<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 March 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
For the transition period from _____ to _____.
Commission file number:
CNBC BANCORP
(Exact name of small business issuer as specified in its charter)
<TABLE>
<CAPTION>
Ohio 31-1478140
<S> <C>
(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 No X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Common stock, without par value 1,118,210 common shares
outstanding at March 31, 1999
Transitional Small Business Disclosure Format (check one):
Yes No X
---- ------
<PAGE> 2
CNBC BANCORP
FORM 10-QSB
QUARTER ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets ............................................................... 3
Condensed Consolidated Statements of Income.......................................................... 4
Condensed Consolidated Statements of Comprehensive Income............................................ 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.................................................................................. 17
Item 2. Changes in Securities and Use of Proceeds.......................................................... 17
Item 3. Defaults Upon Senior Securities.................................................................... 17
Item 4. Submission of Matters to a Vote of Security Holders................................................ 17
Item 5. Other Information.................................................................................. 17
Item 6. Exhibits and Reports on Form 8-K................................................................... 17
SIGNATURES ............................................................................................... 18
</TABLE>
2.
<PAGE> 3
CNBC BANCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS March 31 December 31
1999 1998
---- ----
<S> <C> <C>
Cash and Non Interest-Bearing Balances .................................... $ 7,248,908 $ 5,256,468
Interest Bearing Balances ................................................. 12,036,713 2,589,088
Federal Funds Sold ........................................................ 5,000,000 4,850,000
Money Market Funds ........................................................ 10,812,105 4,801,173
------------- -------------
Total Cash and Cash Equivalents ........................................... 35,097,726 17,496,729
Securities Available for Sale ............................................. 4,404,589 5,218,341
Loans, Net ................................................................ 159,448,891 148,880,855
Premises and Equipment .................................................... 1,957,858 1,943,744
Accrued Interest Receivable ............................................... 1,009,630 825,435
Other Assets .............................................................. 883,089 748,079
------------- -------------
Total Assets .............................................................. $ 202,801,783 $ 175,113,183
============= =============
LIABILITIES
Deposits:
Non-Interest Bearing ............................................. $ 20,597,557 $ 21,013,393
Interest Bearing ................................................. 153,388,689 130,466,924
------------- -------------
Total Deposits .......................................... 173,986,246 151,480,317
Borrowings ................................................................ 15,247,628 10,684,892
Other Liabilities ......................................................... 1,101,676 976,472
------------- -------------
Total Liabilities ......................................................... 190,335,550 163,141,681
SHAREHOLDERS' EQUITY
Common Stock No Par Value;
Authorized Shares - 2,000,000
Issued and Outstanding - 1,118,210 in 1999 and
1,116,972 in 1998 ................................................ 8,386,407 8,379,375
Retained Earnings ......................................................... 4,083,088 3,579,127
Accumulated Other Comprehensive Income .................................... (3,262) 13,000
------------- -------------
Total Shareholders' Equity ................................................ 12,466,233 11,971,502
------------- -------------
Total Liabilities and Shareholders' Equity ................................ $ 202,801,783 $ 175,113,183
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
3.
<PAGE> 4
CNBC BANCORP
CONDENSED CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------
1999 1998
---------- ----------
INTEREST INCOME
<S> <C> <C>
Loans, including Fees ............................................... $3,276,941 $2,708,964
Taxable Securities .................................................. 69,889 65,288
Money Market Funds .................................................. 54,458 83,192
Federal Funds Sold .................................................. 23,461 49,518
Deposits with Banks ................................................. 49,837 28,979
---------- ----------
Total Interest Income ........................................................ 3,474,586 2,935,941
---------- ----------
INTEREST EXPENSE
Deposits ............................................................ 1,408,095 1,314,533
Borrowings .......................................................... 201,863 153,239
---------- ----------
Total Interest Expense ....................................................... 1,609,958 1,467,772
---------- ----------
Net Interest Income ................................................. 1,864,628 1,468,169
Provision for Loan Losses ........................................... 164,000 119,800
---------- ----------
Net Interest Income After Provision for Loan Losses .......................... 1,700,628 1,348,369
NON-INTEREST INCOME
Service Charges on Deposits ......................................... 45,235 30,456
Net Gains on Sales of Securities .................................... 15,395 --
Other Income ........................................................ 29,766 25,704
---------- ----------
Total Non-Interest Income .................................................... 90,396 56,160
---------- ----------
NON-INTEREST EXPENSES
Salaries and Benefits ............................................... 609,619 472,102
Occupancy and Equipment, Net ........................................ 27,242 28,897
Data Processing ..................................................... 76,215 64,723
Customer Courier .................................................... 48,000 45,000
Professional Services ............................................... 36,127 29,998
State Franchise Tax ................................................. 37,110 32,417
Other Expenses ...................................................... 180,250 122,825
---------- ----------
Total Non-Interest Expenses .................................................. 1,014,563 795,962
---------- ----------
Income Before Income Taxes ................................................... 776,461 608,567
Income Tax Expense ........................................................... 272,500 211,400
---------- ----------
Net Income .......................................................... $ 503,961 $ 397,167
========== ==========
EARNINGS PER COMMON SHARE
Basic .................................................................... $ .45 $ .36
========== ==========
Diluted .................................................................... $ .42 $ .32
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
4.
