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, 1999
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 33-67254
Commercial Bankshares, Inc.
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(Exact name of registrant as specified in its charter)
Florida 65-0050176
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1550 S.W. 57th Avenue, Miami, Florida 33144
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 267-1200
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.08 par value per share
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K [ ].
As of March 27, 2000, 3,730,702 shares of the common voting stock were
issued and outstanding, of which 3,170,507 shares with an aggregate market
value of $70.9 million (estimate), 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, 1999 are
incorporated by reference into Part I and Part II.
2. Certain portions of the Company's Proxy Statement for the 2000 Annual
Meeting of Shareholders to be held on April 20, 2000 are incorporated
by reference into Part III.
Table of Contents
Description Page No.
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Part I
Item 1. Business..................................................... 1
Item 2. Properties................................................... 10
Item 3. Legal Proceedings............................................ 10
Item 4. Submission of Matters to a Vote of Security Holders.......... 10
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................... 11
Item 6. Selected Financial Data...................................... 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.. 11
Item 8. Financial Statements and Supplementary Data.................. 11
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure....................... 11
Part III
Item 10. Directors and Executive Officers of the Registrant.......... 12
Item 11. Executive Compensation...................................... 12
Item 12. Security Ownership of Certain Beneficial Owners
and Management.............................................. 12
Item 13. Certain Relationships and Related Transactions.............. 12
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K................................................. 12
Signatures........................................................... 15
PART I
Item 1. Business.
Commercial Bankshares, Inc.
Commercial Bankshares, Inc., (the "Company"), a Florida corporation
organized in 1988, is a bank holding company registered under the Bank
Holding Company Act of 1956 ("BHCA"), as amended, whose wholly owned
subsidiary and principal asset is the Commercial Bank of Florida, (the
"Bank"). The Company, through its ownership of the Bank, is engaged in a
commercial banking business, and its primary source of earnings is derived
from income generated by its ownership and operation of the Bank. Unless
the context otherwise requires, references herein to the Company include
the Company and its wholly owned subsidiary, the Bank, on a consolidated
basis.
The Company is a legal entity separate and distinct from the Bank, and
there are various legal limitations on the ability of the Bank to finance or
otherwise supply funds to the Company. In particular, under federal banking
law, the Bank may not declare a dividend that exceeds undivided profits. In
addition, the approval of the Federal Reserve Bank of Atlanta ("Atlanta FRB")
and the Florida Department of Banking and Finance is required if the total
amount of all dividends declared in any calendar year exceeds the Bank's net
profits, as defined, for that year combined with its retained net profits for
the preceding two years. The Atlanta FRB also has the authority to limit
further the payment of dividends by the Bank under certain circumstances.
In addition, federal banking laws prohibit or restrict the Bank from
extending credit to the Company under certain circumstances.
In 1993, the Company filed a Registration Statement on Form SB-2 with the
Securities and Exchange Commission covering an initial public offering and
issued the maximum of 977,500 shares of common stock thereunder. Net
proceeds of approximately $10 million from this offering were invested in
short-term securities pending utilization for future acquisition of other
financial institutions or branches, working capital, general corporate
purposes, and investment in the wholly owned banking subsidiary.
Commercial Bank of Florida
The Bank is a Florida chartered banking corporation originally chartered
in February, 1979. It operated as Sunset Commercial Bank until its
acquisition by the Company in 1988, at which time its name was changed to
Commercial Bank of Florida. The Bank engages in commercial banking and
related businesses from its fourteen banking facilities: its main office and
nine other offices located in Miami-Dade County, Florida, and four offices
in Broward County, Florida.
The Bank is operated as a network of community bank branches. The Bank
primarily focuses on providing personalized banking services to small
businesses and individuals within the market areas where its banking offices
are located. Management believes that this local market strategy,
accompanied by the strategic placement of Bank personnel within market areas
where they have served customers for many years, enables the Bank to attract
and retain low cost core deposits, which provide substantially all of the
Bank's funding requirements.
Deposit products include certificates of deposit, individual retirement
accounts ("IRAs") and other time deposits, checking and other demand deposit
accounts, NOW accounts, savings accounts, and money market accounts. The
transaction accounts and time certificates are tailored to the principal
market areas at rates competitive to those in the area. All deposit accounts
are insured by the Federal Deposit Insurance Corporation ("FDIC") up to the
maximum limits permitted by law. The Bank solicits these accounts from small
businesses, professional firms, and households located throughout its primary
market area.
The Bank also offers ATM cards with access to local, state, and national
networks, safe deposit boxes, wire transfers, direct deposit of payroll and
social security payments, and automatic drafts for various accounts. The
Bank presently does not provide fiduciary or appraisal services.
The Bank conducts commercial and consumer banking business, which
primarily consists of attracting deposits from the areas served by its
banking offices and using those deposits, together with funds derived from
other sources, to originate a variety of commercial, consumer, and real
estate loans (including commercial loans collateralized by real estate).
The Company considers the general business of retail banking to be its
only operating segment.
As is the case with banking institutions generally, the Bank's operations
are materially and significantly influenced by general economic conditions and
by related monetary and fiscal policies of financial institution regulatory
agencies, including the Federal Reserve Board ("FRB"), the FDIC, and the State
of Florida. Deposit flows and the cost of funds are influenced by interest
rates on competing investments and general market rates of interest. Lending
activities are affected by the demand for financing of real estate and other
types of loans, which in turn is affected by the interest rates at which such
financing may be offered and other factors affecting local demand and
availability of funds. The Bank faces strong competition in the attraction of
deposits (its primary source of lendable funds) and in the origination of real
estate loans.
Employees
At December 31, 1999, the Company and the Bank together employed 185
employees, of whom 4 are part-time. None of these employees is covered by a
collective bargaining agreement. The Company believes that its employee
relations are good.
Market Information
The Bank's fourteen banking offices are located in Miami-Dade and Broward
Counties, which comprise the Bank's primary market area. Management believes
that the Bank's principal markets are: (i) the established and expanding
commercial market within the primary market area; and (ii) the moderate and
the affluent residential market within the primary market area. Management
also believes that the most profitable banking relationships are characterized
by high deposit balances with a low frequency of transactions. Moreover,
management believes that a community bank with local management is well
positioned to establish these relationships with the smaller commercial
customers and households. Management believes that the Bank is well positioned
to take advantage of its market segment.
Competition
Competition in the banking and financial services industry is intense.
In its primary market areas, the Bank competes with other commercial banks,
savings institutions, credit unions, finance companies, mutual funds,
insurance companies, and brokerage and investment banking firms operating
locally and elsewhere. Most of these competitors have substantially greater
resources and lending limits than the Bank and may offer certain services,
such as trust services, that the Bank does not provide at this time. In
addition many of the Company's non-bank competitors are not subject to the
same extensive federal regulations that govern the Bank and the Company. The
profitability of the Company depends upon the Bank's ability to compete in
its market areas.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under both
federal and state law. These laws and regulations are intended to protect
depositors, not stockholders. To the extent that the following information
describes statutory and regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. Any change
in the applicable law or regulation may have a material effect on the business
and prospects of the Company and the Bank.
Bank Holding Company Regulation
As a bank holding company registered under the BHCA, the Company is
subject to the regulation and supervision of the FRB. The Company is required
to file with the FRB annual reports and other information regarding its
business operations and those of its subsidiaries. Under the BHCA, the
Company's activities and those of its subsidiaries are limited to banking,
managing or controlling banks, furnishing services to or performing services
for its subsidiaries, or engaging in any other activity which the FRB determines
to be so closely related to banking or managing or controlling banks as to be
properly incident thereto.
The BHCA requires, among other things, the prior approval of the FRB in
any case where a bank holding company proposes to (i) acquire all or
substantially all of the assets of any other bank, (ii) acquire direct or
indirect ownership or control of more than 5% of the outstanding voting stock
of any bank (unless it owns a majority of such bank's voting shares), or (iii)
merge or consolidate with any other bank holding company. The FRB will not
approve any acquisition, merger, or consolidation that would have a
substantially anti-competitive effect, unless the anti-competitive impact of
the proposed transaction is clearly outweighed by a greater public interest
in meeting the convenience and needs of the community to be served. The FRB
also considers capital adequacy and other financial and managerial resources
and future prospects of the companies and the banks concerned, together with
the convenience and needs of the community to be served, when reviewing
acquisitions or mergers.
Additionally, the BHCA prohibits a bank holding company, with certain
limited exceptions, from (i) acquiring or retaining direct or indirect
ownership or control of more than 5% of the outstanding voting stock of any
company which is not a bank or bank holding company, or (ii) engaging directly
or indirectly in activities other than those of banking, managing, or
controlling banks, or performing services for its subsidiaries, unless such
non-banking business is determined by the FRB to be so closely related to
banking or managing or controlling banks as to be properly incident thereto.
In making such determinations, the FRB is required to weigh the expected
benefits to the public, such as greater convenience, increased competition,
or gains in efficiency, against the possible adverse effects, such as
under-concentration of resources, decreased or unfair competition, conflicts
of interest, or unsound banking practices.
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries by law and
regulatory policy that are designed to minimize potential loss to the
depositors of such depository institutions and the FDIC insurance funds in
the event the depository institution becomes in danger of default or in default.
Under a policy of the FRB with respect to bank holding company operations, a
bank holding company is required to serve as a source of financial strength
to its subsidiary depository institutions and to commit resources to support
such institutions in circumstances where it might not do so absent such policy.
The FRB also has the authority under the BHCA to require a bank holding company
to terminate any activity or to relinquish control of a nonbank subsidiary
(other than a nonbank subsidiary of a bank) upon the FRB's determination that
such activity or control constitutes a serious risk to the financial soundness
and stability of any bank subsidiary of the bank holding company.
Capital Adequacy Guidelines for Bank Holding Companies
The Company is subject to certain FRB risk-based capital guidelines for
bank holding companies. The risk-based capital guidelines are designed to make
regulatory capital requirements more sensitive to differences in risk profile
among banks and bank holding companies, to account for off-balance sheet
exposure, and to minimize disincentives for holding liquid assets. Under
these guidelines, assets and off-balance sheet items are assigned to broad
risk categories, each with appropriate weights. The resulting capital ratios
represent capital as a percentage of total risk-weighted assets and off-balance
sheet items.
The minimum ratio of total capital to risk-weighted assets (including
certain off-balance sheet activities, such as standby letters of credit) is
8%. At least 4% of the total capital is required to be "Tier I Capital,"
which consists of common stockholders' equity, noncumulative perpetual
preferred stock, and a limited amount of cumulative perpetual preferred stock,
less certain goodwill items and the unrealized holding gain/loss on available
for sale securities. The remainder ("Tier II Capital") may consist of (i)
the allowance for loan losses of up to 1.25% of risk-weighted risk assets,
(ii) 45% of unrealized holding gain on available for sale equity securities,
(iii) excess of qualifying perpetual preferred stock, (iv) hybrid capital
instruments, (v) perpetual debt, (vi) mandatory convertible securities, and
(vii) subordinated debt and intermediate-term preferred stock up to 50% of
Tier I capital. Total capital is the sum of Tier I and Tier II capital less
reciprocal holdings of other banking organizations' capital instruments,
investments in unconsolidated subsidiaries, and any other deductions as
determined by the FRB (determined on a case by case basis or as a matter
of policy after formal rule-making).
Bank holding company assets are given risk-weights of 0%, 20%, 50% and
100%. In addition, certain off-balance sheet items are given similar credit
conversion factors to convert them to asset-equivalent amounts to which an
appropriate risk-weight will apply. These computations result in the total
risk-weighted assets.
The Company's management believes that the risk-weighting of assets under
current FRB guidelines does not and will not have a material impact on the
Company's operations or on the operations of the Bank. As of December 31,
1999 and 1998, the Company's total risk-based capital ratios were 16.34% and
17.70%, respectively. In addition to the risk-based capital guidelines, the
FRB has adopted a minimum Tier I capital (leverage) ratio, under which a bank
holding company must maintain a minimum level of Tier I capital to total
consolidated assets of at least 3% in the case of a bank holding company that
has the highest regulatory examination rating and is not contemplating
significant growth or expansion. All other bank holding companies are expected
to maintain a leverage ratio of at least 100 to 200 basis points above the
stated minimum. Federal Reserve Board requirements also provide that bank
holding companies experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above regulatory
minimums without significant reliance on intangible assets. The Federal Reserve
Board may continue to consider a "tangible Tier 1 leverage ratio" (deducting
all intangibles) in evaluating proposals for expansion or new activities. As
of December 31, 1999 and 1998, the Company's leverage ratios were 9.23% and
9.52%, respectively.
Interstate Banking and Branching Legislation
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("IBBEA") authorizes interstate acquisitions of banks and bank holding
companies without geographic limitation. In addition, beginning June 1, 1997,
the IBBEA authorizes a bank to merge with a bank in another state as long as
neither of the states has opted out of interstate branching between the date of
enactment of the IBBEA and May 31, 1997. The IBBEA further provides that
states may enact laws permitting interstate bank merger transactions prior to
June 1, 1997. Florida law permits bank holding companies, regardless of what
region they are located in, to acquire Florida banking organizations, provided
that the home state of the acquiring company has enacted reciprocal legislation.
