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, 1998.
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
incorporation or organization) Identification No.)
403 Boush Street
Norfolk, Virginia 23510
(Address of principal executive offices) (Zip Code)
(757) 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 March 31,
1998
INDEX
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
NORFOLK, VIRGINIA
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets -- March 31, 1998 and
December 31, 1997.
Condensed consolidated statements of income -- Three months
ended March 31, 1998 and 1997.
Condensed consolidated statements of comprehensive income --
Three months ended March 31, 1998 and 1997.
Condensed consolidated statements of cash flows -- Three months
ended March 31, 1998 and 1997.
Notes to condensed consolidated financial statements -- March
31, 1998.
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
PART 1. FINANCIAL INFORMATION
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31 December 31
1998 1997
ASSETS (Dollars in thousands)
Cash and due from banks $ 4,025 $ 4,348
Federal funds sold 8,298 6,440
Securities:
Available for sale 10,095 11,834
Held to maturity 12,637 10,830
------- -------
TOTAL SECURITIES 22,732 22,664
Loans:
Commercial 53,204 50,552
Residential mortgage 19,246 19,836
Installment loans to individuals 5,517 4,875
Other 3,354 3,182
------- -------
GROSS LOANS 81,321 78,445
Unearned income (199) (194)
Allowance for loan losses (999) (969)
------- -------
NET LOANS 80,123 77,282
Premises and equipment 2,442 2,326
Real estate acquired in settlement of loans 1,075 1,533
Other assets 1,926 1,513
------- -------
$120,621 $116,106
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 14,781 $ 12,083
Interest bearing 91,197 88,677
------- -------
TOTAL DEPOSITS 105,978 100,760
Federal funds purchased and securities
sold under agreement to repurchase 1,690 2,761
Long-term debt 557 583
Other liabilities 1,595 1,471
------- -------
TOTAL LIABILITIES 109,820 105,575
SHAREHOLDERS' EQUITY
Common stock, par value $2.50 a share
Authorized--5,000,000 shares
Issued and outstanding 1,004,094
shares 2,510 2,510
Additional paid-in-capital 4,536 4,536
Retained earnings 3,765 3,477
Net unrealized gain (loss) on securities
available for sale (10) 8
------- -------
10,801 10,531
------- -------
$120,621 $116,106
======== ========
See notes to condensed consolidated financial statements.
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended
March 31 March 31
1998 1997
Interest income: (Dollars in thousands)
Loans, including fees $ 1,862 $ 1,551
Securities 356 388
Other 88 48
------- -------
TOTAL INTEREST INCOME 2,306 1,987
Interest expense:
Deposits 1,181 1,008
Federal funds purchased 25 25
Other 8 8
------- -------
TOTAL INTEREST EXPENSE 1,214 1,041
------- -------
NET INTEREST INCOME 1,092 946
Provision for loan loss 30 0
------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,062 946
Other income:
Service charges on deposit accounts 203 111
Other service charges and fees 36 22
Realized loss on securities
available for sale (3) (4)
Realized loss on securities
held to maturity (1) 0
Gain (loss) on sale of real estate acquired
in settlement of loans 6 (20)
Other income 54 30
------- -------
295 139
Other expenses:
Salaries and employee benefits 476 435
Net occupancy 107 89
Furniture and equipment expenses 114 100
Other expenses 240 238
------- -------
937 862
INCOME BEFORE INCOME TAXES 420 223
Applicable income taxes 132 65
------- -------
NET INCOME $ 288 $ 158
======= =======
Per share data (1):
Basic $ 0.29 $ 0.16
======= =======
Diluted $ 0.26 $ 0.15
======= =======
Dividends per share 0 0
======= =======
Average shares outstanding (1):
Basic 1,004,094 1,004,094
========= =========
Diluted 1,087,637 1,087,637
========= =========
(1) Restated to reflect 1997 stock dividend.
