Bank of the James Financial Group, Inc. Announces 3rd Quarter 2008 Results

Business Wire, Oct 28, 2008

LYNCHBURG, Va. -- Bank of the James Financial Group, Inc. (OTCBB:BOJF) (quarterly consolidated results unaudited) reported today a total net loss after tax of $1,305,000 or $0.46 per basic share ($0.45 diluted) for the quarter ended September 30, 2008 and $277,000 or $0.10 per basic share ($0.09 diluted) year-to-date compared to net income of $581,000 or $0.21 per basic share ($0.20 diluted) and $1,477,000 or $0.53 per basic share ($0.50 diluted) for the respective periods a year ago. All earnings per share amounts have been adjusted to reflect the 10% stock dividend declared by Bank of the James Financial Group, Inc. (the "Company") at the annual shareholder's meeting on May 20, 2008, as well as all previously declared and paid stock dividends.

The results of the current quarter and year-to-date periods were driven mainly by a non-cash other-than-temporary impairment ("OTTI") charge of $1,723,000 ($0.61 per share) related to the Company's investments in preferred stock of Federal National Mortgage Association (the "GSE"). The value of this stock decreased sharply in September soon after the announcement that the GSE was suspending dividend payments and being placed into conservatorship by the Federal Housing Finance Agency. Following the charge, at September 30, 2008 the market and book value in GSE preferred stock was $176,000. In addition, recent legislation (the Emergency Economic Stabilization Act), will enable the Company to realize a tax benefit on a percentage of the OTTI charge in the fourth quarter. The amount of the tax benefit will be approximately $585,000 which will lower the net charge from $1,723,000 to $1,138,000. We previously disclosed this OTTI charge on Form 8-K filed on September 18, 2008.

The Company would have been profitable in the 3rd quarter and year-to-date if this charge had not been incurred. Exclusive of the charge, the Company would have had net income of $418,000, or $0.15 per basic share ($0.14 diluted), for the quarter ended September 30, 2008 and net income of $1,446,000, or $0.51 per basic share ($0.49 diluted), for the nine months ended September 30, 2008.

Despite the aforementioned charge associated with GSE stock, there were several positive trends for the quarter and year-to-date:

* Net interest income increased to $2,697,000 and $7,891,000 for the three and nine months ended September 30, 2008 from $2,532,000 and $7,239,000 for the same periods in 2007. This increase was due primarily to the growth in the loan portfolio.

* Total assets increased to $320,131,000 as of September 30, 2008 from $270,060,000 as of December 31, 2007, an increase of $50,071,000 or 18.5%.

* Loans, net of unearned income and loan loss provision, increased from $224,022,000 as of December 31, 2007 to $258,993,000 as of September 30, 2008, an increase of $34,971,000 or 15.6%.

* Deposits increased from $228,723,000 as of December 31, 2007 to $249,352,000 as of September 30, 2008, an increase of $20,629,000 or 9.0%.

Robert R. Chapman III, the Company's President, commented, "Although we are disappointed that we were required to take the non-cash charge related to the GSE stock, we remain confident in our core business. This charge will not impact our ability to execute our strategic plan. In the upcoming weeks, we are opening two new branches -- one in the City of Bedford and one in the Town of Altavista. We remain ready to make loans to qualified borrowers and continue to believe the company is well positioned to increase our presence in Region 2000."

Net interest margin decreased to 3.64% during the quarter ended September 30, 2008 from 4.16% during the same period in 2007. This decrease was due primarily to the decrease in short term rates by the FOMC and the resulting negative impact on interest income.

Exclusive of the OTTI charge, non-interest income, which is mainly comprised of fees generated through the origination of mortgage loans at Bank of the James Mortgage, a division of Bank of the James, and commissions on the sale of investment products through the Company's wholly-owned subsidiary, BOTJ Investment Group, Inc., decreased for the quarter ended September 30, 2008 to $606,000 from $654,000 for the comparable period in 2007. Non-interest income, exclusive of the OTTI charge, increased to $2,146,000 for the nine months ended September 30, 2008 from $1,985,000 for the comparable period in 2007. The decrease for the quarter ended September 30, 2008 was due in large part to a decrease in mortgage loan originations at Bank of the James Mortgage.

Total non-performing assets, including other real estate owned, increased to $3,444,000 as of September 30, 2008 from $2,720,000 on June 30, 2008 and $1,246,000 on December 31, 2007. A significant majority (more than 90%) of this increase is attributable to two relationships. Management believes that the value of the underlying collateral is sufficient and that losses, if any, on the disposition of the assets will not be material.

As set forth in the attached financial highlights, the Company's return on average assets and return on average equity in the 3rd quarter 2008 were negative solely because of the OTTI charge related to the GSE stock.