4
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ x ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2000
-------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ___________________ to ___________________
Commission file number 0-28635
VIRGINIA COMMERCE BANCORP, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
VIRGINIA 54-1964895
--------------------------- ---------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
5350 LEE HIGHWAY, ARLINGTON, VIRGINIA 22207
(Address of Principal Executive Offices)
703-534-0700
(Issuer's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
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 ___.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of July 15, 2000:
Common stock, $1 par value--2,165,687
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
June 30, December 31,
ASSETS: 2000 1999
---------------- ------------
<S> <C> <C>
Cash and due from banks $ 14,017 $ 10,758
Interest-bearing deposits with other banks -- 5,000
Securities available-for-sale (at market value) 32,815 28,553
Securities held-to-maturity (market value of
$16,723 and $17,298) 17,285 17,772
Federal funds sold -- 6,957
Loans held-for-sale 5,125 1,460
Loans, net of allowance for loan
losses of $2,192 and $1,889 245,733 203,711
Bank premises and equipment, net 5,700 5,719
Accrued interest receivable 1,674 1,306
Other assets 1,598 1,339
------------ ------------
TOTAL ASSETS $ 323,947 $ 282,575
========= =========
LIABILITIES:
Deposits
Non-interest bearing $ 54,430 $ 42,214
Interest-bearing 220,695 200,830
------- -------
TOTAL DEPOSITS 275,125 243,044
Repurchase agreements 22,865 17,837
Other borrowed funds 5,900 2,900
Other liabilities 1,176 1,306
------------ ------------
TOTAL LIABILITIES 305,066 265,087
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock; $5 par, 1,000,000 shares
authorized of which none have been issued $ -- $ --
Common stock; $1 par, 5,000,000 shares
authorized; 2,165,687 and 1,968,985
issued and outstanding 2,166 1,969
Surplus 13,648 11,091
Retained earnings 3,686 4,982
Accumulated other comprehensive income (loss),
net of tax (619) (554)
------------ -------------
TOTAL STOCKHOLDERS' EQUITY 18,881 17,488
---------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 323,947 $ 282,575
========== ==========
</TABLE>
Notes to financial statements are an integral part of these statements.
2
<PAGE>
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 5,354 $ 3,752 $ 10,128 $ 7,160
Interest on investment securities 813 698 1,548 1,486
Interest on federal funds sold 61 82 153 141
Interest on deposits with other banks -- -- 35 --
--------- --------- --------- --------
Total Interest Income 6,228 4,532 11,864 8,787
INTEREST EXPENSE:
Deposits 2,569 1,928 $ 4,917 $ 3,756
Repurchase agreements 265 132 442 288
Other borrowings 57 15 109 29
--------- ---------- -------- --------
Total Interest Expense 2,891 2,075 5,468 4,073
------- -------- -------- -------
Net Interest Income 3,337 2,457 6,396 4,714
PROVISION FOR LOAN LOSSES: 165 120 330 240
--------- --------- -------- -------
Net Interest Income After
Provision for Loan Losses 3,172 2,337 6,066 4,474
OTHER INCOME:
Service charges and other fees 264 153 482 322
Fees and net gains on loans held-for-sale 389 352 650 607
Other 8 7 16 17
-------- --------- -------- -------
Total Other Income 661 512 1,148 946
OTHER EXPENSES:
Salaries and employee benefits 1,408 1,151 2,737 2,131
Occupancy expense 474 363 951 695
Data processing expense 177 146 352 288
Other operating expense 504 411 958 751
-------- -------- ------- -------
Total Other Expenses 2,563 2,071 4,998 3,865
------- ------- ------ ------
Income Before Income Taxes 1,270 778 2,216 1,555
Applicable Income Taxes 432 266 756 531
-------- --------- ------ -------
NET INCOME $ 838 $ 512 $ 1,460 $ 1,024
====== ======== ======= =======
EARNINGS PER COMMON SHARE, BASIC .39 .24 .67 .47
EARNINGS PER COMMON SHARE, DILUTED .36 .22 .63 .44
</TABLE>
Notes to financial statements are an integral part of these statements.
