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U.S. 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 June 30, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission file number 0-28635
VIRGINIA COMMERCE BANCORP, INC.
(Exact Name of Registrant as Specified in its Charter)
VIRGINIA 54-1964895
-------- ----------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
5350 LEE HIGHWAY, ARLINGTON, VIRGINIA 22207
(Address of Principal Executive Offices)
703-534-0700
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, If Changed Since
Last Report)
Indicate by check 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 whether the registrant is an accelerated filer as defined in
Rule 12b-2 of the Securities Exchange Act of 1934. Yes X . No .
--- ---
As of August 3, 2004 the number of outstanding shares of registrant's common
stock, par value $1.00 per share was: 11,030,411
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except per share data)
Unaudited Audited
June 30, December 31,
2004 2003
------------------ ----------------
ASSETS
Cash and due from banks $ 22,530 $ 22,434
Securities (fair value: 2004, $171,172; 2003, $149,894) 171,623 149,245
Federal funds sold 44,318 31,622
Loans held-for-sale 10,491 3,513
Loans, net of allowance for loan losses of $8,768 in 2004 and
$7,457 in 2003 780,184 654,851
Bank premises and equipment, net 6,286 6,189
Accrued interest receivable 3,319 3,372
Other assets 11,541 9,898
----------------- ---------------
Total assets $ 1,050,292 $ 881,124
================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS
Demand deposits $ 158,299 $ 119,785
Savings and interest-bearing demand deposits 348,406 340,122
Time deposits 394,924 313,604
----------------- ---------------
Total deposits $ 901,629 $ 773,511
Securities sold under agreement to repurchase and federal funds
purchased 45,444 30,887
Trust preferred capital notes 18,000 18,000
Accrued interest payable 1,123 1,024
Other liabilities 1,306 2,610
Commitments and contingent liabilities -- --
----------------- ---------------
Total liabilities $ 967,502 $ 826,032
================= ===============
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par, 1,000,000 shares authorized and
un-issued $ -- $ --
Common stock, $1.00 par, 20,000,000 shares authorized, issued and
outstanding 2004, 11,030,411; 2003, 7,860,291 (1) 11,030 7,860
Surplus 37,250 17,891
Retained earnings 35,877 29,354
Accumulated other comprehensive income (loss), net (1,367) (13)
----------------- ---------------
Total stockholders' equity $ 82,790 $ 55,092
----------------- ---------------
Total liabilities and stockholders' equity $ 1,050,292 $881,124
================= ===============
(1) The number of shares outstanding as of June 30, 2004, have been
adjusted for a five-for-four stock split in the form of a 25% stock
dividend paid July 15, 2004.
Notes to consolidated financial statements are an integral part of these
statements.
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
--------------- --------------- --------------- ----------------
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $ 12,090 $ 10,168 $ 23,220 $ 19,860
Interest and dividends on investment securities:
Taxable 1,288 919 2,547 1,634
Tax-exempt 59 66 132 133
Dividends 25 24 49 49
Interest on federal funds sold 111 116 158 205
-------------- -------------- -------------- ---------------
Total interest and dividend income $ 13,573 $ 11,293 $ 26,106 $ 21,881
INTEREST EXPENSE:
Deposits $ 3,609 $3,333 $ 6,901 $ 6,473
Securities sold under agreement to repurchase
and federal funds purchased 36 32 67 60
Other borrowed funds -- 6 4 12
Trust preferred capital notes 208 213 415 426
-------------- -------------- -------------- ---------------
Total interest expense $ 3,853 $3,584 $ 7,387 $ 6,971
NET INTEREST INCOME: $ 9,720 $7,709 $ 18,719 $ 14,910
Provision for loan losses 820 408 1,307 764
-------------- -------------- -------------- ---------------
Net interest income after provision for loan losses $ 8,900 $7,301 $ 17,412 $ 14,146
NON-INTEREST INCOME:
Service charges and other fees $ 436 $ 392 $ 883 $ 799
Non-deposit investment services commissions 108 2 190 15
Fees and net gains on loans held-for-sale 961 1,555 1,552 2,854
Other 97 40 186 64
-------------- -------------- -------------- ---------------
Total non-interest income $ 1,602 $1,989 $ 2,811 $3,732
NON-INTEREST EXPENSE:
Salaries and employee benefits $ 3,056 $3,078 $ 5,904 $6,076
Occupancy expense 753 781 1,534 1,566
Data processing expense 325 307 638 591
Other operating expense 1,145 866 2,250 1,717
-------------- -------------- -------------- ---------------
Total non-interest expense $ 5,279 $5,032 $ 10,326 $9,950
Income before taxes on income $ 5,223 $4,258 $ 9,897 $7,928
Provision for income taxes 1,785 1,421 3,373 2,673
-------------- -------------- -------------- ---------------
NET INCOME $ 3,438 $2,837 $ 6,524 $5,255
Earnings per common share, basic (1) $ 0.33 $ 0.29 $ 0.65 $ 0.54
Earnings per common share, diluted (1) $ 0.31 $ 0.27 $ 0.59 $ 0.50
(1) Adjusted for a five-for-four stock split in the form of a 25% stock
dividend paid July 15, 2004.
Notes to consolidated financial statements are an integral part of these
statements.
3
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the six months ended June 30, 2004 and 2003
(In Thousands of Dollars)
(Unaudited)
Accumulated
Other Total
Preferred Common Retained Comprehensive Comprehensive Stockholders'
Stock Stock Surplus Earnings Income (Loss) Income Equity
---------- ---------- ---------- ---------- --------------- -------------- -------------
Balance, January 1, 2003 $ -- $3,739 $ 19,622 $ 17,808 $ 681 $ 41,850
Comprehensive Income:
Net Income 5,255 $5,255 5,255
Other comprehensive income (loss), net
of tax, unrealized holding losses arising
during the period (net of tax of $33) (64) (64) (64)
------------
Total comprehensive income $5,191
============
Issuance of common stock-
Stock options/warrants exercised -- 169 1,809 -- -- 1,978
100% stock split -- 3,894 (3,894) -- -- --
--------- --------- --------- --------- ------------ ------------
Balance, June 30, 2003 $ -- $ 7,802 $ 17,537 $ 23,063 $ 617 $ 49,019
========= ========= ========= ========= ============ ============
Balance, January 1, 2004 $ -- $7,860 $ 17,891 $ 29,353 $ (13) $ 55,091
Comprehensive Income:
Net Income 6,524 $6,524 6,524
Other comprehensive income (loss), net
of tax, unrealized holding losses arising
during the period (net of tax of $729) (1,354) (1,354) (1,354)
------------
Total comprehensive income $5,170
============
Issuance of common stock-
Stock options/warrants exercised -- 73 476 -- -- 549
Follow-on offering, net -- 891 21,089 -- -- 21,980
25% stock split paid July 15, 2004 -- 2,206 (2,206) -- -- --
--------- --------- --------- --------- ------------ ------------
Balance, June 30, 2004 $ -- $ 11,030 $ 37,250 $ 35,877 $ (1,367) $ 82,790
========= ========= ========= ========= ============ ============
Notes to consolidated financial statements are an integral part of these
statements.
4
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
Six Months Ended
June 30,
--------------- -------------
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 6,524 $ 5,255
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 502 488
Provision for loan losses 1,307 764
Deferred tax benefit (433) (284)
Amortization of security premiums and (accretion) of discounts (81) (9)
Origination of loans held-for-sale (87,892) (152,993)
Sales of loans 80,913 148,090
Changes in other assets and other liabilities:
Decrease (increase) in accrued interest receivable 53 (49)
Increase in other assets (481) (6,254)
Decrease in other liabilities (1,205) (1,729)
--------------- -------------
Net Cash (Used In) Operating Activities $ (793) $ (6,721)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans $ (126,640) $(57,838)
Purchase of securities available-for-sale (59,827) (82,915)
Purchase of securities held-to-maturity (2,086) (5,500)
Proceeds from principal payments on securities available-for-sale 1,958 4,589
Proceeds from principal payments on securities held-to-maturity 2,471 2,569
Proceeds from calls and maturities of securities available-for-sale 31,405 37,525
Proceeds from calls and maturities of securities held-to-maturity 1,698 5,000
Purchase of bank premises and equipment (598) (376)
-------------- -------------
Net Cash (Used In) Investing Activities $ (151,619) $ (96,946)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits $ 128,118 $ 131,204
Net increase in repurchase agreements 14,557 458
Net proceeds from issuance of capital stock 22,529 1,978
-------------- -------------
Net Cash Provided by Financing Activities $ 165,204 $ 133,640
Net Increase In Cash and Cash Equivalents 12,792 29,973
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 54,056 43,978
--------------- -------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 66,848 $ 73,951
=============== =============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Unrealized (loss) on available-for-sale securities $ (2,084) $ (97)
Tax benefits on stock options and warrants exercised 230 1,315
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Taxes Paid $ 3,588 $ 2,723
Interest Paid 7,288 7,125
Notes to consolidated financial statements are an integral part of these
statements.
