
|||
Income tax provision (benefit) |
$ | 738,013 | $ | 419,460 | |||
|
|
|
|
|
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:
2003
|
2002
|
||||||
Computed expected income tax provision (benefit) |
$ | 732,491 | $ | 419,478 | |||
Increase (reduction) in income tax benefit resulting from |
|||||||
Non-deductable expenses |
3,780 | (18 | ) | ||||
Affect of rate tiers |
1,742 | | |||||
Valution allowance |
| | |||||
|
|
|
|
|
|||
Income tax provision (benefit) |
$ | 738,013 | $ | 419,460 | |||
|
|
|
|
|
(continued)
37
BANK OF THE JAMES
Notes to Financial Statements
December 31, 2003 and 2002
Note 8 Income taxes (concluded)
The tax effects of temporary differences and the tax benefit from the net operating loss carryover result in deferred tax assets and liabilities as presented below:
2003
|
2002
|
|||||
Deferred tax assets |
||||||
Allowance for loan losses |
$ | 346,097 | $ | 242,273 | ||
Organizational and start-up expenses |
14,691 | 41,746 | ||||
|
|
|
|
|||
Gross deferred tax assets |
360,788 | 284,019 | ||||
Deferred tax liability |
||||||
Depreciation |
112,110 | 74,791 | ||||
Unrealized gain (loss) on available for sale securities |
6,255 | 48,053 | ||||
|
|
|
|
|||
Gross deferred tax liability |
118,365 | 122,844 | ||||
|
|
|
|
|||
Net deferred tax asset |
$ | 242,423 | $ | 161,175 | ||
|
|
|
|
Note 9 Earnings per share
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:
2003
|
2002
|
|||||
Numerator: |
||||||
Net income available to Shareholders |
$ | 1,416,372 | $ | 814,298 | ||
|
|
|
|
|||
Denominator: |
||||||
Weighted-average shares outstanding |
935,630 | 935,630 | ||||
|
|
|
|
|||
Basic EPS weighted average shares outstanding |
935,630 | 935,630 | ||||
Effect of dilutive securities: |
||||||
Incremental shares attributable to Stock Option Plan |
26,159 | 19,083 | ||||
|
|
|
|
|||
Diluted EPS weighted-average shares outstanding |
961,789 | 954,713 | ||||
|
|
|
|
|||
Basic earings per share |
$ | 1.51 | $ | 0.87 | ||
|
|
|
|
|||
Diluted earings per share |
$ | 1.47 | $ | 0.85 | ||
|
|
|
|
(continued)
38
BANK OF THE JAMES
Notes to Financial Statements
December 31, 2003 and 2002
Note 10 Defined Contribution Benefit Plan
The Bank 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 Bank made a matching contribution to the plan in the amount of 100% and 25%, respectively, of the first 6% of the elective contributions made by the participants. The Banks expense for the plan totaled $79,994 and $66,437 for 2003 and 2002, respectively.
Note 11 Stock option plan
On October 21, 1999, the Board of Directors adopted the 1999 Stock Option Plan for officers and employees. During the period ended December 31, 1999, 46,800 options were granted at an option exercise price of $10 per share, the fair market price on the date of the grant. The options granted vest over a three-year period in installments, with the first vesting having occurred upon approval by the stockholders. During the year ended December 31, 2001, 17,700 shares were awarded at $11.25 per share, fair market price on the date of the grant. The options granted vest over a two-year period commencing in 2002. During the year ended December 31, 2002, 1,000 and 23,550 shares were awarded at $14.25 and 15.00 per share, fair market price on the date of grant. The options vest over a two year period. During the year ended December 31, 2003, 1,000 and 31,550 shares were awarded at $14.75 and $22.25 per share, fair market price on the date of grant. The options vest over a two year period.
Available for
Grant |
Options
Granted/ Outstanding |
|||||
Balance December 31, 2001 |
12,100 | 77,900 | ||||
Authorized |
50,000 | | ||||
Forfeited |
500 | (500 | ) | |||
Granted |
(24,550 | ) | 24,550 | |||
|
|
|
|
|||
Balance December 31, 2002 |
38,050 | 101,950 | ||||
Forfeited |
600 | (600 | ) | |||
Granted |
(32,550 | ) | 32,550 | |||
|
|
|
|
|||
Balance December 31, 2003 |
6,100 | 133,900 | ||||
|
|
|
|
The following summarized information concerning currently outstanding and exercisable options:
Options Exercisable |
||||||
Exercise
|
Options
Granted/ Outstanding |
Remaining
Contractual Life |
Number of
Option Vested |
|||
$10.00 |
46,700 | 5.9 | 46,700 | |||
$11.00 |
13,200 | 7.2 | 13,200 | |||
$11.25 |
17,300 | 7.9 | 17,300 | |||
$14.25 |
1,000 | 8.4 | 500 | |||
$14.75 |
1,000 | 9.3 | | |||
$15.00 |
23,150 | 8.9 | 11,575 | |||
$22.25 |
31,550 | 9.9 | | |||
|
|
|||||
133,900 | 89,275 | |||||
|
|
(continued)
39
BANK OF THE JAMES
Notes to Financial Statements
December 31, 2003 and 2002
Note 11 - Stock option plan (concluded)
In accordance with SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure An Amendment of FASB Statement No. 123, the Bank has adopted the disclosure-only option and elected to apply the provisions of APB No. 25 for financial statement purposes. No stock-based employee compensation cost is reflected in net income for these plans.
Pro forma information regarding net income and earnings per share have been determined as if the Bank had accounted for its employee stock options using the fair value method, and is presented below.
Year ended
December 31, 2003 |
Year ended
December 31, 2002 |
||||||
Net income: |
|||||||
As reported |
$ | 1,416,372 | $ | 814,298 | |||
Deduct: total stock-based compensation cost determined under the fair value method, net of tax |
|||||||
Pro forma |
(37,754 | ) | | ||||
|
|
|
|
|
|||
$ | 1,378,618 | $ | 814,298 | ||||
|
|
|
|
|
|||
Basic earnings per share: |
|||||||
As reported |
$ | 1.51 | $ | 0.87 | |||
Pro forma |
$ | 1.47 | $ | 0.87 | |||
Diluted earnings per share: |
|||||||
As reported |
$ | 1.47 | $ | 0.85 | |||
Pro forma |
$ | 1.43 | $ | 0.85 |
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for the year ended December 31, 2003 and 2002; dividend yield of 0%, expected volatility of 10%, a risk-free interest rate of 4.08%, and expected lives of 7 years.
Note 12 Stockholders equity
The Bank is subject to certain legal and regulatory restrictions on the amount of cash dividends it may declare.
On December 17, 2003, the Board of Directors of Bank of the James Financial Group, Inc. declared a 10% stock dividend to shareholders of record on January 2, 2004. The stock dividend will be payable on or about January 27, 2004 and increase outstanding shares of common stock from 935,630 to 1,029,193.
Note 13 Supplemental cash flow information
The Bank paid $2,251,066 and $2,571,138 for interest for the years ended December 31, 2003 and 2002, respectively.
The Bank paid $1,066,599 and $148,327 for income taxes for the years ended December 31, 2003 and 2002, respectively.
40
BANK OF THE JAMES
Notes to Financial Statements
December 31, 2003 and 2002
Note 14 - Regulatory matters (All amounts in thousands)
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 Banks 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 table below) 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, 2002 that the Bank meets all capital adequacy requirements to which it is subject. The Banks actual regulatory capital amounts and ratios for December 31, 2003 and 2002 are also presented in the table below, dollars are in thousands.
As of December 31, 2003, 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. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, 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.
December 2003
|
||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||
Actual
|
For Capital
Purposes |
To Be Well
Capitalized Under Prompt Corrective Action Provisions |
||||||||||||||||
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|||||||||||||
Total capital
|
$ | 12,748 | 10.8 | % | $ | 9,413 | >8.0 | % | $ | 11,766 | >10.0 | % | ||||||
Tier I capital
|
$ | 11,297 | 9.6 | % | $ | 4,706 | >4.0 | % | $ | 7,060 | >6.0 | % | ||||||
Tier I capital
|
$ | 11,297 | 8.2 | % | $ | 5,531 | >4.0 | % | $ | 6,914 | >5.0 | % |
(continued)
41
BANK OF THE JAMES
Notes to Financial Statements
December 31, 2003 and 2002
Note 14 - Regulatory matters (All amounts in thousands) (continued)
December 2002
|
||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||
Actual
|
For Capital
Purposes |
To Be Well
Prompt Corrective Action Provisions |
||||||||||||||||
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|||||||||||||
Total capital
|
$ | 9,973 | 11.2 | % | $ | 7,146 | >8.0 | % | $ | 8,933 | >10.0 | % | ||||||
Tier I capital
|
$ | 9,880 | 11.1 | % | $ | 3,573 | >4.0 | % | $ | 5,360 | >6.0 | % | ||||||
Tier I capital (leverage)
|
$ | 9,880 | 8.9 | % | $ | 4,453 | >4.0 | % | $ | 5,566 | >5.0 | % |
Note 15 Contingent liabilities
The Bank rents, under a non-cancelable lease, one of its banking facilities. The initial term of the lease is for five years with an additional renewal term of five years. During 2001, the Bank entered into a three-year non-cancelable lease for its mortgage division. The lease may be renewed for an additional year.
Rental expenses under operating leases were $83,300 and $83,060 for the years ended December 31, 2003 and 2002, respectively.
The current minimum annual rental commitments under the non-cancelable leases in effect at December 31, 2003 are as follows:
Year Ending |
Amount
|
||
2004 |
$ | 142,095 | |
2005 |
209,099 | ||
2006 |
220,349 | ||
2007 |
22,432 | ||
2008 |
228,265 | ||
Thereafer |
1,386,853 | ||
|
|
||
$ | 2,209,093 | ||
|
|
42
BANK OF THE JAMES
Notes to Financial Statements
December 31, 2003 and 2002
Note 16 - 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 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 creditworthiness 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.
Financial instruments whose contract amounts represent credit risk are as follows:
Contract Amounts at December 31 |
||||||
2003
|
2002
|
|||||
Commitments to extend credit |
$ | 20,609,525 | $ | 16,186,539 | ||
|
|
|
|
|||
Standby letters of credit |
$ | 1,297,716 | $ | 359,426 | ||
|
|
|
|
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.
43
BANK OF THE JAMES
Notes to Financial Statements
December 31, 2003 and 2002
Note 17 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. Accounts at this institution are secured by the Federal Deposit Insurance Corporation up to $100,000. Uninsured balances were approximately $1,374,080 and $577,940 at December 31, 2003 and 2002, respectively.
Note 18 Disclosures about fair values of financial instruments
Statement of Financial Accounting Standards No. 107, Disclosures about Fair Value of Financial Instruments , requires the Bank to disclose estimated fair values of its financial instruments.
The following methods and assumptions were used to estimate the approximate fair value of each class of financial instrument for which is practicable to estimate fair value.
Cash and due from banks and federal funds sold
The carrying amount is a reasonable estimate of fair value.
Interest bearing deposits
The carrying amount is a reasonable estimate of fair value.
Securities
The fair value of securities, except certain state and municipal securities, is estimated based on bid prices published in financial newspapers or bid quotations received from securities dealers. The fair value of certain state and municipal securities is not readily available through market sources other than dealer quotations, so fair value estimates are based on quoted market prices of similar instruments, adjusted for differences between the quoted instruments and the instruments being valued.
Loans
Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type, such as commercial, real estate - residential, real estate - other, loans to individuals and other loans. Each loan category is further segmented into fixed and adjustable rate interest terms.
The fair value of loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan, as well as estimates for prepayments. The estimate of maturity is based on the Banks historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of current economic and lending conditions.
(continued)
44
BANK OF THE JAMES
Notes to Financial Statements
December 31, 2003 and 2002
Note 18 Disclosures about fair values of financial instruments (continued)
Deposits
The fair values of non-interest-bearing demand deposits, interest-bearing demand deposits and savings deposits are equal to their carrying amounts since the amounts are payable on demand. The fair value of fixed maturity time deposits and certificates of deposit is estimated by discounting scheduled cash flows through maturity using interest rates currently offered for deposits of similar remaining maturities.
Commitments to extend credit and standby letters of credit
The only amounts recorded for commitments to extend credit and standby letters of credit are the deferred fees arising from these unrecognized financial instruments. These deferred fees are not material at December 31, 2003 and 2002, and as such, the related fair values have not been estimated.
The carrying amounts and approximate fair values of the Banks financial instruments are summarized as follows:
December 31, 2003
|
December 31, 2002
|
|||||||||||
Carrying
Amounts |
Approximate
Fair Values |
Carrying
Amounts |
Approximate
Fair Values |
|||||||||
Financial assets |
||||||||||||
Cash and due from banks |
$ | 5,247,441 | $ | 5,247,441 | $ | 3,803,513 | $ | 3,803,513 | ||||
Federal funds sold |
4,970,000 | 4,970,000 | 4,495,000 | 4,495,000 | ||||||||
Interest bearing deposits |
| | | | ||||||||
Securities |
||||||||||||
Available for sale |
6,962,845 | 6,962,845 | 8,477,818 | 8,477,818 | ||||||||
Held to maturity |
7,993,353 | 7,925,211 | 8,000,000 | 8,119,265 | ||||||||
Loans, net |
114,603,608 | 115,096,404 | 85,749,996 | 86,180,901 | ||||||||
|
|
|
|
|
|
|
|
|||||
Total financial assets |
$ | 139,777,247 | $ | 140,201,901 | $ | 110,526,327 | $ | 111,076,497 | ||||
|
|
|
|
|
|
|
|
|||||
Financial liabilities |
||||||||||||
Deposits |
$ | 133,486,141 | $ | 130,312,336 | $ | 103,509,478 | $ | 102,994,505 | ||||
|
|
|
|
|
|
|
|
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.
45
BANK OF THE JAMES
Notes to Financial Statements
December 31, 2003 and 2002
Note 19 - Impact of Recently Issued Accounting Standards
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities , was issued in June 2002 and addresses financial accounting and reporting for costs associated with exit or disposal activities. This statement is effective for exit or disposal activities initiated after December 31, 2002; its adoption effective January 1, 2003 did not have a material impact on the financial statements of the Bank.
SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure - An Amendment of FASB Statement No. 123 , was issued in December 2002 and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Bank has elected to continue to account for stock-based compensation under Accounting Principles Board No. 25.
SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities , was issued in April 2003 and amends SFAS No. 133 for certain decisions made by the Financial Accounting Standards Board as part of the Derivatives Implementation Group process and to clarify the definition of a derivative. This statement is effective for contracts entered into or modified after June 30, 2003, except for certain specific issues already addressed by the Derivatives Implementation Group and declared effective that are included in the statement. The adoption of the provisions of this statement is not expected to have a material impact on the financial statements of the Bank.
SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity , was issued in May 2003 and establishes standards for how to classify and measure certain financial instruments with characteristics of both liabilities and equity. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of the provisions of this statement did not have a material impact on the financial statements of the Bank.
FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness of Others an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34 was issued in November 2002 and elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The adoption of the provisions of this FASB Interpretation did not have a material impact on the financial statements of the Bank.
FASB Interpretation No. 46, Consolidation of Variable Interest Entities an interpretation of ARB No. 51 was issued in January 2003 and addresses consolidation by business enterprises of variable interest entities. The Bank does not have a variable interest entities as defined by this Interpretation and therefore, the adoption of the provisions of this FASB Interpretation did not have a significant effect on financial position or results of operations of the Bank.
46
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 8A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-KSB, Financials principal executive officer and principal financial officer have concluded that the Banks disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act) are effective to ensure that information required to be disclosed by the Bank in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
(b) Changes in Internal Controls. There were no significant changes in Financials internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.
Part of the response to this Item will be included in the information set forth under the headings
47
Election of Directors, Executive Officers Who Are Not Directors, Corporate Governance and the Board of Directors and its Committees Audit Committee, and Section 16(a) Beneficial Ownership Reporting Compliance in the Banks definitive Proxy Statement for its 2004 Annual Meeting of Shareholders, which Proxy Statement will be filed with the Federal Reserve Board within 120 days of the end of the Banks 2003 fiscal year (the 2004 Proxy Statement), and such information is hereby incorporated by reference.
Financial has not yet adopted a code of ethics that applies to Financials principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar function. Financial is in the process of drafting a written code of ethics and expects to have adopted a code of ethics in the near future. Such code of ethics will be posted under the Investor Relations section on Financials website: www.bankofthejames.com after it is adopted.
Item 10. Executive Compensation.
The response to this Item will be included in the information set forth under the headings Executive Compensation, Stock Option Plan, Option Grants During Year Ended December 31, 2003, Fiscal Year End Option Values, and Compensation and Other Employment Agreements in the 2004 Proxy Statement and such information is hereby incorporated by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership of Management
The response to this Item will be included in the information set forth under the heading Security Ownership of Management in the 2004 Proxy Statement and is hereby incorporated by reference.
Securities Authorized for Issuance Under Equity Compensation Plans
The response to this Item will be included in the information set forth under the heading Securities Authorized for Issuance Under Equity Compensation Plans in the 2004 Proxy Statement and is hereby incorporated by reference.
