Many banking companies in need of capital this year have struggled to raise it.
Towne Bank in Portsmouth, Va., which set out late last month to raise $25 million from shareholders and customers, has had no such problem.
The $2.7 billion-asset bank had said that if it didn't reach its goal by Aug. 15, it would open the stock offering up to the general public. But within a week the offering was oversubscribed by $18 million — eliminating any need to sell shares to the public — and Bob Aston, Towne Bank's chairman and chief executive officer, said it could wind up raising roughly twice as much as it intended.
Towne is not among the desperate; the bank had planned all along to use the proceeds to beef up lending in its market area, Mr. Aston said in an interview last week. The capital "obviously this just gives us the ability to target a bigger current asset growth rate."
Towne Bank's 18 branches are in the Virginia Beach metropolitan area, also known as Hampton Roads. Industry observers attributed the ease with which Towne Bank raised capital to its strong asset quality, the strength of local economy, and Mr. Aston's reputation in that market.
He has been a banker in the area for nearly 45 years, and Arnie Danielson, the chairman of Danielson Capital LLC in Vienna, said Mr. Aston has a way of inspiring his employees, shareholders, and customers to become "ambassadors" for Towne Bank.
For example, the bank has formed business advisory groups in various cities in the Hampton Roads area, and some of the groups have more than 100 participants. "I've never seen such enthusiasm," Mr. Danielson said. "I'm always amazed how many people they have."
Towne Bank has the fourth-largest share in the Virginia Beach market, according to the Federal Deposit Insurance Corp., behind Wachovia Corp., SunTrust Banks Inc., and BB&T Corp. The largest of its competitors, Wachovia, reported an $8.7 billion loss for the second quarter.
"Several of the major banks are pulling back in the market," Mr. Aston said, and Towne Bank is aiming to step in and take advantage of the disruption.
Specifically, it hopes to "cherry pick" from larger banking companies the top lending deals that it would have little chance of landing in good times.
"The reason we were doing the offering in the first place was because we are seeing new opportunities." he said.
As of June 30, Towne Bank's Tier 1 capital ratio was 8.09%, its total risk-based capital ratio was 10.85%, and its leverage ratio was 7.49%. The bank was considered well capitalized by all those measures, but they were getting a little close for comfort for a bank with designs on accelerating its growth.
For many banks raising capital has been a tough sell in what Lew Sosnowik, the vice president for bank securities for Koonce Securities Inc. in Bethesda, Md., described as "a perfectly miserable market."
According to the American Bankers Association Nasdaq Index, community bank stocks have lost 10.5% of their value this year — dragged down, in many cases, by heavy losses on loans to home builders.
"How do you persuade people who tend to panic anyway that the stock is now a great buy when they have lost their money?" Mr. Sosnowik said.
Towne Bank, though, has been an exception. Its shares have climbed 14% this year, to $18.75 late Monday. The bulk of the increase has occurred since the stock was added to the Russell 3000 at the beginning of last month.
The stock's performance could explain why investors were so eager to buy up shares when the bank announced the preferred offering July 24.
In addition, Towne Bank is seen as a safer bet than many other small banking companies because its credit is so strong.
As of June 30 its ratio of nonperforming assets to total assets was just 0.08%, and its net chargeoff rate was just 0.07% of total loans. Industrywide numbers for the second quarter are not yet available, though the FDIC is expected to report that the industrywide nonperformer ratio increased from the first quarter, when it was 1.71%.
Towne Bank's second-quarter earnings climbed 2.3% from a year earlier, to $6 million.
Mr. Aston founded Towne Bank in April 1999 on the principle that it would sell stock only to "people who were going to market with us." Initially the bank raised $50 million, which even then was more than it expected. It even returned $13 million to its subscribers at the time. Towne Bank subsequently raised $96 million in stock offerings in 2001 and 2004.
It focuses on small-business lending and private banking, though it also has a mortgage company and a full-service property/casualty insurance agency, among other businesses.
Certainly some of the bank's good fortune can be attributed to the Hampton Roads region, a major tourist destination whose economy includes the Norfolk Naval Base and a major shipbuilding center.
"They're in a good, dynamic market," said Jake Savage, the senior managing director at BB&T Capital Markets. "It's relatively acyclical compared to other places, because of the influence of the government. The port has been an incredible boon for the whole area."
