VCBI Virginia Commerce Bancorp (MM)

Virginia Commerce Bancorp, Inc. (Nasdaq: VCBI), parent company of Virginia Commerce Bank (the �Bank�), today reported its financial results for the first quarter ended March 31, 2007. First Quarter 2007 Highlights: Net income of $6.5 million, representing a 13.3% increase over first quarter 2006 Diluted earnings per share up 13.0% to $0.26 Loans and deposits up 23.5% and 22.9%, respectively, since March 31, 2006 Other identified potential problem loans decreased 63% Total assets up 22.8% year-over-year, surpassing $2 billion for the first time Peter A. Converse, Chief Executive Officer, commented, �We�ve kicked off the year with another strong first quarter, which is particularly satisfying in the face of continued margin pressure and intense local competition. Loans, deposits and assets all increased over 22%, year-over-year. While the net interest margin compressed further, somewhat countering the effect of strong loan growth on earnings, the compression is decelerating as the loan pipeline remains strong. In fact, the rise in loans would have been $20 - $30 million more had net loan runoff for the quarter been more in line with historical runoff for the same period in the prior two years. Regarding asset quality, we�re especially pleased to report a further decline in non-performing loans and a significant sequential decrease of 63% in other identified potential problem loans, which fell from $11.6 million at year-end 2006 to $4.3 million at March 31, 2007. In terms of the quality of our residential mortgage originations, we are primarily a prime lender. Only $2.5 million, or 1.4%, of our total production in 2006 was subprime and carried no risk of repurchase due to early payment default or foreclosure, as the loans were sold to one of our primary investors under a surety program. Approximately 15-20% of our mortgage loans were Alt A and were all sold in the secondary market with no foreclosures to date or significant delinquency problems.� Converse added, �Deposit growth benefited from ongoing savings, money market and CD promotions. With the introduction of a market leading free business checking product at mid-quarter and revisions to incentive compensation plans to generate more non-interest bearing deposits, we expect to make some meaningful progress in growing that deposit category. Deposit growth should also be enhanced with the opening of five new branches this year beginning with our first Loudoun County office in May. All in all, we remain optimistic about our prospects for a strong showing in 2007.� SUMMARY REVIEW OF FINANCIAL PERFORMANCE Net Income First quarter earnings of $6.5 million increased $760 thousand, or 13.3%, over 2006 first quarter earnings of $5.7 million. On a diluted per share basis, first quarter 2007 earnings were $0.26 compared to $0.23 for the first quarter of 2006, an increase of 13.0%, as adjusted for a 10% stock dividend payable May 1, 2007. The year-over-year increase in net income was due primarily to a 10.8% increase in net interest income, an 8.8% increase in non-interest income, and a 64.2% decline in loan loss provisions on improved asset quality. Net Interest Income Net interest income for the first quarter of $17.9 million was up 10.8% over the same quarter last year due to strong loan growth, as the net interest margin declined from 4.27% in the first quarter of 2006 to 3.74% for the current three-month period. On a sequential basis, the margin was down ten basis points from 3.84% in the fourth quarter of 2006. The declines in the net interest margin continue to be the result of significantly higher short-term rates on savings, money market and time deposit accounts, a shift of funds in 2006 from lower rate interest-bearing checking accounts, and ongoing strong competition for deposits in the local market. These factors resulted in an 89 basis point increase in the cost of funds year-over-year, compared to a 32 basis point increase in the yield on interest-earning assets. Management expects net interest margin pressure to continue in 2007 due to high short-term interest rates and competitive pressures on deposit and loan rates in the Company�s market area. However, the rate of compression continues to decelerate and is expected to bottom out in the second half of the year. As