Under IBBEA, a bank may establish and operate a de novo branch in a state
in which the bank does not maintain a branch if that state expressly permits
de novo branching. Once a bank has established branches in a state through
an interstate merger transaction, the bank may establish and acquire additional
branches at any location in the state where any bank involved in the interstate
merger transaction could have established or acquired branches under applicable
federal or state law. A bank that has established a branch in a state through
de novo branching may establish and acquire additional branches in such state
in the same manner and to the same extent as a bank having a branch in such
state as a result of an interstate merger. If a state opts out of interstate
branching within the specified time period (Florida has not), no bank in any
other state may establish a branch in the opting-out state, either through an
acquisition or de novo.
Bank Regulation
The Bank is a state-chartered banking corporation and is subject to the
supervision of and regular examination by the FRB and the Florida Department
of Banking and Finance, as well as to the supervision of the FDIC.
The operations of the Bank are subject to state and federal statutes
applicable to banks which are members of the Federal Reserve System and to
the regulations of the FRB, the FDIC, and the State of Florida. Such
statutes and regulations relate to required reserves against deposits,
investments, loans, mergers and consolidations, issuance of securities,
payment of dividends, establishment of branches, and other aspects of the
Bank's operations. Various consumer laws and regulations also affect the
operations of the Bank, including state usury laws, laws relating to
fiduciaries, consumer credit and equal credit, and fair credit reporting.
Under the provisions of the Federal Reserve Act, the Bank is subject to
certain restrictions on any extensions of credit to the Company or, with
certain exceptions, to other affiliates, on investments in the stock or other
securities of national banks, and on the taking of such stock or securities
as collateral. These regulations and restrictions may limit the Company's
ability to obtain funds from the Bank for its cash needs, including funds for
acquisitions and the payment of dividends, interest, and operating expenses.
The FDIC insures the deposits of the Bank to the current maximum allowed
by law. As an institution whose deposits are insured by the Bank Insurance
Fund ("BIF") and Savings Association Insurance Fund ("SAIF") of the FDIC, the
Bank also is subject to insurance assessments imposed and set by the FDIC from
time to time. The FDIC is further authorized to impose one or more special
assessments in any amount deemed necessary to enable repayment of amounts
borrowed by the FDIC from the Treasury Department. The actual assessments to
be paid into the BIF and the SAIF are based on the institution's assessment
risk classification, which is whether the institution is considered "well
capitalized", "adequately capitalized", or "under-capitalized", as those terms
have been defined in applicable federal regulations, and whether the institution
is considered by its supervising agency to be financially sound or to have
supervisory concerns.
The Gramm-Leach-Bliley Act (the "Act") was signed into law in November
1999 to remove depression-era barriers that separate banking, securities and
insurance functions. The Act allows full affiliation between banks and
securities firms by permitting the creation of financial holding companies
designed to engage in a range of financial activities, including securities
underwriting and merchant banking. The Act also repeals the SAIF special
reserve; modernizes the Federal Home Loan Bank System; provides for less
frequent Community Reinvestment Act ("CRA") compliance examinations for
community banks with $250 million or less in assets, and gives customers the
right to prevent banks from sharing information with third parties, such as
telemarketers. The Act prohibits unitary savings and loan holding companies
formed after May 4, 1999 from engaging in nonfinancial activities, and also
prohibits purchase of unitary thrift holding companies by commercial firms.
Certain provisions of the Act were effective immediately upon signing; other
provisions generally take effect between 120 days and 18 months following
enactment.
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
Among other things, the FDICIA provides the federal bank regulatory
agencies with broad powers to take prompt corrective action to resolve
problems of insured depository institutions. The extent of those powers
depends upon whether the institution in question is "well capitalized",
"adequately capitalized", "undercapitalized", "significantly undercapitalized",
or "critically undercapitalized." A depository institution's capital tier will
depend upon where its capital levels compare to various established capital
measures and certain other factors, as established by regulation. As of
December 31, 1999, the Bank met the definition of a "well capitalized"
institution.
The FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
"undercapitalized". "Undercapitalized" depository institutions are subject to
growth limitations and are required to submit a capital restoration plan. If a
depository institution fails to submit an acceptable plan, it is treated as if
it is "significantly undercapitalized". "Significantly undercapitalized"
depository institutions may be subject to a number of requirements and
restrictions, including orders to sell sufficient voting stock to become
"adequately capitalized", requirements to reduce total assets, and cessation
of receipt of deposits from correspondent banks. "Critically undercapitalized"
institutions are subject to the appointment of a receiver or conservator.
The FDICIA further requires an increase in the frequency of "full-scope,
on-site" examinations and expands audit requirements. In addition, federal
bank regulatory agencies are required to review and prescribe uniform
accounting standards that are at least as stringent as Generally Accepted
Accounting Principles.
Pursuant to the FDICIA, the FRB and the other federal bank regulatory
agencies adopted real estate lending guidelines pursuant to which each insured
depository institution is required to adopt and maintain written real estate
lending policies in conformity with the prescribed guidelines. Under these
guidelines, each institution is expected to set loan-to-value ratios not
exceeding the supervisory limits set forth in the guidelines. A loan-to-value
ratio is generally defined as the total loan amount divided by the appraised
value of the property at the time the loan is originated. The guidelines also
require that the institution's real estate policy require proper loan
documentation and that it establish prudent underwriting standards.
The FDICIA also contains the Truth in Savings Act. The purpose of the
Truth in Savings Act is to require the clear and uniform disclosure of the
rates of interest which are payable on deposit accounts by depository
institutions and the fees that are assessable against deposit accounts, so
that consumers can make a meaningful comparison between the competing claims
of financial institutions with regard to deposit accounts and products.
The FDICIA also amended the prior law with respect to the acceptance of
brokered deposits by insured depository institutions to permit only a "well
capitalized" depository institution to accept brokered deposits without prior
regulatory approval. Under implementing regulations, "well capitalized" banks
may accept brokered deposits with a waiver from the FDIC (subject to certain
restrictions on payments of rates), while "undercapitalized" banks may not
accept brokered deposits. The regulations contemplate that the definitions
of "well capitalized", "adequately capitalized", and "undercapitalized" will
be the same as the definitions adopted by the agencies to implement the prompt
corrective action provisions of the FDICIA (as described above).
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 26 in the 1999 Annual Report
and is incorporated herein by reference. The condition of all properties is
considered good. In the opinion of management, owned properties are
adequately covered by insurance.
Item 3. Legal Proceedings.
The Company and the Bank are periodically parties to or otherwise involved
in legal proceedings arising in the normal course of business, such as claims
to enforce liens, claims involving the making and servicing of real property
loans, and other issues incident to the Bank's business. Management does not
believe that there is any pending or threatened proceeding against the Company
or the Bank which, if determined adversely, would have a material effect on
the business, results of operations, or financial position of the Company or
the Bank.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Information required to be reported under this item is set forth on pages
13 and 14 of the 1999 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 1999 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 1999 Annual Report to Shareholders and is incorporated
herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Information required to be reported under this item is set forth on pages
14 through 15 of the 1999 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 1999 Annual Report to Shareholders and is
incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information required to be reported under this item is set forth on
pages 2 through 3 of the Commercial Bankshares, Inc. Proxy Statement and is
incorporated herein by reference.
Item 11. Executive Compensation.
Information required to be reported under this item is set forth on
pages 6 and 7 of the Commercial Bankshares, Inc. Proxy Statement and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information required to be reported under this item is set forth on
pages 4 through 5 of the Commercial Bankshares, Inc. Proxy Statement and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Information required to be reported under this item is set forth on
pages 3 through 4 of the Commercial Bankshares, Inc. Proxy Statement and is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)Exhibits
3.1 Articles of Incorporation, as amended, of the Company. Incorporated by
reference to Exhibit 3.1 of the Company's Registration Statement on Form
SB-2 as filed with the Securities and Exchange Commission, No. 33-67254,
effective October 5, 1993 ("Registration Statement").
3.2 By-Laws, as amended, of the Company. Incorporated by reference to
Exhibit 3.2 of the Registration Statement.
10.1 Standard Office Building Lease between Swire Brickell One, Inc., d/b/a
"Courvoisier Center" (Landlord) and Commercial Bank of Florida (Tenant),
dated December 21, 1990. Incorporated by reference to Exhibit 10.2 of
the Registration Statement.
10.2 Form of Indemnification Agreement. Incorporated by reference to Exhibit
10.4 of the Registration Statement.
10.3 Employment Agreement between Commercial Bankshares, Inc., Commercial
Bank of Florida, and Joseph W. Armaly, dated March 18, 1994 and amended
and restated on December 18, 1998. Incorporated by reference to Exhibit
10.3 that accompanies the 1998 Annual Report on Form 10-K.
10.4 Employment Agreement between Commercial Bankshares, Inc., Commercial Bank
of Florida, and Jack J. Partagas, dated March 18, 1994 and amended and
restated on December 18, 1998. Incorporated by reference to Exhibit 10.4
that accompanies the 1998 Annual Report on Form 10-K.
10.5 Employment Agreement between Commercial Bank of Florida and Barbara Reed,
dated February 5, 1997. Incorporated by reference to Exhibit 10.5 that
accompanies the 1996 Annual Report on Form 10-K.
10.6 Employment Agreement between Commercial Bank of Florida and Bruce
Steinberger, dated December 18, 1998. Incorporated by reference to
Exhibit 10.6 that accompanies the 1998 Annual Report on Form 10-K.
10.7 Commercial Bankshares, Inc., 1994 Outside Director Stock Option Plan,
effective as of March 18, 1994. Incorporated by reference to Exhibit
10.7 that accompanies the 1993 Annual Report on Form 10-KSB.
10.8 Commercial Bankshares, Inc., 1994 Performance Stock Option Plan,
adopted March 18, 1994, effective April 1, 1994. Incorporated by
reference to Exhibit 10.8 that accompanies the 1993 Annual Report on
Form 10-KSB.
10.9 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 Stock
Option Plan, dated January 15, 1999. Incorporated by reference to
Exhibit 10.13 that accompanies the 1998 Annual Report on Form 10-K.
10.14 Commercial Bankshares, Inc., Amendment to 1994 Performance Stock
Option Plan dated January 15, 1999. Incorporated by reference to
Exhibit 10.14 that accompanies the 1998 Annual Report on Form 10-K.
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 1999 Annual Report to Shareholders and is incorporated
herein by reference.
13.1 1999 Annual Report to Shareholders of Commercial Bankshares, Inc. *
21.1 Subsidiaries of the Company. Information required to be reported
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.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
COMMERCIAL BANKSHARES, INC.
(Registrant)
By:/s/ Jack J. Partagas
---------------------
Jack J. Partagas
President and Chief Operating Officer
March 27, 2000
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 27, 2000
- ----------------------- of Directors and
Joseph W. Armaly Chief Executive Officer
(Principal Executive Officer)
By:/s/ Jack J. Partagas President, March 27, 2000
- ----------------------- Chief Operating Officer,
Jack J. Partagas and Director
By:/s/ Cromwell A. Anderson Director March 27, 2000
- ---------------------------
Cromwell A. Anderson
By:/s/ Martin Yelen Director March 27, 2000
- -------------------
Martin Yelen
By:/s/ Robert Namoff Director March 27, 2000
- --------------------
Robert Namoff
By:/s/ Barbara E. Reed Senior Vice President March 27, 2000
- ---------------------- and Chief Financial Officer
Barbara E. Reed
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 20, 2000 relating to the financial statements, which
appears in the Annual Report to Shareholders, which is incorporated in this
Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Miami, Florida
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 19,086
<INT-BEARING-DEPOSITS> 250
<FED-FUNDS-SOLD> 19,999
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 125,236
<INVESTMENTS-CARRYING> 43,392
<INVESTMENTS-MARKET> 43,859
<LOANS> 247,636
<ALLOWANCE> 3,279
<TOTAL-ASSETS> 475,170
<DEPOSITS> 388,447
<SHORT-TERM> 40,794
<LIABILITIES-OTHER> 3,148
<LONG-TERM> 0
0
0
<COMMON> 313
<OTHER-SE> 42,468
<TOTAL-LIABILITIES-AND-EQUITY> 475,170
<INTEREST-LOAN> 18,809
<INTEREST-INVEST> 10,632
<INTEREST-OTHER> 769
<INTEREST-TOTAL> 30,210
<INTEREST-DEPOSIT> 10,124
<INTEREST-EXPENSE> 11,947
<INTEREST-INCOME-NET> 18,263
<LOAN-LOSSES> 930
<SECURITIES-GAINS> 763
<EXPENSE-OTHER> 13,413
<INCOME-PRETAX> 7,541
<INCOME-PRE-EXTRAORDINARY> 7,541
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,456
<EPS-BASIC> 1.42
<EPS-DILUTED> 1.37
<YIELD-ACTUAL> 4.40
<LOANS-NON> 874
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,430
<CHARGE-OFFS> 140
<RECOVERIES> 59
<ALLOWANCE-CLOSE> 3,279
<ALLOWANCE-DOMESTIC> 3,279
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
1999 ANNUAL REPORT
COMMERCIAL BANKSHARES, INC.
