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 September 30, 2002
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 .
--- ---
CLASS OUTSTANDING AT November 12, 2002
----- --------------------------------
COMMON STOCK, $.08 PAR VALUE 3,642,948 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 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 12
Item 4. Controls and Procedures 13
PART II Item 6. Exhibits and Reports on Form 8-K 14
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2002 and December 31, 2001
(Dollars in thousands, except share data)
9/30/2002 12/31/2001
--------- ----------
Assets: (Unaudited)
Cash and due from banks $ 23,581 $ 21,420
Federal funds sold 65,540 46,780
-------- --------
Total cash and cash equivalents 89,121 68,200
Investment securities available for sale,
at fair value (cost of $161,069 in 2002
and $107,126 in 2001) 168,931 111,138
Investment securities held to maturity,
at cost (fair value of $72,422 in 2002
and $25,332 in 2001) 71,154 24,664
Loans, net 338,324 346,251
Premises and equipment, net 12,584 12,554
Accrued interest receivable 3,326 2,790
Goodwill, net 253 253
Other assets 4,064 3,078
-------- --------
Total assets $687,757 $568,928
======== ========
Liabilities and stockholders' equity:
Deposits:
Demand $107,168 $ 94,453
Interest-bearing checking 93,336 65,630
Money market accounts 61,954 51,958
Savings 27,105 24,896
Time 280,101 225,569
-------- --------
Total deposits 569,664 462,506
Securities sold under agreements
to repurchase 53,882 53,436
Accrued interest payable 564 633
Accounts payable and accrued liabilities 6,493 2,228
-------- --------
Total liabilities 630,603 518,803
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, $.08 par value,
6,250,000 authorized shares,
3,992,531 issued (3,962,440 in 2001) 318 316
Additional paid-in capital 44,479 44,041
Retained earnings 14,013 9,786
Accumulated other comprehensive income 5,112 2,686
Treasury stock, 355,056 shares
(352,571 in 2001), at cost (6,768) (6,704)
-------- --------
Total stockholders' equity 57,154 50,125
-------- --------
Total liabilities
and stockholders' equity $687,757 $568,928
======== ========
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 September 30, 2002 and 2001
(Dollars in thousands, except share data)
(Unaudited)
2002 2001
---- ----
Interest income:
Interest and fees on loans $6,294 $6,934
Interest on investment securities 2,538 2,184
Interest on federal funds sold 251 272
------ ------
Total interest income 9,083 9,390
------ ------
Interest expense:
Interest on deposits 2,663 3,620
Interest on securities sold under
agreements to repurchase 273 431
------ ------
Total interest expense 2,936 4,051
------ ------
Net interest income 6,147 5,339
Provision for loan losses 20 250
------ ------
Net interest income after provision 6,127 5,089
------ ------
Non-interest income:
Service charges on deposit accounts 655 670
Other fees and service charges 133 155
Securities gains - 147
------ ------
Total non-interest income 788 972
------ ------
Non-interest expense:
Salaries and employee benefits 2,239 2,112
Occupancy 320 325
Data processing 265 263
Furniture and equipment 176 178
Insurance 86 64
Stationery and supplies 65 68
Administrative service charges 61 58
Telephone and fax 61 56
Amortization - 41
Other 221 339
------ ------
Total non-interest expense 3,494 3,504
------ ------
Income before income taxes 3,421 2,557
Provision for income taxes 1,058 744
------ ------
Net income $2,363 $1,813
====== ======
Earnings per common and common equivalent share:
Basic $.65 $.50
Diluted $.62 $.48
Weighted average number of shares and common equivalent shares:
Basic 3,636,518 3,607,596
Diluted 3,811,491 3,742,937
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 nine months ended September 30, 2002 and 2001
(Dollars in thousands, except share data)
(Unaudited)
2002 2001
---- ----
Interest income:
Interest and fees on loans $19,065 $20,394
Interest on investment securities 7,254 7,195
Interest on federal funds sold 518 799
------- -------
Total interest income 26,837 28,388
------- -------
Interest expense:
Interest on deposits 7,873 11,356
Interest on securities sold under
agreements to repurchase 762 1,663
------- -------
Total interest expense 8,635 13,019
------- -------
Net interest income 18,202 15,369
Provision for loan losses 170 425
------- -------
