<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from to
------------ --------------
COMMERCE NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA
(State or other jurisdiction or organization)
59-2497676
(I.R.S. Employer Identification No.)
1201 South Orlando Avenue
Winter Park, Florida 32789
(Address of principal executive offices)
(Zip Code)
(407) 629-1818
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
--------- -------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No N/A X
-------- -------- -------
This filing contains 24 pages. The Exhibit List commences on the
sequential page number 21.
<PAGE>
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
On November 1, 1995, Commerce National Corporation (the "Company") had
523,565 shares of common stock, par value $0.10 per share, issued and
outstanding.
(BALANCE OF PAGE INTENTIONALLY LEFT BLANK)
2
<PAGE>
PART I. FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS.
The financial statements begin on the following page.
3
<PAGE>
COMMERCE NATIONAL CORPORATION
AND SUBSIDIARY
TABLE OF CONTENTS
Accountants' Review Report
Condensed consolidated balance sheets (unaudited)--September 30, 1995 and
December 31, 1994
Condensed consolidated statements of operations (unaudited)--Three months ended
September 30, 1995 and 1994; Nine months ended September 30, 1995 and 1994
Condensed consolidated statements of cash flows (unaudited)--Nine months ended
September 30, 1995 and 1994
Selected notes to condensed consolidated financial statements (unaudited)--
September 30, 1995
4
<PAGE>
The Board of Directors
Commerce National Corporation:
We have reviewed the condensed consolidated balance sheet of Commerce
National Corporation and subsidiary as of September 30, 1995 and the related
condensed consolidated statements of operations for the three month and nine
month periods ended September 30, 1995 and September 30, 1994 and the
condensed consolidated statements of cash flows for the nine month period
ended September 30, 1995 and 1994. These condensed consolidated financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data, and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial
statements referred to above for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Commerce National Corporation
and subsidiary as of December 31, 1994, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year
then ended not presented herein; and in our report dated January 20, 1995, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1994, is fairly presented, in
all material respects, in relation to the consolidated balance sheet from
which it has been derived.
/s/ KPMG Peat Marwick LLP
Orlando, Florida
October 11, 1995
5
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(See accompanying review report of KPMG Peat Marwick LLP)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1995 1994
------ ------------- ------------
<S> <C> <C>
Cash and due from banks $ 3,304,508 1,850,183
Federal funds sold 2,500,000 --
------------- ----------
Cash and cash equivalents 5,804,508 1,850,183
Investment securities available for sale (note 2) 13,531,643 7,833,516
Investment securities held to maturity (note 2) 3,710,982 8,739,600
Loans, net (note 3) 67,776,775 61,118,580
Accrued interest receivable 699,359 679,985
Premises and equipment, net 2,766,728 1,765,530
Other real estate owned 803,145 760,637
Deferred tax assets 159,475 250,088
Federal Reserve Bank stock, at cost 142,500 142,500
Federal Home Loan Bank stock, at cost 407,200 573,100
Independent Bankers Bank stock, at cost 19,750 19,750
Prepaid expenses and other assets 212,175 69,508
------------- ----------
Total assets $ 96,034,240 83,802,977
------------- ----------
------------- ----------
</TABLE>
See accompanying selected notes to condensed consolidated financial
statements (unaudited).
