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, 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 (IRS Employer Identification No.)
incorporation or organization)
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 last practicable date.
Common Stock, $2.50 Par Value - 1,673,777 shares as of June 30, 2000
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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: June 30, 2000 and
December 31, 1999
Condensed consolidated statements of income: Three months
ended June 30, 2000 and 1999; six months ended June 30,
2000 and 1999.
Condensed consolidated statements of comprehensive income:
six months ended June 30, 2000 and 1999.
Condensed consolidated statements of cash flows: Six months
ended June 30, 2000 and 1999.
Notes to condensed consolidated financial statements:
June 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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PART I. FINANCIAL INFORMATION
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30 December 31
2000 1999
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,968 $ 6,321
Federal funds sold 273 --
Investment securities:
Available for sale 14,954 15,478
Held to maturity 4,462 4,707
Equity securities, restricted 548 548
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TOTAL INVESTMENT SECURITIES 19,964 20,733
Loans:
Commercial 102,652 91,005
Residential Mortgage 29,138 25,146
Installment loans to individuals 6,750 6,538
Other 3,215 2,817
------- -------
GROSS LOANS 141,755 125,506
Unearned income (502) (461)
Allowance for loan losses (1,015) (931)
------- -------
NET LOANS 140,238 124,114
Premises and equipment 3,388 2,822
Real estate acquired in settlement
of loans 653 601
Other assets 2,839 2,425
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$172,323 $157,016
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 16,994 $ 15,072
Interest bearing 133,403 123,286
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TOTAL DEPOSITS 150,397 138,358
Short-term borrowings 6,547 4,156
Long-term debt 505 531
Other liabilities 2,011 1,744
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TOTAL LIABILITIES 159,460 144,789
SHAREHOLDERS' EQUITY
Common stock par value $2.50 a share
Authorized: 5,000,000 shares
Issued and outstanding 1,673,777 shares
In 2000 and 1,644,743 issued and
Outstanding in 1999. 4,184 4,112
Additional paid-in capital 5,366 5,275
Retained earnings 3,850 3,368
Accumulated other comprehensive loss (537) (528)
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12,863 12,227
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$172,323 $157,016
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<FN>
See notes to condensed consolidated financial statements.
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COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended Six months ended
June 30 June 30 June 30 June 30
2000 1999 2000 1999
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $3,153 $2,272 $6,087 $4,361
Investment securities 302 322 611 664
Other 91 11 153 39
----- ----- ----- -----
TOTAL INTEREST INCOME 3,546 2,605 6,851 5,064
Interest expense:
Deposits 1,822 1,264 3,543 2,505
Short-term borrowings 75 28 113 48
Other 8 7 16 14
----- ----- ----- -----
TOTAL INTEREST EXPENSE 1,905 1,299 3,672 2,567
----- ----- ----- -----
NET INTEREST INCOME 1,641 1,306 3,179 2,497
Provision for loan losses 45 20 90 50
----- ----- ----- -----
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,596 1,286 3,089 2,447
Other income:
Service charges on deposit
accounts 181 199 344 371
Other service charges
and fees 79 54 146 101
Realized gain on securities
available for sale -- 4 -- 7
Loss on sale of real estate
acquired in settlement
of loans (3) (27) (5) (27)
Other income 33 48 72 101
----- ----- ----- -----
290 278 557 553
Other expenses:
Salaries and employee
benefits 736 552 1,388 1,099
Net occupancy 109 102 234 210
Furniture and equipment
expenses 155 149 306 285
Other expenses 457 362 885 671
----- ----- ----- -----
1,457 1,165 2,813 2,265
----- ----- ----- -----
INCOME BEFORE INCOME TAXES 429 399 833 735
Applicable income taxes 124 109 235 193
----- ----- ----- -----
NET INCOME $ 305 $ 290 $ 598 $ 542
===== ===== ===== =====
Per share data:
Basic $ 0.18 $ 0.18 $ 0.36 $ 0.33
===== ===== ===== =====
Diluted $ 0.17 $ 0.16 $ 0.32 $ 0.30
===== ===== ===== =====
Cash dividends per share $ .035 $ .035 $ .070 $ .035
===== ===== ===== =====
Average shares outstanding:
Basic 1,665,614 1,626,843 1,665,614 1,626,843
========= ========= ========= =========
Diluted 1,841,481 1,786,222 1,841,481 1,786,222
========= ========= ========= =========
<FN>
See notes to condensed consolidated financial statements.
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<CAPTION>
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Six months ended
June 30 June 30
2000 1999
(Dollars in thousands)
<S> <C> <C>
Net income $598 $542
Other comprehensive income, net of tax:
Unrealized loss on securities available
for sale (9) (234)
--- ---
COMPREHENSIVE INCOME $589 $308
=== ===
<FN>
See notes to condensed consolidated financial statements.
