<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 September 30, 1998
[ ] 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 30 pages. The Exhibit Index is found on page 29.
<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 November 1, 1998, Commerce National Corporation (the "Company") had
721,019 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)--September 30, 1998
and December 31, 1997
Condensed consolidated statements of operations (unaudited)--Three months
ended September 30, 1998 and 1997; Nine months ended September 30, 1998
and 1997
Condensed consolidated statements of cash flows (unaudited)--Nine months
ended September 30, 1998 and 1997
Selected notes to condensed consolidated financial statements (unaudited)--
September 30, 1998
4
<PAGE>
KPMG Peat Marwick LLP
111 North Orange Avenue, Suite 1600
P.O. Box 3031
Orlando, FL 32802
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 September 30, 1998 and the related condensed
consolidated statements of operations for the three month and nine month periods
ended September 30, 1998 and 1997 and condensed consolidated statements of cash
flows for the nine month periods ended September 30, 1998 and 1997. 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, 1997, 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 27, 1998, except as of note 22
which was of February 1, 1998, 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, 1997,
is fairly presented, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
KPMG Peat Marwick LLP
Orlando, Florida
October 16, 1998
5
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Condensed Consolidated Balance Sheets (Unaudited)
(Unaudited - See accompanying review report of KPMG Peat Marwick LLP)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997
------------- ------------
<S> <C> <C>
Cash and due from banks $ 5,826,251 6,095,762
Federal funds sold 3,250,000 300,000
Investment securities available for sale (note 2) 12,597,191 15,499,777
Investment securities held to maturity (note 2) -- 190,000
Loans, net (note 3) 114,540,084 97,317,521
Accrued interest receivable 826,618 748,897
Premises and equipment, net 3,730,945 3,925,251
Other real estate owned -- 251,622
Deferred tax asset, net 394,876 401,545
Federal Reserve Bank stock, at cost 171,000 171,000
Federal Home Loan Bank stock, at cost 378,600 341,300
Prepaid expenses and other assets 162,841 85,301
Executive supplemental income plan - cash
surrender value life insurance policies 1,350,878 1,302,706
----------- -----------
Total assets $143,229,284 126,630,682
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
LIABILITIES 1998 1997
------------- -------------
<S> <C> <C>
Deposits (note 4):
Noninterest bearing $ 22,581,754 18,481,616
Interest bearing 103,682,831 92,644,084
------------ -----------
Total deposits 126,264,585 111,125,700
Federal Home Loan Bank advances 1,168,134 1,176,534
Other borrowed funds 2,365,498 3,455,470
Accrued interest payable 162,437 133,134
Accounts payable and other liabilities 633,649 335,997
------------ -----------
Total liabilities 130,594,303 116,226,835
------------ -----------
STOCKHOLDERS' EQUITY
Common stock, par value $.10 per share (1,000,000 shares
authorized; 742,819 and 618,035 shares issued and 721,019
and 596,235 shares outstanding at September 30, 1998 and
December 31, 1997, respectively) 74,282 61,804
Additional paid-in capital 7,927,804 6,721,129
Retained earnings 4,785,645 3,808,136
Treasury stock, at cost (21,800 shares at September 30, 1998
and December 31, 1997) (208,640) (208,640)
Accumulated other comprehensive income 55,890 21,418
------------ -----------
Total stockholders' equity 12,634,981 10,403,847
Commitments and contingencies (note 5)
------------ -----------
Total liabilities and stockholders' equity $143,229,284 126,630,682
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Operations (Unaudited)
(Unaudited - See accompanying review report of KPMG Peat Marwick LLP)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------- -----------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans $2,579,546 2,163,611 7,227,036 6,291,837
Investment securities 201,560 274,320 679,441 764,312
Federal funds sold 103,160 50,925 285,847 107,452
Federal Reserve Bank stock 2,565 2,250 7,639 6,750
Federal Home Loan Bank stock 7,393 12,338 20,397 17,808
Due from banks 1,959 443 7,993 1,654
---------- --------- --------- ---------
Total interest income 2,896,183 2,503,887 8,228,353 7,189,813
Interest expense 1,268,971 1,127,062 3,625,655 3,242,698
---------- --------- --------- ---------
Net interest income 1,627,212 1,376,825 4,602,698 3,947,115
Provision for loan losses 97,253 36,000 221,759 108,000
---------- --------- --------- ---------
Net interest income after
provision for loan losses 1,529,959 1,340,825 4,380,939 3,839,115
---------- --------- --------- ---------
Other operating income:
Customer service fees 259,524 185,928 702,685 516,301
Other operating expenses:
Salaries and benefits 584,175 527,920 1,659,515 1,526,581
Occupancy expense 229,936 219,501 681,024 627,747
Legal and professional fees (36,473) 61,525 97,305 181,770
Other expenses 378,070 257,941 993,820 803,397
Loss on sale and write down of
other real estate owned -- 5,316 32,075 6,687
---------- --------- --------- ---------
1,155,708 1,072,203 3,463,739 3,146,182
---------- --------- --------- ---------
Net income before taxes 633,775 454,550 1,619,885 1,209,234
Income tax expense 200,036 179,245 576,790 475,940
---------- --------- --------- ---------
Net income $ 433,739 275,305 1,043,095 733,294
========== ========= ========= =========
Basic and diluted earnings per share (note 6) $ .60 .46 1.48 1.23
========== ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
8
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
(Unaudited - See accompanying review report of KPMG Peat Marwick LLP)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------
SEPTEMBER 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows provided by operating activities:
Net income $ 1,043,095 733,294
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of premises and equipment 232,354 223,064
Net amortization of premiums and accretion of discounts
on investment securities held to maturity and investment
securities available for sale (42,188) (51,226)
Provision for loan losses 221,759 108,000
Deferred loan origination fees 76,123 39,599
Deferred income taxes (14,085) --
Loss on sale of other real estate owned 32,075 6,687
Executive supplemental income plan - additional cash
surrender value (48,172) (47,709)
Cash provided by (used in) changes in:
Accrued interest receivable (77,721) (81,887)
Prepaid expenses and other assets (77,540) 15,877
Accrued interest payable 29,303 23,327
Accounts payable and other liabilities 297,652 186,376
------------ -----------
Net cash provided by operating activities 1,672,655 1,155,402
------------ -----------
Cash flows provided by (used in) investing activities:
Net loans made to customers (17,563,941) (5,645,581)
Increase in federal funds sold (2,950,000) (6,500,000)
Purchases of investment securities available for sale (7,500,000) (5,500,000)
Proceeds from maturity of investment securities available
for sale 5,500,000 4,500,000
Proceeds from calls of investment securities available for sale 5,000,000 500,000
Proceeds from sales of investment securities available for sale -- 500,000
Proceeds from maturities of investment securities
held to maturity 190,000 -
Purchase of premises and equipment (38,048) (262,692)
Purchase of Federal Home Loan Bank stock (37,300) (41,300)
Proceeds from sale of other real estate owned 263,043 358,371
------------ -----------
Net cash used in investing activities (17,136,246) (12,091,202)
------------ -----------
</TABLE>
9
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
(Unaudited - See accompanying review report of KPMG Peat Marwick LLP)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
SEPTEMBER 30,
1998 1997
------------ -----------
<S> <C> <C>
Cash flows provided by financing activities:
Net increase in demand deposits, NOW accounts and passbook
savings accounts 5,023,631 7,947,554
Net increase in certificates of deposit 10,115,254 2,614,183
Principal repayment on mortgage note payable (20,872) (19,260)
Increase (decrease) in repurchase agreements (1,069,100) 558,662
Net repayment of borrowings from the Federal Home Loan Bank (8,400) (7,613)
Shareholder dividends paid (65,586) -
Proceeds from employee stock options exercised 1,215,000 -
Proceeds from sale of common stock 4,153 5,863
----------- ----------
Net cash provided by financing activities 15,194,080 11,099,389
----------- ----------
Net increase (decrease) in cash and cash equivalents (269,511) 163,589
Cash and cash equivalents at the beginning of the period 6,095,762 3,389,652
----------- ----------
Cash and cash equivalents at the end of the period $ 5,826,251 3,553,241
=========== ==========
Cash paid during the period for:
Interest $ 3,596,352 3,219,317
=========== ==========
Income taxes $ 463,350 406,200
=========== ==========
Supplemental disclosures for noncash transactions:
Market value adjustment - investments available for sale:
Investments $ 89,567 60,603
Deferred income tax liability 33,677 22,787
----------- ----------
Unrealized gain on investments available for sale $ 55,890 37,816
=========== ==========
Financing of other real estate owned $ 43,496 48,277
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
10
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Selected Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 1998
(Unaudited - 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 nine months ended September
30, 1998 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1998. 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, 1997.
