- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
- ---- of 1934
For the quarterly period ended March 31, 1998
- ---- Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ________ to ________
Commission file number 333-19201
THE COMMERCIAL BANCORP, INC.
-----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Florida 59-3396236
- --------------------------------- -------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
258 North Nova Road
Ormond Beach, Florida 32174
----------------------------------------
(Address of Principal Executive Offices)
(904) 672-3003
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days:
YES X NO
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date;
Common stock, par value 464,791 shares outstanding
$.01 per share at April 28, 1998
----------------------- --------------------------
(class)
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
INDEX
Part I. Financial Information
Item 1. Financial Statements Page
Condensed Consolidated Balance Sheets -
At March 31, 1998 (unaudited) and at December 31, 1997............2
Condensed Consolidated Statements of Operations -
Three Months ended March 31, 1998 and 1997 (unaudited)............3
Condensed Consolidated Statement of Stockholders' Equity -
Three Months ended March 31, 1998 (unaudited).....................4
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 1998 and 1997 (unaudited)............5
Notes to Condensed Consolidated Financial Statements (unaudited)....6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................8-9
Part II. Other Information
Item 1. Legal Proceedings............................................10
Item 6. Exhibits and Reports on Form 8-K.............................10
SIGNATURES...............................................................11
1
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
At
------------------------------
March 31, December 31,
--------- ------------
Assets 1998 1997
---- ----
(unaudited)
<S> <C> <C>
Cash and due from banks......................................................... $ 749,810 1,065,817
Federal funds sold.............................................................. 6,073,108 1,400,000
---------- ---------
Total cash and cash equivalents..................................... 6,822,918 2,465,817
Loans receivable, net of allowance for loan losses of
$64,000 in 1998 and $35,000 in 1997......................................... 6,262,313 3,745,577
Premises and equipment, net..................................................... 518,360 462,784
Accrued interest receivable and other assets.................................... 300,265 220,588
Deferred income taxes........................................................... 232,861 183,161
----------- ----------
Total assets........................................................ $ 14,136,717 7,077,927
========== =========
Liabilities and Stockholders' Equity
Liabilities:
Demand deposits............................................................. 11,375 832,396
Savings and NOW deposits.................................................... 2,436,039 1,040,454
Money-market deposits....................................................... 112,860 65,777
Time deposits............................................................... 7,177,626 739,433
---------- ----------
Total deposits...................................................... 9,737,900 2,678,060
Accrued interest payable and other liabilities 174,950 66,082
---------- ----------
Total liabilities................................................... 9,912,850 2,744,142
---------- ---------
Stockholders' equity:
Common stock, $.01 par value, 10,000,000 shares authorized,
464,791 shares issued and outstanding................................... 4,648 4,648
Additional paid-in capital.................................................. 4,628,542 4,628,542
Accumulated deficit......................................................... (409,323) (299,405)
----------- ----------
Total stockholders' equity.......................................... 4,223,867 4,333,785
----------- ---------
Total liabilities and stockholders' equity $ 14,136,717 7,077,927
========== =========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Interest income:
Loans ............................................................................... $ 122,657 --
Federal funds sold and other interest-earning assets ................................ 46,294 --
--------- ---------
Total interest income ....................................................... 168,951 --
--------- ---------
Interest expense:
Deposits ............................................................................ 80,842 --
Other ............................................................................... -- 5,099
--------- ---------
Total interest expense ...................................................... 80,842 5,099
--------- ---------
Net interest income (expense) ............................................... 88,109 (5,099)
Provision for loan losses ............................................................... 29,000 --
--------- ---------
Net interest income (expense) after provision for
loan losses ............................................................... 59,109 (5,099)
--------- ---------
Noninterest income-
Service charges and fees ............................................................ 9,514 --
--------- ---------
Noninterest expense:
Salaries and employee benefits ...................................................... 97,322 20,588
Occupancy expense ................................................................... 41,672 3,010
Advertising ......................................................................... 28,439 --
Other ............................................................................... 60,808 18,848
--------- ---------
Total noninterest expense ................................................... 228,241 42,446
--------- ---------
Loss before income tax benefit .......................................................... (159,618) (47,545)
Income tax benefit .......................................................... (49,700) (18,100)
--------- ---------
Net loss ................................................................................ $(109,918) (29,445)
========= =========
Loss per share:
Basic ............................................................................... $ (.24) (4.53)
========= =========
Diluted ............................................................................. $ (.24) (4.53)
========= =========
Dividends per share..................................................................... $ -- --
========= =========
Weighted-average number of shares outstanding for
basic and diluted ................................................................... 464,791 6,500
========= =========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Stockholders' Equity
Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Accumulated Stockholders'
Stock Capital Deficit Equity
----- ------- ------- ------
<S> <C> <C> <C> <C>
