<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, 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)
RU
100 East Wilson Bridge Road, Worthington, Ohio 43085
----------------------------------------------------
(Address of principal executive offices)
(614) 848-8700
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Common stock, without par value 1,339,366 common shares
outstanding at April 27, 2000
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
<PAGE> 2
CNBC BANCORP
FORM 10-QSB
QUARTER ENDED MARCH 31, 2000
- --------------------------------------------------------------------------------
Page
----
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......................................... 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................. 15
Item 2. Changes in Securities and Use of Proceeds......................... 15
Item 3. Defaults Upon Senior Securities................................... 15
Item 4. Submission of Matters to a Vote of Security Holders............... 15
Item 5. Other Information................................................. 15
Item 6. Exhibits and Reports on Form 8-K.................................. 15
SIGNATURES .............................................................. 16
2.
<PAGE> 3
CNBC BANCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
2000 1999
<S> <C> <C>
ASSETS
Cash and Noninterest-bearing Balances ................. $ 9,266,901 $ 4,728,912
Interest-bearing Balances ............................. 414,754 261,900
Federal Funds Sold .................................... 4,000,000 4,525,000
Money Market Funds .................................... 8,644,681 2,301,047
------------- -------------
Total Cash and Cash Equivalents .............. 22,326,336 11,816,859
Securities Available for Sale ......................... 9,028,338 11,010,108
Loans, Net ............................................ 180,144,012 175,669,537
Premises and Equipment ................................ 2,400,620 2,377,459
Accrued Interest Receivable ........................... 1,020,729 998,479
Other Assets .......................................... 1,200,223 1,055,320
------------- -------------
Total Assets .......................................... $ 216,120,258 $ 202,927,762
============= =============
LIABILITIES
Deposits:
Noninterest-bearing .......................... $ 25,021,223 $ 22,426,666
Interest-bearing ............................. 156,611,183 146,641,616
------------- -------------
Total Deposits ...................... 181,632,406 169,068,282
Borrowings ............................................ 13,347,415 13,572,988
Other Liabilities ..................................... 1,279,646 1,181,813
------------- -------------
Total Liabilities ..................................... 196,259,467 183,823,083
SHAREHOLDERS' EQUITY
Common Stock No Par Value:
Authorized Shares - 2,000,000
Issued and Outstanding - 1,338,084 in 2000 and
1,324,532 in 1999 ............................ 13,803,953 13,672,131
Retained Earnings ..................................... 6,076,638 5,453,333
Accumulated Other Comprehensive Income (Loss) ......... (19,800) (20,785)
------------- -------------
Total Shareholders' Equity ............................ 19,860,791 19,104,679
------------- -------------
Total Liabilities and Shareholders' Equity ............ $ 216,120,258 $ 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
MARCH 31
--------
2000 1999
---------- ----------
<S> <C> <C>
INTEREST INCOME
Loans, including Fees .................... $3,917,723 $3,276,941
Taxable Securities ....................... 136,890 69,889
Money Market Funds ....................... 129,304 54,458
Federal Funds Sold ....................... 10,239 23,461
Deposits with Banks ...................... 2,073 49,837
---------- ----------
Total Interest Income ............................. 4,196,229 3,474,586
INTEREST EXPENSE
Deposits ................................. 1,778,473 1,408,095
Borrowings ............................... 198,212 201,863
---------- ----------
Total Interest Expense ............................ 1,976,685 1,609,958
---------- ----------
Net Interest Income ...................... 2,219,544 1,864,628
Provision for Loan Losses ................ 100,800 164,000
---------- ----------
Net Interest Income after Provision for Loan Losses 2,118,744 1,700,628
NONINTEREST INCOME
Service Charges on Deposits .............. 41,347 45,235
Net Gains on Sales of Securities ......... -- 15,395
Other Income ............................. 57,832 29,766
---------- ----------
Total Noninterest Income .......................... 99,179 90,396
NONINTEREST EXPENSES
Salaries and Benefits .................... 725,373 609,619
Occupancy and Equipment, Net ............. 85,769 27,242
Data Processing .......................... 40,534 76,215
Customer Courier ......................... -- 48,000
Professional Services .................... 34,028 36,127
State Franchise Tax ...................... 42,487 37,110
Other Expenses ........................... 216,556 180,250
---------- ----------
Total Noninterest Expenses ........................ 1,144,747 1,014,563
---------- ----------
Income before Income Taxes ........................ 1,073,176 776,461
Income Tax Expense ................................ 371,000 272,500
---------- ----------
Net Income ............................... $ 702,176 $ 503,961
========== ==========
EARNINGS PER COMMON SHARE
Basic .................................... $ .53 $ .45
========== ==========
Diluted .................................. $ .50 $ .42
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
4.