3
<PAGE>
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the six months ended June 30, 2000 and 1999
(In Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Preferred Common Retained Comprehensive Comprehensive
Stock Stock Surplus Earnings Income (Loss) Income Total
----- ----- ------- -------- ------------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 $ -- $ 1,787 $ 11,240 $ 2,820 $ (15) $ 15,832
Comprehensive Income:
Net Income -- -- -- 1,024 $1,024 1,024
Other comprehensive income, net of tax
Unrealized holding losses on
securities available-for-sale arising
during the period (net of tax of $204) (400) --
-----
Other comprehensive income, net of tax -- -- -- -- (400) (400) (400)
-----
Total comprehensive income -- -- -- -- -- $ 624 --
=======
Capital restructure -- 179 (179) -- -- -- --
--
Cash paid in lieu of fractional shares -- -- -- (3) -- -- (3)
--
Stock options exercised -- 3 30 -- -- -- 33
--
Balance, June 30, 1999 $ -- $1,969 $ 11,091 $ 3,841 $ (415) $ 16,486
====== ====== ======== ======= ========= ========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Preferred Common Retained Comprehensive Comprehensive
Stock Stock Surplus Earnings Income (Loss) Income Total
----- ----- ------- -------- ------------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000 $ -- $1,969 $ 11,091 $ 4,982 $ (554) $ 17,488
Comprehensive Income:
Net Income -- -- -- 1,460 $ 1,460 1,460
Other comprehensive income, net of tax
Unrealized holding losses on
securities available-for-sale arising
during the period (net of tax of $34) (65) --
----
Other comprehensive income, net of tax -- -- -- -- (65) (65) (65)
----
Total comprehensive income -- -- -- -- -- $ 1,395
========
Issuance of common stock-
10% stock dividend -- 197 2,557 (2,754) -- -- --
Cash paid in lieu of fractional shares -- -- -- (2) -- -- (2)
Balance, June 30, 2000 $-- $2,166 $ 13,648 $ 3,686 $ (619) $ 18,881
======= ====== ======== ======= ======= ========
</TABLE>
Notes to financial statements are an integral part of these statements.
4
<PAGE>
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
----- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,460 $ 1,024
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 383 276
Provision for loan losses 330 240
Deferred tax expense (108) (47)
Amortization of security premiums and accretion of discounts 17 43
Changes in other assets and other liabilities:
(Increase) decrease in accrued interest receivable (367) 4
(Increase) in other assets (122) (124)
(Decrease) in other liabilities (7) (285)
----------- -------------
Net Cash Provided by Operating Activities $ 1,586 $ 1,131
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) in loans (42,351) (23,719)
Origination of loans held-for-sale (20,485) (29,791)
Sale of loans 16,820 27,448
Purchase of securities available-for-sale (5,001) (172)
Proceeds from principal payments on securities available-for-sale 631 564
Proceeds from principal payments on securities held-to-maturity 478 1,391
Proceeds from calls and maturities of securities held to maturity -- 10,000
Purchase of bank premises and equipment (360) (831)
-------------- ----------
Net Cash (Used In) Investing Activities ($ 50,268) ($ 15,110)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits $ 31,958 $ 33,286
Net increase (decrease) in repurchase agreements 5,028 (1,799)
Net increase in other borrowed funds 3,000 --
Net proceeds from issuance of capital stock -- 33
Cash paid in lieu of fractional shares (2) (3)
------------- ----------
Net Cash Provided by Financing Activities $ 39,984 $ 31,517
----------- ----------
Net (Decrease) Increase In Cash and Cash Equivalents (8,698) 17,538
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 22,715 11,252
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 14,017 $ 28,790
=========== ==========
</TABLE>
Notes to financial statements are an integral part of these statements.
