<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark one)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from...................to....................
Commission File No.: 000-28203
CNBC BANCORP
------------
(Name of small business issuer in its charter)
OHIO 31-1479140
- ---------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
100 East Wilson Bridge Road, Worthington, Ohio 43085
- ---------------------------------------------- -----
(Address of principal executive offices) (Zip code)
(614) 848-8700
- --------------
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, No par value
--------------------------
(Title of class)
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [x]
Issuer's revenue for the year ended December 31, 1999 was $15,513,011.
At February 29, 2000, there were issued and outstanding 1,336,411 shares of the
issuer's no par value common stock.
The aggregate market value of the voting stock held by non affiliates of the
issuer as of February 29, 2000, was $21,975,789.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1999 CNBC Bancorp Annual Report to Shareholders (Exhibit 13) are
incorporated into Part I, Item 1 and Part II, Items 5, 6, and 7.
Portions of the Definitive Proxy Statement of CNBC Bancorp dated March 15, 2000
and Notice of Annual Meeting of Shareholders to be held on April 25, 2000, are
incorporated into Part III, Items 9, 10, and 11.
<PAGE> 2
CNBC BANCORP
INDEX
FORM 10-KSB
<TABLE>
<CAPTION>
<S> <C> <C>
PART I
- ------
ITEM 1. Description of Business............................................. 3
ITEM 2. Description of Property............................................. 10
ITEM 3. Legal Proceedings................................................... 10
ITEM 4. Submission of Matters to a Vote of Security Holders................. 10
PART II
- -------
ITEM 5. Market for Common Equity and Related Shareholder Matters............ 12
ITEM 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 12
ITEM 7. Financial Statements................................................ 12
ITEM 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................................. 12
PART III
- --------
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act................... 12
ITEM 10. Executive Compensation.............................................. 12
ITEM 11. Security Ownership of Certain Beneficial Owners and Management...... 12
ITEM 12. Certain Relationships and Related Transactions...................... 12
ITEM 13. Exhibits and Reports on Form 8-K.................................... 12
Signatures.............................................................................. 14
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Information required by this section is found in CNBC Bancorp's 1999 Annual
Report to Shareholders on Page 3, incorporated herein by reference.
RECENT LEGISLATION
On November 12, 1999, President Clinton signed the Graham-Leach-Bliley Act of
1999 (the "GLB Act"), which is intended to modernize the financial services
industry. The GLB Act eliminates many regulatory restrictions for the banking
industry which originated in the Depression Era of the 1930s. Effective March
11, 2000, new opportunities are available for banks, other depository
institutions, insurance companies and securities forms to enter into
combinations that permit a single financial service organization to offer
customers a more complete array of financial products under a financial holding
company which will be regulated by the Federal Reserve Board. The regulation of
the financial holding company's subsidiaries will be conducted by their current
primary regulator. The GLB Act makes satisfactory or above Community
Reinvestment Act compliance for insured depository institutions and their
financial holding companies necessary in order for them to engage in new
financial activities. The GLB Act provides a federal right to privacy of
non-public personal information of individual customers. CNBC and Commerce
National Bank are also subject to certain state laws that deal with the use and
distribution of non-public personal information.
One possible consequence of the GLB Act may be increased competition from
financial services companies that will be permitted to provide many types of
financial services to customers. CNBC Bancorp filed an election with the Federal
Reserve on March 27, 2000, to become a financial holding company.
The following section contains certain financial disclosures related to the
issuer as required under the Securities and Exchange Commission's Industry Guide
3, "Statistical Disclosures by Bank Holding Companies", or a specific reference
as to the location of the required disclosures in the Registrant's 1999 Annual
Report to Shareholders, portions of which are incorporated in this Form 10-KSB
by reference.
STATISTICAL INFORMATION
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES
AND INTEREST DIFFERENTIAL
A & B. The average balance sheet information and the related analysis of net
interest earnings for the years ending December 31, 1999, 1998, and 1997 can be
found on page 4 of CNBC Bancorp's 1999 Annual Report to Shareholders and is
incorporated into this Item I by reference.
C. Tables setting forth the effect of volume and rate changes on interest income
and expense for the years ended December 31, 1999 and 1998 can be found on page
5 of CNBC Bancorp's 1999 Annual Report to Shareholders and is incorporated into
this Item I by reference.
II. INVESTMENT PORTFOLIO
During 1999, 1998 and 1997, CNBC maintained an average loan to deposit ratio in
excess of 90%. As a result, CNBC's reliance on its securities portfolio as a
primary income source is lower relative to other banks similar in size.
Management stresses safety and liquidity with respect to its investment
decisions. CNBC has maintained its portfolio in federal funds sold, money market
mutual funds, short-term deposits with the Federal Home Loan Bank (FHLB) and
U.S. Treasury and Agency securities with maturities of less than three years.
Management foresees no significant change in its philosophy of safety and
liquidity to foster adequate liquidity for loan demand and unforeseen deposit
withdrawal needs.
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<PAGE> 4
A. The following table sets forth certain information regarding the amortized
cost and fair value of CNBC's debt and equity securities at the dates indicated.
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------ -----------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
---- ----- ---- ----- ---- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Available for sale
Debt securities:
U.S. Treasury and Agency..............
Obligations....................... $ 9,494 $9,462 $3,791 $3,811 $2,746 $2,744
Equity securities:.......................
Federal Reserve Bank stock............ 272 272 218 218 218 218
FHLB stock............................ 1,276 1,276 1,190 1,190 1,089 1,089
--------- --------- ------ ----- ----- -----
Total equity securities............... 1,548 1,548 1,408 1,408 1,307 1,307
--------- --------- ------ ------- ----- -----
Total securities available for sale... $11,042 $11,010 $5,199 $5,219 $4,053 $4,051
======== ======= ====== ====== ====== ======
</TABLE>
B. The following table sets forth information regarding scheduled maturities,
fair value and weighted average yields of CNBC's debt and equity securities at
December 31, 1999. The weighted average yield has been computed using the
historical amortized cost for securities available for sale.
<TABLE>
<CAPTION>
ONE YEAR ONE THROUGH EQUITY
OR LESS FIVE YEARS SECURITIES TOTAL
---------- --------------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury and Agency Obligations.... $5,986 $3,476 $ 0 $ 9,462
Equity securities....................... 0 0 1,548 1,548
---------- ---------- ------- ---------
Total securities........................ $5,986 $3,476 $1,548 $11,010
====== ====== ====== =======
Percent of total........................ 54.37% 31.57% 14.06% 100.00%
Weighted average yield.................. 5.04% 6.22% 6.88% 5.67%
</TABLE>
C. Excluding those holdings of the investment portfolio in the U.S. Treasury
securities and other agencies of the U.S. government, there were no investments
in securities of any one issuer which exceeded 10% of the consolidated
shareholder's equity of CNBC at December 31, 1999.
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<PAGE> 5
III. LOAN PORTFOLIO
A. The following table presents a summary of CNBC's loan portfolio by category
for each of the last five years.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
PERCENT PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------ -------- ------ --------- ------ -------- ------ -------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Residential real
estate loans...... $ 22,889 12.82% $ 21,234 14.05% $18,871 15.88% $18,028 20.83% $ 16,611 24.04%
Real estate
construction loans 6,441 3.61 9,904 6.55 4,790 4.03 1,528 1.77 760 1.10
Real estate
investment loans.. 75,806 42.47 63,607 42.08 42,967 36.15 29,197 33.74 19,338 27.98
Business loans....... 60,292 33.77 46,204 30.56 42,457 35.72 29,895 34.55 25,377 36.72
Personal loan........ 13,092 7.33 10,215 6.76 9,771 8.22 7,881 9.11 7,019 10.16
--------- ------- -------- ------ ------- ------ --------- ------ ------- ------
Gross loan........... 178,520 100.00% 151,164 100.00% 118,856 100.00% 86,529 100.00% 69,105 100.00%
====== ====== ====== ====== ======
Less:
Deferred fees, net... 300 228 178 178 188
Allowance for loan
losses............ 2,550 2,055 1,600 1,264 1,010
---------- ---------- ---------- --------- --------
Total loans, net..... $175,670 $148,881 $117,078 $85,087 $67,907
======== ======== ======== ======= =======
</TABLE>
B. The following table sets forth the maturity distribution and interest
sensitivity of selected loan categories at December 31, 1999. Maturities are
based upon contractual terms. CNBC's policy is to specifically review and
approve any loan renewed; and no loans are automatically rolled over.
<TABLE>
<CAPTION>
ONE YEAR ONE THROUGH OVER TOTAL
OR LESS FIVE YEARS FIVE YEARS LOANS
------- ---------- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Business....................... $61,209 $71,798 $3,091 $136,098
Real estate construction....... 6,441 - - 6,441
-------- -------- -------- ---------
Total................. $67,650 $71,798 $3,091 $142,539
======= ======= ====== ========
Fixed rate loans............... $ 2,957 $15,091 $2,931 $ 20,979
Floating rate loans............ 64,693 56,707 160 121,560
-------- -------- -------- ---------
Total................. $67,650 $71,798 $3,091 $142,539
======= ======= ====== ========
</TABLE>
5
<PAGE> 6
C. Nonperforming assets consist of loans on which interest is no longer accrued,
certain restructured loans where interest rate or other terms have been
negotiated, accruing loans past due 90 days or more and real estate acquired
through foreclosure.
CNBC discontinues the accrual of interest on loans that become 90 days past due
as to principal or interest unless they are adequately secured and in the
process of collection. A loan remains on nonaccrual status until doubts
concerning collectibility no longer exist. A loan is classified as a
restructured loan when the interest rate is materially reduced or the term is
extended beyond the original maturity date because of the inability of the
borrower to service the loan under the original terms. Other real estate owned
is recorded at the lower of cost or fair value less estimated costs to sell.
The following table sets forth information regarding nonaccrual loans and other
nonperforming assets as of the dates indicated.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual loans:
Business loans.......................... $ - $ 80 $100 - -
Residential real estate loans........... - - - - -
Real Estate Investment loans............ - - - - -
Personal loans.......................... - - - - -
------- ------ ------- ------- -------
Total nonaccrual loans.................. $ - $ 80 $100 - -
Loans contractually past due 90 days or more,
other than nonaccruing....................... - - - - -
------ ------ ------- ------- ------
Total nonperforming loans........................ $ - $ 80 $100 - -
===== ==== ==== ======= ======
Allowance for loan losses as a percentage
of loans..................................... 1.43% 1.36% 1.35% 1.46% 1.46%
===== ==== ==== ======= ======
Allowance for loan losses as a percentage of total
nonperforming loans........................... (1) 2568% 1600% (1) (1)
===== ==== ==== ======= ======
Nonperforming loans as a percentage of loans..... 0% .05% .08% .00% .00%
===== ==== ==== ======= ======
</TABLE>
(1) Not applicable.
The Board of Directors reviews all nonaccrual loans and all loans 90 days or
more delinquent on a monthly basis. The additional amount of interest income
that would have been recorded on nonaccrual loans, had they been current,
totaled $11,800 and $7,400 for 1998 and 1997, respectively.
2. In addition to the loans noted above, management performs a quarterly
analysis of impaired loans. A loan is classified as impaired when full payment
under the loan terms is not expected. Impairment is evaluated in total for
smaller balance loans of similar nature such as residential mortgage, consumer
and credit card loans, and on an individual basis for other loans. The total
value of impaired loans at December 31, 1999 was $558,000.
3. There were no foreign loans outstanding at December 31, 1999, 1998, 1997,
1996 or 1995.
4. Other than the categories noted in item A. above, there is no concentration
of loans in any industry greater than 10% in the portfolio.
D. As of December 31, 1999, CNBC has no other interest bearing assets which are
required to be disclosed under Item III C1. or noted above.
