UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended September 30, 2010
or
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
to
Commission file number 000-28635
VIRGINIA COMMERCE BANCORP, INC.
(Exact name of registrant as specified in its charter)
|
|
|
VIRGINIA
|
|
54-1964895
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
5350 LEE HIGHWAY, ARLINGTON,
VIRGINIA 22207
(Address of principal executive offices) (Zip Code)
703-534-0700
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes
x
No
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).
¨
Yes
¨
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
|
|
|
|
|
|
|
Large accelerated filer
|
|
¨
|
|
Accelerated filer
|
|
¨
|
|
|
|
|
Non-accelerated filer
|
|
¨
|
|
Smaller reporting company
|
|
x
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes
¨
No
x
As of
November 12, 2010, the number of outstanding shares of registrants common stock, par value $1.00 per share, was: 28,893,186.
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
ITEM
1.
FINANCIAL STATEMENTS
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
September 30,
2010
|
|
|
(Audited)
December 31,
2009
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
34,520
|
|
|
$
|
25,211
|
|
Federal funds sold
|
|
|
113,250
|
|
|
|
|
|
Investment securities (fair value: 2010, $384,734; 2009, $349,836)
|
|
|
380,915
|
|
|
|
348,585
|
|
Restricted stocks, at cost
|
|
|
11,752
|
|
|
|
11,751
|
|
Loans held-for-sale
|
|
|
14,175
|
|
|
|
6,492
|
|
Loans, net of allowance for loan losses of $62,776 in 2010 and $65,152 in 2009
|
|
|
2,178,034
|
|
|
|
2,210,064
|
|
Bank premises and equipment, net
|
|
|
12,224
|
|
|
|
13,794
|
|
Accrued interest receivable
|
|
|
10,617
|
|
|
|
10,537
|
|
Other real estate owned, net of valuation allowance of $6,001 in 2010 and $9,067 in 2009
|
|
|
24,395
|
|
|
|
28,499
|
|
Other assets
|
|
|
66,121
|
|
|
|
70,364
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,846,003
|
|
|
$
|
2,725,297
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
269,703
|
|
|
$
|
239,604
|
|
Savings and interest-bearing demand deposits
|
|
|
1,223,748
|
|
|
|
985,152
|
|
Time deposits
|
|
|
830,027
|
|
|
|
1,004,571
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
2,323,478
|
|
|
$
|
2,229,327
|
|
Securities sold under agreement to repurchase and federal funds purchased
|
|
|
178,632
|
|
|
|
176,729
|
|
Other borrowed funds
|
|
|
25,000
|
|
|
|
25,000
|
|
Trust preferred capital notes
|
|
|
66,249
|
|
|
|
66,057
|
|
Accrued interest payable
|
|
|
3,173
|
|
|
|
4,014
|
|
Other liabilities
|
|
|
2,459
|
|
|
|
5,302
|
|
Commitments and contingent liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
2,598,991
|
|
|
$
|
2,506,429
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Preferred stock, net of discount, $1.00 par, 1,000,000 shares authorized, Series A; $1,000 stated value; 71,000 issued and
outstanding in 2010 and 2009
|
|
$
|
65,082
|
|
|
$
|
63,993
|
|
Common stock, $1.00 par, 50,000,000 shares authorized, issued and outstanding 2010, 28,893,186 including 9,335 in unvested
restricted stock issued; 2009, 26,744,545
|
|
|
28,884
|
|
|
|
26,745
|
|
Surplus
|
|
|
104,693
|
|
|
|
96,588
|
|
Warrants
|
|
|
8,520
|
|
|
|
8,520
|
|
Retained earnings
|
|
|
35,918
|
|
|
|
22,671
|
|
Accumulated other comprehensive income, net
|
|
|
3,915
|
|
|
|
351
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
$
|
247,012
|
|
|
$
|
218,868
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,846,003
|
|
|
$
|
2,725,297
|
|
|
|
|
|
|
|
|
|
|
Notes to consolidated financial statements are an integral part of these statements.
3
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars except per
share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Interest and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
33,997
|
|
|
$
|
33,707
|
|
|
$
|
100,138
|
|
|
$
|
100,336
|
|
Interest and dividends on investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
3,131
|
|
|
|
3,366
|
|
|
|
9,722
|
|
|
|
10,523
|
|
Tax-exempt
|
|
|
554
|
|
|
|
426
|
|
|
|
1,456
|
|
|
|
1,177
|
|
Dividend on restricted stocks
|
|
|
91
|
|
|
|
97
|
|
|
|
267
|
|
|
|
265
|
|
Interest on federal funds sold
|
|
|
59
|
|
|
|
27
|
|
|
|
137
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and dividend income
|
|
$
|
37,832
|
|
|
$
|
37,623
|
|
|
$
|
111,720
|
|
|
$
|
112,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
8,113
|
|
|
$
|
11,649
|
|
|
$
|
25,972
|
|
|
$
|
39,076
|
|
Securities sold under agreement to repurchase and federal funds purchased
|
|
|
1,023
|
|
|
|
1,022
|
|
|
|
3,022
|
|
|
|
2,477
|
|
Other borrowed funds
|
|
|
272
|
|
|
|
272
|
|
|
|
806
|
|
|
|
806
|
|
Trust preferred capital notes
|
|
|
1,243
|
|
|
|
1,276
|
|
|
|
3,702
|
|
|
|
3,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
$
|
10,651
|
|
|
$
|
14,219
|
|
|
$
|
33,502
|
|
|
$
|
46,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
27,181
|
|
|
$
|
23,404
|
|
|
$
|
78,218
|
|
|
$
|
66,161
|
|
Provision for loan losses
|
|
|
5,100
|
|
|
|
49,000
|
|
|
|
13,538
|
|
|
|
80,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provision for loan losses
|
|
$
|
22,081
|
|
|
$
|
(25,596
|
)
|
|
$
|
64,680
|
|
|
$
|
(14,652
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income (charges):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and other fees
|
|
$
|
841
|
|
|
$
|
893
|
|
|
$
|
2,555
|
|
|
$
|
2,683
|
|
Non-deposit investment services commissions
|
|
|
222
|
|
|
|
165
|
|
|
|
529
|
|
|
|
444
|
|
Fees and net gains on loans held-for-sale
|
|
|
908
|
|
|
|
615
|
|
|
|
1,737
|
|
|
|
2,374
|
|
Loss on other real estate owned
|
|
|
(713
|
)
|
|
|
(9,085
|
)
|
|
|
(2,691
|
)
|
|
|
(9,085
|
)
|
Gain on sale of securities
|
|
|
|
|
|
|
|
|
|
|
139
|
|
|
|
|
|
Impairment loss on securities (1)
|
|
|
|
|
|
|
(280
|
)
|
|
|
(1,519
|
)
|
|
|
(418
|
)
|
Other
|
|
|
1,134
|
|
|
|
119
|
|
|
|
1,359
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income (charges)
|
|
$
|
2,392
|
|
|
$
|
(7,573
|
)
|
|
$
|
2,109
|
|
|
$
|
(3,804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
6,253
|
|
|
$
|
5,645
|
|
|
$
|
18,239
|
|
|
$
|
17,260
|
|
Occupancy expense
|
|
|
2,414
|
|
|
|
2,466
|
|
|
|
7,534
|
|
|
|
7,670
|
|
FDIC insurance
|
|
|
1,312
|
|
|
|
1,304
|
|
|
|
3,953
|
|
|
|
4,100
|
|
Franchise tax expense
|
|
|
720
|
|
|
|
775
|
|
|
|
2,155
|
|
|
|
2,325
|
|
Data processing
|
|
|
553
|
|
|
|
598
|
|
|
|
1,806
|
|
|
|
1,774
|
|
Other operating expense
|
|
|
3,346
|
|
|
|
2,134
|
|
|
|
8,428
|
|
|
|
6,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
14,598
|
|
|
$
|
12,922
|
|
|
$
|
42,115
|
|
|
$
|
39,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
$
|
9,875
|
|
|
$
|
(46,091
|
)
|
|
$
|
24,674
|
|
|
$
|
(57,987
|
)
|
Provision (benefit) for income taxes
|
|
|
2,917
|
|
|
|
(16,204
|
)
|
|
|
7,676
|
|
|
|
(20,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
6,958
|
|
|
$
|
(29,887
|
)
|
|
$
|
16,998
|
|
|
$
|
(37,480
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective dividend on preferred stock
|
|
|
1,250
|
|
|
|
1,251
|
|
|
|
3,752
|
|
|
|
3,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
5,708
|
|
|
$
|
(31,138
|
)
|
|
$
|
13,246
|
|
|
$
|
(40,768
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share, basic
|
|
$
|
0.21
|
|
|
$
|
(1.17
|
)
|
|
$
|
0.49
|
|
|
$
|
(1.53
|
)
|
Earnings (loss) per common share, diluted
|
|
$
|
0.20
|
|
|
$
|
(1.17
|
)
|
|
$
|
0.46
|
|
|
$
|
(1.53
|
)
|
(1)
|
Loss on securities available-for-sale in 2010 consists of additional other-than-temporary impairment losses since December 31, 2009, of $(760) thousand of which
$(1.5) million was recognized as a loss of earnings and a gain of $759 thousand was recognized in other comprehensive income. In 2009, $(418) thousand in other-than-temporary impairment was recognized against earnings and $(274) thousand in other
comprehensive loss.
|
Notes to consolidated financial statements are an integral part of these statements.
4
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
For the
nine months ended September 30, 2010 and 2009
(In thousands of dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Surplus
|
|
|
Warrants
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Comprehensive
Income (Loss)
|
|
|
Total
Stockholders
Equity
|
|
Balance, January 1, 2009
|
|
$
|
62,541
|
|
|
$
|
26,575
|
|
|
$
|
95,840
|
|
|
$
|
8,520
|
|
|
$
|
60,535
|
|
|
$
|
(724
|
)
|
|
|
|
|
|
$
|
253,287
|
|
Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,480
|
)
|
|
|
|
|
|
$
|
(37,480
|
)
|
|
|
(37,480
|
)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reclassification adjustment for impairment loss on securities (net of tax of $146)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
272
|
|
|
|
272
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
unrealized holding gains arising during the period (net of tax of $794)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,475
|
|
|
|
1,475
|
|
|
|
1,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(35,733
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
|
|
|
|
121
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
468
|
|
Discount on preferred stock
|
|
|
1,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,200
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2009
|
|
$
|
63,630
|
|
|
$
|
26,696
|
|
|
$
|
96,359
|
|
|
$
|
8,520
|
|
|
$
|
19,766
|
|
|
$
|
1,023
|
|
|
|
|
|
|
$
|
215,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2010
|
|
$
|
63,993
|
|
|
$
|
26,745
|
|
|
$
|
96,588
|
|
|
$
|
8,520
|
|
|
$
|
22,671
|
|
|
$
|
351
|
|
|
|
|
|
|
$
|
218,868
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,998
|
|
|
|
|
|
|
$
|
16,998
|
|
|
|
16,998
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reclassification adjustment for impairment loss on securities (net of tax of $532)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
987
|
|
|
|
987
|
|
|
|
987
|
|
reclassification adjustment for gain on securities (net of tax of $49)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(90
|
)
|
|
|
(90
|
)
|
|
|
(90
|
)
|
unrealized holding gains arising during the period (net of tax of $1,436)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,667
|
|
|
|
2,667
|
|
|
|
2,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
|
|
|
|
|
|
|
1,905
|
|
|
|
7,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,275
|
|
Stock options exercised
|
|
|
|
|
|
|
234
|
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
476
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
493
|
|
Discount on preferred stock
|
|
|
1,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,662
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,662
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2010
|
|
$
|
65,082
|
|
|
$
|
28,884
|
|
|
$
|
104,693
|
|
|
$
|
8,520
|
|
|
$
|
35,918
|
|
|
$
|
3,915
|
|
|
|
|
|
|
$
|
247,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to consolidated financial statements are an integral part of these statements.
5
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September
30,
|
|
|
|
2010
|
|
|
2009
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
16,998
|
|
|
$
|
(37,480
|
)
|
Adjustments to reconcile net income (loss) to net cash provided (used in) by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,983
|
|
|
|
2,048
|
|
Provision for loan losses
|
|
|
13,538
|
|
|
|
80,813
|
|
Stock based compensation expense
|
|
|
493
|
|
|
|
468
|
|
Deferred tax benefit
|
|
|
(2,593
|
)
|
|
|
(15,474
|
)
|
Accretion of trust preferred securities discount
|
|
|
192
|
|
|
|
193
|
|
Amortization of premiums and accretion of security discounts, net
|
|
|
287
|
|
|
|
305
|
|
Origination of loans held-for-sale
|
|
|
(110,046
|
)
|
|
|
(156,341
|
)
|
Sales of loans
|
|
|
103,801
|
|
|
|
161,038
|
|
Gain on sale of loans
|
|
|
(1,437
|
)
|
|
|
(761
|
)
|
Loss on other real estate owned
|
|
|
2,691
|
|
|
|
9,085
|
|
Gain on sale of securities
|
|
|
(139
|
)
|
|
|
|
|
Impairment loss on securities
|
|
|
1,519
|
|
|
|
418
|
|
Changes in other assets and other liabilities:
(Increase) decrease in accrued interest receivable
|
|
|
(80
|
)
|
|
|
234
|
|
Decrease (increase) in other assets
|
|
|
6,330
|
|
|
|
(43,686
|
)
|
Decrease in other liabilities
|
|
|
(3,683
|
)
|
|
|
(4,943
|
)
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By (Used In) Operating Activities
|
|
$
|
29,854
|
|
|
$
|
(4,083
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net decrease in loans
|
|
$
|
18,491
|
|
|
$
|
38,020
|
|
Purchase of securities available-for-sale
|
|
|
(194,166
|
)
|
|
|
(183,250
|
)
|
Purchase of securities held-to-maturity
|
|
|
|
|
|
|
(11,350
|
)
|
Proceeds from principal payments on securities available-for-sale
|
|
|
40,262
|
|
|
|
39,186
|
|
Proceeds from principal payments on securities held-to-maturity
|
|
|
7,566
|
|
|
|
7,497
|
|
Proceeds from sale of securities held-to-maturity
|
|
|
8,717
|
|
|
|
|
|
Proceeds from calls and maturities of securities available-for-sale
|
|
|
106,852
|
|
|
|
104,597
|
|
Proceeds from calls and maturities of securities held-to-maturity
|
|
|
2,252
|
|
|
|
1,293
|
|
Purchase of bank premises and equipment
|
|
|
(413
|
)
|
|
|
(1,458
|
)
|
|
|
|
|
|
|
|
|
|
Net Cash (Used In) Investing Activities
|
|
$
|
(10,439
|
)
|
|
$
|
(5,465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
$
|
94,151
|
|
|
$
|
62,662
|
|
Net increase (decrease) in repurchase agreements and Federal funds purchased
|
|
|
1,904
|
|
|
|
(2,428
|
)
|
Net proceeds from issuance of capital stock
|
|
|
9,751
|
|
|
|
172
|
|
Dividend paid on preferred stock
|
|
|
(2,662
|
)
|
|
|
(2,200
|
)
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By Financing Activities
|
|
$
|
103,144
|
|
|
$
|
58,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase In Cash and Cash Equivalents
|
|
|
122,559
|
|
|
|
48,658
|
|
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
|
|
$
|
25,211
|
|
|
$
|
33,515
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS - END OF PERIOD
|
|
$
|
147,770
|
|
|
$
|
82,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Noncash Investing Activities:
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on securities
|
|
$
|
5,483
|
|
|
$
|
(1,851
|
)
|
Tax benefits on stock options exercised
|
|
|
61
|
|
|
|
|
|
Other real estate owned transferred from loans
|
|
|
4,202
|
|
|
|
37,918
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Taxes Paid
|
|
$
|
10,256
|
|
|
$
|
|
|
Interest Paid
|
|
|
34,344
|
|
|
|
49,311
|
|
Notes to consolidated financial
statements are an integral part of these statements.
