Virginia Commerce Profit Down 28.5%; Provident Bankshares Down 2.5%

Earnings at Arlington-based Virginia Commerce Bancorp declined 28.5 percent in the second quarter as the number of bad loans in the banking company's portfolio ticked up and executives said they may seek fresh capital and would limit the number of loans the bank made to clients going forward.

Separately, Provident Bankshares of Baltimore, which raised extra cash through stock and debt issuances early in the second quarter, reported a 2.5 percent earnings decline as the company increased its provisions for bad loans and wrote down some investments.

Executives at both Virginia Commerce and Provident warned of an increasingly harsh banking environment emerging for community banks in the months to come. Local banks have largely avoided the subprime-home-loan problems that are roiling their larger regional and Wall Street peers. But community banks are not immune to the secondary effects of the housing crisis and slumping economy, with consumers and businesses failing to make payments on a variety of loans.

"While we take some small measure of satisfaction in continuing to post profitable results as we incur significantly increased credit costs, the primary focus of our directors and management is to navigate through the housing downturn," Peter A. Converse, chief executive officer of Virginia Commerce said. "Undoubtedly, our performance will continue to be challenged throughout the remainder of this year. However, we remain confident of our ability to manage through this difficult environment."



Deposits at both banks are guaranteed by the Federal Deposit Insurance Corp. Shares for Virginia Commerce fell 17.2 percent on the news to a morning low of $4 from an opening of $4.83 before gaining back to $4.74 by midday. Shares of Provident had jumped 21 percent, up $1.45, to 7.52 in midday trading.

Virginia Commerce, which operates 26 community banks in Northern Virginia, had $2.7 billion in assets on its books at the end of the second quarter and reported profit of $4.9 million, compared to $6.9 million in the second quarter of 2007. The bank increased its provisions for loan losses, a set-aside banks make for possible bad loans, to $3.7 million from $300,000. The bank's total number of non-performing assets and loans past due has soared over the past year, to $43.9 million in the second quarter from $3.7 million, the bank said.

Given the spike in provisions and bad loans, the bank said it would limit new loan growth to no more than 2.5 percent by tightening its underwriting criteria and pricing, primarily for construction and commercial real estate loans.

"The slow growth initiative is warranted, especially as capital raising options are currently being pursued for the second half of the year," Converse said.

Provident -- which had $6.4 billion assets on its books at the end of the second quarter and operates 142 branch offices in the Washington, Baltimore and Richmond metropolitan areas, as well as in York County, Penn. -- reported profit of $15.1 million, down from $15.5 million in the corresponding quarter year one year ago. The bank increased its provisions for loan losses to $6.4 million from $4.8 million. The also bank netted an $8.7 million gain from the sale of shares of MasterCard and cut other expenses by $2.3 million.

In April, the bank raised $115 million in cash by issuing $65 million in new shares and $50 million in bonds.

"We believe that the current economic pressures will most likely continue through the remainder of 2008 and most of 2009," Gary N. Geisel, chairman and chief executive of Provident, said in a statement. "By remaining focused on our key strategies, Provident's plan is to emerge as an even stronger regional bank when stability returns to the market."

By Terri Rupar  |  July 17, 2008; 12:40 PM ET  | Category:  Earnings
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