<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 March 31, 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
------- -------- ------
<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 May 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
Condensed Consolidated Financial Statements
March 31, 1995 and December 31, 1994
(Unaudited)
4
<PAGE>
COMMERCE NATIONAL CORPORATION
AND SUBSIDIARY
TABLE OF CONTENTS
Accountants' Review Report
Condensed consolidated balance sheets--March 31, 1995 and December 31, 1994
Condensed consolidated statements of operations--Three months ended March 31,
1995 and 1994
Condensed consolidated statements of cash flows--Three months ended March 31,
1995 and 1994
Selected notes to condensed consolidated financial statements--March 31, 1995
5
<PAGE>
The Board of Directors
Commerce National Corporation:
We have reviewed the condensed consolidated balance sheet of Commerce National
Corporation and subsidiary as of March 31, 1995 and the related condensed
consolidated statements of operations and cash flows for the three months ended
March 31, 1995 and March 31, 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 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.
KPMG PEAT MARWICK LLP
April 21, 1995
6
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(See accompanying review report of KPMG Peat Marwick LLP)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1995 1994
------ ------------ ------------
<S> <C> <C>
Cash and due from banks $ 1,374,312 1,850,183
Investment securities available for sale (note 2) 7,989,609 7,833,516
Investment securities held to maturity (note 2) 7,225,045 8,739,600
Loans, net (note 3) 60,392,213 61,118,580
Accrued interest receivable 671,017 679,985
Premises and equipment, net 1,788,241 1,765,530
Other real estate owned, net 760,637 760,637
Federal Home Loan Bank stock, at cost 414,400 573,100
Federal Reserve Bank stock, at cost 142,500 142,500
Deferred tax asset 194,302 250,088
Independent Bankers' Bank stock, at cost 19,750 19,750
Prepaid expenses and other assets 407,952 69,508
------------ ------------
Total assets $ 81,379,978 $ 83,802,977
------------ ------------
------------ ------------
</TABLE>
See accompanying selected notes to condensed consolidated financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
____________________________ ------------ ------------
<S> <C> <C>
Deposits (note 4):
Noninterest bearing $ 9,457,388 8,445,440
Interest bearing 57,621,943 53,590,042
----------- ----------
Total deposits 67,079,331 62,035,482
Federal funds purchased -- 2,500,000
Federal Home Loan Bank advances 4,118,555 4,182,754
Other borrowed funds 2,329,778 7,540,097
Accrued interest payable 99,083 54,838
Accounts payable and other liabilities 294,666 269,207
----------- ----------
Total liabilities 73,921,413 76,582,378
----------- ----------
Common stock, par value $.10 per share (1,000,000
shares authorized; 545,365 shares issued and
523,565 outstanding at March 31, 1995 and
December 31, 1994) 54,537 54,537
Additional paid-in capital 5,350,342 5,350,342
Retained earnings 2,279,946 2,148,329
Treasury stock, at cost (21,800 shares at
March 31, 1995 and December 31, 1994) (208,640) (208,640)
Unrealized loss on investment securities
available for sale, net (17,620) (123,969)
----------- ----------
Total stockholders' equity 7,458,565 7,220,599
Commitments (note 5)
----------- ----------
Total liabilities and stockholders' $ 81,379,978 83,802,977
equity ----------- ----------
----------- ----------
</TABLE>
8
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(See accompanying review report of KPMG Peat Marwick LLP)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
MARCH 31,
1995 1994
----------- ------------
<S> <C> <C>
Interest income:
Loans, including fees $ 1,350,179 1,061,310
Investment securities 257,654 220,247
Federal funds sold 1,306 30,422
Federal Reserve Bank stock 2,138 2,247
Federal Home Loan Bank stock 10,598 6,088
----------- -----------
Total interest income 1,621,875 1,320,314
Interest expense 749,208 606,637
----------- -----------
Net interest income 872,667 713,677
Provision for loan losses 35,000 10,000
----------- -----------
Net interest income after
provision for loan losses 837,667 703,677
----------- -----------
Other operating income:
Customer service fees 157,976 117,953
Management fees 4,500 4,500
Other operating expenses:
Salaries and benefits 361,527 285,600
Occupancy expense 90,133 108,893
Legal and professional fees 59,663 22,033
Other expenses 270,315 241,671
----------- -----------
781,638 658,197
----------- -----------
Net operating income 218,505 167,933
Other income:
Loss on sale and write down of other
real estate owned -- (14,423)
----------- -----------
Net earnings before taxes 218,505 153,510
Income tax expense 86,888 66,193
----------- -----------
Net earnings $ 131,617 87,317
----------- -----------
----------- -----------
Earnings per share (note 6) $ .25 .16
----------- -----------
----------- -----------
Weighted average shares outstanding 523,565 545,731
----------- -----------
----------- -----------
</TABLE>
See accompanying selected notes to condensed consolidated financial statements.
