<PAGE> 1
UNITED STATES 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
SECURITIES EXCHANGE ACT
For the transition period from _____ to _____.
Commission file number: 333-68797
CNBC BANCORP
------------
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
OHIO 31-1478140
- -------------------------------------------------- ----------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
</TABLE>
100 EAST WILSON BRIDGE ROAD, WORTHINGTON, OHIO 43085
----------------------------------------------------
(Address of principal executive offices)
(614) 848-8700
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
<TABLE>
<S> <C>
Common stock, without par value 1,307,987 common shares
outstanding at November 5, 1999
</TABLE>
Transitional Small Business Disclosure Format (check one):
Yes No X
-------- --------
<PAGE> 2
CNBC BANCORP
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1999
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets ............................................................... 3
Condensed Consolidated Income Statements............................................................. 4
Condensed Consolidated Comprehensive Income Statements............................................... 5
Condensed Consolidated Statements of Changes in
Shareholders' Equity .............................................................................. 6
Condensed Consolidated Statements of Cash Flows ..................................................... 7
Notes to the Consolidated Financial Statements ...................................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................................... 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................. 18
Item 2. Changes in Securities and Use of Proceeds.......................................................... 18
Item 3. Defaults Upon Senior Securities.................................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders................................................ 18
Item 5. Other Information.................................................................................. 18
Item 6. Exhibits and Reports on Form 8-K................................................................... 18
SIGNATURES.................................................................................................. 19
</TABLE>
2.
<PAGE> 3
CNBC BANCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and Noninterest-bearing Balances....................... $ 8,706,701 $ 5,256,468
Interest-bearing Balances................................... 160,572 2,589,088
Federal Funds Sold.......................................... 6,475,000 4,850,000
Money Market Funds.......................................... 8,905,212 4,801,173
------------ -----------
Total Cash and Cash Equivalents............................. 24,247,485 17,496,729
Securities Available for Sale............................... 8,995,357 5,218,341
Loans....................................................... 167,996,379 150,935,855
Allowance for Loan Losses................................... (2,409,734) (2,055,000)
------------ -----------
Loans, Net.................................................. 165,586,645 148,880,855
Premises and Equipment...................................... 2,255,121 1,943,744
Accrued Interest Receivable................................. 894,648 825,435
Other Assets................................................ 1,036,527 748,079
------------ -----------
Total Assets................................................ $203,015,783 $175,113,183
============ ============
LIABILITIES
Deposits:
Noninterest-bearing.................................... $ 23,613,557 $ 21,013,393
Interest-bearing....................................... 146,174,333 130,466,924
------------ ------------
Total Deposits..................................... 169,787,890 151,480,317
Borrowings.................................................. 13,755,166 10,684,892
Other Liabilities........................................... 935,684 976,472
------------ ------------
Total Liabilities........................................... 184,478,740 163,141,681
SHAREHOLDERS' EQUITY
Common Stock No Par Value;
Authorized Shares - 2,000,000
Issued and Outstanding - 1,302,707 in 1999 and
1,116,972 in 1998...................................... 13,527,115 8,379,375
Retained Earnings........................................... 5,027,011 3,579,127
Accumulated Other Comprehensive Income...................... (17,083) 13,000
------------ ------------
Total Shareholders' Equity.................................. 18,537,043 11,971,502
------------ ------------
Total Liabilities and Shareholders' Equity.................. $203,015,783 $175,113,183
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3.
<PAGE> 4
CNBC BANCORP
CONDENSED CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including Fees................. $ 3,562,059 $ 3,053,402 $ 10,229,386 $ 8,625,342
Taxable Securities.................... 123,318 77,720 278,078 226,447
Money Market Funds.................... 101,966 84,365 257,522 238,482
Federal Funds Sold.................... 83,336 47,446 172,450 141,414
Deposits with Banks................... 17,911 46,410 134,212 149,055
----------- ----------- ------------ -----------
Total Interest Income....................... 3,888,590 3,309,343 11,071,648 9,380,740
INTEREST EXPENSE
Deposits.............................. 1,574,856 1,469,880 4,507,949 4,201,602
Borrowings............................ 211,797 139,096 623,689 440,926
----------- ----------- ------------ -----------
Total Interest Expense...................... 1,786,653 1,608,976 5,131,638 4,642,528
----------- ----------- ------------ -----------
Net Interest Income................... 2,101,937 1,700,367 5,940,010 4,738,212
Provision for Loan Losses............. 119,000 139,800 392,000 384,800
----------- ----------- ------------ -----------
Net Interest Income After
Provision for Loan Losses............. 1,982,937 1,560,567 5,548,010 4,353,412
NONINTEREST INCOME
Service Charges on Deposits........... 44,490 33,468 132,141 95,331
Net Gains on Sales of Securities...... - - 15,395 -
Other Income.......................... 41,125 23,535 104,886 74,230
----------- ----------- ------------ -----------
Total Noninterest Income.................... 85,615 57,003 252,422 169,561
----------- ----------- ------------ -----------
NONINTEREST EXPENSES
Salaries and Benefits................. 676,208 518,647 1,900,177 1,473,790
Occupancy and Equipment, Net.......... 73,330 23,956 183,273 75,622
Data Processing....................... 100,228 67,049 252,598 196,030
Customer Courier...................... - 43,500 96,000 132,000
Professional Services................. 28,372 64,062 108,918 124,307
State Franchise Tax................... 16,214 32,442 88,247 97,301
Other Expenses........................ 191,421 134,173 547,322 395,364
----------- ----------- ------------ -----------
Total Noninterest Expenses.................. 1,085,773 883,829 3,176,535 2,494,414
----------- ----------- ------------ -----------
Income Before Income Taxes.................. 982,779 733,741 2,623,897 2,028,559
Income Tax Expense.......................... 343,351 256,200 916,821 701,600
----------- ----------- ------------ -----------
Net Income............................ $ 639,428 $ 477,541 $ 1,707,076 $ 1,326,959
=========== =========== ============ ===========
EARNINGS PER COMMON SHARE
Basic................................. $ .49 $ .43 $ 1.39 $ 1.19
=========== =========== ============ ===========
Diluted............................... $ .45 $ .39 $ 1.27 $ 1.08
=========== =========== ============ ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4.
