United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 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 33-67254
Commercial Bankshares, Inc.
______________________________________________________
(Exact name of registrant as specified in its charter)
Florida 65-0050176
______________________________________ _________________________
(State or other jurisdiction of (I.R.S. 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)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
None None
___________________ _________________________________________
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.08 per share
______________________________________
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
___ ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [ ].
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes X No
___ ___
As of March 8, 2004, 5,892,876 shares of the common voting stock were
issued and outstanding, with an aggregate market value of $159 million,
based on the closing price on the NASDAQ market.
Documents Incorporated by Reference
1. Certain portions of the Annual Report to Shareholders of Commercial
Bankshares, Inc., for fiscal year ended December 31, 2003 are
incorporated by reference into Part I and Part II.
2. Certain portions of the Company's Proxy Statement for the Annual
Meeting of Shareholders to be held on April 15, 2004 are
incorporated by reference into Part III.
Table of Contents
Description Page No.
Part I
Item 1. Business................................................1
Item 2. Properties..............................................7
Item 3. Legal Proceedings.......................................7
Item 4. Submission of Matters to a Vote of Security Holders.....7
Part II
Item 5. Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities........... ..................................8
Item 6. Selected Financial Data.................................8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................8
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk....................................................8
Item 8. Financial Statements and Supplementary Data.............8
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.....................8
Item 9A. Controls and Procedures.................................8
Part III
Item 10. Directors and Executive Officers of the Registrant......9
Item 11. Executive Compensation..................................9
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.............9
Item 13. Certain Relationships and Related Transactions..........9
Item 14. Principal Accountant Fees and Services .................9
Part IV
Item 15. Exhibits, Financial Statement Schedules and Reports on
Form 8-K ...............................................9
Signatures...........................................................12
Exhibit 21.1 Subsidiaries of Commercial Bankshares, Inc.............13
Exhibit 23.1 Consent of Independent Certified Public Accountants....13
Exhibit 31.1 Certification of Chief Executive Officer Pursuant to
Rule 15A-14(A) or 15D-14(A) of the Securities Exchange
Act of 1934, As Adopted Pursuant To Section 302 of
the Sarbanes-Oxley Act of 2002.........................14
Exhibit 31.2 Certification of Chief Financial Officer Pursuant to
Rule 15A-14(A) or 15D-14(A) of the Securities Exchange
Act of 1934, As Adopted Pursuant To Section 302 of the
Sarbanes-Oxley Act of 2002.............................15
Exhibit 32.1 Certification of Chief Executive Officer Pursuant to
Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section
1350, As Adopted Pursuant To Section 906 of the
Sarbanes-Oxley Act of 2002.............................16
Exhibit 32.2 Certification of Chief Financial Officer Pursuant to
Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section
1350, As Adopted Pursuant To Section 906 of the
Sarbanes-Oxley Act of 2002.............................16
PART I
Item 1. Business.
Commercial Bankshares, Inc.
Commercial Bankshares, Inc. (the "Company"), a Florida
corporation organized in 1988, is a bank holding company registered
under the Bank Holding Company Act of 1956 ("BHCA"), as amended, whose
wholly-owned subsidiary and principal asset is the Commercial Bank of
Florida, (the "Bank"). The Company, through its ownership of the Bank,
is engaged in a commercial banking business, and its primary source of
earnings is derived from income generated by its ownership and operation
of the Bank. Unless the context otherwise requires, references herein
to the Company include the Company and its wholly-owned subsidiary, the
Bank, on a consolidated basis.
The Company is a legal entity separate and distinct from the Bank,
and there are various legal limitations on the ability of the Bank to
finance or otherwise supply funds to the Company. In particular, under
federal banking law, the Bank may not declare a dividend that exceeds
undivided profits. In addition, the approval of the Federal Reserve
Bank of Atlanta ("Atlanta FRB") and the Florida Department of Banking
and Finance is required if the total amount of all dividends declared
in any calendar year exceeds the Bank's net profits, as defined, for
that year combined with its retained net profits for the preceding two
years. The Atlanta FRB also has the authority to limit further the
payment of dividends by the Bank under certain circumstances. In
addition, federal banking laws prohibit or restrict the Bank from
extending credit to the Company under certain circumstances.
Commercial Bank of Florida
The Bank is a Florida chartered banking corporation originally
chartered in February, 1979. It operated as Sunset Commercial Bank
until its acquisition by the Company in 1988, at which time its name
was changed to Commercial Bank of Florida. The Bank engages in
commercial banking and related businesses from its fourteen banking
facilities: its main office and nine other offices located in Miami-
Dade County, Florida, and four offices in Broward County, Florida.
The Bank is operated as a network of community bank branches.
