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Bank of the James Reports Strong Year-Over-Year Earnings Growth


Bank of the James Reports Strong Year-Over-Year Earnings Growth in Third Quarter, Nine-Month 2012 Financial Results

LYNCHBURG, VA -- (Marketwire) -- 10/26/12 -- Bank of the James Financial Group, Inc. (NASDAQ: BOTJ)

Financial Highlights


 
--  Net income in third quarter 2012 increased to $539,000 or $0.16 per
    diluted share compared with $64,000 or $0.02 per diluted share in
    third quarter 2011.
--  For the nine months ended September 30, 2012, net income grew 69% to
    $1.39 million or $0.41 per diluted share compared with $818,000 or
    $0.25 per diluted share in the comparable nine months in 2011.
--  The dollar amount of non-performing loans declined 46.69%
    year-over-year, reflecting the bank's focus on asset quality, and the
    ratio of non-performing loans to total loans improved to 1.77% at
    September 30, 2012 compared with 3.33% at September 30, 2011 and 3.20%
    at December 31, 2011.
--  The bank's allowance for loan and lease losses (ALLL) to non-accruing
    loans was 98.96% at the end of third quarter 2012 compared with 50.62%
    at the end of third quarter 2011.
--  Since September 30, 2011, the bank's "Texas Ratio" ((NPAs +
    TDR):(Capital + ALLL)) declined to 20.08% at September 30, 2012
    compared with 50.08% at September 30, 2011.
--  Interest expense in third quarter 2012 declined 26% compared with
    third quarter 2011, reflecting disciplined interest rate management, a
    reduction in borrowings, and net interest margin improvement despite a
    flat interest rate environment and significant pressure on margins.
--  Book value per share increased 5.5% to $8.68 per share in third
    quarter 2012 compared with $8.23 in third quarter 2011 and $8.02 at
    the end of 2011.

Bank of the James Financial Group, Inc. (NASDAQ: BOTJ), the parent company of Bank of the James, a full-service commercial and retail bank, today announced unaudited results for the quarter and nine months ended September 30, 2012.

Robert R. Chapman III, President and CEO, commented: "We are pleased that the bank was able to execute its strategy to dramatically improve asset quality during the past year. This improvement resulted in markedly better earnings in the third quarter and nine months of 2012 compared with the previous yea r's performance. We are greatly encouraged by the progress made toward improving our foundation, as it enables the company to shift its focus to growth. Our improving asset quality is reducing non-interest expense and boosting our bottom line.

"The rate of non-accrual loans has slowed significantly, which we believe indicates the quality of our overall loan portfolio is high, and we expect that it will remain so. Even as we addressed problem loans and with OREO weighing down our financial performance, we remained focused on winning new deposits and loans. To do this, we concentrated and continue to concentrate on finding new customers and developing broader banking relationships. We are trying to expand our commercial relationships beyond traditional banking to include such services as cash management and retirement planning, including 401(k)s."

Chapman said the bank has experienced growth in a number of key areas. The successes, he noted, have been overshadowed by necessary reductions such as moving problem loans off the books.

"With far fewer loans moving to non-performing status, combined with more opportunity created by apparently improving economic conditions, we anticipate loan growth will be more evident in future quarters," he explained. "In September, for example, we had a record-setting month for mortgages originated. In the past several months, we have enhanced our commercial banking capabilities and added experienced individuals to our team. As a community bank based in and serving Lynchburg and the Region 2000 area, we believe our ability to provide specific and customized financial solutions for small businesses is unequalled."

Financial Highlights and Overview

Net interest income before provision for loan losses was $4.03 million in third quarter 2012 compared with $3.84 million in third quarter 2011. The provision for loan losses declined to $601,000 in third quarter 2012, compared with $1.27 million in the previous year's third quarter, allowing significantly more revenue flow to earnings. The company also reduced interest expense by 26% to $736,000 compared with $990,000 a year ago, while growing net interest margin to 4.06% in third quarter 2012 compared with 3.85% in third quarter 2011. The bank was also able to reduce Federal Home Loan Bank borrowings by $8 million during the quarter, in part because it grew its base of lower-cost core deposits, including non-interest bearing direct deposit accounts.

"We offer competitive rates, but more importantly our focus on fostering customer relationships and providing value through expanded banking and service relationships has effectively created a high level of customer loyalty and commitment to Bank of the James," said J. Todd Scruggs, CFO. "Unquestionably, this extended low-interest rate environment provides its share of challenges, yet our commitment to service and delivering quality financial solutions has been a key reason for the stability of our bank."