<PAGE> 5
CNBC BANCORP
CONDENSED CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income.................................. $ 639,428 $ 477,541 $1,707,076 $1,326,959
Other Comprehensive Income:
Unrealized Gain or (Loss) on
Securities Available for Sale......... (4,570) 38,180 (30,088) 36,792
Tax Effect.................................. (1,554) 12,980 (10,230) 12,492
----------- ----------- ---------- ----------
Net......................................... (3,016) 25,200 (19,858) 24,300
Less: Reclassification Adjustment
for Gains included in
Net Income.................... 15,395
Tax Effect............................ 5,170
----------
Reclassification Adjustment, Net...... 10,225
----------- ----------- ---------- ----------
Total Other Comprehensive Income............ (3,016) 25,200 (30,083) 24,300
----------- ----------- ---------- ----------
Comprehensive Income........................ $ 636,412 $ 502,741 $1,676,993 $1,351,259
=========== =========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
5.
<PAGE> 6
CNBC BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1999 1998
---- ----
<S> <C> <C>
BALANCES AT BEGINNING OF PERIOD................. $ 11,971,502 $ 10,481,664
Net Income....................................... 1,707,076 1,326,959
Proceeds from Exercise of Warrants............... 33,881 16,223
Proceeds and Tax Benefit from Exercise of
Stock Options............................... 228,165 -
Proceeds from Stock Offering,
Net of Costs................................ 4,853,694 -
Stock Issued in Business Purchase................ 32,000 -
Cash Dividends Declared ($0.20 per share
in 1999 and $0.17 per share in 1998)........ (259,192) (189,386)
Other Comprehensive Income....................... (30,083) 24,300
------------- -------------
BALANCES AT END OF PERIOD....................... $ 18,537,043 $ 11,659,760
============= =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
6.
<PAGE> 7
CNBC BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................ $ 1,707,076 $ 1,326,959
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Loan Losses............... 392,000 384,800
Depreciation............................ 168,100 111,975
Net Realized Gain on Securities
Available for Sale................... (15,395) -
Net Amortization/Accretion on Securities 5,136 4,448
Federal Home Loan Bank Stock Dividend... (64,100) (59,400)
Changes in:
Interest Receivable............ (69,213) (178,763)
Other Assets................... (241,048) (49,985)
Other Liabilities.............. 149,098 (40,892)
----------- -----------
Net Cash Provided by Operating Activities........ 2,031,654 1,499,142
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Securities................................... (8,553,219) (2,028,289)
Maturities of Securities.................................. 1,750,000 1,250,000
Sales of Securities Available for Sale.................... 3,055,079 -
Net Increase in Loans..................................... (17,097,790) (17,865,000)
Purchase of Premises and Equipment........................ (479,477) (91,201)
----------- -----------
Net Cash Flows Used in Investing Activities...... (21,325,407) (18,734,490)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits.................................. 18,307,573 24,891,961
Net Proceeds from Issuance of Common Stock................ 5,115,740 16,222
Maturities of Federal Home Loan Bank Advances............. (1,250,000) (1,250,000)
Advances from Federal Home Loan Bank...................... 5,000,000 3,750,000
Principal Payments on Federal Home Loan Bank Advances..... (619,085) (536,656)
Net Proceeds from Loan Payable............................ 1,000,000 -
Repayment of Loans Payable................................ (1,060,641) -
Dividends Paid............................................ (449,078) (328,353)
----------- -----------
Net Cash Flows Provided by Financing Activities.. 26,044,509 26,543,174
----------- -----------
Net Change in Cash and Cash Equivalents.......... 6,750,756 9,307,826
Cash and Cash Equivalents at Beginning of Year............ 17,496,729 15,060,033
----------- -----------
Cash and Cash Equivalents at End of Period................ $24,247,485 $24,367,859
=========== ===========
Cash Paid During the Period for
Interest......................................... $ 5,108,926 $ 4,557,317
Income Taxes..................................... 980,000 855,000
Noncash Transactions
Business Purchase................................ $ 32,000 -
</TABLE>
See Notes to Condensed Consolidated Financial Statements
7.
