Virginia Commerce Bancorp, Inc. Reports Strong First Quarter Earnings and Performance

Virginia Commerce Bancorp, Inc. Reports Strong First Quarter Earnings and Performance

ARLINGTON, Va.--(BUSINESS WIRE)-- Virginia Commerce Bancorp, Inc. (the "Company"), (NAS: VCBI) , parent company of Virginia Commerce Bank (the "Bank"), today reported its financial results for the quarter ended March 31, 2013.

First Quarter 2013 Highlights

• Net Income Available to Common Stockholders and Earnings per Diluted Common Share Increased: Net income available to common stockholders increased to $6.0 million, or $0.17 per diluted common share, for the first quarter of 2013. This represented a 21.4% increase in earnings per diluted common share compared to $0.14 per for the first quarter of 2012. Earnings per diluted common share also increased 41.7% sequentially, compared to $0.12 for the fourth quarter of 2012.

• Adjusted Operating Earnings (a non-GAAP measure) Growth: Adjusted operating earning increased to $6.4 million, or $0.18 per diluted common share, for the first quarter of 2013. This compares to $3.1 million, or $0.09 per diluted common share, for the first quarter of 2012, and $5.3 million, or $0.16 per diluted common share, in the fourth quarter of 2012.

• Net Interest Margin Expansion: The net interest margin was up 12 basis points, to 3.85% for the first quarter of 2013, from 3.73% the fourth quarter 2012 and increased 4 basis points from 3.81% in the first quarter of 2012.

• Asset Quality Improved: Non-performing assets decreased 24.8%, from $59.5 million at March 31, 2012, to $44.7 million at March 31, 2013, while sequentially decreasing $5.5 million, or 10.9%. Total troubled debt restructurings ("TDRs") declined $8.5 million, or 20.0%, from March 31, 2012, to $33.9 million at March 31, 2013, as compared to March 31, 2012, with a sequential decrease of $9.5 million, or 21.9%.

• Significant Improvement in Deposit Mix and Reduced Average Cost of Total Deposits: Non-interest bearing demand deposits represented 19.2% of total deposits at March 31, 2013, compared to 15.0% at March 31, 2012. The average cost of total deposits decreased by 24 basis points from 0.89% for the first quarter of 2012, to 0.65% for the first quarter of 2013.

• Capital Strength and Book Value per Common Share Growth: The ratio of tangible common equity improved to 8.80% at March 31, 2013, as compared to 8.69% and 7.75% at December 31, 2012, and March 31, 2012, respectively. The book value per common share increased to $7.81, as compared to $7.68 and $7.20 at December 31, 2012, and March 31, 2012, respectively.

Peter A. Converse, President and Chief Executive Officer, commented, "We're off to a solid start in 2013 with first quarter earnings increasing nicely on a year-over-year basis and sequentially. Earnings benefited from a combination of net interest margin improvement, the elimination of TARP dividends at the end of 2012 and decreased loan loss provisioning. While first quarter provisioning expense of $1.8 million was down substantially from $6.0 million for the same period in 2012, management feels that the allowance for loan losses provides sufficient coverage of total non-performing loans at a coverage ratio of 118.4% as of March 31, 2013. Reduced loan loss provisioning was also supported in part by meaningful improvement in problem assets. Non-performing assets and troubled debt restructurings declined 10.9% and 21.9%, respectively, on a linked quarter basis. Non-performing assets of $44.7 million at quarter-end 2013 now represent 1.55% of total assets, down from 1.78% as of December 31, 2012, and 2.01% as of March 31, 2012."

Converse concluded, "We are eagerly anticipating our pending merger with United Bankshares, Inc. (UBSI), which was announced on January 30, 2013. We believe this partnership will not only create superior value for our stockholders, but will also enable us to better serve our customers and communities as the leading independent community bank operating throughout the most attractive markets in Northern Virginia and the D.C. Metropolitan area. We still expect the merger to close by the latter part of this year, subject to regulatory approvals and the approval of UBSI and VCBI stockholders. Until then, it is business as usual - Virginia Commerce's management, officers and employees will continue to strive for optimal operating results and to deliver our brand of service excellence to our customers."

