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 March 31, 2011
or
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
to
Commission file number 000-28635
VIRGINIA COMMERCE BANCORP, INC.
(Exact name of registrant as specified in its charter)
|
|
|
VIRGINIA
|
|
54-1964895
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
5350 LEE HIGHWAY, ARLINGTON,
VIRGINIA 22207
(Address of principal executive offices) (Zip Code)
703-534-0700
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes
x
No
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).
¨
Yes
¨
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
|
|
|
|
|
|
|
Large accelerated filer
|
|
¨
|
|
Accelerated filer
|
|
x
|
|
|
|
|
Non-accelerated filer
|
|
¨
|
|
Smaller reporting company
|
|
¨
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes
¨
No
x
As of
May 9, 2011, the number of outstanding shares of registrants common stock, par value $1.00 per share, was: 29,644,925.
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
ITEM
1.
FINANCIAL STATEMENTS
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED
BALANCE SHEETS
(In thousands of dollars, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
March 31,
2011
|
|
|
(Audited)
December 31,
2010
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
41,089
|
|
|
$
|
36,932
|
|
Federal funds sold
|
|
|
85,399
|
|
|
|
10,455
|
|
Investment securities (fair value: 2011, $418,122; 2010, $412,653)
|
|
|
417,072
|
|
|
|
411,761
|
|
Restricted stocks, at cost
|
|
|
11,751
|
|
|
|
11,751
|
|
Loans held-for-sale
|
|
|
4,650
|
|
|
|
10,049
|
|
Loans, net of allowance for loan losses of $56,465 in 2011 and $62,442 in 2010
|
|
|
2,122,309
|
|
|
|
2,149,591
|
|
Bank premises and equipment, net
|
|
|
11,666
|
|
|
|
12,000
|
|
Accrued interest receivable
|
|
|
10,832
|
|
|
|
10,003
|
|
Other real estate owned, net of valuation allowance of $6,543 in 2011 and $6,782 in 2010
|
|
|
18,879
|
|
|
|
17,165
|
|
Other assets
|
|
|
59,986
|
|
|
|
71,941
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,783,633
|
|
|
$
|
2,741,648
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
290,385
|
|
|
$
|
264,744
|
|
Savings and interest-bearing demand deposits
|
|
|
1,187,395
|
|
|
|
1,201,288
|
|
Time deposits
|
|
|
779,190
|
|
|
|
781,169
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
2,256,970
|
|
|
$
|
2,247,201
|
|
Securities sold under agreement to repurchase and federal funds purchased
|
|
|
177,732
|
|
|
|
152,726
|
|
Other borrowed funds
|
|
|
25,000
|
|
|
|
25,000
|
|
Trust preferred capital notes
|
|
|
66,378
|
|
|
|
66,314
|
|
Accrued interest payable
|
|
|
2,753
|
|
|
|
2,751
|
|
Other liabilities
|
|
|
1,427
|
|
|
|
2,062
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
2,530,260
|
|
|
$
|
2,496,054
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Preferred stock, net of discount, $1.00 par, 1,000,000 shares authorized, Series A; $1,000 stated value; 71,000 issued and
outstanding in 2011 and 2010
|
|
$
|
65,873
|
|
|
$
|
65,445
|
|
Common stock, $1.00 par, 50,000,000 shares authorized, issued and outstanding 2011, 29,552,737 including 38,748 in unvested
restricted stock issued; 2010, 28,962,935
|
|
|
29,514
|
|
|
|
28,954
|
|
Surplus
|
|
|
107,372
|
|
|
|
105,056
|
|
Warrants
|
|
|
8,520
|
|
|
|
8,520
|
|
Retained earnings
|
|
|
42,859
|
|
|
|
39,208
|
|
Accumulated other comprehensive loss, net
|
|
|
(765
|
)
|
|
|
(1,589
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
$
|
253,373
|
|
|
$
|
245,594
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,783,633
|
|
|
$
|
2,741,648
|
|
|
|
|
|
|
|
|
|
|
Notes to consolidated financial statements are an integral part of these statements.
3
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
Interest and dividend income:
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
31,923
|
|
|
$
|
32,905
|
|
Interest and dividends on investment securities:
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
2,861
|
|
|
|
3,280
|
|
Tax-exempt
|
|
|
592
|
|
|
|
426
|
|
Dividend on restricted stocks
|
|
|
96
|
|
|
|
88
|
|
Interest on federal funds sold
|
|
|
45
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
Total interest and dividend income
|
|
$
|
35,517
|
|
|
$
|
36,727
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
7,023
|
|
|
$
|
9,428
|
|
Securities sold under agreement to repurchase and federal funds purchased
|
|
|
934
|
|
|
|
989
|
|
Other borrowed funds
|
|
|
266
|
|
|
|
266
|
|
Trust preferred capital notes
|
|
|
1,111
|
|
|
|
1,228
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
$
|
9,334
|
|
|
$
|
11,911
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
26,183
|
|
|
$
|
24,816
|
|
Provision for loan losses
|
|
|
5,843
|
|
|
|
4,238
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
$
|
20,340
|
|
|
$
|
20,578
|
|
|
|
|
|
|
|
|
|
|
Non-interest income:
|
|
|
|
|
|
|
|
|
Service charges and other fees
|
|
$
|
792
|
|
|
$
|
876
|
|
Non-deposit investment services commissions
|
|
|
253
|
|
|
|
129
|
|
Fees and net gains on loans held-for-sale
|
|
|
521
|
|
|
|
346
|
|
Gain on sale of securities available-for-sale
|
|
|
503
|
|
|
|
|
|
|
|
|
Total other-than-temporary impairment losses
|
|
|
(2,948
|
)
|
|
|
(4,466
|
)
|
Portion of loss recognized in other comprehensive income
|
|
|
2,216
|
|
|
|
3,615
|
|
|
|
|
|
|
|
|
|
|
Net impairment losses
|
|
|
(732
|
)
|
|
|
(851
|
)
|
Other
|
|
|
139
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
$
|
1,476
|
|
|
$
|
607
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
6,659
|
|
|
$
|
5,995
|
|
Occupancy expense
|
|
|
2,470
|
|
|
|
2,710
|
|
FDIC insurance
|
|
|
1,289
|
|
|
|
1,309
|
|
Loss on other real estate owned
|
|
|
156
|
|
|
|
918
|
|
Franchise tax expense
|
|
|
772
|
|
|
|
717
|
|
Data processing
|
|
|
655
|
|
|
|
674
|
|
Other operating expense
|
|
|
2,449
|
|
|
|
2,384
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
14,450
|
|
|
$
|
14,707
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
$
|
7,366
|
|
|
$
|
6,478
|
|
Provision for income taxes
|
|
|
2,400
|
|
|
|
2,009
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,966
|
|
|
$
|
4,469
|
|
|
|
|
|
|
|
|
|
|
Effective dividend on preferred stock
|
|
|
1,315
|
|
|
|
1,250
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
3,651
|
|
|
$
|
3,219
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share, basic
|
|
$
|
0.13
|
|
|
$
|
0.12
|
|
Earnings per common share, diluted
|
|
$
|
0.12
|
|
|
$
|
0.11
|
|
Notes to consolidated financial
statements are an integral part of these statements.
4
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
For the three months ended March 31, 2011 and 2010
(In thousands of dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Surplus
|
|
|
Warrants
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Comprehensive
Income
|
|
|
Total
Stockholders
Equity
|
|
Balance, January 1, 2010
|
|
$
|
63,993
|
|
|
$
|
26,745
|
|
|
$
|
96,588
|
|
|
$
|
8,520
|
|
|
$
|
22,671
|
|
|
$
|
351
|
|
|
|
|
|
|
$
|
218,868
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,469
|
|
|
|
|
|
|
$
|
4,469
|
|
|
|
4,469
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reclassification adjustment for impairment loss on securities (net of tax of $298)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
553
|
|
|
|
553
|
|
|
|
553
|
|
unrealized holding gains arising during the period (net of tax of $424)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
787
|
|
|
|
787
|
|
|
|
787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
|
|
|
|
189
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
307
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162
|
|
Discount on preferred stock
|
|
|
363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(887
|
)
|
|
|
|
|
|
|
|
|
|
|
(887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2010
|
|
$
|
64,356
|
|
|
$
|
26,934
|
|
|
$
|
96,868
|
|
|
$
|
8,520
|
|
|
$
|
25,890
|
|
|
$
|
1,691
|
|
|
|
|
|
|
$
|
224,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2011
|
|
$
|
65,445
|
|
|
$
|
28,954
|
|
|
$
|
105,056
|
|
|
$
|
8,520
|
|
|
$
|
39,208
|
|
|
$
|
(1,589
|
)
|
|
|
|
|
|
$
|
245,594
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,966
|
|
|
|
|
|
|
$
|
4,966
|
|
|
|
4,966
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reclassification adjustment for impairment loss on securities (net of tax of $256)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
476
|
|
|
|
476
|
|
|
|
476
|
|
reclassification adjustment for gain on securities (net of tax of $176)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(327
|
)
|
|
|
(327
|
)
|
|
|
(327
|
)
|
unrealized holding gains arising during the period (net of tax of $363)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
675
|
|
|
|
675
|
|
|
|
675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
|
|
|
|
|
|
|
426
|
|
|
|
2,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,501
|
|
Stock options exercised
|
|
|
|
|
|
|
134
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
243
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
|
|
Discount on preferred stock
|
|
|
428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(887
|
)
|
|
|
|
|
|
|
|
|
|
|
(887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2011
|
|
$
|
65,873
|
|
|
$
|
29,514
|
|
|
$
|
107,372
|
|
|
$
|
8,520
|
|
|
$
|
42,859
|
|
|
$
|
(765
|
)
|
|
|
|
|
|
$
|
253,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to consolidated financial statements are an integral part of these statements.
5
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,966
|
|
|
$
|
4,469
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
566
|
|
|
|
701
|
|
Provision for loan losses
|
|
|
5,843
|
|
|
|
4,238
|
|
Stock based compensation expense
|
|
|
132
|
|
|
|
162
|
|
Deferred tax expense (benefit)
|
|
|
3,175
|
|
|
|
(1,894
|
)
|
Accretion of trust preferred securities discount
|
|
|
64
|
|
|
|
64
|
|
Amortization of premiums and accretion of security discounts, net
|
|
|
202
|
|
|
|
147
|
|
Origination of loans held-for-sale
|
|
|
(24,023
|
)
|
|
|
(18,668
|
)
|
Sales of loans
|
|
|
28,986
|
|
|
|
21,909
|
|
Gain on sale of loans
|
|
|
436
|
|
|
|
246
|
|
Loss on other real estate owned
|
|
|
156
|
|
|
|
918
|
|
Gain on sale of securities available-for-sale
|
|
|
(503
|
)
|
|
|
|
|
Impairment loss on securities
|
|
|
732
|
|
|
|
851
|
|
Changes in other assets and other liabilities:
|
|
|
|
|
|
|
|
|
(Increase) decrease in accrued interest receivable
|
|
|
(829
|
)
|
|
|
524
|
|
Decrease in other assets
|
|
|
7,834
|
|
|
|
4,447
|
|
Decrease in other liabilities
|
|
|
(635
|
)
|
|
|
(754
|
)
|
Increase in accrued interest payable
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
$
|
27,104
|
|
|
$
|
17,360
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net decrease in loans
|
|
|
18,464
|
|
|
|
2,669
|
|
Purchase of securities available-for-sale
|
|
|
(34,823
|
)
|
|
|
(40,893
|
)
|
Proceeds from principal payments on securities available-for-sale
|
|
|
12,608
|
|
|
|
13,884
|
|
Proceeds from principal payments on securities held-to-maturity
|
|
|
1,520
|
|
|
|
1,962
|
|
Proceeds from calls and maturities of securities available-for-sale
|
|
|
3,503
|
|
|
|
39,786
|
|
Proceeds from calls and maturities of securities held-to-maturity
|
|
|
575
|
|
|
|
747
|
|
Proceeds from sale of securities available-for-sale
|
|
|
12,645
|
|
|
|
|
|
Purchase of bank premises and equipment
|
|
|
(232
|
)
|
|
|
(160
|
)
|
Proceeds from sale of other real estate owned
|
|
|
1,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By Investing Activities
|
|
$
|
15,365
|
|
|
$
|
17,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
$
|
9,769
|
|
|
$
|
70,662
|
|
Net increase in repurchase agreements and Federal funds purchased
|
|
|
25,006
|
|
|
|
2,344
|
|
Net proceeds from exercise of stock options and warrants
|
|
|
243
|
|
|
|
307
|
|
Net proceeds from issuance of common stock
|
|
|
2,501
|
|
|
|
|
|
Dividend paid on preferred stock
|
|
|
(887
|
)
|
|
|
(887
|
)
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
$
|
36,632
|
|
|
$
|
72,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase In Cash and Cash Equivalents
|
|
|
79,101
|
|
|
|
107,781
|
|
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
|
|
|
47,387
|
|
|
|
25,211
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS - END OF PERIOD
|
|
$
|
126,488
|
|
|
$
|
132,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Noncash Investing Activities:
|
|
|
|
|
|
|
|
|
Unrealized gain on available-for-sale securities
|
|
$
|
1,267
|
|
|
$
|
2,062
|
|
|
|
|
Tax benefits on stock options exercised
|
|
|
37
|
|
|
|
32
|
|
Other real estate owned transferred from loans
|
|
|
2,975
|
|
|
|
450
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Taxes Paid
|
|
$
|
|
|
|
$
|
|
|
Interest Paid
|
|
|
9,332
|
|
|
|
12,229
|
|
Notes to consolidated financial
statements are an integral part of these statements.
6
VIRGINIA COMMERCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited
consolidated financial statements of Virginia Commerce Bancorp, Inc. and its subsidiaries (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for
interim financial information. All significant intercompany balances and transactions have been eliminated. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments and reclassifications
consisting of a normal and recurring nature considered necessary to present fairly the financial positions as of March 31, 2011 and December 31, 2010, the results of operations for the three months ended March 31, 2011 and 2010, and
statements of cash flows and stockholders equity for the three months ended March 31, 2011 and 2010. These statements should be read in conjunction with the Companys annual report on Form 10-K for the year ended December 31,
2010. In preparing these financial statements, management has evaluated subsequent events and transactions for potential recognition or disclosure through the date these financial statements were issued. Management has concluded there were no
material subsequent events to be disclosed at this time.
Operating results for the three month periods ended March 31, 2011, are not
necessarily indicative of the results that may be expected for the year ending December 31, 2011, or any other period.
Fair Value
Measurements
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine
fair value disclosures. In accordance with the Fair Value Measurements and Disclosures Topic 820 of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC), the fair value of a
financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices.
However, in many instances, there are no quoted market prices for the Companys various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The recent fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that
is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there had been a significant decrease in the volume and level of activity for the asset or liability, a change
in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on
the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.
Fair Value Hierarchy
In accordance with
this guidance, the Company groups its financial assets and financial liabilities and certain non-financial assets generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the
reliability of the assumptions used to determine fair value.
Level 1 Valuation is based on quoted prices in active markets for
identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are
obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 Valuation
is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
7
Level 3 Valuation is based on unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well
as instruments for which determination of fair value requires significant management judgment or estimation.
An asset or liabilitys
categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The
following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:
Securities available for sale
: Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If
quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data.
Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that considers observable market data (Level 2).
The following table summarizes the Companys financial assets and liabilities measured at fair value on a recurring basis for March 31, 2011
and December 31, 2010, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2011 Using
|
|
(in thousands)
Description
|
|
Balance as of
March 31,
2011
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
316,871
|
|
|
$
|
|
|
|
$
|
316,871
|
|
|
$
|
|
|
Pooled trust preferred securities
|
|
$
|
444
|
|
|
$
|
|
|
|
$
|
444
|
|
|
$
|
|
|
Obligations of states and political subdivisions
|
|
$
|
64,581
|
|
|
$
|
|
|
|
$
|
64,581
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2010 Using
|
|
(in thousands)
Description
|
|
Balance as of
December 31,
2010
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
310,610
|
|
|
$
|
|
|
|
$
|
310,610
|
|
|
$
|
|
|
Pooled trust preferred securities
|
|
$
|
430
|
|
|
$
|
|
|
|
$
|
430
|
|
|
$
|
|
|
Obligations of states and political subdivisions
|
|
$
|
63,463
|
|
|
$
|
|
|
|
$
|
63,463
|
|
|
$
|
|
|
At March 31, 2011 and
December 31, 2010, the Company did not have any liabilities measured at fair value on a recurring basis.
8
Certain assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to
the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets. The following describes the valuation techniques used by the Company to measure certain assets recorded at
fair value on a nonrecurring basis in the financial statements:
Loans held for sale
: Loans held for sale are carried at the lower of
cost or market value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable
market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, the Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were
recorded on loans held for sale during the periods ended March 31, 2011, and December 31, 2010. Gains and losses on the sale of loans are recognized in fees and net gains on loans held-for-sale on the Consolidated Statements of Income.
Impaired Loans
: Loans are designated as impaired when, in the judgment of management based on current information and events, it is
probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of
the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate, financial assets, personal or business assets including equipment, inventory, and accounts receivable. The
vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company, using
observable market data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3. The value of business
equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable businesss financial statements if not considered significant, using observable market data. Likewise, values for inventory and accounts
receivables collateral are based on financial statement balances or aging reports (Level 3). Impaired loans are measured at fair value on a nonrecurring basis through the allowance for loan losses. Any fair value adjustments are recorded in the
period incurred as provision for loan losses on the Consolidated Statements of Income.
Other Real Estate Owned / Foreclosed Assets
:
Assets acquired through, or in lieu of, loan foreclosure are held-for-sale and are initially recorded at the lesser of book value or fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure,
valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation are included in net expenses for
foreclosed assets.
