U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
Commission File Number 00-22246
COMMERCIAL BANKSHARES, INC.
- -----------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
FLORIDA 65-0050176
- -----------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1550 S.W. 57th Avenue, Miami, Florida 33144
- -----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(305) 267-1200
- -----------------------------------------------------------------------
(Registrant's Telephone Number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No .
--- ---
CLASS OUTSTANDING AT May 11, 2000
- ----- ---------------------------
COMMON STOCK, $.08 PAR VALUE 3,669,762 SHARES
TABLE OF CONTENTS
PART I Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 6
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 8
PART II Item 6. Exhibits and Reports on Form 8-K 10
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2000 and December 31, 1999
(Dollars in thousands except per share data)
<CAPTION>
<S> <C> <C>
3/31/2000 12/31/1999
--------- ----------
Assets: (Unaudited)
Cash and due from banks $ 20,898 $ 19,086
Federal funds sold 9,408 19,999
-------- --------
Total cash and cash equivalents 30,306 39,085
Investment securities available for sale,
at fair value (cost of $138,397 in 2000
and $128,454 in 1999) 134,181 125,236
Investment securities held to maturity
(aggregate fair value of $41,849 in 2000
and $43,859 in 1999) 41,555 43,392
Loans, net 250,836 244,016
Premises and equipment, net 13,419 13,590
Accrued interest receivable 3,716 3,282
Goodwill, net 565 614
Other Assets 5,355 5,955
-------- --------
Total Assets $479,933 $475,170
======== ========
Liabilities and stockholders' equity:
Deposits:
Demand $ 88,172 $ 80,059
Interest-bearing checking 56,111 60,032
Money market accounts 44,035 42,432
Savings 23,340 22,316
Time 182,414 183,608
-------- --------
Total deposits 394,072 388,447
Securities sold under agreements to repurchase 42,231 40,794
Accounts payable and accrued liabilities 2,540 2,516
Accrued interest payable 622 632
-------- --------
Total liabilities 439,465 432,389
-------- --------
Stockholders' equity:
Common stock, $.08 par value, 6,250,000
authorized shares, 3,939,563 issued
(3,931,375 in 1999) 314 313
Additional paid-in capital 43,808 43,738
Retained earnings 2,968 2,111
Accumulated other comprehensive loss (2,483) (1,855)
Treasury stock, 210,461 shares
(78,746 in 1999), at cost (4,139) (1,526)
-------- --------
Total stockholders' equity 40,468 42,781
-------- --------
Total liabilities and stockholders' equity $479,933 $475,170
======== ========
<FN>
The accompanying notes are an integral part of these
condensed consolidated financial statements
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31, 2000 and 1999
(In thousands except per share data)
(Unaudited)
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans $5,374 $4,321
Interest on investment securities 2,859 2,594
Interest on federal funds sold 88 162
------ ------
Total interest income 8,321 7,077
------ ------
Interest expense:
Interest on deposits 2,973 2,349
Interest on securities sold under
agreements to repurchase 513 338
------ ------
Total interest expense 3,486 2,687
------ ------
Net interest income 4,835 4,390
Provision for loan losses 80 60
------ ------
Net interest income after provision 4,755 4,330
------ ------
Non-interest income:
Service charges on deposit accounts 564 546
Other fees and service charges 137 158
Securities losses (68) -
------ ------
Total non-interest income 633 704
Non-interest expense:
Salaries and employee benefits 1,892 1,866
Occupancy 286 306
Furniture and equipment 232 248
Data processing 201 265
Stationery and supplies 64 69
Insurance 54 42
Professional fees 45 52
Telephone and fax 60 39
Administrative service charges 47 37
Amortization 50 45
Other 278 282
------ ------
Total non-interest expense 3,209 3,251
------ ------
Income before income taxe 2,179 1,783
Provision for income taxes 651 501
------ ------
Net income $1,528 $1,282
====== ======
Earnings per common and common equivalent share:
Basic $.41 $.33
Diluted $.40 $.32
Weighted average number of shares and common equivalent shares:
Basic 3,771 3,866
Diluted 3,866 3,984
<FN>
The accompanying notes are an integral part of these
condensed consolidated financial statements
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended March 31, 2000 and 1999
(Dollars in thousands)
(Unaudited)
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net income $1,528 $1,282
------ ------
Other comprehensive income (loss), net of tax:
Unrealized holding losses arising
during the period (676) (612)
Reclassification adjustment for losses
realized in net income 48 -
------ ------
Other comprehensive loss (628) (612)
------ ------
Comprehensive income $ 900 $ 670
====== ======
<FN>
The accompanying notes are an integral part of these
condensed consolidated financial statements
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2000 and 1999
(In thousands)
(Unaudited)
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,528 $ 1,282
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 80 60
Depreciation, amortization and accretion, net 312 392
Loss on sale of investment securitie 68 -
Change in accrued interest receivable (434) (156)
Change in other assets 600 (73)
Change in accounts payable and accrued liabilities 415 1,285