<PAGE> 5
CNBC BANCORP
CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31
--------
2000 1999
---- ----
Net Income ........................................ $ 702,176 $ 503,961
Other Comprehensive Income (Loss):
Unrealized Holding Gains and (Losses) on
Securities Available for Sale ............ 1,462 (9,147)
Reclassification Adjustments for (Gains) and Losses
Later Recognized in Net Income ........... - (15,395)
--------- ---------
Net Unrealized Gains and (Losses) ................. 1,462 (24,542)
Tax Expense (Benefit) ............................. 477 (8,280)
--------- ---------
Total Other Comprehensive Income (Loss) .. 985 (16,262)
--------- ---------
Comprehensive Income .............................. $ 703,161 $ 487,699
========= =========
See Notes to Consolidated Financial Statements
5.
<PAGE> 6
CNBC BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
THREE MONTHS ENDED MARCH 31
---------------------------
2000 1999
---- ----
BALANCES AT BEGINNING OF PERIOD .......... $ 19,104,679 $ 11,971,502
Net Income ............................... 702,176 503,961
Proceeds from Exercise of Warrants ....... 54,857 7,032
Proceeds and Tax Benefit from Exercise
of Stock Options ...................... 117,094 --
Treasury Shares Purchased ................ (119,000) --
Other Comprehensive Income ............... 985 (16,262)
------------ ------------
BALANCES AT END OF PERIOD ................ $ 19,860,791 $ 12,466,233
============ ============
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
--------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ............................................... $ 702,176 $ 503,961
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Loan Losses .............. 100,800 164,000
Depreciation ........................... 66,000 47,700
Net Realized Gain on Securities
Available for Sale .................. - (15,395)
Net Amortization/Accretion on Securities (868) 3,561
Federal Home Loan Bank Stock Dividend .. (22,200) (20,500)
Changes in:
Interest Receivable ........... (22,250) (163,695)
Other Assets .................. (145,380) (126,732)
Other Liabilities ............. 362,739 315,089
------------ ------------
Net Cash Provided by Operating Activities ....... 1,041,017 707,989
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Securities .................................. (743,700) (3,004,033)
Maturities of Securities ................................. 2,750,000 750,000
Sales of Securities ...................................... - 3,055,079
Net Increase in Loans .................................... (4,575,275) (10,732,036)
Purchase of Premises and Equipment ....................... (89,161) (61,814)
------------ ------------
Net Cash Flows Used in Investing Activities ..... (2,658,136) (9,992,804)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits ................................. 12,564,124 22,505,929
Net Proceeds from Issuance of Common Stock ............... 171,951 7,032
Purchase of Treasury Shares .............................. (119,000) -
Advances from Federal Home Loan Bank ..................... - 4,000,000
Principal Payments on Federal Home Loan Bank Advances .... (176,292) (437,264)
Net Proceeds from Loan Payable ........................... - 1,000,000
Repayment of Loans Payable ............................... (49,281) -
Dividends Paid ........................................... (264,906) (189,885)
Net Cash Flows Provided by Financing Activities . 12,126,596 26,885,812
------------ ------------
Net Change in Cash and Cash Equivalents ......... 10,509,477 17,600,997
Cash and Cash Equivalents at Beginning of Year ........... 11,816,859 17,496,729
------------ ------------
Cash and Cash Equivalents at End of Period ............... $ 22,326,336 $ 35,097,726
============ ============
Cash Paid During the Period for
Interest ........................................ $ 1,980,279 $ 1,493,304
Income Taxes .................................... 35,000 20,000
</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 at March 31, 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 ("CNBC") and its wholly owned subsidiary, Commerce National Bank
("Commerce National") and also together referred to as CNBC. 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 is unsecured. Management considers
CNBC's operations to be aggregated in one reportable operating segment, banking.
