while the banks can utilize the full amount of the large deposits for funding loans and adding liquidity. The Company gathered $95.6 million of the CDARS brokered deposits during 2008, which accounted for 61.7% of the increase in CDs. Additionally, we ran a CD special during September that gathered approximately $139 million in new accounts. This increase in new CD money replaced approximately $54.8 million of brokered CDs that have matured during the year. Time deposits of more than $100,000 were $295.9 million or 16.1% of total deposits at September 30, 2008 as compared with $271.3 million or 19.3% of total deposits at December 31, 2007.
We continued using brokered deposits to fund growth, manage interest rate sensitivity, and provide funding liquidity. The total brokered deposits increased to $546.2 million as of September 30, 2008 compared to $225.9 million at December 31, 2007. As a percentage of total deposits, our brokered deposits increased to 29.8% of total deposits as compared to 16.0% at December 31, 2007. However, the mix of our brokered deposits has changed significantly. As mentioned above, $279.5 million or 87.2% of the brokered deposit increase was related to the brokered money market accounts, which was used as a natural hedge to fund the variable loan growth and replace higher cost maturing brokered CDs. Additionally, the CDARS program brought in $95.6 million as a service to our customers and provided an alternative to fund loans and provide liquidity. Our more typical, traditional brokered CDs that have been used primarily to fund loan growth in our loan production offices have decreased $54.8 million during the year. Several of these loan production offices are now full service centers including Wilmington, Chapel Hill, and Wake Forest, North Carolina and Charlottesville, Virginia. These offices that have been converted to full financial centers have generated $83.6 million in deposits as of September 30, 2008.
Short-term borrowings decreased $2.0 million since December 31, 2007. The $33.0 million outstanding at December 31, 2007 were federal funds purchased from correspondent banks and were paid off completely at September 30, 2008. The $31.0 million of short-term borrowings outstanding at September 30, 2008 were demand notes from Hampton Roads Bankshares, Inc. and its subsidiaries that were incurred as part of its merger agreement, and were used to terminate the Company's credit agreement (which included $20 million of subordinated debt and $10.5 million of other long-term borrowings) with JPMorgan Chase Bank, N.A. dated May 30, 2008. Long-term borrowings decreased $6.2 million from December 31, 2007, of which $6.0 million represented advances outstanding on a line of credit with JP Morgan which was repaid as discussed above. The remaining long-term debt outstanding at September 30, 2008 consisted of advances from the FHLB of $169.0 million, reverse repurchase agreements of $20 million, and subordinated debt of $53.9 million issued to statutory trust subsidiaries of the Company (commonly referred to as trust preferred securities); all of which remained relatively unchanged from the beginning of the year. Total stockholders' equity decreased $863,000 to $163.5 million from December 31, 2007 primarily as a result of the $32.3 million net loss for the nine months ended September 30, 2008, dividends of $4.4 million paid on the common and preferred stock, and a $1.9 million increase in accumulated other comprehensive loss; partially offset by $37.3 million of Series B non-cumulative, perpetual preferred stock issued in September 2008. As a result of favorable tax provisions included in the EESA that converted the loss on the GSE Securities from a capital loss to an ordinary loss, the Company expects to realize a Federal tax benefit from the loss of approximately $12.7 million. However, since the EESA was not passed until October 3, 2008, for GAAP purposes the tax benefit cannot be recognized until the fourth quarter of 2008, and therefore, is not included in the third quarter financial statements. The federal banking and thrift regulatory agencies announced on October 17, 2008 that they will allow banks and bank holding companies to recognize the effect of the tax change included in the EESA in their third quarter 2008 regulatory capital calculations. All our capital ratios continue to be in excess of the minimum required to be deemed well-capitalized by regulatory authorities.

