<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, 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) 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 26 pages. The Exhibit List is found on page 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 May 1, 1996, Commerce National Corporation (the "Company") had 589,705
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--March 31, 1996 and December 31, 1995
Condensed consolidated statements of operations--Three months ended March 31,
1996 and 1995
Condensed consolidated statements of cash flows--Three months ended March 31,
1996 and 1995
Selected notes to condensed consolidated financial statements--March 31, 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 March 31, 1996 and the related condensed
consolidated statements of operations and cash flows for the three months ended
March 31, 1996 and March 31, 1995. These condensed consolidated financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data, and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Commerce National Corporation and
subsidiary as of December 31, 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 financial statements from which it has been
derived.
/s/ KPMG Peat Marwick LLP
Orlando, Florida
April 19, 1996
5
<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 1996 1995
------ ------------ ----------
<S> <C> <C>
Cash and due from banks $ 5,099,868 3,897,057
Federal funds sold 5,500,000 8,000,000
Investment securities available for sale (note 2) 15,974,085 12,136,418
Investment securities held to maturity (note 2) 2,201,724 2,705,957
Loans, net (note 3) 67,618,943 66,648,785
Accrued interest receivable 671,557 632,936
Premises and equipment, net 3,665,637 3,486,488
Other real estate owned, net 802,145 802,145
Federal Home Loan Bank stock, at cost 150,000 150,000
Federal Reserve Bank stock, at cost 300,000 407,200
Deferred tax asset 217,779 178,000
Independent Bankers' Bank stock, at cost 19,750 19,750
Prepaid expenses and other assets 155,974 129,651
Executive supplemental income plan - cash
surrender value life insurance policies 1,191,648 1,171,100
------------ -----------
Total assets $103,569,110 100,365,487
============ ===========
</TABLE>
See accompanying selected notes to condensed consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
------------------------------------ ------------- ------------
<S> <C> <C>
Deposits (note 4):
Noninterest bearing $ 11,478,057 13,285,944
Interest bearing 81,003,210 76,056,835
------------ -----------
Total deposits 92,481,267 89,342,779
Federal Home Loan Bank advances 1,262,395 1,266,095
Other borrowed funds 1,366,806 1,394,944
Accrued interest payable 182,683 206,031
Accounts payable and other liabilities 257,758 221,664
------------ -----------
Total liabilities 95,550,909 92,431,513
------------ -----------
Common stock, par value $.10 per share (1,000,000 shares
authorized; 545,365 shares issued and 523,565 outstanding
at March 31, 1996 and December 31, 1995) 54,537 54,537
Additional paid-in capital 5,350,342 5,350,342
Retained earnings 2,782,740 2,621,294
Treasury stock, at cost (21,800 shares at March 31, 1996
and December 31, 1996) (208,640) (208,640)
Unrealized gain on investment securities available for sale, net 39,222 116,441
------------ -----------
Total stockholders' equity 8,018,201 7,933,974
------------ -----------
Commitments (note 5)
Total liabilities and stockholders' equity $103,569,110 100,365,487
============ ===========
</TABLE>
7
<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,
1996 1995
---------- ---------
<S> <C> <C>
Interest income:
Loans $1,737,722 1,350,179
Investment securities 238,554 257,654
Federal funds sold 128,616 1,306
Federal Reserve Bank stock 2,342 2,138
Federal Home Loan Bank stock - 10,112
Due from banks 15,190 486
---------- ---------
Total interest income 2,122,424 1,621,875
Interest expense 1,061,910 749,208
---------- ---------
Net interest income 1,060,514 872,667
Provision for loan losses 60,000 35,000
---------- ---------
Net interest income after provision for
loan losses 1,000,514 837,667
---------- ---------
Other operating income:
Customer service fees 198,179 157,976
Management fees - 4,500
Other operating expenses:
Salaries and benefits 462,292 361,527
Occupancy expense 158,852 90,133
Legal and professional fees 27,370 59,663
Other expenses 283,286 270,315
---------- ---------
931,800 781,638
---------- ---------
Net operating income before taxes 266,893 218,505
Income tax expense 105,447 86,888
---------- ---------
Net earnings $ 161,446 131,617
========== =========
Earnings per share (note 6) $.31 .25
========== =========
Weighted average shares outstanding 523,565 523,565
========== =========
</TABLE>
See accompanying selected notes to condensed consolidated financial statements.
