-----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, MrYm5eUVR3s//CDUfDnlV8hqRSk+Oaz8e+IzJ+Zuc5Hzr0JVnS7ue4K1JpzilPXg WbxzGe/0xHwcxE0gMc9lsg== 0000835012-98-000007.txt : 19981116 0000835012-98-000007.hdr.sgml : 19981116 ACCESSION NUMBER: 0000835012-98-000007 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: 98748754 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 September 30, 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 -- 1,084,153 shares as of September 30, 1998 INDEX COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY NORFOLK, VIRGINIA PART 1. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets -- September 30, 1998 and December 31, 1997. Condensed consolidated statements of income -- Three months ended September 30, 1998 and 1997; Nine months ended September 30, 1998 and 1997. Condensed consolidated statements of comprehensive income -- Nine months ended September 30, 1998 and 1997. Condensed consolidated statements of cash flows -- Nine months ended September 30, 1998 and 1997. Notes to condensed consolidated financial statements -- September 30, 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)
September 30 December 31 1998 1997 ASSETS (Dollars in thousands) Cash and due from banks $ 4,418 $ 4,348 Federal funds sold 7,286 6,440 Securities: Available for sale 15,620 11,834 Held to maturity 6,548 10,830 ------- ------- TOTAL SECURITIES 22,168 22,664 Loans: Commercial 59,750 50,552 Residential mortgage 19,802 19,836 Installment loans to individuals 5,581 4,875 Other 2,452 3,182 ------- ------- GROSS LOANS 87,585 78,445 Unearned income (250) (194) Allowance for loan losses (1,022) (969) ------- ------- NET LOANS 86,313 77,282 Premises and equipment 2,692 2,326 Real estate acquired in settlement of loans 950 1,533 Other assets 1,846 1,513 ------- ------- $125,673 $116,106 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest bearing $ 13,596 $ 12,083 Interest bearing 94,806 88,677 ------- ------- TOTAL DEPOSITS 108,402 100,760 Federal funds purchased and securities sold under agreement to repurchase 3,763 2,761 Long-term debt 557 583 Other liabilities 1,535 1,471 ------- ------- TOTAL LIABILITIES 114,257 105,575 SHAREHOLDERS' EQUITY Common stock, par value $2.50 a share Authorized--5,000,000 shares Issued and outstanding 1,084,153 shares in 1998 and 1,004,094 shares issued and outstanding in 1997. 2,710 2,510 Additional paid-in-capital 5,176 4,536 Retained earnings 3,479 3,477 Net unrealized gain on securities available for sale 51 8 ------- ------- 11,416 10,531 ------- ------- $125,673 $116,106 ======== ======== See notes to condensed consolidated financial statements.
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 1998 1997 1998 1997 Interest income: (Dollars in thousands) (Dollars in thousands) Loans, including fees $ 1,997 $ 1,730 $ 5,789 $ 4,947 Securities 325 388 1,030 1,188 Other 76 69 218 144 ------- ------- ------- ------- TOTAL INTEREST INCOME 2,398 2,187 7,037 6,279 Interest expense: Deposits 1,237 1,081 3,595 3,097 Federal funds purchased and securities sold under agreement to repurchase 36 41 88 98 Other 8 9 24 26 ------- ------- ------- ------- TOTAL INTEREST EXPENSE 1,281 1,131 3,707 3,221 ------- ------- ------- ------- NET INTEREST INCOME 1,117 1,056 3,330 3,058 Provision for loan losses 30 20 80 50 ------- ------- ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,087 1,036 3,250 3,008 Other income: Service charges on deposit accounts 206 141 632 358 Other service charges and fees 54 47 140 98 Realized gain (loss) on securities available for sale (5) (2) 5 (8) Realized loss on securities held to maturity (3) 0 (13) 0 Gain (loss) on sale of real estate acquired in settlement of loans 0 1 (62) (23) Other income 61 49 169 119 ------- ------- ------- ------- 313 236 871 544 Other expenses: Salaries and employee benefits 457 431 1,367 1,276 Net occupancy 115 113 325 316 Furniture and equipment expenses 133 110 374 332 Other expenses 299 238 847 734 ------- ------- ------- ------- 1,004 892 2,913 2,658 ------- ------- ------- ------- INCOME BEFORE INCOME TAXES 396 380 1,208 894 Applicable income taxes 112 120 364 273 ------- ------- ------- ------- NET INCOME $ 284 $ 260 $ 844 $ 621 ======= ======= ======= ======= Per share data (1): Basic $ 0.26 $ 0.24 $ 0.78 $ 0.57 ======= ======= ======= ======= Diluted $ 0.24 $ 0.22 $ 0.71 $ 0.52 ======= ======= ======= ======= Dividends per share $ 0 $ 0 $ 0 $ 0 ======= ======= ======= ======= Average shares outstanding (1): Basic 1,084,153 1,084,153 1,084,153 1,084,153 ========= ========= ========= ========= Diluted 1,192,738 1,185,179 1,192,738 1,185,179 ========= ========= ========= ========= (1) September 30, 1997 restated to reflect 1998 stock dividend. See notes to condensed consolidated financial statements
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Nine months ended September 30 September 30 1998 1997 (Dollars in thousands) Net income $ 844 $ 621 Other comprehensive income, net of tax: Unrealized gain on securities available for sale 43 44 ------ ------ COMPREHENSIVE INCOME $ 887 $ 665 ====== ====== See notes to condensed consolidated financial statements.
