-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Jcyli7xkX5KAVHaohVqOkoeo+PIAzaNpZhycbpzJRBLwEsqvAJyZjJbXb6/MPjBz iO1O8mXlIl1OCyMDoAvkoQ== 0000835012-99-000007.txt : 19990512 0000835012-99-000007.hdr.sgml : 19990512 ACCESSION NUMBER: 0000835012-99-000007 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMONWEALTH BANKSHARES INC CENTRAL INDEX KEY: 0000835012 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 541460991 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-17377 FILM NUMBER: 99617021 BUSINESS ADDRESS: STREET 1: 403 BOUSH ST CITY: NORFOLK STATE: VA ZIP: 23510 BUSINESS PHONE: 8044466900 MAIL ADDRESS: STREET 2: 403 BOUSH STREET CITY: NORFOLK STATE: VA ZIP: 23510 10QSB 1 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, 1999 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) (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 -- 1,084,153 shares as of March 31, 1999 INDEX COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY NORFOLK, VIRGINIA PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets -- March 31, 1999 and December 31,1998. Condensed consolidated statements of income -- Three months ended March 31, 1999 and 1998. Condensed consolidated statements of comprehensive income -- Three months ended March 31, 1999 and 1998. Condensed consolidated statements of cash flows -- Three months ended March 31, 1999 and 1998. Notes to condensed consolidated financial statements -- March 31, 1999. 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 I. FINANCIAL INFORMATION
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31 December 31 1999 1998 ---- ---- ASSETS (Dollars in Thousands) Cash and due from banks $ 5,885 $ 5,383 Federal funds sold 59 7,379 Investment securities: Available for sale 17,926 17,333 Held to maturity 5,354 5,665 ------- ------- TOTAL INVESTMENT SECURITIES 23,280 22,998 Loans: Commercial 70,084 63,892 Residential Mortgage 19,604 19,576 Installment loans to individuals 5,513 5,564 Other 2,841 2,818 ------- ------- GROSS LOANS 98,042 91,850 Unearned income (321) (274) Allowance for loan losses (1,001) (969) ------- ------- NET LOANS 96,720 90,607 Premises and equipment 2,727 2,742 Real estate acquired in settlement of loans 993 999 Other assets 2,065 2,129 ------- ------- $131,729 $132,237 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest bearing $13,918 $16,433 Interest bearing 99,553 99,737 ------- ------- TOTAL DEPOSITS 113,471 116,170 Federal funds purchased and securities sold under agreement to repurchase 4,258 2,483 Long-term debt 531 557 Other liabilities 1,691 1,447 ------- ------- TOTAL LIABILITIES 119,951 120,657 SHAREHOLDERS' EQUITY Common stock, par value $2.50 a share Authorized--5,000,000 shares Issued and outstanding 1,084,153 Shares 2,710 2,710 Additional paid-in capital 5,176 5,176 Retained earnings 3,992 3,740 Accumulated other comprehensive loss (100) (46) ------- ------- 11,778 11,580 ------- ------- $131,729 $132,237 ======= ======= 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 1999 1998 ---- ---- Interest income: (Dollars in thousands) Loans, including fees $ 2,089 $ 1,862 Investment securities 342 356 Other 28 88 ------ ------ TOTAL INTEREST INCOME 2,459 2,306 Interest expense: Deposits 1,241 1,181 Federal funds purchased 20 25 Other 7 8 ------ ------ TOTAL INTEREST EXPENSE 1,268 1,214 ------ ------ NET INTEREST INCOME 1,191 1,092 Provision for loan losses 30 30 ------ ------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,161 1,062 Other income: Service charges on deposit accounts 172 203 Other service charges and fees 47 36 Realized gain (loss) on securities available for sale 3 (3) Realized loss on securities held to maturity 0 (1) Gain on sale of real estate acquired in settlement of loans 0 6 Other income 53 54 ------ ------ 275 295 Other expenses: Salaries and employee benefits 547 476 Net occupancy 108 107 Furniture and equipment expenses 136 114 Other expenses 309 240 ------ ------ 1,100 937 ------ ------ INCOME BEFORE INCOME TAXES 336 420 Applicable income taxes 84 132 ------ ------ NET INCOME $252 $288 ====== ====== Per share data (1): Basic $0.23 $0.27 ====== ====== Diluted $0.21 $0.25 ====== ====== Dividends per share $ .00 $ .00 ====== ====== Average shares outstanding (1): Basic 1,084,153 1,084,153 ========= ========= Diluted 1,188,072 1,170,552 ========= ========= (1) Restated to reflect 1998 stock dividend.
