1
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, 2001
Commission File Number 00-22246
COMMERCIAL BANKSHARES, INC.
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(Exact name of Registrant as specified in its charter)
FLORIDA 65-0050176
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1550 S.W. 57th Avenue, Miami, Florida 33144
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(Address of principal executive offices) (Zip Code)
(305) 267-1200
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(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 .
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CLASS OUTSTANDING AT November 12, 2001
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COMMON STOCK, $.08 PAR VALUE 3,607,761 SHARES
TABLE OF CONTENTS
PART I Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 11
PART II Item 6. Exhibits and Reports on Form 8-K 13
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2001 and December 31, 2000
(Dollars in thousands except share data)
9/30/2001 12/31/2000
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Assets: (Unaudited)
Cash and due from banks $ 20,921 $ 20,478
Federal funds sold 25,540 14,537
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Total cash and cash equivalents 46,461 35,015
Investment securities available for sale,
at fair value (cost of $122,689 in 2001
and $141,031 in 2000) 128,446 143,487
Investment securities held to maturity, at cost
(aggregate fair value of $27,621 in 2001
and $37,958 in 2000) 26,807 37,215
Loans, net 335,331 285,641
Premises and equipment, net 12,641 12,913
Accrued interest receivable 3,158 4,001
Goodwill, net 294 416
Other assets 2,637 3,836
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Total assets $555,775 $522,524
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Liabilities and stockholders' equity:
Deposits:
Demand $ 88,716 $ 88,829
Interest-bearing checking 62,664 59,041
Money market accounts 51,823 38,239
Savings 24,579 23,585
Time 225,716 213,229
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Total deposits 453,498 422,923
Securities sold under agreements to repurchase 48,384 51,166
Accrued interest payable 713 870
Accounts payable and accrued liabilities 3,027 2,510
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Total liabilities 505,622 477,469
Stockholders' equity:
Common stock, $.08 par value, 6,250,000
authorized shares, 3,959,282 issued
(3,946,303 in 2000) 315 314
Additional paid-in capital 44,002 43,866
Retained earnings 8,723 5,727
Accumulated other comprehensive income 3,792 1,720
Treasury stock, 351,521 shares
(346,905 in 2000), at cost (6,679) (6,572)
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Total stockholders' equity 50,153 45,055
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Total liabilities and stockholders' equity $555,775 $522,524
======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended September 30, 2001 and 2000
(In thousands except per share data)
(Unaudited)
2001 2000
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Interest income:
Interest and fees on loans $6,934 $6,061
Interest on investment securities 2,184 2,756
Interest on federal funds sold 272 261
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Total interest income 9,390 9,078
Interest expense:
Interest on deposits 3,620 3,547
Interest on securities sold under
agreements to repurchase 431 699
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Total interest expense 4,051 4,246
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Net interest income 5,339 4,832
Provision for loan losses 250 90
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Net interest income after provision 5,089 4,742
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Non-interest income:
Service charges on deposit accounts 670 600
Other fees and service charges 155 133
Securities gains 147 -
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Total non-interest income 972 733
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Non-interest expense:
Salaries and employee benefits 2,112 1,895
Occupancy 325 320
Data processing 263 235
Furniture and equipment 178 205
Telephone and fax 56 58
Administrative service charges 58 51
Stationery and supplies 68 61
Insurance 64 54
Amortization 41 50
Other 339 283
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Total non-interest expense 3,504 3,212
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Income before income taxes 2,557 2,263
Provision for income taxes 744 693
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Net income $1,813 $1,570
====== ======
Earnings per common and common equivalent share:
Basic $.50 $.43
Diluted $.48 $.42
Weighted average number of shares and common equivalent shares:
Basic 3,608 3,619
Diluted 3,743 3,704
The accompanying notes are an integral part of these
condensed consolidated financial statements
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the nine months ended September 30, 2001 and 2000
(In thousands except per share data)
(Unaudited)
2001 2000
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Interest income:
Interest and fees on loans $20,394 $17,063
Interest on investment securities 7,195 8,442
Interest on federal funds sold 799 463
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Total interest income 28,388 25,968
Interest expense:
Interest on deposits 11,356 9,654
Interest on securities sold under
agreements to repurchase 1,663 1,841
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Total interest expense 13,019 11,495
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Net interest income 15,369 14,473
Provision for loan losses 425 240
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Net interest income after provision 14,944 14,233
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Non-interest income:
Service charges on deposit accounts 1,978 1,758
Other fees and service charges 444 419
Securities gains(losses) 147 (108)
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Total non-interest income 2,569 2,069
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Non-interest expense:
Salaries and employee benefits 6,280 5,676
Occupancy 923 903
Data processing 757 652
Furniture and equipment 552 666
Telephone and fax 170 177
Administrative service charges 171 137
Stationery and supplies 205 187
