SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
Commission File No.: 000-28635
Virginia Commerce Bancorp, Inc.
(Name of Small Business Issuer in Its Charter)
5350 Lee Highway, Arlington, Virginia 22207
(Address of Principal Executive Offices)
Virginia 54-1964895
(State or Other Jurisdiction (I.R.S. Employer Identification Number)
of Incorporation or Organization)
703-534-0700
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock, par
value $1.00 per share
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 ___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and if no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The company's revenues for the fiscal year ended December 31, 1999 were
approximately $20,849,936
The aggregate market value of the voting stock held by non-affiliates of the
company as of March 1, 2000 was approximately $20,672,389
As of March 1, 2000, there were 1,968,985 shares of Common Stock, par value
$1.00 per share, of Virginia Commerce Bancorp, Inc. issued and outstanding.
Documents Incorporated by Reference
Portions of the following documents are hereby incorporated into this Form
10-KSB by reference: the Proxy Statement for the Annual Meeting of Stockholders
to be held on April 26, 2000 -- Part III; and the Annual Report of Virginia
Commerce Bancorp for the fiscal year ended December 31, 1999 -- Parts I, II and
IV.
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PART I
Item 1. Description of Business
Virginia Commerce Bancorp, Inc. (the "Company") was organized under
Virginia law on November 5, 1999 to become the holding company for Virginia
Commerce Bank (the "Bank"). The Company acquired all of the outstanding shares
of the Bank on December 22, 1999 upon the effectiveness of the Agreement and
Plan of Share Exchange dated September 22, 1999 between the Company and the
Bank. As a result of the Agreement and Plan of Share Exchange, each shares of
the Bank's common stock was automatically exchanged for and converted into one
share of the Company's common stock.
The Bank was organized as a national banking association and commenced
operations on May 16, 1988. On June 1, 1995, the Bank converted from a national
banking association to a Virginia chartered bank which is a member of the
Federal Reserve System.
The Company's and the Bank's executive offices and a branch with a
drive-in facility are located at 5350 Lee Highway, Arlington, Virginia. The Bank
has nine additional full service branch offices, located at: 2930 Wilson
Boulevard and 6500 Williamsburg Boulevard, both in Arlington, Virginia; 1414
Prince Street, 5140 Duke Street and 506 King Street in Alexandria, Virginia,
1356 Chain Bridge Road in McLean, Virginia, 4230 John Marr Drive in Annandale,
Virginia, 10777 Main Street in Fairfax, Virginia, and 374 Maple Avenue East in
Vienna Virginia. Additionally, the Bank maintains residential mortgage lending
offices, located in Vienna and Warrenton, Virginia.
The Company engages in a general commercial banking business through
its sole direct subsidiary, the Bank. The Bank's 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
business executives and consumers. The economic base of the Bank's service area
is Arlington and Fairfax Counties and the City of Alexandria in Northern
Virginia, and the metropolitan Washington, D.C. area generally. Northern
Virginia has experienced significant population and economic growth during the
past decade. The Bank participated in this growth through its commercial and
retail banking activities.
The Bank's primary service area consists of the Northern Virginia
suburbs of Washington DC, including Arlington County, the City of Alexandria,
Fairfax County and Prince William County. This area is currently served by
numerous commercial banks operating in excess of one hundred branch offices.
Most are branches of state-wide or regional banks. The Bank's primary service
area is also served by a large number of other financial institutions, including
savings banks, credit unions and non-bank financial institutions such as
securities brokerage firms, insurance companies and mutual funds. The Bank's
primary service area is oriented toward independently owned small to medium
sized businesses, light industry and firm specializing in government
contracting. An increasing number of new community banking organizations have
been opened in the Bank's market area, potentially representing an increased
competitive threat to the Bank.
The banking business in Virginia generally, and in the Bank's primary
service area specifically, is highly competitive with respect to both loans and
deposits, and is dominated by a relatively small number of major banks with many
offices operating over a wide geographic area. Among the advantages such major
banks have over the Bank are their ability to finance wide-ranging advertising
campaigns and to allocate their investment assets to regions of highest yield
and demand. Such banks offer certain services such as international banking,
which are not offered directly by the Bank (but are offered indirectly through
correspondent institutions) and, by virtue of their greater total
capitalization, such banks have substantially higher lending limits than the
Bank. The Bank competes for deposits and lendable funds with other commercial
banks, savings banks, credit unions and other governmental and corporate
entities which raise operating capital through the issuance of debt and equity
securities. The Bank also competes for available investment dollars with
non-bank financial institutions, such as brokerage firms, insurance companies
and mutual funds. With respect to loans, the Bank competes with other commercial
banks, savings banks, consumer finance companies, mortgage companies, credit
unions and other lending institutions. Additionally, as a result of enactment of
federal and Virginia interstate banking legislation, additional competitors
which are not currently operating in Virginia may enter the Bank's markets and
compete directly with the Bank. Recent legislation expanding the array of firms
that can own banks may also result in increased competition for the Company and
the Bank.
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All of the Bank's deposits are attracted from individuals and
business-related sources. No material portion of the Bank's deposits have been
obtained from a single person or a few persons. The loss of any one or more of
the Bank's depositors would not have a materially adverse effect on the business
of the Bank. The Bank's loans are not concentrated within a single industry or
group of related industries.
The Bank provides businesses with a full range of deposit accounts,
merchant bankcard services, electronic funds transfer services, lock-box
services, PC banking, lines of credit for working capital, term loans and
commercial real estate loans, and provides consumers with a wide array of
deposit products, home equity and revolving lines of credit, installment loans,
residential mortgage loans and internet banking services. The Bank also issues
cashier's checks and money orders, sells travelers checks and provides safe
deposit boxes and other customary banking services. The Bank is not authorized
to offer trust services nor does it offer international services but makes these
services available to its customers through financial institutions with which
the Bank has correspondent banking relationships.
The Bank does not depend upon seasonal business. The Bank relies
substantially on local promotional activity, personal contact by its officers,
directors, employees and stockholders, personalized service and its reputation
in the communities served to compete effectively.
The Bank has one wholly owned subsidiary, Northeast Land and Investment
Company, a Virginia corporation, organized to hold and market foreclosed real
estate.
On December 31, 1999, the Company had 100 full-time equivalent
employees, including four executive officers. None of the Company's employees
presently is represented by a union or covered under a collective bargaining
agreement. Management of the Company believes that its employee relations are
satisfactory. The Company does not have any employees that are not also
employees of the Bank.
Banking is dependent upon interest rate differentials. In general, the
difference between the interest rate paid by the Bank on its deposits and its
other borrowings and the interest rate earned by the Bank on loans, securities
and other interest-earning assets comprises the major source of the Bank's
earnings. Thus, the earnings and growth of the Bank are subject to the influence
of economic conditions generally, both domestic and foreign, and also of the
monetary and fiscal policies of the United States and its agencies, particularly
the Federal Reserve Board. The Federal Reserve Board implements national
monetary policy, such as seeking to curb inflation and combat recession, by its
open-market activities in United States government securities, by adjusting the
required level of reserves for financial institutions subject to reserve
requirements and through adjustments to the discount rate applicable to
borrowings by banks which are members of the Federal Reserve System. The actions
of the Federal Reserve Board in these areas influence the growth of bank loans,
investments and deposits and also affect interest rates. The nature and timing
of any future changes in such policies and their impact on the Bank cannot be
predicted. In addition, adverse economic conditions could make a higher
provision for loan losses a prudent course and could cause higher loan loss
charge-offs, thus adversely affecting the Bank's net income.
From time to time, new legislation or regulations are adopted which
increase the cost of doing business, limit or expand permissible activities, or
otherwise affect the competitive balance between banks and other financial
institutions.
Banks or bank holding companies which are undercapitalized and either
have not timely approved a capital plan or have failed to implement the plan
become subject to extraordinary powers pursuant to which the bank regulatory
agencies may close the bank, restrict its growth, force its sale, restrict
interest rates paid on deposits, and dismiss directors or senior executive
officers. Each agency has prescribed standards relating to internal controls and
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, compensation, fees and benefits, and other operational and managerial
standards. The agencies have also adopted standards relating to asset quality,
earnings, valuation and compensation. Banks or bank holding companies which do
not meet such standards may be subject to restrictions and consequences
comparable to those which apply to undercapitalized banks and bank holding
companies. Bank regulatory authority to appoint a conservator or receiver for a
bank is broad, including grounds such as substantial dissipation of assets or
earnings due to violations of law or regulation or due to any unsafe or unsound
practices, an unsafe or unsound condition, and certain violations of law or
regulation likely to weaken the institution's condition.
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Regulations promulgated by the Federal Reserve Board prohibit state
member banks such as the Bank from paying any dividend on common stock out of
capital. Dividends can be paid only to the extent of net profits then on hand,
less losses and bad debts. Without the prior approval of the Federal Reserve
Board, a state member bank cannot pay dividends in any calendar year in excess
of the retained net profits for the prior two years and the profits of the
current year, less any required transfers to surplus.
SUPERVISION AND REGULATION
The Company. The Company is a bank holding company registered under
Bank Holding Company Act of 1956, as amended, (the "BHCA") and is subject to
supervision by the Federal Reserve Board. As a bank holding company, the Company
is required to file with the Federal Reserve Board an annual report and such
other additional information as the Federal Reserve Board may require pursuant
to the BHCA. The Federal Reserve Board may also make examinations of the Company
and each of its subsidiaries.
BHCA - Activities and other Limitations. The BHCA requires approval of
the Federal Reserve Board for, among other things, the acquisition by a proposed
bank holding company of control of more than five percent (5%) of the voting
shares, or substantially all the assets, of any bank or the merger or
consolidation by a bank holding company with another bank holding company. The
BHCA also generally permits the acquisition by a bank holding company of control
or substantially all the assets of any bank located in a state other than the
home state of the bank holding company, except where the bank has not been in
existence for the minimum period of time required by state law, but if the bank
is at least 5 years old, the Federal Reserve Board may approve the acquisition.
Under current law, with certain limited exceptions, a bank holding
company is prohibited from acquiring control of any voting shares of any company
which is not a bank or bank holding company and from engaging directly or
indirectly in any activity other than banking or managing or controlling banks
or furnishing services to or performing service for its authorized subsidiaries.
A bank holding company may, however, engage in or acquire an interest in, a
company that engages in activities which the Federal Reserve Board has
determined by order or regulation to be so closely related to banking or
managing or controlling banks as to be properly incident thereto. In making such
a determination, the Federal Reserve Board is required to consider whether the
performance of such activities can reasonably be expected to produce benefits to
the public, such as convenience, increased competition or gains in efficiency,
which outweigh possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest or unsound
banking practices. The Federal Reserve Board is also empowered to differentiate
between activities commenced de novo and activities commenced by the
acquisition, in whole or in part, of a going concern. Some of the activities
that the Federal Reserve Board has determined by regulation to be closely
related to banking include making or servicing loans, performing certain data
processing services, acting as a fiduciary or investment or financial advisor,
and making investments in corporations or projects designed primarily to promote
community welfare.
Effective on March 11, 2000, the Gramm Leach-Bliley Act of 1999 (the
"GLB Act") allows a bank holding company or other company to certify status as a
financial holding company, which allows such company to engage in activities
that are financial in nature, that are incidental to such activities, or are
complementary to such activities. The GLB Act enumerates certain activities that
are deemed financial in nature, such as underwriting insurance or acting as an
insurance principal, agent or broker, underwriting, dealing in or making markets
in securities, and engaging in merchant banking under certain restrictions. It
also authorizes the Federal Reserve Board to determine by regulation what other
activities are financial in nature, or incidental or complementary thereto.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of credit to
the bank company or any of its subsidiaries, or investments in the stock or
other securities thereof, and on the taking of such stock or securities as
collateral for loans to any borrower. Further, a holding company and any
subsidiary bank are prohibited from engaging in certain tie-in arrangements in
connection with the extension of credit. A subsidiary bank may not extend
credit, lease or sell property, or furnish any services, or fix or vary the
consideration for any of the foregoing on the condition that: (i) the customer
obtain or provide some additional credit, property or services from or to such
bank other than a loan, discount, deposit or trust service; (ii) the customer
obtain or provide some additional credit, property or service from or to company
or any other subsidiary of
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the company; or (iii) the customer not obtain some other credit, property or
service from competitors, except for reasonable requirements to assure the
soundness of credit extended.
Commitments to Subsidiary Banks. Under Federal Reserve policy, the
Company is expected to act as a source of financial strength to the Bank and to
commit resources to support the Bank in circumstances when it might not do so
absent such policy.
Limitations of Acquisitions of Common Stock. The federal Change in Bank
Control Act prohibits a person or group from acquiring "control" of a bank
holding company unless the Federal Reserve has been given 60 days' prior written
notice of such proposed acquisition and within that time period the Federal
Reserve Board has not issued a notice disapproving the proposed acquisition or
extending for up to another 30 days the period during which such a disapproval
may be issued. An acquisition may be made prior to expiration of the disapproval
period if the Federal Reserve issues written notice of its intent not to
disapprove the action. Under a rebuttable presumption established by the Federal
Reserve, the acquisition of 10% or more of a class of voting stock of a bank
holding company with a class of securities registered under Section 12 of the
Exchange Act or which would represent the single largest interest in the voting
stock would, under the circumstances set forth in the presumption, constitute
the acquisition of control.
In addition, with limited exceptions, any "company" would be required
to obtain the approval of the Federal Reserve under the BHCA before acquiring
25% (5% in the case of an acquirer that is a bank holding company) or more of
the outstanding Common Stock of, or such lesser number of shares as constitute
control over, the Company. Such approval would be contingent upon, among other
things, the acquirer registering as a bank holding company, divesting all
impermissible holdings and ceasing any activities not permissible for a bank
holding company.
The Federal Reserve has adopted capital adequacy guidelines pursuant to
which it assesses the adequacy of an institution's capital. These guidelines are
substantially similar to those which are applicable to the Bank, discussed
below.
The Bank. The Bank, as a Virginia chartered commercial bank which is a
member of the Federal Reserve System (a "state member bank") and whose accounts
are insured by the Bank Insurance Fund of the FDIC up to the maximum legal
limits of the FDIC, is subject to regulation, supervision and regular
examination by the Bureau of Financial Institutions and the Federal Reserve
Board. The regulations of these various agencies govern most aspects of the
Bank's business, including required reserves against deposits, loans,
investments, mergers and acquisitions, borrowing, dividends and location and
number of branch offices. The laws and regulations governing the Bank generally
have been promulgated to protect depositors and the deposit insurance funds, and
not for the purpose of protecting stockholders.
Competition among commercial banks, savings banks, and credit unions
has increased following enactment of legislation which greatly expanded the
ability of banks and bank holding companies to engage in interstate banking or
acquisition activities. As a result of federal and state legislation, banks in
the Washington D.C./Maryland/Virginia area can, subject to limited restrictions,
acquire or merge with a bank in another of the jurisdictions, and can branch de
novo in any of the jurisdictions. The GLB Act allows a wider array of companies
to own banks, which could result in companies with resources substantially in
excess of the Company's entering into competition with the Company and the Bank.
Banking is a business which depends on interest rate differentials. In
general, the differences between the interest paid by a bank on its deposits and
its other borrowings and the interest received by a bank on loans extended to
its customers and securities held in its investment portfolio constitute the
major portion of the Bank's earnings. Thus, the earnings and growth of the Bank
will be subject to the influence of economic conditions generally, both domestic
and foreign, and also to the monetary and fiscal policies of the United States
and its agencies, particularly the Federal Reserve Board, which regulates the
supply of money through various means including open market dealings in United
States government securities. The nature and timing of changes in such policies
and their impact on the Bank cannot be predicted.
Branching and Interstate Banking. The federal banking agencies are
authorized to approve interstate bank merger transactions without regard to
whether such transaction is prohibited by the law of any state, unless the home
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state of one of the banks has opted out of the interstate bank merger provisions
of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Riegle-Neal Act") by adopting a law after the date of enactment of the
Riegle-Neal Act and prior to June 1, 1997 which applies equally to all
out-of-state banks and expressly prohibits merger transactions involving
out-of-state banks. Interstate acquisitions of branches are permitted only if
the law of the state in which the branch is located permits such acquisitions.
Such interstate bank mergers and branch acquisitions are also subject to the
nationwide and statewide insured deposit concentration limitations described in
the Riegle-Neal Act.
The Riegle-Neal Act authorizes the federal banking agencies to approve
interstate branching de novo by national and state banks in states which
specifically allow for such branching. The District of Columbia, Maryland and
Virginia have all enacted laws which permit interstate acquisitions of banks and
bank branches and permit out-of-state banks to establish de novo branches.
Capital Adequacy Guidelines. The Federal Reserve Board and the FDIC
have adopted risk based capital adequacy guidelines pursuant to which they
assess the adequacy of capital in examining and supervising banks and bank
holding companies and in analyzing bank regulatory applications. Risk-based
capital requirements determine the adequacy of capital based on the risk
inherent in various classes of assets and off-balance sheet items.
State member banks are expected to meet a minimum ratio of total
qualifying capital (the sum of core capital (Tier 1) and supplementary capital
(Tier 2)) to risk weighted assets of 8%. At least half of this amount (4%)
should be in the form of core capital.
Tier 1 Capital generally consists of the sum of common stockholders'
equity and perpetual preferred stock (subject in the case of the latter to
limitations on the kind and amount of such stock which may be included as Tier 1
Capital), less goodwill, without adjustment for changes in the market value of
securities classified as "available for sale" in accordance with FAS 115. Tier 2
Capital consists of the following: hybrid capital instruments; perpetual
preferred stock which is not otherwise eligible to be included as Tier 1
Capital; term subordinated debt and intermediate-term preferred stock; and,
subject to limitations, general allowances for loan losses. Assets are adjusted
under the risk-based guidelines to take into account different risk
characteristics, with the categories ranging from 0% (requiring no risk-based
capital) for assets such as cash, to 100% for the bulk of assets which are
typically held by a bank holding company, including certain multi-family
residential and commercial real estate loans, commercial business loans and
consumer loans. Residential first mortgage loans on one to four family
residential real estate and certain seasoned multi-family residential real
estate loans, which are not 90 days or more past-due or non-performing and which
have been made in accordance with prudent underwriting standards are assigned a
50% level in the risk-weighing system, as are certain privately-issued
mortgage-backed securities representing indirect ownership of such loans.
Off-balance sheet items also are adjusted to take into account certain risk
characteristics.
In addition to the risk-based capital requirements, the Federal Reserve
Board has established a minimum 3.0% Leverage Capital Ratio (Tier 1 Capital to
total adjusted assets) requirement for the most highly-rated banks, with an
additional cushion of at least 100 to 200 basis points for all other banks,
which effectively increases the minimum Leverage Capital Ratio for such other
banks to 4.0% - 5.0% or more. The highest-rated banks are those that are not
anticipating or experiencing significant growth and have well diversified risk,
including no undue interest rate risk exposure, excellent asset quality, high
liquidity, good earnings and, in general, those which are considered a strong
banking organization. A bank having less than the minimum Leverage Capital Ratio
requirement shall, within 60 days of the date as of which it fails to comply
with such requirement, submit a reasonable plan describing the means and timing
by which the bank shall achieve its minimum Leverage Capital Ratio requirement.
A bank which fails to file such plan is deemed to be operating in an unsafe and
unsound manner, and could subject a bank to a cease-and-desist order. Any
insured depository institution with a Leverage Capital Ratio that is less than
2.0% is deemed to be operating in an unsafe or unsound condition pursuant to
Section 8(a) of the Federal Deposit Insurance Act (the "FDIA") and is subject to
potential termination of deposit insurance. However, such an institution will
not be subject to an enforcement proceeding solely on account of its capital
ratios, if it has entered into and is in compliance with a written agreement to
increase its Leverage Capital Ratio and to take such other action as may be
necessary for the institution to be operated in a safe and sound manner. The
capital regulations also provide, among other things, for the issuance of a
capital directive, which is a final order issued to a bank that fails to
maintain minimum capital or to restore its capital to the minimum capital
requirement within a specified time period. Such directive is enforceable in the
same manner as a final cease-and-desist order.
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At December 31, 1999, the Bank's Tier 1 risk based capital ratio was
8.17%, its Total risk based capital ratio was 10.15% and its Leverage Capital
ratio was 6.59%. At December 31, 1999, the Company's Tier 1 Capital was 8.16%,
its Total Capital was 9.01% and its Leverage Capital ratio was 6.58%.
Prompt Corrective Action. Under Section 38 of the FDIA, each federal
banking agency is required to implement a system of prompt corrective action for
institutions which it regulates. The federal banking agencies have promulgated
substantially similar regulations to implement the system of prompt corrective
action established by Section 38 of the FDIA. Under the regulations, a bank
shall be deemed to be: (i) "well capitalized" if it has a Total Risk Based
Capital Ratio of 10.0% or more, a Tier 1 Risk Based Capital Ratio of 6.0% or
more, a Leverage Capital Ratio of 5.0% or more and is not subject to any written
capital order or directive; (ii) "adequately capitalized" if it has a Total Risk
Based Capital Ratio of 8.0% or more, a Tier 1 Risk Based Capital Ratio of 4.0%
or more and a Tier 1 Leverage Capital Ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized;" (iii)
"undercapitalized" if it has a Total Risk Based Capital Ratio that is less than
8.0%, a Tier 1 Risk based Capital Ratio that is less than 4.0% or a Leverage
Capital Ratio that is less than 4.0% (3.0% under certain circumstances); (iv)
"significantly undercapitalized" if it has a Total Risk Based Capital Ratio that
is less than 6.0%, a Tier 1 Risk Based Capital Ratio that is less than 3.0% or a
Leverage Capital Ratio that is less than 3.0%; and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%.
