SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
Commission File No. 333-19201
THE COMMERCIAL BANCORP, INC.
(Name of small business issuer in its charter)
A Florida Corporation (IRS Employer Identification No. 59-3396236)
258 N. Nova Road
Ormond Beach, Florida 32174
(904) 672-3003
Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934:
NONE
Securities Registered Pursuant to Section 12(g)
of the Securities Exchange Act of 1934:
NONE
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
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained in this form, 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-KSB or any amendment to
this Form 10-KSB. [ ]
Revenues for the fiscal year ended December 31, 1997: $ 114,344
The aggregate market value of the common stock of the Registrant held by
nonaffiliates of the Registrant (338,176 shares) on February 28, 1998 was
approximately $3,381,760. As of such date, no organized trading market existed
for the common stock of the Registrant. The aggregate market value was computed
by reference to recent trading activity of the common stock of the registrant at
$10.00 per share. For the purposes of this response, directors, officers and
holders of 5% or more of the Registrant's common stock are considered the
affiliates of the Registrant at that date.
The number of shares outstanding of the Registrant's Common Stock, as of
February 28, 1998: 464,791 shares of $0.01 par value common stock.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
1. Portions of the Annual Report to Shareholders for the Fiscal
Year ended December 31, 1997.
(Part II)
2. Portions of Proxy Statement for the 1998 Annual Meeting of
Shareholders. (Part III)
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TABLE OF CONTENTS
Consolidated--The Commercial Bancorp, Inc. and Affiliates
NOTE: Certain information required by Form 10-KSB is incorporated by
reference from the 1997 Annual Report and 1998 Annual Meeting Proxy Statement as
indicated below. Only that information expressly incorporated by reference is
deemed filed with the Commission.
PART I Page Number
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Item 1 Business.........................................................3
Item 2 Properties.......................................................8
Item 3 Legal Proceedings................................................9
Item 4 Submission of Matters to a Vote of Security Holders -............9
PART II
Item 5 Market for Common Equity and Related Stockholder Matters..........9
Item 6 Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................6(1)
Item 7 Financial Statements and Supplementary Data......................14(1)
Item 8 Changes in and disagreements with Accountants on
Accounting and Financial Disclosure..............................10
PART III
Item 9 Directors and Executive Officers of the Registrant:...............3(2)
Item 10 Executive Compensation............................................5(2)
Item 11 Security Ownership of Certain Beneficial Owners and Management....2(2)
Item 12 Certain Relationships and Related Transactions....................5(2)
Item 13 Exhibits, Financial Statement Schedules, and Reports on Form 8-K.11
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(1) These items are incorporated by reference from the Company's 1997
Annual Report pursuant to instruction E 2. of Form 10-KSB.
(2) The material required by Items 9 through 11 is hereby incorporated
by reference from the Company's definitive proxy statement pursuant
to Instruction E 3. of Form 10-KSB.
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PART I
ITEM 1. - BUSINESS
Description
General
The Commercial Bancorp, Inc. (the "Company") is a registered bank holding
company under the federal Bank Holding Company Act of 1956, as amended, and owns
100% of the issued and outstanding common stock of The Commercial Bank of
Volusia County, Ormond Beach, Florida (the "Bank"). The Company was incorporated
under the laws of the State of Florida on August 15, 1996 to acquire 100 percent
of the shares to be issued by the Bank during its organizational stage and to
enhance the Bank's ability to serve its future customers' requirements for
financial services. The Company provides flexibility for expansion of the
Company's banking business through acquisition of other financial institutions
and provision of additional banking-related services which the traditional
commercial bank may not provide under present laws.
The Bank is a state-chartered commercial bank, which opened for business on
October 14, 1997. The Bank offers a wide range of interest-bearing and
noninterest-bearing accounts, including commercial and retail checking accounts,
negotiable order of withdrawal ("NOW") accounts, money market accounts,
individual retirement accounts, regular interest-bearing statement savings
accounts, certificates of deposit, commercial loans, real estate loans, home
equity loans and consumer/installment loans. In addition, the Bank provides such
consumer services as U.S. Savings Bonds, travelers checks, safe deposit boxes,
bank by mail services and direct deposit services.
Market Area
The primary service area for the Bank includes the city of Ormond Beach and
Ormond by the Sea, along with portion of the city of Holly Hill. Competition
among financial institutions in this area is intense. There are 20 commercial
banking offices and 3 savings and loan offices within the primary service area
of the Bank. Most of these offices are branches of or are, affiliated with major
bank holding companies.
The Bank is in competition with existing area financial institutions other than
commercial banks and savings and loan associations, including insurance
companies, consumer finance companies, brokerage houses, credit unions and other
business entities which have over the years, engaged more and more in providing
services which have historically been traditional banking services. Due to the
growth of the Volusia County area in general and the Bank's primary service area
in particular, it is anticipated that competition will increase because of new
entrants to the market.
Investments
As of December 31, 1997, federal funds sold and comprised approximately 19.8% of
the Company's assets. The Company enters into Federal Funds transactions with
its principal correspondent banks, and acts as a seller of such funds. Net loans
comprised approximately 52.9% of the Company's assets at December 31, 1997.
Loan Portfolio
The Bank engages in a wide range of lending activities, including the
originating and purchasing of commercial, consumer/installment and real estate
loans.
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Commercial lending is directed principally toward businesses whose demands for
funds fall within the Bank's legal lending limits and which are potential
deposit customers of the bank. This category of loans includes loans made to
individual, partnership or corporate borrowers, and obtained for a variety of
business purposes. Particular emphasis is placed on loans to small and
medium-sized businesses. The Bank's real estate loans consist of residential and
commercial first and second mortgage loans.
The Bank's consumer loans consist primarily of installment loans to individuals
for personal, family and household purposes, including automobile loans to
individuals and pre-approved lines of credit. This category of loans also
includes term loans secured by second mortgages on the residences of borrowers
for a variety of purposes including home improvements, education and other
personal expenditures.
The Bank's general policy is not to accrue interest on loans delinquent over
ninety days unless fully secured and in the process of collection. The policy is
that the accrued and unpaid interest is reversed against current income and
thereafter interest is recognized only to the extent payments are received. The
policy is that non-accrual loans are restored to accrual basis when interest and
principal payments are current and prospects for recovery are no longer in
doubt.
As of December 31, 1997, there were no loans where known information about
possible credit problems of borrowers causes management to have serious doubts
as to the ability of such borrowers to comply with the present loan repayment
terms.
The majority of the Company's loans are secured by real estate in Volusia
County, Florida, where the Bank is located. Accordingly, the ultimate
collectibility of a substantial portion of the loan portfolio is susceptible to
changes in market conditions in this County.
Loan Loss Reserves
In considering the adequacy of the Company's allowance for loan losses,
management has considered that as of December 31, 1997, 81.5% of outstanding
loans are in the commercial loan category, including loans secured by commercial
real estate. Commercial loans are generally considered by management as having
greater risk than other categories of loans in the Company's loan portfolio.
However, the majority of these commercial loans at December 31, 1997 were made
on a secured basis, with collateral consisting primarily of real estate,
accounts receivable, inventory, assignment of mortgages and equipment.
Management believes that the secured condition of the preponderant portion of
its commercial loan portfolio reduces any risk of loss inherently present in
commercial loans.
The Company's consumer loan portfolio at December 31, 1997 consisted primarily
of lines of credit and installment loans secured by automobiles, boats and other
consumer goods. Management believes that the risk associated with these types of
loans has been adequately provided for in the loan loss reserve.
Residential real estate mortgage loans constitute 11.4% of outstanding loans at
December 31, 1997. Management considers these loans to have minimal risk due to
the fact that these loans represent conventional residential real estate
mortgages where the amount of the original loan does not exceed 80% of the
appraisal value of the collateral.
The Company's Board of Directors monitors the loan portfolio monthly in order to
enable it to evaluate the adequacy of the allowance for loan losses. In addition
to reviews by regulatory agencies and the Company's certified public
accountants, the services of outside consultants have been engaged to assist in
the evaluation of credit quality and loan administration. These professionals
compliment the system implemented by the Company which identifies potential
problem credits as early as possible, categorizes the credits as to risk and
includes a reporting process to monitor the progress of the credits.
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The allowance for loan losses represents the cumulative total of monthly
provisions for loan losses. The allowance for loan losses is established through
a provision for loan losses charged to expense. Loans are charged off against
the allowance when management believes the collectibility of principal is
unlikely. The monthly provision for loan losses is based on management's
judgment, after considering known and inherent risks in the portfolio, past loss
experience of the Company, adverse situations that may affect the borrower's
ability to repay, assumed values of the underlying collateral securing the
loans, the current and prospective financial condition of the borrower, and the
prevailing and anticipated economic condition of the local market.
The Company maintains the allowance for loan losses at a level sufficient to
absorb all estimated losses in the loan portfolio. The allowance for loan losses
is made up of two primary components: (i) amounts allocated to loans based on
collateral type and (ii) amounts allocated for loans reviewed on an individual
basis in accordance with a credit risk grading system.
Deposits
The Bank offers a wide range of interest-bearing and noninterest-bearing
accounts, including commercial and retail checking accounts, negotiable order of
withdrawal ("NOW") accounts, money market accounts, individual retirement
accounts, regular interest-bearing statement savings accounts and certificates
of deposit with fixed rates and a range of maturity date options. The sources of
deposits are residents, businesses and employees of businesses within the Bank's
market area, obtained through the personal solicitation of the Bank's officers
and directors, direct mail solicitation and advertisements published in the
local media. The Bank pays competitive interest rates on time and savings
deposits up to the maximum permitted by law or regulation. In addition, the Bank
has implemented a service charge fee schedule competitive with other financial
institutions in the Bank's market area, covering such matters as maintenance
fees on checking accounts, per item processing fees, returned check charges and
the like.
Correspondent Banking
The Bank purchases correspondent services offered by larger banks, including
check collections, purchase or sale of Federal Funds, security safekeeping,
investment services, coin and currency supplies, overline and liquidity loan
participations and sales of loans to or participations with correspondent banks.
The Bank sells loan participations to correspondent banks with respect to loans
which exceed the Bank's lending limit of approximately $1,000,000. For the
fiscal year ended December 31, 1997, the bank had not sold any loan
participations.
Data Processing
The Bank has a data processing servicing agreement with Citrus & Chemical Bank,
Bartow, Florida. This servicing agreement provides for the Bank to receive a
full range of data processing services including an automated general ledger,
deposit accounting, commercial, real estate and installment lending data
processing, central information file ("CIF") and ATM processing. The data
processing servicing agreement provides for the Bank to pay a monthly fee based
on the type, kind and volume of data processing services provided, priced at a
stipulated rate schedule.
Employees
The Bank currently employs 9 full time persons, including 5 officers, and no
part time persons. The Bank will hire additional persons as needed.
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Monetary Policies
The results of operations of the Company and the Bank are affected by credit
policies of monetary authorities, particularly the Federal Reserve Board. The
instruments of monetary policy employed by the Federal Reserve Board include
open market operations in U.S. Government securities, changes in the discount
rate on member bank borrowings, changes in reserve requirements against member
bank deposits and limitations on interest rates which member banks may pay on
time and savings deposits. In view of changing conditions in the national
economy and in the money market, as well as the effect of action by monetary and
fiscal authorities, including the Federal Reserve Board, no prediction can be
made as to possible future changes in interest rates, deposit levels, loan
demand, or the business and earnings of the Bank.
Supervision and Regulation
The Company and the Bank operate in a highly regulated environment, and their
business activities are governed by statute, regulation and administrative
policies. The business activities of the Company and the Bank are supervised by
a number of federal regulatory agencies, including the Federal Reserve Board,
the Florida Department of Banking and Finance ("Department") and the Federal
Deposit Insurance Corporation ("FDIC").
The Company is regulated by the Federal Reserve Board under the federal Bank
Holding Company Act, which requires every bank holding company to obtain the
prior approval of the Federal Reserve Board before acquiring more than 5% of the
voting shares of any bank or all or substantially all of the assets of a bank,
and before merging or consolidating with another bank holding company. The
Federal Reserve Board (pursuant to regulation and published policy statements)
has maintained that a bank holding company must serve as a source of financial
strength to its subsidiary banks. In adhering to the Federal Reserve Board
Policy, the Company may be required to provide financial support for a
subsidiary bank at a time when, absent such Federal Reserve Board policy, the
Company may not deem it advisable to provide such assistance.
A bank holding company is generally prohibited from acquiring control of any
company which is not a bank and from engaging in any business other than the
business of banking or managing and controlling banks. However, there are
certain activities which have been identified by the Federal Reserve Board to be
so closely related to banking as to be a proper incident thereto and thus
permissible for bank holding companies.
As a state bank, the Bank is subject to the supervision of the Department, the
FDIC and the Federal Reserve Board. With respect to expansion, the Bank may
establish branch offices anywhere within the State of Florida. The Bank is also
subject to the Florida banking and usury laws restricting the amount of interest
which it may charge in making loans or other extensions of credit. In addition,
the bank, as a subsidiary of the Company, is subject to restrictions under
federal law in dealing with the Company and other affiliates, if any. These
restrictions apply to extensions of credit to an affiliate, investments in the
securities of an affiliate and the purchase of assets from an affiliate.
Loans and extensions of credit by state banks are subject to legal lending
limitations. Under state law, a state bank may grant unsecured loans and
extensions of credit in an amount up to 15% of its unimpaired capital and
surplus to any person. In addition, a state bank may grant additional loans and
extensions of credit to the same person up to 10% of its unimpaired capital and
surplus, provided that the transactions are fully secured. This 10% limitation
is separate from, and in addition to, the 15% limitation for unsecured loans.
Loans and extensions of credit may exceed the general lending limit if they
qualify under one of several exceptions.
