Avenue Bank posted its first-ever quarterly profit in the first three months of 2010, just in time to mark its third birthday.

Chairman, President and CEO Ron Samuels said Avenue’s parent company booked net income of $223,000 during the quarter, an improvement of almost $400,000 from the last three months of 2009. Avenue lost $12.8 million in 2008 and $5.7 million in 2009 as it ramped up operations.

The bank’s loan portfolio grew more than 3 percent during the quarter to $336 million while deposits rose 2.7 percent to $383 million. Avenue’s net interest margin ticked up 2.88 percent, up only a bit from the fourth quarter, but 68 basis points higher than in early 2009.

“It really was a good quarter,” Samuels said. “It looks like the recovery locally will take longer than in the past and it’s too early to tell the impact of the flood. But we’re in a great position to continue our growth.”

Samuels said Avenue reached profitability on the back of four of the five focus areas – residential construction understandably didn’t hit its marks – it targeted at its launch. He added that the music industry has been every bit as prominent as expected in Avenue’s growth and now accounts for almost a fifth of Avenue’s loan and deposit bases.

Avenue ended the quarter with $499 million in assets and has since passed the $500 million landmark. Samuels said the bank has enough capital to support growth that would take it north of $700 million. But he added that, depending on the market conditions, it’s likely he will raise new capital before then – Avenue’s original plan was to do so between years three and five.

Before then, though, Avenue and other banks will have to handle a new set of challenges as their customers get to grips with impact of this week’s water disaster. A spike in business failures would in turn lead to another rise in nonperforming assets at banks, most of which have just begun to get their arms around their true exposure.

Chief Operating Officer Kent Cleaver said his commercial team has connected with its clients, the majority of whom have not been severely damaged. The next big question is how those companies will fare once the effects on local consumers become clearer.

“It always boils down to end demand,” Cleaver said.