U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 33-67254
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 (I.R.S. 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)
Registrant's telephone number, including area code (305) 267-1200
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
___________________ _________________________________________
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.08 par value per share
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(Title of class)
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 past 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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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
As of March 12, 2002, 3,608,719 shares of the common voting stock were
issued and outstanding, of which 3,175,757 shares with an aggregate
market value of $76.3 million, based on the closing price on the NASDAQ
market, were held by non-affiliates of the registrant.
Documents Incorporated by Reference
1. Certain portions of the Annual Report to Shareholders of Commercial
Bankshares, Inc., for fiscal year ended December 31, 2001 are
incorporated by reference into Part I and Part II.
2. Certain portions of the Company's Proxy Statement for the 2002 Annual
Meeting of Shareholders to be held on April 18, 2002 are incorporated
by reference into Part III.
Table of Contents
Description Page No.
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Part I
Item 1. Business.............................................1
Item 2. Properties...........................................7
Item 3. Legal Proceedings....................................7
Item 4. Submission of Matters to a Vote of Security Holders..7
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters..................................8
Item 6. Selected Financial Data..............................8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................8
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk..........................................8
Item 8. Financial Statements and Supplementary Data..........8
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure...............8
Part III
Item 10. Directors and Executive Officers of the Registrant...8
Item 11. Executive Compensation...............................8
Item 12. Security Ownership of Certain Beneficial Owners
and Management.......................................8
Item 13. Certain Relationships and Related Transactions.......9
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K..........................................9
Signatures........................................................11
Exhibit 10.15 Standard Office Business Lease ....................12
Exhibit 23.1 Consent of Independent Certified Public
Accountants.......................................................32
PART I
Item 1. Business.
Commercial Bankshares, Inc.
Commercial Bankshares, Inc., (the "Company"), a Florida
corporation organized in 1988, is a bank holding company registered
under the Bank Holding Company Act of 1956 ("BHCA"), as amended, whose
wholly owned subsidiary and principal asset is the Commercial Bank of
Florida, (the "Bank"). The Company, through its ownership of the Bank,
is engaged in a commercial banking business, and its primary source of
earnings is derived from income generated by its ownership and
operation of the Bank. Unless the context otherwise requires,
references herein to the Company include the Company and its wholly
owned subsidiary, the Bank, on a consolidated basis.
The Company is a legal entity separate and distinct from the
Bank, and there are various legal limitations on the ability of the
Bank to finance or otherwise supply funds to the Company. In
particular, under federal banking law, the Bank may not declare a
dividend that exceeds undivided profits. In addition, the approval of
the Federal Reserve Bank of Atlanta ("Atlanta FRB") and the Florida
Department of Banking and Finance is required if the total amount of
all dividends declared in any calendar year exceeds the Bank's net
profits, as defined, for that year combined with its retained net
profits for the preceding two years. The Atlanta FRB also has the
authority to limit further the payment of dividends by the Bank under
certain circumstances. In addition, federal banking laws prohibit or
restrict the Bank from extending credit to the Company under certain
circumstances.
In 1993, the Company filed a Registration Statement on Form SB-2
with the Securities and Exchange Commission covering an initial public
offering and issued the maximum of 977,500 shares of common stock
thereunder. Net proceeds of approximately $10 million from this
offering were invested in short-term securities pending utilization
for future acquisition of other financial institutions or branches,
working capital, general corporate purposes, and investment in the
wholly owned banking subsidiary.
Commercial Bank of Florida
The Bank is a Florida chartered banking corporation originally
chartered in February, 1979. It operated as Sunset Commercial Bank
until its acquisition by the Company in 1988, at which time its name
was changed to Commercial Bank of Florida. The Bank engages in
commercial banking and related businesses from its fourteen banking
facilities: its main office and nine other offices located in Miami-
Dade County, Florida, and four offices in Broward County, Florida.
The Bank is operated as a network of community bank branches.
The Bank primarily focuses on providing personalized banking services
to small businesses and individuals within the market areas where its
banking offices are located. Management believes that this local
market strategy, accompanied by the strategic placement of Bank
personnel within market areas where they have served customers for
many years, enables the Bank to attract and retain low cost core
deposits, which provide substantially all of the Bank's funding
requirements.
Deposit products include certificates of deposit, individual
retirement accounts ("IRAs") and other time deposits, checking and
other demand deposit accounts, NOW accounts, savings accounts, and
money market accounts. The transaction accounts and time certificates
are tailored to the principal market areas at rates competitive to
those in the area. All deposit accounts are insured by the Federal
Deposit Insurance Corporation ("FDIC") up to the maximum limits
permitted by law. The Bank solicits these accounts from small
businesses, professional firms, and households located throughout
its primary market area.
The Bank also offers ATM cards with access to local, state, and
national networks, safe deposit boxes, wire transfers, direct deposit
of payroll and social security payments, and automatic drafts for
various accounts. The Bank presently does not provide fiduciary or
appraisal services.
The Bank conducts commercial and consumer banking business, which
primarily consists of attracting deposits from the areas served by its
banking offices and using those deposits, together with funds derived
from other sources, to originate a variety of commercial, consumer, and
real estate loans (including commercial loans collateralized by real
estate).
The Company considers the general business of retail banking to be
its only operating segment.
As is the case with banking institutions generally, the Bank's
operations are materially and significantly influenced by general
economic conditions and by related monetary and fiscal policies of
financial institution regulatory agencies, including the Federal
Reserve Board ("FRB"), the FDIC, and the State of Florida. Deposit
flows and the cost of funds are influenced by interest rates on
competing investments and general market rates of interest. Lending
activities are affected by the demand for financing of real estate and
other types of loans, which in turn is affected by the interest rates
at which such financing may be offered and other factors affecting
local demand and availability of funds. The Bank faces strong
competition in the attraction of deposits (its primary source of
lendable funds) and in the origination of real estate loans.
Employees
At December 31, 2001, the Company and the Bank together employed
191 employees, of whom four are part-time. None of these employees
is covered by a collective bargaining agreement. The Company believes
that its employee relations are good.
Market Information
The Bank's fourteen banking offices are located in Miami-Dade and
Broward counties, which comprise the Bank's primary market area.
Management believes that the Bank's principal markets are: (i) the
established and expanding commercial market within the primary market
area, and (ii) the moderate and the affluent residential market within
the primary market area. Management also believes that the most
profitable banking relationships are characterized by high deposit
balances with a low frequency of transactions. Moreover, management
believes that a community bank with local management is well positioned
to establish these relationships with the smaller commercial customers
and households. Management believes that the Bank is well positioned
to take advantage of its market segment.
Competition
Competition in the banking and financial services industry is
intense. In its primary market areas, the Bank competes with other
commercial banks, savings institutions, credit unions, finance
companies, mutual funds, insurance companies, and brokerage and
investment banking firms operating locally and elsewhere. Most of
these competitors have substantially greater resources and lending
limits than the Bank and may offer certain services, such as trust
services, that the Bank does not provide at this time. In addition
many of the Company's non-bank competitors are not subject to the same
extensive federal regulations that govern the Bank and the Company.
The profitability of the Company depends upon the Bank's ability to
compete in its market areas.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under
both federal and state law. These laws and regulations are intended to
protect depositors, not stockholders. To the extent that the following
information describes statutory and regulatory provisions, it is
qualified in its entirety by reference to the particular statutory and
regulatory provisions. Any change in the applicable law or regulation
may have a material effect on the business and prospects of the Company
and the Bank.
Bank Holding Company Regulation
As a bank holding company registered under the BHCA, the Company is
subject to the regulation and supervision of the FRB. The Company is
required to file with the FRB annual reports and other information
regarding its business operations and those of its subsidiaries. Under
the BHCA, the Company's activities and those of its subsidiaries are
limited to banking, managing or controlling banks, furnishing services
to or performing services for its subsidiaries, or engaging in any
other activity which the FRB determines to be so closely related to
banking or managing or controlling banks as to be properly incident
thereto.
The BHCA requires, among other things, the prior approval of the
FRB in any case where a bank holding company proposes to (i) acquire
all or substantially all of the assets of any other bank, (ii) acquire
direct or indirect ownership or control of more than 5% of the
outstanding voting stock of any bank (unless it owns a majority of such
bank's voting shares), or (iii) merge or consolidate with any other
bank holding company. The FRB will not approve any acquisition,
merger, or consolidation that would have a substantially anti-
competitive effect, unless the anti-competitive impact of the proposed
transaction is clearly outweighed by a greater public interest in
meeting the convenience and needs of the community to be served. The
FRB also considers capital adequacy and other financial and managerial
resources and future prospects of the companies and the banks
concerned, together with the convenience and needs of the community to
be served, when reviewing acquisitions or mergers.
Additionally, the BHCA prohibits a bank holding company, with
certain limited exceptions, from (i) acquiring or retaining direct or
indirect ownership or control of more than 5% of the outstanding voting
stock of any company which is not a bank or bank holding company, or
(ii) engaging directly or indirectly in activities other than those of
banking, managing, or controlling banks, or performing services for its
subsidiaries, unless such non-banking business is determined by the FRB
to be so closely related to banking or managing or controlling banks as
to be properly incident thereto. In making such determinations, the
FRB is required to weigh the expected benefits to the public, such as
greater convenience, increased competition, or gains in efficiency,
against the possible adverse effects, such as under-concentration of
resources, decreased or unfair competition, conflicts of interest, or
unsound banking practices.
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries by law
and regulatory policy that are designed to minimize potential loss to
the depositors of such depository institutions and the FDIC insurance
funds in the event the depository institution becomes in danger of
default or in default. Under a policy of the FRB with respect to bank
holding company operations, a bank holding company is required to serve
as a source of financial strength to its subsidiary depository
institutions and to commit resources to support such institutions in
circumstances where it might not do so absent such policy. The FRB
also has the authority under the BHCA to require a bank holding company
to terminate any activity or to relinquish control of a nonbank
subsidiary (other than a nonbank subsidiary of a bank) upon the FRB's
determination that such activity or control constitutes a serious risk
to the financial soundness and stability of any bank subsidiary of the
bank holding company.
Capital Adequacy Guidelines for Bank Holding Companies
The Company is subject to certain FRB risk-based capital
guidelines for bank holding companies. The risk-based capital
guidelines are designed to make regulatory capital requirements more
sensitive to differences in risk profile among banks and bank holding
companies, to account for off-balance sheet exposure, and to minimize
disincentives for holding liquid assets. Under these guidelines,
assets and off-balance sheet items are assigned to broad risk
categories, each with appropriate weights. The resulting capital
ratios represent capital as a percentage of total risk-weighted assets
and off-balance sheet items.
The minimum ratio of total capital to risk-weighted assets
(including certain off-balance sheet activities, such as standby
letters of credit) is 8%. At least 4% of the total capital is required
to be "Tier I Capital," which consists of common stockholders' equity,
noncumulative perpetual preferred stock, and a limited amount of
cumulative perpetual preferred stock, less certain goodwill items and
the unrealized holding gain/loss on available for sale securities. The
remainder ("Tier II Capital") may consist of (i) the allowance for loan
losses of up to 1.25% of risk-weighted risk assets, (ii) 45% of
unrealized holding gain on available for sale equity securities, (iii)
excess of qualifying perpetual preferred stock, (iv) hybrid capital
instruments, (v) perpetual debt, (vi) mandatory convertible securities,
and (vii) subordinated debt and intermediate-term preferred stock up to
50% of Tier I capital. Total capital is the sum of Tier I and Tier II
capital less reciprocal holdings of other banking organizations'
capital instruments, investments in unconsolidated subsidiaries, and
any other deductions as determined by the FRB (determined on a case by
case basis or as a matter of policy after formal rule-making).
Bank holding company assets are given risk-weights of 0%, 20%,
50% and 100%. In addition, certain off-balance sheet items are given
similar credit conversion factors to convert them to asset-equivalent
amounts to which an appropriate risk-weight will apply. These
computations result in the total risk-weighted assets.
The Company's management believes that the risk-weighting of
assets under current FRB guidelines does not and will not have a
material impact on the Company's operations or on the operations of
the Bank. As of December 31, 2001 and 2000, the Company's total risk-
based capital ratios were 13.54% and 14.30%, respectively. In addition
to the risk-based capital guidelines, the FRB has adopted a minimum
Tier I capital (leverage) ratio, under which a bank holding company
must maintain a minimum level of Tier I capital to total consolidated
assets of at least 3% in the case of a bank holding company that has
the highest regulatory examination rating and is not contemplating
significant growth or expansion. All other bank holding companies are
expected to maintain a leverage ratio of at least 100 to 200 basis
points above the stated minimum. Federal Reserve Board requirements
also provide that bank holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital
positions substantially above regulatory minimums without significant
reliance on intangible assets. The Federal Reserve Board may
continue to consider a "tangible Tier 1 leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activities.
As of December 31, 2001 and 2000, the Company's leverage ratios were
8.24% and 8.17%, respectively.
Interstate Banking and Branching Legislation
The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 ("IBBEA") authorizes interstate acquisitions of banks and bank
holding companies without geographic limitation. In addition,
beginning June 1, 1997, the IBBEA authorizes a bank to merge with a
bank in another state as long as neither of the states has opted out of
interstate branching between the date of enactment of the IBBEA and May
31, 1997. The IBBEA further provides that states may enact laws
permitting interstate bank merger transactions prior to June 1, 1997.
Florida law permits bank holding companies, regardless of what region
they are located in, to acquire Florida banking organizations, provided
that the home state of the acquiring company has enacted reciprocal
legislation.
Under IBBEA, a bank may establish and operate a de novo branch in
a state in which the bank does not maintain a branch if that state
expressly permits de novo branching. Once a bank has established
branches in a state through an interstate merger transaction, the bank
may establish and acquire additional branches at any location in the
state where any bank involved in the interstate merger transaction
could have established or acquired branches under applicable federal or
state law. A bank that has established a branch in a state through de
novo branching may establish and acquire additional branches in such
state in the same manner and to the same extent as a bank having a
branch in such state as a result of an interstate merger. If a state
opts out of interstate branching within the specified time period
(Florida has not), no bank in any other state may establish a branch
in the opting-out state, either through an acquisition or de novo.
Bank Regulation
The Bank is a state-chartered banking corporation and is subject
to the supervision of and regular examination by the FRB and the
Florida Department of Banking and Finance, as well as to the
supervision of the FDIC.
The operations of the Bank are subject to state and federal
statutes applicable to banks which are members of the Federal Reserve
System and to the regulations of the FRB, the FDIC, and the State of
Florida. Such statutes and regulations relate to required reserves
against deposits, investments, loans, mergers and consolidations,
issuance of securities, payment of dividends, establishment of
branches, and other aspects of the Bank's operations. Various consumer
laws and regulations also affect the operations of the Bank, including
state usury laws, laws relating to fiduciaries, consumer credit and
equal credit, and fair credit reporting. Under the provisions of the
Federal Reserve Act, the Bank is subject to certain restrictions on
any extensions of credit to the Company or, with certain exceptions,
to other affiliates, on investments in the stock or other securities
of national banks, and on the taking of such stock or securities as
collateral. These regulations and restrictions may limit the
Company's ability to obtain funds from the Bank for its cash needs,
including funds for acquisitions and the payment of dividends,
interest, and operating expenses.
The FDIC insures the deposits of the Bank to the current maximum
allowed by law. As an institution whose deposits are insured by the
Bank Insurance Fund ("BIF") and Savings Association Insurance Fund
("SAIF") of the FDIC, the Bank also is subject to insurance
assessments imposed and set by the FDIC from time to time. The FDIC
is further authorized to impose one or more special assessments in any
amount deemed necessary to enable repayment of amounts borrowed by the
FDIC from the Treasury Department. The actual assessments to be paid
into the BIF and the SAIF are based on the institution's assessment
risk classification, which is whether the institution is considered
"well capitalized", "adequately capitalized", or "under-capitalized",
as those terms have been defined in applicable federal regulations,
and whether the institution is considered by its supervising agency
to be financially sound or to have supervisory concerns.
Gramm-Leach-Bliley Act
The Gramm-Leach-Bliley Act (the "Act") was signed into law in
November 1999 to remove depression-era barriers that separate banking,
securities and insurance functions. The Act allows full affiliation
between banks and securities firms by permitting the creation of
financial holding companies designed to engage in a range of financial
activities, including securities underwriting and merchant banking.
The Act also repeals the SAIF special reserve; modernizes the Federal
Home Loan Bank System; provides for less frequent Community
Reinvestment Act ("CRA") compliance examinations for community banks
with $250 million or less in assets, and gives customers the right to
prevent banks from sharing information with third parties, such as
telemarketers. The Act prohibits unitary savings and loan holding
companies formed after May 4, 1999 from engaging in nonfinancial
activities, and also prohibits purchase of unitary thrift holding
companies by commercial firms. The Act contains requirements for the
protection of consumer's financial privacy ("Regulation P"). The Bank
has identified obligations, developed a privacy policy and provided
disclosure of the policy to customers. The Bank is in full compliance
with Regulation P.
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
Among other things, the FDICIA provides the federal bank
regulatory agencies with broad powers to take prompt corrective action
to resolve problems of insured depository institutions. The extent of
those powers depends upon whether the institution in question is "well
capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized", or "critically undercapitalized."
A depository institution's capital tier will depend upon where its
capital levels compare to various established capital measures and
certain other factors, as established by regulation. As of December
31, 2001, the Bank met the definition of a "well capitalized"
institution.
The FDICIA generally prohibits a depository institution from
making any capital distribution (including payment of a dividend) or
paying any management fee to its holding company if the depository
institution would thereafter be "undercapitalized".
"Undercapitalized" depository institutions are subject to growth
limitations and are required to submit a capital restoration plan.
If a depository institution fails to submit an acceptable plan, it
is treated as if it is "significantly undercapitalized".
"Significantly undercapitalized" depository institutions may be subject
to a number of requirements and restrictions, including orders to sell
sufficient voting stock to become "adequately capitalized",
requirements to reduce total assets, and cessation of receipt of
deposits from correspondent banks. "Critically undercapitalized"
institutions are subject to the appointment of a receiver or
conservator.
The FDICIA further requires an increase in the frequency of
"full-scope, on-site" examinations and expands audit requirements. In
addition, federal bank regulatory agencies are required to review and
prescribe uniform accounting standards that are at least as
stringent as Generally Accepted Accounting Principles.
Pursuant to the FDICIA, the FRB and the other federal bank
regulatory agencies adopted real estate lending guidelines pursuant to
which each insured depository institution is required to adopt and
maintain written real estate lending policies in conformity with the
prescribed guidelines. Under these guidelines, each institution is
expected to set loan-to-value ratios not exceeding the supervisory
limits set forth in the guidelines. A loan-to-value ratio is generally
defined as the total loan amount divided by the appraised value of the
property at the time the loan is originated. The guidelines also
require that the institution's real estate policy require proper loan
documentation and that it establish prudent underwriting standards.
The FDICIA also contains the Truth in Savings Act. The purpose of
the Truth in Savings Act is to require the clear and uniform disclosure
of the rates of interest which are payable on deposit accounts by
depository institutions and the fees that are assessable against
deposit accounts, so that consumers can make a meaningful comparison
between the competing claims of financial institutions with regard to
deposit accounts and products.
The FDICIA also amended the prior law with respect to the
acceptance of brokered deposits by insured depository institutions to
permit only a "well capitalized" depository institution to accept
brokered deposits without prior regulatory approval. Under
implementing regulations, "well capitalized" banks may accept brokered
deposits with a waiver from the FDIC (subject to certain restrictions
on payments of rates), while "undercapitalized" banks may not accept
brokered deposits. The regulations contemplate that the definitions of
"well capitalized", "adequately capitalized", and "undercapitalized"
will be the same as the definitions adopted by the agencies to
implement the prompt corrective action provisions of the FDICIA (as
described above).
The Bank became subject to the provisions of FDICIA relating to
internal controls effective January 1, 2001. These provisions are
required for banks over $500 million in assets and require that the
Bank document and test its internal control structure and report on it
on an annual basis. The Bank complied with all applicable sections of
the regulation and will report as required in the first quarter of 2002.
Payment of Dividends
The Bank is subject to legal limitations on the frequency and
amount of dividends paid to the Company. The FRB or the FDIC may
restrict the ability of a bank to pay dividends if such payments
would constitute an unsafe or unsound banking practice. These
regulations and restrictions may limit the Company's ability to
obtain funds from the Bank for its cash needs, including funds for
acquisitions and the payment of dividends, interest, and operating
expenses.
In addition, Florida law places certain restrictions on the
declaration of dividends from state-chartered banks to their holding
companies. Pursuant to Section 658.37 of the Florida Banking Code, the
Board of Directors of a state-chartered bank, after charging off bad
debts, depreciation, and other worthless assets, if any, and making
provisions for reasonably anticipated future losses on loans and other
assets, may quarterly, semi-annually, or annually declare a dividend of
up to the aggregate of net profits of that period, combined with the
bank's retained net profits for the preceding two years and, with the
approval of the Florida Department of Banking and Finance, declare a
dividend from retained net profits which accrued prior to the preceding
two years. Before declaring such dividends, 20% of the net profits for
the preceding period as is covered by the dividend must be transferred
to the surplus fund of the bank until this fund becomes equal to the
amount of the bank's common stock then issued and outstanding. A
state-chartered bank may not declare any dividend if (i) its net income
from the current year combined with the retained net income for the
preceding two years is a loss, or (ii) the payment of such dividend
would cause the capital account of the bank to fall below the minimum
amount required by law, regulation, order, or any written agreement
with the Florida Department of Banking and Finance or a federal
regulatory agency.
Depositor Preference Statute
Legislation has been enacted providing that deposits and certain
claims for administrative expenses and employee compensation against an
insured depository institution would be afforded a priority over other
general unsecured claims against such an institution, including federal
funds and letters of credit, in the "liquidation or other resolution"
of such an institution by any receiver.
Monetary Policy And Economic Control
The commercial banking business in which the Bank engages is
affected not only by general economic conditions but also by the
monetary policies of the FRB. Changes in the discount rate on member
bank borrowing, availability of borrowing at the "discount window,"
open market operations, the imposition of changes in reserve
requirements against member banks' deposits and assets of foreign
branches, and the imposition of and changes in reserve requirements
against certain borrowings by banks and their affiliates are some of
the instruments of monetary policy available to the FRB. These
monetary policies are used in varying combinations to influence overall
growth and distributions of bank loans, investments, and deposits, and
this use may affect interest rates charged on loans or paid on
deposits. The monetary policies of the FRB have had a significant
effect on the operating results of commercial banks and are expected
to do so in the future. The monetary policies of these agencies are
influenced by various factors, including inflation, unemployment, and
short-term and long-term changes in the international trade balance
and in the fiscal policies of the United States Government. Future
monetary policies and the effect of such policies on the future
business and earnings of the Company and the Bank cannot be predicted.
Item 2. Properties.
The Company occupies offices in a building located at 1550 S.W.
57th Avenue, Miami, Florida. This building also serves as the Bank's
main office. Both the building and the 81,400 square foot parcel of
commercial property on which it is situated are owned by the Bank.
The Bank's and the Company's offices occupy the entire 24,228 square
foot building. Management believes that this location provides
sufficient parking for its customers as well as visibility from S.W.
57th Avenue, a major thoroughfare.
The Bank owns ten of its fourteen full-service branches and leases
the remaining four offices. Additional information relating to the
Company's lease commitments is set forth in Note 4 on page 27 in the
2001 Annual Report and is incorporated herein by reference. The
condition of all properties is considered good. In the opinion of
management, owned properties are adequately covered by insurance.
Item 3. Legal Proceedings.
The Company and the Bank are periodically parties to or otherwise
involved in legal proceedings arising in the normal course of business,
such as claims to enforce liens, claims involving the making and
servicing of real property loans, and other issues incident to the
Bank's business. Management does not believe that there is any pending
or threatened proceeding against the Company or the Bank which, if
determined adversely, would have a material effect on the business,
results of operations, or financial position of the Company or the
Bank.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Information required to be reported under this item is set forth
on pages 13 and 14 of the 2001 Annual Report to Shareholders and is
incorporated herein by reference.
Item 6. Selected Financial Data.
Information required to be reported under this item is set forth
on pages 2 and 3 of the 2001 Annual Report to Shareholders and is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Information required to be reported under this item is set forth
on pages 4 through 16 of the 2001 Annual Report to Shareholders and is
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Information required to be reported under this item is set forth
on pages 15 through 16 of the 2001 Annual Report to Shareholders under
the section entitled "Asset/Liability Management and Interest Rate
Risk", and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The information required to be reported under this item is set
forth on pages 17 through 35 of the 2001 Annual Report to Shareholders
and is incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information required to be reported under this item is set forth
on pages 2 through 3 of the Commercial Bankshares, Inc. Proxy Statement
and is incorporated herein by reference.
Item 11. Executive Compensation.
Information required to be reported under this item is set forth
on pages 6 and 7 of the Commercial Bankshares, Inc. Proxy Statement and
is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Information required to be reported under this item is set forth
on pages 4 through 5 of the Commercial Bankshares, Inc. Proxy Statement
and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Information required to be reported under this item is set forth
on pages 3 through 4 of the Commercial Bankshares, Inc. Proxy Statement
and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.
(a) Exhibits
3.1 Articles of Incorporation, as amended, of the Company.
Incorporated by reference to Exhibit 3.1 of the Company's
Registration Statement on Form SB-2 as filed with the
Securities and Exchange Commission, No. 33-67254, effective
October 5, 1993 ("Registration Statement").
3.2 By-Laws, as amended, of the Company. Incorporated by reference
to Exhibit 3.2 of the Registration Statement.
10.1 Standard Office Building Lease between Swire Brickell One, Inc.,
d/b/a "Courvoisier Center" (Landlord) and Commercial Bank of
Florida (Tenant), dated December 21, 1990. Incorporated by
reference to Exhibit 10.2 of the Registration Statement.
10.2 Form of Indemnification Agreement. Incorporated by reference to
Exhibit 10.4 of the Registration Statement.
10.3 Employment Agreement between Commercial Bankshares, Inc.,
Commercial Bank of Florida, and Joseph W. Armaly, dated March
18, 1994 and amended and restated on December 18, 1998.
Incorporated by reference to Exhibit 10.3 that accompanies the
1998 Annual Report on Form 10-K.
10.4 Employment Agreement between Commercial Bankshares, Inc.,
Commercial Bank of Florida, and Jack J. Partagas, dated March
18, 1994 and amended and restated on December 18, 1998.
Incorporated by reference to Exhibit 10.4 that accompanies the
1998 Annual Report on Form 10-K.
10.5 Employment Agreement between Commercial Bank of Florida and
Barbara Reed, dated February 5, 1997. Incorporated by reference
to Exhibit 10.5 that accompanies the 1996 Annual Report on Form
10-K.
10.6 Employment Agreement between Commercial Bank of Florida and
Bruce Steinberger, dated December 18, 1998. Incorporated by
reference to Exhibit 10.6 that accompanies the 1998 Annual
Report on Form 10-K.
10.7 Commercial Bankshares, Inc., 1994 Outside Director Stock Option
Plan, effective as of March 18, 1994. Incorporated by reference
to Exhibit 10.7 that accompanies the 1993 Annual Report on Form
10-KSB.
10.8 Commercial Bankshares, Inc., 1994 Performance Stock Option Plan,
adopted March 18, 1994, effective April 1, 1994. Incorporated
by reference to Exhibit 10.8 that accompanies the 1993 Annual
Report on Form 10-KSB.
10.9 Shopping Center Lease dated July 31, 1992, between Pembroke
Associates, as Landlord, and Carteret Savings Bank, F.A., as
Tenant ("Lease"). The Lease was assigned to Commercial Bank of
Florida by the Resolution Trust Corporation as Receiver of
Carteret Federal Savings Bank of Florida (successor to Carteret
Federal Savings Bank and Carteret Savings and Loan Association,
F.A.), pursuant to Lease Assignment and Assumption Agreement
dated December 5, 1994. Incorporated by reference to Exhibit
10.9 that accompanies the 1994 Annual Report on Form 10-KSB.
10.10 Standard Office Building Lease, dated December 10, 1996, between
Promenade of Coral Springs, Inc. (Landlord) and Commercial Bank
of Florida (Tenant). Incorporated by reference to Exhibit 10.12
that accompanies the 1997 Annual Report on Form 10-K.
10.11 Commercial Bankshares, Inc., Amendment to 1994 Outside Director
Stock Option Plan, dated January 15, 1999. Incorporated by
reference to Exhibit 10.13 that accompanies the 1998 Annual
Report on Form 10-K.
10.12 Commercial Bankshares, Inc., Amendment to 1994 Performance Stock
Option Plan dated January 15, 1999. Incorporated by reference
to Exhibit 10.14 that accompanies the 1998 Annual Report on Form
10-K.
10.13 Commercial Bankshares, Inc., Amendment to Standard Office
Building Lease between Swire Brickell One, Inc., d/b/a
"Courvoisier Center" (Landlord) and Commercial Bank of Florida
(Tenant), dated December 21, 2000. Incorporated by reference to
Exhibit 10.14 that accompanies the 2000 Annual Report on Form
10-K.
10.14 Agreement to provide data processing and back office services
between Electronic Data Systems and Commercial Bank of Florida,
dated, December 7, 1999. Incorporated by reference to Exhibit
10.15 that accompanies the 2000 Annual Report on Form 10-K.
10.15 Commercial Bankshares, Inc., Standard Office Building Lease
between Hallandale Place, Ltd., c/o Investment Management
Associates, Inc. (Landlord) and Commercial Bank of Florida
(Tenant), dated January 25, 2002 (filed herewith).
11.1 Computation of Earnings per Common and Common Equivalent Share.
Information required to be reported under this exhibit is set
forth on page 29 of the 2001 Annual Report to Shareholders and
is incorporated herein by reference.
13.1 2001 Annual Report to Shareholders of Commercial Bankshares,
Inc. *
21.1 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP (filed herewith).
All other exhibits are omitted because they are not applicable.
