<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 June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
For the transition period from _____ to _____.
Commission file number: 000-28203
---------
CNBC BANCORP
------------
(Exact name of small business issuer as specified in its charter)
Ohio 31-1478140
------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
100 East Wilson Bridge Road, Worthington, Ohio 43085
----------------------------------------------------
(Address of principal executive offices)
(614) 848-8700
---------------------------
(Issuer's telephone number)
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 1,336,422 common shares
outstanding at July 28, 2000
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
<PAGE> 2
CNBC BANCORP
FORM 10-QSB
QUARTER ENDED JUNE 30, 2000
<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.................................................................................. 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 ............................................................................................... 20
</TABLE>
2.
<PAGE> 3
CNBC BANCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
2000 1999
------------- ---------------
ASSETS
<S> <C> <C>
Cash and Noninterest-bearing Balances........................... $ 13,385,309 $ 4,728,912
Interest-bearing Balances....................................... 164,680 261,900
Federal Funds Sold.............................................. 2,000,000 4,525,000
Money Market Funds.............................................. 11,805,169 2,301,047
---------------- -----------------
Total Cash and Cash Equivalents........................ 27,355,158 11,816,859
Securities Available for Sale................................... 8,516,934 11,010,108
Loans, Net...................................................... 189,695,976 175,669,537
Premises and Equipment.......................................... 2,450,455 2,377,459
Accrued Interest Receivable..................................... 1,022,505 998,479
Other Assets.................................................... 1,255,048 1,055,320
---------------- -----------------
Total Assets.................................................... $ 230,296,076 $ 202,927,762
================ =================
LIABILITIES
Deposits:
Noninterest-bearing.................................... $ 26,364,765 $ 22,426,666
Interest-bearing....................................... 165,519,732 146,641,616
---------------- -----------------
Total Deposits................................ 191,884,497 169,068,282
Borrowings...................................................... 16,974,711 13,572,988
Other Liabilities............................................... 1,300,667 1,181,813
---------------- -----------------
Total Liabilities............................................... 210,159,875 183,823,083
SHAREHOLDERS' EQUITY
Common Stock No Par Value:
Authorized Shares - 2,000,000
Issued - 1,340,081 in 2000 and
1,324,532 in 1999 ..................................... 13,833,876 13,672,131
Retained Earnings............................................... 6,447,405 5,453,333
Treasury Stock, 4,000 Shares at Cost............................ (120,000) -
Accumulated Other Comprehensive Income (Loss)................... (25,080) (20,785)
---------------- -----------------
Total Shareholders' Equity...................................... 20,136,201 19,104,679
---------------- -----------------
Total Liabilities and Shareholders' Equity...................... $ 230,296,076 $ 202,927,762
================ =================
</TABLE>
See Notes to Consolidated Financial Statements
3.
<PAGE> 4
CNBC BANCORP
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 2000 1999
---- ---- ---- ----
INTEREST INCOME
<S> <C> <C> <C> <C>
Loans, including Fees....................... $4,147,771 $ 3,390,386 $ 8,065,494 $ 6,667,327
Taxable Securities.......................... 135,710 84,871 272,600 154,760
Money Market Funds.......................... 120,568 101,098 249,872 155,556
Federal Funds Sold.......................... 55,973 65,653 66,212 89,114
Deposits with Banks......................... 34,160 66,464 36,233 116,301
-------------- --------------- -------------- --------------
Total Interest Income................................ 4,494,182 3,708,472 8,690,411 7,183,058
INTEREST EXPENSE
Deposits ................................... 2,012,999 1,524,998 3,791,472 2,933,093
Borrowings.................................. 205,859 210,029 404,071 411,892
-------------- --------------- -------------- --------------