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:
THREE MONTHS ENDED
------------------
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
Weighted Average Shares for Basic EPS ....... 1,331,849 1,117,778
Add Dilutive Effect of:
Exercise of Warrants ..................... 20,599 47,791
Exercise of Stock Options ................ 65,216 72,778
--------- ---------
Weighted Averages Shares for Diluted EPS .... 1,417,664 1,238,347
8.
<PAGE> 9
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income tax expense is based on the effective tax rate expected to be applicable
for the entire year. Income tax expense is the sum of the current year income
tax due or refundable and the change in deferred tax assets and liabilities.
Deferred tax assets and liabilities are the expected future tax consequences of
temporary differences between the carrying amounts and tax basis of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
Certain items in the financial statements have been reclassified to conform to
the current presentation.
NOTE 2 - LOANS
Loans were comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
<S> <C> <C>
Residential Real Estate Loan ............... $ 22,370,355 $ 22,888,949
Real Estate Construction Loans ............. 6,431,591 6,440,586
Real Estate Investment Loan ................ 77,224,087 75,806,467
Business Loans ............................. 64,077,595 60,291,928
Personal Loans ............................. 13,032,863 13,091,809
------------- -------------
Subtotal .......................... 183,136,491 178,519,739
Allowance for Loan Losses .................. (2,650,800) (2,550,000)
Net Deferred Loan Origination Fees and Costs (341,679) (300,202)
------------- -------------
Net Loans .................................. $ 180,144,012 $ 175,669,537
============= =============
</TABLE>
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
<S> <C> <C>
Beginning Balance .......................... $ 2,550,000 $ 2,055,000
Loan Loss Provision ........................ 100,800 164,000
Loans Charged Off .......................... - -
Recoveries on Loans Previously Charged Off . - 6,013
----------- -----------
Ending Balance ............................. $ 2,650,800 $ 2,225,013
=========== ===========
</TABLE>
Information regarding impaired loans was as follows:
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
<S> <C> <C>
Loans Past Due Over 90 Days and Accruing
Interest .......................... $ - $ -
Nonaccrual Loans ........................... - -
Impaired Loans with No Allowance
for Losses Allocated .............. $ - $ -
Impaired Loans with Allowance
for Loan Losses Allocated ......... 334,000 558,000
---------- -----------
Total ...................................... $ 334,000 $ 558,000
========== ===========
Amount of Allowance for Loan Losses
Allocated to Impaired Loan Balance ......... $ 200,000 $ 230,000
</TABLE>
9.
<PAGE> 10
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - DEPOSITS
Total interest-bearing deposits were classified as follows:
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
Interest-bearing Demand ................ $ 14,565,990 $ 9,216,329
Savings ................................ 64,483,211 65,761,990
Time, Balances Under $100,000 .......... 42,925,272 38,457,477
Time, Balances $100,000 and Over ....... 34,636,710 33,205,820
------------ ------------
Total Interest-bearing Deposits ........ $156,611,183 $146,641,616
============ ============
Total deposit accounts with balances of $100,000 and over, including
noninterest-bearing demand accounts, totaled $106,626,000 at March 31, 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
$43,865,000 at March 31, 2000, and $40,112,000 at December 31, 1999.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
There are various contingent liabilities that are not reflected in the financial
statements, including claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
effect on financial condition or results of operations.
At March 31, 2000, and December 31, 1999, respectively, reserves of $1,165,000
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 are used in the normal course of business to meet the
financing needs of customers and to reduce exposure to interest rate changes.
These financial instruments include commitments to extend credit and standby
letters of credit. These involve, to varying degrees, credit and interest rate
risk in excess of the amount reported in the financial statements. Exposure to
credit loss if the other party does not perform is represented by the
contractual amount for commitments to extend credit, standby letters of credit,
and financial guarantees written. The same credit policies are used for
commitments and conditional obligations as are used for loans.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the commitment.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Some of the commitments are expected to expire
without being used; therefore, the total commitments do not necessarily
represent future cash requirements. Standby letters of credit and financial
guarantees written are conditional commitments to guarantee a customer's
performance to a third party.
10.