Item 12. Certain Relationships and Related Transactions.
The response to this Item will be included in the information set forth under the heading Transactions with Management in the 2004 Proxy Statement and is hereby incorporated by reference.
Item 13. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as part of this Form 10-KSB:
No.
|
Description |
|
3.1 | Articles of Incorporation of Bank of the James Financial Group, Inc.* | |
3.2 | Bylaws of Bank of the James* | |
4.1 | Specimen Common Stock Certificate of Bank of the James Financial Group, Inc. |
48
10.1 | Employment Agreement entered into between the Bank and James R. Hughes, Jr.** | |
10.2 | 1999 Bank of the James Stock Option Plan** | |
10.3 | Lease Agreement Between W.C. English, Inc. and Bank of the James** | |
10.4 | Amendment to Employment Agreement by and between the Bank and James R. Hughes, Jr.*** | |
10.5 | Second Amendment to Employment Agreement by and between the Bank and James R. Hughes, Jr.**** | |
10.6 | Lease between Jamesview Investments LLC and Bank of the James dated October 9, 2003 | |
21.1 | List of Subsidiaries | |
31.1 | Certification pursuant to Rule 13a-14(a)/15d-14(a) | |
31.2 | Certification pursuant to Rule 13a-14(a)/15d-14(a) | |
32.1 | Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 |
* | Financial hereby incorporates by reference to the exhibit of identical index number filed with, and made a part of, Financials Form 8-K, filed with the Securities Exchange Commission on January 12, 2004. | |
** | Financial hereby incorporates by reference to the exhibit of identical index number filed with, and made a part of, the Registration Statement of Bank of the James on Form 10-SB filed with the Federal Reserve Board on April 18, 2000. | |
*** | Financial hereby incorporates by reference to the exhibit of identical index number filed with, and made a part of the Form 10-KSB, filed with the Federal Reserve Board on March 30, 2001. | |
**** | Financial hereby incorporates by reference to the exhibit of identical index number filed with, and made a part of, the Form 10-KSB filed the with the Federal Reserve Board on March 29, 2002. |
(b) Financial did not file any reports on Form 8-K during the quarter ended December 31, 2003. However, the Bank filed a Current Report on Form 8-K dated October 21, 2003 with an accompanying press release disclosing the Banks financial performance for the Banks first quarter ended September 30, 2003.
Item 14. Principal Accountant Fees and Services.
The response to this Item will be included in the information set forth under the heading Independent Public Accountants in the 2004 Proxy Statement and is hereby incorporated by reference.
49
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BANK OF THE JAMES FINANCIAL GROUP, INC. |
||
/S/ Robert R. Chapman, III |
||
Date: March 22, 2004 |
Robert R.Chapman, III., President |
|
/S/ J. Todd Scruggs |
||
Date: March 22, 2004 |
J. Todd Scruggs, Secretary and Treasurer |
50
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities as of March 22, 2004.
Signature |
Capacity |
|
/S/ Robert R. Chapman, III |
||
Robert R. Chapman, III |
President (Principal Executive Officer) |
|
/S/ J. Todd Scruggs |
||
J. Todd Scruggs |
Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer) | |
/S/ Kenneth S. White |
||
Kenneth S. White |
Director, Chairman |
|
/S/ Donna Schewel Clark |
||
Donna Schewel Clark |
Director |
|
/S/ Ted F. Counts |
||
Ted F. Counts |
Director |
|
/S/ Donald M. Giles |
||
Donald M. Giles |
Director |
|
/S/ Ronald V. Dolan |
||
Ronald V. Dolan |
Director |
|
/S/ James R. Hughes, JR. |
||
James R. Hughes, Jr. |
Director |
|
/S/ Carl B. Hutcherson, Jr. |
||
Carl B. Hutcherson, Jr. |
Director |
|
/S/ Thomas W. Pettyjohn, Jr. |
||
Thomas W. Pettyjohn, Jr. |
Director |
|
/S/ Richard R. Zechini |
||
Richard R. Zechini |
Director |
51
No.
|
Description |
|
3.1 | Articles of Incorporation of Bank of the James Financial Group, Inc.* | |
3.2 | Bylaws of Bank of the James* | |
4.1 | Specimen Common Stock Certificate of Bank of the James Financial Group, Inc. | |
10.1 | Employment Agreement entered into between the Bank and James R. Hughes, Jr.** | |
10.2 | 1999 Bank of the James Stock Option Plan** | |
10.3 | Lease Agreement Between W.C. English, Inc. and Bank of the James** | |
10.4 | Amendment to Employment Agreement by and between the Bank and James R. Hughes, Jr.*** | |
10.5 | Second Amendment to Employment Agreement by and between the Bank and James R. Hughes, Jr.**** | |
10.6 | Lease between Jamesview Investments LLC and Bank of the James dated October 9, 2003 | |
21.1 | List of Subsidiaries | |
31.1 | Certification pursuant to Rule 13a-14(a)/15d-14(a) | |
31.2 | Certification pursuant to Rule 13a-14(a)/15d-14(a) | |
32.1 | Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 |
* | Financial hereby incorporates by reference to the exhibit of identical index number filed with, and made a part of, Financials Form 8-K filed with the Securities Exchange Commission on January 12, 2004. | |
** | Financial hereby incorporates by reference to the exhibit of identical index number filed with, and made a part of, the Registration Statement of Bank of the James on Form 10-SB filed with the Federal Reserve Board on April 18, 2000. | |
*** | Financial hereby incorporates by reference to the exhibit of identical index number filed with, and made a part of the Form 10-KSB filed with the Federal Reserve Board on March 30, 2001. | |
**** | Financial hereby incorporates by reference to the exhibit of identical index number filed with, and made a part of, the Form 10-KSB filed the with the Federal Reserve Board on March 29, 2002. |
52
Exhibit 4.1
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
Please insert social security or other
identifying number of assignee
__________________________________________
|
(Please print or typewrite name and address, including zip code, of assignee) |
|
|
Shares
of the stock represented by the within Certificate, and do hereby irrevocably constitute and appoint |
Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. |
DATED |
||
|
||
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER. |
THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF A NATIONAL OR REGIONAL OR OTHER RECOGNIZED STOCK EXCHANGE IN CONFORMANCE WITH A SIGNATURE GUARANTEE MEDALLION PROGRAM.
STOCK MARKET INFORMATION |
||
www.stockinformation.com |
COLUMBIA FINANCIAL PRINTING CO., P.O.BOX 219, BETHPAGE, NY 11714 |
2
Exhibit 10.6
LEASE
This Deed of Lease dated as of October 9, 2003 is entered into by and between JAMESVIEW INVESTMENTS LLC, a Virginia limited liability company ( Landlord ), and BANK OF THE JAMES, a Virginia banking corporation ( Tenant ).
Landlord desires to lease to Tenant and Tenant desires to lease from Landlord space in Landlords first-class office building located on the corner of Ninth and Main Streets in the Central Business District of downtown Lynchburg having a street address of 828 Main Street, Lynchburg, Virginia 24504 and presently known and referred to as the Wachovia Building (the Building ). Landlord owns the Building together with all related site land, improvements, parking facilities, common areas, driveways, sidewalks and landscaping serving the Building (collectively, the Property ), which Property is currently designated by the City of Lynchburg as Tax Map Parcel No. 57611220 and is more particularly described as:
All that certain lot or parcel of land, together with the building and improvements thereon, situated in the City of Lynchburg, State of Virginia, and more particularly described according to a plat entitled Plat of Survey Showing: Property of Ninth and Main, Inc., Lynchburg, Virginia, dated April 6, 1973, by Adrian Overstreet, S.C.S., recorded in the Clerks Office of the Circuit Court of the City of Lynchburg, Virginia in Deed Book 479, page 135 (the Plat ), described as follows:
Beginning at the intersection of the northeast line of Main Street with the northwest line of Ninth Street and running thence with the said line of Main Street N. 31 deg. 00 W. 143.33 feet to a corner nail; thence N. 59 deg. 28 E. 165.00 feet to a corner iron; thence S. 31 deg. 00 E. 143.33 feet to a corner nail in the northwest line of Ninth Street; and thence with the said line of Ninth Street S. 59 deg. 28 W. 165.00 feet to the point of beginning, together with an easement and right-of-way in common with others having a like right, for use as a service entry or passageway 15 feet in width, and running from Commerce Street over adjacent property now or formerly owned by The Fidelity National Bank, Lynchburg, Virginia, the location of which easement and right-of-way is shown upon the plat and which easement and right-of-way may from time to time be relocated as determined by said Bank, or its successors in title, such relocations to be at the cost and expense of the said Bank or its successors in title.
Being the same property conveyed to Landlord by deed dated January 2, 2003, from Western Associates III, a Pennsylvania Limited Partnership, recorded in the Clerks Office of the Circuit Court of the City of Lynchburg, Virginia on January 21, 2003, as Instrument No. 030000725.
Therefore, in consideration of the mutual covenants contained herein and other valuable consideration received, and with the intent to be legally bound, Landlord and Tenant agree as follows:
1) | Premises; Personal Property . |
a) | The Premises . Subject to the terms and conditions of this Lease, Landlord hereby demises and lets unto Tenant and Tenant hereby leases and takes from Landlord the following described premises (the Premises ) constituting a part of the Building located on the Property, together with all other rights, privileges, easements and appurtenances belonging thereto or granted herein: |
| The entire rentable space on the 3 rd Floor of the Building, being the lobby level fronting on Main Street, containing approximately 11,622 square feet of floor area (after |
1
deduction of the Colonial Florist space described below), more particularly shown and described on the floor plan of the 3 rd Floor initialed and/or signed by the parties hereto, which plan is marked as Exhibit 1(a)(3 rd Floor) and hereby attached or by reference thereto incorporated in this Lease as though physically attached hereto, including the ATM area facing Main Street; plus the exterior patio shown on the Plat which runs adjacent to the sides of the Building facing Commerce Street and Ninth Street; LESS AND EXCEPT, the 450 square feet of rentable space on the 3 rd Floor identified as the Colonial Florist space on the said floor plan. Tenant shall have and hold this portion of the Premises from the Commencement Date (as defined in paragraph 2 below) throughout the Term (as defined in paragraph 2 below). |
| Any portion of the rentable space on the 2 nd Floor of the Building from time to time designated by Tenant, in its sole discretion, containing no more than 5,032 square feet of floor area at any given time (the Re-locatable Space). The 2 nd Floor is more particularly shown and described on the floor plan of the 2 nd Floor initialed and/or signed by the parties hereto, marked as Exhibit 1(a)(2 nd Floor) and hereby attached or by reference thereto incorporated in this Lease as though physically attached hereto. The perimeter of the 5,032 square feet of floor area initially designated by Tenant as the Re-locatable Space is marked by crosshatching on said Exhibit 1(a)(2 nd Floor) . Changes in the designation of such Re-locatable Space shall be effective upon delivery of written notice to Landlord. Tenant shall have and hold the Re-locatable Space from the Commencement Date throughout the Term. |
| The entire remainder of the rentable space on the 2 nd Floor of the Building, containing approximately 12,969 square feet of floor area. Tenant shall have and hold this portion of the Premises from the commencement of the 7 th Lease Year (as defined in paragraph 2 below) throughout the Term. |
The square footages for entire Floors (11,622 and 18,001 for the 3 rd and 2 nd Floors, respectively) referenced in the above description of the Premises are approximate only, and if the actual square footages for rentable space on the 3 rd and/or 2 nd Floors is greater or less than stated, Tenant shall have and hold the entire actual square footage of rentable space on the 3 rd Floor from the Commencement Date throughout the Term, except the Colonial Florist space, and the entire actual square footage of rentable space on the 2 nd Floor from the commencement of the 7 th Lease Year throughout the Term, without any change to the Rent reserved under this Lease. The term rentable space as used with respect to the 3 rd Floor means all interior space shown on Exhibit 1(a)(3 rd Floor) , except the Main Street entrance lobby, elevator lobby, and space for the elevators and utility chases, and with respect to the 2 nd Floor means all interior space shown on Exhibit 1(a)(2 nd Floor) , except the elevator lobby, space for the elevators and utility chases, and mechanical room. All areas of interior space shown on the attached exhibits which are excluded from the Premises pursuant to the preceding sentence are part of the Common Areas as such term is defined in paragraph 18 below.
b) | Tenants Option to Expand and Landlords Covenant Not to Lease 2 nd Floor Space to Others . At any time and from time to time prior to the commencement of the 7 th Lease Year (when Tenant will obtain possession of the entire rentable space on the 2 nd Floor of the Building pursuant to paragraph 1(a) of this Lease), Tenant may, at its option, upon at least 24 hours written notice to Landlord, elect to increase its possession of space on the 2 nd Floor above the 5,032 square feet of floor area which constitutes the Re-locatable Space by expanding into any part of the or the entire rentable area of the 2 nd Floor which at the time is not designated as Tenants Re-locatable |
2
Space. If this option is exercised, the Rent (as defined in paragraph 3 below) for the period from such election to the day immediately prior to the commencement of the 7 th Lease Year shall be increased by an amount equal to the product obtained by multiplying the area of additional square footage times the rate per square foot being paid by Tenant for the Re-locatable Space at such time, provided that such increase shall not impact the Rent due under this Lease for any period after the commencement of the 7 th Lease Year, such Rent being limited to the amount of Rent provided for in paragraph 3 below. Regardless of whether Tenant exercises its option as provided in this subparagraph (b) , Landlord shall not lease to or permit use or occupancy by any tenant or others except Tenant of any portion of such 2 nd Floor space during the Term. |
c) | Personal Property . In addition to Landlords demising the Premises to Tenant, Landlord shall sell to Tenant and Tenant shall buy from Landlord all office furniture, modular units, cubicles, and other tenant fixtures and personal property (other than vaults, built-in or moveable safes, and security cameras, monitors and equipment, ownership of which Landlord will retain) which are presently located in the Premises. Conveyance shall be automatically effective upon Purchasers occupancy, subject to AS IS, WHERE IS terms. |
2) | Term; Options to Extend . |
a) | Term . The term of this Lease ( Term ) shall mean the period commencing on the date when Landlord completes Landlords Work (as defined in paragraph 6(c) below and delivers exclusive possession of the Premises to Tenant (the Commencement Date ), and ending at 12:00 midnight on the date which is 120 consecutive calendar months after the Rent Commencement Date (defined in paragraph 3(a) below) (the Expiration Date ), unless sooner terminated or extended as otherwise provided in this Lease, being 10 Lease Years (as defined below), plus the number of days between the Commencement Date and the Rent Commencement Date. If the term of this Lease is extended pursuant to subparagraph (c) below, the term Term shall include each and every exercised Option Term as therein defined. |
b) | Lease Year Defined . As used in this Lease, the term Lease Year shall mean each period of 12 consecutive calendar months beginning on the Rent Commencement Date (defined in paragraph 3(a) below) if such date occurs on the first day of the month; if not, then on the first day of the month next succeeding the month in which the Rent Commencement Date occurs. Subsequent Lease Years shall run consecutively, each such Lease Year beginning on the first day of the month next succeeding the last month of the previous Lease Year. Rent and/or other matters that are computed with reference to a Lease Year shall be ratably adjusted, on a per diem basis, for any period prior to the first Lease Year and within the Term or in the event this Lease terminates on a date other than the last day of the month. |
c) | Option Terms . Landlord hereby grants to Tenant the first option to extend the Term for an additional period of five (5) Lease Years, commencing 12:00 A.M. on the first day of the month next succeeding the last month of the 10 th Lease Year, and ending at 12:00 midnight 60 consecutive calendar months thereafter, and the second option to extend the Term for an additional period of five (5) Lease Years, commencing 12:00 A.M. on the first day of the month next succeeding the last month of the first Option Term ( i.e., the 15 th Lease Year), and ending at 12:00 midnight 60 consecutive calendar months thereafter, upon the same conditions, terms, covenants, and provisions contained herein, except for the Rent, which shall be adjusted as provided in paragraph 3(b) below, provided that no default of which Landlord has notified Tenant exists at the time of exercise of any such option and remains uncured following the expiration of any period within which Tenant may cure such default as set forth in paragraph 29 below, unless Landlord waives the existence of such default. Such options shall be exercised by |
3
written notice to Landlord not less than 120 days prior to the expiration of the then current Term. Each exercised option period is herein called an Option Term . Upon exercise of any option by Tenant to extend the Term, the Term shall be extended for the number of Lease Years provided by the option period being exercised, the Expiration Date shall be adjusted to the last day of the Term, as extended by the option period being exercised, and the Rent during the Option Term shall be adjusted as provided in paragraph 3(b) below. |
3) | Rent . |
a) | Rent During Initial Lease Term . Tenant agrees to pay to Landlord the following fixed annual rental applicable for each Lease Year during the Term (the Rent ), in advance, in monthly installments due on the first day of each month of each Lease Year during the Term, commencing on the date which is 90 days after the Commencement Date (the Rent Commencement Date ), and no Rent or other payments shall be due for Tenants use and occupancy of the Premises between the Commencement Date and the Rent Commencement Date: |
Lease Year* |
Annual
Rent |
Monthly
Installments |
||||
1 st Lease Year |
$ | 100,000. 00 | $ | 8,333. 33 | ||
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|
|
|
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2 nd Lease Year |
$ | 120,000. 00 | $ | 10,000. 00 | ||
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|
|
|
|||
3 rd Lease Year |
$ | 125,000. 00 | $ | 10,416. 67 | ||
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|
|
|||
4 th Lease Year |
$ | 125,000. 00 | $ | 10,416. 67 | ||
|
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|
|
|||
5 th Lease Year |
$ | 135,000. 00 | $ | 11,250. 00 | ||
|
|
|
|
|||
6 th Lease Year |
$ | 140,000. 00 | $ | 11,666. 67 | ||
|
|
|
|
|||
7 th Lease Year |
$ | 275,984. 00 | $ | 22,998. 67 | ||
|
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|
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8 th Lease Year |
$ | 280,843. 00 | $ | 23,403. 58 | ||
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|
|
|
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9 th Lease Year |
$ | 285,928. 00 | $ | 23,827. 33 | ||
|
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10 th Lease Year |
$ | 291,013. 00 | $ | 24,251. 08 | ||
|
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|
* | Rent for any partial month between the Rent Commencement Date and the 1 st Lease Year, if any, shall be calculated as the number of days of such partial month times the amount of the monthly installment of Rent due for the 1 st Lease Year, divided by the number of days in the entire month. |
(b) | Adjustments to Rent for Option Terms . On the first day of each exercised Option Term, the fixed annual rental shall be adjusted to a rate equal to the lesser of: (i) 10% over the average of the fixed annual rental provided for during the initial 10-year Lease Term as set forth in the schedule in subparagraph (a) above, or (ii) the average per square foot annual rental rate then paid by all tenants of the Building under written leases with Landlord who occupy at least 90% of the rentable space of at least one floor of the Building, including Tenant ( Average Full Service Full Floor Rate ), it being understood by the parties that the Rent under this Lease for any such Option Term may increase or decrease according to such adjustment, or remain unchanged, and that the Rent shall not be adjusted again until the first day of the next exercised Option Term, if any. If Tenant is the only |
4
tenant of the Building who occupies an entire floor at the time an Option Term is to be exercised, then the fixed annual rental shall be ad as provided in subparagraph (b)(i) above and such fixed annual rental, as adjusted, shall be the Rent throughout such Option Term. As used below, the term Other Tenants means all tenants of the Building under written leases with Landlord who occupy at least 90% of the rentable space of at least one floor of the Building other than Tenant. |
In calculating the Average Full Service Full Floor Rate, all rates shall be compared as of the month in which the Rent adjustment is to be made, and the rate for each Other Tenant whose rate is to be averaged shall first be adjusted for purposes of comparing the rates of such Other Tenants to Tenants rate to reflect the actual costs and expenses Landlord is obligated to incur and the net revenue Landlord is entitled to enjoy under such Other Tenants leases. By way of example and not limitation, before averaging Tenants rate and such Other Tenants rates, the rate of rental provided in any such Other Tenants lease shall be increased if such lease obligates Landlord to provide fewer services and utilities than Landlord is obligated to provide under this Lease; and decreased if such lease obligates Landlord to provide more services or utilities than Landlord is obligated to provide under this Lease; and decreased if such lease includes in the rate the cost of tenant fit-out paid for by Landlord since Landlord is not paying for Tenants fit-out under this Lease.
