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, 1998
[ ] 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, Incorporated
(Exact name of registrant as specified in its charter)
Florida 65-0050176
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1550 S.W. 57th Avenue, Miami, Florida 33144
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 267-1200
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
(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
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 registrants'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 February 28, 1999, 3,682,662 shares of the voting stock were issued and
outstanding, of which 3,159,755 shares with an aggregate market value of
$66,354,855, 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, 1998 are
incorporated by reference into Part I and Part II.
2. Certain portions of the Company's Proxy Statement for the 1999 Annual
Meeting of Shareholders to be held on April 15, 1999 are incorporated
by reference into Part III.
Table of Contents
Description Page No.
Part I
Item 1. Business.....................................................1
Item 2. Properties...................................................8
Item 3. Legal Proceedings............................................8
Item 4. Submission of Matters to a Vote of Security Holders..........8
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 Operation................................8
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..8
Item 8. Financial Statements and Supplementary Data..................9
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure...........................9
Part III
Item 10. Directors and Executive Officers of the Registrant..........9
Item 11. Executive Compensation......................................9
Item 12. Security Ownership of Certain Beneficial Owners
and Management...................................................9
Item 13. Certain Relationships and Related Transactions..............9
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K......................................................10
Signatures...........................................................12
PART I
Item 1. Description of 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 acquisi-
tion 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 business-
es 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 busi-
nesses 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 services 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 opera-
tions are materially and significantly influenced by general economic condi-
tions 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, 1998, the Company and the Bank together employed 182
employees, of whom 8 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 posi-
tioned 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, insur-
ance 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 deter-
mines 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 substan-
tially 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 conve-
nience 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 control-
ling 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-concentra-
tion 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 deposi-
tors 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 determi-
nation 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 instru-
ments, (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,
1998 and 1997, the Company's total risk-based capital ratios were 17.68% and
19.18%, 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 acquisi-
tions 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, 1998 and 1997, the Company's leverage
ratios were 9.52% and 9.69%, 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 legisla-
tion.
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 institu-
tion is considered by its supervising agency to be financially sound or to
have supervisory concerns.
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 undercapital-
ized", 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, 1998, 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 manage-
ment 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 undercapital-
ized" 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 undercapital-
ized" institutions are subject to the appointment of a receiver or conserva-
tor.
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 account-
ing 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 documen-
tation 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 institu-
tions 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).
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 1998 Annual Report
and is incorporated herein by reference. The condition of all properties is
considered good. In the opinion of management, owned properties are adequate-
ly 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 Stockholders
Matters.
Information required to be reported under this item is set forth on
pages 13 and 14 of the 1998 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 1998 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 1998 Annual Report to Shareholders and is incorpo-
rated 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 14 through 15 of the 1998 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 1998 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 incorpor-
ated 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.
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.
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.
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 Options
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 Agreement to provide data processing and back office services
between Electronic Data Systems and Commercial Bank of
Florida, dated November 14, 1994. Incorporated by reference
to Exhibit 10.8 that accompanies the 1994 Annual Report on
Form 10-KSB.
10.10 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.
10.11 Lease dated January 1, 1992, between Julius Mufson, Trustee,
and Alan J. Goldstein, Trustee, d/b/a Hallandale Place Joint
Venture (as Landlord) and Carteret Savings Bank, 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 10.10 that accompanies the 1994 Annual
Report on Form 10-KSB.
10.12 Standard Office Building Lease, dated December 10, 1996,
between Promenade of Coral Springs, Inc. (Landlord) and
Commercial Bank of Florida (Tenant), (filed herewith).
10.13 Commercial Bankshares, Inc., Amendment to 1994 Outside
Director's Stock Option Plan, dated January 15, 1999.
10.14 Commercial Bankshares, Inc., Amendment to 1994 Performance
Stock Option Plan dated January 15, 1999.
11.1 Computation of Earnings per Common and Common Equivalent
Share.
Information required to be reported under this exhibit is set
forth on page 30 of the 1998 Annual Report to Shareholders
and is incorporated herein by reference.
13.1 1998 Annual Report to Shareholders of Commercial
Bankshares, Inc. *
21.1 Subsidiaries of the Company. Information required to be
under this exhibit is incorporated by reference to exhibit
21.1 that accompanies the 1996 Annual Report on Form 10-K
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.
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, INCORPORATED
(Registrant)
By:/s/ Jack J. Partagas
Jack J. Partagas
President and Chief Operating Officer
March 26, 1999
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 26, 1999
Joseph W. Armaly of Directors and
Chief Executive Officer
(Principal Executive Officer)
By:/s/ Jack J. Partagas President, March 26, 1999
Jack J. Partagas Chief Operating Officer,
and Director
By:/s/ Cromwell A. Anderson Director March 26, 1999
Cromwell A. Anderson
By:/s/ Martin Yelen Director March 26, 1999
Martin Yelen
By:/s/ Robert Namoff Director March 26, 1999
Robert Namoff
By:/s/ Barbara E. Reed Senior Vice President March 26, 1999
Barbara E. Reed and Chief Financial
Officer
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 15, 1999 appearing on page 17 of the Annual Report to
Shareholders which is incorporated in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Miami, Florida
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 19047
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 16186
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 119072
<INVESTMENTS-CARRYING> 57430
<INVESTMENTS-MARKET> 59267
<LOANS> 201963
<ALLOWANCE> 2430
<TOTAL-ASSETS> 432601
<DEPOSITS> 350415
<SHORT-TERM> 33978
<LIABILITIES-OTHER> 3471
<LONG-TERM> 0
0
0
<COMMON> 296
<OTHER-SE> 44341
<TOTAL-LIABILITIES-AND-EQUITY> 432601
<INTEREST-LOAN> 16239
<INTEREST-INVEST> 11217
<INTEREST-OTHER> 708
<INTEREST-TOTAL> 28164
<INTEREST-DEPOSIT> 9906
<INTEREST-EXPENSE> 11478
<INTEREST-INCOME-NET> 16686
<LOAN-LOSSES> 230
<SECURITIES-GAINS> 108
<EXPENSE-OTHER> 12176
<INCOME-PRETAX> 6893
<INCOME-PRE-EXTRAORDINARY> 6893
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4860
<EPS-PRIMARY> 1.31
<EPS-DILUTED> 1.27
<YIELD-ACTUAL> 4.38
<LOANS-NON> 529
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2247
<CHARGE-OFFS> 117
<RECOVERIES> 70
<ALLOWANCE-CLOSE> 2430
<ALLOWANCE-DOMESTIC> 2430
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1913
</TABLE>
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
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
We are pleased to present you with the Company's results for
1998. Our efforts to serve our customers and to create value for our
shareholders continue to be successful as our 1998 performance indicates. We
are sure that you will be as pleased and enthusiastic as we are with these
outstanding results and with our excellent prospects for the coming year.
We have achieved another strong year in earnings, asset
quality and growth. Net income increased to a record $4.9 million. This is
a 7.5% increase over 1997 earnings. Return on average assets remained solid at
1.16%. Net interest income rose 8.6% to a record $16.7 million. Net
interest margin, although down from the previous year, was a strong 4.57%.
Earnings per share (diluted) were a record $1.27.
The Company declared dividends of $0.49 per common share in
1998. This is a 63% increase over 1997 dividends declared of $0.30 per common
share. The increase is attributable to the Company's strong performance and
capital strength. The Company continues to be rated "well capitalized" by its
regulators, with a leverage capital ratio of 9.52%, a Tier 1 ratio of 16.18%
and a total capital ratio of 17.68%.
During 1998, we continued to implement our policy of improving
shareholder value by enhancing loan growth and internal deposit growth, by
undertaking facility improvement and increasing operational efficiency, and
by providing outstanding service. Average loans increased a strong 24% and
the net loan balance at the end of 1998 was $200 million, as compared to
$170 million in 1997. Asset quality standards in the loan portfolio remain
high with historically low loss levels holding firm, even while loan growth
continues to be excellent. The competition for quality loan relationships
is strong in the South Florida market, and we are proud to have successfully
met the goals that we set for 1998. We will continue to strive to build solid
relationships that will allow our portfolio to grow in size and in strength.
We continued in our efforts to better serve the community by
increasing our branch locations during 1998. With the addition of the
Perrine/Cutler Ridge and Medley/Hialeah Gardens facilities, our branch network
increased to fourteen offices throughout Miami-Dade and Broward counties. The
new locations give us the opportunity to provide our products and services to
more customers throughout South Florida. The addition of these branches also
helped to increase the deposit base, which increased by 9.5% during 1998, and
ended the year totaling $350 million. We will continue to study the South
Florida market place for opportunities to expand, either by taking advantage
of appealing acquisition opportunities, or by establishing additional startup
branches.
As always, operational efficiency is one of our paramount
concerns, as we continue to look for cost efficiencies, while at the same time
improving and expanding customer service. During 1998, the overhead efficiency
ratio improved to 57.90%, from 60.25% in 1997. Our goal is to continue to
improve operational efficiency and to reduce overhead as a percentage of net
margin.
The banking environment has evolved away from customer
oriented service, but we remain committed to our customers and to the South
Florida communities that we serve. We offer our customers a level of local
decision-making and access to senior management that is refreshingly uncommon
in what today has become an increasingly impersonal and automated banking
world. We continue the tradition of attentive, personalized service that has
built our loyal, satisfied customer base. The people at Commercial Bank of
Florida greet you with a smile and strive to provide the most professional,
courteous service possible. This is what sets us apart from the competition,
and is what will fuel our growth into the next century.
1998 completes a decade of achievement of which I am proud
and which is due in large part to the loyal support of you, our shareholders,
who have built this company with us. The Board and I would like to take this
opportunity to thank our shareholders, our customers and our employees for
their efforts in developing our Company into a solid, profitable, high
quality institution in just 10 years. We look forward to working with you
as we continue to improve and grow in the future.
As always, I sincerely welcome your calls and letters.
Joseph W. Armaly
Chairman of the Board
Chief Executive Officer
<TABLE>
Selected Five Year Data
(In Thousands, Except Per Share Data)
<CAPTION>
For the Years Ended December 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income $ 28,164 $ 25,467 $ 23,553 $ 23,282 $ 15,637
Interest expense 11,478 10,105 9,610 10,615 5,617
Net interest income 16,686 15,362 13,943 12,667 10,020
Provision for loan losses 230 170 1,040 80 3
Net interest income after
provision for loan losses 16,456 15,192 12,903 12,587 10,017
Non-interest income 2,613 2,598 3,025 1,988 1,770
Non-interest expense (1) 12,176 11,292 18,004 10,816 8,115
Income (loss)
before income taxes (1) 6,893 6,498 (2,076) 3,759 3,672
Income tax expense (benefit) 2,033 1,975 (1,280) 941 899
Net income (loss) (1) $ 4,860 $ 4,523 $ (796) $ 2,818 $ 2,773
Per Share Data:
Basic earnings per share (1) $ 1.31 $ 1.23 $ (0.24) $ 0.76 $ 0.75
Diluted earnings per share (1) $ 1.27 $ 1.20 $ (0.24) $ 0.75 $ 0.75
Book value at year end (1) $ 12.15 $ 11.35 $ 10.13 $ 10.40 $ 9.45
Cash dividends declared
per common share $ 0.49 $ 0.30 $ 0.17 $ 0.09 $ 0.09
Balance Sheet Data:
Cash and cash equivalents $ 35,233 $ 27,561 $ 29,896 $ 20,547 $ 44,458
Investment securities 176,502 178,066 190,713 223,403 224,692
Loans receivable, net 199,533 170,401 128,226 88,568 70,594
Total assets 432,601 396,199 368,016 353,917 360,240
Deposits 350,415 319,844 298,863 299,914 312,865
Borrowed funds 33,978 31,285 29,203 13,238 10,464
Stockholders' equity 44,737 41,929 37,444 38,411 34,798
<FN>
(1) As discussed in Note 5 of Notes to Consolidated Financial Statements, 1996
non-interest expense includes non-recurring charges of $7.06 million ($4.45
million, net of tax).
</TABLE>
<TABLE>
Selected Financial Ratios
<CAPTION>
Years Ended December 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Return on average assets (1) 1.16% 1.20% (.22%) 0.79% 1.01%
Return on average equity (1) 11.14% 11.54% (2.10%) 7.70% 8.22%
Net yield on average
interest-earning assets (2) 4.57% 4.72% 4.56% 4.09% 4.28%
Allowance for loan losses to total loans 1.20% 1.30% 1.57% 1.34% 1.82%
Allowance for loan losses as a percentage of
non-accrual loans 459% 2182% 5254% 262% 247%
Allowance for loan losses as a percentage of
non-performing loans (3) 459% 2182% 5254% 262% 247%
Asset quality ratio (non-performing loans and other
real estate owned to total assets) 0.12% 0.03% 0.01% 0.13% 0.15%
Average interest-earning assets to average
interest-bearing liabilities 128% 126% 122% 118% 128%
Non-int expense to average total assets 2.92% 3.01% 5.05% 3.01% 2.95%
Net int income to non-interest expense 137% 136% 77% 117% 123%
Risk-based capital ratios:
Tier I capital 16.18% 18.12% 19.65% 22.29% 21.84%
Total capital 17.68% 19.18% 20.80% 23.18% 22.93%
Leverage ratio (4) 9.52% 9.69% 9.45% 8.46% 7.41%
Equity to total assets 10.34% 10.58% 10.17% 10.85% 9.66%
<FN>
(1) As discussed in Note 5 of Notes to Consolidated Financial Statements, 1996
return on average assets and return on average equity have been impacted by
non-recurring charges of $7.06 million ($4.45 million, net of tax).
(2) Represents net interest income on a fully taxable equivalent basis as a
percentage of average interest-earning assets.
(3) Non-performing loans consist of non-accrual loans and accruing loans
contractually past due 90 days or more.
(4) The leverage ratio is defined as the ratio of Tier I capital to total
assets.
</TABLE>
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 and 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 $4.9 million, a 8% increase over 1997 net
income of $4.5 million. Net income for 1996 was $3.7 million, after
adjustments for two non-recurring charges totaling $4.5 million, net of tax,
as discussed in note 5 to the consolidated financial statements. The
increase in 1998 net income is due to an increase in the net interest margin,
partially offset by an 8% increase in operating expenses. Basic and diluted
earnings per common share were $1.31 and $1.27, respectively, in 1998,
compared to $1.23 and $1.20, respectively, in 1997. Basic and diluted
weighted average shares outstanding were 3.70 million and 3.83 million,
respectively, in 1998, and 3.69 million and 3.78 million, respectively, in
1997. Earnings per common share and weighted average shares outstanding have
been adjusted retroactively for two 5% stock dividends declared in December,
1998 and 1997. Weighted average shares exclude treasury stock, which totaled
39,136 shares and 5,512 shares at December 31, 1998 and 1997, respectively.
Return on average assets and return on average equity were 1.16% and 11.14%,
respectively, for 1998, and 1.20% and 11.54%, respectively, for 1997.
Average assets increased $42.0 million, or 12%, in 1998. Book value per
common share increased 7% to $12.15 from $11.35 in 1997. Capital ratios
continued to exceed all regulatory requirements, with a leverage ratio of
9.52% in 1998, as compared to 9.69% and 9.45% in 1997 and 1996, respectively.
Dividends declared per common share increased 63% to $.49 in 1998, from $.30
in 1997. Book value per share and dividends declared per common share have
been adjusted for the 5% stock dividends declared in December, 1998 and 1997.
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 1998 was $17.4 million, an increase of 8% over 1997
net interest income of $16.1 million. In 1997, net interest income grew 10%
from $14.7 million in 1996.
The increase in net interest income in 1998 is attributable to the $39
million, or 11%, increase in interest-earning assets, which averaged $381
million in 1998, compared to $342 in 1997.
The net interest margin was 4.57% in 1998, as compared to 4.72% in 1997 and
4.56% in 1996. The decrease of 15 basis points in 1998 is attributable to
the current interest rate environment and to competition in the South Florida
market for both deposits and high-quality loans.
The following table presents the Company's average balance, interest earned
or paid, and average interest rates earned or paid for each of the years
ended December 1998, 1997 and 1996.
<TABLE>
AVERAGE BALANCES AND INTEREST RATES
(Dollars In Thousands)
<CAPTION>
1998 1997 1996
INTEREST INTEREST INTEREST
AVERAGE INCOME/ AVG AVERAGE INCOME/ AVG AVERAGE INCOME/ AVG
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans (1) $183,379 $16,239 8.86% $148,522 $13,406 9.03% $110,381 $ 9,989 9.05%
Investments,
taxable 152,843 9,488 6.21% 156,560 10,003 6.39% 172,820 11,318 6.55%
Investments,
non-taxable2)31,340 2,438 7.78% 26,818 2,297 8.57% 27,618 2,370 8.58%
Fed funds 13,327 708 5.31% 10,026 542 5.41% 12,748 674 5.29%
TOTAL INTEREST-EARNING
ASSETS 380,889 28,873 7.58% 341,926 26,248 7.68% 323,567 24,351 7.53%
NON-INTEREST-EARNING ASSETS:
Cash and due from
banks 17,807 15,897 14,304
Other assets 18,853 17,701 18,580
TOTAL NON-INTEREST-EARNING
ASSETS 36,660 33,598 32,884
TOT ASSETS $417,549 $375,524 $356,451
INTEREST-BEARING LIABILITIES:
Interest-bearing
checking $ 53,153 633 1.19% $ 47,374 566 1.19% $ 47,002 604 1.29%
Money market
deposits 42,396 1,271 3.00% 38,191 889 2.33% 40,296 911 2.26%
Savings deps 21,952 394 1.79% 22,459 403 1.79% 25,958 472 1.82%
Time deps 145,650 7,608 5.22% 131,562 6,750 5.13% 126,154 6,502 5.15%
Borrowed fnds34,548 1,572 4.55% 32,336 1,497 4.63% 24,972 1,121 4.49%
TOTAL INTEREST-BEARING
LIABS 297,699 11,478 3.86% 271,922 10,105 3.72% 264,382 9,610 3.63%
NON-INTEREST-BEARING LIABILITIES:
Non-interest-bearing
deposits 72,766 61,672 51,741
Other liabs 3,469 2,721 2,499
TOTAL NON-INTEREST-BEARING
LIABS 76,235 64,393 54,240
STOCKHOLDERS'
EQUITY 43,615 39,209 37,829
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY $417,549 $375,524 $356,451
NET INTEREST INCOME AND NET YIELD ON AVERAGE EARNING
ASSETS (3) 17,395 4.57% 16,143 4.72% 14,741 4.56%
Less tax-equivalent adjustment
included above (709) (781) (806)
NET INTEREST INC $16,686 $15,362 $13,935
<FN>
(1) For purposes of this analysis, non-accruing loans were included in the
computation of average balances.
(2) On a fully 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.
</TABLE>
The net yield is affected by changes in the mix and volume, as well as the
changes in 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.
<TABLE>
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
(ON A FULLY TAXABLE EQUIVALENT BASIS)
(In Thousands)
<CAPTION>
1998 COMPARED TO 1997 1997 COMPARED TO 1996
VOLUME RATE CHANGE VOLUME RATE CHANGE
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON:
Loans (1) $3,149 $ (316) $2,833 $3,455 $ (46) $3,409
Investments, Taxable (237) (278) (515) (1,220) (95) (1,315)
Investments, Non-Taxable 387 (246) 141 (45) (3) (48)
Federal Funds 178 (12) 166 (144) 12 (132)
TOTAL INTEREST INCOME 3,477 (852) 2,625 2,046 (132) 1,914
INTEREST PAID ON:
Now Accounts 69 (2) 67 5 (42) (37)
Savings Deposits (9) 0 (9) (64) (6) (70)
Money Market Deposits 98 284 382 (47) 25 (22)
Time Deposits 723 135 858 279 (30) 249
Borrowed Funds 102 (27) 75 331 44 375
TOTAL INTEREST EXPENSE 983 390 1,373 504 (9) 495
CHANGE IN NET INTEREST
INCOME $2,494 $(1,242) $1,252 $1,542 $ (123) $1,419
<FN>
(1) For the purposes of this analysis, non-accruing loans were included in the
computation of average balances.
</TABLE>
Non-interest Income
Non-interest income for 1998 was $2.61 million, compared to $2.60 million
in 1997 and $3.03 million in 1996. These figures include gains on sales
of securities of $108,000, $88,000 and $698,000 for 1998, 1997 and 1996,
respectively. While it appears that non-interest income remained level
during 1998, 1997 non-interest income included a nonrecurring gain of
$95,000 for the sale of property owned by the Company, while 1998 non-
interest income contains only a $20,000 non-recurring item. Excluding
these non-recurring gains, 1998 non-interest income increased 3.5%. The
increase in recurring non-interest income is due primarily to increases in
wire fee income, account maintenance fee income, ATM income and credit
card processing income, partially offset by a decrease in overdraft charge
income.
