U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
Commission File Number 00-22246
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 (IRS 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)
(305) 267-1200
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(Registrant's Telephone Number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No .
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CLASS OUTSTANDING AT August 10, 2000
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COMMON STOCK, $.08 PAR VALUE 3,623,705 SHARES
TABLE OF CONTENTS
PART I Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 11
PART II Item 6. Exhibits and Reports on Form 8-K 13
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2000 and December 31, 1999
(Dollars in thousands except share data)
<CAPTION>
<S> <C> <C>
6/30/2000 12/31/1999
--------- ----------
Assets: (Unaudited)
Cash and due from banks $ 22,353 $ 19,086
Federal funds sold 13,062 19,999
-------- --------
Total cash and cash equivalents 35,415 39,085
Investment securities available for sale,
at fair value (cost of $135,027 in 2000
and $128,454 in 1999) 130,684 125,236
Investment securities held to maturity, at cost
(aggregate fair value of $40,310 in 2000
and $43,859 in 1999) 40,048 43,392
Loans, net 262,124 244,016
Premises and equipment, net 13,128 13,590
Accrued interest receivable 3,561 3,282
Goodwill, net 515 614
Other Assets 5,203 5,955
-------- --------
Total Assets $490,678 $475,170
======== ========
Liabilities and stockholders' equity:
Deposits:
Demand $ 89,186 $ 80,059
Interest-bearing checking 54,175 60,032
Money market accounts 40,182 42,432
Savings 23,276 22,316
Time 192,177 183,608
-------- --------
Total deposits 398,996 388,447
Securities sold under agreements to repurchase 49,335 40,794
Accrued interet payable 645 632
Accounts payable and accrued liabilities 2,169 2,516
-------- --------
Total liabilities 451,145 432,389
-------- --------
Stockholders' equity:
Common stock, $.08 par value, 6,250,000
authorized shares, 3,945,303 issued
(3,931,375 in 1999) 314 313
Additional paid-in capital 43,858 43,738
Retained earnings 3,876 2,111
Accumulated other comprehensive loss (2,564) (1,855)
Treasury stock, 311,598 shares
(78,746 in 1999), at cost (5,951) (1,526)
-------- --------
Total stockholders' equity 39,533 42,781
-------- --------
Total liabilities and stockholders' equity $490,678 $475,170
======== ========
<FN>
The accompanying notes are an integral part of these
condensed consolidated financial statements
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended June 30, 2000 and 1999
(In thousands except share data)
(Unaudited)
<CAPTION>
<S> <C> <C>
2000 1999
-------- --------
Interest income:
Interest and fees on loans $5,628 $4,559
Interest on investment securities 2,827 2,538
Interest on federal funds sold 114 265
------ ------
Total interest income 8,569 7,362
------ ------
Interest expense:
Interest on deposits 3,134 2,389
Interest on securities sold under
agreements to repurchase 629 434
------ ------
Total interest expense 3,763 2,823
------ ------
Net interest income 4,806 4,539
Provision for loan losses 70 260
------ ------
Net interest income after provision 4,736 4,279
------ ------
Non-interest income:
Service charges on deposit accounts 594 530
Other fees and service charges 149 329
Securities losses (40) -
------ ------
Total non-interest income 703 859
------ ------
Non-interest expense:
Salaries and employee benefits 1,889 1,847
Occupancy 297 312
Furniture and equipment 229 259
Data processing 216 256
Stationery and supplies 62 71
Insurance 53 39
Professional fees 51 91
Telephone and fax 59 56
Administrative service charges 39 63
Amortization 50 45
Other 243 276
------ ------
Total non-interest expense 3,188 3,315
------ ------
Income before income taxes 2,251 1,823
Provision for income taxes 686 488
------ ------
Net income $1,565 $1,335
====== ======
Earnings per common and common equivalent share:
Basic $.43 $.35
Diluted $.42 $.34
Weighted average number of shares and common equivalent shares:
Basic 3,662 3,866
Diluted 3,746 3,981
<FN>
The accompanying notes are an integral part of these
condensed consolidated financial statements
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the six months ended June 30, 2000 and 1999
(In thousands except share data)
(Unaudited)
<CAPTION>
<S> <C> <C>
2000 1999
-------- --------
Interest income:
Interest and fees on loans $11,002 $8,881
Interest on investment securities 5,686 5,132
Interest on federal funds sold 202 427
------- -------
Total interest income 16,890 14,440
------- -------
Interest expense:
Interest on deposits 6,107 4,738
Interest on securities sold under
agreements to repurchase 1,142 772