If there are at least two full floor tenants as described above and the parties fail to agree on the Average Full Service Full Floor Rate, then such rate shall be determined as follows: each party shall select an independent M.A.I. real estate appraiser (an Appraiser ), and each Appraiser shall separately determine the Average Full Service Full Floor Rate. If the Average Full Service Full Floor Rate determined by each Appraiser are within 10% of each other, the two (2) rates shall be averaged and such average shall be the final Average Full Service Full Floor Rate, or (b) are not within 10% of each other, the two Appraisers shall then select a third Appraiser who shall independently determine the Average Full Service Full Floor Rate, and the middle of such three (3) rates shall be the final Average Full Service Full Floor Rate. The cost of the Appraisers shall be borne equally be the parties.
c) | Additional Rent for Parking Spaces . Tenant shall pay as additional rent the following amounts for its rights to use the Exclusive Spaces (as defined in paragraph 21 ) below: |
| $45. 00 per parking space per month for the 15 Exclusive Parking Spaces in the Building. |
| 35. 00 per parking space per month for the 15 Exclusive Parking Spaces in the parking lot owned by Landlord and located across Commerce Street, which lot is commonly known as 800 Commerce Street (the 800 Commerce Street Lot ). |
d) | Payment of Rent . The Rent shall be paid at the office of The Counts Realty & Auction Group, 828 Main Street, 15 th Floor, Lynchburg, Virginia 24504, or to such address as Landlord may hereinafter direct in writing to Tenant upon 60 days written notice. Landlord acknowledges that Tenant must receive a current and complete W-9 form from Landlord on a form approved by Tenant in order to process the payment of Rent, and agrees that Tenant in no event be subject to late charges and shall not be in default for non-payment of Rent prior to receipt of an accurate and complete W-9 form from Landlord. As used in this Lease, the term Rent shall include the fixed annual rent designated above as Rent as well as additional rent and other charges provided for in this Lease. Acceptance of payment, late payment, or partial payment shall not be considered a waiver of any default under this Lease. |
e) | Adjustment to Rent Commencement Date . The Rent Commencement Date shall be extended by one (1) day for each day of delay by Landlord in obtaining any governmental approvals or permits, |
5
or in furnishing any of the systems, services and utilities to the Building, necessary for Tenant to lawfully occupy and use the Premises for the Permitted Uses (as hereinafter defined), and all Rent, including additional rent and other charges, otherwise to become due under this Lease shall be waived until Tenant may lawfully occupy and use the Premises for the Permitted Uses. |
4) | Late Charges . Tenant hereby recognizes and acknowledges that if any installment of the Rent is not received by its due date, Landlord will suffer damages and additional expenses thereby. Accordingly, Landlord may at its option assess a late charge equal to 10% of the past due monthly installment of Rent (including any additional rent past due) as additional rent if Tenant shall fail to pay any Rent by the 10 th day of the month when the same shall become due and payable. |
5) | Title to the Premises . As of the date Tenant receives a fully executed copy hereof (the Effective Date ), title to the Premises is, and as of the Commencement Date, title to the Premises shall be, good and marketable, free and clear of all deeds of trust, mortgages, liens, encumbrances, easements and other title objections, except as set forth in Exhibit 5 hereto (the Permitted Exceptions ). |
6) | Representations, Warranties and Covenants of Landlord; Landlords Work . |
a) | Representations and Warranties of Landlord . Landlord hereby represents and warrants to Tenant that, as of the Effective Date: |
i) | Landlord has good and marketable title to the Premises, subject only to the Permitted Exceptions, free and clear of any mortgage, deed of trust, or mortgage encumbrance whatsoever, except for those identified as Permitted Exceptions, and Landlord possesses full power and authority to deal therewith in all respects and no other party has any right or option thereto or in connection therewith; |
ii) | the Premises is zoned so as to permit Tenant to use and operate the Premises for the Permitted Uses, and there are no easements, covenants, conditions, restrictions, rights-of-way, governmental rules, statutes, ordinances, moratoria, policies or plans which would prohibit or interfere with the operation of Tenants business upon the Premises; |
iii) | there are no pending or, to Landlords best knowledge, threatened condemnation proceedings or other governmental, municipal, administrative or judicial proceedings affecting the Premises; |
iv) | there are no pending or, to Landlords best knowledge, threatened actions or legal proceedings affecting the Premises, but Landlord discloses that Landlord and Wachovia Bank, National Association, a previous tenant of the Building, settled a dispute between them as stated in the Lease Expiration, Settlement, and Release Agreement (PID #506913) dated May 8, 2003, a copy of which has been provided to Tenant by Landlord; |
v) | there are no unpaid special assessments for sewer, sidewalk, water, paving, gas, electrical or power improvements or other capital expenditures or improvements, matured or unmatured, affecting the Premises; |
vi) | this Lease and the consummation of the transactions contemplated herein are the valid and binding obligations of Landlord and do not constitute a default (or an event which, with the giving of notice or the passage of time, or both, would constitute a default) under, nor are they inconsistent with, any contract to which Landlord is party or by which it is bound, including, but not limited to, the Permitted Exceptions; |
6
vii) | there are no outstanding notices of, nor, to Landlords best knowledge, are there, any violations of any law, regulation, ordinance, order or other requirements of any governmental authority having jurisdiction over or affecting any part of the Premises; |
viii) | Landlord is not obligated upon any contract, lease or agreement, written or oral, with respect to the ownership, use, operation or maintenance of any part of the Property which will adversely impact Tenants use of the Premises for the Permitted Uses; |
ix) | Landlord is a limited liability company duly organized and existing under the laws of the State of Virginia and has full power and authority to enter into this Lease and the transactions contemplated hereby and to perform its obligations hereunder and by proper action has duly authorized the execution and delivery of and performance under this Lease; and |
x) | Landlord shall notify Tenant immediately if at any time prior to the Commencement Date any of the foregoing representations and warranties in this paragraph 6 become untrue or incorrect. |
xi) | Landlord does not know or have reason to know of the presence of any asbestos containing materials or other hazardous materials in the Building, the Premises or any Common Areas except as disclosed in, and subject to the limitations of non-accessibility for inspection described in, the O&M Document and the Plan (as such terms are defined in paragraph 35 below). |
b) | Covenants of Landlord . |
i) | Landlord hereby covenants to Tenant that Tenant shall peaceably and quietly have, hold and enjoy the full possession and use of the Premises during the Term, subject to the provisions of this Lease, and Landlord shall not amend any of the Permitted Exceptions so as to alter or affect this Lease or Tenants use or occupancy of the Premises. |
ii) | Tenants use of or access to the Premises and Tenants other rights under this Lease, shall not by any act or omission of Landlord at any time during the Term be interfered with, prohibited, restricted or adversely affected by any covenant, condition or restriction, easement or any other document or matter affecting title or use of the Premises or any part thereof. |
c) | Landlords Work . Landlord shall take the following measures at its sole cost and expense prior to the Commencement Date ( Landlords Work ): |
i. | Remove and properly dispose of all of the following described asbestos-containing materials on the 2 nd and 3 rd Floors in the Premises, in accordance with the requirements provided in paragraph 35 below : |
| Remove and properly dispose of all spray applied fireproofing material located in the ceilings or other areas, but excluding such material located above the drop-ceiling in the 3 rd Floor which is properly and safely encapsulated in the written opinion of the Environmental Consultant (as defined in paragraph 35 below). |
| Remove and properly dispose of all ceiling tiles (whether or not containing or contaminated with asbestos) located directly below spray applied fireproofing material which is not properly and safely |
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encapsulated, and all ceiling tiles containing or contaminated with asbestos, whether or not spray applied fireproofing material is located above the tiles.
| Remove and properly dispose of all floor tile and related mastic containing asbestos. |
| Remove all drop-ceiling grids and other parts of the Premises, and otherwise clean and remediate the Premises, to ensure proper cleanup of any asbestos fibers released in connection with the above-described abatement efforts or otherwise, according to the written specifications and recommendations of the Environmental Consultant. |
ii. | To the extent feasible, Landlord shall conduct all 2 nd Floor asbestos removal first, and once Landlords work on the 2 nd Floor is complete, Landlord shall permit Tenant to install and operate its check cutting machine. |
iii. | Paint all spray-applied ceiling texture material on the 2 nd and 3 rd Floors, after first repairing all damaged or deteriorated material, all according to the written specifications and recommendations of the Environmental Consultant, and as necessary to deliver the Premises with such ceiling texture material in good and safe condition. |
iv. | Replace all bulbs and reflectors for canister light fixtures located in the ceiling of the 3 rd Floor with higher intensity, brighter lights of the same or better quality than those installed by Landlord in the Main Street entrance lobby of the 3 rd Floor, and replace all fluorescent light fixtures which mount to ceilings containing spray-applied ceiling texture material. |
v. | Clean the exterior of the Main Street entrance area of the Building, including the marble façade, to remove mold and grime and otherwise to restore the Main Street entrance to first-class, attractive and clean condition. |
vi. | Re-paint the exterior components of the Main Street entrance to the Building currently having painted surfaces. |
vii. | Plant decorative live or artificial plants in the planter boxes located at the Main Street entrance to the Building, and in the event such planter boxes are ever removed or replaced by Landlord, otherwise ensure that the Main Street entrance area of the Building is maintained in a first-class, attractive and clean condition. |
viii. | Clean and remove dead plants from all exterior planter boxes serving the Building, including those outside of and adjacent to the 2 nd Floor and those located on the exterior patio of the 3 rd Floor, and plant live plants of Landlords choice in them. |
ix. | As used in this Lease, the term spray applied fireproofing material means the spray applied fireproofing material that contains or is contaminated with asbestos and the term spray-applied ceiling texture material means the spray-applied ceiling texture material that contains or is contaminated with asbestos; and in both cases the locations of such asbestos-containing materials are as set forth in the Report and/or the Plan (as such terms are defined in paragraph 35 below). |
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d) | Landlords Work with respect to Tenants Fit-out . In addition to Landlords Work described above, with respect to the Alterations and improvements to be made to the Premises by Tenant before occupancy, as provided in paragraph 13(a) below, Landlord shall, at its sole expense, conduct all asbestos removal, abatement and/or remediation according to the written specifications and recommendations of the Environmental Consultant ( e.g., The parties anticipate that certain drilling into floors or walls for wiring Tenants work stations and otherwise accommodating Tenants new office layout may require Landlord to undertake additional, localized abatement.). |
e) | ADA Compliant Bathrooms . Landlord shall take any and all necessary steps at its sole expense to ensure that all existing bathrooms at the Premises comply with the Americans with Disabilities Act as of the Commencement Date and throughout the Term. |
f) | Moving Furniture and Work Stations . Tenant shall pay the reasonable cost to move all furniture and work stations purchased by Tenant under paragraph 1(c) above which need to be moved from the 2 nd or 3 rd Floors for Landlord to conduct the asbestos abatement work described above, and the reasonable cost to move back the same after completion of such abatement work; provided, however, Tenants total responsibility for such costs ( i.e., moving both ways) shall not exceed $10,000. 00 . Landlord shall arrange for the movement of such furniture and work stations; use its best efforts to obtain the lowest cost moving services; and provide free storage of the property in the Building until the asbestos abatement is complete and the property can be moved back. |
7) | SNDA Agreement . Landlord shall cause to be delivered to Tenant, within 10 days after the Effective Date, an executed and acknowledged Non-Disturbance and Attornment Agreement in substantially the form of, but no less favorable to Tenant than, Exhibit 7/32 hereto, from all mortgagees, grantees under deeds to secure debt or beneficiaries and trustees under deeds of trust of Landlords interest in the Premises. |
8) | Prohibited Uses; Permitted Uses . |
a) | Uses of Building . Landlord shall not permit any portion of the Building or any land contiguous to the Building now or hereafter owned or controlled by Landlord or its affiliates (by virtue of an ownership interest or a reciprocal easement or other similar agreement) to be used by Landlord, its tenants, agents, employees, invitees, licensees, successors or assigns, for any of the uses set forth on Exhibit 8(a) hereto (the Prohibited Uses ). Furthermore, Landlord shall neither lease any space in the Building to any bank other than Tenant or any of Tenants subsidiaries or affiliates, nor permit any tenant or other occupant of the Building other than Tenant or any of Tenants subsidiaries or affiliates to use any space in the Building to conduct any banking business. As used in this paragraph, the term bank shall be liberally interpreted to include Search Term End any national bank or national banking association, any banking institution organized under the laws of any state, territory, or the District of Columbia, and any other business entity engaged in the business of banking, including savings banks, savings and loan associations, non-bank banks, credit unions, and trust companies, without regard to eligibility for insurance of deposits by the Federal Deposit Insurance Corporation, and the term banking business shall be liberally interpreted to include the sale or offering for sale of walk-in, drive-in, telephone, or on-line retail or commercial banking products and services, including checking and savings accounts, business and personal loans, and mortgage loans and mortgage brokerage. Landlord shall nevertheless be permitted to lease space in the Building to and permit use of such space by other business entities which are not banks and which offer other financial services not within the above definition of banking business, to include investment brokerage, investment advisor, estate planning, estate and trust administration, and insurance products and services, provided, |
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however, that if any such business entity owns, or is owned by, or is affiliated with (by reason of local, regional or national marketing or advertising) any bank or entity conducting banking business, Landlord shall first procure the prior written consent of Tenant, which Tenant shall not unreasonably withhold, condition or delay. By way of example and not limitation, Tenant shall be deemed to have reasonably withheld its consent if Tenant deems any such proposed tenant or its parent, subsidiary or affiliate to be a competitor to Tenants business, whether existing or planned to occur at any time during the Term. Tenant hereby consents to the existing lease of space in the Building to Wachovia Securities. |
b) | Uses of Premises . The Premises may be used by Tenant for any general business use, including as general, administrative and executive offices, and for operating a general retail and commercial banking business (including ATMs) and/or providing banking, mortgage, trust, brokerage, insurance and/or other financial services, including all banking business and other financial services described in subparagraph (a) above and related uses and for any other lawful purposes ( Permitted Uses ); provided, however, that the Premises may not be used for any of the Prohibited Uses. Nothing herein shall be construed as restricting or prohibiting in any way the operation of a bank (including ATMs) or a financial services institution at the Premises. Tenant shall in the conduct of its business comply with the requirements of all public laws, ordinances and regulations from time to time applicable to the business conducted upon the Premises. Tenant may install and maintain in the Premises an office break room and/or office kitchen for use by its employees, customers, clients and guests and an electronic data processing center, provided the installation and maintenance thereof does not violate any law, rule, regulation or ordinance of any governmental agency having jurisdiction over the Premises. |
c) | Remedies . Upon breach of any of the representations, warranties, or covenants set forth in subparagraph (a) above by Landlord, Tenant shall have all remedies available to it at law, in equity or under this Lease, including but not limited to the right to injunctive relief and damages. If any person or entity other than Landlord shall violate any of the provisions set forth in subparagraph (a) above, or shall indicate that it intends to violate any of said provisions, Landlord shall within 30 days of written notice from Tenant commence appropriate legal proceedings and continue vigorously to prosecute the same to enjoin and prohibit any such violation. If Landlord fails to commence such proceedings within the 30-day period, or fails thereafter to vigorously prosecute the same, Tenant shall have the right to elect to conduct and prosecute such legal proceedings in its own or Landlords name, and at the expense of Landlord. Upon breach of any of the representations, warranties, or covenants set forth in subparagraph (b) above by Tenant, Landlord shall have all remedies available to it at law, in equity or under this Lease, including but not limited to the right to seek injunctive relief and damages after giving Tenant notice and an opportunity to cure the breach as provided in paragraph 29(a)(ii) below. |
9) | Contingencies . |
a) | Regulatory Approval . If Tenant is required to obtain approval of this Lease from any governmental authority and if such approval is not obtained within 180 days of the Effective Date, Tenant shall be entitled to terminate this Lease, in which event neither party shall have any further liability to the other arising out of this Lease, and Rent shall be apportioned as of the date of such termination, subject to any abatement in Rent prior to termination provided for under this Lease. |
b) | Appraisal . This Lease shall be contingent on Tenants obtaining at its expense an appraisal (or value analysis) of this Lease. If the appraised value of the Lease is less than the Rent reserved under this Lease, then Tenant shall be entitled to terminate this Lease within 120 days of the Effective Date, in which event neither party shall have any further liability to the other arising out |
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of this Lease, and Rent shall be apportioned as of the date of such termination, subject to any abatement in Rent prior to termination provided for under this Lease. |
10) | Landlords Tax Obligations . Landlord shall pay and discharge when due all real estate taxes, ordinary and special assessments and other governmental charges levied on or which would become a lien upon the Property, the Building, and/or the Premises, or any taxes payable or imposed on or in respect to any of Landlords fixtures or personal property. |
11) | Personal Property Taxes . Tenant shall pay and discharge when due all taxes, assessments and other governmental charges, if any, levied on or attributable to Tenants Improvements or Tenants Moveable Property (as each is defined in paragraph 13(b) below) located upon the Premises, or Tenants use of the Premises. All personal property and equipment of every kind and description which may at any time be in the Premises, other than Landlords vaults, safes, and security equipment, shall be at Tenants risk, or at the risk of those claiming under Tenant, except that Landlord shall be liable for loss of or damage to such property if due to the negligence of Landlord, its agents, contractors, or employees. |