<PAGE> 8
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim financial statements are prepared without audit and reflect all
adjustments which, in the opinion of management, are necessary to present fairly
the consolidated financial position of CNBC Bancorp ("CNBC") at September 30,
1999, and its results of operations and cash flows for the periods presented.
All such adjustments are normal and recurring in nature. The accompanying
consolidated financial statements have been prepared in accordance with the
instructions of Form 10-QSB and, therefore, do not purport to contain all
necessary financial disclosures required by generally accepted accounting
principles that might otherwise be necessary in the circumstances, and should be
read in conjunction with the consolidated financial statements and notes thereto
of CNBC Bancorp for the year ended December 31, 1998, included in its 1998
Annual Report. Reference is made to the accounting policies of CNBC Bancorp
described in the notes to consolidated financial statements contained in its
1998 Annual Report. CNBC has consistently followed these policies in preparing
this Form 10-QSB.
The accompanying consolidated financial statements include the accounts of CNBC
Bancorp and its wholly-owned subsidiary, Commerce National Bank ("Commerce
National"). All significant intercompany transactions and balances have been
eliminated.
Revenues and assets are derived from the banking industry, serving primarily
small business customers in the central Ohio region. Banking deposit products
include checking and savings accounts and certificates of deposit. Business
loans are secured by real estate, accounts receivable, inventory, equipment and
other types of collateral and are expected to be repaid from cash flows from
operations of businesses. Personal loans are secured by real estate, stocks and
other collateral. A small portion of loans are unsecured. All of CNBC's banking
operations are considered by management to be aggregated in one reportable
operating segment.
To prepare financial statements in conformity with generally accepted accounting
principles, management makes estimates and assumptions based on available
information. These estimates and assumptions affect amounts reported in the
financial statements and the disclosures provided, and future results could
differ. The allowance for loan losses, fair values of financial instruments and
the status of contingencies are particularly subject to change.
Basic EPS is net income divided by the weighted-average number of common shares
outstanding. Diluted EPS is the weighted-average number of common shares
outstanding during the year and the assumed exercise of dilutive stock options
and warrants less the number of treasury shares assumed to be purchased from the
proceeds using the average market price of CNBC's common stock. The calculation
for weighted average shares is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares for basic EPS....... 1,300,788 1,114,283 1,225,293 1,113,220
Add dilutive effect of:.....................
Exercise of warrants.................. 44,217 48,056 46,630 48,056
Exercise of stock options............. 70,586 72,317 74,163 72,317
----------- ----------- ----------- -----------
Weighted averages shares for diluted EPS.... 1,415,591 1,234,656 1,346,086 1,233,593
</TABLE>
8.
<PAGE> 9
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income tax expense is based on the effective tax rate expected to be applicable
for the entire year. Income tax expense is the sum of the current year income
tax due or refundable and the change in deferred tax assets and liabilities.
Deferred tax assets and liabilities are the expected future tax consequences of
temporary differences between the carrying amounts and tax basis of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
Certain items in the financial statements have been reclassified to conform with
the current presentation.
NOTE 2 - LOANS
Loans were comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Residential Real Estate Loans.................... $ 21,545,138 $ 21,234,368
Real Estate Construction Loans................... 5,905,933 9,903,512
Real Estate Investment Loans..................... 74,067,323 63,607,025
Business Loans................................... 54,690,506 46,203,996
Personal Loans................................... 12,096,059 10,215,288
Net Deferred Fees and Costs...................... (308,580) (228,334)
------------- --------------
Subtotal......................... 167,996,379 150,935,855
Allowance for Loan Losses........................ (2,409,734) (2,055,000)
------------- --------------
Net Loans $ 165,586,645 $ 148,880,855
============= =============
</TABLE>
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Beginning Balance................................ $ 2,055,000 $ 1,600,000
Loan Loss Provision.............................. 392,000 479,732
Loans Charged Off................................ (43,279) (24,732)
Recoveries on Loans Previously Charged
Off........................................ 6,013 -
------------- --------------
Ending Balance................................... $ 2,409,734 $ 2,055,000
============= ==============
</TABLE>
9.
