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, 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 November 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 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
September 30, 1997, and December 31, 1996
(Dollars in thousands except share data)
<CAPTION>
September 30,December 31,
<S> <C> <C>
1997 1996
(Unaudited)
Assets:
Cash and due from banks $ 15,709 $ 15,544
Federal funds sold 14,459 14,352
Total cash and cash equivalents 30,168 29,896
Investment securities available for sale, at
fair value (cost of $77,733 in 1997
and $83,095 in 1996) 80,639 85,084
Investment securities held to maturity
(aggregate fair value of $87,779
in 1997 and $107,075 in 1996) 85,980 105,629
Loans, net 156,568 128,226
Premises and equipment, net 13,290 12,114
Accrued interest receivable 2,850 2,639
Goodwill, net 1,016 1,150
Other assets 3,342 3,278
Total assets $373,853 $368,016
Liabilities and stockholders' equity:
Deposits:
Demand $ 60,797 $ 58,575
Savings 21,638 23,115
Interest-bearing checking 45,484 47,642
Money market accounts 35,976 37,662
Time 133,784 131,869
Total deposits 297,679 298,863
Sec. sold under agree. to repurchase 32,667 29,203
Accounts payable and accrued liabilities 2,369 1,839
Accrued interest payable 571 667
Total liabilities 333,286 330,572
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 7,332 4,808
Unrealized holding gain on securities
available for sale, net of tax 2,067 1,488
Treasury stock, 5,250 shares, at cost (67) (67)
Total stockholders' equity 40,567 37,444
Tot. liab. and stockholders' equity $373,853 $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 September 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 $3,422 $2,674
Interest on investment securities 2,823 3,189
Interest on federal funds sold 119 116
Total interest income 6,364 5,979
Interest expense:
Interest on deposits 2,146 2,060
Interest on securities sold under
agreements to repurchase 389 317
Total interest expense 2,535 2,377
Net interest income 3,829 3,602
Provision for loan losses 10 200
Net interest income after provision
for loan losses 3,819 3,402
Non-interest income:
Service charges on deposit accounts 507 460
Other fees and service charges 104 183
Gain on sales of premises and equipment 1 -
Gain on sales of investment securities 88 3
Total non-interest income 700 646
Non-interest expense:
Salaries and employee benefits 1,618 1,415
Occupancy expense 317 265
Professional fees 111 88
Furniture and equipment expense 225 193
Data processing 180 165
FDIC Insurance 31 95
SAIF assessment - 1,138
Amortization of goodwill 44 45
Other 371 400
Total non-interest expense 2,897 3,804
Income before income taxes 1,622 244
Provision for income taxes 491 (22)
Net income $1,131 $ 266
Earnings per common and common eq. share $.33 $.08
Weighted average number of shares and common
equivalent shares 3,442,178 3,374,711
<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 nine months ended September 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 $9,661 $7,094
Interest on investment securities 8,810 9,996
Interest on federal funds sold 380 423
Total interest income 18,851 17,513
Interest expense:
Interest on deposits 6,351 6,437
Interest on securities sold under
agreements to repurchase 1,108 768
Total interest expense 7,459 7,205
Net interest income 11,392 10,308
Provision for loan losses 140 430
Net interest income after provision
for loan losses 11,252 9,878
Non-interest income:
Service charges on deposit accounts 1,471 1,253
Other fees and service charges 301 393
Gain on sales of premises and equipment 106 -
Gain on sales of investment securities 88 220
Total non-interest income 1,966 1,866
Non-interest expense:
Salaries and employee benefits 4,764 4,196
Occupancy expense 894 791
Professional fees 278 218
Furniture and equipment expense 662 600
Data processing 543 450
FDIC Insurance 92 281
SAIF assessment - 1,138
Amortization of goodwill 134 357
Charge for goodwill impairment - 5,926
Other 1,092 1,329
Total non-interest expense 8,459 15,286
Income (loss) before income taxes 4,759 (3,542)
Provision for (benefit from) income taxes 1,431 (1,652)
Net income (loss) $3,328 ($1,890)
Earnings(loss) per common and common eq. share $.97 ($.56)
Weighted average number of shares and common
equivalent shares 3,415,381 3,351,397
<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 nine months ended September 30, 1997 and 1996
(In thousands)
(Unaudited)
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,328 ($1,890)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Provision for loan losses 140 430
Impairment charge - 5,926
Depreciation, amortization, and accretion, net 713 856
