<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, 1996
[ ] 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) 741-8900
(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 26 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, 1996, Commerce National Corporation (the "Company") had 595,784
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, 1996
and December 31, 1995
Condensed consolidated statements of operations (unaudited)--Three months
ended June 30, 1996 and 1995; Six months ended June 30, 1996
and 1995
Condensed consolidated statements of cash flows (unaudited)--Six months
ended June 30, 1996 and 1995
Selected notes to condensed consolidated financial statements (unaudited)--
June 30, 1996
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, 1996 and the related condensed
consolidated statements of operations for the three month and six month periods
ended June 30, 1996 and 1995 and condensed consolidated statements of cash flows
for the six month periods ended June 30, 1996 and 1995. 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, 1995, 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 19, 1996, 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, 1995, 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
July 18, 1996
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 1996 1995
- ------ ----------- ------------
<S> <C> <C>
Cash and due from banks $ 4,128,710 3,897,057
Federal funds sold 800,000 8,000,000
Investment securities available for sale (note 2) 18,817,368 12,136,418
Investment securities held to maturity (note 2) 1,697,623 2,705,957
Loans, net (note 3) 74,976,334 66,648,785
Federal Home Loan Bank note receivable 450,008 -
Accrued interest receivable 712,717 632,936
Premises and equipment, net 3,616,505 3,486,488
Other real estate owned 1,167,407 802,145
Deferred tax assets 255,545 178,000
Federal Reserve Bank stock, at cost 150,000 150,000
Federal Home Loan Bank stock, at cost 300,000 407,200
Independent Bankers Bank stock, at cost 19,750 19,750
Prepaid expenses and other assets 117,353 129,651
Executive supplemental income plan - cash
surrender value life insurance policies 1,207,338 1,171,100
------------ -----------
Total assets $108,416,658 100,365,487
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
(unaudited).
6
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
LIABILITIES 1996 1995
- ----------- ------------- ------------
<S> <C> <C>
Deposits (note 4):
Noninterest bearing $ 12,328,377 13,285,944
Interest bearing 83,584,759 76,056,835
------------ -----------
Total deposits 95,913,136 89,342,779
Federal Home Loan Bank advances 1,262,395 1,266,095
Other borrowed funds 2,086,376 1,394,944
Accrued interest payable 142,418 206,031
Accounts payable and other liabilities 262,357 221,664
------------ -----------
Total liabilities 99,666,682 92,431,513
------------ -----------
STOCKHOLDERS' EQUITY
--------------------
Common stock, par value $.10 per share (1,000,000 shares
authorized; 617,584 and 545,365 shares issued and 595,784
and 523,565 shares outstanding at June 30, 1996 and
December 31, 1995, respectively) 776,727 54,537
Additional paid-in capital 5,350,342 5,350,342
Treasury stock, at cost (21,800 shares at June 30, 1996 and
December 31, 1995) (208,640) (208,640)
Retained earnings 2,865,634 2,621,294
Unrealized gain (loss) on investments available for sale, net (34,087) 116,441
------------ -----------
Total stockholders' equity 8,749,976 7,933,974
Commitments and contingencies (note 5)
Total liabilities and stockholders' equity $108,416,658 100,365,487
============ ===========
</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,
1996 1995 1996 1995
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Interest income:
Loans $1,612,762 1,515,599 3,350,484 2,865,778
Investment securities 286,651 225,011 525,205 482,665
Federal funds sold 95,795 21,173 224,411 22,480
Federal Reserve Bank stock 2,250 2,138 4,591 4,275
Federal Home Loan Bank stock 12,514 18,568 12,514 29,167
Due from banks 26,514 - 41,704 -
---------- --------- --------- ---------
Total interest income 2,036,486 1,782,489 4,158,909 3,404,365
Interest expense 1,050,009 818,395 2,111,919 1,567,603
---------- --------- --------- ---------
Net interest income 986,477 964,094 2,046,990 1,836,762
Provision for loan losses - 45,000 60,000 80,000
---------- --------- --------- ---------
Net interest income after
provision for loan losses 986,477 919,094 1,986,990 1,756,762
---------- --------- --------- ---------
Other operating income:
Customer service fees 143,345 63,176 341,524 221,151
Management fees - 1,500 - 6,000
Other operating expenses:
Salaries and benefits 434,651 359,395 896,943 720,922
Occupancy expense 205,635 115,072 364,487 205,205
Legal and professional fees 60,804 46,779 88,174 106,442
Other expenses 254,240 328,262 537,525 598,577
Loss on sale and write down of other
real estate owned (33,908) (22,744) (33,908) (22,744)
---------- --------- --------- ---------
989,238 872,252 1,921,037 1,653,890
---------- --------- --------- ---------
Net income before taxes 140,584 111,518 407,477 330,023
Income tax expense 57,690 42,261 163,137 129,149
---------- --------- --------- ---------
Net income $ 82,894 69,257 244,340 200,874
========== ========= ========= =========
Income per share (note 6) $.15 .13 .45 .38
========== ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
(unaudited).
