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Bank of the James Reports Triple Digit Earnings Growth


April 26, 2013 - Lynchburg, VA

Bank of the James Financial Group, Inc. (NASDAQ: BOTJ)

Financial Highlights

  • Net income for the quarter ended March 31, 2013 grew 118% to $788,000 or $0.24 per diluted share, compared with net income of $360,000 or $0.11 per diluted share for the same period a year ago, primarily reflecting asset quality improvement, a 25% decline in interest expense, and 44% year-over-year growth in noninterest income. This performance followed the bank's reported 255% earnings growth in calendar 2012 versus 2011.
  • Sharply improved asset quality drove a 69% reduction in the company's provision for loan losses in first quarter 2013 compared with first quarter 2012.
  • Return on average assets (ROAA) was 0.74% in first quarter 2013, up from 0.34% in first quarter 2012, while the company's return on average equity increased sharply to 11.02% compared with 5.38% in the prior year's first quarter.
  • The company's book value per share grew to $8.94, up 10.5%, compared with $8.09 per share a year earlier.
  • Total stockholders' equity increased to $29.97 million at March 31, 2013 compared with $27.04 million at March 31, 2012.
  • Net loans increased to $325.51 million in first quarter 2013, compared with $312.19 million in first quarter 2012 and $319.92 at December 31, 2012, reflecting growth in commercial and residential lending.
  • The ratio of nonperforming loans to total loans declined to 1.82% in first quarter 2013 compared with 3.07% in first quarter 2012, reflecting total nonperforming loans of $6.04 million in first quarter 2013 -- a 38% reduction from $9.78 million at the end of the first quarter 2012.
  • The bank and company remained "well capitalized" by accepted regulatory standards, with a tier 1 to average total assets ratio of 8.65% at the bank and 7.25% at the holding company, a tier 1 risk-based capital ratio of 11.42% at the bank and 9.57% at the holding company, and a total risk-based capital ratio of 12.68% at the bank and 10.83% at the holding company.

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 quarter ended March 31, 2013.

"We were very pleased that our continuing focus on asset quality had a positive impact on earnings, and we were encouraged by the forward traction we demonstrated in our lending and deposit gathering activities during the first quarter," said Robert R. Chapman III, President and CEO. "We were particularly pleased with the growth of our commercial banking business. We feel the bank's first quarter results reflect the shift we are making from past several years, where we needed to devote much of our attention to strengthening the bank's balance sheet and asset quality.

"Even when our top priority was to improve balance sheet quality, we made investments in technology, improved credit and risk management capabilities, and made key additions to our lending and account relationship teams. We were confident the bank could address asset quality issues, and wanted to be prepared to move forward with renewed vigor to return to growing the bank.

"We offer a full range of banking and investment services, backed by outstanding capabilities and service, which we feel is a requirement for winning and retaining customers. Additionally, we believe our longstanding commitment to serving our community and understanding our customers differentiates Bank of the James from the competition. We continue to work through a challenging economic and interest rate environment, however, we welcome the opportunity to return our primary focus on growth."

Financial Highlights and Overview

For the three months ended March 31, 2013, net interest income after provision for loan losses was $3.69 million, compared with net interest income after provision for loan losses of $3.12 million for the three months ended March 31, 2012. The increase reflected a decline in the bank's provision for loan losses to $235,000 compared with $750,000 in the prior year's first quarter and interest expense of $616,000 in first quarter 2013 compared with $820,000 in first quarter 2012.

The bank's net interest margin was 4.06% in first quarter 2013 compared with 3.94% in first quarter 2012. During 2012, the bank reduced its use of higher-cost Federal Home Loan Bank (FHLB) borrowings, resulting in a decrease in FHLB-related borrowing interest expense from $74,000 in the prior year's quarter to $19,000 in first quarter 2013, which also contributed to a modest improvement in the bank's net interest margin. Management noted the bank's ability to fund lending activity with core deposits; however, the bank remains able to lock in long-term wholesale borrowings at today's lower rates, if necessary, in order to fund continued loan growth.