The following table summarizes the Companys assets that were measured at fair value on a nonrecurring basis for
March 31, 2011 and December 31, 2010, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value at March 31, 2011
|
|
(in thousands)
Description
|
|
Balance as of
March 31,
2011
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
90,133
|
|
|
$
|
|
|
|
$
|
77,702
|
|
|
$
|
12,431
|
|
Other real estate owned
|
|
$
|
18,879
|
|
|
$
|
|
|
|
$
|
17,111
|
|
|
$
|
1,768
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value at December 31, 2010
|
|
(in thousands)
Description
|
|
Balance as of
March 31,
2011
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
88,764
|
|
|
$
|
|
|
|
$
|
77,061
|
|
|
$
|
11,703
|
|
Other real estate owned
|
|
$
|
17,165
|
|
|
$
|
|
|
|
$
|
17,127
|
|
|
$
|
38
|
|
The following methods and assumptions
were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and
Short-Term Investments
For those short-term instruments, the carrying amount is a reasonable estimate of fair value.
Securities
For securities held for
investment purposes, fair values are based upon quoted market prices, when available. If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which
significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that
consider observable market data. The carrying value of restricted stock approximates fair value based on the redemption provisions of the issuers.
Loans Held-for-Sale
Fair value is based on the price secondary markets are currently
offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale.
Loan Receivables
For certain homogeneous categories of loans, such as some residential
mortgages, and other consumer loans, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting
the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
Deposits and Borrowings
The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable on demand at the reporting date. For all other deposits and borrowings, the fair value is determined using the discounted cash flow method. The discount rate was equal to the rate currently offered on
similar products.
Accrued Interest
The carrying amounts of accrued interest approximate fair value.
Off-Balance Sheet Financial
Instruments
The fair value of commitments to extend credit is estimated using the fees currently charged to enter similar agreements,
taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed
rates. The fair value of stand-by letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.
10
At March 31, 2011 and December 31, 2010, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
(Dollars in thousands)
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and short-term investments
|
|
$
|
126,488
|
|
|
$
|
126,488
|
|
|
$
|
47,387
|
|
|
$
|
47,387
|
|
Securities
|
|
|
417,072
|
|
|
|
418,122
|
|
|
|
411,761
|
|
|
|
412,653
|
|
Restricted stock
|
|
|
11,751
|
|
|
|
11,751
|
|
|
|
11,751
|
|
|
|
11,751
|
|
Loans held-for-sale
|
|
|
4,650
|
|
|
|
4,650
|
|
|
|
10,049
|
|
|
|
10,049
|
|
Loan receivables
|
|
|
2,122,309
|
|
|
|
2,185,472
|
|
|
|
2,149,591
|
|
|
|
2,224,687
|
|
Accrued interest receivable
|
|
|
10,832
|
|
|
|
10,832
|
|
|
|
10,003
|
|
|
|
10,003
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
(Dollars in thousands)
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
2,256,970
|
|
|
$
|
2,158,902
|
|
|
$
|
2,247,201
|
|
|
$
|
2,206,542
|
|
Securities sold under agreements to repurchase and federal funds purchased
|
|
|
177,732
|
|
|
|
197,370
|
|
|
|
152,726
|
|
|
|
173,105
|
|
Other borrowed funds
|
|
|
25,000
|
|
|
|
25,475
|
|
|
|
25,000
|
|
|
|
25,533
|
|
Trust preferred capital notes
|
|
|
66,378
|
|
|
|
81,221
|
|
|
|
66,314
|
|
|
|
81,461
|
|
Accrued interest payable
|
|
|
2,753
|
|
|
|
2,753
|
|
|
|
2,751
|
|
|
|
2,751
|
|
In the normal course of business, the
Company is subject to market risk which includes interest rate risk (the risk that general interest rate levels will change). As a result, the fair values of the Companys financial instruments will change when interest rate levels change and
that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize this risk.
Amortized cost and
fair value of the securities available-for-sale and held-to-maturity as of March 31, 2011 and December 31, 2010, are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Fair Value
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
314,743
|
|
|
$
|
4,353
|
|
|
$
|
(2,225
|
)
|
|
$
|
316,871
|
|
Pooled trust preferred securities
|
|
|
5,272
|
|
|
|
|
|
|
|
(4,828
|
)
|
|
|
444
|
|
Obligations of states and political subdivisions
|
|
|
63,061
|
|
|
|
1,817
|
|
|
|
(297
|
)
|
|
|
64,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
383,076
|
|
|
$
|
6,170
|
|
|
$
|
(7,350
|
)
|
|
$
|
381,896
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
5,459
|
|
|
$
|
275
|
|
|
$
|
|
|
|
$
|
5,734
|
|
Obligations of state and political subdivisions
|
|
|
29,717
|
|
|
|
916
|
|
|
|
(141
|
)
|
|
|
30,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,176
|
|
|
$
|
1,191
|
|
|
$
|
(141
|
)
|
|
$
|
36,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Fair Value
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
307,973
|
|
|
$
|
5,527
|
|
|
$
|
(2,890
|
)
|
|
$
|
310,610
|
|
Pooled trust preferred securities
|
|
|
5,919
|
|
|
|
|
|
|
|
(5,489
|
)
|
|
|
430
|
|
Obligations of states and political subdivisions
|
|
|
63,051
|
|
|
|
1,077
|
|
|
|
(665
|
)
|
|
|
63,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
376,943
|
|
|
$
|
6,604
|
|
|
$
|
(9,044
|
)
|
|
$
|
374,503
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
6,113
|
|
|
$
|
309
|
|
|
$
|
|
|
|
$
|
6,422
|
|
Obligations of state and political subdivisions
|
|
|
31,145
|
|
|
|
827
|
|
|
|
(244
|
)
|
|
|
31,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
37,258
|
|
|
$
|
1,136
|
|
|
$
|
(244
|
)
|
|
$
|
38,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost of securities pledged as collateral for repurchase agreements, certain public deposits, and other
purposes was $223.7 million and $258.2 million at March 31, 2011 and December 31, 2010, 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 March 31, 2011 and December 31, 2010, 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, does not expect to be required to sell these securities, and expects to
recover the entire amortized cost of all the securities. For U.S. Government Agency obligations and obligations of states and political subdivisions, the unrealized losses result from market or interest rate risk, while the unrealized losses
pertaining to the pooled trust preferred securities are due to both performance and credit ratings, as well as interest rate risk.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
Less Than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
(Dollars in thousands)
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
141,973
|
|
|
$
|
(2,225
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
141,973
|
|
|
$
|
(2,225
|
)
|
Pooled trust preferred securities
|
|
|
|
|
|
|
|
|
|
|
444
|
|
|
|
(4,828
|
)
|
|
|
444
|
|
|
|
(4,828
|
)
|
Obligations of states and political subdivisions
|
|
|
10,233
|
|
|
|
(297
|
)
|
|
|
|
|
|
|
|
|
|
|
10,233
|
|
|
|
(297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
152,206
|
|
|
$
|
(2,522
|
)
|
|
$
|
444
|
|
|
$
|
(4,828
|
)
|
|
$
|
152,650
|
|
|
$
|
(7,350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
$
|
1,359
|
|
|
$
|
(141
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,359
|
|
|
$
|
(141
|
)
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
Less Than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
(Dollars in thousands)
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
124,111
|
|
|
$
|
(2,890
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
124,111
|
|
|
$
|
(2,890
|
)
|
Pooled trust preferred securities
|
|
|
|
|
|
|
|
|
|
|
430
|
|
|
|
(5,489
|
)
|
|
|
430
|
|
|
|
(5,489
|
)
|
Obligations of states and political subdivisions
|
|
|
22,579
|
|
|
|
(665
|
)
|
|
|
|
|
|
|
|
|
|
|
22,579
|
|
|
|
(665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
146,690
|
|
|
$
|
(3,555
|
)
|
|
$
|
430
|
|
|
$
|
(5,489
|
)
|
|
$
|
147,120
|
|
|
$
|
(9,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
$
|
4,608
|
|
|
$
|
(244
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,608
|
|
|
$
|
(244
|
)
|
As of March 31, 2011 the Company had
three pooled trust preferred securities that were deemed to be other-than-temporarily impaired (OTTI) based on a present value analysis of expected future cash flows. The following table provides further information on these three
securities as of March 31, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Class
|
|
|
Current
Moodys
Ratings
(Lowest
Assigned
Rating)
|
|
|
Par
Value
|
|
|
Book
Value/
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Current
Defaults
and
Deferrals
|
|
|
% of Current
Defaults and
Deferrals to
Current
Collateral
|
|
|
Excess
Sub (1)
|
|
|
Estimated
Incremental
Defaults
Required to
Break Yield
(2)
|
|
|
Cumulative Other
Comprehensive
(Income) Loss (3)
|
|
|
Amount of
OTTI
Related to
Credit
Loss (3)
|
|
PreTSL VI
|
|
|
Mez
|
|
|
|
D
|
|
|
$
|
375
|
|
|
$
|
135
|
|
|
$
|
240
|
|
|
$
|
30,000
|
|
|
|
74
|
%
|
|
|
-61.11
|
%
|
|
|
BROKEN
|
|
|
$
|
(43
|
)
|
|
$
|
283
|
|
PreTSL X
|
|
|
B-1
|
|
|
|
C
|
|
|
|
924
|
|
|
|
27
|
|
|
|
897
|
|
|
|
217,595
|
|
|
|
46
|
%
|
|
|
-66.92
|
%
|
|
|
BROKEN
|
|
|
|
448
|
|
|
|
449
|
|
PreTSL
XXVI
|
|
|
C-2
|
|
|
|
C
|
|
|
|
1,819
|
|
|
|
8
|
|
|
|
1,811
|
|
|
|
285,000
|
|
|
|
30
|
%
|
|
|
-24.21
|
%
|
|
|
BROKEN
|
|
|
|
1,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
3,118
|
|
|
$
|
170
|
|
|
$
|
2,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,216
|
|
|
$
|
732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excess subordination is the difference between the remaining performing collateral and the amount of bonds outstanding that are pari passu and senior to the class the
Company owns. Negative excess subordination indicates there is not enough performing collateral in the pool to cover the outstanding balance of all classes senior to those the Company owns.
|
(2)
|
A break in yield for a given class means that defaults/deferrals have reached such a level that the class would not receive all of its contractual cash flows (principal
and interest) by maturity (so that it is not just a temporary interest shortfall, but an actual loss in yield on the investment). This represents additional defaults beyond those assumed in our cash flow modeling.
|
As of March 31, 2011, the
Company had one pooled trust preferred security that was deemed to be temporarily impaired based on a present value analysis of expected future cash flows. The security had a fair value of $274 thousand. The following table provides further
information on this security as of March 31, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Class
|
|
|
Current
Moodys
Ratings
(Lowest
Assigned
Rating)
|
|
|
Par
Value
|
|
|
Book
Value/
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Current
Defaults
and
Deferrals
|
|
|
% of Current
Defaults and
Deferrals to
Current
Collateral
|
|
|
Excess
Sub (1)
|
|
|
Estimated
Incremental
Defaults
Required to
Break Yield
(2)
|
|
|
Cumulative Other
Comprehensive
Loss (3)
|
|
|
Amount of
OTTI
Related to
Credit
Loss (3)
|
|
PreTSL
XXVII
|
|
|
B
|
|
|
|
Cc
|
|
|
$
|
2,886
|
|
|
$
|
274
|
|
|
$
|
2,612
|
|
|
$
|
88,300
|
|
|
|
27
|
%
|
|
|
-2.13
|
%
|
|
$
|
69,000
|
|
|
$
|
2,612
|
|
|
|
|
|
(1)
|
Excess subordination is the difference between the remaining performing collateral and the amount of bonds outstanding that are pari passu and senior to the class the
Company owns. Negative excess subordination indicates there is not enough performing collateral in the pool to cover the outstanding balance of all classes senior to those the Company owns.
|
(2)
|
A break in yield for a given class means that defaults/deferrals have reached such a level that the class would not receive all of its contractual cash flows (principal
and interest) by maturity (so that it is not just a temporary interest shortfall, but an actual loss in yield on the investment). This represents additional defaults beyond those assumed in our cash flow modeling.
|
13
These securities had a fair value of
$170 thousand and a cumulative other-than-temporary impairment loss of $6.4 million, of which $2.2 million has been recognized in other comprehensive loss, and $4.2 million has been recognized in earnings (in prior periods). The following table
presents a roll-forward of the credit loss component amount of OTTI recognized in earnings:
|
|
|
|
|
(in thousands)
|
|
|
|
Amount recognized through December 31, 2010
|
|
$
|
3,468
|
|
Additions:
|
|
|
|
|
Initial credit impairments
|
|
|
|
|
Subsequent credit impairments
|
|
|
732
|
|
|
|
|
|
|
Amount recognized through March 31, 2011
|
|
$
|
4,200
|
|
Management has evaluated each of
these securities for potential impairment under ASC 325 Investments-Other and the most recently issued related guidance, and has reviewed each of the issues collateral participants most recent earnings, capital and loan loss
reserve levels, and non-performing loan levels to estimate a future deferral and default rate in basis points for the remaining life of each security. As of March 31, 2011, we used 25 basis points for PreTSLs VI and X following an internal
credit assessment of one bank holding company whose issues were significant in relationship to the totals outstanding in each pool. The result was a down grading of that issuer from deferral to default. We used 75 basis points for PreTSL XXVI and 25
basis points for PreTSL XXVII in expected deferrals and defaults as a percentage of remaining collateral for future periods. In performing a detailed present value cash flow analysis for each security, the deferral and default rate was treated the
same. If this analysis results in a present value of expected cash flows that is less than the amortized cost basis of a security (that is, a credit loss exists), an OTTI is considered to have occurred. If there is no credit loss, any impairment is
considered temporary. The cash flow analysis we performed used discount rates equal to the credit spread at the time of purchase for each security and then added the current 3-month LIBOR spot rate. The analysis also assumed 15% recoveries on
deferrals after two years and prepayments of 1% per year on each security. As of March 31, 2011, there were 3 out of 5 performing issuers in PreTSL VI, 34 out of 54 in PreTSL X, 50 out of 74 in PreTSL XXVI, and 36 out of 49 in PreTSL
XXVII.
Our investment in Federal Home Loan Bank (FHLB) stock totaled $6.0 million at March 31, 2011. FHLB stock is generally
viewed as a long-term investment and as a restricted security, which is carried at cost, because there is no market for the stock, other than FHLBs or member institutions. Therefore, when evaluating FHLB stock for impairment, its value is based on
the ultimate recoverability of the par value rather than by recognizing temporary declines in value. Despite the FHLBs temporary suspension of repurchases of excess stock in 2010, in light of the FHLBs consistent payment of dividends in
2010 and consistent net income since the quarter ended June 30, 2009 through the first quarter of 2011, we do not consider this investment to be other-than-temporarily impaired at March 31, 2011, and no impairment has been recognized. FHLB
stock is shown in restricted stocks on the Consolidated Balance Sheets and is not part of the available-for-sale securities portfolio.