Both the Company and the Bank are subject to regulatory capital requirements
imposed by the Federal Reserve Board, the FDIC and the Department. Both the
Federal Reserve Board and the FDIC have established risk-based capital
guidelines for bank holding companies and banks which make regulatory capital
requirements more sensitive to differences in risk profiles of various banking
organizations. The capital adequacy guidelines issued by the Federal Reserve
Board are applied to bank holding companies on a consolidated basis with the
banks owned by the holding company. The FDIC's risk capital guidelines apply
directly to state banks regardless of whether they are a subsidiary of a bank
holding company. Both agencies' requirements (which are substantially similar)
provide that banking
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organizations must have capital equivalent to 8% of weighted risk assets. The
risk weights assigned to assets are based primarily on credit risks. Depending
upon the riskiness of a particular asset, it is assigned to a risk category. For
example, securities with an unconditional guarantee by the United States
government are assigned to the lowest risk category. A risk weight of 50% is
assigned to loans secured by owner-occupied one to four family residential
mortgages. The aggregate amount of assets assigned to each risk category is
multiplied by the risk weight assigned to that category to determine the
weighted values, which are added together to determine total risk-weighted
assets. At December 31, 1997, the Company's total risk-based capital and Tier 1
ratio were 92.7% and 88.4%, respectively. Both the Federal Reserve Board and the
FDIC have also implemented new minimum capital leverage ratios to be used in
tandem with the risk-based guidelines in assessing the overall capital adequacy
of bank and bank holding companies. Under these rules, banking institutions are
required to maintain a ratio of 3% "Tier 1" capital to total assets (net of
goodwill). Tier 1 capital includes common stockholders equity, noncumulative
perpetual preferred stock and minority interests in the equity accounts of
consolidated subsidiaries.
Both the risk-based capital guidelines and the leverage ratio are minimum
requirements, applicable only to top-rated banking institutions. Institutions
operating at or near these levels are expected to have well-diversified risk,
excellent asset quality, high liquidity, good earnings and in general, have to
be considered strong banking organizations, rated composite 1 under the CAMELS
rating system for banks or the BOPEC rating system for bank holding companies.
Institutions with lower ratings and institutions with high levels of risk or
experiencing or anticipating significant growth would be expected to maintain
ratios 100 to 200 basis points above the stated minimums.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (or FDICIA),
created five "capital categories" ("well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized") which are defined in the Act and which are used to determine
the severity of corrective action the appropriate regulator may take in the
event an institution reaches a given level of undercapitalization. For example,
an institution which becomes "undercapitalized" must submit a capital
restoration plan to the appropriate regulator outlining the steps it will take
to become adequately capitalized. Upon approving the plan, the regulator will
monitor the institution's compliance. Before a capital restoration plan will be
approved, any entity controlling a bank (i.e., holding companies) must guarantee
compliance with the plan until the institution has been adequately capitalized
for four consecutive calendar quarters. The liability of the holding company is
limited to the lesser of five percent of the institution's total assets or the
amount which is necessary to bring the institution into compliance with all
capital standards. In addition, "undercapitalized" institutions will be
restricted from paying management fees, dividends and other capital
distributions, will be subject to certain asset growth restrictions and will be
required to obtain prior approval from the appropriate regulator to open new
branches or expand into new lines of business. As an institution drops to lower
capital levels, the extent of action to be taken by the appropriate regulator
increases, restricting the types of transactions in which the institution may
engage and ultimately providing for the appointment of a receiver for certain
institutions deemed to be critically undercapitalized.
The FDICIA required each federal banking agency to prescribe for all insured
depository institutions and their holding companies standards relating to
internal controls, information systems and audit systems, loan documentation,
credit underwriting, interest rate risk exposure, asset growth, and
compensation, fees and benefits and such other operational and managerial
standards as the agency deems appropriate. In addition, the federal banking
regulatory agencies were required to prescribe by regulation standards
specifying: (i) maximum classified assets to capital ratios; (ii) minimum
earnings sufficient to absorb losses without impairing capital; (iii) to the
extent feasible, a minimum ratio of market value to book value for publicly
traded shares of depository institutions or the depository institution holding
companies; and (iv) such other standards relating to asset quality, earnings and
valuation as the agency deems appropriate. Finally, each federal banking agency
was required to prescribe standards for employment contracts and other
compensation arrangements of executive officers, employees, directors and
principal stockholders of insured depository institutions that would prohibit
compensation and benefits and other arrangements that are excessive or that
could lead to a material financial loss for the institution. If an insured
depository institution or its holding company fails to meet any of its standards
described above, it will be required to submit to the appropriate federal
banking agency a plan specifying the steps that will be taken to cure the
deficiency. If an institution fails to submit an acceptable plan or fails to
implement the plan, the appropriate federal banking agency will require the
institution or holding company, to correct the deficiency and until corrected,
may impose restrictions on the institution or the holding company including any
of the restrictions applicable under the prompt corrective action provisions of
the FDICIA.
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In response to the directive issued under the Act, the regulators have adopted
regulations which, among other things, prescribe the capital thresholds for each
of the five capital categories established by the Act. The following table
reflects the capital thresholds:
Total Risk - Tier 1 Risk - Tier 1
Based Capital Based Capital Leverage
Ratio Ratio Ratio
Well capitalized (1) 10% 6% 5%
Adequately capitalized (1) 8% 4% 4%(2)
Undercapitalized (3) less than 8% less than 4% less than 3%
Critically Undercapitalized - - less than 2%
(1) An institution must meet all three minimums.
(2) 3% for composite 1-rated institutions, subject to appropriate federal
banking agency guidelines.
(3) An institution falls into this category if it is below the specified
capital level for any of the three capital measures.
The Act also provided that banks must have to meet new safety and soundness
standards. In order to comply with the Act, the Federal Reserve Board, and the
FDIC, adopted a final Rule which institutes guidelines defining operational and
managerial standards relating to internal controls, loan documentation, credit
underwriting, interest rate exposure, asset growth, director and officer
compensation, asset quality, earnings and stock valuation. Both the capital
standards and the safety and soundness standards which the Act to implement were
designed to bolster and protect the deposit insurance fund.
As a state bank, the bank is subject to examination and review by the
Department. The Bank submits to the Department quarterly reports of condition,
as well as such additional reports as may be required by the state banking laws.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,
existing restrictions on interstate acquisitions of banks by bank holding
companies were repealed on September 29, 1995, such that the Company and any
other bank holding company located in Florida would be able to acquire any
Florida-based bank, subject to certain deposit percentage and other
restrictions. The legislation also provides that, unless an individual state
elects beforehand either (i) to accelerate the effective date or (ii) to
prohibit out-of-state banks from operating interstate branches within its
territory, on or after June 1, 1997, adequately capitalized and managed bank
holding companies will be able to consolidate. De novo branching by an
out-of-state bank would be permitted only if it is expressly permitted by the
laws of the host state. The authority of a bank to establish and operate
branches within a state will continue to be subject to applicable state
branching laws. During its 1996 Legislative Session the Florida Legislature
adopted Legislation which permits interstate branching by acquisition but not by
de novo branching.
As a bank holding company, the Company is required to file with the Federal
Reserve Board an annual report of its operations at the end of each fiscal year
and such additional information as the Federal Reserve Board may require
pursuant to the Act. The Federal Reserve Board may also make examinations of the
Company and each of its subsidiaries.
The scope of regulation and permissible activities of the Company and the Bank
is subject to change by future federal and state legislation.
ITEM 2. - DESCRIPTION OF PROPERTY
The Bank commenced business operations on October 14, 1997 in a leased
shopping center unit located in the Trails Shopping Center in Ormond Beach,
Florida. The Company's headquarters are also located in this facility. The
facility is a 3,380 square foot unit consisting of a customer lobby, with 3
teller stations, customer lounge, 3 executive officers, operation area, and
an employee lounge.
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ITEM 3. - LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or the
Bank is a party or of which any of their properties are subject; nor are
there material proceedings known to the Company to be contemplated by any
governmental authority; nor are there material proceedings known to the
Company, pending or contemplated, in which any director, officer, affiliate
or any principal security holder of the Company, or any associate of any of
the foregoing is a party or has an interest adverse to the Company or the
Bank.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
PART II
ITEM 5. - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
During the period covered by this report and to date, there has been no
established public trading market for the Company's Common Stock.
As of February 28, 1998, the approximate number of holders of record of the
Company's Common Stock was 327.
To date, the Company has not paid any dividends on its Common Stock. It is
the present policy of the Board of Directors of the Company to reinvest
earnings for such period of time as is necessary to ensure the success of
the operations of the Company and of the Bank. There are no current plans
to initiate payment of cash dividends, and future dividend policy will
depend on the Bank's earnings, capital requirements, financial condition
and other factors considered relevant by the Board of Directors of the
Company.
The Bank is restricted in its ability to pay dividends under Florida
banking laws and by regulations of the Federal Deposit Insurance
Corporation. Pursuant to Section 658.37, Florida Statutes, a state bank may
not pay dividends from its capital. All dividends must be paid out of net
profits then on hand, after charging off bad debts, depreciation, and other
worthless assets. Payment of dividends out of net profits is further
limited by Federal regulation which prohibits the payment of dividends if
such payment would bring the Bank's capital below required levels.
The Company commenced its initial public offering of common stock on April
28, 1997 which was the effective date of the Securities Act registration
statement, File No. 333-19201, filed in connection therewith. The offering
is a continuous offering made under Rule 415 whereby the Company offered up
to 750,000 shares of common stock for an aggregate of $7,500,000. The
minimum offering of 450,000 shares was completed on September 19, 1997 and
a closing was held at that time which resulted in the Company obtaining
$4,500,000 in total offering proceeds from the Escrow Agent. The offering
was still open as of December 31, 1997 and an additional 14,791 shares were
sold between September 20 and December 31, 1997 resulting in the Company
obtaining $147,910 in additional offering proceeds from the Escrow Agent.
As of December 31, 1997, the Company had sold a total of 464,791 shares of
common stock at $10.00 per share for a total of $4,647,910 in offering
proceeds.
From the Effective Date of Registration to and including December 31, 1997
the Company had incurred $14,720 in expenses associated with the offering,
issuance and distribution of the common stock sold through December 31,
1997. No such expenses were paid to directors, officers or 10% shareholders
of the Company, or their affiliates. All such payments were made to others.
After deducting the above expenses, the Company received $4,633,190 in net
proceeds. Of this amount, the Company purchased 100% of the issued and
outstanding shares of The Commercial Bank of Volusia County for $4,250,000
and retained $383,190 for working capital.
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ITEM 6. - MANAGEMENT'S DISCUSSION AND ANALYSIS & FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company hereby incorporates by reference the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 6 through 12 of the 1997 Annual Report to Shareholders
for the year ended December 31, 1997 filed as an Exhibit under Item 13
herein.
ITEM 7. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company hereby incorporates by reference the Report of the Independent
Auditors and the Consolidated Financial Statements contained in the 1997
Annual Report to Shareholders for the year ended December 31, 1997 filed as
an Exhibit under Item 13 herein.
ITEM 8. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE MATTERS - None
PART III
ITEM 9. - DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The Company hereby incorporates by reference the sections entitled
"Election of Directors" and "Board of Directors Meeting" contained at pages
3 and 4 of the Proxy Statement filed as an Exhibit under Item 13 herein.
ITEM 10. - EXECUTIVE COMPENSATION
The Company hereby incorporates by reference the section entitled
"Executive Compensation" contained at page 5 of the Proxy Statement filed
as an Exhibit under Item 13 herein.
ITEM 11. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
The Company hereby incorporates by reference the sections entitled "Election of
Directors" and "Certain Shareholders" contained at page 2 of the Proxy Statement
filed as an Exhibit under Item 13 herein.
(b) Security Ownership of Management
The Company hereby incorporates by reference the section entitled "Election of
Directors" contained at pages 2 through 3 of the Proxy Statement filed as an
Exhibit under Item 13 herein.
(c) Changes in Control
The Company is not aware of any arrangements, including any pledge by any person
of securities of the Company, the operation of which may at a subsequent date
result in a change of control of the Company.
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ITEM 12. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company hereby incorporates by reference the section titled "Certain
Relationships and Related Transactions" contained at page 5 through 6 of
the Proxy Statement filed as an exhibit under Item 13 herein.
ITEM 13. - EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The following exhibits are filed with or incorporated by
reference into this report. The exhibits which are denominated by an
asterisk (*) were previously filed as a part of, and are hereby
incorporated by reference from the Company's Registration Statement on Form
-SB-2 under the Securities Act of 1933 for the Company, as effective with
the Securities and Exchange Commission on December 7, 1995, Registration
No. 33-98090 (referred to as "Registration Statement"). The exhibit numbers
correspond to the exhibit numbers in the referenced documents.
Exhibit No. Description of Exhibit
- ----------- -----------------------------------------
*3.1 Amended and Restated Articles of Incorporation of the Company
(Registration Statement)
*3.2 By-laws of the Company (Registration Statement)
*4.1 Specimen Common Stock Certificate (Registration Statement)
*4.2 Specimen Warrant Certificate (Registration Statement)
*4.4 Company's Warrant Plan (Registration Statement)
22.1 The Company's 1998 Annual Meeting Proxy Statement.
22.2 The Company's 1997 Annual Report for the year ended December 31, 1997.
(b) Reports on Form 8-K. The Company did not file any reports on Form 8-K
------------------- during the last quarter of 1997.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 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.
The Commercial Bancorp, Inc.
Dated: March 19, 1998 By: /s/ Gary G. Campbell
---------------------------------------
Gary G. Campbell
President & CEO
Dated: March 19, 1998 By: /s/ Harvey E. Buckmaster
---------------------------------------
Harvey E. Buckmaster
Chief Financial and Accounting Officer
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:
/s/ Gary G. Campbell March 19, 1998
- -----------------------------------------
GARY G. CAMPBELL
President & CEO
/s/ James R. Peacock March 23, 1998
- -----------------------------------------
JAMES R. PEACOCK
Director, Vice Chairman
/s/ Larry A. Kent March 19, 1998
- -----------------------------------------
LARRY A. KENT
Director, Chairman
/s/ Christopher K. Likes March 19, 1998
- -----------------------------------------
CHRISTOPHER K. LIKES
Director
/s/ Kirk T. Bauer March 24, 1998
- -----------------------------------------
KIRK T. BAUER
Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
The Company's Proxy Statement and 1997 Annual Report are included as Exhibits
22.1 and 22.2 of this filing.
12
Exhibit 22.1
The Company's 1998 Annual Meeting
Proxy Statement
<PAGE>
THE COMMERCIAL BANCORP, INC.