8
<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,
-----------------------
1996 1995
----------- ----------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income $ 161,446 131,617
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation of premises and equipment 63,020 18,162
Deferred income taxes - 999
Net amortization of premiums and accretion of discounts on
investment securities held to maturity and investment
securities available for sale 49,568 19,598
Provision for loan losses 60,000 35,000
Deferred loan origination fees 9,534 (24,411)
Cash provided by (used in) changes in:
Accrued interest receivable (38,621) 8,968
Prepaid expenses and other assets (46,871) (338,444)
Accrued interest payable (23,348) 44,245
Accounts payable and other liabilities 36,094 25,459
--------- ---------
Net cash provided by (used in) operating activities 270,822 (78,807)
----------- ---------
Cash flows provided by (used in) investing activities:
Net loans made to customers (1,039,692) -
Net repayments on loans - 715,778
Decrease in federal funds sold 2,500,000 -
Purchases of investment securities available for sale (4,000,000) -
Proceeds from maturity of investment securities held
to maturity 500,000 1,500,000
Purchase of premises and equipment (242,169) (40,873)
Redemption (purchase) of Federal Home Loan Bank stock - 158,700
Redemption of Federal Reserve Bank stock 107,200 -
----------- ---------
Net cash provided by (used in) investing activities (2,174,661) 2,333,605
----------- ---------
(Continued)
</TABLE>
9
<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,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows provided by financing activities:
Net decrease in demand deposits, NOW accounts and
passbook savings accounts (1,807,887) (3,430,797)
Net increase in certificates of deposit 4,946,375 8,474,646
Decrease in federal funds purchased - (2,500,000)
Principal payment on mortgage note payable (5,813) (5,396)
Increase (decrease) in repurchase agreements (22,325) (5,204,923)
Proceeds (repayments) from borrowings from the Federal
Home Loan Bank (3,700) (64,199)
Sale of treasury stock 24,411 -
Purchase of treasury stock (24,411) -
----------- ----------
Net cash provided by (used in) financing activities 3,106,650 (2,730,669)
----------- ----------
Net increase (decrease) in cash and cash equivalents 1,202,811 (475,871)
Cash and cash equivalents at the beginning of the period 3,897,057 1,850,183
----------- ----------
Cash and cash equivalents at the end of the period $ 5,099,868 1,374,312
=========== ==========
Cash paid during the period for:
Interest $ 1,085,258 704,963
=========== ==========
Income taxes $ 13,650 72,016
=========== ==========
Supplemental disclosure of noncash transactions:
Market value adjustment - investment securities available for sale:
Investments 59,428 (26,696)
Deferred income tax (asset) liability 20,206 (9,076)
----------- ----------
Unrealized gain (loss) on investment securities
available for sale $ 39,222 (17,620)
=========== ==========
</TABLE>
See accompanying selected notes to condensed consolidated financial statements.
10
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 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, 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 to be cash equivalents.
(C) LONG-LIVED ASSETS
-----------------
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", effective
- --------------------------------------------------------------
January 1, 1996. 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.
Management does not believe that adoption of this Statement will have a material
impact on the Company.
11
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(See accompanying review report of KPMG Peat Marwick LLP)
(1), CONTINUED
(D) MORTGAGE SERVICING RIGHTS
-------------------------
On May 31, 1995, the FASB issued Statement of Accounting Standards No.
122, "Accounting for Mortgage Servicing Rights", effective January 1,
1996. 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.
Management does not believe that adoption of this Statement will have
a material impact on the Company.
(E) STOCK-BASED COMPENSATION
------------------------
During October 1995, the FASB issued Statement of Accounting
Standards No. 123, "Accounting for Stock Based Compensation",
effective January 1, 1996. 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.
Management does not believe that adoption of this Statement will have
a material impact on the Company.
(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, 1996 and December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
------------------------ -----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST MARKET VALUE COST MARKET VALUE
---------- ------------ --------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities
and municipals $2,201,724 2,203,525 2,705,957 2,714,950
========== ========= ========= =========
</TABLE>
12
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(See accompanying review report of KPMG Peat Marwick LLP)
(2), CONTINUED
The amortized cost and estimated market value of investment securities
available for sale as of March 31, 1996 and December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
------------------------ -----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST MARKET VALUE COST MARKET VALUE
---------- ------------ --------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $15,914,657 15,974,085 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 March 31, 1996:
MARCH 31, 1996
--------------
U.S. TREASURY SECURITIES WITHIN 30 DAYS TOTAL
------------------------ -------------- ---------
Carrying value $1,024,188 1,024,188
Borrowings 1,024,188 1,024,188
Market value 1,024,608 1,024,608
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, 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 March 31, 1996, Agreements outstanding averaged
approximately $982,736 and the maximum amount outstanding during the quarter
ended was $1,436,325. Total interest expense paid on repurchase Agreements
was $12,056 for the quarter ended March 31, 1996.