SUMMARY REVIEW OF FINANCIAL PERFORMANCE

Net Income

For the three months ended March 31, 2013, the Company recorded net income available to common stockholders of $6.0 million, or $0.17 per diluted common share, compared to net income available to common shareholders of $4.8 million, or $0.14 per diluted common share, for the three months ended March 31, 2012. The year-over-year earnings improvement was largely attributable to the Company's repurchase of all of its TARP preferred stock during the fourth quarter of 2012, and related elimination of a $1.4 million effective dividend on preferred stock for the first quarter of 2013 and a $4.1 million decrease in the provision for loan losses, partially offset by a decrease in net interest income of $1.0 million, a $2.4 million decrease in non-interest income and a $1.0 million increase in non-interest expense. The Company's net income available to common stockholders increased sequentially from $4.2 million, or $0.12 per diluted common share, for the fourth quarter of 2012, primarily due to the $3.5 million reduction in effective dividend on preferred stock related to TARP, a $712 thousand decrease in the provision for loan losses, and a $1.0 million decrease in provision for income taxes, partially offset by a decrease in net interest income of $809 thousand, a $1.8 million decrease in non-interest income and a $804 thousand increase in non-interest expense.

Adjusted operating earnings (a non-GAAP measure) for the three months ended March 31, 2013, were $6.4 million, up $3.3 million, or 107.4%, as compared to $3.1 million for the same period in 2012. On a sequential basis, adjusted operating earnings were up $1.1 million, or 20.0%, for the three months ended March 31, 2013. The year-over-year and sequential increases in the Company's adjusted operating earnings are mostly due to lower provisioning for loan losses. The Company calculates adjusted operating earnings by excluding impairment loss on securities, realized gains and losses on sale of securities, merger-related expenses, acceleration of the accretion of the preferred stock discount, and certain other non-recurring items from net income available to common stockholders.

Asset Quality and Provisions For Loan Losses

Total non-performing assets and loans 90+ days past due declined $5.5 million sequentially from $50.2 million at December 31, 2012, to $45.0 million at March 31, 2013, and decreased $14.5 million, from $59.5 million at March 31, 2012. As a percentage of total assets, non-performing assets decreased from 1.78% at December 31, 2012, to 1.56% at March 31, 2013, and decreased from 2.01% at March 31, 2012. As of March 31, 2013, the allowance for loan losses represented 1.91% of total loans, compared to 1.95% and 2.11%, at December 31, 2012, and March 31, 2012, respectively. The allowance for loan losses covered 118.4% of total non-performing loans as of March 31, 2013, compared to 112.8% and 97.4%, at December 31, 2012, and March 31, 2012, respectively.

As of March 31, 2013, $20.8 million, or 59.1%, of non-performing loans represented acquisition, development and construction ("ADC") loans; $6.6 million, or 18.7%, represented non-farm, non-residential loans; $4.6 million, or 13.2%, represented loans on one-to-four family residential properties; and $3.1 million, or 8.9%, represented commercial and industrial ("C&I") loans. As of March 31, 2013, specific reserves of $16.1 million have been established for non-performing loans and other loans determined to be impaired. The Company continues to pursue an aggressive campaign to reduce non-performing and other impaired loans and is implementing and executing various disposition strategies on an ongoing basis. However, the majority of remaining non-performing loans represent situations which require longer term workout strategies to obtain optimal principal recovery. These strategies are dependent upon project completion, permitting, satisfaction of contract contingencies and other factors.

Included in the loan portfolio at March 31, 2013, are loans classified as troubled debt restructurings ("TDRs"), totaling $33.9 million, a 20.0% decrease from $42.4 million at March 31, 2012. Sequentially, TDRs decreased $9.5 million from $43.5 million at December 31, 2012. TDRs are performing, accruing loans that represent relationships for which a modification to the contractual interest rate or repayment structure has been granted to address a financial hardship. Over 91% of TDRs in the Company's loan portfolio at March 31, 2013, were performing prior to modification. TDRs make up 1.5% of the total loan portfolio and represent $7.0 million in ADC loans, $17.3 million in non-farm, non-residential real estate loans, $7.1 million in C&I loans and $2.6 million in one-to-four family residential loans. At March 31, 2013, 30.0% of the Company's TDRs were reviewable TDRs and 70.0% were permanent TDRs. Reviewable TDRs are loans that have been restructured at or will return to a market rate of interest and can include a temporary interest rate modification, partial deferral of interest or principal, or an extension of term. They can return to performing status upon six months of on-time payments following the return to a market rate of interest, but only in the fiscal year following the year of restructure. Permanent TDRs are loans that have been restructured and include a permanent interest rate reduction. They remain in a TDR status until the loan is paid off.

