<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, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from ____________ to _____________
Commission file number: 2-98960A
COMMERCE NATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
FLORIDA
(State or Other Jurisdiction of Incorporation 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
--- ---
This filing contains 26 pages. The Exhibit List commences on the
sequential page number 24.
<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, 1997, Commerce National Corporation (the "Company") had
596,235 shares of common stock, par value $0.10 per share, issued and
outstanding.
(BALANCE OF PAGE INTENTIONALLY LEFT BLANK)
2
<PAGE>
PART I. FINANCIAL INFORMATION
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, 1997
and December 31, 1996
Condensed consolidated statements of operations (unaudited)--Three months
ended June 30, 1997 and 1996; Six months ended June 30, 1997
and 1996
Condensed consolidated statements of cash flows (unaudited)--Six months
ended June 30, 1997 and 1996
Selected notes to condensed consolidated financial statements (unaudited)--June
30, 1997
4
<PAGE>
The Board of Directors
Commerce National Corporation and Subsidiary:
We have reviewed the condensed consolidated balance sheet of Commerce National
Corporation and subsidiary as of June 30, 1997 and the related condensed
consolidated statements of operations for the three month and six month periods
ended June 30, 1997 and 1996 and condensed consolidated statements of cash flows
for the six month periods ended June 30, 1997 and 1996. 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, 1996, 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 February 5, 1997, 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, 1996, 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, 1997
5
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Condensed Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1997 1996
- ------ ---- ----
<S> <C> <C>
Cash and due from banks $ 4,766,329 3,389,652
Federal funds sold 2,650,000 1,500,000
Investment securities available for sale (note 2) 17,459,538 15,964,395
Investment securities held to maturity (note 2) 190,000 190,000
Loans, net (note 3) 90,227,210 86,532,988
Accrued interest receivable 755,683 723,329
Premises and equipment, net 3,574,723 3,501,875
Other real estate owned 774,957 1,018,405
Deferred tax asset, net 279,323 242,217
Federal Reserve Bank stock, at cost 150,000 150,000
Federal Home Loan Bank stock, at cost 341,300 300,000
Prepaid expenses and other assets 97,686 114,298
Executive supplemental income plan - cash
surrender value life insurance policies 1,270,357 1,238,809
------- -------
Total assets $122,537,106 114,865,968
=========== ===========
</TABLE>
See accompanying review report of KPMG Peat Marwick LLP and accompanying
selected notes to condensed consolidated financial statements (unaudited).
6
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
Liabilities 1997 1996
----------- ---- ----
<S> <C> <C>
Deposits (note 4):
Noninterest bearing $ 15,523,551 15,988,515
Interest bearing 92,247,938 85,055,755
------------ -----------
Total deposits 107,771,489 101,044,270
Federal Home Loan Bank advances 1,218,735 1,222,647
Other borrowed funds 3,364,644 2,986,288
Accrued interest payable 151,209 136,276
Accounts payable and other liabilities 362,642 248,067
------------ -----------
Total liabilities 112,868,719 105,637,548
------------ -----------
Stockholders' Equity
--------------------
Common stock, par value $.10 per share (1,000,000
shares authorized; 618,035 and 617,584
shares issued and 596,235
and 595,784 shares outstanding at June 30, 1997
and December 31, 1996, respectively) 61,804 61,759
Additional paid-in capital 6,071,128 6,065,310
Treasury stock, at cost (21,800 shares at
June 30, 1997 and December 31, 1996) (208,640) (208,640)
Retained earnings 3,727,619 3,269,630
Unrealized gain on investments available for
sale, net 16,476 40,361
------------ -----------
Total stockholders' equity 9,668,387 9,228,420
Commitments and contingencies (note 5)
------- -------
Total liabilities and stockholders' equity $122,537,106 114,865,968
============ ===========
</TABLE>
7
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
--------------------- --------------------
June 30, June 30,
1997 1996 1997 1996
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans $2,142,384 1,612,762 4,128,226 3,350,484
Investment securities 245,334 286,651 489,992 525,205
Federal funds sold 41,744 95,795 56,527 224,411
Federal Reserve Bank stock 2,250 2,250 4,500 4,591
Federal Home Loan Bank stock - 12,514 5,470 12,514
Due from banks 668 26,514 1,211 41,704
---------- --------- --------- ---------
Total interest income 2,432,380 2,036,486 4,685,926 4,158,909
Interest expense 1,079,972 1,050,009 2,115,636 2,111,919
---------- --------- --------- ---------
Net interest income 1,352,408 986,477 2,570,290 2,046,990
Provision for loan losses 36,000 - 72,000 60,000
