<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
---------------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
--------------- ---------------
Commission File Number 2-98960-A
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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
<PAGE>
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 ____
----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Not Applicable.
--------------
The aggregate market value on March 1, 2000 of the Registrant's voting
stock held by non-affiliates was $9,431,782.50. There was no formalized active
market for Common Stock on said date, although there have been transactions in
the last twelve months. The most recent transaction had a purchase price in the
amount of $17.50 per share which is the amount the Registrant used for purposes
of this disclosure.
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
At March 1, 2000, the Registrant had 721,019 shares of common stock, par
value $0.10 per share, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K into which the document is incorporated: (1) Any annual
report to security holders; (2) Any proxy or information statement; and (3) Any
prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of
1933. The listed documents should be clearly described for identification
purposes.
NONE
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Item No. Caption Page
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<S> <C>
PART I.......................................................................................................... 1
Item 1. Business.......................................................................................... 1
Item 2. Properties........................................................................................ 8
Item 3. Legal Proceedings................................................................................. 9
Item 4. Submission of Matters to a Vote of Security Holders............................................... 9
PART II......................................................................................................... 9
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters......................... 9
Item 6. Selected Financial Data........................................................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................ 28
Item 8. Consolidated Financial Statements................................................................. 29
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............. 63
PART III........................................................................................................ 63
Item 10. Directors and Executive Officers of the Registrant................................................ 63
Item 11. Executive Compensation/Board Compensation......................................................... 67
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................... 69
Item 13. Certain Relationships and Related Transactions.................................................... 72
PART IV......................................................................................................... 73
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................. 73
</TABLE>
i
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PART I
Item 1. Business
--------
Commerce National Corporation, a Florida corporation (the "Company" or
"CNC"), was incorporated under the laws of the State of Florida on February 21,
1985, for the purpose of purchasing 100% of the capital stock of the National
Bank of Commerce (the "Bank") in order to adequately capitalize the Bank and for
the purpose of organizing and acting as a bank holding company.
CNC was organized as a bank holding company to enhance the Bank's ability
to serve its customers' requirements for financial services. Currently, the
Company engages in only the management of the Bank; however, CNC's structure is
intended to provide flexibility for the provision of additional banking-related
services which a traditional commercial bank may not provide under present laws.
The Company was authorized by the Board of Governors of the Federal Reserve
System (the "FRB") to invest up to $1,500,000 of its capital to purchase loans
from the Bank which were in excess of authorized lending limits of the Bank. As
of March 1, 2000, the Company was participating in an aggregate of $359,351 on
three (3) different loans with the Bank which were in excess of the authorized
lending limits of the Bank.
The Bank
The Bank has been in operation since August 4, 1986, the date it was
granted the requisite charter from the United States Office of the Comptroller
of the Currency (the "OCC"). The Bank conducts a general, commercial and retail
banking business emphasizing in its marketing efforts its local management and
ownership. The Bank presently offers a full range of accounts with a variety of
features which management believes are compatible with the Bank's plan of
business. Management will continue to assess the needs of its customers and to
structure its types of accounts and services to meet their needs.
The Bank has been marketing its services to depositors on the basis of the
convenience of the Bank's four locations; of its status as an institution
managed locally; of its emphasis on personal attention to its customers and its
full range of services. Thus far, the Bank has utilized traditional advertising
media, as well as an active and community-involved management and board of
directors to promote the Bank.
The Bank makes a variety of loans to persons and businesses as the
principal source of its revenue. The three main categories of loans at the Bank
are commercial, real estate (both residential and commercial), and consumer
loans.
The commercial loans made by the Bank usually are secured but may be made
on an unsecured basis. The loans are either demand or term in nature. These
loans are made to business entities for equipment purchases and other capital
improvements, inventory acquisition and general working capital. Dependent upon
the size and perceived risk for a particular loan, the loans usually are secured
and often are guaranteed by the principals of the business. Because of the
vagaries in
1
<PAGE>
the economy, commercial loans typically are viewed as some of the most risky
loans. The Bank attempts to address this issue by careful monitoring of the
credit quality of these loans and by having a preexisting relationship with
these loan customers.
The second major category of loans, real estate, is divided into
residential loans and commercial loans, which includes agricultural loans. The
majority of loans in the real estate area are commercial real estate loans.
These loans typically are made on a loan-to-value basis of 80% or less. Because
these loans are almost always secured by first mortgages on commercial property,
they are seen as some of the least risky loans made by the Bank. The term for
the loans is usually 15-20 years with rate review every 3-5 years. The Bank has
developed a niche in the market place by originating and holding these loans.
The final loan category is consumer loans, which includes all loans to
individuals not captured in one of the categories above. Types of loans in this
category include auto loans and other personal loans. While some of these loans
are demand type loans, most are term loans with terms of between three to five
years. Most of the loans are secured by the asset acquired by the loan or some
other asset, although it is not unusual to have personal loans that are not
secured. These loans may be viewed as more risky than real estate loans and,
therefore, the interest rate that the Bank can charge for such loans is higher
than real estate loans. The Bank originates, processes and holds almost all of
these loans.
In addition to depository and credit services, the Bank offers as part of
its normal bank operations a variety of customer services, including notary
services, photocopying, and signature guarantees. Additionally, safe deposit
boxes, custodial services and account reconciliations are available. It is
perceived that these services complement the depository and credit services
offered by the Bank. The Bank joined the Federal Home Loan Bank of Atlanta in
October of 1992. One of the purposes for joining this organization was to make
single-family residential loans.
The primary correspondent institutions of the Bank are NationsBank, N.A.,
Jacksonville and Independent Bankers' Bank of Florida, Inc., Orlando.
NationsBank, N.A. acts as the primary clearing agent in the collection of checks
received in the normal course of business by the Bank. In addition to the daily
handling of checks, M&I Data Services Inc. serves as data processor for the
Bank's loan and deposit services. Independent Bankers' Bank of Florida, Inc.
provides advice and counseling in the area of securities investment and is agent
in the Bank's overnight investment of federal funds. Neither NationsBank, N.A.
nor Independent Bankers' Bank of Florida has provided trust services, nor have
such services been provided by the Bank.
Competition
As of March 1, 2000, there were nineteen (19) commercial banks, four (4)
savings banks and several consumer finance companies in the Bank's perceived
market area. Although the principal competition for the Bank is thought to come
from existing financial institutions within the market area, it should be noted
that there are several commercial banks and savings banks located outside but
near the perceived market area. Most of the Bank's competitors have greater
resources, broader geographic markets and higher lending limits and offer more
services than the Bank. The right of banks in Florida to branch statewide and
also the elimination of certain restrictions on interstate banking has
heightened the competition of the Bank's market area.
2
<PAGE>
As of June 30, 1999, the Bank had approximately 1.77% of the deposits of
Orange County, Florida.
Offices affiliated with out-of-state financial institutions have entered
Florida to offer financial services, including loans and deposit gathering
activities. The State of Florida has adopted a reciprocal interstate regional
banking law which permits bank holding companies headquartered outside of
Florida to acquire Florida banks, provided Florida bank holding companies may
likewise make bank acquisitions in the reciprocal state. Other out-of-state bank
holding companies have entered the Florida banking market by acquiring thrift
institutions. Pursuant to the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act"), effective June 1, 1997, subject
to legislation by Florida, banks and bank holding companies from any state in
the country will be able to acquire a bank based in the State of Florida.
Subject to legislation in Florida, banks from outside of Florida will be able to
branch de novo into the State of Florida. Competition for deposit and loan
opportunities in the Bank's market area is intense because of the accelerating
pace of deregulation and geographic expansion noted above.
Changes in the economic, legislative and regulatory areas have
substantially increased the competitive environment and brought about changes in
the financial services industry.
The Bank is in competition with existing area financial institutions other
than commercial banks and savings banks, including insurance companies, consumer
finance companies, brokerage houses, credit unions and other business entities
which have recently been encroaching upon the traditional banking markets. In
certain instances, federal and state regulation of the Bank will make it more
difficult to compete with these non-banking institutions. See "Supervision and
Regulation," below.
The Bank believes there is a continuing need for locally owned and operated
banks in Orange County and competes on the basis of location, service to its
customers and interest rates.
Supervision and Regulation
CNC and the Bank operate in a highly regulated environment, and their
respective business activities are governed by statute, regulation and
administrative policies. The business activities of CNC and the Bank are
supervised by a number of federal regulatory agencies, including the Board of
Governors of the Federal Reserve Board ("FRB"), the OCC and the Federal Deposit
Insurance Corporation ("FDIC"). Additionally, CNC is supervised and regulated by
the Securities and Exchange Commission ("SEC").
CNC is regulated by the FRB under the Bank Holding Company Act of 1956, as
amended, which required CNC to register as a bank holding company and which
subjects CNC to FRB examinations and certain reporting requirements.
3
<PAGE>
Banking regulations allow for an assessment of CNC as the sole stockholder
of the Bank to cover any impairment of capital, such assessment to be enforced
by sale, to the extent necessary, of the Bank stock held by CNC if CNC fails to
pay the assessment. Additionally there are restrictions on the amount of
dividends the Bank is allowed to pay. Prior regulatory approval must be obtained
before declaring any dividends if the amount of capital, surplus and retained
earnings is below certain statutory limits.
Presently, with respect to expansion, the Bank may establish branches
within the limits of the State of Florida, with the approval of the OCC. To
date, the Bank operates three branches. In addition, the Bank, as a subsidiary
of CNC, will be subject to restrictions under federal law in dealing with CNC
and other affiliates. These restrictions apply to extensions of credit to an
affiliate, investments in the securities of an affiliate, the purchase of assets
from an affiliate and the amount of advances to a third party collateralized by
securities of an affiliate.
The operations of the Bank are affected by various requirements and
restrictions imposed by the laws of the United States and the State of Florida,
including requirements to maintain reserves against deposits, limitations on the
interest rates that may be charged on certain types of loans, and restrictions
on the nature and amount of loans that may be granted and on the types of
investments that may be made. The operations of the Bank are also affected by
various consumer laws and regulations, including those relating to equal credit
opportunity and regulation of consumer lending practices. All subsidiary banks
of a bank holding company must become and remain insured banks under the Federal
Deposit Insurance Act.
The scope of regulation and permissible activities of CNC and the Bank are
subject to change by future federal and state legislation.
Capital
- -------
The FRB, OCC and FDIC require banks and bank holding companies to maintain
minimum capital ratios.
In December 1988, the FRB approved final "risk-adjusted" capital guidelines
for bank holding companies. The new guidelines became fully implemented as of
December 31, 1992. The FDIC has adopted substantially similar risk-based capital
guidelines. These ratios involve a mathematical process of assigning various
risk weights to different classes of assets, then evaluating the sum of the
risk-weighted balance sheet structure against the Company's capital base. The
rules set the minimum guidelines for the ratio of capital to risk-weighted
assets (including certain off-balance sheet activities, such as standby letters
of credit) at eight percent (8%). At least half of the total capital is to be
composed of common equity, retained earnings, and a limited amount of perpetual
preferred stock less certain goodwill items ("Tier 1 Capital"). The remainder
may consist of a limited amount of subordinated debt, other preferred stock, or
a limited amount of loan loss reserves.
In addition, the federal banking regulatory agencies have adopted leverage
capital guidelines for banks and bank holding companies. Under these guidelines,
banks and bank holding companies must maintain a minimum ratio of four percent
(4%), Tier 1 Capital (as defined for purposes of the year-end 1992 risk-based
capital guidelines) to total assets. However, most banking organizations
4
<PAGE>
are expected to maintain capital ratios well in excess of the minimum levels and
generally must keep such Tier 1 ratio at or above five percent (5%). The capital
ratios for the Company and Bank are discussed below.
Regulatory authorities may increase such minimum requirements for all banks
and bank holding companies or for specified banks or bank holding companies.
Increases in the minimum required ratios could adversely affect the Bank and the
Company, including their ability to pay dividends.
Additional Regulation
The Bank is also subject to federal regulation as to such matters as
required reserves, limitation as to the nature and amount of its loans and
investments, regulatory approval of any consolidation, issuance or retirement by
the Bank of its own securities, limitations upon the payment of dividends and
other aspects of banking operations. In addition, the activities and operations
of the Bank are subject to a number of additional detailed, complex and
sometimes overlapping laws and regulations. These include state usury and
consumer credit laws, laws relating to fiduciaries, the Federal Truth-in-Lending
Act and Regulation Z, the Federal Equal Credit Opportunity Act and Regulation B,
the Fair Credit Reporting Act, the Truth in Savings Act, the Community
Reinvestment Act, anti-redlining legislation and antitrust laws.
Dividend Regulation
The ability of the Company to obtain funds for the payment of dividends and
for other cash requirements is largely dependent on the amount of dividends
which may be declared by its subsidiary, the Bank. Generally, a national banking
association may not declare a dividend without the approval of the OCC if the
total of dividends declared by such bank in a calendar year exceeds the total of
its net profits for that year combined with its retained profits of the
preceding two years. In addition, national banks are subject to dividend
regulation by their primary federal bank regulatory agency in connection with
general supervisory authority as it relates to a bank's requirement to maintain
adequate capital.
Government Policies and Legislation
The policies of regulatory authorities, including the OCC, FRB, FDIC and
the Depository Institutions Deregulation Committee, have had a significant
effect on the operating results of commercial banks in the past and are expected
to do so in the future. An important function of the Federal Reserve System is
to regulate aggregate national credit and money supply through such means as
open market dealings in securities, establishment of the discount rate on member
bank borrowings, and changes in reserve requirements against member bank
deposits. Policies of these agencies may be influenced by many factors,
including inflation, unemployment, short-term and long-term changes in the
international trade balance and fiscal policies of the United States government.
5
<PAGE>
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") was enacted in 1991. Among other things, FDICIA requires federal bank
regulatory authorities to take "prompt corrective action" with respect to banks
that do not meet minimum capital requirements. For these purposes, FDICIA
establishes five capital tiers: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized.
The FRB and the FDIC have adopted regulations to implement the prompt
corrective action provisions of FDICIA. Among other things, the regulations
define the relevant capital measures for the five capital categories. An
institution is deemed to be "well capitalized" if it has a total risk-based
capital ratio (total capital to risk-weighted assets) of ten percent (10%) or
greater, a Tier 1 risk-based capital ratio (Tier 1 Capital to risk-weighted
assets) of six percent (6%) or greater, and a Tier 1 leveraged capital ratio
(Tier 1 Capital to total assets) of five percent (5%) or greater, and is not
subject to a regulatory order, agreement or directive to meet and maintain a
specific capital level for any capital measure. An institution is deemed to be
"adequately capitalized" if it has a total risk-based capital ratio of eight
percent (8%) or greater, a Tier 1 risk-based capital of four percent (4%) or
greater, and (generally) a Tier 1 leveraged capital ratio of four percent (4%)
or greater, and the institution does not meet the definition of a "well
capitalized" institution. An institution is deemed to be "critically
undercapitalized" if it has a ratio of tangible equity (as defined in the
regulations) to total assets that is equal to or less than two percent (2%).
"Undercapitalized" banks are subject to growth limitations and are required to
submit a capital restoration plan. If an "undercapitalized" bank fails to submit
an acceptable plan, it is treated as if it is significantly undercapitalized.
"Significantly undercapitalized" banks may be subject to a number of
requirements and restrictions, including orders to sell sufficient voting stock
to become adequately capitalized, requirements to reduce total assets, and
cessation of receipt of deposits from correspondent banks. "Critically
undercapitalized" institutions may not, beginning 60 days after becoming
"critically undercapitalized," make any payment of principal or interest on
their subordinated debt.
The Bank currently meets the regulatory definition of a "well capitalized"
financial institution.
FDICIA directs that each federal banking agency prescribe standards for
depository institutions and depository institution holding companies relating to
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, a maximum ratio of classified assets to capital, minimum earnings
sufficient to absorb losses, a minimum ratio of market value to book value for
publicly traded shares and such other standards as the agency deems appropriate.
6
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On September 29, 1994, the Interstate Act, which effectively permits
nationwide banking, was signed into law. The Interstate Act provides that one
year after enactment, adequately capitalized and adequately managed bank holding
companies may acquire banks in any state, even in those jurisdictions that
currently bar acquisitions by out-of-state institutions, subject to deposit
concentration limits. The deposit concentration limits provide that regulatory
approval by the FRB may not be granted for a proposed interstate acquisition if,
after the acquisition, the acquirer on a consolidated basis would control more
than 10 percent of the total deposits nationwide or would control more than 30
percent of deposits in the state where the acquiring institution is located. The
deposit concentration state limit does not apply for initial acquisitions in a
state and may be waived by the state regulatory authority. Interstate
acquisitions are subject to compliance with the Community Reinvestment Act
("CRA"). States are permitted to impose age requirements not to exceed five
years on target banks for interstate acquisitions. States are not allowed to
opt-out of interstate banking. National banks are impacted as well since the OCC
generally refers to state law to determine appropriate branching provisions for
a national bank located in a particular state.
Branching between states may be accomplished either by merging separate
banks located in different states into one legal entity, or by establishing de
novo branches in another state. Consolidation of banks was not permitted until
June 1, 1997, provided that the state did not pass legislation "opting-out" of
interstate branching. If a state opted-out prior to June 1, 1997, then banks
located in that state may not participate in interstate branching. A state may
opt-in to interstate branching by bank consolidation or by de novo branching by
passing appropriate legislation earlier than June 1, 1997. Interstate branching
is also subject to a 30 percent statewide deposit concentration limit on a
consolidated basis, and a 10 percent nationwide deposit concentration limit. The
laws of the host state regarding community reinvestment, fair lending, consumer
protection (including usury limits) and establishment of branches shall apply to
the interstate branches. The State of Florida has elected to participate in
interstate branch banking.
De novo branching by an out-of-state bank is not permitted unless the host
state expressly permits de novo branching by banks from out-of-state. The
establishment of an initial de novo branch in a state is subject to the same
conditions as apply to initial acquisition of a bank in the host state other
than the deposit concentration limits.
One or more Florida banks may enter into an interstate merger acquisition
with one or more out-of-state banks. An out-of-state bank resulting from such a
transaction may maintain and operate the branches of a Florida bank that
participated in this transaction, provided that all conditions and filing
requirements with the State of Florida are met. An interstate merger transaction
will not be permitted if, upon consummation of this transaction, the resulting
bank, including all insured depository institutions that would be affiliates of
the resulting bank, would control 30% or more of the total amount of deposits
held by all insured depository institutions in the State of Florida. An
interstate merger transaction resulting in the acquisition by an out-of-state
bank of a Florida bank shall not be permitted under Florida Code 658.295 unless
the Florida bank has been in existence and continuously operating on the date of
the acquisition for more than three years.
7
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On September 30, 1996, legislation was signed by the President to combine
the Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund
("SAIF") of the FDIC. The legislation, known as the Deposit Insurance Funds Act
of 1996, provided for a special assessment on institutions that pay assessments
to the SAIF. The Bank does not pay assessments to the SAIF. The legislation also
provides for the payment of interest on bonds issued in connection with the
clean up of the savings and loan crisis by both banks and savings associations.
Because of the recent adoption of the law, it is not possible to accurately
predict what impact, if any, this will have upon the Bank or the Company in the
future.
On November 12, 1999, the Gramm-Leach-Bliley Act (the "GLB Act") became
public law. The GLB Act is expected to enhance competition in the financial
services industry by providing a prudential framework for the affiliation of
banks, securities firms, insurance companies and other financial service
providers. It allows banking companies of all sizes to expand into other
financial services.
Proposed Legislation
There have been proposed a number of legislative and regulatory proposals
designed to strengthen the federal deposit insurance system and to improve the
overall financial stability of the U.S. banking system. It is impossible to
predict whether or in what form these proposals may be adopted in the future,
and if adopted, what their effect would be on the Company. There are proposals
in the Florida legislature which would amend the Florida Tax Code and
subsequently affect the taxes paid by the business community. The passage of
these proposals and to what extent these proposals would affect banks domiciled
in Florida is unknown at this point.
Employees
The Company and the Bank as of March 1, 2000, had 55 full-time employees
and 6 part-time employees. The employees of the Bank are not part of any
collective bargaining unit.
Item 2. Properties
----------
Both the Company and the Bank occupy a leasehold in the National Bank of
Commerce Building located at 1201 South Orlando Avenue, Winter Park, Florida,
which is owned by Gateway Plaza, Ltd., a Florida limited partnership, which
entity is owned in part and controlled by certain directors of the Company and
the Bank and affiliates thereof. See "Item 13--Certain Relationships and Related
Transactions". The Bank and the Company jointly occupy approximately 10,030
square feet on the ground floor and 1,800 square feet of the basement of the
building. In addition, the Bank leases 947 square feet on the fourth floor for
document storage on a month to month basis.
The Bank occupies three branch sites. The Aloma Branch, located at 2200
Aloma Avenue, Winter Park, opened May 15, 1995. The second branch located at
1400 Howell Branch Road, Winter Park, opened October 16, 1995. The above two (2)
branches are located in freestanding buildings which were built in 1995 and are
owned by the Bank. On January 2, 1996, the Bank moved into its third branch site
at 200 E. New England Avenue in downtown Winter Park, Florida. This facility is
owned by Rollins College, a private institution located in Winter Park, which
has leased part of the first floor, basement, and drive-in facility to the Bank.
The Bank paid rental expenses, in aggregate, of approximately $463,496 for
the year ended 1999 which represented $335,344 due under the lease agreement
between the Company and Gateway Plaza, Ltd. and $128,152 due under the lease
agreement between the Bank and Rollins College.
8
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The initial term of the lease with Gateway Plaza, Ltd. dated June 12, 1985,
which commenced on August 4, 1986, was for 10 years with three consecutive
options to renew for a period of five years each. The Bank exercised its first
renewal option on August 8, 1996. Additionally, the lease provides a first right
of refusal to purchase the building on the terms of any acceptable bona fide
offer.
The lease with Rollins College was assigned to the Bank on July 10, 1995,
with the first payment having been made by the Bank on September 1, 1995. The
lease was subsequently amended on August 31, 1995, December 14, 1998 and
January 18, 2000 to expand the square footage of the leased premises. The
initial term of the lease expired on January 17, 1999; however, the Bank
exercised its first renewal option on December 14, 1998, and extended the lease
until January 17, 2004. The Bank has four additional consecutive options to
renew for a period of five years each.
Item 3. Legal Proceedings
-----------------
The Bank is a party to various legal proceedings in the ordinary course of
its business including its proceedings to collect loans or enforce security
interests. In the opinion of management of the Bank, none of the existing legal
proceedings will have a significant adverse impact on the business or the
financial condition of the Bank.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company did not submit any matter to a vote of its shareholders during
the fourth quarter of the fiscal year covered by this report.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
-----------------------------------------------------------------
Matters
-------
As of March 1, 2000, there was no formally established trading market for
the Company's shares of common stock, par value $0.10 per share (the "Common
Stock"), although there have been recent transactions for the Common Stock. On
that same date, the Company had approximately 463 shareholders based on the
number of record holders. To date there has been little secondary trading in the
Common Stock. The trading of the Common Stock between third parties reflected a
value of $17.50 per share during the year ended 1999.
