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, 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
incorporation or organization) No.)
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 March 31,
1997
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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 -- March 31, 1997
and December 31, 1996.
Condensed consolidated statements of income --
Three months ended March 31, 1997 and 1996.
Condensed consolidated statements of cash flows --
Three months ended March 31, 1997 and 1996.
Notes to condensed consolidated financial statements --
March 31, 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
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PART I. FINANCIAL INFORMATION
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<CAPTION>
March 31 December 31
1997 1996
(Dollars in Thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,877 $ 5,656
Federal funds sold 709 5,718
Securities:
Available for sale 11,318 9,590
Held to maturity 13,834 14,072
TOTAL SECURITIES 25,152 23,662
Loans:
Commercial 43,882 41,744
Residential Mortgage 18,047 17,206
Installment loans to individuals 4,411 4,601
Other 2,419 2,449
GROSS LOANS 68,759 66,000
Unearned income (154) (165)
Allowance for loan losses (943) (932)
NET LOANS 67,662 64,903
Premises and equipment 2,448 2,443
Real estate acquired in
settlement of loans 1,632 1,720
Other assets 1,637 2,068
$104,117 $106,170
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing 11,390 $ 10,687
Interest bearing 78,289 79,576
TOTAL DEPOSITS 89,679 90,263
Federal funds purchased and
securities sold under
agreement to repurchase 2,968 3,573
Long-term debt 583 609
Other liabilities 1,283 2,157
TOTAL LIABILITIES 94,513 96,602
SHAREHOLDERS' EQUITY
Common stock, par value $2.50 a share
Authorized--5,000,000 shares
Issued and outstanding 947,501
shares 2,369 2,369
Additional paid-in capital 4,106 4,106
Retained earnings 3,279 3,121
Net unrealized loss on
securities available for sale (150) (28)
9,604 9,568
$104,117 $106,170
<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
March 31 March 31
1997 1996
(Dollars in thousands)
<S> <C> <C>
Interest income:
Loans, including fees $ 1,551 $ 1,522
Securities 388 235
Other 48 90
TOTAL INTEREST INCOME 1,987 1,847
Interest expense:
Deposits 1,008 958
Federal funds purchased 25 24
Other 8 10
TOTAL INTEREST EXPENSE 1,041 992
NET INTEREST INCOME 946 855
Provision for loan losses 0 30
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 946 825
Other income:
Service charges on deposit accounts 111 121
Other service charges and fees 22 13
Loss on sale of securities
available for sale (4) (5)
Gain (Loss) on sale of
real estate acquired
in settlement of loans (20) 6
Other income 30 67
139 202
Other expenses:
Salaries and employee benefits 435 367
Net occupancy 89 64
Furniture and equipment expenses 100 94
Other expenses 238 192
862 717
INCOME BEFORE INCOME TAXES 223 310
Applicable income taxes 65 91
NET INCOME $158 $219
Net income per share (1) $0.17 $0.23
Dividends per share 0 0
Average shares outstanding 947,501 947,501
<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>
Three months ended
March 31 March 31
1997 1996
(Dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 158 $ 219
Adjustments to reconcile net income to
net cash provided (used)
by operating activities:
Provision for loan losses 0 30
Depreciation and amortization 83 73
Loss on sale of securities
available for sale 4 5
Loss (Gain) on sale of real estate
acquired in settlement of loans 20 (6)
Increase in interest receivable (148) (22)
Increase (decrease)in interest payable (4) 32
Loss of disposal of fixed assets 1 0
Other (227) 154
NET CASH PROVIDED BY OPERATING ACTIVITIES (113) 485
INVESTING ACTIVITIES
Net (increase) decrease in
short term investments 5,009 (1,912)
Purchase of securities
held to maturity (1,145) (1,213)
Purchase of securities
available for sale (2,633) ---
Maturity of securities
available for sale 700 519
Maturity of securities
held to maturity 100 ---
Sale of securities
available for sale 1,298 ---
Proceeds from sale of real estate
acquired in settlement of loans 100 123
Purchase of assets relating to
real estate acquired in
settlement of loans (32) (171)
Decrease from net change in loans (2,759) (1,498)
Purchases of premises and equipment (89) (49)
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES 549 (4,201)
FINANCING ACTIVITIES
Increase from net change in
demand deposits and savings accounts 181 1,175
Increase (decrease) from
net change in certificate of deposit (765) 4,230
Principal payments on long-term debt (26) (75)
Increase (decrease)from
net change in short-term liabilities (605) 289
NET CASH PROVIDED
(USED) BY FINANCING ACTIVITIES (1,215) 5,619
NET INCREASE (DECREASE) IN CASH
AND DUE FROM BANKS (779) 1,903
Cash and due from banks at January 1 5,656 5,136
CASH AND DUE FROM BANKS AT MARCH 31 $ 4,877 $ 7,039
<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)
MARCH 31, 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 three months ended
March 31, 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 29, 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 three months ended March 31, 1997 totalled
$158,000, as compared with $219,000 for the first three months of
1996. On a per share basis, net income equalled .17 cents for
1997 compared to .23 cents for 1996. Total interest for the
first three months of 1997 increased to $1,988,000, a $141,000
increase or 7.6% over the first three months of 1996. The items
are discussed in more detail later in this report.