Net interest income after provision 18,032 14,944
------- -------
Non-interest income:
Service charges on deposit accounts 1,969 1,978
Other fees and service charges 425 444
Securities gains 33 147
------- -------
Total non-interest income 2,427 2,569
------- -------
Non-interest expense:
Salaries and employee benefits 6,914 6,280
Occupancy 939 923
Data processing 850 757
Furniture and equipment 542 552
Insurance 252 171
Stationery and supplies 196 205
Administrative service charges 175 171
Telephone and fax 173 170
Amortization - 122
Other 874 878
------- -------
Total non-interest expense 10,915 10,229
------- -------
Income before income taxes 9,544 7,284
Provision for income taxes 2,885 2,088
------- -------
Net income $ 6,659 $ 5,196
======= =======
Earnings per common and common equivalent share:
Basic $1.84 $1.44
Diluted $1.76 $1.40
Weighted average number of shares and common equivalent shares:
Basic 3,624,152 3,605,989
Diluted 3,791,515 3,713,862
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 and nine months ended September 30, 2002 and 2001
(In thousands)
(Unaudited)
Three months ended
September 30,
2002 2001
---- ----
Net income $2,363 $1,813
Other comprehensive income, net of tax:
Unrealized holding gains arising
during the period 1,182 985
Reclassification adjustment for gains
realized in net income - (101)
------ ------
Other comprehensive income 1,182 884
------ ------
Comprehensive income $3,545 $2,697
====== ======
Nine months ended
September 30,
2002 2001
---- ----
Net income $6,659 $5,196
Other comprehensive income, net of tax:
Unrealized holding gains arising
during the period 2,447 2,059
Reclassification adjustment for gains
realized in net income (21) (101)
Cumulative effect of a change in accounting
principle for reclassification of
securities upon adoption of SFAS No. 133 - 114
------ ------
Other comprehensive income 2,426 2,072
------ ------
Comprehensive income $9,085 $7,268
====== ======
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 nine months ended September 30, 2002 and 2001
(In thousands)
(Unaudited)
2002 2001
----- -----
Cash flows from operating activities:
Net income $ 6,659 $ 5,196
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 170 425
Depreciation, amortization and accretion, net 420 662
Gain on sale of investment securities (33) (147)
Gain on sale of premises and equipment (1) -
Change in accrued interest receivable (536) 843
Change in other assets (986) 1,199
Change in accounts payable and accrued liabilities 2,762 (749)
Change in accrued interest payable (69) (157)
------- -------
Net cash provided by operating activities 8,386 7,272
------- -------
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 23,554 5,129
Proceeds from maturities and sales of investment
securities available for sale 57,113 68,319
Purchases of investment securities
held to maturity (71,286) -
Purchases of investment securities
available for sale (109,765) (44,614)
Net change in loans 7,757 (50,115)
Purchases of premises and equipment (466) (205)
Sales of premises and equipment 1 -
------- ------
Net cash used in investing activities (93,092) (21,486)
------- -------
Cash flows from financing activities:
Net change in deposits 107,158 30,575
Net change in securities sold under
agreements to repurchase 446 (2,782)
Dividends paid (2,353) (2,163)
Proceeds from issuance of stock 440 137
Purchase of treasury stock (64) (107)
------- -------
Net cash provided by financing activities 105,627 25,660
Increase in cash and cash equivalents 20,921 11,446
Cash and cash equivalents at beginning of period 68,200 35,015
------- -------
Cash and cash equivalents at end of period $89,121 $46,461
======= =======
Supplemental disclosures:
Interest paid (net of amounts credited
to deposit accounts) $ 1,330 $ 2,144
======= =======
Income taxes paid $ 3,058 $ 2,182
======= =======
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, 2001, 2000,
and 1999 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 nine month period ended September 30, 2002,
are not necessarily indicative of the results to be expected for
the full year.
In preparing the consolidated financial statements, management
is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the dates of the
statements of financial condition and revenues and expenses for
the periods covered. Actual results could differ from those
estimates and assumptions.