                                                  Three Months Ended                Nine Months Ended
                                                    September 30,                     September 30,
                                                 2008             2007            2008             2007
                                                                    (in thousands)
Balance at beginning of period                $   18,203        $ 13,340        $  15,339        $  9,405


Provision charged to operations                    5,400             750            9,200           3,300


Charge-offs                                         (827 )           (50 )         (1,780 )          (805 )
Recoveries                                             7               6               24              24

Net charge-offs                                     (820 )           (44 )         (1,756 )          (781 )


Allowance acquired from The Bank of
Richmond acquisition                                   -               -                -           2,122


Balance at end of period                      $   22,783        $ 14,046        $  22,783        $ 14,046

The table below sets forth, for the periods indicated, information with respect to our nonaccrual loans, restructured loans, total nonperforming loans (nonaccrual loans plus restructured loans), and total nonperforming assets. The accounting estimates for loan loss are subject to changing economic conditions.

                                                   September 30,       December 31,
                                                       2008                2007
                                                            (in thousands)
  Nonaccrual loans                                $         7,845     $        3,407
  Restructured loans                                            -                  -

  Total nonperforming loans                                 7,845              3,407
  Real estate owned                                         3,089                482

  Total nonperforming assets                      $        10,934     $        3,889


  Accruing loans past due 90 days or more         $             -     $            -
  Allowance for loan losses                                22,783             15,339
  Nonperforming loans to period end loans                    0.43 %             0.22 %
  Allowance for loan losses to period end loans              1.24 %             1.01 %
  Nonperforming assets to total assets                       0.48 %             0.21 %

A further break-down of nonaccrual loans at September 30, 2008 by geographic region and type are as follows:

                                Amount
  Geographic Region         (in thousands)       % of non-accruals       # of accounts
  Albemarle                $      2,151,000                    27.4 %                19
  Hampton Roads                   1,315,000                    16.8 %                 3
  Outer Banks                     2,489,000                    31.7 %                12
  Wilmington                      1,427,000                    18.2 %                 2
  Richmond                           19,000                     0.2 %                 3
  Raleigh Triangle                  362,000                     4.6 %                 2
  Other                              82,000                     1.1 %                 1


  Total nonaccrual loans   $      7,845,000                  100.00 %                42

                               Amount          % Loans in Portfolio
 Loan Type                 (in thousands)           Outstanding           # of accounts
 HELOC                    $        827,000                      0.65 %                 5
 1 - 4 Family                    3,083,000                      1.24 %                 9
 Const & Development             2,764,000                      0.40 %                10
 CRE                               163,000                      0.04 %                 3
 C&I                               915,000                      0.28 %                11
 Consumer                           93,000                      0.56 %                 4


 Total nonaccrual loans   $      7,845,000                      0.43 %                42

Total loan delinquencies were $7.2 million at September 30, 2008 or 0.39% of loans outstanding. A break-out of the loan delinquencies by type at September 30, 2008 is as follows:

                                       Amount          % Loans in Portfolio
         Loan Type                 (in thousands)           Outstanding
         HELOC                    $        885,000                      0.42 %
         1 - 4 Family                    1,060,000                      0.41 %
         Const & Development             3,755,000                      0.54 %
         CRE                               242,000                      0.06 %
         C&I                               827,000                      0.25 %
         Consumer                          478,000                      2.88 %


