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, 2000.
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 -- 1,678,466 shares as of September 30, 2000
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INDEX
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
NORFOLK, VIRGINIA
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets -- September 30, 2000 and December 31,
1999.
Condensed consolidated statements of income -- Three months ended September 30,
2000 and 1999; Nine months ended September 30, 2000 and 1999.
Condensed consolidated statements of comprehensive income -- Nine months ended
September 30, 2000 and 1999.
Condensed consolidated statements of cash flows -- Nine months ended September
30, 2000 and 1999.
Notes to condensed consolidated financial statements -- September 30, 2000.
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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<CAPTION>
PART 1. FINANCIAL INFORMATION
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30 December 31
2000 1999
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 6,933 $ 6,321
Federal funds sold 2,690 --
Investment Securities:
Available for sale 15,033 15,478
Held to maturity 4,411 4,707
Equity securities, restricted 662 548
------- -------
TOTAL INVESTMENT SECURITIES 20,106 20,733
Loans:
Commercial 24,214 23,307
Commercial construction 4,195 1,712
Commercial mortgage 76,025 65,986
Residential mortgage 31,293 25,146
Installment loans to individuals 10,441 6,538
Other 2,774 2,817
------- -------
GROSS LOANS 148,942 125,506
Unearned income (507) (461)
Allowance for loan losses (1,003) (931)
------- -------
NET LOANS 147,432 124,114
Premises and equipment 4,081 2,822
Real estate acquired in
settlement of loans 295 601
Other assets 3,280 2,425
------- -------
$184,817 $138,358
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 17,725 $ 15,072
Interest bearing 143,352 123,286
------- -------
TOTAL DEPOSITS 161,077 138,358
Short-term borrowings 7,725 4,156
Long-term debt 505 531
Other liabilities 2,309 1,744
------- -------
TOTAL LIABILITIES 171,616 144,789
SHAREHOLDERS' EQUITY
Common stock, par value $2.50 a share
Authorized--5,000,000 shares
Issued and outstanding 1,678,466
shares in 2000 and 1,644,743 shares
issued and outstanding in 1999. 4,196 4,112
Additional paid-in-capital 5,383 5,275
Retained earnings 4,044 3,368
Net unrealized loss on securities
available for sale (422) (528)
------- -------
13,201 12,227
------- -------
$184,817 $157,016
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[FN]
See notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended Nine months ended
September 30 September 30 September 30 September 30
2000 1999 2000 1999
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 3,316 $ 2,433 $ 9,403 $ 6,794
Investment securities 300 318 911 982
Other 53 5 206 44
------ ------ ------ ------
TOTAL INTEREST INCOME 3,669 2,756 10,520 7,820
Interest expense:
Deposits 1,979 1,300 5,522 3,805
Short-term borrowing 102 50 215 98
Other 8 16 24 30
------ ------ ------ ------
TOTAL INTEREST EXPENSE 2,089 1,366 5,761 3,933
------ ------ ------ ------
NET INTEREST INCOME 1,580 1,390 4,759 3,887
Provision for loan losses 48 30 138 80
------ ------ ------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,532 1,360 4,621 3,807
Other income:
Service charges on deposit accounts 186 224 530 595
Other service charges and fees 117 62 263 163
Realized gain on securities
available for sale -- -- -- 7
Loss on sale of real estate acquired
in settlement of loans (15) (1) (20) (28)
Other income 49 48 121 149
------ ------ ------ ------
337 333 894 886
Other expenses:
Salaries and employee benefits 729 597 2,117 1,696
Net occupancy 175 123 409 333
Furniture and equipment expenses 181 144 487 429
Other expenses 464 417 1,349 1,088
------ ------ ------ ------
1,549 1,281 4,362 3,546
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 320 412 1,153 1,147
Applicable income taxes 67 106 302 299
------ ------ ------ ------
NET INCOME $ 253 $ 306 $ 851 $ 848
====== ====== ====== ======
Per share data:
Basic $ 0.15 $ 0.19 $ 0.51 $ 0.52
====== ====== ====== ======
Diluted $ 0.14 $ 0.17 $ 0.46 $ 0.47
====== ====== ====== ======
Dividends per share $ 0.035 $ 0.035 $ 0.105 $ 0.070
====== ====== ====== ======
Average shares outstanding:
Basic 1,673,828 1,630,015 1,663,553 1,630,015
========= ========= ========= =========
Diluted 1,861,466 1,800,739 1,843,372 1,800,739
========= ========= ========= =========
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[FN]
See notes to condensed consolidated financial statements
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<TABLE>
<CAPTION>
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Nine months ended
September 30 September 30
2000 1999
(Dollars in thousands)
<S> <C> <C>
Net income $851 $848
Other comprehensive income, net of tax:
Unrealized gain (loss) on securities
available for sale 105 (369)
--- ---
COMPREHENSIVE INCOME $956 $479
=== ===
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[FN]
See notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended
September 30 September 30
2000 1999
(Dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 851 $ 848
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses 138 80
Depreciation and amortization 340 291
Realized gain on securities
available for sale -- (7)
Write down of real estate
acquired in settlement of loans 8 --
Loss on sale of real estate
acquired in settlement of loans 12 28
Decrease (increase) in interest receivable 12 (82)
Increase in interest payable 189 77
Loss on disposal of fixed assets 4 1
Other (545) 339
----- -----
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,009 1,575
INVESTING ACTIVITIES
Net decrease (increase) in short
term investments (2,690) 7,192
Purchase of investment equities, restricted securities (114) --
Purchase of securities available for sale (250) (3,854)
Proceeds from:
Maturity of securities available for sale 854 2,138
Maturity of securities held to maturity 296 867
Sale of securities available for sale -- 1,949
Sale of real estate acquired in
settlement of loans 370 115
Sale of premises and equipment -- 15
Purchase of assets relating to real estate
acquired in settlement of loans (84) (19)
Decrease from net change in loans (23,404) (21,680)
Purchase of premise and equipment (1,603) (383)
------ ------
NET CASH USED BY INVESTING ACTIVITIES (26,625) (13,660)
FINANCING ACTIVITIES
Increase from net change
in demand deposits and savings accounts 3,052 123
Increase from net change in
certificates of deposit 19,667 5,492
Principal payments on long-term debt (26) (26)
Increase from net change in
short-term borrowings 3,569 6,344
Proceeds from sale of stock 61 61
Cash paid for dividends (95) (69)
------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 26,228 11,925
------ ------
NET INCREASE (DECREASE) IN CASH
AND DUE FROM BANKS 612 (160)
Cash and due from banks at January 1 6,321 5,383
------ ------
CASH AND DUE FROM BANKS AT SEPTEMBER 30 $ 6,933 $ 5,223
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</TABLE>
[FN]
See notes to condensed consolidated financial statements.