Non-interest Expense
Non-interest expenses for 1998 were $12.2 million compared to $11.3
million in 1997 and $18.0 million, or $10.95 million, excluding nonrecur-
ring charges, in 1996. The 8% increase during 1998 is primarily due to
expenses associated to the addition of two new branches during 1998.
Salaries and employee benefits rose $621,000, or 9.8%, due to the increase
in average full-time equivalent employees, from 167 in 1997 to 179 in
1998. Also contributing to the increase were regular salary increases,
increased medical insurance of $40,000 and increased 401K matching contri-
butions of $25,000. Additionally, data processing costs rose $117,800,
due in part to Year 2000 associated expenses, and advertising rose $70,500
due to efforts to market the branches opened during 1998.
The following table summarizes the various categories of non-interest
expense for the years ended December 31, 1998, 1997, and 1996.
<TABLE>
NON-INTEREST EXPENSE
(In Thousands)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Salaries and employee benefits $6,960 $6,339 $5,663
Occupancy 1,219 1,216 1,125
Furniture and equipment 947 889 835
Data processing 845 727 588
Legal and professional fees 295 366 414
Stationery and supplies 247 225 225
Insurance 183 187 205
Advertising 182 111 125
Amortization 179 179 402
Administrative service charge 148 92 104
Telephone 145 130 126
FDIC insurance 125 122 274
Intangible tax 115 100 79
Armored carrier and courier 102 70 79
Security 96 53 53
State fees and assessments 76 70 67
Postage 61 70 90
Dues and subscriptions 55 73 70
Other expenses 196 273 421
Total recurring non-interest charges 12,176 11,292 10,945
Non-recurring charges:
Goodwill impairment charge - - 5,926
FDIC insurance - SAIF assessment - - 1,133
Total non-interest expense $12,176 $11,292 $18,004
</TABLE>
Taxes
For the years ended December 31, 1998, 1997, and 1996, the Company record-
ed an income tax expense/(benefit) of approximately $2.03 million, $1.98
million, and ($1.28) million, respectively. Accordingly, the Company's
effective tax rates were 30%, 30%, and (61%) for 1998, 1997 and 1996,
respectively. The 1996 effective rate consisted primarily of a federal
statutory rate based on a loss and a significant amount of tax-exempt
interest income. 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 $176.5 million at Decem-
ber 31, 1998, consisted of securities available for sale of $119.1 mil-
lion, which are carried at fair value, and securities held to maturity of
$57.4 million, which are carried at amortized cost. This compares to
investment securities of $178.1 million at December 31, 1997, which
consisted of securities available for sale of $95.1 million, and securi-
ties held to maturity of $83.0 million. The investment portfolio balance
remained steady during 1998, as new deposits were used to fund loans. The
ratio of available for sale investments to total investments increased to
67% in 1998 from 53% in 1997, as management chose to increase its flexi-
bility to manage the portfolio to meet Asset/Liability and interest rate
sensitivity goals.
The portfolio of securities available for sale at December 31, 1998, had a
net unrealized gain of $2.7 million, net of taxes, as compared to $2.6
million, net of taxes, at December 31, 1997.
The following table presents the Company's investment portfolio as of
December 31, 1998, 1997, and 1996.
<TABLE>
INVESTMENT PORTFOLIO SCHEDULE
(In Thousands)
<CAPTION>
At December 31,
1998 1997 1996
<S> <C> <C> <C>
Investment securities available for sale (at fair value):
U.S. Treasury Obligations $4,025 $11,088 $4,056
U.S. Government Agencies 96,036 79,653 79,039
Municipal Obligations 13,907 - -
Other 5,104 4,313 2,684
Total investment securities
available for sale $119,072 $95,054 $85,779
Investment securities held to maturity (at cost):
U.S. Government Agencies $32,766 $56,448 $76,822
Municipal Obligations 24,314 26,114 27,762
Other 350 450 350
Total investment securities
held to maturity $57,430 $83,012 $104,934
Mortgage-backed securities,
included in U.S. Government Agencies $60,141 $49,963 $62,355
</TABLE>
The maturities and weighted average yields of investment securities,
excluding corporate stock, as of December 31, 1998 and 1997, 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.
<TABLE>
INVESTMENT SECURITIES MATURITIES & YIELDS
(Dollars in Thousands)
<CAPTION>
At December 31, 1998, 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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maturity Distributions Available for Sale (1)
U.S. Treasury Obligations$4,025 6.11% $ - - $ - - $ - -
U.S. Government Agencies - - 17,324 6.18% 54,203 6.31% 24,510 6.56%
Municipal Obligations - - - - - - 13,907 6.57%
Other - - - - - - - -
$4,025 $17,324 $54,203 $38,417
Maturity Distributions Held to Maturity
U.S. Government Agencies $1,377 6.13% $2,810 5.89% - - $28,579 6.94%
Municipal Obligations(2) 1,175 6.90% 5,551 7.77% $16,651 8.62% 937 7.73%
Other 350 5.19% - - - - - -
$2,902 $8,361 $16,651 $29,516
<FN>
(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 taxable equivalent basis using 34% federal income tax rate,
reduced by the non-deductible portion of interest expense.
</TABLE>
Loans
At December 31, 1998, the balance of the loan portfolio was $202 million, an
increase of 17% over the loan portfolio balance of $173 million at December
31, 1997. Average loans were $183 million in 1998, compared to $149 million
and $110 million in 1997 and 1996, respectively. The planned growth of the
loan portfolio is a strategic goal which the Company implemented in 1996.
Asset quality remains strong, with non-performing assets at 0.12% of total
assets at December 31, 1998.
The following table presents the composition of the loan portfolio:
<TABLE>
LOAN PORTFOLIO ANALYSIS
(Dollars In Thousands)
<CAPTION>
December 31,
1998 1997 1996 1995 1994
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
<S>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial & financial
$ 34,415 17.04% $ 30,454 17.64% $ 23,662 18.16% $16,497 18.38% $16,001 22.25%
Real estate mortgages (1)
148,564 73.56% 124,892 72.34% 95,711 73.47% 67,698 75.42% 51,744 71.97%
Installment and other loans
18,984 9.40% 17,302 10.02% 10,902 8.37% 5,572 6.20% 4,154 5.78%
Total loans
201,963 100.00% 172,648 100.00% 130,275 100.00% 89,767 100.00% 71,899 100.00%
Less:
Allowance for loan losses
(2,430) (2,247) (2,049) (1,199) (1,305)
Total loans, net
$199,533 $170,401 $128,226 $88,568 $70,594
<FN>
(1) Real estate mortgages consist primarily of commercial real estate loans.
</TABLE>
The following tables present the maturities of loans (excluding installment
loans) outstanding at December 31, 1998, 1997, and 1996, and an analysis of
sensitivities of loans due to changes in interest rates.
<TABLE>
LOAN MATURITY SCHEDULE
(In Thousands)
<CAPTION>
Due After
Due in 1 1 Year But Due After
Year or Less Before 5 Years 5 Years Total
<S> <C> <C> <C> <C>
At December 31, 1998
Commercial and financial $17,888 $13,089 $ 3,438 $ 34,415
Real estate mortgage 14,721 59,795 74,048 148,564
</TABLE>
<TABLE>
LOANS DUE AFTER ONE YEAR
(In Thousands)
<CAPTION>
December 31,
Type of Interest Rate: 1998 1997 1996
<S> <C> <C> <C>
Fixed $ 35,196 $ 16,171 $ 26,449
Floating or adjustable 115,174 116,078 71,132
Total $150,370 $132,249 $ 97,581
</TABLE>
Allowance for Loan Losses
The allowance for loan losses (the allowance) at December 31, 1998, was $2.43
million, or 1.20% of loans. This is an increase of approximately $180,000
from 1997, when the allowance was $2.25 million. The allowance was increased
in order to maintain a level deemed sufficient to absorb anticipated losses
in the loan portfolio. The Company reviews the allowance on a monthly basis
and determines its adequacy from analysis of actual operating experience and
an estimate of the risks associated with specific loans and the loan
portfolio.
Non-performing assets were $529,000 at December 31, 1998, compared to
$103,000 at December 31, 1997. Asset quality remained high, as evidenced by
the low ratio of total non-performing assets to total assets, .12%, .03% and
.01%, at December 31, 1998, 1997, and 1996, 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, or 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.
Net charge-offs for 1998 were $47,000, or 0.03% of average loans. This
compares to net recoveries of $28,000 for 1997. The provision for loan
losses was $230,000 in 1998, compared to $170,000 in 1997. There were no
properties held in other real estate owned at December 31, 1998 or 1997.
The following table presents an analysis of the Company's allowance for loan
losses for the last five years.
<TABLE>
ALLOWANCE FOR LOAN LOSSES ANALYSIS
(Dollars In Thousands)
<CAPTION>
At December 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Average net loans outstanding
during the period $181,056 $146,359 $110,381 $75,163 $65,694
Total net loans at period end $199,533 $170,401 $128,226 $88,568 $70,594
Beginning balance of allowance
for loan losses $ 2,247 $ 2,049 $ 1,199 $ 1,305 $ 1,002
Loans charged-off:
Commercial and financial 5 69 60 182 26
Real estate mortgage 84 - 124 60 52
Credit cards - - - 5 2
Installment and other loans 28 43 30 54 28
Total loans charged-off 117 112 214 301 108
Recoveries of loans previously charged-off:
Commercial and financial 53 126 18 95 365
Real estate mortgage 5 5 4 - 1
Credit cards - - - 9 8
Installment and other loans 12 9 2 11 34
Total recoveries 70 140 24 115 408
Net loans charged-off (recovered) 47 (28) 190 186 (300)
Provision for loan losses 230 170 1,040 80 3
Balance at period end $ 2,430 $ 2,247 $ 2,049 $ 1,199 $ 1,305
Net charge-offs (recoveries) during the year to average
net loans .03% (0.02%) 0.17% 0.25% (.46%)
Allowance as a percentage of non-performing
loans 459% 2182% 5254% 262% 247%
</TABLE>
The following table presents a summary of the Company's non-performing assets
for the last five years.
<TABLE>
Non-Performing Assets
(Dollars In Thousands)
<CAPTION>
At December 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Commercial and financial $ 529 $ - $ 39 $ - $ -
Real estate mortgage - 103 - 458 528
Total non-accrual loans 529 103 39 458 528
Total non-performing loans 529 103 39 458 528
Other real estate owned - - - - -
Total non-performing assets $ 529 $ 103 $ 39 $ 458 $ 528
Total non-performing assets to
total assets .12% .03% .01% .13% .15%
</TABLE>
The following table presents the breakdown of the allowance for loan losses by
loan category for the periods indicated. Management believes that the allow-
ance can be allocated by category only on an approximate basis. 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 potential losses existing in
the loan portfolio.
<TABLE>
ALLOWANCE FOR LOAN LOSSES BY CATEGORY
(Dollars In Thousands)
<CAPTION>
At December 31,
1998 1997 1996 1995 1994
% of % of % of % of % of
Loans In Loans In Loans In Loans In Loans In
Category Category Category Category Category
To Total To Total To Total To Total To Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
<S>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial & financial
$ 140 17.04% $ 401 17.64% $ 244 18.16% $ 222 18.38% $ 218 22.25%
Real estate mortgages (1)
357 73.56% 259 72.34% 185 73.47% 186 75.42% 230 71.97%
Installment & other loans
20 9.40% 47 10.02% 37 8.37% 14 6.20% 12 5.78%
Unallocated
1,913 1,540 1,583 777 845
Total allowance for loan loss
$2,430 100.00% $2,247 100.00% $2,049 100.00% $1,199 100.00% $1,305 100.00%
<FN>
(1) Real estate mortgages consist primarily of commercial real estate mortgage
loans.
</TABLE>
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 $34.7 million, or 11.5%, to $335.9 million in
1998, while average borrowed funds (repurchase agreements) increased by $2.2
million, from $32.5 million to $34.7 million. The largest increase by category
of deposits was certificates of deposit, which grew $14.1 million, or 10.7%,
due in part to a premium-rate six-month certificate campaign. The campaign
targeted the new and small deposit base branches and increased deposits by
approximately $10 million. Demand deposits grew $11.1 million, or 18.0%, and
interest-bearing checking grew $5.8 million, or 12.2%, due in part to accounts
brought in with the certificate of deposit campaign, and deposits brought in
with new loan relationships. Money market accounts increased $4.2 million, or
11.0%, due primarily to the new tiered interest rate structure.
The following table presents the average balances and average weighted rates
for the Company's categories of deposits for the years ended December 31, 1998,
1997, and 1996.
<TABLE>
AVERAGE DEPOSIT BALANCES & WEIGHTED AVERAGE RATES
(Dollars In Thousands)
<CAPTION>
Years Ended December 31,
1998 1997 1996
Average Avg % of Tot Average Avg % of Tot Average Avg % of Tot
Balance Rate Deposits Balance Rate Deposits Balance Rate Deposits
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing
deposits $ 72,766 - 21.66% $61,672 - 20.47% $51,741 - 17.77%
Interest-bearing
checking 53,153 1.19% 15.82% 47,374 1.19% 15.73% 47,002 1.29% 16.14%
Savings deps 21,952 1.79% 6.54% 22,459 1.79% 7.45% 25,958 1.82% 8.92%
Money market
accounts 42,396 3.00% 12.62% 38,191 2.33% 12.68% 40,296 2.26% 13.84%
Time depositS 145,650 5.22% 43.36% 131,562 5.13% 43.67% 126,154 5.15% 43.33%
Totals $335,917 2.95% 100.00%$301,258 2.86% 100.00%$291,151 2.92% 100.00%
</TABLE>
The following table presents the maturity of certificates of deposit over
$100,000 as of December 31, 1998.
<TABLE>
MATURITY SCHEDULE
CERTIFICATES OF DEPOSIT >$100,000
(Dollars In Thousands)
<CAPTION>
Balance Percent
<S> <C> <C>
Less than 3 months $16,798 31.50%
3 to 6 months 8,172 15.32%
6 to 12 months 24,165 45.31%
More than 12 months 4,194 7.87%
Total $53,329 100.00%
</TABLE>
Short Term Borrowings
The following table presents a summary of the Company's short term borrowings at
December 31, 1998, 1997, and 1996:
<TABLE>
SHORT-TERM BORROWINGS
(Dollars In Thousands)
<CAPTION>
Years Ended December 31
1998 1997 1996
<S> <C> <C> <C>
Securities sold under agreements
to repurchase at year-end $33,978 $31,285 $29,203
Weighted average rate of securities sold under
agreement to repurchase at year-end 3.84% 4.62% 4.41%
Average amount of securities sold under agreements
to repurchase during the year $34,550 $32,336 $24,972
Weighted average rate of securities sold under
agreement to repurchase during the year 4.55% 4.63% 4.49%
Maximum amount of securities sold under agreements
to repurchase at any month during the year $40,005 $37,127 $31,683
</TABLE>
Capital
Shareholders' equity increased $2.8 million in 1998 to $44.7 million.
Shareholders' equity was increased by (i) $4.9 million from net income, (ii)
$177,000, net of tax, from other comprehensive income relating to unrealized
holding gains on available-for-sale securities, and (iii) by $245,000 from the
issuance of common stock resulting from the exercise of options. Shareholders'
equity was reduced by $1.8 million for dividends declared on common stock,
$671,000 for the purchase of treasury stock and $4,000 for cash paid in lieu of
fractional shares from the stock dividend. For the year ended December 31,
1998, the return on average equity was 11.14%, compared to 11.54% for the year
ended December 31, 1997.
At year-end 1998 and 1997, there were 3,721,798 (including 39,136 shares of
treasury stock) and 3,523,095 (including 5,512 shares of treasury stock) shares
of common stock outstanding, respectively. There were 221 shareholders of
record as of December 31, 1998, and the Company believes that it has
approximately 850 additional beneficial shareholders.
During 1998, the Company declared cash dividends of $0.49 per common share, a
63% increase over 1997 cash dividends of $0.30 per common share. The 1998 cash
dividend included a special cash dividend of $0.08 per common share, declared in
December, 1998. Cash dividends declared totaled $1.8 million and $1.1 million
in 1998 and 1997, respectively. Dividends declared but not paid amounted to
$705,000 and $317,000 in 1998 and 1997, respectively. In addition to the cash
dividends, the Company declared 5% stock dividends in December, 1998 and
December, 1997. Cash dividends per common share have been adjusted for the
effects of the stock dividends.
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, 1998 and
1997, by quarter, are as follows:
<TABLE>
RECENT COMMON STOCK PRICES
<CAPTION>
1998 1997
High Low Close High Low Close
<S> <C> <C> <C> <C> <C> <C>
First Quarter $25 1/2 $22 3/4 $23 1/2 $16 1/4 $14 $15 3/4
Second Quarter 25 5/8 23 1/2 24 1/4 19 1/8 15 5/8 19
Third Quarter 24 1/2 19 5/8 22 22 3/4 18 1/4 22 3/4
Fourth Quarter 24 19 1/2 23 26 7/8 21 7/8 24 1/4
</TABLE>
Continued growth and profitability of the Company are dependent upon mainten-
ance 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, 1998, 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 and plus/less the unrealized
loss/gain 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, 1998,
was 9.52%, compared to 9.69% at year-end 1997, 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, 1998, 1997, and 1996.
<TABLE>
REGULATORY CAPITAL
<CAPTION>
December 31
(Dollars In Thousands)
1998 1997 1996
<S> <C> <C> <C>
Tier I Capital:
Stockholders' equity less intangible assets (1) $ 41,214 $ 38,404 $ 34,806
Tier II Capital:
Allowance for loan loss 2,430 2,247 2,049
45% of unrealized gain on available for sale
equity securities 1,404 - -
Total Capital $ 45,048 $ 40,651 $ 36,855
Risk-adjusted assets $254,785 $211,943 $177,157
Risk-based capital ratios (2)
Tier I Capital 16.18% 18.12% 19.65%
Total Capital 17.68% 19.18% 20.80%
Leverage Ratio 9.52% 9.69% 9.45%
<FN>
(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%.
</TABLE>
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. Manage-
ment 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. In 1998, 1997 and 1996, the net change in loans was an increase of
$29.3 million, $42.2 million and $40.6 million, respectively, and the Bank
purchased $106.5 million, $45.1 million, and $80.1 million of investment
securities. Funding for the above came primarily from increases in deposits of
$30.6 million and $21.0 million in 1998 and 1997, respectively, and increases
in securities sold under agreement to repurchase of $2.7 million in 1998, $2.1
million in 1997, and $16.0 million in 1996, and in proceeds from maturities and
sales of investment securities of $108.2 million, $59.4 million and $114.2
million in 1998, 1997 and 1996, 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 Company's Asset/Liability Management Committee oversees the interest
rate risk management and reviews the Company's asset/liability structure on a
quarterly basis.
The Company 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 Company's interest rate risk position. The table
presented below shows the Company's GAP analysis at December 31, 1998.
<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 $ 16,186 $ - $ - $ - $ 16,186
Investment securities 19,089 16,358 37,594 103,461 176,502
Gross loans
(excluding non-accrual) 101,157 30,122 26,489 43,666 201,434
Total interest-earning assets 136,432 46,480 64,083 147,127 394,122
Interest-bearing liabilities:
Interest-bearing checking - - - 58,984 58,984
Money-market - 10,481 10,481 20,961 41,923
Savings - - - 22,807 22,807
Time deposits 58,033 34,497 31,290 23,949 147,769
Borrowed funds 33,978 - - - 33,978
Total interest-bearing
liabilities 92,011 44,978 41,771 126,701 305,461
Interest sensitivity gap $ 44,421 $ 1,502 $ 22,312 $ 20,426 $ 88,661
Cumulative gap $ 44,421 $ 45,923 $ 68,235 $ 88,661
Cumulative ratio of interest-earning assets to
interest-bearing liabilities 148% 134% 138% 129%
Cumulative gap as a percentage of total
interest-earning assets 11.3% 11.7% 17.3% 22.5%
</TABLE>
Management assumptions reflect the Company's estimate of the anticipated
repricing sensitivity of non-maturity deposit products. Interest-bearing
checking and savings accounts have been allocated to the "over 1 year"
category, and money market accounts 25% to the "91-181 days" category, 25% to
the "182-365 days" category, and 50% to the "over 1 year" category.
The Company 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, 1998, the Company's simulation analysis projects a decrease to
net interest income of 5.87%, 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 increase by 4.65%.
These projected levels are within the Company'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
evaluting 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 December 31, 1998, the Company has completed testing of all applications
considered to be critical to the functioning of the Company, or "mission
critical" applications, with the exception of ATM processing, which is sche-
duled for June, 1999. During the testing phase, all tested applications have
successfully processed dates in the year 2000. The Company expects to
complete testing of any remaining applications during the first and second
quarters of 1999. 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 estimates for each scenario.