(B) REPORTING INFORMATION FOR OPERATING SEGMENTS
In June 1997, the Financial Accounting Standards Board ("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 Company does not anticipate that adoption of this standard will
have a significant impact on its consolidated financial statements.
11
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Selected Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 1998
(Unaudited - See accompanying review report of KPMG Peat Marwick LLP)
(C) COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board established
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." This Statement establishes standards for reporting
and display of comprehensive income and its components in a full set of
financial statements. This Statement requires that an enterprise classify
items of other comprehensive income by nature in a financial statement, and
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section
of a balance sheet.
The Company adopted this Statement effective January 1, 1998. The Company's
other comprehensive income is the unrealized gain/(loss) on investment
securities available for sale. Total comprehensive income for the three and
nine month periods ended September 30, 1998 and 1997 were $434,127,
$1,029,207, $296,645 and $730,749, respectively.
(D) DERIVATIVE FINANCIAL INSTRUMENTS
The Company has interest rate risk exposure relating to its investments in
interest sensitive assets and funding through interest sensitive
liabilities. Management continually monitors the Company's interest rate
risk level by determining the effect of various interest rate movements on
the level of exposure. Management considers the level of exposure in
determining the appropriate duration mix of interest sensitive assets in
relation to interest sensitive liabilities, and the pricing of such assets
and liabilities. The Company does not have any investment in derivative
financial instruments.
12
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Selected Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 1998
(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 September 30, 1998 and December 31, 1997 are summarized as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
----------------------- -----------------------
<S> <C> <C> <C> <C>
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST MARKET VALUE COST MARKET VALUE
--------- ------------ --------- ------------
Municipal securities $ -- -- 190,000 190,454
========= ============ ========= ============
</TABLE>
The amortized cost and estimated market value of investments available for
sale at September 30, 1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST MARKET VALUE COST MARKET VALUE
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $12,507,624 12,597,191 15,465,436 15,499,777
=========== ========== =========== ============
</TABLE>
As of September 30, 1998, the Company had securities sold under agreement to
repurchase of $2,087,806. All agreements were one day transactions, thus the
carrying value, market value, and borrowings were equal at quarter end.
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 September 30,
1998, 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 September 30, 1998, Agreements outstanding averaged
approximately $3,087,453 and the maximum amount outstanding during the
quarter was $4,453,946. Total interest expense paid on repurchase Agreements
was $38,687 and $45,569 for the quarter ended September 30, 1998 and
September 30, 1997, respectively, and $137,066 and $118,988 for the nine
months ended September 30, 1998 and September 30, 1997, respectively.
13
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Selected Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 1998
(Unaudited - See accompanying review report of KPMG Peat Marwick LLP)
(3) LOANS
Major categories of loans included in the loan portfolio at September 30,
1998 and December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------------- ----------
<S> <C> <C>
Commercial-secured $ 11,314,150 11,113,710
Commercial-unsecured 2,917,430 4,326,247
Real estate - primarily commercial 98,355,709 80,223,450
Other (installment and overdrafts) 3,624,203 3,040,377
------------ ----------
116,211,492 98,703,784
Allowance for loan losses (1,222,103) (1,013,081)
Deferred loan origination fees (449,305) (373,182)
------------ ----------
$114,540,084 97,317,521
============ ==========
</TABLE>
The recorded investment in loans for which an impairment has been recognized
and the related allowance for loan losses at September 30, 1998 and December
31, 1997 were $1,207,934 and $56,751 and $1,168,036 and $37,912,
respectively. All impaired loans had an associated general allowance for
loan losses. The average recorded investment in impaired loans during the
third quarter was $1,187,985 and $1,296,940, respectively. No interest
income was recognized during the quarter ended September 30, 1998 on impaired
loans.
14
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Selected Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 1998
(Unaudited - See accompanying review report of KPMG Peat Marwick LLP)
The activity in the allowance for loan losses for the three months ended
September 30, 1998 and 1997 and the nine months ended September 30, 1998 and
1997 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at the beginning of the period $1,130,371 952,902 1,013,081 887,803
Charge offs (9,675) (7,436) (75,735) (20,983)
Recoveries 4,154 5,742 62,998 12,388
Provision for loan losses 97,253 36,000 221,759 108,000
---------- ------- --------- -------
Balance at the end of the period $1,222,103 987,208 1,222,103 987,208
========== ======= ========= =======
</TABLE>
At September 30, 1998 and December 31, 1997, certain stockholders, directors
and employees were indebted to the Bank in the aggregate amounts of
$9,794,871 and $12,996,264, respectively. All such loans were made in the
ordinary course of business.