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<PAGE> 7
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. The following table sets forth activity in CNBC's allowance for loan losses
for the periods indicated:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period .......... $2,055 $1,600 $1,264 $1,010 $ 725
Provision for loan losses ............... 509 480 386 254 288
Charge-offs:
Residential real estate loans ....... - - - - -
Real estate construction loans ...... - - - - -
Real estate investment loans ........ - - - - -
Business loans ...................... 8 25 50 - 4
Personal loans ...................... 35 - - - -
------ ------ ------ ------ ------
Total charge-offs ........... 43 25 50 - 4
Recoveries:
Residential real estate loans ....... - - - - -
Real estate construction loans ...... - - - - -
Real estate investment loans ........ - - - - -
Business loans ...................... 6 - - - 1
Personal loans ...................... 23 - - - -
------ ------ ------ ------ ------
Total recoveries ............ 29 - - - 1
------ ------ ------ ------ ------
Net charge-offs ......................... 14 25 50 - 3
------ ------ ------ ------ ------
Balance at end of period ................ $2,550 $2,055 $1,600 $1,264 $1,010
====== ====== ====== ====== ======
Ratio of net charge-offs to average loans
outstanding during the year ......... .01% .02% .05% - -
====== ====== ====== ====== ======
</TABLE>
Management performs an analysis of CNBC's loan portfolio on a quarterly basis to
assess the adequacy of the allowance for loan losses. The allowance for loan
losses represents that amount which management estimates is adequate to provide
for probable losses in its portfolio. The allowance balance and the provision
charged to expense are determined by management based upon past loan loss
experience, economic conditions, and various other circumstances that are
subject to change over time. The collectibility of certain specific loans is
evaluated based upon factors including the financial position of the borrower,
the estimated market value of the collateral at the current time, guarantees,
and CNBC's collateral position versus other creditors. Historical loss
information and local economic conditions are considered in establishing
allowances on the remaining portfolio. The allowance is reduced by charging off
loans deemed uncollectible by management and increased by provisions charged to
expense and recoveries of previous charge-offs. Collection efforts continue for
loans which have been charged-off.
While management of CNBC places a strong emphasis on loan underwriting and loan
review procedures and has, to date, experienced low levels of loan charge-offs,
management has continued to increase its allowance for loan losses due to its
loan growth. Several factors make it more difficult for CNBC to quantify its
allowance for loan losses than other banks. These factors are as follows:
- Due to its small business focus, CNBC's average loan size is much
larger than other similarly sized banks;
- Since its inception, CNBC has grown substantially, especially the
last 3 years and, typical loan quality problems take several
years to materialize; and
- CNBC's short history makes projecting loan losses based on
historical experience less reliable than other banks, which is
one of the measurement techniques utilized by the industry in
assessing allowance for loan loss levels.
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<PAGE> 8
B. The following table sets forth an allocation of the allowance for loan losses
by category of loan and the percentage of total loans represented by that
category. In making the allocation, consideration was given to such factors as
management's evaluation of risk in each category, current economic conditions
and charge-off experience. An allocation of the allowance for loan losses is an
estimate of the portion of the allowance that will be used to cover future
charge-offs in each major category, but it does not preclude any portion of the
allowance allocated to one type of loan being used to absorb losses of another
loan type.
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
PERCENT PERCENT PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
IN EACH IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Business and real estate
investment ........... $1,687 76.24% $1,347 72.64% $1,052 71.87% $ 733 68.29% $ 568 64.70%
Real estate construction 80 3.61 122 6.55 59 4.03 20 1.77 - 1.10
Residential real estate 60 12.82 58 14.05 51 15.88 45 20.83 41 24.04
Personal ............... 96 7.33 77 6.76 70 8.22 59 9.11 52 10.16
Unallocated ............ 627 - 451 - 368 - 407 - 349 -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total ......... $2,550 100.00% $2,055 100.00% $1,600 100.00% $1,264 100.00% $1,010 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
V. DEPOSITS
Since its inception, CNBC management has followed a growth strategy which was
primarily driven by the amount of quality loans which it could responsibly fund.
This strategy has resulted in loan growth which has outpaced deposit growth from
its primary customer base. Additionally, CNBC's primary customer base has a
strong desire for liquidity, which results in a preference for short term
certificate of deposit maturities and money market savings accounts versus
longer term certificates of deposit. As a result, CNBC has accepted certificates
of deposit from customers outside its designated market area which are solicited
through a national rate listing network. While only some of these deposits are
placed through a deposit broker, CNBC has elected to list all such funds as
"Brokered Certificates of Deposit" in the following table. Any brokerage fees or
commissions for such deposits are paid for by the depositor, not CNBC.
Utilization of these deposits has the following benefits to CNBC:
- Generates longer term funding for CNBC not generally available
from its primary customers;
- maintains CNBC's efficiency due to accepting only deposits of
$99,000 or greater; and
- permits CNBC to fund loans at a higher growth rate than would
otherwise have been feasible based on the deposit growth from its
targeted customers base.
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<PAGE> 9
The following table sets forth the distribution of CNBC's average deposit
accounts and the related weighted average interest rates on each category of
deposit presented at the dates indicated. CNBC has no foreign deposits or
foreign banking offices.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997
---- ---- ----
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
-------- ---- -------- ---- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing checking ... $ 22,948 - $ 19,214 - $ 16,254 -
NOW accounts ................... 10,365 1.43% 10,544 1.82% 7,130 2.06%
Savings and money market
accounts .................... 68,076 3.72 49,191 4.34 29,907 4.25
Certificates of deposit ........ 28,716 5.01 26,350 5.49 24,959 5.66
Brokered certificates of deposit 37,009 5.72 30,625 5.98 21,451 6.09
-------- ---- -------- ---- -------- ----
Total .......................... $167,114 3.73% $135,924 4.12% $ 99,701 4.15%
======== ==== ======== ==== ======== ====
</TABLE>
The following table summarizes certificates of deposits issued in amounts of
$100,000 or more as of December 31, 1999, by time remaining until maturity, in
thousands:
Under three months........................... $11,746
Three to six months.......................... 7,295
Six to twelve months......................... 5,525
Over twelve months........................... 8,640
---------
$33,206
=========
VI. RETURN ON EQUITY AND ASSETS
Information required by this section is incorporated by reference to the
information appearing in the table under the caption "Selected Financial Data"
located on page 2 of CNBC Bancorp's 1999 Annual Report to Shareholders.
VII. SHORT-TERM BORROWING
There were no short-term borrowings outstanding at December 31, 1999, 1998 or
1997. Additionally, the average balance of short-term borrowings did not exceed
30% of shareholder's equity at the end of 1999, 1998 or 1997.
PERSONNEL
As of December 31, 1999, CNBC had 64 total employees and 45 full-time employees.
None of CNBC's employees is represented by a collective bargaining agreement.
Management considers its relations with its employees to be excellent.
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<PAGE> 10
ITEM 2. DESCRIPTION OF PROPERTY
CNBC and Commerce National Bank are located at CNBC's only current facility at
100 East Wilson Bridge Road, Worthington, Ohio. Management has determined that
CNBC is able to provide quality service to its customers from its current
location.
CNBC and Commerce National Bank's only office is located in a 24,250 square foot
general purpose office building, of which Commerce National Bank owns. CNBC
currently utilizes approximately 75% of the building, with the remaining space
leased by companies independent of CNBC.
CNBC considers the property to be in good operating condition and suitable for
the purpose for which it is used. The property is unencumbered by any mortgage
or security interest and is, in management's opinion, adequately insured.
ITEM 3. LEGAL PROCEEDINGS
Neither CNBC nor Commerce National Bank is presently involved in any legal
proceedings of a material nature. From time to time, Commerce National Bank is a
party to legal proceedings incidental to its business to enforce its security
interest in collateral pledged to secure loans made to customers.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year covered
by this report to a vote of security holders through the solicitation of proxies
or otherwise.
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<PAGE> 11
PART II
- -------
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Shares of the Common Stock of CNBC Bancorp are traded on the over-the-counter
market primarily with brokers in CNBC Bancorp's service area. The information
required under this item is incorporated by reference to the information
appearing under the caption "Market for Common Equity and Related Shareholder
Matters" located on page 10 of CNBC Bancorp's 1999 Annual Report to
Shareholders.
RECENT SALES OF UNREGISTERED SECURITIES
On July 1, 1999, CNBC issued 1,000 shares of its common stock to the sole
shareholder of Direct Connect, Inc. in connection with the purchase of the
business. The issuance was exempt from registration under Section 4(2) of the
Securities Act of 1933.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appears on pages 6 through 9 of CNBC Bancorp's 1999 Annual Report to
Shareholders and is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The Report of Independent Auditors and Consolidated Financial Statements and
accompanying notes are listed below and are incorporated herein by reference to
CNBC Bancorp's 1999 Annual Report to Shareholders (Exhibit 13, pages 11 through
30).
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Income - For the years ended December 31, 1999 and
1998
Consolidated Statements of Comprehensive Income - For the years ended December
31, 1999 and 1998
Consolidated Statements of Changes in Shareholders' Equity - For the years ended
December 31, 1999 and 1998
Consolidated Statements of Cash Flows - For the years ended December 31, 1999
and 1998
Notes to Consolidated Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Crowe, Chizek and Company LLP, served as independent auditors for the purpose of
auditing CNBC's Annual Consolidated Financial Statements and for the preparation
of the consolidated tax returns for the fiscal years ended December 31, 1999 and
1998. The appointment of independent auditors is approved annually by the Board
of Directors. Management has had no disagreements with the independent
accountants on matters of accounting principals or financial statement
disclosure required to be reported under this item.
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<PAGE> 12
PART III
- --------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Information for Item 9 appears on pages 4 through 5 of CNBC Proxy Statement and
Notice of Annual Meeting of Shareholders to be held Tuesday, April 25, 2000,
dated March 15, 2000, and is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
Information for Item 10 appears on pages 7 through 11 of CNBC Proxy Statement
and Notice of Annual Meeting of Shareholders to be held Tuesday, April 25, 2000,
dated March 15, 2000, and is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information for Item 10 appears on pages 2 through 3 of CNBC Proxy Statement and
Notice of Annual Meeting of Shareholders to be held Tuesday, April 25, 2000,
dated March 15, 2000, and is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There are no relationships or transactions that are required to be reported.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
1 FINANCIAL STATEMENTS. The following consolidated financial statements of
CNBC appear in the 1999 Annual Report to Shareholders (Exhibit 13) on the
pages referenced and are specifically incorporated by reference under Item
7 of the Form 10-KSB:.
PAGE IN ANNUAL REPORT
Independent Auditor's Report....................................... 11
Consolidated Balance Sheets........................................ 12
Consolidated Statements of Income.................................. 13
Consolidated Statements of Comprehensive Income.................... 14
Consolidated Statements of Shareholders' Equity.................... 15
Consolidated Statements of Cash Flow............................... 16
Notes to Consolidated Financial Statements......................... 17-30
2 FINANCIAL STATEMENT SCHEDULES. Financial statement schedules are omitted as
they are not applicable or the required information is included in the
financial statements or notes thereto found in CNBC Bancorp's 1999 Annual
Report to Shareholders.
12
<PAGE> 13
3 EXHIBITS.
(a)(1) Exhibit 3.1 - Articles of Incorporation of CNBC Bancorp.
Reference is made to Exhibit 3.1 to the Registration Statement
on Form SB-2, File No. 333-68797, filed March 12, 1999, which
exhibit is incorporated herein by reference
(2) Exhibit 3.2 - Regulation of CNBC Bancorp. Reference is made to
Exhibit 3.2 to the Registration Statement on Form SB-2, File
No. 333-68797, filed March 12, 1999, which exhibit is
incorporated herein by reference
(3) Exhibit 10.1 - Employment Agreement dated as of March 1, 1998
as amended and restated effective December 31, 1998 by and
between and among Commerce National Bank, CNBC Bancorp and
Thomas D. McAuliffe. Reference is made to Exhibit 10.1 to Form
10-QSB dated June 30, 1999
(4) Exhibit 10.2 - Form of Indemnification Agreement between CNBC
Bancorp and its directors, officers and certain
representatives. Reference is made to Exhibit 10.2 to the
Registration Statement on Form SB-2, File No. 333-68797, filed
March 12, 1999, which exhibit is incorporated herein by
reference
(5) Exhibit 10.3 -Non-Qualified Stock Option Plan. Reference is
made to Exhibit 10.3 to the Registration Statement on Form
SB-2, File No. 333-68797, filed March 12, 1999, which exhibit
is incorporated herein by reference
(6) Exhibit 10.4 -Form of Deferred Compensation Agreement.
