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 September 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: 2,263,285 shares of the Bank's
common stock (no par value) were outstanding as of November 13, 2001.
Page 1 of 13
COMBANC, INC. AND SUBSIDIARY
September 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
2
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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CONDENSED CONSOLIDATED BALANCE SHEET
($ in thousands)
September 30, December 31,
ASSETS 2001 2000
----------------- -----------------
(unaudited)
Cash and Due from Banks $ 6,115 $ 5,147
Federal Funds Sold 14,075 2,810
--------- ---------
Cash and Cash Equivalents 20,190 7,957
Investment Securities -
Available for Sale 38,941 40,260
Loans Held for Resale 622
Loans 165,370 169,530
Allowance for Loan Losses (1,494) (1,331)
--------- ---------
Net Loans 163,876 168,199
Premises and Equipment 4,803 2,671
Other Assets 3,944 3,975
--------- ---------
Total Assets $ 232,376 $ 223,062
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest Bearing $ 15,522 $ 15,681
Interest Bearing 166,440 162,401
--------- ---------
Total Deposits 181,962 178,082
Other Liabilities 2,050 1,572
Short Term Borrowings 10,887 9,259
Long Term Debt 13,243 10,385
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Total Liabilities 208,142 199,298
--------- ---------
Commitments and Contingent Liabilities -- --
Shareholders' Equity -
Common Stock - No Par Value
5,000,000 shares authorized, 2,376,000 issued
and 2,263,285 and 2,310,751 outstanding 1,237 1,237
Capital Surplus 1,513 1,513
Retained Earnings 22,701 22,065
Accumulated Other Comprehensive Income 684 132
Treasury Stock - 112,715 and 65,249 shares at cost (1,901) (1,183)
--------- ---------
Total Shareholders' Equity 24,234 23,764
--------- ---------
Total Liabilities and Shareholders' Equity $ 232,376 $ 223,062
========= =========
The accompanying notes are an integral part of the
condensed consolidated financial statements
3
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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CONDENSED CONSOLIDATED STATEMENT OF INCOME
($ in thousands, except per share data)
Three Months Ended
September 30,
----------------------------
(unaudited)
2001 2000
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Interest Income:
Interest and Fees on Loans $3,505 $3,684
Interest and Dividends on Investments -
Taxable 488 510
Tax-Exempt 68 151
Equity Securities 28 55
Interest on Federal Funds Sold 114 2
Interest on Balances due from Depository Institutions -- 1
------ ------
Total Interest Income 4,203 4,403
------ ------
Interest Expense:
Interest on Deposits 1,822 1,800
Interest on Short-Term Borrowings 99 353
Interest on Long-Term Debt 203 107
------ ------
Total Interest Expense 2,124 2,260
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Net Interest Income 2,079 2,143
Provision for Loan Losses 370 105
------ ------
Net Interest Income after Provision for Loan Losses 1,709 2,038
Other Income
Service Charges on Deposit Accounts 126 110
Other Operating Income 84 51
------ ------
Total Other Income 210 161
------ ------
Other Expenses:
Salaries and Employee Benefits 709 682
Net Occupancy 149 113
Other Operating Expenses 614 491
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Total Other Expenses 1,472 1,286
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Income - before Income Tax Expense 447 913
Income Tax Expense 110 254
------ ------
Net Income $ 337 $ 659
====== ======
Earnings Per Share $ 0.15 $ 0.28
Cash Dividends Per Share $ 0.12 $ 0.11
The accompanying notes are an integral part of the
condensed consolidated financial statements
4
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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CONDENSED CONSOLIDATED STATEMENT OF INCOME
($ in thousands, except per share data)
For the Nine Months Ended
September 30,
------------------------------
(unaudited)
2001 2000
------------ ------------
Interest Income:
Interest and Fees on Loans $10,809 $10,514
Interest and Dividends on Investments -
Taxable 1,338 1,545
Tax-Exempt 344 456
Equity Securities 86 76
Interest on Federal Funds Sold 262 13
Interest on Balances due from Depository Institutions 1 1
------- -------
Total Interest Income 12,840 12,605
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Interest Expense:
Interest on Deposits 5,583 5,112
Interest on Short-Term Borrowings 344 822
Interest on Long-Term Debt 671 344
------- -------
Total Interest Expense 6,598 6,278
------- -------
Net Interest Income 6,242 6,327
Provision for Loan Losses 640 315
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Net Interest Income after Provision for Loan Losses 5,602 6,012
Other Income