6
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
- ------------------------------------ ------------- ------------
<S> <C> <C>
Deposits (note 4):
Noninterest bearing $ 10,579,426 8,445,440
Interest bearing 73,864,510 53,590,042
------------- ------------
Total deposits 84,443,936 62,035,482
Federal funds purchased -- 2,500,000
Federal Home Loan Bank advances 1,301,345 4,182,754
Other borrowed funds 2,084,785 7,540,097
Accrued interest payable 180,524 54,838
Accounts payable and other liabilities 244,535 269,207
------------- -----------
Total liabilities 88,255,125 76,582,378
------------- -----------
Common stock, par value $.10 per share (1,000,000 shares
authorized; 545,365 shares issued and 523,565 outstanding
at September 30, 1995 and December 31, 1994) 54,537 54,537
Additional paid-in capital 5,350,342 5,350,342
Treasury stock, at cost (21,800 shares at September 30, 1995
and December 31, 1994) (208,640) (208,640)
Retained earnings 2,530,949 2,148,329
Unrealized gain (loss) on investments available for sale, net 51,927 (123,969)
------------- -----------
Total stockholders' equity 7,779,115 7,220,599
Commitments (note 5)
------------ -----------
Total liabilities and stockholders' equity $ 96,034,240 83,802,977
------------ -----------
------------ -----------
</TABLE>
7
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(See accompanying review report of KPMG Peat Marwick LLP)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
---- ---- ---- -----
<S> <C> <C> <C> <C>
Interest income:
Loans $ 1,741,909 1,230,853 4,607,687 3,451,594
Investment securities 251,386 252,296 734,051 694,306
Federal funds sold 62,391 39,332 84,870 128,032
Federal Reserve Bank stock 2,138 2,136 6,413 6,522
Federal Home Loan Bank stock -- -- 27,758 21,189
Due from banks 6,380 35,672 7,791 104,099
----------- --------- --------- ---------
Total interest income 2,064,204 1,560,289 5,468,570 4,405,742
Interest expense 1,045,457 677,337 2,613,060 1,953,202
----------- --------- --------- ---------
Net interest income 1,018,747 882,952 2,855,510 2,452,540
Provision for loan losses 95,000 16,000 175,000 50,000
----------- --------- --------- ---------
Net interest income after
provision for loan losses 923,747 866,952 2,680,510 2,402,540
----------- --------- --------- ---------
Other operating income:
Customer service fees 118,607 99,013 339,758 296,260
Management fees -- 4,500 6,000 13,500
Other operating expenses:
Salaries and benefits 337,832 298,009 1,058,754 874,439
Occupancy expense 144,657 83,367 349,862 293,962
Legal and professional fees 57,748 36,918 164,190 129,098
Other expenses 199,786 207,118 798,363 642,311
----------- --------- --------- ---------
740,023 625,412 2,371,169 1,939,810
----------- --------- --------- ---------
Net operating income 302,331 345,053 655,099 772,490
Other income:
Gain on sale of securities -- -- -- --
Gain on sale of loan -- -- -- --
Loss on sale and write down of
other real estate owned (3,257) -- (26,001) (18,523)
----------- --------- --------- ---------
Net earnings before taxes 299,074 345,053 629,098 753,967
Income tax expense 117,329 141,834 246,478 305,039
----------- --------- --------- ---------
Net earnings $ 181,745 203,219 382,620 448,928
----------- --------- --------- ---------
----------- --------- --------- ---------
Earnings per share (note 6) $ .35 .39 .73 .86
----------- --------- --------- ---------
----------- --------- --------- ---------
</TABLE>
See accompanying selected notes to condensed consolidated financial
statements (unaudited).
