StellarOne Increases Loan Loss Allowance

StellarOne Corp., the holding company for StellarOne Bank, filed an 8-K with the Securities and Exchange Commission disclosing plans to increase its loan loss allowance to about $20 million, which is 1.85 percent of its outstanding loans as of Sept. 30. That's an increase from 1.56 percent three months earlier.

StellarOne is one of the "healthy banks'' that received additional capital from the government through the Treasury Department's Troubled Asset Relief Program. It got $30 million last December in exchange for preferred shares and warrants. As of May 31, it had paid $608,333 in dividends on those shares.

The company also announced in the filing that it expects third quarter net charge-offs to be $13.9 million - more than double the $6.9 million in net charge-offs that it recorded for the second quarter of the year.

There is a bit of good news, though. StellarOne expects nonperforming assets to drop to $67.7 million in the third quarter, from $79.6 million for the second quarter.

President O. R. Barham, Jr. said that additional downgrades, the economic climate, and other environmental factors "continue to have a high degree of risk that could ultimately affect the collectability of our portfolio." For those reasons, management and the board of directors decided the prudent move would be to prepare for the possibility of increased losses, although there have also been "some recent positive trends." Barham added, "We are blessed to have a level of capital that can and will easily absorb the resulting loss for the quarter, and are optimistic the economy and real estate market recovery will be sustainable in the coming quarters. We have also aggressively taken charge-offs this quarter as we move closer to the liquidation of certain problem assets."

StellarOne is based in Charlottesville, Va., and calls itself "one of the largest independent, commercial banks headquartered in Virginia." According to its web site, it has more than $3 billion in assets, and manages an additional $1 billion in trust and wealth service assets. Another web page states that the company has 58 full-service financial centers, one loan production office and 66 ATMs.

On Sept. 28, StellarOne announced that it had agreed to sell the Farmville Financial Service Center to The Farmers Bank of Appomattox, pending regulatory approval. The deal, which involves branch deposits of approximately $14.5 million, is expected to close sometime in the fourth quarter.

StellarOne plans to announce its third quarter results on Oct. 28.