- The Washington Times - Monday, March 13, 2006

Rising interest rates are likely to put pressure on earnings of Premier Community Bankshares this year as it expands operations from a recent acquisition.

For more than five years, the Winchester, Va., bank has grown with the real estate boom that did not start to slow until the end of last year.

“We are consistently one of the fastest-growing banking companies in Virginia,” said Jack Stephens, chairman of Premier Community Bankshares, the holding company of Premier Bank, Marathon Bank and Rockingham Heritage Bank.

Premier Community Bankshares was created in 2000 through a merger between Rockingham Heritage Bank of Harrisonburg and the Marathon Bank of Winchester.

In January, the company announced it would buy Albemarle First Bank of Charlottesville for $29 million.

The deal would increase Premier Community Bankshares’ assets to more than $800 million and give it 22 branches in Virginia and West Virginia.

The Albemarle First acquisition, which is awaiting federal and state regulatory approval, makes up $120 million of the assets and three branches in Charlottesville.

Premier Community Bankshares earned $2 million (39 cents per diluted share) on revenue of $12.2 million in the fourth quarter of last year, compared with earnings of $1.8 million (35 cents) on revenue of $9.6 million a year earlier. For all of 2005, the banking company earned $7.1 million on revenue of $44.7 million.

Its stock closed at $21.35 a share yesterday on Nasdaq, down 2 cents, or 1.1 percent, from Friday’s close. The stock is up 9 percent from $19.64 a share six months ago.

Industry analysts say Premier Community Bankshares has prospered at least partly by continuing to operate as a small community bank despite its widening geographic reach.

“I think they have kept some of the decision making at the local level,” said Buddy Howard, president of Equity Research Services of Raleigh, N.C., a bank analysis firm that has written financial reports on Premier Community Bankshares. “That’s always a real critical component to success for a community bank.”

They also have invested well in their 260 employees. “They spend a lot of time picking the right people,” Mr. Howard said.

Despite the company’s strong performance in recent years, it faces a slower market as interest rates rise.

Rates for 30-year mortgages increased last week to their highest level in more than two years as high energy costs fuel inflation concerns, which is hurting home sales, mortgages and refinancings.

Mortgage guarantor Freddie Mac reported in its weekly survey that rates for fixed-rate loans averaged 6.37 percent last week.

Higher interest rates can be especially troubling for community banks, which depend heavily for their revenue on home and small-business loans.

“The increase in interest rates could lead to higher delinquencies,” Mr. Howard said.

Premier Community Bankshares knows the risks.

“They’re not going to help us,” Mr. Stephens said about rising interest rates.

Nevertheless, he said a strong focus on the communities where the banks operate could help the company avoid financial setbacks.

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