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Virginia Commerce Bancorp, Inc. (NASDAQ:VCBI)

Q2 2008 Earnings Call Transcript

July 17, 2008 11:00 am ET

Executives

Peter Converse – CEO

Mike Anzilloti – President of Holding Company

Randy Anderson – Chief Lending Officer

Bill Beauchesne – CFO

Steve Reeder – EVP for Retail Banking

Analysts

Allan Buck [ph]

Jennifer Demba – Suntrust Robinson Humphrey

Mark Merck [ph]

Michael Sommer [ph]

Abe Berl [ph]

Doug Rainwater [ph]

Ted Prevanscene [ph]

Larry Arhaug [ph]

Edward Hamill [ph]

Doug Mcgill [ph]

Carter Bundy [ph]

Thomas Crowder [ph]

George Florent [ph]

Sasha Concha [ph]

Roger Dullock [ph]

David Wells [ph]

Presentation

Operator

Good day ladies and gentlemen and welcome to your second quarter earnings call for Virginia Commerce Bancorp, Inc. (Operator instructions) I would now like to turn the conference over to Mr. Peter Converse, CEO. Please go ahead.

Peter Converse

Thank you, Mary, and good morning everyone and welcome to this second quarter earnings call for Virginia Commerce Bancorp, Inc. Again, I’m Peter Converse and the CEO of VCBI. The officers from our executive management team who will participate in the question and answer portion of the call are Mike Anzilloti, the President of our holding company, Randy Anderson, our Chief Lending Officer, Bill Beauchesne, our Chief Financial Officer, and Steve Reeder, the Executive Vice President for Retail Banking.

Let me begin with a brief summary and commentary on our recent performance and near-term prospects and plans. Market conditions will be discussed especially relative to the local real estate situation as management responds to the questions that follow my presentation.

Without a doubt, the banking industry both nationally and locally is struggling to varying degrees through a difficult credit and liquidity cycle, and certainly the Washington Metropolitan area, in which we operate, in particular Northern Virginia, have not been immune to the effects of economic forces and the housing downturn.

Virginia Commerce is feeling the pain but it is not systemic, rather it is localized or concentrated in our long-term niche of residential construction lending, which now accounts for 15% of our loan portfolio.

As a result, our earnings had been under pressure since the fourth quarter of last year primarily due to significantly increased credit cost and to a lesser extent, net interest margin compression.

We continue to post profitable results as we incur the increased credit costs and we are diligently pursuing all the appropriate measures and treatment for this wound to our performance and can confidently say that the prognosis for recovery is excellent.

Our risk management practices and monitoring systems have been further enhanced and strengthened to ensure faster recognition and resolution of problem credits. This includes ongoing analysis and review of all problem loans and credit relationships in high-risk loan categories as well as continuous communication with the borrowers.

As a result, our perspective and grasp of the embedded risk and potential loss in our portfolio has improved further, especially since our last quarter’s earnings call.

Loan loss reserve provisioning has increased substantially relative to heightened credit deterioration and specific loss exposure as determined by current collateral appraisals and evaluations.

Although the bank experienced strong loan growth in the first half of 2008, exceeding expectations in the face of tighter transaction pricing and underwriting, a more restrictive growth posture for the second half and beyond has been initiated. It will entail limiting quarterly loan growth of no more than 2.5%, 10% annualized, through further tightening of underwriting and pricing parameters primarily for construction and commercial real estate loans.

Considering the concentration risk and/or asset quality issues related to these loan categories, the slow growth initiative is warranted especially as capital raising options are currently being pursued for the second half of the year.

I would like to reiterate that we expect to continue to be profitable through all the challenges and turmoil and to remain well capitalized. We are wounded but we are not bleeding to death.

We appreciate that current market focus is less on profitability than on asset quality. In our release this morning, we have attempted to provide the best, most current and most conservative guidance on non-performing assets and charge-offs to the remainder of the year.

