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, 2002
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 May 13, 2002
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COMMON STOCK, $.08 PAR VALUE 3,616,252 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 7
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 9
PART II Item 6. Exhibits and Reports on Form 8-K 11
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2002 and December 31, 2001
(Dollars in thousands, except share data)
3/31/2002 12/31/2001
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Assets: (Unaudited)
Cash and due from banks $ 21,145 $ 21,420
Federal funds sold 42,200 46,780
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Total cash and cash equivalents 63,345 68,200
Investment securities available for sale,
at fair value (cost of $121,690 in 2002
and $106,126 in 2001) 124,940 111,138
Investment securities held to maturity,
at cost (fair value of $43,309 in 2002
and $25,332 in 2001) 43,088 24,664
Loans, net 345,735 346,251
Premises and equipment, net 12,584 12,554
Accrued interest receivable 3,081 2,790
Goodwill, net 253 253
Other assets 3,799 3,078
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Total assets $596,825 $568,928
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Liabilities and stockholders' equity:
Deposits:
Demand $ 94,937 $ 94,453
Interest-bearing checking 64,918 65,630
Money market accounts 52,174 51,958
Savings 26,200 24,896
Time 241,529 225,569
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Total deposits 479,758 462,506
Securities sold under agreements
to repurchase 61,919 53,436
Accrued interest payable 606 633
Accounts payable and accrued liabilities 3,596 2,228
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Total liabilities 545,879 518,803
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Stockholders' equity:
Common stock, $.08 par value, 6,250,000
Authorized shares, 3,969,429 issued
(3,962,440 in 2001) 316 316
Additional paid-in capital 44,138 44,041
Retained earnings 11,015 9,786
Accumulated other comprehensive income 2,214 2,686
Treasury stock, 353,921 shares
(352,571 in 2001), at cost (6,737) (6,704)
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Total stockholders' equity 50,946 50,125
-------- --------
Total liabilities and
stockholders' equity $596,825 $568,928
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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 INCOME
For the three months ended March 31, 2002 and 2001
(Dollars in thousands, except share data)
(Unaudited)
2002 2001
---- ----
Interest income:
Interest and fees on loans $6,413 $6,501
Interest on investment securities 2,174 2,636
Interest on federal funds sold 149 282
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Total interest income 8,736 9,419
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Interest expense:
Interest on deposits 2,675 3,892
Interest on securities sold under
agreements to repurchase 226 635
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Total interest expense 2,901 4,527
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Net interest income 5,835 4,892
Provision for loan losses 75 75
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Net interest income after provision 5,760 4,817
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Non-interest income:
Service charges on deposit accounts 667 637
Other fees and service charges 141 123
Securities gains 40 -
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Total non-interest income 848 760
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Non-interest expense:
Salaries and employee benefits 2,358 2,088
Occupancy 299 297
Data processing 313 241
Furniture and equipment 175 188
Insurance 80 53
Stationery and supplies 65 74
Telephone and fax 56 55
Administrative service charges 54 54
Amortization - 41
Other 335 214
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Total non-interest expense 3,735 3,305
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Income before income taxes 2,873 2,272
Provision for income taxes 849 636
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Net income $2,024 $1,636
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Earnings per common and common equivalent share:
Basic $.56 $.45
Diluted $.54 $.44
Weighted average number of shares and common equivalent shares:
Basic 3,612,581 3,602,311
Diluted 3,766,992 3,691,908
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 months ended March 31, 2002 and 2001
(In thousands)
(Unaudited)
Three months ended
March 31,
2002 2001
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Net income $2,024 $1,636
Other comprehensive income(loss), net of tax:
Unrealized holding gains(losses) arising
during the period (447) 1,064
Reclassification adjustment for gains
realized in net income (25) -
Cumulative effect of a change in
accounting principle - 114
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Other comprehensive income(loss) (472) 1,178
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Comprehensive income $1,552 $2,814
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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 three months ended March 31, 2002 and 2001
(In thousands)