6
VIRGINIA COMMERCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited
consolidated financial statements of Virginia Commerce Bancorp, Inc. and its subsidiaries (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for
interim financial information. All significant intercompany balances and transactions have been eliminated. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments and reclassifications
consisting of a normal and recurring nature considered necessary to present fairly the financial positions as of September 30, 2010 and December 31, 2009, the results of operations for the three and nine months ended September 30,
2010 and 2009, and statements of cash flows and stockholders equity for the nine months ended September 30, 2010 and 2009. These statements should be read in conjunction with the Companys annual report on Form 10-K for the year
ended December 31, 2009. In preparing these financial statements, management has evaluated subsequent events and transactions for potential recognition or disclosure through the date these financial statements were issued. Management has
concluded there were no material subsequent events to be disclosed at this time.
Operating results for the three and nine month periods ended
September 30, 2010, are not necessarily indicative of the results that may be expected for the year ending December 31, 2010, or any other period.
Fair Value Measurements
The Company uses fair value measurements to record fair value
adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures Topic 820 of Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC), the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Companys various financial instruments. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not
be realized in an immediate settlement of the instrument.
The recent fair value guidance provides a consistent definition of fair value,
which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there had been a significant decrease in the volume
and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the
measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current
market conditions.
Fair Value Hierarchy
In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and
liabilities are traded and the reliability of the assumptions used to determine fair value.
Level 1 Valuation is based on quoted
prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active
exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on
quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
7
Level 3 Valuation is based on
unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing
models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.
A financial instruments categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a
recurring basis in the financial statements:
Securities available for sale
: Securities available for sale are recorded at fair value
on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar
securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using
pricing models that considers observable market data (Level 2).
The following table summarizes the Companys financial assets and
liabilities measured at fair value on a recurring basis for September 30, 2010 and December 31, 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at September 30, 2010 Using
|
|
(in thousands)
Description
|
|
Balance as of
September 30,
2010
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
$
|
342,061
|
|
|
$
|
|
|
|
$
|
342,061
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009 Using
|
|
(in thousands)
Description
|
|
Balance as of
December 31,
2009
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
$
|
291,521
|
|
|
$
|
|
|
|
$
|
291,521
|
|
|
$
|
|
|
At September 30, 2010 and
December 31, 2009, the Company did not have any liabilities measured at fair value on a recurring basis.
Certain assets are measured at
fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets. The following describes the
valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements:
Loans held for sale
: Loans held for sale are carried at the lower of cost or market value. These loans currently consist of one-to-four family
residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short
duration between origination and sale (Level 2). As such, the
8
Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during the periods ended September 30, 2010,
and December 31, 2009. Gains and losses on the sale of loans are recorded within income from mortgage banking on the Consolidated Statements of Operations.
Impaired Loans
: Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms
of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Fair value is measured based on the value of the
collateral securing the loans. Collateral may be in the form of real estate, financial assets, personalty or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of
real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company, using observable market data (Level 2). However, if the collateral is
a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed
significant, or the net book value on the applicable businesss financial statements if not considered significant, using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial
statement balances or aging reports (Level 3). Impaired loans are measured at fair value on a nonrecurring basis through the allowance for loan losses. Any fair value adjustments are recorded in the period incurred as provision for loan losses on
the Consolidated Statements of Operations.
Foreclosed Assets
: Assets acquired through, or in lieu of, loan foreclosure are
held-for-sale and are initially recorded at the lesser of book value or fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the
assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation are included in net expenses for foreclosed assets.
The following table summarizes the Companys assets that were measured at fair value on a nonrecurring basis for September 30, 2010 and
December 31, 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value at September 30, 2010
|
|
(in thousands)
Description
|
|
Balance as of
September 30,
2010
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
$
|
109,686
|
|
|
$
|
|
|
|
$
|
92,927
|
|
|
$
|
16,759
|
|
Foreclosed Assets
|
|
$
|
24,395
|
|
|
$
|
|
|
|
$
|
24,395
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value at December 31, 2009
|
|
(in thousands)
Description
|
|
Balance as of
December 31,
2009
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
$
|
121,109
|
|
|
$
|
|
|
|
$
|
96,798
|
|
|
$
|
24,311
|
|
Foreclosed Assets
|
|
$
|
28,499
|
|
|
$
|
|
|
|
$
|
28,499
|
|
|
$
|
|
|
9
The following methods and assumptions
were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and
Short-Term Investments
For those short-term instruments, the carrying amount is a reasonable estimate of fair value.
Securities
For securities held for
investment purposes, fair values are based upon quoted market prices, when available. If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which
significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that
consider observable market data. The carrying value of restricted stock approximates fair value based on the redemption provisions of the issuers.
Loans Held-for-Sale
Fair value is based on the price secondary markets are currently
offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale.
Loan Receivables
For certain homogeneous categories of loans, such as some residential
mortgages, and other consumer loans, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting
the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
Deposits and Borrowings
The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable on demand at the reporting date. For all other deposits and borrowings, the fair value is determined using the discounted cash flow method. The discount rate was equal to the rate currently offered on
similar products.
Accrued Interest
The carrying amounts of accrued interest approximate fair value.
Off-Balance Sheet Financial
Instruments
The fair value of commitments to extend credit is estimated using the fees currently charged to enter similar agreements,
taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed
rates. The fair value of stand-by letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.
At September 30, 2010 and December 31, 2009, the fair value of loan commitments and stand-by letters of credit were deemed immaterial, and
therefore, are not included in the table below.
The carrying amounts and estimated fair values of the Companys financial instruments
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
December 31, 2009
|
|
(Dollars in thousands)
|
|
Carrying
Amount
|
|
|
Estimated Fair
Value
|
|
|
Carrying
Amount
|
|
|
Estimated Fair
Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and short-term investments
|
|
$
|
147,770
|
|
|
$
|
147,770
|
|
|
$
|
25,211
|
|
|
$
|
25,211
|
|
Securities
|
|
|
380,915
|
|
|
|
384,734
|
|
|
|
348,585
|
|
|
|
349,836
|
|
Restricted stock
|
|
|
11,752
|
|
|
|
11,752
|
|
|
|
11,751
|
|
|
|
11,751
|
|
Loans held-for-sale
|
|
|
14,175
|
|
|
|
14,175
|
|
|
|
6,492
|
|
|
|
6,492
|
|
Loan receivables
|
|
|
2,178,034
|
|
|
|
2,201,953
|
|
|
|
2,210,064
|
|
|
|
2,227,593
|
|
Accrued interest receivable
|
|
|
10,617
|
|
|
|
10,617
|
|
|
|
10,537
|
|
|
|
10,537
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
December 31, 2009
|
|
(Dollars in thousands)
|
|
Carrying
Amount
|
|
|
Estimated Fair
Value
|
|
|
Carrying
Amount
|
|
|
Estimated Fair
Value
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
2,323,478
|
|
|
$
|
2,275,321
|
|
|
$
|
2,229,327
|
|
|
$
|
2,202,714
|
|
Securities sold under agreements to repurchase and federal funds purchased
|
|
|
178,632
|
|
|
|
199,718
|
|
|
|
176,729
|
|
|
|
200,146
|
|
Other borrowed funds
|
|
|
25,000
|
|
|
|
25,587
|
|
|
|
25,000
|
|
|
|
25,683
|
|
Trust preferred capital notes
|
|
|
66,249
|
|
|
|
81,802
|
|
|
|
66,057
|
|
|
|
82,651
|
|
Accrued interest payable
|
|
|
3,173
|
|
|
|
3,173
|
|
|
|
4,014
|
|
|
|
4,014
|
|
In the normal course of business, the
Company is subject to market risk which includes interest rate risk (the risk that general interest rate levels will change). As a result, the fair values of the Companys financial instruments will change when interest rate levels change and
that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize this risk.
Amortized cost and
fair value of the securities available-for-sale and held-to-maturity as of September 30, 2010 and December 31, 2009, are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Fair Value
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
272,265
|
|
|
$
|
7,384
|
|
|
$
|
(18
|
)
|
|
$
|
279,631
|
|
Pooled trust preferred securities
|
|
|
5,964
|
|
|
|
|
|
|
|
(4,766
|
)
|
|
|
1,198
|
|
Obligations of states and political subdivisions
|
|
|
57,811
|
|
|
|
3,425
|
|
|
|
(4
|
)
|
|
|
61,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
336,040
|
|
|
$
|
10,809
|
|
|
$
|
(4,788
|
)
|
|
$
|
342,061
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
7,047
|
|
|
$
|
366
|
|
|
$
|
|
|
|
$
|
7,413
|
|
Obligations of state and political subdivisions
|
|
|
31,807
|
|
|
|
3,485
|
|
|
|
(32
|
)
|
|
|
35,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
38,854
|
|
|
$
|
3,851
|
|
|
$
|
(32
|
)
|
|
$
|
42,673
|
|
|
|
|
|
|
December 31, 2009
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Fair Value
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
242,129
|
|
|
$
|
6,004
|
|
|
$
|
(999
|
)
|
|
$
|
247,134
|
|
Pooled trust preferred securities
|
|
|
7,241
|
|
|
|
|
|
|
|
(5,211
|
)
|
|
|
2,030
|
|
Obligations of states and political subdivisions
|
|
|
41,610
|
|
|
|
873
|
|
|
|
(126
|
)
|
|
|
42,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
290,980
|
|
|
$
|
6,877
|
|
|
$
|
(6,336
|
)
|
|
$
|
291,521
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
12,323
|
|
|
$
|
430
|
|
|
$
|
|
|
|
$
|
12,753
|
|
Obligations of state and political subdivisions
|
|
|
44,741
|
|
|
|
821
|
|
|
|
|
|
|
|
45,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
57,064
|
|
|
$
|
1,251
|
|
|
$
|
|
|
|
$
|
58,315
|
|
11
The amortized cost of securities
pledged as collateral for repurchase agreements, certain public deposits, and other purposes were $235.8 million and $252.7 million at September 30, 2010 and December 31, 2009, respectively.
Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns
warrant such evaluation. An impairment is considered to be other-than-temporary if the Company (1) intends to sell the security, (2) more likely than not will be required to sell the security before recovering its cost, or (3) does
not expect to recover the securitys entire amortized cost basis.
Provided below is a summary of all securities which were in an
unrealized loss position at September 30, 2010 and December 31, 2009, that were evaluated for other-than-temporary impairment, and deemed to not have an other-than-temporary impairment. Presently, the Company does not intend to sell any of
these securities, will not be required to sell these securities, and expects to recover the entire amortized cost of all the securities. For U.S. Government Agency obligations and obligations of states/political subdivisions, the unrealized losses
result from market or interest rate risk, while the unrealized losses pertaining to the pooled trust preferred securities are due to both performance and credit ratings, as well as interest rate risk.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010
|
|
Less Than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
(Dollars in thousands)
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
7,086
|
|
|
$
|
(18
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,086
|
|
|
$
|
(18
|
)
|
Pooled trust preferred securities
|
|
|
|
|
|
|
|
|
|
|
1,198
|
|
|
|
(4,766
|
)
|
|
|
1,198
|
|
|
|
(4,766
|
)
|
Obligations of states/political subdivisions
|
|
|
1,007
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
1,007
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,093
|
|
|
$
|
(22
|
)
|
|
$
|
1,198
|
|
|
$
|
(4,766
|
)
|
|
$
|
9,291
|
|
|
$
|
(4,788
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states/political subdivisions
|
|
$
|
1,468
|
|
|
$
|
(32
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,468
|
|
|
$
|
(32
|
)
|
|
|
|
|
At December 31, 2009
|
|
Less Than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
(Dollars in thousands)
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
70,876
|
|
|
$
|
(999
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
70,876
|
|
|
$
|
(999
|
)
|
Pooled trust preferred securities
|
|
|
|
|
|
|
|
|
|
|
2,030
|
|
|
|
(5,211
|
)
|
|
|
2,030
|
|
|
|
(5,211
|
)
|
Obligations of states/political subdivisions
|
|
|
8,182
|
|
|
|
(57
|
)
|
|
|
2,031
|
|
|
|
(69
|
)
|
|
|
10,213
|
|
|
|
(126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
79,058
|
|
|
$
|
(1,056
|
)
|
|
$
|
4,061
|
|
|
$
|
(5,280
|
)
|
|
$
|
83,119
|
|
|
$
|
(6,336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010, the Company had three pooled trust preferred securities that were deemed to be
other-than-temporarily impaired (OTTI) based on a present value analysis of expected future cash flows. These securities had a fair value of $538 thousand and a cumulative other-than-temporary impairment loss of $5.9 million, of which
$2.6 million has been recognized in other comprehensive loss, and $3.3 million has been recognized in earnings (in prior periods). The following table provides further information on these three securities as of September 30, 2010 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Class
|
|
|
Current
Moodys
Ratings
(Lowest
Assigned
Rating)
|
|
|
Par
Value
|
|
|
Book
Value/
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Current
Defaults
and
Deferrals
|
|
|
% of Current
Defaults and
Deferrals to
Current
Collateral
|
|
|
Excess
Sub (1)
|
|
|
Estimated
Incremental
Defaults
Required to
Break Yield
(2)
|
|
|
Cumulative Other
Comprehensive
Loss (3)
|
|
|
Amount of
OTTI
Related to
Credit
Loss (3)
|
|
PreTSL VI
|
|
|
Mezz
|
|
|
|
Caa1
|
|
|
$
|
525
|
|
|
$
|
243
|
|
|
$
|
282
|
|
|
$
|
33,000
|
|
|
|
81
|
%
|
|
|
-49.8
|
%
|
|
|
BROKEN
|
|
|
$
|
125
|
|
|
$
|
157
|
|
PreTSL X
|
|
|
B-1
|
|
|
|
Ca
|
|
|
|
2,048
|
|
|
|
182
|
|
|
|
1,866
|
|
|
|
220,595
|
|
|
|
46
|
%
|
|
|
-100.0
|
%
|
|
|
BROKEN
|
|
|
|
696
|
|
|
|
1,170
|
|
PreTSL XXVI
|
|
|
C-2
|
|
|
|
C
|
|
|
|
3,859
|
|
|
|
113
|
|
|
|
3,746
|
|
|
|
293,500
|
|
|
|
30
|
%
|
|
|
-100.0
|
%
|
|
|
BROKEN
|
|
|
|
1,733
|
|
|
|
2,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
6,432
|
|
|
$
|
538
|
|
|
$
|
5,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,554
|
|
|
$
|
3,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
(1)
|
Excess subordination is the difference between the remaining performing collateral and the amount of bonds outstanding that are pari passu and senior to the class the
Company owns. Negative excess subordination indicates there is not enough performing collateral in the pool to cover the outstanding balance of all classes senior to those the Company owns.
|
(2)
|
A break in yield for a given class means that defaults/deferrals have reached such a level that the class would not receive all of its contractual cash flows (principal
and interest) by maturity (so that it is not just a temporary interest shortfall, but an actual loss in yield on the investment). This represents additional defaults beyond those assumed in our cash flow modeling.