Gain on sale of investment securities (88) (220)
Gain on sale of premises and equipment (106) -
Change in accrued interest receivable (211) 108
Change in other assets (167) (3,067)
Change in net income tax liability (134) (2,426)
Change in accounts payable and accrued liabilities 326 3,429
Change in accrued interest payable (96) (243)
Net cash provided by operating activities 3,705 2,903
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 15,161 24,568
Proceeds from maturities of investment securities
available for sale 5 29,000
Proceeds from sales of investment securities
held to maturity 4,624 4,677
Proceeds from sales of investment securities
available for sale 27,000 18,159
Purchases of investment securities held to maturity (726) (10,061)
Purchases of investment sec. available for sale (20,952) (32,112)
Net change in loans (28,403) (37,456)
Purchases of premises and equipment (2,555) (2,260)
Sales of premises and equipment 917 -
Net cash used in investing activities (4,929) (5,485)
Cash flows from financing activities:
Net change in demand, savings, interest-bearing
checking, money market, and time dep. accounts (1,184) (15,109)
Net change in securities sold under agreements
to repurchase 3,464 15,702
Dividends paid (804) (321)
Proceeds from issuance of stock 20 43
Purchase of treasury stock - (67)
Net cash provided by financing activities 1,496 248
Increase (decrease) in cash and cash equivalents 272 (2,334)
Cash and cash equivalents at beginning of period 29,896 20,547
Cash and cash equivalents at end of period $ 30,168 $ 18,213
Supplemental disclosures:
Interest paid $ 1,249 $ 1,126
Income taxes paid $ 1,565 $ 700
<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 nine-
month period ended September 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.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share (FAS 128). FAS 128
specifies new standards designed to improve the earnings per share (EPS)
information provided in financial statements by simplifying the existing
computational guidelines, revising the disclosure requirements, and increasing
the comparability of EPS data on an international basis. Some of the changes
made to simplify the EPS computations include: (i) eliminating the presenta-
tion of primary EPS and replacing it with basic EPS, with the principal
difference being that common stock equivalents are not considered in computing
basic EPS; (ii) eliminating the modified treasury stock method and the three
per cent materiality provision; and (iii) revising the contingent share
provisions and the supplemental EPS data requirements. FAS 128 also makes a
number of changes to existing disclosure requirements. FAS 128 is effective
for financial statements issued for periods ending after December 15, 1997,
including interim periods. The Company has not yet determined the impact of
the implementation of FAS 128.
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, 1997,
was approximately $1,131,000, or $.33 per share. For the quarter ended
September 30, 1996, the Company reported net income of approximately $266,000,
or $.08 per share, after a one-time assessment of $1,138,000 (approximately
$717,000 net of tax) by the Federal Deposit Insurance Corporation (FDIC) to
bring the Savings Association Insurance Fund (SAIF) up to the required level.
For the nine months ended September 30, 1997, the Company's net income was
approximately $3,328,000, or $.97 per share. For the nine months ended
September 30, 1996, the Company incurred a net loss of approximately
$1,890,000, or $.56 per share. For the same period, the Company's net income
before charges for an impairment of goodwill and the one-time SAIF assessment,
was approximately $2,559,500, or $.76 per share.
The Company's net interest income before the provision for loan losses
increased by $227,000, or 6.3%, in the third quarter from the corresponding
quarter in 1996 and by $1,084,000, or 10.5%, in the nine months ended
September 30, 1997, from the first nine 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 4.68%
(annualized) for the third quarter of 1996 to 4.71% for the corresponding
quarter in 1997, or 3 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 $203,000, or 14.3%, for
the third quarter of 1997 and by $568,000, or 13.5%, for the first nine 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 155 to
169 full-time equivalent employees from September 30, 1996, to September 30,
1997. The staff increase has been primarily in the lending function, which
has achieved an increase of approximately 24.8% in total loans, from $127.2
million to $158.8 million, during that interval.