2. PER SHARE DATA
Earnings per share have been computed 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 used
to calculate basic and diluted earnings per share (in thousands,
except per share amounts):
Three Months Ended Three Months Ended
September 30, 2002 September 30, 2001
------------------------------- -------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator)(Denominator) Amount (Numerator)(Denominator) Amount
--------- ----------- ------ --------- ----------- ------
Basic EPS
$2,363 3,637 $.65 $1,813 3,608 $.50
Effect of
Dilutive
Options
- 174 (.03) - 135 (.02)
------ ----- ---- ------ ----- ----
Diluted EPS
$2,363 3,811 $.62 $1,813 3,743 $.48
====== ===== ==== ====== ===== ====
Nine Months Ended Nine Months Ended
September 30, 2002 September 30, 2001
-------------------------------- --------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator)(Denominator) Amount (Numerator)(Denominator) Amount
--------- ----------- ------ --------- ----------- ------
Basic EPS
$6,659 3,624 $1.84 $5,196 3,606 $1.44
Effect of
Dilutive
Options
- 168 (.08) - 108 (.04)
------ ----- ----- ------ ----- -----
Diluted EPS
$6,659 3,792 $1.76 $5,196 3,714 $1.40
====== ===== ===== ====== ===== =====
3. NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 142: "Goodwill and Other Intangible Assets"
In June 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard (SFAS) No.
142, "Goodwill and Other Intangible Assets." This statement
addresses how intangible assets that are acquired individually
or with a group of other assets (but not those acquired in a
business combination) should be accounted for in financial
statements upon their acquisition. This statement also
addresses how goodwill and other intangible assets should be
accounted for after they have been initially recognized in the
financial statements. Except for goodwill and intangible assets
acquired after June 30, 2001, which are immediately subject to
its provision, SFAS No. 142 is effective starting with fiscal
years beginning after December 15, 2001.
The provisions of SFAS No. 142 no longer allow the amortization
of goodwill, and certain intangible assets that have indefinite
useful lives, and requires that impairment of goodwill on those
assets be tested annually. In addition, SFAS No. 142 requires
the following additional disclosures for goodwill and other
intangible assets:
- Changes in the carrying amount of goodwill from
period-to-period;
- The carrying amount of goodwill by major intangible assets
class, and
- The estimated intangible amortization for the next five years
The Company adopted SFAS No. 142 effective January 1, 2002. The
Company did not incur impairment losses for goodwill resulting
from a transitional impairment test. The elimination of goodwill
amortization will positively impact pre-tax net income by
approximately $160,000 in fiscal year 2002.
Three months ended Nine Months ended
September 30, September 30,
------------------ -----------------
2002 2001 2002 2001
---- ---- ---- ----
(Dollars in thousands,
except per share amounts)
Net income:
Income before income taxes $3,421 $2,557 $9,544 $7,284
Add back:
Amortization of goodwill
previously amortized - 41 - 122
------ ------ ------ ------
Income before income taxes,
excluding amortization
of goodwill 3,421 2,598 9,544 7,406
Provision for income taxes 1,058 744 2,885 2,088
------ ------ ------ ------
Adjusted net income $2,363 $1,854 $6,659 $5,318
====== ====== ====== ======
Basic earnings per share:
Earnings per share,
as reported $ .65 $ .50 $ 1.84 $ 1.44
Goodwill amortization - .01 - .04
------ ------ ------ ------
Adjusted earnings per share $ .65 $ .51 $ 1.84 $ 1.48
====== ====== ====== ======
Diluted earnings per share:
Earnings per share,
as reported $ .62 $ .48 $ 1.76 $ 1.40
Goodwill amortization - .02 - .03
------ ------ ------ ------
Adjusted earnings per share $ .62 $ .50 $ 1.76 $ 1.43
====== ====== ====== ======
SFAS No. 144: "Accounting for the Impairment or Disposal of Long-
Lived Assets"
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001 and
was written to provide a single model for the disposal of long-lived
assets. SFAS No. 144 supersedes SFAS No. 121 "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" and the accounting and reporting provision of
Accounting principles Board Opinion No. 30, "Reporting the Results
of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." The Company adopted the provision of
SFAS No. 144 effective January 1, 2002. The implementation of this
statement did not have a material effect on the Company's financial
position, results of operations or cash flows.
SFAS No. 147: "Acquisitions of Certain Financial Institutions"
In October 2002, the FASB issued SFAS No. 147, "Acquisitions of
Certain Financial Institutions." SFAS 147 addresses the treatment
of goodwill related to branch acquisitions. It requires that
goodwill meeting certain criteria be accounted for under SFAS No.
142, "Goodwill and Other Intangible Assets." The Company adopted
SFAS No. 142 in January 2002 and will adopt SFAS No. 147 in the
fourth quarter of 2002. The implementation of this statement is
not expected to have a material effect on the Company's financial
position, results of operations or cash flows.