Total Interest Expense............................... 2,218,858 1,735,027 4,195,543 3,344,985
-------------- --------------- -------------- --------------
Net Interest Income......................... 2,275,324 1,973,445 4,494,868 3,838,073
Provision for Loan Losses................... 100,800 109,000 201,600 273,000
-------------- --------------- -------------- --------------
Net Interest Income after Provision for Loan Losses.. 2,174,524 1,864,445 4,293,268 3,565,073
NONINTEREST INCOME
Service Charges on Deposits................. 40,564 42,416 81,911 87,651
Net Gains on Sales of Securities............ - - - 15,395
Other Income................................ 72,557 33,995 130,389 63,761
-------------- --------------- -------------- --------------
Total Noninterest Income............................. 113,121 76,411 212,300 166,807
-------------- --------------- -------------- --------------
NONINTEREST EXPENSES
Salaries and Benefits....................... 812,500 614,350 1,537,873 1,223,969
Occupancy and Equipment, Net................ 83,710 82,701 169,479 109,943
Data Processing............................. 38,790 76,155 79,324 152,370
Customer Courier............................ - 48,000 - 96,000
Professional Services....................... 43,974 44,419 78,002 80,546
State Franchise Tax......................... 42,432 34,923 84,919 72,033
Other Expenses.............................. 180,347 175,651 396,903 355,901
-------------- --------------- -------------- --------------
Total Noninterest Expenses........................... 1,201,753 1,076,199 2,346,500 2,090,762
-------------- --------------- -------------- --------------
Income before Income Taxes........................... 1,085,892 864,657 2,159,068 1,641,118
Income Tax Expense................................... 377,100 300,970 748,100 573,470
-------------- --------------- -------------- --------------
Net Income.................................. $ 708,792 $ 563,687 $1,410,968 $1,067,648
============== =============== ============== ==============
EARNINGS PER COMMON SHARE
Basic............................................ $ 0.53 $ 0.45 $ 1.06 $ 0.90
============== =============== ============== ==============
Diluted.......................................... $ 0.50 $ 0.41 $ 0.99 $ 0.82
============== =============== ============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
4.
<PAGE> 5
CNBC BANCORP
CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income......................................... $ 708,792 $ 563,687 $ 1,410,968 $ 1,067,648
Other Comprehensive Income (Loss):
Unrealized Holding Gains and (Losses) on
Securities Available for Sale............. (8,000) ( 16,372) (6,538) (25,518)
Reclassification Adjustments for (Gains) and Losses
Recognized in Net Income.................. - - - (15,395)
------------ ------------ ------------ ------------
Net Unrealized Gains and (Losses).................. (8,000) (16,372) (6,538) (40,913)
Tax Expense (Benefit)..............................
(2,720) (5,567) (2,243) (13,846)
------------ ------------ ------------ ------------
Total Other Comprehensive Income (Loss)... (5,280) (10,805) (4,295) (27,067)
------------ ------------ ------------ ------------
Comprehensive Income............................... $ 703,512 $ 552,882 $ 1,406,673 $ 1,040,581
============ ============ ============ ============
</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 SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
BALANCES AT BEGINNING OF PERIOD............. $ 19,860,791 $ 12,466,233 $ 19,104,679 $ 11,971,502
Net Income.................................. 708,792 563,687 1,410,968 1,067,648
Proceeds from Exercise of Warrants.......... 11,058 25,662 65,915 32,694
Proceeds and Tax Benefit from Exercise
of Stock Options......................... - 129,301 117,094 129,301
Proceeds from Stock Offering,
Net of Costs............................. - 4,853,694 - 4,853,694
Treasury Shares Purchased................... (120,000) - (239,000) -
Shares Issued............................... 1,500 - 1,500 -
Cash Dividends Declared ($0.24 per share
in 2000 and $0.20 per share in 1999)..... (320,660) (259,193) (320,660) (259,193)
Other Comprehensive Income.................. (5,280) (10,805) (4,295) (27,067)
--------------- --------------- -------------- --------------
BALANCES AT END OF PERIOD................... $20,136,201 $17,768,579 $ 20,136,201 $ 17,768,579
=============== =============== ============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
6.
