VCBI Virginia Commerce Bancorp (MM)

Virginia Commerce Bancorp, Inc. (Nasdaq:VCBI), parent company of Virginia Commerce Bank (the "Bank"), today reported its financial results for the first quarter ended March 31, 2006. First Quarter 2006 Highlights: -- Net income of $5.7 million representing a 32.2% increase over first quarter 2005 -- Diluted earnings per share up 31.0% to $0.38 -- Loans and deposits up 32.9% and 33.1%, respectively, since March 31, 2005 -- Efficiency ratio improves further to 45.9% -- Nineteenth branch opened in January Peter A. Converse, Chief Executive Officer, commented, "It's always nice to start the year with strong performance, and considering the competitive landscape in our market, we're particularly pleased with first quarter results. Earnings, assets, loans and deposits all rose over 30% as compared to the same quarter last year. Deposit growth benefited significantly from the CD and money market promotions we ran for most of the first quarter. Although the advertised rates for these deposit products were market-leading and will put more pressure on our net interest margin, we are confident that the margin will remain above 4%." Converse added, "We also began the year with a new branch in January in Newington, just south of Springfield. It is our nineteenth branch overall and already has over $7 million in deposits and repos combined. It should be followed by up to four more branches over the remainder of the year. These branches will help sustain our growth momentum but shouldn't strain our overhead. In fact, despite three new branches opening in 2005 and another this past quarter, non-interest expense increased less than earnings, resulting in the efficiency ratio improving to 45.9%. All in all we feel very good about our prospects for the rest of 2006." SUMMARY REVIEW OF FINANCIAL PERFORMANCE Net Income First quarter earnings of $5.7 million represented an increase of 32.2% over 2005 first quarter earnings of $4.3 million. On a diluted per share basis, first quarter 2006 earnings were $0.38 compared to $0.29 for the first quarter of 2005, an increase of 31.0%. The year-over-year increase in net income was due to a 27.1% increase in net interest income and a 40.4% increase in non-interest income. These increases in revenue more than offset a 25.8% increase in non-interest expense. As a result, the Company's efficiency ratio improved further from 46.7% to 45.9%. Net Interest Income Net interest income for the first quarter of $16.1 million was up 27.1% over the same quarter last year due to strong loan growth, as the net interest margin declined from 4.40% in the first quarter of 2005 to 4.27% for the current three-month period. The margin decreased seven basis points from 4.34% in the fourth quarter of 2005. As interest rates have continued to increase over the past year, the Company's yield on interest-earning assets rose eighty-seven basis points from 6.34% in the first quarter of 2005, to 7.21% in the current quarter, with the yield on loans rising eighty-six basis points primarily on increases in the prime rate. However, the cost of interest-bearing liabilities increased one hundred-eighteen basis points from 2.38% to 3.56% due to rates paid on money market accounts, time deposits and repurchase agreements. Management expects the net interest margin to decline further in the next quarter as a result of continuing competitive pressures on deposit rates in the Company's market area and as the full impact of the rates paid for new money market and time deposits in the first quarter are realized. Despite these factors, the margin is expected to remain above 4.00%. Non-Interest Income Non-interest income for the first quarter rose $492 thousand, or 40.4%, from $1.2 million in 2005, to $1.7 million with service charges and other fees rising $368 thousand, or 82.3%, due to fees from lockbox operations and overdrafts, while fees and net gains on mortgage loans held-for-sale increased $112 thousand. Compared to the three months ended December 31, 2005, non-interest income was lower by $305 thousand with fees from lockbox operations, non-deposit investment services and mortgage loans held-for-sale all down for the period due mostly to seasonal fluctuations. Non-Interest Expense Non-interest expense increased $1.7 million, or 25.8%, from $6.5 million in the first quarter of 2005, to $8.2 million in the current period, and was mostly unchanged from the three months ended December 31, 2005. The year-over-year increases were due to the opening of the Bank's eighteenth and nineteenth branch locations in June 2005 and January 2006, the