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, 1998
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 May 8, 1998
COMMON STOCK, $.08 PAR VALUE 3,531,915 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 7
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1998 and December 31, 1997
(Dollars in thousands except share data)
<CAPTION>
March 31, December 31,
<S> <C> <C>
1998 1997
(Unaudited)
Assets:
Cash and due from banks $ 19,149 $ 17,222
Federal funds sold 13,875 10,339
Total cash and cash equivalents 33,024 27,561
Investment securities available for sale, at
fair value (cost of $112,000 in 1998
and $91,381 in 1997) 115,373 95,054
Investment securities held to maturity
(aggregate fair value of $79,573
in 1998 and $85,174 in 1997) 77,560 83,012
Loans, net 172,779 170,401
Premises and equipment, net 13,896 13,230
Accrued interest receivable 3,333 2,755
Goodwill, net 927 972
Other assets 3,314 3,214
Total assets $420,206 $396,199
Liabilities and stockholders' equity:
Deposits:
Demand $ 75,179 $ 65,646
Savings 22,157 21,416
Interest-bearing checking 53,067 52,303
Money market accounts 40,948 44,014
Time 142,567 136,465
Total deposits 333,918 319,844
Sec sold under agreements to repurchase 40,005 31,285
Accounts payable and accrued liabilities 3,009 2,493
Accrued interest payable 583 648
Total liabilities 377,515 354,270
Stockholders' equity:
Common stock, $.08 par value, 6,250,000
authorized shares, 3,530,812 issued and
outstanding (3,521,095 in 1996) 282 282
Additional paid-in capital 35,097 35,013
Retained earnings 5,018 4,148
Accumulated other comprehensive income 2,361 2,553
Treasury stock, 5,512 shares, at cost (67) (67)
Total stockholders' equity 42,691 41,929
Tot liabilities and stockholders' equity$420,206 $396,199
<FN>
The accompanying notes are an integral part of these
condensed consolidated financial statements
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31, 1998 and 1997
(Dollars in thousands except per share data)
(Unaudited)
<CAPTION>
1998 1997
<S> <C> <C>
Interest income:
Interest and fees on loans $3,834 $2,999
Interest on investment securities 2,811 3,000
Interest on federal funds sold 191 139
Total interest income 6,836 6,138
Interest expense:
Interest on deposits 2,365 2,091
Interest on securities sold under
agreements to repurchase 379 331
Total interest expense 2,744 2,422
Net interest income 4,092 3,716
Provision for loan losses 35 20
Net interest income after provision
for loan losses 4,057 3,696
Non-interest income:
Service charges on deposit accounts 482 489
Other fees and service charges 123 93
Gain on sales of premises and equipment - -
Gain on sales of investment securities - -
Total non-interest income 605 582
Non-interest expense:
Salaries and employee benefits 1,687 1,566
Occupancy expense 283 254
Professional fees 61 71
Furniture and equipment expense 226 217
Data processing 191 182
FDIC Insurance 30 30
Amortization of goodwill 45 44
Other 374 357
Total non-interest expense 2,897 2,721
Income before income taxes 1,765 1,557
Provision for income taxes 542 465
Net income $1,223 $1,092
Earnings per common and common equivalent share:
Basic $.35 $.31
Diluted $.34 $.31
Weighted average number of shares and common
equivalent shares:
Basic 3,518,869 3,515,583
Diluted 3,644,806 3,560,742
<FN>
The accompanying notes are an integral part of these
condensed consolidated financial statements
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended March 31, 1998 and 1997
(Dollars in thousands)
(Unaudited)
<CAPTION>
1998 1997
<S> <C> <C>
Net income $ 1,223 $ 1,092
Unrealized holding losses arising
during the period (121) (198)
Comprehensive income $1,102 $ 894
<FN>
The accompanying notes are an integral part of these
condensed consolidated financial statements
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1998 and 1997
(In thousands)
(Unaudited)
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,223 $ 1,092
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 35 20
Depreciation, amortization, and accretion, net 234 231
Gain on sale of investment securities - -
Gain on sale of premises and equipment - -
Change in accrued interest receivable (986) (472)
Change in other assets 356 (102)
