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, 1997
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) (ZipCode)
(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 -- 1,004,094 shares as of June 30, 1997
<PAGE>
INDEX
COMMONWEALTH BANKSHARES INC. AND SUBSIDIARY
NORFOLK, VIRGINIA
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets --
June 30, 1997 and December 31, 1996.
Condensed consolidated statements of
income -- Three months ended June 30, 1997
and 1996; six months ended June 30, 1997 and 1996.
Condensed consolidated statements of
cash flows -- Six months ended June 30, 1997 and 1996.
Notes to condensed consolidated
financial statements -- June 30, 1997.
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
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<CAPTION>
June 30 December 31
1997 1996
(Dollars in Thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,291 $ 5,656
Federal funds sold 2,157 5,718
Securities:
Available for sale 11,695 9,590
Held to maturity 12,805 14,072
TOTAL SECURITIES 24,500 23,662
Loans:
Commercial 46,115 41,744
Residential Mortgage 18,120 17,206
Installment loans to individuals 4,396 4,601
Other 2,673 2,449
GROSS LOANS 71,304 66,000
Unearned income (165) (165)
Allowance for loan losses (964) (932)
NET LOANS 70,175 64,903
Premises and equipment 2,406 2,443
Real estate acquired in
settlement of loans 1,531 1,720
Other assets 1,504 2,068
$106,564 $106,170
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 12,049 $ 10,687
Interest bearing 78,329 79,576
TOTAL DEPOSITS 90,378 90,263
Federal funds purchased and securities
sold under agreement to repurchase 4,360 3,573
Long-term debt 583 609
Other liabilities 1,302 2,157
TOTAL LIABILITIES 96,623 96,602
SHAREHOLDERS' EQUITY
Common stock, par value $2.50 a share
Authorized--5,000,000 shares
Issued and outstanding 1,004,094 shares in 1997 and
947,501 issued and outstanding in 1996. 2,510 2,369
Additional paid-in capital 4,536 4,106
Retained earnings 2,908 3,121
Net unrealized loss on securities
available for sale (13) (28)
9,941 9,568
$106,564 $106,170
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
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
1997 1996 1997 1996
(Dollars in thousands)
<S> <C> <C>
Interest income:
Loans, including fees $1,666 $1,500 $ 3,217 $ 3,022
Securities 386 269 800 504
Other 52 131 75 221
TOTAL INTEREST INCOME 2,104 1,900 4,092 3,747
Interest expense:
Deposits 1,008 995 2,016 1,953
Federal funds purchased 31 40 57 64
Other 9 9 17 19
TOTAL INTEREST EXPENSE 1,048 1,044 2,090 2,036
NET INTEREST INCOME 1,056 856 2,002 1,711
Provision for loan losses 30 5 30 35
NET INTEREST
INCOME AFTER
PROVISION FOR
LOAN LOSSES 1,026 851 1,972 1,676
Other income:
Service charges
on deposit accounts 107 114 217 235
Other service
charges and fees 28 18 51 31
Loss on sale of securities
available for sale (2) (1) (6) (6)
(Loss)gain on sale of
real estate acquired
in settlement of loans (4) 1 (24) 7
Other income 40 64 70 131
169 196 308 398
Other expenses:
Salaries and
employee benefits 411 394 845 761
Net occupancy 114 68 203 132
Furniture and
equipment expenses 121 99 222 193
Other expenses 258 223 496 415
904 784 1,766 1,501
INCOME BEFORE
INCOME TAXES 291 263 514 573
Applicable income taxes 88 74 153 165
NET INCOME $203 $189 $361 $408
Net income per share (1) $0.20 $0.19 $0.36 $0.41
Dividends per share 0 0 0 0
Average shares
outstanding 1,004,094 1,004,094 1,004,094 1,004,094
<FN>
(1) June 30, 1996 restated to reflect 1997 stock dividend.