8
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(See accompanying review report of KPMG Peat Marwick LLP)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 30,
1995 1994
---- ----
<S> <C> <C>
Cash flows provided by operating activities:
Net income $ 382,620 448,928
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of premises and equipment 77,175 47,738
Net amortization of premiums and accretion of discounts on
investment securities held to maturity and investment
securities available for sale 40,986 112,870
Provision for loan losses 175,000 50,000
Deferred loan origination fees 66,915 26,722
Loss on sale of other real estate owned 6,001 2,423
Write down to net realizable value on other real
estate owned 20,000 16,100
Cash provided by (used in) changes in:
Accrued interest receivable (19,374) (117,272)
Prepaid expenses and other assets (142,667) (80,289)
Accrued interest payable 125,686 (14,702)
Accounts payable and other liabilities (24,672) 50,257
------------ -----------
Net cash provided by operating activities 707,670 542,775
------------ -----------
Cash flows provided by (used in) investing activities:
Net loans made to customers (6,948,967) (6,596,882)
Purchases of investment securities available for sale (5,380,986) (7,512,118)
Proceeds from maturity of investment securities available
for sale 5,000,000 4,000,000
Purchase of premises and equipment (1,228,373) (633,345)
Redemption/(purchase) of Federal Home Loan Bank stock 102,900 (90,000)
Investment in other real estate owned -- (270,946)
Proceeds from sale of other real estate owned 130,348 --
------------ ------------
Net cash used in investing activities (8,325,078) (11,103,291)
------------ ------------
</TABLE>
(Continued)
9
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
(See accompanying review report of KPMG Peat Marwick LLP)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 30,
1995 1994
---- -----
<S> <C> <C>
Cash flows provided by financing activities:
Net increase in demand deposits, NOW accounts and passbook
savings accounts (2,206,977) 10,117,532
Net increase (decrease) in certificates of deposit 24,615,431 (5,327,206)
Decrease in federal funds purchased (2,500,000) --
Principal repayment on mortgage note payable (16,398) (8,092)
Increase (decrease) in repurchase agreements (5,438,914) 415,000
Net proceeds from (repayments of) borrowings from the
Federal Home Loan Bank (2,881,409) 223,963
---------- ----------
Net cash provided by financing activities 11,571,733 5,421,197
---------- ----------
Net (decrease) increase in cash and cash equivalents 3,954,325 (5,139,319)
Cash and cash equivalents at the beginning of the period 1,850,183 7,686,675
---------- ----------
Cash and cash equivalents at the end of the period $5,804,508 2,547,356
---------- ----------
---------- ----------
Cash paid during the period for:
Interest $2,487,374 1,967,904
---------- ----------
---------- ----------
Income taxes $ 242,483 350,849
---------- ----------
---------- ----------
Supplemental disclosures for noncash transactions:
Market value adjustment - investments for sale:
Investments (78,678) (111,646)
Deferred income tax liability (26,751) (37,959)
---------- ----------
Unrealized gain on investments available for sale $ (51,927) (73,687)
---------- ----------
---------- ----------
Transfer land to other real estate owned from premises
and equipment $ 150,000 --
---------- ----------
---------- ----------
Transfer foreclosed loan to other real estate owned $ 48,857 --
---------- ----------
---------- ----------
</TABLE>
See accompanying selected notes to condensed consolidated financial
statements (unaudited).
10
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1995
(See accompanying review report of KPMG Peat Marwick LLP)
(1) BASIS OF PRESENTATION
(A) INTERIM FINANCIAL INFORMATION
The accompanying unaudited condensed consolidated financial
statements of Commerce National Corporation and Subsidiary (the
Company) have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial information. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the nine months ended September 30, 1995 are not
necessarily indicative of the results that may be expected for the
year ended December 31, 1994. For further information, refer to the
consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended
December 31, 1994.
(B) STATEMENT OF CASH FLOWS
For purposes of the condensed consolidated statement of cash flows,
the Company considers cash and due from banks, noninterest bearing
deposits in other banks, and federal funds sold to be cash
equivalents.
(C) LOAN IMPAIRMENT
Effective January 1, 1995, the Company adopted Statement of
Financial Accounting Standards No. 114 (as amended by Statement
118), "ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN." This
statement requires that impaired loans within its scope be measured
based on the present value of expected future cash flows or at the
loan's market price or the fair value of the collateral if the loan
is collateral dependent.
Management does not believe this will have a material impact on the
Company.
11
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(See accompanying review report of KPMG Peat Marwick LLP)
(2) INVESTMENT SECURITIES HELD TO MATURITY AND INVESTMENT SECURITIES
AVAILABLE FOR SALE
The amortized cost and estimated market values of investment securities
held to maturity at September 30, 1995 and December 31, 1994 are
summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------ -----------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST MARKET VALUE COST MARKET VALUE
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities
and municipals $3,710,982 3,716,589 8,739,600 8,685,511
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
The amortized cost and estimated market value of investments available
for sale at September 30, 1995 and December 31, 1994 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------ -----------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST MARKET VALUE COST MARKET VALUE
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $13,452,965 13,531,643 8,021,348 7,833,516
----------- ---------- --------- ---------
----------- ---------- --------- ---------
</TABLE>
Included in U.S. Treasury securities are securities sold under agreements
to repurchase.