---------- --------- --------- ---------
Net interest income after
provision for loan losses 1,316,408 986,477 2,498,290 1,986,990
---------- --------- --------- ---------
Other operating income:
Customer service fees 177,677 143,345 330,373 341,524
Other operating expenses:
Salaries and benefits 497,367 434,651 998,661 896,943
Occupancy expense 209,598 205,635 408,246 364,487
Legal and professional fees 59,233 60,804 120,245 88,174
Other expenses 295,463 254,240 545,456 537,525
Loss on sale and write down of
other
real estate owned - 33,908 1,371 33,908
---------- --------- --------- ---------
1,061,661 989,238 2,073,979 1,921,037
---------- --------- --------- ---------
Net income before taxes 432,424 140,584 754,684 407,477
Income tax expense 176,198 57,690 296,695 163,137
---------- --------- --------- ---------
Net income $ 256,226 82,894 457,989 244,340
========== ========= ========= =========
Net income per share (note 6) $ .43 .15 .77 .45
========== ========= ========= =========
Weighted average shares outstanding 596,176 587,848 595,981 555,884
========== ========= ========= =========
</TABLE>
See accompanying review report of KPMG Peat Marwick LLP and accompanying
selected notes to condensed consolidated financial statements (unaudited).
8
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Six months ended
----------------
June 30,
1997 1996
---- ----
<S> <C> <C>
Cash flows provided by operating activities:
Net income $ 457,989 244,340
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of premises and equipment 141,419 129,184
Net amortization of premiums and accretion of
discounts on investment securities held to
maturity and investment
securities available for sale (34,890) (927)
Provision for loan losses 72,000 60,000
Deferred loan origination fees 20,044 72,564
Deferred tax benefit (2,783) -
Provision for other real estate owned - 7,080
Loss on sale of other real estate owned 1,371 -
Writedown to fair value on other real estate owned - 26,828
Executive supplemental income plan - additional
cash surrender value (31,548) (36,238)
Cash provided by (used in) changes in:
Accrued interest receivable (32,354) (79,781)
Prepaid expenses and other assets 16,612 12,298
Accrued interest payable 14,933 (63,613)
Accounts payable and other liabilities 96,115 40,693
----------- ----------
Net cash provided by operating activities 718,908 412,428
----------- ----------
Cash flows provided (used in) by investing
activities:
Net loans made to customers (3,834,543) (8,859,283)
Decrease (increase) in federal funds sold (1,150,000) 7,200,000
Purchases of investment securities available for
sale (4,000,000) (7,899,762)
Proceeds from maturity of investment securities
available for sale 2,500,000 -
Proceeds from maturities of investment securities
held to maturity - 2,000,000
Purchase of premises and equipment (214,267) (259,201)
Proceeds from sale of other real estate owned 290,353 -
Redemption (purchase) of Federal Home Loan Bank stock (41,300) 107,200
Federal Home Loan Bank note receivable - (450,008)
----------- ----------
Net cash (used in) investing activities (6,449,757) (8,161,054)
----------- ----------
</TABLE>
(Continued)
9
<PAGE>
2
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unaudited), Continued
<TABLE>
<CAPTION>
Six months ended
----------------
June 30,
1997 1996
---- ----
<S> <C> <C>
Cash flows provided by (used in) financing activities:
Net increase in demand deposits, NOW accounts and passbook
savings accounts 1,277,193 1,959,629
Net increase in certificates of deposit 5,450,026 4,610,728
Principal payment on mortgage note payable (12,725) (11,718)
Increase in repurchase agreements 391,081 703,150
Net repayment of borrowings from the Federal Home Loan Bank (3,912) (3,700)
Sale of treasury stock - 24,411
Purchase of treasury stock - (24,411)
Sale of common stock 5,863 722,190
---------- ---------
Net cash provided by financing activities 7,107,526 7,980,279
--------- ---------
Net increase in cash and cash equivalents 1,376,677 231,653
Cash and cash equivalents at the beginning of period 3,389,652 3,897,057
---------- ---------
Cash and cash equivalents at end of period $4,766,329 4,128,710
========== =========
Cash paid during the period for:
Interest $2,100,703 2,175,532
========== =========
Income taxes $ - 118,035
========= =========
</TABLE>
(Continued)
10
<PAGE>
3
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unaudited), Continued
<TABLE>
<CAPTION>
Six months ended
-----------------
June 30,
1997 1996
---- ----
<S> <C> <C>
Supplemental disclosure for non-cash items:
Market value adjustment - investments available for sale:
Investments $24,964 (51,647)
Deferred income tax liability 8,488 (17,560)
------- -------
Unrealized gain on investments available for sale $16,476 (34,087)
======= =======
Transfer loan to other real estate owned $48,277 399,170
======= =======
</TABLE>
See accompanying review report of KPMG Peat Marwick LLP and accompanying
selected notes to condensed consolidated financial statements (unaudited).
