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 September 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 November 7, 2000:
Common stock, $1 par value--2,165,687
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
September 30, December 31,
2000 1999
-------------- -------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 15,236 $ 10,758
Interest-bearing deposits with other banks -- 5,000
Securities available-for-sale (at market value) 32,359 28,553
Securities held-to-maturity (market value of
$17,388 and $17,298) 17,718 17,772
Federal funds sold -- 6,957
Loans held-for-sale 5,381 1,460
Loans, net of allowance for loan
losses of $2,482 and $1,889 273,238 203,711
Bank premises and equipment, net 5,609 5,719
Accrued interest receivable 2,272 1,306
Other assets 1,601 1,339
--------- ---------
TOTAL ASSETS $ 353,414 $ 282,575
========= =========
LIABILITIES:
Deposits
Non-interest bearing $ 58,339 $ 42,214
Interest-bearing 243,772 200,830
--------- ---------
TOTAL DEPOSITS 302,111 243,044
Repurchase agreements 23,766 17,837
Other borrowed funds 5,900 2,900
Other liabilities 1,567 1,306
--------- ---------
TOTAL LIABILITIES 333,344 265,087
--------- ---------
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 4,657 4,982
Accumulated other comprehensive income (loss),
net of tax (401) (554)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 20,070 17,488
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 353,414 $ 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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 6,150 $ 3,948 $16,279 $11,109
Interest on investment securities 822 641 2,370 2,126
Interest on federal funds sold 110 211 263 352
Interest on deposits with other banks -- -- 35 --
------- ------- ------- -------
Total Interest Income 7,082 4,800 18,947 13,587
INTEREST EXPENSE:
Deposits 3,079 2,067 7,996 5,823
Repurchase agreements 298 118 740 406
Other borrowings 123 15 233 43
------- ------- ------- -------
Total Interest Expense 3,500 2,200 8,969 6,272
------- ------- ------- -------
Net Interest Income 3,582 2,600 9,978 7,315
PROVISION FOR LOAN LOSSES: 290 120 620 360
------- ------- ------- -------
Net Interest Income After
Provision for Loan Losses 3,292 2,480 9,358 6,955
OTHER INCOME:
Service charges and other fees 250 175 732 496
Fees and net gains on loans held-for-sale 452 352 1,102 959
Other 7 7 24 25
------- ------- ------- -------
Total Other Income 709 534 1,858 1,480
OTHER EXPENSES:
Salaries and employee benefits 1,391 1,172 4,128 3,302
Occupancy expense 482 449 1,433 1,144
Data processing expense 192 160 545 448
Other operating expense 463 390 1,421 1,143
------- ------- ------- -------
Total Other Expenses 2,528 2,171 7,527 6,037
------- ------- ------- -------
Income Before Income Taxes 1,473 843 3,689 2,398
Applicable Income Taxes 502 285 1,258 815
------- ------- ------- -------
NET INCOME $ 971 $ 558 $ 2,431 $ 1,583
======= ======= ======= =======
EARNINGS PER COMMON SHARE, BASIC .45 .26 1.12 .73
EARNINGS PER COMMON SHARE, DILUTED .42 .24 1.05 .69
</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 nine months ended September 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 -- -- -- 1,583 $1,583 1,583
Other comprehensive income, net of tax
Unrealized holding losses on
securities available-for-sale arising
during the period (net of tax of $228) (443) --
------
Other comprehensive income, net of tax -- -- -- -- (443) (443) (443)
------
Total comprehensive income -- -- -- -- -- $1,140 --
======
Capital restructure -- 179 (179) -- -- -- --
Cash paid in lieu of fractional shares -- -- -- (3) -- -- (3)
Stock options exercised -- 3 30 -- -- -- 33
Balance, September 30, 1999 $ -- $1,969 $11,091 $ 4,400 $(458) $17,002
==== ====== ======= ======= ====== =======
</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 -- -- -- 2,431 $2,431 2,431
Other comprehensive income, net of tax
Unrealized holding losses on
securities available-for-sale arising
during the period (net of tax of $79) 153 --
------
Other comprehensive income, net of tax -- -- -- -- 153 153 153
------
Total comprehensive income -- -- -- -- -- $2,584
======
Issuance of common stock-
10% stock dividend -- 197 2,557 (2,754) -- -- --
Cash paid in lieu of fractional shares -- -- -- (2) -- -- (2)
Balance, September 30, 2000 $ -- $2,166 $13,648 $ 4,657 $(401) $20,070
==== ====== ======= ======= ====== =======
</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>
Nine Months Ended
September 30,
2000 1999
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 2,431 $ 1,583
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 593 454
