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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
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COMBANC, INC.
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(Exact name of registrant as specified in its charter)
Delaware 34-1853493
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
230 E. Second St., P. O. Box 429, Delphos, Ohio 45833
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(Address of principal executive offices) (Zip Code)
(419) 695-1055
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(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date: 2,269,966 shares of the Bank's
common stock (no par value) were outstanding as of August 6, 2001.
Page 1 of 13
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COMBANC, INC. AND SUBSIDIARY
June 30, 2001 FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Statement of Income 4
Condensed Consolidated Statement of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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CONDENSED CONSOLIDATED BALANCE SHEET
($ in thousands)
June 30, December 31,
ASSETS 2001 2000
------ ---------------- --------------
(unaudited)
Cash and Due from Banks $ 4,287 $ 5,147
Federal Funds Sold 10,945 2,810
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Cash and Cash Equivalents 15,232 7,957
Investment Securities -
Available for Sale 39,662 40,260
Loans 168,168 169,530
Allowance for Loan Losses (1,359) (1,331)
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Net Loans 166,809 168,199
Premises and Equipment 3,980 2,671
Other Assets 3,726 3,975
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Total Assets $ 229,409 $ 223,062
================ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest Bearing $ 15,090 $ 15,681
Interest Bearing 164,850 162,401
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Total Deposits 179,940 178,082
Other Liabilities 1,666 1,572
Short Term Borrowings 10,030 9,259
Long Term Debt 13,483 10,385
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Total Liabilities 205,119 199,298
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Commitments and Contingent Liabilities - -
Shareholders' Equity -
Common Stock - No Par Value
5,000,000 shares authorized, 2,376,000 issued
and 2,286,065 and 2,310,751 outstanding 1,237 1,237
Capital Surplus 1,513 1,513
Retained Earnings 22,636 22,065
Accumulated Other Comprehensive Income 456 132
Treasury Stock - 89,935 and 65,249 shares at cost (1,552) (1,183)
---------------- --------------
Total Shareholders' Equity 24,290 23,764
---------------- --------------
Total Liabilities and Shareholders' Equity $ 229,409 $ 223,062
================ ==============
The accompanying notes are an integral part of the condensed consolidated
financial statements
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COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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CONDENSED CONSOLIDATED STATEMENT OF INCOME
($ in thousands, except per share data)
Three Months Ended
June 30
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(unaudited)
2001 2000
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Interest Income:
Interest and Fees on Loans $ 3,628 $ 3,549
Interest and Dividends on Investments -
Taxable 411 515
Tax-Exempt 144 153
Equity Securities 31 -
Interest on Federal Funds Sold 112 5
Interest on Balances due from Depository Institutions - -
---------- ----------
Total Interest Income 4,326 4,222
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Interest Expense:
Interest on Deposits 1,877 1,676
Interest on Short-Term Borrowings 74 247
Interest on Long-Term Debt 238 137
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Total Interest Expense 2,189 2,060
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Net Interest Income 2,137 2,162
Provision for Loan Losses 135 105
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Net Interest Income after Provision for Loan Losses 2,002 2,057
Other Income
Service Charges on Deposit Accounts 118 129
Other Operating Income 67 17
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Total Other Income 185 146
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Other Expenses:
Salaries and Employee Benefits 691 805
Net Occupancy 104 109
Other Operating Expenses 571 431
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Total Other Expenses 1,366 1,345
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Income - before Income Tax Expense 821 858
Income Tax Expense 238 269
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Net Income $ 583 $ 589
========== ==========
Earnings Per Share $ 0.26 $ 0.25
Cash Dividends Per Share $ 0.12 $ 0.11
The accompanying notes are an integral part of the condensed consolidated
financial statements
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COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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CONDENSED CONSOLIDATED STATEMENT OF INCOME
($ in thousands, except per share data)
For the Six Months Ended
June 30
