UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended
March 31, 2012
or
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from to
Commission file number
000-28635
VIRGINIA COMMERCE BANCORP, INC.
(Exact name of registrant as specified in its charter)
|
|
|
VIRGINIA
|
|
54-1964895
|
(State or other jurisdiction
of incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
5350 LEE HIGHWAY, ARLINGTON, VIRGINIA 22207
(Address of principal executive offices) (Zip Code)
703-534-0700
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether
the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes
x
No
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).
x
Yes
¨
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
|
|
|
|
|
|
|
Large accelerated filer
|
|
¨
|
|
Accelerated filer
|
|
x
|
|
|
|
|
Non-accelerated filer
|
|
¨
|
|
Smaller reporting company
|
|
¨
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange
Act). Yes
¨
No
x
As of May 3, 2012, the number of outstanding shares of registrants common stock, par value $1.00 per share, was: 31,809,053.
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
PART I FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
ITEM 1.
|
|
FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets March 31, 2012, (unaudited) and December 31, 2011
|
|
|
3
|
|
|
|
|
|
|
Consolidated Statements of Income (unaudited) Three months ended March 31, 2012, and
2011
|
|
|
4
|
|
|
|
|
|
|
Consolidated Statements of Comprehensive Income (unaudited) Three months ended March 31, 2012, and 2011
|
|
|
5
|
|
|
|
|
|
|
Consolidated Statements of Changes in Stockholders Equity (unaudited) Three months ended March 31,
2012, and 2011
|
|
|
6
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows (unaudited) Three months ended March 31, 2012, and
2011
|
|
|
7
|
|
|
|
|
|
|
Notes to Consolidated Financial Statements (unaudited)
|
|
|
8
|
|
|
|
|
ITEM 2.
|
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
|
|
29
|
|
|
|
|
ITEM 3.
|
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
|
|
50
|
|
|
|
|
ITEM 4.
|
|
CONTROLS AND PROCEDURES
|
|
|
51
|
|
|
|
PART II OTHER INFORMATION
|
|
|
|
|
|
|
|
ITEM 1.
|
|
LEGAL PROCEEDINGS
|
|
|
52
|
|
|
|
|
ITEM 1A.
|
|
RISK FACTORS
|
|
|
52
|
|
|
|
|
ITEM 2.
|
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
|
|
52
|
|
|
|
|
ITEM 3.
|
|
DEFAULTS UPON SENIOR SECURITIES
|
|
|
52
|
|
|
|
|
ITEM 4.
|
|
MINE SAFETY DISCLOSURES
|
|
|
52
|
|
|
|
|
ITEM 5.
|
|
OTHER INFORMATION
|
|
|
52
|
|
|
|
|
ITEM 6.
|
|
EXHIBITS
|
|
|
53
|
|
|
|
|
SIGNATURES
|
|
|
|
|
54
|
|
2
PART I. FINANCIAL INFORMATION
ITEM 1.
|
FINANCIAL STATEMENTS
|
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
March 31,
2012
|
|
|
(Audited)
December 31,
2011
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
33,047
|
|
|
$
|
31,569
|
|
Interest bearing deposits in other banks
|
|
|
116,000
|
|
|
|
51,000
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
149,047
|
|
|
|
82,569
|
|
Investment securities available-for-sale, at fair value
|
|
|
598,178
|
|
|
|
593,064
|
|
Investment securities held-to-maturity, at amortized cost (fair value of $34,431)
|
|
|
|
|
|
|
31,892
|
|
Restricted investments, at cost
|
|
|
11,272
|
|
|
|
11,214
|
|
Loans held-for-sale
|
|
|
8,164
|
|
|
|
18,485
|
|
Loans, net of allowance for loan losses of $45,371 and $48,729
|
|
|
2,099,484
|
|
|
|
2,120,291
|
|
Premises and equipment, net
|
|
|
11,058
|
|
|
|
11,413
|
|
Accrued interest receivable
|
|
|
9,798
|
|
|
|
10,007
|
|
Other real estate owned, net of valuation allowance of $6,543 and $6,517
|
|
|
12,928
|
|
|
|
8,925
|
|
Bank owned life insurance
|
|
|
14,072
|
|
|
|
14,017
|
|
Other assets
|
|
|
40,225
|
|
|
|
36,641
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,954,226
|
|
|
$
|
2,938,518
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand
|
|
$
|
335,580
|
|
|
$
|
337,937
|
|
Savings and interest-bearing demand deposits
|
|
|
1,173,176
|
|
|
|
1,173,568
|
|
Time deposits
|
|
|
729,092
|
|
|
|
780,653
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
2,237,848
|
|
|
|
2,292,158
|
|
Securities sold under agreement to repurchase
|
|
|
315,633
|
|
|
|
263,273
|
|
Other borrowed funds
|
|
|
25,000
|
|
|
|
25,000
|
|
Trust preferred capital notes
|
|
|
66,634
|
|
|
|
66,570
|
|
Accrued interest payable
|
|
|
2,423
|
|
|
|
2,418
|
|
Other liabilities
|
|
|
10,051
|
|
|
|
5,328
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
2,657,589
|
|
|
$
|
2,654,747
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Preferred stock, net of discount, $1.00 par value per share, 1,000,000 shares authorized, Series A; $1,000 stated value; 71,000
issued and outstanding at March 31, 2012, and December 31, 2011
|
|
$
|
67,670
|
|
|
$
|
67,195
|
|
Common stock, $1.00 par value per share, 50,000,000 shares authorized, 31,809,053 issued and outstanding at March 31, 2012,
including 118,946 in nonvested shares and 30,263,672 issued and outstanding at December 31, 2011, including 49,998 in nonvested shares
|
|
|
31,690
|
|
|
|
30,214
|
|
Surplus
|
|
|
117,563
|
|
|
|
111,042
|
|
Warrants
|
|
|
8,520
|
|
|
|
8,520
|
|
Retained earnings
|
|
|
65,779
|
|
|
|
60,999
|
|
Accumulated other comprehensive income, net
|
|
|
5,415
|
|
|
|
5,801
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
296,637
|
|
|
|
283,771
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,954,226
|
|
|
$
|
2,938,518
|
|
|
|
|
|
|
|
|
|
|
Notes to consolidated financial statements are an integral part of these statements.
3
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
Interest income:
|
|
|
|
|
|
|
|
|
Interest on loans, including fees
|
|
$
|
30,621
|
|
|
$
|
31,923
|
|
Interest and dividends on investment securities:
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
2,644
|
|
|
|
2,861
|
|
Tax-exempt
|
|
|
588
|
|
|
|
592
|
|
Dividend on restricted investments
|
|
|
101
|
|
|
|
96
|
|
Interest on deposits in other banks
|
|
|
51
|
|
|
|
|
|
Federal funds sold
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
34,005
|
|
|
|
35,517
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
4,942
|
|
|
|
7,023
|
|
Interest on securities sold under agreement to repurchase
|
|
|
1,037
|
|
|
|
934
|
|
Interest on other borrowed funds
|
|
|
269
|
|
|
|
266
|
|
Interest on trust preferred capital notes
|
|
|
978
|
|
|
|
1,111
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
7,226
|
|
|
|
9,334
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
26,779
|
|
|
|
26,183
|
|
Provision for loan losses
|
|
|
5,994
|
|
|
|
5,843
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
20,785
|
|
|
|
20,340
|
|
|
|
|
|
|
|
|
|
|
Non-interest income:
|
|
|
|
|
|
|
|
|
Service charges on deposits
|
|
|
881
|
|
|
|
792
|
|
Non-deposit investment services commissions
|
|
|
252
|
|
|
|
253
|
|
Gain on sale of mortgage loans held-for-sale
|
|
|
1,001
|
|
|
|
521
|
|
Gain on sale of investment securities available-for-sale
|
|
|
2,592
|
|
|
|
503
|
|
Total other-than-temporary impairment losses
|
|
|
|
|
|
|
(2,948
|
)
|
Portion of loss recognized in other comprehensive income
|
|
|
|
|
|
|
2,216
|
|
|
|
|
|
|
|
|
|
|
Net impairment losses
|
|
|
|
|
|
|
(732
|
)
|
Increase in cash surrender value of bank owned life insurance
|
|
|
55
|
|
|
|
62
|
|
Other income
|
|
|
168
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
4,949
|
|
|
|
1,476
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
7,785
|
|
|
$
|
6,659
|
|
Premises and equipment expenses
|
|
|
2,421
|
|
|
|
2,470
|
|
FDIC insurance
|
|
|
995
|
|
|
|
1,289
|
|
Loss on other real estate owned
|
|
|
826
|
|
|
|
156
|
|
OREO expenses
|
|
|
318
|
|
|
|
132
|
|
Franchise tax expense
|
|
|
750
|
|
|
|
772
|
|
Data processing expenses
|
|
|
653
|
|
|
|
655
|
|
Other operating expenses
|
|
|
2,879
|
|
|
|
2,317
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses
|
|
|
16,627
|
|
|
|
14,450
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
9,107
|
|
|
|
7,366
|
|
Provision for income taxes
|
|
|
2,965
|
|
|
|
2,400
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
6,142
|
|
|
|
4,966
|
|
|
|
|
|
|
|
|
|
|
Effective dividend on preferred stock
|
|
$
|
1,363
|
|
|
$
|
1,315
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
4,779
|
|
|
$
|
3,651
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share, basic
|
|
$
|
0.15
|
|
|
$
|
0.13
|
|
Earnings per common share, diluted
|
|
$
|
0.14
|
|
|
$
|
0.12
|
|
Notes to consolidated financial statements are an integral part of these statements.
4
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
Net Income
|
|
$
|
6,142
|
|
|
$
|
4,966
|
|
Other Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Unrealized (losses) gains on investment securities available-for-sale, net of tax of $(196) and $363
|
|
|
(364
|
)
|
|
|
675
|
|
Reclassification adjustment for transfer of investment securities from held-to-maturity to available-for-sale, net of tax of $895
in 2012
|
|
|
1,663
|
|
|
|
|
|
Reclassification adjustment for gains on sale of investment securities, net of tax of $(907) and $(176)
|
|
|
(1,685
|
)
|
|
|
(327
|
)
|
Reclassification adjustment for impairment loss on investment securities, net of tax $256 in 2011
|
|
|
|
|
|
|
476
|
|
|
|
|
|
|
|
|
|
|
Total Other Comprehensive (Loss) Income
|
|
|
(386
|
)
|
|
|
824
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income
|
|
$
|
5,756
|
|
|
$
|
5,790
|
|
|
|
|
|
|
|
|
|
|
Notes to consolidated financial statements are an integral part of these statements.
5
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
(Amounts in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Surplus
|
|
|
Warrants
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Total
Stockholders
Equity
|
|
Balance, January 1, 2011
|
|
$
|
65,445
|
|
|
$
|
28,954
|
|
|
$
|
105,056
|
|
|
$
|
8,520
|
|
|
$
|
39,208
|
|
|
$
|
(1,589
|
)
|
|
$
|
245,594
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,966
|
|
|
|
|
|
|
|
4,966
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
824
|
|
|
|
824
|
|
Capital common stock issued
|
|
|
|
|
|
|
426
|
|
|
|
2,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,501
|
|
Stock options exercised
|
|
|
|
|
|
|
134
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
243
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
|
|
Discount on preferred stock
|
|
|
428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(428
|
)
|
|
|
|
|
|
|
|
|
Dividend on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(887
|
)
|
|
|
|
|
|
|
(887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2011
|
|
$
|
65,873
|
|
|
$
|
29,514
|
|
|
$
|
107,372
|
|
|
$
|
8,520
|
|
|
$
|
42,859
|
|
|
$
|
(765
|
)
|
|
$
|
253,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2012
|
|
$
|
67,195
|
|
|
$
|
30,214
|
|
|
$
|
111,042
|
|
|
$
|
8,520
|
|
|
$
|
60,999
|
|
|
$
|
5,801
|
|
|
$
|
283,771
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,142
|
|
|
|
|
|
|
|
6,142
|
|
Other comprehensive (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(386
|
)
|
|
|
(386
|
)
|
Capital common stock issued
|
|
|
|
|
|
|
426
|
|
|
|
1,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,394
|
|
Stock options/warrants exercised
|
|
|
|
|
|
|
1,050
|
|
|
|
4,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,481
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122
|
|
Discount on preferred stock
|
|
|
475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(475
|
)
|
|
|
|
|
|
|
|
|
Dividend on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(887
|
)
|
|
|
|
|
|
|
(887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2012
|
|
$
|
67,670
|
|
|
$
|
31,690
|
|
|
$
|
117,563
|
|
|
$
|
8,520
|
|
|
$
|
65,779
|
|
|
$
|
5,415
|
|
|
$
|
296,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to consolidated financial statements are an integral part of these statements.
6
VIRGINIA COMMERCE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,142
|
|
|
$
|
4,966
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
561
|
|
|
|
566
|
|
Provision for loan losses
|
|
|
5,994
|
|
|
|
5,843
|
|
Stock based compensation expense
|
|
|
122
|
|
|
|
132
|
|
Deferred tax (benefit) expense
|
|
|
(284
|
)
|
|
|
3,175
|
|
Amortization of trust preferred securities discount
|
|
|
64
|
|
|
|
64
|
|
Amortization of security premiums and accretion of security discounts, net
|
|
|
2,046
|
|
|
|
202
|
|
Loans originated for sale
|
|
|
(40,955
|
)
|
|
|
(24,023
|
)
|
Sales of loans
|
|
|
50,389
|
|
|
|
28,986
|
|
Gain on sale of loans
|
|
|
887
|
|
|
|
436
|
|
Loss on sale/valuation of OREO
|
|
|
826
|
|
|
|
156
|
|
Gain on sale of investment securities available-for-sale
|
|
|
(2,592
|
)
|
|
|
(503
|
)
|
Impairment loss on investment securities
|
|
|
|
|
|
|
732
|
|
Changes in other assets and other liabilities:
|
|
|
|
|
|
|
|
|
(Increase) decrease in other assets
|
|
|
(3,146
|
)
|
|
|
7,834
|
|
Increase (decrease) in other liabilities
|
|
|
4,723
|
|
|
|
(635
|
)
|
Decrease (increase) in accrued interest receivable
|
|
|
209
|
|
|
|
(829
|
)
|
Increase in accrued interest payable
|
|
|
5
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
$
|
24,991
|
|
|
$
|
27,104
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from principal payments, calls and maturities on investment securities held-to-maturity
|
|
|
1,873
|
|
|
|
2,095
|
|
Proceeds from principal payments, calls and maturities on investment securities available-for-sale
|
|
|
92,368
|
|
|
|
16,111
|
|
Purchases of investment securities available-for-sale
|
|
|
(127,363
|
)
|
|
|
(34,823
|
)
|
Sales of investment securities available-for-sale
|
|
|
59,851
|
|
|
|
12,645
|
|
Net decrease in loans
|
|
|
8,920
|
|
|
|
18,464
|
|
Purchase of FHLB stock
|
|
|
(58
|
)
|
|
|
|
|
Purchase of premises and equipment
|
|
|
(206
|
)
|
|
|
(232
|
)
|
Proceeds from sale of other real estate owned
|
|
|
1,064
|
|
|
|
1,105
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By Investing Activities
|
|
$
|
36,449
|
|
|
$
|
15,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in demand, NOW, money market and savings accounts
|
|
|
(2,749
|
)
|
|
|
11,748
|
|
Net decrease in time deposits
|
|
|
(51,561
|
)
|
|
|
(1,979
|
)
|
Net increase in securities sold under agreement to repurchase
|
|
|
52,360
|
|
|
|
25,006
|
|
Net proceeds from issuance of common stock
|
|
|
2,394
|
|
|
|
2,501
|
|
Proceeds from exercise of stock options and warrants
|
|
|
5,481
|
|
|
|
243
|
|
Dividend paid on preferred stock
|
|
|
(887
|
)
|
|
|
(887
|
)
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
$
|
5,038
|
|
|
$
|
36,632
|
|
|
|
|
Net Increase In Cash and Cash Equivalents
|
|
|
66,478
|
|
|
|
79,101
|
|
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD
|
|
|
82,569
|
|
|
|
47,387
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS END OF PERIOD
|
|
$
|
149,047
|
|
|
$
|
126,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
1,381
|
|
|
$
|
|
|
Interest paid
|
|
|
7,221
|
|
|
|
9,332
|
|
|
|
|
Supplemental Schedule of Noncash Investing Activities:
|
|
|
|
|
|
|
|
|
Unrealized (loss) gain on available-for-sale securities
|
|
$
|
(560
|
)
|
|
$
|
1,038
|
|
Unrealized gain on securities transferred from held-to-maturity to available-for-sale
|
|
|
2,558
|
|
|
|
|
|
OREO transferred from loans
|
|
|
8,655
|
|
|
|
2,975
|
|
Loans made on the disposition of OREO
|
|
|
2,762
|
|
|
|
|
|
Notes to consolidated financial statements are an integral part of these statements.
7
VIRGINIA COMMERCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited consolidated financial statements of Virginia Commerce Bancorp, Inc. and its subsidiaries (the
Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. All significant intercompany balances and transactions have
been eliminated. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments and reclassifications consisting of a normal and recurring nature considered necessary to present fairly the
financial positions as of March 31, 2012, and December 31, 2011, the results of operations for the three months ended March 31, 2012, and 2011, and statements of cash flows and stockholders equity for the three months ended
March 31, 2012, and 2011. These statements should be read in conjunction with the Companys annual report on Form 10-K for the year ended December 31, 2011. In preparing these financial statements, management has evaluated subsequent
events and transactions for potential recognition or disclosure through the date these financial statements were issued. Management has concluded there were no material subsequent events to be disclosed at this time.
Operating results for the three month period ended March 31, 2012, are not necessarily indicative of the results that may be expected for the year
ending December 31, 2012, or any other period. Reclassifications of prior years amounts are made whenever necessary to conform to the current years presentation.
Fair Value Measurements
The Company uses fair value measurements to record fair value
adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures Topic 820 of Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC), the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Companys various financial instruments. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not
be realized in an immediate settlement of the instrument.
Fair value guidance provides a consistent definition of fair value, which focuses
on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there had been a significant decrease in the volume and level of
activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date
under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.
Fair Value Hierarchy
In
accordance with the FASB guidance, the Company groups its financial assets and financial liabilities and certain non-financial assets generally measured at fair value in three levels, based on the markets in which the assets and liabilities are
traded and the reliability of the assumptions used to determine fair value.
Level 1 Valuation is based on quoted prices in active
markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market.
Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2
Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
8
Level 3 Valuation is based on unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well
as instruments for which determination of fair value requires significant management judgment or estimation.
An asset or liabilitys
categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The
following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:
Investment securities available-for-sale
: Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when
available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by
observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that considers observable market data (Level 2).
The following table summarizes the Companys financial assets and liabilities measured at fair value on a recurring basis for March 31, 2012,
and December 31, 2011, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value at March 31, 2012
|
|
Description
|
|
Balance as of
March 31,
2012
|
|
|
Quoted Prices
in Active
Markets
for
Identical
Assets
(Level
1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
494,041
|
|
|
$
|
|
|
|
$
|
494,041
|
|
|
$
|
|
|
Pooled trust preferred securities
|
|
$
|
486
|
|
|
$
|
|
|
|
$
|
486
|
|
|
$
|
|
|
Obligations of states and political subdivisions
|
|
$
|
103,651
|
|
|
$
|
|
|
|
$
|
103,651
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value at December 31, 2011
|
|
Description
|
|
Balance as of
December 31,
2011
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
523,987
|
|
|
$
|
|
|
|
$
|
523,987
|
|
|
$
|
|
|
Pooled trust preferred securities
|
|
$
|
456
|
|
|
$
|
|
|
|
$
|
456
|
|
|
$
|
|
|
Obligations of states and political subdivisions
|
|
$
|
68,621
|
|
|
$
|
|
|
|
$
|
68,621
|
|
|
$
|
|
|
At March 31, 2012, and December 31, 2011, the Company did not have any liabilities measured at fair value on a
recurring basis.
9
Certain assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to
the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets. The following describes the valuation techniques used by the Company to measure certain assets recorded at
fair value on a nonrecurring basis in the financial statements:
Loans held-for-sale
: Loans held-for-sale are carried at the lower of
cost or market value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable
market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, the Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were
recorded on loans held-for-sale during the periods ended March 31, 2012, and December 31, 2011. Gains and losses on the sale of loans are recognized in fees and net gains on loans held-for-sale on the Consolidated Statements of Income.
Impaired Loans
: Loans are designated as impaired when, in the judgment of management based on current information and events, it is
probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of
the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate, financial assets, personal or business assets including equipment, inventory, and accounts receivable. The
vast majority of the collateral is real estate. An impaired loan that is collateralized by cash is considered Level 1. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted
by an independent, licensed appraiser outside of the Company or using observable market data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years
old, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable businesss financial statements if not considered significant,
using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Impaired loans are measured at fair value on a nonrecurring basis through the
allowance for loan losses. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income.
Other real estate owned / Foreclosed assets:
Assets acquired through, or in lieu of, loan foreclosure are held-for-sale and are initially recorded at the lesser of carrying value or fair value less
cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell.
Revenue and expenses from operations and changes in the valuation are included in net expenses for foreclosed assets. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the
foreclosed asset as Level 2 valuation. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the
foreclosed asset as Level 3 valuation.