Balance at December 31, 1997...................................... $ 4,648 4,628,542 (299,405) 4,333,785
Net loss (unaudited).............................................. - - (109,918) (109,918)
------- --------- -------- ---------
Balance at March 31, 1998 (unaudited)............................. $ 4,648 4,628,542 (409,323) 4,223,867
======= ========= ======== =========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
---- ----
(unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net loss .......................................................................... $ (109,918) (29,445)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation .................................................................. 17,899 --
Provision for loan losses ..................................................... 29,000 --
Credit for deferred income taxes .............................................. (49,700) (18,100)
Net amortization of loan fees, premiums and discounts ......................... (7,120) --
Deferral of loan fees collected, net of costs deferred ........................ 4,944 --
Increase in accrued interest receivable and other assets ...................... (79,677) (65,702)
Increase in accrued interest payable and
other liabilities ........................................................... 108,868 --
----------- -----------
Net cash used in operating activities ......................................... (85,704) (113,247)
----------- -----------
Cash flows from investing activities:
Net increase in loans ............................................................. (2,543,560) --
Purchase of premises and equipment ................................................ (73,475) --
----------- -----------
Net cash used in investing activities ......................................... (2,617,035) --
----------- -----------
Cash flows from financing activities:
Net increase in noninterest-bearing demand,
savings, money-market and NOW deposits ........................................ 621,647 --
Net increase in time deposits ..................................................... 6,438,193 --
Advances from organizers .......................................................... -- 103,381
----------- -----------
Net cash provided by financing activities ..................................... 7,059,840 103,381
----------- -----------
Net increase (decrease) in cash and cash equivalents .................................. 4,357,101 (9,866)
Cash and cash equivalents at beginning of period ...................................... 2,465,817 11,959
----------- -----------
Cash and cash equivalents at end of period ............................................ $ 6,822,918 2,093
=========== ===========
Supplemental disclosure of cash flow information- Cash paid during the period
for:
Interest ...................................................................... $ 62,775 --
=========== ===========
Income taxes..................................................................$ -- --
=========== ===========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited)
(1) Basis of Presentation. In the opinion of the management of The
Commercial Bancorp, Inc., the accompanying condensed consolidated
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial
position at March 31, 1998 and the results of operations and cash
flows for the three months ended March 31, 1998 and 1997. The results
of operations and other data for the three months ended March 31,
1998, are not necessarily indicative of results that may be expected
for the year ending December 31, 1998.
The condensed consolidated financial statements include the accounts
of The Commercial Bancorp, Inc. (the "Holding Company") and its
wholly-owned subsidiary, The Commercial Bank of Volusia County (the
"Bank") (together, the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
(2) Loan Impairment and Loan Losses. No loans were identified as impaired at
March 31, 1998 or March 31, 1997. The activity in the allowance for
loan losses was as follows:
Three Months Ended
March 31,
------------------
1998 1997
---- ----
Balance at beginning of period $35,000 --
Provision for loan losses .... 29,000 --
------- --
Balance at end of period ..... $64,000 --
======= ====
(3) Impact of New Accounting Issues. In June, 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). That
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 the
financial statements with equal prominence as existing financial
statements. The adoption of SFAS No. 130 had no significant effect on
the Company's financial position at March 31, 1998 or result of
operations for the three months then ended. The Bank had no items of
other comprehensive income, therefore a statement of comprehensive
income is not presented.
(4) 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 1998 and 1997, outstanding
warrants were not dilutive.
(continued)
6
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited), Continued
(5) 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 March 31, 1998, that the Company meets all capital
adequacy requirements to which it is subject.
As of March 31, 1998, 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 Provisions:
------ ------------------ ------------------
Amount % Amount % Amount %
------ - ------ - ------ -
As of March 31, 1998:
Total capital (to Risk-
<S> <C> <C> <C> <C> <C> <C>
Weighted Assets) ....... $3,869 61.9% $ 500 8.0% $ 625 10.0%
Tier I Capital (to Risk-
Weighted Assets) ....... 3,637 58.2 250 4.0 375 6.0
Tier I Capital
(to Average Assets) .... 3,637 33.7 432 4.0 540 5.0
</TABLE>
7
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Comparison of March 31, 1998 and 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-chartered commercial
bank in Sebring, Highlands County, Florida. The New Bank will become a
wholly-owned subsidiary of the Holding Company.
Liquidity and Capital Resources
The Company's primary source of cash during the three months ended March
31, 1998 was from net deposit inflows of $7.1 million. Cash was used
primarily for loan originations of $2.5 million. At March 31, 1998, the
Company had unfunded lines of credit of approximately $1.3 million. It is
expected that these requirements will be funded from the sources described
above. At March 31, 1998, the Bank exceeded its regulatory liquidity
requirements.
The following table shows selected ratios for the periods ended or at the
dates indicated:
Three Months
Ended Year Ended
March 31, December 31,
1998 1997
--------- ------------
Average equity as a percentage
of average assets .............................. 38.26% 77.02%
Total equity to total assets at end of period ..... 29.88% 61.23%
Return on average assets (1) ...................... (3.93)% (9.18)%
Return on average equity (1) ...................... (10.28)% (11.91)%
Noninterest expense to average assets (1) ......... 8.16% 16.85%
Nonperforming loans and foreclosed real estate
as a percentage of total assets at end of period NIL% NIL%
Allowance for loan losses as a percentage of
total loans at end of period ................... 1.01% .93%
- --------------------
(1) Annualized for the three months ended March 31, 1998.