Reference is made to Exhibit 10.4 to the Registration
Statement on Form SB-2, File No. 333-68797, filed March 12,
1999, which exhibit is incorporated herein by reference
(7) Exhibit 10.5 - CNBC Bancorp 1999 Stock Option Plan. Reference
is made to Exhibit 10.5 to Form 10-QSB dated June 30, 1999
(8) Exhibit 11 - Computation of Earnings per Share. Reference is
made to CNBC Bancorp 1999 Annual Report to Shareholders, Note
1, page 18, which is incorporated herein by reference
*(9) Exhibit 13 - CNBC Bancorp 1999 Annual Report to Shareholders
(10) Exhibit 20 - Proxy Statement for the 2000 Annual Meeting of
Shareholders. Reference is made to Form DEF 14.A dated March
15, 2000, which is incorporated herein by reference
*(11) Exhibit 23 - Consent of Independent Accountants
*(12) Exhibit 27 - Financial Data Schedule
(b) No current reports on Form 8-K were filed by the small business issuer
during the quarter ended December 31, 1999.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 29, 2000 CNBC Bancorp
-------------- ------------
(Registrant)
By /s/ Thomas D. McAuliffe
-----------------------------------------------------------------------------
Thomas D, McAuliffe, Chairman, President
(its principal executive officer)
By /s/ John A. Romelfanger John A. Romelfanger, Secretary, Treasurer,
-----------------------------------------------------------------------------
Vice President (its principal financial officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on this 14th day of March 2000 by the following persons
(including a majority of the Board of Directors of the Registrant) in the
capacities indicated:
/s/ Thomas D. McAuliffe /s/ Daniel M. Mahoney
- ----------------------- ---------------------
Thomas D. McAuliffe Daniel M. Mahoney
President, Chairman of the Board, Vice President, Senior Lending Officer,
Chief Executive Officer, Director Director
/s/ Loreto (Larry) V. Canini /s/ Samuel E. McDaniel
- ---------------------------- ----------------------
Loreto (Larry) V. Canini Samuel E. McDaniel
Director Director
/s/ Mark S. Corna
- ---------------------------- ----------------------
Mark S. Corna Kent K. Rinker
Director Nonelected Advisory Director
/s/ Jameson Crane, Jr.
- ---------------------------- ----------------------
James Crane, Jr. Richard F. Ruhl
Director Director
/s/ Judith A. DeVillers /s/ David J. Ryan
- ----------------------- -----------------
Judith A. DeVillers David J. Ryan
Director Director
/s/ George A. Gummer
- ---------------------------- ----------------------
George A. Gummer Peter C. Taub
Director Director
14
<PAGE> 15
/s/ William L. Hoy /s/ John A. Tonti
- ------------------ -----------------
William L. Hoy John A. Tonti
Director Director
/s/ Alan R. Weiler
- ------------------- ------------------
Douglas J. James Alan R. Weiler
Director Director
/s/ Michael Wren
- ------------------- ----------------
Donald R. Kenney Michael Wren
Director Director
15
<PAGE> 16
CNBC Bancorp
Index to Exhibits
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE NUMBER
- -------------- ----------- -----------
<S> <C> <C>
3.1 Articles of Incorporation of CNBC Bancorp Reference is made to Exhibit
3.1 to the Registration Statement
on Form SB-2, File No. 333-68797,
filed March 12, 1999, which exhibit
is incorporated herein by reference
3.2 Regulation of CNBC Bancorp Reference is made to Exhibit
3.2 to the Registration Statement
on Form SB-2, File No. 333-68797,
filed March 12, 1999, which exhibit
is incorporated herein by reference
10.1 Employment Agreement dated as of March 1, 1998 Reference is made to Exhibit 10.1 to
as amended and restated effective December 31, 1998 Form 10-QSB dated June 30, 1999,
by and between and among Commerce National Bank, which exhibit is incorporated herein
CNBC Bancorp and Thomas D. McAuliffe 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 Computation of Earnings per Share Reference is made to CNBC's Annual
Report to Shareholders, Note1, Page 18,
which exhibit is incorporated herein
by reference.
13 CNBC Bancorp 1999 Annual Report to Shareholders
</TABLE>
16
<PAGE> 17
CNBC Bancorp
Index to Exhibits
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE NUMBER
- -------------- ----------- -----------
<S> <C> <C>
20 Proxy Statement for the 2000 Annual Meeting of Reference is made to Form DEF 14.A
Shareholders dated March 15, 2000, which is
incorporated herein by reference.
23 Consent of Independent Accountants
27 Financial Data Schedule
</TABLE>
17
<PAGE> 1
Exhibit 13
CNBC BANCORP 1999 ANNUAL REPORT
TO SHAREHOLDERS
INDEX
CONSOLIDATED FINANCIAL STATEMENTS
AND MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
<S> <C>
Selected Financial Data....................................................................... 2
Description of Business....................................................................... 3
Average Balance Sheet and Rate Volume Analysis................................................ 4
Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................... 6
Market for Common Equity and Related Shareholder Matters...................................... 10
Report of Independent Auditors................................................................ 11
Consolidated Financial Statements............................................................. 12
Directors and Executive Officers of CNBC Bancorp.............................................. 31
</TABLE>
<PAGE> 2
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
---------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
SELECTED OPERATING DATA:
<S> <C> <C> <C> <C> <C>
Interest income ...................... $ 15,152 $ 12,727 $ 9,730 $ 7,679 $ 6,439
Interest expense ..................... 7,065 6,221 4,624 3,704 3,113
----------- ----------- ----------- ----------- -----------
Net interest income .................. 8,087 6,506 5,106 3,975 3,326
Provision for loan losses ............ (509) (480) (386) (254) (288)
Noninterest income ................... 361 248 189 161
113
Noninterest expenses ................. (4,250) (3,481) (2,769) (2,246) (1,887)
Income tax expense ................... (1,291) (969) (745) (573) (440)
----------- ----------- ----------- ----------- -----------
Net income ........................... $ 2,398 $ 1,824 $ 1,395 $ 1,063 $ 824
=========== =========== =========== =========== ===========
SELECTED PER SHARE DATA:
Basic earnings per common share ...... $ 1.93 $ 1.64 $ 1.31 $ 1.02 $ .79
Diluted earnings per common share .... $ 1.76 $ 1.48 $ 1.21 $ .95 $ .76
Dividends declared per common
share ............................ $ .40 $ .34 $ .25 $ .175 $ .125
Book value per share ................. $ 14.42 $ 10.72 $ 9.43 $ 7.88 $ 7.08
Shares outstanding (1) ............... 1,324,532 1,116,972 1,111,780 1,053,654 1,046,192
SELECTED OPERATING RATIOS:
Return on average assets ............. 1.21% 1.16% 1.20% 1.14% 1.09%
Return on average shareholders' equity 14.82% 16.12% 15.18% 13.38% 11.52%
Dividend payout (2) .................. 22.73% 22.97% 20.66% 18.42% 16.45%
Average equity to average assets ..... 8.16% 7.20% 7.83% 8.50% 9.47%
SELECTED FINANCIAL CONDITION DATA:
Total Assets ......................... $ 202,928 $ 175,113 $ 139,325 $ 104,207 $ 82,224
Loans, net ........................... 175,670 148,881 117,078 85,087 67,907
Securities available-for-sale ........ 11,010 5,218 4,051 3,130 3,364
Deposits ............................. 169,068 151,480 119,105 90,377 69,048
Borrowed funds ....................... 13,573 10,685 8,860 4,884 5,149
Shareholders' equity ................. 19,105 11,972 10,482 8,297 7,404
</TABLE>
(1) As adjusted for stock splits and dividends
(2) Dividends per share divided by diluted earnings per share
2
<PAGE> 3
DESCRIPTION OF BUSINESS
CNBC Bancorp ("CNBC") was incorporated in Ohio on August 23, 1996, for the
purpose of effecting a reorganization whereby Commerce National Bank ("Commerce
National"), a national bank established in 1991 and more fully described below,
would become a wholly-owned subsidiary of CNBC and CNBC would become a bank
holding company as defined by the Bank Holding Company Act of 1956, as amended.
This reorganization was completed effective November 30, 1996.
Substantially all of the consolidated revenues and net income are generated by
the business activities of Commerce National. Commerce National is a full
service national bank primarily serving small to medium-sized businesses located
in the Columbus, Ohio metropolitan area. Commerce National has experienced
steady growth in asset size, number of customers served and net income over the
past five years.
Commerce National's only office is located at 100 East Wilson Bridge Road,
Worthington, Ohio, which is located directly north of Columbus near the
intersection of Rt. 23 and I-270. Commerce National utilizes approximately 75%
of its office building, with the remaining space being leased to two tenants.
Banking deposit products offered include checking accounts, NOW accounts,
savings accounts and certificates of deposit for both businesses and
individuals. Loan products include residential and commercial real estate loans,
business lines of credit, business term loans and consumer home equity lines of
credit. Commerce National participates in many government sponsored lending
programs including the Small Business Administration and Columbus Countywide
Development Corporation. Commerce National also offers business and consumer
credit cards.
Banking services include providing courier pickup of banking transactions, daily
processing of deposit transactions through its wholesale lockbox department,
telephone banking, PC banking, wire transfers and direct deposit payroll and
electronic tax payments. Commerce National does not currently provide services
via the Internet, but is evaluating the possibility of offering such services
within the next year.
The market served by Commerce National is dominated by four large, national bank
holding companies which control over 75% of the deposits in Franklin County.
Total banking deposits approximate $15 billion, with Commerce National having
about a 1% market share. While its larger competitors have a significant
influence on the pricing of loans and deposits, Commerce National has had a
history of delivering high quality service, which is its primary competitive
advantage in obtaining new customers.
CNBC is a bank holding company subject to the supervision of and examination by
the Board of Governors of the Federal Reserve System (the "Federal Reserve").
CNBC is required to file periodic reports with the Federal Reserve.
Commerce National is a nationally-chartered bank and is subject to the direct
supervision and regulation and is regularly examined by the Office of the
Comptroller of the Currency. Additionally, Commerce National is a member of the
Federal Reserve System and its deposits are insured by the FDIC to applicable
limits.