hiring of additional loan and business development officers and other staffing and facilities expansion to support the significant levels of loan and deposit growth. However, earnings growth and diligence in managing and containing the expenses associated with the new branches and facilities expansion, resulted in further improvement in the efficiency ratio from 46.7% in 2005, to 45.9%. Management expects only slightly higher levels in all non-interest expense categories in the second quarter with the next new branch location expected to open in the early part of the third quarter. Loans Loans, net of allowance for loan losses, increased $338.5 million, or 32.9%, from $1.03 billion at March 31, 2005, to $1.37 billion at March 31, 2006. Growth occurred in all categories, but primarily in non-farm, non-residential real estate loans and real estate construction loans, which rose 24.1% and 52.8%, respectively, while commercial loans increased 29.2% year-over-year. Since December 31, 2005, loans are up $98.4 million, or 31.2%, on an annualized basis, with growth again concentrated in commercial real estate and construction. Deposits Since March 31, 2005, deposits have increased $346.2 million, or 33.1%, from $1.04 billion to $1.39 billion, with non-interest bearing demand deposits increasing $31.2 million, interest-bearing demand deposits rising $55.9 million, and time deposits growing by $259.1 million. For the three months ended March 31, 2006, deposits rose $148.4 million, or 47.6%, on an annualized basis, with demand deposits growing by $11.8 million, interest-bearing demand accounts increasing by $29.3 million, and time deposits increasing by $107.3 million. Growth in the first quarter was supported by several promotions for both money market and time deposits in local newspapers as the Bank continued to gather these deposits to fund a continuing strong loan pipeline. Repurchase Agreements and Other Borrowings Repurchase agreements, which represent funds of numerous demand deposit customers of the Bank, increased $67.0 million, or 240.0%, from $47.9 million at March 31, 2005, to $114.9 million at March 31, 2006, and increased $3.1 million from $111.8 million at December 31, 2005. Two accounts represented $42.0 million of the $114.9 million at March 31, and are expected to decline significantly in the second quarter. At March 31, 2005, the Bank had $31.0 million in outstanding advances with the Federal Home Loan Bank of Atlanta, those advances which were used to help loan funding during that quarter were repaid in the second quarter of 2005. Trust Preferred Securities On December 20, 2005, the Company completed the private placement of an aggregate of $25 million of trust preferred securities through VCBI Capital Trust III, a newly formed trust subsidiary organized under Delaware law. The securities mature on February 23, 2036, and are redeemable at par, at the Company's option, at any time on or after February 23, 2011, subject to regulatory approval. The securities are redeemable prior to February 23, 2011, at a premium ranging up to 104% of the principal amount thereof, upon the occurrence of certain regulatory or legal events. The securities bear interest on a quarterly basis, at a 6.19% fixed rate until February 23, 2011, at which time the interest rate becomes a variable rate, adjusted quarterly, equal to 142 basis points over three-month LIBOR. The proceeds from this issuance were used to supplement the Company's capital for continued growth and other general corporate purposes. Provision For Loan Losses/Asset Quality Provisions for loan losses increased $174 thousand from $831 thousand in the first quarter of 2005, to $1.0 million during the current period as impaired loans increased by $362 thousand during the quarter to $2.3 million versus an increase of only $5 thousand in the first quarter of 2005. However, asset quality remains strong with total non-performing assets and past due loans to total assets of 0.19%, up from 0.13% at December 31, 2005, due to the $362 thousand in impaired loans noted above and an $888 thousand increase in loans 90 days past due. The increase in loans over 90 days past due represents two loans on one-to-four family residential properties, of which one for $340 thousand is current as to interest and in the renewal process. Stockholders' Equity Stockholders' equity increased $23.2 million, or 24.3%, from $95.7 million at March 31, 2005, to $118.9 million at March 31, 2006, on earnings of $21.1 million, $1.40 per share, and $2.4 million in net proceeds and tax benefits from the exercise of options by company directors, officers