U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
Commission File Number 33-67254
COMMERCIAL BANKSHARES, INC.
(Exact name of Registrant as specified in its charter)
FLORIDA 65-0050176
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1550 S.W. 57th Avenue, Miami, Florida 33144
(Address of principal executive offices) (Zip Code)
(305) 267-1200
(Registrant's Telephone Number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period 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 .
CLASS OUTSTANDING AT May 1, 1996
COMMON STOCK, $.08 PAR VALUE 3,191,310 SHARES
<PAGE>
T A B L E O F C O N T E N T S
PART I Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 5
PART II Item 6. Exhibits and Reports on Form 8-K 8
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
<TABLE>
COMMERCIAL BANKSHARES, INC., AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1996 and December 31, 1995
(In Thousands)
(Unaudited)
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
Assets:
Cash and due from banks $ 14,056 $ 13,148
Federal funds sold 5,680 7,399
Total cash and cash equivalents 19,736 20,547
Investment securities available for sale
(at aggregate fair value) 88,602 86,081
Investment securities held to maturity
(aggregate market value of $131,805
in 1996 and $139,820 in 1995) 130,521 137,322
Loans, net 97,616 88,568
Premises and equipment, net 10,346 10,438
Accrued interest receivable 3,295 3,114
Goodwill 7,322 7,478
Other assets 1,098 369
Total assets $358,536 $353,917
Liabilities and stockholders' equity:
Deposits:
Demand 50,825 48,995
Savings 27,154 27,903
Interest-bearing checking 46,823 51,882
Money market accounts 41,686 39,970
Time 129,310 131,164
Total deposits 295,798 299,914
Securities sold under agreements to repurchase 21,836 13,238
Accounts payable and accrued liabilities 1,323 1,541
Accrued interest payable 779 813
Total liabilities 319,736 315,506
Stockholders' equity:
Common stock, $.08 par value, 6,250,000
authorized shares, 3,191,310 issued and
outstanding (3,189,810 in 1995) 255 255
Additional paid-in surplus 28,599 28,583
Retained earnings 9,360 8,594
Unrealized holding gain on securities
available for sale, net of tax 586 979
Total stockholders' equity 38,800 38,411
Total liabilities and stockholders' equity $358,536 $353,917
See accompanying notes<PAGE>
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC., AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
for the three months ended March 31, 1996 and 1995
(In Thousands except Share Amounts)
(Unaudited)
<CAPTION>
1996 1995
<S> <C> <C>
Interest income:
Interest and fees on loans $ 2,113 $ 1,668
Interest on investment securities 3,434 3,875
Interest on federal funds sold 181 196
Total interest income 5,728 5,739
Interest expense:
Interest on deposits 2,243 2,392
Interest on securities sold under
agreements to repurchase 183 123
Total interest expense 2,426 2,515
Net interest income 3,302 3,224
Provision for loan losses - -
Net interest income after provision for loan losses 3,302 3,224
Other income:
Service charges on deposit accounts 375 383
Other fees and service charges 96 89
Security gains - 4
Total other income 471 476
Other expenses:
Salaries and employee benefits 1,385 1,224
Occupancy expense 263 273
Professional fees 69 60
Furniture and equipment expense 202 186
Data processing 191 123
FDIC Insurance 100 163
Amortization of goodwill 156 152
Other 373 527
Total other expenses 2,739 2,708
Income before income taxes 1,034 992
Provision for income taxes 268 256
Net Income $ 766 $ 736
Earnings per common and common equivalent share $.24 $.23
Weighted average number of shares and common
equivalent shares 3,213,601 3,206,424
See accompanying notes
<PAGE>
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 1996 and 1995
(In Thousands)
(Unaudited)
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 766 $ 736
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
Depreciation, amortization, and accretion, net 341 (245)
Gain on sale of investment securities - (4)
Change in accrued interest receivable (181) (1,152)
Change in accrued interest payable (34) (14)
Change in accounts payable and accrued liabilities 14 (263)
Other, net (729) 161
Net cash provided by (used for) operating activities 177 (781)
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 16,812 1,259
Proceeds from maturities of investment securities
available for sale 4,000 -
Proceeds from sales of investment securities
available for sale - 26,871
Purchases of investment securities available for sale (7,112) (28,838)
Purchases of investment securities held to maturity (10,061) (22,140)
Net change in loans (9,041) 362
