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 June 30, 1997
Commission File Number 00-22246
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 August 6, 1997
COMMON STOCK, $.08 PAR VALUE 3,355,434 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 4. Submission of Matters to a Vote of
Security Holders 8
Item 6. Exhibits and Reports on Form 8-K 8
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1997, and December 31, 1996
(Dollars in thousands except share data)
(Unaudited)
<CAPTION>
June 30, December 31,
<S> <C> <C>
1997 1996
Assets:
Cash and due from banks $ 16,168 $ 15,544
Federal funds sold 7,790 14,352
Total cash and cash equivalents 23,958 29,896
Investment securities available for sale, at
fair value (cost of $84,042 in 1997
and $83,095 in 1996) 86,299 85,084
Investment securities held to maturity
(aggregate fair value of $101,206
in 1997 and $107,075 in 1996) 99,391 105,629
Loans, net 143,866 128,226
Premises and equipment, net 13,329 12,114
Accrued interest receivable 2,544 2,639
Goodwill, net 1,060 1,150
Other assets 3,136 3,278
Total assets $373,583 $368,016
Liabilities and stockholders' equity:
Deposits:
Demand $ 62,943 $ 58,575
Savings 22,413 23,115
Interest-bearing checking 46,692 47,642
Money market accounts 38,501 37,662
Time 130,903 131,869
Total deposits 301,452 298,863
Securities sold under agreements to repurchase 30,137 29,203
Accounts payable and accrued liabilities 2,100 1,839
Accrued interest payable 599 667
Total liabilities 334,288 330,572
Stockholders' equity:
Common stock, $.08 par value, 6,250,000
authorized shares, 3,355,434 issued and
outstanding (3,353,434 in 1996) 268 268
Additional paid-in capital 30,967 30,947
Retained earnings 6,469 4,808
Unrealized holding gain on securities
available for sale, net of tax 1,658 1,488
Treasury stock, 5,250 shares, at cost (67) (67)
Total stockholders' equity 39,295 37,444
Total liabilities and stockholders' equity $373,583 $368,016
<FN>
The accompanying notes are an integral part of these
condensed consolidated financial statements<PAGE>
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended June 30, 1997 and 1996
(Dollars in thousands except per share data)
(Unaudited)
<CAPTION>
1997 1996
<S> <C> <C>
Interest income:
Interest and fees on loans $3,240 $2,307
Interest on investment securities 2,987 3,373
Interest on federal funds sold 122 126
Total interest income 6,349 5,806
Interest expense:
Interest on deposits 2,114 2,134
Interest on securities sold under
agreements to repurchase 388 268
Total interest expense 2,502 2,402
Net interest income 3,847 3,404
Provision for loan losses 110 230
Net interest income after provision
for loan losses 3,737 3,174
Non-interest income:
Service charges on deposit accounts 475 418
Other fees and service charges 104 114
Gain on sales of premises and equipment 105 -
Gain on sales of investment securities - 217
Total non-interest income 684 749
Non-interest expense:
Salaries and employee benefits 1,580 1,396
Occupancy expense 323 263
Professional fees 96 61
Furniture and equipment expense 220 205
Data processing 181 94
FDIC Insurance 31 86
Amortization of goodwill 46 156
Charge for goodwill impairment - 5,926
Other 364 556
Total non-interest expense 2,841 8,743
Income (loss) before income taxes 1,580 (4,820)
Provision for (benefit from) income taxes 475 (1,898)
Net income (loss) $1,105 ($2,922)
Earnings (loss) per common and common equivalent share $.32 ($.87)
Weighted average number of shares and common
equivalent shares 3,408,491 3,351,856
<FN>
The accompanying notes are an integral part of these
condensed consolidated financial statements<PAGE>
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the six months ended June 30, 1997 and 1996
(Dollars in thousands except per share data)
(Unaudited)
<CAPTION>
1997 1996
<S> <C> <C>
Interest income:
Interest and fees on loans $6,239 $4,420
Interest on investment securities 5,987 6,807
Interest on federal funds sold 261 307
Total interest income 12,487 11,534
Interest expense:
Interest on deposits 4,205 4,377
Interest on securities sold under
agreements to repurchase 719 451
Total interest expense 4,924 4,828
Net interest income 7,563 6,706
Provision for loan losses 130 230
Net interest income after provision
for loan losses 7,433 6,476
Non-interest income:
Service charges on deposit accounts 964 793