------- -------
Total interest expense 7,249 5,510
------- -------
Net interest income 9,641 8,930
Provision for loan losses 150 320
------- -------
Net interest income after provision 9,491 8,610
------- -------
Non-interest income:
Service charges on deposit accounts 1,158 1,075
Other fees and service charges 286 487
Securities losses (108) -
------- -------
Total non-interest income 1,336 1,562
------- -------
Non-interest expense:
Salaries and employee benefits 3,781 3,713
Occupancy 583 618
Furniture and equipment 461 507
Data processing 417 521
Stationery and supplies 126 140
Insurance 106 81
Professional fees 118 164
Telephone and fax 119 95
Administrative service charges 86 79
Amortization 99 89
Other 501 559
------- -------
Total non-interest expense 6,397 6,566
------- -------
Income before income taxes 4,430 3,606
Provision for income taxes 1,337 989
------- -------
Net income $3,093 $2,617
======= =======
Earnings per common and common equivalent share:
Basic $.83 $.68
Diluted $.81 $.66
Weighted average number of shares and common equivalent shares:
Basic 3,718 3,866
Diluted 3,807 3,981
<FN>
The accompanying notes are an integral part of these
condensed consolidated financial statements
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and six months ended June 30, 2000 and 1999
(Dollars in thousands)
(Unaudited)
<CAPTION>
<S> <C> <C>
Three months ended
June 30,
2000 1999
------ ------
Net income $1,565 $1,335
Other comprehensive income(loss), net of tax:
Unrealized holding losses arising
during the period (106) (2,007)
Reclassification adjustment for losses
realized in net income 25 -
------ ------
Other comprehensive loss (81) (2,007)
------ ------
Comprehensive income(loss) $1,484 $ (672)
====== ======
Six months ended
June 30,
2000 1999
------ ------
Net income $3,093 $2,617
Other comprehensive income(loss), net of tax:
Unrealized holding losses arising
during the period (777) (2,619)
Reclassification adjustment for losses
realized in net income 68 -
------ ------
Other comprehensive loss (709) (2,619)
------ ------
Comprehensive income(loss) $2,384 $ (2)
====== ======
<FN>
The accompanying notes are an integral part of these
condensed consolidated financial statements
</TABLE>
<TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2000 and 1999
(In thousands)
(Unaudited)
<CAPTION>
<S> <C> <C>
2000 1999
---- ----
Cash flows from operating activities:
Net income $3,093 $2,617
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 150 320
Depreciation, amortization and accretion, net 627 769
Loss on sale of investment securities 108 -
Gain on sale of premises and equipment (7) (220)
Change in accrued interest receivable (279) (55)
Change in other assets 752 (1,204)
Change in accounts payable and accrued liabilities 105 1,638
Change in accrued interest payable 13 (33)
------- -------
Net cash provided by operating activities 4,562 3,832
------- -------
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 3,347 8,558
Proceeds from maturities of investment securities
available for sale 2,473 21,325
Proceeds from sales of investment securities
available for sale 7,881 -
Purchases of investment securities
available for sale (17,132) (47,563)
Net increase in loans (18,258) (19,213)
Purchases of premises and equipment (204) (119)
Sales of premises and equipment 239 287
------- -------
Net cash used in investing activities (21,654) (36,725)
Cash flows from financing activities:
Net change in demand, savings, interest-bearing
checking, money market, and time deposit accounts 10,549 14,225
Net change in securities sold under agreements
to repurchase 8,541 10,313
Dividends paid (1,364) (1,220)
Proceeds from issuance of stock 121 55
Purchase of treasury stock (4,425) (41)
------- -------
Net cash provided by financing activities 13,422 23,332
------- -------
Decrease in cash and cash equivalents (3,670) (9,561)
Cash and cash equivalents at beginning of period 39,085 35,233
------- -------
Cash and cash equivalents at end of period $35,415 $25,672
======= =======
Supplemental disclosures:
Interest paid (net of amounts
credited to deposit accounts) $ 1,223 $ 999
======= =======
Income taxes paid $ 1,372 $ 1,035
======= =======
<FN>
The accompanying notes are an integral part of these
condensed consolidated financial statements
</TABLE>
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements,
which are for interim periods, do not include all disclosures provided in
the annual consolidated financial statements. These financial statements
and the footnotes thereto should be read in conjunction with the annual
consolidated financial statements for the years ended December 31, 1999,
1998, and 1997, for Commercial Bankshares, Inc. (the "Company").
