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 September 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) (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 -- 1,004,094 shares as of September
30, 1997
<PAGE>
INDEX
COMMONWEALTH BANKSHARES INC. AND SUBSIDIARY
NORFOLK, VIRGINIA
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets -- September 30, 1997
and December 31, 1996.
Condensed consolidated statements of income -- Three months
ended September 30, 1997 and 1996; nine months ended September
30, 1997 and 1996.
Condensed consolidated statements of cash flows -- Nine
months ended September 30, 1997 and 1996.
Notes to condensed consolidated financial statements --
September 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>
September 30 December 31
1997 1996
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,607 $ 5,656
Federal funds sold 2,373 5,718
Securities:
Available for sale 12,022 9,590
Held to maturity 12,532 14,072
TOTAL SECURITIES 24,554 23,662
Loans:
Commercial 48,883 41,744
Residential Mortgage 18,889 17,206
Installment loans to individuals 4,539 4,601
Other 2,999 2,449
GROSS LOANS 75,310 66,000
Unearned income (187) (165)
Allowance for loan losses (970) (932)
NET LOANS 74,153 64,903
Premises and equipment 2,357 2,443
Real estate acquired in
settlement of loans 1,506 1,720
Other assets 1,597 2,068
$112,147 $106,170
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 11,798 $ 10,687
Interest bearing 83,865 79,576
TOTAL DEPOSITS 95,663 90,263
Federal funds purchased and
securities sold under agreement
to repurchase 4,217 3,573
Long-term debt 583 609
Other liabilities 1,454 2,157
TOTAL LIABILITIES 101,917 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 3,169 3,121
Net unrealized gain(loss) on
securities available for sale 15 (28)
10,230 9,568
$112,147 $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 Nine months ended
Sept 30 Sept 30 Sept 30 Sept 30
1997 1996 1997 1996
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C>
Interest income:
Loans, including
fees $1,730 $1,529 $ 4,947 $ 4,551
Securities 388 324 1,188 828
Other 69 112 144 334
TOTAL INTEREST
INCOME 2,187 1,965 6,279 5,713
Interest expense:
Deposits 1,081 1,025 3,097 2,977
Federal funds
purchased 41 52 98 117
Other 9 9 26 28
TOTAL INTEREST
EXPENSE 1,131 1,086 3,221 3,122
NET INTEREST
INCOME 1,056 879 3,058 2,591
Provision for
loan losses 20 0 50 35
NET INTEREST
INCOME AFTER
PROVISION FOR
LOAN LOSSES 1,036 879 3,008 2,556
Other income:
Service charges
on deposit
accounts 141 105 358 340
Other service
charges and fees 47 14 98 45
Loss on sale of
securities
available for
sale (2) (2) (8) (9)
(Loss)gain on
sale of real
estate acquired
in settlement
of loans 1 (10) (23) (3)
Other income 49 77 119 208
236 184 544 581
Other expenses:
Salaries and
employee benefits 431 382 1,276 1,143
Net occupancy 113 82 316 214
Furniture and
equipment
expenses 110 98 332 291
Other expenses 238 272 734 687
892 834 2,658 2,335
INCOME BEFORE
INCOME TAXES 380 229 894 802
Applicable income
taxes 120 67 273 232
NET INCOME $260 $162 $621 $570
Net income per
share (1) $0.26 $0.16 $0.62 $0.57
Dividends per share 0 0 0 0
Average shares
outstanding 1,004,094 1,004,094 1,004,094 1,004,094
<FN>
(1) September 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>
Nine months ended
September 30 September 30
1997 1996
(Dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 621 $ 570
Adjustments to reconcile
net income to net cash
provided (used) by
operating activities:
Provision for loan losses 50 35
Depreciation and amortization 250 225
Loss on sale of securities
available for sale 8 9
Loss on sale of real
estate acquired in
settlement of loans 23 3
Increase in interest
receivable (138) (153)
Increase in interest payable 54 54
Loss of disposal of
fixed assets 2 0
Other (169) 100
NET CASH PROVIDED BY
OPERATING ACTIVITIES 701 843
INVESTING ACTIVITIES
Net decrease (increase) in
short term investments 3,346 (829)
Purchase of securities
held to maturity (1,401) (8,577)
Purchase of securities
available for sale (4,327) 0
Proceeds from:
Maturity of securities
available for sale 1,958 1,300
Maturity of securities
held to maturity 1,636 1,018
Sale of securities
available for sale 1,298 498
Sale of real estate
acquired in settlement
of loans 308 195
Purchase of assets relating
to real estate acquired
in settlement of loans (117) (681)
Decrease from net change
in loans (9,300) (2,627)
Purchases of premise
and equipment (166) (355)
NET CASH USED BY
INVESTING ACTIVITIES (6,765) (10,058)
FINANCING ACTIVITIES
Increase (Decrease) from
net change in demand
deposits and savings accounts 696 (2,435)
Increase from net change in
certificate of deposit 4,704 8,160
Principal payments on
long-term debt (26) (75)
Increase from net change in
short-term liabilities 644 1,034
Cash paid for fractional shares (3) (3)
NET CASH PROVIDED BY
FINANCING ACTIVITIES 6,015 6,681
NET DECREASE IN CASH
AND DUE FROM BANKS (49) (2,534)
Cash and due from banks
at January 1 5,656 5,135
CASH AND DUE FROM
BANKS AT SEPTEMBER 30 $ 5,607 $ 2,601
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
COMMONWEALTH BANKSHARES INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 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 nine
months ended September 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 September 30, 1997 totalled
$260,000, as compared with $162,000 in the third quarter of 1996.
On a per share basis, third quarter 1997 income was 26 cents
compared with 16 cents for 1996.
