U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended June 30, 2001
___ Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _______________ to ________________
Commission File No. 333-70589
NEW COMMERCE BANCORP
--------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
South Carolina 58-2403844
-------------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
501 New Commerce Court, Greenville, South Carolina 29607
-------------------------------------------------------
(Address of Principal Executive Offices)
(864) 297-6333
-------------------------------------
(Issuer's Telephone Number, Including Area Code)
Not Applicable
------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
-- --
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 1,000,000 shares of common
stock, par value $.01 per share, outstanding as of August 1, 2001.
Transitional Small Business Disclosure Format (check one): Yes No X
-- --
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
New Commerce BanCorp
Consolidated Balance Sheets
June 30, December 31,
2001 2000
(Unaudited) (Audited)
--------- -----------
Assets
Cash and due from banks $ 1,823,975 $ 2,018,365
Federal funds sold 100,000 --
Investment securities, available for sale 17,255,792 12,780,655
Investment securities, held to maturity 774,464 838,837
Federal Reserve Bank stock 237,250 237,250
Federal Home Loan Bank stock 65,400 38,200
Loans - net 24,962,096 19,192,839
Property and equipment - at cost, less accumulated
depreciation 4,451,359 4,473,352
Accrued interest receivable 329,973 301,916
Other assets 423,546 396,804
------------- -------------
Total assets $ 50,423,855 $ 40,278,218
============= =============
Liabilities and Shareholders' Equity
Deposits $ 35,295,769 $ 31,167,758
Federal funds purchased 1,024,024 100,000
Securities sold under agreements to repurchase 4,987,500 --
Accrued expenses and other liabilities 279,377 202,645
------------- -------------
Total liabilities 41,586,670 31,470,403
------------- -------------
Shareholders' Equity
Common stock, $.01par value, 10,000,000 shares
authorized, 1,000,000 shares issued at June 30, 2001
and December 31, 2000 10,000 10,000
Additional paid-in capital 9,741,658 9,741,658
Retained deficit (1,132,902) (1,053,003)
Accumulated other comprehensive income (loss) 218,429 109,160
------------- -------------
Total shareholders' equity 8,837,185 8,807,815
------------- -------------
Total liabilities and shareholders' equity $ 50,423,855 $ 40,278,218
============= =============
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
New Commerce BanCorp
Consolidated Statements of Operations
(Unaudited)
For the three For the three For the six For the six
months ended months ended months ended months ended
June 30, June 30, June 30, June 30,
-------- -------- -------- --------
2001 2000 2001 2000
---- ---- ---- ----
INTEREST INCOME
Loans (including fees) $ 475,319 $ 343,110 $ 948,315 $ 659,539
Investment securities 304,675 138,594 572,181 249,763
Federal funds sold 7,447 41,801 16,621 88,940
------------- ------------ ---------- ------------
Total interest income 787,441 523,505 1,537,117 998,242
------------- ------------ ---------- ------------
INTEREST EXPENSE
Deposits 352,886 227,193 717,934 427,700
Securities sold under agreements to repurchase 41,088 -- 41,088 --
Federal funds purchased 4,654 -- 7,075 --
------------- ------------ ---------- ------------
Total interest expense 398,628 227,193 766,097 427,700
------------- ------------ ---------- ------------
NET INTEREST INCOME 388,813 296,312 771,020 570,542
Provision for Possible Loan Losses 36,900 34,866 61,796 55,170
------------- ------------ ---------- ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 351,913 261,446 709,224 515,372
NONINTEREST INCOME
Service charges on deposit accounts 13,177 12,503 28,442 21,763
Brokered loan fees 19,673 4,059 52,673 9,062
Other 15,630 11,418 27,776 20,006
------------- ------------ ---------- ------------
Total noninterest income 48,480 27,980 108,891 50,831
------------- ------------ ---------- ------------
TOTAL INCOME 400,393 289,426 818,115 566,203
NONINTEREST EXPENSES
Salaries and employee benefits 263,098 211,560 543,866 413,435
Occupancy, office and equipment 56,912 53,846 127,287 94,098
Data processing 45,377 37,912 88,346 79,278
Postage, supplies and printing 17,618 21,374 31,951 34,636
Marketing 22,023 41,254 43,590 72,784
Insurance 5,071 5,912 9,506 10,457
Telephone 13,186 7,054 21,711 11,410
Legal 8,396 11,021 9,070 26,555
Contract services and courier 8,896 8,768 17,829 16,959
Audit and accounting 4,929 7,672 11,628 11,674
Other 43,552 21,730 81,162 35,318
------------- ------------ ---------- ------------
Total noninterest expense 489,058 428,103 985,946 806,604
------------- ------------ ---------- ------------
(88,665) (138,677) (167,831) (240,401)
LOSS BEFORE INCOME TAX BENEFIT