14
Major classes of loans, excluding
loans held-for-sale, are summarized at March 31, 2011 and December 31, 2010 as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
Commercial
|
|
$
|
226,845
|
|
|
$
|
218,600
|
|
Real estate 1-to-4 family residential:
|
|
|
|
|
|
|
|
|
Permanent first and second
|
|
|
265,696
|
|
|
|
269,514
|
|
Home equity loans and lines
|
|
|
126,413
|
|
|
|
131,397
|
|
|
|
|
|
|
|
|
|
|
Total Real estate 1-to-4 family residential
|
|
$
|
392,109
|
|
|
$
|
400,911
|
|
Real estate multi-family residential
|
|
|
89,771
|
|
|
|
77,316
|
|
Real estate non-farm/non-residential:
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
462,744
|
|
|
|
464,368
|
|
Non-owner occupied
|
|
|
651,729
|
|
|
|
674,448
|
|
|
|
|
|
|
|
|
|
|
Total Real estate non-farm/non-residential
|
|
$
|
1,114,473
|
|
|
$
|
1,138,816
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
Residential
|
|
|
165,547
|
|
|
|
177,582
|
|
Commercial
|
|
|
180,544
|
|
|
|
187,028
|
|
|
|
|
|
|
|
|
|
|
Total Real estate construction
|
|
$
|
346,091
|
|
|
$
|
364,610
|
|
Consumer
|
|
|
10,650
|
|
|
|
12,557
|
|
Farmland
|
|
|
2,456
|
|
|
|
2,418
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
2,182,395
|
|
|
$
|
2,215,228
|
|
|
|
|
|
|
|
|
|
|
Less unearned income
|
|
|
3,621
|
|
|
|
3,195
|
|
Less allowance for loan losses
|
|
|
56,465
|
|
|
|
62,442
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
2,122,309
|
|
|
$
|
2,149,591
|
|
|
|
|
|
|
|
|
|
|
Classes of loans by risk rating as of March 31, 2011, excluding loans held-for-sale, are summarized as follows (dollars
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal Risk Rating Grades
|
|
Pass
|
|
|
Watch
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
Loans
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
147,967
|
|
|
$
|
41,806
|
|
|
$
|
4,353
|
|
|
$
|
30,575
|
|
|
$
|
2,144
|
|
|
$
|
226,845
|
|
Real estate 1-to-4 family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent first and second
|
|
|
212,875
|
|
|
|
18,700
|
|
|
|
7,392
|
|
|
|
26,729
|
|
|
|
|
|
|
|
265,696
|
|
Home equity loans and lines
|
|
|
110,532
|
|
|
|
5,359
|
|
|
|
1,646
|
|
|
|
8,621
|
|
|
|
255
|
|
|
|
126,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate 1-to-4 family residential
|
|
$
|
323,407
|
|
|
$
|
24,059
|
|
|
$
|
9,038
|
|
|
$
|
35,350
|
|
|
$
|
255
|
|
|
$
|
392,109
|
|
Real estate multi-family residential
|
|
|
73,053
|
|
|
|
16,223
|
|
|
|
495
|
|
|
|
|
|
|
|
|
|
|
|
89,771
|
|
Real estate non-farm/non-residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
358,709
|
|
|
|
55,031
|
|
|
|
16,700
|
|
|
|
32,304
|
|
|
|
|
|
|
|
462,744
|
|
Non-owner occupied
|
|
|
433,978
|
|
|
|
141,492
|
|
|
|
12,343
|
|
|
|
63,916
|
|
|
|
|
|
|
|
651,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real estate non-farm/non-residential
|
|
$
|
792,687
|
|
|
$
|
196,523
|
|
|
$
|
29,043
|
|
|
$
|
96,220
|
|
|
$
|
|
|
|
$
|
1,114,473
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
52,595
|
|
|
|
30,994
|
|
|
|
26,008
|
|
|
|
55,950
|
|
|
|
|
|
|
|
165,547
|
|
Commercial
|
|
|
55,863
|
|
|
|
68,415
|
|
|
|
28,000
|
|
|
|
28,266
|
|
|
|
|
|
|
|
180,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real estate construction
|
|
$
|
108,458
|
|
|
$
|
99,409
|
|
|
$
|
54,008
|
|
|
$
|
84,216
|
|
|
$
|
|
|
|
$
|
346,091
|
|
Consumer
|
|
|
10,229
|
|
|
|
212
|
|
|
|
37
|
|
|
|
172
|
|
|
|
|
|
|
|
10,650
|
|
Farmland
|
|
|
2,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,458,257
|
|
|
$
|
378,232
|
|
|
$
|
96,974
|
|
|
$
|
246,533
|
|
|
$
|
2,399
|
|
|
$
|
2,182,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Classes of loans by risk rating as of December 31, 2010, excluding loans held-for-sale, are summarized
as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal Risk Rating Grades
|
|
Pass
|
|
|
Watch
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
Loans
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
135,287
|
|
|
$
|
34,544
|
|
|
$
|
16,332
|
|
|
$
|
30,305
|
|
|
$
|
2,132
|
|
|
$
|
218,600
|
|
Real estate 1-to-4 family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent first and second
|
|
|
214,844
|
|
|
|
12,832
|
|
|
|
14,294
|
|
|
|
25,944
|
|
|
|
1,600
|
|
|
|
269,514
|
|
Home equity loans and lines
|
|
|
113,600
|
|
|
|
6,685
|
|
|
|
1,736
|
|
|
|
9,118
|
|
|
|
258
|
|
|
|
131,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate 1-to-4 family residential
|
|
$
|
328,444
|
|
|
$
|
19,517
|
|
|
$
|
16,030
|
|
|
$
|
35,062
|
|
|
$
|
1,858
|
|
|
$
|
400,911
|
|
Real Estate - multi-family residential
|
|
|
62,651
|
|
|
|
14,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,316
|
|
Real Estate Non-farm/Non-residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner Occupied
|
|
|
351,744
|
|
|
|
46,026
|
|
|
|
27,652
|
|
|
|
38,946
|
|
|
|
|
|
|
|
464,368
|
|
Non-Owner Occupied
|
|
|
455,172
|
|
|
|
122,993
|
|
|
|
36,997
|
|
|
|
59,286
|
|
|
|
|
|
|
|
674,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate Non-farm/Non-residential
|
|
$
|
806,916
|
|
|
$
|
169,019
|
|
|
$
|
64,649
|
|
|
$
|
98,232
|
|
|
$
|
|
|
|
$
|
1,138,816
|
|
Real Estate Construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
55,646
|
|
|
|
34,123
|
|
|
|
34,649
|
|
|
|
53,164
|
|
|
|
|
|
|
|
177,582
|
|
Commercial
|
|
|
52,286
|
|
|
|
52,006
|
|
|
|
52,169
|
|
|
|
30,567
|
|
|
|
|
|
|
|
187,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate Construction
|
|
$
|
107,932
|
|
|
$
|
86,129
|
|
|
$
|
86,818
|
|
|
$
|
83,731
|
|
|
$
|
|
|
|
$
|
364,610
|
|
Consumer
|
|
|
12,153
|
|
|
|
170
|
|
|
|
67
|
|
|
|
167
|
|
|
|
|
|
|
|
12,557
|
|
Farmland
|
|
|
2,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,455,801
|
|
|
$
|
324,044
|
|
|
$
|
183,896
|
|
|
$
|
247,497
|
|
|
$
|
3,990
|
|
|
$
|
2,215,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan risk-ratings for the Bank are defined as follows:
Pass. Loans to persons or entities with a strong to acceptable financial condition, adequate collateral margins, adequate cash flow to service long-term debt, adequate liquidity and sound net worth. These
entities are profitable now, with projections indicating continued profitability into the foreseeable future. Closely held corporations or businesses where a majority of the profits are withdrawn by the owners or paid in dividends are included in
this rating category. Overall, these loans are basically sound.
Watch. These loans are characterized by greater than average risk. Borrowers
may have marginal cash flow, marginal profitability, or have experienced an unprofitable year and a declining financial condition. The borrower has in the past satisfactorily handled debts with the Bank, but in recent months has either been late,
delinquent in making payments, or made sporadic payments. While the Bank continues to be adequately secured, margins have decreased or are decreasing, despite the borrowers continued satisfactory condition. Other characteristics of borrowers
in this class may include inadequate credit or financial information. This classification includes loans to established borrowers that are reasonably margined by collateral, but where potential for improvement in financial capacity appears limited.
Special Mention. Loans in this category have potential weaknesses that deserve managements close attention. If left uncorrected, these
potential weaknesses
can
result in deteriorating prospects for the asset or in the institutions credit position at some future date. Other assets especially mentioned (OAEMs) are not adversely classified and do not expose an
institution to sufficient risk to warrant adverse classification.
Substandard. A loan classified as substandard is inadequately protected by
the sound worth and paying capacity of the borrower or the collateral pledged. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual assets.
Doubtful. A loan classified as doubtful has all the weaknesses inherent in a loan classified as substandard, with the added characteristic that the
weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. These are poor quality loans in which neither the collateral, if any, nor the financial
condition of the borrower presently ensure collectability in full in a reasonable period of time; in fact, there is permanent impairment in the collateral securing the Banks loan. These loans are in a work-out status and have a defined
work-out strategy.
Loss. Loans classified as loss are considered uncollectible and of such little value that their continuance as bankable
assets is not warranted. The Bank takes losses in the period in which they become uncollectible.
16
As of March 31, 2011 and 2010, there were $270 thousand and $230 thousand, respectively, in checking
account overdrafts that were reclassified on the consolidated balance sheets as loans.
4.
|
Allowance for Loan Losses
|
An analysis of
the allowance for loan losses for the three months ended March 31, 2011, and the year ended December 31, 2010 is shown below (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
Allowance, at beginning of period
|
|
$
|
62,442
|
|
|
$
|
65,152
|
|
Provision charged against income
|
|
|
5,843
|
|
|
|
20,594
|
|
Recoveries added to reserve
|
|
|
311
|
|
|
|
4,174
|
|
Losses charged to reserve
|
|
|
(12,131
|
)
|
|
|
(27,478
|
)
|
|
|
|
|
|
|
|
|
|
Allowance, at end of period
|
|
$
|
56,465
|
|
|
$
|
62,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan
Losses - By Segment
(dollars in thousands)
For the three
months ended
March 31, 2011
|
|
Commercial
|
|
|
Non-Farm,
Non-Res.
Real
Estate
|
|
|
Real Estate
Construction
|
|
|
Consumer
|
|
|
Real Estate
1-4
Family
Residential
|
|
|
Real Estate
Multi-
Family
|
|
|
Farmland
|
|
|
Unallocated
|
|
|
Total
|
|
2011 Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
9,972
|
|
|
$
|
16,453
|
|
|
$
|
26,584
|
|
|
$
|
373
|
|
|
$
|
8,337
|
|
|
$
|
619
|
|
|
$
|
63
|
|
|
$
|
41
|
|
|
$
|
62,442
|
|
Charge-offs
|
|
|
(639
|
)
|
|
|
(1,587
|
)
|
|
|
(7,557
|
)
|
|
|
(18
|
)
|
|
|
(2,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,131
|
)
|
Recoveries
|
|
|
245
|
|
|
|
3
|
|
|
|
51
|
|
|
|
8
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
311
|
|
Provision
|
|
|
(24
|
)
|
|
|
321
|
|
|
|
1,880
|
|
|
|
18
|
|
|
|
3,584
|
|
|
|
99
|
|
|
|
18
|
|
|
|
(53
|
)
|
|
|
5,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
9,554
|
|
|
$
|
15,190
|
|
|
$
|
20,958
|
|
|
$
|
381
|
|
|
$
|
9,595
|
|
|
$
|
718
|
|
|
$
|
81
|
|
|
$
|
(12
|
)
|
|
$
|
56,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
4,000
|
|
|
$
|
8,052
|
|
|
|
9,740
|
|
|
$
|
67
|
|
|
$
|
4,446
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
26,305
|
|
Collectively evaluated for impairment
|
|
|
5,554
|
|
|
|
7,138
|
|
|
|
11,218
|
|
|
|
314
|
|
|
|
5,149
|
|
|
|
718
|
|
|
|
81
|
|
|
|
(12
|
)
|
|
|
30,160
|
|
|
|
|
|
|
|
|
|
|
|
Financing Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
226,845
|
|
|
$
|
1,114,473
|
|
|
$
|
346,091
|
|
|
$
|
10,650
|
|
|
$
|
392,109
|
|
|
$
|
89,771
|
|
|
$
|
2,456
|
|
|
$
|
|
|
|
$
|
2,182,395
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
|
32,719
|
|
|
|
100,697
|
|
|
|
89,644
|
|
|
|
176
|
|
|
|
36,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259,549
|
|
Collectively evaluated for impairment
|
|
$
|
194,126
|
|
|
$
|
1,013,776
|
|
|
$
|
256,447
|
|
|
$
|
10,474
|
|
|
$
|
355,796
|
|
|
$
|
89,771
|
|
|
$
|
2,456
|
|
|
$
|
|
|
|
$
|
1,922,846
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan
Losses - By Segment
(dollars in thousands)
For the twelve
months
December 31, 2010
|
|
Commercial
|
|
|
Non-Farm,
Non-Res.
Real
Estate
|
|
|
Real Estate
Construction
|
|
|
Consumer
|
|
|
Real Estate
1-4
Family
Residential
|
|
|
Real Estate
Multi-
Family
|
|
|
Farmland
|
|
|
Unallocated
|
|
|
Total
|
|
2010 Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
9,972
|
|
|
$
|
16,453
|
|
|
$
|
26,666
|
|
|
$
|
373
|
|
|
$
|
8,337
|
|
|
$
|
619
|
|
|
$
|
63
|
|
|
$
|
(41
|
)
|
|
$
|
62,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
|
4,009
|
|
|
|
9,689
|
|
|
|
14,999
|
|
|
|
60
|
|
|
|
3,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,180
|
|
Collectively evaluated for impairment
|
|
|
5,963
|
|
|
|
6,764
|
|
|
|
11,667
|
|
|
|
313
|
|
|
|
4,914
|
|
|
|
619
|
|
|
|
63
|
|
|
|
(41
|
)
|
|
|
30,262
|
|
|
|
|
|
|
|
|
|
|
|
Financing Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
218,600
|
|
|
$
|
1,138,816
|
|
|
$
|
364,610
|
|
|
$
|
12,557
|
|
|
$
|
400,911
|
|
|
$
|
77,316
|
|
|
$
|
2,418
|
|
|
$
|
|
|
|
$
|
2,215,228
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
|
33,660
|
|
|
|
105,756
|
|
|
|
90,444
|
|
|
|
167
|
|
|
|
37,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
267,655
|
|
Collectively evaluated for impairment
|
|
$
|
184,940
|
|
|
$
|
1,033,060
|
|
|
$
|
274,166
|
|
|
$
|
12,390
|
|
|
$
|
363,283
|
|
|
$
|
77,316
|
|
|
$
|
2,418
|
|
|
$
|
|
|
|
$
|
1,947,573
|
|
Information about impaired loans as
of and for the three months ended March 31, 2011 and the year ended December 31, 2010 is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
Non-accrual loans for which a specific allowance has been provided
|
|
$
|
30,128
|
|
|
$
|
27,717
|
|
Non-accrual loans for which no specific allowance has been provided
|
|
|
24,481
|
|
|
|
29,441
|
|
Other impaired loans for which a specific allowance has been provided
|
|
|
86,309
|
|
|
|
93,227
|
|
Other impaired loans for which no specific allowance has been provided
|
|
|
118,631
|
|
|
|
117,270
|
|
Total impaired loans
|
|
$
|
259,549
|
|
|
$
|
267,655
|
|
|
|
|
|
|
|
|
|
|
Allowance provided for impaired loans, included in the allowance for loan losses
|
|
$
|
26,305
|
|
|
$
|
32,180
|
|
|
|
|
|
|
|
|
|
|
Average balance in impaired loans
|
|
$
|
259,533
|
|
|
$
|
254,014
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized
|
|
$
|
2,981
|
|
|
$
|
10,977
|
|
|
|
|
|
|
|
|
|
|
A loans past due status is based on the contractual due date of the most delinquent payment due. Loans are generally
placed on non-accrual status when the collection of principal or interest is 90 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the
borrower. Loans greater than 90 days past due may remain on accrual status if management determines it has adequate collateral to cover the principal and interest. For those loans that are carried on non-accrual status, payments are first applied to
principal outstanding. A loan may be returned to accrual status if the borrower has demonstrated a sustained period of repayment performance in accordance with the contractual terms of the loan and there is reasonable assurance the borrower will
continue to make payments as agreed. These policies are applied consistently across our loan portfolio.
Included in certain loan categories
in the impaired loans are troubled debt restructurings that were classified as impaired. At March 31, 2011, the Company had $29.8 million in real estate construction, $5.5 million in real estate permanent one-to-four- family, $46.5 million in
non-farm/non-residential and $10.1 million in commercial that were modified in troubled debt restructurings and considered impaired. Included in this amount of $91.9 million, the Bank had troubled debt restructurings that were performing in
accordance with their modified terms of $87.2 million at March 31, 2011.
18
Information about past due loans and impaired loans as of March 31, 2011 and December 31, 2010,
is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
Non Accrual and Past Due by Class
|
|
30-59
Days
Past
Due
|
|
|
60-89
Days
Past
Due
|
|
|
90+ Days
Past Due
|
|
|
Total
Past Due
|
|
|
Current(1)
|
|
|
Total Loans
|
|
|
90+ Days
Past Due
and Still
Accruing
|
|
|
Non-
Accrual
Loans
|
|
Commercial
|
|
$
|
1,105
|
|
|
$
|
254
|
|
|
$
|
4,866
|
|
|
$
|
6,225
|
|
|
$
|
220,620
|
|
|
$
|
226,845
|
|
|
$
|
|
|
|
$
|
5,622
|
|
Real estate 1-to-4 family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines
|
|
|
89
|
|
|
|
|
|
|
|
2,610
|
|
|
|
2,699
|
|
|
|
123,714
|
|
|
|
126,413
|
|
|
|
|
|
|
|
3,325
|
|
Permanent first and second
|
|
|
2,271
|
|
|
|
853
|
|
|
|
949
|
|
|
|
4,073
|
|
|
|
261,623
|
|
|
|
265,696
|
|
|
|
|
|
|
|
2,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate 1-to-4 family residential
|
|
$
|
2,360
|
|
|
$
|
853
|
|
|
$
|
3,559
|
|
|
$
|
6,772
|
|
|
$
|
385,337
|
|
|
$
|
392,109
|
|
|
$
|
|
|
|
$
|
6,106
|
|
Real estate multi-family residential
|
|
|
|
|
|
|
495
|
|
|
|
|
|
|
|
495
|
|
|
|
89,276
|
|
|
|
89,771
|
|
|
|
|
|
|
|
|
|
Real estate nonfarm/nonresidential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
|
|
|
|
|
|
|
|
8,553
|
|
|
|
8,553
|
|
|
|
454,191
|
|
|
|
462,744
|
|
|
|
25
|
|
|
|
8,016
|
|
Non-owner occupied
|
|
|
1,593
|
|
|
|
4,347
|
|
|
|
1,079
|
|
|
|
7,019
|
|
|
|
644,710
|
|
|
|
651,729
|
|
|
|
|
|
|
|
1,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate nonfarm/nonresidential
|
|
$
|
1,593
|
|
|
$
|
4,347
|
|
|
$
|
9,632
|
|
|
$
|
15,572
|
|
|
$
|
1,098,901
|
|
|
$
|
1,114,473
|
|
|
$
|
25
|
|
|
$
|
10,004
|
|
Real estate-construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
968
|
|
|
|
951
|
|
|
|
16,241
|
|
|
|
18,160
|
|
|
|
147,387
|
|
|
|
165,547
|
|
|
|
|
|
|
|
24,234
|
|
Commercial
|
|
|
|
|
|
|
3,154
|
|
|
|
5,472
|
|
|
|
8,626
|
|
|
|
171,918
|
|
|
|
180,544
|
|
|
|
|
|
|
|
8,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real estate construction
|
|
$
|
968
|
|
|
$
|
4,105
|
|
|
$
|
21,713
|
|
|
$
|
26,786
|
|
|
$
|
319,305
|
|
|
$
|
346,091
|
|
|
$
|
|
|
|
$
|
32,859
|
|
Consumer
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
10,587
|
|
|
|
10,650
|
|
|
|
|
|
|
|
18
|
|
Farmland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,456
|
|
|
|
2,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
6,089
|
|
|
$
|
10,054
|
|
|
$
|
39,770
|
|
|
$
|
55,913
|
|
|
$
|
2,126,482
|
|
|
$
|
2,182,395
|
|
|
$
|
25
|
|
|
$
|
54,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For the purposes of this table, loans 1-29 days past due are included in the balance of Current loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
Non Accrual and Past Due by Class
|
|
30-59
Days
Past
Due
|
|
|
60-89
Days
Past
Due
|
|
|
90+ Days
Past Due
|
|
|
Total
Past Due
|
|
|
Current(1)
|
|
|
Total Loans
|
|
|
90+ Days
Past Due
and Still
Accruing
|
|
|
Non-
Accrual
Loans
|
|
Commercial
|
|
$
|
2,642
|
|
|
$
|
157
|
|
|
$
|
3,542
|
|
|
$
|
6,341
|
|
|
$
|
212,259
|
|
|
$
|
218,600
|
|
|
$
|
|
|
|
$
|
3,719
|
|
Real estate 1-to-4 family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines
|
|
|
734
|
|
|
|
4,028
|
|
|
|
4,631
|
|
|
|
9,393
|
|
|
|
260,121
|
|
|
|
269,514
|
|
|
|
|
|
|
|
5,285
|
|
Permanent first and second
|
|
|
2,225
|
|
|
|
679
|
|
|
|
1,472
|
|
|
|
4,376
|
|
|
|
127,021
|
|
|
|
131,397
|
|
|
|
242
|
|
|
|
1,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate 1-to-4 family residential
|
|
$
|
2,959
|
|
|
$
|
4,707
|
|
|
$
|
6,103
|
|
|
$
|
13,769
|
|
|
$
|
387,142
|
|
|
$
|
400,911
|
|
|
$
|
242
|
|
|
$
|
6,814
|
|
Real estate multi-family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,316
|
|
|
|
77,316
|
|
|
|
|
|
|
|
|
|
Real estate nonfarm, nonresidential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1,909
|
|
|
|
|
|
|
|
8,942
|
|
|
|
10,851
|
|
|
|
453,517
|
|
|
|
464,368
|
|
|
|
|
|
|
|
8,942
|
|
Non-owner occupied
|
|
|
|
|
|
|
|
|
|
|
4,114
|
|
|
|
4,114
|
|
|
|
670,334
|
|
|
|
674,448
|
|
|
|
|
|
|
|
4,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate nonfarm/nonresidential
|
|
$
|
1,909
|
|
|
$
|
|
|
|
|
13,056
|
|
|
$
|
14,965
|
|
|
$
|
1,123,851
|
|
|
$
|
1,138,816
|
|
|
$
|
|
|
|
|
13,056
|
|
Real estate-construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
27,189
|
|
|
|
27,189
|
|
|
|
150,393
|
|
|
|
177,582
|
|
|
|
|
|
|
|
27,189
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
6,361
|
|
|
|
6,361
|
|
|
|
180,667
|
|
|
|
187,028
|
|
|
|
|
|
|
|
6,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real estate-construction
|
|
$
|
|
|
|
$
|
|
|
|
$
|
33,550
|
|
|
$
|
33,550
|
|
|
$
|
331,060
|
|
|
$
|
364,610
|
|
|
$
|
|
|
|
|
33,550
|
|
Consumer
|
|
|
347
|
|
|
|
|
|
|
|
19
|
|
|
|
366
|
|
|
|
12,191
|
|
|
|
12,557
|
|
|
|
|
|
|
|
19
|
|
Farmland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,418
|
|
|
|
2,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
7,857
|
|
|
$
|
4,864
|
|
|
$
|
56,270
|
|
|
$
|
68,991
|
|
|
$
|
2,146,237
|
|
|
$
|
2,215,228
|
|
|
$
|
242
|
|
|
$
|
57,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For the purposes of this table, loans 1-29 days past due are included in the balance of Current loans.
