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, 2009
o
|
|
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 0-28635
VIRGINIA
COMMERCE BANCORP, INC.
(Exact Name of
Registrant as Specified in its Charter)
VIRGINIA
|
|
54-1964895
|
(State or Other
Jurisdiction
|
|
(I.R.S. Employer
Identification No.)
|
of Incorporation
or Organization)
|
|
|
5350 LEE HIGHWAY, ARLINGTON, VIRGINIA
22207
(Address of
Principal Executive Offices)
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
o
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 (§2332.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files)
x
Yes
o
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 definition of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
o
|
|
Accelerated filer
x
|
|
|
|
Non-accelerated filer
o
|
|
Smaller reporting company
o
|
Indicate by check mark
whether the registrant is a shell company as defined in Rule12b-2 of the
Securities Exchange Act. Yes
o
No
x
As of November 9,
2009, the number of outstanding shares of registrants common stock, par value
$1.00 per share was: 26,695,810
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIRGINIA
COMMERCE BANCORP, INC.
CONSOLIDATED
BALANCE SHEETS
(In thousands of
dollars, except per share data)
|
|
Unaudited
|
|
Audited
|
|
|
|
September 30,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
Assets
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
25,760
|
|
$
|
33,515
|
|
Federal Funds Sold
|
|
56,413
|
|
|
|
Securities (fair value: 2009, $370,417, 2008,
$326,695)
|
|
369,059
|
|
325,743
|
|
Restricted stocks
|
|
11,751
|
|
11,076
|
|
Loans held-for-sale
|
|
2,285
|
|
6,221
|
|
Loans, net of allowance for loan losses of $70,114
in 2009 and $36,475 in 2008
|
|
2,154,252
|
|
2,273,086
|
|
Bank premises and equipment, net
|
|
14,150
|
|
14,740
|
|
Accrued interest receivable
|
|
10,359
|
|
10,593
|
|
Other real estate owned
|
|
36,402
|
|
7,569
|
|
Other assets
|
|
53,681
|
|
33,379
|
|
Total assets
|
|
$
|
2,734,112
|
|
$
|
2,715,922
|
|
Liabilities
and Stockholders Equity
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
Demand deposits
|
|
$
|
228,395
|
|
$
|
194,791
|
|
Savings and interest-bearing demand deposits
|
|
891,568
|
|
518,054
|
|
Time deposits
|
|
1,114,841
|
|
1,459,297
|
|
Total deposits
|
|
$
|
2,234,804
|
|
$
|
2,172,142
|
|
Securities sold under agreement to repurchase and
Federal funds purchased
|
|
185,531
|
|
187,959
|
|
Other borrowed funds
|
|
25,000
|
|
25,000
|
|
Trust preferred capital notes
|
|
65,993
|
|
65,800
|
|
Accrued interest payable
|
|
5,048
|
|
8,160
|
|
Other liabilities
|
|
1,742
|
|
3,574
|
|
Commitments and contingent liabilities
|
|
|
|
|
|
Total liabilities
|
|
$
|
2,518,118
|
|
$
|
2,462,635
|
|
Stockholders Equity
|
|
|
|
|
|
Preferred stock, net of discount, $1.00 par,
1,000,000 shares authorized, Series A; $1,000.00 liquidation value;
71,000 issued and outstanding
|
|
$
|
63,630
|
|
$
|
62,541
|
|
Common stock, $1.00 par, 50,000,000 shares
authorized, issued and outstanding 2009, 26,695,810; 2008, 26,575,569
|
|
26,696
|
|
26,575
|
|
Surplus
|
|
96,359
|
|
95,840
|
|
Warrants
|
|
8,520
|
|
8,520
|
|
Retained earnings
|
|
19,766
|
|
60,535
|
|
Accumulated other comprehensive income (loss), net
|
|
1,023
|
|
(724
|
)
|
Total stockholders equity
|
|
$
|
215,994
|
|
$
|
253,287
|
|
Total liabilities and stockholders equity
|
|
$
|
2,734,112
|
|
$
|
2,715,922
|
|
Notes
to consolidated financial statements are an integral part of these statements.
2
VIRGINIA
COMMERCE BANCORP, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In thousands of
dollars, except per share data)
(Unaudited)
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income:
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
33,707
|
|
$
|
36,329
|
|
$
|
100,336
|
|
$
|
108,155
|
|
Interest and dividends on investment securities:
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
3,366
|
|
3,792
|
|
10,523
|
|
11,340
|
|
Tax-exempt
|
|
426
|
|
339
|
|
1,177
|
|
908
|
|
Dividend on restricted stocks
|
|
97
|
|
67
|
|
265
|
|
259
|
|
Interest on deposits with other banks
|
|
|
|
38
|
|
|
|
140
|
|
Interest on federal funds sold
|
|
27
|
|
2
|
|
59
|
|
228
|
|
Total interest and dividend income
|
|
$
|
37,623
|
|
$
|
40,567
|
|
$
|
112,360
|
|
$
|
121,030
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
11,649
|
|
$
|
16,173
|
|
$
|
39,076
|
|
$
|
51,510
|
|
Securities sold under agreements to repurchase and
federal funds purchased
|
|
1,022
|
|
1,376
|
|
2,477
|
|
4,477
|
|
Other borrowed funds
|
|
272
|
|
426
|
|
806
|
|
890
|
|
Trust preferred capital notes
|
|
1,276
|
|
683
|
|
3,840
|
|
2,065
|
|
Total interest expense
|
|
$
|
14,219
|
|
$
|
18,658
|
|
$
|
46,199
|
|
$
|
58,942
|
|
Net interest income
|
|
$
|
23,404
|
|
$
|
21,909
|
|
$
|
66,161
|
|
$
|
62,088
|
|
Provision for loan losses
|
|
49,000
|
|
8,300
|
|
80,813
|
|
16,068
|
|
Net interest income after provision for loan losses
|
|
$
|
(25,596
|
)
|
$
|
13,609
|
|
$
|
(14,652
|
)
|
$
|
46,020
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income:
|
|
|
|
|
|
|
|
|
|
Service charges and other fees
|
|
$
|
893
|
|
$
|
1,027
|
|
$
|
2,683
|
|
$
|
2,893
|
|
Non-deposit investment services commissions
|
|
165
|
|
164
|
|
444
|
|
513
|
|
Fees and net gains on loans held-for-sale
|
|
615
|
|
363
|
|
2,374
|
|
1,214
|
|
Loss on other real estate owned
|
|
(9,085
|
)
|
|
|
(9,085
|
)
|
|
|
Net losses on debt securities available-for-sale of
$280 and $418 consist of $63 thousand and $1.6 million of total
other-than-temporary impairment losses, net of $(217) thousand and $1.2
million recognized in other comprehensive income
|
|
(280
|
)
|
|
|
(418
|
)
|
|
|
Other
|
|
119
|
|
43
|
|
198
|
|
337
|
|
Total non-interest income
|
|
$
|
(7,573
|
)
|
$
|
1,597
|
|
$
|
(3,804
|
)
|
$
|
4,957
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
5,645
|
|
$
|
5,903
|
|
$
|
17,260
|
|
$
|
17,612
|
|
Occupancy expense
|
|
2,466
|
|
2,211
|
|
7,670
|
|
6,525
|
|
Data processing expense
|
|
598
|
|
528
|
|
1,774
|
|
1,609
|
|
Other operating expense
|
|
4,213
|
|
2,616
|
|
12,827
|
|
7,510
|
|
Total non-interest expense
|
|
$
|
12,922
|
|
$
|
11,258
|
|
$
|
39,531
|
|
$
|
33,256
|
|
(Loss) income before taxes
|
|
$
|
(46,091
|
)
|
$
|
3,948
|
|
$
|
(57,987
|
)
|
$
|
17,721
|
|
(Benefit) provision for income taxes
|
|
(16,204
|
)
|
1,275
|
|
(20,507
|
)
|
5,979
|
|
Net (loss) income
|
|
$
|
(29,887
|
)
|
$
|
2,673
|
|
$
|
(37,480
|
)
|
$
|
11,742
|
|
Effective dividend on preferred stock
|
|
1,251
|
|
|
|
3,288
|
|
|
|
Net (loss) income available to
common stockholders
|
|
$
|
(31,138
|
)
|
$
|
2,673
|
|
$
|
(40,768
|
)
|
$
|
11,742
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per common share, basic
|
|
$
|
(1.17
|
)
|
$
|
0.10
|
|
$
|
(1.53
|
)
|
$
|
0.44
|
|
(Loss) earnings per common share, diluted
|
|
$
|
(1.17
|
)
|
$
|
0.10
|
|
$
|
(1.53
|
)
|
$
|
0.43
|
|
Notes
to consolidated financial statements are an integral part of these statements.
3
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
For the nine months ended September 30, 2009 and 2008
(In thousands of dollars)
(Unaudited)
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Surplus
|
|
Warrants
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income (Loss)(1)
|
|
Comprehensive
Income
|
|
Total
Stockholders
Equity
|
|
Balance,
January 1, 2008
|
|
$
|
|
|
$
|
24,023
|
|
$
|
73,672
|
|
$
|
|
|
$
|
70,239
|
|
$
|
1,209
|
|
|
|
$
|
169,143
|
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
|
|
|
|
|
|
11,742
|
|
|
|
$
|
11,742
|
|
11,742
|
|
Other
comprehensive loss, unrealized holding losses arising during the period (net
of tax of $2,448)
|
|
|
|
|
|
|
|
|
|
|
|
(4,547
|
)
|
(4,547
|
)
|
(4,547
|
)
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,195
|
|
|
|
Stock
options exercised
|
|
|
|
132
|
|
168
|
|
|
|
|
|
|
|
|
|
300
|
|
Stock
option expense
|
|
|
|
|
|
439
|
|
|
|
|
|
|
|
|
|
439
|
|
Warrants
expense related to trust preferred securities issued
|
|
|
|
|
|
1,283
|
|
|
|
|
|
|
|
|
|
1,283
|
|
Employee
stock purchase plan
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
3
|
|
10%
stock dividend paid May 2008
|
|
|
|
2,412
|
|
20,113
|
|
|
|
(22,525
|
)
|
|
|
|
|
|
|
Cash
paid in lieu of fractional shares
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
(6
|
)
|
Balance,
September 30, 2008
|
|
$
|
|
|
$
|
26,567
|
|
$
|
95,678
|
|
$
|
|
|
$
|
59,450
|
|
$
|
(3,338
|
)
|
|
|
$
|
178,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, unrealized holding gain arising during the period (net
of tax of $794)
|
|
|
|
|
|
|
|
|
|
|
|
1,475
|
|
1,475
|
|
1,475
|
|
Reclassification
adjustment for impairment loss on securities (net of tax of $146)
|
|
|
|
|
|
|
|
|
|
|
|
272
|
|
272
|
|
272
|
|
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
|
|
(1)
|
Total accumulated other
comprehensive income includes an other-than-temporary impairment amount of
$1.2 million, or $748 thousand, net of tax of $403 thousand.
|
Notes to consolidated
financial statements are an integral part of these statements.
