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 June 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 490,971 shares
-------------------------------------- ----------------------------
(class) Outstanding at July 18, 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 June 30, 2000 (Unaudited) and At December 31, 1999...................2
Condensed Consolidated Statements of Operations (Unaudited) -
Three and Six Months ended June 30, 2000 and 1999.....................3-4
Condensed Consolidated Statement of Changes in Stockholders' Equity
(Unaudited) - Six Months ended June 30, 2000............................5
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Six Months ended June 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.............................................11-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk.........14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................15
Item 4. Submission of Matters to a Vote of Security Holders...............15
Item 6. Exhibits and Reports on Form 8-K..................................15
SIGNATURES....................................................................16
1
<PAGE>
<TABLE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
<CAPTION>
At
June 30, December 31,
Assets 2000 1999
---- ----
(unaudited)
<S> <C> <C>
Cash and due from banks................................................ $ 480,685 766,972
Federal funds sold ................................................... 764,912 1,051,995
---------- ----------
Total cash and cash equivalents............................ 1,245,597 1,818,967
Securities available for sale.......................................... 11,958,347 7,897,493
Loans receivable, net of allowance for loan losses of $290,000
in 2000 and 1999................................................... 16,042,856 14,372,913
Accrued interest receivable............................................ 220,857 146,202
Premises and equipment, net............................................ 695,651 519,639
Federal Home Loan Bank stock, at cost.................................. 88,300 64,500
Deferred tax asset ................................................... 860,861 862,611
Other assets ....................................................... 30,740 49,819
---------- ----------
Total assets............................................... $ 31,143,209 25,732,144
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Noninterest-bearing demand deposits................................ 1,400,653 1,098,188
Savings and NOW deposits........................................... 5,509,116 4,974,284
Money-market deposits.............................................. 243,600 226,115
Time deposits ................................................... 19,523,870 14,921,394
---------- ----------
Total deposits............................................. 26,677,239 21,219,981
Advance from Federal Home Loan Bank................................ - 1,000,000
Federal funds purchased............................................ 700,000 -
Official checks ................................................... 236,808 112,738
Accrued interest payable and other liabilities..................... 74,305 103,098
---------- ----------
Total liabilities.......................................... 27,688,352 22,435,817
---------- ----------
Stockholders' equity:
Common stock ................................................... 4,910 4,755
Additional paid-in capital......................................... 4,890,080 4,735,435
Accumulated deficit................................................ (1,334,672) (1,364,936)
Accumulated other comprehensive income (loss)...................... (105,461) (78,927)
---------- ----------
Total stockholders' equity................................. 3,454,857 3,296,327
---------- ----------
Total liabilities and stockholders' equity................. $ 31,143,209 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)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- -----------------------
2000 1999 2000 1999
---- ---- ---- ----
Interest income:
<S> <C> <C> <C> <C>
Loans receivable........................................ $ 382,872 260,934 726,819 503,152
Securities.............................................. 214,795 36,385 372,049 67,805
Other interest-earning assets........................... 17,690 30,114 30,359 73,291
------- ------- --------- --------
Total interest income........................... 615,357 327,433 1,129,227 644,248
------- ------- --------- -------
Interest expense:
Deposits................................................ 343,948 171,385 618,769 350,311
Borrowings.............................................. 12,281 18,772 28,974 37,826
------- ------- --------- -------
Total interest expense.......................... 356,229 190,157 647,743 388,137
------- ------- --------- -------
Net interest income............................. 259,128 137,276 481,484 256,111
Credit for loan losses...................................... - (158,000) - (131,000)
------- ------- --------- -------
Net interest income after
credit for loan losses........................ 259,128 295,276 481,484 387,111
------- ------- --------- -------
Noninterest income:
Service charges and fees................................ 20,907 12,005 38,432 23,346
