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 September 30, 1999
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 $.01 per share 475,091 shares
- -------------------------------------- -------------------------------
(class) Outstanding at September 30, 1999
- --------------------------------------------------------------------------------
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
<S> <C>
Part I. Financial Information
Item 1. Financial Statements Page
Condensed Consolidated Balance Sheets -
At September 30, 1999 (unaudited) and At December 31, 1998...............................................2
Condensed Consolidated Statements of Operations -
Three and Nine Months ended September 30, 1999 and 1998 (unaudited)......................................3
Condensed Consolidated Statement of Stockholders' Equity -
Nine Months ended September 30, 1999 (unaudited).........................................................4
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 1999 and 1998 (unaudited)................................................5
Notes to Condensed Consolidated Financial Statements (unaudited).........................................6-8
Item 2. Management's Discussion and Analysis or Plan
of Operations...........................................................................................9-12
Part II. Other Information
Item 1. Legal Proceedings..................................................................................13
Item 2. Changes in Securities and Use of Proceeds..........................................................13
Item 6. Exhibits and Reports on Form 8-K...................................................................13
SIGNATURES.....................................................................................................14
</TABLE>
-1-
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
At
----------------------------------
September 30, December 31,
------------- ------------
Assets 1999 1998
------ ---- ----
(unaudited)
<S> <C> <C>
Cash and due from banks......................................................... $ 699,772 689,903
Federal funds sold ............................................................ 1,320,452 4,258,602
---------- ----------
Total cash and cash equivalents..................................... 2,020,224 4,948,505
Securities available for sale................................................... 5,190,524 3,302,486
Loans, net of allowance for loan losses of $326,871
in 1999 and $760,000 in 1998................................................ 14,165,464 11,563,373
Premises and equipment, net..................................................... 542,953 838,931
Accrued interest receivable..................................................... 118,632 89,527
Restricted security, Federal Home Loan Bank stock, at cost...................... 64,500 50,000
Deferred tax asset ............................................................ 831,011 824,981
Other assets ............................................................ 52,246 58,003
---------- ----------
Total assets........................................................ $ 22,985,554 21,675,806
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Noninterest-bearing demand deposits......................................... 1,108,692 904,585
Savings and NOW deposits.................................................... 4,656,897 5,068,758
Money-market deposits....................................................... 322,215 329,293
Time deposits ............................................................ 12,385,620 10,482,545
---------- ----------
Total deposits...................................................... 18,473,424 16,785,181
Advance from Federal Home Loan Bank......................................... 1,000,000 1,000,000
Other borrowings............................................................ - 364,749
Official checks ............................................................ 78,489 127,342
Other liabilities........................................................... 85,645 141,642
---------- ----------
Total liabilities................................................... 19,637,558 18,418,914
---------- ----------
Stockholders' equity:
Common stock, $.01 par value; 10,000,000 shares authorized,
475,091 and 464,791 shares issued and outstanding....................... 4,751 4,648
Additional paid-in capital.................................................. 4,731,439 4,628,542
Accumulated deficit......................................................... (1,372,033) (1,370,803)
Accumulated other comprehensive income (loss)............................... (16,161) (5,495)
---------- ----------
Total stockholders' equity.......................................... 3,347,996 3,256,892
---------- ----------
Total liabilities and stockholders' equity.......................... $ 22,985,554 21,675,806
========== ==========
</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 Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
Interest income:
<S> <C> <C> <C> <C>
Loans ..................................................... $ 277,258 211,856 780,410 499,295
Securities available for sale................................ 49,643 51,158 117,448 82,638
Other interest-earning assets................................ 32,419 24,842 105,710 131,841
-------- -------- ---------- -------
Total interest income................................ 359,320 287,856 1,003,568 713,774
-------- -------- ---------- -------
Interest expense:
Deposits..................................................... 198,278 180,280 548,589 415,410
Other ..................................................... 12,267 7,566 50,093 9,358
-------- -------- ---------- -------
Total interest expense............................... 210,545 187,846 598,682 424,768
-------- -------- ---------- -------
Net interest income.................................. 148,775 100,010 404,886 289,006
(Credit) provision for loan losses............................... (150,000) 190,000 (281,000) 245,000
-------- -------- ---------- -------
Net interest income (expense) after
(credit) provision for loan losses................. 298,775 (89,990) 685,886 44,006
-------- -------- ---------- -------
Noninterest income:
Service charges and fees..................................... 17,578 17,407 40,924 36,178
