The increase in net income is attributable to the improvement in the net interest margin resulting from a decrease in the cost of interest bearing liabilities, primarily certificates of deposit and savings accounts. The net interest margin increased from 3.00% during the three month period ended September 30, 2009 to 4.10% during the same period ended September 30, 2010. The stronger margin translated into net interest income of $3,938,000 during the three month period ended September 30, 2010 as compared to $2,922,000 during the same period a year ago, an increase of $1,016,000 or 34.8%. Interest income increased slightly by 0.5% and interest expense decreased by 40.5% compared to the same three month period a year ago.
J. Todd Scruggs, Executive Vice President of the Bank, commented, “The banking environment both nationally and locally continues to be difficult. Because of the public’s increased demand for safety and liquidity, we anticipate our cost of funds will continue to move downward while our yields on earning assets will remain relatively stable. If this strong net interest margin trend continues, we will be able to continue to strengthen the Bank’s capital position.”
Also contributing to the increase in net income during the quarter was an increase in non-interest income. Non-interest income, net of gain/loss on sale of securities increased to $856,000 for the three month period ended September 30, 2010 from $616,000 during the same three month period a year ago, an increase of 39.0%. A significant portion of this increase is related to mortgage refinance activity handled through our mortgage division.
Deposits decreased slightly from $375,772,000 as of December 31, 2009 to $364,511,000 as of September 30, 2010, a decrease of $11,261,000 or 3.0%. This decrease resulted largely from a decrease in the rates offered on certificates of deposit and the withdrawal of deposits resulting from the decrease in the interest rate paid on the 2010 Savings Account in March 2010.
Loans, net of the allowance for loan loss, have shown slight growth year-to-date. Loans increased from $318,452,000 as of December 31, 2009 to $321,124,000 as of September 30, 2010, an increase of $2,672,000 or 0.8%. Requests for loans continue to be steady and in light of the current environment cautious underwriting standards continue to be applied consistently.
The loan loss provision in the third quarter of 2010 was $600,000 as compared to $2,500,000 during the same period a year ago. Nonperforming assets decreased from $9,896,000 as of June 30, 2010 to $9,731,000 as of September 30, 2010. Nonperforming loans to total loans decreased from 2.49% as of June 30, 2010 to 2.14% as of September 30, 2010. Despite this recent stabilization of noncurrent assets, management recognizes that during 2009 and the first six months of 2010, the quality of certain classes of our assets declined. Specifically, as a result of the economic downturn, commercial development loans and residential speculative housing construction loans were impacted by a decline in the value of the collateral supporting those loans. Management believes that it continues to be proactive in quantifying and mitigating the risk including in some cases the successful liquidation of real property serving as collateral for these loans. The overall majority of the increase since December 31, 2009 is related to several loans to one relationship. Management believes the current reserve of 1.52% remains adequate.
Bank of the James, a wholly owned subsidiary of Bank of the James Financial Group, Inc., currently operates nine full service locations and one limited service location as well as a mortgage origination office in Forest, Virginia. Bank of the James Financial Group, Inc. common stock is quoted on the Over The Counter Bulletin Board under the symbol “BOJF” (some web sites require BOJF.OB to quote).
Selected financial highlights are shown below.
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.