Recovery of organizational expenses..................... - 109,609 - 109,609
------- ------- --------- -------
Total noninterest income........................ 20,907 121,614 38,432 132,955
------- ------- --------- -------
Noninterest expense:
Salaries and employee benefits.......................... 130,959 144,336 261,776 310,052
Occupancy expense....................................... 63,274 58,177 126,590 113,372
Professional fees....................................... 7,064 25,320 25,160 54,501
Advertising............................................. 8,422 6,867 22,416 8,378
Data processing......................................... 11,219 9,854 22,008 15,604
Other ................................................ 39,371 40,981 73,058 89,251
------- ------- --------- -------
Total noninterest expense....................... 260,309 285,535 531,008 591,158
------- ------- --------- -------
Earnings (loss) before income taxes
(benefit) and extraordinary item........................ 19,726 131,355 (11,092) (71,092)
Income taxes (benefit).......................... 7,430 49,500 (4,170) (26,700)
------- ------- --------- -------
Earnings (loss) before extraordinary item................... 12,296 81,855 (6,922) (44,392)
Extraordinary item - gain on extinguishment
of debt, net of taxes of $20,920........................ 37,186 - 37,186 -
------- ------- --------- ------
Net earnings (loss)......................................... $ 49,482 81,855 30,264 (44,392)
======= ======= ========= =======
(continued)
</TABLE>
3
<PAGE>
<TABLE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations (Unaudited), Continued
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ----------------------
2000 1999 2000 1999
---- ---- ---- ----
Net earnings (loss) per share - basic and diluted:
<S> <C> <C> <C> <C>
Earnings (loss) from continuing operations....... .02 .17 (.02) (.09)
Extraordinary gain from extinguishment
of debt, net of tax.......................... .08 - .08 -
------- ------- ------- -------
Net earnings (loss) per share -
basic and diluted...................... $ .10 .17 .06 (.09)
======= ======= ======= =======
Weighted-average number of shares outstanding
for basic and diluted............................ 489,565 471,822 483,039 468,369
======= ======= ======= =======
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
Six Months Ended June 30, 2000
Accumulated
Other
Compre-
Additional hensive Total
Common Stock 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)............. - - - 30,264 - 30,264
Net change in unrealized loss on
securities available for sale,
net of tax of $15,000
(unaudited)...................... - - - - (26,534) (26,534)
---------
Comprehensive income
(unaudited)...................... 3,730
---------
Issuance of 15,480 shares of common
stock upon exercise of 15,480
warrants (unaudited)................. 15,480 155 154,645 - - 154,800
------- ----- --------- --------- ------- ---------
Balance at June 30, 2000 (unaudited)...... 490,971 $ 4,910 4,890,080 (1,334,672) (105,461) 3,454,857
======= ===== ========= ========= ======= =========
See Accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
5
<PAGE>
<TABLE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended
June 30,
2000 1999
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net earnings (loss)............................................................. $ 30,264 (44,392)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................................... 53,075 44,229
Credit for loan losses...................................................... - (131,000)
Provision (credit) for deferred income taxes................................ 16,750 (26,700)
Net amortization of fees, costs, premiums and discounts..................... 4,348 35,686
Net increase in accrued interest receivable and other assets................ (55,576) (10,187)
Net increase (decrease) in official checks, accrued
interest payable by other liabilities..................................... 95,277 (18,375)
---------- ----------
Net cash provided by (used in) operating activities......................... 144,138 (150,739)
---------- ----------
Cash flows from investing activities:
Purchases of securities available for sale...................................... (4,457,441) (1,518,438)
Principal repayments on securities available for sale........................... 344,779 1,066,638
Net increase in loans........................................................... (1,664,017) (1,122,936)
Purchases of premises and equipment............................................. (229,087) (23,505)
Purchase of Federal Home Loan Bank stock........................................ (23,800) (14,500)
Proceeds from sale of premises and equipment.................................... - 293,384
---------- ----------
Net cash used in investing activities....................................... (6,029,566) (1,319,357)
---------- ----------
Cash flows from financing activities:
Net increase (decrease) in deposits............................................. 5,457,258 (1,199,523)
Net gain upon extinguishment of debt............................................ (37,186) -
Cash paid upon extinguishment of debt........................................... (962,814) -