12) | Insurance; Indemnification . The following provisions of this paragraph 12 shall be effective from the Commencement Date throughout the Term: |
a) | Tenants Insurance . Tenant shall procure and maintain, and pay all premiums, fees and charges for the purpose of procuring and maintaining continuously throughout the Term: |
i) | insurance on Tenants Improvements and Tenants Moveable Property against loss or damage by fire or other casualty with endorsements providing what is commonly known as all risk fire and extended coverage (but not including flood or earthquake coverage), vandalism and malicious mischief insurance, in an amount equal to the full replacement cost thereof, with a deductible that is consistent with Tenants insurance practices; and |
ii) | general liability insurance with a combined single limit of not less than $5,000,000. 00 for any bodily injury or property damage, with a deductible that is consistent with Tenants insurance practices. |
b) | Landlords Insurance . Landlord shall procure and maintain, and pay all premiums, fees and charges for the purpose of procuring and maintaining continuously throughout the Term: |
i) | insurance on all improvements on the Property, including the Building, the Premises (other than Tenants Improvements) and all Common Areas against loss or damage by fire or other casualty with endorsements providing what is commonly known as all risk fire and extended coverage, vandalism and malicious mischief insurance, in an amount equal to the full replacement cost thereof, with a deductible of no greater than $25,000. 00 ; and |
ii) | general liability insurance with a combined single limit of not less than $2,000,000. 00 for any bodily injury or property damage, with a deductible of no greater than $25,000. 00 . |
c) | Form of Insurance Policies . All property, casualty, and other policies of insurance referred to in this Lease shall include the other party and its mortgage lender, as their interests may appear, as additional insureds, shall insure such party against liability arising out of the other partys negligence or the negligence of any other person, firm or corporation and contain a contractual liability endorsement for liabilities assumed by the other party under this Lease. All policies procured hereunder shall be on standard policy forms issued by insurers of recognized responsibility, rated A+XII or better by Bests Insurance Rating Service, qualified to do business in Virginia. A certificate of such insurance shall be delivered to the other party prior to |
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the Commencement Date and thereafter not less than 10 days prior to the expiration thereof and shall provide that such policy may not be cancelled or modified except upon not less than 10 days written notice to the other. |
d) | Waiver of Subrogation . Each of Landlord and Tenant severally waives any and every claim which arises or may arise in its favor and against the other during the term of this Lease for any and all loss of, or damage to, any of its property located within or upon, or constituting a part of, the Property, including the Building, the Premises and all Common Areas, to the extent such loss or damage is covered by the form of insurance required pursuant to subparagraphs (a) and (b) above, provided, however, that the provisions of this subparagraph (d) shall be of no force or effect to the extent the same shall invalidate any policy of insurance owned by Landlord or Tenant. |
e) | Tenant Indemnification . Subject to subparagraph (f) below, Tenant shall indemnify and save harmless Landlord, its directors, officers, employees and agents (except for loss or damage resulting from the negligence of Landlord, its agents or employees or the breach of this Lease by Landlord) from and against any and all claims, actions, damages, liabilities and expenses, including reasonable attorneys fees, in connection with loss of life, bodily injury and/or damage to property arising from or out of any occurrence in or upon the Premises, or any part thereof, occasioned wholly or in part by any act or omission of Tenant, its agents, contractors, or employees thereon. |
f) | Landlord Indemnification . Landlord shall indemnify and save harmless Tenant, its directors, officers, employees and agents (except for loss or damage resulting from the negligence of Tenant, its agents or employees or the breach of this Lease by Tenant) from and against any and all claims, actions, damages, liability and expenses, including reasonable attorneys fees, in connection with loss of life, bodily injury and/or damage to property arising from or out of any occurrence in or upon the Premises or any part thereof, occasioned wholly or in part by any act or omission of Landlord, its agents, contractors, or employees thereon. If Landlord and Tenant are both partially responsible for any loss or damage described by this subparagraph (f) and in subparagraph (e) above, each party shall bear an amount of the loss or damage therefrom which is proportionate to such partys fault and responsibility in connection therewith. |
13) | Tenants Improvements/Alterations; Tenants Moveable Property . |
a) | Tenant may make any improvements, alterations, additions or changes to the Premises (collectively, the Alterations ) without procuring the consent of Landlord in the event such Alterations do not alter the Buildings exterior appearance, or materially affect the Building systems and equipment or the Building structure or add or modify any new systems or equipment to the Building which will impact other tenants of the Building (collectively, Major Changes ), provided Tenant shall provide Landlord prior notice thereof if the work requires that any City construction or other permit be obtained and, further provided, that Tenant shall notify Landlord before making any Alterations which may disturb asbestos containing materials, if, as and to the extent required by the provisions of paragraph 35 below and shall give the Environmental Consultant opportunity to inspect the plans for such alterations and take other steps with respect to any required asbestos removal, abatement and/or remediation as provided in paragraph 35 below. Examples of Major Changes include the installation of interior stairs or changes which affect the supply of HVAC to other tenants in the Building. Examples of changes not requiring consent include partitions, office layouts, interior painting, replacement of wall coverings, replacement of carpeting or other floor coverings, or interior decoration, or the installation of Tenants Moveable Property. Tenant shall obtain the prior written consent of Landlord to any Alterations having Major Changes. Tenants request for Landlords approval |
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shall be in writing describing the proposed alterations in reasonable detail and Landlords response to Tenant shall be in writing. Landlord hereby approves all of the Alterations and improvements to be made to the Premises by Tenant, at its own expense, pursuant to the plans and specifications and/or description of Tenants work, if any, attached as Exhibit 13(a) , if any, and any Alterations reasonably contemplated thereby or under this Lease. Tenant will use the 90-day period between the Commencement Date and the Rent Commencement Date to make its Alterations and improvements. |
b) | Tenant shall own all alterations, additions and improvements, including the initial improvements, made to the Premises by Tenant (collectively, Tenants Improvements ), until expiration or earlier termination of this Lease, and Tenant alone shall be entitled to deduct all depreciation on Tenants income tax return for Tenants Improvements. Tenant shall not, however, remove Tenants Improvements from the Premises, exclusive of Tenants trade fixtures; signs; built-in safes, vaults, night depositories, if any are added by Tenant after the Effective Date; security deposit box assemblies; ATM(s); teller stations; signs, office furniture, equipment and supplies; and all other personal property of Tenant (collectively, Tenants Moveable Property ), or destroy any part thereof. At the expiration of the Term, Tenants Improvements (exclusive of Tenants Moveable Property), without the payment of compensation or consideration of any kind to Tenant, shall become Landlords sole property, free and clear of any and all claims of Tenant. At the expiration of the Term, Tenant, if requested by Landlord, shall execute any and all documents necessary to evidence that title to Tenants Improvements (exclusive of Tenants Moveable Property) is in Landlord and to extinguish and remove any cloud or potential cloud on the title to the Premises and/or Tenants Improvements (exclusive of Tenants Moveable Property) created by Tenant. |
14) | Maintenance and Repairs . |
a) | Except as set forth in subparagraph (e) below, Landlord, at its expense, shall make all repairs or replacements and perform all maintenance to the Building, the Premises, and all Common Areas, including machinery and equipment used in the operation, maintenance or repair of the Common Areas, the foundations, roof, supporting walls, exterior, facades, downspouts, foundations, walls, exterior windows and window frames, including all exterior glass surfaces, exterior doors and door frames, and other structural components of the Building, and all other improvements and appurtenances relating to or part of the Building that are not maintained by tenants of the Building, as may be required to maintain the said structures, structurally as well as cosmetically, in first-class, attractive, clean and safe condition, and in good order and repair, unless the necessity for making any such repairs or replacements shall have been occasioned by any act, omission, or negligence of Tenant, its agents or employees, other than Tenants use and occupancy of the Premises for the Permitted Uses. As used in this subparagraph (a) the term maintenance shall include regular cleaning, repainting, redecorating, and necessary repaving or resurfacing of drives and parking areas (including those of the 800 Commerce Street Lot). |
b) | If additions to, alterations of, or construction, repairs in, on and about the Building, the Premises and/or any Common Areas are required (the Required Work ) by any governmental entity or individual complainant under any present or future law, regulation, ordinance, order or direction of federal, state, county and municipal authorities from time to time applicable to the Property or any part thereof, all cost and expenses attributable to such Required Work shall be borne by Landlord, except that if Tenant, in constructing any of Tenants Improvements or making its installations, has caused the Premises to become non-compliant, or if the Required Work shall have been occasioned by any act, omission, or negligence of Tenant, its agents or employees, other than Tenants use and occupancy of the Premises for the Permitted Uses, then in such |
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event such cost and expenses so attributable to such Required Work shall be borne by Tenant. Notwithstanding the foregoing, nothing herein shall relieve Landlord of its express obligations under any other provisions of this Lease, and Tenant shall not be obligated to comply with any law, regulation, ordinance, order or direction which applies to the systems, services and utilities to be supplied under the terms of this Lease to the Premises at Landlords expense, or compliance with the Americans with Disabilities Act or Asbestos Related Laws (as hereinafter defined) including asbestos removal, abatement and/or remediation, all of which are the obligations of Landlord under this Lease, provided, however, that if Tenant changes the location of any bathroom or constructs a new bathroom (other than on account of an asbestos event, in which case Landlord shall cover cost of such construction, including ADA compliance), then Tenant shall be responsible for meeting all applicable ADA requirements for the construction of such bathroom. |
c) | At the commencement of this Lease, Landlord shall provide the following to serve the Building, the Premises and Common Areas, including use by Tenant, its employees, invitees, licensees, customers, clients, or guests: heating, ventilating and air conditioning systems; utility systems, including those for electrical power, lighting, plumbing, water, sanitary sewer, and storm water and related lines, pipes, conduits, fixtures and equipment; fire protection and security equipment and alarms, including sprinklers, dry hydrants, and/or Haylon, FM-200 or similar fire protection devices presently existing; and other existing fixtures and facilities, including three(3) passenger elevators and one (1) service elevator, escalators serving the Premises, and common area restrooms, in good working order and repair, and except as set forth in subparagraph (f) below with respect to escalators, Landlord shall be responsible at its expense for the maintenance, repair and/or replacement of each during the Term, unless the necessity for making any such repair or replacement shall have been occasioned by the act, omission, or negligence of Tenant, its agents, employees, or invitees. |
d) | Landlord shall provide regular maintenance and service to the HVAC systems serving the Building, including the Premises, and keep in force an adequate maintenance agreement on such HVAC systems with a qualified service provider, and such maintenance shall comply with applicable present or future federal, state and/or local governmental ambient air and environmental standards from time to time applicable to the Premises. |
e) | Subject to the provisions of subparagraph (b) above and paragraph 35 below with respect to asbestos containing materials which Landlord shall maintain, remove, abate and otherwise remediate at its sole expense, Tenant shall, at its expense, maintain in good order and condition, reasonable wear and tear, casualty and condemnation excepted, all interior doors and door frames, interior window frames, interior floor coverings, non-structural interior partitions, and finished trim in the Premises, and Tenant shall make all repairs or replacements to all light bulbs, ballasts and fluorescent tubes in the Premises. Tenant shall be solely responsible for maintenance, repair and replacement of all of Tenants equipment, fixtures, and facilities located within the Premises. Tenant shall commit no waste and shall, at its expense, repair all damage or injury to the Premises and Landlords fixtures and the Building resulting from the act, omission, or negligence of Tenant, its agents, employees, or invitees. |
f) | During the Term, Tenant shall, at its expense, maintain in good order and condition, reasonable wear and tear, casualty and condemnation excepted, the escalators serving the Premises. All repairs or replacements not resulting from Tenants failure to maintain the escalators or the act, omission, or negligence of Tenant, its agents, employees, or invitees, shall be made by Landlord at its sole cost and expense. Accordingly, if any escalator, or any part thereof, has outlived its useful life during the Term, Landlord shall replace the same at no expense to Tenant. |
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15) | Discharge of Liens . |
a) | Tenant Liens . Tenant will not permit the Premises to become subject to any mechanics, laborers or materialmens lien on account of labor or material furnished to Tenant or claimed to have been furnished to Tenant in connection with work of any character performed or claimed to have been performed on the Premises by or at the direction or sufferance of Tenant; provided, however, Tenant shall have the right to contest in good faith and with reasonable diligence the validity of any such lien or claimed lien and on final determination of the lien or claim for lien, Tenant will immediately pay any judgment rendered with all proper costs and charges, and will, at its own expense, have the lien released and any judgment satisfied. |
b) | Landlord Liens . Landlord will not permit the Premises to become subject to any mechanics, laborers or materialmens lien on account of labor or material furnished to Landlord or claimed to have been furnished to Landlord in connection with work of any character performed or claimed to have been performed on the Property by or at the direction or sufferance of Landlord; provided, however, Landlord shall have the right to contest in good faith and with reasonable diligence the validity of any such lien or claimed lien and on final determination of the lien or claim for lien, Landlord will immediately pay any judgment rendered with all proper costs and charges, and will, at its own expense, have the lien released and any judgment satisfied. |
16) | Loading . Tenant shall not place a load upon any floor of the Premises exceeding the legally allowed floor load per square foot. Landlord reserves the right to prescribe the weight and position of all safes and other heavy equipment not already existing in the Premises in order to provide the proper distribution of weight, and Tenant agrees to bear the cost, if any, to determine such weights and positions. |
17) | Delivery of Possession . If Landlord is unable to deliver possession within 60 days of the Effective Date, Tenant may terminate this Lease by giving written notice to Landlord and all payments made will be returned to Tenant and all obligations of the parties under this Lease will cease. |
18) | Common Areas . The term Common Areas as used in this Lease shall mean all areas, space, facilities, equipment, signs and special services furnished in the Building and designated by Landlord for the general use or benefit, in common, of occupants of the Building, including Tenant, its employees, agents, contractors, invitees, licensees, customers, clients, and guests, which facilities may include, but are not limited to, the public ways of the Building, including public entrances, lobbies and lobby entrances, elevators and corridors, drives, service roads, parking spaces, parking areas, sidewalks, walkways, service areas, roadways, loading platforms, ramps, drainage facilities, plumbing and electric systems, roof, canopies, ramps, landscaped area and other similar facilities available from time to time. Tenant, its employees, agents, contractors, invitees, licensees, customers, clients, and guests, shall have use of the Common Areas, including ingress and egress to the Building and the Premises through the Common Areas, during regular business hours and at other times subject to Landlords reasonable rules and regulations, and such use of the Common Areas shall be on a non-exclusive basis in common with all other parties to whom the right to use such Common Areas has been or is hereafter granted. Tenant shall not interfere with the use of the Common Areas by such other parties, and Tenants use of the Common Areas shall be subject to the other provisions of this Lease. Landlord shall administer, operate, clean, maintain and repair the Common Areas in a first-class, attractive, clean and safe condition. |
19) | Landlords Access . Landlord and its agents may enter the Premises at all reasonable times to conduct inspections, make necessary or desired repairs or improvements, or to show the same to prospective tenants, buyers or lenders, provided, however, Landlord shall only enter the Premises |
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after Tenants regular business hours after first procuring Tenants written consent, which Tenant shall be entitled to withhold or condition as it deems necessary. Landlord shall give Tenant reasonable notice, which shall be at least 48 hours in advance, of any such entry (except in emergencies) and shall conduct such entry (except in emergencies) so as not to disturb Tenants use of the Premises. Landlord may also enter the Premises when the same appear to be abandoned and for the purpose of placing signs offering the Premises for sale or rent, provided, however, that signs offering the Premises for rent may be placed and rental showings may be conducted only during the final four (4) months of the Term or upon the notification by Tenant of intentions to vacate according to the terms of this Lease. In an emergency, and as permitted by law, Landlord may enter the Premises without prior notice to Tenant. The provisions of this paragraph 19 shall be subject to applicable rules and regulations of a governmental authority having jurisdiction over Tenants business, which rules shall control in the event of a conflict. |
20) | Compliance with Law . Tenant, at its sole expense, shall comply with all present and future laws, ordinances, regulations and requirements of any federal, state or local authority relating to Tenants use of the Premises. Landlord, at its sole expense, shall comply with all present and future laws, ordinances, regulations and requirements of any federal, state or local authority relating to use of the Property, including the Building and all Common Areas, by all other parties to whom the right to use such Property, including the Building and all Common Areas, has been or is hereafter granted. Tenant shall not make or permit any waste on the Premises, or any nuisance or use which might interfere with the enjoyment of other tenants or persons in the Building. Tenant shall not commit or permit any act or use of the Premises which may increase the fire hazard or the cost of fire or other insurance on the Premises, or cause the cancellation of such insurance. Tenant shall obtain, at its sole expense, any licenses or permits which may be required for Tenants use of the Premises. |