4
VIRGINIA
COMMERCE BANCORP, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands of
dollars)
(Unaudited)
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(37,480
|
)
|
$
|
11,742
|
|
Adjustments to reconcile net (loss) income to net
cash (used in)
provided by
operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
|
2,048
|
|
1,912
|
|
Provision for loan losses
|
|
80,813
|
|
16,068
|
|
Stock based compensation expense
|
|
468
|
|
439
|
|
Deferred tax benefit
|
|
(15,474
|
)
|
(3,843
|
)
|
Accretion of trust preferred securities discount
|
|
193
|
|
(106
|
)
|
Amortization of premiums and accretion of security
discounts, net
|
|
305
|
|
|
|
Origination of loans held-for-sale
|
|
(156,341
|
)
|
(63,598
|
)
|
Sales of loans
|
|
161,038
|
|
64,034
|
|
Proceeds from gain on sale of loans
|
|
(761
|
)
|
644
|
|
Loss on other real estate owned
|
|
9,085
|
|
|
|
Impairment loss on securities
|
|
418
|
|
|
|
Changes in other assets and other liabilities:
|
|
|
|
|
|
Decrease in accrued interest receivable
|
|
234
|
|
287
|
|
Increase in other assets
|
|
(43,686
|
)
|
(8,404
|
)
|
(Decrease) increase in other liabilities
|
|
(4,943
|
)
|
1,133
|
|
Net Cash (Used In) Provided by Operating Activities
|
|
$
|
(4,083
|
)
|
$
|
20,308
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
Net decrease (increase) in loans
|
|
$
|
38,020
|
|
$
|
(324,107
|
)
|
Purchase of securities available-for-sale
|
|
(183,250
|
)
|
(105,353
|
)
|
Purchase of securities held-to-maturity
|
|
(11,350
|
)
|
(7,127
|
)
|
Proceeds from principal payments on securities
available-for-sale
|
|
39,186
|
|
15,950
|
|
Proceeds from principal payments on securities
held-to-maturity
|
|
7,497
|
|
4,266
|
|
Proceeds from calls and maturities of securities
available-for-sale
|
|
104,597
|
|
74,317
|
|
Proceeds from calls and maturities of securities
held-to-maturity
|
|
1,293
|
|
10,155
|
|
Purchase of bank premises and equipment
|
|
(1,458
|
)
|
(3,153
|
)
|
Net Cash (Used In) In Investing Activities
|
|
$
|
(5,465
|
)
|
$
|
(335,052
|
)
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
$
|
62,662
|
|
$
|
286,677
|
|
Net decrease in repurchase agreements and Federal
funds purchased
|
|
(2,428
|
)
|
(24,525
|
)
|
Net increase in other borrowed funds
|
|
|
|
25,000
|
|
Net increase in Trust Preferred Securities
|
|
|
|
24,492
|
|
Net proceeds from issuance of capital stock
|
|
172
|
|
303
|
|
Dividend on preferred stock
|
|
(2,200
|
)
|
|
|
Cash paid in lieu of fractional shares
|
|
|
|
(6
|
)
|
Net Cash Provided By Financing Activities
|
|
$
|
58,206
|
|
$
|
311,941
|
|
|
|
|
|
|
|
Net Increase (decrease) In Cash and Cash
Equivalents
|
|
48,658
|
|
(2,803
|
)
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD
|
|
$
|
33,515
|
|
$
|
35,341
|
|
CASH AND CASH EQUIVALENTS END
OF PERIOD
|
|
$
|
82,173
|
|
$
|
32,538
|
|
|
|
|
|
|
|
Supplemental Schedule of
Noncash Investing Activities:
|
|
|
|
|
|
Unrealized (loss) gain on securities
|
|
$
|
(1,851
|
)
|
$
|
6,995
|
|
Tax benefits on stock options exercised
|
|
|
|
45
|
|
Other real estate owned transferred from loans
|
|
37,918
|
|
6,002
|
|
Supplemental Disclosure of Cash
Flow Information:
|
|
|
|
|
|
Interest Paid
|
|
$
|
49,311
|
|
60,524
|
|
Taxes Paid
|
|
|
|
8,200
|
|
Notes to
consolidated financial statements are an integral part of these statements.
5
VIRGINIA COMMERCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
1. General
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 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,
2009, and December 31, 2008, the results of operations for the three and
nine-months ended September 30, 2009, and 2008, and statements of cash
flows and stockholders equity for the nine months ended September 30,
2009, and 2008. These statements should
be read in conjunction with the Companys annual report on Form 10-K for
the period ended December 31, 2008.
Operating results
for the three and nine month periods ended September 30, 2009, are not
necessarily indicative of the results that may be expected for the year ending December 31,
2009, or any other period.
FAIR
VALUE MEASUREMENTS
The Company
adopted SFAS No. 157, Fair Value Measurements (SFAS
157) (ASC 820 Fair Value Measurements and Disclosures), on January 1,
2008, to record fair value adjustments to certain assets and liabilities and to
determine fair value disclosures. SFAS 157 clarifies that fair value of certain
assets and liabilities is an exit price, representing the amount that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants.
In October 2008, the
FASB issued Staff Position No. 157-3 (FSP 157-3) (ASC 820 Fair Value
Measurements and Disclosures) to clarify the application of SFAS 157 in a
market that is not active and to provide key considerations in determining the
fair value of a financial asset when the market for that financial asset is not
active. FSP 157-3 was effective upon issuance, including prior periods for
which financials statements were not issued.
SFAS 157 specifies a
hierarchy of valuation techniques based on whether the inputs to those
valuation techniques are observable or unobservable. Observable inputs reflect
market data obtained from independent sources, while unobservable inputs
reflect the Companys market assumptions. The three levels of the fair value
hierarchy under SFAS 157 based on these two types of inputs are as follows:
·
|
Level 1
|
inputs to the valuation
methodology are quoted prices (unadjusted) for identical assets or
liabilities in active markets.
|
|
|
|
·
|
Level 2
|
inputs to the valuation
methodology include quoted prices for similar assets and liabilities in
active markets, and inputs that are observable for the asset or liability,
either directly or indirectly, for substantially the full term of the
financial instrument.
|
|
|
|
·
|
Level 3
|
inputs to the valuation
methodology are unobservable and significant to the fair value measurement.
|
6
VIRGINIA COMMERCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
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
presents the balances of financial assets and liabilities measured at fair
value on a recurring basis as of September 30, 2009 (dollars in
thousands).
|
|
|
|
Fair Value Measurements at September 30, 2009
Using
|
|
Description
|
|
Balance as of
September
30, 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
|
|
$
|
309,540
|
|
$
|
|
|
$
|
309,540
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain financial 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 financial 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 Company records any fair value adjustments on a nonrecurring basis.
No nonrecurring fair value adjustments were recorded on loans held for sale
during the quarter ended September 30, 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 not all amounts due according to the contractual terms of the
loan agreement will 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 securing the loans. Collateral may be in
the form of real estate, marketable securities or business assets including
equipment, inventory, and accounts receivable. For securities, the fair values
of marketable securities are based upon quoted market prices. 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 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 business 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.
7
VIRGINIA
COMMERCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
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 from foreclosed assets.
The following table
summarizes the
Companys financial assets that
were measured at fair value on a nonrecurring basis during the period (dollars
in thousands).
|
|
|
|
Carrying value at September 30, 2009 Using
|
|
Description
|
|
Balance as of
September
30, 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
|
|
$
|
125,194
|
|
$
|
|
|
$
|
112,214
|
|
$
|
12,980
|
|
Foreclosed Assets
|
|
$
|
19,493
|
|
$
|
|
|
$
|
19,493
|
|
$
|
|
|
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 considers 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.
8
VIRGINIA COMMERCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
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,
2009, and December 31, 2008, 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, 2009
|
|
December 31, 2008
|
|
(Dollars in thousands)
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
Cash and short-term investments
|
|
$
|
82,173
|
|
$
|
82,173
|
|
$
|
33,515
|
|
$
|
33,515
|
|
Securities
|
|
369,059
|
|
370,417
|
|
325,743
|
|
326,694
|
|
Restricted stocks
|
|
11,751
|
|
11,751
|
|
11,076
|
|
11,076
|
|
Loans held-for-sale
|
|
2,285
|
|
2,285
|
|
6,221
|
|
6,221
|
|
Loans
|
|
2,154,252
|
|
2,185,671
|
|
2,273,086
|
|
2,313,567
|
|
Accrued interest receivable
|
|
10,359
|
|
10,359
|
|
10,593
|
|
10,593
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
2,234,804
|
|
$
|
2,197,666
|
|
$
|
2,172,142
|
|
$
|
2,144,292
|
|
Securities sold under agreements to repurchase and
federal funds purchased
|
|
185,531
|
|
208,716
|
|
187,959
|
|
206,124
|
|
Other borrowed funds
|
|
25,000
|
|
25,340
|
|
25,000
|
|
25,207
|
|
Trust preferred capital notes
|
|
65,993
|
|
79,029
|
|
65,800
|
|
95,016
|
|
Accrued interest payable
|
|
5,048
|
|
5,048
|
|
8,160
|
|
8,160
|
|
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.
9
VIRGINIA COMMERCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Investment Securities
Amortized cost and fair value of securities
available-for-sale and held-to-maturity as of September 30, 2009, are as
follows (dollars in thousands):
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
(Losses)
|
|
Fair
Value
|
|
Available-for-Sale:
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
257,803
|
|
$
|
6,396
|
|
$
|
(328
|
)
|
$
|
263,871
|
|
Pooled trust preferred securities
|
|
8,983
|
|
|
|
(5,899
|
)
|
3,084
|
|
Obligations of states and political subdivisions
|
|
41,599
|
|
1,073
|
|
(87
|
)
|
42,585
|
|
|
|
$
|
308,385
|
|
$
|
7,469
|
|
$
|
(6,314
|
)
|
$
|
309,540
|
|
Held-to-Maturity:
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
13,574
|
|
$
|
480
|
|
$
|
|
|
$
|
14,054
|
|
Obligations of states and political subdivisions
|
|
45,945
|
|
878
|
|
|
|
46,823
|
|
|
|
$
|
59,519
|
|
$
|
1,358
|
|
$
|
|
|
$
|
60,877
|
|
Amortized
cost and fair value of securities available-for-sale and held-to-maturity as of
December 31, 2008, are as follows (dollars in thousands):
|
|
Amortized
Cost
|
|
Gross
Unrealized Gains
|
|
Gross
Unrealized
(Losses)
|
|
Fair
Value
|
|
Availablefor-sale:
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agency obligations
|
|
$
|
230,497
|
|
$
|
4,951
|
|
$
|
(14
|
)
|
$
|
235,434
|
|
Pooled
trust preferred securities
|
|
8,817
|
|
|
|
(4,869
|
)
|
3,948
|
|
Obligations
of states and political subdivisions
|
|
30,637
|
|
49
|
|
(1,232
|
)
|
29,454
|
|
|
|
$
|
269,951
|
|
$
|
5,000
|
|
$
|
(6,115
|
)
|
$
|
268,836
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agency obligations
|
|
$
|
18,764
|
|
$
|
347
|
|
$
|
|
|
$
|
19,111
|
|
Obligations
of state and political subdivisions
|
|
38,143
|
|
614
|
|
(9
|
)
|
38,748
|
|
|
|
$
|
56,907
|
|
$
|
961
|
|
$
|
(9
|
)
|
$
|
57,859
|
|
The amortized cost
of securities pledged as collateral for repurchase agreements, certain public
deposits, and other purposes were $255.7 million and $280.0 million at September 30,
2009, and December 31, 2008, 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,
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
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.
