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 June 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
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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 August 12, 1999:
Common Stock, $2.50 par value 2,046,484
- ----------------------------- -----------------------
Class Number of Shares
<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
Page No.
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
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<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000 OMITTED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------------- -----------------
<S> <C>
(unaudited)
ASSETS
Cash and due from depository institutions (non-interest
bearing deposits) $ 10,897 $ 9,765
Federal funds sold 11,777 5,917
Securities (market value: 1999, $101,146; 1998, $105,678) 101,150 104,943
Loans held for sale 4,291 5,400
Loans receivable, net 220,439 212,282
Bank premises and equipment 9,574 9,233
Interest receivable 2,638 2,536
Other real estate owned 486 759
Other assets 2,594 1,978
----------------- -----------------
Total Assets $ 363,846 $ 352,813
================= =================
LIABILITIES
Deposits:
Noninterest-bearing demand deposits $ 44,902 $ 45,370
Savings and interest-bearing demand deposits 116,465 105,857
Time deposits 156,319 155,288
----------------- -----------------
Total deposits 317,686 306,515
Repurchase agreements 1,323 1,305
Other short-term borrowings 1,193 1,181
Interest payable 1,235 1,207
Other liabilities 1,255 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 2,046,484 shares
1999; 2,041,764 shares 1998) 5,116 5,104
Capital surplus 7,873 7,739
Retained earnings 28,919 27,724
Accumulated other comprehensive income (754) 428
----------------- -----------------
Total Stockholders' Equity 41,154 40,995
----------------- -----------------
Total Liabilities and Stockholders' Equity $ 363,846 $ 352,813
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(000 OMITTED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1999 1998
---------------- -----------------
<S> <C>
(unaudited) (unaudited)
INTEREST INCOME
Interest and fees on loans $ 5,043 $ 4,626
Interest on investment securities:
Taxable 37 331
Nontaxable 254 208
Interest and dividends on securities available for sale:
Taxable 1,059 947
Nontaxable 36 27
Dividends 29 13
Interest income on federal funds sold 137 154
----------------- -----------------
Total Interest Income 6,595 6,306
----------------- -----------------
INTEREST EXPENSE
Interest on deposits 2,850 2,758
Interest on short-term borrowings 19 56
----------------- -----------------
Total Interest Expense 2,869 2,814
----------------- -----------------
NET INTEREST INCOME 3,726 3,492
Less: Provision for loan losses 162 175
----------------- -----------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,564 3,317
OTHER INCOME
Service charges on deposit accounts 284 281
Commissions and fees from fiduciary activities 163 122
Investment fee income 33 61
Other operating income 109 52
Gains (losses) on securities available for sale - -
Fees on mortgage loans sold 123 160
----------------- -----------------
Total Other Income 712 676
----------------- -----------------
OTHER EXPENSE
Compensation and employee benefits 1,550 1,286
Net occupancy expense 398 358
Computer services 68 57
Professional fees 120 65
Other operating expenses 629 606
----------------- -----------------
Total Other Expense 2,765 2,372
----------------- -----------------
INCOME BEFORE INCOME TAX EXPENSE 1,511 1,621
Income tax expense 391 498
----------------- -----------------
NET INCOME $ 1,120 $ 1,123
================= =================
EARNINGS PER SHARE, BASIC AND ASSUMING DILUTION $ .55 $ .55
================= =================
DIVIDENDS PER SHARE $ .25 $ .18
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(000 OMITTED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1999 1998
----------------- ----------------
<S> <C>
(unaudited) (unaudited)
INTEREST INCOME
Interest and fees on loans $ 9,976 $ 9,095
Interest on investment securities:
Taxable 69 647
Nontaxable 500 397
Interest and dividends on securities available for sale:
Taxable 2,145 1,842
Nontaxable 71 38
Dividends 50 15
Interest income on federal funds sold 207 320
----------------- -----------------
Total Interest Income 13,018 12,354
----------------- -----------------
INTEREST EXPENSE
Interest on deposits 5,631 5,446
Interest on short-term borrowings 41 112
----------------- -----------------
Total Interest Expense 5,672 5,558
----------------- -----------------
NET INTEREST INCOME 7,346 6,796
Less: Provision for loan losses 333 310
----------------- -----------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,013 6,486
OTHER INCOME
Service charges on deposit accounts 549 523
Commissions and fees from fiduciary activities 326 242
Investment fee income 83 98
Other operating income 194 105
Gains (losses) on securities available for sale 2 -
Fees on mortgage loans sold 280 248
----------------- -----------------
Total Other Income 1,434 1,216
----------------- -----------------
OTHER EXPENSE
Compensation and employee benefits 3,028 2,530
Net occupancy expense 791 701
Computer services 133 138
Professional fees 189 98
Other operating expenses 1,255 1,122
----------------- -----------------
Total Other Expense 5,396 4,589
----------------- -----------------
INCOME BEFORE INCOME TAX EXPENSE 3,051 3,113
Income tax expense 834 930
----------------- -----------------
NET INCOME $ 2,217 $ 2,183
================= =================
EARNINGS PER SHARE, BASIC AND ASSUMING DILUTION $ 1.08 $ 1.07
================= =================
DIVIDENDS PER SHARE $ .50 $ .35
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 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 - - - 2,183 2,183 2,183
Other Comprehensive Income, net of tax:
Unrealized losses on securities
available for sale during the
period, net of tax
of ($8,000) - - - - (15) -
------------
Other comprehensive income - - (15) (15) (15)
------------
Comprehensive income - - - - $ 2,169
============
Cash dividends - - - (720) (720)
Issuance of common stock
under dividend
reinvestment plan 10 150 - - - 160
---------- ---------- ------------ ----------- ------------- ----------
BALANCE, JUNE 30, 1998 $ 5,096 $ 7,618 $ 89 $ 26,589 $ - $ 39,392
========== =========== ============ =========== ============= ==========
BALANCE, JANUARY 1, 1999 $ 5,104 $ 7,739 $ 428 $ 27,724 $ - $ 40,995
Net income - - - 2,217 2,217 2,217
Other Comprehensive Income, net of tax:
Unrealized losses on securities
available for sale during the
period, net of tax
of ($609,000) - - - - (1,181) -
Add reclassification
adjustment, net of tax
of ($1,000) - - - - (1) -
------------
Other comprehensive income - - (1,182) (1,182) (1,182)
------------
Comprehensive income - - - - $ 1,035
============
Cash dividends - - - (1,022) (1,022)
Issuance of common stock
under dividend
reinvestment plan 12 134 - - - 146
----------- ------------ ------------- ---------- ------------ ----------
BALANCE, JUNE 30, 1999 $ 5,116 $ 7,873 $ (754) $ 28,919 - $ 41,154
================================= =========== ============ ============= ========== ============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000 OMITTED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1999 1998
------------------- ------------------
<S> <C>
(unaudited) (unaudited)
OPERATING ACTIVITIES
Net income $ 2,217 $ 2,183
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 333 310
Deferred tax expense (benefit) (47) -
Depreciation and amortization 431 381
Pension (income) expense - 3
(Gain) loss on sale of securities available for sale (2) -
(Gain) loss on sale of other real estate 5 7
Amortization (accretion) of premiums and
discounts on securities 27 (11)
Fees on mortgage loans sold (280) (248)
Proceeds from sale of mortgage loans 26,660 23,377
Purchase of loans for sale (26,380) (23,129)
Changes in assets and liabilities:
(Increase) in interest receivable (103) (178)
Decrease (increase) in other assets 16 (199)
Decrease in interest payable 28 69
(Increase) in other liabilities (331) (137)
----------------- ------------------
Net cash provided by operating activities 2,574 2,428
----------------- -----------------
INVESTING ACTIVITIES
Proceeds from sale of securities available for sale 4,000 2,500
Proceeds from maturities of investment securities 462 2,699