(b) No reports on Form 8-K have been filed during the last quarter
of the period covered by this report.
* Except for those portions of the Annual Report which are
expressly incorporated by reference in this Form 10-K, the Annual
Report is furnished for the information of the Securities and
Exchange Commission only and is not to be deemed "filed" as part
of such Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By:/s/ Jack J. Partagas
--------------------
Jack J. Partagas
President and Chief Operating Officer
March 12, 2002
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
By:/s/ Joseph W. Armaly Chairman of the Board March 12, 2002
-------------------- of Directors and
Joseph W. Armaly Chief Executive Officer
(Principal Executive Officer)
By:/s/ Jack J. Partagas President, March 12, 2002
-------------------- Chief Operating Officer,
Jack J. Partagas and Director
By:/s/ Cromwell A. Anderson Director March 12, 2002
------------------------
Cromwell A. Anderson
By:/s/ Martin Yelen Director March 12, 2002
----------------
Martin Yelen
By:/s/ Robert Namoff Director March 12, 2002
-----------------
Robert Namoff
By:/s/ Barbara E. Reed Senior Vice President March 12, 2002
------------------- and Chief Financial Officer
Barbara E. Reed
Exhibit 10.15
FACE PAGE
LEASE SUMMARY SHEET/ESTIMATED OCCUPANCY COST SHEET
Shopping Center: Hallandale Place Shopping Center
Landlord's Name and Address: Hallandale Place, Ltd;,
c/o Investment Management Associates, Inc.,
1575 Ignacio Avenue, Suite 100,
Coral Gables, FL 33146
Lessee: Commerical Bank of Florida
Trade name (d/b/a): Commercial Bank of Florida
Guarantor(s):
Store Address: 1448 E. Hallandale Beach Boulevard
Store Owner's Name Commercial Bank of Florida
Corp Address: 1550 SW 57th Avenue, Miami, Florida 33144
Store Phone: (954) 434-3551
Corp. Phone: (305) 267-1200
Store Fax: ( ) Cell Phone: ( )
Lease Term: Five (5) Years Beeper: ( )
Sq. Ft.: 2,725 Sq. Ft. % of Center: 3.56%
Options: One-5 Years
Lease Commencement Date: (Lease Signing Date) January 25, 2002
Commencement / Anniversary Date shall commence on the earlier of (a)
February 1, 2002 or (b) N/A/ days from the date of notification by
Landlord or premises delivery.
Rent Commencement Date: The earlier of (a) February 1, 2002 or (b)
N/A days after landlord notified Tenant that Landlord has delivered
demised premises or (c) the date Tenant opens the premises for
business.
1. Expiration Date: January 31, 2007 or N/A months from delivery
notification date.
2. Under Construction by: N/A
3. Open for Business by: N/A
[ 2) & 3) are calculated from the Term Commencement/Anniversary Date.]
Base Rent Yearly Lease Increase: [X] CPI: (Floor: 4% per year),
(Cap: 6% per year)
Use Clause: Bank Branch and Associated Uses only and for no other
purpose.
OCCUPANCY CHARGES Amount per Square Monthly
Square Foot Footage Amount
1. Minimum Rent: $16.51 2,725 sf $3,749.15
2. Common Area Maintenance
estimated for 2002 $ 1.30 2,725 sf $ 295.21
3. Real Estate Taxes estimated
for 2002 $ 1.40 2,725 sf $ 317.92
4. Insurance estimated for 2002 $ 0.54 2,725 sf $ 122.63
SUBTOTAL $4,484.90
5. Florida Sales Tax (6.0%) $ 269.09
6. Merchants Associates
estimated for 2002 N/A N/A $ 0.00
ESTIMATED TOTAL RENT $4,753.99
7. ADDITONAL RENT:
Percentage Rent on all Gross Sales at N/A% Breakpoint: $ N/A or
excess of $ N/A
8. Above charges applicable from Term Commencement: February 1, 2002 to
January 31, 2003.
9. Total Deposit $0.00 allocated as follows (A+B) and paid in the form
of Cash or Certified Cashier's Check:
A. Prepaid First Month's Rent $0.00 B. Security Deposit $0.00
-------------------------------------------------------------------
Amount Paid & Date: $ ___ ___ Balance of Unpaid & Due Date: $ ___ ___
THIS IS A LEGALLY BINDING DOCUMENT. PLEASE READ IT THOROUOUGHLY BEFORE
YOU SIGN. THE ITEMS CONTAINED ON THIS FACE PAGE RELATE TO VARIOUS
CONTENTS OF THE LEASE. THIS FACE PAGE IS ATTACHED TO AND A PART OF
THE LEASE. THERE ARE NO AGREEMENTS BETWEEN THE PARTIES UNLESS
CONTAINED IN WRITING IN THIS LEASE, FACE PAGE AND PERTINENT ADDENDUMS.
Accepted this 25 day of January, 2002
WITNESS: ________________________ SIGNED:__________________________
TENANT: Commercial Bank of Florida
BY: Jack J. Partagas, President
WITNESS: ________________________
WITNESS: ________________________ SIGNED:__________________________
LANDLORD: Hallandale Place, Ltd.
BY: Hallandale Place, LLC,
General Partner
WITNESS: ________________________
STORE LEASE
THIS LEASE entered into this 25 day of January, 2002, between
Hallandale Place, Ltd. (Landlord), and Commercial Bank of Florida
(Tenant)
Landlord, in consideration of the rent to be paid by Tenant,
and in consideration of the covenants to be performed by Tenant, hereby
leases to Tenant the following described premises (the premises) located
in Broward County, Florida.
Tenant is leasing (See Face Page) Sq. Ft., (See Face Page) of
Hallandale Place Shopping Center (The Shopping Center), The approximate
location of the premises is outlined in red on Exhibit A.
ARTICLE 1. Section 1. If the term commences on any day of a
calendar month other than the 1st day, Tenant shall pay Landlord the
monthly installment of rent as provided for in this paragraph for such
commencement months on a pro rata basis (such proration to be based on
the actual number of days in the commencement month). Thereafter,
Note: Rent is due on the first (1st) of each month.
Section 2. The term of this Lease shall be for
Five (5) years.
ARTICLE 2. Section 1. Tenant hereby agrees to pay to Landlord,
at such place as Landlord may designate in writing, rent for the
premises as follows: Tenant shall follow the (Face Page-Lease Summary
Estimated Occupancy Cost sheet): sending the estimated total rental to:
Hallandale Place Shopping Center
c/o Investment Management Associates, Inc.
1575 San Ignacio Avenue, Suite 100
Coral Gables, FL 33146
Section 2. During the initial term of this Lease
and each of the "adjustment months" described below, Tenant's monthly
payment of fixed minimum annual rent shall become an amount computed
in accordance with the following provisions. Landlord shall compute
the increases, if any, of the cost of living for each "adjustment
month" based on the Consumer Price Index - Urban Wage Earners and
Clerical Workers (U.S. City Average - all items) 1982-84 = 100,
hereinafter called the Index, published by the Bureau of Labor
Statistics of the United States Department of Labor. The index
number indicated in the column for U.S. City Average entitled "All
Items" for said month shall be the "Current Index Number," and the
corresponding index number for the month of November yearly: i.e.,
three (3) months prior to the Lease commencement date; shall be the
"Base Index Number." The new monthly payment of fixed minimum annual
rent shall be arrived at by multiplication of the monthly payment of
fixed minimum annual rent for the month immediately preceding the
particular adjustment month by a fraction, the numerator of which shall
be the Current Index Number and the denominator of which shall be the
Base Index Number. The new monthly payment of fixed minimum annual rent
shall be due and payable to Landlord commencing with the anniversary of
the Term Commencement Date. In no event shall the new monthly payment
of fixed minimum annual rent be less than the monthly rent paid
immediately preceding such adjustment.
In the event the Index is discontinued, the Consumer Price
Index - Seasonally Adjusted U.S. City Average For All Items for Urban
Wage Earners and Clerical Workers (1982-84 = 100) published monthly in
the "Monthly Labor Review" by the Bureau of Labor Statistics of the
United States Department of Labor (CPI) shall be used for making the
computation described above. In the event CPI-W is discontinued,
comparable statistics on the purchasing power of the consumer dollar
published by the Bureau of Labor Statistics of the United States
Department of Labor shall be used for making the computation described
above. In the event the Bureau of Labor Statistics shall no longer
maintain statistics on the purchasing power of the consumer dollar,
comparable statistics published by a responsible financial periodical
or recognized authority selected by the Landlord shall be used for
making the computation described above.
In the event the base year "(1982-84 = 100)" or other base
year used in computing the index is changed, the figures used in making
the adjustment described above shall accordingly be changed so that all
increases in index are taken into account notwithstanding any such
change in the bas year. In no event shall the rent be increased by less
than (see Face Page) per year.
There shall be Four (4) adjustment months which shall be the
month of the term commencement yearly.
Section 3. There shall be added to the above rent
all applicable taxes then in force which may be imposed on rents to be
received by the Landlord. All rent is due and payable without abatement,
set of or deduction on the first of each month.
Section 4. If any payment of rent or other charges
due Landlord, is not received by Landlord within ten days from the due
date, the Tenant shall be assessed $100.00 for each ten days period,
or partial ten day period, such payment is overdue as calculated
from the due date. Any and all sums payable by the Tenant to Landlord
under this Lease in addition to the rent set forth in Article 2, Section
1 of this Lease and Face Page, shall be deemed to be an shall become
additional rent under this Lease whether or not the same be designated
as such, and shall be included in the term "rent" whenever used in this
Lease. Landlord shall have the same remedies for Tenant's failure to
pay such additional rents as for Tenant's failure to pay the rent, as
stated in this Lease.
Section 5. All other sums of money or charges shall
be paid by Tenant under this Lease, which shall include but not be
limited to late fees, attorney's fees or management fees and costs,
clerical fees & costs or administrative costs & fees, incurred by
Landlord to interpret or to enforce the provisions of this Lease or
interest charges on past due payments and shall be deemed to be and
shall become collectible under this Lease and shall be paid by Tenant
as additional rent with the next installment of Base Rental.
ARTICLE 3. During the term of this Lease, the premises shall be used
and occupied only for the following purposes: (See Face Page) and for
no other purposes. Tenant agrees to continuously operate 100% of the
premises during the term of this Lease, and to conduct its business at
all times in a high class and reputable manner. Tenant shall promptly
comply with all laws, ordinances and lawful orders and regulations
affecting the premises, and the cleanliness, safety, occupation and use
of same. No auction, fire or bankruptcy sales shall be conducted in
the premises without Landlord's consent. Tenant shall not use the
sidewalks adjacent to the premises for business purposes without
Landlord's prior written consent.
ARTICLE 4. Section 1. Tenant shall not perform any acts or
carry on any practices which injure the building or be a nuisance or
menace to other tenants in the building in which the premises are
located, and shall keep the premises, the sidewalks adjacent to the
premises, the rear area of the premises and the service area and
corridors allocated for the use of Tenant clean and free from rubbish,
dirt, rodents, insects and odors at all times. All trash and garbage
shall be stored within the premises and Tenant shall arrange for the
regular commercial pickup of such trash and garbage at Tenant's expense.
Tenant shall not burn any trash of any kind in or about the building in
which the premises are located. Tenant shall use dumpster type trash
service. Landlord may contract for the pickup of trash and garbage for
the entire Shopping Center an in such event Tenant shall pay Landlord
its pro rata cost for such service.
Section 2. Tenant shall pay all charges for water,
gas garbage collection, sewage disposal, electricity and for all other
utilities, including but not limited to all impact fees or other fees
imposed by any government authority, used in connection with the
premises, not more than ten (10) days after the same shall become due
and payable.
ARTICLE 5. Section 1. Landlord shall keep the foundation, the
outer walls and roof of the building in which the premises are located
in good repair, except that Landlord shall not be called upon to make
any repairs caused by the negligence of Tenant, its agents or employees.
Landlord shall not be called upon to make any other improvements or
repairs of any kind to the premises.
Section 2. The premises shall at all times be kept
in good order, condition and repair by Tenant, and shall also be kept in
a clean, sanitary and safe condition in accordance with all directions,
rules and regulations of the health officer, fire marshal, building
inspector or other proper officers of the governmental agencies
having jurisdiction, all at the sole cost and expense of Tenant.
Tenant shall permit no water damage or injury to the premises, and
Tenant shall at its own cost and expense replace when necessary and
maintain in good working order any glass windows, doors, and door
hardware, HVAC equipment, duct work, ceiling tiles, lighting fixtures,
all wiring and electrical panels, plumbing and plumbing fixtures in the
premises.
Section 3. At the expiration of this Lease, Tenant
shall surrender the premises in good condition, reasonable wear and
tear, loss by fire or other unavoidable casualty excepted. Landlord
may at Landlord's option require Tenant to return premises to its
original condition when first Leased to Tenant.
ARTICLE 6. Tenant shall not erect or install any exterior or interior
window or door signs or window or door lettering or placards without
the prior written consent of Landlord. Tenant agrees not to use
loudspeakers, phonographs or video broadcasts in a manner to be
heard outside the premises. Tenant shall not permit any noxious,
foul or disturbing odors to emanate from the premises. Tenant agrees
that it will, at its own expense, install an exterior sign in a place
on the premises to be designated by Landlord, which sign will advertise
Tenant's name or type of business, the form and design of which will be
subject to Landlord's approval. (All exterior signs shall be individual
channel lit letters, lit until 12:00 midnight-nightly) (see Exhibit
"F"). Landlord may remove non-conforming signs at Tenant's expense.
Tenant must also pay for and have installed a conforming under canopy
identification sign.
ARTICLE 7. All alterations, additions, improvements and fixtures,
other than trade fixtures, which may be made or installed by either of
the parties hereto upon the premises and which in any manner are
attached to the floors, walls or ceilings, shall be the property of
the Landlord and at the termination of this Lease shall remain upon and
be surrendered with the premises as a part thereof. Any linoleum or
other floor covering of similar character which may be adhesively
affixed to the floor of the premises shall become the property of the
Landlord or at Landlord's option be removed at Tenant's sole cost or
expense. No alterations or additions to the premises may be made
without the proper written consent of the landlord which shall be given
at Landlord's sole discretion, and which may be predicated upon
Tenant's use of contractors who are acceptable to Landlord and upon
Tenant's furnishing of acceptable Payment and Performance Bonds. Tenant
shall be required to obtain all appropriate government permits and
approvals, at Tenant's expense, prior to beginning of any such work in
the premises, and shall furnish to Landlord copies of such permits and
approvals prior to commencement of such work.
ARTICLE 8. Landlord shall be held harmless by Tenant from any
liability for damages to any person or any property in or upon the
premises, hallways and sidewalks adjoining same and service areas,
bathrooms and corridors allocated to the use of Tenant including the
person and property of Tenant, and its employees and all persons in
the premises at its or their invitation. All property kept, stored or
maintained on the premises shall be done so at the risk of Tenant only.
Tenant shall indemnify Landlord for any legal fees, court costs, and
management/administration fees and costs in connection with Tenant's
obligations as set forth in this Article.
ARTICLE 9. Section 1. Tenant shall not carry any goods or
conduct its business in a manner which will in any way tend to increase
the insurance rates on the premises or the building of which they are a
part. Tenant agrees to pay as additional rental any increase in
Landlord's insurance premiums resulting from the business carried out
by Tenant, whether or not Landlord has consented to the same. If
Tenant installs any electrical equipment that overloads the lines or
circuits in the premises, Tenant shall at its own expense make
whatever changes are necessary, and will comply with the requirements
of the insurance underwriters and governmental authorities having
jurisdiction.
Section 2. Tenant shall keep in effect a policy of
public liability insurance with respect to the premises and the business
operated by Tenant, in which the limits of liability shall not be less
than $500,000 for one person and $500,000 for more than one person in
any single incident. Tenant shall furnish Landlord with a certificate
of insurance or other acceptable evidence that such insurance is in
force, and evidence that the premiums have been paid by Tenant, within
ten (10) days prior to the due date of the same. Tenant shall obtain a
minimum of $1,000,000 combined single limit.
Section 3. Tenant shall keep in effect a policy of
insurance upon all improvements to the leased premises including the
HVAC system, furniture, fixtures, equipment, stocks of goods and on all
windows/glass in the premises, against loss by fire and windstorm and
for extended coverage in reasonable amounts as may be required by
Landlord, in which policy both Landlord and Tenant shall be names as
parties covered thereby as their respective interests may appear.
Tenant shall furnish Landlord with a certificate of insurance or other
acceptable evidence that such insurance is in force, and evidence that
the premiums have been paid by Tenant, within ten (10) days prior to
the due date of same.
Section 4. "The insurance policy or policies
required by this Section shall at all times during the term be written
by one or more responsible insurance companies rates Best A+ or better,
acceptable to Landlord and licensed to do business in the State of
Florida, in form acceptable to Landlord, insuring Tenant and naming
Landlord, it beneficiaries, agents, and employees as additional
insureds and naming Landlord as the certificate holder.
ARTICLE 10. PERCENTAGE RENT
Section 1. Removed.
Section 2. Removed.
Section 3. Removed.
ARTICLE 11. Tenant agrees that all receiving and delivery of goods and
merchandise and all removal of garbage and refuse shall be made only by
the way of the service areas and rear doors provided for such purposes.
* Landlord hereby grants to Tenant's employees, agents and invitees the
right during the term hereof to use, in common with others entitled to
the use thereof, such service areas and corridors subject to such
reasonable regulations as Landlord may make from time to time. *with
the exception of armored truck deliveries.
ARTICLE 12. Tenant agrees not to assign, sublet or in any way transfer
this Lease or any interest therein without the previous written consent
of Landlord which consent Landlord may grant or withhold in Landlord's
sole discretion. Any attempted assignment by Tenant without the prior
written consent of landlord shall be null and void and shall constitute
a default under the Lease. In such event, Landlord, shall have the
option of terminating the Lease. Under no circumstances shall Tenant
be permitted to sublet the Lease, and any attempt to do so shall
constitute a default of the Lease and shall afford the Landlord the
right to terminate the Lease. Consent by the Landlord to one or more
assignments of this Lease or the premises shall not operate as a consent
to any subsequent assignments, each of which shall require Landlord's
separate consent. Notwithstanding any such assignment, Tenant shall
remain fully liable and shall not be released from performing any of
the terms of this Lease or any amendments or addendums hereto, nor
shall any guarantor be released from any liability thereunder. Any
transfer, sale, pledge or other disposition of any ownership interest
in Tenant or its rights under this Lease, or any attempts by Tenant to
grant any right in and to the premises to any third party, shall be
deemed as assignment under this Article. In the event Landlord
consents to an assignment, Landlord may charge Tenant a minimum
administrative fee of $750.00. However, Landlord may further condition
its consent on the payment by Tenant of any additional legal,
accounting, leasing fees, if any, and administrative costs incurred in
Landlord's processing of the documents associated with the assignment.
ARTICLE 13. Landlord shall have the right to enter upon the premises
with tenant's representative at all reasonable hours for the purpose
of inspecting same or for making repairs, additions or alterations, or
to perform any affirmative obligations of the tenants required in this
Lease, including but not limited to the obligations of Articles 4 and 5
of this Lease, if Landlord deems any repairs or actions required of
Tenant by this Lease are necessary. Landlord may demand that Tenant
make the same forthwith and if the Tenant refuses or neglects to
perform such repairs or actions and complete the same with reasonable
dispatch, Landlord may make or cause such repairs or actions to be make
and shall not be responsible to Tenant for any loss or damage that may
accrue to its stock or business by reason thereof and, if Landlord
makes or causes such repairs or actions to be made, Tenant agrees that
it will forthwith on demand pay to Landlord the cost hereof with interest
at eighteen percent (18%) per annum, and if it shall default in such
payment, Landlord shall have the remedies provided in Article 16 hereof.
For a period commencing ninety (90) days prior to the termination of this
Lease, Landlord may have reasonable access to the premises for the
purpose of exhibiting the same to prospective tenants, including the
placement of a "For Lease" sign on the premises exterior window or like
position.
ARTICLE 14. If the whole of the premises shall be taken by any public
authority under the power of eminent domain, then, at the time of
taking the term of this lease shall cease and the rent due hereunder
shall be paid only up to that day. If any part of the premises shall
be taken as aforesaid, and such partial taking shall render that
portion not so taken unsuitable for the business of Tenant, as
determined by Landlord, then this lease shall cease and terminate as
aforesaid. If such partial taking is not extensive enough to render
the premises unsuitable for business of Tenant, then this Lease shall
continue in effect except that the minimum rent shall be reduced in the
same proportion that the floor area of the premises taken bears to the
original floor area demised and Landlord shall, upon receipt of the
condemnation award, make all necessary repairs or alterations to the
building ins which the premises are located so as to constitute the
portion of the building not taken a complete architectural unit, but
such work shall not exceed the scope of the work to be done by
Landlord originally constructing said building, nor shall landlord in
any event be required to spend for such work an amount in excess of the
amount received by Landlord as damages for the part of the premises so
taken. "Amount received by Landlord" shall mean that part of the
condemnation award which is free and clear to landlord of any
collection of mortgages for the value of the diminished fee. If more
than twenty percent of the floor area of the building in which the
premises are located shall be taken as aforesaid, Landlord may, by
written notice to Tenant, terminate this Lease, upon 30 days written
notice. All damages awarded for such taking shall belong to Landlord
whether such damages shall be awarded as compensation for diminution
in value to the leasehold or to the fee of the premises, provided,
however, that Landlord shall not e entitle to any portion of the award
made to Tenant for cost of removal of stock and fixtures.
ARTICLE 15. If the premises shall be damaged by fire, the element or
other insured casualty not due to Tenant's negligence but are not
thereby rendered untenable in whole or in part, Landlord shall
promptly, at its own expense, to the extent of available insurance
proceeds, cause such damage to be repaired, subject to Tenant's
insurance as required in Article 9, and the rent shall not be abated.
If by reason of such occurrence, the premises shall be rendered
untenable only in part, Landlord shall promptly, at its own expense,
to the extent of available insurance proceeds cause the damage to be
repaired, and the minimum rent shall be abated in proportion to the
portion of the premises rendered untenable. If the premises shall
be rendered wholly untenable by reason of such occurrence, Landlord
shall promptly, at its own expense, to the extent of available
insurance proceeds, cause such damage to be repaired and the minimum
rent shall be abated in whole; provided however that Landlord in its
sole judgment, for any reason, shall have the right to be exercised by
notice in writing, to elect not to reconstruct the destroyed premises,
and in such event this Lease and the tenancy hereby created shall ceases
as of the said occurrence, the minimum rent to be adjusted as of such
data. Said notice shall be given within one hundred and twenty (120)
days of said occurrence. Landlord's obligations as to restoration as
provided in this Section shall be as to the shell, framework,
partition, fixtures and structure of the Shopping Center, electrical,
plumbing, and other systems up to the premises, but not within the
leased premises. Landlord's obligation to repair and rebuild, as
described in this section, is only effective provided that damage and
destruction is not due to Tenant's negligence, omissions, or wrongful
malfeasance or misfeasance if Tenant, its agents, servants, employees,
licensees, visitors, customers, patrons or invitees.
ARTICLE 16. If Tenant shall not pay rent or any other monies due
hereunder at the time and in the manner stated or abandons the
premises, or shall fail to keep and perform any other condition,
stipulation or agreement herein contained on the part of Tenant to be
kept and performed, or if Tenant shall suffer to be filed against
Tenant an involuntary petition in bankruptcy or shall be adjudged
voluntary or involuntary bankrupt, or make an assignment for the
benefit of creditors, or should there be appointed a receiver to take
charge of the premises either in the State Courts or in the Federal
Courts, then, in any such events, Landlord may, at Landlord's option,
declare this Lease in default, and in such event, Landlord shall in
addition to all remedies by law available to Landlord based upon such
default; including court costs and attorney's fees, appellate attorney's
fees and court costs as well as Landlord's reasonable administrating
costs, brokerage fees and other reasonable associated costs, have the
right to terminate the Lease and elect to declare the entire minimum
rent an any other charges, for the balance of the term due and payable
forthwith. Any sums not paid when due shall bear interest at 18% per
annum.
Section 1. If Tenant is in default under this Lease
more than two (2) times within any twelve (12) month period, and/or for
any number of continuing defaults, irrespective of whether or not such
default is cured, then, without limiting Landlord's other rights and
remedies provided for in this Lease or at law or equity, the Security
Deposit shall automatically be increased by an amount equal to one
additional monthly rental equal to the total monthly rental currently
being paid by Tenant, and Landlord may require future payments to be in
the form or cash or a cashier's check.
ARTICLE 17. Section 1. It is agreed that if the Tenant abandons
possession of the rental unit during the term of this Lease, or is
lawfully evicted by the Landlord, then the Landlord may, at its sole
option, re-take possession of the rental unit and make good faith
effort to re-rent it for the Tenant's account. But such re-taking of
possession shall not constitute a recission of this Lease nor a
surrender of the leasehold estate.
Section 2. In the event Tenant remains in
possession of the premises after the expiration of this Lease and
without the execution of a new lease, Tenant shall be deemed a Tenant
from month to month, subject to all the condition of this Lease except
that the monthly rental shall be twice the then current monthly rent.
Section 3. If Tenant defaults in the performance of
any of the terms, provisions, covenants and condition of this Lease and
by reason of such default, Landlord employs the services of an attorney
or accountant to enforce performance of the covenants or to perform any
service based upon default, then in any of said events, Landlord shall
be entitled to reasonable attorney's (including paralegal and similar
support personnel) all court costs and accountant's fees and all
expenses and all fees and costs incurred by Landlord's staff pertaining
to such matters (including costs and fees relating to any appeal) and
in enforcement of any remedy.
Section 4. Tenant waives its rights to a trial by
jury on any and all matters in any civil action commenced by or against
Tenant concerning this Lease or the premises. If there are any facts
or allegations that need to be tried in a court of law, every position
of said trial will be before the court without jury.
Section 5. In the event any personal property of
Tenant remains on the premises upon Tenant's vacating of same, whether
such vacating is voluntary or the result of eviction proceedings, such
property shall be deemed abandoned by Tenant and shall become the
property of Landlord . Thereafter, Landlord may make any use of said
property as Landlord deems convenient an in no event shall Landlord be
required to account to Tenant for any use or benefit of the property.
ARTICLE 18. The failure of Landlord in one or more instances to insist
upon strict performance or observance of one or more of the covenants
or conditions hereof or to exercise any remedy, privilege or option
reserved to Landlord, shall not be construed as a waiver for the future
of such covenant or condition or of the right to enforce the same or
to exercise such privilege, option or remedy. The receipt by
Landlord of rent or any other payment required to be made by Tenant,
or any part thereof, shall not be a waiver of any other additional rent
or payment then due, nor shall such receipt, though with knowledge of
the breach of any covenant or condition hereof, operate as or be deemed
a waiver by Landlord of any of the provisions hereof, or of any
Landlord's rights, remedies, privileges or options hereunder.
ARTICLE 19. Tenant agrees that at landlord's option this Lease shall
be subordinate to any first mortgage or ground lease that now or may
hereafter be placed upon the premises and to any an all advances to be
made thereunder and to the interest thereon and all renewals,
replacements, assignments and extensions thereof. Tenant agrees, upon
request, to execute any paper or papers which Landlord may deem
necessary to accomplish that end and, in default of Tenant's not so
doing, landlord is hereby empowered to execute such paper or papers in
the name of Tenant and as the act and deed of Tenant, and this authority
is declared to be coupled with an interest and not revocable. This
Article shall be self-operative and no further instrument of
subordination shall be required, however, Tenant agrees to execute
such instrument or instruments acknowledging such subordination as
Landlord may request from time to time.
Section 1. In the event of any transfer of the
ownership of the Demised Premises whether voluntary or involuntary, by
foreclosure, bankruptcy, sale or otherwise, Tenant shall, at the option
of the transferee of said ownership, attorn to said transferee to the
same extent as if said transferee were the initial Landlord hereunder.
ARTICLE 20. Whenever under this Lease a provision is made for notice
of any kind, it shall be deemed sufficient notice and service thereof
if such notice to Tenant is in writing addressed to Tenant at the last
known post office address of Tenant or at the premises or delivered by
hand or posted on a conspicuous place at the premises if Tenant is
absent or sent by certified mail with postage prepaid. Notice needs to
be sent to but one Tenant where Tenant is more than one person. Any
notice to Landlord shall be in writing and sent to the last known post
office address of Landlord and sent by certified mail with postage
prepaid. Notice shall be deemed given on the date it is actually
received or on the date receipt is refused.
ARTICLE 21. Landlord shall not be liable to Tenant for any loss or
damage that may be occasioned by or through the acts or omissions of
other tenants in the Shopping Center, or for any loss or damage
resulting to Tenant or his property from burst or leaking water,
sprinkler or sewer pipes or from roof leaks. Tenant waives any right
of subrogation against Landlord.
ARTICLE 22. Tenant has simultaneously with the execution of this Lease
paid to Landlord the sum of $ (see Face Page) as a security deposit for
the faithful performance by Tenant of Tenant's covenants hereunder, in
the event that Tenant breaches any of the terms, covenants, and
conditions of this Lease, then Landlord shall, at its option, use the
security deposit, or any part thereof, to compensate Landlord for
damages occasioned by Tenant's breach. In the event Landlord's damages
exceed the amount of the security deposit, then Landlord shall apply
the security deposit to Landlord's damages and Tenant shall pay Landlord
any additional amounts due Landlord over and above the security deposit.
Tenant shall immediately pay Landlord any deficiencies in Tenant's
security deposit, caused by Landlord's use of Tenant's security monies.
Landlord may co-mingle the security deposit with its other funds and no
interest shall be paid on the security deposit. Landlord agrees that,
in the event this lease is in good standing at the expiration of the
term hereof, and the premises is delivered to Landlord in good
condition, reasonable wear and tear excepted, free and clear of any
and all debris, and in a "broom swept" condition, then Landlord will
return the security deposit to Tenant within ten (10 days of receiving
possession of the premises form Tenant. Any sale of the Shopping Center
shall relieve Landlord of responsibility for return of the security
deposit, and Tenant shall look solely to the purchaser of the Shopping
Center for the return thereof. Tenant agrees that it shall not look to
Landlord's first mortgagee or its assignee for the return of any
security deposit.