Recovery of organizational expenses.......................... - - 109,609 -
-------- -------- ---------- -------
Total noninterest income............................. 17,578 17,407 150,533 36,178
-------- -------- ---------- -------
Noninterest expense:
Salaries and employee benefits............................... 104,692 154,141 414,744 367,187
Occupancy expense............................................ 68,806 65,356 182,178 153,787
Professional fees............................................ 15,920 21,403 70,421 37,599
Advertising.................................................. 11,192 17,498 19,570 66,698
Other ..................................................... 46,581 61,853 151,436 171,879
-------- -------- ---------- -------
Total noninterest expense............................ 247,191 320,251 838,349 797,150
-------- -------- ---------- -------
Earnings (loss) before income tax provision (benefit)............ 69,162 (392,834) (1,930) (716,966)
Income tax provision (benefit)....................... 26,000 (134,900) (700) (238,100)
-------- -------- ---------- -------
Net earnings (loss).............................................. $ 43,162 (257,934) (1,230) (478,866)
======= ======= ======== =======
Earnings (loss) per share, basic and diluted..................... $ .09 (.55) (.00) (1.03)
======= ======= ======== =======
Weighted-average number of shares outstanding
for basic and diluted........................................ 475,083 464,791 470,640 464,791
======= ======= ======== =======
Dividends per share......................................... $ - - - -
======= ======= ======== =======
</TABLE>
-3-
See Accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Stockholders' Equity
Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
Accumulated
Other
Additional Compre- Total
Common Paid-In Accumulated hensive Stockholders'
Stock Capital Deficit Income Equity
----- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998......................... $ 4,648 4,628,542 (1,370,803) (5,495) 3,256,892
---------
Comprehensive income (loss):
Net loss (unaudited)............................ - - (1,230) - (1,230)
Net change in unrealized loss on
securities available for sale,
net of tax benefit of $5,330
(unaudited)................................. - - - (10,666) (10,666)
---------
Comprehensive income (loss) (unaudited).............. (11,896)
---------
Issuance of 10,300 shares of common
stock upon exercise of 10,300
warrants (unaudited)............................ 103 102,897 - - 103,000
------ ---------- ------------ --------- ---------
Balance at September 30, 1999 (unaudited)............ $ 4,751 4,731,439 (1,372,033) (16,161) 3,347,996
===== ========= ========= ====== =========
</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>
Nine Months Ended
September 30,
---------------------
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................................ $ (1,230) (478,866)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................................................ 71,694 38,737
(Credit) provision for loan losses.......................................... (281,000) 245,000
Credit for deferred income taxes............................................ (700) (238,100)
Net amortization of fees, costs, premiums and discounts..................... 65,954 29,619
Increase in accrued interest receivable and other assets.................... (23,348) (173,718)
(Decrease) increase in accrued interest payable and
other liabilities......................................................... (55,997) 258,769
----------- ------------
Net cash used in operating activities....................................... (224,627) (318,559)
---------- ------------
Cash flows from investing activities:
Purchases of securities available for sale...................................... (3,237,218) (6,187,015)
Principal repayments on securities available for sale........................... 1,294,855 1,620,973
Net increase in loans........................................................... (2,348,716) (6,125,541)
Purchases of premises and equipment............................................. (69,100) (382,940)
Net proceeds from sale of premises and equipment................................ 293,384 -
Purchase of Federal Home Loan Bank stock........................................ (14,500) -
----------- ----------
Net cash used in investing activities....................................... (4,081,295) (11,074,523)
--------- ----------
Cash flows from financing activities:
Net (decrease) increase in demand, savings, NOW and
money-market deposits....................................................... (214,832) 2,737,440
Net increase in time deposits................................................... 1,903,075 9,171,591
Net decrease in other borrowings................................................ (364,749) -
Net (decrease) increase in official checks...................................... (48,853) 119,335
Proceeds from issuance of common stock upon exercise
of warrants................................................................. 103,000 -
---------- -----------
Net cash provided by financing activities................................... 1,377,641 12,028,366
--------- ----------
Net (decrease) increase in cash and cash equivalents................................ (2,928,281) 635,284
Cash and cash equivalents at beginning of period.................................... 4,948,505 2,465,817
--------- -----------
Cash and cash equivalents at end of period.......................................... $ 2,020,224 3,101,101
========= ===========
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest.................................................................... $ 595,663 399,329
=========== ============
Income taxes................................................................$ - -
============== ============
Noncash transactions-
Accumulated other comprehensive income (loss), net change in unrealized
(loss) gain on securities available for sale,
net of tax................................................................ $ (10,666) 10,388
=========== ============
</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) General Description and Basis of Presentation. 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") (together, "TCB"). 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.