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
September 30, 2002, was $2.36 million, a 30% increase over the
quarter ended September 30, 2001 of $1.81 million. Basic and
diluted earnings per share were $.65 and $.62, respectively,
for the third quarter of 2002, as compared to $.50 and $.48,
respectively, for the third quarter of 2001.
For the nine months ended September 30, 2002, the Company's net
income was $6.66 million, a 28% increase over the nine months ended
September 30, 2001 of $5.20 million. Basic and diluted earnings
per share were $1.84 and $1.76, respectively, for the nine months
ended September 30, 2002 as compared to $1.44 and $1.40,
respectively, for the nine months ended September 30, 2001.
The Company's third quarter tax-equivalent net interest income
increased to $6.41 million, from $5.61 million in the corresponding
quarter in 2001. The increase is due primarily to an increase in
average earning assets of $79 million. The annualized net interest
yield for the quarter and nine months ended September 30, 2002 was
4.26% and 4.49%, respectively. This compares to 4.30% and 4.25%
for the quarter and nine months ended September 30, 2001. The net
interest yield has been calculated on a tax-equivalent basis, which
includes an adjustment for interest on tax-exempt securities.
Non-interest income for the third quarter of 2002 decreased by
$184,000, or 19%, and decreased by $142,000 or 6% for the first
nine months of 2002, from the corresponding periods of 2001. The
decrease in quarter activity is due to decreases in account
overdraft activity charges of $26,000 and net gain on sale of
investments of $147,000 in 2001. The decrease in year to date
activity is due to a net gain on sale of investments of $147,000
in 2001.
Salaries and employee benefits expense increased by $127,000, or
6%, for the third quarter of 2002, and by $634,000, or 10%, for
the first nine months of 2002, from the corresponding periods
of 2001. The increase is attributable to normal payroll increases
and increased benefit costs.
Occupancy and Furniture and Equipment expenses for the third
quarter and nine months ended September 30, 2002, did not
fluctuate from the same periods in the prior year.
Data Processing expense for the quarter ended September 30, 2002
did not fluctuate and increased $93,000 for the nine months ended
September 30, 2002. 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.
Other miscellaneous expenses decreased by $131,000, or 21%, for
the third quarter of 2002, and by $47,000, or 3%, for the first
nine months of 2002, as compared to the corresponding periods
in 2001. The decrease in quarter activity is due to decreases
in legal and professional of $50,000, goodwill amortization of
$41,000 and miscellaneous expenses of $39,000, partially offset
by an increase in insurance of $22,000. The decrease in year to
date activity is due to a decrease in goodwill amortization of
$122,000, partially offset by an increase in insurance of $81,000.
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
$4.75 million at September 30, 2002, as compared with $4.64
million at December 31, 2001. For the nine months ended September
30, 2002, the allowance for loan losses was increased by the
provision for loan losses of $170,000, and decreased by
approximately $62,000 in net charge-offs. For the nine months
ended September 30, 2001, the allowance was increased with a
provision for loan losses of $425,000 and decreased by
approximately $10,000 in net charge-offs. The allowance as a
percentage of total loans has increased to 1.38% at September
30, 2002, from 1.32% at December 31, 2001. 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 probable losses in the loan portfolio.
Approximately $212 million, or 62%, of total loans was secured by
non-residential real estate, and $77.0 million, or 22%, of total
loans was secured by residential real estate as of September 30,
2002. Virtually all loans are within the Company's markets in
Miami-Dade and Broward counties.
The Company had no non-accrual loans at September 30, 2002.
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 $102 million, and Federal Funds purchased
lines available at correspondent banks amounting to $23 million
as of September 30, 2002.
The Bank's primary use of funds is to originate loans and purchase
investment securities. The Bank purchased $181.1 million of
investment securities during the first nine months of 2002, and
loans decreased by $7.8 million. Funding for the above came
primarily from increases in deposits of $107.2 million and from
proceeds from maturities and sales of investment securities of
$80.7 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 risk weighted
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 12.79%, 14.27%, and 7.51%, respectively, as of
September 30, 2002.
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 September 30, 2002.