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(unaudited)
2001 2000
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Interest Income:
Interest and Fees on Loans $ 7,304 $ 6,830
Interest and Dividends on Investments -
Taxable 850 1,035
Tax-Exempt 276 305
Equity Securities 58 21
Interest on Federal Funds Sold 148 11
Interest on Balances due from Depository Institutions 1 -
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Total Interest Income 8,637 8,202
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Interest Expense:
Interest on Deposits 3,761 3,312
Interest on Short-Term Borrowings 245 469
Interest on Long-Term Debt 468 237
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Total Interest Expense 4,474 4,018
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Net Interest Income 4,163 4,184
Provision for Loan Losses 270 210
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Net Interest Income after Provision for Loan Losses 3,893 3,974
Other Income
Service Charges on Deposit Accounts 233 200
Other Operating Income 155 88
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Total Other Income 388 288
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Other Expenses:
Salaries and Employee Benefits 1,421 1,481
Net Occupancy 225 224
Other Operating Expenses 1,075 906
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Total Other Expenses 2,721 2,611
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Income - before Income Tax Expense 1,560 1,651
Income Tax Expense 438 468
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Net Income $ 1,122 $ 1,183
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Earnings Per Share $ 0.49 $ 0.50
Cash Dividends Per Share $ 0.24 $ 0.22
The accompanying notes are an integral part of the condensed consolidated
financial statements
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COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
($ in thousands)
For the Six Months
June 30
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2001 2000
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(unaudited)
Cash Flows from Operating Activities:
Net Income $ 1,122 $ 1,183
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities -
Depreciation 105 116
Provision for Loan Loss 270 210
Federal Home Loan Bank stock Dividends (55) (21)
Investment Securities Amortization, Net 11 (3)
Change in Other Assets and Other Liabilities 231 (9)
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Net Cash Provided by Operating Activities 1,684 1,476
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Cash Flows from Investing Activities:
Purchases of Securities Available for Sale/FHLB Stock (12,596) (444)
Proceeds from Maturities of Securities 13,674 933
Available for Sale
Net Change in Loans 1,119 (6,906)
Purchases of Premises and Equipment (1,414) (165)
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Net Cash Provided/(Used) in Investing Activities 783 (6,582)
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Cash Flows from Financing Activities:
Net change in Deposit Accounts 1,858 (2,172)
Proceeds from Borrowing 4,425 6,054
Repayment of Federal Home Loan Bank Advances (555) (140)
Dividends Paid (551) (515)
Purchase of Stock (369) (345)
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Net Cash Provided by Financing Activities 4,808 2,882
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Net Change in Cash and Cash Equivalents 7,275 (2,224)
Cash and Cash Equivalents -
Beginning of Year 7,957 7,540
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End of Period $ 15,232 $ 5,316
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The accompanying notes are an integral part of the condensed consolidated
financial statements
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COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
(unaudited)
Note 1, Basis of Presentation
The significant accounting policies followed by ComBanc, Inc. (Company) and its
wholly-owned subsidiary, The Commercial Bank (Bank), for interim financial
reporting are consistent with the accounting policies followed for annual
financial reporting. All adjustments which are, in the opinion of management,
necessary for a fair presentation of the results for the periods reported,
consisting only of normal recurring adjustments, have been included in the
accompanying unaudited condensed consolidated financial statements. The results
of operations for the six months ended June 30, 2001, are not necessarily
indicative of those expected for the remainder of the year.
The Condensed Consolidated Balance Sheet at December 31, 2000 has been taken
from audited consolidated financial statements at that date.
Note 2, Earnings Per Share
Earnings per share on the income statement has been computed on the basis of
weighted-average number of shares of common stock outstanding. The
weighted-average shares outstanding for the six months ending June 30, 2001 and
June 30, 2000 were 2,294,765 and 2,338,829 respectively. The weighted-average
shares outstanding for the quarter ending June 30, 2001 and June 30, 2000 were
2,288,792 and 2,329,261 respectively.