Proceeds from maturities and principal payments
of securities available for sale 13,263 24,271
Purchase of investment securities (2,397) (6,369)
Purchase of securities available for sale (13,350) (30,020)
Purchase of premises and equipment (772) (942)
Additions to other real estate (225) (448)
Proceeds from sale of other real estate 485 157
Net (increase) in loans (7,373) (8,866)
----------------- ------------------
Net cash used in investing activities (5,907) (17,018)
----------------- ------------------
</TABLE>
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<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000 OMITTED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1999 1998
----------------- ------------------
<S> <C>
(unaudited) (unaudited)
FINANCING ACTIVITIES
Net increase in demand, money market and
savings deposits 8,271 16,000
Net increase in time deposits 2,901 7,606
Net increase (decrease) in repurchase agreements 18 (2,268)
Net increase in short-term borrowings 11 494
Common stock issued 146 160
Cash dividends paid on common stock (1,022) (720)
----------------- ------------------
Net cash provided by financing activities 10,325 21,272
----------------- -----------------
Increase in cash and cash equivalents 6,992 6,682
CASH AND CASH EQUIVALENTS
Beginning of the period 15,682 14,973
----------------- -----------------
End of the period $ 22,674 $ 21,655
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
-8-
<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June 30, 1999 and December 31,
1998, and the results of operations and cash flows for the six months ended
June 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 six month period ended June 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:
----------------------------
June 30, 1999
-------------------------------------------
(unaudited)
Obligations of States and Political Subdivisions $ 23,986 $ 23,982
================= =================
December 31, 1998
-------------------------------------------
Obligations of States and Political Subdivisions $ 22,057 $ 22,792
================= =================
SECURITIES AVAILABLE FOR SALE:
------------------------------ June 30, 1999
-------------------------------------------
(unaudited)
U.S. Treasury Securities $ 14,033 $ 14,079
U.S. Government Securities 48,182 47,290
Obligations of States and Political Subdivisions 4,643 4,589
Corporate Bonds 9,577 9,354
Other Equity Securities 1,872 1,852
----------------- -----------------
$ 78,307 $ 77,164
================= =================
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>
-9-
<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
4. The Company's loan portfolio is composed of the following (000 omitted):
JUNE 30, DECEMBER 31,
1999 1998
----------------- -----------------
<S> <C>
(unaudited)
Real estate loans:
Construction $ 16,304 $ 20,330
Secured by farmland 1,660 1,143
Secured by 1 - 4 family residential 88,515 85,086
Other real estate loans 67,747 64,039
Loans to farmers (except secured by real estate) 154 144
Commercial and industrial loans (except those
secured by real estate) 23,191 17,536
Loans to individuals for personal expenditures 22,200 22,504
All other loans 3,472 3,981
----------------- -----------------
223,243 214,763
Less:
Deferred loan fees (287) (195)
Allowance for loan losses (2,517) (2,286)
----------------- ------------------
$ 220,439 $ 212,282
================= =================
5. Activity in the allowance for loan losses is as follows (000 omitted):
JUNE 30, DECEMBER 31,
1999 1998
----------------- -----------------
(unaudited)
Balance at January 1 $ 2,286 $ 2,010
Recoveries added to the allowance 36 92
Loan losses charged to the allowance (138) (647)
Provision recorded to expense 333 831
----------------- -----------------
Balance at end of period $ 2,517 $ 2,286
================= =================
</TABLE>
6. Earnings and Dividends Paid Per Share:
The weighted average number of shares outstanding for the six month periods
ended June 30 were 2,045,026 in 1999 and 2,036,126 in 1998, respectively.
Average shares for the three month periods ended June 30, 1999 and 1998
were 2,046,484 and 2,037,186.