An institution generally must file a written capital restoration plan
which meets specified requirements with an appropriate federal banking agency
within 45 days of the date the institution receives notice or is deemed to have
notice that it is undercapitalized, significantly undercapitalized or critically
undercapitalized. A federal banking agency must provide the institution with
written notice of approval or disapproval within 60 days after receiving a
capital restoration plan, subject to extensions by the applicable agency.
An institution which is required to submit a capital restoration plan
must concurrently submit a performance guaranty by each company that controls
the institution. Such guaranty shall be limited to the lesser of (i) an amount
equal to 5.0% of the institution's total assets at the time the institution was
notified or deemed to have notice that it was undercapitalized or (ii) the
amount necessary at such time to restore the relevant capital measures of the
institution to the levels required for the institution to be classified as
adequately capitalized. Such a guaranty shall expire after the federal banking
agency notifies the institution that it has remained adequately capitalized for
each of four consecutive calendar quarters. An institution which fails to submit
a written capital restoration plan within the requisite period, including any
required performance guaranty, or fails in any material respect to implement a
capital restoration plan, shall be subject to the restrictions in Section 38 of
the FDIA which are applicable to significantly undercapitalized institutions. At
December 31, 1999, the Bank was considered to be a "well capitalized"
institution for purposes of Section 38 of the FDIA.
A "critically undercapitalized institution" is to be placed in
conservatorship or receivership within 90 days unless the FDIC formally
determines that forbearance from such action would better protect the deposit
insurance fund. Unless the FDIC or other appropriate federal banking regulatory
agency makes specific further findings and certifies that the institution is
viable and is not expected to fail, an institution that remains critically
undercapitalized on average during the fourth calendar quarter after the date it
becomes critically undercapitalized must be placed in receivership. The general
rule is that the FDIC will be appointed as receiver within 90 days after a bank
becomes critically undercapitalized unless extremely good cause is shown and an
extension is agreed to by the federal regulators. In general, good cause is
defined as capital which has been raised and is imminently available for
infusion into the bank except for certain technical requirements which may delay
the infusion for a period of time beyond the 90 day time period.
Immediately upon becoming undercapitalized, an institution shall become
subject to the provisions of Section 38 of the FDIA, which (i) restrict payment
of capital distributions and management fees; (ii) require that the appropriate
federal banking agency monitor the condition of the institution and its efforts
to restore its capital; (iii) require submission of a capital restoration plan;
(iv) restrict the growth of the institution's assets; and (v) require prior
approval of certain expansion proposals. The appropriate federal banking agency
for an undercapitalized institution also may take any number of discretionary
supervisory actions if the agency determines that any of these actions is
necessary to resolve the problems of the institution at the least possible
long-term cost to the deposit insurance fund,
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subject in certain cases to specified procedures. These discretionary
supervisory actions include: requiring the institution to raise additional
capital; restricting transactions with affiliates; requiring divestiture of the
institution or the sale of the institution to a willing purchaser; and any other
supervisory action that the agency deems appropriate. These and additional
mandatory and permissive supervisory actions may be taken with respect to
significantly undercapitalized and critically undercapitalized institutions.
Additionally, under Section 11(c)(5) of the FDIA, a conservator or
receiver may be appointed for an institution where: (i) an institution's
obligations exceed its assets; (ii) there is substantial dissipation of the
institution's assets or earnings as a result of any violation of law or any
unsafe or unsound practice; (iii) the institution is in an unsafe or unsound
condition; (iv) there is a willful violation of a cease-and-desist order; (v)
the institution is unable to pay its obligations in the ordinary course of
business; (vi) losses or threatened losses deplete all or substantially all of
an institution's capital, and there is no reasonable prospect of becoming
"adequately capitalized" without assistance; (vii) there is any violation of law
or unsafe or unsound practice or condition that is likely to cause insolvency or
substantial dissipation of assets or earnings, weaken the institution's
condition, or otherwise seriously prejudice the interests of depositors or the
insurance fund; (viii) an institution ceases to be insured; (ix) the institution
is undercapitalized and has no reasonable prospect that it will become
adequately capitalized, fails to become adequately capitalized when required to
do so, or fails to submit or materially implement a capital restoration plan; or
(x) the institution is critically undercapitalized or otherwise has
substantially insufficient capital.
Regulatory Enforcement Authority. Federal banking law grants
substantial enforcement powers to federal banking regulators. This enforcement
authority includes, among other things, the ability to assess civil money
penalties, to issue cease-and-desist or removal orders and to initiate
injunctive actions against banking organizations and institution-affiliated
parties. In general, these enforcement actions may be initiated for violations
of laws and regulations and unsafe or unsound practices. Other actions or
inactions may provide the basis for enforcement action, including misleading or
untimely reports filed with regulatory authorities.
Item 2. Description of Property
The Bank offers its services from its main office, located at 5350 Lee
Highway in Arlington, Virginia, and nine additional banking offices, and its
bank operations center. The Bank purchased the 5350 Lee Highway property for
$1,400,000 in cash in April 1994. That property, consisting of two connected red
brick buildings, contains an aggregate of approximately 18,000 square feet of
space on three levels. The Bank utilizes one of the buildings, containing
approximately 10,000 square feet, as the executive offices and a branch
facility. In August 1995, the Bank sold the connected building which it had
previously leased out, for $690,000. The Bank operates a branch located at 2930
Wilson Boulevard, Arlington, Virginia. That property, which consists of a stand
alone brick building containing approximately 2,400 square feet on a parcel of
approximately 18,087 square feet, was purchased by the Bank for $1,500,000 in
April 1997. The Bank also operates a branch location at 5140 Duke Street,
Alexandria, Virginia. That property, which consists of a two story brick
building containing approximately 4,800 square feet on a parcel of approximately
16,800 square feet,, was purchased by the Bank for $850,000 in April 1997. The
Bank leases eight locations: the Alexandria Office, located at 1414 Prince
Street, Alexandria, Virginia, consists of 2,500 square feet; the McLean Office,
located at 1356 Chain Bridge Road, McLean, Virginia, consists of 1,625 square
feet; the Williamsburg Boulevard Office, located at 6500 Williamsburg Road,
Arlington, Virginia, consists of 1,781 square feet; the Annandale Office,
located at 4230 John Marr Drive, Annandale, Virginia, consists of 2,400 square
feet; the Fairfax Office, located at 10777 Main Street, Fairfax Virginia,
consists of 2,038 square feet; the Vienna Office, located at 374 Maple Avenue,
Vienna, Virginia, consists of 5,831 square feet; the King Street Office, located
at 506 King Street, Alexandria Virginia, consists of 1,484 square feet, and the
Bank's operations center, located at 14201 Sullyfield Circle, Chantilly,
Virginia consists of 5,579 square feet. All of the leases contain renewal option
clauses for one or two additional five-year terms, and in some instances require
payment of certain operating charges. The total rental expense under the leases
was $547,159 in 1999. The total minimum rental commitment under the leases as of
December 31, 1999 is as follows: $570,897 for 2000; $530,036 for 2001; $499,939
for 2002; $340,627 for 2003 and $1,369,448 for 2004 and beyond.
Item 3. Legal Proceedings
From time to time the Company is a participant in various legal
proceedings incidental to its business. In the opinion of management, the
liabilities (if any) resulting from such legal proceedings will not have a
material effect on
8
<PAGE>
the financial position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the security holders of the
Company during the fourth quarter of 1999. On December 15, 1999 the Agreement
and Plan of Share Exchange between the Company and the Bank, dated September 22,
1999, was approved at a Special Meeting of Shareholders of the Bank held on
December 15, 1999. The Agreement and Plan of Share Exchange was approved by the
following vote of the 1,968,985 shares entitled to vote at the special meeting:
For: 1,390,928
Against: 6,234
Abstain 6,117
Pursuant to the Agreement and Plan of Share Exchange, each of the outstanding
shares of common stock $1.00 par value of the Bank was been converted into one
share of the common stock $1.00 par value of the Company. As a result of the
Agreement and Plan of Share Exchange, the Bank has become a wholly owned
subsidiary of the Company
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The information required under Item 5 is hereby incorporated herein by
reference from the material under the caption "Market Price of Stock and
Dividends" on page 15 of the Company's Annual Report for the fiscal year ended
December 31, 1999.
Item 6. Management's Discussion and Analysis or Plan of Operation
The information required under Item 6 is hereby incorporated herein by
reference from the material under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operation" on pages 5 through 15
of the Company's Annual Report for the fiscal year ended December 31, 1999.
Item 7. Financial Statements
The information required under Item 7 is hereby incorporated herein by
reference from the material under the caption "Financial Statements" on pages 16
through 36 of the Company's Annual Report for the fiscal year ended December 31,
1999.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There has been no change of or disagreement with the Company's/Bank's
independent accountants during the twenty-four month period prior to the date of
the Company's/Bank's most recent financial statements.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The information required under Item 9 is hereby incorporated herein by
reference from the material under the caption "ELECTION OF DIRECTORS" contained
on pages 3 through 6, and under the caption "Compliance with Section 16(a) of
the Securities Exchange Act of 1934" on page 9, of the Company's Proxy Statement
for the Annual Meeting of Stockholders to be held on April 26, 2000.
9
<PAGE>
Item 10. Executive Compensation
The information required under Item 10 is hereby incorporated herein by
reference from the material under the caption "EXECUTIVE OFFICER COMPENSATION
AND CERTAIN TRANSACTIONS," contained on pages 6 through 9 of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 26, 2000.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information required under Item 11 is hereby incorporated herein by
reference from the material under the captions "VOTING SECURITIES AND PRINCIPAL
HOLDERS THEREOF" contained on pages 2 and 3 of the Company's Proxy Statement for
the Annual Meeting of Stockholders to be held on April 26, 2000.
Item 12. Certain Relationships and Related Transactions
The information required under Item 12 is hereby incorporated herein by
reference from the material under the caption "Transactions with Management and
Others" contained on page 9 of the Company's Proxy Statement for the Annual
Meeting of Stockholders to be held on April 26, 2000.
PART IV
Item 13. Exhibits, Lists and Reports on Form 8-K
(a) Audited Financial Statements - Incorporated by reference to the
Annual Report to Shareholders for the Year ended December 31, 1999 <TABLE>
<CAPTION>
DESCRIPTION PAGE IN ANNUAL REPORT
<S> <C>
Independent Auditor's Report.....................................................................................36
Consolidated Balance Sheets at December 31, 1999 and 1998........................................................16
Consolidated Statements of Income and Comprehensive Income
for the Years Ended December 31, 1999, 1998 and 1997....................................................17
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1999, 1998 and 1997....................................................18
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997.......................19
Notes to Consolidated Financial Statements.......................................................................20
</TABLE>
(b). Exhibits.
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation of Virginia Commerce Bancorp, Inc.
3.2 Bylaws of Virginia Commerce Bancorp, Inc.
10.1 1998 Stock Option Plan
11 Statement Regarding Computation of Per Share Earnings
13 1999 Annual Report to Stockholders
21 Subsidiaries of the Registrant.
27 Financial Data Schedule
- ------------------
(c) The Company filed a report on Form 8-K dated December 22, 1999 reporting the
consummation of the Plan and Agreement of Share Exchange pursuant to which the
Bank became a wholly owned subsidiary of the Company, and reporting the vote at
the Special Meeting of Shareholders at which the Plan and Agreement of Share
Exchange was approved.
10
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
VIRGINIA COMMERCE BANCORP, INC.
By: /s/ Peter A. Converse
-------------------------------
Peter A. Converse, President
and Chief Executive Officer
Dated: March 22, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Capacity Date
<S> <C> <C>
- ----------------------------- Director March , 2000
Leonard Adler
/s/ Peter A. Converse President and Chief Executive March 22, 2000
- ----------------------------- Officer (Principal Executive Officer)
Peter A. Converse
/s/ Frank L. Cowles, Jr.
- ----------------------------- Director March 22, 2000
Frank L. Cowles, Jr.
/s/ W. Douglas Fisher Chairman of the Board of Directors March 22, 2000
- -----------------------------
W. Douglas Fisher
/s/ David M. Guernsey Vice Chairman of the Board of Directors March 22, 2000
- -----------------------------
David M. Guernsey
/s/ Robert H. L'Hommedieu
- ----------------------------- Director March 22, 2000
Robert H. L'Hommedieu
/s/ Norris E. Mitchell
- ----------------------------- Director March 22, 2000
Norris E. Mitchell
/s/ Arthur L. Walters
- ----------------------------- Director March 22, 2000
Arthur L. Walters
/s/ William K. Beauchesne Treasurer and Chief Financial Officer March 22, 2000
- ------------------------- (Principal Financial and Accounting Officer)
William K. Beauchesne
</TABLE>
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
VIRGINIA COMMERCE BANCORP, INC.
1. NAME. The name of the corporation is:
VIRGINIA COMMERCE BANCORP, INC.
2. PURPOSE. The purpose for which the Corporation is formed is to serve
as a holding company for banking institutions and to engage in any or all lawful
business, including without limitation insurance agency and related businesses,
not required to be stated in the Articles of Incorporation for which
corporations may be incorporated under the Virginia Stock Corporation Act as
amended from time to time.
3. AUTHORIZED STOCK. The Corporation shall have authority to issue
5,000,000 shares of Common Stock, par value $1.00 per share and 1,000,000 shares
of preferred stock, par value $1.00 per share. The Board of Directors of the
Corporation is authorized to divide the shares of preferred stock into one or
more series, and to fix and determine the variations in the relative rights and
preferences as between series. Each series shall be designated so as to
distinguish the shares thereof from the shares of all other series.
4. PREEMPTIVE RIGHTS. Stockholders of the Corporation shall not have
the preemptive right to acquire unissued shares of any class of stock of the
Corporation.
5. CUMULATIVE VOTING. Stockholders of the Corporation shall not have
cumulative voting rights.
6. LIMIT ON LIABILITY AND INDEMNIFICATION.
Section 1. To the full extent that the Virginia Stock Corporation Act, as it
exists on the date hereof or may hereafter be amended, permits the limitation or
elimination of the liability of directors or officers, a director or officer of
the Corporation shall not be liable to the Corporation or its stockholders for
monetary damages.
Section 2. To the full extent permitted and in the manner prescribed by the
Virginia Stock Corporation Act and any other applicable law, the Corporation
shall indemnify a director or officer of the Corporation who is or was a party
to any proceeding by reason of the fact that he is or was such a director or
officer or is or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise. The Board of Directors is
hereby empowered, by majority vote of a quorum of disinterested directors, to
contract in advance to indemnify any director or officer.
Section 3. The Board of Directors is hereby empowered, by majority vote of a
quorum of disinterested directors, to cause the Corporation to indemnify or
contract in advance to indemnify any director, and to cause the Corporation to
indemnify or contract in advance to indemnify any person not specified in
Section 2 of this Article who was or is a party to any proceeding, by reason of
the fact that he is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, to the same extent as if such person were
specified as one to whom indemnification is granted in Section 2.
Section 4. Notwithstanding any other provisions in this Article 6, the
Corporation shall indemnify a director who entirely prevails in the defense of
any proceeding to which he was a party because he is or was a director of the
Corporation against reasonable expenses incurred by him in connection with the
proceeding.
Section 5. The Corporation may purchase and maintain insurance to indemnify it
against the whole or any portion of
<PAGE>
the liability assumed by it in accordance with this Article and may also procure
insurance, in such amounts as the Board of Directors may determine, on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against any liability
asserted against or incurred by any such person in any such capacity or arising
from his status as such, whether or not the Corporation would have power to
indemnify him against such liability under the provisions of this Article.
Section 6. In the event there has been a change in the composition of a majority
of the Board of Directors after the date of the alleged act or omission with
respect to which indemnification is claimed, any determination as to
indemnification and advancement of expenses with respect to any claim for
indemnification made pursuant to Section 2 of this Article 6 shall be made by
special legal counsel agreed upon by the Board of Directors and the proposed
indemnitee. If the Board of Directors and the proposed indemnitee are unable to
agree upon such special legal counsel, the Board of Directors and the proposed
indemnitee each shall select a nominee, and the nominees shall select such
special legal counsel.
Section 7. The provisions of this Article 6 shall be applicable to all actions,
claims, suits or proceedings commenced after the adoption hereof, whether
arising from any action taken or failure to act before or after such adoption.
No amendment, modification or repeal of this Article shall diminish the rights
provided hereby or diminish the right to indemnification with respect to any
claim, issue or matter in any then pending or subsequent proceeding that is
based in any material respect on any alleged action or failure to act prior to
such amendment, modification or repeal.
Section 8. Reference herein to directors, officers, employees or agents shall
include former directors, officers, employees and agents and their respective
heirs, executors and administrators.
7. REGISTERED OFFICE AND AGENT. The Corporation's initial registered
office shall be located at 5350 Lee Highway in Arlington, Virginia. The
Corporation's initial registered agent shall be Peter A. Converse, a resident of
Virginia and a director of the Corporation.
8. DIRECTORS. The number of Directors shall be as stated or fixed in
accordance with the Corporation's By-Laws. The initial number of Directors shall
be eight (8).
The names and addresses of the initial directors are as follows:
Name Address
---- -------
Leonard A. Adler 12209 Thoroughbred Road
Herndon, VA 22071
Peter A. Converse 3435 Woodburn Road
Annandale, VA 22003
Frank L. Cowles, Jr. Greenfields Farm
Scottsville, VA 24590
W. Douglas Fisher 6721 Michaels Drive
Bethesda, MD 20817
David M. Guernsey 12414 Clifton Hunt Road
Clifton, VA 20817
Robert H. L'Hommedieu 8564 Lee Highway
Warrenton, VA 22021
Norris E. Mitchell 8560 Georgetown Pike
McLean, VA 22102
Arthur L. Walters 4935 North 30th Street
Arlington, VA 22207
9. VOTE REQUIRED FOR CERTAIN TRANSACTIONS. The affirmative vote of
holders of a majority (50.1%) of the shares of the Corporation's capital stock
issued, outstanding, and entitled to vote, shall be required to approve any of
the following:
(a) any merger or consolidation of the Corporation with or into any
other corporation; or
(b) any exchange in which a corporation, person, or entity acquires the
issued or outstanding shares of capital stock of the Corporation pursuant to a
vote of shareholders; or
(c) any issuance of shares of the Corporation that results in the
acquisition of control of the Corporation by any corporation, person, or entity
or group of one or more thereof that previously did not control the Corporation;
or
(d) any sale, lease, exchange, mortgage, pledge, or other transfer in
one transaction or a series of transactions of all or substantially all of the
assets of the Corporation to any other corporation, person, or entity; or
(e) the adoption of a plan for the liquidation or dissolution of the
Corporation prepared by any other corporation, person, or entity; or
(f) any proposal in the nature of a reclassification or reorganization
that would increase the proportionate voting rights of any other corporation,
person, or entity;
(g) any transaction similar to, or having similar effect as, any of the
foregoing transactions; or
(h) any amendment to the Articles of Incorporation.
10. FACTORS TO BE CONSIDERED IN CERTAIN TRANSACTIONS. The Board of
Directors of the Corporation, when evaluating any offer of another party to (a)
make a tender or exchange offer for any equity security of the Corporation, (b)
merge or consolidate the Corporation with another corporation, (c) purchase or
otherwise acquire all or substantially all of the properties and assets of the
Corporation, or (d) engage in any transaction similar to, or having similar
effects as, any of the foregoing transactions, shall, in connection with the
exercise of its judgment in determining what is in the best interests of the
Corporation and its shareholders, give due consideration to all relevant
factors, including, without limitation, the social and economic effects of the
proposed transaction on the depositors, employees, customers, and other
constituents of the Corporation and its subsidiaries and of the communities in
which the Corporation and its subsidiaries operate or are located, the business
reputation of the other party, and the Board of Directors' evaluation of the
then value of the Corporation in a freely negotiated sale and of the future
prospects of the Corporation as an independent entity.
Dated: October 29, 1999 ----------------------------
David Baris
Incorporator
Exhibit 3.2
VIRGINIA COMMERCE BANCORP, INC.
BY-LAWS
Article I
Meetings of Shareholders
Section 1.1 Annual Meeting. The regular annual meeting of shareholders
for the election of directors and for the transaction of whatever other business
may properly come before the meeting, shall be held at the Main Office of the
Company, or such other place as the Board of Directors may designate, each year
on such day as the Board of Directors determines. Notice of such meeting shall
be mailed, postage prepaid, at least ten days prior to the date thereof,
addressed to each shareholder at his address appearing on the books of the
Company unless notice is waived by unanimous consent of all shareholders. If,
for any cause, an election of directors is not made on the said day, the Board
of Directors shall order the election to be held on some subsequent day, as soon
thereafter as practicable, according to the provisions of law; and notice
thereof shall be given in the manner therein provided for the annual meeting.