As of December 31, 1998, the Company has identified costs of approximately
$400,000 related to the Y2K issue, including hardware and software upgrades,
installation and human resources. Approximately $190,000 and $40,000 was
utilized during 1998 and 1997, respectively.
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 action 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.
Fourth Quarter Results
Net income for the fourth quarter, 1998 was $1.22 million, or $0.32 per common
share, compared to $1.20 million, or $0.31 per common share in the fourth
quarter of 1997. Fourth quarter 1998 earnings represent a 1.13% annualized
return on assets and a 10.71% annualized return on average equity. Tax-
equivalent net interest income for the fourth quarter of 1998 was $17.4
million, a 7% increase over fourth quarter 1997 net interest income of $16.1
million. The increase is the result of growth in average earning assets, which
increased 12% for the quarter. The tax-equivalent net interest yield declined
18 basis points, to 4.56% for the quarter ended December 31, 1998. The decline
is attributable to the current interest rate environment.
The provision for loan losses was $70,000 for the fourth quarter of 1998, as
compared to $30,000 for the same period in 1997. In both years, the provision
was small due to the low charge-off activity and the adequacy of the allowance
for loan losses.
Non-interest income for the fourth quarter of 1998 was $732,000, an increase of
$91,000, or 14%, over 1997. Included in fourth quarter 1998 is a security gain
of $40,000. Noninterest expense was $3.2 million for the fourth quarter of
1998, an increase of $400,000, or 14%, from the same period in 1997. The
increased expenses were primarily the result of the addition of two new
branches during the year.
The financial data for the fourth quarter of 1998 and 1997 was not reviewed by
the Company's independent certified public accountants in accordance with
standards established for such reviews.
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 of cash flows present fairly, in all material
respects, the financial position of Commercial Bankshares, Inc. and its
subsidiary at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. 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
generally accepted auditing standards 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 the
opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Miami, Florida
January 15, 1999
<TABLE>
COMMERCIAL BANKSHARES, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(Dollars In Thousands, Except Share Data)
<CAPTION>
1998 1997
<S> <C> <C>
Assets:
Cash and due from banks $ 19,047 $ 17,222
Federal funds sold 16,186 10,339
Total cash and cash equivalents 35,233 27,561
Investment securities available for sale, at fair value
(cost of $115,113 in 1998 and $91,381 in 1997) 119,072 95,054
Investment securities held to maturity, at cost
(aggregate fair value of $59,267 in 1998
and $85,174 in 1997) 57,430 83,012
Loans, net 199,533 170,401
Premises and equipment, net 13,990 13,230
Accrued interest receivable 3,148 2,755
Goodwill, net 793 972
Other assets 3,402 3,214
Total assets $432,601 $396,199
Liabilities and stockholders' equity:
Deposits:
Demand $ 78,932 $ 65,646
Interest-bearing checking 58,984 52,303
Money market 41,923 44,014
Savings 22,807 21,416
Time 147,769 136,465
Total deposits 350,415 319,844
Securities sold under agreements to repurchase 33,978 31,285
Accounts payable and accrued liabilities 2,833 2,493
Accrued interest payable 638 648
Total liabilities 387,864 354,270
Commitments and contingencies (Notes 4,11 and 15)
Stockholders' equity:
Common stock, $.08 par value, 6,562,500
authorized shares, 3,721,798 issued and
outstanding (3,523,095 in 1997) 296 282
Additional paid-in capital 39,313 35,013
Retained earnings 3,136 4,148
Accumulated other comprehensive income on
investment securities available for sale,
net of tax 2,730 2,553
Treasury stock, 39,136 shares in 1998 and
5,512 shares in 1997, at cost (738) (67)
Total stockholders' equity 44,737 41,929
Total liabilities and stockholders' equity $432,601 $396,199
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1998, 1997, and 1996
(Dollars In Thousands, Except Share Data)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $16,239 $13,406 $ 9,997
Interest on investment securities
Taxable 9,488 10,003 11,318
Tax exempt 1,729 1,516 1,564
Interest on federal funds sold 708 542 674
Total interest income 28,164 25,467 23,553
Interest expense:
Interest on deposits 9,906 8,608 8,489
Interest on securities sold under
agreements to repurchase 1,572 1,497 1,121
Total interest expense 11,478 10,105 9,610
Net interest income 16,686 15,362 13,943
Provision for loan losses 230 170 1,040
Net interest income after provision for
loan losses 16,456 15,192 12,903
Non-interest income:
Service charges on deposit accounts 1,998 1,998 1,793
Other fees and service charges 507 512 534
Security gains, net 108 88 698
Total non-interest income 2,613 2,598 3,025
Non-interest expense:
Salaries and employee benefits 6,960 6,339 5,663
Occupancy expense 1,219 1,216 1,125
Furniture and equipment expense 947 889 835
Data processing 845 727 588
Professional fees 295 366 414
Stationary and supplies 247 225 225
Amortization 179 179 402
FDIC insurance 125 122 274
Non-recurring charges - - 7,059
Other 1,359 1,229 1,419
Total non-interest expense 12,176 11,292 18,004
Income(loss) before income taxes 6,893 6,498 (2,076)
Provision for (benefit from) income taxes 2,033 1,975 (1,280)
Net income (loss) $ 4,860 $ 4,523 $ (796)
Earnings (loss) per common and common equivalent share:
Basic $ 1.31 $ 1.23 $ (.24)
Diluted $ 1.27 $ 1.20 $ (.24)
Weighted average number of shares and common equivalent shares:
Basic 3,704,351 3,692,514 3,693,717
Diluted 3,830,025 3,778,852 3,693,717
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for the years ended December 31, 1998, 1997, and 1996
(In Thousands)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net income (loss) $4,860 $4,523 $(796)
Other comprehensive income, net of tax:
Unrealized holding gains arising
during the period 233 1,065 940
Reclassification adjustments for gains realized
in net income (loss) (56) - (431)
Other comprehensive income 177 1,065 509
Comprehensive income (loss) $5,037 $5,588 $(287)
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 1998, 1997, and 1996
(In Thousands Except Share Data)
<CAPTION>
Add'l Accum Total
Shares of Paid- Other Stock-
Common Common in Retained Comp. Treas holders
Stock Stock Capital Earnings Inc Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 3,189,810 $255 $28,583 $8,594 $ 979 - $38,411
Exercise of stock options 4,000 1 42 - - - 43
Purchase of treasury stock - - - - - (67) (67)
Unrealized holding gain - - - - 509 - 509
Dividends - common stock
$0.17 per share - - - (655) - - (655)
5% stock dividend 159,624 12 2,322 (2,335) - - (1)
Net loss - - - (796) - - (796)
Balance at Dec 31, 1996 3,353,434 268 30,947 4,808 1,488 (67) 37,444
Exercise of stock options 2,000 - 20 - - - 20
Unrealized holding gain - - - - 1,065 - 1,065
Dividends - common stock
$0.30 per share - - - (1,120) - - (1,120)
5% stock dividend 167,661 14 4,046 (4,063) - - (3)
Net income - - - 4,523 - - 4,523
Balance at Dec 31, 1997 3,523,095 282 35,013 4,148 2,553 (67) 41,929
Exercise of stock options 21,595 1 244 - - - 245
Purchase of treasury stock - - - - - (671) (671)
Unrealized holding gain - - - - 177 - 177
Dividends - common stock
$0.49 per share - - - (1,799) - - (1,799)
5% stock dividend 177,108 13 4,056 (4,073) - - (4)
Net income - - - 4,860 - - 4,860
Balance at Dec 31, 1998 3,721,798 296 39,313 3,136 2,730 (738) 44,737
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997, and 1996
(In Thousands)
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
Cash flows from operating activities:
Net income (loss) $ 4,860 $ 4,523 $ (796)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Provisions for loan losses 230 170 1,040
Non-recurring charge - - 5,926
Depreciation, amortization,
and accretion, net 1,190 1,055 1,141
Gain on disposal of premises
and equipment, net - (105) (132)
Gain on sale of investment securities, net (108) (88) (698)
Change in accrued interest receivable (394) (116) 475
Change in other assets (187) 65 (3,126)
Change in accounts payable and
accrued liabilities (154) 51 376
Change in accrued interest payable (10) (19) (146)
Net cash provided by operating activities 5,427 5,536 4,060
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 29,553 16,559 32,201
Proceeds from sales of investment securities held
to maturity 1,197 1,864 9,668
Proceeds from maturities of investment securities available
for sale 69,327 41,000 53,675
Proceeds from sales of investment securities available
for sale 8,131 - 18,658
Purchases of investment securities
held to maturity - (1,520) (10,061)
Purchases of investment securities
available for sale (106,526) (43,600) (70,112)
Net change in loans (29,261) (42,235) (40,624)
Purchases of premises and equipment (1,712) (2,741) (2,493)
Proceeds from disposal of
premises and equipment 109 859 143
Net cash used in investing activities (29,182) (29,814) (8,945)
Cash flows from financing activities:
Net change in demand, savings, interest-bearing checking,
money market, and time deposit accounts 30,571 20,981 (1,051)
Net change in securities sold under agreements to
repurchase 2,693 2,082 15,965
Dividends paid (1,411) (1,140) (656)
Proceeds from issuance of stock 245 20 43
Purchase of treasury stock (671) - (67)
Net cash provided by financing
activities 31,427 21,943 14,234
Increase (decrease) in cash and
cash equivalents 7,672 (2,335) 9,349
Cash and cash equivalents
at beginning of year 27,561 29,896 20,547
Cash and cash equivalents at end of year $35,233 $27,561 $29,896
Supplemental disclosures:
Interest paid $2,169 $1,330 $1,591
Income taxes paid $2,128 $1,816 $ 740
The accompanying notes are an integral part of these financial statements.
</TABLE>
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 generally accepted accounting principles. 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 state-
ments and the reported amounts of revenues and expenses during the
reporting period. Such estimates include the allowance for loan losses.
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 material inter-
company 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, 1998 and 1997, were approximately $5.5 million and $4.5 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 catego-
ry 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.
Both unrealized holding gains and losses on securities available for
sale, net, 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 allow-
ances for loan losses and deferred loan fees and origination costs.
Interest income is generally recognized when income is earned, using the
interest method. Loan origination fees and certain direct loan origina-
tion 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 Company's
historical loss experience, known and inherent risks in the loan portfo-
lio, 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 collater-
alized 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. 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 accept-
able 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. Mainte-
nance 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 ac-
counts, and any resulting gains or losses are credited or charged to
income.
Goodwill
Goodwill represents the unamortized costs in excess of the fair value of
acquired net tangible assets, including the Bank and subsequent branch
acquisitions. Goodwill is amortized on a straight line basis over 15
years. Management periodically evaluates whether events or circumstanc-
es have occurred that would result in impairment in the value or life of
goodwill based on historical and future earnings and cash flow projec-
tions. Refer to Note 5 of Notes to the Consolidated Financial State-
ments for discussion regarding a charge-off of goodwill in 1996.
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 fore-
closure, 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, 1998 and 1997, there was no other real
estate owned.
Income Taxes
Deferred tax assets and liabilities are determined based on the differ-
ence between the financial statement and tax bases of assets and liabil-
ities 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.
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 interest 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 changing in market inter-
est rates.
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" as of January 1, 1998. The income tax
effects related to the components of other comprehensive income are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
Tax (Exp) Tax (Exp) Tax (Exp)
or or or
Gross Benefit Net Gross Benefit Net Gross Benefit Net
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unrealized holding gains
arising during period
$369 ($136) $233 $1,690 ($625) $1,065 $1,488 ($548) $940
Reclassification adjustments for
gains realized in net income
(88) 32 (56) - - - (684) 253 (431)
Other comprehensive income
$281 ($104) $177 $1,690 ($625) $1,065 $ 804 ($295) $509
</TABLE>
Per Share Data
During fiscal 1997, the Company adopted Statement of Financial Account-
ing Standards No. 128, "Earnings Per Share" (EPS) (SFAS No. 128). SFAS
No. 128 specifies new standards designed to improve the EPS information
provided in financial statements by simplifying the existing computa-
tional guidelines, revising the disclosure requirements, and increasing
the comparatibility of EPS data on an international basis. EPS disclo-
sures have been restated for all periods presented. This pronouncement
did not have a material impact on the financial statements of the
Company.
New Accounting Pronouncement
In June 1997, FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 establishes stan-
dards and disclosure requirements for the way companies report informa-
tion about operating segments both in annual and interim reports issued
to stockholders. SFAS No. 131 is effective for financial statements
issued for periods beginning after December 15, 1997. This standard did
not affect the consolidated financial statements, as the Company's only
operating segment is in the general business of retail banking.
In June 1998, FASB issued SFAS No. 133,"Accounting for Derivative Instru-
ments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivatives and hedging activities. It requires
that all derivatives be included as assets or liabilities in the balance
sheet and that such instruments be carried at fair market value through
adjustments to either other comprehensive income or current earnings or
both, as appropriate. SFAS No. 133 is effective for financial state-
ments issued for all fiscal quarters of fiscal years beginning after
June 15, 1999. The impact of this standard is not expected to be
material in relation to the consolidated financial statements.
Reclassification
Certain reclassifications have been made to the 1997 and 1996 consoli-
dated financial statements to conform to the 1998 presentation. Such
reclassifications had no impact on total assets, equity, net income,
comprehensive income, or cash flows of the Company.
2. Investment Securities:
The amortized cost and fair value of investment securities are summa-
rized as follows (in thousands):
<TABLE>
December 31, 1998
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for Sale Securities:
U.S. Treasury Obligations $ 3,994 $ 31 $ - $ 4,025
U.S. Government Agencies 95,306 770 (40) 96,036
State & Political Subdivisions 13,829 146 (68) 13,907
Corporate Stock 1,984 3,120 - 5,104
$115,113 $ 4,067 $(108) $119,072
Held to Maturity Securities:
U.S. Government Agencies $ 32,766 $ 396 $ (23) $ 33,139
State & Political Subdivisions 24,314 1,464 - 25,778
Other 350 - - 350
$ 57,430 $ 1,860 $ (23) $ 59,267
</TABLE>
<TABLE>
December 31, 1997
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for Sale Securities:
U.S. Treasury Obligations $ 11,042 $ 52 $ (6) $ 11,088
U.S. Government Agencies 79,604 103 (54) 79,653
Corporate Stock 735 3,578 - 4,313
$ 91,381 $ 3,733 $ (60) $ 95,054
Held to Maturity Securities:
U.S. Government Agencies $ 56,448 $ 807 $(120) $ 57,135
State & Political Subdivisions 26,114 1,486 (11) 27,589
Other 450 - - 450
$ 83,012 $ 2,293 $(131) $ 85,174
</TABLE>
The amortized cost and fair value of investment securities excluding
corporate stock and other securities at December 31, 1998, by contrac-
tual 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.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due in one year or less $ 3,994 $ 4,024 $ 2,552 $ 2,568
Due after one year through five years 17,247 17,324 8,361 8,561
Due after five years through ten years 53,612 54,203 16,651 17,874
Due after ten years 38,276 38,417 29,516 29,913
</TABLE>
Gross gains of approximately $119,000, $88,000 and $729,000, respec-
tively, and gross losses of $11,000, $0 and $31,000, respectively,
during 1998, 1997 and 1996, were realized on the sale of investment
securities. During 1998, 1997 and 1996, the Company sold securities
with a total book value of $1.18 million, $1.86 million, and $9.65
million, respectively, from the held to maturity portfolio. These 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 (2) the security was within 90 days of maturity. The
net gain on sale of these securities was $20,000 in 1998, $88,000 in
1997 and $14,000 in 1996.
At December 31, 1998 and 1997, investment securities with an amortized
cost of approximately $58.3 million and $64.7 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):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Commercial and financial $ 34,415 $ 30,454
Real estate and mortgage 148,564 124,892
Installment and other 18,984 17,302
201,963 172,648
Less: allowance for loan losses (2,430) (2,247)
Loans, net $199,533 $170,401
</TABLE>
Loans on which the accrual of interest has been discontinued amounted to
approximately $529,000 and $103,000 at December 31, 1998 and 1997,
respectively. If non-accrual loans were on full accrual, additional
interest income of approximately $13,000, $8,000 and $2,000 would have
been recorded during 1998, 1997, and 1996, respectively.
The Bank sold participations of loans to Independent Bankers of Florida
during 1998 and 1997, amounting to $1,721,000 and $697,000 respectively.
The total amount of loans to directors and executive officers amounted
to $3,412,000 and $1,083,000 at December 31, 1998 and 1997, respective-
ly.
Transactions for loans to directors and executive officers were as
follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
Balance, beginning of period $1,083 $4,524
Loans and advances 2,387 576
Payments (58) (4,017)
Balance, end of period $3,412 $1,083
</TABLE>
Transactions in the allowance for loan losses were as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
Balance, beginning of period $2,247 $2,049 $1,199
Provision charged to operations 230 170 1,040
Loans charged off (117) (112) (214)
Recoveries 70 140 24
Balance, end of period $2,430 $2,247 $2,049
</TABLE>
4. Premises and Equipment and Lease Commitments:
Premises and equipment were as follows (in thousands):
<TABLE>
<CAPTION>
December 31, Estimated
1998 1997 Useful Life
<S> <C> <C>
Land $ 5,412 $ 5,208 -
Buildings 6,645 5,862 40 years
Leasehold and other
property improvements 2,048 2,012 3 to 10 years
Furniture and equipment 3,734 3,182 3 to 7 years
Other 140 117 3 years
17,979 16,381
Less: accumulated depreciation
and amortization (3,989) (3,151)
$13,990 $13,230
</TABLE>
The Bank leases office and parking spaces for various banking facil-
ities. The leases have initial terms expiring in 1999 through 2007 and
are renewable by the Bank for up to 10 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 buildings'
operating expenses. Rental expense was approximately $241,000, $242,000
and $251,000 in 1998, 1997, and 1996, respectively. As of December 31,
1998, future minimum rental commitments for all noncancellable operating
leases with initial or remaining terms in excess of one year were as
follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Year Ending December 31,
1999 $ 333
2000 283
2001 203
2002 177
2003 108
Thereafter 363
$1,467
</TABLE>
The Company is also under contract for data processing services. The
contract expires March 17, 2000, and amounts to approximately $775,000
per year.
5. Non-recurring Charges:
During 1996, the Company incurred two non-recurring charges totalling
$7.06 million ($4.45 million, net of tax). The first non-recurring
charge involved the goodwill associated with the October 28, 1994,
acquisition of five branches of the former Carteret Federal Savings Bank
(the Carteret Branches) from the Resolution Trust Corporation (RTC).
The Bank purchased $437,000 of assets, assumed $114 million of deposits,
and received cash of approximately $107 million, net of a "premium" paid
of approximately $6.7 million. This premium was recorded as goodwill as
of the date of the acquisition.
Since the date of acquisition, the Carteret Branches had not performed
to levels anticipated at the time of the acquisition, primarily reflect-
ing: (1) significant deposit attrition; (2) fixed operating expenses in
excess of planned levels; and (3) a low percentage of interest-earning
assets invested in loans. The Company's initial bid price of $6.7
million was based on the deposit base of the Carteret Branches of $131
million. This deposit base, which consisted principally of certificates
of deposit, had steadily decreased to a level of $81 million as of June
30, 1996. The operating expenses related to the Carteret Branches also
exceeded plan levels, specifically in the areas of data processing
(reflecting the unexpected costs of conversion), personnel, and adver-
tising (reflecting the costs associated with attempting to limit deposit
attrition). Finally, branch profitability was also adversely impacted
by the Company's low percentage of interest-earning assets invested in
loans versus investment securities. The funds acquired from the RTC
were not immediately needed to fund loans; thus the new monies were
invested in lower-yielding securities. During the second quarter of
1996, as a result of the conditions described above, the Company deter-
mined that the goodwill associated with the Carteret Branches was
totally impaired, thus necessitating a full write-off of the remaining
balance of approximately $5.9 million.
The second non-recurring charge involved a one-time assessment for the
recapitalization of the Savings Association Insurance Fund (SAIF), the
insurance fund covering deposits of savings institutions. On September
30, 1996, legislation was signed that required thrift institutions and
banks that have acquired deposits insured by the SAIF to make a one-time
payment to the Federal Deposit Insurance Corporation to bring the SAIF
fund up to the required 1.25 per cent reserve ratio. The payment made
by the Company, assessed in November 1996, was in the amount of $1.13
million ($717,000 net of tax), based on the Company's SAIF deposits at
March 31, 1995, and was recorded as a charge to non-interest expense for
1996. The Company acquired such deposits by acquiring branches of three
failed savings institutions from the Resolution Trust Corporation.