258 N. Nova Road
Ormond Beach, Florida 32174
---------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
April 21, 1998
---------------------
Solicitation and Voting of Proxies
This Proxy Statement and the accompanying Proxy are being furnished to
shareholders of The Commercial Bancorp, Inc. ("TCB" or the "Company") in
connection with the solicitation of proxies by the Board of Directors to be used
at the Company's Annual Meeting of Shareholders ("Annual Meeting") or any
adjournment thereof, which will be held on Tuesday April 21, 1998 at 2:00 p.m.,
Local Time at The Trails Homeowners Association Community Center, 201 Main
Trail, Ormond Beach, Florida.
Regardless of the number of shares of common stock owned, it is
important that shareholders be represented by Proxy or in person at the Annual
Meeting. Shareholders are requested to vote by completing the enclosed Proxy and
returning it signed and dated in the enclosed postage prepaid envelope.
Shareholders are urged to indicate the way they wish to vote in the space
provided on the Proxy. Proxies solicited by the Board of Directors of the
Company will be voted in accordance with the directions given therein. Where no
instructions are indicated, proxies will be voted "FOR" the management director
nominees set forth below; "FOR" approval of the 1997 Employee Stock Option and
Limited Rights Plan; and "FOR" ratification of the appointment of Hacker,
Johnson, Cohen & Grieb, PA as the independent auditors of TCB for the fiscal
year ending December 31, 1998.
Revocation of Proxy
A shareholder's presence at this Annual Meeting will not automatically
revoke his or her Proxy. Shareholders may revoke a Proxy at any time prior to
its exercise by filing with the Secretary of the Company a written notice of
revocation, by delivering to the Company a duly executed Proxy bearing a later
date, or by attending this Annual Meeting and voting in person.
Voting Securities
The securities which may be voted at this Annual Meeting consist of
shares of common stock of TCB ("Common Stock") with each share entitling its
owner to one vote for the election of directors and any other matters that may
come before the Annual Meeting. The close of business on March 19, 1998 has been
fixed by the Board of Directors as the record date ("Record Date") for the
determination of shareholders entitled to notice of and to vote at this Annual
Meeting and any adjournment thereof. The total number of shares of the Company's
Common Stock outstanding on the record date was 464,791 shares which are held by
approximately 325 shareholders.
1
<PAGE>
The presence, in person or by Proxy, of at least a majority of the
total number of outstanding shares of Common Stock is necessary to constitute a
quorum at the Annual Meeting. In the event there are not sufficient votes for a
quorum to approve any Proposal at the time of the Annual Meeting, this Annual
Meeting may be adjourned in order to permit further solicitation of proxies.
Certain Shareholders
As of March 19, 1998, no persons or apparent groups of persons, other
than Officers or Directors of the Company, are known by management to own
beneficially five percent or more of the outstanding shares of TCB's Common
Stock.
PROPOSAL I - ELECTION OF DIRECTORS
The Board of Directors of TCB, as proposed herein, will be composed of
seven members. The Board of Directors are divided into three classes and the
terms of each class are staggered so that approximately one-third of the
directors are elected each year. There are three Class I directors who will be
elected to a one-year term, two Class II directors who will be elected to a
two-year term, and two Class III directors who will be elected to a three-year
term nominated by the Board to stand for election at this Annual Meeting.
Management's nominees to fill the terms are Gary G. Campbell, Richard R.
Dwyer, and Norbert A. Walz for Class I terms; James R. Peacock, and James F.
McCollum, for Class II terms; and Larry A. Kent and H. Frederick Keiber for
Class III terms, each of whom, except for Mr. Dwyer, Mr. Walz, Mr. Keiber and
Mr. McCollum are presently directors of TCB. Mr. Dwyer has servered as a member
of The Commercial Bank of Volusia County's Board of Directors since October,
1997. Messers Walz, Keiber and mcCollum are members of the Sebring, Florida
organizing group.
It is intended that the proxies solicited by the Board of Directors
will be voted "FOR" the election of said nominees. If any nominee is unable to
serve, the shares represented by all valid proxies will be voted for the
election of such substitute as the Board may recommend. At this time the Board
of Directors knows of no reason why any nominee might not be able to serve.
The Board of Directors recommends that shareholders vote "FOR" election
of the nominees.
The following table describes the period that each nominee has served
as a director of TCB, his position and offices held, with the Company, his
principal occupation or employment, and further contains information as of March
19, 1998, with respect to the beneficial ownership (as such term is defined
under the Rules and Regulations of the Securities Exchange Commission) of the
Company's Common Stock held by each nominee, each director and all directors as
a group.
2
<PAGE>
Name, age, principal Amount and nature
occupation, director- Current of beneficial
ships and business Director term ownership of Percent
experience since expires Common Stock of class(1)
- --------------------- -------- -------- ------------------ -----------
Management's nominees
for One-Year Terms:
Class I Directors
- -----------------
Gary G. Campbell, Age 44 1996 1998 3,000(2) 0.64%
Executive Vice President
and Senior Loan Officer,
First State Bank of
Florida, 1992 - 1996;
President of The
Commercial Bank,
1996 - current;
Director,
President and Chief
Excutive Officer of
the Bank 1997 - current.
Richard R. Dwyer, Age 43 - 1998 20,000(3) 4.21%
Specialty Stock Trader
and partner of M. J.
Meehan & Company, a New
York Stock Exchange
Trading Company 1986 - 1996.
Retired 1996 - current.
Member of the Board of
Directors of the
Bank, 1997 - current.
Norbert A. Walz, Age 57 - - 500(4) 0.11%
President and Owner of
Walz Marketing, Inc.
1986 - 1996; President
and Owner of Walz
Management, Inc. 1986 -
current; President and
Owner of Walz & Company
of Sebring, Inc. 1993 -
current.
Management's nominees for Two-Year Terms:
Class II Directors
- ------------------
James R. Peacock, Age 51 1996 1998 105,268(5) 20.34%
Owner/Operator Jim
Peacock Dodge 1981 -
1993; Director and
Management Consultant
of Profitable
Management Services,
Inc. 1988 - current.
James F. McCollum, Age 52 - - 500(6) 0.11%
Attorney, 1972 - current;
Shareholder and partner
McCollum, Oberhausen
& Tuck, LLP, 1997 -
current.
3
<PAGE>
Management's nominees for Three-Year Terms:
Class III Directors
Larry A. Kent, Age 45 1996 1998 69,282(7) 13.87%
President and Owner
Larry Kent Homes,
Inc. 1974 - 1993;
Owner operator of
Burger King franchise
restaurants 1993
current; Member of
Board of Directors
First State Bank of
Florida, 1987 - 1996;
Chairman of The
Commercial Bank 1996
current; member of the
Board of Directors of
the Bank.
H. Frederick Keiber, MD, Age 52 - - 2,000(8) 0.43%
Ophthamologist and Owner
Keiber Eye Center 1975 -
current; majority owner
Keiber Optical Company
1983 - current; Majority
owner Surgical Center of
Central Florida 1989 -
current.
- ---------------------------
(1) Percentage computed on 464,791 shares issued and outstanding, plus
100,150 shares subject to presently exercisable stock purchase warrants
issued in connection with the Company's stock offering for a total of
564,941 beneficial shares.
(2) Includes 1,500 shares subject to presently exercisable stock purchase
warrants issued in connection with the Company's initial stock
offering, and 1,500 shares owned individually.
(3) Includes 10,000 shares subject to presently exercisable stock purchase
warrants issued in connection with the Company's initial stock offering
and 10,000 shares owned individually.
(4) Includes 250 shares subject to presently exercisable stock purchase
warrants issued in connection with the Company's initial stock
offering. Includes 250 shares owned individually.
(5) Includes 52,509 shares subject to presently exercisable stock purchase
warrants issued in connection with the Company's initial stock offering
and 52,509 shares owned individually. Includes 250 shares owned by Mr.
Peacock's wife, Myrtice Peacock.
(6) Includes 250 shares subject to presently exercisable stock purchase
warrants issued in connection with the Company's initial stock offering
and 250 shares owned individually.
(7) Includes 34,641 shares subject to presently exercisable stock purchase
warrants issued in connection with the Company's initial stock offering
and 34,641 shares owned individually.
(8) Includes 1,000 shares subject to presently exercisable stock purchase
warrants issued in connection with the Company's initial stock offering
and 1,000 shares owned individually.
4
<PAGE>
Board of Directors Meetings
During its organizational stage the Company conducted its business
through meetings of the Board of Directors. During the year ended December 31,
1997, the Board of Directors held 4 meetings. No director of the Company,
attended fewer than 75% of the total meetings of the Board of Directors.
Committees of the Board of Directors
The Board of Directors of the Company may conduct business through its
Executive Committee.
Directors' Compensation
TCB did not pay any fees or other compensation to its Directors for the
period ending December 31, 1997 and neither TCB nor the Bank currently pays
Directors any fees or other compensation.
Executive Compensation
No officer of TCB or the Bank received cash compensation in excess of
$100,000 for the year ended December 31, 1997. Gary G. Campbell, a Director of
the Company and a Director, President and Chief Executive Officer of the Bank,
receives a base salary of $75,000 per year beginning January, 1998. In addition,
the Bank provides Mr. Campbell an automobile for business use.
Benefits
Insurance: TCB's full-time officers and employees are provided
hospitalization, major medical, short and long-term disability, dental insurance
and term life insurance under group plans on generally the same basis to all
full-time employees. The Bank pays all of the costs of this insurance.
Bonuses: Neither the Company nor the Bank has an established bonus
policy for employees; however, based upon Mr. Campbell's performance during the
organizational and post opening periods, the Board of Directors awarded him a
bonus of $5,000 during the last quarter of 1997. The payment of any future bonus
is at the sole discretion of the Board of Directors.
Certain Relationships and Related Transactions
Set forth below is certain information as of December 31, 1997
concerning loans made by the Bank to each of its directors, executive officers
and their immediate families whose aggregate indebtedness to the Bank exceeded
$60,000 at anytime since January 1, 1997.
[TABLE SHOWN ON NEXT PAGE]
5
<PAGE>
<TABLE>
<CAPTION>
Largest
Amount Balance
Maturity Outstanding as of
Date of Date of from January December Interest
Name Loan Loan 1, 1997 31, 1997 Rate Type
---------------- -------- -------- --------------- ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
James R. Peacock 10/17/97 01/15/98 304,064.35 304,064.37 9.50% CLC
Gary G. Campbell 12/22/97 03/15/99 10,312.71 10,312.71 10.25% CL
12/22/97 01/01/28 144,976.01 144,976.01 7.00% ML
</TABLE>
Note: "CL" (Fixed Rate Consumer Loan); "ML" (Adjustable Mortgage Loan made at
the market interest rate); "CLC" (Commercial Line of Credit - unsecured);
Interest rates on all loans above are adjustable.
Banks and other financial institutions are governed by the provisions
of Section 22(h) of the Federal Reserve Act. Any credit extended by the Bank to
its directors, executive officers and, to the extent otherwise permitted,
principal shareholder(s), or any affiliates thereof, must be: (i) on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions by the Bank with
non-affiliated parties and (ii) not involve more than the normal risk of
repayment or present other unfavorable features.
The above loans were made to the directors and officers on
substantially the same terms as they are made to other customers of the Bank.
All loans are current in their contractual payments for both principal and
interest and, in management's opinion, do not involve more than the normal risk
of collectibility.
PROPOSAL II-APPROVAL OF TCB'S
EMPLOYEE STOCK OPTION AND LIMITED RIGHTS PLAN
TCB, in order to encourage superior performance believes that stock
options for key officers should be a part of the Company's long-term
compensation program. Long-term compensation is distinguishable from annual
compensation by the time frame for which performance results are measured to
determine the individual awards issued to employees. Annual compensation covers
a calendar year while long-term compensation in the form of stock options
generally covers a longer period. The stock options allow key employees to
become shareholders of the Company with the intent of motivating them to
continue to improve the value of the Company's common stock. The Board of
Directors of the Company has adopted The Commercial Bancorp, Inc. 1997 Employee
Stock Option and Limited Rights Plan ("Plan") subject to shareholder approval,
which provides for up to 10% of the Company's authorized but unissued stock to
be subject to grant under the Plan. The term of the stock options authorized by
the Plan is limited and generally requires the employee to exercise the stock
option within ten years after the date of grant. Options must be issued with an
exercise price at least equal to current market value at the time of grant, and
vesting periods may not exceed five years from the date of grant. A copy of the
Plan is included with this Proxy Statement as Appendix A.
6
<PAGE>
The Board of Directors recommends that shareholders vote "FOR" the
approval of Company's 1997 Employee Stock Option and Limited Rights
Plan.
PROPOSAL III - RATIFICATION OF APPOINTMENT OF
AUDITORS FOR FISCAL YEAR ENDING DECEMBER, 31 1998
TCB's independent auditors for the fiscal year ended December 31, 1997,
were Hacker, Johnson, Cohen & Grieb, PA. The Board of Directors has appointed
Hacker, Johnson, Cohen & Grieb to be its independent auditors for the fiscal
year ending December 31, 1998, subject to shareholder ratification.
The Board of Directors recommends that shareholders vote "FOR" the
ratification of the appointment of Hacker, Johnson, Cohen & Grieb, PA
as independent auditors for the fiscal year ending December 31, 1998.
Solicitation
The cost of soliciting proxies on behalf of the Board of Directors for
the Annual Meeting will be borne by TCB. Proxies may be solicited by directors,
officers or regular employees of the Company or the Bank in person or by
telephone, telegraph or mail. TCB will request persons, firms and corporations
holding shares in their names, or in the names of their nominees, which are
beneficially owned by others, to send Proxy materials to and obtain proxies from
such beneficial owners, and will reimburse such holders for their reasonable
out-of-pocket expenses in doing so.
Shareholder Proposals
In order to be eligible for inclusion in TCB's Proxy material for next
year's Annual Meeting of Shareholders, any shareholder proposal to take action
at such Annual Meeting must be received at the Corporate Office of the Company,
258 N. Nova Road, Ormond Beach, Florida 32174, on or before December 22, 1998.
Proposals must comply with the provisions of 17 C.F.R. Section 240.14a-8 ("Rule
14a") of the rules and regulations of the Securities and Exchange Commission in
order to be included in the Company's Proxy materials.