(49,399) (37,356) (87,932) (66,683)
------------- ------------ ---------- ------------
INCOME TAX BENEFIT
NET LOSS $ (39,266) $ (101,321) $ (79,899) $ (173,718)
============= ============ ========== ============
Basic Net loss Per Common Share $ (.04) $ (.10) $ (.08) $ (.17)
============= ============ ========== ============
Weighted average number of common shares
outstanding 1,000,000 1,000,000 1,000,000 1,000,000
============= ============ ========== ============
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
PART I - FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
New Commerce BanCorp
Consolidated Statements of Shareholders' Equity
For the six month period ended June 30, 2001
(Unaudited)
Accumulated
Additional Retained Other Total
Common Stock Paid-in Earnings Comprehensive Shareholders'
Shares Amount Capital (Deficit) Income (loss) Equity
------ ------ ---------- ------------ ------------- ------------
Balance, December 31, 1999 1,000,000 $ 10,000 $ 9,741,658 $ (714,544) $ (25,015) $ 9,012,099
Net loss -- -- -- (173,718) -- (173,718)
Other comprehensive income (loss),
net of tax:
Unrealized holding losses
On securities available for sale -- -- -- -- (38,204) (38,204)
--------- --------- ------------- ------------ ----------- -------------
Comprehensive income (loss) -- -- -- -- -- (211,922)
--------- --------- ------------- ------------ ----------- -------------
Balance, June 30, 2000 1,000,000 $ 10,000 $ 9,741,658 $ (888,262) $ (63,219) $ 8,800,177
--------- --------- ------------- ------------ ----------- -------------
Balance, December 31, 2000 1,000,000 $ 10,000 $ 9,741,658 $ (1,053,003) $ 109,160 $ 8,807,815
Net loss -- -- -- (79,899) -- (79,899)
Other comprehensive income (loss),
net of tax:
Unrealized holding gains
on securities available for sale -- -- -- -- 109,269 109,269
--------- --------- ------------- ------------ ----------- -------------
Comprehensive income (loss) -- -- -- -- -- 29,370
--------- --------- ------------- ------------ ----------- -------------
Balance, June 30, 2001 1,000,000 $ 10,000 $ 9,741,658 $ (1,132,902) $ 218,429 $ 8,837,185
--------- --------- ------------- ------------ ----------- -------------
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
PART I - FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
New Commerce BanCorp
Consolidated Statements of Cash Flows
For the six months ended June 30
(Unaudited)
2001 2000
---- ----
OPERATING ACTIVITIES
Net loss $ (79,899) $ ( 173,718)
Adjustments to reconcile net loss to net cash
used for operating activities
Depreciation and amortization 75,193 44,830
Gain on sale of fixed assets (1,077) --
Provision for possible loan losses 61,796 55,170
Deferred income tax benefit (87,932) (66,683)
Increase in accrued interest receivable (28,057) (72,883)
(Increase) decrease in other assets 114,674 (125,228)
Increase in accrued expenses and other liabilities 76,732 15,333
------------ ------------
Net cash provided by (used) for operating activities 131,430 (323,179)
------------ ------------
INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold (100,000) 5,838,023
Purchase of investment securities available for sale (8,495,913) (3,974,030)
Proceeds from bonds called or sold 3,374,400 --
Pincipal paydowns on investment securities 766,534 --
Net increase in loans (5,831,053) (3,183,361)
Capital expenditures for property (52,123) (1,829,635)
Increase in Federal Home Loan Bank capital stock (27,200) --
------------- ------------
Net cash used for investing activities (10,365,355) (3,149,003)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 4,128,011 4,981,872
Increase in securities sold under agreements to repurchase 4,987,500 --
Increase in federal funds purchased 924,024 307,120
------------ ------------
Net cash provided by financing activities 10,039,535 5,288,992
------------ ------------
NET INCREASE (DECREASE) IN CASH AND DUE FROM
BANKS (194,390) 1,816,810
Cash and Due From Banks, Beginning of Period 2,018,365 1,608,350
------------ ------------
Cash and Due From Banks, End of Period $ 1,823,975 $ 3,425,160
============ ============
CASH PAID FOR
Interest 736,275 $ 418,436
============ ============
Income Taxes $ -- $ --
============ ============
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
PART I - FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
New Commerce BanCorp
Notes to Financial Statements
(Unaudited)
Note 1 - Organization and Basis of Presentation
Business activity and organization
New Commerce Bancorp was incorporated is South Carolina on July 22, 1998 to
operate as a bank holding company pursuant to the Federal Bank Holding Company
Act of 1956 and the South Carolina Bank Holding Company Act, and to own and
control all of the capital stock of New Commerce Bank, an association organized
under the laws of the United States, to conduct a general banking business in
Mauldin, South Carolina.
