Bank of the James Reports Strong Year-Over-Year Earnings Growth, Asset Quality Improvement in Second Quarter, First Half 2013

Bank of the James Reports Strong Year-Over-Year Earnings Growth, Asset Quality 
Improvement in Second Quarter, First Half 2013 
LYNCHBURG, VA -- (Marketwired) -- 07/23/13 --  Bank of the James
Financial Group, Inc. (NASDAQ: BOTJ), the parent company of Bank of
the James, a full-service commercial and retail bank serving the
greater Lynchburg MSA or "Region 2000," today announced unaudited
results for the three months and six months ended June 30, 2013. 
Financial Highlights 


 
--  Net income for the quarter ended June 30, 2013 rose 64% to $797,000 or
    $0.24 per diluted share compared with $486,000 or $0.15 per diluted
    share for the quarter ended June 30, 2012. For the third consecutive
    quarter, the company had record quarterly earnings.
--  The bank's first half 2013 net income increased 87% to $1.59 million
    or $0.47 per diluted share at June 30, 2013 compared with $846,000 or
    $0.25 per diluted share for the six months ended June 30, 2012.
--  The bank lowered interest expense by approximately 25% in second
    quarter and first half 2013 compared with comparable periods in 2012.
--  Non-interest income, primarily reflecting increased residential
    mortgage origination fees and increased revenue from retail and
    commercial banking services, increased 23.5% to $1.869 million for the
    six months ended June 30, 2013 compared with $1.51 million for the six
    months ended June 30, 2012.
--  Bank of the James' commercial banking initiatives continued to win new
    clients and expand business banking relationships in 2013.
--  Ongoing focus on asset quality improvement and a sharply reduced level
    of new troubled assets enabled the bank to lower its provision for
    loan losses 87% in second quarter 2013 compared with second quarter
    2012, and by 75% in first half 2013 compared with first half 2012.
--  Total nonperforming assets were $6.83 million at June 30, 2013, down
    19% compared with $8.46 million at December 31, 2012 and 28% lower
    compared with the June 30, 2012 total of $9.45 million.
--  The ratio of nonperforming loans to total loans declined to 1.49% in
    second quarter 2013 compared with 1.95% at year-end 2012 and 2.21% in
    second quarter 2012, reflecting steadily improving asset quality.
--  The bank's allowance for loan losses to nonperforming loans exceeded
    100% at June 30, 2013.
--  Return on average assets (ROAA) and return on average equity (ROAE)
    increased year over year and on a consecutive quarter basis,
    reflecting growth and improved balance sheet quality.
--  Book value per share, reflecting increased shareholder value, was
    $8.67 per share at June 30, 2013 compared with $8.47 per share at June
    30, 2012.