New business may be taken up at the Annual Meeting, provided the
proposal is stated in writing and filed with the Secretary of the Company at
least ten (10) days before the Annual Meeting. Any shareholder may make any
other proposal at the Annual Meeting and the same may be discussed and
considered, but unless stated in writing and filed with the Company's Secretary
by the above date, such proposal shall be laid over for action at an adjourned
Annual Meeting or at a Special Meeting taking place 30 or more days thereafter.
This provision does not prevent the consideration and approval or disapproval at
the Annual Meeting of reports of officers, directors and committees; but in
connection with such reports, no new business shall be acted upon at such Annual
Meeting unless stated and filed as provided herein.
7
<PAGE>
Financial Statements
A copy of the Company's audited financial statements for the period
ended December 31, 1997, accompanies this Proxy Statement.
Other Matters
The Board of Directors knows of no other matters to be brought before
the Annual Meeting. However, if other matters should come before the Annual
Meeting, it is the intention of the persons named in the enclosed form of Proxy
to vote the Proxy in accordance with their judgment of what is in the best
interest of the Company.
The Commercial Bancorp, Inc.
Ormond Beach, Florida
March 28, 1998
8
<PAGE>
APPENDIX A
THE COMPANY'S
1997 EMPLOYEE STOCK OPTION
AND LIMITED RIGHTS PLAN
9
<PAGE>
THE COMMERCIAL BANCORP, INC.
1997 EMPLOYEE STOCK OPTION AND LIMITED RIGHTS PLAN
1. PURPOSE
The purpose of The Commercial Bancorp, Inc. ("Company") 1997 Employee
Stock Option and Limited Rights Plan ("Plan") is to advance the interests of the
Company, its wholly owned subsidiary The Commercial Bank of Volusia County and
its shareholders by providing key employees of the Company and its affiliates,
upon whose judgment, initiative and efforts the successful conduct of the
business of the Company and its affiliates largely depends, with an additional
incentive to perform in a superior manner, as well as, to attract people of
experience and ability.
2. DEFINITIONS
(a) "Board of Directors" means the Board of Directors of the
Company.
(b) "Affiliate" means (i) a member of a controlled group of
corporations of which the Company is a member or (ii) an
unincorporated trade or business which is under common control
with the Company as determined in accordance with Section
414(c) of the Internal Revenue Code 1986, as amended ("Code")
and the regulations issued thereunder. For purposes hereof, a
"controlled group of corporations" shall mean a controlled
group of corporations as defined in Section 1563(a) of the Code
determined without regard to Sections 1563(a)(4) and (e)(3)(C).
(c) "Award" means an Award of Non-Statutory Stock Options,
Incentive Stock Options, and/or Limited Rights granted under
the provisions of the Plan.
(d) "Committee" means the Compensation Committee of the Board of
Directors.
(e) "Plan Year or Years" means a calendar year or years commencing
on or after January 1, 1997.
(f) "Date of Grant" means the actual date on which an Award is
granted by the Committee.
(g) "Common Stock" means the common stock of the Company, par
value, $0.01 per share.
(h) "Fair Market Value" means, when used in connection with the
Common Stock on a certain date, the reported closing price of
the Common Stock as reported by the National Association of
Securities Dealers Automated Quotation System (as published by
the Wall Street Journal, if published) on the day prior to such
date or if the Common Stock was not traded on such date, on the
next preceding day on which the Common Stock was
1
<PAGE>
traded thereon. If the Common Stock is not traded on a national
market reported by the National Association of Securities
Dealers Automated Quotation System, the Fair Market Value means
the average of the closing bid and ask sale prices on the last
previous date on which a sale is reported in an
over-the-counter transaction. In the absence of any
over-the-counter transactions, the Fair Market Value means the
highest price at which the stock has sold in an arms length
transaction during the 90 days immediately following the grant
date. In the absence of an arms length transaction during such
90 days, Fair Market Value means the book value of the common
stock or the issue price of $10.00 per share, whichever is
higher.
(i) "Limited Right" means the right to receive an amount of cash
based upon the terms set forth in Section 9 herein.
(j) "Disability" means the permanent and total inability by reason
of mental or physical infirmity, or both, of an employee to
perform the work customarily assigned to him. Additionally, a
medical doctor selected or approved by the Board of Directors
must advise the Committee that it is either not possible to
determine when such Disability will terminate or that it
appears probable that such Disability will be permanent during
the remainder of said participant's lifetime.
(k) "Termination for Cause" means the termination upon an
intentional failure to perform stated duties, breach of a
fiduciary duty involving personal dishonesty, which results in
material loss to the Company or one of its affiliates or
willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or final
cease-and-desist order issued to the Company or one of its
affiliates.
(l) "Participant" means an employee of the Company or its
affiliates chosen by the Committee to participate in the Plan.
(m) "Change in Control" of the Company means a change in control
that would be required to be reported in response to Item 6(e)
of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act") or
any successor disclosure item; provided that, without
limitation, such a Change in Control (as set forth in 12 U.S.C.
Section 1841[a][2] of the Bank Holding Company Act of 1956, as
amended) shall be deemed to have occurred if any person (as
such term is used in Sections 13[d] and 14[d] of the Exchange
Act in effect on the date first written above), other than any
person who on the date hereof is a director or officer of the
2
<PAGE>
Company, (i) directly or indirectly, or acting through one or
more other persons, owns, controls or has power to vote 25% or
more of any class of the then outstanding voting securities of
the Company; or (ii) controls in any manner the election of the
directors of the Company. For purposes of this Agreement, a
"Change in Control" shall be deemed not to have occurred in
connection with a reorganization, e.g. consolidation or merger
of the Company where the stockholders of the Company,
immediately before the consummation of the transaction, will
own at least 50% of the total combined voting power of all
classes of stock entitled to vote of the surviving entity
immediately after the transaction.
(n) "Normal Retirement" means retirement at the normal or early
retirement date as set forth in any tax qualified plan of the
Company or its Affiliates.
3. ADMINISTRATION
The Plan shall be administered by the Compensation Committee of the
Board of Directors. The Committee is authorized, subject to the provisions of
the Plan, to establish such rules and regulations as it deems necessary for the
proper administration of the Plan and to make whatever determinations and
interpretations in connection with the Plan it deems as necessary or advisable.
All determinations and interpretations made by the Committee shall be binding
and conclusive on all Participants in the Plan and on their legal
representatives and beneficiaries.
4. TYPES OF AWARDS
Awards under the Plan may be granted in any one or a combination of the
following, as defined below in Sections 7 through 9 of the Plan:
(a) Incentive Stock Options;
(b) Non-Statutory Stock Options; and
(c) Limited Rights
5. STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 13 herein, the maximum
number of shares which may be issued under the Plan is 10% of the number of
shares of Common Stock outstanding at any one time, from time to time. To the
extent that options or rights granted under the Plan are exercised, the shares
covered will be unavailable for future grants under the Plan; to the extent that
options together with any related rights granted under the Plan terminate,
expire or are canceled without having been exercised or, in the case of Limited
Rights exercised for cash, new Awards may be made with respect to these shares.
6. ELIGIBILITY
Officers and other employees of the Company or its affiliates shall be
eligible to receive Incentive Stock Options, Non-Statutory Stock Options and/or
Limited Rights under the Plan. Directors who are not employees or officers of
the Company or its affiliates shall not be eligible to receive Awards under the
Plan.
3
<PAGE>
7. NON-STATUTORY STOCK OPTIONS
7.1 Grant of Non-Statutory Stock Options. The Committee may, from time to time,
grant Non-Statutory Stock Options to eligible employees. Non-Statutory Stock
Options granted under this Plan are subject to the following terms and
conditions:
(a) Price.
The purchase price per share of Common Stock deliverable upon the
exercise of each Non-Statutory Stock Option shall not be less than 100%
of the Fair Market Value of the Common Stock on the date the option is
granted. Shares may be purchased only upon full payment of the purchase
price. Payment of the purchase price may be made, in whole or in part,
through the surrender of shares of the Common Stock of the Company at
the Fair Market Value of such shares determined in the manner described
in Section 2(h).
(b) Terms of Options.
The term during which each Non-Statutory Stock Option may be exercised
shall be determined by the Committee, but in no event shall a
Non-Statutory Stock Option be exercisable in whole or in part more than
10 years and one day from the Date of Grant.
The Committee shall determine the date on which each Non-Statutory
Stock Option shall become exercisable in installments. The shares comprising
each installment may be purchased in whole or in part at any time after such
installment becomes purchasable. The Committee, in its sole discretion, or the
Participant if so provided in his written agreement executed pursuant to Section
11, may accelerate the time at which any Non-Statutory Stock Option may be
exercised in whole or in part. Notwithstanding the above, (i) in the event of a
Change in Control of the Company all Non-Statutory Stock Options shall become
immediately exercisable and (ii) upon the termination of an employee's service
for any reason other than Disability, Normal Retirement, death or Termination
for Cause, all Non-Statutory Stock Options held by such employee, whether or not
exercisable at such time, shall become immediately exercisable, consistent with
the time period for exercise provided in Section 7.1(c).
(c) Termination of Employment.
Upon the termination of an employee's service for any reason other than
Disability, Normal Retirement, death or Termination for Cause, all
Non-Statutory Stock Options held by such employee, whether or not
exercisable at such time, shall become immediately exercisable, but
only for a period of six (6) months following termination, provided
that in no event shall the period extend beyond the expiration of the
Non-Statutory Stock Option term. In the event of Termination for Cause,
all rights of the terminated employee under his Non-Statutory Stock
Options shall expire upon termination. In the event of the death,
Disability or Normal Retirement of any employee, all Non-Statutory
Stock Options held by the employee, whether or not exercisable at such
time, shall be exercisable by the employee or his legal representatives
or beneficiaries for one year following the date of his death, Normal
Retirement or cessation of employment due to Disability, provided that
in no event shall the period extend beyond the expiration of the
Non-Statutory Stock Option term.
4
<PAGE>
8. INCENTIVE STOCK OPTIONS
8.1 Grant of Incentive Stock Options. The Committee may, from time to time,
grant Incentive Stock Options to eligible employees. Incentive Stock Options
granted pursuant to the Plan shall be subject to the following terms and
conditions:
(a) Price.
The purchase price per share of Common Stock deliverable upon the
exercise of each Incentive Stock Option shall be not less than 100% of
the Fair Market Value of the Common Stock on the date the Incentive
Stock Option is granted. However, if an employee owns stock equal to
more than 10% of the total combined voting power of all classes of
Common Stock of the Company (or, under Section 424(d) of the Code, is
deemed to own Common Stock representing more than 10% of the total
combined voting power of all such classes of Common Stock), the
purchase price per share of Common Stock deliverable upon the exercise
of each Incentive Stock Option shall not be less than 110% of the Fair
Market Value of the Common Stock on the date the Incentive Stock Option
is granted. Shares may be purchased only upon payment of the full
purchase price. Payment of the purchase price may be made, in whole or
in part, through the surrender of shares of the Common Stock of the
Company at the Fair Market Value of such shares determined in the
manner described in Section 2(h) herein.
(b) Amounts of Options.
Incentive Stock Options may be granted to any eligible employee in such
amounts as determined by the Committee; provided that the amount
granted is consistent with the terms of Section 422 of the Code. In the
case of an option intended to qualify as an Incentive Stock Option, the
aggregate Fair Market Value (determined as of the time the option is
granted) of the Common Stock with respect to which Incentive Stock
Options granted are exercisable for the first time by the Participant
during any calendar year (under all plans of the Participant's employer
corporation and its parent and subsidiary corporations) shall not
exceed $100,000. The provisions of this Section 8.1(b) shall be
construed and applied in accordance with Section 422(d) of the Code and
the regulations, if any, promulgated thereunder.
(c) Terms of Options.
The term during which each Incentive Stock Option may be exercised
shall be determined by the Committee, but in no event shall an
Incentive Stock Option be exercisable in whole or in part more than 10
years from the Date of Grant. If any employee, at the time an Incentive
Stock Option is granted to him, owns Common Stock representing more
than 10% of the total combined voting power of the Company (or, under
Section 424(d) of the Code, is deemed to own Common Stock representing
more than 10% of the total combined voting power of all such classes of
Common Stock, by reason of the ownership of such classes of Common
Stock, directly or indirectly, by or for any brother, sister, spouse,
ancestor or lineal descendent of such employee, or by or for any
corporation, partnership, estate or trust of which such employee is a
shareholder, partner or beneficiary), the Incentive Stock Option
granted to him shall not be exercisable after the expiration of five
years from the Date of Grant. No Incentive Stock Option granted under
this Plan is transferable except by will or the laws of descent and
distribution and is exercisable in his lifetime only by the employee to
which it is granted.
5
<PAGE>
The Committee shall determine the date on which each Incentive Stock
Option shall become exercisable and may provide that an Incentive Stock Option
shall become exercisable in installments. The shares comprising each installment
may be purchased in whole or in part at any time after such installment becomes
purchasable; provided, however, that, in the case of an Incentive Stock Option
intended to qualify for the tax treatment available pursuant to Section 422 of
the Code upon exercise, the amount able to be first exercised in a given year is
consistent with the terms of Section 422 of the Code. The Committee, in its sole
discretion, or the Participant if so provided in his written agreement executed
pursuant to Section 11, may accelerate the time at which any Incentive Stock
Option may be exercised in whole or in part. However, in the case of an
Incentive Stock Option intended to qualify for the tax treatment available
pursuant to Section 422 of the Code upon exercise, such acceleration must be
consistent with the terms of Section 422 of the Code. Notwithstanding the above,
(i) in the event of a Change in Control of the Company all Incentive Stock
Options shall become immediately exercisable, and (ii) upon the termination of
an employee's service for any reason other than Disability, Normal Retirement,
death or Termination for Cause, all Incentive Stock Options held by such
employee, whether or not exercisable at such time, shall become immediately
exercisable, consistent with the time period for exercise provided in Section
8.1(d).
(d) Termination of Employment.