We sold 1,000,000 shares of common stock at an offering price of $10 per share.
Net of selling expenses, we raised $9,751,658 in the offering. We capitalized
the bank with $8,250,000 of the net proceeds of the offering and the sale of
shares to the organizers. The remaining net offering proceeds were used to pay
our organization expenses and to provide general working capital, including
additional future capital for investment in the bank, if needed. On February 11,
1999, the Office of the Comptroller of the Currency issued preliminary approval
of the Bank to become a federally chartered bank, and on March 10, 1999, the
Federal Deposit Insurance Corporation approved our application for deposit
insurance for the bank. The bank commenced business on May 17, 1999 and is
primarily engaged in the business of accepting demand deposits and savings
insured by the Federal Deposit Insurance Corporation, and providing commercial
and consumer loans to the general public. The bank opened its permanent
headquarters facility in May 2000 and its first permanent branch in June 2000.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals and
adjustments) considered necessary for a fair presentation have been included.
Operating results for the six months ended June 30, 2001 are not necessarily
indicative of the results for the year ending December 31, 2001. For further
information, refer to the consolidated financial statements and footnotes
thereto included in our Form 10-KSB for the period ended December 31, 2000
(Registration Number 333-70589) as filed with the Securities and Exchange
Commission.
Note 2 - Net Loss Per Common Share
SFAS No. 128, "Earnings Per Share" requires that we present basic and diluted
net income per share. Net loss per common share is calculated by dividing net
loss by the weighted average number of common shares outstanding for each period
presented. The weighted average number of common shares outstanding for basic
net loss per common share was 1,000,000 for the six months ended June 30, 2001
and 2000. We did not have any common stock equivalents during the six months
ended June 30, 2001 and 2000. Stock options outstanding were anti-dilutive and
had no effect on the computation of weighted average shares outstanding.
Part 1 - Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
This discussion and analysis is intended to assist the reader in understanding
the financial condition and results of operations of New Commerce BanCorp and
subsidiary. This commentary should be read in conjunction with the financial
statements and the related notes and other statistical information included in
this report and should be read with an understanding of our short operating
history.
Results of Operations for the three months ended June 30, 2001 compared to the
three months ended June 30, 2000:
Our net loss for the second quarter of 2001 was $39,266, or $.04 per share,
compared to a net loss of $101,321, or $.10 per share, for the three months
ended June 30, 2000. This improvement reflects continued growth in earning
assets since the Bank commenced operations in May 1999. Management anticipates
that the Company will reach monthly profitability by year-end 2001. Following is
a discussion of the more significant components of our net loss.
Net Interest Income
The largest component of net income is net interest income, the difference
between the income earned on assets and the interest accrued or paid on deposits
and borrowings used to support such assets. Net interest margin is determined by
dividing net interest income by average earning assets. Net interest spread is
derived from determining the rates and mix of interest paid on deposits and
borrowings and subtracting them from the yields on and mix of earning assets.
Net interest income for the three months ended June 30, 2001 was $388,813
compared to $296,312 for the same period last year, an increase of 31%. The
annualized net interest margin was 3.80% for the three months ended June 30,
2001 compared to an annualized net interest margin of 4.64% for the three months
ended June 30, 2000. The decrease in net interest margin during the period
reflects the declining interest rate environment in 2001.
