Exhibit 99.1

Commonwealth Bankshares, Inc.

List of Financial Statements

The following consolidated financial statements of Commonwealth Bankshares, Inc. and subsidiary are included:

Consolidated balance sheets-December 31, 2002 and 2001

Consolidated statements of income-Year ended December 31, 2002, 2001 and 2000.

Consolidated statements of stockholders’ equity-Year ended December 31, 2002, 2001 and 2000.

Consolidated statements of cash flows-Years ended December 31, 2002, 2001 and 2000.

Notes to consolidated financial statements-December 31, 2002.

Schedules to the consolidated financial statements required by Article 9 of Regulations S-X are not required under the related instructions or are inapplicable, and therefore have been omitted.

Commonwealth Bankshares, Inc.

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2002

CONTENTS

		Page
INDEPENDENT AUDITORS’ REPORT		F-1
FINANCIAL STATEMENTS
	Consolidated Balance Sheets	F-3 and F-4
	Consolidated Statements of Income	F-5
	Consolidated Statements of Stockholder’s Equity	F-6
	Consolidated Statements of Cash Flows	F-7 and F-8
	Notes to Consolidated Financial Statements	F-9–F-27

INDEPENDENT AUDITORS’ REPORT

Board of Directors
Commonwealth Bankshares, Inc.
Norfolk, Virginia

          We have audited the accompanying consolidated balance sheet of Commonwealth Bankshares, Inc. and subsidiaries as of December 31, 2002, and the related consolidated statements of income, stockholders’ equity and cash flows for the year then ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.  The consolidated financial statements of Commonwealth Bankshares, Inc. and subsidiaries as of December 31, 2001 and 2000, were audited by other auditors who have ceased operations and whose report dated January 18, 2002, expressed an unqualified opinion on those consolidated financial statements.

          We conducted our audit in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

          In our opinion, the 2002 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Commonwealth Bankshares, Inc. and subsidiaries as of December 31, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ WITT, MARES AND COMPANY, PLC

Norfolk, Virginia
January 17, 2003

F-1

FINANCIAL STATEMENTS

F-2

COMMONWEALTH BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001

			2002			2001
ASSETS
CASH AND CASH EQUIVALENTS:
	Cash and due from banks		$	7,369,589		$	6,434,225
	Federal funds sold			59,064			5,319,706
		Total cash and cash equivalents		7,428,653			11,753,931
INTEREST-BEARING DEPOSITS IN BANK				96,939			13,976,555
INVESTMENT SECURITIES:
	Available for sale			14,972,915			13,498,407
	Held to maturity			1,047,080			2,887,315
				16,019,995			16,385,722
EQUITY SECURITIES, RESTRICTED, AT COST				1,180,720			917,270
LOANS HELD FOR SALE				27,792,233
LOANS RECEIVABLE:
	Commercial			36,278,760			28,435,499
	Commercial construction			7,457,813			5,668,581
	Commercial mortgage			108,102,933			95,424,615
	Residential mortgage			33,995,545			36,480,368
	Installment loans to individuals			9,185,951			10,499,578
	Other			2,033,225			2,171,349
		Gross loans		197,054,227			178,679,990
Unearned income				(731,446	)		(611,159	)
Allowance for loan losses				(2,335,000	)		(1,988,000	)
		Loans, net		193,987,781			76,080,831
PREMISES AND EQUIPMENT, NET				5,813,553			5,587,834
FORECLOSED REAL ESTATE				—			328,433
ACCRUED INTEREST RECEIVABLE				1,386,057			1,321,763
OTHER ASSETS				2,807,816			4,215,378
			$	256,513,747		$	230,567,717

The Notes to Financial Statements are
an integral part of these statement

F-3

COMMONWEALTH BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001

									2002		2001
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
				Deposits:
					Noninterest-bearing demand deposits				$	25,527,790	$	23,537,438
					Interest-bearing:
						Demand deposits				28,793,148		23,091,671
						Savings deposits				6,502,390		5,433,537
						Other time deposits				167,263,321		152,846,281
								Total deposits		228,086,649		204,908,927
				Short-term borrowings						1,888,003		1,424,312
				Long-term debt						452,608		478,720
			Accrued interest payable							860,989		1,038,892
		Other liabilities								2,495,868		1,858,588
							Total liabilities			233,784,117		209,709,439
CONVERTIBLE PREFERRED SECURITIES										7,285,000		7,285,000
STOCKHOLDERS’ EQUITY:
	Common stock, par value $2.50, 5,000,000 shares authorized; 1,721,621 and 1,703,002 shares issued and outstanding in 2002 and 2001, respectively									4,304,053		4,257,506
	Additional paid-in capital									5,560,051		5,477,930
	Retained earnings									5,270,552		3,775,600
	Accumulated other comprehensive income									309,974		62,242
							Total stockholders’ equity			15,444,630		13,573,278
									$	256,513,747	$	230,567,717