I would like to remind our listeners today that the upper levels of worst case are just that. It should not be construed as a veiled signal of what we expect or what is to come. Our current analysis tells us NPAs and charge-offs will be less than the indicated for perspective worst case levels and that these metrics could peak between now and the fourth quarter.

We are in the process of finalizing our capital raising plans and should have an announcement for the market within 30 days. Our bias is still to avoid or minimize delusion to our stockholders.

Therefore, the intent is to raise a majority of the capital through a private placement of trust-preferred securities, a rights offering of common stock is being considered for the remainder.

And that concludes my comments and we’ll it open up to questions from our listeners.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from Allan Buck [ph].

Allan Buck

Hey, guys. Wondering if you wouldn’t mind walking through what assumptions are going into your worst case scenario, a guidance on the asset quality front?

Peter Converse

This is Peter Converse. What we’ve done is identify the possible deterioration of any existing credits and then perhaps double that.

Allan Buck

Okay. Very good. Thank you very much.

Operator

Our next question comes from Jennifer Demba.

Jennifer Demba – Suntrust Robinson Humphrey

Thank you. Your loan growth was I guess better than we were looking for this quarter. I was wondering if you could get us some color behind that.

Peter Converse

Randy, you want to take that?

Randy Anderson

I’d be happy to. Good morning Jennifer.

Jennifer Demba – Suntrust Robinson Humphrey

Hi.

Randy Anderson

The loan growth as you could see in the break as it came out with the press release was really concentrated predominantly in commercial real estate and I can tell you a good 40% of that was own or occupied commercial real estate as we continue to build new commercial banking relationships in the new markets that we’re moving into. We also had good growth in one-to-four family. Again, that’s an offshoot of taking more one-to-four family mortgages into portfolio as opposed to selling these loans which was more of an option in the past few years. We also, while it’s not reflected entirely here, we’ve also had some real good opportunities in building our CNI portfolio, which we are gratified by because as you know that’s been a focus over the last couple of years and we have made good ground on that. We continue to have good momentum there.

Jennifer Demba – Suntrust Robinson Humphrey

Okay. Thank you. And I was just wondering, do you guys have a range of new capital you’d like to raise here in the second half of the year? Can you give us an idea of what we’re looking at?

Randy Anderson

I’m trying to keep in mind our bank council’s advice on what not to say until we make a formal announcement, so I’m not sure how to answer that, probably in the $25 million to $50 million range.

Jennifer Demba – Suntrust Robinson Humphrey

Thank you. And what kind of ratios are you looking at that you want to benchmark here?

Randy Anderson

For the capital ratios, I guess the overall goal is with the anticipated credit quality metrics and their effect on our portfolio and capital and anticipated growth and earnings is to have our capital ratios for the bank and the holding company get to about 1.5% or thereabout higher than where they are now.

Jennifer Demba – Suntrust Robinson Humphrey

Okay. Thank you.

Operator

Our next question comes from Mark Merck [ph].

Mark Merck

Good morning, guys.

Randy Anderson

Hi, Mark.

Mark Merck

Hoping you could talk about the reserve, and the relative reserve came down this quarter despite the credit slippage and the increase in charge-offs. Just wanted to see if you could comment on your comfort there in the provisioning level given that outlook?

Randy Anderson

Sure, I'd be happy to Mark. We, of course, it is part of the methodology in the reserve is to do a specific reserve analysis for all impaired loans, which of course we did. Our impaired loans even under today's depressed market still reflect based upon current appraisals, which were also discounted for prospective cost of sales still reflect pretty good collateral coverage in many cases. That factor combined with the charge-offs that we took in the second quarter, which were charge-offs of reserves that were in place in the first quarter resulted in that slight decline from 1.2 to 1.18 overall as it relates to total loans.

Mark Merck

Okay, and do you have the 30 to 89 day past due number?