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans as of 3/31/2011
|
|
Recorded
Investment
(Bank
Balance)
|
|
|
Unpaid
Principal
Balance
(Customer
Balance)
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
With no related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
16,592
|
|
|
$
|
16,674
|
|
|
$
|
|
|
|
$
|
20,323
|
|
|
$
|
233
|
|
Real estate 1-4 family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines
|
|
|
3,670
|
|
|
|
3,671
|
|
|
|
|
|
|
|
3,774
|
|
|
|
190
|
|
Permanent first and second
|
|
|
15,257
|
|
|
|
15,363
|
|
|
|
|
|
|
|
16,500
|
|
|
|
43
|
|
Real estate multi-family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate non-farm/non-residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
31,906
|
|
|
|
32,223
|
|
|
|
|
|
|
|
34,018
|
|
|
|
391
|
|
Non-owner occupied
|
|
|
30,435
|
|
|
|
30,440
|
|
|
|
|
|
|
|
30,129
|
|
|
|
346
|
|
Real estate construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
16,227
|
|
|
|
17,068
|
|
|
|
|
|
|
|
15,135
|
|
|
|
174
|
|
Commercial
|
|
|
29,020
|
|
|
|
29,020
|
|
|
|
|
|
|
|
22,290
|
|
|
|
256
|
|
Consumer
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
16,127
|
|
|
$
|
16,146
|
|
|
$
|
4,000
|
|
|
$
|
12,865
|
|
|
$
|
148
|
|
Real estate 1-4 family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines
|
|
|
5,015
|
|
|
|
5,047
|
|
|
|
924
|
|
|
|
5,257
|
|
|
|
60
|
|
Permanent first and second
|
|
|
12,371
|
|
|
|
12,406
|
|
|
|
3,522
|
|
|
|
11,440
|
|
|
|
131
|
|
Real estate multi-family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate non-farm/non-residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
3,765
|
|
|
|
3,777
|
|
|
|
768
|
|
|
|
5,555
|
|
|
|
64
|
|
Non-owner occupied
|
|
|
34,591
|
|
|
|
34,591
|
|
|
|
7,284
|
|
|
|
32,183
|
|
|
|
370
|
|
Real estate construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
39,723
|
|
|
|
39,747
|
|
|
|
9,383
|
|
|
|
39,774
|
|
|
|
457
|
|
Commercial
|
|
|
4,674
|
|
|
|
4,674
|
|
|
|
357
|
|
|
|
10,117
|
|
|
|
116
|
|
Consumer
|
|
|
171
|
|
|
|
173
|
|
|
|
67
|
|
|
|
160
|
|
|
|
2
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
32,719
|
|
|
$
|
32,820
|
|
|
$
|
4,000
|
|
|
$
|
33,188
|
|
|
$
|
381
|
|
Real estate 1-4 family
|
|
|
36,313
|
|
|
|
36,487
|
|
|
|
4,446
|
|
|
|
36,971
|
|
|
|
424
|
|
Real estate multi-family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate non-farm/non-residential
|
|
|
100,697
|
|
|
|
101,031
|
|
|
|
8,052
|
|
|
|
101,885
|
|
|
|
1,171
|
|
Construction
|
|
|
89,644
|
|
|
|
90,509
|
|
|
|
9,740
|
|
|
|
87,316
|
|
|
|
1,003
|
|
Consumer
|
|
|
176
|
|
|
|
178
|
|
|
|
67
|
|
|
|
173
|
|
|
|
2
|
|
Total Impaired Loans
|
|
$
|
259,549
|
|
|
$
|
261,025
|
|
|
$
|
26,305
|
|
|
$
|
259,533
|
|
|
$
|
2,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans as of 12/31/10
|
|
Recorded
Investment
(Bank
Balance)
|
|
|
Unpaid
Principal
Balance
(Customer
Balance)
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
With no related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
24,054
|
|
|
$
|
30,794
|
|
|
$
|
|
|
|
$
|
14,916
|
|
|
$
|
645
|
|
Real estate 1-4 family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines
|
|
|
3,878
|
|
|
|
3,878
|
|
|
|
|
|
|
|
2,846
|
|
|
|
123
|
|
Permanent first and second
|
|
|
17,743
|
|
|
|
20,462
|
|
|
|
|
|
|
|
13,852
|
|
|
|
599
|
|
Real estate multi-family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
799
|
|
|
|
35
|
|
Real estate non-farm/non-residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
36,130
|
|
|
|
36,738
|
|
|
|
|
|
|
|
26,259
|
|
|
|
1,135
|
|
Non-owner occupied
|
|
|
29,823
|
|
|
|
30,734
|
|
|
|
|
|
|
|
23,124
|
|
|
|
999
|
|
Real estate construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
14,042
|
|
|
|
19,947
|
|
|
|
|
|
|
|
20,069
|
|
|
|
867
|
|
Commercial
|
|
|
21,020
|
|
|
|
21,070
|
|
|
|
|
|
|
|
14,300
|
|
|
|
618
|
|
Consumer
|
|
|
21
|
|
|
|
21
|
|
|
|
|
|
|
|
30
|
|
|
|
1
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
9,602
|
|
|
$
|
9,614
|
|
|
$
|
4,009
|
|
|
$
|
15,180
|
|
|
$
|
656
|
|
Real estate 1-4 family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines
|
|
|
5,498
|
|
|
|
5,634
|
|
|
|
1,187
|
|
|
|
4,367
|
|
|
|
189
|
|
Permanent first and second
|
|
|
10,508
|
|
|
|
10,925
|
|
|
|
2,236
|
|
|
|
12,024
|
|
|
|
520
|
|
Real estate multi-family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate non-farm/non-residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
7,345
|
|
|
|
8,211
|
|
|
|
2,197
|
|
|
|
9,409
|
|
|
|
407
|
|
Non-owner occupied
|
|
|
32,459
|
|
|
|
32,831
|
|
|
|
7,492
|
|
|
|
31,090
|
|
|
|
1,344
|
|
Real estate construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
39,824
|
|
|
|
47,602
|
|
|
|
10,071
|
|
|
|
48,009
|
|
|
|
2,079
|
|
Commercial
|
|
|
15,559
|
|
|
|
17,959
|
|
|
|
4,928
|
|
|
|
17,398
|
|
|
|
752
|
|
Consumer
|
|
|
149
|
|
|
|
151
|
|
|
|
60
|
|
|
|
257
|
|
|
|
11
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
33,660
|
|
|
$
|
40,408
|
|
|
$
|
4,009
|
|
|
$
|
30,096
|
|
|
$
|
1,301
|
|
Real estate 1-4 family
|
|
|
37,628
|
|
|
|
40,899
|
|
|
|
3,423
|
|
|
|
33,088
|
|
|
|
1,430
|
|
Real estate multi-family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
799
|
|
|
|
35
|
|
Real estate non-farm/non-residential
|
|
|
105,756
|
|
|
|
108,081
|
|
|
|
9,689
|
|
|
|
89,880
|
|
|
|
3,884
|
|
Construction
|
|
|
90,444
|
|
|
|
107,011
|
|
|
|
14,999
|
|
|
|
99,865
|
|
|
|
4,316
|
|
Consumer
|
|
|
167
|
|
|
|
248
|
|
|
|
60
|
|
|
|
287
|
|
|
|
12
|
|
Total Impaired Loans
|
|
$
|
267,655
|
|
|
$
|
296,647
|
|
|
$
|
32,180
|
|
|
$
|
254,014
|
|
|
$
|
10,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In performing a specific reserve analysis on all impaired loans as of March 31, 2011, current third party appraisals
were used with respect to approximately 60% of impaired loans to assist with the evaluation of collateral values for the purpose of establishing specific reserves. When a loan is identified as impaired and collateral dependent, a current evaluation
of collateral value via third party appraisal or other valuation methodology is conducted within the calendar quarter of identification when possible, but not less than 90 days after identification. Charge-offs and specific reserves are established
upon determination of collateral value. During the interim between identification of an impaired loan and receipt of a current appraisal of the related collateral, specific reserves are established based upon interim methodologies including
discounted cash flow analysis, tax assessment values and review of market comparables. In general, variances between charge-offs and fair value of collateral is limited to estimates of projected costs of sale. Costs of sale are estimated at 10% of
value. Partially charged-off loans remain non-performing until such time as a viable restructuring plan is developed. Upon execution of a forbearance agreement including modified terms, an impaired loan will be re-classified from non-performing to a
troubled debt restructuring, but will continue to be identified as impaired until the loan performs under the modified terms for the remainder of the calendar year in which it was restructured, but not less than 90 days. As noted above, in the
21
majority of cases, external appraisals are used to establish fair value of the related collateral. In the interim prior to receipt of a current appraisal or in those situations where a current
appraisal is not deemed practical or necessary, discounted cash flow analysis, tax assessment values, review of market comparables and other methodologies are used to establish fair value. Impaired loans which do not have a specific reserve are
those loans which have been identified to have sufficient collateral coverage, based upon the fair value of collateral, to repay the entire principal balance due from collateral liquidation.
5.
|
Earnings Per Common Share
|
The following
shows the weighted average number of shares used in computing earnings per common share and the effect on the weighted average number of shares of dilutive potential common stock. As of March 31, 2011, and 2010, there were 4,556,525 and
3,568,224 anti-dilutive stock options and warrants outstanding, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31, 2011
|
|
|
March 31, 2010
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
Per
|
|
|
|
|
|
|
Share
|
|
|
|
|
|
Share
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
Basic earnings per common share
|
|
|
29,264,610
|
|
|
$
|
0.13
|
|
|
|
26,933,923
|
|
|
$
|
0.12
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and warrants
|
|
|
1,139,478
|
|
|
|
|
|
|
|
1,076,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
|
30,404,088
|
|
|
$
|
0.12
|
|
|
|
28,010,878
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Stock Compensation Plan
|
At
March 31, 2011, the Company had two stock-based compensation plans, the 1998 Stock Option Plan and the Companys 2010 Equity Plan (the 2010 Plan). The 2010 Plan replaced the 1998 Stock Option Plan and as such no further options
may be granted under the 1998 Stock Option Plan. Included in salaries and employee benefits expense for the three months ended March 31, 2011 and 2010, is $132 thousand and $162 thousand, respectively, of stock-based compensation expense which
is based on the estimated fair value of 1,038,618 options granted between January 2006 and March 2011, as adjusted for stock dividends, amortized on a straight-line basis over a five year requisite service period. As of March 31, 2011, there
was $1.4 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 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
Expected volatility
|
|
|
32.21
|
%
|
|
|
30.59
|
%
|
Expected dividends
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected term (in years)
|
|
|
7.2
|
|
|
|
7.2
|
|
Risk-free rate
|
|
|
2.71
|
% to 2.81%
|
|
|
2.04
|
% to 3.50%
|
Stock option plan
activity for the three months ended March 31, 2011, is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at January 1, 2011
|
|
|
1,685,178
|
|
|
$
|
8.69
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
167,327
|
|
|
|
6.06
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(134,389
|
)
|
|
|
1.54
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(7,940
|
)
|
|
|
12.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2011
|
|
|
1,710,176
|
|
|
$
|
8.98
|
|
|
|
4.8 years
|
|
|
$
|
|
|
Exercisable at March 31, 2011
|
|
|
1,292,435
|
|
|
$
|
9.56
|
|
|
|
3.6 years
|
|
|
$
|
|
|
22
The total value of in-the-money options exercised during the three months ended March 31, 2011 was
$590 thousand.
Restricted stock awards generally vest in equal installments over five years. The compensation expense associated with these
awards is based on the grant date fair value of the award. The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service period.
A summary of the nonvested restricted stock activity under the 2010 Plan for the three months ended March 31, 2011 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
|
|
Non-vested at the beginning of year
|
|
|
9,335
|
|
|
$
|
6.65
|
|
|
|
|
|
Granted
|
|
|
29,413
|
|
|
|
6.00
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at end of the year
|
|
|
38,748
|
|
|
$
|
6.16
|
|
|
$
|
222,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recognized share-based compensation expense associated with shares of restricted stock of $11 thousand for the
three months ended March 31, 2011.
A comparison of the
March 31, 2011 capital ratios of the Company and its wholly-owned subsidiary, Virginia Commerce Bank (the Bank), with the minimum regulatory guidelines is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual Capital
|
|
|
Minimum
Capital
Requirements
|
|
|
Minimum to
be
Well-Capitalized
Under Prompt
Corrective Action
Provisions
|
|
Total Risk-Based Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
15.21
|
%
|
|
|
8.00
|
%
|
|
|
|
|
Bank
|
|
|
14.82
|
%
|
|
|
8.00
|
%
|
|
|
10.00
|
%
|
|
|
|
|
Tier 1 Risk-Based Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
13.96
|
%
|
|
|
4.00
|
%
|
|
|
|
|
Bank
|
|
|
13.57
|
%
|
|
|
4.00
|
%
|
|
|
6.00
|
%
|
|
|
|
|
Leverage Ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
11.48
|
%
|
|
|
4.00
|
%
|
|
|
|
|
Bank
|
|
|
11.16
|
%
|
|
|
4.00
|
%
|
|
|
5.00
|
%
|
8.
|
Other Borrowed Funds and Lines of Credit
|
The Bank maintains a $435.9 million line of credit with the FHLB of Atlanta. The interest rate and term of each advance from the line is dependent upon
the advance and commitment type. Advances on the line are secured by all of the Banks qualifying first liens and home equity lines-of-credit on one-to-four unit single-family dwellings. As of March 31, 2011, the book value of these
qualifying loans totaled approximately $239.4 million and the amount of available credit using this collateral was $109.3 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 March 31, 2011 and December 31, 2010, the Bank had $25.0 million in advances outstanding that mature on September 21, 2012, but are callable by the FHLB on any quarterly interest payment date.
The Bank has additional short-term lines of credit totaling $47.0 million with nonaffiliated banks at March 31, 2011, on which there were no amounts outstanding.
23
9.
|
Trust Preferred Capital Notes
|
On
December 19, 2002, the Company completed a private placement issuance of $15.0 million of trust preferred securities through a newly formed, wholly-owned, subsidiary trust (VCBI Capital Trust II) which issued $470 thousand in common equity to
the Company. These securities bear a floating rate of interest, adjusted semi-annually, of 330 basis points over six month LIBOR, which as of May 9, 2011 was 3.76%. These securities have been callable at par since December 30, 2007, on any
semi-annual interest payment date, but have not been redeemed to date. On December 20, 2005, the Company completed a private placement of $25.0 million of trust preferred securities through a newly formed, wholly-owned, subsidiary trust (VCBI
Capital Trust III) which issued $774 thousand in common equity to the Company. These securities had a fixed rate of interest of 6.19% until February 23, 2011, at which time they converted to a floating rate, adjusted quarterly, of 142 basis
points over three month LIBOR, which as of May 9, 2011 was 1.73%. These securities became callable at par beginning February 23, 2011.