Upon the termination of an employee's service for any reason other than
Disability, Normal Retirement, death or Termination for Cause, all
Incentive Stock Options held by such employee shall become immediately
exercisable, but only for: (i) a period of three months following
termination in the case of an Incentive Stock Option intended to
qualify for the tax treatment available pursuant to Section 422 of the
Code upon exercise, and (ii) a period of one year following termination
in the case of an Incentive Stock Option not intended to be eligible
for the tax treatment available pursuant to Section 422 of the Code
upon exercise. In the event of Termination for Cause, all rights of the
terminated employee under his Incentive Stock Options shall expire upon
termination. In no event shall the period extend beyond the expiration
of the Incentive Stock Option term.
In the event of death or Disability of any employee, all Incentive
Stock Options held by such employee, whether or not exercisable at such time,
shall be exercisable by the employee or his legal representatives or
beneficiaries for one year following the date of his death or cessation of
employment due to Disability. Upon termination of an employee's service due to
Normal Retirement, all Incentive Stock Options held by such employee, whether or
not exercisable at such time, shall be exercisable for a period of one year
following the date of his Normal Retirement; provided, however, that such option
shall not be eligible for treatment as an Incentive Stock Option in the event
such option is exercised more than three months following the date of his Normal
Retirement. In no event shall the period extend beyond the expiration of the
Incentive Stock Option term.
9. LIMITED RIGHTS
9.1 Grant of Limited Rights. The Committee may grant a Limited Right
simultaneously with the grant of any option, with respect to all or some of the
shares covered by such option. Limited Rights granted under this Plan are
subject to the following terms and conditions:
(a) Terms of Rights.
In no event shall a Limited Right be exercisable in whole or in part
before the expiration of six months from the date of grant of the
Limited Right. A Limited Right may be exercised
6
<PAGE>
only upon the occurrence of all of the following conditions: (i) a
Change in Control of the Company; (ii) the underlying option is
eligible to be exercised; and (iii) the Fair Market Value of the
underlying shares on the day of exercise is greater than the exercise
price of the related option.
Upon exercise of a Limited Right, the related option shall cease to be
exercisable. Upon exercise or termination of an option, any related
Limited Rights shall terminate. The Limited Rights may be for no more
than 100% of the difference between the exercise price and the Fair
Market Value of the Common Stock subject to the underlying option. The
Limited Right is transferable only when the underlying option is
transferable and under the same conditions.
(b) Payment.
Upon exercise of a Limited Right, the holder shall promptly receive
from the Company an amount of cash equal to the difference between the
Fair Market Value on the Date of Grant of the related option and the
Fair Market Value of the underlying shares on the date the Limited
Right is exercised, multiplied by the number of shares with respect to
which such Limited Right is being exercised.
(c) Termination of Employment.
Upon the termination of an employee's service for any reason other than
Disability, Normal Retirement, death or Termination for Cause, any
Limited Rights held by him shall be exercisable only as to those shares
of the related option which were immediately purchasable at the date of
termination and for a period of three months following termination. In
the event of Termination for Cause, all Limited Rights held by him
shall expire immediately.
Upon termination of an employee's employment for reason of death, or
Disability, all Limited Rights held by such employee shall be
exercisable by the employee or his legal representative or
beneficiaries for a period of one year from the date of such
termination with respect to Limited Rights related to Incentive Stock
Options, as well as, with respect to Limited Rights related to
Non-Statutory Stock Options. Upon termination of an employee's
employment for reason of Normal Retirement, all Limited Rights held by
such employee shall be exercisable by the employee or his legal
representative or beneficiary for one year with respect to both Limited
Rights granted with respect to Incentive Stock Options and with respect
to Limited Rights granted with respect to Non-Statutory Stock Options.
In no event shall the period extend beyond the expiration of the term
of the related option.
10. RIGHTS OF A SHAREHOLDER: NONTRANSFERABILITY
An optionee shall have no rights as a shareholder with respect to any
shares covered by a Non-Statutory and/or Incentive Stock Option until the date
of issuance of a stock certificate for such shares. Nothing in this Plan or in
any Award granted confers on any person any right to continue in the employ of
the Company or its affiliates or to continue to perform services for the Company
or its affiliates or interferes in any way with the right of the Company or its
affiliates to terminate his services as an officer or other employee at any
time.
7
<PAGE>
No Award under the Plan shall be transferable by the optionee other
than by will or the laws of descent and distribution and may only be exercised
during his lifetime by the optionee, or by a guardian or legal representative.
No such transfer of the Award by the Participant by will or the laws of descent
and distribution shall be effective to bind the Company unless the Company shall
have been furnished with written notice thereof and such other evidence as the
Committee administering the Plan may deem necessary or desirable to establish
the validity of the transfer. The Award shall not be pledged, hypothecated,
sold, assigned, transferred or otherwise encumbered or disposed of except as
provided herein. Any purported pledge, hypothecation, sale, assignment, transfer
or other encumbrance or disposition of the Award contrary to the provisions
hereof shall be null and void and without effect. The levy of any execution,
attachment, or similar process upon the Award shall be null and void and without
effect.
11. AGREEMENT WITH GRANTEES
Each Award of options, and/or Limited Rights will be evidenced by a
written agreement, executed by the Participant and the Company which describes
the conditions for receiving the Awards including the date of Award, the
purchase price if any, applicable periods, and any other terms and conditions as
may be required by the Board of Directors or applicable securities law.
12. DESIGNATION OF BENEFICIARY
A Participant may, with the consent of the Committee, designate a
person or persons to receive, in the event of death, any stock option or Limited
Rights Award to which he would then be entitled. Such designation will be made
upon forms supplied by and delivered to the Company and may be revoked in
writing. If a Participant fails effectively to designate a beneficiary, then his
estate will be deemed to be the beneficiary.
13. DILUTION AND OTHER ADJUSTMENTS
In the event of any change in the outstanding shares of Common Stock of
the Company by reason of any stock dividend or split, recapitalization, merger,
consolidation, spin-off, reorganization, combination or exchange of shares, or
other similar corporate change, the Committee will make such adjustments to
previously granted Awards, to prevent dilution or enlargement of the rights of
the Participant, including any or all of the following:
(a) adjustments in the aggregate number or kind of shares of Common
Stock which may be awarded under the Plan;
(b) adjustments in the aggregate number or kind of shares of Common
Stock covered by Awards already made under the Plan;
(c) adjustments in the purchase price of outstanding Incentive and/or
Non-Statutory Stock Options, or any Limited Rights attached to such
options.
No such adjustments may, however, materially change the value of
benefits available to a Participant under a previously granted Award.
8
<PAGE>
14. WITHHOLDING
There will be deducted from each distribution of cash and/or Common
Stock under the Plan the amount of tax required to be withheld by any
governmental authority, if any.
15. AMENDMENT OF THE PLAN
The Board of Directors may at any time, and from time to time, modify
or amend the Plan in any respect; provided however, that if necessary to
continue to qualify the Plan under the Securities and Exchange Commission Rule
16(b)-3, shareholder approval would be required for any such modification or
amendments which:
(a) increases the maximum number of shares for which options may be
granted under the Plan (subject, however, to the provisions of Section
13 hereof);
(b) reduces the exercise price at which Awards may be granted;
(c) extends the period during which options may be granted or
exercised beyond the times originally prescribed; or
(d) changes the persons eligible to participate in the Plan.
Failure to ratify or approve amendments or modifications to Subsections
(a) through (d) of this Section by shareholders shall be effective only as to
the specific amendment or modification requiring such ratification. Other
provisions, sections, and subsections of this Plan will remain in full force and
effect.
No such termination, modification or amendment may affect the rights of
a Participant under an outstanding Award.
16. EFFECTIVE DATE OF PLAN
The Plan shall be adopted by the Board of Directors and shall become
effective upon such date of adoption, or other date as determined by the Board.
Following the Effective Date of the Plan, the Plan shall be submitted to
shareholders for approval. If the Plan shall not be approved by shareholders the
Plan and any Awards granted thereunder shall be null and void.
17. TERMINATION OF THE PLAN
The right to grant Awards under the Plan will terminate upon the
earlier of ten (10) years after the Effective Date of the Plan or the issuance
of Common Stock or the exercise of options or related rights equaling the
maximum number of shares reserved under the Plan as set forth in Section 5. The
Board of Directors has the right to suspend or terminate the Plan at any time,
provided that no such action will, without the consent of a Participant,
adversely affect his rights under a previously granted Award.
18. APPLICABLE LAW
The Plan will be administered in accordance with the laws of the State
of Florida.
9
<PAGE>
Adopted this 18th day of December, 1997 by the Company's Board of
Directors.
/s/ Gary G. Campbell
---------------------------------
Gary G. Campbell, President
Adopted on the _____ day of ________________, 1998 by the Company's
Shareholders.
---------------------------------------
10
Exhibit 22.2
The Company's 1997 Annual Report
<PAGE>
THE COMMERCIAL BANCORP, INC.
1997 ANNUAL REPORT
<PAGE>
1997 ANNUAL REPORT
Contents Page
Corporate Profile and General Information.....................................1
Common Stock Prices and Dividends.............................................1
Consolidated Financial Highlights.............................................2
Message from the Chairman and President.....................................3-4
Selected Financial Data.......................................................5
Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................6-13
Consolidated Financial Statements.........................................16-28
Independent Auditors' Report.................................................15
Officers and Directors.......................................................29
<PAGE>
CORPORATE PROFILE
The Commercial Bancorp, Inc. (the "Holding Company") was incorporated on August
15, 1996. The Holding Company owns 100% of the outstanding common stock of The
Commercial Bank of Volusia County (the "Bank") (collectively the "Company"). The
Holding Company was organized simultaneously with the Bank and its only business
is the ownership and operation of the Bank. The Bank is a Florida
state-chartered commercial bank and its deposits are insured by the Federal
Deposit Insurance Corporation. The Bank opened for business on October 14, 1997,
and provides community banking services to businesses and individuals in Volusia
County, Florida. At December 31, 1997, the Company operated one retail banking
office in Ormond Beach, Florida and had total assets of $7.1 million and total
stockholders' equity of $4.3 million.
GENERAL INFORMATION
Corporate
Headquarters 258 North Nova Road
Ormond Beach, Florida 32174
(904) 672-3003
Annual Meeting The Annual Meeting of the Stockholders will be held
at the Trails Homeowners Association Community
Center, 201 Main Trail, Ormond Beach, Florida at
2:00 P.M., Tuesday, April 21, 1998.
Transfer Agent and
Registrar The Commercial Bancorp, Inc.
258 North Nova Road
Ormond Beach, Florida 32174
Form 10-KSB A copy of the Form 10-KSB, as filed with the
Securities and Exchange Commission, may be obtained
by stockholders without charge upon written request
to Mr. Harvey E. Buckmaster, Senior Vice President -
Chief Financial Officer and Cashier, The Commercial
Bancorp, Inc., 258 North Nova Road, Ormond Beach,
Florida 32174.
Corporate Counsel Igler & Dougherty, P.A.
1501 Park Avenue East
Tallahassee, Florida 32301
Independent
Auditors Hacker, Johnson, Cohen & Grieb PA
Certified Public Accountants
500 North Westshore Boulevard
Tampa, Florida 33609
COMMON STOCK PRICES AND DIVIDENDS
The Company's common stock is not actively traded. The common stock was recently
sold in a public offering in which the Company sold "units" including one common
share and a warrant entitling the holder to purchase an additional common share.
The units were sold for $10 each. The Company has never paid cash dividends.
Future dividends, if any, will be determined by the Board of Directors.
As of February 28, 1998, the Company had 327 holders of record of common stock.
1
<PAGE>
CONSOLIDATED FINANCIAL HIGHLIGHTS
At December 31, 1997 or For the Year Then Ended
(Dollars in thousands, except per share figures)
At Year End:
Assets.......................................................$ 7,078
Loans, net...................................................$ 3,746
Deposits.....................................................$ 2,678
Stockholders' equity.........................................$ 4,334
Book value per share.........................................$ 9.32
Shares outstanding........................................... 464,791
Warrants to purchase one share of common stock outstanding... 464,791
Equity-to-assets ratio....................................... 61.23%
Nonperforming assets-to-total assets ratio................... NIL
For The Year:
Interest income.............................................. 112
Net loss..................................................... (262)
Return on average assets..................................... (9.18)%
Return on average equity..................................... (11.91)%
Average equity-to-average assets ratio....................... 77.02%
Noninterest expenses to average assets....................... 16.85
Average Yield
or Rate
During the
Year Ended
December 31,
1997
----
Yields and Rates:
Loan portfolio............................................... 8.88%
Other interest-earnings assets............................... 4.88%
All interest-earnings assets................................. 5.38%
Deposits..................................................... 3.95%
Other borrowed funds......................................... 9.50%
Net interest margin (1)...................................... 3.28%
- -----------------
(1) Net interest income divided by average interest-earning assets.
(2) Information for 1996 is not presented because the Company was in its
organization stage and it is not meaningful in
relation to the 1997 information.
2
<PAGE>
MESSAGE FROM THE PRESIDENT
We are very proud to present our Company's First Annual Report for the
year ended December 31, 1997. Of course most of you are aware that, while our
Holding Company was active throughout the year in the approval process, the Bank
opened for business on October 14, 1997 and has shown remarkable progress since
that time. The accompanying report and highlights of our year demonstrate the
dramatic difference made when the Bank opened for business.
First, let us thank each and every one of you personally for your
confidence in our organization and the commitment you made with your purchase of
stock. Our goals for your investment are: First, and foremost, to provide you
with a competitive return on your funds. Second, to provide you with an
organization of which you can be proud. And, of course, to plan for the future
growth of our organization in our own County and throughout the State.
In fact, our plans for growth are already having an affect on our
Company. After beginning talks in October of last year, another organizing group
from Sebring, Florida (in Highlands County), signed an Organizer's Agreement
documenting their intent to apply for a State Charter for a bank that will
become a wholly-owned subsidiary of The Commercial Bancorp, Inc. We view this
opportunity to become a multi-bank holding company as one of the most exciting
possibilities we could have anticipated.
