Profits fall at 2 Triangle banks

Cary-based Crescent and Raleigh's North State cite lower interest margins

The corporate parents of two Triangle-based community banks -- Crescent State Bank and North State Bank -- reported significant earning declines in the second quarter.

Profits at Cary-based Crescent totaled $1 million, down 40 percent from a year earlier. Raleigh-based North State posted a profit of $643,000, a 24 percent drop.

"It's a tough environment," said Bruce Elder, vice president at Crescent.

Both banks, which issued their earnings this week, cited lower interest margins, which are plaguing banks of all sizes nationwide.

One problem is that the gap between the interest the banks pay on deposits and the interest rates they receive on loans has narrowed.

Interest rates on many bank loans are linked to the prime rate and therefore fall almost immediately when the Federal Reserve lowers rates. But competitive pressures and other factors -- such as locked-in interest rates on CDs -- prevent banks from quickly making similar cuts to the rates they pay on deposits.

"No one likes to see a decline in earnings like that, but people have to understand the interest margins are being compressed," said Buddy Howard of Equity Research Services, a Raleigh firm that tracks the banking industry. Howard's firm has done work for Crescent in the past and is currently working with North State.

Increased costs triggered by opening new branches also cut into earnings at both banks.

Crescent opened a branch in Knightdale at the end of last year and one in Wilmington at the end of the first quarter, giving it a total of 13 branches. North State has seven branches after opening new offices in downtown Raleigh and Wilmington earlier this year.

Executives from both banks said their earnings aren't so bad, all things considered.

"We were pleased with the earnings given the environment we're in, but we're not necessarily pleased with the earnings," said Kirk Whorf, chief financial officer at North State.

North State shares last traded at $10. The stock is down 46 percent in the past year.

Crescent's shares fell 9 cents to $6.51 Thursday. Its stock is down 39 percent in the past year.