5
VIRGINIA COMMERCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
The accompanying unaudited consolidated financial statements of
Virginia Commerce Bancorp, Inc. and its subsidiaries (the Company) have
been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial
information. All significant intercompany balances and transactions
have been eliminated. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments and
reclassifications consisting of a normal and recurring nature
considered necessary to present fairly the financial positions as of
June 30, 2004 and December 31, 2003, the results of operations for the
three and six months ended June 30, 2004 and 2003, and statements of
cash flows and stockholders' equity for the six months ended June 30,
2004 and 2003.
Operating results for the three and six month periods ended June 30,
2004 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2004.
2. INVESTMENT SECURITIES
Amortized cost and fair value of securities available-for-sale and
held-to-maturity as of June 30, 2004 are as follows (dollars in
thousands):
--------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------------------------------------------------------------------
AVAILABLE-FOR-SALE:
U.S. Government Agency obligations $ 109,001 $ 113 $ (2,224) $ 106,890
U.S. Treasuries 9,924 -- (24) 9,900
Domestic corporate debt obligations 6,000 17 -- 6,017
Obligations of states and political subdivisions 1,241 16 (1) 1,256
Restricted stock:
Federal Reserve Bank 1,442 -- -- 1,442
Federal Home Loan Bank 1,598 -- -- 1,598
Community Bankers' Bank 55 -- -- 55
------------------- ----------------- --------------- -------------
$ 129,261 $ 146 $ (2,249) $ 127,158
HELD-TO-MATURITY:
U.S. Government Agency obligations $ 36,044 $ 95 $ (471) $ 35,668
Obligations of states and political subdivisions 7,931 95 (207) 7,819
Domestic corporate debt obligations 490 37 -- 527
------------------- ---------------- ---------------- -------------
$ 44,465 $ 227 $ (678) $ 44,014
=================== ================ ================ =============
6
VIRGINIA COMMERCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
Amortized cost and fair value of securities available-for-sale and
held-to-maturity as of December 31, 2003 are as follows (dollars in
thousands):
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------------- ---------------- ---------------- -------------
AVAILABLE-FOR-SALE:
U.S. Government Agency obligations $ 93,363 $ 466 $ (555) $ 93,274
Domestic corporate debt obligations 6,000 -- (5) 5,995
Obligations of states and political subdivisions 1,220 75 -- 1,295
Restricted stock:
Federal Reserve Bank 758 -- -- 758
Federal Home Loan Bank 1,355 -- -- 1,355
Community Bankers' Bank 55 -- -- 55
------------------- ---------------- ---------------- -------------
$102,751 $ 541 $ (560) $102,732
HELD-TO-MATURITY:
U.S. Government Agency obligations $ 38,490 $ 476 $ -- $ 38,966
Obligations of states and political subdivisions 7,535 155 (38) 7,652
Domestic corporate debt obligations 488 56 -- 544
------------------- ---------------- ---------------- -------------
$ 46,513 $ 687 $ (38) $ 47,162
=================== ================ ================ =============
Provided below is a summary of securities which were in an unrealized loss
position at June 30, 2004. Of the total securities in an unrealized loss
position for less than twelve months, 88.9%, or forty-one positions, were U.S.
Government Agency securities with maturities ranging from eighteen months to ten
years. The Company has the ability and intent to hold these securities until
such time as the value recovers or the securities mature. These unrealized
losses are attributable to changes in market interest rates and not the credit
quality of the issuer.
- -----------------------------------------------------------------------------------------------------------------------
At June 30, 2004 LESS THAN 12 MONTHS 12 MONTHS OF LONGER TOTAL
- -----------------------------------------------------------------------------------------------------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
(Dollars in thousands) Value Losses Value Losses Value Losses
- -----------------------------------------------------------------------------------------------------------------------
AVAILABLE-FOR-SALE:
U.S. Government Agency obligations $88,092 $(2,224) -- -- $88,092 $(2,224)
U.S. Treasuries 9,900 (24) -- -- 9,900 (24)
Obligations of states/political
subdivisions 223 (1) -- -- 223 (1)
- -----------------------------------------------------------------------------------------------------------------------
$98,215 $(2,249) -- -- $98,215 $(2,249)
- -----------------------------------------------------------------------------------------------------------------------
HELD-TO-MATURITY:
U.S. Government Agency obligations $32,829 $ (471) -- -- $32,829 $ (471)
Obligations of states/political
subdivisions 5,061 (207) -- -- 5,061 (207)
- -----------------------------------------------------------------------------------------------------------------------
$37,890 $ (678) -- -- $37,890 $ (678)
- -----------------------------------------------------------------------------------------------------------------------
7
VIRGINIA COMMERCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
3. LOANS
Major classifications of loans are summarized as follows:
June 30, 2004 December 31, 2003
---------------------------------------------
(In Thousand of Dollars)
Commercial $ 76,120 $ 61,178
Real estate-one-to-four family residential 101,390 88,789
Real estate-multi-family residential 36,466 29,954
Real estate-non-farm, non-residential 369,988 325,668
Real estate-construction 202,534 153,400
Consumer 6,022 6,061
--------------------------------------------
Total Loans 792,520 665,050
Less unearned income (3,568) (2,742)
Less allowance for loan losses (8,768) (7,457)
---------------------------------------------
Loans, net $ 780,184 $ 654,851
============================================
4. EARNINGS PER SHARE
The following shows the weighted average number of shares used in computing
earnings per share and the effect on the weighted average number of shares of
diluted potential common stock. The weighted average number of shares have been
adjusted to give effect to a five-for-four stock split in the form of a 25%
stock dividend in July 2004.
Six Months Ended
----------------
June 30, 2004 June 30, 2003
------------- -------------
Per Per
Share Share
Shares Amount Shares Amount
------ ------ ------ ------
Basic earnings per share 10,091,203 $0.65 9,670,214 $0.54
----- -----
Effect of dilutive securities:
Stock options 837,149 830,301
Warrants 45,599 40,803
------ ------
Diluted earnings per share 10,973,951 $0.59 10,541,318 $0.50
========== ===== ========== =====
8
VIRGINIA COMMERCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
5. STOCK COMPENSATION PLAN
At June 30, 2004, the Company had a stock-based compensation plan. The Company
accounts for the plan under the recognition and measurement principles of APB
Opinion 25, Accounting for Stock Issued to Employees, and related
interpretations. No stock-based employee compensation cost is reflected in net
income, as all options granted under the plan had an exercise price equal to the
market value of the underlying common stock on the date of the grant. The
following table illustrates the effect on net income and earnings per share for
the six months ended June 30, 2004, and 2003 had the fair value recognition
provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation,
been adopted.
SIX MONTHS ENDED
- ----------------------------------------------------------------------------------------------------
(Dollars in thousands except per share amounts) JUNE 30, 2004 JUNE 30, 2003
- ----------------------------------------------------------------------------------------------------
NET INCOME, AS REPORTED $6,524 $5,255
Deduct: total stock-based employee compensation
expense determined based on fair value (256) (178)
method of awards, net of tax
PRO FORMA NET INCOME $6,268 $5,077
BASIC EARNINGS PER SHARE:
As reported $0.65 $0.54
Pro forma $0.62 $0.53
DILUTED EARNING PER SHARE:
As reported $0.59 $0.50
Pro Forma $0.57 $0.48
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 2004, and 2003, respectively: price volatility of
29.61% and 28.55%, risk-free interest rates of 4.37% and 4.02%, dividend rate of
..03% and expected lives of 10 years.