The Notes to Financial Statements are
an integral part of these statement

F-4

COMMONWEALTH BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2002, 2001 and 2000

			2002		2001		2000
INTEREST INCOME:
	Loans, including fees		$	16,479,632	$	15,403,576	$	13,056,166
	Investment securities			855,864		987,708		1,201,907
	Other interest income			296,061		936,340		334,029
		Total interest income		17,631,557		17,327,624		14,592,102
INTEREST EXPENSE:
	Deposits			8,985,167		10,699,299		7,799,662
	Other interest expense			72,741		183,157		351,077
		Total interest expense		9,057,908		10,882,456		8,150,739
NET INTEREST INCOME				8,573,649		6,445,168		6,441,363
PROVISION FOR LOAN LOSSES				419,014		360,046		1,154,582
NET INTERST INCOME AFTER PROVISION FOR LOAN LOSSES				8,154,635		6,085,122		5,286,781
NONINTEREST INCOME:
	Service charges on deposit accounts			835,303		817,865		710,075
	Other service charges and fees			576,652		526,634		372,237
	Other			239,360		144,265		99,530
		Total noninterest income		1,651,315		1,488,764		1,181,842
NONINTEREST EXPENSES:
	Salaries and employee benefits			3,497,632		3,228,974		2,983,840
	Net occupancy expense			777,510		699,340		612,199
	Furniture and equipment expense			1,002,264		1,007,915		722,300
	Other operating expense			2,106,447		1,897,633		1,845,128
		Total noninterest expenses		7,383,853		6,833,862		6,163,467
INCOME BEFORE INCOME TAXES				2,422,097		740,024		305,156
PROVISION FOR INCOME TAXES				747,910		162,731		3,651
NET INCOME			$	1,674,187	$	577,293	$	301,505
EARNING PER SHARE:
	Basic		$	0.98	$	0.34	$	0.18
	Diluted		$	0.88	$	0.31	$	0.16

The Notes to Financial Statements are
an integral part of these statement

F-5

COMMONWEALTH BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended December 31, 2002, 2001 and 2000

		Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, December 31, 1999		$	4,111,858	$	5,274,788	$	3,367,585		$	(527,633	)	$	226,598
	Net income		—		—		301,505			—			301,505
	Net change in unrealized gain (loss) on securities available for sale		—		—		—			309,726			309,726
	Total comprehensive income		—		—		301,505			309,726			611,231
	Issuance of common stock – 38,819 shares		97,048		125,711		—			—			222,759
	Cash dividend – $.14 per share		—		—		(233,718	)		—			(233,718	)
Balance, December 31, 2000			4,208,906		5,400,499		3,435,372			(217,907	)		12,826,870
	Net income		—		—		577,293			—			577,293
	Net change in unrealized gain (loss) on securities available for sale		—		—		—			280,149			280,149
	Total comprehensive income		—		—		577,293			280,149			857,442
	Issuance of common stock – 19,440 shares		48,600		77,431		—			—			126,031
	Cash dividend – $.14 per share		—		—		(237,065	)		—			(237,065	)
Balance, December 31, 2001			4,257,506		5,477,930		3,775,600			62,242			13,573,278
	Net income				—		1,674,187			—			1,674,187
	Net change in unrealized gain (loss) on securities available for sale		—		—		—			247,732			247,732
	Total comprehensive income		—		—		1,674,187			247,732			1,921,919
	Issuance of common stock - 18,619 shares		46,547		82,121		—			—			128,668
			—		—		(179,235	)		—			(179,235	)
Balance, December 31, 2002		$	4,304,053	$	5,560,051	$	5,270,552		$	309,974		$	15,444,630

The Notes to Financial Statements are
an integral part of these statement

F-6

COMMONWEALTH BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2002, 2001 and 2000

				2002			2001			2000
OPERATING ACTIVITIES:
	Net income			$	1,674,187		$	577,293		$	301,505
	Adjustments to reconcile net income to net cash from (used in) operating activities:
		Provision for loan losses			419,014			360,046			1,154,582
		Depreciation and amortization			818,331			651,027			490,385
		Other, net			(197,312	)		(2,236	)		(327,729	)
		Net change in:
			Accrued interest receivable		(64,294	)		24,764			(302,316	)
			Loans held for sale		(27,792,233	)		—			—
			Accrued interest payable		(177,903	)		132,728			355,247
			Other assets		2,068,085			(2,016,557	)		34,069
	Net cash from (used in) operating activities				(23,252,125	)		(272,935	)		1,705,743
INVESTING ACTIVITIES:
	Net change in interest-bearing deposits in bank				13,879,616			(6,404,160	)		(7,572,395	)
	Purchase of securities available for sale				(4,671,100	)		(3,845,680	)		(288,746	)
	Purchase of equity securities, restricted				(632,350	)		(190,519	)		(178,673	)
	Net purchase of premises and equipment				(1,007,847	)		(1,713,249	)		(2,211,660	)
	Net expenditures on foreclosed real estate				(28,899	)		(395,302	)		(74,786	)
	Net change in loans				(18,325,964	)		(20,418,594	)		(32,597,774	)
	Proceeds from:
	Maturities of securities held to maturity				1,840,235			1,458,651			360,795
	Sales and maturities of securities available for sale				3,619,800			5,811,015			1,149,285
	Sales of equity securities, restricted				368,900			—			—
		Sale of real estate acquired in settlement of loans			319,722			173,622			8,866
	Net cash used in investing activities				(4,637,887	)		(25,524,216	)		(41,405,088	)
FINANCING ACTIVITIES:
	Net change in:
		Other time deposits			15,383,837			8,797,954			43,662,453
		Demand, interest-bearing demand and savings deposits			7,793,885			11,496,010			2,594,541
		Short-term borrowings			463,691			(3,957,933	)		1,226,052
	Proceeds from issuance of convertible preferred securities				—			7,285,000			—
	Other				(76,679	)		(137,146	)		(37,071	)
	Net cash from financing activities				23,564,734			23,483,885			47,445,975