On September 24, 2008, the Company completed a private placement, to its directors and certain executive officers, of $25.0 million of trust preferred securities through a newly formed, wholly-owned,
subsidiary trust (VCBI Capital Trust IV) which issued $775 thousand in common equity to the Company. These securities bear a fixed rate of interest of 10.20% and are callable at par beginning September 24, 2013. In connection with the issuance
of the trust preferred securities, the Company also issued warrants to purchase an aggregate of 1.5 million shares of common stock to the purchasers. The warrants have a five year term and an exercise price of $6.83 per share.
The principal asset of each trust is a similar amount of the Companys junior subordinated debt securities with an approximately 30 year term from
issuance and like interest rates to the trust preferred securities. The obligations of the Company with respect to the trust preferred securities constitute a full and unconditional guarantee by the Company of each trusts obligations with
respect to the trust preferred securities to the extent set forth in the related guarantees. Subject to certain exceptions and limitations, the Company may elect from time to time to defer interest payments on the junior subordinated debt
securities, resulting in a deferral of distribution payments on the related trust preferred securities. If the Company defers interest payments on the junior subordinated debt securities, or otherwise is in default of the obligations in respect to
the trust preferred securities, the Company would be prohibited from making dividend payments to its shareholders, and from most purchases, redemptions or acquisitions of the Companys common stock.
The trust preferred securities may be included in Tier 1 capital for regulatory capital adequacy purposes up to 25.0% of Tier 1 capital after its
inclusion. The portion of the trust preferred securities not qualifying as Tier 1 capital may be included as part of total qualifying capital in Tier 2 capital, subject to limitation.
10.
|
Preferred Stock and Warrant
|
On
December 12, 2008, the Company entered into a Letter Agreement (Agreement) with the United States Department of the Treasury (Treasury) under the Troubled Asset Relief Program (TARP) Capital Purchase Program,
whereby the Company issued and sold to the Treasury 71,000 shares of fixed rate cumulative perpetual preferred stock with a par value of $1.00 and a liquidation amount of $1,000 per share, for a total price of $71.0 million. In addition, the
Treasury received a warrant to purchase 2,696,203 shares of the Companys common stock at an exercise price of $3.95 per share. Subject to certain restrictions, the preferred stock and the warrant are transferable by the Treasury. The allocated
carrying values at March 31, 2011, 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 approval by the Treasury after consultation with the Board of Governors of the Federal Reserve System (the Federal Reserve), at the liquidation amount of $1,000 per share plus any accrued and unpaid dividends.
Approval from the Treasury is required to pay common stock dividends or to repurchase shares of the Companys common stock prior to December 12, 2011, unless the preferred stock has been fully redeemed.
The warrant has a ten year term and is immediately exercisable. Pursuant to the terms of the Agreement, the Treasury will not exercise voting rights with
respect to any shares of common stock it acquires upon exercise of the warrant; voting rights may be exercised by any other holder.
24
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
This managements discussion and analysis and other portions of this report, contain forward-looking statements within the meaning of the Securities
and Exchange Act of 1934, as amended (the Exchange Act), including statements of goals, intentions, and expectations as to future trends, plans, events or results of Company operations and policies, including but not limited to our
outlook on earnings, and statements regarding asset quality, concentrations of credit risk, the adequacy of the allowance for loan losses, projected growth, capital position, our plans regarding and expected future levels of our non-performing
assets, business opportunities in our markets, strategic initiatives to capitalize on those opportunities and general economic conditions. When we use words such as may, will, anticipates, believes,
expects, plans, estimates, potential, continue, should, and similar words or phrases, you should consider them as identifying forward-looking statements. These forward-looking
statements are not guarantees of future performance. These statements are based upon current and anticipated economic conditions, nationally and in the Companys market, interest rates and interest rate policy, competitive factors, and other
conditions which by their nature, are not susceptible to accurate forecast, and are subject to significant uncertainty. Because of these uncertainties and the assumptions on which this discussion and the forward-looking statements are based, actual
future operations and results may differ materially from those indicated herein.
Our forward-looking statements are subject to the following
principal risks and uncertainties:
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adverse governmental or regulatory policies may be enacted;
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the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) could increase our regulatory compliance burden and
associated costs, place restrictions on certain products and services, and limit our future capital raising strategies;
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the interest rate environment may compress margins and adversely affect net interest income;
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adverse effects may be caused by changes to credit quality;
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competition from other financial services companies in our markets could adversely affect operations;
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our concentrations of commercial, commercial real estate and construction loans, may adversely affect our earnings and results of operations;
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an economic slowdown could adversely affect credit quality, loan originations and the value of collateral securing the Companys loans; and
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social and political conditions such as war, political unrest and terrorism or natural disasters could have unpredictable negative effects on our
businesses and the economy.
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Other factors, risks and uncertainties that could cause our actual results to differ materially
from estimates and projections contained in these forward-looking statements are discussed under Risk Factors in the Companys annual report on Form 10-K for the year ended December 31, 2010.
Readers are cautioned against placing undue reliance on any such forward-looking statements. The Company disclaims any obligation to update or revise
publicly or otherwise any forward-looking statements to reflect subsequent events, new information or future circumstances.
Non-GAAP
Presentations
The Company prepares its financial statements under accounting principles generally accepted in the United States, or
GAAP. However, this financial report also refers to certain non-GAAP financial measures that we believe, when considered together with GAAP financial measures, provide investors with important information regarding our operational
performance. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.
25
Core operating earnings is a non-GAAP financial measure that reflects net income excluding taxes, loan loss
provisions, losses on other real estate owned (also referred to as OREO or foreclosed properties), impairment losses on securities and gain on sale of securities. These excluded items are difficult to predict and we believe
that core operating earnings provides the Company and investors with a valuable measure of the performance of the Companys operational performance and a valuable tool to evaluate the Companys financial results. Calculation of core
operating earnings for the three months ended March 31, 2011 and March 31, 2010 is as follows:
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|
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|
|
|
|
|
|
Three Months Ended
March 31,
|
|
(in thousands)
|
|
2011
|
|
|
2010
|
|
|
|
|
Net Income
|
|
$
|
4,966
|
|
|
$
|
4,469
|
|
Adjustments to net income:
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|
|
|
|
|
|
|
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Provision for loan losses
|
|
|
5,843
|
|
|
|
4,238
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Loss on other real estate owned
|
|
|
156
|
|
|
|
918
|
|
Impairment loss on securities
|
|
|
732
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|
|
|
851
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|
Gain on sale of securities
|
|
|
(503
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)
|
|
|
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Provision for income taxes
|
|
|
2,400
|
|
|
|
2,009
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|
|
|
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Core Operating Earnings
|
|
$
|
13,594
|
|
|
$
|
12,485
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The adjusted efficiency ratio is a
non-GAAP financial measure that is computed by dividing non-interest expense by the sum of net interest income on a tax equivalent basis and non-interest income before impairment losses on securities and gain on sale of securities. We believe that
this measure provides investors with important information about our operating efficiency. Comparison of our adjusted efficiency ratio with those of other companies may not be possible because other companies may calculate the adjusted efficiency
ratio differently. Calculation of the adjusted efficiency ratio for the three months ended March 31, 2011 and March 31, 2010 is as follows:
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Three Months Ended
March 31,
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(in thousands)
|
|
2011
|
|
|
2010
|
|
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Summary Operating Results:
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|
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Non-interest expense
|
|
$
|
14,450
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|
|
$
|
14,707
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|
|
|
|
Net interest income
|
|
$
|
26,183
|
|
|
$
|
24,816
|
|
Non-interest income
|
|
|
1,476
|
|
|
|
607
|
|
Impairment loss on securities
|
|
|
732
|
|
|
|
851
|
|
Gain on sale of securities
|
|
|
(503
|
)
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|
|
|
|
|
|
|
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Total
|
|
$
|
27,888
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|
|
$
|
26,274
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|
|
|
|
Efficiency Ratio, adjusted
|
|
|
51.1
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%
|
|
|
55.4
|
%
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The tangible common equity ratio is a
non-GAAP financial measure representing the ratio of tangible common equity to tangible assets. Tangible common equity and tangible assets are non-GAAP financial measures derived from GAAP-based amounts. We calculate tangible common equity for the
Company by excluding the balance of intangible assets and outstanding preferred stock issued to the U.S. Treasury from total stockholders equity. We calculate tangible assets by excluding the balance of intangible assets from total assets. We
had no intangible assets for the periods presented. We believe that this is consistent with the treatment by bank regulatory agencies, which exclude intangible assets from the calculation of regulatory capital ratios. Accordingly, we believe that
these non-GAAP financial measures provide information that is important to investors and that is useful in understanding our capital position and ratios. However, these non-GAAP financial measures are supplemental and are not substitutes for an
analysis based on a GAAP measure. As other companies may use different calculations for non-GAAP measures, our presentation may not be comparable to other similarly titled measures reported by other companies. Calculation of the Companys
tangible common equity ratio as of March 31, 2011, March 31, 2010, and December 31, 2010 is as follows:
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|
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As of March 31,
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December 31,
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(in thousands)
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
Tangible common equity:
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|
|
|
|
|
|
|
|
|
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Total stockholders equity
|
|
$
|
253,373
|
|
|
$
|
224,259
|
|
|
$
|
245,594
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|
|
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|
|
Less:
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|
|
|
|
|
|
|
|
|
|
|
|
Outstanding TARP senior preferred stock
|
|
|
65,873
|
|
|
|
64,356
|
|
|
|
65,445
|
|
Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible common equity
|
|
$
|
187,500
|
|
|
$
|
159,903
|
|
|
$
|
180,149
|
|
|
|
|
|
Total tangible assets
|
|
$
|
2,783,633
|
|
|
$
|
2,803,004
|
|
|
$
|
2,741,648
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|
|
|
|
|
Tangible common equity ratio
|
|
|
6.74
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%
|
|
|
5.70
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%
|
|
|
6.57
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%
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26
General
The following presents managements discussion and analysis of the consolidated financial condition and results of operations of Virginia Commerce Bancorp, Inc. and subsidiaries (the
Company) as of the dates and for the periods indicated. This discussion should be read in conjunction with the Companys Consolidated Financial Statements and the Notes thereto, and other financial data appearing elsewhere in this
report. The Company is the parent bank holding company for Virginia Commerce Bank (the Bank), a Virginia state-chartered bank that commenced operations in May 1988. The Bank pursues a traditional community banking strategy, offering a
full range of business and consumer banking services through twenty-eight branch offices, one residential mortgage office and one wealth management office.
Headquartered in Arlington, Virginia, the Bank serves the Northern Virginia suburbs of Washington, D.C., including Arlington, Fairfax, Fauquier, Loudoun, Prince William, Spotsylvania and Stafford Counties
and the cities of Alexandria, Fairfax, Falls Church, Fredericksburg, Manassas and Manassas Park. Its service area also covers, to a lesser extent, Washington, D.C. and the nearby Maryland counties of Montgomery and Prince Georges. The Banks
customer base includes small-to-medium sized businesses including firms that have contracts with the U.S. government, associations, retailers and industrial businesses, professionals and their firms, business executives, investors and consumers.
Critical Accounting Policies
For the period ended March 31, 2011, there were no changes in the Companys critical accounting policies as reflected in the Companys most
recent annual report.
The Companys financial statements are prepared in accordance with GAAP. The financial information contained
within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained
either when earning income, recognizing an expense, recovering an asset or relieving a liability. We use historical loss factors as one factor in determining the inherent loss that may be present in our loan portfolio. Actual losses could differ
significantly from the historical factors that we use. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would impact
our transactions could change.
The allowance for loan losses is an estimate of the losses that are inherent in our loan portfolio. The
allowance is based on two basic principles of accounting: (i) Accounting for Contingencies (ASC 450, Contingencies), which requires that losses be accrued when they are probable of occurring and estimable and
(ii) Accounting by Creditors for Impairment of a Loan (ASC 310, Receivables), which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values
that are observable in the secondary market and the loan balance.
Our allowance for loan losses has two basic components: the specific
allowance and the general allowance. Each of these components is determined based upon estimates that can and do change when the actual events occur. The specific allowance is used to individually allocate an allowance for impaired loans. Impairment
testing includes consideration of the borrowers overall financial condition, resources and payment record, support available from
27
financial guarantors and the fair market value of collateral. These factors are combined to estimate the probability and severity of inherent losses based on the Companys calculation of the
loss embedded in the individual loan. Large groups of smaller balance, homogeneous loans, representing 1-4 family residential first and second trusts, including home equity lines-of-credit, are collectively evaluated for impairment based upon
factors such as levels and trends in delinquencies, trends in loss and problem loan identification, trends in volumes and concentrations, local and national economic trends and conditions including estimated levels of housing price
depreciation/homeowners loss of equity, competitive factors and other considerations. These factors are converted into reserve percentages and applied against the homogenous loan pool balances. Impaired loans which meet the criteria for
substandard, doubtful and loss are segregated from performing loans within the portfolio. Internally classified loans are then grouped by loan type (commercial, commercial real estate, commercial construction, residential real estate, residential
construction or installment). The general formula is used to estimate the loss of non-classified loans. These un-criticized loans are also segregated by loan type and allowance factors are assigned by management based on delinquencies, loss history,
trends in volume and terms of loans, effects of changes in lending policy, the experience and depth of management, national and local economic trends, concentrations of credit, quality of the loan review system and the effect of external factors
(i.e. competition and regulatory requirements). The factors assigned differ by loan type. The general allowance recognizes potential losses whose impact on the portfolio has yet to be recognized by a specific allowance. Allowance factors and the
overall size of the allowance may change from period to period based on managements assessment of the above described factors and the relative weights given to each factor. Further information regarding the allowance for loan losses is
provided under the caption Allowance for Loan Losses/Provision for Loan Loss Expense later in this report and in Note 4 to the Consolidated Financial Statements.
The Companys 1998 Stock Option Plan (the 1998 Plan), which is stockholder-approved, permitted the grant of share options to its directors and officers for up to 2.3 million shares
of common stock. The Companys 2010 Equity Plan (the 2010 Plan), which is also stockholder-approved and replaces the 1998 Plan, permits the grant of share-based awards in the form of stock options, stock appreciation rights,
restricted and unrestricted stock, performance units, options and other awards to its directors, officers and employees for up to 1.5 million shares of common stock. To date, the Company has granted stock options and restricted stock under the
2010 Plan. The Company also has option awards outstanding under the 1998 Plan, but since May 2, 2010, the effective date of the 2010 Plan, no new awards can be granted under the 1998 Plan. The Company recognizes expense for its share-based
compensation based on the fair value of the awards that are granted.
Option awards are generally granted with an exercise price equal to the
market price of the Companys stock at the date of grant, generally vest based on 5 years of continuous service and have 10-year contractual terms. The fair value of each option award is estimated on the date of grant using a Black-Scholes
option pricing model that currently uses historical volatility of the Companys stock based on a 7.2 year expected term, before exercise, for the options granted, and a risk-free interest rate based on the United States Department of the
Treasury (the Treasury) curve in effect at the time of the grant to 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. Restricted stock awards generally vest in equal installments over 5 years. The compensation expense associated with these awards is based on the grant date fair value of the award. The value of the portion of the award that is
ultimately expected to vest is recognized ratably over the requisite service period. See Note 6 to the Consolidated Financial Statements for additional information regarding the plans and related expense.
On a quarterly basis the Company reviews any securities which are considered to be impaired as defined by accounting guidance, to determine if the
impairment is deemed to be other-than-temporary. If it is determined that the impairment is other-than-temporary, i.e. impaired because of credit issues rather than interest rate, the investment is written down through the Consolidated Statements of
Income in accordance with accounting guidance. See Note 2 to the Consolidated Financial Statements for additional information regarding security impairments deemed to be other than temporary.
Results of Operations
For the three months ended March 31, 2011, the Company recorded
net income of $5.0 million. After an effective dividend of $1.3 million to the U.S. Treasury on preferred stock, the Company reported net income to common stockholders of $3.7 million, or $0.12 per diluted common share, compared to net income to
common shareholders of $3.2 million, or $0.11 per diluted common share in the first quarter of 2010. The year-over-year earnings improvement was largely attributable to a 5.5% increase in net interest income over the previous year, which was
principally due to reduced interest expenses as more fully described below. However, the Companys net income was negatively impacted primarily by provisions for loan losses and an impairment loss on securities of $732 thousand.
28
Total assets increased $42.0 million, or 1.5%, from $2.74 billion at December 31, 2010, to $2.78
billion at March 31, 2011, as total deposits grew $9.8 million, or 0.4%, from $2.25 billion to $2.26 billion. Loans, net of allowance for loan losses, decreased $27.3 million or 1.3% from $2.15 billion on December 31, 2010 to $2.12 billion
on March 31, 2011. Non-farm, non-residential real estate loans decreased $9.5 million, or 0.8%, multifamily real estate loans increased $17.2 million, or 23.7%, acquisition, development and construction (ADC) loans fell by $76.2
million, or 18.1%, and commercial and industrial (C&I) loans were up $2.3 million, or 1.0%. Loan production has been negatively impacted over the last year by lower economic activity and demand for credit in both the business and
consumer sectors, a reallocation of lending personnel to problem loan identification and resolution, a strategic decision to restrict acquisition, development and construction lending and an increased emphasis on deposit generation and non-credit
products. Lending efforts in 2011 are being focused on building greater market share in commercial lending, especially in sectors forecast for growth, such as government contract lending, professional practices and associations and select service
industries, with strategic hiring, marketing campaigns, calling efforts and sales management restructuring. Progress with this strategy was evident in the first quarter of 2011 with commercial loans increasing $8.2 million sequentially, while ADC
loans and non-farm, non-residential non-owner occupied loans decreased $18.5 million and $22.7 million, respectively. Additionally, efforts to grow multi-family residential loans, considered to be a strong local asset class, were successful with a
sequential increase of $12.5 million.