9
VIRGINIA COMMERCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
6. CAPITAL REQUIREMENTS
A comparison of the Company's and its wholly-owned subsidiary's, Virginia
Commerce Bank (the "Bank") capital ratios as of June 30, 2004 with the minimum
regulatory guidelines is as follows:
Minimum Minimum to be
Actual Guidelines "Well-Capitalized"
------ ---------- ------------------
Total Risk-Based Capital:
Company 12.67% 8.00% --
Bank 12.54% 8.00% 10.00%
Tier 1 Risk-Based Capital:
Company 11.67% 4.00% --
Bank 9.48% 4.00% 6.00%
Leverage Ratio:
Company 10.33% 4.00% --
Bank 8.39% 4.00% 5.00%
7. TRUST PREFERRED SECURITIES
On November 13, 2002, the Company completed a private placement issuance of $3.0
million of trust preferred securities through a newly formed, wholly-owned,
subsidiary trust (VCBI Capital Trust I). The securities bear a floating rate of
interest, adjusted semi-annually, of 340 basis points over six month Libor,
currently 4.94%, with a maximum rate of 12.0% until November 15, 2007. The
securities have a thirty year term and are callable at par beginning November
15, 2007. On December 19, 2002, the Company completed a separate private
placement issuance of $15.0 million of trust preferred securities through
another newly formed, wholly-owned, subsidiary trust (VCBI Capital Trust II).
These securities bear a floating rate of interest, adjusted semi-annually, of
330 basis points over six month Libor, currently 5.17%, with a maximum rate of
11.9% until December 30, 2007. These securities also have a thirty year term and
are callable at par beginning December 30, 2007. The principal asset of each
trust is a similar amount of the Company's junior subordinated debt securities
with like maturities and interest rates to the trust preferred securities. The
obligations of the Company with respect to the issuance of the trust preferred
securities constitute a full and unconditional guarantee by the Company of each
Trust's 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.
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. All of the
trust preferred securities currently qualify for inclusion in Tier 1 capital.
NOTE 8: SEGMENT REPORTING
In accordance with SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information" the Company has two reportable segments, its community
banking operations and its mortgage banking division. Community banking
operations, the major segment, involves making loans and gathering deposits from
individuals and businesses in the Bank's market area, while the mortgage banking
division originates and sells mortgage loans, serving released, on one-to-four
family residential properties. Revenues from mortgage lending consist of
interest earned on mortgage loans held-for-sale, loan origination fees, and net
gains on the sale of loans in the secondary market. The Bank provides the
mortgage division with short term funds to originate loans and charges it
interest on the funds based on what the Bank earns on overnight funds. Expenses
include both fixed overhead and variable costs on originated loans such as loan
officer commissions, document preparation and courier fees. The following table
presents segment information for the six months ended June 30, 2004, and 2003.
Eliminations consist of overhead and interest charges by the Bank to the
mortgage lending division.
10
- ---------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2004
- ---------------------------------------------------------------------------------------------------------------------
(In thousands) Community Mortgage Eliminations Total
Banking Lending
- ---------------------------------------------------------------------------------------------------------------------
Interest income $ 25,918 $ 188 $ -- $ 26,106
Non-interest income 1,259 1,552 -- 2,811
- ---------------------------------------------------------------------------------------------------------------------
Total operating income $ 27,177 $ 1,740 $ -- $ 28,917
Interest expense $ 7,387 $ 28 $(28) $ 7,387
Provision for loan losses 1,307 -- -- 1,307
Non-interest expense 9,141 1,209 (24) 10,326
Total operating expense $ 17,835 $ 1,237 $(52) $ 19,020
- ---------------------------------------------------------------------------------------------------------------------
Income before taxes on income $ 9,342 $ 503 $ 52 $ 9,897
Provision for income taxes 3,196 177 -- 3,373
- ---------------------------------------------------------------------------------------------------------------------
Net Income $ 6,146 $ 326 $ 52 $ 6,524
- ---------------------------------------------------------------------------------------------------------------------
Total Assets $ 1,039,678 $ 10,614 $ -- $ 1,050,292
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2003
- ---------------------------------------------------------------------------------------------------------------------
(In thousands) Community Mortgage
Banking Lending Eliminations Total
- ---------------------------------------------------------------------------------------------------------------------
Interest income $ 21,470 $ 411 $ -- $ 21,881
Non-interest income 878 2,854 -- 3,732
- ---------------------------------------------------------------------------------------------------------------------
Total operating income $ 22,348 $ 3,265 $ -- $ 25,613
Interest expense $ 6,971 $ 70 $(70) $ 6,971
Provision for loan losses 764 -- -- 764
Non-interest expense 8,148 1,823 (21) 9,950
Total operating expense $ 15,883 $ 1,893 $(91) $ 17,685
- ---------------------------------------------------------------------------------------------------------------------
Income before taxes on income $ 6,465 $ 1,372 $ 91 $ 7,928
Provision for income taxes 2,206 467 -- 2,673
- ---------------------------------------------------------------------------------------------------------------------
Net Income $ 4,259 $ 905 $ 91 $ 5,255
- ---------------------------------------------------------------------------------------------------------------------
Total Assets $775,947 $24,038 $ -- $799,985
- ---------------------------------------------------------------------------------------------------------------------
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
This management's discussion and analysis and other portions of this report,
contain forward-looking statements within the meaning of the Securities and
Exchange Act of 1934, as amended, including statements of goals, intentions, and
expectations as to future trends, plans, events or results of Company operations
and policies and regarding general economic conditions. In some cases,
forward-looking statements can be identified by use of words such as "may,"
"will," "anticipates," "believes," "expects," "plans," "estimates," "potential,"
"continue," "should," and similar words or phrases. These statements are based
upon current and anticipated economic conditions, nationally and in the
Company's market, interest rates and interest rate policy, competitive factors,
and other conditions which by their nature, are not susceptible to accurate
forecast, and are subject to significant uncertainty. Because of these
uncertainties and the assumptions on which this discussion and the
forward-looking statements are based, actual future operations and results may
differ materially from those indicated herein. Readers are cautioned against
placing undue reliance on any such forward-looking statements. The Company's
past results are not necessarily indicative of future performance.
Non-GAAP Presentations
This management's discussion and analysis refers to the efficiency ratio, which
is computed by dividing non-interest expense by the sum of net interest income
on a tax equivalent basis and non-interest income. This is a non-GAAP financial
measure which we believe provides investors with important information regarding
our operational efficiency. Comparison of our efficiency ratio with those of
other companies may not be possible because other companies may calculate the
efficiency ratio differently. The Company, in referring to its net income, is
referring to income under accounting principals generally accepted in the United
States, or "GAAP".
General
The following presents management's 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 Company's 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 thirteen branch offices, two residential mortgage offices and
one investment services office and has recently signed leases and a letter of
intent for four additional Northern Virginia locations that are tentatively
scheduled to be open between August 2004 and April 2005.
Headquartered in Arlington, Virginia, Virginia Commerce serves the Northern
Virginia suburbs of Washington, D.C., including Arlington, Fairfax and Prince
William Counties and the cities of Alexandria, Falls Church and Manassas. Its
service area also covers, to a lesser extent, Washington, D.C. and the nearby
Maryland counties of Montgomery and Prince Georges. The Bank's customer base
includes small-to-medium size 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.
Additionally, the Bank has strong market niches in commercial real estate,
construction and residential mortgage lending.
Critical Accounting Policies
During the quarter ended June 30, 2004 there were no changes in the Company's
critical accounting policies as reflected in the last report.
The Company's financial statements are prepared in accordance with accounting
principles generally accepted in the United States (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.
12
The allowance for loan losses is an estimate of the losses that are inherent in
our loan portfolio. The allowance is based on two basic principles of
accounting: (i) SFAS 5, Accounting for Contingencies, which requires that losses
be accrued when they are probable of occurring and estimatable and (ii) SFAS
114, Accounting by Creditors for Impairment of a Loan, 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 three basic components: the specific
allowance, the formula allowance and the unallocated allowance. Each of these
components is determined based upon estimates that can and do change when the
actual events occur. The specific allowance is used to individually allocate an
allowance for loans identified as impaired. Impairment testing includes
consideration of the borrower's overall financial condition, resources and
payment record, support available from financial guarantors and the fair market
value of collateral. These factors are combined to estimate the probability and
severity of inherent losses. When impairment is identified, then a specific
reserve is established based on the Company's calculation of the loss embedded
in the individual loan. Large groups of smaller balance, homogeneous loans are
collectively evaluated for impairment. Accordingly, the Company does not
separately identify individual consumer and residential loans for impairment.