10
VIRGINIA COMMERCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
|
|
Less Than 12 Months
|
|
12 Months of Longer
|
|
Total
|
|
At
September 30, 2009
(Dollars in thousands)
|
|
Fair
Value
|
|
Unrealized Losses
|
|
Fair
Value
|
|
Unrealized Losses
|
|
Fair
Value
|
|
Unrealized Losses
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
51,059
|
|
$
|
(328
|
)
|
$
|
|
|
$
|
|
|
$
|
51,059
|
|
$
|
(328
|
)
|
Pooled trust preferred securities
|
|
|
|
|
|
2,128
|
|
(4,330
|
)
|
2,128
|
|
(4,330
|
)
|
Obligations of states/political subdivisions
|
|
4,334
|
|
(29
|
)
|
2,042
|
|
(58
|
)
|
6,376
|
|
(87
|
)
|
|
|
$
|
55,393
|
|
$
|
(357
|
)
|
$
|
4,170
|
|
$
|
(4,388
|
)
|
$
|
59,563
|
|
$
|
(4,745
|
)
|
|
|
Less Than 12 Months
|
|
12 Months or Longer
|
|
Total
|
|
At December 31,
2008
(Dollars in thousands)
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
5,947
|
|
$
|
(14
|
)
|
$
|
|
|
$
|
|
|
$
|
5,947
|
|
$
|
(14
|
)
|
Pooled trust preferred securities
|
|
|
|
|
|
3,948
|
|
(4,869
|
)
|
3,948
|
|
(4,869
|
)
|
Obligations of states/political subdivisions
|
|
26,471
|
|
(1,232
|
)
|
|
|
|
|
26,471
|
|
(1,232
|
)
|
|
|
$
|
32,418
|
|
$
|
(1,246
|
)
|
$
|
3,948
|
|
$
|
(4,869
|
)
|
$
|
36,366
|
|
$
|
(6,115
|
)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states/political subdivisions
|
|
$
|
2,134
|
|
$
|
(9
|
)
|
$
|
|
|
$
|
|
|
$
|
2,134
|
|
$
|
(9
|
)
|
As of September 30,
2009, the Company had two pooled trust preferred securities that were deemed to
be other than temporarily impaired based on a present value analysis of
expected future cash flows. These securities had a fair value of $955 thousand
and an other-than-temporary impairment loss of $1.6 million, of which $1.2
million of the loss is recognized in other comprehensive loss, and $418
thousand is recognized in earnings. The following table provides further
information on these two securities as of September 30, 2009 (in
thousands):
Security
|
|
Trenche
Levels
|
|
Current
Moodys
Ratings
|
|
Par
Value
|
|
Book
Value
|
|
Estimated
Fair Value
|
|
Current
Defaults
and
Deferrals
|
|
% of
Current
Defaults
and
Deferrals
to Current
Collateral
|
|
Estimated
Incremental
Defaults
Required to Break Yield
(1)
|
|
Cumulative
Other
Comprehensive
Loss (2)
|
|
Amount
of OTTI
Related
to
Credit
Loss (2)
|
|
PreTSL
VI
|
|
Mezzanine
|
|
Caa1
|
|
$
|
519
|
|
$
|
362
|
|
$
|
362
|
|
$
|
25,000
|
|
61
|
%
|
BROKEN
|
|
$
|
148
|
|
$
|
9
|
|
PreTSL
X
|
|
B-1
|
|
Ca
|
|
2,005
|
|
593
|
|
593
|
|
126,625
|
|
25
|
%
|
14,000
|
|
1,003
|
|
409
|
|
Total
|
|
|
|
|
|
$
|
2,524
|
|
$
|
955
|
|
$
|
955
|
|
|
|
|
|
|
|
$
|
1,151
|
|
$
|
418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
A break in yield for a given tranche means that
defaults/deferrals have reached such a level that a tranche
would not receive all of its contractual cash flows (principal and interest) by
maturity (so that 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.
(2)
Pre-tax.
The following table
presents a roll-forward of the credit loss component amount of OTTI recognized
in earnings:
(in thousands)
|
|
Quarter ended September 30, 2009
|
|
Nine months ended September 30, 2009
|
|
Balance,
beginning of period
|
|
$
|
138
|
|
$
|
0
|
|
Additions:
|
|
|
|
|
|
Initial
credit impairments
|
|
9
|
|
418
|
|
Subsequent
credit impairments
|
|
271
|
|
|
|
Balance,
end of period
|
|
$
|
418
|
|
$
|
418
|
|
11
VIRGINIA
COMMERCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
Management has evaluated
each of these securities for potential impairment under EITF 99-20-1 (ASC 325
Investments-Other) and the most recently issued FSP guidance, and has reviewed
each of the issues collateral participants using various techniques, including
ratings provided by FITCH. Management
has also reviewed the interest and principal coverage of each of the tranches
it owns. In performing a detailed cash
flow analysis of each security, management obtained an independent third
partys best estimate of the cash flow estimated to be collected. If this estimate results in a present value
of expected cash flows that is less than the amortized cost basis of a security
(that is, 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 adding the current 3-month LIBOR
spot rate. The analysis also assumed
annual deferrals and defaults, which were treated the same, at 75 basis points
for the remaining life of each security, 15% recoveries on deferrals after two
years and prepayments of 1% per annum. Since the balance sheet date, the Company is
not aware of any deferrals or defaults that may have occurred on either of the
two securities.
3. Loans
Major classifications of
loans, excluding loans held-for-sale, are summarized as follows:
|
|
September 30, 2009
|
|
December 31, 2008
|
|
|
|
(In Thousand of Dollars)
|
|
Commercial
|
|
$
|
239,895
|
|
$
|
279,470
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
Closed end first and seconds
|
|
264,398
|
|
233,887
|
|
Home equity lines
|
|
134,295
|
|
123,366
|
|
Total Real estate-one-to-four family residential
|
|
$
|
398,693
|
|
$
|
357,253
|
|
Real estate-multi-family residential
|
|
68,002
|
|
66,611
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
Owner occupied
|
|
430,173
|
|
418,372
|
|
Non-owner occupied
|
|
640,136
|
|
592,953
|
|
Total Real estate-non-farm, non-residential
|
|
$
|
1,070,309
|
|
$
|
1,011,325
|
|
Real estate-construction:
|
|
|
|
|
|
Residential-Owner occupied
|
|
13,645
|
|
20,691
|
|
Residential-Builder
|
|
235,358
|
|
296,266
|
|
Commercial
|
|
189,431
|
|
268,119
|
|
Total Real estate-construction
|
|
$
|
438,434
|
|
$
|
585,076
|
|
Farmland
|
|
2,678
|
|
2,498
|
|
Consumer
|
|
10,191
|
|
11,698
|
|
Total Loans
|
|
$
|
2,228,202
|
|
$
|
2,313,931
|
|
Less unearned income
|
|
3,836
|
|
4,370
|
|
Less allowance for loan losses
|
|
70,114
|
|
36,475
|
|
Loans, net
|
|
$
|
2,154,252
|
|
$
|
2,273,086
|
|
4. Allowance for Loan Loss
An analysis of the
allowance for loan losses for the nine months ended September 30, 2009 and
September 30, 2008, and the year ended December 31, 2008 is shown
below (dollars of thousands):
|
|
September 30, 2009
|
|
December 31, 2008
|
|
September 30, 2008
|
|
Allowance, at beginning of period
|
|
$
|
36,475
|
|
$
|
22,260
|
|
$
|
22,260
|
|
Provision charged against income
|
|
80,813
|
|
25,378
|
|
16,068
|
|
Recoveries added to reserve
|
|
562
|
|
158
|
|
86
|
|
Losses charged to reserve
|
|
(47,736
|
)
|
(11,321
|
)
|
(5,780
|
)
|
Allowance, at end of period
|
|
$
|
70,114
|
|
$
|
36,475
|
|
$
|
32,634
|
|
12
VIRGINIA COMMERCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
Information about
impaired loans as of and for September 30, 2009 and December 31,
2008, is as follows (dollars in thousands):
|
|
September 30, 2009
|
|
December 31, 2008
|
|
Non-accrual loans for which a specific reserve has
been provided
|
|
$
|
55,242
|
|
$
|
74,843
|
|
Non-accrual loans for which no specific reserve has
been provided
|
|
29,951
|
|
36,391
|
|
Other impaired loans for which a specific reserve
has been provided
|
|
103,807
|
|
14,515
|
|
Other impaired loans for which no specific reserve
has been provided
|
|
55,356
|
|
34,794
|
|
Total Impaired loans
|
|
$
|
244,356
|
|
$
|
160,543
|
|
Reserves provided for impaired loans, included in
the allowance for loan losses
|
|
$
|
33,856
|
|
$
|
17,614
|
|
In performing a specific
reserves analysis on all impaired loans as of September 30, 2009,
approximately 65% of impaired loans utilized current third party appraisals 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, review of market comparables, etc. In general, variances
between charge-offs and fair value of collateral is limited to estimates of projected
costs of sale and adjustment of appraisals based upon entrepreneurial profit
estimates. Costs of sale are estimated
at 10% of value. In rare instances, when
the Company intends to complete the development of the collateral in OREO or in
a troubled debt restructuring, discounted cash flow values are adjusted to exclude
an entrepreneurial profit which the Company or debtor would expect to receive
under such circumstances. 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 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. 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.
5. (Loss) Earnings Per Share
The following shows the
weighted average number of shares used in computing (loss) earnings per share
and the effect on the weighted average number of shares of diluted potential
common stock. As of September 30, 2009, and 2008, there were 5,506,993 and
1,057,364 anti-dilutive stock options and warrants outstanding, respectively.
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30, 2009
|
|
September 30, 2008
|
|
September 30, 2009
|
|
September 30, 2008
|
|
|
|
|
|
Per
|
|
|
|
Per
|
|
|
|
Per
|
|
|
|
Per
|
|
|
|
|
|
Share
|
|
|
|
Share
|
|
|
|
Share
|
|
|
|
Share
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Basic
(loss) earnings per share
|
|
26,694,898
|
|
$
|
(1.17
|
)
|
26,566,711
|
|
$
|
0.10
|
|
26,691,490
|
|
$
|
(1.53
|
)
|
26,550,757
|
|
$
|
0.44
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
230,727
|
|
|
|
493,285
|
|
|
|
282,579
|
|
|
|
632,640
|
|
|
|
Diluted
(loss) earnings per share
|
|
26,925,625
|
|
$
|
(1.17
|
)
|
27,059,996
|
|
$
|
0.10
|
|
26,974,069
|
|
$
|
(1.53
|
)
|
27,183,397
|
|
$
|
0.43
|
|
13
VIRGINIA COMMERCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
6. Stock Compensation Plan
At September 30,
2009, the Company had a stock-based compensation plan. Included in salaries and
employee benefits expense for the nine months ended September 30, 2009 and
2008, is $468 thousand and $439 thousand, respectively, of stock-based
compensation expense which is based on the estimated fair value of 750,893
options granted between January 2006 and September 2009, as adjusted,
amortized on a straight-line basis over a five year requisite service period.
As of September 30, 2009, there was $1.5 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 2009 and
2008:
|
|
2009
|
|
2008
|
|
Expected
volatility
|
|
30.59%
|
|
23.14%
|
|
Expected
dividends
|
|
.00%
|
|
.00%
|
|
Expected
term (in years)
|
|
7.2
|
|
7.2
|
|
Risk-free
rate
|
|
2.14% to 3.32%
|
|
3.35% to 3.80%
|
|
Stock option plan
activity for the nine months ended September 30, 2009, is summarized
below:
|
|
Shares
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
|
Aggregate
Intrinsic
Value
($000)
|
|
Outstanding
at January 1, 2009
|
|
2,035,458
|
|
$
|
7.73
|
|
|
|
|
|
Granted
|
|
141,209
|
|
4.28
|
|
|
|
|
|
Exercised
|
|
(120,241
|
)
|
1.42
|
|
|
|
|
|
Forfeited
|
|
(89,832
|
)
|
10.89
|
|
|
|
|
|
Outstanding
at September 30, 2009
|
|
1,966,594
|
|
$
|
7.72
|
|
4.5
|
|
|
|
Exercisable
at September 30, 2009
|
|
1,519,929
|
|
$
|
6.90
|
|
3.4
|
|
|
|
The total value of
in-the-money options exercised during the nine months ended September 30,
2009, was $444 thousand.