J. Todd Scruggs, CFO, commented: "Ongoing interest rate management, including diligence in re-pricing deposits to match prevailing rates, contributed to holding the line on interest expense. We were encouraged by our continuing ability to rely on lower cost core deposits to fund lending activities, which has enabled us to reduce our use of higher cost wholesale borrowing during the past several quarters. This contributed to an interest spread of 3.95% in first quarter 2013 compared with 3.82% in first quarter 2012."

He explained the bank expects continued significant pressure on margins as long as interest rates remain at historic lows. The bank continues to re-price interest-bearing deposits or allow them to run off. "We also feel our expanded commercial banking activity will provide access to noninterest bearing demand deposits that will, to some degree, help relieve the pressure on margins and contribute to core deposits to fund lending. We feel overall deposit retention has been encouraging, and reflects our willingness to offer competitive deposit rates and a relationship-oriented approach to banking that results in less rate-shopping."

Non-interest income, which includes fees from mortgage origination, gain on the sale of securities, and fees on services such as brokerage and insurance services, was $964,000 for the quarter ended March 31, 2013 compared with $671,000 for the quarter ended March 31, 2012. Mortgage fee income was $319,000 compared with $226,000 in the prior year's first quarter, reflecting increased gains on sales of residential mortgages in the secondary market. Fee income from services grew to $303,000 in first quarter 2013 compared with $283,000 in first quarter 2012, the increase partially reflecting increased fees generated by an expanded suite of commercial treasury management services implemented during the latter part of 2012, and modest growth in the bank's insurance and investment services lines of business.

Noninterest expense in first quarter 2013 was $3.53 million compared with $3.28 million in first quarter 2012. The increase primarily reflected higher salaries, commissions, and employee benefits as the company expanded its commercial lending and mortgage production.

The bank's efficiency ratio was 72.28% in first quarter 2013, as compared to 72.38% in first quarter 2012. Chapman said: "We expect our efficiency ratio to improve as problem assets decline and we sell OREO properties and the full impact of improvements and technological upgrades to drive more efficient operations continue to take effect. Our ability to focus more of our attention to growth rather than dealing with troubled assets is having a positive impact on the productivity and morale in our offices."

Total deposits at March 31, 2013 decreased to $385.19 million from $399.02 million at December 31, 2012 and $386.59 million at March 31, 2012. The balance as of December 31, 2012 temporarily increased because of several deposits to professional settlement accounts related to end-of-the-year real estate and business closings. The decrease as of March 31, 2013 reflects the expected disbursements from these accounts. We continued to have strong deposit retention during the last twelve months, which is reflected by the fact that deposits were essentially unchanged from March 31, 2012.

Total loans, net of allowance for loan loss and including loans held for sale, were $326.31 million at March 31, 2013, compared with $313.19 million at March 31, 2012 and $320.83 million at December 31, 2012. The larger loan portfolio primarily reflected growth in commercial and construction lending partially offset by a small number of loan pay-offs in first quarter 2013 and the removal of non-performing loans from the portfolio in 2012.

Michael A. Syrek, EVP and Senior Lending Officer, commented: "The bank had $23.66 million in new loans and commitments in first quarter 2013, which represented a 42% increase compared with first quarter 2012. Our commercial business continues to gain traction, and new commercial relationships nearly doubled to 19 in the first quarter compared with 10 a year ago. We're also experiencing success in winning complementary deposit and treasury management services for company owners and management and banking packages for employees from customers, which results in a stronger and more complete relationship."

The company noted more activity in 1-4 family residential and commercial construction than in the past several years, which created opportunities to win high-quality loans with successful builders. The bank's mortgage lending activity was up, reflecting an increase in home purchase activity. Like many banks, the bank has experienced a modest slowdown in refinancing activity because many people able to refinance mortgages have already done so.

Loan portfolio growth was highlighted by a 15% increase in commercial real estate loans to $95.37 million at March 31, 2013 compared with $83.08 million at March 31, 2012, led by loans on investment and income-producing property. Construction lending rose 17% to $15.55 million in first quarter 2013 compared with $13.22 million in first quarter 2012.

