U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 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 November 12,1999
- ----- -------------------------------
COMMON STOCK, $.08 PAR VALUE 3,655,349 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
September 30, 1999 and December 31, 1998
(Dollars in thousands except per share data)
<CAPTION>
09/30/99 12/31/98
-------- --------
Assets: (Unaudited)
<S> <C> <C>
Cash and due from banks $ 17,253 $ 19,047
Federal funds sold 2,200 16,186
-------- --------
Total cash and cash equivalents 19,453 35,233
Investment securities available for sale,
at fair value (cost of $135,741 in 1999
and $115,113 in 1998) 135,202 119,072
Investment securities held to maturity
(aggregate fair value of $46,663 in 1999
and $59,267 in 1998) 45,823 57,430
Loans, net 237,555 199,533
Premises and equipment, net 13,784 13,990
Accrued interest receivable 3,604 3,148
Goodwill, net 659 793
Other Assets 4,569 3,402
-------- --------
Total Assets $460,649 $432,601
======== ========
Liabilities and stockholders' equity:
Deposits:
Demand $ 79,387 $ 78,932
Interest-bearing checking 56,948 58,984
Money market accounts 43,142 41,923
Savings 22,787 22,807
Time 168,968 147,769
-------- --------
Total deposits 371,232 350,415
Securities sold under agreements to repurchase 42,223 33,978
Accounts payable and accrued liabilities 2,966 2,833
Accrued interest payable 578 638
-------- --------
Total liabilities 416,999 387,864
-------- --------
Stockholders' equity:
Common stock, $.08 par value, 6,250,000
authorized shares, 3,730,346 issued
(3,721,798 in 1998) 296 296
Additional paid-in capital 39,417 39,313
Retained earnings 5,566 3,136
Accumulated other comprehensive income(loss) (103) 2,730
Treasury stock, 74,997 shares
(39,136 in 1998), at cost (1,526) (738)
-------- --------
Total stockholders' equity 43,650 44,737
-------- --------
Total liabilities and stockholders' equity $460,649 $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 September 30, 1999 and 1998
(In thousands except per share data)
(Unaudited)
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans $4,796 $4,162
Interest on investment securities 2,791 2,787
Interest on federal funds sold 128 219
------ ------
Total interest income 7,715 7,168
------ ------
Interest expense:
Interest on deposits 2,582 2,571
Interest on securities sold under
agreements to repurchase 525 421
------ ------
Total interest expense 3,107 2,992
------ ------
Net interest income 4,608 4,176
Provision for loan losses 70 95
------ ------
Net interest income after provision 4,538 4,081
------ ------
Non-interest income:
Service charges on deposit accounts 527 488
Other fees and service charges 97 129
Securities gains (losses) (7) 67
------ ------
Total non-interest income 617 684
Non-interest expense:
Salaries and employee benefits 1,852 1,747
Occupancy 309 323
Furniture and equipment 250 231
Data processing 233 202
Professional fees 40 37
Amortization 45 45
FDIC insurance 32 32
Other 464 434
------ ------
Total non-interest expense 3,225 3,051
------ ------
Income before income taxes 1,930 1,714
Provision for income taxes 537 502
------ ------
Net income $1,393 $1,212
====== ======
Earnings per common and common equivalent share:
Basic $.38 $.33
Diluted $.37 $.32
Weighted average number of shares and common equivalent shares:
Basic 3,663 3,710
Diluted 3,781 3,820
<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 nine months ended September 30, 1999 and 1998
(In thousands except per share data)
(Unaudited)
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans $13,688 $11,974
Interest on investment securities 7,923 8,523
Interest on federal funds sold 555 522
------- -------
Total interest income 22,166 21,019
------- -------
Interest expense:
Interest on deposits 7,320 7,394
Interest on securities sold under
agreements to repurchase 1,297 1,220
------- -------
Total interest expense 8,617 8,614
------- -------
Net interest income 13,549 12,405
Provision for loan losses 390 160
------- -------
Net interest income after provision 13,159 12,245
------- -------
Non-interest income:
Service charges on deposit accounts 1,651 1,449
Other fees and service charges 507 373
Securities gains(losses) (7) 68
------- -------
Total non-interest income 2,151 1,890
Non-interest expense:
Salaries and employee benefits 5,565 5,137
Occupancy 927 902
Furniture and equipment 757 696
Data processing 754 585
Professional fees 157 155
Amortization 134 134
FDIC insurance 97 94
Other 1,383 1,244
------- -------
Total non-interest expense 9,774 8,947
------- -------
Income before income taxes 5,536 5,188