8
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unauidted)
(See accompanying review report of KPMG Peat Marwick LLP)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------
JUNE 30,
1996 1995
----------- --------
<S> <C> <C>
Cash flows provided by operating activities:
Net income $ 244,340 200,874
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation of premises and equipment 129,184 42,896
Net amortization of premiums and accretion of discounts
on investment securities held to maturity and investment
securities available for sale (927) 32,959
Provision for loan losses 60,000 80,000
Deferred loan origination fees 72,564 28,142
Provision for other real estate owned 7,080 -
Loss on sale of other real estate owned - 2,744
Writedown to fair value on other real estate owned 26,828 20,000
Executive supplemental income plan - additional cash
surrender value (36,238) -
Cash provided by (used in) changes in:
Accrued interest receivable (79,781) 21,512
Prepaid expenses and other assets 12,298 (142,833)
Accrued interest payable (63,613) 83,184
Accounts payable and other liabilities 40,693 (86,497)
----------- ----------
Net cash provided by operating activities 412,428 282,981
----------- ----------
Cash flows provided (used in) by investing activities:
Net loans made to customers (8,859,283) (5,387,661)
Decrease in federal funds sold 7,200,000 -
Purchases of investment securities available for sale (7,899,762) -
Proceeds from maturity of investment securities available
for sale - 3,500,000
Proceeds from maturities of investment securities held
to maturity 2,000,000 -
Purchase of premises and equipment (259,201) (826,900)
Proceeds from sale of other real estate owned - 129,348
Redemption (purchase) of Federal Home Loan Bank stock 107,200 162,200
Federal Home Loan Bank note receivable (450,008) -
----------- ----------
Net cash (used in) investing activities (8,161,054) (2,423,013)
----------- ----------
</TABLE>
(Continued)
9
<PAGE>
2
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,
1996 1995
---------- -----------
<S> <C> <C>
Cash flows provided by (used in) financing activities:
Net increase (decrease) in demand deposits, NOW accounts
and passbook savings accounts 1,959,629 (4,828,085)
Net increase in certificates of deposit 4,610,728 18,195,823
Decrease in federal funds purchased - (2,500,000)
Principal payment on mortgage note payable (11,718) (10,842)
Increase (decrease) in repurchase agreements 703,150 (5,488,590)
Net proceeds from (repayment of) borrowings from the
Federal Home Loan Bank (3,700) (90,653)
Sale of treasury stock 24,411 -
Purchase of treasury stock (24,411) -
Sale of common stock 722,190 -
---------- ----------
Net cash provided by financing activities 7,980,279 5,277,653
---------- ----------
Net increase in cash and cash equivalents 231,653 3,137,621
Cash and cash equivalents at the beginning of period 3,897,057 1,850,183
---------- ----------
Cash and cash equivalents at end of period $4,128,710 4,987,804
========== ==========
Cash paid during the period for:
Interest $2,175,532 1,484,419
========== ==========
Income taxes $ 118,035 204,483
========== ==========
</TABLE>
(Continued)
10
<PAGE>
3
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unaudited), Continued
(See accompanying review report of KPMG Peat Marwick LLP)
Supplemental disclosure for non-cash items:
Market value adjustment - investments available for sale:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------
JUNE 30,
1996 1995
---------- -----------
<S> <C> <C>
Investments $(51,647) (103,123)
Deferred income tax liability (17,560) (35,062)
-------- --------
Unrealized gain on investments available for sale $(34,087) (68,061)
======== ========
Transfer land to other real estate owned from premises and
equipment $ - 150,000
======== ========
Transfer loan to other real estate owned $399,170 -
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
(unaudited).