The following is a summary of securities sold under agreement to
repurchase as of September 30, 1995:
<TABLE>
<CAPTION>
U.S. TREASURY SECURITIES WITHIN 30 DAYS TOTAL
------------------------ -------------- -----
<S> <C> <C>
Carrying value $ 1,730,655 1,730,655
Borrowings 1,730,655 1,730,655
Market value 1,732,754 1,732,754
</TABLE>
The Company enters into sales of securities under agreements to repurchase
("Agreements"). Fixed-coupon Agreements are treated as financing, and the
obligations to repurchase securities sold are reflected as a liability in the
condensed consolidated balance sheet. The dollar amount of securities
underlying the Agreements remain in the asset accounts. At September 30, 1995,
all of the Agreements were to repurchase identical securities. The assets
underlying the Agreements, were held in safekeeping by a third party. During
the quarter ended September 30, 1995, Agreements outstanding averaged
approximately $2,407,301 and the maximum amount outstanding during the quarter
was $3,559,286. Total interest expense paid on repurchase Agreements was
$9,440 for the quarter ended September 30, 1995 and $73,832 for the nine months
ended September 30, 1995.
(Continued)
12
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(See accompanying review report of KPMG Peat Marwick LLP)
(3) LOANS
Major categories of loans included in the loan portfolio at September 30,
1995 and December 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Commercial-secured $ 8,986,412 6,293,904
Commercial-unsecured 2,799,094 2,968,921
Real estate - mortgage 55,294,110 51,155,457
Other 1,729,347 1,625,572
----------- ----------
68,808,963 62,043,854
Allowance for loan losses (822,398) (657,569)
Deferred loan origination fees (209,790) (267,705)
----------- ----------
$67,776,775 61,118,580
----------- ----------
----------- ----------
</TABLE>
The activity in the allowance for loan losses for the three months ended
September 30, 1995 and 1994 and the nine months ended September 30, 1995
and 1994 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1995 1994 1995 1994
---- ---- ---- -----
<S> <C> <C> <C> <C>
Balance at the beginning
of the period $741,071 653,708 657,569 710,455
Charge offs (57,988) (2,665) (60,550) (121,114)
Recoveries 44,315 6,152 50,379 33,854
Provision for loan losses 95,000 16,000 175,000 50,000
-------- ------- ------- -------
Balance at the end of the period $822,398 673,195 822,398 673,195
-------- ------- ------- -------
------- ------- ------- -------
</TABLE>
At September 30, 1995 and December 31, 1994, certain stockholders,
directors and employees were indebted to the Bank in the aggregate
amounts of $10,324,536 and $11,822,033, respectively. All such loans
were made in the ordinary course of business.
(Continued)
13
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(See accompanying review report of KPMG Peat Marwick LLP)
(4) DEPOSITS
Included in interest bearing deposits are certificates of deposit issued
in amounts of $100,000 or more. These certificates and their remaining
maturities at September 30, 1995 and December 31, 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- -----
<S> <C> <C>
Three months or less $ 13,952,987 10,065,307
Three through twelve months 9,968,162 1,132,098
Over one year 510,624 207,402
------------ ----------
$ 24,431,773 11,404,807
------------ ----------
------------ ----------
</TABLE>
(5) COMMITMENTS
In the normal course of business, the Company has various commitments to
extend credit and standby letters of credit which are not reflected in
the financial statements. At September 30, 1995 and December 31, 1994,
the Company had commitments to customers of approximately $870,097 and
$902,310 for construction standby letters of credit, $1,576,598 and
$1,554,665 for unfunded firm loan commitments and $13,437,892 and
$10,725,345 for approved lines of credit, respectively.