Management noted the bank had more than $20 million of pending loans as the bank entered second quarter 2013, including a large commercial and industrial loan. The company has approximately $67 million in approved an untapped lines of credit. Line usage was approximately 60%, partially reflecting seasonally lower levels of credit line usage, compared with a more normal level of 75% usage.

The bank's balance sheet continued to demonstrate improving quality. The ratio of non-performing loans to total loans declined to 1.82% at March 31, 2013 compared with 3.07% at March 31, 2012. The bank's target for this ratio is approximately 2% or below. The company's allowance for loan losses to total loans was 1.69% in first quarter 2013 compared with 1.89% in first quarter 2012 and 1.70% at year-end 2012.

Coverage for losses increased significantly, with an allowance for loan losses to non-accruing loans of 93% in first quarter 2013 compared 61% in first quarter 2012. Loan charge-offs decreased 52% in first quarter 2013 compared with first quarter 2012. The ratio of loans past due 30 to 90 days to total loans was 0.78%, well below the company's target for the quarter. Other real estate owned declined to $2.32 million at March 31, 2013 compared with $3.57 million at March 31, 2012. The bank's "Texas Ratio" declined to 21% compared with 39% in the prior year's first quarter.

Chapman concluded: "We were very pleased with our performance and loan growth during the first quarter. With strengthened underwriting, credit and risk management processes in place, we believe that the loans we're making are well-secured and of high quality. Enhancing the company's value to shareholders through asset quality improvement and through revenue growth is a top priority. Although we face economic, regulatory and interest rate challenges, we are optimistic that Bank of the James can leverage its commitment to Region 2000 and earn a greater share of retail, commercial, and investment services business."

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 Year Year
months months to to
ending ending date date
Mar 31, Mar 31, Mar 31, Mar 31,
Selected Data: 2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
Interest
income $ 4,537 $ 4,686 -3.18% $ 4,537 $ 4,686 -3.18%
----------------------------------------------------------------------------
Interest
expense 616 820 -24.88% 616 820 -24.88%
----------------------------------------------------------------------------
Net interest
income 3,921 3,866 1.42% 3,921 3,866 1.42%
----------------------------------------------------------------------------
Provision for
loan losses 235 750 -68.67% 235 750 -68.67%
----------------------------------------------------------------------------
Noninterest
income 964 671 43.67% 964 671 43.67%
----------------------------------------------------------------------------
Noninterest
expense 3,531 3,284 7.52% 3,531 3,284 7.52%
----------------------------------------------------------------------------
Income taxes 331 143 131.47% 331 143 131.47%
----------------------------------------------------------------------------
Net income 788 360 118.89% 788 360 118.89%
----------------------------------------------------------------------------
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 $ 0.11 $ 0.13 $ 0.24 $ 0.11 $ 0.13
----------------------------------------------------------------------------
Fully diluted
net income
per share $ 0.24 $ 0.11 $ 0.13 $ 0.24 $ 0.11 $ 0.13
----------------------------------------------------------------------------


----------------------------------------------------------------------------
Balance Sheet
at Mar 31, Dec 31, Mar 31, Dec 31,
period end: 2013 2012 Change 2012 2011 Change
----------------------------------------------------------------------------
Loans, net $ 325,510 $ 319,922 1.75% $ 312,185 $ 318,754 -2.06%
----------------------------------------------------------------------------
Loans held for
sale 804 904 -11.06% 1,005 434 131.57%
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Total
securities 48,771 53,369 -8.62% 65,260 56,471 15.56%
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Total deposits 385,194 399,015 -3.46% 386,591 374,234 3.30%
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Stockholders'
equity 29,972 29,613 1.21% 27,036 26,805 0.86%
----------------------------------------------------------------------------
Total assets 428,086 441,381 -3.01% 433,372 427,436 1.39%
----------------------------------------------------------------------------
Shares
outstanding 3,352,725 3,352,725 - 3,342,418 3,342,418 -
----------------------------------------------------------------------------
Book value per
share $ 8.94 $ 8.83 $ 0.11 $ 8.09 $ 8.02 $ 0.07
----------------------------------------------------------------------------