  
Robert R. Chapman III, President and CEO, commented: "As in the past
several quarters, our earnings continue to reflect the progress we
have made towards improving asset quality and strengthening the
balance sheet. Our solid operational performance during the past
several quarters has helped us to identify several encouraging
trends. 
"In second quarter 2013, we had a net increase of $6 million in our
loan portfolio, which reflected growth in both commercial as well as
consumer lending. Our commercial banking team is making significant
inroads towards building new relationships, with the number of new
commercial relationships more than doubling compared with a year ago.
An expanded slate of treasury management services for businesses has
been well received by our customers and has generated increased
ongoing fee income. Steady deposit growth has supported lending
activities and enabled us to avoid outside borrowings to fund
lending. 
"A more active residential housing market enabled us to generate more
purchase mortgage originations. An uptick in interest rates prompted
a slowing of mortgage refinancing. This has resulted in an increase
in purchase (as opposed to refinances) mortgages which now constitute
approximately 70% of mortgage originations. We're seeing the positive
results of our past investment in services, people and operations to
support growth and promote efficiency and productivity. We have
exciting initiatives in place that we hope will grow our business and
continue the positive trends of the past several quarters." 
Financial Highlights and Overview 
Net interest income (before loan loss provision) was $3.96 million in
second quarter 2013 compared with $3.84 million in the prior year's
second quarter, reflecting strong interest expense management as
year-over-year quarterly interest expense declined 25%. Total
interest expense was $610,000 in second quarter 2013 compared with
$809,000 in second quarter 2012. Reflecting the steep decline in the
bank's loan loss provision, net interest income after provision for
loan losses was $3.90 million in second quarter 2013 compared with
$3.41 million in second quarter 2012. 
In first half 2013, net interest income (before loan loss provision)
was $7.88 million compared with $7.70 million in first half 2012,
with the increase primarily reflecting a 25% interest expense
reduction, partially offset by lower interest income expense
resulting from loan prepayments and lower interest rates that
reflected the ongoing low-rate environment. The company's net
interest income after provision for loan losses rose to $7.59 million
in first half 2013 compared with $6.53 million in first half 2012 as
the bank reduced its loan loss provision by 75% in first half 2013
compared with first half 2012. 
Despite intense pressure on margins, the bank grew net interest
margin to 4.03% in second quarter 2013 and 4.07% in first half 2013
compared with 3.91% and 3.95%, respectively, compared with 2012
periods. The company's average interest spread expanded to 3.93% in
first half 2013 compared with 3.81% for the same period in 2012. 
J. Todd Scruggs, CFO, commented: "During a period when many banks
have seen shrinking margins, we were pleased we expanded margins and
pushed above the 4% level for both the quarter and first half of
2013. With very little visibility of where interest rates are
heading, it's difficult to anticipate where margins will be in the
coming months. However, we believe the bank has demonstrated the
ability to maximize margins by managing cost of funds and interest
expense." 
Noninterest income, which includes fees from mortgage origination,
gain on the sale of securities, and fees on services such as
brokerage and insurance services, was $905,000 in second quarter 2013
compared with $843,000 in second quarter 2012, primarily reflecting
growth in mortgage fee income and gain on the sale of investment
securities. Mortgage fee income reflected consecutive-quarter and
year-over-year growth. In second quarter 2013, mortgage fee income
was $340,000 compared with $319,000 in first quarter 2013 and
$289,000 in second quarter 2012. 
For the six months ended June 30, 2013, noninterest income was $1.87
million, up 23.5% compared with $1.51 million for the six months
ended June 30, 2012. In addition to increased mortgage fees, first
half 2013 reflected increased service fee income, which was $628,000
compared with $594,000 in first half 2012. 
Chapman noted that noninterest income growth in first half 2013
included a tenfold increase in fees from commercial treasury
management services, which he said has become an important part of
the bank's commercial banking service offering, attracting new
customers and enabling the bank to expand relationships with business
customers. 
Noninterest and operating expe
nse increased only 3% between second
quarter 2012 and second quarter 2013, and 5% in first half 2013
compared with first half 2012, reflecting modest increases in
compensation expenses, and lower other real estate owned expenses as
the company trimmed its portfolio of foreclosed and owned properties. 
Balance Sheet Highlights and Outlook 
Total loans, net of allowance for loan loss and including loans for
sale, were $332.56 million at June 30, 2013, up from $320.83 million
at December 31, 2012 and also up from $326.31 million at March 31,
2013. The larger loan portfolio primarily reflected growth in
commercial and construction lending and was partially offset by a
small number of loan pay-offs in first half 2013 and the removal of
non-performing loans from the portfolio in 2012 and 2013. 
Total deposits at June 30, 2013 were $388.79 million, compared with
$384.59 million at June 30, 2012 and $399.02 million at December 31,
2012. Management noted that year-end 2012 totals reflected a
temporary increase to professional settlement accounts related to
end-of-the-year real estate and business closings, which were
disbursed during first quarter 2013. Deposits at June 30, 2013 were
up compared with the March 31, 2013 total of $385.19 million. 
The bank's balance sheet continued to demonstrate significantly
improved year-over-year asset quality and consecutive quarterly
improvement. The ratio of non-performing loans to total loans was
1.49% at June 30, 2013, 1.82% at March 31, 2013, 1.95% at December
31, 2012 and 2.21% at June 30, 2012. Allowance for loan losses to
total loans was 1.62% at June 30, 2013 compared with 1.70% at
December 31, 2012 and 1.75% at June 30, 2012. 
With improved asset quality, coverage for losses increased
significantly in first half 2013. The company's allowance for loan
and lease losses (ALLL) to nonperforming loans (NPL) stood at 109.19%
at June 30, 2013, compared with 87.22% at December 31, 2012 and
79.19% at June 30, 2012. Chapman noted that as a measure of the
bank's long-term progress in curing problem assets, the company's
ALLL to NPL ratio was 54.09% at December 31, 2011. The bank's "Texas
Ratio," a measurement of asset quality, was 17.05% at June 30, 2013. 
Continued improvement in asset quality and overall bank performance
contributed to an improved return on average assets of 0.74% in first
half 2013, up from 0.40% in first half 2012, and a return on average
equity of 10.88% in first half 2013 compared with 6.28% in the prior
year's first half. 
The bank remained "well capitalized" by accepted regulatory
standards, with an approximate tier 1 to average total assets ratio
of 8.88%, an approximate tier 1 risk-based capital ratio of 11.61%
and an approximate total risk-based capital ratio of 12.87%. 
Chapman concluded: "We believe Bank of the James is well-positioned
to continue the progress we've made in the past several quarters and
to continue to grow without being encumbered by significant asset
quality issues. We're encouraged that improved markets for commercial
and residential real estate have facilitated the sale of owned real
estate assets. We will continue on the course we have established,
with a focus on growth in our market and potentially leveraging our
capabilities to serve adjacent markets. We have made significant
progress in the past few years, and now look forward to new
opportunities to serve our community and build shareholder value." 
About the Company 
Bank of the James, a wholly owned subsidiary of Bank of the James
Financial Group, Inc., serves the greater Lynchburg, Virginia MSA,
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 is celebrating its 14th anniversary this year.
Bank of the James Financial Group, Inc. common stock is listed under
the symbol "BOTJ" on the NASDAQ Stock Market, LLC. 
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                                          
                 months     months              Year to    Year to          
                 ending     ending               date       date            
                June 30,   June 30,            June 30,   June 30,          
Selected Data:    2013       2012     Change     2013       2012     Change 
----------------------------------------------------------------------------
Interest                                                                    
 income        $    4,567 $    4,645   -1.68% $    9,104 $    9,331   -2.43%
----------------------------------------------------------------------------
Interest                                                                    
 expense              610        809  -24.60%      1,226      1,629  -24.74%
----------------------------------------------------------------------------
Net interest                                                                
 income             3,957      3,836    3.15%      7,878      7,702    2.29%
----------------------------------------------------------------------------
Provision for                                                               
 loan losses           55        425  -87.06%        290      1,175  -75.32%
----------------------------------------------------------------------------
Noninterest                                                                 
 income               905        843    7.35%      1,869      1,514   23.45%
----------------------------------------------------------------------------
Noninterest                                                                 
 expense            3,671      3,559    3.15%      7,202      6,843    5.25%
----------------------------------------------------------------------------
Income taxes          339        209   62.20%        670        352   90.34%
----------------------------------------------------------------------------
Net income            797        486   63.99%      1,585        846   87.35%
----------------------------------------------------------------------------
Weighted                                                                    
 average                                                                    
 shares                                                                     
 outstanding    3,352,725  3,342,415    0.31%  3,352,725  3,342,415    0.31%
----------------------------------------------------------------------------
Basic net                    
                                               