(6) EARNINGS PER SHARE
Earnings per share is calculated based on the weighted average number of
shares outstanding.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The accompanying financial statements of the Company are primarily affected
by the operation of the NATIONAL BANK OF COMMERCE (the "Bank"), its wholly
owned subsidiary.
The following discussion and analysis presents a review of the Company's
Consolidated Financial Condition and Results of Operation. This review should
be read in conjunction with the consolidated financial statements and other
financial data presented herein.
SUMMARY:
For the nine months ending September 30, 1995, the Company had a profit of
$382,620 as compared to a profit of $448,928 for the same period in 1994. The
major reason for the decline in profit for the first nine months of 1995 is the
expenses incurred in opening two branch offices on May 15, and October 16,
respectively. Total interest expense for the first nine months of 1995
increased 34% to $2,613,060 due to the increased flow of new deposits into the
Bank.
Two indicators which measure profitability are net income as a percentage
of average assets (ROAA) and net income as a percentage of average shareholder
equity (ROAE). A comparison of these ratios for the third quarter of the last
three years is as follows:
<TABLE>
<CAPTION>
---------------------------------------------
FOR THE NINE MONTHS ENDING
---------------------------------------------
9/30/95 9/30/94 9/30/93
- --------------------------------------------------------------------------
<S> <C> <C> <C>
ROAA .59% .71% .96%
- --------------------------------------------------------------------------
ROAE 6.77% 8.76% 10.99%
- --------------------------------------------------------------------------
NET INCOME $ 382,620 $ 448,928 $ 524,001
- --------------------------------------------------------------------------
AVERAGE ASSETS $87,050,693 $84,237,854 $72,704,404
- --------------------------------------------------------------------------
AVERAGE CAPITAL $ 7,535,549 $ 6,837,045 $ 6,355,422
- --------------------------------------------------------------------------
</TABLE>
NET INTEREST INCOME
Net interest income, the difference between interest earned on interest-
earning assets and interest expense incurred on interest-bearing liabilities,
is the most significant component of the Company's earnings. Net interest
income is affected by changes in the volumes and rates of interest-earning
assets and interest-bearing liabilities and the volume of interest-earning
assets funded with interest-bearing deposits, non-interest-bearing deposits,
and shareholder's equity. Net interest income for the first nine months of the
last three years is as follows:
15
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------
FOR THE NINE MONTHS ENDING
----------------------------------------------
9/30/95 9/30/94 9/30/93
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME $5,468,570 $4,405,742 $3,895,694
- ----------------------------------------------------------------------------------
INTEREST EXPENSE $2,613,060 $1,953,202 $1,676,850
- ----------------------------------------------------------------------------------
NET INTEREST INCOME $2,855,510 $2,452,540 $2,218,844
- ----------------------------------------------------------------------------------
</TABLE>
Net interest income of $2,855,510 for the first nine months ending
September 30, 1995 was a 16% increase over the same period in 1994, which had
a net interest income of $2,452,540. The 1995 increase was the result of
strong loan demand which increased by 11% to $67,776,775 through the third
quarter of 1995.
On an annualized basis, the Company's net interest margin was 4.65%
through the third quarter of 1995 compared to 4.22% through the third quarter
of 1994.
Changes in net interest income from period to period result from increases
or decreases in the average balances of interest-earning assets and
interest-bearing liabilities, increases or decreases in the average rates
earned and paid on such assets and liabilities, the banks' ability to manage
their earning asset portfolios and the availability of particular sources of
funds.
PROVISION FOR POSSIBLE LOAN LOSSES
It is the Company's practice to maintain the allowance for loan losses at
a level considered by management to be adequate to provide for reasonably
foreseeable loan losses. There is no precise method of predicting specific
losses or amounts that ultimately may be charged off on particular segments
of the loan portfolio. The conclusion that a loan may become uncollectible,
in whole or in part, is a matter of judgment. Similarly, the adequacy of the
allowance for loan losses can be determined only on a judgmental basis, after
full review, including consideration of:
Borrower's financial data, together with evaluations of industry data,
competition, the borrower's management capabilities and the underlying
collateral for secured loans, including, when appropriate, independent
appraisals of real estate properties, and other factors;
Consumer loan growth trends and delinquency and default rates, together
with an analysis of past and present repayment performance;
A continuing evaluation of the loan portfolio by management, the Board of
Directors and consultants; and
16
<PAGE>
Monthly review and evaluation of loans identified as having loss
potential. If, as a result of such monthly reviews, a loan is judged to be
uncollectible, the carrying value of the loan is reduced to that portion
that is considered to be collectible.