Provision for income taxes 1,526 1,546
------- -------
Net income $4,010 $3,642
======= =======
Earnings per common and common equivalent share:
Basic $1.09 $.98
Diluted $1.06 $.95
Weighted average number of shares and common equivalent shares:
Basic 3,675 3,704
Diluted 3,790 3,823
<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 nine months ended September 30, 1999 and 1998
(Dollars in thousands)
(Unaudited)
<CAPTION>
Three months ended
September 30,
-------------
1999 1998
<S> <C> <C>
Net income $1,393 $1,212
------ ------
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising
during the period (232) 543
Reclassification adjustment for (gains) losses
realized in net income 18 (43)
------ ------
Other comprehensive income (loss) (214) 500
------ ------
Comprehensive income $1,179 $1,712
====== ======
Nine months ended
September 30,
-------------
1999 1998
Net income $4,010 $3,642
------ ------
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising
during the period (2,851) 653
Reclassification adjustment for (gains) losses
realized in net income 18 (43)
------ ------
Other comprehensive income (loss) (2,833) 610
------ ------
Comprehensive income $1,177 $4,252
====== ======
<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 nine months ended September 30, 1999 and 1998
(In thousands)
(Unaudited)
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $4,010 $3,642
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 390 160
Depreciation, amortization and accretion, net 1,154 934
(Gain) loss on sale of investment securities 7 (68)
Gain on sale of premises and equipment (220) -
Change in accrued interest receivable (456) (1,528)
Change in other assets (24) (276)
Change in accounts payable and accrued liabilities 633 281
Change in accrued interest payable (60) (50)
------ ------
Net cash provided by operating activities 5,434 3,095
------ ------
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 10,864 19,752
Proceeds from sales of investment securities
held to maturity 540 -
Proceeds from maturities of investment securities
available for sale 27,165 55,482
Proceeds from sales of investment securities
available for sale 2,971 4,111
Purchases of investment securities
held to maturity (35) -
Purchases of investment securities
available for sale (50,824) (81,618)
Net increase in loans (38,412) (18,862)
Purchases of premises and equipment (412) (1,514)
Sales of premises and equipment 287 49
------- -------
Net cash used in investing activities (47,856) (22,600)
------- -------
Cash flows from financing activities:
Net change in demand, savings, interest-bearing
checking, money market, and time deposit accounts 20,817 14,658
Net change in securities sold under agreements
to repurchase 8,245 949
Dividends paid (1,736) (1,022)
Proceeds from issuance of stock 104 201
Purchase of treasury stock (788) (77)
------- -------
Net cash provided by financing activities 26,642 14,709
------- -------
Decrease in cash and cash equivalents (15,780) (4,796)
Cash and cash equivalents at beginning of period 35,233 27,561
------- -------
Cash and cash equivalents at end of period $19,453 $22,765
======= =======
Supplemental disclosures:
Interest paid $ 1,514 $ 1,417
======= =======
Income taxes paid $ 1,569 $ 1,541
======= =======
<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 nine-month period ended September 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 MonthsEnded
September 30, 1999 September 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 $1,393 3,663 $.38 $1,212 3,710 $.33
Effect of
Dilutive
Options - 118 (.01) - 110 (.01)
------ ----- ---- ------ ----- ----
Diluted EPS $1,393 3,781 $.37 $1,212 3,820 $.32
====== ===== ==== ====== ===== ====
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
Income Shares Per-Share Income Shares Per-Share
(Numerator)(Denominator) Amount (Numerator)(Denominator) Amount
--------- ----------- ------ --------- ----------- ------
Basic EPS $4,010 3,675 $1.09 $3,642 3,704 $.98
Effect of
Dilutive
Options - 115 (.03) - 119 (.03)
------ ----- ----- ------ ----- ----
Diluted EPS $4,010 3,790 $1.06 $3,642 3,823 $.95
====== ===== ===== ====== ===== ====
</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 June, 1999, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 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 September 30, 1999, was
$1.39 million, a 15% increase over the quarter ended September 30, 1998 of $1.21
million. Basic and diluted earnings per share were $.38 and $.37, respectively,
for the third quarter of 1999, as compared to $.33 and $.32, respectively, for
the third quarter of 1998.