Since loans often provide a higher yield than other types of earning assets, one
of our goals is to maintain our loan portfolio as the highest percentage of
total earning assets. Loan interest income for the three- month period ended
June 30, 2001 totaled $475,319, compared to $343,110 for the same period in
2000. Interest earned on investment securities amounted to $304,675 for the
three months ended June 30, 2001, compared to $138,594 for the three months
ended June 30, 2000. Investment interest included $14,000 in accelerated
accretion on bonds called in the three months ended June 30, 2001 due to the
drop in the prime rate and subsequent drop in investment rates.
The annualized yield on earning assets was 7.70% for the three-month period
ended June 30, 2001. Interest expense for the three months ended June 30, 2001
was $398,628 compared to $227,193 for the same period last year. Interest
expense for the three months ended June 30, 2001 included interest of $4,654 on
federal funds purchased and $41,088 on a reverse repurchase agreement. The funds
borrowed under this agreement were used to invest in an agency bond yielding
6.59%. The borrowing interest rate was 4.85%. Therefore, for the three months
ended June 30, 2001, the spread on this transaction was 1.74%. Annualized cost
of funds was 4.72% for the three months ended June 30, 2001.
Interest Rate Sensitivity
Asset/liability management is the process by which we monitor and control the
mix, maturities and interest sensitivity of our assets and liabilities.
Asset/liability management seeks to ensure adequate liquidity and to maintain an
appropriate balance between interest-sensitive assets and liabilities to
minimize potentially adverse impacts on earnings from changes in market interest
rates. Interest rate risk management becomes increasingly important in an
interest rate environment and economy such as the one, which we are currently
experiencing.
The principal interest rate sensitivity monitoring technique employed by us is
the measurement of our interest sensitivity "gap", which is the positive or
negative dollar difference between assets and liabilities that are subject to
interest rate repricing within a given time period. Interest rate sensitivity
can be managed by repricing assets or liabilities, selling securities
available-for-sale, replacing an asset or liability at maturity, or adjusting
the interest rate during the life of an asset or liability.
Managing the amount of assets and liabilities repricing in the same time
interval helps to minimize interest rate risk and manage net interest income in
changing interest rate environments. Our net interest income generally would
benefit from rising interest rates when we have an asset-sensitive gap position.
Conversely, net interest income generally would benefit from decreasing interest
rates when we have a liability-sensitive gap position. At June 30, 2001, the
Company was liability-sensitive over the twelve month timeframe.
Provision and Allowance for Loan Losses
The provision for loan losses is the charge to operating earnings that our
management feels is necessary to maintain the allowance for possible loan losses
at an adequate level. For the three months ended June 30, 2001, the provision
for loan losses was $36,900 compared to $34,866 for the same period last year.
The loan loss reserve was $354,073 at June 30, 2001, or 1.40% of gross loans
compared to $292,277 at December 31, 2000, or 1.50% of gross loans. The loan
portfolio is periodically reviewed to evaluate the outstanding loans and to
measure both the performance of the portfolio and the adequacy of the allowance
for loan losses.
This analysis includes a review of delinquency trends, actual losses, and
internal credit ratings. Management's judgment as to the adequacy of the
allowance is based upon a number of assumptions about future events, which it
believes to be reasonable, but which may or may not be accurate. Because of the
inherent uncertainty of assumptions made during the evaluation process, there
can be no assurance that loan losses in future periods will not exceed the
allowance for loan losses or that additional allocations will not be required.
There were no charge-offs for the three-month period ended June 30, 2001. There
were no non-performing loans or loans delinquent more than 90 days at June 30,
2001 and December 31, 2000.
Non-Interest Income
Non-interest income for the three-month period ended June 30, 2001 was $48,480
compared to $27,980 for the same period in 2000. Deposit account service charges
represented $13,177 for the three months ended June 30, 2001 compared to $12,503
for the comparable period in 2000. This increase is due to the growth in deposit
accounts experienced during the comparable periods. Brokered loan fees totaled
$19,673 and $4,059 for the three months ended June 30, 2001 and 2000,
respectively. This significant increase reflects general growth occurring in the
early years of the Bank as well as the increase in purchase money and
refinancing activities associated with a declining interest rate environment.