6. Interest Expense:
Interest expense on interest-bearing checking accounts, money market
accounts, savings and time deposits was as follows for the years ended
December 31, 1998, 1997, and 1996 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Interest-bearing checking accounts $ 633 $ 566 $ 604
Money market accounts 1,271 889 911
Savings 394 403 472
Time deposits 7,608 6,750 6,502
$9,906 $8,608 $8,489
</TABLE>
Certificates of deposit in denominations of $100,000 or more were
approximately $53.3 million and $51.7 million at December 31, 1998 and
1997, respectively. Interest expense for such certificates of deposit
was approximately $2.9 million, $2.5 million and $1.8 million in 1998,
1997, and 1996, 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, 1998,
1997, and 1996, were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Insurance $ 183 $ 187 $ 205
Advertising 182 111 125
Administrative service charges 148 92 104
Telephone 145 130 126
Intangible tax 115 100 78
Armored carrier and courier 102 70 79
Security 96 53 53
State assessment 76 70 67
Postage 61 70 90
Dues and subscriptions 55 73 71
Other 196 273 421
$1,359 $1,229 $1,419
</TABLE>
8. Income Taxes:
The components of the net deferred tax asset as of December 31, 1998 and
1997, were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax assets:
Write-off of goodwill $1,790 $1,928
Allowance for loan losses 638 553
Investment in securities 236 236
Other 15 44
Total deferred tax asset 2,679 2,761
Deferred tax liabilities:
Unrealized gain on investment securities 1,229 1,125
Depreciation of fixed assets 19 147
Other 7 -
Total deferred tax liability 1,255 1,272
Net deferred tax asset $1,424 $1,489
</TABLE>
The components of the provision (benefit) for income taxes were as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current $2,072 $1,868 $ 985
Deferred (39) 107 (2,265)
Total $2,033 $1,975 $(1,280)
</TABLE>
The following table reconciles taxes at the federal statutory rate with
the effective rate for 1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Federal statutory rate 34% 34% (34%)
Goodwill amortization 1% 1% 3%
State taxes 2% 2% (5%)
Tax-exempt investment income (7%) (6%) (25%)
Other, net - (1%) -
Effective tax rate 30% 30% (61%)
</TABLE>
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):
<TABLE>
<CAPTION>
December 31, 1998
Income Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Basic EPS $4,860 3,704 1.31
Effect of Dilutive Options - 126 (0.04)
Diluted EPS $4,860 3,830 1.27
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
Income Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Basic EPS $4,523 3,693 $1.23
Effect of Dilutive Options - 86 (0.03)
Diluted EPS $4,523 3,779 $1.20
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
Income Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Basic EPS $(796) 3,694 $(0.24)
Effect of Dilutive Options - - -
Diluted EPS $(796) 3,694 $(0.24)
</TABLE>
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 $132,000, $106,000 and $34,000 in 1998, 1997,
and 1996, 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.
12. Stock Transactions:
On November 20, 1998, November 14, 1997, and November 15, 1996, the
Company's Board of Directors authorized one-for-twenty (five per cent)
stock dividends, to be effective on January 4, 1999, January 2, 1998 and
January 3, 1997, respectively. Earnings per share amounts have been
restated to retroactively reflect these transactions.
In March 1994, the Board of Directors adopted two stock options 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. The
maximum number of shares that may be issued under the Outside Director
Option Plan and Performance Stock Option Plan are 115,763 and 347,288,
respectively. Options granted under the Outside Director Plan are
immediately exercisable and are for a term of ten years. At December
31, 1998 and 1997, there were 3,786 and 23,200 shares available, respec-
tively, for future option grants under the Outside Director Plan.
Options granted under the Performance Stock Option Plan are not exercis-
able for a period of one year from the date of grant and are for a term
of ten years. At December 31, 1998 and 1997, there were 116,634 and
132,055 shares available, respectively, for future option grants under
this plan.
The current status of options outstanding and the activity for 1998,
1997 and 1996 are presented below:
<TABLE>
<CAPTION>
Outside Director Performance
Stock Option Plan Stock Option Plan
Weighted Avg Weighted Avg
Number of Exercise Number of Exercise
Options Price Options Price
<S> <C> <C> <C> <C>
Options outstanding, January 1,1996 40,000 $10.71 104,500 $10.02
Granted 20,000 13.10 38,500 13.10
Exercised - - (4,000) 10.55
Expired or cancelled - - (1,000) 10.55
Adjustment for 5% stock dividend 3,000 - 6,900 -
Options outstanding, December 31, 1996 63,000 11.10 144,900 10.81
Granted 20,000 15.95 31,000 15.95
Exercised (2,000) 10.05 - -
Adjustment for 5% stock dividend 4,050 - 8,795 -
Options outstanding, December 31, 1997 85,050 12.16 184,695 11.58
Granted 20,000 23.57 24,000 23.57
Exercised (6,615) 13.68 (14,980) 10.25
Expired or cancelled - - (1,654) 9.56
Adjustment for 5% stock dividend 4,927 - 9,613 -
Options outstanding, Dec 31, 1998 103,362 $14.42 201,674 $13.21
Options exercisable, Dec 31, 1998 103,362 $14.42 176,474 $11.73
</TABLE>
The range of exercise prices for the Performance and Outside Director
stock option plans at December 31, 1998 were $9.11 to $23.57. The weight-
ed average remaining contractual lives of the Performance and Outside
Director stock options at December 31, 1998 were 7.09 and 7.49, respec-
tively.
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 account-
ing rules. The Company has determined not to recognize such compensation
expense. The compensation expense, net of income tax effect, if recog-
nized, would have resulted in a decrease in the pro forma amounts indicat-
ed below, for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997 1996
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net earnings- as reported $4,860 $4,523 $ (796)
Net earnings- pro forma $4,628 $4,245 $(1,007)
Earnings per share (diluted)-
as reported $ 1.27 $ 1.20 $ (.24)
Earnings per share (diluted)-
pro forma $ 1.20 $ 1.15 $ (.30)
</TABLE>
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: Dividend yield of 2.17%;
expected volatility of 24.06%; risk-free interest rate of 5.75%; and
expected life of nine and one-half years. The weighted average fair value
of options granted during 1998, 1997 and 1996, respectively, were $7.98,
$8.65 and $5.59.
13. Commercial Bankshares, Inc. (Parent Company Only) Financial Informa-
tion:
<TABLE>
Condensed Balance Sheets
(In Thousands)
<CAPTION>
December 31
1998 1997
<S> <C> <C>
Assets:
Cash and cash equivalents $ 3,164 $ 3,491
Time deposits 2,300 2,300
Investment in banking subsidiary 36,400 32,816
Other investments 3,160 3,618
Goodwill, net 741 904
Other assets 690 332
Total assets $46,455 $43,461
Liabilities and Stockholders' Equity:
Other liabilities $ 1,718 $ 1,532
Stockholders' equity 44,737 41,929
Total liabilities and
stockholders' equity $46,455 $43,461
</TABLE>
<TABLE>
Condensed Statements of Income
(In Thousands)
<CAPTION>
Years ended December 31
1998 1997 1996
<S> <C> <C> <C>
Income:
Interest on investments $ 303 $ 282 $ 242
Security gains - - 488
Other - 95 85
Total income 303 377 815
Expenses:
Occupancy - 7 18
Legal and professional fees 10 20 26
Goodwill amortization 163 163 163
Other 68 48 105
Total expenses 241 238 312
Income before income taxes and equity in undistributed
earnings (loss) of subsidiary 62 139 503
Provision for income taxes 75 113 185
Income (loss) before equity in undistributed
earnings (loss) of subsidiary (13) 26 318
Equity in undistributed
earnings (loss) of subsidiary 4,873 4,497 (1,114)
Net income (loss) $4,860 $4,523 $ (796)
</TABLE>
<TABLE>
Condensed Statements of Cash Flows
(In Thousands)
<CAPTION>
Years ended December 31
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $4,860 $4,523 $ (796)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Equity in undistributed loss (earnings)
of subsidiary (4,873) (4,497) 1,114
Depreciation and amortization 163 162 220
Gain on sale of investment securities - - (488)
Gain on sale of premises and equipment - (95) -
Change in other assets (3) 2 (9)
Change in other liabilities (33) (28) 260
Net cash provided by operating activities 114 67 301
Cash flows from investing activities:
Proceeds from sales of investment
securities available for sale - - 498
Proceeds from disposal of premises and equipment - 862 -
Net cash provided by investing activities - 862 498
Cash flows from financing activities:
Proceeds from issuance of stock 244 20 43
Purchase of treasury stock (671) - (67)
Dividends received from subsidiary 1,400 750 -
Dividends paid (1,411) (1,140) (656)
Cash paid for fractional shares (3) (3) -
Net cash used in financing activities (441) (373) (680)
Increase (decrease) in cash and cash equivalents (327) 556 119
Cash and cash equivalents at beginning of year 3,491 2,935 2,816
Cash and cash equivalents at end of year $3,164 $3,491 $2,935
</TABLE>
14. Regulatory Matters:
Capital Requirements
The Bank is subject to various regulatory capital requirements adminis-
tered 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 account-
ing 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, 1998, that the Bank meets all capital adequacy requirements
to which it is subject.
As of December 31, 1998 and 1997, 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.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(greater than)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital (to Risk Weighted Assets):
Commercial Bankshares, Inc. $43,644 17.68% $20,383 8.00% N/A N/A
Commercial Bank of Florida 38,249 15.09% 20,280 8.00% $25,350 10.00%
Tier I Capital (to Risk Weighted Assets):
Commercial Bankshares, Inc. 41,214 16.18% 10,191 4.00% N/A N/A
Commercial Bank of Florida 35,819 14.13% 10,140 4.00% 15,210 6.00%
Tier I Capital (to Total Assets):
Commercial Bankshares, Inc. 41,214 9.52% 12,978 3.00% N/A N/A
Tier I Capital (to Average Assets):
Commercial Bank of Florida 35,819 8.66% 12,409 3.00% 20,682 5.00%
As of December 31, 1997:
Total Capital (to Risk Weighted Assets):
Commercial Bankshares, Inc. 40,651 19.18% 16,955 8.00% N/A N/A
Commercial Bank of Florida 34,932 16.64% 16,791 8.00% 20,989 10.00%
Tier I Capital (to Risk Weighted Assets):
Commercial Bankshares, Inc. 38,404 18.12% 8,478 4.00% N/A N/A
Commercial Bank of Florida 32,685 15.57% 8,396 4.00% 12,593 6.00%
Tier I Capital (to Total Assets):
Commercial Bankshares, Inc. 38,404 9.69% 11,886 3.00% N/A N/A
Tier I Capital (to Average Assets):
Commercial Bank of Florida 32,685 8.78% 11,163 3.00% 18,605 5.00%
</TABLE>
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, 1999, the Bank could
have paid dividends to the Company aggregating $ 8.2 million without
prior regulatory approval. Future dividends will be dependent on the
level of earnings of the Bank. Cash dividends declared totaled $1.8
million and $1.1 million in 1998 and 1997, respectively. Dividends
declared but not paid amounted to $705,000 and $317,000 in 1998 and
1997, 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, 1998 and 1997, were $25.1
million and $24.5 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 borrow-
ing 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 $3,216,000 and
$411,000 in 1998 and $2,217,000 and $580,000 in 1997 of irrevocable
standby and commercial letters of credit, respectively, of which $1,646-
,000 and $888,000 of standby letters of credit were collateralized by
cash in 1998 and 1997, 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, 1998, the Bank had loan relationships with
62 borrowers, each with an aggregate balance greater than $800,000,
representing 56% of net loans. As of December 31, 1997, the Bank had
loan relationships with 39 borrowers, each with an aggregate balance
greater than $800,000, representing 44% 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 instruments 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, 1998 and 1997.
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, 1998, variable rate
loans amounted to approximately $142 million or 71.0% of total loans.
Fixed rate loans maturing within the next year totalled $10 million or
an additional 5.1% of total loans. At December 31, 1997, variable rate
loans amounted to approximately $138.5 million or 80.3% 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 23.9% and 16.2% of the loan portfolio,
as of December 31, 1998 and 1997, respectively, 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 deposits, savings, interest-bearing checking
accounts, money market deposits, and borrowings under repurchase agree-
ments 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, 1998, the fair value of time deposits approximates carrying
value, which includes time deposits of $126 million due within twelve
months which represents 85.2% of total time deposits. At December 31,
1997 time deposits of $111 million due within twelve months, represented
81.7% 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 counterparties. The fair value of letters of credit is based on
fees currently charged for similar agreements. At December 31, 1998,
only one letter of credit is scheduled to expire within twelve months.
The fair value of these commitments approximates the carrying amount.
COMMERCIAL BANKSHARES, INC.
DIRECTORS OFFICERS
Cromwell A. Anderson Julius J. Shepard Joseph W. Armaly
Attorney Investments Chairman and Chief
Executive Officer
Joseph W. Armaly Sherman Simon
Chairman of the Board Invesments
Chief Executive Officer Jack J. Partagas
President, Secretary,
Richard J. Bischoff Michael W. Sontag and Chief Operating
Attorney President Officer
Michael Sontag, Inc.
Robert Namoff Martin Yelen Barbara E. Reed
General Manager Retired Attorney Senior Vice President
Allied Universal Corp. and Chief Financial Officer
Jack J. Partagas
President and
Chief Operating Officer
COMMERCIAL BANK OF FLORIDA
SENIOR 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 D. 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
Joseph A. Maroon, Jr. Senior Vice President
Raul M. Zarranz Senior Vice President
SUBSIDIARY BANK LOCATIONS
PERRINE/CUTLER RIDGE
19455 S. Dixie Highway
Miami, FL 33157
(305) 234-6090
MIAMI BEACH
425 41st Street
Miami Beach, FL 33140
(305) 531-4435
PINECREST/THE FALLS
13001 S. Dixie Highway
Miami, FL 33156
(305) 378-2000
MEDLEY/HIALEAH GARDENS
11590 N.W. South River Drive
Medley, FL 33178
(305) 883-1110
KENDALL
10899 Sunset Drive
Miami, FL 33173
(305) 274-2000
NORTH MIAMI
12255 N.E. 16th Avenue
No. Miami, FL 33161
(305) 891-6950
SOUTH MIAMI/CORAL GABLES
1533 Sunset Drive
Coral Gables, FL 33143
(305) 663-6030
HALLANDALE
1448 E. Hallandale Beach Blvd.
Hallandale, FL 33009
(954) 454-3551
BRICKELL
501 Brickell Key Drive
Miami, FL 33131
(305) 374-1100
PEMBROKE PINES
176 S. Flamingo Road
Pembroke Pines, FL 33027
(954) 437-8100
MAIN OFFICE
1550 S.W. 57th Avenue
Miami, FL 33144
(305) 267-1200
POMPANO BEACH
300 E. Sample Road
Pompano Beach, FL 33064
(954) 943-6550
MIAMI SPRINGS
69 Westward Drive
Miami Springs, FL 33166
(305) 883-0883
CORAL SPRINGS
1999 University Drive
Coral Springs, FL 33071
(954) 753-7555
ANNUAL MEETING
Thursday, April 15, 1999, at 10:00 a.m.
1550 S.W. 57th Avenue
Boardroom
Miami, Florida 33144
Transfer Agent
ChaseMellon Shareholder Services
Independent Accounts
PricewaterhouseCoopers, LLP
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.
COMMERCIAL BANKSHARES, INC.
1994 PERFORMANCE STOCK OPTION PLAN
ARTICLE I
GENERAL
1.1 Purpose of the Plan.
The purpose of the COMMERCIAL BANKSHARES, INC. 1994
Performance Stock Option Plan (the "Plan") is to assist COMMERCIAL
BANKSHARES, INC. (the "Company") to promote and advance its
interests and those of its shareholders in securing and retaining
key employees of outstanding ability by making it possible to offer
them an increased incentive to join or continue in the service of
the Company and to increase their efforts for its welfare by
participating in the ownership, long-term growth, profitability and
financial success of the Company.
1.2 Definitions.
(a) "Acceleration Event" means any event which in the opinion
of the Board of Directors of the Company is likely to lead to
changes in control of share ownership of the Company, whether or
not such change in control actually occurs.
(b) "Board of Directors" or "Board" means the Board of
Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended, and any successor thereto, together with rules,
regulations and interpretations promulgated thereunder.
(d) "Committee" means the committee referred to in Section
1.3.
(e) "Common Stock" means the common stock of the Company
having a par value of $.08 per share.
(f) "Fair Market Value" means the closing "asked" price of
the shares of Common Stock in the over-the-counter market on the
day on which such value is to be determined or, if such "asked"
price is not available, the last sales price on such day or, if no
shares were traded on such day, on the next preceding day on which
the shares were traded, as reported by the National Association of
Securities Dealers Automatic Quotation System (NASDAQ) or other
national quotation service. If the shares are listed on a National
Securities Exchange, "fair market value" means the closing price of
the shares of Common Stock on such National Securities Exchange on
the day on which such value is to be determined or, if no shares
were traded on such day, on the next preceding day on which shares
were traded, as reported by National Quotation Bureau, Inc. or
other national quotation service. If at any time shares of Common
Stock are not traded on an exchange or in the over-the-counter
market, Fair Market Value shall be the value determined by the
Board of Directors or Committee administering the Plan, taking into
consideration those factors affecting or reflecting value which
they deem appropriate.
(g) "Incentive Stock Option" means an option to purchase
shares of Common Stock which is intended to qualify as an incentive
stock option as defined in Section 422A of the Code.
(h) "Key Employee" means any person, including officers and
directors, in the regular employment of the Company or its
Subsidiaries who is designated a Key Employee by the Committee and
is or is expected to be primarily responsible for the management,
growth, or supervision of some part or all of the business of the
Company or its Subsidiaries. The power to determine who is and who
is not a Key Employee is reserved solely for the Committee.
(i) "Nonqualified Stock Option" means an option to purchase
shares of Common Stock which is not intended to qualify as an
Incentive Stock Option as defined in Section 422A of the Code.
(j) "Option" means an Incentive Stock Option or a Nonquali-
fied Stock Option.
(k) "Optionee" means a Key Employee to whom an Option is
granted under the Plan.
(l) "Parent" means any corporation which qualifies as a
parent of a corporation under the definition of "parent corpora-
tion" contained in Section 425(e) of the Code.
(m) "Stock Appreciation Right" shall have the meaning stated
in Article IV of the Plan.
(n) "Subsidiary" means any corporation which qualifies as a
subsidiary of a corporation under the definition of "subsidiary
corporation" contained in Section 425(f) of the Code.
(o) "Term" means the period during which a particular Option
may be exercised as determined by the Committee and as provided in
the option agreement.
1.3 Administration of the Plan.
The Plan shall be administered by the Stock Option Committee
(the "Committee") appointed from time to time by the Board of
Directors comprised of not less than three of the then members of
the Board of Directors who may qualify to administer the Plan as
contemplated by Rule 16b-3 of the Securities Exchange Act of 1934
or any successor. No person while a member of the Committee shall
be eligible to participate in the Plan. Subject to the control of
the Board, and without limiting the control over decisions
described in Section 1.7, the Committee shall have the power to
interpret and apply the Plan and to make regulations for carrying
out its purpose. More particularly, the Committee shall determine
which Key Employees shall be granted Options under the Plan, the
number of shares subject to each Option, the price per share under
each Option, the Term of each Option, and any restrictions on the
exercise of each Option. When granting Options, the Committee
shall designate the Option as either an Incentive Stock Option or
a Nonqualified Stock Option. The Committee shall also designate
whether the Option is granted with Stock Appreciation Rights.
Determinations by the Committee under the Plan (including, without
limitation, determinations of the person to receive Options, the
form, amount and timing of such Options, and the terms and
provisions of such Options and the agreements evidencing same) need
not be uniform and may be made by it selectively among persons who
receive, or are eligible to receive, Options under the Plan,
whether or not such persons are similarly situated.
1.4 Shares Subject to the Plan.
The total number of shares that may be purchased pursuant to
Options or transferred pursuant to the exercise of Stock
Appreciation Rights under the Plan shall not exceed 300,000 shares
of Common Stock originally reserved at the Plan's inception and as
adjusted periodically pursuant to Section 1.6 plus an additional
150,000 shares reserved as of January 15, 1999 subject to periodic
adjustment pursuant to Section 1.6. Shares subject to the Options
which terminate or expire prior to exercise shall be available for
future Options. Shares represented by an unexercised Option
surrendered upon an exercise of Stock Appreciation Rights
including, without duplication, any shares issued in payment of any
Stock Appreciation Rights, shall be deducted from the aggregate and
shall not be available for further Options hereunder. Shares
issued pursuant to the Plan may be either unissued shares of Common
Stock or reacquired shares of Common Stock held in treasury.
1.5 Terms and Conditions of Options.
All Options shall be evidenced by agreements in such form as
the Committee shall approve from time to time subject to the
provisions of Article II or Article III hereof, as appropriate, and
the following provisions:
(a) Exercise Price. Except as provided in Section 3.1(c),
the exercise price of the Option shall not be less than the Fair
Market Value (as determined by the Committee) of the Common Stock
at the time the Option is granted.