Page 1 Letter to Shareholders
Page 2 Summary Consolidated Financial Information
Page 4 Management's Discussion and Analysis
Page 17 Report of Independent Certified Public Accountants
- ------------------------------------------------------------------------------
Corporate Profile
- ------------------------------------------------------------------------------
Commercial Bankshares, Inc. is a bank holding company whose subsidiary,
Commercial Bank of Florida, operates fourteen branches in two of Florida's
fastest growing counties; Miami-Dade and Broward. Since its inception in
1988, the Company has grown to $475 million in assets through acquisitions
and internal growth. Lead by seasoned South Florida bankers, the Company
is committed to extending its personalized "hometown" banking services to
other communities in the South Florida area.
- ------------------------------------------------------------------------------
Page 18 Consolidated Financial Statements
Page 22 Notes to Consolidated Financial Statements
Page 36 Directors and Officers of the Company and Subsidiary Bank
Page 37 Subsidiary Bank Locations
To Our Shareholders
It gives me great pleasure to present you with Commercial Bankshares'
results for 1999. We have achieved a record year in profits, earnings per
share, loan portfolio size, asset size and dividend growth. The results
demonstrate that the efforts of the board, management and staff to provide
value to you, our shareholders, have been successful. We hope that you share
in our enthusiasm over the 1999 results.
Net income rose to a record $5.46 million, or diluted earnings per share
of $1.37. This is a 12% increase over 1998 net income of $4.86 million, or
$1.21 per share. Return on average assets closed the year at 1.20%. Net
interest income rose 9.6% to a record $18.3 million, and the net interest
margin increased five basis points to 4.61% for 1999.
During 1999 we continued our strategy to improve performance by shifting
a larger percentage of assets into the loan portfolio. Growth in the loan
portfolio was outstanding, with net loans closing the year at $244 million.
This is a 23% increase from 1998, which closed the year at $199 million. The
level of loans-to-deposits, at 64%, is an outstanding achievement in the wake
of past deposit-only acquisitions. We will continue to build the level of
loans-to-deposits to reach an ultimate level at which earnings are enhanced
while liquid assets are adequately maintained.
Earnings include fourth quarter charges to the provision for loan losses
of $540,000. Management and the Board considered the charge to be necessary
in order to bring the allowance for loan losses to a level that sufficiently
provides for potential losses in light of uncertainty in the economy and the
actuality of rising interest rates. Additionally, due to the strong growth
in the loan portfolio, the allocation to the allowance brings our ratio of
allowance-to-total loans in line with peer levels.
Total assets closed the year at $475 million, up $43 million from 1998.
The increase was the result of a 12% increase in deposits and repurchase
agreements, which ended 1999 at $429 million. While we do not intend to grow
just for the sake of growth, we do recognize that with growth comes the ability
to offer more diverse products and provide economies of scale. We will
continue to look for growth opportunities in the marketplace and to promote
internal growth in a responsible, steady manner.
The Company declared dividends of $.59 per common share in 1999. This is
a 28% increase over 1998 dividends declared of $.46. The increase is
attributable to strong performance in 1999 and capital strength. The Company
continues to exceed all regulatory capital requirements and closed the year
with a leverage capital ratio of 9.23%, a tier 1 ratio of 14.88% and a total
capital ratio of 16.34%.
Our goals for the new decade include upholding our reputation as an
outstanding South Florida financial institution and providing excellent
performance and profitability. We will focus on deposit and loan growth in
a changing marketplace, cost efficiency, and excellence in service.
As we approach the half-billion asset mark, we reconfirm our commitment
to provide personalized "hometown" service to our customers that is unsurpassed
in this converging financial services industry. We take pride in the fact that
you are not a number to us; that we know your name and how to best serve you.
Our growth will not affect the basic premise, caring for our customers, that
has largely contributed to our success. We commit to our shareholders to focus
on efficiency, productivity and revenue producing opportunities without
sacrificing customer care.
On a personal note, allow me to express my thanks to the directors of
our Company. I am grateful to each of you for your guidance and commitment
to our success. To the dedicated Commercial Bank "team" of officers and
employees, my sincere thanks for your achievements. I believe that your
commitment to bring excellence to your job has resulted not only in a top
performing company but also has provided a work environment that is
comfortable, flexible and enjoyable.
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>
As of or For the Years Ended December 31,
----------------------------------------------
1999 1998 1997 1996(1) 1995
<S> <C> <C> <C> <C> <C>
Income Statement Data: ---- ---- ---- ---- ----
Interest income $30,210 $28,140 $25,451 $23,535 $23,274
Interest expense 11,947 11,478 10,105 9,610 10,615
------ ------ ------ ------ ------
Net interest income 18,263 16,662 15,346 13,925 12,659
Provision for loan losses 930 230 170 1,040 80
------ ------ ------ ------ ------
Net interest income after
provision for loan losses 17,333 16,432 15,176 12,885 12,579
Non-interest income 3,621 2,668 2,641 3,055 2,001
Non-interest expense 13,413 12,207 11,319 18,016 10,821
------ ------ ------ ------ ------
Income(loss) before income taxes 7,541 6,893 6,498 (2,076) 3,759
Income tax expense (benefit) 2,085 2,033 1,975 (1,280) 941
------ ------ ------ ------ ------
Net income (loss) $ 5,456 $ 4,860 $ 4,523 $ (796) $ 2,818
====== ====== ====== ====== ======
Per Share Data:
Basic earnings (loss) per share $ 1.42 $ 1.25 $ 1.17 $(0.24) $ 0.73
Diluted earnings (loss) per share $ 1.37 $ 1.21 $ 1.14 $(0.24) $ 0.72
Book value at year end $11.10 $11.57 $10.81 $ 9.66 $ 9.91
Cash dividends declared per
common share $ 0.59 $ 0.46 $ 0.29 $ 0.17 $ 0.08
Balance Sheet Data:
Cash and cash equivalents $ 39,085 $ 35,233 $ 27,561 $ 29,896 $ 20,547
Investment securities 168,628 176,502 178,066 190,713 223,403
Loans, net 244,016 199,277 170,175 128,111 88,526
Total assets 475,170 432,345 395,973 367,901 353,875
Deposits 388,447 350,415 319,844 298,863 299,914
Borrowed funds 40,794 33,978 31,285 29,203 13,238
Stockholders' equity 42,781 44,737 41,929 37,444 38,411
<FN>
(1) 1996 net income and earnings per share figures include non-recurring charges
of $7.06 million, ($4.45 million, net of tax) or $1.15 per diluted common
share.
</TABLE>
<TABLE>
Selected Financial Ratios
<CAPTION>
As of or For the Years Ended December 31,
------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
---- ---- ---- ---- ----
Return on average assets (1) 1.20% 1.16% 1.20% (.22%) 0.79%
Return on average equity (1) 12.35% 11.14% 11.54% (2.10%) 7.70%
Net yield on average interest-
earning assets (2) 4.61% 4.56% 4.72% 4.55% 4.09%
Allowance for loan losses
to total loans 1.32% 1.20% 1.30% 1.57% 1.34%
Allowance for loan losses as a
percentage of non-accrual loans 375% 459% 2182% 5254% 262%
Allowance for loan losses as a
percentage of non-performing
loans (3) 375% 459% 2182% 5254% 262%
Asset quality ratio (non-performing
loans and other real estate owned
to total assets) 0.18% 0.12% 0.03% 0.01% 0.13%
Average interest-earning assets to
average interest-bearing
liabilities 127% 128% 126% 122% 118%
Non-interest expense to average
total assets 2.94% 2.92% 3.01% 5.05% 3.01%
Net interest income to
non-interest expense 136% 137% 136% 77% 117%
Risk-based capital ratios:
Tier 1 capital 14.88% 16.19% 18.14% 19.66% 22.23%
Total capital 16.34% 17.70% 19.20% 20.82% 23.12%
Leverage ratio (4) 9.23% 9.52% 9.70% 9.45% 8.62%
Equity to total assets 9.00% 10.35% 10.59% 10.18% 10.85%
<FN>
(1) 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 $5.5 million, a 12% increase over 1998 net
income of $4.9 million. Net income for 1997 was $4.5 million. The increase in
1999 net income is due to increases in net interest income of $1.6 million, or
10%, and non-interest income of $953,000, or 36%, partially offset by increased
operating expenses of $1.2 million, or 10%, and a $700,000 increase to the
provision for loan losses. Basic and diluted earnings per common share were
$1.42 and $1.37, respectively, in 1999, compared to $1.25 and $1.21,
respectively, in 1998. Basic and diluted weighted average shares outstanding
were 3.86 million and 3.97 million, respectively, in 1999, and 3.89 million and
4.01 million, respectively, in 1998. Earnings per common share and weighted
average shares outstanding have been adjusted retroactively for two 5% stock
dividends declared in December, 1999 and 1998. Weighted average shares exclude
treasury stock, which totaled 78,746 shares and 41,092 shares at December 31,
1999 and 1998, respectively.
Return on average assets and return on average equity were 1.20% and 12.35%,
respectively, for 1999, and 1.16% and 11.14%, respectively, for 1998. Average
assets increased $38 million, or 9%, in 1999. Book value per common share
decreased 4% to $11.10 at December 31, 1999 from $11.57 at December 31, 1998
due to the mark-to-market valuation of the available for sale investment
portfolio. Capital ratios continued to exceed all regulatory requirements,
with a leverage ratio of 9.23% in 1999, as compared to 9.52% in 1998.
Dividends declared per common share increased 28% to $.59 in 1999, from $.46
in 1998. Book value per share and dividends declared per common share have
been adjusted for the 5% stock dividends declared in December, 1999 and 1998.
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 1999 was $19.2 million, an increase of 10% over 1998
net interest income of $17.4 million. In 1998, net interest income grew 8%
from $16.1 million in 1997. The increase in net interest income in 1999 is
attributable to an increase in average earning assets of $36 million, and an
increase in the net interest margin yield. The net interest margin was 4.61%
in 1999, as compared to 4.56% in 1998 and 4.72% in 1997. The increase of 5
basis points in 1999 is attributable to the faster repricing of liabilities.
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 31, 1999, 1998 and 1997.
<TABLE>
AVERAGE BALANCES AND INTEREST RATES
(Dollars In Thousands)
<CAPTION>
1999 1998 1997
-------------------- -------------------- ---------------------
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) $224,957 $18,809 8.36% $183,138 $16,215 8.85% $148,351 $13,390 9.03%
Investments,
taxable 133,111 8,374 6.29% 152,843 9,488 6.21% 156,560 10,003 6.39%
Investments, non-
taxable (2) 42,756 3,206 7.50% 31,340 2,438 7.78% 26,818 2,297 8.57%
Federal funds 15,588 769 4.93% 13,327 708 5.31% 10,026 542 5.41%
------- ------ ---- ------- ------ ---- ------- ------ ----
TOTAL INTEREST-EARNING
ASSETS 416,412 31,158 7.48% 380,648 28,849 7.58% 341,755 26,232 7.68%
------- ------ ---- ------- ------ ---- ------- ------ ----
NON-INTEREST-EARNING ASSETS:
Cash and due
from banks 20,100 17,807 15,897
Other assets 18,997 18,853 17,701
------- ------- -------
TOTAL NON-INTEREST EARNING
ASSETS 39,097 36,660 33,598
------- ------- -------
TOTAL ASSETS 455,509 $417,308 $375,353
======= ======= =======
INTEREST-BEARING LIABLITIES:
Interest-bearing
checking $ 57,704 608 1.05% $ 53,153 633 1.19% $ 47,374 566 1.19%
Money market 43,422 1,265 2.91% 42,396 1,271 3.00% 38,191 889 2.33%
Savings 22,798 375 1.64% 21,952 394 1.79% 22,459 403 1.79%
Time 161,427 7,876 4.88% 145,650 7,608 5.22% 131,562 6,750 5.13%
Borrowed funds41,358 1,823 4.41% 34,548 1,572 4.55% 32,336 4,497 4.63%
------ ------ ---- ------- ------ ---- ------- ------ ----
TOTAL INTEREST-BEARING
LIABILITIES 326,709 11,947 3.66% 297,699 11,478 3.86% 271,922 10,105 3.72%
------- ------ ---- ------- ------ ---- ------- ------ ----
NON-INTEREST-BEARING
LIABILITIES:
Non-interest-bearing
deposits 81,136 72,766 61,672
Other liabs 3,500 3,228 2,550
------- ------- -------
TOTAL NON-INTEREST-BEARING
LIABILITIES 84,636 75,994 64,222
------- ------- -------
STOCKHOLDERS'
EQUITY 44,164 43,615 39,209
------- ------- -------
TOTAL LIABILITES & STOCKHOLDERS'
EQUITY $455,509 $417,308 $375,353
======= ======= =======
NET INTEREST INCOME AND
NET YIELD ON AVERAGE EARNING
ASSETS (3) 19,211 4.61% 17,371 4.56% 16,127 4.72%
Less tax-equivalent
adjustment included
above (948) (709) (781)
------ ------ ------
NET INTEREST INCOME $18,263 $16,662 $15,346
====== ====== ======
<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>
1999 COMPARED TO 1998 1998 COMPARED TO 1997
----------------------- -----------------------
VOLUME RATE CHANGE VOLUME RATE CHANGE
------ ---- ------ ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON:
Loans (1) $3,703 $(1,109) $2,594 $3,140 $ (315) $2,825
Investments, taxable (1,225) 111 (1,114) (237) (278) (515)
Investments, non-taxable (2) 888 (120) 768 387 (246) 141
Federal funds 120 (59) 61 178 (12) 166
----- ----- ----- ----- ----- -----
TOTAL INTEREST INCOME 3,486 (1,177) 2,309 3,468 (851) 2,617
----- ----- ----- ----- ----- -----
INTEREST PAID ON:
Interest-bearing checking 54 (79) (25) 69 (2) 67
Money market 15 (34) (19) (9) 0 (9)
Savings 31 (37) (6) 98 284 382
Time deposits 824 (556) 268 723 135 858
Borrowed funds 310 (59) 251 102 (27) 75
----- ----- ----- ----- ----- -----
TOTAL INTEREST EXPENSE 1,234 (765) 469 983 390 1,373
----- ----- ----- ----- ----- -----
CHANGE IN NET INTEREST INCOME $2,252 $ (412) $1,840 $2,485 $(1,241) $1,244
===== ===== ===== ===== ===== =====
<FN>
(1) For the 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.