(Continued)

The Notes to Financial Statements are
an integral part of these statement

F-7

COMMONWEALTH BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2002, 2001 and 2000

			2002			2001			2000
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		$	(4,325,278	)	$	(2,313,266	)	$	7,746,630
CASH AND CASH EQUIVALENTS, JANUARY 1			11,753,931			14,067,197			6,320,567
CASH AND CASH EQUIVALENTS, DECEMBER 31		$	7,428,653		$	11,753,931		$	14,067,197
SUPPLEMENTAL DISCLOSURE OF CASH PAID DURING THE YEAR:
	Interest	$	9,235,811		$	10,749,726		$	7,795,494
	Income taxes	$	695,000		$	195,000		$	481,101

The Notes to Financial Statements are
an integral part of these statement

F-8

COMMONWEALTH BANKSHARES, INC.

Notes to Financial Statements
December 31, 2002 and 2001

Note 1.	Summary of Significant Accounting Policies
	The accounting and reporting policies of Commonwealth Bankshares, Inc. (the Parent) and its subsidiaries, Commonwealth Bankshares Capital Trust I (the Trust), and Bank of the Commonwealth (the Bank) and its subsidiaries, BOC Title of Hampton Roads, Inc. and BOC Insurance Agencies of Hampton Roads, Inc., are in accordance with accounting principles generally accepted in the United States of America and conform to accepted practices within the banking industry.  A summary of significant accounting policies is briefly described below.
	Principles of Consolidation
	The accompanying consolidated financial statements include the accounts of the Parent, the Trust and the Bank and its subsidiaries, collectively referred to as “the Company.”  All significant intercompany balances and transactions have been eliminated in consolidation.
	Nature of Operations
	The Bank operates under a state bank charter and provides full banking services, including trust services.  As a state bank, the Bank is subject to regulation of the Bureau of Financial Institutions and the Federal Reserve System.  The Bank serves Norfolk, Virginia Beach, Chesapeake and Portsmouth, Virginia through its nine banking offices.
	Estimates
	Management uses estimates and assumptions in preparing financial statements.  These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported revenue and expenses.  Actual results could differ from those estimates.  A material estimate that is particularly susceptible to significant change in the near term relates to the determination of the allowance for loan losses.
	Investment Securities
	Investment securities which the Bank intends to hold until maturity or until called are classified as held to maturity.  These investment securities are stated at cost, adjusted for amortization of premiums and accretion of discounts.

(Continued)

F-9

COMMONWEALTH BANKSHARES, INC.

Notes to Financial Statements
December 31, 2002 and 2001

Note 1.	Summary of Significant Accounting Policies (Continued)
	Investment securities which the Bank intends to hold for indefinite periods of time, including investment securities used as part of the Bank’s asset/liability management strategy, are classified as available for sale.  These investment securities are carried at fair value.  Net unrealized gains and losses, net of deferred income taxes, are excluded from earnings and reported as accumulated other comprehensive income (loss).
	Gains and losses on the sale of investment securities are determined using the specific identification method.
	Loans Receivable
	Loans receivable are intended to be held until maturity and are shown on the balance sheet net of the allowance for loan losses.  Interest is computed by methods which generally result in level rates of return on principal.  Interest on past due and problem loans is accrued until serious doubt arises as to the collectibility of the interest.
	The Bank grants commercial, real estate, and consumer installment loans to its customers.  Collateral requirements for loans are determined on a loan-by-loan basis depending upon the purpose of the loan and the financial condition of the borrower.
	Allowance for Loan Losses
	The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries).  Management’s periodic evaluation of the adequacy of the allowance is based on the Bank’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and current economic conditions.
	Foreclosed Real Estate
	Foreclosed real estate is stated at the lower of cost or estimated fair market value of the property, less estimated disposal costs, if any.  Cost includes loan principal and accrued interest.  Any excess of cost over the estimated fair market value at the time of acquisition is charged to the allowance for loan losses.  The estimated fair market value is reviewed periodically by management and any write-downs are charged against current earnings.

