VCBI Virginia Commerce Bancorp (MM)

Virginia Commerce Bancorp, Inc. (the �Company�), (Nasdaq:VCBI), parent company of Virginia Commerce Bank (the �Bank�), today reported its financial results for the three months ended March 31, 2008. First Quarter 2008 Results: Net income of $4.2 million, representing a 35.9% decrease from first quarter 2007 Diluted earnings per share down 37.5% to $0.15 Total non-performing assets and loans past due 90+ days rising to 1.01% of total assets, with net-charge-offs of 0.05% Assets, loans and deposits up 21.3%, 23.3% and 18.1%, respectively, year-over-year Total assets surpassing $2.5 billion for the first time Twenty-fifth branch opened, second in Fredericksburg, Virginia Peter A. Converse, Chief Executive Officer, commented, �Obviously, we are disappointed with the increase in non-performing assets and the resulting decline in earnings from higher loan loss provisioning, caused by the downturn in the residential real estate market. However, we feel we have a good grasp on the magnitude of risk in our real estate loan portfolio and are confident that we can navigate successfully through this challenging economic environment. We believe our risk management practices and monitoring systems will mitigate further deterioration in the loan portfolio, and by taking quick and decisive action to strengthen our reserves and address current and foreseeable asset quality issues, we expect to remain well-positioned to pursue our long-term growth and earnings goals. I note that the current challenge to our earnings performance is largely limited to risks associated with the residential portion of our acquisition, construction and development loans (approximately 16% of our loan portfolio). We have avoided other industry pitfalls such as sub-prime loans, collateralized debt obligations and structured investment vehicles. Converse continued, �Of a more positive nature, our banking operations remain profitable despite heightened loan loss provisioning and our underlying business remains strong. At quarter-end, we surpassed another milestone with total assets exceeding $2.5 billion and realized continued double-digit growth in loans, deposits and assets. Growth opportunities for our franchise were further enhanced by the opening of our Central Park branch in Fredericksburg, our second in that market and twenty-fifth overall. We continue to be well-capitalized within regulatory guidelines and are committed to maintain our capital strength as we continue to grow and weather the current economic downturn. To that end, we are evaluating various capital raising options for near-term utilization.� SUMMARY REVIEW OF FINANCIAL PERFORMANCE Net Income First quarter earnings of $4.2 million were down $2.3 million, or 35.9%, from 2007 first quarter earnings of $6.5 million. On a diluted per share basis, as adjusted for a 10% stock dividend payable May 8, 2008, first quarter earnings were $0.15 compared to $0.24 for the first quarter of 2007, a decrease of 37.5%. Earnings for the three months ended March 31, 2008, were significantly impacted by $4.1 million in loan loss provisions. The higher provision was a result of increases in the level of nonperforming assets and other impaired loans, $946 thousand in net charge-offs, and overall loan portfolio growth. Asset Quality and Provisions For Loan Losses Provisions for loan losses were $4.1 million for the three months ended March 31, 2008, compared to $360 thousand for the same period in 2007. This was due to an increase in non-performing assets and loans 90+ days past due from $4.4 million at December 31, 2007, to $25.2 million, $946 thousand in net charge-offs, and higher net loan growth of $158.4 million for the first quarter of 2008 as compared to growth of $59.8 million for the prior year quarter. Loan growth in the quarter accounted for $1.2 million of the loan loss provisioning. Other impaired loans, which, although well-secured and currently performing, but in some instances requiring higher reserve levels, increased from $15.4 million at December 31, 2007, to $37.8 million at March 31, 2008. As a result, the allowance for loan losses to total loans increased from 1.14% at December 31, 2007, to 1.20% as of March 31, 2008. As noted, nonperforming assets and loans 90+ days past due increased by approximately $20.8 million, to 1.01% of total assets. The increase is primarily due to deterioration in five lending relationships, four of which represent residential construction and/or land development projects and one of which represents a manufacturing concern tied to the production housing industry. During the quarter, the Bank foreclosed on a Loudoun County, Virginia property containing 34 raw single-family lots and one single-family dwelling, resulting in a charge-off of $219 thousand. The Bank is carrying the property at its current �as is� appraised value of $5.7 million and intends to sell the finished home and complete development of the lots which, based upon a discounted value at completion, should result in a full recovery. A second builder relationship of $9.0 million consists of five loans on three single-family lots, a home under construction, a completed home under contract scheduled to close in April and the builder�s personal residence, all located in Great Falls, Oakton and McLean, Virginia. These loans are fully secured based upon current appraisals. A related loan totaling $2.1 million is impaired, but performing, and secured by 13 townhouses under construction. The third and fourth relationships represent two separate transactions totaling $3 million, involving a home under construction in Loudoun County, Virginia, and a single-family parcel in Fairfax, Virginia, where the lot yield is in litigation. An aggregate of $1 million in specific reserves are set aside for these loans. The fifth relationship represents lines of credit, term loans and equipment loans totaling $4.1 million to a building product fabricator selling to the production housing industry and home improvement retailers. This business is downsizing by closing unprofitable operating locations. Related loans totaling $2.5 million to profitable locations are impaired but, performing. Specific reserves of $1.3 million have been provided for this relationship. Net charge-offs for the quarter of $946 thousand, or 0.05% of average loans outstanding, included the aforementioned $219 thousand relating to the foreclosure, with the balance spread among six small commercial loans totaling $706 thousand, and several consumer loans. Collection of the small commercial loans was negatively impacted by a decline in residential property values which represented secondary collateral. As the Bank works through the process of resolving its non-performing loans, additional charge-offs are anticipated. However, a majority of these charge-offs have been addressed by specific reserves already established and should not require significant additional provisions. Overall, charge-offs are not anticipated to exceed 0.25% of average loans outstanding, in the aggregate, for the remainder of the year and non-performing assets are not anticipated to exceed current levels. These asset quality metrics could vary depending on evolving real estate market conditions. Net Interest Income Net interest income for the first quarter of $19.5 million was up 8.8% over the same quarter last year due to strong loan growth, as the net interest margin declined from 3.74% in the first quarter of 2007 to 3.34% for the three-month period ended March 31, 2008. On a sequential basis, the margin was down nineteen basis points from 3.53% in the fourth quarter of 2007. The declines in the net interest margin continue to be primarily the result of lower yields on loans due to reductions in the prime rate from 8.25% in September 2007, to 5.25% presently, with a 200 basis point decline in the quarter ended March 31, 2008. As a result, the yield on loans fell from 7.98% for the three months ended March 31, 2007, to 7.10% in the current period, and was down fifty-five basis points sequentially. On the funding side, ongoing strong competition for deposits in the local market has not allowed for the same level of decline in the cost of interest-bearing liabilities, which declined from 4.45% for the three months ended March 31, 2007, to 4.06% this quarter. Although it is expected that the Federal Open Market Committee will cut rates further, Management expects that the effect of future declines in the Fed funds rate will be mitigated as over $100 million of approximately $570 