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 June 30, 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 -- 947,501 shares as of June 30, 1996
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INDEX
COMMONWEALTH BANKSHARES INC. AND SUBSIDIARY
NORFOLK, VIRGINIA
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets -- June 30, 1996 and December 31,
1995.
Condensed consolidated statements of income -- Three months ended June
30, 1996 and 1995; six months ended June 30, 1996 and 1995.
Condensed consolidated statements of cash flows -- Six months ended June
30, 1996 and 1995.
Notes to condensed consolidated financial statements -- June 30, 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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PART I. FINANCIAL INFORMATION
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<CAPTION>
<S> <C> <C>
June 30 December 31
1996 1995
ASSETS
Cash and due from banks $ 5,184 $ 5,135
Federal funds sold 5,091 5,132
Securities:
Available for sale 9,364 5,968
Held to maturity 12,375 11,290
NET SECURITIES 21,739 17,258
Loans:
Commercial 39,810 36,156
Residential Mortgage 17,929 18,668
Installment loans to individuals 3,723 3,970
Other 2,647 2,809
GROSS LOANS 64,109 61,603
Unearned income (195) (230)
Allowance for loan losses (1,230) (1,256)
NET LOANS 62,684 60,117
Premises and equipment 2,302 2,341
Real estate acquired in settlement of loans 3,693 3,467
Other assets 1,529 1,587
$102,222 $ 95,037
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 10,569 $ 13,147
Interest bearing 75,903 69,109
TOTAL DEPOSITS 86,472 82,256
Federal funds purchased and securities
sold under agreement to repurchase 4,992 2,290
Long-term debt 609 684
Other liabilities 1,042 1,036
TOTAL LIABILITIES 93,115 86,266
SHAREHOLDERS' EQUITY
Common stock, par value $2.50 a share
Authorized--1,500,000 shares
Issued and outstanding 947,501 shares in 1996
and 894,103 in 1995 2,369 2,235
Additional paid-in capital 4,106 3,716
Retained earnings 2,693 2,812
Net unrealized gain (loss) on securities
available for sale (61) 8
9,107 8,771
$102,222 $ 95,037
<FN>
See notes to condensed consolidated financial statements.
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COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
Three months ended Six months ended
June 30 June 30 June 30 June 30
1996 1995 1996 1995
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees 1,500 1,408 3,022 2,752
Securities 269 224 504 436
Other 131 66 221 87
TOTAL INTEREST INCOME 1,900 1,698 3,747 3,275
Interest expense:
Deposits 995 864 1,953 1,623
Federal funds purchased & securities sold
under agreement to repurchase 40 24 64 46
Other 9 9 19 19
TOTAL INTEREST EXPENSE 1,044 897 2,036 1,688
NET INTEREST INCOME 856 801 1,711 1,587
Provision for loan losses 5 12 35 35
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 851 789 1,676 1,552
Other income:
Service charges on deposit accounts 114 111 235 211
Other service charges and fees 18 9 31 17
Loss on sale of securities available for sale (1) --- (6) (1)
Gain (loss) on sale of real estate acquired
in settlement of loans 1 2 7 2
Other income 64 69 131 127
196 191 398 356
Other expenses:
Salaries and employee benefits 394 333 761 677
Net occupancy 68 72 132 138
Furniture and equipment expenses 99 97 193 192
Other expenses 223 243 415 438
784 745 1,501 1,445
INCOME BEFORE INCOME TAXES 263 235 573 463
Applicable income taxes 74 75 165 133
NET INCOME $189 $160 $408 $330
Net income per share (Note B) $0.20 $0.19 (1) $0.43 $0.35 (1)
Dividends per share 0 0 0 0
Average shares outstanding 947,501 947,501 (1) 947,501 947,501 (1)
<FN>
(1) Restated to reflect 1996 stock dividend.
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COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Six months ended
June 30 June 30
1996 1995
(Dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 408 $ 330
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Provision for loan losses 35 35
Depreciation and amortization 144 102
Loss on sale of securities available for sale 6 1
Gain on sale of real estate acquired in settlement of loans (7) (2)
Increase in interest receivable (100) (39)
Increase in interest payable 41 59
Other 163 (174)
NET CASH PROVIDED BY OPERATING ACTIVITIES 690 312
INVESTING ACTIVITIES
Net increase in short term investments 41 (1,960)
Purchase of securities held to maturity (5,709) (2,536)
Maturity of securities available for sale 1,118 500
Maturity of securities held to maturity 0 250
Proceeds from sale of real estate acquired
in settlement of loans 123 434
Purchase of assets relating to real estate acquired
in settlement of loans (343) (2)
Decrease from net change in loans (2,602) (4,833)
Purchases of premises and equipment (106) (173)
NET CASH USED BY INVESTING ACTIVITIES (7,478) (8,320)
FINANCING ACTIVITIES
Decrease from net change in demand deposits and savings accounts (2,478) (2,014)
Increase from net change in certificate of deposit 6,693 8,551
Principal payments on long-term debt (75) (27)
Increase from net change in short-term liabilities 2,700 1,514
Cash paid for fractional shares (3) (2)
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,837 8,022
NET INCREASE IN CASH AND DUE FROM BANKS 49 14
Cash and due from banks at January 1 5,135 4,765
CASH AND DUE FROM BANKS AT JUNE 30 $ 5,184 $ 4,779
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
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COMMONWEALTH BANKSHARES INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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 six months ended June 30, 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 30, 1996.
