1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2001
Commission File Number 00-22246
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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 May 14, 2001
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COMMON STOCK, $.08 PAR VALUE 3,610,635 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 7
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 9
PART II Item 6. Exhibits and Reports on Form 8-K 11
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2001 and December 31, 2000
(Dollars in thousands except share data)
3/31/2001 12/31/2000
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Assets:
(Unaudited)
Cash and due from banks $ 20,247 $ 20,478
Federal funds sold 33,142 14,537
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Total cash and cash equivalents 53,389 35,015
Investment securities available for sale,
at fair value (cost of $131,399 in 2001
and $141,031 in 2000) 135,725 143,487
Investment securities held to maturity, at cost
(aggregate fair value of $31,394 in 2001
and $37,958 in 2000) 30,622 37,215
Loans, net 307,940 285,641
Premises and equipment, net 12,828 12,913
Accrued interest receivable 3,697 4,001
Goodwill, net 375 416
Other assets 2,813 3,836
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Total assets $547,389 $522,524
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Liabilities and stockholders' equity:
Deposits:
Demand $ 90,896 $ 88,829
Interest-bearing checking 58,763 59,041
Money market accounts 48,332 38,239
Savings 22,346 23,585
Time 221,944 213,229
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Total deposits 442,281 422,923
Securities sold under agreements to repurchase 53,985 51,166
Accrued interest payable 832 870
Accounts payable and accrued liabilities 3,109 2,510
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Total liabilities 500,207 477,469
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Stockholders' equity:
Common stock, $.08 par value, 6,250,000
authorized shares, 3,950,442 issued
(3,946,303 in 2000) 315 314
Additional paid-in capital 43,903 43,866
Retained earnings 6,642 5,727
Accumulated other comprehensive income 2,898 1,720
Treasury stock, 347,100 shares
(346,905 in 2000), at cost (6,576) (6,572)
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Total stockholders' equity 47,182 45,055
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Total liabilities and stockholders' equity $547,389 $522,524
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The accompanying notes are an integral part of these
condensed consolidated financial statements
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31, 2001 and 2000
(In thousands except per share data)
(Unaudited)
2001 2000
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Interest income:
Interest and fees on loans $6,501 $5,374
Interest on investment securities 2,636 2,859
Interest on federal funds sold 282 88
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Total interest income 9,419 8,321
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Interest expense:
Interest on deposits 3,892 2,973
Interest on securities sold under
agreements to repurchase 635 513
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Total interest expense 4,527 3,486
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Net interest income 4,892 4,835
Provision for loan losses 75 80
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Net interest income after provision 4,817 4,755
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Non-interest income:
Service charges on deposit accounts 637 564
Other fees and service charges 123 137
Securities losses - (68)
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Total non-interest income 760 633
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Non-interest expense:
Salaries and employee benefits 2,088 1,892
Occupancy 297 286
Data processing 241 201
Furniture and equipment 188 232
Telephone and fax 55 60
Administrative service charges 54 47
Stationery and supplies 74 64
Insurance 53 54
Amortization 41 50
Other 214 323
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Total non-interest expense 3,305 3,209
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Income before income taxes 2,272 2,179
Provision for income taxes 636 651
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Net income $1,636 $1,528
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Earnings per common and common equivalent share:
Basic $.45 $.41
Diluted $.44 $.40
Weighted average number of shares and common equivalent shares:
Basic 3,602 3,771
Diluted 3,692 3,866
The accompanying notes are an integral part of these
condensed consolidated financial statements
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended March 31, 2001 and 2000
(Dollars in thousands)
(Unaudited)
Three months ended
March 31,
2001 2000
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Net income $1,636 $1,528
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Other comprehensive income(loss), net of tax:
Unrealized holding gains(losses) arising
during the period 1,064 (676)
Reclassification adjustment for losses
realized in net income - 48
Cumulative effect of a change in
accounting principle 114 -
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Other comprehensive income(loss) 1,178 (628)
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Comprehensive income $2,814 $ 900
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The accompanying notes are an integral part of these
condensed consolidated financial statements
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2001 and 2000
(In thousands)
(Unaudited)
2001 2000
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Cash flows from operating activities:
Net income $1,636 $1,528
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 75 80
Depreciation, amortization and accretion, net 229 312
Loss on sale of investment securities - 68
Change in accrued interest receivable 304 (434)
Change in other assets 1,023 600
Change in accounts payable and accrued liabilities (94) 415
Change in accrued interest payable (38) (10)
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Net cash provided by operating activities 3,135 2,559
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Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 1,318 1,846
Proceeds from maturities of investment securities
available for sale 31,605 1,163
Proceeds from sales of investment securities
available for sale - 4,924
Purchases of investment securities
available for sale (16,723) (16,150)
Net increase in loans (22,374) (6,900)
Purchases of premises and equipment (78) (48)
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Net cash used in investing activities (6,252) (15,165)
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Cash flows from financing activities:
Net change in deposits 19,358 5,625
Net change in securities sold under agreements
to repurchase 2,819 1,437
Dividends paid (720) (693)
Proceeds from issuance of stock 38 71
Purchase of treasury stock (4) (2,613)
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Net cash provided by financing activities 21,491 3,827
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Increase(decrease) in cash and cash equivalents 18,374 (8,779)
Cash and cash equivalents at beginning of period 35,015 39,085
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Cash and cash equivalents at end of period $53,389 $30,306
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Supplemental disclosures:
Interest paid (net of amounts
credited to deposit accounts) $ 715 $ 621
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Income taxes paid $ 132 $ 122
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The accompanying notes are an integral part of these
condensed consolidated financial statements
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, 2000,
1999, and 1998 for Commercial Bankshares, Inc. (the "Company").