|
As of September 30, 2010, the
Company had one pooled trust preferred security that was deemed to be temporarily impaired based on a present value analysis of expected future cash flows. The security had a fair value of $660 thousand. The following table provides further
information on this security as of September 30, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Class
|
|
|
Current
Moodys
Ratings
(Lowest
Assigned
Rating)
|
|
|
Par
Value
|
|
|
Book
Value/
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Current
Defaults
and
Deferrals
|
|
|
% of Current
Defaults and
Deferrals to
Current
Collateral
|
|
|
Excess
Sub (1)
|
|
|
Estimated
Incremental
Defaults
Required to
Break Yield
(2)
|
|
|
Cumulative Other
Comprehensive
Loss (3)
|
|
|
Amount of
OTTI
Related to
Credit
Loss (3)
|
|
PreTSL XXVII
|
|
|
B
|
|
|
|
Caa3
|
|
|
$
|
2,870
|
|
|
$
|
660
|
|
|
$
|
2,210
|
|
|
$
|
95,800
|
|
|
|
29
|
%
|
|
|
-34.1
|
%
|
|
$
|
60,500
|
|
|
$
|
2,210
|
|
|
|
|
|
(1)
|
Excess subordination is the difference between the remaining performing collateral and the amount of bonds outstanding that are pari passu and senior to the class the
Company owns. Negative excess subordination indicates there is not enough performing collateral in the pool to cover the outstanding balance of all classes senior to those the Company owns.
|
(2)
|
A break in yield for a given class means that defaults/deferrals have reached such a level that the class would not receive all of its contractual cash flows (principal
and interest) by maturity (so that it is not just a temporary interest shortfall, but an actual loss in yield on the investment). This represents additional defaults beyond those assumed in our cash flow modeling.
|
The following table presents a
roll-forward of the credit loss component amount of OTTI recognized in earnings:
|
|
|
|
|
(in thousands)
|
|
|
|
|
Amount recognized through December 31, 2009
|
|
$
|
1,821
|
|
Additions:
|
|
|
|
|
Initial credit impairments
|
|
|
|
|
Subsequent credit impairments
|
|
|
1,519
|
|
|
|
|
|
|
Amount recognized through September 30, 2010
|
|
$
|
3,340
|
|
Management has evaluated each of
these securities for potential impairment under ASC 325 Investments-Other and the most recently issued related guidance, and has reviewed each of the issues collateral participants most recent earnings, capital and loan loss
reserve levels, and non-performing loan levels to estimate a future deferral and default rate in basis points for the remaining life of each security. As of September 30, 2010, we used 50 basis points for PreTSL VI and X, 75 basis points for
PreTSL XXVI, and 25 basis points for PreTSL XXVII in expected deferrals and defaults as a percentage of remaining collateral for future periods. In performing a detailed present value cash flow analysis for each security, the deferral and default
rate was treated the same. If this analysis results in a present value of expected cash flows that is less than the amortized cost basis of a security (that is, a credit loss exists), an OTTI is considered to have occurred. If there is no credit
loss, any impairment is considered temporary. The cash flow analysis we performed used discount rates equal to the credit spread at the time of purchase for each security and then added the current 3-month LIBOR spot rate. The analysis also assumed
15% recoveries on deferrals after two years and prepayments of 1% per year on each security. As of September 30, 2010, there were 2 out of 5 performing banks in PreTSL VI, 36 out of 57 in PreTSL X, 43 out of 67 in PreTSL XXVI, and 26 out
of 42 in PreTSL XXVII.
Our investment in Federal Home Loan Bank (FHLB) stock totaled $6.0 million at September 30, 2010.
FHLB stock is generally viewed as a long-term investment and as a restricted security, which is carried at cost, because there is no market for the stock, other than FHLBs or member institutions. Therefore, when evaluating FHLB stock
13
for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. Despite the FHLBs temporary suspension of
repurchases of excess stock in 2010, in light of the FHLBs consistent payment of dividends in 2010 and consistent net income since the quarter ended June 30, 2009, we do not consider this investment to be other-than-temporarily impaired
at September 30, 2010, and no impairment has been recognized. FHLB stock is shown in restricted stocks on the Consolidated Balance Sheets and is not part of the available-for-sale securities portfolio.
Major classifications of loans,
excluding loans held-for-sale, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(Dollars in thousands)
|
|
Commercial
|
|
$
|
207,909
|
|
|
$
|
238,327
|
|
Real estate-one to four family residential:
|
|
|
|
|
|
|
|
|
Closed end first and seconds
|
|
|
288,318
|
|
|
|
271,501
|
|
Home equity lines
|
|
|
134,159
|
|
|
|
135,233
|
|
|
|
|
|
|
|
|
|
|
Total real estate-one-to-four family residential
|
|
$
|
422,477
|
|
|
$
|
406,734
|
|
Real estate-multifamily residential
|
|
|
86,896
|
|
|
|
66,799
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
|
Owner Occupied
|
|
|
476,812
|
|
|
|
452,776
|
|
Non-owner occupied
|
|
|
662,695
|
|
|
|
673,169
|
|
|
|
|
|
|
|
|
|
|
Total Real estate-non-farm, non-residential
|
|
$
|
1,139,507
|
|
|
$
|
1,125,945
|
|
Real estate-construction:
|
|
|
|
|
|
|
|
|
Residential-Owner Occupied
|
|
|
15,152
|
|
|
|
15,161
|
|
Residential-Builder
|
|
|
174,896
|
|
|
|
224,855
|
|
Commercial
|
|
|
185,444
|
|
|
|
188,276
|
|
|
|
|
|
|
|
|
|
|
Total Real estate-construction:
|
|
$
|
375,492
|
|
|
$
|
428,292
|
|
Farmland
|
|
|
2,410
|
|
|
|
2,675
|
|
Consumer
|
|
|
9,794
|
|
|
|
10,368
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
2,244,485
|
|
|
$
|
2,279,140
|
|
Less unearned income
|
|
|
3,675
|
|
|
|
3,924
|
|
Less allowance for loan losses
|
|
|
62,776
|
|
|
|
65,152
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
2,178,034
|
|
|
$
|
2,210,064
|
|
|
|
|
|
|
|
|
|
|
4.
|
Allowance for Loan Losses
|
An analysis of
the allowance for loan losses for the nine months ended September 30, 2010, and the year ended December 31, 2009 is shown below (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
December 31, 2009
|
|
Allowance, at beginning of period
|
|
$
|
65,152
|
|
|
$
|
36,475
|
|
Provision charged against income
|
|
|
13,538
|
|
|
|
81,913
|
|
Recoveries added to reserve
|
|
|
3,711
|
|
|
|
1,377
|
|
Losses charged to reserve
|
|
|
(19,625
|
)
|
|
|
(54,613
|
)
|
|
|
|
|
|
|
|
|
|
Allowance, at end of period
|
|
$
|
62,776
|
|
|
$
|
65,152
|
|
|
|
|
|
|
|
|
|
|
14
In performing a specific reserve
analysis on all impaired loans as of September 30, 2010, current third party appraisals were used with respect to approximately 75% of impaired loans to assist with the evaluation of collateral values for the purpose of establishing specific
reserves. When a loan is identified as impaired and collateral dependent, a current evaluation of collateral value via third party appraisal or other valuation methodology is conducted within the calendar quarter of identification when possible, but
not less than 90 days after identification. Charge-offs and specific reserves are established upon determination of collateral value. During the interim between identification of an impaired loan and receipt of a current appraisal of the related
collateral, specific reserves are established based upon interim methodologies including discounted cash flow analysis, tax assessment values and review of market comparables. In general, variances between charge-offs and fair value of collateral is
limited to estimates of projected costs of sale. Costs of sale are estimated at 10% of value. Partially charged-off loans remain non-performing until such time as a viable restructuring plan is developed. Upon execution of a forbearance agreement
including modified terms, an impaired loan will be re-classified from non-performing to a troubled debt restructuring, but will continue to be identified as impaired until the loan performs under the modified terms for the remainder of the calendar
year in which it was restructured, but not less than 90 days. As noted above, in the majority of cases, external appraisals are used to establish fair value of the related collateral. In the interim prior to receipt of a current appraisal or in
those situations where a current appraisal is not deemed practical or necessary, discounted cash flow analysis, tax assessment values, review of market comparables and other methodologies are used to establish fair value. Impaired loans which do not
have a specific reserve are those loans which have been identified to have sufficient collateral coverage, based upon the fair value of collateral, to repay the entire principal balance due from collateral liquidation.
There were $979 thousand and $3.8 million in loans past due 90 days or more and still accruing interest at September 30, 2010 and December 31,
2009, respectively, that were not classified as impaired loans.
Information about impaired loans and specific reserve allowances as of and
for September 30, 2010 and December 31, 2009, is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
December 31, 2009
|
|
Non-accrual loans for which a specific allowance has been provided
|
|
$
|
28,592
|
|
|
$
|
34,572
|
|
Non-accrual loans for which no specific allowance has been provided
|
|
|
28,426
|
|
|
|
31,237
|
|
Other impaired loans for which a specific allowance has been provided
|
|
|
112,416
|
|
|
|
117,384
|
|
Other impaired loans for which no specific allowance has been provided
|
|
|
96,882
|
|
|
|
54,438
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
266,316
|
|
|
$
|
237,631
|
|
|
|
|
|
|
|
|
|
|
Allowance provided for impaired loans, included in the allowance for loan losses
|
|
$
|
32,519
|
|
|
$
|
30,847
|
|
|
|
|
|
|
|
|
|
|
5.
|
Earnings (Loss) Per Common Share
|
The
following shows the weighted average number of shares used in computing earnings (loss) per common share and the effect on the weighted average number of shares of diluted potential common stock. As of September 30, 2010, and 2009, there were
4,413,473 and 5,506,993 anti-dilutive stock options and warrants outstanding, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
Per
|
|
|
|
|
|
Per
|
|
|
|
|
|
Per
|
|
|
|
|
|
|
Share
|
|
|
|
|
|
Share
|
|
|
|
|
|
Share
|
|
|
|
|
|
Share
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
Basic (loss) earnings per share
|
|
|
27,599,007
|
|
|
$
|
0.21
|
|
|
|
26,694,898
|
|
|
$
|
(1.17
|
)
|
|
|
27,159,404
|
|
|
$
|
0.49
|
|
|
|
26,691,490
|
|
|
$
|
(1.53
|
)
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
1,294,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,326,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share
|
|
|
28,893,969
|
|
|
$
|
0.20
|
|
|
|
26,694,898
|
|
|
$
|
(1.17
|
)
|
|
|
28,486,251
|
|
|
$
|
0.46
|
|
|
|
26,691,490
|
|
|
$
|
(1.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
6.
|
Stock Compensation Plan
|
At
September 30, 2010, the Company had two stock-based compensation plans, the 1998 Stock Option Plan and the 2010 Equity Plan. The 2010 Equity Plan replaced the 1998 Stock Option Plan and as such no further options may be granted under the 1998
Stock Option Plan. Included in salaries and employee benefits expense for the three months ended September 30, 2010 and 2009 is stock-based compensation expense of $161 thousand and $153 thousand, respectively. Included in salaries and employee
benefits expense for the nine months ended September 30, 2010 and 2009 is stock-based compensation expense of $493 thousand and $468 thousand, respectively. For all periods presented, stock-based compensation expense is based on the estimated
fair value of 840,878 options granted between January 2006 and September 2010, as adjusted, amortized on a straight-line basis over a five year requisite service period. As of September 30, 2010, there was $1.1 million remaining of total
unrecognized compensation expense related to these option awards which will be recognized over the remaining requisite service periods.
The
fair value of each grant is estimated at the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions for grants in 2010 and 2009:
|
|
|
|
|
|
|
2010
|
|
2009
|
Expected volatility
|
|
32.21
|
|
30.59
|
Expected dividends
|
|
0.00%
|
|
0.00%
|
Expected term (in years)
|
|
7.2
|
|
7.2
|
Risk-free rate
|
|
3.17% to 3.50
|
|
2.14% to 3.32
|
Stock option plan activity for the nine months ended September 30, 2010, is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
($000)
|
|
Outstanding at January 1, 2010
|
|
|
1,926,859
|
|
|
$
|
7.84
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
72,485
|
|
|
|
5.84
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(226,666
|
)
|
|
|
1.67
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(34,943
|
)
|
|
|
10.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2010
|
|
|
1,737,735
|
|
|
$
|
8.50
|
|
|
|
4.3 years
|
|
|
$
|
|
|
Exercisable at September 30, 2010
|
|
|
1,352,766
|
|
|
$
|
8.37
|
|
|
|
3.3 years
|
|
|
$
|
|
|
The total value of in-the-money
options exercised during the nine months ended September 30, 2010 was $571 thousand.
A comparison of the
September 30, 2010 capital ratios of the Company and its wholly-owned subsidiary, Virginia Commerce Bank (the Bank), with the minimum regulatory guidelines is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual Capital
|
|
|
Minimum
Capital
Requirements
|
|
|
Minimum to
be
Well-Capitalized
Under Prompt
Corrective Action
Provisions
|
|
Total Risk-Based Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
14.21
|
%
|
|
|
8.00
|
%
|
|
|
|
|
Bank
|
|
|
13.80
|
%
|
|
|
8.00
|
%
|
|
|
10.00
|
%
|
|
|
|
|
Tier 1 Risk-Based Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
12.96
|
%
|
|
|
4.00
|
%
|
|
|
|
|
Bank
|
|
|
12.55
|
%
|
|
|
4.00
|
%
|
|
|
6.00
|
%
|
|
|
|
|
Leverage Ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
10.84
|
%
|
|
|
4.00
|
%
|
|
|
|
|
Bank
|
|
|
10.52
|
%
|
|
|
4.00
|
%
|
|
|
5.00
|
%
|
16
8.
|
Other Borrowed Funds and Lines of Credit
|
The Bank maintains a $423.7 million line of credit with the FHLB of Atlanta. The interest rate and term of each advance from the line is dependent upon
the advance and commitment type. Advances on the line are secured by all of the Banks qualifying first liens and home equity lines-of-credit on one-to-four unit single-family dwellings. As of September 30, 2010, the book value of these
qualifying loans totaled approximately $234.6 million and the amount of available credit using this collateral was $132.8 million. Advances on the line of credit in excess of this amount require pledging of additional assets, including other types
of loans and investment securities. As of September 30, 2010 and December 31, 2009, the Bank had $25.0 million in advances outstanding that mature on September 21, 2012, but are callable by the FHLB on any quarterly interest payment
date. The Bank has additional short-term lines of credit totaling $47.0 million with nonaffiliated banks at September 30, 2010, on which there were no amounts outstanding.
9.
|
Trust Preferred Capital Notes
|
On
December 19, 2002, the Company completed a private placement issuance of $15.0 million of trust preferred securities through a newly formed, wholly-owned, subsidiary trust (VCBI Capital Trust II) which issued $470 thousand in common equity to
the Company. These securities bear a floating rate of interest, adjusted semi-annually, of 330 basis points over six month LIBOR, currently 4.04%. These securities have been callable at par since December 30, 2007, on any semi-annual interest
payment date, but have not been redeemed to date. On December 20, 2005, the Company completed a private placement of $25.0 million of trust preferred securities through a newly formed, wholly-owned, subsidiary trust (VCBI Capital Trust III)
which issued $774 thousand in common equity to the Company. These securities bear a fixed rate of interest of 6.19% until February 23, 2011, at which time they convert to a floating rate, adjusted quarterly, of 142 basis points over three month
LIBOR. These securities are callable at par beginning February 23, 2011.
On September 24, 2008, the Company completed a private
placement, to its directors and certain executive officers, of $25.0 million of trust preferred securities through a newly formed, wholly-owned, subsidiary trust (VCBI Capital Trust IV) which issued $775 thousand in common equity to the Company.
These securities bear a fixed rate of interest of 10.20% and are callable at par beginning September 24, 2013. In connection with the issuance of the trust preferred securities, the Company also issued warrants to purchase an aggregate of
1.5 million shares of common stock to the purchasers. The warrants have a five year term and an exercise price of $6.83 per share.