Third quarter 2012 non-interest income, which includes fees from mortgage origination, gain on sale of securities, fees and services such as brokerage and insurance services, was $1.05 million in third quarter 2012 compared with $1.20 million in third quarter 2011. Scruggs noted that nine month non-interest income of $2.57 million was ahead of the bank's target. The decrease was due in large part to a non-recurring gain on sale of securities in the third quarter of 2011.

Non-interest expense was $3.78 million in third quarter 2012 compared with $3.71 million in third quarter 2011. For the nine months of 2012, non-interest expense was $10.63 million compared with $10.08 million for the nine months of 2011. The bank's efficiency ratio was 74.48% in third quarter 2012 and 74.33% for the nine months of 2012.

"Lowering our efficiency ratio is a key initiative," said Chapman. "Our ratio in part reflects the costs associated with addressing problem assets, managing and selling bank-owned assets, working through problem loans, legal fees, and write-downs. The bank had $908,000 in other real estate owned ("OREO") related expenses in the first three quarters of this year. We expect a decline in these costs, which will have a positive impact on our efficiency ratio and profitability. In addition, we have made improvements to create more efficient operations, and we expect the benefits to be evident in future quarters."

Total loans, net of allowance for loan loss, were $322.88 million at September 30, 2012 compared with $319.32 million at September 30, 2011. Total deposits at September 30, 2012 were $384.35 million, compared with $375.55 million at September 30, 2011 and $374.23 million at December 31, 2011.

Non-performing assets to total assets declined to 1.89% at September 30, 2012 compared with 3.75% at September 30, 2011, and has declined each quarter since then. Non-performing loans to total loans was 1.77% at September 30, 2012 compared with 3.20% at December 31, 2011 and 3.33% at September 30, 2011. Non-performing assets to total loans declined to 2.47% at September 30, 2012 compared with 4.98% at September 30, 2011. Total assets were $426.08 million at the end of the third quarter, relatively unchanged since December 31, 2011 and September 30, 2011 . OREO declined to $2.27 million at September 30, 2012 compared with $5.22 million at September 30, 2011.

The bank remained well capitalized by accepted regulatory standards with a tier 1 leverage ratio of approximately 8.17%, tier 1 risk-based capital ratio of 10.97%, and total risk-based capital of 12.23%. The company did not take TARP funding.

Chapman concluded, "As we move toward 2013, we are enthusiastic about focusing on growth and productivity. The improvements we have made to asset quality have provided a strong platform going forward. We were confident we would reach this point, and we continued to make investments in people, capabilities and technology that will make us more productive and more efficient. We believe the bank is well-positioned to compete and meet the needs of the Region 2000 community."

About the Company

Bank of the James, a wholly owned subsidiary of Bank of the James Financial Group, Inc., serves the greater Lynchburg, Virginia SMA, often referred to as Region 2000, which was ranked by Forbes magazine among the top 50 places in the United States for business and careers. The bank operates nine full service locations and one limited service location as well as a mortgage origination office in Forest, Virginia and an investment services division in downtown Lynchburg. The company celebrated its 13th anniversary this year. As of January 25, 2012, Bank of the James Financial Group, Inc. common stock is listed on the NASDAQ Stock Market, LLC under the symbol "BOTJ."

Cautionary Statement Regarding Forward-Looking Statements

This press release contains statements that constitute "forward-looking statements" within the meaning of 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. Bank of the James Financial Group (the "Company") 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 Bank of the James (the "Bank"), a subsidiary of Bank of the James Financial Group, Inc. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the Company's filings with the Securities and Exchange Commission and previously filed by the Bank (as predecessor of the Company) with the Federal Reserve Board.