See notes to condensed consolidated financial statements
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three months ended
March 31 March 31
1998 1997
(Dollars in thousands)
Net income $ 288 $ 158
Other comprehensive income, net of tax:
Unrealized loss on securities
available for sale (18) (122)
------ ------
COMPREHENSIVE INCOME $ 270 $ 36
====== ======
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three months ended
March 31 March 31
1998 1997
OPERATING ACTIVITIES (Dollars in thousands)
Net income $ 288 $ 158
Adjustments to reconcile net
income to net cash provided
(used) by operating activities:
Provision for loan losses 30 0
Depreciation and amortization 77 83
Realized loss on securities
available for sale 3 4
Realized loss on securities
held to maturity 1 0
Loss (gain) on sale of real estate
acquired in settlement of loans (6) 20
Increase in interest receivable (39) (148)
Decrease in interest payable (1) (4)
Loss on disposal of fixed assets 0 1
Other (245) (227)
------- -------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 108 (113)
INVESTING ACTIVITIES
Net (increase) decrease in short
term investments (1,858) 5,009
Purchase of securities held to maturity (297) (1,145)
Purchase of securities available for sale (2,081) (2,633)
Proceeds from:
Maturity of securities available for sale 1,250 700
Maturity of securities held to maturity 1,027 100
Sale of securities available for sale 0 1,298
Sale of real estate acquired in
settlement of loans 472 100
Purchase of assets relating to real estate
acquired in settlement of loans (8) (32)
Decrease from net change in loans (2,871) (2,759)
Purchase of premise and equipment (188) (89)
------- -------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (4,554) 549
FINANCING ACTIVITIES
Increase from net change in demand deposits
and savings accounts 1,697 181
Increase (decrease) from net change in
certificates of deposit 3,521 (765)
Principal payments on long-term debt (26) (26)
Decrease from net change in
short-term liabilities (1,071) (605)
------- -------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 4,121 (1,215)
======= =======
NET DECREASE IN CASH AND DUE FROM BANKS (323) (779)
Cash and due from banks at January 1 4,348 5,656
------- -------
CASH AND DUE FROM BANKS AT MARCH 31 $ 4,025 $ 4,877
======= =======
See notes to condensed consolidated financial statements.
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
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, 1998
are not necessarily indicative of the results that may be expected for
the year ending December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB for the year ended December 31,
1997.
NOTE B--EARNINGS PER SHARE
Basic earnings per common share is calculated by dividing net income by
the weighted average number of common shares outstanding during the
period. Diluted earnings per share is computed by dividing net income by
the weighted average of common and potential dilutive common equivalent
shares outstanding during the period. Average shares outstanding for
1997 and calculation of income per share is restated to reflect a 6%
stock dividend paid on April 30, 1997.
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, 1998 totalled $288,000,
as compared with $158,000 for the first three months of 1997. On a per
share basis, net income equalled 29 cents for 1998 compared to 16 cents
for 1997. Total interest for the first three months of 1998 increased to
$2,306,000, a $319,000 or 16.1% increase over the first three months of
1997. The items are discussed in more detail later in this report.
NET INTEREST INCOME
Net interest income was $1,092,000 for the quarter ended March 31, 1998
an increase of 15.4% over the comparable period in 1997.
Total interest income was $2,306,000 for the quarter ended March 31, 1998
representing a 16.1% increase from the comparable period in 1997. This
increase is mainly attributable to a 18.3% increase in total loans when
comparing March 31, 1998 to March 31, 1997.
Interest expense of $1,214,000 for the quarter ended March 31, 1998
represents a 16.6% increase from the comparable period in 1997. This
increase is attributable to a 16.5% increase in interest bearing deposits
when comparing March 31, 1998 to March 31, 1997.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $30,000 for the first three months of
1998 as compared to no provision for the first quarter of 1997. However,
$10,000 was added to the provision for the first quarter of 1997 through
recoveries on loans previously charged off. At March 31, 1998, Bank of
the Commonwealth had a total allowance for loan losses of $999,000 or
1.2% of total loans.