 income per                                                                 
 share         $     0.24 $     0.15 $  0.09  $     0.47 $     0.25 $  0.22 
----------------------------------------------------------------------------
Fully diluted                                                               
 net income                                                                 
 per share     $     0.24 $     0.15 $  0.09  $     0.47 $     0.25 $  0.22 
----------------------------------------------------------------------------
                                                                            
                                                                            
Balance Sheet                                                               
 at period      June 30,    Dec 31,            June 30,    Dec 31,          
 end:             2013       2012     Change     2012       2011     Change 
----------------------------------------------------------------------------
Loans, net     $  331,703 $  319,922    3.68% $  319,216 $  318,754    0.14%
----------------------------------------------------------------------------
Loans held for                                                              
 sale                 861        904   -4.76%      1,164        434  168.20%
----------------------------------------------------------------------------
Total                                                                       
 securities        46,085     53,369  -13.65%     58,761     56,471    4.06%
----------------------------------------------------------------------------
Total deposits    388,788    399,015   -2.56%    384,589    374,234    2.77%
----------------------------------------------------------------------------
Stockholders'                                                               
 equity            29,053     29,613   -1.89%     28,299     26,805    5.57%
----------------------------------------------------------------------------
Total assets      430,871    441,381   -2.38%    433,204    427,436    1.35%
----------------------------------------------------------------------------
Shares                                                                      
 outstanding    3,352,725  3,352,725       -   3,342,415  3,342,415       - 
----------------------------------------------------------------------------
Book value per                                                              
 share         $     8.67 $     8.83 $ (0.16) $     8.47 $     8.02 $  0.45 
----------------------------------------------------------------------------
                                                                            