a result, the guideline range for the margin for the remainder of 2007 is being revised to 3.60% - 3.75%. Non-Interest Income Non-interest income for the first quarter rose $151 thousand, or 8.8%, from $1.7 million in 2006, to $1.8 million with increases in all categories except for a $56 thousand decrease in fees and net gains on mortgage loans held-for-sale. Compared to the three months ended December 31, 2006, non-interest income was lower by $171 thousand with fees and net gains on mortgage loans held-for-sale down $198 thousand due mainly to seasonal factors. Management expects increasing levels of non-interest income, including fees and net gains from mortgage lending activities, over the rest of 2007. Non-Interest Expense Non-interest expense increased $1.3 million, or 15.8%, from $8.2 million in the first quarter of 2006, to $9.5 million in the current period, and was up $429 thousand from the three months ended December 31, 2006. The year-over-year increase is due to the opening of the Bank�s twentieth branch location in August 2007, the hiring of additional loan and business development officers, other staffing and facilities expansion to support loan and deposit growth and some expenses associated with new branches to be opened in the second quarter of 2007. The increase on a linked quarter basis was due to a historically higher level of expenses in the first quarter of each year. As a result of these increases in expenses, the efficiency ratio rose from 45.9% in the first quarter of 2006 to 48.0% in the current period. Management expects higher levels in all non-interest expense categories in the second quarter with two new branch locations to be opened and further increases throughout the year with at least three more new branches in the second half of the year and resumption of FDIC insurance premiums. However, it is expected that the efficiency ratio will continue to remain in the mid-to-high forties. Loans Loans, net of allowance for loan losses, increased $321.1 million, or 23.5%, from $1.4 billion at March 31, 2006, to $1.7 billion at March 31, 2007. Non-farm, non-residential real estate loans increased $89.9 million, or 14.8%, real estate construction loans rose $149.6 million, or 36.7%, and commercial loans increased $57.5 million, or 42.0%, year-over-year. Since December 31, 2006, loans are up $59.8 million, or 14.7%, on an annualized basis, with growth mostly concentrated in commercial real estate and construction. Management notes net loan growth was impacted by an unusually higher net run-off and expects higher levels of loan growth in the second quarter based on a strong current pipeline. Deposits Since March 31, 2006, deposits have increased $318.8 million, or 22.9%, from $1.4 billion to $1.7 billion, as savings and interest�bearing demand deposits rose $107.2 million, or 28.3%, and time deposits increased $219.9 million, or 27.1%. Sequentially, deposits rose $104.8 million, or 26.1%, on an annualized basis, with demand deposits increasing by $5.2 million, savings and interest-bearing demand accounts growing $26.6 million, and time deposits increasing by $73.1 million. Growth in the first quarter was supported by continued promotions for savings, money market and time deposits in local newspapers. Repurchase Agreements Repurchase agreements, the majority of which represent funds of significant demand deposit customers, increased $32.7 million, or 28.4%, year-over-year, to $147.6 million at March 31, 2007. They were down slightly from December 31, 2006, due to the run-off of a temporary increase in December that was partially offset by the addition of a $25 million structured repurchase agreement. Asset Quality and Provisions For Loan Losses Provisions for loan losses were $360 thousand for the three months ended March 31, 2007, compared to $1.0 million in the same period in 2006. This was due to a sequential decrease in non-performing loans, lower net loan growth of $59.8 million for the first quarter of 2007 as compared to growth of $98.4 million for the prior year quarter, and a significant decrease in other identified potential problem loans, which, although well-secured and currently performing, but requiring higher reserve levels, fell from $11.6 million at December 31, 2006, to $4.3 million at March 31, 2007. As a result, the