Purchases of premises and equipment (84) (251)
Net cash used in investing activities (5,486) (22,737)
Cash flows from financing activities:
Net change in demand, savings, interest-bearing
checking, money market, and time deposit accounts (4,116) (1,707)
Net change in securities sold under agreements
to repurchase 8,598 (446)
Proceeds from issuance of stock 16 -
Net cash provided by (used in) financing activities 4,498 (2,153)
Decrease in cash and cash equivalents (811) (25,671)
Cash and cash equivalents at beginning of period 20,547 44,458
Cash and cash equivalents at end of period $ 19,736 $ 18,787
Supplemental disclosures:
Interest paid $ 434 $ 522
Income taxes paid $ 35 $ 246
See accompanying notes<PAGE>
</TABLE>
COMMERCIAL BANKSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited consolidated financial statements, which are for
interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These financial statements and the footnotes
thereto should be read in conjunction with the annual financial statements for
the years ended December 31, 1995 and 1994, for Commercial Bankshares, Inc. (the
"Company").
All material intercompany balances and transactions have been eliminated.
2. In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (which are of a normal
recurring nature) necessary for a fair presentation of the financial statements.
The results of operations for the three-month period ended March 31, 1996, are
not necessarily indicative of the results to be expected for the full year.
3. PER SHARE DATA
Earnings per share have been computed by dividing net income by the weighted
average number of common shares and dilutive common share equivalents
outstanding. Common share equivalents for 1996 and 1995 include the effect of
all outstanding stock options, using the treasury stock method. Pursuant to the
1994 Performance Stock Option Plan and the 1994 Outside Director Stock Option
Plan of the Company, stock options granted by the Board of Directors of the
Company are outstanding and exercisable for the purchase of 96,000 and 20,000
common shares at prices of $10.55 and $14.25, respectively; options for the
purchase of 27,000 shares at a price of $14.63 will be exercisable one year from
the date of the grant, August 16, 1995. The exercise prices represent the fair
market value of the common shares as of the date of the grant. All options are
granted for a term of ten years. The Company gives no accounting recognition to
the options until they are exercised, and there will be no compensation expense
with regard to these options.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
In October 1993, the Company filed a registration statement on Form SB-2
with the Securities and Exchange Commission to register for sale 977,500 shares
of the Company's Common Stock (including 127,500 shares subject to underwriters'
over-allotment option) at $11.50 per share. The SB-2 became effective October
5, 1993, at which time the sale of 850,000 shares of Common stock was consum-
mated. On November 12, 1993, the additional 127,500 shares subject to the
underwriters' over-allotment option were issued. From the approximately $10
million in net proceeds, $6.56 million was used to acquire certain deposit
liabilities of Carteret Federal Savings Bank (Carteret) in November 1994. An
additional $636,000 was used to pay dividends in December 1994 and December
1995. The remaining $2.8 million was invested and will be used for the
possible acquisition of other financial institutions or branches, investment in
the Company's wholly owned banking subsidiary, the possible payment of future
dividends, working capital, and general corporate purposes, as needed.
Cash and cash equivalents decreased from $20.5 million at December 31, 1995,
to $19.7 million at March 31, 1996. This decrease was primarily a result of
the decrease in federal funds sold.
The source of the Company's funds is funds generated by the operations of
the Bank. For banks, liquidity represents the ability to meet both loan commit-
ments and withdrawals of deposited funds. Funds to meet these needs can be
obtained by converting liquid assets to cash or by attracting new deposits or
other sources of funding. Many factors affect a bank's ability to meet
liquidity needs. The Bank's principal sources of funds are deposits, repurchase
agreements, payments on loans, paydowns and maturities on investments and
investments available for sale, and capital contributions by the Company. The
available-for-sale investment security portfolio is $88.6 million. Gross loans
at March 31, 1996, of $98.8 million increased by $9.0 million, or 10.0% over the
year-end 1995 level.