The
principal asset of each trust is a similar amount of the Companys junior subordinated debt securities with an approximately 30 year term from issuance and like interest rates to the trust preferred securities. The obligations of the Company
with respect to the trust preferred securities constitute a full and unconditional guarantee by the Company of each trusts obligations with respect to the trust preferred securities to the extent set forth in the related guarantees. Subject to
certain exceptions and limitations, the Company may elect from time to time to defer interest payments on the junior subordinated debt securities, resulting in a deferral of distribution payments on the related trust preferred securities. If the
Company defers interest payments on the junior subordinated debt securities, or otherwise is in default of the obligations in respect to the trust preferred securities, the Company would be prohibited from making dividend payments to its
shareholders, and from most purchases, redemptions or acquisitions of the Companys common stock.
The trust preferred securities may be
included in Tier 1 capital for regulatory capital adequacy purposes up to 25.0% of Tier 1 capital after its inclusion. The portion of the trust preferred securities not qualifying as Tier 1 capital may be included as part of total qualifying capital
in Tier 2 capital, subject to limitation.
10.
|
Preferred Stock and Warrant
|
On
December 12, 2008, the Company entered into a Letter Agreement (Agreement) with the United States Department of the Treasury (Treasury) under the Troubled Asset Relief Program (TARP) Capital Purchase Program,
whereby the Company issued and sold to the Treasury 71,000 shares of fixed rate cumulative perpetual preferred stock with a par value of $1.00 and a liquidation amount of $1,000 per share, for a total price of $71.0 million. In addition, the
Treasury received a warrant to purchase 2,696,203 shares of the Companys common stock at an exercise price of $3.95 per share. Subject to certain restrictions, the preferred stock and the warrant are transferable by the Treasury. The allocated
carrying values at September 30, 2010, of the preferred stock and the warrant, based on their relative fair values, were $62.5 million and $8.5 million, respectively.
17
The preferred stock pays dividends
quarterly, beginning February 2009, at a rate of 5% per year for the first five years, then increases to 9% thereafter. The Company may redeem the preferred stock at any time, subject to approval by the Treasury after consultation with the
Board of Governors of the Federal Reserve System (the Federal Reserve), at the liquidation amount of $1,000 per share plus any accrued and unpaid dividends. Approval from the Treasury is required to pay common stock dividends or to
repurchase shares of the Companys common stock prior to December 12, 2011, unless the preferred stock has been fully redeemed.
The
warrant has a ten year term and is immediately exercisable. Pursuant to the terms of the Agreement, the Treasury will not exercise voting rights with respect to any shares of common stock it acquires upon exercise of the warrant; voting rights may
be exercised by any other holder.
18
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
This managements discussion and analysis and other portions of this report, contain forward-looking statements within the meaning of the Securities and Exchange Act of 1934, as amended (the
Exchange Act), including statements of goals, intentions, and expectations as to future trends, plans, events or results of Company operations and policies, including but not limited to our outlook on earnings, and statements regarding
asset quality, concentrations of credit risk, the adequacy of the allowance for loan losses, projected growth, capital position, our plans regarding and expected future levels of our non-performing assets, business opportunities in our markets, and
general economic conditions. When we use words such as may, will, anticipates, believes, expects, plans, estimates, potential, continue,
should, and similar words or phrases, you should consider them as identifying forward-looking statements. These forward-looking statements are not guarantees of future performance. These statements are based upon current and anticipated
economic conditions, nationally and in the Companys 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.
Our forward-looking statements are subject to the following principal risks and uncertainties:
|
|
|
adverse governmental or regulatory policies may be enacted;
|
|
|
|
the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) could increase our regulatory compliance burden and
associated costs, place restrictions on certain products and services, and limit our future capital raising strategies;
|
|
|
|
the interest rate environment may compress margins and adversely affect net interest income;
|
|
|
|
adverse effects may be caused by changes to credit quality;
|
|
|
|
competition from other financial services companies in our markets could adversely affect operations;
|
|
|
|
our concentrations of commercial, commercial real estate and construction loans, may adversely affect our earnings and results of operations;
|
|
|
|
an economic slowdown could adversely affect credit quality, loan originations and the value of collateral securing the Companys loans; and
|
|
|
|
social and political conditions such as war, political unrest and terrorism or natural disasters could have unpredictable negative effects on our
businesses and the economy.
|
Other factors, risks and uncertainties that could cause our actual results to differ materially
from estimates and projections contained in these forward-looking statements are discussed under Risk Factors in the Companys annual report on Form 10-K for the year ended December 31, 2009 and quarterly reports on Form 10-Q
for the quarters ended March 31, 2010 and June 30, 2010.
Readers are cautioned against placing undue reliance on any such
forward-looking statements. The Company disclaims any obligation to update or revise publicly or otherwise any forward-looking statements to reflect subsequent events, new information or future circumstances.
Non-GAAP Presentations
The Company
prepares its financial statements under GAAP. However, this managements discussion and analysis also refers to certain non-GAAP financial measures that we believe, when considered together with GAAP financial measures, provide investors with
important information regarding our operational performance. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.
19
Core operating earnings is a non-GAAP
financial measure that reflects net income excluding taxes, loan loss provisions, losses on other real estate owned (OREO) and impairment losses on securities from net income. For the three months ended September 30, 2010, the
Company is also excluding from net income $1.0 million in bank-owned life insurance death benefits received. These excluded items are difficult to predict and we believe that core operating earnings provides the Company and investors with a valuable
measure of the performance of the Companys operational performance and a valuable tool to evaluate the Companys financial results. Calculation of core operating earnings for the three months ended September 30, 2010 and
September 30, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
(Dollars in thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
Net Income (loss)
|
|
$
|
6,958
|
|
|
$
|
(29,887
|
)
|
Adjustments to net income (loss):
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
5,100
|
|
|
|
49,000
|
|
Loss on other real estate owned
|
|
|
713
|
|
|
|
9,085
|
|
Impairment loss on securities
|
|
|
|
|
|
|
280
|
|
Provision (benefit) for income taxes
|
|
|
2,917
|
|
|
|
(16,204
|
)
|
Death benefits received from bank owned life insurance
|
|
|
(1,045
|
)
|
|
|
|
|
|
|
|
Core Operating Earnings
|
|
$
|
14,643
|
|
|
$
|
12,274
|
|
The adjusted efficiency ratio is a
non-GAAP financial measure that is computed by dividing non-interest expense by the sum of net interest income on a tax equivalent basis and non-interest income before losses on other real estate owned. We believe that this measure provides
investors with important information about our operating efficiency. Comparison of our adjusted efficiency ratio with those of other companies may not be possible because other companies may calculate the adjusted efficiency ratio differently.
Calculation of the adjusted efficiency ratio for the three months and nine months ended September 30, 2010 and September 30, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Summary Operating Results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense
|
|
$
|
14,598
|
|
|
$
|
12,922
|
|
|
$
|
42,115
|
|
|
$
|
39,531
|
|
|
|
|
|
|
Net interest income
|
|
|
27,181
|
|
|
|
23,404
|
|
|
|
78,218
|
|
|
|
66,161
|
|
Non-interest income
|
|
|
2,392
|
|
|
|
(7,573
|
)
|
|
|
2,109
|
|
|
|
(3,804
|
)
|
Losses on other real estate owned
|
|
|
713
|
|
|
|
9,085
|
|
|
|
2,691
|
|
|
|
9,085
|
|
Total
|
|
$
|
30,286
|
|
|
$
|
24,916
|
|
|
$
|
83,018
|
|
|
$
|
71,442
|
|
|
|
|
|
|
Efficiency Ratio, adjusted
|
|
|
48.2
|
%
|
|
|
51.9
|
%
|
|
|
50.7
|
%
|
|
|
55.3
|
%
|
General
The following presents managements discussion and analysis of the consolidated financial condition and results of operations of Virginia Commerce
Bancorp, Inc. and subsidiaries (the Company) as of the dates and for the periods indicated. This discussion should be read in conjunction with the Companys Consolidated Financial Statements and the Notes thereto, and other
financial data appearing elsewhere in this report. The Company 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-eight branch offices, one residential mortgage office and one wealth management office.
Headquartered in Arlington, Virginia, the Bank serves the Northern Virginia suburbs of Washington, D.C., including Arlington, Fairfax, Fauquier, Loudoun,
Prince William, Spotsylvania and Stafford Counties and the cities of Alexandria, Fairfax, Falls Church, Fredericksburg, Manassas and Manassas Park. Its service area also covers, to a lesser extent, Washington, D.C. and the nearby Maryland counties
of Montgomery and Prince Georges. The Banks customer base includes small-to-medium sized businesses including firms that have contracts with the U.S. government, associations, retailers and industrial businesses, professionals and their firms,
business executives, investors and consumers.
20
Critical Accounting Policies
For the period ended September 30, 2010, there were no changes in the Companys critical accounting policies as reflected in the
Companys most recent annual report.
The Companys financial statements are prepared in accordance with GAAP. The financial
information contained within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate
value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. We use historical loss factors as one factor in determining the inherent loss that may be present in our loan portfolio. Actual
losses could differ significantly from the historical factors that we use. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of
events that would impact our transactions could change.
The allowance for loan losses is an estimate of the losses that are inherent in our
loan portfolio. The allowance is based on two basic principles of accounting: (i) Accounting for Contingencies (ASC 450, Contingencies), which requires that losses be accrued when they are probable of occurring and
estimable and (ii) Accounting by Creditors for Impairment of a Loan (ASC 310, Receivables), which requires that losses be accrued based on the differences between the value of collateral, present value of future cash
flows or values that are observable in the secondary market and the loan balance.
Our allowance for loan losses has two basic components: the
specific allowance and the general allowance. Each of these components is determined based upon estimates that can and do change when the actual events occur. The specific allowance is used to individually allocate an allowance for impaired loans.
Impairment testing includes consideration of the borrowers overall financial condition, resources and payment record, support available from financial guarantors and the fair market value of collateral. These factors are combined to estimate
the probability and severity of inherent losses based on the Companys calculation of the loss embedded in the individual loan. Large groups of smaller balance, homogeneous loans, representing 1-4 family residential first and second trusts,
including home equity lines-of-credit, are collectively evaluated for impairment based upon factors such as levels and trends in delinquencies, trends in loss and problem loan identification, trends in volumes and concentrations, local and national
economic trends and conditions including estimated levels of housing price depreciation/homeowners loss of equity, competitive factors and other considerations. These factors are converted into reserve percentages and applied against the
homogenous loan pool balances. Impaired loans which meet the criteria for substandard, doubtful and loss are segregated from performing loans within the portfolio. Internally classified loans are then grouped by loan type (commercial, commercial
real estate, commercial construction, residential real estate, residential construction or installment). The general formula is used to estimate the loss of non-classified loans. These un-criticized loans are also segregated by loan type and
allowance factors are assigned by management based on delinquencies, loss history, trends in volume and terms of loans, effects of changes in lending policy, the experience and depth of management, national and local economic trends, concentrations
of credit, quality of the loan review system and the effect of external factors (i.e. competition and regulatory requirements). The factors assigned differ by loan type. The general allowance recognizes potential losses whose impact on the portfolio
has yet to be recognized by a specific allowance. Allowance factors and the overall size of the allowance may change from period to period based on managements assessment of the above described factors and the relative weights given to each
factor. Further information regarding the allowance for loan losses is provided under the caption Allowance for Loan Losses/Provision for Loan Loss Expense later in this report and in Note 4 to the Consolidated Financial Statements.
The Companys 1998 Stock Option Plan (the 1998 Plan), which is shareholder-approved, permitted the grant of share options to
its directors and officers for up to 2.3 million shares of common stock. The Companys 2010 Equity Plan, which is also shareholder-approved and replaces the 1998 Plan, permits the grant of share options and other awards for up to
1.5 million shares of common stock to directors and officers. Option awards are generally granted with an exercise price equal to the market price of the Companys stock at the date of grant, generally vest based on 5 years of continuous
service and have 10-year contractual terms. The fair value of each option award is estimated on the date of grant using a Black-Scholes option pricing model that currently uses historical volatility of the Companys stock based on a 7.2 year
expected term, before exercise, for the options granted, and a risk-free interest rate based on the United States Department of the Treasury (the Treasury) curve in effect at the time of the grant to
21
estimate total stock-based compensation expense. This amount is then amortized on a straight-line basis over the requisite service period, currently 5 years, to salaries and benefits expense. See
Note 6 to the Consolidated Financial Statements for additional information regarding the plans and related expense.
On a quarterly basis the
Company reviews any securities which are considered to be impaired as defined by accounting guidance, to determine if the impairment is deemed to be other-than-temporary. If it is determined that the impairment is other-than-temporary, i.e. impaired
because of credit issues rather than interest rate, the investment is written down through the Consolidated Statements of Operations in accordance with accounting guidance.
Results of Operations
For the three months ended September 30, 2010, the Company
recorded net income of $7.0 million. After an effective dividend of $1.3 million to the Treasury on preferred stock, the Company reported net income to common stockholders of $5.7 million, or $0.20 per diluted common share, compared to a net loss to
common stockholders of $31.1 million, or $1.17 per diluted common share, in the third quarter of 2009. For the nine months ended September 30, 2010, the Company reported net income to common stockholders of $13.2 million, or $0.46 per diluted
common share, compared to a net loss to common stockholders of $40.8 million, or $1.53 per diluted common share, for the same period in 2009. Earnings improvement for both the three- and nine-month periods were attributable to lower provisions for
loan losses and a higher net interest margin. Core operating earnings for the three months ended September 30, 2010, were $14.6 million, up $2.3 million, or 18.7%, compared to $12.3 million for the three months ended September 30, 2009.
The Company calculates core operating earnings by excluding taxes, provisions for loan losses, losses on other real estate owned and impairment losses on securities from net income. In the current three-month period, the Company is also excluding
from net income $1.0 million in bank-owned life insurance death benefits received.
Total assets increased $120.7 million, or 4.4%, from $2.73
billion at December 31, 2009, to $2.85 billion at September 30, 2010, as total deposits grew $94.2 million, or 4.2%, from $2.23 billion to $2.32 billion. Loans, net of allowance for loan losses, were down $32.0 million, or 1.4%, with
one-to-four family residential real estate loans up $15.7 million, or 3.9%, non-farm, non-residential real estate loans up $13.6 million, or 1.2%, real estate construction loans down $52.8 million, or 12.3%, and commercial loans down $30.4 million,
or 12.8%. Year-to-date loan production has been negatively impacted by lower economic activity and demand for credit in both the business and consumer sectors, a reallocation of lending personnel to problem loan identification and resolution and a
strategic decision to restrict acquisition, development and construction lending and an increased emphasis on deposit generation and non-credit products. Lending efforts are being focused on building greater market share in commercial lending,
especially in sectors forecast for growth, such as government contract lending, professional practices and associations and select service industries, with strategic hiring, marketing campaigns and calling efforts.
Total deposit growth of $94.2 million during the nine months ended September 30, 2010 included an increase in demand deposits of $30.1 million, or
12.6%, from $239.6 million at December 31, 2009, to $269.7 million at September 30, 2010, an increase in savings and interest-bearing demand deposits of $238.6 million, or 24.2%, and a decrease in time deposits of $174.5 million, or 17.4%.
The majority of the Banks deposits are attracted from individuals and businesses in the Northern Virginia and the Metropolitan Washington, D.C. area. The increases in demand deposits are primarily due to successful deposit gathering efforts
led by the Companys team of eight business development officers who are focused on acquisition and retention of commercial operating funds, cash management services and other related cross-sales. The increases in savings and interest-bearing
demand deposits were due primarily to success with the Companys MEGA Savings and MEGA Checking account products as well as its Premier Interest Checking for non-profits. The declines in time deposits are reflective of lower loan volume
requiring lower levels of funding, and strategic pricing of certificates of deposits relative to both the competitive market and the Companys pricing on interest-bearing transaction accounts. The proportionate share of time deposits to total
deposits has declined from a peak of 67.2% at year-end 2008, to 45.1% at December 31, 2009, and to 35.7% as of September 30, 2010. Brokered certificates of deposit represent $30.0 million of total time deposits, or 1.3% of total deposits,
at September 30, 2010.