</TABLE>
Non-interest Income
Non-interest income for 1999 was $3.62 million, compared to $2.67 million in
1998 and $2.64 million in 1997. These figures include gains on sales of
securities of $763,000, $108,000 and $88,000 for 1999, 1998 and 1997,
respectively, and gains on sale of fixed assets of $220,000, $0, and $105,000
for 1999, 1998 and 1997, respectively. Other fluctuations in non-interest
income include an increase in account maintenance fee income, ATM income and
wire fee income and a decrease in credit card processing income.
Non-interest Expense
Non-interest expenses for 1999 were $13.4 million compared to $12.2 million in
1998 and $11.3 million in 1997. The 10% increase during 1999 is attributable
to increased salary, data processing, telephone, intangible tax and charitable
donation expenses. Salary expense increased by $762,000 or 11%, due to regular
salary and bonus increases and to an increase in average full time equivalent
employees from 179 in 1998 to 182 in 1999. Data processing expense increased
$123,000 or 15%, due to a larger number of accounts and increased processing
costs and to year 2000 date change expenses. Telephone and fax expense
increased $65,000, or 45%, due to the use of new high speed lines for the
communication of the computer systems. Intangible tax expense increased in
1999 due to higher loans , taxable investment and receivable balances which
were assessed as of January 1, 1999. Donation expense increased $47,000, or 162%
as the Company made contributions to several new charitable organizations during
1999.
The following table summarizes the various categories of non-interest expense
for the years ended December 31, 1999, 1998, and 1997.
<TABLE>
NON-INTEREST EXPENSE
(In Thousands)
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Salaries and employee benefits $ 7,722 $ 6,960 $ 6,339
Occupany 1,242 1,219 1,216
Furniture and equipment 983 947 889
Data processing 968 845 727
Professional fees 337 295 366
Stationery and supplies 267 278 252
Telephone 210 145 130
Insurance 206 183 187
Intangible tax 180 115 100
Amortization of goodwill 179 179 179
Administrative service charges 167 148 92
Advertising 154 153 86
FDIC insurance 131 125 122
Security 114 96 53
Armored carrier and courier 108 102 70
State fees and assessments 82 76 70
Donations 76 29 25
Postage 64 61 70
Dues and subscriptions 58 55 73
Other expenses 165 196 273
------ ------ ------
$13,413 $12,207 $11,319
====== ====== ======
</TABLE>
Taxes
For the years ended December 31, 1999, 1998, and 1997, the Company recorded an
income tax expense of approximately $2.09 million, $2.03 million, and $1.98
million, respectively. Accordingly, the Company's effective tax rates were
28%, 30% and 30% for 1999, 1998 and 1997, respectively. The determination of
effective rates reflects items which are not reported for income tax purposes,
primarily tax-exempt interest income and the amortization of goodwill.
FINANCIAL CONDITION ANALYSIS
Investment Securities
The Company's investment securities portfolio of $169 million at December 31,
1999, consisted of securities available for sale of $125 million, which are
carried at fair value, and securities held to maturity of $44 million, which
are carried at amortized cost. This compares to investment securities of $177
million at December 31, 1998, which consisted of securities available for sale
of $119 million, and securities held to maturity of $58 million. The decrease
of $8 million in the investment portfolio is due to the Company's decision to
increase federal funds at year end for liquidity, and to the decrease in the
market value of the portfolio. The ratio of available for sale investments
to total investments increased to 74% in 1999 from 67% in 1998, as the Company
chose to classify new securities as available for sale in order to increase its
ability to manage the portfolio to meet Asset/Liability and interest rate
sensitivity goals.
The portfolio of securities available for sale at December 31, 1999, had a net
unrealized loss of $ 1.9 million, net of taxes, as compared to a net unrealized
gain of $2.7 million, net of taxes, at December 31, 1998.
The following table presents the Company's investment portfolio as of December
31, 1999, 1998, and 1997.
<TABLE>
INVESTMENT PORTFOLIO SCHEDULE
(In Thousands)
<CAPTION>
At December 31,
---------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Investment securities available for sale (at fair value):
U.S. Treasury Obligations $ - $ 4,025 $11,088
U.S. Government Agencies 99,130 96,036 79,653
Municipal Obligations 21,736 13,907 -
Other 4,370 5,104 4,313
------- ------- ------
Total investment securities
available for sale $125,236 $119,072 $95,054
======= ======= ======
Investment securities held to maturity (at cost):
U.S. Government Agencies $ 20,877 $ 32,766 $56,448
Municipal Obligations 22,265 24,314 26,114
Other 250 350 450
------- ------- ------
Total investment securities
held to maturity $ 43,392 $ 57,430 $83,012
======= ======= ======
Mortgage-backed securities, included in U.S.
Government Agencies $ 57,316 $ 60,141 $49,963
======= ======= ======
</TABLE>
The maturities and weighted average yields of investment securities, excluding
corporate stock, as of December 31, 1999 and 1998, 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, 1999, 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. Government Agencies $ - - $9,566 5.86% $59,710 6.62% $29,853 6.48%
Municipal Obligations (2) - - - - 854 6.22% 20,883 6.64%
--- ----- ------ ------
$ - $9,566 $60,564 $50,736
=== ===== ====== ======
Maturity Distributions Held to Maturity
U.S. Government Agencies $ - - $1,761 5.67% $ - - $19,116 6.40%
Municipal Obligations (2) 335 5.75% 8,187 8.24% 13,537 8.59 206 6.58%
Other 250 5.46% - - - - - -
--- ----- ------ ------
$585 $9,948 $13,537 $19,322
=== ===== ====== ======
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
------ ----- ------- ----- ------- ----- ------- -----
Maturity Distributions Available for Sale (1)
U.S. Treasury $4,025 6.11% $ - - $ - - $ - -
U.S. Gov't Agencies - - 17,324 6.18% 54,202 6.31% 24,510 6.56%
Municipal Obligations (2) - - - - - - 13,907 6.57%
----- ------ ------ ------
$4,025 $17,324 $54,202 $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, 1999, the balance of the loan portfolio was $248 million, an
increase of 23% over the December 31, 1998 loan balance of $202 million.
Average loans were $225 million in 1999, compared to $183 million in 1998.
The planned growth of the loan portfolio is a strategic goal which the Company
implemented in 1996. Since then, the portfolio has almost tripled in size
(2.76 times the December 31, 1995 balance). Loans are made to businesses and
individuals in the local market area. The composition of the portfolio is
presented in the following table:
<TABLE>
Loan Portfolio Analysis
(Dollars In Thousands)
<CAPTION>
December 31,
------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------- --------------- --------------- --------------- --------------
Amount % Amount % Amount % Amount % Amount %
-------- ------ -------- ------ -------- ------ -------- ------ ------- ------
<S>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial & financial
$ 46,147 18.6% $ 34,415 17.0% $ 30,454 17.7% $ 23,662 18.2% $16,497 18.4%
Real estate mortgages (1)
176,500 71.3% 148,564 73.6% 124,892 72.3% 95,711 73.4% 67,698 75.4%
Installment and other loans
24,989 10.1% 18,984 9.4% 17,302 10.0% 10,902 8.4% 5,572 6.2%
------- ----- ------- ----- ------- ----- ------- ----- ------ -----
Total loans
247,636 100.0% 201,963 100.0% 172,648 100.0% 130,275 100.0% 89,767 100.0%
===== ===== ===== ===== =====
Less:
Allowance for loan losses
(3,279) (2,430) (2,247) (2,049) (1,199)
Deferred loan fees
(341) (256) (226) (115) (42)
------- ------- ------- ------- ------
Total loans, net
$244,016 $199,277 $170,175 $128,111 $88,526
======= ======= ======= ======= ======
<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, 1999, 1998, and 1997, and an analysis of
sensitivities of loans due after one year.
<TABLE>
<CAPTION>
LOAN MATURITY SCHEDULE
(In Thousands)
--------------------------------------------------
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, 1999
Commercial and financial $22,816 $19,025 $ 4,306 $ 46,147
Real estate mortgage 5,358 55,187 115,955 176,500
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
At December 31, 1997
Commercial and financial 17,709 8,975 3,770 30,454
Real estate mortgage 5,388 72,915 46,589 124,892
</TABLE>
<TABLE>
<CAPTION>
LOANS DUE AFTER ONE YEAR
(In Thousands)
----------------------------------------
December 31,
----------------------------------------
<S> <C> <C> <C>
Type of Interest Rate: 1999 1998 1997
---- ---- ----
Fixed $ 42,849 $ 35,196 $ 16,171
Floating 151,624 115,174 116,078
------- ------- -------
Total $194,473 $150,370 $132,249
======= ======= =======
</TABLE>
Allowance for Loan Losses
The balance in the allowance for loan losses at December 31, 1999, was $3.28
million, or 1.32% of total loans. This is an increase of $849,000 from the
December 31, 1998 allowance balance of $2.43 million, or 1.20% of total loans.
The increase in the allowance is the result of charges to the provision for
loan losses during 1999 of $930,000, less net charge offs of $81,000. The
charge to the provision for 1998 was $230,000 and net charge offs were $47,000.
The allowance was increased in order to maintain a level deemed sufficient to
absorb losses in the loan portfolio. The Company reviews the allowance on a
monthly basis and determines its adequacy from analysis of actual operating
experience, estimates of the risks associate with specific loans and the loan
portfolio, present economic conditions and peer comparisons.
Non-performing assets were $874,000 at December 31, 1999, compared to $529,000
at December 31, 1998. Total non-performing assets to total assets, were .18%
and .12% at December 31, 1999 and 1998, 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. There were no properties held in other real
estate owned at December 31, 1999 or 1998.
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,
-----------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average net loans outstanding
during the period $222,326 $180,815 $146,188 $110,314 $75,133
======= ======= ======= ======= ======
Total net loans at period end $244,016 $199,277 $170,175 $128,111 $88,526
======= ======= ======= ======= ======
Beginning balance of allowance
for loan losses $ 2,430 $ 2,247 $ 2,049 $ 1,199 $ 1,305
------- ------- ------- ------- ------
Loans charged-off:
Commercial and financial 7 5 69 60 182
Real estate mortgage - 84 - 124 60
Credit cards - - - - 5
Installment and other loans 133 28 43 30 54
------- ------- ------- ------- ------
Total loans charged-off 140 117 112 214 301
------- ------- ------- ------- ------
Recoveries of loans perviously charged-off:
Commercial and financial 37 53 126 18 95
Real estate mortgage - 5 5 4 -
Credit cards - - - - 9
Installment and other loans 22 12 9 2 11
------- ------- ------- ------- ------
Total recoveries 59 70 140 24 115
------- ------- ------- ------- ------
Net loans charged-off (recovered) 81 47 (28) 190 186
------- ------- ------- ------- ------
Provision for loan losses 930 230 170 1,040 80
------- ------- ------- ------- ------
Balance at period end $ 3,279 $ 2,430 $ 2,247 $ 2,049 $ 1,199
======= ======= ======= ======= ======
Net charge-offs (recoveries) during
the year to average net loans 0.04% 0.03% (0.02%) 0.17% 0.25%
======= ======= ======= ======= ======
Allowance as a percentage of
non-performing loans 375% 459% 2182% 5254% 262%
======= ======= ======= ======= ======
</TABLE>
The following table presents a summary of the Company's non-performing assets
for the last five years.