Provision for loan losses 620 360
Deferred tax expense (219) (47)
Amortization of security premiums and accretion of discounts 22 58
Changes in other assets and other liabilities:
(Increase) in accrued interest receivable (966) (284)
(Increase) in other assets (128) (132)
Increase (Decrease) in other liabilities 260 (132)
-------- --------
Net Cash Provided by Operating Activities $ 2,613 $ 1,860
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) in loans (70,147) (36,370)
Origination of loans held-for-sale (37,037) (41,499)
Sale of loans 33,117 40,209
Purchase of securities available-for-sale (6,486) (172)
Purchase of securities held-to-maturity (743) --
Proceeds from principal payments on securities available-for-sale 900 1,048
Proceeds from principal payments on securities held-to-maturity 786 1,837
Proceeds from calls and maturities of securities available-for-sale 2,000 --
Proceeds from calls and maturities of securities held to maturity -- 10,000
Purchase of bank premises and equipment (476) (1,247)
-------- --------
Net Cash (Used In) Investing Activities ($78,086) ($26,194)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits $ 59,067 $ 45,146
Net increase (decrease) in repurchase agreements 5,929 (1,856)
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 $ 67,994 $ 43,320
-------- --------
Net (Decrease) Increase In Cash and Cash Equivalents (7,479) 18,986
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 22,715 11,252
-------- --------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 15,236 $ 30,238
======== ========
</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 September 30, 2000 and December 31, 1999, the results of operations for
the three and nine months ended September 30, 2000 and 1999, and
statements of cash flows and stockholders' equity for the nine months
ended September 30, 2000 and 1999.
Operating results for the nine month period ended September 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>
September 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 31,852 -- (607) 31,245
Federal Reserve Bank stock 392 -- -- 392
Federal Home Loan Bank stock 667 -- -- 667
Community Bankers' Bank stock 55 -- -- 55
-------- -------- -------- --------
$ 32,966 $ -- $ (607) $ 32,359
======== ======== ======== ========
</TABLE>
Amortized cost and estimated market value of securities held-to-maturity
are summarized as follows:
<TABLE>
<CAPTION>
September 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 17,247 -- (332) 16,915
Corporate Debt Obligations 471 2 473
-------- -------- -------- --------
$ 17,718 $ 2 $ (332) $ 17,388
======== ======== ======== ========
</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
======== ======== ======== ========
</TABLE>
Securities held-to-maturity 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 17,772 -- (474) 17,298
-------- -------- -------- --------
$ 17,772 $ -- $ (474) $ 17,298
======== ======== ======== ========
</TABLE>
3. LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(In Thousands of Dollars)
<S> <C> <C>
Commercial 32,203 26,423
Real estate -1-4 family residential 32,391 23,892
Real estate -multifamily residential 15,094 14,540
Real estate -nonfarm, nonresidential 132,445 117,106
Real estate -acquisition, development and construction 57,323 17,238
Consumer 7,060 6,968
--------- ---------
276,516 206,167
Less unearned-income (796) (567)
Less allowance for loan losses (2,482) (1,889)
--------- ---------
$ 273,238 $ 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 September 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>
September 30, 2000 September 30, 1999
------------------ ------------------
Per Share Per Share
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic earnings per share 2,165,687 $1.12 2,163,960 $ .73
Effect of dilutive securities:
Stock options 64,796 63,464
Warrants 73,746 76,029
--------- ---------
Diluted earnings per share 2,304,229 $1.05 2,303,453 $ .69
========= ===== ========= =====
</TABLE>
5. CAPITAL REQUIREMENTS
A comparison of the Company's and its wholly-owned subsidiary's, Virginia
Commerce Bank (the "Bank") capital as of September 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 10.01% 8.00% 10.00%
Tier 1 Risk-Based Capital:
Company 7.21% 4.00% --
Bank 7.21% 4.00% 6.00%
Leverage Ratio
Company 6.02% 4.00% --
Bank 6.02% 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 $70,839, or 25.1% from $282,575 at December 31, 1999 to
$353,414 at September 30, 2000 as total deposits grew $59,067, or 24.3% from
$243,044 to $302,111, and repurchase agreements increased $5,929, or 33.2% from
$17,837 to $23,766 during the same period.