21) | Parking . Tenant, its employees, agents, contractors, invitees, licensees, customers, clients, and guests, are hereby granted the non-exclusive privilege to use in common with the other tenants and visitors of the Building all (but not less than 44) parking spaces in the Building designated by Landlord as non-exclusive parking spaces, which spaces shall be available on a first-come first-served basis, and such spaces shall be subject to a two (2) hour maximum parking time (the Non-exclusive Parking Spaces ). Tenant, its employees, agents, contractors, invitees, licensees, customers, clients, and guests, are hereby granted the exclusive privilege to use 15 parking spaces in the Building and 15 parking spaces in the 800 Commerce Street Lot (the Exclusive Parking Spaces ), which spaces shall be located so far as practical closest to an entrance to Tenants space in the Building. With respect to all drives, parking spaces, and parking areas in the Building, Tenant shall (i) abide by all reasonable rules and regulations regarding their use as may now exist or as may hereinafter be promulgated by Landlord, (ii) Landlord reserves the right to modify, restripe and otherwise change the location of drives, parking spaces and parking area in the Building other than the Exclusive Parking Spaces, which shall not be changed; (iii) Landlord may, but shall have no obligation to, designate certain Non-exclusive Parking Spaces for trucks, handicapped persons or designated tenants as Landlord, in its sole discretion, may deem necessary for the professional and efficient operation of the parking area and the Building; and (iv) Tenant agrees to cooperate with Landlord and other tenants in the use of the parking facilities. At no time shall the parking of any vehicle be permitted in the fire lanes or handicapped parking areas servicing the Building. |
22) | Rules and Regulations . Tenant shall comply with all rules and regulations currently in effect and any reasonable and non-discriminatory amendments, modifications and/or additions thereto which Landlord may hereafter adopt and publish by written notice to Tenant and the other tenants of the Building for the safety, care and orderly operation of the Building and for the benefit and comfort of other tenants or neighbors, including rules and regulations concerning parking, provided, however, that Landlord shall not adopt any amendments, modifications and/or additions which materially |
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interfere with Tenants use of the Premises for the Permitted Uses, including Tenants special needs with respect to security and insurance requirements covering such items as specialized locks, vaults and access to the Premises. Landlord warrants and represents that a true and complete copy of the current rules and regulations are attached hereto as Exhibit 22 . Landlord shall be responsible for enforcement compliance with the rules and regulations by Tenant and other tenants of the Building. If there is any conflict between such rules and regulations and this Lease, this Lease shall control. |
23) | Assignment and Subletting . Landlord hereby grants to Tenant the right to assign and sublease this Lease and the leasehold estate created hereby, in whole or in part, at any time. Notwithstanding the foregoing, any party who is assigning this Lease and the estate created hereby shall provide to Landlord notice of assignment and shall execute and deliver in a form reasonably acceptable to Landlord an assumption agreement from the assignee pursuant to which said assignee assumes the duties, obligations, covenants, conditions and restrictions of this Lease. Upon any such assignment, the assignor shall be released from any liability hereunder, and, upon request of the assignor, Landlord shall execute and deliver to the assignor a release agreement in a form reasonably acceptable to the assignor to evidence such release. |
24) | Damage to Premises by Fire or Other Casualty . In case of damage to the Premises by fire or other casualty insured under Landlords insurance policies, Landlord, upon Landlords receipt of the insurance proceeds, unless it shall otherwise elect as hereinafter provided, shall repair the same with reasonable dispatch; provided, however, Landlords obligations to repair shall be limited to the extent of the insurance proceeds received by Landlord therefor. If the Premises, or any part thereof, are damaged by fire or other casualty to such an extent as to be rendered untenantable but are, nevertheless, repaired by Landlord, then the Rent shall be abated to an extent corresponding with the time during which and the extent to which the said Premises have been untenantable. If the Premises shall be partly untenantable, the Rent shall be abated to an extent corresponding with the part untenantable and for a period corresponding with the period during which the entire Rent would abate, as above provided, in the event of complete untenantability. If Landlord shall decide, within 30 days after the occurrence of any such fire or other casualty which damages the Premises to the extent that at least 25% of the floor space cannot be used, to demolish or not to repair, rebuild, or reconstruct the damaged portions of the Premises, then, upon written notice given by Landlord to Tenant, this Lease shall terminate and the Rent shall be apportioned as of the time of the occurrence of any such fire or other casualty. Notwithstanding anything to the contrary in this paragraph 24 , if Landlord shall fail to commence repairs within 30 days of the fire or other casualty, or in the event that the Premises are rendered untenantable, or damaged to the extent that at least 25% of the floor space cannot be used, by such fire of other casualty, and if any such damage cannot be repaired within 120 days as estimated by Tenants architect, then in any such event, Tenant shall have the option to terminate this Lease upon giving written notice to Landlord, which termination shall have the same force and effect as if terminated by Landlord pursuant to the foregoing provisions of this paragraph 24 . Notwithstanding the foregoing, if such damage or other casualty shall be caused by the negligence of Tenant, its agents, contractors or employees, there shall be no abatement of Rent. Except for the abatement of Rent as hereinabove set forth, Tenant shall not be entitled to and hereby waives all claims against Landlord for any compensation or damage for loss of use of the whole or any part of the Premises and/or for any inconvenience or annoyance occasioned by any such damage, destruction, repair or restoration. |
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25) | Condemnation. |
a) | Termination of Lease . If all or any portion of the Premises or Tenants Improvements, shall be acquired for any public or quasi-public use through taking by condemnation, eminent domain or any like proceeding, or purchase in lieu thereof (a Taking ), such that Tenant reasonably determines that the Premises cannot, at reasonable cost, continue to be operated for its then current use, with sufficient parking for such use, then the Term shall cease and terminate as of the date the condemning authority takes title or possession, whichever first occurs, and all rentals shall be paid up to that date. |
b) | Continuation of Lease . If there is a Taking and this Lease is not terminated as provided in subparagraph (a) above, this Lease shall remain in full force and effect, but with an equitable reduction or abatement of Rent and all other rentals hereunder. |
c) | Apportionment of Award . If there occurs a Taking, whether whole or partial, Landlord and Tenant shall be entitled to receive and retain such separate awards and portions of lump sum awards as may be allocated to their respective interests in any condemnation proceedings, or as may be otherwise agreed, taking into consideration the fact that Landlords interest in the Premises is limited to the Premises, as encumbered by this Lease, a reversionary interest in Tenants Improvements (exclusive of Tenants Moveable Property) upon the expiration of the Term, and the right to receive rent hereunder. If the Premises shall be restored as herein provided, Tenant shall first be entitled to recover the costs and expenses incurred in such restoration out of any such award. Thereafter, if the condemning authority does not make separate awards and the parties are unable to agree as to amounts that are to be allocated to the respective interests of Landlord and Tenant, then each party shall select an Appraiser (as defined in paragraph 3(b) above). Each Appraiser shall separately determine the amount of the balance of the condemnation award that is to be allocated to the interests of Landlord and Tenant. If the percentage of the balance of the total award each Appraiser allocates to Landlord (a) are within 10% of each other, the two (2) allocations shall be averaged and such average shall be the final allocation of the award, or (b) are not within 10% of each other, the two Appraisers shall then select a third Appraiser who shall independently allocate the award between Landlord and Tenant, and the middle of such three (3) allocations shall be the final allocation of the award. |
d) | Early Transfer of Possession by Tenant . Tenant may continue to occupy the Premises and any of Tenants Improvements until the condemning authority takes physical possession. However, at any time following notice of intended Taking, or within the time limit specified for delivering possession, Tenant may, by written notice to Landlord, elect to deliver possession of the Premises to Landlord before the actual Taking. Tenants right to apportionment of or compensation from the award shall then accrue as of the date that Tenant so delivers possession. |
26) | Signage; Displays; Removal of Wachovia Signs; Name of Building . |
a) | Subject to the following subparagraph (b) concerning displays, Landlord reserves the right to approve, in its sole discretion, any and all signs that Tenant wishes to display on or about the exterior of the Premises. |
b) | Tenant may, without procuring Landlords consent, erect and maintain displays advertising/marketing Tenants products and services in the Premises and in the 3 rd Floor lobby outside of and adjacent to the Premises and in the area under the roof canopy adjacent to the Premises and facing but not on Main Street, so long as such displays are in conformity with all laws and applicable governmental regulations. Tenant shall indemnify and save and hold |
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harmless Landlord from and against all damage or liability incurred by Landlord as a result of the maintenance by Tenant of any such outside displays. |
c) | Within 30 days after the Effective Date, Landlord shall at its expense remove all of the existing signs in or on the Building referring to Wachovia Bank or any of its predecessors in interest. Rent and other charges hereunder shall be abated for any period of delay in Landlords removing such signs. |
d) | Landlord hereby grants to Tenant the exclusive right to from time to time name and rename the Building and maintain signs on the exterior of the Building (except Landlord may also place signs on the exterior of the Building identifying the street address of the Building and parking locations) and in the 2 nd and 3 rd Floor Common Areas (except for directories which are for the benefit of all tenants of the Building, including Tenant, and lettering on the entrance door of the Colonial Florist space described in paragraph 1(a) above which faces the 3 rd Floor Lobby). Accordingly, Tenant may place signs on the exterior of the Building and/or in the Common Areas, at its expense, designating the Building as the Bank of the James building, or such other name as Tenant may choose, provided such other name shall be subject to Landlords approval as set forth in the first sentence of subparagraph (a) above, unless Tenants reason for changing the name of the Building is on account of a change in Tenants business name, whether by reason of marketing purposes or due to Tenants merger, consolidation, spin-off, reorganization, or sale of substantially all of its assets, in which event prior consent shall not be required. Tenant, its employees and contractors, shall have a non-exclusive easement during the Term to install, access, clean, maintain, repair, remove and replace any signs placed on the Building and/or in the Common Areas by or for Tenant. Upon expiration or termination of this Lease, Tenant shall remove its signs at its sole cost and expense and shall having a continuing license until its signs are removed for itself, its employees and contractors to access the Building for such purpose, provided that such cost and expense shall be borne entirely by Landlord if termination of this Lease is due to Landlords default. |
e) | Landlord shall obtain Tenants prior written consent to any sign, lettering, coloring or advertising matter of any nature ( Signage ) for the Colonial Florist space which is visible from the Main Street lobby area of the 3 rd Floor or the exterior of the Building before permitting the tenant of such premises to display any such Signage. All approved Signage shall be consistent with the character of a first-class office building. In no event shall Landlord permit the following to be displayed in or about the Colonial Florist space: (i) paper signs, stickers, banners, flags, decals or emblems of any nature; (ii) any signs of an offensive or obscene nature, or (iii) going out of business, clearance or other similar signs. |
f) | Any and all costs of signage placed by or at the direction of Tenant shall be at Tenants expense. |
g) | In recognition of Tenants concern that once the Buildings name is changed to the Bank of the James building other tenants of the Building may mistakenly believe that Tenant is the owner or landlord of the Building, Landlord shall send notice to all existing tenants of the Building of, and include for Tenants protection in each lease entered into with other tenants of the Building after the Effective Date, the following disclaimer: |
The undersigned tenant under this lease hereby acknowledges that the Building is owned, operated and managed by persons and/or entities unrelated to the Bank of the James, which is only a tenant of the Building, and all matters with respect to the premises, the Building, or common areas shall be directed to Landlord or its designated management agent and not to Bank of the James. |
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27) | Services . Landlord shall throughout the Term furnish the following systems, services and utilities to the Building, the Premises, and the Common Areas, as applicable, in a professional and first-class manner from 6:00 A.M. to 7:00 P.M. Monday through Friday, 6:00 A.M. to 3:00 P.M. Saturday, and 6:00 A.M. to 1:00 P.M. Sunday during the Term, or at all times or other times if, as and when otherwise provided below ( Service Days ): |
a) | Heating, Ventilating and Air Conditioning ( HVAC ) . Landlord shall provide HVAC during the appropriate seasons as necessary to maintain a comfortable indoor climate in the Premises and the Common Areas of the Building. |
b) | Electricity . Landlord shall at all times provide electricity and power through the Building circuits: (i) throughout the Building, including the Common Areas and the Premises, for purposes of lighting, HVAC, fire protection, alarm and any other security systems to be provided by Landlord, elevators, escalators, and any other facilities and systems to be provided by Landlord as set forth in this Lease, and (ii) throughout the Premises for purposes of lighting, operation of office machines, office equipment, electric telephones, computer work stations and related networking hardware, and break room or office kitchen appliances, and other facilities for general offices and banking purposes. However, if Tenant uses electricity for refrigeration (except for break room or office kitchen refrigerators), special lighting apparatus, x-ray equipment, or other special equipment beyond ordinary office or banking purposes not contemplated by the parties at the time this Lease is entered into, Tenant shall reimburse Landlord at the rate paid by Landlord for the added cost to Landlord of any such special use of electricity. |
c) | High Speed Internet Access . Landlord shall at all times provide wiring for high speed Internet access to the Premises, but all charges for use of such Internet access shall be paid by Tenant directly to the third party provider. Additionally, Tenant may install its own separate high speed Internet access, including DSL, T-1 and such other data or telecommunications lines, wiring, cabling, equipment and facilities as it may desire to add from time to time. |
d) | Elevators and Escalators . Landlord shall at all times provide adequate elevator service (including three (3) passenger elevators and one (1) service elevator) serving the Building, subject to Landlords reasonable security regulations. Landlord reserves the right to shut down one (1) elevator at a time for service. |
e) | Janitorial . Landlord shall provide to and supply janitorial service and supplies in and about the Building and all Common Areas, including regular cleaning of all common area bathrooms, if any, and all exterior windows, including all exterior glass surfaces; provided, however, Tenant shall be solely responsible for janitorial service and supplies within the Premises as provided in paragraph 28 below. All janitorial service and supplies supplied by Landlord shall be adequate for the purposes for which the Building is used and appropriate for an office building having a first-class reputation. |
f) | Building Security . Landlord shall provide adequate building security, including policing of the Common Areas, after business hours and on weekends. Tenant, its employees and contractors, are hereby granted a non-exclusive easement at all times to access all security equipment on the 1 st Floor of the Building on an as needed basis, including the right to install separate monitoring and recording equipment on the 1 st Floor to monitor Tenants floors. If Tenant has installed such equipment, Tenant shall have control over which personnel other than Tenants personnel have access to such equipment. Furthermore, Tenant may restrict the surveillance of the Premises by Landlord as it deems necessary or appropriate in its sole discretion. |
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g) | Landscaping . Landlord shall maintain any landscaped or other outdoor area serving the Building, including all exterior planter boxes serving the Building ( e.g., those outside of and adjacent to the 2 nd Floor and located on the exterior patio of the 3 rd Floor), which services shall include as applicable landscaping, gardening, irrigating, fertilizing and planting and maintaining any irrigation system on an as-needed basis to maintain a first-class, attractive and clean appearance. |
h) | Water and Sanitary Sewer . Landlord shall at all times furnish such water as is required for drinking, cleaning, and lavatory purposes and such other purposes ordinary for an office building. |
i) | Removal of Snow . Landlord shall provide snow removal so that the drives, parking areas and other Common Areas remain useable during inclement weather. |
j) | Removal of Trash, Garbage and Other Refuse . Landlord shall provide removal of trash, garbage and other refuse from receptacles in and about the Common Areas. Tenant shall be responsible for removing such refuse from the Premises, as provided in paragraph 28 below. |
k) | Pest Control . Landlord shall engage a certified pest control firm to perform regular (not less frequent than monthly but more frequent if Landlord determines the need therefor) extermination for pests including, but not limited to, roaches, rodents and termites. |
l) | Directory . Landlord shall provide a directory in the entrance lobby or lobbies, and listings thereon shall be in accordance with rules and regulations established by Landlord, and Tenant may add its own directory if it needs additional space for listings or desires to have its own directory separate from the Landlord provided directory. |
m) | Discontinuance of Service . In the event of the interruption of any of the above mentioned systems, services or utilities lasting for less than or equal to three (3) consecutive Service Days and caused by repairs, replacements, improvements, alterations, strikes, lockouts, accidents, inability of Landlord to procure such services or to obtain fuel or supplies, or other cause or causes beyond the reasonable control of Landlord, such interruption of service shall not be deemed an eviction of Tenants possession of the Premises or any part thereof, or render Landlord liable for damages, or relieve Tenant from performance of Tenants obligations under this Lease, except that if Landlord fails to supply the Premises with a reasonable level of output for any of Landlords systems, services or utilities for a period of more than three (3) consecutive Service Days, and if Tenant is thereby reasonably unable to conduct its business in the Premises, such failure shall be a default of Landlord hereunder entitling Tenant to an abatement of Rent for as long as such period continues, in addition to any other remedies Tenant may have under this Lease or applicable law. |
n) | Additional Services . Tenant shall reimburse Landlord at the rate paid by Landlord for any services or supplies used by Tenant in addition to the services described above. |
28) | Tenant Provided Services . Tenant shall obtain and pay for directly: (a) janitorial service and supplies for the Premises; (b) telephone, cable, and Internet service required by Tenant; (c) any security for the interior of the Premises; and (d) removal of its trash, garbage and other refuse from the Premises. |