Change in accrued interest payable (10) (575)
------- -------
Net cash provided by operating activities 2,559 2,215
------- -------
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 1,846 4,516
Proceeds from maturities of investment securities
available for sale 1,163 11,589
Proceeds from sales of investment securities
available for sale 4,924 -
Purchases of investment securities
held to maturity - (35)
Purchases of investment securities
available for sale (16,150) (7,968)
Net increase in loans (6,900) (14,230)
Purchases of premises and equipment (48) (64)
------- -------
Net cash used in investing activities (15,165) (6,192)
------- -------
Cash flows from financing activities:
Net change in demand, savings, interest-bearing
checking, money market, and time deposit accounts 5,625 (4,501)
Net change in securities sold under agreements
to repurchase 1,437 5,179
Dividends paid (693) (705)
Proceeds from issuance of stock 71 -
Purchase of treasury stock (2,613) -
------- -------
Net cash provided by(used in) financing activities 3,827 (27)
------- -------
Decrease in cash and cash equivalents (8,779) (4,004)
Cash and cash equivalents at beginning of period 39,085 35,233
------- -------
Cash and cash equivalents at end of period $30,306 $31,229
======= =======
Supplemental disclosures:
Interest paid (net of amounts
credited to deposit accounts) $ 621 $ 521
======= =======
Income taxes paid $ 122 $ -
======= =======
<FN>
The accompanying notes are an integral part of these
condensed consolidated financial statements
</TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements,
which are for interim periods, do not include all disclosures provided in
the annual consolidated financial statements. These financial statements
and the footnotes thereto should be read in conjunction with the annual
consolidated financial statements for the years ended December 31, 1999,
1998, and 1997, for Commercial Bankshares, Inc. (the "Company").
All material intercompany balances and transactions have been eliminated.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary for
a fair presentation of the financial statements. Those adjustments are of
a normal recurring nature. The results of operations for the three-month
period ended March 31, 2000, are not necessarily indicative of the results to
be expected for the full year.
2. PER SHARE DATA
Earnings per share have been computed in accordance with Statement of
Financial Accounting Standard No. 128, "Earnings per Share" (SFAS 128)
by dividing net income by the weighted average number of common shares
(basic earnings per share) and by the weighted average number of common
shares plus dilutive common share equivalents outstanding (diluted earnings
per share). Common stock equivalents include the effect of all outstanding
stock options, using the treasury stock method. The weighted average number
of shares and equivalent shares include the effect of the one-for-twenty
(five per cent) stock dividends effective on January 4,2000, January 4, 1999
and January 2, 1998.
Subsequent to March 31, 2000 and through May 9, 2000, the company repurchased
59,340 shares of its common stock in accordance with its previously announced
stock repurchase plan.
The following table reconciles the weighted average shares (denominator) used
to calculate basic and diluted earnings per share (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
---------------------------------- ---------------------------------
Income Shares Per-Share Income Sharess Per-Share
(Numerator) (Denominator) Amount (Numerator)(Denominator) Amount
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $1,528 3,771 $.41 $1,282 3,866 $.33
Effect of
Dilutive
Options - 95 (.01) - 118 (.01)
------ ----- ---- ------ ----- ----
Diluted EPS $1,528 3,866 $.40 $1,282 3,984 $.32
====== ===== ==== ====== ===== ====
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's net income reported for the quarter ended March 31, 2000,
was $1.53 million, a 20% increase over the quarter ended March 31, 1999
of $1.28 million. Basic and diluted earnings per share were $.41 and $.40,
respectively, for the first quarter of 2000, as compared to $.33 and $.32,
respectively, for the first quarter of 1999.
The Company's first quarter tax-equivalent net interest income increased by
$460,000, or 10%, to $5.08 million, from $4.62 million in the corresponding
quarter in 1999. This is due primarily to an increase in earning assets of
10%, to $435 million for the first quarter of 2000, from $394 million for the
same period in 1999.
The annualized net interest margin for the quarter ended March 31, 2000 was
4.70%. This compares to 4.75% for the quarter ended March 31, 1999. The
decrease of five basis points for the quarter is the result of an increasing
interest rate environment which had a negative impact on the Company's
interest rate spread due to the Company's liability sensitive position,
whereby rate sensitive liabilities reprice more quickly than rate sensitive
assets. The net interest margin has been calculated on a tax-equivalent
basis, which includes an adjustment for interest on tax-exempt securities.
Non-interest income for the first quarter of 2000 decreased by $71,000, or
10%, from the corresponding period of 1999. The decrease is primarily due
to a loss on sale of investments in March 2000 of $68,000.