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) Three months ended March 31 March 31 1999 1998 ---- ---- (Dollars in thousands) Net income $252 $288 Other comprehensive income, net of income tax: Unrealized loss on securities available for sale (54) (18) ---- ---- COMPREHENSIVE INCOME $198 $270
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three months ended March 31 March 31 1999 1998 ---- ---- (Dollars in thousands) OPERATING ACTIVITIES Net income $ 252 $ 288 Adjustments to reconcile net income to net cash provided (used) by operating activities: Provision for loan losses 30 30 Depreciation and amortization 91 77 Realized loss (gain) on securities available for sale (3) 3 Realized loss on securities held to maturity 0 1 Loss (gain) on sale of real estate acquired in settlement of loans 0 (6) Increase in interest receivable (106) (39) Increase (decrease) in interest payable 55 (1) Loss of disposal of fixed assets 1 0 Other 414 (245) ----- ----- NET CASH PROVIDED BY OPERATING ACTIVITIES 734 108 INVESTING ACTIVITIES Net decrease (increase) in short term investments 7,320 (1,858) Purchase of securities held to maturity 0 (297) Purchase of securities available for sale (3,587) (2,081) Proceeds from: Maturity of securities available for sale 1,202 1,250 Maturity of securities held to maturity 300 1,027 Sale of securities available for sale 1,725 0 Sale of real estate acquired in settlement of loans 0 472 Purchase of assets relating to real estate acquired in settlement of loans (14) (8) Decrease from net change in loans (6,143) (2,871) Purchases of premises and equipment (77) (188) ----- ----- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 726 (4,554) FINANCING ACTIVITIES Increase (decrease) from net change in demand deposits and savings accounts (2,147) 1,697 Increase (decrease) from net change in certificate of deposit (559) 3,521 Principal payments on long-term debt (26) (26) Increase (decrease) from net change in short-term liabilities 1,774 (1,071) ----- ----- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (958) 4,121 ----- ----- NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 502 (323) Cash and due from banks at January 1 5,383 4,348 ----- ----- CASH AND DUE FROM BANKS AT MARCH 31 $5,885 $4,025 ===== ===== See notes to condensed consolidated financial statements.
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1999 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 representation have been included. Operating results for the three months ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. 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, 1998. 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 1998 and calculation of income per share is restated to reflect an 8% stock dividend paid on April 30, 1998. 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, 1999 totaled $252,000, as compared with $288,000 for the first three months of 1998. On a per share basis, net income equaled 23 cents for 1999 compared to 27 cents for 1998. Total interest for the first three months of 1999 increased to $2,459,000, a $153,000 or 6.6% increase over the first three months of 1998. The items are discussed in more detail later in this report. NET INTEREST INCOME Net interest income was $1,191,000 for the quarter ended March 31, 1999, an increase of 9.1% over the comparable period in 1998. Total interest income was $2,459,000 for the quarter ended March 31, 1999 representing a 6.6% increase from the comparable period in 1998. This increase is mainly attributable to a 20.6% increase in total loans when comparing March 31, 1999 to March 31, 1998. Interest expense of $1,268,000 for the quarter ended March 31, 1999 represents a 4.4% increase from the comparable period in 1998. This increase is attributable to a 9.2% increase in interest bearing deposits when comparing March 31, 1999 to March 31, 1998. PROVISION FOR LOAN LOSSES The provision for loan losses was $30,000 for the first three months of 1999 as compared to $30,000 for the first quarter of 1998. At March 31, 1999, Bank of the Commonwealth had a total allowance for loan losses of $1,001,000 or 1.0% of total loans. OTHER INCOME Other income for the quarter ended March 31, 1999 was $275,000, a decrease of $20,000 from the $295,000 reported for the three months ended March 31, 1998. OTHER EXPENSES Other expenses for the quarter ended March 31, 1999 was $1,100,000, an increase of $163,000 from the $937,000, for the quarter ended March 31, 1998. 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, 1999 December 31, 1998 -------------- ----------------- Loans past due 90 days or more and still accruing $ 211,000 $ 202,000 Nonaccrual loans 1,153,000 1,109,000 Other real estate owned 993,000 999,000 --------- --------- Total nonperforming $2,357,000 $2,310,000 ========= =========