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29) | Default by Tenant . |
a) | Events of Default . The occurrence of any of the following events shall constitute a default by Tenant: |
i) | failure to pay rent when due where such failure continues for a period of 15 days after Tenant receives written notice thereof from Landlord; or |
ii) | unless otherwise provided herein, failure to perform any other provision of this Lease to be performed by Tenant if the failure to perform is not cured within 30 days after Tenant receives written notice thereof from Landlord. If such default cannot reasonably be cured within 30 days, Tenant shall not be in default of this Lease if Tenant commences to cure the default within such 30-day period and diligently and in good faith continues to cure the default until completion, provided the same is capable of being cured by Tenant and is in fact cured within a period of 90 days; or |
iii) | the subjection of any right or interest of Tenant in this Lease to attachment, execution or other levy, or to seizure under legal process, if not released within 60 days; or |
iv) | the appointment of a receiver, not including receivership pursuant to any Leasehold Mortgage, to take possession of Tenants interest in the leasehold estate or of Tenants operations on the Premises for any reason, if such receivership is not terminated: dismissed or vacated within 60 days after the appointment of the receiver; or |
v) | Tenant shall file a petition in voluntary bankruptcy under the Bankruptcy Code of the United States or any similar law, state or federal, now or hereafter in effect; or |
vi) | Tenant shall file an answer admitting insolvency or inability to pay its debts; or |
vii) | within 60 days after the filing against Tenant of any involuntary proceedings under such Bankruptcy Code or similar law, such proceedings shall not have been vacated or stayed; or |
viii) | a trustee or receiver shall be appointed for Tenant or for all or the major part of Tenants property or the Premises, in any involuntary proceeding, or any court shall have taken jurisdiction of all or the major part of Tenants property or the Premises in any involuntary proceeding for the reorganization, dissolution, liquidation or winding up of Tenant, and such trustee or receiver shall not be discharged or such jurisdiction relinquished or vacated or stayed on appeal or otherwise stayed within 60 days; or |
ix) | Tenant shall make an assignment for the benefit of creditors or shall admit in writing its inability to pay its debts generally as they become due or shall consent to the appointment of a receiver or trustee or liquidator of all or the major part of its property, or the Premises. |
b) | Right to Cure; Landlords Remedies . If Tenant shall have failed to cure a default by Tenant after expiration of the applicable time for cure of a particular default, Landlord may, at its election, but without obligation therefor, (i) seek specific performance of any obligation of Tenant, after which Landlord shall retain, and may exercise and enforce, any and all rights which Landlord may have against Tenant as a result of such default, including Landlords right to from time to time institute suit to recover from Tenant all overdue Rent and all costs and expenses incurred by Landlord by reason of Tenants default, including attorneys fees, costs of regaining possession and reletting the Premises, brokers fees, storage fees and repairing and cleaning costs, (ii) from time to time without releasing Tenant in whole or in part from Tenants obligation to perform any and all covenants, conditions and agreements to be performed by Tenant hereunder, cure the default at Tenants cost, (iii) terminate this Lease by giving Tenant written notice of such termination, (iv) commence eviction proceedings in accordance with the |
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laws of Virginia, and/or (v) exercise any other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Any reasonable cost incurred by Landlord in order to cure such a default by Tenant shall be due immediately from Tenant, together with interest. In all events Landlord shall use its best efforts to release the Premises and Tenants Improvements for such term at such rental and upon such other terms and conditions as may be reasonably necessary or appropriate to mitigate damages, with the right to make alterations and repairs to the Premises and Tenants Improvements. If Landlord is entitled to monies representing all or part of future payments of Rent hereunder, such amounts shall be discounted to current value based upon the interest rate in effect on the date of such award, as determined pursuant to paragraph 36 below. |
c) | Notices . Notices given under this paragraph 29 shall specify the alleged default and the applicable Lease provisions, and shall demand that Tenant perform the provisions of this Lease or pay the Rent that is in arrears, as the case may be, within the applicable period of time for cure. No such notice shall be deemed a forfeiture or termination of this Lease. |
30) | Default by Landlord . |
a) | Events of Default . Landlord shall be in default of this Lease if it fails to perform any provision of this Lease that it is obligated to perform and if the failure to perform is not cured within 30 days after written notice of the default has been given by Tenant to Landlord, unless the same is because of a breach of a representation or warranty contained in paragraph 6 above or a covenant or agreement contained in paragraph 35 below, in which event no cure period shall be allowed, or if Tenant, upon paying the Rent reserved in this Lease and performing all other terms, covenants, and conditions of this Lease on Tenants part to be performed and observed hereunder, shall be deprived of the right or ability to peaceably and quietly have, hold, and enjoy the Premises during the Term, subject to the terms of this Lease and to any Permitted Title Exceptions. If a default described above for which a cure period is provided cannot reasonably be cured within 30 days, Landlord shall not be in default of this Lease if Landlord commences to cure the default within such 30-day period and diligently and in good faith continues to cure the default until completion, provided the same is capable of being cured by Landlord and is in fact cured within a period of 90 days. |
b) | Right to Cure; Tenants Remedies . If Landlord shall have failed to cure a default by Landlord after expiration of the applicable time, if any, for cure of a particular default, Tenant may, at its election, but without obligation therefor at any time during the continuance of such default after the expiration of said 30 days notice (i) seek specific performance of any obligation of Landlord, after which Tenant shall retain, and may exercise and enforce, any and all rights which Tenant may have against Landlord as a result of such default, (ii) from time to time without releasing Landlord in whole or in part from Landlords obligation to perform any and all covenants, conditions and agreements to be performed by Landlord hereunder, cure the default at Landlords cost, (iii) terminate this Lease by giving Landlord written notice of such termination, and/or (iv) exercise any other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Any reasonable cost incurred by Tenant in order to cure such a default by Landlord shall be due immediately from Landlord, together with interest. Tenant shall have the right to deduct from the Rent and other charges due hereunder any amounts due from Landlord pursuant to this paragraph 30 if Landlord fails to reimburse Tenant as provided herein. |
c) | Notices . Notices given under this paragraph 30 shall specify the alleged default and the applicable Lease provisions, and shall demand that Landlord perform the provisions of this |
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Lease within the applicable period of time for cure. No such notice shall be deemed a forfeiture or termination of this Lease unless expressly set forth in such notice. |
d) | Landlords Payment Following Lease Termination . Upon any termination of this Lease by Tenant as permitted under this Lease, in addition to and without limitation of any of Tenant s other rights and remedies under this Lease, Landlord shall pay to Tenant in cash, within 10 days after the date of such termination, an amount equal to the product obtained by multiplying (i) the sum of all of Tenants hard and soft costs relating to the construction of Tenants Improvements by (ii) a fraction, the numerator of which is the number of months from and including the date of such termination through the date of expiration of the Term, including all Option Terms, and the denominator of which is the total number of months included within the Term, including all Option Terms. If Landlord fails to make such reimbursement to Tenant within such 10-day period, the amount so due Tenant from Landlord shall bear interest from the date of termination until paid. |
31) | Remedies Cumulative; No Waiver . No remedy herein or otherwise conferred upon or reserved hereunder shall be considered exclusive of any other remedy, but the same shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute, and every power and remedy given by this Lease may be exercised, from time to time, as often as occasion therefor may arise or as may be deemed expedient. No delay or omission by either party to exercise any right or power arising from any breach by the other of any term or condition of this Lease, and no acceptance of full or partial rent during the continuance of any such breach, shall impair any such right or power or shall be construed to be a waiver of any such breach or an acquiescence therein; nor shall the exercise, delay or non-exercise of any such right or remedy impair the rights granted hereunder or be construed as a waiver of such right or remedy or as a waiver, acquiescence in or consent to any further or succeeding breach of the same or any other covenant. |
32) | Subordination; Non-Disturbance and Attornment . Landlord understands and agrees that Tenant shall not be required hereafter to subordinate its interest in this Lease to any deed of trust, mortgage or to any other lien, encumbrance, condition, restriction, covenant or agreement affecting the Premises, provided, however, that Tenant hereby agrees to subordinate its interest in this Lease to a deed of trust, or mortgage if the beneficiary and trustee or the mortgagee thereunder executes, causes to be acknowledged and delivers to Tenant a Non-Disturbance and Attornment Agreement with Tenant containing substantially the same information and provisions as, but no less favorable to Tenant than, the information and provisions set forth on Exhibit 7/32 . If by virtue of an amendment hereto, operation of law or for any other reason, any mortgagee, trustee or beneficiary under a deed of trust or holder of any other security instrument claims an interest in the Premises prior to that of Tenant, Tenants estate hereunder shall be subordinate to the interest of such party only if such party executes, causes to be acknowledged and delivers to Tenant a Non-Disturbance and Attornment Agreement from such party containing substantially the same information as, but no less favorable to Tenant than, the information and provisions set forth on Exhibit 7/32 . |
33) | Surrender and Holding Over. |
a) | Surrender . Upon the expiration or other termination of this Lease, Tenant shall return all keys and quit and surrender to Landlord the Premises, together with Tenants Improvements and all other property affixed to the Premises, excluding Tenants Moveable Property, which shall remain the property of Tenant, in good order and condition, ordinary wear and tear, casualty and condemnation excepted. Subject to the last sentence of this subparagraph (a) , Tenant shall, prior to the expiration or other termination of this Lease, remove all Tenants Moveable Property and other property belonging to it which is not affixed to the Premises and failing to do so, Landlord |
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may cause all of said personal property to be removed. Tenants obligation to observe or perform this covenant shall survive the expiration or other termination of this Lease. In the alternative, Landlord may, at its option, treat any and all items not removed by Tenant on or before the date of expiration or other termination of this Lease, other than such items that are not owned by Tenant, as having been relinquished by Tenant and such items shall become the property of Landlord with the same force and effect as if Tenant had never owned or otherwise had any interest in such items. Anything herein to the contrary notwithstanding, Tenant shall not be obligated to remove any safes (whether or not built-in), vaults, night depositories, security deposit box assemblies, ATM machines and equipment, teller stations or any other items of Tenants Moveable Property that Tenant may elect to leave in the Premises upon the expiration or other termination of this Lease and Tenant shall not be obligated to reimburse Landlord for the cost of removing said items from the Premises. In the event Tenant does remove its ATM machines and equipment on surrendering the Premises, Tenant shall cover and secure any openings in walls caused by the removal of such machines and equipment. |
b) | Holding Over . This Lease shall automatically terminate and be of no further force or effect upon the expiration of the Term, and any holding over by Tenant after such expiration shall not constitute a renewal hereof or provide Tenant with any rights hereunder except that Tenant shall be deemed to be in possession of the Premises on a three-month to three-month tenancy commencing on the first day following the expiration of this Lease and a tenant at sufferance of Landlord. Any such tenancy shall be subject to the terms and conditions herein contained, and the monthly Rent shall be equal to 1/12 th of the fixed annual Rent as of the date of expiration of the Term and said tenancy may be terminated at any time upon 30 days written notice by Landlord to Tenant or by Tenant to Landlord. The acceptance of rent under the provisions of this paragraph 33 shall not, however, be construed as a waiver by Landlord of any rights of reentry as set forth in this Lease, or as a renewal hereof. |
34) | Notices . Except as otherwise expressly provided in this Lease, all notices required or permitted by any provision of this Lease shall be given in writing, either by personally handing to the party or its agent such written notice or by depositing the same in the United States mail with sufficient postage by certified mail, all charges prepaid, addressed to the party to whom the notice is to be given at the address given in this Lease as stated below or at such other address as may from time to time be given in writing by the parties. Notice shall be deemed to have been made at the time of depositing the letter in the United States mail. |
If to Landlord:
JAMESVIEW INVESTMENTS LLC 1400 New London Road Forest, Virginia, 24551 c/o The Counts Realty and Auction Group |
If to Tenant:
BANK OF THE JAMES P.O. Box 1200 Lynchburg, VA 24505-1200 c/o J. Todd Scruggs, Exec. VP and CFO |
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with a copy to Tenants counsel: Eric J. Sorenson, Jr., Esquire Edmunds & Williams, P.C. P.O. Box 958 Lynchburg, VA 24505 |
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35) | Asbestos . |
a) | Tenant acknowledges that Landlord has furnished Tenant with a copy of a three ringer binder of information entitled Asbestos Abatement and O & M Implementation, dated December 2002 (the O&M Document ), which includes an asbestos survey report, dated May 2002 (the Report ), and a document entitled Asbestos Operations and Maintenance Plan, dated June 2002 (the Plan ), all prepared by Environmental Investigations, Inc., and all regarding the presence of asbestos-containing materials ( ACMs ) in, on, under, at, or about the Building, including the Premises, and all the Common Areas. In reliance on the protections afforded Tenant in the following provisions of this paragraph 35 and otherwise in this Lease and Landlords representations and warranties in paragraph 6 above, Tenant has accepted the Premises subject to the existence of those ACMs identified in the O&M Document and the Plan which Landlord has not agreed to remove, abate or otherwise remediate prior to Tenants occupancy as described in paragraph 6(c) above concerning Landlords Work. Tenant will abide by the operating and maintenance recommendations as set forth in the Plan to the extent they relate to Tenants use or occupancy of the Premises, and Landlord will abide by those recommendations to the extent they relate to Landlords ownership, operation and management of the Building, including the Premises, and all the Common Areas. |
b) | If compliance with any present or future federal, state, and/or local governmental laws, rules, regulations, or government orders or directives (including the Clean Air Act, 42 U.S.C. sec. 7401 et seq., the National Emissions Standards for Air Pollutants (NESHAPS), the regulations promulgated under any of the foregoing, and the regulations promulgated under the Occupational Safety and Health Act (OSHA) at 40 C.F.R. Parts 1910 and 1926)) (collectively, Asbestos Related Laws ) requires that any remedial or corrective action be taken with respect to asbestos or ACMs in, on, under, at, or about the Building, the Premises, and/or the Common Areas, then Landlord, at its sole cost and expense, shall promptly take all such remedial or corrective action as may be so required by such Asbestos Related Laws. Any and all remedial and corrective work undertaken by or on behalf of Landlord shall be performed in accordance with applicable Asbestos Related Laws and best industry practices. |
c) | Landlord shall, at its sole cost and expense, throughout the Term keep in full force and effect an agreement with a competent, professional, technical environmental consulting and oversight services firm ( Environmental Consultant ) mutually acceptable to Landlord and Tenant to implement and regularly update the Plan and to give written assurances to Landlord (and to Tenant with respect to the Premises and the Common Areas adjacent to the Premises) that all recommendations set forth in the Plan are being properly adhered to by Landlord, tenants of the Building, and their respective employees, agents and contractors and that any asbestos removal, abatement and/or remediation will be, is being, and, to the extent completed from time to time, has been accomplished in a competent, safe and effective manner consistent with all applicable Asbestos Related Laws and best industry practices, and in furtherance of the preservation of the value, use and benefit of the Building, including the Premises, and all Common Areas, and all asbestos removal, abatement and/or remediation shall be performed by a competent, professional, asbestos abatement contractor mutually acceptable to Landlord and Tenant. Landlord shall ensure that each consultant and contractor performing asbestos-related work provides Landlord and Tenant proof that it has obtained the necessary licenses and permits to perform such work in Lynchburg, Virginia and that it has obtained comprehensive general liability insurance with a combined single limit of not less than $1,000,000.00, which insurance shall be true occurrence insurance with no sunset clause and shall include deletion of exclusion for hazardous materials/asbestos pollution and escape release, and other insurances all with such coverage limits and on such other terms as are satisfactory to both Landlord and |
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Tenant, and each asbestos abatement contractor shall enter into a form of asbestos abatement agreement on such terms, including waivers of liability and indemnification for Landlords and Tenants benefit, as are acceptable to Landlord and Tenant. Tenant reserves the right to reject any Environmental Consultant and/or abatement contractor proposed by Landlord, if their respective work is to be conducted in, on, under, at, about or otherwise impacts safe use of the Premises or any Common Areas adjacent to the Premises, and any agreement with an Environmental Consultant with respect to such work shall be subject to termination on an at-will basis by either Landlord or Tenant. Further, Tenant reserves the right to engage, at its sole expense, its own independent environmental consultant at any time to oversee Landlords Environmental Consultant and contractors with respect to work conducted in, on, under, at, about or otherwise impacting safe use of the Premises or any Common Areas adjacent to the Premises. |
d) | The Plan, as supplemented and amended from time to time, shall provide for a program of training, cleaning, work practices and periodic surveillance and testing to maintain friable and/or non-friable ACMs in good condition, ensure cleanup of asbestos fibers previously released, and prevent further fiber release by minimizing and controlling asbestos disturbance all in conformity with Asbestos Related Laws and best industry practices. Landlord shall, as part of such Plan, instruct its Environmental Consultant to regularly monitor the Building, including the Premises, and all the Common Areas, to inspect and take phase contrast microscopy samples for the presence of asbestos, and all reports and results of laboratory analysis shall be furnished to Tenant at the same time they are provided to Landlord or its agent. The Premises shall be inspected as frequently as the Environmental Consultant deems prudent, but in no event less frequently than the frequency required by applicable Asbestos Related Laws or best industry practices, which ever is more stringent, and in no case less frequently than monthly. Landlord shall authorize and direct the Environmental Consultant to immediately disclose to Tenant and provide copies of all information in its possession, concerning asbestos or ACMs or other hazardous materials in, on, under, at, about or otherwise impacting safe use of the Premises or any Common Areas adjacent to the Premises, as such information becomes available from time to time. |
