TowneBank's profit up despite rate squeeze

TowneBank, citing strong loan growth and greater income from insurance sales, said Tuesday that its first-quarter income rose 9 percent despite pressure from the rapid decline in short-term interest rates.

TowneBank, the largest bank based in Hampton Roads, said it earned $5.99 million for the January-through-March quarter, compared with $5.5 million in the year-earlier period. Earnings per share were 24 cents, up from 22 cents.

Like many community banks, Portsmouth-based TowneBank has seen its biggest source of earnings - net interest income - squeezed in recent quarters because interest rates on its loans have fallen more quickly than the rates it pays for deposits and other funds. Its net interest income of $20.2 million for the first quarter declined almost 2 percent from the year-earlier period.

Because of the Federal Reserve's efforts to spur economic growth and the prospects for additional rate cuts, "I wouldn't expect any robust improvement in the net interest margin," said Bob Aston, TowneBank's chairman and chief executive officer.

However, the bank's income from fees, commissions and other noninterest sources jumped almost 33 percent from the year-earlier quarter to $11.8 million, which included a sharp rise in sales of insurance.

Income for the quarter also included a $1.48 million gain on the sale of securities.

TowneBank's earnings announcement came in the wake of reports by several large banking companies that their first-quarter results were severely reduced by loan losses and heavy write-downs on the value of mortgage-related securities on their books.

TowneBank said its nonperforming assets at the end of March stood at $2.8 million, or 0.11 percent of assets. The bank has none of the collateralized debt obligations or exotic debt securities that have triggered heavy losses at larger banks, Aston said.

Still, TowneBank has closely monitored its loan portfolio in light of the slowing economy, he said.

"One thing we've looked at closely is the delinquency rates every month, and they are staying pretty constant," he said.

Separately, the bank said it may consider raising additional capital to take advantage of lending opportunities as some larger banks restrict their lending to business borrowers in the region. TowneBank hasn't determined what form an offering for additional capital might take or what the dollar amount might be, Aston said.

The bank's loan growth has been particularly strong because "we've had a fair number of seasoned loan officers that we hired last year delivering pretty substantial business," Aston said. "We've got a loan pipeline in excess of $400 million," which is a record.

TowneBank's stock price closed Tuesday at $17 a share, up 15 cents.

Tom Shean, (757) 446-2379, tom.shean@pilotonline.com