UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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 000-22747
Virginia Commonwealth Financial Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-1542438
- -------------------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
102 South Main Street, Culpeper, Virginia 22701
- --------------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 540-825-4800
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 report(s), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of October 13, 1999:
Common Stock, $2.50 par value 2,046,487
- ----------------------------- -----------------------
Class Number of Shares
<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
<S> <C>
ITEM 1 Consolidated Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of Income 4-5
Consolidated Statements of Changes in Stockholders' Equity 6
Consolidated Statements of Cash Flows 7-8
Notes to Financial Statements 9-10
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-14
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 14
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings 15
ITEM 2 Change in Securities 15
ITEM 3 Defaults Upon Senior Securities 15
ITEM 4 Submission of Matters to a Vote of Security Holders 15
ITEM 5 Other Information 15
ITEM 6 Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000 OMITTED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------- ---------
(unaudited)
<S> <C>
ASSETS
Cash and due from depository institutions (non-interest
bearing deposits) $ 10,420 $ 9,765
Federal funds sold 5,771 5,917
Securities (market value: 1999, $105,620; 1998, $105,678) 105,652 104,943
Loans held for sale 631 5,400
Loans receivable, net 228,310 212,282
Bank premises and equipment 9,502 9,233
Interest receivable 2,563 2,536
Other real estate owned 660 759
Other assets 2,960 1,978
--------- ---------
Total Assets $ 366,469 $ 352,813
========= =========
LIABILITIES
Deposits:
Noninterest-bearing demand deposits $ 43,275 $ 45,370
Savings and interest-bearing demand deposits 120,973 105,857
Time deposits 156,645 155,288
--------- ---------
Total deposits 320,892 306,515
Repurchase agreements - 1,305
Other short-term borrowings 1,064 1,181
Interest payable 1,293 1,207
Other liabilities 1,476 1,610
--------- ---------
Total Liabilities 322,692 311,818
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, no par value; (Authorized 1,000,000 shares,
no shares outstanding) - -
Common stock, par value $2.50 per share; (Authorized
5,000,000 shares; issued and outstanding 2,046,487 shares
1999; 2,041,764 shares 1998) 5,116 5,104
Capital surplus 7,873 7,739
Retained earnings 29,538 27,724
Accumulated other comprehensive income (781) 428
--------- ---------
Total Stockholders' Equity 41,745 40,995
--------- ---------
Total Liabilities and Stockholders' Equity $ 366,471 $ 352,813
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(000 OMITTED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
--------- ----------
(unaudited) (unaudited)
<S> <C>
INTEREST INCOME
Interest and fees on loans $5,082 $4,744
Interest on investment securities:
Taxable 38 346
Nontaxable 366 228
Interest and dividends on securities available for sale:
Taxable 1,131 936
Nontaxable 46 24
Dividends 33 13
Interest income on federal funds sold 143 184
------ ------
Total Interest Income 6,839 6,475
------ ------
INTEREST EXPENSE
Interest on deposits 2,931 2,890
Interest on short-term borrowings 18 56
------ ------
Total Interest Expense 2,949 2,946
------ ------
NET INTEREST INCOME 3,783 3,529
Less: Provision for loan losses 152 170
------ ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,631 3,359
OTHER INCOME
Service charges on deposit accounts 313 280
Commissions and fees from fiduciary activities 163 120
Investment fee income 16 41
Other operating income 50 70
Gains (losses) on securities available for sale 3 6
Fees on mortgage loans sold 84 154
------ ------
Total Other Income 629 671
------ ------
OTHER EXPENSE
Compensation and employee benefits 1,587 1,328
Net occupancy expense 397 383
Computer services 55 87
Professional fees 63 17
Merger expenses - 169
Other operating expenses 615 562
------ ------
Total Other Expense 2,717 2,546
------ ------
INCOME BEFORE INCOME TAX EXPENSE 1,543 1,484
Income tax expense 421 426
------ ------
NET INCOME $1,129 $1,058
====== ======
EARNINGS PER SHARE, BASIC AND ASSUMING DILUTION $ .56 $ .52
====== ======
DIVIDENDS PER SHARE $ .25 $ .23
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(000 OMITTED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
---------- ----------
(unaudited) (unaudited)
<S> <C>
INTEREST INCOME
Interest and fees on loans $15,058 $13,839
Interest on investment securities:
Taxable 107 993
Nontaxable 760 625