For the nine months ended September 30, 1999, the Company's net income was
$4.01 million, a 10% increase over the nine months ended September 30, 1998 of
$3.64 million. Basic and diluted earnings per share were $1.09 and $1.06,
respectively, for the nine months ended September 30, 1999, as compared to $.98
and $.95, respectively, for the nine months ended September 30, 1998.
The Company's third quarter tax-equivalent net interest income increased by
$450,000, or 10%, to $4.85 million, from $4.40 million in the corresponding
quarter in 1998. This is due primarily to an increase in earning assets of 9%,
to $422 million for the third quarter of 1999, from $387 million for the same
period in 1998.
The annualized net interest margin for the quarter and nine months ended
September 30, 1999 were 4.56% and 4.66%, respectively. This compares to
4.51% and 4.63% for the quarter and nine months ended September 30, 1998,
respectively. The increase of five 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 first nine months of 1999 increased by $261,000, or
14%, from the corresponding period of 1998. The year-to-date increase is
primarily due to a gain on sale of premises and equipment in June of $220,000.
Salaries and employee benefits expense increased by $105,000, or 6%, for the
third quarter of 1999, and by $428,000, or 8% for the first nine 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 178 to 183
full-time equivalent employees from September 30, 1998, to September 30, 1999.
Occupancy expense decreased by $14,000, or 4%, for the third quarter of 1999, as
compared to the corresponding period in 1998, due primarily to a decrease in
other occupancy expense, which includes real estate taxes, electric and
cleaning. Occupancy expense increased by $25,000, or 3% for the first nine
months of 1999 as compared to the corresponding period in 1998 due primarily
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 $2.76 million at September 30,
1999, as compared with $2.38 million at September 30, 1998. For the nine months
ended September 30, 1999, the allowance for loan losses was increased by the
provision for loan losses of $390,000, and decreased by approximately $57,000 in
net charge-offs. For the nine months ended September 30, 1998, the allowance
was credited with a provision for loan losses of $160,000 and decreased by
approximately $28,000 in net 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 1.15% at September 30, 1999, from 1.24% at September 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 $134.7 million, or 56% of total loans was secured by
nonresidential real estate and $45.7 million, or 19% of total loans was
secured by residential real estate as of September 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 September 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.
Commercial Bank of Florida's (the Bank) 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 $11 million as of September 30, 1999.
The Bank's primary use of funds is to originate loans and purchase investment
securities. The net change in loans during the first nine months of 1999 was an
increase of $38.0 million, and the Bank purchased $50.9 million of investment
securities. Funding for the above came primarily from increases in deposits of
$20.8 million, increases in securities sold under agreement to repurchase of
$8.2 million, proceeds from maturities and sales of investment securities of
$41.5 million, and a decrease in cash and cash equivalents of $15.8 million.