The following table summarizes the Companys assets that were measured at fair value on a
nonrecurring basis for March 31, 2012, and December 31, 2011, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value at March 31, 2012
|
|
(in thousands)
Description
|
|
Balance as of
March
31,
2012
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
79,323
|
|
|
$
|
846
|
|
|
$
|
69,133
|
|
|
$
|
9,344
|
|
Other real estate owned
|
|
$
|
12,928
|
|
|
$
|
|
|
|
$
|
8,260
|
|
|
$
|
4,668
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value at December 31, 2011
|
|
Description
|
|
Balance as of
December 31,
2011
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
83,207
|
|
|
$
|
750
|
|
|
$
|
74,078
|
|
|
$
|
8,379
|
|
Other real estate owned
|
|
$
|
8,925
|
|
|
$
|
|
|
|
$
|
4,257
|
|
|
$
|
4,668
|
|
The changes in Level 3 assets measured at estimated fair value on a nonrecurring basis during the three months ended
March 31, 2012, were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Carrying value at March 31, 2012
|
|
|
|
Impaired
Loans
|
|
|
Other Real
Estate Owned
|
|
Balance January 1, 2012
|
|
$
|
8,379
|
|
|
$
|
4,668
|
|
Decrease in carrying value
|
|
|
617
|
|
|
|
|
|
Transfers into Level 3
|
|
|
4,503
|
|
|
|
|
|
Transfers out of Level 3
|
|
|
2,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2012
|
|
$
|
9,344
|
|
|
$
|
4,668
|
|
|
|
|
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at
March 31, 2012
|
|
$
|
|
|
|
$
|
|
|
At March 31, 2012 and December 31, 2011, the Company did not have any liabilities measured at fair value on a
nonrecurring basis.
The following table displays quantitative information about Level 3 Fair Value Measurements for March 31, 2012
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Quantitative information about Level 3 Fair Value Measurements for March 31, 2012
|
Assets
|
|
Fair
Value
|
|
Valuation Technique(s)
|
|
Unobservable input
|
|
Range
|
Impaired loans
|
|
|
|
Discounted appraised value
|
|
Selling cost
|
|
5% - 10%
|
|
|
|
|
|
|
Discount for lack of marketability and age of appraisal
|
|
0% - 35%
|
|
|
|
|
Discounted cash flow
|
|
Discount for expected levels of future cash flows
|
|
10% - 25%
|
|
|
|
|
|
Other real estate owned
|
|
|
|
Discounted appraised value
|
|
Selling cost
|
|
5% - 10%
|
|
|
|
|
|
|
Discount for lack of marketability and age of appraisal
|
|
0% - 20%
|
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 these short-term instruments, including interest bearing deposits in other banks, the carrying amount is a reasonable estimate of fair value.
11
Investment Securities
For securities held for investment purposes, fair values are based upon quoted market prices, when available. If quoted market prices are not available, fair values are measured utilizing independent
valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value
of identical or similar securities by using pricing models that consider observable market data. The carrying value of restricted stock approximates fair value based on the redemption provisions of the issuers.
Loans Held-for-sale
Fair value is based
on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale.
Bank Owned Life Insurance
Bank owned
life insurance represents insurance policies on officers, directors and past employees of the Bank. The cash values of the policies are estimates using information provided by insurance carriers. These policies are carried at their cash surrender
value, which approximates the fair value.
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 noninterest-bearing demand, 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 March 31, 2012, and December 31, 2011, the fair value of loan commitments and stand-by letters of credit were deemed immaterial, and
therefore, are not included in the table below.
12
In the normal course of business, the Company is subject to market risk which includes interest rate risk
(the risk that general interest rate levels will change). As a result, the fair values of the Companys financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company.
Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize this risk.
The balance sheet
carrying amounts and estimated fair values of the Companys financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
as of
March 31, 2012, using
|
|
(Dollars in thousands)
|
|
Carrying
Amount
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and short-term investments
|
|
$
|
149,047
|
|
|
$
|
149,047
|
|
|
$
|
|
|
|
$
|
|
|
Investment securities
|
|
|
598,178
|
|
|
|
|
|
|
|
598,178
|
|
|
|
|
|
Restricted stock
|
|
|
11,272
|
|
|
|
|
|
|
|
11,272
|
|
|
|
|
|
Loans held-for-sale
|
|
|
8,164
|
|
|
|
|
|
|
|
8,164
|
|
|
|
|
|
Loan receivables
|
|
|
2,099,484
|
|
|
|
846
|
|
|
|
2,194,674
|
|
|
|
9,344
|
|
Bank owned life insurance
|
|
|
14,072
|
|
|
|
14,072
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
9,798
|
|
|
|
|
|
|
|
9,798
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
2,237,848
|
|
|
$
|
|
|
|
$
|
2,255,909
|
|
|
$
|
|
|
Securities sold under agreement to repurchase
|
|
|
315,633
|
|
|
|
258,101
|
|
|
|
75,000
|
|
|
|
|
|
Other borrowed funds
|
|
|
25,000
|
|
|
|
|
|
|
|
25,493
|
|
|
|
|
|
Trust preferred capital notes
|
|
|
66,634
|
|
|
|
|
|
|
|
103,870
|
|
|
|
|
|
Accrued interest payable
|
|
|
2,423
|
|
|
|
|
|
|
|
2,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
as of
December 31, 2011, using
|
|
(Dollars in thousands)
|
|
Carrying
Amount
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and short-term investments
|
|
$
|
82,569
|
|
|
$
|
82,569
|
|
|
$
|
|
|
|
$
|
|
|
Investment securities
|
|
|
624,956
|
|
|
|
|
|
|
|
627,495
|
|
|
|
|
|
Restricted stock
|
|
|
11,214
|
|
|
|
|
|
|
|
11,214
|
|
|
|
|
|
Loans held-for-sale
|
|
|
18,485
|
|
|
|
|
|
|
|
18,485
|
|
|
|
|
|
Loan receivables
|
|
|
2,120,291
|
|
|
|
750
|
|
|
|
2,114,199
|
|
|
|
8,379
|
|
Bank owned life insurance
|
|
|
14,017
|
|
|
|
14,017
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
10,007
|
|
|
|
|
|
|
|
10,007
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
2,292,158
|
|
|
$
|
|
|
|
$
|
2,311,842
|
|
|
$
|
|
|
Securities sold under agreement to repurchase
|
|
|
263,273
|
|
|
|
206,145
|
|
|
|
75,000
|
|
|
|
|
|
Other borrowed funds
|
|
|
25,000
|
|
|
|
|
|
|
|
25,733
|
|
|
|
|
|
Trust preferred capital notes
|
|
|
66,570
|
|
|
|
|
|
|
|
103,680
|
|
|
|
|
|
Accrued interest payable
|
|
|
2,418
|
|
|
|
|
|
|
|
2,418
|
|
|
|
|
|
13
Amortized cost and fair value of the investment securities available-for-sale and held-to-maturity as of March 31,
2012, and December 31, 2011, are as follows (dollars in thousands). As of March 31, 2012, the Company transferred its held-to-maturity investment portfolio with an amortized cost of $30.0 million and a fair value of $32.5 million, to its
available-for-sale investment portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2012
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Fair Value
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
487,211
|
|
|
$
|
7,327
|
|
|
$
|
(497
|
)
|
|
$
|
494,041
|
|
Pooled trust preferred securities
|
|
|
5,616
|
|
|
|
58
|
|
|
|
(5,188
|
)
|
|
$
|
486
|
|
Obligations of states and political subdivisions
|
|
|
97,022
|
|
|
|
6,713
|
|
|
|
(84
|
)
|
|
|
103,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment securities available-for-sale
|
|
$
|
589,849
|
|
|
$
|
14,098
|
|
|
$
|
(5,769
|
)
|
|
$
|
598,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Fair Value
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
514,961
|
|
|
$
|
9,455
|
|
|
$
|
(429
|
)
|
|
$
|
523,987
|
|
Pooled trust preferred securities
|
|
|
5,526
|
|
|
|
56
|
|
|
|
(5,126
|
)
|
|
|
456
|
|
Obligations of states and political subdivisions
|
|
|
63,652
|
|
|
|
4,997
|
|
|
|
(28
|
)
|
|
|
68,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment securities available-for-sale
|
|
$
|
584,139
|
|
|
$
|
14,508
|
|
|
$
|
(5,583
|
)
|
|
$
|
593,064
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
3,763
|
|
|
$
|
253
|
|
|
$
|
|
|
|
$
|
4,016
|
|
Obligations of state and political subdivisions
|
|
|
28,129
|
|
|
|
2,286
|
|
|
|
|
|
|
|
30,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment securities held-to-maturity
|
|
$
|
31,892
|
|
|
$
|
2,538
|
|
|
$
|
|
|
|
$
|
34,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost of securities pledged as collateral for repurchase agreements, certain public deposits, and other
purposes was $389.5 million and $392.8 million at March 31, 2012, and December 31, 2011, respectively.
Management evaluates
securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. An impairment is considered to be other-than-temporary if the Company (1) intends to
sell the security, (2) more likely than not will be required to sell the security before recovering its cost, or (3) does not expect to recover the securitys entire amortized cost basis.
Provided below is a summary of all securities which were in an unrealized loss position at March 31, 2012, and December 31, 2011, that were
evaluated for other-than-temporary impairment, and deemed to not have an other-than-temporary impairment. Presently, the Company does not intend to sell any of these securities, does not expect to be required to sell these securities, and expects to
recover the adjusted amortized cost of all the securities. For U.S. Government Agency obligations and obligations of states and political subdivisions, the unrealized losses result from market or interest rate risk, while the unrealized losses
pertaining to the pooled trust preferred securities are due to performance and credit ratings, as well as interest rate risk.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2012
|
|
Less Than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
(Dollars in thousands)
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
117,570
|
|
|
$
|
(497
|
)
|
|
$
|
117,570
|
|
|
$
|
(497
|
)
|
Pooled trust preferred securities
|
|
|
332
|
|
|
|
(5,188
|
)
|
|
|
|
|
|
|
|
|
|
|
332
|
|
|
|
(5,188
|
)
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
7,938
|
|
|
|
(84
|
)
|
|
|
7,938
|
|
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
332
|
|
|
$
|
(5,188
|
)
|
|
$
|
125,508
|
|
|
$
|
(581
|
)
|
|
$
|
125,840
|
|
|
$
|
(5,769
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
Less Than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
(Dollars in thousands)
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency obligations
|
|
$
|
74,594
|
|
|
$
|
(429
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
74,594
|
|
|
$
|
(429
|
)
|
Pooled trust preferred securities
|
|
|
|
|
|
|
|
|
|
|
306
|
|
|
|
(5,126
|
)
|
|
|
306
|
|
|
|
(5,126
|
)
|
Obligations of states and political subdivisions
|
|
|
313
|
|
|
|
(10
|
)
|
|
|
512
|
|
|
|
(18
|
)
|
|
|
825
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
74,907
|
|
|
$
|
(439
|
)
|
|
$
|
818
|
|
|
$
|
(5,144
|
)
|
|
$
|
75,725
|
|
|
$
|
(5,583
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2012 the Company had three pooled trust preferred securities that were deemed to be
other-than-temporarily impaired (OTTI) based on a present value analysis of expected future cash flows. The following table provides further information on these three securities as of March 31, 2012 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Class
|
|
Moodys
Ratings
(Lowest
Assigned
Rating)
|
|
Adjusted
Book
Value
|
|
|
Fair
Value
|
|
|
Unrealized
(Gain)
Loss
|
|
|
Current
Defaults
and
Deferrals
|
|
|
% of Current
Defaults and
Deferrals to
Current
Collateral
|
|
|
Excess
Sub (1)
|
|
|
Estimated
Incremental
Defaults
Required to
Break Yield (2)
|
|
|
Cumulative
Other
Comprehensive
(Income) Loss (3)
|
|
|
Amount of
OTTI
Related to
Credit
Loss (3)
|
|
PreTSL VI
|
|
Mez
|
|
Ca
|
|
$
|
95
|
|
|
$
|
153
|
|
|
$
|
(58
|
)
|
|
|
30,000
|
|
|
|
73.6
|
%
|
|
|
-93.55
|
%
|
|
|
BROKEN
|
|
|
$
|
(58
|
)
|
|
$
|
|
|
PreTSL X
|
|
B-1
|
|
C
|
|
|
518
|
|
|
|
13
|
|
|
|
505
|
|
|
|
233,595
|
|
|
|
50.0
|
%
|
|
|
-80.13
|
%
|
|
|
BROKEN
|
|
|
|
505
|
|
|
|
|
|
PreTSL XXVI
|
|
C-2
|
|
C
|
|
|
2,084
|
|
|
|
28
|
|
|
|
2,056
|
|
|
|
265,500
|
|
|
|
28.0
|
%
|
|
|
-20.17
|
%
|
|
$
|
40
|
|
|
|
2,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
2,697
|
|
|
$
|
194
|
|
|
$
|
2,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,503
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excess subordination is the difference between the remaining performing collateral and the amount of bonds outstanding that are pari passu and senior to the class the
Company owns. Negative excess subordination indicates there is not enough performing collateral in the pool to cover the outstanding balance of all classes senior to those the Company owns.
|
(2)
|
A break in yield for a given class means that defaults/deferrals have reached such a level that the class would not receive all of its contractual cash flows (principal
and interest) by maturity (so that it is not just a temporary interest shortfall, but an actual loss in yield on the investment). This represents additional defaults beyond those assumed in our cash flow modeling.
|
As of March 31, 2012, the
Company had one pooled trust preferred security that was deemed to be temporarily impaired based on a present value analysis of expected future cash flows. The security had a fair value of $292 thousand. The following table provides further
information on this security as of March 31, 2012 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Class
|
|
Moodys
Ratings
(Lowest
Assigned
Rating)
|
|
Adjusted
Book
Value
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Current
Defaults
and
Deferrals
|
|
|
% of Current
Defaults and
Deferrals to
Current
Collateral
|
|
|
Excess
Sub (1)
|
|
|
Estimated
Incremental
Defaults
Required to
Break Yield (2)
|
|
|
Cumulative Other
Comprehensive
Loss (3)
|
|
|
Amount of
OTTI
Related to
Credit
Loss (3)
|
|
PreTSL XXVII
|
|
B
|
|
Cc
|
|
$
|
2,919
|
|
|
$
|
292
|
|
|
$
|
2,627
|
|
|
|
91,800
|
|
|
|
28.1
|
%
|
|
|
-2.73
|
%
|
|
$
|
53
|
|
|
$
|
2,627
|
|
|
$
|
|
|
(1)
|
Excess subordination is the difference between the remaining performing collateral and the amount of bonds outstanding that are pari passu and senior to the class the
Company owns. Negative excess subordination indicates there is not enough performing collateral in the pool to cover the outstanding balance of all classes senior to those the Company owns.
|
(2)
|
A break in yield for a given class means that defaults/deferrals have reached such a level that the class would not receive all of its contractual cash flows (principal
and interest) by maturity (so that it is not just a temporary interest shortfall, but an actual loss in yield on the investment). This represents additional defaults beyond those assumed in our cash flow modeling.
|
15
The following table presents a roll-forward of the credit loss component amount of OTTI recognized in
earnings:
|
|
|
|
|
(in thousands)
|
|
|
|
Amount recognized through December 31, 2011
|
|
$
|
4,200
|
|
Additions:
|
|
|
|
|
Initial credit impairments
|
|
|
|
|
Subsequent credit impairments
|
|
|
|
|
|
|
|
|
|
Amount recognized through March 31, 2012
|
|
$
|
4,200
|
|
Management has evaluated each of these securities for potential impairment under ASC 325 Investments-Other
and the most recently issued related guidance, and has reviewed each of the issues collateral participants most recent earnings, capital and loan loss reserve levels, and non-performing loan levels to estimate a future deferral and
default rate in basis points for the remaining life of each security. For the quarter ending March 31, 2012, we used a consistent 75 basis points for all PreTSL securities, VI, X, XXVI and XXVII, for expected deferrals and defaults as a
percentage of remaining performing collateral for future periods. In performing a detailed present value cash flow analysis for each security, the deferral rate was treated the same. If this analysis results in a present value of expected cash flows
that is less than the amortized cost basis of a security (that is, a credit loss exists), an OTTI is considered to have occurred. If there is no credit loss, any impairment is considered temporary. The Cash flow analysis we performed used discount
rates equal to the credit spread at the time of purchase for each security and then added the current 3-month LIBOR forward interest rate curve. The analysis also assumed 15% recoveries on deferrals after two years and prepayments of
1% per year on each security. As of March 31, 2012, there were 3 out of 5 performing issuers in PreTSL VI, 33 out of 53 in PreTSL X, 49 out of 72 in PreTSL XXVI, and 33 out of 49 in PreTSL XXVII.
Our investment in Federal Home Loan Bank (FHLB) stock totaled $6.0 million at March 31, 2012. FHLB stock is generally viewed as a
long-term investment and as a restricted security, which is carried at cost, because there is no market for the stock, other than FHLBs or member institutions. Therefore, when evaluating FHLB stock for impairment, its value is based on the ultimate
recoverability of the par value rather than by recognizing temporary declines in value. Although the FHLB temporarily suspended excess stock repurchases in 2009, the FHLB resumed its stock repurchase program in 2010, reported net income in all four
quarters of 2010 and 2011 and in the first quarter of 2012, and declared dividends for all four quarters of 2011. Accordingly, the Company does not consider this investment to be other-than-temporarily impaired at March 31, 2012, and no
impairment has been recognized. FHLB stock is shown in restricted investments on the consolidated balance sheets and is not part of the available-for-sale securities portfolio.
16
Major classes of loans, excluding loans held-for-sale, are summarized at March 31, 2012, and December 31, 2011, as follows
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
Commercial
|
|
$
|
247,837
|
|
|
$
|
252,382
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
|
|
|
Permanent first and second
|
|
|
256,578
|
|
|
|
246,420
|
|
Home equity loans and lines
|
|
|
127,034
|
|
|
|
126,530
|
|
|
|
|
|
|
|
|
|
|
Total real estate-one-to-four family residential
|
|
$
|
383,612
|
|
|
$
|
372,950
|
|
Real estate multi-family residential
|
|
|
81,033
|
|
|
|
76,506
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
|
473,881
|
|
|
|
460,773
|
|
Non-owner-occupied
|
|
|
691,845
|
|
|
|
672,137
|
|
|
|
|
|
|
|
|
|
|
Total real estate-non-farm, non-residential
|
|
$
|
1,165,726
|
|
|
$
|
1,132,910
|
|
Real estate-construction:
|
|
|
|
|
|
|
|
|
Residential
|
|
|
136,757
|
|
|
|
151,117
|
|
Commercial
|
|
|
121,667
|
|
|
|
175,300
|
|
|
|
|
|
|
|
|
|
|
Total real estate-construction
|
|
$
|
258,424
|
|
|
$
|
326,417
|
|
Consumer
|
|
|
8,784
|
|
|
|
8,592
|
|
Farmland
|
|
|
2,574
|
|
|
|
2,573
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
2,147,990
|
|
|
$
|
2,172,330
|
|
|
|
|
|
|
|
|
|
|
Less unearned income
|
|
|
3,135
|
|
|
|
3,310
|
|
Less allowance for loan losses
|
|
|
45,371
|
|
|
|
48,729
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
2,099,484
|
|
|
$
|
2,120,291
|
|
|
|
|
|
|
|
|
|
|
Classes of loans by risk rating as of March 31, 2012, excluding loans held-for-sale, are summarized as follows
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal Risk Rating Grades
|
|
Pass
|
|
|
Watch
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total Loans
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
175,523
|
|
|
$
|
34,782
|
|
|
$
|
4,997
|
|
|
$
|
23,427
|
|
|
$
|
9,108
|
|
|
$
|
247,837
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent first and second
|
|
|
205,804
|
|
|
|
15,342
|
|
|
|
10,163
|
|
|
|
25,154
|
|
|
|
115
|
|
|
|
256,578
|
|
Home equity loans and lines
|
|
|
111,181
|
|
|
|
3,288
|
|
|
|
1,902
|
|
|
|
8,420
|
|
|
|
2,243
|
|
|
|
127,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-one-to-four family residential
|
|
$
|
316,985
|
|
|
$
|
18,630
|
|
|
$
|
12,065
|
|
|
$
|
33,574
|
|
|
$
|
2,358
|
|
|
$
|
383,612
|
|
Real estate-multi-family residential
|
|
|
76,304
|
|
|
|
4,253
|
|
|
|
|
|
|
|
476
|
|
|
|
|
|
|
|
81,033
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
|
369,014
|
|
|
|
63,240
|
|
|
|
25,360
|
|
|
|
16,267
|
|
|
|
|
|
|
|
473,881
|
|
Non-owner-occupied
|
|
|
505,373
|
|
|
|
119,446
|
|
|
|
37,154
|
|
|
|
29,872
|
|
|
|
|
|
|
|
691,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-non-farm, non-residential
|
|
$
|
874,387
|
|
|
$
|
182,686
|
|
|
$
|
62,514
|
|
|
$
|
46,139
|
|
|
$
|
|
|
|
$
|
1,165,726
|
|
Real estate-construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
65,280
|
|
|
|
22,329
|
|
|
|
20,100
|
|
|
|
29,048
|
|
|
|
|
|
|
|
136,757
|
|
Commercial
|
|
|
39,092
|
|
|
|
20,483
|
|
|
|
36,037
|
|
|
|
26,055
|
|
|
|
|
|
|
|
121,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-construction
|
|
$
|
104,372
|
|
|
$
|
42,812
|
|
|
$
|
56,137
|
|
|
$
|
55,103
|
|
|
$
|
|
|
|
$
|
258,424
|
|
Consumer
|
|
|
8,259
|
|
|
|
291
|
|
|
|
167
|
|
|
|
67
|
|
|
|
|
|
|
|
8,784
|
|
Farmland
|
|
|
2,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,558,404
|
|
|
$
|
283,454
|
|
|
$
|
135,880
|
|
|
$
|
158,786
|
|
|
$
|
11,466
|
|
|
$
|
2,147,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Classes of loans by risk rating as of December 31, 2011, excluding loans held-for-sale, are summarized
as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal Risk Rating Grades
|
|
Pass
|
|
|
Watch
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total Loans
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
172,457
|
|
|
$
|
51,935
|
|
|
$
|
1,506
|
|
|
$
|
22,178
|
|
|
$
|
4,306
|
|
|
$
|
252,382
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent first and second
|
|
|
195,786
|
|
|
|
16,726
|
|
|
|
7,004
|
|
|
|
26,904
|
|
|
|
|
|
|
|
246,420
|
|
Home equity loans and lines
|
|
|
111,800
|
|
|
|
4,937
|
|
|
|
1,441
|
|
|
|
6,105
|
|
|
|
2,247
|
|
|
|
126,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-one-to-four family residential
|
|
$
|
307,586
|
|
|
$
|
21,663
|
|
|
$
|
8,445
|
|
|
$
|
33,009
|
|
|
$
|
2,247
|
|
|
$
|
372,950
|
|
Real estate-multi-family residential
|
|
|
71,756
|
|
|
|
4,274
|
|
|
|
|
|
|
|
476
|
|
|
|
|
|
|
|
76,506
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
|
357,480
|
|
|
|
62,766
|
|
|
|
21,777
|
|
|
|
18,750
|
|
|
|
|
|
|
|
460,773
|
|
Non-owner-occupied
|
|
|
481,584
|
|
|
|
111,779
|
|
|
|
31,361
|
|
|
|
47,413
|
|
|
|
|
|
|
|
672,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-non-farm, non-residential
|
|
$
|
839,064
|
|
|
$
|
174,545
|
|
|
$
|
53,138
|
|
|
$
|
66,163
|
|
|
$
|
|
|
|
$
|
1,132,910
|
|
Real estate-construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
70,323
|
|
|
|
30,546
|
|
|
|
12,984
|
|
|
|
37,264
|
|
|
|
|
|
|
|
151,117
|
|
Commercial
|
|
|
63,520
|
|
|
|
59,217
|
|
|
|
27,395
|
|
|
|
25,168
|
|
|
|
|
|
|
|
175,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-construction
|
|
$
|
133,843
|
|
|
$
|
89,763
|
|
|
$
|
40,379
|
|
|
$
|
62,432
|
|
|
$
|
|
|
|
$
|
326,417
|
|
Consumer
|
|
|
8,169
|
|
|
|
233
|
|
|
|
119
|
|
|
|
71
|
|
|
|
|
|
|
|
8,592
|
|
Farmland
|
|
|
2,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,535,448
|
|
|
$
|
342,413
|
|
|
$
|
103,587
|
|
|
$
|
184,329
|
|
|
$
|
6,553
|
|
|
$
|
2,172,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan risk-ratings for the Bank are defined as follows:
Pass.
