FORM 10-QSB
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission file number 01-17377
COMMONWEALTH BANKSHARES INC.
(Exact name of small business issuer as
specified in its charter)
VIRGINIA 54-1460991
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
403 Boush Street
Norfolk, Virginia 23510
(Address of principal executive offices) (Zip Code)
(804) 446-6900
Issuer's telephone number
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter periods that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common Stock, $2.50 Par Value -- 894,103 shares as of March 31, 1996
<PAGE>
INDEX
COMMONWEALTH BANKSHARES INC. AND SUBSIDIARY
NORFOLK, VIRGINIA
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets -- March 31, 1996 and December 31,
1995.
Condensed consolidated statements of income -- Three months ended March
31, 1996 and 1995.
Condensed consolidated statements of cash flows -- Three months ended
March 31, 1996 and 1995.
Notes to condensed consolidated financial statements --
March 31, 1996.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on 8-K
SIGNATURES
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<TABLE>
PART I. FINANCIAL INFORMATION
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<CAPTION>
March 31 December 31
1996 1995
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,039 $ 5,135
Federal funds sold 7,044 5,132
Securities:
Available for sale 6,621 5,968
Held to maturity 11,277 11,290
------- -------
NET SECURITIES 17,898 17,258
Loans:
Commercial 37,997 36,156
Residential Mortgage 18,762 18,668
Installment loans to individuals 3,776 3,970
Other 2,531 2,809
------- -------
GROSS LOANS 63,066 61,603
Unearned income (207) (230)
Allowance for loan losses (1,274) (1,256)
------- -------
NET LOANS 61,585 60,117
Premises and equipment 2,316 2,341
Real estate acquired in settlement of loans 3,521 3,467
Other assets 1,557 1,587
------- -------
$100,960 $95,037
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 13,900 $ 13,147
Interest bearing 73,761 69,109
------- -------
TOTAL DEPOSITS 87,661 82,256
Federal funds purchased and securities
sold under agreement to repurchase 2,581 2,290
Long-term debt 609 684
Other liabilities 1,153 1,036
------- -------
TOTAL LIABILITIES 92,004 86,266
SHAREHOLDERS' EQUITY
Common stock, par value $2.50 a share
Authorized--1,500,000 shares
Issued and outstanding 894,103 shares in 1996 and 1995 2,235 2,235
Additional paid-in capital 3,716 3,716
Retained earnings 3,030 2,812
Net unrealized gain (loss) on securities available for sale (25) 8
------- -------
8,956 8,771
$100,960 $ 95,037
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
Three months ended
March 31 March 31
1996 1995
(Dollars in thousands)
<S> <C> <C>
Interest income:
Loans, including fees $ 1,522 $ 1,344
Securities 235 212
Other 90 21
------- -------
TOTAL INTEREST INCOME 1,847 1,577
Interest expense:
Deposits 958 759
Federal funds purchased 24 22
Other 10 10
------- -------
TOTAL INTEREST EXPENSE 992 791
------- -------
NET INTEREST INCOME 855 786
Provision for loan losses 30 23
------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 825 763
Other income:
Service charges on deposit accounts 121 100
Other service charges and fees 13 8
Loss on sale of securities available for sale (5) (1)
Gain on sale of real estate acquired in settlement of loans 6 0
Other income 67 58
------- -------
202 165
Other expenses:
Salaries and employee benefits 367 344
Net occupancy 64 66
Furniture and equipment expenses 94 95
Other expenses 192 195
------- -------
717 700
------- -------
INCOME BEFORE INCOME TAXES 310 228
------- -------
Applicable income taxes 91 58
------- -------
NET INCOME $219 $170
Net income per share $0.24 $0.19
Dividends per share 0 0
Average shares outstanding 894,103 894,103
<FN>
(1) Restated to reflect 1995 stock dividend.
</TABLE>
<PAGE>
<TABLE>
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Three months ended
March 31 March 31
1996 1995
(Dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 219 $ 170
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Provision for loan losses 30 23
Depreciation and amortization 73 48
Loss on sale of securities available for sale 5 1
Gain on sale of real estate acquired in settlement of loans (6) ---
(Increase) decrease in interest payable (22) 55
Increase in interest payable 32 8
Other 154 (114)
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 485 191
INVESTING ACTIVITIES
Net increase in short term investments (1,912) (610)
Purchase of securities held to maturity (1,213) (1,159)
Maturity of securities available for sale 519 500
Proceeds from sale of real estate acquired in settlement of loans 123 68
Purchase of assets relating to real estate acquired in settlement (171) ---
of loans
Decrease from net change in loans (1,498) (2,290)
Purchases of premises and equipment (49) (85)
------ ------
NET CASH USED BY INVESTING ACTIVITIES (4,201) (3,576)
FINANCING ACTIVITIES
Increase (decrease) from net change in demand deposits and 1,175 (1,306)
savings accounts
Increase from net change in certificate of deposit 4,230 3,133
Principal payments on long-term debt (75) (27)
Increase from net change in short-term liabilities 289 524
------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,619 2,324
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 1,903 (1,061)
Cash and due from banks at January 1 5,136 4,765
------ ------
CASH AND DUE FROM BANKS AT MARCH 31 $ 7,039 $ 3,704
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
COMMONWEALTH BANKSHARES INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1995.
NOTE B -- EARNINGS PER SHARE
Earnings per common share is calculated by dividing net income by the average
number of common shares outstanding during the period. Average shares
outstanding for 1995 and calculation of income per share is restated to reflect
a 6% stock dividend paid on April 29, 1995.
<PAGE>
PART I
ITEM 2. Management's discussion and analysis of financial
conditions and results of operations.