The formula allowance is used for estimating the loss on internally risk rated
loans exclusive of those identified as impaired. The loans meeting the criteria
for special mention, substandard, doubtful and loss, as well as, impaired loans
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). Each loan type is assigned an allowance factor based on
management's estimate of the associated risk, complexity and size of the
individual loans within the particular loan category. Classified loans are
assigned a higher allowance factor than non-rated loans due to management's
concerns regarding collectibility or management's knowledge of particular
elements surrounding the borrower. Allowance factors grow with the worsening of
the internal risk rating. The unallocated formula is used to estimate the loss
of non-classified loans and loans identified for impairment testing for which no
impairment was identified. These un-criticized loans are also segregated by loan
type and allowance factors are assigned by management based on delinquencies,
loss history, trends in volume and terms of loans, effects of changes in lending
policy, the experience and depth of management, national and local economic
trends, concentrations of credit, quality of the loan review system and the
effect of external factors (i.e. competition and regulatory requirements). The
factors assigned differ by loan type. The unallocated allowance captures losses
whose impact on the portfolio has occurred but has yet to be recognized in
either the formula or specific allowance. Allowance factors and the overall size
of the allowance may change from period to period based on management's
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.
Results of Operations
For the six months ended June 30, 2004, the Bank continued to experience
significant growth in assets, loans and deposits while maintaining strong asset
quality and increasing its capital levels through a follow-on offering in May
2004. Total assets increased $169.2 million, or 19.2%, from $881.1 million at
December 31, 2003, to $1.05 billion at June 30, 2004, fueled by growth in
deposits of $128.1 million, or 16.6%, from $773.5 million at December 31, 2003,
to $901.6 million, growth in repurchase agreements from $30.9 million at
December 31, 2003, to $45.4 million, or 47.1%, and $22 million in net proceeds
from the follow-on offering.
Loans, net of the allowance for loan losses and excluding loans held-for-sale,
increased $125.3 million, or 19.1%, from $654.9 million at December 31, 2003, to
$780.2 million at June 30, 2004, and represented 86.5% of total deposits at June
30, 2004, compared to 84.7% at December 31, 2003. The majority of the growth in
loans occurred in construction and non-farm, non-residential real estate loans
with construction loans increasing $49.1 million, or 32.0%, from $153.4 million
at December 31, 2003, to $202.5 million at June 30, 2004, and non-farm,
non-residential real estate loans increasing by $44.3 million, or 13.6%, from
$325.7 million at December 31, 2003, to $370.0 million. Commercial loans
represented the next largest increase rising $14.9 million, or 24.4%, from $61.2
million at December 31, 2003, to $76.1 million at June 30, 2004, and currently
represent 9.60% of total loans. It is the Bank's goal to continue to increase
the percentage of commercial loans to total loans and has recently hired several
loan officers to help in that effort. One-to-four family residential real estate
loans increased $12.6 million, or 14.2%, from $88.8 million at December 31,
2003, to $101.4 million at June 30, 2004, with $10.8 million of the increase
represented by home equity lines of credit and $53.0 million, or 52.3%, of total
one-to-four family residential real estate loans.
13
Loans held-for-sale, which represent one-to-four family residential real estate
loans originated on a pre-sold basis to various investors, increased $6.9
million from $3.5 million at December 31, 2003, to $10.5 million at June 30,
2004, as originations picked up slightly towards the end of June; however, over
the six months ended June 30, 2004, total originations were down $65.1 million,
or 42.5%, from $153.0 million during the six months ended June 30, 2003, to
$87.9 million in the current period due to lower levels of refinancing activity.
Of the $87.9 million in originations year-to-date, $49.6 million, or 56.4%,
represented loans for refinance purposes versus $122.5 million, or 80.1%, of the
$153.0 million in originations during the same period in 2003. As this
refinancing activity continues to slow, the Bank has begun the process of
expanding its commissioned loan officer base to originate more purchase money
loans.
Investment securities, which the Bank holds as a secondary source of liquidity,
for providing a pool of collateral for public deposits and repurchase agreements
and for helping to manage interest rate risk, increased $22.4 million, or 15.0%,
from $149.2 million at December 31, 2003, to $171.6 million at June 30, 2004.
The increases were limited to short-term U.S. Government Treasuries and Agency
obligations in the available-for-sale portfolio as interest rates have continued
to be historically low and the Bank has avoided the longer end of the yield
curve for investment purposes. This strategy is expected to provide the Bank
with greater flexibility and opportunity in the future as interest rates rise.
Deposit growth occurred in all categories with non-interest bearing demand
deposits increasing $38.5 million, or 32.2%, from $119.8 million at December 31,
2003, to $158.3 million at June 30, 2004, and time deposits increasing $81.3
million, or 25.9%, from $313.6 million at December 31, 2003, to $394.9 million.
Savings and interest-bearing demand deposits increased slightly from $340.1
million at December 31, 2003, to $348.4 million, an increase of 2.4%. Although
the majority of the Bank's deposits are attracted from individuals and
businesses in the Northern Virginia and the Metropolitan Washington, D.C. area,
$38.1 million of the $81.3 million in time deposit growth was attracted from
out-of-market financial institutions and funds of public entities; however, all
deposits from out-of-market bear the same interest rates paid by the Bank on
comparable deposits from local consumers and businesses. Those rates are
generally near the top of the local market.
Growth for the three months ended June 30, 2004, was similar to what the Company
experienced for the six month period with total assets rising $93.8 million, or
9.8%, from $956.4 million at March 31, 2004, to $1.05 billion at June 30, 2004,
total deposits increasing $56.4 million, or 6.7%, from $845.2 million to $901.6
million, and loans, net of the allowance for loans losses and excluding loans
held-for-sale, growing $57.4 million, or 7.9%, from $722.7 million to $780.2
million. As loan growth matched that of deposits for the three-month period, the
balance of the growth in assets was again placed in short-term U.S. Government
Treasuries and Agency obligations.
For the six months ended June 30, 2004, net income of $6.5 million reflected an
increase of 24.1% compared to $5.3 million for the six months ended June 30,
2003, as net interest income increased $3.8 million, or 25.5%, due to overall
growth, non-interest income fell $921 thousand, or 24.7%, due to lower fees and
net gains from mortgage lending operations and non-interest expense was up only
$376 thousand, or 3.8%. Provisions for loan losses increased $543 thousand, or
71.1%, from $764 thousand for the six months ended June 30, 2003, to $1.3
million for the six months ended June 30, 2004, as loans, net of the allowance
for loan losses and excluding loans held-for-sale, increased by $125.3 million
over the six month period versus growth of $57.1 million in the six months ended
June 30, 2003. Diluted earnings per share, adjusted giving effect to a
five-for-four stock split in the form of a 25% stock dividend paid July 15,
2004, of $0.59 were up $0.09, or 18.0%, from $0.50 for the comparable period in
2003. The Company's annualized return on average assets and return on average
equity were 1.38% and 21.26% for the current six month period compared to 1.47%
and 23.22% for the six months ended June 30, 2003.
14
For the three months ended June 30, 2004, net income of $3.4 million increased
$601 thousand, or 21.2%, compared to $2.8 million for the same period in 2003 as
net interest income rose $2.0 million on growth, non-interest income declined by
$387 thousand due to lower levels of mortgage lending activity and non-interest
expenses were up $247 thousand, or 4.9%. Provisions for loan losses were also up
during the period, from $408 thousand for the three months ended June 30, 2003,
to $820 thousand in the current period, again due to a higher level of growth in
loans in 2004 versus 2003. Diluted earnings per share increased $0.04, or 14.8%,
from $0.27 for the three months ended June 30, 2003, to $0.31 for the three
month period ended June 30, 2004. The return on average assets and return on
average equity were 1.38% and 21.12% for the three months ended June 30, 2004,
compared to 1.51% and 23.96% for the same period in 2003.
Overall, while the net interest margin declined for both the three and six month
periods ended June 30, 2004, due to lower yields on loans and investment
securities, net interest income increased due to strong balance sheet growth,
and in particular growth in loans, while increases in non-interest expenses were
minimal. However, the growth in loans required higher provisions for loan
losses, while fees and net gains from mortgage lending operations were lower in
both periods due to lower refinancing activity.
Stockholders' equity increased $27.7 million, or 50.3%, from $55.1 million at
December 31, 2003, to $82.8 million at June 30, 2004, on earnings of $6.5
million, $22.0 million in net proceeds from the issuance of 891,250 shares of
common stock in a follow-on offering in May 2004, and $549 thousand in proceeds
and tax benefits from the exercise of stock options and warrants by Company
directors and officers, offset by a $1.8 million decline in other comprehensive
income, net of tax. Since June 30, 2003, stockholders' equity has increased
$33.8 million, or 68.9%, with $12.8 million in earnings, $22.0 million in net
proceeds from the follow-on offering and $961 million in proceeds and tax
benefits from the exercise of stock options and warrants by Company directors
and officers, offset by a $2.0 million decline in other comprehensive income,
net of tax. On July 15, 2004, the Company recorded a five-for-four stock split
in the form of a 25% stock dividend increasing the number of shares outstanding
by 2,205,935 to a total number outstanding of 11,030,411.