In the opinion of the management of TCB, the accompanying condensed
consolidated financial statements contain all adjustments (consisting of
normal recurring accruals) necessary to present fairly the financial
position at September 30, 1999 and the results of operations for the
three and nine months ended September 30, 1999 and 1998 and cash flows
for the nine months ended September 30, 1999 and 1998. The results of
operations and other data for the three and nine months ended September
30, 1999, are not necessarily indicative of results that may be expected
for the year ending December 31, 1999.
The condensed consolidated financial statements include the accounts of
the Holding Company and the Bank. All significant intercompany accounts
and transactions have been eliminated in consolidation.
(2) Loan Impairment and Loan Losses. The following summarizes the collateral
dependent amounts of impaired loans:
<TABLE>
<CAPTION>
At
----------------------------------
September 30, December 31,
1999 1998
---- ----
Loans identified as impaired:
<S> <C> <C>
Gross loans with no related allowance for loan losses $ - -
Gross loans with related allowance for loan losses recorded - 1,199,025
Less: Allowances on these loans - (599,512)
---------- --------
Net investment in impaired loans $ - 599,513
========== =========
</TABLE>
The average net investment in impaired loans and interest income
recognized and received on impaired loans is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average net investment in impaired loans............... $ 298,638 507,684 465,791 169,228
======= ======= ======= =======
Interest income recognized on impaired loans........... $ - 14,185 - 44,366
======= ======= ======= =======
Interest income received on impaired loans............. $ - - - 21,689
======= ======= ======= =======
</TABLE>
(continued)
-6-
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited), Continued
(2) Loan Impairment and Loan Losses, Continued.
The activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period........................ $ 556,458 90,000 760,000 35,000
(Credit) provision for loan losses.................... (150,000) 190,000 (281,000) 245,000
Loan charge-offs, net of recoveries................... (79,587) - (152,129) -
-------- ----------- ------- -------
Balance at end of period.............................. $ 326,871 280,000 326,871 280,000
======= ======= ======= =======
</TABLE>
(3) Earnings (Loss) Per Share ("EPS"). Basic EPS has been computed on the
basis of the weighted-average number of shares of common stock
outstanding. TCB=s common stock equivalents are not dilutive.
(continued)
-7-
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited), Continued
(4) 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 TCB'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, at September 30, 1999, that TCB meets all capital adequacy
requirements to which it is subject.
As of September 30, 1999, 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 %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
At September 30, 1999:
Total capital (to Risk-
Weighted Assets)........... $ 2,733 17.6% $ 1,241 8.0% $ 1,552 10.0%
Tier I Capital (to Risk-
Weighted Assets)........... 2,537 16.3 621 4.0 931 6.0
Tier I Capital
(to Average Assets)........ 2,537 12.0 846 4.0 1,058 5.0
</TABLE>
-8-
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Item 2. Management's Discussion and Analysis
or Plan of Operations
Comparison of September 30, 1999 (Unaudited) and December 31, 1998
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") (together,
"TCB"). 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.
New Bank Charter
TCB along with a group of local organizers made application to the State of
Florida for a bank charter in Highlands County, Florida. Management planned
to raise the capital for the new bank from a public offering of TCB=s
common stock. In early 1999, TCB and the organizers withdrew their
application and management terminated its planned public offering. The
application was assumed by the local organizers and others, as a result TCB
was able to recover some of the organizational expenses which had been
previously expensed. This amount is included in noninterest income in the
nine months ended September 30, 1999. In addition, TCB sold property and
equipment which had been purchased for the proposed Highlands County Bank,
to the local organizers.
Liquidity and Capital Resources
TCB's primary source of cash during the nine months ended September 30,
1999 was from net deposit inflows of $1.7 million and principal repayments
on securities of $1.3 million. Cash was used primarily for loan
originations net of repayments of $2.3 million and to purchase securities
of $3.2 million. At September 30, 1999, TCB had unfunded lines of credit of
approximately $1.5 million. At September 30, 1999, TCB exceeded its
regulatory liquidity requirements.