(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 September 30, 1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Three months or less $25,788,237 23,954,183
Three through twelve months 11,021,322 4,921,535
Over one year 1,214,015 616,091
----------- ----------
$38,023,574 29,491,809
=========== ==========
</TABLE>
15
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Selected Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 1998
(Unaudited - See accompanying review report of KPMG Peat Marwick LLP)
(5) 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 September 30, 1998 and December 31, 1997, the Bank
had commitments to customers of approximately $617,224 and $870,486 for
standby letters of credit, $28,493,160 and $20,605,454 for unfunded firm
loan commitments and $63,463,067 and $50,832,223 for approved lines of
credit, respectively.
(6) BASIC AND DILUTED EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share."
This Statement simplifies the calculation of earnings per share (EPS) under
APB 15 and was required to be implemented by companies for periods ending
December 15, 1997 with prior period restated. The following calculations
represent EPS under SFAS 128:
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
For the three months ended September 30, 1998:
BASIC AND DILUTED EARNINGS PER SHARE:
Net income $ 433,739 721,019 $ .60
========== ============ =========
For the three months ended September 30, 1997:
BASIC AND DILUTED EARNINGS PER SHARE:
Net income $ 275,305 596,235 $ .46
========== ============ =========
For the nine months ended September 30, 1998:
BASIC AND DILUTED EARNINGS PER SHARE:
Net income $1,043,095 706,849 $1.48
========== ============ =========
For the nine months ended September 30, 1997:
BASIC AND DILUTED EARNINGS PER SHARE:
Net income $ 733,294 596,066 $1.23
========== ============ =========
</TABLE>
16
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Selected Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 1998
(Unaudited - See accompanying review report of KPMG Peat Marwick LLP)
(7) YEAR 2000
In January 1997, the Company developed a plan to deal with the Year 2000
problem and began converting its computer systems to be Year 2000
compliant. The plan provides for the conversion efforts to be completed by
the end of 1999. The Year 2000 problem, in part, is the result of computer
programs being written using two digits rather than four to define the
applicable year. The total cost of the project will be funded through
operating cash flows. The Company is expensing all costs associated with
these systems changes as the costs are incurred.
(8) NEW PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedge Activities" (FASB
133). This standard which is effective for all fiscal quarters and all
fiscal years beginning after June 15, 1999, requires all derivatives be
measured at fair value and be recognized as assets and liabilities in the
statement of financial position. FASB 133 sets forth the accounting for
changes in fair value of a derivative depending on the intended use and
designation of the derivative. Implementation of FASB 133 is not expected
to have a significant impact on the financial position or operations of the
Company.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Except for historical information contained herein, the matters discussed
in this report contain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), that involve substantial risks and uncertainties. When used in this
report, or in the documents incorporated by reference herein, the words
"anticipate", "believe", "estimate", "may", "intend", "expect" and similar
expressions identify certain of such forward-looking statements. Actual
results, performance or achievements could differ materially from those
contemplated, expressed or implied by the forward-looking statements contained
herein. These forward-looking statements are based largely on the expectations
of the Company and are subject to a number of risks and uncertainties,
including, but not limited to, economic, competitive and other factors affecting
the Company's operations, markets, products and services, as well as expansion
strategies and other factors discussed elsewhere in this report filed by the
Company with the Securities and Exchange Commission. Many of these factors are
beyond the Company's control.
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 third quarter and the first nine months of 1998, the Company had
net income of $433,739 and $1,043,095, respectively. This compares with net
income of $275,305 for the third quarter of 1997, and $733,294 for the first
nine months of 1997. During 1998, loans have continued to increase quarter-by-
quarter to all-time highs. At the end of the third quarter of 1998, loans stood
at $114,540,084 compared to the year-end 1997 figure of $97,317,521. This
resulted in total interest income of $8,228,353 at the end of the third quarter
of 1998 compared to $7,189,813 for the same period in 1997. Interest expense
for the third quarter ending September 30, 1998 was $1,268,971 compared to
$1,127,062 for the same period in 1997, while interest expense totaled
$3,625,655 for the first nine months of 1998 compared to $3,242,698 for the same
period in 1997. While interest-bearing deposits increased to $103,682,831 as of
September 30, 1998, compared to the year-end 1997 figure of $92,644,084, the
rates paid on these deposits have remained the same since the second quarter of
1997.