The Bank primarily focuses on providing personalized banking services
to small businesses and individuals within the market areas where its
banking offices are located. Management believes that this local
market strategy, accompanied by the strategic placement of Bank
personnel within market areas where they have served customers for
many years, enables the Bank to attract and retain low cost core
deposits, which provide substantially all of the Bank's funding
requirements.
Deposit products include certificates of deposit, individual
retirement accounts ("IRAs") and other time deposits, checking and
other demand deposit accounts, NOW accounts, savings accounts and
money market accounts. The transaction accounts and time certificates
are tailored to the principal market areas at rates competitive to
those in the area. All deposit accounts are insured by the Federal
Deposit Insurance Corporation ("FDIC") up to the maximum limits
permitted by law. The Bank solicits these accounts from small
businesses, professional firms, and households located throughout
its primary market area.
The Bank also offers ATM cards with access to local, state, and
national networks, safe deposit boxes, wire transfers, direct deposit
of payroll and social security payments, and automatic drafts for
various accounts. The Bank presently does not provide fiduciary or
appraisal services.
The Bank conducts commercial and consumer banking business, which
primarily consists of attracting deposits from the areas served by its
banking offices and using those deposits, together with funds derived
from other sources, to originate a variety of commercial, consumer,
and real estate loans (including commercial loans collateralized by
real estate).
The Company considers the general business of retail banking to be
its only operating segment.
As is the case with banking institutions generally, the Bank's
operations are materially and significantly influenced by general
economic conditions and by related monetary and fiscal policies of
financial institution regulatory agencies, including the Federal
Reserve Board ("FRB"), the FDIC, and the State of Florida. Deposit
flows and the cost of funds are influenced by interest rates on
competing investments and general market rates of interest. Lending
activities are affected by the demand for financing of real estate
and other types of loans, which in turn is affected by the interest
rates at which such financing may be offered and other factors
affecting local demand and availability of funds. The Bank faces
strong competition in the attraction of deposits (its primary source
of lendable funds) and in the origination of real estate loans.
1
Employees
At December 31, 2003, the Company and the Bank together employed
194 employees, of whom three are part-time. None of these employees
is covered by a collective bargaining agreement. The Company believes
that its employee relations are good.
Market Information
The Bank's fourteen banking offices are located in Miami-Dade and
Broward counties, which comprise the Bank's primary market area.
Management believes that the Bank's principal markets are: (i) the
established and expanding commercial market within the primary market
area, and (ii) the moderate and the affluent residential market within
the primary market area. Management also believes that the most
profitable banking relationships are characterized by high deposit
balances with a low frequency of transactions. Moreover, management
believes that a community bank with local management is well positioned
to establish these relationships with the smaller commercial customers
and households. Management believes that the Bank is well positioned to
take advantage of its market segment.
Competition
Competition in the banking and financial services industry is intense.
In its primary market areas, the Bank competes with other commercial banks,
savings institutions, credit unions, finance companies, mutual funds,
insurance companies and brokerage and investment banking firms operating
locally and elsewhere. Most of these competitors have substantially
greater resources and lending limits than the Bank and may offer certain
services, such as trust services, that the Bank does not provide at this
time. In addition many of the Company's non-bank competitors are not
subject to the same extensive federal regulations that govern the Bank
and the Company. The profitability of the Company depends upon the
Bank's ability to compete in its market areas.
Available Information
A copy of the Company's Annual Report on Form 10-K along with
copies of the Company's other periodic reports required to be filed
with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended, are available free of charge (absent
exhibits) from the Company upon written request to Barbara E. Reed,
Commercial Bankshares, Inc. 1550 Southwest 57th Avenue Miami, Florida
33144. Copies of such reports are available via the Company's website.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under
both federal and state law. These laws and regulations are intended to
protect depositors, not stockholders. To the extent that the following
information describes statutory and regulatory provisions, it is
qualified in its entirety by reference to the particular statutory and
regulatory provisions. Any change in the applicable law or regulation
may have a material effect on the business and prospects of the Company
and the Bank.
2
Bank Holding Company Regulation
As a bank holding company registered under the BHCA, the Company
is subject to the regulation and supervision of the FRB. The Company
is required to file with the FRB annual reports and other information
regarding its business operations and those of its subsidiaries. Under
the BHCA, the Company's activities and those of its subsidiaries are
limited to banking, managing or controlling banks, furnishing services
to or performing services for its subsidiaries, or engaging in any other
activity which the FRB determines to be so closely related to banking or
managing or controlling banks as to be properly incident thereto.