As noted, for the nine months ended September 30, 2010, the Company recorded net income to common
stockholders of $13.2 million as compared to a net loss of $40.8 million for the nine months ended September 30, 2009, as net interest income increased $12.1 million, or 18.2%, non-interest income increased $5.9 million, and non-interest
expense rose $2.6 million, or 6.5%, and provisions for loan losses were down $67.3 million. The Companys annualized return on average assets and return on average equity were 0.81% and 9.92% for the current nine month period compared to a
negative 1.83% and a negative 20.36% for the nine months ended September 30, 2009.
22
For the three months ended
September 30, 2010, the Company recorded net income to common stockholders of $5.7 million compared to a net loss of $31.1 million for the same period in 2009 as net interest income rose $3.8 million, or 16.1%, non-interest income increased
$10.0 million, or 131.6%, non-interest expense increased $1.7 million, or 13.0%, and provisions for loan losses were down $43.9 million, or 89.6%. The return on average assets and return on average equity were 0.97% and 11.66% for the three months
ended September 30, 2010, compared to negative 4.34% and negative 49.33% for the same period in 2009.
On September 29, 2010, the
Company issued 1,904,766 shares of its common stock at a price of $5.25 per share in a registered direct placement with several institutional investors for total gross proceeds of $10.0 million. In addition, the Company issued to the investors
warrants exercisable for shares of common stock, which, if fully exercised, would provide an additional $11.4 million in gross proceeds to the Company. The warrants each have an exercise price of $6.00 per share, which represents a 14.3% premium to
the offering price of the shares of common stock sold in the registered direct placement. The Series A warrants, exercisable for a total of 952,383 shares of common stock, are exercisable for a period of seven months following the closing date. The
Series B warrants, also exercisable for a total of 952,383 shares of common stock, are exercisable for a period of twelve months following the closing date.
Stockholders equity increased $28.1 million, or 12.9%, from $218.9 million at December 31, 2009, to $247.0 million at September 30, 2010, with $9.3 million in net proceeds from the above
referenced stock issuance, net income to common stockholders of $13.2 million, a $3.6 million increase in other comprehensive income related to the investment securities portfolio, and $969 thousand in proceeds and tax benefits related to the
exercise of options by company directors and officers, and stock option expense credits. As a result of these changes the Companys Tier 1 capital ratio increased from 11.48% at December 31, 2009, to 12.96% at September 30, 2010, and
its total qualifying capital ratio increased from 12.73% to 14.21%.
Net Interest Income
Net interest income is the excess of interest earned on loans and investments over the interest paid on deposits and borrowings and is the Companys
primary revenue source. Net interest income is thereby affected by overall balance sheet growth, changes in interest rates and changes in the mix of investments, loans, deposits and borrowings. Net interest income of $27.2 million for the third
quarter of 2010 was up $3.8 million, or 16.1% over the same quarter last year, due primarily to an increase in the net interest margin from 3.52% in the third quarter of 2009 to 3.96% for the current three-month period. Year-to-date net interest
income of $78.2 million was up 18.2%, compared to $66.2 million in 2009. The year-over-year increases in the net interest margin were driven by lower deposit costs due to significant reductions in the level of time deposits, and increased levels of
demand deposits and lower rate interest-bearing transaction accounts. As a result, the average cost of interest-bearing deposits fell from 2.34% in the third quarter of 2009, to 1.57% in the third quarter of 2010, while the yield on interest-earning
assets declined only fifteen basis points from 5.65% to 5.50% for the same periods.
The following tables show the average balance sheets for
each of the three months and nine months ended September 30, 2010 and 2009. In addition, the amounts of interest earned on interest-earning assets, with related yields on a tax-equivalent basis, and interest expense on interest-bearing
liabilities, with related rates, are shown. Loans placed on a non-accrual status are included in the average balances. Net loan fees and late charges included in interest income on loans totaled $672 thousand and $1.3 million for the three months
ended September 30, 2010 and 2009, respectively, and totaled $2.0 million and $3.0 million for the nine month periods.
23
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|
Three Months Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
(Dollars in thousands)
|
|
Average
Balance
|
|
|
Interest
Income-
Expense
|
|
|
Average
Yields
/Rates
|
|
|
Average
Balance
|
|
|
Interest
Income-
Expense
|
|
|
Average
Yields
/Rates
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities(1)
|
|
$
|
382,399
|
|
|
$
|
3,685
|
|
|
|
4.04
|
%
|
|
$
|
327,690
|
|
|
$
|
3,792
|
|
|
|
4.78
|
%
|
Restricted Stock
|
|
|
11,752
|
|
|
|
91
|
|
|
|
3.06
|
%
|
|
|
11,752
|
|
|
|
97
|
|
|
|
3.29
|
%
|
Loans, net of unearned income
|
|
|
2,249,901
|
|
|
|
33,997
|
|
|
|
6.01
|
%
|
|
|
2,266,294
|
|
|
|
33,707
|
|
|
|
5.91
|
%
|
Interest-bearing deposits in other banks
|
|
|
379
|
|
|
|
|
|
|
|
0.11
|
%
|
|
|
89
|
|
|
|
|
|
|
|
0.09
|
%
|
Federal funds sold
|
|
|
103,072
|
|
|
|
59
|
|
|
|
0.23
|
%
|
|
|
48,725
|
|
|
|
27
|
|
|
|
0.21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
2,747,503
|
|
|
$
|
37,832
|
|
|
|
5.50
|
%
|
|
$
|
2,654,550
|
|
|
$
|
37,623
|
|
|
|
5.65
|
%
|
Other assets
|
|
|
87,488
|
|
|
|
|
|
|
|
|
|
|
|
78,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
2,834,991
|
|
|
|
|
|
|
|
|
|
|
$
|
2,733,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts
|
|
$
|
350,711
|
|
|
$
|
749
|
|
|
|
0.85
|
%
|
|
$
|
238,988
|
|
|
$
|
728
|
|
|
|
1.21
|
%
|
Money market accounts
|
|
|
157,157
|
|
|
|
447
|
|
|
|
1.13
|
%
|
|
|
162,353
|
|
|
|
593
|
|
|
|
1.45
|
%
|
Savings accounts
|
|
|
696,270
|
|
|
|
2,499
|
|
|
|
1.42
|
%
|
|
|
432,362
|
|
|
|
2,111
|
|
|
|
1.94
|
%
|
Time deposits
|
|
|
851,433
|
|
|
|
4,418
|
|
|
|
2.06
|
%
|
|
|
1,141,571
|
|
|
|
8,217
|
|
|
|
2.86
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
$
|
2,055,571
|
|
|
$
|
8,113
|
|
|
|
1.57
|
%
|
|
$
|
1,975,274
|
|
|
$
|
11,649
|
|
|
|
2.34
|
%
|
Securities sold under agreement to repurchase and federal funds purchased
|
|
|
183,564
|
|
|
|
1,023
|
|
|
|
2.21
|
%
|
|
|
192,538
|
|
|
|
1,022
|
|
|
|
2.11
|
%
|
Other borrowed funds
|
|
|
25,000
|
|
|
|
272
|
|
|
|
4.25
|
%
|
|
|
25,000
|
|
|
|
272
|
|
|
|
4.25
|
%
|
Trust preferred capital notes
|
|
|
66,217
|
|
|
|
1,243
|
|
|
|
7.35
|
%
|
|
|
65,962
|
|
|
|
1,276
|
|
|
|
7.57
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
2,330,352
|
|
|
$
|
10,651
|
|
|
|
1.81
|
%
|
|
$
|
2,258,774
|
|
|
$
|
14,219
|
|
|
|
2.50
|
%
|
Demand deposits
|
|
|
255,484
|
|
|
|
|
|
|
|
|
|
|
|
219,456
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
12,468
|
|
|
|
|
|
|
|
|
|
|
|
14,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
2,598,304
|
|
|
|
|
|
|
|
|
|
|
$
|
2,492,961
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
236,687
|
|
|
|
|
|
|
|
|
|
|
|
240,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,834,991
|
|
|
|
|
|
|
|
|
|
|
$
|
2,733,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
3.69
|
%
|
|
|
|
|
|
|
|
|
|
|
3.15
|
%
|
Net interest income and margin
|
|
|
|
|
|
$
|
27,181
|
|
|
|
3.96
|
%
|
|
|
|
|
|
$
|
23,404
|
|
|
|
3.52
|
%
|
(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.
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
(Dollars in thousands)
|
|
Average
Balance
|
|
|
Interest
Income-
Expense
|
|
|
Average
Yields
/Rates
|
|
|
Average
Balance
|
|
|
Interest
Income-
Expense
|
|
|
Average
Yields
/Rates
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities(1)
|
|
$
|
361,101
|
|
|
$
|
11,178
|
|
|
|
4.25
|
%
|
|
$
|
326,009
|
|
|
$
|
11,700
|
|
|
|
4.73
|
%
|
Restricted Stock
|
|
|
11,752
|
|
|
|
267
|
|
|
|
3.03
|
%
|
|
|
11,534
|
|
|
|
265
|
|
|
|
3.07
|
%
|
Loans, net of unearned income
|
|
|
2,265,573
|
|
|
|
100,138
|
|
|
|
5.92
|
%
|
|
|
2,290,830
|
|
|
|
100,336
|
|
|
|
5.87
|
%
|
Interest-bearing deposits in other banks
|
|
|
204
|
|
|
|
|
|
|
|
0.09
|
%
|
|
|
89
|
|
|
|
|
|
|
|
0.11
|
%
|
Federal funds sold
|
|
|
79,399
|
|
|
|
137
|
|
|
|
0.23
|
%
|
|
|
39,197
|
|
|
|
59
|
|
|
|
0.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
2,718,029
|
|
|
$
|
111,720
|
|
|
|
5.53
|
%
|
|
$
|
2,667,659
|
|
|
$
|
112,360
|
|
|
|
5.66
|
%
|
Other assets
|
|
|
87,186
|
|
|
|
|
|
|
|
|
|
|
|
66,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
2,805,215
|
|
|
|
|
|
|
|
|
|
|
$
|
2,734,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts
|
|
$
|
333,984
|
|
|
$
|
2,378
|
|
|
|
0.95
|
%
|
|
$
|
220,039
|
|
|
$
|
2,054
|
|
|
|
1.25
|
%
|
Money market accounts
|
|
|
153,121
|
|
|
|
1,418
|
|
|
|
1.24
|
%
|
|
|
157,718
|
|
|
|
1,743
|
|
|
|
1.48
|
%
|
Savings accounts
|
|
|
646,466
|
|
|
|
7,477
|
|
|
|
1.55
|
%
|
|
|
326,744
|
|
|
|
5,271
|
|
|
|
2.16
|
%
|
Time deposits
|
|
|
912,538
|
|
|
|
14,699
|
|
|
|
2.15
|
%
|
|
|
1,275,712
|
|
|
|
30,008
|
|
|
|
3.14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
$
|
2,046,109
|
|
|
$
|
25,972
|
|
|
|
1.70
|
%
|
|
$
|
1,980,213
|
|
|
$
|
39,076
|
|
|
|
2.64
|
%
|
Securities sold under agreement to repurchase and federal funds purchased
|
|
|
183,627
|
|
|
|
3,022
|
|
|
|
2.20
|
%
|
|
|
188,575
|
|
|
|
2,477
|
|
|
|
1.76
|
%
|
Other borrowed funds
|
|
|
25,000
|
|
|
|
806
|
|
|
|
4.25
|
%
|
|
|
25,000
|
|
|
|
806
|
|
|
|
4.25
|
%
|
Trust preferred capital notes
|
|
|
66,154
|
|
|
|
3,702
|
|
|
|
7.38
|
%
|
|
|
65,898
|
|
|
|
3,840
|
|
|
|
7.68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
2,320,890
|
|
|
$
|
33,502
|
|
|
|
1.93
|
%
|
|
$
|
2,259,686
|
|
|
$
|
46,199
|
|
|
|
2.73
|
%
|
Demand deposits
|
|
|
241,767
|
|
|
|
|
|
|
|
|
|
|
|
213,942
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
13,342
|
|
|
|
|
|
|
|
|
|
|
|
14,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
2,575,999
|
|
|
|
|
|
|
|
|
|
|
$
|
2,488,001
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
229,216
|
|
|
|
|
|
|
|
|
|
|
|
246,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,805,215
|
|
|
|
|
|
|
|
|
|
|
$
|
2,734,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
3.60
|
%
|
|
|
|
|
|
|
|
|
|
|
2.93
|
%
|
Net interest income and margin
|
|
|
|
|
|
$
|
78,218
|
|
|
|
3.88
|
%
|
|
|
|
|
|
$
|
66,161
|
|
|
|
3.34
|
%
|
(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.
|
25
Allowance for Loan Losses /
Provision for Loan Loss Expense
Provisions for loan losses were $5.1 million for the quarter ended September 30, 2010, compared to
$49.0 million in the same period in 2009, with total net charge-offs of $4.7 million in the third quarter of 2010 versus $17.9 million for the same period a year ago. For the nine months ended September 30, 2010, provisions for loan losses
totaled $13.5 million compared to $80.8 million for the prior year period, with 2010 year-to-date net charge-offs of $15.9 million significantly reduced from $47.2 million in the nine months ended September 30, 2009. The decrease in the
provisions for loan losses in the three and nine months ended September 30, 2010 compared to the same periods of 2009 is primarily due to the continuing trend of declining net charge-offs and non-performing loans.
Total non-performing assets and loans 90+ days past due declined from $123.5 million at September 30, 2009, to $82.4 million at September 30,
2010, and decreased $9.2 million sequentially from $91.6 million at June 30, 2010. As of September 30, 2010, the allowance for loan losses represented 2.80% of total loans, up slightly from 2.77% at June 30, 2010, with such allowance
covering 108.2% of total non-performing loans. See Risk Elements and Non-Performing Assets later in this discussion for more information on non-performing assets and loans 90+ days past due and other impaired loans.
Management believes that the allowance for loan losses is adequate at September 30, 2010. However, there can be no assurance that additional
provisions for loan losses will not be required in the future, including as a result of possible changes in the economic assumptions underlying managements estimates and judgments, adverse developments in the economy, and the residential real
estate market in particular, on a national basis or in the Companys market area, or changes in the circumstances of particular borrowers.
The Company generates a quarterly analysis of the allowance for loan losses, with the objective of quantifying portfolio risk into a dollar figure of
inherent losses, thereby translating the subjective risk value into an objective number. Emphasis is placed on at least semi-annual independent external loan reviews and monthly internal reviews. The determination of the allowance for loan losses is
based on applying and summing the results of eight qualitative factors and a historical loss factor to each category of loans along with any specific allowance for impaired and adversely classified loans within the particular category. Each factor
is assigned a percentage weight and that total weight is applied to each loan category. The resulting sum from each loan category is then combined to arrive at a total allowance for all categories. Factors are different for each loan category.
Qualitative factors include: levels and trends in delinquencies and non-accruals, trends in volumes and terms of loans, effects of any changes in lending policies, the experience, ability and depth of management, national and local economic trends
and conditions, concentrations of credit, quality of the Companys loan review system, and regulatory requirements. The total allowance required thus changes as the percentage weight assigned to each factor is increased or decreased due to its
particular circumstance, as historical loss factors are updated, as the various types and categories of loans change as a percentage of total loans and as specific allowances are required on impaired loans and charge-offs occur. The decision to
specifically reserve for or to charge-off or partially charge-off an impaired loan balance is based upon an evaluation of that loans potential to improve, based upon near term change in financial or market conditions, which would enable
collection of the portion of the loan determined to be impaired. If these conditions are determined to be favorable, a specific reserve would be established as opposed to a charge-off. For further information regarding the allowance for loan losses
see Note 4 to the Consolidated Financial Statements.