<TABLE>
<CAPTION>
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1999 1998 1997
Quarter Ended Market Price Range Market Price Range Market Price Range
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High Low High Low High Low
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<S> <C> <C> <C> <C> <C> <C>
December 31 $17.50 $17.50 $16.75 $16.75 $15.00 $14.50
- ----------------------------------------------------------------------------------------------
September 30 $17.50 $17.50 $18.00 $15.00 $13.50 $13.00
- ----------------------------------------------------------------------------------------------
June 30 $17.50 $17.50 $16.00 $15.00 $13.50 $13.00
- ----------------------------------------------------------------------------------------------
March 31 $17.50 $17.50 $10.00 $10.00 $13.00 $13.00
- ----------------------------------------------------------------------------------------------
</TABLE>
9
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On June 21, 1993, the Company adopted a Stock Redemption/Repurchase Policy.
As of March 1, 1999, 21,800 shares of the Company's common stock had been
redeemed at a total price of $213,640, or $9.80 per share.
The Board of Directors declared a cash dividend of $0.11 per share on the
Company's outstanding shares of common stock payable to shareholders of record
as of January 1, 1998. The dividend was paid on May 1, 1998.
The Board of Directors declared a cash dividend of $0.12 per share on the
Company's outstanding shares of common stock payable to shareholders of record
as of December 31, 1999. The dividend was paid on March 25, 1999.
Item 6. Selected Financial Data (Consolidated)
-----------------------
<TABLE>
<CAPTION>
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DECEMBER 31
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1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C>
Net Interest Income $ 6,952,975 $ 6,286,227 $ 5,330,982 $ 4,305,644 $ 3,767,327
- -------------------------------------------------------------------------------------------------------------------------
Provisions for Loan Losses $ 406,270 $ 424,012 $ 179,000 $ 90,000 $ 175,000
- -------------------------------------------------------------------------------------------------------------------------
Net Income $ 1,532,032 $ 1,439,507 $ 538,506 $ 648,336 $ 472,965
- -------------------------------------------------------------------------------------------------------------------------
Earnings Per Share - $ 2.12 $ 2.03 $ 0.88 $ 1.13 $ 0.90
Diluted
- -------------------------------------------------------------------------------------------------------------------------
Total Assets $180,202,250 $156,907,492 $126,630,682 $114,865,968 $100,365,487
- -------------------------------------------------------------------------------------------------------------------------
Long-Term Obligations $ 7,222,617 $ 4,266,621 $ 1,395,977 $ 1,476,111 $ 1,547,309
- -------------------------------------------------------------------------------------------------------------------------
Average Equity $ 13,540,764 $ 12,214,771 $ 9,492,971 $ 8,857,813 $ 7,613,835
- -------------------------------------------------------------------------------------------------------------------------
Average Assets $170,000,093 $140,446,293 $120,729,118 $108,608,555 $ 89,803,441
- -------------------------------------------------------------------------------------------------------------------------
Cash Dividends $ 0.12 $ 0.11 -0- -0- -0-
Per Share
- -------------------------------------------------------------------------------------------------------------------------
Average Shares 721,019 710,421 614,748 573,426 523,565
Outstanding - Diluted
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
Item 7. 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 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
Consolidated Financial Condition and Results of Operation. This review should be
read in conjunction with the Consolidated Financial Statements and other
financial data presented herein.
Summary
For fiscal 1999, the Company had a profit of $1,532,032 as compared to a
profit of $1,439,507 in 1998 and a profit of $538,506 in 1997. Net loans
outstanding increased 14% to $139,882,070 from the 1998 year-end figure of
$122,929,105. The 1997 year-end figure was $97,317,521. Interest expense on
deposits and borrowed money in 1999 grew to $6,037,135, as opposed to $4,918,056
for year-end 1998 and $4,360,146 for year-end 1997. Total assets at year-end
1999 were $180,202,250, a 15% increase over 1998, and a 42% increase over 1997.
Stockholders' equity at year-end 1999 was $14,063,911 or 7.8% of year-end
assets. This compares to year-end 1998 stockholders' equity of $12,966,729, and
year-end 1997 stockholders' equity of $10,403,847. Net income per diluted common
share for 1999 was $2.12 per share, compared to $2.03 per share for 1998 and
$0.88 per share for 1997.
Two indicators which measure profitability are net income as a percentage
of average assets (ROAA) and net income as a percentage of average stockholders'
equity (ROAE). A comparison of these ratios for the last three years is as
follows:
11
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ROAA 0.90% 1.02% 0.45%
- ------------------------------------------------------------------------------------------
ROAE 11.31% 11.78% 5.67%
- ------------------------------------------------------------------------------------------
Net Income $ 1,532,032 $ 1,439,507 $ 538,506
- ------------------------------------------------------------------------------------------
Average Assets $170,000,093 $140,446,293 $120,729,118
- ------------------------------------------------------------------------------------------
Average Equity $ 13,540,764 $ 12,214,771 $ 9,492,971
- ------------------------------------------------------------------------------------------
Average Equity to Assets 8.0% 8.7% 7.9%
- ------------------------------------------------------------------------------------------
</TABLE>
Financial Position
Total assets and total liabilities have increased $23,294,758 and
$22,197,576, respectively, during fiscal 1999. This is primarily due to an
increase in loans of $16,952,965, investment securities available for sale of
$5,080,309 and an increase in deposits of $17,288,211 and an increase in Federal
Home Loan Bank ("FHLB") borrowings of $2,945,050.
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 last three years is as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income $12,990,110 $11,204,283 $9,691,128
- ------------------------------------------------------------------------------------------
Interest Expense $ 6,037,135 $ 4,918,056 $4,360,146
- ------------------------------------------------------------------------------------------
NET INTEREST INCOME $ 6,952,975 $ 6,286,227 $5,330,982
- ------------------------------------------------------------------------------------------
</TABLE>
Net interest income of $6,952,975 represented an 11% increase over 1998 and
a 30% increase over 1997. This is primarily the result of the increase in loan
interest income which was $11,732,321, $9,945,556, and $8,488,762 at December
31, 1999, 1998, and 1997, respectively. Investment security income decreased in
1997 to $1,031,804, decreased in 1998 to $865,727, and increased to $980,782 in
1999. Federal funds sold income, typically a lower-yielding investment class,
was $231,528, $355,148, and $137,240 at December 31, 1999, 1998, and 1997,
respectively. For further information, refer to the Rate/Volume Information
chart.
12
<PAGE>
At the same time, interest-bearing deposits increased from $92,644,084 at
year-end 1997 to $115,798,941 at year-end 1998 to $132,150,753 at year-end 1999.
Interest expense on deposits and borrowed money was $6,037,135, $4,918,056, and
$4,360,146, at December 31, 1999, 1998, and 1997, respectively. The major
component of the increase was time deposit interest expense of $3,693,882,
$3,147,798, and $2,798,560, for December 31, 1999, 1998, and 1997, respectively.
For further information, refer to the Rate/Volume Information chart.
The Company's net interest margin was 4.20% for the year ended December 31,
1999, compared to 4.84% for 1998 and 4.79% for 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. See the
rate/volume analysis that follows for an analysis of the impact of these
elements on the change in net interest income for 1999, 1998 and 1997.
Provision and Allowance for Loan Losses
The Company segregates the loan portfolio for loan loss evaluation purposes
into the following broad segments such as: commercial real estate; residential
real estate; commercial business; and consumer loan. The Company provides for a
general allowance for losses inherent in the portfolio by the above categories,
which consists of two components. General loss percentages are calculated based
upon historical analyses. A supplemental portion of the allowance is calculated
for inherent losses which probably exist as of the evaluation date even though
they might not have been identified by the more objective processes used for the
portion of the allowance described above. This is due to the risk of error
and/or inherent imprecision in the process. This portion of the allowance is
particularly subjective and requires judgments based on qualitative factors
which do not lend themselves to exact mathematical calculations such as: trends
in delinquencies and nonaccruals; migration trends in the portfolio; trends in
volume, terms, and portfolio mix; new credit products and/or changes in the
geographic distribution of those products; changes in lending policies and
procedures; loan review reports on the efficacy of the risk identification
process; changes in the outlook for local, regional and national economic
conditions; concentrations of credit; and peer group comparisons.
Specific allowances are provided in the event that the specific collateral
analysis on each classified loan indicates that the probable loss upon
liquidation of collateral would be in excess of the general percentage
allocation. The provision for loan loss is debited or credited in order to state
the allowance for loan losses to the required level as determined above.
Regulatory examiners may require the Company to recognize additions to the
allowance based upon their judgments about the information available to them at
the time of their examination. The Company and the Bank continue to be examined
by the FRB, the OCC, a private loan review consultant, and a private compliance
consultant.
13
<PAGE>
The most recent OCC safety and soundness examination was as of January
1999. The allowance for loan and lease losses was evaluated as part of this
review. No change was recommended.
The allowance for loan losses for year-end 1999 was $1,629,823, a 1.15%
reserve of total loans outstanding. This compares to a year-end 1998 allowance
of $1,323,143, a 1.06% reserve of total loans outstanding, and to a year-end
1997 allowance of $1,013,081, a 1.03% reserve of total loans outstanding.
The charge-offs for 1999 were $102,789 while recoveries totaled $3,199.
This compares to charge-offs in 1998 of $186,047 and recoveries of $72,097 and
to charge-offs in 1997 of $71,588 and recoveries of $17,866. Non-accruing loans
totaled $2,776,419, $782,547, and $1,113,608 at December 31, 1999, 1998, and
1997, respectively.
The provision for loan losses is charged to operations to bring the total
allowance for loan losses to a level considered appropriate by management. The
provision for loan losses was $406,270, $424,012 and $179,000 for the years
ending December 31, 1999, December 31, 1998, and December 31, 1997,
respectively. Management of the Bank believes that the allowance for loan losses
was adequate as of December 31, 1999.
Non-Interest Income
Non-interest income increased from $746,721 in 1997 to $959,235 in 1998 and
decreased to $931,994 in 1999. The majority of the decline in 1999 was the
result of less income collected on credit cards and wire transfer fees. Part of
the increases in 1997 and 1998 were the result of increased income on service
charges for demand accounts as all branches obtained more checking accounts. In
1997 and 1998, both debit card fee income and check order fee income increased.
Non-Interest Expense
Operating expenses increased $503,771, or 11%, to $5,073,448, for year-end
1999, compared to $4,569,677 for year-end 1998, and $4,862,190 for year-end
1997. The 1997 figure included a one-time expense for a Directors' Stock Option
Plan. The Directors' Stock Option expense of $650,000 was to record the expense
at the remeasurement date, based on the stock value of $15.00 per share as
opposed to the option price of $10.00 per share on 130,000 options.
Personnel expense, consisting of salaries, other compensation and
employment benefits, increased $158,401 to $2,374,896 for 1999, compared to
$2,216,495 for 1998 and $1,999,237 for 1997. This is the result of additional
hirings, annual salary adjustments and cost-of-living benefit increases, which
increased salary expense and group insurance costs.
14
<PAGE>
Occupancy expense for year-end 1999 increased 7% to $972,414 compared to
$909,041 for year-end 1998 and $847,358 for year-end 1997. Also, equipment
expense, which is included under occupancy expense, increased $32,573 during
1998, and $68,269 during 1999. 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. Conversion
activities and testing of the computer systems for the year 2000 were completed
in the second quarter of 1999. Expenditures in 1999 for the year 2000 project
amounted to $80,000.
Also, data processing expense increased $26,882 to $187,365 during 1997,
increased $37,379 to $224,744 during 1998 and increased $32,866 to $257,610
during 1999. The main reason for this increase in expense was that the Bank
replaced all computer monitors in the teller areas to become Y2K compliant.
Income Taxes - Federal
The Company files a consolidated federal income tax return on behalf of
itself and the Bank and reports their income and expenses under the accrual
method of accounting.
Under the applicable provisions of the Internal Revenue Code of 1986 (the
"Code"), banks and bank holding companies are generally subject to the same
rules concerning federal income taxes as are other corporations. There are,
however, special rules applicable to banks. The most significant rule relates to
the deduction of bad debts.
The Company uses the reserve method in calculating its bad debt deduction.
Under the reserve method, a bank is required to use the experience method in
calculating its deduction. Under the experience method, a bank computes the
ratio of total bad-debt charge-offs for its most recent six taxable years,
including the current taxable year (adjusted for recoveries of bad debts during
such period), to the sum of loans outstanding at the close of each such six
years. The ratio so computed is applied to loans outstanding at the close of the
current taxable year, and the result constitutes the permissible reserve
balance.
Depending on the composition of its items of income and expense, a bank may
be subject to the alternative minimum tax ("AMT"). For tax years beginning after
1986, a bank must pay an alternative minimum tax equal to the amount (if any) by
which 20 percent of alternative minimum taxable income ("AMTI") as reduced by an
exemption varying with AMTI, exceeds the regular tax due. AMTI equals regular
taxable income increased or decreased by certain adjustments and increased by
certain tax preferences, including depreciation deductions in excess of that
allowable for alternative minimum tax purposes, tax-exempt interest on most
private activity bonds issued after August 7, 1986 (reduced by any related
interest expense disallowed for regular tax purposes). AMTI may be reduced only
up to 90 percent by AMT net operating loss carryovers. Alternative minimum tax
paid can be carried forward indefinitely and credited against regular tax due in
later years to reduce regular tax to the amount of alternative minimum tax
payable in those years. The alternative minimum tax applicable to tax years
after 1986 is significantly broader in scope than the pre-1986 minimum tax and
substantially increases the likelihood that banks and savings institutions will
have to pay alternative minimum tax.
15
<PAGE>
Income Taxes - State
The State of Florida imposes a corporate franchise tax on banks which
subjects the taxable income of such institutions to a 5.5 percent tax (or, if
greater, an alternative minimum tax equal to 3.3 percent of alternative minimum
taxable income). The Florida franchise tax may be reduced by a credit for
intangible taxes paid, but such credit cannot exceed 65 percent of the franchise
tax due for the year. The Florida franchise tax is deductible in determining
federal taxable income. Florida taxable income is substantially similar to
federal taxable income, except that it includes interest income on obligations
of any state or political subdivision thereof which is not otherwise exempt
under Florida laws and that net operating losses cannot be carried back to prior
taxable years.
Liquidity
Like other financial institutions, the Bank must ensure that sufficient
funds are available to meet deposit withdrawals, loan commitments, investment
needs and expenses. Control of the Bank's cash flow requires, in addition to
cash flow from operations, the anticipation of deposit flows and loan payments.
The Bank's primary sources of funds are deposit accounts, FHLB advances and
principal and interest payments on loans.
The Bank requires funds in the short term to finance ongoing operating
expenses, pay liquidating deposits, purchase temporary investments in securities
and invest in loans. The Bank funds short-term requirements through advances
from the FHLB, the sale of temporary investments, deposit growth and loan
principal payments. In addition, management has no plans to significantly change
long-term funding requirements. The Bank requires funds in the long-term to
invest in loans for its portfolio, purchase fixed assets and provide for the
liquidation of deposits maturing in the future. The Bank funds its long-term
requirements with proceeds from maturing loans, the sale of loans, the sale of
investments in securities and deposits and the sale of real estate.
During the year ended December 31, 1999, the Company increased its cash
position by $588,985. The primary sources of this net cash position increase was
a result of $17,288,211 in new demand deposits and certificates of deposit. In
addition, the Company received $2,945,050 in advances from the FHLB and received
proceeds of $245,750 from the sale of real estate. The primary use of funds was
a result of increased lending. Net new loans booked during the course of the
year were $17,244,741.
It is management's opinion that the Company's liquidity position is
adequate.
Capital Resources
On January 27, 1989, the OCC issued an amendment to 12 CFR Part 3 adopting
final risk based capital guidelines for national banks. Developed in conjunction
with the Federal Deposit Insurance Corporation and the Board of Governors of the
Federal Reserve System, these guidelines provide an additional measure of a
bank's capital adequacy and are intended to reflect the relative degree of
credit risk associated with various assets by setting different capital
requirements for assets having less credit risk than others. Secondly, banks are
required to systematically hold capital against such off-balance sheet
activities as loans sold with recourse, loan commitments, guarantees and standby
letters of credit. Finally, the guidelines strengthen the quality of capital by
increasing
16
<PAGE>
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 be 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 December 31, 1999,
the Bank had a total risk based capital ratio of 10.66% (10.75% 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 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 the local demographics.
For the year ended December 31, 1999, the Company saw an increase in total
assets, total stockholders' equity and earnings. These are the result of a
number of factors but principally the community acceptance of the branches of
the Bank which opened in 1995 and 1996 and which have started to produce the
desired results. In addition, improvement in the loan portfolio of the Bank and
reallocation of the assets of the Bank into higher income producing loans, as
compared to other investments like Federal funds sold, has benefited the
Company. Diluted earnings per share increased to $2.12 per share in 1999 from
$2.03 per share in 1998 compared to $0.88 per share in 1997.
17
<PAGE>
Statistical Information
CONSOLIDATED DAILY AVERAGE BALANCES, INCOME/EXPENSE
AND AVERAGE YIELDS EARNED AND RATES PAID -- 1998 and 1997
(Dollars in thousands, yields on taxable equivalent basis)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE
BALANCES INCOME YIELD BALANCES INCOME YIELD
ASSETS (1) (1) RATES (1) (1) RATES
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans $135,508 $11,732 8.66% $108,226 $ 9,945 9.19%
- ---------------------------------------------------------------------------------------------------------------------------
Investment Securities $ 17,578 $ 981 5.59% $ 14,316 $ 866 6.05%
- ---------------------------------------------------------------------------------------------------------------------------
Funds Sold $ 4,536 $ 232 5.12% $ 6,636 $ 355 5.35%
- ---------------------------------------------------------------------------------------------------------------------------
Interest-Bearing Deposits $ 827 $ 45 5.44% $ 783 $ 38 4.85%
- ---------------------------------------------------------------------------------------------------------------------------
Other Short-Term Investments -0- -0- -0- -0- -0- -0-
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS $158,449 $12,990 8.20% $129,961 $11,204 8.62%
- ---------------------------------------------------------------------------------------------------------------------------
Cash $ 5,944 N/A N/A $ 4,861 N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
Premises and Equipment $ 3,619 N/A N/A $ 3,812 N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
Allowance for Loan Losses ($1,492) N/A N/A ($1,130) N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
Other Assets $ 3,480 N/A N/A $ 2,942 N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $170,000 N/A N/A $140,446 N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------
LIABILITIES AND AVERAGE AVERAGE
STOCKHOLDER'S BALANCES YIELD BALANCES YIELD
EQUITY (1) EXPENSES RATES (1) EXPENSES RATES
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Bearing Deposits:
- ---------------------------------------------------------------------------------------------------------
NOW Accounts $ 15,401 $ 327 2.12% $ 11,471 $ 229 2.00%
- ---------------------------------------------------------------------------------------------------------
Savings $ 30,626 $1,237 4.04% $ 24,104 $ 979 4.06%
- ---------------------------------------------------------------------------------------------------------
Money Market $ 8,673 $ 252 2.91% $ 9,265 $ 282 3.04%
- ---------------------------------------------------------------------------------------------------------
Certificates of Deposits $ 68,564 $3,694 5.39% $ 56,589 $3,148 5.56%
- ---------------------------------------------------------------------------------------------------------
Other Time -0- N/A N/A -0- N/A N/A
- ---------------------------------------------------------------------------------------------------------
TOTAL INTEREST-
BEARING DEPOSITS $123,264 $5,510 4.48% $101,429 $4,638 4.57%
- ---------------------------------------------------------------------------------------------------------
Funds Purchased $ 205 $ 11 5.37% $ 49 $ 3 6.12%
- ---------------------------------------------------------------------------------------------------------
Other Short-Term Borrowings $ 2,922 $ 123 4.14% $ 3,700 $ 188 5.08%
- ---------------------------------------------------------------------------------------------------------
Long-Term Debt $ 6,465 $ 393 6.08% $ 1,916 $ 89 4.65%
- ---------------------------------------------------------------------------------------------------------
TOTAL INTEREST-
BEARING
LIABILITIES $ 9,592 $ 527 5.47% $ 5,665 $ 280 4.94%
- ---------------------------------------------------------------------------------------------------------
Demand Deposits $ 22,357 N/A N/A $ 19,863 N/A N/A
- ---------------------------------------------------------------------------------------------------------
Other Liabilities $ 1,246 N/A N/A $ 1,274 N/A N/A
- ---------------------------------------------------------------------------------------------------------
Stockholders' Equity $ 13,541 N/A N/A $ 12,215 N/A N/A
- ---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES
AND
STOCKHOLDERS' EQUITY $170,000 N/A N/A $140,446 N/A N/A
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Rate Spread 3.72% 4.03% 4.11% 3.69% 3.89%
- --------------------------------------------------------------------------------------------------------------
Net Interest Income (in thousands) $6,953 $6,286 $5,331 $4,306 $3,767
- --------------------------------------------------------------------------------------------------------------
Net Interest Margin (2) 4.20% 4.84% 4.79% 4.32% 4.47%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Calculations were based on average balances for asset and liability
accounts and actual year end income and expense totals, causing some
distortion in yield verses rates actually earned on interest earning assets
and paid on interest bearing liabilities.
(2) Net interest income divided by total earning assets.
19
<PAGE>
Rate/Volume Information
The table below sets forth certain information regarding changes in
interest income and interest expense for the periods indicated. Information is
provided on changes attributable to (i) changes in volume (change in volume
multiplied by old rate) and (ii) changes in rates (change in rate multiplied by
old volume). For purposes of this table, changes attributable to both volume and
rate which cannot be segregated have been allocated proportionately to volume
and to rate.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
YE December 31, 1999 vs. 1998 YE December 31, 1998 vs. 1997
Increase (Decrease) Due To Increase (Decrease) Due to
------------------------------------------------------------------------------
Final Volume Rate Total Volume Rate Total
===========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Interest Income
- ---------------
- -----------------------------------------------------------------------------------------------------------
Loans $2,278 ($491) $1,787 $1,681 ($224) $1,457
- -----------------------------------------------------------------------------------------------------------
Investments 177 (62) 115 (86) (80) (166)
- -----------------------------------------------------------------------------------------------------------
Fed Funds Sold (112) (12) (124) 212 6 218
- -----------------------------------------------------------------------------------------------------------
Interest Bearing
Assets 24 (21) 3 4 1 5
- -----------------------------------------------------------------------------------------------------------
Total Earning Assets $2,367 ($586) $1,781 $1,811 ($297) $1,514
===========================================================================================================
Interest Expenses
- -----------------
- -----------------------------------------------------------------------------------------------------------
Deposits $ 847 $ 20 $ 867 $ 706 ($148) $ 558
- -----------------------------------------------------------------------------------------------------------
Borrowings 200 47 247 67 (67) -0-
- -----------------------------------------------------------------------------------------------------------
Total Interest Bearing
Liabilities $1,047 $ 67 $1,114 $ 773 ($215) $ 558
- -----------------------------------------------------------------------------------------------------------
Net Margin $1,320 ($653) $ 667 $1,038 ($82) $ 956
- -----------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
December 31, 1999 and December 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------
1999 1998
------------------------------------------------------------------
WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD* VALUE YIELD*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and Other U.S. Government
Agencies and Corporations:
- -------------------------------------------------------------------------------------------------------------------
Due In One Year Or Less -0- -0- $ 5,021 5.80%
- -------------------------------------------------------------------------------------------------------------------
Due After One Year Through Five $18,572,972 5.44% 8,472 5.85%
Years
- -------------------------------------------------------------------------------------------------------------------
Due After Five Years Through -0- -0- -0- -0-
Ten Years
- -------------------------------------------------------------------------------------------------------------------
Due After Ten Years -0- -0- -0- -0-
- -------------------------------------------------------------------------------------------------------------------
TOTAL $18,572,972 5.44% $13,493 5.83%
- -------------------------------------------------------------------------------------------------------------------
States and Political Subdivisions:
- -------------------------------------------------------------------------------------------------------------------
Due In One Year Or Less -0- -0- -0- -0-
- -------------------------------------------------------------------------------------------------------------------
Due After One Year Through Five -0- -0- -0- -0-
Years
- -------------------------------------------------------------------------------------------------------------------
Due After Five Years Through Ten -0- -0- -0- -0-
Years
- -------------------------------------------------------------------------------------------------------------------
Due After Ten Years -0- -0- -0- -0-
- -------------------------------------------------------------------------------------------------------------------
Other Securities -0- -0- -0- -0-
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES $18,572,972 5.44% $13,493 5.83%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Weighted average yields are calculated on the basis of the carrying value of
the security.