Randy Anderson

I do. That number, and I want to make a couple of comments in regard to that, I'm just going to go down through each loan type, so you can understand what the 30 to 89 day ratios are in each of those. In our CNI portfolio, that ratio is 1%. In our consumer portfolio, it is 2%, home equity lines 1.2%, commercial real estate portfolio 0.3%, in our one-to-four family closed in is 0.3%, residential builder 3%, and in commercial construction and this is where I want to make sure it's understood, we have 9.6% but we had two large loans that were in the process of renewal that went over the end of the quarter so doing more than half of the 30 to 89 delinquencies in that category. So, the overall total with that impact of those loans in the process of renewal is 1.9%.

Mark Merck

Okay, thanks Randy.

Operator

Our next question comes from Michael Sommer [ph].

Michael Sommer

Hi, good morning. The 30 to 89 numbers you just gave, can you give me the numbers for the prior quarter as well? Do you have that?

Randy Anderson

Unfortunately, I don't have that with me. I could tell you that in most instances, there is some softening. Certainly, the prior quarter did not have the two large transactions that were in the process of renewal impacting it. But I could certainly give you a call for those if you would like to contact me; I can provide those after the call.

Michael Sommer

Okay and--

Bill Beauchesne

Wouldn’t that be in our first quarter 10-Q?

Randy Anderson

Yes, it’s true. It should be in the first quarter 10-Q.

Peter Converse

(inaudible) in the call report about the 10-Q.

Michael Sommer

In the call report, okay. All right, and do you have any idea at what point you would be able to re-accelerate your loan growth?

Randy Anderson

Well, I think our plan at this point is to meet the existing customer needs and what we consider to be strong new business opportunity to be more inward-looking in terms of focusing in on our existing portfolio and continuing to scrub and monitor that very carefully. The market will of course partially dictate when that would be appropriate, so it would be probably difficult for me to give you a target date on that other than to say it would be my hope that maybe by mid 2009, we would be able to refocus more on the abundant growth and opportunity to take market share that avail themselves to us.

Michael Sommer

All right. Thank you.

Peter Converse

This is Peter again. I think we’re really only looking at the next two to four quarters to slow it as we see how our capital needs play out and assuming that the deterioration peaks as we expect it to, then I think 2009 will tell us at what point we can look at accelerating it. If we think we need to, I mean 10% isn’t a bad growth rate for most banks I would say and that's where we’re slowing it down to.

Michael Sommer

All right, and given that you are slowing the growth as the – do you consider the capital rate as more of a function of deterioration asset quality?

Peter Converse

I would think most people would.

Michael Sommer

Okay. All right. Well, thank you.

Peter Converse

Sure.

Operator

(Operator instructions) Our next question comes from Abe Berl [ph].

Abe Berl

Good morning, guys.

Peter Converse

Hi, Abe.

Abe Berl

Just a quick question, you provide a lot of detail in the press release about the non- performers. I’m just curious, the deterioration, did that happen sort of steadily throughout the quarter or was that something that’s sort of ramped up towards the end of the quarter similar to the way it did last quarter, the first quarter?

Randy Anderson

Abe, I think when I went through a detail of the new NPA that – that came out in the second quarter, the largest grouping was somewhat of a surprise because it really came about not because of the issues related to the projects we were financing. It came out as a result of a business that we really had nothing to do with. It was an affiliated business of the borrower that resulted – the borrower in an effort to protect equity in various projects that we were financing took them all under bankruptcy. And of course when they did that, the payment stops until we go through the judicial process of getting our adequate protection payments reestablished and that drove them into a non-performing category. That was a significant portion, the lion's share.

Peter Converse

It was more than half and not related to market conditions.

Randy Anderson

So, in response to your question, other than that, that surprise -- these were situations that were certainly on our radar screen and that continued to show deterioration that we felt it was (inaudible).