Interest and dividends on securities available for sale:
Taxable 3,276 2,778
Nontaxable 117 62
Dividends 83 28
Interest income on federal funds sold 350 504
------- -------
Total Interest Income 19,751 18,829
------- -------
INTEREST EXPENSE
Interest on deposits 8,563 8,335
Interest on short-term borrowings 58 169
------- -------
Total Interest Expense 8,621 8,504
------- -------
NET INTEREST INCOME 11,130 10,325
Less: Provision for loan losses 485 480
------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 10,645 9,845
OTHER INCOME
Service charges on deposit accounts 862 804
Commissions and fees from fiduciary activities 489 362
Investment fee income 98 139
Other operating income 245 175
Gains (losses) on securities available for sale 5 6
Fees on mortgage loans sold 364 402
------- -------
Total Other Income 2,063 1,888
------- -------
OTHER EXPENSE
Compensation and employee benefits 4,615 3,858
Net occupancy expense 1,189 1,084
Computer services 188 225
Professional fees 251 115
Merger expenses 9 244
Other operating expenses 1,863 1,609
------- -------
Total Other Expense 8,106 7,135
------- -------
INCOME BEFORE INCOME TAX EXPENSE 4,602 4,598
Income tax expense 1,255 1,355
------- -------
NET INCOME $ 3,347 $ 3,243
======= =======
EARNINGS PER SHARE, BASIC AND ASSUMING DILUTION $ 1.64 $ 1.59
======= =======
DIVIDENDS PER SHARE $ .75 $ .72
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(000 OMITTED)
<TABLE>
<CAPTION>
Accumulated
Other
Common Capital Comprehensive Retained Comprehensive
Stock Surplus Income Earnings Income Total
-------- -------- -------- -------- --------- --------
<S> <C>
BALANCE, JANUARY 1, 1998 $ 5,086 $ 7,468 $ 104 $ 25,126 $ - $ 37,784
Net income - - - 3,243 3,243 3,243
Other Comprehensive Income, net of tax:
Unrealized gain on securities
available for sale during the
period, net of tax
of ($275,000) - - - - 707 -
Less: reclassification adjustment,
net of tax of $2,000 (4)
---------
Other comprehensive income - - 703 703 703
---------
Comprehensive income - - - - $ 3,946
=========
Cash dividends - - - (1,082) (1,082)
Issuance of common stock
under dividend
reinvestment plan 15 223 - - - 238
-------- -------- -------- -------- --------- --------
BALANCE, SEPT. 30, 1998 $ 5,101 $ 7,691 $ 807 $ 27,287 $ - $ 40,886
======== ======== ======== ======== ========= ========
BALANCE, JANUARY 1, 1999 $ 5,104 $ 7,739 $ 428 $ 27,724 $ - $ 40,995
Net income - - - 3,347 3,347 3,347
Other Comprehensive Income, net of tax:
Unrealized losses on securities
available for sale during the
period, net of tax
of ($411,000) - - - - (1,208) -
Add reclassification
adjustment, net of tax
of ($441) - - - - (1) -
---------
Other comprehensive income - - (1,209) (1,209) (1,209)
---------
Comprehensive income - - - - $ 2,138
=========
Cash dividends - - - (1,534) (1,534)
Issuance of common stock
under dividend
reinvestment plan 12 134 - - - 146
-------- -------- -------- -------- --------- --------
BALANCE, SEPT. 30, 1999 $ 5,116 $ 7,873 $ (781) $29,537 $ - $ 41,745
======== ======== ======== ======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
VIRGINIA COMMONWEALTH FINANCIA L CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000 OMITTED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
----------- --------------
(unaudited) (unaudited)
<S> <C>
OPERATING ACTIVITIES
Net income $ 3,347 $ 3,243
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 485 480
Deferred tax expense (benefit) (76) (85)
Depreciation and amortization 512 589
Pension (income) expense - -
(Gain) loss on sale of securities available for sale (2) (6)
(Gain) loss on sale of other real estate 30 (2)
Amortization (accretion) of premiums and
discounts on securities 24 32
Fees on mortgage loans sold (364) (402)
Proceeds from sale of mortgage loans 31,778 26,365
Purchase of loans for sale (26,645) (25,963)
Changes in assets and liabilities:
(Increase) in interest receivable (28) 282
Decrease (increase) in other assets (964) 455)
Increase in interest payable 86 101
(Decrease) increase in other liabilities 676 118
-------- --------
Net cash provided by operating activities 8,859 4,297
-------- --------
INVESTING ACTIVITIES
Proceeds from sale of securities available for sale 4,000 3,264
Proceeds from maturities of investment securities 620 5,162
Proceeds from maturities and principal payments
of securities available for sale 17,690 31,264
Purchase of investment securities (2,397) (9,419)
Purchase of securities available for sale (22,510) (34,199)
Purchase of premises and equipment (1,518) (1,346)
Additions to other real estate (669) (695)
Proceeds from sale of other real estate 739 360
Net (increase) in loans (16,144) (11,957)
-------- --------
Net cash used in investing activities (20,189) (17,566)
-------- --------
</TABLE>