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended September 30 September 30 1998 1997 OPERATING ACTIVITIES (Dollars in thousands) Net income $ 844 $ 621 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 80 50 Depreciation and amortization 253 250 Realized loss (gain) on securities available for sale (5) 8 Realized loss on securities held to maturity 13 0 Loss on sale of real estate acquired in settlement of loans 62 23 Increase in interest receivable (80) (138) Increase in interest payable 46 54 Loss (gain) on disposal of fixed assets (5) 2 Other (258) (169) ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 950 701 INVESTING ACTIVITIES Net decrease in short term investments (846) 3,346 Purchase of securities held to maturity (500) (1,401) Purchase of securities available for sale (9,394) (4,327) Proceeds from: Maturity of securities available for sale 3,294 1,958 Maturity of securities held to maturity 4,764 1,636 Sale of securities available for sale 2,390 1,298 Sale of real estate acquired in settlement of loans 662 308 Purchase of assets relating to real estate acquired in settlement of loans (141) (117) Decrease from net change in loans (9,111) (9,300) Purchase of premise and equipment (614) (166) ------- ------- NET CASH USED BY INVESTING ACTIVITIES (9,496) (6,765) FINANCING ACTIVITIES Increase (decrease) from net change in demand deposits and savings accounts (640) 696 Increase from net change in certificates of deposit 8,282 4,704 Principal payments on long-term debt (26) (26) Increase from net change in short-term liabilities 1,002 644 Cash paid for fractional shares (2) (3) ------- ------- NET CASH PROVIDED BY FINANCING ACTIVITIES 8,616 6,015 ------- ------- NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 70 (49) Cash and due from banks at January 1 4,348 5,656 ------- ------- CASH AND DUE FROM BANKS AT September 30 $ 4,418 $ 5,607 ======= ======= See notes to condensed consolidated financial statements.
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) September 30, 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 nine months ended September 30, 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 1998 and calculation of income per share is restated to reflect an 8% stock dividend paid on April 28, 1998. 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, 1998 totalled $284,000, as compared with $260,000 in the third quarter of 1997. On a per share basis, third quarter 1998 income was 26 cents compared with 24 cents for 1997. Net income for the nine months ended September 30, 1998 totalled $844,000, as compared to $621,000 for the nine months ended September 30, 1997. On a per share basis, net income equalled 78 cents for 1998 compared to 57 cents for 1997. Total interest for the first nine months of 1998 increased to $7,037,000, a $758,000 or 12.1% increase over the first nine months of 1997. The items are discussed in more detail later in this report. NET INTEREST INCOME Net interest income was $1,117,000 for the quarter ended September 30, 1998 an increase of $61,000 over the comparable period in 1997. For the nine months ended September 30, 1998, net interest income increased to $3,330,000, an increase of $272,000 over 1997. Total interest income was $2,398,000 for the quarter ended September 30, 1998 an increase of $211,000 over the same period in 1997. Interest income for the nine months ended September 30, 1998 increased by $758,000 over the same period of 1997. This increase is mainly attributable to a 16.3% increase in total loans when comparing September 30, 1998 to September 30, 1997. Interest expense of $1,281,000 for the quarter ended September 30, 1998 represents a $150,000 increase from the comparable period in 1997. For the nine months ended September 30, 1998, interest expense increased by $486,000 over the same period of 1997. This increase is attributable to a 13.1% increase in interest bearing deposits when comparing September 30, 1998 to September 30, 1997. PROVISION FOR LOAN LOSSES The provision for loan losses was $80,000 for the first nine months of 1998 as compared to $50,000 for the same period of 1997. Loan charge offs for the nine months ended September 30, 1998 totalled $30,000 and recoveries for the same period totalled $3,000. At September 30, 1998, Bank of the Commonwealth had a total allowance for loan losses of $1,022,000 or 1.2% of total loans. OTHER INCOME Other income for the quarter ended September 30, 1998 was $313,000, an increase of $77,000 from the $236,000 reported for the three months ended September 30, 1997. For the nine months ended September 30, 1998, other income was $871,000 as compared to $544,000 for the nine months ended September 30, 1997. $274,000 of this increase is attributable to an increase in service charges on deposit accounts. OTHER EXPENSES Other expenses for the quarter ended September 30, 1998 totalled $1,004,000, an increase of $112,000 or 12.6% over the $892,000 recorded during the quarter ended September 30, 1997. For the nine months ended September 30, 1998 other expenses increased to $2,913,000 from the $2,658,000 recorded for the same period of 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: September 30, 1998 December 31, 1997 Loans past due 90 days or more and still accruing $ 152,000 $ 124,000 Nonaccrual loans 1,363,000 1,450,000 Other real estate owned 950,000 1,533,000 ---------- ---------- Total nonperforming $2,465,000 $3,107,000 ========== ========== CAPITAL POSITION Shareholder's Equity for the Corporation increased to $11,416,000 from $10,531,000 or 8.4% from December 31, 1997 to September 30, 1998. Shareholders' Equity for September 30, 1998 reflects a $51,000 net unrealized gain on securities available for sale in accordance with FASB 115, as compared to an $8,000 net unrealized gain as of December 31, 1997. Bank Holding Companies are required to meet a 7.3% risk-based capital standard. The Corporation's risk based capital was 13.7% as of September 30, 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 were paid in cash, based on the book value of a whole share at December 31, 1997 of $10.49. YEAR 2000 STATEMENT Bank of the Commonwealth has adopted an approach aimed at identifying and correcting Year 2000 problems by December 1998, including testing, which is planned to be substantially complete by that time. This will provide a full year to complete additional testing, as well as external testing to ensure that all of our systems are in compliance. Specifically, Bank of the Commonwealth has a Year 2000 Committee, consisting of the Bank's Corporate Officers, representing all areas of the Bank. The Committee regularly reports and has the complete support of the Board of Directors. The Committee has taken the following approach for Year 2000 compliance: An inventory and analysis of the various systems have been performed. Mission-critical systems have been identified. A budget of $110,000 has been established. $25,000 of the budget is set aside for personnel costs for 1998-2000. Replacement and renovation has cost $70,650 to date. $14,350 still remains for expenses through 2000. Non-compliant systems have been corrected through renovation or replacement. Testing has begun on all systems to verify compliance. Working with vendors and significant customers to determine to our satisfaction, that their systems will be Year 2000 compliant within an appropriate time frame. Establishing contingency plans to address business continuity on January 1, 2000. Plans include a combination of alternative methods to perform a job, including manual procedures and incorporating our existing disaster recovery plans. Bank of the Commonwealth is dedicated to ensure that all systems are fully tested and compliant, and January 1, 2000 will be uneventful from a systems standpoint. SUMMARY As of September 30, 1998, 68.2% 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 73.2% of these commercial loans are collateralized with real estate, and accordingly do not represent an unfavorable risk. At September 30, 1998, 72.5% 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. 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, 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: November 12, 1998 ---------------------------- E. J. Woodard, Jr. Chairman of the Board, President & CEO Date: November 12, 1998 ---------------------------- John H. Gayle Executive Vice President & Cashier EX-27 2
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