Note 3, Commitments to fund loans
Outstanding commitments to originate loans were $13,891,000 and $11,931,000 at
June 30, 2001 and December 31, 2000.
The Bank has committed to the construction of a Corporate Center that will serve
as an operations and processing site for all offices. The approximate cost of
the project, including furniture and equipment, is $2,500,000.
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COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
ENTITY STATUS
On April 13, 1998, The Commercial Bank became a wholly-owned subsidiary of the
newly formed ComBanc, Inc., a one-bank holding company. Since ComBanc's only
significant asset is the investment in The Commercial Bank, the following
discussion will focus on the operations of The Commercial Bank.
FINANCIAL CONDITION
Total assets increased 2.85% from $223,062,000 at December 31, 2000 to
$229,409,000 at June 30, 2001.
Total gross loans decreased .80% or $1,362,000 from December 31, 2000 to
$168,168,000 on June 30, 2001. Real estate loans decreased $329,000 or .31% from
year-end to June 2001 due to the refinancing of real estate loans which were
sold on the secondary market, while serviced secondary market real estate loans
increased from $1,839,000 at December 31, 2000 to $7,847,000 at June 30, 2001.
Installment loans decreased 2.49% or $598,000 to $23,413,000 from $24,011,000 at
December 31, 2000 primarily due to the Banks desire to reduce indirect auto
loans.
The Allowance for Loan Loss, at June 30, 2001, was .81% of total loans. This is
an increase of $28,000 from December 31, 2000.
Total deposits increased $1,858,000 or 1.04% from $178,082,000 on December 31,
2000 to $179,940,000 on June 30, 2001. Noninterest bearing deposits decreased
$591,000 from December 31, 2000 to June 30, 2001, while interest-bearing
deposits increased $2,449,000 during the period. Time deposit balances increased
$3,671,000, while interest-bearing checking accounts decreased $78,000 during
this period. The bank offers competitive rates on certificates to attract and
maintain deposit accounts.
Short-term borrowings, which include Federal Home Loan Bank borrowings with
maturities of less than one year and repurchase agreements, increased $771,000
from December 31, 2000 to June 30, 2001. Of the $771,000 increase, Federal Home
Loan Bank borrowings increased $925,000 while repurchase agreements decreased
$154,000. Long-term debt or borrowings with a maturity of greater than one year
from the Federal Home Loan Bank increased $3,098,000 or 29.83% since December
31, 2000 due to an advance that was purchased to fund long term mortgages
previously recorded on the financial statements.
Total shareholders equity increased 2.21% or $526,000 to $24,290,000 from
December 31, 2000 to June 30, 2001. Included in the overall increase was a
$369,000 reduction in capital for the purchase of an additional 24,686 shares of
treasury stock since year end as well as an increase in the after tax unrealized
gain on Available for Sale Securities of $324,000.
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COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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RESULTS OF OPERATIONS
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 Commercial Bank's earnings. Net interest
income is affected by changes in the volume and rates of interest-earning assets
and interest-bearing liabilities and the volume of interest-earning assets
funded with low cost deposits, noninterest-bearing deposits and shareholders'
equity. Net interest income decreased $21,000 for the six months ended June 30,
2001 from a year ago.
Total interest income increased $435,000 to $8,637,000 from $8,202,000 for the
six months ended June 30, 2001 over June 30, 2000. Interest and fees on loans
increased $474,000 or 6.94% over the same time last year. This increase is a
result of an increase in average real estate loan volume of $6,245,000. The
balance went from an average balance of $101,051,000 for the first six months of
2000 to an average balance of $107,296,000 for the first six months of 2001.
Taxable investment income decreased 17.87% for the first six months of 2001 for
a total of $850,000 compared to $1,035,000 for the first six months of 2000.
Taxable investments, which include agency bonds and mortgage backed securities,
decreased $6,165,000 from June 30, 2000 to June 30, 2001, accounting for the
decrease in revenue.