Net income for the nine months ended September 30, 1997 totalled
$621,000, as compared to $570,000 for the nine months ended
September 30, 1996. On a per share basis, net income equalled 62
cents for the first nine months 1997 compared to 57 cents for the
same period in 1996. Net income for the nine months ended
September 30, 1997 was impacted by a $323,000 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
September 30, 1997, an increase of $177,000 or 20.1% over the
comparable period in 1996. For the nine months ended September
30, 1997, net interest income increased to $3,058,000, an
increase of $467,000 over the same period in 1996.
Total interest income was $2,187,000 for the quarter ended
September 30, 1997,an increase of $222,000 over the same period
of 1996. Interest income for the nine months ended September 30,
1997 increased $566,000 over the same period of 1996. The total
interest income was favorably impacted by an increase in
investment security income of $64,000 for the three months ended
September 30, 1997, when compared to the same period of 1996;
and, an increase of $360,000 for the nine months ended September
30, 1997, as compared to the same period of 1996. This increase
is attributable mainly to an increase of $5,390,000 in the
investment portfolio, when comparing the average investment
portfolio for year to date September 30, 1997 to the same period
of 1996. Loan income also increased for the three months and
nine months ended September 30, 1997, $201,000 and $396,000
respectively, as compared to the same period of 1996.
This increase was the result of a 11% increase in average loans
outstanding when comparing September 30, 1997 to September 30,
1996.
Interest expense of $1,131,000 for the quarter ended Sept 30,
1997 represents a $45,000 increase from the comparable period in
1996. For the nine months ended September 30, 1997, interest
expense increased by $99,000 over the same period of 1996.
The increase in interest expense was impacted by an increase of
$4,116,000 in average interest deposits for the period September
30, 1997 compared to September 30, 1996.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $50,000 for the first nine
months of 1997 compared to $35,000 for the same period of 1996.
Loan charge offs for the nine months ended September 30, 1997
totalled $28,000 and recoveries for the same period totaled
$16,000.
OTHER INCOME
Other income for the quarter ended September 30, 1997 was
$236,000, an increase of $52,000 from the $184,000 reported for
the three months ended September 30, 1996. For the nine months
ended September 30, 1997, other income was $544,000 as compared
to $581,000 for the nine months ended September 30, 1996. The
Bank experienced a $71,000 increase in service charge income when
comparing September 30, 1997 to September 30, 1996. The majority
of this increase is attributed to a $2,353,000 or 8.9% increase
in Demand Deposit Accounts. This increase in service charge
income was partially offset by a $20,000 additional loss on Other
Real Estate Owned during the first nine months of 1997 when
compared to the like period of 1996. An additional $107,000 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 September 30, 1997 totalled
$892,000 an increase of $58,000 or 7.0% over the $834,000
recorded during the quarter ended September 30, 1996. For the
nine months ended September 30, 1997 other expenses increased to
$2,658,000 from the $2,335,000 recorded for the same period of
1996. Other expense was impacted by $89,000 in expenses
associated with our Kempsville Branch that opened in July 1996.
An additional $78,000 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>
September 30, 1997 December 31, 1996
<S> <C> <C>
Loans past due 90 days or
more and still accruing $ 103,000 $ 180,000
Nonaccrual loans 1,468,000 2,065,000
Other real estate owned 1,506,000 1,720,000
Total nonperforming $3,077,000 $3,965,000
</TABLE>
CAPITAL POSITION
Shareholders' Equity for the Corporation increased to $10,230,000
from $9,568,000 or 6.92% from December 31, 1996 to September 30,
1997. Shareholders' Equity for September 30, 1997 reflects a
$15,000 unrealized gain 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 13.7% as of September 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 September 30, 1997 65.1% 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 73.3% of these commercial loans are
collateralized with real estate, and accordingly do not
represent an unfavorable risk. At September 30, 1997, 72.9% 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 September 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: November 13, 1997
E. J. Woodard, Jr.,CLBB
Chairman of the Board,
President & CEO
Date: November 13, 1997
John H. Gayle
Executive Vice President and
Cashier
[ARTICLE] 9
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] SEP-30-1997
[CASH] 5607
[INT-BEARING-DEPOSITS] 0
[FED-FUNDS-SOLD] 2373
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 12022
[INVESTMENTS-CARRYING] 12532
[INVESTMENTS-MARKET] 12374
[LOANS] 75123
[ALLOWANCE] 970
[TOTAL-ASSETS] 112147
[DEPOSITS] 95663
[SHORT-TERM] 4217
[LIABILITIES-OTHER] 1454
[LONG-TERM] 583
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 2510
[OTHER-SE] 7720
[TOTAL-LIABILITIES-AND-EQUITY] 112147
[INTEREST-LOAN] 4947
[INTEREST-INVEST] 1188
[INTEREST-OTHER] 144
[INTEREST-TOTAL] 6279
[INTEREST-DEPOSIT] 3097
[INTEREST-EXPENSE] 3221
[INTEREST-INCOME-NET] 3058
[LOAN-LOSSES] 50
[SECURITIES-GAINS] (8)
[EXPENSE-OTHER] 2658
[INCOME-PRETAX] 894
[INCOME-PRE-EXTRAORDINARY] 894
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 621
[EPS-PRIMARY] .62
[EPS-DILUTED] .62
[YIELD-ACTUAL] .08
[LOANS-NON] 1468
[LOANS-PAST] 103
[LOANS-TROUBLED] 0
[LOANS-PROBLEM] 0
[ALLOWANCE-OPEN] 932
[CHARGE-OFFS] 28
[RECOVERIES] 16
[ALLOWANCE-CLOSE] 970
[ALLOWANCE-DOMESTIC] 0
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 0
</TABLE>