Section 1. As security for it obligations hereunder,
Tenant grants Landlord a lien on all property in the leased premises.
ARTICLE 23. Tenant shall look solely to Landlord's interest in the
Shopping Center and in the Landlord's personal property sued in
connection with the Shopping Center for the satisfaction of any judgment
or decree requiring the payment of money bay Landlord based upon any
default thereunder, and no other property or asset of Landlord shall be
subject to levy, execution or other enforcement procedure for the
satisfaction of such judgement or decree.
ARTICLE 24. It is contemplated that the premises will be ready for
occupancy by Tenant on or prior to the commencement date of this Lease.
However, in the event that Landlord is unable to deliver possession of
the premises to Tenant on or before said date, then Landlord agrees to
deliver possession of the premises to Tenant as soon as practicable
thereafter, and the rental under this Lease will be abated
proportionately and Tenant will be relieved of the liability for paying
same during such time Tenant does not have possession. In no event
shall Tenant have the right to terminate the Lease, or have any claim
for damages (except for the abatement of rent as herein specified) on
account of the failure of Landlord to deliver possession of the
premises to the Tenant on or before said date. Said premises is
measured center wall to center wall, interior and exterior to exterior
wall, front to back.
ARTICLE 25. Other than the repairs which shall be the obligation of
Landlord as required pursuant to Article 5 hereof, Tenant shall, at
its own cost and expense, take good care of and make necessary repairs
and replacement structural and otherwise, to the interior of the
premises, and the fixtures and equipment therein, including the
exterior and interior windows, doors, locks and entrances, store
fronts, signs, showcases, floor coverings, interior walls, columns
and partitions, lighting fixtures, heating, ventilating and air
conditioning equipment, and plumbing and sewage facilities. All parts
of the premises shall be painted or otherwise decorated by Tenant
periodically. Tenant agrees to keep and maintain in good condition
the electrical equipment in the premises and keep in force a standard
maintenance agreement with a company acceptable to landlord on all air
conditioning equipment and provide a copy of said maintenance agreement
to Landlord. Tenant also shall pay for and maintain a termite and pest
extermination service for the premises. Tenant shall have the
obligation to keep the exterior fronts, sidewalks and rear of the
premises in a neat and orderly condition, and free from debris and
rubbish at all times. Tenant's window cleaner must clean aluminum and
use a drop cloth.
ARTICLE 26. It is agreed that by occupancy of the premises by Tenant,
Tenant formally accepts the same and acknowledges that Landlord has
complied with all requirements imposed upon it under the terms of this
Lease. This lease sets forth all the promises, agreements, conditions
and understandings between Landlord and Tenant relative to the premises,
and there are no promises, agreements, conditions, or understandings,
either oral or written, expressed or implied, between them, other than
as herein set forth. Except as herein otherwise provided, no
subsequent alterations, amendments, changes or additions to this
Lease shall be binding upon Landlord or Tenant unless reduced to writing
and signed by them.
ARTICLE 27. Tenant agrees to pay to the Landlord as Tenant's monthly
contribution the sum of $ (see Face Page) for the cost of maintaining
the parking area and common area of the Shopping Center. Said sum
shall be paid monthly in advance, on the dates that payments of rent
are due hereunder. The payment of the sum of money for maintaining the
parking area shall be deemed the same as the payment of rent and all of
the rights, privileges and recourses available to Landlord for the
non-payment of rent shall be available for the nonpayment of the said
sum or money. Landlord shall have the right at the end of each Calendar
Year to adjust the maintenance contribution set forth in this paragraph
against landlord's actual cost of maintaining the parking are and common
are and facilities of the Shopping Center and Tenant shall be obligated
to pay Tenant's pro rata share of such actual cost including the
difference, if any, between the amount Tenant has previously paid to
Landlord pursuant to this paragraph and such actual cost. Tenant's pro
rata share shall amount to that proportion of the actual cost herein
above described which the gross floor area of the premise bears to the
gross area of all rentable space in the Shopping Center less
contributions made by the major or anchor tenants towards operating
costs; Landlord shall exclude the gross leasable areas of any building
constructed on any outparcel(s) and the gross leasable area of any major
or anchor tenants. For purposes of this paragraph, the charges included
within the cost of maintaining the parking area and all common areas;
parking lot and sidewalk sweeping and repairs, cleaning, gardening
and landscaping, maintenance, restriping, sealing, painting and
resurfacing; maintenance and repair of storm drainage system,
including canals and retention areas; any association and property
management fees; lighting facilities and facade maintenance; water,
garbage, security systems and/or personnel and applicable payroll taxes,
worker's compensation, benefits and legal fees; (if applicable and
administrative charge equal to fifteen percent (15%) of the Tenant's
monthly share of the Shopping Center operating cost. Any adjustment
payments due hereunder shall be made within thirty (30) days after
written demand from Landlord, accompanied by a computation of Tenant's
pro rata share. Estimates paid monthly in advance.
ARTICLE 28. Tenant shall submit to Landlord an interior layout and
fixture sketch which must be approved by Landlord in writing prior to
the installation of fixtures by Tenant in the premises. Landlord
agrees that it will approve Tenant's interior layout and fixture
sketch, provided the same is not detrimental in appearance to the
other stores located in the Shopping Center. Any work performed by
Tenant, or Tenant subcontractors, in the premises shall be performed
strictly under the control and supervision of Landlord and/or
Landlord's general contractor. Tenant shall not make any changes to
said store space without Landlord's consent. Failure to obtain
landlord's prior written approval or if Tenant makes any modification
not agreed to in writing, it shall be construed as a gross and
negligent default hereunder.
ARTICLE 29. Tenant warrants and represents that, to Tenant's
knowledge, there is no Real Estate Broker other than Investment
Management Associates, Inc. involved in this Lease and that Tenant has
had no dealings with any other Real Estate Broker or salesman in the
negotiation of this Lease.
ARTICLE 30. During each month of the Lease term, Tenant shall pay, as
Additional Rent to Landlord, the sum of $ (see Face Page) as a deposit
towards Tenant's proportionate share of all costs incurred by Landlord
for all real estate taxes and assessments both general and special
imposed by federal, state, or local governmental authority or any other
taxing authority having jurisdiction over the Shopping Center, against
the land, buildings and all other Improvements within the Shopping Center
which are the responsibility of Landlord hereunder (hereinafter referred
to as the "Real Estate Tax Cost.") Tenant's proportionate share of the
Real Estate Tax Cost shall by computed by multiplying the Real Estate Tax
Cost (less the contributions made by the major or anchor Tenants towards
Real Estate Tax Cost) by a fraction, the numerator of which shall be the
gross leasable are of the premises and the denominator of which shall be
the gross leasable area of the Shopping Center then constructed,
excluding the gross leasable area of any building(s) constructed on any
outparcel(s) and the gross leasable area of any major or anchor tenants.
At the end of each calendar year, Landlord shall furnish
Tenant a statement setting for the actual Real Estate Tax Cost paid or
payable by Landlord during the year. If the deposit paid by Tenant
pursuant to this Article is less than Tenant's proportionate share of
the actual Real Estate Tax Cost as calculated above, Tenant shall pay
to Landlord the difference within thirty (30) days after notification
by Landlord. Landlord shall have the right to adjust the monthly
deposit to be paid by Tenant for the next year to one twelfth (1/12)
of the amount of Tenant's actual proportionate share of Real Estate Tax
Cost for the preceding year.
ARTICLE 31. Landlord agrees to pay all insurance premiums on the
Shopping Center including but not limited to liability insurance;
public liability insurance, flood insurance, property damage and other
insurances. Tenant agrees to pay to Landlord Tenant's pro rata share
as hereinafter defined of the insurance premiums on the Shopping Center
for each Calendar Year of the term of this Lease and any renewal
thereof, including insurance cost for any partial lease years.
Tenant's pro rata share of the insurance premium shall amount
to that proportion of the entire insurance premiums herein above
described which the gross floor area of the premises bears to the gross
floor are of all rentable space in the Shopping Center less
contributions made by the major or anchor tenants toward operating
costs. Landlord shall exclude the gross leasable area of any building
constructed on any outparcel(s) and the gross leasable area of any
major or anchor tenants. Any adjustment payments due hereunder shall
be made within thirty (30) days after written demand from Landlord
accompanied by a computation of Tenant's pro rata share. Any payments
due hereunder shall be deemed additional rent. Estimates paid monthly
in advance.
ARTICLE 32. Section 1. The starting date of this Lease, and
Tenant's obligation to pay rent hereunder; the Rent Commencement Date
shall be as set forth in the Face Page. On all ensuing months, the rent
shall be due on the first of each month.
Section 2. No Base Rent shall be due for the
following period (the "Abatement Period"), collectively: (see Face Page,
if applicable) Tenant shall pay all other Rent due for the Abatement
Period under Article 27, 30 & 39 of this Lease. The entire Base Rent
otherwise due and payable for the Abatement Months shall become
immediately due and payable upon the occurrence of an event of any
default by Tenant under this Lease. It is acknowledged by Tenant that
Landlord furnished such free or abated rent in consideration of
Tenant's promise to faithfully make payment of rent and all other rental
payments which accrue under this Lease.
Section 3. If Tenant is not ready for Landlord to
proceed with any of the work set forth on Exhibit "B", if applicable,
in accordance with Landlord's contractor's schedule for same, because
of work that Tenant has done, is doing or intends to do in the premises,
or if Landlord's contractor cannot proceed with such work due to the
work that Tenant has done, is doing or intends to do in the premises,
then, at Landlord's option, Landlord can waive any work to be provided
Tenant as set forth on Exhibit "B", if applicable, and provide Tenant
with a credit for same in lieu of such work, or Landlord's contractor
can complete such work at a subsequent date, and any additional costs
incurred thereby shall be borne by Tenant and reimbursed to Landlord
upon demand. Any credit to be provided to Tenant shall be determined
solely by Landlord's contractor based upon the Landlord's contractor's
original cost estimate for such work. Tenant shall then have the
obligation to complete Tenant's work as expeditiously as possible.
Section 4. Landlord must approve any contract
entered into by Tenant for work in the premises prior to the
commencement thereof, Tenant shall not have any authority to create
any liens for labor or material on or against the Landlord's interest
in the premises or the Shopping Center, and the existence of any lien
of any nature shall be a breach of this Lease. All persons contracting
with Tenant for the destruction or the removal of any building or for
the erection, installation, alteration, or repair of any building or
other improvements in, on, or to the premises, and all materialmen,
contractors, subcontractors, subsubcontractors, mechanics, and
laborers are hereby charged with notice that they must look solely and
only to the Tenant's interests in the premises to ensure the payment of
any bill for work done or material furnished during the rental period
created by this Lease and, specifically, not to the Landlord or the
Landlord's interest. Tenant agrees that it will include the language
in this paragraph in any contract or agreement for any work done by
Tenant in or on the premises by Tenant's contractor or any of its
subcontractors, materialmen or other individuals or entities claiming
through such contractor file.
Section 5. Any work done in the premises by Tenant
must first be approved by Landlord in writing after submission of full
working drawings. Tenant shall have the obligation to promptly transfer
to bond any lien filed against the premises or any portion of the
Shopping Center within twenty (20) days from the filing thereof. Tenant
shall forthwith pay all liens of contractors, subcontractors,
subsubcontractors, mechanics, laborers, and materialmen and all other
items of like character and that Tenant does hereby indemnify, defend
and hold harmless landlord against all legal costs and charges, bond
premiums for release(s) of lien, including all attorney's fees and
court costs of Landlord incurred in and about the prosecution or
defense of any suit discharging the premises and alternatively, the
Shopping Center or any part or portion thereof from any liens, charges,
judgements, or encumbrances caused or suffered to be caused, directly
or indirectly, by Tenant, and that all the costs and charges referred
to above shall be considered as rent due and shall be included in any
lien for rent. If store is an "existing store" then Exhibit "B" shall
not be applicable. TENANT certifies that it has inspected the leased
premises and accepts same in its existing condition. No work is
required to be done by Landlord as a condition of this Lease, unless
specifically stated herein.
ARTICLE 33. Upon receipt of written notice from landlord advising Tenant
to the effect that Landlord intends to renovate, repair, or in any way
modify or alter the front or facade of the building in which the
premises are located, Tenant agrees that it will promptly remove its
store sign during the course of such renovations, repairs, modifications
or alterations. Tenant hereby waives and releases landlord from any
and all claims for loss or interruption of business or any other
damages relating to or arising from any work performed by landlord
or its agents on or about the Shopping Center of which the premises
is a part. Such work on the part of landlord shall include, but is not
limited to, any repairs, improvements, or renovations made to the
parking lot, common areas of the Shopping Center or interior portions
of the premises which Tenant occupies. Tenant agrees to abide by
landlord's rules and regulations for the Shopping Center, as such
rules and regulations shall be complied by Landlord from time to time
as set forth in Exhibit E. Tenant agrees that it will instruct its
employees to park in the area designated by landlord as employees'
parking area and that Tenant will not park or permit employees to park
in any area of the Shopping Center other than that designated by
Landlord as employees' parking area.
ARTICLE 34. Tenant agrees at any time, within ten (10) days of
Landlord's written request, to execute, acknowledge and deliver to
landlord a written statement certifying that its lease is unmodified
and in full force and effect (or, if there have been modifications,
that the same is in full force and effect as modified and stating the
modifications), and the dates to which the minimum rent and other
charges have been paid in advance, if any, it being intended that any
such statement delivered pursuant to this paragraph may be relied
upon by any prospective purchaser or mortgagee of the Shopping Center.
Section 1. Removed.
ARTICLE 35. Tenant shall not use the premises for the handling,
storage, transportation, or disposal of hazardous or toxic materials
including asbestos or any other environmentally sensitive matter.
The term "Hazardous Substances," as used in this Lease, shall include,
without limitation, flammable, explosives, radioactive materials,
asbestos, polychlorinated biphenyls (PCBs), chemicals know to cause
cancer or reproductive toxicity, pollutants, contaminants, hazardous
wastes, toxic substances or related materials, petroleum and
petroleum products, and substances declared to be hazardous or toxic
under any law or regulation now or hereafter enacted or promulgated by
any governmental authority.
Section 1. Tenant's Restriction shall not cause or
permit to occur:
(a)Any violation of any federal, state or local law,
ordinance, or regulation now or hereafter enacted,
related to environmental conditions on, under or
about the premises or arising from Tenant's use or
occupancy of the premises, including but not
limited to soil and ground water conditions; or
(b)The use, generation, release, manufacture,
refining, production, processing, storage or
disposal of any Hazardous Substance without
Landlord's prior written consent, which consent
may be withdrawn, conditioned, or modified by
Landlord in its sole and absolute discretion in
order to insure compliance with all applicable
laws (hereinafter defined), as such laws may be
enacted or amended from time to time.
Section 2. Environmental Clean-up
(a)Tenant shall, at Tenant's own expense, comply
with all laws regulating the use, generation,
storage, transportation or disposal of Hazardous
Substances (the "Law").
(b)Tenant shall, at Tenant's own expense, make all
submissions to, provide all information required
by, and comply with all requirements of all
governmental authorities (the "Authorities") under
the Law.
(c)Should any Authority or any third party demand a
cleanup plan be prepared or undertaken because of
any deposit, spill, discharge or other release of
Hazardous Substances that occur during the term of
this Lease, at or from the premises or which
arises at any time from Tenant's use or occupancy
of the premises, Tenant shall, at Tenant's own
expense, prepare and submit the required plans an
all related bonds and other financial assurances
and Tenant shall carry out all such cleanup plans.
(d)Tenant shall promptly provide all information
regarding the use, generation, storage,
transportation or disposal of Hazardous
Substances requested by Landlord. If Tenant
fails to fulfill any duty imposed under this
Article within thirty (30) days following its
request, Landlord may proceed with such efforts
and in such case. Tenant shall cooperate with
Landlord in order to prepare all documents
Landlord deems necessary or inappropriate to
determine the applicability of the laws to the
premises and Tenant's use thereof and for
compliance therewith, and Tenant shall execute
all documents promptly on Landlord's request and
any expense incurred by Landlord shall be payable
by Tenant as Additional Rent. No such action by
Landlord and not attempt made by Landlord to
mitigate damages under any law shall constitute
a waiver of any of Tenant's obligations under this
Article.
(e)Tenant's obligations and liabilities under this
Article shall survive the expiration or other
termination of this Lease.
Section 3. Tenant's Indemnity: Tenant shall
indemnify, defend and hold harmless Landlord, it respective officer,
directors, beneficiaries, shareholders, partners, agents, and employees
from all fines, suits, procedures, claims and actions of every kind an
all costs associated therewith including attorneys' and consultants'
fees, arising out of or in any way connected with any deposit, spill,
discharge or other release of Hazardous Substances that occur during
the term of this Lease, at or from the premises, or which arises at any
time from Tenant's use or occupancy of the premises or from Tenant's
failure to provide all information, make all submissions and take all
steps required by all Authorities under the law and all other
environmental laws.
Section 4. Tenant's obligation and liabilities under
this Article shall survive the expiration or other termination of this
Lease.
ARTICLE 36. Time is of the essence with respect to the performance of
each of Tenant's covenants of this Lease and the strict performance of
each shall be a condition precedent to Tenant's rights to remain in
possession of the premises or to have this Lease continue in effect.
ARTICLE 37. If Tenant is a corporation or a partnership, the person
signing this Lease on behalf of such a corporation or partnership
hereby warrants he has full authority from such corporation or
partnership to sign this Lease and obligate the corporation or
partnership hereunder.
ARTICLE 38. Removed.
ARTICLE 39. Removed.
ARTICLE 40. Face Page, Exhibits A thru J inclusive (unless otherwise
noted hereafter) together with any other Addendums to this Lease
consisting of ( ) pages, with section number consecutively, are
attached hereto and made a part hereof by this reference. See Exhibit
"A" Site Plan; Exhibit "C" Tenant's Work; Exhibit "D" Construction;
Exhibit "E" Rules and Regulations; Exhibit "F" Signage Criteria;
Exhibit "H" Disclosure; Exhibit "I" (omitted); Exhibit "J" (omitted);
Exhibit "K" Rider to Lease Option to Renew, if any.
SPACE IS BEING LEASED IN "AS IS" CONDITION.
WITNESS: TENANT: Commercial Bank of Florida
_________________________________ ____________________________________
BY: Jack J. Partagas, President
_________________________________
WITNESS: LANDLORD: Hallandale, Place, Ltd.
_________________________________ ____________________________________
BY: Hallandale Place, LLC,
General Partner
_________________________________ BY: Alan Goldstein, Partner
EXHIBIT "A"
SITE PLAN
EXHIBIT "C"
DESCRIPTION OF TENANT'S WORK
The following work is to be done by TENANT at TENANT'S sole expense:
1. COMPLETION OF DEMISED PREMISES: All work required to complete and
place the DEMISED PREMISES in finished condition for opening for
business, except only for the work specifically described in Exhibit
"B" as LANDLORD'S work, is to be done by TENANT at TENANT'S sole
expense: included in such work, but without limitation, are all
subdivision walls, floor coverings, wall finishes, all office fixture
work, all painting and decorating.
2. TENANT'S CONSTRUCTION:
a) Shall strictly comply with all applicable building codes, regulations,
laws, ordinances and permitting laws for all construction.
b) Non-combustible materials must be used above ceiling.
c) Mezzanines not permitted unless approved by Landlord.
d) Plastered or dry walls, or their equivalent finish, required
throughout the sales area. Any exposed studs in storeroom area will
be finished with dry wall or its equivalent. Paint and decorate
interior of DEMISED PREMISES.
e) Provide all partitions.
f) Provide all floor coverings.
g) Provide trash room within DEMISED PREMISES (if required).
h) Provide for any heating and air conditioning equipment, required by
TENANT in addition to units supplied by LANDLORD, all wiring and duct
work; designed by a professional engineer with seal. Space above
ceiling may not be used as a return air plenum unless TENANT provides
proper fireproofing. If space above ceiling is not used as a return
air plenum, then heating ducts above ceiling shall be insulated. NO
ROOF OR WALL PENETRATIONS WILL BE PERMITTED WITHOUT PRIOR WRITTEN
APPROVAL OF LANDLORD. All such equipment to e in proper operation
on day that TENANT opens the DEMISED PREMISES for business.
i) All cutting and patching of the roof area required for installation
of air conditioning and ventilation systems, plumbing or utilities
shall be paid by the TENANT. However, in all cases said work shall
be performed by the LANDLORD'S roofing subcontractor.
j) Provide all utilities, plumbing, electric and telephone as well as
other TENANT requirements under the floor slab and other areas within
the store buildings and pay for hook-up charges and all additional
connection fees or impact fees imposed by the Governing Authorities.
k) TENANT shall furnish information to LANDLORD'S architect for its
requirements for lights and power, and its estimated load and shall
provide a complete set of as-built plans and evidence of approval/
inspection by building and zoning inspectors with all necessary
final approvals.
l) Provide hot water and drinking fountain, if any, with all necessary
connections.
m) Provide fire extinguishers which may be required.
n) Provide all time clocks.
o) Provide all required exit lights/signs as well as emergency lights
if required.
3. FIXTURING: TENANT shall furnish, install and connect trade fixtures
as required by TENANT'S merchandising layout, which fixtures shall be
new, unless otherwise approved in writing by LANDLORD.
4. SIGNS: Sign drawing must be submitted for the approval of LANDLORD
and/or LANDLORD'S architect. Additional sign criteria on attached
Exhibit 'F' Signage Criteria".
5. ACCESS TO DEMISED PREMISES: LANDLORD, LANDLORD'S agent or designee,
an independent contractor, or an authorized utility company, as the
case may be, shall have the right to run utility lines, pipes,
conduits or duct work where necessary or desirable, through attic
space, column space, or other parts of the DEMISED PREMISES, and to
repair, alter, replace or remove the same, all in a manner which does
not interfere unnecessarily with TENANT'S use of the DEMISED PREMISES.
6. LABOR DISPUTES: To the end that there shall be no labor dispute which
would interfere with the construction, completion, or operation of the
SHOPPING CENTER, or with any work being carried on therein, TENANT
shall engage the services of only such contractors and subcontractors
as will work in harmony with each other, those of LANDLORD, and any
others then working in the SHOPPING CENTER.
7. INSURANCE: TENANT shall require its contractors to furnish LANDLORD
or LANDLORD'S contractors evidence of adequate insurance coverage
prior to TENANT'S contractor performing any work in the DEMISED
PREMISES, and TENNAT agrees to indemnify and hold harmless LANDLORD
and LANDLORD'S contractors from and against any claims, actions or
damages resulting from acts of negligence of TENANT, its agents,
employees, or contractors in performance of TEANT'S work.
8. TENANT'S EMPLOYEES AND CONTRACTORS: TENANT shall be limited to
performing its work, including any office or storage for construction
purposes, within the DEMISED PREMISES only. TENANT and TENANT'S
contractors shall be responsible for daily removal from the SHOPPING
CENTER of all trash, rubbish, and surplus materials resulting from
construction, fixturing and merchandising of the DEMISED PREMISES.
9. TEMPORY UTILITIES: TENANT shall be responsible for temporary
utility connections for its work, including payment of utility
charges.
10.APPROVALS: Any approval or consent by LANDLORD or LANDLORD'S
architect shall in no way obligate LANDLORD in any manner whatsoever
in respect to the finished product, design and/or construction by
TENANT. Any deficiency in design or construction, although the same
had prior approval of LANDLORD, shall be solely the responsibility
of TENANT.
11.HAZARDOUS SUBSTANCES: TENANT must familiarize itself with all
restrictions, ordinances, laws, etc. relating to the use of any and
all hazardous products during or after construction of the premises
and insure, indemnify and otherwise hold harmless the LANDLORD, for
any violations, including the clean up, if necessary, of any
accidents, violations by the TENANT, the TENANT'S contractor or
subcontractors.
EXHIBIT "D"
CONSTRUCTION
1. LANDLORD'S WORK:
LANDLORD shall, at its sold cost and expense, substantially perform
LANDLORD's work with respect to the SHOPPING CENTER, the DEMISED
PREMISES, and the building in which the DEMISED PREMISES is located in
such manner as to comply with the requirement of Exhibit "B" (entitled:
"Description of Landlord's Work") if applicable. The proposed location
of such building within the SHOPPING CENTER and the DEMISED PREMISES
are shown on Exhibit "A" (entitled: "Site Plan"). Notwithstanding the
foregoing, the location, type, shape, height and number of stories of
such building and the nature and identity of the occupants of adjoining
premises shall each be subject to such changes (whether ordinary or
extraordinary, foreseen or unforeseen) as LANDLORD shall, at any time
and from time to time, deem in its sole judgment to be desirable for
the benefit of the SHOPPING CENTER. No such changes, or any of them,
shall invalidate or affect this Lease. LANDLORD's work shall be
conclusively deemed approved by TENANT in all respects except only
for items of LANDLORD's work which does not substantially conform to
Exhibit "B", if applicable, and as to which TENANT shall have given
specific written notice to LANDLORD within thirty (30) days after
TENANT receives the premises. If TENANT's work is delayed (or about
to be delayed) because LANDLORD's work did not (or will not) proceed on
schedule, TENANT shall within twenty-four (24) hours notify the
Arbitrator in writing thereof, with a copy of such notice to LANDLORD.
The Arbitrator will determine where the fault lies. If it is
determined that LANDLORD's agents or contractor is at fault in causing
the delay, then the time for the completion of TENANT's work will be
extended pro rata accordingly. If any other disputed interpretation
or difference between LANDLORD and TENANT arises out of any matter
concerning LANDLORD's work, TENANT's work or anything contained in
Exhibits "B", if applicable and "C" (the latter entitled: "Description
of Tenant's Work") the same shall be submitted in writing to designated
Shopping Center architect (hereinbefore and hereinafter in this Exhibit
"D" referred to as the "Arbitrator") who shall determine the dispute or
difference. The Arbitrator's determination or award shall be final
and binding and conclusive upon both TENANT and LANDLORD. Any award
or determination rendered in accordance with this provision shall be
controlling and decisive of any question, matter of dispute thereafter
arising under this Lease, if and to the extent that such question,
matter or dispute thereafter arising involves the same issue(s). Each
arbitration under this provision shall be governed by the laws of the
State of Florida, and shall be held in Miami-Dade County, State of
Florida, or at such other place as the Arbitrator may reasonably
designate. The charge or cost of the arbitration, regardless of the
award or determination, shall be borne equally by LANDLORD and TENANT.
2. TENANT'S WORK:
All work, other than that specifically agreed to in writing to be
performed by LANDLORD shall be performed by TENANT, at TENANT's sole
cost and expense, and in accordance with the plans and specifications
hereinafter referred to in this Section, prepared by TENANT's architect
in conformity with the description of TENANT's work in Exhibit "C".
TENANT shall prepare and submit to LANDLORD for approval, within thirty
(30) days from the date of this Lease, three (3) complete sets of
preliminary plans, drawings and specifications covering TENANT's work,
prepared in conformity with the applicable provision of Exhibit "C".
If LANDLORD or LANDLORD's architect notifies TENANT of any objections
to such plans, drawings, and specifications, TENANT shall make the
necessary revisions to LANDLORD's reasonable satisfaction and promptly
resubmit the same after such notice. LANDLORD's approval will be
evidenced by endorsement to that effect on two (2) sets of the
preliminary plans, drawings and specifications, one set to be retained
by LANDLORD and one set by TENANT. Within thirty (30) days after
LANDLORD's approval of the preliminary plans, drawings and
specifications, TENANT shall deliver to LANDLORD three (3) complete
sets of working plans, drawings and specifications, each set of which
shall have been initialed by TENANT, thereby evidencing TENANT's
approval thereof. LANDLORD shall notify TENANT of the manner, if any,
in which said working plans, drawings and specifications as submitted
to TENANT fail to conform with said preliminary plans, drawings and
specifications and with the applicable provision of Exhibit "C".
TENANT shall revise or correct said working plans, drawings and
specifications to LANDLORD's reasonable satisfaction and promptly
submit such revisions or corrections to LANDLORD similarly initialed.
LANDLORD's approval will be evidenced by endorsement to that effect on
one set of the working drawings and specifications and the return of
such signed set to TENANT.
3. COMMENCEMENT OF TENANT'S WORK:
TENANT shall obtain all necessary permits from the jurisdictional
authority and forward a copy of all the permits to the LANDLORD prior
to its commencement of work on the premises. TENANT shall expeditiously
commence construction of TENANT's work and work diligently and
continually at a time and in a manner which will not interfere with
completion of LANDLORD's work and will perform and complete TENANT's
work in compliance with such reasonable rules and regulations as
LANDLORD's and its architect or contractor or contractors may make,
provided that TENANT shall be commenced within thirty (30) days after
the last of the following to occur ("TENANT CONSTRUCTION COMMENCEMENT
DATE") (i) LANDLORD's approval of TENANT's working plans, drawings and
specifications and (iii) LANDLORD's notice to TENANT that the DEMISED
PREMISES will, within thirty (30) days after said notice, be
substantially completed (except for finishing operations or items of
work necessarily awaiting the performance of TENANT's work). TENANT's
work shall be performed in accordance with the approved working plans,
drawings and specifications and Exhibit "C" and shall be substantially
completed within the number of days set forth on the Face Page for
completion of TENANT's work; and TENANT shall open the DEMISED PREMISES
for business as set forth herein. In the event that, for whatever
reason, TENANT does not fully open the DEMISED PREMISES for the conduct
of its business as set forth herein within (see Face Page) days after
receiving possession of the DEMISED PREMISES from LANDLORD, as provided,
LANDLORD, in addition to all other remedies given to it hereunder, shall
have the option of terminating this Lease by giving TENANT written
notice of such termination; and in such event, this Lease shall be
terminated unless by the date of the giving of said written notice,
TENANT shall have actually opened the DEMISED PREMISES for the conduct
of its business.
