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 September 30, 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 October 31, 1996
COMMON STOCK, $.08 PAR VALUE 3,188,810 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 6
PART II Item 6. Exhibits and Reports on Form 8-K 7
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
COMMERCIAL BANKSHARES, INC., AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1996, and December 31, 1995
(In Thousands, Except Share Data)
(Unaudited)
<CAPTION>
September 30, December 31,
1996 1995
Assets:
<S> <C> <C>
Cash and due from banks $ 15,598 $ 13,148
Federal funds sold 2,615 7,399
Total cash and cash equivalents 18,213 20,547
Investment securities available for sale
(at aggregate fair value) 71,938 86,081
Investment securities held to maturity
(aggregate market value of $118,789
in 1996 and $139,820 in 1995) 118,297 137,322
Loans, net 125,656 88,568
Premises and equipment, net 12,189 10,438
Accrued interest receivable 3,006 3,114
Goodwill 1,195 7,478
Other assets 3,135 369
Total assets $353,629 $353,917
Liabilities and stockholders' equity:
Deposits:
Demand 52,852 48,995
Savings 24,734 27,903
Interest-bearing checking 43,971 51,882
Money market accounts 42,124 39,970
Time 121,124 131,164
Total deposits 284,805 299,914
Securities sold under agreements to repurchase 28,940 13,238
Accounts payable and accrued liabilities 2,467 1,541
Accrued interest payable 570 813
Total liabilities 316,782 315,506
Stockholders' equity:
Common stock, $.08 par value, 6,250,000
authorized shares, 3,188,810 issued and
outstanding (3,189,810 in 1995) 256 255
Additional paid-in surplus 28,625 28,583
Retained earnings 6,383 8,594
Unrealized holding gain on securities
available for sale, net of tax 1,650 979
Treasury stock, at cost (5,000 shares) (67) -
Total stockholders' equity 36,847 38,411
Total liabilities and stockholders' equity $353,629 $353,917
<FN>
See accompanying notes<PAGE>
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC., AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
for the three months ended September 30, 1996 and 1995
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
<CAPTION>
1996 1995
<S> <C> <C>
Interest income:
Interest and fees on loans $ 2,674 $ 1,816
Interest on investment securities 3,189 3,898
Interest on federal funds sold 116 169
Total interest income 5,979 5,883
Interest expense:
Interest on deposits 2,060 2,668
Interest on securities sold under
agreements to repurchase 317 138
Total interest expense 2,377 2,806
Net interest income 3,602 3,077
Provision for loan losses 200 -
Net interest income after provision for loan losses 3,402 3,077
Other income:
Service charges on deposit accounts 460 431
Other fees and service charges 183 79
Security gains 3 -
Total other income 646 510
Other expenses:
Salaries and employee benefits 1,415 1,289
Occupancy expense 265 287
Professional fees 88 43
Furniture and equipment expense 193 181
Data processing 165 187
FDIC Insurance 95 123
SAIF assessment 1,138 -
Amortization of goodwill 45 152
Other 400 361
Total other expenses 3,804 2,623
Income before income taxes 244 964
Provision for (benefit from) income taxes (22) 238
Net Income $ 266 $ 726
Earnings per common
and common equivalent share $.08 $.23
Weighted average number of shares and common
equivalent shares 3,214,010 3,224,571
<FN>
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
COMMERCIAL BANKSHARES, INC., AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
for the nine months ended September 30, 1996 and 1995
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
<CAPTION>
1996 1995
<S> <C> <C>
Interest income:
Interest and fees on loans $ 7,094 $ 5,219
Interest on investment securities 9,996 11,746
Interest on federal funds sold 423 467
Total interest income 17,513 17,432
Interest expense:
Interest on deposits 6,437 7,654
Interest on securities sold under
agreements to repurchase 768 399
Total interest expense 7,205 8,053
Net interest income 10,308 9,379
Provision for loan losses 430 -
Net interest income after provision for loan losses 9,878 9,379
Other income:
Service charges on deposit accounts 1,253 1,239
Other fees and service charges 393 240
Security gains 220 4
Total other income 1,866 1,483
Other expenses:
Salaries and employee benefits 4,196 3,793
Occupancy expense 791 819
Professional fees 218 165
Furniture and equipment expense 600 556
Data processing 450 470
FDIC Insurance 281 449
SAIF assessment 1,138 -
Amortization of goodwill 357 457
Charge for goodwill impairment 5,926 -
Other 1,329 1,268
Total other expenses 15,286 7,977
Income (loss) before income taxes (3,542) 2,885
Provision for (benefit from) income taxes (1,652) 730
Net Income (Loss) ($1,890) $2,155
Earnings (loss) per common
and common equivalent share ($.59) $.67
Weighted average number of shares and common
equivalent shares 3,214,064 3,219,476
<FN>
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
COMMERCIAL BANKSHARES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1996 and 1995
(In Thousands)
(Unaudited)
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($ 1,890) $ 2,155
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Provision for loan losses 430 -
Impairment charge 5,926 -
Depreciation, amortization, and accretion, net 856 (614)
Gain on sale of investment securities (220) (4)
Change in accrued interest receivable 108 (1,487)
Change in accrued interest payable (243) 122
Change in accounts payable and accrued liabilities 1,003 (839)
Other, net (3,067) 611
Net cash provided by (used in) operating activities 2,903 (56)
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 24,568 12,024