In addition to the continuing internal assessment of the loan portfolio,
the Bank engages an independent, third-party loan review consultant to
periodically review the loan portfolio every six months. The Bank's loan
portfolio is also subject to examination by the Office of the Comptroller of
the Currency ("OCC").
There were fifteen (15) non-accruing loans totaling $2,482,349 as of
September 30, 1995. Twelve (12) of the 15 non-accrual loans, totaling
$2,336,285, are collateralized with first mortgages. Two non-accrual loans
totaling $143,568 are secured by inventory and assets.
The Company's allowance for loan losses at September 30, 1995, was
$822,398, or a 1.20% reserve on total loans outstanding.
NON-INTEREST EXPENSE
Operating expenses increased 22% for the nine-month period ended
September 30, 1995, to $2,371,169 compared with the same period for 1994,
which had operating expenses of $1,939,810. A large portion of the rise in
non-interest expense is due to increases in staffing due to one branch
opening May 15, 1995, and a second branch opening October 16, 1995.
PROVISION FOR INCOME TAXES
The Company adopted the Statement of Financial Accounting Standards No.
109 (Accounting for Income Taxes, Statement 109) in 1992. Previously, the
Company used the asset and liability method under the Statement of Financial
Accounting Standards No. 96 (Accounting for Income Taxes, Statement 96).
LIQUIDITY
The liquidity of a banking institution reflects its ability to provide
funds to meet loan requests, to accommodate possible outflows in deposits and
to take advantage of interest rate market opportunities. Funding of loan
requests, providing for liability outflows, and management of interest rate
fluctuations require continuous analysis in order to match the maturities of
specific categories of specific short-term loans and investments with
specific types of deposits and borrowings. The objective of liquidity
management is to maintain a balance between sources and uses of funds such
that the cash flow needs of the Company are met in the most economical
manner. On the asset side, the Company's liquidity is provided by Federal
funds sold, loan principal repayments, and by investment securities of which
100% have
17
<PAGE>
maturities of five years or less. Moreover, liquidity is provided by an
investment portfolio that is readily marketable.
Closely related to the concept of liquidity is the management of
interest-earning assets and interest-bearing liabilities, which focuses on
maintaining stability in the net interest spread, an important factor in
earnings' growth and stability. The interest rate volatility of recent years
and rate deregulation have significantly affected the way in which banks
manage their business and have highlighted the importance of asset and
liability management. For the Company, the most important objectives in
assets and liability management include: (1) controlling interest rate
exposure, (2) ensuring adequate liquidity, and (3) maintaining strong capital
foundation.
CAPITAL RESOURCES
On January 27, 1989, the OCC issued an amendment to 12 CFR Part 3
adopting final risk based capital guidelines for national banks. Developed
in conjunction with the Federal Deposit Insurance Corporation and the Board
of Governors of the Federal Reserve System, these guidelines provide an
additional measure of a bank's capital adequacy and are intended to reflect
the relative degree of credit risk associated with various assets by setting
different capital requirements for assets having less credit risk than
others. Banks are required to systematically hold capital against such
off-balance sheet activities as loans sold with recourse, loan commitments,
guarantees and standby letters of credit. The guidelines strengthen the
quality of capital by increasing the emphasis on common equity and
restricting the amount of loss reserves and other forms of equity, such as
preferred stock, that can be counted as capital.
Under the terms of the guidelines, banks must meet minimum capital
adequacy based upon both total assets and risk adjusted assets. To the extent
that an institution has a favorable risk based capital ratio, it would more
likely be permitted to operate at or near minimum primary capital levels. The
risk based requirements became effective on December 31, 1990.
