Commonwealth Bankshares, Inc. reported today a net loss of $26.2
million and $33.0 million for the three and six months ended June
30, 2011, compared to a loss of $2.5 million and $3.5 million for
the corresponding periods in 2010, as the company took more
aggressive steps in removing problem loans from its balance sheet.
Diluted loss per share was $3.80 and $0.37 for the quarters ended
June 30, 2011 and 2010, respectively. For six months ended June 30,
2011 and 2010, the diluted loss per share was $4.78 and $0.50,
respectively.
Economic uncertainty continues to negatively impact the
company's loan portfolio, in particular commercial relationships
secured by real estate. In addition, the company remains challenged
by the lingering influence of past credit processes, albeit to a
significantly lesser degree, all of which has placed enormous
pressure on capital the past several years. New credit policies and
help from an independent, third-party loan review team has led to a
new credit culture and comprehensive review of the construction,
development and commercial real estate portfolios, with additional
emphasis on large loans and problem assets.
"We have completely restructured our credit risk management
process," said President and CEO Chris Beisel. "Nearly all of our
efforts during the past 13 months have been on managing our problem
loans and rebuilding a new credit environment. Our focus has been
on little else. If our efforts to raise capital are successful,
then we will have most of the credit issues behind us and we'll be
positioned for the future."
The Company has engaged two investment banking firms – FIG
Partners LLC of Atlanta, Ga., and McKinnon & Company, Inc. of
Norfolk, Va. - to explore strategic opportunities to strengthen the
Bank's equity position and restore the Bank's capital levels back
to a well-capitalized status. Management and the Board are actively
engaged and continue to diligently work with investment
bankers.
The challenging economic conditions experienced over the past
three years continued to negatively impact the businesses and
consumers in our market area during the first six months of
2011. Ongoing deterioration in our loan portfolio resulted in
further declines in the commercial real estate sector and
additional credit quality issues for the Bank. During the first six
months of 2011, we charged-off $47.4 million in loans primarily as
a result of declining collateral values associated with uncollected
collateral dependent loans that were determined by updated
appraisals received during the period. Consequently, management and
the Board provided $22.5 million to the Bank's allowance for loan
losses during the three months ended June 30, 2011, in addition to
the $5.0 million provided for in the first quarter of 2011.
"We have not lost sight of our fundamental belief in
standing by our clients, employees, stockholders and communities,"
Beisel said. "Today's environment requires stringent measures. We
remain committed to taking the actions necessary to withstand this
difficult economic phase."
Provisions for loan losses of $27.5 million and $10.0 million
during the 2011 and 2010 six month periods negatively impacted the
corresponding earnings, and accounted for a significant portion of
the increase in net loss during the three and six month periods of
2011 as compared with the same periods in 2010. Additionally, a
decline in net interest income due to the increased level of
non-performing assets, increased losses on other real estate owned
and related expenses and costs associated with current regulatory
and legal matters continued to pressure earnings during the three
and six month periods of 2011 as compared with the same periods of
2010.
Non-performing assets were $197.9 million or 20.07% of total
assets at June 30, 2011, compared to $162.6 million or 14.85% of
total assets at December 31, 2010 and $108.7 million or 8.90% of
total assets at June 30, 2010. Non-performing loans increased
$20.6 million during the six months ended June 30, 2011 to $151.0
million. The increase in balances primarily related to management's
aggressive stance in identifying and resolving credit quality
issues.
Total assets declined by $108.7 million to $985.9 million during
the six months ended June 30, 2011. This decrease was primarily the
result of decreases in cash and cash equivalents and loans
outstanding. Total cash and cash equivalents declined $34.5 million
to $85.4 million during the period, primarily resulting from paying
off broker certificates of deposit as they matured and short-term
borrowings.
As a result of our net losses in 2010 and for the first six
months of 2011, our total risk-based capital ratio for the Bank
fell below the adequately capitalized regulatory minimum threshold
of 8% to 3.34% at June 30, 2011, and our leverage ratio dropped to
1.61% at June 30, 2011, which is considered critically
undercapitalized under the prompt corrective action guidelines.
Between June 30, 2010 and June 30, 2011, the Company's loan
portfolio decreased by $121.8 million or 12.7%. Total loans at June
30, 2011 were $840.5 million. The overall decrease in loans
was primarily due to scheduled principal curtailments, loan sales,
charge-off's and part of our overall strategy to shrink loans to
mitigate risk and preserve capital. While the company's
performing loans provided a strong yield and helped maintain solid
sources of interest income, the planned reduction in loan volume,
the level of non-performing assets and restructured loans led to a
decrease in interest income. Interest income on loans,
including fees, decreased $6.2 million or 21.05% to $23.3 million
for the six months ended June 30, 2011, as compared to the same
period in 2010. For the quarter ended June 30, 2011, interest
income on loans was $11.4 million, a decrease of 23.2% from the
same period in 2010.