Loans to persons or entities with a strong to acceptable financial condition, adequate collateral margins, adequate cash flow to service long-term debt, adequate liquidity and sound net
worth. These entities are profitable now, with projections indicating continued profitability into the foreseeable future. Closely held corporations or businesses where a majority of the profits are withdrawn by the owners or paid in dividends are
included in this rating category. Overall, these loans are basically sound.
Watch.
These loans are characterized by greater than
average risk. Borrowers may have marginal cash flow, marginal profitability, or have experienced an unprofitable year and a declining financial condition. The borrower has in the past satisfactorily handled debts with the Bank, but in recent months
has either been late, delinquent in making payments, or made sporadic payments. While the Bank continues to be adequately secured, margins have decreased or are decreasing, despite the borrowers continued satisfactory condition. Other
characteristics of borrowers in this class may include inadequate credit or financial information. This classification includes loans to established borrowers that are reasonably margined by collateral, but where potential for improvement in
financial capacity appears limited.
Special Mention.
Loans in this category have potential weaknesses that deserve managements
close attention. If left uncorrected, these potential weaknesses may result in deteriorating prospects for the asset or in the institutions credit position at some future date. Other assets especially mentioned (OAEMs) are not
adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification.
Substandard.
A loan classified
as substandard is inadequately protected by the sound worth and paying capacity of the borrower or the collateral pledged. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual assets.
Doubtful.
A loan classified as doubtful has all the weaknesses inherent in a loan classified as substandard, with the added
characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. These are poor quality loans in which neither the collateral, if any,
nor the financial condition of the borrower presently ensure collectability in full in a reasonable period of time; in fact, there is permanent impairment in the collateral securing the Banks loan. These loans are in a work-out status and have
a defined work-out strategy.
18
Loss.
Loans classified as loss are considered uncollectible and of such little value that their
continuance as bankable assets is not warranted. The Bank takes losses in the period in which they become uncollectible.
As of March 31,
2012, and December 31, 2011, there were $590 thousand and $166 thousand, respectively, in checking account overdrafts that were reclassified on the consolidated balance sheets as loans.
4.
|
Allowance for Loan Losses
|
An analysis of the allowance for loan losses for the three months ended March 31, 2012, and the year ended December 31, 2011,
is shown below (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses By Segment
(dollars in thousands)
For the three months ended
March 31, 2012
|
|
Commercial
|
|
|
Non-Farm,
Non-Res.
Real
Estate
|
|
|
Real Estate
Construction
|
|
|
Consumer
|
|
|
Real
Estate
One-to-Four
Family
Residential
|
|
|
Real Estate
Multi-
Family
Residential
|
|
|
Farmland
|
|
|
Unallocated
|
|
|
Total
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
10,378
|
|
|
$
|
12,554
|
|
|
$
|
15,161
|
|
|
$
|
245
|
|
|
$
|
9,724
|
|
|
$
|
608
|
|
|
$
|
59
|
|
|
$
|
|
|
|
$
|
48,729
|
|
Charge-offs
|
|
|
(4,791
|
)
|
|
|
(717
|
)
|
|
|
(3,586
|
)
|
|
|
(220
|
)
|
|
|
(358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,672
|
)
|
Recoveries
|
|
|
124
|
|
|
|
38
|
|
|
|
|
|
|
|
11
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
320
|
|
Provision
|
|
|
2,420
|
|
|
|
2,580
|
|
|
|
325
|
|
|
|
265
|
|
|
|
400
|
|
|
|
36
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
5,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
8,131
|
|
|
$
|
14,455
|
|
|
$
|
11,900
|
|
|
$
|
301
|
|
|
$
|
9,913
|
|
|
$
|
644
|
|
|
$
|
59
|
|
|
$
|
(32
|
)
|
|
$
|
45,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
3,030
|
|
|
$
|
4,998
|
|
|
$
|
3,677
|
|
|
$
|
48
|
|
|
$
|
6,618
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,371
|
|
Collectively evaluated for impairment
|
|
|
5,101
|
|
|
|
9,457
|
|
|
|
8,223
|
|
|
|
253
|
|
|
|
3,295
|
|
|
|
644
|
|
|
|
59
|
|
|
|
(32
|
)
|
|
|
27,000
|
|
|
|
|
|
|
|
|
|
|
|
Financing Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
247,837
|
|
|
$
|
1,165,726
|
|
|
$
|
258,424
|
|
|
$
|
8,784
|
|
|
$
|
383,612
|
|
|
$
|
81,033
|
|
|
$
|
2,574
|
|
|
$
|
|
|
|
$
|
2,147,990
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
|
32,535
|
|
|
|
53,136
|
|
|
|
55,102
|
|
|
|
68
|
|
|
|
36,817
|
|
|
|
476
|
|
|
|
|
|
|
|
|
|
|
|
178,134
|
|
Collectively evaluated for impairment
|
|
|
215,302
|
|
|
|
1,112,590
|
|
|
|
203,322
|
|
|
|
8,716
|
|
|
|
346,795
|
|
|
|
80,557
|
|
|
|
2,574
|
|
|
|
|
|
|
|
1,969,856
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses By Segment
(dollars in thousands)
For the year ended
Dec. 31, 2011
|
|
Commercial
|
|
|
Non-Farm,
Non-Res.
Real
Estate
|
|
|
Real Estate
Construction
|
|
|
Consumer
|
|
|
Real
Estate
One-to-Four
Family
Residential
|
|
|
Real
Estate
Multi-
Family
Residential
|
|
|
Farmland
|
|
|
Unallocated
|
|
|
Total
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
9,972
|
|
|
$
|
16,453
|
|
|
$
|
26,584
|
|
|
$
|
373
|
|
|
$
|
8,337
|
|
|
$
|
619
|
|
|
$
|
63
|
|
|
$
|
41
|
|
|
$
|
62,442
|
|
Charge-offs
|
|
|
(2,357
|
)
|
|
|
(9,188
|
)
|
|
|
(16,631
|
)
|
|
|
(156
|
)
|
|
|
(3,577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,909
|
)
|
Recoveries
|
|
|
672
|
|
|
|
431
|
|
|
|
2,005
|
|
|
|
38
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,347
|
|
Provision
|
|
|
2,091
|
|
|
|
4,858
|
|
|
|
3,203
|
|
|
|
(10
|
)
|
|
|
4,763
|
|
|
|
(11
|
)
|
|
|
(4
|
)
|
|
|
(41
|
)
|
|
|
14,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
10,378
|
|
|
$
|
12,554
|
|
|
$
|
15,161
|
|
|
$
|
245
|
|
|
$
|
9,724
|
|
|
$
|
608
|
|
|
$
|
59
|
|
|
$
|
|
|
|
$
|
48,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
5,351
|
|
|
$
|
2,991
|
|
|
$
|
6,786
|
|
|
$
|
52
|
|
|
$
|
5,508
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20,688
|
|
Collectively evaluated for impairment
|
|
|
5,027
|
|
|
|
9,563
|
|
|
|
8,375
|
|
|
|
193
|
|
|
|
4,216
|
|
|
|
608
|
|
|
|
59
|
|
|
|
|
|
|
|
28,041
|
|
|
|
|
|
|
|
|
|
|
|
Financing Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
252,382
|
|
|
$
|
1,132,910
|
|
|
$
|
326,417
|
|
|
$
|
8,592
|
|
|
$
|
372,950
|
|
|
$
|
76,506
|
|
|
$
|
2,573
|
|
|
$
|
|
|
|
$
|
2,172,330
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
|
26,484
|
|
|
|
70,464
|
|
|
|
67,083
|
|
|
|
71
|
|
|
|
35,659
|
|
|
|
476
|
|
|
|
|
|
|
|
|
|
|
|
200,237
|
|
Collectively evaluated for impairment
|
|
|
225,898
|
|
|
|
1,062,446
|
|
|
|
259,334
|
|
|
|
8,521
|
|
|
|
337,291
|
|
|
|
76,030
|
|
|
|
2,573
|
|
|
|
|
|
|
|
1,972,093
|
|
A loans past due status is based on the contractual due date of the most delinquent payment due. Loans are
generally placed on non-accrual status when the collection of principal or interest is 90 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength
of the borrower. Loans greater than 90 days past due may remain on accrual status if management determines it has adequate collateral to cover the principal and interest. For those loans that are carried on non-accrual status, payments are first
applied to principal outstanding. A loan may be returned to accrual status if the borrower has demonstrated a sustained period of repayment performance in accordance with the contractual terms of the loan and there is reasonable assurance the
borrower will continue to make payments as agreed. These policies are applied consistently across our loan portfolio.
Included in certain
loan categories in the impaired loans are troubled debt restructurings (TDRs) that were classified as impaired. A TDR loan is a loan that has been restructured with a modification that could include interest rate modification, deferral
of interest or principal or an extension of term. At March 31, 2012, the Company had $11.5 million in real estate construction loans, $2.4 million in real estate permanent one-to-four- family loans, $19.2 million in non-farm/non-residential
loans and $9.3 million in commercial loans that were TDR modifications and considered impaired. Included in this amount of $42.4 million, the Bank had TDRs that were performing in accordance with their modified terms of $40.2 million at
March 31, 2012.
20
Information about past due loans and impaired loans as of March 31, 2012, and December 31, 2011,
is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Accrual and Past Due by class
March 31, 2012
|
|
30-59
Days
Past
Due
|
|
|
60-89
Days
Past Due
|
|
|
Greater
than 90
Days
Past Due
|
|
|
Total
Past Due
|
|
|
Current
(1)
|
|
|
Total Loans
|
|
|
Greater
than 90
Days Past
Due and
Still
Accruing
|
|
|
Non-
Accrual
Loans
|
|
Commercial
|
|
$
|
418
|
|
|
$
|
1,498
|
|
|
$
|
9,560
|
|
|
$
|
11,476
|
|
|
$
|
236,361
|
|
|
$
|
247,837
|
|
|
$
|
|
|
|
$
|
9,968
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent first and second
|
|
|
3,680
|
|
|
|
972
|
|
|
|
1,593
|
|
|
|
6,245
|
|
|
|
250,333
|
|
|
|
256,578
|
|
|
|
56
|
|
|
|
3,060
|
|
Home equity loans and lines
|
|
|
640
|
|
|
|
|
|
|
|
2,560
|
|
|
|
3,200
|
|
|
|
123,834
|
|
|
|
127,034
|
|
|
|
|
|
|
|
3,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-one-to-four family residential
|
|
$
|
4,320
|
|
|
$
|
972
|
|
|
$
|
4,153
|
|
|
$
|
9,445
|
|
|
$
|
374,167
|
|
|
$
|
383,612
|
|
|
$
|
56
|
|
|
$
|
6,640
|
|
Real estate multi-family residential
|
|
|
|
|
|
|
|
|
|
|
476
|
|
|
|
476
|
|
|
|
80,557
|
|
|
|
81,033
|
|
|
|
|
|
|
|
476
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
|
|
|
|
|
278
|
|
|
|
1,917
|
|
|
|
2,195
|
|
|
|
471,686
|
|
|
|
473,881
|
|
|
|
|
|
|
|
2,997
|
|
Non-owner-occupied
|
|
|
690
|
|
|
|
797
|
|
|
|
88
|
|
|
|
1,575
|
|
|
|
690,270
|
|
|
|
691,845
|
|
|
|
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-non-farm, non-residential
|
|
$
|
690
|
|
|
$
|
1,075
|
|
|
$
|
2,005
|
|
|
$
|
3,770
|
|
|
$
|
1,161,956
|
|
|
$
|
1,165,726
|
|
|
$
|
|
|
|
$
|
3,085
|
|
Real estate-construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
4,216
|
|
|
|
4,216
|
|
|
|
132,541
|
|
|
|
136,757
|
|
|
|
|
|
|
|
12,122
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
14,232
|
|
|
|
14,232
|
|
|
|
107,435
|
|
|
|
121,667
|
|
|
|
|
|
|
|
14,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-construction
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,448
|
|
|
$
|
18,448
|
|
|
$
|
239,976
|
|
|
$
|
258,424
|
|
|
$
|
|
|
|
$
|
26,354
|
|
Consumer
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
8,685
|
|
|
|
8,784
|
|
|
|
|
|
|
|
19
|
|
Farmland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,574
|
|
|
|
2,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
5,527
|
|
|
$
|
3,545
|
|
|
$
|
34,642
|
|
|
$
|
43,714
|
|
|
$
|
2,104,276
|
|
|
$
|
2,147,990
|
|
|
$
|
56
|
|
|
$
|
46,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For the purposes
of this table, loans 1-29 days past due are included in the balance of Current loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Accrual and Past Due by class
December 31, 2011
|
|
30-59
Days
Past
Due
|
|
|
60-89
Days
Past Due
|
|
|
Greater
than 90
Days
Past Due
|
|
|
Total
Past Due
|
|
|
Current
(1)
|
|
|
Total Loans
|
|
|
Greater
than 90
Days Past
Due and
Still
Accruing
|
|
|
Non-
Accrual
Loans
|
|
Commercial
|
|
$
|
176
|
|
|
$
|
1,222
|
|
|
$
|
3,384
|
|
|
$
|
4,782
|
|
|
$
|
247,600
|
|
|
$
|
252,382
|
|
|
$
|
|
|
|
$
|
5,005
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent first and second
|
|
|
582
|
|
|
|
2,966
|
|
|
|
3,306
|
|
|
|
6,854
|
|
|
|
239,566
|
|
|
|
246,420
|
|
|
|
71
|
|
|
|
3,912
|
|
Home equity loans and lines
|
|
|
335
|
|
|
|
240
|
|
|
|
2,605
|
|
|
|
3,180
|
|
|
|
123,350
|
|
|
|
126,530
|
|
|
|
250
|
|
|
|
3,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-one-to-four family residential
|
|
$
|
917
|
|
|
$
|
3,206
|
|
|
$
|
5,911
|
|
|
$
|
10,034
|
|
|
$
|
362,916
|
|
|
$
|
372,950
|
|
|
$
|
321
|
|
|
$
|
7,054
|
|
Real estate multi-family residential
|
|
|
|
|
|
|
|
|
|
|
476
|
|
|
|
476
|
|
|
|
76,030
|
|
|
|
76,506
|
|
|
|
|
|
|
|
476
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
|
24
|
|
|
|
984
|
|
|
|
909
|
|
|
|
1,917
|
|
|
|
458,856
|
|
|
|
460,773
|
|
|
|
|
|
|
|
1,999
|
|
Non-owner-occupied
|
|
|
262
|
|
|
|
5,801
|
|
|
|
|
|
|
|
6,063
|
|
|
|
666,074
|
|
|
|
672,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-non-farm, non-residential
|
|
$
|
286
|
|
|
$
|
6,785
|
|
|
$
|
909
|
|
|
$
|
7,980
|
|
|
$
|
1,124,930
|
|
|
$
|
1,132,910
|
|
|
$
|
|
|
|
$
|
1,999
|
|
Real estate-construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
600
|
|
|
|
161
|
|
|
|
10,384
|
|
|
|
11,145
|
|
|
|
139,972
|
|
|
|
151,117
|
|
|
|
|
|
|
|
18,479
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
5,505
|
|
|
|
5,505
|
|
|
|
169,795
|
|
|
|
175,300
|
|
|
|
|
|
|
|
5,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-construction
|
|
$
|
600
|
|
|
$
|
161
|
|
|
$
|
15,889
|
|
|
$
|
16,650
|
|
|
$
|
309,767
|
|
|
$
|
326,417
|
|
|
$
|
|
|
|
$
|
23,984
|
|
Consumer
|
|
|
105
|
|
|
|
|
|
|
|
11
|
|
|
|
116
|
|
|
|
8,476
|
|
|
|
8,592
|
|
|
|
11
|
|
|
|
18
|
|
Farmland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,573
|
|
|
|
2,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
2,084
|
|
|
$
|
11,374
|
|
|
$
|
26,580
|
|
|
$
|
40,038
|
|
|
$
|
2,132,292
|
|
|
$
|
2,172,330
|
|
|
$
|
332
|
|
|
$
|
38,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For the purposes
of this table, loans 1-29 days past due are included in the balance of Current loans.