5
<PAGE>
VIRGINIA COMMERCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
The accompanying unaudited consolidated financial statements of Virginia
Commerce Bancorp, Inc. and its subsidiaries (the Company) have been
prepared in accordance with generally accepted accounting principles for
interim financial information. All significant intercompany balances and
transactions have been eliminated. In the opinion of management, the
accompanying unaudited consolidated financial statements contain all
adjustments and reclassifications consistently of a normal and recurring
nature considered necessary to present fairly the financial positions as
of June 30, 2000 and December 31, 1999, the results of operations for the
three and six months ended June 30, 2000 and 1999, and statements of cash
flows and stockholders' equity for the six months ended June 30, 2000 and
1999.
Operating results for the six month period ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
2. INVESTMENT SECURITIES
Amortized cost and carrying amount (estimated market value) of securities
available-for-sale are summarized as follows:
<TABLE>
<CAPTION>
June 30, 2000
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------------------------------------------------
(In Thousands of Dollars)
<S> <C> <C> <C> <C>
US Government Agencies & Corporations 32,639 -- (938) 31,701
Federal Reserve Bank stock 392 -- -- 392
Federal Home Loan Bank stock 667 -- -- 667
Community Bankers' Bank stock 55 -- -- 55
-------- ------- ------ --------
$33,753 $ -- $ (938) $32,815
======== ======= ====== -=======
</TABLE>
Amortized cost and estimated market value of securities held-to-maturity
are summarized as follows:
<TABLE>
<CAPTION>
June 30, 2000
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------------------------------------------------
(In Thousands of Dollars)
<S> <C> <C> <C> <C>
US Government Agencies & Corporations 17,285 -- (562) 16,723
-------- ------ -------- --------
$ 17,285 $ -- $ (562) $ 16,723
======== ===== ======== ========
</TABLE>
6
<PAGE>
VIRGINIA COMMERCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
Securities available-for-sale at December 31, 1999 consist of the following:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------ ---------
(In Thousands of Dollars)
<S> <C> <C> <C> <C>
US Government Agencies & Corporations 28,279 4 (843) 27,440
Federal Reserve Bank stock 391 -- -- 391
Federal Home Loan Bank stock 667 -- -- 667
Community Bankers' Bank stock 55 -- -- 55
--------- ------ ------- --------
$ 29,392 $ 4 $ (843) $ 28,553
========= --==== ======= ========
Securities held-to-maturity at December 31, 1999 consist of the following:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ----------- ---------
(In Thousands of Dollars)
<S> <C> <C> <C> <C>
US Government Agencies & Corporations 17,772 -- (474) 17,298
-------- ------ -------- --------
$ 17,772 $ -- $ (474) $ 17,298
======== -===== ======== ========
</TABLE>
3. LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------- -------------
(In Thousands of Dollars)
<S> <C> <C>
Commercial 32,187 26,423
Real estate -1-4 family residential 31,772 23,892
Real estate -multifamily residential 12,793 14,540
Real estate -nonfarm, nonresidential 132,326 117,106
Real estate -acquisition, development and construction 32,764 17,238
Consumer 6,746 6,968
---------- ----------
248,588 206,167
Less unearned-income (663) (567)
Less allowance for loan losses (2,192) (1,889)
---------- ----------
$ 245,733 $ 203,711
========== ==========
</TABLE>
7
<PAGE>
VIRGINIA COMMERCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
4. EARNINGS PER SHARE
The following shows the weighted average number of shares used in
computing earnings per share and the effect on weighted average number of
shares of diluted potential common stock. The weighted average number of
shares for the period ending June 30, 2000 and 1999 have been restated
giving effect to a ten percent stock restructuring in May 1999 and a ten
percent stock dividend in May 2000.