26
The following schedule summarizes the
changes in the allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Nine Months
Ended
September 30,
2010
|
|
|
Nine Months
Ended
September 30,
2009
|
|
|
Twelve Months
Ended
December 31,
2009
|
|
|
|
|
|
Allowance, at beginning of period
|
|
$
|
65,152
|
|
|
$
|
36,475
|
|
|
$
|
36,475
|
|
Provision charged against income
|
|
|
13,538
|
|
|
|
80,813
|
|
|
|
81,913
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
14
|
|
|
|
58
|
|
|
|
67
|
|
Commercial
|
|
|
2,469
|
|
|
|
253
|
|
|
|
739
|
|
Real estate one-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end first and seconds
|
|
|
23
|
|
|
|
42
|
|
|
|
42
|
|
Home equity lines
|
|
|
288
|
|
|
|
4
|
|
|
|
51
|
|
Real estate-nonfarm, nonresidential
|
|
|
54
|
|
|
|
|
|
|
|
149
|
|
Real estate-construction
|
|
|
863
|
|
|
|
205
|
|
|
|
329
|
|
Losses charged to reserve:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
(239
|
)
|
|
|
(242
|
)
|
|
|
(416
|
)
|
Commercial loans
|
|
|
(6,388
|
)
|
|
|
(15,603
|
)
|
|
|
(16,317
|
)
|
Real Estate one-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent first and second
|
|
|
(2,391
|
)
|
|
|
(1,447
|
)
|
|
|
(1,867
|
)
|
Home equity loans and liens
|
|
|
(365
|
)
|
|
|
(965
|
)
|
|
|
(1,516
|
)
|
Real estate-multi-family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate-nonfarm, nonresidential
|
|
|
(2,883
|
)
|
|
|
(526
|
)
|
|
|
(2,108
|
)
|
Real estate-construction
|
|
|
(7,359
|
)
|
|
|
(28,953
|
)
|
|
|
(32,389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(15,914
|
)
|
|
|
(47,174
|
)
|
|
|
(53,236
|
)
|
Allowance, at end of period
|
|
$
|
62,776
|
|
|
$
|
70,114
|
|
|
$
|
65,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs to average total loans outstanding during period
|
|
|
0.70
|
%
|
|
|
2.06
|
%
|
|
|
2.34
|
%
|
Allowance for loan losses to total loans
|
|
|
2.80
|
%
|
|
|
3.15
|
%
|
|
|
2.86
|
%
|
The following schedule provides a
breakdown of general reserves and specific reserves for impaired loans by loan type:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
December 31, 2009
|
|
Allocation of the allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage-general
|
|
$
|
11,414
|
|
|
$
|
12,791
|
|
|
$
|
14,669
|
|
Real estate mortgage-specific
|
|
|
16,098
|
|
|
|
9,606
|
|
|
|
11,845
|
|
Real estate construction-general
|
|
|
12,409
|
|
|
|
16,406
|
|
|
|
13,616
|
|
Real estate construction-specific
|
|
|
12,877
|
|
|
|
17,538
|
|
|
|
13,341
|
|
Commercial-general
|
|
|
6,092
|
|
|
|
6,807
|
|
|
|
5,700
|
|
Commercial-specific
|
|
|
3,509
|
|
|
|
6,597
|
|
|
|
5,541
|
|
Consumer-general
|
|
|
223
|
|
|
|
253
|
|
|
|
320
|
|
Consumer-specific
|
|
|
154
|
|
|
|
116
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
62,776
|
|
|
$
|
70,114
|
|
|
$
|
65,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Risk Elements and Non-Performing
Assets
Non-performing assets consist of non-accrual loans and OREO (foreclosed properties). For the nine months ended September 30,
2010, total non-performing assets and loans 90+ days past due and still accruing interest decreased by $15.7 million, from $98.1 million at December 31, 2009, to $82.4 million at September 30, 2010, and have declined $41.1 million from
$123.5 million at September 30, 2009. As a result, the ratio of non-performing assets and loans 90+ days past due and still accruing to total assets decreased from 4.52% at September 30, 2009, to 2.90% at September 30, 2010, and
decreased from 3.60% of total assets at December 31, 2009. Loans are placed in non-accrual status when in the opinion of management the collection of additional interest is unlikely or a specific loan meets the criteria for non-accrual status
established by regulatory authorities. No interest is taken into income on non-accrual loans. A loan remains on non-accrual status until the loan is current as to both principal and interest or the borrower demonstrates the ability to pay and remain
current, or both.
Our underwriting for new acquisition, development, and construction loans always includes the interest cost for the loan
whether an interest reserve is approved or not. In other words, the equity requirement in the new loan is established reflecting the amount of interest required to serve the project. We continually monitor the adequacy of reserve requirements,
including interest reserves, during the draw process to ensure the project is being completed on time and within budget. We have restructured loans due to the slow market, re-underwriting each loan based on time and cost to complete. We do
not continue funding interest reserves just to keep the loan from becoming non-performing. We consider whether the loan to value ratio will support current and future advances and whether the project is meeting certain completion criteria necessary
to successfully complete the project. Once a loan becomes non-performing, we do not allow draws on interest reserves.
Other impaired
loans, that are currently performing, and troubled debt restructurings, performing in accordance with their modified terms, increased from $171.8 million at December 31, 2009, to $209.3 million at September 30, 2010. These loans have been
identified by the Company as having certain weaknesses as a result of the Companys specific knowledge about the customer or recent credit events, and are classified as substandard and subject to impairment testing at each balance sheet date.
Troubled debt restructurings which represented $105.6 million of other impaired loans as of September 30, 2010, were up from $71.9
million at December 31, 2009, and from $31.8 million at September 30, 2009. These loans which have been provided concessions such as rate reductions, payment deferrals, and in some cases forgiveness of principal, are all on accrual status.
If the loan was on non-accrual at the time of the concession it is the Companys policy that it remain on non-accrual status and perform in accordance with the modified terms for a period of six months. All loans reported as troubled debt
restructurings accrue interest. If a troubled debt restructuring is on non-accrual status, it is reported as a non-accrual asset and not as a troubled debt restructuring.
Foreclosed real properties include properties that have been substantively repossessed or acquired in complete or partial satisfaction of debt. Such properties, which are held for resale, are carried at
the lower of book value or fair value, including a reduction for the estimated selling expenses, or principal balance of the related loan. Reviews and discussions with regard to value and disposition of each foreclosed property are conducted monthly
by the Companys Special Asset Committee. The carrying value of a foreclosed asset is immediately adjusted down when new information is obtained, including a potentially acceptable offer, the sale of a similar property in the vicinity of one of
the Companys assets, and/or a change in the price the property is being listed for. The Company also uses the advice of outside consultants and real estate agents with knowledge of the markets the properties are located in. Appraisals are
ordered when the property is foreclosed on, but are not routinely updated at each balance sheet date. The Company confirms that it performed the above noted procedures and made the proper impairment adjustments, if any, at the balance sheet date.
28
Total non-performing assets consist of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
December 31, 2009
|
|
|
|
|
|
Non-accrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
5,176
|
|
|
$
|
9,792
|
|
|
$
|
6,929
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end first and seconds
|
|
|
6,554
|
|
|
|
6,846
|
|
|
|
5,769
|
|
Home equity lines
|
|
|
724
|
|
|
|
781
|
|
|
|
420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real estate-one-to-four family residential
|
|
$
|
7,278
|
|
|
$
|
7,627
|
|
|
$
|
6,189
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner Occupied
|
|
|
5,251
|
|
|
|
9,703
|
|
|
|
8,600
|
|
Non-owner occupied
|
|
|
1,204
|
|
|
|
9,152
|
|
|
|
6,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real estate-non-farm, non-residential
|
|
$
|
6,455
|
|
|
$
|
18,855
|
|
|
$
|
15,106
|
|
Real estate-construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential-Owner Occupied
|
|
|
|
|
|
|
2,389
|
|
|
|
517
|
|
Residential-Builder
|
|
|
31,138
|
|
|
|
36,886
|
|
|
|
30,110
|
|
Commercial
|
|
|
6,861
|
|
|
|
9,457
|
|
|
|
6,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real estate-construction:
|
|
$
|
37,999
|
|
|
$
|
48,732
|
|
|
$
|
37,538
|
|
Consumer
|
|
|
110
|
|
|
|
187
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-accrual loans
|
|
|
57,018
|
|
|
$
|
85,193
|
|
|
$
|
65,809
|
|
OREO
|
|
|
24,395
|
|
|
|
36,402
|
|
|
|
28,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
81,413
|
|
|
$
|
121,595
|
|
|
$
|
94,308
|
|
|
|
|
|
Loans 90+ days past due and still accruing:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
149
|
|
|
$
|
150
|
|
|
$
|
3,797
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end first and seconds
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real estate-one-to-four family residential
|
|
$
|
369
|
|
|
$
|
|
|
|
$
|
|
|
Real estate multi-family residential
|
|
|
|
|
|
|
1,506
|
|
|
|
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner Occupied
|
|
|
361
|
|
|
|
|
|
|
|
|
|
Non-owner occupied
|
|
|
|
|
|
|
249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real estate-non-farm, non-residential
|
|
$
|
361
|
|
|
$
|
249
|
|
|
$
|
|
|
Real estate-construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential-Owner Occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential-Builder
|
|
|
|
|
|
|
|
|
|
|
26
|
|
Commercial
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real estate-construction:
|
|
$
|
|
|
|
|
|
|
|
$
|
26
|
|
Consumer
|
|
|
100
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans past due 90 days and still accruing
|
|
$
|
979
|
|
|
$
|
1,905
|
|
|
$
|
3,826
|
|
|
|
|
|
Total non-performing assets and past due loans
|
|
$
|
82,392
|
|
|
$
|
123,500
|
|
|
$
|
98,134
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
December 31, 2009
|
|
|
|
|
|
Non-performing assets
|
|
|
|
|
|
|
|
|
|
|
|
|
to total loans:
|
|
|
3.63
|
%
|
|
|
5.46
|
%
|
|
|
4.14
|
%
|
to total assets:
|
|
|
2.86
|
%
|
|
|
4.45
|
%
|
|
|
3.46
|
%
|
Non-performing assets and 90+ days past due loans
|
|
|
|
|
|
|
|
|
|
|
|
|
to total loans:
|
|
|
3.67
|
%
|
|
|
5.54
|
%
|
|
|
4.31
|
%
|
to total assets:
|
|
|
2.90
|
%
|
|
|
4.52
|
%
|
|
|
3.60
|
%
|
Allowance for loan losses to total loans
|
|
|
2.80
|
%
|
|
|
3.15
|
%
|
|
|
2.86
|
%
|
Allowance for loan losses to non-performing loans
|
|
|
108.24
|
%
|
|
|
80.50
|
%
|
|
|
93.56
|
%
|
|
|
|
|
Total allowance for loan losses
|
|
$
|
62,776
|
|
|
$
|
70,114
|
|
|
$
|
65,152
|
|
Total provisions for loan losses
|
|
$
|
13,538
|
|
|
$
|
80,813
|
|
|
$
|
81,913
|
|
|
|
|
|
Troubled debt restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
11,754
|
|
|
$
|
7,250
|
|
|
$
|
8,963
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end first and seconds
|
|
|
4,704
|
|
|
|
3,804
|
|
|
|
5,465
|
|
Home equity lines
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real estate-one-to-four family residential
|
|
$
|
4,704
|
|
|
$
|
3,804
|
|
|
$
|
5,465
|
|
Real estate multi-family residential
|
|
|
|
|
|
|
|
|
|
|
1,598
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner Occupied
|
|
|
23,498
|
|
|
|
3,668
|
|
|
|
3,730
|
|
Non-owner occupied
|
|
|
36,443
|
|
|
|
8,748
|
|
|
|
20,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real estate-non-farm, non-residential
|
|
$
|
59,941
|
|
|
$
|
12,416
|
|
|
$
|
24,035
|
|
Real estate-construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential-Owner Occupied
|
|
|
|
|
|
|
829
|
|
|
|
|
|
Residential-Builder
|
|
|
9,094
|
|
|
|
13,126
|
|
|
|
12,894
|
|
Commercial
|
|
|
20,074
|
|
|
|
|
|
|
|
18,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real estate-construction:
|
|
$
|
29,168
|
|
|
$
|
13,955
|
|
|
$
|
31,749
|
|
Consumer
|
|
|
50
|
|
|
|
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total troubled debt restructurings
|
|
$
|
105,617
|
|
|
$
|
37,425
|
|
|
$
|
71,885
|
|
Non-performing loans continue to be
concentrated in residential and commercial construction and land development loans in outer sub-markets hardest hit by the residential downturn and commercial and consumer credits experiencing the after shocks in sub-contracting businesses and
workforce employment. Overall, as of September 30, 2010, $38.0 million, or 65.5%, of non-performing loans represented acquisition, development and construction loans, $7.6 million, or 13.2%, represented loans on one-to-four family residential
properties, $6.8 million, or 11.8%, represented non-farm, non-residential loans, and $5.3 million, or 9.2%, represented commercial and industrial loans. The Company would have recorded additional gross interest income of approximately $921 thousand
for the quarter ended September 30, 2010 and $1.4 million for the quarter ended September 30, 2009, if non-accrual loans had been current throughout these periods. Interest actually received on non-accrual loans was $489 thousand in 2010
and $337 thousand in 2009. See Note 4 to the Consolidated Financial Statements for additional information regarding the Companys non-performing loans.
