<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 June 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 25 pages. The Exhibit List commences on the
sequential page number 22.
<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 August 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)--June 30, 1995
and December 31, 1994
Condensed consolidated statements of operations (unaudited)--Three
months ended June 30, 1995 and 1994; Six months ended June 30,
1995 and 1994
Condensed consolidated statements of cash flows (unaudited)--Six
months ended June 30, 1995 and 1994
Selected notes to condensed consolidated financial statements
(unaudited)--June 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 June 30, 1995 and the related condensed
consolidated statements of operations for the three month and six month periods
ended June 30, 1995 and June 30, 1994 and condensed consolidated statements
of cash flows for the six month periods ended June 30, 1995 and 1994.
These condensed consolidated financial statements are the responsibility of
the Company's management.
We conducted our review 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 review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements 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.
KPMG Peat Marwick
Orlando, Florida
July 12, 1995
5
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Condensed Consolidated Balance Sheets (Unaudited)
(See accompanying review report of KPMG Peat Marwick LLP)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1995 1994
------ ---- ----
<S> <C> <C>
Cash and due from banks $ 2,237,804 1,850,183
Federal funds sold 2,750,000 -
----------- ----------
Cash and cash equivalents 4,987,804 1,850,183
Investment securities available for
sale (note 2) 8,114,387 7,833,516
Investment securities held to
maturity (note 2) 5,216,725 8,739,600
Loans, net (note 3) 66,398,099 61,118,580
Accrued interest receivable 658,473 679,985
Premises and equipment, net 2,399,534 1,765,530
Other real estate owned 758,545 760,637
Deferred tax assets 151,163 250,088
Federal Reserve Bank stock, at cost 142,500 142,500
Federal Home Loan Bank stock, at cost 410,900 573,100
Independent Bankers Bank stock, at cost 19,750 19,750
Prepaid expenses and other assets 212,341 69,508
----------- ----------
Total assets $89,470,221 83,802,977
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements
(unaudited).
6
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
------------------------------------ ---- ----
<S> <C> <C>
Deposits (note 4):
Noninterest bearing $ 8,942,312 8,445,440
Interest bearing 66,460,908 53,590,042
----------- ----------
Total deposits 75,403,220 62,035,482
Federal funds purchased - 2,500,000
Federal Home Loan Bank advances 4,092,101 4,182,754
Other borrowed funds 2,040,665 7,540,097
Accrued interest payable 138,022 54,838
Accounts payable and other liabilities 182,710 269,207
----------- ----------
Total liabilities 81,856,718 76,582,378
----------- ----------
STOCKHOLDERS' EQUITY
--------------------
Common stock, par value $.10 per share (1,000,000 shares
authorized; 545,365 shares issued and 523,565
outstanding at June 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 June 30, 1995 and
December 31, 1994) (208,640) (208,640)
Retained earnings 2,349,203 2,148,329
Unrealized gain (loss) on investments available for sale, net 68,061 (123,969)
----------- ----------
Total stockholders' equity 7,613,503 7,220,599
Commitments and contingencies (note 5)
----------- ----------
Total liabilities and stockholders' equity $89,470,221 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 SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans $1,515,599 1,159,431 2,865,778 2,220,741
Investment securities 225,011 221,763 482,665 442,010
Federal funds sold 21,173 58,278 22,480 88,700
Federal Reserve Bank stock 2,138 2,139 4,275 4,386
Federal Home Loan Bank stock 18,568 15,101 29,167 21,189
---------- --------- --------- ---------
Total interest income 1,782,489 1,456,712 3,404,365 2,777,026
Interest expense 818,395 669,228 1,567,603 1,275,865
---------- --------- --------- ---------
Net interest income 964,094 787,484 1,836,762 1,501,161