For the quarter ended March 31, 2011, total deposits increased $9.8 million or 0.4% from $2.25
billion to $2.26 billion with demand deposits increasing $25.6 million or 9.7%, savings and interest-bearing demand accounts decreasing $13.9 million or 1.2% and time deposits decreasing $1.9 million of 0.3%. While opportunities for balance sheet
growth have been limited in recent periods, the Company has focused on improving deposit mix. Demand deposit growth has been the top priority, with the year-over-year increase in demand deposits primarily due to the successful efforts of the
Companys team of eight business development officers, who are focused on acquisition and retention of commercial operating funds, treasury management services and other related cross-sales. In other deposit categories, strategic pricing and
customer preference for liquidity has resulted in a desired reduction in time deposits and an increase in NOW, savings and money market accounts. The decline in time deposits as a percentage of total deposits, now at 34.5%, is generally complete as
evidenced by sequential results. At March 31, 2011 and December 31, 2010, the Bank had no brokered certificates of deposit, down from $80.1 million at March 31, 2010.
As noted, for the three months ended March 31, 2011, the Company recorded net income to common stockholders of $3.7 million compared to $3.2 million for the three months ended March 31, 2010, as
net interest income increased $1.4 million, or 5.5%, non-interest income increased $869 thousand, non-interest expense decreased $257 thousand, or 1.75% and provisions for loan losses were up $1.6 million. The Companys return on average assets
and return on average equity were 0.73% and 8.09% for the three months ended March 31, 2011, compared to 0.65% and 8.16% for the same period in 2010.
On March 31, 2011, the Company issued 426,000 shares of its common stock at a price of $5.87 per share in a registered direct placement with a Company director for total gross proceeds of
approximately $2.5 million. In addition, the Company issued to the investor warrants exercisable for shares of common stock, which, if fully exercised, would provide an additional $4.8 million in gross proceeds to the Company. The warrants each have
an exercise price of $5.62 per share. The Series A warrants, exercisable for a total of 426,000 shares of common stock, are exercisable for a period of seven months following the closing date. The Series B warrants, also exercisable for a total of
426,000 shares of common stock, are exercisable for a period of twelve months following the closing date.
On September 29, 2010, the
Company issued 1,904,766 shares of its common stock at a price of $5.25 per share in a registered direct placement with several institutional investors for total gross proceeds of $10.0 million. In addition, the Company issued to the investors
warrants exercisable for shares of common stock, which, if fully exercised, would provide an additional $11.4 million in gross proceeds to the Company. The warrants each have an exercise price of $6.00 per share, which represents a 14.3% premium to
the offering price of the shares of common stock sold in the registered direct placement. The Series A warrants, exercisable for a total of 952,383 shares of common stock, are exercisable for a period of seven months following the closing date. On
April 29, 2011, 130,851 of the Series A warrants were exercised resulting in approximately $746 thousand in additional capital while 821,532 Series A warrants expired under the original terms. The Series B warrants, also exercisable for a total
of 952,383 shares of common stock, are exercisable for a period of twelve months following the closing date.
29
Stockholders equity increased $7.8 million, or 3.2%, from $245.6 million at December 31, 2010,
to $253.4 million at March 31, 2011, with approximately $2.5 million in net proceeds from the above referenced stock issuances, net income to common stockholders of $3.7 million over the three-month period, a $824 thousand decrease in other
comprehensive losses related to the investment securities portfolio, and $243 thousand million in proceeds and tax benefits related to the exercise of options by the Companys directors and officers, and stock option expense credits. As a
result of these changes, the Companys Tier 1 Capital ratio increased from 13.20% at December 31, 2010, to 13.96% at March 31, 2011, and its total qualifying capital ratio increased from 14.45% to 15.21%. The Banks ratios
increased by similar levels. Sequentially, the Companys tangible common equity ratio is up 17 basis points from December 31, 2010, to 6.74% as of March 31, 2011.
Net Interest Income
Net interest income is the excess of interest earned on loans and
investments over the interest paid on deposits and borrowings and is the Companys primary revenue source. Net interest income is thereby affected by overall balance sheet growth, changes in interest rates and changes in the mix of investments,
loans, deposits and borrowings. Net interest income for the first quarter of 2011 of $26.2 million was up $1.4 million, or 5.5%, over the same quarter last year, as the net interest margin increased from 3.79% in the first quarter of 2010 to 3.99%
for the same period in 2011. On a sequential basis, the margin was up three basis points. The year-over-year increase in the net interest margin was driven by lower deposit costs due to significant reductions in the level of time deposits, and
increased levels of demand deposits and lower rate interest-bearing transaction accounts. Also, the average rate paid on savings and time deposits decreased significantly from the three-months ended March 31, 2010 to the same period 2011. As a
result, the average cost of interest-bearing deposits fell from 1.88% in the first quarter of 2010, to 1.44% in the current period, while the yield on interest-earning assets declined twenty basis points from 5.59% to 5.39%. Management anticipates
the net interest margin will range between 3.7% and 4.0% over the next two quarters, but may come under some pressure later in the year if short-term interest rates begin to rise.
The following table shows the average balance sheets for each of the three months ended March 31, 2011 and 2010. 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 $687 thousand and $747 thousand for the three months ended March 31, 2011 and 2010, respectively.
30
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
(Dollars in thousands)
|
|
Average
Balance
|
|
|
Interest
Income-
Expense
|
|
|
Average
Yields /
Rates
|
|
|
Average
Balance
|
|
|
Interest
Income-
Expense
|
|
|
Average
Yields /
Rates
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities (1)
|
|
$
|
406,103
|
|
|
$
|
3,453
|
|
|
|
3.59
|
%
|
|
$
|
338,138
|
|
|
$
|
3,706
|
|
|
|
4.55
|
%
|
Restricted stock
|
|
|
11,752
|
|
|
|
96
|
|
|
|
3.31
|
%
|
|
|
11,752
|
|
|
|
88
|
|
|
|
3.00
|
%
|
Loans, net of unearned income (2)
|
|
|
2,203,117
|
|
|
|
31,923
|
|
|
|
5.89
|
%
|
|
|
2,280,980
|
|
|
|
32,905
|
|
|
|
5.86
|
%
|
Interest-bearing deposits in other banks
|
|
|
388
|
|
|
|
|
|
|
|
0.13
|
%
|
|
|
98
|
|
|
|
|
|
|
|
0.04
|
%
|
Federal funds sold
|
|
|
67,622
|
|
|
|
45
|
|
|
|
0.27
|
%
|
|
|
48,732
|
|
|
|
28
|
|
|
|
0.23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
2,688,982
|
|
|
$
|
35,517
|
|
|
|
5.39
|
%
|
|
$
|
2,679,700
|
|
|
$
|
36,727
|
|
|
|
5.59
|
%
|
Other assets
|
|
|
84,679
|
|
|
|
|
|
|
|
|
|
|
|
93,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
2,773,661
|
|
|
|
|
|
|
|
|
|
|
$
|
2,773,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts
|
|
$
|
321,564
|
|
|
$
|
653
|
|
|
|
0.82
|
%
|
|
$
|
281,142
|
|
|
$
|
812
|
|
|
|
1.17
|
%
|
Money market accounts
|
|
|
177,183
|
|
|
|
469
|
|
|
|
1.07
|
%
|
|
|
146,609
|
|
|
|
492
|
|
|
|
1.36
|
%
|
Savings accounts
|
|
|
692,647
|
|
|
|
1,916
|
|
|
|
1.12
|
%
|
|
|
603,703
|
|
|
|
2,497
|
|
|
|
1.68
|
%
|
Time deposits
|
|
|
783,462
|
|
|
|
3,985
|
|
|
|
2.06
|
%
|
|
|
1,002,008
|
|
|
|
5,627
|
|
|
|
2.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
$
|
1,974,856
|
|
|
$
|
7,023
|
|
|
|
1.44
|
%
|
|
$
|
2,033,462
|
|
|
$
|
9,428
|
|
|
|
1.88
|
%
|
Securities sold under agreement to repurchase and federal funds purchased
|
|
|
166,272
|
|
|
|
934
|
|
|
|
2.28
|
%
|
|
|
181,955
|
|
|
|
989
|
|
|
|
2.20
|
%
|
Other borrowed funds
|
|
|
25,000
|
|
|
|
266
|
|
|
|
4.25
|
%
|
|
|
25,000
|
|
|
|
266
|
|
|
|
4.25
|
%
|
Trust preferred capital notes
|
|
|
66,346
|
|
|
|
1,111
|
|
|
|
6.70
|
%
|
|
|
66,090
|
|
|
|
1,228
|
|
|
|
7.43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
2,232,474
|
|
|
$
|
9,334
|
|
|
|
1.70
|
%
|
|
$
|
2,306,507
|
|
|
$
|
11,911
|
|
|
|
2.09
|
%
|
Demand deposits and other liabilities
|
|
|
292,094
|
|
|
|
|
|
|
|
|
|
|
|
244,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
2,524,568
|
|
|
|
|
|
|
|
|
|
|
$
|
2,551,343
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
249,093
|
|
|
|
|
|
|
|
|
|
|
|
222,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,773,661
|
|
|
|
|
|
|
|
|
|
|
$
|
2,773,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
3.69
|
%
|
|
|
|
|
|
|
|
|
|
|
3.50
|
%
|
Net interest income and margin
|
|
|
|
|
|
$
|
26,183
|
|
|
|
3.99
|
%
|
|
|
|
|
|
$
|
24,816
|
|
|
|
3.79
|
%
|
(1)
|
Yields on securities available-for-sale have been calculated on the basis of historical cost and do not give effect to changes in the fair value of those securities,
which are reflected as a component of stockholders equity. Average yields on securities are stated on a tax equivalent basis, using a 35% rate.
|
(2)
|
Loans placed on non-accrual status are included in the average balances. Net loan fees and late charges included in interest income on loans totaled $687 thousand and
$747 thousand for the three months ended March 31, 2011 and 2010, respectively.
|
31
Allowance for Loan Losses / Provision for Loan Loss Expense
Provisions for loan losses were $5.8 million for the quarter ended March 31, 2011, compared to $4.2 million in the same period in 2010, with total
net charge-offs of $11.8 million in the first quarter of 2011, versus $7.0 million for the first quarter of 2010. Higher provisioning for the quarter was primarily driven by the downgrade of two mid-seven figure borrowing relationships, representing
a construction sub-contractor and a residential builder which required specific reserves of $3.2 million based upon a collateral analysis. Increased charge-offs were largely attributable to the decision to write down certain identified problem loans
with substantial specific reserves totaling $8.2 million in anticipation of negotiated settlements or pending sales of underlying collateral properties. Since the expected settlements or pending sales prices were approaching book values net of
specific reserves that were previously set aside, excess specific reserves were charged off. This process enabled a more aggressive approach for resolution of the subject problem assets.
Total non-performing assets and loans 90+ days past due declined from $108.8 million at March 31, 2010, to $73.5 million at March 31, 2011, a reduction of 32.4%, and decreased $1.1 million
sequentially from $74.6 million as of December 31, 2010. As of March 31, 2011, reserves for loan losses represented 2.59% of total loans, down from 2.82% at December 31, 2010, with reserves covering 103.4% of total non-performing
loans as of March 31, 2011. See Risk Elements and Non-Performing Assets later in this discussion for more information on non-performing assets and loans 90+ days past due and other impaired loans.
Management believes that the allowance for loan losses is adequate at March 31, 2011. However, there can be no assurance that additional provisions
for loan losses will not be required in the future, including as a result of possible changes in the economic assumptions underlying managements estimates and judgments, adverse developments in the economy, and the residential real estate
market in particular, on a national basis or in the Companys market area, or changes in the circumstances of particular borrowers.
The
Company generates a quarterly analysis of the allowance for loan losses, with the objective of quantifying portfolio risk into a dollar figure of inherent losses, thereby translating the subjective risk value into an objective number. Emphasis is
placed on at least semi-annual independent external loan reviews and monthly internal reviews. The determination of the allowance for loan losses is based on applying and summing the results of eight qualitative factors and a historical loss factor
to each category of loans along with any specific allowance for impaired and adversely classified loans within the particular category. Each factor is assigned a percentage weight and that total weight is applied to each loan category. The resulting
sum from each loan category is then combined to arrive at a total allowance for all categories. Factors are different for each loan category. Qualitative factors include: levels and trends in delinquencies and non-accruals, trends in volumes and
terms of loans, effects of any changes in lending policies, the experience, ability and depth of management, national and local economic trends and conditions, concentrations of credit, quality of the Companys loan review system, and
regulatory requirements. The total allowance required thus changes as the percentage weight assigned to each factor is increased or decreased due to its particular circumstance, as historical loss factors are updated, as the various types and
categories of loans change as a percentage of total loans and as specific allowances are required on impaired loans and charge-offs occur. The decision to specifically reserve for or to charge-off or partially charge-off an impaired loan balance is
based upon an evaluation of that loans potential to improve, based upon near term change in financial or market conditions, which would enable collection of the portion of the loan determined to be impaired. If these conditions are determined
to be favorable, a specific reserve would be established as opposed to a charge-off. For further information regarding the allowance for loan losses see Note 4 to the Consolidated Financial Statements.
32
The following schedule summarizes the changes in the allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
March 31, 2011
|
|
|
Three Months
Ended
March 31, 2010
|
|
|
Twelve Months
Ended
December 31, 2010
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Allowance, at beginning of period
|
|
$
|
62,442
|
|
|
$
|
65,152
|
|
|
$
|
65,152
|
|
Provision charged against income
|
|
|
5,843
|
|
|
|
4,238
|
|
|
|
20,594
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
8
|
|
|
|
4
|
|
|
|
20
|
|
Commercial
|
|
|
245
|
|
|
|
10
|
|
|
|
2,858
|
|
Real estate one-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent first and second
|
|
|
3
|
|
|
|
6
|
|
|
|
42
|
|
Home equity loans and lines
|
|
|
1
|
|
|
|
274
|
|
|
|
289
|
|
Real estate-nonfarm, nonresidential
|
|
|
3
|
|
|
|
51
|
|
|
|
58
|
|
Real estate-construction
|
|
|
51
|
|
|
|
203
|
|
|
|
907
|
|
Losses charged to reserve:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
(18
|
)
|
|
|
(654
|
)
|
|
|
(345
|
)
|
Commercial loans
|
|
|
(639
|
)
|
|
|
(2,501
|
)
|
|
|
(7,761
|
)
|
Real Estate one-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent first and second
|
|
|
(1,600
|
)
|
|
|
(1,970
|
)
|
|
|
(3,445
|
)
|
Home equity loans and liens
|
|
|
(730
|
)
|
|
|
(260
|
)
|
|
|
(543
|
)
|
Real estate-multi-family residential
|
|
|
|
|
|
|
|
|
|
|
(1,050
|
)
|
Real estate-nonfarm, nonresidential
|
|
|
(1,587
|
)
|
|
|
(999
|
)
|
|
|
(5,260
|
)
|
Real estate-construction
|
|
|
(7,557
|
)
|
|
|
(1,147
|
)
|
|
|
(9,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(11,820
|
)
|
|
|
(6,983
|
)
|
|
|
(23,304
|
)
|
Allowance, at end of period
|
|
$
|
56,465
|
|
|
$
|
62,407
|
|
|
$
|
62,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs to average total loans outstanding during period
|
|
|
0.54
|
%
|
|
|
0.31
|
%
|
|
|
1.03
|
%
|
Allowance for loan losses to total loans
|
|
|
2.59
|
%
|
|
|
2.75
|
%
|
|
|
2.82
|
%
|
The following schedule provides a
breakdown of general reserves and specific reserves for impaired loans by loan type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
March 31, 2010
|
|
|
December 31, 2010
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Allocation of the allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage-general
|
|
$
|
13,005
|
|
|
$
|
13,097
|
|
|
$
|
12,296
|
|
Real estate mortgage-specific
|
|
|
12,498
|
|
|
|
11,468
|
|
|
|
13,112
|
|
Real estate construction-general(1)
|
|
|
11,299
|
|
|
|
12,475
|
|
|
|
11,648
|
|
Real estate construction-specific
|
|
|
9,740
|
|
|
|
14,170
|
|
|
|
15,000
|
|
Commercial-general
|
|
|
5,554
|
|
|
|
6,158
|
|
|
|
5,963
|
|
Commercial-specific
|
|
|
4,000
|
|
|
|
4,629
|
|
|
|
4,009
|
|
Consumer-general
|
|
|
314
|
|
|
|
307
|
|
|
|
313
|
|
Consumer-specific
|
|
|
67
|
|
|
|
117
|
|
|
|
60
|
|
Unallocated
|
|
|
(12
|
)
|
|
|
(14
|
)
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
56,465
|
|
|
$
|
62,407
|
|
|
$
|
62,442
|
|
33
Risk Elements and Non-Performing Assets
Non-performing assets consist of non-accrual loans and OREO (foreclosed properties). For the three months ended March 31, 2011, total non-performing assets and loans 90+ days past due and still
accruing interest decreased by $1.1 million, from $74.6 million at December 31, 2010, to $73.5 million at March 31, 2011, and have declined $35.3 million from $108.8 million at March 31, 2010. As a result, the ratio of non-performing
assets and loans 90+ days past due and still accruing to total assets decreased from 3.88% at March 31, 2010, to 2.64% at March 31, 2011, and decreased from 2.72% of total assets at December 31, 2010. Loans are placed in
non-accrual status when in the opinion of management the collection of additional interest is unlikely or a specific loan meets the criteria for non-accrual status established by regulatory authorities. No interest is taken into income on
non-accrual loans. A loan remains on non-accrual status until the loan is current as to both principal and interest or the borrower demonstrates the ability to pay and remain current, or both.
Our underwriting for new acquisition, development, and construction loans always includes the interest cost for the loan whether an interest reserve is
approved or not. In other words, the equity requirement in the new loan is established reflecting the amount of interest required to serve the project. We continually monitor the adequacy of reserve requirements, including interest reserves,
during the draw process to ensure the project is being completed on time and within budget. We have restructured loans due to the slow market, re-underwriting each loan based on time and cost to complete. We do not continue funding
interest reserves just to keep the loan from becoming non-performing. We consider whether the loan to value ratio will support current and future advances and whether the project is meeting certain completion criteria necessary to successfully
complete the project. Once a loan becomes non-performing, we do not allow draws on interest reserves.
