UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE) [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 333-73385
HCNB BANCORP, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
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MARYLAND 52-2083046
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (IRS EMPLOYER IDENTIFICATION NO.)
ORGANIZATION)
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1776 EAST JEFFERSON STREET, ROCKVILLE, MD 20852
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
301-468-8848
(ISSUER'S TELEPHONE NUMBER)
CHECK WHETHER THE ISSUER: (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(d) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH SHORTER
PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. X YES NO
-- --
APPLICABLE ONLY TO CORPORATE ISSUERS
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON
EQUITY, AS OF THE LATEST PRACTICAL DATE: NONE
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES [ ] NO [ X ]
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HCNB BANCORP, INC.
(A Development Stage Company)
BALANCE SHEET
As of September 30, 1999 and December 31, 1998
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Sept. 30, Dec. 31,
1999 1998
(Unaudited)
Assets
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Cash 1,054 8,341
Due from insiders 0 20,000
Deposits 9,711 19,422
Property & equipment 356,577 0
Total assets 367,342 47,763
Liabilities & Stockholders Equity
Liabilities
Accounts payable & accrued expenses 511,727 56,702
Advances from insiders 571,600 120,000
Total liabilities 1,083,327 176,702
Stockholders Equity
Common stock, par value $0.01 per
Share; 9,000,000 authorized; 0 shares
Issued and outstanding 0 0
Preferred stock, par value $0.01 per
Share; 1,000,000 authorized; 0 shares
Issued and outstanding 0 0
Additional paid-in capital 0 0
Deficit accumulated during
Development stage (715,985) (128,939)
Total stockholders equity (715,985) (128,939)
Total liabilities & stockholders equity 367,342 47,763
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(1)
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HCNB BANCORP, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
(Unaudited)
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Three months ended September 30,
1999 1998
<S> <C> <C>
Revenues 354 0
Expenses
Legal & other professional 16,953 18,394
Fees 2,735 0
Compensation & benefits 102,951 0
Rent 18,730 0
Other 69,656 1,513
Total expenses 211,025 19,907
Loss before income tax benefit (210,671) (19,907)
Income tax benefit 0 0
Net loss (210,671) (19,907)
Nine months ended September 30,
1999 1998
Revenues 1,509 0
Expenses
Legal & other professional 176,202 36,196
Fees 16,895 0
Compensation & benefits 220,768 0
Rent 41,387 0
Other 133,303 1,619
Total expenses 588,555 37,815
Loss before income tax benefit (587,046) (37,815)
Income tax benefit 0 0
Net loss (587,046) (37,815)
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(2)
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HCNB BANCORP, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
From Inception Though End of Reporting Period
(Unaudited)
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<CAPTION>
2/24/98 (inception) - 9/30/99
<S> <C>
Revenue 1,509
Expenses
Legal & other professional 285,582
Fees 34,915
Compensation & benefits 220,768
Rent 41,387
Other 134,842
Total expenses 717,494
Loss before income tax benefit (715,985)
Income tax benefit 0
Net loss (715,985)
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(3)
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HCNB BANCORP, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
(Unaudited)
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Nine months ended September 30,
1999 1998
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) (587,046) (37,521)
Adjustments to reconcile net loss to Net cash used by operating activities:
Increase in accounts payable and
Accrued expenses 464,736 0
Net change (122,310) (37,521)
Cash flows from financing activities:
Advances from insiders 455,000 50,000
Other 16,000 0
Total 471,600 50,000
Cash flows used from financing activities:
Purchase of property & equipment (356,577) 0
Increase in cash (7,287) 12,479
Cash, beginning of period 8,341 0
Cash, end of period 1,054 12,479
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(4)
<PAGE>
HCNB BANCORP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
1. Organization and Basis of Presentation
Organization
HCNB Bancorp, Inc. (the "Company") was incorporated under the laws of
the State of Maryland on February 24, 1998, primarily to hold all of
the capital stock of a proposed new national bank with the name Harbor
Capital National Bank (the "Bank"). As of September 30, 1999, the
Company has not been capitalized and is not required to be capitalized
to be a corporation under Maryland law. The Company will be capitalized
as a result of the initial public offering discussed in Note 2. The
Company is in the development stage and its activities have been
limited to its organization and capitalization and the organization and
capitalization of the Bank.
Basis of Presentation
The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. However,
the Company believes that the disclosures are adequate to make the
information presented not misleading. These condensed financial
statements should be read in conjunction with the financial statements
and notes thereto for the year ended December 31, 1998, included in the
Company's registration statement, as amended, on Form SB-2, filed with
the Securities and Exchange Commission. The balance sheet as of
December 31, 1998, has been derived from the audited financial
statements at that date.
The unaudited condensed financial statements included herein reflect
all adjustments (which include only normal, recurring adjustments)
which are, in the opinion of management, necessary to state fairly the
financial position of the Company as of September 30, 1999 and the
results of its operations for the three months and nine months ended
September 30, 1999, and cash flows for the nine months ended September
30, 1999. The results of the interim periods are not necessarily
indicative of the results expected for the full fiscal year.