Salaries and employee benefits expense increased by $26,000, or 1%, for the
first quarter of 2000, from the corresponding period of 1999. The increase
is attributable to normal payroll increases, which were partially offset by
a decrease in staff from 186 to 183 full-time equivalent employees from March
31, 1999 to March 31, 2000.
Occupancy expense decreased by $20,000, or 7%, for the first quarter of 2000,
as compared to the corresponding period in 1999, due primarily to an increase
in rental income.
Company management continually reviews and evaluates the allowance for loan
losses. In evaluating the adequacy of the allowance for loan losses,
management considers the results of its methodology, along with other factors
such as the amount of non-performing loans and the economic conditions
affecting the Company's markets and customers. The allowance for loan losses
was approximately $3.41 million at March 31, 2000, as compared with $2.50
million at March 31, 1999. For the three months ended March 31, 2000, the
allowance for loan losses was increased by the provision for loan losses of
$80,000, and increased by approximately $48,000 in net recoveries. For the
three months ended March 31, 1999, the allowance was credited with a provision
for loan losses of $60,000 and increased by approximately $10,000 in net
recoveries. The allowance as a percentage of total loans has increased to
1.34% at March 31, 2000, from 1.16% at March 31, 1999. Based on the nature
of the loan portfolio and prevailing economic factors, management believes
that the current level of the allowance for loan losses is sufficient to
absorb potential losses inherent in the loan portfolio.
Approximately $152.1 million, or 60% of total loans was secured by
nonresidential real estate and $50.5 million, or 20% of total loans was
secured by residential real estate as of March 31, 2000. Virtually all
loans are within the Company's markets in Miami-Dade and Broward counties.
The Company had no non-accrual loans at March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The objective of liquidity management is to maintain cash flow requirements
to meet immediate and ongoing future needs for loan demand, deposit
withdrawals, maturing liabilities, and expenses. In evaluating actual and
anticipated needs, management seeks to obtain funds at the most economical
cost. Management believes that the level of liquidity is sufficient to meet
future funding requirements.
For banks, liquidity represents the ability to meet both loan commitments and
withdrawals of deposited funds. Funds to meet these needs can be obtained by
converting liquid assets to cash or by attracting new deposits or other
sources of funding. Many factors affect a bank's ability to meet liquidity
needs. Commercial Bank of Florida's (the Bank) principal sources of funds
are deposits, repurchase agreements, payments on loans, paydowns, maturities
and sales of investments, and capital contributions by the Company. As an
additional source of funds, the Bank has credit availability with the Federal
Home Loan Bank amounting to $71 million, and Federal Funds purchased lines
available at correspondent banks amounting to $11 million as of March 31, 2000.
The Bank's primary use of funds is to originate loans and purchase investment
securities. The net change in loans during the first three months of 2000
was an increase of $6.9 million, and the Bank purchased $16.2 million of
investment securities. Funding for the above came primarily from increases
in deposits of $5.6 million, increases in securities sold under agreement to
repurchase of $1.4 million, proceeds from maturities and sales of investment
securities of $7.9 million, and a decrease in cash and cash equivalents of
$8.8 million.
In accordance with risk-based capital guidelines issued by the Federal
Reserve Board, the Company and the Bank are each required to maintain a
minimum ratio of total capital to weighted risk assets of 8%. Additionally,
all bank holding companies and member banks must maintain "core" or "Tier 1"
capital of at least 3% of total assets ("leverage ratio"). Member banks
operating at or near the 3% capital level are expected to have well
diversified risks, including no undue interest rate risk exposure, excellent
control systems, good earnings, high asset quality, high liquidity, and well
managed on- and off-balance sheet activities, and in general be considered
strong banking organizations with a composite 1 rating under the CAMELS
rating system of banks. For all but the most highly rated banks meeting
the above conditions, the minimum leverage ratio is to be 3% plus an
additional 100 to 200 basis points. The Tier 1 Capital, Total Capital, and
Leverage Ratios of the Company were 14.12%, 15.49%, and 8.79%, respectively,
as of March 31, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET/LIABILITY MANAGEMENT AND INTEREST RATE RISK
Changes in interest rates can substantially impact the Company's long-term
profitability and current income. An important part of management's efforts
to maintain long-term profitability is the management of interest rate risk.
The goal is to maximize net interest income within acceptable levels of
interest rate risk and liquidity. Interest rate exposure is managed by
monitoring the relationship between interest-earning assets and
interest-bearing liabilities, focusing on the size, maturity or repricing
date, rate of return and degree of risk. The Asset/Liability Management
Committee of Commercial Bank of Florida oversees the interest rate risk
management and reviews the Bank's asset/liability structure on a quarterly
basis.