Provision for loan losses 45,000 24,000 80,000 34,000
---------- --------- --------- ---------
Net interest income after
provision for loan losses 919,094 763,484 1,756,762 1,467,161
---------- --------- --------- ---------
Other operating income:
Customer service fees 63,176 147,721 221,151 265,674
Management fees 1,500 4,500 6,000 9,000
Other operating expenses:
Salaries and benefits 359,395 290,830 720,922 576,430
Occupancy expense 115,072 101,702 205,205 210,595
Legal and professional fees 46,779 14,864 106,442 36,897
Other expenses 328,262 248,805 598,577 490,476
---------- --------- --------- ---------
849,508 656,201 1,631,146 1,314,398
---------- --------- --------- ---------
Net operating income 134,262 259,504 352,767 427,437
Other income:
Loss on sale and write down of other
real estate owned (22,744) (4,100) (22,744) (18,523)
---------- --------- --------- ---------
Net income before taxes 111,518 255,404 330,023 408,914
Income tax expense 42,261 97,012 129,149 163,205
---------- --------- --------- ---------
Net income $ 69,257 158,392 200,874 245,709
========== ========= ========= =========
Income per share (note 6) $ .13 .30 .38 .47
========== ========= ========= =========
</TABLE>
See accompanying 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>
SIX MONTHS ENDED
----------------
JUNE 30,
1995 1994
---- ----
<S> <C> <C>
Cash flows provided by operating activities:
Net income $ 200,874 245,709
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of premises and equipment 42,896 30,497
Net amortization of premiums and accretion of
discounts on investment securities held to
maturity and investment securities available
for sale 32,959 75,704
Provision for loan losses 80,000 34,000
Deferred loan origination fees 28,142 14,411
Loss on sale of other real estate owned 2,744 2,423
Writedown to fair value on other real
estate owned 20,000 16,100
Cash provided by (used in) changes in:
Accrued interest receivable 21,512 (50,157)
Prepaid expenses and other assets (142,833) (150,956)
Accrued interest payable 83,184 (13,346)
Accounts payable and other liabilities (86,497) (39,621)
----------- ---------
Net cash provided by operating activities 282,981 164,764
----------- ---------
Cash flows provided (used in) by investing activities:
Net loans made to customers (5,387,661) (5,345,416)
Purchases of investment securities available for sale - (3,055,469)
Proceeds from maturity of investment securities
available for sale 3,500,000 2,500,000
Purchase of premises and equipment (826,900) (210,040)
Proceeds from sale of other real estate owned 129,348 -
Redemption (purchase) of Federal Home Loan
Bank stock 162,200 (90,000)
----------- ---------
Net cash (used in) investing activities (2,423,013) (6,200,925)
----------- ---------
(Continued)
</TABLE>
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>
SIX MONTHS ENDED
----------------
JUNE 30,
1995 1994
---- ----
<S> <C> <C>
Cash flows provided by (used in) financing activities:
Net increase (decrease) in demand deposits, NOW accounts
and passbook savings accounts (4,828,085) 10,297,599
Net increase (decrease) certificates of deposit 18,195,823 (3,572,073)
Decrease in federal funds purchased (2,500,000) -
Principal payment on mortgage note payable (10,842) (5,035)
Increase (decrease) in repurchase agreements (5,488,590) 77,000
Net proceeds from (repayment of) borrowings from
the Federal Home Loan Bank (90,653) (148,838)
----------- ---------
Net cash provided by financing activities 5,277,653 6,648,653
----------- ---------
Net increase in cash and cash equivalents 3,137,621 612,492
Cash and cash equivalents at the beginning of period 1,850,183 7,686,675
----------- ----------
Cash and cash equivalents at end of period $ 4,987,804 8,299,167
=========== ==========
Cash paid during the period for:
Interest $ 1,484,419 1,289,211
=========== ==========
Income taxes $ 204,483 264,736
=========== ==========
</TABLE>
During the six months ended June 30, 1994, the Company purchased land for a
branch site. In conjunction with the purchase, $200,000 in other real estate
owned was exchanged, and a $150,000 mortgage note payable was assumed.