Abe Borough

Okay. Thanks. And then just secondly and this is more of a big picture kind of question. A lot of people that I speak to, they sort of shared view that the D.C. Metro Market potentially could be the next Florida or Southern California, maybe to a lesser degree, but so the next sort of hot spot. Is there any data points that you can share with us that either refute or maybe quell that rumor to any extent?

Peter Converse

I’ll give it try. I certainly don’t share that sentiment.

Abe Borough

Okay. Thank you.

Peter Converse

If you look at our local economy, it continues to have several strengths now that there is the underpinning of the federal government and their procurement activities that is a general strength, but if you look at employment growth, employment growth has continued to be positive for the first -- I am just reading a little bit data here, on a year to year basis, the Washington area added 28,400 net new jobs, that’s April to April comparison. Our own employment rate, which is 3.1%, actually dropped in April which is the most current data I have available from March. Now, that is up from 2.8% a year before, but still on a comparison to the national economy, it still is very favorable.

We continue to have a positive gross regional domestic product. If you look at vacancy rate, I’ll talk right now, both in our Northern Virginia office vacancy rate and overall in the market, while there’s been some trending up over the past year, they still stand at 10.3% overall in Northern Virginia with the highest vacancy in the 28 corridor at 16.2%, and then you could add it to the inner suburbs where we do have a significant presence in Rosslyn, Arlington Courthouse (inaudible) and you’re talking about below 10% in those markets. If you look at housing, a comparison in terms of single family housing, I’m looking at the June report for the Northern Virginia area as a whole and year to date the number of homes sold is actually up 13%. The price is down, 18% on an overall basis. Days on market has dropped. Days on market have dropped under 100, they are down to 99.

Abe Borough

I'm sorry, what region is that from?

Peter

That's for the Alden [ph], Northern Virginia.

Abe Borough

Okay.

Peter Converse

Now you break Northern Virginia down into the sub market and I’ll touch on what are really I'd say the most negatively impacted of markets. (inaudible), I’m doing a June to June comparison, home sales are up 95%, now that’s from obviously a very depressed level. Home prices are down 27% and days on market is down too from a 147 down to 127 days on market.

Now that compares to the Arlington and Alexandria areas where sales in terms of numbers are actually down, 32% and 35% respectively. The effect there is many people just set their homes off to market. They are waiting for a better, what they felt would be a better price in the future. Prices in those markets are down 7% and 10% respectively and days on market are down from the 80 down to 61 and 66 days on market.

Right in the middle, where we have a lot of our branch concentration, is Fairfax County. Sales in Fairfax County on a June to June comparison are up 2%. The average home sale price is down 16%. Days on market are also down to 91 days on market.

So, if you look at this information you can draw a conclusion that, what’s happening is that in the outer suburbs, I think there is some equilibrium in terms of price and demand that’s been reached with a decline in home sales and the inner market where there may be more of an option to wait and sell another day, that seems to be the phenomenon.

Abe Borough

Okay, I appreciate it. Thank you.

Operator

Our next question comes from Doug Rainwater [ph].

Doug Rainwater

Yes, good morning. I was actually going to ask you about just general real estate (inaudible) she did a very good job touching on it, so appreciate it.

Peter Converse

Anything else, Doug?

Doug Rainwater

That was it at this point, Peter. Thanks.

Operator

Our next question comes from Ted Prevanscene [ph].

Ted Prevanscene

Would you care to compare your, as you have described it, Virginia Commerce’s wound with let's say that of Wachovia?

Peter Converse

Well, sure, their's is a lot bigger.

Ted Prevanscene

They are a bigger company.

Peter Converse

Well, I guess the most obvious basic distinction or contrast is that they’ve lost money the last two quarters and it’s significantly increased from quarter to quarter, whereas we’ve made money the last two quarters and the profit has increased quarter over quarter. Now, that’s about as basic as you can get. I could also say that they are suffering from what the market well knows as a series of I guess strategic mistakes would be a kind way to –

Steve Reeder

From an acquisition perspective.