7. Capital Requirements
A comparison of the
Companys and its wholly-owned subsidiarys, Virginia Commerce Bank (the
Bank) capital ratios as of September 30, 2009 with the minimum
regulatory guidelines is as follows:
|
|
Actual
|
|
Minimum
Guidelines
|
|
Minimum to be
Well-Capitalized
|
|
Total
Risk-Based Capital:
|
|
|
|
|
|
|
|
Company
|
|
12.78
|
%
|
8.00
|
%
|
|
|
Bank
|
|
12.73
|
%
|
8.00
|
%
|
10.00
|
%
|
Tier
1 Risk-Based Capital:
|
|
|
|
|
|
|
|
Company
|
|
11.53
|
%
|
4.00
|
%
|
|
|
Bank
|
|
11.48
|
%
|
4.00
|
%
|
6.00
|
%
|
Leverage
Ratio:
|
|
|
|
|
|
|
|
Company
|
|
10.21
|
%
|
4.00
|
%
|
|
|
Bank
|
|
10.17
|
%
|
4.00
|
%
|
5.00
|
%
|
14
VIRGINIA COMMERCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
8. Other Borrowed Money and Lines of Credit
The
Bank maintains a $404.4 million line of credit with the Federal Home Loan Bank
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, second liens and home equity
lines-of-credit on one-to-four unit single-family dwellings. As of September 30, 2009, the book value
of these qualifying loans totaled approximately $203.2 million and the amount
of available credit using this collateral was $70.9 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,
2009, the Bank had $25.0 million in advances outstanding.
The Bank has additional short-term lines of credit
totaling $62.0 million with nonaffiliated banks at
September
30, 2009, of which there were no balances
outstanding.
9. Trust Preferred Securities
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 4.40%. These
securities are callable at par beginning 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 (CPP), whereby the Company issued
and sold to the Treasury 71 thousand 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
15
VIRGINIA COMMERCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
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 of the preferred stock and the warrant, based on
their relative fair values, were $62.5 million and $8.5 million respectively.
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 consultation with 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
increase 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.
However, the Treasury may only exercise or transfer one-half of the
warrant prior to the earlier of the date on which the Company receives gross
proceeds of not less than $71.0 million from qualified equity offerings on December 31,
2009. If gross proceeds of not less than
$71.0 million are received from qualified equity offerings prior to December 31,
2009, the number of shares issuable upon exercise of the warrant will be reduced
by one-half. 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.
16
ITEM 2.
|
MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
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, 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
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. Please refer tot he
Companys Form 10-K for the year ended December 31, 2008 and to the
Companys other reports filed with the Securities and Exchange Commission for a
discussion of factors that may cause future performance to vary from
forward-looking statements. 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 Companys past results are
not necessarily indicative of future performance.
Non-GAAP Presentations
This managements
discussion and analysis 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 before losses on OREO. 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.
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-seven branch offices, one residential mortgage office
and one investment services office.
Headquartered in
Arlington, Virginia, Virginia Commerce 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.
Critical Accounting
Policies
During the quarter ended September 30,
2009, there were no changes in the Companys critical accounting policies as
reflected in the last 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
17
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) SFAS 5, Accounting for Contingencies (ASC 450 Contingencies), which
requires that losses be accrued when they are probable of occurring and
estimable and (ii) SFAS 114, 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 unallocated
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/homeowner 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
unallocated 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 unallocated 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.
The
Companys 1998 Stock Option Plan (the Plan), which is shareholder-approved,
permits the grant of share options to its directors and officers for up to 2.3
million shares of common stock. 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 U.S. Treasury curve in effect at the time of the grant to 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 Stock Option Plan and
related expense.
Results of Operations
For the three months
ended September 30, 2009, the Company recorded a net operating loss of
$29.9 million. After an effective dividend of $1.2 million to the U.S. Treasury
on preferred stock, the Company reported a net loss to common stockholders of
$31.1 million, or $1.17 per diluted common share, compared to earnings of $2.7
million, or $0.10 per diluted common share, in the third quarter of 2008. For
the nine months ended September 30, 2009, the Company reported a net loss
to common stockholders of $40.8 million compared to earnings of $11.7 million
for the same period in 2008. Earnings for both the three and nine-month periods
were significantly impacted by loan loss provisions of $49.0 million and $80.8
million, respectively, taken in consideration of the level of non-performing
assets and $47.2 million in net charge-offs in 2009. Earnings were also
impacted by a $9.1 million loss on other real owned.
Before taxes, loan loss
provisions and losses on other real estate owned, core operating earnings for
the three months ended September 30, 2009, of $12.0 million were down
slightly compared to $12.2 million for the three months
18
ended September 30,
2008. However, on a sequential basis, core operating earnings were up $1.6
million compared to $10.4 million for the three months ended June 30,
2009, and are up $2.4 million compared to core operating earnings of $9.6
million for the three months ended March 31, 2009. This positive trend is
due to continued strong operating expense controls and improvement in the net
interest margin.
Since December 31,
2008, net loans are down $118.8 million, or 5.3%, with non-farm non-residential
loans up $59.0 million, construction loans down $146.6 million, and one-to-four
family residential loans for portfolio up $41.4 million. In addition,
one-to-four family residential loans originated for sale totaled $30.4 million
for the quarter ended September 30, 2009, and $156.3 million year-to-date,
compared to $17.2 million and $61.5 million for the same periods in 2008.
Year-to-date loan
production has been negatively impacted by declining economic activity and
demand in both the business and consumer sectors, a reallocation of personnel
resources to problem loan identification and resolution and a strategic
decision to moderate loan growth in the face of an uncertain economy and
heightened risk factors. Going forward,
lending efforts will be focused on building greater market share in commercial
and industrial lending, especially in sectors forecast for growth, such as
government contract lending and select service industries with strategic
hiring, marketing campaigns and calling efforts.
For the nine months ended
September 30, 2009, total deposits were up $62.7 million and included an
increase in demand deposits of $33.6 million, or 17.3%, from $194.8 million at December 31,
2008, to $228.4 million at September 30, 2009, an increase in savings and
interest-bearing demand deposits of $373.5 million, or 72.1%, and a decrease in
time deposits of $344.5 million, from $1.46 billion at December 31, 2008,
to $1.11 billion. The majority of the Banks deposits are attracted from
individuals and businesses in the Northern Virginia and the Metropolitan
Washington, D.C. area. The increase in savings and interest-bearing demand
deposits is due primarily to success with the Companys MEGA Savings and MEGA
Checking accounts. The declines in time deposits are reflective of lower loan
volume and a strategy to reduce the Banks historically heavy reliance on
certificates of deposit as a funding source with deposit gathering efforts and
cross-selling activities focused on demand deposits, savings and
interest-bearing demand accounts. The proportionate share of time deposits to
total deposits has declined from 67.2% at year-end 2008 to 49.9% as of September 30,
2009. It is expected that the percentage share of time deposits will further
decline to at least 45.0% by this year-end, including a planned reduction in
brokered certificates of deposit from $60.1 million at September 30, 2009,
to approximately $30 million.
As noted, for the nine
months ended September 30, 2009, the Company recorded a net operating loss
of $37.5 million as compared to earnings of $11.7 million for the nine months
ended September 30, 2008, as net interest income increased $4.1 million,
or 6.6%, non-interest income declined $8.8 million with a $9.1 million loss on
OREO, non-interest expense rose $6.3 million, or 18.9%, and provisions for loan
losses were up $64.7 million. The Companys annualized return on average assets
and return on average equity were a negative 1.83% and 20.36% for the current
nine month period compared to a positive 0.61% and 8.91% for the nine months
ended September 30, 2008.
For the three months
ended September 30, 2009, the Company recorded a net operating loss of
$29.9 million compared to earnings of $2.7 million for the same period in 2008
as net interest income rose $1.5 million, or 6.8%, non-interest income declined
$9.2 million due to the $9.1 million loss on OREO, non-interest expense
increased $1.7 million, or 14.8%, and provisions for loan losses were up $40.7
million. The return on average assets and return on average equity were a
negative 4.34% and 49.33% for the three months ended September 30, 2009,
compared to a positive 0.40% and 5.98% for the same period in 2008.
Stockholders equity
decreased $37.3 million, or 14.7%, from $253.3 million at December 31,
2008, to $216.0 million at September 30, 2009, with a net loss to common
stockholders of $40.8 million and a $1.7 million increase in accumulated other
comprehensive income related to the investment securities portfolio, net of
tax.
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 balance sheet growth, changes in
interest rates and changes in the mix of investments, loans, deposits and
borrowings. Net interest income for the
third quarter of $23.4 million was up $1.5 million, or 6.8% over the same
quarter last year, due to overall balance sheet growth, and an increase in the
net interest margin from 3.38% in the third quarter of 2008 to 3.52% for the
current three-month period. Year-to-date net interest income of $66.2 million
was up 6.6%, compared to $62.1 million for the same period in 2008. On a
sequential basis, net interest income increased $1.4 million as the
19
net interest margin rose
seventeen basis points from 3.35% in the second quarter of 2009, primarily due
to a twenty-two basis point drop in the cost of interest-bearing liabilities,
as the yield on earning assets remained unchanged. This drop in the cost of
funds is due to significant reductions in the level of time deposits and rates
on such deposits, increased levels of demand deposits and increased levels of
lower rate interest-bearing transaction accounts.
Year-over-year, the net
interest margin was unchanged at 3.34%, as yields on loans are down 86 basis
points due to reductions in the prime rate and increases in the level of
non-performing loans, while the cost of interest-bearing liabilities are down
89 basis points due to the changes noted above in the funding mix. With market
rates expected to remain mostly unchanged through the remainder of 2009,
Management anticipates the fourth quarter margin to average from 3.50% to
3.60%.
The following tables show
the average balance sheets for each of the three months and nine months ended September 30,
2009 and 2008. 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 $1.3 million
and $1.4 million for the three months ended September 30, 2009, and 2008,
respectively, and totaled $3.0 million and $3.9 million for the nine month
periods.
