Lycnhburg area banks still finding growth

By Bryan Gentry
Lynchburg News & Advance
Published: July 17, 2008

The failure of one California-based bank and troubles in other large banks cast a shadow on the banking industry early this week.

But local bankers in the Lynchburg area are stepping out of the shadow to say “we’re fine.”

The presidents of two community banks in the region said on Wednesday that the local economy and lack of exposure to subprime loans have shielded them from the fallout.

They said other banks are also still doing well, and that the overall banking system is fine.

Both Bank of the James, based in Lynchburg, and First National Bank of Altavista have continued to make profits this year.

On Wednesday the Lynchburg bank reported net income for the second quarter was $524,000, a 5.2 percent increase from the second quarter last year.

Year to date, the bank’s net income is up 14.7 percent from the first half of 2007.

Todd Scruggs, vice president, said the growth in the second quarter is pleasing. “If we can get 5 or 10 percent better than what we did last year, that’s fine with us,” he said.

First National Bank of Altavista has not released its second quarter earnings statement, but “if you look at our first quarter earnings, we’re down from last year but we’re still making money,” said Brian Lemley, chief financial officer.

“We’ve been around a long time, and we’re not going anywhere,” Lemley said. “There shouldn’t be a need for anyone to worry about their deposits.”

The profits at local banks contrasts with losses at some other banks. Some have written off billions of dollars in loans, some of which were subprime mortgages.

Wachovia bank reported a loss of $393 million in the first quarter of 2008. It’s second quarter results aren’t due for another week, but the company’s stock fell to a 17-year low Tuesday.

“I never thought we’d make more money in a quarter than Wachovia,” said Bob Chapman, president of Bank of the James. “It’s a sign of the times we’re in.”

Late last week the Federal Deposit Insurance Corporation took over IndyMac, a Pasadena, Calif.-based bank.

Local bank leaders say IndyMac is a whole different ball game.

“Look at that institution, look at where it’s located,” said Rob Gilliam, First National Bank of Altavista president. “There’s just no correlation between the IndyMac failure in California and community banking in Virginia.”

Scruggs said, “The banks that are failing did some pretty bad things” that local banks did not.

Both First National Bank of Altavista and Bank of the James made decisions to not participate in subprime lending, the giving of mortgages to customers who in some cases could not afford it.

“What’s impacted some of the larger institutions are loan write-offs,” Gilliam said. “… It’s been primarily mortgage loans. Community banks don’t by and large have those issues. We just haven’t gone out in a wholesale fashion and thrown money at the housing market.”

Also, the region’s steady economy has bolstered the banks, the bank leaders said.

Chapman said being in a stable economy — not one that grows fast and then stalls — is beneficial.

Gilliam said the economy’s continued strength is fueling a demand for loans.

Local banks aren’t trouble-free. Gilliam said that low interest rates are squeezing his bank’s profit margins.

Also, Chapman said FDIC insurance premiums could go up after the IndyMac failure.

But Chapman added that banks’ capital levels are higher than ever.

“You may see some bank failures, but the system is still there,” Scruggs said.

- The Associated Press and the Washington Post contributed.