allowance for loan losses to total loans dropped from 1.10% at December 31, 2006, to 1.08% as of March 31, 2007. Stockholders� Equity Stockholders� equity increased $27.9 million, or 23.4%, from $118.9 million at March 31, 2006, to $146.8 million at March 31, 2007, on earnings of $25.3 million over the twelve-month period, and $2.6 million from proceeds and tax benefits related to the exercise of stock options by company directors, officers and employees and stock option expense credits. On March 28, 2007, the Company declared a 10% stock dividend to be paid on May 1, 2007, to shareholders of record as of the close of business on April 16, 2007. This will be the twelfth consecutive year that a stock dividend or split is paid. CONFERENCE CALL Virginia Commerce Bancorp will host a teleconference call for the financial community on April 17, 2007, at 10:30 a.m. Eastern Daylight Time to discuss the first quarter 2007 financial results. The public is invited to listen to this conference call by dialing 866-283-8244 at least 10 minutes prior to the call. A replay of the conference call will be available from 1:30 p.m. Eastern Daylight Time on April 17, 2007, until 11:59 p.m. Eastern Daylight Time on April 24, 2007. The public is invited to listen to this conference call replay by dialing 888-266-2081 and entering passcode 1067868. ABOUT VIRGINIA COMMERCE BANCORP Virginia Commerce Bancorp, Inc. is the parent bank holding company for Virginia Commerce Bank (the �Bank�), a Virginia state chartered bank that commenced operations in May 1988. The Bank pursues a traditional community banking strategy, offering a full range of business and consumer banking services through twenty branch offices, two residential mortgage offices and two investment services offices, principally to individuals and small to medium-size businesses in Northern Virginia and the Metropolitan Washington, D.C. area. NON-GAAP PRESENTATIONS This press release refers to the efficiency ratio, which is computed by dividing non-interest expense by the sum of net interest income on a tax equivalent basis and non-interest income. This is a non-GAAP financial measure that we believe provides investors with important information regarding our operational efficiency. Comparison of our efficiency ratio with those of other companies may not be possible because other companies may calculate the efficiency ratio differently. The Company, in referring to its net income, is referring to income under accounting principals generally accepted in the United States, or �GAAP�. FORWARD LOOKING STATEMENTS This press release may contain forward-looking statements within the meaning of the Securities and Exchange Act of 1934, as amended, including statements of goals, intentions, and expectations as to future trends, plans, events or results of Company operations and policies and regarding general economic conditions. In some cases, forward-looking statements can be identified by use of words such as �may,� �will,� �anticipates,� �believes,� �expects,� �plans,� �estimates,� �potential,� �continue,� �should,� and similar words or phrases. These statements are based upon current and anticipated economic conditions, nationally and in the Company�s market, interest rates and interest rate policy, competitive factors, and other conditions which by their nature, are not susceptible to accurate forecast, and are subject to significant uncertainty. Because of these uncertainties and the assumptions on which this discussion and the forward-looking statements are based, actual future operations and results may differ materially from those indicated herein. Readers are cautioned against placing undue reliance on any such forward-looking statements. The Company�s past results are not necessarily indicative of future performance. Virginia Commerce Bancorp, Inc. Financial Highlights (Dollars in thousands, except per share data) (Unaudited) � Three Months Ended March 31, 2007� � 2006� � % Change� Summary Operating Results: Interest and dividend income $ 36,107� $ 27,241� 32.5% Interest expense 18,218� 11,089� 64.3% Net interest and dividend income 17,889� 16,152� 10.8% Provision for loan losses 360� 1,005� -64.2% Non-interest income 1,862� 1,711� 8.8% Non-interest expense 9,489� 8,194� 15.8% Income before income taxes 9,902� 8,664� 14.3% Net