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COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended
June 30 June 30
2000 1999
(Dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 598 $ 542
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 90 50
Depreciation and amortization 218 189
Realized gain on securities available for sale -- (3)
Write down of real estate acquired in
settlement of loans 5 --
Loss on sale of real estate acquired in
Settlement of loans -- 27
Increase in interest receivable (101) (133)
Increase in interest payable 61 105
Loss on disposal of fixed assets -- 1
Other (101) 345
----- -----
NET CASH PROVIDED BY OPERATING ACTIVITIES 770 1,123
INVESTING ACTIVITIES
Net decrease (increase) in short-term
investments (273) 7,347
Purchase of investment equities,
restricted securities -- (44)
Purchase of investment securities
available for sale -- (3,793)
Proceeds from:
Maturity of investment securities
available for sale 509 1,752
Maturity of investment securities
held to maturity 245 744
Sale of investment securities
available for sale -- 1,950
Sale of real estate acquired in
settlement of loans -- 115
Purchase of assets relating to real estate
acquired in settlement of loans (57) (17)
Decrease from net change in loans (16,163) (13,352)
Purchase of premises and equipment (784) (202)
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NET CASH USED BY INVESTING ACTIVITIES (16,523) (5,500)
FINANCING ACTIVITIES
Increase (decrease) from net change in
demand deposits and savings accounts 2,021 (1,357)
Increase from net change in certificate
of deposit 10,018 2,575
Principal payments on long-term debt (26) (26)
Increase from net change in short-term
borrowings 2,391 1,817
Proceeds from sale of stock 59 21
Cash paid for dividends (63) (36)
------ -----
NET CASH PROVIDED BY FINANCING ACTIVITIES 14,400 2,994
------ -----
NET DECREASE IN CASH AND DUE FROM BANKS (1,353) (1,383)
Cash and due from banks at January 1 6,321 5,383
------ ------
CASH AND DUE FROM BANKS AT JUNE 30 $4,968 $4,000
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<FN>
See notes to condensed consolidated financial statements.
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COMMONWEALTH BANKSHARES INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 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 six months ended June 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.
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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 June 30, 2000 totaled $305,000, as
compared with $290,000 in the second quarter of 1999. On a per share
basis, second quarter income was 18 cents in 2000 and 1999.
Net income for the six months ended June 30, 2000 totaled $598,000, as
compared to $542,000 for the six months ended June 30, 1999. On a per
share basis, net income equaled 36 cents for 2000 compared to 33 cents
for 1999. Total interest income for the first six months of 2000 was
$6,851,000, a $1,787,000 or 35.3% increase over the first six months
of 1999. The items are discussed in more detail later in this report.
NET INTEREST INCOME
Net interest income was $1,641,000 for the quarter ended June 30, 2000,
an increase of $335,000 or 25.7% over the comparable period in 1999. For
the six months ended June 30, 2000, net interest income increased to
$3,179,000, an increase of $682,000 over 1999.
Total interest income was $3,546,000 for the quarter ended June 30, 2000,
an increase of $941,000 over the same period of 1999. Interest income for
the six months ended June 30, 2000 was $1,787,000 over the same period
of 1999. This increase is mainly attributable to a 34.6% increase in
total loans when comparing June 30, 2000 to June 30, 1999.
Interest expense of $1,905,000 for the quarter ended June 30, 2000
represents a $606,000 increase from the comparable period in 1999. For
the six months ended June 30, 2000, interest expense increased by
$1,105,000 over the same period of 1999. This increase is attributable
to a 29.2% increase in interest bearing deposits when comparing June 30,
2000 to June 30, 1999.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $90,000 for the first six months of 2000
compared to $50,000 for the same period of 1999. Loan charge offs for the
six months ended June 30, 2000 totaled $10,000 and recoveries for the same
period totaled $4,000. At June 30, 2000, Bank of the Commonwealth has a
total allowance for loan losses of $1,015,00 or .72% of total loans.
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OTHER INCOME
Other income for the quarter ended June 30, 2000 was $290,000, an increase
of $12,000 from the $278,000 reported for the three months in ended June 30,
1999. For the six months ended June 30, 2000, other income was $557,00 as
compared to $553,000 for the six months ended June 30, 1999.
OTHER EXPENSES
Other expenses for the quarter ended June 30, 2000 totaled $1,457,000 an
increase of $292,000 or 25.1% over the $1,165,000 recorded during the
quarter ended June 30, 1999. For the six months ended June 30, 2000
other expenses increased to $2,813,000 from the $2,265,000 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:
June 30, 2000 December 31, 1999
Loans past due 90 days or
more and still accruing $ 422,000 $ 73,000
Nonaccrual loans 1,075,000 1,109,000
Other real estate owned 653,000 601,000
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Total nonperforming $2,150,000 $1,783,000
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CAPITAL POSITION
Shareholders' Equity for the Corporation increased to $12,863,000 from
$12,227,000 or 5.2% from December 31, 1999 to June 30, 2000. Shareholders'
Equity for June 30, 2000 reflects a $537,000 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 7.3% risk-based capital standard. The
Corporation's risk-based capital was 9.3% as of June 30, 2000.
CASH DIVIDEND
The Board of Directors, at their June 2000 meeting declared a 3.5 cent
cash dividend payable on the Company's common shares for stockholders
of record as of June 26, 2000, on June 30, 2000.
SUMMARY
As of June 30, 2000, 72.4% of the Bank's loan portfolio consists of
commercial loans which are considered to provided higher yields, but
also generally carry a greater risk. It should be noted that 74.7% of
these commercial loans are collateralized with real estate, and
accordingly do not represent an unfavorable risk. At June 30, 2000,
74.6% 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 six months ended June 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: August 7, 2000 /s/
-----------------------------
E. J. Woodard, Jr., CLBB
Chairman of the Board,
President & CEO
Date: August 7, 2000 /s/
------------------------------
John H. Gayle
Executive Vice President & Cashier