(Continued)

F-10

COMMONWEALTH BANKSHARES, INC.

Notes to Financial Statements
December 31, 2002 and 2001

Note 1.	Summary of Significant Accounting Policies (Continued)
	Premises and Equipment
	Premises and equipment are stated at cost less accumulated depreciation.  Deprecation is computed generally by the straight-line method.  It is the Bank’s policy to capitalize additions and improvements and depreciate the cost thereof over the estimated useful lives as follows:

Buildings and improvements	5 to 40 years
Furniture and equipment	3 to 10 years

Income Taxes

Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled.  As changes in tax laws on rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Per Share Data

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding.  Diluted earnings per share is computed by dividing net income by the weighted average common and potential dilutive common equivalent shares outstanding, determined as follows:

	2002		2001		2000
Weighted average shares outstanding used to compute basic earnings per share	$	1,708,698	$	1,692,125	$	1,667,329
Incremental shares issuable upon the assumed exercise of stock options		198,211		191,229		189,369
Shares used to compute diluted earnings per share	$	1,906,909	$	1,883,354	$	1,856,698

(Continued)

F-11

COMMONWEALTH BANKSHARES, INC.

Notes to Financial Statements
December 31, 2002 and 2001

Note 1.	Summary of Significant Accounting Policies (Concluded)
	Fair Value of Financial Instruments
	The carrying value of cash and cash equivalents, interest-bearing deposits in bank, accrued interest receivable, demand deposits, savings deposits, and short-term borrowings approximates fair value.  The fair value of securities is based on quoted market prices.  The remainder of the recorded financial instruments were valued based on the present value of estimated future cash flows, discounted at various rates in effect for similar instruments at year-end.
	Fair values for off-balance sheet lending commitments approximate the contract or notional value taking into account the remaining terms of the agreements and the counterparties’ credit standings.
	Cash and Cash Equivalents
	For purposes of the consolidated statements of cash flows, cash and cash equivalents includes cash and due from banks and federal funds sold.
	Interest-bearing Deposits in Bank
	Interest-bearing deposits in bank mature within one year and are carried at cost.
	Reclassifications
	Certain prior year amounts have been reclassified to conform to the 2002 presentation. These reclassifications have no effect on previously reported net income.

F-12

COMMONWEALTH BANKSHARES, INC.

Notes to Financial Statements
December 31, 2002 and 2001

Note 2.	Concentrations of Credit Risk
	At December 31, 2002, the Bank’s cash and due from banks included two commercial bank deposit accounts aggregating $5,252,500 in excess of the Federal Deposit Insurance Corporation (FDIC) insured limit of $100,000 per institution.  Interest-bearing deposits in bank are not subject to FDIC coverage.
Note 3.	Investment Securities
	The carrying and market values of investment securities are as follows:

					Carrying Amount		Unrealized Gains		Unrealized Losses			Market Value
December 31, 2002
		Available for sale:
				U.S. Government and agency securities	$	1,299,501	$	4,944	$	—		$	1,304,445
				Mortgage-backed securities		4,759,265		119,602		(1,474	)		4,877,393
				State and municipal securities		4,767,839		204,509		(2,665	)		4,969,683
				Equities and other bonds		3,676,652		194,900		(50,158	)		3,821,394
					$	14,503,257	$	523,955	$	(54,297	)	$	14,972,915
	Held to maturity:
			Mortgage-backed securities		$	800,919	$	12,632	$	(6,284	)	$	807,267
			State and municipal securities			246,161		26,634		—			272,795
					$	1,047,080	$	39,266	$	(6,284	)	$	1,080,062
December 31, 2001
	Available for sale:
			U.S. Government and agency securities		$	215,000	$	—	$	(5,981	)	$	209,019
			Mortgage-backed securities			4,893,328		46,955		(13,989	)		4,926,294
			State and municipal securities			4,452,832		7,179		(54,782	)		4,405,229
			Equities and other bonds			3,890,797		118,866		(51,798	)		3,957,865
					$	13,451,957	$	173,000	$	(126,550	)	$	13,498,407
	Held to maturity:
			Mortgage-backed securities		$	1,279,108	$	9,160	$	(8,540	)	$	1,279,728
			State and municipal securities			1,608,207		31,239		—			1,639,446
					$	2,887,315	$	40,399	$	(8,540	)	$	2,919,174

(Continued)

F-13

COMMONWEALTH BANKSHARES, INC.