21
<PAGE>
LOAN PORTFOLIO BY TYPES OF LOANS
(In thousands)
<TABLE>
<CAPTION>
---------------------------------
DECEMBER 31, DECEMBER 31,
1999 1998
-----------------------------------------------------------------
<S> <C> <C>
Commercial:
-----------------------------------------------------------------
Secured $ 8,587 $ 12,472
-----------------------------------------------------------------
Unsecured 3,652 2,887
-----------------------------------------------------------------
Real Estate:
-----------------------------------------------------------------
Construction 35,660 29,868
-----------------------------------------------------------------
Mortgage 90,730 75,953
-----------------------------------------------------------------
Other Consumer Loans 3,354 3,559
-----------------------------------------------------------------
TOTAL LOANS $141,983 $124,739
-----------------------------------------------------------------
</TABLE>
LOAN MATURITY AND INTEREST RATE SENSITIVITY ANALYSIS
December 31, 1999
(In thousands)
<TABLE>
<CAPTION>
----------------------------------------------
REMAINING MATURITIES OF LOANS
------------------------------------------------------------------------
LOAN MATURITY (1) TOTAL 1 YEAR WITHIN AFTER 5
1-5 YEARS YEARS
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 12,239 $ 8,772 $ 3,220 $ 247
------------------------------------------------------------------------
Real Estate 126,390 30,539 26,818 69,033
------------------------------------------------------------------------
Other 3,354 2,344 972 38
------------------------------------------------------------------------
TOTAL $141,983 $41,655 $31,010 $69,318
------------------------------------------------------------------------
</TABLE>
(1) Based upon scheduled principal payments.
22
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------
REMAINING MATURITIES OF LOANS
- ------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY TOTAL 1 YEAR WITHIN AFTER 5
1-5 YEARS YEARS
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans With:
- ------------------------------------------------------------------------------
Predetermined Interest Rates $ 42,482 $ 9,276 $13,066 $20,140
- ------------------------------------------------------------------------------
Floating or Adjustable
Interest Rates 99,501 32,379 17,944 49,178
- ------------------------------------------------------------------------------
TOTAL $141,983 $41,655 $31,010 $69,318
- ------------------------------------------------------------------------------
</TABLE>
Non-performing Assets and Loans Past Due 90 Days or More
The following table summarizes the Company's non-accrual and past due loans
as of December 31 for each year indicated.
<TABLE>
<CAPTION>
------------------------------------
DECEMBER 31
------------------------------------
1999 1998 1997
-------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual Loans $2,776,419 $782,547 $1,113,608
-------------------------------------------------------------------------
Accruing Loans Past Due 90
Days or More -0- -0- -0-
-------------------------------------------------------------------------
Troubled Debt Restructurings $ 789,020 $115,217 -0-
-------------------------------------------------------------------------
</TABLE>
If interest due on all non-accrual loans had been accrued at the original
contract rates, interest income would have been approximately $83,917 greater
for 1997, approximately $42,776 greater for 1998, and approximately $131,247
greater for 1999.
There were twelve (12) non-accruing loans totaling $2,776,419 as of
December 31, 1999. This compares with non-accruing loans of $782,547 as of
December 31, 1998, and non-accruing loans of $1,113,608 as of December 31, 1997.
There are three (3) loans to one customer totaling $697,325 secured by
business assets, which have 75% to 85% guarantees from the Small Business
Administration. These three (3) loans are also secured by a cross-
collateralization of mortgages on a personal residence of the principals. At the
same time, there is a fourth loan to the same principals in the amount of
$124,871 secured by common stock, which is traded on NASDAQ. There is a fifth
loan in the amount of $102,194 is secured by a first mortgage on a personal
residence to the principals of the same corporation. At December 31, 1999, the
above five (5) loans were all current.
23
<PAGE>
One (1) non-accrual loan in the amount of $827,448 is secured by a first
mortgage on a 61-lot subdivision. A Summary Judgment has been set for the first
quarter of 2000. Once the foreclosure process is completed, the Bank will take
possession of this subdivision and complete the second phase of the subdivision.
There has been interest between local and national builders concerning this
subdivision upon the completion and Certificate of Completion from the county.
It is anticipated that there will be a minimal loss occurred during the year
2000 on this loan.
There is one (1) non-accrual loan in the amount of $123,617 secured by a
commercial helicopter and additional engine components. The loan is on non-
accrual because there is a dispute on an insurance claim for engine work on the
helicopter. A lawsuit has been filed against all parties involved. The Bank is
negotiating with one of the guarantors on the original note who is considering
taking over the loan.
One non-accrual loan in the amount of $28,379 is secured by a second
mortgage on the principal's residence and a third mortgage on commercial
property. It is anticipated that this loan will be paid in full during the
second quarter of this year.
Two (2) non-accrual loans to the same corporation totaling $788,012 are
secured by first mortgages on commercial buildings. Of this total figure,
$292,500 will be paid off during the first month of the year 2000. The $495,512
balance on the second loan is current. It is felt that this loan will continue
to be current and, after a 6-month period, will be taken off non-accrual.
There were two (2) non-accrual loans to the same company totaling $84,573
secured by four (4) lots and a partially completed residential structure. This
loan has since been paid in full.
The following table, entitled Analysis of the Allowance for Loan Losses,
summarizes the Bank's allowance for loan losses as of December 31, 1999.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
24
<PAGE>
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Year Year
Ended Ended Ended
12/31/99 12/31/98 12/31/97
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $1,323,143 $1,013,081 $ 887,803
- --------------------------------------------------------------------------------
Charge-offs
- --------------------------------------------------------------------------------
Domestic:
- --------------------------------------------------------------------------------
Commercial 99,789 104,790 63,064
- --------------------------------------------------------------------------------
Real estate -- construction -0- -0- -0-
- --------------------------------------------------------------------------------
Real estate -- mortgage 3,000 -0- -0-
- --------------------------------------------------------------------------------
Installment loans to individuals -0- 81,257 8,524
- --------------------------------------------------------------------------------
Recoveries:
- --------------------------------------------------------------------------------
Domestic:
- --------------------------------------------------------------------------------
Commercial 3,153 72,097 17,866
- --------------------------------------------------------------------------------
Real estate -- construction -0- -0- -0-
- --------------------------------------------------------------------------------
Real estate -- mortgage -0- -0- -0-
- --------------------------------------------------------------------------------
Installment loans to individuals 46 -0- -0-
- --------------------------------------------------------------------------------
Additions charged to operations 406,270 424,012 179,000
- --------------------------------------------------------------------------------
Balance at end of period $1,629,823 $1,323,143 $1,013,081
- --------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
-----------------------------------------------------
1999 1998
- ------------------------------------------------------------------------
PERCENT
OF PERCENT OF
ESTIMATED ESTIMATED
LOANS IN LOANS IN
EACH EACH
BALANCE AT CATEGORY CATEGORY
DECEMBER 31, TO TOTAL TO TOTAL
APPLICABLE TO AMOUNT LOANS AMOUNT LOANS
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 853,764 52.38% $ 729,510 55.47%
- ------------------------------------------------------------------------
Real Estate 719,355 44.14% 541,027 40.53%
- ------------------------------------------------------------------------
Consumer 56,704 3.48% 52,606 4.00%
- ------------------------------------------------------------------------
ACTUAL TOTAL $1,629,823 100.00% $1,323,143 100.00%
- ------------------------------------------------------------------------
</TABLE>
The Company records impairment in the value of its loans as an addition to
the allowance for loan losses. Any changes in the value of impaired loans due to
the passage of time or revisions in estimates are reported as adjustments to
provision expense in the same manner in which impairment initially was
recognized. Chargeoffs by loan type are illustrated in the consolidated
financial statements at Footnote (4).
COMPOSITION OF DEPOSITS FOR 1999, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------------------------------------------------------------------------
AVERAGES % OF AVERAGE AVERAGES % OF AVERAGE AVERAGES % OF AVERAGE
TOTAL RATE PAID TOTAL RATE PAID TOTAL RATE PAID
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand $ 22,357 15.35% -0- $ 19,863 16.37% -0- $ 15,420 14.63% -0-
- ------------------------------------------------------------------------------------------------------------
NOW $ 15,401 10.58% 2.00% $ 11,471 9.46% 2.99% $ 9,184 8.71% 2.00%
- ------------------------------------------------------------------------------------------------------------
Savings $ 30,626 21.03% 4.00% $ 24,104 19.87% 4.00% $ 19,115 18.13% 4.00%
- ------------------------------------------------------------------------------------------------------------
Money
Market $ 8,673 5.96% 2.75% $ 9,265 7.64% 2.75% $ 11,015 10.45% 2.75%
- ------------------------------------------------------------------------------------------------------------
Certificate
of Deposit $ 68,564 47.08% 5.54% $ 56,589 46.66% 5.45% $ 50,657 48.08% 5.40%
- ------------------------------------------------------------------------------------------------------------
TOTAL $145,621 100.00% 3.83% $121,292 100.00% 3.73% $105,391 100.00% 3.79%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
MATURITY OF CERTIFICATES OF DEPOSIT (CD'S)
AND OTHER TIME DEPOSITS
IN AMOUNTS OF $100,000 OR MORE
December 31, 1999
(In thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------
MONTHS TO CD'S DOMESTIC OTHER TIME
MATURITY DEPOSITS TOTAL
------------------------------------------------------------
<S> <C> <C> <C>
3 Or less $33,649 0 $33,649
------------------------------------------------------------
Over 3 through 12 36,935 0 36,935
------------------------------------------------------------
Over 12 5,502 0 5,502
------------------------------------------------------------
TOTAL $76,086 0 $76,086
------------------------------------------------------------
</TABLE>
Year 2000 (Y2K)
During 1999, the Bank worked diligently to bring all systems into year 2000
("Y2K") compliance. The Board of Directors approved a Y2K budget as prepared by
the Y2K committee in the approximate amount of $80,000. The Y2K committee was
in-house on January 1, 2000 for a system check and validation of equipment and
software. The validations were a success and, at this time, there are no Y2K
unresolved issues for the Bank.
The Bank's regulatory agency, the OCC, has frequently visited or telephoned
the Bank's committee coordinator for continual oversight of the Bank's progress
in the Y2K compliancy. The FRB and the Office of Thrift Supervision review the
progress of M&I for assurance that M&I is progressing satisfactorily with M&I's
Y2K action plan.
Impact of Recent Accounting Pronouncements
SFAS No. 133 and SFAS No. 137
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedge Activities" (FASB
133). This standard 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. In June 1999,
the FASB issued FASB 137, "Accounting for Derivative Instruments and Hedging
Activities --Deferral of the Effective Date of FASB No. 133, an Amendment of
FASB 133." FASB 133, as amended, is now effective for all fiscal quarters and
fiscal years beginning after June 15, 2000. Implementation of FASB 133 is not
expected to have a significant impact on the financial position or results of
operations of the Company.
27
<PAGE>
SFAS No. 134
In October 1998, the FASB issued Financial Accounting Standards No. 134,
"Accounting for Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise." This statement
requires that, after the securitization of a mortgage loan held for sale, an
entity engaged in mortgage banking activities classify the resulting mortgage
backed security as a trading security. The statement is effective for the first
fiscal quarter beginning after December 15, 1998. Adoption of this standard did
not have any impact on the Company's consolidated financial statements.
Item 7A. 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 Management
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 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 quarterly 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.
28
<PAGE>
Economic Value of Equity
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 economic value of equity ("EVE") to changes in interest rates. An
institution's EVE 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 EVE 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 from 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 during fiscal 1999.
Item 8. Consolidated Financial Statements
---------------------------------
The required financial information begins on the following page.
29
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Consolidated Financial Statements
Years ended December 31, 1999, 1998 and 1997
(With Independent Auditors' Report Thereon)
30
<PAGE>
KPMG
111 North Orange Avenue, Suite 1600
P.O. Box 3031
Orlando, FL 32802
Independent Auditors' Report
The Board of Directors
Commerce National Corporation
and Subsidiary:
We have audited the accompanying consolidated balance sheets of Commerce
National Corporation and subsidiary as of December 31, 1999 and 1998, the
related consolidated statements of operations, shareholders' equity and
comprehensive income and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Commerce National
Corporation and subsidiary as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
January 24, 2000, except for Note 20 which
is as of March 3, 2000
31
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
Assets 1999 1998
------------ ------------
<S> <C> <C>
Cash and due from banks $ 7,210,129 5,221,144
Federal funds sold 6,700,000 8,100,000
Investment securities available for sale 18,572,969 13,492,660
Loans, less allowance for loan losses of $1,629,823
for 1999 and $1,323,143 for 1998 139,882,070 122,929,105
Accrued interest receivable 992,636 813,736
Premises and equipment, net 3,580,117 3,698,955
Federal Reserve Bank stock, at cost 207,000 178,500
Federal Home Loan Bank stock, at cost 468,100 378,600
Independent Bankers' Bank of Florida stock, at cost 121,270 --
Deferred income taxes, net 815,510 458,990
Prepaid expenses and other assets 114,770 168,470
Executive supplemental income plan - cash surrender value
life insurance policies 1,537,679 1,467,332
------------ ------------
Total assets $180,202,250 156,907,492
============ ============
Liabilities and Shareholders' Equity
Deposits:
Noninterest bearing $ 22,237,911 21,301,512
Interest bearing 132,150,753 115,798,941
------------ ------------
Total deposits 154,388,664 137,100,453
Federal Home Loan Bank advances 7,070,584 4,125,534
Other borrowed funds 4,050,448 2,189,251
Accrued interest payable 272,405 191,744
Accounts payable and other liabilities 356,238 333,781
------------ ------------
Total liabilities 166,138,339 143,940,763
------------ ------------
Shareholders' equity:
Common stock, $.10 par value per share. Authorized 1,000,000
shares; 742,819 shares issued and 721,019 shares
outstanding at December 31, 1999 and 1998 74,282 74,282
Additional paid-in capital 7,927,804 7,927,804
Retained earnings 6,627,567 5,182,057
Treasury stock, at cost (21,800 shares at December 31, 1999
and 1998) (208,640) (208,640)
Accumulated other comprehensive income (loss) (357,102) (8,774)
------------ ------------
Total shareholders' equity 14,063,911 12,966,729
Commitments and contingencies (notes 12 and 18)
------------ ------------
Total liabilities and shareholders' equity $180,202,250 156,907,492
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
For each of the years in the three-year period ended December 31, 1999
<TABLE>
<CAPTION>
1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
Interest income:
Loans $ 11,732,321 9,945,556 8,488,762
Investment securities 980,782 865,727 1,031,804
Federal funds sold 231,528 355,148 137,240
Other 45,479 37,852 33,322
--------------- -------------- --------------
Total interest income 12,990,110 11,204,283 9,691,128
Interest expense:
Deposits and other borrowed money 6,037,135 4,918,056 4,360,146
--------------- -------------- --------------
Net interest income 6,952,975 6,286,227 5,330,982
Provision for loan losses 406,270 424,012 179,000
--------------- -------------- --------------
Net interest income after provision
for loan losses 6,546,705 5,862,215 5,151,982
--------------- -------------- --------------
Other income, primarily customer service fees 931,994 959,235 746,721
--------------- -------------- --------------
Other expenses:
Salaries and benefits 2,374,896 2,216,495 1,999,237
Directors stock option plan -- -- 650,000
Occupancy expense 972,414 909,041 847,358
Advertising and public relations 211,445 162,967 149,364
Legal and professional fees 379,397 221,224 281,050
Stationery and printing supplies 84,360 79,937 59,805
Data processing expense 257,610 224,744 187,365
Insurance 64,875 58,696 65,713
Loss on sale of other real estate owned 8,622 32,073 6,687
Other expenses 719,829 664,500 615,611
--------------- -------------- --------------
5,073,448 4,569,677 4,862,190
--------------- -------------- --------------
Income before income taxes 2,405,251 2,251,773 1,036,513
Income tax expense 873,219 812,266 498,007
--------------- -------------- --------------
Net income $ 1,532,032 1,439,507 538,506
=============== ============== ==============
Basic earnings per share $ 2.12 2.03 0.90
=============== ============== ==============
Diluted earnings per share $ 2.12 2.03 0.88
=============== ============== ==============
Dividends paid per share $ 0.12 0.11 --
=============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity and Comprehensive Income
For each of the years in the three-year period ended December 31, 1999
<TABLE>
<CAPTION>
Accumulated
Additional Treasury other Total
Common paid-in Retained stock, at comprehensive Comprehensive shareholders'
stock capital earnings cost income (loss) income equity
-------- ---------- --------- ---------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996 $61,759 6,065,310 3,269,630 (208,640) 40,361 9,228,420
Directors stock option plan -- 650,000 -- -- -- 650,000
Sale of common stock 45 5,819 -- -- -- 5,864
Comprehensive income:
Net income -- -- 538,506 -- -- 538,506 538,506
Other comprehensive income, net of tax
unrealized loss on securities -- -- -- -- (18,943) (18,943) (18,943)
----------
Comprehensive income $ 519,563
==========
------- --------- --------- -------- -------- ----------
Balances, December 31, 1997 61,804 6,721,129 3,808,136 (208,640) 21,418 10,403,847
Directors stock options exercised 12,451 1,202,549 -- -- -- 1,215,000
Sale of common stock 27 4,126 -- -- -- 4,153
Dividends paid -- -- (65,586) -- -- (65,586)
Comprehensive income:
Net income -- -- 1,439,507 -- -- 1,439,507 1,439,507
Other comprehensive income, net of tax
unrealized loss on securities -- -- -- -- (30,192) (30,192) (30,192)
----------
Comprehensive income $1,409,315
==========
------- --------- --------- -------- -------- ----------
Balances, December 31, 1998 74,282 7,927,804 5,182,057 (208,640) (8,774) 12,966,729
Dividends paid -- -- (86,522) -- -- (86,522)
Comprehensive income:
Net income -- -- 1,532,032 -- -- 1,532,032 1,532,032
Other comprehensive income, net of tax
unrealized loss on securities -- -- -- -- (348,328) (348,328) (348,328)
----------
Comprehensive income $1,183,704
==========
------- --------- --------- -------- -------- ----------
Balances, December 31, 1999 $74,282 7,927,804 6,627,567 (208,640) (357,102) 14,063,911
======= ========= ========= ======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
For each of the years in the three-year period ended December 31, 1999
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows provided by operating activities:
Net income $ 1,532,032 1,439,507 538,506
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of premises and equipment 349,631 310,388 306,327
Deferred income taxes (146,585) (39,280) (147,901)
Net amortization of premiums and (accretion)
of discounts on investment securities 55,369 (22,119) (64,937)
Provision for loan losses 406,270 424,012 179,000
Directors stock option plan -- -- 650,000
Deferred loan origination fees, net of amortization (14,904) 113,417 25,635
Loss on sale of other real estate owned 8,622 32,073 6,687
Executive supplemental income plan--
additional cash surrender value (70,347) (64,626) (63,897)
Cash provided by (used in) changes in:
Accrued interest receivable (178,900) (64,839) (25,568)
Prepaid expenses and other assets 53,700 (83,169) 28,997
Accrued interest payable 80,661 58,610 (3,142)
Accounts payable and other liabilities 22,457 (2,216) 87,930
------------ ------------ ------------
Net cash provided by operating activities 2,098,006 2,101,758 1,517,637
------------ ------------ ------------
Cash flows provided by (used in) investing activities:
Loans (net of collections) (17,598,703) (26,159,208) (11,037,444)
Purchases of investment securities available for sale (11,693,941) (11,519,121) (7,500,815)
Proceeds from maturity of investment securities held to maturity -- 190,000 --
Proceeds from maturity of investment securities available for sale 5,000,000 7,000,000 7,000,000
Proceeds from called investment securities available for sale 1,000,000 6,500,000 1,000,000
Purchase of cash surrender value life insurance
policies to fund executive supplemental income -- (100,000) --
Purchase of Federal Home Loan Bank stock (89,500) (37,300) (41,300)
Purchase of Federal Reserve Bank stock (28,500) (7,500) (21,000)
Purchase of Independent Bankers' Bank of Florida stock (121,270) -- --
Purchase of premises and equipment (230,793) (84,092) (279,703)
Proceeds from refinancing of other real estate owned -- 4,300 --
Proceeds from the sale of other real estate owned 245,750 225,444 358,372
------------ ------------ ------------
Net cash used in investing activities (23,516,957) (23,987,477) (10,521,890)
============ ============ ============
</TABLE>
(Continued)
35
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
For each of the years in the three-year period ended December 31, 1999
<TABLE>
<CAPTION>
1999 1998 1997
------------- ----------- -----------
<S> <C> <C> <C>
Cash flows provided by financing activities:
Net increase in demand deposits, NOW accounts
and passbook savings accounts 3,379,541 12,194,941 7,819,123
Net increase in certificates of deposit 13,908,670 13,779,812 2,262,307
Principal repayments on mortgage notes payable (30,475) (28,120) (25,949)
Increase (decrease) in repurchase agreements 1,891,672 (1,238,099) 495,131
Proceeds (repayments) on Federal Home Loan
Bank borrowings 2,945,050 2,949,000 (46,113)
Shareholder dividends paid (86,522) (65,586) --
Proceeds from employee stock options exercised -- 1,215,000 --
Proceeds from sale of common stock -- 4,153 5,864
------------- ----------- -----------
Net cash provided by financing activities 22,007,936 28,811,101 10,510,363
------------- ----------- -----------
Net increase in cash and cash equivalents 588,985 6,925,382 1,506,110
Cash and cash equivalents at the beginning of the year 13,321,144 6,395,762 4,889,652
------------- ----------- -----------
Cash and cash equivalents at the end of the year $ 13,910,129 13,321,144 6,395,762
============= =========== ===========
Cash paid during the year for:
Interest $ 5,956,474 4,859,446 4,363,288
============= =========== ===========
Taxes $ 1,101,215 806,798 622,080
============= =========== ===========
Supplemental disclosures of non-cash transactions:
Transfer of other real estate owned to premises
and equipment $ -- -- 450,000
============= =========== ===========
Financing of other real estate owned $ -- 38,700 25,058
============= =========== ===========
Transfer of loans to other real estate owned $ 254,372 44,447 73,334
============= =========== ===========
Market value adjustment - investment securities
available for sale:
Market value adjustment - investments $ (572,279) (14,016) 34,341
Deferred income tax liability (215,177) (5,242) 12,923
------------- ----------- -----------
Unrealized gain (loss) on investments
available for sale, net $ (357,102) (8,774) 21,418
============= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of Commerce National Corporation and
its subsidiary conform to generally accepted accounting principles and
prevailing practices within the banking industry.