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans as of March 31, 2012
(dollars in thousands)
|
|
Recorded
Investment
(Bank
Balance)
|
|
|
Unpaid
Principal
Balance
(Customer
Balance)
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
With no related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
15,116
|
|
|
$
|
15,138
|
|
|
$
|
|
|
|
$
|
13,068
|
|
|
$
|
135
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent first and second
|
|
|
3,006
|
|
|
|
3,199
|
|
|
|
|
|
|
|
1,666
|
|
|
|
17
|
|
Home equity loans and lines
|
|
|
1,294
|
|
|
|
1,298
|
|
|
|
|
|
|
|
3,048
|
|
|
|
32
|
|
Real estate-multi-family residential
|
|
|
476
|
|
|
|
485
|
|
|
|
|
|
|
|
476
|
|
|
|
5
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
|
13,288
|
|
|
|
13,395
|
|
|
|
|
|
|
|
14,571
|
|
|
|
151
|
|
Non-owner-occupied
|
|
|
7,883
|
|
|
|
7,883
|
|
|
|
|
|
|
|
16,558
|
|
|
|
171
|
|
Real estate-construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
16,755
|
|
|
|
16,766
|
|
|
|
|
|
|
|
16,625
|
|
|
|
172
|
|
Commercial
|
|
|
22,621
|
|
|
|
22,621
|
|
|
|
|
|
|
|
22,381
|
|
|
|
232
|
|
Consumer
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
17,419
|
|
|
$
|
17,429
|
|
|
$
|
3,030
|
|
|
$
|
16,442
|
|
|
$
|
170
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent first and second
|
|
|
23,340
|
|
|
|
23,353
|
|
|
|
3,366
|
|
|
|
15,588
|
|
|
|
161
|
|
Home equity loans and lines
|
|
|
9,177
|
|
|
|
9,238
|
|
|
|
3,252
|
|
|
|
15,937
|
|
|
|
165
|
|
Real estate-multi-family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
|
3,625
|
|
|
|
3,625
|
|
|
|
501
|
|
|
|
3,584
|
|
|
|
37
|
|
Non-owner-occupied
|
|
|
28,340
|
|
|
|
28,340
|
|
|
|
4,497
|
|
|
|
27,088
|
|
|
|
280
|
|
Real estate-construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
12,292
|
|
|
|
12,293
|
|
|
|
3,246
|
|
|
|
16,531
|
|
|
|
171
|
|
Commercial
|
|
|
3,434
|
|
|
|
3,455
|
|
|
|
431
|
|
|
|
5,557
|
|
|
|
57
|
|
Consumer
|
|
|
67
|
|
|
|
70
|
|
|
|
48
|
|
|
|
69
|
|
|
|
1
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
32,535
|
|
|
$
|
32,567
|
|
|
$
|
3,030
|
|
|
$
|
29,510
|
|
|
$
|
305
|
|
Real estate-one-to-four family residential
|
|
|
36,817
|
|
|
|
37,088
|
|
|
|
6,618
|
|
|
|
36,238
|
|
|
|
375
|
|
Real estate-multi-family residential
|
|
|
476
|
|
|
|
485
|
|
|
|
|
|
|
|
476
|
|
|
|
5
|
|
Real estate-non-farm, non-residential
|
|
|
53,136
|
|
|
|
53,243
|
|
|
|
4,998
|
|
|
|
61,800
|
|
|
|
639
|
|
Construction
|
|
|
55,102
|
|
|
|
55,135
|
|
|
|
3,677
|
|
|
|
61,093
|
|
|
|
632
|
|
Consumer
|
|
|
68
|
|
|
|
71
|
|
|
|
48
|
|
|
|
70
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans
|
|
$
|
178,134
|
|
|
$
|
178,589
|
|
|
$
|
18,371
|
|
|
$
|
189,187
|
|
|
$
|
1,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans as of December 31, 2011
(dollars in thousands)
|
|
Recorded
Investment
(Bank
Balance)
|
|
|
Unpaid
Principal
Balance
(Customer
Balance)
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
With no related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
11,020
|
|
|
$
|
11,039
|
|
|
|
|
|
|
$
|
17,536
|
|
|
$
|
789
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent first and second
|
|
|
4,802
|
|
|
|
4,944
|
|
|
|
|
|
|
|
11,273
|
|
|
|
507
|
|
Home equity loans and lines
|
|
|
325
|
|
|
|
330
|
|
|
|
|
|
|
|
4,503
|
|
|
|
202
|
|
Real estate-multi-family residential
|
|
|
476
|
|
|
|
485
|
|
|
|
|
|
|
|
238
|
|
|
|
11
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
|
15,853
|
|
|
|
15,949
|
|
|
|
|
|
|
|
25,992
|
|
|
|
1,169
|
|
Non-owner-occupied
|
|
|
25,232
|
|
|
|
25,232
|
|
|
|
|
|
|
|
29,601
|
|
|
|
1,331
|
|
Real estate-construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
16,494
|
|
|
|
16,496
|
|
|
|
|
|
|
|
15,268
|
|
|
|
687
|
|
Commercial
|
|
|
22,140
|
|
|
|
22,140
|
|
|
|
|
|
|
|
21,580
|
|
|
|
970
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
15,464
|
|
|
$
|
15,478
|
|
|
$
|
5,351
|
|
|
$
|
12,533
|
|
|
$
|
564
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent first and second
|
|
|
22,696
|
|
|
|
22,701
|
|
|
|
3,421
|
|
|
|
16,602
|
|
|
|
747
|
|
Home equity loans and lines
|
|
|
7,836
|
|
|
|
7,881
|
|
|
|
2,087
|
|
|
|
6,667
|
|
|
|
300
|
|
Real estate-multi-family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
|
3,543
|
|
|
|
3,543
|
|
|
|
582
|
|
|
|
5,444
|
|
|
|
245
|
|
Non-owner-occupied
|
|
|
25,836
|
|
|
|
25,835
|
|
|
|
2,409
|
|
|
|
29,147
|
|
|
|
1,311
|
|
Real estate-construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
20,770
|
|
|
|
20,795
|
|
|
|
6,035
|
|
|
|
30,297
|
|
|
|
1,362
|
|
Commercial
|
|
|
7,679
|
|
|
|
7,694
|
|
|
|
751
|
|
|
|
18,850
|
|
|
|
848
|
|
Consumer
|
|
|
71
|
|
|
|
74
|
|
|
|
52
|
|
|
|
110
|
|
|
|
5
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
26,484
|
|
|
$
|
26,517
|
|
|
$
|
5,351
|
|
|
$
|
30,069
|
|
|
$
|
1,352
|
|
Real estate-one-to-four family residential
|
|
|
35,659
|
|
|
|
35,856
|
|
|
|
5,508
|
|
|
|
39,045
|
|
|
|
1,756
|
|
Real estate-multi-family residential
|
|
|
476
|
|
|
|
485
|
|
|
|
|
|
|
|
238
|
|
|
|
11
|
|
Real estate-non-farm, non-residential
|
|
|
70,464
|
|
|
|
70,559
|
|
|
|
2,991
|
|
|
|
90,184
|
|
|
|
4,055
|
|
Construction
|
|
|
67,083
|
|
|
|
67,125
|
|
|
|
6,786
|
|
|
|
85,995
|
|
|
|
3,867
|
|
Consumer
|
|
|
71
|
|
|
|
74
|
|
|
|
52
|
|
|
|
121
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans
|
|
$
|
200,237
|
|
|
$
|
200,616
|
|
|
$
|
20,688
|
|
|
$
|
245,650
|
|
|
$
|
11,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In performing a specific reserve analysis on all impaired loans as of March 31, 2012, current third party appraisals
were used with respect to approximately 55% of impaired loans to assist with the evaluation of collateral values for the purpose of establishing specific reserves. Other loans predominantly representing smaller individual balances were evaluated
based upon current tax assessed values or estimated liquidation value of business assets. When a loan is identified as impaired and collateral dependent, a current evaluation of collateral value via third party appraisal or other valuation
methodology is conducted within the calendar quarter of identification when possible, but within 90 days after identification. Charge-offs and specific reserves are established upon determination of collateral value. During the interim between
identification of an impaired loan and receipt of a current appraisal of the related collateral, specific reserves are established based upon interim methodologies including discounted cash flow analysis, tax assessment values and review of market
comparables. In general, variances between charge-offs and fair value of collateral is limited to estimates of projected costs of sale. Costs of sale are estimated at 5-10% of value. Partially charged-off loans remain non-performing until such time
as a viable restructuring plan is developed. Upon execution of a forbearance agreement including modified terms, an impaired loan will be re-classified from non-performing to a troubled debt restructuring, but will continue to be identified as
impaired until the loan performs
23
under the modified terms for the remainder of the calendar year in which it was restructured, but not less than 90 days. As noted above, in the majority of cases, external appraisals are used to
establish fair value of the related collateral. In the interim prior to receipt of a current appraisal or in those situations where a current appraisal is not deemed practical or necessary, discounted cash flow analysis, tax assessment values,
review of market comparables and other methodologies are used to establish fair value. Impaired loans which do not have a specific reserve are those loans which have been identified to have sufficient collateral coverage, based upon the fair value
of collateral, to repay the entire principal balance due from collateral liquidation.
Information about new troubled debt restructurings
during the three months ended March 31, 2012, is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled Debt Restructurings (TDRs)
New TDRs by Loan Type
As of March 31, 2012
|
|
1/1/2012 to 3/31/2012
|
|
Loan Type:
|
|
# of
Loans
|
|
|
Pre-
Modification
Balance
|
|
|
Post -
Modification
Balance
|
|
Commercial
|
|
|
1
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent first and seconds
|
|
|
2
|
|
|
|
541
|
|
|
|
541
|
|
Home equity loans and lines
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-one-to-four family residential:
|
|
|
2
|
|
|
$
|
541
|
|
|
$
|
541
|
|
Real estate-multi-family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-owner-occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-non-farm, non-residential:
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Real estate-construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential-owner-occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential-builder
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-construction:
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Farmland
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
|
3
|
|
|
$
|
541
|
|
|
$
|
541
|
|
|
|
|
|
|
|
|
|
|
Troubled Debt Restructurings (TDRs)
New TDRs by Type of Restructure
|
|
1/1/2012 to
3/31/2012
|
|
Type of Restructure:
|
|
# of
Loans
|
|
|
Balance
|
|
Interest-only conversion
|
|
|
1
|
|
|
$
|
70
|
|
Rate reduction
|
|
|
2
|
|
|
|
471
|
|
Extended amortization
|
|
|
|
|
|
|
|
|
Deferment of principal or interest payable
|
|
|
|
|
|
|
|
|
Combination *
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
|
3
|
|
|
$
|
541
|
|
*
|
Represents a combination of any of the above restructure types.
|
24
Information about troubled debt restructurings within the prior twelve months that defaulted during the
three months ended March 31, 2012, is as follows (dollars in thousands):
Troubled Debt Restructurings (TDRs)
TDRs Restructured Within Prior 12 Months that Defaulted in Selected Periods
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defaults occurring in 1st Quarter 2012
(1/1/2012 3/31/2012)
|
|
Loan Type:
|
|
# of
Loans
|
|
|
Balance at
Restructure
|
|
|
Balance at
3/31/2012
|
|
Commercial
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent first and seconds
|
|
|
1
|
|
|
|
116
|
|
|
|
116
|
|
Home equity loans and lines
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-one-to-four family residential:
|
|
|
1
|
|
|
$
|
116
|
|
|
$
|
116
|
|
Real estate-multi-family residential
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-owner-occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-non-farm, non-residential:
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Real estate-construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential-owner-occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential-builder
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-construction:
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Farmland
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Consumer
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
|
1
|
|
|
$
|
116
|
|
|
$
|
116
|
|
5.
|
Earnings Per Common Share
|
The following shows the weighted average number of shares used in computing earnings per common share and the effect on the weighted
average number of shares of dilutive potential common stock. As of March 31, 2012, and 2011, there were 1,058,410 and 4,556,525 anti-dilutive stock options and warrants outstanding, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31, 2012
|
|
|
March 31, 2011
|
|
|
|
Shares
|
|
|
Per
Share
Amount
|
|
|
Shares
|
|
|
Per
Share
Amount
|
|
Basic earnings per common share
|
|
|
31,503,351
|
|
|
$
|
0.15
|
|
|
|
29,264,610
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and warrants
|
|
|
2,044,352
|
|
|
|
|
|
|
|
1,139,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
|
33,547,703
|
|
|
$
|
0.14
|
|
|
|
30,404,088
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Stock Compensation Plan
|
At March 31, 2012, the Company had two stock-based compensation plans, the 1998 Stock Option Plan and the Companys 2010
Equity Plan (the 2010 Plan). The 2010 Plan replaced the 1998 Stock Option Plan and as such no further options may be granted under the 1998 Stock Option Plan. Included in salaries and employee benefits expense for the three months ended
March 31, 2012, and 2011, is $122 thousand and $132 thousand, respectively, of stock-based compensation expense which is based on the estimated fair value of 913,876 options granted between January 2007 and March 2012, as adjusted for stock
dividends, amortized on a straight-line basis over a five year requisite service period. As of March 31, 2012, there was $713 thousand remaining of total unrecognized compensation expense related to these option awards which will be recognized
over the remaining requisite service periods.
25
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 2012, and 2011:
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
Expected volatility
|
|
|
33.68
|
%
|
|
32.21%
|
Expected dividends
|
|
|
0.00
|
%
|
|
0.00%
|
Expected term (in years)
|
|
|
7.2
|
|
|
7.2
|
Risk-free rate
|
|
|
1.44
|
%
|
|
2.71% to 2.81%
|
Stock option plan activity for the three months ended March 31, 2012, is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at January 1, 2012
|
|
|
1,696,117
|
|
|
$
|
8.95
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
78,250
|
|
|
|
8.62
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
190,813
|
|
|
|
3.02
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
8,675
|
|
|
|
5.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2012
|
|
|
1,574,879
|
|
|
$
|
9.67
|
|
|
|
4.68 years
|
|
|
$
|
2,267,896
|
|
Exercisable at March 31, 2012
|
|
|
1,201,009
|
|
|
$
|
10.57
|
|
|
|
3.54 years
|
|
|
$
|
1,434,103
|
|
The total value of in-the-money options exercised during the three months ended March 31, 2012, was $888 thousand.
Restricted stock awards generally vest in equal installments over five years. The compensation expense associated with these awards is based
on the grant date fair value of the award. The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service period.
A summary of the non-vested restricted stock activity under the 2010 Plan for the three months ended March 31, 2012, is summarized below:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
Non-vested at the beginning of year
|
|
|
49,998
|
|
|
$
|
5.93
|
|
Granted
|
|
|
71,423
|
|
|
|
8.89
|
|
Vested
|
|
|
2,475
|
|
|
|
5.92
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at end of the period
|
|
|
118,946
|
|
|
$
|
7.67
|
|
|
|
|
|
|
|
|
|
|
We recognized share-based compensation expense associated with shares of restricted stock of $27 thousand for the three
months ended March 31, 2012.
26
A comparison of the March 31, 2012, capital ratios of the Company and its wholly-owned subsidiary, Virginia Commerce Bank (the
Bank), with the minimum regulatory guidelines is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
Capital
|
|
|
Minimum
Capital
Requirements
|
|
|
Minimum to
be
Well-Capitalized
Under Prompt
Corrective Action
Provisions
|
|
Total Risk-Based Capital
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
16.81
|
%
|
|
|
8.00
|
%
|
|
|
|
|
Bank
|
|
|
16.19
|
%
|
|
|
8.00
|
%
|
|
|
10.00
|
%
|
Tier 1 Risk-Based Capital
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
15.55
|
%
|
|
|
4.00
|
%
|
|
|
|
|
Bank
|
|
|
14.93
|
%
|
|
|
4.00
|
%
|
|
|
6.00
|
%
|
Leverage Ratio
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
12.12
|
%
|
|
|
4.00
|
%
|
|
|
|
|
Bank
|
|
|
11.70
|
%
|
|
|
4.00
|
%
|
|
|
5.00
|
%
|
8.
|
Other Borrowed Funds and Lines of Credit
|
The Bank maintains a $440.4 million line of credit with the FHLB 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 Banks qualifying first liens and home equity lines-of-credit on one-to-four unit single-family dwellings. As of March 31, 2012, the carrying
value of these qualifying loans totaled approximately $233.8 million and the amount of available credit using this collateral was $142.7 million. Advances on the credit facility in excess of $108.5 million, but limited to $306.9 million, require
pledging of additional assets, including other types of loans and investment securities. As of March 31, 2012, and December 31, 2011, the Bank had $25.0 million in advances outstanding that mature on September 21, 2012, but are
callable by the FHLB on any quarterly interest payment date. The Bank has additional short-term lines of credit totaling $47.0 million with nonaffiliated banks at March 31, 2012, on which there were no amounts outstanding.
9.
|
Trust Preferred Capital Notes
|
On December 19, 2002, the Company completed a private placement issuance of $15.0 million of trust preferred securities through a
newly formed, wholly-owned, subsidiary trust (VCBI Capital Trust II) which issued $470 thousand in common equity to the Company. These securities bear a floating rate of interest, adjusted semi-annually, of 330 basis points over six month LIBOR,
which as of May 8, 2012, was 4.11%. These securities have been callable at par since December 30, 2007, on any semi-annual interest payment date, but have not been redeemed to date. On December 20, 2005, the Company completed a
private placement of $25.0 million of trust preferred securities through a newly formed, wholly-owned, subsidiary trust (VCBI Capital Trust III) which issued $774 thousand in common equity to the Company. These securities had a fixed rate of
interest of 6.19% until February 23, 2011, at which time they converted to a floating rate, adjusted quarterly, of 142 basis points over three month LIBOR, which as of May 8, 2012, was 1.91%. These securities became callable at par
beginning February 23, 2011.
On September 24, 2008, the Company completed a private placement, to its directors and certain
executive officers, of $25.0 million of trust preferred securities through a newly formed, wholly-owned, subsidiary trust (VCBI Capital Trust IV) which issued $775 thousand in common equity to the Company. These securities bear a fixed rate of
interest of 10.20% and are callable at par beginning September 24, 2013. In connection with the issuance of the trust preferred securities, the Company also issued warrants to purchase an aggregate of 1.5 million shares of common stock to
the purchasers. The warrants have a five year term and an exercise price of $6.83 per share.
The principal asset of each trust is a similar
amount of the Companys junior subordinated debt securities with an approximately 30 year term from issuance and like interest rates to the trust preferred securities. The obligations of the Company with respect to the trust preferred
securities constitute a full and unconditional guarantee by the Company of each trusts obligations with respect to the trust preferred securities to the extent set forth in the related guarantees. Subject to certain exceptions and limitations,
the Company may elect from time to time to defer interest
27
payments on the junior subordinated debt securities, resulting in a deferral of distribution payments on the related trust preferred securities. If the Company defers interest payments on the
junior subordinated debt securities, or otherwise is in default of the obligations in respect to the trust preferred securities, the Company would be prohibited from making dividend payments to its stockholders, and from most purchases, redemptions
or acquisitions of the Companys common stock.
The trust preferred securities may be included in Tier 1 capital for regulatory capital
adequacy purposes up to 25.0% of Tier 1 capital after its inclusion. The portion of the trust preferred securities not qualifying as Tier 1 capital may be included as part of total qualifying capital in Tier 2 capital, subject to limitation.
10.
|
Preferred Stock and Warrant
|
On December 12, 2008, the Company entered into a Letter Agreement (Agreement) with the United States Department of the
Treasury (Treasury) under the Troubled Asset Relief Program (TARP) Capital Purchase Program, whereby the Company issued and sold to the Treasury 71,000 shares of fixed rate cumulative perpetual preferred stock with a par
value of $1.00 and a liquidation amount of $1,000 per share, for a total price of $71.0 million. In addition, the Treasury received a warrant to purchase 2,696,203 shares of the Companys common stock at an exercise price of $3.95 per share.
Subject to certain restrictions, the preferred stock and the warrant are transferable by the Treasury. The allocated carrying values at March 31, 2012, of the preferred stock and the warrant, based on their relative fair values, were $62.5
million and $8.5 million, respectively.
The preferred stock pays dividends quarterly, beginning February 2009, at a rate of 5% per year
for the first five years, then increases to 9% thereafter. The Company may redeem the preferred stock at any time, subject to approval by the Treasury after consultation with the Board of Governors of the Federal Reserve System (the Federal
Reserve), at the liquidation amount of $1,000 per share plus any accrued and unpaid dividends. Approval from the Treasury is required to pay common stock dividends or to repurchase shares of the Companys common stock prior to
December 12, 2011, unless the preferred stock has been fully redeemed.
The warrant has a ten year term and is immediately exercisable.
Pursuant to the terms of the Agreement, the Treasury will not exercise voting rights with respect to any shares of common stock it acquires upon exercise of the warrant; voting rights may be exercised by any other holder.
28
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise requires, the terms we, us and our
refer to Virginia Commerce Bancorp, Inc. and its subsidiaries on a consolidated basis. The following discussion and analysis, the purpose of which is to provide investors and others with information that we believe to be necessary for an
understanding of our current financial condition, changes in financial condition and results of operations. The following discussion and analysis should be read in conjunction with the consolidated financial statements, notes and other information
contained in this Report.
Cautionary Note Regarding Forward-Looking Statements
This managements discussion and analysis and other portions of this report, contain forward-looking statements within the meaning of the Securities
and Exchange Act of 1934, as amended (the Exchange Act), including statements of goals, intentions, and expectations as to future trends, plans, events or results of Company operations and policies, including but not limited to our
outlook on earnings, and statements regarding asset quality, concentrations of credit risk, the adequacy of the allowance for loan losses, projected asset growth, the deposit portfolio and expected future changes in the deposit portfolio, capital
position, our plans regarding and expected future levels of our non-performing assets, business opportunities in our markets, strategic initiatives to capitalize on those opportunities and general economic conditions. When we use words such as
may, will, anticipates, believes, expects, plans, estimates, potential, continue, should, and similar words or phrases, you
should consider them as identifying forward-looking statements. These forward-looking statements are not guarantees of future performance. These statements are based upon current and anticipated economic conditions, nationally and in the
Companys 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.
Our forward-looking statements are subject, but not limited to the following principal risks and uncertainties:
|
|
|
adverse governmental or regulatory policies may be enacted;
|
|
|
|
the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) could increase our regulatory compliance burden and
associated costs, place restrictions on certain products and services, and limit our future capital raising strategies;
|
|
|
|
the interest rate environment may compress margins and adversely affect net interest income;
|
|
|
|
adverse effects may be caused by changes to credit quality;
|
|
|
|
changes in rates of deposit and loan growth;
|
|
|
|
balances of risk-sensitive assets to risk-sensitive liabilities;
|
|
|
|
competition from other financial services companies in our markets could adversely affect operations;
|
|
|
|
our concentrations of commercial, commercial real estate and construction loans, may adversely affect our earnings and results of operations;
|
|
|
|
an economic slowdown could adversely affect credit quality, loan originations and the value of collateral securing the Companys loans; and
|
|
|
|
social and political conditions such as war, political unrest and terrorism or natural disasters could have unpredictable negative effects on our
businesses and the economy.
|
Other factors, risks and uncertainties that could cause our actual results to differ materially
from estimates and projections contained in these forward-looking statements are discussed under Risk Factors in the Companys annual report on Form 10-K for the year ended December 31, 2011.
29
Readers are cautioned against placing undue reliance on any such forward-looking statements. The Company
disclaims any obligation to update or revise publicly or otherwise any forward-looking statements to reflect subsequent events, new information or future circumstances.
Non-GAAP Presentations
The Company prepares its financial statements under accounting
principles generally accepted in the United States, or GAAP. However, this report also refers to certain non-GAAP financial measures that we believe, when considered together with GAAP financial measures, provide investors with important
information regarding our operational performance. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.