The BHCA requires, among other things, the prior approval of the FRB
in any case where a bank holding company proposes to (i) acquire all or
substantially all of the assets of any other bank, (ii) acquire direct
or indirect ownership or control of more than 5% of the outstanding voting
stock of any bank (unless it owns a majority of such bank's voting
shares), or (iii) merge or consolidate with any other bank holding
company. The FRB will not approve any acquisition, merger, or
consolidation that would have a substantially anti-competitive effect,
unless the anti-competitive impact of the proposed transaction is clearly
outweighed by a greater public interest in meeting the convenience and
needs of the community to be served. The FRB also considers capital
adequacy and other financial and managerial resources and future prospects
of the companies and the banks concerned, together with the convenience
and needs of the community to be served, when reviewing acquisitions or
mergers.
Additionally, the BHCA prohibits a bank holding company, with
certain limited exceptions, from (i) acquiring or retaining direct or
indirect ownership or control of more than 5% of the outstanding voting
stock of any company which is not a bank or bank holding company, or
(ii) engaging directly or indirectly in activities other than those of
banking, managing, or controlling banks, or performing services for its
subsidiaries, unless such non-banking business is determined by the FRB
to be so closely related to banking or managing or controlling banks as
to be properly incident thereto. In making such determinations, the FRB
is required to weigh the expected benefits to the public, such as greater
convenience, increased competition, or gains in efficiency, against the
possible adverse effects, such as under-concentration of resources,
decreased or unfair competition, conflicts of interest, or unsound
banking practices.
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries by law
and regulatory policy that are designed to minimize potential loss to
the depositors of such depository institutions and the FDIC insurance
funds in the event the depository institution becomes in danger of
default or in default. Under a policy of the FRB with respect to bank
holding company operations, a bank holding company is required to serve
as a source of financial strength to its subsidiary depository
institutions and to commit resources to support such institutions in
circumstances where it might not do so absent such policy. The FRB
also has the authority under the BHCA to require a bank holding company
to terminate any activity or to relinquish control of a nonbank
subsidiary (other than a nonbank subsidiary of a bank) upon the FRB's
determination that such activity or control constitutes a serious risk
to the financial soundness and stability of any bank subsidiary of the
bank holding company.
Capital Adequacy Guidelines for Bank Holding Companies
The Company is subject to certain FRB risk-based capital guidelines
for bank holding companies. The risk-based capital guidelines are designed
to make regulatory capital requirements more sensitive to differences in
risk profiles among banks and bank holding companies, to account for off-
balance sheet exposure, and to minimize disincentives for holding liquid
assets. Under these guidelines, assets and off-balance sheet items are
assigned to broad risk categories, each with appropriate weights. The
resulting capital ratios represent capital as a percentage of total risk-
weighted assets and off-balance sheet items.
The minimum ratio of total capital to risk-weighted assets (including
certain off-balance sheet activities, such as standby letters of credit)
is 8%. At least 4% of the total capital is required to be "Tier I
Capital," which consists of common stockholders' equity, noncumulative
perpetual preferred stock, and a limited amount of cumulative perpetual
preferred stock, less certain goodwill items and the unrealized holding
gain/loss on available for sale securities. The remainder ("Tier II
Capital") may consist of (i) the allowance for loan losses of up to 1.25%
of risk-weighted risk assets, (ii) 45% of unrealized holding gain on
available for sale equity securities, (iii) excess of qualifying perpetual
preferred stock, (iv) hybrid capital instruments, (v) perpetual debt,
(vi) mandatory convertible securities, and (vii) subordinated debt and
intermediate-term preferred stock up to 50% of Tier I capital. Total
capital is the sum of Tier I and Tier II capital less reciprocal holdings
of other banking organizations' capital instruments, investments in
unconsolidated subsidiaries, and any other deductions as determined by
the FRB (determined on a case by case basis or as a matter of policy
after formal rule-making).
3
Bank holding company assets are given risk-weights of 0%, 20%, 50%
and 100%. In addition, certain off-balance sheet items are given
similar credit conversion factors to convert them to asset-equivalent
amounts to which an appropriate risk-weight will apply. These
computations result in the total risk-weighted assets.
The Company's management believes that the risk-weighting of
assets under current FRB guidelines does not and will not have a
material impact on the Company's operations or on the operations of
the Bank. As of December 31, 2003 and 2002, the Company's total risk-
based capital ratios were 13.87% and 14.62%, respectively. In
addition to the risk-based capital guidelines, the FRB has adopted a
minimum Tier I capital (leverage) ratio, under which a bank holding
company must maintain a minimum level of Tier I capital to total
consolidated assets of at least 3% in the case of a bank holding
company that has the highest regulatory examination rating and is not
contemplating significant growth or expansion. All other bank holding
companies are expected to maintain a leverage ratio of at least 100 to
200 basis points above the stated minimum. Federal Reserve Board
requirements also provide that bank holding companies experiencing
internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above regulatory minimums without
significant reliance on intangible assets. The Federal Reserve Board
may continue to consider a "tangible Tier 1 leverage ratio" (deducting
all intangibles) in evaluating proposals for expansion or new activities.