Insurance 171 160
Amortization 122 149
Other 878 902
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Total non-interest expense 10,229 9,609
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Income before income taxes 7,284 6,693
Provision for income taxes 2,088 2,030
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Net income $5,196 $4,663
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Earnings per common and common equivalent share:
Basic $1.44 $1.27
Diluted $1.40 $1.24
Weighted average number of shares and common equivalent shares:
Basic 3,606 3,686
Diluted 3,714 3,775
The accompanying notes are an integral part of these
condensed consolidated financial statements
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and nine months ended September 30, 2001 and 2000
(Dollars in thousands)
(Unaudited)
Three months ended
September 30,
2001 2000
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Net income $1,813 $1,570
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Other comprehensive income, net of tax:
Unrealized holding gains arising
during the period 985 1,905
Reclassification adjustment for gains
realized in net income (101) -
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Other comprehensive income 884 1,905
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Comprehensive income $2,697 $3,475
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Nine months ended
September 30,
2001 2000
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Net income $5,196 $4,663
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Other comprehensive income, net of tax:
Unrealized holding gains arising
during the period 2,059 1,128
Reclassification adjustment for (gains)losses
realized in net income (101) 68
Cumulative effect of a change in
accounting principle for reclassification of
securities upon adoption of FAS 133 114 -
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Other comprehensive income 2,072 1,196
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Comprehensive income $7,268 $5,859
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The accompanying notes are an integral part of these
condensed consolidated financial statements
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2001 and 2000
(In thousands)
(Unaudited)
2001 2000
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Cash flows from operating activities:
Net income $ 5,196 $ 4,663
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 425 240
Depreciation, amortization and accretion, net 662 912
(Gain)loss on sale of investment securities (147) 108
Gain on sale of premises and equipment - (7)
Change in accrued interest receivable 843 (652)
Change in other assets 1,199 1,383
Change in accounts payable and accrued liabilities (749) (431)
Change in accrued interest payable (157) 107
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Net cash provided by operating activities 7,272 6,323
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Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 5,129 4,640
Proceeds from maturities of investment securities
available for sale 68,171 6,568
Proceeds from sales of investment securities
available for sale 148 7,881
Purchases of investment securities
available for sale (44,614) (18,011)
Net increase in loans (50,115) (27,690)
Purchases of premises and equipment (205) (304)
Sales of premises and equipment - 239
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Net cash used in investing activities (21,486) (26,677)
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Cash flows from financing activities:
Net change in deposits 30,575 25,943
Net change in securities sold under agreements
to repurchase (2,782) 6,136
Dividends paid (2,163) (2,022)
Proceeds from issuance of stock 137 121
Purchase of treasury stock (107) (4,806)
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Net cash provided by financing activities 25,660 25,372
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Increase in cash and cash equivalents 11,446 5,018
Cash and cash equivalents at beginning of period 35,015 39,085
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Cash and cash equivalents at end of period $46,461 $44,103
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Supplemental disclosures:
Interest paid (net of amounts
credited to deposit accounts) $ 2,144 $ 1,847
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Income taxes paid $ 2,182 $ 2,082
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The accompanying notes are an integral part of these
condensed consolidated financial statements
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, 2000, 1999, and 1998 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
and nine month periods ended September 30, 2001, 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 (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 following tables reconcile the weighted average shares (denominator)
used to calculate basic and diluted earnings per share (in thousands,
except per share amounts):
Three Months Ended Three Months Ended
September 30, 2001 September 30, 2000
Income Shares Per-Share Income Shares Per-Share
(Numerator)(Denominator) Amount (Numerator)(Denominator) Amount
--------- ----------- ------ --------- ----------- ------
Basic EPS $1,813 3,608 $.50 $1,570 3,619 $.43
Effect of
Dilutive
Options - 135 (.02) - 85 (.01)
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Diluted EPS $1,813 3,743 $.48 $1,570 3,704 $.42
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Nine Months Ended Nine Months Ended
September 30, 2001 September 30, 2000
Income Shares Per-Share Income Shares Per-Share
(Numerator)(Denominator) Amount (Numerator)(Denominator) Amount
--------- ----------- ------ --------- ----------- ------
Basic EPS $5,196 3,606 $1.44 $4,663 3,686 $1.27
Effect of
Dilutive
Options - 108 (.04) - 89 (.03)
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Diluted EPS $5,196 3,714 $1.40 $4,663 3,775 $1.24
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3. NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 142, ("SFAS 142") "Goodwill and
Other Intangible Assets". SFAS 142, which is effective for fiscal
years beginning after December 15, 2001, revises the accounting,
amortization and disclosure of goodwill and other intangible assets.