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PART I
ITEM 2. Management's discussion and analysis of financial
conditions and results of operations.
EARNINGS SUMMARY
Net income for the quarter ended June 30, 1996 totalled $189,000, as compared
with $160,000 in the second quarter of 1995. On a per share basis, second
quarter 1996 income was .21 cents compared with .18 cents for 1995.
Net income for the six months ended June 30, 1996 totalled $408,000, as compared
to $330,000 for the six months ended June 30, 1995. On a per share basis, net
income equalled .43 cents for 1996 compared to .35 cents for 1995. Net income
for the six months ended June 30, 1996 was impacted by a $472,000 increase in
interest income and a $348,000 increase in interest expense over the interest
expense for 1995. These, and other charges are discussed in more detail below.
NET INTEREST INCOME
Net interest income was $856,000 for the quarter ended June 30, 1996, an
increase of $55,000 or 6.87% over the comparable period in 1995. For the six
months ended June 30, 1996, net interest income increased to $1,711,000, an
increase of $124,000 over 1995.
Total interest income was $1,900,000 for the quarter ended June 30, 1996, an
increase of $202,000 over the same period of 1995. Interest income for the six
months ended June 30, 1996 increased $472,000 over the same period of 1995. The
interest income was favorably impacted by an increase in investment securities
of $4,481,000 and an increase in gross loans of $2,506,000 for the period June
30, 1995 to June 30, 1996.
Interest expense of $1,044,000 for the quarter ended June 30, 1996 represents a
16.39% increase from the comparable period in 1995. For the six months ended
June 30, 1996, interest expense increased to $2,036,000 or 20.62% over 1995.
The increase in interest expense was impacted by an increase of $6,794,000 or
9.83% in interest deposits for the period June 30, 1995 to June 30, 1996.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $35,000 for the first six months of 1996 which
was the same as in the first six months of 1995. Loan losses for the six months
ended June 30, 1996 totalled $64,000 and recoveries for the same period equalled
$2,000.
OTHER INCOME
Other income for the quarter ended June 30, 1996 was $196,000, an increase of
$5,000 from the $191,000 reported for the three months ended June 30, 1995. For
the six months ended June 30, 1996, other income was $398,000 as compared to
$355,000 for the six months ended June 30, 1995.
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OTHER EXPENSES
Other expenses for the quarter ended June 30, 1996 totalled $784,000 an increase
of $39,000 or 5.23% over the $745,000 recorded during the quarter ended June 30,
1995. For the six months ended June 30, 1996 other expenses increased to
$1,501,000 or 3.88% from the $1,445,000 recorded for the same period of 1995.
This increase is attributable to improvements made to the Bank's facilities and
normal increases in operating expenses.
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:
June 30, 1996 December 31, 1995
Loans past due 90 days or
more and still accruing $ 190,000 $ 35,000
Nonaccrual loans 1,476,000 1,494,000
Other real estate owned 3,693,000 3,521,000
Total nonperforming $5,359,000 $5,050,000
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Of the $3,693,000 in Other Real Estate Owned as of June 30, 1996, $2,000,000 or
54.16% 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 $9,107,000 from $8,771,000
or 3.83% from December 31, 1995 to June 30, 1996. Shareholders' Equity for June
30, 1996 reflects a $61,000 unrealized loss on securities available for sale in
accordance with FASB115, as compared to a $8,000 gain as of December 31, 1995.
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 were paid
in cash, based on the book value of a whole share at December 31, 1995 of $9.82.
SUMMARY
As of June 30, 1996 62.09% 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 62.16% of these commercial loans are
collateralized with real estate, and accordingly do not represent an unfavorable
risk. At June 30, 1996, 75.6% 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.
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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 June 30, 1996.
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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:
E. J. Woodard, Jr., Chairman of the
Board, President & CEO
Date:
John H. Gayle
Senior Vice President and Cashier
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,039
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,091
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,364
<INVESTMENTS-CARRYING> 21,831
<INVESTMENTS-MARKET> 21,739
<LOANS> 63,914
<ALLOWANCE> 1,230
<TOTAL-ASSETS> 102,222
<DEPOSITS> 86,472
<SHORT-TERM> 4,992
<LIABILITIES-OTHER> 1,042
<LONG-TERM> 609
0
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<COMMON> 2,369
<OTHER-SE> 6,738
<TOTAL-LIABILITIES-AND-EQUITY> 102,222
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<INTEREST-DEPOSIT> 1,953
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<INTEREST-INCOME-NET> 1,676
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<NET-INCOME> 408
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
<YIELD-ACTUAL> 8.46
<LOANS-NON> 1,476
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<ALLOWANCE-OPEN> 1,256
<CHARGE-OFFS> 64
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