Section 1.2 Special Meetings. Except as otherwise specifically provided
by statute, special meetings of the shareholders shall be called for any purpose
at any time by the Secretary at the request of the Board of Directors pursuant
to a resolution approved by a majority of the entire Board of Directors or a
written request from three or more shareholders owning of record not less than
33 1/3% of the outstanding stock of the Company. Every such special meeting,
unless otherwise provided by law, or waived by unanimous consent of all
shareholders, shall be called by mailing, postage prepaid, not less than ten
days prior to the dated fixed for such meeting, to each shareholder at his
address appearing on the books of the Company a notice stating the time, place
and purpose of the meeting.
Section 1.3 Nominations for Director. Nominations for the election of
directors may be made by the Board of Directors or a committee appointed by the
Board of Directors or by any stockholder entitled to vote in the election of
directors generally. However, any stockholder entitled to vote in the election
of directors generally may nominate one or more persons for election as
directors at a meeting only if written notice of such stockholder's intent to
make such nomination or nominations has been given, either by personal delivery
or by United States mail, postage prepaid, to the Secretary of the Company not
later than (i) with respect to an election to be held at the annual meeting of
stockholders, ninety days prior to the anniversary date of the immediately
preceding annual meeting, and (ii) with respect to an election to be held at a
special meeting of the stockholders for the election of directors, the close of
business on the seventh day following the date on which notice of such meeting
is first given to stockholders. Each such notice shall set forth: (a) the name
and address of the stockholder who intends to make the nomination and of the
person or persons to be nominated; (b) a representation that the stockholder is
a holder of record of stock of the Company entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; (c) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission, had the nominee been nominated, or intended
to be nominated, by the Board of Directors; and (e) the consent of each nominee
to serve as a director of the Company if so elected. The presiding officer of
the meeting may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedure.
Section 1.4 Judges of Election. Every election of directors shall be
managed by three judges, who shall be appointed by the Board of Directors. The
judges of election shall hold and conduct the election at which they are
appointed to serve; and, after the election, they shall file with the Secretary,
a certificate under their hands, certifying the result thereof and names of the
directors elected. The judges of an election, at the request of the Chairman of
the meeting, shall act as tellers of any other vote by ballot taken at such
meeting, and shall certify the result thereof.
Section 1.5 Proxies. Shareholders may vote at any meeting of the
shareholders by proxies duly authorized in writing. Proxies shall be valid only
for one meeting, to be specified therein, and any adjournments of such meeting.
Proxies shall be dated and shall be filed with the records of the meeting.
<PAGE>
Section 1.6 Quorum. A majority of the outstanding capital stock,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, unless otherwise provided by law; but less than a quorum may
adjourn any meeting, from time to time, and the meeting may be held, as
adjourned, without further notice. A majority of the votes cast shall decide
every question or matter submitted to the shareholders at any meeting, unless
otherwise provided by law or by the Articles of Incorporation.
Section 1.7 Presiding Officer and Secretary. The Board of Directors
shall appoint, for every meeting of shareholders, the presiding officer for the
meeting and the Secretary for the meeting.
Section 1.8 Action by Shareholders. All action by shareholders of the
Company's outstanding voting securities shall be taken at an annual or special
meeting of the shareholders duly called as provided by statute, the Articles of
Incorporation and the By-Laws. Shareholders of the Company shall not have the
power to act by written consent.
Section 1.9 Voting. Whenever directors are to be elected at a meeting,
they shall be elected by a plurality of the votes cast at the meeting by the
holders of stock entitled to vote thereat. Whenever any corporate action, other
than the election of directors, is to be taken by vote of stockholders at a
meeting, it shall be authorized by a majority of the capital stock issued,
outstanding and entitled to vote, unless otherwise required by law, by the
Certificate of Incorporation or by these By-Laws.
Except as otherwise provided by law or by the Certificate of
Incorporation, each holder of record of stock of the Company entitled to vote on
any matter shall be entitled to one vote for each share of capital stock
standing in the name of such holder on the stock ledger of the Company on the
record date for the determination of the stockholders entitled to vote on such
matter.
Article II
Directors
Section 2.1 Board of Directors. The Board of Directors (hereinafter
referred to as the "Board"), shall have power to manage and administer the
business affairs of the Company. Except as expressly limited by law, all
corporate powers of the Company shall be vested in and may be exercised by said
Board.
Section 2.2 Number. The Board shall consist of not less than five nor
more than twenty-five persons, the exact number within such minimum and maximum
limits to be fixed and determined from time to time by resolution of a majority
of the full Board or by resolution of the shareholders at any meeting thereof.
Section 2.3 Organization Meeting. The Secretary, upon receiving the
certificate of the judges of the results of any election, shall notify the
directors-elect of their election and of the time at which they are required to
meet at the Main Office of the Company or such other designated location for the
purpose of organizing the new Board and electing and appointing officers of the
Company for the succeeding year. Such meeting shall be held on the day of the
election or as soon thereafter as practicable, and, in any event, within thirty
days thereof. If, at the time fixed for such meeting, there shall not be a
quorum present, the directors present may adjourn the meeting, from time to
time, until a quorum is obtained.
Section 2.4 Regular Meetings. The Regular Meetings of the Board of
Directors shall be held, without notice, on the fourth Wednesday each month (or
such other day as the Board may be resolution determine) at the Main Office or
such other designated location. When any regular meeting of the Board falls upon
a holiday, the meeting shall be held on the next banking business day unless the
Board shall designate some other day.
Section 2.5 Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Company, or at the request of
three (3) or more directors. Each member of the Board shall be given notice
stating time and place, by telephone, telegram, facsimile, letter or in person,
of each such special meeting, except that notice of such special meeting may be
waived by an instrument signed by all of the directors before or after such
special meeting and filed with the minutes of such meeting.
<PAGE>
Section 2.6 Quorum. A majority of the directors then in office shall
constitute a quorum at any meeting, except when otherwise provided by law; but a
lesser number may adjourn any meeting, from time to time, and the meeting may be
held, as adjourned without further notice. If a quorum is present, action by a
majority of those directors in attendance shall constitute action of the Board.
Section 2.7 Written Consents and Telephonic Participation. Any action
required or permitted to be taken at any meeting of the Board of Directors or
any committee thereof may be taken without a meeting if all members of the Board
or of such committee, as the case may be, consent thereto in writing and the
writings are filed with the minutes of proceedings of the Board or committee.
Members of the Board of Directors or any committee designated by the Board may
participate in a meeting of the Board or such committee by means of conference
telephone or similar communications equipment. Participation in a meeting by
communications means pursuant to this section shall constitute presence in
person at such meeting.
Section 2.8 Vacancies. When any vacancy occurs among the directors, the
remaining members of the Board, in accordance with the laws of the Commonwealth
of Virginia, may appoint a director to fill such vacancy at any regular meeting
of the board or at a special meeting called for that purpose, or if the
directors remaining in office constitute less than a quorum, by the vote of a
majority of the directors remaining in office, or by shareholders at a special
meeting called for that purpose.
Article III
Committees of the Board
Section 3.1 Appointment and Powers. The Board of Directors may from
time to time, by resolution passed by a majority of the Board, designate an
executive committee and such other committee of committees as it may determine,
each committee to consist of one or more directors of the Company. Any such
committee, to the extent provided in the resolution, shall have and may exercise
any of the powers and authority of the Board of Directors in the management of
the business and affairs of the Company, and may authorize the seal of the
Company to be affixed to all papers which may require it, all subject to the
exceptions set forth in Virginia law. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of any member of any committee and of any alternate member
designated by the Board, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any of such absent or disqualified member. Any such
committee may adopt rules governing the method of calling and time and place of
holding its meetings. Unless otherwise provided by the Board of Directors, a
majority of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of the members of such committee present at
a meeting at which a quorum is present shall constitute action of the committee.
Each committee shall keep a record of its acts and proceedings and shall report
thereon to the Board of Directors whenever requested so to do. Any or all
members of any such committees may be removed, with or without cause, by
resolution of the Board of Directors, adopted by a majority of the Board.
Article IV
Officers
Section 4.1 Officers. The officers of the bank, who shall be elected by
the board of Directors, shall be a Chairman of the Board; a President; and one
or more Vice Presidents who may have such designations, if any, as the Board of
Directors may determine; and a Secretary. The Board of Directors from time to
time may elect such other officers, or assistant officers, as the Board of
Directors may from time to time deem necessary or appropriate. Any two or more
of the foregoing offices may be held by the same person. The Chairman of the
Board and President shall be chosen from among the Directors.
Section 4.2 Term. The term of office of each officer shall be until the
first meeting of the Board of Directors following the next annual meeting of
shareholders, or until his respective successor has been elected and qualified,
or until his earlier resignation or removal. Any officer may be removed from
office at any time with or without cause by the affirmative vote of a majority
of the members of the Board of Directors then in office. The removal of an
officer
<PAGE>
without cause shall be without prejudice to his contract rights, if any, but the
election or appointment of an officer shall not of itself create contract
rights.
Section 4.3 Chairman of the Board. The Chairman of the Board shall
supervise the carrying out of the policies adopted or approved by the Board of
Directors. He shall have authority for the general supervision, management, and
control of the business and affairs of the Company and shall perform all other
duties and exercise all other powers as are incident to the office of Chairman
of the Board and as may be prescribed by these By-Laws. The Chairman of the
Board shall preside at all meetings of the stockholders and of the Board of
Directors. He may vote the stock or other securities of any other domestic or
foreign corporation which may at any time be owned by the Company, may execute
any stockholders' or other consents in respect thereof and may in his discretion
delegate such powers by executing proxies, or otherwise, on behalf of the
Company. He shall have such other powers and shall perform such other duties as
may be prescribed by the Board of Directors from time to time.
Section 4.4 President. The Board of Directors shall appoint one of its
members to be President of the Company. The President shall have general
executive powers and shall have and may exercise any and all other powers and
duties pertaining by law, regulation or practice, to the office of President, or
imposed by these By-Laws. He shall also have and may exercise such further
powers and duties as from time to time may be conferred upon, or assigned to,
him by the Board of Directors. The President shall see that the books, reports,
statements and certificates required by Virginia law are properly kept, made and
filed according to law.
Section 4.5 Vice President. Each Vice President, including any
designated as Executive Vice President by the Board of Directors in accordance
with Section 4.1 of this Article IV, shall have such powers and shall perform
such duties which are in the normal and usual business and affairs of the
operating division or divisions or staff department, the operations for which he
is responsible, including the authority to sign contracts and other agreements
which are within the ordinary course of the business of such division or
divisions or staff departments.
Section 4.6 Other Officers. Subject to the authority of the President
and the Board of Directors, the Secretary and any other officers appointed by
the Board of Directors shall have such duties and responsibilities as shall from
time to time be prescribed by the person who is such officer's immediate
superior, including such duties and responsibilities as are usually performed by
persons holding such corporate office.
Article V
Stock and Stock Certificates
Section 5.1 Transfers. Shares of stock shall be transferable on the
books of the Company, and a transfer book shall be kept in which all transfers
of stock shall be recorded. Every person becoming a shareholder by such transfer
shall, in proportion to his shares, succeed to all rights of the prior holder of
such.
Section 5.2 Stock Certificates. Certificates of stock shall bear the
signature of two officers designated by the Board of Directors and shall be
signed manually or by facsimile process, and may bear the corporate seal or its
facsimile. Each certificate shall recite on its face the name of the Company and
that it is organized under the laws of the commonwealth of Virginia, the name of
the person to whom issued; and the number and class of shares and the
description of the series, if any, the Certificate represents.
Section 5.3 Lost, Stolen or Destroyed Certificates. The Company may
issue a new stock certificate in the place of any certificate theretofore issued
by it, alleged to have been lost, stolen or destroyed, and the Company may
require the owner of the lost, stolen or destroyed certificate or his legal
representative to give the Company a bond sufficient to indemnify it against any
claim that may be made against it on account of the alleged loss, theft or
destruction of any certificate or the issuance of any such new certificate. The
Board may require such owner to satisfy other reasonable requirements.
Section 5.4 Shareholder Record Date. In order that the Company may
determine the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change,
<PAGE>
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall not be
more than seventy (70) days before the date of such meeting, nor more than
seventy (70) days prior to any other action. Only such shareholders as shall be
shareholders of record on the date so fixed shall be entitled to notice of, and
vote at, such meeting and any adjournment thereof, or to receive payment of such
dividend or other distribution, or to exercise such rights in respect of any
such change, conversion or exchange of stock, or to participate in such action,
as the case may be, notwithstanding any transfer of any stock on the books of
the Company after any record date so fixed.
If no record date is fixed by the Board of Directors, (i) the record
date for determining shareholders entitled to notice of or to vote at a meeting
of shareholders shall be at the close of business on the date next preceding the
date on which notice is given, and (ii) the record date for determining
shareholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting
to the extent permitted by Virginia law; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Article VI
Seal
The President, the Secretary or any Assistant Secretary, or other
officer thereunto designated by the Board of Directors shall have authority to
affix the corporate seal to any document requiring such seal, and to attest the
same. Such seal shall be substantially in the following form:
( Impression )
( of )
( Seal )
ARTICLE VII
Miscellaneous Provisions
Sections 7.1 Fiscal Year. The Fiscal Year of the Company shall be the
calendar year.
Section 7.2 Execution of Instruments. All agreements, indentures,
mortgages, deeds, conveyance, transfers, satisfactions, declarations, petitions,
schedules, accounts, affidavits, bonds, undertakings, proxies, and other
documents may be signed, executed, acknowledged, verified, delivered or accepted
on behalf of the Company by the Chairman of the Board, or the President or any
Vice President, or the Secretary. Any such instruments may also be executed,
acknowledged, verified, delivered or accepted in behalf of the Company in such
other manner and by such other officers as the Board of Directors may from time
to time direct. The provisions of this Section 7.2 are supplementary to any
other provisions of these By-Laws.
Section 7.3 Records. The Articles of Incorporation, the By-Laws and the
proceedings of all meetings of the shareholders, the Board of Directors, and
standing committees of the Board, shall be recorded in appropriate minute books
provided for the purpose. The minutes of each meeting shall be signed by the
Secretary or other officer appointed to act as Secretary of the meeting.
ARTICLE VIII
By-laws
Section 8.1 Inspection. A copy of the By-laws, with all amendments
thereof, shall at all times be kept in a convenient place at the Main Office of
the Company, and shall be open for inspection to all shareholders, during
banking hours.
Section 8.2 Amendments. The By-laws may be amended, altered or repealed
at any regular meeting of the
<PAGE>
Board of Directors, by a vote of a majority of the total number of directors, or
at any special or annual meeting of stockholders, by a vote of a majority of the
shares of the Company's capital stock issued, outstanding and entitled to vote.
I certify that: (1) I am the duly constituted Secretary of Virginia
Commerce Bancorp, Inc. and Secretary of its Board of Directors, and as such
officer am the official custodian of its records; (2) the foregoing By-laws are
the By-laws of said Company, and all of them are now lawfully in force and
effect.
IN TESTIMONY WHEREOF, I have hereunto affixed my official signature and
seal of the said Company, in the County of Arlington on this _____________ of
____________, 1999.
--------------------------------------
(Secretary)
Exhibit 10.1
VIRGINIA COMMERCE BANK
1998 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
The purpose of this Virginia Commerce Bank 1998 Stock Option Plan (the
"Plan") is to advance the interests of the Bank through providing selected key
Employees and Non-Employee Directors of the Bank with the opportunity to acquire
Shares. By encouraging such stock ownership, the Bank seeks to attract, retain
and motivate the best available personnel for positions of substantial
responsibility; to provide additional incentive to key Employees and
Non-Employee Directors of the Bank to promote the success of the business as
measured by the value of its shares; and generally to increase the commonality
of interests between key employees, directors and other shareholders.
2. DEFINITIONS.
As used herein, the following definitions shall apply.
(a) "Affiliate" shall mean any "parent corporation" or "subsidiary
corporation" of the Bank, as such terms are defined in Section 424(e) and (f),
respectively, of the Code.
(b) "Agreement" shall mean a written agreement entered into in
accordance with Paragraph 5(c).
(c) "Awards" shall mean a grant of Options, unless the context clearly
indicates a different meaning.
(d) "Bank" shall mean Virginia Commerce Bank.
(e) "Board" shall mean the Board of Directors of the Bank.
(f) "Change in Control" shall mean any one of the following events
occurring after the Effective Date: (1) the acquisition of ownership of, holding
or power to vote more than 51% of the Bank`s voting stock, (2) the acquisition
of the power to control the election of a majority of the Bank's directors, (3)
the exercise of a controlling influence over the management or policies of the
Bank by any person or by persons acting as a "group" (within the meaning of
Section 13(d) of the Securities Exchange Act of 1934), or (4) the failure of
Continuing Directors to constitute at least two-thirds of the Board during any
period of two consecutive years. For purposes of this Plan, "Continuing
Directors" shall include only those individuals who were members of the Board at
the Effective Date and those other individuals whose election or nomination for
election as a member of the Board was approved by a vote of at least two-thirds
of the Continuing Directors then in office. For purposes of this subparagraph
only, the term "person" refers to an individual or a corporation, partnership,
trust, association, joint venture, pool, syndicate, sole proprietorship,
unincorporated organization or any other form of entity not specifically listed
herein. The decision of the Committee as to whether a change in control has
occurred shall be conclusive and binding.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(h) "Committee" shall mean the Stock Option Committee appointed by the
Board in accordance with Paragraph 5(a) hereof, or in the absence thereof, the
Personnel and Compensation Committee of the Board.
(i) "Common Stock" shall mean the common stock, par value $1.00 per
share, of the Bank.
(j) "Continuous Service" shall mean the absence of any interruption or
termination of service as an Employee or Non-Employee Director of the Bank.
Continuous Service shall not be considered interrupted in the case of sick
leave, military leave or any other leave of absence approved by the Bank or in
the case of transfers between payroll locations of the Bank or between the Bank,
an Affiliate or a successor.
<PAGE>
(k) "Effective Date" shall mean the date specified in Paragraph 13
hereof.
(l) "Employee" shall mean any person employed by the Bank or by an
Affiliate.
(m) "Exercise Price" shall mean the price per Optioned Share at which
an Option may be exercised.
(n) "ISO" means an option to purchase Common Stock which meets the
requirements set forth in the Plan, and which is intended to be and is
identified as an "incentive stock option" within the meaning of Section 422 of
the Code.
(o) "Market Value" shall mean the fair market value of the Common
Stock, as determined under Paragraph 7(b) hereof.
(p) "Non-Employee Director" shall mean any member of the Board who is a
"non-employee director" within the meaning of Rule 16b-3.
(q) "Non-ISO" means an option to purchase Common Stock which meets the
requirements set forth in the Plan but which is not intended to be and is not
identified as an ISO.
(r) "Option" means an ISO and/or a Non-ISO.
(s) "Optioned Shares" shall mean Shares subject to an Option granted
pursuant to this Plan.
(t) "Participant" shall mean any person who receives an Award
pursuant to the Plan.
(u) "Plan" shall mean the Virginia Commerce Bank 1998 Stock Option
Plan.
(v) "Rule 16b-3" shall mean Rule 16b-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
(w) "Share" shall mean one share of Common Stock.
3. TERM OF THE PLAN AND AWARDS.
(a) Term of the Plan. The Plan shall continue in effect for a term of
ten years from the Effective Date, unless sooner terminated pursuant to
Paragraph 16 hereof. No Award shall be granted under the Plan after ten years
from the Effective Date.
(b) Term of Awards. The term of each Award granted under the Plan shall
be established by the Committee, but shall not exceed 10 years; provided,
however, that in the case of an ISO granted to an Employee who owns Shares
representing more than 10% of the outstanding Common Stock at the time an ISO is
granted, the term of such ISO shall not exceed five years.
4. SHARES SUBJECT TO THE PLAN.
Except as otherwise required by the provisions of Paragraph 12 hereof,
the aggregate number of Shares deliverable pursuant to Awards shall not exceed
100,000 Shares. Optioned Shares may either be authorized but unissued Shares or
Shares held in treasury. If Awards should expire, become unexercisable or be
forfeited for any reason without having been exercised or become vested in full,
the Optioned Shares shall, unless the Plan shall have been terminated, be
available for the grant of additional Awards under the Plan.
5. ADMINISTRATION OF THE PLAN.
(a) Composition of the Committee. The Plan shall be administered by the
Committee, which shall
<PAGE>
consist of not less than three (3) members of the Board who are Non-Employee
Directors. Members of the Committee shall serve at the pleasure of the Board. In
the absence at any time of a duly appointed Committee, the Plan shall be
administered by Personnel and Compensation Committee of the Board.
(b) Powers of the Committee. Except as limited by the express
provisions of the Plan or by resolutions adopted by the Board, the Committee
shall have sole and complete authority and discretion (i) to select Participants
and grant Awards, (ii) to determine the form and content of Awards to be issued
in the form of Agreements under the Plan, (iii) to interpret the Plan, (iv) to
prescribe, amend and rescind rules and regulations relating to the Plan, and (v)
to make other determinations necessary or advisable for the administration of
the Plan. The Committee shall have and may exercise such other power and
authority as may be delegated to it by the Board from time to time. A majority
of the entire Committee shall constitute a quorum and the action of a majority
of the members present at any meeting at which a quorum is present, or acts
approved in writing by a majority of the Committee without a meeting, shall be
deemed the action of the Committee.