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 nine months of the
last two years is as follows:
18
<PAGE>
FOR THE NINE MONTHS ENDING
------------------------------
9/30/98 9/30/97
------------------------------
ROAA 1.02% .81%
-----------------------------------------------
ROAE 11.60% 10.20%
-----------------------------------------------
NET INCOME $ 1,043,095 $ 733,294
-----------------------------------------------
AVERAGE ASSETS $136,915,826 $119,919,724
-----------------------------------------------
AVERAGE CAPITAL $ 11,991,234 $ 9,584,052
-----------------------------------------------
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 shareholders'
equity. Net interest income for the first nine months of the last two years is
as follows:
FOR THE NINE MONTHS ENDING
--------------------------
9/30/98 9/30/97
-------------------------------------------------
INTEREST INCOME $8,228,353 $7,189,813
-------------------------------------------------
INTEREST EXPENSE $3,625,655 $3,242,698
-------------------------------------------------
NET INTEREST INCOME $4,602,698 $3,947,115
-------------------------------------------------
Net interest income increased 18% in the third quarter and 16% in the first
nine months of 1998 compared to the same periods in 1997.
On an annualized basis, the Company's net interest margin was 4.69% through
the third quarter of 1998 compared to 4.51% through the third quarter of 1997.
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 $1,569,969 at September
30, 1998. This compares with nine (9) non-accruing loans totaling $1,532,831 as
of September 30, 1997. Of the 1998 figure, three (3) loans totaling $1,210,915
are collateralized with first mortgages. One loan
19
<PAGE>
secured by a first mortgage on a residence in the amount of $325,241 is in the
process of foreclosure. It is anticipated that this house will be purchased at
the foreclosure sale with no loss to the Bank.
One non-accrual loan that is secured by a first mortgage is a 100-lot
subdivision in Seminole County, Florida. There is an acquisition and
development loan in the amount of $576,702 on the remaining 63 lots in this
subdivision. At the same time, of the 37 lots that have been sold, the Bank
continues to carry first mortgages on six (6) completed houses in the
subdivision in the amount of $308,972. Foreclosure proceedings commenced in
June of this year. It is anticipated that, during the fourth quarter of 1998,
all back interest and legal fees will be paid and that this loan will be put
back on an accrual basis.
There is one loan secured by a second mortgage on a residence in the amount
of $10,541. The borrower is in the process of seeking permanent financing on
both the first and second mortgages. There are two loans totaling $83,003
secured by the assignment of U.S. Savings Bonds. These bonds will be cashed in,
and the loans will be paid in full.
There is one loan in the amount of $62,845 secured by the assignment of
stock in a law firm which has since disbanded. A lawsuit has been filed against
the borrower with a judgment to be issued during the fourth quarter of 1998.
There is one loan in the amount of $94,705 secured by business assets and a
custom parasail, boat and trailer. A lawsuit has been filed against the
principals of this loan. It is anticipated at this time that there will be no
loss to the Bank.
There is one unsecured loan in the amount of $5,001. It is anticipated
that there will be no loss to the Bank.
There is one loan in the amount of $75,800 secured by business assets which
has an 80% guarantee from the Small Business Administration. There is also a
second loan to the same borrower in the amount of $27,159 cross-collateralized
on the same business assets. These assets are currently being liquidated with a
minimal loss anticipated.
The Company's allowance for loan losses at September 30, 1998, was
$1,205,020, or a 1.05% reserve on total loans outstanding. This compares to an
allowance of $987,208, a 1.06% reserve of total loans outstanding, at September
30, 1997.
Non-Interest Income
- -------------------
Non-interest income for the third quarter of 1998 increased 40% to $259,524
compared to $185,928 for the same period in 1997, while non-interest income for
the first nine months of 1998 increased 36% to $702,685 compared to $516,301 for
the same period in 1997. Service charge income on deposits increased to $69,786
through the first nine months of 1998 compared to $48,919 for the same period in
1997. Other income on time deposit accounts, which includes collecting
penalties on insufficient funds and checks, increased to $168,087 through the
first nine months of 1998 compared to $126,743 for the same time period in 1997.
Total other income, which includes income derived from credit cards, merchant
accounts, safe deposit rental fees and wire transfers,
20
<PAGE>
increased to $139,665 through the first nine months of 1998 compared to $127,214
for the same time period in 1997.