Net increase (decrease) in other borrowings..................................... 700,000 (364,749)
Proceeds from issuance of common stock upon exercise
of warrants................................................................. 154,800 101,500
---------- ----------
Net cash provided by (used in) financing activities......................... 5,312,058 (1,462,772)
---------- ----------
Net decrease in cash and cash equivalents........................................... (573,370) (2,932,868)
Cash and cash equivalents at beginning of period.................................... 1,818,967 4,948,505
---------- ----------
Cash and cash equivalents at end of period.......................................... $ 1,245,597 2,015,637
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.................................................................... $ 640,598 392,445
========== ==========
Income taxes................................................................ $ - -
========== ==========
Noncash transaction -
Accumulated other comprehensive income, net change in
unrealized loss on securities available for sale, net of tax.............. $ (26,534) (9,075)
========== ==========
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 June 30, 2000 and the results of operations for the three
and six months ended June 30, 2000 and 1999 and cash flows for the six
months ended June 30, 2000 and 1999. The results of operations and other
data for the three and six months ended June 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:
Six Months Ended
June 30,
2000 1999
---- ----
Average net investment in impaired loans........$ - 549,367
========= =======
Interest income recognized on impaired loans....$ - -
========= =======
Interest income received on impaired loans......$ - -
========= =======
No loans were identified as impaired by TCB at June 30, 2000 or December
31, 1999.
The activity in the allowance for loan losses was as follows:
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period....................... $ 290,000 787,000 290,000 760,000
Credit for loan losses............................... - (158,000) - (131,000)
Loan charge-offs..................................... - (72,542) - (72,542)
------- ------- ------- -------
Balance at end of period............................. $ 290,000 556,458 290,000 556,458
======= ======= ======= =======
(continued)
</TABLE>
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 June 30, 2000, that the Bank meets all capital adequacy
requirements to which it is subject.
As of June 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 June 30, 2000:
Total capital (to Risk-
Weighted Assets)........... $ 2,855 17.0% $ 1,342 8.0% $ 1,677 10.0%
Tier I Capital (to Risk-
Weighted Assets)........... 2,644 15.8 671 4.0 1,006 6.0
Tier I Capital
(to Average Assets)........ 2,644 8.8 1,202 4.0 1,503 5.0
</TABLE>
8
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Review by Independent Certified Public Accountants
Hacker, Johnson, Cohen & Grieb PA, TCB's independent certified public
accountants, have made a limited review of the financial data as of June 30,
2000, and for the three- and six-month periods ended June 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 June 30, 2000, the
related condensed consolidated statements of operations for the three- and
six-month periods ended June 30, 2000 and 1999, the related condensed
consolidated statement of changes in stockholders equity for the six-month
period ended June 30, 2000, and the related condensed consolidated statements of
cash flows for the six-month periods ended June 30, 2000 and 1999. These
financial statements are the responsibility of 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, COHEN & GRIEB PA
Tampa, Florida
July 17, 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 June 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 six months ended June 30, 2000 was
from a net increase in deposits of $5.5 million. Cash was used primarily to
purchase securities available for sale of $1.7 million and to fund loan
originations, net of principal repayments of approximately $4.5 million. At
June 30, 2000, TCB had unfunded lines of credit of approximately $1.5
million and approximately $19.4 million in time deposits maturing in one
year or less. At June 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>
Six Months Six Months
Ended Year Ended Ended
June 30, December 31, June 30,
2000 1999 1999
--------------- --------------- ----------
Average equity as a percentage
of average assets...................................... 11.64% 14.87% 15.70%
<S> <C> <C> <C>
Total equity to total assets at end of period............. 11.09% 12.81% 16.41%
Return on average assets (1).............................. .21% .03% (.43)%
Return on average equity (1).............................. 1.79% .18% (2.75)%
Noninterest expense to average assets (1)................. 3.67% 4.91% 5.75%
Nonperforming loans and foreclosed
real estate as a percentage of total assets
at end of period....................................... - % - % 3.32%
Allowance for loan losses as a percentage of
total loans at end of period........................... 1.78% 1.98% 4.16%
<FN>
(1) Annualized for the six months ended June 30, 2000 and 1999.