(Unaudited)
2002 2001
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Cash flows from operating activities:
Net income $ 2,024 $ 1,636
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 75 75
Depreciation, amortization and accretion, net 192 229
Gain on sale of investment securities (40) -
Gain on sale of premises and equipment (1) -
Change in accrued interest receivable (291) 304
Change in other assets (721) 1,023
Change in accounts payable and accrued
liabilities 1,610 (94)
Change in accrued interest payable (27) (38)
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Net cash provided by operating activities 2,821 3,135
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Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 2,522 1,318
Proceeds from maturities and sales of investment
securities available for sale 10,041 31,605
Purchases of investment securities
held to maturity (21,287) -
Purchases of investment securities
available for sale (24,259) (16,723)
Net (increase) decrease in loans 441 (22,374)
Purchases of premises and equipment (176) (78)
Sales of premises and equipment 1 -
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Net cash used in investing activities (32,717) (6,252)
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Cash flows from financing activities:
Net change in deposits 17,252 19,358
Net change in securities sold under
agreements to repurchase 8,483 2,819
Dividends paid (758) (720)
Proceeds from issuance of stock 97 38
Purchase of treasury stock (33) (4)
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Net cash provided by financing activities 25,041 21,491
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Increase (decrease) in cash and cash equivalents (4,855) 18,374
Cash and cash equivalents at beginning of period 68,200 35,015
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Cash and cash equivalents at end of period $63,345 $53,389
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Supplemental disclosures:
Interest paid (net of amounts credited
to deposit accounts) $ 440 $ 715
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Income taxes paid $ 160 $ 132
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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, 2001, 2000,
and 1999 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, 2002, 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 used
to calculate basic and diluted earnings per share (in thousands,
except per share amounts):
Three Months Ended Three Months Ended
March 31, 2002 March 31, 2001
-------------------------------- -------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator)(Denominator) Amount (Numerator)(Denominator) Amount
--------- ----------- ------ --------- ----------- ------
Basic EPS
$2,024 3,613 $.56 $1,636 3,602 $.45
Effect of
Dilutive
Options
- 154 (.02) - 90 (.01)
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Diluted EPS
$2,024 3,767 $.54 $1,636 3,692 $.44
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3. NEW ACCOUNTING PRONOUNCEMENTS
SFAS NO. 142: "Goodwill and Other Intangible Assets"
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." This statement addresses how intangible
assets that are acquired individually or with a group of other
assets (but not those acquired in a business combination) should
be accounted for in financial statements upon their acquisition.
This statement also addresses how goodwill and other intangible
assets should be accounted for after they have been initially
recognized in the financial statements. Except for goodwill and
intangible assets acquired after June 30, 2001, which are
immediately subject to its provision, SFAS No. 142 is effective
starting with fiscal years beginning after December 15, 2001.
The provisions of SFAS No. 142 no longer allow the amortization
of goodwill, and certain intangible assets that have indefinite
useful lives, and requires that impairment of goodwill on those
assets be tested annually. In addition, SFAS No. 142 requires
the following additional disclosures for goodwill and other
intangible assets:
- Changes in the carrying amount of goodwill from period-to-
period;
- The carrying amount of goodwill by major intangible assets
class, and
- The estimated intangible amortization for the next five
years
The Company adopted SFAS No. 142 effective January 1, 2002. The
Company did not incur impairment losses for goodwill resulting
from a transitional impairment test. The Company expects that
the elimination of goodwill amortization will positively impact
pre-tax net income by approximately $160,000 in 2002.
SFAS No. 144: "Accounting for the Impairment or Disposal of
Long-Lived Assets"
In October 2001, the FASB issued SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." SAFS No. 144
is effective for fiscal years beginning after December 15, 2001
and was written to provide a single model for the disposal of
long-lived assets. SFAS No. 144 supersedes SFAS No. 121
"Accounting for Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of" and the accounting and reporting
provision of Accounting principles Board Opinion No. 30,
"Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions." The Company
adopted the provision of SFAS No. 144 effective January 1, 2002.