(b) Exercise. The Committee shall determine whether the
Option shall be exercisable partially or in full at any time during
the Term.
(c) Termination of Employment. An Optionee's Option shall
expire on the earlier of the expiration of (i) the date specified
in the Option which in no event shall be later than three months
after the termination of the Optionee's employment for any reason
other than death or disability (as defined in Section 422A(c)(7) of
the Code), or (ii) the Term specified in Section 2.1 or 3.1(a) as
the case may be. In the event of exercise of the Option after
termination of employment the Optionee may exercise the Option only
with respect to the shares which could have been purchased by the
Optionee at the date of termination of employment. However, the
Committee may, but is not required to, waive any requirements made
pursuant to Section 1.5(b) so that some or all of the shares
subject to the Option may be exercised within the time limitation
described in this subsection. An Optionee's employment shall be
deemed to terminate on the last date for which he receives a
regular wage or salary payment.
(d) Death or Disability. Upon termination of an Optionee's
employment by reason of death or disability (as determined by the
Committee consistent with the definition of Section 422A(c)(7) of
the Code), the Option shall expire on the earlier of the expiration
of (i) the date specified in the Option which in no event shall be
later than 12 months after the date of such termination, or (ii)
the Term specified in Section 2.1 or 3.1(a) as the case may be.
The Optionee or his successor in interest, as the case may be, may
exercise the Option only as to the shares which could have been
purchased by the Optionee at the date of his termination of
employment. However, the Committee may, but is not required to,
waive any requirements made pursuant to Section 1.5(b) so that some
or all of the shares subject to the Option may be exercised within
the time limitation described in this subsection.
(e) Payment. Payment for shares as to which an Option is
exercised shall be made in such manner and at such time or times as
shall be provided in the option agreement, including cash, Common
Stock of the Company which was previously acquired by the Optionee,
or any combination thereof. Common Stock used in payment for
shares as to which an Option is exercised shall be valued at Fair
Market Value (as determined by the Committee) as of the date of
exercise.
(f) Nontransferability. No Option granted under the Plan
shall be transferable other than by will or by the laws of descent
and distribution. During the lifetime of the Optionee, an Option
shall be exercisable only by the Optionee.
(g) Additional Provisions. Each option agreement may contain
such other terms and conditions not inconsistent with the
provisions of the Plan as the Committee may deem appropriate from
time to time.
1.6 Stock Adjustments; Mergers.
Notwithstanding Section 1.4, in the event the outstanding
shares are increased or decreased or changed into or exchanged for
a different number or kind of shares or other securities of the
Company or of any other corporation by reason of any merger, sale
of stock, consolidation, liquidation, recapitalization, reclassifi-
cation, stock split up, combination of shares, or stock dividend,
the total number of shares set forth in Section 1.4 shall be
proportionately and appropriately adjusted by the Committee. If
the Company continues in existence, (i) the number and kind of
shares that are subject to any Option and the option price per
share shall be proportionately and appropriately adjusted without
any change in the aggregate price to be paid therefor upon exercise
of the Option, and (ii) the Committee may make such adjustments in
the number and kind of Stock Appreciation Rights as it shall deem
appropriate in the circumstances. If the Company will not remain
in existence or substantially all of its voting Common Stock and
Common Stock will be purchased by a single purchaser or group of
purchasers acting together, then the Committee may (i) declare that
all Options and Stock Appreciation Rights shall terminate 30 days
after the Committee gives written notice to all Optionees of their
immediate right to exercise all Options and Stock Appreciation
Rights then outstanding (without regard to limitations on exercise
otherwise contained in the Options), or (ii) notify all Optionees
that all Options and Stock Appreciation Rights granted under the
Plan shall apply with appropriate adjustments as determined by the
Committee to the securities of the successor corporation to which
holders of the numbers of shares subject to such Options and Stock
Appreciation Rights would have been entitled, or (iii) some
combination of aspects of (i) and (ii). The determination by the
Committee as to the terms of any of the foregoing adjustments shall
be conclusive and binding. Any fractional shares resulting from any
of the foregoing adjustments under this section shall be disre-
garded and eliminated.
1.7 Acceleration Event.
If an Acceleration Event occurs in the opinion of the Board of
Directors, based on circumstances known to it, the Board of
Directors may direct the Committee to declare that all Options and
Stock Appreciation Rights granted under the Plan shall become
exercisable immediately notwithstanding the provisions of the
respective Option agreements regarding exercisability.
1.8 Notification of Exercise.
Options shall be exercised by written notice directed to the
Secretary of the Company at the principal executive offices of the
Company. Such written notice shall be accompanied by any payment
required pursuant to Section 1.5(e). Exercise by an Optionee's
heir or the representative of his estate shall be accompanied by
evidence of his authority to so act in form reasonably satisfactory
to the Company.
ARTICLE II
INCENTIVE STOCK OPTIONS
2.1 Terms of Incentive Stock Options.
Each Incentive Stock Option granted under the Plan shall be
exercisable only during a Term fixed by the Committee; provided,
however, that the Term shall end no later than 10 years after the
date the Incentive Stock Option is granted.
2.2 Limitation on Options.
The aggregate Fair Market Value of Common Stock (determined at
the time the Incentive Stock Option is granted) subject to
Incentive Stock Options granted to a Key Employee under all plans
of the Key Employee's employer corporation and its Parent or
Subsidiary corporations and that become exercisable for the first
time by such Key Employee during any calendar year may not exceed
$100,000. To the extent an Incentive Stock Option exceeds this
$100,000 limit, the portion of the Option in excess of such limit
shall be deemed a Nonqualified Stock Option.
2.3 Continued Employment.
Whether military, government or other service or other leave
of absence shall constitute a termination of employment shall be
determined in each case by the Committee at its discretion, and any
determination by the Committee shall be final and conclusive. A
termination of employment shall not occur where the Optionee
transfers from the Company to one of its Subsidiaries or transfers
from a Subsidiary to the Company.
2.4 Special Rule for Ten Percent Shareholder.
If at the time an Incentive Stock Option is granted, an
employee owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of his employer
corporation or of its Parent or any of its Subsidiaries, as deter-
mined using the attribution rules of Section 425(d) of the Code,
then the terms of the Incentive Stock Option shall specify that the
option price shall be at least 110% of the Fair Market Value of the
stock subject to the Incentive Stock Option and such Incentive
Stock Option shall not be exercisable after the expiration of five
years from the date such Incentive Stock Option is granted.
2.5 Interpretation.
In interpreting this Article II of the Plan and the provisions
of individual option agreements, the Committee and the Board shall
be governed by the principles and requirements of Sections 421,
422A and 425 of the Code, and applicable Treasury Regulations.
ARTICLE III
NONQUALIFIED STOCK OPTIONS
3.1 Terms and Conditions of Options.
In addition to the requirements of Section 1.5, Nonqualified
Stock Options shall be subject to the following provisions:
(a) Term. Each Nonqualified Stock Option granted under
the Plan shall be exercisable only during a Term fixed by the
Committee.
(b) Termination of Employment. Notwithstanding the
provisions of Sections 1.5(c) and 1.5(d), the Stock Option
Committee in its discretion may provide, either upon the
original grant of an Option or in an amendment to an Incentive
or Nonqualified Stock Option, that an Option may be exercis-
able during a Term that does not expire upon the expiration of
three months following an Optionee's termination of employment
(one year in the case of termination as a result of death or
disability), but in no event later than the Term specified in
Section 3.1(a) above.
(c) Exercise Price. The Company may elect to grant
Nonqualified Stock Options at a price less than the Fair
Market Value of the Common Stock at the time the Option is
granted.
(d) Additional Terms. Pursuant to Section 1.5(g), the
Committee may add additional terms and conditions to a
Nonqualified Stock Option, including, but not limited to, a
cash award for any federal tax liability suffered by the
Optionee upon the grant and/or exercise of a Nonqualified
Stock Option.
3.2 Section 83(b) Election.
The Company recognizes that certain persons who receive
Nonqualified Stock Options may be subject to restrictions regarding
their right to trade Common Stock under applicable securities laws.
Such may cause Optionee's exercising such Options not to be taxable
under the provisions of Section 83(c) of the Code. Accordingly,
Optionees exercising such Nonqualified Stock Options may consider
making an election to be taxed upon exercise of the Option under
Section 83(b) of the Code and to effect such election will file
such election with the Internal Revenue Service within thirty (30)
days of exercise of the Option and otherwise in accordance with
applicable Treasury Regulations.
ARTICLE IV
STOCK APPRECIATION RIGHTS
4.1 Terms and Conditions of Stock Appreciation Rights.
Stock Appreciation Rights ("SAR") may be, but are not required
to be, granted by the Committee in connection with grant of an
Option. All SARs shall be in such form as the Committee may from
time to time determine and shall be subject to the following terms
and conditions:
(a) Term and Exercise. An SAR shall be exercisable only
(i) with the approval of the Committee, (ii) during the Term
of the Option to which it relates, (iii) at such times as the
Option to which it relates is exercisable, and (iv) if the
Fair Market Value of the Common Stock subject to the Option
surrendered (on the date surrendered) minus the aggregate
option price of the Common Stock subject to the Option
surrendered is a positive amount.
(b) Payment. In the event the Committee agrees to
permit exercise of the SAR, the Optionee shall surrender to
the Company the right to exercise the Option with respect to
a specified number of shares as to which the Option is then
exercisable. In return, the Optionee shall receive from the
Company no more than an amount payable in cash and/or in
shares (as determined by the Committee after considering the
request of the Optionee) equal to the difference between the
Fair Market Value of Common Stock as to which the Optionee has
surrendered the Option and the exercise price with respect
thereto. In the event the Committee determines to tender
shares in full or partial payment of the SAR, the number of
shares to be issued to the Optionee shall be based on the Fair
Market Value of the shares as of the date of exercise of the
SAR. No fractional shares shall be issued to Optionees upon
exercise of an SAR. Instead, the Company shall pay the
Optionee the value of such fractional share based upon the
Fair Market Value of a share on the date the SAR is exercised.
(c) Nontransferability. An SAR granted under the Plan
shall be transferable only when the Option to which it relates
is transferable.
4.2 Other Terms and Conditions.
Option agreements reflecting Stock Appreciation Rights which
are granted under the Plan may contain such other conditions not
inconsistent with the provisions of the Plan as the Committee may
deem appropriate from time to time.
4.3 Notification of Request to Exercise.
The Optionee shall request the Committee's approval to
exercise a Stock Appreciation Right by written notice to the
Secretary of the Company at the principal executive offices of the
Company. Such written notice shall state the number of shares
subject to the Option for which approval of the exercise of the SAR
is requested and the Optionee's preferred form of payment of the
SAR, as hereinafter provided. The Optionee may indicate his or her
preference to receive payment of the SAR in cash or in Common Stock
or in a combination thereof. Notwithstanding anything to the
contrary contained herein, the Committee shall have absolute
discretion in determining whether the request for approval of the
exercise of the SAR shall be approved and, if such approval is
given, whether payment shall be made in cash or Common Stock or in
a combination thereof.
Within 30 days after the delivery to the Secretary of the
Optionee's request to exercise the SAR as provided above, the
Committee shall inform the Optionee in writing of its determination
by personal delivery of such written determination to the Optionee
or by mailing its written determination to the Optionee by
certified or registered mail, return receipt requested. The
Optionee must act on any approved exercise of an SAR within 30 days
after the date of such determination by the Committee (or such
longer period as may be permitted by the Committee) and in
accordance with the terms approved by the Committee. Exercise
shall be by written notice actually delivered, or mailed by
certified or registered mail, return receipt requested, to the
Secretary of the Company at the principal executive offices of the
Company.
4.4 Effect of Exercise.
Upon exercise of a Stock Appreciation Right, the Option to
which it relates shall lapse with respect to the shares as to which
the SAR is exercised and such shares shall not be available for
further grant of Options.
ARTICLE V
ADDITIONAL PROVISIONS
5.1 Stockholder Approval.
The Plan shall be submitted for the approval of the
stockholders of the Company at the first annual meeting of
stockholders held subsequent to the adoption of the Plan and in all
events within one year of its approval by the Board of Directors.
If at said meeting the stockholders of the Company do not approve
the Plan, the Plan shall terminate.
5.2 Compliance with Other Laws and Regulations.
The Plan, the grant and exercise of Options hereunder, and the
obligation of the Company to sell and deliver shares under such
Options, shall be subject to all applicable Federal and state laws,
rules, and regulations and to such approvals by any government or
regulatory agency as may be required. The Company shall not be
required to issue or deliver any certificates for shares of Common
Stock prior to (a) the listing of such shares on any stock exchange
on which the Common Stock may then be listed and (b) the completion
of any registration or qualification of such shares under any
Federal or state law, or any ruling or regulation of any government
body which the Company shall, in its sole discretion, determine to
be necessary or advisable. No holder of any Option shall have any
right to require the Company to register or qualify any shares of
Common Stock subject to any Options under any Federal, or state
law, rule or regulation.
5.3 Amendments.
The Board of Directors may discontinue the Plan at any time,
and may amend it from time to time, but no amendment, without
approval by stockholders, may (a) increase the total number of
shares which may be issued under the Plan or to any individual
under the Plan, (b) reduce the Option price for shares which may be
purchased pursuant to Options under Articles II and III of the
Plan, (c) extend the period during which Options may be granted, or
(d) change the class of employees to whom Options may be granted,
except as provided in Section 1.6. Other than as expressly
permitted under the Plan, no outstanding Option may be revoked or
altered in a manner unfavorable to the Optionee without the consent
of the Optionee.
5.4 No Rights As Shareholder.
No Optionee shall have any rights as a shareholder with
respect to any share subject to his or her Option prior to the date
of issuance to him or her of a certificate or certificates for such
shares.
5.5 Withholding.
Whenever the Company proposes or is required to issue or
transfer shares of Common Stock under the Plan, the Company shall
have the right to require the Optionee to remit to the Company an
amount sufficient to satisfy any Federal, state or local withhold-
ing tax liability prior to the delivery of any certificate or
certificates for such shares. Whenever under the Plan payments are
to be made in cash, such payments shall be made net of an amount
sufficient to satisfy any Federal, state, or local withholding tax
liability.
5.6 Continued Employment Not Presumed.
This Plan and any document describing this Plan and the grant
of any stock Option or Stock Appreciation Right hereunder shall not
give any Optionee or other employee a right to continued employment
by the Company or its Subsidiaries or affect the right of the
Company or its Subsidiaries to terminate the employment of any such
person with or without cause.
5.7 Effective Date; Duration.
The Plan shall become effective as of April 1, 1994 subject to
stockholder approval pursuant to Section 5.1 and shall expire on
March 31, 2004. No Options may be granted under the Plan after
March 31, 2004, but Options granted on or before that date may be
exercised according to the terms of the option agreements and shall
continue to be governed by and interpreted consistent with the
terms hereof.
COMMERCIAL BANKSHARES, INC.
1994 OUTSIDE DIRECTOR STOCK OPTION PLAN
SECTION 1.
PURPOSE
1.1. The purpose of the COMMERCIAL BANKSHARES, INC. 1994
OUTSIDE DIRECTOR STOCK OPTION PLAN (the "Outside Director Plan") is
to foster and promote the long-term financial success of the
Company and materially increase shareholder value by enabling the
Company to attract and retain the services of outstanding outside
directors whose judgment, interest, and special effort is essential
to the successful conduct of its operations.
SECTION 2.
DEFINITIONS
2.1. Definitions. Whenever used herein, the following terms
shall have the respective meanings set forth below:
(a) "Act" means the Securities Exchange Act of 1934, as
amended.
(b) "Annual Award" means an Option for 3,000 shares of Stock
for each Outside Director of the Company plus an additional 2,000
shares of Stock for each Outside Director who is also a member of
the Bank's Loan Committee or the Bank's Executive Committee. In no
case shall the annual award exceed 5,000 shares per annum for any
one person.
(c) "Bank" means the Commercial Bank of Florida, a Florida
banking corporation wholly owned by the Company.
(d) "Board" means the Board of Directors of the Company.
(e) "Company" means COMMERCIAL BANKSHARES, INC., a Florida
corporation, and any successor thereto.
(f) "Disability" means total disability, which if the
Outside Director were an employee of the Company, would be treated
as a total disability under the terms of the Company's long-term
disability plan for employees, as in effect from time to time.
(g) "Fair Market Value" means the closing "asked" price of
the shares of the Stock in the over-the-counter market on the day
on which such value is to be determined or, if the "asked" price is
not available, the last sales price on such day or, if not traded,
the next preceding day when traded or reported by any national
quotation service.
(h) "Option" means the right to purchase Stock at a stated
price for a specified period of time. The term Option shall mean
the grant of Annual Awards.
(i) "Outside Director" means any member of the Board who is
not an employee of the Company or any of its subsidiaries.
(j) "Stock" means the common stock of the Company, par value
$0.08 per share.
2.2. Gender and Number. Except when otherwise indicated by
the context, words in the masculine gender used in the Outside
Director Plan shall include the feminine gender, the singular shall
include the plural, and the plural shall include the singular.
SECTION 3.
ELIGIBILITY AND PARTICIPATION
Each Outside Director shall participate in the Outside
Director Plan.
SECTION 4.
STOCK SUBJECT TO OUTSIDE DIRECTOR PLAN
4.1. Number. The total number of shares of Stock subject to
Options granted under the Outside Director Plan may not exceed
100,000 shares originally reserved at the Plan's inception and as
adjusted periodically pursuant to Section 4.3 plus an additional
150,000 shares reserved as of January 15, 1999 subject to periodic
adjustment pursuant to Section 4.3. The shares to be delivered
under the Outside Director Plan may consist, in whole or in part,
of treasury Stock or authorized but unissued Stock, not reserved
for any other purpose.
4.2. Cancelled, Terminated, or Forfeited Awards. Any shares
of Stock subject to an Option which for any reason is cancelled or
terminated without the issuance of any Stock may again be subjected
to an Option under the Outside Director Plan.
4.3. Adjustment in Capitalization. In the event of any stock
dividend or stock split, recapitalization (including, without
limitation, the payment of an extraordinary dividend), merger,
consolidation, combination, spin-off, distribution of assets to
stockholders, exchange of shares, or other similar corporate
change, the aggregate number of shares of Stock available for
issuance hereunder or subject to Options and the respective
exercise prices of outstanding Options may be appropriately
adjusted by the Board, whose determination shall be conclusive;
provided, however, that any fractional shares resulting from any
such adjustment shall be disregarded.
SECTION 5.
STOCK OPTIONS
5.1. Grant of Options. (a) Annual Awards. During each
calendar year during the term of the Outside Director Plan, each
Outside Director shall be granted an Annual Award on the later to
occur of the first business day following the annual meeting of the
Company's stockholders or June 1.
(b) Option Agreement. Each Option shall be evidenced by an
Option agreement that shall specify the exercise price, the term of
the Option, and the number of shares of Stock to which the Option
pertains.
5.2. Option Price. Options granted pursuant to Section 5.1
(a) as an Annual Award shall have an exercise price equal to the
Fair Market Value of a share of Stock on the date the Option is
granted, multiplied by the number of shares of Stock the Option
holder elects to acquire pursuant to the Option.
5.3. Exercise of Options. Options awarded under the Outside
Director Plan shall be fully and immediately exercisable in whole
or in part. Each Option shall be exercisable for 10 years after
the date on which it is granted.
5.4. Payment. Options may be exercised by written notice of
exercise accompanied by payment in full of the Option price in cash
or cash equivalents, including by personal check, or with a partial
or full payment in Stock already owned by the Outside Director,
valued at Fair Market Value on the date of exercise. As soon as
practicable after receipt of such written exercise notice and full
payment of the Option price, the Company shall deliver to the
Outside Director a certificate or certificates representing the
acquired shares of Stock.
SECTION 6.
TERMINATION OF DUTIES AS A DIRECTOR
6.1. Termination of Duties Due to Retirement. In the event an
Outside Director's membership on the Board ceases on or after he
has attained age 70, any Options then held by such Outside Director
may be exercised at any time prior to the expiration of the term of
the Options or within three (3) years following his cessation of
Board membership, whichever period is shorter.
6.2. Termination of Duties Due to Death or Disability. In the
event an Outside Director's membership on the Board ceases by
reason of his death or Disability, any Options then held by such
Outside Director may be exercised by the Outside Director or his
legal representative at any time prior to the expiration date of
the terms of the Options or within one (1) year following his
cessation of Board membership, whichever period is shorter.
6.3. Termination of Duties for Any Other Reason. In the event
an Outside Director's membership on the Board ceases for any reason
other than one described in Section 6.1 or 6.2, any Options then
held by such Outside Director shall be cancelled within thirty (30)
days following his cessation of Board membership.