----------------------------------------------------------------------------
Three Three Year Year
months months to to
ending ending date date
Mar 31, Mar 31, Mar 31, Mar 31,
Daily averages: 2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
Loans, net $ 321,431 $ 316,253 1.64% $ 321,431 $ 316,253 1.64%
----------------------------------------------------------------------------
Loans held for
sale 964 774 24.55% 964 774 24.55%
----------------------------------------------------------------------------
Total securities 53,003 61,017 -13.13% 53,003 61,017 -13.13%
----------------------------------------------------------------------------
Total deposits 387,999 375,435 3.35% 387,999 375,435 3.35%
----------------------------------------------------------------------------
Stockholders'
equity 28,989 26,818 8.10% 28,989 26,818 8.10%
----------------------------------------------------------------------------
Interest earning
assets 391,029 393,195 -0.55% 391,029 393,195 -0.55%
----------------------------------------------------------------------------
Interest bearing
liabilities 333,404 344,208 -3.14% 333,404 344,208 -3.14%
----------------------------------------------------------------------------
Total assets 429,431 426,030 0.80% 429,431 426,030 0.80%
----------------------------------------------------------------------------


----------------------------------------------------------------------------
Three Three Year Year
Months months to to
Ending ending date date
Mar 31, Mar 31, Mar 31, Mar 31,
Financial Ratios: 2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
Return on average
assets 0.74% 0.34% 0.40 0.74% 0.34% 0.40
----------------------------------------------------------------------------
Return on average
equity 11.02% 5.38% 5.64 11.02% 5.38% 5.64
----------------------------------------------------------------------------
Net interest margin 4.06% 3.94% 0.12 4.06% 3.94% 0.12
----------------------------------------------------------------------------
Efficiency ratio 72.28% 72.38% (0.10) 72.28% 72.38% (0.10)
----------------------------------------------------------------------------
Average equity to
average assets 6.75% 6.29% 0.46 6.75% 6.29% 0.46
----------------------------------------------------------------------------


----------------------------------------------------------------------------
Three Three Year Year
months months to to
ending ending date date
Allowance for loan Mar 31, Mar 31, Mar 31, Mar 31,
losses: 2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
Beginning balance $ 5,535 $ 5,612 -1.37% $ 5,535 $ 5,612 -1.37%
----------------------------------------------------------------------------
Provision for losses 235 750 -68.67% 235 750 -68.67%
----------------------------------------------------------------------------
Charge-offs (186) (384) -51.56% (186) (384) -51.56%
----------------------------------------------------------------------------
Recoveries 22 28 -21.43% 22 28 -21.43%
----------------------------------------------------------------------------
Ending balance 5,606 6,006 -6.66% 5,606 6,006 -6.66%
----------------------------------------------------------------------------


----------------------------------------------------------------------------
Nonperforming Mar 31, Dec 31, Mar 31, Dec 31,
assets: 2013 2012 Change 2012 2011 Change
----------------------------------------------------------------------------
Total nonperforming
loans $ 6,040 $ 6,346 -4.82% $ 9,779 $ 10,376 -5.75%
----------------------------------------------------------------------------
Other real estate
owned 2,318 2,112 9.75% 3,566 3,253 9.62%
----------------------------------------------------------------------------
Total nonperforming
assets 8,358 8,458 -1.18% 13,345 13,629 -2.08%
----------------------------------------------------------------------------
Troubled debt
restructurings -
(performing
portion) 569 572 -0.52% 187 783 -76.12%
----------------------------------------------------------------------------


----------------------------------------------------------------------------
Asset quality Mar 31, Dec 31, Mar 31, Dec 31,
ratios: 2013 2012 Change 2012 2011 Change
----------------------------------------------------------------------------
Nonperforming loans
to total loans 1.82% 1.95% (0.13) 3.07% 3.20% (0.13)
----------------------------------------------------------------------------
Allowance for loan
losses to total
loans 1.69% 1.70% (0.01) 1.89% 1.73% 0.16
----------------------------------------------------------------------------
Allowance for loan
losses to
nonperforming loans 92.81% 87.22% 5.59 61.42% 54.09% 7.33
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Contact:
J. Todd Scruggs
Executive Vice President and CFO
(434) 846-2000
tscruggs@bankofthejames.com

MarketWire

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