Net Interest Income
Net interest income is the excess of interest earned on loans and investments
over the interest paid on deposits and borrowings. The Company's net interest
income increased $3.8 million, or 25.5%, from $14.9 million for the six months
ended June 30, 2003, to $18.7 million for the six month period ended June 30,
2004, and increased $2.0 million, or 26.1%, from $7.7 million for the three
months ended June 30, 2003, to $9.7 million for the three months ended June 30,
2004. Increases for both periods were due to significant growth in earning
assets as the Company's net interest margin declined from 4.23% in the second
quarter of 2003 to 4.05% for the current three-month period and from 4.34% for
the six months ended June 30, 2003, to 4.15% year-to-date.
The Company's yields on earning assets and costs of interest-bearing liabilities
have continued to fall along with market interest rates since early 2001.
However, over the past year yields on earning assets have fallen more than the
costs of interest-bearing liabilities as deposit rates began to bottom out while
yields on investments securities and loans continued to drop as new investments
and loans were added at lower rates. For the six months ended June 30, 2004, the
yield on earning assets fell sixty basis points from 6.39% for the six months
ended June 30, 2003, to 5.79% for the six months ended June 30, 2004, while the
average rate paid on interest-bearing liabilities fell fifty-one basis points
from 2.49% to 1.98%. For the three month period ended June 30, 2004, the yield
on earning assets fell fifty-seven basis points to 5.65% and the cost of
interest-bearing liabilities fell forty-six basis points to 1.98%. As a result
of these lower yields on earning assets the net interest margin declined for
both periods. The Company expects that with the recent twenty-five basis point
increase in rates by the Federal Reserve, recent increases in other market
interest rates, and with yields on both investment securities and loans having
likely reached their lows, that its net interest margin should begin to slowly
improve. However, there can be no assurance that interest rates will continue to
increase, or that competitive conditions or other factors will enable the
Company to take advantage of increasing rates to increase net income.
The following table shows the average balance sheets for each of the three and
six month periods ended June 30, 2004, and 2003. In addition, the amounts of
interest earned on 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
15
$570 thousand for the three month period ended June 30, 2004 and 2003,
respectively, and totaled $1.2 million and $955 thousand for the six month
periods.
-----------------------------------------------------------------------------------
Three months ended June 30,
-----------------------------------------------------------------------------------
2004 2003
--------------------------------------- ----------------------------------------
(Dollars in thousands) Interest Average Interest Average
Average Income- Yields Average Income- Yields
Balance Expense /Rates Balance Expense /Rates
--------------------------------------- ----------------------------------------
ASSETS
Securities (1) $149,753 $ 1,372 3.72% $ 98,504 $ 1,009 4.26%
Loans, net of unearned income 765,987 12,090 6.24% 582,957 10,168 6.90%
Federal funds sold 49,443 111 0.89% 39,648 116 1.16%
--------------------------------------- ----------------------------------------
TOTAL INTEREST-EARNING ASSETS $965,183 $13,573 5.65% $721,109 $11,293 6.22%
Other assets 32,103 32,169
------------ -------------
TOTAL ASSETS $997,286 $753,278
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
NOW accounts $205,528 $ 680 1.33% $133,493 $ 589 1.77%
Money market accounts 118,022 405 1.38% 81,368 370 1.82%
Savings accounts 19,427 27 0.55% 25,309 63 1.00%
Time deposits 384,835 2,497 2.60% 299,210 2,311 3.10%
--------------------------------------- ----------------------------------------
Total interest-bearing deposits $727,812 $ 3,609 1.99% $539,110 $ 3,333 2.48%
Securities sold under agreement to
repurchase and federal funds purchased 35,996 36 0.39% 31,961 32 0.41%
Other borrowed funds -- -- -- 400 6 5.93%
Trust preferred capital notes 18,000 208 4.58% 18,000 213 4.73%
--------------------------------------- ----------------------------------------
TOTAL INTEREST-BEARING LIABILITIES $781,808 $ 3,853 1.98% $589,471 $ 3,584 2.44%
Demand deposits and other liabilities 150,199 116,312
------------ -------------
TOTAL LIABILITIES $932,007 $705,783
Stockholders' equity 65,279 47,495
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' $997,286 $753,278
EQUITY
============ =============
Interest rate spread 3.67% 3.78%
Net interest income and margin $ 9,720 4.05% $ 7,709 4.23%
(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. Interest
income includes the effects of taxable-equivalent adjustments, using the
appropriate marginal federal income tax rate of 35.0%, to increase tax-exempt
interest income to a tax-equivalent basis.
16
-----------------------------------------------------------------------------------
Six months ended June 30,
-----------------------------------------------------------------------------------
2004 2003
--------------------------------------- ----------------------------------------
(Dollars in thousands) Interest Average Interest Average
Average Income- Yields Average Income- Yields
Balance Expense /Rates Balance Expense /Rates
--------------------------------------- ----------------------------------------
ASSETS
Securities (1) $ 144,202 $ 2,728 3.84% $ 87,240 $ 1,816 4.35%
Loans, net of unearned income 727,637 23,220 6.31% 561,118 19,860 7.04%
Federal funds sold 33,964 158 0.92% 35,399 205 1.15%
--------------------------------------- ----------------------------------------
TOTAL INTEREST-EARNING ASSETS $ 905,803 $26,106 5.79% $683,757 $21,881 6.39%
Other assets 42,005 34,950
----------- ------------
TOTAL ASSETS $ 947,808 $718,707
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
NOW accounts $ 205,986 $1,367 1.33% $126,520 $ 1,084 1.73%
Money market accounts 114,072 789 1.39% 76,080 692 1.83%
Savings accounts 19,245 52 0.55% 21,916 111 1.02%
Time deposits 357,145 4,693 2.63% 290,844 4,586 3.18%
--------------------------------------- ----------------------------------------
Total interest-bearing deposits $ 696,448 $6,901 1.99% $515,360 $ 6,473 2.53%
Securities sold under agreement to
repurchase and federal funds purchased 34,226 67 0.39% 31,161 60 0.39%
Other borrowed funds 617 4 1.23% 400 12 5.93%
Trust preferred capital notes 18,000 415 4.57% 18,000 426 4.74%
--------------------------------------- ----------------------------------------
TOTAL INTEREST-BEARING LIABILITIES $ 749,291 $7,387 1.98% $564,920 $ 6,971 2.49%
Demand deposits and other liabilities 136,981 108,149
----------- ------------
TOTAL LIABILITIES $ 886,272 $673,069
Stockholders' equity 61,536 45,638
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' $ 947,808 $718,707
EQUITY =========== ============
Interest rate spread 3.81% 3.90%
Net interest income and margin $18,719 4.15% $14,910 4.34%
(1) Yields on securities available-for-sale have been calculated on the basis of
historical cost and do not give effect to changes in the fair value of those
securities, which are reflected as a component of stockholders' equity. Interest
income includes the effects of taxable-equivalent adjustments, using the
appropriate marginal federal income tax rate of 35.0%, to increase tax-exempt
interest income to a tax-equivalent basis.
17
Allowance for Loan Losses / Provision for Loan Loss Expense
The provision for loan losses is based upon management's estimate of the amount
required to maintain an adequate allowance for loan losses reflective of the
risks in the loan portfolio. For the six months ended June 30, 2004, the Bank
recorded a net recovery of $4 thousand compared to a net charge-off of $36
thousand for the same period in 2003, while the provision for loan loss expense
for the first six months of 2004 was $1.3 million compared to $764 thousand in
2003. As a result, the total allowance for loan losses increased by $1.3
million, or 17.6%, from $7.5 million at December 31, 2003, to $8.8 million at
June 30, 2004. The increase in the provision for loan loss expense is reflective
of the significant growth in loans during the period with loans, net of the
allowance for loans losses and excluding loans held-for-sale increasing $125.3
million, or 19.1%, while non-performing assets and past due loans declined from
$1.4 million at December 31, 2003, to $224 thousand at June 30, 2004. See "Risk
Elements and Non-Performing Assets" below for additional information regarding
changes in the level of non-performing assets.
Management feels that the allowance for loan losses is adequate; however, there
can be no assurance, that additional provisions for loan losses will not be
required in the future, including as a result of changes in the economic
assumptions underlying management's estimates and judgments, adverse
developments in the economy, on a national basis or in the Company's market
area, or changes in the circumstances of particular borrowers.