Other fees and service charges 197 210
Gain on sales of premises and equipment 105 -
Gain on sales of investment securities - 217
Total non-interest income 1,266 1,220
Non-interest expense:
Salaries and employee benefits 3,146 2,781
Occupancy expense 577 526
Professional fees 167 130
Furniture and equipment expense 437 407
Data processing 363 285
FDIC Insurance 61 186
Amortization of goodwill 90 312
Charge for goodwill impairment - 5,926
Other 721 929
Total non-interest expense 5,562 11,482
Income (loss) before income taxes 3,137 (3,786)
Provision for (benefit from) income taxes 940 (1,630)
Net income (loss) $2,197 ($2,156)
Earnings (loss) per common and common equivalent share $.64 ($.64)
Weighted average number of shares and common
equivalent shares 3,406,223 3,350,968
<FN>
The accompanying notes are an integral part of these
condensed consolidated financial statements<PAGE>
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1997 and 1996
(In thousands)
(Unaudited)
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,197 ($2,156)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Provision for loan losses 130 230
Impairment charge - 5,926
Depreciation, amortization, and accretion, net 461 668
Gain on sale of investment securities - (217)
Gain on sale of premises and equipment (105) -
Change in accrued interest receivable 95 293
Change in other assets (2,642) (3,222)
Change in net income tax liability (86) (2,360)
Change in accounts payable and accrued liabilities 2,931 2,457
Change in accrued interest payable (68) (147)
Net cash provided by operating activities 2,913 1,472
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 5,116 20,990
Proceeds from maturities of investment securities
available for sale 3 17,000
Proceeds from sales of investment securities
held to maturity 1,890 -
Proceeds from sales of investment securities
available for sale 20,000 13,181
Purchases of investment securities held to maturity (726) (10,061)
Purchases of investment securities available for sale (20,952) (27,112)
Net change in loans (15,709) (16,467)
Purchases of premises and equipment (2,396) (134)
Sales of premises and equipment 916 -
Net cash used in investing activities (11,858) (2,603)
Cash flows from financing activities:
Net change in demand, savings, interest-bearing
checking, money market, and time deposit accounts 2,589 (12,435)
Net change in securities sold under agreements
to repurchase 934 12,679
Dividends paid (536) (321)
Proceeds from issuance of stock 20 43
Net cash provided by (used in) financing activities 3,007 (34)
Decrease in cash and cash equivalents (5,938) (1,165)
Cash and cash equivalents at beginning of period 29,896 20,547
Cash and cash equivalents at end of period $ 23,958 $ 19,382
Supplemental disclosures:
Interest paid $ 787 $ 779
Income taxes paid $ 1,026 $ 550
<FN>
The accompanying notes are an integral part of these
condensed consolidated financial statements<PAGE>
</TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed 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 consolidated
financial statements for the years ended December 31, 1996, 1995, and 1994,
for Commercial Bankshares, Inc. (the "Company").
All material intercompany balances and transactions have been eliminated.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary for a fair
presentation of the financial statements. Those adjustments are of a normal
recurring nature, except for the write-off during the second quarter of 1996
of approximately $5.9 million in goodwill associated with the acquisition of
five branches of the former Carteret Federal Savings Bank. That goodwill
impairment charge, a nonrecurring item which materially affected the income of
the Company, is more fully discussed in Note 5 of Notes to the Consolidated
Financial Statements cited above. The results of operations for the six-month
period ended June 30, 1997, are not necessarily indicative of the results to
be expected for the full year.
2. 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 stock equivalents for 1997 include the effect of all
outstanding stock options, using the treasury stock method. The weighted
average numbers of shares and equivalent shares for 1997 and 1996 include the
effect of the one-for-twenty (five per cent) stock dividend effective on
January 3, 1997.