Notes to Financial Statements
December 31, 2002 and 2001

Note 3.	Investment Securities (Concluded)
	A maturity schedule of investment securities as of December 31, 2002 is as follows:

		Available for Sale				Held to Maturity
		Carrying Amount		Market Value		Carrying Amount		Market Value
Due:
	In one year or less	$	1,219,681	$	1,231,283	$	—	$	—
	After one year through five years		1,398,975		1,412,118		—		—
	After five years through ten years		3,068,202		3,163,228		246,161		272,795
	After ten years		1,934,166		2,017,143		—		—
			7,621,024		7,823,772		246,161		272,795
Mortgage-backed securities			4,759,265		4,877,393		800,919		807,267
Equity securities			2,122,968		2,271,750		—		—
		$	14,503,257	$	14,972,915	$	1,047,080	$	1,080,062

	Securities with a carrying value of $10,408,543 and $11,940,672 and market value of $10,743,842 and $11,965,103 at December 31, 2002 and 2001, respectively, were pledged as collateral to secure public deposits and for other purposes.
Note 4.	Loans Receivable
	Although the Bank has a diversified loan portfolio, a substantial portion of the borrowers’ ability to honor their contracts is dependent upon the commercial real estate operators and hotel/motel sectors.  The majority of these loans are collateralized by a deed of trust on real estate.  The approximate outstanding balances of loans in these sectors are as follows:

	December 31,
	2002		2001
Commercial real estate operators	$	20,200,000	$	22,400,000
Hotel/Motel		21,500,000		21,100,000

(Continued)

F-14

COMMONWEALTH BANKSHARES, INC.

Notes to Financial Statements
December 31, 2002 and 2001

Note 4.	Loans Receivable (Concluded)
	A summary of transactions in the allowance for loan losses follows:

		2002			2001			2000
Balance at beginning of year	$	1,988,000		$	1,920,000		$	931,000
Provision charged to operating expense		419,014			360,046			1,154,582
Loans charged-off		(86,753	)		(303,220	)		(171,935	)
Recoveries of loans previously charged-off		14,739			11,174			6,353
Balance at end of year	$	2,335,000		$	1,988,000		$	1,920,000

Note 5.	Premises and Equipment
	Premises and equipment are summarized as follows:

	December 31,
	2002		2001
Land	$	345,403	$	345,403
Buildings and improvements		2,858,609		2,521,715
Leasehold improvements		618,188		604,070
Furniture and equipment		5,887,204		4,791,751
Construction in progress		82,741		655,085
		9,792,145		8,918,024
Less accumulated depreciation		3,978,592		3,330,190
	$	5,813,553	$	5,587,834

Note 6.	Deposits
	The aggregate amount of time deposits in denominations of $100,000 or more at December 31, 2002 and 2001 was approximately $43,664,941 and $35,396,000, respectively.

(Continued)

F-15

COMMONWEALTH BANKSHARES, INC.

Notes to Financial Statements
December 31, 2002 and 2001

Note 6.	Deposits (Concluded)
	At December 31, 2002, the scheduled maturities of certificates of deposit included in other time deposits on the balance sheet are as follows:

2003	$	23,440,980
2004		49,993,557
2005		20,034,713
2006		23,718,587
2007		3,511,725
Thereafter		32,271,673
	$	152,971,235

Note 7.	Dividend Limitations
	Dividends may be paid to the Parent by the Bank under formulas established by the appropriate regulatory authorities.  These formulas contemplate that the current earnings and earnings retained for the two preceding years may be paid to the Parent without regulatory approval.  In 2003, the Bank can initiate dividend payments without said regulatory approvals of approximately $2,895,000 plus an additional amount equal to the Bank’s net earnings for 2003 up to the date of any such dividend declaration.  Substantially all of the retained earnings of the Parent are represented by undistributed earnings of the Bank.
Note 8.	Short-Term Borrowings
	Securities sold under agreements to repurchase generally mature within one to three days from the transaction date.  The maximum amount outstanding at the end of a month was $1,144,220 and $7,230,860 during 2002 and 2001, respectively.  The average daily balance was $941,575 and $4,143,453 during 2002 and 2001, respectively.  The securities underlying these agreements were under the Bank’s control.

F-16

COMMONWEALTH BANKSHARES, INC.

Notes to Financial Statements
December 31, 2002 and 2001

Note 9.	Income Taxes
	The current and deferred components of income tax expense are as follows:

	2002			2001			2000
Current	$	925,154		$	220,245		$	389,176
Deferred		(177,244	)		(57,514	)		(385,525	)
Provision for income taxes	$	747,910		$	162,731		$	3,651

A reconciliation between the provision for income taxes and the amount computed by multiplying income by the current statutory 34% federal income tax rate is as follows:

			2002			2001			2000
Income tax expense at statutory rates		$	823,513		$	251,608		$	103,753
Increase (decrease) due to:
	Tax exempt income		(93,416	)		(97,032	)		(127,283	)
	Other		17,813			8,155			27,181
Provision for income taxes		$	747,910		$	162,731		$	3,651

Deferred income taxes result from timing differences between taxable income and the income for financial reporting purposes.  The only significant timing difference relates to the provision for loan losses.