<PAGE> 5
CNBC BANCORP
CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1999 1998
--------- ---------
<S> <C> <C>
Net Income ....................................................................... $ 503,961 $ 397,167
Other Comprehensive Income:
Unrealized Gain or (Loss) on Securities Available for Sale ....................... (24,542) (1,308)
Tax Effect ....................................................................... (8,280) (408)
--------- ---------
Other Comprehensive Income ....................................................... (16,262) (900)
--------- ---------
Comprehensive Income.............................................................. $ 487,699 $ 396,267
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
5.
<PAGE> 6
CNBC BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31
1999 1998
---- ----
<S> <C> <C>
BALANCES AT BEGINNING OF PERIOD ................................... $ 11,971,502 $ 10,481,664
Net Income ......................................................... 503,961 397,167
Proceeds from Exercise of Warrants ................................. 7,032 3,995
Other Comprehensive Income ......................................... (16,262) (900)
------------ ------------
BALANCES AT END OF PERIOD ......................................... $ 12,466,233 $ 10,881,926
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
6.
<PAGE> 7
CNBC BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income ................................................................... $ 503,961 $ 397,167
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Loan Losses .................................. 164,000 119,800
Depreciation ............................................... 47,700 36,580
Net Realized Gain on Securities
Available for Sale ...................................... (15,395) --
Net Amortization/Accretion on Securities ................... 3,561 (277)
Federal Home Loan Bank Stock Dividend ...................... (20,500) (19,300)
Changes in:
Interest Receivable ............................... (163,695) (216,914)
Other Assets ...................................... (126,732) (68,303)
Other Liabilities ................................. 315,089 140,813
------------ ------------
Net Cash Provided by Operating Activities ........................... 707,989 389,566
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Securities ...................................................... (3,004,033) (2,028,281)
Maturities of Securities ..................................................... 750,000 250,000
Sales of Securities .......................................................... 3,055,079 --
Net Increase in Loans ........................................................ (10,732,036) (4,041,927)
Purchase of Premises and Equipment ........................................... (61,814) (39,223)
------------ ------------
Net Cash Flows Used in Investing Activities ......................... (9,992,804) (5,859,431)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits ..................................................... 22,505,929 17,003,163
Net Proceeds from Issuance of Common Stock ................................... 7,032 3,995
Advances from Federal Home Loan Bank ......................................... 4,000,000 750,000
Principal Payments on Federal Home Loan Bank Advances ........................ (437,264) (336,162)
Net Proceeds from Loan Payable ............................................... 1,000,000 --
Dividends Paid ............................................................... (189,885) (138,970)
------------ ------------
Net Cash Flows Provided by Financing Activities ..................... 26,885,812 17,282,026
------------ ------------
Net Change in Cash and Cash Equivalents ............................. 17,600,997 11,812,161
Cash and Cash Equivalents at Beginning of Year ............................... 17,496,729 15,060,033
------------ ------------
Cash and Cash Equivalents at End of Period ................................... $ 35,097,726 $ 26,872,194
============ ============
Cash Paid During the Period for
Interest ............................................................ $ 1,493,304 $ 1,388,215
Income Taxes ........................................................ 20,000 10,000
</TABLE>
See Notes to 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 March 31, 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.