Adjusted operating earnings is a non-GAAP financial measure that reflects net income available to common stockholders excluding gains or losses on other real estate owned, gains and losses on sale of
securities, impairment losses on securities, and death benefits from bank-owned life insurance. These excluded items are difficult to predict and we believe that adjusted operating earnings provides the Company and investors with a valuable measure
of the Companys operational performance and a valuable tool to evaluate the Companys financial results. Calculation of adjusted operating earnings for the three months ended March 31, 2012, and March 31, 2011, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
March 31,
|
|
(in thousands)
|
|
2012
|
|
|
2011
|
|
|
|
|
Net Income Available to Common Stockholders
|
|
$
|
4,779
|
|
|
$
|
3,651
|
|
Adjustments to net income:
|
|
|
|
|
|
|
|
|
Loss on other real estate owned
|
|
|
826
|
|
|
|
156
|
|
Impairment loss on securities
|
|
|
|
|
|
|
732
|
|
Gain on sale of investment securities available-for-sale
|
|
|
(2,592
|
)
|
|
|
(503
|
)
|
Net tax effect adjustments
|
|
|
618
|
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating Earnings
|
|
$
|
3,631
|
|
|
$
|
3,901
|
|
The adjusted efficiency ratio is a non-GAAP financial measure that is computed by dividing non-interest expense,
excluding gains or losses on other real estate owned, by the sum of net interest income on a tax equivalent basis, non-interest income before impairment losses on securities and gains or losses on sale of securities. The Company believes that this
measure provides investors with important information about our operating efficiency. Comparison of our adjusted efficiency ratio with those of other companies may not be possible because other companies may calculate the adjusted efficiency ratio
differently. Calculation of the adjusted efficiency ratio for the three months ended March 31, 2012, and March 31, 2011, is as follows:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Three Months Ended
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
Summary Operating Results:
|
|
|
|
|
|
|
|
|
Non-interest expense
|
|
$
|
16,627
|
|
|
$
|
14,450
|
|
Loss on other real estate owned
|
|
|
826
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
Adjusted non-interest expense
|
|
$
|
15,801
|
|
|
$
|
14,294
|
|
|
|
|
Net interest income
|
|
|
26,779
|
|
|
$
|
26,183
|
|
Non-interest income
|
|
|
4,949
|
|
|
|
1,476
|
|
Impairment loss on securities
|
|
|
|
|
|
|
732
|
|
Gain on sale of investment securities available-for-sale
|
|
|
(2,592
|
)
|
|
|
(503
|
)
|
|
|
|
|
|
|
|
|
|
Total (1)
|
|
$
|
29,136
|
|
|
$
|
27,888
|
|
|
|
|
Efficiency Ratio, adjusted
|
|
|
53.6
|
%
|
|
|
50.6
|
%
|
(1)
|
Tax Equivalent Income of $29,501 for 2012, and $28,276 for 2011
|
The tangible common equity ratio is a non-GAAP financial measure representing the ratio of tangible common equity to tangible assets. Tangible common equity and tangible assets are non-GAAP financial
measures derived from GAAP-based amounts. We calculate tangible common equity for the Company by excluding the balance of
30
intangible assets and outstanding preferred stock issued to the U.S. Treasury from total stockholders equity. We calculate tangible assets by excluding the balance of intangible assets from
total assets. The Company had no intangible assets for the periods presented. The Company believes that this is consistent with the treatment by regulatory agencies, which exclude intangible assets from the calculation of regulatory capital ratios.
Accordingly, we believe that these non-GAAP financial measures provide information that is important to investors and that is useful in understanding our capital position and ratios. However, these non-GAAP financial measures are supplemental and
are not substitutes for an analysis based on a GAAP measure. As other companies may use different calculations for non-GAAP measures, our presentation may not be comparable to other similarly titled measures reported by other companies. Calculation
of the Companys tangible common equity ratio as of March 31, 2012, March 31, 2011, December 31, 2011, and September 31, 2011, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
As of March 31,
|
|
|
Dec 31,
|
|
|
Sept 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2011
|
|
|
2011
|
|
Tangible common equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
$
|
296,637
|
|
|
$
|
253,373
|
|
|
$
|
283,771
|
|
|
$
|
275,546
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding TARP senior preferred stock
|
|
|
67,670
|
|
|
|
65,873
|
|
|
|
67,195
|
|
|
|
66,794
|
|
Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible common equity
|
|
$
|
228,967
|
|
|
$
|
187,500
|
|
|
$
|
216,576
|
|
|
$
|
208,752
|
|
|
|
|
|
|
Total tangible assets
|
|
$
|
2,954,226
|
|
|
$
|
2,783,633
|
|
|
$
|
2,938,518
|
|
|
$
|
2,942,323
|
|
|
|
|
|
|
Tangible common equity ratio
|
|
|
7.75
|
%
|
|
|
6.74
|
%
|
|
|
7.37
|
%
|
|
|
7.09
|
%
|
Additional Information
Our common stock is listed for quotation on the Global Select Market of The NASDAQ Stock Market under the symbol VCBI. Additional information can be found through our website at
www.vcbonline.com by selecting About VCB/Investor Relations/SEC Filings. Electronic copies of our 2011 Annual Report on Form 10-K are available free of charge by visiting the SEC Filings section of our website. Electronic
copies of quarterly reports on Form 10-Q and current reports on Form 8-K are also available. These reports are posted as soon as reasonably practicable after they are electronically filed with the SEC.
Where we have included website addresses in this Report, such as our website address, we have included those addresses as inactive textual references
only. Except if specifically incorporated by reference into this report, information on those websites is not part hereof.
General
The following presents managements discussion and analysis of the consolidated financial condition and results of operations of
Virginia Commerce Bancorp, Inc. and subsidiaries (the Company) as of the dates and for the periods indicated. This discussion should be read in conjunction with the Companys Consolidated Financial Statements and the Notes thereto,
and other financial data appearing elsewhere in this report. The Company is the parent bank holding company for Virginia Commerce Bank (the Bank), a Virginia state-chartered bank that commenced operations in May 1988. The Bank pursues a
traditional community banking strategy, offering a full range of business and consumer banking services through twenty-eight branch offices, one residential mortgage office and one wealth management office.
Headquartered in Arlington, Virginia, the Bank serves the Northern Virginia suburbs of Washington, D.C., including Arlington, Fairfax, Fauquier, Loudoun,
Prince William, Spotsylvania and Stafford Counties and the cities of Alexandria, Fairfax, Falls Church, Fredericksburg, Manassas and Manassas Park. Its service area also covers, to a lesser extent, Washington, D.C. and the nearby Maryland counties
of Montgomery and Prince Georges. The Banks 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 their firms,
business executives, investors and consumers.
31
Critical Accounting Policies
For the period ended March 31, 2012, there were no changes in the Companys critical accounting policies as reflected in the Companys most recent annual report.
The Companys financial statements are prepared in accordance with GAAP. The financial information contained within our statements is, to a
significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income,
recognizing an expense, recovering an asset or relieving a liability. We use historical loss factors as one factor in determining the inherent loss that may be present in our loan portfolio. Actual losses could differ significantly from the
historical factors that we use. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would impact our transactions could
change.
The allowance for loan losses is an estimate of the losses that are inherent in our loan portfolio. The allowance is based on two
basic principles of accounting: (i) Accounting for Contingencies (ASC 450, Contingencies), which requires that losses be accrued when they are probable of occurring and estimable and (ii) Accounting by
Creditors for Impairment of a Loan (ASC 310, Receivables), which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the
secondary market and the loan balance.
The allowance for loan losses has two basic components: the specific allowance and the general
allowance. Each of these components is determined based upon estimates that can and do change when the actual events occur. The specific allowance is used to individually allocate an allowance for impaired loans. Impairment testing includes
consideration of the borrowers overall financial condition, resources and payment record, support available from financial guarantors and the fair market value of collateral. These factors are combined to estimate the probability and severity
of inherent losses based on the Companys calculation of the loss embedded in the individual loan. Large groups of smaller balance, homogeneous loans, representing 1-4 family residential first and second trusts, including home equity
lines-of-credit, are collectively evaluated for impairment based upon factors such as levels and trends in delinquencies, trends in loss and problem loan identification, trends in volumes and concentrations, local and national economic trends and
conditions including estimated levels of housing price depreciation/homeowners loss of equity, competitive factors and other considerations. These factors are converted into reserve percentages and applied against the homogenous loan pool
balances. Impaired loans which meet the criteria for substandard, doubtful and loss are segregated from performing loans within the portfolio. Internally classified loans are then grouped by loan type (commercial, real estate-one-to-four family
residential, real estate-multi-family residential, real estate-non-farm, non-residential, real estate-construction, consumer, and farmland). The general formula is used to estimate the loss of non-classified loans. These un-criticized loans are also
segregated by loan type and allowance factors are assigned by management based on delinquencies, loss history, trends in volume and terms of loans, effects of changes in lending policy, the experience and depth of management, national and local
economic trends, concentrations of credit, quality of the loan review system and the effect of external factors (i.e. competition and regulatory requirements). The factors assigned differ by loan type. The general allowance recognizes potential
losses whose impact on the portfolio has yet to be recognized by a specific allowance. Allowance factors and the overall size of the allowance may change from period to period based on managements assessment of the above described factors and
the relative weights given to each factor. Further information regarding the allowance for loan losses is provided under the caption Provision for Loan Losses and Allowance for Loan Losses later in this report and in Note 4 to the
Consolidated Financial Statements.
The Companys 1998 Stock Option Plan (the 1998 Plan), which is stockholder-approved,
permitted the grant of share options to its directors and officers for up to 2.3 million shares of common stock. The Companys 2010 Equity Plan (the 2010 Plan), which is also stockholder-approved and replaces the 1998 Plan,
permits the grant of share-based awards in the form of stock options, stock appreciation rights, restricted and unrestricted stock, performance units, options and other awards to its directors, officers and employees for up to 1.5 million
shares of common stock. To date, the Company has granted stock options and restricted stock under the 2010 Plan. The Company also has option awards outstanding under the 1998 Plan, but since May 2, 2010, the effective date of the 2010 Plan, no
new awards can be granted under the 1998 Plan. The Company recognizes expense for its share-based compensation based on the fair value of the awards that are granted.
Option awards are generally granted with an exercise price equal to the market price of the Companys stock at the date of grant, generally vest based on 5 years of continuous service and have
10-year contractual terms. The fair
32
value of each option award is estimated on the date of grant using a Black-Scholes option pricing model that currently uses historical volatility of the Companys stock based on a 7.2 year
expected term, before exercise, for the options granted, and a risk-free interest rate based on the United States Department of the Treasury (the Treasury) curve in effect at the time of the grant to estimate total stock-based
compensation expense. This amount is then amortized on a straight-line basis over the requisite service period, currently 5 years, to salaries and benefits expense. Restricted stock awards generally vest in equal installments over 5 years. The
compensation expense associated with these awards is based on the grant date fair value of the award. The value of the portion of the award that is ultimately expected to vest is recognized ratably over the requisite service period. See Note 6 to
the Consolidated Financial Statements for additional information regarding the plans and related expense.
On a quarterly basis the Company
reviews any securities which are considered to be impaired as defined by accounting guidance, to determine if the impairment is deemed to be other-than-temporary. If it is determined that the impairment is other-than-temporary, i.e. impaired because
of credit issues rather than interest rate, the investment is written down through the Consolidated Statements of Income in accordance with accounting guidance. See Note 2 to the Consolidated Financial Statements for additional information regarding
our securities and related impairment testing.
Results of Operations
Summary Financial Results
Net Income and Adjusted Operating Earnings
For the three months ended March 31, 2012, the Company recorded net income of $6.1 million. After an effective dividend of $1.4
million to the U.S. Treasury on preferred stock, the Company reported net income available to common stockholders of $4.8 million, or $0.14 per diluted common share, compared to net income available to common stockholders of $3.7 million, or $0.12
per diluted common share, for the three months ended March 31, 2011. The year-over-year earnings improvement was largely attributable to increases in non-interest income partially offset by increases in non-interest expense.
Adjusted operating earnings (a non-GAAP measure) for the three months ended March 31, 2012, were $3.6 million, down $270 thousand, or 6.9%, as
compared to $3.9 million for the same period in 2011. The year-over-year decrease in the Companys adjusted operating earnings is mostly due to higher provisioning for loan losses and increased non-interest expense. The Company calculates
adjusted operating earnings by excluding gains or losses on other real estate owned, gains and losses on sale of investment securities, impairment losses on securities, and death benefits from bank-owned life insurance, from net income.
Net Interest Income
Net interest income
is the excess of interest earned on loans and investments over the interest paid on deposits and borrowings. Net interest income is the most significant component of our total revenue. Excluding non-operating revenues, net interest income
represented 91.1%, and 93.9%, of total revenue during the first quarter of 2012, and 2011, respectively. Net interest income is affected by overall balance sheet growth, changes in interest rates and changes in the mix of investments, loans,
deposits and borrowings. Net interest income for the first quarter of 2012, of $26.8 million was up $596 thousand, or 2.3%, over the same quarter last year. The increase in net interest income was primarily attributed to an increase in the ratio of
average interest-earnings assets to average interest-bearing liabilities from 120.4% at March 31, 2011, to 124.5% at March 31, 2012. The net interest margin decreased 18 basis points from 3.99% in the first quarter of 2011, to 3.81% for
the same period in 2012. The year-over-year decrease in the net interest margin was primarily driven by a reduction in average total interest-earning asset yields, and a change in the mix of average total interest-earning assets, the impact of which
was partially offset by lower cost of average total interest-bearing liability yields. Average loan yields declined 22 basis points, from 5.89% to 5.67%, and average investment security yields declined 128 basis points, from 3.59% to 2.31%, compared
to interest-bearing deposits declining 41 basis points, from 1.44% to 1.03%. Also, the lower mix of average loans as a percentage of total average interest-earning assets in the first quarter of 2012, of 75.9%, compared to the first quarter of 2011,
of 81.9%, combined with a higher mix of average investment securities as a percentage of total average interest-earning assets from 15.1% to 21.1% year-over-year, contributed to the decrease in net interest margin. Management anticipates the net
interest margin will range between 3.75% and 3.90% for the year.
33
Interest income decreased $1.5 million on average total interest-earning assets of $2.87 billion for the
three months ended March 31, 2012, compared to interest income generated by average total interest-earnings assets of $2.69 billion for the same period in 2011. The decline in interest income is mostly attributable to the reduction in average
loan and investment security yields of 22 basis points and 128 basis points, respectively, which more than offset the $178.7 increase in the volume of average total interest-earnings assets. The reduction in the average total interest-earning asset
yields is mainly attributed to operating in the prolonged low interest rate environment.
Interest expense decreased $2.1 million on average
total interest-bearing liabilities of $2.30 billion for the quarter ended March 31, 2012, compared to average total interest-bearing liabilities of $2.23 billion for the same period in 2011. The average rate paid on average total
interest-bearing liabilities was 1.26% for the first quarter of 2012, as compared to 1.70% for the first quarter of 2011. The 44 basis point reduction in the average rate paid on average total interest-bearing liabilities, more than offsets the
$70.9 million increase in volume of average total interest-bearing liabilities. The significant decrease in the average rate paid on average total interest-bearing liabilities was predominantly the result of a series of interest rate reductions on
customer deposits and an improvement in our funding mix, which included increases in the amount of lower cost average NOW deposits, money market deposits, and securities sold under agreements to repurchase, and reductions in the amount of higher
cost average time deposits in our portfolio.
The following table provides a comparative average balance sheet and net interest income
analysis for the three months ended March 31, 2012, as compared to the same period in 2011. Average rates are presented on a fully taxable-equivalent (FTE) basis, using a statutory Federal tax rate of 35% for 2012, and 2011.
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
(Amounts in thousands)
|
|
Average
Balance
|
|
|
Interest
Income-
Expense
|
|
|
Average
Yields
/
Rates
(1)
|
|
|
Average
Balance
|
|
|
Interest
Income-
Expense
|
|
|
Average
Yields
/
Rates
(1)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
$
|
604,991
|
|
|
$
|
3,232
|
|
|
|
2.31
|
%
|
|
$
|
406,103
|
|
|
$
|
3,453
|
|
|
|
3.59
|
%
|
|
|
|
|
|
|
|
Restricted investments
|
|
|
11,272
|
|
|
|
101
|
|
|
|
3.61
|
%
|
|
|
11,752
|
|
|
|
96
|
|
|
|
3.31
|
%
|
|
|
|
|
|
|
|
Loans, net of unearned income
(2)
|
|
|
2,175,016
|
|
|
|
30,621
|
|
|
|
5.67
|
%
|
|
|
2,203,117
|
|
|
|
31,923
|
|
|
|
5.89
|
%
|
|
|
|
|
|
|
|
Interest-bearing deposits in other banks
|
|
|
76,384
|
|
|
|
51
|
|
|
|
0.27
|
%
|
|
|
388
|
|
|
|
|
|
|
|
0.13
|
%
|
|
|
|
|
|
|
|
Federal funds sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,622
|
|
|
|
45
|
|
|
|
0.27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
2,867,663
|
|
|
$
|
34,005
|
|
|
|
4.82
|
%
|
|
$
|
2,688,982
|
|
|
$
|
35,517
|
|
|
|
5.39
|
%
|
|
|
|
|
|
|
|
Other assets
|
|
|
69,052
|
|
|
|
|
|
|
|
|
|
|
|
84,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
2,936,715
|
|
|
|
|
|
|
|
|
|
|
$
|
2,773,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts
|
|
$
|
326,990
|
|
|
$
|
298
|
|
|
|
0.37
|
%
|
|
$
|
321,564
|
|
|
$
|
653
|
|
|
|
0.82
|
%
|
|
|
|
|
|
|
|
Money market accounts
|
|
|
215,936
|
|
|
|
235
|
|
|
|
0.44
|
%
|
|
|
177,183
|
|
|
|
469
|
|
|
|
1.07
|
%
|
|
|
|
|
|
|
|
Savings accounts
|
|
|
628,298
|
|
|
|
772
|
|
|
|
0.49
|
%
|
|
|
692,647
|
|
|
|
1,916
|
|
|
|
1.12
|
%
|
|
|
|
|
|
|
|
Time deposits
|
|
|
760,745
|
|
|
|
3,637
|
|
|
|
1.92
|
%
|
|
|
783,462
|
|
|
|
3,985
|
|
|
|
2.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
$
|
1,931,969
|
|
|
$
|
4,942
|
|
|
|
1.03
|
%
|
|
$
|
1,974,856
|
|
|
$
|
7,023
|
|
|
|
1.44
|
%
|
|
|
|
|
|
|
|
Securities sold under agreement to repurchase and federal funds purchased
|
|
|
279,803
|
|
|
|
1,037
|
|
|
|
1.49
|
%
|
|
|
166,272
|
|
|
|
934
|
|
|
|
2.28
|
%
|
|
|
|
|
|
|
|
Other borrowed funds
|
|
|
25,000
|
|
|
|
269
|
|
|
|
4.25
|
%
|
|
|
25,000
|
|
|
|
266
|
|
|
|
4.25
|
%
|
|
|
|
|
|
|
|
Trust preferred capital notes
|
|
|
66,602
|
|
|
|
978
|
|
|
|
5.81
|
%
|
|
|
66,346
|
|
|
|
1,111
|
|
|
|
6.70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
2,303,374
|
|
|
$
|
7,226
|
|
|
|
1.26
|
%
|
|
$
|
2,232,474
|
|
|
$
|
9,334
|
|
|
|
1.70
|
%
|
|
|
|
|
|
|
|
Noninterest-bearing demand and other liabilities
|
|
|
341,380
|
|
|
|
|
|
|
|
|
|
|
|
292,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
2,644,754
|
|
|
|
|
|
|
|
|
|
|
$
|
2,524,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
291,961
|
|
|
|
|
|
|
|
|
|
|
|
249,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,936,715
|
|
|
|
|
|
|
|
|
|
|
$
|
2,773,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
3.56
|
%
|
|
|
|
|
|
|
|
|
|
|
3.69
|
%
|
|
|
|
|
|
|
|
Net interest income and interest rate
|
|
|
|
|
|
$
|
26,779
|
|
|
|
3.81
|
%
|
|
|
|
|
|
$
|
26,183
|
|
|
|
3.99
|
%
|
|
|
|
|
|
|
|
Ratio of average interest-earning assets to average interest-bearing liabilities
|
|
|
124.5
|
%
|
|
|
|
|
|
|
|
|
|
|
120.4
|
%
|
|
|
|
|
|
|
|
|
(1)
|
Yields on investment 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 loans and securities are stated on a fully taxable-equivalent basis, using a rate of 35% for 2012, and 2011.
|
(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 $1.2 million and
$687 thousand for the three months ended March 31, 2012, and 2011, respectively.
|
35
Provision for Loan Losses and Allowance for Loan Losses
Provisions for loan losses were $6.0 million for the three months ended March 31, 2012, compared to $5.8 million in the same period in 2011, with
total net charge-offs of $9.4 million in the first quarter of 2012, versus $11.8 million for the first quarter of 2011. Charge-offs during the first quarter of 2012 included the write-down of a number of loans in anticipation of pending note or
collateral sales of non-performing assets or troubled debt restructurings. Significant among these transactions were a $1.3 million charge to facilitate a $3.5 million commercial note sale of a TDR, a $654 thousand charge to complete the sale of a
retail center, $640 thousand to finalize the sale of two commercial real estate properties, $1.4 million in anticipation of the sale of a $2.3 million non-performing land development note in the second quarter and $340 thousand to complete the note
sale of several non-performing loans secured by two rental townhouses and a residential lot. The balance of charge-offs represented the adjustment of non-performing loan balances to the current estimated fair value of underlying collateral or the
write-down of one-to-four family residential and consumer loans due to uncollectibility caused by bankruptcy or short sale transactions. A majority of these charge-offs were supported by specific reserves.