As of December 31, 2003 and 2002, the Company's leverage ratios were
7.78% and 7.66%, respectively.
Bank Regulation
The Bank is a state-chartered banking corporation and is subject
to the supervision of and regular examination by the FRB and the
Florida Department of Banking and Finance, as well as to the supervision
of the FDIC.
The operations of the Bank are subject to state and federal
statutes applicable to banks which are members of the Federal Reserve
System and to the regulations of the FRB, the FDIC, and the State of
Florida. Such statutes and regulations relate to required reserves
against deposits, investments, loans, mergers and consolidations,
issuance of securities, payment of dividends, establishment of branches,
and other aspects of the Bank's operations. Various consumer laws and
regulations also affect the operations of the Bank, including state
usury laws, laws relating to fiduciaries, consumer credit and equal
credit, and fair credit reporting. Under the provisions of the Federal
Reserve Act, the Bank is subject to certain restrictions on any
extensions of credit to the Company or, with certain exceptions, to
other affiliates, on investments in the stock or other securities of
national banks, and on the taking of such stock or securities as
collateral. These regulations and restrictions may limit the Company's
ability to obtain funds from the Bank for its cash needs, including
funds for acquisitions and the payment of dividends, interest, and
operating expenses.
The FDIC insures the deposits of the Bank to the current maximum
allowed by law. As an institution whose deposits are insured by the
Bank Insurance Fund ("BIF") and Savings Association Insurance Fund
("SAIF") of the FDIC, the Bank also is subject to insurance assessments
imposed and set by the FDIC from time to time. The FDIC is further
authorized to impose one or more special assessments in any amount
deemed necessary to enable repayment of amounts borrowed by the FDIC
from the Treasury Department. The actual assessments to be paid into
the BIF and the SAIF are based on the institution's assessment risk
classification, which is whether the institution is considered "well
capitalized", "adequately capitalized", or "under-capitalized", as
those terms have been defined in applicable federal regulations, and
whether the institution is considered by its supervising agency to be
financially sound or to have supervisory concerns.
Gramm-Leach-Bliley Act
The Gramm-Leach-Bliley Act (the "Act") was signed into law in
November 1999 to remove depression-era barriers that separate banking,
securities and insurance functions. The Act allows full affiliation
between banks and securities firms by permitting the creation of
financial holding companies designed to engage in a range of
financial activities, including securities underwriting and merchant
banking. The Act also repeals the SAIF special reserve; modernizes
the Federal Home Loan Bank System; provides for less frequent Community
Reinvestment Act ("CRA") compliance examinations for community banks
with $250 million or less in assets, and gives customers the right to
prevent banks from sharing information with third parties, such as
telemarketers. The Act prohibits unitary savings and loan holding
companies formed after May 4, 1999 from engaging in nonfinancial
activities, and also prohibits purchase of unitary thrift holding
companies by commercial firms. The Act contains requirements for the
protection of consumer's financial privacy ("Regulation P"). The
Bank has identified obligations, developed a privacy policy and
provided disclosure of the policy to customers. The Bank is in full
compliance with Regulation P.
4
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
Among other things, the FDICIA provides the federal bank
regulatory agencies with broad powers to take prompt corrective action
to resolve problems of insured depository institutions. The extent of
those powers depends upon whether the institution in question is "well
capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized", or "critically undercapitalized."
A depository institution's capital tier will depend upon where its
capital levels compare to various established capital measures and
certain other factors, as established by regulation. As of December
31, 2003, the Bank met the definition of a "well capitalized"
institution.
The FDICIA generally prohibits a depository institution from
making any capital distribution (including payment of a dividend) or
paying any management fee to its holding company if the depository
institution would thereafter be "undercapitalized". "Undercapitalized"
depository institutions are subject to growth limitations and are
required to submit a capital restoration plan. If a depository
institution fails to submit an acceptable plan, it is treated as if it
is "significantly undercapitalized". "Significantly undercapitalized"
depository institutions may be subject to a number of requirements and
restrictions, including orders to sell sufficient voting stock to
become "adequately capitalized", requirements to reduce total assets,
and cessation of receipt of deposits from correspondent banks.
"Critically undercapitalized" institutions are subject to the
appointment of a receiver or conservator.