In accordance with risk-based capital guidelines issued by the Federal Reserve
Board, the Company and the Bank are each required to maintain a minimum ratio of
total capital to 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 15.05%,
16.49%, and 9.34%, respectively, as of September 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 oversees the interest rate risk management and reviews the Bank's
asset/liability structure on a quarterly basis.
The Bank uses interest rate sensitivity, or GAP analysis to monitor the amount
and timing of balances exposed to changes in interest rates. The GAP analysis
is not relied upon solely to determine future reactions to interest rate changes
because it is presented at one point in time and could change significantly from
day-to-day. Other methods such as simulation analysis are utilized in
evaluating the Bank's interest rate risk position. The table presented below
shows the Bank's GAP analysis at September 30, 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 $ 2,200 $ - $ - $ - $ 2,200
Investment securities 15,777 4,112 11,245 149,891 181,025
Gross loans (excluding non-accr) 104,456 32,948 34,351 68,564 240,319
-------- ------- ------- -------- --------
Total interest-earning assets $122,433 $37,060 $45,596 $218,455 $423,544
-------- ------- ------- -------- --------
Interest-bearing liabilities:
Interest-bearing checking $ - $ - $ - $ 56,948 $ 56,948
Money market - 10,786 10,786 21,570 43,142
Savings - - - 22,787 22,787
Time deposits 60,721 33,714 58,968 15,565 168,968
Borrowed funds 42,223 - - - 42,223
-------- ------- ------- -------- --------
Total int-bearing liabilities $102,944 $44,500 $69,754 $116,870 $334,068
-------- ------- ------- -------- --------
Interest sensitivity gap $ 19,489 ($7,440)($24,158) $101,585 $89,476
======== ======= ======= ======== =======
Cumulative gap $ 19,489 $12,049 ($12,109) $ 89,476
======== ======= ======= ========
Cumulative ratio of interest-earning assets
to interest-bearing liabilities 119% 108% 94% 127%
Cumulative gap as a percentage of total
interest-earning assets 4.6% 2.8% (2.9%) 21.1%
<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 September 30, 1999,
the Bank's simulation analysis projects a decrease to net interest income of
1.01%, 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 1.99%. 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 successfully completed testing of all
applications. During the testing phase, tested applications 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 September 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 $335,000 of these costs were
incurred up to September 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 September 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 &
Chief Financial Officer
Date: November 12, 1999
------------------------
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 17,253
<INT-BEARING-DEPOSITS> 250
<FED-FUNDS-SOLD> 2,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 135,202
<INVESTMENTS-CARRYING> 45,823
<INVESTMENTS-MARKET> 46,663
<LOANS> 240,319
<ALLOWANCE> 2,764
<TOTAL-ASSETS> 460,649
<DEPOSITS> 371,232
<SHORT-TERM> 42,223
<LIABILITIES-OTHER> 3,544
<LONG-TERM> 0
0
0
<COMMON> 296
<OTHER-SE> 43,354
<TOTAL-LIABILITIES-AND-EQUITY> 460,649
<INTEREST-LOAN> 13,688
<INTEREST-INVEST> 7,923
<INTEREST-OTHER> 555
<INTEREST-TOTAL> 22,166
<INTEREST-DEPOSIT> 7,320
<INTEREST-EXPENSE> 8,617
<INTEREST-INCOME-NET> 13,549
<LOAN-LOSSES> 390
<SECURITIES-GAINS> (7)
<EXPENSE-OTHER> 9,774
<INCOME-PRETAX> 5,536
<INCOME-PRE-EXTRAORDINARY> 5,536
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,010
<EPS-BASIC> 1.09
<EPS-DILUTED> 1.06
<YIELD-ACTUAL> 4.43
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 2,430
<CHARGE-OFFS> 90
<RECOVERIES> 34
<ALLOWANCE-CLOSE> 2,764
<ALLOWANCE-DOMESTIC> 2,764
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