Total non-performing assets and loans 90+ days past due increased $11.7 million from $47.8 million as of December 31, 2011, to $59.5 million at
March 31, 2012. The sequential increase in non-performing assets and loans 90+ days past due was primarily driven by the placement of two large credit relationships on non-accrual. One represents a $10.0 million commercial land development loan
in the Fredericksburg market which has been completed, but failed to meet certain lot sale requirements established as part of the loans terms, resulting in cancellation of further advances from the interest reserve. The Company has engaged an
outside consultant to evaluate disposition strategies and also continues to work with the borrower on enhanced marketing. The Company has evaluated the loan and a related loan of $835 thousand that was also placed on non-accrual for impairment and
believes both loans are adequately secured. The second credit relationship represents a commercial loan with a balance of $7.3 million as of March 31, 2012. This loan is collateralized by the assignment of a number of real estate secured
promissory notes. Based upon certain events, the Company has taken control of the collateral notes and is working with the borrower to liquidate them through sale of the notes or foreclosure and sale of the underlying properties. The Company has
evaluated the promissory notes for impairment and established appropriate loan loss reserves. The loans related to both of these credit relationships were identified as problem assets prior to being placed on non-accrual and offset a net decrease in
other non-performing assets of $6.8 million, which was achieved through note sales, foreclosure and collateral disposition. As of March 31, 2012, reserves for loan losses represented 2.11% of total loans, down from 2.24% at December 31,
2011, with reserves covering 97.4% of total non-performing loans as of March 31, 2012. See Risk Elements and Non-Performing Assets later in this discussion for more information on non-performing assets and loans 90+ days past due
and other impaired loans.
Management believes that the allowance for loan losses is adequate at March 31, 2012. However, there can be no
assurance that additional provisions for loan losses will not be required in the future, including as a result of possible changes in the economic assumptions underlying managements estimates and judgments, adverse developments in the economy,
and the residential real estate market in particular, on a national basis or in the Companys market area, or changes in the circumstances of particular borrowers.
The Company generates a quarterly analysis of the allowance for loan losses, with the objective of quantifying portfolio risk into a dollar figure of inherent losses, thereby translating the subjective
risk value into an objective number. Emphasis is placed on at least semi-annual independent external loan reviews and monthly internal reviews. The determination of the allowance for loan losses is based on applying and summing the results of eight
qualitative factors and a historical loss factor to each category of loans along with any specific allowance for impaired and adversely classified loans within the particular category. Each factor is assigned a percentage weight and that total
weight is applied to each loan category. The resulting sum from each loan category is then combined to arrive at a total allowance for all categories. Factors are different for each loan category. Qualitative factors include: levels and trends in
delinquencies and non-accruals, trends in volumes and terms of loans, effects of any changes in lending policies, the experience, ability and depth of management, national and local economic trends and conditions, concentrations of credit, quality
of the Companys loan review system, and regulatory requirements. The total allowance required thus changes as the percentage weight assigned to each factor is increased or decreased due to its particular circumstance, as historical loss
factors are updated, as the various types and categories of loans change as a percentage of total loans and as specific allowances are required on impaired loans and charge-offs occur. The decision to specifically reserve for or to charge-off or
partially charge-off an impaired loan balance is based upon an
36
evaluation of that loans potential to improve, based upon near term change in financial or market conditions, which would enable collection of the portion of the loan determined to be
impaired. If these conditions are determined to be favorable, a specific reserve would be established as opposed to a charge-off. For further information regarding the allowance for loan losses see Note 4 to the Consolidated Financial Statements.
The following schedule summarizes the changes in the allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
March 31, 2012
|
|
|
Twelve Months
Ended
December 31, 2011
|
|
|
|
(Dollars in thousands)
|
|
Allowance, at beginning of period
|
|
$
|
48,729
|
|
|
$
|
62,442
|
|
Provision charged against income
|
|
$
|
5,994
|
|
|
$
|
14,849
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
11
|
|
|
|
38
|
|
Commercial
|
|
|
124
|
|
|
|
2,637
|
|
Real estate loans
|
|
|
185
|
|
|
|
672
|
|
|
|
|
|
|
|
|
|
|
Total Recoveries
|
|
$
|
320
|
|
|
$
|
3,347
|
|
Losses charged to reserve:
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
(220
|
)
|
|
|
(156
|
)
|
Commercial loans
|
|
|
(4,791
|
)
|
|
|
(29,396
|
)
|
Real Estate loans
|
|
|
(4,661
|
)
|
|
|
(2,357
|
)
|
|
|
|
|
|
|
|
|
|
Total loans charged to reserve
|
|
$
|
(9,672
|
)
|
|
$
|
(31,909
|
)
|
Net charge-offs
|
|
$
|
(9,352
|
)
|
|
$
|
(28,562
|
)
|
|
|
|
Allowance, at end of period
|
|
$
|
45,371
|
|
|
$
|
48,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs to average total loans outstanding during period
|
|
|
0.43
|
%
|
|
|
1.31
|
%
|
Allowance for loan losses to total loans
|
|
|
2.11
|
%
|
|
|
2.24
|
%
|
The following schedule provides a breakdown of the allowance for loan losses by loan type:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Allocation of the allowance for loan losses:
|
|
|
|
|
|
|
|
|
Real estate mortgage
|
|
$
|
25,012
|
|
|
$
|
22,886
|
|
Real estate construction
|
|
|
11,900
|
|
|
|
15,161
|
|
Commercial
|
|
|
8,131
|
|
|
|
10,378
|
|
Consumer
|
|
|
301
|
|
|
|
245
|
|
Farmland
|
|
|
59
|
|
|
|
59
|
|
Unallocated
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45,371
|
|
|
$
|
48,729
|
|
|
|
|
|
|
|
|
|
|
For a more detailed allocation of the allowance for loan losses, including general and specific allowances for each
segment of the loan portfolio, see Note 4 to the Consolidated Financial Statements.
Risk Elements and Non-Performing Assets
Non-performing assets consist of non-accrual loans and OREO (foreclosed properties). For the three months ended March 31, 2012, total
non-performing assets and loans 90+ days past due and still accruing interest increased by $11.7 million, from $47.8 million as of December 31, 2011, to $59.5 million at March 31, 2012. As a result, the ratio of non-performing assets and
loans 90+ days past due and still accruing to total assets increased from 1.62% of total assets at December 31, 2011 to 2.01% of total assets at March 31, 2012. The increase during the first quarter of 2012 in non-performing assets and
loans 90+ days past due and still accruing as a percent of total assets was primarily due to increased non-performing assets in the Companys real estate construction segment of the loan portfolio and increased OREO balances. 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
37
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.
Our underwriting for new acquisition, development, and construction loans always
includes the interest cost for the loan whether an interest reserve is approved or not. In other words, the equity requirement in the new loan is established reflecting the amount of interest required to serve the project. We continually
monitor the adequacy of reserve requirements, including interest reserves, during the draw process to ensure the project is being completed on time and within budget. We have restructured loans due to the slow market, re-underwriting each loan
based on time and cost to complete. We do not continue funding interest reserves just to keep the loan from becoming non-performing. We consider whether the loan to value ratio will support current and future advances and whether the project is
meeting certain completion criteria necessary to successfully complete the project. Once a loan becomes non-performing, we do not allow draws on interest reserves.
Other impaired loans, that are currently performing, and TDRs, performing in accordance with their modified terms, decreased from $160.2 million at December 31, 2011, to $129.4 million at
March 31, 2012. These loans have been identified by the Company as having certain weaknesses as a result of the Companys specific knowledge about the customer or recent credit events, and are classified as substandard and subject to
impairment testing at each balance sheet date.
Included in the loan portfolio at March 31, 2012, are loans classified as TDRs totaling
$42.4 million, a sequential reduction of $9.8 million from $52.3 million at December 31, 2011. The sequential reduction in TDRs during the first quarter of 2012, was attributable to note and collateral sales of $5.1 million, upgrades to
performing status of reviewable TDRs of $3.9 million, principal payments of $226 thousand, downgrades to non-performing status of $799 thousand and charge-offs of $604 thousand. These loans, which have been provided concessions such as rate
reductions, payment deferrals, and in some cases forgiveness of principal, are all on accrual status. If the loan was on non-accrual at the time of the concession it is the Companys policy that it remain on non-accrual status and perform in
accordance with the modified terms for a period of six months. All loans reported as troubled debt restructurings accrue interest. The Company does not report any non-accrual loans as troubled debt restructurings. If a troubled debt restructuring is
on non-accrual status, it is reported as a non-accrual asset and not as a troubled debt restructuring.
Foreclosed real properties (or OREO)
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 book value or fair value, including a reduction for the
estimated selling expenses. Reviews and discussions with regard to value and disposition of each foreclosed property are conducted monthly by the Companys Special Asset Committee. The carrying value of a foreclosed asset is immediately
adjusted down when new information is obtained, including a potentially acceptable offer, the sale of a similar property in the vicinity of one of the Companys assets, and/or a change in the price the property is being listed for. The Company
also uses the advice of outside consultants and real estate agents with knowledge of the markets the properties are located in. Appraisals are ordered when the property is foreclosed on, but are not routinely updated at each balance sheet date. The
Company confirms that it performed the above noted procedures and made the proper impairment adjustments, if any, at the balance sheet date.
38
Total non-performing assets as of the dates indicated consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2012
|
|
|
December 31,
2011
|
|
|
|
(Amounts in thousands)
|
|
|
|
|
Non-accrual loans:
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
9,968
|
|
|
$
|
5,005
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
|
|
|
Permanent first and second
|
|
|
3,060
|
|
|
|
3,912
|
|
Home equity loans and lines
|
|
|
3,580
|
|
|
|
3,142
|
|
|
|
|
|
|
|
|
|
|
Total real estate-one-to-four family residential
|
|
$
|
6,640
|
|
|
$
|
7,054
|
|
Real estate-multi-family residential
|
|
|
476
|
|
|
|
476
|
|
|
|
|
|
|
|
|
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
|
2,997
|
|
|
|
1,999
|
|
Non-owner-occupied
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-non-farm, non-residential
|
|
$
|
3,085
|
|
|
$
|
1,999
|
|
Real estate-construction:
|
|
|
|
|
|
|
|
|
Residential-
|
|
|
12,122
|
|
|
|
18,479
|
|
Commercial
|
|
|
14,232
|
|
|
|
5,505
|
|
|
|
|
|
|
|
|
|
|
Total real estate-construction:
|
|
$
|
26,354
|
|
|
$
|
23,984
|
|
Consumer
|
|
|
19
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Total non-accrual loans
|
|
|
46,542
|
|
|
$
|
38,536
|
|
OREO
|
|
|
12,928
|
|
|
|
8,925
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
59,470
|
|
|
$
|
47,461
|
|
|
|
|
Loans 90+ days past due and still accruing:
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
|
|
|
$
|
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
|
|
|
Permanent first and second
|
|
|
56
|
|
|
|
71
|
|
Home equity loans and lines
|
|
|
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
Total real estate-one-to-four family residential
|
|
$
|
56
|
|
|
$
|
321
|
|
Real estate-multi-family residential
|
|
|
|
|
|
|
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
|
|
|
|
|
|
|
Non-owner-occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-non-farm, non-residential
|
|
$
|
|
|
|
$
|
|
|
Real estate-construction:
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-construction:
|
|
$
|
|
|
|
$
|
|
|
Consumer
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Total loans past due 90 days and still accruing
|
|
$
|
56
|
|
|
$
|
332
|
|
|
|
|
Total non-performing assets and past due loans
|
|
$
|
59,526
|
|
|
$
|
47,793
|
|
|
|
|
Non-performing assets
|
|
|
|
|
|
|
|
|
to total loans:
|
|
|
2.77
|
%
|
|
|
2.18
|
%
|
to total assets:
|
|
|
2.01
|
%
|
|
|
1.62
|
%
|
Non-performing assets and 90+ days past due loans
|
|
|
|
|
|
|
|
|
to total loans:
|
|
|
2.77
|
%
|
|
|
2.20
|
%
|
to total assets:
|
|
|
2.01
|
%
|
|
|
1.63
|
%
|
Allowance for loan losses to total loans
|
|
|
2.11
|
%
|
|
|
2.24
|
%
|
Allowance for loan losses to non-performing loans
|
|
|
97.37
|
%
|
|
|
125.37
|
%
|
39
Non-performing loans continue to be concentrated in residential and commercial construction and land
development loans in outer sub-markets hardest hit by the residential downturn and commercial and consumer credits experiencing the after shocks in sub-contracting businesses and unemployment levels. Overall, as of March 31, 2012, $26.4
million, or 56.6%, of non-performing loans represented acquisition, development and construction (ADC) loans, $3.1 million, or 6.6%, represented non-farm, non-residential loans, $6.6 million, or 14.3%, represented loans on one-to-four
family residential properties, and $10.0 million, or 21.4%, represented commercial and industrial (C&I) loans. Interest actually received on non-accrual loans was $120 thousand in the three months ended March 31, 2011, and $127
thousand for the three months ended March 31, 2012. The Company continues to pursue an aggressive campaign to further reduce non-performing assets and other impaired loans and is implementing and executing various disposition strategies on an
ongoing basis. See Note 4 to the Consolidated Financial Statements for additional information regarding the Companys non-performing loans.
The following provides a breakdown of the construction and non-farm/non-residential loan portfolios by location, including loans on non-accrual status, with dollars in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2012
|
|
Residential, Acquisition, Development and Construction
By County/Jurisdiction of Origination:
|
|
Total
Outstandings
|
|
|
Percentage
of Total
|
|
|
Non-accrual
Loans
|
|
|
Non-accruals
as a % of
Outstandings
|
|
|
Net
charge-offs
as a % of
Outstandings
|
|
District of Columbia
|
|
$
|
6,545
|
|
|
|
4.8
|
%
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Montgomery, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prince Georges, MD
|
|
|
12,493
|
|
|
|
9.1
|
%
|
|
|
6,194
|
|
|
|
4.5
|
%
|
|
|
1.1
|
%
|
Other Counties in MD
|
|
|
3,883
|
|
|
|
2.8
|
%
|
|
|
203
|
|
|
|
0.1
|
%
|
|
|
|
|
Arlington/Alexandria, VA
|
|
|
29,058
|
|
|
|
21.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Fairfax, VA
|
|
|
31,276
|
|
|
|
22.9
|
%
|
|
|
|
|
|
|
|
|
|
|
0.2
|
%
|
Culpeper/Fauquier, VA
|
|
|
678
|
|
|
|
0.5
|
%
|
|
|
200
|
|
|
|
0.1
|
%
|
|
|
|
|
Frederick, VA
|
|
|
2,288
|
|
|
|
1.7
|
%
|
|
|
2,288
|
|
|
|
1.7
|
%
|
|
|
1.1
|
%
|
Loudoun, VA
|
|
|
15,693
|
|
|
|
11.5
|
%
|
|
|
574
|
|
|
|
0.4
|
%
|
|
|
|
|
Prince William, VA
|
|
|
8,679
|
|
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Spotsylvania, VA
|
|
|
174
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Stafford, VA
|
|
|
20,939
|
|
|
|
15.3
|
%
|
|
|
2,664
|
|
|
|
1.9
|
%
|
|
|
|
|
Other Counties in VA
|
|
|
1,995
|
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Outside VA, D.C. & MD
|
|
|
3,055
|
|
|
|
2.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
136,757
|
|
|
|
100.0
|
%
|
|
$
|
12,122
|
|
|
|
8.9
|
%
|
|
|
2.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2012
|
|
Commercial, Acquisition, Development and Construction
By County/Jurisdiction of Origination:
|
|
Total
Outstandings
|
|
|
Percentage
of Total
|
|
|
Non-accrual
Loans
|
|
|
Non-accruals
as a % of
Outstandings
|
|
|
Net
charge-offs
(recoveries)
as a %
of
Outstandings
|
|
District of Columbia
|
|
$
|
797
|
|
|
|
0.7
|
%
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Montgomery, MD
|
|
|
1,862
|
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Prince Georges, MD
|
|
|
12,489
|
|
|
|
10.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Counties in MD
|
|
|
2,170
|
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Arlington/Alexandria, VA
|
|
|
6,799
|
|
|
|
5.6
|
%
|
|
|
641
|
|
|
|
0.5
|
%
|
|
|
|
|
Fairfax, VA
|
|
|
6,347
|
|
|
|
5.2
|
%
|
|
|
2,793
|
|
|
|
2.3
|
%
|
|
|
|
|
Culpeper/Fauquier, VA
|
|
|
3,049
|
|
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Frederick, VA
|
|
|
2,000
|
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Henrico, VA
|
|
|
919
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Loudoun, VA
|
|
|
11,777
|
|
|
|
9.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Prince William, VA
|
|
|
38,004
|
|
|
|
31.2
|
%
|
|
|
|
|
|
|
|
|
|
|
0.1
|
%
|
Spotsylvania, VA
|
|
|
1,740
|
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Stafford, VA
|
|
|
28,034
|
|
|
|
23.0
|
%
|
|
|
9,963
|
|
|
|
8.2
|
%
|
|
|
|
|
Other Counties in VA
|
|
|
5,679
|
|
|
|
4.7
|
%
|
|
|
835
|
|
|
|
0.7
|
%
|
|
|
|
|
Outside VA, D.C. & MD
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
121,667
|
|
|
|
100.0
|
%
|
|
$
|
14,232
|
|
|
|
11.7
|
%
|
|
|
0.1
|
%
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2012
|
|
Non-Farm/Non-Residential
By County/Jurisdiction of Origination:
|
|
Total
Outstandings
|
|
|
Percentage
of Total
|
|
|
Non-accrual
Loans
|
|
|
Non-accruals
as a % of
Outstandings
|
|
|
Net
charge-offs
as a % of
Outstandings
|
|
District of Columbia
|
|
$
|
89,420
|
|
|
|
7.7
|
%
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Montgomery, MD
|
|
|
22,108
|
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Prince Georges, MD
|
|
|
64,532
|
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Counties in MD
|
|
|
53,137
|
|
|
|
4.6
|
%
|
|
|
87
|
|
|
|
0.01
|
%
|
|
|
|
|
Arlington/Alexandria, VA
|
|
|
183,988
|
|
|
|
15.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Fairfax, VA
|
|
|
286,435
|
|
|
|
24.6
|
%
|
|
|
986
|
|
|
|
0.1
|
%
|
|
|
|
|
Culpeper/Fauquier, VA
|
|
|
3,349
|
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Frederick, VA
|
|
|
6,344
|
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Henrico, VA
|
|
|
22,068
|
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Loudoun, VA
|
|
|
130,325
|
|
|
|
11.2
|
%
|
|
|
1,102
|
|
|
|
0.1
|
%
|
|
|
|
|
Prince William, VA
|
|
|
203,580
|
|
|
|
17.5
|
%
|
|
|
909
|
|
|
|
0.1
|
%
|
|
|
|
|
Spotsylvania, VA
|
|
|
18,761
|
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Stafford, VA
|
|
|
21,601
|
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Counties in VA
|
|
|
50,597
|
|
|
|
4.3
|
%
|
|
|
|
|
|
|
|
|
|
|
0.1
|
%
|
Outside VA, D.C. & MD
|
|
|
9,482
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,165,726
|
|
|
|
100.0
|
%
|
|
$
|
3,085
|
|
|
|
0.3
|
%
|
|
|
0.1
|
%
|
Total TDRs as of the dates indicated consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(Amounts in thousands)
|
|
|
|
|
Troubled debt restructurings:
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
9,271
|
|
|
$
|
7,135
|
|
Real estate-one-to-four family residential:
|
|
|
|
|
|
|
|
|
Permanent first and second
|
|
|
2,441
|
|
|
|
3,974
|
|
Home equity loans and lines
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate-one-to-four family residential
|
|
$
|
2,441
|
|
|
$
|
3,974
|
|
Real estate-multi-family residential
|
|
|
|
|
|
|
|
|
Real estate-non-farm, non-residential:
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
|
3,904
|
|
|
|
3,893
|
|
Non-owner-occupied
|
|
|
15,314
|
|
|
|
17,525
|
|
|
|
|
|
|
|
|
|
|
Total real estate-non-farm, non-residential
|
|
$
|
19,218
|
|
|
$
|
21,418
|
|
Real estate-construction:
|
|
|
|
|
|
|
|
|
Residential
|
|
|
4,276
|
|
|
|
4,207
|
|
Commercial
|
|
|
7,220
|
|
|
|
15,521
|
|
|
|
|
|
|
|
|
|
|
Total real estate-construction:
|
|
$
|
11,496
|
|
|
$
|
19,728
|
|
Consumer
|
|
|
|
|
|
$
|
9
|
|
Farmland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total troubled debt restructurings
|
|
$
|
42,426
|
|
|
$
|
52,264
|
|
Included in this amount of $42.4 million, the Bank had TDRs that were performing in accordance with their modified terms
of $40.2 million at March 31, 2012.
Concentrations of Credit Risk
The Bank does general banking business, serving the commercial and personal banking needs of its customers. The Banks market area consists of the Northern Virginia suburbs of Washington, D.C.,
including Arlington, Fairfax, Fauquier, Loudoun, Prince William, Spotsylvania and Stafford Counties, the cities of Alexandria, Fairfax, Falls Church, Fredericksburg, Manassas and Manassas Park, and, to a lesser extent, certain Maryland suburbs and
the city of Washington, D.C. Substantially all of the Companys loans are made within its market area.
The ultimate collectibility of
the Banks loan portfolio and the ability to realize the value of any underlying collateral, if needed, are influenced by the economic conditions of the market area. The Companys operating results are therefore closely related to the
economic conditions and trends in the Metropolitan Washington, D.C. area.