CNBC adopted Statement of Financial Accounting Standards ("SFAS") No. 128 on
December 31, 1997 which requires dual presentation of basic and diluted earnings
per share ("EPS"). 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>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Weighted average shares for basic EPS 1,117,778 1,113,952
Add dilutive effect of:
Exercise of warrants.......................... 47,791 46,318
Exercise of stock options..................... 72,778 68,458
--------- ---------
Weighted averages shares for diluted EPS... 1,238,347 1,228,728
</TABLE>
8.
<PAGE> 9
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The weighted-average shares outstanding and earnings per share and dividends per
share information has been adjusted to reflect the 2-for-1 stock split declared
by CNBC in January, 1998.
Loans are reported at the principal balance outstanding, net of deferred loan
fees and costs and the allowance for loan losses. Interest income on loans is
recognized on the interest method and includes amortization of net deferred loan
fees and costs over the loan term. The accrual of interest on loans will be
suspended when a loan is 90 days or more past due, unless the loan is well
collateralized or in the process of collection. When a loan is placed on
nonaccrual status, accrued and unpaid interest at risk is charged against
income. Payments received on nonaccrual loans will be applied against principal
until recovery of the remaining balance is reasonably assured.
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 bases 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.
CNBC adopted on January 1, 1998, SFAS No. 130, "Reporting Comprehensive Income,"
issued by the FASB in June 1997. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. SFAS No. 130 requires all items that are required to be recognized
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. It does not require a specific format for that financial
statement but requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.
Certain items in the financial statements have been reclassified to conform with
the current presentation.
9.
<PAGE> 10
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - LOANS
Loans were comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
Residential Real Estate Loans .................................. $ 22,001,294 $ 21,234,368
Real Estate Construction Loans ................................. 9,082,886 9,903,512
Real Estate Investment Loans ................................... 70,891,432 63,607,025
Business Loans ................................................. 49,132,789 46,203,996
Personal Loans ................................................. 10,865,866 10,215,288
------------- -------------
Subtotal .............................................. 161,974,267 151,164,189
Allowance for Loan Losses ...................................... (2,225,013) (2,055,000)
Net Deferred Fees and Costs .................................... (300,363) (228,334)
------------- -------------
Net Loans ...................................................... $ 159,448,891 $ 148,880,855
============= =============
</TABLE>
NOTE 3 - DEPOSITS
Total interest bearing deposits were classified as follows:
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
Interest Bearing Demand ............................................ $ 14,121,375 $ 14,232,748
Savings ............................................................ 75,112,369 58,690,625
Time, Balances Under $100,000 ...................................... 35,161,064 30,571,254
Time, Balances $100,000 and Over ................................... 28,993,881 26,972,297
------------ ------------
Total Interest Bearing Deposits .................................... $153,388,689 $130,466,924
============ ============
</TABLE>
10.
<PAGE> 11
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - 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.
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. Commerce National met the
requirements of a well capitalized institution as defined above, at March 31,
1999 and 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>
March 31, 1999
Total Capital to Risk Weighted Assets
Consolidated........................... $14.5 9.0% $12.8 8.0% $16.0 10.0%
Commerce National only................. $16.8 10.5% $12.8 8.0% $16.0 10.0%
Tier 1 (Core) Capital to Risk Weighted Assets
Consolidated........................... $12.5 7.8% $6.4 4.0% $9.6 6.0%
Commerce National only................. $10.5 6.6% $6.4 4.0% $9.6 6.0%
Tier 1 (Core) Capital to Average Assets
Consolidated........................... $12.5 6.8% $7.3 4.0% $9.1 5.0%
Commerce National only................. $10.5 5.8% $7.3 4.0% $9.1 5.0%
December 31, 1998
Total Capital to Risk Weighted Assets
Consolidated........................... $13.7 9.5% $11.5 8.0% $14.4 10.0%
Commerce National only................. $15.2 10.6% $11.5 8.0% $14.4 10.0%
Tier 1 (Core) Capital to Risk Weighted Assets
Consolidated........................... $11.9 8.3% $5.8 4.0% $8.7 6.0%
Commerce National only................. $10.0 6.9% $5.8 4.0% $8.6 6.0%
Tier 1 (Core) Capital to Average Assets
Consolidated........................... $11.9 7.0% $6.8 4.0% $8.5 5.0%
Commerce National only................. $10.0 5.9% $6.8 4.0% $8.5 5.0%
</TABLE>
11.