<PAGE> 7
CNBC BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $1,410,968 $ 1,067,648
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Loan Losses................... 201,600 273,000
Depreciation................................ 138,000 105,400
Net Realized Gain on Securities
Available for Sale....................... - (15,395)
Net Amortization/Accretion on Securities.... (3,414) 5,355
Federal Home Loan Bank Stock Dividend....... (46,000) (41,600)
Changes in:
Interest Receivable................ (24,026) (172,469)
Other Assets....................... (197,486) (401,260)
Other Liabilities.................. 63,101 49,658
--------------- ----------------
Net Cash Provided by Operating Activities............ 1,542,743 870,337
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Securities....................................... (3,463,950) (8,553,219)
Maturities of Securities...................................... 6,000,000 1,750,000
Sales of Securities........................................... - 3,055,079
Net Increase in Loans......................................... (14,228,039) (15,364,292)
Purchase of Premises and Equipment............................ (210,996) (282,554)
--------------- ----------------
Net Cash Flows Used in Investing Activities.......... (11,902,985) (19,394,986)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits...................................... 22,816,215 21,373,007
Purchase of Treasury Shares................................... (239,000) -
Net Proceeds from Issuance of Common Stock.................... 184,509 5,015,689
Maturities of Federal Home Loan Bank Advances................. (250,000) (250,000)
Advances from Federal Home Loan Bank.......................... 4,000,000 4,000,000
Principal Payments on Federal Home Loan Bank Advances......... (249,117) (508,807)
Net Proceeds from Loan Payable................................ - 1,000,000
Repayment of Loans Payable.................................... (99,160) (1,015,628)
Dividends Paid................................................ (264,906) (189,885)
--------------- ----------------
Net Cash Flows Provided by Financing Activities...... 25,898,541 29,424,376
--------------- ----------------
Net Change in Cash and Cash Equivalents.............. 15,538,299 10,899,727
Cash and Cash Equivalents at Beginning of Year................ 11,816,859 17,496,729
--------------- ----------------
Cash and Cash Equivalents at End of Period.................... $ 27,355,158 $28,396,456
=============== ================
Cash Paid During the Period for
Interest............................................. $ 4,185,261 $ 3,320,854
Income Taxes......................................... 800,000 680,000
</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 June 30, 2000,
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, 1999, included in its 1999 Annual Report. Reference
is made to the accounting policies of CNBC Bancorp described in the notes to
consolidated financial statements contained in its 1999 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 subsidiaries, Commerce National Bank ("Commerce
National") and CNBC Retirement Services, Inc. ("CRS, Inc."). All significant
intercompany transactions and balances have been eliminated.
Revenues and assets are primarily derived from the banking industry, serving
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 is 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 SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares for basic EPS 1,336,601 1,255,303 1,334,225 1,186,920
Add dilutive effect of:
Exercise of Warrants..................... 18,886 44,218 21,418 44,218
Exercise of Stock Options................ 64,389 71,921 65,421 71,921
--------- --------- --------- ---------
Weighted averages shares for diluted EPS.... 1,419,876 1,371,442 1,421,064 1,303,059
</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 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.
NOTE 2 - LOANS
Loans were comprised of the following:
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
Residential Real Estate Loans.................. $ 24,957,400 $ 22,888,949
Real Estate Construction Loans................. 3,713,124 6,440,586
Real Estate Investment Loans................... 84,969,364 75,806,467
Business Loans................................. 67,207,464 60,291,928
Personal Loans................................. 11,967,062 13,091,809
--------------- ---------------
Subtotal.............................. 192,814,414 178,519,739
Allowance for Loan Losses...................... (2,752,028) (2,550,000)
Net Deferred Loan Origination Fees and Costs... (366,410) (300,202)
--------------- ---------------
Net Loans...................................... $ 189,695,976 $ 175,669,537
=============== ===============
</TABLE>
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
Beginning Balance...................................................... $ 2,650,800 $ 2,225,013
Loan Loss Provision.................................................... 100,800 109,000
Loans Charged-Off...................................................... - -
Recoveries on Loans Previously Charged-Off............................. 428 -
----------------- ----------------
Ending Balance......................................................... $ 2,752,028 $ 2,334,013
================= ================
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
Beginning Balance...................................................... $ 2,550,000 $ 2,055,000
Loan Loss Provision.................................................... 201,600 273,000
Loans Charged-Off...................................................... - -
Recoveries on Loans Previously Charged-Off............................. 428 6,013
----------------- -----------------
Ending Balance......................................................... $ 2,752,028 $ 2,334,013
================= =================
</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>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
Loans Past Due Over 90 Days and Accruing
Interest............................ $ 3,604 $ -
Nonaccrual Loans............................. - -
Impaired Loans with No Allowance
for Losses Allocated................ $ - $ -
Impaired Loans with Allowance
for Loan Losses Allocated........... 711,485 558,000
--------- ---------
Total........................................ $ 711,485 $ 558,000
========= =========
Amount of Allowance for Loan Losses
Allocated to Impaired Loan Balance........... $ 275,000 $ 230,000
NOTE 3 - DEPOSITS
Total interest-bearing deposits were classified as follows:
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
Interest-bearing Demand........................ $ 18,701,911 $ 9,216,329
Savings........................................ 68,495,572 65,761,990
Time, Balances Under $100,000.................. 41,862,552 38,457,477
Time, Balances $100,000 and Over............... 36,459,697 33,205,820
---------------- ---------------
Total Interest-bearing Deposits................ $ 165,519,732 $146,641,616
================ ===============
</TABLE>
Total deposit accounts with balances of $100,000 and over, including
noninterest-bearing demand accounts, totaled $115,706,000 at June 30, 2000, and
$96,560,000 at December 31, 1999. 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
$41,994,000 at June 30, 2000, and $40,112,000 at December 31, 1999.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
At June 30, 2000, and December 31, 1999, respectively, reserves of $1,162,000
and $1,105,000 were required as deposits with the Federal Reserve or as cash on
hand. These reserves do not earn interest.