Non-interest income increased $100,000 for the six months ended June 30, 2001
from June 30, 2000. The increase was due in part to a $26,000 increase in the
gain on the sale of real estate loans to the secondary market, an increase in
service charges on deposit accounts of $33,000, and the addition of a "skip pay"
program that generated $13,000.
Management increased the provision for loan losses in anticipation of increased
loan losses as the economy weakens. The provision increased $60,000 in 2001 to
$270,000 from $210,000 at June 30, 2000. Charge-offs amounted to $268,000 during
the first six months of 2001 and $908,000 during the first six months of 2000.
Recoveries amounted to $25,000 during the first six months of 2001 and $18,000
during the first six months of 2000.
Total interest expense increased 11.35% or $456,000 from $4,018,000 for the six
months ended June 30, 2000 to $4,474,000 for the six months ended June 30, 2001.
Interest on deposits increased $449,000 or 13.56% for the six months ended June
31, 2001 over the six months ended June 30, 2000 due to an increase in
certificate interest rates during 2000. There was also a 10.9 million-dollar
increase in the volume of certificates from June 30, 2000 to June 30, 2001.
Interest on short-term borrowings decreased $224,000 for the six months ended
June 30, 2001 compared to the six months ended June 30, 2000, and long-term
borrowings increased $231,000 for the six months ended June 30, 2001 compared to
the six months ended June 30, 2000. The decrease in short term borrowings is due
the elimination of the overnight funding and moving into long term advances in
order to match directly to pools of loans and larger commercial loans.
Non-interest expense increased 4.21% or $110,000 to $2,721,000 for the six
months ended June 30, 2001 compared to $2,611,000 in 2000. Salaries and benefits
decreased $60,000 over the first two quarters of 2000. Other operating expenses
have increased $169,000 to $1,075,000 for the six months ended June 30, 2001
from $906,000 for the six months ended June 30, 2000.
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COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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FORWARD-LOOKING STATEMENTS
The Company has made, and may continue to make, various forward-looking
statements with respect to interest rate sensitivity analysis, credit quality
and other financial and business matters for 2001 and, in certain instances,
subsequent periods. The Company cautions that these forward-looking statements
are subject to numerous assumptions, risks and uncertainties, and that
statements for periods subsequent to 2001 are subject to greater uncertainty
because of the increased likelihood of changes in underlying factors and
assumptions. Actual results could differ materially from forward-looking
statements. In addition to those factors previously disclosed by the Company and
those factors identified elsewhere herein, the following factors could cause
actual results to differ materially from such forward looking statements:
Continued pricing pressures on loan and deposit products, actions of
competitors, changes in economic conditions, the extent and timing of actions of
the Federal Reserve, customer's acceptance of the Company's products and
services, the extent and timing of legislative and regulatory actions and
reforms, and changes in the interest rate environment that reduce interest
margins. The Company's forward-looking statements speak only as the date on
which such statements are made. By making any forward-looking statements, the
Company assumes no duty to update them to reflect new, changing or unanticipated
events or circumstances.
REGULATORY CAPITAL
The Federal Reserve Board's risk-based capital guidelines addressing the capital
adequacy of bank holding companies and banks (collectively, "banking
organizations") include a definition of capital and a framework for calculating
risk-weighted assets and off-balance sheet items to broad risk categories, as
well as minimum ratios to be maintained by banking organizations. A banking
organization's risk-based capital ratios are calculated by dividing its
qualifying capital by its risk-weighted assets.
Under the risk-based capital guidelines, there are two categories of capital:
core capital ("Tier 1") and supplemental capital ("Tier 2"), collectively
referred to as Total Capital. Tier 1 Capital includes common stockholders'
equity, qualifying perpetual preferred stock and minority interest in equity
accounts of consolidated subsidiaries. Tier 2 capital includes perpetual
preferred stock (to the extent ineligible for Tier 1), hybrid capital
instruments (i.e. perpetual debt and mandatory convertible securities) and
limited amounts of subordinated debt, intermediate-term preferred stock and the
allowance for credit losses.