<PAGE> 11
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
A summary of the notional or contractual amounts of financial instruments with
off-balance-sheet risk were as follows:
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
<S> <C> <C>
Unadvanced Lines of Credit ............... $37,128,000 $33,753,000
Unadvanced Draw Notes .................... 7,265,000 4,689,000
Approved New Loan Commitments:
Secured by Real Estate .......... 11,800,000 12,719,000
Other ........................... 5,734,000 6,029,000
Letters of Credit ........................ 3,676,000 1,939,000
Available Lines for Credit Cards ......... 1,631,000 1,537,000
</TABLE>
NOTE 5 - REGULATORY MATTERS
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,
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.
<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, 2000
Total Capital to Risk Weighted Assets
CNBC................................... $22.1 12.2% $14.6 8.0% $18.2 10.0%
Commerce National ..................... $23.1 12.7% $14.6 8.0% $18.2 10.0%
Tier 1 (Core) Capital to Risk Weighted Assets
CNBC................................... $19.9 10.9% $ 7.3 4.0% $10.9 6.0%
Commerce National ..................... $14.5 8.0% $ 7.3 4.0% $10.9 6.0%
Tier 1 (Core) Capital to Average Assets
CNBC................................... $19.9 9.5% $ 8.3 4.0% $10.4 5.0%
Commerce National...................... $14.5 7.0% $ 8.3 4.0% $10.4 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>
11.
<PAGE> 12
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, 2000, compared to December 31, 1999, and the
consolidated results of operations for the three months ended March 31, 2000,
compared to the same period 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 $13.2 million, or 6.5%, to $216.1 million at March 31,
2000 from $202.9 million at March 31, 1999. The two largest components of this
increase were an increase in cash and cash equivalents of $10.5 million and an
increase of $4.5 million in loans outstanding.
The increase in cash and cash equivalents at March 31, 2000, was due to
increased liquidity from strong deposit growth.
The increase in loans was comprised primarily of a $1.4 million increase in real
estate investment loans and a $3.8 million increase in business loans. These
increases are in line with 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 increase in liabilities was a $12.6 million increase in deposit
accounts. $5.3 million of this increase was in interest-bearing demand account
balances, and resulted from increased balances in a number of title company
customers' accounts. Certificates of deposit grew $5.9 million, with $3.8
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. Deposit balances continue to grow as a result
of Commerce National's small business focus and available cash management
products for its customers.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 2000 was $702,176, a 39.3%
increase over the $503,961 for the same period in 1999. The increase was
primarily driven by a $355,000 increase in net interest income and a decrease in
the provision for loan losses of $63,000, offset by increased operating expenses
of $130,000 and a $99,000 increase in federal income tax expense.
12.
<PAGE> 13
CNBC BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 19.0% increase in net interest
income was primarily the result of an increase in average loans outstanding of
14.9% for 2000 compared to 1999. Similar 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. Net
interest margin improved from 4.34% for the three months ended March 31, 1999 to
4.47% for the three months ended March 31, 2000..
The decrease in the provision for loan losses of $63,000 was due to slower
growth of the overall portfolio, as compared to previous periods and no loan
charge-offs were incurred in the first quarter of 2000.
Noninterest expense was up 12.8% for the three months ended March 31, 2000
versus the three months ended March 31, 1999. Salaries and benefits were up
19.0% and accounted for 88.9% of the increase in noninterest expense. In
addition to normal raises and staff additions to support CNBC's growth, two
major changes were implemented after the first quarter of 1999. First, Commerce
National terminated its contract with the third party processor of its core
operating system and began processing in-house, utilizing its own AS/400
computer, as well as bringing the check processing system in-house. This change
added additional staff, but has also reduced data processing costs by 46.8% for
the three months ended March 31, 2000 as compared to March 31, 1999. The second
major change involved the courier messenger service utilized by Commerce
National's customers. Since its inception, some of Commerce National's customers
have utilized a deposit pickup courier service. This service was provided by a
separate company, utilizing drivers who were independent contractors. Commerce
National incurred the cost of this service. Commerce National received
regulatory approval in 1999 to establish a mobile messenger service which would
utilize bank employees instead of contracting with a separate company. Effective
second quarter of 1999, the courier company was acquired by Commerce National
and all employees and independent drivers of the company were hired by Commerce
National as employees of Commerce National. This change effectively reclassified
this expense from "Customer Courier" to "Salaries and Benefits" and "Other
Expenses". One of the key measures utilized by management to track personnel
efficiency is the dollar amount of revenues generated (net interest income plus
noninterest income) per dollar amount of personnel expense. For the three months
ended March 31, 2000 and 1999, these figures were $3.20 and $3.21, respectively.