The FDICIA further requires an increase in the frequency of "full-
scope, on-site" examinations and expands audit requirements. In
addition, federal bank regulatory agencies are required to review and
prescribe uniform accounting standards that are at least as stringent
as Generally Accepted Accounting Principles.
Pursuant to the FDICIA, the FRB and the other federal bank
regulatory agencies adopted real estate lending guidelines pursuant to
which each insured depository institution is required to adopt and
maintain written real estate lending policies in conformity with the
prescribed guidelines. Under these guidelines, each institution is
expected to set loan-to-value ratios not exceeding the supervisory
limits set forth in the guidelines. A loan-to-value ratio is generally
defined as the total loan amount divided by the appraised value of the
property at the time the loan is originated. The guidelines also
require that the institution's real estate policy require proper loan
documentation and that it establish prudent underwriting standards.
The FDICIA also contains the Truth in Savings Act. The purpose of
the Truth in Savings Act is to require the clear and uniform disclosure
of the rates of interest which are payable on deposit accounts by
depository institutions and the fees that are assessable against deposit
accounts, so that consumers can make a meaningful comparison between the
competing claims of financial institutions with regard to deposit
accounts and products.
The FDICIA also amended the prior law with respect to the
acceptance of brokered deposits by insured depository institutions to
permit only a "well capitalized" depository institution to accept
brokered deposits without prior regulatory approval. Under implementing
regulations, "well capitalized" banks may accept brokered deposits with
a waiver from the FDIC (subject to certain restrictions on payments of
rates), while "undercapitalized" banks may not accept brokered deposits.
The regulations contemplate that the definitions of "well capitalized",
"adequately capitalized", and "undercapitalized" will be the same as the
definitions adopted by the agencies to implement the prompt corrective
action provisions of the FDICIA (as described above).
The Bank became subject to the provisions of FDICIA relating to
internal controls effective January 1, 2001. These provisions are
required for banks over $500 million in assets and require that the
Bank document and test its internal control structure and report on it
on an annual basis. As of December 31, 2003, the complied with all
applicable sections of the regulation and reported as required in 2003.
Payment of Dividends
The Bank is subject to legal limitations on the frequency and amount
of dividends paid to the Company. The FRB or the FDIC may restrict the
ability of a bank to pay dividends if such payments would constitute an
unsafe or unsound banking practice. These regulations and restrictions
may limit the Company's ability to obtain funds from the Bank for its
cash needs, including funds for acquisitions and the payment of
dividends, interest, and operating expenses.
5
In addition, Florida law places certain restrictions on the
declaration of dividends from state-chartered banks to their holding
companies. Pursuant to Section 658.37 of the Florida Banking Code, the
Board of Directors of a state-chartered bank, after charging off bad
debts, depreciation, and other worthless assets, if any, and making
provisions for reasonably anticipated future losses on loans and other
assets, may quarterly, semi-annually, or annually declare a dividend of
up to the aggregate of net profits of that period, combined with the
bank's retained net profits for the preceding two years and, with the
approval of the Florida Department of Banking and Finance, declare a
dividend from retained net profits which accrued prior to the preceding
two years. Before declaring such dividends, 20% of the net profits for
the preceding period as is covered by the dividend must be transferred
to the surplus fund of the bank until this fund becomes equal to the
amount of the bank's common stock then issued and outstanding. A state-
chartered bank may not declare any dividend if (i) its net income from
the current year combined with the retained net income for the preceding
two years is a loss, or (ii) the payment of such dividend would cause the
capital account of the bank to fall below the minimum amount required by
law, regulation, order, or any written agreement with the Florida
Department of Banking and Finance or a federal regulatory agency.
Depositor Preference Statute
Legislation has been enacted providing that deposits and certain
claims for administrative expenses and employee compensation against an
insured depository institution would be afforded a priority over other
general unsecured claims against such an institution, including federal
funds and letters of credit, in the "liquidation or other resolution" of
such an institution by any receiver.
Recently Enacted Legislation
The Sarbanes-Oxley Act of 2002 (the "SOX Act") was signed into law
on July 30, 2002 and comprised the most comprehensive reform of the
securities acts since the 1930's. The SOX Act reaffirms the authority
of the Securities and Exchange Commission ("SEC") with the goal of
restoring investor confidence. Some of the rules the SEC has implemented
require:
* both the Chief Executive Officer and Chief Financial Officer
to certify that disclosure of all material information is
included in both quarterly and annual reports;
* that the Company adopt a code of ethics;
* that the Audit Committee have substantial financial expertise,
among other requirements relating to the Audit Committee;
* that Management's Discussion and Analysis of Financial
Condition and Results of Operations, or MD&A, contained in
public filings, fully disclose off-balance sheet arrangements
and aggregate contractual obligations; and
* fixes retention periods of records relevant to audits and
reviews.