The implementation of the Statement is not expected to have a material
effect on the Company's financial position, results of operations or
cash flows.
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144 ("SFAS 144")
"Accounting for the Impairment or Disposal of Long-lived Assets".
SFAS 144, which is effective for financial statements for years
beginning after December 15, 2001, addresses financial accounting and
reporting for the impairment or disposal of certain long-lived assets.
The implementation of this Statement is not expected to have a material
effect on the Company's financial position, results of operations or
cash flows.
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,
2001, was $1.81 million, a 15% increase over the quarter ended September
30, 2000 of $1.57 million. Basic and diluted earnings per share were
$.50 and $.48, respectively, for the third quarter of 2001, as compared
to $.43 and $.42, respectively, for the third quarter of 2000.
For the nine months ended September 30, 2001, the Company's net income
was $5.20 million, a 12% increase over the nine months ended September
30, 2000 of $4.66 million. Basic and diluted earnings per share were
$1.44 and $1.40, respectively, for the nine months ended September 30,
2001 as compared to $1.27 and $1.24, respectively, for the nine months
ended September 30, 2000.
The Company's third quarter tax-equivalent net interest income increased
to $5.61 million, from $5.06 million in the corresponding quarter in
2000. The annualized net interest margins for the quarter and nine
months ended September 30, 2001 were 4.30% and 4.25%, respectively.
This compares to 4.41% and 4.56% for the quarter and nine months ended
September 30, 2000. The decrease in the net interest margin is the
result of the current interest rate environment and intense competition
for deposits and quality loans. The net interest margin has been
calculated on a tax-equivalent basis, which includes an adjustment for
interest on tax-exempt securities.
Non-interest income for the third quarter of 2001 increased by $239,000,
or 33%, and increased by $500,000, or 24% for the first nine months of
2001, from the corresponding periods of 2000. The increase for the third
quarter of 2001 is primarily due to an increase in account activity
charges of $70,000, letter of credit income of $25,000, and a gain on
sale of investments of $147,000. The increase for the first nine months
of 2001 is due to increased account activity charges of $220,000, letter
of credit income of $24,000 and gain on sale of investments of $147,000.
In addition, a loss on sale of investments of $108,000 was incurred in
the first nine months of 2000.
Salaries and employee benefits expense increased by $217,000, or 11%,
for the third quarter of 2001, and by $604,000, or 11%, for the first
nine months of 2001, from the corresponding periods of 2000. The
increase is attributable to normal payroll increases and increased
benefit costs.
Data processing expense increased by $28,000 or 12% for the third
quarter of 2001, and by $105,000, or 16%, for the first nine months of
2001, as compared to the corresponding periods in 2000. The increase
is attributable to an increase in the number of accounts processed and
to an increase in rates from the Company's service provider.
Furniture and equipment expense decreased by $27,000 or 13% for the
third quarter of 2001, and by $114,000, or 17%, for the first nine
months of 2001, as compared to the corresponding periods in 2000 due
to a decrease in furniture and equipment depreciation expense.
Company management continually reviews and evaluates the allowance for
loan losses. 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 $4.22 million at
September 30, 2001, as compared with $3.81 million at December 31, 2000.
For the nine months ended September 30, 2001, the allowance for loan
losses was increased by the provision for loan losses of $425,000, and
decreased by approximately $10,000 in net charge-offs. For the nine
months ended September 30, 2000, the allowance was increased with a
provision for loan losses of $240,000 and increased by approximately
$75,000 in net recoveries. The allowance as a percentage of total loans
has decreased to 1.24% at September 30, 2001, from 1.31% at December 31,
2000. Based on the nature of the loan portfolio and prevailing economic
factors, management believes that the current level of the allowance for
loan losses is sufficient to absorb losses in the loan portfolio.
Approximately $203.1 million, or 60% of total loans was secured by
nonresidential real estate and $69.7 million, or 21% of total loans was
secured by residential real estate as of September 30, 2001. Virtually
all loans are within the Company's markets in Miami-Dade and Broward
counties.
The Company had a non-accrual loan balance of $866,000 at September 30,
2001. If these loans were on full accrual, additional interest income of
approximately $48,000 would have been recorded during the first nine
months of 2001.
LIQUIDITY AND CAPITAL RESOURCES
The objective of liquidity management is to maintain cash flow
requirements to meet immediate and ongoing future needs for loan demand,
deposit withdrawals, maturing liabilities, and expenses. In evaluating
actual and anticipated needs, management seeks to obtain funds at the
most economical cost. Management believes that the level of liquidity
is sufficient to meet future funding requirements.