Peter Converse

Yes. Ours is pretty concentrated and in one area, one thing, and it’s not systemic as I said before.

Steve Reeder

And I believe, they also have a very large exposure to sub prime mortgages.

Peter Converse

Yes.

Ted Prevanscene

Okay. Thank you very much.

Peter Converse

Sure.

Operator

(Operator instructions) Our next question comes from Larry Arhaug [ph].

Larry Arhaug

Good morning.

Peter Converse

Good morning.

Larry Arhaug

Is there a regulatory need for additional capital and if it isn't a regulatory need, there seems to be a pretty terrible time to be raising capital.

Peter Converse

Let’s put it this way. I guess the regulators are concerned in general about the capital levels of the banking industry and you can’t escape the fact that there is a strong interest on their part for everybody to beef up the capital to address particularly asset deterioration.

Steve Reeder

The bank, however, is well capitalized and remains well capitalized, by their definition.

Larry Arhaug

Well, (inaudible) a requirement here, it seems to me that even talking about raising capital throws a cloud over the entire stock value of the bank.

Peter Converse

I don’t know how that’s so, because first of all, while we are well capitalized, we’re not significantly well capitalized. We’re just slightly above the minimum levels to be considered well capitalized. And considering the asset quality deterioration that we’ve incurred to date and what we’re projecting, either on a most likely or worst case, I think there is a very strong argument to shore up your capital, even if it is an inopportune time to do so.

Larry Arhaug

From the shareholders' standpoint, if there’s a possibility you might need to raise to maintain your position, you’re not going to go out and buy stock before you would have to do it to keep your position.

Peter Converse

I’m not sure I followed you.

Larry Arhaug

Well, if I were interested in buying Virginia Commerce at 4, and I knew that I might have to buy some stock to maintain my share of the company, I would be both to need to do it twice. In other words, the prospect of an offering I think would deter people like me from buying the stock now.

Peter Converse

Yes, that's very well could be the case, but that is an impediment, a challenge that any prospective stockholders and banks are going to be faced with right now. There’s no way around that and I think we were quite clear that we’re looking to do a majority of the capital raised on a debt basis through trust preferred securities and still consider any kind of capital raised through a stock sale as a last resort, but it may not be avoidable. And if it is not avoidable, then the best way to do it in consideration of our stockholders is on a rights offering basis.

Larry Arhaug

I hope that you don’t need to do it. I don’t know what I’m talking about here and what the requirements are, but it seems like a lousy time to be going to the market for capital.

Peter Converse

It is for all banks in general. It’s the worst possible situation to -- or market to raise capital and it's becoming a very restrictive market in which to raise capital. A number of options have completely been closed off to banks. And I think really what we’re considering are the only two remaining options or maybe one or two but they would be dilutive too.

Larry Arhaug

Yes, hope you don’t have to do it.

Peter Converse

Yes. We appreciate your sentiment. You are not alone on that sentiment.

Larry Arhaug

Very good.

Operator

Our next question is comes from Edward Hamill [ph].

Edward Hamill

That's Edward Hamill. A couple of questions. One, first about net interest margin. A number of banks is starting to report improvements in their net interest margin, yours continues to deteriorate. Do you see when that turns around?

Peter Converse

Well, what we indicated in our press release is we actually feel it's stabilized. It decreased four bases points from the prior quarter which-- yes technically it's a deterioration but when you consider the ten bases points of that was related to the increased number or dollar amount of non-performing assets. Then, net of that we feel it's not only stabilized but it is headed in the right direction.

