U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
Commission File Number 00-22246
COMMERCIAL BANKSHARES, INC.
- -----------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
FLORIDA 65-0050176
- -----------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1550 S.W. 57th Avenue, Miami, Florida 33144
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(305) 267-1200
- -----------------------------------------------------------------------------
(Registrant's Telephone Number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
--- ---
CLASS OUTSTANDING AT August 12,1999
- ----- -----------------------------
COMMON STOCK, $.08 PAR VALUE 3,652,631 SHARES
TABLE OF CONTENTS
PART I Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
Item 6. Exhibits and Reports on Form 8-K 13
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1999 and December 31, 1998
(Dollars in thousands except per share data)
<CAPTION>
06/30/99 12/31/98
-------- --------
Assets: (Unaudited)
<S> <C> <C>
Cash and due from banks $ 14,446 $ 19,047
Federal funds sold 11,226 16,186
------ ------
Total cash and cash equivalents 25,672 35,233
Investment securities available for sale,
at fair value (cost of $141,380 in 1999
and $115,113 in 1998) 141,182 119,072
Investment securities held to maturity
(aggregate fair value of $49,659 in 1999
and $59,267 in 1998) 48,655 57,430
Loans, net 218,426 199,533
Premises and equipment, net 13,727 13,990
Accrued interest receivable 3,203 3,148
Goodwill, net 704 793
Other Assets 4,429 3,402
-------- --------
Total Assets $455,998 $432,601
======== ========
Liabilities and stockholders' equity:
Deposits:
Demand $ 80,949 $ 78,932
Interest-bearing checking 57,514 58,984
Money market accounts 43,028 41,923
Savings 22,840 22,807
Time 160,309 147,769
------- -------
Total deposits 364,640 350,415
Securities sold under agreements to repurchase 44,291 33,978
Accounts payable and accrued liabilities 2,744 2,833
Accrued interest payable 605 638
------- -------
Total liabilities 412,280 387,864
Stockholders' equity:
Common stock, $.08 par value, 6,250,000 authorized
shares, 3,726,428 issued (3,721,798 in 1998) 296 296
Additional paid-in capital 39,368 39,313
Retained earnings 4,722 3,136
Accumulated other comprehensive income 111 2,730
Treasury stock, 41,065 shares
(39,136 in 1998), at cost (779) (738)
-------- --------
Total stockholders' equity 43,718 44,737
-------- --------
Total liabilities and stockholders' equity $455,998 $432,601
======== ========
<FN> The accompanying notes are an integral part of these
condensed consolidated financial statements
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended June 30, 1999 and 1998
(In thousands except per share data)
(Unaudited)
<CAPTION> 1999 1998
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans $4,566 $3,978
Interest on investment securities 2,538 2,925
Interest on federal funds sold 265 112
----- -----
Total interest income 7,369 7,015
----- -----
Interest expense:
Interest on deposits 2,389 2,458
Interest on securities sold under
agreements to repurchase 434 420
----- -----
Total interest expense 2,823 2,878
----- -----
Net interest income 4,546 4,137
Provision for loan losses 260 30
----- -----
Net interest income after provision 4,286 4,107
----- -----
Non-interest income
Service charges on deposit accounts 555 479
Other fees and service charges 286 121
Securities gains - 1
----- -----
Total non-interest income 841 601
Non-interest expense:
Salaries and employee benefits 1,847 1,727
Occupancy 312 296
Furniture and equipment 259 239
Data processing 256 192
Professional fees 44 80
Amortization 44 64
FDIC insurance 33 48
Other 509 353
----- -----
Total non-interest expense 3,304 2,999
----- -----
Income before income taxes 1,823 1,709
Provision for income taxes 488 502
------ ------
Net income $1,335 $1,207
====== ======
Earnings per common and common equivalent share:
Basic $.36 $.33
Diluted $.35 $.31
Weighted average number of shares and common equivalent shares:
Basic 3,683 3,708
Diluted 3,798 3,833
<FN>
The accompanying notes are an integral part of these
condensed consolidated financial statements
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the six months ended June 30, 1999 and 1998
(In thousands except per share data)
(Unaudited)
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans $ 8,892 $ 7,812
Interest on investment securities 5,132 5,736
Interest on federal funds sold 427 303
------- -------
Total interest income 14,451 13,851
------- -------
Interest expense:
Interest on deposits 4,738 4,823
Interest on securities sold under