<TABLE>
NON-PERFORMING ASSETS
(In Thousands)
<CAPTION>
At December 31,
--------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Commercial and financial $ - $529 $ - $ 39 $ -
Real estate mortgage 874 - 103 - 458
---- ---- ---- ---- ----
Total non-accrual loans 874 529 103 39 458
---- ---- ---- ---- ----
Total non-performing loans 874 529 103 39 458
Other real estate owned - - - - -
---- ---- ---- ---- ----
Total non-performing assets $874 $529 $103 $ 39 $458
==== ==== ==== ==== ====
Total non-performing assets to
total assets .18% .12% .03% .01% .13%
==== ==== ==== ==== ====
</TABLE>
The following table presents the breakdown of the allowance for loan losses by
loan category for the periods indicated. Management believes that the allowance
can be allocated by category only on an approximate basis. 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>
ALLOWANCES FOR LOAN LOSSES BY CATEGORY
(Dollars In Thousands)
<CAPTION>
At December 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
% of % of % of % of % of
Loans in Loans in Loans in Loans in Loans in
Category Category Category Category Category
to to to to to
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial & financial
$ 93 18.6% $ 140 17.0% $ 401 17.7% $ 244 18.2% $ 222 18.4%
Real estate mortgages (1)
280 71.3% 357 73.6% 259 72.3% 185 73.4% 186 75.4%
Installment & other loans
29 10.1% 20 9.4% 47 10.0% 37 8.4% 14 6.2%
Unallocated
2,877 - 1,913 - 1,540 - 1,583 - 777 -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance
for loan
loss $3,279 100.0% $2,430 100.0% $2,247 100.0% $2,049 100.0% $1,199 100.0%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
<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 $31 million, or 9%, to $366 million in 1999,
while average borrowed funds (repurchase agreements) increased by $6.8 million,
or 20%, to $41 million. The largest increase by category of average deposits
was certificates of deposit, which grew $16 million, or 11%, due in part to a
premium-rate six-month certificate campaign. Average demand deposits grew $8.4
million, or 12.0%, and average interest-bearing checking grew $4.6 million, or
9%. Deposit growth was internally generated during 1999 at the Company's
fourteen branches in Miami-Dade and Broward Counties.
The following table presents the average balances and average weighted rates for
the Company's categories of deposits for the years ended December 31, 1999,
1998, and 1997.
<TABLE>
AVERAGE DEPOSIT BALANCES & WEIGHTED AVERAGE RATES
(Dollars In Thousands)
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------
1999 1998 1997
------------------------ ------------------------ ------------------------
% of % of % of
Average Average Total Average Average Total Average Average Total
Balance Rate Deposits Balance Rate Deposits Balance Rate Deposits
------- ------- -------- ------- ------- -------- ------- ------- --------
<S>
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing deposits
$ 81,136 - 22.1% $ 72,766 - 21.7% $ 61,672 - 20.5%
Interest-bearing checking
57,504 1.05% 15.7% 53,153 1.19% 15.8% 47,374 1.19% 15.7%
Money market accounts
43,422 2.91% 11.9% 42,396 3.00% 12.6% 38,191 2.33% 12.7%
Savings deposits
22,798 1.64% 6.2% 21,952 1.79% 6.5% 22,459 1.79% 7.4%
Time deposits
161,427 4.88% 44.1% 145,650 5.22% 43.4% 131,562 5.13% 43.7%
------- ------ ------- ------ ------- ------
$366,487 2.76% 100.0% $335,917 2.95% 100.0% $301,258 2.86% 100.0%
======= ===== ====== ======= ===== ====== ======= ===== ======
</TABLE>
The following table presents the maturity of certificates of deposit over
$100,000 as of December 31, 1999.
<TABLE>
MATURITY SCHEDULE
CERTIFICATES OF DEPOSIT >$100,000
(Dollars In Thousands)
<CAPTION>
Balance Percent
------- -------
<S> <C> <C>
Less than 3 months $20,347 28.2%
3 to 6 months 16,242 22.5%
6 to 12 months 33,379 46.2%
More than 12 months 2,274 3.1%
------- -------
Total $72,242 100.0%
======= =======
</TABLE>
Short Term Borrowings
The following table presents a summary of the Company's short term borrowings
at December 31, 1999, 1998, and 1997:
<TABLE>
SHORT-TERM BORROWINGS
(Dollars In Thousands)
<CAPTION>
Years Ended December 31,
------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Securities sold under agreements
to repurchase at year-end $40,794 $33,978 $31,285
Weighted average rate of
securities sold under agreements
to repurchase at year-end 4.89% 3.84% 4.62%
Average amount of securities
sold under agreements to
repurchase during the fiscal year $41,358 $34,548 $32,336
Weighted average rate of securities
sold under agreements to
repurchase during the year 4.41% 4.55% 4.63%
Maximum amount of securities sold
under agreements to repurchase
at any month-end during
the fiscal year $45,908 $40,005 $37,127
</TABLE>
Capital
Shareholders' equity decreased $2.0 million in 1999 to $42.8 million.
Shareholders' equity was increased by $5.5 million from net income and by
$237,000 from the issuance of common stock resulting from the exercise of
options. Shareholders' equity was reduced by $4.6 million, net of tax, from
other comprehensive losses relating to unrealized holding losses on available-
for-sale securities, $2.3 million for dividends declared on common stock and
$788,000 for the purchase of treasury stock. For the year ended December 31,
1999, the return on average equity was 12.35%, compared to 11.14% for the year
ended December 31, 1998.
At year-end 1999 and 1998, there were 3,931,375 (including 78,746 shares of
treasury stock) and 3,908,827 (including 41,092 shares of treasury stock)
shares of common stock outstanding, respectively. There were 222
shareholders of record as of December 31, 1999, and the Company believes
that it has approximately 650 additional beneficial shareholders.
During 1999, the Company declared cash dividends of $0.59 per common share, a
28% increase over 1998 cash dividends of $0.46 per common share. Cash dividends
declared totaled $2.3 million and $1.8 million in 1999 and 1998, respectively.
Dividends declared but not paid amounted to $693,000 and $705,000 in 1999 and
1998, respectively. In addition to the cash dividends, the Company declared
5% stock dividends in December, 1999 and December, 1998. 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 (as adjusted for five percent stock
dividends in December, 1999 and 1998) for the years ended December 31, 1999 and
1998, by quarter, are as follows:
<TABLE>
RECENT COMMON STOCK PRICES
<CAPTION>
1999 1998
----------------------- -----------------------
High Low Close High Low Close
---- --- ----- ---- --- -----
<S> <C> <C> <C> <C> <C> <C>
First Quarter $21.79 $19.52 $21.43 $23.13 $20.64 $21.32
Second Quarter 22.03 18.81 20.60 23.24 21.09 22.00
Third Quarter 22.86 20.12 20.71 22.22 17.80 19.96
Fourth Quarter 22.86 20.00 20.63 21.91 17.69 21.91
</TABLE>
Continued growth and profitability of the Company are dependent upon maintenance
of adequate levels of capital. The capital adequacy of the Company is
determined based on the level of capital as well as asset quality, liquidity
and earnings history. At December 31, 1999, 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, 1999,
was 9.23%, compared to 9.52% at year-end 1998, 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, 1999, 1998, and 1997.
<TABLE>
REGULATORY CAPITAL
<CAPTION>
December 31,
-----------------------------------
(Dollars in Thousands)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Tier I Capital:
Stockholders' equity less
intangible assets (1) $ 44,022 $ 41,214 $ 38,404
Tier II Capital:
Allowance for loan loss 3,279 2,430 2,247
45% of unrealized gain on available
for sale equity securities 1,051 1,404 -
------- ------- -------
Total capital $ 48,352 $ 45,048 $ 40,651
======= ======= =======
Risk-adjusted assets $295,949 $254,530 $211,750
======= ======= =======
Risk-based capital ratios (2)
Tier I Capital 14.88% 16.19% 18.14%
Total Capital 16.34% 17.70% 19.20%
Leverage Ratio 9.23% 9.52% 9.70%
<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. Management
believes that the level of liquidity is sufficient to meet future funding
requirements.
For banks, liquidity represents the ability to meet both loan commitments and
withdrawals of deposited funds. Funds to meet these needs can be obtained by
converting liquid assets to cash or by attracting new deposits or other sources
of funding. Many factors affect a bank's ability to meet liquidity needs. The
Bank's principal sources of funds are deposits, repurchase agreements, payments
on loans, paydowns, maturities and sales of investments, and capital
contributions by the Company. As additional sources of funds, the Bank has
credit availability with the Federal Home Loan Bank amounting to $71 million,
and Federal Funds purchased lines available at correspondent banks amounting
to $11 million.
The Bank's primary use of funds is to originate loans and purchase investment
securities. In 1999, 1998 and 1997, the net change in loans was an increase
of $45.6 million, $29.3 million and $42.4 million, respectively, and the Bank
purchased $51.6 million, $106.5 million and $45.1 million of investment
securities. Funding for the above came primarily from increases in deposits
of $38.0 million, $30.6 million and $21.0 million in 1999, 1998, and 1997,
respectively, and increases in securities sold under agreement to repurchase
of $6.8 million in 1999, $2.7 million in 1998 and $2.1 million in 1997, and
in proceeds from maturities and sales of investment securities of $52.7 million,
$108.2 million and $59.4 million in 1999, 1998 and 1997, respectively.
Asset/Liability Management and Interest Rate Risk
Changes in interest rates can substantially impact the Company's long-term
profitability and current income. An important part of management's efforts
to maintain long-term profitability is the management of interest rate risk.
The goal is to maximize net interest income within acceptable levels of interest
rate risk and liquidity. Interest rate exposure is managed by monitoring the
relationship between interest-earning assets and interest-bearing liabilities,
focusing on the size, maturity or repricing date, rate of return and degree of
risk. The Bank's Asset/Liability Management Committee oversees the interest
rate risk management and reviews the Bank's asset/liability structure on a
quarterly basis.
The Bank uses interest rate sensitivity, or GAP analysis to monitor the amount
and timing of balances exposed to changes in interest rates. The GAP analysis
is not relied upon solely to determine future reactions to interest rate changes
because it is presented at one point in time and could change significantly
from day-to-day. Other methods such as simulation analysis are utilized in
evaluating the Bank's interest rate risk position. The table presented below
shows the Bank's GAP analysis at December 31, 1999.
<TABLE>
INTEREST RATE SENSITIVITY ANALYSIS
(Dollars In Thousands)
<CAPTION>
Term to Repricing
----------------------------------------------------
Over 1 Year
90 Days 91-181 182-365 & Non-rate
or Less Days Days Sensitive Total
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 19,999 $ - $ - $ - $ 19,999
Investment securities 5,392 5,754 7,912 147,204 166,262
Gross loans
(excluding non-accrual) 104,248 33,342 34,351 74,480 246,421
------- ------- ------- ------- -------
Total interest-earning
assets $129,639 $ 39,096 $ 42,263 $221,684 $432,682
======= ======= ======= ======= =======
Interest-bearing liabilities:
Interest-bearing checking $ - $ - $ - $ 60,032 $ 60,032
Money market - 10,608 10,608 21,216 42,432
Savings - - - 22,316 22,316
Time deposits 59,442 51,738 60,514 14,214 185,908
Borrowed funds 42,672 - - - 42,672
------- ------- ------- ------- -------
Total interest-bearing
liabilities $102,114 $ 62,346 $ 71,122 $117,778 $353,360
======= ======= ======= ======= =======
Interest sensitivity gap $ 27,525 $(23,250) $(28,859) $103,906 $ 79,322
======= ======= ======= ======= =======
Cumulative gap $ 27,525 $ 4,275 $(24,584) $ 79,322
======= ======= ======= =======
Cumulative ratio of
interest-earnings assets to
interest-bearing liabilities 127% 103% 90% 122%
Cumulative gap as a
percentage of total
interest-earning assets 6.4% 1.0% (5.7)% 18.3%
</TABLE>
Management 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.
The Bank uses simulation analysis to quantify the effects of various immediate
parallel shifts in interest rates on net interest income over the next 12 month
period. Such a "rate shock" analysis requires key assumptions which are
inherently uncertain, such as deposit sensitivity, cash flows from investments
and loans, reinvestment options, management's capital plans, market conditions,
and the timing, magnitude and frequency of interest rate changes. As a result,
the simulation is only a best-estimate and cannot accurately predict the impact
of future interest rate changes on net income. As of December 31, 1999, the
Bank's simulation analysis projects a decrease to net interest income of 2.95%,
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 .64%. These projected levels are within
the Company's policy limits.
Fourth Quarter Results
Net income for the fourth quarter, 1999 was $1.45 million, or $0.38 per common
share, compared to $1.22 million, or $0.31 per common share in the fourth
quarter of 1998. Fourth quarter 1999 earnings represent a 1.21% annualized
return on assets and a 13.17% annualized return on average equity. Tax-
equivalent net interest income for the fourth quarter of 1999 was $5.0 million,
a 14% increase over fourth quarter 1998 net interest income of $4.4 million.
The increase is the result of growth in average earning assets, which increased
12% for the quarter and an increase in the net interest yield. The tax-
equivalent net interest yield increased 5 basis points, to 4.55% for the quarter
ended December 31, 1999.