9
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(See accompanying review report of KPMG Peat Marwick LLP)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
MARCH 31,
1995 1994
----------- ------------
<S> <C> <C>
Cash flows provided by (used in)
operating activities:
Net income $ 131,617 87,317
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation of premises and equipment 18,162 15,088
Deferred income taxes 999 --
Net amortization of premiums and
accretion of discounts on investment
securities held to maturity and investment
securities available for sale 19,598 36,854
Provision for loan losses 35,000 10,000
Deferred loan origination fees (24,411) 27,996
Loss on sale of other real estate owned -- 2,423
Write down to net realizable value on
other real estate owned -- 12,000
Cash provided by (used in) changes in:
Accrued interest receivable 8,968 (35,375)
Prepaid expenses and other assets (338,444) (165,214)
Accrued interest payable 44,245 (4,191)
Accounts payable and other liabilities 25,459 (6,277)
---------- ----------
Net cash used in operating activities (78,807) (19,379)
---------- ----------
Cash flows provided by (used in) investing
activities:
Net loans made to customers -- (3,413,785)
Net repayments on loans 715,778 --
Proceeds from maturity of investment
securities available for sale -- 1,000,000
Proceeds from maturity of investment
securities held to maturity 1,500,000 --
Purchase of premises and equipment (40,873) (182,781)
Redeemption (purchase) of Federal Home
Loan Bank stock 158,700 (96,800)
---------- ----------
Net cash provided by (used in)
investing activities 2,333,605 (2,693,366)
---------- ----------
(Continued)
</TABLE>
10
<PAGE>
2
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows, Continued
(See accompanying review report of KPMG Peat Marwick LLP)
<TABLE>
<CAPTION>
Three months ended
------------------------
March 31,
1995 1994
----------- -----------
<S> <C> <C>
Cash flows provided by financing activities:
Net increase (decrease) in demand
deposits, NOW accounts and passbook
savings accounts (3,430,797) 7,443,697
Net increase in certificates of deposit 8,474,646 448,372
Decrease in federal funds purchased (2,500,000) --
Principal payment on mortgage note payable (5,396) (2,039)
Increase (decrease) in repurchase agreements (5,204,923) 195,000
Proceeds (repayments) from borrowings from
the Federal Home Loan Bank (64,199) 236,350
----------- -----------
Net cash provided by (used in)
financing activities (2,730,669) 8,321,380
----------- -----------
Net increase (decrease) in cash
and cash equivalents (475,871) 5,608,635
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 $ 1,374,312 13,295,310
----------- -----------
----------- -----------
Cash paid during the period for:
Interest $ 704,963 610,828
----------- -----------
----------- -----------
Income taxes $ 72,016 90,352
----------- -----------
----------- -----------
Supplemental disclosures of noncash transactions:
During the quarter ended March 31, 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 - investment securities available for sale:
Investments (26,696) 42,240
Deferred income tax (asset) liability (9,076) 14,361
----------- -----------
Unrealized (loss) gain on investment
securities available for sale $ (17,620) 27,879
----------- -----------
----------- -----------
</TABLE>
See accompanying selected notes to condensed consolidated financial statements.
11
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Selected Notes to Condensed Consolidated Financial Statements
March 31, 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 three months ended March 31, 1995 are not necessarily
indicative of the results that may be expected for the year ended December
31, 1995. 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.
(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 March 31, 1995 and December 31, 1994 are summarized as
follows:
<TABLE>
<CAPTION>
MARCH 31, 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 $7,225,045 7,241,092 8,739,600 8,685,510
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
(Continued)
12
<PAGE>
2
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(See accompanying review report of KPMG Peat Marwick)
(2), CONTINUED
The amortized cost and estimated market value of investment securities
available for sale as of March 31, 1995 and December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
MARCH 31, 1995 DECEMBER 31, 1994
------------------------ ------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST MARKET VALUE COST MARKET VALUE
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $8,016,305 7,989,609 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 March 31, 1995:
<TABLE>
<CAPTION>
March 31, 1995
-----------------------------
U.S. Treasury Securities Within 30 days Total
------------------------ --------------- ------------
<S> <C> <C>
Carrying value $1,214,646 1,214,646
Borrowings 1,214,646 1,214,646
Market value 1,212,272 1,212,272
</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 other borrowed
funds in the condensed consolidated balance sheet. The dollar amount of
securities underlying the Agreements remain in the asset accounts. At
March 31, 1995, all of the Agreements were to repurchase identical
securities. The assets underlying the Agreements, were held in safe-
keeping by a third party. During the quarter ended March 31, 1995,
Agreements outstanding averaged approximately $1,319,954 and the maximum
amount outstanding during the quarter ended was $1,669,569. Total inter-
est expense paid on repurchase Agreements was $17,658 for the quarter ended
March 31, 1995.
