-----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, Ka0xi2dvesEAI43VabLEkHlu777ySwVShclvDeHN/f93oKKIShTiHnTBMXQqkLPU m/P6LTI1Ybt5tcXzZ3O2eA== 0000916641-01-501569.txt : 20020410 0000916641-01-501569.hdr.sgml : 20020410 ACCESSION NUMBER: 0000916641-01-501569 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 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: 1934 Act SEC FILE NUMBER: 000-17377 FILM NUMBER: 1786520 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 d10qsb.txt FORM 10-QSB 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, 2001 ------------------- 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 -- 1,698,968 shares as of November 13, 2001 -------------------------------------------------------------------------- 1 INDEX COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARIES NORFOLK, VIRGINIA PART I. FINANCIAL INFORMATION - ----------------------------- Item 1. Financial Statements (Unaudited) Report of Certified Public Accountants Condensed consolidated balance sheets -- September 30, 2001 and December 31, 2000. Condensed consolidated statements of income -- Three months ended September 30, 2001 and 2000; nine months ended September 30, 2001 and 2000. Condensed consolidated statements of comprehensive income -- Nine months ended September 30, 2001 and 2000. Condensed consolidated statements of cash flows -- Nine months ended September 30, 2001 and 2000. Notes to condensed consolidated financial statements -- September 30, 2001. 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 - ---------- 2 Board of Directors Commonwealth Bankshares, Inc. Norfolk, Virginia We have reviewed the accompanying condensed consolidated balance sheet of Commonwealth Bankshares, Inc. and its subsidiaries as of September 30, 2001 and the related condensed consolidated statements of income for the nine month periods and three month periods ended September 30, 2001 and 2000, and the condensed consolidated statements of comprehensive income and cash flows for the nine month periods ended September 30, 2001 and 2000. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 2000, and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended (not presented herein); and in our report dated January 12, 2001, we expressed an unqualified opinion of those financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2000, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. POTI, WALTON & ASSOCIATES, PC Richmond, Virginia October 23, 2001 3 PART I. ITEM 1. FINANCIAL STATEMENTS COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS ------ September 30, December 31, 2001 2000 (Unaudited) (Audited) -------------- ------------- (Dollars in Thousands) Cash and cash equivalents: Cash and due from banks $ 23,430 $ 14,459 Federal funds sold 3,097 7,181 --------- --------- Total cash and cash equivalents 26,527 21,640 Investment securities: Available for sale 13,058 15,087 Held to maturity 3,002 4,346 Equity securities, restricted, at cost 733 727 Loans receivable: Commercial 129,482 110,587 Residential mortgage 36,543 36,451 Installment loans to individuals 10,861 7,757 Other 2,212 3,682 --------- --------- Gross loans 179,098 158,477 Unearned income (576) (535) Allowance for loan losses (2,109) (1,920) --------- --------- Loans, net 176,413 156,022 Premises and equipment, net 5,098 4,537 Foreclosed real estate 281 131 Other assets 4,727 3,245 --------- --------- $ 229,839 $ 205,735 ========= ========= 4 LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------
September 30, December 31, 2001 2000 (Unaudited) (Audited) ------------- ------------ (Dollars in Thousands) Liabilities: Deposits: Non-interest bearing $ 26,891 $ 17,340 Interest-bearing 175,826 167,275 ------------ ------------ Total deposits 202,717 184,615 Short-term borrowings 2,700 5,382 Long-term debt 479 505 Other liabilities 3,102 2,406 ------------ ------------ Total liabilities 208,998 192,908 Convertible preferred securities 7,285 - Shareholders' equity: Common stock, par value $2.50 Authorized--5,000,000 shares Issued and outstanding 1,695,091 shares in 2001 and 1,683,562 shares in 2000 4,238 4,209 Additional paid-in capital 5,444 5,401 Retained earnings 3,746 3,435 Accumulated other comprehensive gain (loss) 128 (218) ------------ ------------ Total stockholders' equity 13,556 12,827 ------------ ------------ $ 229,839 $ 205,735 ============ ============