Non-Interest Expense
- --------------------
Non-interest expense in the third quarter of 1998 increased 8% to
$1,155,708 compared to $1,072,203 in the same period in 1997, while non-interest
expense for the first nine months of 1998 increased 10% to $3,463,739 compared
to $3,146,182 for the same time period in 1997. Personnel expense, consisting
of salaries, other compensation and employment benefits, increased 11% and 9%
over the aforementioned periods. This is a result of additional loan officers
being hired during the third quarter of 1998 along with a support staff for
these loan officers.
Occupancy expense in the third quarter of 1998 increased 5% to $229,936
compared to $219,501 for the same period in 1997, while occupancy expense for
the first nine months of 1998 increased 8% to $681,024 compared to $627,747
during the same time period in 1997. This is a result of a new five-year lease
on the main office of the Bank which the Bank committed to at year-end 1997.
Also, equipment expense, which is included under occupancy expense, increased
$29,844 through the first three quarters of 1998 compared to the same time
period in 1997. This is a result of increased depreciation expense on both
software and hardware on new computer systems, plus the maintenance and repair
expense to maintain the computer systems. The investment in equipment will
continue to grow due to the Company's commitment to maintain state-of-the-art
capabilities and computer software information as it heads toward the year 2000.
Conversion activities on the computer systems for the year 2000 are in process,
and the Bank expects the conversion and testing to be completed by the second
quarter of 1999. Expenditures in 1998 for the year 2000 project have amounted
so far to $45,000.
Also, data processing expense, which is included in the other expense
category, increased by $27,045 during the first three quarters of 1998 as the
Bank continued to grow with more customers. Advertising and marketing expenses
increased in the first three quarters of 1998 by $45,602 compared to the same
time period in 1997. New expenditures will continue to be made as new products
are introduced to our customer base to stimulate more business growth and
development. Office supplies have increased by $11,467 for the first three
quarters of 1998 compared to the same time period in 1997 as the branches
continue to gear-up as more customers open accounts and apply for loans. Also,
losses on Other Real Estate Owned ("OREO") for the first three quarters of 1998
was $34,134.
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
21
<PAGE>
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. 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 September 30, 1998,
the Bank had a total risk based capital ratio (i.e. Tier One plus Tier Two
capital) of 10.12% (11.28% for the Company on a consolidated basis). The Bank
and the Company are well capitalized.
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.
22
<PAGE>
Competition
- -----------
All areas of the Company's business are highly competitive. The Company
faces heavy competition, both from local and national financial institutions and
from various other providers of financial services. By industry standards, the
Company relies heavily on large deposit customers. In the opinion of management,
this factor is a result of its customer base and local demographics.
Year 2000 (Y2K)
- ---------------
As a financial institution, the Bank is subject to the potential risks to
the financial services industry and, specifically, the Bank's business of the
Y2K issue. the Y2K issue is the acronym in terminology currently utilized to
describe a wide variety of applications specific to potential technological
problems inherent in computer software which is designed to read only a two-
digit annual date position. The Board of Directors of the Bank has approved a
Y2K Committee and appointed a Y2K Coordinator, whose responsibility includes
replacement of noncompliance equipment, software, technology consultant fees,
and expected employee expenses to perform the required testing.
The Bank uses the services of M&I Data Services, Inc. ("M&I") for its
service bureau. The Federal Reserve Board and the Office of Thrift Supervision
have reviewed the progress of M&I and found them satisfactory as of March, 1998.
M&I provides the Bank with item processing, ATM services, ACH, CORE application,
VRU, and other applicable side services. The Bank does not write its own
software. The direct software linkage other than M&I is with Independent
Bankers' Bank of Florida, a correspondence bank for customer wire transfers and
federal funds transfers. A point-to-point test will be performed to verify the
transmission of data to these entities. All of the personal computers in the
Bank will be replaced on or before December 15, 1998 with Y2K-compliant
hardware. These personal computers include the "gateways" necessary to
communicate with M&I. The Bank currently believes that all of its vendors are
devoting adequate resources to the Y2K issue and will complete the appropriate
changes in a timely manner.
New equipment purchased after testing is complete will be appropriately
tested by the guidelines established by the Office of the Comptroller of the
Currency's AL 98-5 for Y2K compliance. No new software or hardware will be
installed without the expressed approval of the Y2K Coordinator, who will have
the responsibility to report these reports to the Bank's Board of Directors.