agreements to repurchase 772 799
------- -------
Total interest expense 5,510 5,622
------- -------
Net interest income 8,941 8,229
Provision for loan losses 320 65
------- -------
Net interest income after provision 8,621 8,164
------- -------
Non-interest income
Service charges on deposit accounts 1,124 961
Other fees and service charges 410 244
Securities gains - 1
------- -------
Total non-interest income 1,534 1,206
Non-interest expense:
Salaries and employee benefits 3,713 3,414
Occupancy 618 579
Furniture and equipment 507 465
Data processing 521 383
Professional fees 117 141
Amortization 89 124
FDIC insurance 65 96
Other 919 694
------- -------
Total non-interest expense 6,549 5,896
------- -------
Income before income taxes 3,606 3,474
Provision for income taxes 989 1,044
------- -------
Net income $2,617 $2,430
======= =======
Earnings per common and common equivalent share:
Basic $.71 $.66
Diluted $.69 $.64
Weighted average number of shares and common equivalent shares:
Basic 3,683 3,702
Diluted 3,798 3,825
<FN>
The accompanying notes are an integral part of these
condensed consolidated financial statements
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and six months ended June 30, 1999 and June 30, 1998
(Dollars in thousands)
(Unaudited)
<CAPTION>
Three months ended
June 30,
-------
1999 1998
---- ----
<S> <C> <C>
Net income $1,335 $1,207
Other comprehensive income/(loss), net of tax:
Unrealized holding gains/(losses) arising
during the period (2,007) 302
Reclassification adjustment for gains/(losses)
realized in net income - -
------ ------
Other comprehensive income/(loss) (2,007) 302
------ ------
Comprehensive income/(loss) $ (672) $1,509
====== ======
Six months ended
June 30,
-------
1999 1998
---- ----
Net income $2,617 $2,430
Other comprehensive income/(loss), net of tax:
Unrealized holding gains/(losses) arising
during the period (2,619) 110
Reclassification adjustment for gains/(losses)
realized in net income - -
------ ------
Other comprehensive income/(loss) (2,619) 110
------ ------
Comprehensive income/(loss) $ (2) $2,540
====== ======
<FN>
The accompanying notes are an integral part of these
condensed consolidated financial statements
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1999 and 1998
(In thousands)
(Unaudited)
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,617 $ 2,430
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 320 65
Depreciation, amortization, and accretion, net 769 583
Gain on sale of investment securities - (1)
Gain on sale of premises and equipment (220) -
Change in accrued interest receivable (55) (762)
Change in other assets (1,204) 404
Change in accounts payable and accrued liabilities 1,638 130
Change in accrued interest payable (33) (25)
------- -------
Net cash provided by operating activities 3,832 2,824
------- -------
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 8,558 16,035
Proceeds from maturities of investment securities
available for sale 21,325 51,593
Purchases of investment securities
held to maturity (35) -
Purchases of investment securities
available for sale (47,528) (75,432)
Net increase in loans (19,213) (8,180)
Purchases of premises and equipment (119) (1,322)
Sales of premises and equipment 287 -
------- -------
Net cash used in investing activities (36,725) (17,306)
------- -------
Cash flows from financing activities:
Net change in demand, savings, interest-bearing
checking, money market, and time deposit accounts 14,225 18,012
Net change in securities sold under agreements
to repurchase 10,313 4,405
Dividends paid (1,220) (669)
Proceeds from issuance of stock 55 201
Purchase of treasury stock (41) -
------- -------
Net cash provided by financing activities 23,332 21,949
------- -------
Increase (decrease) in cash and cash equivalents (9,561) 7,467
Cash and cash equivalents at beginning of period 35,233 27,561
------- -------
Cash and cash equivalents at end of period $25,672 $35,028
======= =======
Supplemental disclosures:
Interest paid $ 999 $ 932
======= =======
Income taxes paid $ 1,035 $ 991
======= =======
<FN> The accompanying notes are an integral part of these
condensed consolidated financial statements
</TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements, which
are for interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These financial statements and the footnotes
thereto should be read in conjunction with the annual consolidated financial
statements for the years ended December 31, 1998, 1997, and 1996, for
Commercial Bankshares, Inc. (the "Company").