3
<PAGE> 4
DISTRIBUTION OF BALANCE SHEET ITEMS; INTEREST RATES AND INTEREST DIFFERENTIAL
The following tables set forth certain information relating to CNBC's average
balance sheets and the statements of income for the years ended December 31,
1999, 1998, and 1997, and reflects the average yield on assets and average cost
of liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities,
respectively, for the periods shown. Average balances are derived from average
daily balances. The yields and costs include fees which are considered
adjustments to yields.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1999 1998
---------------------------------------- ---------------------------------------- -
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
---------------------------------------- ---------------------------------------- -
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Money market funds,
federal funds sold
and interest-earning
deposits ............... $ 16,451 $ 805 4.89% $ 13,444 $ 715 5.32%
Securities available
for sale, net (2) ...... 7,689 426 5.53 5,149 302 5.87
Loans, net (1) ........... 165,444 13,921 8.41 131,048 11,710 8.94
----------- ----------- ------ ----------- ----------- ------
Total interest-earning
assets ........ 189,584 15,152 7.99 149,641 12,727 8.51
Noninterest-earning
assets .................... 8,779 7,739
----------- -----------
Total assets ......... $ 198,363 $ 157,380
=========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
NOW deposits ............. $ 10,365 148 1.43 $ 10,544 192 1.82
Savings deposits ......... 68,076 2,530 3.72 49,191 2,135 4.34
Certificates of deposit .. 65,725 3,558 5.41 56,975 3,278 5.75
----------- ----------- ------ ----------- ----------- ------
Total deposits ....... 144,166 6,236 4.33 116,710 5,605 4.80
Borrowed Funds .............. 13,868 829 5.98 9,348 616 6.59
----------- ----------- ------ ----------- ----------- ------
Total interest-bearing
liabilities ........ 158,034 7,065 4.47 126,058 6,221 4.94
----------- ------ ----------- ------
Noninterest-bearing
liabilities ............... 24,150 19,992
----------- -----------
Total liabilities .... 182,184 146,050
Shareholders' equity ........ 16,179 11,330
----------- -----------
Total liabilities
and shareholders'
equity ............. $ 198,363 $ 157,380
=========== ===========
Net interest income/interest
rate spread(3) ............ $ 8,087 3.52% $ 6,506 3.57%
=========== =========== =========== ===========
Net interest margin(4) ...... 4.27% 4.35%
=========== ===========
Ratio of interest-earning
assets to interest-bearing
liabilities .............. 120.0% 118.7%
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1997
------------------------------------------
AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST
------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS:
Interest-earning assets:
Money market funds,
federal funds sold
and interest-earning
deposits ............... $ 6,723 $ 357 5.31%
Securities available
for sale, net (2) ...... 3,543 213 6.01
Loans, net (1) ........... 100,237 9,160 9.14
----------- ---------- ----
Total interest-earning
assets ........ 110,503 9,730 8.81
Noninterest-earning
assets .................... 6,148
-----------
Total assets ......... $ 116,651
===========
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
NOW deposits ............. $ 7,130 147 2.06
Savings deposits ......... 29,907 1,270 4.25
Certificates of deposit .. 46,410 2,720 5.86
----------- ---------- ----
Total deposits ....... 83,447 4,137 4.96
Borrowed Funds .............. 7,473 487 6.52
----------- ---------- ----
Total interest-bearing
liabilities ........ 90,920 4,624 5.09
---------- ----
Noninterest-bearing
liabilities ............... 16,592
-----------
Total liabilities .... 107,512
Shareholders' equity ........ 9,139
-----------
Total liabilities
and shareholders'
equity ............. $ 116,651
===========
Net interest income/interest
rate spread(3) ............ $ 5,106 3.72%
=========== ===========
Net interest margin(4) ...... 4.62%
===========
Ratio of interest-earning
assets to interest-bearing
liabilities .............. 121.5%
===========
</TABLE>
(1) Amount is net of deferred loan fees and includes nonperforming loans.
(2) Average balance is shown using the carrying value of securities. The
average yield has been computed using the historical amortized cost
average balance.
(3) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest bearing liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
4
<PAGE> 5
RATE/VOLUME ANALYSIS
The following table represents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected CNBC's interest income and interest expense during the
periods indicated. Information is provided in each category with respect to (i)
changes attributable to changes in volume (change in volume multiplied by prior
rate), (ii) changes attributable to changes in rate (changes in rate multiplied
by prior volume) and (iii) the net change. Changes attributable to the combined
impact of volume and rate have been allocated proportionately to separately
reflect the changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31,1999 DECEMBER 31, 1998
COMPARED TO COMPARED TO
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------- ------------------------------
INCREASE/(DECREASE) INCREASE/(DECREASE)
DUE TO DUE TO
--------------------------- ------------------------------
VOLUME RATE NET VOLUME RATE NET
------ ---- --- ------ ---- ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Money market funds, federal funds
sold and interest-earning deposits $ 151 $ (61) $ 90 $ 357 $ 1 $ 358
Securities available for sale, net . 142 (18) 124 94 (5) 89
Loans receivable, net(1) ........... 2,927 (716) 2,211 2,757 (207) 2,550
------- ------- ------- ------- ------- -------
Total interest-earning assets 3,220 (795) 2,425 3,208 (211) 2,997
INTEREST-BEARING LIABILITIES:
Deposits:
NOW deposits ....................... (3) (41) (44) 64 (19) 45
Savings deposits ................... 734 (339) 395 836 29 865
Certificates of deposit ............ 482 (202) 280 609 (51) 558
------- ------- ------- ------- ------- -------
Total deposits ............... 1,213 (582) 631 1,509 (41) 1,468
Borrowed funds ..................... 275 (62) 213 123 6 129
------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities ................ 1,488 (644) 844 1,632 (35) 1,597
------- ------- ------- ------- ------- -------
Net Interest Income ................... $ 1,732 $ (151) $ 1,581 $ 1,576 $ (176) $ 1,400
======= ======= ======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Amount is net of deferred loan fees and includes nonperforming loans.
5
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion presents an analysis of CNBC's financial condition and
results of operations as of and for the year ended December 31, 1999 compared to
December 31, 1998. This discussion is designed to provide the reader with a more
comprehensive review of the operating results and financial position than could
be obtained from reading the financial statements alone. This analysis should be
read in conjunction with the financial statements and related footnotes and the
selected financial data included elsewhere in this document.
When used in this discussion or future filings by CNBC with the Securities and
Exchange Commission 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 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 its 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.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1999 AND DECEMBER 31, 1998
Total assets increased $28 million, or 15.9% to $203 million at December 31,
1999. The largest component of this increase was an increase of $27 million in
net loans outstanding.
The increase in loans was comprised primarily of a $12 million increase in real
estate investment loans and a $14 million increase in business loans. These
increases were slightly above Commerce National's budgeted growth goals.
Management attributes much of this growth to the continuing consolidation of its
competitors, which has resulted in a higher demand for Commerce National's more
personal and responsive services. The central Ohio economy continues to be
strong, especially in residential and commercial real estate construction.
Management anticipates loan growth in the next 12 to 18 months will be slower
than what it has experienced during the last two years. Competition continues to
grow more intense and the central Ohio economy is beginning to show signs of
slower growth. In addition to the establishment of new offices from existing
banks, several new banks have started operation in central Ohio. However,
management believes that the continuing consolidation and Commerce National's
relatively small market share should provide additional growth opportunities for
Commerce National.
The primary increase in liabilities was an $18 million increase in deposit
accounts. Savings balances grew $7 million as a result of Commerce National's
small business focus and available cash management products for its customers.
Certificates of deposit grew $14 million, with $10 million of this growth
achieved through solicitation of deposits on the national rate-listing network
to which Commerce National subscribes. Balances for interest-bearing demand
accounts actually decreased $5 million as a result of significantly lower title
company deposits at year-end 1999 versus 1998.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, COMPARED TO THE YEAR
ENDED DECEMBER 31, 1998
Net income for the year ended December 31, 1999 was $2,398,000, a 31.5% increase
over the $1,824,000 reported in 1998. The increase in net income was primarily
driven by a $1,581,000 increase in net interest income and a $113,000 increase
in noninterest income, offset by a $769,000 increase in operating expenses and a
$321,000 increase in federal income tax expense.
The 24.3% increase in net interest income was primarily the result of an
increase in average loans outstanding of 26% for 1999 compared with 1998. Loan
growth was most significant in the business and real estate investment loan
categories,
6
<PAGE> 7
which reflects Commerce National's business focus and an expanding local
economy. Management attributes Commerce National's loan growth to a number of
factors, including:
- Referrals from existing customers who are pleased with the
service quality they receive from Commerce National;
- Primary focus of 13 of Commerce National's 43 full-time
employees on business development and existing customer
relationship satisfaction, which helps to insure the quality
and responsiveness of service Commerce National's customers
expect;
- Continued involvement of CNBC's outside directors in business
development efforts; and
- Continuing consolidation of local competitors which is
resulting in a declining focus on providing quality customer
service by Commerce National's competitors.
Increased competitive pressures, along with fluctuating interest rates, resulted
in a slightly lower net interest margin of 4.29% for 1999 compared with 4.35% in
1998.
Noninterest income for the year ended December 31, 1999 increased 45.5% over
1998. This increase was a result of growth in the number of deposit accounts, a
$30,000 increase in fees on credit cards and merchant processing due to growth
in the number of accounts and an increase in fees charged for letters of credit
of $17,000. Other income for the year ended December 31, 1999 also includes a
$15,000 gain on the sale of securities classified as available for sale.
The majority of the 22.1% increase in operating expenses is broken down as
follows:
Salaries and Benefits $489,000
Occupancy and Equipment, net 185,000
Data Processing 28,000
Customer Courier (80,000)
Other Expenses 173,000
The increase in salaries and benefits accounted for 63.6% of the total increase
in operating expenses. In addition to normal raises and staff additions to
support CNBC's growth, two major changes were implemented in 1999, which
contributed to this increase. 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 and check encoding and sorting
equipment. New employees were added during the second and third quarters to
accomplish this conversion. Data processing expenses in 1999 included
approximately $50,000 in one time costs related to this conversion. The second
major change involved the courier 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, which utilized drivers who were independent contractors.
Commerce National incurred the cost of this service. Commerce National received
regulatory approval to establish a mobile messenger service that would utilize
Bank employees instead of contracting with a separate company. Effective July 1,
1999, the courier company was acquired by Commerce National and all employees
and independent drivers of the company were hired by Commerce National as
employees of the Bank. This change resulted in a reclassification of this
expense from "Customer Courier" to "Salaries and Benefits" and "Other Expenses".
Even considering these changes, the dollar amount of revenues generated for each
dollar in personnel expense increased to $3.29 in 1999 from $3.25 in 1998.
Occupancy expense increased due to a significant drop in rent income received
from leasing a portion of Commerce National's main office facility. In early
1999, two tenants moved out at Commerce National's request. Commerce National
utilized 2,500 square feet of the vacated space for its item and data processing
areas and recently completed renovation of 8,000 square feet for its lending
officers and loan operations departments. Commerce National now occupies
approximately 75% of its office building.
Of the $173,000 increase in other expenses, $44,000 represented increased
expenditures on direct marketing efforts of Commerce National, $16,000
represented increases in credit card processing expenses due to increased volume
and $19,000 represented a reclassification of courier automobile reimbursement
expense previously discussed. The remaining increases in expenses were due to
Commerce National's continued growth.
7
<PAGE> 8
Federal income tax expense was up 33.1% for the year ended December 31, 1999.
The increase in federal income tax expense was the result of CNBC's increased
profitability. The effective tax rate increased slightly from 34.7% for 1998 to
35.0% for 1999.
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.
The two primary liquidity needs of Commerce National are funding loans and net
withdrawals from deposit accounts.
Net increases in loans totaled $27.3 million and $32.3 million in 1999 and 1998,
respectively. These loan growth totals represented 81% and 96% of cash flows
used for investing activities. Loans are primarily funded through deposit
growth, supplemented by long-term borrowings. While loan growth from year-end to
year-end can fluctuate, average loans outstanding to average assets has remained
fairly stable, ranging from 83%-86% during the last four years. Commerce
National's commitments, as further detailed in Note 12 to the financial
statements, are primarily commitments to fund loans. Monthly new loan
commitments have totaled between $12 million and $24 million and result in
approximately $5.5 million in new loans funded per month. Net loans grow by a
smaller amount due to normal principal repayments and loan payoffs. Although
Commerce National has a large amount of approved, unadvanced lines of credit,
this is not a significant liquidity risk. Management has tracked the utilization
percentage on its lines of credit which have ranged between 39% and 46% of the
total committed lines. At December 31, 1999, utilization was 46%.
Listed below is a summary of the primary cash flows from financing activities
which have funded loan growth. Deposits are broken down between those generated
from Commerce National's customers located in its primary market area
("Primary") and those generated through the national rate listing network
("Brokered").
<TABLE>
<CAPTION>
1999 1998
-------------- -------------
<S> <C> <C>
Deposits - Primary............. $ 7,877,000 $29,926,000
Deposits - Brokered............ 9,711,000 2,449,000
Net Borrowings................. 2,888,000 1,824,000
Proceeds from Common Stock
Issuance................... 5,261,000 30,000
Other - Net.................... (449,000) (328,000)
-------------- -------------
Total Funds Provided........... $25,288,000 $33,901,000
============== =============
</TABLE>
Although Commerce National has experienced net deposit growth since its
inception, deposit balances fluctuate during the month and seasonally in the
first quarter of the year. At December 31, 1999, Commerce National had $39
million in available short-term funding sources to mitigate any risks from
changes in deposit account balances, which represented 40% of checking and
savings deposits which can be immediately withdrawn. These sources are detailed
as follows:
<TABLE>
<S> <C>
Cash and short-term investments.......................... $ 7,803,000
Unused borrowing capacity with the
Federal Home Loan Bank............................... 21,195,000
Federal funds lines of credit with other banks........... 4,900,000
Unpledged investment securities.......................... 5,083,000
-----------
Total.................................................... $38,981,000
===========
</TABLE>
Commerce National also has collateral pledged to the Federal Reserve Bank that
would allow borrowings at the discount window of $40,547,000. No borrowings were
outstanding at December 31, 1999.