(c) Agreement. Each Award shall be evidenced by a written agreement
containing such provisions as may be approved by the Committee. Each such
Agreement shall constitute a binding contract between the Bank and the
Participant, and every Participant, upon acceptance of such Agreement, shall be
bound by the terms and restrictions of the Plan and of such Agreement. The terms
of each such Agreement shall be in accordance with the Plan, but each Agreement
may include such additional provisions and restrictions determined by the
Committee, in its discretion, provided that such additional provisions and
restrictions are not inconsistent with the terms of the Plan. In particular, the
Committee shall set forth in each Agreement (i) the Exercise Price of an Option,
(ii) the number of Shares subject to, and the expiration date of, the Award,
(iii) the manner, time and rate (cumulative or otherwise) of exercise or vesting
of such Award, (iv) the restrictions, if any, to be placed upon such Award, or
upon Shares which may be issued upon exercise of such Award, and (v) whether the
Option is an ISO or a Non-ISO.
The Chairman of the Committee and such other officers as shall be
designated by the Committee are hereby authorized to execute Agreements on
behalf of the Bank and to cause them to be delivered to the recipients of
Awards.
(d) Effect of the Committee's Decisions. All decisions, determinations
and interpretations of the Committee shall be final and conclusive on all
persons affected thereby.
(e) Indemnification. In addition to such other rights of
indemnification as they may have, the members of the Committee shall be
indemnified by the Bank in connection with any claim, action, suit or proceeding
relating to any action taken or failure to act under or in connection with the
Plan or any Award, granted hereunder to the full extent provided for under the
Bank's Articles of Incorporation or Bylaws with respect to the indemnification
of Directors.
6. GRANT OF OPTIONS.
(a) General Rule. In its sole discretion, the Committee may grant
Options to Employees of the Bank or its Affiliates, and may grant Non-ISOs to
Employees and to Non-Employee Directors of the Bank and its Affiliates.
(b) Special Rules for ISOs. The aggregate Market Value, as of the date
the Option is granted, of the Shares with respect to which ISOs are exercisable
for the first time by an Employee during any calendar year (under all incentive
stock option plans, as defined in Section 422 of the Code, of the Bank or any
present or future Parent or Subsidiary of the Bank) shall not exceed $100,000.
Notwithstanding the prior provisions of this paragraph or designation of an
Option as an ISO, the Committee may grant Options in excess of the foregoing
limitations, in which case such Options granted in excess of such limitation
shall be Options which are Non-ISOs.
7. EXERCISE PRICE FOR OPTIONS.
(a) Limits on Committee Discretion. The Exercise Price as to any
particular Option granted under the Plan shall not be less than the Market Value
of the Optioned Shares on the date of grant. In the case of an Employee who owns
Shares representing more than 10% of the Bank's outstanding Shares of Common
Stock at the time an ISO is granted, the Exercise Price shall not be less than
110% of the Market Value of the Optioned Shares at the time the ISO is granted.
<PAGE>
(b) Standards for Determining Exercise Price. If the Common Stock is
listed on a national securities exchange (including the NASDAQ National Market)
on the date in question, then the Market Value per Share shall be not less than
the average of the highest and lowest selling price on such exchange on such
date, or if there were no sales on such date, then the Exercise Price shall be
not less than the mean between the bid and asked price on such date. If the
Common Stock is traded otherwise than on a national securities exchange on the
date in question, then the Market Value per Share shall be not less than the
mean between the bid and asked price on such date, or, if there is no bid and
asked price on such date, then on the next prior business day on which there was
a bid and asked price. If no such bid and asked price is available, then the
Market Value per Share shall be its fair market value as determined by the
Committee, in its sole and absolute discretion.
(c) Reissuance of Options. Notwithstanding anything herein to the
contrary, the Committee shall have the authority to cancel outstanding Options
with the consent of the Participant and to reissue new Options at a lower
Exercise Price equal to the then Market Value per share of Common Stock in the
event that the Market Value per share of Common Stock at any time prior to the
date of exercise of outstanding Options falls below the Exercise Price.
8. EXERCISE OF OPTIONS.
(a) Generally. Any Option granted hereunder shall be exercisable at
such times and under such conditions as shall be permissible under the terms of
the Plan and of the Agreement granted to a Participant. An Option may not be
exercised for a fractional Share.
(b) Procedure for Exercise. A Participant may exercise Options, subject
to provisions relative to its termination and limitations on its exercise, only
by (1) written notice of intent to exercise the Option with respect to a
specified number of Shares, and (2) payment to the Bank (contemporaneously with
delivery of such notice) in cash, in Common Stock, or a combination of cash and
Common Stock, of the amount of the Exercise Price for the number of Shares with
respect to which the Option is then being exercised. Each such notice (and
payment where required) shall be delivered, or mailed by prepaid registered or
certified mail, addressed to the Secretary of the Bank at the Bank's executive
offices. Common Stock utilized in full or partial payment of the Exercise Price
for Options shall be valued at its Market Value at the date of exercise.
(c) Period of Exercisability. Except to the extent otherwise provided
in the terms of an Agreement, (i) a Non-ISO may be exercised by a Non-Employee
Director Participant at any time (but not later than the date on which the
Non-ISO would otherwise expire), and (ii) an ISO or Non-ISO may be exercised by
an Employee Participant only while he is an Employee and has maintained
Continuous Service from the date of the grant of the ISO, or within three months
after termination of such Continuous Service (but not later than the date on
which the Option would otherwise expire), except if the Employee's Continuous
Service terminates by reason of:
(1) "Just Cause" which for purposes hereof shall have the meaning set
forth in any unexpired employment or severance agreement between the
Participant and the Bank and/or the Bank (and, in the absence of any
such agreement, shall mean termination because of the Employee's
personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule or regulation
(other than traffic violations or similar offenses) or final
cease-and-desist order), then the Participant's rights to exercise such
ISO shall expire on the date of such termination;
(2) Death, then to the extent that the Participant would have been
entitled to exercise the ISO immediately prior to his death, such ISO
of the deceased Participant may be exercised within two years from the
date of his death (but not later than the date on which the Option
would otherwise expire) by the personal representatives of his estate
or person or persons to whom his rights under such ISO shall have
passed by will or by laws of descent and distribution;
(3) Permanent and Total Disability (as such term is defined in Section
22(e)(3) of the Code), then to the extent
<PAGE>
that the Participant would have been entitled to exercise the ISO
immediately prior to his Permanent and Total Disability, such ISO may
be exercised within one year from the date of such Permanent and Total
Disability, but not later than the date on which the ISO would
otherwise expire.
Notwithstanding the provisions of any Option which provides for its exercise in
installments as designated by the Committee, such Option shall become
immediately exercisable upon the Participant's death or Permanent and Total
Disability.
(d) Effect of the Committee's Decisions. The Committee's determination
whether a Participant's Continuous Service has ceased, and the effective date
thereof shall be final and conclusive on all persons affected thereby.
9. CHANGE IN CONTROL
(a) General Rule. Notwithstanding the provisions of any Award which
provide for its exercise or vesting in installments, all Options shall be
immediately exercisable and fully vested upon a Change in Control. With respect
to Options, at the time of a Change in Control, the Participant shall, at the
discretion of the Committee, be entitled to receive cash in an amount equal to
the excess of the Market Value of the Common Stock subject to such Option over
the Exercise Price of such Shares, in exchange for the cancellation of such
Options by the Participant.
(b) Exception to General Rule. Notwithstanding subparagraph (a) of this
Paragraph, in no event may an Option be cancelled in exchange for cash, within
the six-month period following the date of its grant.
10. EFFECT OF CHANGES IN COMMON STOCK SUBJECT TO THE PLAN.
(a) Recapitalizations, Stock Splits, Etc. The number and kind of shares
reserved for issuance under the Plan, and the number and kind of shares subject
to outstanding Awards and the Exercise Price thereof shall be proportionately
adjusted for any increase, decrease, change or exchange of Shares for a
different number or kind of shares or other securities of the Bank which results
from a merger, consolidation, recapitalization, reorganization,
reclassification, stock dividend, stock split, combination of shares, or similar
event in which the number or kind of shares is changed without the receipt or
payment of consideration by the Bank. Notwithstanding the foregoing, the number
of shares subject to issuance upon the exercise of Options granted under this
Plan shall not be adjusted to reflect the ten percent stock split to be effected
by the subdivision proposed for approval by the stockholders of the Bank at the
annual meeting of stockholders held on April 29, 1998, if approved at that
meeting.
(b) Transactions in which the Bank is Not the Surviving Entity. Subject
to Paragraph 9 hereof, in the event of (i) the liquidation or dissolution of the
Bank, (ii) a merger or consolidation in which the Bank is not the surviving
entity, or (iii) the sale or disposition of all or substantially all of the
Bank's assets (any of the foregoing to be referred to herein as a
"Transaction"), all Awards outstanding at the effectiveness of such Transaction
shall be surrendered. With respect to each Award so surrendered, the Committee
shall in its sole and absolute discretion determine whether the holder of the
surrendered Award shall receive --
(1) for each Share then subject to an outstanding Award the number and
kind of shares into which each outstanding Share (other than Shares
held by dissenting stockholders) is changed or exchanged, together with
an appropriate adjustment to the Exercise Price in the case of Options;
or
(2) a cash payment (from the Bank or the successor corporation), in an
amount equal to the Market Value of the Shares subject to the Award on
the date of the Transaction, less the Exercise Price of the Award.
(c) Special Rule for ISOs. Any adjustment made pursuant to
subparagraphs (a) or (b)(1) hereof shall be made in such a manner as not to
constitute a modification, within the meaning of Section 424(h) of the Code, of
outstanding ISOs.
(d) Conditions and Restrictions on New, Additional, or Different Shares
or Securities. If, by reason of any adjustment made pursuant to this Paragraph,
a Participant becomes entitled to new, additional, or different shares of
<PAGE>
stock or securities, such new, additional, or different shares of stock or
securities shall thereupon be subject to all of the conditions and restrictions
which were applicable to the Shares pursuant to the Award before the adjustment
was made.
(e) Other Issuances. Except as expressly provided in this Paragraph,
the issuance by the Bank or an Affiliate of shares of stock of any class, or of
securities convertible into Shares or stock of another class, for cash or
property or for labor or services either upon direct sale or upon the exercise
of rights or warrants to subscribe therefor, shall not affect, and no adjustment
shall be made with respect to, the number, class, or Exercise Price of Shares
then subject to Awards or reserved for issuance under the Plan.
11. NON-TRANSFERABILITY OF AWARDS.
Awards may not be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will or by the laws of descent and
distribution, or pursuant to the terms of a "qualified domestic relations order"
(within the meaning of Section 414(p) of the Code and the regulations and
rulings thereunder).
12. TIME OF GRANTING AWARDS.
The date of grant of an Award shall, for all purposes, be the later of
the date on which the Committee makes the determination of granting such Award,
and the Effective Date. Notice of the determination shall be given to each
Participant to whom an Award is so granted within a reasonable time after the
date of such grant.
13. EFFECTIVE DATE.
The Plan shall be effective as of May 30, 1998. Awards may be made
prior to approval of the Plan by the stockholders of the Bank if the exercise of
Awards in the form of Options are conditioned upon stockholder approval of the
Plan.
14. APPROVAL BY STOCKHOLDERS.
The Plan shall be approved by stockholders of the Bank within twelve
(12) months before or after the Effective Date.
15. MODIFICATION OF AWARDS.
At any time, and from time to time, the Board may authorize the
Committee to direct execution of an instrument providing for the modification of
any outstanding Award, provided no such modification shall confer on the holder
of said Award any right or benefit which could not be conferred on him by the
grant of a new Award at such time, or impair the Award without the consent of
the holder of the Award.
16. AMENDMENT AND TERMINATION OF THE PLAN.
The Board may from time to time amend the terms of the Plan and, with
respect to any Shares at the time not subject to Awards, suspend or terminate
the Plan. No amendment, suspension or termination of the Plan shall, without the
consent of any affected holders of an Award, alter or impair any rights or
obligations under any Award theretofore granted.
17. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Compliance with Securities Laws. Shares of Common Stock shall not
be issued with respect to any Award unless the issuance and delivery of such
Shares shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the rules and regulations
promulgated thereunder, any applicable state securities law, and the
requirements of any stock exchange upon which the Shares may then be listed. The
Plan is intended to comply with Rule 16b-3, and any provision of the Plan which
the Committee determines in its sole and absolute discretion to be inconsistent
with said Rule shall, to the extent of such inconsistency, be inoperative
<PAGE>
and null and void, and shall not affect the validity of the remaining provisions
of the Plan.
(b) Special Circumstances. The inability of the Bank to obtain approval
from any regulatory body or authority deemed by the Bank's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder shall relieve
the Bank of any liability in respect of the non-issuance or sale of such Shares.
As a condition to the exercise of an Option, the Bank may require the person
exercising the Option to make such representations and warranties as may be
necessary to assure the availability of an exemption from the registration
requirements of federal or state securities law.
(c) Committee Discretion. The Committee shall have the discretionary
authority to impose in Agreements such restrictions on Shares as it may deem
appropriate or desirable, including but not limited to the authority to impose a
right of first refusal or to establish repurchase rights or both of these
restrictions.
18. RESERVATION OF SHARES.
The Bank, during the term of the Plan, will reserve and keep available
a number of Shares sufficient to satisfy the requirements of the Plan.
19. WITHHOLDING TAX.
The Bank's obligation to deliver Shares upon exercise of Options shall
be subject to the Participant's satisfaction of all applicable federal, state
and local income and employment tax withholding obligations. The Committee, in
its discretion, may permit the Participant to satisfy the obligation, in whole
or in part, by irrevocably electing to have the Bank withhold Shares, or to
deliver to the Bank Shares that he already owns, having a value equal to the
amount required to be withheld. The value of Shares to be withheld, or delivered
to the Bank, shall be based on the Market Value of the Shares on the date the
amount of tax to be withheld is to be determined. As an alternative, the Bank
may retain, or sell without notice, a number of such Shares sufficient to cover
the amount required to be withheld.
20. NO EMPLOYMENT OR OTHER RIGHTS.
In no event shall an Employee's eligibility to participate or
participation in the Plan create or be deemed to create any legal or equitable
right of the Employee or any other party to continue service with the Bank, the
Bank, or any Affiliate of such corporations. No Employee shall have a right to
be granted an Award or, having received an Award, the right to again be granted
an Award. However, an Employee who has been granted an Award may, if otherwise
eligible, be granted an additional Award or Awards.
21. GOVERNING LAW.
The Plan shall be governed by and construed in accordance with the laws
of the Commonwealth of Virginia except to the extent that federal law shall be
deemed to apply.
Exhibit 11.1
Statement Regarding the Computation of Per Share Earnings
The following table shows the average weighted number of shares used in
computing earnings per share and the effect on weighted average number of shares
of diluted potential common stock. Weighted average number of shares have been
retroactively restated giving effect to stock dividends and splits. Information
for years ending prior to December 22, 1999 reflects information for Virginia
Commerce Bank.
<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C> <C> <C>
Earnings Per Common Share 1999 1998 1997
Basic $1.10 $0.78 $0.66
Average Shares Outstanding 1,967,808 1,924,604 1,722,649
Diluted 1.04 $0.73 $0.62
Average Shares Outstanding 2,082,404 2,051,637 1,820,854
</TABLE>
Exhibit 13.1
Annual Report to Stockholders for the year ended December 31, 1999
Virginia Commerce Bancorp, Inc
1999 Annual Report
Handwritten Quote: Thank you, Virginia Commerce Bank, for being a true partner
in our banking relationship. Your professional staff, personal attention and
responsiveness have made a big difference in our ability to reach our financial
goals.
Community Banking at its Best
[Full page photo omitted]
Exceptional Service...Every Customer...Every Time.
Contents
<TABLE>
<S> <C>
1 Five Year Financial Summary
2 Letter to Shareholders, Customers and friends
5 Management's Discussion and Analysis of Financial Condition and results of Operations
16 Consolidated Financial Statements
36 Independent Auditors' Report
37 Board of Directors, Executive Officers and Officers
</TABLE>
About Our Bank
Virginia Commerce Bank, a wholly owned subsidiary of Virginia Commerce Bancorp,
Inc., is a full-service community bank headquartered in Northern Virginia. With
our wide array of business ad consumer products, we continue to be one of the
fastest growing banks in our market, and for good reason. From 1988, when we
opened our first branch in Clarendon, until today, with ten branches, two
mortgage loan offices and over $280 million in assets, we have maintained a
clear focus. To provide "community banking at its best" while delivering
Exceptional Service. Every Customer. Every Time.
Handwritten quotes appearing in this annual report are actual comments received
in writing from customers
FIVE YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED YEAR-END BALANCES:
Total assets $282,575,486 $222,441,910 $165,119,350 $122,721,355 $ 90,313,343
Total stockholders' equity 17,488,753 15,831,660 11,272,937 10,054,023 9,289,039
Total loans (net) 205,171,188 149,440,296 100,917,408 76,313,031 56,630,644
Total deposits 243,044,377 188,742,543 142,427,529 103,722,575 73,772,627
- -------------------------------------------------------------------------------------------------------------------------------
SUMMARY RESULTS OF OPERATIONS:
Interest income $ 18,851,366 $ 15,265,826 $ 11,134,572 $ 8,589,578 $ 6,214,522
Interest expense 8,678,859 7,511,338 5,167,969 3,825,756 2,622,137
Net interest income $ 10,172,507 $ 7,754,488 $ 5,966,603 $ 4,763,822 $ 3,592,385
Provision for loan losses 480,000 450,950 261,500 182,500 159,000
Net interest income after
provision for loan losses $ 9,692,507 $ 7,303,538 $ 5,705,103 $ 4,581,322 $ 3,433,385
Other income 1,998,570 631,950 477,751 447,393 519,018
Other expense 8,397,190 5,647,915 4,464,727 3,420,597 2,977,506
Income before taxes $ 3,293,887 $ 2,287,573 $ 1,718,127 $ 1,608,118 $ 974,897
Income tax expense 1,128,143 783,961 585,747 552,269 321,596
Net income $ 2,165,744 $ 1,503,612 $ 1,132,380 $ 1,055,849 $ 653,301
- -------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA (1) :
Net income, basic $ 1.10 $ 0.78 $ 0.66 $ 0.61 $ 0.38
Net income, diluted (2) $ 1.04 $ 0.73 $ 0.62 $ 0.59 $ 0.38
Cash dividends -- -- -- -- $ 0.05
Book Value $ 8.88 $ 8.06 $ 6.54 $ 5.84 $ 5.39
Average number of
shares outstanding 1,967,808 1,924,604 1,722,649 1,722,649 1,722,649
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH AND SIGNIFICANT RATIOS
% Change in net income 44.04% 32.78% 7.25% 61.62% 159.97%
% Change in assets 27.03% 34.72% 34.55% 35.88% 37.62%
% Change in loans 37.29% 48.08% 32.24% 34.76% 38.30%
% Change in deposits 28.77% 32.52% 37.32% 40.60% 38.93%
% Change in equity 10.47% 40.44% 12.12% 8.24% 8.13%
Equity to asset ratio 6.19% 7.12% 6.83% 8.19% 10.29%
Return on average assets 0.87% 0.75% 0.81% 0.98% 0.84%
Return on average equity 13.03% 10.37% 10.53% 11.05% 7.31%
Average equity to average assets 6.65% 7.25% 7.74% 8.91% 11.47%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Restated for all years presented giving retroactive effect to 10% stock
dividends paid in 1996 and 1997, a 35% stock split in the form of a
dividend in 1997, a change in par value in 1998, and 10% stock
restructurings in 1998 and 1999.
(2) Adjusted for the dilutive effect of incremental shares (the difference
between the number of shares assumed issued and the number of shares
assumed purchased at market value) of stock options and warrants.
[Bar graphs omitted]
[Graphs show figures (in thousands) for 1999, 1998, 1997, 1996 and 1995 Net
Income, Total Assets, Net Loans and Total Deposits]
1
<PAGE>
1999 ANNUAL REPORT
Letter To Our Shareholders, Customers And Friends
The capstone to the progress and achievements of Virginia Commerce Bank in 1999
was the corporate reorganization of the Bank in December into a wholly-owned
subsidiary of its newly formed holding company, Virginia Commerce Bancorp, Inc.
(the "Company"). Accordingly, this 1999 Annual Report presents the consolidated
financial statements of the Company and its subsidiary, Virginia Commerce Bank.
Considering that the reorganization occurred recently and that the Bank is
currently the only operating subsidiary of Virginia Commerce Bancorp, the
Company's earnings, assets and liabilities are substantially similar to those of
the Bank. I am pleased to report that the year ending December 31, 1999, was
especially noteworthy for the Company. A fifth straight year of record earnings,
strong balance sheet growth, two new
Handwritten Quote "Everyone has made it to a point where they know me on a first
name basis."
K.S., Falls Church, VA
branches, a new mortgage operation with two loan offices, and the introduction
of key new products were the highlights, in addition to the formation of the
holding company. This banner year of accomplishment was achieved despite the
challenges of ever-increasing competition, continued pressure on net interest
margins and the diversion of resources to Y2K preparation.
Net income for 1999 was a record $2,165,744, an increase of 44.0% over the
$1,503,612 earned the prior year. As a result, diluted earnings per share were
$1.04, up $.31 over the comparable period in 1998.