All material intercompany balances and transactions have been eliminated.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary for a fair presentation
of the financial statements. Those adjustments are of a normal recurring nature.
The results of operations for the six-month period ended June 30, 1999, are not
necessarily indicative of the results to be expected for the full year.
2.PER SHARE DATA
Earnings per share have been computed in accordance with Statement of Financial
Accounting Standard No. 128, "Earnings per Share" (SFAS 128) by dividing net
income by the weighted average number of common shares (basic earnings per
share) and by the weighted average number of common shares plus dilutive common
share equivalents outstanding (diluted earnings per share). Common stock
equivalents include the effect of all outstanding stock options, using the
treasury stock method. The weighted average number of shares and equivalent
shares for 1999 and 1998 include the effect of the one-for-twenty (five per
cent) stock dividends effective on January 4, 1999 and January 2, 1998.
The following table reconciles the weighted average shares (denominator) used
to calculate basic and diluted earnings per share (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1999 June 30, 1998
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator)(Denominator) Amount
--------- ----------- ------ --------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $1,335 3,683 $.36 $1,207 3,708 $.33
Effect of
Dilutive
Options - 115 (.01) - 125 (.02)
------ ----- ---- ------ ----- ----
Diluted EPS $1,335 3,798 $.35 $1,207 3,833 $.31
====== ===== ==== ====== ===== ====
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator)(Denominator) Amount
--------- ----------- ------ --------- ----------- ------
Basic EPS $2,617 3,683 $.71 $2,430 3,702 $.66
Effect of
Dilutive
Options - 115 (.02) - 123 (.02)
------ ----- ---- ------ ----- ----
Diluted EPS $2,617 3,798 $.69 $2,430 3,825 $.64
====== ===== ==== ====== ===== ====
</TABLE>
3.COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standard No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Company's net income or stockholders' equity. SFAS 130 requires unrealized
gains or losses on the Company's available-for-sale securities, which prior
to adoption were reported separately in stockholders' equity, to be included
in other comprehensive income.
4. NEW ACCOUNTING PRONOUNCEMENTS
In July, 1999, the Financial Accounting Standards Board (FASB) issued Statement
of Accounting Standard (SFAS) 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133,
An Amendment of FASB Statement No. 133", which defers the effective date of SFAS
133. The impact of SFAS 137 and SFAS 133 is not expected to be material in
relation to the consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's net income reported for the quarter ended June 30, 1999, was $1.34
million, an 11% increase over the quarter ended June 30, 1998 of $1.21 million.
Basic and diluted earnings per share were $.36 and $.35, respectively, for the
second quarter of 1999, as compared to $.33 and $.31, respectively, for the
second quarter of 1998.
For the six months ended June 30, 1999, the Company's net income was $2.6
million, an 8% increase over the six months ended June 30, 1998 of $2.4 million.
Basic and diluted earnings per share were $.71 and $.69, respectively, for the
six months ended June 30, 1999, as compared to $.66 and $.64, respectively, for
the six months ended June 30, 1998.
The Company's second quarter tax-equivalent net interest income increased by
$420,000, or 10%, to $4.78 million, from $4.36 million in the corresponding
quarter in 1998. This is due primarily to an increase in earning assets of 8%,
to $411 million for the second quarter of 1999, from $379 million for the same
period in 1998.