Market value adjustment - investments available for sale:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 30,
1995 1994
---- ----
<S> <C> <C>
Investments $ (103,123) (66,855)
Deferred income tax liability (35,062) (22,731)
----------- ---------
Unrealized gain on investments available for sale $ (68,061) (44,124)
=========== =========
Transfer land to other real estate owned from premises and
equipment $ 150,000 -
=========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
(unaudited).
10
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 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 (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 six months ended June
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 with original maturities of three months or
less, 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 IMPAIREMENT OF A LOAN." This statement
requires that impaired loan 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.
(Continued)
11
<PAGE>
2
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
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 June 30, 1995 and December 31, 1994 are summarized as
follows:
<TABLE>
<CAPTION>
JUNE 30, 1995 DECEMBER 31, 1994
------------------------------- -------------------------------
AMORTIZED COST ESTIMATED AMORTIZED COST ESTIMATED
MARKET VALUE MARKET VALUE
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and Municipals 5,216,725 5,233,469 8,739,600 8,685,511
-------------- ------------ -------------- ------------
</TABLE>
The amortized cost and estimated market value of investments available
for sale at June 30, 1995 and December 31, 1994 are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1995 DECEMBER 31, 1994
------------------------------- -------------------------------
AMORTIZED COST ESTIMATED AMORTIZED COST ESTIMATED
MARKET VALUE MARKET VALUE
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities 8,011,265 8,114,387 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 June 30, 1995:
<TABLE>
<CAPTION>
WITHIN
U.S. TREASURY SECURITIES 30 DAYS TOTAL
------------------------ ------- -----
<S> <C> <C>
Carrying value $1,158,701 1,158,701
Borrowings 1,158,701 1,158,701
Market value 1,179,797 1,179,797
</TABLE>
(Continued)
12
<PAGE>
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 June 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 June 30, 1995, Agreements outstanding averaged
approximately $1,693,704 and the maximum amount outstanding during the
quarter was $2,749,024. Total interest expense paid on repurchase Agreements
was $21,773 for the quarter ended June 30, 1995 and $39,431 for the six
months ended June 30, 1995.
(Continued)
13
<PAGE>
3
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
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 June 30, 1995
and December 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Commercial-secured $ 8,956,891 6,293,904
Commercial-unsecured 2,614,526 2,968,921
Real estate -- mortgage 53,849,981 51,155,457
Other 1,966,335 1,625,572
----------- ----------
67,387,733 62,043,854
Allowance for loan losses (741,071) (657,569)
Deferred loan origination fees (248,563) (267,705)
----------- ----------
$66,398,099 61,118,580
=========== ==========
</TABLE>
The activity in the allowance for loan losses for the three months ended
June 30, 1995 and 1994 and the six months ended June 30, 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------- -----------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at the beginning of the period $692,398 737,277 657,569 710,455
Charge offs (98) (118,449) (2,562) (118,449)
Recoveries 3,771 10,880 6,064 27,702
Provision for loan losses 45,000 24,000 80,000 34,000
-------- -------- -------- --------
Balance at the end of the period $741,071 653,708 741,071 653,708
</TABLE>
(Continued)
14
<PAGE>
At June 30, 1995 and December 31, 1994, certain stockholders, directors and
employees were indebted to the Bank in the aggregate amounts of $10,564,189
and $11,822,033, respectively. All such loans were made in the ordinary
course of business.
(Continued)
15
<PAGE>
4
COMMERCIAL NATIONAL CORPORATION AND SUBSIDIARY
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 June 30, 1995 and December 31, 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Three months or less $13,980,827 10,065,307
Three through twelve months 7,250,846 1,132,098
Over one year 508,824 207,402
----------- ----------
$21,736,497 11,404,807
=========== ==========
</TABLE>
(5) COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank has various commitments to
extend credit and standby letters of credit which are not reflected in
the financial statements. At June 30, 1995 and December 31, 1994, the
Bank had commitments to customers of approximately $848,490 and $902,310
for standby letters of credit, $1,124,335 and $1,554,665 for unfunded
firm loan commitments and $13,342,282 and $10,725,345 for approved lines
of credit, respectively.