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 June 30, 1997, was
approximately $1,105,000, or $.32 per share. For the quarter ended June 30,
1996, the Company incurred a net loss of approximately $2,922,000, or $.87 per
share. For the same quarter, the Company's net income before a one-time non-
cash charge of $3.73 million, net of tax, for the impairment of goodwill was
approximately $811,000, or $.24 per share.
On October 28, 1994, the Company acquired five branches of the former Carteret
Federal Savings Bank (the "Carteret Branches") from the Resolution Trust
Corporation. 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 and was being amortized on a
straight line basis over 15 years. During the second quarter of 1996, the
Company determined that the goodwill associated with the Carteret Branches was
totally impaired and made a full write-off of the remaining balance of
approximately $5.9 million, or approximately $3,733,000, net of tax.
For the six months ended June 30, 1997, the Company's net income was
approximately $2,197,000, or $.64 per share. For the six months ended June
30, 1996, the Company incurred a net loss of approximately $2,156,000, or $.64
per share. For the same period, the Company's net income before the charge
for the impairment of goodwill was approximately $1,577,000, or $.47 per
share.
The Company's net interest income before the provision for loan losses
increased by $443,000, or 13.0%, in the second quarter from the corresponding
quarter in 1996 and by $857,000, or 12.8%, in the six months ended June 30,
1997, from the first six months of 1996. 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 4.51% (annualized)
for the second quarter of 1996 to 4.75% for the corresponding quarter in 1997,
or 24 basis points. The net interest margin has been calculated on a tax-
equivalent basis, which includes an adjustment for interest on tax-exempt
securities.
Salaries and employee benefits expense increased by $184,000, or 13.2%, for
the second quarter of 1997 and by $365,000, or 13.1%, for the first six months
of 1997, from the corresponding periods of 1996. The increase includes normal
payroll increases and the cost of increasing the Company's staff from 157 to
167 full-time equivalent employees from June 30, 1996, to June 30, 1997. The
staff increase has been primarily in the lending function, which has achieved
an increase of approximately 37.7% in total loans, from $106.1 million to
$146.1 million, during that interval.
Federal Deposit Insurance Corporation (FDIC) insurance expense decreased by
$55,000, or 64%, for the second quarter of 1997, and by $125,000, or 67%, for
the first six months of 1997 from the corresponding periods of 1996. FDIC
insurance premium rates were reduced in September 1996, when a one-time
assessment for the recapitalization of the Savings Association Insurance Fund
(SAIF) was made. FDIC assessments currently consist only of Financing
Corporation (FICO) debt assessments of 1.26 basis points for the Bank
Insurance Fund and 6.3 basis points for the SAIF.
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 June 30,
1997, 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 $2,233,000 (or 1.53% of total
loans) at June 30, 1997, as compared with $1,305,000 (or 1.23% of total loans)
at June 30, 1996. For the six months ended June 30, 1997, the allowance for
loan losses was increased by the provision for loan losses of $130,000, as
well as by approximately $54,000 in net recoveries of previous loss charge-
offs. For the corresponding period of 1996, the allowance was credited with a
provision for losses of $230,000 and reduced by approximately $124,000 in net
loss charge-offs. Because of the net recoveries in the first six months of
1997, compared with the net charge-offs in 1996, the provision for loan losses
in an amount $100,000 less in 1997 than in 1996 was sufficient to increase the
allowance for loan losses to a higher percentage of total loans. The Company
actively pursues collection of past due loans.
Approximately $85.9 million (or 58.8% of total loans) were secured by non-
residential real estate and $29.8 million (or 20.4% of total loans) were
secured by residential real estate as of June 30, 1997. There are no known
loan industry concentrations. Virtually all loans are within the Company's
markets in Dade and Broward counties.
The Company had one non-accrual loan of approximately $114,000 at June 30,
1997. No interest income was recognized on the non-accrual loans to date in
1997 or in 1996. If non-accrual loans were on full accrual, additional
interest income of approximately $5,700 and $4,400 would have been recorded
during 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The source of the Company's liquidity is funds generated by the operations of
Commercial Bank of Florida ("Bank"), its wholly owned subsidiary. For banks,
liquidity represents the ability to meet loan commitments, withdrawals of
deposited funds, and operating expenses. 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
investment securities, and capital contributions by the Company.