The annualized net interest margin for the quarter and six months ended June 30,
1999 were 4.67% and 4.71%, respectively. This compares to 4.61% and 4.70% for
the quarter and six months ended June 30, 1998, respectively. The increase of
six basis points for the quarter is the result of the continuing shift in
earning assets from securities to higher-yielding loans. The net interest
margin has been calculated on a tax-equivalent basis, which includes an
adjustment for interest on tax-exempt securities.
Non-interest income for the second quarter of 1999 increased by $240,000, or
40%, and increased by $328,000, or 27% for the first six months of 1999, from
the corresponding periods of 1998. The increase is primarily due to a gain
on sale of premises and equipment of $220,000.
Salaries and employee benefits expense increased by $120,000, or 7%, for the
second quarter of 1999, and by $299,000, or 9% for the first six months of 1999,
from the corresponding periods of 1998. The increase includes normal payroll
increases and the cost of increasing the Company's staff from 174 to 182
full-time equivalent employees from June 30, 1998, to June 30, 1999.
Occupancy expense increased by $16,000, or 5%, for the second quarter in 1999
and by $39,000, or 7% for the first six months of 1999 as compared to the
corresponding periods in 1998. This increase is primarily due to rent
increases, coupled with depreciation on two new offices.
Company management continually reviews and evaluates the allowance for loan
losses. In evaluating the adequacy of the allowance for loan losses, management
considers the results of its methodology, along with other factors such as the
amount of non-performing loans and the economic conditions affecting the
Company's markets and customers.
The allowance for loan losses was approximately $2.71 million at June 30, 1999,
as compared with $2.33 million at June 30, 1998. For the six months ended June
30, 1999, the allowance for loan losses was increased by the provision for loan
losses of $320,000, and decreased by approximately $42,000 in net charge-offs.
For the six months ended June 30, 1998, the allowance was credited with a
provision for loan losses of $65,000 as well as by approximately $15,000 in net
recoveries of previous charge-offs. The increase in the provision during 1999
was due to the significant growth in the loan portfolio during the year. Even
with the addition to the provision, the allowance as a percentage of total loans
has decreased to 1.22% at June 30, 1999, from 1.29% at June 30, 1998. Based on
the nature of the loan portfolio and prevailing economic factors, management
believes that the current level of the allowance for loan losses is sufficient
to absorb potential losses in the loan portfolio.
Approximately $132.7 million, or 60% of total loans was secured by
nonresidential real estate and $42.5 million, or 19.2% of total loans was
secured by residential real estate as of June 30, 1999. Virtually all loans
are within the Company's markets in Miami-Dade and Broward counties.
The Company had no non-accrual loans at June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The objective of liquidity management is to maintain cash flow requirements to
meet immediate and ongoing future needs for loan demand, deposit withdrawals,
maturing liabilities, and expenses. In evaluating actual and anticipated needs,
management seeks to obtain funds at the most economical cost. Management
believes that the level of liquidity is sufficient to meet future funding
requirements.
For banks, liquidity represents the ability to meet both loan commitments and
withdrawals of deposited funds. Funds to meet these needs can be obtained by
converting liquid assets to cash or by attracting new deposits or other
sources of funding. Many factors affect a bank's ability to meet liquidity
needs. 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 an additional source of funds,
the Bank has credit availability with the Federal Home Loan Bank amounting to
$62 million, and Federal Funds purchased lines available at correspondent banks
amounting to $13 million.
The Bank's primary use of funds is to originate loans and purchase investment
securities. The net change in loans during the first six months of 1999 was
an increase of $19.2 million, and the Bank purchased $47.6 million of investment
securities. Funding for the above came primarily from increases in deposits of
$14.2 million, increases in securities sold under agreement to repurchase of
$10.3 million, proceeds from maturities of investment securities of $29.9
million, and a decrease in cash and cash equivalents of $9.5 million.