In accordance with risk based capital guidelines issued by the FRB, the
Company is required to maintain a minimum ratio of total capital to weighted
risk assets of 8%. Additionally, all member banks must maintain "core" or "Tier
1" capital of at least 3% of total assets ("leverage ratio"). Member banks
operating at or near the 3% capital level are expected to have well diversified
risks, including no undue interest rate risk exposure, excellent control
systems, good earnings, high asset quality, high liquidity, and well managed on-
and off-balance sheet activities, and in general be considered strong banking
organizations with a composite 1 rating under the CAMEL rating system of banks.
For all but the most highly rated banks meeting the above conditions, the
minimum leverage ratio is to be 3% plus an additional 100 to 200 basis points.
The Tier 1 Capital, Total Capital, and Leverage Ratios of the Company were
21.74%, 22.58%, and 8.61%, respectively, as of March 31, 1996.
RESULTS OF OPERATIONS
The Company's net income reported for the quarter ended March 31, 1996, was
approximately $766,000 or $.24 per share, compared to net income reported for
the quarter ended March 31, 1995, of approximately $736,000 or $.23 per share.
The Company's net interest income increased by $78,000 or 2.4% in March
1996 from the corresponding quarter in 1995. Growth in the loan portfolio
resulted in an improved interest spread, thus contributing to the rise in net
interest income, which was partially offset by an increase in salary and data
processing expenses. The net interest margin increased from 3.93% for the first
quarter of 1995 to 4.14% for the corresponding quarter in 1996, or 21 basis
points.
FDIC insurance expense decreased for the first quarter of 1996 from the
same period in 1995 by $63,000 or 39%. This decrease was a result of an adjust-
ment to the FDIC insurance premium rate in September 1995, when the Bank
Insurance Fund (BIF) became fully funded. The current BIF premium is a flat
annual fee of $2,000; the premium for the first quarter of 1995 was $.0575
per $100 in deposits. Premiums for the Savings Association Insurance Fund
(SAIF) were unchanged from the first quarter of 1995 to the first quarter of
1996, at $.0575 per $100 in deposits.
Company management continually reviews and evaluates the allowance for loan
losses. Based on the nature of the loan portfolio and prevailing economic
factors, the Company believes that the allowance for loan losses at March 31,
1996, was sufficient to absorb potential losses in the loan portfolio.
<TABLE>
The following table sets forth an analysis of the activity in the Bank's
allowance for loan losses for the periods indicated:
<CAPTION>
At March 31 At December 31
1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Average net loans
outstanding during
the period $92,069 $75,163 $65,694 $50,937 $48,005 $43,514
Total net loans at
period end $97,616 $88,568 $70,594 $55,416 $51,178 $46,527
Beginning balance
of allowance for
loan losses $ 1,199 $ 1,305 $ 1,002 $ 1,003 $ 968 $ 997
Loans charged-off:
Commercial & financial - 182 26 39 487 369
Real estate mortgage - 60 52 166 53 145
Credit cards - 5 2 1 83 5
Installment & and other 6 54 28 16 10 27
Total loans charged-off 6 301 108 222 633 546
Recoveries of loans
previously charged-off:
Commercial & financial - 95 365 46 16 130
Real estate mortgage - - 1 27 8 15
Credit cards - 9 8 9 29 21
Installment and other 3 11 34 15 21 39
Total recoveries 3 115 408 97 74 205
Net loans charged-off
(recoveries) 3 186 (300) 125 559 341
Provisions for loan losses - 80 3 124 532 312
Addition to reserve for
acquired loans - - - - 62 -
Balance at period end $ 1,196 $ 1,199 $ 1,305 $ 1,002 $ 1,003 $ 968
Net charge-offs
(recoveries) during
period to average
net loans .00% .25% (.46%) .25% 1.16% .78%
Allowance as a percentage of
non-performing loans 956.80% 261.79% 247.16% 177.03% 87.60% 83.23%
</TABLE>
The allowance for loan losses was approximately $1,196,000 (or 1.21% of total
loans) at March 31, 1996, as compared with $1,199,000 (or 1.34% of total loans)
at year end 1995. The Company actively pursues collection of past due loans.