         Total delinquent loans   $      7,247,000                      0.39 %

Comparison of Results of Operations for the Three Months Ended September 30, 2008 and 2007 Overview. We reported a net loss of $37.4 million or $3.02 per diluted share for the three months ended September 30, 2008 as compared with net income of $4.2 million or $0.32 per diluted share for the three months ended September 30, 2007, a decrease of $41.6 million in net income and $3.34 in earnings per diluted share. The net loss for the quarter included an other-than-temporary impairment charge of $37.4 million ($36.8 million net of a $521,000 limited tax benefit) on its investments in perpetual preferred securities issued by the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"), collectively the "GSE Securities". This determination was made as a result of the action taken by the United States Treasury Department and the Federal Housing Finance Agency on September 7, 2008, which placed Fannie Mae and Freddie Mac into conservatorship and suspended future dividends. Additionally, the third quarter of 2008 included approximately $1.34 million of non-recurring, noninterest expenses associated with the pending merger with Hampton Roads Bankshares, Inc., discontinued capital raises, and an abandoned potential acquisition. The third quarter results were further affected by a loan loss provision of $5.4 million, which was $4.65 million higher than the loan loss provision for the third quarter of 2007.
The results for both quarters were affected by fair value adjustments for certain financial assets and liabilities that we elected fair value option treatment effective January 1, 2007. The third quarter of 2008 results included a loss from trading account securities of $13,000 and a fair value gain of $376,000 related to certain trust preferred debt securities. During the comparative quarter of 2007, there was a gain from trading securities of $97,000 and a fair value gain of $576,000 related to the trust preferred securities. Additionally, we had a gain of $1.3 million from the fair value and net cash settlements on the economic hedge during the third quarter of 2007. There was no gain or loss on the economic hedge in the third quarter of 2008 as we terminated our position in the economic hedge during September 2007. We obtained the fair value related to these securities from a third party that has experience in valuing these types of securities, and such valuations were derived from a pricing model using discounted cash flow methodologies and the forward LIBOR swap curve. Management has reviewed the valuation of the securities and agrees with their values at September 30, 2008.
The fair value gain on the trust preferred securities in the third quarters of 2007 and 2008 were the result of the extraordinary credit conditions the financial industry has faced over the past year that has resulted in credit spreads on subordinated debt and similar securities to widen significantly. At the time the fair value option was elected at the beginning of 2007, credit spreads on these types of debt securities were approximately 135 to 155 basis points over 3-month LIBOR. In the third quarter of 2008, the credit spreads were approximately 450 basis points over 3-month LIBOR, and the markets have become very illiquid. Because of the type of debt instrument and the illiquidity of the

markets, it is not anticipated that we would ever realize the gain associated with these trust preferred securities. Additionally, it would not be anticipated that we would experience a fair value gain of this magnitude in the future and, in all likelihood, would show a fair value loss if credit market conditions become more normalized.
During each of the third quarters of 2008 and 2007, an $0.08 per share cash dividend was paid to common stockholders in each period. Per share results were affected by a cash dividend paid on the preferred stock of $512,000 in the third quarter of 2008.
Our primary banking operations continues to grow with de novo development of our branch network over the past 12 months. The opening of six financial centers in Raleigh, Wilmington, Chapel Hill, and Wake Forest, North Carolina and Emporia and Charlottesville, Virginia has increased our total financial centers to 37. Our franchise has generated consistently high levels of net interest income and noninterest income since inception. During the third quarter of 2008, total proforma revenue (defined as net interest income and noninterest income, excluding the other-than-temporary impairment loss on the GSE securities and a gain on the sale of property) increased $2.0 million or 10.5% to $20.3 million over the prior year third quarter. This increase was primarily related to our net interest income which was $2.0 million higher in the third quarter of 2008 as compared with the third quarter of the prior year.
Noninterest expenses increased $3.7 million or 30.3% during the third quarter of 2008 as compared with the third quarter of 2007. Of the increase, $1.34 million or 35.8% was related to non-recurring, noninterest expenses related to the pending merger with Hampton Roads Bankshares, Inc., discontinued capital raises, and an abandoned potential acquisition. Additionally, we incurred additional noninterest expenses as a result of the growth of the franchise, increased FDIC insurance costs, and higher franchise taxes.
In accordance with GAAP, the previously mentioned other-than-temporary impairment charge related to the GSE securities and a gain from the sale of property has been reported as a component of noninterest income, and the non-recurring expenses have been reported as a component of noninterest expenses. Additionally, the third quarter of 2007 included a fair value gain and net cash settlement on the economic hedge of $1.34 million, which was reported as a component of noninterest income. To depict a clear comparison between quarters and years, any ratios and figures that indicate "proforma" have been adjusted for these items. Management believes presentation of the adjusted, non-GAAP proforma information throughout this document provides useful information to investors.
Net Interest Income. Like most financial institutions, the primary component of our earnings is net interest income. Net interest income is the difference between interest income, principally from loan and investment securities portfolios, and interest expense, principally on customer deposits and borrowings. Changes in net interest income result from changes in volume, spread, and margin. For this purpose, volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities. Spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. Margin refers to net interest income divided by average interest-earning assets. Margin is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities as well as by levels of non-interest-bearing liabilities and stockholders' equity.
Total interest income was $30.8 million for the quarter ended September 30, 2008, basically unchanged from the third quarter of 2007. However, the volume of interest-earning assets and the rates earned on those assets changed significantly from the third quarter of 2007 to the current quarter. Total interest income benefited from a 26.1% increase in average earning assets that was driven primarily from a 30.3% growth in average loans since September 30, 2007. Average total interest-earning assets increased $403.3 million to $1.9 billion for the third quarter of 2008 as compared to the third quarter of 2007. Average loans increased $416.7 million to $1.8 billion as compared with the third quarter of 2007. The increase in interest income related to this increased volume was partially offset by a drop in yield. The average yield on interest-earning assets decreased 158 basis points from 7.91% for the third quarter of 2007 to 6.33% for the third quarter of 2008 due primarily to the 325-basis point reduction in interest rates since September 2007. Approximately 64% of the loans outstanding over the past year were variable related to the prime rate or LIBOR. As a result, the reduction in interest rates dropped loan yield by 182 basis points from 8.21% in the third quarter of 2007 to 6.39% for the third quarter of 2008. The loan yield stabilized in the second quarter and was basically unchanged on a linked quarter basis. The Federal Reserve had not reduced interest rates any further during the third quarter, however, it did further reduce interest rates 100 basis points in October 2008. Although, we are requiring interest rate floors on the majority of our renewing and new variable rate loans and have increased our credit spreads on fixed rate loans, we would anticipate the 100 basis point interest rate reduction in October to drop loan yield further in the fourth quarter.
Average total interest-bearing liabilities increased by $419.7 million or 29.3%, which is consistent with the increase in interest-earning assets. The average cost of interest-bearing liabilities decreased by 147 basis points from 4.76%