Other impaired loans, that are
currently performing, and troubled debt restructurings, performing in accordance with their modified terms, decreased from $297.3 million at December 31, 2010, to $286.2 million at March 31, 2011. These loans have been identified by the
Company as having certain weaknesses as a result of the Companys specific knowledge about the customer or recent credit events, and are classified as substandard and subject to impairment testing at each balance sheet date.
Troubled debt restructurings which represented $91.9 million of other impaired loans as of March 31, 2011, were down from $103.0 million at
December 31, 2010. These loans, which have been provided concessions such as rate reductions, payment deferrals, and in some cases forgiveness of principal, are all on accrual status. If the loan was on non-accrual at the time of the concession
it is the Companys policy that it remain on non-accrual status and perform in accordance with the modified terms for a period of six months. As of March 31, 2011, all troubled debt restructurings were accruing interest. The Company does
not report any non-accrual loans as troubled debt restructurings. If a troubled debt restructuring is on non-accrual status, it is reported as a non-accrual asset. Since early 2008, the Company has had $18.4 million of accruing troubled debt
restructurings that were subsequently placed on non-accrual status.
Foreclosed real properties include properties that have been
substantively repossessed or acquired in complete or partial satisfaction of debt. Such properties, which are held for resale, are carried at the lower of book value or fair value, including a reduction for the estimated selling expenses, or
principal balance of the related loan. Reviews and discussions with regard to value and disposition of each foreclosed property are conducted monthly by the Companys Special Asset Committee. The carrying value of a foreclosed asset is
immediately adjusted down when new information is obtained, including a potentially acceptable offer, the sale of a similar property in the vicinity of one of the Companys assets, and/or a change in the price the property is being listed for.
The Company also uses the advice of outside consultants and real estate agents with knowledge of the markets the properties are located in. Appraisals are ordered when the property is foreclosed on, but are not routinely updated at each balance
sheet date. The Company confirms that it performed the above noted procedures and made the proper impairment adjustments, if any, at the balance sheet date.
34
Total non-performing assets as of the dates indicated consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
March 31, 2010
|
|
|
December 31, 2010
|
|
|
|
(In Thousands of Dollars)
|
|
|
|
|
|
Non-accrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
5,622
|
|
|
$
|
9,931
|
|
|
$
|
3,719
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end first and seconds
|
|
|
2,781
|
|
|
|
4,610
|
|
|
|
5,285
|
|
Home equity lines
|
|
|
3,325
|
|
|
|
693
|
|
|
|
1,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-one-to-four family residential
|
|
$
|
6,106
|
|
|
$
|
5,303
|
|
|
$
|
6,814
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
8,016
|
|
|
|
9,019
|
|
|
|
8,942
|
|
Non-owner occupied
|
|
|
1,988
|
|
|
|
14,871
|
|
|
|
4,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-non-farm, non-residential
|
|
$
|
10,004
|
|
|
$
|
23,890
|
|
|
$
|
13,056
|
|
Real estate-construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential-owner occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential-builder
|
|
|
24,234
|
|
|
|
36,078
|
|
|
|
27,189
|
|
Commercial
|
|
|
8,625
|
|
|
|
6,911
|
|
|
|
6,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-construction:
|
|
$
|
32,859
|
|
|
$
|
42,989
|
|
|
$
|
33,550
|
|
Consumer
|
|
|
18
|
|
|
|
119
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-accrual loans
|
|
$
|
54,609
|
|
|
$
|
82,232
|
|
|
|
57,158
|
|
OREO
|
|
|
18,879
|
|
|
|
26,269
|
|
|
|
17,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
73,488
|
|
|
$
|
108,501
|
|
|
$
|
74,323
|
|
|
|
|
|
Loans 90+ days past due and still accruing:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
|
|
|
$
|
45
|
|
|
$
|
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end first and seconds
|
|
|
|
|
|
|
238
|
|
|
|
|
|
Home equity lines
|
|
|
|
|
|
|
|
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-one-to-four family residential
|
|
$
|
|
|
|
$
|
238
|
|
|
$
|
242
|
|
Real estate multi-family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
25
|
|
|
|
|
|
|
|
|
|
Non-owner occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-non-farm, non-residential
|
|
$
|
25
|
|
|
$
|
|
|
|
$
|
|
|
Real estate-construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential-owner occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential-builder
|
|
|
|
|
|
|
26
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-construction:
|
|
$
|
|
|
|
$
|
26
|
|
|
$
|
|
|
Consumer
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans past due 90 days and still accruing
|
|
$
|
25
|
|
|
$
|
318
|
|
|
$
|
242
|
|
Total non-performing assets and past due loans
|
|
$
|
73,513
|
|
|
$
|
108,819
|
|
|
$
|
74,565
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
March 31, 2010
|
|
|
December 31, 2010
|
|
|
|
(In Thousands of Dollars)
|
|
|
|
|
|
Non-performing assets
|
|
|
|
|
|
|
|
|
|
|
|
|
to total loans:
|
|
|
3.37
|
%
|
|
|
4.78
|
%
|
|
|
3.36
|
%
|
to total assets:
|
|
|
2.64
|
%
|
|
|
3.87
|
%
|
|
|
2.71
|
%
|
Non-performing assets and 90+ days past due loans
|
|
|
|
|
|
|
|
|
|
|
|
|
to total loans:
|
|
|
3.37
|
%
|
|
|
4.79
|
%
|
|
|
3.37
|
%
|
to total assets:
|
|
|
2.64
|
%
|
|
|
3.88
|
%
|
|
|
2.72
|
%
|
Allowance for loan losses to total loans
|
|
|
2.59
|
%
|
|
|
2.75
|
%
|
|
|
2.82
|
%
|
Allowance for loan losses to non-performing loans
|
|
|
103.35
|
%
|
|
|
75.60
|
%
|
|
|
108.79
|
%
|
|
|
|
|
Troubled debt restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
10,100
|
|
|
$
|
8,550
|
|
|
$
|
12,175
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end first and seconds
|
|
|
5,541
|
|
|
|
5,464
|
|
|
|
5,437
|
|
Home equity lines
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real estate-one-to-four family residential
|
|
$
|
5,541
|
|
|
$
|
5,464
|
|
|
$
|
5,437
|
|
Real estate multi-family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner Occupied
|
|
|
6,692
|
|
|
|
3,804
|
|
|
|
14,667
|
|
Non-owner occupied
|
|
|
39,712
|
|
|
|
13,178
|
|
|
|
35,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real estate-non-farm, non-residential
|
|
$
|
46,404
|
|
|
$
|
16,982
|
|
|
$
|
49,668
|
|
Real estate-construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential-Owner Occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential-Builder
|
|
|
9,142
|
|
|
|
13,598
|
|
|
|
9,760
|
|
Commercial
|
|
|
20,649
|
|
|
|
36,383
|
|
|
|
25,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real estate-construction:
|
|
$
|
29,791
|
|
|
$
|
49,981
|
|
|
$
|
35,668
|
|
Consumer
|
|
|
40
|
|
|
|
16
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total troubled debt restructurings
|
|
$
|
91,876
|
|
|
$
|
80,993
|
|
|
$
|
102,996
|
|
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 March 31, 2011, $32.9 million, or 60.2%, of non-performing loans represented ADC loans, $10.0 million, or 18.3%, represented non-farm, non-residential loans, $6.1 million, or 11.2%, represented loans on
one-to-four family residential properties, and $5.6 million, or 10.3%, represented C&I loans. Interest actually received on non-accrual loans was $158 thousand in the three months ended March 31, 2010 and $120 thousand for the three months
ended March 31, 2011. See Note 4 to the Consolidated Financial Statements for additional information regarding the Companys non-performing loans.
36
The following provides a breakdown of the construction and non-farm/non-residential loan portfolios by
location, including loans on non-accrual status, with dollars in thousands:
Residential, Acquisition, Development and Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011
|
|
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
|
|
$
|
3,347
|
|
|
|
2.0
|
%
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Montgomery, MD
|
|
|
1,250
|
|
|
|
0.8
|
%
|
|
|
535
|
|
|
|
0.3
|
%
|
|
|
|
|
Prince Georges, MD
|
|
|
18,887
|
|
|
|
11.4
|
%
|
|
|
5,283
|
|
|
|
3.2
|
%
|
|
|
|
|
Other Counties in MD
|
|
|
4,796
|
|
|
|
2.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Arlington/Alexandria, VA
|
|
|
24,240
|
|
|
|
14.6
|
%
|
|
|
2,236
|
|
|
|
1.4
|
%
|
|
|
|
|
Fairfax, VA
|
|
|
39,405
|
|
|
|
23.7
|
%
|
|
|
826
|
|
|
|
0.5
|
%
|
|
|
0.1
|
%
|
Culpeper/Fauquier, VA
|
|
|
4,445
|
|
|
|
2.7
|
%
|
|
|
3,695
|
|
|
|
2.2
|
%
|
|
|
|
|
Frederick, VA
|
|
|
6,281
|
|
|
|
3.8
|
%
|
|
|
6,250
|
|
|
|
3.8
|
%
|
|
|
|
|
Loudoun, VA
|
|
|
32,456
|
|
|
|
19.6
|
%
|
|
|
|
|
|
|
|
|
|
|
0.4
|
%
|
Prince William, VA
|
|
|
7,864
|
|
|
|
4.8
|
%
|
|
|
1,045
|
|
|
|
0.6
|
%
|
|
|
|
|
Spotsylvania, VA
|
|
|
297
|
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Stafford, VA
|
|
|
20,411
|
|
|
|
12.3
|
%
|
|
|
4,364
|
|
|
|
2.6
|
%
|
|
|
|
|
Other Counties in VA
|
|
|
1,762
|
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Outside VA, D.C. & MD
|
|
|
106
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
165,547
|
|
|
|
100.0
|
%
|
|
$
|
24,234
|
|
|
|
14.6
|
%
|
|
|
0.5
|
%
|
Commercial, Acquisition, Development
and Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011
|
|
By County/Jurisdiction of Origination:
|
|
Total
Outstandings
|
|
|
Percentage
of Total
|
|
|
Non-accrual
Loans
|
|
|
Non-accruals
as a % of
Outstandings
|
|
|
Net charge-offs
(recoveries) as
a % of
Outstandings
|
|
District of Columbia
|
|
$
|
10,084
|
|
|
|
5.6
|
%
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Montgomery, MD
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Prince Georges, MD
|
|
|
12,491
|
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Counties in MD
|
|
|
3,376
|
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Arlington/Alexandria, VA
|
|
|
9,312
|
|
|
|
5.2
|
%
|
|
|
3,153
|
|
|
|
1.8
|
%
|
|
|
|
|
Fairfax, VA
|
|
|
27,799
|
|
|
|
15.4
|
%
|
|
|
2,800
|
|
|
|
1.6
|
%
|
|
|
|
|
Culpeper/Fauquier, VA
|
|
|
3,020
|
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Frederick, VA
|
|
|
2,399
|
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Henrico, VA
|
|
|
864
|
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Loudoun, VA
|
|
|
20,153
|
|
|
|
11.2
|
%
|
|
|
608
|
|
|
|
0.3
|
%
|
|
|
2.5
|
%
|
Prince William, VA
|
|
|
55,992
|
|
|
|
30.9
|
%
|
|
|
2,064
|
|
|
|
1.1
|
%
|
|
|
1.2
|
%
|
Spotsylvania, VA
|
|
|
1,740
|
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Stafford, VA
|
|
|
28,301
|
|
|
|
15.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Counties in VA
|
|
|
5,013
|
|
|
|
2.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Outside VA, D.C. & MD
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
180,544
|
|
|
|
100.0
|
%
|
|
$
|
8,625
|
|
|
|
4.8
|
%
|
|
|
3.7
|
%
|
Non-Farm/Non-Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011
|
|
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
|
|
$
|
81,357
|
|
|
|
7.3
|
%
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Montgomery, MD
|
|
|
34,534
|
|
|
|
3.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Prince Georges, MD
|
|
|
47,778
|
|
|
|
4.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Counties in MD
|
|
|
44,482
|
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Arlington/Alexandria, VA
|
|
|
180,094
|
|
|
|
16.2
|
%
|
|
|
2,296
|
|
|
|
0.2
|
%
|
|
|
|
|
Fairfax, VA
|
|
|
257,562
|
|
|
|
23.0
|
%
|
|
|
4,847
|
|
|
|
0.4
|
%
|
|
|
|
|
Culpeper/Fauquier, VA
|
|
|
5,709
|
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Frederick, VA
|
|
|
6,347
|
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Henrico, VA
|
|
|
28,565
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Loudoun, VA
|
|
|
113,903
|
|
|
|
10.2
|
%
|
|
|
1,952
|
|
|
|
0.2
|
%
|
|
|
0.1
|
%
|
Prince William, VA
|
|
|
209,558
|
|
|
|
18.8
|
%
|
|
|
909
|
|
|
|
0.1
|
%
|
|
|
|
|
Spotsylvania, VA
|
|
|
16,922
|
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Stafford, VA
|
|
|
20,737
|
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Counties in VA
|
|
|
58,151
|
|
|
|
5.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Outside VA, D.C. & MD
|
|
|
8,774
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,114,473
|
|
|
|
100.0
|
%
|
|
$
|
10,004
|
|
|
|
0.9
|
%
|
|
|
0.1
|
%
|
37
Concentrations of Credit Risk
The Bank does a general banking business, serving the commercial and personal banking needs of its customers. The Banks market area consists of the Northern Virginia suburbs of Washington, D.C.,
including Arlington, Fairfax, Fauquier, Loudoun, Prince William, Spotsylvania and Stafford Counties, the cities of Alexandria, Fairfax, Falls Church, Fredericksburg, Manassas and Manassas Park, and, to a lesser extent, certain Maryland suburbs and
the city of Washington, D.C. Substantially all of the Companys loans are made within its market area.
The ultimate collectibility of
the Banks loan portfolio and the ability to realize the value of any underlying collateral, if needed, are influenced by the economic conditions of the market area. The Companys operating results are therefore closely related to the
economic conditions and trends in the Metropolitan Washington, D.C. area.
At March 31, 2011, the Company had $1.55 billion, or 71.0%, 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, 2010, commercial real estate loans were $1.58 billion, or 71.4%, of total loans. Total construction loans of $346.1 million at March 31, 2011 represented 15.9% of total loans, loans secured by multi-family
residential properties of $89.8 million represented 4.1% of total loans, and loans secured by non-farm, non-residential properties of $1.1 billion represented 51.1%.
Construction loans at March 31, 2011, included $149.2 million in loans to commercial builders of single family residential property and $16.3 million to individuals on single family residential
property, together representing 7.6% 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 $180.5 million of construction loans on non-residential
commercial property at March 31, 2011, representing 8.3% of total loans. Total construction loans of $346.1 million include $123.7 million in land acquisition and/or development loans on residential property and $96.2 million in land
acquisition and/or development loans on commercial property, together totaling $219.9 million, or 10.1% 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 March 31, 2011, the Company had no other
concentrations of loans in any one industry exceeding 10% of its total loan portfolio. An industry for this purpose is defined as a group of counterparties that are engaged in similar activities and have similar economic characteristics that would
cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.
The Bank has
established formal policies relating to the credit and collateral requirements in loan originations including policies that establish limits on various loan types as a percentage of total loans and total capital. Loans to purchase real property are
generally collateralized by the related property with limitations based on the propertys appraised value. Credit approval is primarily a function of collateral and the evaluation of the creditworthiness of the individual borrower and
guarantors and/or the individual project, to include an analysis of cash flows and secondary repayment sources.
The federal banking
regulators have issued guidance for those institutions which are deemed to have concentrations in commercial real estate lending. Pursuant to the supervisory criteria contained in the guidance for identifying institutions with a potential commercial
real estate concentration risk, institutions which have (1) total reported loans for construction, land development, and other land which represent in total 100% or more of an institutions total risk-based capital; or (2) total commercial
real estate loans representing 300% or more of the institutions total risk-based capital and the institutions commercial real estate loan portfolio has increased 50% or more during the prior 36 months are identified as having potential
commercial real estate concentration risk. Institutions which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios and
may be required to hold higher levels of capital. The Company, like many community banks, has a concentration in commercial real estate loans. Management has extensive experience in commercial real estate lending and has implemented and continues to
maintain heightened portfolio monitoring and reporting, and strong underwriting criteria with respect to its commercial real estate portfolio. The Company is well-capitalized. Nevertheless, it is possible that the Company could be required to
maintain higher levels of capital as a result of our commercial real estate concentration, which could require us to obtain additional capital, and may adversely affect stockholder returns.
38
Non-Interest Income
For the three months ended March 31, 2011, the Company recognized $1.5 million in non-interest income, compared to non-interest income of $607 thousand for the three months ended March 31, 2010.
Fees and net gains on loans held-for-sale were up for the first quarter 2011 on a year-over-year basis by $175 thousand, or 50.1%. Sequentially, fees and net gains on loans held-for-sale were down $1.2 million from the fourth quarter of 2010.
Included in the current quarter income is an impairment loss on securities of $732 thousand, which was partially offset by a gain on sale of securities available-for-sale of $503 thousand. The impairment loss on securities was due to additional
deferrals and defaults by the underlying issuers of three pooled trust preferred securities. For the three months ended March 31, 2010, the Company recognized an impairment loss of $851 thousand. Management is carefully monitoring its holdings
of the securities which caused the impairment losses and at this time can not be assured that there will not be further losses in the future.
Non-Interest Expense
Non-interest
expense decreased $257 thousand, or 1.7%, from $14.7 million in the first quarter of 2010, to $14.5 million in the current period. The majority of the year-over-year decrease was due to the $762 thousand decrease in losses on other real estate
owned. The reduction in losses on OREO offset an increase in salaries and employee benefits related to commissions payable in connection with greater than anticipated mortgage production. However, due to the $1.4 million increase in net interest
income and $869 thousand increase in non-interest income year-over-year, the adjusted efficiency ratio improved from 55.4% in the first quarter of 2010, to 51.1% in the first quarter of 2011. Non-interest expense in future periods may be impacted by
new regulatory complexity and compliance costs related to recent legislation passed by congress.