(a) Reporting Entity
Commerce National Corporation (the "Company") is a bank holding
company, which owns National Bank of Commerce (the "Bank"). The Bank's
primary market is Central Florida. The Bank is a member of the Federal
Reserve System and its deposits are insured by the Federal Deposit
Insurance Corporation.
(b) Principles of Consolidation
The consolidated financial statements of the Company include the
accounts of Commerce National Corporation and its wholly owned
subsidiary, National Bank of Commerce. The operations of the Company
consist primarily of the operations of the Bank. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
(c) Cash Equivalents
For purposes of the statement of cash flows, the Company considers
cash and due from banks, interest bearing deposits in other banks with
original maturities of three months or less and federal funds sold to
be cash equivalents.
(d) Investments Securities Available for Sale
Investments to be held for indefinite periods of time and not intended
to be held to maturity are classified as available for sale and are
carried at fair value. Unrealized holding gains and losses are
included in shareholders' equity net of the effect of income taxes.
If a security has a decline in fair value below its amortized cost
that is other than temporary, then the security will be written down
to its new cost basis by recording a loss in the consolidated
statements of operations. Realized gains and losses on investment
securities available for sale are computed using the specific
identification method.
(Continued)
37
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
(e) Loans
Loans are reported at their outstanding unpaid principal balance
reduced by any charge-offs or specific valuation accounts, net of any
deferred fees on originated loans.
Loan origination fees are deferred and recognized in income over the
contractual life of the loans, adjusted for estimated prepayments
based on the Bank's historical prepayment experience.
Commitment fees and costs relating to the commitments are recognized
over the commitment period on a straight-line basis. If the commitment
is exercised during the commitment period, the remaining unamortized
commitment fee at the time of exercise is recognized over the life of
the loan as an adjustment of yield.
Loans are placed on nonaccrual status when the loan becomes 90 days
past due as to interest or principal, unless the loan is both well
secured and in the process of collection, or when the full timely
collection of interest or principal becomes uncertain. When a loan is
placed on nonaccrual status, the accrued and unpaid interest
receivable is written off and the loan is accounted for on the cash or
cost recovery method thereafter until qualifying for return to accrual
status.
The Company considers a loan to be impaired when it is probable that
the Company will be unable to collect all amounts due, both principal
and interest, according to the contractual terms of the loan
agreement. When a loan is impaired, the Company may measure impairment
based on (a) the present value of the expected future cash flows of
the impaired loan discounted at the loan's original effective interest
rate, (b) the observable market price of the impaired loans, or (c)
the fair value of the collateral of a collateral-dependent loan. The
Company selects the measurement method on a loan-by-loan basis, except
for collateral-dependent loans for which foreclosure is probable must
be measured at the fair value of the collateral. In a troubled debt
restructuring involving a restructured loan, the Company measures
impairment by discounting the total expected future cash flows at the
loan's original effective rate of interest.
(f) Allowance for Loan Losses
The Company follows a consistent procedural discipline and accounts
for loan loss contingencies in accordance with Statement of Financial
Accounting Standards No. 5, "Accounting for Contingencies" (Statement
5). The following is a description of how each portion of the
allowance for loan losses is determined.
(Continued)
38
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
The Company segregates the loan portfolio for loan loss purposes into
the following broad segments such as: commercial real estate;
residential real estate; commercial business; and consumer loan. The
Company provides for a general allowance for losses inherent in the
portfolio by the above categories, which consists of two components.
General loss percentages are calculated based upon historical
analyses. A supplemental portion of the allowance is calculated for
inherent losses which probably exist as of the evaluation date even
though they might not have been identified by the more objective
processes used for the portion of the allowance described above. This
is due to the risk of error and/or inherent imprecision in the
process. This portion of the allowance is particularly subjective and
requires judgments based on qualitative factors which do not lend
themselves to exact mathematical calculations such as; trends in
delinquencies and nonaccruals; migration trends in the portfolio;
trends in volume, terms, and portfolio mix; new credit products and/or
changes in the geographic distribution of those products; changes in
lending policies and procedures; loan review reports on the efficacy
of the risk identification process; changes in the outlook for local,
regional and national economic conditions; concentrations of credit;
and peer group comparisons.
Specific allowances are provided in the event that the specific
collateral analysis on each classified loan indicates that the
probable loss upon liquidation of collateral would be in excess of the
general percentage allocation. The provision for loan losses is
debited or credited in order to state the allowance for loan losses to
the required level as determined above.
Regulatory examiners may require the Company to recognize additions to
the allowance based upon their judgments about the information
available to them at the time of their examination. Management
believes that the allowance for loan losses is adequate.
(g) Other Real Estate Owned
Real estate acquired in the settlement of loans is initially recorded
at the lower of cost (principal balance of the former loan plus costs
of obtaining title and possession) or at fair value less costs to
dispose. Costs relating to development and improvement of the property
are capitalized, whereas those relating to holding the property are
charged to operations.
(h) Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation which is computed principally on the straight-line method
over the estimated useful lives (3-40 years) of the assets. Leasehold
improvements are amortized on the straight-line method over the
shorter of the estimated useful lives (10-20 years) of the
improvements or the terms of the related lease.
(Continued)
39
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
(i) 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 consolidated balance sheet.
The Company adopted this Statement effective January 1, 1998 and
restated prior year financial statements to reflect the adoption. The
Company's other comprehensive income is the unrealized gain (loss) on
investment securities available for sale.
(j) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Deferred tax assets are
recognized subject to management's judgment that realization is more
likely than not.
(k) Derivative Instruments
The Company does not purchase, sell or enter into derivative financial
instruments or derivative commodity instruments as defined in
Statement of Financial Accounting Standards No. 119, "Disclosures
About Derivative Financial Instruments and Fair Value of Financial
Instruments" except for fixed rate loan commitments which the Company
believes are at market value at December 31, 1999.
(l) Effect of New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This statement, which
is effective for all fiscal quarters of 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. This statement sets forth the accounting for
changes in fair value of a derivative depending on the intended use
and designation of the derivative. Implementation of the statement is
not expected to have a significant impact on the financial position or
results of operations of the Company.
(Continued)
40
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
In June 1999, the FASB issued Statement of Financial Accounting
Standards No. 137 which amended the implementation date of SFAS No.
133 to be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000.
(m) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues
and expenses during the reporting period. These estimates include the
allowances for loan losses and other real estate owned and the
valuation for the deferred tax asset. Actual results could differ from
these estimates.
(2) Restrictions on Cash
The Company is required to maintain reserve balances in accordance with
Federal Reserve Bank requirements. At December 31, 1999 and 1998, these
reserve balances were $896,000 and $709,000, respectively.
(3) Investment Securities Available for Sale
The amortized cost and estimated market values of investment securities
available for sale at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 8,645,248 -- 151,498 8,493,750
Obligations of U.S. government
agencies 10,500,000 -- 420,781 10,079,219
------------ ------------ ---------- ----------
$ 19,145,248 -- 572,279 18,572,969
============ ============ ========== ==========
</TABLE>
(Continued)
41
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 5,007,095 13,844 -- 5,020,939
Obligations of U.S. government
agencies 8,499,581 27,140 55,000 8,471,721
------------ ---------- ---------- ------------
$ 13,506,676 40,984 55,000 13,492,660
============ ========== ========== ============
</TABLE>
The amortized cost and estimated market value of investment securities at
December 31, 1999 and 1998, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1999
------------------------------------
Estimated
Amortized cost market value
-------------- ------------
<S> <C> <C>
Investment securities available for sale:
Due within one year ---- ----
Due after one year through five years 19,145,248 18,572,969
-------------- ------------
$ 19,145,248 18,572,969
============== ============
December 31, 1998
------------------------------------
Investment securities available for sale:
Due within one year $ 5,007,095 5,020,939
Due after one year through five years 8,499,581 8,471,721
-------------- ------------
$ 13,506,676 13,492,660
============== ============
</TABLE>
At December 31, 1999 and 1998 investment securities with a book value of
$499,063 and $503,750 were pledged to collateralize the treasury tax and
loan account, respectively.
(Continued)
42
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
(4) Loans
Major categories of loans included in the loan portfolio at December 31,
1999 and 1998 are:
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Commercial -- secured $ 8,587,161 12,471,553
Commercial -- unsecured 3,651,972 2,886,847
Real estate, primarily commercial 126,390,506 105,820,828
Other (installments and overdrafts) 3,353,949 3,559,619
------------ -------------
141,983,588 124,738,847
Less:
Allowance for loan losses (1,629,823) (1,323,143)
Deferred loan origination fees, net (471,695) (486,599)
------------ -------------
$139,882,070 122,929,105
============ =============
</TABLE>
Certain principal shareholders, directors and employees and their related
interests were indebted to the Bank as summarized below:
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Balance, beginning of year $ 8,902,467 12,996,264
Additional new loans 3,415,333 3,068,704
Repayments on outstanding loans (4,376,904) (7,162,501)
------------ -------------
Balance, end of year $ 7,940,896 8,902,467
============ =============
</TABLE>
All such loans were made in the ordinary course of business. At December
31, 1999 and 1998, principal shareholders, directors and employees of the
Company and their related interests had $3,093,583 and $3,359,124,
respectively, available in lines of credit and commitments.
At December 31, 1999 and 1998, the recorded investment in impaired loans
was $971,219 and $370,958, respectively. The related allowance for loan
losses at December 31, 1999 and 1998 was $286,113 and $110,380,
respectively. The average recorded investment in impaired loans during
1999, 1998 and 1997 was $671,089, $212,693 and $27,214, respectively.
Interest income recognized on impaired loans during 1999, 1998 and 1997 was
$-0-.
(Continued)
43
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
Changes in the allowance for loan losses for the years ended December 31,
1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
Balance, beginning of year $ 1,323,143 1,013,081 887,803
Provisions charged to operations 406,270 424,012 179,000
Charge offs:
Real estate loans (3,000) -- --
Installment loans -- (81,257) (8,524)
Commercial loans (99,789) (104,790) (63,064)
Recoveries:
Real estate loans -- -- --
Installment loans 46 -- --
Commercial loans 3,153 72,097 17,866
------------ ------------ -------------
Balance, end of year $ 1,629,823 1,323,143 1,013,081
============ ============ =============
</TABLE>
At December 31, 1999 and 1998, nonaccrual loans were $2,776,419 and
$782,547, respectively. If interest due on all nonaccrual loans had been
accrued at the original contract rates, estimated interest income would
have been increased by $131,247 in 1999, $42,776 in 1998 and $83,917 in
1997.
(5) Premises and Equipment
A summary of premises and equipment at December 31, 1999 and 1998 follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Land and land improvements $ 1,949,971 1,949,971
Furniture, fixtures and equipment 2,134,084 1,907,258
Bank buildings 1,137,669 1,137,669
Leasehold improvements 232,763 228,796
------------ ------------
5,454,487 5,223,694
Less accumulated depreciation (1,874,370) (1,524,739)
------------ ------------
$ 3,580,117 3,698,955
============ ============
</TABLE>
(Continued)
44
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
(6) Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating fair values of financial instruments as disclosed herein:
Cash and Cash Equivalents - The carrying amount of cash and cash
equivalents represents fair value.
Investments - The Company's investment securities represent investments
in U.S. Government obligations, U.S. Government Agency securities, and
state and political subdivisions. The Company's equity investments at
year-end represent stock investments in the Federal Home Loan Bank, the
Federal Reserve Bank and Independent Bankers' Bank of Florida. The stock
is not publicly traded and the carrying amount was used to estimate the
fair value. The fair value of the U.S. Government obligations and U.S.
Government Agency obligations and state and local political subdivision
portfolios was estimated based on quoted market prices.
Loans - For variable rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. Fair values for commercial real estate, commercial and consumer
loans other than variable rate loans are estimated using discounted cash
flow analysis, using interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality. Fair values of
impaired loans are estimated using discounted cash flow analysis or
underlying collateral values, where applicable.
Deposits - The fair values disclosed for demand deposits are, by
definition, equal to the amount payable on demand at December 31, 1999
and 1998 (that is their carrying amounts). The carrying amounts of
variable rate, fixed term money market accounts and certificates of
deposit (CDs) approximate their fair value at the reporting date. Fair
values for fixed rate CDs are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on
time deposits.
Federal Home Loan Bank Advances and Other Borrowings - Fair values of
Federal Home Loan Bank advances and other borrowings are estimated using
discounted cash flow analysis based on the Company's current borrowing
rates for similar types of borrowing arrangements. The carrying amount of
the repurchase agreements approximates their fair value.
Commitments - The carrying values and fair values of commitments to
extend credit and standby letters of credit are not significant.
(Continued)
45
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
The following tables present the carrying amounts and estimated fair values
of the Company's financial instruments.
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------
Carrying amount Fair value
--------------- ---------------
<S> <C> <C>
Financial assets:
Cash and due from banks and federal
funds sold $ 13,910,129 13,910,129
Investment securities available for sale 18,572,969 18,572,969
Loans (carrying amount less allowance
for loan losses of $1,629,823) 139,894,702 139,882,070
Financial liabilities:
Deposits:
Without stated maturities $ 77,302,508 77,302,508
With stated maturities 76,942,318 77,086,156
Federal Home Loan Bank advances 7,070,584 7,070,584
Other borrowings 4,050,448 4,050,448
December 31, 1999
-------------------------------------
Carrying amount Fair value
--------------- ---------------
Financial assets:
Cash and due from banks and federal
funds sold $ 13,321,144 13,321,144
Investment securities available for sale 13,492,660 13,492,660
Loans (carrying amount less allowance
for loan losses of $1,323,143) 122,929,105 123,233,682
Financial liabilities:
Deposits:
Without stated maturities $ 73,922,966 73,922,966
With stated maturities 63,177,487 62,395,096
Federal Home Loan Bank advances 4,125,534 4,125,534
Other borrowings 2,189,251 2,187,626
</TABLE>
The carrying amounts shown in the tables are included in the consolidated
balance sheets under the indicated captions.
(Continued)
46
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
(7) Deposits
A detail of deposits at December 31, 1999 and 1998 follows:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Noninterest-bearing demand deposits $ 22,237,911 21,301,512
Interest-bearing:
NOW accounts 17,846,968 17,555,353
Money market 7,313,759 9,254,044
Savings accounts 29,903,869 25,812,057
Time accounts less than $100,000 25,892,297 22,471,157
Time accounts greater than $100,000 51,193,860 40,706,330
------------- -------------
$ 154,388,664 137,100,453
============= =============
</TABLE>
Included in interest-bearing deposits are certificates of deposit, which
have remaining maturities at December 31, 1999 and 1998 as follows:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
One year $ 28,806,495 33,650,464
Two year 43,075,888 25,256,792
Three year 2,984,319 2,296,692
Four year 304,289 250,570
Five year 1,096,283 1,522,969
Thereafter 818,883 200,000
------------- -------------
$ 77,086,157 63,177,487
============= =============
</TABLE>
A summary of interest expense on deposits and other borrowed money is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Time deposits of $100,000 or greater $ 2,284,400 1,863,450 1,599,542
Time deposits less than $100,000 1,409,482 1,284,348 1,199,018
Interest-bearing demand deposits 578,950 511,261 507,149
Savings deposits 1,237,109 978,846 774,011
Interest on borrowings 527,194 280,151 280,426
------------- ------------- -------------
Interest on deposits and other
borrowed money $ 6,037,135 4,918,056 4,360,146
============= ============= =============
</TABLE>
47
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
The Company had deposits from principal shareholders, directors and
employees and their related interests of approximately $25,994,346 and
$21,345,867 at December 31, 1999 and 1998, respectively. There were no
brokered deposits outstanding at year-end.
(8) Federal Home Loan Bank Advances
Federal Home Loan Bank advances at December 31, 1999 and 1998, are
summarized as follows:
1999 1998
---------- ---------
Advances from the Federal Home Loan Bank (weighted
average interest rates were 5.49% and 5.66% at
December 31, 1999 and 1998, respectively) $7,070,584 4,125,534
========== =========
Pursuant to collateral agreements with the Federal Home Loan Bank ("FHLB"),
advances are secured by first mortgage loans in the amount of $11,972,501
and $8,292,200 at December 31, 1999 and 1998, respectively. Advances at
December 31, 1999 have calendar-year maturity dates as follows:
2000 $ 55,000
2001 60,500
2002 108,200
2003 360,600
2004 --
Thereafter 6,486,284
-----------
$ 7,070,584
===========
In addition, the advances are secured by Federal Home Loan Bank stock
valued at $468,100 and $378,600 on December 31, 1999 and 1998,
respectively.
(Continued)
48
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
(9) Other Borrowed Funds
Other borrowed funds consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1999 1998
---------------------------- --------------------------------
Weighted Weighted
average average
Amount rate Amount rate
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Short-term borrowings:
Repurchase agreements secured by
U.S. Treasury securities with market
values of $3,808,425 and
$1,917,182 as of December 31,
1999 and 1998, respectively,
repurchase dates in January 2000
and 1999 $ 3,810,479 4.32% $ 1,918,807 4.58%
----------- ---- ----------- ----
Total short-term borrowings 3,810,479 4.32% 1,918,807 4.58%
----------- ---- ----------- ----
Long-term borrowings:
Mortgage note payable with monthly
installments of $2,000, including interest
at 8%, maturing October 2002 and secured by
real estate with a book value of $400,000 60,520 8.00% 78,799 8.00%
Mortgage note payable with monthly
installments of $650, including interest at
8%, maturing July 2008 and secured by real
estate with a book value of $65,000 48,432 8.00% 52,193 8.00%
Mortgage note payable with monthly
installments of $1,607, including interest
at 8%, maturing October 2009 and secured by
real estate with a book value of $375,000 131,017 8.00% 139,452 8.00%
----------- ---- ----------- ----
Total long-term borrowings 239,969 8.00% 270,444 8.00%
----------- ---- ----------- ----
Total other borrowed money $ 4,050,448 4.54% $ 2,189,251 5.00%
=========== ==== =========== ====
</TABLE>
(Continued)
49
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
Aggregate maturities on the mortgage notes payable at December 31, 1999 are
as follows:
2000 $ 32,936
2001 35,726
2002 34,876
2003 16,781
2004 18,173
Thereafter 101,477
----------
$ 239,969
==========
The Bank enters into sales of securities under agreements to repurchase.
These fixed-coupon agreements are treated as financings, and the
obligations to repurchase securities sold are reflected as a liability in
the consolidated balance sheet. The dollar amount of securities underlying
the agreements remains in the asset accounts.
The repurchase agreements were to repurchase the identical securities as
those, which were sold. Retail repurchase agreements averaged $2,716,655
and $3,416,081 during the years ended December 31, 1999 and 1998,
respectively. The maximum amount outstanding at any month-end for the
corresponding periods was $4,119,264 and $4,888,175, respectively. Total
interest expense paid on retail repurchase agreements for the years ending
December 31, 1999, 1998 and 1997 was $120,997, $165,219 and $163,261,
respectively.
The Bank has available repurchase lines equal to the amount of all
unpledged investment securities.
(10) Income Taxes
The provision for income taxes for 1999, 1998 and 1997 consists of the
following:
Current Deferred Total
---------- -------- --------
Year ended December 31, 1999:
Federal $ 895,362 (125,160) 770,202
State 124,442 (21,425) 103,017
---------- -------- --------
$1,019,804 (146,585) 873,219
========== ======== ========
Year ended December 31, 1998:
Federal $ 745,351 (35,492) 709,859
State 106,195 (3,788) 102,407
---------- -------- --------
$ 851,546 (39,280) 812,266
========== ======== ========
(Continued)
50
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
Current Deferred Total
--------- ---------- --------
Year ended December 31, 1997:
Federal $ 569,256 (132,890) 436,366
State 76,652 (15,011) 61,641
--------- --------- --------
$ 645,908 (147,901) 498,007
========= ========= ========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1999 and 1998 are presented below.
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Deferred tax assets:
Loans, due to allowance for loan losses $ 562,002 458,787
Executive supplemental income 104,574 79,322
Unrealized loss on investment securities available for sale 215,177 5,242
Other 12,507 3,769
--------- --------
Total deferred tax assets 894,260 547,120
--------- --------
Deferred tax liabilities;
Premises and equipment, due to differences in
depreciation methods and useful lives 69,449 67,308
Investments, due to accretion 341 11,862
FHLB stock dividend 8,960 8,960
--------- --------
Total deferred tax liabilities 78,750 88,130
--------- --------
Net deferred tax asset $ 815,510 458,990
========= ========
</TABLE>
The Company has recorded a deferred tax asset of $815,510 and $458,990 as
of December 31, 1999 and 1998, respectively. Management believes no
valuation allowance as defined by SFAS 109 is required at December 31, 1999
and 1998.
(Continued)
51
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
A reconciliation between the actual tax expense and the "expected" tax
expense (computed by applying the U.S. federal corporate tax rate of 34% to
earnings before income taxes) is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- -------- --------
<S> <C> <C> <C>
"Expected" tax expense $ 817,785 765,603 352,414
Directors stock option plan -- -- 110,774
State income tax expense, net of federal benefit 67,991 67,588 40,683
Life insurance premiums on officers (23,918) (21,976) (21,722)
Meals and entertainment and dues 4,380 6,229 10,788
Club dues 3,849 2,948 1,368
Tax exempt interest -- (1,084) (2,148)
Other 3,132 (7,042) 5,850
----------- -------- --------
Actual tax expense $ 873,219 812,266 498,007
=========== ======== ========
</TABLE>
(11) Shareholders' Equity
At fiscal years ended December 31, 1999 and 1998, the Bank's balance in
retained earnings was $7,150,526 and $5,499,671, respectively. The
restrictions on dividend payments are imposed by the Bank's primary
regulator, The Office of the Comptroller of the Currency (OCC).
On October 20, 1997, the Company amended the director's stock option plan
to extend the expiration date of the options from December 31, 1997 to
February 1, 1998, and to include the option for the directors to exercise
their options by paying cash of $10 per share or paying with stock valued
at $15.50 per share and receive shares valued at $10 per share. The Company
has elected to account for the options under Accounting Principles Board
("APB") No. 25 "Accounting for Stock Issued to Employees". According to APB
No. 25, renewing or extending the option period establishes a new
measurement date as if the right was newly granted. Therefore, the Company
recorded compensation expense to the extent of the excess of the value of
the stock over the purchase price ($15 less $10), resulting in a $650,000
compensation expense for fiscal year 1997.