Classified loans were $160.3 million for the quarter ended March 31, 2013, a $10.0 million decrease from $170.3 million at March 31, 2012. Sequentially, classified loans declined slightly from $160.6 million at December 31, 2012. The year-over-year decline in classified loans was largely due to upgrades to loans to a paving contractor, residential real estate developer and commercial real estate owner in the combined total of $22.2 million, charge-offs totaling $17.5 million, loan payoffs resulting from residential real estate sales of $12.8 million, regular payments on loans of $8.6 million, loans refinanced by other banks of $2.7 million and note sales of $2.3 million, partially offset by downgrades for loans to a commercial real estate management company totaling $17.2 million, a new restaurant that experienced delays in opening of $6.6 million and a utilities and public improvements contractor of $4.0 million.

Provisions for loan losses were $1.8 million for the quarter ended March 31, 2013, down $4.1 million, or 69.2%, compared to $6.0 million in the same period in 2012. Sequentially, provisions for loan losses were down $712 thousand, from $2.6 million in the fourth quarter of 2012. Net charge-offs were $2.6 million for the three months ended March 31, 2013, compared to $1.1 million and $9.3 million for the quarters ended December 31, 2012, and March 31, 2012, respectively. The decreases in the allowance for loan losses as a percentage of total loans from March 31, 2012, to March 31, 2013, is due to charge-offs incurred during 2013 being primarily supported by specific reserves in the allowance for loan losses. As a result, the first quarter analysis of the adequacy of the loan loss reserve indicated that loan loss provisioning of $1.8 million was sufficient to maintain appropriate coverage. The $6.7 million reduction in net charge-offs for the three months ended March 31, 2013, compared to the same period in 2012, was primarily due to decreases in net charge-offs in the C&I loan portfolio, decreasing from $4.7 million in 2012 to $455 thousand in 2013 and in the ADC loan portfolio, decreasing $1.4 million, from $3.6 million in 2012 to $2.2 million in 2013.

Net Interest Income and Net Interest Margin

Net interest income was $25.8 million for the first quarter of 2013 and declined $1.0 million, or 3.7%, from the same quarter last year. The net interest margin increased 4 basis points from 3.81% in the first quarter of 2012, to 3.85% for the same period in 2013. On a sequential basis, the net interest margin was up 12 basis points from 3.73% for the fourth quarter of 2012, to 3.85% for the first quarter of 2013. The year-over-year increase in the first quarter net interest margin was due to an improvement in the mix of interest-earning assets and interest-bearing deposits with a reduction in interest-bearing deposit rates, partially offset by lower average yield on loans. The sequential increase was related to an improvement in interest-earning asset mix which contributed to a 12 basis point increase in the average yield in total interest-bearing assets. Interest and dividend income decreased $2.8 million on average total interest-earnings assets of $2.75 billion for the three months ended March 31, 2013, compared to interest and dividend income generated by average total interest-earnings assets of $2.87 billion for the same period in 2012. The decline in interest income is mostly attributable to lower yielding average loans being generated in the current low interest rate environment. Interest expense decreased $1.8 million to $5.4 million generated on an average total interest-bearing liability balance of $2.2 billion for the quarter ended March 31, 2013, from $7.2 million generated on an average total interest-bearing liability balance of $2.3 billion for the same period in 2012. The average rate paid on total interest-bearing liabilities was 1.01% for the first quarter of 2013, as compared to 1.02% for the fourth quarter 2012, and 1.26% for the first quarter of 2012.

Non-Interest Income

For the three months ended March 31, 2013, the Company recognized $2.6 million in non-interest income, compared to non-interest income of $4.9 million for the three months ended March 31, 2012, and $4.4 million for the sequential quarter. Included in the first quarter 2012 non-interest income is a gain on sale of securities of $2.6 million, while the first quarter of 2013 did not include a gain or loss on sale of securities, and the sequential quarter included a gain of $1.5 million on sale of securities.

Fees and net gains on loans held-for-sale were $1.0 million in the first quarter of 2013 and 2012, with a sequential decrease of $550 thousand, or 35.0%. The sequential decrease is related to a slowdown in residential mortgage loan activity, which is the result of weaker demand during the first quarter due to seasonality and changes in mortgage interest rates.

Non-Interest Expense

Non-interest expense increased $1.0 million, or 6.1%, from $16.6 million in the first quarter of 2012, to $17.6 million in the first quarter of 2013. Sequentially, non-interest expense increased $804 thousand, or 4.8%, from $16.8 million for the fourth quarter of 2012. The year-over-year increase was primarily related to an increase of $312 thousand on other real estate owned losses and expenses, and $584 thousand in merger-related expenses. The sequential increase was primarily related to the $584 thousand in merger-related expenses and $771 thousand in higher salaries and employee benefits, which were partially offset by a decrease of $251 thousand in other real estate owned losses and expenses.

