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, 2000
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 490,721 shares
-------------------------------------- ---------------------------------
(class) Outstanding at September 30, 2000
Transitional Small Business Format (Check One): YES NO X
------- -------
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
Condensed Consolidated Balance Sheets -
At September 30, 2000 (Unaudited) and At December 31, 1999..............2
Condensed Consolidated Statements of Operations (Unaudited) -
Three and Nine Months ended September 30, 2000 and 1999...............3-4
Condensed Consolidated Statement of Changes in Stockholders' Equity
(Unaudited) - Nine Months ended September 30, 2000......................5
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Nine Months ended September 30, 2000 and 1999...........................6
Notes to Condensed Consolidated Financial Statements (Unaudited)........7-8
Review by Independent Certified Public Accountants........................9
Report on Review by Independent Certified Public Accountants.............10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................11-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.........14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................14
Item 6. Exhibits and Reports on Form 8-K..................................14
SIGNATURES....................................................................15
1
<PAGE>
<TABLE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
At
September 30, December 31,
Assets 2000 1999
---- ----
(unaudited)
<S> <C> <C>
Cash and due from banks......................................................... $ 556,899 766,972
Federal funds sold ............................................................ 2,177,969 1,051,995
---------- ----------
Total cash and cash equivalents..................................... 2,734,868 1,818,967
Securities available for sale................................................... 9,889,708 7,897,493
Loans receivable, net of allowance for loan losses of $286,833
and $290,000 in 2000 and 1999, respectively................................. 18,777,220 14,372,913
Accrued interest receivable..................................................... 191,669 146,202
Premises and equipment, net..................................................... 685,175 519,639
Federal Home Loan Bank stock, at cost........................................... 88,300 64,500
Deferred tax asset ............................................................ 797,791 862,611
Other assets ................................................................ 58,527 49,819
---------- ----------
Total assets........................................................ $ 33,223,258 25,732,144
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Noninterest-bearing demand deposits......................................... 1,666,579 1,098,188
Savings and NOW deposits.................................................... 6,751,706 4,974,284
Money-market deposits....................................................... 264,239 226,115
Time deposits ............................................................ 20,604,025 14,921,394
---------- ----------
Total deposits...................................................... 29,286,549 21,219,981
Advance from Federal Home Loan Bank......................................... - 1,000,000
Official checks ............................................................ 298,907 112,738
Accrued interest payable and other liabilities.............................. 84,949 103,098
---------- ----------
Total liabilities................................................... 29,670,405 22,435,817
---------- -----------
Stockholders' equity:
Common stock ............................................................ 4,907 4,755
Additional paid-in capital.................................................. 4,887,833 4,735,435
Accumulated deficit......................................................... (1,318,934) (1,364,936)
Accumulated other comprehensive income (loss)............................... (20,953) (78,927)
---------- ----------
Total stockholders' equity.......................................... 3,552,853 3,296,327
---------- ----------
Total liabilities and stockholders' equity.......................... $ 33,223,258 25,732,144
========== ==========
See Accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
2
<PAGE>
<TABLE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
Interest income:
<S> <C> <C> <C> <C>
Loans ..................................................... $ 439,760 277,258 1,166,579 780,410
Securities available for sale................................ 209,858 49,643 581,907 117,448
Other interest-earning assets................................ 23,828 32,419 54,187 105,710