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. Commercial Bank of
Florida's (the Bank) principal sources of funds are deposits, repurchase
agreements, payments on loans, maturities and sales of investments.
As an additional source of funds, the Bank has credit availability with
the Federal Home Loan Bank amounting to $83 million, and Federal Funds
purchased lines available at correspondent banks amounting to $13
million as of September 30, 2001.
The Bank's primary use of funds is to originate loans and purchase
investment securities. The net change in loans during the first nine
months of 2001 was an increase of $50.1 million, and the Bank purchased
$44.6 million of investment securities. Funding for the above came
primarily from increases in deposits of $30.6 million, increases from
proceeds from maturities and sales of investment securities of $73.4
million, partially offset by a decrease in securities sold under
agreements to repurchase of $2.8 million.
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 risk weighted 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 11.99%, 13.44%, and 8.25%,
respectively, as of September 30, 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET/LIABILITY MANAGEMENT AND INTEREST RATE RISK
Changes in interest rates can substantially impact the Company's
long-term profitability and current income. An important part of
management's efforts to maintain long-term profitability is the
management of interest rate risk. The goal is to maximize net interest
income within acceptable levels of interest rate risk and liquidity.
Interest rate exposure is managed by monitoring the relationship between
interest-earning assets and interest-bearing liabilities, focusing on
the size, maturity or repricing date, rate of return and degree of risk.
The Asset/Liability Management Committee of the Bank oversees the
interest rate risk management and reviews the Bank's asset/liability
structure on a quarterly basis.
The Bank uses interest rate sensitivity, or GAP analysis to monitor the
amount and timing of balances exposed to changes in interest rates. The
GAP analysis is not relied upon solely to determine future reactions to
interest rate changes because it is presented at one point in time and
could change significantly from day-to-day. Other methods such as
simulation analysis are utilized in evaluating the Bank's interest rate
risk position. The table presented below shows the Bank's GAP analysis
at September 30, 2001.
INTEREST RATE SENSITIVITY ANALYSIS
(Dollars in Thousands)
Term to Repricing
-----------------
Over 1 Year
90 Days 91-181 182-365 & Non-rate
or Less Days Days Sensitive Total
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Interest-earning assets:
Federal funds sold $25,540 $ - $ - $ - $ 25,540
Investment securities 9,923 5,006 16,108 121,182 152,219
Gross loans
(excluding non-accrual) 83,186 50,807 49,482 155,890 339,365
-------- ------- ------- -------- --------
Total interest-earning
assets $118,649 $55,813 $65,590 $277,072 $517,124
-------- ------- ------- -------- --------
Interest-bearing liabilities:
Interest-bearing checking $ - $ - $ - $ 62,664 $ 62,664
Money market - 12,956 12,956 25,911 51,823
Savings - - - 24,579 24,579
Time deposits 75,843 48,069 82,758 19,046 225,716
Borrowed funds 49,709 - - - 49,709
-------- ------- ------- -------- --------
Total interest-bearing
liabilities $125,552 $61,025 $95,714 $132,200 $414,491
-------- ------- ------- -------- --------
Interest sensitivity gap ($ 6,903) ($ 5,212)($30,124) $144,872 $102,633
Cumulative gap ($ 6,903) ($12,115)($42,239) $102,633
Cumulative ratio of interest-earning
assets to interest-bearing
liabilities 95% 94% 85% 125%
Cumulative gap as a percentage of
total interest-earning assets (1.3%) (2.3%) (8.2%) 19.8%
Management's assumptions reflect the Bank's estimate of the
anticipated repricing sensitivity of non-maturity deposit
products. Interest-bearing checking and savings accounts
have been allocated to the "over 1 year" category, and money
market accounts 25% to the "91-181 days" category, 25% to the
"182-365 days" category, and 50% to the "over 1 year" category.
The Bank uses simulation analysis to quantify the effects of various
immediate parallel shifts in interest rates on net interest income over
the next 12 month period. Such a "rate shock" analysis requires key
assumptions which are inherently uncertain, such as deposit sensitivity,
cash flows from investments and loans, reinvestment options, management's
capital plans, market conditions, and the timing, magnitude and frequency
of interest rate changes. As a result, the simulation is only a
best-estimate and cannot accurately predict the impact of the future
interest rate changes on net income. As of September 30, 2001, the
Bank's simulation analysis projects an increase to net interest income of
6.48%, assuming an immediate parallel shift downward in interest rates by
200 basis points. If rates rise by 200 basis points, the simulation
analysis projects net interest income would decrease by 3.54%. These
projected levels are within the Bank's policy limits.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
All 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, 2001.
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.
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(Registrant)
/s/ Barbara E. Reed
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Senior Vice President &
Chief Financial Officer
Date: November 13, 2001
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