41
At March 31, 2012, the Company had $1.51 billion, or 70.1%, of total loans concentrated in commercial
real estate. Commercial real estate for purposes of this discussion includes all construction loans, loans secured by multi-family residential properties and loans secured by non-farm, non-residential properties. At December 31, 2011,
commercial real estate loans were $1.54 billion, or 70.7%, of total loans. Total construction loans of $258.4 million at March 31, 2012, represented 12.0% of total loans, loans secured by multi-family residential properties of $81.0 million
represented 3.8% of total loans, and loans secured by non-farm, non-residential properties of $1.2 billion represented 54.3%.
Construction
loans at March 31, 2012, included $127.6 million in loans to commercial builders of single family residential property and $9.1 million to individuals on single family residential property, together representing 6.4% of total loans. These loans
are made to a number of unrelated entities and generally have a term of twelve to eighteen months. In addition, the Company had $121.7 million of construction loans on non-residential commercial property at March 31, 2012, representing 5.7% of
total loans. Total construction loans of $258.4 million include $97.9 million in land acquisition and/or development loans on residential property and $68.5 million in land acquisition and/or development loans on commercial property, together
totaling $166.4 million, or 7.8% of total loans. Potential adverse developments in the Northern Virginia real estate market or economy, including substantial increases in mortgage interest rates, slower housing sales, and increased commercial
property vacancy rates, could have an adverse impact on these groups of loans and the Banks income and financial position. These commercial loans generally represent short term obligations to support working capital needs and/or term loans to
finance the purchase of business assets. At March 31, 2012, the Company had no other concentrations of loans in any one industry exceeding 10% of its total loan portfolio. An industry for this purpose is defined as a group of counterparties
that are engaged in similar activities and have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. In addition, the Bank has commercial
loans of $247.8 million, or 11.5% of the Banks total loan portfolio, to businesses and organizations, including trade associations, professional corporations, community associations, government contractors, medical practitioners, property
management companies, religious organizations and houses of worship, heavy equipment contractors and others primarily located in the Northern Virginia market.
The Bank has established formal policies relating to the credit and collateral requirements in loan originations including policies that establish limits on various loan types as a percentage of total
loans and total capital. Loans to purchase real property are generally collateralized by the related property with limitations based on the propertys appraised value. Credit approval is primarily a function of collateral and the evaluation of
the creditworthiness of the individual borrower and guarantors and/or the individual project, to include an analysis of cash flows and secondary repayment sources.
The federal banking regulators have issued guidance for those institutions which are deemed to have concentrations in commercial real estate lending. Pursuant to the supervisory criteria contained in the
guidance for identifying institutions with a potential commercial real estate concentration risk, institutions which have (1) total reported loans for construction, land development, and other land which represent in total 100% or more of an
institutions total risk-based capital; or (2) total commercial real estate loans representing 300% or more of the institutions total risk-based capital and the institutions commercial real estate loan portfolio has increased 50% or more
during the prior 36 months are identified as having potential commercial real estate concentration risk. Institutions which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk
management with respect to their commercial real estate portfolios and may be required to hold higher levels of capital. The Company, like many community banks, has a concentration in commercial real estate loans. Management has extensive experience
in commercial real estate lending and has implemented and continues to maintain heightened portfolio monitoring and reporting, and strong underwriting criteria with respect to its commercial real estate portfolio. The Company is well-capitalized.
Nevertheless, it is possible that the Company could be required to maintain higher levels of capital as a result of our commercial real estate concentration, which could require us to obtain additional capital, and may adversely affect stockholder
returns.
Non-Interest Income
Non-interest income represented 12.7% and 4.0% of total revenue at March 31, 2012, and March 31, 2011, respectively. Although interest income is
our primary source of revenue, we remain committed to increasing non-interest income as a way to improve profitability and diversify our sources of revenue.
For the three months ended March 31, 2012, the Company recognized $4.9 million in non-interest income, compared to non-interest income of $1.5 million for the three months ended March 31, 2011.
42
The following table presents the components of non-interest income for the three months ended March 21,
2012, and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
From the Three Months
Ended March 31, 2011
to the Three
Months
Ended March 31, 2012
|
|
(dollars in thousands)
|
|
2012
|
|
|
2011
|
|
|
$ change
|
|
|
% change
|
|
Service charges and other fees
|
|
$
|
881
|
|
|
$
|
792
|
|
|
$
|
89
|
|
|
|
11.2
|
%
|
Non-deposit investment services commissions
|
|
|
252
|
|
|
|
253
|
|
|
|
(1
|
)
|
|
|
0.4
|
%
|
Gains on loans held-for-sale
|
|
|
1,001
|
|
|
|
521
|
|
|
|
480
|
|
|
|
92.1
|
%
|
Gain on sale of securities available-for-sale
|
|
|
2,592
|
|
|
|
503
|
|
|
|
2,089
|
|
|
|
415.3
|
%
|
Impairment loss on securities, net
|
|
|
|
|
|
|
(732
|
)
|
|
|
732
|
|
|
|
-100.0
|
%
|
Bank owned life insurance
|
|
|
55
|
|
|
|
62
|
|
|
|
(7
|
)
|
|
|
-11.3
|
%
|
Other
|
|
|
168
|
|
|
|
77
|
|
|
|
91
|
|
|
|
118.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Income
|
|
$
|
4,949
|
|
|
$
|
1,476
|
|
|
$
|
3,473
|
|
|
|
235.3
|
%
|
Included in non-interest income for the first quarter 2012, is a gain on sale of securities available-for-sale of $2.6
million, as compared to a similar gain of $503 thousand in the first quarter of 2011. There was no impairment loss on securities in the first quarter of 2012, as compared to a $732 thousand loss for the first quarter of 2011. Excluding the gain on
sale of securities available-for-sale and impairment loss on securities, non-interest income grew 38.2%, from $1.7 million for the three months ended March 31, 2011, to $2.4 million for the three months ended March 31, 2012. Gain on loans
held-for-sale increased in the first quarter 2012, on a year-over-year basis by $480 thousand, or 92.1%, to $1.0 million. Loans held-for sale totaling $41.0 million were originated in the first quarter of 2012, as compared to $24.0 million in the
first quarter of 2011.
Non-Interest Expense
For the three months ended March 31, 2012, the Company recognized $16.6 million in non-interest expense, compared to non-interest expense of $14.5 million for the three months ended March 31,
2011. The following table presents the components of non-interest expense for the three months ended March 31, 2012, and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
From the Three Months
Ended March 31, 2011
to the Three
Months
Ended March 31, 2012
|
|
(dollars in thousands)
|
|
2012
|
|
|
2011
|
|
|
$ change
|
|
|
% change
|
|
Salaries and employee benefits
|
|
$
|
7,785
|
|
|
$
|
6,659
|
|
|
$
|
1,126
|
|
|
|
16.91
|
%
|
Premises and equipment expense
|
|
|
2,421
|
|
|
|
2,470
|
|
|
|
(49
|
)
|
|
|
-1.98
|
%
|
FDIC insurance
|
|
|
995
|
|
|
|
1,289
|
|
|
|
(294
|
)
|
|
|
-22.81
|
%
|
Loss on other real estate owned
|
|
|
826
|
|
|
|
156
|
|
|
|
670
|
|
|
|
429.49
|
%
|
Franchise tax expense
|
|
|
750
|
|
|
|
772
|
|
|
|
(22
|
)
|
|
|
-2.85
|
%
|
Data processing
|
|
|
653
|
|
|
|
655
|
|
|
|
(2
|
)
|
|
|
-0.31
|
%
|
Other operating expense
|
|
|
3,197
|
|
|
|
2,449
|
|
|
|
748
|
|
|
|
30.54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Expense
|
|
$
|
16,627
|
|
|
$
|
14,450
|
|
|
$
|
2,177
|
|
|
|
15.07
|
%
|
The majority of the year-over-year increase was due to a $1.1 million increase in salaries and employee benefits, a $670
thousand increase in loss on OREO, and higher other operating expenses of $748 thousand, partially offset by a $294 thousand reduction in FDIC premium. The increase in salary and benefits for the first quarter of 2012 compared to the same period of
2011 was mostly related to commissions paid in connection with greater residential mortgage production, and additional personnel in our executive management team, commercial lending department, customer service call center, credit department, and
operations area to drive revenue and enhance our infrastructure to support continued growth. The increase to loss on other real estate owned is related to increased volume in the amount and number of OREO properties sold in the first quarter of
2012. The increase in other operating expense was mostly increased legal fees relating to OREO and credit and collection. FDIC insurance expenses declined $294 thousand, or 22.8%, in the first quarter compared to the same period in 2011. The
decrease in FDIC insurance premiums was primarily due to changes to how the FDIC calculates deposit insurance assessments.
43
Provision for Income Taxes
The Companys income tax provisions are adjusted for non-deductible expenses and non-taxable income after applying the U.S. federal income statutory tax rate of 35%. For the three months ended
March 31, 2012, the Company recorded a provision for income taxes of $3.0 million compared to a provision of $2.4 million for the same period in 2011. Our effective tax rate was stable at 32.6% for the three months ended March 31, 2012,
and March 31, 2011. Our provision for income taxes was positively impacted by non-taxable income generated by the bank owned life insurance earnings, and earnings from tax-exempt investment securities, which provided the greatest benefit to our
effective tax rate.
Financial Condition
Total Assets
Total assets increased by $15.7 million, or 0.53%, to $2.95 billion at
March 31, 2012, as compared to $2.94 billion at December 31, 2011. The linked quarter increase was largely the result of an increase in cash and cash equivalents of $66.5 million, partially offset by a decrease in loans, net of allowance
for loan losses, of $20.8 million, a decrease in investment securities of $26.8 million, and a decrease in loans held-for-sale of $10.3 million.
The primary contributor to the increase in cash and cash equivalents of 80.5%, to $149.0 million at March 31, 2012, was the growth in funding provided by securities sold under agreements to
repurchase. During the first quarter of 2012, securities sold under agreements to repurchase increased $52.4 million, or 20.0%, to $315.6 million at March 31, 2012. Securities sold under agreement to repurchase are entered into with in market
commercial customers that generally maintain a full relationship with the Bank, in the form of lending facilities and other deposit products. We invest these funds in short-term liquid assets, such as interest-bearing deposits held at the Federal
Reserve Bank, and investment securities available-for-sale.
The most significant decrease in loans, net was $68.0 million, or 20.8%, in our
real estate construction portfolio. The Company has significantly reduced its concentration in real estate construction loans, both residential and commercial, from 15.4% of total loans, net at December 31, 2011, to 12.3% at March 31,
2012. Loan growth has been favorable in our real estate non-farm, non-residential portfolio, real estate one-to-four family residential, and real estate multi-family residential increasing sequentially $32.8 million, $10.7 million, and $4.5 million,
respectively.
The decrease in investment securities is the result of holding a larger percentage of short-term investments in cash and cash
equivalents, as compared to investment securities. We held 20.2% of our total assets in the investment security portfolio at March 31, 2012, compared to 21.3% at December 31, 2011. We expect the current level of investment securities as a
percentage of total assets will decline over time as the mix between investment securities and loans will change due to anticipated growth in our loan portfolio.
Loans held-for-sale decreased $10.3 million in the linked quarter to $8.2 million at March 31, 2012, compared to $18.5 in the linked quarter. The level of loans held-for-sale quarter-over-quarter is
driven by various market and economic conditions, including mortgage loan demand in our housing markets, and the interest rate environment.
Investment Securities
Investment
securities were $598.2 million representing a decrease of $26.8 million sequentially from December 31, 2011. During the first quarter of 2012, the Company sold $57.3 million of investment securities resulting in a $2.6 million gain on sale of
securities. The company did not sell any investment securities during the preceding quarter. The purchase of investment securities made during the current quarter were predominantly at a premium to book value in short-term, pass-through securities,
with an average life of three to four years or less. This strategy positions the Company with strong liquid assets to maintain a constant flow of funds to support future loan growth and to provide repricing opportunities if rates begin to rise over
the next few years.
As of March 31, 2012, the Company transferred its held-to-maturity investment portfolio with an amortized cost of
$30.0 million and a fair value of $32.5 million, to its available-for-sale investment portfolio. As a result, an unrealized gain of $1.7 million, net of tax, was recorded in stockholders equity as accumulated other comprehensive income. The
transfer does not represent a change in the Companys investment strategy, merely a reclassification of securities to align with managements intention to hold all securities in its portfolio as available-for-sale. The investment portfolio
also contains four pooled trust preferred securities with an amortized cost of $5.6 million, for
44
which the Company performs a quarterly analysis to determine whether any other-than-temporary impairment exists. The analysis includes stress tests on the underlying collateral and cash flow
estimates based on the current and projected future levels of deferrals and defaults within each pool. There has been no recorded impairment loss since the first quarter of 2011, which included an impairment loss of $732 thousand.
Loans
Loans, net of allowance for loan
losses, decreased $20.8 million, or 1.0%, from $2.12 billion at December 31, 2011, to $2.10 billion at March 31, 2012. The sequential decline in loans was driven primarily by an intentional $68.0 million decrease in real estate
construction loans, both commercial and residential, as the Company continues to closely monitor this type of lending, resolve problem loans in this category, and re-orient lending activities toward building a greater market share in commercial
loans, owner-occupied and select income property commercial real estate loans, multi-family residential loans and one-to-four family residential loans to better balance and diversify the loan portfolio. The sequential decline in real estate
construction loans offset $13.1 million and $19.7 million sequential increases in owner-occupied and non-owner-occupied commercial mortgages, respectively, as well as $4.5 million and $10.7 million sequential increases in multi-family and
one-to-four family residential loans, respectively. Commercial loans declined $4.6 million, as year-end credit line borrowings initiated by closely-held companies to defer cash basis taxes, were repaid. Lending efforts for the remainder of 2012,
will continue to be focused on building greater market share in commercial lending, especially in sectors forecast for growth, such as government contract lending, professional practices and associations and select service industries, with strategic
hiring, marketing campaigns and calling efforts.
Loans held-for-sale
Loans held-for-sale, which are originated by our mortgage division and intended for sale in the secondary market, decreased $10.3 million from $18.5 million at December 31, 2011, to $8.2 million at
March 31, 2012. The decrease in loans held-for-sale was mostly related to a temporary backlog at our correspondent banks during the fourth quarter of 2011, created as a result of a large correspondent bank exiting the correspondent channel for
mortgage loans. Loans sold to correspondent banks are subject to repurchase as a result of specific events outlined in the correspondent purchase agreements. The repurchase events, include but are not limited too, deficiencies in documentation
standards, and defaults or pay-offs within a specified period of time. The Company did not maintain a reserve for repurchase at March 31, 2012, and December 31, 2011, and has historically experienced an insignificant amount of repurchases.
Deposits
Total deposits at
March 31, 2012, were $2.24 billion, a decrease $54.3 million, or 2.4%, from December 31, 2011 to March 31, 2012. The decrease was driven by reductions in time deposits of $51.6 million, or 6.6%. The reduction in time deposits was
intentional and resulted from a series of interest rate reductions that began in late 2011 and continued into 2012. The interest rate reductions made to customer deposit products has been very successful in lowering the cost of deposit funding;
however, did not have a material impact on the amount of core deposits, defined as total deposits less time deposits, maintained on our balance sheet. As a result, the cost of total interest-bearing deposits declined from 1.18% for the fourth
quarter of 2011 to 1.03% for the first quarter of 2012. Including non-interest bearing demand deposits, our total cost of deposits was 0.87% for the first quarter 2012 and 1.01% for the fourth quarter 2011. Core deposits decreased $2.7 million, or
0.2%, in the first quarter of 2012. The Companys deposit mix continues to be weighted heavily in lower cost non-interest bearing demand deposits, savings and interest-bearing demand deposits, which comprised 67.4% of total deposits at
March 31, 2012, compared to 65.9% at December 31, 2011.
Capital Levels and Stockholders Equity
On March 31, 2011, the Company issued 426,000 shares of its common stock at a price of $5.87 per share in a registered direct placement with a
Company director for total gross proceeds of approximately $2.5 million. In addition, the Company issued to the investor, warrants exercisable for shares of common stock, which, if fully exercised, would provide an additional $4.8 million in gross
proceeds to the Company. The warrants each had an exercise price of $5.62 per share. The Series A warrants, exercisable for a total of 426,000 shares of common stock, were exercisable for a period of seven months following the closing date. The
Series B warrants, also exercisable for a total of 426,000 shares of common stock, were exercisable for a period of twelve months following the closing date. The 426,000 Series A warrants were exercised in full before they expired. In March 2012,
the remaining 426,000 Series B warrants were also exercised.
45
On September 29, 2010, the Company issued 1,904,766 shares of its common stock at a price of $5.25 per
share in a registered direct placement with several institutional investors for total gross proceeds of $10.0 million. In addition, the Company issued to the investors warrants exercisable for shares of common stock. The warrants each had an
exercise price of $6.00 per share, which represented a 14.3% premium to the offering price of the shares of common stock sold in the registered direct placement. The Series A warrants were exercisable through April 30, 2011, and 130,851 were
exercised as of that date. The 952,383 Series B warrants originally were to expire on September 29, 2011, but on September 27, 2011, the expiration date of 904,764 of the Series B Warrants was extended to January 27, 2012, with 47,619
warrants having been exercised prior to the warrant extension. Following the extension, during the fourth quarter of 2011, an additional 47,619 Series B warrants were exercised. During January 2012, the remaining 857,155 Series B warrants were
exercised.
Stockholders equity increased $12.9 million, or 4.5%, from $283.8 million at December 31, 2011, to $296.6 million at
March 31, 2012, with approximately $7.3 million in net proceeds from the above referenced stock issuances, net income to common stockholders of $4.8 million for the first quarter 2012, a $386 thousand decrease in other comprehensive income
related to the investment securities portfolio, $475 thousand in the accretion of the discount on preferred stock and $717 thousand in proceeds and tax benefits related to the exercise of options by the Companys directors and officers, and
stock option expense credits. Sequentially, the Companys Tier 1 and total qualifying capital ratios are each up 100 basis points from December 31, 2011, to 15.55% and 16.81%, respectively, due to lower levels of risk-weighted assets and
increased equity during the first quarter of 2012, and its tangible common equity ratio is up 38 basis points primarily due to increases in equity during the first quarter of 2012.
Liquidity
The Companys principal source of liquidity and funding is its customer
deposit base. The level of deposits necessary to support the Companys lending and investment activities is determined through monitoring loan demand. Considerations in managing the Companys liquidity position include, but are not limited
to, scheduled cash flows from existing loans and investment securities, anticipated deposit activity including the maturity of time deposits, pricing and dollar amount of in-market customer deposits, use of wholesale funding such as Certificate of
Deposit Account Registry Service (CDARS) reciprocal deposits, borrowing capacity at the FHLB, and projected needs from anticipated extensions of credit. The Companys liquidity position is monitored daily by management to maintain a
level of liquidity that can efficiently meet current needs and is evaluated for both current and longer term needs as part of the asset/liability management process. On a monthly basis, the Asset/Liability Committee (ALCO) of the board
of directors reviews a comprehensive liquidity analysis and updates the Companys liquidity strategy as necessary.
The Company has taken
a very prudent and disciplined approach to wholesale funding as a source of liquidity. Our successful strategy in gathering in-market customer deposits to fund loan growth has limited our reliance on wholesale funding. Wholesale funding sources
include, but are not limited to, Federal funds, public funds (such as state and local municipalities), FHLB advances, and brokered deposits. We have set limits on the use of wholesale funding sources, which includes limiting brokered deposits to no
more than $50.0 million maturing in any one-month and to no more than 10.0% of total deposits maturing within one-year.
As of March 31,
2012, and March 31, 2011, we did not have any brokered deposits, other than CDARS reciprocal deposits, on our balance sheet. CDARS reciprocal deposits are deposits that have been placed into a deposit placement service which allows us to place
our customers funds in FDIC-insured time deposits at other banks and at the same time, receive an equal sum of funds from customers of other banks within the deposit placement service. CDARS reciprocal deposits of $70.9 million and $95.5
million are included in our time deposit portfolio and account for 3.2% and 4.2% of our total deposits at March 31, 2012, and December 31, 2011, respectively. Time deposits comprise approximately $729.1 million, or 32.6%, of our total
deposit liabilities at March 31, 2012.
The Company measures total liquidity through cash and cash equivalents, investment securities
available-for-sale, mortgage loans held-for-sale, other loans and investment securities maturing within one year, less securities pledged as collateral for repurchase agreements, public deposits and other purposes, and less any outstanding Federal
funds purchased. These liquidity sources decreased $29.1 million, or 3.7%, from $781.2 million at December 31, 2011, to $752.1 million at March 31, 2012, primarily due to a $93.0 million increase in securities pledged as collateral for
repurchase agreements, partially offset by a $65.0 million increase in interest-bearing deposit accounts at other
46
banks. Additional sources of liquidity available to the Bank include the capacity to borrow funds through established short-term lines of credit with various correspondent banks and the Federal
Home Loan Bank of Atlanta. See Note 8 to the Consolidated Financial Statements for further information regarding these additional liquidity sources.
It is our opinion that our liquidity position at March 31, 2012, is adequate to respond to fluctuations on and off balance sheet. In addition, we know of no trends, demands,
commitments, events or uncertainties that may result in, or that are reasonably likely to result in our inability to meet anticipated or unexpected liquidity needs.
Off-Balance Sheet Arrangements
The Company enters into certain off-balance sheet
arrangements in the normal course of business to meet the financing needs of its customers. These off-balance sheet arrangements include unfunded lines of credit, commitments to extend credit, standby letters of credit and financial guarantees,
totaling $560.4 million and $539.2 million as of March 31, 2012, and December 31, 2011, respectively. These arrangements would impact the Companys liquidity and capital resources to the extent customers accept and/or use these
commitments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. With the exception of these off-balance sheet arrangements, and the Companys
obligations in connection with its trust preferred securities, the Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Companys financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources, that is material to investors.