The risk-based guidelines provided for a two-year transition period,
beginning on December 31, 1990. On December 31, 1992, the guidelines took
effect in their final form whereupon all banks are required to maintain a
risk based capital ratio of 8.0%. At September 30, 1995, the Bank had a total
risk based capital ratio (i.e. Tier One plus Tier Two capital) of 11.64%
(12.27% for the Company on a consolidated basis).
The Company stands ready to infuse additional capital into the Bank should
it be warranted.
18
<PAGE>
EFFECTS OF INFLATION
The impact of inflation on banks differs from its impact on non-financial
institutions. Banks, as financial intermediaries, have assets which may move
in concert with inflation. This is especially true for banks with a high
percentage of rate-sensitive interest-earning assets and interest-bearing
liabilities. A bank can reduce the impact of inflation if it can manage its
rate-sensitivity gap. The Company attempts to structure its assets and
liabilities and manage its gap in a manner which will minimize the potential
adverse effects of inflation or other market forces on its profitability and
capital position.
LEGAL ACTION
The Company and the Bank are not involved at this time in any claims or
lawsuits other than routine matters arising out of the normal day-to-day
banking business.
COMPETITION
All areas of the Company's business are highly competitive. The Company
faces heavy competition, both from local and national financial institutions
and from various other providers of financial services. By industry
standards, the Company relies heavily on large deposit customers. This factor
is a result of the Bank's customer base and local demographics. The Bank and
the Company are well capitalized.
ACCOUNTING PRONOUNCEMENTS
On March 31, 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Accounting Standards No. 121, "Accounting for the Impairment of
long-lived Assets and for long-lived Assets to be disposed of." This
Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used for long-lived assets and certain identifiable
intangibles to be disposed of. It requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. It also prescribes the
value of these assets to be disposed be reported at the lower of carrying
amount or fair value less cost to sell.
Statement 121 is effective for financial statements issued for fiscal
years beginning after December 15, 1995; therefore, it is required to be
implemented in the first quarter of 1996 for calendar year companies as is
the Company. Management does not expect this to have a significant impact.
19
<PAGE>
On May 31, 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights." This Statement amends FASB Statement No. 65, "Accounting for
Certain Mortgage Banking Activities". This Statement requires that a
mortgage banking enterprise assess its capitalized mortgage servicing rights
for impairment based on the fair value of those rights.
Statement 122 is effective prospectively for financial statements issued
for fiscal year beginning after December 15, 1995; therefore, it is required
to be implemented in the first quarter of 1996 for calendar year companies as
is the Company. Management does not expect this to have a significant impact.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
20
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company is currently not using derivatives.
Expansion plans are continuing to move ahead for the Bank's branch
sites. The Aloma Branch, located at 2200 Aloma Avenue, Winter Park, opened
May 15, 1995. The second branch located at 1400 Howell Branch Road, Winter
Park, opened October 16, 1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description and Location
----------- ------------------------
<S> <C>
4.1 Specimen copy of the Company's stock
certificate incorporated by reference
from Exhibit 4.1 to the Company's Report
on Form 10-K for the fiscal year ended
December 31, 1992.
4.2 Article IV of the Company's Articles of
Incorporation, included by reference from
Exhibit 3.1 to Registration No. 2-98960-A.
4.3 Stock Redemption/Repurchase Policy incorporated
by reference from Exhibit 4.3 to the Company's
Report on Form 10-Q for the fiscal quarter ended
June 30, 1993.
10.1 Contract for Sale and Purchase dated June 15, 1993,
by and between Commerce National Corporation and
John M. Bocchicchio for branch location real estate,
incorporated by reference from Exhibit 10.1 to the
Company's Report on Form 10-Q for the fiscal quarter
ended September 30, 1994.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description and Location
----------- ------------------------
<S> <C>
10.2 Offer to Purchase by and between Commerce National
Corporation and Star Enterprises dated November 29, 1993,
for branch location real estate, incorporated by reference
from Exhibit 10.2 to the Company's Report on Form 10-Q for
the fiscal quarter ended September 30, 1994.