11
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Selected Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 1997
See accompanying review report of KPMG Peat Marwick LLP
(2) 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 six months ended June 30,
1997 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997. 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, 1996.
(b) Effective New Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 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 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.
(Continued)
12
<PAGE>
-2-
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Selected Notes to Condensed Consolidated Financial Statements (Unaudited)
See accompanying review report of KPMG Peat Marwick LLP
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 of retroactive application is not permitted.
The adoption of this Statement did not have a material impact on the Company.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share". This
Statement establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock or potential
common stock. This Statement simplifies the standards for computing earnings per
share previously found in APB Opinion No. 15, "Earnings Per Share", and makes
them comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. This Statement supersedes Opinion
15 and AICPA Accounting Interpretations 1-102 of Opinion 15.
This Statement is effective for financial statements issued for period ending
after December 15, 1997, including interim periods; earlier application is not
permitted. This Statement requires restatement of all prior period EPS data
presented.
The adoption of this Statement will not have a material impact on the Company.
(Continued)
13
<PAGE>
-3-
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Selected Notes to Condensed Consolidated Financial Statements (Unaudited)
See accompanying review report of KPMG Peat Marwick LLP
(2) Investment Securities Held to Maturity and Investment Securities Available
for Sale
The amortized cost and estimated market values of investment securities held
to maturity at June 30, 1997 and December 31, 1996 are summarized as
follows:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
Amortized Estimated Amortized Estimated
cost market value cost market value
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
Municipal securities $190,000 190,658 190,000 191,310
======== ======= ======= =======
</TABLE>
The amortized cost and estimated market value of investments available for sale
at June 30, 1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
Amortized Estimated Amortized Estimated
cost market value cost market value
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $17,434,573 17,459,538 15,899,648 15,964,395
============ ========== ========== ==========
</TABLE>
As of June 30, 1997, the Company had securities sold under agreement to
repurchase of $3,052,855. All agreements were one day transactions, thus the
carrying value, market value, and borrowings were equal at quarter end.
(Continued)
14
<PAGE>
-4-
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Selected Notes to Condensed Consolidated Financial Statements (Unaudited)
See accompanying review report of KPMG Peat Marwick LLP
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, 1997, 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, 1997, Agreements outstanding averaged approximately
$3,171,367 and the maximum amount outstanding during the quarter was
$4,405,931. Total interest expense paid on repurchase Agreements was $39,180
and $19,536 for the quarter ended June 30, 1997 and June 30, 1996,
respectively, and $73,419 and $31,592 for the six months ended June 30, 1997
and June 30, 1996, respectively.
(3) Loans
Major categories of loans included in the loan portfolio at June 30, 1997 and
December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Commercial-secured $10,701,855 10,461,047
Commercial-unsecured 4,099,814 3,988,842
Real estate - primarily commercial 73,388,320 69,924,987
Other (installment and overdrafts) 3,357,814 3,393,462
----------- ----------
91,547,803 87,768,338
Allowance for loan losses (952,902) (887,803)
Deferred loan origination fees (367,691) (347,547)
----------- ----------
$90,227,210 86,532,988
=========== ==========
</TABLE>
(Continued)
15
<PAGE>
-5-
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Selected Notes to Condensed Consolidated Financial Statements (Unaudited)
See accompanying review report of KPMG Peat Marwick LLP
The recorded investment in loans for which an impairment has been recognized
and the related allowance for loan losses at June 30, 1997 and December 31,
1996 were $1,102,359 and $33,619 and $1,159,868 and $24,930, respectively. All
impaired loans had an associated allowance for loan losses. The average
recorded investment in impaired loans during the second quarter was $1,313,988.