Additionally, Commerce National could accept approximately $15 million in
additional brokered certificates of deposit before it would reach its internally
set maximum of 30% of total deposits.
8
<PAGE> 9
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, see Note 14 to
the Consolidated Financial Statements.
INFLATION
Substantially all of CNBC's assets and liabilities relate to banking activities
and are monetary in nature. The consolidated financial statements and related
financial data are presented in accordance with Generally Accepted Accounting
Principles ("GAAP"). GAAP currently requires CNBC to measure several of CNBC's
assets and liabilities in terms of historical dollars. Changes in the value of
money due to rising inflation can cause purchasing power loss.
Management's opinion is that a movement in interest rates affects the financial
condition and results of operations to a greater degree than changes in the rate
of inflation. It should be noted that interest rates and inflation do effect
each other, but do not always move in correlation with each other. CNBC's
ability to match the interest sensitivity of its financial assets to the
interest sensitivity of its liabilities in its asset/liability management may
tend to minimize the effect of changes in interest rates on performance.
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.
9
<PAGE> 10
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of CNBC trades infrequently and is not traded on any
established securities market, although the stock is listed on the
Over-The-Counter Bulletin Board (OTCBB) under the symbol CNBD. In 1999 and 1998,
parties interested in buying or selling CNBC's stock were generally referred to
Sweney Cartwright & Co. Beginning in 2000, two brokers offer a bid price for
CNBC's stock, Stifel, Nicolaus & Company and Sweney Cartwright & Co.
Information below is the range of high and low transaction prices as reported by
Sweney Cartwright & Co. These transactions are without retail mark-up, mark-down
or commission. Sweney Cartwright & Co. conducted substantially all of the dealer
transactions in 1999 and 1998. Actual volume reported by Sweney, Cartwright &
Co. was 18,796 and 7,050 shares for 1999 and 1998, respectively.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
1st Qtr. $27.00 to $29.50 $25.00 to $25.00
2nd Qtr. $29.00 to $32.00 $25.00 to $25.00
3rd Qtr. $32.00 to $33.25 $27.00 to $29.50
4th Qtr. $31.50 to $33.00 $26.00 to $28.25
</TABLE>
Management does not have knowledge of the prices paid in all transactions and
has not verified the accuracy of those prices that have been reported. Because
of the lack of an established market for CNBC's stock, these prices may not
reflect the prices at which the stock would trade in an active market.
CNBC has 2,000,000 authorized and 1,324,532 outstanding shares of common stock
held by approximately 431 shareholders at December 31, 1999. CNBC has 153,021
options and 33,710 warrants outstanding to purchase shares of its common stock
or securities convertible into shares of common stock. CNBC declared cash
dividends of $0.20 per share in June and December of 1999 and $0.17 per share in
June and December of 1998, resulting in a total amount of $0.40 and $0.34 per
share in 1999 and 1998.
10
<PAGE> 11
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND THE SHAREHOLDERS OF CNBC BANCORP:
We have audited the accompanying consolidated balance sheets of CNBC Bancorp as
of December 31, 1999 and 1998, and the related consolidated statements of
income, comprehensive income, changes in shareholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of CNBC
Bancorp's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CNBC Bancorp as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
CROWE, CHIZEK AND COMPANY, LLP
Columbus, Ohio
February 16, 2000
11
<PAGE> 12
CNBC BANCORP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS
1999 1998
---- ----
<S> <C> <C>
Cash and Noninterest-bearing Balances ................. $ 4,728,912 $ 5,256,468
Interest-bearing Balances ............................. 261,900 2,589,088
Federal Funds Sold .................................... 4,525,000 4,850,000
Money Market Funds .................................... 2,301,047 4,801,173
------------- -------------
Total Cash and Cash Equivalents .............. 11,816,859 17,496,729
Securities Available for Sale ......................... 11,010,108 5,218,341
Loans, Net ............................................ 175,669,537 148,880,855
Premises and Equipment ................................ 2,377,459 1,943,744
Accrued Interest Receivable ........................... 998,479 825,435
Deferred Federal Income Taxes ......................... 780,000 589,000
Other Assets .......................................... 275,320 159,079
------------- -------------
Total Assets .......................................... $ 202,927,762 $ 175,113,183
============= =============
LIABILITIES
Deposits:
Noninterest-bearing .......................... $ 22,426,666 $ 21,013,393
Interest-bearing ............................. 146,641,616 130,466,924
------------- -------------
Total Deposits ...................... 169,068,282 151,480,317
Borrowings ............................................ 13,572,988 10,684,892
Other Liabilities ..................................... 1,181,813 976,472
------------- -------------
Total Liabilities ..................................... 183,823,083 163,141,681
SHAREHOLDERS' EQUITY
Common Stock No Par Value;
Authorized Shares - 2,000,000
Issued and Outstanding - 1,324,532 in 1999 and
1,116,972 in 1998 ............................ 13,672,131 8,379,375
Retained Earnings ..................................... 5,453,333 3,579,127
Accumulated Other Comprehensive Income (Loss) ......... (20,785) 13,000
------------- -------------
Total Shareholders' Equity ............................ 19,104,679 11,971,502
------------- -------------
Total Liabilities and Shareholders' Equity ............ $ 202,927,762 $ 175,113,183
============= =============
</TABLE>
See Accompanying Notes
12
<PAGE> 13
CNBC BANCORP
CONSOLIDATED INCOME STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
INTEREST INCOME
Loans, including Fees .......................... $13,920,956 $11,710,276
Taxable Securities ............................. 426,374 301,732
Money Market Funds ............................. 377,352 321,505
Federal Funds Sold ............................. 259,936 202,094
Deposits with Banks ............................ 167,469 191,122
----------- -----------
Total Interest Income ............................... 15,152,087 12,726,729
INTEREST EXPENSE
Deposits ....................................... 6,236,021 5,604,950
Borrowings ..................................... 828,757 615,537
----------- -----------
Total Interest Expense .............................. 7,064,778 6,220,487
----------- -----------
Net Interest Income ............................ 8,087,309 6,506,242
Provision for Loan Losses ...................... 509,252 479,732
----------- -----------
Net Interest Income after Provision for Loan Losses . 7,578,057 6,026,510
NONINTEREST INCOME
Service Charges on Deposits .................... 175,348 131,489
Net Gains on Sales of Securities ............... 15,395 --
Other Income ................................... 170,181 116,631
----------- -----------
Total Noninterest Income ............................ 360,924 248,120
NONINTEREST EXPENSES
Salaries and Benefits .......................... 2,566,454 2,077,043
Occupancy and Equipment, Net ................... 268,427 83,313
Data Processing ................................ 289,348 261,261
Customer Courier ............................... 96,000 175,500
Professional Services .......................... 138,144 154,576
State Franchise Tax ............................ 121,165 130,915
Other Expenses ................................. 770,537 598,006
----------- -----------
Total Noninterest Expenses .......................... 4,250,075 3,480,614
----------- -----------
Income Before Income Taxes .......................... 3,688,906 2,794,016
Income Tax Expense .................................. 1,290,601 969,530
----------- -----------
Net Income ..................................... $ 2,398,305 $ 1,824,486
=========== ===========
EARNINGS PER COMMON SHARE
Basic .......................................... $ 1.93 $ 1.64
=========== ===========
Diluted ........................................ $ 1.76 $ 1.48
=========== ===========
</TABLE>
See Accompanying Notes
13
<PAGE> 14
CNBC BANCORP
CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net Income......................................... $ 2,398,305 $ 1,824,486
Other Comprehensive Income (Loss):
Unrealized Holding Gains and (Losses) on
Securities Available for Sale............... (35,666) 21,591
Reclassification Adjustments for (Gains) and Losses
Later Recognized in Net Income................. (15,395) -
------------ -----------
Net Unrealized Gains and (Losses).................. (51,061) 21,591
Tax Expense (Benefit).............................. (17,276) 7,291
---------------- ----------------
Total Other Comprehensive Income (Loss)....... (33,785) 14,300
---------------- ---------------
Comprehensive Income.......................... $ 2,364,520 $ 1,838,786
============= ============
</TABLE>
See Accompanying Notes
14
<PAGE> 15
CNBC BANCORP
CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Accumulated
Number Other
of Common Retained Comprehensive
Shares Stock Earnings Income (Loss) Total
------ ----- -------- ------------- -----
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1998 .............. 555,890 $ 8,349,051 $ 2,133,913 $ (1,300) $ 10,481,664
Two-for-one Stock Split .................. 555,890
Proceeds from Exercise of Warrants ....... 5,092 28,922 28,922
Proceeds and Tax Benefit from Exercise
of Stock Options ........................ 100 1,402 1,402
Net Income ............................... 1,824,486 1,824,486
Cash Dividends Declared ($.34 per Share) . (379,272) (379,272)
Other Comprehensive Income ............... 14,300 14,300
------------ ------------ ------------ ------------ ------------
BALANCES AT DECEMBER 31, 1998 ............ 1,116,972 8,379,375 3,579,127 13,000 11,971,502
Proceeds from Stock Offering, Net of Costs 165,000 4,853,694 4,853,694
Stock Issued in Business Purchase ........ 1,000 32,000 32,000
Proceeds from Exercise of Warrants ....... 25,810 146,601 146,601
Proceeds and Tax Benefit from Exercise of
Stock Options ............................ 15,750 260,461 260,461
Net Income ............................... 2,398,305 2,398,305
Cash Dividends Declared ($.40 per Share) (524,099) (524,099)
Other Comprehensive Income (Loss) ........ (33,785) (33,785)
------------ ------------ ------------ ------------ ------------
BALANCES AT DECEMBER 31, 1999 ............ 1,324,532 $ 13,672,131 $ 5,453,333 $ (20,785) $ 19,104,679
============ ============ ============ ============ ============
</TABLE>
See Accompanying Notes
15
<PAGE> 16
CNBC BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ............................................... $ 2,398,305 $ 1,824,486
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Loan Losses .............. 509,252 479,732
Depreciation ........................... 226,798 150,152
Net Realized Gain on Securities
Available for Sale ................ (15,395) --
Loss on Disposal of Equipment .......... -- 20,798
Deferred Income Taxes .................. (173,000) (163,000)
Net Amortization/Accretion on Securities 4,720 8,974
Federal Home Loan Bank Stock Dividend .. (86,200) (100,900)
Goodwill Amortization .................. 3,200 --
Changes in:
Interest Receivable ........... (173,044) (183,844)
Other Assets .................. (88,165) 70,030
Other Liabilities ............. 130,320 16,281
------------ ------------
Net Cash Provided by Operating Activities ....... 2,736,791 2,122,709
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Securities .................................. (10,551,032) (3,053,836)
Maturities of Securities ................................. 1,750,000 2,000,000
Sales of Securities Available for Sale ................... 3,055,079 --
Net Increase in Loans .................................... (27,297,934) (32,282,148)
Purchase of Premises and Equipment ....................... (660,513) (251,314)
------------ ------------
Net Cash Flows Used in Investing Activities ..... (33,704,400) (33,587,298)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits ................................. 17,587,965 32,374,904
Net Proceeds from Issuance of Common Stock ............... 5,260,756 30,324
Maturities of Federal Home Loan Bank Advances ............ (250,000) (1,250,000)
Advances from Federal Home Loan Bank ..................... 4,000,000 3,750,000
Principal Payments on Federal Home Loan Bank Advances .... (750,109) (675,590)
Net Proceeds from Loan Payable ........................... 1,000,000 --
Repayment of Loans Payable ............................... (1,111,795) --
Dividends Paid ........................................... (449,078) (328,353)
------------ ------------
Net Cash Flows Provided by Financing Activities . 25,287,739 33,901,285
------------ ------------
Net Change in Cash and Cash Equivalents ......... (5,679,870) 2,436,696
Cash and Cash Equivalents at Beginning of Year ........... 17,496,729 15,060,033
------------ ------------
Cash and Cash Equivalents at End of Year ................. $ 11,816,859 $ 17,496,729
============ ============
Cash Paid During the Year for
Interest ........................................ $ 6,988,039 $ 6,168,368
Income Taxes .................................... 1,320,000 1,125,000
Supplemental Noncash Disclosures:
Stock Issued for Business Purchase .............. $ 32,000 $ --
See Accompanying Notes
</TABLE>
16
<PAGE> 17
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed in
the preparation of the financial statements.
