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 March 31, 2002
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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.)
229 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: 2,236,206 shares of
the Bank's common stock (no par value) were outstanding as of April 23, 2002.
Page 1 of 13
COMBANC, INC. AND SUBSIDIARY
MARCH 31, 2002 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 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 7
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
CONDENSED CONSOLIDATED BALANCE SHEET
($ in thousands)
March 31, December 31,
ASSETS 2002 2001
------ ----------------- -----------------
(unaudited)
Cash and Due from Banks $ 5,511 $ 6,712
Federal Funds Sold 20,017 9,677
----------------- -----------------
Cash and Cash Equivalents 25,528 16,389
Investment Securities -
Available for Sale 38,398 37,584
Loans Held for Resale 589 1,784
Loans 148,637 156,390
Allowance for Loan Losses (2,088) (1,815)
----------------- -----------------
Net Loans 146,549 154,575
Premises and Equipment 4,887 4,893
Other Assets 3,966 3,752
----------------- -----------------
Total Assets $ 219,917 $ 218,977
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Deposits
Noninterest Bearing $ 15,433 $ 17,285
Interest Bearing 164,759 162,371
----------------- -----------------
Total Deposits 180,192 179,656
Other Liabilities 1,393 1,612
Short Term Borrowings 4,895 3,977
Long Term Debt 9,545 9,792
----------------- -----------------
Total Liabilities 196,025 195,037
----------------- -----------------
Commitments and Contingent Liabilities - -
Shareholders' Equity -
Common Stock - No Par Value
5,000,000 shares authorized, 2,376,000 issued
and 2,236,206 and 2,251,391 outstanding 1,237 1,237
Capital Surplus 1,513 1,513
Retained Earnings 23,063 22,859
Accumulated Other Comprehensive Income 401 416
Treasury Stock - 139,794 and 124,609 shares at cost (2,322) (2,085)
----------------- -----------------
Total Shareholders' Equity 23,892 23,940
----------------- -----------------
Total Liabilities and Shareholders' Equity $ 219,917 $ 218,977
================= =================
The accompanying notes are an integral part of the condensed consolidated
financial statements
3
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
CONDENSED CONSOLIDATED STATEMENT OF INCOME
($ in thousands, except per share data)
For the Three Months Ended
March 31,
----------------------------
(unaudited)
2002 2001
------------ ------------
Interest Income:
----------------
Interest and Fees on Loans $ 2,839 $ 3,676
Interest and Dividends on Investments -
Taxable 348 439
Tax-Exempt 163 132
Equity Securities 22 27
Interest on Federal Funds Sold 58 36
Interest on Balances due from Depository Institutions - 1
------------ ------------
Total Interest Income 3,430 4,311
------------ ------------
Interest Expense:
-----------------
Interest on Deposits 1,304 1,884
Interest on Short-Term Borrowings 22 171
Interest on Long-Term Debt 142 230
------------ ------------
Total Interest Expense 1,468 2,285
------------ ------------
Net Interest Income 1,962 2,026
Provision for Loan Losses 150 135
------------ ------------
Net Interest Income after Provision for Loan Losses 1,812 1,891
Other Income
------------
Service Charges on Deposit Accounts 113 115
Other Operating Income 140 88
------------ ------------
Total Other Income 253 203
------------ ------------
Other Expenses:
---------------
Salaries and Employee Benefits 721 730
Net Occupancy 175 121
Other Operating Expenses 557 504
------------ ------------
Total Other Expenses 1,453 1,355
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Income - before Income Tax Expense 612 739
------
Income Tax Expense 139 200
------------ ------------
Net Income $ 473 $ 539
---------- ============ ============
Earnings Per Share $ 0.21 $ 0.23
Cash Dividends Per Share $ 0.12 $ 0.12
The accompanying notes are an integral part of the condensed consolidated
financial statements
4
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
($ in thousands)
For the Three Months
March 31,
-----------------------------
2002 2001
------------ -------------
(unaudited)
Cash Flows from Operating Activities:
Net Income $ 473 $ 539
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities -
Depreciation 97 52
Provision for Loan Loss 150 135
Federal Home Loan Bank stock Dividends (22) (27)
Investment Securities Amortization, Net 13 3
Net Change in Loans Held for Resale 1,195 -
Change in Other Assets and Other Liabilities (405) 431
------------ -------------
Net Cash Provided by Operating Activities 1,501 1,133
------------ -------------
Cash Flows from Investing Activities:
Purchases of Securities Available for Sale/FHLB Stock (4,097) (5,293)
Proceeds from Maturities of Securities
Available for Sale 3,248 8,216
Net Change in Loans 7,877 (649)
Purchases of Premises and Equipment (91) (740)
------------ -------------
Net Cash Provided in Investing Activities 6,937 1,534
------------ -------------
Cash Flows from Financing Activities:
Net change in Deposit Accounts 536 (182)
Proceeds from Borrowing 1,242 734
Repayment of Federal Home Loan Bank Advances (571) (101)
Dividends Paid (269) (276)
Purchase of Stock (237) (256)
------------ -------------
Net Cash Provided by Financing Activities 701 (81)
------------ -------------
Net Change in Cash and Cash Equivalents 9,139 2,586
Cash and Cash Equivalents -
Beginning of Year 16,389 7,957
------------ -------------
End of Period $ 25,528 $ 10,543
============ =============
The accompanying notes are an integral part of the condensed consolidated
financial statements
5
COMBANC, INC. AND SUBSIDIARY
MARCH 31, 2002 FORM 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
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 three months ended March 31, 2002, are not necessarily
indicative of those expected for the remainder of the year.