Expenditures in 1998 for the Y2K project thus far have amounted to $45,000,
and it is expected that the completion of the project will result in additional
expenditures of approximately $70,000.
Should an information transfer problem occur between M&I and the Bank, the
Bank's employees have been trained to work offline using the most current
information available from daily reports. The Bank's employees will manually
calculate necessary account information. These reports have been printed in
advance of Y2K being implemented. The Bank does not believe that the Y2K issue
will materially affect its profits, products, services, or competitive
condition.
23
<PAGE>
Accounting Pronouncements
- -------------------------
SFAS No. 131
In June 1997, the Financial Accounting Standards Board ("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 Company does not anticipate that adoption of this standard will have a
significant impact on its consolidated financial statements upon adoption.
SFAS No. 133
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedge Activities" (FASB
133). This standard, which is effective for all fiscal quarters and all fiscal
years beginning after June 15, 1999, requires all derivatives be measured at
fair value and be recognized as assets and liabilities in the statement of
financial position. FASB 133 sets forth the accounting for changes in fair
value of a derivative depending on the intended use and designation of the
derivative. Implementation of FASB 133 is not expected to have a significant
impact on the financial position or results of operations of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The business of the Company and the composition of its consolidated balance
sheet consists of investments in interest-earning assets (primarily loans and
investment securities) which are primarily funded by interest-bearing
liabilities (deposits). Such financial instruments have varying levels of
sensitivity to changes in market interest rates resulting in market risk.
INTEREST RATE RISK MEASUREMENT
Interest rate risk results when the maturity or repricing intervals and
interest rate indices of the interest-earning assets and interest-bearing
liabilities are different. In an attempt to manage its exposure to changes in
interest rates, management monitors the Company's interest rate risk.
Management's asset/liability committee meets monthly to review the Company's
interest rate risk position and profitability, and recommend adjustments for
consideration by the Board of Directors. Management also reviews the Bank's
securities portfolio, formulates investment strategies, and oversees the timing
and implementation of transactions to assure attainment of the Board's
objectives in the most effective manner. Notwithstanding the Company's interest
rate risk management activities, the potential for changing interest rates is an
uncertainty that can have an adverse effect on net income.
In adjusting the Company's asset/liability position, the Board and
management attempt to manage the Company's interest rate risk while enhancing
net interest margins. The rates, terms and
24
<PAGE>
interest rate indices of the Company's interest-earning assets result primarily
from the Company's strategy of investing in loans and securities which permit
the Company to limit its exposure to interest rate risk, together with credit
risk, while at the same time achieving a positive interest rate spread from the
difference between the income earned on interest-earning assets and the cost of
interest-bearing liabilities.
One method of measuring interest rate risk is to determine the earnings-at-
risk for a given change in interest rates which is done on a monthly basis. The
impact on value (earnings) is significant because reduced earnings will affect
capital. The change in interest rates does not necessarily represent an
immediate or parallel shift.
NET ECONOMIC VALUE
The interest rate risk ("IRR") component is a dollar amount that is
deducted from total capital for the purpose of calculating an institution's
risk-based capital requirement and is measured in terms of the sensitivity of
its net economic value ("NEV") to changes in interest rates. An institution's
NEV is calculated as the net discounted cash flows from assets, liabilities, and
off-balance sheet contracts. An institution's IRR component is measured as the
change in the ratio of NEV to the net present value of total assets as a result
of a hypothetical 200 basis point change in market interest rates. A resulting
decline in this ratio of more than 2% of the estimated present value of an
institution's total assets prior to the hypothetical 200 basis point change will
require the institution to deduct form its regulatory capital 50% of that excess
decline. Based on quarterly calculations, the Bank experienced no such decline.
Although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as adjustable-rate mortgage loans, have
features that restrict changes in interest rates on a short-term basis and over
the life of the loan. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels could deviate significantly. Finally,
the ability of many borrowers to service their debt may decrease in the event of
a significant interest rate increase.
The repricing of certain categories of assets and liabilities are subject
to competitive and other pressures beyond the Company's control. As a result,
certain assets and liabilities indicated as maturing or otherwise repricing
within a stated period may in fact mature or reprice at different times and at
different volumes. There were no substantial changes in the Company's
asset/liability position in the quarter ended September 30, 1998.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
25
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor the Bank is involved at this time in any
claims or lawsuits other than routine matters arising out of the normal day-to-
day banking business.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UNDER SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
- ---------------------------------------------------------------------------
EXHIBIT DESCRIPTION SEQUENTIAL
PAGE NUMBER
- ---------------------------------------------------------------------------
3.2 First Amended and Restated Bylaws of *
Commerce National Corporation effective
January 14, 1988, incorporated by reference from
Exhibit 3.2 to the Company's Report on Form
10-K for the fiscal year ended December 31,
1992.