(Continued)
52
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
(12) Rent
The following is a schedule of future minimum annual rentals under the
noncancellable operating leases relating primarily to the Company's main
office facility:
Year ended
----------
2000 $ 502,006
2001 514,724
2002 519,490
2003 152,890
2004 7,335
----------
$1,696,445
==========
Rent expense for the years ended December 31, 1999, 1998 and 1997 was
$463,496, $444,386 and $410,803, respectively.
The landlord of the Company's facilities is a partnership, which is owned
in part by certain of the Company's directors. This lease expires on
January 1, 2003.
(13) Employee Savings Plan
The Company sponsors an employee savings plan, which qualifies as a 401(k)
plan under the Internal Revenue Code. Under the plan, employees may
contribute up to 20% of their pre-tax compensation. The Company makes
contributions on a discretionary basis as approved by the Board of
Directors. Participants vest immediately in their own contributions and
after one year of service in contributions made by the Company. Employee
savings plan expense for the years ended December 31, 1999, 1998 and 1997
was $51,935, $49,992 and $32,509, respectively.
(14) Regulatory Capital
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Company must meet specific capital guidelines that involve
quantitative measures of the Company's assets, liabilities and certain off-
balance-sheet items as calculated under regulatory accounting practices.
The Company's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings
and other factors.
(Continued)
53
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets. Management believes, as of December
31, 1999, that the Company meets all capital adequacy requirements to which
it is subject.
As of December 31, 1999, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Company must maintain total risk-
based, Tier I risk-based and Tier I leverage ratios as set forth in the
table. There are no conditions or events since that notification that
management believes have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the
table. If the holding company were included, amounts would be in excess of
these amounts.
<TABLE>
<CAPTION>
To be well capitalized
under prompt
For capital adequacy corrective action
Actual purposes provisions
------------------------ ---------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
------------------------ ---------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total capital (to risk weighted assets) $ 15,672,350 10.76% 11,652,210 *8.0% 14,565,263 *10.0%
Tier I capital (to risk weighted assets) 14,050,526 9.65% 5,826,105 *4.0% 8,739,158 *6.0%
Tier I capital (to average assets) 14,050,526 7.89% 7,122,855 *4.0% 8,903,569 *5.0%
As of December 31, 1998:
Total capital (to risk weighted assets) $ 13,195,622 10.10% 10,451,095 *8.0% 13,063,868 *10.0%
Tier I capital (to risk weighted assets) 11,880,478 9.09% 5,225,547 *4.0% 7,838,321 *6.0%
Tier I capital (to average assets) 11,880,478 8.00% 5,942,026 *4.0% 7,427,533 *5.0%
</TABLE>
* Greater than or equals to.
(Continued)
54
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
(15) Stock Option Plans
During the year, the Bank approved incentive stock plans for its directors
and employees. In April 1999, the Bank authorized 100,000 common shares for
future options for the directors under an incentive stock option and non-
statutory stock option plan. The number of options granted to each director
shall not exceed 5,000 shares. Each option provides that the underlying
option expires no later than December 31, 2008 and vesting occurs at the
time of grant. During the year, the Bank granted an initial 6,544 options
with an exercise price of $21.00 per share. As of December 31, 1999, there
were 6,544 options vested and outstanding. No options were exercised during
the year.
Also in April 1999, the shareholders ratified a plan approved by the board
of directors in December 1998, which authorized 100,000 common shares for
future options for the employees under an incentive stock option and non-
statutory stock option plan. Each option provides that the underlying
option expires no later than ten years from the date of grant and vesting
occurs at the time of grant. During April 1999, the Bank granted an initial
10,000 options with an exercise price of $15.00 per share, which was the
estimated market value per share at the time the plan was approved by the
board of directors. During November 1999, an additional 7,750 shares were
granted with an exercise price of $21.00 per share. As of December 31,
1999, there were 17,750 options vested and outstanding. No options were
exercised during the year.
In addition, the Bank currently has a stock appreciation rights plan for
the directors. In April 1999, the Bank granted each of the directors an
initial 260 phantom shares. For each meeting attended during the year, the
director received 24 shares not to exceed a total of 240 shares during any
year. The phantom share value is recalculated each year based upon the
change in equity per share from the previous year, which is determined by
taking the equity of the Company and dividing it by the total number of
shares outstanding. Each year, the Company will accrue that amount in a
stock appreciation account. At December 31, 1999, the stock appreciation
account had a value of $10,078 and the Bank incurred an expense of $10,078
for the year.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plan. Accordingly, no compensation cost has been
recognized for its stock option plan. Had compensation cost for the
Company's stock-based compensation plan been determined consistent with
FASB Statement No. 123, the Company's net income would have been reduced to
the pro forma amounts indicated below:
1999 1998 1997
---------- --------- -------
Net income:
As reported $1,532,032 1,439,507 538,506
Pro forma 1,359,427 1,439,507 538,506
Diluted earnings per share:
As reported 2.12 2.03 .88
Pro forma 1.89 2.03 .88
(Continued)
55
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
The fair value of each option granted was estimated on the date of grant
using the minimum value method with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively; dividend
yield of .69 percent, .60 percent and -0- percent, respectively; expected
volatility of -0- percent for all years; risk-free interest rates of 6.20
percent, -0- percent and 5.36 percent and expected lives of 9.5 years, -0-
years and 17 years for the plan options.
A summary of the status of the Bank's stock option plan as of December 31,
1999, 1998, and 1997 and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
Fixed options 1999 1998 1997
-------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Outstanding at beginning of year: -- 130,000 122,000
Granted 24,294 -- 138,000
Exercised -- 121,500 --
Forfeited -- 8,500 130,000
-------- -------- --------
Outstanding at end of year 24,294 -- 130,000
-------- -------- --------
Options exercisable at year-end 24,294 -- 130,000
======== ======== ========
Weighted-average fair value of options
granted during the year per share $ 7.10 -- 5.00
======== ======== ========
</TABLE>
(Continued)
56
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
(16) Parent Company Only Financial Statements
Condensed financial statements of Commerce National Corporation (parent
company only) follow:
<TABLE>
<CAPTION>
Condensed Balance Sheets
--------------------------
December 31, 1999 and 1998
1999 1998
----------- -----------
<S> <C>
Assets:
Cash and interest bearing deposits $ 38,951 24,209
Investment in wholly-owned bank subsidiary 13,693,424 11,940,898
Loans, net 342,148 849,659
Other assets 9,326 151,963
----------- -----------
$14,083,849 12,966,729
=========== ===========
Liabilities:
Accounts payable and other liabilities $ 19,938 --
----------- -----------
Stockholders' equity:
Common stock 74,282 74,282
Additional paid-in capital 7,927,804 7,927,804
Retained earnings 6,627,567 5,182,057
Treasury stock, at cost (21,800 shares) (208,640) (208,640)
Accumulated other comprehensive income (loss) (357,102) (8,774)
----------- -----------
Total stockholders' equity 14,063,911 12,966,729
----------- -----------
Total liabilities and stockholders' equity $14,083,849 12,966,729
=========== ===========
</TABLE>
(Continued)
57
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
No dividends were paid by the Bank subsidiary to Commerce National
Corporation for 1999, 1998 or 1997. The Bank is in compliance with banking
regulations regarding the payment of dividends.
Condensed Statements of Operations
----------------------------------
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- --------- -----------
<S> <C> <C> <C>
Revenue - interest income $ 53,116 110,412 49,373
----------- --------- -----------
Expenses:
Directors stock option plan -- -- 650,000
Legal and professional fees 15,827 27,279 12,328
Other, net 156,112 68,379 (85,045)
----------- --------- -----------
Total expenses 171,939 95,658 577,283
----------- --------- -----------
Income (loss) before equity in net
earnings of subsidiary (118,823) 14,754 (527,910)
Equity in net earnings of subsidiary 1,650,855 1,424,753 1,066,416
----------- --------- -----------
Net income $ 1,532,032 1,439,507 538,506
=========== ========== ===========
</TABLE>
(Continued)
58
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
Condensed Statements of Cash Flows
----------------------------------
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income $ 1,532,032 1,439,507 538,506
Directors stock option plan -- -- 650,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accounts payable and other 19,938 -- --
liabilities
Equity in subsidiary (1,650,855) (1,424,753) (1,066,416)
Decrease (increase) in other assets 142,638 (3,564) (111,072)
------------ ---------- ---------
Net cash provided by (used in) operating
activities 43,753 11,190 11,018
------------ ---------- ---------
Cash flows provided by (used in) investing activities:
Net repayment of loans (net loans to customers) 507,511 (560,033) 800,968
------------ ---------- ---------
Cash flows provided by ( used in) financing activities:
Capital infusion to the subsidiary (450,000) (750,000) (700,000)
Shareholder dividends paid (86,522) (65,586) --
Employee stock options exercised -- 1,215,000 --
Sale of common stock -- 4,153 5,864
------------ ---------- ---------
Net cash provided by (used in) financing
activities (536,522) 403,567 (694,136)
------------ ---------- ---------
Net increase (decrease) in cash and cash
equivalents 14,742 (145,276) 117,850
Cash and cash equivalents at beginning of year 24,209 169,485 51,635
------------ ---------- ---------
Cash and cash equivalents at end of year $ 38,951 24,209 169,485
============ ========== =========
Supplemental disclosure of noncash transactions:
Market value adjustment - Bank investment securities
available for sale:
Market value adjustment - investments $ (572,279) (14,016) 34,341
Deferred income tax liability (215,177) (5,242) 12,923
------------ ---------- ---------
Unrealized (loss) gain on investment
securities available for sale, net $ (357,102) (8,774) 21,418
============ ========== =========
</TABLE>
(Continued)
59
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
(17) Executive Supplemental Income Plan
The Bank implemented an executive supplemental income plan (the "Plan")
during 1995 to provide supplemental income to four of its current
executives after their retirement. The funding of the Plan involved the
purchase of four cash surrender value life insurance policies, which
totaled $1,295,000. The Plan is structured such that each participant is
scheduled to receive specified levels of income after the retirement age of
65 for fifteen years. In the event a participant leaves the employment of
the Bank before retirement, only the benefits vested through that date
would be paid to the employee. The Plan also provides for 100% vesting in
the event of a change in Bank ownership. The accounting for the Plan is as
follows: Monthly, the Company records the mortality cost as a reduction of
the asset. Interest for the policies is recorded to the asset and salary
continuation expenses are accrued.
The Bank has approximately $278,000 and $211,000 in deferred compensation
accrued at December 31, 1999 and 1998, respectively, which is included in
accounts payable and other liabilities in the accompanying consolidated
balance sheets. The Bank incurred charges of $77,612 and $69,041 in
connection with the Plan during 1999 and 1998, respectively.
(18) Credit Commitments
The Bank has outstanding at any time a significant number of commitments to
extend credit. These arrangements are subject to strict credit control
assessments and each customer's credit worthiness is evaluated on a case-
by-case basis. A summary of commitments to extend credit and standby
letters of credit written at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Standby letters of credit $ 374,858 714,583
Total lines of credit 78,521,867 68,306,642
Unfunded firm loan commitments-variable rate 32,880,119 29,135,729
</TABLE>
Because many commitments expire without being funded in whole or part, the
contract amounts are not estimates of future cash flows.
The majority of loan commitments have terms up to one year, and have
variable interest rates which range from 9% to 9.5%.
(Continued)
60
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
Loan commitments written have off-balance-sheet credit risk because only
original fees are recognized in the statement of financial position until
the commitments are fulfilled or expire. Credit risk represents the
accounting loss that would be recognized at the reporting date if
counterparties failed completely to perform as contracted. The credit risk
amounts are equal to the contractual amounts, assuming that the amounts are
fully advanced and that collateral or other security is of no value.
The Bank's policy is to require customers to provide collateral prior to
the disbursement of approved loans. The amount of collateral obtained, if
it is deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies
but may include accounts receivable, inventory, real estate and income
producing commercial properties.
Standby letters of credit are contractual commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
(19) Concentration of Credit Risk
The Bank originates real estate, consumer and commercial loans primarily in
its Central Florida market area. Although the Bank has a diversified loan
portfolio, a substantial portion of its borrowers' ability to honor their
contracts is dependent upon the economy of Central Florida. The Bank does
not have a significant exposure to any individual customer or counterparty.
(20) Subsequent Event
On March 3, 2000, the Company entered into a definitive agreement with
Wachovia Corporation ("Wachovia"). The agreement provides for a tax-free
exchange of common shares of the Company at a ratio of between a minimum of
.8421 and a maximum of 1.0526 shares of Wachovia, or a value of $54 per
Company share. The transaction is subject to approval by regulatory
authorities and Company shareholders.
(Continued)
61
<PAGE>
COMMERCE NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
(21) Basic and Diluted Earnings Per Share
Basic and diluted earnings per share are calculated as follows:
<TABLE>
<CAPTION>
Income Shares Per share
(numerator) (denominator) amount
------------ ------------- ----------
<S> <C> <C> <C>
1999:
Basic earnings per share:
Net income $ 1,532,032 721,019 $ 2.12
==========
Effect of Dilutive Securities:
Stock options -- --
------------ ------------
Diluted earnings per share:
Income and assumed conversions $ 1,532,032 721,019 $ 2.12
============ ============ ==========
1998:
Basic earnings per share:
Net income $ 1,439,507 710,421 $ 2.03
==========
Effect of Dilutive Securities:
Stock options -- --
------------ ------------
Diluted earnings per share:
Income and assumed conversions $ 1,439,507 710,421 $ 2.03
============ ============ ==========
1997:
Basic earnings per share:
Net income $ 538,506 596,113 $ .90
==========
Effect of Dilutive Securities:
Stock options -- 18,635
------------ ------------
Diluted earnings per share:
Income and assumed conversions $ 538,506 614,748 $ .88
============= ============ ==========
</TABLE>
62
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure None.
--------------------
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The name, age, affiliation with the Company and date such affiliation
commenced of each executive officer and director of the Company is presented in
the following chart. Each director listed below was elected by the Company's
shareholders and will hold office for the term designated and until his
successor is duly elected and qualified. Additional information concerning
business experience of each individual is set forth in the narrative section
following the chart.
- -------------------------------------------------------------------------------
YEARS
REMAINING APPROXIMATE
IN TERM HELD OFFICE
NAME AGE POSITION ELECTED (1) SINCE
- -------------------------------------------------------------------------------
Russell Barkett 60 Director 2 December, 1992
- -------------------------------------------------------------------------------
C. Durham Barnes, M.D. 58 Director 1 February, 1985
- -------------------------------------------------------------------------------
Robert E. Battaglia 53 Director 0(1) February, 1985
- -------------------------------------------------------------------------------
Robert B. Boswell, M.D. 54 Director 2 February, 1985
- -------------------------------------------------------------------------------
Kenneth M. Clayton 51 Director 1 February, 1985
- -------------------------------------------------------------------------------
Guy D. Colado 55 President & 1 February, 1985
Chairman
- -------------------------------------------------------------------------------
Ernst R. Janvrin 54 Director 0(1) April, 1996
- -------------------------------------------------------------------------------
Anthony Lombardi, Jr. 52 Director 1 April, 1996
- -------------------------------------------------------------------------------
Jane H. Louttit 54 Director 0(1) April, 1996
- -------------------------------------------------------------------------------
Stephen G. Miller 44 Director 2 April, 1996
- -------------------------------------------------------------------------------
Willie C. Moss 65 Director 2 December, 1992
- -------------------------------------------------------------------------------
Frederick A. Raffa, Ph.D. 56 Director 2 February, 1985
- -------------------------------------------------------------------------------
Alan M. Scarboro 50 Vice President N/A March, 1989
Sec./Treas.
- -------------------------------------------------------------------------------
W. Charles Shuffield 55 Director 0(1) February, 1985
- -------------------------------------------------------------------------------
(1) Has been nominated for election for a three year term which nomination will
be voted on at the Annual Shareholders' Meeting scheduled for May 30,
2000.
63
<PAGE>
Each individual designated above also is a member of the board of directors for
the Bank. The members of the Compensation Committee of the Company for 1998 were
W. Charles Shuffield, Ernst R. Janvrin, Willie C. Moss, Kenneth M. Clayton, Guy
D. Colado, Marsha J. Wheeler, Russell Barkett and Stephen G. Miller. Mr. Colado,
a member of the Committee, is the President, CEO and Chairman of the Company and
the Bank and is excused from discussions concerning his compensation. The Bank's
officers are appointed by the board of directors of the Bank and hold office at
the will of such board. The Bank's executive officers presently are:
NAME POSITION WITH BANK
---- ------------------
Guy D. Colado President, CEO and Chairman
Marsha J. Wheeler Sr. Vice President/COO
Jerry H. Johns, III Sr. Vice President/Lending
John R. Casebier Sr. Vice President
RUSSELL BARKETT is a native of Florida, born in Miami, and a resident of
Maitland, Florida. Mr. Barkett is a graduate of the University of Florida and
the University of West Florida. He is a Certified Public Accountant and a member
of the American and Florida Institutes of Certified Public Accountants and the
American Management Association. Mr. Barkett is past Treasurer of the Downtown
Kiwanis Club and of the Florida Citrus Sports Association. Mr. Barkett is
currently Vice President, Chief Financial Officer and Secretary/Treasurer of all
Davgar Restaurants, Inc. entities, and he has been in this position since 1976.
C. DURHAM BARNES, M.D. is a native of Florida and a resident of Winter
Park, Florida. Dr. Barnes has been a practicing physician and President of
Central Florida Retina Consultants since 1979 and is a member of the Board of
Directors of the Orange County Medical Society. In addition, Dr. Barnes has been
actively involved in community service and has served on the Board of Directors
of the Central Florida Chapter of the American Diabetic Association and Humana
Hospital Lucerne Board of Trustees.
ROBERT E. BATTAGLIA is a native of Florida and a resident of Winter Park,
Florida. Since October 1976, Mr. Battaglia has been President of Battaglia Fruit
Co., Inc., a citrus grower, harvester, and land owner in Central Florida, and is
currently a director of Florida Citrus Mutual. In addition to operating the
citrus activities, Mr. Battaglia is a member at the First Presbyterian Church of
Orlando, a Director of The Orlando Margarita Society (charitable non-profit
organization), Vice Chairman of the Central Region Council to Prevent Blindness
Florida; and a member of the Citrus Advisory Committee of Florida Citrus Sports
Association.
ROBERT B. BOSWELL, M.D. is a resident of Winter Park, Florida. Since 1979,
Dr. Boswell has been engaged in the private practice of cardiology in Orlando,
Florida. In addition, since 1979, Dr. Boswell has been a Fellow of the American
College of Cardiology and a member of the American Heart Association. He is an
invasive cardiologist with interest in pacemakers and nuclear cardiology.
KENNETH M. CLAYTON is a native of Florida and a resident of Orlando,
Florida. Mr. Clayton has actively practiced law in Orlando, Florida, since May
of 1974 in a variety of civil law areas. Since October 1987, Mr. Clayton has
been a partner in the law firm of Clayton &
64
<PAGE>
McCulloh. In addition, Mr. Clayton is a past president and founder of the Mid-
Florida Chapter of Community Associations Institute. Mr. Clayton is a member of
the Orlando Area Chamber of Commerce, American Bar Association, The Florida Bar,
the Orange County Bar Association and has served on various committees for such
organizations.
GUY D. COLADO is a native Floridian and a lifelong resident of Winter Park,
Florida. From June of 1984 to the present, Mr. Colado has been primarily engaged
in the organization and operation of the Company and the Bank, which entailed
the preparation and filing of the necessary applications with regulatory
authorities, activities concerning the site location and day to day operations.
Since the Bank's opening in August, 1986, he has served as President and Chief
Executive Officer of the Company and the Bank. Effective January 1, 2000, he was
also elected as Chairman of the Board. From March of 1982 to May of 1984, Mr.
Colado served as Vice President of the Florida National Bank of Orlando. From
July of 1980 to February of 1982, Mr. Colado was President of Tropic Bank of
Seminole and was involved in all aspects of a small community bank which had two
branches. From September of 1977 to July of 1980, Mr. Colado was Vice President
and Manager of the Winter Park branch of Sun Bank, National Association,
Orlando, and served from May of 1971 to July of 1980 as assistant manager of the
real estate loan department for Sun Bank as well as in various other capacities.
Mr. Colado is a participant in several professional community and charitable
organizations, groups and committees. He is also retired from the U.S. Army
Reserves.
ERNST R. JANVRIN has been a resident of Orlando, Florida since 1975. Mr.
Janvrin is the senior partner and partner-in-charge of Janvrin & Regan, P.A., a
local CPA firm created in 1984 in Winter Park, Florida, which concentrates their
practice in small business and individual accounting and tax matters. Mr.
Janvrin is past president of the Florida Institute of CPA's (Central Florida
Chapter), a member of the American Institute of CPA's and the Florida Institute
of CPA's. He is currently serving as chairman of the Special Project Committee
of the local chapter of the Florida Institute of CPA's.
ANTHONY LOMBARDI, JR. is a native of Florida and a resident of Windermere,
Florida. From 1980 to 1996, Mr. Lombardi served as Vice President of Lombardi's
Seafood, Inc., a processor, importer, distributor and retainer of seafood. In
1996, Mr. Lombardi was elected president of Lombardi's. Mr. Lombardi has served
on the Board of Directors of the Southeastern Fisheries Association and also The
National Fisheries Institute and is a member of the National Shrimp Processors
Association. Mr. Lombardi is a member of Holy Family Catholic Church in Orlando,
Florida.
JANE H. LOUTTIT has lived in the Orlando area since 1975. Mrs. Louttit has
worked for Maitland Family Practice since 1975 and currently serves as
Administrator. Mrs. Louttit has been active in the Junior League of Greater
Orlando, serving on the Board of Directors as Secretary and Treasurer. She is a
member of St. Richard's Episcopal Church and has served on the Vestry, as
Secretary of the Executive Committee, and from 1985 to 1996 as Directress of the
Altar Guild. From 1990 through 1996, Mrs. Louttit was a Trustee at Trinity
Preparatory School, including two years on the Executive Committee as Secretary
of the Board. She has served on numerous other church, civic, and school
committees both as a member and as Chairperson.
65
<PAGE>
STEPHEN G. MILLER is a native of Florida and a resident of Winter Park,
Florida. Since 1983, Mr. Miller has been the treasurer of Miller Hardware, Inc.,
a well-known establishment in Winter Park, Florida. Before entering the family
business, Mr. Miller was a practicing CPA with KPMG Peat Marwick and Coopers &
Lybrand CPA's. From 1981 - 1984, Mr. Miller served as Corporate Controller and
Vice President of Finance of Applied Devices Corporation, a publicly-held
defense contractor. In addition, Mr. Miller has been actively involved in
community service and has served on the Winter Park Public Library Board of
Trustees, and the Winter Park Chamber of Commerce Board of Directors and
Executive Committee. Mr. Miller is currently a member of the Florida Institute
of CPA's.