8
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations, Continued
Changes in Financial Condition
Total assets increased $7.0 million from $7.1 million at December 31, 1997 to
$14.1 at March 31, 1998, primarily as a result of increases in federal funds
sold of $4.7 million and loans receivable of $2.5 million. Customer deposits
increased $7.1 million from $2.7 million at December 31, 1997 to $9.7 million at
March 31, 1998. The decrease in stockholders' equity was due to the net loss of
$109,918 for the three months ended March 31, 1998.
Results of Operations
Comparison of the Three-Month Periods Ended March 31, 1998 and 1997
General. Net loss for the three months ended March 31, 1998 was $109,918, or
$.24 per share for basic and diluted, compared to a net loss for the three
months ended March 31, 1997 of $29,445, or $4.53 per share for basic and
diluted. At March 31, 1997, the Bank has not commenced operations and at
March 31, 1998, the Bank had not achieved the asset size to operate
profitably.
Interest Income and Expense. Interest income totaled $168,951 for the three
months ended March 31, 1998. Interest income earned on loans was $122,657.
The average loan portfolio balance for the three months ended March 31,
1998 was $5.7 million with a weighted-average yield of 8.56%. Interest on
federal funds sold and other interest-earning assets totaled $46,294. The
average balance of these assets for the three months ended March 31, 1998
was $3.4 million with a weighted-average yield of 5.42%.
Interest expense on deposits amounted to $80,842 for the three months
ended March 31, 1998. The average balance for interest-bearing deposits
for the three months ended March 31, 1998 was $6.5 million and the
weighted-average rate was 5.13%.
Provision for Loan Losses. The provision for loan losses is charged to
earnings to increase 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 loan losses for the three
months ended March 31, 1998 was $29,000 and the allowance for loan losses
was $64,000 at March 31, 1998. Management believes the allowance is
adequate at March 31, 1998.
Noninterest Expense. Noninterest expense totaled $228,241 for the three
months ended March 31, 1998 compared to $42,446 for the three months ended
March 31, 1997. Salaries and employee and benefits was the largest
noninterest expense during 1998, amounting to $97,322. The Bank had not
commenced operations during the three months ended March 31, 1997.
Income Tax Benefit. The income tax benefit for the three months ended March
31, 1998 was $49,700 (an effective rate of 31.1%) compared to $18,100 (an
effective rate of 38.1%) for the three months ended March 31, 1997.
9
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which The Commercial
Bancorp, Inc. or its subsidiary is a party or to which any of their property
is subject.
Item 6. 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 April 28, 1997,
Registration No. 333-19201 (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
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K. There were no reports on Form 8-K filed for the
three months ended March 31, 1998.
10
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
PART II. OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE COMMERCIAL BANCORP, INC.
(Registrant)
Date: May 12, 1998 By: /s/Gary G. Campbell
------------ -------------------
Gary G. Campbell, President and
Chief Executive Officer
Date: May 12, 1998 By: /s/Harvey E. Buckmaster
------------ -----------------------
Harvey E. Buckmaster,
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This scheudle contains summary financial information extracted from Form 10-QSB
for the period ended March 31, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 750
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,073
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 6,326
<ALLOWANCE> 64
<TOTAL-ASSETS> 14,137
<DEPOSITS> 9,738
<SHORT-TERM> 0
<LIABILITIES-OTHER> 175
<LONG-TERM> 0
0
0
<COMMON> 5
<OTHER-SE> 4,219
<TOTAL-LIABILITIES-AND-EQUITY> 14,137
<INTEREST-LOAN> 123
<INTEREST-INVEST> 0
<INTEREST-OTHER> 46
<INTEREST-TOTAL> 169
<INTEREST-DEPOSIT> 81
<INTEREST-EXPENSE> 81
<INTEREST-INCOME-NET> 88
<LOAN-LOSSES> 29
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 228<F1>
<INCOME-PRETAX> (160)
<INCOME-PRE-EXTRAORDINARY> (160)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (110)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
<YIELD-ACTUAL> 3.74
<LOANS-NON> 0<F2>
<LOANS-PAST> 0<F2>
<LOANS-TROUBLED> 0<F2>
<LOANS-PROBLEM> 0<F2>
<ALLOWANCE-OPEN> 35
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 64
<ALLOWANCE-DOMESTIC> 64
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Other expense includes: salaries and employee benefits of $97, occupancy of
$42, professional fees of $12, advertising of $28 and other expenses which
totaled $49.
<F2>Items are only disclosed on an annual basis in the Company's Form 10-KSB, and
are, therefore, not included in this Financial Data Schedule.
</FN>
</TABLE>