</FN>
</TABLE>
11
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations, Continued
Results of Operations
Comparison of the Three-Month Periods Ended June 30, 2000 and 1999
General. Net earnings for the three months ended June 30, 2000 was $49,482,
or $.10 per basic and diluted share compared to $81,855, or $.17 per basic
and diluted share for the three months ended June 30, 1999. Net earnings
for the 2000 period included an extraordinary gain on extinguishment of
debt of $37,186 or $.08 per basic and diluted share. Net earnings,
excluding this gain, were $12,296 or $.02 per basic and diluted share for
the six months ended June 30, 2000. Net earnings for the 1999 period
included a $109,609 recovery of previously expensed organizational costs
related to the Highlands County Bank charter application and a $158,000
credit for loan losses due to the settlement of two impaired loans to a
single borrower. Without these recoveries TCB would have reported a loss
for the 1999 period.
Interest Income. Interest income increased $287,924 or 87.9% to $615,357 for
the three months ended June 30, 2000 from $327,433 for the three months
ended June 30, 1999. Interest income earned on loans increased $121,938 or
46.7% from $260,934 for the three months ended June 30, 1999 to $382,872
during the three months ended June 30, 2000. The increase was due to
increases in the average loan portfolio of $2.1 million or 15.2% for the
three months ended June 30, 2000 compared to the same period in 1999 and
in the average yield earned from 7.57% in 1999 to 9.65% in 2000. Interest
income on securities increased $178,410 to $214,795 for the three months
ended June 30, 2000 from $36,385 for the three months ended June 30, 1999.
The primary reason for the increase was an increase in the securities
portfolio.
Interest Expense. Interest expense increased $166,072 or 87.3% to $356,229
for the three months ended June 30, 2000 from $190,157 for the three
months ended June 30, 1999. This increase was due to increases in average
interest-bearing liabilities outstanding of $9.8 million or 61.9% during
the three months ended June 30, 2000 compared to the same period in 1999
and in the average rate paid from 4.80% in 1999 to 5.55% 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. TCB did not record a provision for
loan losses during the three months ended June 30, 2000. The credit for
loan losses for the three months ended June 30, 1999 was $158,000. The
credit for loan losses resulted from a settlement of two impaired loans,
for less than the full amount, from a single borrower. This resulted in
the partial recapture of the specific allowance against these loans and a
charge-off of the remaining uncollected loan balance. Management believes
the allowance for loan losses of $290,000 is adequate at June 30, 2000.
12
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations, Continued
Results of Operations, Continued
Noninterest Income. Noninterest income decreased $100,707 during the three
months ended June 30, 2000 compared to the same period in 1999 primarily
due to a recovery of previously expensed organizational costs related to
the Highlands County Bank charter application of $109,609 during 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 $25,226 or 8.8% to
$260,309 for the three months ended June 30, 2000 from $285,535 for the
three months ended June 30, 1999. This decrease was mainly due to the
expenses relating to the Highlands County new bank charter withdrawn
during 1999. Salaries and employee benefits was the largest noninterest
expense, decreasing from $144,336 in 1999 to $130,959 in 2000.
Extraordinary Item. During the period ended June 30, 2000, the Company sold a
$1,000,000 advance from the Federal Home Loan Bank. The extinguishment of
the liability resulted in an extraordinary gain of $37,186 (net of income
taxes of $20,920).
Income Tax Provision. The income tax provision for the three months ended
June 30, 2000 was $7,430 (an effective rate of 37.7%) compared to an
income tax provision of $49,500 (an effective rate of 37.7%) for the three
months ended June 30, 1999.
Comparison of the Six-Month Periods Ended June 30, 2000 and 1999
General. Net earnings for the six months ended June 30, 2000 was $30,264, or
$.06 per basic and diluted share compared to a net loss for the six months
ended June 30, 1999 of $44,392 or $.09 per basic and diluted share. Net
earnings for the 2000 period included an extraordinary gain on
extinguishment of debt of $37,186 or $.08 per basic and diluted share. Net
loss, excluding this gain, was $6,922 or $.02 per basic and diluted share
for the six months ended June 30, 2000. Net loss for the 1999 period
included a $109,609 recovery of previously expensed organizational costs
and a $131,000 credit for loan losses due to the settlement of two
impaired loans to a single borrower.