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of CNBC Bancorp ("Bancorp") and its wholly-owned subsidiary, Commerce
National Bank ("Bank"), together referred to as "the Corporation". All
significant intercompany balances and transactions have been eliminated in
consolidation.
NATURE OF OPERATIONS: Revenues and assets are derived from the banking industry,
serving primarily small business customers in the central Ohio region. Banking
deposit products include checking and savings accounts and certificates of
deposit. Business loans are secured by real estate, accounts receivable,
inventory, equipment and other types of collateral and are expected to be repaid
from cash flows from operations of businesses. Personal loans are secured by
real estate, stocks and other collateral. A small portion of loans are
unsecured. Management considers the Corporation to operate primarily in one
segment, banking.
USE OF ESTIMATES: To prepare financial statements in conformity with generally
accepted accounting principles, management makes certain estimates and
assumptions based on available information. These estimates and assumptions
affect the amounts reported in the financial statements and the disclosures
provided. Future results could differ from these estimates. The allowance for
loan losses, fair values of financial instruments and status of contingencies
are more susceptible to change.
SECURITIES: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold prior to maturity. Available for sale securities are reported at fair
value, with unrealized gains or losses reported in other comprehensive income or
loss and shareholders' equity, net of tax. Trading securities are reported at
fair value with unrealized gains or losses included in earnings.
Interest income includes amortization of purchase premium or discount. Gains and
losses on sales are based on the amortized cost of the security sold. Securities
are written down to fair value when a decline in fair value is not temporary.
LOANS: Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at the principal
balance outstanding, net of unearned interest, deferred loan origination fees
and costs and the allowance for loan losses. Loans held for sale are reported at
the lower of cost or market, on an aggregate basis.
Interest income on loans is reported on the interest method and includes
amortization of net deferred loan origination fees and costs over the loan term.
The accrual of interest on loans will be suspended when a loan is 90 days or
more past due, unless the loan is well collateralized or in the process of
collection. When a loan is placed on nonaccrual status, accrued and unpaid
interest at risk is charged against income. Payments received on nonaccrual
loans will be applied against principal until recovery of the remaining balance
is reasonably assured.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation
allowance for probable incurred credit losses increased by recording a provision
for loan losses, which is charged to current expense, and receiving recoveries
on loans previously charged-off. The allowance for loan losses is decreased by
loan charge-offs. Management estimates the allowance balance required based on
known and inherent risks in the nature and volume of the loan portfolio,
assessment of individual borrower's ability to repay their loans including the
value of any collateral, current economic conditions, and past loan loss
experience. Many of these factors are subjective and may change over time.
Allocations of the allowance may be made for specific loans, but the entire
allowance is available for any loan that, in management's judgment, should be
charged-off.
17
<PAGE> 18
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOWANCE FOR LOAN LOSSES (CONTINUED): A loan is impaired when full payment
under the loan terms is not expected. Impairment is evaluated in total for
smaller balance loans of similar nature such as residential mortgage, consumer
and credit card loans, and on an individual basis for other loans. Loans
considered to be impaired are reduced to the present value of expected future
cash flows, or to the fair value of collateral securing the loan if repayment is
expected solely from the collateral, by allocating a portion of the allowance
for loan losses to such loans. Loans are evaluated for impaired status when
payments are past due 90 days or more or when management's grading system
indicates a doubtful classification. Interest received on impaired loans that
are not on nonaccrual status is recorded as interest income.
PREMISES AND EQUIPMENT: Asset cost is reported net of accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful
life of the asset. Maintenance and repairs are charged to expense as incurred,
and major improvements are capitalized. Assets are reviewed for impairment when
events indicate the carrying amount may not be recoverable.
EMPLOYEE BENEFITS: A trusteed 401(k) savings plan covers all employees who have
attained the age of 20 1/2 and work a minimum of 1,000 hours per calendar year.
An employer contribution for each participant equal to three percent of the
participant's compensation is made annually. The plan also allows employee
contributions, with contributions up to six percent of the participant's
compensation matched 50 percent by the employer. Expense related to the plan was
$99,600 and $84,200 in 1999 and 1998. No post-retirement benefits other than the
401(k) plan are provided to employees.
STOCK COMPENSATION: Employee compensation expense under stock options is
reported only if options are granted below the market value of the stock on the
grant date. Pro forma disclosures of net income and earnings per share are shown
using the fair value method of SFAS No. 123 to measure expense for options
granted after 1994, using an option pricing model to estimate fair value.
INCOME TAXES: Income tax expense is the total 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 amounts for the 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.
FINANCIAL INSTRUMENTS: Financial Instruments include off-balance-sheet credit
instruments, such as commitments to make loans and standby letters of credit,
issued to meet customer financing needs. The face amount for these items
represents the exposure to loss, before considering customer collateral or
ability to repay. Such financial instruments are recorded when they are funded.
EARNINGS PER SHARE: 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 Bancorp's
common stock. Earnings and dividends per share are restated for all stock splits
and dividends through the date of issue of the financial statements. The
calculation for weighted average shares is as follows:
1999 1998
--------- ---------
Weighted average shares for basic EPS .. 1,245,675 1,113,952
Add dilutive effect of:
Exercise of warrants ................ 44,830 46,318
Exercise of stock options ........... 73,222 68,458
--------- ---------
Weighted averages shares for diluted EPS 1,363,727 1,228,728
========= =========
18
<PAGE> 19
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STATEMENTS OF CASH FLOWS: Cash and cash equivalents include cash and
noninterest-bearing and interest-bearing balances with other financial
institutions, federal funds sold and money market funds. Money market funds
consist of investments in money market mutual funds that buy and sell at a
constant $1 per share value; therefore, cost and fair value are the same. Cash
flows are reported net for customer loan and deposit transactions.
COMPREHENSIVE INCOME: Comprehensive income consists of net income and other
comprehensive income or loss. Other comprehensive income or loss includes
unrealized gains and losses on securities available for sale, net of tax, which
are also recognized as separate components of shareholders' equity.
LOSS CONTINGENCIES: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.
RESTRICTIONS ON CASH: The Bank was required to have $1,105,000 and $1,061,000 of
cash on hand or on deposit with the Federal Reserve Bank to meet regulatory
reserve and clearing requirements at year-end 1999 and 1998. These balances do
not earn interest.
DIVIDEND RESTRICTION: Banking regulations require maintaining certain capital
levels and may limit the dividends paid by the Bank to the Bancorp or by the
Bancorp to shareholders.
RECLASSIFICATIONS: Certain items in the financial statements have been
reclassified to conform with the current presentation.
NOTE 2 - MONEY MARKET FUNDS
Balances in money market funds were as follows:
1999 1998
---------- ----------
Liquid Cash Trust (LCT) ............... $ 241,171 $2,138,164
Automated Government Money Trust (AGMT) 1,264,551 2,263,223
Money Market Flex Fund ................ 795,325 399,786
---------- ----------
Total ................................. $2,301,047 $4,801,173
========== ==========
LCT has approximately $213 million in assets which consist of federal funds sold
to banks and repurchase agreements secured by U.S. Treasury securities which are
held in safekeeping by a third-party custodian.
AGMT has approximately $1.9 billion in assets which consist of short term U.S.
Treasury obligations and repurchase agreements secured by U.S. Treasury
securities which are held in safekeeping by a third-party custodian.
The Flex Fund has approximately $230 million in assets which consist of
commercial paper, corporate bonds, and U.S. Government Agency securities.
19
<PAGE> 20
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 3 - SECURITIES AVAILABLE FOR SALE
Securities available for sale were as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gross Gains Gross Losses Value
---- ----------- ------------ -----
<S> <C> <C> <C> <C>
December 31, 1999
U.S. Agency Securities ..... $ 9,493,870 $ -- $ (31,462) $ 9,462,408
Federal Reserve Bank Stock . 271,800 -- -- 271,800
Federal Home Loan Bank Stock 1,275,900 -- -- 1,275,900
----------- ----------- ----------- -----------
Total ...................... $11,041,570 $ -- $ (31,462) $11,010,108
=========== =========== =========== ===========
December 31, 1998
U.S. Treasury Securities ... $ 3,791,342 $ 21,848 $ (2,249) $ 3,810,941
Federal Reserve Bank Stock . 217,700 -- -- 217,700
Federal Home Loan Bank Stock 1,189,700 -- -- 1,189,700
----------- ----------- ----------- -----------
Total ...................... $ 5,198,742 $ 21,848 $ (2,249) $ 5,218,341
=========== =========== =========== ===========
</TABLE>
Contractual maturities of debt securities were as follows:
December 31, 1999
-----------------
Amortized Fair
Cost Value
---- -----
Due Within One Year .... $6,000,504 $5,985,975
Due in One to Five Years 3,493,366 3,476,433
---------- ----------
Total Debt Securities .. $9,493,870 $9,462,408
========== ==========
Proceeds from sales of investment securities during the year ended December 31,
1999, were $3,055,079. Gross gains of $18,230 and gross losses of $2,835 were
realized on these sales. No sales of securities occurred in 1998.
At December 31, 1999 and 1998, there were no holdings of securities of any one
issuer, other than the U.S. Government or U.S. Government agencies, in an amount
greater than 10 percent of shareholders' equity.
Securities pledged at December 31, 1999 and 1998 had a carrying amount of
$4,379,000 and $2,003,000, and were pledged to secure public funds or other
obligations.
20
<PAGE> 21
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 4 - LOANS
Loans at year-end were as follows:
1999 1998
------------- -------------
Residential Real Estate Loans .............. $ 22,888,949 $ 21,234,368
Real Estate Construction Loans ............. 6,440,586 9,903,512
Real Estate Investment Loans ............... 75,806,467 63,607,025
Business Loans ............................. 60,291,928 46,203,996
Personal Loans ............................. 13,091,809 10,215,288
------------- -------------
Subtotal .......................... 178,519,739 151,164,189
Allowance for Loan Losses .................. (2,550,000) (2,055,000)
Net Deferred Loan Origination Fees and Costs (300,202) (228,334)
------------- -------------
Net Loans .................................. $ 175,669,537 $ 148,880,855
============= =============
Activity in the allowance for loan
losses for the year was as follows:
1999 1998
------------- -------------
Beginning Balance .......................... $ 2,055,000 $ 1,600,000
Loan Loss Provision ........................ 509,252 479,732
Loans Charged-Off .......................... (43,279) (24,732)
Recoveries on Loans Previously Charged-Off . 29,027 --
------------- -------------
Ending Balance ............................. $ 2,550,000 $ 2,055,000
============= =============
Impaired loans were as follows:
1999 1998
------------- -------------
Impaired Loans with No Allowance
for Losses Allocated ....................... $ -- $ 80,025
Impaired Loans with Allowance
for Loan Losses Allocated .................. 558,303 386,741
------------- -------------
Total ...................................... $ 558,303 $ 466,766
============= =============
Amount of Allowance for Loan Losses
Allocated to Impaired Loan Balance ......... $ 230,000 $ 75,000
Average Investment in
Impaired Loans ............................. 320,941 256,780
Interest Income Recognized
During Impairment .......................... 27,033 14,830
Cash Basis Interest Income
Recognized on Impaired Loans ............... 24,894 14,059
Nonperforming loans were as follows:
1999 1998
------------- -------------
Loans Past Due Over 90 Days
and Accruing Interest ...................... $ -- $ --
Nonaccrual Loans ........................... -- 80,025
21
<PAGE> 22
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 5 - RELATED PARTY TRANSACTIONS
Deposits from principal officers, directors and their affiliates at year-end
1999 and 1998 were $9,293,000 and $9,350,000. Loans to principal officers,
directors and their affiliates in 1999 were as follows:
Beginning of Year................................ $ 6,807,000
New Loans........................................ 423,000
Repayments....................................... (1,907,000)
Changes in Directors and their Affiliations...... 33,000
----------------
End of Year...................................... $ 5,356,000
=============
At December 31, 1999, there were unadvanced lines of credit of $3,100,000 and
letters of credit of $1,000,000 outstanding to principal officers, directors and
their affiliates. These commitments are included in Note 12, Commitments and
Contingencies.