The provision for loan losses was $540,000 for the fourth quarter of 1999, as
compared to $70,000 for the same period in 1998. The fourth quarter charge to
the provision increased the allowance for loan losses to $3.28 million, or 1.32%
of total loans, a level the Company has deemed to be sufficient to absorb losses
in the portfolio. The Company reviews the allowance on a monthly basis and
determines its adequacy from analysis of actual operating experience, estimates
of the risks associated with specific loans and the loan portfolio, present
economic conditions and peer comparisons.
Non-interest income for the fourth quarter of 1999 was $1.47 million, an
increase of $747,000, over 1998. Included in fourth quarter 1999 non-interest
income is a security gain of $770,000. Non-interest expense was $3.6 million
for the fourth quarter of 1999, an increase of $400,000, or 13%, from the same
period in 1998. The increased expenses were primarily the result of increased
staff, legal, insurance and advertising expense during the quarter.
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 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, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
resonable 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.
Miami, Florida
January 20, 2000
<TABLE>
COMMERCIAL BANKSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(Dollars In Thousands, Except Share Data)
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Assets:
Cash and due from banks $ 19,086 $ 19,047
Federal funds sold 19,999 16,186
------- -------
Total cash and cash equivalents 39,085 35,233
Investment securities available for sale,
at fair value (cost of $128,454 in 1999
and $115,113 in 1998) 125,236 119,072
Investment securities held to maturity,
at cost (aggregate fair value of $43,859
in 1999 and $59,267 in 1998) 43,392 57,430
Loans, net 244,016 199,277
Premises and equipment, net 13,590 14,167
Accrued interest receivable 3,282 3,148
Goodwill, net 614 793
Other assets 5,955 3,225
------- -------
Total assets $475,170 $432,345
======= =======
Liabilities and stockholders' equity:
Deposits:
Demand $ 80,059 $ 78,932
Interest-bearing checking 60,032 58,984
Money market 42,432 41,923
Savings 22,316 22,807
Time 183,608 147,769
------- -------
Total deposits 388,447 350,415
Securities sold under agreements to repurchase 40,794 33,978
Accounts payable and accrued liabilities 2,516 2,577
Accrued interest payable 632 638
------- -------
Total liabilities 432,389 387,608
------- -------
Commitments and contingencies (Notes 4,11 and 15)
Stockholders' equity:
Common stock, $.08 par value, 6,250,000 authorized
shares, 3,931,375 issued (3,908,827 in 1998) 313 296
Additional paid-in capital 43,738 39,313
Retained earnings 2,111 3,136
Accumulated other comprehensive income(loss)
on investment securities available for sale,
net of tax (1,855) 2,730
Treasury stock, 78,746 shares
(41,092 shares in 1998), at cost (1,526) (738)
------- -------
Total stockholders' equity 42,781 44,737
------- -------
Total liabilities and stockholders'equity $475,170 $432,345
======= =======
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, 1999, 1998, and 1997
(Dollars In Thousands, Except Share Data)
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $18,809 $16,215 $13,390
Interest on investment securities
Taxable 8,374 9,488 10,003
Tax exempt 2,258 1,729 1,516
Interest on federal funds sold 769 708 542
------ ------ ------
Total interest income 30,210 28,140 25,451
------ ------ ------
Interest expense:
Interest on deposits 10,124 9,906 8,608
Interest on securities sold under
agreements to repurchase 1,823 1,572 1,497
------ ------ ------
Total interest expense 11,947 11,478 10,105
------ ------ ------
Net interest income 18,263 16,662 15,346
Provision for loan losses 930 230 170
------ ------ ------
Net interest income after
provision for loan losses 17,333 16,432 15,176
------ ------ ------
Non-interest income:
Service charges on deposit accounts 2,107 1,906 1,908
Other fees and service charges 751 654 645
Security gains, net 763 108 88
------ ------ ------
Total non-interest income 3,621 2,668 2,641
------ ------ ------
Non-interest expense:
Salaries and employee benefits 7,722 6,960 6,339
Occupancy 1,242 1,219 1,216
Furniture and equipment 983 947 889
Data processing 968 845 727
Professional fees 337 295 366
Stationery and supplies 267 278 252
Amortization of goodwill 179 179 179
FDIC insurance 131 125 122
Other 1,584 1,359 1,229
------ ------ ------
Total non-interest expense 13,413 12,207 11,319
Income before income taxes 7,541 6,893 6,498
Provision for income taxes 2,085 2,033 1,975
------ ------ ------
Net income $ 5,456 $ 4,860 $ 4,523
====== ====== ======
Earnings per common and common equivalent share:
Basic $ 1.42 $ 1.25 $ 1.17
Diluted $ 1.37 $ 1.21 $ 1.14
Weighted average number of shares and common equivalent shares:
Basic 3,856,221 3,887,631 3,876,255
Diluted 3,972,496 4,013,305 3,962,593
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, 1999, 1998, and 1997
(In Thousands)
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Income $5,456 $4,860 $4,523
Other comprehensive income (loss),
net of tax
Unrealized holding gain (loss)
arising during period (4,051) 233 1,065
Reclassification adjustments for
gains realized in net income (534) (56) -
----- ----- -----
Other comprehensive income (loss) (4,585) 177 1,065
----- ----- -----
Comprehensive income $ 871 $5,037 $5,588
===== ===== =====
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 1999, 1998, and 1997
(In Thousands Except Share Data)
<CAPTION>
Accumulated
Shares of Additional Other Total
Common Common Paid-in Retained Comprehensive Treasury Stockholders'
Stock Stock Capital Earnings Income(Loss) Stock Equity
--------- ------ ---------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997
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 $0.29 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 December 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 $0.46 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 December 31, 1998
3,721,798 296 39,313 3,136 2,730 (738) 44,737
Exercise of stock options
22,548 2 235 - - - 237
Purchase of treasury stock
- - - - - (788) (788)
Unrealized holding loss
- - - - (4,585) - (4,585)
Dividends-common stock $0.59 per share
- - - (2,273) - - (2,273)
5% stock dividend
187,029 15 4,190 (4,208) - - (3)
Net income
- - - 5,456 - - 5,456
--------- ---- ------- ------- ------- ------- -------
Balance at December 31, 1999
3,931,375 $313 $43,738 $ 2,111 $(1,855) $(1,526) $42,781
========= ==== ======= ======= ======= ======= =======
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, 1999 ,1998, and 1997
(In Thousands)
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities: ---- ---- ----
Net income $ 5,456 $ 4,860 $ 4,523
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 930 230 170
Depreciation, amortization, and accretion, net 1,489 1,190 1,055
Gain on disposal of premises and equipment, net (220) - (105)
Gain on sale of investment securities, net (763) (108) (88)
Change in accrued interest receivable (134) (394) (116)
Change in other assets (2,730) (187) 65
Change in accounts payable and accrued liabilities 2,286 (154) 51
Change in accrued interest payable (6) (10) (19)
------ ------ ------
Net cash provided by operating activities 6,308 5,427 5,536
------ ------ ------
Cash flows from investing activities:
Proceeds from maturities of investment
securities held to maturity 13,289 29,553 16,559
Proceeds from sales of investment
securities held to maturity 540 1,197 1,864
Proceeds from maturities of investment
securities available for sale 35,141 69,327 41,000
Proceeds from sales of investment
securities available for sale 3,752 8,131 -
Purchases of investment securities
held to maturity - - (1,520)
Purchases of investment securities
available for sale (51,613) (106,526) (43,600)
Net change in loans (45,413) (29,261) (42,235)
Purchases of premises and equipment (450) (1,712) (2,741)
Proceeds from disposal of premises and equipment 287 109 859
------ ------- ------
Net cash used in investing activities (44,467) (29,182) (29,814)
------ ------- ------
Cash flows from financing activities:
Net change in demand, savings, interest-bearing checking,
money market, and time deposit accounts 38,032 30,571 20,981
Net change in securities sold under
agreements to repurchase 6,816 2,693 2,082
Dividends paid (2,286) (1,411) (1,140)
Proceeds from issuance of stock 237 245 20
Purchase of treasury stock (788) (671) -
------ ------- ------
Net cash provided by financing activities 42,011 31,427 21,943
------ ------- ------
Increase (decrease) in cash and cash equivalents 3,852 7,672 (2,335)
Cash and cash equivalents at beginning of year 35,233 27,561 29,896
------ ------- ------
Cash and cash equivalents at end of year $39,085 $ 35,233 $27,561
====== ======= ======
Supplemental disclosures:
Interest paid (net of amounts credited
to deposit accounts) $ 2,310 $ 2,169 $ 1,330
Income taxes paid $ 2,163 $ 2,128 $ 1,816
The accompanying notes are an integral part of these financial statements.
</TABLE>
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 statements 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 intercompany accounts and
transactions.
Cash and Cash Equivalents
Cash equivalents include amounts due from banks and federal funds sold. The
Bank is required to maintain average reserve balances with the Federal Reserve
Bank. The amounts of those reserve balances at December 31, 1999 and 1998, were
approximately $3.5 million and $5.5 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 category are carried at
amortized cost adjusted for accretion of discounts and amortization of premiums
using the constant yield method over the estimated life of the securities. If
a security has a decline in fair value below its amortized cost that is other
than temporary, then the security will be written down to its new cost basis
by recording a loss in the consolidated statement of income.
Available for sale: Investment securities to be held for indefinite periods of
time and not intended to be held to maturity are classified as available for
sale. Assets included in this category are those that management intends to
use as part of its asset/liability management strategy and that may be sold in
response to changes in interest rates, and other factors related to interest
rate and resultant prepayment risk changes. Securities available for sale are
recorded at fair value. Both unrealized holding gains and losses on securities
available for sale, net of tax, are included as accumulated other comprehensive
income in the consolidated balance sheets until these gains or losses are
realized. The cost of investment securities sold is determined by the specific
identification method. If a security has a decline in fair value that is other
than temporary, then the security will be written down to its fair value by
recording a loss in the consolidated statement of income.
Loans
Loans are reported at their principal outstanding balance net of allowances for
loan losses and deferred loan fees. Interest income is generally recognized
when income is earned, using the effective interest method. Loan origination
fees and certain direct loan origination costs are deferred and the net amounts
are amortized as adjustments to interest income.
Allowance for Loan Losses
The adequacy of the allowance for loan losses is periodically evaluated by the
Company in order to maintain the allowance at a level that is sufficient to
absorb probable loan losses. Management's evaluation of the adequacy of the
allowance is based on a review of the Company's historical loss experience,
known and inherent risks in the loan portfolio, including adverse circumstances
that may affect the ability of the borrower to repay interest and/or principal,
the estimated value of collateral, and an analysis of the levels and trends of
delinquencies, charge-offs, and the risk ratings of the various loan categories.
Such factors as the level and trend of interest rates and the condition of the
national and local economies are also considered.
The allowance for loan losses is established through charges to earnings in the
form of a provision for loan losses. Increases and decreases in the allowance
resulting from changes in the measurement of the impaired loans are included in
the provision for loan losses. Loans continue to be classified as impaired
unless they are brought fully current and the collection of scheduled interest
and principal is considered probable. When a loan or portion of a loan is
determined to be uncollectible, the portion deemed uncollectible is charged
against the allowance, and subsequent recoveries, if any, are credited to the
allowance.
Income Recognition on Impaired and Nonaccrual Loans
Loans, including impaired loans, are generally classified as nonaccrual if they
are past due as to maturity or payment of principal or interest for a period of
more than 90 days, unless such loans are well collateralized and in the process
of collection. If a loan or portion of a loan is classified as doubtful or is
partially charged off, the loan is classified as nonaccrual. Loans that are on
a current payment status or past due less than 90 days may also be classified as
nonaccrual if repayment in full of principal and/or interest is in doubt.
Loans may be returned to accrual status when all principal and interest amounts
contractually due are reasonably assured of repayment within an acceptable
period of time, and there is a sustained period of repayment performance by the
borrower, in accordance with the contractual terms of interest and principal.
While a loan is classified as nonaccrual and the future collectibility of the
recorded loan balance is doubtful, collections of interest and principal are
generally applied as a reduction to principal outstanding. When the future
collectibility of the recorded loan balance is expected, interest income may
be recognized on a cash basis. In the case where a nonaccrual loan had been
partially charged off, recognition of interest on a cash basis is limited to
that which would have been recognized on the recorded loan balance at the
contractual interest rate. Cash interest receipts in excess of that amount are
recorded as recoveries to the allowance for loan losses until prior charge-offs
have been fully recovered.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed principally on the straight-line method
over the estimated useful life of each type of asset. Leasehold improvements
are amortized over the remaining term of the applicable leases or their useful
lives, whichever is shorter. Maintenance and repairs are charged to expense as
incurred; improvements and betterments are capitalized. Upon retirement or
disposition, the related costs and accumulated depreciation are removed from
the accounts, and any resulting gains or losses are credited or charged to
income.
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 circumstances have occurred
that would result in impairment in the value or life of goodwill based on
historical and future earnings and cash flow projections.