-------- ------- --------- ---------
Total interest income................................ 673,446 359,320 1,802,673 1,003,568
-------- ------- --------- ---------
Interest expense:
Deposits..................................................... 404,797 198,278 1,023,566 548,589
Other ..................................................... 2,155 12,267 31,129 50,093
-------- ------- --------- ---------
Total interest expense............................... 406,952 210,545 1,054,695 598,682
-------- ------- --------- ---------
Net interest income.................................. 266,494 148,775 747,978 404,886
(Credit) provision for loan losses............................... - (150,000) - (281,000)
-------- ------- --------- ---------
Net interest income after (credit)
provision for loan losses.......................... 266,494 298,775 747,978 685,886
-------- ------- --------- ---------
Noninterest income:
Service charges and fees..................................... 22,431 17,578 60,863 40,924
Gain on sale of investment................................... 3,280 - 3,280 -
Recovery of organizational expenses.......................... - - - 109,609
-------- ------- --------- ---------
Total noninterest income............................. 25,711 17,578 64,143 150,533
-------- ------- --------- ---------
Noninterest expense:
Salaries and employee benefits............................... 132,673 104,692 394,449 414,744
Occupancy expense............................................ 63,928 68,806 190,518 182,178
Professional fees............................................ 8,700 15,920 33,860 70,421
Advertising.................................................. 6,069 11,192 28,485 19,570
Other ..................................................... 49,627 46,581 144,693 151,436
-------- ------- --------- ---------
Total noninterest expense............................ 260,997 247,191 792,005 838,349
-------- ------- --------- ---------
Earnings (loss) before income tax provision
(benefit) and extraordinary item............................. 31,208 69,162 20,116 (1,930)
Income tax provision (benefit)....................... 15,470 26,000 11,300 (700)
-------- ------- --------- ---------
Earnings (loss) before extraordinary item........................ 15,738 43,162 8,816 (1,230)
Extraordinary item - gain on extinguishment of
debt, net of taxes of $20,920................................ - - 37,186 -
-------- ------- --------- ---------
Net earnings (loss).................................. 15,738 43,162 46,002 (1,230)
======== ======= ========= =========
(continued)
</TABLE>
3
<PAGE>
<TABLE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations (Unaudited), Continued
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C>
Net earnings (loss) per share - basic and diluted:
Earnings (loss) from continuing operations................... $ .03 .09 .01 -
Extraordinary gain from extinguishment of debt,
net of tax............................................... - - .08 -
--------- --------- ------- -------
Net earnings (loss) per share - basic and
diluted.................................................. .03 .09 .09 -
========= ========= ======= =======
Weighted-average number of shares outstanding
for basic and diluted........................................ 490,947 475,083 485,723 470,640
========= ========= ======= =======
Dividends per share.............................................. $ - - - -
========= ========= ======= =======
See Accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
4
<PAGE>
<TABLE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Changes in Stockholders' Equity
Nine Months Ended September 30, 2000
Accumulated
Other
Compre-
Common Stock Additional hensive Total
------------------- Paid-In Accumulated Income Stockholders'
Shares Amount Capital Deficit (Loss) Equity
------ ------ --------------------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999.............. 475,491 $ 4,755 4,735,435 (1,364,936) (78,927) 3,296,327
---------
Comprehensive income:
Net earnings (unaudited)............. - - - 46,002 - 46,002
Net change in unrealized gain on
securities available for sale,
net of tax benefit of $32,600
(unaudited)...................... - - - - 57,974 57,974
---------
Comprehensive income
(unaudited)...................... 103,976
---------
Issuance of 15,480 shares of common
stock upon exercise of 15,480
warrants (unaudited)................. 15,480 155 154,645 - - 154,800
---------
Repurchase of 250 shares of common
stock (unaudited).................... (250) (3) (2,247) - - (2,250)
------- -------- --------- ---------- ------- ---------
Balance at September 30, 2000
(unaudited).......................... 490,721 $ 4,907 4,887,833 (1,318,934) (20,953) 3,552,853
======= ======== ========= ========== ======= =========
See Accompanying Notes to Condensed Consolidated Financial Statements.