Net interest income for the year of $10,172,507 was up 31.2% over 1998,
primarily due to significant loan volume. Non-interest income more than tripled,
increasing 216.3% for 1999 to $1,998,570. This substantial increase was driven
by $1,265,028 in fees and net gains from the Bank's new mortgage lending
division. Non-interest expense totalled $8,397,190 for 1999, rising 48.7% over
the prior year due to expenses associated with the new mortgage operation,
branch expansion, product development, the holding company formation and final
Y2K preparation.
As of December 31, 1999, total assets were $282,575,486, an increase of 27.0%
from $222,441,910 a year earlier. Deposits grew similarly over the twelve-month
period with a 28.8% increase from $188,742,543 to $243,044,377. Loans, net of
allowance for loan losses, rose to $205,171,188, a 37.3% increase over the
$149,440,296 reported for the prior year-end. The increase in loans marked the
sixth consecutive year of loan growth in excess of 30% and asset quality ratios
that were significantly better than peer group averages. The Company's
considerable progress in 1999 was facilitated to a large extent by continued
branch and product expansion. The Bank's new residential mortgage division was
officially opened in February by Senior Vice President Ken O'Shea at 374 Maple
Avenue East in Vienna, Virginia. The operation, which also opened a satellite
office in Warrenton, Virginia, not only provides Virginia Commerce with a
complete array of competitive residential mortgage products, but also added
almost $200,000 to the Company's bottom line in its first year. In March, our
ninth branch office was opened in Vienna in the same building as the mortgage
operation. It has already exceeded expectations by achieving over $11 million in
combined deposits and repurchase agreements in its first twelve months. We added
a tenth branch in July with the opening of our third Alexandria office in the
heart of Old Town at 506 King Street. This branch is on target with growth
expectations, having exceeded $5 million in deposits already.
In addition to full-service, residential mortgage lending which was introduced
at the beginning of the year, a number of new banking services were initiated in
the latter part of 1999. In October, the Bank enhanced its business lending
capabilities by contracting with a third party vendor providing PC-based online
support and lockbox processing services for financing small business accounts
receivable on a discounted basis. This new loan product gives us a competitive
advantage in increasing
2
<PAGE>
small business market share at an attractive yield, but with minimal allocation
of resources. In November, the Bank took a significant step to upgrade its cash
management services with the hiring of Michele K. Parker, CCM, as Senior Vice
President in charge of a new Cash Management Services department. The expanded
service will provide a greater level of sophistication in the management of
commercial deposits through utilization of electronic banking and ACH services,
sweep accounts and other products such as lockbox. We expect that this will
result in significant deposit generation and fee income opportunities for the
Bank. Also in November, the Bank began offering commercial insurance products
through a joint venture arrangement which allows the Bank to offer all types of
business insurance and bonding services to its customers. Life insurance
products are also available. Further opportunities to expand our insurance
capabilities for both consumers and businesses are being explored.
As Virginia Commerce continues to grow and serve its customers in an
increasingly competitive market, maintaining a technological edge in financial
services is critical. Our Web site, now at www.vcbonline.com, has been providing
updated information on the Bank and its products and services for over a year.
It is currently undergoing a redesign that will greatly enhance its navigation
and graphics. More importantly, the Web site now serves as the portal to our new
Internet banking service which was introduced last month. Considerable time and
effort was expended in the second half of 1999 to ensure that we could provide
online financial services through the Internet by early 2000. Initially, we are
offering online services that enable consumers to access account statements,
make transfers between accounts, place stop payments and pay bills.
In April, we will make Internet banking available to business customers with the
added features of ACH origination and wire transfer capability. Going forward,
we are committed to staying abreast of the latest technological developments in
banking to provide more services to our customers with greater convenience at a
reduced cost. By doing so, we will be better able to successfully compete as a
community bank in an ever-changing financial services industry.
As discussed earlier, the reorganization of Virginia Commerce Bank into holding
company form was an important event in 1999. The holding company structure gives
Virginia Commerce Bancorp, Inc. opportunities not available to the Bank on a
stand-alone basis. For example, a holding company has greater flexibility in
diversifying into bank-related business activities, expanding banking operations
outside of the Bank's current market area, doing stock repurchases and engaging
in various acquisitions. In particular, it enabled the Company to provide $2.5
million in additional capital to the Bank at the end of December without
diluting shareholders' interests. This was accomplished by the Company borrowing
against a $5 million credit facility from a correspondent bank and downstreaming
the proceeds to the Bank as contributed capital. It was a very cost-effective
means to fund the Bank's continued growth without shareholder dilution.
Handwritten Quote; Its truly a pleasure to walk in the door.
M.W., Alexandria VA
Finally, no discussion of 1999 would be complete without reference to what
proved to be a non-event at the end of the year... Y2K. Thankfully, Virginia
Commerce Bank, like a majority of the world's businesses, survived the
millennium change without any major glitches or disruption. However, we must
acknowledge that the relatively smooth transition to the Year 2000 was due to
the significant efforts and resources committed over the last three years to
prevent any mishaps. Special acknowledgment is warranted for CFO Bill Beauchesne
who headed a Y2K team of dedicated employees whose tireless efforts ensured a
successful millennium transition.
Without question, this past year was one of significant progress and achievement
for the Company. Our continued success will depend on our unwavering commitment
to
3
<PAGE>
[photos omitted]
Handwritten quote: Always a positive attitude! Thanks!
D.P., Fairfax, VA
provide "community banking at its best." By doing so, we will enhance value for
customers, employees and shareholders. As for shareholder value, Virginia
Commerce Bancorp stock enjoyed a 21% gain in 1999, when adjusted for the 10%
stock split in May. This appreciation compares very favorably to the overall
depreciation in bank industry stocks for the year.
As always, thank you for your continued support and interest.
[Photo Omitted] /s/ Peter A. Converse
Peter A. Converse
President and Chief Executive Officer
March 28, 2000
Our Northern Virginia Locations
[Map Omitted]
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements. This management's discussion and analysis of
financial condition, results of operations, and other portions of this report
include forward looking statements, such as: statements of the Company's goals,
intentions, and expectations regarding general economic trends, interest rates,
and other matters, estimates of risks and of future costs and benefits, and
statements of the Company's ability to achieve financial and other goals. These
forward looking statements are subject to significant uncertainties because they
are based upon future interest rates, federal monetary policy, inflation,
consumer confidence, the health of the real estate market in the Company's
market area, and other economic conditions, future law and regulations, and a
variety of other matters. Because of these uncertainties, the actual future
results may be materially different from the results indicated by these forward
looking statements. In addition, the Company's past growth and performance do
not necessarily indicate its future results.
The following discussion provides information about the results of operations
and financial condition, liquidity, and capital resources of Virginia Commerce
Bancorp, Inc. and subsidiaries (the "Company"). This discussion and analysis
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto, appearing elsewhere in this report.
On December 22, 1999, Virginia Commerce Bancorp, Inc (the "Company") became the
bank holding company for Virginia Commerce Bank. Virginia Commerce Bank (the
"Bank") received its charter as a national banking association on May 16, 1988
from the Comptroller of the Currency and opened for business at 3033 Wilson
Boulevard, Arlington, Virginia. On June 1, 1995 the Bank converted from a
national banking association to a Virginia state chartered bank which is a
member of the Federal Reserve System. The main office of the Company is located
at 5350 Lee Highway in Arlington, Virginia. The Company also operates nine
branch locations in McLean, Arlington (two branches), Alexandria (three
branches), Annandale, Fairfax, and Vienna, Virginia, and two mortgage loan
offices in Vienna and Warrenton, Virginia. The Company's common stock is traded
on NASDAQ under the symbol "VCBI".
The Company provides a full range of banking services (other than trust,
securities, brokerage, and international services) to businesses, professionals
and their firms, trade associations, investors and individuals in Northern
Virginia and increasingly to some extent throughout the Metropolitan Washington,
D.C. area. For businesses, the Company offers a complete selection of deposit
accounts, merchant bankcard services, electronic funds transfer, lock-box
services, PC banking, lines of credit for working capital purposes, term loans
for expansion and capital expenditures, and commercial real estate loans,
generally on income-producing properties. Services for individuals include a
wide array of deposit account products, home equity loans and lines of credit,
telephone banking, consumer installment loans for the purchase of automobiles
and other personal uses, overdraft and revolving lines of credit, and
residential mortgageand construction loans. The Company also provides cashier's
checks, travelers checks, wire transfers, bank-by-mail services, safe deposit
box facilities, ATM cards, Visa debit cards, Internet Banking, and ATM machines
at nine of its branch locations.
RESULTS OF OPERATIONS
During 1999, the Company continued to experience significant growth. Total
assets increased 27.0% from $222,441,910 to $282,575,486 over the prior
year-end, while loans increased 37.3% from $149,440,296 to $205,171,188. This
growth was funded by a 28.8% increase in deposits from $188,742,543 to
$243,044,377. Earnings for 1999 were $2,165,744 an increase of 44.1% compared to
earnings of $1,503,612 in 1998, and an increase of 91.3% compared to earnings of
$1,132,380 in 1997. Diluted earnings per share were $1.04, $0.73, and $0.62 in
1999, 1998, and 1997, respectively.
NET INTEREST INCOME
Net interest income is the excess of interest earned on loans and investments
over the interest paid on deposits and borrowings. For 1999, the Company's net
interest income was $10,172,507 compared to $7,754,488 for 1998 and $5,966,603
for 1997. This is an increase of $2,418,019 or 31.2% from 1998 to 1999. This
increase was primarily due to the 37.3% increase in net loans outstanding from
$149,440,296 at year-end 1998 to $205,171,188 at year-end 1999. For 1999, the
average yield on earning assets decreased to 8.05% from 8.11% in 1998 due to
growth in loans at rates below the prior years average. The rate on
interest-bearing liabilities decreased from 4.72% to 4.43% with lower rates in
all deposit account categories. Net interest income in 1998, increased 30.0% to
$7,754,488 from $5,966,603 in 1997.
<PAGE>
TABLE 1: AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES The following
table shows the average balance sheets for each of the years ended December 31,
1999, 1998, and 1997. In addition, the amounts of interest earned on earning
assets, with related yields, 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 loans fees included in interest income
on loans totaled (in thousands) $378, $243, and $129, for 1999, 1998, and 1997,
respectively.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
Interest Average Interest Average
Average Income- Yields Average Income- Yields
(Dollars in thousands) Balance Expense /Rates Balance Expense /Rates
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Securities $ 46,682 $ 2,855 6.12% $ 57,497 $ 3,711 6.45%
Loans, before allowance for losses 176,676 15,447 8.74% 118,116 10,867 9.20%
Interest-bearing deposits
with other banks 795 46 5.79% 540 31 5.74%
Federal funds sold 9,930 503 5.07% 12,178 657 5.39%
TOTAL EARNING ASSETS $234,083 $18,851 8.05% $188,331 $15,266 8.11%
- ---------------------------------------------------------------------------------------------------------------------
Non-earning assets 15,796 11,573
TOTAL ASSETS $249,879 $199,904
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-bearing deposits
NOW accounts $ 49,673 $1,933 3.89% $ 30,841 $ 1,213 3.93%
Money market accounts 17,275 534 3.09% 15,214 484 3.18%
Savings accounts 11,526 409 3.55% 8,167 308 3.77%
Certificates of deposit 102,140 5,177 5.07% 88,824 4,778 5.38%
TOTAL INTEREST-BEARING DEPOSITS $180,614 $8,053 4.46% $143,046 $6,783 4.74%
- ---------------------------------------------------------------------------------------------------------------------
Fed Funds purchased, securities
sold U/A to repurchase and
other borrowed funds 15,429 626 4.06% 15,952 728 4.56%
TOTAL INTEREST-BEARING LIABILITIES $196,043 $8,679 4.43% $158,998 $7,511 4.72%
- ---------------------------------------------------------------------------------------------------------------------
Demand deposits and other
non-interest bearing liabilities 37,219 26,404
TOTAL LIABILITIES $233,262 $185,402
- ---------------------------------------------------------------------------------------------------------------------
Stockholders' equity 16,617 14,502
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $249,879 $199,904
- ---------------------------------------------------------------------------------------------------------------------
Interest rate spread 3.62% 3.39%
Net interest income and margin $10,172 4.35% $7,755 4.12%
<CAPTION>
- ----------------------------------------------------------------------------
1997
- ----------------------------------------------------------------------------
Interest Average
Average Income- Yields
(Dollars in thousands) Balance Expense /Rates
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Securities $ 36,243 $ 2,427 6.70%
Loans, before allowance for losses 89,502 8,389 9.37%
Interest-bearing deposits
with other banks 332 19 5.76%
Federal funds sold 5,488 300 5.46%
TOTAL EARNING ASSETS $131,565 $11,135 8.46%
- ----------------------------------------------------------------------------
Non-earning assets 7,391
TOTAL ASSETS $138,956
- ----------------------------------------------------------------------------
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-bearing deposits
NOW accounts $ 15,793 $ 543 3.44%
Money market accounts 14,216 443 3.12%
Savings accounts 6,968 261 3.74%
Certificates of deposit 66,344 3,562 5.37%
TOTAL INTEREST-BEARING DEPOSITS $ 103,321 $4,809 4.65%
- ----------------------------------------------------------------------------
Fed Funds purchased, securities
sold U/A to repurchase and
other borrowed funds 7,464 359 4.81%
TOTAL INTEREST-BEARING LIABILITIES $ 110,785 $5,168 4.66%
- ----------------------------------------------------------------------------
Demand deposits and other
non-interest bearing liabilities 17,413
TOTAL LIABILITIES $ 128,198
- ----------------------------------------------------------------------------
Stockholders' equity 10,758
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $138,956
- ----------------------------------------------------------------------------
Interest rate spread 3.80%
Net interest income and margin $5,967 4.54%
</TABLE>
6
<PAGE>
TABLE 2: RATE-VOLUME VARIANCE ANALYSIS
Interest income and expense are affected by changes in interest rates, by
changes in the volumes of earning assets and interest-bearing liabilities, and
by changes in the mix of these assets and liabilities. The following analysis
shows the year-to-year changes in the components of net interest income.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
1999 compared to 1998 1998 compared to 1997
- --------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
-------------------- Total ---------------------- Total
Due to Increase Due to Increase
(Dollars in thousands) Volume Rate (Decrease) Volume Rate (Decrease)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 5,072 $ (492) $ 4,580 $ 2,629 $ (151) $ 2,478
Securities (669) (187) (856) 1,368 (84) 1,284
Federal funds sold (116) (38) (154) 361 (4) 357
Interest-bearing deposits
in other banks 15 -- 15 19 (7) 12
- --------------------------------------------------------------------------------------------------------------------------------
Total interest income $ 4,302 $ (717) $ 3,585 $ 4,377 $ (246) $ 4,131
- --------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest-bearing deposits
NOW accounts $ 734 $ (14) $ 720 $ 583 $ 87 $ 670
Money market accounts 63 (13) 50 32 9 41
Savings accounts 118 (17) 101 45 2 47
Certificates of deposit 650 (251) 399 1,204 12 1,216
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits $ 1,565 $ (295) $ 1,270 $ 1,864 $ 110 $ 1,974
Other borrowings (24) (78) (102) 388 (19) 369
- --------------------------------------------------------------------------------------------------------------------------------
Total interest expense $ 1,541 $ (373) $ 1,168 $ 2,252 $ 91 $ 2,343
- --------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET INTEREST INCOME $ 2,761 $ (344) $ 2,417 $ 2,125 $ (337) $ 1,788
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
INTEREST SENSITIVITY
Interest sensitivity refers to the volatility of net interest income as a result
of changes in interest rates. Interest sensitivity is actively managed and
monitored by the Asset/ Liability Management Committee (ALCO). ALCO's overall
objective is to optimize net interest income after giving consideration to
capital adequacy, liquidity needs, interest sensitivity, the economic outlook,
market opportunities, and customer needs. General strategies to accomplish this
objective include maintaining a strong balance sheet, maintaining adequate core
deposit levels, taking an acceptable level of interest rate risk, adhering to
conservative financial management principles and practicing sound dividend
policies. The Company's goal is to limit interest sensitivity to prudent levels
as determined by the Company's ALCO.
One of the tools used by the Company to assess interest sensitivity is the
"gap", or mismatch in repricing between interest sensitive assets and
liabilities, which provides a general indication of interest sensitivity at a
specific point in time. A gap schedule is shown in Table 3 below, and reflects
the earlier of the maturity or repricing dates for various assets and
liabilities at December 31, 1999. At that point in time, the Company had a
cumulative net asset sensitive twelve-month gap with a $35.8 million excess of
interest sensitive assets over interest sensitive liabilities. This generally
indicates that earnings should improve in a rising interest rate environment as
more assets would reprice than liabilities. The opposite would be true of a
negative, or liability sensitive, gap.
In addition to the gap schedule the Company uses earnings simulation model
forecasts to measure the impact on earnings and the market value of portfolio
equity from changes in interest rates over a one-year period. These models
utilize the Company's financial data, various management assumptions as to
growth and earnings, and duration analysis to forecast the effect on the
Company's future earnings from rising and falling rates.
7
<PAGE>
TABLE 3: INTEREST SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Interest Sensitivity Periods
December 31, 1999 Within 91 to 365 1 to 5 Over
(Dollars in thousands) 90 Days Days Years 5 Years Total
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNING ASSETS
Securities $ 521 $ 3,484 $ 24,779 $ 18,380 $ 47,164
Loans, net of unearned income 66,700 50,249 80,037 10,074 207,060
Federal funds sold and interest- 11,957 -- -- -- 11,957
bearing deposits in banks
Total earning assets $ 79,178 $ 53,733 $104,816 $ 28,454 $266,181
- --------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
NOW accounts $ 4,695 $ 14,672 $ 39,320 -- $ 58,687
Money market accounts 2,943 8,655 5,712 -- 17,310
Savings accounts 948 2,962 7,938 -- 11,848
Certificates of deposit 9,796 32,104 71,207 -- 113,107
Other borrowings 20,337 -- 400 -- 20,737
Total interest-bearing liabilities $ 38,719 $ 58,393 $124,577 -- $221,689
- --------------------------------------------------------------------------------------------------
Cumulative maturity / interest $ 40,459 $ 35,799 $ 16,038 $ 44,492 $ 44,492
sensitivity gap
- --------------------------------------------------------------------------------------------------
</TABLE>
NON-INTEREST INCOME
Non-interest income increased $1,366,620, or 216.3% over 1998. Fees and net
gains on mortgage loans held-for-sale of $1,265,028 increased $1,245,959 from
$19,069 in 1998 with the Company's mortgage lending division which commenced
operations in early 1999, having originated $73,738,370 in loans held-for-sale.
Deposit account service charges and fees, which include monthly account
maintenance charges, overdraft fees, ATM surcharges, safe deposit box rents and
merchant discount fee income, increased $98,455 or 16.7% in 1999, and increased
$142,282 or 31.8% in 1998.
NON-INTEREST EXPENSE
In 1999, non-interest expense was $8,397,190 compared to $5,647,915 in 1998 and
$4,464,727 in 1997. Salaries and benefits accounted for 54.1% of total
non-interest expense in 1999 due to the Company's new mortgage lending division
and the staffing of two additional branch locations. Occupancy expenses
increased $492,701 or 43.8% from $1,125,726 in 1998 to $1,618,427 in 1999, due
to additional facilities for the Company's new mortgage lending division,
operations department, and continued branch expansion, and decreased $83,091 or
6.9% in 1998 primarily due to a one-time write-down of $224,860 in leasehold
improvements with the relocation of the Company's Clarendon branch in late 1997.
Data processing costs increased $149,003 or 32.2% from $462,170 in 1998 to
$611,173 in 1999 and increased $71,977 or 18.5% in 1998 due to growth in deposit
accounts. Other operating expenses were $1,623,352 compared to $1,157,488 in
1998 and $821,185 in 1997.
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 34%.
Provision for income taxes totaled $1,128,143, $783,961, and $585,747 for the
years ended December 31, 1999, 1998, and 1997, respectively.
8
<PAGE>
ASSET QUALITY- PROVISION AND ALLOWANCE FOR LOAN LOSSES
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. During 1999, charge-offs totaled $39,513 compared
to $22,712 and $23,107 in 1998 and 1997, respectively. The provision for loan
loss expense in 1999 was $480,000 compared to $450,950 in 1998, and $261,500 in
1997. The total allowance for loan losses of $1,889,007 at December 31, 1999
increased 31.4% from $1,437,514 at December 31, 1998.
Management feels that the allowance for loan losses is adequate. The coverage of
the provision for loan losses over net charge-offs was 16.8 times in 1999, 138.7
times in 1998, and 13.1 times in 1997. There can be no assurance, however, that
additional provisions for loan losses will not be required in the future,
including in the event 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 monthly analysis of the allowance for loan losses, with
the objective of quantifying portfolio risk into a dollar figure of potential
losses, thereby translating the subjective risk value into an objective number.
Emphasis is placed on independent external loan reviews and monthly internal
reviews. The determination of the allowance for loan losses is based on eight
qualitative factors, applying appropriate weight to separate types or categories
of loans. These 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, regulatory requirements, and the effect of
competition.