The Condensed Consolidated Balance Sheet at December 31, 2001 has been taken
from audited consolidated financial statements at that date.
Note 2, Earnings Per Share
Earning 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 three months ending March 31, 2002
and March 31, 2001 were 2,241,356 and 2,300,789 respectively.
Note 3, Commitments to fund loans
Outstanding commitments to originate loans were $16,900,000 and $16,276,000 at
March 31, 2002 and December 31, 2001.
6
COMBANC, INC. AND SUBSIDIARY
MARCH 31, 2002 FORM 10-Q
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 .43% from $218,977,000 at December 31, 2001 to
$219,917,000 at March 31, 2002.
Federal Funds sold increased $10,340,000 or 106.85% from December 31, 2001 to
$20,017,000 at March 31, 2002. The majority of this increase is the result of
the sale of $7,624,000 in real estate loans to the Federal Home Loan Mortgage
Corporation (FHLMC), a $536,000 increase in total deposits, and a $918,000
increase in short-term borrowings.
Total gross loans decreased 5.66% or $8,948,000 from December 31, 2001 to
$149,226,000 on March 31, 2002. Real estate loans decreased $7,287,000 or 6.14%
from year-end to March 31, 2002 due to an increased demand for lower interest
rate mortgage loans which was accomplished by repricing these loans and selling
them to FHLMC with servicing retained. Installment loans decreased 5.29% or
$821,000 from $15,519,000 at December 31, 2001 primarily due to the desire to
reduce indirect auto loans.
The Allowance for Loan Loss, at March 31, 2002, was 1.40% of total loans. This
is an increase of $273,000 from December 31, 2001 due to a $276,000 recovery on
a commercial loan.
Total deposits increased $536,000 or .30% from $179,656,000 on December 31, 2001
to $180,192,000 on March 31, 2002. Noninterest bearing deposits decreased
$1,852,000 from December 31, 2001 to March 31, 2002, while interest-bearing
deposits increased $2,388,000 during the period. Time deposit balances decreased
$2,200,000, while interest-bearing checking accounts increased $632,000, and
money market and savings accounts increased $3,956,000 during this period.
Short-term borrowings, which include Federal Home Loan Bank borrowings with
maturities of less than one year and repurchase agreements, increased $918,000
from December 31, 2001 to March 31, 2002. Of the $918,000 increase, Federal Home
Loan Bank borrowings decreased $324,000 while repurchase agreements increased
$1,242,000. Long-term debt or borrowings with a maturity of greater than one
year from the Federal Home Loan Bank decreased $247,000 or 2.52% since December
31, 2001 due to paydowns on amortizing loans.
7
COMBANC, INC. AND SUBSIDIARY
MARCH 31, 2002 FORM 10-Q
Total shareholders equity decreased .20% or $48,000 to $23,892,000 from December
31, 2001 to March 31, 2002. Included in the overall decrease was a $237,000
reduction in capital for the purchase of an additional 15,185 shares of treasury
stock since year end, a dividend payment of $269,000, and an increase in
retained earnings of $473,000 in net income.
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 $64,000 for the three months ended March
31, 2002 from a year ago.