5
</TABLE>
<PAGE>
<TABLE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30,
2000 1999
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net earnings (loss)............................................................. $ 46,002 (1,230)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation................................................................ 80,803 71,694
(Credit) provision for loan losses.......................................... - (281,000)
Credit for deferred income taxes............................................ 32,220 (700)
Net amortization of fees, costs, premiums and discounts..................... (4,658) 65,954
Increase in accrued interest receivable and other assets.................... (54,175) (23,348)
Increase (decrease) in official checks, accrued interest
payable and other liabilities............................................. 168,020 (104,850)
Net gain upon extinguishment of debt........................................ (37,186) -
---------- ---------
Net cash provided by (used in) operating activities......................... 231,026 (273,480)
---------- ---------
Cash flows from investing activities:
Purchases of securities available for sale...................................... (4,457,441) (3,237,218)
Principal repayments on securities available for sale........................... 2,545,141 1,294,855
Net increase in loans........................................................... (4,388,990) (2,348,716)
Purchases of premises and equipment............................................. (246,339) (69,100)
Net proceeds from sale of premises and equipment................................ - 293,384
Purchase of Federal Home Loan Bank stock........................................ (23,800) (14,500)
---------- ---------
Net cash used in investing activities....................................... (6,571,429) (4,081,295)
---------- ---------
Cash flows from financing activities:
Net increase in deposits........................................................ 8,066,568 1,688,243
Net decrease in other borrowings................................................ - (364,749)
Cash paid upon extinguishment of debt........................................... (962,814) -
Cash paid to repurchase common stock............................................ (2,250) -
Proceeds from issuance of common stock upon exercise
of warrants................................................................. 154,800 103,000
---------- ---------
Net cash provided by financing activities................................... 7,256,304 1,426,494
---------- ---------
Net increase (decrease) in cash and cash equivalents................................ 915,901 (2,928,281)
Cash and cash equivalents at beginning of period.................................... 1,818,967 4,948,505
---------- ---------
Cash and cash equivalents at end of period.......................................... $ 2,734,868 2,020,224
========== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.................................................................... $ 1,177,597 595,663
========== =========
Income taxes................................................................ $ - -
========== =========
Noncash transactions-
Accumulated other comprehensive income (loss), net change
in unrealized loss on securities available for sale,
net of tax................................................................ $ 57,974 (10,666)
========== =========
See Accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
6
<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 a variety of 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, 2000, the results of operations for the three
and nine months ended September 30, 2000 and 1999 and cash flows for the
nine months ended September 30, 2000 and 1999. The results of operations
for the three and nine months ended September 30, 2000, are not
necessarily indicative of results that may be expected for the year
ending December 31, 2000.
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 average net investment in
impaired loans and interest income recognized and received on impaired
loans is as follows:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C>
Average net investment in impaired loans............... $ - 298,638 - 465,791
======== ======= ======== ========
Interest income recognized on impaired loans........... $ - - - -
======== ======= ======== ========
Interest income received on impaired loans............. $ - - - -
======== ======= ======== ========
</TABLE>
No loans were identified as impaired by TCB at September 30, 2000 or
December 31, 1999.
The activity in the allowance for loan losses was as follows:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -----------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period........................ $ 290,000 556,458 290,000 760,000
(Credit) provision for loan losses.................... - (150,000) - (281,000)
Loan charge-offs, net of recoveries................... (3,167) (79,587) (3,167) (152,129)
------- ------- -------- --------
Balance at end of period.............................. $ 286,833 326,871 286,833 326,871
======= ======= ======== ========
</TABLE>
(continued)
7
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited), Continued
(3) Earnings (Loss) Per Share. Basic and diluted earnings (loss) per share
are the same and have been computed on the basis of the weighted-average
number of shares of common stock outstanding. TCB"s common stock
equivalents are not dilutive.
(4) Regulatory Matters. The Bank is 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 percentages
(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, 2000, that the Bank meets all capital
adequacy requirements to which it is subject.
As of September 30, 2000, 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 percentages 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 percentages are also presented in the table (dollars
in thousands).
<TABLE>
To Be Well
Minimum Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
--------------------- ----------------------- -------------------------
Amount % Amount % Amount %
------ ----- ------ ----- ------ -----
<S> <C> <C>
At September 30, 2000:
Total capital (to Risk-
Weighted Assets)........... $ 2,926 15.4% $ 1,518 8.0% $ 1,898 10.0%
Tier I Capital (to Risk-
Weighted Assets)........... 2,688 14.2 759 4.0 1,139 6.0
Tier I Capital
(to Average Assets)........ 2,688 8.4 1,280 4.0 1,600 5.0
</TABLE>
8
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Review by Independent Certified Public Accountants
Hacker, Johnson & Smith PA, TCB's independent certified public accountants, have
made a limited review of the financial data as of September 30, 2000, and for
the three- and nine-month periods ended September 30, 2000 and 1999 presented in
this document, in accordance with standards established by the American
Institute of Certified Public Accountants.
