Bank of the James posts 3Q loss as it boosts loan default reserve

Bank of the James Financial Group had a non-cash loss of $1.2 million in the third quarter, the Lynchburg company announced Monday.

The loss occurred as the bank moved $2.5 million into its fund that covers loan losses. Because the company raised $7 million in capital in the spring, the move did not lower the bank’s capital rating, officials said. The loss also does not affect deposits.

Bank President Bob Chapman said the bank closely examined its loan portfolio in the third quarter. Uncertain about the short-term recovery prospects of the national economy, it chose to be cautious. “We had some loans that we looked at and said there may be some loss,” he said.

Todd Scruggs, vice president, said the bank identified some loans that are likely to default. However, it also accounted for the possibility that some borrowers with no problems paying now could run into trouble. “Because of the economic conditions, you might have a few more of those,” he said.

In the third quarter, Bank of the James added $2.5 million into its loan loss reserve. It also took $555,000 from that fund to write off loans that had gone bad and could not be recovered through collection methods like foreclosure. This year, the bank has written off $1.06 million in defaulted loans, compared to only $246,000 through the end of September 2008.

Chapman said most of the write-offs are for loans related to real estate.

As of Sept. 30, the bank had $5.3 million in its loan loss reserve, or 1.7 percent of total loans. The bank had $4.7 million in non-performing loans, its financial data shows.

In other areas of performance the bank had a better quarter. Net interest income was $2.9 million, up 8.3 percent from the $2.7 million of interest income in the third quarter of 2008.

The bank’s assets, which include loans and investments, have increased $96.4 million this year, an increase of 29.3 percent since the end of 2008. Scruggs said the bank normally expects its assets to grow about $3 million or $4 million per month, instead of $10 million per month.

“We made a lot of investments, in mostly government agency securities,” Scruggs said. Those securities include Lynchburg municipal bonds, he said.

The bank also sold some of its investments in other companies that it deemed too risky, Scruggs said.

Bank of the James Financial Group’s stock on Monday closed at $7.50, up 15 cents.