30
The following provides a breakdown of
the construction and non-farm/non-residential loan portfolios by location, including loans on non-accrual status, with dollars in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010
|
|
Residential, Acquisition, Development and Construction
By County/Jurisdiction of Origination:
|
|
Total
Outstandings
|
|
|
Percentage
of Total
|
|
|
Non-accrual
Loans
|
|
|
Non-accruals
as a % of
Outstandings
|
|
|
Net charge-
offs as a % of
Outstandings
|
|
District of Columbia
|
|
$
|
4,517
|
|
|
|
2.4
|
%
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Montgomery, MD
|
|
|
5,092
|
|
|
|
2.7
|
%
|
|
|
3,349
|
|
|
|
1.8
|
%
|
|
|
1.8
|
%
|
Prince Georges, MD
|
|
|
18,316
|
|
|
|
9.6
|
%
|
|
|
877
|
|
|
|
0.5
|
%
|
|
|
|
|
Other Counties in MD
|
|
|
3,682
|
|
|
|
1.9
|
%
|
|
|
1,576
|
|
|
|
0.8
|
%
|
|
|
0.7
|
%
|
Arlington/Alexandria, VA
|
|
|
32,849
|
|
|
|
17.3
|
%
|
|
|
4,611
|
|
|
|
2.4
|
%
|
|
|
|
|
Fairfax, VA
|
|
|
45,670
|
|
|
|
24.1
|
%
|
|
|
4,583
|
|
|
|
2.4
|
%
|
|
|
|
|
Culpeper/Fauquier, VA
|
|
|
4,449
|
|
|
|
2.3
|
%
|
|
|
3,695
|
|
|
|
1.9
|
%
|
|
|
0.8
|
%
|
Fredericksburg, VA
|
|
|
6,281
|
|
|
|
3.3
|
%
|
|
|
6,250
|
|
|
|
3.3
|
%
|
|
|
|
|
Loudoun, VA
|
|
|
30,215
|
|
|
|
15.9
|
%
|
|
|
770
|
|
|
|
0.4
|
%
|
|
|
|
|
Prince William, VA
|
|
|
7,571
|
|
|
|
4.0
|
%
|
|
|
1,063
|
|
|
|
0.6
|
%
|
|
|
|
|
Spotsylvania, VA
|
|
|
468
|
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Stafford, VA
|
|
|
21,255
|
|
|
|
11.2
|
%
|
|
|
4,364
|
|
|
|
2.3
|
%
|
|
|
0.1
|
%
|
Other Counties in VA
|
|
|
8,128
|
|
|
|
4.3
|
%
|
|
|
|
|
|
|
|
|
|
|
0.1
|
%
|
Outside VA, MD & DC
|
|
|
1,555
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
190,048
|
|
|
|
100.0
|
%
|
|
$
|
31,138
|
|
|
|
16.4
|
%
|
|
|
3.5
|
%
|
|
|
|
|
As of September 30, 2010
|
|
Commercial, Acquisition, Development and Construction
By County/Jurisdiction of Origination:
|
|
Total
Outstandings
|
|
|
Percentage
of Total
|
|
|
Non-accrual
Loans
|
|
|
Non-accruals
as a % of
Outstandings
|
|
|
Net charge-offs
(recoveries) as
a % of
Outstandings
|
|
District of Columbia
|
|
$
|
10,348
|
|
|
|
5.6
|
%
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Montgomery, MD
|
|
|
1,371
|
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Prince Georges, MD
|
|
|
12,493
|
|
|
|
6.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Counties in MD
|
|
|
9,428
|
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Arlington/Alexandria, VA
|
|
|
9,312
|
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Fairfax, VA
|
|
|
22,385
|
|
|
|
12.1
|
%
|
|
|
|
|
|
|
|
|
|
|
-0.1
|
%
|
Culpeper/Fauquier, VA
|
|
|
3,020
|
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Henrico, VA
|
|
|
843
|
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Loudoun, VA
|
|
|
44,247
|
|
|
|
23.9
|
%
|
|
|
4,797
|
|
|
|
2.6
|
%
|
|
|
|
|
Prince William, VA
|
|
|
37,691
|
|
|
|
20.3
|
%
|
|
|
2,064
|
|
|
|
1.1
|
%
|
|
|
|
|
Spotsylvania, VA
|
|
|
2,712
|
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Stafford, VA
|
|
|
29,702
|
|
|
|
16.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Counties in VA
|
|
|
1,892
|
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Outside VA, MD & DC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
185,444
|
|
|
|
100.0
|
%
|
|
$
|
6,861
|
|
|
|
3.7
|
%
|
|
|
-0.1
|
%
|
|
|
|
|
As of September 30, 2010
|
|
Non-Farm/Non-Residential
By County/Jurisdiction of Origination:
|
|
Total
Outstandings
|
|
|
Percentage
of Total
|
|
|
Non-accrual
Loans
|
|
|
Non-accruals
as a % of
Outstandings
|
|
|
Net charge-
offs as a %
of
Outstandings
|
|
District of Columbia
|
|
$
|
73,191
|
|
|
|
6.4
|
%
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Montgomery, MD
|
|
|
41,701
|
|
|
|
3.7
|
%
|
|
|
|
|
|
|
|
|
|
|
0.1
|
%
|
Prince Georges, MD
|
|
|
54,056
|
|
|
|
4.7
|
%
|
|
|
1,099
|
|
|
|
0.1
|
%
|
|
|
|
|
Other Counties in MD
|
|
|
47,201
|
|
|
|
4.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Arlington/Alexandria, VA
|
|
|
177,236
|
|
|
|
15.5
|
%
|
|
|
2,296
|
|
|
|
0.2
|
%
|
|
|
|
|
Fairfax, VA
|
|
|
275,798
|
|
|
|
24.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Culpeper/Fauquier, VA
|
|
|
5,746
|
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Frederick, VA
|
|
|
6,539
|
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Henrico, VA
|
|
|
29,329
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
0.1
|
%
|
Loudoun, VA
|
|
|
107,812
|
|
|
|
9.5
|
%
|
|
|
1,500
|
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
Prince William, VA
|
|
|
210,918
|
|
|
|
18.5
|
%
|
|
|
1,334
|
|
|
|
0.1
|
%
|
|
|
|
|
Spotsylvania, VA
|
|
|
21,231
|
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Stafford, VA
|
|
|
21,059
|
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Counties in VA
|
|
|
57,652
|
|
|
|
5.1
|
%
|
|
|
226
|
|
|
|
0.1
|
%
|
|
|
|
|
Outside VA, MD & DC
|
|
|
10,038
|
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,139,507
|
|
|
|
100.0
|
%
|
|
$
|
6,455
|
|
|
|
0.6
|
%
|
|
|
0.3
|
%
|
31
Concentrations of Credit Risk
The Bank does a general banking business, serving the commercial and personal banking needs of its customers. The Banks market area
consists of the Northern Virginia suburbs of Washington, D.C., including Arlington, Fairfax, Fauquier, Loudoun, Prince William, Spotsylvania and Stafford Counties, the cities of Alexandria, Fairfax, Falls Church, Fredericksburg, Manassas and
Manassas Park, and, to a lesser extent, certain Maryland suburbs and the city of Washington, D.C. Substantially all of the Companys loans are made within its market area.
The ultimate collectibility of the Banks loan portfolio and the ability to realize the value of any underlying collateral, if needed, are influenced by the economic conditions of the market area.
The Companys operating results are therefore closely related to the economic conditions and trends in the Metropolitan Washington, D.C. area.
At September 30, 2010, the Company had $1.60 billion, or 71.4%, of total loans concentrated in commercial real estate. Commercial real estate for purposes of this discussion includes all construction
loans, loans secured by multi-family residential properties and loans secured by non-farm, non-residential properties. At December 31, 2009, commercial real estate loans were $1.62 billion, or 71.1%, of total loans. Total construction loans of
$375.5 million at September 30, 2010, represented 16.7% of total loans, loans secured by multi-family residential properties of $86.9 million represented 3.9% of total loans, and loans secured by non-farm, non-residential properties of $1.1
billion represented 50.8%.
Construction loans at September 30, 2010 included $174.9 million in loans to commercial builders of single
family residential property and $15.2 million to individuals on single family residential property, together representing 8.5% of total loans. These loans are made to a number of unrelated entities and generally have a term of twelve to eighteen
months. In addition, the Company had $185.4 million of construction loans on non-residential commercial property at September 30, 2010, representing 8.3% of total loans. Total construction loans of $375.5 million include $130.4 million in land
acquisition and/or development loans on residential property and $100.4 million in land acquisition and/or development loans on commercial property, together totaling $230.8 million, or 10.3% of total loans. Potential adverse developments in the
Northern Virginia real estate market or economy, including substantial increases in mortgage interest rates, slower housing sales, and increased commercial property vacancy rates, could have an adverse impact on these groups of loans and the
Banks income and financial position. At September 30, 2010, the Company had no other concentrations of loans in any one industry exceeding 10% of its total loan portfolio. An industry for this purpose is defined as a group of
counterparties that are engaged in similar activities and have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.
The Bank has established formal policies relating to the credit and collateral requirements in loan originations including policies that establish limits
on various loan types as a percentage of total loans and total capital. Loans to purchase real property are generally collateralized by the related property with limitations based on the propertys appraised value. Credit approval is primarily
a function of collateral and the evaluation of the creditworthiness of the individual borrower and guarantors and/or the individual project, to include an analysis of cash flows and secondary repayment sources.
The federal banking regulators have issued guidance for those institutions which are deemed to have concentrations in commercial real estate lending.
Pursuant to the supervisory criteria contained in the guidance for identifying institutions with a potential commercial real estate concentration risk, institutions which have (1) total reported loans for construction, land development, and
other land which represent in total 100% or more of an institutions total risk-based capital; or (2) total commercial real estate loans representing 300% or more of the institutions total risk-based capital and the institutions commercial
real estate loan portfolio has increased 50% or more during the prior 36 months are identified as having potential commercial real estate concentration risk. Institutions which are deemed to have concentrations in commercial real estate lending are
expected to employ heightened levels of risk management with respect to their commercial real estate portfolios and may be required to hold higher levels of capital. The Company, like many community banks, has a concentration in commercial real
estate loans. Management has extensive experience in commercial real estate lending and has implemented and continues to maintain heightened portfolio monitoring and reporting, and strong underwriting criteria with respect to its commercial real
estate portfolio. The Company is well-capitalized. Nevertheless, it is possible that the Company could be required to maintain higher levels of capital as a result of our commercial real estate concentration, which could require us to obtain
additional capital, and may adversely affect stockholder returns.
32
Non-Interest Income (Charges)
For the three months ended September 30, 2010, the Company recognized $2.4 million in non-interest income, compared to a non-interest
loss of $7.6 million for the three months ended September 30, 2009. For the nine months ended September 30, 2010, the Company recognized non-interest income of $2.1 million compared to a non-interest loss of $3.8 million for the same
period in 2009. Non-interest income for the third quarter of 2010 includes $713 thousand in losses on other real estate owned, no impairment losses on securities, and $1.0 million in bank-owned life insurance death benefits received, while in the
third quarter of 2009, non-interest income included $9.1 million in losses on other real estate owned and $280 thousand in impairment losses on securities. Non-interest income for the first nine months of 2010 includes $2.7 million in losses on
other real estate owned and $1.5 million in impairment losses on securities compared, while in the first nine months of 2009, non-interest income included $9.1 million in losses on other real estate owned and $418 thousand in impairment losses on
securities. Fees and net gains on loans held for sale increased $425 thousand during the third quarter of 2010 from the second quarter of 2010, and decreased by $637 thousand for the nine months ended September 30, 2010, from the same period
last year.
Non-Interest Expense
Non-interest expense increased $1.7 million, or 13.0%, from $12.9 million in the third quarter of 2009, to $14.6 million in the third quarter of 2010, and was up $2.6 million, or 6.5%, from $39.5 million
for the nine months ended September 30, 2009, to $42.1 million year-to-date 2010. Compared to the second quarter of 2010, non-interest expense was up $870 thousand. The majority of the year-over-year increases were due to higher legal and
professional services expenses associated with the collection of non-performing loans and higher carrying expenses on other real estate owned. Despite these increases, higher levels of net interest income resulted in the efficiency ratio improving
from 51.9% in the third quarter of 2009 to 48.2% in the third quarter of 2010.
Provision for Income Taxes
The Companys income tax provisions are adjusted for non-deductible expenses and non-taxable income after applying the U.S. federal income tax rate
of 35%. For the nine months ended September 30, 2010, the Company recorded an income tax provision of $7.7 million as compared to a benefit of $20.5 million for the same period in 2009. For the three months ended September 30, 2010, the
Company recorded an income tax provision of $2.9 million as compared to a benefit of $16.2 million for the same period in 2009. The effects of non-deductible expenses and non-taxable income on the Companys income tax provisions are minimal.
Liquidity
The
Companys principal source of liquidity and funding is its deposit base. The level of deposits necessary to support the Companys lending and investment activities is determined through monitoring loan demand. Considerations in managing
the Companys liquidity position include, but are not limited to, scheduled cash flows from existing loans and investment securities, anticipated deposit activity including the maturity of time deposits, and projected needs from anticipated
extensions of credit. The Companys liquidity position is monitored daily by management to maintain a level of liquidity that can efficiently meet current needs and is evaluated for both current and longer term needs as part of the
asset/liability management process.
The Company measures total liquidity through cash and cash equivalents, securities available-for-sale,
mortgage loans held-for-sale, other loans and investment securities maturing within one year, less securities pledged as collateral for repurchase agreements, public deposits and other purposes, and less any outstanding Federal funds purchased.
These liquidity sources increased $145.9 million, or 23.7%, from $615.2 million at December 31, 2009, to $761.1 million at September 30, 2010, due to a $113.3 million increase in Federal funds sold and a $48.0 million increase in unpledged
available-for-sale securities. Additional sources of liquidity available to the Bank include the capacity to borrow funds through established short-term lines of credit with various correspondent banks and the FHLB of Atlanta. See Note 8 to the
Consolidated Financial Statements for further information regarding these additional liquidity sources.
33
Off-Balance Sheet Arrangements
The Company enters into certain off-balance sheet arrangements in the normal course of business to meet the financing needs of its
customers. These off-balance sheet arrangements include commitments to extend credit, standby letters of credit and financial guarantees which would impact the Companys liquidity and capital resources to the extent customers accept and/or use
these commitments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. With the exception of these off-balance sheet arrangements, and the Companys
obligations in connection with its trust preferred securities, the Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Companys financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources, that is material to investors.
Commitments to extend credit, which amounted to $492.4 million at September 30, 2010, and $453.3 million at December 31, 2009, represent
legally binding agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Company guaranteeing the performance of a customer to a third party. Those guarantees are primarily issued to support public and private
borrowing arrangements. At September 30, 2010, and December 31, 2009, the Company had $30.1 million and $48.1 million, respectively, in outstanding standby letters of credit.
Contractual Obligations
Since December 31, 2009, there have been no significant
changes in the Companys contractual obligations.
Capital
The assessment of capital adequacy depends on a number of factors such as asset quality, liquidity, earnings performance, changing competitive conditions and economic forces, and the overall level of
growth. The adequacy of the Companys current and future capital is monitored by management on an ongoing basis. Management seeks to maintain a capital structure that will assure an adequate level of capital to support anticipated asset growth
and to absorb potential losses.
Both the Companys and the Banks capital levels continue to meet regulatory requirements. The
primary indicators relied on by bank regulators in measuring the capital position are the Tier 1 risk-based capital, total risk-based capital, and leverage ratios. Tier 1 capital consists of common and qualifying preferred stockholders equity,
less goodwill, and for the Company includes certain minority interests relating to Bank subsidiary issued shares, and a limited amount of restricted core capital elements. Restricted core capital elements include qualifying cumulative preferred
stock interests, certain minority interests in subsidiaries and qualifying trust preferred securities. All of the $71.0 million in preferred stock issued to the Treasury under the Capital Purchase Program qualify as Tier 1 capital. Total risk-based
capital consists of Tier 1 capital, qualifying subordinated debt, and a portion of the allowance for loan losses, and for the Company, a limited amount of excess restricted core capital elements. Risk-based capital ratios are calculated with
reference to risk-weighted assets. The leverage ratio compares Tier 1 capital to total average assets. The Banks Tier 1 risk-based capital ratio was 12.55% at September 30, 2010, compared to 11.41% at December 31, 2009, and its total
risk-based capital ratio was 13.80% at September 30, 2010, compared to 12.66% at December 31, 2009. These ratios are in excess of the mandated minimum requirement of 4.00% and 8.00%, respectively. The Banks leverage ratio was 10.52%
at September 30, 2010, compared to 10.23% at December 31, 2009. The Companys Tier 1 risk-based capital ratio, total risk-based capital ratio, and leverage ratio was 12.96%, 14.21%, and 10.84%, respectively, at September 30,
2010, compared to 11.48%, 12.73%, and 10.29%, respectively, at December 31, 2009. The increases in these capital ratios in 2010 are due to lower levels of risk-weighted assets, higher earnings and $9.3 million in net proceeds from the issuance
of 1.9 million shares of common stock.
The ability of the Company to continue to maintain its overall asset size, or to grow, is
dependent on its earnings and the ability to obtain additional funds for contribution to the Banks capital, through earnings, borrowing, the sale of additional common stock, or the issuance of additional trust preferred securities or other
qualifying securities. In the event that the Company is unable to obtain additional capital for the Bank on a timely basis, the growth of the Company and the Bank may be curtailed, and the Company and the Bank may be required to reduce their level
of assets in order to maintain compliance with regulatory capital requirements. Under those circumstances net income and the stockholders equity may be adversely affected.
34
Guidance by the federal banking
regulators provides that banks which have concentrations in construction, land development or commercial real estate loans (other than loans for majority owner occupied properties) would be expected to maintain higher levels of risk management and,
potentially, higher levels of capital. It is possible that we may be required to maintain higher levels of capital than we would otherwise be expected to maintain as a result of our levels of construction, development and commercial real estate
loans, which may require us to obtain additional capital.