4. CONSTRUCTION:
Time is of the essence with respect to the performance by TENANT of each
of the provision concerning construction and the opening of the DEMISED
PREMISES for business. If TENANT fails or omits to make timely
submission to LANDLORD of its plans, drawings, or specifications or
unreasonably delays in submitting or supplying information or in giving
authorization or in performing or commencing to perform or completing
TENANT's work or unreasonably delays or interferes with the performance
of LANDLORD's WORK, LANDLORD, in addition to any other right or remedy
it may have at law or in equity, may pursue any one or more of the
following remedies: (a) Until TENANT, shall have commenced TENANT's
work, LANDLORD may give TENANT at least ten (10) days written notice
that if a specified failure, omission or delay is not cured by the date
therein stated, this Lease shall be deemed canceled and terminated; and
if such notice shall not be complied with, this Lease shall, on the date
state in such notice, ipso facto, be canceled and terminated without
prejudice to LANDLORD's rights hereunder; or (b) LANDLORD may, after
written notice of intention to do so, at TENANT's cost and expense,
including without limitation, all expenses for such overtime as
LANDLORD's architect may deem necessary, proceed with the completion
of any such plans, drawings, or specifications for TENANT's work as the
case may be, and such performance by LANDLORD shall have the same effect
hereunder as if the desired plans, drawings, specifications,
information, approval ,a authorization work or other action by TENANT
had been done as herein required; and LANDLORD may require TENANT to pay
to LANDLORD, as additional rent hereunder, the full cost to LANLDORD of
completing the DEMISED PREMISES in accordance with the terms of this
Lease over and above what would have been such cost had there been no
such failure, omission or delay; and, alternatively, (c) LANDLORD may
give written notice of TENANT (notwithstanding that such a notice is
not required hereunder) that the Lease term will be deemed to have
commenced on the date to be therein specified when the same would have
commenced if TENANT had made timely submission or supply of plans,
drawings, specifications, estimates or other information or approval of
any thereof, and on and after the date so specified, LANDLORD shall be
entitled to be paid on the terms as agreed the MINIMUM ANNUAL RENT and
any other rents and charges which are payable under this Lease by TENANT
during the Lease Term. In exercising any of the foregoing remedies set
forth in (a), (b), or (c), LANDLORD shall be entitled to retain and
have recourse to any, if any, bond, escrow deposit, advance rent or
DEPOSIT previously deposited by TENANT under this Lease.
5. OBLIGATIONS BEFORE LEASE TERM COMMENCES:
TENANT shall perform promptly all of its obligation under this Lease,
including, without limitation, its obligation to pay charges for
temporary water, heating, cooling and lighting pursuant to Exhibit "C"
from the data upon which the DEMISED PREMISES are made available to
TENANT for its work (or from the date when TENANT commenced to perform
its said work, if earlier), until the actual commencement of the Lease
term in the same manner as though the Lease term began when the DEMISED
PREMISES were so made available to TENANT or when TENANT commenced
performing its said work, if earlier.
6. COMPLETION OF TENANT'S WORK:
Upon completion of TENANT's work and prior to TENANT opening its office
for business, TENANT shall (a) deliver to LANDLORD an affidavit by
TENANT stating that TENANT's work has been substantially completed in
accordance with Exhibit "C", which shall include a detailed breakdown
of TENANT's final and total construction costs, together with
receipted invoices showing payment thereof, and TENANT must deliver a
final Release of Lien from TENANT's general contractor, together with an
affidavit from the general contractor that all bills for labor and
materials furnished to the DEMISED PREMISES have been paid, in lieu of
a detailed breakdown of TENANT's total and final construction costs,
together with receipted invoices, and which affidavit shall also state
the names and addresses of all those in privity with such general
contractor and it is understood that any deliberately false statement
by TENANT therein shall constitute a breach of this Lease, and (b)
deliver to LANDLORD the affidavit of the general contractor or general
contractors performing TENANT's work, stating that TENANT's work has
been substantially completed in accordance with Exhibit "C", that all
subcontractors, subsubcontractors, laborers and materialmen supplying
labor materials for TENANT's work has been substantially completed in
accordance with Exhibit "C", that all subcontractors, subsubcontractors,
laborers and materialmen supplying labor or materials for TENANT's works
have been paid in full and that all liens therefore that have been or
might be filed have been discharged of record or waived, and that no
security interests relating thereto are outstanding, and (c) deliver to
LANDLORD written certifications and approvals with respect to TENANT's
work and its right to use and occupy the DEMISED PREMISES that may be
required for any government authority, LANDLORD's mortgages, and any
Board of Fire Underwriters or similar body, and (d) furnish to LANDLORD
the insurance required by this Lease.
7. OWNERSHIP OF IMPROVEMENTS:
Without limiting any other similar provision(s) contained elsewhere in
the Lease, all installations, additions, betterments or improvements in
or upon the DEMISED PREMISES made by either party, including, without
limitation, all pipes, ducts, conduits, wiring, paneling, partitions,
railings, mezzanine floors, galleries and the like shall become the
property of LANDLORD at the time the improvements are made, and shall
remain upon and surrendered with the DEMISED PREMISES as a part
thereof at the expiration or sooner termination.
8. ACCEPTANCE OF PREMISES:
If store is an "existing store" then Exhibit "B" shall not be
applicable. TENANT certifies that it has inspected the leased premises
and accepts same in its existing condition. No work is required to be
done by Landlord as a condition of this Lease. Tenant accepts the
premises in their "as-is" condition and Landlord has no obligation to
improve, repair, restore, or alter the premises. Tenant acknowledges
that neither Landlord nor any agent of Landlord has made any
representation or warranty, except as otherwise expressly provided in
this Lease, with respect to the building (including the premises).
This includes, without limitation, any representation or warranty with
respect to the suitability or fitness of the building or any portion
for the conduct of Tenant's business, or compliance of the premises or
any other portion of the building with the Americans with Disabilities
Act of 1990, 42 USCA 12101-12213, as amended from time to time (the
"ADA").
STORE EXHIBIT "E"
RULES AND R EGULATIONS
TENANT agrees as follows:
1) All deliveries or shipments of any kind to and from the DEMISED
PREMISES, including loading and unloading of goods shall be made only
by way of the rear of the DEMISED PREMISES (if any) or at any other
location designated by LANDLORD, and only at such times designated for
such purposes by LANDLORD and further, that all deliveries of fixtures
shall be unloaded in accordance with any jurisdictional rights of any
interested labor unions as determined by LANDLORD.
2) Garbage and refuse shall be kept in the kind of container specified
by LANDLORD and shall be placed at the location designated by LANDLORD,
for collection at the times specified by LANDLORD. TENANT to pay the
cost of removal unless LANDLORD, at LANDLORD's option, shall choose to
develop "common" dumpster location and place the garbage collection
within the common area maintenance (CAM) provision.
3) No radio, television, phonograph or similar devices, or aerial
attached hereto (inside or outside) shall be installed without first
obtaining in each instance LANDLORD's consent in writing, and, if such
consent be given, no such device shall be used in a manner so as to be
heard or seen outside of the DEMISED PREMISES.
4) TENANT shall operate its air-conditioning units in the DEMISED
PREMISES during the hours that TENANT's store is open for business, and
shall replace all A/C filters according to commercially recommended
intervals.
5) The outside areas immediately adjoining the DEMISED PREMISES shall be
kept clean and free of TENANT's dirt and rubbish, and TENANT shall not
place, suffer or permit any obstructions or merchandise in such areas.
6) TENANT shall not use the public or common areas in the Shopping
Center for any business purposes.
7) TENANT and its employees shall park their cars only in those portions
of the parking area designated for that purpose by LANDLORD. Said cars
shall be subject to towing, at TENANT's expense. No commercial vehicles
shall be parked in the front of the SHOPPING CENTER nor any personal
cars or trucks with display and signs whatsoever. If TENANT's principals
or employees violate this provision, TENANT shall pay LANDLORD $10.00 per
day per car in each such instance.
8) Plumbing facilities shall not be used for any other purpose than that
for which they are constructed, and no foreign or hazardous substances
of any kind shall be thrown therein. All mechanical apparatus shall be
free of vibration and noise which may be transmitted beyond the confines
of the DEMISED PREMISES.
9) TENANT shall provide, at TENANT's cost and expense, a pest
extermination to the premises at such intervals as LANDLORD may require.
10)TENANT shall not burn trash or garbage in or about the DEMISED
PREMISES or the SHOPPING CENTER. Nor permit any foul or objectionable
odors to permeate from the DEMISED PREMISES. Should the odors be caused
by the ongoing business of Tenant, then Tenant shall be required to
immediately "seal" its premises according to Landlord's specifications
and at Lessee's sole cost and expense make any alterations,
modifications, or improvements necessary to alleviate said disturbance.
Failure to cure the above odors shall constitute an immediate default
under this Lease.
11)TENANT shall place, suffer or permit displays, decorations or
shopping carts on the sidewalks or hallways in front of the DEMISED
PREMISES or on or upon any of the common areas of the SHOPPING CENTER.
12)TENANT shall not distribute any handbills or other advertising matter
in the common areas of the SHOPPING CENTER including, without limitation,
hallways, sidewalks, pedestrian walkways, or parking areas and lots.
13)TENANT shall not place or have installed any pay telephones, video
games, newspaper stands, etc. on or about their premises or common areas
of the SHOPPING CENTER, or operate any vending machines, pinball
machines, or electronic games or similar devices within the DEMISED
PREMISES.
14)In addition to Article 25 in the base lease whereas Tenant is
obligated to maintain an annual contract with a fully-licensed air
conditioning repair firm, said firm shall:
a)Regularly service the air conditioning unit(s) on the Leased
Premises on a quarterly basis, changing belts, filters and other
parts as required.
b)Perform emergency and extraordinary repairs on the air
conditioning unit(s);c. Keep a detailed record of all services
performed on the Leased Premises and prepare a yearly service
report to be furnished to the TENANT at the end of each calendar
year.
Not later than thirty (30) days prior to the date of commencement of the
term of this Lease and annually thereafter. Tenant shall furnish to
Landlord a copy of the air conditioning maintenance contract described
above, and proof that the annual premium for the maintenance contract
has been paid. Nothing stated herein above shall limit Tenant's
obligation to maintain the air conditioning unit(s) IN GOOD CONDITION
AND REPAIR THROUGHOUT THE TERM OF THIS LEASE.
15) TENANT's window washers must use drop cloths and must wipe aluminum
after cleaning.
16) TENANT shall not place any "T signs", sandwich signs, banner, or
other signs in or around the common areas adjoining sidewalks or
easements surrounding the DEMISED PREMISES and SHOPPING CENTER.
Should Tenant do so, Landlord shall charge Tenant a fee of $100.00
per violation, per occurrence, for the removal of same.
17) Landlord shall have the same remedies for TENANT's failure to pay
such fines, costs or charges as set forth in these rules and
regulations as Landlord has for Tenant's failure to pay the rent as
stated in this Lease. Repeated violations of any of the above
provisions shall be grounds for termination of this leasehold.
18) Landlord may amend or add new rules and regulations for the use and
care of the DEMISED PREMISES, the building of which said premises
are a part, and the common areas and the facilities. Tenant agrees
to comply with all such rules and regulations which shall apply
uniformly to all tenants. Failure to comply with the above rules
and regulations shall constitute a default of this Lease and all
such default provisions shall apply.
19) TENANT shall not permit the accumulation of any refuse, including
shipping boxes, on the exterior of TENANT's premises, front or rear,
but shall properly break said boxes down and place immediately in
dumpsters.
EXHIBIT "F"
SIGNAGE CRITERIA
All signs shall be designed, constructed and located in accordance with
the following design criteria and shall be subject to the prior approval
of the LANDLORD. This sign criteria has been established for the
purpose of assuring a uniform tenant signage program. Conformance will
be strictly enforced and any non-conforming signs will be disapproved.
TENANT must have signs installed on the center fascia, the under canopy
or upon its door (whichever is applicable) within forty-five (45) days
of Lease execution.
1) TENANT shall submit or cause to be submitted to the LANDLORD for
approval before fabrication two prints of detailed professional shop
drawings indicating the location, side, layout, design and color the
proposed sign(s), including all lettering and/or graphics, and
including the exact relation to the store front fascia including the
entire to 'scale' elevation of the building which the sign is to be
located. All signs must be centered in all directions.
2) All permits for sign(s) and their installation shall be obtained by
the TENANT or its representative from the city in which business is
located, and a copy forwarded to LANDLORD.
3) All signs shall be constructed and installed at TENANT's expense,
including removal of all existing signs and shall be maintained in
good repair at all time. Said sign shall conform to the criteria
established by LANDLORD and LANDLORD's sole discretion.
4) TENANT shall be responsible for the fulfillment of all requirements
of this criteria, and shall submit samples of sign materials if
requested by the LANDLORD.
5) All fascia signs shall be single letters, individually illuminated
internally, channel letters with metal sides and plastic faces. No
box type signs will be permitted. Letters shall be installed on
aluminum raceway and raceway will be finished to match building
fascia on which sign is to be installed. Raceway must be sealed
with a silicone sealer to prevent water seepage through box onto the
building fascia.
6) No exposed lamps or tubing will be permitted.
7) All wiring will be concealed in raceway.
8) Returns of letters to be bronze durodonic, or another color as
specified by Landlord.
9) Faces of letters to be 1/8" plexiglass with 1" trim cap.
10)Logos will be reviewed on an individual basis and are subject to the
LANDLORD's approval.
11)Electrical service to all signs shall be on TENANT's meter.
12)Painted lettering will not be permitted.
13)All exterior signs must be single Helvetica letters of 4" minimum
depth with individual internal illumination.
14)Maximum height of each letter: Store front 10'-25' shall be 18"
high; Store front 30'-40' shall be 24" high; minimum height of each
letter shall be 12" high. Larger signs may be allowed with
Landlord's prior written consent.
15)Maximum width of the sign is not to exceed 80% of the width of the
store front.
16)Major Tenant signage: size and location will be at the complete
discretion and approval of the LANDLORD.
17)All signs, bolts, fastenings and clips shall be stainless steel,
or aluminum. No black iron material of any type will be permitted.
18)* All penetrations of the building structure required for sign
installation shall be neatly sealed in a watertight manner. Any
damage resulting from installation including secondary water damages
shall be TENANT's responsibility. Repairs will be performed by
TENANT's subcontractors under direction of LANDLORD. All costs shall
be paid for by TENANT.
19)No labels will be permitted on the exposed surface of signs except
those required by local ordinance which shall be applied in an
inconspicuous location.
20)* Sign contractor shall repair and/or replace any damage to work of
others caused by this work.
21)* TENANT shall be fully responsible for work performed by TENANT's
sign contractor.
22)All sign contractors and installers must be licensed, insured, and
certified.
23)All tenants are required to order and install under canopy signs to
LANDLORD's specification and through LANDLORD's sign contractor, or
at LANDLORD's sole option, pay LANDLORD a fee of $250.00 at Lease
signing and LANDLORD shall order and have installed the under canopy
sign for TENANT, or LANDLORD at LANDLORD's option may order said sign
and reduce said security deposit by same. Tenant shall then be
required to replenish said security deposit with a like sum or the
Lease shall be in default. Said sign should cost approximately
$250.00.
24)All rear door signs must match LANDLORD's pre-approved white decal
lettering no larger than 4" and no more than two lines of print.
All work and contractors utilized by Tenant must be approved by LANDLORD.
Commencement of work may not begin without written notification to
LANDLORD of the intent to begin work. All exposed surfaces, especially
the awnings (if applicable), must be completely covered/protected with
plastic or equivalent method, on a temporary basis. All plastic will be
removed from canopy on a daily basis as soon as work is completed.
SHOPPING CENTER: Hallandale Place Shopping Center
---------------------------------
SIGNAGE COLOR: _________________________________
EXHIBIT "H"
DISCLOSURE
1. AGENCY DISCLOSURE
INVESTMENT MANAGEMENT ASSOCIATES, INC. (name of licensee, license
status, brokerage co.) is by this document giving notice to Commercial
Bank of Florida (TENANT) that he/she/it is the agent and representative
of the Hallandale Place, Ltd. (LANDLORD).
_____________________________________
Landlord: Hallandale Place, Ltd.
By: Hallandale Place, LLC, General Partner
By: Alan Goldstein, Partner
_____________________________________
Tenant: Commercial Bank of Florida
By: Jack Partagas, President
_____________________________________
Licensee/Leasing Agent: Ronald J. Tencer
_____________________________________
Broker: Investment Management Associates, Inc.
Daniel Baumgard, CEO
2. RADON GAS:
Radon is a naturally occurring radioactive gas that, when it has
accumulated in a building in sufficient quantities, may present health
risk to persons who are exposed to it over time. Levels of radon that
exceed federal and state guidelines have been found in buildings in
Florida. Additional information regarding radon and radon testing may
be obtained from your county public health unit, pursuant to 404.056(8),
Florida Statutes.
3. COMPENSATION:
The Tenant acknowledges that Investment Management Associates, Inc.
(Leasing Agent) is being paid by the Landlord pursuant to Rule
2-13.003(2), Florida Administrative Codes.
___________________________________
TENANT: Commercial Bank of Florida
BY: Jack J. Partagas, President
EXHIBIT K (a)
RIDER TO LEASE
OPTION TO RENEW
This is an addendum to and part of the Lease dated January 25, 2002,
between Hallandale Place, Ltd. (as "Landlord") and Commercial Bank of
Florida (as "Tenant") and is stated as follows:
Provided that Tenant has been in good standing and has not been in
default of any of the terms and/or conditions of this Lease during the
initial term of this Lease, then the Tenant shall have the option to be
exercised, by written notice only, to Landlord, at least six (6) months
prior to the expiration of the original term of this Lease, to renew
this Lease for an additional Five (5) years term. All the terms and
conditions provided for in the original Lease and all addendums,
extensions and assignments thereto shall remain in full force and
effect; excluding any free rental period and/or one time start up
provision afforded Tenant by Landlord. Failure of Tenant to exercise
their rights to option, within the above time period allowed, shall
deem the option right null and void; there are no oral renewals. Time
is of the essence. Notwithstanding the foregoing, the initial monthly
base rent payable during this option period shall be:
Equal to the then asking retail price per square foot
for similar space in said Shopping center, but not less than Tenant's
then current rental payment.
Yearly increases shall be:
[X] CPI (Floor: 4% per year) (Cap: 6% per year)
For the purpose of this option period, there shall be Five (5)
"adjustment months" during the renewal period, which shall be in the
month of February yearly.
Should Tenant be allowed to assign said Lease or if there has been a
change of use during the original term of this Lease, this option shall
be deemed null and void.
There shall be no further right of renewal.
WITNESS: LANDLORD:
Hallandale Place, Ltd.
BY: Hallandale Place, LLC,
General Partner
______________________________ _________________________________
BY: Alan Goldstein, Partner
______________________________ _________________________________
Date
TENANT: Commercial Bank of Florida
______________________________ _________________________________
BY: Jack J. Partagas, President
______________________________ _________________________________
Date
Exhibit 21.1
Subsidiaries of Commercial Bankshares, Inc.
Commercial Bank of Florida, a Florida chartered banking
corporation (100%)
Exhibit 23.1
Consent of Independent Certified Public Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8/S-3 (No. 33-96606) of Commercial Bankshares, Inc.
of our report dated January 16, 2002 relating to the financial
statements, which appears in the Annual Report to Shareholders, which
is incorporated in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Miami, Florida
March 12, 2002
Page 1 Letter to Shareholders
Page 2 Summary Consolidated Financial Information
Page 4 Management's Discussion and Analysis
Page 17 Report of Independent Certified Public Accountants
______________________________________________________________________
Corporate Profile
______________________________________________________________________
Commercial Bankshares, Inc. is a bank holding company whose subsidiary,
Commercial Bank of Florida, operates fourteen branches in two of
Florida's fastest growing counties: Miami-Dade and Broward. Since its
inception in 1988, the Company has grown to $569 million in assets
through acquisitions and internal growth. Lead by seasoned South
Florida bankers, the Company is committed to extending its personalized
"hometown" banking services to other communities in the South Florida
area.
_______________________________________________________________________
Page 18 Consolidated Financial Statements
Page 22 Notes to Consolidated Financial Statements
Page 36 Directors and Officers of the Company and Subsidiary Bank
Page 37 Subsidiary Bank Locations
To Our Shareholders
It gives me great pleasure to present you with the Company's results
For 2001. This year was especially unpredictable, yet the Company's
strength and stability resulted in an outstanding year of performance.
To highlight the achievements during 2001, your Company reported record
earnings, continued to expand the loan portfolio, increased dividends,
grew asset and deposit size steadily and improved the value of the
franchise.
Net income rose to a record $7.02 million, an 11% increase over 2000
earnings of $6.31 million. Diluted earnings per share were $1.89 for
2001, as compared to $1.68 for 2000. Return on average assets closed
the year at 1.28% and return on average equity was 14.61%. These results
show that we are meeting and exceeding our goals and expectations for
the Company's financial success.
Earnings for the fourth quarter of 2001 were $1.82 million, a 10%
increase over earnings for the same period in 2000 of $1.65 million.
Diluted earnings per share were $0.49 for the fourth quarter of 2001,
as compared to $0.45 for the same period in 2000.
The loan portfolio continued to show growth, closing the year at $346
million, a 21% increase over the 2000 net loan closing balance of $286
million. We have increased the loan portfolio as a percentage of total
deposits steadily to end the year with a 76% loan-to-deposit ratio. The
allowance for loan losses closed the year at $4.64 million, or 1.32% of
total loans. Non-performing assets were 0.15% of total assets.
The Company's cash dividends declared during 2001 rose to a record $.82
per share, an 11% increase over 2000 cash dividends declared of $.74 per
share. The Company's strong earnings and solid capital position support
the increased dividends to our shareholders.
Internal deposit growth was solid, with total deposits and repurchase
agreements reaching $516 million at December 31, 2001. This is a 9%
increase from the prior year closing balance of $474 million. Total
assets also increased 9% to close the year at $569 million, as compared
to $523 million one year ago. We have grown steadily and will remain
focused on continuing this positive trend.
All of the financial factors have improved the value of our franchise,
but the intangible factor that drives the worth of this Company is our
people and our service. The relationship that we have with our customers
is a vital factor to our current success and to our growth in the
future. We remain committed to the South Florida communities that we
serve.
In closing, the Board of Directors and I would like to extend best
wishes to each of you, our shareholders. It is your support that has
allowed us to reach this level of growth, financial position and
shareholder value. We look forward to guiding your Company to continued
success as we face a new year and the challenges of today's marketplace.
As always, I sincerely welcome your calls and letters.
Joseph W. Armaly
Chairman of the Board and
Chief Executive Officer
Selected Five Year Data
(In Thousands, Except Per Share Data)
As of or For the Years Ended December 31,
------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Income Statement Data:
Interest income $ 37,262 $ 35,502 $ 30,210 $ 28,140 $ 25,451
Interest expense 16,366 16,113 11,947 11,478 10,105
Net interest income 20,896 19,389 18,263 16,662 15,346
Provision for loan losses 875 435 930 230 170
Net interest income
After provision for
loan losses 20,021 18,954 17,333 16,432 15,176
Non-interest income 3,495 2,828 3,621 2,668 2,641
Non-interest expense 13,667 12,751 13,413 12,207 11,319
Income before
income taxes 9,849 9,031 7,541 6,893 6,498
Income tax expense 2,832 2,716 2,085 2,033 1,975
Net income $ 7,017 $ 6,315 $ 5,456 $ 4,860 $ 4,523
Per Share Data:
Basic earnings
per share $ 1.95 $ 1.72 $ 1.42 $ 1.25 $ 1.17
Diluted earnings
per share $ 1.89 $ 1.68 $ 1.37 $ 1.21 $ 1.14
Book value at year end$ 13.89 $ 12.52 $ 11.10 $ 11.57 $ 10.81
Cash dividends
declared per
common share $ 0.82 $ 0.74 $ 0.59 $ 0.46 $ 0.29
Balance Sheet Data:
Cash and cash
equivalents $ 68,200 $ 35,015 $ 39,085 $ 35,233 $ 27,561
Investment securities
available for sale 111,138 143,487 125,236 119,072 95,054
Investment securities
held to maturity 24,664 37,215 43,392 57,430 83,012
Loans, net 346,251 285,641 244,016 199,277 170,175
Total assets 568,928 522,524 475,170 432,345 395,973
Deposits 462,506 422,923 388,447 350,415 319,844
Borrowed funds 53,436 51,166 40,794 33,978 31,285
Stockholders' equity 50,125 45,055 42,781 44,737 41,929
Selected Financial Ratios
As of or For the Years Ended December 31,
-----------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Return on average assets 1.28% 1.28% 1.20% 1.16% 1.20%
Return on average equity 14.61% 15.43% 12.35% 11.14% 11.54%
Net yield on average
interest-earning assets (1) 4.28% 4.48% 4.61% 4.56% 4.72%
Allowance for loan losses
to total loans 1.32% 1.31% 1.32% 1.20% 1.30%
Allowance for loan losses as a
percentage of non-accrual loans 557% n/a 375% 459% 2182%
Asset quality ratio (non-performing
loans and other real estate owned
to total assets) 0.15% 0% 0.18% 0.12% 0.03%
Average interest-earning assets
to Average interest-bearing
liabilities 126% 125% 127% 128% 126%
Non-interest expense to average
total assets 2.49% 2.59% 2.94% 2.92% 3.01%
Net interest income to
non-interest expense 153% 152% 136% 137% 136%
Risk-based capital ratios:
Tier I capital 12.03% 12.82% 14.88% 16.19% 18.14%
Total capital 13.54% 14.30% 16.34% 17.70% 19.20%
Leverage ratio (2) 8.24% 8.17% 9.23% 9.52% 9.70%
Equity to total assets 8.81% 8.62% 9.00% 10.35% 10.59%
(1) Represents net interest income on a fully tax-equivalent basis as a
percentage of average interest-earning assets.
(2) The leverage ratio is defined as the ratio of Tier I capital to
total assets.
Corporate and Earnings Overview
Commercial Bankshares, Inc. (the Company), a Florida corporation
organized in 1988, is a bank holding company whose wholly owned
subsidiary and principal asset is the Commercial Bank of Florida (the
Bank). The Company, through its ownership of the Bank, is engaged in
a commercial banking business. Its primary source of earnings is
derived from income generated by its ownership and operation of the
Bank. The Bank is a Florida chartered banking corporation with fourteen
branch locations throughout Miami-Dade and Broward counties in South
Florida. The Bank primarily focuses on providing personalized banking
services to businesses and individuals within the market areas where its
banking offices are located.
The Company reported net income of $7.02 million, an 11% increase over
2000 net income of $6.31 million. Net income for 1999 was $5.46 million.
The increase in 2001 net income is due to increases in net interest
income of $1.5 million, an increase in security gains of $348,000, and
an increase in non-interest fee income of $319,000, partially offset by
an increase in the provision for loan losses of $440,000, an increase in
non-interest expense of $916,000, and an increase to the provision for
income taxes of $116,000. Basic and diluted earnings per common share
were $1.95 and $1.89, respectively, in 2001, compared to $1.72 and $1.68,
respectively, in 2000. Basic and diluted weighted average shares
outstanding were 3.61 million and 3.72 million, respectively, in 2001,
and 3.67 million and 3.75 million, respectively, in 2000. Weighted
average shares exclude treasury stock, which totaled 352,571 shares and
346,905 shares at December 31, 2001 and 2000, respectively.
Return on average assets and return on average equity were 1.28% and
14.61%, respectively, for 2001, and 1.28% and 15.43%, respectively, for
2000. Average assets increased $57 million, or 12%, in 2001. Book
value per common share increased 11% to $13.89 at December 31, 2001 from
$12.52 at December 31, 2000, due to current year profits and other
comprehensive income. Capital ratios continued to exceed all
regulatory requirements, with a leverage ratio of 8.24% in 2001, as
compared to 8.17% in 2000. Dividends declared per common share
increased 11% to $.82 in 2001, from $.74 in 2000.
EARNINGS ANALYSIS
Net Interest Income
Net interest income is the single most significant component of the
Company's earnings. Net interest income is comprised of interest income
and loan-related fees, less interest expense. Net interest income is
affected by numerous factors, including the level, pricing, mix and
maturity of earning assets and interest-bearing liabilities, as well as
interest rate fluctuations. For purposes of this discussion, net
interest income has been adjusted to a fully tax-equivalent basis, which
restates tax-exempt income to an amount that would yield the same after-
tax income had the income been subject to income taxes.
Net interest income for 2001 was $22.0 million, an increase of 8% over
2000 net interest income of $20.3 million. In 2000, net interest income
grew 6% from $19.2 million in 1999. The increase in net interest income
in 2001 is attributable to an increase in average earning assets of $59
million. The net interest margin was 4.28% in 2001, as compared to 4.48%
in 2000 and 4.61% in 1999. The decrease of 20 basis points in 2001 is
attributable to the interest rate environment and market competition
during 2001. The rapid drop in the prime rate and treasury rates during
the year resulted in loan repricings and lower interest income.
Repricing of deposits was initially slower due to a competitive market
environment in 2001.
The following table presents the Company's average balances, interest
earned or paid and average interest rates earned or paid for each of the
years ended December 31, 2001, 2000 and 1999.