(6) EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares
outstanding.
16
<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:
At the end of the second quarter of 1995, the Company had a profit of
$200,874 as compared to a profit of $245,709 for the same period in 1994. The
major reasons for the decline were the expenses incurred in opening the
Bank's first branch. Total interest expense during the first six months of
1995 increased 23% to $1,567,603 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 first six
months of the last three years is as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDING
---------------------------------------------
6/30/95 6/30/94 6/30/93
---------- ---------- ----------
<S> <C> <C> <C>
ROAA .49% .59% 1.16%
ROAE 5.40% 7.27% 12.88%
NET INCOME $ 200,874 $ 245,709 $ 403,899
AVERAGE ASSETS $82,981,891 $83,820,367 $70,055,459
AVERAGE CAPITAL $ 7,445,792 $ 6,760,084 $ 6,273,971
</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 stockholders' equity. Net interest income
for the second quarter of the last three years is as follows:
17
<PAGE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDING
---------------------------------------------
6/30/95 6/30/94 6/30/93
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME $3,404,365 $2,777,026 $2,544,481
INTEREST EXPENSE $1,567,603 $1,275,865 $1,071,885
NET INTEREST INCOME $1,836,762 $1,501,161 $1,472,596
</TABLE>
Net interest income of $1,836,762 for the second quarter of 1995 was a
22% increase over the same period in 1994, which had a net interest income of
$1,501,161.
On an annualized basis, the Company's net interest margin was 4.58%
through the second quarter of 1995 compared to 4.04% through the second
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
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 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").
18
<PAGE>
There were 18 non-accruing loans totaling $2,905,100 as of June 30,
1995. Fifteen of the eighteen non-accrual loans, totaling $2,475,802, are
collateralized with first mortgages.
The Company's allowance for loan losses at June 30, 1995 was $741,071, a
1.10% reserve on total loans outstanding.
NON-INTEREST EXPENSE
Operating expenses increased 24% for the six-month period ended June 30,
1995, to $1,631,146 compared with the same period for 1994 which had
operating expenses of $1,314,398. A large portion of the rise in non-interest
expense is due to increases in staffing due to one branch opening May 15,
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 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.
19
<PAGE>
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, 1993, the guidelines took
effect in their final form where upon all banks are required to maintain a
risk based capital ratio of 8.0%. At June 30, 1995, the Bank had a total risk
based capital ratio (i.e. Tier One plus Tier Two capital) of 12.31% (12.32%
for the Company on a consolidated basis).
The Company stands ready to infuse additional capital into the Bank
should it be warranted.
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.
20
<PAGE>
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 our 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.
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.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
21
<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, is under construction, with a completion date set for November 1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT NO. DESCRIPTION AND LOCATION
----------- ------------------------
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.
10.2 Offer to Purchase by and between Commerce
National Corporation and Star Enterprises dated
November 29, 1993, for branch location real
estate.
22
<PAGE>
EXHIBIT NO. DESCRIPTION AND LOCATION
----------- ------------------------
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.
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.
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.
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.
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.
27 Financial Data Schedule (For SEC use only).
(b) FORM 8-K
No reports on Form 8-K were filed by the Company for the fiscal
quarter ended June 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: August 11, 1995
By: /S/ GUY D. COLADO
---------------------------
GUY D. COLADO, President and
Chief Executive Officer
Dated: August 11, 1995
By: /S/ ALAN M. SCARBORO
-----------------------------
ALAN M. SCARBORO,
Secretary/Treasurer
24
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
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