The Federal Reserve has revised the capital treatment of trust preferred
securities. As a result, the capital treatment of trust preferred securities has been revised to provide that beginning in 2011, such securities can be counted as Tier 1 capital at the holding company level, together with other restricted core
capital elements, up to 25% of total capital (net of goodwill), and any excess as Tier 2 capital, subject to limitation. At September 30, 2010, trust preferred securities represented 20.9% of the Companys Tier 1 capital and 19.1% of its
total risk-based capital. See Note 9 to the Consolidated Financial Statements for further information regarding trust preferred securities.
Capital Issuances.
As noted above, during 2008, the Company accepted an investment by Treasury under the Capital Purchase Program. In connection
with that investment, the Company entered into and consummated an Agreement with the Treasury, pursuant to which the Company issued 71,000 shares of the Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series A (Series A
Preferred Stock), having a liquidation amount per share equal to $1,000, for a total purchase price of $71.0 million. The Series A Preferred Stock pays cumulative dividends at a rate of 5% per year for the first five years and thereafter
at a rate of 9% per year. Subject to approval by the Treasury after consultation with the Companys and Banks federal regulators, the Company may, at its option, redeem the Series A Preferred Stock at the liquidation amount plus
accrued and unpaid dividends. The Series A Preferred Stock is non-voting, except in limited circumstances. Prior to the third anniversary of issuance, unless the Company has redeemed all of the Series A Preferred Stock or the Treasury has
transferred all of the Series A Preferred Stock to a third party, the consent of the Treasury will be required for the Company to commence paying a cash common stock dividend or repurchase its common stock or other equity or capital securities,
other than in connection with benefit plans consistent with past practice and certain other circumstances specified in the Agreement.
In
connection with the purchase of the Series A Preferred Stock, the Treasury was issued a warrant (the Warrant) to purchase 2,696,203 shares of the Companys common stock at an initial exercise price of $3.95 per share. The Warrant
provides for the adjustment of the exercise price and the number of shares of the common stock issuable upon exercise pursuant to customary anti-dilution provisions, such as upon stock splits or distributions of securities or other assets to holders
of the common stock, and upon certain issuances of the common stock (or securities exercisable or exchangeable for, or convertible into, common stock) at or below 90% of the market price of the common stock on the trading day prior to the date of
the agreement on pricing such securities. The Warrant expires ten years from the date of issuance. If the Company redeems the Series A Preferred Stock in full prior to exercise of the Warrant, the Warrant will be liquidated based upon the then
current fair market value of the common stock. The Treasury has agreed not to exercise voting power with respect to any shares of common stock issued upon exercise of the Warrant.
On September 29, 2010, the Company issued 1,904,766 shares of its common stock at a price of $5.25 per share in a registered direct placement with several institutional investors for total gross
proceeds of $10.0 million. In addition, the Company issued to the investors warrants exercisable for shares of common stock, which, if fully exercised, would provide an additional $11.4 million in gross proceeds to the Company. The warrants each
have an exercise price of $6.00 per share, which represents a 14.3% premium to the offering price of the shares of common stock sold in the registered direct placement. The Series A warrants, exercisable for a total of 952,383 shares of common
stock, are exercisable for a period of seven months following the closing date. The Series B warrants, also exercisable for a total of 952,383 shares of common stock, are exercisable for a period of twelve months following the closing date.
Please refer to Note 9 to the Consolidated Financial Statements for additional information regarding the issuance of $25 million of trust
preferred securities and warrants to purchase 1.5 million shares of the Companys common stock to certain directors and executive officers of the Company in 2008.
35
Recent Accounting Pronouncements
In June 2009, the FASB issued new guidance relating to the accounting for transfers of financial assets. The new guidance, which was
issued as SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment to SFAS No. 140, was adopted into Codification in December 2009 through the issuance of Accounting Standards Update (ASU)
2009-16. The new standard provides guidance to improve the relevance, representational faithfulness, and comparability of the information that an entity provides in its financial statements about a transfer of financial assets; the effects of a
transfer on its financial position, financial performance, and cash flows; and a transferors continuing involvement, if any, in transferred financial assets. The adoption of the new guidance did not have a material effect on the Companys
consolidated financial statements.
In June 2009, the FASB issued new guidance relating to variable interest entities. The new guidance, which
was issued as SFAS No. 167, Amendments to FASB Interpretation No. 46(R), was adopted into Codification in December 2009 as ASC 810-10. The objective of the guidance is to improve financial reporting by enterprises involved with
variable interest entities and to provide more relevant and reliable information to users of financial statements. ASC 810-10 is effective as of January 1, 2010. The adoption of the new guidance did not have a material impact on the
Companys consolidated financial statements.
In October 2009, the FASB issued ASU No. 2009-15, Accounting for Own-Share
Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. ASU 2009-15 amends Subtopic 470-20 to expand accounting and reporting guidance for own-share lending arrangements issued in contemplation of convertible
debt issuance. ASU 2009-15 is effective for fiscal years beginning on or after December 15, 2009 and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. The adoption of the new
guidance did not have a material impact on the Companys consolidated financial statements.
In January 2010, the FASB issued ASU
No. 2010-04, Accounting for Various Topics Technical Corrections to Securities and Exchange Commission (SEC) Paragraphs. ASU 2010-04 makes technical corrections to existing SEC guidance including the following
topics: accounting for subsequent investments, termination of an interest rate swap, issuance of financial statementssubsequent events, use of residential method to value acquired assets other than goodwill, adjustments in assets and
liabilities for holding gains and losses, and selections of discount rate used for measuring defined benefit obligation. The adoption of the new guidance did not have a material impact on the Companys consolidated financial statements.
In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about
Fair Value Measurements. ASU 2010-06 amends Subtopic 820-10 to clarify existing disclosures and require new disclosures, and includes conforming amendments to guidance on employers disclosures about postretirement benefit plan assets.
ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the roll-forward of activity in Level 3 fair value measurements. Those
disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The adoption of the new guidance did not have a material impact on the Companys consolidated financial
statements.
In February 2010, the FASB issued ASU No. 2010-08, Technical Corrections to Various Topics. ASU 2010-08
clarifies guidance on embedded derivatives and hedging. ASU 2010-08 is effective for interim and annual periods beginning after December 15, 2009. The adoption of the new guidance did not have a material impact on the Companys
consolidated financial statements.
In February 2010, the FASB issued ASU No. 2010-09, Subsequent Events (Topic 855): Amendments to
Certain Recognition and Disclosure Requirements. ASU 2010-09 addresses both the interaction of the requirements of Topic 855 with the SECs reporting requirements and the intended breadth of the reissuance disclosures provisions related
to subsequent events. An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. ASU 2010-09 is effective immediately. The adoption of the new guidance did not have a material impact on
the Companys consolidated financial statements.
In July 2010, the FASB issued ASU No. 2010-20, Disclosures about the Credit
Quality of Financing Receivables and the Allowance for Credit Losses. The new disclosure guidance will significantly expand the existing requirements and will lead to greater transparency into a companys exposure to credit losses from
lending arrangements. The extensive new disclosures of information as of the end of a reporting period will become effective
36
for both interim and annual reporting periods ending after December 15, 2010. Specific items regarding activity that occurred before the issuance of the ASU, such as the allowance
roll-forward and modification disclosures, will be required for periods beginning after December 15, 2010. The Company is currently assessing the impact that ASU 2010-20 will have on its consolidated financial statements.
On September 17, 2010, the SEC issued Release No. 33-9144, Commission Guidance on Presentation of Liquidity and Capital Resources
Disclosures in Managements Discussion and Analysis. This interpretive release is intended to improve discussion of liquidity and capital resources in Managements Discussion and Analysis of Financial Condition and Results of
Operations in order to facilitate understanding by investors of the liquidity and funding risks facing the registrant. This release was issued in conjunction with a proposed rule, Short-Term Borrowings Disclosure, that would require
public companies to disclose additional information to investors about their short-term borrowing arrangements. Release No. 33-9144 was effective on September 28, 2010.
Internet Access To Company Documents
The Company provides access to its SEC filings
through the Banks web site at www.vcbonline.com. After accessing the web site, the filings are available upon selecting About VCB/Investor Relations/SEC Filings. Reports available include the annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after the reports are electronically filed or furnished to the SEC.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company is exposed to market risk, or interest rate risk, as its net income is largely dependent on its net interest income. Market risk is managed by the
Companys Asset/Liability Management Committee that formulates and monitors the performance of the Company based on established levels of market risk as dictated by policy. In setting tolerance levels, or limits on market risk, the Committee
considers the impact on earnings and capital, the level and general direction of interest rates, liquidity, local economic conditions and other factors. Interest rate risk, or sensitivity, can be defined as the amount of forecasted net interest
income that may be gained or lost due to favorable or unfavorable movements in interest rates. Interest rate risk, or sensitivity, arises when the maturity or repricing of interest-earning assets differs from the maturing or repricing of
interest-bearing liabilities and as a result of the difference between total interest-earning assets and interest-bearing liabilities. The Company seeks to manage interest rate sensitivity while enhancing net interest income by periodically
adjusting this asset/liability position. In order to closely monitor and measure interest rate sensitivity, the Company uses earnings simulation models on a quarterly basis.
We use a duration gap of equity approach to manage our long term interest rate risk. This approach uses a model which generates estimates of the change in our market value of portfolio equity
(MVPE) over a range of interest rate scenarios. MVPE is the present value of expected cash flows from assets and liabilities using various assumptions about estimated loan prepayment rates, reinvestment rates and deposit decay rates.
Our short term interest rate sensitivity is managed through the use of a model that generates estimates of the change in the net interest
income over a range of interest rate scenarios. Net interest income depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them. The model assumes that the composition
of interest sensitive assets and liabilities existing at September 30, 2010, remains constant over a two year period (base case) and also assumes that a particular change in interest rates is reflected uniformly across the yield curve
regardless of the duration to maturity or repricing of specific assets and liabilities.
37
The following table provides an
analysis of our interest rate risk as measured by the estimated change in MVPE and net interest income from the base case, resulting from instantaneous and sustained parallel shifts in interest rates as of September 30, 2010 (in thousands):
|
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Sensitivity of Market Value of Portfolio Equity
September 30, 2010
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Sensitivity of Net Interest Income
September 30, 2010
|
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Market Value of Portfolio Equity
|
|
|
Net Interest Income
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|
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Net Interest Margin
|
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Interest
Rate Scenario
|
|
Amount
|
|
|
$ Change
from Base
|
|
|
Percent
|
|
|
% of Total
Assets
|
|
|
Amount
|
|
|
$ Change
from Base
|
|
|
Percent
|
|
|
% Change
from Base
|
|
Up 300 bps
|
|
$
|
236,801
|
|
|
$
|
(54,183
|
)
|
|
|
-18.62
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%
|
|
|
8.22
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%
|
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$
|
206,746
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|
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$
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8,695
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|
|
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3.71
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%
|
|
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4.39
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%
|
Up 200 bps
|
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258,918
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|
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(32,066
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)
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-11.02
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%
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8.99
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%
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204,711
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|
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6,660
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3.67
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%
|
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3.36
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%
|
Base Case
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290,984
|
|
|
|
|
|
|
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0.00
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%
|
|
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10.10
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%
|
|
|
198,051
|
|
|
|
|
|
|
|
3.55
|
%
|
|
|
0.00
|
%
|
Down 100 bps
|
|
|
289,104
|
|
|
|
1,880
|
|
|
|
0.65
|
%
|
|
|
10.04
|
%
|
|
|
189,899
|
|
|
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(8,152
|
)
|
|
|
3.41
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%
|
|
|
-4.12
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%
|
Management believes the modeled results
are consistent with the short duration of the Companys balance sheet and given the many variables that affect the actual timing of when assets and liabilities will reprice and the extent of that repricing. In shocking the current two year
projection upward, interest-bearing liabilities are repricing slightly higher than interest-earning assets; however, that decline in interest income is being offset by a higher level of interest-earning assets relative to interest-bearing
liabilities. Since the earnings model uses numerous assumptions regarding the effect of changes in interest rates on the timing and extent of repricing characteristics, future cash flows and customer behavior, the model cannot precisely estimate net
income and the effect on net income from sudden changes in interest rates. Actual results will differ from the simulated results due to the timing, magnitude and frequency of interest rate changes and changes in market conditions and management
strategies, among other factors.
ITEM 4.
CONTROLS AND PROCEDURES
The Companys management, with the participation of the Companys Chief Executive Officer and the Chief Financial Officer, has evaluated the
effectiveness of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief
Financial Officer have concluded that the Companys disclosure controls and procedures were effective as of September 30, 2010, to ensure that information required to be disclosed by the Company in reports that it files or submits under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Companys management, including the Companys Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the
Companys disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the Company or its subsidiary to disclose material information required to be set forth in the Companys periodic
reports.
The Companys management is also responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act). There was no change in the Companys internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting.
PART II. OTHER
INFORMATION
Item 1.
LEGAL PROCEEDINGS None
Item 1A.
RISK FACTORS
There have been no material changes in the risk factors faced by the Company from those disclosed in the Companys annual report on Form 10-K for the year ended December 31, 2009 and the
Companys quarterly reports on Form 10-Q for the quarters ended March 31, 2010 and June 30, 2010.
Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
(a)
|
Sales of Unregistered Securities.
- None
|
|
(b)
|
Use of Proceeds.-
Not Applicable.
|
38
|
(c)
|
Issuer Purchases of Securities.
- None
|
Item 3.
DEFAULTS UPON SENIOR SECURITIES - None
Item 4.
(REMOVED AND RESERVED)
Item 5.
OTHER INFORMATION
|
(a)
|
Required 8-K Disclosures.
None
|
|
(b)
|
Changes in Procedures for Director Nominations by Securityholders.
None
|
Item 6.
EXHIBITS
|
|
|
Exhibit No.
|
|
Description
|
|
|
3.1
|
|
Articles of Incorporation of Virginia Commerce Bancorp, Inc., as amended (incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q for the
quarter ended March 31, 2006)
|
3.2
|
|
Articles of Amendment to the Articles of Incorporation relating to the Series A Preferred Stock (incorporated by reference to Exhibit 3.1 to the Companys Current Report on
Form 8-K filed on December 15, 2008)
|
3.3
|
|
Amended and Restated Bylaws of Virginia Commerce Bancorp, Inc. (incorporated by reference to Exhibit 3.2 to the Companys Current Report on Form 8-K filed on July 27,
2007)
|
4.12
|
|
Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.12 to the Companys Current Report on Form 8-K filed on September 28, 2010)
|
10.7
|
|
Letter Agreement, dated as of September 23, 2010, between Virginia Commerce Bancorp, Inc. and Rodman & Renshaw, LLC (incorporated by reference to Exhibit 10.7 to the
Companys Current Report on Form 8-K filed on September 28, 2010)
|
10.8
|
|
Securities Purchase Agreement, dated as of September 23, 2010, among Virginia Commerce Bancorp, Inc. and certain institutional purchasers (incorporated by reference to Exhibit
10.8 to the Companys Current Report on Form 8-K filed on September 28, 2010)
|
31.1
|
|
Certification of Peter A. Converse, President and Chief Executive Officer
|
31.2
|
|
Certification of William K. Beauchesne, Treasurer and Chief Financial Officer
|
32.1
|
|
Certification of Peter A. Converse, President and Chief Executive Officer
|
32.2
|
|
Certification of William K. Beauchesne, Treasurer and Chief Financial Officer
|
39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
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|
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Virginia Commerce Bancorp, Inc.
|
|
|
(Registrant)
|
|
|
|
Date: November 12, 2010
|
|
BY
|
|
/s/ Peter A. Converse
|
|
|
Peter A. Converse, President and Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
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|
|
Date: November 12, 2010
|
|
BY
|
|
/s/ William K. Beauchesne
|
|
|
William K. Beauchesne, Treasurer and Chief Financial Officer
|
|
|
(Principal Financial Officer)
|
40
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