AVERAGE BALANCES AND INTEREST RATES
(Dollars in Thousands)
2001 2000 1999
---------------------- ---------------------- ----------------------
Interest Interest Interest
Average Income/ Avg Average Income/ Avg Average Income/ Avg
Balance Expense Rate Balance Expense Rate Balance Expense Rate
Interest-earning assets:
Loans (1)
$327,771 $26,976 8.23% $266,266 $23,463 8.81% $224,957 $18,809 8.36%
Investments, taxable
104,165 6,620 6.36% 129,025 8,828 6.84% 133,111 8,374 6.29%
Investments, non-taxable (2)
51,980 3,713 7.15% 44,612 3,278 7.35% 42,756 3,206 7.50%
Federal funds
28,858 1,011 3.50% 13,386 852 6.36% 15,588 769 4.93%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest-earning assets
512,774 38,320 7.47% 453,289 36,421 8.03% 416,412 31,158 7.48%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Non-interest-earning assets:
Cash and due from banks
21,734 20,405 20,100
Other assets
14,399 18,432 18,997
-------- -------- --------
Total non-interest-earning assets
36,133 38,837 39,097
-------- -------- --------
Total assets
$548,907 $492,126 $455,509
======== ======== ========
Interest-bearing liabilities:
Interest-bearing checking
$ 60,558 564 0.93% $ 56,888 596 1.05% 57,704 608 1.05%
Money market
46,221 1,396 3.02% 41,774 1,396 3.34% 43,422 1,265 2.91%
Savings
23,345 408 1.75% 22,936 445 1.94% 22,798 375 1.64%
Time
223,348 12,075 5.41% 194,253 11,041 5.68% 161,427 7,876 4.88%
Borrowed funds
52,234 1,923 3.68% 45,429 2,635 5.80% 41,358 1,823 4.41%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest-bearing liabilities
405,706 16,366 4.03% 361,280 16,113 4.46% 326,709 11,947 3.66%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Non-interest-bearing liabilities:
Non-interest-bearing deposits
91,533 86,545 81,136
Other liabilities
3,653 3,376 3,500
-------- -------- --------
Total non-interest-bearing liabilities
95,186 89,921 84,636
-------- -------- --------
Stockholders' equity
48,015 40,925 44,164
-------- -------- --------
Total liabilities & stockholders' equity
$548,907 $492,126 $455,509
======== ======== ========
Net interest income and net yield on
average earning assets (3)
21,954 4.28% 20,308 4.48% 19,211 4.61%
Less tax-equivalent adjustment included above
(1,058) (919) (948)
------- ------- -------
Net interest income
$20,896 $19,389 $18,263
======= ======= =======
(1) For purposes of this analysis, non-accruing loans were included in
the computation of average balances.
(2) On a fully tax-equivalent basis using a 34% rate for Federal income
tax purposes, reduced by the non-deductible portion of interest
expense.
(3) The net yield on average earning assets is net interest income
divided by average interest-earning assets.
The net yield is affected by changes in the mix, volume and interest
rates of the various categories of interest-earning assets and interest-
bearing liabilities. The following table presents the effect of changes
in average balance and rate on interest income, interest expense and net
interest income for the periods indicated.
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
(ON A FULLY TAXABLE EQUIVALENT BASIS)
(In Thousands)
2001 Compared to 2000 2000 Compared to 1999
--------------------- ---------------------
Volume Rate Change Volume Rate Change
------ ---- ------ ------ ---- ------
Interest earned on:
Loans (1) $5,421 ($1,908)$3,513 $3,454 $1,200 $4,654
Investments, taxable (1,701) (507)(2,208) (257) 711 454
Investments, non-taxable (2) 540 (105) 435 139 (67) 72
Federal funds 985 (826) 159 (109) 192 83
------ ------ ------ ------ ------ ------
Total interest income 5,245 (3,346) 1,899 3,227 2,036 5,263
------ ------ ------ ------ ------ ------
Interest paid on:
Interest bearing checking 38 (70) (32) (9) (3) (12)
Money market 149 (149) - (48) 179 131
Savings 8 (45) (37) 2 68 70
Time 1,654 (620) 1,034 1,602 1,563 3,165
Borrowed funds 395 (1,107) (712) 179 633 812
------ ------ ------ ------ ------ ------
Total interest expense 2,244 (1,991) 253 1,726 2,440 4,166
------ ------ ------ ------ ------ ------
Change in net
interest income $3,001 ($1,355)$1,646 $1,501($ 404)$1,097
====== ====== ====== ====== ====== ======
(1) For the purposes of this analysis, non-accruing loans were included
in the computation of average balances.
(2) On a fully tax-equivalent basis using a 34% rate for Federal income
tax purposes, reduced by the non-deductible portion of interest
expense.
Non-interest Income
Non-interest income for 2001 was $3.50 million, compared to $2.83
million in 2000 and $3.62 million in 1999. These figures include non-
recurring gains (losses) on sales of securities of $240,000, ($108,000)
and $763,000 for 2001, 2000 and 1999, respectively, and gains on sales
of fixed assets of $1,000, $8,000 and $220,000 for 2001, 2000 and 1999,
respectively. The fluctuation in recurring non-interest income includes
an increase in service charges on deposit accounts of $276,000.
Non-interest Expense
Non-interest expense for 2001 was $13.7 million compared to $12.8
million in 2000 and $13.4 million in 1999. The 7% increase during 2001
is attributable to increased staff, data processing, occupancy and
professional expense. Staff expense increased $781,000, or 10%, due to
an increase in full-time equivalent employees from 182 in 2000 to 187 in
2001, regular salary increases and higher medical insurance premiums.
Data processing expense increased $121,000, or 13%, due to an increase
in the number of accounts processed and due to a full year of higher rates
based on a new contract signed in April, 2000. Occupancy expense
increased $65,000, or 5%, due to rent increases at three branches and
higher real estate taxes. Professional fee expense increased $57,000,
or 25%, due to legal issues relating to non-accrual loans. These
increases were partially offset by a decrease in furniture and equipment
expense of $107,000, or 13%, and a decrease in advertising expense of
$105,000, or 84%. Furniture and equipment decreased due to certain
assets reaching full depreciation during the year. Advertising expense
decreased due to the completion of a radio campaign in 2000.
The following table summarizes the various categories of non-interest
expense for the years ended December 31, 2001, 2000 and 1999.
NON-INTEREST EXPENSE
(In Thousands)
2001 2000 1999
---- ---- ----
Salaries and employee benefits $ 8,353 $ 7,572 $ 7,722
Occupancy 1,260 1,195 1,242
Data processing 1,019 898 968
Furniture and equipment 737 844 983
Professional fees 284 227 337
Stationery and supplies 268 260 267
Insurance 265 219 206
Telephone 231 235 210
Administrative service charges 230 187 167
Amortization of goodwill 163 199 179
Security 159 136 114
Armored carrier and courier 113 111 108
State fees and assessments 98 89 82
FDIC insurance 78 77 131
Postage 59 62 64
Dues and subscriptions 58 56 58
Donations 51 39 76
Advertising 20 125 154
Intangible tax - - 180
Other expenses 221 220 165
------- ------- -------
Total non-interest expense $13,667 $12,751 $13,413
======= ======= =======
Taxes
For the years ended December 31, 2001, 2000 and 1999, the Company
recorded an income tax expense of approximately $2.83 million, $2.72
million and $2.09 million, respectively. Accordingly, the Company's
effective tax rates were 30%, 30% and 28% for 2001, 2000 and 1999,
respectively. The determination of effective rates reflects items which
are not reported for income tax purposes, primarily tax-exempt interest
income and the amortization of goodwill.
FINANCIAL CONDITION ANALYSIS
Investment Securities
The Company's investment securities portfolio of $136 million at
December 31, 2001, consisted of securities available for sale of $111
million, which are carried at fair value, and securities held to maturity
of $25 million, which are carried at amortized cost. This compares to
investment securities of $180 million at December 31, 2000, which
consisted of securities available for sale of $143 million, and
securities held to maturity of $37 million. The decrease of $45 million
in the investment portfolio is due to the increase in loans in excess of
deposit growth and due to management's decision to hold higher federal
funds balances in the short term. The ratio of available for sale
investments to total investments increased to 82% in 2001 from 79% in
2000, as the Company chose to classify new securities as available for
sale in order to increase its ability to manage the portfolio to meet
Asset/Liability and interest rate sensitivity goals.
The portfolio of securities available for sale at December 31, 2001 had
a net unrealized gain of $2.7 million, net of taxes, as compared to a
net unrealized gain of $1.7 million, net of taxes, at December 31, 2000.
The following table presents the Company's investment portfolio as of
December 31, 2001, 2000 and 1999.
INVESTMENT PORTFOLIO SCHEDULE
(In Thousands)
At December 31,
---------------------------------
2001 2000 1999
---- ---- ----
Investment securities available for sale (at fair value):
U.S. Government Agencies $ 70,652 $109,846 $ 99,130
Municipal Obligations 35,641 29,091 21,736
Other 4,845 4,550 4,370
Total investment securities -------- -------- --------
available for sale $111,138 $143,487 $125,236
======== ======== ========
Investment securities held to maturity (at amortized cost):
U.S. Government Agencies $ 9,308 $ 17,000 $ 20,877
Municipal Obligations 15,356 20,215 22,265
Other - - 250
Total investment securities -------- -------- --------
held to maturity $ 24,664 $ 37,215 $ 43,392
======== ======== ========
Mortgage-backed securities, included in U.S.
Government Agencies $ 61,276 $ 66,428 $ 57,316
======== ======== ========
The maturities and weighted average yields of investment securities,
excluding corporate stock, as of December 31, 2001 and 2000, are set
forth below. The weighted average interest yields are calculated by
dividing the sum of the individual security yield weights by the total
book value of the securities.
INVESTMENT SECURITIES MATURITIES & YIELDS
(Dollars in Thousands)
At December 31, 2001, Maturing
------------------------------------------------------------
1 Year 1 Year to 5 Years to After
or Less 5 Years 10 Years 10 Years
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
Maturity Distributions Available for Sale (1)
U.S. Government Agencies
$ - - $ 7,762 5.41% $13,314 5.85% $49,576 6.46%
Municipal Obligations (2)
- - 1,386 8.55 6,954 6.59% 27,301 6.86%
------ ------ ------- -------
$ - $9,148 $20,268 $76,877
====== ====== ======= =======
Maturity Distributions Held to Maturity
U.S. Government Agencies
$ - - $ 306 5.26% $ 2,740 6.28% $ 6,261 6.17%
Municipal Obligations (2)
- - 10,139 8.32% 5,218 8.23% - -
------ ------ ------- -------
$ - $10,445 $ 7,958 $ 6,261
====== ====== ======= =======
At December 31, 2000, Maturing
1 Year 1 Year to 5 Years to After
or Less 5 Years 10 Years 10 Years
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
Maturity Distributions Available for sale (1)
U.S. Government Agencies
$ - - $ 8,219 6.52% $57,848 6.79% $43,779 6.78%
Municipal Obligations (2)
- - - - 3,164 6.50% 25,927 6.83%
------ ------ ------- -------
$ - $ 8,219 $61,012 $69,706
====== ====== ======= =======
Maturity Distributions Held to Maturity
U.S. Government Agencies
$ 318 6.08% $ 622 5.40% $ - - $16,060 7.05%
Municipal Obligations (2)
825 8.59% 9,267 8.37% 10,123 8.34% - -
------ ------ ------- -------
$1,143 $ 9,889 $10,123 $16,060
====== ====== ======= =======
(1) As investment securities available for sale are to be held for
indefinite periods of time and are not intended to be held to
maturity, contractual maturity may differ from actual disposal.
(2) On a fully tax-equivalent basis using a 34% federal income tax
rate, reduced by the non-deductible portion of interest expense.
Loans
At December 31, 2001, the balance of the loan portfolio was $352 million,
an increase of 21% over the December 31, 2000 loan balance of $290
million. Average net loans were $323 million in 2001, compared to $262
million in 2000. Planned loan growth resulted in a loan-to-deposit ratio
of 76% at December 31, 2001. Asset quality continues to be solid, with
$834,000 in non-performing assets at December 31, 2001. Loans are made
to businesses and individuals in the local market area. The composition
of the portfolio is presented in the following table:
LOAN PORTFOLIO ANALYSIS
(Dollars in Thousands)
December 31,
----------------------------------------------------------------------
2001 2000 1999 1998 1997
------------- ------------- ------------- ------------- -------------
Amount % Amount % Amount % Amount % Amount %
------ --- ------ --- ------ --- ------ --- ------ ---
Commercial & financial
$ 52,376 $ 49,635 $ 46,147 $ 34,415 $ 30,454
14.9% 17.1% 18.6% 17.0% 17.7%
Real estate mortgages (1)
267,230 210,861 176,500 148,564 124,892
76.0% 72.7% 71.3% 73.6% 72.3%
Installment and other loans
32,002 29,440 24,989 18,984 17,302
9.1% 10.2% 10.1% 9.4% 10.0%
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total loans
351,608 289,936 247,636 201,963 172,648
100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= =======
Less:
Allowance for loan losses
(4,642) (3,806) (3,279) (2,430) (2,247)
Deferred loan fees
(715) (489) (341) (256) (226)
-------- -------- -------- -------- --------
Total loans, net
$346,251 $285,641 $244,016 $199,277 $170,175
======== ======== ======== ======== ========
(1) Real estate mortgages consist primarily of commercial real estate
loans.
The following tables present the maturities of loans (excluding
installment loans) outstanding at December 31, 2001, 2000 and 1999, and
an analysis of sensitivities of loans due after one year.
LOAN MATURITY SCHEDULE
(In Thousands)
Due After
Due in 1 Year Due
1 Year But Before After
or Less 5 Years 5 Years Total
------- ------- ------- -----
At December 31, 2001
Commercial and financial $ 35,251 $ 15,105 $ 2,020 $ 52,376
Real estate mortgage 21,632 79,406 166,192 267,230
At December 31, 2000
Commercial and financial $ 32,401 $ 14,832 $ 2,402 $ 49,635
Real estate mortgage 12,733 74,569 123,559 210,861
At December 31, 1999
Commercial and financial $ 22,816 $ 19,025 $ 4,306 $ 46,147
Real estate mortgage 5,358 55,187 115,955 176,500
LOANS DUE AFTER ONE YEAR
(In Thousands)
December 31,
2001 2000 1999
Type of Interest Rate: ---- ---- ----
Fixed $ 40,866 $ 46,778 $ 42,849
Floating 221,857 168,584 151,624
-------- -------- --------
Total $262,723 $215,362 $194,473
======== ======== ========
Allowance for Loan Losses
The balance in the allowance for loan losses at December 31, 2001, was
$4.64 million, or 1.32% of total loans. This is an increase of $830,000
from the December 31, 2000 allowance balance of $3.81 million, or 1.31%
of total loans. The increase in the allowance is the result of charges
to the provision for loan losses during 2001 of $875,000, less net
charge-offs of $39,000. The charge to the provision for 2000 was
$435,000 and net recoveries were $92,000. The allowance was increased
in order to maintain a level deemed sufficient to absorb losses in the
loan portfolio. The Company reviews the allowance on a monthly basis
and determines its adequacy from analysis of estimates of the risks
associated with specific loans and the loan portfolio, present economic
conditions and peer comparisons.
Non-performing assets were $834,000 at December 31, 2001, compared to $0
at December 31, 2000. Total non-performing assets to total assets were
..15% and 0% at December 31, 2001 and 2000, respectively. With regard to
classified loans, management is not aware of any trends or uncertainties
which are expected to have a material impact on future operating results,
liquidity, capital resources, or of any information which would cause
serious doubt as to the ability of such borrowers to repay. Although
management uses the best information available to make determinations
with respect to the allowance, future adjustments may be necessary if
economic conditions differ substantially from the assumptions used or
adverse developments arise with respect to the Company's non-performing
loans. There were no properties held in other real estate owned at
December 31, 2001 or 2000.
The following table presents an analysis of the Company's allowance for
loan losses for the last five years.
ALLOWANCE FOR LOAN LOSSES ANALYSIS
(Dollars in Thousands)
At December 31,
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Average net loans
outstanding during
the period $323,118 $262,358 $222,326 $180,815 $146,188
======== ======== ======== ======== ========
Total net loans
at period end $346,251 $285,641 $244,016 $199,277 $170,175
======== ======== ======== ======== ========
Beginning balance
of allowance for
loans losses $ 3,806 $ 3,279 $ 2,430 $ 2,247 $ 2,049
-------- -------- -------- -------- --------
Loans charged-off:
Commercial and financial 67 - 7 5 69
Real estate mortgage - - - 84 -
Installment and other 15 22 133 28 43
-------- -------- -------- -------- --------
Total loans charged-off 82 22 140 117 112
-------- -------- -------- -------- --------
Recoveries of loans previously charged-off:
Commercial and financial 28 25 37 53 126
Real estate mortgage - - - 5 5
Installment and other 15 89 22 12 9
-------- -------- -------- -------- --------
Total recoveries 43 114 59 70 140
-------- -------- -------- -------- --------
Net loans charged-off
(recovered) 39 (92) 81 47 (28)
-------- -------- -------- -------- --------
Provision for loan losses 875 435 930 230 170
-------- -------- -------- -------- --------
Balance at
period end $ 4,642 $ 3,806 $ 3,279 $ 2,430 $ 2,247
======== ======== ======== ======== ========
Net charge-offs (recoveries)
during the year to average
net loans 0.01% (0.04%) 0.04% 0.03% (0.02%)
======== ======== ======== ======== ========
Allowance as a percentage
of non-performing loans 557% n/a 375% 459% 2182%
======== ======== ======== ======== ========
The following table presents a summary of the Company's non-performing
assets for the last five years.
NON-PERFORMING ASSETS
(Dollars in Thousands)
At December 31,
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Non-accrual loans:
Commercial and financial $823 $ - $ - $529 $ -
Real estate mortgage - - 874 - 103
Installment and other 11 - - - -
---- ---- ---- ---- ----
Total non-accrual loans 834 - 874 529 103
---- ---- ---- ---- ----
Total non-performing loans 834 - 874 529 103
Other real estate owned - - - - -
---- ---- ---- ---- ----
Total non-performing assets $834 $ - $874 $529 $103
==== ==== ==== ==== ====
Total non-performing assets
To total assets .15% 0% .18% .12% .03%
==== ==== ==== ==== ====
The following table presents the breakdown of the allowance for loan
losses by loan category for the periods indicated. Management believes
that the allowance can be allocated by category only on an approximate
basis. During 2001, in conjunction with the implementation of the
Federal Financial Institutions Examination Council's "Policy Statement
on Allowance for Loan and Lease Losses Methodologies and Documentation
for Banks and Savings Institutions", and the Securities and Exchange
Commission's SAB No. 102, "Selected Loan Loss Allowance Methodology and
Documentation Issues", the Company reviewed and revised its policies and
procedures regarding the methodology used to calculate its allowance for
loan losses. The revised documentation resulted in a change in the
allocation of the allowance to the various loan categories, thus reducing
the unallocated allowance in comparison to previous years. The allocation
of an allowance to each category is not necessarily indicative of future
losses and does not restrict the use of the allowance to absorb losses in
any other category. The allowance represents a reserve for probable
losses existing in the loan portfolio.
ALLOWANCES FOR LOAN LOSSES BY CATEGORY
(Dollars in Thousands)
At December 31,
2001 2000 1999 1998 1997
------------- ------------ ------------- ------------- -------------
% of % of % of % of % of
Loans in Loans in Loans in Loans in Loans in
Category Category Category Category Category
to to to to to
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Commercial & financial
$1,088 14.9% $ 83 17.1% $ 93 18.6% $ 140 17.0% $ 401 17.7%
Real estate mortgages (1)
2,763 76.0% 262 72.7% 280 71.3% 357 73.6% 259 72.3%
Installment & other loans
714 9.1% 92 10.2% 29 10.1% 20 9.4% 47 10.0%
Unallocated
77 - 3,369 - 2,877 - 1,913 - 1,540 -
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Total allowance for loan loss
$4,642 $3,806 $3,279 $2,430 $2,247
====== ====== ====== ====== ======
100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= =======
(1) Real estate mortgages consist primarily of commercial real estate
mortgage loans.
Deposits
The Company's deposit base is its primary funding source. Management
believes that substantially all of the Company's depositors are
residents in its primary market area. The Company does not have a
concentration of deposits from any one source, the loss of which would
have a material adverse effect on the business of the Company.
Average total deposits increased $43 million, or 11%, to $445 million
in 2001, while average borrowed funds (repurchase agreements) increased
by $6.8 million, or 15%, to $52 million. The largest increase by
category of average deposits was certificates of deposit, which grew
$29 million, or 15%. Average demand deposits grew $5.0 million, or 6%.
Deposit growth was internally generated during 2001 at the Company's
fourteen branches in Miami-Dade and Broward counties.
The following table presents the average balances and average weighted
rates for the Company's categories of deposits for the years ended
December 31, 2001, 2000 and 1999.
AVERAGE DEPOSIT BALANCES & WEIGHTED AVERAGE RATES
(Dollars in Thousands)
Years Ended December 31,
-----------------------------------------------------------------------
2001 2000 1999
---------------------- ---------------------- ----------------------
% of % of % of
Average Average Total Average Average Total Average Average Total
Balance Rate Deposits Balance Rate Deposits Balance Rate Deposits
------- ---- -------- ------- ---- -------- ------- ---- --------
Demand
$ 91,533 - 20.6% $ 86,545 - 21.5% $ 81,136 - 22.1%
Interest-bearing checking
60,558 0.93% 13.6% 56,888 1.05% 14.1% 57,704 1.05% 15.7%
Money market
46,221 3.02% 10.4% 41,774 3.34% 10.4% 43,422 2.91% 11.9%
Savings
23,345 1.75% 5.2% 22,936 1.94% 5.7% 22,798 1.64% 6.2%
Time
223,348 5.41% 50.2% 194,253 5.68% 48.3% 161,427 4.88% 44.1%
-------- ------- -------- ------- -------- -------
Total
$445,005 3.25% 100.00% $402,396 3.35% 100.00% $366,487 2.76% 100.00%
======== ===== ======= ======== ===== ======= ======== ===== =======
The following table presents the maturity of certificates of deposit
over $100,000 as of December 31, 2001:
MATURITY SCHEDULE
CERTIFICATES OF DEPOSIT >$100,000
(Dollars in Thousands)
Balance Percent
------- -------
Less than 3 months $26,793 27.8%
3 to 6 months 23,803 24.7%
6 to 12 months 37,983 39.5%
More than 12 months 7,736 8.0%
------- -------
Total $96,315 100.00%
======= =======
Short Term Borrowings
The following table presents a summary of the Company's short term
borrowings at December 31, 2001, 2000 and 1999:
SHORT-TERM BORROWINGS
(Dollars in Thousands)
Years Ended December 31,
2001 2000 1999
---- ---- ----
Securities sold under agreements
to repurchase at year-end $53,436 $51,166 $40,794
Weighted average rate of securities
sold under agreements to repurchase
at year-end 1.72% 6.00% 4.89%
Average amount of securities sold
under agreements to repurchase
during the fiscal year $52,234 $45,429 $41,358
Weighted average rate of securities
sold under agreements to repurchase
during the year 3.68% 5.80% 4.41%
Maximum amount of securities sold
under agreements to repurchase
at any month-end during the
fiscal year $62,534 $52,319 $45,908
Capital
Shareholders' equity increased $5.0 million in 2001 to $50.1 million.
Shareholders' equity was increased by $7.0 million from net income, by
$177,000 from the issuance of common stock resulting from the exercise
of options and by $966,000, net of tax, from other comprehensive income
relating to unrealized holding gains on available-for-sale securities.
Shareholders' equity was reduced by $3.0 million for dividends declared
on common stock and $132,000 for the purchase of treasury stock. For the
year ended December 31, 2001, the return on average equity was 14.61%,
compared to 15.43% for the year ended December 31, 2000.
At year-end 2001 and 2000, there were 3,962,440 (including 352,571 shares
of treasury stock) and 3,946,303 (including 346,905 shares of treasury
stock) shares of common stock outstanding, respectively. There were 191
shareholders of record as of December 31, 2001, and the Company believes
that it has approximately 600 additional beneficial shareholders.
During 2001, the Company declared cash dividends of $0.82 per common
share, an 11% increase over 2000 cash dividends of $0.74 per common
share. Cash dividends declared totaled $3.0 million and $2.7 million
in 2001 and 2000, respectively. Dividends declared but not paid
amounted to $758,000 and $720,000 in 2001 and 2000, respectively.
The Company's common stock trades on the NASDAQ Stock Market under the
symbol CLBK. High, low and closing prices for the years ended December
31, 2001 and 2000, by quarter, are as follows:
COMMON STOCK PRICES
2001 2000
------------------------ ------------------------
High Low Close High Low Close
---- --- ----- ---- --- -----
First quarter $19.13 $17.00 $19.00 $22.00 $16.63 $17.25
Second quarter 22.00 18.50 22.00 18.75 17.50 17.75
Third quarter 24.30 20.35 21.50 18.63 17.00 17.25
Fourth quarter 25.10 19.55 24.01 18.00 16.75 17.00
Continued growth and profitability of the Company are dependent upon
maintenance of adequate levels of capital. The capital adequacy of the
Company is determined based on the level of capital as well as asset
quality, liquidity and earnings history. At December 31, 2001, the
Company and the Bank were rated "well capitalized" by their regulatory
agency. It is management's goal to maintain its "well capitalized"
category for regulatory capital.
Regulatory capital guidelines divide capital into two tiers. Tier 1
capital consists of shareholders' equity less goodwill plus the
unrealized gain/loss on available-for-sale securities. Tier 2 capital
consists of Tier 1 capital plus the allowance for loan losses and 45% of
unrealized gain on available-for-sale equity securities. In addition to
Tier 1 and Tier 2 capital ratio requirements, regulatory capital
guidelines set forth certain leverage capital requirements. This ratio
is computed by dividing Tier 1 capital by unadjusted total assets. The
Company's leverage ratio at December 31, 2001, was 8.24%, compared to
8.17% at year-end 2000, and compared to the regulatory guideline of 5%
for "well capitalized" institutions.
The following table presents the regulatory capital levels and ratios
of the Company at December 31, 2001, 2000 and 1999.
REGULATORY CAPITAL
December 31,
------------------------------
(Dollars in Thousands)
2001 2000 1999
---- ---- ----
Tier I Capital:
Stockholders' equity less
intangible assets (1) $ 47,185 $ 42,919 $ 44,022
Tier II Capital:
Allowance for loan loss 4,642 3,806 3,279
45% of unrealized gain on available
for sale equity securities 1,266 1,132 1,051
-------- -------- --------
Total Capital $ 53,093 $ 47,857 $ 48,352
======== ======== ========
Risk-adjusted assets $392,185 $334,653 $295,949
======== ======== ========
Risk-based capital ratios (2)
Tier 1 Capital 12.03% 12.82% 14.88%
Total Capital 13.54% 14.30% 16.34%
Leverage Ratio 8.24% 8.17% 9.23%
(1) Adjusted for the unrealized holding gain/loss on securities
available for sale and goodwill. The Company's principal source
of capital is generated through earnings and issuance of stock.
(2) The regulatory minimum risk-based ratios are: Tier I Capital 4%;
Total Capital 8%. The regulatory minimum Leverage Ratio is 3%.
Liquidity
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. The Bank's principal
sources of funds are deposits, repurchase agreements, payments on loans,
paydowns, maturities and sales of investments and capital contributions
by the Company. As additional sources of funds, the Bank has credit
availability with the Federal Home Loan Bank amounting to $85 million,
and Federal Funds purchased lines available at correspondent banks
amounting to $12 million.
The Bank's primary use of funds is to originate loans and purchase
investment securities. In 2001, 2000 and 1999, the net change in loans
was an increase of $61.5 million, $42.1 million and $45.4 million,
respectively, and the Bank purchased $45.1 million, $28.7 million and
$51.6 million of investment securities. Funding for the above came
primarily from increases in deposits of $39.6 million, $34.5 million and
$38.0 million in 2001, 2000 and 1999, respectively, and increases in
securities sold under agreements to repurchase of $2.3 million in 2001,
$10.4 million in 2000 and $6.8 million in 1999, and in proceeds from
maturities and sales of investment securities of $91.7 million, $22.0
million and $52.7 million in 2001, 2000 and 1999, respectively.
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
Bank's Asset/Liability Management Committee 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 December 31, 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
------- ------ ------- ----------- -----
Interest-earning assets:
Federal funds sold $ 46,780 $ - $ - $ - $ 46,780
Investment securities 3,902 5,242 8,765 115,053 132,962
Gross loans (excluding
non-accrual) 96,343 26,884 62,903 164,644 350,774
-------- -------- -------- -------- --------
Total interest-
earning assets $147,025 $ 32,126 $ 71,668 $279,697 $530,516
======== ======== ======== ======== ========
Interest-bearing liabilities:
Interest-bearing
checking $ - $ - $ - $ 65,630 $ 65,630
Money-market - 12,990 12,990 25,978 51,958
Savings - - - 24,896 24,896
Time 69,678 61,620 73,158 21,113 225,569
Borrowed funds 55,804 - - - 55,804
-------- -------- -------- -------- --------
Total interest-bearing
liabilities $125,482 $ 74,610 $ 86,148 $137,617 $423,857
======== ======== ======== ======== ========
Interest sensitivity gap $ 21,543($ 42,484)($ 14,480) $142,080 $106,659
======== ======== ======== ======== ========
Cumulative gap $ 21,543($ 20,941)($ 35,421) $106,659
======== ======== ======== ========
Cumulative ratio of interest-earnings
assets to interest-bearing
liabilities 117% 90% 88% 125%
Cumulative gap as a percentage
of total interest-earning
assets 4.1% (3.9)% (6.7)% 20.1%
Management assumptions reflect the Bank's estimate of the
anticipated repricing sensitivity of non-maturity deposit
products. Interest-bearing checking and savings have been
allocated to the "over 1 year" category, and money market,
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 future
interest rate changes on net income. As of December 31, 2001, the
Bank's simulation analysis projects an increase to net interest income of
5.11%, 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 3.07%. These
projected levels are within the Company's policy limits.
Critical Accounting Policies
The Company's financial condition and results of operations are
sensitive to accounting measurements and estimates of matters that are
inherently uncertain. When applying accounting policies in areas that
are subjective in nature, management must use its best judgment to arrive
at the carrying value of certain assets. The most critical accounting
policy applied by the Company is that related to the valuation of the
loan portfolio.