11
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 1996
(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, 1996 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1996. 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, 1995.
(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) LONG-LIVED ASSETS
On January 1, 1996, the Company adopted Financial Accounting Standards Board
(FASB) 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 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.
Adoption of this Statement did not have a material impact on the Company.
(Continued)
12
<PAGE>
2
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
(See accompanying review report of KPMG Peat Marwick LLP)
(D) MORTGAGE SERVICING RIGHTS
On January 1, 1996, the Company adopted FASB 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.
Adoption of this Statement did not have a material impact on the Company.
(E) STOCK-BASED COMPENSATION
On January 1, 1996, the Company adopted FASB Statement of Accounting Standards
No. 123, "Accounting for Stock Based Compensation". This Statement applies to
all transactions in which an entity acquires goods or services by issuing equity
instruments or by incurring liabilities where the payment amounts are based on
the entity's common stock price, except for employee stock ownership plans
(ESOPs). This Statement establishes a fair value based method, accounting for
stock based compensation plans and covers transactions with employees and
nonemployees and is applicable to both public and nonpublic entities.
Adoption of this Statement did not have a material impact on the Company as the
Company has elected to follow the provisions of APB Opinion No. 25, "Accounting
for Stock Issued to Employees".
(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, 1996 and December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
------------------------ ------------------------
<S> <C> <C> <C> <C>
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST MARKET VALUE COST MARKET VALUE
---------- ------------ --------- ------------
U.S. Treasury securities
and municipals $1,697,623 1,696,186 2,705,957 2,714,950
========== ========= ========= =========
</TABLE>
13
<PAGE>
3
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
(See accompanying review report of KPMG Peat Marwick LLP)
The amortized cost and estimated market value of investments available for
sale at June 30, 1996 and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
------------------------ ------------------------
<S> <C> <C> <C> <C>
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST MARKET VALUE COST MARKET VALUE
---------- ------------ --------- ------------
U.S. Treasury securities $18,765,721 18,817,368 11,959,992 12,136,418
=========== ============ ========== ============
</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, 1996:
<TABLE>
<CAPTION>
WITHIN
U.S. TREASURY SECURITIES 30 DAYS TOTAL
- ------------------------ ---------- ---------
<S> <C> <C>
Carrying value $1,749,663 1,749,663
Borrowings 1,749,663 1,749,663
Market value 1,749,663 1,749,663
</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 June 30, 1996, 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, 1996, Agreements outstanding averaged approximately
$1,621,296 and the maximum amount outstanding during the quarter was $2,026,331.
Total interest expense paid on repurchase Agreements was $19,536 for the quarter
ended June 30, 1996 and $31,592 for the six months ended June 30, 1996.
14
(Continued)
<PAGE>
4
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, 1996 and
December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Commercial-secured $ 8,600,908 7,695,479
Commercial-unsecured 3,705,302 2,681,485
Real estate - mortgage 60,937,955 55,345,499
Other 2,885,147 2,009,057
----------- ----------
76,129,312 67,731,520
Allowance for loan losses (854,482) (856,803)
Deferred loan origination fees (298,496) (225,932)
----------- ----------
$74,976,334 66,648,785
=========== ==========
</TABLE>
The recorded investment in loans for which an impairment has been recognized
and the related allowance for loan losses at June 30, 1996 were $606,714 and
$184,754, respectively. All impaired loans had an associated allowance for loan
losses. The average recorded investment in impaired loans during the second
quarter was $769,526. No interest income was recognized during the quarter on
impaired loans.