million in prime based loans have reached floor levels, and over $850 million in time deposits mature and are expected to be replaced with lower rate liabilities over the next six months. As a result, Management anticipates the margin will range from 3.25% to 3.50% over that time period. Non-Interest Income Non-interest income for the first quarter was down $231 thousand, or 12.4%, from $1.9 million in 2007, to $1.6 million with decreases in all categories except for an $81 thousand increase in deposit account service charges. Compared to the three months ended December 31, 2007, non-interest income was lower by $189 thousand. Reduced fees and net gains on mortgage loans held-for-sale account for the majority of decreased non-interest income, due to lower levels of originations being sold. Non-Interest Expense Non-interest expense increased $1.3 million, or 13.7%, from $9.5 million in the first quarter of 2007, to $10.8 million in the current period, and was up $384 thousand from the three months ended December 31, 2007. The majority of the year-over-year increase was due to the opening of five new branch locations and the resumption of FDIC insurance premiums in the second quarter of 2007, while the increase in the current period was mostly associated with the opening of the Bank�s twenty-fifth branch in January 2008. As a result of these increases in expenses, as well as slower growth in net-interest income and lower non-interest income, the efficiency ratio rose from 48.0% in the first quarter of 2007 to 51.2% in the current period. Management expects higher levels in all non-interest expense categories in the second quarter with the opening of the Bank�s twenty-sixth branch on April 21. Loans Loans, net of allowance for loan losses, increased $393.5 million, or 23.3%, from $1.7 billion at March 31, 2007, to $2.1 billion at March 31, 2008. Non-farm, non-residential real estate loans increased $228.2 million, or 32.6%, one-to-four family residential loans increased $88.0 million, or 44.4%, commercial loans were up $59.7 million, or 30.7%, while real estate construction loans rose only $17.3 million, or 3.1%. Since December 31, 2007, loans are up $158.4 million, or 32.9%, on an annualized basis, with non-farm non-residential loans up $92.1 million, construction loans up $29.7 million and one-to-four family residential loans up $19.9 million. Increases in one-to-four family residential loans are due to the Bank holding more of its originations in portfolio rather than selling them, due to a reduction in demand and available products in the secondary market, while the growth in construction loans was concentrated in commercial real estate projects. Year-over-year, residential construction loans are down $46.0 million. Deposits Since March 31, 2007, deposits have increased $309.8 million, or 18.1%, from $1.7 billion to $2.0 billion, with savings and interest�bearing demand deposits increasing by $52.8 million, or 10.9%, and time deposits rising $257.1 million, or 24.9%. Sequentially, deposits rose $151.5 million, or 32.4%, on an annualized basis, with demand deposits decreasing by $21.7 million, savings and interest-bearing demand accounts growing $21.7 million, and time deposits increasing by $151.5 million. Repurchase Agreements and Fed Funds Purchased Repurchase agreements, the majority of which represent sweep funds of significant commercial demand deposit customers, and Fed funds purchased increased $77.5 million, or 52.5%, year-over-year, to $225.1 million at March 31, 2008. Of the total increase, $50 million represents a structured repurchase agreement with a correspondent bank. Since December 31, 2007, repurchase agreements and Fed funds purchased are up $2.6 million. Investment Securities Investment securities increased $64.1 million, or 24.8%, from $258.8 million at March 31, 2007, to $322.9 million at March 31, 2008, and were down slightly during the three months ended March 31, 2008. The majority of the year-over-year growth in securities was concentrated in pass-throughs and CMOs issued by U.S. government agencies, and various bank-qualified municipals. The Bank does not hold any collateralized debt obligations or non-government agency pass-throughs in its portfolio. Other Borrowed Funds Year-over-year, other borrowed