and employees. On March 16, 2006, the Company declared a 3-for-2 stock split in the form of a 50% stock dividend to be paid on May 12, 2006, to shareholders of record as of the close of business on April 28, 2006. This split is subject to the approval by shareholders of an amendment to the Articles of Incorporation of the Company at its annual meeting to be held on April 26, 2006, increasing the number of authorized shares to 50 million. CONFERENCE CALL Virginia Commerce Bancorp will host a teleconference call for the financial community on April 13, 2006, at 11:00 a.m. Eastern Daylight Time to discuss the first quarter 2006 financial results. The public is invited to listen to this conference call by dialing 866-837-9780 at least 10 minutes prior to the call. A replay of the conference call will be available from 2:00 p.m. Eastern Daylight Time on April 13, 2006, until 11:59 p.m. Eastern Daylight Time on April 20, 2006. The public is invited to listen to this conference call replay by dialing 888-266-2081 and entering passcode 885884. ABOUT VIRGINIA COMMERCE BANCORP Virginia Commerce Bancorp, Inc. is the parent bank holding company for Virginia Commerce Bank (the "Bank"), a Virginia state chartered bank that commenced operations in May 1988. The Bank pursues a traditional community banking strategy, offering a full range of business and consumer banking services through nineteen branch offices, two residential mortgage offices and one investment services office, principally to individuals and small to medium-size businesses in Northern Virginia and the Metropolitan Washington, D.C. area. NON-GAAP PRESENTATIONS This press release refers to the efficiency ratio, which is computed by dividing non-interest expense by the sum of net interest income on a tax equivalent basis and non-interest income. This is a non-GAAP financial measure that we believe provides investors with important information regarding our operational efficiency. Comparison of our efficiency ratio with those of other companies may not be possible because other companies may calculate the efficiency ratio differently. The Company, in referring to its net income, is referring to income under accounting principals generally accepted in the United States, or "GAAP". FORWARD LOOKING STATEMENTS This press release may contain forward-looking statements within the meaning of the Securities and Exchange Act of 1934, as amended, including statements of goals, intentions, and expectations as to future trends, plans, events or results of Company operations and policies and regarding general economic conditions. In some cases, forward-looking statements can be identified by use of words such as "may," "will," "anticipates," "believes," "expects," "plans," "estimates," "potential," "continue," "should," and similar words or phrases. These statements are based upon current and anticipated economic conditions, nationally and in the Company's market, interest rates and interest rate policy, competitive factors, and other conditions which by their nature, are not susceptible to accurate forecast, and are subject to significant uncertainty. Because of these uncertainties and the assumptions on which this discussion and the forward-looking statements are based, actual future operations and results may differ materially from those indicated herein. Readers are cautioned against placing undue reliance on any such forward-looking statements. The Company's past results are not necessarily indicative of future performance. -0- *T Virginia Commerce Bancorp, Inc. Financial Highlights (Dollars in thousands, except per share data) (Unaudited) Three Months Ended March 31, 2006 2005 % Change --------------------------------- Summary Operating Results: Interest and dividend income $ 27,241 $ 18,300 48.9% Interest expense 11,089 5,587 98.5% Net interest and dividend income 16,152 12,713 27.1% Provision for loan losses 1,005 831 20.9% Non-interest income 1,711 1,219 40.4% Non-interest expense 8,194 6,514 25.8% Income before income taxes 8,664 6,587 31.5% Net income $ 5,714 $ 4,321 32.2% Performance Ratios: Return on average assets 1.46% 1.46% Return on average equity 20.13% 18.68% Net interest margin 4.27% 4.40% Efficiency ratio (1) 45.87% 46.69% Per Share Data: (2) Net income-basic $ 0.40 $ 0.31 29.0% Net income-diluted $ 0.38 $ 0.29 31.0% Average number of shares outstanding: Basic 14,210,134 13,983,982 Diluted 15,101,077 14,940,954 As of March 31, --------------------------------- 2006 2005 % Change --------------------------------- Selected Balance Sheet Data: Loans, net $1,368,610 $1,030,060 32.9% Investment securities 