CAPITAL POSITION Shareholders' Equity for the Corporation increased to $11,778,000 from $11,580,000 or 1.7% from December 31, 1998 to March 31, 1999. Shareholders' Equity for March 31, 1999 reflects a $100,000 net unrealized loss on securities available for sale in accordance with FASB115, as compared to a $46,000 net unrealized loss as of December 31, 1998. Bank Holding Companies are required to meet a 7.25% risk-based capital standard. The Corporation's risk based capital was 11.5% as of March 31, 1999. STOCK DIVIDEND No dividends have been declared for 1999 as of March 31, 1999. The last dividends the Board of Directors declared was 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 were paid in cash, based on the book value of a whole share at December 31, 1997 of $10.49. YEAR 2000 ISSUE The Company and the Bank have considered the impact of Year 2000 issues on their computer systems and applications. The Year 2000 issue is the result of most computer programs being issued using two digits, rather than four, to define the applicable year. As a result, these computer programs may not recognize the correct date after December 31, 1999. In addition, other systems and equipment that are not traditional computers also may contain embedded hardware or software that have a similar problem. The Company first began assessing its Year 2000 readiness in 1997, when the Board began an awareness program. Since that time, an inventory and analysis of the various systems has been performed. The Company developed a remediation plan, implementation and conversion activities are in progress and testing of mission critical systems was substantially complete at December 31, 1998. Management anticipates the testing of mission critical systems will be fully completed by the end of the second quarter 1999, however, the Company plans to continue testing these systems throughout the remainder of the year. The Company (and Bank) formed a Year 2000 Committee in July 1997 (the "Committee"), consisting of the Bank's corporate officers, representing all areas of the Bank. The Committee, which has the complete support of the Board, regularly reports to the Company's Board of Directors. The Committee established a test plan in accordance with the Federal Financial Institution Examination Counsel ("FFIEC Guidelines"), which plan and implementation are subject to examination by the Federal Reserve Board. The Committee has inventoried and analyzed all of the Company's and Bank's various computer systems, first concentrating on mission critical systems, and then reviewing all other computer-related systems. In addition, the Company has reviewed all non-information technology systems that may contain embedded dates. Non-compliant systems have been corrected through renovation or replacement. The Company has evaluated the state of readiness of all of its critical vendors, and believes that they will be prepared for the Year 2000. Computer systems with which the Bank's systems interact to service the Bank's customers, such as automated teller machines, will be tested, and management anticipates that this testing will be completed by the end of the second quarter 1999. The Bank has evaluated its significant customers to determine that their systems will be Year 2000 compliant within the appropriate timeframe. In September 1998, the Bank surveyed its largest 200 loan customers, to assess their Year 2000 readiness and determine whether or not the Bank needed to create additional reserves in the event any of these customers are not able to pay their loans due to the Year 2000 issue. As a result of the Bank's survey, the Company did not believe it was necessary to increase its allowance for loan losses. The Bank continues to monitor these customers. As of December 31, 1998, the Year 2000 project has cost an aggregate of $98,550, approximately $57,000 of which constituted software upgrades, $25,000 of which was personnel costs projected through the Year 2000, and the remainder of which constituted a variety of other costs, including hardware replacement. Additional expenditures of approximately $11,500 are budgeted to complete the Year 2000 project. While these expenditures have not required deferment of any additional Year 2000 efforts, the Company has delayed introduction of any new initiatives until the Year 2000 project is completed. The Company is in the process of establishing contingency plans to address continuity of business on January 1, 2000 in the event that some or all of its systems fail. Management anticipates that these contingency plans will be completed by second quarter 1999. Plans include a combination of alternative methods to perform a job, including manual procedures and incorporating the Bank's existing disaster recovery plan. The Bank has addressed the adequacy of its cash reserves and related security concerns. A formal contingency plan for cash reserves was developed and approved by the Board of Directors in April 1999. The policy addresses additional cash requirements and related procedures. The potential impact of Year 2000 will depend not only on the Company's efforts but also on the year 2000 readiness of entities on which the Company depends, including public utility companies and phone companies. Dependence on these vendors subjects the Company to a risk, for which the Company cannot completely prepare. The Company believes that the most likely worst case Year 2000 scenario would not have material adverse effect on the Company's results of operations and financial conditions in the year ending December 31, 2000. The Company's assessment is limited by the Company's legal right to demand information and assurances, the willingness and ability of third parties to provide such information, and the reliability of the information provided. In addition, the Company believes that no entity can address the unlimited number of possible circumstances relating to the Year 2000 issue, including risks outside the Company's marketplace. Certain information in the above discussion constitute forward-looking statements about the Company's Year 2000 readiness that involve risks and uncertainties that may be adversely effected due to third party vendors' and customers' failure to resolve the Year 2000 issue, despite their prior representations, the ability of public utilities to operate and similar factors beyond the control of the Company. SUMMARY As of March 31, 1999, 71.5% 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 74.6% of these commercial loans are collateralized with real estate, and accordingly do not represent an unfavorable risk. At March 31, 1999, 73.3% 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, 1999. 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 10, 1999 ----------------- ----------------------------------- E. J. Woodard, Jr., Chairman of the Board, President & CEO Date: May 10, 1999 ----------------- ----------------------------------- John H. Gayle Executive Vice President and Cashier EX-9 2 [ARTICLE] 9 [MULTIPLIER] 1000 [PERIOD-TYPE] 3-MOS [FISCAL-YEAR-END] DEC-31-1999 [PERIOD-END] MAR-31-1999 [CASH] 5880 [INT-BEARING-DEPOSITS] 5 [FED-FUNDS-SOLD] 59 [TRADING-ASSETS] 0 [INVESTMENTS-HELD-FOR-SALE] 17926 [INVESTMENTS-CARRYING] 5354 [INVESTMENTS-MARKET] 5314 [LOANS] 98042 [ALLOWANCE] 1001 [TOTAL-ASSETS] 131729 [DEPOSITS] 113471 [SHORT-TERM] 4259 [LIABILITIES-OTHER] 1691 [LONG-TERM] 531 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [COMMON] 2710 [OTHER-SE] 9068 [TOTAL-LIABILITIES-AND-EQUITY] 131729 [INTEREST-LOAN] 2089 [INTEREST-INVEST] 342 [INTEREST-OTHER] 28 [INTEREST-TOTAL] 2459 [INTEREST-DEPOSIT] 1241 [INTEREST-EXPENSE] 1268 [INTEREST-INCOME-NET] 1191 [LOAN-LOSSES] 30 [SECURITIES-GAINS] 3 [EXPENSE-OTHER] 1100 [INCOME-PRETAX] 336 [INCOME-PRE-EXTRAORDINARY] 336 [EXTRAORDINARY] 0 [CHANGES] 0 [NET-INCOME] 252 [EPS-PRIMARY] .23 [EPS-DILUTED] .21 [YIELD-ACTUAL] 8.76 [LOANS-NON] 1153 [LOANS-PAST] 211 [LOANS-TROUBLED] 0 [LOANS-PROBLEM] 1338 [ALLOWANCE-OPEN] 969 [CHARGE-OFFS] 0 [RECOVERIES] 2 [ALLOWANCE-CLOSE] 1001 [ALLOWANCE-DOMESTIC] 1001 [ALLOWANCE-FOREIGN] 0 [ALLOWANCE-UNALLOCATED] 0
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