The activity in the allowance for loan losses for the three months ended
June 30, 1996 and 1995 and the six months ended June 30, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
-------- -------- ------- -------
Balance at the beginning of the period $899,230 692,398 856,803 657,569
Charge offs (51,044) (98) (77,321) (2,562)
Recoveries 6,296 3,771 15,000 6,064
Provision for loan losses - 45,000 60,000 80,000
-------- ------- ------- -------
Balance at the end of the period $854,482 741,071 854,482 741,071
======== ======= ======= =======
</TABLE>
At June 30, 1996 and December 31, 1995, certain stockholders, directors and
employees were indebted to the Bank in the aggregate amounts of $13,442,590 and
$11,520,498, respectively. All such loans were made in the ordinary course of
business.
15
<PAGE>
5
COMMERCE 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, 1996 and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Three months or less $17,936,670 13,117,216
Three through twelve months 7,527,607 9,948,335
Over one year 1,029,465 816,491
----------- ----------
$26,493,742 23,882,042
=========== ==========
</TABLE>
(5) COMMON STOCK
As of April 26, 1996, Commerce National Corporation employees exercised options
for 72,219 shares of common stock at $10 per share.
(6) 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, 1996 and December 31, 1995, the Bank had commitments to
customers of approximately $1,098,000 and $832,133 for standby letters of
credit, $18,273,000 and $15,189,767 for unfunded firm loan commitments and
$45,419,338 and $41,949,096 for approved lines of credit, respectively.
(7) 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 1996, the Company had a profit of
$244,340 as compared to a profit of $200,874 for the same period in 1995. Total
interest expense during the first six months of 1996 increased 35% to $2,111,919
due to the increased flow of new deposits into the Bank during the first six
months of 1996.
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
- -----------------------------------------------------------
<S> <C> <C> <C>
6/30/96 6/30/95 6/30/94
- -----------------------------------------------------------
ROAA .46% .49% .59%
- -----------------------------------------------------------
ROAE 5.82% 5.40% 7.27%
- -----------------------------------------------------------
NET INCOME $ 244,340 $ 200,874 $ 245,709
- -----------------------------------------------------------
AVERAGE ASSETS $105,539,155 $82,981,891 $83,820,367
- -----------------------------------------------------------
AVERAGE CAPITAL $ 8,393,816 $ 7,445,792 $ 6,760,084
- -----------------------------------------------------------
</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 six months
of the last three years is as follows:
17
<PAGE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDING
- ---------------------------------------------------------
<S> <C> <C> <C>
6/30/96 6/30/95 6/30/94
- ---------------------------------------------------------
INTEREST INCOME $4,158,909 $3,404,365 $2,777,026
- ---------------------------------------------------------
INTEREST EXPENSE $2,111,919 $1,567,603 $1,275,865
- ---------------------------------------------------------
NET INTEREST INCOME $2,046,990 $1,836,762 $1,501,161
- ---------------------------------------------------------
</TABLE>
Net interest income of $2,046,990 for the second quarter of 1996 was a
11% increase over the same period in 1995, which had a net interest income of
$1,836,762.
On an annualized basis, the Company's net interest margin was 4.29%
through the second quarter of 1996 compared to 4.58% through the second quarter
of 1995.
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
18
<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 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 nine (9) non-accruing loans totaling $591,284 as of June
30, 1996. This represents a 64% decline from the March 31, 1996 figure of
$1,639,830. Five (5) of the nine (9) non-accrual loans, totaling $264,677, are
collateralized with first mortgages, and two loans in the aggregate amount of
$245,874 are collateralized with second mortgages.
The Company's allowance for loan losses at June 30, 1996 was $854,482,
a 1.12% reserve on total loans outstanding.
Non-Interest Expense
- --------------------
Operating expenses increased 16% for the six-month period ended June
30, 1996, to $1,887,129 compared with the same period for 1995 which had
operating expenses of $1,631,146. A large portion of the rise in non-interest
expense is due to increases in staffing and occupancy expense due to two
branches opening in 1995 and one branch opening on January 2, 1996.