Change in net income tax liability 490 369
Change in accounts payable and accrued liabilities 124 138
Change in accrued interest payable (65) (49)
Net cash provided by operating activities 1,411 1,227
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 5,651 2,367
Proceeds from maturities of investment securities
available for sale 41,065 -
Proceeds from sales of investment securities
held to maturity - 1,590
Proceeds from sales of investment securities
available for sale - 15,000
Purchases of investment securities held to maturity - -
Purchases of investment secs available for sale (61,874) (20,952)
Net change in loans (2,446) (11,731)
Purchases of premises and equipment (869) (352)
Sales of premises and equipment - -
Net cash used in investing activities (18,473) (14,078)
Cash flows from financing activities:
Net change in demand, savings, interest-bearing
checking, money market, and time dep accounts 14,074 3,315
Net change in securities sold under agreements
to repurchase 8,720 2,079
Dividends paid (353) (268)
Proceeds from issuance of stock 84 -
Net cash provided by financing activities 22,525 5,126
Increase (decrease) in cash and cash equivalents 5,463 (7,725)
Cash and cash equivalents at beginning of period 27,561 29,896
Cash and cash equivalents at end of period $33,024 $22,171
Supplemental disclosures:
Interest paid $ 481 $ 352
Income taxes paid $ 285 $ 96
<FN>
The accompanying notes are an integral part of these
condensed consolidated financial statements
</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, 1997, 1996, and 1995,
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. The results of operations for the three-month period ended
March 31, 1998, are not necessarily indicative of the results to be expected
for the full year.
2. PER SHARE DATA
Earnings per share have been computed in accordance with Statement of
Financial Accounting Standard No. 128, "Earnings per Share" (SFAS 128) by
dividing net income by the weighted average number of common shares (basic
earnings per share) and by the weighted average number of common shares plus
dilutive common share equivalents outstanding (diluted earnings per share).
Common stock equivalents include the effect of all outstanding stock options,
using the treasury stock method. The weighted average numbers of shares and
equivalent shares for 1998 and 1997 include the effect of the one-for-twenty
(five per cent) stock dividend effective on January 3, 1997.
3. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130
establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of this Statement had no impact on
the Company's net income or stockholders' equity. SFAS 130 requires
unrealized gains or losses on the Company's available-for-sale securities,
which prior to adoption were reported separately in stockholders' equity, to
be included in other comprehensive income.
Total comprehensive income amounted to approximately $1.03 million and
$777,000, for the first quarters of 1998 and 1997, respectively.
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 March 31, 1998, was
$1.22 million, a 12% increase over the quarter ended March 31, 1997, of $1.1
million. Basic and diluted earnings per share were $.35 and $.34,
respectively, for the first quarter of 1998, as compared to $.31 and $.31,
respectively, for the first quarter of 1997.
The Company's first quarter net interest income increased by $376,000, or
10.1%, from the corresponding quarter in 1997. This is due primarily to the
increased earning assets resulting from a rise in deposits during the quarter.
The net interest margin also increased from 4.72% (annualized) for the first
quarter of 1997 to 4.77% for the corresponding quarter in 1998, the result of
the continuing shift in assets to the higher yielding loan portfolio. 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 $121,000, or 7.73%, for
the first quarter of 1998, from the corresponding quarter of 1997. The
increase includes normal payroll increases and the cost of increasing the
Company's staff from 166 to 173 full-time employees from March 31, 1997, to
March 31, 1998. The staff increase during that interval was primarily as a
result of the opening of a new office on February 17, 1998.