The Company generates a quarterly analysis of the allowance for loan losses,
with the objective of quantifying portfolio risk into a dollar figure of
inherent losses, thereby translating the subjective risk value into an objective
number. Emphasis is placed on semi-annual independent external loan reviews and
monthly internal reviews. The determination of the allowance for loan losses is
based on applying and summing the results of eight qualitative factors and one
quantitative factor to each category of loans along with any specific allowance
for impaired and adversely classified loans within the particular category. Each
factor is assigned a percentage weight and that total weight is applied to each
loan category. The resulting sum from each loan category is then combined to
arrive at a total allowance for all categories. Factors are different for each
loan category. Qualitative factors include: levels and trends in delinquencies
and non-accruals, trends in volumes and terms of loans, effects of any changes
in lending policies, the experience, ability and depth of management, national
and local economic trends and conditions, concentrations of credit, quality of
the Company's loan review system, and regulatory requirements. The total
allowance required thus changes as the percentage weight assigned to each factor
is increased or decreased due to its particular circumstance, as the various
types and categories of loans change as a percentage of total loans and as
specific allowances are required due to an increase in impaired and adversely
classified loans.
The following schedule summarizes the changes in the allowance for loan losses:
Six Months Six Months Twelve Months
Ended Ended Ended
June 30, 2004 June 30, 2003 December 31, 2003
----------------------------------------------------------------
(In Thousands of Dollars)
Allowance, at beginning of period $ 7,457 $ 5,924 $ 5,924
Provision charged against income 1,307 764 1,575
Recoveries:
Consumer loans 12 6 12
Commercial loans 2 1 2
Losses charged to reserve:
Consumer loans (10) (21) (26)
Commercial loans -- (22) (30)
------ ----- -------
Net (charge-offs) recoveries 4 (36) (42)
Allowance, at end of period $ 8,768 $ 6,652 $ 7,457
======= ======= =======
Ratio of net charge-offs to average total loans
outstanding during period n/a .01% .01%
Allowance for loan losses to total loans 1.11% 1.14% 1.12%
18
Risk Elements and Non-performing Assets
Non-performing assets consist of non-accrual loans, impaired loans, restructured
loans, and other real estate owned (foreclosed real properties). The total
non-performing assets and loans that are ninety days or more past due and still
accruing interest decreased 84.2% from $1.4 million at December 31, 2003, to
$224 thousand at June 30, 2004, and fell $1.3 million, or 84.9%, from $1.5
million at June 30, 2003. The declines in both periods was due to the payoff of
a troubled debt restructuring loan for $875 thousand in June 2004, as well as
payoffs on other smaller non-accrual and/or impaired loans.
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.
The ratio of non-performing assets and loans past due ninety days and still
accruing to total loans decreased from 0.21% at December 31, 2003, to 0.03% at
June 30, 2004, and decreased from 0.25% at June 30, 2003. As noted above, the
decrease in the ratio for both periods was due mostly to the payoff of a
troubled debt restructuring loan for $875 thousand. The Company expects its
ratio of non-performing assets to total loans to remain below its peers;
however, there can be no assurance that total non-performing assets will remain
low since there were $1.9 million of loans as of June 30, 2004, for which
management has identified certain risk factors that may result in them not being
repaid in accordance with their terms. These loans are primarily well secured
and are currently performing.
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 cost or fair
value, including a reduction for the estimated selling expenses, or principal
balance of the related loan. As of June 30, 2004, June 30, 2003, and December
31, 2003, the Company held no foreclosed real properties.
Total non-performing assets consist of the following:
June 30, 2004 June 30, 2003 December 31, 2003
---------------------------------------------------------------------------
(In Thousands of Dollars)
Non-accrual loans $ 9 $ 253 $ 46
Impaired loans 203 65 416
Restructured Loans -- 875 875
------ ------- --------
Total non-performing assets $ 212 $ 1,193 $ 1,337
Loans past due 90 days and still
accruing 12 289 84
Total non-performing assets and
loans past due 90 days and
still accruing $ 224 $ 1,482 $ 1,421
===== ======= =======
As a percentage of total loans 0.03% 0.25% 0.21%
As a percentage of total assets 0.02% 0.18% 0.16%
19
Concentrations of Credit Risk
The Bank does a general banking business, serving the commercial and personal
banking needs of its customers. The Bank's primary service area consists of the
Northern Virginia suburbs of Washington, D.C., including Arlington, Fairfax,
Fauquier, Loudoun and Prince William counties and the cities of Alexandria,
Fairfax, Falls Church, Manassas and Manassas Park. Our service area also covers,
to a lesser extent, Washington, D.C. and the nearby Maryland counties of
Montgomery and Prince Georges. Substantially all of the Company's loans are made
within its market area.
The ultimate collectibility of the Bank's 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 Company's operating results are
therefore closely related to the economic conditions and trends in the
Metropolitan Washington, D.C. area.
At June 30, 2004, the Company had $609.0 million, or 76.8%, of total loans
concentrated in commercial real estate. Commercial real estate for purposes of
this discussion includes all construction loans, loans secured by multi-family
residential properties and loans secured by non-farm, non-residential
properties. At December 31, 2003, commercial real estate loans were $509.0
million, or 76.5%, of total loans. Total construction loans of $202.5 million at
June 30, 2004, represented 25.6% of total loans, loans secured by multi-family
residential properties of $36.5 million represented 4.6% of total loans, and
loans secured by non-farm, non-residential properties of $370.0 million
represented 46.7%.
Construction loans at June 30, 2004, included $149.5 million in loans to
commercial builders of single family residential property and $13.3 million to
individuals on single family residential property, representing 18.9% and 1.7%
of total loans, respectively, and together representing 20.6% 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 $39.7 million of
construction loans on non-residential commercial property at June 30, 2004,
representing 5.0% of total loans. These total construction loans of $202.5
million include $78.2 million in land acquisition and or development loans on
residential property and $24.0 million in land acquisition and or development
loans on commercial property, together totaling $102.2 million, or 12.9% of
total loans. 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 Bank's income and financial
position. At June 30, 2004, 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 property's appraised value. Credit approval is
primarily a function of collateral and the evaluation of the creditworthiness of
the individual borrower, guarantors and/or the individual project. Management
considers the concentration of credit risk to be minimal due to the
diversification of borrowers over numerous businesses and industries.
Non-Interest Income
Non-interest income decreased $921 thousand, or 24.7%, from $3.7 million for the
six months ended June 30, 2003, to $2.8 million for the same period ended June
30, 2004. Fees and net gains on loans held-for-sale were the contributing factor
decreasing $1.3 million, or 45.6%, from $2.8 million in 2003, to $1.5 million
for the six months ended June 30, 2004, as originations fell $65.1 million, or
42.6%, from $153.0 million during the first six months of 2003, to $87.9 million
for the current six month period. Consequently sales also declined falling $67.2
million from $148.1 million in 2003, to $80.9 million for the first six months
of 2004. These lower levels of originations and subsequent sales are
attributable to lower levels of refinancing activity.
While fees and net gains on loans held-for-sale declined over the period,
service charges, non-deposit investment services commissions and other
non-interest income increased $381 thousand, or 43.4%, from a total of $878
thousand for the six months ended June 30, 2003, to $1.3 million in the current
six month period. Of the total increase, $175 thousand was due to non-deposit
investment services commissions which rose from $15 thousand in 2003, to $190
thousand for the six months ended June 30, 2004, as the Bank increased its
efforts in generating additional income through the hiring of a new
manager/sales representative for the department in the latter part of 2003.
20
For the three months ended June 30, 2004 non-interest income fell $387 thousand,
or 19.5%, from $2.0 million in 2003, to $1.6 million in the current period. The
decline was again due to lower fees and net gains on mortgage loans
held-for-sale which fell $594 thousand, or 38.2%, from $1.6 million in 2003 to
$961 thousand in the current period, while other non-interest income sources,
including non-deposit investment services commissions, increased $207 thousand,
or 47.7%, from $434 thousand in the three months ended June 30, 2003, to $641
thousand currently.
Loans classified as held-for-sale represent loans on one-to-four family
residential real estate, originated on a pre-sold and servicing released basis
to various investors, and carried on the balance sheet at the lower of cost or
market. The Company expects that as long-term interest rates rise, and
consequently mortgage rates rise, the level of originations and sales and the
fees and gains thereon, would be further adversely affected, as refinancing
activity further declines. However, the Company is seeking to hire additional
commissioned loan officers to increase purchase money mortgage originations.