<PAGE> 12
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - REGULATORY MATTERS (CONTINUED)
In April, 1999, CNBC completed a public offering for a total of 165,000 shares
of its common stock which raised $4,950,000 in new capital funds. The following
table lists the consolidated and Commerce National capital ratios as adjusted
for the new capital.
<TABLE>
<CAPTION>
Amount Ratio
<S> <C> <C>
Total Capital to Risk Weighted Assets
Consolidated........................... $19.5 12.1%
Commerce National only................. $20.8 13.5%
Tier 1 (Core) Capital to Risk Weighted Assets
Consolidated........................... $17.5 10.9%
Commerce National only................. $12.5 7.8%
Tier 1 (Core) Capital to Average Assets
Consolidated........................... $17.5 9.6%
Commerce National only................. $12.5 6.8%
</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 March 31, 1999, compared to December 31, 1998, and the
consolidated results of operations for the three months ended March 31, 1999,
compared to the same period 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 $28 million, or 16%, to $203 million at March 31, 1999.
The two largest components of this increase are an increase in cash and cash
equivalents of $17.6 million and an increase of $10.6 million in loans
outstanding.
The increase in loans is comprised primarily of a $7.3 million increase in real
estate investment loans and a $2.9 million increase in business loans. These
increases are 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 construction. Management
anticipates opportunities are good for continued growth due to Commerce
National's small business focus and personal service, a strong local economy,
and continuing consolidation of its competitors.
The primary reason for the large increase in cash and cash equivalents is the
investment of a large, temporary increase in customer deposits as described
below. These funds will be invested with the Federal Home Loan Bank with
maturities ranging from 7 to 14 days until the funds are withdrawn by the
customers.
13.
<PAGE> 14
CNBC BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The primary increase in liabilities was a $22.5 million increase in deposit
accounts. Of this increase, $16.4 million was in savings account balances, as a
result of a small number of customers with combined new balances of $14 million.
The majority of these new deposits are not expected to remain on deposit for an
extended time. Therefore, these funds are invested in short term investments.
Deposit balances continue to grow as a result of Commerce National's small
business focus and available cash management products for its customers.
Certificates of deposit grew $6.6 million, with $6.0 million of this growth
achieved through solicitation of deposits on the national rate-listing network
to which Commerce National subscribes with terms generally ranging from 18
months to 3 years.
Borrowings increased $5 million, with $4 million of the increase in Federal Home
Loan Bank advances and $1 million representing a short term loan payable used by
CNBC to supplement the capital of Commerce National. This loan was repaid from
the proceeds of the common stock offering in April, 1999.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1999 was $503,961, a 27%
increase over the $397,167 for the same period in 1998. The increase was
primarily driven by a $396,000 increase in net interest income, offset by an
increase to provision for loan losses of $44,000, increased operating expenses
of $219,000 and a $61,000 increase in federal income tax expense.
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. The 27% increase in net interest income
was primarily the result of an increase in average loans outstanding of 30% for
1999 compared to 1998. Similar 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.
The increase in the provision for loan losses of $44,000 is due to the growth of
the overall loan portfolio.
Non-interest expense was up 27.5% for the three month ended March 31,1999 versus
the three months ended March 31, 1998. Normal salary increases and the hiring of
additional personnel to generate and support Commerce National's growth were the
major reasons for the increase in non-interest expense. One of the key measures
utilized by management to track personnel efficiency is the dollar amount of
revenues generated per dollar amount of personnel expense. For the three months
ended March 31, 1999 and 1998, these figures were $3.21 and $3.23, respectively.
The increase in Other Expenses related to an increased budget for marketing and
advertising and employee training. The increase in federal income tax expense is
the result of CNBC's increased profitability.
LIQUIDITY
CNBC's objective in managing liquidity is to maintain the ability to continue 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 sales, federal funds sold and cash and deposits
with
14.
<PAGE> 15
CNBC BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
banks. Along with its liquid assets, CNBC has additional sources of liquidity
available to ensure that adequate funds are available as needed which 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. Management believes that it has the capital adequacy, profitability
and reputation to meet its current and foreseeable liquidity needs.