Some financial instruments, such as loan commitments, credit lines, letters of
credit and overdraft protection, are issued to meet customer financing needs.
These are agreements to provide credit or to support the credit of others, as
long as conditions established in the contract are met, and usually have
expiration dates. Commitments may expire without being used. Off-balance-sheet
risk to credit loss exists up to the face amount of these instruments, although
material losses are not anticipated. The same credit policies are used to make
such commitments as are used for loans, including obtaining collateral at
exercise of the commitment.
10.
<PAGE> 11
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - COMMITMENTS AND CONTINGENCIES (Continued)
A summary of the notional amounts of financial instruments with
off-balance-sheet risk were as follows:
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
Unadvanced Lines of Credit....................... $ 44,588,000 $ 33,753,000
Unadvanced Draw Notes............................ 7,727,000 4,689,000
Approved New Loan Commitments:
Secured by Real Estate.................. 19,846,000 12,719,000
Other................................... 3,095,000 6,029,000
Letters of Credit................................ 4,333,000 1,939,000
Available Lines for Credit Cards................. 1,690,000 1,537,000
</TABLE>
There were no commitments to make fixed-rate loans at current market rates at
June 30, 2000. Commitments to make fixed-rate loans at current market rates, and
included above, were $1,165,000 at December 31, 1999, with rates ranging from
8.0% to 9.0%. Also included above at June 30, 2000 are $6,380,000 of one and
five-year adjustable rate loans with fixed starting rates ranging from 8.0% to
9.6%. At December 31, 1999, there was $7,236,000 of five-year adjustable rate
loans with fixed starting rates ranging from 7.25% to 8.75%.
NOTE 5 - REGULATORY MATTERS
CNBC Bancorp 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. Failure to meet capital requirements can initiate regulatory action.
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 June 30,
2000 and December 31, 1999. 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.
11.
<PAGE> 12
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - REGULATORY MATTERS (Continued)
Actual and required capital amounts and ratios are presented below.
<TABLE>
<CAPTION>
TO BE ADEQUATELY TO BE WELL
CAPITALIZED UNDER CAPITALIZED UNDER
PROMPT CORRECTIVE PROMPT CORRECTIVE
ACTUAL ACTION PROVISIONS ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
(DOLLARS IN MILLIONS)
JUNE 30, 2000
<S> <C> <C> <C> <C> <C> <C>
Total Capital to Risk Weighted Assets
CNBC.......................................... $ 22.6 11.7% $15.4 8.0% $ 19.3 10.0%
Commerce National ............................ $ 23.6 12.2% $15.4 8.0% $ 19.3 10.0%
Tier 1 (Core) Capital to Risk Weighted Assets
CNBC.......................................... $ 20.1 10.4% $ 7.7 4.0% $ 11.6 6.0%
Commerce National ............................ $ 14.8 7.7% $ 7.7 4.0% $ 11.6 6.0%
Tier 1 (Core) Capital to Average Assets
CNBC.......................................... $ 20.1 9.1% $ 8.9 4.0% $ 11.1 5.0%
Commerce National............................. $ 14.8 6.7% $ 8.9 4.0% $ 11.1 5.0%
DECEMBER 31, 1999
Total Capital to Risk Weighted Assets
CNBC.......................................... $ 21.2 12.6% $13.4 8.0% $ 16.8 10.0%
Commerce National............................. $ 22.2 13.3% $13.4 8.0% $ 16.8 10.0%
Tier 1 (Core) Capital to Risk Weighted Assets
CNBC.......................................... $ 19.1 11.4% $ 6.7 4.0% $ 10.1 6.0%
Commerce National............................. $ 13.8 8.2% $ 6.7 4.0% $ 10.1 6.0%
Tier 1 (Core) Capital to Average Assets
CNBC.......................................... $ 19.1 9.1% $ 8.4 4.0% $ 10.5 5.0%
Commerce National............................. $ 13.8 6.6% $ 8.4 4.0% $ 10.5 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 June 30, 2000, compared to December 31, 1999, and the
consolidated results of operations for the three and six months ended June 30,
2000, compared to the same periods in 1999. 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 $27.4 million, or 13.5%, to $230.3 million at June 30,
2000. The two largest components of this increase were an increase in cash and
cash equivalents of $15.5 million and an increase of $14.0 million in net loans
outstanding. Average total assets were $215 million for the first six months of
2000 versus $190 million for the first six months of 1999.