Non-Interest Expense
Non-interest expense for the three-month period ended June 30, 2001 was $489,058
compared to $428,103 for the same period in 2000. Salaries and employee benefits
are the largest component of non-interest expense. This category increased by
$51,538 from $211,560 for the three months ended June 30, 2000 to $263,098 for
the three-month period ended June 30, 2001. This 24% increase was due primarily
to an increase in staffing requirements for two permanent branch locations.
Occupancy, office and equipment expense totaled $56,912 for the second quarter
of 2001, compared to $53,846 for the same period last year. Data processing
expense totaled $45,377 for the three-month period ended June 30, 2001 compared
to $37,912 for the same period last year. The majority of this expense
represented the cost of our third-party data processing provider.
Results of Operations for the six months ended June 30, 2001 compared to the six
months ended June 30, 2000:
For the first six months of 2001, our net loss was $79,899, or $.08 per share
compared to $173,718, or $.17 per share for the same period last year. Following
is a discussion of the more significant components of our net loss.
Net Interest Income
For the six months ended June 30, 2001, net interest income was $771,020, an
increase of 35% from $570,542 for the same period in 2000. The annualized net
interest margin was 3.76% for the six months ended June 30, 2001 compared to an
annualized net interest margin of 4.65% for the six months ended June 30, 2000.
Loan interest income for the six months ended June 30, 2001 totaled $948,315,
compared to $659,539 for the same period in 2000. Interest earned on investment
securities increased $322,418 to $572,181 and included $41,100 in accelerated
accretion on bonds called in the first six months of 2001. The resulting
annualized yield on the investment portfolio for the six months ended June 30,
2001 was 7.38%.
The annualized yield on earning assets was 8.12% for the six months ended June
30, 2001. Interest expense for the six months ended June 30, 2001 was $766,097
compared to $427,700 for the same period last year. The increase of $338,397 was
attributed to deposit growth of 51% over the period as well as a 12-month
certificate of deposit promotion offered from July to October 2000. This CD
promotion added approximately $6 million in deposits at 7% yields during the
period. These CD's reprice at yields from 4.00% to 4.75% in the third quarter of
2001 and the repricing will have a significant favorable impact on cost of funds
and resulting net interest margin over the remainder of 2001. Annualized cost of
funds was 4.91% for the six months ended June 30, 2001.
Provision and Allowance for Loan Losses
For the six months ended June 30, 2001, the provision for loan losses was
$61,796 compared to $55,170 for the first half of 2000. The loan loss reserve
was $354,073 at June 30, 2001, or 1.40% of gross loans compared to $292,277 at
December 31, 2000, or 1.50% of gross loans. There were no charge-offs for the
six-month period ended June 30, 2001.
Non-Interest Income
Non-interest income totaled $108,891 for the six months ended June 30, 2001
compared to $50,831 for the same period last year. This 114% increase in
non-interest income was primarily attributed to strong growth in brokered loan
fees and deposit service charges. Brokered loan fees increased $43,611 to
$52,673 during the first half of 2001. This increase resulted from the growth in
refinancings and purchase money activity associated with the declining interest
rate environment. Service charges on deposit accounts totaled $28,442 for the
first half of 2001, compared to $21,763 for the same period in 2000. This 31%
increase was attributed to growth in deposit accounts during the period.
Non-Interest Expense
For the first six months of 2001, noninterest expense amounted to $985,946,
compared to $806,604 for the same period last year. Salaries and employee
benefits increased $130,431 to $543,866. As stated previously, this increase was
primarily a result of staffing requirements for two permanent branch locations
opened during the period.
Occupancy, office and equipment expense totaled $127,287 for the six months
ended June 30, 2001, compared to $94,098 for the same period last year. This 35%
increase is primarily due to the opening of our two facilities in May and June
200 and the associated depreciation, utilities, etc. Likewise, data
processing expense increased from $79,278 for the first six months of 2000 to
$88,346 for the six months ended June 30, 2001. This increase results from
noncapitalized costs associated with connection of the two offices as well as an
increase in the monthly charge from our data processing provider. This monthly
charge adjusts based on deposit account volume.