In accordance with risk-based capital guidelines issued by the Federal Reserve
Board, the Company and the Bank are each required to maintain a minimum ratio of
total capital to weighted risk assets of 8%. Additionally, all bank holding
companies and member banks must maintain "core" or "Tier 1" capital of at
least 3% of total assets ("leverage ratio"). Member banks operating at or
near the 3% capital level are expected to have well diversified risks,
including no undue interest rate risk exposure, excellent control systems,
good earnings, high asset quality, high liquidity, and well managed on- and
off-balance sheet activities, and in general be considered strong banking
organizations with a composite 1 rating under the CAMELS rating system of
banks. For all but the most highly rated banks meeting the above conditions,
the minimum leverage ratio is to be 3% plus an additional 100 to 200 basis
points. The Tier 1 Capital, Total Capital, and Leverage Ratios of the
Company were 15.87%, 17.40%, and 9.52%, respectively, as of June 30, 1999.
ASSET/LIABILITY MANAGEMENT AND INTEREST RATE RISK
Changes in interest rates can substantially impact the Company's long-term
profitability and current income. An important part of management's efforts to
maintain long-term profitability is the management of interest rate risk. The
goal is to maximize net interest income within acceptable levels of interest
rate risk and liquidity. Interest rate exposure is managed by monitoring the
relationship between interest-earning assets and interest-bearing liabilities,
focusing on the size, maturity or repricing date, rate of return and degree of
risk. The Asset/Liability Management Committee of Commercial Bank of Florida
(the Bank) oversees the interest rate risk management and reviews the Bank's
asset/liability structure on a quarterly basis.
The Bank uses interest rate sensitivity, or GAP analysis to monitor the amount
and timing of balances exposed to changes in interest rates. The GAP analysis
is not relied upon solely to determine future reactions to interest rate changes
because it is presented at one point in time and could change significantly from
day-to-day. Other methods such as simulation analysis are utilized in
evaluating the Bank's interest rate risk position. The table presented
below shows the Bank's GAP analysis at June 30, 1999.
<TABLE>
INTEREST RATE SENSITIVITY ANALYSIS
(Dollars in Thousands)
<CAPTION>
Term to Repricing
Over 1 Year
90 Days 91-181 182-365 & Non-rate
or Less Days Days Sensitive Total
------- ---- ---- --------- -----
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 11,226 $ - $ - $ - $ 11,226
Investment securities 9,349 14,854 11,885 153,731 189,819
Gross loans (excluding non-accrual) 97,903 35,061 30,458 57,712 221,134
-------- ------- ------- -------- --------
Total interest-earning assets $118,478 $49,915 $42,343 $211,443 $422,179
Interest-bearing liabilities:
Interest-bearing checking $ - $ - $ - $ 57,514 $ 57,514
Money market - 10,757 10,757 21,514 43,028
Savings - - - 22,840 22,840
Time deposits 54,915 45,732 46,332 15,630 162,609
Borrowed funds 47,424 - - - 47,424
-------- ------- ------- -------- --------
Total interest-bearing liabilities $102,339 $56,489 $57,089 $117,498 $333,415
Interest sensitivity gap $ 16,139($ 6,574)($14,746)$93,945 $ 88,764
======== ======= ======= ======= ========
Cumulative gap $ 16,139 $ 9,565 ($ 5,181)$88,764
======== ======= ======= =======
Cumulative ratio of interest-earning assets
to interest-bearing liabilities 116% 106% 98% 127%
Cumulative gap as a percentage of total
interest-earning assets 3.8% 2.3% (1.2%) 21.0%
<FN>
Management's assumptions reflect the Bank's estimate of the
anticipated repricing sensitivity of non-maturity deposit products.
Interest-bearing checking and savings accounts have been allocated
to the "over 1 year" category, and money market accounts 25% to the
"91-181 days" category, 25% to the "182-365 days" category, and 50%
to the "over 1 year" category.
</TABLE>
The Bank uses simulation analysis to quantify the effects of various
immediate parallel shifts in interest rates on net interest income over the
next 12 month period. Such a "rate shock" analysis requires key assumptions
which are inherently uncertain, such as deposit sensitivity, cash flows from
investments and loans, reinvestment options, management's capital plans,
market conditions, and the timing, magnitude and frequency of interest rate
changes. As a result, the simulation is only a best-estimate and cannot
accurately predict the impact of the future interest rate changes on net
income. As of June 30, 1999, the Bank's simulation analysis projects a
decrease to net interest income of 1.96%, 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 1.61%. These projected levels are within the Bank's policy
limits.