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COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2000
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, 2000 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2000. 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,
1999.
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.
NOTE C--RELATED PARTY TRANSACTION
A new branch was opened during the quarter ended September 30, 2000. The
facility is leased from an entity in which two of the Company's directors have
an ownership interest. The terms of the lease are comparable with the
commercial real estate market.
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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 September 30, 2000 totaled $253,000, as
compared with $306,000 in the third quarter of 1999. On a per share basis,
third quarter 2000 income was 15 cents compared with 19 cents for 1999.
Net income for the nine months ended September 30, 2000 totaled $851,000, as
compared to $848,000 for the nine months ended September 30, 1999. On a per
share basis, net income equaled 51 cents for 2000 and 52 cents for 1999. Total
interest for the first nine months of 2000 increased to $10,520,000, a
$2,700,000 or 34.5% increase over the first nine months of 1999. These items
are discussed in more detail later in this report.
NET INTEREST INCOME
Net interest income was $1,580,000 for the quarter ended September 30, 2000 an
increase of $190,000 over the comparable period in 1999. For the nine months
ended September 30, 2000, net interest income increased to $4,759,000, an
increase of $872,000 over 1999.
Total interest income was $3,669,000 for the quarter ended September 30, 2000
an increase of $913,000 over the same period in 1999. Interest income for the
nine months ended September 30, 2000 increased by $2,700,000 over the same
period of 1999. This increase is mainly attributable to a 31.0% increase in
total loans when comparing September 30, 2000 to September 30, 1999.
Interest expense of $2,089,000 for the quarter ended September 30, 2000
represents an $723,000 increase from the comparable period in 1999. For the
nine months ended September 30, 2000, interest expense increased by $1,828,000
over the same period of 1999. This increase is attributable to a 34.4%
increase in interest bearing deposits when comparing September 30, 2000 to
September 30, 1999.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $138,000 for the first nine months of 2000
compared to $80,000 for the same period of 1999. Loan charge offs for the nine
months ended September 30, 2000 totaled $71,000 and recoveries for the same
period totaled $5,000. At September 30, 2000, Bank of the Commonwealth had a
total allowance for loan losses of $1,003,000 or .67% of total loans.
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OTHER INCOME
Other income for the quarter ended September 30, 2000 was $337,000, an increase
of $4,000 from the $333,000 reported for the three months ended September 30,
1999. For the nine months ended September 30, 2000, other income was $894,000
as compared to $886,000 for the nine months ended September 30, 1999.
OTHER EXPENSES
Other expenses for the quarter ended September 30, 2000 totaled $1,549,000, an
increase of $268,000 or 20.9% over the $1,281,000 recorded during the quarter
ended September 30, 1999. For the nine months ended September 30, 2000, other
expenses increased to $4,362,000 from the $3,546,000 recorded for the same
period of 1999.
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:
September 30, 2000 December 31, 1999
Loans past due 90 days or
more and still accruing $ 67,000 $ 73,000
Nonaccrual loans 1,640,000 1,109,000
Other real estate owned 295,000 601,000
--------- ---------
Total nonperforming $2,002,000 $1,783,000
========= =========
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CAPITAL POSITION
Shareholder's equity for the Corporation increased to $13,201,000 from
$12,227,000 or 8.0% from December 31, 1999 to September 30, 2000.
Shareholders' equity for September 30, 2000 reflects a $422,000 net unrealized
loss on securities available for sale in accordance with FASB 115, as compared
to a $528,000 net unrealized loss as of December 31, 1999.
Bank Holding Companies are required to meet a 8.0% risk-based capital
standard. The Corporation's risk based capital was 9.0% as of
September 30, 2000.
STOCK DIVIDEND
At the September 2000 Board of Directors' meeting, a 3.5 cents per share cash
dividend was declared, payable on September 29, 2000 to shareholders of record
on September 25, 2000.
299 shareholders representing 764,914 shares participated in the September 29,
2000 Dividend Reinvestment Plan and 18 shareholders participated in the Stock
Purchase Plan for a total of $3,000.
SUMMARY
As of September 30, 2000, 70.1% of the Bank's loan portfolio consisted of
commercial loans which are considered to provide higher yields and also
generally carry a greater risk. It should be noted that 76.8% of these
commercial loans are collateralized with real estate, and accordingly do not
represent an unfavorable risk. At September 30, 2000, 74.9% of the Bank's
total loan portfolio consisted 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 September 30, 2000.
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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: November 14, 2000 /s/
-------------------------------
E. J. Woodard, Jr.
Chairman of the Board,
President & CEO
Date: November 14, 2000 /s/
-------------------------------
John H. Gayle
Executive Vice President &
Cashier