<PAGE> 10
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - LOANS (CONTINUED)
Information regarding impaired loans was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Loans Past Due Over 90 Days
and Accruing Interest............................ $ - $ -
Impaired Loans with No Allowance
for Losses Allocated............................. 42,073 80,025
Impaired Loans with Allowance
for Loan Losses Allocated........................ 395,104 386,741
Amount of Allowance for Loan Losses
Allocated to Impaired Loan Balance............... 40,000 75,000
</TABLE>
NOTE 3 - DEPOSITS
Total interest-bearing deposits were classified as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Interest-bearing Demand.......................... $ 11,898,401 $ 14,232,748
Savings.......................................... 66,670,201 58,690,625
Time, Balances Under $100,000.................... 37,043,263 30,571,254
Time, Balances $100,000 and Over................. 30,562,468 26,972,297
------------- -------------
Total Interest Bearing Deposits.................. $ 146,174,333 $ 130,466,924
============= =============
</TABLE>
Total deposit accounts with balances of $100,000 and over, including non
interest-bearing demand accounts, totaled $100,190,000 at September 30, 1999 and
$89,660,000 at December 31, 1998. Commerce National accepts time deposits from
customers outside its primary market area, which are primarily solicited through
a national rate-listing network. The total balances of these time deposits were
$37,255,000 at September 30, 1999 and $30,401,000 at December 31, 1998.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
There are various contingent liabilities that are not reflected in the financial
statements, including claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
effect on financial condition or results of operations.
At September 30, 1999 and December 31, 1998 respectively, reserves of $1,108,000
and $1,061,000 were required as deposits with the Federal Reserve or as cash on
hand. These reserves do not earn interest.
10.
<PAGE> 11
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Some financial instruments are used in the normal course of business to meet the
financing needs of customers and to reduce exposure to interest rate changes.
These financial instruments include commitments to extend credit and standby
letters of credit. These involve, to varying degrees, credit and interest-rate
risk in excess of the amount reported in the financial statements. Exposure to
credit loss if the other party does not perform is represented by the
contractual amount for commitments to extend credit, standby letters of credit,
and financial guarantees written. The same credit policies are used for
commitments and conditional obligations as are used for loans.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the commitment.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Some of the commitments are expected to expire
without being used; therefore, the total commitments does not necessarily
represent future cash requirements. Standby letters of credit and financial
guarantees written are conditional commitments to guarantee a customer's
performance to a third party.
A summary of the notional or contractual amounts of financial instruments with
off-balance-sheet risk were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Approved, Unadvanced Lines of Credit............ $ 32,466,000 $ 30,853,000
Unadvanced Draw Notes............................ 7,788,000 6,223,000
New Loan Commitments:
Secured by Real Estate.................. 8,673,000 11,593,000
Other................................... 6,773,000 3,155,000
Letters of Credit................................ 2,346,000 1,327,000
Available Lines for Credit Cards................. 1,489,000 1,182,000
</TABLE>
NOTE 5 - REGULATORY MATTERS
CNBC and Commerce National are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and,
additionally for banks, prompt corrective action regulations involve
quantitative measures of assets, liabilities and certain off-balance-sheet items
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by regulators about
components, risk weightings, and other factors, and the regulators can lower
classifications in certain cases. Failure to meet adequately capitalized
requirements could result in regulatory action that could have a direct material
effect on the financial statements.
The Office of the Comptroller of the Currency ("OCC") must approve the
declaration of any dividends for Commerce National in excess of available
retained earnings and in excess of the sum of profits for the year combined with
the retained earnings from the two preceding years, less any required transfer
to surplus. In addition, dividends may not reduce capital levels below the
minimum regulatory requirements disclosed above.
11.
<PAGE> 12
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - REGULATORY MATTERS (CONTINUED)
The prompt corrective action regulations provide five regulatory capital
classifications: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized. These terms are
not intended to represent overall financial condition. CNBC and Commerce
National met the requirements of a well capitalized institution as defined
above, at September 30, 1999 and Commerce National met the requirements of a
well capitalized institution at December 31, 1998. If Commerce National's
capital classification were to change to adequately capitalized, it would need
to obtain regulatory approval to continue to accept brokered deposits.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ------------------ -------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Millions)
<S> <C> <C> <C> <C> <C> <C>
September 30, 1999
Total Capital to Risk Weighted Assets
CNBC................................... $20.6 12.4% $13.3 8.0% $16.6 10.0%
Commerce National...................... $21.8 13.2% $13.3 8.0% $16.6 10.0%
Tier 1 (Core) Capital to Risk Weighted Assets
CNBC................................... $18.5 11.2% $6.6 4.0% $10.0 6.0%
Commerce National...................... $13.4 8.1% $6.6 4.0% $ 9.9 6.0%
Tier 1 (Core) Capital to Average Assets
CNBC................................... $18.5 9.2% $8.1 4.0% $10.1 5.0%
Commerce National...................... $13.4 6.7% $8.1 4.0% $10.1 5.0%
December 31, 1998
Total Capital to Risk Weighted Assets
CNBC................................... $13.7 9.5% $11.5 8.0% $14.4 10.0%
Commerce National...................... $15.2 10.6% $11.5 8.0% $14.4 10.0%
Tier 1 (Core) Capital to Risk Weighted Assets
CNBC................................... $11.9 8.3% $5.8 4.0% $8.7 6.0%
Commerce National...................... $10.0 6.9% $5.8 4.0% $8.6 6.0%
Tier 1 (Core) Capital to Average Assets
CNBC................................... $11.9 7.0% $6.8 4.0% $8.5 5.0%
Commerce National...................... $10.0 5.9% $6.8 4.0% $8.5 5.0%
</TABLE>
12.