EARNINGS SUMMARY
Net income for the three months ended March 31, 1996 totalled $219,000, as
compared with $170,000 for the first three months of 1995. This increase
represents a 28.8% increase. On a per share basis, net income equalled .24
cents for 1996 compared to .19 cents for 1995. Total interest for the first
three months of 1996 increased to $1,847,000, a $270,000 increase or 17.12% over
the first three months of 1995.
NET INTEREST INCOME
Net interest income was $855,000 for the quarter ended March 31, 1996, an
increase of 8.8% over the comparable period in 1995.
Total interest income was $1,847,000 for the quarter ended March 31, 1996
representing a 17.1% increase from the comparable period in 1995.
Interest expense of $992,000 for the quarter ended March 31, 1996 represents a
25.4% increase from the comparable period in 1995.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $30,000 for the first quarter of 1996 as
compared to $23,000 in the first quarter of 1995. At March 31, 1996, Bank of
the Commonwealth had a total allowance for loan losses of $1,274,000 or 2% of
total loans, compared with $1,256,000 or 2.1% of total loans at December 31,
1995.
OTHER INCOME
Other income for the quarter ended March 31, 1996 was $202,000, an increase of
$37,000 from the $165,000 reported for the three months ended March 31, 1995.
<PAGE>
OTHER EXPENSES
Other expenses increased by 2.4% to $717,000 from $700,000, for the quarter
ended March 31, 1996 as compared to the quarter ended March 31, 1995 which is
attributable to normal increases in operating expenses reflecting normal cost
increases.
INTEREST SENSITIVITY AND LIQUIDITY
Management attempts to match rate sensitive assets to rate sensitive
liabilities, by planning and controlling the mix and maturities of these assets
and liabilities. The purpose of this asset/liability management is to create
and maintain a proper relationship between rate sensitive assets and liabilities
and also to provide adequate liquidity.
Liquidity is the ability to meet customers' demand for funds. These
requirements are met by the sale or maturity of existing assets, loan payments
and increases in deposits.
NONPERFORMING ASSETS
The Bank's nonperforming assets consisted of the following:
March 31, 1996 March 31, 1995
Loans past due 90 days or
more and still accruing $ 35,000 $ 198,000
Nonaccrual loans 1,494,000 1,655,000
Other real estate owned 3,521,000 3,467,000
---------- ----------
Total nonperforming $5,050,000 $5,320,000
<PAGE>
Of the $3,521,000 in Other Real Estate Owned as of March 31, 1996, $2,000,000 or
56.8% is represented by 2712 North Mall Drive. The property is fully leased
with an annual income to the Bank of $160,311. This does not include rental
income for the 16% of the building occupied by Bank of the Commonwealth as a
branch.
CAPITAL POSITION
Shareholders' Equity for the Corporation increased to $8,956,000 from $8,771,000
or 2.1% from December 31, 1995 to March 31, 1996. Shareholders' Equity for
March 31, 1996 reflects a $25,000 unrealized loss on securities available for
sale in accordance with FASB115, as compared to a $8,000 gain as of December 31,
1995.
Bank Holding Companies are required to meet a 7.25% risk-based capital standard.
The Corporations's risk based capital was 14.6% as of March 31, 1996.
STOCK DIVIDEND
The Board of Directors, at their March 1996 meeting voted to declare a six
percent stock dividend payable on the Company's common shares for stockholders
of record as of March 31, 1996, on April 30, 1996. Fractional shares will be
paid in cash, based on the book value of a whole share at December 31, 1995 of
$9.82.
SUMMARY
As of March 31, 1996 60.2% of the Bank's loan portfolio consists of commercial
loans which are considered to provide higher yields and also generally carry a
greater risk. It should be noted that 73.9% of these commercial loans are
collateralized with real estate, and accordingly do not represent an unfavorable
risk. At March 31, 1996, 74.2% of the Bank's total loan portfolio consists of
loans collateralized with real estate.
The Bank's commitment is to maintain the Corporation's strengths in the markets
it serves during difficult economic cycles, and to act resourcefully when
confronted with new challenges.
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during
the three months ended March 31, 1996.
<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.
Commonwealth Bankshares Inc,
(Registrant)
Date: May 13, 1996 E. J. Woodard, Jr.
E. J. Woodard, Jr., Chairman of the
Board, President & CEO
Date: May 13, 1996 John H. Gayle
John H. Gayle
Senior Vice President and Cashier
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 7,039
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,044
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,621
<INVESTMENTS-CARRYING> 17,935
<INVESTMENTS-MARKET> 17,898
<LOANS> 62,859
<ALLOWANCE> 1,274
<TOTAL-ASSETS> 100,960
<DEPOSITS> 87,661
<SHORT-TERM> 2,581
<LIABILITIES-OTHER> 1,153
<LONG-TERM> 609
0
0
<COMMON> 2,235
<OTHER-SE> 6,721
<TOTAL-LIABILITIES-AND-EQUITY> 100,960
<INTEREST-LOAN> 1,522
<INTEREST-INVEST> 235
<INTEREST-OTHER> 90
<INTEREST-TOTAL> 1,847
<INTEREST-DEPOSIT> 958
<INTEREST-EXPENSE> 34
<INTEREST-INCOME-NET> 855
<LOAN-LOSSES> 30
<SECURITIES-GAINS> (5)
<EXPENSE-OTHER> 717
<INCOME-PRETAX> 310
<INCOME-PRE-EXTRAORDINARY> 310
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 219
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
<YIELD-ACTUAL> 3.98
<LOANS-NON> 1,494
<LOANS-PAST> 35
<LOANS-TROUBLED> 2
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,256
<CHARGE-OFFS> 13
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 1,274
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 888
</TABLE>