Interest expense of $11.3 million for the six months ended June
30, 2011 represented a $3.8 million decrease from the comparable
period in 2010. The decrease in interest expense was primarily
attributable to the decrease of $149.4 million in average interest
bearing liabilities for the six months ended June 30, 2011, as
compared to the same period in 2010, coupled with a decrease in the
overall rate paid on our interest bearing liabilities of 36 basis
points. The decrease in deposits was primarily related to a $91.2
million decrease in brokered deposits as the company continues to
reduce its reliance on brokered deposits.
The net interest margin is affected by the structure of the
balance sheet as well as by competition and the economy. For
the six and three months ended June 30, 2011, the net interest
margin was 2.45% and 2.48%, respectively, compared to 2.49% and
2.57%, respectively, reported for the first six and three months of
2010. While insignificant, the decrease in net interest margin for
the first six months of 2011 was primarily the result of a drop in
the average yield on our average interest earning assets of 33
basis points.
Ongoing credit quality, primarily related to the increase in
non-accrual loans, resulted in a 74 basis points decline in average
yield on loans to 5.17% for the first six months of 2011 as
compared with 5.91% for the same period of 2010. The drop in yield
of our earning assets was offset with a decrease in the cost of our
interest bearing liabilities of 36 basis points over the past
twelve months. The decrease in our interest-bearing liability costs
primarily related to maturing time deposits re-pricing at a lower
cost during the past year, resulting in our average cost of time
deposits decreasing from 2.80% in the 2010 first six months to
2.45% for the first six months of 2011. Additionally, an $89.0
million decrease in average FRB reserve balances used primarily to
pay down brokered deposits and short-term borrowings over the past
12 months, which only earn 25 basis points; and the declines in
deposit balances and rates, helped mitigate the impact of a
shrinking and deteriorating loan portfolio.
Total noninterest income decreased $924.6 thousand and $1.8
million to a loss of $751.1 thousand and $1.0 million for the three
and six months ended June 30, 2011, respectively, from income of
$173.5 thousand and $785.2 thousand reported for the same periods
in 2010. The primary reason for the lower noninterest income for
the 2011 periods related to the increase in losses on other real
estate owned ("OREO") and decreases in revenue from the Bank's
non-banking subsidiary companies. The Company reported losses on
OREO totaling $1.4 million and $2.2 million for the three and six
months ended June 30, 2011, respectively, as compared with $658.9
thousand and $1.0 million for the three and six months ended June
30, 2010, respectively.
Noninterest expenses continued to grow in the first six months
of 2011 due to the increased costs related to managing the company
during this difficult economic and regulatory environment,
including expenses associated with carrying OREO, increased credit
and collections costs, increased FDIC premiums, increased
consulting expenses and legal expenses related to regulatory
matters, and further increases in personnel in key areas necessary
to support regulatory compliance and address problem assets. Total
noninterest expense for the six months ended June 30, 2011 totaled
$17.1 million, an increase of $6.2 million over the $11.0 million
reported during the comparable period in 2010. For the quarter
ended June 30, 2011, total noninterest expense was $9.4 million, an
increase of $2.7 million over the $6.7 million reported during the
quarter ended June 30, 2010. The 2010 first quarter included a
one-time reduction of benefit cost of $1.9 million from the
elimination of the executive officer deferred compensation
plans.
"We are fully committed to seeing the company return to
profitability and realize the full potential of the Commonwealth
Bankshares franchise," said Beisel.
About Commonwealth Bankshares
Commonwealth Bankshares, Inc., the parent of Bank of the
Commonwealth, operates 21 offices throughout Hampton Roads,
Virginia, and northeastern North Carolina. Bank of the Commonwealth
offers insurance services through its subsidiary BOC
Insurance Agencies of Hampton Roads, Inc., title services
through its subsidiary Executive Title Center,
mortgage funding services through its subsidiary Bank of
the Commonwealth Mortgage, and access to investment
related services through its subsidiary Commonwealth
Financial Advisors, LLC.* Additional information
about the Company, its products and services, can be found on the
Web at www.bankofthecommonwealth.com.
* Securities offered through Infinex Investments, Inc., member
FINRA and SIPC. Not insured by FDIC or any Federal Government
Agency. May Lose Value. Not a Deposit of or Guaranteed by
the Bank or any Bank affiliate. Commonwealth Financial
Advisors, LLC is a wholly-owned subsidiary of Bank of the
Commonwealth.
This press release contains forward-looking statements. Words
such as "anticipates," " believes," "estimates," "expects,"
"intends," "should," "will," variations of such words and similar
expressions are intended to identify forward-looking statements.
These statements reflect management's current beliefs as to the
expected outcomes of future events and are not guarantees of future
performance. These statements involve certain risks, uncertainties
and assumptions that are difficult to predict with regard to
timing, extent, likelihood and degree of occurrence. Therefore,
actual results and outcomes may materially differ from what may be
expressed or forecasted in such forward-looking statements. Factors
that could cause a difference include, among others: changes in the
national and local economies or market conditions; changes in
interest rates, deposit flows, loan demand and asset quality,
including real estate and other collateral values; changes in
banking regulations and accounting principles, policies or
guidelines; and the impact of competition from traditional or new
sources. These and other factors that may emerge could cause
decisions and actual results to differ materially from current
expectations. Commonwealth Bankshares, Inc. undertakes no
obligation to revise, update, or clarify forward-looking statements
to reflect events or conditions after the date of this release.