<PAGE> 13
CNBC BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The following discussion focuses on the consolidated financial condition of CNBC
Bancorp ("CNBC") at September 30, 1999, compared to December 31, 1998, and the
consolidated results of operations for the three and nine months ended September
30, 1999 compared to the same periods in 1998. The purpose of this discussion is
to provide the reader with a more thorough understanding of the consolidated
financial statements. This discussion should be read in conjunction with the
interim consolidated financial statements and related footnotes.
When used in this Form 10-QSB or future filings by CNBC with the Securities and
Exchange Commission, in CNBC's press releases or other public or shareholder
communications, or in oral statements made with the approval of an authorized
executive officer, the words or phrases "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate," "project," "believe," or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. CNBC wishes to
caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made, and to advise readers that
various factors, including regional and national economic conditions, changes in
levels of market interest rates, credit risks of lending activities and
competitive and regulatory factors, could affect CNBC's financial performance
and could cause CNBC's actual results for future periods to differ materially
from those anticipated or projected. CNBC does not undertake, and specifically
disclaims, any obligation to publicly release the result of any revisions which
may be made to any forward-looking statements to reflect occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.
CNBC is not aware of any trends, events or uncertainties that will have or are
reasonably likely to have a material effect on the liquidity, capital resources
or operations except as discussed herein. In addition, CNBC is not aware of any
current recommendations by regulatory authorities that would have such effect if
implemented.
FINANCIAL CONDITION
Total assets increased $27.9 million, or 15.9%, to $203.0 million at September
30, 1999. The two largest components of this increase were an increase in cash
and cash equivalents of $6.8 million and an increase of $16.7 million in net
loans outstanding.
The increase in loans was comprised primarily of a $10.5 million increase in
real estate investment loans and a $8.5 million increase in business loans.
These increases were above Commerce National's budgeted growth goals. Management
attributes much of this growth to the continuing consolidation of its
competitors, which has resulted in a higher demand for Commerce National's more
personal and responsive service. The central Ohio economy continues to be
strong, especially in residential and commercial real estate construction.
Management anticipates loan growth in the next 12 to 18 months will be slower
than what it has experienced during the last two years. Competition continues to
grow more intense and the central Ohio economy is beginning to show signs of
slower growth. Several new banks have started operation in central Ohio, in
addition to the establishment of new offices from existing banks. However,
management believes that this continuing consolidation should provide additional
growth opportunities for Commerce National.
13.
<PAGE> 14
CNBC BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION - CONTINUED
The primary reason for the large increase in cash and cash equivalents for the
period ended September 30, 1999 was the conscious effort by management to
maintain higher levels of liquidity for possible Y2K needs as we approach
year-end.
The primary funding source for the asset growth was an $18.3 million increase in
deposit accounts. Of this increase, $8.0 million was in savings account
balances. Demand and savings deposit balances continued to grow as a result of
Commerce National's small business focus and available cash management products
for its customers. Certificates of deposit grew $10.1 million, with $6.8 million
of growth achieved through solicitation of deposits on the national rate-listing
network to which Commerce National subscribes. Maturities for new certificates
generally range from 18 months to 3 years.
Borrowings increased $3.1 million, with an increase in Federal Home Loan Bank
advances. These advances have variable rates and ten-year terms.
Equity increased $6.6 million to $18.5 million at September 30, 1999. In April
1999, CNBC completed a public offering for a total of 165,000 shares of its
common stock which raised $4,854,000 in new capital funds, net of offering
costs.
RESULTS OF OPERATIONS
Net income for the nine-month period ended September 30, 1999 was $1,707,076, a
28.6% increase, compared to $1,326,959 during the same period in 1998. The
increase in earnings was due to improved interest income from the increase in
loan balances, offset somewhat by increased noninterest expense. Third quarter
income in 1999 was $639,428, a 33.9% increase over the $477,541 for the same
period in 1998. Discussed below are the major factors that influenced the
operating results for the three and nine month periods ended September 30, 1999.