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
------------- --------------
Per Share Per Share
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic earnings per share 2,165,687 $ .67 2,163,097 $ .47
Effect of dilutive securities:
Stock options 66,822 63,450
Warrants 74,539 75,789
---------- ----------
Diluted earnings per share 2,307,048 $ .63 2,302,335 $ .44
========= ======= ========= =======
</TABLE>
5. CAPITAL REQUIREMENTS
A comparison of the Company's and its wholly-owned subsidiary's,
Virginia Commerce Bank (the "Bank") capital as of June 30, 2000 with the
minimum regulatory guidelines is as follows:
<TABLE>
<CAPTION>
Minimum Minimum to Be
Actual Guidelines "Well-Capitalized"
------ ---------- ------------------
<S> <C> <C> <C>
Total Risk-Based Capital:
Company 8.08% 8.00 % --
Bank 10.15% 8.00 % 10.00%
Tier 1Risk-Based Capital:
Company 7.26% 4.00 % --
Bank 7.28% 4.00 % 6.00%
Leverage Ratio
Company 6.32% 4.00 % --
Bank 6.33% 4.00 % 5.00%
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Forward-Looking Statements
Certain information contained in this discussion may include "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These forward-looking statements are generally identified by phrases such as
"the Company expects," "the Company believes" or words of similar import. Such
forward-looking statements involve known and unknown risks including, but not
limited to, changes in general economic and business conditions, interest rate
fluctuations, competition within and from outside the banking industry, new
products and services in the banking industry, risk inherent in making loans
such as repayment risks and fluctuating collateral values, problems with
technology utilized by the Company, changing trends in customer profiles and
changes in laws and regulations applicable to the Company. Although the Company
believes that its expectations with respect to the forward-looking statements
are based upon reliable assumptions within the bounds of its knowledge of its
business and operations, there can be no assurance that actual results,
performance or achievements of the Company will not differ materially from any
future results, performance or achievements expressed or implied by such
forward-looking statements.
General
The following presents management's discussion and analysis of the consolidated
financial condition and results of operations of Virginia Commerce Bancorp, Inc.
and subsidiaries (the "Company") as of the dates and for the periods indicated
(in thousand of dollars). This discussion should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto, and other
financial data appearing elsewhere in this report. The Company is the parent
bank holding company for Virginia Commerce Bank (the "Bank"), a Virginia state
chartered bank that offers a full range of banking services through ten branch
offices, principally to individuals and small to medium-size businesses in the
Metropolitan Washington, D.C. area.
Results of operations
Total assets increased $41,372, or 14.6% from $282,575 at December 31, 1999 to
$323,947 at June 30, 2000 as total deposits grew $32,081, or 13.2% from $243,044
to $275,125, and repurchase agreements increased $5,028, or 28.2% from $17,837
to $22,865 during the same period.
Loan demand was strong with total loans, net of allowance for loan losses,
increasing $42,022, or 20.6% from $203,711 at December 31, 1999 to $245,733 at
June 30, 2000, and representing 89.3% of total deposits at June 30, 2000
compared to 83.8% at December 31, 1999. The growth in loans utilized the
majority of funding sources during the six month period as cash and cash
equivalents declined $8,698 from $22,715 at December 31, 1999 to $14,017 at June
30, 2000. Deposit growth included a $12,216 increase in non-interest bearing
demand deposits, a $3,706 increase in savings and interest bearing demand
deposits, and a $16,160 increase in time deposits from $113,107 at December 31,
1999 to $129,267 at June 30, 2000.
Stockholders' equity grew $1,393 from $17,488 at December 31, 1999 to $18,881 at
June 30, 2000 with earnings of $1,460 for the period slightly offset by an
increase in unrealized losses on available-for-sale securities of $65, net of
tax. The total number of common shares outstanding increased 196,702 due to a
ten percent stock dividend paid on May 26, 2000.
Net income of $838 for the second quarter ending June 30, 2000, increased $326,
or 63.7% compared to $512 for the same period in 1999. For the six months ending
June 30, 2000 net income of $1,460
9
<PAGE>
increased 42.6% compared to $1,024 for the six months ending June 30, 1999.
Diluted earnings per share of $0.36 and $0.63 for the second quarter and six
months ending June 30, 2000 respectively, were up $0.14 and $0.19 from the
comparable periods in 1999.
Net Interest Income
Net interest income grew $1,682 or 35.7% from $4,714 for the six months ending
June 30, 1999 to $6,396 for the same period ending June 30, 2000. Growth in
total average earning assets outstanding from $220,212 to $279,191, and a thirty
basis points increase in the net interest margin from 4.28% to 4.58% contributed
to the increase. Contributions to the increase in the net interest margin
included a higher percentage of loans to total earning assets and higher loan
yields due to increases in the prime rate.