A variety of estimates impact carrying value of the loan portfolio,
including the calculation of the allowance for loan losses, valuation
of underlying collateral, the timing of loan charge-offs and the amount
and amortization of loan fees and deferred origination costs.
The allowance for loan losses is management's most difficult and
subjective judgment. The allowance is established and maintained at a
level that management believes is adequate to cover losses resulting
from the inability of borrowers to make required payment on loans.
Estimates for loan losses are arrived at by analyzing risks associated
with specific loans and the loan portfolio, current trends in
delinquencies and charge-offs, the views of the Bank's regulators,
changes in the size and composition of the loan portfolio and peer
comparisons. The analysis also requires consideration of the economic
climate and direction, change in the interest rate environment, which may
impact a borrower's ability to pay, legislation impacting the banking
industry and economic conditions specific to South Florida. Because the
calculation of the allowance for loan losses relies on management's
estimates and judgments relating to inherently uncertain events, results
may differ from management's estimates.
The allowance for loan losses is also discussed on page 10 of the Annual
Report and in Note 3 to the consolidated financial statements. The
Company's significant accounting policies are discussed in Note 1 to the
consolidated financial statements.
Fourth Quarter Results
Net income for the fourth quarter, 2001 was $1.82 million, a 10% increase
over fourth quarter 2000 net income of $1.65 million. Diluted Earnings
Per Share increased to $.49 per common share in the fourth quarter 2001
as compared to $0.45 per common share in the fourth quarter of 2000.
Fourth quarter 2001 earnings represent a 1.28% annualized return on assets
and a 14.36% annualized return on average equity. Tax-equivalent net
interest income for the fourth quarter of 2001 was $5.81 million, a 13%
increase over fourth quarter 2000 net interest income of $5.14 million.
The fourth quarter 2001 tax-equivalent net interest yield was 4.37%, a 10
basis point increase from the fourth quarter 2000 yield of 4.27%.
The provision for loan losses was $450,000 for the fourth quarter of
2001, as compared to $195,000 for the same period in 2000. The fourth
quarter charge to the provision increased the allowance for loan losses
to $4.64 million, or 1.32% of total loans, a level the Company has deemed
to be sufficient to absorb losses in the portfolio. The Company reviews
the allowance on a monthly basis and determines its adequacy from analysis
of estimates of the risks associated with specific loans and the loan
portfolio, present economic conditions and peer comparisons.
Forward-Looking Statements
This Annual Report to Stockholders (in particular, the sections entitled
"To Our Shareholders" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the discussion of
business) may contain forward-looking statements (within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended),
representing the Company's expectations and beliefs concerning future
events. The actual results of the Company could differ materially from
those indicated by the forward-looking statements because of various
risks and uncertainties, including, without limitation, the Company's
effective and timely initiation and development of new client
relationships, the maintenance of existing client relationships and
programs, the recruitment and retention of qualified personnel, changes
in competition, the adequacy of cash flows from operations and available
financing to fund capital needs and future growth, changes in
governmental rules and regulations applicable to the Company and other
risks in the Company's filings with the Securities and Exchange
Commission. The Company cautions that its discussion of these matters
is further qualified, as these risks and uncertainties are beyond the
ability of the Company to control. In many cases, the Company cannot
predict the risks and uncertainties that could cause actual results to
differ materially from those indicated in the forward-looking statements.
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders of
Commercial Bankshares, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, comprehensive income, changes
in stockholders' equity and cash flows present fairly, in all material
respects, the financial position of Commercial Bankshares, Inc. and its
subsidiary at December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the
period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United
States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management and evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
Miami, Florida
January 16, 2002
COMMERCIAL BANKSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
(Dollars in Thousands, Except Share Data)
2001 2000
Assets:
Cash and due from banks $ 21,420 $ 20,478
Federal funds sold 46,780 14,537
-------- --------
Total cash and cash equivalents 68,200 35,015
Investment securities available for sale,
at fair value (cost of $107,126 in 2001
and $141,031 in 2000) 111,138 143,487
Investment securities held to maturity,
at cost (aggregate fair value of $25,332
in 2001 and $37,958 in 2000) 24,664 37,215
Loans, net 346,251 285,641
Premises and equipment, net 12,554 12,913
Accrued interest receivable 2,790 4,001
Goodwill, net 253 416
Other assets 3,078 3,836
-------- --------
Total assets $568,928 $522,524
======== ========
Liabilities and stockholders' equity:
Deposits:
Demand $ 94,453 $ 88,829
Interest-bearing checking 65,630 59,041
Money market 51,958 38,239
Savings 24,896 23,585
Time 225,569 213,229
-------- --------
Total deposits 462,506 422,923
Securities sold under agreements to repurchase 53,436 51,166
Accrued interest payable 633 870
Accounts payable and accrued liabilities 2,228 2,510
-------- --------
Total liabilities 518,803 477,469
-------- --------
Commitments and contingencies (Notes 4,11 and 15)
Stockholders' equity:
Common stock, $.08 par value, 6,250,000 authorized
shares, 3,962,440 issued (3,946,303 in 2000) 316 314
Additional paid-in capital 44,041 43,866
Retained earnings 9,786 5,727
Accumulated other comprehensive income on
investment securities available for sale,
net of tax 2,686 1,720
Treasury stock, 352,571 shares (346,905 shares
in 2000), at cost (6,704) (6,572)
-------- --------
Total stockholders' equity 50,125 45,055
-------- --------
Total liabilities and stockholders' equity $568,928 $522,524
======== ========
The accompanying notes are an integral part
of these consolidated financial statements.
COMMERCIAL BANKSHARES, INC.,
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 2001, 2000 and 1999
(Dollars in Thousands, Except Share Data)
2001 2000 1999
Interest income: ---- ---- ----
Interest and fees on loans $26,976 $23,463 $18,809
Interest on investment securities
Taxable 6,620 8,828 8,374
Tax exempt 2,655 2,359 2,258
Interest on federal funds sold 1,011 852 769
------- ------- -------
Total interest income 37,262 35,502 30,210
------- ------- -------
Interest expense:
Interest on deposits 14,443 13,478 10,124
Interest on securities sold under
agreements to repurchase 1,923 2,635 1,823
------- ------- -------
Total interest expense 16,366 16,113 11,947
------- ------- -------
Net interest income 20,896 19,389 18,263
Provision for loan losses 875 435 930
------- ------- -------
Net interest income after provision
for loan losses 20,021 18,954 17,333
------- ------- -------
Non-interest income:
Service charges on deposit accounts 2,659 2,383 2,107
Other fees and service charges 596 553 751
Security gains(losses), net 240 (108) 763
------- ------- -------
Total non-interest income 3,495 2,828 3,621
------- ------- -------
Non-interest expense:
Salaries and employee benefits 8,353 7,572 7,722
Occupancy 1,260 1,195 1,242
Data processing 1,019 898 968
Furniture and equipment 737 844 983
Professional fees 284 227 337
Stationery and supplies 268 260 267
Insurance 265 219 206
Telephone 231 235 210
Amortization of goodwill 163 199 179
Other 1,087 1,102 1,299
------- ------- -------
Total non-interest expense 13,667 12,751 13,413
------- ------- -------
Income before income taxes 9,849 9,031 7,541
Provision for income taxes 2,832 2,716 2,085
------- ------- -------
Net income $ 7,017 $ 6,315 $ 5,456
======= ======= =======
Earnings per common and common equivalent share:
Basic $ 1.95 $ 1.72 $ 1.42
Diluted $ 1.89 $ 1.68 $ 1.37
Weighted average number of shares and common equivalent shares:
Basic 3,606,100 3,665,489 3,856,489
Diluted 3,715,258 3,750,956 3,972,496
The accompanying notes are an integral part
of these consolidated financial statements.
COMMERCIAL BANKSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for the years ended December 31, 2001, 2000 and 1999
(In Thousands)
2001 2000 1999
---- ---- ----
Net income $7,017 $6,315 $5,456
------ ------ ------
Other comprehensive income (loss), net of tax:
Unrealized holding gain (loss) arising
during period 1,017 3,507 (4,051)
Reclassification adjustments for
(gains)losses realized in net income (165) 68 (534)
Cumulative effect of a change in accounting
principle for reclassification of securities
upon adoption of FAS133 114 - -
------ ------ ------
Other comprehensive income (loss) 966 3,575 (4,585)
------ ------ ------
Comprehensive income $7,983 $9,890 $ 871
====== ====== ======
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 2001, 2000 and 1999
(Dollars in Thousands, Except Share Data)
Accumulated
Shares of Additional Other Total
Common Common Paid-in Retained Comprehensive Treasury Stockholders'
Stock Stock Capital Earnings Income(Loss) Stock Equity
----- ----- ------- -------- ------------ ----- ------
Balance at January 1, 1999
3,721,798 $296 $39,313 $3,136 $2,730 $ (738) $44,737
Exercise of stock options
22,548 2 235 - - - 237
Purchase of treasury stock
- - - - - (788) (788)
Unrealized holding loss
- - - - (4,585) - (4,585)
Dividends-common stock $0.59 per share
- - - (2,273) - - (2,273)
5% stock dividend
187,029 15 4,190 (4,208) - - (3)
Net income
- - - 5,456 - - 5,456
--------- ---- ------- ------ ------ ------- -------
Balance at December 31, 1999
3,931,375 313 43,738 2,111 (1,855) (1,526) 42,781
Exercise of stock options
14,928 1 128 - - - 129
Purchase of treasury stock
- - - - - (5,046) (5,046)
Unrealized holding gain
- - - - 3,575 - 3,575
Dividends-common stock $0.74 per share
- - - (2,699) - - (2,699)
Net income
- - - 6,315 - - 6,315
--------- ---- ------- ------ ------ ------- -------
Balance at December 31, 2000
3,946,303 314 43,866 5,727 1,720 (6,572) 45,055
Exercise of stock options
16,137 2 175 - - - 177
Purchase of treasury stock
- - - - - (132) (132)
Unrealized holding gain
- - - - 966 - 966
Dividends - common stock $0.82 per share
- - - (2,958) - - (2,958)
Net income
- - - 7,017 - - 7,017
--------- ---- ------- ------ ------ ------- -------
Balance at December 31, 2001
3,962,440 $316 $44,041 $9,786 $2,686 $(6,704) $50,125
========= ==== ======= ====== ====== ======= =======
The accompanying notes are an integral part
of these consolidated financial statements.
COMMERCIAL BANKSHARES, INC.,
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 2001, 2000 and 1999
(In Thousands)
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net Income $ 7,017 $ 6,315 $ 5,456
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 875 435 930
Depreciation, amortization, and
accretion, net 911 1,151 1,489
Gain on disposal of premises and
equipment, net - (8) (220)
(Gain) loss on sale of investment
securities, net (240) 108 (763)
Change in accrued interest receivable 1,211 (719) (134)
Change in other assets 758 2,119 (2,730)
Change in accounts payable and
accrued liabilities (910) (2,132) 2,286
Change in accrued interest payable (237) 238 (6)
------- ------- -------
Net cash provided by operating
activities 9,385 7,507 6,308
------- ------- -------
Cash flows from investing activities:
Proceeds from maturities of investment
securities held to maturity 7,285 6,172 13,289
Proceeds from sales of investment
securities held to maturity - - 540
Proceeds from maturities of investment
securities available for sale 84,169 7,946 35,141
Proceeds from sales of investment
securities available for sale 242 7,881 3,752
Purchases of investment securities
available for sale (45,119) (28,659) (51,613)
Net change in loans (61,485) (42,060) (45,413)
Purchases of premises and equipment (270) (355) (450)
Proceeds from disposal of premises
and equipment - 239 287
------- ------- -------
Net cash used in
investing activities (15,178) (48,836) (44,467)
------- ------- -------
Cash flows from financing activities:
Net change in demand, savings,
interest-bearing checking, money
market, and time deposit accounts 39,583 34,476 38,032
Net change in securities sold under
agreements to repurchase 2,270 10,372 6,816
Dividends paid (2,920) (2,672) (2,286)
Proceeds from exercise of stock options 177 129 237
Purchase of treasury stock (132) (5,046) (788)
------- ------- -------
Net cash provided by financing
activities 38,978 37,259 42,011
------- ------- -------
Increase (decrease) in cash and cash
equivalents 33,185 (4,070) 3,852
Cash and cash equivalents at beginning
of year 35,015 39,085 35,233
------- ------- -------
Cash and cash equivalents at end of year $68,200 $35,015 $39,085
======= ======= =======
Supplemental disclosures:
Interest paid (net of amounts credited
to deposit accounts) $ 2,945 $ 2,724 $ 2,310
======= ======= =======
Income taxes paid $ 2,960 $ 2,832 $ 2,163
======= ======= =======
The accompanying notes are an integral part
of these consolidated financial statements.
COMMERCIAL BANKSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Commercial Bankshares, Inc. (the Company), a bank holding company, was
incorporated on April 26, 1988, to acquire its wholly owned banking
subsidiary, Commercial Bank of Florida (the Bank). The Bank is a
Florida chartered banking corporation, which engages in commercial
banking and related businesses from its fourteen facilities located in
Miami-Dade County and Broward County, Florida.
The accounting policies and reporting practices of the Company and its
subsidiary conform to predominant practices in the banking industry and
are based on accounting principles generally accepted in the United
States of America. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Such
estimates include, among others, the allowance for loan losses and
investment securities. Actual results could differ from those
estimates. The following is a description of the significant
accounting policies.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiary after elimination of all intercompany
accounts and transactions.
Cash and Cash Equivalents
Cash equivalents include amounts due from banks and federal funds sold.
The Bank is required to maintain average reserve balances with the
Federal Reserve Bank. The amounts of those reserve balances at
December 31, 2001 and 2000, were approximately $7.2 million and $6.2
million, respectively.
Investment Securities
The Company classifies its investment securities as follows:
Held to maturity: Investment securities that management has the intent
and the Company has the ability at the time of purchase to hold until
maturity are classified as held to maturity. Securities in this
category are carried at amortized cost adjusted for accretion of
discounts and amortization of premiums using the constant yield method
over the estimated life of the securities. If a security has a decline
in fair value below its amortized cost that is other than temporary, then
the security will be written down to its new cost basis by recording a
loss in the consolidated statement of income.
Available for sale: Investment securities to be held for indefinite
periods of time and not intended to be held to maturity are classified
as available for sale. Assets included in this category are those that
management intends to use as part of its asset/liability management
strategy and that may be sold in response to changes in interest rates,
and other factors related to interest rate and resultant prepayment risk
changes. Securities available for sale are recorded at fair value.
Unrealized holding gains and losses on securities available for sale,
net of tax, are included as accumulated other comprehensive income in
the consolidated balance sheets until these gains or losses are
realized. The cost of investment securities sold is determined by the
specific identification method. If a security has a decline in fair
value that is other than temporary, then the security will be written
down to its fair value by recording a loss in the consolidated
statement of income.
Loans
Loans are reported at their principal outstanding balance net of the
allowance for loan losses and deferred loan fees. Interest income is
recognized when income is earned, using the effective interest method.
Loan origination fees and certain direct loan origination costs are
deferred and the net amounts are amortized as adjustments to interest
income.
Allowance for Loan Losses
The adequacy of the allowance for loan losses is periodically evaluated
by the Company in order to maintain the allowance at a level that is
sufficient to absorb probable loan losses. Management's evaluation of
the adequacy of the allowance is based on a review of the risks inherent
in the loan portfolio, including adverse circumstances that may affect
the ability of the borrower to repay interest and/or principal, the
estimated value of collateral, and an analysis of the levels and trends
of delinquencies, charge-offs, and the risk ratings of the various loan
categories. Such factors as the level and trend of interest rates and
the condition of the national and local economies are also considered.
The allowance for loan losses is established through charges to earnings
in the form of a provision for loan losses. Increases and decreases in
the allowance resulting from changes in the measurement of the impaired
loans are included in the provision for loan losses. Loans continue to
be classified as impaired unless they are brought fully current and the
collection of scheduled interest and principal is considered probable.
When a loan or portion of a loan is determined to be uncollectible, the
portion deemed uncollectible is charged against the allowance, and
subsequent recoveries, if any, are credited to the allowance.
Income Recognition on Impaired and Nonaccrual Loans
Loans, including impaired loans, are generally classified as nonaccrual
if they are past due as to maturity or payment of principal or interest
for a period of more than 90 days, unless such loans are well
collateralized and in the process of collection. If a loan or portion
of a loan is classified as doubtful or is partially charged off, the
loan is classified as nonaccrual. Generally, interest receivable on
loans placed on nonaccrual status is reversed against interest income.
Loans that are on a current payment status or past due less than 90
days may also be classified as nonaccrual if repayment in full of
principal and/or interest is in doubt. Loans may be returned to accrual
status when all principal and interest amounts contractually due are
reasonably assured of repayment within an acceptable period of time, and
there is a sustained period of repayment performance by the borrower, in
accordance with the contractual terms of interest and principal.
While a loan is classified as nonaccrual and the future collectibility
of the recorded loan balance is doubtful, collections of interest and
principal are generally applied as a reduction to principal outstanding.
When the future collectibility of the recorded loan balance is expected,
interest income may be recognized on a cash basis. In the case where a
nonaccrual loan had been partially charged off, recognition of interest
on a cash basis is limited to that which would have been recognized on
the recorded loan balance at the contractual interest rate. Cash
interest receipts in excess of that amount are recorded as recoveries
to the allowance for loan losses until prior charge-offs have been fully
recovered.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is computed principally on the straight-
line method over the estimated useful life of each type of asset.
Leasehold improvements are amortized over the remaining term of the
applicable leases or their useful lives, whichever is shorter.
Maintenance and repairs are charged to expense as incurred;
improvements and betterments are capitalized. Upon retirement or
disposition, the related costs and accumulated depreciation are removed
from the accounts, and any resulting gains or losses are credited or
charged to income.
Other Real Estate Owned
Other real estate owned is comprised of real estate and other assets
acquired through foreclosure, acceptance of a deed in lieu of
foreclosure, or otherwise acquired from the debtor in lieu of repayment
of the debt. Other real estate owned is carried at the lower of the
recorded investment in the loan or the fair value less estimated costs
to sell. Upon transfer of a loan to foreclosed status, an appraisal is
obtained and any excess of the loan balance over the fair value less
estimated costs to sell is charged against the allowance for loan
losses. Revenues, expenses, and subsequent adjustments to fair value
less estimated costs to sell are classified as expenses for other real
estate owned. At December 31, 2001 and 2000, there was no other real
estate owned.
Income Taxes
Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred tax assets are reduced by
a valuation allowance when it is more likely than not that some portion
or all of the deferred tax assets will not be realized.
Securities Sold Under Agreeemnts to Repurchase
Securities sold under agreements to repurchase, which are classified as
secured borrowings, generally mature within one day from the transaction
date. Securities sold under agreements to repurchase are reflected at
the amount of cash received in connection with the transaction. The Bank
may be required to provide additional collateral based on the fair value
of the underlying securities.
Interest Rate Risk
The Company's profitability is dependent to a large extent on its net
interest income, which is the difference between income on interest-
earning assets and expense on interest-bearing liabilities. The
Company, like most financial institutions, is affected by changes in
general interest rate levels and by other economic factors beyond its
control. Interest rate risk arises from mismatches between the dollar
amount of repricing or maturing assets and liabilities, and is measured
in terms of the ratio of the interest rate sensitivity gap to total
assets. More assets repricing or maturing than liabilities over a given
time frame is considered asset-sensitive, or a positive gap, and more
liabilities repricing or maturing than assets over a given time frame
is considered liability-sensitive, or a negative gap. An asset-
sensitive position will generally enhance earnings in a rising interest
rate environment and will negatively impact earnings in a falling
interest rate environment, while a liability-sensitive position will
generally enhance earnings in a falling interest rate environment and
negatively impact earnings in a rising interest rate environment.
Fluctuations in interest rates are not predictable or controllable.
The Company has attempted to structure its asset and liability
management strategies to mitigate the impact on net interest income
of changes in market interest rates.
Comprehensive Income (Loss)
The income tax effects related to the components of other comprehensive
income (loss) are as follows (in thousands):
2001 2000 1999
----------------------- ----------------------- ---------------------
Tax (Expense) Tax (Expense) Tax (Expense)
Gross or Benefit Net Gross or Benefit Net Gross or Benefit Net
----- ---------- --- ----- ---------- --- ----- ---------- ---
Unrealized holding gain (loss)
arising during period
$1,614 ($ 597) $1,017 $5,567 ($2,060) $3,507 ($6,436) $2,385 ($4,051)
Reclassification adjustments for
(gains) losses realized in net income
(240) 75 (165) 108 (40) 68 (741) 207 (534)
Cumulative effect of a change
in accounting principle for
reclassification of securities
upon adoption of FAS133
181 (67) 114 - - - - - -
------ ------ ------ ------ ------ ------ ------ ------ ------
Other comprehensive income (loss)
$1,555 ($ 589)$ 966 $5,675 ($2,100) $3,575 ($7,177) $2,592 ($4,585)
====== ====== ====== ====== ====== ====== ====== ====== ======
Per Share Data
Earning per share is computed on the weighted average number of common
shares outstanding during the year. Earnings per share, assuming
dilution, assumes the maximum dilutive effect of the average number of
shares from stock options.
New Accounting Pronouncements
In June of 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (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 fiscal year 2002.
In October of 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 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.
Reclassification
Certain reclassifications have been made to the 2000 and 1999
consolidated financial statements to conform to the 2001 presentation.
2. Investment Securities
The amortized cost and fair values of investment securities are
summarized as follows (in thousands):
December 31, 2001
---------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Available for Sale Securities:
U.S. Government Agencies $ 69,371 $1,281 $ - $ 70,652
State & Political Subdivisions 35,723 - (82) 35,641
Corporate Stock 2,032 2,813 - 4,845
-------- ------ ------- --------
$107,126 $4,094 $ (82) $111,138
======== ====== ======= ========
Held to Maturity Securities:
U.S. Government Agencies $ 9,308 $ 217 $ - $ 9,525
State & Political Subdivisions 15,356 451 - 15,807
-------- ------ ------- --------
$ 24,664 $ 668 $ - $ 25,332
======== ====== ======= ========
December 31, 2000
---------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Available for Sale Securities:
U.S. Government Agencies $110,029 $ - $ (183) $109,846
State & Political Subdivisions 28,968 123 - 29,091
Corporate Stock 2,034 2,516 - 4,550
-------- ------ ------- --------
$141,031 $2,639 $ (183) $143,487
======== ====== ======= ========
Held to Maturity Securities:
U.S. Government Agencies $ 17,000 $ 101 $ - $ 17,101
State & Political Subdivisions 20,215 642 - 20,857
-------- ------ ------- --------
$ 37,215 $ 743 $ - $ 37,958
======== ====== ======= ========
The amortized cost and fair value of investment securities excluding
corporate stock at December 31, 2001, by contractual maturity, are shown
below (in thousands). Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Available for Sale Held to Maturity
------------------ ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
Due in one year or less $ - $ - $ - $ -
Due after one year through
five years 8,821 9,148 10,445 10,756
Due after five years through
ten years 19,948 20,268 7,958 8,173
Due after ten years 76,325 76,877 6,261 6,403
Gross gains of approximately $240,000, $7,500 and $792,000, respectively,
and gross losses of $0, $115,000 and $29,000, respectively, during 2001,
2000 and 1999, were realized on the sale of investment securities. In
conjunction with the January 1, 2001 adoption of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities", the Company transferred securities from the held-
to-maturity portfolio to the available-for-sale portfolio. These
securities had a book value of $5.3 million and a fair market value of
$5.5 million.
During 1999, the Company sold securities with a book value of $518,000
from the held to maturity portfolio. The sales did not call into
question the Company's intent to hold other securities to maturity
because one of the following criteria was met with each sale: (1) the
Company had collected in excess of 85% of the principal outstanding, or
(3) the security was within 90 days of maturity. The net gain on sale
(4) of these securities was $22,000.
At December 31, 2001 and 2000, investment securities with an amortized
cost of approximately $72 million and $79 million, respectively, were
pledged as collateral for securities sold under agreements to repurchase,
time deposits of governmental entities, treasury tax and loan deposits
and other borrowed funds.
3. Loans and Allowance for Loan Losses
The distribution of loans, by type, was as follows (in thousands):
December 31,
2001 2000
---- ----
Commercial and financial $ 52,377 $ 49,635
Real estate and mortgage 267,230 210,861
Installment and other 32,001 29,440
-------- --------
351,608 289,936
Less: Allowance for loan losses (4,642) (3,806)
Deferred loan fees (715) (489)
-------- --------
Total loans, net $346,251 $285,641
======== ========
Loans on which the accrual of interest has been discontinued amounted
to approximately $834,000 and $0 at December 31, 2001 and 2000,
respectively. If non-accrual loans were on full accrual, additional
interest income of approximately $57,000, $0 and $0 would have been
recorded during 2001, 2000 and 1999, respectively.
The total amount of loans to directors and executive officers amounted
to $6.6 million and $8.3 million at December 31, 2001 and 2000,
respectively. Transactions for loans to directors and executive
officers for the years ended December 31, 2001 and 2000 were as follows
(in thousands):
2001 2000
---- ----
Balance, beginning of period $8,273 $8,485
Loans and advances 409 29
Payments (2,046) (241)
------ ------
Balance, end of period $6,636 $8,273
====== ======
Transactions in the allowance for loan losses for the years ended
December 31, 2001, 2000 and 1999 were as follows (in thousands):
2001 2000 1999
---- ---- ----
Balance, beginning of year $3,806 $3,279 $2,430
Provision charged to operations 875 435 930
Loans charged off (82) (22) (140)
Recoveries 43 114 59
------ ------ ------
Balance, end of year $4,642 $3,806 $3,279
====== ====== ======
4. Premises and Equipment and Lease Commitments
Premises and equipment were as follows (in thousands):
December 31, Estimated
2001 2000 Useful Life
---- ----
Land $5,382 5,381 -
Buildings 6,646 6,646 40 years
Leasehold and other property
improvements 2,192 2,197 3 to 10 years
Furniture and equipment 4,599 4,320 3 to 7 years
Other 25 94 3 years
------- -------
18,844 18,638
Less: accumulated depreciation
and amortization (6,290) (5,725)
------- -------
$12,554 $12,913
======= =======
The Bank leases office and parking spaces for various banking
facilities. The leases have initial terms expiring in 2002 through 2011
and are renewable by the Bank for up to 5 years. Under these leases,
rents will increase annually, either at fixed rates or at rates based on
various escalation clauses. On certain leases, in addition to the base
rate payment, the Bank pays a monthly allocation of the building's
operating expenses. Rental expense was approximately $443,000, $400,000
and $442,000 in 2001, 2000 and 1999, respectively. As of December 31,
2001, future minimum rental commitments for all noncancelable operating
leases with initial or remaining terms in excess of one year were as
follows (in thousands):
Year Ending December 31,
2002 $356
2003 293
2004 300
2005 306
2006 312
Thereafter 658
------
$2,225
======
5. Securities Sold Under Agreements To Repurchase
Interest expense on securities sold under agreements to repurchase
aggregated $1.9 million, $2.6 million and $1.8 million for the years
ended December 31, 2001, 2000 and 1999, respectively.
The following sets forth information concerning securities sold under
agreements to repurchase for the periods indicated:
As of and For The Years Ended
December 31,
-----------------------------
2001 2000 1999
---- ---- ----
(Dollars in Thousands)
Maximum amount of outstanding agreements
at any month-end during the year $62,534 $52,319 $45,908
Average amount outstanding during the year 52,234 45,429 41,358
Weighted average interest rate for the year 3.68% 5.80% 4.41%
The entire $53.4 million portfolio of securities sold under agreements
to repurchase outstanding at December 31, 2001 matures in January, 2002.
6. Interest Expense
Interest expense on interest-bearing checking, money market, savings and
time deposits was as follows for the years ended December 31, 2001, 2000
and 1999 (in thousands):
2001 2000 1999
---- ---- ----
Interest-bearing checking $ 564 $ 596 $ 608
Money market 1,396 1,396 1,265
Savings 408 445 375
Time 12,075 11,041 7,876
------- ------- -------
$14,443 $13,478 $10,124
======= ======= =======
Certificates of deposit in denominations of $100,000 or more were
approximately $96 million and $85 million at December 31, 2001 and
2000, respectively. Interest expense for such certificates of deposit
was approximately $5.1 million, $4.5 million and $3.0 million in 2001,
2000 and 1999, respectively.