The increase in cash and cash equivalents at June 30, 2000, was due to increased
liquidity from strong deposit growth.
The increase in loans was comprised primarily of a $9.2 million increase in real
estate investment loans and a $6.9 million increase in business loans. Average
loans outstanding for the first six months of 2000 were $185 million versus $161
million for 1999, an increase of 14.9%. The increase in average loans
outstanding was about one-half that experienced last year. Management attributes
a slowing of growth to increased competition and a conscious strategy to sell
portions of investment real estate loans to other banks to control its
asset/liability rate sensitivity and funding needs. The central Ohio economy
continues to be strong, especially in residential and commercial real estate
construction.
13.
<PAGE> 14
CNBC BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 increase in liabilities was a $22.8 million increase in deposit
accounts. Of this increase, $9.5 million was in interest-bearing demand account
balances, and resulted from increased balances in a number of title company
customers' accounts. Average deposits for the first six months of 2000 were $181
million compared to $162 million for 1999, an increase of 11.7%. The decision to
control loan growth at a lower level than the previous year did result in a
lesser need to raise wholesale funds. Certificates of deposit grew $6.7 million,
with $1.9 million of this 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.
Deposit balances continue to grow as a result of Commerce National's small
business focus and available cash management products for its customers.
Borrowings increased $3.4 million, which represents an increase in Federal Home
Loan Bank advances. These advances have 3 and 5 year fixed rates that may
convert to a variable rate depending on market conditions and ten-year terms.
RESULTS OF OPERATIONS
Net income for the six-month period ended June 30, 2000 was $1,410,968, a 32.2%
increase, compared to $1,067,648 during the same period in 1999. The increase in
earnings was due to improved interest income from the increase in average loans
outstanding, offset somewhat by increased non-interest expenses. Second quarter
income in 2000 was $708,792, a 25.7% increase over the $563,687 for the same
period in 1999. Discussed below are the major factors that influenced the
operating results for the three and six-month periods ended June 30, 2000.
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
$656,795 for the six-month period ended June 30, 2000, compared to the same
period in 1999. The 17.1% increase in net interest income was primarily the
result of an increase in average loans outstanding of 14.9% for 2000 compared to
1999. In addition to strong loan growth, CNBC had a slightly higher percentage
of its assets invested in loans, which earn higher rates of interest, than
investments in 2000 compared to 1999. 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. Interest income during
the six-month period ended June 30, 2000 increased 21.0% over the prior year
six-month period, compared to a 25.4% increase in interest expense.
Interest income for the second quarter 2000 was $4,494,182, an increase of 21.2%
over the same period in 1999. Interest expense for the second quarter 2000 was
$2,218,858, an increase of 27.9% over the same period in 1999. The 15.3%
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
PROVISION FOR LOAN LOSSES
The decrease in the provision for loan losses of $71,400 for the six months
ended June 30, 2000 was due to the overall slower average growth in the loan
portfolio and lack of loan charge-offs incurred in the first half of 2000.
Trends in past due loans and impaired loans are slightly increasing from prior
years when these figures were very low.