All material intercompany balances and transactions have been eliminated.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary for a
fair presentation of the financial statements. Those adjustments are of a
normal recurring nature. The results of operations for the six month period
ended June 30, 2000, are not necessarily indicative of the results to be
expected for the full year.
2. PER SHARE DATA
Earnings per share have been computed in accordance with Statement of
Financial Accounting Standard No. 128, "Earnings per Share" (SFAS 128) by
dividing net income by the weighted average number of common shares (basic
earnings per share) and by the weighted average number of common shares plus
dilutive common share equivalents outstanding (diluted earnings per share).
Common stock equivalents include the effect of all outstanding stock options,
using the treasury stock method. The weighted average number of shares and
equivalent shares include the effect of the one-for-twenty (five per cent)
stock dividends effective on January 4, 2000, January 4, 1999 and January 2,
1998.
The following tables reconcile the weighted average shares (denominator) used
to calculate basic and diluted earnings per share (in thousands, except per
share amounts):
<TABLE>
<CAPTION> <C> <C> <C> <C> <C> <C>
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
Income Shares Per-Share Income Shares Per-Share
(Numerator)(Denominator) Amount (Numerator)(Denominator) Amount
--------- ----------- ------ --------- ----------- ------
Basic EPS $1,565 3,662 $.43 $1,335 3,866 $.35
Effect of
Dilutive
Options - 84 (.01) - 115 (.01)
------ ----- ---- ------ ----- ----
Diluted EPS $1,565 3,746 $.42 $1,335 3,981 $.34
====== ===== ==== ====== ===== ====
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
Income Shares Per-Share Income Shares Per-Share
(Numerator)(Denominator) Amount (Numerator)(Denominator) Amount
--------- ----------- ------ --------- ----------- ------
Basic EPS $3,093 3,718 $.83 $2,617 3,866 $.68
Effect of
Dilutive
Options - 89 (.02) - 115 (.02)
------ ----- ---- ------ ----- ----
Diluted EPS $3,093 3,807 $.81 $2,617 3,981 $.66
====== ===== ==== ====== ===== ====
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's net income reported for the quarter ended June 30, 2000,
was $1.57 million, a 17% increase over the quarter ended June 30, 1999
of $1.34 million. Basic and diluted earnings per share were $.43 and $.42,
respectively, for the second quarter of 2000, as compared to $.35 and $.34,
respectively, for the second quarter of 1999.
For the six months ended June 30, 2000, the Company's net income was $3.1
million, a 19% increase over the six months ended June 30, 1999 of $2.6
million. Basic and diluted earnings per share were $.83 and $.81,
respectively, for the six months ended June 30, 2000 as compared to $.68
and $.66, respectively, for the six months ended June 30, 1999.
The Company's second quarter tax-equivalent net interest income increased by
$255,000, or 5%, to $5.04 million, from $4.78 million in the corresponding
quarter in 1999. This is due primarily to an increase in earning assets of
7%, to $441 million for the second quarter of 2000, from $411 million for the
same period in 1999.
The annualized net interest margin for the quarter and six months ended June
30, 2000 was 4.60% and 4.65%, respectively. This compares to 4.67% and 4.71%
for the quarter and six months ended June 30, 1999. The decrease of seven
basis points for the quarter and six basis points for the six months ending
June 30, 2000, is the result of an increasing interest rate environment
which had a negative impact on the Company's interest rate spread due to the
Company's liability sensitive position, whereby rate sensitive liabilities
reprice more quickly than rate sensitive assets. The net interest margin has
been calculated on a tax-equivalent basis, which includes an adjustment for
interest on tax-exempt securities.
Non-interest income for the second quarter of 2000 decreased by $156,000, or
18%, and decreased by $226,000, or 14% for the first six months of 2000, from
the corresponding periods of 1999. The decreases are primarily due to a gain
on sale of premises and equipment in June 1999 of $220,000.