Occupancy expense increased due to a significant drop in rental income received
on the office building owned by Commerce National Bank. Two tenants moved from
the building in early 1999, allowing room for expansion to meet Commerce
National's current needs for facilities. Commerce National utilized 2,500 square
feet of the vacated space for its item and data processing areas and completed
renovation of 8,000 square feet for its lending officers and loan operations
departments. Commerce National now occupies approximately 75% of its office
building.
Federal income tax expense was up $99,000 and 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 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. Management believes that it has the capital adequacy,
profitability and reputation to meet its current and foreseeable liquidity
needs.
At March 31, 2000, Commerce National had $40.8 million in available short-term
funding sources to mitigate any risks from changes in deposit account balances.
This represents 39.2% of checking and savings deposits which can be immediately
withdrawn. These sources are detailed as follows:
Cash and short-term investments .......................... $13,389
Unused borrowing capacity with the Federal Home Loan Bank 19,536
Federal funds lines of credit with other banks ........... 5,400
Unpledged investment securities .......................... 2,492
-------
Total .................................................... $40,817
=======
13.
<PAGE> 14
CNBC BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Commerce National also has collateral pledged to the Federal Reserve Bank that
would allow borrowings at the discount window of $42,681,000. No borrowings were
outstanding at March 31, 2000.
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, 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 the
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 and re-issued 4,000 shares in the first quarter
of 2000.
YEAR 2000
CNBC experienced no problems in their computer application systems, nor has
management been made aware of any system problems of CNBC's major customers and
vendors, related to Year 2000 issues. In addition, CNBC did not experience
unusual deposit withdrawals related to the Year 2000. CNBC does not expect to
incur any material costs in 2000 associated with Year 2000 issues.
14.
<PAGE> 15
CNBC BANCORP
FORM 10-QSB
Quarter ended March 31, 2000
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 10.5 - CNBC Bancorp 1999 Stock Option Plan.
Reference is made to Exhibit 10.5 to Form 10-QSB dated
June 30, 1999
(8) Exhibit 27 - Financial Data Schedule
(b) No current reports on Form 8-K were filed by the small
business issuer during the quarter ended March 31,
2000.
15.
<PAGE> 16
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 15, 2000 /s/ Thomas D. McAuliffe
---------------------------------------
(Signature)
Thomas D. McAuliffe
Chairman and President
Date: May 15, 2000 /s/ John Romelfanger
---------------------------------------
(Signature)
John Romelfanger
Treasurer
16.
<PAGE> 17
CNBC BANCORP
INDEX TO EXHIBITS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE NUMBER
- -------------- ----------- -----------
<S> <C> <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 Regulations 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
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.
27 Financial Data Schedule
</TABLE>
17.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 9,267
<INT-BEARING-DEPOSITS> 9,059
<FED-FUNDS-SOLD> 4,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,028
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 180,144
<ALLOWANCE> 2,651
<TOTAL-ASSETS> 216,120
<DEPOSITS> 181,632
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,280
<LONG-TERM> 13,347
0
0
<COMMON> 13,804
<OTHER-SE> 6,057
<TOTAL-LIABILITIES-AND-EQUITY> 216,120
<INTEREST-LOAN> 3,918
<INTEREST-INVEST> 137
<INTEREST-OTHER> 141
<INTEREST-TOTAL> 4,196
<INTEREST-DEPOSIT> 1,778
<INTEREST-EXPENSE> 1,977
<INTEREST-INCOME-NET> 2,220
<LOAN-LOSSES> 101
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,145
<INCOME-PRETAX> 1,073
<INCOME-PRE-EXTRAORDINARY> 702
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 702
<EPS-BASIC> 0.53
<EPS-DILUTED> 0.50
<YIELD-ACTUAL> 4.47
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 334
<ALLOWANCE-OPEN> 2,550
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2,651
<ALLOWANCE-DOMESTIC> 1,982
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 669
</TABLE>