OTHER INCOME
Other income for the quarter ended March 31, 1998 was $295,00, an
increase of $156,000 from the $139,000 reported for the three months
ended March 31, 1997. Of the increase, $26,000 is attributable to a gain
from the sale of real estate acquired in the settlement of loans of
$6,000 in 1998, compared to a loss of $20,000 during the first quarter of
1997.
OTHER EXPENSES
Other expenses for the quarter ended March 31, 1998 was $937,000, an
increase of $75,000 from the $862,000, for the quarter ended March 31,
1997.
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, 1998 December 31, 1997
Loans past due 90 days or
more and still accruing $ 217,000 $ 124,000
Nonaccrual loans 1,182,000 1,450,000
Other real estate owned 1,075,000 1,533,000
---------- ----------
Total nonperforming $2,474,000 $3,107,000
========== ==========
CAPITAL POSITION
Shareholder's Equity for the Corporation increased to $10,801,000 from
$10,531,000 or 2.6% from December 31, 1997 to March 31,1998.
Shareholders' Equity for March 31, 1998 reflects a $10,000 net unrealized
loss on securities available for sale in accordance with FASB115, as
compared to an $8,000 net unrealized gain as of December 31, 1997.
Bank Holding Companies are required to meet a 7.25% risk-based capital
standard. The Corporation's risk based capital was 12.7% as of March 31,
1998.
STOCK DIVIDEND
The Board of Directors, at their February 1998 meeting voted to declare
an eight percent stock dividend payable on the Company's common shares
for stockholders of record as of March 31, 1998, on April 28, 1998.
Fractional shares will be paid in cash, based on the book value of a
whole share at December 31, 1997 of $10.49.
YEAR 2000 ISSUE
The Corporation is taking steps to ensure that all of our software and
hardware systems are century date compliant and that we will not have
problems as we approach and move into the year 2000. A year 2000
committee has been established that has the responsibility to review and
direct the testing of our systems for compliance The Chairman of the
Board is a member of this committee and updates are periodically provided
to the full Board of Directors.
SUMMARY
As of March 31, 1998, 65.4% 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 61.1% of these
commercial loans are collateralized with real estate, and accordingly do
not represent an unfavorable risk. At March 31, 1998, 67.8% 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.
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, 1998.
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, 1998 ----------------------------
E. J. Woodard, Jr.
Chairman of the Board, President
& CEO
Date: May 13, 1998 ----------------------------
John H. Gayle
Executive Vice President &
Cashier
[ARTICLE] 9
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-END] MAR-31-1998
[CASH] 4,025
[INT-BEARING-DEPOSITS] 0
[FED-FUNDS-SOLD] 8,298
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 10,095
[INVESTMENTS-CARRYING] 12,637
[INVESTMENTS-MARKET] 22,732
[LOANS] 81,321
[ALLOWANCE] 999
[TOTAL-ASSETS] 120,621
[DEPOSITS] 105,978
[SHORT-TERM] 1,690
[LIABILITIES-OTHER] 1,595
[LONG-TERM] 557
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 2,510
[OTHER-SE] 8,301
[TOTAL-LIABILITIES-AND-EQUITY] 120,621
[INTEREST-LOAN] 1,862
[INTEREST-INVEST] 356
[INTEREST-OTHER] 88
[INTEREST-TOTAL] 2,306
[INTEREST-DEPOSIT] 1,181
[INTEREST-EXPENSE] 1,214
[INTEREST-INCOME-NET] 1,092
[LOAN-LOSSES] 30
[SECURITIES-GAINS] (4)
[EXPENSE-OTHER] 937
[INCOME-PRETAX] 420
[INCOME-PRE-EXTRAORDINARY] 420
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 288
[EPS-PRIMARY] .29
[EPS-DILUTED] .26
[YIELD-ACTUAL] 8.00
[LOANS-NON] 1,182
[LOANS-PAST] 217
[LOANS-TROUBLED] 469
[LOANS-PROBLEM] 732
[ALLOWANCE-OPEN] 969
[CHARGE-OFFS] 1
[RECOVERIES] 1
[ALLOWANCE-CLOSE] 999
[ALLOWANCE-DOMESTIC] 0
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 0
</TABLE>