The implementation of this statement has not had 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 March 31,
2002, was $2.02 million, a 23% increase over the quarter ended
March 31, 2001 of $1.64 million. Basic and diluted earnings per
share were $.56 and $.54, respectively, for the first quarter of
2002, as compared to $.45 and $.44, respectively, for the first
quarter of 2001.
The Company's first quarter tax-equivalent net interest income
increased to $6.11 million, from $5.14 million in the
corresponding quarter in 2001. The increase is due primarily to
an increase in average earning assets of $50 million and to a
higher yielding asset mix in 2002. The net interest margin for
the quarter ended March 31, 2002 was 4.58%. This compares to
4.25% for the quarter ended March 31, 2001. 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 first quarter of 2002 increased by
$88,000, or 12%, from the corresponding period of 2001. The
increase for the first quarter of 2002 is primarily due to an
increase in account activity charges of $29,000 and a gain on
sale of investments of $40,000.
Salaries and employee benefits expense increased by $270,000, or
13%, for the first quarter of 2002, from the corresponding period
of 2001. The increase is attributable to normal payroll
increases and increased benefit costs.
Data processing expense increased by $72,000, or 30%, for the
first quarter of 2002, as compared to the corresponding period in
2001. 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.
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 $4.66 million at March 31, 2002, as compared
with $4.64 million at December 31, 2001. For the three months
ended March 31, 2002, the allowance for loan losses was increased
by the provision for loan losses of $75,000, and decreased by
approximately $61,000 in net charge-offs. For the three months
ended March 31, 2001, the allowance was increased with a
provision for loan losses of $75,000 and decreased by
approximately $6,000 in net charge-offs. The allowance as a
percentage of total loans has increased to 1.33% at March 31,
2002, from 1.32% at December 31, 2001. 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 $215 million, or 61% of total loans, was secured
by nonresidential real estate, and $74.7 million, or 21% of total
loans, was secured by residential real estate as of March 31,
2002. 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, 2002.
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 $89 million, and Federal Funds purchased
lines available at correspondent banks amounting to $13 million
as of March 31, 2002.
The Bank's primary use of funds is to originate loans and
purchase investment securities. The Bank purchased $45.5 million
of investment securities during the first three months of 2002.
Funding for the above came primarily from increases in deposits
of $17.3 million, increases in securities sold under agreements
to repurchase of $8.5 million and increases from proceeds from
maturities and sales of investment securities of $12.6 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 12.11%, 13.61%,
and 8.08%, respectively, as of March 31, 2002.
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 March
31, 2002.
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
------- ---- ---- --------- -----
Interest-earning assets:
Federal funds sold
$42,200 $ - $ - $ - $ 42,200
Investment securities
21,254 11,413 28,118 104,204 164,989
Gross loans (excluding non-accrual)
81,287 31,676 62,690 175,411 351,064
-------- ------- ------- -------- --------
Total interest-earning assets
$144,741 $43,089 $90,808 $279,615 $558,253
-------- ------- ------- -------- --------
Interest-bearing liabilities:
Interest-bearing checking
$ - $ - $ - $ 64,918 $ 64,918
Money market - 13,044 13,044 26,086 52,174
Savings - - - 26,200 26,200
Time deposits 79,545 57,225 63,102 41,657 241,529
Borrowed funds 63,553 - - - 63,553
-------- ------- ------- -------- --------
Total interest-bearing liabilities
$143,098 $70,269 $76,146 $158,861 $448,374
-------- ------- ------- -------- --------
Interest sensitivity gap
$ 1,643 ($27,180) $14,662 $120,754 $109,879
Cumulative gap $ 1,643 ($25,537)($10,875) $109,879
Cumulative ratio of interest-earning assets to
interest-bearing liabilities
101% 88% 96% 125%
Cumulative gap as a percentage of total
interest-earning assets
0.3% (4.6%) (1.9%) 19.7%
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 March 31,
2002, the Bank's simulation analysis projects an increase to net
interest income of 5.25%, 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 4.22%. 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 March 31, 2002.
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: May 13, 2002
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