2. Initial Public Offering
On April 30, 1999, the Company began offering between 700,000 and
900,000 shares of its common stock at $10.00 per share pursuant to a
registration statement filed with the Securities and Exchange
Commission. The proceeds of the public offering are being held in
escrow until the Company receives subscriptions for 700,000 shares and
certain other conditions are satisfied.
As of September, 30, 1999, the Company has received subscriptions for
700,213 shares and all proceeds are still held in the escrow account.
(5)
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ITEM 2. MANAGEMENT'S PLAN OF OPERATION
General
HCNB Bancorp, Inc. was organized on February 24, 1998. Since inception, HCNB's
activities have been limited to those related to its organization and
capitalization and the organization and capitalization of its proposed national
bank subsidiary, Harbor Capital National Bank (in organization). These limited
activites have been funded mostly by advances, in the amount of $571,600 as of
September 30, 1999 by six of HCNB's organizers.
HCNB has filed a Registration Statement on Form SB-2 with the Securities and
Exchange Commission for the offering of a minimum of 700,000 shares and a
maximum of 900,000 shares of HCNB's common stock, with the offering price of
$10.00 per share. The Registration Statement became effective on April 30, 1999.
The primary purpose of the offering is to raise the necessary capital to form
and capitalize the Bank. The offering is conditioned upon HCNB's receipt of
acceptable subscriptions for at least 700,000 shares of common stock, and the
receipt of the preliminary approval of the Bank's charter by the Office of the
Comptroller of the Currency (OCC). The offering continued until September 30,
1999 at which time HCNB had received subscriptions for 700,213 shares. The
preliminary approval by the OCC was received on April 21, 1999.
HCNB and the Bank will not commence operations unless HCNB obtains approval from
the Federal Reserve Board to become a bank holding company and the Bank meets
the conditions of the (1) OCC to receive its certificate of authority to
commence the business of banking; (2) the Federal Deposit Insurance Corporation
(FDIC) to receive deposit insurance and (3) the Federal Reserve Board to become
a member bank.
Subscription funds received during the offering were placed in an escrow account
and are invested temporarily in bank accounts, short-term certificates of
deposit or short-term securities issued or guaranteed by the United States
government. As of September 30, 1999, HCNB had received subscription funds
totaling $7,002,130. Included in this amount are investor loans in the amount of
$555,000 that are to be converted to equity. As of September 30, 1999, the
offering proceeds had not been released from escrow.
HCNB believes that the proceeds of the offering will be sufficient to fund the
expenses of establishing and opening the Bank and HCNB and the Bank's operations
for at least twelve months after the completion of the offering. HCNB does not
anticipate a need to raise additional capital during that period.
It is anticipated that the Bank will open in the fourth quarter of 1999 and will
begin business from its office in Rockville, Maryland. The Bank will accept
demand/checking and savings deposits and offer a wide range of commercial,
consumer/installment, and mortgage/real estate loans.
HCNB expects that the Bank will incur approximately $240,000 in expenses in
leasehold improvements for its office and for furniture, fixtures and equipment
for its office. The Bank will contract with an outside vendor for its data
processing. HCNB anticipates a one-time capital expenditure for data processing
equipment and software of approximately $200,000, and annual costs in the first
year of operations of approximately $89,000 for data processing services.
(6)
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Year 2000
The Year 2000 poses a significant challenge to all financial institutions and
other businesses because many automated systems may cease to function normally
in 2000 as a result of the way date files are maintained in those systems.
Federal banking regulators have taken a strong position relating to the
financial industry's obligations to manage so-called "Y2K risks".
As new institutions, HCNB and the Bank are focusing on making certain that any
system put into place is already Y2K compliant. It is the Bank's policy to
require Y2K warranties on all systems obtained and installed.
The Bank's primary concern is the operations of its outside data processing
service. The Bank's contract with the service provider includes a warranty that
all its systems are Y2K compliant and that the transition to the year 2000 or
any other date will not materially adversely affect its ability to provide
services that the contract covers.
The Bank's data processing vendor has undertaken extensive testing of those
operating and application systems which the Bank will use to determine
capacities to transfer and retain data into the year 2000 and beyond. The Bank's
vendor has provided it with testing procedures using the actual data bases of
ten financial institutions currently being serviced by the vendor. All tests
yielded positive results. It it is deemed necessary, the Bank can request Y2K
testing using the Bank's data base, once it has been established.
All internal data processing systems, including hardware and software, which
have been or will be obtained, have been or will be warranted as to Y2K
compliance. In most cases, verification testing for such compliance has already
been done by the Bank's data processing vendor. Supporting documentation has
been provided to the Bank.
The Bank will evaluate internal stand-alone systems such as document preparation
systems after installation. All systems will be analyzed as the potential
disruptive impact of the year 2000 computer related malfunctions and testing
procedures will be developed based upon an evaluation of the risk of
non-compliance. When available, third party testing results will be obtained and
reviewed for compatibility to Bank operations.