Balance Sheet Review
Total consolidated assets increased $10,145,637 from $40,278,218 at December 31,
2000 to $50,423,855 at June 30, 2001. This increase in assets was primarily
funded by growth of $4,128,011 in deposits, which totaled $35,295,769 at June
30, 2001 and federal funds purchased and a repurchase agreement, which totaled
$6,011,524 at June 30, 2001. Net loans grew $5,769,257 from $19,192,839 at
December 31, 2000 to $24,962,096 at June 30, 2001. Investment securities
increased $4,437,964, from $13,894,942 at December 31, 2000 to $18,332,906 at
June 30, 2001.
We closely monitor and seek to maintain appropriate levels of interest earning
assets and interest bearing liabilities so that maturities of assets are such
that adequate funds are provided to meet customer withdrawals and demand. We
expect asset and liability growth to continue during the coming months, with the
growth tapering off to a more deliberate and controllable pace over the longer
term, and we believe capital should continue to be adequate for the next 12
months.
Loan Portfolio
Net outstanding loans represented the largest component of earning assets as of
June 30, 2001 at $24,962,096 or 57.5% of total earning assets, compared to 58.0%
at December 31, 2000. Net loans have increased 30% since December 31, 2000.
Balances within the major loan categories were as follows:
June 30, 2001 December 31, 2000
------------- -----------------
Commercial $ 8,028,025 $ 7,198,928
Real Estate - 1-4 Family 3,101,550 2,744,101
1-4 Family Equity Lines 1,343,204 992,999
Real Estate - Commercial, construction 10,938,699 7,217,926
Consumer and installment loans 1,904,691 1,331,162
---------- ----------
$ 25,316,169 $ 19,485,116
========== ==========
Allowance for loan loss, December 31, 2000 $ 292,277
Provision 61,796
(Charge-offs) recoveries
--
Allowance for loan loss, June 30, 2001 $ 354,073
---------
Allowance for loan losses to loans outstanding, December 31, 2000 1.50 %
------
Allowance for loan losses to loans outstanding, June 30, 2001 1.40 %
------
Investment Portfolio
Investment securities represented 42.2% and 41.6% of earning assets at June 30,
2001 and December 31, 2000, respectively. Investment securities increased 31.9%
from December 31, 2000. From December 31, 2000 to June 30, 2001, we had
$3,000,000 in bonds called. We primarily invest in U. S. Government agencies or
government-sponsored agencies, mortgage-backed securities, collateralized
mortgage obligations and credit quality corporate bonds. We also own stock in
the Federal Reserve Bank and the Federal Home Loan Bank.
The following is a table of investment securities by category at June 30, 2001
and December 31, 2000:
June 30, 2001 December 31, 2000
------------- -----------------
U. S. Government agencies and U. S.
Government sponsored agencies $ 7,793,768 $ 4,745,335
Agency mortgage-backed securities 3,241,637 3,595,576
Agency collateralized mortgage obligations 3,676,885 3,472,931
Corporate bonds 3,317,966 1,805,650
FRB stock 237,250 237,250
FHLB stock 65,400 38,200
------------ -----------
Total $ 18,332,906 $13,894,942
============ ===========
Deposits
Balances within the major deposit categories as of June 30, 2001 and December
31, 2000 were as follows:
June 30, 2001 December 31, 2000
------------- -----------------
Non-interest bearing demand deposits $ 6,107,472 $ 4,307,660
Interest-bearing checking 3,545,160 3,849,582
Savings deposits 364,816 359,085
Money market accounts 9,521,019 10,468,966
Time deposits less than $100,000 7,749,844 6,332,973
Time deposits of $100,000 or more 8,007,458 5,849,492
---------- ----------
$ 35,295,769 $31,167,758
========== ==========
From July to October 2001, we have approximately $6 million in 7% certificates
of deposit repricing at yields from 4.00% to 4.75%. In July 2001, 70% of these
CD's totaling $924,000 renewed at the lower rates.