NET INTEREST INCOME
Net interest income is the largest component of CNBC's income and is affected by
the interest rate environment and the volume and composition of interest-earning
assets and interest-bearing liabilities. Net interest income increased by $1.2
million for the nine-month period ended September 30, 1999, compared to the same
period in 1998. The 25.4% increase in net interest income was primarily the
result of an increase in average loans outstanding of 27.9% for 1999 compared to
1998. Loan growth was most significant in the business and real estate
investment loan categories, which reflects Commerce National's business focus
and an expanding local economy. Total interest income during the nine-month
period ended September 30, 1999 increased 18.0% over the prior year nine-month
period, compared to a 10.5% increase in total interest expense. Net interest
margin for the nine months ended September 30, 1999 was 4.27%, compared to 4.33%
for the same period in 1998.
Interest income for the third quarter 1999 was $3,888,590, an increase of 17.5%
over the same period in 1998. Interest expense for the third quarter 1999 was
$1,786,653, an increase of 11.0% over the same period in 1998. The 23.6%
increase in net interest income was primarily the result of an increase in
average loans outstanding.
14.
<PAGE> 15
CNBC BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NONINTEREST INCOME
Noninterest income for the nine months and three months ended September 30, 1999
increased approximately 49.0% and 50.2% respectively, over the same periods in
the prior year. This increase was a result of growth in the number of deposit
accounts, an increase in service charge fees, and an increase in other fee
income. Other income for the nine months ended September 30, 1999 also includes
a $15,000 gain on the sale of securities classified as available for sale.
NONINTEREST EXPENSE
Noninterest expense was up $682,121, or 27.3% for the nine months ended
September 30, 1999 versus the nine months ended September 30, 1998 and $201,944,
or 22.8%, for the three months ended September 30, 1999 versus the three months
ended September 30, 1998. Increases in salaries and benefits accounted for 63%
and 78% of these increases, respectively. In addition to normal raises and staff
additions to support CNBC's growth, two major changes were implemented in the
third quarter, which account for these increases. First, Commerce National
terminated its contract with the third party processor of its core operating
system and began processing in-house, utilizing its own AS/400 computer.
Additional staff was added during the third quarter to accomplish this
conversion. The AS/400 computer, its operating software and Commerce National's
core operating system software are identical to that previously used and tested
by Commerce National for Y2K compliance. Data processing costs for the quarter
actually increased due to conversion expenses and contract termination fees paid
totaling $47,000. As a result of this change, CNBC expects to achieve future
cost savings and improved customer service capabilities and internal information
sharing. The second major change involved the courier messenger service utilized
by Commerce National's customers. Since its inception, some of Commerce
National's customers have utilized a deposit pickup courier service. This
service was provided by a separate company, utilizing drivers who were
independent contractors. Commerce National incurred the cost of this service.
Commerce National received regulatory approval to establish a mobile messenger
service which would utilize bank employees instead of contracting with a
separate company. Effective July 1, 1999, the courier company was acquired by
Commerce National and all employees and independent drivers of the company were
hired by Commerce National as employees of the bank. This change effectively
reclassified this expense from "Customer Courier " to "Salaries and Benefits"
and "Other Expenses". In addition, occupancy expense increased due to a
significant drop in rent income received from leasing a portion of Commerce
National's main office facility. In early 1999, two tenants moved out at
Commerce National's request. Commerce National utilized 2,500 square feet of the
vacated space for its item and data processing areas and recently completed
renovation of 8,000 square feet for its lending officers and loan operations
departments. Commerce National now occupies approximately 75% of its office
building. Professional services expense was higher in 1998 due to an increase in
litigation relating to certain loan customers, which have been resolved. State
franchise taxes are lower in 1999 due to some one-time refunds received for
prior year amended tax returns.
Federal income tax expense was up $215,221, or 30.7% for the nine months ended
September 30, 1999 versus the nine months ended September 30, 1998 and $87,151,
or 34.0% for the three months ended September 30, 1999 versus the three months
ended September 30, 1998. The increase in federal income tax expense was the
result of CNBC's increased profitability.
15.
<PAGE> 16
CNBC BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY
CNBC's objective in managing liquidity is to maintain the ability to meet the
cash flow needs of its customers, such as new loans or deposit withdrawals, as
well as its own financial commitments. The principal sources of liquidity are
new deposit accounts, loan principal payments, money market mutual funds,
securities available for sale, federal funds sold and cash and deposits with
banks. Along with its liquid assets, CNBC has additional sources of liquidity
available to ensure that adequate funds are available as needed. These sources
include, but are not limited to, the sale of loan participations to other
financial institutions, the purchase of federal funds and borrowing from the
Federal Home Loan Bank or Federal Reserve Bank. Management believes that it has
the capital adequacy, profitability and reputation to meet its current and
foreseeable liquidity needs.