<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000 OMITTED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
------------- ------------
(unaudited) (unaudited)
<S> <C>
FINANCING ACTIVITIES
Net increase in demand, money market and
savings deposits 11,152 17,922
Net increase in time deposits 3,227 9,302
Net increase (decrease) in repurchase agreements (1,035) (2,152)
Net increase (decrease) in short-term borrowings (67) (650)
Proceeds (repayments) from issuance of note payable (50) 100
Common stock issued 146 238
Cash dividends paid on common stock (1,534) (1,082)
-------- --------
Net cash provided by financing activities 11,839 23,678
-------- --------
Increase in cash and cash equivalents 509 10,409
CASH AND CASH EQUIVALENTS
Beginning of the period 15,682 14,973
-------- --------
End of the period $ 16,191 $ 25,382
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTMBER 30, 1999 AND DECEMBER 31, 1998
1. In the opinion of management, the accompanying financial statements contain
all adjustments (consisting of only normal recurring accruals) necessary to
present fairly the financial position as of September 30, 1999 and December
31, 1998, and the results of operations and cash flows for the nine months
ended September 30, 1999 and 1998. The statements should be read in
conjunction with the Notes to Financial Statements included in the
Company's Annual Report for the year ended December 31, 1998.
2. The results of operations for the nine month period ended September 30,
1999 and 1998 are not necessarily indicative of the results to be expected
for the full year.
3. The Company's securities portfolio is composed of the following (000
omitted):
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
----------------- -----------------
<S> <C>
SECURITIES HELD TO MATURITY:
September 30, 1999
-------------------------------------------
(unaudited)
Obligations of States and Political Subdivisions $ 23,827 $ 23,769
================= =================
December 31, 1998
-------------------------------------------
Obligations of States and Political Subdivisions $ 22,057 $ 22,792
================= =================
SECURITIES AVAILABLE FOR SALE:
September 30, 1999
-------------------------------------------
(unaudited)
U.S. Treasury Securities $ 11,537 $ 11,580
U.S. Government Securities 55,418 54,578
Obligations of States and Political Subdivisions 4,642 4,565
Corporate Bonds 9,572 9,348
Other Equity Securities 1,839 1,754
----------------- -----------------
$ 83,008 $ 81,825
================= =================
December 31, 1998
-------------------------------------------
U.S. Treasury Securities $ 21,021 $ 21,318
U.S. Government Securities 46,374 46,631
Obligations of States and Political Subdivisions 3,391 3,457
Corporate Bonds 9,599 9,628
Other Equity Securities 1,853 1,852
----------------- -----------------
$ 82,238 $ 82,886
================= =================
</TABLE>
<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
4. The Company's loan portfolio is composed of the following (000 omitted):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------- ----------
(unaudited)
<S> <C>
Real estate loans:
Construction $ 13,613 $ 20,330
Secured by farmland 1,648 1,143
Secured by 1 - 4 family residential 94,042 85,086
Other real estate loans 70,152 64,039
Loans to farmers (except secured by real estate) 122 144
Commercial and industrial loans (except those
secured by real estate) 23,179 17,536
Loans to individuals for personal expenditures 24,477 22,504
All other loans 4,014 3,981
--------- ---------
231,247 214,763
Less:
Deferred loan fees (315) (195)
Allowance for loan losses (2,622) (2,286)
--------- ---------
$ 228,310 $ 212,282
========= =========
</TABLE>
5. Activity in the allowance for loan losses is as follows (000 omitted):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
---------- --------
(unaudited)
<S> <C>
Balance at January 1 $ 2,286 $ 2,010
Recoveries added to the allowance 49 92
Loan losses charged to the allowance (198) (647)
Provision recorded to expense 485 831
------- -------
Balance at end of period $ 2,622 $ 2,286
======= =======
</TABLE>
6. Earnings and Dividends Paid Per Share:
The weighted average number of shares outstanding for the nine month
periods ended September 30 were 2,045,519 in 1999 and 2,037,659 in 1998,
respectively. Average shares for the three month periods ended September
30, 1999 and 1998 were 2,046,487 and 2,039,115.
<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION PROVIDES INFORMATION ABOUT THE MAJOR COMPONENTS OF THE
RESULTS OF OPERATIONS, FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES OF
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION (THE COMPANY). THIS DISCUSSION AND
ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS AND SUPPLEMENTAL FINANCIAL DATA.