20
|
|
Three months ended September 30,
|
|
|
|
2009
|
|
2008
|
|
(Dollars in thousands)
|
|
Average
Balance
|
|
Interest
Income-
Expense
|
|
Average
Yields
/Rates
|
|
Average
Balance
|
|
Interest
Income-
Expense
|
|
Average
Yields
/Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities (1)
|
|
$
|
327,690
|
|
$
|
3,792
|
|
4.78
|
%
|
$
|
329,811
|
|
$
|
4,131
|
|
5.13
|
%
|
Restricted stock
|
|
11,752
|
|
97
|
|
3.29
|
%
|
7,985
|
|
67
|
|
3.37
|
%
|
Loans, net of unearned income
|
|
2,266,294
|
|
33,707
|
|
5.91
|
%
|
2,250,390
|
|
36,329
|
|
6.42
|
%
|
Interest-bearing deposits in other banks
|
|
89
|
|
|
|
0.09
|
%
|
4,348
|
|
38
|
|
3.45
|
%
|
Federal funds sold
|
|
48,725
|
|
27
|
|
0.21
|
%
|
413
|
|
2
|
|
1.80
|
%
|
Total interest-earning assets
|
|
$
|
2,654,550
|
|
$
|
37,623
|
|
5.65
|
%
|
$
|
2,592,947
|
|
$
|
40,567
|
|
6.23
|
%
|
Other assets
|
|
78,765
|
|
|
|
|
|
67,511
|
|
|
|
|
|
Total Assets
|
|
$
|
2,733,315
|
|
|
|
|
|
$
|
2,660,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts
|
|
$
|
238,988
|
|
$
|
728
|
|
1.21
|
%
|
$
|
173,396
|
|
$
|
776
|
|
1.77
|
%
|
Money market accounts
|
|
162,353
|
|
593
|
|
1.45
|
%
|
208,711
|
|
1,380
|
|
2.62
|
%
|
Savings accounts
|
|
432,362
|
|
2,111
|
|
1.94
|
%
|
184,480
|
|
1,245
|
|
2.68
|
%
|
Time deposits
|
|
1,141,571
|
|
8,217
|
|
2.86
|
%
|
1,379,898
|
|
12,772
|
|
3.67
|
%
|
Total interest-bearing deposits
|
|
$
|
1,975,274
|
|
$
|
11,649
|
|
2.34
|
%
|
$
|
1,946,485
|
|
$
|
16,173
|
|
3.30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase and
federal funds purchased
|
|
192,538
|
|
1,022
|
|
2.11
|
%
|
224,384
|
|
1,376
|
|
2.43
|
%
|
Other borrowed funds
|
|
25,000
|
|
272
|
|
4.25
|
%
|
50,000
|
|
426
|
|
3.33
|
%
|
Trust preferred capital notes
|
|
65,962
|
|
1,276
|
|
7.57
|
%
|
41,602
|
|
683
|
|
6.42
|
%
|
Total interest-bearing liabilities
|
|
$
|
2,258,774
|
|
$
|
14,219
|
|
2.50
|
%
|
$
|
2,262,471
|
|
$
|
18,658
|
|
3.27
|
%
|
Demand deposits and other liabilities
|
|
234,187
|
|
|
|
|
|
220,630
|
|
|
|
|
|
Total liabilities
|
|
$
|
2,492,961
|
|
|
|
|
|
$
|
2,483,101
|
|
|
|
|
|
Stockholders equity
|
|
240,354
|
|
|
|
|
|
177,357
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
2,733,315
|
|
|
|
|
|
$
|
2,660,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
3.15
|
%
|
|
|
|
|
2.96
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and margin
|
|
|
|
$
|
23,404
|
|
3.52
|
%
|
|
|
$
|
21,909
|
|
3.38
|
%
|
(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.
21
|
|
Nine months ended September 30,
|
|
|
|
2009
|
|
2008
|
|
(Dollars in thousands)
|
|
Average
Balance
|
|
Interest
Income-
Expense
|
|
Average
Yields
/Rates
|
|
Average
Balance
|
|
Interest
Income-
Expense
|
|
Average
Yields
/Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities (1)
|
|
$
|
326,009
|
|
$
|
11,700
|
|
4.73
|
%
|
$
|
322,940
|
|
$
|
12,248
|
|
5.18
|
%
|
Restricted stock
|
|
11,534
|
|
265
|
|
3.07
|
%
|
7,005
|
|
259
|
|
4.95
|
%
|
Loans, net of unearned income
|
|
2,290,830
|
|
100,336
|
|
5.87
|
%
|
2,144,115
|
|
108,155
|
|
6.73
|
%
|
Interest-bearing deposits in other banks
|
|
89
|
|
|
|
0.11
|
%
|
6,336
|
|
140
|
|
2.93
|
%
|
Federal funds sold
|
|
39,197
|
|
59
|
|
0.20
|
%
|
14,685
|
|
228
|
|
2.04
|
%
|
Total interest-earning assets
|
|
$
|
2,667,659
|
|
$
|
112,360
|
|
5.66
|
%
|
$
|
2,495,081
|
|
$
|
121,030
|
|
6.49
|
%
|
Other assets
|
|
66,472
|
|
|
|
|
|
56,128
|
|
|
|
|
|
Total Assets
|
|
$
|
2,734,131
|
|
|
|
|
|
$
|
2,551,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts
|
|
$
|
220,039
|
|
$
|
2,054
|
|
1.25
|
%
|
$
|
162,458
|
|
$
|
1,977
|
|
1.62
|
%
|
Money market accounts
|
|
157,718
|
|
1,743
|
|
1.48
|
%
|
209,104
|
|
4,473
|
|
2.85
|
%
|
Savings accounts
|
|
326,744
|
|
5,271
|
|
2.16
|
%
|
176,780
|
|
4,053
|
|
3.05
|
%
|
Time deposits
|
|
1,275,712
|
|
30,008
|
|
3.14
|
%
|
1,314,207
|
|
41,008
|
|
4.16
|
%
|
Total interest-bearing deposits
|
|
$
|
1,980,213
|
|
$
|
39,076
|
|
2.64
|
%
|
$
|
1,862,549
|
|
$
|
51,510
|
|
3.68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreement to repurchase and
federal funds purchased
|
|
188,575
|
|
2,477
|
|
1.76
|
%
|
229,955
|
|
4,477
|
|
2.59
|
%
|
Other borrowed funds
|
|
25,000
|
|
806
|
|
4.25
|
%
|
33,485
|
|
890
|
|
3.49
|
%
|
Trust preferred capital notes
|
|
65,898
|
|
3,840
|
|
7.68
|
%
|
40,538
|
|
2,065
|
|
6.69
|
%
|
Total interest-bearing liabilities
|
|
$
|
2,259,686
|
|
$
|
46,199
|
|
2.73
|
%
|
$
|
2,166,527
|
|
$
|
58,942
|
|
3.62
|
%
|
Demand deposits and other liabilities
|
|
228,315
|
|
|
|
|
|
209,216
|
|
|
|
|
|
Total liabilities
|
|
$
|
2,488,001
|
|
|
|
|
|
$
|
2,375,743
|
|
|
|
|
|
Stockholders equity
|
|
246,130
|
|
|
|
|
|
175,466
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
2,734,131
|
|
|
|
|
|
$
|
2,551,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
2.93
|
%
|
|
|
|
|
2.87
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and margin
|
|
|
|
$
|
66,161
|
|
3.34
|
%
|
|
|
$
|
62,088
|
|
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.
22
Allowance for Loan Losses
/ Provision for Loan Loss Expense
The provision for loan
losses is based upon managements estimate of the amount required to maintain
an adequate allowance for loan losses reflective of the risks in the loan
portfolio. Provisions for loan losses were $49.0 million for the three months
ended September 30, 2009, compared to $8.3 million in the same period in
2008, as non-performing assets and loans 90+ days past due increased from $85.3
million at September 30, 2008, to $123.5 million at September 30,
2009. For the nine months ended September 30, 2009, provisions totaled
$80.8 million compared to $16.1 million for the nine months ended September 30,
2008, with 2009 year-to-date net charge-offs of $47.2 million compared to $5.7
million in 2008. As a result, the coverage of loan loss reserves to
non-performing loans rose from 35.0% at June 30, 2009, to 80.5% as of this
quarter-end, and the allowance for loan losses increased from 1.72% of total
loans to 3.15%. The significant quarterly increase in reserves is not an
indication of heightened concern or expectations of further credit
deterioration. Rather, it is an attempt to increase the coverage ratio on a
one-time basis relative to the current level of non-performing loans and in
recognition of continued economic uncertainty in regard to the commercial real
estate market. Progress with respect to managements commitment to aggressive
problem loan resolution continues, as total non-performing assets and loans 90+
days past due declined by $16.1 million during the quarter from $139.6 million,
or 5.17% of total assets, to $123.5 million, or 4.52% of total assets.
Non-accrual loans decreased by $20.9 million, loans 90+ days past due decreased
by $3.3 million and other real estate owned (foreclosed properties) increased
by $8.2 million. Although loans past due 30 to 89 days increased $11.6 million
during the quarter to $30.9 million, they remain significantly lower from their
peak level of $55.7 million at March 31, 2009. Approximately 28% of loans
past due 30 to 89 days relate to a single non-farm, non-residential credit. See
Risk Elements and Non-performing Assets for additional discussion relating to
non-performing assets and impaired loans.
Management feels that the
allowance for loan losses is adequate at September 30, 2009. However,
there can be no assurance that additional provisions for loan losses will not
be required in the future, as a result of possible changes in the economic
assumptions underlying managements estimates and judgments, adverse
developments in the economy, 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 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 one quantitative 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 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 predicated 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.
The Companys focus on
aggressive problem loan resolution has not resulted in any formal changes in
charge-off policy or changes in the allowance for loan losses methodology other
than to recognize the impact of economic and market factors in establishing
higher reserve percentages for homogeneous groups of loans and to update loss
history factors. In this context,
aggressive problem loan resolution refers to the allocation of resources in
terms of personnel and outside agencies in identifying and addressing problem
loans and establishing specific time tables and strategies to implement loan
restructures, foreclosures, sale of collateral and recognize loan impairments.
23
The following schedule summarizes the
changes in the allowance for loan losses:
|
|
Nine Months
|
|
Nine Months
|
|
Twelve Months
|
|
|
|
Ended
|
|
Ended
|
|
Ended
|
|
|
|
September 30, 2009
|
|
September 30, 2008
|
|
December 31, 2008
|
|
|
|
(In Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
Allowance,
at beginning of period
|
|
$
|
36,475
|
|
$
|
22,260
|
|
$
|
22,260
|
|
Provision
charged against income
|
|
80,813
|
|
16,068
|
|
25,378
|
|
Recoveries:
|
|
|
|
|
|
|
|
Consumer
loans
|
|
58
|
|
20
|
|
65
|
|
Commercial
|
|
253
|
|
16
|
|
16
|
|
Real
estate one-to-four family residential:
|
|
|
|
|
|
|
|
Permanent
first and second
|
|
42
|
|
48
|
|
48
|
|
Home
equity loans and lines
|
|
4
|
|
2
|
|
2
|
|
Real
estate-non-farm, non-residential
|
|
|
|
|
|
27
|
|
Real
estate construction
|
|
205
|
|
|
|
|
|
Losses
charged to reserve:
|
|
|
|
|
|
27
|
|
Consumer
loans
|
|
(242
|
)
|
(336
|
)
|
(392
|
)
|
Commercial
loans
|
|
(15,603
|
)
|
(1,995
|
)
|
(3,436
|
)
|
Real
estate one-to-four family residential:
|
|
|
|
|
|
|
|
Permanent
first and second
|
|
(1,447
|
)
|
(671
|
)
|
(769
|
)
|
Home
equity loans and lines
|
|
(965
|
)
|
(164
|
)
|
(314
|
)
|
Real
estate multi-family residential
|
|
|
|
(95
|
)
|
(95
|
)
|
Real estate-nonfarm, nonresidential
|
|
(526
|
)
|
|
|
(2
|
)
|
Real
estate residential construction
|
|
(28,953
|
)
|
(2,519
|
)
|
(6,313
|
)
|
Net
(charge-offs) recoveries
|
|
(47,174
|
)
|
(5,694
|
)
|
(11,163
|
)
|
Allowance,
at end of period
|
|
$
|
70,114
|
|
$
|
32,634
|
|
$
|
36,475
|
|
|
|
|
|
|
|
|
|
Ratio
of net charge-offs to average loans outstanding during period
|
|
2.06
|
%
|
0.27
|
%
|
0.51
|
%
|
Allowance
for loan losses to total loans
|
|
3.15
|
%
|
1.44
|
%
|
1.58
|
%
|
Risk
Elements and Non-performing Assets
Non-performing
assets consist of non-accrual loans and other real estate owned (foreclosed
properties). For the nine months ended September 30,
2009, the total non-performing assets and loans 90+ days past due and still
accruing interest decreased by $1.4 million, or 1.1%, from $124.9 million at December 31,
2008, to $123.5 million at September 30, 2009, and declined $16.1 million
from $139.6 million at March 31, 2009. As a result of the increase in
total assets, the ratio of non-performing assets and loans 90+ days past due
and still accruing to total assets decreased from 4.60% at December 31,
2008, to 4.52% at September 30, 2009. In addition, other impaired loans,
which include loans well-secured and currently performing, but in some
instances requiring higher reserve levels, and troubled debt restructurings,
performing in accordance with their modified terms, increased from $49.3
million at December 31, 2008, to $159.2 million at September 30,
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.