The Company leases an existing banking office and will has evaluated any
existing system within that facility for Y2K compliance. Affected systems would
included the HVAC system, security system and vault door.
The Bank does recognize that its customers' Y2K compliance issues may affect its
operations. The ability of a major credit customer to honor a debt obligation
could be impaired if the customer has Y2K-related problems. The Bank will ask
its credit customers for Y2K representations and make that part of the loan
documentation. Such representations will also be supported by a documented
evaluation of the borrower's Y2K position. If it is determined that the
customer's Y2K position is not satisfactory and represent a potential credit
risk to the Bank, this may be sufficient reason to decline a loan request.
(7)
<PAGE>
IN ADDITION TO THE HISTORICAL INFORMATION CONTAINED IN PART I OF THIS QUARTERLY
REPORT ON FORM 10-QSB, THE DISCUSSION IN PART I OF THIS QUARTERLY REPORT ON FORM
10-QSB CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS SUCH AS STATEMENTS OF HCNB'S
PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS THAT INVOLVE RISKS AND
UNCERTAINTIES. THESE RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS, THOSE
DISCUSSED IN HCNB'S REGISTRATION STATEMENT UNDER THE CAPTION "RISK FACTORS",
SUCH AS THE LACK OF AN OPERATING HISTORY AND EXPECTATION OF LOSSES; RISKS
RELATED TO THE CHOICE OF LOAN PORTFOLIO; RISK OF LOAN LOSSES; RISK OF EXPANSION
STRATEGY; IMPACT OF GOVERNMENT REGULATION ON OPERATING RESULTS; RISKS OF A
COMPETITIVE MARKET; EFFECT OF DEVELOPMENTS IN TECHNOLOGY AND YEAR 2000 ISSUES.
HCNB'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN.
(8)
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PART II - OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable
(b) Not applicable
(c) Not applicable
(d) Use of Proceeds
(1) The effective date of the Securities Act
registration statement for which the use of
proceeds information is being disclosed in
April 30, 1999. The Commission file number
assigned to the registration statement is
333-73385.
(2) The offering commenced on April 30, 1999.
(3) Not applicable
(4) (i) The offering terminated on September 30, 1999, the
expiration of the subscription period.
(ii) The offering was not underwritten.
(iii) The common stock, $0.01 par value per share, of HCNB
Bancorp, Inc. was registered in the offering.
(iv) HCNB Bancorp, Inc. registered
900,000 shares of common stock in
the offering, with an aggregate
price of $9,000,000. As of September
30, 1999, HCNB has accepted
subscriptions for 700,213 shares,
with an aggregate value of
$7,002,130.
(v) Offering expenses:
From offering date to reporting date (4/30/99 - 9/30/99)
--------------------------------------------------------
Underwriters' discounts and commissions 0
Finders' fees 0
Expenses paid to or for underwriters 0
Other expenses
Legal & other professional 14,198
Regulatory fees 4,035
Printing 20,082
Other 1,000
Total other expenses 39,315
Total expenses 39,315
(9)
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From date of inception to offering date (2/24/98 - 4/30/99)
-----------------------------------------------------------
Underwriters' discounts & commissions 0
Finders' fees 0
Expenses paid to or for underwriters 0
Other expenses
Legal & other professional 68,909
Regulatory fees 30,880
Printing 5,000
Other 500
Total other expenses 105,289
Total expenses 105,289
(vi) Net offering proceeds:
Offering proceeds 7,002,130
Offering expenses (144,604)
Net offering proceeds 6,857,526
(vii) As of September 30, 1999, all
subscription proceeds remained in
the escrow account. Although no
subscription proceeds have yet been
applied, the proceeds of organizer
loans which are to be converted to
equity (and which are included in
the aggregate proceeds of
$7,002,130) have been applied to pay
compensation and benefits, rent and
other expenses as follows:
From inception date to reporting date (2/24/98 - 9/30/99)
---------------------------------------------------------
Legal & other professional 202,475
Compensation & benefits 220,768
Rent 41,387
Other 108,260
Total expenses 572,890
(viii) Not applicable
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5 OTHER INFORMATION
None
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(10)
<PAGE>
ITEM 6 EXHIBITS
(a) Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed.
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE EXCHANGE ACT, THE REGISTRANT CAUSED
THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.
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HCNB BANCORP, INC.
(REGISTRANT)
DATE 11-9-99 /s/ Michael J. Burke
----------------------------- ------------------------------------
MICHAEL J. BURKE, CHAIRMAN/PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
DATE 11-9-99 /s/ Li-Min Lee
----------------------------- ------------------------------------
LI-MIN LEE, TREASURER
(PRINCIPAL ACCOUNTING AND FINANCIAL
OFFICER)
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(11)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,054
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 367,342
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,083,327
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 367,342
<INTEREST-LOAN> 0
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 0
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 0
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 588,555
<INCOME-PRETAX> (587,046)
<INCOME-PRE-EXTRAORDINARY> (587,046)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (587,046)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
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