Within our first Bank, the financial statements will show you the
significant amount of loan and deposit growth we experienced in our first 75
days. As expected, many customers who had banked with the former First State
Bank of Florida in our existing location wanted to return to banking here with
our new bank. That allowed for us to bring loans and deposits into the Bank much
more rapidly than many new ventures might have expected. By the year end, loan
outstandings were in excess of $3.7 Million. Deposits were slightly behind that
at almost $2.7 Million. This surplus of loans over deposits left little for our
Bank to invest, and it was all placed in liquid funds.
Of course, because we were only open for 75 days in the final quarter,
but had to recognize most of our organizational costs as expenses for the first
year, our company showed an operating loss. Our goal for the coming year will be
to turn the operations profitable and begin to recover the initial losses as
soon as possible. With continued growth in loans, that goal should be realized.
There is an anomaly in the highlights section of our reports that may
give rise to questions we would like to address. This aberration is the result
of the Company having issued a minor amount of stock to the original Organizers
($65,000 worth) and having operated throughout the year even though the Bank was
open for only part of the final quarter. You may notice the "Basic and diluted
loss per share" being shown as $2.00/share. Still, the actual book value of
shares is currently $9.32/share. The difference is that losses per share are
reported based on the average outstanding shares, which increased from the
original 6,500 shares of the company to the 464,791 shares at the end of the
year. That average is a much lower number and, in our opinion, distorts the
actual losses for each shareholder.
Our Bank and Company have just entered the most exciting times for any
venture: our first days of operations. Coupled with the opportunity we now have
in another community for a second bank, you can see why we are so proud and
excited to be a part of the financial community in our State and feel that
opportunities abound for a Florida-based company. So many of the Banks in our
State are owned by out-of-state companies and we don't believe they can be as
effective, or interested, in our communities as the people who live here. For
that reason we are confident of our future and the potential for our Banks and
Company. We look forward to fulfilling our goals as well as your, and our
customers, expectations.
3
<PAGE>
Once again, thank you for your support and please don't hesitate to
call on us if we can provide you with any further information or be of service
to you in the Bank.
Sincerely,
THE COMMERCIAL BANCORP, INC.
/s/ Gary G. Campbell
Gary G. Campbell
President
March 31, 1998
4
<PAGE>
SELECTED FINANCIAL DATA
At December 31, 1997 or for the Year then Ended
(Dollars in thousands, except per share figures)
At Year End:
Cash and cash equivalents...................................... $ 2,466
Loans, net..................................................... 3,746
All other assets............................................... 866
--------
Total assets.............................................. $ 7,078
=======
Deposit accounts............................................... 2,678
All other liabilities.......................................... 66
Stockholders' equity........................................... 4,334
-------
Total liabilities and stockholders' equity................ $ 7,078
=======
For the Year:
Total interest income.......................................... 113
Total interest expense......................................... 44
---------
Net interest income............................................ 69
Provision for loan losses...................................... 35
---------
Net interest income after provision for loan losses............ 34
---------
Noninterest income............................................. 2
Noninterest expenses........................................... 481
--------
Loss before income tax credit.................................. (445)
Income tax credit.............................................. (183)
--------
Net loss....................................................... $ (262)
========
Basic and diluted loss per share (1)........................... $ (2.00)
========
Weighted-average number of shares outstanding for basic and diluted... 130,682
=======
Ratios and Other Data:
Return on average assets....................................... (9.18)%
Return on average equity....................................... (11.91)%
Average equity to average assets............................... 77.02%
Net interest margin............................................ 3.28%
Noninterest expenses to average assets......................... 16.85%
Ratio of average interest-earning assets to average
interest-bearing liabilities.............................. 3.84
Nonperforming loans and foreclosed real estate as a percentage
of total assets at end of year............................ NIL
Allowance for loan losses as a percentage
of total loans at end of year.............................. .93%
Total number of banking offices................................. 1
Total shares outstanding at end of year......................... 464,791
Book value per share at end of year............................. $ 9.32
Dividends pay-out ratio......................................... -
(1) Based on weighted-average number of shares outstanding during the year.
(2) Information for 1996 is not presented because the Company was in its
organization stage and it is not meaningful in relation to the 1997
information.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year Ended December 31, 1997
General
The Commercial Bancorp, Inc. (the "Holding Company") was incorporated on August
15, 1996. The Holding Company owns 100% of the outstanding common stock of The
Commercial Bank of Volusia County (the "Bank") (collectively the "Company"). The
Holding Company was organized simultaneously with the Bank and its only business
is the ownership and operation of the Bank. The Bank is a Florida
state-chartered commercial bank and is insured by the Federal Deposit Insurance
Corporation. The Bank opened for business on October 14, 1997, and provides
community banking services to businesses and individuals in Volusia County,
Florida.
New Bank Charter
Management intends to organize and open a new state-charter commercial bank in
Sebring, Highlands County, Florida. The Bank will become a wholly-owned
subsidiary of the Company.
Regulation and Legislation
As a state-chartered commercial bank, the Bank is subject to extensive
regulation by the Florida Department of Banking and Finance ("Florida DBF") and
the Federal Deposit Insurance Corporation ("FDIC"). The Bank files reports with
the Florida DBF and the FDIC concerning its activities and financial condition,
in addition to obtaining regulatory approvals prior to entering into certain
transactions such as mergers with or acquisitions of other financial
institutions. Periodic examinations are performed by the Florida DBF and the
FDIC to monitor the Bank's compliance with the various regulatory requirements.
The Holding Company and the Bank are also subject to regulation and examination
by the Federal Reserve Board of Governors.
Year 2000 Compliance
Management has an ongoing program designed to ensure that its operational and
financial systems will not be adversely affected by year 2000 software failures,
due to processing errors arising from calculations using the year 2000 date.
Based on current estimates the Bank expects to incur $50,000 over the next three
years on its program to redevelop, replace, or repair its computer applications
to make them "year 2000 compliant." While management believes it is doing
everything technologically possible to assure year 2000 compliance, it is to
some extent dependent upon vendor cooperation. Management is requiring its
computer system and software vendors to represent that the products provided
are, or will be, year 2000 compliant, and has planned a program of testing for
compliance. It is recognized that any year 2000 compliance failures could result
in additional expense to the Bank.
Liquidity and Capital Resources
The Company's primary source of cash during the year ended December 31, 1997 was
the proceeds from the sale of common stock of $4.6 million and net deposit
inflows of $2.7 million. Cash was used primarily to originate loans and to
purchase premises and equipment. At December 31, 1997, the Bank exceeded its
regulatory liquidity requirements.
Credit Risk
The Company's primary business is making commercial, business, consumer, and
real estate loans. That activity entails potential loan losses, the magnitude of
which depend on a variety of economic factors affecting borrowers which are
beyond the control of the Company. While the Company has instituted underwriting
guidelines and credit review procedures to protect the Company from avoidable
credit losses, some losses will inevitably occur. The Company had no
nonperforming assets at December 31, 1997, and has no charge-off experience.
6
<PAGE>
The following table presents information regarding the Company's total allowance
for losses as well as the allocation of such amounts to the various categories
of loans (dollars in thousands):
At December 31, 1997
Loans
to
Total
Amount Loans
------ -----
Commercial loans....................... $ 29 81.5%
Real estate loans...................... 4 11.4
Consumer loans......................... 2 7.1
-- ------
Total allowance for loan losses........ $ 35 100.0%
== =====
The allowance for credit losses represented .93% of the total loans outstanding
at December 31, 1997.
The following table sets forth the composition of the Company's loan portfolio
at December 31, 1997:
% of
Amount Total
(in thousands)
Commercial............................. $ 3,073 81.5%
Real estate............................ 429 11.4
Consumer and home-equity loans......... 268 7.1
------ ------
3,770 100.0%
=====
Add (subtract):
Allowance for loan losses............ (35)
Net loan deferred costs.............. 11
-----
Loans, net............................. $ 3,746
=====
7
<PAGE>
Regulatory Capital Requirements
The Holding Company and the Bank are subject to various regulatory capital
requirements administered by various regulatory banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Bank's capital amounts
and classification are also subject to qualitative judgements by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
<TABLE>
<CAPTION>
To Be Well
Minimum Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions
--------------------------------------------------------- -------------------
Amount % Amount % Amount %
------- ---- ------- ---- ------- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total capital (to Risk
Weighted Assets)......... $ 3,950 92.7% $ 341 8.0% $ 426 10.0%
Tier I Capital (to Risk
Weighted Assets)......... 3,767 88.4 171 4.0 256 6.0
Tier I Capital
(to Average Assets)...... 3,767 69.2 218 4.0 272 5.0
</TABLE>
Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from interest-rate risk inherent in
its lending and deposit taking activities. To that end, management actively
monitors and manages its interest-rate risk exposure. The measurement of market
risk associated with financial instruments is meaningful only when all related
and offsetting on- and off-balance- sheet transactions are aggregated, and the
resulting net positions are identified. Disclosures about the fair value of
financial instruments, which reflect changes in market prices and rates, can be
found in Note 5 of Notes to Consolidated Financial Statements.
The Company's primary objective in managing interest-rate risk is to minimize
the adverse impact of changes in interest rates on the Bank's net interest
income and capital, while adjusting the Company's asset-liability structure to
obtain the maximum yield-cost spread on that structure. The Company relies
primarily on its asset-liability structure to control interest-rate risk.
However, a sudden and substantial increase in interest rates may adversely
impact the Company's earnings, to the extent that the interest rates borne by
assets and liabilities do not change at the same speed, to the same extent, or
on the same basis. The Company does not engage in trading activities.
Asset - Liability Structure
As part of its asset and liability management, the Company has emphasized
establishing and implementing internal asset-liability decision processes, as
well as communications and control procedures to aid in managing the Company's
earnings. Management believes that these processes and procedures provide the
Company with better capital planning, asset mix and volume controls,
loan-pricing guidelines, and deposit interest-rate guidelines which should
result in tighter controls and less exposure to interest-rate risk.
The matching of assets and liabilities may be analyzed by examining the extent
to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An
8
<PAGE>
asset or liability is said to be interest rate sensitive within a specific time
period if it will mature or reprice within that time period. The interest-rate
sensitivity gap is defined as the difference between interest-earning assets and
interest-bearing liabilities maturing or repricing within a given time period.
The gap ratio is computed as rate sensitive assets/rate sensitive liabilities. A
gap ratio of 1.0% represents perfect matching. A gap is considered positive when
the amount of interest-rate sensitive assets exceeds interest-rate sensitive
liabilities. A gap is considered negative when the amount of interest-rate
sensitive liabilities exceeds interest-rate sensitive assets. During a period of
rising interest rates, a negative gap would adversely affect net interest
income, while a positive gap would result in an increase in net interest income.
During a period of falling interest rates, a negative gap would result in an
increase in net interest income, while a positive gap would adversely affect net
interest income.
In order to minimize the potential for adverse effects of material and prolonged
increases in interest rates on the results of operations, the Company's
management continues to monitor asset and liability management policies to
better match the maturities and repricing terms of its interest-earning assets
and interest-bearing liabilities. Such policies have consisted primarily of: (i)
emphasizing the origination of adjustable-rate loans; (ii) maintaining a stable
core deposit base; and (iii) maintaining a significant portion of liquid assets
(cash and short-term securities).
The following table sets forth certain information relating to the Company's
interest-earning assets and interest-bearing liabilities at December 31, 1997
that are estimated to mature or are scheduled to reprice within the period shown
(dollars in thousands):
<TABLE>
<CAPTION>
More More
One than One than Five
Year Year and Years and Over
or Less than Less than Ten
Less Five Years Ten Years Years Total
------ ---------- --------- ----- ----
<S> <C> <C> <C> <C> <C>
Loans (1):
Commercial loans.......................... $ 3,053 20 - - 3,073
Real estate loans......................... 348 - 35 46 429
Consumer loans............................ 5 223 - - 228
Credit lines.............................. 36 4 - - 40
------- -------- ------- -------- -------
Total loans.......................... 3,442 247 35 46 3,770
Federal funds sold............................ 1,400 - - - 1,400
----- --------- ------- -------- -----
Total rate-sensitive assets.......... 4,842 247 35 46 5,170
----- ------- ------ ------ -----
Deposit accounts (2):
Money-market deposits..................... 66 - - - 66
NOW deposits.............................. 948 - - - 948
Savings deposits.......................... 93 - - - 93
Certificates of deposit................... 514 225 - - 739
------- ------- -------- -------- ------
Total rate-sensitive liabilities..... 1,621 225 - - 1,846
----- ------- -------- -------- -----
GAP (repricing differences)................... $ 3,221 22 35 46 3,324
===== ======= ======= ====== =====
Cumulative GAP................................ $ 3,221 3,243 3,278 3,324
===== ===== ===== =====
Cumulative GAP/total assets................... 45.5% 45.8% 46.3% 47.0%
==== ==== ==== ====
</TABLE>
(1) In preparing the table above, adjustable-rate loans are included in the
period in which the interest rates are next scheduled to adjust rather than
in the period in which the loans mature. Fixed-rate loans are scheduled,
including repayment, according to their maturities.
(2) Money market, NOW, and savings deposits are regarded as readily accessible
withdrawable accounts. All other time deposits are scheduled through the
maturity dates.
9
<PAGE>
The following table reflects the contractual principal repayments by period of
the Company's loan portfolio at December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
Real Credit
Years Ending Commercial Estate Consumer Lines
December 31, Loans Loans Loans Funded
------------ --------- ----- ------- ------
Total
-----
<S> <C> <C> <C> <C> <C>
1998............................. $ 2,336 29 33 3 2,401
1999............................. 43 5 30 4 82
2000-2001........................ 288 11 47 7 353
2002-2003........................ 406 12 32 7 457
2004 & beyond.................... - 372 86 19 477
-------- --- --- -- ------
Total............................ $ 3,073 429 228 40 3,770
===== === === == =====
</TABLE>
Of the $1.4 million of loans at December 31, 1997 due after one year, 20.1% of
such loans have fixed interest rates and 79.9% have adjustable interest rates.