Proceeds from maturities of investment securities
available for sale 29,000 -
Proceeds from sales of investment securities
held to maturity 4,677 -
Proceeds from sales of investment securities
available for sale 18,159 58,867
Purchases of investment securities
available for sale (32,112) (53,617)
Purchases of investment securities held to maturity (10,061) (27,134)
Net change in loans (37,456) (5,581)
Purchases of premises and equipment (2,260) (1,469)
Net cash used in investing activities (5,485) (16,910)
Cash flows from financing activities:
Net change in demand, savings, interest-bearing
checking, money market, and time deposit accounts (15,109) (6,660)
Net change in securities sold under agreements
to repurchase 15,702 482
Dividends paid (321) -
Proceeds from issuance of stock 43 79
Purchase of treasury stock (67) -
Net cash provided by (used in) financing activities 248 (6,099)
Decrease in cash and cash equivalents (2,334) (23,065)
Cash and cash equivalents at beginning of period 20,547 44,458
Cash and cash equivalents at end of period $ 18,213 $ 21,393
Supplemental disclosures:
Interest paid $ 1,126 $ 1,466
Income taxes paid $ 700 $ 625
<FN>
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 necessary for a fair
presentation of the financial statements. The results of operations for the
three- and nine-month periods ended September 30, 1996, are not necessarily
indicative of the results to be expected for the full year.
3. SPECIAL ASSESSMENT BY THE FDIC
On September 30, 1996, the President signed legislation that requires thrift
institutions and banks that have acquired deposits insured by the Savings
Association Insurance Fund (SAIF) to make a one-time payment to the Federal
Deposit Insurance Corporation (FDIC) to bring the SAIF fund up to the required
1.25 per cent reserve ratio. It has been estimated that this special assessment
will be 65.7 cents per $100 of SAIF deposits. The Company acquired such
deposits by acquiring branches of three failed savings institutions from the
Resolution Trust Corporation (RTC). Based on its estimate of the assessment
to be imposed, the Company recorded an accrued expense of approximately $1.1
million, pre-tax, during the quarter ended September 30, 1996.
4. CHARGE FOR GOODWILL IMPAIRMENT
On October 28, 1994, the Company acquired five branches of the former Carteret
Federal Savings Bank (the "Carteret Branches") from the Resolution Trust
Corporation ("RTC"). The Company purchased $437,000 of assets, assumed $114
million of deposits, and received cash of approximately $107 million, net of a
"premium" paid of approximately $6.7 million. This premium was recorded as
goodwill as of the date of the acquisition.
Since the date of acquisition, the Carteret Branches have not performed to
levels anticipated at the time of the acquisition, primarily reflecting: (1)
significant deposit attrition; (2) fixed operating expenses in excess of planned
levels; and (3) a low percentage of interest-earning assets invested in loans.
The Company's initial bid price of $6.7 million was based on the deposit base of
the Carteret Branches of $131 million. This deposit base, which consisted
principally of certificates of deposit, had steadily decreased to a level of $81
million as of June 30, 1996. The operating expenses related to the Carteret
Branches have also exceeded plan levels, specifically in the areas of data
processing (reflecting the unexpected costs of conversion), personnel, and
advertising (reflecting the costs associated with attempting to limit deposit
attrition). Finally, branch profitability has also been adversely impacted by
the Company's low percentage of interest-earning assets invested in loans
versus investment securities. The funds acquired from the RTC were not immedi-
ately needed to fund loans; thus the new monies were invested in lower-yield-
ing securities.
During the second quarter of 1996, as a result of the conditions described
above, the Company determined that the goodwill associated with the Carteret
Branches was totally impaired, thus necessitating a full write-off of the
remaining balance of approximately $5.9 million.
5. 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 outstand-
ing. Common share equivalents for 1996 and 1995 include the effect of all
outstanding stock options, using the treasury stock method.
________________________________________________________________________
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's net income reported for the quarter ended September 30, 1996, was
approximately $266,000, or $.08 per share, after a one-time assessment of
$717,000, net of tax, by the FDIC to bring the SAIF fund up to the required
level. This compares to net income reported for the quarter ended September 30,
1995, of approximately $726,000, or $.23 per share. See Note 3 to the
consolidated condensed financial statements for additional information on the
SAIF assessment.
The year-to-date loss for 1996 is related to the one-time non-cash charge of
$3.73 million, net of tax, for the impairment of goodwill, recorded during the
second quarter, and to the SAIF assessment. See Note 4 to the consolidated
condensed financial statements for additional information regarding the goodwill
impairment charge.
The Company's net interest income before the allowance for loan losses increased
by $525,000, or 17.1%, in the third quarter 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. The net interest margin
increased from 4.10% for the third quarter of 1995 to 4.68% for the corres-
ponding quarter in 1996, or 58 basis points.