OVERVIEW
Virginia Commonwealth Financial Corporation's consolidated net income for the
quarter ended September 30, 1999 amounted to $1.13 million or $.56 per share,
compared to $1.06 million or $.52 per share for the quarter ended September 30,
1998. Earnings for the nine month period ended September 30, 1999 amounted to
$3.35 million or $1.64 per share, an increase of 3.2% over the $3.24 million or
$1.59 per share for the comparable period in 1998. The Company's annualized
return on average equity for the nine-month period ended September 30, 1999 was
10.76%, compared to 11.14% in 1998. The Company's annualized return on average
assets for the nine months ended September 30, 1999 was 1.25%, compared to 1.32%
for the comparative period in 1998.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income increased $364 thousand or 5.3% to $3.78 million for the
three months ended September 30, 1999. For the nine months ended September 30,
1999, net interest income increased $805 thousand or 7.8% to $11.1 million. This
improvement for the quarter and nine-month period can be attributed to an
increase in average earning assets and a slight improvement in the net interest
margin. Average earning assets increased $25.0 million to $332.8 million at
September 30, 1999, an increase of 4.9% over $317.1 million at September 30,
1998. The increase in average earning assets can be attributed to growth in
retail deposits, which were used to fund increases in loans receivable and
investment securities. Average interest bearing deposits at September 30, 1999
were $270.5 million, an increase of $19.2 million or 7.6% from $251.3 million at
September 30, 1998. The net interest margin for the nine months ended September
30, 1999 was 4.70%, slightly improved from 4.63% for the comparable period in
1998.
NONINTEREST INCOME
Noninterest income decreased $42 thousand to $629 thousand for the three months
ended September 30, 1999, a decrease of 6.3% over the comparative period in
1998. For the nine months ended September 30, 1999 noninterest income increased
$175 thousand or 9.3% to $2.1 million. Fees from trust services and deposit
relationships accounted for much of the increase. Loan fees generated through
the mortgage division decreased to $84 thousand during the quarter ended
September 30, 1999, compared to $154 thousand for the three months ended
September 30, 1998. This decrease can be attributed to a significant increase in
overall mortgage rates during the period. For the nine months ended September
30, 1999, fees from the mortgage division amounted to $364 thousand, a decrease
of $38 thousand from the $402 thousand generated for the comparable period in
1998.
<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NONINTEREST EXPENSE
Operating expenses increased $171 thousand, or 6.7% to $2.7 million for the
three months ended September 30, 1999, compared to $2.5 million for the same
period in 1998. Operating expenses for the nine months ended September 30, 1999
amounted to $8.1 million, an increase of $971 thousand or 13.6% over the
comparable period in 1998. Incremental compensation costs of $259 thousand for
the three month period and $757 thousand for the nine month period associated
with management additions, staff hiring for a new branch and staff hiring for
Virginia Commonwealth Trust Company account for much of this increase.
FINANCIAL CONDITION
SUMMARY
At September 30, 1999, the Company has total assets of $366.5 million, an
increase of $13.7 million or 3.9% from $352.8 million at December 31, 1998.
Deposit growth of $14.4 million, increasing deposits to $320.9 million at
September 30, 1999, was used to fund loan growth of $16.0 million, increasing
loans receivable to $228.3 million at September 30, 1999.
ASSET QUALITY
Nonperforming assets, consisting of non-accrual loans and other real estate
owned, amounted to $1.4 million or .39% of assets at September 30, 1999,
compared to $1.4 million or .39% of assets at December 31, 1998. The Company
recorded a provision for loan losses of $152 thousand for the three month period
ended September 30, 1999, compared to a provision of $170 thousand for the three
month period ended September 30, 1998. Provision for loan losses for the
nine-month period ended September 30, 1999 amounted to $485 thousand, compared
to $480 thousand for 1998. The allowance for loan losses at September 30, 1999
amounted to $2.622 million compared to $2.286 million at December 31, 1998. The
allowance for loan losses represents 220% of nonperforming loans and 1.13% of
gross loans receivable at September 30, 1999. Management feels that the
allowance is adequate to absorb any losses on existing loans receivable.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital base provides the resource and ability to support the
assets of the Company and provide capital for future expansion. Stockholders'
equity as of September 30, 1999 of $41.7 million increased $750 thousand or
approximately 1.8% from $41.0 million at December 31, 1998. The Company's Tier
I capital consists primarily of common stockholder's equity. Risk weighted
assets are determined by assigning various risk levels to each asset type. The
Company's Tier 1 risk based capital ratio was 17.2% at September 30, 1999,
compared to 17.4% at December 31, 1998, placing the Company in a well
capitalized position as defined by regulators.