A cumulative net deferred tax asset is included in other assets at December 31, 2002 and 2001.  The components of the asset are as follows:

		December 31,
		2002		2001
Deferred tax assets:
	Allowance for loan losses	$	719,573	$	593,707
	Deferred compensation		437,747		337,085
	Accrued compensated absences		240,203		216,837
	Deferred loan fees		237,751		187,465
	Other		1,877		616
Total deferred tax assets			1,637,151		1,335,710

(Continued)

F-17

COMMONWEALTH BANKSHARES, INC.

Notes to Financial Statements
December 31, 2002 and 2001

Note 9. Income Taxes (Concluded)

		December 31,
		2002			2001
Deferred tax liabilities:
	Depreciation	$	(396,214	)	$	(277,524	)
	Unrealized gains on securities		(159,684	)		15,793
	Other		(1,116	)		6,076
Total deferred tax liabilities			(557,014	)		(255,655	)
Net deferred tax asset		$	1,080,137		$	1,080,055

Note 10.

Related Parties Loans

During the year, officers, directors, principal stockholders, and their affiliates (related parties) were customers of and had transactions with the Bank in the ordinary course of business.  In management’s opinion these transactions were made on substantially the same terms as those prevailing for other customers for comparable transactions and did not involve more than normal risks.  Loan activity to related parties is as follows:

	2002			2001
Beginning of year	$	2,602,811		$	3,812,829
Additional borrowings		1,516,892			228,982
Curtailments		(599,022	)		(1,439,000	)
End of year	$	3,520,681		$	2,602,811

Note 11.

Convertible Preferred Stock

On November 15, 2000, the Parent formed the Trust, a wholly owned subsidiary.  The Trust issued 1,457,000 shares of 8.0% cumulative preferred securities maturing October 15, 2031 with an option to call on or after October 15, 2006 (call price of $5.00 per share) for $7,285,000.  Conversion of the preferred securities into the Parent’s stock may occur at any time prior to maturity.  The Trust also issued 45,063 shares of convertible common stock for $225,315.  The Parent purchased all shares of the common stock.  The proceeds from the sale of the preferred securities were utilized to purchase from the Parent junior subordinated debt securities (guaranteed by the Parent), of $7,510,315 bearing interest at 8.0% and maturing October 15, 2031.  All intercompany interest and equity was eliminated in consolidation.

F-18

COMMONWEALTH BANKSHARES, INC.

Notes to Financial Statements
December 31, 2002 and 2001

Note 12.	Regulatory Matters
	The Parent (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Parent’s and the Bank’s financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Parent and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.  The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.  Prompt corrective action provisions are not applicable to bank holding companies.
	Quantitative measures established by regulation to ensure capital adequacy require the Parent and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined).  Management believes, as of December 31, 2002 and 2001, that the Parent and the Bank met all capital adequacy requirements to which they are subject.
	As of December 31, 2002, the most recent notification from the Federal Reserve Bank categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the following tables.  There are no conditions or events since the notification that management believes have changed the Bank’s category.  The Parent’s and the Bank’s actual capital amounts and ratios as of December 31, 2002 and 2001 are also presented in the table.

(Continued)

F-19

COMMONWEALTH BANKSHARES, INC.

Notes to Financial Statements
December 31, 2002 and 2001

Note 12. Regulatory Matters(Concluded)

			Actual					Minimum Capital Requirement					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
			Amount		Ratio			Amount		Ratio			Amount		Ratio
			(Dollars in thousands)
As of December 31, 2002:
	Total capital to risk weighted assets:
		Consolidated	$	24,822		11.4	%	$	17,493		8.0	%		N/A		N/A
		Bank		23,233		10.7	%		17,441		8.0	%	$	21,801		10.0	%
	Tier I capital to risk weighted assets:
		Consolidated		20,180		9.2	%		8,746		4.0	%		N/A		N/A
		Bank		20,831		9.6	%		8,720		4.0	%		13,080		6.0	%
	Tier I capital to average assets:
		Consolidated		20,180		7.8	%		10,302		4.0	%		N/A		N/A
		Bank		20,831		8.1	%		10,241		4.0	%		12,801		5.0	%
As of December 31, 2001:
	Total capital to risk weighted assets:
		Consolidated	$	22,832		11.8	%	$	15,515		8.0	%		N/A		N/A
		Bank		21,104		10.9	%		15,442		8.0	%	$	19,302		10.0	%
	Tier I capital to risk weighted assets:
		Consolidated		18,014		9.3	%		7,757		4.0	%		N/A		N/A
		Bank		19,068		9.9	%		7,721		4.0	%		11,581		6.0	%
	Tier I capital to average assets:
		Consolidated		18,014		7.8	%		9,194		4.0	%		N/A		N/A
		Bank		19,068		8.3	%		9,158		4.0	%		11,447		5.0	%

F-20

COMMONWEALTH BANKSHARES, INC.