-10-
<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 June 30, 1999 amounted to $1.12 million or $.55 per share,
equaling the $1.12 million or $.55 per share for the quarter ended June 30,
1999. Earnings for the six month period ended June 30, 1999 amounted to $2.22
million or $1.08 per share, an increase of 1.5% over the $2.18 million or $1.07
per share for the comparable period in 1998. The Company's annualized return on
average equity for the six month period ended June 30, 1999 was 10.72%, compared
to 11.36% in 1998. The Company's annualized return on average assets for the six
months ended June 30, 1999 was 1.25%, compared to 1.35% for the comparative
period in 1998.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income increased $234 thousand or 6.7% to $3.73 million for the
three months ended June 30, 1999. For the six months ended June 30, 1999, net
interest income increased $550 thousand or 8.1% to $7.3 million. This
improvement for the quarter and six 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 $328.6 million at June
30, 1999, an increase of 8.2% over $303.6 million at June 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 June 30, 1999 were $283.4 million, an
increase of $42.2 million or 17.5% from $241.2 million at June 30, 1998. The net
interest margin for the six months ended June 30, 1999 was 4.67%, slightly
improved from 4.64% for the comparable period in 1998.
NONINTEREST INCOME
Noninterest income increased $36 thousand to $712 thousand for the three months
ended June 30, 1999, an improvement of 5.3% over the comparative period in 1998.
For the six months ended June 30, 1999 noninterest income increased $218
thousand or 17.9% to $1.4 million. Fees from trust services, brokerage services
and mortgage banking operations accounted for much of the increase. Loan
originations through the mortgage division decreased to $10.1 million during the
quarter ended June 30, 1999, compared to $15.2 million for the three months
ended June 30, 1998. This decrease can be attributed to a significant increase
in overall mortgage rates during the second quarter of 1999. For the six months
ended June 30, 1999, gross mortgage originations amounted to $23.3 million, a
slight increase of $200 thousand from the $23.1 million originated for the
comparable period in 1998.
-11-
<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NONINTEREST EXPENSE
Operating expenses increased $393 thousand, or 16.6% to $2.8 million for the
three months ended June 30, 1999, compared to $2.4 million for the same period
in 1998. Operating expenses for the six months ended June 30, 1999 amounted to
$5.4 million, an increase of $807 thousand or 17.6% over the comparable period
in 1998. Incremental compensation costs of $264 thousand for the three month
period and $498 thousand for the six month period associated with management
additions and staff hirings for a new branch account for much of this increase.
FINANCIAL CONDITION
SUMMARY
At June 30, 1999, the Company has total assets of $363.8 million, an increase of
$11.0 million or 3.1% from $352.8 million at December 31, 1998. Deposit growth
of $11.2 million, increasing deposits to $317.7 million at June 30, 1999, was
used to fund loan growth of $8.2 million, increasing loans receivable to $220.4
million at June 30, 1999. The securities portfolio of $101.2 million at June 30,
1999 consists of 13.9% U.S. Treasuries, 46.8% U.S. Government agencies and
corporations, 28.3% obligations of state and political subdivisions, and 9.2%
corporate bonds.
ASSET QUALITY
Nonperforming assets, consisting of non-accrual loans and other real estate
owned, amounted to $1.3 million or .4% of assets at June 30, 1999, compared to
$1.3 million or .4% of assets at December 31, 1998. The Company recorded a
provision for loan losses of $162 thousand for the three month period ended June
30, 1999, compared to a provision of $175 thousand for the three month period
ended June 30, 1998. Provision for loan losses for the six month period ended
June 30, 1999 amounted to $333 thousand, compared to $310 thousand for 1998. The
allowance for loan losses at June 30, 1999 amounted to $2.517 million compared
to $2.286 million at December 31, 1998. The allowance for loan losses represents
305% of nonperforming loans and 1.13% of gross loans receivable at June 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 June 30, 1999 of $41.2 million increased $159 thousand or
approximately .4% 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 17.7% at June 30, 1999, compared
to 17.4% at December 31, 1998, placing the Company in a well capitalized
position as defined by regulators.
-12-
<PAGE>
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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.
-13-
<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.
-14-
<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) No form 8-K was filed during the six month period ended
June 30, 1999.
-15-
<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
August 12, 1999
/s/Jeffrey W. Farrar
------------------------
Jeffrey W. Farrar, CPA
Senior Vice President - Chief Financial Officer
August 12, 1999
-16-
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