 
                                                                            
                                                                            
                                                                            
Bank of the James Financial Group, Inc. and Subsidiaries                    
(000's) except ratios and percent data (unaudited)                          
                                                                            
                Three      Three                 Year       Year            
               months     months                  to         to             
               ending     ending                 date       date            
Selected       Sep 30,    Sep 30,               Sep 30,    Sep 30,          
 Data:          2012       2011      Change      2012       2011     Change 
             ---------- ---------- ---------  ---------- ---------- ------- 
Interest                                                                    
 income      $    4,763 $    4,836     -1.51% $   14,094 $   14,674   -3.95%
             ---------- ---------- ---------  ---------- ---------- ------- 
Interest                                                                    
 expense            736        990    -25.66%      2,365      3,315  -28.66%
             ---------- ---------- ---------  ---------- ---------- ------- 
Net interest                                                                
 income           4,027      3,846      4.71%     11,729     11,359    3.26%
             ---------- ---------- ---------  ---------- ---------- ------- 
Provision                                                                   
 for loan                                                                   
 losses             601      1,272    -52.75%      1,776      2,757  -35.58%
             ---------- ---------- ---------  ---------- ---------- ------- 
Non-interest                                                                
 income           1,052      1,200    -12.33%      2,566      2,630   -2.43%
             ---------- ---------- ---------  ---------- ---------- ------- 
Non-interest                                                                
 expense          3,783      3,706      2.08%     10,626     10,080    5.42%
             ---------- ---------- ---------  ---------- ---------- ------- 
Income taxes        156          4  3,800.00%        508        334   52.10%
             ---------- ---------- ---------  ---------- ---------- ------- 
Net income          539         64    742.19%      1,385        818   69.32%
             ---------- ---------- ---------  ---------- ---------- ------- 
Weighted                                                                    
 average                                                                    
 shares                                                                     
 outstanding  3,342,418  3,323,743      0.56%  3,342,416  3,323,743    0.56%
             ---------- ---------- ---------  ---------- ---------- ------- 
Basic net                                                                   
 income per                                                                 
 share       $     0.16 $     0.02 $    0.14  $     0.41 $     0.25 $  0.16 
             ---------- ---------- ---------  ---------- ---------- ------- 
Fully                                                                       
 diluted net                                                                
 income per                                                                 
 share       $     0.16 $     0.02 $    0.14  $     0.41 $     0.25 $  0.16 
             ---------- ---------- ---------  ---------- ---------- ------- 
                                                                            
                                                                            

 
Balance Sheet     Sep 30,    Dec 31,             Sep 30,    Dec 31,         
 at period end:    2012       2011     Change     2011       2010    Change 
                ---------- ---------- -------  ---------- ---------- ------ 
Loans, net      $  318,712 $  318,754   -0.01% $  318,799 $  320,715  -0.60%
                ---------- ---------- -------  ---------- ---------- ------ 
Loans held for                                                              
 sale                4,163        434  859.22%        516          -    n/a 
                ---------- ---------- -------  ---------- ---------- ------ 
Total                                                                       
 securities         55,341     56,471   -2.00%     53,318     52,883   0.82%
                ---------- ---------- -------  ---------- ---------- ------ 
Total deposits     384,349    374,234    2.70%    375,547    368,390   1.94%
                ---------- ---------- -------  ---------- ---------- ------ 
Stockholders'                                                               
 equity             29,009     26,805    8.22%     27,359     25,495   7.31%
                ---------- ---------- -------  ---------- ---------- ------ 
Total assets       426,077    427,436   -0.32%    429,440    418,928   2.51%
                ---------- ---------- -------  ---------- ---------- ------ 
Shares                                     
                                 
 outstanding     3,342,418  3,342,415       3   3,323,743  3,323,743      - 
                ---------- ---------- -------  ---------- ---------- ------ 
Book value per                                                              
 share          $     8.68 $     8.02 $  0.66  $     8.23 $     7.67 $ 0.56 
                ---------- ---------- -------  ---------- ---------- ------ 
                                                                            
                                                                            
                           Three    Three            Year     Year          
                          months   months             to       to           
                          ending   ending            date     date          
                          Sep 30,  Sep 30,          Sep 30,  Sep 30,        
Daily averages:            2012     2011   Change    2012     2011   Change 
                         -------- -------- ------  -------- -------- ------ 
Loans, net               $318,105 $317,806   0.09% $316,355 $319,511  -0.99%
                         -------- -------- ------  -------- -------- ------ 
Loans held for sale         1,663      476 249.37%    1,109      228 386.40%
                         -------- -------- ------  -------- -------- ------ 
Total securities           57,489   61,937  -7.18%   59,409   58,281   1.94%
                         -------- -------- ------  -------- -------- ------ 
Total deposits            388,535  376,898   3.09%  382,942  375,577   1.96%
                         -------- -------- ------  -------- -------- ------ 
Stockholders' equity       27,656   26,912   2.76%   27,223   26,559   2.50%
                         -------- -------- ------  -------- -------- ------ 
Interest earning assets   393,735  396,467  -0.69%  393,529  395,083  -0.39%
                         -------- -------- ------  -------- -------- ------ 
Interest bearing                                                            
 liabilities              342,887  351,165  -2.36%  343,807  351,349  -2.15%
                         -------- -------- ------  -------- -------- ------ 
Total assets              432,332  430,085   0.52%  429,656  427,558   0.49%
                         -------- -------- ------  -------- -------- ------ 
                                                                            