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, 1997 and 1996 and the six months ended June 30, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at the beginning of
the period $912,959 899,230 887,803 856,803
Charge offs - (51,044) (13,547) (77,321)
Recoveries 3,943 6,296 6,646 15,000
Provision for loan losses 36,000 - 72,000 60,000
-------- ------- ------- -------
Balance at the end of the period $952,902 854,482 952,902 854,482
======== ======= ======= =======
</TABLE>
At June 30, 1997 and December 31, 1996, certain stockholders, directors and
employees were indebted to the Bank in the aggregate amounts of $13,635,081 and
$12,717,857, respectively. All such loans were made in the ordinary course of
business.
(Continued)
16
<PAGE>
-6-
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Selected Notes to Condensed Consolidated Financial Statements (Unaudited)
See accompanying review report of KPMG Peat Marwick LLP
(4) Deposits
Included in interest bearing deposits are certificates of deposit issued in
amounts of $100,000 or more. These certificates and their remaining
maturities at June 30, 1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Three months or less $21,645,374 19,976,908
Three through twelve months 9,899,465 7,044,986
Over one year 1,693,620 1,425,096
----------- ----------
$33,238,459 28,446,990
=========== ==========
</TABLE>
(5) Common Stock
On April 10, 1997, the Trustees of the National Bank of Commerce 401k plan
purchased 451 shares of Commerce National Corporation common stock at $13.00
per share.
(6) Commitments
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, 1997 and December 31, 1996, the Bank had
commitments to customers of approximately $1,031,076 and $991,880 for
standby letters of credit, $17,946,104 and $15,435,441 for unfunded firm
loan commitments and $51,317,703 and $46,992,674 for approved lines of
credit, respectively.
(7) Earnings Per Share and Common Equivalent Share
Earnings per share is calculated based on the weighted average number of
shares outstanding during the period including the assumed conversion of
stock options using the modified treasury stock method. The effect of the
conversion of these common stock equivalents was an increase for June 30,
1997 and December 31, 1996 of 4,753 and 2,843, respectively.
17
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The accompanying condensed consolidated 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
Condensed Consolidated Financial Condition and Results of Operation. This
review should be read in conjunction with the condensed consolidated financial
statements and other financial data presented herein.
Summary:
- -------
During the second quarter and first six months of 1997, the Company had net
income of $256,226 and $457,989, respectively. This compares with net income of
$82,894 for the second quarter of 1996 and $244,340 for the first six months of
1996. This is a result of loans increasing 4.2% from year-end 1996 to an all
time high of $90,227,210 at the end of the second quarter of 1997. Interest
expense for the second quarter ending June 30, 1997 was $1,079,972 compared to
$1,050,009 for the same period in 1996, while interest expense totaled
$2,115,636 for the first six months of 1997 compared to $2,111,919 for the same
period in 1996. While total deposits increased 6.7% to $107,771,489 from year-
end 1996 to June 30, 1997, the rates paid on those deposits have re-priced at
lower rates.
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 two years is as follows:
<TABLE>
<CAPTION>
----------------------------
For the Six Months Ending
----------------------------
<S> <C> <C>
6/30/97 6/30/96
- -----------------------------------------
ROAA .78% .46%
- -----------------------------------------
ROAE 9.70% 5.82%
- -----------------------------------------
NET INCOME $ 457,989 $ 244,340
- -----------------------------------------
AVERAGE $117,808,934 $105,539,155
ASSETS
- -----------------------------------------
AVERAGE $ 9,447,257 $ 8,393,816
CAPITAL
- -----------------------------------------
</TABLE>
18
<PAGE>
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 two years is as
follows:
<TABLE>
<CAPTION>
---------------------------
For the Six Months Ending
---------------------------
<S> <C> <C>
6/30/97 6/30/96
- ---------------------------------------------
INTEREST INCOME $4,685,926 $4,158,909
- ---------------------------------------------
INTEREST EXPENSE $2,115,636 $2,111,919
- ---------------------------------------------
NET INTEREST $2,570,290 $2,046,990
INCOME
- ---------------------------------------------
</TABLE>
Net interest income increased 37% in the second quarter and 26% in the
first six months of 1997 compared to the same periods in 1996.