At March 31, 1999, Commerce National had $46.8 million in available short-term
funding sources to mitigate any risks from changes in deposit account balances,
which represents 43% of checking and savings deposits which can be immediately
withdrawn. These sources are detailed as follows:
<TABLE>
<S> <C>
Short term investments $ 28,525,000
Unused borrowing capacity with the Federal Home Loan Bank 10,902,000
Federal funds lines of credit with other banks 6,400,000
Unpledged investment securities 976,000
------------
Total $ 46,803,000
============
</TABLE>
Additionally, Commerce National could accept approximately $22 million in
additional brokered certificates of deposit before it would reach its internally
set maximum of 30% of total deposits.
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 ceases. 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. Commerce National met the
requirements of a well capitalized institution as defined above, at March 31,
1999 and 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. 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>
15.
<PAGE> 16
CNBC BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 4.
CNBC Bancorp filed the required Registration Statement to sell approximately
$4,950,000 of its common stock in March, 1999. The net proceeds will be used to
purchase subordinated debentures and common stock of Commerce National to
increase Commerce National's capital ratios. The stock offering was fully
subscribed and closed as of April 16, 1999. After accounting for the offering,
CNBC and Commerce National will have in excess of $6 million in capital above
the level needed to remain in the adequately capitalized capital category and in
excess of $3 million above the level needed to remain in the well capitalized
category.
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. During March and April, 1999, Commerce
National completed the testing of its new proof and item capture system with no
significant problems noted. Management has also begun the process of securing
guaranteed liquidity sources through the Federal Home Loan Bank and Federal
Reserve Bank to assist with any unanticipated deposit withdrawal or lending
needs. No changes have been made in management's estimate of Y2K costs of
$15,000 for 1999.
16.
<PAGE> 17
CNBC BANCORP
FORM 10-QSB Quarter ended
March 31, 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 the Registration Statement
on Form SB-2, File No. 333-68797, filed March 12,
1999, which exhibit is incorporated herein by
reference
(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 27 - Financial Data Schedule
(b) No current reports on Form 8-K were filed by the small
business issuer during the quarter ended March 31, 1999.
17.
<PAGE> 18
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: May 14, 1999 /s/ Thomas D. McAuliffe
------------- --------------------------------
(Signature)
Thomas D. McAuliffe
Chairman and President
Date: May 14, 1999 /s/ John Romelfanger
------------- --------------------------------
(Signature)
John Romelfanger
Treasurer
18.
<PAGE> 19
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 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
as amended and restated effective December 31, 1998 10.1 to the Registration Statement
by and between and among Commerce National Bank, on Form SB-2, File No. 333-68797,
CNBC Bancorp and Thomas D. McAuliffe filed March 12, 1999, which exhibit
is incorporated herein by reference
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
27 Financial Data Schedule
</TABLE>
19.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATE BALANCE SHEET AND THE CONSOLIDATE STATEMENT OF INCOME FILES AS PART
OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 7,249
<INT-BEARING-DEPOSITS> 22,849
<FED-FUNDS-SOLD> 5,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,405
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 161,674
<ALLOWANCE> 2,225
<TOTAL-ASSETS> 202,802
<DEPOSITS> 173,986
<SHORT-TERM> 1,000
<LIABILITIES-OTHER> 1,102
<LONG-TERM> 14,248
0
0
<COMMON> 8,386
<OTHER-SE> 1,080
<TOTAL-LIABILITIES-AND-EQUITY> 202,802
<INTEREST-LOAN> 3,277
<INTEREST-INVEST> 70
<INTEREST-OTHER> 128
<INTEREST-TOTAL> 3,475
<INTEREST-DEPOSIT> 1,408
<INTEREST-EXPENSE> 1,610
<INTEREST-INCOME-NET> 1,865
<LOAN-LOSSES> 164
<SECURITIES-GAINS> 15
<EXPENSE-OTHER> 1,015
<INCOME-PRETAX> 776
<INCOME-PRE-EXTRAORDINARY> 776
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 504
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.41
<YIELD-ACTUAL> 4.34
<LOANS-NON> 0
<LOANS-PAST> 20
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 388
<ALLOWANCE-OPEN> 2,055
<CHARGE-OFFS> 0
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 2,225
<ALLOWANCE-DOMESTIC> 2,225
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 492
</TABLE>