Interest Income. Interest income increased $484,979 or 75.3% to $1,129,227
for the six months ended June 30, 2000 from $644,248 for the six months
ended June 30, 1999. Interest income earned on loans increased $223,667 or
44.5% from $503,152 for the six months ended June 30, 1999 to $726,819
during the six months ended June 30, 2000. The increase was due to
increases in the average loan portfolio of $2.6 million or 20.1% for the
six months ended June 30, 2000 compared to the same period in 1999 and in
the average yield earned from 7.77% in 1999 to 9.34% in 2000. Interest
income on securities increased $304,244 to $372,049 for the six months
ended June 30, 2000 from $67,805 for the six months ended June 30, 1999.
The primary reason for the increase was an increase in the securities
portfolio.
Interest Expense. Interest expense increased $259,606 or 66.9% to $647,743
for the six months ended June 30, 2000 from $388,137 for the six months
ended June 30, 1999. This increase was due to increases in average
interest-bearing liabilities outstanding of $7.8 million or 47.8% during
the six months ended June 30, 2000 compared to the same period in 1999 and
in the average rate paid from 4.77% in 1999 to 5.39% in 2000.
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THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations, Continued
Results of Operations, Continued
(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. TCB did not record a provision for
loan losses for the six months ended June 30, 2000. The credit for loan
losses for the six months ended June 30, 1999 was $131,000. The credit for
loan losses resulted from a settlement of two 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 balance.
Management believes the allowance for loan losses of $290,000 is adequate
at June 30, 2000.
Noninterest Income. Noninterest income decreased $94,523 during the six
months ended June 30, 2000 compared to the same period in 1999 primarily
due to a recovery of previously expensed organizational costs related to
the Highlands County Bank charter application of $109,609 during 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 $60,150 or 10.2% to
$531,008 for the six months ended June 30, 2000 from $591,158 for the six
months ended June 30, 1999. This decrease was mainly due to the expenses
relating to the Highlands County new bank charter withdrawn during 1999.
Salaries and employee benefits was the largest noninterest expense,
decreasing from $310,052 in 1999 to $261,776 in 2000.
Extraordinary Item. During the period ended June 30, 2000, the Company sold a
$1,000,000 advance from the Federal Home Loan Bank. The extinguishment of
the liability resulted in an extraordinary gain of $37,186 (net of income
taxes of $20,920).
Income Tax Benefit. The income tax benefit for the six months ended June 30,
2000 was $4,170 (an effective rate of 37.6%) compared to $26,700 (an
effective rate of 37.6%) for the six months ended June 30, 1999.
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.
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<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 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders (the "Annual Meeting") of The Commercial
Bancorp, Inc. was held on April 18, 2000, to consider the election of one
director for a term of three years and the ratification of the appointment of
TCB's independent auditors, Hacker, Johnson, Cohen & Grieb PA for the year
ending December 31, 2000. At the Annual Meeting, incumbent Director James R.
Peacock was reelected. The terms of Directors Gary G. Campbell, Richard R.
Dwyer, Clarence W. Singletary and Larry A. Kent continued after the Annual
Meeting.
At the Annual Meeting, 278,858 shares were present in person or by proxy. The
following is a summary and tabulation of the matters that were voted upon at the
Annual Meeting:
Proposal I.
The election of one director, for a term of three years:
For Abstain Against
James R. Peacock 269,340 - 9,518
======= ======= =====
Proposal II:
To ratify the appointment of TCB's independent auditors, Hacker, Johnson,
Cohen & Grieb PA for the year ending December 31, 2000.
For Abstain Against
271,808 750 6,300
======= === =====
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 June 30, 2000.
15
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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: , 2000 By: /s/Gary G. Campbell
---------------------------- --------------------
Gary G. Campbell,
President and
Chief Executive Officer
Date: , 2000 By: /s/Harvey E. Buckmaster
--------------------------- ------------------------
Harvey E. Buckmaster,
Chief Financial Officer
16