Their report furnished pursuant to Article 10 of Regulation S-X is included
herein.
9
<PAGE>
Report on Review by Independent Certified Public Accountants
The Board of Directors
The Commercial Bancorp, Inc.
Ormond Beach, Florida:
We have reviewed the accompanying condensed consolidated balance sheet of
The Commercial Bancorp, Inc. and Subsidiary ("TCB") as of September 30, 2000,
and the related condensed consolidated statements of operations for the
three-month and nine-month periods ended September 30, 2000 and 1999, the
condensed consolidated statements of cash flows for the nine-month periods ended
September 30, 2000 and 1999 and the condensed consolidated statement of
stockholders' equity for the nine-month period ended September 30, 2000. These
financial statements are the responsibility of the TCB's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1999, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the year then ended (not presented herein); and in our report
dated February 1, 2000 we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1999, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
HACKER, JOHNSON & SMITH PA
Tampa, Florida
October 20, 2000
10
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Comparison of September 30, 2000 and December 31, 1999
General
The Holding Company was incorporated on August 15, 1996. The Holding
Company owns 100% of the outstanding common stock of the Bank. 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 a variety of community banking services to businesses
and individuals in Volusia County, Florida.
New Bank Charter and Planned Public Offering
During 1998, 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 withdrew their
application and the local organizers from Highlands County ("Organizers")
elected to continue without TCB. Because of this, management terminated its
planned public offering and charged-off $88,986 in prepaid offering expenses
during 1998. During 1999, TCB and the Organizers entered into a settlement
agreement in which the Organizers paid TCB $402,993 in proceeds, including
repayment of debt and for certain premises and equipment and as partial
reimbursement of organization expenses.
Liquidity and Capital Resources
TCB's primary source of cash during the nine months ended September 30,
2000 was from a net increase in deposits of $8.1 million. Cash was used
primarily to purchase securities available for sale of $4.5 million and to
fund loan originations, net of principal repayments of approximately $4.4
million. At September 30, 2000, TCB had unfunded lines of credit of
approximately $1.4 million and approximately $20.4 million in time deposits
maturing in one year or less. At September 30, 2000, the Bank exceeded its
regulatory liquidity requirements.
The following table shows selected statistics for the periods ended or at the
dates indicated:
<TABLE>
Nine Months Nine Months
Ended Year Ended Ended
September 30, December 31, September 30,
2000 1999 1999
--------------- --------------- ----------------
<S> <C> <C>
Average equity as a percentage
of average assets...................................... 11.34% 14.87% 15.48%
Total equity to total assets at end of period............. 10.69% 12.81% 14.57%
Return on average assets (1).............................. .20% .03% (.01)%
Return on average equity (1).............................. 1.79% .18% (.04)%
Noninterest expense to average assets (1)................. 3.50% 4.91% 3.98%
Nonperforming loans and foreclosed
real estate as a percentage of total assets
at end of period....................................... .05% - % 1.04%
Allowance for loan losses as a percentage of
total loans at end of period........................... 1.50% 1.98% 2.25%
<FN>
(1) Annualized for the nine months ended September 30, 2000 and 1999.
</FN>
</TABLE>
11
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Results of Operations
Comparison of the Three-Month Periods Ended September 30, 2000 and 1999
General. Net earnings for the three months ended September 30, 2000 was
$15,738, or $.03 per basic and diluted share compared to net earnings for
the three months ended September 30, 1999 of $43,162, or $.09 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.
Interest Income. Interest income increased $314,126 or 87.4% to $673,446 for
the three months ended September 30, 2000 from $359,320 for the three
months ended September 30, 1999. Interest income earned on loans increased
$162,502 or 58.6% to $439,760 for the three months ended September 30,
2000 from $277,258 during the three months ended September 30, 1999. The
increase was due to an increase in the average loan portfolio of $3.9
million or 28.2% for the three months ended September 30, 2000 compared to
the same period in 1999 and an increase in the average yield earned from
7.99% in 1999 to 9.89% in 2000.