Non-Interest Expense
For the three months ended June 30, 2004, non-interest expense increased $247
thousand, or 4.9%, compared to the same period in 2003, and increased $376
thousand, or 3.8%, from $9.9 million for the six months ended June 30, 2003, to
$10.3 million for the six months ended June 30, 2004. Increases in both periods
were due to higher levels in advertising, public relations, and professional
services expenses and higher franchise taxes due to overall growth. Salaries and
benefits expense for both the three and six month periods ended June 30 were
lower as the cost of new hires and increased commissions on construction loans
was offset by lower levels of commissions on loans originated for sale. As a
result of these minimal increases in non-interest expense, the Company's
efficiency ratio improved from 53.1% for the six months ended June 30, 2003, to
47.9% in the current period and improved from 51.6% for the three months ended
June 30, 2003, to 46.6% during the current three month period. As the Company
expects to increase its branching efforts over the next year the efficiency
ratio may increase from its current level.
Provision for Income Taxes
The Company's income tax provisions are adjusted for non-deductible expenses and
non-taxable interest after applying the U.S. federal income tax rate of 35%.
Provision for income taxes totaled $2.7 million and $3.4 million for the six
months ended June 30, 2003 and 2004, respectively.
Liquidity
The Company's principal sources of liquidity and funding are its deposit base.
The level of deposits necessary to support the Company's lending and investment
activities is determined through monitoring loan demand. Considerations in
managing the Company's 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 Company's liquidity position is
monitored daily by management to maintain a level of liquidity conducive to
efficiently meet current needs and is evaluated for both current and longer term
needs as part of the asset/liability management process.
The Company measures total liquidity through cash and cash equivalents,
securities available-for-sale, mortgage loans held-for-sale, other loans and
investment securities maturing within one year, less securities pledged as
collateral for repurchase agreements, public deposits and other purposes, and
less any outstanding federal funds purchased. These liquidity sources increased
$89.4 million, or 32.9%, from $271.5 million at December 31, 2003, to $360.9
million at June 30, 2004, as the amount of loans and investment securities
maturing within one-year increased by $52.6 million, the level of fed funds sold
increased $12.7 million, and other available-for-sale securities increased $25.6
million.
Additional sources of liquidity available to the Company include the capacity to
borrow funds through established short-term lines of credit with various
correspondent banks, and the Federal Home Loan Bank of Atlanta. Available funds
from these liquidity sources were approximately $179.5 million and $154.1
million at June 30, 2004, and December 31, 2003, respectively. The Bank's line
of credit with the Federal Home Loan Bank of Atlanta, which requires the
pledging of collateral in the form of certain loans and/or securities, is
approximately $157.5 million of the $179.5 million as of June 30, 2004.
21
Off-Balance Sheet Arrangements
The Company enters into certain financial transactions in the ordinary course of
performing traditional banking services that result in off-balance sheet
arrangements. The off-balance sheet arrangements recognized as of June 30, 2004,
and December 31, 2003, were commitments to extend credit, which include unfunded
lines of credit, and standby letter of credit only. Except as disclosed herein
and in the Company's annual report on Form 10-K for the year ended December 31,
2003, the Company has no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the Company's 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 $232.4 million at June 30, 2004,
and $209.7 million at December 31, 2003, 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
June 30, 2004, and December 31, 2003, the Company had $13.2 million and $14.7
million, respectively, in outstanding standby letters of credit.
Contractual Obligations
Since December 31, 2003, there have been no significant changes in the Company's
contractual obligations other than additional leases entered into for new branch
locations.
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 Company's
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.
The capital position of the Bank continues 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. Total risk-based capital consists of Tier 1
capital, qualifying subordinated debt, and a portion of the allowance for loan
losses. Risk-based capital ratios are calculated with reference to risk-weighted
assets. The leverage ratio compares Tier 1 capital to total average assets for
the most recent quarter end. The Bank's Tier 1 risk-based capital ratio was
9.48% at June 30, 2004, compared to 7.51% at December 31, 2003. The total
risk-based capital ratio was 12.54% at June 30, 2004, compared to 11.03% at
December 31, 2003. These ratios are in excess of the mandated minimum
requirement of 4.00% and 8.00%, respectively. The Bank's leverage ratio was
8.39% at June 30, 2004, compared to 6.33% at December 31, 2003, and is also in
excess of the mandated minimum requirement of 4.00%. Based on these ratios, the
Bank is considered "well capitalized" under regulatory prompt corrective action
guidelines. The Company's Tier 1 risk-based capital ratio, total risk-based
capital ratio, and leverage ratio was 11.67%, 12.67% and 10.33%, respectively,
at June 30, 2004. The improvement in all the Company's and Bank's capital ratios
during the period was due to the issuance of 891,250 common shares (pre-split)
in a follow-on offering in June 2004 which added $22 million in net proceeds to
capital.
22
The ability of the Company to continue to grow is dependent on its earnings and
the ability to obtain additional funds for contribution to the Bank's capital,
through borrowing, the sale of additional common stock, or through the issuance
of additional trust preferred securities or other qualifying securities.
Proposed changes to the Federal Reserve's holding company capital requirements
may in the future limit the Company's ability to utilize significant amounts of
additional trust preferred 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
rate of growth of net income may be adversely affected. The Company believes
that its current level of capital is sufficient to meet anticipated growth,
although there can be no assurance.
Recent Accounting Pronouncements
During the three months ended June 30, 2004 there were no new accounting
pronouncements requiring the Company's review and adoption.
Internet Access To Company Documents
The Company provides access to its SEC filings through the Bank's Web site at
www.vcbonline.com. After accessing the Web site, the filings are available upon
selecting "about us/stock information/financial information." Reports available
include the annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and all amendments to those reports as soon as reasonably
practicable after the reports are electronically filed or furnished to the SEC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company is exposed to market risk, or
interest rate risk, as its net income is largely dependent on its net interest
income. Market risk is managed by the Company's 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 certain
tolerance levels, or limits on market risk, the Committee considers the impact
on earnings and capital, the level and general direction of interest rates,
liquidity, local economic conditions and other factors. Interest rate risk, or
interest sensitivity, can be defined as the amount of forecasted net interest
income that may be gained or lost due to favorable or unfavorable movements in
interest rates. Interest rate risk, or sensitivity, arises when the maturity or
repricing of interest-bearing assets differs from the maturity or repricing of
interest-bearing liabilities and as a result of the difference between total
interest-bearing assets and interest-bearing liabilities. The Company seeks to
manage interest rate sensitivity while enhancing net interest income by
periodically adjusting this asset/liability position.
One of the tools used by the Company to assess interest sensitivity on a monthly
basis is the static gap analysis that measures the cumulative differences
between the amounts of assets and liabilities maturing or re-pricing within
various time periods. It is the Company's goal to limit the one-year cumulative
difference to plus or minus 10% of total interest-earning assets in an attempt
to limit changes in future net interest income from sudden changes in market
interest rates. The following table shows a gap analysis reflecting the earlier
of the maturity or re-pricing dates for various assets and liabilities as of
June 30, 2004. At that point in time, the Company had a cumulative net asset
sensitive twelve-month gap position of $74.9 million, or a positive 7.4% of
total earning assets. This position would indicate that over a period of
one-year earnings should increase in a rising interest rate environment as more
assets would re-price than liabilities and should decrease in a falling interest
rate environment. However, this measurement of interest rate risk sensitivity
represents a static position as of a single day and is not necessarily
indicative of the Company's position at any other point in time, does not take
into account the sensitivity of yields and costs of specific assets and
liabilities to changes in market rates, and does not take into account the
specific timing of when changes to a specific asset or liability will occur.
More accurate measures of interest sensitivity are provided to the Company using
earnings simulation models.