The Company's liquidity at June 30, 1997, consisted of $24.0 million in cash
and cash equivalents and $86.3 million in available-for-sale investments, for
a total of $110.3 million, compared with a total of $115.0 million at year-end
1996, a decrease of approximately $4.7 million. The federal funds sold
component of liquidity was reduced by approximately $6.6 million during that
period. Sales and maturities of securities categorized as "held to maturity"
exceeded purchases in the same category by $6.3 million since year-end. The
total of deposits and securities sold under agreements to repurchase, $331.6
million at June 30, 1997, increased by $3.5 million or 1.1% over the year-end
1996 level, $328.1 million. The funds provided by the changes in those
accounts were invested in loans. Gross loans at June 30, 1997, of $146.1
million increased by $15.8 million, or 12.1% over the year-end 1996 level.
In accordance with risk-based capital guidelines issued by the Federal Reserve
Board, the Company and the Bank are each required to maintain a minimum ratio
of total capital to weighted risk assets of 8%. Additionally, all bank
holding companies and 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 19.61%, 20.81%, and 9.78%, respectively, as of June 30, 1997.<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 17, 1997, the Company held its annual meeting of shareholders at its
executive offices in Miami, Florida, for the purpose of electing directors.
The following persons, constituting the entire board of directors of the
Company, were elected by a majority of the votes cast by the shares
represented at the meeting: Joseph W. Armaly, Jack J. Partagas, Cromwell A.
Anderson, Elbert B. McKinney, Robert Namoff, Julius J. Shepard, Sherman Simon,
and Martin Yelen.
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 June 30, 1997.
<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/ Jack J. Partagas
President &
Chief Operating Officer
Date: August 6, 1997
<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
June 30,
1997 1996
<S> <C> <C>
Net income (loss) (in thousands) $1,105 ($2,922)
Weighted average number of shares and
equivalent shares:
Weighted average shares outstanding..... 3,349,700 3,351,856
Common stock equivalents from potential
dilutive exercise of stock options.... 58,791 (a)
Total shares included in computation of
earnings per share.................... 3,408,491 3,351,856
Earnings (loss) per common and common
equivalent share: $.32 ($.87)
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
<S> <C> <C>
Net income (loss) (in thousands) $2,197 ($2,156)
Weighted average number of shares and
equivalent shares:
Weighted average shares outstanding..... 3,348,946 3,350,968
Common stock equivalents from potential
dilutive exercise of stock options.... 57,277 (a)
Total shares included in computation of
earnings per share.................... 3,406,223 3,350,968
Earnings (loss) per common and common
equivalent share: $.64 ($.64)
<FN>
(a) Omitted pursuant to Section 601(b)(11) of Regulation S-K.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 15,818
<INT-BEARING-DEPOSITS> 350
<FED-FUNDS-SOLD> 7,790
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 86,299
<INVESTMENTS-CARRYING> 99,391
<INVESTMENTS-MARKET> 101,206
<LOANS> 146,099
<ALLOWANCE> 2,233
<TOTAL-ASSETS> 373,583
<DEPOSITS> 301,452
<SHORT-TERM> 30,137
<LIABILITIES-OTHER> 2,699
<LONG-TERM> 0
0
0
<COMMON> 268
<OTHER-SE> 39,027
<TOTAL-LIABILITIES-AND-EQUITY> 373,583
<INTEREST-LOAN> 6,239
<INTEREST-INVEST> 5,987
<INTEREST-OTHER> 261
<INTEREST-TOTAL> 12,487
<INTEREST-DEPOSIT> 4,205
<INTEREST-EXPENSE> 4,924
<INTEREST-INCOME-NET> 7,563
<LOAN-LOSSES> 130
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,562
<INCOME-PRETAX> 3,137
<INCOME-PRE-EXTRAORDINARY> 3,137
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,197
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
<YIELD-ACTUAL> 4.50
<LOANS-NON> 114
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,049
<CHARGE-OFFS> 59
<RECOVERIES> 113
<ALLOWANCE-CLOSE> 2,233
<ALLOWANCE-DOMESTIC> 2,233
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