The Federal Reserve Board's leverage constraint guidelines establish a minimum
ratio of Tier 1 Capital to quarterly average total assets ("Leverage Ratio").
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
established five capital tiers for banks. Pursuant to that statute the federal
bank regulatory agencies have defined the five capital tiers for banks. Under
these regulations, a bank is defined to be well capitalized, the highest tier,
if it maintains a Tier 1 Capital ratio of at least 6 percent, a Total Capital
ratio of at least 10 percent and a Leverage Ratio of at least 5 percent. At June
30, 2001 ComBanc, Inc. maintained a Tier I capital ratio of 15.44 %, total
capital ratio of 16.32% and Tier I leverage ratio of 10.52%.
Based on the respective regulatory capital ratios at June 30, 2001, the Bank is
well capitalized, based on the definitions in the regulations issued by the
Federal Reserve Board and the other federal bank regulatory agencies setting
forth the general capital requirements mandated by FDICIA.
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LIQUIDITY
The liquidity of a banking institution reflects its ability to provide funds to
meet loan requests, to accommodate possible outflows in deposits and to take
advantage of interest rate market opportunities.
Funding of loan requests, providing for liability outflows, and management of
interest rate fluctuations require continuous analysis in order to match the
maturities of specific categories of short-term loans and investments with
specific types of deposits and borrowings. Bank liquidity is thus normally
considered in terms of the nature and mix of the banking institution's sources
and uses of funds.
Liquid assets consist of cash and due from banks, federal funds sold, and
securities available for sale. At June 30, 2001 the Bank's liquid assets
amounted to $54,894,000 or 23.93% of total assets compared with 21.62% at
December 31, 2000. Management considers its liquidity to be adequate to meet its
normal funding requirements.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in the Company's quantitative and
qualitative market risks since December 31, 2000. The following table compares
rate sensitive assets and liabilities as of June 30, 2001 to December 31, 2000.
Principal Amount Maturing or Repricing in:
(Dollars in Thousands)
First Years
Year 1 to 5 Thereafter Total
------- -------- ---------- -----
Comparison of 6/30/01 to 12/31/00
Total rate sensitive assets:
At December 31,2000 $58,265 $86,917 $67,441 $212,623
At June 30, 2001 72,515 78,873 67,409 218,797
Increase (Decrease) 14,250 (8,044) (32) 6,174
Total rate sensitive liabilities:
At December 31, 2000 $94,335 $66,391 $21,319 $182,045
At June 30, 2001 103,243 62,140 22,980 188,363
Increase (Decrease) 8,908 (4,251) 1,661 6,318
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COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Commercial Bank, at any given time, is involved in a number of lawsuits
initiated by The Commercial Bank as a plaintiff, intending to collect upon
delinquent accounts, to foreclose upon real property, or to seize and sell
personal property pledged as security for any such account. Combanc, Inc. is
involved in no legal proceedings.
At June 30, 2001, The Commercial Bank was involved in a number of such cases as
a party-plaintiff, and occasionally, as a party-defendant due to its joinder as
a lien holder, either by mortgage or by judgment lien. In the ordinary case, The
Commercial Bank's security and value of its lien is not threatened, except
through bankruptcy or loss of value of the collateral should sale result in
insufficient proceeds to satisfy the judgment.
Management and the Board are not aware of any additional potential claims
against the Bank, which have not been disclosed herein.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 11. Statement regarding computation of earnings per share
is contained in Part I, Item 2.
(b) There were no reports on 8-K filed during the quarter ended June 30,
2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMBANC, INC.
Date: August 9, 2001 /s/ Paul G. Wreede
____________________________
Paul G. Wreede
President, CEO, and Director
Date: August 9, 2001 /s/ Kathleen A. Miller
____________________________
Kathleen A. Miller
Senior Vice President & CFO
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