WILLIE C. MOSS has been a resident of Orlando, Florida since 1968. Mr. Moss
is currently and has been since 1968, President and owner of Data Dimensions,
Inc., a computer software company that supplies software to savings and loan,
savings banks and banks nationwide. Prior to 1968, Mr. Moss was a Vice President
at Florida National Bank in Jacksonville, Florida, with primary responsibility
for their data processing operations.
FREDERICK A. RAFFA, Ph.D. is a resident of Maitland, Florida. From 1969
until 1998, Dr. Raffa was a member of the faculty of the University of Central
Florida's Department of Economics, including service as Chairman of the
Department of Economics from 1976 through 1998. In May 1998, Dr. Raffa became
Professor Emeritus and began a five year phased retirement period. Dr. Raffa was
the founding editor of the Business Barometer of Central Florida. Since 1971,
-------------------------------------
Dr. Raffa has been self-employed as a consulting economist. He currently serves
as President of Raffa Consulting Economists, Inc. From 1976 to 1989, Dr. Raffa
served as the NCAA representative and is currently an associate board member of
the Florida Citrus Sports Association.
ALAN M. SCARBORO is a native of Florida and a resident of Orlando, Florida.
Since March 1989, Mr. Scarboro has served as Vice President of the Company and
supervised the National Bank of Commerce Building, which is owned by Gateway
Plaza, Ltd. On March 15, 1993, Mr. Scarboro was elected Secretary/Treasurer of
the Company. Prior to 1989, Mr. Scarboro was employed in the Central Florida
area and Alabama by other financial institutions. During this period, Mr.
Scarboro also managed the operations of his family-owned business in Orlando.
W. CHARLES SHUFFIELD is a resident of Orlando, Florida. Since January,
1984, Mr. Shuffield has been a principal in the law firm of Zimmerman,
Shuffield, Kiser & Sutcliffe, P.A. Mr. Shuffield has been a practicing attorney
in Orlando, Florida, since 1969. Mr. Shuffield is a member of The Florida Bar,
the Orange County Bar Association and Tennessee Bar Association and has been
active on several committees concerned with Corporation, Banking, Taxation and
Real Property for The Florida Bar and the Orange County Bar Association. Mr.
Shuffield is involved in various community affairs and currently serves or has
served in the following positions: Member of the Board of Directors of Orlando
Regional Healthcare Foundation, Inc. (1982 to 1993); Member of Rotary Club of
Orlando (1981 to present), including serving on Board of Directors; Member of
the Committee of 100; Member of the Junior Achievement Endowment Committee;
Heart of the City Foundation Board of Directors (1986-1990); Member of Country
Club of Orlando; Chairman and member of various committees of the Greater
Orlando Chamber of Commerce (1978 to present); Member of the Board of Directors
of Orlando Union Rescue Mission.
66
<PAGE>
Item 11. Executive Compensation/Board Compensation
-----------------------------------------
The executive officers for the Company and the Bank received salaries, in
aggregate, equal to approximately $429,000, received the benefit of automobile
allowances for an aggregate $20,400 and the payment of various club fees and
insurance in the amount of approximately $14,462. There were no other executive
officers other than the President with salaries in excess of $100,000 per year.
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMP.
- -------------------------------------------------------------------------------------------------------------
Awards PayOuts
--------------------------------
Name and All Other
Principal Restricted Compen-
Position Year Salary Bonus Other Stock Options LTIP sation
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $145,000 $ 3,000 $23,297/(1)/ $0 2,000 $0 $0
----------------------------------------------------------------------------------------
Guy D. Colado
President 1998 $130,000 $12,000 $20,649/(2)/ $0 2,000 $0 $0
----------------------------------------------------------------------------------------
(CEO and
Chairman) 1997 $118,250 $11,250 $20,844/(3)/ $0 0 $0 $0
- -------------------------------------------------------------------------------------------------------------
Marsha J. 1999 $ 97,000 $ 3,000 $ 4,800/(4)/ $0 750 $0 $0
Wheeler
----------------------------------------------------------------------------------------
(Sr. Vice
President 1998 $ 94,000 $ 7,000 $ 4,800/(4)/ $0 1,000 $0 $0
and COO)
- -------------------------------------------------------------------------------------------------------------
Jerry H. 1999 $ 97,000 $ 3,000 $ 4,800/(4)/ $0 750 $0 $0
Johns, III
(Sr. Vice
----------------------------------------------------------------------------------------
President
and Senior 1998 $ 94,000 $ 7,000 $ 4,800/(4)/ $0 1,000 $0 $0
Loan
Officer)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes a $6,000 car allowance, $8,821 medical insurance
premium, $3,600.00 life insurance premium and $4,876.00 membership dues in
country clubs.
(2) Includes a $6,000 car allowance, $8,509 medical insurance
premium, $3,600.00 life insurance premium and $2,540.00 membership dues in
country clubs.
(3) Includes a $6,000 car allowance, $8,704 medical insurance
premium, $3,600.00 life insurance premium and $2,540.00 membership dues in
country clubs.
(4) Reflects a $4,800 car allowance.
The Bank implemented an executive supplemental income plan (the "Plan")
during 1995 to provide supplemental income to four of its current executives
after their retirement. Those executives are as follows:
67
<PAGE>
Name Position with Bank
---- ------------------
Guy D. Colado President, CEO and Chairman
Marsha J. Wheeler Sr. Vice President/COO
Jerry H. Johns, III Sr. Vice President/Lending
John R. Casebier Sr. Vice President
Funding for the Plan involved the purchase of cash surrender value life
insurance policies, one for each executive, which totaled $1,195,000. The Plan
is structured so that each participant is scheduled to receive specified levels
of income for 15 years after the retirement age of 65. In the event a
participant leaves the employment of the Bank before retirement, only the
benefits vested through that date would be paid to the employee. The Plan also
calls for 100% vesting upon a change of control of the Bank.
The following table sets forth, as of December 31, 1999, the stock options and
stock appreciation rights that have been granted to each of the Company's
executive officers.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
--------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Potential Realizable Value
(in excess of base price)
At Assumed Annual Rates
of
Stock Price Appreciation
for
Individual Grants Option Term
--------------------------------------------------------------------------------------------------------------------------------
Number of Percent of Exercise
Securities Total Options/ of
Underlying SARs Granted Base
Options/ to Employees Price Expiration
Name SARs Granted (#) in Fiscal Year ($/Sh) Date 5% ($) 10% ($)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Guy D. Colado, 1,500/(1)/ 19.35% $21.00 11/30/2008 $17,367 $42,775
President
------------------------------------------------------------------------------------------------------------------------------
John R. Casebier, 1,500 19.35% $21.00 11/30/2008 $17,367 $42,775
Sr Vice President
------------------------------------------------------------------------------------------------------------------------------
Jerry H. Johns III, 750 9.68% $21.00 11/30/2008 $ 8,683 $21,387
Sr. Vice President
------------------------------------------------------------------------------------------------------------------------------
Marsha J. Wheeler, 750 9.68% $21.00 11/30/2008 $ 8,683 $21,387
Sr. Vice President /COO
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Colado was also granted an option to acquire 500 shares in his capacity
as a director.
The 1999 Commerce National Corporation Directors' Stock Option Plan (the
"1999 Directors Stock Plan") and the form of a Stock Appreciation Rights
Agreement (the "1999 Stock Appreciation Rights Agreement") were adopted by the
Company's Board of Directors on November 15, 1999. A copy of the 1999 Directors
Stock Plan, a sample of the 1999 Directors' Stock Option Agreement, and a sample
1999 Stock Appreciation Rights Agreement are attached as exhibits hereto.
68
<PAGE>
Under the 1999 Directors Stock Plan, each director received a non-qualified
stock option for 260 shares and an additional grant of 24 shares for each Board
meeting attended by the director up to a maximum of 240 shares for meeting
attendance each year. A total of 6,544 options were granted in 1999 to the
Company's directors.
A 1999 Stock Appreciation Rights Agreement was entered into with each of
the Company's directors effective January 1, 1999. Pursuant to each agreement, a
director was granted phantom shares of the Company's common stock and the right
to annually receive in cash the amount of appreciation in value of said
director's phantom shares. Each agreement is for a 10-year term unless earlier
terminated in the event a director ceases to serve as a director of the Company.
During 1999, a total of $10,078 was paid to the Company's directors under the
1999 Stock Appreciation Rights Agreements.
In addition, directors' fees in the amount of $3,000 per year are paid to
each non-employee director for an aggregate amount of directors' fees paid for
1999 of $39,000 plus $9,000 in committee fees. Committee fees are paid to each
director on the basis of number of meetings each director attended with the fee
per meeting set at $100.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
Guy D. Colado, President of the Company, has sole voting and dispositive
power over 32,118 shares of the Company's common stock. Mr. Colado's wife has
sole voting and dispositive power over 8,000 shares of common stock for which
beneficial ownership is not disclaimed. Mr. Colado's children have sole voting
and dispositive power over 2,304 shares of common stock, for which beneficial
ownership is not disclaimed. Such 42,422 shares of common stock represent
approximately 5.88% of the total outstanding shares of common stock of the
Company. Accordingly, pursuant to Rule 13d-3 promulgated by the SEC, Mr. Colado
is the beneficial owner of such 42,422 shares of Common Stock. In addition, Mr.
Colado has been granted the option to acquire an additional 3,500 shares of the
Company's common stock pursuant to the 1998 Commerce National Corporation
Employees' Stock Option Plan and additional 500 shares of the Company's common
stock pursuant to the 1999 Commerce National Corporation Directors' Stock Plan.
Each founding director of the Company, including Mr. Colado, received a
non-qualified stock option under the Amended and Restated 1985 Commerce National
Corporation Directors' Stock Plan (the "1985 Directors' Stock Plan") for 10,000
shares of Common Stock for his services in lieu of director's fees for his
initial term of office. Mr. Barkett and Mr. Moss, who joined the Board on
December 21, 1992, received options of 5,000 shares each. During 1997, options
to acquire 4,000 shares which were previously granted but not exercised under
the 1985 Directors' Stock Plan were distributed equally among the five new
directors who were elected to the Board on April 15, 1996. Mr. Cahill, Mr.
Janvrin, Mr. Lombardi, Mrs. Louttit and Mr. Miller were each granted an option
to acquire 800 shares of the Company' s common stock.
On October 20, 1997, the Directors' Stock Plan was amended to extend the
exercise period to February 1, 1998, and to permit optionees under the
Directors' Stock Plan to pay the exercise price with existing stock of the
Company. All of the options granted under the Directors' Stock Plan, including
the options described in the foregoing paragraph, representing an aggregate of
130,000 shares of the Company's common stock, were exercised by February 1,
1998.
69
<PAGE>
The 1998 Commerce National Corporation Employees' Stock Option Plan was
adopted by the Company's Board of Directors on December 21, 1998 and by the
Company's shareholders at their annual meeting on April 19, 1999. The Plan
permits the Company to grant employees options to purchase up to 100,000 shares
of the common stock of the Company at fair market value per share, but in no
case shall the purchase price be less than $15.00 per share, which was fair
market value at the date of adoption. Pursuant to the Plan, immediately
exercisable options to purchase 10,000 shares were granted in 1998, and
immediately exercisable options to purchase 7,750 shares were granted in 1999.
The exercise price for the options granted in 1998 is $15.00, and the exercise
price for the options granted in 1999 is $21.00. None of these options have been
exercised.
The following table sets forth, as of March 1, 2000, the beneficial
ownership interest in the Company's Common Stock held by each of the Company's
directors, and by all officers and directors as a group. With the exception of
Guy D. Colado, no shareholder is known by the Company to beneficially own more
than the five percent (5%) of the Company's outstanding Common Stock. Each
person listed has sole voting and investment power with respect to the shares
listed as beneficially owned by him, unless otherwise indicated in the
footnotes.
<TABLE>
<CAPTION>
------------------------------------------------
AS OF MARCH 1, 2000
------------------------------------------------
AMOUNT AND NATURE OF BENEFICIAL
OWNERSHIP(1)
---------------------------------------------------------------------------------
PERCENT
NAME AND ADDRESS OF ISSUED OPTIONED OF
BENEFICIAL OWNER SHARES SHARES(3) TOTAL CLASS(2)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Russell Barkett
612 Arapaho Trail 5,100 404 5,504 0.74%
Maitland, Florida 32751-3813
--------------------------------------------------------------------------------------------
C. Durham Barnes, M.D.
481 Virginia Drive 15,000(4) 500 15,500 2.08%
Winter Park, Florida 32789-5701
--------------------------------------------------------------------------------------------
Robert E. Battaglia
1466 Alabama Drive 16,000 500 16,500 2.21%
Winter Park, Florida 32789-2646
--------------------------------------------------------------------------------------------
Robert B. Boswell, M.D.
2320 N. Orange Avenue 20,950(5) 428 21,378 2.87%
Orlando, Florida 32804-5522
--------------------------------------------------------------------------------------------
Kenneth M. Clayton
2800 Lake Shore Drive 17,300(6) 500 17,800 2.39%
Orlando, Florida 32803-1320
--------------------------------------------------------------------------------------------
Guy D. Colado
1936 Fawsett Road 42,422(7) 4,000 46,422 6.23%
Winter Park, Florida 32789-6069
--------------------------------------------------------------------------------------------
Ernst R. Janvrin
1477 West Fairbanks Avenue 1,850(8) 500 2,350 0.32%
Winter Park, Florida 32789-7113
--------------------------------------------------------------------------------------------
Anthony Lombardi, Jr.
7491 Brokerage Drive 900 476 1,376 0.18%
Orlando, Florida 32809-5623
--------------------------------------------------------------------------------------------
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------
AS OF MARCH 1, 2000
------------------------------------------------
AMOUNT AND NATURE OF BENEFICIAL
OWNERSHIP(1)
---------------------------------------------------------------------------------
PERCENT
NAME AND ADDRESS OF ISSUED OPTIONED OF
BENEFICIAL OWNER SHARES SHARES(3) TOTAL CLASS(2)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jane H. Louttit
402 Lake Howell Road 900 476 1,376 0.18%
Maitland, Florida 32751-5907
--------------------------------------------------------------------------------------------
Stephen G. Miller
143 Fairbanks Avenue 900 500 1,400 0.19%
Winter Park, Florida 32789-4377
--------------------------------------------------------------------------------------------
Willie C. Moss
5858 Cove Drive 24,584(9) 476 25,060 3.36%
Orlando, Florida 32812-2819
--------------------------------------------------------------------------------------------
Frederick A. Raffa, Ph.D.
45 Eastwind Lane 25,429(10) 476 25,905 3.48%
Maitland, Florida 32751-5812
--------------------------------------------------------------------------------------------
Alan M. Scarboro
3218 Edgecliffe Drive 7,250(11) 500(12) 7,750 1.04%
Orlando, FL 32806
--------------------------------------------------------------------------------------------
W. Charles Shuffield
2307 Lakeside Drive 10,000(13) 500 10,500 1.41%
Orlando, Florida 32803-1517
--------------------------------------------------------------------------------------------
All Directors and Officers as a Group
(Consisting of 14 Persons) 188,585 10,236 198,821 26.68%
--------------------------------------------------------------------------------------------
</TABLE>
(1) As used in this table, "beneficial ownership" means the sole or shared
power to vote, or to direct the voting of, and/or to dispose of, or to
direct the disposition of, the Common Stock. Unless otherwise indicated,
the shares are held with sole power to vote and sole power to dispose.
(2) The percentages have been rounded to the nearest hundredth. In calculating
this percent, it is assumed that all options are exercised and therefore
the 17,750 option shares granted under the 1998 Employees' Stock Option
Plan and the 6,236 option shares granted under the 1999 Directors Stock
Plan have been added to the number of shares outstanding.
(3) "Option Shares" represent those shares which the indicated individual has a
right to acquire pursuant to an immediately exercisable option with an
exercise price of $21.00 per share.
(4) Includes 2,500 shares held jointly with a family member with shared voting
and shared investment powers and 7,500 shares owned by Central Florida
Retina Consultants Cash Deferred Plan FBO Dr. Barnes for which beneficial
ownership is not disclaimed.
(5) Includes 6,500 shares owned by Robert B. Boswell, M.D. FACCPA Defined
Contribution Pension Plans, 500 shares as custodian for a family member and
2,200 shares held by a family member for which beneficial ownership is not
disclaimed.
(6) Includes 300 shares held in trust for family members for which beneficial
ownership is not disclaimed and 2,000 shares held in trust for a third
party.
71
<PAGE>
(7) Includes 10,304 shares held by family members for which beneficial
ownership is not disclaimed. Mr. Colado is both an employee and a director.
He has an immediately exercisable right to acquire 3,500 shares pursuant to
the 1998 Commerce National Corporation Employees' Stock Option Plan, and an
immediately exercisable right to acquire 500 shares pursuant to the 1999
Directors Stock Plan.
(8) Includes 300 shares held by a Florida corporation in which he has an
interest and for which beneficial ownership is not disclaimed.
(9) Includes 13,059 shares held in trust for Mr. Moss and 5,000 shares held in
trust for a family member, over which Mr. Moss exercises shared voting and
investment powers.
(10) Includes 17,029 shares held jointly with a family member with shared voting
and shared investment power, 7,400 shares held in pension/profit sharing
plans for Mr. Raffa's benefit, and 1,000 shares held by family members for
which beneficial ownership is not disclaimed.
(11) Includes 3,220 shares held jointly with a family member with shared voting
and shared investment power and 1,500 shares held by Scarboro Central, Inc.
for which beneficial ownership is not disclaimed.
(12) Mr. Scarboro is an employee and not a director. He has an immediately
exercisable right to acquire shares pursuant to the 1998 Commerce National
Corporation Employees' Stock Option Plan. The exercise price is based on
fair market value but in no case less than $15.00 per share, which was fair
market value at the date of adoption.
(13) Includes 10,000 shares held jointly with a family member with shared voting
and shared investment power. Does not include 4,000 shares held by
Zimmerman, Shuffield, Kiser & Sutcliffe, P.A. Profit Sharing Plan & Trust
in which Mr. Shuffield has approximately a 22.7% interest but over which he
does not exercise control.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The real estate and the building constructed thereon, which houses the
corporate offices of CNC and the facilities of the Bank, are owned by Gateway
Plaza, Ltd., a Florida limited partnership ("Gateway"). The Directors or certain
of their affiliates, except for Mrs. Louttit and Messrs. Barkett, Cahill,
Janvrin, Lombardi, Miller, Moss, and Raffa are limited partners of Gateway and
they or their affiliates beneficially own, in aggregate, 4,809 of the 11,562
presently issued and outstanding limited partnership interests of Gateway, or
approximately 42% thereof. Additionally, the general partner of Gateway is NBOC,
Inc., a Florida corporation, which is owned and controlled by Guy D. Colado
(President and Chairman of both the Bank and CNC) and G. Winston Lovelace (a
former director of both the Bank and CNC and shareholder of CNC). As general
partner, NBOC, Inc. has a 1% interest in the taxable income, gains, losses and
credits realized by Gateway. While it is believed that the leasing arrangements
for CNC, as lessee, and Gateway, as lessor, are fair, such arrangements have not
been arrived at as a result of arms-length negotiations due to the commonality
of control found in both entities. The Bank made payments under the lease to
Gateway in the aggregate amount of approximately $335,344 for fiscal 1999.
72
<PAGE>
The law firm of Zimmerman, Shuffield, Kiser & Sutcliffe, P.A. ("ZSKS"), in
which W. Charles Shuffield is a principal, has provided and will continue to
provide certain legal services to CNC and the Bank and has received and will
continue to receive fees for the services rendered. The amount of fees paid to
ZSKS by the Company and/or Bank did not exceed five percent of ZSKS' gross
revenues. Mr. Shuffield is a director and shareholder of CNC, a director of the
Bank and a limited partner of Gateway. The law firm of Clayton and McCulloh has
provided and will continue to provide legal services to the Bank and CNC. The
amount of fees paid to Clayton and McCulloh by the Company and/or Bank did not
exceed five percent of Clayton and McCulloh's gross revenues. Mr. Clayton is a
director and shareholder of CNC, a director of the Bank and a limited partner in
Gateway.
At December 31, 1999, the Bank had approximately $4,232,399 loaned to
certain CNC/Bank directors and to certain affiliates of certain CNC/Bank
directors. Such loan transactions were made in the ordinary course of business;
on substantially the same terms, including interest and collateral, as those
prevailing at the time for comparable transactions with other persons; and did
not involve more than the normal risk of collectibility or present other
unfavorable features.
The SEC maintains a web site at http://www.sec.gov which contains reports,
proxy and information statements and other information pertaining to registrants
that file electronically with the SEC including the Company.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
a. 1. Financial Statements
--------------------
The following consolidated financial statements of the Company are included
in Part II, Item 8:
- Consolidated Balance Sheets - December 31, 1999 and 1998.
- Consolidated Statements of Operations - Years ended December 31,
1999, 1998 and 1997.
- Consolidated Statements of Stockholders' Equity - Years ended
December 31, 1999, 1998 and 1997.
- Consolidated Statement of Cash Flows - Years ended December 31,
1999, 1998 and 1997.
a. 2. Financial Statement Schedules
-----------------------------
The Company has not included any financial schedules because they are not
applicable, not required, or the information required to be set forth
therein is included in the consolidated financial statements or in notes
thereto.
73
<PAGE>
a. 3. Exhibits
--------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
EXHIBIT NO. DESCRIPTION LOCATION
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
3.2 First Amended and Restated Bylaws of Incorporated by reference from
Commerce National Corporation Exhibit 3.2 to the Company's Report
effective January 14, 1988 on Form 10-K for the fiscal year
ended December 31, 1992.
- -----------------------------------------------------------------------------------------------------
3.3 First Amendment to First Amended and Incorporated by reference from
Restated Bylaws of Commerce National Exhibit 3.3 to the Company's Report
Corporation dated effective May 26, on Form 10-Q for the fiscal quarter
1998 ended June 30, 1998.
- -----------------------------------------------------------------------------------------------------
3.4 Articles of Restatement of the Incorporated by reference from
Articles of Incorporation of Exhibit 3.4 to the Company's Report
Commerce National Corporation, and on Form 10-Q for the fiscal quarter
Amended and Restated Articles of ended June 30, 1998.
Incorporation, filed June 22, 1998
- -----------------------------------------------------------------------------------------------------
4.1 Specimen copy of common stock Incorporated by reference from
certificate for Common Stock of Exhibit 4.1 to the Company's Report
Commerce National Corporation on Form 10-K for the fiscal year
ended December 31, 1992.
- -----------------------------------------------------------------------------------------------------
4.2 Article IV of Articles of Incorporated by reference from
Incorporation of Commerce National Exhibit 3.1 to Registration No.