NONINTEREST INCOME
Noninterest income for the six months ended June 30, 2000 increased
approximately 27.3% over the same period in the prior year as a result of
increased credit card and merchant processing fees, letter of credit fees and
other fees. For the three months ended June 30, 2000, noninterest income
increased approximately 48.0% over the same period in the prior year as a result
of merchant processing fees, letter of credit fees, and CRS Inc. fee income.
Effective June 1, 2000, CNBC acquired The Puppel Companies, now renamed CNBC
Retirement Services, Inc., a wholly-owned subsidiary of CNBC. Management
anticipates that CRS, Inc. fee income for services provided will approximate
40-50% of noninterest income in the year 2001.
NONINTEREST EXPENSE
Noninterest expense for the six months ended June 30, 2000 was $2,346,500, an
increase of 12.2% compared to the six months ended June 30, 1999 and $1,201,753,
or an increase of 11.7%, for the three months ended June 30, 2000 compared to
the three months ended June 30, 1999. This overall increase is consistent with
CNBC's growth and inflation.
Salaries and benefits increased 25.6% for the six months ended June 30, 2000 and
32.3% for the three months ended June 30, 2000 compared to the same prior year
periods. In addition to normal raises and staff additions to support CNBC's
growth, three changes were implemented which increased this category of expenses
but reduced expense in another category. The first change involved the courier
messenger service utilized by Commerce National's customers. Since its
inception, selected Commerce National customers have utilized a deposit pickup
service. A separate courier company previously provided this service. Commerce
National incurred the cost of this service. Commerce National received
regulatory approval in July 1999 to establish a mobile messenger service that
would utilize bank employees instead of contracting with a separate company.
Effective in July 1999, the courier company was acquired by Commerce National
and all employees and independent drivers were hired by Commerce National as
employees. This change effectively reclassified this expense from "Customer
Courier" to "Salaries and Benefits" and "Other Expenses". The second change was
the conversion of Commerce National's data processing and proof operations area
from a third party processor to in-house effective in April and August 1999.
This change effectively reclassified a portion of its data processing expense to
"Salaries and Benefits". Additionally, the acquisition of CRS, Inc. added two
additional full-time employees. One of the key measures utilized by management
to track personnel efficiency is the dollar amount of revenues generated (net
interest income plus non-interest income) per dollar amount of personnel
expense. For the six months ended June 30, 2000 and 1999, these figures were
$3.06 and $3.27, respectively.
15.
<PAGE> 16
CNBC BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Occupancy expense increased due to a significant drop in rental income received
on the office building owned by Commerce National Bank. Two tenants occupying
approximately 40% of the building moved in early 1999. This change was necessary
to allow room for expansion to meet Commerce National's needs for facilities.
Commerce National utilized 2,500 square feet of the vacated space for its proof
and data processing areas and completed renovation of 8,000 square feet for its
lending officers and loan operations departments. CRS, Inc. also occupies
approximately 1,200 square feet. CNBC now occupies approximately 80% of its
office building.
Data processing expenses decreased 47.9% for the six months ended June 30, 2000
and 49.1% for the three months ended June 30, 2000. During the second quarter
1999, a conversion was completed of the check processing system, bringing the
system in-house from a third-party processor. During the third quarter of 1999,
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. A portion of the cost savings was offset by increased personnel
expense.
Federal income tax expense was up $174,630, or 30.5% for the six months ended
June 30, 2000 versus the six months ended June 30, 1999 and $76,130, or 25.3%
for the three months ended June 30, 2000 versus the three months ended June 30,
1999. The increase in federal income tax expense was 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 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 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 or Federal Reserve Bank. Management believes that it has
the capital adequacy, profitability and reputation to meet its current and
foreseeable liquidity needs.
At June 30, 2000, Commerce National had $42.2 million in available short-term
funding sources to mitigate risks from changes in deposit account balances or
other liquidity needs. These sources are detailed as follows:
Cash and short-term investments $ 14,738,000
Unused borrowing capacity with the Federal Home Loan Bank 22,356,000
Federal funds lines of credit with other banks 3,400,000
Unpledged investment securities 1,680,000
------------
Total $ 42,174,000
============
Commerce National also has collateral pledged to the Federal Reserve Bank that
would allow borrowings at the discount window of $45,173,000. No borrowings were
outstanding at June 30, 2000.
16.
<PAGE> 17
CNBC BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAPITAL RESOURCES
CNBC and Commerce National are both subject to regulatory capital requirements.