See notes to condensed consolidated financial statements. 5 COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended Nine months ended September 30, September 30, September 30, September 30, 2001 2000 2001 2000 ------------- ------------- ------------- ------------- (Dollars in thousands) Interest income: Loans, including fees $ 3,882 $ 3,316 $ 11,454 $ 9,403 Investment securities 251 300 779 911 Other 244 53 796 206 ----------- ----------- ----------- ------------ Total interest income 4,377 3,669 13,029 10,520 Interest expense: Deposits 2,762 1,979 8,109 5,522 Federal funds purchased 38 102 145 215 Other 6 8 19 24 ----------- ----------- ----------- ------------ Total interest expense 2,806 2,089 8,273 5,761 ----------- ----------- ----------- ------------ Net interest income 1,571 1,580 4,756 4,759 Provision for loan losses 90 48 271 138 ----------- ----------- ----------- ------------ Net interest income after provision for loan losses 1,481 1,532 4,485 4,621 Other income: Service charges on deposit accounts 171 186 621 530 Other service charges and fees 138 117 398 263 Loss on sale of foreclosed real estate (5) (15) (29) (20) Other income 71 49 188 121 ----------- ----------- ----------- ------------ 375 337 1,178 894 Other expenses: Salaries and employee benefits 815 729 2,408 2,117 Net occupancy 170 175 517 409 Furniture and equipment expenses 227 181 741 487 Other expenses 520 464 1,394 1,349 ----------- ----------- ----------- ------------ 1,732 1,549 5,060 4,362 ----------- ----------- ----------- ------------ Income before income taxes 124 320 603 1,153 Applicable income taxes 13 67 115 302 ----------- ----------- ----------- ------------ Net income $ 111 $ 253 $ 488 $ 851 =========== ============ =========== =========== Per share data: Basic $ 0.07 $ 0.15 $ 0.29 $ 0.51 =========== ============ =========== =========== Diluted $ 0.06 $ 0.14 $ 0.26 $ 0.46 =========== ============ =========== =========== Dividends per share $ 0.035 $ 0.035 $ 0.105 $ 0.105 =========== ============ =========== =========== Average shares outstanding: Basic 1,694,824 1,673,828 1,689,885 1,663,553 =========== ============ =========== =========== Diluted 1,882,461 1,861,466 1,877,522 1,843,372 =========== ============ =========== ===========
See notes to condensed consolidated financial statements. 6 COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Nine months ended September 30, September 30, 2001 2000 ------------- ------------- (Dollars in thousands) Net income $ 488 $ 851 Other comprehensive income, net of income tax: Increase in unrealized gain on securities available for sale 346 105 --------- --------- Comprehensive income $ 834 $ 956 ========= =========
See notes to condensed consolidated financial statements. 7 COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended September 30, September 30, 2001 2000 --------------- --------------- (Dollars in thousands) Operating activities: Net income $ 488 $ 851 Adjustments to reconcile net income to net cash from operating activities: Provision for loan losses 271 138 Depreciation and amortization 488 340 Write down of real estate acquired in settlement of loans 9 8 Decrease (increase) in interest receivable (4) 12 Increase in interest payable 193 189 Other (1,211) (529) ---------- ---------- Net cash from operating activities 234 1,009 Investing activities: Purchase of investment securities: Available for sale (1,891) (250) Restricted (6) (114) Proceeds from: Sales and maturities of securities available for sale 4,444 854 Maturities of securities held to maturity 1,344 296 Sale of foreclosed real estate 172 370 Net expenditures on foreclosed real estate (45) (84) Net change in loans (20,948) (23,404) Purchases of premises and equipment (1,049) (1,603) ---------- ---------- Net cash used in investing activities (17,979) (23,935) Financing activities: Net change in: Demand deposits and savings deposits 12,653 3,052 Other time deposits 5,448 19,667 Short-term borrowing (2,682) 3,569 Principal payments on long-term debt (26) (26) Proceeds from sale of convertible preferred securities 7,285 - Proceeds from sale of stock 72 61 Cash paid for dividends (118) (95) ---------- ---------- Net cash from financing activities 22,632 26,228 ---------- ---------- Net increase in cash and cash equivalents 4,887 3,302 Cash and cash equivalents at January 1 21,640 6,321 ---------- ---------- Cash and cash equivalents at September 30 $ 26,527 $ 9,623 ========== ==========