Edward Hamill

Okay. I guess the other question then gets at in terms of-- you always have a choice of what you said about capital raising of also trying to either-- given the fact that capital is pretty extensive right now is not to grow your asset base or even to try to shrink it because it’s hard to imagine that this new business that you can be heading at would be sufficiently profitable to support the cost of equity at this current price. What are your options in regard to that? I know you talked about slowing the growth of loan growth but what about not growing it all? I mean--

Peter Converse

Well, I guess that could be a next step but our step right now is to slow our own growth and one of the ways we are going to slow it is to increase the pricing parameters under which we extend credit. And so one would presume that what loan growth we do enjoy will be on a more profitable basis.

Although, yes, is it going to be profitable enough to offset with the expensive cost of capital right now? No. But it is that an option to not grow at all? Sure. Is there an option beyond that to even sell assets? Sure. And as we do our on-going analysis of our situation and needs, we will consider those in turn.

Our first step is what we said we were going to do and those could be succeeding steps. Although, we are not currently considering them.

Edward Hamill

I guess, I’m just puzzled by your-- you made a recent comment as if the loan profitability isn’t sufficient right now to support or new loans, you can’t make enough money on the loans to really just support the cost of new capital. So why would you even consider it, growing loans? If that’s the case. If you can’t make, if you can’t-- if your marginal profitability on a new loan isn’t sufficient to drive marginal cost of capital or to achieve marginal cost of capital, why would you add new loans?

Randy Anderson

Well, this is Randy speaking. I think that’s just one part of the equation. The other of the equation is that we are going to put even more of a focus on relationship and what we’re developing a loan relationship, we’re also getting deposit operating account and so forth to come in at no or low cost that bring-- if you’re just looking at the price of the loan, yes I agree with you. It probably wouldn’t make sense but if you throw in the fact that part of it is still funding with low or no cost deposits then that really brings that profitability of the relationship up.

The other concern is, building a bank is building momentum and moving in the new markets to completely put the screws on and grind to a hole, my fear would be coming out of the other end is getting that engine started up again. If you don’t meet your existing customer’s need then you run the risk of loosing those customers.

Edward Hamill

I understand. I don’t disagree with-- certainly looking at the total profitability of a relationship. I mean I certainly didn’t mean to exclude those factors in determining whether having new loans was sufficient exceed the cost of capital. That probably is going to need trips to do that but I guess, is there any way that you can-- are there any assets that you could or do you have any flexibility in reducing exposure to less profitable assets?

Randy Anderson

I have on several different levels been exploring. I'm looking at our portfolio. I'm looking at what I considered to be a kind of one off transaction, meaning there were just transactions, they’re good solid season loans but we don’t really have an ongoing ability with that relationship to develop new business. I’m looking at those and the thought that maybe that we put those in a pool and sell those.

Unfortunately, it’s not a good time to raise capital and frankly it’s a lousy time to sell loans too because the discount, if there is a discount, or the premium if the transaction pool is solid enough are pretty skinny. And so I have to weigh what I’m giving up in future profitability from those loans in that pool versus the effect it’s going to give it from the standpoint of avoiding raising additional capital and whether I would even have to offer a small discount on the pool to make it move.

Edward Hamill

Okay.

Operator

Our next question comes from Doug Mcgill [ph].

Doug Mcgill

Yes, good morning Peter and Randy. How are you today?

Peter Converse

Good morning.

Doug Mcgill

You may have had this information handy to you but it seems to me that everyone is comparing your current results to your most recent prior years' stellar performance. However, how did your current net income compare to the previous years when your share price is selling around the same price it is now?

Peter Converse

I’m not sure we understand that.

Doug Mcgill

What is was your net income? Most of your net income?

Peter Converse

(inaudible) this and that net income for the six-month period is down what, 32% from the same period and the stock price is down considerably from a year ago also.

Doug Mcgill

Right. But the last time your stock was selling at the price it currently is now was years ago. How is your net income, if you can recall or have that data handy, what was your net income like back when your stock was at $4 or $5 a share ten years ago?

Peter Converse

Well, it never was at $4 or $5 a share. The bank was opened 20 years ago and the initial stock was sold at $10 and probably over the next five or six years, it traded down to maybe as low as $8 and then since then, it’s only gone up from then up until the last year and a half or two years rather.