TABLE 4: PROVISION AND ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance, beginning of period $1,438 $ 990 $ 748 $ 552 $ 507
CHARGE-OFFS
Real estate loans $ -- $ -- $ -- $ -- $ 86
Commercial loans -- -- 23 -- 34
Consumer loans 40 23 -- 32 1
Total charge-offs $ 40 $ 23 $ 23 $ 32 $ 121
- -------------------------------------------------------------------------------------------
RECOVERIES
Real estate loans $ -- $ -- $ -- $ 43 $ --
Commercial loans 7 3 3 3 7
Consumer loans 4 17 -- -- --
Total recoveries $ 11 $ 20 $ 3 $ 46 $ 7
- -------------------------------------------------------------------------------------------
Net charge-offs (recoveries) $ 29 $ 3 $ 20 $ (14) $ 114
Provisions for loan losses 480 451 262 182 159
- -------------------------------------------------------------------------------------------
Allowance, end of period $1,889 $1,438 $ 990 $ 748 $ 552
Ratio of net charges-offs to average total 0.02% 0.003% 0.02% ( 0.02%) 0.25%
loans outstanding during period
</TABLE>
9
<PAGE>
TABLE 5: ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for loan losses is a general allowance applicable to all loan
categories; however, management has allocated the allowance to provide an
indication of the relative risk characteristics of the loan portfolio. The
allocation is an estimate and should not be interpreted as an indication that
charge-offs will occur in these amounts, or that the allocation indicates future
trends. The allocation of the allowance at December 31 for the years indicated
and the ratio of related outstanding loan balances to total loans are as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
Real estate - mortgage $1,206 $ 870 $ 683 $516 $381
Real estate - construction 132 101 33 25 18
Commercial 477 409 262 198 146
Consumer 74 581 12 9 7
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, $1,889 $1,438 $990 $748 $552
- -----------------------------------------------------------------------------------------------------------------------------------
RATIO OF LOANS TO TOTAL YEAR-END LOANS
Real estate - mortgage 76% 73% 75% 71% 74%
Real estate - construction 8% 8% 4% 4% 2%
Commercial 13% 16% 19% 22% 20%
Consumer 3% 3% 2% 3% 4%
- -----------------------------------------------------------------------------------------------------------------------------------
100% 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
RISK ELEMENTS AND NON-PERFORMING ASSETS
The Company seeks to minimize its risk and enhance its profitability by focusing
on providing community-based financing and maintaining policies and procedures
ensuring safe and sound banking practices.
Non-performing assets consist of non-accrual loans, impaired loans, restructured
loans, and other real estate owned (foreclosed properties). The total
non-performing assets and loans that are 90 days or more past due and still
accruing interest decreased 5.0% from $333,847 at year-end 1998 to $317,031 at
year-end 1999, and increased 32.8% from $251,389 at year-end 1997 to $333,847 at
year-end 1998.
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.
At December 31, 1999, the Company had no 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 counterparts 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. Loans secured by nonfarm, nonresidential real estate totaled
$117,106,266 at December 31, 1999 and represent 56.4% of total loans.
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 December 31, 1999 and 1998, the Company held
no foreclosed real properties.
The ratio of non-performing assets to total loans decreased from .22% at
December 31, 1998 to .15% at December 31, 1999 and decreased from .25% at
December 31, 1997 to .22% at December 31, 1998. This ratio is expected to remain
at its low level relative to the Company's peers. This expectation is based on
potential and identified problem loans on December 31, 1999. As of December 31,
1999, there were $257,667 of loans for which management has identified risk
factors which could have the potential to impair repayment in accordance with
their terms. These loans are primarily well-secured and currently peforming.
10
<PAGE>
<TABLE>
<CAPTION>
TABLE 6: NON-PERFORMING ASSETS
- ----------------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $106 $ 121 $ 111 $ -- $ 41
Impaired loans 143 213 140 80 154
Restructured loans -- -- -- -- --
Foreclosed properties -- -- -- -- 717
- ----------------------------------------------------------------------------------------------------
Total non-performing assets $249 $ 334 $ 251 $ 80 $912
Loans past due 90 days and still accruing 68 -- -- -- --
- ----------------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING ASSETS AND PAST DUE LOANS $317 $ 334 $ 251 $ 80 $912
Allowance for loan losses to total loans .91% .95% .97% .97% .96%
Allowance for loan losses to 758.6 430.5 394.4 935.0 60.5
non-performing loans
Non-performing assets to total loans 0.15 0.22 0.25 0.10 1.60
Non-performing assets to total assets 0.11 0.15 0.15 0.07 1.01
- ----------------------------------------------------------------------------------------------------
</TABLE>
LOAN PORTFOLIO
At December 31, 1999, loans, net of unearned income and allowance for loan
losses, totaled $205,171,188, an increase of 37.3% over the 1998 year-end total
of $149,440,296. In 1998, net loans increased 48.1% from a year-end 1997 total
of $100,917,408.
The Company's lending activities are its principal source of income. Real estate
loans, including residential permanents and construction, and commercial
mortgage/construction loans for income-producing properties, represent the major
portion of the Company's loan portfolio although consumer loans continue to
increase. Tables 7 and 8 present information pertaining to the composition of
the loan portfolio including unearned income, allowance for loan losses, and the
maturity/ repricing of selected loans.
TABLE 7: SUMMARY OF TOTAL LOANS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Year - End December 31,
(Dollars in thousands) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate - mortgage $156,998 $109,774 $ 76,458 $ 54,750 $ 43,071
Real estate - construction 17,238 12,794 4,081 3,324 1,065
Commercial 26,423 23,514 19,076 16,611 11,215
Consumer 6,968 4,983 2,588 2,566 2,036
- --------------------------------------------------------------------------------------------------------------------
Total loans $207,627 $151,065 $102,203 $ 77,251 $ 57,387
Less unearned income 567 187 296 190 204
Less allowance for loan losses 1,889 1,438 990 748 552
- --------------------------------------------------------------------------------------------------------------------
Total loans, net $205,171 $149,440 $100,917 $ 76,313 $ 56,631
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
TABLE 8: MATURITY/REPRICING SCHEDULE OF SELECTED LOANS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1999
(Dollars in thousands) Commercial Construction
- --------------------------------------------------------------------------------------------------------------------------------
Variable Rate:
<S> <C> <C>
Within 1 year $16,507 $11,574
1 to 5 years 267 --
Fixed Rate:
Within 1 year 2,149 3,169
1 to 5 years 6,054 969
After 5 years 1,446 1,526
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
SECURITIES
The securities portfolio plays a primary role in the management of the interest
rate sensitivity of the Company and it provides additional interest income. The
portfolio serves as a source of liquidity and is used as needed to meet certain
collateral requirements.
The securities portfolio consists of two components, investment securities
held-to-maturity and securities available-for-sale. Securities are classified as
held-to-maturity based on management's intent and the Company's ability, at the
time of purchase, to hold such securities to maturity. These securities are
carried at amortized cost. Securities which may be sold in response to changes
in market interest rates, changes in the securities' prepayment risk, increased
loan demand, general liquidity needs, and other similar factors are classified
as available-for-sale and are carried at estimated fair value.
In 1999, total securities decreased $8,480,027, or 15.5% to $46,324,676 from
$54,804,703 at year-end 1998. Securities of U.S. Government agencies represent
the entire portfolio except for stock of the Federal Reserve Bank, the Federal
Home Loan Bank of Atlanta, and Community Bankers' Bank required to be held as a
condition of membership.
TABLE 9: MATURITY OF SECURITIES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Year - End December 31,
1999 1998 1997
-------------------------- -------------------------------- ------------------------
Book Weighted Book Weighted Book Weighted
---- -------- ---- -------- ---- ---------
Value Average Value Average Value Average
----- -------- ----- ------- ----- ---------
(Dollars in thousands) Yield Yield Yield
----- ----- --------
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TOTAL SECURITIES
Maturing within one year $ -- -- $ 242 6.50% $ 1,496 5.74%
Maturing after one through
five years 19,226 5.79% 17,721 5.84% 28,283 6.51%
Maturing after five through
ten years 11,858 6.43% 21,856 6.46% 12,877 6.77%
Maturing after 10 years 15,241 6.87% 14,986 6.53% 4,303 6.19%
- ----------------------------------------------------------------------------------------------------------------------------
$46,325 6.31% $54,805 6.27% $ 46,959 6.53%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
DEPOSITS
The Company's principal source of funds is depository accounts comprised of
demand deposits, savings and money market accounts, and time deposits. Deposits
are provided by individuals and business located within the communities served.
Total deposits increased $54,301,834, or 28.8% in 1999 to $243,044,377 at
year-end from $188,742,543 at year-end 1998. In 1999, total dollar growth by
deposit category included a 35.6% increase in non-interest bearing deposits, a
39.1% increase in savings accounts and interest-bearing demand deposits, and a
19.6% increase in time deposits. In 1998, total deposits increased $46,315,014,
or 32.5% over 1997. Table 10 presents the average deposit balances and average
rates paid for the years 1999, 1998, and 1997. Table 11 details maturities of
certificates of deposit with balances of $100,000 and over.
TABLE 10: AVERAGE DEPOSITS AND RATES PAID
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1999 1998 1997
-------------------- --------------------- ------------------
Average Average Average Average Average Average
(Dollars in thousands) Balance Rate Balance Rate Balance Rate
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NON-INTEREST BEARING DEMAND $ 36,167 -- $ 25,558 -- $ 16,783 --
DEPOSITS
INTEREST-BEARING DEPOSITS
NOW accounts 49,673 3.89% 30,841 3.93% 15,793 3.44%
Money Market accounts 17,275 3.09% 15,214 3.18% 14,216 3.12%
Savings accounts 11,526 3.55% 8,167 3.77% 6,968 3.74%
Certificates of deposit and other 102,140 5.07% 88,824 5.38% 66,344 5.37%
time deposits
TOTAL INTEREST-BEARING DEPOSITS 180,614 4.46% 143,046 4.74% 103,321 4.65%
- ------------------------------------------------------------------------------------------------------
Total deposits $216,781 3.71% $168,604 4.02% $120,10 4.00%
- ------------------------------------------------------------------------------------------------------
</TABLE>
TABLE 11: MATURITIES OF CERTIFICATES OF DEPOSIT WITH BALANCES $100,000 OR MORE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3 months or less $ 2,470 $ 3,710 $ 4,193
3-6 months 3,904 6,272 5,851
6-12 months 7,390 14,365 13,066
Over 12 months 27,109 7,365 3,045
- -----------------------------------------------------------------------------------------------------------------------------
Total $ 40,873 $ 31,172 $26,155
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
LIQUIDITY
Liquidity is a measure of the ability to generate and maintain sufficient cash
flows to fund operations and to meet financial obligations to depositors and
borrowers promptly and in a cost-effective manner. Liquidity is provided through
cash and due from banks, securities available-for-sale, federal funds sold, and
loans and other investment securities maturing within one year. The Company's
liquidity position is actively managed on a daily basis and monitored regularly
by the Asset/Liability Management Committee (ALCO).
Cash and due from banks, investment securities available-for-sale, federal funds
sold, and loans and other investment securities maturing within one year totaled
$66,652,100 and $74,063,608 at December 31, 1999 and 1998, respectively.
Additional sources of liquidity available to the Company include the capacity to
borrow funds through established lines of credit with various correspondent
banks, and the Federal Home Loan Bank of Atlanta.
13
<PAGE>
CAPITAL
The assessment of capital adequacy depends on a number of factors such as asset
quality, liquidity, earnings performance, and changing competitive conditions
and economic forces. The adequacy of the Company's capital is reviewed 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.
On March 1, 1998, the Company completed an offering of an additional 200,000
shares of its common stock, on a preemptive rights basis, at a price of $15.00
per share. Net proceeds of the offering to the Company were $2,956,723.
The capital position of the Company and its wholly-owned subsidiary, Virginia
Commerce Bank (the "Bank") continues to exceed regulatory requirements. The
primary indicators relied on by bank regulators in measuring the capital
position are the Tier 1risk-based capital, total risk-based capital and leverage
ratios. Tier I capital consists of common and qualifying preferred stockholders'
equity less goodwill. Total risk-based capital consists of Tier I 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. The Bank's
Tier I risk-based capital ratio was 8.17% at December 31, 1999, compared to
9.53% at December 31, 1998. The total risk-based capital ratio was 10.15% at
December 31, 1999, compared to 10.40% at December 31, 1998. The leverage ratio
was 6.59% at December 31, 1999, compared to 7.15% at December 31, 1998. These
ratios are in excess of the mandated minimum requirement.
DIVIDENDS
The Company has not paid cash dividends in the two most recent fiscal years,
electing to retain earnings for funding the growth of the Company and its
business. The Company currently anticipates continuing the policy of retaining
earnings to fund growth. The ability of the Company to pay dividends, should it
elect to do so, depends largely upon the ability of the Bank to declare and pay
dividends to the Company, as the principal source of the Company's revenue is
dividends paid by the Bank. Future dividends will depend primarily upon the
Bank's earnings, financial condition, and need for funds, as well as
governmental policies and regulations applicable to the Company and the Bank,
which limit the amount that may be paid as dividends without prior approval.
YEAR 2000
The Company has experienced no adverse affects or impact on its operations as a
result of the century date rollover and it estimates the total expense from 1997
through 1999 for Year 2000 preparedness to be approximatley $400,000. The
Company anticipates no expense in the Year 2000 due to this event.
14
<PAGE>
MARKET PRICE OF STOCK AND DIVIDENDS
The Company's stock is traded on the NASDAQ National Market under the symbol
"VCBI". The following table sets forth the range of high and low sales prices
(adjusted for stock dividends and splits) known to the Company for each full
quarterly period within the two most recent fiscal years. Information for dates
prior to December 23, 1999 represents information for the Bank, which traded on
the NASDAQ National Market under the symbol "VCBK".
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998
Quarter High Low High Low
---- --- ---- ---
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $14.55 $12.73 $14.88 $11.98
Second 14.09 11.57 18.18 14.16
Third 15.00 14.25 17.95 14.09
Fourth 15.50 13.38 14.09 12.05
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The approximate number of the Company's stockholders at December 31, 1999 is
750. Information regarding dividends and splits in 1999, 1998, 1997, and 1996 is
as follows:
1. On April 28, 1999, stockholders approved a change to the Articles of
Incorporation to sudivide each share of common stock into one and
one-tenth shares of common stock.
2. On April 29, 1998, stockholders approved a change to the Articles of
Incorporation to subdivide each share of common stock into one and
one-tenth shares of common stock.
3. A 35% stock split in the form of a dividend was declared on May 28,
1997, for stockholders of record on June 16, 1997, and was paid on June
26, 1997.
4. A stock dividend of 10% was declared on March 26, 1997, for
stockholders of record on April 14, 1997, and was paid on April 30,
1997.
5. A stock dividend of 10% was declared on March 20, 1996, for
stockholders of record on April 1, 1996, and was paid on April 30,
1996.
ANNUAL MEETING OF STOCKHOLDERS
The annual meeting of stockholders of Virginia Commerce Bancorp, Inc. (the
"Company") will be held at 4:00 pm on Wednesday, April 26, 2000 at TheTower
Club, 8000 Towers Crescent Drive, Vienna, Virginia.
ANNUAL REPORT ON FORM 10-KSB
A copy of Form 10-KSB as filed with the Securities and Exchange Commission is
available without charge to stockholders upon written request to:
William K. Beauchense
Treasurer and Chief Financial Officer
Virginia Commerce Bancorp, Inc.
14201 Sullyfield Circle #200
Chantilly, VA 20151
15
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
December 31,
---------------------
1999 1998
---- ----
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 10,757,721 $ 10,474,685
Interest-bearing deposits with other banks 5,000,000 --
Securities (fair value: 1999, $45,850,848; 1998, $54,967,456) 46,324,676 54,804,703
Federal funds sold 6,957,000 777,000
Loans held for sale 1,460,303 802,000
Loans, net of allowance for loan losses of $1,889,007 in 1999 203,710,885 148,638,296
and $1,437,514 in 1998
Bank premises and equipment, net 5,718,710 4,977,488
Accrued interest receivable 1,306,509 1,150,790
Other assets 1,339,682 816,948
- ----------------------------------------------------------------------------------------------------
Total assets $ 282,575,486 $ 222,441,910
- ----------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Non-interest bearing demand deposits $ 42,214,489 $ 31,120,839
Savings and interest-bearing demand deposits 87,722,784 63,070,865
Time deposits 113,107,104 94,550,839
- ----------------------------------------------------------------------------------------------------
Total deposits $ 243,044,377 $ 188,742,543
Securities sold under agreement to repurchase 17,836,965 15,726,533
Other borrowed funds 2,900,000 1,000,000
Accrued interest payable 675,847 627,968
Other liabilities 629,544 513,206
Commitments and contingent liabilities -- --
- ----------------------------------------------------------------------------------------------------
Total liabilities $ 265,086,733 $ 206,610,250
STOCKHOLDERS' EQUITY:
Preferred stock, $5.00 par, 1,000,000 shares authorized of which no $ -- $ --
shares have been issued
Common stock, $1.00 par, 5,000,000 shares authorized; issued and 1,968,985 1,786,634
outstanding 1999, 1,968,985; 1998, 1,786,634;
Surplus 11,090,938 11,240,289
Retained earnings 4,982,565 2,820,173
Accumulated other comprehensive income (loss)* (553,735) (15,436)
- ----------------------------------------------------------------------------------------------------
Total stockholders' equity $ 17,488,753 $ 15,831,660
- ----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 282,575,486 $ 222,441,910
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Representing unrealized losses on securities available-for-sale
See Notes to Consolidated Financial Statements.
16
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Years Ended December 31,
1999 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $15,447,314 $10,866,892 $ 8,388,693
Interest on investment securities:
U.S. Treasury securities and agency obligations 2,783,225 3,651,839 2,375,934
Other securities 72,266 59,045 51,317
Interest on federal funds sold 502,782 656,883 299,547
Interest on deposits with other banks 45,779 31,167 19,081
- ----------------------------------------------------------------------------------------------------
Total interest income $18,851,366 $15,265,826 $11,134,572
INTEREST EXPENSE:
Deposits $ 8,053,004 $ 6,782,822 $ 4,808,786
Securities sold under agreement to repurchase 570,723 644,675 195,732
Federal Home Loan Bank advances 55,132 83,841 163,451
- ----------------------------------------------------------------------------------------------------
Total interest expense $ 8,678,859 $ 7,511,338 $ 5,167,969
- ----------------------------------------------------------------------------------------------------
Net interest income $10,172,507 $ 7,754,488 $ 5,966,603
Provision for loan losses 480,000 450,950 261,500
- ----------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses $ 9,692,507 $ 7,303,538 $ 5,705,103
OTHER INCOME:
Service charges and other fees $ 688,768 $ 590,313 $ 448,031
Fees and net gains on loans held for sale 1,265,028 19,069 --
Security gains, net -- -- 5,625
Other 44,774 22,568 24,095
- ----------------------------------------------------------------------------------------------------
Total other income $ 1,998,570 $ 631,950 $ 477,751
OTHER EXPENSES:
Salaries and employee benefits $ 4,544,238 $ 2,902,531 $ 2,044,532
Occupancy expense 1,618,427 1,125,726 1,208,817
Data processing 611,173 462,170 390,193
Other operating expense 1,623,352 1,157,488 821,185
- ----------------------------------------------------------------------------------------------------
Total other expense $ 8,397,190 $ 5,647,915 $ 4,464,727
Income before taxes on income $ 3,293,887 $ 2,287,573 $ 1,718,127
- ----------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES 1,128,143 783,961 585,747
- ----------------------------------------------------------------------------------------------------
Net income $ 2,165,744 $ 1,503,612 $ 1,132,380
Earnings per common share, basic $ 1.10 $ 0.78 $ 0.66
Earnings per common share, diluted $ 1.04 $ 0.73 $ 0.62
- ----------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
17
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Common Surplus Retained Accumulated Comprehensive Total
--------- ------ ------- -------- ----------- ------------- -----
Stock Stock Earnings Other Income Stockholders'
----- ----- -------- ----- ------ -------------
Comprehensive Equity
------------- ------
Income (Loss)
-------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,1996 $ -- $4,796,150 $ 4,026,524 $1,438,471 $(207,122) $ -- $10,054,023
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 1997 1,132,380 $1,132,380 1,132,380
Other comprehensive income, net of tax
Unrealized holding gains
arising during the period
(net of tax of $45,016) 87,381
Reclassification adjustment
(net of tax of $1,912) 3,713
----------
Other comprehensive income
(net of tax of $46,928) 91,094 $ 91,094 91,094
----------
Total comprehensive income $1,223,474
----------
Issuance of common stock-
10% stock dividend -- 479,010 766,416 (1,245,426) -- -- --
Issuance of common stock-
35% stock split -- 1,845,200 (1,845,200) -- -- -- --
Cash paid in lieu of fractional
shares -- -- -- (4,560) -- -- (4,560)
BALANCE, DECEMBER 31, 1997 $ -- $7,120,360 $ 2,947,740 $ 1,320,865 $(116,028) -- $11,272,937
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 1998 1,503,612 $1,503,612 1,503,612
Other comprehensive income, net of tax
Unrealized holding gains
arising during the period
(net of tax of $51,820) 100,592
Reclassification adjustment --
Other comprehensive income ----------
(net of tax of $51,820) 100,592 $ 100,592 100,592
----------
Total comprehensive income $1,604,204
----------
Issuance of 200,000 common shares-
rights offering -- 1,000,000 1,956,723 -- -- -- 2,956,723
Change in par value and
capital restructure -- (6,334,120) 6,334,120 -- -- -- --
Cash paid in lieu of fractional
shares -- -- -- (4,304) -- -- (4,304)
Stock options exercised -- 394 1,706 -- -- -- 2,100
BALANCE, DECEMBER 31, 1998 $ -- $ 1,786,634 $11,240,289 $ 2,820,173 $ (15,436) -- $15,831,660
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 1999 2,165,744 $ 2,165,744 2,165,744
Other comprehensive income, net of tax
Unrealized holding losses
arising during the period
(net of tax of $277,322) (538,299)
Reclassification adjustment --
-----------
Other comprehensive income
(net of tax of $277,322) (538,299) $ (538,299) (538,299)
-----------
Total comprehensive income $ 1,627,445
-----------
Capital restructure -- 178,692 (178,692) -- -- -- --
Cash paid in lieu of fractional
shares -- -- -- (3,352) -- -- (3,352)
Stock options exercised -- 3,659 29,341 -- -- -- 33,000
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $ -- $ 1,968,985 $11,090,938 $4,982,565 $(553,735) -- $ 17,488,753
</TABLE>
See Notes to Consolidated Financial Statements.