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. Troubled debt restructurings continue to
be individually tested for impairment for a period of one year from their
modification date.
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, 2009,
$48.7 million, or 56.0%, of non-performing loans represented acquisition,
development and construction loans, $19.1 million, or 21.9%, represented
non-farm, non-residential loans, $9.9 million, or 11.4%, represented
24
commercial and industrial
loans and $9.1 million, or 10.5%, represented loans on one-to-four family
residential properties.
Total
non-performing assets consist of the following:
|
|
September 30, 2009
|
|
September 30, 2008
|
|
December 31, 2008
|
|
|
|
(In
Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
Non-accrual loans:
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
9,792
|
|
$
|
9,944
|
|
$
|
12,178
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
|
|
Closed end first and seconds
|
|
6,846
|
|
98
|
|
|
|
Home equity lines
|
|
781
|
|
320
|
|
320
|
|
Total Real estate-one-to-four family residential
|
|
$
|
7,627
|
|
$
|
418
|
|
$
|
320
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
Owner Occupied
|
|
9,703
|
|
2.511
|
|
4,976
|
|
Non-owner occupied
|
|
9,152
|
|
411
|
|
1,210
|
|
Total Real estate-non-farm, non-residential
|
|
$
|
18,855
|
|
$
|
2,922
|
|
$
|
6,186
|
|
Real estate-construction:
|
|
|
|
|
|
|
|
Residential-Owner Occupied
|
|
2,389
|
|
3,981
|
|
4,543
|
|
Residential-Builder
|
|
36,886
|
|
32,701
|
|
48,178
|
|
Commercial
|
|
9,457
|
|
21,710
|
|
39,819
|
|
Total Real estate-construction:
|
|
$
|
48,732
|
|
$
|
58,392
|
|
$
|
92,540
|
|
Consumer
|
|
187
|
|
2
|
|
10
|
|
Total Non-accrual loans
|
|
$
|
85,193
|
|
$
|
71,678
|
|
$
|
111,234
|
|
OREO
|
|
36,402
|
|
6,002
|
|
7,569
|
|
Total non-performing assets
|
|
$
|
121,595
|
|
$
|
77,680
|
|
$
|
118,803
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
September 30, 2008
|
|
December 31, 2008
|
|
|
|
(In Thousands of Dollars)
|
|
Loans 90+ days past due and still accruing:
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
150
|
|
$
|
699
|
|
$
|
1,789
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
|
|
Closed end first and seconds
|
|
|
|
165
|
|
195
|
|
Home equity lines
|
|
|
|
|
|
|
|
Total Real estate-one-to-four family residential
|
|
$
|
|
|
$
|
165
|
|
$
|
195
|
|
Real estate multi-family residential
|
|
1,506
|
|
|
|
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
Owner Occupied
|
|
|
|
|
|
|
|
Non-owner occupied
|
|
249
|
|
|
|
|
|
Total Real estate-non-farm, non-residential
|
|
$
|
249
|
|
$
|
|
|
$
|
|
|
Real estate-construction:
|
|
|
|
|
|
|
|
Residential-Owner Occupied
|
|
|
|
|
|
40
|
|
Residential-Builder
|
|
|
|
6,693
|
|
4094
|
|
Commercial
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Total Real estate-construction:
|
|
|
|
6,693
|
|
4,134
|
|
Consumer
|
|
|
|
24
|
|
|
|
Total Loans past due 90 days and still accruing
|
|
$
|
1,905
|
|
$
|
7,581
|
|
$
|
6,118
|
|
|
|
|
|
|
|
|
|
Total non-performing assets and past due loans
|
|
$
|
123,500
|
|
$
|
85,261
|
|
$
|
124,921
|
|
|
|
|
|
|
|
|
|
Non-performing assets
|
|
|
|
|
|
|
|
to total loans:
|
|
5.46
|
%
|
3.42
|
%
|
5.13
|
%
|
to total assets:
|
|
4.45
|
%
|
2.92
|
%
|
4.37
|
%
|
Non-performing assets and 90+ days past due loans
|
|
|
|
|
|
|
|
to total loans:
|
|
5.54
|
%
|
3.76
|
%
|
5.40
|
%
|
to total assets:
|
|
4.52
|
%
|
3.20
|
%
|
4.60
|
%
|
25
|
|
As of September 30, 2009
|
|
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
|
|
$
|
18,993
|
|
7.6
|
%
|
$
|
|
|
|
|
-0.1
|
%
|
Montgomery,
MD
|
|
9,660
|
|
3.9
|
%
|
3,583
|
|
1.4
|
%
|
0.9
|
%
|
Prince Georges, MD
|
|
24,212
|
|
9.7
|
%
|
|
|
|
|
1.9
|
%
|
Other Counties in MD
|
|
4,879
|
|
2.0
|
%
|
|
|
|
|
0.4
|
%
|
Arlington/Alexandria, VA
|
|
45,077
|
|
18.1
|
%
|
5,632
|
|
2.3
|
%
|
|
|
Fairfax, VA
|
|
62,112
|
|
24.9
|
%
|
11,387
|
|
4.6
|
%
|
1.2
|
%
|
Culpeper/Fauquier, VA
|
|
1,025
|
|
0.4
|
%
|
200
|
|
0.1
|
%
|
0.1
|
%
|
Frederick, VA
|
|
13,131
|
|
5.3
|
%
|
6,750
|
|
2.7
|
%
|
0.8
|
%
|
Henrico, VA
|
|
|
|
0.0
|
%
|
|
|
|
|
0.1
|
%
|
Loudoun, VA
|
|
27,436
|
|
11.0
|
%
|
770
|
|
0.3
|
%
|
0.3
|
%
|
Prince William, VA
|
|
12,224
|
|
4.9
|
%
|
2,951
|
|
1.2
|
%
|
0.8
|
%
|
Spotsylvania, VA
|
|
871
|
|
0.3
|
%
|
|
|
|
|
|
|
Stafford, VA
|
|
22,421
|
|
9.0
|
%
|
4,898
|
|
2.0
|
%
|
|
|
Other Counties in VA
|
|
6,852
|
|
2.8
|
%
|
3,104
|
|
1.2
|
%
|
0.3
|
%
|
Outside VA, MD & DC
|
|
110
|
|
0.04
|
%
|
|
|
|
|
0.4
|
%
|
|
|
$
|
249,003
|
|
100.0
|
%
|
$
|
39,275
|
|
15.8
|
%
|
7.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009
|
|
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 as a % of Outstandings
|
|
District of Columbia
|
|
$
|
12,798
|
|
6.8
|
%
|
$
|
|
|
|
|
|
|
Montgomery, MD
|
|
1,413
|
|
0.7
|
%
|
|
|
|
|
|
|
Prince Georges, MD
|
|
10,374
|
|
5.5
|
%
|
|
|
|
|
|
|
Other Counties in MD
|
|
7,749
|
|
4.1
|
%
|
|
|
|
|
|
|
Arlington/Alexandria, VA
|
|
9,312
|
|
4.9
|
%
|
|
|
|
|
|
|
Fairfax, VA
|
|
15,651
|
|
8.3
|
%
|
|
|
|
|
5.8
|
%
|
Henrico, VA
|
|
807
|
|
0.4
|
%
|
|
|
|
|
|
|
Loudoun, VA
|
|
34,688
|
|
18.3
|
%
|
7,197
|
|
3.8
|
%
|
|
|
Prince William, VA
|
|
51,805
|
|
27.3
|
%
|
2,260
|
|
1.2
|
%
|
|
|
Spotsylvania, VA
|
|
10,138
|
|
5.4
|
%
|
|
|
|
|
|
|
Stafford, VA
|
|
27,937
|
|
14.7
|
%
|
|
|
|
|
|
|
Other Counties in VA
|
|
6,759
|
|
3.6
|
%
|
|
|
|
|
|
|
|
|
$
|
189,431
|
|
100.0
|
%
|
$
|
9,457
|
|
5.0
|
%
|
5.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009
|
|
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
|
|
$
|
54,649
|
|
5.1
|
%
|
$
|
|
|
|
|
|
|
Montgomery, MD
|
|
34,057
|
|
3.2
|
%
|
|
|
|
|
|
|
Prince Georges, MD
|
|
50,654
|
|
4.7
|
%
|
1,180
|
|
0.01
|
%
|
|
|
Other Counties in MD
|
|
48,439
|
|
4.5
|
%
|
|
|
|
|
|
|
Arlington/Alexandria, VA
|
|
173,479
|
|
16.2
|
%
|
4,138
|
|
0.4
|
%
|
0.02
|
%
|
Fairfax, VA
|
|
261,090
|
|
24.4
|
%
|
5,088
|
|
0.5
|
%
|
|
|
Culpeper/Fauquier, VA
|
|
1,658
|
|
0.2
|
%
|
|
|
|
|
|
|
Henrico, VA
|
|
31,306
|
|
2.9
|
%
|
|
|
|
|
|
|
Loudoun, VA
|
|
111,546
|
|
10.4
|
%
|
1,769
|
|
0.2
|
%
|
0.02
|
%
|
Prince William, VA
|
|
187,918
|
|
17.6
|
%
|
2,888
|
|
0.3
|
%
|
0.01
|
%
|
Spotsylvania, VA
|
|
12,868
|
|
1.2
|
%
|
|
|
|
|
|
|
Stafford, VA
|
|
22,107
|
|
2.1
|
%
|
|
|
|
|
|
|
Other Counties in VA
|
|
70,740
|
|
6.6
|
%
|
3,792
|
|
0.4
|
%
|
|
|
Outside VA, MD & DC
|
|
9,798
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
$
|
1,070,309
|
|
100.0
|
%
|
$
|
18,855
|
|
1.8
|
%
|
0.05
|
%
|
Of this total of $1.1
billion in non-farm/non-residential real estate loans, $10.1 million will
mature in the fourth quarter of 2009, $48.5 million in 2010, and $42.2 million
in 2011and $72.8 million in 2012
.
26
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 some extent
the 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,
2009, the Company had $1.57 billion, or 70.8%, 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,
2008, commercial real estate loans were $1.66 billion, or 71.9%, of total
loans. Total construction loans of $438.4 million at September 30, 2009,
represented 19.7% of total loans, loans secured by multi-family residential
properties of $68.0 million represented 3.1% of total loans, and loans secured
by non-farm, non-residential properties of $1.1 billion represented 48.0%.
Construction loans at September 30,
2009, included $235.4 million in loans to commercial builders of single family
residential property and $13.6 million to individuals on single family
residential property, together representing 11.2% 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 $189.4 million of construction loans on non-residential commercial property
at September 30, 2009, representing 8.5% of total loans. Total
construction loans of $438.4 million include $158.9 million in land acquisition
and or development loans on residential property and $103.1 million in land
acquisition and or development loans on commercial property, together totaling
$262.0 million, or 11.8% 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, 2009, 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 operating cash flows, collateral, the
evaluation of the creditworthiness of the individual borrower, guarantors
and/or the individual project; other salient factors.
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.
27
Non-Interest Income
For the three months
ended September 30, 2009, non-interest income reflects a loss of $7.6
million compared to $1.6 million in income in the same period of 2008 due to a
$9.1 million loss on other real estate owned and a $280 thousand impairment
loss on securities. The $9.1 million OREO loss resulted from carrying value
write-downs of four land development assets, based on pending sales
contracts/offers due to settle this fourth quarter or the first quarter of next
year. These losses are consistent with managements commitment to aggressive
disposition of OREO, rather than land banking assets with uncertain future
upside potential. Excluding these losses, non-interest income rose $195
thousand quarter-over-quarter with the majority of the increase in fees and net
gains on mortgage loans held-for-sale. Results were similar on a year-over-year
basis with non-interest income increasing $742 thousand, excluding the $9.1
million loss on other real estate owned and $418 thousand in impairment losses
on securities, due again to higher levels of fees and net gains on mortgage
loans held-for-sale.