FDIC insurance expense decreased by $28,000, or 29%, for the third quarter of
1996, and $168,000, or 60%, for the nine months ended September 30, 1996, from
the corresponding periods in 1995. The decrease in the annual premium was the
result of an adjustment 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 third quarter of 1995 was
$.0575 per $100 in deposits. Premiums for the SAIF were unchanged from the
third quarter of 1995 to the third 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 September
30, 1996, was sufficient to absorb potential losses in the loan portfolio. In
evaluating the adequacy of the allowance for loan losses, management considers
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.
The allowance for loan losses was approximately $1,510,000 (or 1.19% of total
loans) at September 30, 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.
The Company had two non-accrual loans of $86,851 at September 30, 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 $8,600 and $53,000 would have been recorded during 1996 and 1995,
respectively. One parcel of other real estate owned, with a book value of
$458,244, was sold at a profit during the three months ended September 30, 1996.
Based on these factors and the status of the loan portfolio, management believes
the allowance for loan losses is adequate.
LIQUIDITY AND CAPITAL RESOURCES
The source of the Company's liquidity is funds generated by the operations of
Commercial Bank of Florida ("the Bank"), its totally owned subsidiary. For
banks, liquidity represents the ability to meet both loan commitments 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 Company's liquidity at September 30, 1996, consisted of $18.2 million in
cash and equivalents and $71.9 million in available-for-sale investments, for a
total of $90.1 million, compared with a total of $106.6 million at year-end
1995, a decrease of approximately $16.5 million. Sales and maturities of
securities categorized as "held to maturity" exceeded purchases in the same
category by $19.2 million since year-end. The funds provided by the decreases
in those assets were invested in loans. Gross loans at September 30, 1996, of
$127.2 million increased by $37.5 million, or 41.2% over the year-end 1995
level. The total of deposits and securities sold under agreements to
repurchase, $313.7 million at September 30, 1996, was nearly unchanged from that
at year-end, $313.2 million.
In accordance with risk based capital guidelines issued by the Federal Reserve
Board, 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 19.68%, 20.56%, and 9.62%, respectively, as of September 30, 1996.
_________________________________________________________________________
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.
One report on Form 8-K was filed during the quarter ended September 30,
1996. On September 3, 1996, the Company reported that it has adopted a
program to repurchase up to $3,000,000 of its stock.<PAGE>
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.
Commercial Bankshares, Inc.
(Registrant)
/s/ Barbara E. Reed
Senior Vice President &
Treasurer
Date: October 31, 1996
<PAGE>
Exhibit 11
<TABLE>
COMPUTATION OF EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
The computation of earnings (loss) per common and common equivalent share is as
follows:
<CAPTION>
Three Months Ended
September 30,
1996 1995
<S> <C> <C>
Net income (in thousands) $ 266 $ 726
Weighted average number of shares and
equivalent shares:
Weighted average shares outstanding..... 3,192,614 3,180,544
Common stock equivalents from potential
dilutive exercise of stock options.... 21,396 44,027
Total shares included in computation of
earnings per share.................... 3,214,010 3,224,571
Earnings per common and common equivalent share: $.08 $.23
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
<S> <C> <C>
Net income (loss)(in thousands) ($1,890) $2,155
Weighted average number of shares and
equivalent shares:
Weighted average shares outstanding..... 3,191,807 3,180,057
Common stock equivalents from potential
dilutive exercise of stock options.... 22,257 39,419
Total shares included in computation of
earnings per share.................... 3,214,064 3,219,476
Earnings (loss) per common and common equivalent share: ($.59) $.67
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 15,498
<INT-BEARING-DEPOSITS> 350
<FED-FUNDS-SOLD> 2,615
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 71,938
<INVESTMENTS-CARRYING> 118,047
<INVESTMENTS-MARKET> 118,539
<LOANS> 127,166
<ALLOWANCE> 1,510
<TOTAL-ASSETS> 353,629
<DEPOSITS> 284,805
<SHORT-TERM> 28,940
<LIABILITIES-OTHER> 3,037
<LONG-TERM> 0
0
0
<COMMON> 256
<OTHER-SE> 36,591
<TOTAL-LIABILITIES-AND-EQUITY> 353,629
<INTEREST-LOAN> 7,094
<INTEREST-INVEST> 9,996
<INTEREST-OTHER> 423
<INTEREST-TOTAL> 17,513
<INTEREST-DEPOSIT> 6,437
<INTEREST-EXPENSE> 7,205
<INTEREST-INCOME-NET> 10,308
<LOAN-LOSSES> 430
<SECURITIES-GAINS> 220
<EXPENSE-OTHER> 15,286
<INCOME-PRETAX> (3,542)
<INCOME-PRE-EXTRAORDINARY> (1,890)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,890)
<EPS-PRIMARY> (.59)
<EPS-DILUTED> (.59)
<YIELD-ACTUAL> 4.28
<LOANS-NON> 87
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,199
<CHARGE-OFFS> 143
<RECOVERIES> 24
<ALLOWANCE-CLOSE> 1,510
<ALLOWANCE-DOMESTIC> 1,510
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