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment was as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land and Building................................ $ 1,907,859 $ 1,663,819
Equipment, Software and Furniture................ 1,204,524 800,741
------------- -------------
3,112,383 2,464,560
Less Accumulated Depreciation.................... (734,924) (520,816)
------------- -------------
Premises and Equipment, Net...................... $ 2,377,459 $ 1,943,744
============= =============
</TABLE>
At December 31,1999, the Bank occupies approximately 75 percent of the building
it owns, with a portion of the remaining space leased to other businesses.
Rental income received during the years ended December 31, 1999 and 1998 totaled
$88,968 and $236,614.
NOTE 7 - DEPOSITS
Interest-bearing deposits were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Interest-bearing Demand.......................... $ 9,216,329 $ 14,232,748
Savings.......................................... 65,761,990 58,690,625
Time, Balances Under $100,000.................... 38,457,477 30,571,254
Time, Balances $100,000 and Over................. 33,205,820 26,972,297
------------ ------------
Total Interest-bearing Deposits.................. $146,641,616 $130,466,924
============ ============
</TABLE>
22
<PAGE> 23
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 7 - DEPOSITS (CONTINUED)
Total deposit accounts with balances of $100,000 and over, including non
interest-bearing demand accounts, totaled $96,560,000 and $89,660,000 at
December 31, 1999 and 1998. The Bank 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
$40,112,000 and $30,401,000 at December 31, 1999 and 1998. At December 31, 1999
and 1998, the average weighted remaining maturity of these deposits was 13.9
months and 9.6 months, and the weighted average interest rate paid was 5.79
percent and 5.98 percent.
Stated maturities of time deposits were as follows:
2000 $43,637,000
2001 19,703,000
2002 7,745,000
2003 91,000
2004 479,000
2005 and thereafter 8,000
-----------
Total $71,663,000
===========
NOTE 8 - BORROWINGS
Borrowings were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
FHLB Term Advances............................... $ 4,250,000 $ 4,500,000
FHLB Mortgage Matched Advances................... 3,434,783 4,184,892
FHLB Convertible Fixed Rate Advances............. 4,000,000 -
Loan Payable..................................... 1,888,205 2,000,000
----------- -----------
Total............................................ $13,572,988 $10,684,892
=========== ===========
</TABLE>
Term advances, mortgage matched advances and convertible fixed rate advances
from The Federal Home Loan Bank ("FHLB") are used as a longer term funding
source. Mortgage matched advances with original maturities ranging from 10 to 20
years are utilized to fund specific fixed rate loans with certain prepayment of
principal permitted without penalty. Interest rates on mortgage-matched advances
ranged from 5.55 percent to 7.70 percent at December 31, 1999 and amortize
through September, 2017. Term advances cannot be prepaid without penalty.
Interest rates on term advances ranged from 5.38 percent to 6.20 percent at
December 31, 1999 and mature between June, 2000 and January, 2008. Interest
rates on the convertible fixed-rate advances are fixed for a specified number of
years, then are convertible at the option of the FHLB. If the convertible option
is exercised, the advance may be prepaid without penalty. Interest rates on the
convertible advances ranged from 4.68 percent to 5.03 percent at December 31,
1999, are convertible between January 2002 and January 2004 and mature January
2009.
Additionally, an $8 million cash management advance revolving line of credit was
approved with the FHLB. At December 31, 1999 and 1998, no advances were
outstanding on the line. Minimum collateral for FHLB advances outstanding at
December 31, 1999 and 1998 totaled $17,527,175 and $13,027,338 and consists of a
blanket pledge of all first mortgage loans secured by 1-4 family residential
properties and all FHLB stock.
At December 31, 1999, $50,684,000 of business and commercial real estate loans
are pledged to the Federal Reserve Bank ("FRB") as collateral for advances from
the FRB. No borrowings were outstanding at December 31, 1999.
23
<PAGE> 24
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 8 - BORROWINGS (CONTINUED)
On May 1, 1997, the Bancorp borrowed $2,000,000 from another financial
institution. The proceeds were utilized to purchase subordinated notes of the
Bank. Only interest payments are required for the first two years. On May 1,
1999, the rate adjusted to a fixed interest rate of 7.55%. The Bancorp is
required to make equal monthly principal and interest payments of $28,162,
calculated on a 96-month amortization. The loan is unsecured; however, the
Bancorp has agreed not to pledge its ownership interest in the Bank stock during
the term of the loan.
At December 31, 1999, required principal payments on all borrowings were as
follows:
Principal Average
Payments Interest Rate
-------- -------------
2000 $ 1,396,329 6.41%
2001 1,688,784 5.92%
2002 1,640,070 5.92%
2003 1,637,647 5.95%
2004 784,974 6.94%
2005 & thereafter 6,425,184 5.55%
-----------
Total $13,572,988
===========
NOTE 9 - INCOME TAXES
Income tax expense was as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current.......................................... $1,463,601 $1,132,530
Deferred ........................................ (173,000) (163,000)
---------- ----------
Total Income Tax Expense......................... $1,290,601 $ 969,530
========== ==========
</TABLE>
The income tax benefit from the exercise of non-qualified stock options was
recognized for financial reporting purposes by crediting additional paid-in
capital $126,500 in 1999 and $720 in 1998.
Effective tax rates differ from federal statutory rates applied to financial
statement income due to the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Tax Expense at Statutory Rate of 34%............. $1,254,228 $ 949,965
Increase in Taxes Resulting from
Nondeductible Expenses............... 36,373 19,565
---------- -----------
Income Tax Expense............... $1,290,601 $ 969,530
========== ===========
</TABLE>
24
<PAGE> 25
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 9 - INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities at year-end were as follows:
1999 1998
--------- ---------
Deferred Tax Assets
Allowance for Loan Losses .... $ 856,000 $ 688,000
Deferred Compensation Expense 120,000 91,000
Deferred Loan Origination Fees 11,000 17,000
Other ........................ 11,000 --
--------- ---------
Total ................. 998,000 796,000
Deferred Tax Liabilities
Cash Basis Reporting ......... (24,000) (48,000)
Nontaxable Stock Dividend .... (128,000) (98,000)
Accumulated Depreciation ..... (32,000) (32,000)
Other ........................ (34,000) (29,000)
--------- ---------
Total ................. (218,000) (207,000)
--------- ---------
Total, Net ............ $ 780,000 $ 589,000
========= =========
There was no deferred tax asset valuation allowance at December 31, 1999 or
1998.
NOTE 10 - COMMON STOCK WARRANTS
In connection with the initial stock offering in 1991, warrants were issued to
all shareholders. Each warrant is freely transferable and entitles the holder to
purchase a share of common stock at $5.68 per share. The warrants will expire on
October 11, 2000, and are subject to adjustment for stock splits, stock
dividends, and similar transactions. At December 31, 1999 and 1998, 33,710 and
59,520 warrants were issued and outstanding. In 1999 and 1998, 25,810 and 5,092
warrants were exercised.
NOTE 11 - STOCK OPTION PLANS
The Bancorp's 1996 and 1999 Stock Option plans provide non-qualified and
incentive stock options to reward employees and directors and to provide them
with an additional equity interest in the Bancorp. Options granted prior to 1996
have a 20 year expiration and were 100 percent vested on the grant date. Options
granted in 1996 and later were issued with a 10 year expiration with vesting
occurring over either a 3- or 5-year period, depending on the employee's years
of service. At December 31, 1999 and 1998, 27,389 and 13,330 shares were
authorized for future grants. Information about option grants follows.
Number Weighted-average
of Options Exercise Price
Outstanding, Beginning of 1998 156,980 $ 8.69
Granted ...................... 5,950 27.44
Exercised .................... (100) 6.82
--------
Outstanding, End of 1998 ..... 162,830 9.37
Granted ...................... 8,713 31.56
Exercised .................... (15,750) 8.51
Forfeited .................... (2,772) 22.59
--------
Outstanding, End of 1999 ..... 153,021 10.51
========
Options exercisable totaled 137,075 and 146,006 at December 31, 1999 and 1998 at
weighted average exercise prices of $8.54 and $8.03, respectively.
25
<PAGE> 26
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 11 - STOCK OPTION PLANS (CONTINUED)
The following pro forma information presents net income and earnings per share
had Statement of Financial Accounting Standards No. 123's fair value method been
used to measure compensation cost for stock option plans. No compensation cost
was recognized for stock option plans for 1999 or 1998.
1999 1998
------------- -------------
Net Income as Reported ............... $ 2,398,305 $ 1,824,486
Pro Forma Net Income ................. $ 2,370,396 $ 1,804,926
Basic Earnings per Share as Reported . $ 1.93 $ 1.64
Pro Forma Basic Earnings Per Share ... $ 1.90 $ 1.62
Diluted Earnings per Share as Reported $ 1.76 $ 1.48
Pro Forma Diluted Earnings per Share . $ 1.74 $ 1.47
All options are granted at the market price of the stock on the date of grant.
For options granted during 1999 and 1998, the weighted-average fair values at
grant date were calculated to be $11.93 and $7.21.
The fair value of options granted during 1999 and 1998 is estimated using the
following weighted-average information: risk-free interest rate of 6.04% and
4.65%, expected life of 10 years, 17.20% volatility of stock price for 1999, no
volatility was measured for 1998 as the Corporation was not a registrant, and an
expected dividend yield of 1.23% and 1.20%.
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Weighted-Average
Range of Remaining Weighted-Average
Exercise Prices Outstanding Exercisable Contractual Life Exercise Price
--------------- ----------- ----------- ---------------- --------------
<S> <C> <C> <C> <C>
$ 5.68 - $ 7.27 73,300 73,300 12.5 Years $ 6.82
$ 8.18 - $10.75 51,150 51,150 14.6 Years $ 8.67
$15.38 - $20.00 15,568 11,334 7.4 Years $17.23
$27.50 - $32.50 13,003 1,291 9.5 Years $30.46
</TABLE>
NOTE 12 - COMMITMENTS AND CONTINGENCIES
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.
26
<PAGE> 27
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 12 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
A summary of the notional or contractual amounts of financial instruments with
off-balance-sheet risk was as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Approved, Unadvanced Lines of Credit............ $ 33,753,000 $30,853,000
Unadvanced Draw Notes............................ 4,689,000 6,223,000
New Loan Commitments:
Secured by Real Estate.................. 12,719,000 11,593,000
Other................................... 6,029,000 3,155,000
Letters of Credit................................ 1,939,000 1,327,000
Available Lines for Credit Cards................. 1,537,000 1,182,000
</TABLE>
At year-end 1999, and included above, commitments to make fixed-rate loans at
current market rates totaled $1,165,000, with rates ranging from 8.0% to 9.0%.
Also included above are $7,236,000 of five-year adjustable rate loans with fixed
starting rates ranging from 7.25% to 8.75%. Fixed rate loan commitments were not
material at December 31, 1998.
NOTE 13 - FAIR VALUES OF FINANCIAL INSTRUMENTS
Estimated fair values of financial instruments and the related carrying values
were as follows at year-end.