e) | Landlord shall ensure that the Environmental Consultant at all appropriate times in each circumstance reports to Landlord and Tenant as to whether: (i) notice of the asbestos response action should be provided to the proper federal, state and local government authorities; (ii) if such activities are required to be reported, that the reports have been properly and correctly made; (iii) that the response action is being, and, to the extent completed, has been completed in accordance with the most current guidance document and the statutes and regulations above cited; (iv) that the ambient interior concentrations of asbestos are less than or equal to those allowed pursuant to regulations promulgated under NESHAPS and OSHA or other applicable Asbestos Related Laws or best industry practices for re-occupancy of buildings (which currently require ambient air concentrations of asbestos to be less than 0.01 f/cc (fibers per cubic centimeter)), whichever is most stringent; and (v) that all asbestos or ACMs removed or to be removed from the site are to be or have been transported by a licensed or permitted special waste hauler qualified under the Hazardous Materials Transportation Act, was transported in accordance with all necessary permits and applicable regulations and are to be or have been disposed of at a licensed or permitted treatment, storage or disposal facility in compliance with all necessary and appropriate licenses or permits issued or required to be issued for such disposition. |
f) | Landlords maintenance, repair and replacement obligations under this Lease, as set forth in paragraph 14 above, shall include the obligation to maintain, remove, abate and otherwise |
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remediate, at Landlords sole expense, the asbestos and ACMs existing in the Building, including the Premises, and all the Common Areas, in accordance with the recommendations set forth in the O&M Document and the Plan, as each may be amended or supplemented from time to time, and all applicable Asbestos Related Laws and best industry practices. |
g) | Tenant agrees to submit to Landlord its plans for any proposed structural alteration of the walls, ceilings or floors of the Premises so that Landlord may instruct its Environmental Consultant to determine whether the alteration will disturb asbestos or ACMs or require removal or abatement of asbestos or ACMs, in which event Landlord shall, at its expense, engage its abatement contractor to comply with the recommendations of such Environmental Consultant in removing, abating and otherwise remediating asbestos and ACMs in connection with such alteration. |
h) | Rent and all other charges due under this Lease shall be entirely abated for any period during which Tenants business is disrupted by any required cleaning, removal, abatement, enclosure, encapsulation, repair or other remedy of any asbestos or ACMs, except for those instances arising out of any structural alteration to the walls, ceilings or floors of the Premises performed by Tenant after Tenants initial fit-out, improvements, and installations. |
i) | Notwithstanding anything to the contrary in this Lease, if (i) surveillance and testing of the Building reveal that the Building, the Premises and/or any Common Areas contain(s) asbestos or ACMs which Asbestos Related Laws require Landlord to abate or cure, or (ii) if the ambient interior concentrations of asbestos are more than those allowed pursuant to regulations promulgated under NESHAPS and OSHA or other applicable Asbestos Related Laws or best industry practices for re-occupancy of buildings (which currently require ambient air concentrations of asbestos to be less than 0.01 f/cc (fibers per cubic centimeter)), whichever is most stringent, or (iii) if the presence of asbestos or ACMs in the Building, the Premises, and/or any Common Areas, or compliance with operating and maintenance recommendations of Landlords Environmental Consultant or as set forth in the O&M Document and/or the Plan, materially interferes with Tenants use of the Premises for the Permitted Uses, then Tenant may immediately terminate this Lease upon written notice to Landlord, in which case Tenant shall be fully released of liability under this Lease and Rent shall be apportioned as of the date of such termination, subject to any abatement in Rent prior to termination provided for under this Lease. |
j) | In addition to but not in limitation of any other indemnification obligations under this Lease, Landlord shall indemnify, defend and hold harmless Tenant, its affiliates, subsidiaries, officers, directors, employees, agents and representatives from and against all claims (including claims in the nature of workers compensation or claims made by carriers of workers compensation insurance), actions, damages, liability and expenses, including reasonable attorneys fees, resulting from or arising out of cleaning, removal, abatement, enclosure, encapsulation, repair or other remedy of any asbestos or ACMs, or exposure of any person to asbestos, ACMs, or other hazardous materials in, on, under, at, or about the Building, the Premises, and/or any Common Areas. |
36) | Interest . Wherever in this Lease a party is entitled to interest on sums it has expended, such amount shall bear interest from the date of expenditure until the date of repayment at an annual rate equal to 2% above the Prime Rate, but not greater than the highest non-usurious rate then permitted by law. The Prime Rate means the prime rate of interest (or base rate) from time to time reported in the Money Rates column or section of The Wall Street Journal as being the base rate on corporate loans at larger United States Money Center commercial banks on the first date on which The Wall Street Journal is published in each month. If The Wall Street Journal ceases publication of the Prime Rate, then the Prime Rate shall mean the Prime Rate or base rate announced by Bank of the James (whether or not such rate has actually been charged by Bank of the James). If Bank of |
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the James discontinues the practice of announcing such rate, Prime Rate shall mean the highest rate charged by Bank of the James on short-term, unsecured loans to its most creditworthy large corporate borrowers. |
37) | Waiver of Landlords Lien . Landlord, within 10 days after demand from Tenant, shall execute and deliver any document required by any supplier, lessor or lender in connection with the installation in the Premises and/or Tenants Improvements of Tenants Moveable Property, pursuant to which document Landlord waives any rights it may have or acquire with respect to that property, if the supplier, lessor or lender agrees in writing that (i) it will remove that property from the Premises within 30 days after the expiration of the Term, but if it does not remove the property within 30 days after the expiration of the Term it shall have waived any rights it may have had to the property; and (ii) it will make whatever restoration to the Premises that is reasonably necessitated by the removal. Anything in this Lease to the contrary not withstanding, Landlord hereby waives its right, if any, to distrain upon or to secure a lien against the inventory, accounts and deposits held by Tenant for Tenants nonpayment of Rent or other default under this Lease, or otherwise. The waiver provided for in the preceding sentence is intended to be, and is, automatic and self-operating; provided, however, Landlord agrees that upon Tenants request Landlord shall execute such additional instruments as are requested by Tenant to further evidence and confirm the same. |
38) | Performance under Protest . If at any time a dispute shall arise as to any amount or sum of money to be paid by one party to the other under the provisions hereof, the party against whom the obligation to pay the money is asserted shall have the right to make payment under protest and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said party to institute suit for recovery of such sum together with interest. If it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay plus interest at the rate provided for in this Lease. Neither party which fails to pay under protest waives its right to later object to such payment. |
39) | Telecommunications Equipment; Mechanical Room . At any time during the Term, Tenant may install, with the prior written consent of Landlord, at Tenants sole cost and expense, except for removal, abatement and/or remediation of ACMs, which shall be at Landlords sole cost and expense, any telecommunication equipment upon the roof of the Building or in the Premises and may use available chutes, chases, and conduits in the Building to run its lines, wires or cables, all in compliance with all applicable laws, without the payment of any additional rent. Tenant shall have a non-exclusive easement during the Term for it, its employees and contractors, to install, access, clean, maintain, repair and replace, and remove any such telecommunications equipment as Tenant deems necessary from time to time. Likewise, Tenant, its employees and contractors shall have a non-exclusive easement to use the Mechanical Room on the 2 nd Floor to install, access, clean, maintain, repair and replace, and remove Tenants telecommunications and other equipment, installations and facilities. |
40) | ATMs . At any time during the term of the Lease, Tenant may install one or more walk-in ATMs inside and/or outside of the Premises under the roof overhang facing Main Street near the entrance to the Premises in compliance with all applicable laws, without the payment of any additional rent. Tenant shall have a non-exclusive easement during the Term, for it, its employees and contractors, to install, access, clean, maintain, repair and replace, and remove any such ATM machines and facilities as Tenant deems necessary from time to time, and for Tenants customers to access and use the same during the Term. |
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41) | Commissions . Each party hereto represents and warrants to the other that there are no fees, commissions or other payments due for bringing about the execution and delivery of this Lease. If such representation and warranty is breached, each party hereby indemnifies and holds harmless the other of and from each and every claim for fees, commissions or other payments made against such other party, which claim is based on the agreement or undertaking of the indemnifying party. |
42) | Governing Law . The terms of this Lease shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia. |
43) | Construction . All provisions hereof are to be construed as covenants and agreements as though the words importing such covenants and agreements were used in each paragraph hereof. The necessary grammatical changes required to make the provisions of this Lease apply in the plural sense where there is more than one Landlord or Tenant and to either corporations, limited liability companies, associations, partnerships or individuals, males or females, shall in all instances be assumed as though in each case fully expressed. This Lease has been the subject of extensive negotiations between the parties, and the interpretation hereof shall not be based upon any party being the draftsman hereof. |
44) | Entire Agreement . All negotiations, considerations, representations and understandings between the parties are merged herein and may be modified or altered only by an agreement in writing between the parties hereto. |
45) | Partial Invalidity . If any term or provision of this Lease shall to any extent be held invalid or unenforceable, the remaining terms and provisions of this Lease shall not be affected thereby, but each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. |
46) | Covenants Running with the Premises . This Lease and each and every covenant, agreement, condition and undertaking shall be deemed to be running with the land during the Term of this Lease and shall be binding upon and inure to the benefit of the respective parties hereto, their successors and assigns. |
47) | Not a Partnership . Nothing herein contained shall be construed as creating a partnership, joint venture or any other relationship between Landlord and Tenant, other than that of landlord and tenant. |
48) | Force Majeure . Neither party will be liable for any delay or failure in the performance of any of its obligations herein when due to labor disputes, inability to obtain materials or services, wars, restrictions by governmental authorities, weather, acts of God, or any other cause not within the control of such party (each a Force Majeure Event ), provided, that upon the occurrence of any such Force Majeure Event, the party who has been so affected shall immediately give notice to the other party and shall do everything possible to resume performance. If the period of nonperformance exceeds 90 days from the receipt of notice of the Force Majeure Event, the party whose ability to perform has not been so affected may by giving written notice terminate this Lease, and Rent and shall be apportioned as of such termination. |
49) | Facilitation . Each party agrees to perform such further acts and to execute and deliver such further documents as may be reasonably necessary to carry out the provisions of this Lease and are consistent therewith. |
50) | Waiver . No waiver of any of the terms or conditions of this Lease shall be binding or effective unless expressed in writing and signed by the party giving such waiver. |
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51) | Attorneys Fees . If either party hereto brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party in such action shall be entitled to reasonable attorneys fees and costs of suit. |
52) | Authority . Each individual executing this Lease personally warrants and represents that he is authorized to enter into this Lease on behalf of his respective corporation or limited liability company and to bind said entity with respect to any transaction contemplated by or occurring under the provisions of this Lease. |
53) | Captions . The captions in this Lease are inserted only for convenience and in no way construe or interpret the provisions hereof or affect their scope or intent. |
54) | Parties Bound . This Lease shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns. |
55) | Exhibits and Schedules . The exhibits and schedules attached hereto and initialed by the parties, or incorporated herein by reference, are made a part of this Lease. |
56) | Usage . As used in this Lease, the word including shall mean including but not limited to. |
57) | Landlords Good Faith . Whenever pursuant to the terms of this Lease (including paragraphs 13 (Tenants Improvements/Alterations), 26 (Signage; Name of Building), and 39 (Telecommunications Equipment)), Tenant is required to obtain Landlords consent or approval, Landlord covenants (i) to act in good faith in considering the request, (ii) not to unreasonably withhold, delay or condition its consent or approval, and (iii) to approve or deny Tenants request for consent or approval within 10 days of receipt of such request. Any request shall be deemed consented to and approved if such written notice of consent or denial is not received by Tenant within such 10-day period. |
58) | Authority of Managing Agent . Tenant acknowledges that Landlord may manage the Property through an agent (the Managing Agent ) and agrees that Landlords agent shall be entitled to the same rights of access to the Premises as Landlord. Such agent shall have full power and authority to deal with Tenant for all matters concerning this Lease and Tenants use and possession of the Premises, including the authority to accept Rent for and on behalf of Landlord; to receive, accept and deliver notices under this Lease; and to make modifications to this Lease, including the granting of lease extensions and renewals and making lease amendments. Landlord initially designates The Counts Realty and Auction Group as its Managing Agent, and Landlord agrees to be bound by all actions of such agent. Tenant shall be entitled to rely on the authority of the designated Managing Agent in connection with this Lease and in dealing with this Lease and the Premises. Landlord shall provide Tenant written notice of any removal of such agent and designation of a replacement agent, if any. |
59) | Recording; Confidentiality . Tenant shall be entitled to record this Lease or any memorandum or short form hereof, provided that all fees, costs, taxes and expenses in connection with the filing and recording of this Lease or any memorandum or short form hereof shall be the sole obligation of Tenant. Such memorandum shall include such information as is required in order for Tenant to obtain the ALTA Leasehold Owners Policy - 1992, or the then current form of an ALTA Leasehold Policy, and such other information as may be reasonably requested by Tenant. Upon the expiration of the Term, at the request of Landlord, Tenant shall execute a quitclaim termination of its leasehold interest to Landlord. Landlord agrees to keep this Lease, and the terms hereof, confidential except to the extent Landlord must disclose this Lease to its legal and tax counsel, or as required by law, or to enforce this Lease, and except to the extent that Tenant shall have publicly disclosed this Lease by recording this Lease or any memorandum or short form hereof. Notwithstanding the foregoing, Landlord may at its risk disclose to third parties that Tenant will occupy the Building, but only after the Effective Date. |
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60) | Landlords Obligation to Lease 821 Commerce Street to Tenant . Landlord shall lease to Tenant the improved parcel of land commonly known as 821 Commerce Street, Lynchburg, Virginia, containing approximately 0.469 acres, located at the corner of Ninth and Commerce Streets in the City of Lynchburg, Virginia, as more particularly shown and described on the plat marked as Exhibit 60 and attached hereto, including the existing drive-in teller facilities, drive-up ATM(s), drive-up night depositories, and walk-up ATM(s), and all parking areas, which parcel is currently designated by the City of Lynchburg as Tax Map Parcel No. 57611165 (the Drive-in Banking Facility ) and is the same property currently occupied by Wachovia Bank, N.A. pursuant to a Ground Lease between Landlord and Wachovia Bank, N.A. dated July 16, 2003 ( Wachovia Lease ). Landlord shall secure the termination of such Wachovia Lease effective no later than June 1, 2008, time being of the essence, and the term of Tenants lease of such Drive-in Banking Facility shall commence on July 1, 2008, time being of the essence, or upon occupancy of Tenant if Landlord makes early possession available to Tenant and Tenant elects to take early occupancy and shall continue for so long as this Lease of the Premises to Tenant is in effect ( i.e. , the lease of the Drive-in Banking Facility to Tenant shall commence on July 1, 2008 (or occupancy if earlier) and continue uninterrupted until this Lease expires or sooner terminates). The rent for such lease of the Drive-in Banking Facility shall be a flat rate in the amount of $20,000. 00 per Lease Year (payable in monthly installments of $1,666. 67 ) commencing on January 1, 2009, and such rent shall remain constant during the entire term of such lease. Such lease shall otherwise be in substantially the same form and terms as the Wachovia Lease, except where the context requires otherwise, and shall be entered into by the parties separate and apart from this Lease. If Landlord fails to secure the termination of the Wachovia Lease and deliver possession of the Drive-in Banking Facility by July 1, 2008, then Tenant shall be entitled, at its option, to terminate this Lease without liability to Landlord, or to continue its use and possession of the Premises at one-half (1/2) the Rent reserved under this Lease for so long as Landlord fails to deliver such possession, together with all other rights and remedies afforded under this Lease and applicable law. |
61) | Survival of Obligations . Any obligations of Tenant or Landlord accruing prior to the expiration or sooner termination of this Lease shall survive the expiration or earlier termination of this Lease, and Tenant and Landlord shall promptly perform all of their respective obligations accruing prior to the expiration or sooner termination of this Lease whether or not this Lease has expired or been terminated. |
62) | No Third Party Beneficiaries . The provisions of this Lease are not intended to be for the benefit of, or enforceable by, any person or entity other than Landlord and Tenant, and their respective successors and assigns. |
63) | Copies. More than one copy of this Lease may be executed, and the parties agree that each fully executed copy shall be a duplicate original. |
[SIGNATURE PAGE TO FOLLOW]
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WITNESS the following signatures and seals, all as of the day, month and year first above written.