10.3 Contract for Sale and Purchase by and between National Bank
of Commerce and Louis Campese and W. Riley Allen, Co-trustees,
dated September 15, 1993, for branch location real estate,
incorporated by reference from Exhibit 10.3 to the Company's
Report on Form 10-Q for the fiscal quarter ended September 30, 1994.
10.4 Contract for Sale and Purchase by and between Li'l Big Horn Farm
Market, Inc. and National Bank of Commerce dated December 10, 1993,
for branch location real estate, incorporated by reference from
Exhibit 10.4 to the Company's Report on Form 10-Q for the fiscal
quarter ended September 30, 1994.
10.5 Contract for Sale and Purchase by and between National Bank of
Commerce and Robert R. Garofalo, Jr. dated May 6, 1994, for branch
location real estate, incorporated by reference from Exhibit 10.5 to
the Company's Report on Form 10-Q for the fiscal quarter ended September 30,
1994.
10.6 Contract for Sale and Purchase by and between National Bank of Commerce
and Donald D. Donovan dated September 23, 1993, for branch location real
estate, incorporated by reference from Exhibit 10.6 to the Company's
Report on Form 10-Q for the fiscal quarter ended September 30, 1994.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description and Location
----------- ------------------------
<S> <C>
10.7 Standard Form of Agreement between National Bank of Commerce and
Aagaard-Juergensen, Inc. dated October 27, 1994, for the Aloma Avenue
Branch Bank Site, incorporated by reference from Exhibit 10.7 to the
Company's Report on Form 10-Q for the fiscal quarter ended September 30, 1994.
27 Article 9 Financial Data Schedule (for SEC use only).
</TABLE>
(b) FORM 8-K
No reports on Form 8-K were filed by the Company for the fiscal
quarter ended September 30, 1995.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMERCE NATIONAL CORPORATION
Dated: November 13, 1995
--
By:/s/ Guy D. Colado
----------------------------
GUY D. COLADO, President and
Chief Executive Officer
Dated: November 13, 1995 By:/s/ Alan M. Scarboro
-- ----------------------------
ALAN M. SCARBORO
Secretary/Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR COMMERCE
NATIONAL CORPORATION AND SUBSIDIARY DATED SEPTEMBER 30, 1995 AND
DECEMBER 31, 1994.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 3,304,508
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,531,643
<INVESTMENTS-CARRYING> 3,710,982
<INVESTMENTS-MARKET> 3,716,589
<LOANS> 67,776,775
<ALLOWANCE> 822,398
<TOTAL-ASSETS> 96,034,240
<DEPOSITS> 84,443,936
<SHORT-TERM> 0
<LIABILITIES-OTHER> 425,059
<LONG-TERM> 3,386,130
<COMMON> 54,537
0
0
<OTHER-SE> 7,724,578
<TOTAL-LIABILITIES-AND-EQUITY> 96,034,240
<INTEREST-LOAN> 1,741,909
<INTEREST-INVEST> 322,295
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,064,204
<INTEREST-DEPOSIT> 2,273,872
<INTEREST-EXPENSE> 1,045,457
<INTEREST-INCOME-NET> 1,018,747
<LOAN-LOSSES> 95,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 740,023
<INCOME-PRETAX> 299,074
<INCOME-PRE-EXTRAORDINARY> 299,074
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 181,745
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
<YIELD-ACTUAL> .046
<LOANS-NON> 2,270,597
<LOANS-PAST> 0
<LOANS-TROUBLED> 341,880
<LOANS-PROBLEM> 2,756,202
<ALLOWANCE-OPEN> 741,071
<CHARGE-OFFS> 57,988
<RECOVERIES> 44,315
<ALLOWANCE-CLOSE> 822,398
<ALLOWANCE-DOMESTIC> 822,398
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 403,053
</TABLE>