<TABLE>
<CAPTION>
1999 1998
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
Financial Assets (In Thousands)
<S> <C> <C> <C> <C>
Cash and Cash Equivalents................... $ 11,817 $ 11,817 $ 17,497 $ 17,497
Securities Available for Sale............... 11,010 11,010 5,218 5,218
Loans, Net of Allowance for Loan Losses..... 175,670 173,524 148,881 150,600
Accrued Interest Receivable................. 998 998 825 825
Financial Liabilities
Demand and Savings Deposits................. $ (97,404) $ (97,404) $ (93,937) $ (93,937)
Time Deposits............................... (71,663) (71,072) (57,544) (57,845)
Borrowings.................................. (13,573) (12,693) (10,685) (10,913)
Accrued Interest Payable.................... (321) (321) (244) (244)
</TABLE>
For purposes of the above disclosures of estimated fair value, the following
assumptions were used. The estimated fair value for cash and cash equivalents is
considered to approximate cost. The estimated fair value for securities is based
on quoted market values for the individual securities or for equivalent
securities. Carrying value is considered to approximate fair value for accrued
interest receivable, for deposit liabilities subject to immediate withdrawal,
and for accrued interest payable. The fair values of loans, time deposits, and
borrowings are approximated by calculating the sum of the carrying value for
amounts that contractually reprice at intervals less than six months and the
present value of cash flows using an estimated market discount interest rate for
amounts that reprice less frequently than every six months. The fair value of
off-balance-sheet items is based on the current fees or costs that would be
charged to enter into or terminate such arrangements. These amounts are not
material at December 31, 1999 or 1998.
While these estimates are based on management's judgment of the appropriate
evaluation factors, there is no assurance that were such items liquidated the
estimated fair values would necessarily have been realized. The estimated fair
values should not be considered to apply at subsequent dates.
27
<PAGE> 28
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 14 - REGULATORY MATTERS
The Bank and the Bancorp 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. The Bank met the
requirements of a well capitalized institution as defined above, at December 31,
1999 and 1998. If the Bank's capital classification were to change to adequately
capitalized, it would need to obtain regulatory approval to continue to accept
brokered deposits.
Actual and required capital amounts and ratios are presented below at year-end.
<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>
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%
1998
Total Capital to Risk Weighted Assets
CNBC................................... $13.7 9.5% $11.5 8.0% $14.4 10.0%
Commerce National...................... $15.2 10.6% $11.5 8.0% $14.4 10.0%
Tier 1 (Core) Capital to Risk Weighted Assets
CNBC................................... $11.9 8.3% $5.8 4.0% $8.7 6.0%
Commerce National...................... $10.0 6.9% $5.8 4.0% $8.6 6.0%
Tier 1 (Core) Capital to Average Assets
CNBC................................... $11.9 7.0% $6.8 4.0% $8.5 5.0%
Commerce National...................... $10.0 5.9% $6.8 4.0% $8.5 5.0%
</TABLE>
The Office of the Comptroller of the Currency ("OCC") must approve the
declaration of any dividends for the Bank in excess of available retained
earnings and in excess of the sum of profits for the year combined with the
Bank's retained earnings from the two preceding years, less any required
transfer to surplus. In addition, dividends may not reduce capital levels below
the minimum regulatory requirements disclosed above. Under the most restrictive
of these requirements, Bancorp estimates retained earnings available for payment
of dividends by the Bank to the Bancorp approximates $3,300,000 in order to
maintain the well capitalized status at year-end 1999.
28
<PAGE> 29
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 15 - PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
The following are condensed parent company only financial statements for CNBC
Bancorp.
CONDENSED BALANCE SHEETS
1999 1998
------------ ------------
ASSETS
Cash and Cash Equivalents ................... $ 830,457 $ 347,044
Investment in subsidiary:
Equity ................................. 13,819,105 10,027,355
Subordinated Notes ..................... 6,300,000 3,700,000
Dividend Receivable from Subsidiary ......... 250,000 --
Other Assets ................................ 105,092 119,405
------------ ------------
Total Assets ....................... $ 21,304,654 $ 14,193,804
============ ============
LIABILITIES
Loan Payable ................................ $ 1,888,205 $ 2,000,000
Other Liabilities ........................... 311,770 222,302
------------ ------------
Total Liabilities .................. 2,199,975 2,222,302
SHAREHOLDERS' EQUITY
Common Stock ................................ 13,672,131 8,379,375
Retained Earnings ........................... 5,453,333 3,579,127
Accumulated Other Comprehensive Income (Loss) (20,785) 13,000
------------ ------------
Total Shareholders' Equity ......... 19,104,679 11,971,502
------------ ------------
Total Liabilities and
Shareholders' Equity ............... $ 21,304,654 $ 14,193,804
============ ============
CONDENSED INCOME STATEMENTS
1999 1998
------------ ------------
Income
Dividends from Subsidiary .............. $ 250,000 $ 400,000
Interest Income ........................ 401,761 271,192
Other Income ........................... 16,545 12,990
------------ ------------
Total Income ....................... 668,306 684,182
Expenses
Interest Expense ....................... 148,892 152,146
Other Expense .......................... 82,509 47,741
------------ ------------
Total Expenses ..................... 231,401 199,887
------------ ------------
Income Before Income Taxes and Equity in
Undistributed Net Income of Subsidiary ...... 436,905 484,295
Income Tax Expense .......................... 64,135 24,730
------------ ------------
Income Before Equity in Undistributed Net
Income of Subsidiary ........................ 372,770 459,565
Undistributed Net Income of Subsidiary ...... 2,025,535 1,364,921
------------ ------------
Net Income .................................. $ 2,398,305 $ 1,824,486
============ ============
29
<PAGE> 30
CNBC BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 15 - PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS
1999 1998
----------- -----------
Cash Flows from Operating Activities
Net Income .............................. $ 2,398,305 $ 1,824,486
Adjustments to Reconcile Net Income to
Net Cash from Operating Activities
Undistributed Net Income of Subsidiary (2,025,535) (1,364,921)
Amortization ......................... 26,567 8,040
Change in Other Assets and Liabilities (215,807) (5,167)
----------- -----------
Net Cash from Operating Activities .. 183,530 462,438
Cash Flows from Investing Activities
Purchase of Subordinated Notes .......... (6,300,000) --
Investment in Subsidiary ................ (1,800,000) --
Repayment of Subordinated Notes ......... 3,700,000 --
----------- -----------
Net Cash from Investing Activities .. (4,400,000) --
Cash Flows from Financing Activities
Cash Dividends Paid to Shareholders .... (449,078) (328,353)
Proceeds from Loan Payable .............. 1,000,000 --
Repayment of Loans Payable .............. (1,111,795) --
Proceeds from Stock Issuance ............ 5,260,756 30,324
----------- -----------
Net Cash from Financing Activities .. 4,699,883 (298,029)
----------- -----------
Net Change in Cash and Cash Equivalents ...... 483,413 164,409
Cash and Cash Equivalents
Beginning of Year ....................... 347,044 182,635
----------- -----------
End of Year ............................. $ 830,457 $ 347,044
=========== ===========
Supplemental Noncash Disclosure:
Stock Issued for Business Purchase ...... $ 32,000 $ --
30
<PAGE> 31
DIRECTORS AND EXECUTIVE OFFICERS OF CNBC BANCORP
The following information is furnished with respect to directors and executive
officers of CNBC as of December 31, 1999:
DIRECTORS
- ---------
<TABLE>
<CAPTION>
NAME POSITION
- ---- --------
<S> <C>
Thomas D. McAuliffe Chairman of the Board, President and
Chief Executive Officer, Commerce National Bank
Loreto (Larry ) V. Canini President, Canini and Pelecchia, Inc.
(Residential construction and development company)
Mark S. Corna President, Corna/Kokosing Construction Company
(Commercial construction company)
Jameson Crane, Jr. Vice President, Investments Fairwood Investments Co.
(Thermo plastic extrusions manufacturer)
Judith A. DeVillers Chief Executive Officer, EXCO Company
(Site development and excavating contractor)
George A. Gummer Owner, G. A. Gummer & Assoc.
(Investment advisory services)
William L. Hoy Chief Executive Officer , Columbus Sign Company
(Sign manufacturing and design company)
Douglas W. James (1) Retired, Danka Industries
(Business equipment sales company)
Donald R. Kenney Chairman, Triangle Real Estate Services, Inc.
(Real estate development)
Daniel M. Mahoney Vice President, Senior Lending Officer, Commerce
National Bank
Samuel E. McDaniel President, McDaniel's Painting and Construction, Inc.
(General contractor)
Kent K. Rinker (2) Investment Broker, Financial Assets Corp.
(Brokerage and investments)
Richard F. Ruhl Owner, Dick Ruhl Ford Sales, Inc.
(Automotive sales)
David J. Ryan Retired, Rimrock Corporation
(Industrial automation equipment manufacturer)
Peter C. Taub (1) President, Atlas Industrial Holdings, LLC
(Industrial construction company)
John A. Tonti President, West Penn Foods, Inc.
(Restaurant franchisee operating company)
Alan R. Weiler Chief Executive Officer, Archer-Meek-Weiler
Agency, Inc.
(Insurance agency)
Michael Wren (1) Owner, Michael Wren and Associates
(Engineering consulting firm)
</TABLE>
(1) Serve as CNBC directors only.
(2) Serves only as a nonelected advisory director of CNBC only.
EXECUTIVE OFFICERS
- ------------------
<TABLE>
<CAPTION>
NAME POSITION AT COMMERCE NATIONAL BANK
- ---- ----------------------------------
<S> <C>
Thomas D. McAuliffe President and Chief Executive Officer
John A. Romelfanger Chief Operating Officer and Chief Financial Officer
Daniel M. Mahoney Principal and Senior Lending Officer
William G. Huddle Principal and Senior Lending Officer
Pamela S. Miller Controller and Loan Review Officer
</TABLE>
31
<PAGE> 32
FORM 10-KSB
A COPY OF CNBC'S 1999 ANNUAL REPORT ON FORM 10-KSB FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION IS AVAILABLE UPON WRITTEN REQUEST TO SHAREHOLDERS WITHOUT
CHARGE. TO OBTAIN A COPY, DIRECT YOUR WRITTEN REQUEST TO JOHN A. ROMELFANGER,
TREASURER, 100 E. WILSON BRIDGE RD., WORTHINGTON, OHIO 43085.
32
<PAGE> 1
ExhibiT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statements on Form S-8 for CNBC Bancorp, the CNBC Bancorp 1999 Stock Option Plan
and the CNBC Bancorp 1996 Non-Qualified Stock Option Plan, of our report dated
February 16, 2000 relating to the consolidated balance sheets of CNBC Bancorp as
of December 31, 1999 and 1998 and the related consolidated statements of income,
comprehensive income, changes in shareholders' equity and cash flows for the
years then ended.
Crowe, Chizek and Company LLP
Columbus, Ohio
March 29, 2000
<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 ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,729
<INT-BEARING-DEPOSITS> 262
<FED-FUNDS-SOLD> 4,525
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,311
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 175,670
<ALLOWANCE> 2,550
<TOTAL-ASSETS> 202,928
<DEPOSITS> 169,068
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,182
<LONG-TERM> 13,573
0
0
<COMMON> 13,672
<OTHER-SE> 5,433
<TOTAL-LIABILITIES-AND-EQUITY> 202,928
<INTEREST-LOAN> 13,921
<INTEREST-INVEST> 804
<INTEREST-OTHER> 427
<INTEREST-TOTAL> 15,152
<INTEREST-DEPOSIT> 6,236
<INTEREST-EXPENSE> 7,065
<INTEREST-INCOME-NET> 8,087
<LOAN-LOSSES> 509
<SECURITIES-GAINS> 15
<EXPENSE-OTHER> 4,250
<INCOME-PRETAX> 3,689
<INCOME-PRE-EXTRAORDINARY> 2,398
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,398
<EPS-BASIC> 1.93
<EPS-DILUTED> 1.76
<YIELD-ACTUAL> 4.27
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 558
<ALLOWANCE-OPEN> 2,055
<CHARGE-OFFS> 43
<RECOVERIES> 29
<ALLOWANCE-CLOSE> 2,550
<ALLOWANCE-DOMESTIC> 2,550
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 627
</TABLE>