income $ 6,474� $ 5,714� 13.3% � Performance Ratios: Return on average assets 1.31% 1.46% Return on average equity 18.37% 20.13% Net interest margin 3.74% 4.27% Efficiency ratio (1) 48.04% 45.87% � Per Share Data: (2) Net income-basic $ 0.27� $ 0.25� 8.0% Net income-diluted $ 0.26� $ 0.23� 13.0% Average number of shares outstanding: Basic 23,885,904� 23,446,721� Diluted 24,951,784� 24,916,776� � As of March 31, 2007� � 2006� � % Change� Selected Balance Sheet Data: Loans, net $ 1,689,670� $ 1,368,610� 23.5% Investment securities 258,779� 169,530� 52.6% Assets 2,061,544� 1,678,432� 22.8% Deposits 1,710,775� 1,391,983� 22.9% Stockholders� equity 146,772� 118,911� 23.4% Book value per share (2) $ 6.15� $ 5.05� 21.8% � Capital Ratios (% of risk weighted assets): Tier 1 capital: Company 10.42% 10.87% Bank 7.84% 7.93% Total qualifying capital: Company 11.43% 12.07% Bank 11.21% 11.85% � Asset Quality: Non-performing assets: Impaired loans $ 3,857� $ 2,342� 64.7% Non-accrual loans � 9� � 13� -30.8% Total non-performing loans $ 3,866� $ 2,355� 64.2% Loans 90+ days past due and still accruing � --� � 890� N/A� Total non-performing assets and past due loans $ 3,866� $ 3,245� 19.1% � Non-performing loans to total loans: 0.23% 0.17% to total assets: 0.19% 0.14% Non-performing loans and past due loans to total loans: 0.23% 0.23% to total assets: 0.19% 0.19% Allowance for loan losses to total loans 1.08% 1.07% Net charge-offs (recoveries) $ 18� $ 13� Net charge-offs to average loans outstanding 0.001% 0.001% � � As of March 31, 2007� � 2006� � % Change� Loan Portfolio: Commercial $ 194,552� $ 137,039� 42.0% Real estate-one-to-four family residential 198,283� 162,951� 21.7% Real estate-multi-family residential 58,234� 65,936� -11.7% Real estate-nonfarm, nonresidential 699,362� 609,449� 14.8% Real estate-construction 556,692� 407,120� 36.7% Consumer � 6,235� � 6,290� -0.9% Total loans $ 1,713,358� $ 1,388,785� 23.4% Less unearned income 5,245� 5,362� -2.2% Less allowance for loan losses � 18,443� � 14,813� 24.5% Loans, net $ 1,689,670� $ 1,368,610� 23.5% � Investment Securities (at book value): Available-for-sale: U.S. Government Agency obligations $ 193,069� $ 113,938� 69.5% Domestic corporate debt obligations 6,040� 6,048� -0.1% Obligations of states and political subdivisions 9,987� 1,365� 631.6% Restricted stock: Federal Reserve Bank 1,442� 1,442� --� Federal Home Loan Bank 3,506� 3,034� 15.6% Community Bankers� Bank � 55� � 55� --� $ 214,099� $ 125,882� 70.1% Held-to-maturity: U.S. Government Agency obligations $ 34,313� $ 34,684� -1.1% Obligations of states and political subdivisions � 10,367� � 8,964� 15.7% $ 44,680� $ 43,648� 2.4% (1) Computed by dividing non-interest expense by the sum of net interest income on a tax equivalent basis using a 35% rate and non-interest income. (2) Adjusted to give effect to a 10% stock dividend payable May 1, 2007, and a three-for-two split in the form of a 50% stock dividend in May 2006. Virginia Commerce Bancorp, Inc. Consolidated Balance Sheets (Dollars in thousands, except per share data) As of March 31, (Unaudited) � 2007� 2006� Assets Cash and due from banks $ 23,640� $ 33,379� Interest-bearing deposits with other banks 1,094� 1,045� Securities (fair value: 2007, $258,116; 2006, $168,324) 258,779� 169,530� Federal funds sold 37,159� 68,000� Loans held-for-sale 8,202� 8,066� Loans, net of allowance for loan losses of $18,443 in 2007 and $14,813 in 2006 1,689,670� 1,368,610� Bank premises and equipment, net 10,113� 7,817� Accrued interest receivable 9,825� 6,499� Other assets � 23,062� � 15,486� Total assets $ 2,061,544� $ 1,678,432� Liabilities and Stockholders� Equity Deposits Demand deposits $ 192,116� $ 200,384� Savings and interest-bearing demand deposits 486,068� 378,891� Time deposits � 1,032,591� � 812,708� Total deposits $ 1,710,775� $ 1,391,983� Securities sold under agreement to repurchase and federal funds purchased 147,631� 114,940� Trust preferred capital notes 44,344� 44,344� Accrued interest payable 6,601� 4,037� Other liabilities � 5,421� � 4,217� Total liabilities $ 1,914,772� $ 1,559,521� Stockholders� Equity Preferred stock, $1.00 par, 1,000,000 shares authorized and unissued $ --� $ --� Common stock, $1.00 par, 50,000,000 shares authorized, issued and outstanding 2007, 21,716,392; 2006, 14,272,050 21,716� 