<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS
Liquidity is identified as the ability to generate or acquire sufficient amounts
of cash when needed and at reasonable cost to accommodate withdrawals, payments
of debt, and increased loan demand. These events may occur daily or at other
short-term intervals in the normal operation of the business. Experience helps
management predict time cycles in the amount of cash required. In assessing
liquidity, management gives consideration to relevant factors including
stability of deposits, quality of assets, economy of market served,
concentrations of business and industry, competition, and the Company's overall
financial condition. The Company's primary sources of liquidity are cash, due
from banks, fed funds sold and securities in our available for sale portfolio.
In addition, the Bank has substantial lines of credit from its correspondent
banks and access to the Federal Reserve discount window and Federal Home Loan
Bank to support liquidity. The Company has no brokered deposits. In the judgment
of management, the Company maintains the ability to generate sufficient amounts
of cash to cover normal requirements and any additional needs which may arise.
SECOND QUARTER YEAR 2000 READINESS DISCLOSURE
The following is an update to management's discussion of Year 2000 preparedness
disclosures in the Company's Form 10K for the year ended December 31, 1998.
Testing
Core business systems mission-critical and non-mission critical: The inventory,
assessment, remediation and testing phases have all now been completed. The
Company has now placed 100% of remediated core business systems back into
production.
Contingency Business and Event Planning
Management is enhancing the Company's existing business resumption plans to
address various Year 2000 scenarios in the event that efforts to remediate these
systems are not fully successful or are not completed in accordance with current
expectations. Each line of business has significant involvement in the
preparation of Year 2000 contingency plans designed to address specific business
functions. The contingency plans include the use of third party service
providers, alternative sources for power and telecommunications, use of
alternative commercial vendors, alternative data security, redundant facilities
and other contingency service suppliers. Contingency planning for both
mission-critical systems and non-mission critical systems has been completed.
These plans will be amended as the Company continues to obtain information
relating to its own systems and the systems of its significant suppliers and
large clients. The Company will continually test and revise the contingency
plans as the Year 2000 approaches.
Information about the Company's Year 2000 Project, other than historical
information, should be considered forward looking in nature and subject to
various risks, uncertainties and assumptions. Statements regarding the
completion of testing for Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no assurance that
these estimates will be achieved and actual results could differ materially from
those plans. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, the
inability to control third party vendor and customer modification plans, the
ability of the Company to implement suitable contingency plans, Congressional
legislation, regulatory action and similar uncertainties.
<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, FASB issued SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS 133 establishes accounting and reporting standards for
derivative financial instruments and other similar financial instruments
including hedging activities. While the effective date for implementation of
SFAS 133 has been delayed, management continues to evaluate the impact on the
consolidated financial statements of the Company.
EFFECTS OF INFLATION
The effect of changing prices on financial institutions is typically different
from other industries as the Company's assets and liabilities are monetary in
nature. Interest rates and thus the Company's asset liability management is
impacted by changes in inflation, but there is not a direct correlation between
the two measures. Management monitors the impact of inflation on the financial
markets.
FORWARD LOOKING STATEMENTS
The statements contained in this report that are not historical facts may be
construed as forward looking statements. The forward-looking statements are
subject to certain risks and uncertainties which could cause actual results to
differ materially from historical results or those anticipated. Readers are
cautioned not to place undue reliance on these forward-looking statements.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes to the quantitative and qualitative
market risk disclosures in the Company's Form 10K for the year ended December
31, 1998.
<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material legal proceedings to which the Registrant or any
of its subsidiaries, directors, or officers is a party or by which
they, or any of them, are threatened. Any legal proceeding presently
pending or threatened against Virginia Commonwealth Financial
Corporation and its subsidiaries are either not material in respect to
the amount in controversy or fully covered by insurance.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits are not applicable.
(b) The Company filed a Form 8-K on September 28, 1999 announcing
that it had entered a definitive agreement to affiliate with
Caroline Savings Bank of Bowling Green, Virginia. The
agreement calls for the Registrant to be the continuing entity
and Caroline to become a wholly-owned subsidiary of the
Registrant. The reorganization is expected to be completed in
the first quarter of 2000 and is subject to stockholder and
regulatory approval.
<PAGE>
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 COMMONWEALTH FINANCIAL CORPORATION
/s/ O.R. Barham, Jr.
--------------------------
O.R. Barham, Jr.
President
November 13, 1999
/s/ Jeffrey W. Farrar
--------------------------
Jeffrey W. Farrar, CPA
Senior Vice President - Chief Financial Officer
November 13, 1999
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