Provision for Income Taxes
The Companys income tax provisions are adjusted for non-deductible expenses and non-taxable income after applying the U.S. federal
income tax rate of 35%. For the three months ended March 31, 2011, the Company recorded an income tax provision of $2.4 million compared to a provision of $2.0 million for the same period in 2010. The effects of non-deductible expenses and
non-taxable income on the Companys income tax provisions are minimal.
Liquidity
The Companys principal source of liquidity and funding is its deposit base. The level of deposits necessary to support the Companys lending
and investment activities is determined through monitoring loan demand. Considerations in managing the Companys liquidity position include, but are not limited to, scheduled cash flows from existing loans and investment securities, anticipated
deposit activity including the maturity of time deposits, and projected needs from anticipated extensions of credit. The Companys liquidity position is monitored daily by management to maintain a level of liquidity that can efficiently meet
current needs and is evaluated for both current and longer term needs as part of the asset/liability management process.
The Company measures
total liquidity through cash and cash equivalents, securities available-for-sale, mortgage loans held-for-sale, other loans and investment securities maturing within one year, less securities pledged as collateral for repurchase agreements, public
deposits and other purposes, and less any outstanding Federal funds purchased. These liquidity sources increased $121.1 million, or 20.7%, from $585.1 million at December 31, 2010, to $706.2 million at March 31, 2011, due to a $74.9
million increase in Federal funds sold and a higher balance of loans maturing within one year. Additional sources of liquidity available to the Bank include the capacity to borrow funds through established short-term lines of credit with various
correspondent banks and the Federal Home Loan Bank of Atlanta. See Note 8 to the Consolidated Financial Statements for further information regarding these additional liquidity sources.
Off-Balance Sheet Arrangements
The Company enters into certain off-balance sheet
arrangements in the normal course of business to meet the financing needs of its customers. These off-balance sheet arrangements include commitments to extend credit, standby letters of credit and financial guarantees which would impact the
Companys liquidity and capital resources to the extent customers accept and/or use these commitments. These instruments involve, to varying degrees,
39
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 $522.0 million at March 31, 2011, and $436.3 million at December 31, 2010, 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 March 31, 2011, and December 31, 2010, the Company had $27.8 million and $28.8 million, respectively, in outstanding standby letters of credit.
Contractual Obligations
Since December 31, 2010, 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 13.57% at March 31, 2011, compared to 12.87% at December 31, 2010, and its
total risk-based capital ratio was 14.82% at March 31, 2011, compared to 14.12% at December 31, 2010. These ratios are in excess of the mandated minimum requirement of 4.00% and 8.00%, respectively. The Banks leverage ratio was
11.16% at March 31, 2011, compared to 10.76% at December 31, 2010, and in excess of the mandated minimum requirement of 4.00%. The Companys Tier 1 risk-based capital ratio, total risk-based capital ratio, and leverage ratio was
13.96%, 15.21%, and 11.48%, respectively, at March 31, 2011, compared to 13.20%, 14.45%, and 11.07% at December 31, 2010. The increases in these capital ratios in 2011 are due to additional capital and lower levels of risk-weighted assets.
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 other qualifying securities. In the event that the Company is unable to obtain
additional capital for the Bank on a timely basis, the growth of the Company and the Bank may be curtailed, and the Company and the Bank may be required to reduce their level of assets in order to maintain compliance with regulatory capital
requirements. Under those circumstances net income and the stockholders equity may be adversely affected.
Guidance by the federal
banking regulators provides that banks which have concentrations in construction, land development or commercial real estate loans (other than loans for majority owner occupied properties) would be expected to maintain higher levels of risk
management and, potentially, higher levels of capital. It is possible that we
40
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.
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Federal
Reserve has revised the capital treatment of trust preferred securities 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 March 31, 2011, trust preferred securities represented 20.2% of the Companys Tier 1 capital and 18.6% 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 commence paying a cash common
stock dividend or repurchase its common stock or other equity or capital securities, other than in connection with benefit plans consistent with past practice and certain other circumstances specified in the Securities 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 Warrant expires ten years from the date of issuance. If the Company redeems
the Series A Preferred Stock in full prior to exercise of the Warrant, the Warrant will be liquidated based upon the then current fair market value of the common stock. The Treasury has agreed not to exercise voting power with respect to any shares
of common stock issued upon exercise of the Warrant.
On March 31, 2011, the Company issued 426,000 shares of its common stock at a price
of $5.87 per share in a registered direct placement with a Company director for total gross proceeds of approximately $2.5 million. In addition, the Company issued to the investor warrants exercisable for shares of common stock, which, if fully
exercised, would provide an additional $4.8 million in gross proceeds to the Company. The warrants each have an exercise price of $5.62 per share. The Series A warrants, exercisable for a total of 426,000 shares of common stock, are exercisable for
a period of seven months following the closing date. The Series B warrants, also exercisable for a total of 426,000 shares of common stock, are exercisable for a period of twelve months following the closing date.
On September 29, 2010, the Company issued 1,904,766 shares of its common stock at a price of $5.25 per share in a registered direct placement with
several institutional investors for total gross proceeds of $10.0 million. In addition, the Company issued to the investors warrants exercisable for shares of common stock, which, if fully exercised, would provide an additional $11.4 million in
gross proceeds to the Company. The warrants each have an exercise price of $6.00 per share, which represents a 14.3% premium to the offering price of the shares of common stock sold in the registered direct placement. The Series A warrants,
exercisable for a total of 952,383 shares of common stock, are exercisable for a period of seven months following the closing date. On April 29, 2011, 130,851 of the Series A warrants were exercised resulting in approximately $746 thousand in
additional capital while 821,532 Series A warrants expired under the original terms. The Series B warrants, also exercisable for a total of 952,383 shares of common stock, are exercisable for a period of twelve months following the closing date.
41
Please refer to Note 9 to the Consolidated Financial Statements for additional information regarding the
issuance of $25 million of trust preferred securities and warrants to purchase 1.5 million shares to certain directors and executive officers of the Company.
Recent Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards
Update (ASU) No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends Subtopic 820-10 to clarify existing disclosures and require new
disclosures, and includes conforming amendments to guidance on employers disclosures about postretirement benefit plan assets. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for
disclosures about purchases, sales, issuances, and settlements in the roll-forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within
those fiscal years. The adoption of the new guidance did not have a material impact on the Companys consolidated financial statements.
In July 2010, the FASB issued ASU No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit
Losses. The new disclosure guidance will significantly expand the existing requirements and will lead to greater transparency into a companys exposure to credit losses from lending arrangements. The extensive new disclosures of
information as of the end of a reporting period will become effective for both interim and annual reporting periods ending after December 15, 2010. Specific items regarding activity that occurred before the issuance of the ASU, such as the
allowance roll-forward and modification disclosures, will be required for periods beginning after December 15, 2010. The Company has included the required disclosures in its consolidated financial statements.
In December 2010, the FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations. The
guidance requires pro forma disclosure for business combinations that occurred in the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual
reporting period. If comparative financial statements are presented, the pro forma information should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the
comparable prior annual reporting period. ASU 2010-29 is effective for 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, 2010. The adoption
of the new guidance is not expected to have a material impact on the Companys consolidated financial statements
.
In December
2010, the FASB issued ASU 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. The amendments in this ASU modify Step 1 of the goodwill impairment test for reporting
units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. For public entities, the amendments in
this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption was not permitted. The adoption of the new guidance is not expected to have a material impact on the
Companys consolidated financial statements.
The Securities and Exchange Commission (the SEC) has issued Final Rule
No. 33-9002, Interactive Data to Improve Financial Reporting, which requires companies to submit financial statements in XBRL (extensible business reporting language) format with their SEC filings on a phased-in schedule. Large
accelerated filers and foreign large accelerated filers using accounting principles generally accepted in the United States were required to provide interactive data reports starting with their first quarterly report for fiscal periods ending on or
after June 15, 2010. All remaining filers are required to provide interactive data reports starting with their first quarterly report for fiscal periods ending on or after June 15, 2011.
In March 2011, the SEC issued Staff Accounting Bulletin (SAB) 114. This SAB revises or rescinds portions of the interpretive guidance
included in the codification of the Staff Accounting Bulletin Series. This update is intended to make the relevant interpretive guidance consistent with current authoritative accounting guidance issued as a part of the FASBs Codification. The
principal changes involve revision or removal of accounting guidance references and other conforming changes to ensure consistency of referencing through the SAB Series. The effective date for SAB 114 is March 28, 2011. The adoption of the new
guidance did not have a material impact on the Companys consolidated financial statements.
42
In April 2011, the FASB issued ASU 2011-02, A Creditors Determination of Whether a
Restructuring Is a Troubled Debt Restructuring. The amendments in this ASU clarify the guidance on a creditors evaluation of whether it has granted a concession to a debtor. They also clarify the guidance on a creditors evaluation
of whether a debtor is experiencing financial difficulty. The amendments in this Update are effective for the first interim or annual period beginning on or after June 15, 2011. Early adoption is permitted. Retrospective application to the
beginning of the annual period of adoption for modifications occurring on or after the beginning of the annual adoption period is required. As a result of applying these amendments, an entity may identify receivables that are newly considered to be
impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. The Company is currently assessing the impact
that ASU 2011-02 will have on its consolidated financial statements.
Internet Access To Company Documents
The Company provides access to its SEC filings through the Banks web site at www.vcbonline.com. After accessing the web site, the filings are
available upon selecting About VCB/Investor Relations/SEC Filings. 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 are made available as soon as reasonably
practicable after the reports are electronically filed or furnished to the SEC.
ITEM 3.
QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company is exposed to market risk, or interest rate risk, as
its net income is largely dependent on its net interest income. Market risk is managed by the Companys Asset/Liability Management Committee that formulates and monitors the performance of the Company based on established levels of market risk
as dictated by policy. In setting tolerance levels, or limits on market risk, the Committee considers the impact on earnings and capital, the level and general direction of interest rates, liquidity, local economic conditions and other factors.
Interest rate risk, or sensitivity, can be defined as the amount of forecasted net interest income that may be gained or lost due to favorable or unfavorable movements in interest rates. Interest rate risk, or sensitivity, arises when the maturity
or repricing of interest-earning assets differs from the maturing or repricing of interest-bearing liabilities and as a result of the difference between total interest-earning assets and interest-bearing liabilities. The Company seeks to manage
interest rate sensitivity while enhancing net interest income by periodically adjusting this asset/liability position. In order to closely monitor and measure interest rate sensitivity, the Company uses earnings simulation models on a quarterly
basis.
We use a duration gap of equity approach to manage our long term interest rate risk. This approach uses a model which generates
estimates of the change in our market value of portfolio equity (MVPE) over a range of interest rate scenarios. MVPE is the present value of expected cash flows from assets and liabilities using various assumptions about estimated loan
prepayment rates, reinvestment rates and deposit decay rates.
Our short term interest rate sensitivity is managed through the use of a model
that generates estimates of the change in the net interest income over a range of interest rate scenarios. Net interest income depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates
earned or paid on them. The model assumes that the composition of interest sensitive assets and liabilities existing at March 31, 2011, remains constant over a two year period (base case) and also assumes that a particular change in interest
rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities.
The following table provides an analysis of our interest rate risk as measured by the estimated change in MVPE and net interest income from the base
case, resulting from instantaneous and sustained parallel shifts in interest rates as of March 31, 2011, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sensitivity of Market Value of Portfolio Equity
March 31, 2011
|
|
|
Sensitivity of Net Interest Income
March 31, 2011
|
|
|
|
Market Value of Portfolio Equity
|
|
|
Net Interest Income
|
|
|
Net Interest Margin
|
|
Interest Rate Scenario
|
|
Amount
|
|
|
$ Change
from Base
|
|
|
Percent
|
|
|
% of Total
Assets
|
|
|
Amount
|
|
|
$ Change
from Base
|
|
|
Percent
|
|
|
% Change
from Base
|
|
Up 300 bps
|
|
$
|
236,583
|
|
|
$
|
(82,568
|
)
|
|
|
-25.87
|
%
|
|
|
8.49
|
%
|
|
$
|
221,008
|
|
|
$
|
10,871
|
|
|
|
4.05
|
%
|
|
|
5.12
|
%
|
Up 200 bps
|
|
|
264,945
|
|
|
|
(54,206
|
)
|
|
|
-16.98
|
%
|
|
|
9.50
|
%
|
|
|
217,470
|
|
|
|
7,332
|
|
|
|
3.99
|
%
|
|
|
3.46
|
%
|
Base Case
|
|
|
319,151
|
|
|
|
|
|
|
|
0.00
|
%
|
|
|
11.45
|
%
|
|
|
210,138
|
|
|
|
|
|
|
|
3.85
|
%
|
|
|
0.00
|
%
|
Down 100 bps
|
|
|
330,321
|
|
|
|
11,170
|
|
|
|
3.50
|
%
|
|
|
11.85
|
%
|
|
|
202,864
|
|
|
|
(7,274
|
)
|
|
|
3.72
|
%
|
|
|
-3.42
|
%
|
43
Management believes the modeled results are consistent with the short duration of the Companys
balance sheet and given the many variables that affect the actual timing of when assets and liabilities will reprice and the extent of that repricing. In shocking the current two year projection upward, interest-bearing liabilities are repricing
slightly higher than interest-earning assets; however, that decline in interest income is being offset by a higher level of interest-earning assets relative to interest-bearing liabilities. Since the earnings model uses numerous assumptions
regarding the effect of changes in interest rates on the timing and extent of repricing characteristics, future cash flows and customer behavior, the model cannot precisely estimate net income and the effect on net income from sudden changes in
interest rates. Actual results will differ from the simulated results due to the timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors.
ITEM 4.
CONTROLS AND PROCEDURES
The Companys management, with the participation of the Companys Chief Executive Officer and Interim Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Interim Chief Financial Officer have concluded that the
Companys disclosure controls and procedures were effective as of March 31, 2011, to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Companys management, including the Companys Chief Executive Officer and Interim Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the Companys disclosure
controls and procedures will detect or uncover every situation involving the failure of persons within the Company or its subsidiary to disclose material information required to be set forth in the Companys periodic reports.
The Companys management is also responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act). There was no change in the Companys internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1.
LEGAL PROCEEDINGS
None
Item 1A.
RISK FACTORS
There have been no material changes in the risk factors faced by the Company from those disclosed in the Companys annual report on Form 10-K for the year ended December 31, 2010.
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.
(REMOVED AND RESERVED)
Item 5.
OTHER INFORMATION
|
(a)
|
Required 8-K Disclosures.
None
|
|
(b)
|
Changes in Procedures for Director Nominations by Securityholders.
None
|
44
Item 6.
EXHIBITS
|
|
|
Exhibit No.
|
|
Description
|
|
|
3.1
|
|
Articles of Incorporation of Virginia Commerce Bancorp, Inc., as amended (incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q for the
quarter ended March 31, 2006)
|
|
|
3.2
|
|
Articles of Amendment to the Articles of Incorporation relating to the Series A Preferred Stock (incorporated by reference to Exhibit 3.1 to the Companys Current Report on
Form 8-K filed on December 15, 2008)
|
|
|
3.3
|
|
Amended and Restated By-laws of Virginia Commerce Bancorp, Inc. (incorporated by reference to Exhibit 3.2 to the Companys Current Report on Form 8-K filed on July 27,
2007)
|
|
|
3.4
|
|
Amendment to the Amended and Restated By-laws of Virginia Commerce Bancorp, Inc. (incorporated by reference to exhibit 3.4 to the Companys Current Report on Form 8-K filed on
January 28, 2011)
|
|
|
4.13
|
|
Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.13 to the Companys Current Report on Form 8-K filed on March 22, 2011)
|
|
|
10.9
|
|
Form of Restricted Stock Agreement (for employee) under the Virginia Commerce Bancorp, Inc. 2010 Equity Plan (incorporated by reference to Exhibit 10.9 to the Companys Current
Report on Form 8-K filed on January 28, 2011)
|
|
|
10.10
|
|
Form of Incentive Stock Option Agreement (for employee) under the Virginia Commerce Bancorp, Inc. 2010 Equity Plan (incorporated by reference to Exhibit 10.10 to the Companys
Current Report on Form 8-K filed on January 28, 2011)
|
|
|
10.11
|
|
Securities Purchase Agreement, dated March 21, 2011, among Virginia Commerce Bancorp, Inc. and an affiliated investor identified therein (incorporated by reference to Exhibit
10.11 to the Companys Current Report on Form 8-K filed on March 22, 2011)
|
|
|
31.1
|
|
Certification of Peter A. Converse, President and Chief Executive Officer
|
|
|
31.2
|
|
Certification of Wilmer L. Tinley, Jr., Interim Chief Financial Officer
|
|
|
32.1
|
|
Certification of Peter A. Converse, President and Chief Executive Officer
|
|
|
32.2
|
|
Certification of Wilmer L. Tinley, Jr., Interim Chief Financial Officer
|
45
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.
|
|
|
|
|
|
|
|
|
|
|
Virginia Commerce Bancorp, Inc.
|
|
|
|
|
(Registrant)
|
|
|
|
|
Date: May 10, 2011
|
|
|
|
BY
|
|
/s/ Peter A. Converse
|
|
|
|
|
Peter A. Converse, President and Chief Executive Officer
|
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
Date: May 10, 2011
|
|
|
|
BY
|
|
/s/ Wilmer L. Tinley, Jr.
|
|
|
|
|
Wilmer L. Tinley, Jr., Interim Chief Financial Officer
|
|
|
|
|
(Principal Financial Officer)
|
46
Virginia Commerce Bancorp (MM) (NASDAQ:VCBI)
過去 株価チャート
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Virginia Commerce Bancorp (MM) (NASDAQ:VCBI)
過去 株価チャート
から 7 2023 まで 7 2024