Of course then, there’s the adjustment for the last 12 years of stocks list and stock dividend.

Doug Mcgill

I guess the point I’m trying to get is that it seems like your performance is still pretty good and that people are somewhat bashing Virginia Commerce Bank because of the decline from the stellar performance that it had a couple years ago.

Peter Converse

Yes. I think that’s a valid observation. We are probably getting beat up more than others. Although, we’re not certainly an exception in that regard but I think one of the problems is the market sees more loss and doom than bloom in our future performance than we’re guiding.

Doug Mcgill

Okay. Thanks very much.

Peter Converse

And we can’t control that.

Operator

Our next question comes from Carter Bundy [ph].

Carter Bundy

Good morning.

Peter Converse

Hi, Carter.

Carter Bundy

Could you all speak to what percentage of the construction portfolios are on person second extensions? If you have those numbers.

Peter Converse

Sure, I have the second extension number, Carter. We don’t really -- the first extension, I don’t think is all that important, but--

Carter Bundy

Okay.

Peter Converse

Of the total construction portfolio, 37% is on second extension. That includes the non-performing assets as well.

Carter Bundy

Okay. Thank you all.

Peter Converse

Certainly.

Operator

(Operator instructions) Our next question comes from Thomas Crowder [ph].

Thomas Crowder

Good morning. I don’t know if you can comment on this, but do you all have in your projections an idea of what you think your trust preferred is going to be priced out? What’s it going to cost?

Peter Converse

I can’t tell you specifically, but I can tell you what the market range is, and then you could draw your own conclusions.

Thomas Crowder

Okay.

Peter Converse

The least expensive on a retail or private basis in the last, say, six months or more has been at the 10% level and there has been some recent, I guess, retail or public trust preferred issues that are being priced at 11%.

Thomas Crowder

Okay.

Peter Converse

So I guess the range would be over the last six months or so, 10% to 11%.

Thomas Crowder

That sounds right. I had jotted down about 10.5 as what I thought. I have seen something go off in the last--

Peter Converse

Yes, that was one that went off, and then we had heard of another one but we are not part of because we are doing it private. We are not –

Thomas Crowder

Right.

Peter Converse

The ones you are probably hearing about are the retail or public ones.

Thomas Crowder

Right. Okay.

Peter Converse

And the last probably two announced, were one was 10.5 and one was 11, I think.

Thomas Crowder

Okay. But that’s the same area that you all are expecting to be in.

Peter Converse

Well, we would expect to be lower than that.

Thomas Crowder

Okay. And I hope you are. Thanks very much.

Peter Converse

Thank you.

Operator

(Operator instructions) Our next question comes from George Florent [ph].

George Florent

Hello guys.

Peter Converse

Hi.

George Florent

I know you just opened your most current -- What are you anticipating deposits for that new branch in the next six months?

Peter Converse

Well, we lost you for a second or two of what you say. I think you said we just opened our most current branch and you’re asking what we expect in deposits?

George Florent

Yes. In the next six months.

Peter Converse

Before we can tell you where we are now and what we expect, why don’t we turn to Steve Reeder, who heads up our retail effort.

Steve Reeder

Hi, good morning, George. Our Dallas branch that opened up back in May has about $5 million takes in deposits and with all of our new branches, our goal, is to get it to break-even level within the first 12 months. Then depending on the cost of the real estate that the branch has owned-- that’s anywhere from $22 to $28 million in deposits in the first year.

So, to make it fair for everybody, we just set a goal of $28 million for each of our new branches and for all the offices that we have opened back in 2007 and 2008, taken on aggregate, we are on paced to meet or exceed that goal.

There’s a couple of branches that might be a little bit below, but that’s more than made up by other branches that are better ahead of the game. So we have continued to have success with the launch of these branches than get them to profitability quickly.