                                                                            
                          Three    Three                                    
                          months   months            Year     Year          
                          ending   ending          to date  to date         
                         Sep 30,  Sep 30,          Sep 30,  Sep 30,         
Financial Ratios:          2012     2011    Change   2012     2011    Change
                         -------  -------  ------- -------  -------  -------
Return on average assets    0.49%    0.06%    0.43    0.43%    0.26%    0.17
                         -------  -------  ------- -------  -------  -------
Return on average equity    7.73%    0.94%    6.69    6.78%    4.12%    2.66
                         -------  -------  ------- -------  -------  -------
Net interest margin         4.06%    3.85%    0.21    3.98%    3.84%    0.14
                         -------  -------  ------- -------  -------  -------
Efficiency ratio           74.48%   73.44%    1.04   74.33%   72.06%    2.27
                         -------  -------  ------- -------  -------  -------
Average equity to                                                           
 average assets             6.40%    6.26%    0.14    6.34%    6.21%    0.13
                         -------  -------  ------- -------  -------  -------
                                                                            
                                                                            
                          Three    Three                                    
                          months   months            Year     Year          
                          ending   ending          to date  to date         
Allowance for loan       Sep 30,  Sep 30,          Sep 30,  Sep 30,         
 losses:                   2012     2011   Change    2012     2011   Change 
                         -------  -------  ------  -------  -------  ------ 
Beginning balance        $ 5,693  $ 4,970   14.55% $ 5,612  $ 5,467    2.65%
                         -------  -------  ------  -------  -------  ------ 
Provision for losses         601    1,272  -52.75%   1,776    2,757  -35.58%
                         -------  -------  ------  -------  -------  ------ 
Charge-offs                 (619)    (791) -21.74%  (1,850)  (2,796) -33.83%
                         -------  -------  ------  -------  -------  ------ 
Recoveries                    18       10   80.00%     155       33  369.70%
                         -------  -------  ------  -------  -------  ------ 
Ending balance             5,693    5,461    4.25%   5,693    5,461    4.25%
                         -------  -------  ------  -------  -------  ------ 
                                                                            
                                                                            
                             Sep 30, Dec 31,         Sep 30, Dec 31,        
Non-performing assets:         2012    2011  Change    2011    2010  Change 
                             ------- ------- ------  ------- ------- ------ 
Total non-performing loans   $ 5,752 $10,376 -44.55% $10,879 $ 8,366  28.96%
                             ------- ------- ------  ------- ------- ------ 
Other real estate owned        2,267   3,253 -30.31%   5,216   3,440  51.63%
                             ------- ------- ------  ------- ------- ------ 
Total non-performing assets    8,020  13,629 -41.15%  16,095  11,806  35.57%
                             ------- ------- ------  ------- ------- ------ 
Troubled debt restructurings                                                
 - (performing portion)          187     783 -76.12%   3,345   4,987 -32.93%
                             ------- ------- ------  ------- ------- ------ 
                                                                            
                                                                            
                        Sep 30,  Dec 31,           Sep 30,  Dec 31,         
Asset quality ratios:     2012     2011   Change    2011      2010   Change 
                        -------  -------  ------  --------  -------  ------ 
Non-performing loans to                                                     
 total loans               1.77%    3.20%  (1.43)     3.33%    2.56%   0.77 
                        -------  -------  ------  --------  -------  ------ 
Allowance for loan                                                          
 losses to total loans     1.75%    1.73%   0.02      1.68%    1.68%      - 
                        -------  -------  ------  --------  -------  ------ 
Allowance for loan                                                          
 losses to non-                                                             
 performing loans         98.96%   54.09%  44.87     50.62%   65.35% (14.73)
                        -------  -------  ------  --------  -------  ------ 

Contact: J. Todd Scruggs Executive Vice President and CFO (434) 846-2000 tscruggs@bankofthejames.com

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