- ---------------------------------------------------------------------------
3.3 First Amendment to First Amended and Restated *
Bylaws of Commerce National Corporation dated
effective May 26, 1998, incorporated by
reference from Exhibit 3.3 to the Company's
Report on Form 10-Q for the fiscal quarter ended
June 30, 1998.
- ---------------------------------------------------------------------------
26
<PAGE>
- ---------------------------------------------------------------------------
EXHIBIT DESCRIPTION SEQUENTIAL
PAGE NUMBER
- ---------------------------------------------------------------------------
3.4 Articles of Restatement of the Articles of *
Incorporation of Commerce National
Corporation, and Amended and Restated Articles
of Incorporation, filed June 22, 1998,
incorporated by reference from Exhibit 3.4 to the
Company's Report on Form 10-Q for the fiscal
quarter ended June 30, 1998.
- ---------------------------------------------------------------------------
4.1 Specimen copy of common stock certificate for *
Common Stock of Commerce National
Corporation, 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 Articles of Incorporation of *
Commerce National Corporation included in the
Articles of Incorporation of Commerce National
Corporation 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 First Amendment to Amended and Restated 1985 *
Commerce National Corporation Directors' Stock
Plan dated October 20, 1997 incorporated by
reference from Exhibit 10.1 to the Company's
Report on Form 10-K for the fiscal year ended
December 31, 1997
- ---------------------------------------------------------------------------
27 Article 9 Financial Data Schedule (for SEC use 30
only).
- ---------------------------------------------------------------------------
* Incorporated by reference as noted in the narrative under "Description."
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed by the Company for the fiscal quarter
ended September 30, 1998.
27
<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: November 13, 1998
By:/s/ Guy D. Colado
------------------------------------
GUY D. COLADO, President and
Chief Executive Officer
Dated: November 13, 1998 By:/s/ Alan M. Scarboro
------------------------------------
ALAN M. SCARBORO
Secretary/Treasurer
28
<PAGE>
INDEX OF EXHIBITS FILED WITH THIS REPORT
----------------------------------------
- -----------------------------------------------------------------------
EXHIBIT DESCRIPTION SEQUENTIAL
PAGE NUMBER
- -----------------------------------------------------------------------
27 Article 9 Financial Data Schedule (for SEC 30
use only).
- -----------------------------------------------------------------------
29
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR COMMERCE NATIONAL
CORPORATION AND SUBSIDIARY DATED SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,826,251
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,250,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,597,191
<INVESTMENTS-CARRYING> 12,597,191
<INVESTMENTS-MARKET> 12,597,191
<LOANS> 115,762,187
<ALLOWANCE> 1,222,103
<TOTAL-ASSETS> 143,229,284
<DEPOSITS> 126,264,585
<SHORT-TERM> 1,168,134
<LIABILITIES-OTHER> 633,649
<LONG-TERM> 2,365,498
0
0
<COMMON> 74,282
<OTHER-SE> 12,560,699
<TOTAL-LIABILITIES-AND-EQUITY> 143,229,284
<INTEREST-LOAN> 2,579,546
<INTEREST-INVEST> 201,560
<INTEREST-OTHER> 115,077
<INTEREST-TOTAL> 2,896,183
<INTEREST-DEPOSIT> 3,401,250
<INTEREST-EXPENSE> 1,268,971
<INTEREST-INCOME-NET> 1,627,212
<LOAN-LOSSES> 97,253
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 896,184
<INCOME-PRETAX> 633,775
<INCOME-PRE-EXTRAORDINARY> 633,775
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 433,739
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
<YIELD-ACTUAL> 0.047
<LOANS-NON> 1,151,183
<LOANS-PAST> 0
<LOANS-TROUBLED> 86,137
<LOANS-PROBLEM> 3,514,765
<ALLOWANCE-OPEN> 1,130,371
<CHARGE-OFFS> (9,675)
<RECOVERIES> 4,154
<ALLOWANCE-CLOSE> 1,222,103
<ALLOWANCE-DOMESTIC> 1,222,103
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 911,250
</TABLE>