The following table shows selected ratios for the periods ended or at the
dates indicated:
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Year Ended Ended
September 30, December 31, September 30,
1999 1998 1998
------------- ------------ -------------
<S> <C> <C> <C>
Average equity as a percentage
of average assets....................................... 15.48% 22.51% 26.46%
Total equity to total assets at end of period.............. 14.57% 15.03% 20.46%
Return on average assets (1)............................... (.01%) (6.35%) (4.12%)
Return on average equity (1)............................... (.04%) (28.23%) (15.57%)
Noninterest expense to average assets (1).................. 3.98% 7.32% 6.86%
Nonperforming loans and foreclosed real estate
as a percentage of total assets at end of period........ 1.04% 5.53% NIL
Allowance for loan losses as a percentage of
total loans at end of period............................ 2.25% 6.17% 2.79%
</TABLE>
(1) Annualized for the nine months ended September 30, 1999 and 1998.
-9-
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Item 2. Management's Discussion and Analysis
or Plan of Operations, Continued
Results of Operations
Comparison of the Three-Month Periods Ended September 30, 1999 and 1998
General. Net earnings for the three months ended September 30, 1999 was
$43,162, or $.09 per basic and diluted share compared to a net loss for
the three months ended September 30, 1998 of $257,934, or $.55 per basic
and diluted share. Net earnings for the 1999 period included a $150,000
credit for loan losses due to a recovery resulting from the settlement of
two impaired loans to a single borrower. Without this credit TCB would
have reported a loss for the period. During the three months ended
September 30, 1999, TCB had not achieved the asset size to operate
profitably from operations.
Interest Income. Interest income increased $71,464 or 24.8% to $359,320 for
the three months ended September 30, 1999 from $287,856 for the three
months ended September 30, 1998. Interest income earned on loans increased
$65,402 or 30.9% to $277,258 for the three months ended September 30, 1999
from $211,856 during the three months ended September 30, 1998. The
increase was due to an increase in the average loan portfolio of $4.5
million or 48.5% for the three months ended September 30, 1999 compared to
the same period in 1998, partially offset by a decrease in the average
yield earned from 9.08% in 1998 to 7.99% in 1999.
Interest Expense. Interest expense increased $22,699 or 12.1% to $210,545 for
the three months ended September 30, 1999 from $187,846 for the three
months ended September 30, 1998. This increase was due to an increase in
average interest-bearing liabilities outstanding of $3.4 million or 23.9%
during the three months ended September 30, 1999 when compared to the same
period in 1998, partially offset by a decrease in the average rate paid
from 5.29% in 1998 to 4.77% in 1999.
(Credit) Provision for Loan Losses. The (credit) provision for loan losses is
(credited) charged to earnings to (decrease) increase the total allowance
to a level deemed appropriate by management and is based upon the volume
and type of lending conducted by TCB, industry standards, the amount of
nonperforming loans and general economic conditions, particularly as they
relate to TCB's market areas, and other factors related to the
collectibility of TCB's loan portfolio. The credit for loan losses for the
three months ended September 30, 1999 was $150,000 and the allowance for
loan losses was $326,871 at September 30, 1999. The credit for loan losses
resulted from a settlement of two impaired loans from a single borrower.
This resulted in the partial recapture of the loan loss allowance against
these loans. Management believes the allowance is adequate at September
30, 1999.
Noninterest Income. Noninterest income remained relatively unchanged at
$17,578 for the three months ended September 30, 1999 compared to $17,407
for the same period in 1998.
Noninterest Expense. Noninterest expense decreased $73,060 or 22.8% to
$247,191 for the three months ended September 30, 1999 from $320,251 for
the three months ended September 30, 1998. This decrease was mainly the
result of a decrease in salaries and employee benefits of $49,449 related
to the personnel requirements under the planned new bank charter during
the 1998 period which was terminated in early 1999.
Income Tax Provision (Benefit). The income tax provision for the three months
ended September 30, 1999 was $26,000 (an effective rate of 37.6%) compared
to an income tax benefit of $134,900 (an effective rate of 34.3%) for the
three months ended September 30, 1998.
-10-
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Item 2. Management's Discussion and Analysis
or Plan of Operations, Continued
Results of Operations, Continued
Comparison of the Nine-Month Periods Ended September 30, 1999 and 1998
General. Net loss for the nine months ended September 30, 1999 was $1,230, or
$.01 per basic and diluted share compared to a net loss for the nine
months ended September 30, 1998 of $478,866 or $1.03 per basic and diluted
share. Net loss for the 1999 period included a $109,609 recovery of
previously expensed organizational costs and a $281,000 credit for loan
losses due to the settlement of four impaired loans to two borrowers.