Loan demand was strong with total loans, net of allowance for loan losses,
increasing $69,527, or 34.1% from $203,711 at December 31, 1999 to $273,238 at
September 30, 2000, and representing 90.4% of total deposits at September 30,
2000 compared to 83.8% at December 31, 1999. While loan growth occurred in all
the major classifications of loans, growth in outstanding real estate
construction loans represented the largest increase rising $40,085, or 232.5%
from $17,238 at December 31, 1999 to $57,323 at September 30, 2000.
The growth in loans utilized the majority of deposit and repurchase agreement
funding sources during the nine month period as cash and cash equivalents
declined $7,479 from $22,715 at December 31, 1999 to $15,236 at September 30,
2000. Available-for-sale and held-to-maturity investment securities, which are
maintained as additional liquidity sources, for various collateral needs, and to
help manage interest rate risk, increased $3,752, or 8.1% from a combined
$46,325 at December 31, 1999 to $50,077 at September 30, 2000. Federal funds
sold, a temporary investment maintained for liquidity purposes, declined to $0
at September 30, 2000, as compared to $6,957 at December 31, 1999.
Deposit growth, the Company's main funding source, included a $16,125 increase
in non-interest bearing demand deposits, a $12,056 increase in savings and
interest bearing demand deposits, and a $30,886 increase in time deposits from
$113,107 at December 31, 1999 to $143,993 at September 30, 2000.
Stockholders' equity grew $2,582 from $17,488 at December 31, 1999 to $20,070 at
September 30, 2000 with earnings of $2,431 for the nine month period and a
decrease in unrealized losses on available-for-
9
<PAGE>
sale securities of $153, 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 $971 for the third quarter ending September 30, 2000, increased
$413, or 73.9% compared to $558 for the same period in 1999. For the nine months
ending September 30, 2000 net income of $2,431 increased 53.6% compared to
$1,583 for the nine months ending September 30, 1999. Diluted earnings per share
of $0.42 and $1.05 for the third quarter and nine months ending September 30,
2000 respectively, were up $0.18 and $0.36 from the comparable periods in 1999.
10
<PAGE>
Net Interest Income
Net interest income grew $2,663 or 36.4% from $7,315 for the nine months ending
September 30, 1999 to $9,978 for the same period ending September 30, 2000.
Growth in total average earning assets outstanding from $226,591 to $293,018,
and a twenty-four basis points increase in the net interest margin from 4.30% to
4.54% 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 nine months
ended September 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 earned,
which are included in interest income on loans, totaled $459 and $280 for 2000
and 1999, respectively.