Monetary Policy And Economic Control
The commercial banking business in which the Bank engages is
affected not only by general economic conditions but also by the
monetary policies of the FRB. Changes in the discount rate on member
bank borrowing, availability of borrowing at the "discount window,"
open market operations, the imposition of changes in reserve
requirements against member banks' deposits and assets of foreign
branches, and the imposition of and changes in reserve requirements
against certain borrowings by banks and their affiliates are some of
the instruments of monetary policy available to the FRB. These
monetary policies are used in varying combinations to influence
overall growth and distributions of bank loans, investments, and
deposits, and this use may affect interest rates charged on loans or
paid on deposits. The monetary policies of the FRB have had a
significant effect on the operating results of commercial banks and
are expected to do so in the future. The monetary policies of these
agencies are influenced by various factors, including inflation,
unemployment, and short-term and long-term changes in the international
trade balance and in the fiscal policies of the United States
Government. Future monetary policies and the effect of such policies
on the future business and earnings of the Company and the Bank cannot
be predicted.
6
Item 2. Properties.
The Company occupies offices in a building located at 1550 S.W.
57th Avenue, Miami, Florida. This building also serves as the Bank's
main office. Both the building and the 81,400 square foot parcel of
commercial property on which it is situated, are owned by the Bank.
The Bank's and the Company's offices occupy the entire 24,228 square
foot building. Management believes that this location provides
sufficient parking for its customers as well as visibility from S.W.
57th Avenue, a major thoroughfare.
The Bank owns ten of its fourteen full-service branches and leases
the remaining four offices, all of which branches are located in Miami-
Dade County or Broward County, Florida. Additional information
relating to the Company's lease commitments is set forth in Note 4 on
page 29 in the Company's 2003 Annual Report and is incorporated herein
by reference. The condition of all properties is considered good. In
the opinion of management, owned properties are adequately covered by
insurance.
Item 3. Legal Proceedings.
The Company and the Bank are periodically parties to or otherwise
involved in legal proceedings arising in the normal course of business,
such as claims to enforce liens, claims involving the making and
servicing of real property loans, and other issues incident to the
Bank's business. Management does not believe that there is any pending
or threatened proceeding against the Company or the Bank which, if
determined adversely, would have a material effect on the business,
results of operations, or financial position of the Company or the Bank.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
7
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.
Information required to be reported under this item is set forth on
pages 13 and 14 of the Company's 2003 Annual Report and on page 8 of the
Company's 2004 Proxy Statement and is incorporated herein by reference.
Item 6. Selected Financial Data.
Information required to be reported under this item is set forth on
pages 2 and 3 of the Company's 2003 Annual Report and is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Information required to be reported under this item is set forth
on pages 4 through 17 of the Company's 2003 Annual Report and is
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Information required to be reported under this item is set forth
on pages 15 and 16 of the Company's 2003 Annual Report under the section
entitled "Asset/Liability Management and Interest Rate Risk",
and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The information required to be reported under this item is set
forth on pages 18 through 38 of the Company's 2003 Annual Report and
is incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
The Company has carried out an evaluation, under the supervision
and with the participation of our management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of the Company's disclosure controls and
procedures as of the end of the period covered by this Annual Report.
Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures were effective as of the end of the period covered by this
Annual Report in timely alerting them as to material information
relating to the Company (including its consolidated subsidiary)
required to be disclosed in the Company's reports filed or submitted
under the Securities Exchange Act of 1934. 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.
(b) Changes in Internal Control Over Financial Reporting
There have been no significant changes in the Company's internal
control over financial reporting during the quarter ended December 31,
2003 that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
8
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Company has adopted a Code of Ethics that applies to the
Company's Chairman and Chief Executive Officer, the Chief Financial
Officer and Controller. The Code of Ethics is available on the
Company's website at www.commercialbankfl.com.
Additional information required to be reported under this item is
set forth on pages 2, 4, 6 and 20 of the Company's 2004 Proxy Statement
and is incorporated herein by reference.
Item 11. Executive Compensation.
Information required to be reported under this item is set forth
on page 4 and pages 6 through 12 of the Company's 2004 Proxy Statement
and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.
Information required to be reported under this item is set forth on
page 8 and pages 18 through 20 of the Company's 2004 Proxy Statement and
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Information required to be reported under this item is set forth on
page 21 of the Company's 2004 Proxy Statement and is incorporated herein
by reference.
Item 14. Principal Accountant Fees and Services.