(Continued)
13
<PAGE>
3
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Selected Notes to Condensed Consolidated Financial Statements
(See accompanying review report of KPMG Peat Marwick LLP)
(3) LOANS
_____
Major categories of loans included in the loan portfolio at March 31, 1995
and December 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Commercial-secured $ 7,863,566 6,293,904
Commercial-unsecured 2,517,576 2,968,921
Real estate - primarily commercial 49,288,181 51,155,457
Other (installment and overdrafts) 1,667,582 1,625,572
------------ -----------
61,336,905 62,043,854
Allowance for loan losses (692,398) (657,569)
Deferred loan origination fees (252,294) (267,705)
------------ -----------
$ 60,392,213 61,118,580
------------ -----------
------------ -----------
</TABLE>
The activity in the allowance for loan losses for the three months ended
March 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------------
1995 1994
------------ -----------
<S> <C> <C>
Balance at the beginning of the period $ 657,569 710,455
Charge offs (171) --
Recoveries -- 16,822
Provision for loan losses 35,000 10,000
---------- ---------
Balance at the end of the period $ 692,398 737,277
---------- ---------
---------- ---------
</TABLE>
At March 31, 1995 and December 31, 1994, certain stockholders, directors
and employees were indebted to the Company in the aggregate amounts of
$11,741,742 and $11,822,033, respectively. All such loans were made in the
ordinary course of business.
(Continued)
14
<PAGE>
4
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Selected Notes to Condensed Consolidated Financial Statements
(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 March 31, 1995 and December 31, 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Three months or less $ 13,638,906 10,065,307
Three through twelve months 2,603,312 1,132,098
Over one year 404,673 207,402
------------ -----------
$ 16,646,891 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
condensed consolidated financial statements. At March 31, 1995 and
December 31, 1994, the Company had commitments to customers of
approximately $12,378,080 and $10,725,345 for approved lines of credit,
$899,811 and $902,310 for standby letters of credit, and $1,177,229 and
$1,554,665 for unfunded firm loan commitments, respectively.
(6) EARNINGS PER SHARE
_______________
Earnings per share is calculated based on the weighted average number of
shares outstanding.
15
<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 first quarter of 1995, the Company had a profit of
$131,617 as compared to a profit of $87,317 for the same period in 1994. Total
interest expense during the first quarter of 1995 increased 23.5% to $749,208
due to the increased flow of new deposits into the Bank during the first quarter
of 1995.
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 quarter of the last
three years is as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDING
------------------------------------------------------------
3/31/95 3/31/94 3/31/93
----------- ------------ -----------
<S> <C> <C> <C>
ROAA .65% .43% .24%
ROAE 7.16% 5.23% 13.56%
NET INCOME $ 131,617 $ 87,317 $ 209,900
AVERAGE ASSETS $81,126,816 $82,279,508 $67,031,857
AVERAGE CAPITAL $ 7,352,215 $ 6,681,928 $ 6,190,823
</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 first
quarter of the last three years is as follows:
16
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ending
---------------------------------------------------
3/31/95 3/31/94 3/31/93
----------- ------------ -----------
<S> <C> <C> <C>
INTEREST INCOME $1,621,875 $1,320,314 $1,264,219
INTEREST EXPENSE $ 749,208 $ 606,637 $ 495,285
NET INTEREST INCOME $ 872,667 $ 713,677 $ 768,934
</TABLE>
Net interest income of $872,667 for the first quarter of 1995 was a 22.3%
increase over the same period in 1994, which had a net interest income of
$713,677.
On an annualized basis, the Company's net interest margin was 4.58% through
the first quarter of 1995 compared to 3.72% through the first 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
17
<PAGE>
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").