The following table shows the average balance sheets for each of the six months
ended June 30, 2000 and 1999. In addition, the amounts of interest earned on
earning assets, with related tax-equivalent 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 $284 and $185 for 2000 and 1999,
respectively.
<TABLE>
<CAPTION>
2000 1999
------------------------------------------------------------------------------------------------
Average Average
Average Interest eYields Average Interest nYields
(Dollars in thousands) Balance Income-Exp /Rates Balance Income-Expe /Rates
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities $ 49,082 $ 1,548 6.31% $ 48,664 $ 1,486 6.11%
------------------------------------------------------------------------------------------------
Loans, before allowance for 223,692 10,128 9.06% 165,573 7,160 8.65%
losses
------------------------------------------------------------------------------------------------
Interest-bearing deposits 1,209 35 5.79% -- -- --
------------------------------------------------------------------------------------------------
Federal funds sold 5,208 153 5.88% 5,975 141 4.72%
------------------------------------------------------------------------------------------------
Total Earning Assets $279,191 $11,864 8.50% $220,212 $8,787 7.98%
------------------------------------------------------------------------------------------------
Non-earning assets 17,607 14,737
------------------------------------------------------------------------------------------------
TOTAL ASSETS $296,798 $234,949
------------------------------------------------------------------------------------------------
Interest-bearing deposits $211,075 $4,917 4.66% $169,073 $3,756 4.44%
------------------------------------------------------------------------------------------------
Fed Funds purchased,
securities sold U/A to
repurchase and other
borrowed funds 23,146 551 4.76% 15,576 317 4.07%
------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING $234,221 $5,468 4.67% $184,649 $4,073 4.41%
LIABILITIES
------------------------------------------------------------------------------------------------
Demand deposits and other
non-interest bearing
liabilities 44,531 34,068
------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $278,752 $218,717
------------------------------------------------------------------------------------------------
Stockholders' equity 18,046 16,232
------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND $296,798 $234,949
------------------------------------------------------------------------------------------------
Interest rate spread 3.83% 3.57%
------------------------------------------------------------------------------------------------
Net interest income and $6,396 4.58% $4,714 4.28%
margin
------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
Allowance for Loan Losses / Provision for Loan Loss Expense
The provision for loan losses is based upon management's estimate of the amount
required to maintain an adequate allowance for loan losses reflective of the
risks in the loan portfolio. For the six months ending June 30, 2000 charge-offs
totaled $29 compared to $14 for the same period ending June 30, 1999. The
provision for loan loss expense in the first six months of 2000 was $330
compared to $240 in 1999. The total allowance for loan losses of $2,192 at June
30, 2000 increased 16.1% from $1,889 at December 31, 1999, and increased $519,
or 31.0% from $1,673 at June 30, 1999.
Management feels that the allowance for loan losses is adequate. 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.
The following schedule summarizes the changes in the allowance for loan losses:
<TABLE>
<CAPTION>
Six Months Six Months Twelve Months
Ending Ending Ending
June 30, 2000 June 30, 1999 December 31, 1999
------------- ------------- -----------------
(In Thousands of Dollars)
<S> <C> <C> <C>
Allowance, at beginning of period 1,889 1,438 1,438
Provision charged against income 330 240 480
Recoveries 2 9 11
Losses charged to reserve (29) (14) (40)
----------- ----------- -----------
Allowance, at end of period $ 2,192 $ 1,673 $ 1,889
=========== =========== ===========
</TABLE>
Risk Elements and Non-performing Assets
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 28.1% from $317 at December 31, 1999 to $228 at June
30, 2000.
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.
11
<PAGE>
Non-performing assets consist of the following:
June 30, December 31,
2000 1999
--------- ----------
(In Thousands of Dollars)
Non-accrual loans $ 99 $ 106
Impaired loans 122 143
-------- ---------
Total non-performing assets 221 249
Loans past due 90 days and still accruing 7 68
Total non-performing assets and loans
past due 90 days and still accruing $ 228 $ 317
======= ========
The ratio of non-performing assets and loans past due 90 days and still accruing
decreased from .11% at December 31, 1999 to .07% at June 30, 2000. 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 June 30, 2000.