18
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest received $ 18,763,094 $ 15,327,426 $ 10,807,007
Other income received 1,998,570 612,881 472,126
Net change in loans held-for-sale (658,303) (802,000) --
Interest paid (8,630,980) (7,432,558) (4,975,588)
Cash paid to suppliers and employees (7,746,344) (5,039,712) (3,797,835)
Income taxes paid (1,261,716 (773,000) (990,584)
---------- --------- ---------
Net cash provided by operating activities $ 2,464,321 $ 1,893,037 $ 1,515,126
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and principal payments on
securities held-to-maturity $ 12,433,085 $ 28,336,313 $ 10,000,000
Proceeds from maturities and principal payments on 1,267,829 41,587,366 6,000,000
securities available-for-sale
Proceeds from sales of securities available-for-sale -- -- 2,000,000
Purchases of securities held-to-maturity (4,932,500) (21,075,395) (18,500,469)
Purchases of securities available-for-sale (1,171,438) (56,616,242) (10,123,110)
Net increase in loans made to customers (56,210,892) (48,973,838) (24,865,877)
Purchase of bank premises and equipment (1,387,586) (777,464) (3,441,580)
----------- --------- -----------
Net cash (used in) investing activities $ (50,001,502) $ (57,519,260) $ (38,931,036)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, NOW, money market and savings
accounts $ 35,745,569 $ 28,500,083 $ 16,489,207
Net increase in time deposits 18,556,265 17,814,931 22,215,747
Net increase in securities sold under agreement to
repurchase 2,110,432 7,769,324 2,562,388
Net increase (decrease) in other borrowed funds 1,900,000 (1,800,000) --
Net proceeds from issuance of capital stock 33,000 2,958,823 --
Cash paid in lieu of fractional shares (3,352) (4,304) (4,560)
------- ------- -------
Net cash provided by financing activities $ 58,341,914 $ 55,238,857 $ 41,262,782
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents $ 11,463,036 $ 414,634 $ 3,846,872
CASH AND CASH EQUIVALENTS:
Beginning 11,251,685 10,837,051 6,990,179
---------- ----------- ---------
Ending $ 22,714,721 $ 11,251,685 $ 10,837,051
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
19
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH 1999 1998 1997
PROVIDED BY OPERATING ACTIVITIES:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $2,165,744 $ 1,503,612 $ 1,132,380
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 646,364 433,560 314,345
Provision for loan losses 480,000 450,950 261,500
Deferred tax expense (benefit) (191,579) (159,748) (118,204)
(Gain) on sale of securities -- -- (5,625)
Amortization of security premiums and
accretion of discounts 67,447 75,085 58,509
Origination of loans held-for-sale (73,738,370) (802,000) --
Sale of loans 73,080,067 -- --
(Increase) decrease in other assets (50,244) (55,748) 63,187
Increase (decrease) in other liabilities 112,732 401,100 (280,642)
(Increase) in accrued interest receivable (155,719) (32,173) (327,565)
Increase in accrued interest payable 47,879 78,399 192,381
Loss on disposition of leasehold improvement -- -- 224,860
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,464,321 $ 1,893,037 $ 1,515,126
- ------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
ACTIVITIES:
Unrealized gain (loss) on securities $ (815,621) $ 152,412 $ 138,022
Transfer of securities from held-to-maturity to
available-for-sale $ -- 1,165,925 --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BANKING ACTIVITIES AND ACCOUNTING POLICIES
BUSINESS
On December 22, 1999, Virginia Commerce Bancorp, Inc. (the "Company") became the
holding company for Virginia Commerce Bank. The Company acquired Virginia
Commerce Bank through a share exchange in which the stockholders of Virginia
Commerce Bank received one share of the Company for each share of Virginia
Commerce Bank. The exchange was a tax-free transaction for federal income tax
purposes. The merger was accounted for on the same basis as a
pooling-of-interests. Financial statements for all prior years have been
retroactively restated for the exchange.
The Company provides loan and deposit products to commercial and retail
customers in the Washington Metropolitan Area, with the primary emphasis on
Northern Virginia. The loan portfolio is collateralized generally by assets of
the customers. The loans are expected to be repaid from cash flows or proceeds
from the sale of selected assets of the borrowers.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Virginia Commerce
Bancorp, Inc. (the "Company") and its wholly-owned subsidiaries, Virgina
Commerce Bank (the "Bank") and Northeast Land and Investment Company. In
consolidation, all significant intercompany accounts and transactions have been
eliminated.
RISKS AND UNCERTAINTIES
In its normal course of business, the Company encounters two significant types
of risk: economic and regulatory. There are three main components of economic
risk: interest rate risk, credit risk and market risk. The Company is subject to
interest rate risk to the degree that its interest-bearing liabilities mature or
reprice more rapidly or on a different basis than its interest-earning assets.
Credit risk is the risk of default on the Company's loan portfolio that results
from the borrowers' inability or unwillingness to make contractually required
payments. Market risk reflects changes in the value of collateral underlying
loans receivable and the valuation of real estate held by the Company.
The determination of the allowance for loan losses is based on estimates that
are particularly susceptible to significant changes in the economic environment
and market conditions. Management believes that, as of December 31, 1999, the
allowance for loan losses is adequate based on information currently available.
A worsening or protracted economic decline or substantial increase in interest
rates, would increase the likelihood of losses due to credit and market risks
and could create the need for substantial increases to the allowance for loan
losses. The Company is subject to the regulations of various regulatory
agencies, which can change significantly from year to year. In addition, the
Company undergoes periodic examinations by regulatory agencies, which may
subject it to further changes based on the regulators' judgments about
information available to them at the time of their examination.
SECURITIES
Debt securities that management has the positive intent and ability to hold to
maturity are classified as held-to-maturity and recorded at amortized cost.
Securities not classified as held-to-maturity, including equity securities with
readily determinable fair values, are classified as available-for-sale and
recorded at fair value, with unrealized gains and losses excluded from earnings
and reported in other comprehensive income.
Purchased premiums and discounts are recognized in interest income using the
interest method over the terms of the securities. Declines in the fair value of
held-to-maturity and available-for-sale securities below their cost that are
deemed to be other than temporary are reflected in earnings as realized losses.
Gains and losses on the sale of securities are recorded on the trade date and
are determined using the specific identification method.
LOANS HELD-FOR-SALE
Loans held-for-sale are carried at the lower of cost or market, determined in
the aggregate. Market value considers commitment agreements with investors and
prevailing market prices. Substantially all loans originated by the mortgage
banking operation are held- for-sale to outside investors.
21
<PAGE>
LOANS
The Company grants real estate, commercial and consumer loans to customers. A
substantial portion of the loan portfolio is represented by real estate loans.
The ability of the Company's debtors to honor their contracts is dependent upon
the real estate and general economic conditions of the Company's market area.
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off generally are reported at their outstanding
unpaid principal balances adjusted for the allowance for loan losses and any
deferred fees or costs on originated loans. Interest income is accrued on the
unpaid principal balance. Loan origination fees, net of certain origination
costs, are deferred and recognized as an adjustment of the related loan yield
using the interest method.
The accrual of interest on real estate and commercial loans is discontinued at
the time the loan is 90 days delinquent unless the credit is well-secured and in
process of collection. Installment loans are typically charged-off no later than
180 days past due. In all cases, loans are placed on nonaccrual or charged-off
at an earlier date if collection of principal or interest is considered
doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual
or charged-off is reversed against interest income. The interest on these loans
is accounted for on the cash-basis or cost-recovery method, until qualifying for
return to accrual. Loans are returned to accrual status when all principal and
interest amounts contractually due are brought current and future payments are
reasonably assured.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to earnings. Loan losses
are charged against the allowance when management believes the uncollectibility
of a loan balance is confirmed. Subsequent recoveries, if any, are credited to
the allowance.
The allowance for loan losses is evaluated on a regular basis by management and
is based upon management's periodic review of the collectibility of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.
A loan is considered impaired when, based on current information and events, it
is probable that the Company will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. Factors considered by management in determining impairment include
payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans that experience insignificant
payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls
on a case-by-case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay, the
reasons for the delay, the borrower's prior payment record, and the amount of
the shortfall in relation to the principal and interest owed. Impairment is
measured on a loan-by-loan basis for commercial and construction loans by either
the present value of expected future cash flows discounted at the loan's
effective interest rate, the loan's obtainable market price, or the fair value
of the collateral if the loan is collateral dependent.
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 disclosures.
BANK PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Premises and equipment are depreciated over their estimated useful
lives; leasehold improvements are amortized over the lives of the respective
leases or the estimated useful life of the leasehold improvement, whichever is
less. Depreciation and amortization are recorded on the straight-line and
declining-balance methods.
Costs of maintenance and repairs are charged to expense as incurred. Cost of
replacing structural parts of major units are considered individually and are
expended or capitalized as the facts dictate.
INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences, operating loss
carryforwards, and tax credit carryforwards. Deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
22
<PAGE>
LEASE ACQUISITION COSTS
Lease acquisition costs are being amortized over ten years using the
straight-line method.
ADVERTISING COST
The Company follows the policy of charging the production costs of advertising
to expense as incurred.
USE OF ESTIMATES
In preparing consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses, and
the valuation of foreclosed real estate and deferred tax assets.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, and federal funds sold. Generally, federal funds
are sold and purchased for one-day periods.
EARNINGS PER SHARE
Basic earnings per share represents income available to common stockholders
divided by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share reflects additional common shares that would
have been outstanding if dilutive potential common shares had been issued, as
well as any adjustment to income that would result from the assumed issuance.
Potential common shares that may be issued by the Company relate solely to
outstanding stock options and warrants, and are determined using the treasury
method.
COMPREHENSIVE INCOME
In 1998, the Company adopted Financial Accounting Standards (FAS) No. 130,
"Reporting Comprehensive Income." The consolidated statements of stockholders'
equity have been changed to include columns for comprehensive income and
accumulated other comprehensive income. Comprehensive income for the Company
includes net income plus the change in the unrealized gain or loss on securities
available-for-sale. Accumulated other comprehensive income includes the
cumulative changes in unrealized gain or loss on securities available-for-sale.
Adoption of this standard did not impact the Company's consolidated financial
position, results of operations or cash flows.
DERIVATIVE FINANCIAL INSTRUMENTS
As of October 1, 1998, the Company adopted Statement of Financial Accounting
Standards (FAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities." Statement 133 establishes accounting and reporting standards for
derivative financial instruments and other similar financial instruments and
hedging activities. The Statement also allowed securities classified as
held-to-maturity to be transferred to the available-for-sale category at the
date of initial application of this standard. The Company does not have any
derivative instruments and hedging actives as defined under this Statement.
STOCKHOLDERS' EQUITY
On March 1, 1998, the Company completed a rights offering to existing
stockholders for 200,000 shares of common stock at $15.00 per share. Gross
proceeds of $3,000,000 less offering expenses of $43,277 were recorded to common
stock and surplus.
On April 29, 1998, the stockholders approved an amendment to the Articles of
Incorporation to increase the total number of authorized shares of common stock
from 2,500,000 to 5,000,000 shares. Also, the stockholders approved an amendment
to the Articles of Incorporation to change the par value per share of common
stock from $5.00 to $1.00 and to subdivide each share of the common stock into
one and one-tenth shares. These transactions were recorded by decreasing common
stock by $6,334,120 and increasing surplus by $6,334,120.
On April 28, 1999 the stockholders approved an amendment to the Articles of
Incorporation to subdivide each share of the common stock oustanding into one
and one-tenth shares. This transaction was recorded by increasing common stock
by $178,692 and decreasing surplus by $178,692.
23
<PAGE>
NOTE 2. SECURITIES
Amortized cost and fair value of the securities available-for-sale and
held-to-maturity as of December 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999
AMORTIZED GROSS GROSS FAIR VALUE
--------- ----- ----- ----------
COST UNREALIZED UNREALIZED
---- ---------- ----------
AVAILABLE-FOR-SALE: GAINS (LOSSES)
----- --------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of U.S. government corporations and
agencies $ 28,278,291 $ 3,633 $ (842,625) $ 27,439,299
Federal Reserve Bank stock 390,850 -- -- 390,850
Federal Home Loan Bank stock 667,400 -- -- 667,400
Community Bankers' Bank stock 55,250 -- -- 55,250
- ------------------------------------------------------------------------------------------------------------------------------------
$ 29,391,791 $ 3,633 $ (842,625) $ 28,552,799
- ------------------------------------------------------------------------------------------------------------------------------------
HELD-TO-MATURITY:
- ------------------------------------------------------------------------------------------------------------------------------------
Obligations of U.S. government corporations and
agencies $ 17,771,877 $ -- $ (473,828) $ 17,298,049
- ------------------------------------------------------------------------------------------------------------------------------------
AVAILABLE-FOR-SALE: DECEMBER 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Obligations of U.S. government corporations and $ 28,573,602 $ 63,657 $ (76,752) $ 28,560,507
agencies
Federal Reserve Bank stock 391,100 -- -- 391,100
Federal Home Loan Bank stock 495,400 -- -- 495,400
Community Bankers' Bank stock 55,250 -- -- 55,250
- ------------------------------------------------------------------------------------------------------------------------------------
$ 29,515,352 $ 63,657 $ (76,752) $ 29,502,257
- ------------------------------------------------------------------------------------------------------------------------------------
HELD-TO-MATURITY:
- ------------------------------------------------------------------------------------------------------------------------------------
Obligations of U.S. government corporations and
agencies $ 25,302,446 $ 162,753 $ -- $ 25,465,199
- ------------------------------------------------------------------------------------------------------------------------------------
Amortized cost and fair value of the securities as of December 31, 1999, by
contractual maturity, are shown below.
- ------------------------------------------------------------------------------------------------------------------------------------
AVAILABLE-FOR-SALE: AMORTIZED COST FAIR VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Due after one year through five years $ 17,729,117 $ 17,206,321
Due after five years through ten years 8,189,840 7,923,605
Due after ten years 2,359,334 2,309,373
Federal Reserve Bank stock 390,850 390,850
Federal Home Loan Bank stock 667,400 667,400
Community Bankers' Bank stock 55,250 55,250
- ------------------------------------------------------------------------------------------------------------------------------------
$ 29,391,791 $ 28,552,799
HELD-TO-MATURITY:
- ------------------------------------------------------------------------------------------------------------------------------------
Due after one year through five years 2,020,000 1,999,964
Due after five years through ten years 3,934,275 3,822,650
Due after ten years 11,817,602 11,475,435
- ------------------------------------------------------------------------------------------------------------------------------------
$ 17,771,877 $ 17,298,049
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
As permitted under FAS No. 133, the Company transferred securities
held-to-maturity with a book value of $1,165,925 and a market value of
$1,158,688 to securities available-for-sale as of October 1, 1998.
The book value of securities pledged to secure deposits and for other purposes
were $24,825,891 and $21,520,748 at December 31, 1999 and 1998, respectively.
NOTE 3. LOANS
Major classifications of loans are summarized as follows (in thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial $ 26,423 $ 23,514
Real estate - 1-4 family residential 23,892 17,346
Real estate - multifamily residential 14,540 12,767
Real estate - nonfarm, nonresidential 117,106 78,859
Real estate - acquisition, development and construction 17,238 12,794
Consumer 6,968 4,983
- -----------------------------------------------------------------------------------------------------------
Total Loans $ 206,167 $ 150,263
Less unearned income 567 187
Less allowance for loan losses 1,889 1,438
- -----------------------------------------------------------------------------------------------------------
Loans, net $ 203,711 $ 148,638
- -----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 4. ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses is shown below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance, at beginning of period $ 1,437,514 $ 989,815 $ 748,356
Provision charged against income 480,000 450,950 261,500
Recoveries added to reserve 11,006 19,461 3,066
Losses charged to reserve (39,513) (22,712) (23,107)
- -----------------------------------------------------------------------------------------------------------------------------
Allowance, at end of period $ 1,889,007 $1,437,514 $ 989,815
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Information about impaired loans as of and for the years ended December 31, 1999
and 1998, is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans for which an allowance has been provided $ 142,688 $ 213,059
Impaired loans for which no allowance has been provided -- --
Total impaired loans $ 142,688 $ 213,059
Allowance provided for impaired loans, included in the allowance for loan losses 13,106 $ 54,117
Average balance in impaired loans $ 177,874 $ 154,985
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income recognized -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Non-accrual loans excluded from impaired loan disclosure under FASB 114 amounted
to $106,508 and $120,788 at December 31, 1999 and 1998, respectively. If
interest on these loans had been accrued as interest income, such income would
have approximated $10,440 and $9,945 for the years ended December 31, 1999 and
December 31, 1998.
25
<PAGE>
NOTE 5. BANK PREMISES AND EQUIPMENT, NET
Premises and equipment are stated at cost less accumulated depreciation at
December 31, 1999 and 1998, as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $1,838,790 $1,838,790
Buildings 2,017,704 1,994,423
Furniture, fixtures and equipment 3,192,321 2,306,284
Leasehold improvements 923,237 444,969
- ------------------------------------------------------------------------------------------------------------------------------------
Total Cost $7,972,052 $6,584,466
Less accumulated depreciation and amortization 2,253,342 1,606,978
- ------------------------------------------------------------------------------------------------------------------------------------
Net premises and equipment $5,718,710 $4,977,488
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Depreciation and amortization expense on premises and equipment amounted to
$646,364, $433,560 and $314,345 in 1999, 1998 and 1997, respectively.
NOTE 6. TIME DEPOSITS
The aggregate amount of time deposits, with a minimum denomination of $100,000
each, was approximately $40,873,137 and $31,712,406 in 1999 and 1998,
respectively.
Scheduled maturities of all time deposits at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2000 $ 41,898,628
2001 63,801,758
2002 2,696,314
2003 2,727,636
2004 and thereafter 1,982,768
- ------------------------------------------------------------------------------------------------------------------------------------
$ 113,107,104
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
NOTE 7. INCOME TAXES
Net deferred tax assets consist of the following components for December 31,
1999 and 1998:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Allowance for loan losses $ 601,608 $ 438,407
Non-accrual loans 41,086 48,979
Organization Costs 9,944 --
Deferred loan fees 82,850 82,850
Bank premises and equipment 32,922 2,989
Securities available-for-sale 285,257 7,952
---------- -----------
$1,053,667 $ 581,177
DEFERRED TAX LIABILITIES:
Federal Home Loan Bank stock $2,142 $ 2,142
- ------------------------------------------------------------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $1,051,525 $ 579,035
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The income tax expense and its components for the years ending December 31,
1999, 1998, and 1997 are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
December 31,
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense $ 1,319,722 $ 943,709 $ 703,951
Deferred tax expense (benefit) (191,579) (159,748) (118,204)
- ------------------------------------------------------------------------------------------------------------------------------------
$ 1,128,143 $ 783,961 $ 585,747
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income from continuing
operations for the years ended December 31, 1999, 1998, and 1997, due to the
following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense $ 1,119,922 $ 777,775 $ 584,163
Increase (decrease) in income taxes resulting from:
Nondeductible expense 8,221 6,186 1,584
- ------------------------------------------------------------------------------------------------------------------------------------
$ 1,128,143 $ 783,961 $ 585,747
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
NOTE 8. EARNINGS PER SHARE
The following shows the weighted average number of shares used in computing
earning per share and the effect on weighted average number of shares of diluted
potential common stock. Weighted average number of shares for all years reported
have been restated giving effect to changes in par and stock dividends and
splits. Potential dilutive common stock had no effect on income available to
common stockholders.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Per Share Shares Per Share Shares Per Share
------ --------- ------ --------- ------ ---------
Amount Amount Amount
------ ------ ------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share 1,967,808 $1.10 1,924,604 $0.78 1,722,649 $0.66
Effect of dilutive
securities:
Stock options 50,553 56,601 42,267
Warrants 64,043 70,432 55,938
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share 2,082,404 $1.04 2,051,637 $0.73 1,820,854 $0.62
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following transactions occurred after December 31, 1999 which would have
changed the numbers of shares used in the computations of earnings per share:
options to purchase 67,000 common shares were issued to directors and officers.
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company leases office space for seven of its branch locations, its
operations department, and mortgage lending division. These noncancellable
agreements which expire December 15, 2000, May 31, 2002, March 1, 2003, April
15, 2003, October 31, 2005, July 1, 2008, February 1, 2009, and May 20, 2009 in
some instances require payment of certain operating charges. All leases contain
renewal options of one to two additional five-year terms.