                                                                            
                           Three    Three                                   
                          months   months           Year to  Year to        
                          ending   ending            date     date          
                         June 30, June 30,         June 30, June 30,        
Daily averages:            2013     2012    Change   2013     2012    Change
----------------------------------------------------------------------------
Loans, net               $326,672 $314,687   3.81% $324,066 $315,470   2.72%
----------------------------------------------------------------------------
Loans held for sale           915      878   4.21%      936      825  13.45%
----------------------------------------------------------------------------
Total securities           48,426   59,741 -18.94%   50,702   60,379 -16.03%
----------------------------------------------------------------------------
Total deposits            386,778  384,795   0.52%  387,385  380,115   1.91%
----------------------------------------------------------------------------
Stockholders' equity       29,756   27,166   9.53%   29,389   26,997   8.86%
----------------------------------------------------------------------------
Interest earning assets   390,048  393,649  -0.91%  390,577  393,420  -0.72%
----------------------------------------------------------------------------
Interest bearing                                                            
 liabilities              332,744  346,095  -3.86%  333,077  345,162  -3.50%
----------------------------------------------------------------------------
Total assets              428,946  432,247  -0.76%  429,230  429,177   0.01%
----------------------------------------------------------------------------
                                                                            
                                                                            
                         Three     Three                                    
                         months    months          Year to   Year to        
                         ending    ending            date      date         
                        June 30,  June 30,         June 30,  June 30,       
Financial Ratios:         2013      2012   Change    2013      2012   Change
----------------------------------------------------------------------------
Return on average                                                           
 assets                    0.75%     0.45%  0.30      0.74%     0.40%  0.34 
----------------------------------------------------------------------------
Return on average                                                           
 equity                   10.74%     7.18%  3.56     10.88%     6.28%  4.60 
----------------------------------------------------------------------------
Net interest margin        4.03%     3.91%  0.12      4.07%     3.95%  0.12 
----------------------------------------------------------------------------
Efficiency ratio          75.50%    76.06% (0.56)    73.89%    74.25% (0.36)
----------------------------------------------------------------------------
Average equity to                                                           
 average assets            6.94%     6.28%  0.66      6.85%     6.29%  0.56 
----------------------------------------------------------------------------
                                                                            
                                                                            
                           Three    Three                                   
                          months   months           Year to  Year to        
                          ending   ending            date     date          
Allowance for loan       June 30, June 30,         June 30, June 30,        
 losses:                   2013     2012    Change   2013     2012    Change
----------------------------------------------------------------------------
Beginning balance        $ 5,606  $ 6,006   -6.66% $ 5,535  $ 5,612   -1.37%
----------------------------------------------------------------------------
Provision for losses          55      425  -87.06%     290    1,175  -75.32%
----------------------------------------------------------------------------
Charge-offs                 (271)    (847) -68.00%    (457)  (1,231) -62.88%
----------------------------------------------------------------------------
Recoveries                    85      109  -22.02%     107      137  -21.90%
----------------------------------------------------------------------------
Ending balance             5,475    5,693   -3.83%   5,475    5,693   -3.83%
----------------------------------------------------------------------------
                                                                            
                                                                            
                         June 30,  Dec 31,         June 30,  Dec 31,        
Nonperforming assets:      2013     2012    Change   2012     2011    Change
----------------------------------------------------------------------------
Total nonperforming                                                         
 loans                   $  5,014 $  6,346 -20.99% $  7,189 $ 10,376 -30.72%
----------------------------------------------------------------------------
Other real estate owned     1,817    2,112 -13.97%    2,263    3,253 -30.43%
----------------------------------------------------------------------------
Total nonperforming                                                         
 assets                     6,831    8,458 -19.24%    9,452   13,629 -30.65%
----------------------------------------------------------------------------
Troubled debt                                                               
 restructurings -                                                           
 (performing portion)         567      572  -0.87%      187      783 -76.12%
----------------------------------------------------------------------------
                                                                            
                                                                            
                           June 30,  Dec 
31,        June 30,  Dec 31,       
Asset quality ratios:        2013     2012   Change   2012     2011   Change
----------------------------------------------------------------------------
Nonperforming loans to                                                      
 total loans                  1.49%    1.95% (0.46)    2.21%    3.20% (0.99)
----------------------------------------------------------------------------
Allowance for loan losses                                                   
 to total loans               1.62%    1.70% (0.08)    1.75%    1.73%  0.02 
----------------------------------------------------------------------------
Allowance for loan losses                                                   
 to nonperforming loans     109.19%   87.22% 21.97    79.19%   54.09% 25.10 
----------------------------------------------------------------------------

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