-----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, V+dIPJEGX5/QGfHXusdV0zCIyelTSp2SVVFikenFYqCd0AyTwWaO3C5HGvpSI0Y9 qaTfbCuaZSh+ujza9xnW4A== 0000835012-99-000008.txt : 19990809 0000835012-99-000008.hdr.sgml : 19990809 ACCESSION NUMBER: 0000835012-99-000008 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990806 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: 99679739 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 June 30, 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 - 1,626,843 shares as of June 30, 1999 INDEX COMMONWEALTH BANKSHARES INC. AND SUBSIDIARY NORFOLK, VIRGINIA PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets -- June 30, 1999 and December 31, 1998. Condensed consolidated statements of income -- Three months ended June 30, 1999 and 1998; six months ended June 30, 1999 and 1998. Condensed consolidated statements of comprehensive income -- Six months ended June 30, 1999 and 1998 Condensed consolidated statements of cash flows -- Six months ended June 30, 1999 and 1998. Notes to condensed consolidated financial statements -- June 30, 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) June 30 December 31 1999 1998 ---- ---- ASSETS Cash and due from banks $ 4,000 $ 5,383 Federal funds sold 32 7,379 Investment securities: Available for sale 17,141 17,333 Held to maturity 4,897 5,665 ------- ------- TOTAL INVESTMENT SECURITIES 22,038 22,998 Loans: Commercial 75,041 63,892 Residential Mortgage 21,154 19,576 Installment loans to individuals 6,136 5,564 Other 2,977 2,818 ------- ------- GROSS LOANS 105,308 91,850 Unearned income (381) (274) Allowance for loan losses (1,018) (969) ------- ------- NET LOANS 103,909 90,607 Premises and equipment 2,754 2,742 Real estate acquired in settlement of loans 854 999 Other assets 2,205 2,129 ------- ------- $135,792 $132,237 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest bearing $ 14,140 $ 16,433 Interest bearing 103,255 99,737 ------- ------- TOTAL DEPOSITS 117,395 116,170 Federal funds purchased and securities sold under agreement to repurchase 4,301 2,483 Long-term debt 531 557 Other liabilities 1,692 1,447 ------- ------- TOTAL LIABILITIES 123,919 120,657 SHAREHOLDERS' EQUITY Common stock, par value $2.50 a share Authorized--5,000,000 shares Issued and outstanding 1,630,525 shares in 1999 and 1,084,153 issued and outstanding in 1998. 4,076 2,710 Additional paid-in capital 3,853 5,176 Retained earnings 4,224 3,740 Accumulated other comprehensive loss (280) (46) ------- ------- 11,873 11,580 ------- ------- $135,792 $132,237 ======= ======= See notes to condensed consolidated financial statements.
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 1999 1998 1999 1998 (Dollars in thousands) (Dollars in thousands) Interest income: Loans, including fees $2,272 $ 1,930 $4,361 $ 3,792 Securities 322 349 664 705 Other 11 54 39 142 ----- ----- ----- ----- TOTAL INTEREST INCOME 2,605 2,333 5,064 4,639 Interest expense: Deposits 1,264 1,177 2,505 2,358 Federal funds purchased and securities sold under agreement to repurchase 28 27 48 52 Other 7 8 14 16 ----- ----- ----- ----- TOTAL INTEREST EXPENSE 1,299 1,212 2,567 2,426 ----- ----- ----- ----- NET INTEREST INCOME 1,306 1,121 2,497 2,213 Provision for loan losses 20 20 50 50 ----- ----- ----- ----- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,286 1,101 2,447 2,163 Other income: Service charges on deposit accounts 199 223 371 426 Other service charges and fees 54 50 101 86 Realized gain on securities available for sale 4 