Interest Expense. Interest expense increased $196,407 or 93.3% to $406,952
for the three months ended September 30, 2000 from $210,545 for the three
months ended September 30, 1999. This increase was due to an increase in
average interest-bearing liabilities outstanding of $9.8 million or 55.9%
during the three months ended September 30, 2000 when compared to the same
period in 1999 and an increase in the average rate paid from 4.77% in 1999
to 5.93% in 2000.
(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, 2000.
Noninterest Income. Noninterest income remained relatively unchanged at
$25,711 for the three months ended September 30, 2000 compared to $17,578
for the same period in 1999.
Noninterest Expense. Noninterest expense increased $13,806 or 5.6% to
$260,997 for the three months ended September 30, 2000 from $247,191 for
the three months ended September 30, 1999. This increase was mainly the
result of a increase in salaries and employee benefits of $27,981 coupled
with slight decreases in professional fees and advertising costs compared
to the same period in 1999.
Income Tax Provision. The income tax provision for the three months ended
September 30, 2000 was $15,470 compared to an income tax provision of
$26,000 for the three months ended September 30, 1999.
12
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Comparison of the Nine-Month Periods Ended September 30, 2000 and 1999
General. Net income for the nine months ended September 30, 2000 was $46,002,
or $.09 per basic and diluted share compared to a net loss for the nine
months ended September 30, 1999 of $1,230. 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.
Interest Income. Interest income increased $799,105 or 79.6% to $1,802,673
for the nine months ended September 30, 2000 from $1,003,568 for the nine
months ended September 30, 1999. Interest income earned on loans increased
$386,169 or 49.5% to $1,166,579 for the nine months ended September 30,
2000 from $780,410 during the nine months ended September 30, 1999. The
increase was due to an increase in the average loan portfolio of $2.9
million or 21.7% for the nine months ended September 30, 2000 compared to
the same period in 1999 and an increase in the average yield earned from
7.84% in 1999 to 9.64% in 2000.
Interest Expense. Interest expense increased $456,013 or 76.2% to $1,054,695
for the nine months ended September 30, 2000 from $598,682 for the nine
months ended September 30, 1999. This increase was due to an increase in
average interest-bearing liabilities outstanding of $8.5 million or 50.7%
during the nine months ended September 30, 2000 compared to the same
period in 1999 and an increase in the average rate paid from 4.78% in 1999
to 5.58% in 2000.
(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, 2000.
Noninterest Income. Noninterest income decreased to $64,143 during the nine
months ended September 30, 2000 compared to $150,533 for the same period
in 1999. This decrease was primarily due to a recovery of previously
expensed organizational costs related to the Highlands County Bank charter
application of $109,609 during the nine months ended September 30, 1999.
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 decreased $46,344 or 5.5% to
$792,005 for the nine months ended September 30, 2000 from $838,349 for
the nine months ended September 30, 1999. The largest decrease was in
salaries and employee benefits of $20,295.
Income Tax Provision (Benefit). The income tax provision for the nine months
ended September 30, 2000 was $11,300 compared to an income tax benefit of
$700 for the nine months ended September 30, 1999.
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THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates.
TCB's market risk arises primarily from interest rate risk inherent in its
lending and deposit taking activities. TCB has no risk related to trading
accounts, commodities or foreign exchange.
Management actively monitors and manages its interest-rate risk exposure. The
primary objective in managing interest-rate risk is to limit, within established
guidelines, the adverse impact of changes in interest rates on TCB's net
interest income and capital, while adjusting TCB's asset-liability structure to
obtain the maximum yield-cost spread on that structure. Management relies
primarily on its asset-liability structure to control interest rate risk.
However, a sudden and substantial increase in interest rates could adversely
impact TCB'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. There have been no significant changes in TCB's market risk exposure
since December 31, 1999.
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 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 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)
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, 2000.
14
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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: November , 2000 By: /s/Gary G. Campbell
------------------------------ ---------------------------------
Gary G. Campbell, President and
Chief Executive Officer
Date: November , 2000 By: /s/Harvey E. Buckmaster
------------------------------ ---------------------------------
Harvey E. Buckmaster, Chief
Financial Officer
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