Salaries and employee benefits expense increased by $42,000, or 2%, for the
second quarter of 2000, and by $68,000, or by 2% for the first six months of
2000, from the corresponding periods of 1999. The increase is attributable
to normal payroll increases.
Occupancy expense decreased by $15,000, or 5%, for the second quarter in 2000
and by $35,000, or 6% for the first six months of 2000, as compared to the
corresponding periods in 1999, due primarily to an increase in rental income.
Furniture and equipment expense decreased by $30,000 or 12% for the second
quarter in 2000 and by $46,000 or 9% for the first six months of 2000 as
compared to the corresponding periods in 1999. The decrease is due to a
decrease in furniture and equipment depreciation.
Data processing expense decreased by $40,000 or 16% for the second quarter in
2000 and by $104,000 or 20% for the first six months of 2000 as compared to
the corresponding periods in 1999. The decrease is due to expenses incurred
in 1999 related to the year 2000 date change.
Company management continually reviews and evaluates the allowance for
loan losses. In evaluating the adequacy of the allowance for loan losses,
management considers the results of its methodology, along with other factors
such as the amount of non-performing loans and the economic conditions
affecting the Company's markets and customers. The allowance for loan losses
was approximately $3.49 million at June 30, 2000, as compared with $2.70
million at June 30, 1999. For the six months ended June 30, 2000, the
allowance for loan losses was increased by the provision for loan losses of
$150,000, and increased by approximately $59,000 in net recoveries. For the
six months ended June 30, 1999, the allowance was credited with a provision
for loan losses of $320,000 and decreased by approximately $42,000 in net
charge-offs. The allowance as a percentage of total loans has increased to
1.31% at June 30, 2000, from 1.23% at June 30, 1999. Based on the nature of
the loan portfolio and prevailing economic factors, management believes that
the current level of the allowance for loan losses is sufficient to absorb
potential losses inherent in the loan portfolio.
Approximately $159.3 million, or 60% of total loans was secured by
nonresidential real estate and $53.7 million, or 20% of total loans was
secured by residential real estate as of June 30, 2000. Virtually all
loans are within the Company's markets in Miami-Dade and Broward counties.
The Company had no non-accrual loans at June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The objective of liquidity management is to maintain cash flow requirements
to meet immediate and ongoing future needs for loan demand, deposit
withdrawals, maturing liabilities, and expenses. In evaluating actual and
anticipated needs, management seeks to obtain funds at the most economical
cost. Management believes that the level of liquidity is sufficient to meet
future funding requirements.
For banks, liquidity represents the ability to meet both loan commitments and
withdrawals of deposited funds. Funds to meet these needs can be obtained by
converting liquid assets to cash or by attracting new deposits or other
sources of funding. Many factors affect a bank's ability to meet liquidity
needs. Commercial Bank of Florida's (the Bank) principal sources of funds
are deposits, repurchase agreements, payments on loans, paydowns, maturities
and sales of investments, and capital contributions by the Company. As an
additional source of funds, the Bank has credit availability with the Federal
Home Loan Bank amounting to $73 million, and Federal Funds purchased lines
available at correspondent banks amounting to $11 million as of June 30, 2000.
The Bank's primary use of funds is to originate loans and purchase investment
securities. The net change in loans during the first six months of 2000 was
an increase of $18.3 million, and the Bank purchased $17.1 million of
investment securities. Funding for the above came primarily from increases
in deposits of $10.5 million, increases in securities sold under agreement to
repurchase of $8.5 million, proceeds from maturities and sales of investment
securities of $13.7 million, and a decrease in cash and cash equivalents of
$3.7 million.
In accordance with risk-based capital guidelines issued by the Federal
Reserve Board, the Company and the Bank are each required to maintain a
minimum ratio of total capital to weighted risk assets of 8%. Additionally,
all bank holding companies and member banks must maintain "core" or "Tier 1"
capital of at least 3% of total assets ("leverage ratio"). Member banks
operating at or near the 3% capital level are expected to have well
diversified risks, including no undue interest rate risk exposure, excellent
control systems, good earnings, high asset quality, high liquidity, and well
managed on- and off-balance sheet activities, and in general be considered
strong banking organizations with a composite 1 rating under the CAMELS
rating system of banks. For all but the most highly rated banks meeting the
above conditions, the minimum leverage ratio is to be 3% plus an additional
100 to 200 basis points. The Tier 1 Capital, Total Capital, and Leverage
Ratios of the Company were 13.54%, 14.88%, and 8.43%, respectively, as of
June 30, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET/LIABILITY MANAGEMENT AND INTEREST RATE RISK
Changes in interest rates can substantially impact the Company's long-term
profitability and current income. An important part of management's efforts
to maintain long-term profitability is the management of interest rate risk.