Other Borrowings
On April 26, 2001, we entered into a reverse repurchase agreement with a
correspondent bank whereby we borrowed $4,987,500 at 4.85%, purchased an agency
bond at $5 million, yielding 6.59% with the proceeds and simultaneously sold the
bond to the correspondent bank, with an option to repurchase at a specified
future date. The bond and corresponding repurchase agreement have quarterly call
and renewal dates, respectively. On July 26, 2001, the first call date, the bond
was not called and the repurchase agreement was renewed for $5 million at 3.90%,
resulting in a 269 basis point spread on this transaction for the third quarter
2001. The next call date is October 26, 2001.
Liquidity Management
Liquidity management involves monitoring our sources and uses of funds in order
to meet our day-to-day cash flow requirements while maximizing profits.
Liquidity represents the ability of a company to convert assets into cash or
cash equivalents without significant loss and to raise additional funds by
increasing liabilities. Liquidity management is made more complicated because
different balance sheet components are subject to varying degrees of management
control. For example, the timing of maturities of the investment portfolio is
fairly predictable and subject to a high degree of control at the time
investment decisions are made. However, net deposit inflows and outflows are far
less predictable and are not subject to nearly the same degree of control.
At June 30, 2001, our liquid assets, consisting of cash and due from banks and
federal funds sold amounted to $1,923,975 and represented 3.82% of total assets.
Investment securities totaled $18,332,906, and represented 36.4% of total
assets. Investment securities provide a secondary source of liquidity since they
can be converted to cash in a timely manner. Our ability to maintain and expand
our deposit base and borrowing capabilities also serves as a source of
liquidity. Our loan to deposit ratio at June 30, 2001 was 71.7% compared to
62.5% at December 31, 2000. We plan to meet our future cash needs through the
liquidation of temporary investments, maturities of loans and investment
securities, and generation of deposits. In addition, we maintain federal funds
lines of credit with correspondent banks in the amount of $4,000,000 and we are
members of the Federal Home Loan Bank, from which application for borrowings can
be made for leverage purposes. We believe that our existing stable base of core
deposits along with continued growth in this deposit base, will enable us to
successfully meet our long-term liquidity needs.
Due to the 275 basis point decrease in the prime rate from January 2001 to June
2001, we had $3.0 million in bonds called by the issuers during this timeframe.
For the remainder of 2001, we have two bonds totaling $1million that have call
dates in October.
We anticipate losing a portion of the 7% certificates of deposit, which are
repricing in the third quarter 2001. At this time, we cannot anticipate the
percentage of these CD's, which will not renew.
The Bank has a five-year contract for data processing services through April
2004. Costs under this contract are approximately $9,000 per month. At June 30,
2001, unfunded commitments to extend credit were $4,599,000 and outstanding
letters of credit were $56,376.
Capital Adequacy
The Federal Reserve Board and bank regulatory agencies require bank holding
companies and financial institutions to maintain capital at adequate levels
based on a percentage of assets and off-balance sheet exposures, adjusted for
risk weights ranging from 0% to 100%. The Federal Reserve guidelines also
contain an exemption from the capital requirements for bank holding companies
with less than $150 million in consolidated assets. Because we have less than
$150 million in assets, we are not currently subject to these guidelines.
However, the Bank falls under these rules as set by bank regulatory agencies.
Under the capital adequacy guidelines, capital is classified into two tiers.
Tier 1 capital consists of common stockholders' equity, excluding the unrealized
gain or loss on securities available for sale, minus certain intangible assets.
Tier 2 capital consists of the general reserve for loan losses subject to
certain limitations. The qualifying capital base for purposes of the risk-based
capital ratio consists of the sum of its Tier 1 and Tier 2 capital. The Bank is
also required to maintain capital at a minimum level based on total average
assets, which is known as the Tier 1 leverage ratio. The Bank exceeded the
minimum capital requirements set by the regulatory agencies at June 30, 2001.
Below is a table that reflects the leverage and risk-based regulatory capital
ratios of the Bank at June 30, 2001.
Required amount Required Actual amount Actual
(in $000's) Percent (in $000's) Percent
---------------- --------- ------------- -------
Tier 1 capital $ 1,393 4.0 % $ 7,198 20.66%
Total capital 2,787 8.0 7,552 21.68
Tier 1 leverage ratio 1,831 4.0 7,198 15.72
IMPACT OF INFLATION
The assets and liabilities of financial institutions such as ours are primarily
monetary in nature. Therefore, interest rates have a more significant effect on
our performance than do the effects of changes in the general rate of inflation
and changing prices. In addition, interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of goods and services. As
discussed previously, management seeks to manage the relationships between
interest-sensitive assets and liabilities in order to protect against wide
interest rate fluctuations, including those, which may result from inflation.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, such as statements relating to
financial results and plans for future business development activities, and thus
is prospective. The words "may", "would", "could", "will", "expect",
"anticipate', "should", "believe", "intend", "plan", and "estimate", as well as
similar expressions are meant to identify such forward-looking statements. Such
forward-looking statements are subject to risks, uncertainties, and other
factors, which could cause actual results to differ materially from future
results expressed or implied by such forward-looking statements.