At September 30, 1999, Commerce National had $44.4 million in available
short-term funding sources to mitigate risks from changes in deposit account
balances or other liquidity needs. Cash and short-term investments do not
include balances due from the Federal Reserve Bank. These sources are detailed
as follows:
<TABLE>
<S> <C>
Cash and short-term investments $ 16,592,000
Unused borrowing capacity with the Federal Home Loan Bank 17,396,000
Federal funds lines of credit with other banks 4,900,000
Unpledged investment securities 5,560,000
------------
Total $ 44,448,000
============
</TABLE>
Commerce National has put an additional borrowing arrangement in place with the
Federal Reserve Bank. Refer to the section below titled "Year 2000" for further
discussion of this arrangement.
CAPITAL RESOURCES
CNBC and Commerce National are both subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and,
additionally for banks, prompt corrective action regulations involve
quantitative measures of assets, liabilities and certain off-balance-sheet items
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by regulators about
components, risk weightings and other factors, and regulators can lower
classifications in certain cases. Failure to meet various capital requirements
can initiate regulatory action having a direct material affect on the operations
of Commerce National.
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized, although these terms are not
used to represent overall financial condition. CNBC and Commerce National met
the requirements of a well capitalized institution as defined above, at
September 30, 1999 and Commerce National met the requirements of a well
capitalized institution at December 31, 1998. If Commerce National's capital
classification were to change to adequately capitalized, regulatory approval
would need to be obtained to continue to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required.
16.
<PAGE> 17
CNBC BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAPITAL RESOURCES - CONTINUED
The minimum requirements are:
<TABLE>
<CAPTION>
Capital to risk-
weighted Assets
--------------- Tier 1 capital
Total Tier 1 to average assets
----- ------ -----------------
<S> <C> <C> <C>
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
</TABLE>
CNBC's capital requirements are measured on a combined basis with Commerce
National, using consolidated totals. Commerce National is measured
independently. The actual capital ratios are discussed in Note 5 to the
Consolidated Financial Statements included in the Form 10-QSB.
CNBC Bancorp filed a registration statement with the Securities and Exchange
Commission on Form SB-2 to sell approximately $4,950,000 of its common stock in
March 1999. The stock offering was fully subscribed and closed as of April 16,
1999. The net proceeds were used to purchase subordinated debentures and common
stock of Commerce National, increase Commerce National's capital ratios, pay-off
a short-term loan and provide working capital for CNBC Bancorp.
YEAR 2000
As stated in CNBC's registration statement on Form SB-2 (file number 333-68797
filed March 12, 1999), the majority of its efforts regarding Year 2000 ("Y2K")
preparedness have been completed. Commerce National has performed a thorough
review of its information technology systems and all other significant operating
systems and is confident that its internal systems will not be significantly
affected by Y2K. Management has also completed a review of customers with
aggregate loans of $250,000 or more to assess whether these customers had a
significant risk to a Y2K related failure which would significantly impact their
business, and hence their ability to repay their loans to Commerce National. In
the aggregate, Commerce National has rated its overall Y2K risk due to potential
customer Y2K issues as low.
In June 1999, management secured an $18 million guaranteed line of credit for
liquidity needs through the Federal Home Loan Bank ("FHLB"), collateralized by a
pledge of our 1-4 family residential real estate loan portfolio. Additionally,
management has pre-pledged collateral with the Federal Reserve Bank to expedite
any additional borrowing needs through the discount window. Selected business
and business real estate loans have been pledged to the Federal Reserve Bank to
secure future discount window borrowings. Our current collateral would allow for
approximately $41 million of borrowings. Management's current estimate of Y2K
costs for 1999 is $35,000. This includes a commitment fee of $14,400 charged by
the FHLB for the guaranteed line. This fee is included in "Other Expenses".
17.
<PAGE> 18
CNBC BANCORP
FORM 10-QSB
Quarter ended September 30, 1999
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1 - LEGAL PROCEEDINGS:
------------------
There are no matters required to be reported under this item.
Item 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS:
------------------------------------------
There are no matters required to be reported under this item.
Item 3 - DEFAULTS UPON SENIOR SECURITIES:
--------------------------------
There are no matters required to be reported under this item.
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
----------------------------------------------------
There are no matters required to be reported under this item.
Item 5 - OTHER INFORMATION:
------------------
There are no matters required to be reported under this item.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K:
---------------------------------
(a)(1) Exhibit 3.1 - Articles of Incorporation of CNBC Bancorp.
Reference is made to Exhibit 3.1 to the Registration
Statement on Form SB-2, File No. 333-68797, filed
March 12, 1999, which exhibit is incorporated herein by
reference
(2) Exhibit 3.2 - Regulation of CNBC Bancorp. Reference is
made to Exhibit 3.2 to the Registration Statement on
Form SB-2, File No. 333-68797, filed March 12, 1999,
which exhibit is incorporated herein by reference
(3) Exhibit 10.1 - Employment Agreement dated as of March
1, 1998 as amended and restated effective December 31,
1998 by and between and among Commerce National Bank,
CNBC Bancorp and Thomas D. McAuliffe. Reference is made
to Exhibit 10.1 to Form 10-QSB dated June 30, 1999
(4) Exhibit 10.2 - Form of Indemnification Agreement
between CNBC Bancorp and its directors, officers and
certain representatives. Reference is made to Exhibit
10.2 to the Registration Statement on Form SB-2, File
No. 333-68797, filed March 12, 1999, which exhibit is
incorporated herein by reference
(5) Exhibit 10.3 -Non-Qualified Stock Option Plan.