Commonwealth Bankshares,
Inc. |
Selected Financial
Information (Unaudited) |
|
(in thousands, except per share data) |
Three Months Ended |
Six Months Ended |
|
June 30, 2011 |
June 30, 2010 |
June 30, 2011 |
June 30, 2010 |
Operating Results: |
|
|
|
|
Interest and dividend
income |
$ 11,547 |
$ 14,993 |
$ 23,694 |
$ 29,931 |
Interest expense |
5,387 |
7,367 |
11,254 |
15,022 |
Net interest income |
6,160 |
7,626 |
12,440 |
14,909 |
Provision for loan losses |
22,506 |
5,009 |
27,505 |
10,007 |
Noninterest income |
(751) |
173 |
(1,019) |
785 |
Noninterest expense |
9,385 |
6,663 |
17,145 |
10,974 |
Income (loss) before income
taxes and noncontrolling interest |
(26,482) |
(3,873) |
(33,229) |
(5,287) |
Income tax expense
(benefit) |
(264) |
(1,358) |
(261) |
(1,855) |
Income (loss) before
noncontrolling interest |
(26,218) |
(2,515) |
(32,968) |
(3,432) |
Noncontrolling interest in
subsidiaries |
(2) |
(28) |
(7) |
(34) |
Net income (loss) |
$ (26,220) |
$ (2,543) |
$ (32,975) |
$ (3,466) |
|
|
|
|
|
Per Share Data |
|
|
|
|
Basic earnings (loss) |
$ (3.80) |
$ (0.37) |
$ (4.78) |
$ (0.50) |
Diluted earnings (loss) |
$ (3.80) |
$ (0.37) |
$ (4.78) |
$ (0.50) |
Book value |
$ (0.66) |
$ 11.12 |
$ (0.66) |
$ 11.12 |
Cash dividends |
$ -- |
$ -- |
$ -- |
$ -- |
Basic weighted average shares
outstanding |
6,897,082 |
6,889,729 |
6,897,082 |
6,889,267 |
Diluted weighted average shares
outstanding |
6,897,082 |
6,889,729 |
6,897,082 |
6,889,267 |
Shares outstanding at
period-end |
6,897,082 |
6,890,305 |
6,897,082 |
6,890,305 |
|
|
|
|
|
Period End Balances: |
|
|
|
|
Assets |
$ 985,874 |
$ 1,222,145 |
$ 985,874 |
$ 1,222,145 |
Loans* |
840,494 |
962,327 |
840,494 |
962,327 |
Investment securities |
12,638 |
6,979 |
12,638 |
6,979 |
Deposits |
901,098 |
1,031,981 |
901,098 |
1,031,981 |
Shareholders' equity
(deficit) |
(4,559) |
76,586 |
(4,559) |
76,586 |
|
|
|
|
|
Average Balances: |
|
|
|
|
Assets |
$ 1,028,944 |
$ 1,236,968 |
$ 1,046,869 |
$ 1,254,937 |
Loans* |
883,323 |
995,545 |
909,308 |
1,008,612 |
Investment securities |
12,659 |
6,523 |
11,640 |
5,678 |
Deposits |
915,251 |
1,045,184 |
925,571 |
1,061,580 |
Shareholders' equity |
19,802 |
78,920 |
23,562 |
79,524 |
|
|
|
|
|
Financial Ratios: |
|
|
|
|
Return on average assets |
-10.22% |
-0.82% |
-6.35% |
-0.56% |
Return on average shareholders'
equity |
-446.34% |
-12.92% |
-282.21% |
-8.79% |
Efficiency Ratio (tax
equivalent basis) |
173.51% |
85.38% |
150.11% |
69.88% |
Period end shareholders' equity
(deficit) to total assets |
-0.46% |
6.27% |
-0.46% |
6.27% |
Loan loss allowance to period
end loans* |
7.09% |
5.38% |
7.09% |
5.38% |
Loan loss allowance to
non-performing loans |
39.50% |
54.57% |
39.50% |
54.57% |
Non-performing assets to total
assets |
20.07% |
8.90% |
20.07% |
8.90% |
Net interest margin (tax
equivalent basis) |
2.48% |
2.48% |
2.45% |
2.49% |
Bank's Tier 1 capital to
average assets |
1.61% |
6.86% |
1.61% |
6.86% |
Bank's Tier 1 capital to risk
weighted assets |
2.02% |
9.13% |
2.02% |
9.13% |
Bank's Total capital to risk
weighted assets |
3.34% |
10.43% |
3.34% |
10.43% |
|
|
|
|
|
* Net of unearned
income, discount on acquired loans, and credit enhancement related
to acquired loans |
CONTACT: Chris Beisel
President and Chief Executive Officer
Commonwealth Bankshares, Inc.
(757) 446-6900
Commonwealth Bankshares, Inc. (MM) (NASDAQ:CWBS)
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