7. Other Non-Interest Expense
Some of the more significant expenses included in other expenses in the
consolidated statements of income for the years ended December 31, 2001,
2000 and 1999, were as follows (in thousands):
2001 2000 1999
---- ---- ----
Administrative service charges $ 230 $ 187 $ 167
Security 159 136 114
Armored carrier and courier 113 111 108
State fees and assessments 98 89 82
FDIC insurance 78 77 131
Postage 59 62 64
Dues and subscriptions 58 56 58
Donations 51 39 76
Advertising 20 125 154
Intangible tax - - 180
Other 221 220 165
------ ------ ------
$1,087 $1,102 $1,299
====== ====== ======
8. Income Taxes
The components of the net deferred tax asset as of December 31, 2001 and
2000, were as follows (in thousands):
2001 2000
Deferred tax assets: ---- ----
Goodwill amortization $1,303 $1,443
Allowance for loan losses 1,559 1,143
Depreciation of fixed assets 268 217
Investment in securities 161 173
Non-accrual interest 22 -
Other 23 24
------ ------
Total deferred tax asset 3,336 3,000
------ ------
Deferred tax liabilities:
Unrealized gain on investment
securities 1,326 736
------ ------
Total deferred tax liability 1,326 736
------ ------
Net deferred tax asset
(included in other assets) $2,010 $2,264
====== ======
The components of the provision (benefit) for income taxes for the years
ended December 31, 2001, 2000 and 1999 were as follows (in thousands):
2001 2000 1999
---- ---- ----
Current-federal $2,861 $2,216 $2,163
Current-state 307 490 279
Deferred-federal (304) 9 (313)
Deferred-state (32) 1 (44)
------ ------ ------
$2,832 $2,716 $2,085
====== ====== ======
The following table reconciles taxes at the federal statutory rate with
the effective rate for 2001, 2000 and 1999:
2001 2000 1999
---- ---- ----
Federal statutory rate 34% 34% 34%
Goodwill amortization 1% 1% 1%
State taxes 4% 4% 3%
Tax-exempt investment income (8%) (9%) (9%)
Other, net (1%) - (1%)
--- --- ---
Effective tax rate 30% 30% 28%
=== === ===
9. Earnings Per Share
The following table reconciles the weighted average shares (denominator)
used to calculate basic and diluted earnings per share (in thousands,
except per share amounts):
For the Year Ended December 31, 2001
---------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ------
Basic EPS $7,017 3,606 $1.95
Effect of Dilutive Options - 109 (0.06)
------ ----- -----
Diluted EPS $7,017 3,715 $1.89
====== ===== =====
For the Year Ended December 31, 2000
---------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ------
Basic EPS $6,315 3,665 $1.72
Effect of Dilutive Options - 86 (0.04)
------ ----- -----
Diluted EPS $6,315 3,751 $1.68
====== ===== =====
For the Year Ended December 31, 1999
---------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ------
Basic EPS $5,456 3,856 $1.42
Effect of Dilutive Options - 116 (0.05)
------ ----- -----
Diluted EPS $5,456 3,972 $1.37
====== ===== =====
10. Employee Benefit Plan
The Bank has a qualified contributory profit sharing plan covering
substantially all eligible employees. The Bank's contributions to the
plan were approximately $154,000, $149,000 and $134,000 in 2001, 2000
and 1999, respectively.
11. Commitments and Contingencies
The Bank is involved in litigation arising from the ordinary course of
business. In the opinion of management, the outcome of this litigation
will not have a significant effect on financial position or results of
operations.
The Company and the Bank have entered into employment agreements with
four officers. The terms of the agreements range from one to three
years. Compensation and benefits under these agreements are determined
by the Board of Directors. Compensation and benefits are provided in
certain defined circumstances, including change in control of the
Company.
12. Stock Transactions
On November 18, 1999, the Company's Board of Directors authorized a one-
for-twenty (five per cent) stock dividend, to be effective on January 4,
2000. Earnings per share amounts have been restated to retroactively
reflect this transaction.
In March 1994, the Board of Directors adopted two stock option plans;
the 1994 Outside Director Stock Option Plan and the 1994 Performance
Stock Option Plan, which were approved by the shareholders in April 1994.
Under the terms of the plans, the option price is not less than the fair
market value of the common stock on the date of the grant. On April 15,
1999, the shareholders approved amendments to both plans which increased
the number of shares reserved for the grant of options by 150,000 for
each plan. The maximum number of shares that may be issued under the
Outside Director Stock Option Plan and Performance Stock Option Plan are
279,051 and 522,152, respectively. Options granted under the Outside
Director Stock Option Plan are immediately exercisable and are for a
term of ten years. At December 31, 2001 and 2000, there were 68,348 and
98,348 shares available, respectively, for future option grants under
the Outside Director Stock Option Plan. Options granted under the
Performance Stock Option Plan are not exercisable for a period of one
year from the date of grant and are for a term of ten years. At
December 31, 2001 and 2000, there were 177,653 and 216,153 shares
available, respectively, for future option grants under this plan.
The current status of options outstanding and the activity for 2001,
2000 and 1999 are presented below:
Outside Director Performance
Stock Option Plan Stock Option Plan
------------------- -------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Options Price Options Price
------- ----- ------- -----
Options outstanding,
December 31, 1998 103,362 $13.73 201,674 $12.43
Granted 31,000 20.71 29,380 20.71
Exercised - - (22,548) 10.49
Adjustment for 5% stock dividend 6,726 - 10,480 -
------- ------ ------- ------
Options outstanding,
December 31, 1999 141,088 15.34 218,986 13.86
Granted 31,000 17.50 35,485 17.50
Exercised - - (14,928) 8.68
------- ------ ------- ------
Options outstanding,
December 31, 2000 172,088 15.73 239,543 14.72
Granted 30,000 20.85 38,500 20.85
Exercised - - (16,137) 10.91
------- ------ ------- ------
Options outstanding,
December 31, 2001 202,088 $16.49 261,906 $15.86
======= ====== ======= ======
Options exercisable,
December 31, 2001 202,088 $16.49 223,406 $15.00
======= ====== ======= ======
Summarized below is information about stock options outstanding and
exercisable at December 31, 2001:
Outside Director Stock Option Plan
----------------------------------------------------
Outstanding Exercisable
------------------------------ --------------------
Exercise Price Number of Average Average Number of Average
Range Shares Life(1) Price(2) Shares Price(2)
----- ------ ------ ------- ------ -------
$ 8.68-12.49 65,649 3.5 $10.57 65,649 $10.57
$12.49-17.49 20,839 5.5 14.47 20,839 14.47
$17.50-22.45 115,600 8.1 20.22 115,600 20.22
------- -------
202,088 202,088
======= =======
Performance Stock Option Plan
-----------------------------------------------------
Outstanding Exercisable
Exercise Price Number of Average Average Number of Average
Range Shares Life(1) Price(2) Shares Price(2)
----- ------ ------ ------- ------ -------
$ 8.68-12.49 97,035 3.4 $10.42 97,035 $10.42
$12.49-17.49 33,574 5.5 14.47 33,574 14.47
$17.50-22.45 131,297 7.6 20.23 92,797 19.98
------- -------
261,906 223,406
======= =======
(1) Weighted average contractual life remaining in years.
(2) Weighted average exercise price.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," became effective for the year ended December
31, 1996. This pronouncement encourages, but does not require, companies
to recognize compensation expense for grants of stock, stock options and
other equity instruments to employees based on the new fair value
accounting rules. The Company has determined not to recognize such
compensation expense.
The compensation expense, net of income tax effect, if recognized, would
have resulted in a decrease in the pro forma amounts indicated below,
for the years ended December 31, 2001, 2000 and 1999:
2001 2000 1999
---- ---- ----
(In Thousands, Except Per Share Amounts)
Net earnings - as reported $ 7,017 $ 6,315 $ 5,456
Net earnings - pro forma 6,838 6,135 5,177
Earnings per share (diluted)
- as reported 1.89 1.68 1.37
Earnings per share (diluted)
- pro forma 1.84 1.64 1.30
The weighted average fair value of options granted during 2001, 2000 and
1999, were $4.16, $4.29 and $6.98, respectively. The weighted average
fair value of each option grant was estimated as of the date of grant
using the Modified Black-Scholes option-pricing model with the following
weighted average assumptions for 2001, 2000 and 1999, respectively:
dividend yield of 3.42%, 4.24% and 2.86%; expected volatility of 23.3%,
24.5% and 25.0%; risk-free interest rate of 3.30%, 6.35% and 7.00%; and
expected life of 9.5 years for each of the three years.
13. Commercial Bankshares, Inc. (Parent Company Only) Financial
Information
Condensed Balance Sheets
(In Thousands)
December 31,
--------------------
2001 2000
---- ----
Assets:
Cash and cash equivalents $ 2,467 $ 887
Investment in banking subsidiary 46,273 41,865
Other investments 2,840 2,545
Goodwill, net 253 416
Other assets 17 866
------- -------
Total assets $51,850 $46,579
======= =======
Liabilities and stockholders' equity:
Other liabilities $ 1,725 $ 1,524
Stockholders' equity 50,125 45,055
------- -------
Total liabilities and
stockholders' equity $51,850 $46,579
======= =======
Condensed Statements of Income
(In Thousands)
Years ended December 31,
----------------------------
2001 2000 1999
Income: ---- ---- ----
Interest on investments $ 112 $ 157 $ 292
Security gains 240 - 770
Other 200 150 1
------ ------ ------
Total income 552 307 1,063
------ ------ ------
Expenses:
Amortization of goodwill 163 163 163
Other 64 55 67
------ ------ ------
Total expenses 227 218 230
------ ------ ------
Income before income taxes and
equity in undistributed earnings
of subsidiary 325 89 833
Provision for income taxes 173 56 366
------ ------ ------
Income before equity in undistributed
earnings of subsidiary 152 33 467
Equity in undistributed earnings of
subsidiary 6,865 6,282 4,989
------ ------ ------
Net income $7,017 $6,315 $5,456
====== ====== ======
Condensed Statements of Cash Flows
(In Thousands)
Years ended December 31,
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income $7,017 $6,315 $5,456
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Equity in undistributed earnings of
subsidiary (6,865) (6,282) (4,989)
Depreciation and amortization 163 163 163
Gain on sale of investment securities (240) - (770)
Change in other assets (201) 638 (774)
Change in other liabilities 39 (289) 228
------ ------ ------
Net cash provided by (used in) operating
activities (87) 545 (686)
------ ------ ------
Cash flows from investing activities:
Proceeds from maturities of investment
securities held to maturity - 2,300 -
Proceeds from sales of investment
securities available for sale 243 - 780
------ ------ ------
Net cash provided by investing activities 243 2,300 780
------ ------ ------
Cash flows from financing activities:
Proceeds from exercise of stock options 176 129 237
Purchase of treasury stock (132) (5,046) (788)
Dividends received from subsidiary 4,050 2,860 2,251
Management fee received from subsidiary 250 100 -
Dividends paid (2,920) (2,672) (2,284)
Cash paid for fractional shares - - (3)
------ ------ ------
Net cash provided by (used in) financing
Activities 1,424 (4,629) (587)
------ ------ ------
Increase (decrease) in cash and cash
equivalents 1,580 (1,784) (493)
Cash and cash equivalents at beginning of year 887 2,671 3,164
------ ------ ------
Cash and cash equivalents at end of year $2,467 $ 887 $2,671
====== ====== ======
14. Regulatory Matters
Capital Requirements
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory -- and possibly
additional discretionary -- actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines
that involve quantitative measures of the Bank's assets, liabilities
and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about
components, risk-weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of Total and Tier I capital (as defined in
the regulations) to risk-weighted assets (as defined) and of Tier I
capital (as defined) to average assets (as defined). Management
believes, as of December 31, 2001, that the Bank meets all capital
adequacy requirements to which it is subject.
As of December 31, 2001, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum Total
risk-based, Tier I risked-based, and Tier I leverage ratios as set
forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's
category.
The Bank's actual capital amounts (dollars in thousands) and ratios
are also presented in the table. No amount was deducted from capital
for interest-rate risk.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------- ------------------------ -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31, 2001
Total capital (to risk weighted assets):
Commercial Bankshares, Inc.
$53,093 13.54% >or= $31,375 >or= 8.00% N/A N/A
Commercial Bank of Florida
50,159 12.72% >or= 31,541 >or= 8.00% $39,427 10.00%
Tier I capital (to risk weighted assets):
Commercial Bankshares, Inc.
47,185 12.03% >or= 15,687 >or= 4.00% N/A N/A
Commercial Bank of Florida
45,517 11.54% >or= 15,771 >or= 4.00% 23,656 6.00%
Tier I capital (to total assets):
Commercial Bankshares, Inc.
47,185 8.24% >or= 17,173 >or= 3.00% N/A N/A
Tier I capital (to average assets):
Commercial Bank of Florida
45,517 8.19% >or= 16,667 >or= 3.00% 27,778 5.00%
As of December 31, 2000
Total capital (to risk weighted assets):
Commercial Bankshares, Inc.
$47,857 14.30% >or= $26,772 >or= 8.00% N/A N/A
Commercial Bank of Florida
45,709 13.56% >or= 26,973 >or= 8.00% $33,716 10.00%
Tier I capital (to risk weighted assets):
Commercial Bankshares, Inc.
42,919 12.82% >or= 13,386 >or= 4.00% N/A N/A
Commercial Bank of Florida
41,903 12.43% >or= 13,486 >or= 4.00% 20,230 6.00%
Tier I capital (to total assets):
Commercial Bankshares, Inc.
42,919 8.17% >or= 15,755 >or= 3.00% N/A N/A
Tier I capital (to average assets):
Commercial Bank of Florida
41,903 8.22% >or= 15,294 >or= 3.00% 25,490 5.00%
Dividends
Dividends paid by the Bank to the Company are subject to the financial
condition of the Bank and practical business considerations relating to
utilization of funds. In addition, banking regulations limit the amount
of dividends that may be paid without prior approval of the Bank's
regulatory agency. Dividend payments are generally limited to earnings
of the Bank, as defined for regulatory purposes, for the current period
and the full two preceding years. At January 1, 2002, the Bank could
have paid dividends to the Company aggregating $18.1 million without
prior regulatory approval. Future dividends will be dependent on the
level of earnings of the Bank.
Cash dividends declared by the Company totaled $3.0 million and $2.7
million in 2001 and 2000, respectively. Dividends declared but not paid
amounted to $758,000 and $720,000 in 2001 and 2000, respectively.
15. Financial Instruments With Off-Balance-Sheet Risk and With
Concentrations of Credit Risk
Off-Balance-Sheet Risk
The Bank is a party to financial instruments with off-balance-sheet
risk which are created in the normal course of business to meet the
financing needs of its customers. These financial instruments include
commitments to extend credit and standby and commercial letters of
credit. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of amounts recognized in the
consolidated balance sheets. The Bank uses the same credit policies
in making commitments and conditional obligations as it does for on-
balance-sheet instruments.
Commitments to extend credit generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Total
commitments to extend credit at December 31, 2001 and 2000 were $30
million and $30 million, respectively. The Bank evaluates each
customer's credit-worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation.
Standby and commercial letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support private
borrowing or performance arrangements. The credit risk involved in
issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. The Bank had approximately $8.4
million and $387,000 in 2001 and $4.6 million and $298,000 in 2000 of
irrevocable standby and commercial letters of credit, respectively, of
which $1.3 million and $1.2 million of standby letters of credit were
collateralized by cash in 2001 and 2000, respectively.
Concentrations of Credit Risk
The Bank primarily grants loans for which South Florida real estate is
the collateral. The borrowers' ability to honor their contracts is
substantially dependent upon the general economic conditions of the
region. As of December 31, 2001, the Bank's ten largest loan
relationships had an aggregate balance of $50 million, representing 14%
of net loans. As of December 31, 2000 the Bank's ten largest loan
relationships had an aggregate balance of $48 million, representing 17%
of net loans.
16. Disclosure About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each significant class of financial instrument for which it
is practicable to estimate that value.
Cash and Due from Banks and Federal Funds Sold
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Investment Securities
The fair value of investment securities equals quoted market price, if
available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities. Note 2 to
the Consolidated Financial Statements provides information on estimated
fair values at December 31, 2001 and 2000.
Loans
A significant portion of loans is comprised of prime-based loans and
treasury bill-based loans. The fair value of these types of loans is
the carrying amount of the loan. At December 31, 2001, variable rate
loans amounted to approximately $272 million or 78% of total loans.
Fixed rate loans maturing within the next year totaled $22 million or
an additional 6% of total loans. At December 31, 2000, variable rate
loans amounted to approximately $212 million or 73% of total loans.
Fixed rate loans maturing within the next year totaled $12 million or
an additional 4% of total loans. The fair value of these types of loans
is the carrying amount of the loan. Market value of fixed rate loans
with maturities in excess of one year, representing approximately 16%
of the loan portfolio as of December 31, 2001 and 23% as of December 31,
2000, approximates carrying value based on terms and maturity of those
loans and current borrowing rates.
Deposit Liabilities and Short-term Borrowed Funds
The fair value of demand, savings, interest-bearing checking and money
market deposits and of borrowings under repurchase agreements is the
amount payable on demand (carrying amount). The fair value of fixed
maturity certificates of deposit is estimated using the rates currently
offered for deposits of similar remaining maturities. At December 31,
2001, the fair value of time deposits approximates carrying value, which
includes time deposits of $204 million due within twelve months, or 91%
of total time deposits. At December 31, 2000, time deposits of $192
million due within twelve months represented 90% of total time deposits.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of
the counter parties. The fair value of letters of credit is based on
fees currently charged for similar agreements. At December 31, 2001,
a significant portion of the letter of credit portfolio is scheduled to
expire within twelve months. The fair value of these commitments
approximates the committed amounts.
COMMERCIAL BANKSHARES, INC.
DIRECTORS OFFICERS
Cromwell A. Anderson Joseph W. Armaly
Retired Attorney Chairman and
Chief Executive Officer
Joseph W. Armaly
Chairman of the Board Jack J. Partagas
Chief Executive Officer President, Secretary, and
Chief Operating Officer
Richard J. Bischoff
Attorney Barbara E. Reed
Senior Vice President and
Robert Namoff Chief Financial Officer
Chief Executive Officer
Allied Universal Corp.
Jack J. Partagas
President and
Chief Operating Officer
Sherman Simon
Investments
Michael W. Sontag
General Contractor
Real Estate Investor
Martin Yelen
Retired Attorney
COMMERCIAL BANK OF FLORIDA
OFFICERS
Joseph W. Armaly Chairman and CEO
Jack J. Partagas President and COO
Bruce P. Steinberger Executive Vice President
Barbara E. Reed Senior Vice President and CFO
David E. Dimuro Senior Vice President
Phillips G. Gay, Jr. Senior Vice President
Hal Kaufman Senior Vice President
Joseph Kertis, Jr. Senior Vice President
Dennis G. Longo Senior Vice President
John M. Maroon Senior Vice President
Tony Maroon Senior Vice President
Raul M. Zarranz Senior Vice President
William S. Dieterle Audit Director
Stephen W. Armaly Vice President
Sherryl Bowein Vice President
Ralph E. Coman Vice President
Elena Correa Vice President
Valerie Dacks Vice President
Sherri Feinstein Controller
Diana C. Goudie Vice President
Nancy Hernandez Vice President
Mary Lou Hutcheson Vice President
Paul Larkin Vice President
Alfred P. Lettera Vice President
Robert D. Singleton Vice President
Fay Marie Stephens Vice President
Pamela Tucker Vice President
Deborah Winkles Vice President
Lourdes Beck Assistant Vice President
Ann Bovard Assistant Vice President
Luis A. Castillo Audit Manager
Nora Clavijo Assistant Vice President
Mari M. Colina Assistant Vice President
Anne E. Cook Assistant Vice President
Mercedes De Quesada Assistant Vice President
Susan Ferbin Assistant Vice President
Carlos A. Grosso Investment Officer
Theresa Hilson Assistant Vice President
C. Margaret Humphrey Assistant Vice President
Geraldine T. Kitchell Assistant Vice President
Wendy M. Knowles Assistant Vice President
Margaret Rizzotto Assistant Vice President
Mary Robbins Assistant Vice President
Wendy Robinson Assistant Vice President
Marisella Salado Commercial Loan Officer
Terri Stockwell Assistant Vice President
Constance Bauer Assistant Cashier
Peter Fernandez Commercial Loan Officer
Aurora Franquiz Mortgage Loan Specialist
Aletha Jackson Assistant Cashier
Lissette Lazo Loan Administration Officer
Carol Paul Lewis Assistant Cashier
Sue Marchetti Assistant Cashier
Ileana Medina Loan Operations Officer
Alice Milhet Assistant Cashier
Ruben Molina Assistant Cashier
Cristina Ojeda Assistant Cashier
Brenda Paul Assistant Cashier
Lidia Perez Assistant Cashier
Linda Schubowsky Assistant Cashier
Laurie Taylor Assistant Cashier
Rose Torres MIS Officer
Linda K. Wood Installment Loan Officer
Delia Yepez Assistant Cashier
James F. Zimny, Jr. Accounting Officer
SUBSIDIARY BANK LOCATIONS
PERRINE/CUTLER RIDGE MIAMI BEACH
19455 S. Dixie Highway 425 41st Street
Miami, FL 33157 Miami Beach, FL 33140
(305) 234-6090 (305) 531-4435
PINECREST/THE FALLS MEDLEY/HIALEAH GARDENS
13001 S. Dixie Highway 11590 N.W. South River Drive
Miami, FL 33156 Medley, FL 33178
(305) 378-2000 (305) 883-1110
KENDALL NORTH MIAMI
10899 Sunset Drive 12255 N.E. 16th Avenue
Miami, FL 33173 North Miami, FL 33161
(305) 274-2000 (305) 891-6950
SOUTH MIAMI/CORAL GABLES HALLANDALE
1533 Sunset Drive 1448 E. Hallandale Beach Blvd.
Coral Gables, FL 33143 Hallandale, FL 33009
(305) 663-6030 (954) 454-3551
BRICKELL PEMBROKE PINES
501 Brickell Key Drive 176 S. Flamingo Road
Miami, FL 33131 Pembroke Pines, FL 33027
(305) 374-1100 (954) 437-8100
MAIN OFFICE POMPANO BEACH
1550 S.W. 57th Avenue 300 E. Sample Road
Miami, FL 33144 Pompano Beach, FL 33064
(305) 267-1200 (954) 943-6550
MIAMI SPRINGS CORAL SPRINGS
69 Westward Drive 1999 University Drive
Miami Springs, FL 33166 Coral Springs, FL 33071
(305) 883-0883 (954) 753-7555
Annual Meeting
Thursday, April 18, 2002, at 10:00 a.m.
1550 S.W. 57th Avenue
Boardroom
Miami, Florida 33144
Transfer Agent
Mellon Investor Services
Independent Certified Public Accountants
PricewaterhouseCoopers LLP
Miami, Florida
For Financial Information, Contact
Barbara E. Reed
Senior Vice President and Chief Financial Officer
(305) 267-1200
Form 10-K
Copies of the Corporation's Annual Report on Form 10-K as filed with
the Securities and Exchange Commission are available on request by
calling or writing to the attention of Shareholder Relations at
1550 S.W. 57th Avenue, Miami, FL 33144, (305) 267-1200.
Web Page
www.commercialbankfl.com
COMMERCIAL BANKSHARES, INC.
1550 S.W. 57th Avenue
Miami, Florida 33144
-------------------------------------------------------------------------
Notice of Annual Meeting of Shareholders
to Be Held on April 18, 2002
-------------------------------------------------------------------------
Dear Shareholders:
The Annual Meeting of Shareholders of Commercial Bankshares, Inc.
(the "Company") will be held in Miami, Florida, at the executive offices
of the Company located at 1550 S.W. 57th Avenue, at 10:00 a.m., local
time, on Thursday, April 18, 2002, for the following purposes:
* To elect directors.
* To transact such other business as may properly come before the
Annual Meeting.
Only Shareholders of record at the close of business on March 8, 2002
are entitled to notice of and to vote at the Annual Meeting and all
adjournments thereof.
All Shareholders are cordially invited to attend the meeting in
person. Those Shareholders who plan to attend are requested to so
indicate by marking the appropriate space on the enclosed proxy card.
Any Shareholder attending the Annual Meeting may vote in person even
though he or she has previously returned a proxy.
Please complete, date, sign and return the enclosed proxy card
promptly so that your shares can be voted, regardless of whether you
expect to attend the meeting.
A copy of the Company's 2001 Annual Report to shareholders is also
enclosed.
By order of the Board of Directors,
JACK J. PARTAGAS
President and Chief Operating Officer
March 14, 2002
TABLE OF CONTENTS
SUMMARY
General 1
Record Date and Outstanding Shares 1
Voting and Solicitation 1
PROPOSAL I ELECTION OF DIRECTORS 2
Nominees 2
The Board of Directors and Committees 3
Executive Officers of the Company 3
Certain Relationships and Related Transactions 3
Section 16(a) Beneficial Ownership Reporting Compliance 4
Security Ownership of Certain Beneficial Owners and Management 4
Executive Compensation 6
Employment Agreements 7
Director Compensation 8
Board Compensation Committee Report on Executive Compensation 8
Performance Graph 10
Stock Option Plan Benefits 11
Report of the Audit Committee 11
Audit Fees and Other Fees 12
OTHER BUSINESS 12
SHAREHOLDER PROPOSALS 12
NOTICE OF APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 12
COMMERCIAL BANKSHARES, INC.
Annual Meeting of Shareholders
to be held on April 18, 2002
-------------------------------------------------------------------
PROXY STATEMENT
-------------------------------------------------------------------
General
The Board of Directors of Commercial Bankshares, Inc. (the "Company")
is soliciting proxies to be used at the Annual Meeting of Shareholders to
be held on Thursday, April 18, 2002, and all adjournments thereof. This
proxy statement and the accompanying proxy card are first being sent to
shareholders on or about March 14, 2002.
The shares represented by all properly executed proxies received by
the Company will be voted as specified by the shareholders. If no
specifications are given (including broker non-votes), the shares
represented by the proxy will be voted for the election of the listed
nominees as directors. A Shareholder who has given a proxy may revoke it
at any time before it is voted at the meeting by filing with the Secretary
of the Company a written notice of revocation, by submitting a proxy
bearing a later date, or by attending the meeting and voting in person.
Record Date and Outstanding Shares
On March 8, 2002, there were 3,615,508 shares of the Company's Common
Stock, $.08 par value, outstanding. Each share of Common Stock of record
on the books of the Company at the close of business on March 8, 2002,
entitles its owner to one vote, either in person or by proxy, upon each
matter to come before the meeting.
Voting and Solicitation
A majority of the shares entitled to vote, represented in person or by
proxy, shall constitute a quorum. Votes cast in person or by proxy will
be tabulated by the inspectors of election appointed by the Board of
Directors. The current Florida Business Corporation Act (the "Act")
provides that directors are elected by a plurality of the votes cast if
a quorum is present at the meeting, and all other matters are approved if
the votes cast in favor of the action exceed the votes cast against the
action (unless the matter is one for which the Act or the Articles of
Incorporation require a greater vote). Therefore, under the Act,
abstentions have no legal effect unless the matter is one for which the
Act or the Articles of Incorporation require a greater vote.
The expense of soliciting proxies will be borne by the Company.
Proxies will be solicited principally by mail, but directors, officers
and regular employees of the Company or its subsidiaries may solicit
proxies personally or by telephone. The Company will reimburse
custodians, nominees, or other persons for their out-of-pocket expenses
in sending proxy material to beneficial owners.
Regardless of the number of shares you own, it is important that they
be represented at the Annual Meeting. You are respectfully requested to
sign, date and return the accompanying proxy card at your earliest
convenience.
PROPOSAL I
ELECTION OF DIRECTORS
Unless you specify otherwise on the accompanying proxy, it will be
voted for the election of the listed nominees to serve as directors
until the next Annual Meeting of Shareholders or until their successors
are elected and qualified. If a quorum is present at the Meeting, the
plurality of the votes cast by the shares entitled to vote in the
election of Directors at the Meeting is required to elect each nominee.
Nominees
Joseph W. Armaly, age 65, is Chairman of the Board of Directors and
Chief Executive Officer of the Company and of Commercial Bank of
Florida ("Bank"), the Company's wholly owned subsidiary. Mr. Armaly
served as President of Merchants Bank of Miami ("Merchants") from
1965 through 1988 and also served as Chairman of Merchants' Board of
Directors from 1980 through 1988. Mr. Armaly was also President and
Chairman of the Board of Florida Commercial Banks, Inc. ("Florida
Commercial") from 1980 through 1988. Mr. Armaly has been Chairman
of the Board of the Company and the Bank since its formation in 1988.
Jack J. Partagas, age 64, is a Director and the President, Chief
Operating Officer, and Secretary of the Company and the Bank. Prior
to joining the Company and the Bank in 1988, Mr. Partagas was Vice
President of Florida Commercial between 1971 and 1988. Mr. Partagas
has been a Director of the Company and the Bank since 1988, Executive
Vice President of the Company and the Bank from 1988 through 1992,
and President of the Company and the Bank since 1992.
Cromwell A. Anderson, age 76, is a Director of the Company and the
Bank. Mr. Anderson has been in the private practice of law since
1954. During 1999, Mr. Anderson retired from the law firm of Fowler,
White, Burnett, Hurley, Banick & Strickroot, P.A. Mr. Anderson has
been a Director of the Company and the Bank since 1988.
Richard J. Bischoff, age 57, is a Director of the Company and the
Bank. Mr. Bischoff is a practicing attorney and the sole shareholder
of the firm of Bischoff & Associates, P.A. Mr. Bischoff has been a
director of the Company and the Bank since September, 1998.
Robert Namoff, age 49, is a Director of the Company and the Bank.
Mr. Namoff is the Chief Executive Officer of Allied Universal
Corporation, a chemical manufacturing company. Mr. Namoff has been
a Director of the Company and the Bank since 1990.
Sherman Simon, age 83, is a Director of the Company and the Bank.
Mr. Simon has been a private real estate investor for over 30 years.
Mr. Simon has been a Director of the Company and the Bank since 1988.
Michael W. Sontag, age 56, is a Director of the Company and the Bank.
Mr. Sontag is an Architectural Engineer and a licensed general
contractor. Mr. Sontag has been a Director of the Company and the
Bank since 1997.
Martin Yelen, age 74, is a Director of the Company and the Bank and
was formerly a director of Florida Commercial. Mr. Yelen is a
retired attorney who engaged in private practice for 45 years with
the firm of Yelen & Yelen, P.A. Mr. Yelen has served on the Miami-
Dade and Monroe County chapters of the National Safety Council and
was a councilman and Mayor of the City of West Miami. Mr. Yelen
has been a Director of the Company and the Bank since 1988.
The Board of Directors recommends a vote "FOR" the election of all
nominees.
The Board of Directors and Committees
The Board of Directors of the Company consists of the same persons as
the Board of Directors of the Bank. The Company conducts its operations
through the Bank, which is its wholly owned subsidiary. Both the Company
and the Bank held twelve meetings of the Board of Directors during 2001.
Each director attended at least 75% of the board meetings that were held
while he was serving as a director during the year, as well as attending
at least 75% of the committee meetings of those committees of which the
respective director was a member. During 2001, the Company's Board of
Directors had standing Audit and Compensation Committees, and the Bank's
Board of Directors had standing Audit, Executive, Loan and Compliance
Committees.
(a) Audit Committee. The Bank's Audit Committee consists of Messrs.