Reference is made to Exhibit 10.3 to the Registration
Statement on Form SB-2, File No. 333-68797, filed March
12, 1999, which exhibit is incorporated herein by
reference
(6) Exhibit 10.4 -Form of Deferred Compensation Agreement.
Reference is made to Exhibit 10.4 to the Registration
Statement on Form SB-2, File No. 333-68797, filed March
12, 1999, which exhibit is incorporated herein by
reference
(7) Exhibit 10.5 - CNBC Bancorp 1999 Stock Option Plan.
Reference is made to Exhibit 10.5 to Form 10-QSB dated
June 30, 1999
(8) Exhibit 27 - Financial Data Schedule
(b) No current reports on Form 8-K were filed by the small
business issuer during the quarter ended September 30,
1999.
18.
<PAGE> 19
CNBC BANCORP
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.
CNBC BANCORP
-------------------------------------
(Registrant)
Date: November 12, 1999 /s/ Thomas D. McAuliffe
-------------------- -------------------------------------
(Signature)
Thomas D. McAuliffe
Chairman and President
Date: November 12, 1999 /s/ John Romelfanger
-------------------- -------------------------------------
(Signature)
John Romelfanger
Treasurer
19.
<PAGE> 20
CNBC BANCORP
Index to Exhibits
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE NUMBER
- -------------- ----------- -----------
<S> <C> <C>
3.1 Articles of Incorporation of CNBC Bancorp Reference is made to Exhibit
3.1 to the Registration Statement
on Form SB-2, File No. 333-68797,
filed March 12, 1999, which
exhibit is incorporated herein by
reference
3.2 Regulation of CNBC Bancorp Reference is made to Exhibit
3.2 to the Registration Statement
on Form SB-2, File No. 333-68797,
filed March 12, 1999, which exhibit
is incorporated herein by reference
10.1 Employment Agreement dated as of March 1, 1998 Reference is made to Exhibit 10.1 to
as amended and restated effective December 31, 1998 Form 10-QSB dated June 30, 1999
by and between and among Commerce National Bank,
CNBC Bancorp and Thomas D. McAuliffe
10.2 Form of Indemnification Agreement between CNBC Reference is made to Exhibit
Bancorp and its directors, officers and certain 10.2 to the Registration Statement
representatives on Form SB-2, File No. 333-68797,
filed March 12, 1999, which exhibit
is incorporated herein by reference
10.3 Non-Qualified Stock Option Plan Reference is made to Exhibit
10.3 to the Registration Statement
on Form SB-2, File No. 333-68797,
filed March 12, 1999, which exhibit
is incorporated herein by reference
10.4 Form of Deferred Compensation Agreement Reference is made to Exhibit
10.4 to the Registration Statement
on Form SB-2, File No. 333-68797,
filed March 12, 1999, which exhibit
is incorporated herein by reference
10.5 CNBC Bancorp 1999 Stock Option Plan Reference is made to Exhibit 10.5 to
Form 10-QSB dated June 30, 1999
27 Financial Data Schedule
</TABLE>
20.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANICAL 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> 8,707
<INT-BEARING-DEPOSITS> 161
<FED-FUNDS-SOLD> 6,475
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,901
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 167,587
<ALLOWANCE> 2,410
<TOTAL-ASSETS> 203,016
<DEPOSITS> 169,788
<SHORT-TERM> 750
<LIABILITIES-OTHER> 936
<LONG-TERM> 13,005
0
0
<COMMON> 13,527
<OTHER-SE> 5,010
<TOTAL-LIABILITIES-AND-EQUITY> 203,016
<INTEREST-LOAN> 10,229
<INTEREST-INVEST> 536
<INTEREST-OTHER> 307
<INTEREST-TOTAL> 11,072
<INTEREST-DEPOSIT> 4,508
<INTEREST-EXPENSE> 5,132
<INTEREST-INCOME-NET> 5,940
<LOAN-LOSSES> 392
<SECURITIES-GAINS> 15
<EXPENSE-OTHER> 3,177
<INCOME-PRETAX> 2,624
<INCOME-PRE-EXTRAORDINARY> 1,707
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,707
<EPS-BASIC> 1.39
<EPS-DILUTED> 1.27
<YIELD-ACTUAL> 4.27
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 437
<ALLOWANCE-OPEN> 2,055
<CHARGE-OFFS> 43
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 2,410
<ALLOWANCE-DOMESTIC> 2,410
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 597
</TABLE>