NET INTEREST INCOME
Net interest income was $946,000 for the quarter ended March 31,
1997, an increase of 10.6% over the comparable period in 1996.
Total interest income was $1,988,000 for the quarter ended March
31, 1997 representing a 7.6% increase from the comparable period
in 1996. This increase is mainly attributable to a 9.0% increase
in total loans when comparing March 31, 1997 to March 31, 1996.
Interest expense of $1,041,000 for the quarter ended March 31,
1997 represents a 4.9% increase from the comparable period in
1996. This increase is attributable to a 6.1% increase in
interest bearing deposits when comparing March 31, 1997 to March
31, 1996.
PROVISION FOR LOAN LOSSES
No provision for loan losses was made for the first quarter of
1997; however, $10,000 was added to the provision through
recoveries on loans previously charged off. At March 31, 1997,
Bank of the Commonwealth had a total allowance for loan losses of
$943,000 or 1.4% of total loans.
OTHER INCOME
Other income for the quarter ended March 31, 1997 was $139,000, a
decrease of $63,000 from the $202,000 reported for the three
months ended March 31, 1996.
$26,000 of this decrease is attributable to loss from the sale of
real estate acquired in the settlement of loans of $20,000 in
1997, compared to a gain of $6,000 during the first quarter of
1996. An additional $36,000 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. This parcel of property
generated $36,000 in rental income during the first quarter of
1996.
OTHER EXPENSES
Other expenses for the quarter ended March 31, 1997 was $862,000,
an increase of $145,000, from the $717,000, for the quarter ended
March 31, 1996. $70,000 of this increase is attributable to the
operating expenses associated with our Kempsville Branch that
opened in July of 1996. An additional $21,000 was attributable
to the operation of our Trust Department that was established
during the fourth quarter of 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.
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NONPERFORMING ASSETS
The Bank's nonperforming assets consisted of the following:
<CAPTION>
Mar 31, 1997 Dec 31,1996
<S> <C> <C>
Loans past due 90 days or
more and still accruing $569,000 $180,000
Nonaccrual loans 2,348,000 2,065,000
Other real estate owned 1,632,000 1,720,000
Total nonperforming $4,549,000 $3,965,000
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CAPITAL POSITION
Shareholders' Equity for the Corporation increased to $9,604,000
from $9,568,000 December 31, 1996 to March 31, 1997.
Shareholders' Equity for March 31, 1997 reflects a $150,000 net
unrealized loss on securities available for sale in accordance
with FASB115, as compared to a $28,000 net unrealized 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 March 31, 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 will be paid in cash, based on
the book value of a whole share at December 31, 1996 of $10.10.
SUMMARY
As of March 31, 1997 63.8% 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
68.9% of these commercial loans are collateralized with real
estate, and accordingly do not represent an unfavorable risk. At
March 31, 1997, 70.2% 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.
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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 March 31, 1997.
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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: May 13, 1997
E. J. Woodard, Jr., Chairman
of the Board, President & CEO
Date: May 13, 1997
John H. Gayle
Executive Vice President and
Cashier
[ARTICLE] 9
[MULTIPLIER] 1,000
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<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] MAR-31-1997
[CASH] 4,877
[INT-BEARING-DEPOSITS] 0
[FED-FUNDS-SOLD] 709
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 11,318
[INVESTMENTS-CARRYING] 13,834
[INVESTMENTS-MARKET] 25,152
[LOANS] 68,605
[ALLOWANCE] 943
[TOTAL-ASSETS] 104,117
[DEPOSITS] 89,679
[SHORT-TERM] 2,968
[LIABILITIES-OTHER] 1,283
[LONG-TERM] 583
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 2,369
[OTHER-SE] 7,235
[TOTAL-LIABILITIES-AND-EQUITY] 104,117
[INTEREST-LOAN] 1,551
[INTEREST-INVEST] 388
[INTEREST-OTHER] 48
[INTEREST-TOTAL] 1,987
[INTEREST-DEPOSIT] 1,008
[INTEREST-EXPENSE] 8
[INTEREST-INCOME-NET] 946
[LOAN-LOSSES] 0
[SECURITIES-GAINS] (4)
[EXPENSE-OTHER] 862
[INCOME-PRETAX] 223
[INCOME-PRE-EXTRAORDINARY] 223
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 158
[EPS-PRIMARY] .17
[EPS-DILUTED] .17
[YIELD-ACTUAL] 8.00
[LOANS-NON] 2,348
[LOANS-PAST] 569
[LOANS-TROUBLED] 1,825
[LOANS-PROBLEM] 0
[ALLOWANCE-OPEN] 932
[CHARGE-OFFS] 0
[RECOVERIES] 11
[ALLOWANCE-CLOSE] 943
[ALLOWANCE-DOMESTIC] 0
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 0
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