Landlord: | ||||
JAMESVIEW INVESTMENTS LLC |
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By: |
/s/ William C. Bryant, III |
(SEAL) |
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William C. Bryant, III, Managing Member |
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Tenant: | ||||
BANK OF THE JAMES |
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By: |
/s/ J. Todd Scruggs |
(SEAL) |
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J. Todd Scruggs, Exec. VP and CFO |
STATE OF VIRGINIA
CITY/COUNTY OF LYNCHBURG
The foregoing lease was acknowledged before me this 16 TH day of October, 2003, by William C. Bryant, III, Managing Member of Jamesview Investments LLC, a Virginia limited liability company, on behalf of the company.
My commission expires: 1/31/07
/s/ |
Notary Public |
STATE OF VIRGINIA
CITY/COUNTY OF LYNCHBURG
The foregoing lease was acknowledged before me this 9 TH day of October, 2003, by J. Todd Scruggs, Exec. VP and CFO of Bank of The James, a Virginia corporation, on behalf of the corporation.
My commission expires: November 30, 2003
/s/ |
Notary Public |
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Exhibit 1(a)(3 rd Floor)
FLOOR PLAN OF 3 RD FLOOR
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Exhibit 1(a)(2 nd Floor)
FLOOR PLAN OF 2 ND FLOOR
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Exhibit 5
PERMITTED TITLE EXCEPTIONS
| Roof overhang into the right of way of Main Street and roof overhang into the right of way of Ninth Street as shown on the Plat described in the recitals of this Lease. |
| Rights of others in and to the use of the appurtenant easement set out in the description of the Property in the recitals to this Lease. |
| Taxes for the second half of 2003 and subsequent years not yet due and payable. |
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Exhibit 7/32
NON-DISTURBANCE AND ATTORNMENT AGREEMENT
This NON-DISTURBANCE AND ATTORNMENT AGREEMENT (this Agreement) dated the day of 20 between , a whose address is (Lender), and BANK OF THE JAMES, a Virginia banking corporation, whose address is (Tenant).
Recitals:
A. Tenant has entered into a Deed of Lease dated , 20 (the Lease) with Jamesview Investments LLC, a Virginia limited liability company (Landlord), covering certain premises more fully described in the Lease (the Premises), which premises are located on the second and third floors of Landlords office building at the corner of Ninth and Main Streets in the Central Business District of downtown Lynchburg having a street address of 828 Main Street, Lynchburg, Virginia 24504 (the Building). The Premises and the Building form a part of the real estate currently designated by the City of Lynchburg as Tax Map Parcel No. 57611220 and more particularly described on Schedule A attached hereto and incorporated in this Agreement (the Property).
B. Lender has made a loan to Landlord in the sum of $ secured by a Deed of Trust on Landlords interest in the Property (the Security Instrument), recorded in the Clerks Office of the Circuit Court of the City of Lynchburg Virginia.
C. The Lease requires that Lender agree not to disturb Tenants possessory rights in the Premises under the Lease in the event Lender should foreclose the Security Instrument, as provided by this Agreement.
Therefore, in consideration of the mutual promises, covenants and agreements herein contained, the parties hereto, intending to be legally bound hereby, promise, covenant and agree as follows:
1. In the event that Lender or any trustee for Lender takes possession of the Property, as mortgagee-in-possession or otherwise, or forecloses the Security Instrument or otherwise causes the Property to be sold pursuant to the Security Instrument, Lender agrees not to affect, terminate or disturb Tenants right to quiet enjoyment and possession of the Premises under the terms of the Lease or any of Tenants other rights under the Lease in the exercise of Lenders rights under the Security Instrument so long as no event of default has occurred, which has continued to exist for such period of time (after notice and opportunity to cure, if any, required by the Lease) as would entitle Landlord under the Lease to terminate the Lease.
2. In the event that Lender succeeds to the interest of Landlord under the Lease and/or Landlords fee title to the Property, or if anyone else acquires title to or the right to possession of the Property upon the foreclosure of the Security Instrument or by other sale pursuant to the Security Instrument, or upon the sale of the Property by Lender or its successors or assigns or any trustee for Lender after foreclosure or other sale pursuant to the Security Instrument or acquisition of title in lieu thereof or otherwise (each a Transfer), the Lease shall continue in full force and effect as a direct lease between Lender or its successors or assigns or the then owner of Landlords fee title to the Property after foreclosure or other sale pursuant to the Security Instrument (hereinafter collectively referred to in this paragraph as Successor Landlord) and Tenant. Successor Landlord and Tenant shall recognize one another as landlord and tenant, respectively, under the Lease and shall be bound to one another under all of the terms, covenants and conditions of the Lease as of the date and time of the Transfer, and Successor
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Landlord shall assume all of the obligations of Landlord under the Lease. Accordingly, from and after such event, Successor Landlord and Tenant shall have the same remedies against each other for the breach of an agreement contained in the Lease as Tenant and Landlord had before Successor Landlord succeeded to the interest of Landlord; provided, however, that Successor Landlord shall not be bound by any rent or additional rent that Tenant might have paid for more than one month in advance to any prior landlord (including Landlord). Successor Landlord shall give credit to Tenant for any security deposit of Tenants held by any prior landlord (including Landlord). The foregoing provisions of this Agreement, including without limitation Tenants attornment to Successor Landlord, shall be self-operative upon a Transfer of the Property.
3. Tenant hereby agrees (i) not to pay any rent or other sums due or to become due under the Lease more than 30 days in advance of the date on which the same are due or to become due under the Lease; and (ii) upon receipt from Lender of notice of any default by Landlord under the Security Instrument, to pay to Lender directly all rent and other sums due under the Lease.
4. Landlord joins in this Agreement to consent to the terms hereof.
5. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their successors and assigns.
6. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized officers as of the date and year first above written.
Lender: | ||||
|
||||
By: |
|
(SEAL) |
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Signature |
||||
|
||||
Name of Signer | ||||
|
||||
Title of Signer | ||||
Tenant: | ||||
BANK OF THE JAMES |
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By:
|
|
(SEAL) |
||
Signature |
||||
|
||||
Name of Signer | ||||
|
||||
Title of Signer |
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STATE OF VIRGINIA
CITY/COUNTY OF
The foregoing lease was acknowledged before me this day of , 2003, by , of , a , on behalf of the .
My commission expires:
Notary Public |
STATE OF VIRGINIA
CITY/COUNTY OF
The foregoing lease was acknowledged before me this day of , 2003, by , of Bank of the James, a Virginia banking corporation, on behalf of the corporation.
My commission expires:
Notary Public |
STATE OF VIRGINIA
CITY/COUNTY OF
The foregoing lease was acknowledged before me this day of , 2003, by , of Jamesview Investments LLC, a Virginia limited liability company, on behalf of the company.
My commission expires:
Notary Public |
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Schedule A
All that certain lot or parcel of land, together with the building and improvements thereon, situated in the City of Lynchburg, State of Virginia, and more particularly described according to a plat entitled Plat of Survey Showing: Property of Ninth and Main, Inc., Lynchburg, Virginia, dated April 6, 1973, by Adrian Overstreet, S.C.S., recorded in the Clerks Office of the Circuit Court of the City of Lynchburg, Virginia in Deed Book 479, page 135 (the Plat ), described as follows:
Beginning at the intersection of the northeast line of Main Street with the northwest line of Ninth Street and running thence with the said line of Main Street N. 31 deg. 00 W. 143.33 feet to a corner nail; thence N. 59 deg. 28 E. 165.00 feet to a corner iron; thence S. 31 deg. 00 E. 143.33 feet to a corner nail in the northwest line of Ninth Street; and thence with the said line of Ninth Street S. 59 deg. 28 W. 165.00 feet to the point of beginning, together with an easement and right-of-way in common with others having a like right, for use as a service entry or passageway 15 feet in width, and running from Commerce Street over adjacent property now or formerly owned by The Fidelity National Bank, Lynchburg, Virginia, the location of which easement and right-of-way is shown upon the Plat and which easement and right-of-way may from time to time be relocated as determined by said Bank, or its successors in title, such relocations to be at the cost and expense of the said Bank or its successors in title.
Being the same property conveyed to Landlord by deed dated January 2, 2003, from Western Associates III, a Pennsylvania Limited Partnership, recorded in the Clerks Office of the Circuit Court of the City of Lynchburg, Virginia on January 21, 2003, as Instrument No. 030000725.
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Exhibit 8(a)
PROHIBITED USES
1) | Any use which: |
| is in violation of applicable zoning regulations |
| is a public or private nuisance |
| produces noise or sound that is objectionable due to intermittence, high frequency, shrillness or loudness |
| produces obnoxious odors |
| produces noxious, toxic, caustic, or corrosive fuel or gas |
| produces fire, explosion, or other damaging or dangerous hazard (including storage, display or sale of explosives or fireworks) |
| involves assembling, manufacturing, industrial, distilling, refining, smelting, agriculture or mining on site (but this shall not preclude use as corporate offices for such businesses) |
| includes the sale or exhibition of pornography |
2) | Or any: |
| Cash Advance establishment |
| Dry cleaners |
| Living quarters, sleeping apartment, or lodging rooms |
| Warehouse |
| Massage parlor, or the business of adult materials, including without limitation, magazines, books, movies, videos and photographs |
| Mortuary, funeral home or crematorium |
| Movie theatre, skating rink, bingo parlor, bowling alley, game room, pool, or billiard parlor or room, game arcade, or amusement center |
| Any lounge, tavern, nightclub, disco, discotheque, dance hall, strip show, or any business offering live entertainment of any kind |
| Any establishment selling alcoholic beverages for on-site or off-site consumption, other than in connection with a restaurant appropriate for inclusion in a first-class office building, such as the former Piedmont Club |
| Pawn shops |
| Flea market |
| Carnival, amusement park, or circus |
| Casino, gaming hall, off-track betting facility, or other gambling operations or facility |
| Gas station or car wash |
| Business selling new or used motor vehicles, trailers or mobile homes |
41
Exhibit 13(a)
PLANS AND/OR DESCRIPTION OF TENANTS WORK
Tenants work is, as of the Effective Date, still under consideration, but the following work is anticipated:
| Eliminate certain teller stations. |
| Add offices along the exterior wall facing Ninth Street. |
| Install new ceiling tiles. |
| Improve or replace some existing lighting, in addition to lighting replaced by Landlord under paragraph 6(c) of the Lease. |
| Partition 3 rd Floor lobby area to make smaller. |
| Add or modify wiring/cabling to accommodate the installation of Tenants computer stations, network hardware, fixtures and equipment, including its check cutting machine. |
42
Exhibit 22
RULES AND REGULATIONS GOVERNING LEASE
IN THE BANK OF THE JAMES BUILDING
LYNCHBURG, VA
1. | Tenant shall not make or permit any noise or odor that is objectionable to the public, to other occupants of the building, or to Landlord, to emanate from the premises and shall not create or maintain an nuisance thereon and shall not disturb, solicit or canvass any occupant and shall not do any act tending to injure the reputation of the building or the premises. |
2. | Tenant shall not place or permit any radio antenna, loud speakers, sound amplifiers or similar devices on the roof or outside of the building without on each occasion obtaining the Landlords prior written consent. |
3. | Supplies, goals, entrances, passages, elevators, vestibules, stairways, corridors and halls must not be obstructed or used for any purpose other than ingress and egress to and from the demised premises. |
4. | Supplies, goods, materials, packages, furniture and all such items of every kind are to be delivered at the entrance provided therefore, thru service elevators or dumbwaiters to the tenant, or in such manner as the Landlord or Landlords agent may provide and the Landlord or his agent is not responsible for the loss or damage of any such property notwithstanding such loss or damage which may occur thru the carelessness or negligence of the employees of the building. |
5. | Tenant shall, upon termination of the lease, or the Tenants possession, surrender all keys of the premises to Landlord at the place then fixed for the payment of rent and shall make known to Landlord the explanation of all combination locks on safes and vaults in the premises. |
6. | All persons entering or leaving the building between the hours of 6 P.M and 8 A.M., Monday thru Friday, or at any time on Saturdays, Sunday or holidays, may be required to do so under such regulations as Landlord may impose (e.g., entering from a particular entrance and showing a security guard personal identification). |
43
Exhibit 60
PLAT OF DRIVE-IN BANKING FACILITY
44
Exhibit 21.1
List of Subsidiaries
Subsidiary |
Jurisdiction or State of Incorporation |
Names Under Which Subsidiary Does Business |
||
Bank of the James |
Virginia |
Bank of the James Bank of the James Mortgage Bank of the James Mortgage, a Division of Bank of the James |
Exhibit 31.1
CertificationPrincipal Executive Officer
I, Robert R. Chapman, III, President of Bank of the James Financial Group, Inc. certify that:
(1) I have reviewed this Form 10-KSB of Bank of the James Financial Group, Inc.;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
(4) The small business issuers other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the small business issuers disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the small business issuers internal control over financial reporting that occurred during the small business issuers most recent fiscal quarter (the small business issuers fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuers internal control over financial reporting; and
(5) The small business issuers other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuers auditors and the audit committee of the small business issuers board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuers ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuers internal control over financial reporting.
Date: March 22, 2004 |
By |
/S/ Robert R. Chapman, III |
||
Robert R. Chapman, III President and Director (Principal Executive Officer) |
Exhibit 31.2
CertificationPrincipal Financial Officer and Principal Accounting Officer
I, J. Todd Scruggs, Secretary and Treasurer of Bank of the James Financial Group, Inc., certify that:
(1) I have reviewed this Form 10-KSB of Bank of the James Financial Group, Inc.;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
(4) The small business issuers other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the small business issuers disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the small business issuers internal control over financial reporting that occurred during the small business issuers most recent fiscal quarter (the small business issuers fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuers internal control over financial reporting; and
(5) The small business issuers other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuers auditors and the audit committee of the small business issuers board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuers ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuers internal control over financial reporting.
By |
/S/ J. Todd Scruggs |
|||
Date: March 22, 2004 |
J. Todd Scruggs Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned hereby certifies that this Quarterly Report on Form 10-KSB fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Bank of the James Financial Group, Inc.
BANK OF THE JAMES FINANCIAL GROUP, INC. | ||||
Date: March 22, 2004 |
By |
/S/ Robert R. Chapman, III |
||
Robert R. Chapman, III President and Director (Principal Executive Officer) |
||||
Date: March 22, 2004 |
By |
/S/ J. Todd Scruggs |
||
J. Todd Scruggs Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer) |