On an annualized basis, the Company's net interest margin was 4.68% through
the second quarter of 1997 compared to 4.29% through the second quarter of 1996.
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 Loan Losses
- -------------------------
There were eleven (11) non-accruing loans totaling $1,132,848 as of June
30, 1997. This compares with thirteen (13) non-accruing loans totaling
$1,409,558 as of March 31, 1997. Of the June 30, 1997 figure, three (3) loans
totaling $624,167 are collateralized with first mortgages. One property secured
by a first mortgage has been leased and the loan should be brought current by
September 1, 1997. Another property secured by a first mortgage is under
contract and should close by year end. There are two (2) loans totaling
$120,258 secured by second mortgages. One of the loans that is secured by a
second mortgage has a 90% guarantee from the Small Business Administration.
This loan is currently being liquidated with a minimal loss being anticipated.
There are three (3) installment loans totaling $16,825, all of which are secured
by vehicles. Two of these installment loans continue to be current. There are
three (3) unsecured loans totaling $371,598. The largest unsecured loan in the
amount of $299,925 is a collateral pledge of a buy-out of a doctor's practice.
This loan continues to be current with
19
<PAGE>
interest paid monthly and principal reduction made quarterly. Another unsecured
loan in the amount of $45,171 continues to be current.
The Company's allowance for loan losses at June 30, 1997 was $952,902, a
1.04% reserve on total loans outstanding. This compares to an allowance of
$854,482, a 1.12% reserve of total loans outstanding, at June 30, 1996.
Non-Interest Income
- -------------------
Non-interest income in the second quarter of 1997 increased 24% compared to
the same period in 1996, while non-interest income in the first six months of
1997 declined 3% compared to the same period in 1996. The decline in non-
interest income through the first six months of 1997 is the result of fees
collected on real estate construction loans totaling $92,961 as compared to
$122,639 for the same period in 1996. The Bank continues to have strict
controls on operations which allows for collecting penalties on insufficient
funds, checks and the like.
Non-Interest Expense
- --------------------
Non-interest expense increased 7.3% in the second quarter and 8% in the
first six months of 1997 compared to same periods in 1996. Personnel expense,
consisting of salaries, other compensation and employment benefits, increased
14.4% and 11.3% over the aforementioned periods. Occupancy expense increased
2.1% in the second quarter and 12% in the first six months of 1997 as compared
to the same periods in 1996 as a result of the Annual Consumer Price Index
increases on the leases for the Bank's main office and branch which opened
January 1996.
Liquidity
- ---------
The liquidity of a banking institution reflects its ability to provide
funds to meet loan requests, to accommodate possible outflows in deposits and to
take advantage of interest rate market opportunities. Funding of loan requests,
providing for liability outflows, and management of interest rate fluctuations,
require continuous analysis in order to match the maturities of specific
categories of specific short-term loans and investments with specific types of
deposits and borrowings. The objective of liquidity management is to maintain a
balance between sources and uses of funds such that the cash flow needs of the
Company are met in the most economical manner. On the asset side, the Company's
liquidity is provided by Federal funds sold, loan principal repayments, and by
investment securities, of which 100% have maturities of five years or less.
Moreover, liquidity is provided by an investment portfolio that is readily
marketable.
Closely related to the concept of liquidity is the management of interest-
earning assets and interest-bearing liabilities, which focuses on maintaining
stability in the net interest spread, an important factor in earnings' growth
and stability. The interest rate volatility of recent years and rate
deregulation have significantly affected the way in which banks manage their
business and have highlighted the importance of asset and liability management.
For the Company, the
20
<PAGE>
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. On December 31,
1992, the guidelines took effect in their final form whereupon all banks are
required to maintain a risk based capital ratio of 8.0%. At June 30, 1997, the
Bank had a total risk based capital ratio (i.e. Tier One plus Tier Two capital)
of 10.16% (10.65% for the Company on a consolidated basis).
The Company stands ready to infuse additional capital into the Bank should
it be warranted.