23
At June 30, 2004 Interest Sensitivity Periods
-----------------------------------------------------------------------------------
Within 91 to 365 Over 1 to 5 Over
(Dollars in thousands) 90 Days Days Years 5 Years Total
-----------------------------------------------------------------------------------
INTEREST EARNING ASSETS
Securities, at amortized cost $ 62,684 $ 52,890 $ 32,646 $ 25,506 $ 173,726
Federal funds sold 44,318 -- -- -- 44,318
Loans, net of unearned income 365,211 109,158 300,807 24,267 799,443
- ----------------------------------------------------------------------------------------------------------------------------
Total interest earning assets $472,213 $162,048 $333,453 $ 49,773 $1,017,487
- ----------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
NOW accounts $ 89,448 $ 77,549 $ 38,958 $ -- $ 205,955
Money market accounts 53,928 51,273 17,399 -- 122,600
Savings accounts 1,588 4,963 13,300 -- 19,851
Time deposits 31,349 185,844 177,730 1 394,924
Securities sold under agreement to
repurchase and federal funds 45,444 -- -- -- 45,444
purchased
Trust preferred capital notes -- 18,000 -- -- 18,000
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $221,757 $337,629 $247,387 $ 1 $ 806,774
- ----------------------------------------------------------------------------------------------------------------------------
Cumulative maturity / interest $250,456 $ 74,875 $160,941 $210,713 $ 210,713
sensitivity gap
As % of total earnings assets 24.61% 7.36% 15.82% 20.71%
- ----------------------------------------------------------------------------------------------------------------------------
In order to more closely measure interest sensitivity, the Company uses earnings
simulation models on a quarterly basis. These models utilize the Company's
financial data and various management assumptions as to growth and earnings to
forecast a base level of net interest income and earnings over a one-year
period. This base level of earnings is then shocked assuming a sudden 200 basis
points increase or decrease in interest rates. The most recent earnings
simulation model was run based on data as of June 30, 2004, and at that time the
model projected earnings would decrease by 3.11% if interest rates would
immediately increase by 200 basis points and would also decrease by 4.42% if
interest rates suddenly fell by 200 basis points. The Company considers these
results to be its worst case scenario should interest rate increases be equally
applied to both interest earning assets and interest bearing liabilities;
however, it is not the Company's practice and general industry practice to
equally apply such sudden increases in rates. As a result the Company does
expect that earnings will improve in a rising rate environment, as net interest
income increases, due to the ability to manage the rate increases as they apply
to both sides of the balance sheet along with the relatively small decline in
projected earnings under the worst case scenario.
The Company has set a limit on its sensitivity to sudden increases in interest
rates to a maximum decline in earnings of 20%. Since the earnings model uses
numerous assumptions regarding the effect of changes in interest rates on the
timing and extent of repricing characteristics, future cash flows and customer
behavior, the model cannot precisely estimate net income and the effect on net
income from sudden changes in interest rates. Actual results will differ from
simulated results due to the timing, magnitude and frequency of interest rate
changes and changes in market conditions and management strategies, among other
factors.
24
ITEM 4. CONTROLS AND PROCEDURES
The Company's management, under the supervision and with the participation of
the Company's Chief Executive Officer and Chief Financial Officer, evaluated, as
of the last day of the period covered by this report, the effectiveness of the
design and operation of the Company's disclosure controls and procedures, as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures were adequate.
There were no changes in the Company's internal control over financial reporting
(as defined in Rule 13a-15 under the Securities Act of 1934) during the quarter
ended June 30, 2004 that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
(a) Modification of Rights of Registered Securities. None
(b) Issuance or Modification of Other Securities Affecting Rights of
Registered Securities. None
(c) Sales of Unregistered Securities. None
(d) Use of Proceeds. Not Applicable.
(e) Issuer Purchases of Securities. None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
On April 28, 2004, the annual meeting of shareholders of the Company was
held for the purpose of (1) electing eight (8) directors to serve until
the next annual meeting and until their successors are duly elected and
qualified; and (2) to consider and approve the Virginia Commerce
Bancorp, Inc. Employee Stock Purchase Plan.
The name of each director elected at the meeting, and the votes cast for
such persons, who constitute the entire Board of Directors in office
following the meeting, are set forth below.
Name For Against/Withheld Abstentions Broker Non-votes
---- --- ---------------- ----------- ----------------
Leonard Adler 6,814,057 800 37,105 none
Peter A. Converse 6,673,505 141,352 37,105 none
Frank L. Cowles 6,804,040 10,817 37,105 none
W. Douglas Fisher 6,812,571 2,286 37,105 none
David M. Guernsey 6,812,571 2,286 37,105 none
Robert H. L'Hommedieu 6,696,073 118,784 37,105 none
Norris E. Mitchell 6,812,521 2,336 37,105 none
Arthur L. Walters 6,802,554 12,303 37,105 none
The vote on the Virginia Commerce Bancorp, Inc. Employee Stock Purchase
Plan was as follows:
For Against/Withheld Abstentions Broker Non-votes
--- ---------------- ----------- ----------------
6,699,582 82,504 69,876 none
Item 5. Other Information - None
25
Item 6. Exhibits and reports on Form 8-K
a) Exhibits
Exhibit No. Description
----------- ------------
3.1 Articles of Incorporation of Virginia Commerce Bancorp, Inc.
(1)
3.2 Bylaws of Virginia Commerce Bancorp, Inc. (2)
4.1 Junior Subordinated Indenture, dated as of November 15, 2002
between Virginia Commerce Bancorp, Inc. and The Bank of New
York, as Trustee (3)
4.2 Amended and Restated Declaration of Trust, dated as of
November 15, 2002 among Virginia Commerce Bancorp, Inc., The
Bank of New York, as Property Trustee, The Bank of New York
(Delaware), as Delaware Trustee, and Peter A. Converse,
William K. Beauchesne and Marcia J. Hopkins as
Administrative Trustees (3)
4.3 Guarantee Agreement dated as of November 15, 2002, between
Virginia Commerce Bancorp, Inc.
and The Bank of New York, as Guarantee Trustee (3)
4.4 Junior Subordinated Indenture, dated as of December 19, 2002
between Virginia Commerce Bancorp, Inc. and The Bank of New
York, as Indenture Trustee (3)
4.5 Amended and Restated Declaration of Trust, dated as of
December 19, 2002 among Virginia Commerce Bancorp, Inc., The
Bank of New York, as Property Trustee, The Bank of New York
(Delaware), as Delaware Trustee, and Peter A. Converse,
William K. Beauchesne and Marcia J. Hopkins as
Administrative Trustees (3)
4.6 Guarantee Agreement dated as of December 19, 2002, between
Virginia Commerce Bancorp, Inc. and The Bank of New York, as
Guarantee Trustee (3)
10.1 1998 Stock Option Plan (2)
10.2 2003 VCBI Employee Stock Purchase Plan (4)
11 Statement Regarding Computation of Per Share Earnings
See Note 4 to the Consolidated Financial Statements
included in this report
21 Subsidiaries of the Registrant:
Virginia Commerce Bank-Virginia
VCBI Capital Trust I-Delaware
VCBI Capital Trust II-Delaware
Subsidiaries of Virginia Commerce Bank:
Northeast Land and Development Corporation-Virginia
Virginia Commerce Insurance Agency, L.L.C.-Virginia
31(a) Certification of Peter A. Converse, President and Chief
Executive Officer
31(b) Certification of William K. Beauchesne, Treasurer and Chief
Financial Officer
32(a) Certification of Peter A. Converse, President and Chief
Executive Officer
32(b) Certification of William K. Beauchesne, Treasurer and Chief
Financial Officer
- ------------------
(1) Incorporated by reference to the same numbered exhibit to the Company'
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2003.
(2) Incorporated by reference to the same numbered exhibit to the Company's
Annual Report on Form10-KSB for the year ended December 31, 1999
(3) Not filed in accordance with the provisions of Item 601(b)(4)(iii) of
Regulation SK. The Company agrees to provide a copy of these documents
to the Commission upon request.
(4) Incorporated by reference to Exhibit 4 to the Company's Registration
Statement on Form S-8 (No. 333- 109079)
b) Form 8-K
On April 12, 2004, the Company filed a current report on Form 8-K reflecting the
announcement of earnings for the period ended March 31, 2004.
26
On April 28, 2004, the Company filed a current report on Form 8-K, reporting the
filing of a registration statement.
On May 20, 2004, the Company filed a current report on Form 8-K announcing the
appointment of Michael G. Anzilotti as President of the Company.
On May 27, 2004, the Company filed a current report on Form 8-K announcing the
pricing and sale of the Company's offering.
On June 2, 2004, the Company filed a current report on Form 8-K announcing the
closing of the offering and exercise of the underwriters' overallotment option.
On June 3, 2004, the Company filed a current report on Form 8-K, under item 5
thereof, reflecting the announcement of the declaration of a five-for-four stock
split in the form of a 25% stock dividend, payable July 15, 2004, to holders of
record on June 15, 2004.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 3, 2004 BY /s/ Peter A. Converse
------------------------------------------
Peter A. Converse, Chief Executive Officer
Date: August 3, 2004 BY /s/ William K. Beauchesne
------------------------------------------
William K. Beauchesne, Treasurer and Chief
Financial Officer
28