Investment Securities

Investment securities decreased $103.1 million, or 17.2%, year-over-year to $495.1 million at March 31, 2013 and were up $1.7 million sequentially from December 31, 2012. There was no gain on sale of securities during the first quarter 2013. During the first quarter of 2012, the Company sold $58.6 million of investment securities resulting in a $2.6 million gain on sale of securities. During the fourth quarter of 2012, the Company sold $24.9 million of investment securities resulting in a $1.5 million realized gain on sale of securities. The investment portfolio contains two pooled trust preferred securities with a book value of $5.1 million, and a market value of $364 thousand at March 31, 2013, for 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, defaults, and prepayments within each pool. There was no recorded impairment loss for the three months ended March 31, 2013, December 31, 2012, and March 31, 2012.

Loans

Loans, net of allowance for loan losses, increased $53.3 million, or 2.5% year-over-year. ADC loans increased $34.3 million, or 13.3%, one-to-four family residential increased $13.7 million or 3.6%, C&I loans were up $7.6 million, or 3.1%, while non-farm, non-residential real estate loans fell $8.7 million, or 0.7%, and multifamily real estate loans decreased $1.2 million, or 1.5%, from March 31, 2012, to March 31, 2013. Sequentially, loans, net of allowance for loan losses, increased $9.9 million, or 0.5%. The sequential increase in loans was primarily attributable to a $10.7 million increase in ADC loans, a $1.8 million increase in non-farm, non-residential loans and a $1.4 million increase in multi-family residential loans, partially offset by a $5.6 million decrease in C&I loans. The sequential increase in ADC loans represented increased funding of new and ongoing construction projects, primarily consisting of single family and multi-family residential properties, as well as one new residential development loan and one new multi-family loan. The increase in owner-occupied non-farm, non-residential loans represented the refinance of several new business and non-profit clients' operating facilities. The sequential decrease in C&I loans was driven by repayment of credit line borrowings that were previously used to support year-end tax planning and in anticipation of changes in the tax code. The orientation of loan generation efforts and loan mix continues to be reflective of the Bank's strategic emphasis on building greater market share in commercial lending, owner-occupied commercial real estate and residential real estate lending, while focusing ADC lending and non-owner-occupied commercial real estate lending on select transactions in key markets with solid economic metrics.

Deposits

Total deposits at March 31, 2013, were $2.2 billion, a decrease of $50.9 million, or 2.3%, compared to March 31, 2012, with demand deposits increasing $85.0 million, or 25.3%, savings and interest-bearing demand deposits decreasing $9.8 million, or 0.8%, and time deposits decreasing $126.1 million, or 17.3%. As of March 31, 2013, non-interest bearing demand deposits represented 19.2% of total deposits, compared to 15.0% at March 31, 2012. On a linked quarter basis, deposits decreased $58.5 million, or 2.6%, with demand deposits increasing by $4.5 million, or 1.1%, savings and interest-bearing demand accounts decreasing $37.0 million, or 3.1%, and time deposits decreasing by $25.9 million, or 4.1%. The reduction in time deposits during the past year has been intentional and resulted from a series of interest rate reductions that continued throughout 2012 and into the first quarter of 2013. As a result of deposit rate decreases and an improving deposit mix, the cost of total interest-bearing deposits and total deposits declined from 1.03% and 0.89% for the quarter ended March 31, 2012, to 0.80% and 0.65% for the quarter ended March 31, 2013, respectively.

Capital Levels and Stockholders' Equity

Stockholders' equity decreased $42.8 million, or 14.4%, from $296.6 million at March 31, 2012, to $253.8 million at March 31, 2013, with a $67.7 million decline from the repayment of TARP preferred stock and a $3.3 million decrease in other comprehensive income, partially offset by net income available to common stockholders of $23.7 million over the twelve-month period and $4.4 million in proceeds and tax benefits related to the exercise of warrants and options. As a result of these changes, the Company's Tier 1 capital ratio decreased from 15.55% at March 31, 2012, to 13.67% at March 31, 2013, and its total qualifying capital ratio decreased from 16.81% to 14.92% over the same period. Sequentially, the Company's Tier 1 and total qualifying capital ratios are up 42 and 41 basis points, respectively, with net income available to common stockholders of $6.0 million in the first quarter being partially offset by a decrease of $903 thousand in other comprehensive income. The Company's tangible common equity ratio increased from 7.75% at March 31, 2012, and 8.69% at December 31, 2012, to 8.80% at March 31, 2013. The 105 basis point increase in tangible common equity ratio from March 31, 2012, to March 31, 2013, is primarily due to $23.7 million in retained net income available to common stockholders for the twelve months ended March 31, 2013. Sequentially, the 11 basis point increase in tangible common equity ratio is primarily related to $6.0 million in retained net income available to common stockholders for the first quarter of 2013, partially offset by increase of $59.7 million in total tangible assets and a decrease of $903 thousand in other comprehensive income.