169,530 162,341 4.4% Assets 1,678,432 1,244,459 34.9% Deposits 1,391,983 1,045,760 33.1% Stockholders' equity 118,911 95,676 24.3% Book value per share (2) $ 8.33 $ 6.84 21.8% Capital Ratios (% of risk weighted assets): Tier 1 capital: Company 10.87% 10.34% Bank 7.93% 8.57% Total qualifying capital: Company 12.07% 11.35% Bank 11.85% 11.20% Asset Quality: Non-performing assets: Impaired loans $ 2,342 $ 1,197 95.6% Non-accrual loans 13 17 -23.5% Loans 90+ days past due and still accruing 890 -- N/A ----------- ----------- Total non-performing assets and past due loans $ 3,245 $ 1,214 267.3% to total loans: 0.23% 0.12% to total assets: 0.19% 0.10% Allowance for loan losses to total loans 1.07% 1.07% Net charge-offs (recoveries) $13 $(1) Net charge-offs to average loans outstanding 0.001% 0.00% As of March 31, --------------------------------- 2006 2005 % Change --------------------------------- Loan Portfolio: Commercial $ 137,039 $ 106,053 29.2% Real estate-one-to-four family residential 162,951 127,497 27.8% Real estate-multi-family residential 65,936 48,502 35.9% Real estate-nonfarm, nonresidential 609,449 491,043 24.1% Real estate-construction 407,120 266,432 52.8% Consumer 6,290 6,511 -3.5% ----------- ----------- --------- Total loans $1,388,785 $1,046,038 32.8% Less unearned income 5,362 4,744 13.0% Less allowance for loan losses 14,813 11,234 31.9% ----------- ----------- --------- Loans, net $1,368,610 $1,030,060 32.9% Investment Securities (at book value): Available-for-sale: U.S. Government Agency obligations $ 113,938 $ 98,148 16.1% U.S. Treasuries -- 9,953 n/a Domestic corporate debt obligations 6,048 6,035 0.2% Obligations of states and political subdivisions 1,365 1,333 2.4% Restricted stock: Federal Reserve Bank 1,442 1,442 -- Federal Home Loan Bank 3,034 3,672 -17.4% Community Bankers' Bank 55 55 -- ----------- ----------- --------- $ 125,882 $ 120,638 4.4% Held-to-maturity: U.S. Government Agency obligations $ 34,684 $ 32,774 5.8% Obligations of states and political subdivisions 8,964 8,434 6.3% Domestic corporate debt obligations -- 495 n/a ----------- ----------- --------- $ 43,648 $ 41,703 4.7% (1) Computed by dividing non-interest expense by the sum of net interest income on a tax equivalent basis using a 35% rate and non-interest income. (2) Adjusted to give effect to a five-for-four split in the form of a 25% stock dividend in May 2005. Virginia Commerce Bancorp, Inc. Consolidated Balance Sheets (Dollars in thousands, except per share data) As of March 31, (Unaudited) 2006 2005 ----------- ----------- Assets Cash and due from banks $ 33,379 $ 21,136 Interest-bearing deposits with other banks 1,045 1,015 Securities (fair value: 206, $168,324; 2005, $162,010) 169,530 162,341 Federal funds sold 68,000 -- Loans held-for-sale 8,066 5,323 Loans, net of allowance for loan losses of $14,813 in 2006 and $11,234 in 2005 1,368,610 1,030,060 Bank premises and equipment, net 7,817 7,165 Accrued interest receivable 6,499 4,376 Other assets 15,486 13,043 ----------- ----------- Total assets $1,678,432 $1,244,459 ----------- ----------- Liabilities and Stockholders' Equity Deposits Demand deposits $ 200,384 $ 169,189 Savings and interest-bearing demand deposits 378,891 322,963 Time deposits 812,708 553,608 ----------- ----------- Total deposits $1,391,983 $1,045,760 Securities sold under agreement to repurchase and federal funds purchased 114,940 47,898 Other borrowed funds -- 31,000 Trust preferred capital notes 44,344 18,570 Accrued interest payable 4,037 2,259 Other liabilities 4,217 3,296 ----------- ----------- Total liabilities $1,559,521 $1,148,783 ----------- ----------- Stockholders' Equity Preferred stock, $1.00 par, 1,000,000 shares authorized and unissued $ -- $ -- Common stock, $1.00 par, 20,000,000 shares authorized, issued and outstanding 2006, 14,272,050; 2005, 11,189,129 14,272 11,189 Surplus 37,315 37,971 Retained earnings 68,954 47,898 Accumulated other comprehensive loss, net (1,630) (1,382) ----------- ----------- Total stockholders' equity $ 118,911 $ 95,676 Total liabilities and stockholders' equity $1,678,432 $1,244,459 ----------- ----------- Virginia Commerce Bancorp, Inc. Consolidated Statements of Income (Dollars in thousands except per share data) Three Months Ended March 31, (Unaudited) 2006 2005 -------- -------- Interest and dividend income: Interest and fees on loans $25,368 $16,808 Interest and dividends on investment securities: Taxable 1,585 1,358 Tax-exempt 60 59 Dividends 63 55 Interest on deposits with other banks 13 6 Interest on federal funds sold 152 14 -------- -------- Total interest and dividend income $27,241 $18,300 -------- -------- Interest expense: Deposits $ 9,171 $ 4,835 Securities sold under agreement to repurchase and federal funds purchased 956 269 Other borrowed funds 216 211 Trust preferred capital notes 746 272 -------- -------- Total interest expense $11,089 $ 5,587 -------- -------- Net interest income: $16,152 $12,713 Provision for loan losses 1,005 831 -------- -------- Net interest income after provision for loan losses $15,147 $11,882 -------- -------- Non-interest income: Service charges and other fees $ 815 $ 447 Non-deposit investment services commissions 91 80 Fees and net gains on loans held-for-sale 717 605 Other 88 87 -------- -------- Total non-interest income $ 1,711 $ 1,219 -------- -------- Non-interest expense: Salaries and employee benefits $ 4,820 $ 3,790 Occupancy expense 1,267 947 Data processing 477 370 Other operating expense 1,630 1,407 -------- -------- Total non-interest expense $ 8,194 $ 6,514 -------- -------- Income before taxes on income $ 8,664 $ 6,587 Provision for income taxes 2,950 2,266 -------- -------- Net Income $ 5,714 $ 4,321 -------- -------- Earnings per common share, basic (1) $ 0.40 $ 0.31 Earnings per common share, diluted (1) $ 0.38 $ 0.29 (1) Adjusted to give effect to a five-for-four split in the form of a 25% stock dividend in May 2005. Virginia Commerce Bancorp, Inc. Consolidated Average Balances, Yields, and Rates Three Months Ended March 31, (Unaudited) 2006 ---------------------------- Interest Average Average Income- Yields (Dollars in thousands) Balance Expense /Rates ---------------------------- Assets Securities (1) $ 174,031 $ 1,708 3.97% Loans, net of unearned income (2) 1,344,409 25,368 7.55% Interest-bearing deposits in other banks 1,044 13 5.00% Federal funds sold 13,597 152 4.46% ---------------------------- Total interest-earning assets $1,533,081 $27,241 7.21% Other assets 52,031 ----------- Total Assets $1,585,112 ----------- Liabilities and Stockholders' Equity Interest-bearing deposits: NOW accounts $ 196,084 $ 811 1.68% Money market accounts 140,403 1,005 2.90% Savings accounts 18,593 25 0.54% Time deposits 747,684 7,330 3.98% ---------------------------- Total interest-bearing deposits $1,102,764 $ 9,171 3.37% Securities sold under agreement to repurchase and federal funds purchased 100,466 956 3.86% Other borrowed funds 18,333 216 4.72% Trust preferred capital notes 43,000 746 6.94% ---------------------------- Total interest-bearing liabilities $1,264,563 $11,089 3.56% Demand deposits and other liabilities 205,402 ----------- Total liabilities $1,469,965 Stockholders' equity 115,147 ----------- Total liabilities and stockholders' equity $1,585,112 ----------- Interest rate spread 3.65% Net interest income and margin $16,152 4.27% 2005 ---------------------------- Interest Average Average Income- Yields (Dollars in thousands) Balance Expense /Rates ---------------------------- Assets Securities (1) $ 164,739 $ 1,472 3.62% Loans, net of unearned income (2) 1,004,383 16,808 6.69% Interest-bearing deposits in other banks 1,013 6 2.37% Federal funds sold 2,256 14 2.46% ---------------------------- Total interest-earning assets $1,172,391 $18,300 6.34% Other assets 30,665 ----------- Total Assets $1,203,056 ----------- Liabilities and Stockholders' Equity Interest-bearing deposits: NOW accounts $ 203,320 $ 761 1.52% Money market accounts 103,117 372 1.46% Savings accounts 20,284 27 0.55% Time deposits 521,395 3,675 2.86% ---------------------------- Total interest-bearing deposits $ 848,116 $ 4,835 2.31% Securities sold under agreement to repurchase and federal funds purchased 56,140 269 1.94% Other borrowed funds 30,467 211 2.77% Trust preferred capital notes 18,000 272 6.04% ---------------------------- Total interest-bearing liabilities $ 952,723 $ 5,587 2.38% Demand deposits and other liabilities 156,505 ----------- Total liabilities $1,109,228 Stockholders' equity 93,828 ----------- Total liabilities and stockholders' equity $1,203,056 ----------- Interest rate spread 3.96% Net interest income and margin $12,713 4.40% (1) Yields on securities available-for-sale have been calculated on the basis of historical cost and do not give effect to changes in the fair value of those securities, which are reflected as a component of stockholders' equity. Average yields on securities are stated on a tax equivalent basis, using a 35% rate. (2) Loans placed on non-accrual status are included in the average balances. Net loan fees and late charges included in interest income on loans totaled $1.36 million and $992 thousand for the three months ended March 31, 2006 and 2005, respectively. *T