See notes to condensed consolidated financial statements. 8 COMMONWEALTH BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2001 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 accounting principles generally accepted in the United States of America 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, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. 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, 2000. 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. 9 PART 1 - ------ ITEM 2. Management's discussion and analysis of financial conditions and results of operations. EARNINGS SUMMARY - ---------------- Net income for the quarter ended September 30, 2001 totaled $111,000 as compared with $253,000 in the third quarter of 2000. On a per share basis, third quarter 2001 basic income was 7 cents compared with 15 cents for 2000. Net income for the nine months ended September 30, 2001 totaled $488,000 as compared to $851,000 for the nine months ended September 30, 2000. On a per share basis, basic income equaled 29 cents for 2001 compared to 51 cents for 2000. A decline in net income was expected due to the additional expenses associated with the opening of two new branches in the second half of 2000 and one new branch in the first half of 2001. The falling interest rate environment has also negatively impacted net income. The nine reductions in the prime lending rate from 9.50% to 6.00% has cost the Bank approximately $400,000 during the nine moths ended September 30, 2001. The annualized effect of the prime rate decline is anticipated to be approximately $533,000. The decline in the prime lending rate has been partially offset by a 20.2% increase in the Bank's loan portfolio. These items are discussed in more detail later in this report. NET INTEREST INCOME - ------------------- Net interest income was $1,571,000 for the quarter ended September 30, 2001, a decrease of $9,000 over the comparable period in 2000. For the nine months ended September 30, 2001, net interest income was $4,756,000, a decrease of $3,000 over 2000. The decrease is attributable to 73.0% of the Bank's deposits invested in fixed rate certificates of deposit and the unexpected drop in interest rates. The declining interest rate environment has temporarily narrowed the Bank's interest margin. Total interest income was $4,377,000 for the quarter ended September 30, 2001, an increase of $708,000 over the same period of 2000. Interest income for the nine months ended September 30, 2001 increased by $2,509,000 or 23.8% over the same period of 2000. This increase is mainly attributable to a 20.2% increase in total loans when comparing September 30, 2001 to September 30, 2000 offsetting the 36.8% reduction in the prime lending rate. Interest expense of $2,806,000 for the quarter ended September 30, 2001 represents a $717,000 increase from the comparable period in 2000. For the nine months ended September 30, 2001 interest expense increased by $2,512,000 over the same period of 2000. This increase is attributable to a 22.7% increase in the interest bearing deposits when comparing September 30, 2001 to September 30, 2000. The Bank currently has $8,390,000 in certificates of deposit, with an average interest rate of 6.60%, that will re-price during the fourth quarter of 2001. It is also anticipated that the reduction in the cost of funds through re- pricing shall continue during 2002. 10 PROVISION FOR LOAN LOSSES - ------------------------- The provision for loan losses was $271,000 for the first nine months of 2001 compared to $138,000 for the same period of 2000. Loan charge offs for the nine months ended September 30, 2001 totaled $92,000 and recoveries for the same period totaled $11,000. At September 30, 2001, Bank of the Commonwealth had a total allowance for loan losses of $2,109,000 or 1.18% of total loans. OTHER INCOME - ------------ Other income for the quarter ended September 30, 2001 was $375,000, an increase of $38,000 from the $337,000 reported for the three months ended September 30, 2000. For the nine months ended September 30, 2001, other income increased $284,000 to $1,178,000 from $894,000 for the nine months ended September 30, 2000. OTHER EXPENSES - -------------- Other expenses for the quarter ended September 30, 2001, totaled $1,732,000 an increase of $183,000 or 11.8% over the $1,549,000 recorded during the quarter ended September 30, 2000. For the nine months ended September 30, 2001 other expenses increased $698,000 to $5,060,000 from the $4,362,000 recorded for the same period of 2000. An increase in other expenses was expected and was primarily attributable to $324,000 in additional expenses associated with the opening of our Cedar Road branch in Chesapeake, in July 2000, our Old Dominion University branch in Norfolk, in August 2000 and our Churchland branch in Portsmouth in April 2001. Management believes the new branches will benefit the Bank's operating performance in future periods. 