“Loan balances increased $20 million (1.0%) from June 30, 2012 to September 30, 2012. Our asset quality metrics remain stable and strong. Non-performing assets were 1.53% of total loans and other real estate owned and past due loans were 0.45% of total loans at September 30, 2012.”
Net Interest Income
The Company’s tax equivalent net interest income increased $1.1 million, or 4.3%, from $24.0 million during the second quarter of 2012 to $25.1 million during the third quarter of 2012. This increase is primarily due to the acquisition of Virginia Savings Bancorp, Inc. that was partially offset by lower interest income due to approximately $38 million of higher yielding trust preferred securities being called during the third quarter of 2012. The Company’s reported net interest margin increased from 3.91% for the quarter ended June 30, 2012 to 3.95% for the quarter ended September 30, 2012. Excluding the favorable impact of acquisition accounting fair value adjustments ($0.95 million), the net interest margin for the third quarter of 2012 would have been 3.80%.
Credit QualityAs a result of the Company’s quarterly analysis of the adequacy of the ALLL, the Company recorded a provision for loan losses of $1.0 million in the third quarter of 2012, compared to no provision for the comparable period in 2011 and $1.7 million for the second quarter of 2012. During the third quarter of 2012, the Company received life insurance proceeds as the beneficiary of a life insurance policy carried by a commercial borrower that allowed the Company to reduce the ALLL by approximately $0.6 million for amounts previously included in the ALLL. In addition, charge-offs for commercial real estate loans were primarily related to a specific credit that had been appropriately considered in establishing the allowance for loan losses in prior periods. Changes in the amount of the provision and related allowance are based on the Company’s detailed systematic methodology and are directionally consistent with changes in the composition and quality of the Company’s loan portfolio. The Company believes its methodology for determining the adequacy of its ALLL adequately provides for probable losses inherent in the loan portfolio and produces a provision and allowance for loan losses that is directionally consistent with changes in asset quality and loss experience.
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