Service Charges on Deposit Accounts 359 310
Other Operating Income 239 139
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Total Other Income 598 449
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Other Expenses:
Salaries and Employee Benefits 2,130 2,163
Net Occupancy 374 337
Other Operating Expenses 1,689 1,397
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Total Other Expenses 4,193 3,897
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Income - before Income Tax Expense 2,007 2,564
Income Tax Expense 548 722
------- -------
Net Income $ 1,459 $ 1,842
======= =======
Earnings Per Share $ 0.64 $ 0.79
Cash Dividends Per Share $ 0.36 $ 0.33
The accompanying notes are an integral part of the
condensed consolidated financial statements
5
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
($ in thousands)
For the Nine Months
September 30
-----------------------------
2001 2000
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(unaudited)
Cash Flows from Operating Activities:
Net Income $ 1,459 $ 1,842
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities -
Depreciation 179 157
Provision for Loan Loss 640 315
Federal Home Loan Bank stock Dividends (83) (73)
Investment Securities Amortization, Net 16 (9)
Net Change in Loans Held for Resale (622) --
Change in Other Assets and Other Liabilities 308 708
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Net Cash Provided by Operating Activities 1,897 2,940
-------- --------
Cash Flows from Investing Activities:
Purchases of Securities Available for Sale/FHLB Stock (14,891) (444)
Proceeds from Maturities of Securities
Available for Sale 17,030 2,067
Net Change in Loans 3,683 (8,055)
Purchases of Premises and Equipment (2,311) (213)
-------- --------
Net Cash Provided/(Used) in Investing Activities 3,511 (6,645)
-------- --------
Cash Flows from Financing Activities:
Net change in Deposit Accounts 3,880 2,780
Proceeds from Borrowing 5,128 3,145
Repayment of Federal Home Loan Bank Advances (642) (3,820)
Dividends Paid (823) (771)
Purchase of Stock (718) (345)
-------- --------
Net Cash Provided by Financing Activities 6,825 989
-------- --------
Net Change in Cash and Cash Equivalents 12,233 (2,716)
Cash and Cash Equivalents -
Beginning of Year 7,957 7,540
-------- --------
End of Period $ 20,190 $ 4,824
======== ========
The accompanying notes are an integral part of the
condensed consolidated financial statements
6
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine months ended September 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 nine months ending September 30,
2001 and September 30, 2000 were 2,287,222 and 2,335,453 respectively. The
weighted-average shares outstanding for the quarter ending September 30, 2001
and September 30, 2000 were 2,272,544 and 2,328,776 respectively.
Note 3, Commitments to fund loans
Outstanding commitments to originate loans were $14,354,000 and $11,931,000 at
September 30, 2001 and December 31, 2000.
During the third quarter of 2001 the construction of a Corporate Center that
serves as an operations and processing site for all offices was finished. The
total cost of the project, including furniture and equipment, was $2,321,000.
7
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 4.18% from $223,062,000 at December 31, 2000 to
$232,376,000 at September 30, 2001.
Total gross loans decreased 2.09% or $3,538,000 from December 31, 2000 to
$165,992,000 on September 30, 2001. Real estate loans decreased $1,356,000 or
1.07% from year-end to September 30, 2001 due to the refinancing of real estate
loans which were sold on the secondary market. Consumer loans decreased 11.64%
or $2,246,000 to $17,052,000 from $19,298,000 at December 31, 2000 primarily due
to the Banks desire to reduce indirect auto loans.
The Allowance for Loan Loss, at September 30, 2001, was .90% of total loans.
This is an increase of $163,000 from December 31, 2000.
Total deposits increased $3,880,000 or 2.18% from $178,082,000 on December 31,
2000 to $181,962,000 on September 30, 2001. Noninterest bearing deposits
decreased $159,000 from December 31, 2000 to September 30, 2001, while
interest-bearing deposits increased $4,039,000 during the period. Time deposit
balances increased $3,829,000, and interest-bearing checking accounts decreased
$1,299,000 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 $1,628,000
from December 31, 2000 to September 30, 2001. Of the $1,628,000 increase,
Federal Home Loan Bank borrowings increased $925,000 while repurchase agreements
increased $703,000. Long-term debt or borrowings with a maturity of greater than
one year from the Federal Home Loan Bank increased $2,858,000 or 27.52% since
December 31, 2000 due to an advance to fund long term mortgages previously
funded on the financial statements.