The goal is to maximize net interest income within acceptable levels of
interest rate risk and liquidity. Interest rate exposure is managed by
monitoring the relationship between interest-earning assets and interest-
bearing liabilities, focusing on the size, maturity or repricing date, rate
of return and degree of risk. The Asset/Liability Management Committee of
Commercial Bank of Florida oversees the interest rate risk management and
reviews the Bank's asset/liability structure on a quarterly basis.
The Bank uses interest rate sensitivity, or GAP analysis to monitor the
amount and timing of balances exposed to changes in interest rates. The GAP
analysis is not relied upon solely to determine future reactions to interest
rate changes because it is presented at one point in time and could change
significantly from day-to-day. Other methods such as simulation analysis are
utilized in evaluating the Bank's interest rate risk position. The table
presented below shows the Bank's GAP analysis at June 30, 2000.
<TABLE>
INTEREST RATE SENSITIVITY ANALYSIS
(Dollars in Thousands)
<CAPTION>
<C> <C> <C> <C> <C> <C>
Term to Repricing
-----------------------------------------------------
Over 1 Year
90 Days 91-181 182-365 & Non-rate
or Less Days Days Sensitive Total
------- ---- ---- --------- -----
Interest-earning assets:
Federal funds sold $ 13,062 $ - $ - $ - $ 13,062
Investment securities 6,841 3,097 9,247 150,132 169,317
Gross loans (excluding non-accrual)83,273 32,271 57,189 92,880 265,613
-------- ------- ------- -------- --------
Total interest-earning assets $103,176 $35,368 $66,436 $243,012 $447,992
-------- ------- ------- -------- --------
Interest-bearing liabilities:
Interest-bearing checking $ - $ - $ - $ 54,175 $ 54,175
Money market - 10,046 10,046 20,090 40,182
Savings - - - 23,276 23,276
Time deposits 66,165 41,780 64,891 20,341 193,177
Borrowed funds 49,409 - - - 49,409
-------- ------- ------- -------- --------
Total int-bearing liabilities $115,574 $51,826 $74,937 $117,882 $360,219
-------- ------- ------- -------- --------
Interest sensitivity gap $(12,398)($16,458)($ 8,501) $125,130 $ 87,773
Cumulative gap $(12,398)($28,856)($37,357) $ 87,773
Cumulative ratio of interest-earning assets
to interest-bearing liabilities 89% 83% 85% 124%
Cumulative gap as a percentage of total
interest-earning assets (2.8%) (6.4%) (8.3%) 19.6%
<FN>
Management's assumptions reflect the Bank's estimate of the
anticipated repricing sensitivity of non-maturity deposit
products. Interest-bearing checking and savings accounts have
been allocated to the "over 1 year" category, and money market
accounts 25% to the "91-181 days" category, 25% to the "182-365
days" category, and 50% to the "over 1 year" category.
</TABLE>
The Bank uses simulation analysis to quantify the effects of various
immediate parallel shifts in interest rates on net interest income over the
next 12 month period. Such a "rate shock" analysis requires key assumptions
which are inherently uncertain, such as deposit sensitivity, cash flows from
investments and loans, reinvestment options, management's capital plans,
market conditions, and the timing, magnitude and frequency of interest rate
changes. As a result, the simulation is only a best-estimate and cannot
accurately predict the impact of the future interest rate changes on net
income. As of June 30, 2000, the Bank's simulation analysis projects an
increase to net interest income of .37%, 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 3.95%. These projected levels are within the Bank's policy limits.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
All exhibits are omitted because they are not applicable.
(b) Reports on Form 8-K. No report on Form 8-K was filed during the
quarter ended June 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Commercial Bankshares, Inc.
---------------------------
(Registrant)
/s/ Barbara E. Reed
---------------------------
Senior Vice President &
Chief Financial Officer
Date: August 10, 2000
-------------------