These statements appear in a number of places in this report and include all
statements that are not statements of historical fact regarding our intent,
belief, or expectations. These forward-looking statements are not guarantees of
future performance and actual results may differ materially from those projected
in the forward-looking statements. Potential risks and uncertainties include,
but are not limited to, our brief operating history, our ability to manage rapid
growth, general economic conditions, competition, interest rate sensitivity, and
exposure to regulatory and legislative changes.
Additional risks are discussed in detail in our filings with our Securities and
Exchange Commission, including the "Risk Factors" section in our Registration
Statement of Form SB-2 (Registration Number 333-70589) as filed with and
declared effective by the Securities and Exchange Commission.
RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the SEC issued Staff Accounting Bulletin (SAB) No. 102 - Selected
Loan Loss Allowance Methodology and Documentation Issues. This staff accounting
bulletin clearly defines the required development, documentation, and
application of a systematic methodology for determining allowances for loan and
lease losses in accordance with generally accepted accounting principles. We
believe that we are in compliance with SAB 102.
Accounting standards that have been issued or proposed by the Financial
Accounting Standards Board that do not require adoption until a future date are
not expected to have a material impact on the consolidated financial statements
upon adoption.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which we or any of our
subsidiaries is party or of which any of their property is the subject.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of matters to a vote of security holders
There was one matter submitted to a vote of security holders during the six
months ended June 30, 2001 at the Company's annual meeting of shareholders held
on April 19, 2001.
1. The election of four members of the Board of Directors as Class II directors
for a three-year term.
The Company's Bylaws provide that the Board of Directors shall be divided into
three classes with each class to be nearly equal in number as possible. The
Bylaws also provide that the three classes of directors are to have staggered
terms, so that the terms of only approximately one-third of the board members
will expire at each annual meeting of shareholders. The current Class I
directors are Marshall J. Collins, Jr., and Tommy D. Greer. The current Class II
directors are Ralph S. Crawley, Bobby L. Johnson, Robert T. Kellett, and Dennis
O. Raines. The current Class III directors are Richard W. Bailey, Timothy A.
Brett, G. Mitchell Gault, and James D. Stewart. The current terms of the Class
II directors expired at the Annual Meeting. Each of the four current Class II
directors was nominated for election and stood for election at the Annual
Meeting on April 19, 2001 for a three-year term. The number of votes for the
election of the Class II directors was as follows: For Mr. Crawley - 612,002;
for Mr. Johnson - 612,002; for Mr. Kellett - 600,002; and for Mr. Raines -
611,502. The number of votes, which withheld authority for Mr. Crawley - 12,000;
withheld authority for Mr. Johnson - 12,000; withheld authority for Mr. Kellett
- - 24,000; and withheld authority for Mr. Raines - 12,500. The number of votes
against the election of directors was as follows: against Mr. Crawley - 0;
against Mr. Johnson - 0; against Mr. Kellett - 0; and against Mr. Raines - 0.
The terms of the Class III directors will expire at the 2002 Annual Meeting of
Shareholders.
A majority vote was attained for the above matter and therefore approved and
recorded in the Company's minute book from the annual meeting of shareholders.
There were no other matters voted on by the Company's shareholders at our annual
meeting held on April 19, 2001.
Item 5. Other Information
None.
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits -- See Exhibit Index attached hereto.
(b) Reports on Form 8-K.
We did not file any reports on Form 8-K during the quarter ended June
30, 2001.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NEW COMMERCE BANCORP
(Registrant)
Date: August 6, 2001 By: /s/ James D. Stewart
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James D. Stewart
President and Chief Executive Officer
By: /s/ Paula S. King
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Paula S. King
Principal Accounting and Chief
Financial Officer