Other Real Estate Owned
Other real estate owned is comprised of real estate and other assets acquired
through foreclosure, acceptance of a deed in lieu of foreclosure, or otherwise
acquired from the debtor in lieu of repayment of the debt. Other real estate
owned is carried at the lower of the recorded investment in the loan or the
fair value less estimated costs to sell. Upon transfer of a loan to foreclosed
status, an appraisal is obtained and any excess of the loan balance over the
fair value less estimated costs to sell is charged against the allowance for
loan losses. Revenues, expenses, and subsequent adjustments to fair value less
estimated costs to sell are classified as expenses for other real estate owned.
At December 31, 1999 and 1998, there was no other real estate owned.
Income Taxes
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Deferred tax assets are reduced by a valuation allowance when it is
more likely than not that some portion or all of the deferred tax assets will
not be realized.
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 interest rates.
Comprehensive Income (Loss)
The income tax effects related to the components of other comprehensive income
(loss) are as follows:
<TABLE>
1999 1998 1997
----------------------- ------------------- ---------------------
Tax Tax Tax
(Expense) (Expense) (Expense)
or or or
Gross Benefit Net Gross Benefit Net Gross Benefit Net
------- ------- ------- ----- ------- ---- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unrealized holding gain (loss)
arising during period
($6,436) $2,385 ($4,051) $369 ($136) $233 $1,690 ($625) $1,065
Reclassification adjustments for
gains realized in net income
(741) 207 (534) (88) 32 (56) - - -
------- ------ ------- ---- ----- ---- ------ ----- ------
Other comprehensive income (loss)
($7,177) $2,592 ($4,585) $281 ($104) $177 $1,690 ($625) $1,065
======= ====== ======= ==== ===== ==== ====== ===== ======
</TABLE>
Per Share Data
Earning per share is computed on the weighted average number of common shares
outstanding during the year. Earnings per share, assuming dilution, assumes
the maximum dilutive effect of the average number of shares from stock options.
Earnings per share disclosures have been restated for all periods presented for
five percent stock dividends declared in December, 1999, 1998 and 1997.
New Accounting Pronouncement
In June 1999, the FASB issued Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133." This statement delays the
effective date of FASB Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities" to all fiscal quarters of all fiscal years beginning
after June 15, 2000. Management does not expect the adoption of this Statement
to have any material effect on the Company's financial position or results of
operations.
Reclassification
Certain reclassifications have been made to the 1998 and 1997 consolidated
financial statements to conform to the 1999 presentation.
2. Investment Securities:
The amortized cost and fair value of investment securities are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1999
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Available for Sale Securities:
U.S. Government Agencies $103,173 $ - $(4,043) $ 99,130
State & Political Subdivisions 23,247 - (1,511) 21,736
Corporate Stock 2,034 2,336 - 4,370
-------- ------ ------- --------
$128,454 $2,336 $(5,554) $125,236
======== ====== ======= ========
Held to Maturity Securities:
U.S. Government Agencies $ 20,877 $ 65 $ (176) $ 20,766
State & Political Subdivisions 22,265 578 - 22,843
Other 250 - - 250
-------- ------ ------- --------
$ 43,392 $ 643 $ (176) $ 43,859
======== ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------
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
======== ====== ======= ========
The amortized cost and fair value of investment securities excluding corporate
stock at December 31, 1999, by contractual maturity, are shown below (in
thousands). Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
</TABLE>
<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 $ - $ - $ 586 $ 586
Due after one year through five years 9,684 9,566 9,948 10,092
Due after five years through ten years 63,156 60,564 13,537 13,946
Due after ten years 53,580 50,736 19,321 19,235
</TABLE>
Gross gains of approximately $792,000, $119,000 and $88,000, respectively, and
gross losses of $29,000, $11,000 and $0, respectively, during 1999, 1998 and
1997, were realized on the sale of investment securities. During 1999, 1998
and 1997, the Company sold securities with a book value of $518,000, $1.18
million, and $1.86 million, respectively, from the held to maturity portfolio.
The sales did not call into question the Company's intent to hold other
securities to maturity because one of the following criteria was met with
each sale: (1) the Company had collected in excess of 85% of the principal
outstanding, or (2) the security was within 90 days of maturity. The net gain
on sale of these securities was $22,000 in 1999, $20,000 in 1998 and $88,000
in 1997.
At December 31, 1999 and 1998, investment securities with an amortized cost of
approximately $69 million and $58 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>
December 31,
----------------------
1999 1998
---- ----
<S> <C> <C>
Commercial and financial $ 46,147 $ 34,415
Real estate and mortgage 176,500 148,564
Installment and other 24,989 18,984
------- -------
247,636 201,963
Less: Allowance for loan losses (3,279) (2,430)
Deferred loan fees (341) (256)
------- -------
Total Loans, net $244,016 $199,277
======= =======
</TABLE>
Loans on which the accrual of interest has been discontinued amounted to
approximately $874,000 and $529,000 at December 31, 1999 and 1998, respectively.
If non-accrual loans were on full accrual, additional interest income of
approximately $0, $13,000, and $8,000 would have been recorded during 1999,
1998, and 1997, respectively.
The total amount of loans to directors and executive officers amounted to
$8,485,000 and $3,412,000 at December 31, 1999 and 1998, respectively.
Transactions for loans to directors and executive officers for the years ended
December 31, 1999 and 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Balance, beginning of period $3,412 $1,083
Loans and advances 5,645 2,387
Payments (572) (58)
----- -----
Balance, end of period $8,485 $3,412
===== =====
</TABLE>
Transactions in the allowance for loan losses for the years ended December 31,
1999, 1998 and 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $2,430 $2,247 $2,049
Provision charged to operations 930 230 170
Loans charged off (140) (117) (112)
Recoveries 59 70 140
----- ----- -----
Balance, end of year $3,279 $2,430 $2,247
===== ===== =====
</TABLE>
4. Premises and Equipment and Lease Commitments:
Premises and equipment were as follows (in thousands):
<TABLE>
<CAPTION>
December 31, Estimated
--------------- Useful
1999 1998 Life
---- ---- -------------
<S> <C> <C>
Land $ 5,613 $ 5,412 -
Buildings 6,645 6,645 40 years
Leasehold and other property improvements 2,093 2,048 3 to 10 years
Furniture and equipment 4,247 4,121 3 to 7 years
Other 134 140 3 years
------ ------
$18,732 $18,366
Less: accumulated depreciation and amortization (5,142) (4,199)
------ ------
$13,590 $14,167
====== ======
</TABLE>
The Bank leases office and parking spaces for various banking facilities. The
leases have initial terms expiring in 2000 through 2008 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 $235,000, $241,000 and $242,000 in 1999, 1998, and 1997,
respectively. As of December 31, 1999, 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,
2000 $ 336
2001 208
2002 177
2003 108
2004 108
Thereafter 254
-----
$1,191
=====
</TABLE>
5. Securities Sold Under Agreements to Repurchase:
Interest expense on securities sold under agreements to repurchase aggregated
$1.8 million, $1.6 million and $1.5 million for the years ended December 31,
1999, 1998 and 1997, respectively.
The following sets forth information concerning repurchase agreements for the
periods indicated:
<TABLE>
<CAPTION>
As Of And For The Years Ended
December 31,
----------------------------
1999 1998 1997
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Maximum amount of outstanding agreements
at any month end during the year $45,908 $40,005 $37,127
Average amount outstanding during the year 41,358 34,548 32,336
Weighted average interest rate for the year 4.41% 4.55% 4.63%
</TABLE>
The entire $40.8 million portfolio of repurchase agreements outstanding at
December 31, 1999 matures in January, 2000.
6. Interest Expense:
Interest expense on interest-bearing checking, money market, savings and time
deposits was as follows for the years ended December 31, 1999, 1998, and 1997
(in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest-bearing checking $ 608 $ 633 $ 566
Money market 1,265 1,271 889
Savings 375 394 403
Time deposits 7,876 7,608 6,750
------- ------ ------
$10,124 $9,906 $8,608
======= ====== ======
</TABLE>
Certificates of deposit in denominations of $100,000 or more were approximately
$72 million and $53 million at December 31, 1999 and 1998, respectively.
Interest expense for such certificates of deposit was approximately $3.0
million, $2.9 million and $2.5 million in 1999, 1998, and 1997, 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, 1999, 1998,
and 1997, were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Telephone $ 210 $ 145 $ 130
Insurance 206 183 187
Intangible tax 180 115 100
Administrative service charges 167 148 92
Advertising 154 153 86
Security 114 96 53
Armored carrier and courier 108 102 70
State assessment 82 76 70
Donations 76 29 25
Postage 64 61 70
Dues and subscriptions 58 55 73
Other 165 196 273
----- ----- -----
$1,584 $1,359 $1,229
===== ===== =====
</TABLE>
8. Income Taxes:
The components of the net deferred tax asset as of December 31, 1999 and 1998,
were as follows (in thousands)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Write-off of goodwill $1,628 $1,790
Unrealized loss on investment securities 1,363 -
Allowance for loan losses 1,093 638
Investment in securities 173 236
Other 116 15
----- -----
Total deferred tax asset 4,373 2,679
----- -----
Deferred tax liabilities:
Unrealized gain on investment securities - 1,229
Depreciation of fixed assets - 19
Other - 7
----- -----
Total deferred tax liability - 1,255
----- -----
Net deferred tax asset $4,373 $1,424
===== =====
</TABLE>
The components of the provision (benefit) for income taxes for the years ended
December 31, 1999, 1998 and 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current-federal $2,163 $1,803 $1,626
Current-state 279 269 242
Deffered-federal (313) (34) 106
Deferred-state (44) (5) 1
----- ----- -----
Total $2,085 $2,033 $1,975
===== ===== =====
</TABLE>
The following table reconciles taxes at the federal statutory rate with the
effective rate for 1999, 1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate 34% 34% 34%
Goodwill amortization 1% 1% 1%
State taxes 3% 2% 2%
Tax-exempt investment income (9%) (7%) (6%)
Other, net (1%) - (1%)
---- ---- ----
Effective tax rate 28% 30% 30%
==== ==== ====
</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>
For the Year Ended December 31, 1999
--------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS $5,456 3,856 $1.42
Effect of Dilutive Options - 116 (0.05)
------ ----- -----
Diluted EPS $5,456 3,972 $1.37
------ ----- -----
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1998
--------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS $4,860 3,887 $1.25
Effect of Dilutive Options - 126 (0.04)
------ ----- -----
Diluted EPS $4,860 4,013 $1.21
------ ----- -----
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
--------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS $4,523 3,876 $1.17
Effect of Dilutive Options - 86 (0.03)
------ ----- -----
Diluted EPS $4,523 3,962 $1.14
------ ----- -----
</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
$134,000, $132,000, and $106,000 in 1999, 1998, and 1997, respectively.
11. Commitments and Contingencies:
The Bank is involved in litigation arising from the ordinary course of business.
In the opinion of management, the outcome of this litigation will not have a
significant effect on financial position or results of operations.
The Company and the Bank have entered into employment agreements with four
officers. The terms of the agreements range from one to three years.
Compensation and benefits under these agreements are determined by the Board
of Directors. Compensation and benefits are provided in certain defined
circumstances, including change in control of the Company.
12. Stock Transactions:
On November 18, 1999, 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, 2000, 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. On April 15, 1999, the shareholders approved
amendments to both plans which increased the number of shares reserved for the
grant of options by 150,000 for each plan. The maximum number of shares that
may be issued under the Outside Director Option Plan and Performance Stock
Option Plan are 279,051 and 522,152, respectively. Options granted under the
Outside Director Plan are immediately exercisable and are for a term of ten
years. At December 31, 1999 and 1998, there were 129,348 and 3,786 shares
available, respectively, for future option grants under the Outside Director
Plan. Options granted under the Performance Stock Option Plan are not
exercisable for a period of one year from the date of grant and are for a term
of ten years. At December 31, 1999 and 1998, there were 251,638 and 116,634
shares available, respectively, for future option grants under this plan.
The current status of options outstanding and the activity for 1999, 1998 and
1997 are presented below:
<TABLE>
<CAPTION>
Outside Director Performance
Stock Option Plan Stock Option Plan
----------------- -----------------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Options Price Options Price
------- -------- ------- --------
<S> <C> <C> <C> <C>
Options outstanding, January 1, 1997 63,000 $10.63 144,900 $10.07
Granted 20,000 14.47 31,000 14.47
Exercised (2,000) 10.05 - -
Adjustment for 5% stock dividend 4,050 - 8,795 -
------- -------- ------- --------
Options outstanding, December 31, 1997 85,050 11.58 184,695 10.85
Granted 20,000 22.45 24,000 22.45
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 December 31, 1998 103,362 13.73 201,674 12.43
Granted 31,000 20.71 29,380 20.71
Exercised - - (22,548) 10.49
Adjustment for 5% stock dividend 6,726 - 10,480 -
------- -------- ------- --------
Options outstanding December 31, 1999 141,088 $15.34 218,986 $13.86
======= ======== ======= ========
Options exercisable December 31, 1999 141,088 $15.34 188,136 $12.74
======= ======== ======= ========
</TABLE>
The range of exercise prices for the Performance and Outside Director stock
option plans at December 31, 1999 were $8.68 to $22.45. The weighted average
remaining contractual lives of the Performance and Outside Director stock
options at December 31, 1999 were 6.64 years and 7.19 years, respectively.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," became effective for the year ended December 31, 1996. This
pronouncement encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options, and other equity
instruments to employees based on the new fair value accounting rules. The
Company has determined not to recognize such compensation expense. The
compensation expense, net of income tax effect, if recognized, would have
resulted in a decrease in the pro forma amounts indicated below, for the years
ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(In thousands, except per share amount)
<S> <C> <C> <C>
Net earnings-as reported $5,456 $4,860 $4,523
Net earnings-pro forma $5,177 $4,628 $4,245
Earnings per share (diluted)-as reported $ 1.37 $ 1.21 $ 1.14
Earnings per share (diluted)-pro forma $ 1.30 $ 1.14 $ 1.10
</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 2.86%; expected
volatility of 25.0%; risk-free interest rate of 7.0%; and expected life of nine
and one-half years. The weighted average fair value of options granted during
1999, 1998 and 1997, were $6.98, $7.98 and $8.65, respectively.