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Six months ended
June 30 June 30
1997 1996
(Dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 361 $ 408
Adjustments to reconcile
net income to net cash
provided (used) by
operating activities:
Provision for loan losses 30 35
Depreciation and amortization 167 144
Loss on sale of securities
available for sale 6 6
Loss(gain) on sale of real estate
acquired in settlement of loans 24 (7)
Increase in interest receivable (83) (100)
Increase in interest payable 5 41
Loss of disposal of fixed assets 2 0
Other (220) 163
NET CASH PROVIDED BY
OPERATING ACTIVITIES 292 690
INVESTING ACTIVITIES
Net increase in
short term investments 3,561 41
Purchase of securities
held to maturity (878) (5,709)
Purchase of securities
available for sale (3,305) 0
Proceeds from:
Maturity of securities
available for sale 1,200 1,118
Maturity of securities
held to maturity 863 0
Sale of securities
available for sale 1,298 0
Sale of real estate acquired
in settlement of loans 234 123
Purchase of assets relating to
real estate acquired in
settlement of loans (69) (343)
Decrease from net change in loans (5,303) (2,602)
Purchases of premise and equipment (131) (106)
NET CASH USED BY
INVESTING ACTIVITIES (2,530) (7,478)
FINANCING ACTIVITIES
Decrease from net change
in demand deposits
and savings accounts (521) (2,478)
Increase from net change
in certificate of deposit 636 6,693
Principal payments on
long-term debt (26) (75)
Increase from net change
in short-term liabilities 787 2,700
Cash paid for fractional shares (3) (3)
NET CASH PROVIDED BY
FINANCING ACTIVITIES 873 6,837
NET INCREASE(DECREASE IN
CASH AND DUE FROM BANKS) (1,365) 49
Cash and due from
banks at January 1 5,656 5,135
CASH AND DUE FROM
BANKS AT JUNE 30 $ 4,291 $ 5,184
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
COMMONWEALTH BANKSHARES INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997
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, 1997 are not
necessarily indicative of the results that may be
expected for the year ending December 31, 1997. 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, 1996.
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 1996 and calculation of income per share
is restated to reflect a 6% stock dividend paid on April
30, 1997.
<PAGE>
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, 1997 totalled
$203,000, as compared with $189,000 in the second
quarter of 1996. On a per share basis, second quarter
1997 income was 20 cents compared with 19 cents for
1996.
Net income for the six months ended June 30, 1997
totalled $361,000, as compared to $408,000 for the six
months ended June 30, 1996. On a per share basis, net
income equalled 36 cents for 1997 compared to 41 cents
for 1996. Net income for the six months ended June 30,
1997 was impacted by a $265,000 increase in other
expense, which is discussed in more detail below.
NET INTEREST INCOME
Net interest income was $1,056,000 for the quarter ended
June 30, 1997, an increase of $200,000 or 23.4% over the
comparable period in 1996. For the six months ended
June 30, 1997, net interest income increased to
$2,002,000, an increase of $291,000 over 1996.
Total interest income was $2,104,000 for the quarter
ended June 30, 1997, an increase of $204,000 over the
same period of 1996. Interest income for the six months
ended June 30, 1997 increased $345,000 over the same
period of 1996. The total interest income was favorably
impacted by an increase in investment security income of
$117,000 for the three months ended June 30, 1997, when
compared to the same period of 1996; and, an increase of
$296,000 for the six months ended June 30, 1997, as
compared to the same period of 1996. This increase is
attributable mainly to an increase in the investment
portfolio $6,893,000 when comparing the average
investment portfolio for 1997 as compared to 1996. Loan
income also increased for the three months and six
months ended June 30, 1997, $166,000 and $195,000
respectively, as compared to the same period of 1996.
This increase was the result of a 12% increase in loans
outstanding when comparing June 30, 1997 to June 30,
1996.
Interest expense of $1,048,000 for the quarter ended
June 30, 1997 represents a $4,000 increase from the
comparable period in 1996. For the six months ended
June 30, 1997, interest expense increased by $54,000
over the same period of 1996.
The increase in interest expense was impacted by an
increase of $2,426,339 in interest deposits for the
period June 30, 1997 compared to June 30, 1996.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $30,000 for the first
six months of 1997 compared to $35,000 for the same
period of 1996. Loan charge offs for the six months
ended June 30, 1997 totalled $12,000 and recoveries for
the same period totaled $14,000.
OTHER INCOME
Other income for the quarter ended June 30, 1997 was
$169,000, an decrease of $27,000 from the $196,000
reported for the three months ended June 30, 1996. For
the six months ended June 30, 1997, other income was
$308,000 as compared to $398,000 for the six months
ended June 30, 1996. $31,000 of 1997 year to date
decrease is attributable to loss from the sale of real
estate acquired in the settlement of loans in 1997,
compared to a gain of $7,000 during the first six months
of 1996. An additional $81,000 of the decrease is
attributable to a decrease in income for rent on real
estate acquired in the settlement of loans. In November
1996, the Bank sold a parcel of property that was fully
leased.