FDIC insurance expense decreased by $64,000, or 67%, for the third quarter of
1997, and by $189,000, or 67%, for the first nine 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
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 September
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 $2,252,000 (or 1.42% of total
loans) at September 30, 1997, as compared with $1,510,000 (or 1.19% of total
loans) at September 30, 1996. For the nine months ended September 30, 1997,
the allowance for loan losses was increased by the provision for loan losses
of $140,000, as well as by approximately $63,000 in net recoveries of previous
loss charge-offs. For the corresponding period of 1996, the allowance was
credited with a provision for losses of $430,000 and reduced by approximately
$119,000 in net loss charge-offs. Because of the net recoveries in the first
nine months of 1997, the provision for loan losses was $290,000 less in 1997
than in 1996, but 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 $93.7 million (or 59.0% of total loans) were secured by non-
residential real estate and $30.5 million (or 19.2% of total loans) were
secured by residential real estate as of September 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 1 non-accrual loan of approximately $107,000 at September 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 $5,300 and $8,600 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 September 30, 1997, consisted of $30.2 million in
cash and cash equivalents and $80.6 million in available-for-sale investments,
for a total of $110.8 million, compared with a total of $115.0 million at
year-end 1996, a decrease of approximately $4.2 million. The federal funds
sold component of liquidity was nearly unchanged during that period. Sales
and maturities of securities categorized as "held to maturity" exceeded
purchases in the same category by $19.1 million since year-end. The total of
deposits and securities sold under agreements to repurchase, $330.3 million at
September 30, 1997, increased by $2.2 million or 0.7% 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 September 30, 1997, of $158.8 million
increased by $28.5 million, or 21.9% 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 CAMELS 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 19.00%, 20.14%, and 10.02%, respectively, as of September 30, 1997.<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 September 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/ Barbara E. Reed
Senior Vice President &
Treasurer
Date: November 7, 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
September 30,
1997 1996
<S> <C> <C>
Net income (in thousands) $1,131 $ 266
Weighted average number of shares and
equivalent shares:
Weighted average shares outstanding..... 3,350,184 3,352,245
Common stock equivalents from potential
dilutive exercise of stock options.... 91,994 22,466
Total shares included in computation of
earnings per share.................... 3,442,178 3,374,711
Earnings(loss) per common and common eq. share: $.33 $.08
</TABLE>
<TABLE>
CAPTION
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
Net income (loss) (in thousands) $3,328 ($1,890)
Weighted average number of shares and
equivalent shares:
Weighted average shares outstanding..... 3,349,363 3,351,397
Common stock equivalents from potential
dilutive exercise of stock options.... 66,018 (a)
Total shares included in computation of
earnings per share.................... 3,415,381 3,351,397
Earnings (loss) per common and common eq. share: $.97 ($.56)
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 15359
<INT-BEARING-DEPOSITS> 350
<FED-FUNDS-SOLD> 14459
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 80639
<INVESTMENTS-CARRYING> 85980
<INVESTMENTS-MARKET> 87779
<LOANS> 158820
<ALLOWANCE> 2252
<TOTAL-ASSETS> 373853
<DEPOSITS> 60797
<SHORT-TERM> 32667
<LIABILITIES-OTHER> 2940
<LONG-TERM> 0
0
0
<COMMON> 268
<OTHER-SE> 40299
<TOTAL-LIABILITIES-AND-EQUITY> 373853
<INTEREST-LOAN> 9661
<INTEREST-INVEST> 8810
<INTEREST-OTHER> 380
<INTEREST-TOTAL> 18851
<INTEREST-DEPOSIT> 6351
<INTEREST-EXPENSE> 7459
<INTEREST-INCOME-NET> 11392
<LOAN-LOSSES> 140
<SECURITIES-GAINS> 88
<EXPENSE-OTHER> 8459
<INCOME-PRETAX> 4759
<INCOME-PRE-EXTRAORDINARY> 4759
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3328
<EPS-PRIMARY> .97
<EPS-DILUTED> .97
<YIELD-ACTUAL> 4.49
<LOANS-NON> 107
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2049
<CHARGE-OFFS> 67
<RECOVERIES> 130
<ALLOWANCE-CLOSE> 2252
<ALLOWANCE-DOMESTIC> 2252
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