Occupancy expense increased by $29,000, or 11.42%, for the first quarter in
1998 from the corresponding quarter in 1997. This increase is primarily due
to the increased rent on the relocation of the Coral Springs branch in April
1997.
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,
1998, 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 $2.29 million (or 1.31% of
total loans) at March 31, 1998, as compared with $2.25 million (or 1.31% of
total loans) at December 31, 1997. For the three months ended March 31, 1998,
the allowance for loan losses was increased by the provision for loan losses
of $35,000, as well as by approximately $8,000 in net recoveries of previous
loss charge-offs. For the three months ended December 31, 1997, the allowance
was credited with a provision for losses of $30,000 and reduced by approximately
$35,000 in net loss charge-offs. The Company actively pursues collection of
past due loans.
Approximately $100.0 million (or 57.1% of total loans) was secured by non-
residential real estate and $34.5 million (or 19.7% of total loans) was
secured by residential real estate as of March 31, 1998. Virtually all loans
are within the Company's markets in Miami-Dade and Broward counties.
The Company had no non-accrual loans at March 31, 1998.
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 March 31, 1998, consisted of $33.0 million in cash
and cash equivalents and $115.4 million in available-for-sale investments, for
a total of $148.4 million, compared with a total of $122.6 million at year-end
1997, an increase of approximately $25.8 million. The federal funds sold
component of liquidity was nearly unchanged during that period. The total of
deposits and securities sold under agreements to repurchase, $373.9 million at
March 31, 1998, increased by $22.8 million or 6.5% over the year-end 1997
level, $351.1 million. The funds provided by the changes in those accounts
were invested in securities or used to fund loans. Purchases of investment
securities categorized as "available for sale" exceeded sales and maturities
in the same category by $20.8 million since year-end. Sales and maturities of
securities categorized as "held to maturity" exceeded purchases in the same
category by $5.7 million since year-end. Gross loans at March 31, 1998, of
$175.1 million increased by $2.5 million, or 1.4% over the year-end 1997
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 17.94%, 18.99%, and 9.37%, respectively, as of March 31, 1998.<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, 1998.
<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: May 8, 1998
<TABLE>
Exhibit 11
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
The computation of earnings per common and common equivalent share is as
follows:
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Net income (in thousands) $1,223 $1,092
Weighted average number of shares and
equivalent shares:
Weighted average shares outstanding (basic) 3,518,869 3,515,583
Common stock equivalents from potential
dilutive exercise of stock options 125,937 45,159
Weighted average shares and common
equivalent shares outstanding (diluted) 3,644,806 3,560,742
Earnings per common and common equivalent share:
Basic $.35 $.31
Diluted $.34 $.31
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 18799
<INT-BEARING-DEPOSITS> 350
<FED-FUNDS-SOLD> 13875
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 115373
<INVESTMENTS-CARRYING> 77560
<INVESTMENTS-MARKET> 79573
<LOANS> 175070
<ALLOWANCE> 2291
<TOTAL-ASSETS> 420206
<DEPOSITS> 75179
<SHORT-TERM> 40005
<LIABILITIES-OTHER> 3592
<LONG-TERM> 0
0
0
<COMMON> 282
<OTHER-SE> 42409
<TOTAL-LIABILITIES-AND-EQUITY> 420206
<INTEREST-LOAN> 3834
<INTEREST-INVEST> 2811
<INTEREST-OTHER> 191
<INTEREST-TOTAL> 6836
<INTEREST-DEPOSIT> 2365
<INTEREST-EXPENSE> 2744
<INTEREST-INCOME-NET> 4092
<LOAN-LOSSES> 35
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2897
<INCOME-PRETAX> 1765
<INCOME-PRE-EXTRAORDINARY> 1765
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1223
<EPS-PRIMARY> .35
<EPS-DILUTED> .34
<YIELD-ACTUAL> 4.54
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2247
<CHARGE-OFFS> 1
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 2291
<ALLOWANCE-DOMESTIC> 2291
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