All material intercompany balances and transactions have been eliminated.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary for a
fair presentation of the financial statements. Those adjustments are of
a normal recurring nature. The results of operations for the three month
period ended March 31, 2001, 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 following tables reconcile the weighted average shares (denominator)
used to calculate basic and diluted earnings per share (in thousands,
except per share amounts):
Three Months Ended Three Months Ended
March 31, 2001 March 31, 2000
Income Shares Per-Share Income Shares Per-Share
(Numerator)(Denominator) Amount (Numerator)(Denominator) Amount
--------- ----------- ------ --------- ----------- ------
Basic EPS $1,636 3,602 $.45 $1,528 3,771 $.41
Effect of
Dilutive
Options - 90 (.01) - 95 (.01)
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Diluted EPS $1,636 3,692 $.44 $1,528 3,866 $.40
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3. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, ("SFAS 133")
"Accounting for Derivative Instruments and Hedging Activities", as
amended by SFAS 137 and SFAS 138. SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000; accordingly,
the Company adopted SFAS 133 on January 1, 2001. SFAS 133 requires that
all derivative instruments be recorded on the balance sheet at fair
value. Changes in the fair value of derivatives are recorded each period
in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is,
depending on the type of hedge transaction. In conjunction with the
adoption of SFAS 133, the Company transferred $5.3 million in securities,
with a fair value of $5.5 million, from the held-to-maturity portfolio to
the available-for-sale portfolio on January 1, 2001. The Company does
not currently utilize derivative instruments for risk management
purposes. The implementation of this statement has not had a material
effect on the Company's financial position or results of operations.
In September 2000, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 140 ("SFAS 140"),
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, a replacement of FASB No. 125". SFAS 140
revises the standards for accounting and reporting of securitizations,
other transfers of financial assets and extinguishments of liabilities.
The standards are based on a consistent application of a financial
components approach which focuses on control. Under that approach, after
a transfer of financial assets, an entity recognizes financial and
servicing assets it controls and the liabilities it has incurred.
Derecognition of financial assets occurs when control has been
surrendered and liabilities are derecognized when extinguished. SFAS 140
is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. Other
provisions of SFAS 140 relating to recognition and reclassification of
collateral and disclosures of securitization transactions are effective
for fiscal years ending after December 15, 2000. The implementation of
this statement has not had a material effect on the Company's
consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's net income reported for the quarter ended March 31, 2001,
was $1.64 million, a 7% increase over the quarter ended March 31, 2000 of
$1.53 million. Basic and diluted earnings per share were $.45 and $.44,
respectively, for the first quarter of 2001, as compared to $.41 and
$.40, respectively, for the first quarter of 2000.
The Company's first quarter tax-equivalent net interest income increased
to $5.14 million, from $5.08 million in the corresponding quarter in
2000. The annualized net interest margin for the quarter ended March 31,
2001 was 4.25%. This compares to 4.70% for the quarter ended March 31,
2000. The decrease of 45 basis points for the quarter is the result of
the current interest rate environment and intense competition for
deposits and high quality loans. The net interest margin has been
calculated on a tax-equivalent basis, which includes an adjustment for
interest on tax-exempt securities.
Non-interest income for the first quarter of 2001 increased by $127,000,
or 20% from the corresponding period of 2000. The increase is due to an
increase in account activity charges of $73,000 in 2001, in addition to a
loss on sale of investments in 2000 of $68,000.
Salaries and employee benefits expense increased by $196,000, or 10%, for
the first quarter of 2001, from the corresponding period of 2000. The
increase is attributable to normal payroll increases and increased
benefit costs. Data processing expense increased by $40,000 or 20% for
the first quarter of 2001 as compared to the corresponding period in
2000. The increase is attributable to an increase in the number of
accounts processed and to an increase in rates from the Company's service
provider. Furniture and equipment expense decreased by $44,000 or 19%
for the first quarter in 2001 as compared to the corresponding period in
2000 due to a decrease in furniture and equipment depreciation expense.