13
<PAGE>
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, 1996
and December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Commercial-secured $ 8,866,325 7,695,479
Commercial-unsecured 3,143,214 2,681,485
Real estate - primarily commercial 53,853,184 55,345,499
Other (installment and overdrafts) 2,890,916 2,009,057
----------- ----------
68,753,639 67,731,520
Allowance for loan losses (899,230) (856,803)
Deferred loan origination fees (235,466) (225,932)
----------- ----------
$67,618,943 66,648,785
=========== ==========
</TABLE>
The recorded investment in loans for which an impairment has been recognized
and the related allowance for loan losses at March 31, 1996 were $853,572
and $274,018, respectively. All impaired loans had an associated allowance
for loan losses. The average recorded investment in impaired loans during
the first quarter was $892,955. No interest income was recognized during the
quarter on impaired loans.
The activity in the allowance for loan losses for the three months ended
March 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1996 1995
--------------- -------------
<S> <C> <C>
Balance at the beginning of the period $856,803 657,569
Charge offs (26,277) (171)
Recoveries 8,704 -
Provision for loan losses 60,000 35,000
-------- -------
Balance at the end of the period $899,230 692,398
======== =======
</TABLE>
At March 31, 1996 and December 31, 1995, certain stockholders, directors and
employees and their related interests were indebted to the Company in the
aggregate amounts of $12,908,099 and $11,520,498, respectively. All such
loans were made in the ordinary course of business.
14
<PAGE>
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, 1996 and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Three months or less $16,982,302 13,117,216
Three through twelve months 8,132,911 9,948,335
Over one year 815,921 816,491
----------- ----------
$25,931,134 23,882,042
=========== ==========
</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, 1996 and December
31, 1995, the Company had commitments to customers of approximately
$41,414,962 and $41,949,096 for approved lines of credit, $742,585 and
$832,133 for standby letters of credit, and $14,625,902 and $15,189,767 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 1996, the Company had a profit of
$161,446 as compared to a profit of $131,617 for the same period in 1995. Total
interest expense during the first quarter of 1996 increased 41.7% to $1,061,910
due to the increased flow of new deposits into the Bank during the first quarter
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 quarter of the last
three years is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
FOR THE THREE MONTHS ENDING
- -----------------------------------------------------------
<S> <C> <C> <C>
3/31/96 3/31/95 3/31/94
- -----------------------------------------------------------
ROAA .64% .65% .43%
- -----------------------------------------------------------
ROAE 8.04% 7.16% 5.23%
- -----------------------------------------------------------
NET INCOME $ 161,446 $ 131,617 $ 87,317
- -----------------------------------------------------------
AVERAGE ASSETS $103,546,868 $81,126,816 $82,279,508
- -----------------------------------------------------------
AVERAGE CAPITAL $ 8,015,759 $ 7,352,215 $ 6,681,928
- -----------------------------------------------------------
</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
- ---------------------------------------------------------
<S> <C> <C> <C>
3/31/96 3/31/95 3/31/94
- ---------------------------------------------------------
INTEREST INCOME $2,122,424 $1,621,875 $1,320,314
- ---------------------------------------------------------
INTEREST EXPENSE $1,061,910 $ 749,208 $ 606,637
- ---------------------------------------------------------
NET INTEREST INCOME $1,060,514 $ 872,667 $ 713,677
- ---------------------------------------------------------
</TABLE>
Net interest income of $1,060,514 for the first quarter of 1996 was a
21.5% increase over the same period in 1995, which had a net interest income of
$872,667.
On an annualized basis, the Company's net interest margin was 4.92%
through the first quarter of 1996 compared to 4.58% through the first 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
Monthly review and evaluation of loans identified as having loss potential.
If, as a result of such monthly reviews, a
17
<PAGE>
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 sixteen (16) non-accruing loans totaling $1,639,830 as of
March 31, 1996. Eleven (11) of the sixteen (16) non-accrual loans, totaling
$1,399,026, are collateralized with first mortgages, and one loan in the amount
of $100,776 is collateralized with a second mortgage.
The Company's allowance for loan losses at March 31, 1996 was
$899,230, a 1.31% reserve on total loans outstanding.