Corporation included in the Articles 2-98960-A.
of Incorporation of Commerce
National Corporation
- -----------------------------------------------------------------------------------------------------
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 Incorporated by reference from
Restated 1985 Commerce National Exhibit 10.1 to the Company's Report
Corporation Directors' Stock Plan on Form 10-K for the fiscal year
dated October 20, 1997 ended December 31, 1997
- -----------------------------------------------------------------------------------------------------
10.2 1998 Commerce National Corporation Incorporated by reference from
Employees' Stock Option Plan Exhibit 10.2 to the Company's Report
on Form 10-Q for the fiscal quarter
ended June 30, 1999
- -----------------------------------------------------------------------------------------------------
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
EXHIBIT NO. DESCRIPTION LOCATION
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
10.3 1998 Commerce National Corporation Incorporated by reference from
Employees' Stock Option Agreement Exhibit 10.3 to the Company's Report
on Form 10-Q for the fiscal quarter
ended June 30, 1999
- -----------------------------------------------------------------------------------------------------
10.4 1999 Commerce National Corporation Attached.
Directors' Stock Plan
- -----------------------------------------------------------------------------------------------------
10.5 Sample 1999 Commerce National Attached.
Corporation Directors' Stock Option
Agreement dated effective January 1,
1999
- -----------------------------------------------------------------------------------------------------
10.6 Sample Commerce National Corporation Attached.
Stock Appreciation Rights Agreement
dated effective January 1, 1999
- -----------------------------------------------------------------------------------------------------
21 Subsidiaries of Commerce National Attached
Corporation
- -----------------------------------------------------------------------------------------------------
27 Article 9 Financial Data Schedule Attached
(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 December 31, 1999.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
75
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
(Registrant)
Date: March 30, 2000 By: /s/ Guy D. Colado
-----------------------------------------------
GUY D. COLADO, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature and Title Date
- ------------------- ----
By: /s/ Guy Colado March 30, 2000
-------------------------------
Guy D. Colado
President and Director/Chairman
(Principal Executive Officer)
By: /s/ Alan M. Scarboro March 30, 2000
-------------------------------
Alan M. Scarboro
Secretary/Treasurer
By: /s/ Russell Barkett March 30, 2000
-------------------------------
Russell Barkett
Director
By: /s/ C. Durham Barnes March 30, 2000
-------------------------------
C. Durham Barnes, M.D.
Director
76
<PAGE>
Signature and Title Date
- ------------------- ----
By: /s/ Robert E. Battaglia March 30, 2000
-------------------------------
Robert E. Battaglia
Director
By: March 30, 2000
-------------------------------
Robert B. Boswell, M.D.
Director
By: March 30, 2000
-------------------------------
Kenneth M. Clayton
Director
By: /s/ Ernst R. Janvrin March 30, 2000
-------------------------------
Ernst R. Janvrin
Director
By: /s/ Tony Lombardi, Jr. March 30, 2000
-------------------------------
Tony Lombardi, Jr.
Director
By: /s/ Jane H. Louttit March 30, 2000
-------------------------------
Jane H. Louttit
Director
By: /s/ Stephen G. Miller March 30, 2000
-------------------------------
Stephen G. Miller
Director
By: /s/ Willie C. Moss March 30, 2000
-------------------------------
Willie C. Moss
Director
77
<PAGE>
Signature and Title Date
- ------------------- ----
By: /s/ Frederick A. Raffa March 30, 2000
-------------------------------
Frederick A. Raffa
Director
By: /s/ W. Charles Shuffield March 30, 2000
-------------------------------
W. Charles Shuffield
Director
Supplemental Information to be furnished with reports filed pursuant to Section
15(d) of the Act by Registrants which have not registered securities pursuant to
Section 12 of the Act.
Neither the Registrant's annual report for the 1999 fiscal year, nor any
proxy statement, form of proxy or other proxy soliciting material with respect
to its Annual Meeting of Shareholders to be held on May 30, 2000, has been sent
to security holders as of the date hereof. However, such report, proxy statement
and form of proxy will be furnished to security holders subsequent to the filing
of the annual report on this Form and will subsequently be furnished to the
Securities and Exchange Commission.
78
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
EXHIBIT NO. DESCRIPTION
- --------------------------------------------------------------------------------
<S> <C>
10.4 1999 Commerce National Corporation Directors' Stock Plan
- --------------------------------------------------------------------------------
10.5 Sample 1999 Commerce National Corporation Directors' Stock
Option Agreement dated effective January 1, 1999
- --------------------------------------------------------------------------------
10.6 Sample Commerce National Corporation Stock Appreciation
Rights Agreement dated effective January 1, 1999
- --------------------------------------------------------------------------------
21 Subsidiaries of Commerce National Corporation
- --------------------------------------------------------------------------------
27 Article 9 Financial Data Schedule (for SEC use only).
- --------------------------------------------------------------------------------
</TABLE>
79
<PAGE>
EXHIBIT 10.4
1999 COMMERCE NATIONAL CORPORATION
DIRECTORS' STOCK PLAN
ARTICLE I
Definitions
As used herein, the following terms have the meanings hereinafter set forth
unless The context clearly indicates to the contrary:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Company" shall mean Commerce National Corporation.
(c) "Directors" shall mean any individual who serves on the Board of
Directors of the Company.
(d) "Equity Per Share" shall mean the Company's shareholders equity
per common share outstanding as of January 1, 1999.
(e) Option" shall mean an option to purchase Stock granted pursuant
to the provisions of Article IV hereof.
(f) "Optionee" shall mean a director to whom an Option has been
granted hereunder.
(g) "Plan" shall mean the 1999 Commerce National Corporation
Directors' Stock Plan, the terms of which are set forth herein.
(h) "Service" shall mean the tenure of an individual as a director of
the Company.
(i) "Stock" or "Shares" shall mean the common stock, par value $0.10
per share, of the Company or, in the event that the outstanding
shares of Stock are hereafter changed into or exchanged for
shares of a different stock or securities of the Company or some
other corporation, such other stock or securities.
(j) "Stock Option Agreement" shall mean the agreement between the
Company and the Optionee under which the Optionee may purchase
Stock hereunder.
(k) "Subsidiary" shall mean any corporation, the majority of the
outstanding capital stock of which is owned, directly or
indirectly, by the Company.
(l) "Year" shall mean any calendar year during the term of this
Agreement from January 1 to December 31, inclusive.
<PAGE>
ARTICLE II
The Plan
1.1. Name. This Plan shall be known as the "1999 Commerce National Corporation
----
Directors' Stock Plan".
1.2. Purpose. The purpose of the Plan is to advance the interests of the
-------
Company and its shareholders by affording to the Directors of the Company
an opportunity to acquire or increase their proprietary interest in the
Company by the grant of Options to such Directors under the terms set forth
herein. By thus encouraging such Directors to become owners of Stock, the
Company seeks to motivate, retain and attract those highly competent
individuals upon whose judgment, initiative, leadership and continued
efforts the success of the Company and Subsidiaries in large measure
depends.
1.3. Effective Date. The Plan shall become effective as of January 1, 1999, upon
--------------
its approval by the Board of Directors of the Company.
1.4. Participants. Any director of the Company shall be eligible to participate
------------
in the Plan.
ARTICLE III
Shares of Stock Subject to Plan
2.1. Limitations. Subject to adjustment pursuant to the provisions of Section
-----------
3.3 hereof, the number of shares of Stock which may be issued pursuant to
Options granted hereunder shall not exceed 100,000 shares. Such Shares may
be either authorized and unissued shares or shares issued and thereafter
acquired by the Company.
2.2. Option Granted Under Plan. Stock with respect to which an Option granted
-------------------------
hereunder shall have been exercised shall not again be available for Option
hereunder. If Options granted hereunder shall terminate for any reason
without being wholly exercised, new Options may be granted to directors
hereunder covering the number of Shares to which such Option termination
relates.
2.3. Antidilution. In the event that the outstanding shares of Stock hereafter
------------
are changed into or exchanged for a different number or kind of shares or
other securities of the Company or of another corporation by reason of
merger, consolidation, other reorganization, recapitalization,
reclassification, combination of shares, stock split-up, or stock dividend:
(5) The aggregate number and kind of shares subject to Options
which may be granted hereunder shall be adjusted so that no dilution
of the Optionee's Shares shall result;
(6) Rights under outstanding Options granted hereunder, both as
to the number of subject shares and the Option price, shall be
adjusted so that no dilution of the Optionee's shares shall result;
and
<PAGE>
(7) Where dissolution or liquidation of the Company or any
merger or combination in which the Company is not a surviving
corporation is involved, each outstanding Option granted hereunder
shall terminate, but the Optionee shall have the right, immediately
prior to such dissolution, liquidation, merger or combination, to
exercise his Option in whole or in part, to the extent that it shall
not have been exercised.
ARTICLE IV
Options
7.1. Option Grant and Agreement. Each Option granted hereunder shall be
--------------------------
evidenced by minutes of a meeting of the Board authorizing same and by a
written Stock Option Agreement dated as of the date of grant and executed
by the Company and the Optionee, which Agreement shall set forth such terms
and conditions as may be determined by the Company to be consistent with
the Plan.
7.2. Number of Shares per Stock Option Agreement. The number of shares of Stock
-------------------------------------------
covered by each Stock Option Agreement that shall be granted to each
Director shall not exceed five hundred (500) shares per year and five
thousand (5,000) shares during the term of the Plan. Grants shall be
awarded in the amount of 260 shares for each Year the Optionee is eligible
for participation at the beginning of the Year. Additional grants of
twenty-four (24) shares shall be awarded for each Board meeting attended by
a director during the Year, to a maximum of two hundred forty (240) shares
for meeting attendance each Year. All grants shall be awarded at the end of
the Year, effective at the beginning of the Year.
7.3. Option Exercise.
---------------
(a) Terms of Option. Each Stock Option Agreement shall expire December 31,
---------------
2008. The purchase price of each share of Stock subject to Option
shall be the Equity Per Share.
(b) Options may be exercised in whole or in part with respect to whole
shares only, within the period permitted for the exercise thereof, and
shall be exercised by written notice of intent to exercise the Option
with respect to a specific number of shares, and delivered to the
Company at its principal office in the State of Florida, and payment
in full to the Company at said office of the amount of the Option
price for the number of shares of Stock with respect to which the
Option is then being exercised. Optionee shall not exercise his Option
or part thereof more often than once every sixty (60) days. In
addition to and at the time of payment of the Option price, Optionees
shall pay to the Company in cash the full amount of all federal and
state withholding or other employment taxes applicable to the taxable
income of such Optionee resulting from such exercise, if any.
<PAGE>
(1) Nontransferability of Option. No Option shall be transferred by
----------------------------
an Optionee otherwise than by will or the laws of descent and
distribution without first obtaining the written consent of the
Board. In the event an Option is transferred in accordance with
this section, the Optionee shall provide to the Company all
details of the terms and conditions of such transfer as may be
requested by the Company.
4.5. Effect of Termination of Service.
--------------------------------
(a) If an Optionee's service with the Company shall be terminated for
any reason, including the disability or death of the Optionee,
his Option shall remain exercisable to the same extent and for
the same duration it was exercisable prior to the termination for
those number of Shares for which the Option is deemed vested as
described in Section 4.6 below, and for three months after the
date of such termination or one year after the date of death,
respectively, for the number of Shares for which the Option is
not deemed vested.
(b) No transfer of an Option by the Optionee by will or by the laws
of descent and distribution shall be effective to bind the
Company unless the Company shall have been furnished with written
notice thereof and an authenticated copy of the will and/or such
other evidence as the Company may deem necessary to establish the
validity of the transfer and the acceptance by the transferee or
transferees of the terms and conditions of such Option.
4.6 Vesting of Option Rights. An Optionee will be deemed to be fully
------------------------
vested in his option rights at the date the Option is granted.
4.7 Rights as Shareholder. An Optionee or a transferee of an Option shall
---------------------
have no rights as a shareholder with respect to any Shares subject to
such Option prior to the purchase of such Shares by exercise of such
Option as provided herein.
ARTICLE V
Stock Certificates
The Company shall not be required to issue or deliver any certificate for
shares of Stock purchased upon the exercise of any Option granted hereunder, or
any portion thereof, prior to fulfillment of all of the following conditions:
(a) The admission of such Shares to listing on all stock exchanges on
which the Stock is then listed, if any;
(b) The completion of any registration or other qualification of such
Shares under any federal or state law or under the rulings or
regulations of the Securities and Exchange Commission or any
other governmental regulatory body, which the Company shall in
its sole discretion deem necessary or advisable;
<PAGE>
(c) The obtaining of any approval or other clearance from any federal
or state governmental agency which the Company shall in its sole
discretion determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Company from time to time may
establish for reasons of administrative convenience.
ARTICLE VI
Termination, Amendment and Modification of Plan
The Board may at any time terminate and may at any time and from time to
time and in any respect amend or modify, the Plan; provided, however, that no
such action of the Board without approval of the shareholder of the Company may
increase the total number of shares of Stock subject to the Plan except as
contemplated in Article III hereof and provided further that no termination,
amendment or modification of the Plan shall in any manner affect any Option
theretofore granted under the Plan without the consent of the Optionee of the
Option.
ARTICLE VII
Miscellaneous
(1) Service. Nothing in the Plan or in any Option granted hereunder
-------
or in any Stock Option Agreement relating thereto shall confer
upon any director the right to continue in the service of the
Company or any Subsidiary.
(2) Other Compensation Plans. The adoption of the Plan shall not
------------------------
affect any other stock option, incentive or other compensation
plans in effect for the Company or any Subsidiary, nor shall the
Plan preclude the Company from establishing any other forms of
incentive or other compensation for directors of the Company or
any Subsidiary.
(3) Plan Binding on Successors. The Plan shall be binding upon the
--------------------------
successors and assigns of the Company.
(4) Singular, Plural; Gender. Whenever used herein, nouns in the
------------------------
singular shall include the plural, and the masculine pronoun
shall include the feminine gender.
(5) Applicable Law. This Plan shall be governed by and construed in
--------------
accordance with the laws of the State of Florida.
(6) Headings, etc., No Part of Plan. Headings of Articles and
-------------------------------
Sections hereof are inserted for convenience and reference only;
they constitute no part of the Plan.
<PAGE>
(7) Severability. If any provision or provisions of the Plan shall be
------------
held to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
CERTIFICATION
I, the undersigned Secretary of Commerce National Corporation, certify
that the 1999 Commerce National Corporation Directors' Stock Plan was
dully adopted by the board of directors of Commerce National
Corporation on November 15, 1999.
/s/ Alan M. Scarboro
--------------------------------------------
Alan M. Scarboro, Secretary
<PAGE>
EXHIBIT 10.5
1999 COMMERCE NATIONAL CORPORATION
DIRECTOR'S STOCK OPTION AGREEMENT
THIS AGREEMENT is made this 1st day of January, 1999, by and between
COMMERCE NATIONAL CORPORATION, a Florida corporation having offices at Orlando,
Florida (hereafter "Company"), and Guy D. Colado, residing in Winter Park,
Florida, currently serving as a director of the Company (hereafter "Optionee").
WITNESSETH:
WHEREAS, Optionee is a valuable and trusted director of the Company,
and the Company considers it desirable and in its best interest that Optionee be
given an inducement to acquire further proprietary interest in the Company; and
WHEREAS, the Company desires to encourage, motivate, retain and
attract highly competent individuals such as Optionee upon whose judgment,
initiative, leadership and continued efforts the success of the Company in large
measure depends; and
WHEREAS, the options to purchase Stock of the Company hereunder are
granted in accordance with the 1999 Commerce National Corporation Directors'
Stock Plan.
NOW THEREFORE, in consideration of the premises, and of the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
As used herein, the following terms have the meanings hereinafter set
forth unless the context clearly indicates to the contrary:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Company" shall mean Commerce National Corporation.
(c) "Director" shall mean any individual who serves on the Board of
Directors of the Company and has entered into or is eligible to
enter into a Stock Option Agreement with the Company.
(d) "Equity Per Share" shall mean the Company's shareholders equity
per common share outstanding as of January 1, 1999.
(e) Option" shall mean an option to purchase Stock granted pursuant
to the provisions of Article IV hereof.
<PAGE>
(f) "Plan" shall mean the 1999 Commerce National Corporation
Directors' Stock Plan.
(g) "Service" shall mean the tenure of Optionee as a director of the
Company.
(h) "Stock" or "Shares" shall mean the common stock, par value $0.10
per share, of the Company or, in the event that the outstanding
shares of Stock are hereafter changed into or exchanged for
shares of a different stock or securities of the Company or some
other corporation, such other stock or securities.
(i) "Stock Option Agreement" or "Agreement" shall mean this agreement
between the Company and the Optionee under which the Optionee may
purchase Stock hereunder, the terms of which are set forth
herein.
(j) "Subsidiary" shall mean any corporation, the majority of the
outstanding capital stock of which is owned, directly or
indirectly, by the Company.
(k) "Year" shall mean any calendar year during the term of this
Agreement from January 1 to December 31, inclusive.
ARTICLE II
Name and Effective Date
1.1 Name. This Agreement shall be known as the "1999 Commerce National
----
Corporation - Guy D. Colado Stock Option Agreement".
1.2. Effective Date. The Plan shall become effective as of the date indicated,
--------------
above.
ARTICLE III
Shares of Stock Subject to Plan
2.1. Limitations. Subject to adjustment pursuant to the provisions of Section
-----------
3.3 hereof, the Optionee may purchase up to Five Hundred (500) Shares
hereunder, which shall be issued and sold pursuant to the provisions of
this Agreement. Such Shares may be either authorized and unissued shares or
shares issued and thereafter acquired by the Company.
2.2. Option Granted Under Agreement. Shares with respect to which the Option
------------------------------
granted hereunder shall have been exercised shall not again be available
for Option hereunder.
2.3. Antidilution. In the event that the outstanding shares of Stock hereafter
------------
are changed into or exchanged for a different number or kind of shares of
Stock or other securities of the Company or of another corporation by
reason of merger, consolidation, other reorganization, recapitalization,
reclassification, combination of shares, stock split-up, or stock dividend:
<PAGE>
(7) The aggregate number and kind of shares subject to Option
granted hereunder shall be adjusted so that no dilution of the
Optionee's Shares shall result;
(8) Rights under outstanding Options granted hereunder, both as
to the number of subject shares and the Option price, shall be
adjusted so that no dilution of the Optionee's shares shall result;
and
(9) Where dissolution or liquidation of the Company or any
merger or combination in which the Company is not a surviving
corporation is involved, each outstanding Option granted hereunder
shall terminate, but the Optionee shall have the right, immediately
prior to such dissolution, liquidation, merger or combination, to
exercise his Option in whole or in part, to the extent that it shall
not have been exercised prior thereto.
ARTICLE IV
Options
9.1. Terms of Option. This Agreement shall expire December 31, 2008. The
---------------
purchase price of each share of Stock subject to Option hereunder shall be
the Equity Per Share.
9.2. Option Exercise. This Option may be exercised in whole or in part with
---------------
respect to whole shares only, within the period permitted for the exercise
thereof, and shall be exercised by written notice of intent to exercise the
Option with respect to a specific number of shares desired to be purchased,
and delivered to the Company at its principal office in the State of
Florida, with payment in full to the Company at said office of the amount
of the Option price for the number of shares of Stock with respect to which
the Option is then being exercised. Optionee shall not exercise his Option
or part thereof more often than once every sixty (60) days. In addition to
and at the time of payment of the Option price, Optionees shall pay to the
Company in cash the full amount of all federal and state withholding or
other employment taxes applicable to the taxable income of Optionee
resulting from such exercise, if any.
9.3. Nontransferability of Option. No Option shall be transferred by Optionee
----------------------------
otherwise than by will or the laws of descent and distribution without
first obtaining the written consent of the Board. In the event an Option is
transferred in accordance with this section, the Optionee shall provide to
the Company all details of the terms and conditions of such transfer as may
be requested by the Company.
<PAGE>
9.1. Effect of Termination of Service.
--------------------------------
(a) If Optionee's service with the Company shall be terminated
for any reason, including the disability or death of the
Optionee, his Option shall remain exercisable to the same
extent and for the same duration it was exercisable prior to
the termination for those number of Shares for which the
Option is deemed vested as described in Section 4.5 below,
and for three months after the date of such termination or
one year after the date of death, respectively, for the
number of Shares for which the Option is not deemed vested.
(b) No transfer of an Option by the Optionee by will or by the
laws of descent and distribution shall be effective to bind
the Company unless the Company shall have been furnished
with written notice thereof and an authenticated copy of the
will and/or such other evidence as the Company may deem
necessary to establish the validity of the transfer and the
acceptance by the transferee or transferees of the terms and
conditions of such Option.
4.5 Vesting of Option Rights. Optionee will be deemed to be
------------------------
fully vested in his option rights under this Agreement on
the Effective date of this Agreement.
4.6 Rights as Shareholder. Optionee or transferee of an Option
---------------------
shall have no rights as a shareholder with respect to any
Shares subject to such Option prior to the purchase of such
Shares by exercise of such Option as provided herein.
ARTICLE V
Stock Certificates
The Company shall not be required to issue or deliver any certificate
for shares of Stock purchased upon the exercise of any Option granted hereunder,
or any portion thereof, prior to fulfillment of all of the following conditions:
(a) The admission of such Shares to listing on all stock
exchanges on which the Stock is then listed, if any;
(b) The completion of any registration or other qualification of
such Shares under any federal or state law or under the
rulings or regulations of the Securities and Exchange
Commission or any other governmental regulatory body, which
the Company shall in its sole discretion deem necessary or
advisable;
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency which the Company shall
in its sole discretion determine to be necessary or
advisable; and
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Company from time to time may
establish for reasons of administrative convenience.
<PAGE>
ARTICLE VI
Termination, Amendment and Modification of Plan
The Board may at any time terminate, and may at any time and from time to
time and in any respect amend or modify, the Plan; provided, however, that no
such action of the Board without approval of the shareholders of the Company may
increase the total number of shares of Stock subject to the Plan except as
contemplated in Article III hereof and provided further that no termination,
amendment or modification of the Plan shall in any manner affect this Agreement
under the Plan without the written consent of the Optionee which consent will be
deemed granted upon the Optionee's execution of a new Option Agreement
incorporating the changes.
ARTICLE VII
Miscellaneous
6.1. Service. Nothing in Stock Option Agreement shall confer upon Optionee
-------
the right to continue in the service of the Company or any Subsidiary.
6.2. Other Compensation Plans. The adoption of the Plan and the execution
------------------------
of this Stock Option Agreement shall not affect any other stock
option, incentive or other compensation plans in effect for the
Company or any Subsidiary, nor shall the Plan or Stock Option
Agreement preclude the Company from establishing any other forms of
incentive or other compensation for directors of the Company or any
Subsidiary.
6.3. Agreement Binding on Successors. This Agreement shall be binding upon
-------------------------------
the successors and assigns of the Company and the Optionee.
6.4. Singular, Plural; Gender. Whenever used herein, nouns in the singular
------------------------
shall include the plural, and the masculine pronoun shall include the
feminine gender.
6.5. Applicable Law. This Plan shall be governed by and construed in
--------------
accordance with the laws of the State of Florida.
6.6. Headings, etc., No Part of Plan. Headings of Articles and Sections
-------------------------------
hereof are inserted for convenience and reference only; they
constitute no part of the Stock Option Agreement.
6.7. Severability. If any provision or provisions of the Plan or this
------------
Agreement shall be held to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions
shall not in any way be affected or impaired thereby.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set forth their hands and
seals.
Dated this _________________ day of ___________________, __________.