funds increased $25 million due to an advance from the Federal Home Loan Bank of Atlanta. Stockholders� Equity Stockholders� equity increased $28.5 million, or 19.4%, from $146.8 million at March 31, 2007, to $175.2 million at March 31, 2008, with earnings of $23.5 million over the twelve-month period, a $3.3 million increase in other comprehensive income related to the investment securities portfolio, and $1.7 million from proceeds and tax benefits related to the exercise of options by company directors, officers and employees and stock option expense credits. On March 26, 2008, the Company declared a 10% stock dividend to be paid on May 7, 2008, to stockholders of record as of the close of business on April 14, 2008. This will be the thirteenth consecutive year that a stock dividend or split has been paid. Although the Company and the Bank remain well-capitalized for regulatory purposes, the Company is proactively considering the impact of current market conditions and balance sheet growth on the adequacy of capital, and reviewing alternatives to maintain and enhance our capital position. CONFERENCE CALL Virginia Commerce Bancorp will host a teleconference call for the financial community on April 24, 2008, at 11:00 a.m. Eastern Daylight Time to discuss the first quarter 2008 financial results. The public is invited to listen to this conference call by dialing 866-847-7860 at least 10 minutes prior to the call. A replay of the conference call will be available from 2:00 p.m. Eastern Daylight Time on April 24, 2008, until 11:59 p.m. Eastern Daylight Time on May 1, 2008. The public is invited to listen to this conference call replay by dialing 888-266-2081 and entering access code 1228856. ABOUT VIRGINIA COMMERCE BANCORP Virginia Commerce Bancorp, Inc. is the parent bank holding company for Virginia Commerce 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-six branch offices, two residential mortgage offices and two investment services offices, principally to individuals and small-to-medium size businesses in Northern Virginia and the Metropolitan Washington, D.C. area. NON-GAAP PRESENTATIONS This press release refers to the efficiency ratio, which is computed by dividing non-interest expense by the sum of net interest income on a tax equivalent basis and non-interest income. This is a non-GAAP financial measure that we believe provides investors with important information regarding our operational efficiency. Comparison of our efficiency ratio with those of other companies may not be possible because other companies may calculate the efficiency ratio differently. The Company, in referring to its net income, is referring to income under accounting principals generally accepted in the United States, or �GAAP�. FORWARD LOOKING STATEMENTS This press release may contain forward-looking statements within the meaning of the Securities and Exchange Act of 1934, as amended, including statements of goals, intentions, and expectations as to future trends, plans, events or results of Company operations and policies and regarding general economic conditions. In some cases, forward-looking statements can be identified by use of words such as �may,� �will,� �anticipates,� �believes,� �expects,� �plans,� �estimates,� �potential,� �continue,� �should,� and similar words or phrases. These statements are based upon current and anticipated economic conditions, nationally and in the Company�s market, interest rates and interest rate policy, competitive factors, and other conditions which by their nature, are not susceptible to accurate forecast, and are subject to significant uncertainty. Because of these uncertainties and the assumptions on which this discussion and the forward-looking statements are based, actual future operations and results may differ materially from those indicated herein. Readers are cautioned against placing undue reliance on any such forward-looking statements. The Company�s past results are not necessarily indicative of future performance. Virginia Commerce Bancorp, Inc. Financial Highlights (Dollars in thousands, except per share data) (Unaudited) � � � Three Months Ended March 31, 2008 � 2007 � % Change Summary Operating Results: Interest and dividend income $ 40,063 $ 36,107 11.0% Interest expense 20,598 18,218 