INTEREST RATE SENSITIVITY ANALYSIS
(Dollars in Thousands)
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
$65,540 $ - $ - $ - $ 65,540
Investment securities
59,257 38,237 46,119 93,680 237,293
Gross loans
(excluding non-accrual)
79,557 33,003 _ 53,523 177,621 343,704
-------- ------- -------- -------- --------
Total interest-
earning assets
$204,354 $71,240 $ 99,642 $271,301 $646,537
-------- ------- -------- -------- --------
Interest-bearing liabilities:
Interest-bearing checking
$ - $ - $ - $ 93,336 $ 93,336
Money market
- 15,489 15,489 30,976 61,954
Savings
- - - 27,105 27,105
Time deposits
62,364 64,779 60,372 92,586 280,101
Borrowed funds
56,094 - - - 56,094
-------- ------- -------- -------- --------
Total interest-bearing
liabilities $118,458 $80,268 $ 75,861 $244,003 $518,590
-------- ------- -------- -------- --------
Interest sensitivity gap
$ 85,896 ($ 9,028) $ 23,781 $ 27,298 $127,947
Cumulative gap $ 85,896 $76,868 $100,649 $127,947
Cumulative ratio of interest-
earning assets to interest-
bearing liabilities
173% 139% 137% 125%
Cumulative gap as a percentage
of total interest-
earning assets 13.3% 11.9% 15.6% 19.8%
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 September 30,
2002, the Bank's simulation analysis projects an increase to net
interest income of 3.99%, 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 3.06%. These projected levels are within
the Bank's policy limits.
ITEM 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer
have concluded, based on their evaluation within ninety days
prior to the filing date of this report, that the Company's
disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports
filed or submitted by it under the Securities Exchange Act of 1934,
as amended, is recorded, processed, summarized and reported within
the time periods specified in the Commissions rules. The Company's
controls and procedures are designed to ensure that information
required to be disclosed is accumulated and communicated to
management, including the principal executive and financial
officers, as appropriate, to allow timely decisions regarding
required disclosure.
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect
these controls subsequent to their evaluation, nor any corrective
actions with regard to significant deficiencies and material
weaknesses.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
99.1 Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley act of 2002.
99.2 Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley act of 2002.
(a) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended
September 30, 2002.
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/ Joseph W. Armaly
----------------------
Joseph W. Armaly
Chief Executive Officer
/s/ Barbara E. Reed
-----------------------
Barbara E. Reed
Chief Financial Officer
Date: November 13, 2002
-----------------
CERTIFICATION
I, Joseph W. Armaly, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Commercial
Bankshares, Inc;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit any statement of a
material fact necessary to make the statement made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors (or
persons performing the equivalent function):
a) All significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: November 13, 2002 COMMERCIAL BANKSHARES, INC.
/s/ Joseph W. Armaly
---------------------
Joseph W. Armaly
Chief Executive Officer
CERTIFICATION
I, Barbara E. Reed, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Commercial
Bankshares, Inc;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit any statement of a
material fact necessary to make the statement made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period
in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
filing date of this quarterly report (the "Evaluation Date");
and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors (or
persons performing the equivalent function):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: November 13, 2002 COMMERCIAL BANKSHARES, INC.
/s/ Barbara E. Reed
--------------------
Barbara E. Reed
Chief Financial Officer
EXHIBIT 99.1 Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant To Section 906 of the Sarbanes-
Oxley Act of 2002
In connection with the Quarterly Report of Commercial
Bankshares, Inc., (the "Company") on Form 10-Q for the
period ending September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the
"Report"), I, Joseph W. Armaly, Chief Executive Officer of
the Company, certify, pursuant to 18. U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
1) The Report fully complies with the requirements of
section 13(a) or 15(d), as applicable of the Securities
Exchange Act of 1934, as amended; and
2) The information contained in the Report fairly presents,
in all material respects, the financial condition and
results of operations of the Company.
/s/ Joseph W. Armaly
----------------------
Joseph W. Armaly
Chief Executive Officer
November 13, 2002
EXHIBIT 99.2 Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant To Section 906 of the Sarbanes-
Oxley Act of 2002
In connection with the Quarterly Report of Commercial
Bankshares, Inc., (the "Company") on Form 10-Q for the
period ending September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the
"Report"), I, Barbara E. Reed, Chief Financial Officer of
the Company, certify, pursuant to 18. U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
1) The Report fully complies with the requirements of
section 13(a) or 15(d), as applicable of the Securities
Exchange Act of 1934, as amended; and
2) The information contained in the Report fairly presents,
in all material respects, the financial condition and
results of operations of the Company.
/s/ Barbara E. Reed
---------------------
Barbara E. Reed
Chief Financial Officer
November 13, 2002