The following table sets forth total loans originated and repaid during 1997:
Year Ended
December 31,
1997
(in thousands)
--------------
Originations:
Commercial loans.............................. $ 3,290
Real estate loans............................. 430
Consumer loans................................ 231
Credit lines ................................. 40
------
Total loans originated............... 3,991
Principal reductions.......................... (210)
-------
Increase in total loans....................... $ 3,781
=====
10
<PAGE>
The following table shows the distribution of, and certain other information
relating to, the Company's deposit accounts by type (dollars in thousands):
At December 31, 1997
--------------------
% of
Amount Deposits
------- --------
Demand deposits................................... $ 832 31.0%
NOW deposits...................................... 948 35.4
Money market deposits............................. 66 2.5
Savings deposits.................................. 93 3.5
------ ------
Subtotal................................. 1,939 72.4
Certificate of deposits:
5.00% - 5.99%............................ 514 19.2
6.00% - 6.99%............................ 225 8.4
------ ------
Total certificates of deposit..................... 739 27.6
------ -----
Total deposits.................................... $ 2,678 100.0%
===== =====
The following table presents by various interest rate categories the amounts of
certificates of deposit at December 31, 1997 which mature during the periods
indicated (in thousands):
Year Ending December 31,
------------------------
1998 2000 Total
---- ---- ----
5.00% - 5.99%.......................... $ 514 - 514
6.00% - 6.99%.......................... - 225 225
----- --- ---
Total certificates of deposit.......... $ 514 225 739
=== === ===
Jumbo certificates ($100,000 and over) mature as follows (in thousands):
December 31,
1997
----
Due over three months to six months........................... $ 100
Due over one year............................................. 200
---
$ 300
-----
11
<PAGE>
Results of Operations
The operating results of the Company depend primarily on its net interest
income, which is the difference between interest income on interest-earning
assets and interest expense on interest-bearing liabilities, consisting
primarily of deposits. Net interest income is determined by the difference
between yields earned on interest-earning assets and rates paid on
interest-bearing liabilities ("interest-rate spread") and the relative amounts
of interest-earning assets and interest-bearing liabilities. The Company's
interest-rate spread is affected by regulatory, economic, and competitive
factors that influence interest rates, loan demand, and deposit flows. In
addition, the Company's net earnings are also affected by the level of
nonperforming loans and foreclosed real estate, as well as the level of its
noninterest income, and its noninterest expenses, such as salaries and employee
benefits, occupancy and equipment costs and income taxes.
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest and dividend income of the Company from
interest-earning assets and the resultant average yield; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average costs; (iii) net interest/dividend income; (iv) interest rate spread;
(v) net interest margin. Average balances are based on average daily balances.
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------
Interest Average
Average and Yield/
Balance Dividends Rate
------- --------- -------
($ in thousands)
Interest-earning assets:
<S> <C> <C> <C>
Loans............................................. $ 259 23 8.88%
Other interest-earning assets (1)................. 1,842 90 4.88
----- ---
Total interest-earning assets................. 2,101 113 5.38
Noninterest-earning assets............................. 754
------
Total assets.................................. $2,855
=====
Interest-bearing liabilities:
Demand, money market, savings and NOW deposits.... 179 6 3.20
Certificates of deposit........................... 74 4 5.76
Other (2)......................................... 359 34 9.50
------ ---
Total interest-bearing liabilities............ 612 44 7.19
Noninterest-bearing liabilities........................ 44
Stockholders' equity................................... 2,199
-----
Total liabilities and stockholders' equity....$ 2,855
=====
Net interest/dividend income........................... $ 69
===
Interest-rate spread................................... (1.81%)
====
Net interest margin.................................... 3.28%
====
Ratio of average interest-earning assets to average
interest-bearing liabilities...................... 3.84
====
</TABLE>
(1) Other interest-earning assets include federal funds sold and interest-
earning deposits.
(2) Borrowings during organization phase of bank.
12
<PAGE>
Year Ended December 31, 1997
General. Net loss for the year ended December 31, 1997 was $261,698 or $2.00 per
basic and diluted share. During the year ended December 31, 1997 the Bank had
not achieved the asset size necessary to operate profitably.
Interest Income and Expense. Interest income totaled $112,458 for the year ended
December 31, 1997. Interest income earned on loans was $22,789. The average loan
portfolio balance for the year ended December 31, 1997 was $259,000 and the
weighted average yield was 8.88%.
Interest on federal funds sold and deposits in banks totalled $89,669. The
average balance of these assets was $1.8 million with a weighted average yield
of 4.88%.
Interest expense on deposit accounts amounted to $10,007 for the year ended
December 31, 1997. The weighted-average cost of deposits was 3.95%. Interest
expense on other borrowed funds used primarily during the organization phase of
the Bank amounted to $33,515 for the year ended December 31, 1997. The
weighted-average balance outstanding and cost of other borrowed funds was
$359,000 and 9.50%, respectively.
Provision for Loan Losses. The provision for loan losses is charged to earnings
to bring the total allowance to a level deemed appropriate by management and is
based upon the volume and type of lending conducted by the Company, industry
standards, the amount of nonperforming loans and general economic conditions,
particularly as they relate to the Company's market areas, and other factors
related to the collectibility of the Company's loan portfolio. The provision for
the year ended December 31, 1997 was $35,000.
Other Expense. Other expense totalled $480,681 for the year ended December 31,
1997. Salaries and employee benefits was the largest, amounting to $245,302.
Income Taxes. The Company recognized a credit for income taxes as well as a
deferred tax asset because management believes its likely the Company will be
able to generate taxable income in the future to offset these amounts.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared in
accordance with GAAP, which requires the measurement of financial position and
operating results in terms of historical dollars, without considering changes in
the relative purchasing power of money over time due to inflation. Unlike most
industrial companies, substantially all of the assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a more
significant impact on the Bank's performance than the effects of general levels
of inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services, since such prices are
affected by inflation to a larger extent than interest rates.
Future Accounting Requirements
Financial Accounting Standards 130 - Reporting Comprehensive Income establishes
standards for reporting comprehensive income. The Standard defines comprehensive
income as the change in equity of an enterprise except those resulting from
stockholder transactions. All components of comprehensive income are required to
be reported in a new financial statement that is displayed with equal prominence
as existing financial statements. The Company will be required to adopt this
Standard effective January 1, 1998. As the Statement addresses reporting and
presentation issues only, there will be no impact on operating results from the
adoption of this Standard.
Financial Accounting Standards 131 - Disclosures about Segments of an Enterprise
and Related Information establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Company will
be required to adopt this Standard effective January 1, 1998. As the Standard
addresses reporting and disclosure issues only, there will be no impact on
operating results from adoption of this Standard.
13
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Ormond Beach, Florida
Audited Consolidated Financial Statements
At December 31, 1997 and 1996 and For the Year Ended
December 31, 1997 and for the Period from August 15, 1996
(Incorporation) to December 31, 1996
(Together with Independent Auditors' Report)
14
<PAGE>
Independent Auditors' Report
Board of Directors
The Commercial Bancorp, Inc.
Ormond Beach, Florida:
We have audited the accompanying consolidated balance sheets of The Commercial
Bancorp, Inc. and Subsidiary (the "Company") at December 31, 1997 and 1996, and
the related statements of operations, stockholders' equity, and cash flows for
the year ended December 31, 1997 and for the period from August 15, 1996
(incorporation) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company at
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the year ended December 31, 1997 and for the period from August 15, 1996
(incorporation) to December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Hacker, Johnson, Cohen & Grieb, PA
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
February 13, 1998
15
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
At December 31,
---------------
1997 1996
---- ----
Assets
Cash and due from banks.................................... $ 1,065,817 11,959
Federal funds sold......................................... 1,400,000 -
--------- ------
Total cash and cash equivalents.............. 2,465,817 11,959
Loans, net of allowance for loan losses of $35,000......... 3,745,577 -
Premises and equipment, net................................ 462,784 -
Accrued interest receivable and other assets............... 220,588 149,538
Deferred income taxes...................................... 183,161 -
---------- -------
Total assets..................................$ 7,077,927 161,497
========= =======
Liabilities and Stockholders' Equity
Liabilities:
Demand deposits......................................... 832,396 -
Savings and NOW deposits................................ 1,040,454 -
Money-market deposits................................... 65,777 -
Time deposits........................................... 739,433 -
---------- -------
Total deposits................................ 2,678,060 -
Official checks.......................................... 54,138 -
Due to organizers........................................ - 134,204
Accrued interest payable and other liabilities........... 11,944 -
---------- -------
Total liabilities.............................. 2,744,142 134,204
--------- -------
Commitments (Note 5)
Stockholders' Equity:
Common stock, $.01 par value 10,000,000 shares authorized,
464,791 and 6,500 shares issued and outstanding.... 4,648 65
Additional paid-in capital.............................. 4,628,542 64,935
Accumulated deficit..................................... (299,405) (37,707)
--------- -------
Total stockholders' equity.................... 4,333,785 27,293
--------- -------
Total liabilities and stockholders' equity... $ 7,077,927 161,497
========= =======
See Accompanying Notes to Consolidated Financial Statements.
16
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Period From
August 15, 1996
(Incorporation)
Year Ended to
December 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Interest income:
Loans...................................................$ 22,789 -
Federal funds sold...................................... 45,967 -
Deposits in banks....................................... 43,702 -
------- -----
Total interest income.............................. 112,458 -
------- -----
Interest expense:
Deposits................................................ 10,007 -
Other................................................... 33,515 2,123
-------- ------
Total interest expense............................. 43,522 2,123
-------- ------
Net interest income (expense)...................... 68,936 (2,123)
Provision for loan losses................................... 35,000 -
-------- -----
Net interest income (expense) after provision...... 33,936 (2,123)
for loan losses -------- ------
Noninterest income-
Other service charges and fees.......................... 1,886 -
-------- -----
Noninterest expense:
Salaries and employee benefits.......................... 245,302 -
Occupancy expense....................................... 91,720 -
Advertising............................................. 15,842 -
Professional fees....................................... 11,269 -
Office supplies......................................... 40,610 -
Telephone............................................... 20,557 -
Data processing......................................... 2,631 -
Other................................................... 52,750 35,584
-------- ------
Total noninterest expense.......................... 480,681 35,584
------- ------
Loss before income tax benefit.............................. (444,859) (37,707)
Income tax benefit................................. (183,161) -
-------- -------
Net loss $(261,698) (37,707)
======== =======
Loss per share:
Basic................................................... $ (2.00) (5.80)
========= =======
Diluted................................................. $ (2.00) (5.80)
========= =======
Weighted-average shares outstanding for basic and diluted... 130,682 6,500
======== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
17
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Accumulated Stockholders'
Stock Capital Deficit Equity
<S> <C> <C> <C> <C>
Balance at August 15, 1996................................. $ - - - -
Issuance of 6,500 shares of common stock................... 65 64,935 - 65,000
Net loss.......................................... - - (37,707) (37,707)
--------- ------------- ------- -----------
Balance at December 31, 1996............................... 65 64,935 37,707 27,293
Retire 6,500 shares of common stock........................ (65) (64,935) - (65,000)
Issuance of 464,791 shares of common stock net of
$14,720 of offering costs......................... 4,648 4,628,542 - 4,633,190
Net loss.......................................... - - (261,698) (261,698)
-------- ------------- ------- ----------
Balance at December 31, 1997............................... $ 4,648 4,628,542 (299,405) 4,333,785
===== ========= ======= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
18
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Period From
August 15, 1996
(Incorporation)
Year Ended to
December 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss ....................................................................... $ (261,698) (37,707)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation................................................................ 16,579 -
Provision for loan losses................................................... 35,000 -
Credit for deferred income taxes............................................ (183,161) -
Increase in accrued interest receivable and other assets.................... (71,050) (149,538)
Increase in accrued interest payable and other liabilities.................. 11,944 -
---------- -------
Net cash used in operating activities.................................. (452,386) (187,245)
--------- -------
Cash flows from investing activities:
Net increase in loans............................................................ (3,780,577) -
Purchase of premises and equipment............................................... (479,363) -
--------- --------
Net cash used in investing activities.................................. (4,259,940) -
--------- --------
Cash flows from financing activities:
Net increase in noninterest-bearing demand, savings,
money-market and NOW deposits............................................... 1,938,627 -
Net increase in time deposits.................................................... 739,433 -
Net increase in official checks.................................................. 54,138 -
Advances from organizers......................................................... - 134,204
Net repayment of advances from organizers........................................ (134,204) -
Retire common stock.............................................................. (65,000) -
Sale of common stock............................................................. 4,633,190 65,000
--------- -------
Net cash provided by financing activities.............................. 7,166,184 199,204
--------- -------
Net increase in cash and cash equivalents............................................ 2,453,858 11,959
Cash and cash equivalents at beginning of period..................................... 11,959 -
---------- -------
Cash and cash equivalents at end of period........................................... $ 2,465,817 11,959
========= ========
Supplemental disclosure of cash flow information: Cash paid during the year for:
Interest....................................................................$ 43,229 -
========== =======
Income taxes................................................................$ - -
========== =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
19
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Year Ended December 31, 1997 and the Period
from August 15, 1996 (incorporation) to December 31, 1996
(1) Summary of Significant Accounting Policies
Organization. The Commercial Bancorp, Inc. (the "Holding Company") was
incorporated on August 15, 1996. The Holding Company owns 100% of the
outstanding common stock of The Commercial Bank of Volusia County (the
"Bank") (collectively the "Company"). The Holding Company was organized
simultaneously with the Bank and its only business is the ownership and
operation of the Bank. The Bank is a Florida state-chartered commercial
bank and is insured by the Federal Deposit Insurance Corporation. The
Bank opened for business on October 14, 1997 and provides community
banking services to businesses and individuals in Volusia County,
Florida.
Basis of Presentation. The accompanying consolidated financial statements of
the Company include the accounts of the Holding Company and the Bank.
All significant intercompany accounts and transactions have been
eliminated in consolidation. The accounting and reporting practices of
the Company conform to generally accepted accounting principles and to
general practices within the banking industry.
Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Loans Receivable. Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off
are reported at their outstanding principal adjusted for any
charge-offs, the allowance for loan losses, and any deferred fees or
costs on originated loans.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the related
loan.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as
they become due. When interest accrual is discontinued, all unpaid
accrued interest is reversed. Interest income is subsequently
recognized only to the extent cash payments are received.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Company's
past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral, and current economic
conditions.