Total shareholders equity increased 1.98% or $470,000 to $24,234,000 from
December 31, 2000 to September 30, 2001. Included in the overall increase was a
$718,000 reduction in capital for the purchase of an additional 47,466 shares of
treasury stock since year end as well as an increase in the after tax unrealized
gain on Available for Sale Securities of $552,000.
8
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 $85,000 for the nine months ended
September 30, 2001 from a year ago.
Total interest income increased $235,000 to $12,840,000 from $12,605,000 for the
nine months ended September 30, 2001 over September 30, 2000. Interest and fees
on loans increased $295,000 or 2.81% over the same time last year. This increase
is a result of an increase in average real estate loan volume of $4,335,000. The
balance went from an average balance of $102,663,000 for the first nine months
of 2000 to an average balance of $106,998,000 for the first nine months of 2001.
Taxable investment revenue decreased 13.40% for the first nine months of 2001
for a total of $1,338,000 compared to $1,545,000 for the first nine months of
2000. The volume of Taxable investments, which include agency bonds and mortgage
backed securities, decreased $6,796,000 from September 30, 2000 to September 30,
2001, accounting for the decrease in revenue. With the sharp decline in interest
rates from January 1, 2001 to September 30, 2001, the decrease in volume and
earnings was due to investment securities at higher interest rates being called
and having to reinvest in much lower interest rate securities and federal funds.
Non-interest income increased $149,000 for the nine months ended September 30,
2001 from September 30, 2000. The increase was due in part to a $45,000 increase
in the gain on the sale of real estate loans to the secondary market, an
increase in service charges on deposit accounts of $49,000, and the addition of
a "skip pay" program that generated $16,000. Serviced secondary market real
estate loans increased from $1,839,000 at December 31, 2000 to $11,533,000 at
September 30, 2001.
Management increased the provision for loan losses in anticipation of increased
loan losses as the economy weakens. The provision increased $325,000 in 2001 to
$640,000 from $315,000 at September 30, 2000. Charge-offs amounted to $617,000
during the first nine months of 2001 and $937,000 during the first nine months
of 2000. Recoveries amounted to $140,000 during the first nine months of 2001
and $62,000 during the first nine months of 2000.
Total interest expense increased 5.10% or $320,000 from $6,278,000 for the nine
months ended September 30, 2000 to $6,598,000 for the nine months ended
September 30, 2001. Interest on deposits increased $471,000 or 9.21% for the
nine months ended September 31, 2001 over the nine months ended September 30,
2000 due to an increase in certificate interest rates during 2000. There was
also a 5.6 million-dollar increase in the volume of time deposits from September
30, 2000 to September 30, 2001. Interest on short-term borrowings decreased
$478,000 for the nine months ended September 30, 2001 compared to the nine
months ended September 30, 2000, and interest on long-term borrowings increased
$327,000 for the nine months ended September 30, 2001 compared to the nine
months ended September 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.
9
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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Non-interest expense increased 7.60% or $296,000 to $4,193,000 for the nine
months ended September 30, 2001 compared to $3,897,000 in 2000. Salaries and
benefits decreased $33,000 over the first three quarters of 2000. Other
operating expenses have increased $292,000 to $1,689,000 for the nine months
ended September 30, 2001 from $1,397,000 for the nine months ended September 30,
2000.
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
September 30, 2001 ComBanc, Inc. maintained a Tier I capital ratio of 15.17%,
total capital ratio of 16.14% and Tier I leverage ratio of 10.19%.
10
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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Based on the respective regulatory capital ratios at September 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.
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 September 30, 2001 the Bank's liquid assets amounted to
$59,131,000 or 25.45% 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 September 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 9/30/01 to 12/31/00
Total rate sensitive assets:
At December 31, 2000 $ 58,265 $ 86,917 $ 67,441 $212,623
At September 30, 2001 77,526 75,068 66,569 219,163
Increase (Decrease) 19,261 (11,849) (872) 6,540
Total rate sensitive liabilities:
At December 31, 2000 $ 94,335 $ 66,391 $ 21,319 $182,045
At September 30, 2001 109,199 58,120 23,251 190,570
Increase (Decrease) 14,864 (8,271) 1,932 8,525
11
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 September 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
September 30, 2001.
12
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: November 13, 2001 /s/ Paul G. Wreede
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Paul G. Wreede
President, CEO, and Director
Date: November 13, 2001 /s/ Kathleen A. Miller
-------------------------------
Kathleen A. Miller
Senior Vice President & CFO
13