There were twenty non-accruing loans totaling $2,624,847 as of March 31,
1995. Thirteen of the twenty non-accrual loans, totaling $2,482,519, are
collateralized with first mortgages, and one loan in the amount of $26,404 is
collateralized with a second mortgage.
The Company's allowance for loan losses at March 31, 1995 was $692,398, a
1.13% reserve on total loans outstanding.
NON-INTEREST INCOME
Total non-interest income increased from $122,453 for the three months
ended March 31, 1994, to $162,476, an increase of $40,023, or 33%, for the three
months ended March 31, 1995. The increase was primarily due to stricter
controls on operations e.g. collecting penalties on insufficient fund checks and
the like.
NON-INTEREST EXPENSE
Operating expenses increased $123,441 for the three months ended March 31,
1995, to $781,638 compared with the same period for 1994 which had operating
expenses of $658,197. A large portion of the rise in non-interest expense is
due to increases in staffing due to two branches scheduled to open in 1995.
PROVISION FOR INCOME TAXES
The Company adopted the Statement of Financial Accounting Standards No. 109
(Accounting for Income Taxes, Statement 109) in 1993. 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
18
<PAGE>
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.
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. Secondly,
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. Finally, 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 March 31, 1995, the Bank had a total risk based
capital ratio of 12.62% (13.21% for the Company on a consolidated basis).
19
<PAGE>
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 effect 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
our customer base and local demographics. The Bank and the Company are well
capitalized.
ACCOUNTING PRONOUNCEMENTS
On May 31, 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 114, "Accounting By Creditors
for Impairment of a Loan." This Statement applies to all creditors (not just
financial institutions) and amends FASB Statements Nos. 5, "Accounting for
Contingencies," and 15, "Accounting by Debtors and Creditors for Troubled Debt
Restructurings." It prescribes the recognition criterion for loan impairment
and the measurement methods for certain impaired loans and loans whose terms are
modified in troubled debt restructurings (a "restructured loan").
Statement 114 is effective for financial statements issued for fiscal years
beginning after December 15, 1994; therefore, it is required to be implemented
in the first quarter of 1995 for calendar year companies as is the Company.
The Company implemented Statement 114 as of January 1, 1995, and there is
no impact on the accompanying financial statements.
20
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On May 31, 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (Statement 115). This Statement
supersedes Statement No. 12, "Accounting for Certain Marketable Securities," and
related interpretations and significantly amends Statements No. 65, "Accounting
for Certain Mortgage Banking Activities" and No. 60, "Accounting and Reporting
by Insurance Enterprises." Statement 115 addresses the accounting and reporting
for investments in equity securities that have readily determinable fair values
(other than those accounted for under the equity method or as investments in
consolidated subsidiaries) and all investments in debt securities.
These investments will be classified into three categories as follows:
- Held-to-Maturity Securities--Debt securities that the enterprise has
the positive intent and ability to hold to maturity; reported at
amortized cost.
- Trading Securities--Debt and equity securities that are bought and
held principally for the purpose of selling them in the near term;
reported at fair value, with unrealized gains and losses included in
earnings.
- Available-for-Sale Securities--Debt and equity securities not
classified as either held-to-maturity securities or trading
securities; reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of
shareholders' equity (net of tax effects).
This Statement is effective for fiscal years beginning after December 15,
1993.
The Company implemented Statement 115 during 1993.
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on April 17,
1995. At that meeting, C. Durham Barnes, M.D., Kenneth M. Clayton and Guy D.
Colado were elected as directors for a three (3) year term. Donald J. Barker,
Russell Barkett, Robert E. Battaglia, Robert B. Boswell, M.D., Willie C. Moss,
Frederick A. Raffa, Ph.D., and W. Charles Shuffield, continued as directors
following the annual meeting.
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, is scheduled to
open mid-May 1995. The property for the second branch located at 1400 Howell
Branch Road, Winter Park, has been cleared, and the building is under
construction. It is hoped for a completion date in 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 in the Articles of
Incorporation of the Company incorporated
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.
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Exhibit No. Description and Location
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.
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. Donoval 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.
(b) FORM 8-K
No reports on Form 8-K were filed by the Company for the fiscal
quarter ended March 31, 1995.
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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: May 12, 1995
By:/s/ Guy D. Colado
-----------------------------
GUY D. COLADO, President and
Chief Executive Officer
Dated: May 12, 1995
By:/s/ Alan M. Scarboro
-----------------------------
ALAN M. SCARBORO,
Secretary/Treasurer
24
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
See Balance sheet in Financial Statements included in the attached
Form 10-Q.
</TABLE>