Income Taxes. Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred
tax assets or liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
Premises and Equipment. Premises and equipment are stated at cost less
accumulated depreciation. Depreciation expense is computed on the
straight-line basis over the estimated useful life of each type of
asset.
Advances from Organizers. Certain of the Company's organizers made
interest-bearing advances totaling $738,882 during 1996 and 1997 to the
Company. These amounts were used to fund organizational and other costs
incurred by the Holding Company and the Bank. The advances were repaid
to the organizers on September 15, 1997 from the proceeds of the
Company's common stock offering.
(continued)
20
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Off-Balance-Sheet Instruments. In the ordinary course of business the
Company has entered into off-balance-sheet financial instruments
consisting of commitments to extend credit. Such financial instruments
are recorded in the financial statements when they are funded.
Advertising. The Company expenses all media advertising as incurred.
Fair Values of Financial Instruments. The following methods and assumptions
were used by the Company in estimating fair values of financial
instruments disclosed herein:
Cash and Cash Equivalents. The carrying amounts of cash and cash
equivalents approximate their fair value.
Loans. For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. Fair values for certain fixed-rate mortgage (e.g. one-to-four
family residential), commercial real estate and commercial loans are
estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of
similar credit quality.
Deposit Liabilities. The fair values disclosed for demand, NOW,
money-market and savings deposits are, by definition, equal to the
amount payable on demand at the reporting date (that is, their carrying
amounts). Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits.
Accrued Interest. The carrying amounts of accrued interest approximate
their fair values.
Off-Balance-Sheet Instruments. Fair values for off-balance-sheet
lending commitments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing.
Loss Per Share. Loss per share ("EPS") of common stock has been computed on
the basis of the weighted-average number of shares of common stock
outstanding. For purposes of calculating diluted EPS, because there is
no active trading market for the Company's common stock, the average
book value per share was used. For 1997, outstanding warrants were not
dilutive.
Future Accounting Requirements. Financial Accounting Standards 130 -
Reporting Comprehensive Income establishes standards for reporting
comprehensive income. The Standard defines comprehensive income as the
change in equity of an enterprise except those resulting from
stockholder transactions. All components of comprehensive income are
required to be reported in a new financial statement that is displayed
with equal prominence as existing financial statements. The Company
will be required to adopt this Standard effective January 1, 1998. As
the Statement addresses reporting and presentation issues only, there
will be no impact on operating results from the adoption of this
Standard.
Financial Accounting Standards 131 - Disclosures about Segments of an
Enterprise and Related Information establishes standards for related
disclosures about products and services, geographic areas, and major
customers. The Company will be required to adopt this Standard
effective January 1, 1998. As the Standard addresses reporting and
disclosure issues only, there will be no impact on operating results
from adoption of this Standard.
(continued)
21
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Loans
The components of loans are as follows:
At December 31,
1997
Commercial.......................................... $ 3,072,663
Real estate......................................... 429,364
Consumer............................................ 228,179
Lines of credit..................................... 40,118
-----------
3,770,324
Add (subtract):
Allowance for loan losses........................ (35,000)
Net deferred costs............................... 10,253
-----------
Loans, net......................................... $ 3,745,577
=========
An analysis of the change in the allowance for loan losses follows:
Year Ended
December 31,
1997
Beginning balance.................................. $ -
Provision for loan losses.......................... 35,000
------
Ending balance..................................... $ 35,000
======
The Company had no impaired loans in 1997.
(3) Premises and Equipment
A summary of premises and equipment follows:
At December 31,
1997
Bank premises...................................... $ 96,080
Furniture, fixtures and equipment.................. 383,283
-------
Total, at cost................................. 479,363
Less accumulated depreciation.................. (16,579)
-------
Premises and equipment, net.................... $ 462,784
=======
(continued)
22
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Premises and Equipment, Continued
The Company leases its office facility under an operating lease. The lease
contains an escalation clause of 4% yearly and provides for annual
adjustments for the Company's prorata share of operating expenses. Rent
expense under operating leases during the year ended December 31, 1997
was $38,858. Estimated future rentals over the remaining noncancellable
lease terms are as follows:
Operating
Year Ending Lease
December 31, Amount
------------ ------
1998......................................$ 47,798
1999...................................... 49,249
2000...................................... 50,757
2001...................................... 52,325
-------
Total minimum lease payments..............$ 200,129
=======
(4) Deposits
Time deposits included the following amounts:
At December 31,
1997
----
Certificates of Deposit $100,000 and over.........$ 300,452
Certificates of Deposit under $100,000............ 438,981
-------
$ 739,433
=========
A schedule of maturities of certificates of deposit follows:
Year Ending
December 31, Amount
------------ ------
1998.......................................... $ 514,431
2000.......................................... 225,002
-------
$ 739,433
=========
(5) Financial Instruments
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments are unused lines of credit and
may involve, to varying degrees, elements of credit and interest-rate
risk in excess of the amount recognized in the balance sheet. The
contract amounts of these instruments reflect the extent of involvement
the Company has in these financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses
the same credit policies in making commitments as it does for
on-balance-sheet instruments.
(continued)
23
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(5) Financial Instruments, Continued
The estimated fair values of the Company's financial instruments were as
follows (in thousands):
At December 31, 1997
--------------------
Carrying Fair
Amount Value
------ -----
Financial assets:
Cash and cash equivalents................ $ 2,466 2,466
Loans receivable......................... 3,746 3,703
Accrued interest receivable.............. 16 16
Financial liabilities:
Deposit liabilities...................... 2,678 2,692
Accrued interest payable................. 2 2
======= =======
A summary of the notional amounts of the Company's financial instruments
which approximates fair value, with off balance sheet risk at December
31, 1997 follows:
Unused lines of credit............................. $ 639
===
Commitments to extend credit....................... $ -
===
(6) Related Party Transactions
In the ordinary course of business, the Company has made loans at terms
and rates prevailing at the time to officers and directors of the
Company. The aggregate dollar amount of these loans totaled
approximately $727,225 at December 31, 1997. As of the same dates,
these individuals and entities had approximately $71,773 of funds on
deposit in the Company.
(7) Credit Risk
The Company grants the majority of its loans to borrowers throughout
Volusia County, Florida. Although the Company has a diversified loan
portfolio, a significant portion of its borrowers' ability to honor
their contracts is dependent upon the economy in Volusia County,
Florida.
(continued)
24
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(8) Income Taxes
The income tax benefit consisted of the following:
Year Ended
December 31,
1997
Deferred:
Federal..................................... $(156,000)
State....................................... (27,161)
-------
Total deferred benefit................... $(183,161)
=======
The income tax benefit is different than that computed by applying the
Federal statutory rate of 34%, as indicated in the following analysis:
1997
----
% of
Pretax
Amount Loss
------ ----
Income tax benefit at statutory Federal
income tax rate............................$(151,000) (34.0)%
Decreases resulting from
State taxes, net of federal tax benefit.... (18,000) (3.7)
Other...................................... (14,161) (.3)
------- ----
$(183,161) (38.0)%
========= =====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below.
At December 31,
1997
Deferred tax asset:
Organization and startup costs.................... $ 114,000
Net operating loss................................ 88,000
Other............................................. 161
---------
Gross deferred tax asset........................ 202,161
-------
Deferred tax liabilities:
Accrued income net of accrued expenses............ 16,000
Premises and equipment............................ 3,000
-------
Gross deferred tax liability.................... 19,000
-------
Net deferred tax asset.......................... $ 183,161
=======
(continued)
25
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(8) Income Taxes, Continued
At December 31, 1997, the Company had net operating loss carryforwards for
federal and state income tax purposes as follows:
Year Expires
2011............................................. $ 4,000
2012............................................. 229,000
-------
$ 233,000
=========
(9) Regulatory Matters
The Holding Company and the Bank are subject to various regulatory capital
requirements administered by various regulatory banking agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Bank must
meet specific capital guidelines that involve quantitative measures of
the Bank's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Bank's capital
amounts and classification are also subject to qualitative judgements
by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the
regulations) to risk- weighted assets (as defined), and of Tier I
capital (as defined) to average assets (as defined). Management
believes, as of December 31, 1997, that the Company meets all capital
adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the regulatory
authorities categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are
no conditions or events since that notification that management believes
have changed the Bank's category. The Bank's actual capital amounts and
ratios are also presented in the table (dollars in thousands).
<TABLE>
<CAPTION>
To Be Well
Minimum Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provision:
------ ------------------ -----------------
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total capital (to Risk
Weighted Assets).......... $ 3,950 92.7% $ 341 8.0% $ 426 10.0%
Tier I Capital (to Risk
Weighted Assets).......... 3,767 88.4 171 4.0 256 6.0
Tier I Capital
(to Average Assets)....... 3,767 69.2 218 4.0 272 5.0
</TABLE>
(continued)
26
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(10) Stockholders' Equity
The Bank is subject to certain restrictions on the amount of dividends that
it may declare without prior regulatory approval. At December 31, 1997,
the Bank had no amounts available for dividends.
As of December 31, 1997, the Company has sold 464,791 shares of common
stock for an aggregate of $4,647,910. The Company incurred $14,720 in
offering expenses relating to their public offering of the Company's common
stock and warrants. Offering expenses were deducted from the proceeds
received from the sale of common stock and warrants.
During the initial offering period shares were offered in units with a unit
consisting of one share of common stock and one warrant. Each warrant
entitles the holder thereof to purchase one additional share of common
stock for $10.00 per share during the 36 month period ending April 28,
2001. There were 450,000 warrants issued and as of December 31, 1997
they were all warrants outstanding.
(11) Parent Company Only Financial Information
The Holding Company's financial information is as follows at December 31,
1997 and 1996 and for the year ended December 31, 1997 and for the period
from August 15, 1996 (incorporation) to December 31, 1996:
Condensed Balance Sheets
At December 31,
---------------
1997 1996
---- ----
Assets
Cash................................... $ 371,769 11,959
Investment in subsidiary............... 3,950,016 -
Other assets........................... 12,000 149,538
---------- -------
Total assets....................... $ 4,333,785 161,497
========= =======
Liabilities and Stockholders' Equity
Advances from organizers............... - 134,204
Stockholders' equity................... 4,333,785 27,293
--------- -------
Total liabilities and
stockholders' equity............... $ 4,333,785 161,497
========= =======
Condensed Statements of Operations
1997 1996
---- ----
Revenues................................ $ 43,702 -
Expenses................................ 5,416 37,707
------- ------
Earnings (loss) before loss of
subsidiary........................... 38,286 (37,707)
Loss of subsidiary................... (299,984) -
------- -----
Net loss............................. $(261,698) (37,707)
======= ======
(continued)
27
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(11) Parent Company Only Financial Information, Continued
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................................... $ (261,698) 37,707
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Equity in undistributed loss of subsidiaries............................ 299,984 -
Net decrease (increase) in other assets................................. 137,538 (149,538)
--------- -------
Net cash provided by (used in) operating activities..................... 175,824 (187,245)
--------- -------
Cash flows from financing activities:
Net proceeds from issuance of common stock.................................. 4,633,190 65,000
Retire common shares........................................................ (65,000) -
Advances from organizers.................................................... - 134,204
Net repayment of advances from organizers................................... (134,204) -
Investment in subsidiary.................................................... (4,250,000) -
--------- ------
Net cash provided by financing activities............................... 183,986 199,204
--------- -------
Net increase in cash and cash equivalents........................................ 359,810 11,959
Cash and cash equivalents at beginning of the period............................. 11,959 -
---------- ------
Cash and cash equivalents at end of period....................................... $ 371,769 11,959
========= =======
</TABLE>
28
<PAGE>
DIRECTORS AND OFFICERS
THE COMMERCIAL BANCORP, INC.
OFFICERS
Gary G. Campbell
President and Chief Executive Officer
Harvey E. Buckmaster
Chief Financial Officer
DIRECTORS
Gary G. Campbell
President and Chief Executive Officer
James R. Peacock
Vice Chairman - Real Estate Developer
Larry Kent
Chairman of the Board - Real Estate Developer
Christopher Likes
Practicing Certified Public Accountant
Christopher K. Likes, CPA
Kirk Bauer
Practicing Attorney
Biernacki & Bauer, P.A.
29
<PAGE>
THE COMMERCIAL BANK OF VOLUSIA COUNTY
OFFICERS
Gary G. Campbell
President and Chief Executive Officer
Harvey E. Buckmaster
Senior Vice President - Chief Financial Officer and Cashier
Barbara A. Cloyd
Assistant Vice President
Josephine A. Bryan
Assistant Vice President - Loan Administration
Sandy Bowe
Branch Manager - Loan Officer
DIRECTORS
Gary G. Campbell
President and Chief Executive Officer
James R. Peacock
Chairman - Real Estate Developer
Larry Kent
Vice Chairman of the Board - Real Estate Developer
Christopher Likes
Certified Public Accountant
Stanley S. Bronski
Retired
Richard R. Dwyer
Retired Stockbroker
Thomas R. Horton
Trustee/Stetson University
Susan A. Nicholson
Interior Designer
Clarence Singletary
Developer
30
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,066
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 3,781
<ALLOWANCE> 35
<TOTAL-ASSETS> 7,078
<DEPOSITS> 2,678
<SHORT-TERM> 0
<LIABILITIES-OTHER> 66
<LONG-TERM> 0
0
0
<COMMON> 5
<OTHER-SE> 4,329
<TOTAL-LIABILITIES-AND-EQUITY> 7,078
<INTEREST-LOAN> 23
<INTEREST-INVEST> 0
<INTEREST-OTHER> 89
<INTEREST-TOTAL> 112
<INTEREST-DEPOSIT> 10
<INTEREST-EXPENSE> 33
<INTEREST-INCOME-NET> 69
<LOAN-LOSSES> 35
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 481
<INCOME-PRETAX> (445)
<INCOME-PRE-EXTRAORDINARY> (445)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (262)
<EPS-PRIMARY> (2.00)
<EPS-DILUTED> (2.00)
<YIELD-ACTUAL> 3.28
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 35
<ALLOWANCE-DOMESTIC> 35
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