for the quarter ended September 30, 2007 to 3.29% for the current quarter primarily associated with the 325-basis point drop in interest rates since September 2007. The cost of savings, money market, and NOW accounts decreased 137 basis points from 3.60% for the third quarter of 2007 to 2.23% for the current quarter. This decrease resulted from reducing interest rates primarily on business sweep accounts and the most popular money market accounts in line with the decrease in the federal funds rate previously discussed. Additionally, as discussed above, we have utilized $279.5 million of brokered money market deposits this year that are tied directly to the federal funds rate and have adjusted downward with the reduction in rates.
The cost of CD's decreased 123 basis points from 5.11% for the third quarter of 2007 to 3.88% for the current quarter. This decrease is principally because the majority of our CDs renew within a one year time period, and have re-priced at steadily lower levels over the past year. Additionally, higher cost brokered CDs that have matured during this year have been replaced with the lower cost brokered money market accounts discussed above. However, as a result of competitive pressures and liquidity issues that the financial industry continues to face, CD rates remain higher in our markets than other wholesale funding sources, and are not expected to re-price as rapidly during the remainder of the year.
As a result primarily of the effect that the 325-basis point interest rate reduction had on the revenues of the variable loan portfolio, and the competitive pressures that have kept deposit rates higher than in more normalized markets, the interest rate spread decreased 11 basis points from 3.15% for the quarter ended September 30, 2007 to 3.04% for the current quarter. The net interest margin, on a tax-equivalent basis, decreased 29 basis points from 3.49% for the quarter ended September 30, 2007 to 3.20% for the current quarter. However, as a result of our loan yield remaining stable during the third quarter and our CDs continuing to re-price lower during the third quarter, the interest rate margin improved 17 basis points to 3.20% from 3.03% for the second quarter of 2008.
The following table sets forth information on a fully tax-equivalent basis with regard to average balances of assets and liabilities as well as the total dollar amounts of interest income from interest-earning assets and interest expense on interest-bearing liabilities, resultant yields or costs, net interest income, net interest spread, net interest margin, and ratio of average interest-earning assets to average interest-bearing liabilities. In preparing the table, nonaccrual loans are included in the average loan balance.

                                                          For the Three Months Ended September 30,
. . .