Impact of Inflation
- -------------------
The condensed consolidated financial statements and related financial data
and notes presented herein have been prepared in accordance with Generally
Accepted Accounting Principles ("GAAP"), which require the measurement of
financial position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due to
inflation. Unlike most industrial companies, virtually all of the assets and
liabilities of the Company and the Bank are monetary in nature. As a result,
interest rates have a more significant impact on the performance of the Company
and the Bank than the effects of general price levels. Although interest rates
generally move in the same direction as inflation, the magnitude of such changes
varies.
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. In the opinion of
management, this factor is a result of its customer base and local demographics.
The Bank and the Company are adequately capitalized.
21
<PAGE>
Accounting Pronouncements
- -------------------------
SFAS No. 125
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 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 of retroactive application is not permitted.
The adoption of this Statement did not have a material impact on the
Company.
SFAS No. 128
In February 1997, the FASB issued Statement of Financial Accounting
Standards #128, "Earnings Per Share." This Statement establishes standards for
computing and presenting earnings per share ("EPS") and applies to entities with
publicly-held common stock or potential common stock. This Statement simplifies
the standards for computing earning per share previously found in APB Opinion
15, "Earnings Per Share," and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation of
basic EPS. This Statement supersedes Opinion 15 and AICPA Accounting
Interpretations 1-102 of Opinion 15.
This Statement is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier application
is not permitted. This Statement requires restatement of all prior period EPS
data presented.
The adoption of this Statement will not have a material impact on the
Company.
SFAS No. 130
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income." This statement establishes standards
for reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial
22
<PAGE>
statements. The statement also requires that an enterprise (a) classify items
of other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. The statement is required for fiscal years beginning after
December 15, 1997.
The adoption of this standard will require the Bank to disclose as a
component of comprehensive income the activity in its unrealized gain or loss on
investment securities available for sale.
SFAS No. 131
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosure about Segments of an Enterprise and Related Information."
This statement establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. The
statement is required for fiscal years beginning after December 15, 1997.
The Bank does not anticipate that adoption of this standard will have a
significant impact on its consolidated financial statements upon adoption.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
23
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Neither the Company nor the Bank are involved at this time in any claims or
lawsuits other than routine matters arising out of the normal day-to-day banking
business.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
--------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Exhibit No. Description and Location
- ----------- ------------------------
- ------------------------------------------------------------------------
<S> <C>
27 Article 9 Financial Data Schedule (for SEC use only).
- ------------------------------------------------------------------------
</TABLE>
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed by the Company for the fiscal quarter
ended June 30, 1997.
[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 8, 1997
By:/s/ Guy D. Colado
--------------------------
GUY D. COLADO, President and
Chief Executive Officer
Dated: August 8, 1997
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 JUNE 30, 1997 AND DECEMBER 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,766,329
<INT-BEARING-DEPOSITS> 92,247,938
<FED-FUNDS-SOLD> 2,650,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,459,538
<INVESTMENTS-CARRYING> 17,624,573
<INVESTMENTS-MARKET> 17,650,196
<LOANS> 91,180,112
<ALLOWANCE> 952,902
<TOTAL-ASSETS> 122,537,106
<DEPOSITS> 107,771,489
<SHORT-TERM> 5,097,230
<LIABILITIES-OTHER> 0
<LONG-TERM> 0
0
0
<COMMON> 61,804
<OTHER-SE> 9,606,583
<TOTAL-LIABILITIES-AND-EQUITY> 122,537,106
<INTEREST-LOAN> 4,128,226
<INTEREST-INVEST> 489,492
<INTEREST-OTHER> 67,708
<INTEREST-TOTAL> 4,685,926
<INTEREST-DEPOSIT> 1,983,635
<INTEREST-EXPENSE> 132,001
<INTEREST-INCOME-NET> 2,115,636
<LOAN-LOSSES> 72,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,073,979
<INCOME-PRETAX> 754,684
<INCOME-PRE-EXTRAORDINARY> 754,684
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 457,989
<EPS-PRIMARY> .77
<EPS-DILUTED> .77
<YIELD-ACTUAL> 0.047
<LOANS-NON> 1,051,830
<LOANS-PAST> 0
<LOANS-TROUBLED> 2,693
<LOANS-PROBLEM> 2,176,462
<ALLOWANCE-OPEN> 887,803
<CHARGE-OFFS> 13,547
<RECOVERIES> 6,646
<ALLOWANCE-CLOSE> 952,902
<ALLOWANCE-DOMESTIC> 952,902
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 701,722
</TABLE>