Information required to be submitted under this item is set forth
on page 20 of the Company's 2004 Proxy Statement and is incorporated
herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form
8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements:
Reference is made to Item 8 of Part II to this Annual Report
on Form 10-K which incorporates by reference the Company's
financial statements contained in the Company's 2003 Annual
Report attached as Exhibit 13.1 to this report.
2. Financial Statement Schedules:
All schedules are omitted because they are not applicable
or the required information is contained in the Company's
financial statements or the notes thereto.
3. Exhibits
3.1 Articles of Incorporation, as amended, of the Company.
Incorporated by reference to Exhibit 3.1 of the Company's
Registration Statement on Form SB-2 as filed with the
Securities and Exchange Commission, No. 33-67254, effective
October 5, 1993 ("Registration Statement").
3.2 By-Laws, as amended, of the Company. Incorporated by reference
to Exhibit 3.2 of the Registration Statement.
10.1 Standard Office Building Lease between Swire Brickell One,
Inc., d/b/a "Courvoisier Center" (Landlord) and Commercial
Bank of Florida (Tenant), dated December 21, 1990.
Incorporated by reference to Exhibit 10.2 of the Registration
Statement.
9
10.2 Form of Indemnification Agreement. Incorporated by reference
to Exhibit 10.4 of the Registration Statement.
10.3* Employment Agreement between Commercial Bankshares, Inc.,
Commercial Bank of Florida, and Joseph W. Armaly, dated
March 18, 1994 and amended and restated on December 18, 1998.
Incorporated by reference to Exhibit 10.3 that accompanies
the 1998 Annual Report on Form 10-K.
10.4* Employment Agreement between Commercial Bankshares, Inc.,
Commercial Bank of Florida, and Jack J. Partagas, dated
March 18, 1994 and amended and restated on December 18, 1998.
Incorporated by reference to Exhibit 10.4 that accompanies
the 1998 Annual Report on Form 10-K.
10.5* Employment Agreement between Commercial Bank of Florida and
Barbara Reed, dated February 5, 1997. Incorporated by
reference to Exhibit 10.5 that accompanies the 1996 Annual
Report on Form 10-K.
10.6* Employment Agreement between Commercial Bank of Florida and
Bruce Steinberger, dated December 18, 1998. Incorporated by
reference to Exhibit 10.6 that accompanies the 1998 Annual
Report on Form 10-K.
10.7* Commercial Bankshares, Inc., 1994 Outside Director Stock
Option Plan, effective as of March 18, 1994. Incorporated
by reference to Exhibit 10.7 that accompanies the 1993 Annual
Report on Form 10-KSB.
10.8* Commercial Bankshares, Inc., 1994 Performance Stock Option
Plan, adopted March 18, 1994, effective April 1, 1994.
Incorporated by reference to Exhibit 10.8 that accompanies
the 1993 Annual Report on Form 10-KSB.
10.10 Standard Office Building Lease, dated December 10, 1996,
between Promenade of Coral Springs, Inc. (Landlord) and
Commercial Bank of Florida (Tenant). Incorporated by
reference to Exhibit 10.12 that accompanies the 1997 Annual
Report on Form 10-K.
10.11* Commercial Bankshares, Inc., Amendment to 1994 Outside Director
Stock Option Plan, dated January 15, 1999. Incorporated by
reference to Exhibit 10.13 that accompanies the 1998 Annual
Report on Form 10-K.
10.12* Commercial Bankshares, Inc., Amendment to 1994 Performance
Stock Option Plan dated January 15, 1999. Incorporated by
reference to Exhibit 10.14 that accompanies the 1998 Annual
Report on Form 10-K.
10.13 Commercial Bankshares, Inc., Amendment to Standard Office
Building Lease between Swire Brickell One, Inc., d/b/a
"Courvoisier Center" (Landlord) and Commercial Bank of
Florida (Tenant), dated December 21, 2000. Incorporated by
reference to Exhibit 10.14 that accompanies the 2000 Annual
Report on Form 10-K.
10.14 Agreement to provide data processing and back office services
between Electronic Data Systems and Commercial Bank of
Florida, dated, December 7, 1999. Incorporated by reference
to Exhibit 10.15 that accompanies the 2000 Annual Report on
Form 10-K.
10.15 Commercial Bankshares, Inc., Standard Office Building Lease
between Hallandale Place, Ltd., c/o Investment Management
Associates, Inc. (Landlord) and Commercial Bank of Florida
(Tenant), dated January 25, 2002. Incorporated by reference
to Exhibit 10.15 that accompanies the 2001 Annual Report on
Form 10-K.
10.16 Commercial Bankshares, Inc., Standard Office Building Lease
between HFJ, LLC, as beneficiary of the KLS Flamingo Land
Trust (Landlord) and Commercial Bank of Florida (Tenant),
dated 10/30/2002. Incorporated by reference to Exhibit
10.16 that accompanies the 2002 Annual Report on Form 10-K.