6.4. Services as an Employee. If an Outside Director becomes
an employee of the Company or any of its subsidiaries, the Outside
Director shall be treated as continuing in service for purposes of
this Outside Director Plan, but shall not be eligible to receive
future grants while an employee. If the Outside Director's services
as an employee terminate without his again becoming an Outside
Director, the provisions of this Section 6 shall apply as though
such termination of employment were the termination of the Outside
Director's membership on the Board.
SECTION 7.
AMENDMENT, MODIFICATION, AND TERMINATION OF OUTSIDE DIRECTOR PLAN
The Board at any time may terminate or suspend the Outside
Director Plan, and from time to time may amend or modify the
Outside Director Plan, but any amendment that materially increases
the benefits to be provided to Outside Directors shall be subject
to approval by the Company's stockholders. No amendment,
modification, or termination of the Outside Director Plan shall in
any manner adversely affect any Option theretofore granted under
the Outside Director Plan, without the consent of the Outside
Director.
SECTION 8.
MISCELLANEOUS PROVISIONS
8.1. Nontransferability of Awards. No Options may be sold,
transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. All rights with respect to Options granted to an
Outside Director shall be exercisable during his lifetime only by
him.
8.2. Beneficiary Designation. Each Outside Director may from
time to time name any beneficiary or beneficiaries (who may be
named contingently or successively) by whom any Option granted
under the Outside Director Plan is to be exercised in case of his
death. Each designation will revoke all prior designations by such
Outside Director and will be effective only when filed by the
Outside Director in writing with the Secretary of the Company
during his lifetime. In the absence of any such designation,
Options outstanding at the time of an Outside Director's death
shall be exercised by the Outside Director's surviving spouse, if
any, or otherwise by his estate.
8.3. No Guarantee of Membership. Nothing in the Outside
Director Plan shall confer upon an Outside Director the right to
remain a member of the Board.
8.4. Requirements of Law. The Outside Director Plan, the
granting of Options and the issuance of shares of Stock upon the
exercise of Options shall be subject to all applicable laws, rules,
and regulations, and to such approvals by any governmental agencies
or national securities exchanges as may be required. The Company
shall not be required to issue or deliver any certificates for
shares of Stock prior to (a) the listing of such shares on any
stock exchange on which the Stock may then be listed; (b) the
completion of any registration or qualification of such shares
under any Federal or state law, or any ruling or regulation of any
government body which the Company shall, in its sole discretion,
determine to be necessary or advisable; and (c) payment of the
required withholding taxes by the holder of the Option. No holder
of any Option shall have any right to require the Company to
register or qualify any shares of Stock subject to any Option under
any state or Federal law, rule or regulation.
8.5. Administration. The Outside Director Plan shall, to the
maximum extent possible, be self-effectuating. Any determinations
necessary or advisable for the administration and interpretation of
the Outside Director Plan in order to carry out its provisions and
purposes shall be made by the Board of Directors of the Company or
by a duly authorized Committee thereof which shall not include any
Outside Director.
8.6. Term of Outside Director Plan. The Outside Director Plan
shall be effective upon its adoption by the Board, subject to
approval by the Company's stockholders at their next annual
meeting. The Outside Director Plan shall continue in effect, unless
sooner terminated pursuant to Section 7, until the tenth
anniversary of the date on which it is adopted by the Board.
8.7. Governing Law. The Outside Director Plan, and all
agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Florida.
EMPLOYMENT AGREEMENT
THIS AGREEMENT between COMMERCIAL BANKSHARES, INC., a Florida
corporation with its principal place of business at 1550 S.W. 57th
Avenue, Miami, Florida (the "Company"), COMMERCIAL BANK OF FLORIDA,
a Florida banking corporation with its Main Office located at 1550
S.W. 57th Avenue, Miami, Florida (the "Bank") and JOSEPH W. ARMALY
(the "Executive"), entered into as of this 18 day of March, 1994.
W I T N E S S E T H:
WHEREAS, the Company is a registered bank holding company and
owns and controls 100% of the capital stock of the Bank; and
WHEREAS, in order to continue to expand and prosper as a
significant member of the financial, business and civic community
of South Florida, the Company needs to retain capable, experienced
senior executive personnel both for itself, for the Bank and for
such other subsidiaries as the Company and the Bank should acquire;
and
WHEREAS, the Executive is encouraged to strive for the
profitability and success of the Company and the Bank and therefore
may be assigned appropriate duties and responsibilities at either
the Company or the Bank; and
WHEREAS, the Company wishes to assure both itself and the
Executive of continuity of management of the Company and the Bank
and the security and well-being of the Executive; and
WHEREAS, the Executive has provided strong and effective
leadership to the Company and the Bank during particularly
difficult periods experienced by the financial services industry
and therefore the Company wishes to provide for the security of the
Executive in order to allow for the Executive's attentions to be
devoted to the Company's and the Bank's best interests; and
WHEREAS, this Agreement has been amended and restated as of
December 18, 1998 to correct certain typographical errors, to
clarify and improve the textual rendering of certain provisions,
and to implement certain changes on approval of the Board of
Directors on this date.
NOW, THEREFORE, it is hereby agreed by and between the parties
as follows:
1. EMPLOYMENT.
The Company and the Bank hereby agree to continue to employ
the Executive, and the Executive hereby agrees to continue to serve
the Company and the Bank, on the terms and conditions set forth
herein. It is the intention of this Agreement that the Company and
the Bank shall jointly and severally be responsible for the
obligations determined herein of both the Company and the Bank,
notwithstanding the fact that the employment undertaking may, at
the outset, be undertaken by solely the Bank or the Company.
2. TERM.
The employment of the Executive by the Company as provided in
Section 1 of this Employment Agreement will commence on the initial
date hereof and end on March 31, 1997, unless further extended or
sooner terminated as hereinafter provided. On March 31, 1995, the
term of the Executive's employment shall be automatically extended
one additional year and shall end on March 31, 1998 unless
previously terminated hereunder. On each subsequent March 31
thereafter the term of the Executive's employment shall be
automatically extended one additional year such that on March 30 of
any given year, the remaining term of this Agreement shall be two
years and one day and on the following day, March 31, the remaining
term shall be three years.
3. POSITION AND DUTIES.
The Executive shall serve as President and Chief Operating
Officer of the Company, shall serve as President and Chief
Operating Officer of the Bank, shall have such responsibilities,
duties and authorities as may from time to time be assigned to the
Executive by the Board of Directors of the Company, and shall have
the duties, responsibilities and authorities of the Chief Operating
Officer of the Company and the Bank. The Executive shall devote
substantially all his working time and efforts to the business and
affairs of the Company and the Bank.
4. PLACE OF PERFORMANCE.
In connection with the Executive's employment by the Company,
the Executive shall be based at the principal executive offices of
the Company within Dade County Florida except for required travel
on the Company's business to an extent substantially consistent
with present business travel obligations.
5. COMPENSATION AND RELATED MATTERS.
(a) Salary. During the period of the Executive's
employment hereunder, the Company shall pay to the Executive an
annual "Salary" at a rate determined by the Board of Directors of
the Company. Such Salary may be paid by the Company, or the Bank
or any of their subsidiaries or such combination thereof as the
Board of Directors of the Company shall determine and shall be paid
in monthly or semi-monthly installments in arrears as shall be the
practice of the Company, the Bank or their subsidiaries. This
Salary may be increased from time to time in accordance with
normal business practices of the Company and, if so increased,
shall not thereafter during the term of this Agreement be
decreased. Compensation of the Executive by salary payments shall
not be deemed exclusive and shall not prevent the Executive from
participating in any other compensation or benefit plan of the
Company. The term "Salary" shall be deemed to include any and all
regular installment amounts received by the Executive from either
the Company, the Bank or any of their subsidiaries. Payment of
Salary (including any increased salary payments) whether or not
hereunder shall not in any way limit or reduce any other obligation
of the Company hereunder, and no other compensation, benefit or
payment hereunder, or otherwise, shall in any way limit or reduce
the obligation of the Company to pay the Executive's Salary
hereunder.
(b) Cash Incentive Compensation. The Company shall pay
or cause to be paid by the Bank to the Executive such additional
amount as it shall determine over and above the Salary to which he
is entitled, for all periods during which this Agreement shall be
in effect. Such additional amount shall be determined by the Board
of Directors of the Company or an authorized committee thereof,
shall be declared in the form of a bonus or otherwise and shall be
determined upon such measures of performance as shall be in the
sole discretion of the Board of Directors or authorized committee
hereof.
(c) Expenses. During the term of the Executive's
employment hereunder, the Executive shall be entitled to receive
prompt reimbursement for all reasonable expenses incurred by the
Executive in performing services hereunder, including all expenses
of travel and living expenses while away from home on business or
at the request of and in the service of the Company or the Bank,
provided that such expenses are incurred and accounted for in
accordance with the policies and procedures then presently
established by the Company or the Bank.
(d) Other Benefits. The Company shall maintain or cause
to be maintained by the Bank in full force and effect during the
term of this Agreement, and the Executive shall be entitled to
continue to participate in, all of the employee benefit plans and
arrangements in which the Executive participates as of the date
hereof. The Company may, in its discretion, replace such plans and
arrangements only with any other plans or arrangements which shall
provide the Executive with benefits equivalent to those in which
the Executive participates as of the date hereof, unless the
replacement of such plans or arrangements occurs pursuant to a
program applicable to all employees of the Company and does not
result in a proportionately greater reduction in the rights of or
benefits to the Executive as compared with any executive of the
Company. Such plans and arrangements may include without
limitation any pension and retirement plan and arrangement,
supplemental pension and retirement plan and arrangement, stock
option plan, employee stock ownership plan, life insurance and
health-and-accident plan and arrangement, medical insurance plan,
disability plan, survivor income plan, relocation plan and vacation
plan. The Company shall not make nor allow any changes in such
plans or arrangements which would adversely affect the Executive's
rights or benefits thereunder, unless such change occurs pursuant
to a program applicable to all employees of the Company and does
not result in a proportionately greater reduction in the rights of
or benefits to the Executive as compared with any other executive
of the Company. The Executive shall be entitled to participate in
or receive benefits under any employee benefit plan or arrangement
made available by the Company or the Bank in the future to its
executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of
such plans and arrangements. Nothing paid to the Executive under
any plan or arrangement presently in effect or made available in
the future shall be deemed to be in lieu of the Salary payable to
the Executive pursuant to paragraph (a) of this Section or the Cash
Incentive Compensation payable pursuant to paragraph (b) of this
Section. Any payments or benefits payable to the Executive
hereunder in respect of any calendar year during which the
Executive is employed by the Company for less than the entire such
year shall, unless otherwise provided in the applicable plan or
arrangement, be prorated in accordance with the number of days in
such calendar year during which he is so employed.
(e) Vacations. The executive shall be entitled to the
number of vacation days in each calendar year, and to compensation
in respect thereof, determined in accordance with the Company's or
the Bank's vacation plan. The Executive shall also be entitled to
all paid holidays given by the Company or the Bank to their
executives.
(f) Automobile. The Company shall furnish or cause to
be furnished by the Bank to the Executive the use of an automobile
at the Company's expense for the performance of his duties on
behalf of the Company or the Bank and Executive shall use such
automobile for that purpose. All costs of operation, maintenance
and insurance shall be paid by the Company. The Executive shall be
an additional named insured on the liability insurance coverage
maintained by the Company and the Bank. The Executive shall
account for the use and expenses of the automobile in accordance
with the policies and procedures of the Company.
(g) Group Medical Coverage. The Company shall provide
group medical insurance coverage to the Executive and his family
under a plan for Employees of the Company, the Bank and their
subsidiaries and such plan shall include reasonable coverage for
medical, hospital, surgical and major medical expenses.
(h) Term Life Insurance. The Company shall own and pay
the costs of premiums on guaranteed renewable straight term life
insurance, or the equivalent, insuring the life of the Executive in
an amount no less than the then current annual salary of the
Executive, and the Company shall designate the Beneficiary as such
person or persons named by the Executive from time to time.
(i) Disability Policy. The Company shall provide and
pay the costs of a disability income policy to compensate the
Executive in the event of his incapacity due to physical or mental
illness in an amount no less than 60% of Executive's then current
annual salary (subject to a maximum benefit of $10,000 per month).
(j) Services Furnished. The Company shall furnish the
Executive with office space, secretarial assistance and such other
facilities and services as shall be suitable to the Executive's
position and adequate for the performance of his duties as set
forth in Section 3 hereof.
(k) Subsidiaries. When used in this section the term
"Company" shall be deemed to include any and all subsidiaries .
6. LEGAL REQUIREMENTS.
Both the Executive and the Company agree that all legal
requirements shall be met with respect to Federal withholding tax
requirements, compensation income and the like.
7. PROPER TERMINATION.
The Executive's employment hereunder may be properly
terminated without any breach of this Agreement only under the
following circumstances:
(a) Death. The Executive's death.
(b) Disability. If, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall
have been absent from his full time duties as described hereunder
for the entire period of four (4) consecutive months, the Company
may terminate the Executive's employment hereunder. In the event
that payments under the disability policy provided to the Executive
by the Company pursuant to subsection 5(i) hereunder commence prior
to the expiration of said four-month period, then upon commencement
of such disability payments, this Agreement shall terminate and the
Company shall cease all Salary payments hereunder.
(c) Cause. The Company may terminate the Executive's
employment hereunder for Cause. For purposes of this Agreement,
the Company shall have "Cause" to terminate the Executive's
employment hereunder: (i) upon the failure by the Executive to
comply with any material provision of this Agreement which has not
been cured within thirty (30) days after notice of such
non-compliance has been given by the Company to the Executive; or
(ii) upon the willful commission by the Executive of repeated acts
of dishonesty or fraud, breach of fiduciary duty involving personal
profit or intentional repeated failures to perform his duties
hereunder, any which acts or failures to act relate to the Company
or any of its subsidiaries and cause a material adverse impact on
the Company or any of its subsidiaries. For purposes of this
paragraph, no act, or failure to act, on the Executive's part shall
be considered "willful" unless done, or omitted to be done, by him
not in good faith and without reasonable belief that his action or
omission was in the best interests of the Company.
Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause without: (i) reasonable
notice to the Executive setting forth the reasons for the Company's
intention to terminate for Cause; (ii) an opportunity for the
Executive, together with his counsel, to be heard before the Board
of Directors of the Company; and (iii) delivery to the Executive of
a Notice of Termination as provided for in Section 9 hereof from
the Board of Directors of the Company finding that in the good
faith opinion of the Board of Directors of the Company the
Executive was guilty of conduct set forth above in the preceding
sentence, and specifying the particulars thereof in detail.
(d) Without Cause. The following circumstances shall
specifically be deemed a termination of the Executive's employment
by the Company "Without Cause" and thus shall not constitute a
proper termination: (i) upon a vote to terminate the Executive
without Cause (as defined in Section 7(c) hereof) by any officer or
member(s) of the Board of Directors of the Company; (ii) an
assignment to the Executive of any duties inconsistent with, or a
significant change in the nature or scope of the Executive's
authorities, duties or responsibilities from, those authorities,
duties and responsibilities held by the Executive as of the date
hereof and as increased from time to time; (iii) a reduction in
total remuneration (by reduction of Salary, reduction of rate of
Cash Incentive Compensation or reduction of fringe benefits, unless
any such fringe benefit is withdrawn from all other executives as
a class); or (iv) the performance of any other act by the Company
which is designed to prevent and does prevent the Executive from
properly performing the authorities, duties and responsibilities of
his employment hereunder.
8. TERMINATION BY THE EXECUTIVE.
The Executive may terminate his employment hereunder for Good
Reason.
(a) For purposes of this Agreement, "Good Reason" shall
mean: (i) a failure by the Company to comply with any material
provision of this Agreement which has not been cured within ten
(10) days after notice of such non-compliance has been given by the
Executive to the Company; (ii) any purported termination of the
Executive's employment which is not effected pursuant to a Notice
of Termination satisfying the requirements of Section 8 hereof (and
for purposes of this Agreement no such purported termination shall
be effective); (iii) an assignment to the Executive of any duties
inconsistent with, or a significant change in the nature or scope
of the Executive's authorities, duties or responsibilities from,
those authorities, duties and responsibilities held by the
Executive as of the date hereof and as increased from time to time;
(iv) a reduction in total remuneration (by reduction of Base
Salary, reduction of rate of Cash Incentive Compensation or
reduction of fringe benefits, unless any such fringe benefits are
withdrawn from all other executives as a class); (v) the
performance of any other act by the Company which is designed to
prevent and does prevent the Executive from properly performing the
authorities, duties and responsibilities of his employment
hereunder; or (vi) the occurrence of a change in control of the
Company (as defined below).
(b) For purposes of this Agreement, a "change in control
of the Company" shall be deemed to have occurred if such a change
in control would be required to be reported in response to Item
5(f) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"); provided
that, without limitation, such a change in control shall be deemed
to have occurred if any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than the Company, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the
Company's then outstanding securities.
9. NOTICE OF TERMINATION AND EFFECTIVE DATE.
(a) Any proper termination of the Executive's employment
by the Company or by the Executive (other than termination pursuant
to subsection 7(a) above) shall be communicated by written Notice
of Termination to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean: (i) if the
Executive's employment is terminated by his death, the date of his
death; (ii) if the Executive's employment is terminated pursuant to
subsection 7(b) above, the earlier of: (x) the date on which
payments commence pursuant to the disability policy provided by the
Company under subsection 6(i); or (y) the expiration of four (4)
consecutive months of the Executive's incapacity due to physical or
mental illness, as set forth in subsection 7(b) above (provided
that the Executive shall not have returned to the performance of
his duties on a full-time basis during such four (4) month period);
(iii) if the Executive's employment is terminated pursuant to
subsection 7(c) above, the date specified in the Notice of
Termination (which date may not be less than ninety (90) days after
the date of the Notice; or (iv) if the Executive's employment is
terminated pursuant to Section 7(d) above or Section 8 above, the
date on which a Notice of Termination is given, or the date
specified therein, whichever shall be later.
10. COMPENSATION UPON TERMINATION.
(a)(i) If the Executive's employment is terminated
pursuant to Section 7(a)(Death), the Company shall be obligated to
pay to the Executive all amounts payable under Sections 5(a)-(d),
through and including the last day of the third month following the
date of his death.
(ii) If the Executive's employment is properly
terminated pursuant to Section 7(b) or 7(c) (Disability or Cause),
the Company shall be obligated to pay to the Executive all amounts
payable hereunder and otherwise, through and including the Date of
Termination, as provided in subsection 9(b) above.
(b) If this Agreement is terminated pursuant to Section
7(d) or any of Subsections 8(a)(i) through 8(a)(vi) hereof, the
Company shall pay, in cash, to the Executive, within twenty (20)
days of the receipt of the Notice of Termination, an amount equal
to 300% of the Executive's Salary and Cash Incentive Compensation,
such amounts to be determined by reference to the Executive's then
current Salary and the aggregate Cash Incentive Compensation last
paid to or earned by the Executive in the twelve months immediately
preceding such termination. In addition, at the sole discretion of
the Executive, the Company shall either:
(i) continue to provide, for a period of 36 months
immediately following termination, the benefits described in
subsection 5(d), 5(g) and 5(h) hereof; or
(ii) pay to the Executive, in a lump sum
payment, an amount equal to 60% of the Executive's Salary and Cash
Incentive Compensation, such amounts to be determined by reference
to the Executive's then current Salary and aggregate Cash Incentive
Compensation last paid to or earned by the Executive in the twelve
months immediately preceding termination. Such payment shall be
deemed to be a payment in lieu of the benefits described in (i)
above.
(c) If the Executive's employment hereunder is termi-
nated by the Executive other than pursuant to Subsection 8(a)(i)
through 8(a)(vi) above, the Company shall pay, in cash, to the
Executive, within twenty (20) days of the receipt of the Notice of
Termination, an amount equal to 120% of the Executive's Salary and
Cash Incentive Compensation, such amounts to be determined by
reference to the Executive's then current Salary and the aggregate
Cash Incentive Compensation last paid to or earned by the Executive
in the immediately preceding twelve months previous to such
termination.
(d) In the event that the total amount of payments
made under this Agreement on account of termination under
Subsections 7(d) or 8(a) above or the total amount of payments made
under any other agreement or arrangement between the Executive and
the Company, whether written or oral, including any combination of
payments made pursuant to different agreements, arrangements or
plans equals or exceeds the aggregate present value of three times
the "base amount," the Company shall indemnify the Executive for
the amount of any surtax imposed pursuant to Section 280G and
Section 4999 of the Internal Revenue Code of 1986 as amended along
with an amount intended to reimburse the Executive for income tax
imposed on such payment (together , the "Gross-up payment"). The
Company intends, by the payment of such indemnification, to make
the Executive whole and to put the Executive in the same position
as if the payments provided for under Section 10(b) hereof, this
Section 10(d) and otherwise, were made, and no additional surtaxes
or other income taxes of any kind were required to be paid with
respect to such payments. The total amount due to the Executive
pursuant to this section shall be calculated using the following
formula:
G= (0.2P-0.2B)/(0.8-R)
where :
G is the Gross-up Payment
P is the amount of the Parachute
Payment
B is the Base Amount
R is the aggregate applicable income tax rate
"Base amount" means the average annualized compensation income
from the Company includible in the Executive's gross income for
Federal income tax purposes over the five-year period preceding the
year in which the Executive's employment is terminated. This
paragraph, and the language therein, shall be interpreted
consistently with Section 280G of the Internal Revenue Code of
1986, as amended, and any regulations thereunder.
11. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such
agreement prior to a date which is thirty (30) days prior to the
effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the
Company in the same amount and on the same terms as he would be
entitled to hereunder if he terminated his employment for Good
Reason pursuant to any of Subsections 8(a)(1) through 8(a)(vi),
except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the
Date of Termination. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which executes and delivers the
agreement provided for in this Subsection 11(a) or which otherwise
become bound by all the terms and provisions of this Agreement by
operation of law.
(b) This Agreement and all rights of the Executive
hereunder shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any amounts would
still be payable to him hereunder if he had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
12. NOTICE.
For the purpose of this Agreement, notices, demands and all
other communications provided for in the Agreement shall be in
writing and shall be deemed to have been duly given when delivered
or (unless otherwise specified) mailed by United States registered
mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: Joseph W. Armaly
7141 S.W. 136th Street
Miami, Florida 33156
If to the Company
and the Bank: Commercial Bankshares, Inc.
1550 S.W. 57th Avenue
Miami, Florida 33144
13. MISCELLANEOUS.
No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed
to in writing signed by the Executive and by such officer of the
Company as may be specifically designated by the Board of Directors
of the Company. No waiver by either party hereto at any time of
any breach by the other party hereto, or compliance with, any
condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent
time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been
made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of Florida.
14. VALIDITY.
The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or
enforceability of any other provisions of this Agreement, which
shall remain in full force and effect.
15. COUNTERPARTS.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
16. ARBITRATION.
Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by binding arbitration,
conducted before a panel of three arbitrators, in Miami, Florida,
in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. The expense
of such arbitration shall be borne by the Company.
17. SUCCESSION.
This Agreement is intended to supersede, in their entirety,
any and all employment agreements, and all amendments thereto,
between the Executive and the Company and between the Executive and
the Bank.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year first above written.
Attest: COMMERCIAL BANKSHARES INC.
By:
By:
Name:
Title:
Attest: COMMERCIAL BANK OF FLORIDA
By: By:
Name:
Title:
WITNESS: EXECUTIVE:
JOSEPH W. ARMALY
EMPLOYMENT AGREEMENT
THIS AGREEMENT between COMMERCIAL BANKSHARES, INC., a Florida
corporation with its principal place of business at 1550 S.W. 57th
Avenue, Miami, Florida (the "Company"), COMMERCIAL BANK OF FLORIDA,
a Florida banking corporation with its Main Office located at 1550
S.W. 57th Avenue, Miami, Florida (the "Bank") and JACK J. PARTAGAS
(the "Executive"), entered into as of this 18 day of March, 1994.
W I T N E S S E T H:
WHEREAS, the Company is a registered bank holding company and
owns and controls 100% of the capital stock of the Bank; and
WHEREAS, in order to continue to expand and prosper as a
significant member of the financial, business and civic community
of South Florida, the Company needs to retain capable, experienced
senior executive personnel both for itself, for the Bank and for
such other subsidiaries as the Company and the Bank should acquire;
and
WHEREAS, the Executive is encouraged to strive for the
profitability and success of the Company and the Bank and therefore
may be assigned appropriate duties and responsibilities at either
the Company or the Bank; and
WHEREAS, the Company wishes to assure both itself and the
Executive of continuity of management of the Company and the Bank
and the security and well-being of the Executive; and
WHEREAS, the Executive has provided strong and effective
leadership to the Company and the Bank during particularly
difficult periods experienced by the financial services industry
and therefore the Company wishes to provide for the security of the
Executive in order to allow for the Executive's attentions to be
devoted to the Company's and the Bank's best interests; and
WHEREAS, this Agreement has been amended and restated as of
December 18, 1998 to correct certain typographical errors, to
clarify and improve the textual rendering of certain provisions,
and to implement certain changes on approval of the Board of
Directors on this date.
NOW, THEREFORE, it is hereby agreed by and between the parties
as follows:
1. EMPLOYMENT.
The Company and the Bank hereby agree to continue to employ
the Executive, and the Executive hereby agrees to continue to serve
the Company and the Bank, on the terms and conditions set forth
herein. It is the intention of this Agreement that the Company and
the Bank shall jointly and severally be responsible for the
obligations determined herein of both the Company and the Bank,
notwithstanding the fact that the employment undertaking may, at
the outset, be undertaken by solely the Bank or the Company.
2. TERM.
The employment of the Executive by the Company as provided in
Section 1 of this Employment Agreement will commence on the initial
date hereof and end on March 31, 1997, unless further extended or
sooner terminated as hereinafter provided. On March 31, 1995, the
term of the Executive's employment shall be automatically extended
one additional year and shall end on March 31, 1998 unless
previously terminated hereunder. On each subsequent March 31
thereafter the term of the Executive's employment shall be
automatically extended one additional year such that on March 30 of
any given year, the remaining term of this Agreement shall be two
years and one day and on the following day, March 31, the remaining
term shall be three years.
3. POSITION AND DUTIES.
The Executive shall serve as President and Chief Operating
Officer of the Company, shall serve as President and Chief
Operating Officer of the Bank, shall have such responsibilities,
duties and authorities as may from time to time be assigned to the
Executive by the Board of Directors of the Company, and shall have
the duties, responsibilities and authorities of the Chief Operating
Officer of the Company and the Bank. The Executive shall devote
substantially all his working time and efforts to the business and
affairs of the Company and the Bank.
4. PLACE OF PERFORMANCE.
In connection with the Executive's employment by the Company,
the Executive shall be based at the principal executive offices of
the Company within Dade County Florida except for required travel
on the Company's business to an extent substantially consistent
with present business travel obligations.
5. COMPENSATION AND RELATED MATTERS.
(a) Salary. During the period of the Executive's
employment hereunder, the Company shall pay to the Executive an
annual "Salary" at a rate determined by the Board of Directors of
the Company. Such Salary may be paid by the Company, or the Bank
or any of their subsidiaries or such combination thereof as the
Board of Directors of the Company shall determine and shall be paid
in monthly or semi-monthly installments in arrears as shall be the
practice of the Company, the Bank or their subsidiaries. This
Salary may be increased from time to time in accordance with
normal business practices of the Company and, if so increased,
shall not thereafter during the term of this Agreement be
decreased. Compensation of the Executive by salary payments shall
not be deemed exclusive and shall not prevent the Executive from
participating in any other compensation or benefit plan of the
Company. The term "Salary" shall be deemed to include any and all
regular installment amounts received by the Executive from either
the Company, the Bank or any of their subsidiaries. Payment of
Salary (including any increased salary payments) whether or not
hereunder shall not in any way limit or reduce any other obligation
of the Company hereunder, and no other compensation, benefit or
payment hereunder, or otherwise, shall in any way limit or reduce
the obligation of the Company to pay the Executive's Salary
hereunder.
(b) Cash Incentive Compensation. The Company shall pay
or cause to be paid by the Bank to the Executive such additional
amount as it shall determine over and above the Salary to which he
is entitled, for all periods during which this Agreement shall be
in effect. Such additional amount shall be determined by the Board
of Directors of the Company or an authorized committee thereof,
shall be declared in the form of a bonus or otherwise and shall be
determined upon such measures of performance as shall be in the
sole discretion of the Board of Directors or authorized committee
hereof.
(c) Expenses. During the term of the Executive's
employment hereunder, the Executive shall be entitled to receive
prompt reimbursement for all reasonable expenses incurred by the
Executive in performing services hereunder, including all expenses
of travel and living expenses while away from home on business or
at the request of and in the service of the Company or the Bank,
provided that such expenses are incurred and accounted for in
accordance with the policies and procedures then presently
established by the Company or the Bank.
(d) Other Benefits. The Company shall maintain or cause
to be maintained by the Bank in full force and effect during the
term of this Agreement, and the Executive shall be entitled to
continue to participate in, all of the employee benefit plans and
arrangements in which the Executive participates as of the date
hereof. The Company may, in its discretion, replace such plans and
arrangements only with any other plans or arrangements which shall
provide the Executive with benefits equivalent to those in which
the Executive participates as of the date hereof, unless the
replacement of such plans or arrangements occurs pursuant to a
program applicable to all employees of the Company and does not
result in a proportionately greater reduction in the rights of or
benefits to the Executive as compared with any executive of the
Company. Such plans and arrangements may include without
limitation any pension and retirement plan and arrangement,
supplemental pension and retirement plan and arrangement, stock
option plan, employee stock ownership plan, life insurance and
health-and-accident plan and arrangement, medical insurance plan,
disability plan, survivor income plan, relocation plan and vacation
plan. The Company shall not make nor allow any changes in such
plans or arrangements which would adversely affect the Executive's
rights or benefits thereunder, unless such change occurs pursuant
to a program applicable to all employees of the Company and does
not result in a proportionately greater reduction in the rights of
or benefits to the Executive as compared with any other executive
of the Company. The Executive shall be entitled to participate in
or receive benefits under any employee benefit plan or arrangement
made available by the Company or the Bank in the future to its
executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of
such plans and arrangements. Nothing paid to the Executive under
any plan or arrangement presently in effect or made available in
the future shall be deemed to be in lieu of the Salary payable to
the Executive pursuant to paragraph (a) of this Section or the Cash
Incentive Compensation payable pursuant to paragraph (b) of this
Section. Any payments or benefits payable to the Executive
hereunder in respect of any calendar year during which the
Executive is employed by the Company for less than the entire such
year shall, unless otherwise provided in the applicable plan or
arrangement, be prorated in accordance with the number of days in
such calendar year during which he is so employed.
(e) Vacations. The executive shall be entitled to the
number of vacation days in each calendar year, and to compensation
in respect thereof, determined in accordance with the Company's or
the Bank's vacation plan. The Executive shall also be entitled to
all paid holidays given by the Company or the Bank to their
executives.
(f) Automobile. The Company shall furnish or cause to
be furnished by the Bank to the Executive the use of an automobile
at the Company's expense for the performance of his duties on
behalf of the Company or the Bank and Executive shall use such
automobile for that purpose. All costs of operation, maintenance
and insurance shall be paid by the Company. The Executive shall be
an additional named insured on the liability insurance coverage
maintained by the Company and the Bank. The Executive shall
account for the use and expenses of the automobile in accordance
with the policies and procedures of the Company.
(g) Group Medical Coverage. The Company shall provide
group medical insurance coverage to the Executive and his family
under a plan for Employees of the Company, the Bank and their
subsidiaries and such plan shall include reasonable coverage for
medical, hospital, surgical and major medical expenses.
(h) Term Life Insurance. The Company shall own and pay
the costs of premiums on guaranteed renewable straight term life
insurance, or the equivalent, insuring the life of the Executive in
an amount no less than the then current annual salary of the
Executive, and the Company shall designate the Beneficiary as such
person or persons named by the Executive from time to time.
(i) Disability Policy. The Company shall provide and
pay the costs of a disability income policy to compensate the
Executive in the event of his incapacity due to physical or mental
illness in an amount no less than 60% of Executive's then current
annual salary (subject to a maximum benefit of $10,000 per month).
(j) Services Furnished. The Company shall furnish the
Executive with office space, secretarial assistance and such other
facilities and services as shall be suitable to the Executive's
position and adequate for the performance of his duties as set
forth in Section 3 hereof.
(k) Subsidiaries. When used in this section the term
"Company" shall be deemed to include any and all subsidiaries .
6. LEGAL REQUIREMENTS.
Both the Executive and the Company agree that all legal
requirements shall be met with respect to Federal withholding tax
requirements, compensation income and the like.
7. PROPER TERMINATION.
The Executive's employment hereunder may be properly
terminated without any breach of this Agreement only under the
following circumstances:
(a) Death. The Executive's death.
(b) Disability. If, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall
have been absent from his full time duties as described hereunder
for the entire period of four (4) consecutive months, the Company
may terminate the Executive's employment hereunder. In the event
that payments under the disability policy provided to the Executive
by the Company pursuant to subsection 5(i) hereunder commence prior
to the expiration of said four-month period, then upon commencement
of such disability payments, this Agreement shall terminate and the
Company shall cease all Salary payments hereunder.
(c) Cause. The Company may terminate the Executive's
employment hereunder for Cause. For purposes of this Agreement,
the Company shall have "Cause" to terminate the Executive's
employment hereunder: (i) upon the failure by the Executive to
comply with any material provision of this Agreement which has not
been cured within thirty (30) days after notice of such
non-compliance has been given by the Company to the Executive; or
(ii) upon the willful commission by the Executive of repeated acts
of dishonesty or fraud, breach of fiduciary duty involving personal
profit or intentional repeated failures to perform his duties
hereunder, any which acts or failures to act relate to the Company
or any of its subsidiaries and cause a material adverse impact on
the Company or any of its subsidiaries. For purposes of this
paragraph, no act, or failure to act, on the Executive's part shall
be considered "willful" unless done, or omitted to be done, by him
not in good faith and without reasonable belief that his action or
omission was in the best interests of the Company.
Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause without: (i) reasonable
notice to the Executive setting forth the reasons for the Company's
intention to terminate for Cause; (ii) an opportunity for the
Executive, together with his counsel, to be heard before the Board
of Directors of the Company; and (iii) delivery to the Executive of
a Notice of Termination as provided for in Section 9 hereof from
the Board of Directors of the Company finding that in the good
faith opinion of the Board of Directors of the Company the
Executive was guilty of conduct set forth above in the preceding
sentence, and specifying the particulars thereof in detail.
(d) Without Cause. The following circumstances shall
specifically be deemed a termination of the Executive's employment
by the Company "Without Cause" and thus shall not constitute a
proper termination: (i) upon a vote to terminate the Executive
without Cause (as defined in Section 7(c) hereof) by any officer or
member(s) of the Board of Directors of the Company; (ii) an
assignment to the Executive of any duties inconsistent with, or a
significant change in the nature or scope of the Executive's
authorities, duties or responsibilities from, those authorities,
duties and responsibilities held by the Executive as of the date
hereof and as increased from time to time; (iii) a reduction in
total remuneration (by reduction of Salary, reduction of rate of
Cash Incentive Compensation or reduction of fringe benefits, unless
any such fringe benefit is withdrawn from all other executives as
a class); or (iv) the performance of any other act by the Company
which is designed to prevent and does prevent the Executive from
properly performing the authorities, duties and responsibilities of
his employment hereunder.
8. TERMINATION BY THE EXECUTIVE.
The Executive may terminate his employment hereunder for Good
Reason.
(a) For purposes of this Agreement, "Good Reason" shall
mean: (i) a failure by the Company to comply with any material
provision of this Agreement which has not been cured within ten
(10) days after notice of such non-compliance has been given by the
Executive to the Company; (ii) any purported termination of the
Executive's employment which is not effected pursuant to a Notice
of Termination satisfying the requirements of Section 8 hereof (and
for purposes of this Agreement no such purported termination shall
be effective); (iii) an assignment to the Executive of any duties
inconsistent with, or a significant change in the nature or scope
of the Executive's authorities, duties or responsibilities from,
those authorities, duties and responsibilities held by the
Executive as of the date hereof and as increased from time to time;
(iv) a reduction in total remuneration (by reduction of Base
Salary, reduction of rate of Cash Incentive Compensation or
reduction of fringe benefits, unless any such fringe benefits are
withdrawn from all other executives as a class); (v) the
performance of any other act by the Company which is designed to
prevent and does prevent the Executive from properly performing the
authorities, duties and responsibilities of his employment
hereunder; or (vi) the occurrence of a change in control of the
Company (as defined below).
(b) For purposes of this Agreement, a "change in control
of the Company" shall be deemed to have occurred if such a change
in control would be required to be reported in response to Item
5(f) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"); provided
that, without limitation, such a change in control shall be deemed
to have occurred if any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than the Company, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the
Company's then outstanding securities.
9. NOTICE OF TERMINATION AND EFFECTIVE DATE.
(a) Any proper termination of the Executive's employment
by the Company or by the Executive (other than termination pursuant
to subsection 7(a) above) shall be communicated by written Notice
of Termination to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean: (i) if the
Executive's employment is terminated by his death, the date of his
death; (ii) if the Executive's employment is terminated pursuant to
subsection 7(b) above, the earlier of: (x) the date on which
payments commence pursuant to the disability policy provided by the
Company under subsection 6(i); or (y) the expiration of four (4)
consecutive months of the Executive's incapacity due to physical or
mental illness, as set forth in subsection 7(b) above (provided
that the Executive shall not have returned to the performance of
his duties on a full-time basis during such four (4) month period);
(iii) if the Executive's employment is terminated pursuant to
subsection 7(c) above, the date specified in the Notice of
Termination (which date may not be less than ninety (90) days after
the date of the Notice; or (iv) if the Executive's employment is
terminated pursuant to Section 7(d) above or Section 8 above, the
date on which a Notice of Termination is given, or the date
specified therein, whichever shall be later.
10. COMPENSATION UPON TERMINATION.
(a)(i) If the Executive's employment is terminated
pursuant to Section 7(a)(Death), the Company shall be obligated to
pay to the Executive all amounts payable under Sections 5(a)-(d),
through and including the last day of the third month following the
date of his death.
(ii) If the Executive's employment is properly
terminated pursuant to Section 7(b) or 7(c) (Disability or Cause),
the Company shall be obligated to pay to the Executive all amounts
payable hereunder and otherwise, through and including the Date of
Termination, as provided in subsection 9(b) above.
(b) If this Agreement is terminated pursuant to Section
7(d) or any of Subsections 8(a)(i) through 8(a)(vi) hereof, the
Company shall pay, in cash, to the Executive, within twenty (20)
days of the receipt of the Notice of Termination, an amount equal
to 300% of the Executive's Salary and Cash Incentive Compensation,
such amounts to be determined by reference to the Executive's then
current Salary and the aggregate Cash Incentive Compensation last
paid to or earned by the Executive in the twelve months immediately
preceding such termination. In addition, at the sole discretion of
the Executive, the Company shall either:
(i) continue to provide, for a period of 36 months
immediately following termination, the benefits described in
subsection 5(d), 5(g) and 5(h) hereof; or
(ii) pay to the Executive, in a lump sum
payment, an amount equal to 60% of the Executive's Salary and Cash
Incentive Compensation, such amounts to be determined by reference
to the Executive's then current Salary and aggregate Cash Incentive
Compensation last paid to or earned by the Executive in the twelve
months immediately preceding termination. Such payment shall be
deemed to be a payment in lieu of the benefits described in (i)
above.
(c) If the Executive's employment hereunder is termi-
nated by the Executive other than pursuant to Subsection 8(a)(i)
through 8(a)(vi) above, the Company shall pay, in cash, to the
Executive, within twenty (20) days of the receipt of the Notice of
Termination, an amount equal to 120% of the Executive's Salary and
Cash Incentive Compensation, such amounts to be determined by
reference to the Executive's then current Salary and the aggregate
Cash Incentive Compensation last paid to or earned by the Executive
in the immediately preceding twelve months previous to such
termination.
(d) In the event that the total amount of payments
made under this Agreement on account of termination under
Subsections 7(d) or 8(a) above or the total amount of payments made
under any other agreement or arrangement between the Executive and
the Company, whether written or oral, including any combination of
payments made pursuant to different agreements, arrangements or
plans equals or exceeds the aggregate present value of three times
the "base amount," the Company shall indemnify the Executive for
the amount of any surtax imposed pursuant to Section 280G and
Section 4999 of the Internal Revenue Code of 1986 as amended along
with an amount intended to reimburse the Executive for income tax
imposed on such payment (together , the "Gross-up payment"). The
Company intends, by the payment of such indemnification, to make
the Executive whole and to put the Executive in the same position
as if the payments provided for under Section 10(b) hereof, this
Section 10(d) and otherwise, were made, and no additional surtaxes
or other income taxes of any kind were required to be paid with
respect to such payments. The total amount due to the Executive
pursuant to this section shall be calculated using the following
formula:
G= (0.2P-0.2B)/(0.8-R)
where :
G is the Gross-up Payment
P is the amount of the Parachute
Payment
B is the Base Amount
R is the aggregate applicable income tax rate
"Base amount" means the average annualized compensation income
from the Company includible in the Executive's gross income for
Federal income tax purposes over the five-year period preceding the
year in which the Executive's employment is terminated. This
paragraph, and the language therein, shall be interpreted
consistently with Section 280G of the Internal Revenue Code of
1986, as amended, and any regulations thereunder.
11. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such
agreement prior to a date which is thirty (30) days prior to the
effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the
Company in the same amount and on the same terms as he would be
entitled to hereunder if he terminated his employment for Good
Reason pursuant to any of Subsections 8(a)(1) through 8(a)(vi),
except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the
Date of Termination. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which executes and delivers the
agreement provided for in this Subsection 11(a) or which otherwise
become bound by all the terms and provisions of this Agreement by
operation of law.
(b) This Agreement and all rights of the Executive
hereunder shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any amounts would
still be payable to him hereunder if he had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
12. NOTICE.
For the purpose of this Agreement, notices, demands and all
other communications provided for in the Agreement shall be in
writing and shall be deemed to have been duly given when delivered
or (unless otherwise specified) mailed by United States registered
mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: Jack J. Partagas
7540 S.W. 158th Place
Miami, Florida 33159
If to the Company
and the Bank: Commercial Bankshares, Inc.
1550 S.W. 57th Avenue
Miami, Florida 33144
13. MISCELLANEOUS.
No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed
to in writing signed by the Executive and by such officer of the
Company as may be specifically designated by the Board of Directors
of the Company. No waiver by either party hereto at any time of
any breach by the other party hereto, or compliance with, any
condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent
time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been
made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of Florida.
14. VALIDITY.
The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or
enforceability of any other provisions of this Agreement, which
shall remain in full force and effect.
15. COUNTERPARTS.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
16. ARBITRATION.
Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by binding arbitration,
conducted before a panel of three arbitrators, in Miami, Florida,
in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. The expense
of such arbitration shall be borne by the Company.
17. SUCCESSION.
This Agreement is intended to supersede, in their entirety,
any and all employment agreements, and all amendments thereto,
between the Executive and the Company and between the Executive and
the Bank.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year first above written.
Attest: COMMERCIAL BANKSHARES INC.
By:
By:
Name:
Title:
Attest: COMMERCIAL BANK OF FLORIDA
By: By:
Name:
Title:
WITNESS: EXECUTIVE:
JACK J. PARTAGAS
EMPLOYMENT AGREEMENT
THIS AGREEMENT between COMMERCIAL BANK OF FLORIDA, a Florida
banking corporation, having its main office at 1550 S.W. 57th
Avenue, Miami, Florida (the "Bank") and BRUCE STEINBERGER (the
"Employee"), is entered into as of this 18th day of December, 1998.
R E C I T A L S
WHEREAS, in order to continue to expand and prosper as a
significant member of the financial, business and civic community
of South Florida, the Bank needs to retain capable, experienced
senior executive personnel;
WHEREAS, the Employee has been and continues to be a valued
senior executive of the Bank, and is now serving the Bank as its
Executive Vice President; and
WHEREAS, it is the consensus of the Board of Directors that
the experience of the Employee, his knowledge of the affairs of the
Bank and his reputation and contacts in the industry are so
valuable that assurance of his continued services are essential for
the future growth and profit of the Bank; and
WHEREAS, it is the desire of the Bank to retain the services
of the Employee and provide for the security of the Employee in
order to allow the Employee's attentions to be devoted to the
Bank's best interests; and
WHEREAS, the Bank and the Employee desire to enter into this
Agreement for the purpose of setting forth the terms and conditions
under which the Bank desires to retain the services of the Employee
as Executive Vice President and the Employee desires to continue in
such capacity with the Bank; and
WHEREAS, this Agreement is intended to supersede and replace
the prior Employment Agreement between the Bank and the Employee
dated March 5, 1997.
TERMS
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. EMPLOYMENT. The Bank hereby agrees to continue to employ
the Employee, and the Employee hereby agrees to continue to serve
the Bank, on the terms and conditions set forth herein.
2. TERMS. The term of this Agreement shall commence on
December 18, 1998 ("Commencement Date"), and shall terminate on
December 17, 1999 ("Scheduled Termination Date"), unless sooner
terminated or further extended as hereinafter provided. On the
Scheduled Termination Date, and annually thereafter on each
December 18th, the term of the Employee's employment shall be
automatically extended for one (1) additional year unless either
party shall deliver to the other, not later than November 15th of
each year, written notice of its intent not to extend this
Agreement or this Agreement is otherwise terminated pursuant to
Sections 10 or 11 hereunder. In no event, however, shall the term
of the Employee's Agreement extend beyond the end of the calendar
month in which the Employee's sixty-fifth (65th) birthday occurs.
3. POSITION. The Employee shall serve as Executive Vice
President of the Bank and shall have such responsibilities, duties
and authority as may from time to time be assigned to the Employee
by the Board of Directors of the Bank.
4. PLACE OF PERFORMANCE. In connection with the Employee's
employment by the Bank, the Employee shall be based at the
principal executive offices of the Bank in Miami-Dade County,
Florida, subject to required travel relating to the Bank's business
activities.
5. FULL TIME LOYALTY. The Employee shall devote his entire
time, attention and energies to the business and affairs of the
Bank, and shall not, during the term of this Agreement, be engaged
in any other business activity, whether or not such business
activity is pursued for gain, profit, or other pecuniary advantage,
which might tend to interfere with his duties and responsibilities
as an Employee of the Bank.
6. COMPETITIVE ACTIVITIES.
(a) Competitive Services. Employee agrees that during
the term of his employment hereunder, except (i) with the express
consent of the Bank's Board of Directors or (ii) in the event of a
change in control of the Bank, he will not, directly or indirectly,
engage or participate in, become a director of, or render advisory
or other services for, or in connection with, or become interested
in, or make any financial investment in any firm, corporation,
business entity or business enterprise competitive with or to any
business of the Bank; provided, however, that Employee shall not
thereby be precluded or prohibited from owning passive investments,
including investment in the securities of other financial
institutions, so long as such ownership does not require him to
devote any time to management or control of the business or
activities in which he has invested.
(b) Confidential Information. Employee agrees and
acknowledges that by virtue of his employment hereunder, he will
maintain an intimate knowledge of the activities and affairs of the
Bank, including trade secrets and other confidential matters.
Employee shall not at any time, whether during the term of this
Agreement or at any time thereafter, divulge any matter pertaining
to the activities and affairs of the Bank, including without
limitation, trade secrets and other confidential matters except as
may be required by law.
(c) Injunctive Relief. Employee agrees that breach of
the covenant contained in subsections 6(a) - 6(b) above by Employee
shall constitute irreparable harm to the Bank for which Bank does
not have an adequate remedy at law, and that Bank is therefor
entitled to immediate injunctive or other equitable relief to
restrain Employee from violating the provisions of this Agreement.
The right to such injunctive and equitable relief shall survive the
termination for Cause (as hereinafter defined) of Employee by the
Bank or the voluntary termination of this Agreement by Employee.
7. COMPENSATION.
(a) Base Salary. The Bank shall pay to the Employee an
annual "Base Salary" at a rate determined by the Board of Directors
of the Bank. Such Base Salary may be paid by the Bank in monthly
or semi-monthly installments in arrears as shall be the practice of
the Bank. The Base Salary may be modified from time to time in
accordance with normal business practices of the Bank.
(b) Cash Incentive Compensation. The Employee may be
eligible for a bonus or any additional compensation as determined
by the Board of Directors of the Bank or an authorized committee
thereof, which compensation may be determined upon such measures of
performance as shall be in the sole discretion of the Board of
Directors or an authorized committee thereof.
(c) Other Compensation. Payment of the Base Salary (as
set forth in subsection 7(a) hereof) shall not in any way limit or
reduce any other obligation of the Bank hereunder, and no other
compensation, benefit, or payment hereunder shall in any way limit
or reduce the obligation of the Bank to pay the Employee's Base
Salary hereunder.
8. EXPENSES. During the term of the Employee's employment
hereunder, the Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee
in performing services hereunder, including all expenses of travel
and living expenses while away on business at the request of and in
the service of the Bank, provided that such expenses are incurred
and accounted for in accordance with the policies and procedures of
the Bank then in effect, as modified from time to time.
9. BENEFITS.
(a) Vacations. The Employee shall be entitled each year
to three (3) weeks paid vacation, and normally accepted Bank
holidays.
(b) Group Medical Coverage. The Bank shall provide
group medical insurance coverage to the Employee and his family
under a plan for Employee of the Bank, and such plan shall include
reasonable coverage for medical, hospital, surgical and major
medical expenses.
(c) Other Benefits. The Employee shall have the right
to participate in any pension and retirement plans and
arrangements, supplemental pension and retirement plans and
arrangements, life insurance and health-and-accident plans and
arrangements, medical insurance plans, disability plans, survivor
income plans, relocation plans and vacation plans which are now or
may in the future become available to employees of the Bank,
subject to and on the basis consistent with the terms, conditions
and overall administration of such plans and arrangements. The
Employee may, in the sole discretion of the Board of Directors,
participate in any stock option plans, employee stock ownership
plans or other similar plans and arrangements of the Bank on the
basis consistent with the terms, conditions and overall
administration of such plans and arrangements. Nothing paid under
any such plan or arrangement presently in effect or available in
the future shall be deemed to be in lieu of the Employee's Base
Salary and/or Cash Incentive Compensation, to be paid hereunder.
10. PROPER TERMINATION. The Employee's employment hereunder
may be properly terminated without any breach of this Agreement
only under the following circumstances.
(a) Death. This Agreement shall be terminated upon the
Employee's death.
(b) Disability. If, as a result of the Employee's
incapacity due to physical or mental illness, the Employee shall
have been absent from his full-time duties as described hereunder
for the entire period of three (3) consecutive months, the Bank may
terminate the Employee's employment hereunder. In the event the
Employee shall receive any disability benefits, under any
disability policy provided to the Employee by the Bank in
accordance with any Bank policy then in effect, prior to the
expiration of said three-month period, the amount of such
disability payments shall be deducted from any amounts due to the
Employee hereunder.
(c) Cause.
i. Definition of "Cause." The Bank may terminate
the Employee's employment hereunder for "Cause." "Cause" shall
consist, by way of illustration and not limitation, of one or more
of the following:
(1) conviction of a felony;
(2) drunkenness;
(3) drug or substance abuse;
(4) theft or embezzlement;
(5) a willful commission by the Employee of
an act of dishonesty or fraud;
(6) a breach of fiduciary duty involving
personal profit or intentional failure to
perform his duties hereunder;
(7) or willful violation of any law, rule or
regulation (other than traffic violations
or similar offenses); or
(8) failure by the Employee to comply with
any material provision of this Agreement,
which failure has not been cured within
ten (10) days after notice of such
non-compliance has been given by the Bank
to the Employee.
ii. Definition of "Willful." For purposes of this
subsection, an act, or failure to act, on the Employee's part shall
be considered "willful" if done, or omitted to be done, by him not
in good faith and without reasonable belief that his action or
omission was in the best interests of the Bank.
iii. Procedures to be Followed. Notwithstanding the
foregoing, the Employee shall not be deemed to have been terminated
for Cause without: (i) reasonable notice to the Employee setting
forth the reasons for the Bank's intention to terminate for Cause;
(ii) an opportunity for the Employee to be heard before the Board
of Directors of the Bank; and (iii) delivery to the Employee of a
Notice of Termination as provided for in Section 12 hereof from the
Board of Directors of the Bank finding that in the opinion of the
Board of Directors of the Bank, the Employee was guilty of conduct
set forth above in the preceding sentence, and specifying the
particulars thereof in detail.
11. TERMINATION BY THE EMPLOYEE.
(a) Good Reason. The Employee may terminate his
employment hereunder for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean:
i. a failure by the Bank to comply with any
material provision of this Agreement, which failure has not been
cured within thirty (30) days after notice of such non-compliance
has been given by the Employee to the Bank;
ii. an assignment to the Employee of any duties
inconsistent with, or a significant reduction in the nature or
scope of the Employee's authorities, duties or responsibilities
from, those authorities, duties and responsibilities held by the
Employee as of the date hereof and as increased from time to time;
iii. a reduction in total remuneration of ten
percent (10%) or more (by reduction of Base Salary, reduction of
rate of Cash Incentive Compensation or reduction of fringe
benefits, unless any such fringe benefits are withdrawn from all
other executives as a class);
iv. the performance of any other act by the Bank
which is designed to prevent and does prevent the Employee from
properly performing the authorities, duties and responsibilities of
his employment hereunder; or
v. the occurrence of a change in control of the
Bank (as defined below).
(b) Change in Control. For purposes of this Agreement,
a "change in control of the Bank" shall be deemed to have occurred
if such a change in control would be required to be reported in
response to Item 5(f) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934 (the "Exchange Act");
provided that, without limitation, such a change in control shall
be deemed to have occurred if any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than the Bank,
is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of
the Bank representing 25% or more of the combined voting power of
the Bank's then outstanding securities.
12. NOTICE OF TERMINATION AND EFFECTIVE DATE.
Any proper termination of the Employee's employment by
the Bank or by the Employee (other than termination pursuant to
subsection 10(a) (Death) above) shall be communicated by written
Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the reason for termination and shall set forth in
reasonable detail the facts and circumstances claimed to provide a
basis for such termination.
13. COMPENSATION UPON TERMINATION; EFFECTIVE DATE.
(a) Death of Employee. If the Employee's employment is
terminated pursuant to Section 10(a) (Death), the Employee's
employment shall be deemed terminated as of the date of his death
and the Bank shall be obligated to pay to the Employee's estate all
amounts payable under Sections 7(a)-(b), through and including the
date of his death.
(b) Disability. If the Employee's employment is
properly terminated pursuant to Section 10(b) (Disability), the
Employer's employment shall be deemed terminated as of the earlier
of (1) the date on which payments commence pursuant to any
disability policy provided by the Bank; or (2) the expiration of
three (3) consecutive months of the Employee's incapacity due to
physical or mental illness, as set forth in subsection 10(b) above
(provided that the Employee shall not have returned to the
performance of his duties on a full-time basis during such three
(3) month period). In such event, the Bank shall be obligated to
pay to the Employee all amounts payable under Sections 7(a) - (b),
through and including such date of termination.
(c) Termination for Cause. If the Employee's employment
is properly terminated pursuant to Section 10(c) (Cause), the
Employee's employment shall be deemed terminated as of the date
specified in the Notice of Termination and the Bank shall be
obligated to pay to the Employee all amounts payable under Sections
7(a) - (b), through and including such date of termination.
(d) Good Reason. If this Agreement is terminated by the
Employee pursuant to Subsections 11(a)(i) through 11(a)(iv) hereof,
the Employee's employment shall be deemed terminated as of the date
on which a Notice of Termination is given, or the date specified
therein, whichever shall be later, and the Bank shall pay, in cash,
to the Employee, within twenty (20) days of the receipt of the
Notice of Termination, an amount equal to all amounts payable to
Employee under Sections 7(a) - (b) hereof through and including the
Scheduled Termination Date of this Agreement, as extended,
regardless of the early termination of the Employee. Such payment,
when received, shall be in lieu of fringe benefits, including
insurance and similar benefits, but shall not affect any rights
which the Employee may have pursuant to any 401(k) plan or stock
option plan.
(e) Change in Control. If this Agreement is terminated
by the Employee pursuant to Subsection 11(a)(v) above, the
Employee's employment shall be deemed terminated as of the date on
which a Notice of Termination is given, or the date specified
therein, whichever shall be later, and the Bank shall pay, in cash,
to the Employee, within twenty (20) days of receipt of the Notice
of Termination, an amount equal to 200% of the Employee's Salary
and Cash Incentive Compensation, such amounts to be determined by
reference to the Employee's then current Salary and the aggregate
Cash Incentive Compensation last paid to or earned by the Employee
in the twelve months immediately preceding such termination. In
addition, at the sole discretion of the Employee, the Company shall
either:
(i) continue to provide, for a period of 24 months
immediately following termination, the benefits described in
subsections 9(b) and 9(c) hereof; or
(ii) pay to the Employee, in a lump sum
payment, an amount equal to 40% of the Employee's Salary and Cash
Incentive Compensation, such amounts to be determined by reference
to the Employee's then current Salary and aggregate Cash Incentive
Compensation last paid to or earned by the Employee in the twelve
months immediately preceding termination. Such payment shall be
deemed to be a payment in lieu of the benefits described in (i)
above.
(f) Other. If the Employee's employment hereunder is
terminated by the Employee other than pursuant to Subsections
11(a)(i) through 11(a)(vi) above, the Employee's employment shall
be deemed terminated as of the date on which a Notice of
Termination is given, or the date specified therein, whichever
shall be later, and the Bank shall be obligated to pay to the
Employee all amounts payable under Sections 7(a)-(b), through and
including such date of termination. From and after such date of
termination, the Employee shall not be entitled to any further
compensation benefits, including insurance and similar benefits
hereunder or otherwise.
(g) Gross-up Provisions. In the event that the total
amount of payments made under this Agreement on account of
termination under Subsection 11(a)(v) above or the total amount of
payments made under any other agreement or arrangement between the
Employee and the Company, whether written or oral, including any
combination of payments made pursuant to different agreements,
arrangements or plans equals or exceeds the aggregate present value
of three times the "base amount," the Company shall indemnify the
Employee for the amount of any surtax imposed pursuant to Section
280G and Section 4999 of the Internal Revenue Code of 1986 as
amended along with an amount intended to reimburse the Employee for
income tax imposed on such payment (together , the "Gross-up
payment"). The Company intends, by the payment of such
indemnification, to make the Employee whole and to put the Employee
in the same position as if the payments provided for under Section
13(e) hereof, this Section 13(g) and otherwise, were made, and no
additional surtaxes or other income taxes of any kind were required
to be paid with respect to such payments. The total amount due to
the Employee pursuant to this section shall be calculated using the
following formula:
G= (0.2P-0.2B)/(0.8-R)
where :
G is the Gross-up Payment
P is the amount of the Parachute Payment
B is the Base Amount
R is the aggregate applicable income tax rate
"Base amount" means the average annualized compensation income
from the Company includible in the Employee's gross income for
Federal income tax purposes over the five-year period preceding the
year in which the Employee's employment is terminated. This
paragraph, and the language therein, shall be interpreted
consistently with Section 280G of the Internal Revenue Code of
1986, as amended, and any regulations thereunder.
14. SUCCESSORS; BINDING AGREEMENT.
(a) The Bank will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Bank,
by agreement in form and substance satisfactory to the Employee, to
expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Bank would be required to
perform it if no such succession had taken place. Failure of the
Bank to obtain such agreement prior to a date which is thirty (30)
days prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Employee to
compensation from the Bank in the same amount and on the same terms
as he would be entitled to hereunder if he terminated his
employment for Good Reason pursuant to any of Subsections 11(a)(i)
through 11(a)(v), except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective
shall be deemed the Date of Termination. As used in this
Agreement, "Bank" shall mean the Bank as hereinbefore defined and
any successor to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this Subsection
14(a) or which otherwise become bound by all the terms and
provisions of this Agreement by operation of law.
(b) This Agreement and all rights of the Employee
hereunder shall inure to the benefit of and be enforceable by the
Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If the Employee should die while any amounts would still
be payable to him hereunder if he had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Employee's
devisee, legatee, or other designee or, if there be no such
designee, to the Employee's estate.
15. NOTICE. For the purpose of this Agreement, notices,
demands and all other communications provided for in the Agreement
shall be in writing and shall be deemed to have been duly given
when delivered by private or public courier or (unless otherwise
specified) mailed by United States registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Employee: Bruce Steinberger
_________________________
_________________________
If to the Bank: Commercial Bank of Florida
1550 S.W. 57th Avenue
Miami, Florida 33144
16. MISCELLANEOUS. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing signed by the Employee and by
such officer of the Bank as may be specifically designated by the
Board of Directors of the Bank. No waiver by either party hereto
at any time of any breach by the other party hereto, or compliance
with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by
the laws of the State of Florida.
17. VALIDITY. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the
validity or enforceability of any other provisions of this
Agreement, which shall remain in full force and effect.
18. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original
but all of which together will constitute one and the same
instrument.
19. ARBITRATION. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by
binding arbitration, conducted before a panel of three arbitrators,
in Miami, Florida, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction.
20. LEGAL FEES AND COSTS. The prevailing party in any
dispute or controversy arising under or in connection with this
Agreement shall be entitled to recover from the other party all
attorney's fees (including paralegal fees) and arbitration and/or
court costs incurred by the prevailing party in connection with
such dispute or controversy.
21. SUCCESSION. This Agreement is intended to supersede, in
their entirety, any and all employment agreements, and all
amendments thereto, between the Employee and the Bank and between
the Employee and the Bank.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year first above written.
Attest: BANK:
COMMERCIAL BANK OF FLORIDA,
a Florida banking corporation
By: By:
Name: Name:
Title:
WITNESS: EMPLOYEE:
Name: BRUCE STEINBERGER
Name:
