U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2003
OR
[ ] 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 00-22246
COMMERCIAL BANKSHARES, INC.
____________________________________________________________________
(Exact name of Registrant as specified in its charter)
FLORIDA 65-0050176
____________________________________________________________________
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1550 S.W. 57th Avenue, Miami, Florida 33144
____________________________________________________________________
(Address of principal executive offices) (Zip Code)
(305) 267-1200
____________________________________________________________________
(Registrant's Telephone Number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No .
___ ___
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act).
Yes X No .
___ ___
CLASS OUTSTANDING AT May 12, 2003
_____ ___________________________
COMMON STOCK, $.08 PAR VALUE 4,596,894 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 10
Item 4. Controls and Procedures 11
PART II Item 6. Exhibits and Reports on Form 8-K 12
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
COMMERCIAL BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2003 and December 31, 2002
(Dollars in thousands, except share data)
3/31/2003 12/31/2002
_________ __________
Assets: (Unaudited)
Cash and due from banks $ 22,440 $ 31,108
Federal funds sold 63,975 29,425
________ ________
Total cash and cash equivalents 86,415 60,533
Investment securities available for sale, at fair value
(cost of $164,347 in 2003 and $175,597 in 2002) 171,868 182,831
Investment securities held to maturity, at cost
(fair value of $106,458 in 2003 and $90,019 in 2002) 105,375 88,307
Loans, net 353,663 345,766
Premises and equipment, net 12,567 12,591
Accrued interest receivable 4,028 4,328
Goodwill, net 253 253
Other assets 3,903 3,915
________ ________
Total assets $738,072 $698,524
======== ========
Liabilities and stockholders' equity:
Deposits:
Demand $112,780 $ 99,018
Interest-bearing checking 78,794 81,978
Money market accounts 68,908 62,096
Savings 33,005 28,633
Time 320,560 309,501
________ ________
Total deposits 614,047 581,226
Securities sold under agreements
to repurchase 57,686 53,705
Accrued interest payable 607 624
Accounts payable and accrued liabilities 5,200 4,364
________ ________
Total liabilities 677,540 639,919
Commitments and contingencies (Note 4)
Stockholders' equity:
Common stock, $.08 par value, 15,000,000 authorized
shares, 5,020,787 issued (5,006,670 in 2002) 402 401
Additional paid-in capital 44,806 44,653
Retained earnings 17,195 15,603
Accumulated other comprehensive income 4,897 4,716
Treasury stock, 443,820 shares
(443,820 in 2002), at cost (6,768) (6,768)
________ ________
Total stockholders' equity 60,532 58,605
________ ________
Total liabilities and stockholders' equity $738,072 $698,524
======== ========
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 2003 and 2002
(Dollars in thousands, except share data)
(Unaudited)
2003 2002
____ ____
Interest income:
Interest and fees on loans $5,836 $6,413
Interest on investment securities 3,278 2,174
Interest on federal funds sold 127 149
______ ______
Total interest income 9,241 8,736
Interest expense:
Interest on deposits 2,762 2,675
Interest on securities sold under
agreements to repurchase 190 226
______ ______
Total interest expense 2,952 2,901
______ ______
Net interest income 6,289 5,835
Provision for loan losses - 75
______ ______
Net interest income after provision 6,289 5,760
Non-interest income:
Service charges on deposit accounts 633 667
Other fees and service charges 146 141
Securities gains - 40
______ ______
Total non-interest income 779 848
______ ______
Non-interest expense:
Salaries and employee benefits 2,332 2,358
Occupancy 294 299
Data processing 257 313
Furniture and equipment 185 175
Insurance 97 80
Stationery and supplies 60 65
Administrative service charges 46 54
Telephone and fax 41 56
Amortization - -
Other 259 335
______ ______
Total non-interest expense 3,571 3,735
______ ______
Income before income taxes 3,497 2,873
Provision for income taxes 1,036 849
______ ______
Net income $2,461 $2,024
====== ======
Earnings per common and common equivalent share:
Basic $.54 $.45
Diluted $.51 $.43
Weighted average number of shares and common equivalent shares:
Basic 4,569,998 4,525,052
Diluted 4,873,291 4,718,066
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, 2003 and 2002
(In thousands)
(Unaudited)
Three months ended
March 31,
2003 2002
____ ____
Net income $2,461 $2,024
______ ______
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising
during the period 181 (447)
Reclassification adjustment for gains
realized in net income - (25)
______ ______
Other comprehensive income (loss) 181 (472)
______ ______
Comprehensive income $2,642 $1,552
====== ======
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, 2003 and 2002
(In thousands)
(Unaudited)
2003 2002
____ ____
Cash flows from operating activities:
Net income $ 2,461 $ 2,024
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses - 75
Depreciation, amortization and accretion, net 244 192
Gain on sale of investment securities - (40)
Gain on sale of premises and equipment (1) (1)
Change in accrued interest receivable 300 (291)
Change in other assets 12 (721)
Change in accounts payable and accrued liabilities 731 1,610
Change in accrued interest payable (17) (27)
_______ _______
Net cash provided by operating activities 3,730 2,821
_______ _______
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 26,451 2,522
Proceeds from maturities of investment securities
available for sale 69,478 10,041
Purchases of investment securities
held to maturity (43,562) (21,287)
Purchases of investment securities
available for sale (58,280) (24,259)
Net change in loans (7,897) 441
Purchases of premises and equipment (125) (176)
Sales of premises and equipment 1 1
_______ _______
Net cash used in investing activities (13,934) (32,717)
_______ _______
Cash flows from financing activities:
Net change in deposits 32,821 17,252
Net change in securities sold under
agreements to repurchase 3,981 8,483
Dividends paid (870) (758)
Proceeds from issuance of stock 154 97
Purchase of treasury stock - (33)
_______ _______
Net cash provided by financing activities 36,086 25,041
_______ _______
Increase (decrease) in cash and cash equivalents 25,882 (4,855)
Cash and cash equivalents at beginning of period 60,533 68,200
_______ _______
Cash and cash equivalents at end of period $86,415 $63,345
======= =======
Supplemental disclosures:
Interest paid (net of amounts credited
to deposit accounts) $ 514 $ 440
======= =======
Income taxes paid $ 1,216 $ 160
======= =======
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, 2002, 2001, and 2000 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 March 31, 2003, 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. STOCK OPTIONS
The new disclosure requirements under SFAS No. 148 for interim financial
statements are effective and were adopted by the Bank on January 1, 2003.
The following table provides the newly required disclosures for the
three-month period ended March 31, 2003 compared to the same period
in the prior year:
For the Three Months Ended
March 31,
2003 2002
____ ____
(Dollars in thousands)
Net income as reported $2,461 $2,024
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (1) (30) (25)
______ ______
Pro forma net income $2,431 $1,999
====== ======
Earnings per share, basic
as reported $ .54 $ .45
Earnings per share, basic
pro forma $ .53 $ .44
Earnings per share, diluted
as reported $ .51 $ .43
Earnings per share, diluted
pro forma $ .50 $ .42
(1) The fair value of each option has been estimated on the date of
the grant using the Black Scholes option pricing model.
3. 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
March 31, 2003 March 31, 2002
________________________________ ________________________________
Income Shares Per-Share Income Shares Per-Share
(Numerator)(Denominator) Amount (Numerator)(Denominator) Amount
_________ ___________ ______ _________ ___________ ______
Basic EPS $2,461 4,570 $.54 $2,024 4,525 $.45
Effect of
Dilutive
Options - 303 (.03) - 193 (.02)
______ _____ ____ ______ _____ ____
Diluted EPS $2,461 4,873 $.51 $2,024 4,718 $.43
====== ===== ==== ====== ===== ====
4. COMMITMENTS AND CONTINGENCIES
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. The Bank
had outstanding standby letters of credit in the amount of $4.1 million
as of March 31, 2003 and December 31, 2002. Approximately $317,000 of
the standby letters of credit outstanding at March 31, 2003 were issued
subsequent to December 31, 2002. The Bank's exposure to credit loss in
the event of non-performance by the other party to the financial instrument
for standby letters of credit is represented by the contractual amounts of
those instruments. The Bank uses the same credit policies in establishing
conditional obligations as those for on-balance sheet instruments. The
credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loan facilities to customers. Collateral
held varies but may include cash, or the goods acquired by the customer
for which the standby letter of credit was issued. Since certain letters
of credit are expected to expire without being drawn upon, they do not
necessarily represent future cash requirements.
5. NEW ACCOUNTING PRONOUNCEMENTS
In December of 2002, the Financial Accounting Standard Board (FASB)
issued Statement of Financial Accounting Standard (SFAS) No. 148,
"Accounting for Stock-Based Compensation -- Transition and Disclosure
an amendment of FASB Statement No. 123". Under SFAS No. 148,
alternative methods of transition are provided for a voluntary change to
the fair value based method of accounting for stock-based employee
compensation. In addition, this SFAS No. 148 amends the disclosure
requirements of FASB No. 123, "Accounting for Stock Based Compensation"
to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results.
As permitted by SFAS No. 123, the Bank continues to follow the intrinsic
value method of accounting for stock-based compensation under the
provision of Accounting Principles Board Opinion (APB) No. 25, "Accounting
for Stock Issued to Employees". Accordingly, the alternative methods
of transition for the fair value based method of accounting for stock-
based employee compensation provided by SFAS No. 148 do not apply to the
Bank. The Bank is required under the provisions of SFAS No. 148 amending
SFAS No. 123 and APB No. 28, "Interim Financial Reporting", to
provide additional disclosure in both annual and interim financial
statements. The new disclosure requirements are included in Note 2.
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 adopted SFAS No. 147 in the fourth quarter of 2002. The
implementation of this statement did not have a material effect on
the Company's financial position, results of operations or cash flows.
On January 17, 2003, the FASB issued FAS Interpretation No. 46,
"Consolidation of Variable Interest Entities, an interpretation of
ARB 51" ("FIN 46"). The primary objectives of FIN 46 are to provide
guidance on the identification of entities for which control is
achieved through means other than through voting rights ("variable
interest entities" or "VIEs") and how to determine when and which
business enterprise should consolidate the VIE (the "primary
beneficiary"). This new model for consolidation applies to an entity
which either (1) the equity investors (if any) do not have a
controlling financial interest or (2) the equity investment at risk
is insufficient to finance that entity's activities without receiving
additional subordinated financial support from other parties. In
addition, FIN 46 requires that both the primary beneficiary and all
other enterprises with a significant variable interest in a VIE make
additional disclosures. The provisions of this interpretation are not
expected to have a material effect on the financial statements of the
Company.
In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities". The provisions of
this statement amends and clarifies financial accounting and reporting
for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives)
and for hedging activities under FASB Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities". This Statement
is effective for contracts entered into or modified after June 30, 2003
and for hedging relationships designated after June 30, 2003. The
provisions of this interpretation are not expected to have a material
effect on the financial statements of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's consolidated
results of operations and financial condition should be read in
conjunction with the unaudited interim consolidated financial
statements and the related notes included herein and the consolidated
financial statements for the year ended December 31, 2002 appearing
in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
CORPORATE 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. 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.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2003 and 2002
The Company's net income reported for the quarter ended March 31, 2003,
was $2.46 million, a 22% increase over the quarter ended March 31,
2002 of $2.02 million. Basic and diluted earnings per share were
$.54 and $.51, respectively, for the first quarter of 2003, as compared
to $.45 and $.43, respectively, for the first quarter of 2002.
The Company's first quarter tax-equivalent net interest income increased
to $6.54 million, from $6.11 million in the corresponding quarter in 2002.
The increase is due primarily to an increase in average earning assets of
$128 million, partially offset by a decrease in the net interest yield.
The annualized net interest yield for the quarter ended March 31,
2003 was 3.97%. This compares to 4.58% for the quarter ended March 31,
2002. The decrease in the net interest yield is the result of the
significant inflow of deposits, some of which are temporarily invested
in short-term instruments. 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 first quarter of 2003 decreased by $69,000,
or 8%, from the corresponding period of 2002. The decrease in quarter
activity is primarily due to a decrease in account activity charges of
$34,000 and net gain on sale of investments of $40,000 in 2002.
Non-interest expenses for the first quarter 2003 decreased $164,000,
or 4%, from the same quarter in 2002, due to a drop in data processing
expense of $56,000, professional fees of $73,000 and advertising
expense of $19,000. The drop in data processing expense was due to
lower than expected year-end processing expenses for year-end 2002.
The decrease in professional fees expense for the quarter ended 3/31/03
was due to no pending litigation during quarter. Advertising expense
decreased in the first quarter 2003 due to a reduction in newspaper
advertising.
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 $4.66 million at March 31, 2003, as
compared with $4.75 million at December 31, 2002. For the three months
ended March 31, 2003, the allowance for loan losses was decreased
by approximately $90,000 in net charge-offs. For the three months ended
March 31, 2002, the allowance was increased with a provision for loan
losses of $75,000 and decreased by approximately $61,000 in net charge-
offs. The allowance as a percentage of total loans has decreased to 1.30%
at March 31, 2003, from 1.35% at December 31, 2002. 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 $230.3 million, or 64%, of total loans was secured by non-
residential real estate, and $72.3 million, or 20%, of total loans was
secured by residential real estate as of March 31, 2003. Virtually all
loans are within the Company's markets in Miami-Dade and Broward counties.
The Company had no non-accrual loans at March 31, 2003.
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 $110 million, and Federal Funds purchased lines available at
correspondent banks amounting to $23 million as of March 31, 2003.
The Bank's primary use of funds is to originate loans and purchase
investment securities. The Bank purchased $101.8 million of
investment securities during the first three months of 2003, and
loans increased by $7.9 million. Funding for the above came primarily
from increases in deposits of $32.8 million, increases in securities sold
under agreements to repurchase of $4.0 million and increases from proceeds
from maturities and sales of investment securities of $95.9 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 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 12.90%, 14.29%, and 7.49%, respectively, as of March 31, 2003.
FORWARD-LOOKING STATEMENTS
Certain statements and information in this Quarterly Report on Form 10-Q
may include "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including in particular
the statements about the Company's plans, strategies and prospects.
These statements are based on the Company's current plans and expectations
and involve risks and uncertainties that could cause actual future
activities and results to be materially different from those set forth in
these forward-looking statements. Important factors that could cause
actual results to differ materially from the Company's forward-
looking statements are set forth below and elsewhere in this Quarterly
Report on Form 10-Q. Such factors include, among others
- the general state of the economy and, together with all aspects
of the Company's business that are affected by changes in the
economy, the impact that changing rates have on the Company's
net interest margin;
- the Company's ability to increase the loan portfolio, and in
particular its secured loan portfolio;
- the Company's ability to access cost-effective funding to fund
marginal loan growth;
- changes in management's estimate of the adequacy of the allowance
for loan losses;
- changes in the overall mix of the Company's loan and deposit
products;
- the impact of repricing and competitors' pricing initiatives on
loan and deposit products; and
- the extent of defaults, the extent of losses given default, and
the amount of lost interest income that may result in the
event of a severe recession.
The Company undertakes no obligation to revise or update these forward-
looking statements to reflect events or circumstances after the date
of this filing.
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, 2003.
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 $63,975 $ - $ - $ - $ 63,975
Investment securities 74,460 34,111 55,804 109,929 274,304
Gross loans
(excluding non-accrual) 80,833 29,004 60,875 188,297 359,009
________ _______ ________ ________ ________
Total interest-
earning assets $219,268 $63,115 $116,679 $298,226 $697,288
======== ======= ======== ======== ========
Interest-bearing liabilities:
Interest-bearing checking $ - $19,699 $ 19,699 $ 39,396 $ 78,794
Money market - 17,227 17,227 34,454 68,908
Savings - - - 33,005 33,005
Time deposits 60,090 48,081 86,946 125,443 320,560
Borrowed funds 60,513 - - - 60,513
________ _______ ________ ________ ________
Total interest-bearing
liabilities $120,603 $85,007 $123,872 $232,298 $561,780
======== ======= ======== ======== ========
Interest sensitivity gap $ 98,665 ($21,892)($ 7,193) $ 65,928 $135,508
======== ======= ======== ======== ========
Cumulative gap $ 98,665 $76,773 $ 69,580 $135,508
======== ======= ======== ========
Cumulative ratio of interest-
earning assets to interest-
bearing liabilities 182% 137% 121% 124%
Cumulative gap as a percentage
of total interest-
earning assets 14.1% 11.0% 10.0% 19.4%
Management's assumptions reflect the Bank's estimate of the anticipated
repricing sensitivity of non-maturity deposit products. Savings have
been allocated to the "over 1 year" category, and interest checking and
money market, 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, 2003, the Bank's simulation analysis projects an increase
to net interest income of 2.53%, 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 2.53%. 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
Commission's 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. It should be noted that the design of
any system of controls is based in part upon certain assumptions, and
there can be no assurance that any design will succeed in achieving its
stated goals.
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.
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended March
31, 2003.
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.
By:/s/ Joseph W. Armaly
____________________
Joseph W. Armaly
Chairman of the Board and Chief Executive Officer
(Duly Authorized Officer)
May 13, 2003
By:/s/ Barbara E. Reed
___________________
Barbara E. Reed
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
May 13, 2003
CERTIFICATION OF CHIEF EXECUTIVE OFFICER UNDER SECTION 302 OF THE SARBANES-
OXLEY ACT OF 2002
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 to state a material fact
necessary to make the statements 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 officer 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 subsidiary, 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 officer 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 officer 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: May 13, 2003 COMMERCIAL BANKSHARES, INC.
/s/ Joseph W. Armaly
____________________
Joseph W. Armaly
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER UNDER SECTION 302 OF THE SARBANES-
OXLEY ACT OF 2002
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 to state a material
fact necessary to make the statements 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 officer 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 subsidiary, 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 officer 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 officer 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: May 13, 2003 COMMERCIAL BANKSHARES, INC.
/s/ Barbara E. Reed
___________________
Barbara E. Reed
Chief Financial Officer
Exhibit 99.1
EXHIBIT 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
In connection with the Quarterly Report of Commercial Bankshares,
Inc., (the "Company") on Form 10-Q for the quarter ended, March 31,
2003 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 as of the dates and for the periods
expressed in the Report.
/s/ Joseph W. Armaly
______________________
Joseph W. Armaly
Chief Executive Officer
May 13, 2003
The foregoing certification is being furnished solely pursuant to 18 U.S.C.
Section 1350 and is not being filed as part of the Report or as a separate
disclosure document. A signed original of this written statement required
by Section 906 has been provided to Commercial Bankshares, Inc. and will be
retained by Commercial Bankshares, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.
Exhibit 99.2
EXHIBIT 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
In connection with the Quarterly Report of Commercial Bankshares,
Inc., (the "Company") on Form 10-Q for the quarter ended, March 31,
2003 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 as of the dates and for the periods
expressed in the Report.
/s/ Barbara E. Reed
______________________
Barbara E. Reed
Chief Financial Officer
May 13, 2003
The foregoing certification is being furnished solely pursuant to 18 U.S.C.
Section 1350 and is not being filed as part of the Report or as a separate
disclosure document. A signed original of this written statement required
by Section 906 has been provided to Commercial Bankshares, Inc. and will be
retained by Commercial Bankshares, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.