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 $3.88 million at March 31, 2001, as
compared with $3.41 million at March 31, 2000. For the three months
ended March 31, 2001, the allowance for loan losses was increased by the
provision for loan losses of $75,000, and decreased by approximately
$6,000 in net charge-offs. For the three months ended March 31, 2000,
the allowance was increased with a provision for loan losses of $80,000
and increased by approximately $48,000 in net recoveries. The allowance
as a percentage of total loans has decreased to 1.24% at March 31, 2001,
from 1.34% at March 31, 2000. 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 losses
inherent in the loan portfolio.
Approximately $193.0 million, or 62% of total loans was secured by
nonresidential real estate and $54.8 million, or 18% of total loans was
secured by residential real estate as of March 31, 2001. Virtually all
loans are within the Company's markets in Miami-Dade and Broward
Counties.
The Company had a non-accrual loan balance of $834,000 at March 31, 2001.
If these loans were on full accrual, additional interest income of
approximately $14,000 and $0 would have been recorded during the first
three months of 2001 and 2000, respectively.
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, maturities and sales of investments. As an additional source
of funds, the Bank has credit availability with the Federal Home Loan
Bank amounting to $76 million, and Federal Funds purchased lines
available at correspondent banks amounting to $11 million as of March 31,
2001.
The Bank's primary use of funds is to originate loans and purchase
investment securities. The net change in loans during the first three
months of 2001 was an increase of $22.4 million, and the Bank purchased
$16.7 million of investment securities. Funding for the above came
primarily from increases in deposits of $19.4 million, increases in
securities sold under agreements to repurchase of $2.8 million and from
proceeds from maturities and sales of investment securities of $32.9
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 12.25%, 13.69%, and 7.98%, respectively, as of March 31,
2001.
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 the Bank oversees the interest
rate risk management and reviews the Bank's asset/liability structure on
a quarterly basis.
The Bank uses interest rate sensitivity, or GAP analysis to monitor the
amount and timing of balances exposed to changes in interest rates. The
GAP analysis is not relied upon solely to determine future reactions to
interest rate changes because it is presented at one point in time and
could change significantly from day-to-day. Other methods such as
simulation analysis are utilized in evaluating the Bank's interest rate
risk position. The table presented below shows the Bank's GAP analysis
at March 31, 2001.
INTEREST RATE SENSITIVITY ANALYSIS
(Dollars in Thousands)
Term to Repricing
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Over 1 Year
90 Days 91-181 182-365 & Non-rate
or Less Days Days Sensitive Total
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Interest-earning assets:
Federal funds sold $33,142 $ - $ - $ - $ 33,142
Investment securities 10,473 6,076 8,284 138,652 163,485
Gross loans (excluding non-accrual) 67,445 37,070 73,548 133,417 311,480
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Total interest-earning assets $111,060 $43,146 $81,832 $272,069 $508,107
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Interest-bearing liabilities:
Interest-bearing checking $ - $ - $ - $ 58,763 $ 58,763
Money market - 12,083 12,083 24,166 48,332
Savings - - - 22,346 22,346
Time deposits 70,191 58,293 71,820 21,640 221,944
Borrowed funds 54,932 - - - 54,932
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Total interest-bearing liabilities $125,123 $70,376 $83,903 $126,915 $406,317
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Interest sensitivity gap $(14,063) ($27,230)($ 2,071) $145,154 $101,790
Cumulative gap $(14,063) ($41,293)($43,364) $101,790
Cumulative ratio of interest-earning assets
to interest-bearing liabilities 89% 79% 84% 125%
Cumulative gap as a percentage of total
interest-earning assets (2.8%) (8.1%) (8.5%) 20.0%
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.
The Bank uses simulation analysis to quantify the effects of various
immediate parallel shifts in interest rates on net interest income over
the next 12 month period. Such a "rate shock" analysis requires key
assumptions which are inherently uncertain, such as deposit sensitivity,
cash flows from investments and loans, reinvestment options, management's
capital plans, market conditions, and the timing, magnitude and frequency
of interest rate changes. As a result, the simulation is only a
best-estimate and cannot accurately predict the impact of the future
interest rate changes on net income. As of March 31, 2001, the Bank's
simulation analysis projects a decrease to net interest income of .03%,
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 3.96%. 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 March 31, 2001.
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.
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(Registrant)
/s/ Barbara E. Reed
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Senior Vice President &
Chief Financial Officer
Date: May 15, 2001
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