Unfunded lines of credit and commitments to extend credit amounted to $517.3 million at March 31, 2012, and $498.1 million at December 31,
2011, represent legally binding agreements to lend to a customer as long as there is no violation of any condition established in the contract. Unfunded lines of credit and commitments to extend credit were $507.2 million and $10.1 million at
March 31, 2012, and were $478.3 million and $19.8 million at December 31, 2011. Commitments to extend credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
Standby
letters of credit are conditional commitments issued by the Company guaranteeing the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. At March 31, 2012, and
December 31, 2011, the Company had $43.1 million and $41.1 million, respectively, in outstanding standby letters of credit.
Contractual Obligations
Since
December 31, 2011, there have been no significant changes in the Companys contractual obligations.
Capital
The assessment of capital adequacy depends on a number of factors such as asset quality, liquidity, earnings performance, changing competitive conditions
and economic forces, and the overall level of growth. The adequacy of the Companys current and future capital is monitored by management on an ongoing basis. Management seeks to maintain a capital structure that will assure an adequate level
of capital to support anticipated asset growth and to absorb potential losses.
We are subject to various regulatory capital requirements
administered by banking regulators. Failure to meet minimum capital requirements can initiate certain actions by regulators that could have a material effect on our financial condition and the consolidated financial statements. Both the
Companys and the Banks capital levels continue to meet regulatory requirements. The primary indicators relied on by bank regulators in measuring the capital position are the Tier 1 risk-based capital, total risk-based capital, and
leverage ratios. Tier 1 capital consists of common and qualifying preferred stockholders equity, less goodwill, and for the Company includes certain minority interests relating to bank subsidiary issued shares, and a limited amount of
restricted core capital elements. Restricted core capital elements include qualifying cumulative preferred stock interests, certain minority interests in subsidiaries and qualifying trust preferred securities. All of the $71.0 million in preferred
stock interests issued to the Treasury under the Capital Purchase Program qualify as Tier 1 capital. Total risk-based capital consists of Tier 1 capital, qualifying subordinated debt, and a portion of the allowance for loan losses, and for the
Company, a limited amount of excess restricted core capital elements. Risk-based capital ratios are calculated with reference to risk-weighted
47
assets. The leverage ratio compares Tier 1 capital to total average assets. The Banks Tier 1 risk-based capital ratio was 14.93% at March 31, 2012, compared to 14.21% at
December 31, 2011, and its total risk-based capital ratio was 16.19% at March 31, 2012, compared to 15.47% at December 31, 2011. These ratios are in excess of the minimum regulatory requirement of 4.00% and 8.00%, respectively. The
Banks leverage ratio was 11.70% at March 31, 2012, compared to 11.40% at December 31, 2011, and in excess of the minimum regulatory requirement of 4.00%. The Companys Tier 1 risk-based capital ratio, total risk-based capital
ratio, and leverage ratio was 15.55%, 16.81%, and 12.12%, respectively, at March 31, 2012, compared to 14.55%, 15.81%, and 11.61% at December 31, 2011. In addition the Companys and the Banks capital ratios exceeded the amounts
required to be considered well capitalized as defined in the regulations. The increases in these capital ratios year-over-year are due to additional capital raised, net income generated by operations and lower levels of risk-weighted
assets.
The ability of the Company to continue to maintain its overall asset size, or to grow, is dependent on its earnings and the ability
to obtain additional funds for contribution to the Banks capital, through earnings, borrowing, the sale of additional common stock, or the issuance of additional other qualifying securities. In the event that the Company is unable to obtain
additional capital for the Bank on a timely basis, the growth of the Company and the Bank may be curtailed, and the Company and the Bank may be required to reduce their level of assets in order to maintain compliance with regulatory capital
requirements. Under those circumstances net income and the stockholders equity may be adversely affected.
Guidance by the federal
banking regulators provides that banks which have concentrations in construction, land development or commercial real estate loans (other than loans for majority owner occupied properties) would be expected to maintain higher levels of risk
management and, potentially, higher levels of capital. It is possible that we may be required to maintain higher levels of capital than we would otherwise be expected to maintain as a result of our levels of construction, development and
commercial real estate loans.
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Federal Reserve has revised the
capital treatment of trust preferred securities to provide that, beginning in 2011, such securities can be counted as Tier 1 capital at the holding company level, together with other restricted core capital elements, up to 25% of total capital (net
of goodwill), and any excess as Tier 2 capital, subject to limitation. At March 31, 2012, trust preferred securities represented 18.2% of the Companys Tier 1 capital and 16.8% of its total risk-based capital. See Note 9 to the
Consolidated Financial Statements for further information regarding trust preferred securities.
Capital Issuances.
As
noted above, during 2008, the Company accepted an investment by Treasury under the Capital Purchase Program. In connection with that investment, the Company entered into and consummated a Securities Purchase Agreement with the Treasury, pursuant to
which the Company issued 71,000 shares of the Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series A (Series A Preferred Stock), having a liquidation amount per share equal to $1,000, for a total purchase price of $71.0
million. The Series A Preferred Stock pays cumulative dividends at a rate of 5% per year for the first five years and thereafter at a rate of 9% per year. Subject to approval by the Treasury after consultation with the Companys and
Banks federal regulators, the Company may, at its option, redeem the Series A Preferred Stock at the liquidation amount plus accrued and unpaid dividends. The Series A Preferred Stock is non-voting, except in limited circumstances. Prior to
the third anniversary of issuance, unless the Company has redeemed all of the Series A Preferred Stock or the Treasury has transferred all of the Series A Preferred Stock to a third party, the consent of the Treasury will be required for the Company
to commence paying a cash common stock dividend or repurchase its common stock or other equity or capital securities, other than in connection with benefit plans consistent with past practice and certain other circumstances specified in the
Securities Purchase Agreement.
In connection with the purchase of the Series A Preferred Stock, the Treasury was issued a warrant (the
Warrant) to purchase 2,696,203 shares of the Companys common stock at an initial exercise price of $3.95 per share. The Warrant provides for the adjustment of the exercise price and the number of shares of the common stock issuable
upon exercise pursuant to customary anti-dilution provisions, such as upon stock splits or distributions of securities or other assets to holders of the common stock, and upon certain issuances of the common stock (or securities exercisable or
exchangeable for, or convertible into, common stock) at or below 90% of the market price of the common stock on the trading day prior to the date of the agreement on pricing such securities. The Warrant expires ten years from the date of issuance.
If the Company redeems the Series A Preferred Stock in full prior to exercise of the Warrant, the Warrant will be liquidated based upon the then current fair market value of the common stock. The Treasury has agreed not to exercise voting power with
respect to any shares of common stock issued upon exercise of the Warrant.
48
On March 31, 2011, the Company issued 426,000 shares of its common stock at a price of $5.87 per share
in a registered direct placement with a Company director for total gross proceeds of approximately $2.5 million. In addition, the Company issued to the investor, warrants exercisable for shares of common stock, which, if fully exercised, would
provide an additional $4.8 million in gross proceeds to the Company. The warrants each had an exercise price of $5.62 per share. The Series A warrants, exercisable for a total of 426,000 shares of common stock, were exercisable for a period of seven
months following the closing date. The Series B warrants, also exercisable for a total of 426,000 shares of common stock, were exercisable for a period of twelve months following the closing date. The 426,000 Series A warrants were exercised in full
before they expired. In March 2012, the remaining 426,000 Series B warrants were also exercised.
On September 29, 2010, the Company
issued 1,904,766 shares of its common stock at a price of $5.25 per share in a registered direct placement with several institutional investors for total gross proceeds of $10.0 million. In addition, the Company issued to the investors warrants
exercisable for shares of common stock. The warrants each had an exercise price of $6.00 per share, which represented a 14.3% premium to the offering price of the shares of common stock sold in the registered direct placement. The Series A warrants
were exercisable through April 30, 2011, and 130,851 were exercised as of that date. The 952,383 Series B warrants originally were to expire on September 29, 2011, but on September 27, 2011, the expiration date of 904,764 of the
Series B Warrants was extended to January 27, 2012, with 47,619 warrants having been exercised prior to the warrant extension. Following the extension, during the fourth quarter of 2011, an additional 47,619 Series B warrants were exercised.
During January 2012, the remaining 857,155 Series B warrants were exercised.
Please refer to Note 9 to the Consolidated Financial Statements
for additional information regarding the issuance in 2008 of $25 million of trust preferred securities and warrants to purchase 1.5 million shares of the Companys common stock to certain directors and executive officers of the Company.
Recent Accounting Pronouncements
In April 2011, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU) 2011-03, Transfers and Servicing (Topic 860)
Reconsideration of Effective Control for Repurchase Agreements. The amendments in this ASU remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the
financial assets on substantially the agreed terms, even in the event of default by the transferee and (2) the collateral maintenance implementation guidance related to that criterion. The amendments in this ASU are effective for the first
interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted.
The adoption of the new guidance did not have a material impact on the Companys consolidated financial statements.
In May 2011, the
FASB issued ASU 2011-04, Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU is the result of joint efforts by the FASB and
International Accounting Standards Board (IASB) to develop a single, converged fair value framework on how (not when) to measure fair value and what disclosures to provide about fair value measurements. The ASU is largely consistent with existing
fair value measurement principles in U.S. GAAP (Topic 820), with many of the amendments made to eliminate unnecessary wording differences between U.S. GAAP and International Financial Reporting Standards (IFRS). The amendments are effective for
interim and annual periods beginning after December 15, 2011, with prospective application. Early application is not permitted. The Company has included the required disclosures in its consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220) Presentation of Comprehensive Income. The objective of
this ASU is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income by eliminating the option to present components of other comprehensive
income as part of the statement of changes in stockholders equity. The amendments require that all non-owner changes in stockholders equity be presented either in a single continuous statement of comprehensive income or in two separate
but consecutive statements. The single statement of comprehensive income should include the components of net income, a total for net income, the components of other comprehensive income, a total for other comprehensive income, and a total for
comprehensive income. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present all the components of other comprehensive income, a total
for other comprehensive income, and a total for comprehensive income. The amendments do not change the items that must be reported in other comprehensive income, the option for an entity to present
49
components of other comprehensive income either net of related tax effects or before related tax effects, or the calculation or reporting of earnings per share. The amendments in this ASU should
be applied retrospectively. The amendments are effective for fiscal years and interim periods within those years beginning after December 15, 2011. Early adoption is permitted because compliance with the amendments is already permitted. The
amendments do not require transition disclosures. The Company has included the required disclosures in its consolidated financial statements.
In September 2011, the FASB issued ASU 2011-08, Intangible Goodwill and Other (Topic 350) Testing Goodwill for
Impairment. The amendments in this ASU permit an entity to first assess qualitative factors related to goodwill to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as
a basis for determining whether it is necessary to perform the two-step goodwill test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Under the amendments in this ASU,
an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. The amendments in this ASU are effective for annual and
interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an
entitys financial statements for the most recent annual or interim period have not yet been issued. The adoption of the new guidance did not have a material impact on the Companys consolidated financial statements.
In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities. This ASU
requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting
arrangement. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those
amendments retrospectively for all comparative periods presented. The Company does not expect the adoption of ASU 2011-11 to have a material impact on its consolidated financial statements.
In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220) Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of
Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. The amendments are being made to allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of
reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the FASB is considering the operational concerns about the presentation requirements for
reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with
the presentation requirements in effect before ASU 2011-05. All other requirements in ASU 2011-05 are not affected by ASU 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two
separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company has included the required disclosures in its
consolidated financial statements.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company is exposed to market risk, or interest rate risk, as its net income is largely dependent on its
net interest income. Market risk is managed by the Companys Asset/Liability Management Committee that formulates and monitors the performance of the Company based on established levels of market risk as dictated by policy. In setting tolerance
levels, or limits on market risk, the Committee considers the impact on earnings and capital, the level and general direction of interest rates, liquidity, local economic conditions and other factors. Interest rate risk, or sensitivity, can be
defined as the amount of forecasted net interest income that may be gained or lost due to favorable or unfavorable movements in interest rates. Interest rate risk, or sensitivity, arises when the maturity or repricing of interest-earning assets
differs from the maturing or repricing of interest-bearing liabilities and as a result of the difference between total interest-earning assets and interest-bearing liabilities. The Company seeks to manage interest rate sensitivity while enhancing
net interest income by periodically adjusting this asset/liability position. In order to closely monitor and measure interest rate sensitivity, the Company uses earnings simulation models on a quarterly basis.
50
We use a duration gap of equity approach to manage our long-term interest rate risk. This approach uses a
model which generates estimates of the change in our market value of portfolio equity (MVPE) over a range of interest rate scenarios. Given the current low interest rate environment, we limited the downward shock to 100 basis points.
MVPE is the present value of expected cash flows from assets and liabilities using various assumptions about estimated loan prepayment rates, reinvestment rates and deposit decay rates all discounted to a measurement date.
Our short term interest rate sensitivity is managed through the use of a model that generates estimates of the change in the net interest income when
interest rates are shocked upward and downward from the base case. Given the current rate environment, we limited the downward change to 100 basis points. Net interest income depends upon the relative amounts of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them. The model captures the timing of the repricing of interest sensitive assets and interest sensitive liabilities as well as the degree of change (beta) in the
interest rates of particular asset and liability products that occurs as interest rates move upward or downward. The model assumes that the composition of the interest sensitive assets and interest sensitive liabilities existing at March 31,
2012, remains constant over a two year period (base case) and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and
liabilities.
The following table provides an analysis of our interest rate risk as measured by the estimated change in MVPE and net interest
income from the base case, resulting from instantaneous and sustained parallel shifts in interest rates as of March 31, 2012:
|
|
|
|
|
|
|
|
|
Interest Rate Scenario
|
|
Sensitivity of Market
Value of Portfolio
Equity
March 31, 2012
Market Value of
Portfolio Equity
Percent
Change
from Base
|
|
|
Sensitivity of Net
Interest Income
March 31, 2012
Net Interest
Income
Percent Change
from Base
|
|
Up 200 bps
|
|
|
-14.6
|
%
|
|
|
+3.4
|
%
|
Up 300 bps
|
|
|
-22.2
|
%
|
|
|
+5.2
|
%
|
Down 100 bps
|
|
|
+3.1
|
%
|
|
|
-7.2
|
%
|
Management believes the modeled results are consistent with the short duration of the Companys balance sheet and
given the many variables that affect the actual timing of when assets and liabilities will reprice and the extent of that repricing. In shocking the current two year projection upward, interest-bearing liabilities are repricing slightly higher than
interest-earning assets; however, that decline in interest income is being offset by a higher level of interest-earning assets relative to interest-bearing liabilities. Since the earnings model uses numerous assumptions regarding the effect of
changes in interest rates on the timing and extent of repricing characteristics, future cash flows and customer behavior, the model cannot precisely estimate net income and the effect on net income from sudden changes in interest rates. Actual
results will differ from the simulated results due to the timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors.
ITEM 4.
CONTROLS AND PROCEDURES
The Company maintains a system of controls and procedures designed to ensure that information required to be disclosed in reports that the company files with the SEC is recorded, processed, summarized and
reported, within the time periods specified in the SECs rules and forms. The Companys management, with the participation of the Companys Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the
Companys disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have
concluded that the Companys disclosure controls and procedures were effective as of March 31, 2012, to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Companys management, including the Companys Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the Companys disclosure
controls and procedures will detect or uncover every situation involving the failure of persons within the Company or its subsidiary to disclose material information required to be set forth in the Companys periodic reports.
51
The Companys management is also responsible for establishing and maintaining adequate internal control
over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). There was no change in the Companys internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial reporting.
PART
II. OTHER INFORMATION
Item 1.
LEGAL PROCEEDINGS None
Item 1A.
RISK FACTORS
There have been no material changes in the risk factors faced by the Company from those disclosed in the Companys annual report on Form 10-K for the year ended December 31, 2011.
Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
(a)
|
Sales of Unregistered Securities.
None
|
|
(b)
|
Use of Proceeds.
Not Applicable.
|
|
(c)
|
Issuer Purchases of Securities.
None
|
Item
3.
DEFAULTS UPON SENIOR SECURITIES None
Item 4.
MINE SAFETY DISCLOSURES None
Item 5.
OTHER INFORMATION
|
(a)
|
Required 8-K Disclosures.
None
|
|
(b)
|
Changes in Procedures for Director Nominations by Securityholders.
None
|
52
Item 6.
EXHIBITS
|
|
|
Exhibit
No.
|
|
Description
|
|
|
3.1
|
|
Articles of Incorporation of Virginia Commerce Bancorp, Inc., as amended (incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q for the
quarter ended March 31, 2006)
|
|
|
3.2
|
|
Articles of Amendment to the Articles of Incorporation relating to the Series A Preferred Stock (incorporated by reference to Exhibit 3.1 to the Companys Current Report on
Form 8-K filed on December 15, 2008)
|
|
|
3.3
|
|
Amended and Restated By-laws of Virginia Commerce Bancorp, Inc. (incorporated by reference to Exhibit 3.2 to the Companys Current Report on Form 8-K filed on July 27,
2007)
|
|
|
3.4
|
|
Amendment to the Amended and Restated By-laws of Virginia Commerce Bancorp, Inc. (incorporated by reference to exhibit 3.4 to the Companys Current Report on Form 8-K filed on
January 28, 2011)
|
|
|
10.14
|
|
Employment Agreement, dated as of March 1, 2012, by and among Virginia Commerce Bancorp, Inc., Virginia Commerce Bank and Peter A. Converse (incorporated by reference to
Exhibit 10.14 to the Companys Current Report on Form 8-K filed on March 7, 2012)
|
|
|
10.15
|
|
Employment Agreement, dated as of March 1, 2012, between Virginia Commerce Bancorp, Inc., Virginia Commerce Bank and Mark S. Merrill (incorporated by reference to Exhibit 10.15
to the Companys Current Report on Form 8-K filed on March 7, 2012)
|
|
|
10.16
|
|
Employment Agreement, dated as of March 1, 2012, between Virginia Commerce Bank and Richard B. Anderson, Jr. (incorporated by reference to Exhibit 10.16 to the Companys
Current Report on Form 8-K filed on March 7, 2012)
|
|
|
10.17
|
|
Employment Agreement, dated as of March 1, 2012, between Virginia Commerce Bank and Steven A. Reeder (incorporated by reference to Exhibit 10.17 to the Companys Current
Report on Form 8-K filed on March 7, 2012)
|
|
|
10.18
|
|
Employment Agreement, dated as of March 1, 2012, between Virginia Commerce Bank and Patricia M. Ostrander (incorporated by reference to Exhibit 10.18 to the Companys
Current Report on Form 8-K filed on March 7, 2012)
|
|
|
10.19
|
|
Employment Agreement, dated as of March 1, 2012, between Virginia Commerce Bank and Christopher J. Ewing (incorporated by reference to Exhibit 10.19 to the Companys
Current Report on Form 8-K filed on March 7, 2012)
|
|
|
10.21
|
|
Form of Restricted Stock Agreement (for non-employee director) under the Virginia Commerce Bancorp, Inc. 2010 Equity Plan (approved February 22, 2012) (incorporated by
reference to Exhibit 10.21 to the Companys Annual Report on Form 10-K filed on March 14, 2012)
|
|
|
10.22
|
|
Form of Restricted Stock Agreement (for employee) under the Virginia Commerce Bancorp, Inc. 2010 Equity Plan (approved February 22, 2012) (incorporated by reference to Exhibit
10.22 to the Companys Annual Report on Form 10-K filed on March 14, 2012)
|
|
|
10.23
|
|
Form of Tarp-Compliant Restricted Stock Agreement (for employee) under the Virginia Commerce Bancorp, Inc. 2010 Equity Plan (approved February 22, 2012) (incorporated by
reference to Exhibit 10.23 to the Companys Annual Report on Form 10-K filed on March 14, 2012)
|
|
|
31.1
|
|
Certification of Peter A. Converse, President and Chief Executive Officer
|
|
|
31.2
|
|
Certification of Mark S. Merrill, Executive Vice President and Chief Financial Officer
|
|
|
32.1
|
|
Certification of Peter A. Converse, President and Chief Executive Officer
|
|
|
32.2
|
|
Certification of Mark S. Merrill, Executive Vice President and Chief Financial Officer
|
|
|
101
|
|
The following materials from Virginia Commerce Bancorp, Inc.s quarterly report on Form 10-Q for the quarter ended March 31, 2012, formatted in XBRL (Extensible Business
Reporting Language), furnished herewith: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders Equity, (v)
Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements
|
53
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.
|
|
|
|
|
|
|
|
|
|
|
Virginia Commerce Bancorp, Inc.
|
|
|
|
|
(Registrant)
|
|
|
|
|
Date: May 9, 2012
|
|
|
|
BY
|
|
/s/ Peter A. Converse
|
|
|
|
|
Peter A. Converse, President and Chief Executive Officer
|
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
Date: May 9, 2012
|
|
|
|
BY
|
|
/s/ Mark S. Merrill
|
|
|
|
|
Mark S. Merrill, Executive Vice President and Chief Financial Officer
|
|
|
|
|
(Principal Financial Officer)
|
54
Virginia Commerce Bancorp (MM) (NASDAQ:VCBI)
Historical Stock Chart
Von Jun 2024 bis Jul 2024
Virginia Commerce Bancorp (MM) (NASDAQ:VCBI)
Historical Stock Chart
Von Jul 2023 bis Jul 2024