10-Q 1 d10q.txt QUARTERLY REPORT 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 March 31, 2001 ------------------------------------ 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 April 30, 2001: Common Stock, $2.50 par value 2,313,194 ----------------------------- --------------------- Class Number of Shares 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 Consolidated Statements of Changes in Stockholders' Equity 5 Consolidated Statements of Cash Flows 6-7 Notes to Financial Statements 8-10 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 11-13 ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 13 PART II - OTHER INFORMATION ITEM 1 Legal Proceedings 14 ITEM 2 Change in Securities 14 ITEM 3 Defaults Upon Senior Securities 14 ITEM 4 Submission of Matters to a Vote of Security Holders 14 ITEM 5 Other Information 14 ITEM 6 Exhibits and Reports on Form 8-K 14 SIGNATURES 15 -2- VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (000 OMITTED)

See accompanying notes to consolidated financial statements. -3- VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (000 OMITTED)

See accompanying notes to consolidated financial statements. -4- VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (000 OMITTED)

See accompanying notes to consolidated financial statements. -5- VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (000 OMITTED)

-6- VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (000 OMITTED)

See accompanying notes to consolidated financial statements. -7- VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 AND DECEMBER 31, 2000 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 March 31, 2001 and December 31, 2000, and the results of operations and cash flows for the three months ended March 31, 2001 and 2000. 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, 2000. 2. The results of operations for the three month period ended March 31, 2001 and 2000 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):

-8- VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 AND DECEMBER 31, 2000 4. The Company's loan portfolio is composed of the following (000 omitted):

5. Activity in the allowance for loan losses is as follows (000 omitted):

-9- VIRGINIA COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 AND DECEMBER 31, 2000 6. Short-term Borrowings: Outstanding short-term borrowings consisted of (000's omitted): March 31, December 31, 2001 2000 ---- ---- (unaudited) Federal Reserve borrowings $401 $769 ==== ==== Second Bank & Trust has an agreement with the Federal Reserve where it can borrow funds deposited by its customers. This agreement calls for variable interest and is payable on demand. U. S. Government securities and U. S. Treasury notes are pledged as collateral. The maximum amount available under this agreement is $1,000,000. The average balance of short-term borrowings outstanding did not exceed 30 percent of stockholders' equity for the three months ended March 31, 2001 or the year ended December 31, 2000. 7. Federal Home Loan Bank Advances: The Corporation's fixed-rate, long-term debt of $14,360 at March 31, 2001 matures through 2010. At March 31, 2001, the interest rates on fixed-rate, long-term debt ranged from 6.33% to 7.07%. One advance totaling $360 thousand at March 31, 2001 requires quarterly principal payments totaling $80 thousand annually plus interest. The remainder of the advances requires quarterly interest payments with principal due upon maturity. The contractural maturities of long-term debt are as follows: 2001 $ 2,060 2002 80 2003 3,080 2004 80 2005 4,060 2010 5,000 ------- $14,360 ======= The advances are collateralized by a blanket lien on first mortgage loans. -10- 8. Earnings Per Share: The following shows the weighted average number of shares used in computing earnings per share and the effect on weighted average number of shares of diluted potential common stock for the three month periods ended March 31, 2001 and 2000.

-11- 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. In addition to historical information, 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, which reflect management's analysis only as of the date thereof. Overview Virginia Commonwealth Financial Corporation's consolidated net income for the quarter ended March 31, 2001 amounted to $1.23 million or $.53 per share, compared to earnings of $1.22 million or $.52 per share for the quarter ended March 31, 2000. Improvements in non-interest income were offset by relatively flat net interest income growth due to net interest margin pressure and an increase in non-interest expenses. VCFC's earnings for the first quarter produced a return on average assets of 1.08% and a return on average equity of 9.72%, compared to prior year ratios of 1.17% and 10.40%, respectively. Net Interest Income Net interest income increased $84 thousand or 1.9% to $4.408 million for the three months ended March 31, 2001. This improvement can be attributed to an increase in average earning assets generated through loan growth, which offset the impact of a decreased net interest margin. The net interest margin for the three months ended March 31, 2001 was 4.37%, compared to 4.47% for the year ended December 31, 2000. Average earning assets increased $31.7 million to $423.9 million at March 31, 2001, an increase of 8.1% over $392.2 million at March 31, 2000. The increase in average earning assets can be attributed to growth in retail deposits, which were used to fund increases in loans receivable. Last year's rising rate environment continued to have some impact on net interest margin during the quarter, but falling rates in the first quarter prompted some easing near the end of the quarter. Some stabilization of the net interest margin is anticipated in the current rate environment. -12- VIRGINIA COMMONWEALTH FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Noninterest Income Noninterest income increased $371 thousand to $1.1 million for the three months ended March 31, 2001, an increase of 49.1% over the comparative period in 2000. VCFC's trust and investment advisory affiliate, Virginia Commonwealth Trust Company, reported a 68% increase in fee income for the quarter, with gross fees of $360 thousand compared to $214 thousand in 2000. Assets under management were valued at $146.4 million at March 31, 2001, an increase of $20.6 million or 16.36% from $125.9 million at December 31, 2000. Mortgage operations also showed growth on the strength of refinance activity, with fee income growth of $104 thousand to $187 thousand for the first quarter, compared to $83 thousand in 2000. Noninterest Expense Operating expenses increased $406 thousand, or 12.5% to $3.6 million for the three months ended March 31, 2001, compared to $3.2 million for the same period in 2000. Of this increase, approximately $314 thousand represents increases in compensation and benefits associated with a new branch and corporate hirings. Occupancy expense increased $81 thousand or 17.5% to $543 thousand for the three months ended March 31, 2001. The increase was attributable to increases in rent and depreciation associated with fixed assets. Asset Quality Non-performing assets amounted to $1.4 million or .5% of loans and other property owned at March 31, 2001, compared to $1.7 million or .5% of loans and other property owned at December 31, 2000. The Company recorded a provision for loan losses of $204 thousand for the three month period ended March 31, 2001, compared to a provision of $155 thousand for the three month period ended March 31, 2000. The allowance for loan losses at March 31, 2001 amounted to $3.6 million, compared to $3.5 million at December 31, 2000. The allowance for loan losses represents 358% of non-performing loans and 1.16% of gross loans receivable at March 31, 2001. 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 March 31, 2001 of $51.5 million increased $1.6 million or approximately 3.1% from $49.9 million at December 31, 2000. This increase is primarily attributable to rising values in the Company's available for sale security portfolio. 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 15.78% at March 31, 2001, compared to 16.08% at December 31, 2000, placing the Company in a well capitalized position as defined by regulators. -13- 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 affiliate banks have substantial lines of credit from their correspondent banks and access to the Federal Reserve discount window and Federal Home Loan Bank to support liquidity. The Corporation does not solicit brokered deposits, and is of the belief that predominantly all deposits are from established core depositors. In the judgment of management, the Company maintains the ability to generate sufficient amounts of cash to cover normal requirements and any additional funds as needs may arise. 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. 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, 2000. -14- 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) No form 8-K was filed during the three month period ended March 31, 2001 -15- 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 May 15, 2001 /s/ Jeffrey W. Farrar -------------------------- Jeffrey W. Farrar, CPA Executive Vice President - Chief Financial Officer May 15, 2001 -16-

VIRGINIA COMMONWEALTH FINANCIAL CORP 10-Q