The Bank uses interest rate sensitivity, or GAP analysis to monitor the
amount and timing of balances exposed to changes in interest rates. The GAP
analysis is not relied upon solely to determine future reactions to interest
rate changes because it is presented at one point in time and could change
significantly from day-to-day. Other methods such as simulation analysis
are utilized in evaluating the Bank's interest rate risk position. The table
presented below shows the Bank's GAP analysis at March 31, 2000.
<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 $ 9,408 $ - $ - $ - $ 9,408
Investment securities 7,545 5,546 6,497 154,557 174,145
Gross loans
(excluding non-accrual) 109,468 37,723 34,160 72,892 254,243
-------- -------- -------- -------- --------
Total interest-earning
assets $126,421 $ 43,269 $ 40,657 $227,449 $437,796
-------- -------- -------- -------- --------
Interest-bearing liabilities:
Interest-bearing checking $ - $ - $ - $ 56,111 $ 56,111
Money market - 11,009 11,009 22,017 44,035
Savings - - - 23,340 23,340
Time deposits 70,398 47,541 49,914 15,561 183,414
Borrowed funds 44,046 - - - 44,046
-------- -------- -------- -------- --------
Total interest-bearing
liabilities $114,444 $ 58,550 $ 60,923 $117,029 $350,946
-------- -------- -------- -------- --------
Interest sensitivity gap $ 11,977 ($ 15,281) ($ 20,266) $110,420 $ 86,850
Cumulative gap $ 11,977 ($ 3,304) ($ 23,570) $ 86,850
Cumulative ratio of interest-earning
assets to interest-bearing
liabilities 110% 98% 90% 125%
Cumulative gap as a percentage of total
interest-earning assets 2.7% (.8%) (5.4%) 19.8%
<FN>
Management's assumptions reflect the Bank's estimate of the
anticipated repricing sensitivity of non-maturity deposit
products. Interest-bearing checking and savings accounts have
been allocated to the "over 1 year" category, and money market
accounts 25% to the "91-181 days" category, 25% to the "182-365
days" category, and 50% to the "over 1 year" category.
</TABLE>
The Bank uses simulation analysis to quantify the effects of various
immediate parallel shifts in interest rates on net interest income over the
next 12 month period. Such a "rate shock" analysis requires key assumptions
which are inherently uncertain, such as deposit sensitivity, cash flows from
investments and loans, reinvestment options, management's capital plans,
market conditions, and the timing, magnitude and frequency of interest rate
changes. As a result, the simulation is only a best-estimate and cannot
accurately predict the impact of the future interest rate changes on net
income. As of March 31, 2000, the Bank's simulation analysis projects a
decrease to net interest income of 2.85%, assuming an immediate parallel
shift downward in interest rates by 200 basis points. If rates rise by 200
basis points, the simulation analysis projects net interest income would
decrease by 1.63%. These projected levels are within the Bank's policy limits.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
All exhibits are omitted because they are not applicable.
(b) Reports on Form 8-K. Form 8-K was filed during the quarter ended
March 31, 2000 to announce a stock repurchase plan whereby up to
$4 million can be used to buy shares of Commercial Bankshares, Inc.
common stock in the open market and negotiated transactions during the
next 24 months, effective March 21, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Commercial Bankshares, Inc.
- ---------------------------
(Registrant)
/s/ Barbara E. Reed
- -----------------------
Senior Vice President &
Chief Financial Officer
Date: May 11, 2000
-----------------------
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 20,898
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,408
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 134,181
<INVESTMENTS-CARRYING> 41,555
<INVESTMENTS-MARKET> 41,849
<LOANS> 254,653
<ALLOWANCE> 3,407
<TOTAL-ASSETS> 479,933
<DEPOSITS> 394,072
<SHORT-TERM> 42,231
<LIABILITIES-OTHER> 3,162
<LONG-TERM> 0
0
0
<COMMON> 314
<OTHER-SE> 40,154
<TOTAL-LIABILITIES-AND-EQUITY> 479,933
<INTEREST-LOAN> 5,374
<INTEREST-INVEST> 2,859
<INTEREST-OTHER> 88
<INTEREST-TOTAL> 8,321
<INTEREST-DEPOSIT> 2,973
<INTEREST-EXPENSE> 3,486
<INTEREST-INCOME-NET> 4,835
<LOAN-LOSSES> 80
<SECURITIES-GAINS> (68)
<EXPENSE-OTHER> 3,209
<INCOME-PRETAX> 2,179
<INCOME-PRE-EXTRAORDINARY> 2,179
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,528
<EPS-BASIC> .41
<EPS-DILUTED> .40
<YIELD-ACTUAL> 4.47
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,279
<CHARGE-OFFS> 0
<RECOVERIES> 48
<ALLOWANCE-CLOSE> 3,407
<ALLOWANCE-DOMESTIC> 3,407
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