13 7 10 Realized loss on securities held to maturity 0 (9) 0 (10) Loss on sale of real estate Acquired in settlement of loans (27) (68) (27) (62) Other income 48 54 101 108 ----- ----- ----- ----- 278 263 553 558 Other expenses: Salaries and employee benefits 552 434 1,099 910 Net occupancy 102 103 210 210 Furniture and equipment expenses 149 127 285 241 Other expenses 362 308 671 548 ----- ----- ----- ----- 1,165 972 2,265 1,909 ----- ----- ----- ----- INCOME BEFORE INCOME TAXES 399 392 735 812 Applicable income taxes 109 120 193 252 ----- ----- ----- ----- NET INCOME $ 290 $ 272 $ 542 $ 560 ===== ===== ===== ===== Per share data (1): Basic $ 0.18 $ 0.17 $ 0.33 $ 0.34 ===== ===== ===== ===== Diluted $ 0.16 $ 0.15 $ 0.30 $ 0.31 ===== ===== ===== ===== Cash dividends per share $ .035 $ .00 $ .035 $ .00 ===== ===== ===== ===== Average shares outstanding (1): Basic 1,626,843 1,626,107 1,626,843 1,626,107 ========= ========= ========= ========= Diluted 1,786,222 1,781,986 1,786,222 1,781,986 ========= ========= ========= ========= (1) June 30, 1998 restated to reflect 1999 stock dividend. See notes to condensed consolidated financial statements.
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) Six months ended June 30 June 30 1999 1998 ---- ---- (Dollars in thousands) Net income $ 542 $ 560 Other comprehensive income, net of tax: Unrealized loss on securities available for sale (234) (72) ----- ----- COMPREHENSIVE INCOME $ 308 $ 488 ===== ===== See notes to condensed consolidated financial statements.
COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six months ended June 30 June 30 1999 1998 ---- ---- (Dollars in thousands) OPERATING ACTIVITIES Net income $ 542 $ 560 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 50 50 Depreciation and amortization 189 169 Realized gain on securities available for sale (3) (10) Realized loss on securities held to maturity 0 10 Loss on sale of real estate acquired in settlement of loans 27 62 Increase in interest receivable (133) (55) Increase (decrease) in interest payable 105 (25) Loss (gain) on disposal of fixed assets 1 (5) Other 345 (248) ----- ----- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,123 508 INVESTING ACTIVITIES Net decrease in short term investments 7,347 6,301 Purchase of securities held to maturity 0 (500) Purchase of securities available for sale (3,837) (7,321) Proceeds from: Maturity of securities available for sale 1,752 2,369 Maturity of securities held to maturity 744 3,187 Sale of securities available for sale 1,950 2,390 Sale of real estate acquired in settlement of loans 115 656 Purchase of assets relating to real estate acquired in settlement of loans (17) (24) Decrease from net change in loans (13,352) (7,070) Purchases of premise and equipment (202) (441) ------ ------ NET CASH USED BY INVESTING ACTIVITIES (5,500) (453) FINANCING ACTIVITIES Increase (decrease) from net change in demand deposits and savings accounts (1,357) 1,000 Increase (decrease) from net change in certificate of deposit 2,575 (638) Principal payments on long-term debt (26) (26) Increase from net change in short-term liabilities 1,817 573 Proceeds from sale of stock 21 0 Cash paid for dividends (36) (2) ----- ----- NET CASH PROVIDED BY FINANCING ACTIVITIES 2,994 907 ----- ----- NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (1,383) 962 Cash and due from banks at January 1 5,383 4,348 ----- ----- CASH AND DUE FROM BANKS AT JUNE 30 $4,000 $5,310 ===== ===== See notes to condensed consolidated financial statements.
COMMONWEALTH BANKSHARES INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 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 presentation have been included. Operating results for the six months ended June 30, 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 1999 and calculation of income per share is restated to reflect a 50% stock dividend on May 27, 1999. 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, 1999 totaled $290,000, as compared with $272,000 in the second quarter of 1998. On a per share basis, second quarter 1999 income was 18 cents compared with 17 cents for 1998. Net income for the six months ended June 30, 1999 totaled $542,000, as compared to $560,000 for the six months ended June 30, 1998. On a per share basis, net income equalled 33 cents for 1999 compared to 34 cents for 1998. Total interest for the first six months of 1999 increased to $5,064,000, a $425,000 or 9.2% increase over the first six months of 1998. The items are discussed in more detail later in this report. NET INTEREST INCOME Net interest income was $1,306,000 for the quarter ended June 30, 1999, an increase of $185,000 or 16.5% over the comparable period in 1998. For the six months ended June 30, 1999, net interest income increased to $2,497,000, an increase of $284,000 over 1998. Total interest income was $2,605,000 for the quarter ended June 30, 1999, an increase of $272,000 over the same period of 1998. Interest income for the six months ended June 30, 1999 increased $425,000 over the same period of 1998. This increase is mainly attributable to a 23.1% increase in total loans when comparing June 30, 1999 to June 30, 1998. Interest expense of $1,299,000 for the quarter ended June 30, 1999 represents an $87,000 increase from the comparable period in 1998. For the six months ended June 30, 1999, interest expense increased by $141,000 over the same period of 1998. This increase is attributable to a 19.1% increase in interest bearing deposits when comparing June 30, 1999 to June 30, 1998. PROVISION FOR LOAN LOSSES The provision for loan losses was $50,000 for the first six months of 1999 compared to $50,000 for the same period of 1998. Loan charge offs for the six months ended June 30, 1999 totaled $9,000 and recoveries for the same period totaled $8,000. At June 30, 1999, Bank of the Commonwealth has a total allowance for loan losses of $1,018,000 or .97% of total loans. OTHER INCOME Other income for the quarter ended June 30, 1999 was $278,000, an increase of $15,000 from the $263,000 reported for the three months ended June 30, 1998. For the six months ended June 30, 1999, other income was $553,000 as compared to $558,000 for the six months ended June 30, 1998. A decline of $55,000 in service charge on deposits during the first six months of 1999 compared to the same period of 1998 contributed to the reduction in other income for 1999. OTHER EXPENSES Other expenses for the quarter ended June 30, 1999 totaled $1,165,000 an increase of $193,000 or 19.9% over the $972,000 recorded during the quarter ended June 30, 1998. For the six months ended June 30, 1999 other expenses increased to $2,265,000 from the $1,909,000 recorded for the same period of 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: June 30, 1999 December 31, 1998 Loans past due 90 days or more and still accruing $ 688,000 $ 202,000 Nonaccrual loans 1,234,000 1,109,000 Other real estate owned 854,000 999,000 --------- --------- Total nonperforming $2,776,000 $2,310,000 ========= ========= CAPITAL POSITION Shareholders' Equity for the Corporation increased to $11,873,000 from $11,580,000 or 2.5% from December 31, 1998 to June 30, 1999. Shareholders' Equity for June 30, 1999 reflects a $280,000 net unrealized loss on securities available for sale in accordance with FASB 115, as compared to a $46,000 net unrealized loss as of December 31, 1998. Bank Holding Companies are required to meet a 7.3% risk-based capital standard. The Corporations's risk based capital was 11.2% as of June 30, 1999. STOCK DIVIDEND The Board of Directors, at their April 1999 meeting, voted to declare a fifty percent stock dividend payable on May 27, 1999 to shareholders of record of May 17, 1999. Fractional shares were paid in cash, based on the book value of a whole share at March 31, 1999 of $10.86. Additionally, at the April 1999 Board of Directors meeting a 3.5 cents per share cash dividend was declared, payable on June 30, 1999 to shareholders of record of June 14, 1999. In connection with the commencement of cash dividends, the Board of Directors approved a Dividend Reinvestment and Stock Purchase Plan. Shares purchased from the company with reinvested dividends will be issued at a five percent discount from the market value. The Plan also permits optional cash payments of up to $20,000 per quarter for the purchase of additional shares of common stock. These shares are issued at the market value, without incurring brokerage commissions. 155 shareholders representing 642,239 shares participated in the June 30, 1999 Dividend Reinvestment Plan and 34 shareholders participated in the Stock Purchase Plan for a total of $11,955.00. 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. 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 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. The Company developed a remediation plan, implementation and conversion activities, and testing of mission critical systems, all of which were fully complete at June 30,1999. However, the Company plans to continue testing these systems throughout the remainder of the year. 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. Testing of the computer systems with which the Bank's systems interact to service the Bank's customers, including automated teller machines, was complete by June 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. The Year 2000 project cost an aggregate of $99,600 as of June 30, 1999; approximately $70,600 of which constituted software and hardware upgrades; $10,000 for software testing, employee training, and contingency planning; and $19,000 of which was personnel costs. Additional expenditures of approximately $10,400 are budgeted to complete the Year 2000 project. While these expenditures have not required deferment of any additional information technology efforts, the Company has delayed introduction of any new initiatives until the Year 2000 project is completed. As of June 30, 1999, The Committee prepared a formal contingency plan to address continuity of business on January 1, 2000 in the event that some or all of its systems fail. Board approval is scheduled for August 1999. Testing of this plan is planned for third quarter 1999. Contingency 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 during the first quarter of 1999 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 affected 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 June 30, 1999, 71.3% of the Bank's loan portfolio consists of commercial loans which are considered to provide higher yields, but also generally carry a greater risk. It should be noted that 75.0% of these commercial loans are collateralized with real estate, and accordingly do not represent an unfavorable risk. At June 30, 1999, 73.5% 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 June 30, 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: August 6, 1999 E. J. Woodard, Jr., CLBB, Chairman of the Board, President & CEO Date: August 6, 1999 John H. Gayle Executive Vice President and Cashier EX-9 2 [ARTICLE] 9 [PERIOD-TYPE] 6-MOS [FISCAL-YEAR-END] DEC-31-1999 [PERIOD-END] JUN-30-1999 [CASH] 4000 [INT-BEARING-DEPOSITS] 0 [FED-FUNDS-SOLD] 32 [TRADING-ASSETS] 0 [INVESTMENTS-HELD-FOR-SALE] 17141 [INVESTMENTS-CARRYING] 4897 [INVESTMENTS-MARKET] 4881 [LOANS] 105308 [ALLOWANCE] 1018 [TOTAL-ASSETS] 135792 [DEPOSITS] 117395 [SHORT-TERM] 4301 [LIABILITIES-OTHER] 1692 [LONG-TERM] 531 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [COMMON] 4076 [OTHER-SE] 7797 [TOTAL-LIABILITIES-AND-EQUITY] 135792 [INTEREST-LOAN] 4361 [INTEREST-INVEST] 664 [INTEREST-OTHER] 39 [INTEREST-TOTAL] 5064 [INTEREST-DEPOSIT] 2505 [INTEREST-EXPENSE] 2567 [INTEREST-INCOME-NET] 2497 [LOAN-LOSSES] 50 [SECURITIES-GAINS] 7 [EXPENSE-OTHER] 2265 [INCOME-PRETAX] 735 [INCOME-PRE-EXTRAORDINARY] 735 [EXTRAORDINARY] 0 [CHANGES] 0 [NET-INCOME] 542 [EPS-BASIC] .33 [EPS-DILUTED] .30 [YIELD-ACTUAL] .08 [LOANS-NON] 1234 [LOANS-PAST] 688 [LOANS-TROUBLED] 0 [LOANS-PROBLEM] 1262 [ALLOWANCE-OPEN] 969 [CHARGE-OFFS] 9 [RECOVERIES] 8 [ALLOWANCE-CLOSE] 1018 [ALLOWANCE-DOMESTIC] 1018 [ALLOWANCE-FOREIGN] 0 [ALLOWANCE-UNALLOCATED] 0
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