Non-Interest Income
- -------------------
Total non-interest income increased from $162,476 for the three months
ended March 31, 1995, to $198,179, an increase of $35,703, or 22%, for the three
months ended March 31, 1996. 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 20.5% for the three months ended March
31, 1996, to $931,800 compared with the same period for 1995 which had operating
expenses of $781,638. 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
18
<PAGE>
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.
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, 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 March 31, 1996, the Bank had a total risk based
capital ratio (i.e. Tier One plus Tier Two capital) of 11.51% (12.11% 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.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
20
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company will be held on May
29, 1996. At that meeting, if approved, Russell Barkett, Robert B. Boswell,
M.D., Stephen G. Miller, Willie C. Moss, and Frederick A. Raffa, Ph.D., will be
elected as directors for a three (3) year term. C. Durham Barnes, M.D., Donald
J. Barker, Robert E. Battaglia, Stephen C. Cahill, Kenneth M. Clayton, Guy D.
Colado, Ernst R. Janvrin, Tony Lombardi, Jr., Jane H. Louttit and W. Charles
Shuffield, will continue as directors following the annual meeting.
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:
- ---------------------------------------------
NAME OF DIRECTOR CLASS TERM OF OFFICE
- ---------------------------------------------
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
- ---------------------------------------------
On April 22, 1996, officers and employees of the Bank exercised stock
options to purchase 66,140 shares of the Company's common stock.
21
<PAGE>
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.
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.
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, incorporated by
reference from Exhibit 10.3 to the Company's Report
on Form 10-Q for the fiscal quarter ended September
30, 1994.
10.4 Contract for Sale and Purchase by and between Li'l
Big Horn Farm Market, Inc. and National Bank of
Commerce dated December 10, 1993, for branch
location real estate, incorporated by reference
from Exhibit 10.4 to the Company's Report on Form
10-Q for the fiscal quarter ended September 30,
1994.
10.5 Contract for Sale and Purchase by and between
National Bank of Commerce and Robert R. Garofalo,
Jr. dated May 6, 1994, for branch location real
estate, incorporated by reference from Exhibit 10.5
to the Company's Report on Form 10-Q for the fiscal
quarter ended September 30, 1994.
10.6 Contract for Sale and Purchase by and between
National Bank of Commerce and Donald D. Donovan
dated September 23, 1993, for branch location real
estate, incorporated by reference from Exhibit 10.6
to the Company's Report on Form 10-Q for the fiscal
quarter ended September 30, 1994.
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).
23
<PAGE>
(b) FORM 8-K
--------
No reports on Form 8-K were filed by the Company for the fiscal quarter
ended March 31, 1996.
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: May 15, 1996
By: /s/ Guy D. Colado
-----------------------------
GUY D. COLADO, President and
Chief Executive Officer
Dated: May 15, 1996
By: /s/ Alan M. Scarboro
-----------------------------
ALAN M. SCARBORO,
Secretary/Treasurer
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) FOR COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
DATED MARCH 31, 1996 AND DECEMBER 31, 1995.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Mar-31-1996
<CASH> 762,524
<INT-BEARING-DEPOSITS> 4,337,345
<FED-FUNDS-SOLD> 5,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,974,085
<INVESTMENTS-CARRYING> 2,201,724
<INVESTMENTS-MARKET> 2,203,525
<LOANS> 68,518,173
<ALLOWANCE> 899,230
<TOTAL-ASSETS> 103,569,110
<DEPOSITS> 92,481,267
<SHORT-TERM> 0
<LIABILITIES-OTHER> 440,441
<LONG-TERM> 2,629,201
0
0
<COMMON> 54,537
<OTHER-SE> 7,963,664
<TOTAL-LIABILITIES-AND-EQUITY> 103,569,110
<INTEREST-LOAN> 1,737,722
<INTEREST-INVEST> 384,702
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,122,424
<INTEREST-DEPOSIT> 1,019,368
<INTEREST-EXPENSE> 42,542
<INTEREST-INCOME-NET> 1,060,514
<LOAN-LOSSES> 60,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 931,800
<INCOME-PRETAX> 266,893
<INCOME-PRE-EXTRAORDINARY> 266,893
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161,446
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
<YIELD-ACTUAL> .049
<LOANS-NON> 1,654,394
<LOANS-PAST> 1,778,022
<LOANS-TROUBLED> 274,018
<LOANS-PROBLEM> 2,052,040
<ALLOWANCE-OPEN> 856,803
<CHARGE-OFFS> 26,277
<RECOVERIES> 8,704
<ALLOWANCE-CLOSE> 899,230
<ALLOWANCE-DOMESTIC> 899,230
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 425,079
</TABLE>