During the nine months ended September 30, 1999, TCB had not achieved the
asset size to operate profitably from operations.
Interest Income. Interest income increased $289,794 or 40.6% to $1,003,568
for the nine months ended September 30, 1999 from $713,774 for the nine
months ended September 30, 1998. Interest income earned on loans increased
$281,115 or 56.3% to $780,410 for the nine months ended September 30, 1999
from $499,295 during the nine months ended September 30, 1998. The
increase was due to an increase in the average loan portfolio of $5.7
million or 75.3% for the nine months ended September 30, 1999 compared to
the same period in 1998, partially offset by a decrease in the average
yield earned from 8.80% in 1998 to 7.84% in 1999.
Interest Expense. Interest expense increased $173,914 or 40.9% to $598,682
for the nine months ended September 30, 1999 from $424,768 for the nine
months ended September 30, 1998. This increase was due to an increase in
average interest-bearing liabilities outstanding of $5.8 million or 53.1%
during the nine months ended September 30, 1999 compared to the same
period in 1998, partially offset by a decrease in the average rate paid
from 5.19% in 1998 to 4.78% in 1999.
(Credit) Provision for Loan Losses. The (credit) provision for loan losses is
(credited) charged to earnings to (decrease) increase the total allowance
to a level deemed appropriate by management and is based upon the volume
and type of lending conducted by TCB, industry standards, the amount of
nonperforming loans and general economic conditions, particularly as they
relate to TCB's market areas, and other factors related to the
collectibility of TCB's loan portfolio. The credit for loan losses for the
nine months ended September 30, 1999 was $281,000 and the allowance for
loan losses was $326,871 at September 30, 1999. The credit for loan losses
resulted from a settlement of four impaired loans for less than the full
amount. This resulted in the partial recapture of the allowance against
these loans and a charge-off of the remaining loan balances. Management
believes the allowance is adequate at September 30, 1999.
Noninterest Income. Noninterest income increased to $150,533 during the nine
months ended September 30, 1999 compared to $36,178 for the same period in
1998. This increase was primarily due to a recovery of previously expensed
organizational costs related to the Highlands County Bank charter
application of $109,609. TCB and the organizers withdrew their application
for the new bank in early 1999 but recovered certain previously expensed
organizational costs from local organizers who assumed the application.
Noninterest Expense. Noninterest expense increased $41,199 or 5.2% to
$838,349 for the nine months ended September 30, 1999 from $797,150 for
the nine months ended September 30, 1998. The largest increase was in
salaries and employee benefits of $47,557.
Income Tax Benefit. The income tax benefit for the nine months ended
September 30, 1999 was $700 (an effective rate of 36.3%) compared to
$238,100 (an effective rate of 33.2%) for the nine months ended September
30, 1998.
-11-
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Year 2000
TCB is acutely aware of the many areas affected by the Year 2000 computer issue,
including those addressed by the Federal Financial Institutions Examination
Council ("FFIEC") in its interagency statement which provided an outline for
institutions to effectively manage the Year 2000 challenges. A Year 2000 plan
has been approved by the Board of Directors which includes multiple phases,
tasks to be completed, and target dates for completion. Issues addressed therein
include awareness, assessment, renovation, validation, implementation, testing
and contingency planning.
TCB has formed a Year 2000 committee that is charged with the oversight of
completing the Year 2000 project on a timely basis. TCB has completed its
awareness, assessment, renovation, validation, implementation and testing
phases. Since it routinely upgrades and purchases technologically advanced
software and hardware on a continual bases, TCB has determined that the costs of
making modifications to correct any Year 2000 issues will not materially affect
reported results from operations.
TCB=s vendors and suppliers have been contacted for written confirmation of
their product=s readiness for the Year 2000 compliance. All significant vendors
of TCB have provided confirmation that they are Year 2000 compliant. TCB=s main
service provider has completed testing of its mission critical application
software; the test results, which have been documented and validated, are deemed
to be Year 2000 compliant. FFIEC guidance on testing Year 2000 compliance of
service providers states that proxy tests are acceptable compliance tests. In
proxy testing, the service provider tests with a representative sample of
financial institutions that use a particular service, with the results of such
testing shared with all similarly situated clients of the service provider. TCB
has authorized the acceptance of proxy testing since the proxy tests have been
conducted with financial institutions that are similar in type and complexity to
its own, using the same version of Year 2000 ready software and the same
hardware and operating systems. TCB personnel have also performed Year 2000
testing on their computer databases and software applications and have found
them to be Year 2000 ready.