OPTIONEE
Witnesses:
________________________________ _________________________________
Guy D. Colado
________________________________
(CORPORATE SEAL)
COMMERCE NATIONAL CORPORATION
Attest:
________________________________ By: _______________________________
Secretary President
<PAGE>
EXHIBIT 10.6
COMMERCE NATIONAL CORPORATION
STOCK APPRECIATION RIGHTS AGREEMENT
THIS AGREEMENT is made this _________ day of __________________, 1999, by
and between Commerce National Corporation, a Florida corporation having offices
at Winter Park, Florida (the "Company"), and GUY D. COLADO (the "Director).
INTRODUCTION
To encourage the Director to remain a director of the Company, the Company
is willing to provide to the Director an opportunity to share in the
appreciation of the Company's Common Stock. The Company will provide a deferred
benefit equal to the Stock Appreciation Account value at the termination of the
plan. The Company's Board of Directors will award at inception and annually
thereafter, in its sole discretion, phantom stock to the Director. The phantom
shares will be valued at the Company's Equity Per Share determined by dividing
the Company's Equity by the number of shares of common stock outstanding. The
appreciation in value of the Director's phantom shares will be credited to the
Director's Stock Appreciation Account each year. The Stock Appreciation Account
shall be an accounting device to record phantom stock appreciation. At various
triggering events, the Company will pay the value of the Stock Appreciation
Account in cash from its general assets.
AGREEMENT
The Director, the Company and the Company agree as follows:
Article 1
Definitions
1.1 Definitions. Whenever used in this Agreement, the following words and
phrases shall have the meanings specified:
1.1.1 "Agreement" means this instrument, including all amendments
thereto.
1.1.2 "Anniversary Date" means December 31 of each Plan Year.
1.1.3 "Applicable Percentage" means the number of Plan Years from
the Effective Date divided by ten, but in no event greater than 100%.
1.1.4 "Change of Control" means: any merger of the Company with,
or acquisition of the Company by, another entity, whether or not the Company is
the surviving entity; or any Board composition change such that individuals who
constitute the Board of Directors of the Company on the effective date hereof
(the "Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters
<PAGE>
of the directors comprising the Incumbent Board shall be considered as though he
or she were a member of the Incumbent Board.
1.1.5 "Company" means Commerce National Corporation.
1.1.6 "Discount Rate" means the annual rate of 7.5%.
1.1.7 "Effective Date" means January 1, 1999.
1.1.8 "Equity" means the Company's equity as reported under
generally accepted accounting principles.
1.1.9 "Equity Per Share" means the Company's Equity divided by the
number of shares of common stock outstanding. Notwithstanding the foregoing, at
such time that the Company's common stock becomes actively traded on a
recognized securities exchange, from that date forward the market value per
share will become the measure of Equity Per Share for purposes of this
Agreement.
1.1.10 "Initial Value" means the Equity Per Share as of the
beginning of the Plan Year in which a phantom stock award is made to the
Director times the number of phantom shares awarded in that Plan Year. If the
basis for the measure of Equity Per Share changes from Equity value to market
value during the Plan Year, Initial Value for phantom stock awards during the
Plan Year should be calculated on the Equity value basis.
1.1.11 "Normal Termination Date" means the earlier of Plan
Termination or Termination of Service as a director.
1.1.12 "Plan Year" means the calendar year. The first Plan Year
shall commence on the Effective Date.
1.1.13 "Plan Termination" means the last day of the tenth Plan
Year.
1.1.14 "Sales Multiple" means a fraction in which the numerator is
the sales price paid for any of the Company's common stock or, in the case of a
sale of substantially all of the Company's assets, the sales price paid for the
Company's assets, and the denominator shall be the book value of such common
stock or assets. If there is a merger or consolidation in which stock is used to
purchase the common stock or assets of the Company, then a qualified appraiser
chosen by the Company shall be hired to determine the fair market value of the
acquirer's stock exchanged for the Company's stock or assets. The appraised
value shall then be the sales price. Notwithstanding the foregoing, if the stock
used to purchase the common stock or assets of the Company is actively traded on
a recognized securities exchange, the trade price on the last trading day prior
to the merger will be used to determine sales price in lieu of an appraised
value.
1.1.15 "Termination of Service" means the Director ceasing to serve
as a director of the Company for any reason whatsoever, voluntary or
involuntary, other than by reason of an approved leave of absence.
<PAGE>
Article 2
Phantom Stock Award
2.1 Initial Phantom Stock Award. The Board of Directors hereby awards two
hundred sixty (260) phantom shares to the Director as of the Effective Date of
this Agreement.
2.2 Future Annual Phantom Stock Awards. As long as the Director is serving
as a member of the Board of Directors on the first day of future Plan Years an
additional two hundred sixty (260) phantom shares will be awarded to the
Director as of the first day of such Plan Year. No future annual phantom stock
awards will be awarded beyond the Normal Termination Date.
2.3 Meeting Attendance Phantom Stock Awards. An additional twenty-four
(24) phantom shares will be awarded to the Director for each Board of Directors
meeting attended by the Director as a member of the Board. A maximum of two
hundred forty (240) meeting-attendance phantom shares may be awarded to the
Director in a Plan Year under this Section 2.3. The phantom shares will be
awarded as of the first day of the Plan Year in which the Board of Directors
meeting occurred. No meeting-attendance phantom stock awards will be awarded for
meetings occurring later than the Normal Termination Date.
2.4 Adjustment to Number of Phantom Shares. If the outstanding shares of
the Company's stock as a whole are increased, decreased, or changed into, or
exchanged for, a different number or kind of shares or securities of the
Company, whether through merger, consolidation, acquisition, reorganization, re-
capitalization, reclassification, stock dividend, stock split, combination of
shares, exchange of shares, change in corporate structure or the like, an
appropriate and proportionate adjustment shall be made in the number of phantom
shares outstanding and future phantom shares to be awarded under this Agreement
so that the total value of the Director's phantom shares is not effected by
reason of the transaction other than as provided in Section 2.5.
2.5 Additional Phantom Shares for Common Stock Dividends. Additional
phantom shares will be awarded to compensate for cash dividends paid holders of
the Company's common stock. The number of additional phantom shares to be
awarded under this Section 2.4 will be determined by multiplying the cash
dividend per common share by the Director's total number of phantom shares and
then dividing that resulting number by the Equity Per Share at the beginning of
the Plan Year.
2.6 Adjustment of Phantom Shares following a Change of Control. In the
event of a Change of Control where the Corporation's stock is valued at a
premium, an increase in the number phantom shares in Director's Stock
Appreciation Account shall be made to reflect such transaction premium by
multiplying the number of shares outstanding by the Sales Multiple.
2.7 Adjustment of Phantom Shares following a contribution of capital. In
the event additional capital is contributed to the Company by the existing
shareholders without the issuance of additional common shares, a reduction in
the number of phantom shares in the Director's Stock Appreciation Account shall
be made to reflect such capital contribution.
<PAGE>
Article 3
Stock Appreciation Account
3.1 Establishing and Crediting. The Company shall establish a Stock
Appreciation Account on its books for the Director, and shall credit to the
Stock Appreciation Account the following amounts:
3.1.1 Initial Appreciation. On the first Anniversary Date after a
phantom stock award the phantom shares then awarded shall be valued at the
Equity Per Share on the Anniversary Date. Any increase in value from the
Initial Value of such shares shall be credited to the Stock Appreciation
Account.
3.1.2 Future Appreciation. On each Anniversary Date the Director's
total number of phantom shares, other than phantom shares awarded in the
Plan Year, shall be valued at the Equity Per Share on the Anniversary Date.
The change in value from the prior Anniversary Date shall be added to or
subtracted from the Stock Appreciation Account. In no event will the value
of the Stock Appreciation Account in regard to any phantom share be reduced
below zero.
3.2 Statement of Accounts. The Company shall provide to the Director,
within 120 days of the end of each Plan Year that this Agreement is in effect, a
statement setting forth the number of phantom shares to the Director's credit
and the cash value of the Stock Appreciation Account balance.
3.3 Accounting Device Only. The Stock Appreciation Account is solely a
device for measuring amounts to be paid under this Agreement. The Stock
Appreciation Account is not a trust fund of any kind. The Director is a general
unsecured creditor of the Company for the payment of benefits. The benefits
represent the mere Company promise to pay such benefits. The Director's rights
are not subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by the Director's
creditors.
Article 4
Lifetime Benefits
4.1 Full Term Benefit. If the Director still serves as a director on the
Normal Termination Date, the Company shall pay to the Director the benefit
described in this Section 4.1 in lieu of any other benefit under this Agreement.
4.1.1 Amount of Benefit. The benefit under this Section 4.1 is the
Stock Appreciation Account balance on the Normal Termination Date.
4.1.2 Payment of Benefit. The Company shall pay the benefit to the
Director in a lump sum within sixty (60) days following the Normal
Termination Date; provided, however, that the Director may elect to receive
the benefit payable hereunder in annual installments, not to exceed ten
(10) years, by filing with the Company a written election form. Such
election must be received by the Company at least 12 months prior to the
Director's Normal Termination Date. In the event the Director elects to
receive such annual
<PAGE>
installments, the Company shall credit interest at 7.5% on the remaining
account balance during any applicable installment period.
4.2 Early Termination Benefit. If the Director terminates service before
the Plan Termination Date, and for reasons other than death or following a
Change of Control, the Company shall pay to the Director the benefit described
in this Section 4.2 in lieu of any other benefit under this Agreement.
4.2.1 Amount of Benefit. The benefit amount under this Section 4.2 is
the Stock Appreciation Account Director's Normal Termination Date.
4.2.2 Payment of Benefit. The Company shall pay the benefit to the
Director in a lump sum within sixty (60) days following the Normal
Termination Date.
4.3 Change of Control Benefit. If the Director terminates service
following a Change of Control before the Plan Termination Date, the Company
shall pay to the Director the benefit described in this Section 4.3 in lieu of
any other benefit under this Agreement.
4.3.1 Amount of Benefit. The benefit amount under this Section 4.3 is
the Stock Appreciation Account balance at the Director's Normal Termination
Date after the adjustment described in Section 2.5.
4.3.2 Payment of Benefit. The Company shall pay the benefit to the
Director in a lump sum within sixty (60) days following the Normal
Termination Date; provided, however, that the Director may elect to receive
the benefit payable hereunder in annual installments, not to exceed ten
(10) years, by filing with the Company a written election form. Such
election must be received by the Company at least 12 months prior to the
Director's Normal Termination Date. In the event the Director elects to
receive such annual installments, the Company shall credit interest at 7.5%
on the remaining account balance during any applicable installment period.
4.4 Hardship Distribution. Upon the Company's determination (following
petition by the Director) that the Director has suffered an unforeseeable
financial emergency, the Company may distribute to the Director all or a portion
of the Stock Appreciation Account balance as determined by the Company, but in
no event shall the distribution be greater than the lessor of the amount
necessary to relieve the financial hardship or the vested balance of the Stock
Appreciation Account calculated as described in Section 4.2.1. An unforeseeable
financial emergency means that an event arising from the death of a family
member, divorce, sickness, injury, catastrophe or similar event outside the
control of the Director occurs and the Company's Board of Directors, in its sole
discretion, approves of, in writing, of the hardship distribution.
Article 5
Death Benefits
5.1 Death During Active Service. If the Director dies before the Plan
Termination Date while in the active service of the Company, the Company shall
pay to the Director's beneficiary the benefit described in this Section 5.1 in
lieu of any other benefit under this Agreement.
<PAGE>
5.1.1 Amount of Benefit. The benefit under this Section 5.1 is the
balance in the Stock Appreciation Account as of the Director's Normal
Termination Date.
5.1.2 Payment of Benefit. The Company shall pay the benefit to the
Directors beneficiary in a lump sum within sixty (60) days following the
Director's Normal Termination Date.
Article 6
Beneficiaries
6.1 Beneficiary Designations. The Director shall designate a beneficiary
by filing a written designation with the Company. The Director may revoke or
modify the designation at any time by filing a new designation. However,
designations will only be effective if signed by the Director and accepted by
the Company during the Director's lifetime. The Director's beneficiary
designation shall be deemed automatically revoked if the beneficiary predeceases
the Director, or if the Director names a spouse as beneficiary and the marriage
is subsequently dissolved. If the Director dies without a valid beneficiary
designation, all payments shall be made to the Director's estate.
6.2 Facility of Payment. If a benefit is payable to a minor, to a person
declared incompetent, or to a person incapable of handling the disposition of
his or her property, the Company may pay such benefit to the guardian, legal
representative or person having the care or custody of such minor, incompetent
person or incapable person. The Company may require proof of incompetence,
minority or guardianship as it may deem appropriate prior to distribution of the
benefit. Such distribution shall completely discharge the Company from all
liability with respect to such benefit.
Article 7
General Limitations
Notwithstanding any provision of this Agreement to the contrary, the
Company shall not pay any benefit under this Agreement:
7.1 Excess Parachute Payment. To the extent the benefit would create an
excise tax under the parachute rules of Section 280G of the Internal Revenue
Code.
7.2 Termination for Cause. If the Company terminates the Director's
service as a director for:
7.2.1 Personal dishonesty,
7.2.2 Incompetence,
7.2.3 Willful misconduct,
7.2.4 Breach of fiduciary duty involving personal profit,
7.2.5 Intentional failure to perform stated duties,
7.2.6 Willful violation of any law, rule or regulation (other than
traffic violation or similar offenses or final cease-and-desist order; or
7.2.7 Acts which the Board reasonably finds in good faith to be
inimical to the best interests of the Company.
<PAGE>
Article 8
Claims and Review Procedures
8.1 Claims Procedure. The Company shall notify the Director, the
Director's beneficiary or any other person which makes a claim under this
Agreement (the "Claimant") in writing, within ninety (90) days of his or her
written application for benefits, of his or her eligibility or ineligibility for
benefits under the Agreement. If the Company determines that the Claimant is not
eligible for benefits or full benefits, the notice shall set forth (1) the
specific reasons for such denial, (2) a specific reference to the provisions of
the Agreement on which the denial is based, (3) a description of any additional
information or material necessary for the Claimant to perfect his or her claim,
and a description of why it is needed, and (4) an explanation of the Agreement's
claims review procedure and other appropriate information as to the steps to be
taken if the Claimant wishes to have the claim reviewed. If the Company
determines that there are special circumstances requiring additional time to
make a decision, the Company shall notify the Claimant of the special
circumstances and the date by which a decision is expected to be made, and may
extend the time for up to an additional ninety-day period.
8.2 Review Procedure. If the Claimant is determined by the Company not to
be eligible for benefits, or if the Claimant believes that he or she is entitled
to greater or different benefits, the Claimant shall have the opportunity to
have such claim reviewed by the Company by filing a petition for review with the
Company within sixty (60) days after receipt of the notice issued by the
Company. Said petition shall state the specific reasons which the Claimant
believes entitle him or her to benefits or to greater or different benefits.
Within sixty (60) days after receipt by the Company of the petition, the Company
shall afford the Claimant (and counsel, if any) an opportunity to present his or
her position to the Company verbally or in writing, and the Claimant (or
counsel) shall have the right to review the pertinent documents. The Company
shall notify the Claimant of its decision in writing within the sixty-day
period, stating specifically the basis of its decision, written in a manner
calculated to be understood by the Claimant and the specific provisions of the
Agreement on which the decision is based. If, because of the need for a hearing,
the sixty-day period is not sufficient, the decision may be deferred for up to
another sixty-day period at the election of the Company, but notice of this
deferral shall be given to the Claimant.
Article 9
Amendments and Termination
This Agreement may be amended or terminated only by a written agreement
signed by the Company and the Director.
Article 10
Miscellaneous
10.1 Binding Effect. This Agreement shall bind the Director and the
Company, and their beneficiaries, survivors, executors, administrators and
transferees.
<PAGE>
10.2 No Guarantee of Service. This Agreement is not an employment policy
or contract. It does not give the Director the right to remain a director of the
Company, nor does it interfere with the Company's right to discharge the
Director. It also does not require the Director to remain a director nor
interfere with the Director's right to terminate service at any time.
10.3 Non-Transferability. Benefits under this Agreement cannot be sold,
transferred, assigned, pledged, attached or encumbered in any manner.
10.4 Tax Withholding. The Company shall withhold any taxes that are
required to be withheld from the benefits provided under this Agreement.
10.5 Applicable Law. The Agreement and all rights hereunder shall be
governed by the laws of the State of Florida, except to the extent preempted by
the laws of the United States of America. Nothing contained herein shall be
deemed to obligate the Company to make a payment hereunder in violation of any
statute, regulation, or regulatory order or directive applicable to the Company.
10.6 Named Fiduciary. For purposes of the Employee Retirement Income
Security Act of 1974, the Company shall be the fiduciary of this Agreement.
10.7 Reorganization. The Company shall not merge or consolidate into or
with another company, or reorganize, or sell substantially all of its assets to
another company, firm, or person unless such succeeding or continuing company,
firm, or person agrees to assume and discharge the obligations of the Company
under this Agreement. Upon the occurrence of such event, the term "Company" as
used in this Agreement shall be deemed to refer to the successor or survivor
company.
10.8 Unfunded Arrangement. The Director and beneficiary are general
unsecured creditors of the Company for the payment of benefits under this
Agreement. The benefits represent the mere promise by the Company to pay such
benefits. The rights to benefits are not subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors. Any insurance on the Director's life is a general
asset of the Company to which the Director and beneficiary have no preferred or
secured claim.
10.9 Entire Agreement. This Agreement constitutes the entire agreement
between the Company and the Director as to the subject matter hereof. No rights
are granted to the Director by virtue of this Agreement other than those
specifically set forth herein.
10.10 Administration. The Company shall have powers which are necessary to
administer this Agreement, including but not limited to:
10.10.1 Interpreting the provisions of the Agreement;
10.10.2 Establishing and revising the method of accounting for the
Agreement;
10.10.3 Maintaining a record of benefit payments; and
<PAGE>
10.10.4 Establishing rules and prescribing any forms necessary or
desirable to administer the Agreement.
10.11 Designated Fiduciary. For purposes of the Employee Retirement Income
Security Act of 1974, if applicable, the Company shall be the named fiduciary
and plan administrator under the Agreement. The named fiduciary may delegate to
others certain aspects of the management and operation responsibilities of the
plan including the employment of advisors and the delegation of ministerial
duties to qualified individuals.
IN WITNESS WHEREOF, the Director and a duly authorized Company officer have
signed this Agreement.
DIRECTOR: COMPANY:
COMMERCE NATIONAL CORPORATION
_____________________________ By_____________________________
GUY D. COLADO Title__________________________
<PAGE>
NATIONAL COMPANY OF COMMERCE
STOCK APPRECIATION RIGHTS AGREEMENT
GUY D. COLADO
BENEFICIARY DESIGNATION FORM
I designate the following as beneficiary of any death benefits under the
National Company of Commerce Phantom Stock Appreciation Agreement:
Primary: _______________________________________________________________________
________________________________________________________________________________
Contingent: ____________________________________________________________________
________________________________________________________________________________
Note: To name a trust as beneficiary, please provide the name of the trustee(s)
and the exact name and date of the trust agreement.
-----
I understand that I may change these beneficiary designations by filing a new
written designation with the Company. I further understand that the designations
will be automatically revoked if the beneficiary predeceases me, or, if I have
named my spouse as beneficiary, in the event of the dissolution of our marriage.
Signature _________________________________
Date ____________________________
Accepted by the Company this _______ day of ________________, 199__.
By _______________________________________
Title _____________________________
<PAGE>
NATIONAL COMPANY OF COMMERCE
STOCK APPRECIATION RIGHTS AGREEMENT
GUY D. COLADO
OPTIONAL ELECTIONS
The following elections must be received by the Company twelve (12) or more
months prior to the Director's Normal Termination Date. If the Normal
Termination Date occurs within twelve (12) months of the date the election is
received by the Company, the installment elections will not be effective and the
relevant payments under this Agreement will be paid in a lump sum as otherwise
provided in the Agreement.
Full Term Benefit - Installment Payment Election:
-------------------------------------------------
I hereby elect to receive installment payments under Section 4.1.2 in lieu of
the lump sum payment otherwise called for. The installment payments will be made
annually on the first business day of the month following the Normal Termination
Date in equal annual amounts, including interest at 7.5% per year, for the
duration entered below.
Number of annual installments elected: ________ (not greater than 10)
Signature of Director: ______________________ Date: ________________
Accepted by the Company this _______ day of ________________, ______.
By _______________________________________
Title _____________________________
Change of Control Benefit - Installment Payment Election:
---------------------------------------------------------
I hereby elect to receive installment payments under Section 4.3.2 in lieu of
the lump sum payment otherwise called for. The installment payments will be made
annually on the first business day of the month following the Normal Termination
Date in equal annual amounts, including interest at 7.5% per year, for the
duration entered below.
Number of annual installments elected: _________ (not greater than 10)
Signature of Director: ______________________ Date: _________________
Accepted by the Company this _______ day of ________________, ______.
By _______________________________________
Title _____________________________
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF COMMERCE NATIONAL CORPORATION
As of the date of this report, Commerce National Corporation ("CNC")
owned all of the outstanding capital stock of the National Bank of Commerce, a
national banking organization and Commerce National Mortgage Company, a Florida
corporation established to process residential mortgages which commenced and
ceased operations during fiscal year 1988.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR COMMERCE NATIONAL CORPORATION
AND SUBSIDIARY DATED DECEMBER 31, 1999 AND DECEMBER 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,210,129
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,700,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,572,969
<INVESTMENTS-CARRYING> 18,572,969
<INVESTMENTS-MARKET> 18,572,969
<LOANS> 139,882,070
<ALLOWANCE> 1,629,823
<TOTAL-ASSETS> 180,202,250
<DEPOSITS> 154,388,664
<SHORT-TERM> 7,070,584
<LIABILITIES-OTHER> 628,643
<LONG-TERM> 4,050,448
0
0
<COMMON> 74,282
<OTHER-SE> 13,989,629
<TOTAL-LIABILITIES-AND-EQUITY> 180,202,250
<INTEREST-LOAN> 11,732,321
<INTEREST-INVEST> 980,782
<INTEREST-OTHER> 277,007
<INTEREST-TOTAL> 12,990,110
<INTEREST-DEPOSIT> 6,034,501
<INTEREST-EXPENSE> 6,037,135
<INTEREST-INCOME-NET> 6,952,975
<LOAN-LOSSES> 406,270
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,073,448
<INCOME-PRETAX> 2,405,251
<INCOME-PRE-EXTRAORDINARY> 2,405,251
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,532,032
<EPS-BASIC> 2.12
<EPS-DILUTED> 2.12
<YIELD-ACTUAL> 0.042
<LOANS-NON> 2,776,419
<LOANS-PAST> 0
<LOANS-TROUBLED> 725,703
<LOANS-PROBLEM> 3,550,884
<ALLOWANCE-OPEN> 1,323,143
<CHARGE-OFFS> 102,789
<RECOVERIES> 3,199
<ALLOWANCE-CLOSE> 1,629,823
<ALLOWANCE-DOMESTIC> 1,629,823
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 319,016
</TABLE>