OTHER EXPENSES
Other expenses for the quarter ended June 30, 1997
totalled $904,000 an increase of $120,000 or 15.3% over
the $784,000 recorded during the quarter ended June 30,
1996. For the six months ended June 30, 1997 other
expenses increased to $1,766,000 from the $1,501,000
recorded for the same period of 1996. Other expense was
impacted by $112,000 in expenses associated with our
Kempsville Branch that opened in July 1996. An
additional $53,000 increase was attributable to the
operation of the Bank's Trust Department that was
established during the fourth quarter on 1996.
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.
<TABLE>
NONPERFORMING ASSETS
The Bank's nonperforming assets consisted of the
following:
<CAPTION>
June 30, 1997 December 31, 1996
<S> <C> <C>
Loans past due 90 days or
more and still accruing $ 103,000 $ 180,000
Nonaccrual loans 1,967,000 2,065,000
Other real estate owned 1,531,000 1,720,000
Total nonperforming $3,601,000 3,965,000
</TABLE>
CAPITAL POSITION
Shareholders' Equity for the Corporation increased to
$9,941,000 from $9,568,000 or 3.90% from December 31,
1996 to June 30, 1997. Shareholders' Equity for June
30, 1997 reflects a $13,000 unrealized loss on
securities available for sale in accordance with
FASB115, as compared to a $28,000 loss as of December
31, 1996. Bank Holding Companies are required to meet a
7.25% risk-based capital standard. The Corporations's
risk based capital was 13.2% as of June 30, 1997.
STOCK DIVIDEND
The Board of Directors, at their February 1997 meeting
voted to declare a six percent stock dividend payable on
the Company's common shares for stockholders of record
as of March 31, 1997, on April 30, 1997. Fractional
shares were paid in cash, based on the book value of a
whole share at December 31, 1996 of $10.10.
SUMMARY
As of June 30, 1997 64.8% of the Bank's loan portfolio
consists of commercial loans which are considered to
provide higher yields, but also generally carry a
greater risk. It should be noted that 69.2% of these
commercial loans are collateralized with real estate,
and accordingly do not represent an unfavorable risk.
At June 30, 1997, 70.4% 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 June 30, 1997.
<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:
E. J. Woodard, Jr., CLBB, Chairman
of the Board, President & CEO
Date:
John H. Gayle
Executive Vice President and Cashier
[ARTICLE] 9
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] JUN-30-1997
[CASH] 4291
[INT-BEARING-DEPOSITS] 0
[FED-FUNDS-SOLD] 2157
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 0
[INVESTMENTS-CARRYING] 12805
[INVESTMENTS-MARKET] 12633
[LOANS] 70775
[ALLOWANCE] 964
[TOTAL-ASSETS] 106564
[DEPOSITS] 90378
[SHORT-TERM] 4360
[LIABILITIES-OTHER] 1302
[LONG-TERM] 583
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 2510
[OTHER-SE] 7431
[TOTAL-LIABILITIES-AND-EQUITY] 106564
[INTEREST-LOAN] 3217
[INTEREST-INVEST] 800
[INTEREST-OTHER] 75
[INTEREST-TOTAL] 4092
[INTEREST-DEPOSIT] 2016
[INTEREST-EXPENSE] 2090
[INTEREST-INCOME-NET] 2002
[LOAN-LOSSES] 30
[SECURITIES-GAINS] (6)
[EXPENSE-OTHER] 1766
[INCOME-PRETAX] 514
[INCOME-PRE-EXTRAORDINARY] 514
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 361
[EPS-PRIMARY] .36
[EPS-DILUTED] .36
[YIELD-ACTUAL] .09
[LOANS-NON] 1967
[LOANS-PAST] 103
[LOANS-TROUBLED] 0
[LOANS-PROBLEM] 0
[ALLOWANCE-OPEN] 932
[CHARGE-OFFS] 12
[RECOVERIES] 14
[ALLOWANCE-CLOSE] 964
[ALLOWANCE-DOMESTIC] 0
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 0
</TABLE>