TCB also recognizes the importance of determining that its borrowers are facing
the Year 2000 problem in a timely manner to avoid deterioration of the loan
portfolio solely due to this issue. All material relationships have been
identified and questionnaires have been completed to assess the inherent risks.
Deposit customers have received statement stuffers and information material in
this regard. TCB plans to work on a one-on-one basis with any borrower who has
been identified as having high Year 2000 risk exposure.
Accordingly, management does not believe that TCB has incurred or will incur
material costs associated with the Year 2000 issue. Yet, there can be no
assurances that all hardware and software that TCB will use will be Year 2000
compliant. Management cannot predict the amount of financial difficulties it may
incur due to customers and vendors inability to perform according to their
agreements with TCB or the effects that other third parties may cause as a
result of this issue. Therefore, there can be no assurance that the failure or
delay of others to address the issue or that the costs involved in such process
will not have a material adverse effect on TCB=s business, financial condition,
and results of operations.
TCB's contingency plans relative to Year 2000 issues have been finalized. Based
on testing results, TCB's mission critical systems have been deemed to be Year
2000 compliant and, therefore a contingency plan has not been developed with
respect to those systems. A Business Resumption Contingency Plan (the "BRCP")
has been developed and approved by the Board of Directors. The BRCP assumes
power outages and telephone disruptions. TCB has tested and validated the BRCP.
It is anticipated that TCB's deposit customers will have increased demands for
cash in the latter part of 1999 and correspondingly TCB will maintain higher
liquidity levels.
-12-
<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 2. Changes in Securities and Use of Proceeds
During the quarter ended September 30, 1999, 150 shares were issued to holders
of warrants at a purchase price of $10.00 per share.
Proceeds were used for general corporate purposes.
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 TCB's Registration Statement on Form SB-2
under the Securities Act of 1933 for TCB, as effective with the Securities
and Exchange Commission on April 28, 1997, Registration No. 333-19201
(referred to as "Registration Statement"). The exhibits which are
denominated by a double asterisk (**) where filed with TCB's 1998 Form
10-KSB. The exhibit numbers correspond to the exhibit numbers in the
referenced documents.
Exhibit Number Description of Exhibit
*3.1 Amended and Restated Articles of Incorporation of TCB
*3.2 By-laws of TCB (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 TCB's 1999 Annual Meeting Proxy Statement
**22.2 TCB's 1998 Annual Report
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 September 30, 1999.
-13-
<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: , 1999 By: /s/Gary G. Campbell
- ------------------ -------------------
Gary G. Campbell, President and
Chief Executive Officer
Date: , 1999 By: /s/Harvey E. Buckmaster
- ------------------ -----------------------
Harvey E. Buckmaster,
Chief Financial Officer
-14-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from Form 10-QSB
for the period ended September 30, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 700
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,320
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,191
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 14,492
<ALLOWANCE> 327
<TOTAL-ASSETS> 22,986
<DEPOSITS> 18,473
<SHORT-TERM> 0
<LIABILITIES-OTHER> 165
<LONG-TERM> 1,000
0
0
<COMMON> 5
<OTHER-SE> 3,343
<TOTAL-LIABILITIES-AND-EQUITY> 22,986
<INTEREST-LOAN> 780
<INTEREST-INVEST> 118
<INTEREST-OTHER> 106
<INTEREST-TOTAL> 1,004
<INTEREST-DEPOSIT> 549
<INTEREST-EXPENSE> 599
<INTEREST-INCOME-NET> 405
<LOAN-LOSSES> (281)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 838<F1>
<INCOME-PRETAX> (2)
<INCOME-PRE-EXTRAORDINARY> (1)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
<YIELD-ACTUAL> 2.82
<LOANS-NON> 0<F2>
<LOANS-PAST> 0<F2>
<LOANS-TROUBLED> 0<F2>
<LOANS-PROBLEM> 0<F2>
<ALLOWANCE-OPEN> 760
<CHARGE-OFFS> 161
<RECOVERIES> 9
<ALLOWANCE-CLOSE> 327
<ALLOWANCE-DOMESTIC> 327
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Other expense includes: salaries and employee benefits of $415, occupancy of
$182, professional fees of $70, advertising of $20 and other expenses which
totaled $151.
<F2>Items are only disclosed on an annual basis in TCB's Form 10-KSB, and are,
therefore, not included in this Financial Data Schedule.
</FN>
</TABLE>