13.1% Net interest and dividend income 19,465 17,889 8.8% Provision for loan losses 4,112 360 1142.2% Non-interest income 1,631 1,862 -12.4% Non-interest expense 10,792 9,489 13.7% Income before income taxes 6,192 9,902 -37.5% Net income $ 4,148 $ 6,474 -35.9% � Performance Ratios: Return on average assets 0.69% 1.31% Return on average equity 9.61% 18.37% Net interest margin 3.34% 3.74% Efficiency ratio (1) 51.16% 48.04% � Per Share Data: (2) Net income-basic $ 0.16 $ 0.25 -36.0% Net income-diluted $ 0.15 $ 0.24 -37.5% Average number of shares outstanding: Basic 26,532,920 26,274,494 Diluted 27,269,248 27,446,962 � � As of March 31, 2008 � 2007 � % Change Selected Balance Sheet Data: Loans, net $ 2,083,149 $ 1,689,670 23.3% Investment securities 322,880 258,779 24.8% Assets 2,501,358 2,061,544 21.3% Deposits 2,020,614 1,710,775 18.1% Stockholders� equity 175,241 146,772 19.4% Book value per share (2) $ 6.60 $ 5.59 18.0% � Capital Ratios (% of risk weighted assets): Tier 1 capital: Company 9.39% 10.42% Bank 7.58% 7.84% Total qualifying capital: Company 10.51% 11.43% Bank 10.47% 11.21% � Asset Quality: Non-performing assets: Non-accrual loans $ 17,480 $ 3,866 452.1% OREO � 5,720 � -- N/A Total non-performing assets $ 23,200 $ 3,866 600.1% Loans 90+ days past due and still accruing � 2,000 � -- N/A Total non-performing assets and past due loans $ 25,200 $ 3,866 651.8% � Non-performing assets to total loans: 1.10% 0.23% to total assets: 0.93% 0.19% Non-performing assets and past due loans to total loans: 1.19% 0.23% to total assets: 1.01% 0.19% Allowance for loan losses to total loans 1.20% 1.08% Net charge-offs (recoveries) $ 946 $ 18 Net charge-offs to average loans outstanding 0.05% 0.001% � � As of March 31, 2008 � 2007 � % Change Loan Portfolio: Commercial $ 254,294 $ 194,552 30.7% Real estate-one-to-four family residential 286,255 198,283 44.4% Real estate-multi-family residential 62,321 58,234 7.0% Real estate-nonfarm, nonresidential 927,607 699,362 32.6% Real estate-construction 574,011 556,692 3.1% Farmland 1,686 -- 100.0% Consumer � 7,700 � 6,235 23.5% Total loans $ 2,113,874 $ 1,713,358 23.4% Less unearned income 5,299 5,245 1.0% Less allowance for loan losses � 25,426 � 18,443 37.9% Loans, net $ 2,083,149 $ 1,689,670 23.3% � Investment Securities (at book value): Available-for-sale: U.S. Government Agency obligations $ 243,490 $ 193,069 26.1% Domestic corporate debt obligations 7,792 6,040 29.0% Obligations of states and political subdivisions 23,319 9,987 233.5% Restricted stock: Federal Reserve Bank 1,442 1,442 -- Federal Home Loan Bank 5,334 3,506 52.1% Community Bankers� Bank � 55 � 55 -- $ 281,432 $ 214,099 31.4% Held-to-maturity: U.S. Government Agency obligations $ 22,445 $ 34,313 -34.6% Obligations of states and political subdivisions � 19,003 � 10,367 83.3% $ 41,448 $ 44,680 -7.2% (1) Computed by dividing non-interest expense by the sum of net interest income on a tax equivalent basis using a 35% rate and non-interest income. � (2) Adjusted to give effect to a 10% stock dividend payable May 7, 2008. � � Virginia Commerce Bancorp, Inc. Consolidated Balance Sheets (Dollars in thousands, except per share data) As of March 31, (Unaudited) � � 2008 � 2007 Assets Cash and due from banks $ 34,785 $ 23,640 Interest-bearing deposits with other banks 1,154 1,094 Securities (fair value: 2008, $323,698; 2007, $258,116) 322,880 258,779 Federal funds sold -- 37,159 Loans held-for-sale 3,432 8,202 Loans, net of allowance for loan losses of $25,426 in 2008 and $18,443 in 2007 2,083,149 1,689,670 Bank premises and equipment, net 13,463 10,113 Accrued interest receivable 11,091 9,825 Other assets � 31,404 � 23,062 Total assets $ 2,501,358 $ 2,061,544 Liabilities and Stockholders� Equity Deposits Demand deposits $ 192,095 $ 192,116 Savings and interest-bearing demand deposits 538,872 486,068 Time deposits � 1,289,647 � 1,032,591 Total deposits $ 2,020,614 $ 1,710,775 Securities sold under agreement to repurchase and federal funds purchased 225,099 147,631 Other borrowed funds 25,000 -- Trust preferred capital notes 41,244 44,344 Accrued interest payable 8,333 6,601 Other liabilities � 5,827 � 5,421 Total liabilities $ 2,326,117 $ 1,914,772 Stockholders� Equity Preferred stock, $1.00 par, 1,000,000 shares authorized and unissued $ -- $ -- Common stock, $1.00 par, 50,000,000 shares authorized, issued and outstanding 2008, 24,122,262; 2007, 21,716,392 24,122 21,716 Surplus 73,916 31,364 Retained earnings 74,387 94,218 Accumulated other comprehensive loss, net � 2,816 � (526) Total stockholders� equity $ 175,241 $ 146,772 Total liabilities and stockholders� equity $ 2,501,358 $ 2,061,544 � � Virginia Commerce Bancorp, Inc. Consolidated Statements of Income (Dollars in thousands except per share data) Three Months Ended March 31, (Unaudited) � 2008 2007 Interest and dividend income: Interest and fees on loans $ 35,891 $ 32,800 Interest and dividends on investment securities: Taxable 3,779 2,676 Tax-exempt 271 90 Dividends 92 66 Interest on deposits with other banks 17 18 Interest on federal funds sold � 13 � 457 Total interest and dividend income $ 40,063 $ 36,107 Interest expense: Deposits $ 18,030 $ 16,190 Securities sold under agreement to repurchase and federal funds purchased 1,683 1,251 Other borrowed funds 194 -- Trust preferred capital notes � 691 � 777 Total interest expense $ 20,598 $ 18,218 Net interest income: $ 19,465 $ 17,889 Provision for loan losses � 4,112 � 360 Net interest income after provision for loan losses $ 15,353 $ 17,529 Non-interest income: Service charges and other fees $ 921 $ 840 Non-deposit investment services commissions 150 184 Fees and net gains on loans held-for-sale 436 661 Other � 124 � 177 Total non-interest income $ 1,631 $ 1,862 Non-interest expense: Salaries and employee benefits $ 5,856 $ 5,536 Occupancy expense 2,147 1,616 Data processing 539 567 Other operating expense � 2,250 � 1,770 Total non-interest expense $ 10,792 $ 9,489 Income before taxes on income $ 6,192 $ 9,902 Provision for income taxes � 2,044 � 3,428 Net Income $ 4,148 $ 6,474 Earnings per common share, basic (1) $ 0.16 $ 0.25 Earnings per common share, diluted (1) $ 0.15 $ 0.24 (1) Adjusted to give effect to a 10% stock dividend payable May 7, 2008. � � � � � � � Virginia Commerce Bancorp, Inc. Consolidated Average Balances, Yields, and Rates Three Months Ended March 31, (Unaudited) � 2008 2007 (Dollars in thousands) Average Balance � Interest Income- Expense � Average Yields /Rates Average Balance � Interest Income- Expense � Average Yields /Rates Assets Securities (1) $ 320,765 $ 4,142 5.26% $ 241,140 $ 2,832 4.74% Loans, net of unearned income (2) 2,030,623 35,891 7.10% 1,668,656 32,800 7.98% Interest-bearing deposits in other banks 1,369 17 4.84% 1,336 18 5.59% Federal funds sold � 2,204 � � 13 � 2.32% � 35,134 � � 457 � 5.20% Total interest-earning assets $ 2,354,961 $ 40,063 6.85% $ 1,946,266 $ 36,107 7.53% Other assets � 64,005 � 61,494 Total Assets $ 2,418,966 $ 2,007,760 � Liabilities and Stockholders� Equity Interest-bearing deposits: NOW accounts $ 146,319 $ 512 1.40% $ 156,997 $ 648 1.67% Money market accounts 206,536 1,655 3.21% 236,868 2,289 3.92% Savings accounts 164,836 1,441 3.51% 77,992 807 4.20% Time deposits � 1,215,738 � � 14,422 � 4.76% � 1,016,081 � � 12,446 � 4.97% Total interest-bearing deposits $ 1,733,429 $ 18,030 4.17% $ 1,487,938 $ 16,190 4.41% Securities sold under agreement to repurchase and federal funds purchased 234,194 1,683 2.88% 130,452 1,251 3.89% Other borrowed funds 25,000 194 3.07% -- -- -- Trust preferred capital notes � 40,000 � � 691 � 6.83% � 43,000 � � 777 � 7.23% Total interest-bearing liabilities $ 2,032,623 $ 20,598 4.06% $ 1,661,390 $ 18,218 4.45% Demand deposits and other liabilities � 213,240 � 203,465 Total liabilities $ 2,245,863 $ 1,864,855 Stockholders� equity � 173,103 � 142,905 Total liabilities and stockholders� equity $ 2,418,966 $ 2,007,760 Interest rate spread 2.79% 3.08% Net interest income and margin $ 19,465 3.34% $ 17,889 3.74% (1) Yields on securities available-for-sale have been calculated on the basis of historical cost and do not give effect to changes in the fair value of those securities, which are reflected as a component of stockholders' equity. Average yields on securities are stated on a tax equivalent basis, using a 35% rate. � (2) Loans placed on non-accrual status are included in the average balances. Net loan fees and late charges included in interest income on loans totaled $1.29 million and $1.34 million for the three months ended March 31, 2008 and 2007, respectively. �