14,272� Surplus 31,364� 37,315� Retained earnings 94,218� 68,954� Accumulated other comprehensive loss, net � (526) � (1,630) Total stockholders� equity $ 146,772� $ 118,911� Total liabilities and stockholders� equity $ 2,061,544� $ 1,678,432� Virginia Commerce Bancorp, Inc. Consolidated Statements of Income (Dollars in thousands except per share data) Three Months Ended March 31, (Unaudited) � �2007� 2006� Interest and dividend income: Interest and fees on loans $ 32,800� $ 25,368� Interest and dividends on investment securities: Taxable 2,676� 1,585� Tax-exempt 90� 60� Dividends 66� 63� Interest on deposits with other banks 18� 13� Interest on federal funds sold � 457� � 152� Total interest and dividend income $ 36,107� $ 27,241� Interest expense: Deposits $ 16,190� $ 9,171� Securities sold under agreement to repurchase and federal funds purchased 1,251� 956� Other borrowed funds --� 216� Trust preferred capital notes � 777� � 746� Total interest expense $ 18,218� $ 11,089� Net interest income: $ 17,889� $ 16,152� Provision for loan losses � 360� � 1,005� Net interest income after provision for loan losses $ 17,529� $ 15,147� Non-interest income: Service charges and other fees $ 840� $ 815� Non-deposit investment services commissions 184� 91� Fees and net gains on loans held-for-sale 661� 717� Other � 177� � 88� Total non-interest income $ 1,862� $ 1,711� Non-interest expense: Salaries and employee benefits $ 5,536� $ 4,820� Occupancy expense 1,616� 1,267� Data processing 567� 477� Other operating expense � 1,770� � 1,630� Total non-interest expense $ 9,489� $ 8,194� Income before taxes on income $ 9,902� $ 8,664� Provision for income taxes � 3,428� � 2,950� Net Income $ 6,474� $ 5,714� Earnings per common share, basic (1) $ 0.27� $ 0.25� Earnings per common share, diluted (1) $ 0.26� $ 0.23� (1) Adjusted to give effect to a 10% stock dividend payable May 1, 2007, and a three-for-two split in the form of a 50% stock dividend in May 2006. Virginia Commerce Bancorp, Inc. Consolidated Average Balances, Yields, and Rates Three Months Ended March 31, (Unaudited) � � 2007� 2006� (Dollars in thousands) Average Balance � Interest Income-Expense � Average Yields / Rates Average Balance � Interest Income-Expense � Average Yields / Rates Assets Securities (1) $ 241,140� $ 2,832� 4.74% $ 174,031� $ 1,708� 3.97% Loans, net of unearned income (2) 1,668,656� 32,800� 7.98% 1,344,409� 25,368� 7.55% Interest-bearing deposits in other banks 1,336� 18� 5.59% 1,039� 13� 5.03% Federal funds sold � 35,134� � 457� 5.20% � 13,597� � 152� 4.46% Total interest-earning assets $ 1,946,266� $ 36,107� 7.53% $ 1,533,076� $ 27,241� 7.21% Other assets � 61,494� � 52,036� Total Assets $ 2,007,760� $ 1,585,112� � Liabilities and Stockholders� Equity Interest-bearing deposits: NOW accounts $ 156,997� $ 648� 1.67% $ 196,084� $ 811� 1.68% Money market accounts 236,868� 2,289� 3.92% 140,403� 1,005� 2.90% Savings accounts 77,992� 807� 4.20% 18,593� 25� 0.54% Time deposits � 1,016,081� � 12,446� 4.97% � 747,684� � 7,330� 3.98% Total interest-bearing deposits $ 1,487,938� $ 16,190� 4.41% $ 1,102,764� $ 9,171� 3.37% Securities sold under agreement to repurchase and federal funds purchased 130,452� 1,251� 3.89% 100,466� 956� 3.86% Other borrowed funds --� --� --� 18,333� 216� 4.72% Trust preferred capital notes � 43,000� � 777� 7.23% � 43,000� � 746� 6.94% Total interest-bearing liabilities $ 1,661,390� $ 18,218� 4.45% $ 1,264,563� $ 11,089� 3.56% Demand deposits and other liabilities � 203,465� � 205,402� Total liabilities $ 1,864,855� $ 1,469,965� Stockholders� equity � 142,905� � 115,147� Total liabilities and stockholders� equity $ 2,007,760� $ 1,585,112� Interest rate spread 3.08% 3.65% Net interest income and margin $ 17,889� 3.74% $ 16,152� 4.27% (1) Yields on securities available-for-sale have been calculated on the basis of historical cost and do not give effect to changes in the fair value of those securities, which are reflected as a component of stockholders� equity. Average yields on securities are stated on a tax equivalent basis, using a 35% rate. (2) Loans placed on non-accrual status are included in the average balances. Net loan fees and late charges included in interest income on loans totaled $1.34 million and $1.36 million for the three months ended March 31, 2007 and 2006, respectively.