Notes to Financial Statements
December 31, 2002 and 2001

Note 13.	Disclosures About Fair Value of Financial Instruments
	Fair value and the carrying value of the Bank’s recorded financial instruments are as follows (in thousands):

	December 31, 2002				December 31, 2001
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents	$	7,482	$	7,482	$	20,430	$	20,430
Investment securities		16,020		15,153		16,385		16,417
Net loans		221,310		240,889		175,611		183,431
Deposits		228,936		240,117		205,860		211,698
Short-term borrowings		1,887		1,887		1,424		1,424
Long-term debt		453		443		479		463

Note 14.	Contingent Liabilities and Commitments
	The Bank’s financial statements do not reflect various commitments and contingent liabilities which arise in the normal course of business and which involve elements of credit risk, interest rate risk and liquidity risk.  These commitments and contingent liabilities are described in Note 17, Financial Instruments with Off Balance Sheet Risk.
	At December 31, 2002, the Bank had the following unused lines of credit:

Bank of America	$	3,000,000
SunTrust Bank		3,500,000
Total unused lines of credit	$	6,500,000

Each separate line of credit has a variable rate based on the lending bank’s daily federal funds sold and is due on demand.

F-21

COMMONWEALTH BANKSHARES, INC.

Notes to Financial Statements
December 31, 2002 and 2001

Note 15.	Related Party Leases
	In 1984, the Bank entered into a lease with Boush Bank Building Associates, a limited partnership owned by several stockholders of the Bank (the “Partnership”), to rent the Headquarters Building.  The lease requires the Bank to pay all taxes, maintenance and insurance.  The term of the lease is twenty-three years and eleven months.  In connection with this property, the lessor has secured financing in the form of a $1,600,000 industrial development revenue bond from the Norfolk Redevelopment and Housing Authority payable in annual installments, commencing on January 1, 1987, at amounts equal to 3.0% of the then outstanding principal balance through the twenty-fifth year, when the unpaid balance will become due.  Interest on this bond is payable monthly, at 68.6% of the prime rate of SunTrust Bank in Richmond, Virginia.  Monthly rent paid by the Bank is equal to interest on the above bond, plus any interest associated with secondary financing provided the lessor by the Bank.
	The Bank has the right to purchase, at its option, an undivided interest in the property at undepreciated original cost, and is obligated to purchase in each January after December 31, 1986 an undivided interest in an amount equal to 90.0% of the legal amount allowed by banking regulations for investments in fixed properties.  Under this provision the Bank purchased 19.7% of this property for $362,200 in 1987.  At the time of the 1987 purchase the Bank assumed $305,700 of the above-mentioned bond.  Pursuant to the purchase option contained in the lease agreement, the Bank recorded an additional interest of $637,400 (34.7%) in the leased property as of December 31, 1988 by assuming a corresponding portion ($521,900) of the unpaid balance of the related revenue bond and applying the difference of $115,500 to amounts due from the lessor.  Accordingly the Bank now owns 54.4%, of the Headquarters property.  No purchases have been made after 1988.  Total lease expense was $72,480 for the years 2002 and 2001, respectively.
	In addition, the Bank subleases approximately 4,000 square feet of its third floor office space to outside parties.  Total sublease rental income was $60,414 and $69,920 for the years ended December 31, 2002 and 2001, respectively.
	The Bank has also entered into a long-term lease with a related party to provide space for one branch located in Chesapeake, Virginia.  This lease has been classified as an operating lease for financial reporting purposes.  Future minimum lease payments of $107,016 are required each year for five years under the long-term noncancellable lease agreement as of October 20, 1998, which expires in October 2007.  Total lease expense was $104,821 and $102,900 for the years 2002 and 2001, respectively.

F-22

COMMONWEALTH BANKSHARES, INC.

Notes to Financial Statements
December 31, 2002 and 2001

Note 16.	Lease Commitments
	The Bank leases certain real estate under noncacellable operating leases with third parties with varying terms through 2008.  Some of the operating leases contain on option to renew after a specific period of time.  Rental expense under these leases was approximately $121,000 and $110,230 for the years 2002 and 2001, respectively.
Note 17.	Financial Instruments with Off Balance Sheet Risk
	In the normal course of business, the Bank is a party to financial instruments with off-balance-sheet risk.  These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees and involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the balance sheet.  The contract or notional amounts of these instruments reflect the extent of the Bank’s involvement in particular classes of financial instruments.
	The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit, and financial guarantees written is represented by the contractual notional amount of those instruments.  The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
	Unless noted otherwise, the Bank does not require collateral or other security to support financial instruments with credit risk.
	At December 31, 2002, the Bank was exposed to credit risk on commitments to extend credit having contract amounts of approximately $31,316,000 and standby letters of credit and financial guarantees written of approximately $858,000.
	Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  The Bank’s experience has been that approximately 90% of loan commitments are drawn upon by customers.  The Bank evaluates each customer’s credit worthiness on a case-by-case basis.  The amount of collateral obtained, if it is deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the counterparty.  Collateral held varies but may include property, plant and equipment, and income-producing commercial properties.