Total interest income decreased $881,000 to $3,430,000 from $4,311,000 for the
quarter ended March 31, 2002 over March 31, 2001. Interest and fees on loans
decreased $837,000 or 22.77% over the same time last year. This decrease is due
to the increased volume of real estate loans sold to FHLMC on the secondary
market and the eleven interest rate cuts by the Federal Reserve in 2001. Taxable
investment income decreased $91,000 or 20.73% for the first three months of 2002
for a total of $348,000 compared to $439,000 for the first three months of 2001.
Taxable investments, which include agency bonds and mortgage backed securities,
decreased $2,354,000, accounting for the decrease in revenue. Interest on
Federal Funds sold increased from $36,000 for the quarter ended March 31, 2001
to $58,000 for the quarter ended March 31, 2002. This increase is the result of
an increase of $11,326,000 in the average balance on Federal Funds sold for the
quarters ended March 31, 2002 and March 31, 2001.
Non-interest income increased $50,000 for quarter ending March 31, 2002 from
March 31, 2001. The increase was due in part to a $6,000 increase in the gain on
the sale of real estate loans to the secondary market and an increase in service
fee income on secondary market real estate loans of $77,000.
Management increased the provision for loan losses in anticipation of increased
loan losses, which typically occur in a slower economy. The provision increased
$15,000 in 2002 to $150,000 from $135,000 at March 31, 2001.
Total interest expense decreased 35.75% or $817,000 from $2,285,000 for the
three months ended March 31, 2001 to $1,468,000 for the three months ended March
31, 2002. Interest on deposits decreased $580,000 or 30.79% over the first
quarter of 2001 due to a decrease in certificate interest rates during 2001 as
well as a $3,600,000 decrease in the volume of certificates from a year ago.
Interest on short term borrowings decreased $149,000 and long term borrowings
decreased $88,000. The decrease in short term borrowings is due to the decrease
in interest rates on repurchase agreements and the maturity of an advance at the
Federal Home Loan Bank.
8
COMBANC, INC. AND SUBSIDIARY
MARCH 31, 2002 FORM 10-Q
Non-interest expense increased 7.23% or $98,000 to $1,453,000 for the three
months ended March 31, 2002 compared to $1,355,000 in 2001. Salaries and
benefits decreased $9,000 over the first quarter of 2001. Other operating
expenses have increased $107,000 to $732,000 in March of 2002 from $625,000 in
March of 2001. Included in this increase is an increase of $54,000 in net
occupancy expense, an increase of $22,000 in legal and professional fees, an
increase of $19,000 in data processing fees, and an increase of $12,000 in
printing and office supplies.
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 2002 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 2002 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.
9
COMBANC, INC. AND SUBSIDIARY
MARCH 31, 2002 FORM 10-Q
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
March 31, 2002 ComBanc, Inc. maintained a Tier I capital ratio of 16.24%, a
total capital ratio of 17.50% and a Tier I leverage ratio of 10.86%.
Based on the respective regulatory capital ratios at March 31, 2002, 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 March 31, 2002 the Bank's liquid assets amounted to
$63,926,000 or 29.07% of total assets compared with 24.65% at December 31, 2001.
Management considers its liquidity to be adequate to meet its normal funding
requirements.
10
COMBANC, INC. AND SUBSIDIARY
MARCH 31, 2002 FORM 10-Q
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, 2001. The following table compares
rate sensitive assets and liabilities as of March 31, 2002 to December 31, 2001.
Principal Amount Maturing or Repricing in:
(Dollars in Thousands)
First Years
Year 1 to 5 Thereafter Total
-------- -------- ---------- -----
Comparison of 3/31/02 to 12/31/01
Total rate sensitive assets:
At December 31, 2001 $75,631 $70,440 $59,566 $205,637
At March 31, 2002 78,739 70,580 58,361 207,680
Increase (Decrease) 3,108 140 (1,205) 2,043
Total rate sensitive liabilities:
At December 31, 2001 $99,283 $54,330 $22,527 $176,140
At March 31, 2002 99,315 56,823 23,061 179,199
Increase (Decrease) 32 2,493 534 3,059
11
COMBANC, INC. AND SUBSIDIARY
MARCH 31, 2002 FORM 10-Q
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 March 31, 2002, 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
March 31, 2002.
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: May 7, 2002 /s/ Paul G. Wreede
------------------------------
Paul G. Wreede
President, CEO, and Director
Date: May 7, 2002 /s/ Kathleen A. Miller
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Kathleen A. Miller
Senior Vice President & CFO
13