<TABLE>
<CAPTION>
2000 1999
------------------------------------------------------------------------------------------------------------------------------------
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>
Securities $ 49,915 $ 2,370 6.44% $ 46,594 $ 2,126 6.08%
------------------------------------------------------------------------------------------------------------------------------------
Loans, before allowance for losses 236,580 16,279 9.17% 170,526 11,109 8.69%
------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits with other banks 803 35 5.85% -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Federal funds sold 5,720 263 6.14% 9,471 352 4.95%
------------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets $293,018 $ 18,947 8.62% $226,591 $ 13,587 8.00%
------------------------------------------------------------------------------------------------------------------------------------
Non-earning assets 18,342 15,261
------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $311,360 $241,852
------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits $219,548 $ 7,996 4.86% $174,800 $ 5,823 4.44%
------------------------------------------------------------------------------------------------------------------------------------
Fed Funds purchased, securities
sold U/A to repurchase and other
borrowed funds 25,913 973 5.01% 14,806 449 4.05%
------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $245,461 $ 8,969 4.87% $189,606 $ 6,272 4.41%
------------------------------------------------------------------------------------------------------------------------------------
Demand deposits and other
non-interest bearing
liabilities 47,359 35,843
------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $292,820 $225,449
------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 18,540 16,403
------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $311,360 $241,852
------------------------------------------------------------------------------------------------------------------------------------
Interest rate spread 3.75% 3.59%
------------------------------------------------------------------------------------------------------------------------------------
Net interest income and margin $ 9,978 4.54% $ 7,315 4.30%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<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 nine months ending September 30, 2000 net
charge-offs totaled $27 compared to $6 for the same period ending September 30,
1999. The provision for loan loss expense in the first nine months of 2000 was
$620 compared to $360 in 1999. The total allowance for loan losses of $2,482 at
September 30, 2000 increased 31.4% from $1,889 at December 31, 1999, and
increased $690, or 38.5% from $1,792 at September 30, 1999. The increase in the
allowance for loan losses primarily results from the increased size of the loan
portfolio.
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>
Nine Months Nine Months Twelve Months
Ending Ending Ending
September 30, 2000 September 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 620 360 480
Recoveries 3 9 11
Losses charged to reserve (30) (15) (40)
------- ------- -------
Allowance, at end of period $ 2,482 $ 1,792 $ 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 31.9% from $317 at December 31, 1999 to $216 at
September 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.
12
<PAGE>
Non-performing assets consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(In Thousands of Dollars)
<S> <C> <C>
Non-accrual loans $ 95 $106
Impaired loans 114 143
---- ----
Total non-performing assets 209 249
Loans past due 90 days and still accruing 7 68
Total non-performing assets and loans
past due 90 days and still accruing $216 $317
==== ====
</TABLE>
The ratio of non-performing assets and loans past due 90 days and still accruing
to total assets declined from .11% at December 31, 1999 to .06% at September 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 September 30, 2000. As of September 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 $71.
These loans are generally well-secured and are currently performing.
Non-Interest Income
Non-interest income increased $175, or 32.8% from $534 for the three months
ending September 30, 1999 to $709 for the three months ending September 30,
2000. For the nine months ending September 30, 2000 non-interest income
increased $378, or 25.5% to $1,858 from $1,480 for the same period ending
September 30, 1999. Service charges and other fees grew $75 and $236 for the
three months and nine months ending September 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 similar increases of $100 and $143 over
the same periods.
Non-Interest Expense
For the three months ending September 30, 2000, non-interest expense increased
$357, or 16.4% compared to the same period in 1999, and increased $1,490, or
24.7% to $7,527 for the nine months ending September 30, 2000 from $6,037 for
the nine months ending September 30, 1999. Salaries and benefits for the three
months and nine month periods ending September 30 accounted for $219 and $826,
or greater than 50.0% of the total increases in non-interest expense while
occupancy expense increased $33 and $289 for the same periods, respectively. The
increases in both of these categories of non-interest expense are directly
associated with balance sheet growth and branching activities.
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 $815 and $1,258 for the nine months ending
September 30, 1999 and 2000, respectively.
13
<PAGE>
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 $127,838 and $95,205
at September 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 $40,653 and $39,383 at September 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 risk-based capital ratio was 7.21% at September 30, 2000,
compared to 8.16% at December 31, 1999 while the Bank's Tier I risk-based
capital ratio was 7.21% compared to 8.17%, respectively. The Company's total
risk-based capital ratio was 8.08% at September 30, 2000, compared to 9.01% at
December 31, 1999, while the Bank's total risk-based capital ratio was 10.01% on
September 30, 2000, compared to 10.15% at December 31, 1999. The declines in the
company's and Bank's capital ratios relate to asset growth in excess of capital
growth through earnings.
14
<PAGE>
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 - None
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
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 8, 2000 BY /s/ Peter A. Converse
-----------------------
Peter A. Converse, President & CEO
Date: November 8, 2000 BY /s/ William K. Beauchesne
---------------------------
William K. Beauchesne , Treasurer
& Chief Financial Officer
16