Namoff, Simon and Yelen. These persons were all independent, non-
employee directors of the Bank and the Company and constitute three of
the six non-employee directors of the Board. The Audit Committee held
four meetings during 2001. The Audit Committee has functional
supervision over the internal audit staff, reviews the system of
internal controls and the adequacy of the internal audit system, and
receives reports on activities of the internal auditing department.
It recommends the independent certified public accountants to the
Bank's and the Company's Boards of Directors and reviews the scope of
the audits and the actual audits performed by both the independent
certified public accountants and the internal auditors. It is
responsible for ensuring that the audit findings are adequately
addressed.
(b) Compensation Committee. The Company's Compensation Committee
consists of Messrs. Anderson, Simon and Yelen. These persons are all
independent, non-employee directors of the Company and constitute three
of the six non-employee directors of the Board. The Compensation
Committee held two meetings during 2001. The Compensation Committee
was delegated the duties of establishing and administering an executive
compensation program. Its activities include reviewing and approving
the design of the program, setting performance goals, assessing executive
performance, and making grants of salary, bonuses and incentive
compensation. The Compensation Committee also administers the Amended
1994 Performance Stock Option Plan.
(c) Nominating Committee. The Company has no formal nominating
committee but rather the entire Board of Directors acts as the
nominating committee.
Executive Officers of the Company
The executive officers of the Company are elected to their offices for
one-year terms at the meeting of the Board of Directors in April of each
year. The terms of any executive officers elected after such date expire
at the same time as the terms of the executive officers elected at such
date.
Joseph W. Armaly, age 65, is Chairman of the Board of Directors and
Chief Executive Officer of the Company and the Bank. Mr. Armaly
served as President of Merchants from 1965 through 1988 and also
served as Chairman of Merchants' Board of Directors from 1980
through 1988. Mr. Armaly was also President and Chairman of the
Board of Florida Commercial from 1980 through 1988. Mr. Armaly has
been Chairman of the Board of the Company and the Bank since its
formation in 1988.
Jack J. Partagas, age 64, is a Director and the President, Chief
Operating Officer, and Secretary of the Company and the Bank.
Prior to joining the Company and the Bank in 1988, Mr. Partagas was
Vice President of Florida Commercial between 1971 and 1988. Mr.
Partagas has been a Director of the Company and the Bank since 1988,
Executive Vice President of the Company and the Bank from 1988
through 1992, and President of the Company and the Bank since 1992.
Barbara E. Reed, age 38, was elected Senior Vice President and Chief
Financial Officer of the Company and the Bank in June of 1995. Ms.
Reed previously served the Bank as Vice President and Controller and
as Auditor. Ms. Reed is a Certified Public Accountant and prior to
1991, was employed by Coopers & Lybrand LLP.
Certain Relationships and Related Transactions
The Bank has had and expects to have in the future various loan and
other banking transactions in the ordinary course of business with
directors, executive officers, and principal shareholders of the Bank
and the Company (or associates of such persons). In the opinion of
management, all such transactions: (i) have been and will be made in
the ordinary course of business; (ii) have been and will be made on
substantially the same terms, including interest rates and collateral
on loans, as those generally prevailing at the time for comparable
transactions with unrelated persons; and (iii) do not involve more than
the normal risk of collectibility or present other unfavorable features.
The total amount of extensions of credit to directors, executive
officers, those stockholders named in the table in "Security Ownership
of Certain Beneficial Owners and Management" (set forth below), and any
of their associates was $8.0 million as of February 28, 2002, which
represented approximately 13% of total shareholders equity.
The firm of Bischoff and Associates, P.A. acts as corporate counsel
to the Company and the Bank. Richard J. Bischoff, a director of the
Company and the Bank, is the sole shareholder in that firm. The fees
paid in 2001 and 2000 were not material to the Company but might be
considered material to that law firm organized in September, 1999.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers (as defined in Rule 16a-1(f)), directors, and persons
owning more than ten percent of a registered class of the Company's
equity securities to file reports of ownership and changes of ownership
with the Securities and Exchange Commission ("SEC"). Such persons are
required by SEC regulations to furnish the Company with all Section 16(a)
forms they file. Based solely upon a review of the copies of forms
furnished to the Company, the Company believes that during the 2001
fiscal year, all filing requirements applicable to its officers and
directors and 10% shareholders were met.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of March 1,
2002, regarding the beneficial ownership of the Company's outstanding
Common Stock by the one person known to the Company to be the beneficial
owner of more than 5% of the Company's Common Stock.
Current Beneficial Ownership
----------------------------
Number of Percent of
Name and Address of Beneficial Owner Shares (1) Class*
------------------------------------ ----------------------------
John Hancock Advisors, Inc. (2) 263,575 6.47%
101 Huntington Avenue, Boston, MA 02199
The following table sets forth certain information regarding the
beneficial ownership of the Company's outstanding Common Stock as of
March 1, 2002, by (i) each director and executive officer of the Company,
and (ii) the directors and the executive officers of the Company as a
group. Except as otherwise indicated, the persons named in the table
have sole voting and investment power with respect to all shares of
Common Stock owned by them.
Current Beneficial Ownership
----------------------------
Number of Percent of
Name and Address of Beneficial Owner Shares (1)(10) Class*
------------------------------------ --------- ------- ----------
Cromwell A. Anderson 93,655 (3) (9) 2.30%
1029 Hardee Road
Coral Gables, Florida 33146
Joseph W. Armaly 184,772 (4) (9) 4.54%
7141 S.W. 136th Street
Miami, Florida 33156
Richard J. Bischoff 26,229 (5) **
2516 San Domingo Street
Coral Gables, Florida 33134
Robert Namoff 110,732 (3) 2.72%
9440 S.W. 140th Street
Miami, Florida 33176
Jack J. Partagas 54,076 (6) 1.33%
7540 S.W. 158th Terrace
Miami, Florida 33157
Barbara E. Reed 26,695 (7) **
13355 S.W. 74th Avenue
Miami, Florida 33156
Sherman Simon 147,151 (3) 3.61%
9999 Collins Avenue, #20K
Bal Harbour, Florida 33154
Michael W. Sontag 33,622 (8) **
14535 S.W. 63rd Court
Miami, Florida 33158
Martin Yelen 65,895 (3) 1.62%
1925 Brickell Avenue #1001
Miami, Florida 33129
All directors and the executive officers
as a group (9 persons) 742,827 18.24%
________________________________
* Both the number of shares beneficially owned and, for purposes of
calculating the percentage of class, the total number of shares of
the class, include shares of common stock underlying 457,005
outstanding options under the Company's 1994 Performance Stock
Option Plan and the Company's 1994 Outside Director Stock Option
Plan.
** Less than 1%.
(1) In accordance with Rule 13d-3 promulgated pursuant to the
Securities Exchange Act of 1934, a person is deemed to be the
beneficial owner of a security for purposes of the rule if he or
she has or shares voting power or investment power with respect to
such security or has the right to acquire such ownership within 60
days. As used herein, "voting power" is the power to vote or
direct the voting of shares, and "investment power" is the power
to dispose or direct the disposition of shares, irrespective of
any economic interest therein.
(2) Through their parent-subsidiary relationship to John Hancock
Advisors, Inc., John Hancock Life Insurance Company, John Hancock
Subsidiaries, Inc., John Hancock Financial Services, Inc. and The
Berkeley Financial Group have indirect beneficial ownership of
these same shares.
(3) Includes Options granted June 1, 1994 to purchase 4,863 shares of
Common Stock at $8.70 per share, Options granted June 1, 1995 to
purchase 4,863 shares of Common Stock at $11.72 per share, Options
granted June 1, 1996 to purchase 4,863 shares of Common Stock at
$11.31 per share, Options granted June 1, 1997 to purchase 4,631
shares of Common Stock at $14.47 per share, Options granted June
1, 1998, to purchase 4,410 shares of Common Stock at $22.45 per
share, Options granted June 1, 1999 to purchase 5,250 shares of
common stock at $20.71 per share, Options granted June 1, 2000 to
purchase 5,000 shares of Common Stock at $17.50 per share and
Options granted June 1, 2001 to purchase 5,000 shares of common
stock at $20.85 per share.
(4) Includes Options granted August 16, 1995 to purchase 7,293 shares
of Common Stock at $12.03 per share, Options granted June 1, 1996
to purchase 8,813 shares of Common Stock at $11.31 per share,
Options granted June 1, 1997 to purchase 6,657 shares of Common
Stock at $14.47 per share, Options granted June 1, 1998 to purchase
4,410 shares of Common Stock at $22.45 per share, Options granted
June 1, 1999 to purchase 4,825 shares of Common Stock at $20.71
per share, Options granted June 1, 2000 to purchase 5,630 shares
of Common Stock at $17.50 per share and Options granted June 1,
2001 to purchase 4,750 shares of common stock at $20.85 per share.
(5) Includes Options granted June 1, 1999 to purchase 5,250 shares of
Common Stock at $20.71 per share, Options granted June 1, 2000 to
purchase 5,000 shares of Common Stock at $17.50 per share and
Options granted June 1, 2001 to purchase 5,000 shares of common
stock at $20.85 per share.
(6) Includes Options granted June 1, 1994 to purchase 10,940 shares of
Common Stock at $8.70 per share, Options granted August 16, 1995
to purchase 7,293 shares of Common Stock at $12.03 per share,
Options granted June 1, 1996 to Purchase 8,813 shares of Common
Stock at $11.31 per share, Options granted June 1, 1997 to purchase
6,657 shares of Common Stock at $14.47 per share, Options granted
June 1, 1998 to purchase 4,410 shares of Common Stock at $22.45
per share, Options granted June 1, 1999 to purchase 4,825 shares
of Common Stock at $20.71 per share, Options granted June 1, 2000
to purchase 5,630 shares of Common Stock at $17.50 per share and
Options granted June 1, 2001 to purchase 4,750 shares of common
stock at $20.85 per share.
(7) Includes Options granted August 16, 1995, to purchase 6,078 shares
of Common Stock at $12.03 per share, Options granted June 1, 1996
to purchase 6,078 shares of Common Stock at $11.31 per share,
Options granted June 1, 1997 to purchase 2,894 shares of Common
Stock at $14.47 per share, Options granted June 1, 1998 to
purchase 2,205 shares of Common Stock at $22.45 per share,
Options granted June 1, 1999 to purchase 2,100 shares of Common
Stock at $20.71 per share, Options granted June 1, 2000 to
purchase 4,000 shares of Common Stock at $17.50 per share and
Options granted June 1, 2001 to purchase 2,000 shares of common
stock at $20.85 per share.
(8) Includes Options granted June 1, 1998 to purchase 2,205 shares of
Common Stock at $22.45 per share, Options granted June 1, 1999 to
purchase 3,150 shares of Common Stock at $20.71 per share, Options
granted June 1, 2000 to purchase 3,000 shares of Common Stock at
$17.50 per share and Options granted June 1, 2001 to purchase
5,000 shares of common stock at $20.85 per share.
(9) Does not include 28,927 shares held of record by Mr. Armaly's
wife, and 42,052 shares held of record by Mr. Anderson's wife.
Messrs. Armaly and Anderson respectively disclaim beneficial
ownership of all such shares. Inclusion of such shares would
result in Mr. Armaly owning 213,699 shares or 5.25%, Mr. Anderson
owning 135,707 shares or 3.33% and all directors and the
executive officers owning as a group 813,806 shares or 19.99% of
the total issued and outstanding shares of Common Stock.
10) The number of shares underlying the stock options described in
this table and the foregoing footnotes, and the exercise prices
for such shares, give effect to the dilutive adjustments, which
were made with respect to such options as a result of the 5%
stock dividends which were declared by the Company in each of
December, 1996, December, 1997, December, 1998 and December, 1999.
Executive Compensation
The following table sets forth as of December 31, 2001, all
compensation paid during the Company's latest fiscal year to the
Company's Chief Executive Officer and to those executive officers of the
Company whose total annual compensation exceeded $100,000 in any of the
last three completed fiscal years.
Summary Compensation Table
Long Term
Annual Compensation Compensation
------------------- Stock ------------
Name and Principal Options All Other (3)
Position(1) Year Salary Bonus Granted(2) Compensation
------------------ ---- -------- ------- ---------- ------------
Joseph W. Armaly 2001 $310,000 $80,000 4,750 $6,853
Chairman and Chief 2000 $290,000 $70,000 5,630 $4,499
Executive Officer of 1999 $275,000 $50,000 4,825 $4,745
the Company and the Bank
Jack J. Partagas 2001 $240,000 $60,000 4,750 $2,935
President and Chief 2000 $220,000 $55,000 5,630 $3,385
Operating Officer of 1999 $205,000 $45,000 4,825 $6,609
the Company and the Bank
Barbara E. Reed 2001 $115,000 $12,000 2,000 $5,318
Senior Vice President 2000 $105,000 $20,000 4,000 $5,309
and Chief Financial 1999 $ 99,000 $12,000 2,100 $5,008
Officer of the Company
and the Bank
_______________________________
(1) All compensation or remuneration paid to employees is paid by the
Bank. At the present time, there are no separate employees of the
Company and there is no compensation paid by the Company.
(2) Gives effect to the dilutive adjustments which were made with
respect to such options as a result of the 5% stock dividends
which were declared by the Company in December, 1999.
(3) The Bank has adopted a plan pursuant to the provisions of Section
401(k) of the Internal Revenue Code in which after one year of
employment, all employees of the Bank are eligible to participate.
The Bank, in its discretion, may match any amounts deferred by
employees. The amount of contribution made by the Bank with
respect to all employees was approximately $154,000 in 2001,
$149,000 in 2000 and $134,000 in 1999.
Table of Option Grants
in the Last Fiscal Year
Potential
Realizable Value at
Number of % of Total Assumed Annual
Securities Options Exercise Rates of Stock Price
Underlying Granted To or Appreciation for
Options Employees in Base Expiration Option Term
Name Granted Fiscal Year Price Date(1) 5% 10%
---- ---------- ----------- ----- ------------ ------- --------
Joseph W. Armaly
4,750 12.3% $20.85 June 1, 2010 $62,284 $157,840
Jack J. Partagas
4,750 12.3% $20.85 June 1, 2010 $62,284 $157,840
Barbara E. Reed
2,000 5.2% $20.85 June 1, 2010 $26,225 $ 66,459
______________
(1) The Company's form of option agreement provides for early
termination in the event the option holder's employment is
terminated, the option holder dies, or the option holder becomes
permanently or totally disabled. The Options may not be exercised
until at least one year from the date of grant, which was June 1,
2001.
Fiscal Year-end Option Values
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options at
Options at Year End ($)
Year End
Shares
Acquired on Value Exercisable/ Exercisable and
Name Exercise Realized Unexercisable(1) Unexercisable
---- -------- -------- ---------------- -------------
Joseph W. Armaly 37,628/4,750 $337,221
Jack J. Partagas 48,568/4,750 $504,936
Barbara E. Reed 2,000 26,376 21,355/2,000 $194,918
__________________
(1) The number of shares underlying the stock options described in this
table gives effect to the dilutive adjustments which were made with
respect to such options as a result of the 5% stock dividends which
were declared by the Company in each of December 1996, December,
1997, December, 1998 and December, 1999.
Employment Agreements
As of March 18, 1994, the Company and the Bank entered into
employment agreements with Messrs. Armaly and Partagas and Ms. Reed.
These agreements are intended to assure the Company and the Bank of
the continued services of key officers.
With respect to Messrs. Armaly and Partagas, the agreements provide
that each officer shall be employed by the Company and the Bank in his
current position for a period of three (3) years. On March 31, 1995 the
term was extended automatically for one additional year and on each
subsequent March 31 the term is automatically extended for one additional
year such that after each March 31 extension the term of the agreement is
a full three years. Compensation and benefits are to be determined by
the Board of Directors of the Company, provided that the officer's
participation in employee benefit plans and arrangements shall provide
benefits at least equal to those provided to all other employees of the
Company. In the event that the officer's employment is terminated
(except for death, disability, or cause) or if the officer terminates
his employment because of a reduction in position, responsibility,
salary, or for any other good reason, as defined in the agreement, and
including a change in control of the Company, the officer is entitled
to severance benefits equal to three year's salary and cash incentive
compensation plus the option to continue to receive fringe benefits for
an additional three years or an additional sixty (60%) percent of annual
salary and cash incentive compensation in lieu of fringe benefits. In
the event the officer terminates his employment other than for good
reason, as defined in the agreement, the officer is entitled to severance
benefits equal to one year's salary and cash incentive compensation, plus
an additional twenty (20%) percent in lieu of fringe benefits. Such
severance benefits will be based upon the executive's then current salary
and the aggregate cash incentive compensation last paid to or earned by
the officer in the immediately preceding twelve months prior to
termination. In the event that any of such payments constitute
"parachute payments" under Section 280G of the Internal Revenue Code and
therefore are subject to the excise tax on "excess parachute payments"
under Section 4999 of the Internal Revenue Code, the agreements provide
that the Company will pay an additional cash amount, as determined by a
formula set forth in the agreements, sufficient to pay both the excise
tax and any additional amounts which become due as the result of the
payment of the excise tax, to put the officer in the same position as
though no excise tax had been imposed.
With respect to Ms. Reed, the agreement provides that she shall be
employed by the Company and the Bank in her current position for a period
of one year. On December 14, 1997 the term was extended automatically for
one additional year and on each subsequent December 14 the term is
automatically extended for one additional year. Compensation and benefits
are to be determined by the Board of Directors of the Company, provided
that the officer's participation in employee benefit plans and
arrangements shall provide benefits at least equal to those provided to
all other employees of the Company. In the event that the officer's
employment is terminated (except for death, disability, or cause) or if
the officer terminates her employment because of a reduction in
position, responsibility, salary, or for any other good reason, as
defined in the agreement, Ms. Reed is entitled to severance benefits
equal to her base salary and cash incentive compensation through and
including the scheduled termination date of this agreement, as extended.
If the agreement is terminated by Ms. Reed pursuant to a change in
control of the Company, Ms. Reed is entitled to severance benefits
equal to twelve times her then current monthly salary. In the event
that Ms. Reed terminates her employment other than for good reason, as
defined in the agreement, the officer is entitled to severance benefits
equal to her base salary and cash incentive compensation through and
including the date of termination. Such severance benefits will be based
upon Ms. Reed's then current salary and the aggregate cash incentive
compensation last paid to or earned by the officer in the immediately
preceding twelve months prior to termination.
Director Compensation
Directors of the Company who are salaried employees of the Bank do
not receive any additional compensation for serving as a director or
committee member. During the year 2001, non-employee directors of the
Bank received a retainer of $1,500 per calendar quarter.
In addition, each non-employee director in office in June, 2001
received 3,000 stock options for serving on the Board, and each non-
employee director who was a member of the Bank's Loan or Executive
Committees in June, 2001 received 2,000 additional stock options.
Board Compensation Committee Report on Executive Compensation
1. Performance and Policies.
The Compensation Committee of the Board of Directors of the Company
oversees and administers the Company's executive compensation programs.
All members of the Compensation Committee are outside directors who are
not eligible to participate in any of the compensation programs that
the Committee oversees. The Compensation Committee recommends and the
Board of Directors determines, based on such recommendations,
compensation for the Chairman. Compensation levels for the other
executive officers of the Company are determined by the Compensation
Committee, based on the recommendations of the Chairman.
The Company's executive compensation program is designed to attract,
retain, motivate and appropriately reward individuals who are
responsible for the Company's short- and long-term profitability,
growth and return to shareholders. It is also designed to align the
interests of high level employees with those of the Shareholders.
Compensation for Company executive officers consists of base
compensation, annual cash incentive awards and long-term incentive
awards in the form of stock options. Executive officers also
participate in a savings incentive plan and a medical plan available
to employees generally.
The determination of base compensation increases, annual cash
incentive awards and long-term incentive awards is based upon the
performance of the Company and the contribution of each individual to
that performance. Individual contribution is assessed based upon
factors such as level of responsibility, job complexity and the
importance of the position in the structure of the Company and the
Bank. Individual contribution is also judged more subjectively based
upon the Compensation Committee's overall evaluation of the officer's
professionalism and professional growth, judgment, business acumen and
ability and effort. The Compensation Committee also compares, on a
random and subjective basis, the salaries of the executive officers
with the salaries of executive officers of other bank holding
companies of comparable size. Finally the Compensation Committee
considers whether compensation increases are fair and equitable based
upon individual performance and a comparison with peers. Although the
components of compensation (base compensation, annual cash incentive
awards, and long-term incentive awards) are reviewed separately,
compensation decisions are made based on a review of total compensation.
(a) Base Compensation. Pay levels for each executive are set annually
at the beginning of the fiscal year and are based primarily on the
performance of the Company during the prior fiscal year. The
Compensation Committee considers factors such as earnings per share,
pre-tax earnings, net profits and return on equity. Secondarily, the
Compensation Committee considers individual performance in light of
each executive's job responsibilities. In determining the base
salaries for 2001, the Compensation Committee took into account the
Company's performance during 2000. Specifically, net income increased
16% during 2000; return on average assets and equity were 1.28% and
15.43%, respectively, as compared to 1.20% and 12.35%, respectively, in
1999; credit performance remained strong; diluted earnings per share
increased from $1.37 in 1999, to $1.68 in 2000 and loan growth was 17%
in 2000.
(b) Annual Cash Incentive Awards. Annual cash incentive awards to
the Company's executive officers are granted at the discretion of the
Compensation Committee and are determined at the end of the fiscal year.
The determination of the amount of such awards is made by the
Compensation Committee based upon the performance of the Company and
on a subjective basis as indicated above. For purposes of determining
the level of the annual cash incentive awards to be paid to senior
executives for 2001, it was the Compensation Committee's view that the
Company's 2001 results represented a strong performance. The
Compensation Committee noted the following factors in support of its
findings: net income increased 11% during 2001; return on average assets
and equity were 1.28% and 14.61% in 2001, respectively, as compared to
1.28% and 15.48% in 2000; credit performance remained excellent; diluted
earnings per common share increased from $1.37 in 1999 and $1.68 in 2000,
to $1.89 in 2001; the senior executive officers were successful in
implementing the growth strategy of the Bank, as average loans increased
by 21% from 2000 to 2001; average total deposits increased 9% from 2000
to 2001; and cash dividends declared during 2001 increased 11% over 2000.
(c) Stock Option Awards. The Compensation Committee also uses stock
options to reward management and to link them to the long-term results
and stockholder interests of the Company. Option grants are usually
determined in the spring of each fiscal year. The levels of option
grants are determined at the discretion of the Compensation Committee
on a subjective basis. Previous grants of stock options are reviewed
but are not considered the most important factor in determining the size
of any executive's stock option award in a particular year. In
determining the levels of option grants for 2001, the Compensation
Committee considered the performance of the Company for fiscal 2000,
the performance of the Company for the beginning of 2001, and efforts
and initiatives by the executive officers to implement and support the
strategic objectives of the Bank.
2. CEO Compensation.
Joseph Armaly is eligible to participate in the same executive
compensation program available to the other executive officers within
the Company. His 2001 base salary was set at $310,000, as compared to
$290,000 in 2000. Mr. Armaly's base salary was based primarily on the
Company's performance during 2000; specifically, net income increased
16% during 2000; return on average assets and equity were 1.28% and
15.43% respectively, as compared to 1.20% and 12.35%, respectively, in
1999; credit performance remained strong; diluted earnings per share
increased from $1.37 in 1999 to $1.68 in 2000, and loan growth was 17%
in 2000.
The stock option grants made to Mr. Armaly in 2001 were based on the
analysis discussed above for fiscal year 2000, together with performance
of the Company for the first half of 2001. In June 2001, Mr. Armaly
was awarded ten-year options covering 4,750 shares. The terms and
conditions of this grant were consistent with the grants to all other
executive officers.
In December, 2001, Mr. Armaly received an annual cash incentive
award of $80,000. This annual cash incentive award was based upon the
Company's performance during the 2001 fiscal year and the individual
performance of the executive. In determining this award, the
Compensation Committee considered the increase in the Company's
earnings during 2001. Specifically, the Compensation Committee
considered the following factors: net income increased 11% during 2001;
return on average assets and equity for 2001 were 1.28% and 14.61%,
respectively, as compared to 1.28% and 15.48% in 2000, respectively;
diluted earnings per common share increased from $1.37 in 1999 and
$1.68 in 2000 to $1.89 in 2001; the Bank was successful in implementing
its growth strategy, as average loans increased by 21% from 2000 to
2001; average total deposits increased 9% from 2000 to 2001; and cash
dividends declared during 2001 increased 11% over 2000.
COMPENSATION COMMITTEE
Cromwell A. Anderson, Chairman
Sherman Simon
Martin Yelen
Performance Graph
The following table compares cumulative five-year shareholder
returns (including reinvestment of dividends) on an indexed basis with
the Center for Research in Security Prices ("CRSP") Index for the
NASDAQ Stock Market (U.S. Companies) and the CRSP Index for NASDAQ Bank
Stocks (SIC codes 602 and 671). These indices are included for
comparative purposes only, and do not necessarily reflect
management's opinion that such indices are an appropriate measure of
the relative performance of the stock involved and are not intended
to forecast or be indicative of possible future performance of the
Common Stock. The table assumes that the value of an investment in
the Common Stock and in each index was $100 on December 31, 1996, and
that all dividends were reinvested.
Comparison of Five-Year Cumulative Return
Commercial Bankshares, Inc., Common Stock
December 31,
------------
2001 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ----
Commercial Bankshares, Inc. 262 179 208 204 184 100
NASDAQ Stock Market Bank Stocks 197 182 160 166 167 100
NASDAQ Stock Market Index 153 193 321 173 122 100
(U.S. Companies)
Stock Option Plan Benefits
The table below indicates options granted to date and outstanding under
the 1994 Outside Director Stock Option Plan and the 1994 Performance
Stock Option Plan.
Number of
Options Granted
Name and Position and Outstanding
----------------- ---------------
Executive officer group 119,051
Non-executive director group 184,125
Non-executive officer employee group 160,818
-------
Total options granted 463,994
=======
Executive Officers
------------------
Joseph W. Armaly 42,378
Chairman and CEO
Jack J. Partagas 53,318
President and COO
Barbara E. Reed 23,355
Senior Vice President and CFO
Nominees for Director
---------------------
Joseph W. Armaly 42,378
Jack J. Partagas 53,318
Cromwell A. Anderson 38,880
Richard J. Bischoff 15,250
Robert Namoff 38,880
Sherman Simon 38,880
Michael W. Sontag 13,355
Martin Yelen 38,880
Report of the Audit Committee
The following report on the Audit Committee is made pursuant to the
rules of the Securities and Exchange Commission. The Audit Committee
has met and held discussions with management and the independent
certified public accountants. Management represented to the Audit
Committee that the Company's consolidated financial statements were
prepared in accordance with generally accepted accounting principles
and the Audit Committee has reviewed and discussed the consolidated
financial statements with management and the independent certified
public accountants. The Audit Committee discussed with the independent
certified public accountants matters required to be discussed by
Statement on Auditing Standards No. 61, "Communication with Audit
Committees".
The Audit Committee discussed with the Company's internal audit
staff and its independent certified public accountants the overall scope
and plans for their respective audits. The Audit Committee meets with
the internal audit staff and its independent certified public
accountants to discuss the results of their examinations, the
evaluations of the Company's internal controls and the overall quality
of the Company's financial reporting.
The Audit Committee has received the written disclosures and the
letter from the independent certified public accountants required by
Independence Standards Board Standard No. 1 "Independence Discussions
with Audit Committees", as may be modified or supplemented, and has
discussed with the independent certified public accountants the
independent certified public accountants' independence. The members
of the Audit Committee are independent as independence is defined in
Rule 4200(a)(14) of the National Association of Securities Dealers.
Based on the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited
financial statements for the year ended December 31, 2001 be included
in the Company's Annual Report on Form 10-K for the year 2001, for
filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
Martin Yelen, Chairman
Sherman Simon
Robert Namoff
Audit Fees and Other Fees
Fees for the calendar year 2001 audit and reviews of Forms 10Q were
$80,000, of which $51,500 was billed as of December 31, 2001. Fees
for other services billed by the independent certified public
accountants during 2001 were $19,500 and included tax services and
retirement plan audit. The audit committee believes that the other
services provided are compatible with the audit services and that in
providing these services the independence of the independent certified
public accountants is not impaired.
OTHER BUSINESS
The Board of Directors does not know of any other business to be
presented at the meeting and does not intend to bring before the
meeting any matter other than the proposals described herein. However,
if any other business should come before the meeting or any
adjournments thereof, the persons named in the accompanying proxy
will have discretionary authority to vote all proxies.
SHAREHOLDER PROPOSALS
Proposals on matters appropriate for shareholder consideration
consistent with the regulations of the Securities and Exchange
Commission submitted by shareholders for inclusion in the proxy
statement and form of proxy for the 2003 Annual Meeting of Shareholders
must be received at the Company's principal executive offices on or
before November 22, 2002. Such shareholder proposals may be mailed to
Barbara E. Reed, Senior Vice President and Chief Financial Officer,
Commercial Bankshares, Inc., 1550 Southwest 57th Avenue, Miami, Florida
33144.
NOTICE OF APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP,
Independent Certified Public Accountants, to audit the financial
statements of the Company and the Bank for the fiscal year ending
December 31, 2002, and to perform such other services as may be required
of them. Representatives of PricewaterhouseCoopers LLP will be present
at the 2002 Annual Meeting and will have an opportunity to make a
statement if they desire to do so and to respond to appropriate questions
raised at the meeting.
A copy of the Company's Annual Report to Shareholders for the fiscal
year ended December 31, 2001 is being provided to each shareholder
simultaneously with delivery of this proxy statement. Additional copies
of the Annual Report to Shareholders or copies of the Company's Annual
Report on Form 10-K, filed with the Securities and Exchange Commission,
may be obtained by writing Barbara E. Reed, Commercial Bankshares, Inc.,
1550 Southwest 57th Avenue, Miami, Florida 33144.