As of June 30, 2000, performing loans as to which information known to
management causes it to have serious doubts as to the ability of the borrower to
comply with the present repayment terms totaled $425. These loans are primarily
well-secured and currently performing.
Non-Interest Income
Non-interest income increased $149, or 29.1% from $512 for the three months
ending June 30, 1999 to $661 for the three months ending June 30, 2000. For the
six months ending June 30, 2000 non-interest income increased $202, or 21.4% to
$1,148 from $946 for the same period ending June 30, 1999. Service charges and
other fees grew $111 and $160 for the three months and six months ending June
30, 2000 compared to the same periods in 1999 due to continued growth in deposit
accounts, while fees and net gains on loans held-for-sale experienced slightly
smaller increases of $37 and $43 over the same periods.
Non-Interest Expense
For the three months ending June 30, 2000, non-interest expense increased $492,
or 23.7% compared to the same period in 1999, and increased $1,133, or 29.3% to
$4,998 for the six months ending June 30, 2000 from $3,865 for the six months
ending June 30, 1999. Salaries and benefits for the three months and six month
periods ending June 30 accounted for $257 and $606, or greater than 50.0% of the
total increases in non-interest expense while occupancy expense increased $111
and $256 for the same periods, respectively. Most of the increases in both
salaries and benefits and occupancy expenses are attributable to the addition of
the Bank's ninth and tenth branch locations in March and July 1999.
Provision for Income Taxes
The Company's income tax provisions are adjusted for non-deductible expenses and
non-taxable interest after applying the U.S. federal income tax rate of 34%.
Provision for income taxes totaled $531 and $756 for the six months ending June
30, 1999 and 2000, respectively.
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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 sources are
provided through cash and due from banks, securities available for sale, federal
funds sold, loans held-for-sale and loans and other investment securities
maturing within one year. These liquidity sources totaled $113,962 and $95,205
at June 30, 2000 and December 31, 1999, respectively.
Additional sources of liquidity available to the Company include the capacity to
borrow funds through established lines of credit with correspondent banks, and
the Federal Home Loan Bank of Atlanta. Available funds from these liquidity
sources were approximately $40,058 and $39,383 at June 30, 2000 and December 31,
1999, respectively.
The Company's liquidity position is actively managed on a daily basis and
monitored regularly by the Asset/Liability Management Committee (ALCO).
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.
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 1 capital, risk-based capital and leverage ratio. Tier I
capital consists of common and qualifying preferred shareholders' equity less
goodwill. 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 Company's Tier I capital ratio was 7.26% at June 30, 2000, compared to 8.16%
at December 31, 1999 while the Bank's Tier I capital ratio was 7.28% compared to
8.17%, respectively. The Company's risk-based capital ratio was 8.08% at June
30, 2000, compared to 9.01% at December 31, 1999, while the Bank's risk-based
capital ratio was unchanged at 10.15% on June 30, 2000 and December 31, 1999.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
On April 26, 2000, the annual meeting of shareholders of the Company
was held for the purpose of electing (8) directors to serve until the
next annual meeting and until their successors are duly elected and
qualified. No other matters were brought forth for vote. The name of
each director elected at the meeting, all of which were currently
directors, are set forth below.
Leonard Adler
Peter A. Converse
Frank L. Cowles, Jr.
W. Douglas Fisher
David M. Guernsey
Robert H. L'Hommedieu
Norris E. Mitchell
Arthur L. Walters
Item 5. Other Information - None
Item 6. Exhibits and reports on Form 8-K
a) Exhibits
11 Statement re: Computation of per share earnings (See Note 4)
27 Financial Data Schedule (filed electronically only)
b) Form 8-K - None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 2, 2000 BY /s/ PETER A. CONVERSE
---------------------------------
Peter A. Converse, President & CEO
Date: August 2, 2000 BY /s/ WILLIAM K. BEAUCHESNE
---------------------------------
William K. Beauchesne , Treasurer
& Chief Financial Officer
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