YEAR 2000 COMPLIANCE
The Company began addressing Year 2000 ("Y2K") risk factors in 1996, forming a
Y2K Management committee and a Y2K Board of Directors committee in 1997 to
oversee the progress on the Y2K project. The management committee began by
evaluating the necessary updates to computer, communication and other systems
which may be affected by the upcoming date change. The committee began to
monitor all vendors and to survey large corporate customers to gauge their
Y2K readiness and the potential affects to the Company should they not become
year 2000 compliant. A Y2K plan was developed in which each individual project
was identified, assigned a priority, and monitored for final compliance. A
project is considered to be compliant when the vendor has verified that the
software/hardware is compliant, and internal testing has been completed. The
Company uses a vendor-provided system for its core bank processing and for all
other data processing applications. The Company does not develop in-house
software.
As of June 30, 1999, the Company has successfully completed testing of all
applications. During the testing phase, tested applications have processed
dates in the year 2000. The Company has developed a contingency plan that
identifies alternate systems or other methods of processing in the event that
the existing mission critical systems are not able to operate in part, or in
whole, after December 31, 1999. The contingency plan identifies numerous
scenarios, and includes the alternate process to be used, personnel needs,
equipment needs and cost estimate for each scenario. This contingency plan
was tested during the second quarter of 1999.
As of June 30, 1999, the Company has identified costs of approximately $400,000
related to the Y2K issue, including hardware and software upgrades, installation
and human resources. Approximately $315,000 of these costs were incurred up to
June 30, 1999.
The Company continues to bear some risk arising from Year 2000 issues and could
be adversely affected should significant customers fail to address the issues
appropriately, or should vendors of the Company fail to perform due to
unforeseen circumstances. The Company is conferring with its lending
customers to evaluate their Y2K readiness and to encourage the prompt
implementation of Y2K projects if none is currently underway. At this time,
management has no reason to believe that any customer with a significant
banking relationship is failing to take appropriate actions to reach year 2000
compliance, or that its software vendors will be unable to perform.
The above reflects management's best estimates, which include numerous
assumptions of future events. The actual results could differ materially
from those shown due to these estimates, assumptions and forward looking
statements.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
All exhibits are omitted because they are not applicable.
(b) Reports on Form 8-K. No report on Form 8-K was filed during the
quarter ended June 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Commercial Bankshares, Inc.
- ---------------------------
(Registrant)
/s/ Barbara E. Reed
- --------------------------
Senior Vice President &
Treasurer
Date: August 12, 1999
-----------------------
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 14,446
<INT-BEARING-DEPOSITS> 250
<FED-FUNDS-SOLD> 11,226
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 141,182
<INVESTMENTS-CARRYING> 48,655
<INVESTMENTS-MARKET> 49,659
<LOANS> 221,134
<ALLOWANCE> 2,708
<TOTAL-ASSETS> 455,998
<DEPOSITS> 364,640
<SHORT-TERM> 44,291
<LIABILITIES-OTHER> 3,349
<LONG-TERM> 0
0
0
<COMMON> 296
<OTHER-SE> 43,422
<TOTAL-LIABILITIES-AND-EQUITY> 455,998
<INTEREST-LOAN> 8,892
<INTEREST-INVEST> 5,132
<INTEREST-OTHER> 427
<INTEREST-TOTAL> 14,451
<INTEREST-DEPOSIT> 4,738
<INTEREST-EXPENSE> 5,510
<INTEREST-INCOME-NET> 8,942
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<INCOME-PRETAX> 3,606
<INCOME-PRE-EXTRAORDINARY> 3,606
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,617
<EPS-BASIC> .71
<EPS-DILUTED> .69
<YIELD-ACTUAL> 4.48
<LOANS-NON> 0
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<ALLOWANCE-OPEN> 2,430
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<ALLOWANCE-CLOSE> 2,708
<ALLOWANCE-DOMESTIC> 2,708
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