George Florent

Do you plan to open any other branches this year? And by the way, it’s Jerry Florent.

Peter Converse

Oh, I’m sorry, Jerry. We’ll be opening a branch in Falls Church. This will look like in September, could be October.

George Florent

Where do you anticipate to open that branch?

Peter Converse

That’s in Falls Church.

George Florent

Falls Church? Okay, thank you.

Peter Converse

Thank you.

Operator

Our next question comes from Sasha Concha [ph].

Sasha Concha

Hey, you said that you are wounded. What about the deposit which is more than FDIC insured? What do you think about those things?

Peter Converse

You mean the exposure to depositors with the deposits that are beyond the FDIC insurance coverage?

Sasha Concha

Right.

Peter Converse

Yes. Well, as a matter of fact, I guess depositors nationwide have more concern now especially with the regulatory takeover of Indie Mac and I imagine most of us are getting calls from anxious depositors and we have done a good job, I think, of assuring them of the safety and soundness of the bank and I have got a communication out to them. But with respect to coverage beyond the FDIC, I am going to let Steve talk to you about a program that we have had enforced for a year or two. And that was two years, I guess.

Steve Reeder

Yes, two years. In October, we are one of about 2,000 banks nationwide that participate in a program called CDARS, which stands for Certificate of Deposit Account Registry Service. And it’s really an ingenuous product where our customer would deposit funds with us, and then behind the scene, working with our partner, we split up into sub $100,000 certificates that would be placed in other participating banks throughout the country.

It’s critical that the sub $100,000 so that now as a principal with now also with the interest that will accrue is fully FDIC insured but again, it’s the bank that is doing the leg work as opposed to the customer having to run around to all these different banks and deal with all that in all these different interest supporting statements that you’re in. And actually, CDARS allows customers to ensure CE deposits of up to $50 million.

And we have been doing that for almost two years and are doing very well with that. In fact, the majority of our high deposit growth in the second quarter was in that CDARS program.

Sasha Concha

What do you think about it long-term?

Peter Converse

What about long-term? Could you repeat that, please?

Sasha Concha

What do you think about the long-term effects on the deposits, if you guys are not doing good. You feel wounded, if you are hurt badly then what will happen to the long-term. What could happen to the bank?

Peter Converse

Well, I think that’s getting to the heart of the comments I made in my preliminary remarks, and that is, we feel very good about the long-term viability of the bank. Forgive me for repeating what I said earlier, we’ve been wounded, but we’re not bleeding to death. And the prognosis is for a full recovery, if you will. So, we have no concerns about the long-term viability or safety and soundness of the bank. We’re just working our way like a lot of good banks in this country, working our way through a very difficult economic climate and housing downturn. And it’s not pleasant, but it’s not insurmountable and we're going to succeed. So, that’s not a concern we have.

Sasha Concha

Thank you very much, Peter.

Peter Converse

Certainly.

Operator

Our next question comes from Roger Dullock [ph].

Roger Dullock

Good morning. Could you tell me what your net worth per share was at the end of the first quarter? And then also at the end of the second quarter.

Steve Reeder

At the end of the first quarter, it was 660 at the end of the first quarter, and 660 now- unchanged.

Roger Dullock

Thank you.

Operator

Our next question comes from David Wells [ph].

David Wells

Real quick question about the investment portfolio. Do you have any Fannie Mae or Freddie Mac preferred stock in the investment portfolio?

Steve Reeder

No, we do not.

David Wells

Great. Thank you.

Operator

(Operator instructions) I’m not showing any questions at this time.

Peter Converse

Okay. Well, thank you all for your interest and attention and we look forward to our next earnings call. Thank you, Mary.

Operator

Thank you. Ladies and gentlemen, that does conclude today’s conference. You may now disconnect, and have a great day.

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Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

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Source: Virginia Commerce Bancorp, Inc. Q2 2008 Earnings Call Transcript
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