ABOUT VIRGINIA COMMERCE BANCORP, INC.

Virginia Commerce Bancorp, Inc. is the parent bank holding company for Virginia Commerce 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 services office, principally to individuals and small-to-medium size businesses in Northern Virginia and the Metropolitan Washington, D.C. area.

On January 29, 2013, the Company signed a definitive merger agreement to be acquired by United Bankshares, Inc. For more information about this merger, see the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission (the "SEC") on January 31, 2013, and the Company's Annual Report on Form 10-K filed with the SEC on March 14, 2013.

NON-GAAP PRESENTATIONS

The Company prepares its financial statements under accounting principles generally accepted in the United States, or "GAAP". However, this press release 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 impairment loss on securities, realized gains and losses on sale of securities, acceleration of the accretion of the preferred stock discount, merger-related expenses and certain other non-recurring items. 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 Company's operational performance and a valuable tool to evaluate the Company's financial results. Calculation of adjusted operating earnings for the three months ended March 31, 2013, March 31, 2012 and December 31, 2012, is as follows:

The adjusted efficiency ratio is a non-GAAP financial measure that is computed by dividing non-interest expense excluding merger-related expenses, by the sum of net interest income on a tax equivalent basis, and non-interest income excluding realized gains and losses on sale of securities, acceleration of the accretion of the preferred stock discount, merger-related expenses and certain other non-recurring items. We believe 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, 2013, and 2012, is as follows:

(1) Tax Equivalent Income of $28,708 for the three months ended March 31, 2013 and $29,501 for the three months ended March 31, 2012.

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 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. We had no intangible assets for the periods presented. We believe 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 Company's tangible common equity ratio as of March 31, 2013, March 31, 2012, December 31, 2012 and September 30, 2012, is as follows:

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements within the meaning of the Securities and Exchange Act of 1934, as amended, including statements of goals, intentions, and expectations as to future trends, plans, events or results of Company operations and policies, including but not limited to potential benefits of a merger between the Company and United Bankshares, Inc., our outlook on earnings, including our future net interest margin, and statements regarding asset quality, our loan and investment security portfolios, our deposit portfolio and anticipated changes to our deposit costs and balances, projected growth, capital position, capital strategies, our plans regarding and expected future levels of our non-performing assets, business opportunities in our market and other strategic initiatives or transactions, 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 Company's market, interest rates and interest rate policy, competitive factors, and other conditions which by their nature, are not susceptible to accurate forecast, and are subject to significant uncertainty. Because of these uncertainties and the assumptions on which this release and the forward-looking statements are based, actual future operations and results may differ materially from those indicated herein. Readers are cautioned against placing undue reliance on any such forward-looking statements. The Company's past results are not necessarily indicative of future performance. For additional information regarding factors that could affect the Company's operations and results, see the Company's Annual Report on Form 10-K for the year ended December 31, 2012, and other reports filed with and furnished to the Securities and Exchange Commission.

Additional Information About the Merger and Where to Find It

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval.

In connection with the pending merger between United Bankshares, Inc. ("United") and the Company (the "Company"), United will file with the SEC a registration statement on Form S-4 that will include a proxy statement of the Company and a proxy statement and prospectus of United, as well as other relevant documents concerning the proposed transaction. Stockholders are urged to read the registration statement and the joint proxy statement/prospectus regarding the Merger when it becomes available and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information. You will be able to obtain a free copy of the joint proxy statement/prospectus, as well as other filings containing information about the Company and United at the SEC's Internet site (http://www.sec.gov). You will also be able to obtain these documents, free of charge, from the Company by accessing the Company's website atwww.vcbonline.comunder the tab "About VCB," then under the heading "Investor Relations." You will also be able to obtain these documents, free of charge, from United's website atwww.ubsi-inc.comunder the tab "Investor Relations."

United, the Company and their respective directors, executive officers, and certain other members of management and employees of United, the Company and their respective subsidiaries may be deemed to be participants in the solicitation of proxies from stockholders of the Company in connection with the Merger. Information about the directors and executive officers of United is set forth in United's proxy statement filed with the SEC on April 3, 2013. Information about the directors and executive officers of the Company is set forth in the Company's proxy statement filed with the SEC on March 22, 2013. Additional information regarding the interests of such participants will be included in the joint proxy statement/prospectus and the other relevant documents filed with the SEC when they become available.