Non-Interest Expense
Non-interest expense
increased $1.7 million, or 14.8%, from $11.3 million in the third quarter of
2008, to $12.9 million, and was up $6.3 million, or 18.9%, for the nine months
ended September 30, 2009, to $39.5 million. Compared to the second quarter
of 2009, non-interest expense is down $664 thousand. The majority of the year-over-year increases
were due to significantly higher FDIC insurance premiums, including a special
one-time assessment of $1.2 million in the second quarter of 2009, as well as
higher legal and professional services expenses associated with the resolution
of non-performing loans and OREO. As a result of these increases in expenses,
the efficiency ratio rose from 49.6% in the third quarter of 2008 to 55.4% in
the current period. Sequentially, the ratio improved slightly from 56.7%.
Provision for Income
Taxes
The Companys income tax provisions are
adjusted for non-deductible expenses and non-taxable interest after applying
the U.S. federal income tax rate of 35%.
For the nine months ended September 30, 2009, the Company recorded
an income tax benefit of $20.5 million as compared to a provision of $6.0
million for the same period in 2008, and the Company recorded a benefit of
$16.2 million for the three months ended September 30, 2009, as compared to
a provision of $1.3 million in 2008. The effects of non-deductible expenses and
non-taxable income on the Companys income tax provisions are minimal.
Liquidity
The Companys principal
sources of liquidity and funding are 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 conducive to 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 decreased $1.9 million, or 0.3%, from $637.7
million at December 31, 2008, to $639.6 million at September 30,
2009, due mostly to a decline in the level of loans maturing within one year.
Additional sources of
liquidity available to the Company include the capacity to borrow funds through
established short-term lines of credit with various correspondent banks, and
the Federal Home Loan Bank of Atlanta. Available funds from these liquidity
sources were approximately $498.8 million and $458.9 million at September 30,
2009, and December 31, 2008, respectively. The Banks available line of
credit with the Federal Home Loan Bank of Atlanta, which requires the pledging
of collateral in the form of certain loans and or securities, is $404.4 million
of which $70.9 million was available as of September 30, 2009, based on
presently pledged collateral.
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,
28
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 $460.8 million at September 30, 2009, and $502.3
million at December 31, 2008, 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, 2009,
and December 31, 2008, the Company had $50.9 million and $68.1 million,
respectively, in outstanding standby letters of credit.
Contractual Obligations
Since December 31,
2008, 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 million in preferred stock interests 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 11.48% at September 30, 2009, compared to 13.16% at December 31,
2008, and its total risk-based capital ratio was 12.73% at September 30,
2009, compared to 14.41% at December 31, 2008. These ratios are in excess
of the mandated minimum requirement of 4.00% and 8.00%, respectively. The
Banks leverage ratio was 10.17% at September 30, 2009, compared to 11.81%
at December 31, 2008. The Companys Tier 1 risk-based capital ratio, total
risk-based capital ratio, and leverage ratio was 11.53%, 12.78%, and 10.21%,
respectively, at September 30, 2009, compared to 13.07%, 14.44%, and
11.76% at December 31, 2008. The decrease in these capital ratios in 2009,
are due to net operating losses and dividends paid on preferred stock to the
U.S. Treasury.
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 through 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 may be adversely affected.
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
29
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,
2009, trust preferred securities represented 22.9% of the Companys Tier 1
capital and 20.7% 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 a
Securities Purchase 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 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 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 increase
its 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 Purchase
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 Warrants expire ten years from the date
of issuance. The number of shares of
common stock issuable pursuant to the Warrant will be reduced by one-half if,
on or prior to December 31, 2009, the Company receives aggregate gross
cash proceeds of not less than $71 million from qualified equity offerings
announced after October 13, 2008.
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.
Recent Accounting
Pronouncements
In December 2007,
the FASB issued Statement of Financial Accounting Standards No. 141(R),
Business Combinations (SFAS 141(R)) (ASC 805 Business Combinations). The
Standard significantly changed the financial accounting and reporting of
business combination transactions. SFAS
141(R) establishes principles for how an acquirer recognizes and measures
the identifiable assets acquired, liabilities assumed, and any noncontrolling
interest in the acquiree; recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase; and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS 141(R) is effective for acquisition
dates on or after the beginning of an entitys first year that begins after December 15,
2008. The Company/Bank does not expect
the implementation of SFAS 141(R) to have a material impact on its
consolidated financial statements, at this time.
In April 2009,
the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies
(ASC 805 Business Combinations). FSP FAS
141(R)-1 amends and clarifies SFAS 141(R) to address application issues on
initial recognition and measurement, subsequent measurement and accounting, and
disclosure of assets and liabilities arising from contingencies in a business
combination. The FSP is effective for
assets and liabilities arising from contingencies in business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. The Company does not expect the adoption of
FSP FAS 141(R)-1 to have a material impact on its consolidated financial
statements.
30
In April 2009,
the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly (ASC 820 Fair Value Measurements
and Disclosures). FSP FAS 157-4 provides
additional guidance for estimating fair value in accordance with SFAS 157 when
the volume and level of activity for the asset or liability have significantly
decreased. The FSP also includes
guidance on identifying circumstances that indicate a transaction is not
orderly. FSP FAS 157-4 is effective for
interim and annual periods ending after June 15, 2009, and shall be
applied prospectively. Earlier adoption
is permitted for periods ending after March 15, 2009. The Company does not expect the adoption of
FSP FAS 157-4 to have a material impact on its consolidated financial
statements.
In April 2009,
the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments (ASC 825 Financial Instruments and ASC 270
Interim Reporting). FSP FAS 107-1 and
APB 28-1 amends SFAS No. 107, Disclosures about Fair Value of Financial
Instruments, to require disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in annual
financial statements. In addition, the
FSP amends APB Opinion No. 28, Interim Financial Reporting, to require
those disclosures in summarized financial information at interim reporting
periods. The FSP is effective for
interim periods ending after June 15, 2009, with earlier adoption
permitted for periods ending after March 15, 2009. The Company does not expect the adoption of
FSP FAS 107-1 and APB 28-1 to have a material impact on its consolidated
financial statements.
In April 2009,
the FASB issued FSP FAS 115-1 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments (ASC 320 Investments Debt and Equity
Securities). FSP FAS 115-1 and FAS 124-2
amends other-than-temporary impairment guidance for debt securities to make
guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities. The FSP does not amend existing recognition
and measurement guidance related to other-than-temporary impairments of equity
securities. FSP FAS 115-1 and FAS 124-2
is effective for interim and annual periods ending after June 15, 2009,
with earlier adoption permitted for periods ending after March 15,
2009. The Company does not expect the
adoption of FSP FAS 115-1 and FAS 124-2 to have a material impact on its
consolidated financial statements.
In April 2009, the
Securities and Exchange Commission issued Staff Accounting Bulletin No. 111
(SAB 111). SAB 111 amends and replaces
SAB Topic 5.M. in the SAB Series entitled Other Than Temporary Impairment
of Certain Investments in Debt and Equity Securities. SAB 111 maintains the SEC Staffs previous
views related to equity securities and amends Topic 5.M. to exclude debt
securities from its scope. The Company
does not expect the implementation of SAB 111 to have a material impact on its
consolidated financial statements.
In May 2009, the
FASB issued Statement of Financial Accounting Standards No. 165,
Subsequent Events (ASC 855 Subsequent Events). SFAS 165 establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to be issued. SFAS
165 is effective for interim and annual periods ending after June 15,
2009. The Company does not expect the adoption of SFAS 165 to have a material
impact on its consolidated financial statements.
In June 2009, the
FASB issued Statement of Financial Accounting Standards No. 166,
Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140
(ASC 860 Transfers and Servicing). SFAS
166 provides guidance to improve the relevance, representational faithfulness,
and comparability of the information that a report 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.
SFAS 166 is effective for interim and annual periods ending after November 15,
2009. The Company does not expect the
adoption of SFAS 166 to have a material impact on its consolidated financial
statements.
In June 2009, the
FASB issued Statement of Financial Accounting Standards No. 167,
Amendments to FASB Interpretation No. 46(R) (ASC 810 Consolidation).
SFAS 167 improves financial reporting by enterprises involved with variable
interest entities. SFAS 167 is effective
for interim and annual periods ending after November 15, 2009. Early adoption is prohibited. The Company
does not expect the adoption of SFAS 167 to have a material impact on its
consolidated financial statements.
In June 2009, the
FASB issued Statement of Financial Accounting Standards No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles replacement of FASB Statement No. 162 (ASC 105
Generally Accepted Accounting Principles).
SFAS 168 establishes the FASB Accounting Standards Codification which
will become the source of authoritative U.S. generally accepted accounting
principles (GAAP) recognized by the FASB to be applied by nongovernmental
entities. SFAS 168 is
31
effective immediately.
The Company does not expect the adoption of SFAS 168 to have a material impact
on its consolidated financial statements.
In June 2009, the
FASB issued EITF Issue No. 09-1, Accounting for Own-Share Lending
Arrangements in Contemplation of Convertible Debt Issuance or Other Financing
(ASC 470 Debt). EITF Issue No. 09-1
clarifies how an entity should account for an own-share lending arrangement
that is entered into in contemplation of a convertible debt offering. EITF Issue No. 09-1 is effective for
arrangements entered into on or after June 15, 2009. Early adoption is
prohibited. The Company does not expect
the adoption of EITF Issue No. 09-1 to have a material impact on its
consolidated financial statements.
In June 2009, the
Securities and Exchange Commission issued Staff Accounting Bulletin No. 112
(SAB 112). SAB 112 revises or rescinds portions of the interpretative guidance
included in the codification of SABs in order to make the interpretive guidance
consistent with current U.S. GAAP. The
Company does not expect the adoption of SAB 112 to have a material impact on
its consolidated financial statements.
In August 2009, the
FASB issued Accounting Standards Update No. 2009-05 (ASU 2009-05), Fair
Value Measurements and Disclosures (Topic 820) Measuring Liabilities at Fair
Value. ASU 2009-05 amends Subtopic 820-10, Fair Value Measurements and
Disclosures Overall, and provides clarification for the fair value
measurement of liabilities. ASU 2009-05 is effective for the first reporting
period including interim period beginning after issuance. The Company does not expect the adoption of
ASU 2009-05 to have a material impact on its consolidated financial statements.
In September 2009,
the FASB issued Accounting Standards Update No. 2009-12 (ASU 2009-12),
Fair Value Measurements and Disclosures (Topic 820): Investments in Certain
Entities That Calculate Net Asset Value per Share (or Its Equivalent). ASU
2009-12 provides guidance on estimating the fair value of alternative
investments. ASU 2009-12 is effective for interim and annual periods ending
after December 15, 2009. The Company does not expect the adoption of ASU 2009-12
to have a material impact on its consolidated financial statements.
In October 2009, the
FASB issued Accounting Standards Update No. 2009-15 (ASU 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 Company does not expect the adoption of ASU 2009-15 to have a
material impact on its consolidated financial statements.
In October 2009, the
Securities and Exchange Commission issued Release No. 33-99072, Internal
Control over Financial Reporting in Exchange Act Periodic Reports of
Non-Accelerated Filers. Release No. 33-99072 delays the requirement for
non-accelerated filers to include an attestation report of their independent
auditor on internal control over financial reporting with their annual report
until the fiscal year ending on or after June 15, 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
us/stock information/financial information. 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 interest 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-
32
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.