There are no known loan industry concentrations. Virtually all loans are within
the Company's markets in Dade and Broward counties.
<PAGE>
In evaluating the adequacy of the allowance for loan losses, management con-
siders the results of its methodology, along with other factors such as the
amount of non-performing loans and the economic conditions affecting the
Company's markets and customers.
<TABLE>
The Company's non-performing assets are presented for the dates indicated below:
<CAPTION>
At March 31 At December 31
1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans:
Commercial & financial $ - $ - $ - $ - $ - $ -
Real estate mortgage 125 458 528 566 1,058 984
Total non-accrual loans 125 458 528 566 1,058 984
Accruing loans
contractually past due
90 days or more - - - - 87 179
Total non-performing
loans 125 458 528 566 1,145 1,163
Other real estate owned 458 - - 197 242 325
Total non-performing
assets $ 583 $ 458 $ 528 $ 763 $1,387 $1,488
Total non-performing
assets to total assets .16% .13% .15% .29% .51% .96%
</TABLE>
The Company had one non-accrual loan of $125,000 at March 31, 1996. No interest
income was recognized on the non-accrual loans to date in 1996 or in 1995. If
these loans were on full accrual, additional interest income of approximately
$1,650 would have been recorded during the first quarter of 1996. One property
with a value of $458,000 was held in other real estate owned at March 31, 1996.
Based on these factors and the status of the loan portfolio, management believes
the allowance for loan losses is adequate.<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11. Statement re computation of earnings per share.
All other exhibits are omitted because they are not applicable.
(b) Reports on Form 8-K. No report on Form 8-K was filed during the quarter
ended March 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Commercial Bankshares, Inc.
(Registrant)
/s/ Barbara E. Reed
Senior Vice President &
Treasurer
Date: May 1, 1996
<PAGE>
Exhibit 11
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARES
<TABLE>
The computation of earnings per common and common equivalent share is as follows:
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Net Income (in thousands) $ 766 $ 736
Weighted average number of shares and
equivalent shares:
Weighted average shares outstanding..... 3,190,552 3,179,810
Common stock equivalents from potential
dilutive exercise of stock options.... 23,049 26,614
Total shares included in computation of
earnings per share.................... 3,213,601 3,206,424
Earnings per common and common equivalent share: $.24 $.23
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 13,771
<INT-BEARING-DEPOSITS> 285
<FED-FUNDS-SOLD> 5,680
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 88,602
<INVESTMENTS-CARRYING> 130,521
<INVESTMENTS-MARKET> 131,805
<LOANS> 98,812
<ALLOWANCE> 1,196
<TOTAL-ASSETS> 358,536
<DEPOSITS> 295,798
<SHORT-TERM> 21,836
<LIABILITIES-OTHER> 2,102
<LONG-TERM> 0
0
0
<COMMON> 255
<OTHER-SE> 38,545
<TOTAL-LIABILITIES-AND-EQUITY> 358,536
<INTEREST-LOAN> 2,113
<INTEREST-INVEST> 3,434
<INTEREST-OTHER> 181
<INTEREST-TOTAL> 5,728
<INTEREST-DEPOSIT> 2,243
<INTEREST-EXPENSE> 2,426
<INTEREST-INCOME-NET> 3,302
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,739
<INCOME-PRETAX> 1,034
<INCOME-PRE-EXTRAORDINARY> 1,034
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 766
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
<YIELD-ACTUAL> 4.39
<LOANS-NON> 125
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,199
<CHARGE-OFFS> 6
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 1,196
<ALLOWANCE-DOMESTIC> 1,196
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,196
</TABLE>