(Continued)

F-23

COMMONWEALTH BANKSHARES, INC.

Notes to Financial Statements
December 31, 2002 and 2001

Note 17.	Financial Instruments with Off Balance Sheet Risk (Concluded)
	Standby letters of credit and financial guarantees written are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.  Those guarantees are primarily issued to support public and private borrowing arrangements.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.  The Bank has not been required to perform on any financial guarantees during the past two years.  The Bank has not incurred any losses on its commitments in either 2002 or 2001.
Note 18.	Borrowings from Federal Home Loan Bank
	The Bank has a line of credit with the Federal Home Loan Bank with a maximum value of fifteen percent of the Bank’s current assets, using a daily rate credit and due on demand.  The advances from this line are collateralized by first residential mortgages and securities pledged in the amount of $22,659,861.

F-24

COMMONWEALTH BANKSHARES, INC.

Notes to Financial Statements
December 31, 2002 and 2001

Note 19. Parent Company Only Financial Information

COMMONWEALTH BANKSHARES, INC.
(PARENT COMPANY ONLY)

Balance Sheets
December 31, 2002 and 2001

		2002		2001
ASSETS
Cash on deposit with subsidiary	$	624,923	$	829,495
Investment in subsidiaries		21,323,185		19,341,879
Due from subsidiary		763,494		752,405
Premises		107,807		111,192
Prepaid expense		37,069		41,474
Other assets		252,497		145,348
	$	23,108,975	$	21,221,793
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accrued expenses	$	26,715	$	8,877
Accrued interest payable		126,841		128,508
Junior subordinated debentures		7,510,315		7,510,315
Other liabilities		474		815
Total stockholders’ equity		15,444,630		13,573,278
	$	23,108,975	$	21,221,793

(Continued)

F-25

COMMONWEALTH BANKSHARES, INC.

Notes to Financial Statements
December 31, 2002 and 2001

Note 19. Parent Company Only Financial Information (Continued)

COMMONWEALTH BANKSHARES, INC.
(PARENT COMPANY ONLY)

Statements Of Income
For The Years Ended December 31, 2002, 2001, And 2000

				2002			2001			2000
Income:
	Dividends from subsidiaries		$	393,776		$	947,010		$	225,000
	Rental income			6,000			6,000			6,000
	Interest income			1,746			2,647			3,195
		Total income		401,522			955,657			234,195
Expenses:
	Interest expense			599,158			262,024			—
	Professional fees			90,104			59,900			63,281
	Other			5,612			5,606			57,313
		Total expenses		694,874			327,530			120,594
Income (loss) before income taxes and equity in undistributed net income of subsidiary				(293,352	)		628,127			113,601
Income tax benefits				233,965			108,420			37,876
Income (loss) before equity in undistributed net income of subsidiary				(59,387	)		736,547			151,477
Equity in undistributed net income of subsidiary				1,733,574			(159,254	)		150,028
Net income			$	1,674,187		$	577,293		$	301,505

(Continued)

F-26

Note 19. Parent Company Only Financial Information (Concluded)

COMMONWEALTH BANKSHARES, INC.
(PARENT COMPANY ONLY)

Statements Of Cash Flows
For The Years Ended December 31, 2002, 2001, And 2000

						2002			2001			2000
Operating activities:
		Net income				$	1,674,187		$	577,293		$	301,505
		Adjustments to reconcile net income to net cash from (used in) operating activities:
				Depreciation			3,385			3,385			3,385
				Equity in undistributed net income of subsidiary			(1,733,574	)		159,254			(150,028	)
			Net change in:
					Amount due to subsidiaries		(11,089	)		(739,955	)		991
					Prepaid expenses		4,405			44,337			(71,722	)
					Other assets		(107,149	)		(56,786	)		(101,012	)
					Accrued expenses		17,838			(18,530	)		27,407
					Accrued interest payable		(1,667	)		128,508			—
					Deferred tax liability		(341	)		46			191
Net cash from (used in) operating activities							(154,005	)		97,552			10,717
Investing activities:
	Investments in subsidiaries						—			(6,725,315	)		—
Financing activities:
	Proceeds from issuance of junior subordinated debentures						—			7,510,315			—
	Proceeds from issuance of common stock						128,668			125,870			222,759
	Dividends paid						(179,235	)		(236,904	)		(233,718	)
Net cash from (used in) financing activities							(50,567	)		7,399,281			(10,959	)
Net increase (decrease) in cash on deposit with subsidiary							(204,572	)		771,518			(242	)
Cash on deposit with subsidiary, January 1							829,495			57,977			58,219
Cash on deposit with subsidiary, December 31						$	624,923		$	829,495		$	57,977

F-27