These requirements measure capital levels utilizing three different
calculations. Based on these calculations, CNBC and Commerce National are
assigned to a capital category which, among other things, dictates certain
business practices of the organization, the level of Commerce National's FDIC
insurance premiums and which process is followed in obtaining regulatory
approvals necessary for branch applications, mergers and similar transactions.
CNBC's capital requirements are measured on a combined basis with Commerce
National and CRS, Inc., using consolidated totals. Commerce National is measured
independently. In April 1999, CNBC raised $4.85 million in new capital funds
through a public offering to support its recent growth and improve its capital
position. This public offering was completed in less than one month without
assistance of a broker. As of December 31, 1999, CNBC and Commerce National were
classified in the "well capitalized" category. It is management's policy to
manage the growth of Commerce National and provide for the appropriate capital
resources that will result in Commerce National maintaining its classification
as a "well capitalized" institution. Similarly, it is management's policy to
maintain the classification of CNBC as either "adequately capitalized" or "well
capitalized." For further information on capital requirements, including actual
ratios, see Note 5 to the CNBC Bancorp Consolidated Financial Statements
included in this report.
CNBC approved the purchase of up to 30,000 shares of its common stock over the
next year to be used for general corporate purposes. The shares will be
purchased from time to time in the open market or through private transactions
at market price. CNBC purchased 4,000 shares in the second quarter of 2000, and
purchased and re-issued 4,000 shares in conjunction with the exercise of stock
options and warrants in the first quarter of 2000.
17.
<PAGE> 18
FORM 10-QSB
Quarter ended June 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:
---------------------------------------------------
On April 25, 2000 CNBC Bancorp held the Annual Meeting of
Shareholders at which shareholders voted upon the election of
five directors for a term expiring in 2003. The results of the
voting on these matters were as follows:
Nominee Votes For Withheld
------- --------- --------
Richard F. Ruhl 915,747 5,580
Peter C. Taub 905,735 15,592
John A. Tonti 921,227 100
Alan R. Weiler 921,227 100
Michael Wren 920,523 804
The following director's term of office continued after the
meeting:
Loreto V. Canini, Mark S. Corna, Jameson M. Crane, Jr., Judith
A. DeVillers, George A. Gummer, William L. Hoy, Douglas W.
James, Donald R. Kenney, Daniel M. Mahoney, Thomas D.
McAuliffe, Samuel E. McDaniel, David J. Ryan.
Other matters submitted to the shareholders, for which the
following votes were cast:
1) Ratification of Crowe, Chizek and Company, LLC as independent
auditors for CNBC Bancorp.
FOR: 901,420 AGAINST: 0 WITHHOLD AUTHORITY: 2,240 ABSTAIN:2,262
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, which exhibit is incorporated herein by
reference.
18.
<PAGE> 19
FORM 10-QSB
Quarter ended June 30, 1999
PART II - OTHER INFORMATION
--------------------------------------------------------------------------------
(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,
which exhibit is incorporated herein by reference
(8) Exhibit 11 - Statement Regarding Computation of Earnings per
Share, which is included in Note 1 to these interim
consolidated financial statements
(9) Exhibit 27 - Financial Data Schedule
(b) No current reports on Form 8-K were filed by the small business issuer
during the quarter ended June 30, 2000.
19.
<PAGE> 20
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: August 11, 2000 /s/ Thomas D. McAuliffe
----------------------- ------------------------------
(Signature)
Thomas D. McAuliffe
Chairman and President
Date: August 11, 2000 /s/ John Romelfanger
------------------------ ------------------------------
(Signature)
John Romelfanger
Treasurer
20.
<PAGE> 21
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
-------------------------------------------------------------------------------------------------------------------
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
as amended and restated effective December 31, 1998 to Form 10-QSB dated June 30,
by and between and among Commerce National Bank, 1999, which exhibit is incorpor-
CNBC Bancorp and Thomas D. McAuliffe ated 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
10.5 CNBC Bancorp 1999 Stock Option Plan Reference is made to exhibit 10.5
to Form 10-QSB dated June 30,
1999, which exhibit is
incorporated herein by reference
11 Statement Regarding Computation of Reference is made to Note 1 of
Earnings Per Share these interim Consolidated
Financial Statements
27 Financial Data Schedule
</TABLE>
21.