One of the
tools used by the Company to assess interest sensitivity on a monthly basis is
the static gap analysis that measures the cumulative differences between the
amounts of assets and liabilities maturing or repricing within various time
periods. It is the Companys goal to limit the one-year cumulative difference,
or gap, in an attempt to limit changes in future net interest income from
changes in market interest rates. The following table shows a static gap
analysis reflecting the earlier of the maturity or repricing dates for various
assets, including prepayment and amortization estimates, and liabilities as of September 30,
2009. At that point in time, the Company had a cumulative net liability
sensitive one-year gap position of $225.8 million, or a negative 8.48% of total
interest-earning assets.
This position would
generally indicate that over a period of one-year net interest earnings should
decrease in a rising interest rate environment as more liabilities would
reprice than assets and should increase in a falling interest rate environment.
However, this measurement of interest rate risk sensitivity represents a static
position as of a single day and is not necessarily indicative of the Companys
position at any other point in time, does not take into account the differences
in sensitivity of yields and costs of specific assets and liabilities to
changes in market rates, and it does not take into account the specific timing
of when changes to a specific asset or liability will occur. More accurate measures
of interest sensitivity are provided to the Company using earnings simulation
models.
|
|
Interest Sensitivity Periods
|
|
At September 30, 2009
|
|
Within
|
|
91 to 365
|
|
Over 1 to 5
|
|
Over
|
|
|
|
(Dollars
in thousands)
|
|
90 Days
|
|
Days
|
|
Years
|
|
5 Years
|
|
Total
|
|
Interest Earning Assets
|
|
|
|
|
|
|
|
|
|
|
|
Securities,
at amortized cost
|
|
$
|
68,344
|
|
$
|
74,867
|
|
$
|
107,859
|
|
$
|
116,834
|
|
$
|
367,904
|
|
Interest
bearing deposits in other banks
|
|
56,413
|
|
|
|
|
|
|
|
56,413
|
|
Loans
held-for-sale
|
|
2,285
|
|
|
|
|
|
|
|
2,285
|
|
Loans,
net of unearned income
|
|
796,427
|
|
306,851
|
|
920,686
|
|
200,402
|
|
2,224,366
|
|
Total
interest earning assets
|
|
$
|
923,469
|
|
$
|
381,718
|
|
$
|
1,028,545
|
|
$
|
317,236
|
|
$
|
2,650,968
|
|
Interest Bearing Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
NOW
accounts
|
|
$
|
119,183
|
|
$
|
|
|
$
|
119,183
|
|
$
|
|
|
$
|
238,366
|
|
Money
market accounts
|
|
81,687
|
|
|
|
81,687
|
|
|
|
163,374
|
|
Savings
accounts
|
|
244,914
|
|
|
|
244,914
|
|
|
|
489,828
|
|
Time
deposits
|
|
393,639
|
|
566,024
|
|
155,149
|
|
29
|
|
1,114,841
|
|
Securities
sold under agreement to repurchase
|
|
110,531
|
|
|
|
75,000
|
|
|
|
185,531
|
|
Other
borrowed funds
|
|
|
|
|
|
25,000
|
|
|
|
25,000
|
|
Trust
preferred capital notes
|
|
15,000
|
|
|
|
25,000
|
|
25,000
|
|
65,000
|
|
Total
interest bearing liabilities
|
|
$
|
964,954
|
|
$
|
566,024
|
|
$
|
725,933
|
|
$
|
25,029
|
|
$
|
2,281,940
|
|
Cumulative
maturity / interest sensitivity gap
|
|
$
|
(41,485
|
)
|
$
|
(225,791
|
)
|
$
|
76,821
|
|
$
|
369,029
|
|
$
|
369,029
|
|
As %
of total earnings assets
|
|
-1.56
|
%
|
-8.52
|
%
|
2.90
|
%
|
13.92
|
%
|
|
|
In order to more closely
measure interest sensitivity, the Company uses earnings simulation models on a
quarterly basis. These models utilize the Companys financial data and various
management assumptions as to balance sheet growth and mix, interest rates,
operating expenses and other non-interest income sources to forecast a base
level of earnings over a one-year period. This base level of earnings is then
shocked assuming a 200 basis points higher and lower level of interest rates
(but not below zero) over the forecasted period. The most recent earnings
simulation model was run based on data as of September 30, 2009, and the
model projected that forecasted net interest income over a one-year period
would decrease by 6.0% if interest rates were to be 200 basis points higher
than expected, and
33
forecasted net interest
income would increase by 1.2% if interest rates were to be 100 basis points
lower than expected. As noted above, normally these earnings models are shocked
downward 200 basis points; however, as the Federal funds target rate dropped to
a range of 0% to 0.25%, the prime lending rate to 3.25%, and treasury yields to
historically low levels, a downward shock in rates of that magnitude was not
deemed practical, or likely to occur. Management believes the modeled results
are consistent with the short duration of its balance sheet and given the many variables
that effect the actual timing of when assets and liabilities will reprice,
including interest rate floors. 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
simulated results noted above 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,
under the supervision and with the participation of the Companys Chief
Executive Officer and Chief Financial Officer, evaluated, as of the last day of
the period covered by this report, the effectiveness of the design and
operation of the Companys disclosure controls and procedures, as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures were effective. There were no changes in the
Companys internal control over financial reporting (as defined in Rule 13a-15
under the Securities Act of 1934) during the quarter ended September 30,
2009, 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 to the risk factors as previously disclosed in the Companys Form 10-K
for the year ended December 31, 2008, except for the increase in the
level of non-performing assets and loan loss provisions discussed under Risk
Elements and Non-performing Assets.
Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds
(a)
Sales of Unregistered Securities.
- None
(b)
Use of Proceeds.-
Not Applicable.
(c)
Issuer Purchases of Securities.
- None
Item 3.
Defaults Upon Senior Securities - None
Item 4.
Submission of Matters to a Vote of Security Holders.-
None
Item 5.
Other Information.
(a)
Required 8-K Disclosures.
None
(b)
Changes in Procedures for Director Nominations by
Security Holders.
None
Item 6.
Exhibits
Exhibit No.
|
|
Description
|
3.1
|
|
Articles of
Incorporation of Virginia Commerce Bancorp, Inc., as amended (1)
|
3.2
|
|
Articles of Amendment
to the Articles of Incorporation relating to the Series A Preferred
Stock (2)
|
3.2
|
|
Bylaws of Virginia
Commerce Bancorp, Inc. (3)
|
4.1
|
|
Junior Subordinated
Indenture, dated as of December 19, 2002 between Virginia Commerce
Bancorp, Inc. and The Bank of New York, as Indenture Trustee (4)
|
34
Exhibit No.
|
|
Description
|
4.2
|
|
Amended and Restated
Declaration of Trust, dated as of December 19, 2002 among Virginia
Commerce Bancorp, Inc., The Bank of New York, as Property Trustee, The
Bank of New York (Delaware), as Delaware Trustee, and Peter A. Converse,
William K. Beauchesne and Marcia J. Hopkins as Administrative Trustees (4)
|
4.3
|
|
Guarantee Agreement
dated as of December 19, 2002, between Virginia Commerce
Bancorp, Inc. and The Bank of New York, as Guarantee Trustee (4)
|
4.4
|
|
Junior Subordinated
Indenture, dated as of December 20, 2005 between Virginia Commerce
Bancorp, Inc. and Wilmington Trust Company, as Trustee (4)
|
4.5
|
|
Amended and Restated
Declaration of Trust, dated as December 20, 2005, between Virginia
Commerce Bancorp, Inc. and Wilmington Trust Company, as Delaware Trustee
and Institutional Trustee, and Peter A. Converse, William K. Beauchesne and
Marcia J. Hopkins as Administrative Trustees (4)
|
4.6
|
|
Guarantee Agreement
dated as of December 20, 2005, between Virginia Commerce
Bancorp, Inc. and Wilmington Trust Company, as Guarantee Trustee (4)
|
4.7
|
|
Junior Subordinated
Indenture, dates as of September 24, 2008, between Virginia Commerce
Bancorp, Inc. and Wilmington Trust Company, as Indenture Trustee (5)
|
4.8
|
|
Amended and Restated
Declaration of Trust, dated as of September 24, 2008 among Virginia
Commerce Bancorp, Inc., Wilmington Trust Company, as Property Trustee,
Wilmington Trust Company (Delaware), as Delaware Trustee, and Peter A.
Converse, William K. Beauchesne and Jennifer Manning as Administrative
Trustees (5)
|
4.9
|
|
Guarantee Agreement
dated as of September 24, 2008, between Virginia Commerce
Bancorp, Inc. and Wilmington Trust Company, as Guarantee Trustee (5)
|
4.10
|
|
Warrant to Purchase
Common Stock issued in connection with 2008 Trust Preferred Securities (5)
|
4.11
|
|
Warrant to Purchase
Common Stock issued pursuant to Capital Purchase Program (6)
|
10.1
|
|
Amended and Restated
1998 Stock Option Plan (7)
|
10.2
|
|
Virginia Commerce
Bancorp Amended and Restated Employee Stock Purchase Plan (8)
|
10.3
|
|
2008 Virginia Commerce
Bank Executive and Director Deferred Compensation Plan (9)
|
11
|
|
Statement Regarding
Computation of Per Share Earnings
|
|
|
See
Note 4 to the Consolidated Financial Statements included in this report
|
21
|
|
Subsidiaries of the
Registrant:
|
|
|
Virginia
Commerce Bank-Virginia
|
|
|
VCBI
Capital Trust II-Delaware
|
|
|
VCBI
Capital Trust III-Delaware
|
|
|
VCBI
Capital Trust IV-Delaware
|
|
|
Subsidiaries of
Virginia Commerce Bank:
|
|
|
Northeast
Land and Investment Company-Virginia
|
|
|
Virginia
Commerce Insurance Agency, L.L.C.-Virginia
|
|
|
Tombstone
Land Company-Virginia
|
31.1
|
|
Certification of Peter
A. Converse, Chief Executive Officer
|
31.2
|
|
Certification of
William K. Beauchesne, Treasurer and Chief Financial Officer
|
32.1
|
|
Certification of Peter
A. Converse Chief Executive Officer
|
32.2
|
|
Certification of
William K. Beauchesne, Treasurer and Chief Financial Officer
|
(1)
|
Incorporated by
reference to the same numbered exhibit to the Companys Quarterly Report on
Form 10-K for the quarter ended March 31, 2006.
|
(2)
|
Incorporated by
reference to exhibit 3.1 to the Companys Current Report on Form 8-K
filed on December 15, 2008.
|
(3)
|
Incorporated by
reference to exhibit 3.2 to the Companys Current Report on Form 8-K
filed July 27, 2007.
|
(4)
|
Not filed in accordance
with the provisions of Item 601(b)(4)(iii) of Regulation S-K. Virginia
Commerce Bancorp, Inc. agrees to provide a copy of these documents to
the Commission upon request.
|
(5)
|
Incorporated by
reference to the Companys current report on Form 8-K filed on
September 25, 2008.
|
(6)
|
Incorporated by
reference to exhibit 4.1 to the Companys Current Report on Form 8-K
filed on December 15, 2008.
|
(7)
|
Incorporated by
reference to exhibit 4 to the Companys Registration Statement on
Form S-8 (No. 333-142447).
|
(8)
|
Incorporated by
reference to exhibit 4 to the Companys Registration Statement on
Form S-8 (No. 333-109079).
|
(9)
|
Incorporated by
reference to the Companys Annual Report on Form 10-K for the year ended
December 31, 2006.
|
35
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.
Date: November 9,
2009
|
BY
|
/s/ Peter A. Converse
|
|
Peter A. Converse,
Chief Executive Officer
|
|
|
|
|
|
|
Date: November 9,
2009
|
BY
|
/s/ William K.
Beauchesne
|
|
William K. Beauchesne,
Treasurer and Chief Financial Officer
|
36
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