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. 11 NONPERFORMING ASSETS - -------------------- The Bank's nonperforming assets consisted of the following: September 30, 2001 December 31, 2000 ------------------ ----------------- Loans past due 90 days or more and still accruing $ 148,000 $ 107,000 Nonaccrual loans 1,178,000 484,000 Other real estate owned 281,000 131,000 ---------- ---------- Total nonperforming $1,607,000 $ 722,000 ========== ========== Of the $1.6 million classified as nonperforming assets as of September 30, 2001, $1.1 million is attributable to a loan with a long standing borrower that is not, and never has been, delinquent in its payments. We classified this loan as nonperforming after discussions with banking regulators regarding the current financial condition of the borrower CAPITAL POSTION - --------------- Shareholders' equity for the Corporation increased to $13,556,000 from $12,827,000 or 5.7% from December 31, 2000 to September 30, 2001. Shareholders' equity for September 30, 2001 reflects a $128,000 net unrealized gain on securities available for sale in accordance with FASB 115, as compared to a $218,000 net unrealized loss as of December 31, 2000. The Federal Reserve Board, the Office of Controller of the Currency, and the FDIC have issued risk-based capital guidelines for U.S. banking organizations. These guidelines provide a capital framework that is sensitive to differences in risk profiles among banking companies. Risk-based capital ratios are another measure of capital adequacy. On July 27, 2001, Commonwealth Bankshares, Inc. generated $6,500,000 in new regulatory capital from the initial funding of a trust preferred stock offering. A subsequent funding on August 9, 2001 resulted in $800,000 of new regulatory capital. At September 30, 2001, the Corporation's risk-adjusted capital ratios were 9.35% for Tier 1 and 11.92% for total capital, well above the required minimums of 4.0% and 8.0% respectively. These ratios are calculated using regulatory capital (either Tier 1 or total capital) as the numerator and both on and off-balance sheet risk-weighted assets as the denominator. Tier 1 capital consists primarily of common equity less goodwill and certain other intangible assets. Total capital adds certain qualifying debts instruments and a portion of the allowance for loan losses to Tier 1 capital. One of four risk weights, primarily based on credit risk, is applied to both on and off-balance sheet assets to determine the asset denominator. Under Federal Deposit Insurance Corporation (FDIC) rules, the Corporation was considered well capitalized. 12 CASH DIVIDEND - ------------- At the September 2001 Board of Directors' meeting a 3.5 cents per share cash dividend was declared, payable on October 1, 2001 to shareholders of record on September 26, 2001. REGULATORY EXAMINATION - ---------------------- A regulatory examination by the Virginia Bureau of Financial Institutions began on November 5, 2001. The results will be reported in a subsequent quarter. SUMMARY - ------- As of September 30, 2001, 72.3% 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 78.2% of these commercial loans are collateralized with real estate, and accordingly do not represent an unfavorable risk. At September 30, 2001, 76.9% of the Bank's total loan portfolio consists of loans collateralized with real estate. In addition, approximately 14.0%of the portfolio involved loans on the hotel/motel industry and 16.2% involved the commercial real estate rental industry. These concentrations represent unfavorable risk in the event of a worsening local economy. During the third quarter of 2001, Commonwealth Bankshares, Inc. raised $7,285,000 in regulatory capital as a result of an offering of convertible preferred securities. The Bank's commitment is to maintain the Corporation's strengths in the markets it serves during difficult economics cycles, and to act resourcefully when confronted with new challenges. 13 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, 2001. 14 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 13, 2001 ------------------------ _________________________________ E. J. Woodard, Jr., Chairman of the Board, President & CEO Date: November 13, 2001 ------------------------ _________________________________ John H. Gayle Executive Vice President and Cashier 15 -----END PRIVACY-ENHANCED MESSAGE-----