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
19
<PAGE>
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. 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 where upon all banks are required to maintain a risk
based capital ratio of 8.0%. At June 30, 1996, the Bank had a total risk based
capital ratio (i.e. Tier One plus Tier Two capital) of 10.23% (11.36% for the
Company on a consolidated basis).
The Company stands ready to infuse additional capital into the Bank
should it be warranted.
20
<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 our customer base and local demographics. The Bank and
the Company are well capitalized.
Accounting Pronouncements
- -------------------------
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards #125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities".
This statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
Those standards are based on consistent application of a financial-components
approach that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when extinguished.
This Statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
This Statement is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996, and
is to be applied prospectively. Earlier or retroactive application is not
permitted.
21
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company is currently not using derivatives.
Expansion plans have been completed. 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. The above two
(2) branches are located in freestanding buildings which were built in 1995 and
are owned by the Bank. On January 2, 1996, the Bank moved into its third branch
site at 200 E. New England Avenue in downtown Winter Park, Florida. This
facility is owned by Rollins College, a private institution located in Winter
Park, which has leased the first floor and basement facility to the Bank.
On April 15, 1996, the number of directors was increased to fifteen
(15) members, and the following individuals were elected to the Board of
Directors of the Company and the Bank to fill the resulting vacancies:
<TABLE>
<CAPTION>
===========================================
NAME OF DIRECTOR CLASS TERM OF OFFICE
-------------------------------------------
<S> <C> <C>
Stephen C. Cahill A 1996-1998
-------------------------------------------
Ernst R. Janvrin C 1996-1997
-------------------------------------------
Tony Lombardi, Jr. A 1996-1998
-------------------------------------------
Jane H. Louttit C 1996-1997
-------------------------------------------
Stephen G. Miller B 1996-1999
===========================================
</TABLE>
During the second quarter of 1996, officers and employees of the Bank
exercised stock options to purchase 72,219 shares of the Company's common stock.
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.
22
<PAGE>
Exhibit No. Description and Location
----------- ------------------------
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.
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.
23
<PAGE>
Exhibit No. Description and Location
----------- ------------------------
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.
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).
(b) FORM 8-K
--------
No reports on Form 8-K were filed by the Company for the fiscal quarter ended
June 30, 1996.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
24
<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 14, 1996
By: /s/ Guy D. Colado
-----------------------------
GUY D. COLADO, President and
Chief Executive Officer
Dated: August 14, 1996
By: /s/ Alan M. Scarboro
-----------------------------
ALAN M. SCARBORO,
Secretary/Treasurer
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,128,710
<INT-BEARING-DEPOSITS> 2,019,099
<FED-FUNDS-SOLD> 800,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,817,368
<INVESTMENTS-CARRYING> 1,697,623
<INVESTMENTS-MARKET> 1,696,186
<LOANS> 76,129,312
<ALLOWANCE> 854,482
<TOTAL-ASSETS> 108,416,658
<DEPOSITS> 95,913,136
<SHORT-TERM> 1,262,395
<LIABILITIES-OTHER> 2,154,438
<LONG-TERM> 336,713
0
0
<COMMON> 776,727
<OTHER-SE> 7,973,249
<TOTAL-LIABILITIES-AND-EQUITY> 8,749,976
<INTEREST-LOAN> 1,612,762
<INTEREST-INVEST> 286,651
<INTEREST-OTHER> 137,073
<INTEREST-TOTAL> 2,036,486
<INTEREST-DEPOSIT> 999,731
<INTEREST-EXPENSE> 50,278
<INTEREST-INCOME-NET> 986,477
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 989,238
<INCOME-PRETAX> 140,584
<INCOME-PRE-EXTRAORDINARY> 140,584
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 82,894
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
<YIELD-ACTUAL> 4.29
<LOANS-NON> 445,371
<LOANS-PAST> 460,060
<LOANS-TROUBLED> 606,714
<LOANS-PROBLEM> 701,271
<ALLOWANCE-OPEN> 899,230
<CHARGE-OFFS> 51,044
<RECOVERIES> 6,296
<ALLOWANCE-CLOSE> 854,482
<ALLOWANCE-DOMESTIC> 854,482
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