13. Commercial Bankshares, Inc. (Parent Company Only) Financial Information:
<TABLE>
Condensed Balance Sheets
(In Thousands)
<CAPTION>
December 31,
---------------------
1999 1998
---- ----
<S> <C> <C>
Assets:
Cash and cash equivalents $ 2,671 $ 3,164
Time deposits 2,300 2,300
Investment in banking subsidiary 35,121 36,400
Other investments 2,366 3,160
Goodwill, net 578 741
Other assets 1,464 690
------- -------
Total assets $44,500 $46,455
Liabilities and Stockholders' Equity:
Other liabilities $ 1,719 $ 1,718
Stockholders' equity 42,781 44,737
------- -------
Total liabilities and stockholders' equity $44,500 $46,455
======= =======
</TABLE>
<TABLE>
Condensed Statements of Income
(In Thousands)
<CAPTION>
Years ended December 31,
----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income:
Interest on investments $ 292 $ 303 $ 282
Security gains 770 - -
Other 1 - 95
------ ------ ------
Total income 1,063 303 377
Expenses:
Occupancy - - 7
Legal and professional fees - 10 20
Goodwill amortization 163 163 163
Other 67 68 48
------ ------ ------
Total expenses 230 241 238
Income before income taxes and
equity in undistributed
earnings of subsidiary 833 62 139
Provision for income taxes 366 75 113
------ ------ ------
Income (loss) before
equity in undistributed
earnings of subsidiary 467 (13) 26
Equity in undistributed earnings
of subsidiary 4,989 4,873 4,497
------ ------ ------
Net income $5,456 $4,860 $4,523
====== ====== ======
</TABLE>
<TABLE>
Condensed Statements of Cash Flows
(In Thousands)
<CAPTION>
Years ended December 31,
------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,456 $ 4,860 $ 4,523
Adjustments to reconcile net income to
net cash (used in) provided by operating
activities:
Equity in undistributed earnings
of subisidiary (4,989) (4,873) (4,497)
Depreciation and amortization 163 163 162
Gain on sale of investment securities (770) - -
Gain on sale of premises and equipment - - (95)
Change in other assets (774) (3) 2
Change in other liabilities 228 (33) (28)
------- ------- -------
Net cash (used in) provided by
operating activities (686) 114 67
------- ------- -------
Cash flows from investing activities:
Proceeds from sales of investment
securities available for sale 780 - -
Proceeds from disposal of premises
and equipment - - 862
------- ------- -------
Net cash provided by investing
activities 780 - 862
------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of stock 237 244 20
Purchase of treasury stock (788) (671) -
Dividends received from subsidiary 2,251 1,400 750
Dividends paid (2,284) (1,411) (1,140)
Cash paid for fractional shares (3) (3) (3)
------- ------- -------
Net cash used in financing activities (587) (441) (373)
------- ------- -------
Increase (decrease) in cash and cash
equivalents (493) (327) 556
Cash and cash equivalents at beginning
of year 3,164 3,491 2,935
------- ------- -------
Cash and cash equivalents at end of year$ 2,671 $ 3,164 $ 3,491
======= ======= =======
</TABLE>
14. Regulatory Matters:
Capital Requirements
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory -- and possibly additional discretionary -- actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to risk-
weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1999, that the
Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1999, 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
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------- ------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to Risk Weighted Assets):
Commercial Bankshares, Inc. $48,352 16.34% >$23,676> 8.00% N/A N/A
Commercial Bank of Florida 41,864 14.04% >23,848> 8.00% $29,810 10.00%
Tier I Capital (to Risk Weighted Assets):
Commercial Bankshares, Inc. 44,022 14.88% >11,838> 4.00% N/A N/A
Commercial Bank of Florida 38,585 12.94% >11,924> 4.00% 17,886 6.00%
Tier I Capital (to Total Assets):
Commercial Bankshares, Inc. 44,022 9.23% >14,255> 3.00% N/A N/A
Tier I Capital (to Average Assets):
Commercial Bank of Florida 38,585 8.24% >13,549> 3.00% 22,585 5.00%
As of December 31, 1998:
Total Capital (to Risk Weighted Assets):
Commercial Bankshares, Inc. $45,048 17.70% >$20,362> 8.00% N/A N/A
Commercial Bank of Florida 38,249 15.10% >20,264> 8.00% $25,330 10.00%
Tier I Capital (to Risk Weighted Assets):
Commercial Bankshares, Inc. 41,214 16.19% >10,181> 4.00% N/A N/A
Commercial Bank of Florida 35,819 14.14% >10,132> 4.00% 15,198 6.00%
Tier I Capital (to Total Assets):
Commercial Bankshares, Inc. 41,214 9.52% >12,974> 3.00% N/A N/A
Tier I Capital (to Average Assets):
Commercial Bank of Florida 35,819 8.47% >12,402> 3.00% 20,670 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, 2000, the Bank could have paid dividends to
the Company aggregating $14.8 million without prior regulatory approval.
Future dividends will be dependent on the level of earnings of the Bank.
Cash dividends declared by the Company totaled $2.3 million and $1.8 million
in 1999 and 1998, respectively. Dividends declared but not paid amounted to
$693,000 and $705,000 in 1999 and 1998, 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, 1999 and 1998 were $31 million and $25 million,
respectively. The Bank evaluates each customer's credit-worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation.
Standby and commercial letters of credit are conditional commitments issued by
the Bank to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support private borrowing or performance
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The Bank had approximately $6,866,000 and $526,000 in 1999 and $3,216,000 and
$411,000 in 1998 of irrevocable standby and commercial letters of credit,
respectively, of which $2,065,000 and $1,646,000 of standby letters of credit
were collateralized by cash in 1999 and 1998, 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, 1999, the Bank had loan relationships with 82 borrowers, each with an
aggregate balance greater than $800,000, representing 64% of net loans. 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.
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, 1999 and 1998.
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, 1999, variable rate loans amounted to
approximately $181 million or 73% of total loans. Fixed rate loans maturing
within the next year totalled $6 million or an additional 2% of total loans.
At December 31, 1998, variable rate loans amounted to approximately $142 million
or 71% of total loans. Fixed rate loans maturing within the next year totalled
$10 million or an additional 5% 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 24% of the
loan portfolio, as of both December 31, 1999 and 1998, approximates carrying
value based on terms and maturity of those loans and current borrowing rates.
Deposit Liabilities and Short-Term Borrowed Funds
The fair value of demand, savings, interest-bearing checking and money market
deposits, and borrowings under repurchase agreements is the amount payable on
demand (carrying amount). The fair value of fixed maturity certificates of
deposit is estimated using the rates currently offered for deposits of similar
remaining maturities. At December 31, 1999, the fair value of time deposits
approximates carrying value, which includes time deposits of $169 million due
within twelve months which represents 92% of total time deposits. At December
31, 1998 time deposits of $126 million due within twelve months, represented
85% 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, 1999, a significant portion of the letter of
credit portfolio 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
Retired Attorney Investments Chairman and
Chief Executive Officer
Joseph W. Armaly Sherman Simon
Chairman of the Board Investments
Chief Executive Officer
Jack J. Partagas
Michael W. Sontag President, Secretary, and
Richard J. Bischoff President Chief Operating Officer
Attorney Michael Sontag, Inc.
Robert Namoff Barbara E. Reed
Chief Executive Officer Martin Yelen Senior Vice President and
Allied Universal Corp. Retired Attorney Chief Financial Officer
Jack J. Partagas
President and
Chief Operating Officer
COMMERCIAL BANK OF FLORIDA
OFFICERS
Joseph W. Armaly Chairman and CEO
Jack J. Partagas President and COO
Bruce P. Steinberger Executive Vice President
Barbara E. Reed Senior Vice President and CFO
David E. Dimuro Senior Vice President
Phillips G. Gay, Jr. Senior Vice President
Hal Kaufman Senior Vice President
Joseph Kertis, Jr. Senior Vice President
Dennis G. Longo Senior Vice President
John M. Maroon Senior Vice President
Joseph A. Maroon, Jr. Senior Vice President
Raul M. Zarranz Senior Vice President
Bill Dieterle Audit Director
Sherryl Bowein Vice President
Ralph E. Coman Vice President
Elena Correa Vice President
Valerie Dacks Vice President
Diana C. Goudie Vice President
Nancy Hernandez Vice President
Mary Lou Hutcheson Vice President
Paul Larkin Vice President
Alfred P. Lettera Vice President
Sharon macris McManus Vice President
W.A. Meabe, Jr. Vice President
Jeffrey S. Nilsson Vice President
Robert D. Singleton Vice President
Fay Marie Stephens Vice President
Stephen Armaly Assistant Vice President
Lourdes Beck Assistant Vice President
Ann Bovard Assistant Vice President
Luis A. Castillo Audit Manager
Nora Clavijo Assistant Vice President
Anne E. Cook Assistant Vice President
Mercedes De Quesada Assistant Vice President
Sherri Feinstein Assistant Vice President
Susan Ferbin Assistant Vice President
Carlos A. Grosso Investment Officer
Theresa Hilson Assistant Vice President
Margaret Humphrey Assistant Vice President
Geraldine T. Kitchell Assistant Vice President
Wendy Knowles Assistant Vice President
Margaret Rizzotto Assistant Vice President
Mary Robbins Assistant Vice President
Wendy Robinson Assistant Vice President
Marisella Salado Commercial Loan Officer
Pamela Tucker Assistant Vice President
Deborah Winkles Assistant Vice President
Constance Bauer Assistant Cashier
Barbara Cox Assistant Cashier
Aurora Franquiz Mortgage Loan Specialist
Norma Gonzalez Assistant Cashier
Aletha Jackson Assistant Cashier
Lissette Lazo Loan Administration Officer
Sue Marchetti Assistant Cashier
Ileana Medina Loan Operations Officer
Alice Milhet Assistant Cashier
Barbara Mirino Assistant Cashier
Ruben Molina Assistant Cashier
Cristina Ojeda Assistant Cashier
Lidia Perez Assistant Cashier
Linda Schubowsky Assistant Cashier
Laurie Taylor Assistant Cashier
Rose Torres MIS Officer
Sueann Truesdale Assistant Cashier
Linda K. Wood Installment Loan Officer
Delia Yepez Assistant Cashier
James F. Zimny, Jr. Accounting Officer
SUBSIDIARY BANK LOCATIONS
PERRINE/CUTLER RIDGE MIAMI BEACH
19455 S. Dixie Highway 425 41st Street
Miami, FL 33157 Miami Beach, FL 33140
(305) 234-6090 (305) 531-4435
PINECREST/THE FALLS MEDLEY/HIALEAH GARDENS
13001 S. Dixie Highway 11590 N.W. South River Drive
Miami, FL 33156 Medley, FL 33178
(305) 378-2000 (305) 883-1110
KENDALL NORTH MIAMI
10899 Sunset Drive 12255 N.E. 16th Avenue
Miami, FL 33173 North Miami, FL 33161
(305) 274-2000 (305) 891-6950
SOUTH MIAMI/CORAL GABLES HALLANDALE
1533 Sunset Drive 1448 E. Hallandale Beach Blvd.
Coral Gables, FL 33143 Hallandale, FL 33009
(305) 663-6030 (954) 454-3551
BRICKELL PEMBROKE PINES
501 Brickell Key Drive 176 S. Flamingo Road
Miami, FL 33131 Pembroke Pines, FL 33027
(305) 364-1100 (954) 437-8100
MAIN OFFICE POMPANO BEACH
1550 S.W. 57th Avenue 300 E. Sample Road
Miami, FL 33144 Pompano Beach, FL 33064
(305) 267-1200 (954) 943-6550
MIAMI SPRINGS CORAL SPRINGS
69 Westward Drive 1999 University Drive
Miami Springs, FL 33166 Coral Springs, FL 33071
(305) 883-0883 (954) 753-7555
ANNUAL MEETING
Thursday, April 20, 2000, at 10:00 a.m.
1550 S.W. 57th Avenue
Boardroom
Miami, Florida 33144
Transfer Agent
ChaseMellon Shareholder Services
Independent Certified Public Accountants
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.