11.1 Computation of Earnings per Common and Common Equivalent
Share. Information required to be reported under this exhibit
is set forth on page 31 of the 2003 Annual Report and is
incorporated herein by reference.
13.1** 2003 Annual Report to Shareholders of Commercial Bankshares,
Inc.
21.1 Subsidiaries of the Company (filed herewith).
10
23.1 Consent of PricewaterhouseCoopers LLP (filed herewith).
31.1 Certification of the Chief Executive Officer pursuant to Rule
15A-14(A) or 15D-14(A) of the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification of the Chief Financial Officer pursuant to Rule
15A-14(A) or 15D-14(A) of the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
32.1 Certification of the Chief Executive Officer pursuant to Rule
13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of
Title 18 of the United States Code (18 U.S.C. 1350), as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification of the Chief Financial Officer pursuant to Rule
13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of
Title 18 of the United States Code (18 U.S.C. 1350), as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
* Management contracts and compensatory plans and arrangements
required to be filed as exhibits pursuant to Item 15(c) of
this report.
** Except for those portions of the Annual Report which are
expressly incorporated by reference in this Form 10-K, the
Annual Report is furnished for the information of the
Securities and Exchange Commission only and is not to be
deemed "filed" as part of such Form 10-K.
11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COMMERCIAL BANKSHARES, INC.
By:/s/ Joseph W. Armaly
________________________
Joseph W. Armaly
Chairman of the Board and Chief Executive Officer
March 15, 2004
By:/s/ Barbara E. Reed
_______________________
Barbara E. Reed
Senior Vice President and Chief Financial Officer
March 15, 2004
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
_________ _____ ____
By:/s/ Joseph W. Armaly Chairman of the Board March 15, 2004
____________________________ and Chief Executive Officer
(Principal Executive Officer)
By:/s/ Jack J. Partagas President, March 15, 2004
____________________________ Chief Operating Officer,
and Director
By:/s/ Barbara E. Reed Senior Vice President March 15, 2004
____________________________ and Chief Financial Officer
By:/s/ Cromwell A. Anderson Director March 15, 2004
____________________________
By:/s/ Robert Namoff Director March 15, 2004
____________________________
By:/s/ Sherman Simon Director March 15, 2004
____________________________
By:/s/ Michael W. Sontag Director March 15, 2004
____________________________
By:/s/ Martin Yelen Director March 15, 2004
____________________________
12
Exhibit 21.1
Subsidiaries of Commercial Bankshares, Inc.:
Commercial Bank of Florida, a Florida chartered banking corporation
(100%)
Exhibit 23.1
Consent of Independent Certified Public Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8/S-3 (No. 333-11295 and No. 33-96606) of Commercial
Bankshares, Inc. of our report dated March 5, 2004 relating to the financial
statements, which appears in the Annual Report to Shareholders, which is
incorporated in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Miami, Florida
March 15, 2004
13
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 15A-14(A) OR
15D-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Joseph W. Armaly, certify that:
1. I have reviewed this annual report on Form 10-K of Commercial
Bankshares, Inc;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual 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-15(e) and
15d-15(e)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed
under our supervision, 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
annual report is being prepared;
b) [Reserved.]
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal
control over financial reporting.
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the
audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in
the design or operation of internal controls over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal control over financial
reporting.
Dated: March 15, 2004 COMMERCIAL BANKSHARES, INC.
/s/ Joseph W. Armaly
____________________
Joseph W. Armaly
Chief Executive Officer
14
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 15A-14(A)
OR 15D-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Barbara E. Reed, certify that:
1. I have reviewed this annual report on Form 10-K of Commercial
Bankshares, Inc;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual 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-15(e) and
15d-15(e)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, 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 annual
report is being prepared;
b) [Reserved.]
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting.
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Dated: March 15, 2004 COMMERCIAL BANKSHARES, INC.
/s/ Barbara E. Reed
___________________
Barbara E. Reed
Chief Financial Officer
15
Exhibit 32.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14(b) or
Rule 15d-14(b) and 18 U.S.C. Section 1350, As Adopted Pursuant To
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of Commercial Bankshares, Inc.,
(the "Company") on Form 10-K for the year ended, December 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
March 15, 2004
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.
Exhibit 32.2
Certification of Chief Financial Officer Pursuant to Rule 13a-14(b) or
Rule 15d-14(b) and 18 U.S.C. Section 1350, As Adopted Pursuant To
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of Commercial Bankshares,
Inc., (the "Company") on Form 10-K for the year ended, December
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
March 15, 2004
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.
16