In addition, the Company leases five pieces of equipment under noncancellable
agreements which expire November 30, 2000, January 31, 2003, July 6, 2003, and
January 25, 2004. All five leases contain purchase options which are available
at the end of the lease term.
The total minimum lease commitment, adjusted for the effect of annual fixed
increases or the Consumer Price Index, at December 31, 1999, is $3,310,947,
which is due as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Due in the year ending December 31, 2000 $ 570,897
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2001 530,036
2002 499,939
2003 340,627
2004 and beyond 1,369,448
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The total lease expense was $547,159, $308,497 and $423,147, in 1999, 1998, and
1997, respectively.
In the normal course of business, the Company makes various commitments and
incurs certain contingent liabilities that are not presented in the accompanying
financial statements. The Company does not anticipate any material losses as a
result of the commitments and contingent liabilities.
28
<PAGE>
NOTE 10: LOANS TO OFFICERS AND DIRECTORS
Officers, directors and/or their related business interests are loan customers
in the ordinary course of business. In management's opinion, these loans are
made on substantially the same terms as those prevailing at the time for
comparable loans with other persons and do not involve more than normal risk of
collectibility or present other unfavorable features. The aggregate amount
outstanding on such loans at December 31, 1999 and 1998, was $1,974,549 and
$2,769,022, respectively. During 1999, new loans and advances amounted to
$597,505 and repayments of $1,391,978 were made.
NOTE 11. STOCK-BASED COMPENSATION PLAN
The Company has a stock-based compensation plan which is described below. Grants
under this plan are accounted for following APB Opinion No. 25 and related
interpretations. Accordingly, no compensation cost has been recognized for
grants under the stock option plan. Had compensation cost for the stock-based
compensation plan been determined based on the grant date fair values of awards
(the method described in FASB Statement No. 123), reported net income and
earnings per common share would have been reduced to the pro forma amounts shown
below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income:
As reported $ 2,165,744 $ 1,503,612
Pro forma $ 2,015,437 $ 1,424,400
Basic earnings per share:
As reported $ 1.10 $ 0.78
Pro forma $ 1.02 $ 0.74
Diluted earning per share:
As reported $ 1.04 $ 0.73
Pro forma $ 0.97 $ 0.69
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The current plan, adopted May 29, 1998, is a qualified Incentive Stock Option
Plan which provides for the granting of options to purchase up to 110,000 shares
of common stock at a price to be determined by the Board at the date of grant,
but in any event, no less than 100% of the fair market value. Options
outstanding, at the beginning of 1998, were granted under the Company's plan
adopted in 1988 which was replaced by the current plan. As of December 31, 1999,
26,750 options had been granted under the new plan. Options are awarded to key
employees of the Company at the discretion of the Board of Directors. All
options expire ten years from the grant date. All options granted to date under
the new plan vest over three years.
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 1999 and 1998, respectively: price volatility of 29.79
% and 32.32 %, risk-free interest rates of 6.5% and 4.5 %, dividend rate of 0.02
% and expected lives of 10 years.
29
<PAGE>
A summary of the status of the plan at December 31, 1999 and 1998 and changes
during the years ended on those dates is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1999 1998
Number of Shares Weighted Average Number of Weighted Average
---------------- ---------------- --------- ----------------
Exercise Price Shares Exercise Price
-------------- ------ --------------
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 106,504 $ 7.68 79,646 $ 6.02
Granted 25,200 $13.60 27,252 $12.40
Exercised 3,659 $ 9.02 394 5.33
Forfeited 1,100 $13.52 -- --
Outstanding at end of year 126,945 $ 8.77 106,504 $ 7.68
Exercisable at end of year 101,012 103,754
Weighted-average fair value per option of $8.85 $8.72
options granted during the year
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
A further summary about the options outstanding and exercisable at December 31,
1999 is as follows:
OPTIONS OUTSTANDING AND EXERCISABLE:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Range of Exercise Prices Number Outstanding Weighted-Average Remaining Contractual Life Weighted-Average Exercise Price
- -------------------------- ---------------------- --------------------------------------------- ----------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$4.98 to $6.68 76,803 5.3 years $ 5.98
$12.40 23,292 7.7 years $12.40
$13.30 917 9 years $13.30
$4.98 to $13.30 101,012
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
All options granted, available under the Plan, and exercisable have been
restated for both years giving retroactive effect to the 10% stock
restructurings in 1998 and 1999.
NOTE 12. DIRECTOR COMPENSATION PLAN
In April 1996, the Company granted 107,808 warrants at an exercise price of
$6.12 to six outside Directors. In January 1998, the Company granted 12,100
warrants at an exercise price of $12.40 to an additional outside Director. All
warrants have been restated for both years giving retroactive effect to the 10%
stock restructurings in 1998 and 1999.
30
<PAGE>
NOTE 13. OTHER BORROWED MONEY AND LINES OF CREDIT
The Company has obtained a $19,000,000 line of credit from the Federal Home Loan
Bank of Atlanta. The interest rate and term of each advance from the line is
dependent upon the advance and commitment type. Advances on the line are secured
by all of the Company's first lien loans on one-to-four unit single family
dwellings. As of December 31, 1999, the book value of these loans totaled
approximately $6,899,963. The amount of available credit is limited to
seventy-five percent of qualifying collateral. Any borrowings in excess of the
qualifying collateral requires pledging of additional assets.
In December 1999, the Company obtained a $5,000,000 line of credit from a
nonaffiliated bank for a three-year term. Advances on the line are secured by
all of the shares of common stock in the Company's wholly-owned susidiary,
Virginia Commerce Bank. As of December 31, 1999, the Company had the following
advances outstanding:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Advance Date-Creditor Interest Rate Term Due Outstanding Principal
--------------------- ------------- ---- --- ---------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
11-16-93 - FHLB 5.93% 10 years 2003 $ 400,000
12-31-99 - Other 7.25% 3 years 2002 2,500,000
$2,900,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has additional unused lines of credit totaling $20,783,125 with
nonaffiliated banks at December 31, 1999.
NOTE 14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit, standby letters of
credit and financial guarantees. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the balance sheet. The contract or notional amounts of those instruments reflect
the extent of involvement the Company has in particular classes of financial
instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit and financial guarantees written is represented by the
contractual or notional amount of those instruments. The Company uses the same
credit policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
A summary of the contract or notional amount of the Company's exposure to
off-balance-sheet risk as of December 31, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $ 5,285,000 $ 5,849,225
Standby letters of credit and financial guarantees written $ 2,591,747 $ 2,405,562
Unfunded lines of credit $ 44,720,367 $35,611,498
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Commitments to extend credit are 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. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the customer. Collateral held varies but may
include cash, marketable securities, accounts receivable, inventory, property
and equipment, residential real estate, and income-producing commercial
properties.
31
<PAGE>
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Company to guarantee the performance of a customer to
a third party. Those guarantees are primarily issued to support public and
private borrowing arrangements, including commercial paper, bond financing, and
similar transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The Company holds certificates of deposit, marketable securities, and business
assets as collateral supporting those commitments for which collateral is deemed
necessary. The extent of collateral held for those commitments at December 31,
1999, varies from 0 percent to 100 percent; the average amount collateralized is
46 percent.
NOTE 15. FUND RESTRICTIONS AND RESERVE BALANCE
The transfer of funds from the Bank to the Company in the form of loans,
advances, and cash dividends is restricted by Federal and State regulatory
authorities. As of December 31, 1999, the aggregate amount of unrestricted funds
which could be transfered totaled approximately $4,823,124, or 27.5% of the
consolidated net assets of the Company.
As members of the Federal Reserve System, the Company is required to maintain
certain average reserve balances. For the final weekly reporting period in the
years ended December 31, 1999 and 1998, the aggregate amounts of daily average
required balances were approximately $5,715,000 and $2,928,000 respectively.
NOTE 16. EMPLOYEE BENEFITS
The Company has a 401(k) defined contribution plan covering substantially all
full-time employees and provides that an employee becomes eligible to
participate at the date he or she has reached the age of 21 and has completed
three months of service, which ever occurs last. Under the plan, a participant
may contribute up to 15% of his or her covered compensation for the year,
subject to certain limitations. The Company may also make, but is not required
to make, a discretionary contribution for each participant out of its current or
accumulated net profits. The amount of contribution, if any, is determined on an
annual basis by the Board of Directors. Contributions made by the Company
totaled $74,014, $42,409, and $25,023 for the years ended December 31, 1999,
1998, and 1997, respectively.
NOTE 17. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
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 on quoted
market prices or dealer quotes.
LOANS HELD-FOR-SALE
Fair value is based on selling price arranged by arms-length contracts with
third parties.
32
<PAGE>
LOAN RECEIVABLES
For certain homogeneous categories of loans, such as some residential mortgages,
and other consumer loans, fair value is estimated using the quoted market prices
for securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.
DEPOSITS AND BORROWINGS
The fair value of demand deposits, savings accounts, and certain money market
deposits is the amount payable on demand at the reporting date. For all other
deposits and borrowings, the fair value is determined using the discounted cash
flow method. The discount rate was equal to the rate currently offered on
similar products.
ACCRUED INTEREST
The carrying amounts of accrued interest approximate fair value.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the counterparties.
For fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates.
The fair value of stand-by letters of credit is based on fees currently charged
for similar agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counterparties at the reporting date.
At December 31, 1999 and 1998, the carrying amounts and fair values of loan
commitments and stand-by letters of credit were immaterial.
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1999 1998
(Dollars in thousands) Carrying Amount Fair Value Carrying Amount Fair Value
--------------- ---------- --------------- ----------
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and short-term investments $ 22,715 $ 22,715 $ 11,252 $ 11,252
Securities 46,325 45,850 54,805 54,967
Loans held-for-sale 1,460 1,460 802 802
Loans 203,711 204,660 148,638 154,885
Accrued interest receivable 1,307 1,307 1,151 1,151
Total Financial assets $ 275,518 $ 275,992 $ 216,648 $ 223,057
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL LIABILITIES:
Deposits $ 243,044 $ 239,187 $ 188,743 $ 189,526
Securities sold under agreement to 17,837 17,837 15,726 15,726
repurchase
Other borrowed funds 2,900 2,559 1,000 991
- ---------------------------------------------------------------------------------------------------------------------
Accrued interest payable 676 676 628 628
- ---------------------------------------------------------------------------------------------------------------------
Total Financial Liabilities $ 264,457 $ 260,259 $ 206,097 $ 206,871
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
NOTE 18. CAPITAL REQUIREMENTS
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, possibly additional discretionary,
actions by regulators that, if undertaken, could have a direct material effect
on the Company's and Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors. Prompt corrective action
provisions are not applicable to bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital to risk-weighted assets,
and of Tier 1 capital to average assets. Management believes, as of December 31,
1999 that the Company and the Bank met all capital adequacy requirements to
which they are subject.
As of December 31, 1999, the Bank is categorized as "well-capitalized" under the
regulatory framework for prompt corrective action. To be categorized as
"well-capitalized", the Bank must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the table. The Company's
and the Bank's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Actual Capital Minimum Capital Requirement Minimum To Be Well-Capitalized Under
-------------- --------------------------- -----------------------------------------
Prompt Corrective Active Provisions
(Dollars in thousands) >= >= >= >=
Amount Ratio Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital
(to Risk-Weighted Assets)
Company $19,888 9.01% $17,652 8.00% $ -- --%
Bank 22,410 10.15% 17,654 8.00% 22,068 10.00%
Tier 1 Capital
(to Risk-Weighted Assets)
Company $17,999 8.16% $ 8,826 4.00% $ -- --%
Bank 18,021 8.17% 8,827 4.00% 13,241 6.00%
Tier 1 Capital
(to Average Assets)
Company $17,999 6.58% $10,937 4.00% $ -- --%
Bank 18,021 6.59% 10,938 4.00% 13,673 5.00%
- -----------------------------------------------------------------------------------------------------------------------------------
As of December 31 1998:
(Bank Only)
Total Capital
(to Risk-Weighted Assets) $17,231 10.40% $ 13,260 8.00% $16,575 10.00%
Tier 1 Capital
(to Risk-Weighted Assets) $15,793 9.53% $ 6,630 4.00% $ 9,945 6.00%
Tier 1 Capital
(to Average Assets) $15,793 7.15% $ 8,835 4.00% $11,044 5.00%
===================================================================================================================================
</TABLE>
34
<PAGE>
NOTE 19. CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY
Financial information pertaining to Virgina Commerce Bancorp, Inc., which was
formed December 22, 1999 is as follows:
BALANCE SHEETS DECEMBER 31, 1999
(in thousands)
Assets:
Investment in Virginia Commerce Bank $ 17,510
Subordinated Debt in Virginia Commerce Bank 2,500
Other Assets 12
--------
Total Assets $ 20,022
--------
Liabilities and Stockholders' Equity:
Long Term Debt $ 2,500
Other Liabilities 33
--------
Total Liabilities $ 2,533
Stockholders' Equity 17,489
--------
Total Liabilities and Stockholders' Equity $ 20,022
--------
STATEMENTS OF INCOME YEAR ENDED
DECEMBER 31,1999
(in thousands)
Income:
Interest on subordinated debt $ 1
--------
Total Income 1
Expenses:
Interest on long term debt 1
Organizational expense 29
Other operating expense 3
--------
Total Expenses 33
--------
Loss before income taxes and equity in $ (32)
undistributed earnings of Virginia Commerce Bank
Income Tax (Benefit) (11)
--------
$ (21)
Equity in undistributed net income of
Virginia Commerce Bank 2,187
--------
Net Income $ 2,166
--------
STATEMENTS OF CASH FLOWS
Cash Flows from Operating Activities
Net Income $ 2,166
Adjustments to reconcile net income to net cash
provided by operating activites:
Equity in undistributed net income of
Virginia Commerce Bank (2,187)
(Increase) in other assets (12)
Increase in other liabilities 33
--------
Net cash provided by operating activities $ 0
Cash Flows from Investing Activities
Purchases of debt securities (2,500)
--------
Net cash (used in) investing activities $ (2,500)
Cash Flows from Financing Activites
Net increase in long term debt 2,500
--------
Net cash provided by financing activities $ 2,500
Change in cash and cash equivalents $ 0
--------
35
INDEPENDENT AUDITOR'S REPORT
YOUNT, HYDE & BARBOUR, P.C.
Certified Public Accountants
and Consultants
To the Stockholders and Directors
Virginia Commerce Bancorp, Inc. and Subsidiaries
Arlington, Virginia
We have audited the accompanying consolidated balance sheets
of Virginia Commerce Bancorp, and Subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of income, changes in stockholder's
equity and cash flow for the years ended December 31, 1999, 1998, and 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Virginia Commerce Bancorp, Inc. and Subsidiaries as of December 31, 1999 and
1998, and the results of their operations and their cash flows for the years
ended December 31, 1999, 1998, and 1997, in conformity with generally accepted
accounting principles.
Yount, Hyde & Barbour, P.C.
Winchester Virginia
February 16, 2000
<PAGE>
Board of Directors
<TABLE>
<S> <C>
[Photo of Board and numbered
identification key omitted] 1 W. Douglas Fisher
Chairman
2 David M. Guernsey
Vice Chairman
3 Peter A. Converse
President and Chief Executive Officer
4 Leonard Adler
5 Robert H. L'Hommedieu
6 Frank L. Cowles, Jr.
7 Norris E. Mitchell
8 Arthur L. Walters
</TABLE>
<TABLE>
Executive Officers
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[Officer photos omitted]
Peter A. Converse R.B. Anderson, Jr. Laurie P. Barnwell William K. Beauchesne
President and Executive Vice President and Executive Vice President Executive Vice President and
Chief Executive Officer Chief Lending Officer Retail Banking Chief Financial Officer
Officers
- ------------------------------------------------------------------------------------------------------------------------------------
Timothy M. Aldinger Thomas E. Williams Edward W. Lull, Jr. Pamela D. McConnell
Senior Vice President Senior Vice President Vice President Assistant Vice President
Commercial Lending Real Estate Lending Commercial Lending Cameron Station Branch
Kerry J. Donley Ricardo Balcells Gregory A. Motheral Rosemarie Reinhardt
Senior Vice President Vice President Vice President Assistant Vice President
Regional Manager Regional Manager Commercial Lending Williamsburg Boulevard Branch
George L. Greco Jose A. Castillo James L. Caison Barbara A. Schival
Senior Vice President Vice President Assistant Vice President Assistant Vice President
Senior Credit Officer Operations Manager Internal Auditor King St. Branch
James R. Nalls Leslie E. Cerino Robin P. Coracci Lisa K. Bluntzer
Senior Vice President Vice President Assistant Vice President Loan Servicing Officer
Construction Lending Regional Manager Lee-Harrison Branch Loan Servicing Officer
Kenneth L. O'Shea Wendy M. Clark Jacqueline A. Freeman Gwendolyn B. Lane
Senior Vice President Vice President Assistant Vice President Credit Administration Officer
Residential Mortgage Lending Consumer Lending Training Officer
Patricia M. Ostrander James C. Elliott Lynn B. Gonzalez Stacy L. Sim
Senior Vice President Vice President Assistant Vice President Branch Officer
Director of Human Resources Consumer Lending Deposit Operations McLean Branch
Michele K. Parker Marcia J. Hopkins Susan T. Johnson Bonnie J. Sung
Senior Vice President Vice President Assistant Vice President Branch Officer
Cash Management Services Accounting Facilities Manager Annandale Branch
</TABLE>
<PAGE>
VIRGINIA COMMERCE BANCORP, INC.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Checking Accounts Money Orders
NOW Accounts Travelers Checks
Money Market Accounts Bank-by-Mail
Savings Accounts Merchant Bankcard Services
Certificates of Deposit Credit Cards
IRA's Telephone Banking
Repurchase Agreements VISA Debit Card
Personal and Commercial Loans and Lines of Credit Lock Box Services
Home Equity Loans and Lines of Credit Internet Banking
Mortgage Loans - Residential and Commercial/Investment PC-Based Banking for Business
Overdraft Lines of Credit ACH
Letters of Credit Commercial Insurance
Safe Deposit Boxes
Automated Teller Machines and ATM Cards
(HONOR/MOST, Cirrus)
</TABLE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alexandria Arlington Fairfax Residential
Mortgage Lending
1414 Prince Street MAIN OFFICE 10777 Main Street 374 Maple Avenue East
Alexandria, Virginia 22314 5350 Lee Highway Fairfax, Virginia 22030 Vienna, Virginia 22180
703-739-3242 Arlington, Virginia 22207 703-273-9111 703-319-4001
703-534-1382
5140 Duke Street McLean
Alexandria, Virginia 22304 2930 Wilson Boulevard 54 E. Lee Street, Suite 120
703-751-4400 Arlington, Virginia 22201 1356 Chain Bridge Road Warrenton, Virginia 20186
703-751-4400 703-525-4601 McLean, Virginia 22101 540-341-3001
703-448-9800
506 King Street
Alexandria, Virginia 22314 6500 Williamsburg Boulevard Vienna
703-684-4390 Arlington, Virginia 22213
703-237-8050 374 Maple Avenue East
Annandale Vienna, Virginia 22180
EXECUTIVE OFFICE 703-319-4150
4230 John Marr Drive 5350 Lee Highway
Annandale, Virginia 22003 Arlington, Virginia 22207
703-256-8889 703-534-0700
[NASD logo omitted] VCBI
NASDAQ
Listed
</TABLE>
Exhibit 21
Subsidiaries of the Registrant
Subsidiaries of Virginia Commerce Bancorp, Inc.
o Virginia Commerce Bank - Virginia
Subsidiaries of Virginia Commerce Bank
o Northeast Land and Development Corporation - Virginia
o Virginia Commerce Insurance Agency, L.L.C. - Virginia
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-KSB and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0001099305
<NAME> VIRGINIA COMMERCE BANCORP, INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1.000
<CASH> 10,758
<INT-BEARING-DEPOSITS> 5,000
<FED-FUNDS-SOLD> 6,957
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,553
<INVESTMENTS-CARRYING> 17,772
<INVESTMENTS-MARKET> 17,298
<LOANS> 205,600
<ALLOWANCE> 1,889
<TOTAL-ASSETS> 282,575
<DEPOSITS> 243,044
<SHORT-TERM> 17,837
<LIABILITIES-OTHER> 630
<LONG-TERM> 2,900
0
0
<COMMON> 1,969
<OTHER-SE> 15,480
<TOTAL-LIABILITIES-AND-EQUITY> 282,575
<INTEREST-LOAN> 15,447
<INTEREST-INVEST> 2,855
<INTEREST-OTHER> 549
<INTEREST-TOTAL> 18,851
<INTEREST-DEPOSIT> 8,053
<INTEREST-EXPENSE> 8,679
<INTEREST-INCOME-NET> 10,173
<LOAN-LOSSES> 480
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,397
<INCOME-PRETAX> 3,294
<INCOME-PRE-EXTRAORDINARY> 3,294
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,166
<EPS-BASIC> 1.10
<EPS-DILUTED> 1.04
<YIELD-ACTUAL> 8.05
<LOANS-NON> 106
<LOANS-PAST> 68
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 258
<ALLOWANCE-OPEN> 1,438
<CHARGE-OFFS> 40
<RECOVERIES> 11
<ALLOWANCE-CLOSE> 1,889
<ALLOWANCE-DOMESTIC> 1,889
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
