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, 2003 ------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from to ----------------------- ------------------------ COMBANC, INC. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 34-1853493 -------------------------------------------------------------------------------- (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 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (419) 695-1055 -------------------------------------------------------------------------------- (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: 2,211,014 shares of the ComBanc's common stock (no par value) were outstanding as of April 23, 2003. PAGE 1 OF 19 March 31, 2003 FORM 10-Q TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Income 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition 8 and Results of Operations Item 3. Quantitative and Qualitative Disclosures about Market Risk 13 Item 4. Controls and Procedures 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15 Certifications 16 Exhibit 99.1 18 Exhibit 99.2 19 2 COMBANC, INC. AND SUBSIDIARY DELPHOS, OHIO -------------- CONDENSED CONSOLIDATED BALANCE SHEETS ($ in thousands) March 31, December 31, ASSETS 2003 2002 ----------------- ----------------- (unaudited) Cash and Due from Banks $ 7,483 $ 12,301 Federal Funds Sold 10,285 4,624 ----------------- ----------------- Cash and Cash Equivalents 17,768 16,925 Investment Securities - Available for Sale 51,664 54,396 Loans Held for Resale 2,691 728 Loans 135,176 140,091 Allowance for Loan Losses (3,610) (2,050) ----------------- ----------------- Net Loans 131,566 138,041 Premises and Equipment 4,627 4,689 Other Assets 3,855 3,251 ----------------- ----------------- Total Assets $ 212,171 $ 218,030 ================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest Bearing $ 13,417 $ 16,090 Interest Bearing 160,499 162,801 ----------------- ----------------- Total Deposits 173,916 178,891 Other Liabilities 1,127 1,123 Short Term Borrowings 6,160 5,946 Long Term Debt 7,460 7,720 ----------------- ----------------- Total Liabilities 188,663 193,680 ----------------- ----------------- Commitments and Contingent Liabilities - - Shareholders' Equity - Common Stock - No Par Value 5,000,000 shares authorized, 2,376,000 issued and 2,211,014 and 2,211,014 outstanding 1,237 1,237 Capital Surplus 1,513 1,513 Retained Earnings 22,524 23,371 Accumulated Other Comprehensive Income 951 946 Treasury Stock - 164,986 and 164,986 shares at cost (2,717) (2,717) ----------------- ----------------- Total Shareholders' Equity 23,508 24,350 ----------------- ----------------- Total Liabilities and Shareholders' Equity $ 212,171 $ 218,030 ================= ================= The accompanying notes are an integral part of the condensed consolidated financial statements 3 COMBANC, INC. AND SUBSIDIARY DELPHOS, OHIO ----------- CONDENSED CONSOLIDATED STATEMENTS OF INCOME ($ in thousands, except per share data) For the Three Months Ended March 31, ---------------------------- (unaudited) 2003 2002 ------------ ------------ Interest Income: Interest and Fees on Loans $ 2,233 $ 2,839 Interest and Dividends on Investments - Taxable 445 370 Tax-Exempt 147 163 Interest on Federal Funds Sold 20 58 Interest on Balances due from Depository Institutions - - ------------ ------------ Total Interest Income 2,845 3,430 ------------ ------------ Interest Expense: Interest on Deposits 835 1,304 Interest on Short-Term Borrowings 14 22 Interest on Long-Term Debt 114 142 ------------ ------------ Total Interest Expense 963 1,468 ------------ ------------ Net Interest Income 1,882 1,962 Provision for Loan Losses 1,730 150 ------------ ------------ Net Interest Income after Provision for Loan Losses 152 1,812 Other Income: Service Charges on Deposit Accounts 128 113 Gain on Sale of Loans 111 15 Other Operating Income 171 125 ------------ ------------ Total Other Income 410 253 ------------ ------------ Other Expenses: Salaries and Employee Benefits 815 721 Net Occupancy 189 175 Other Operating Expenses 511 557 ------------ ------------ Total Other Expenses 1,515 1,453 ------------ ------------ Income - before Income Tax Expense (953) 612 Income Tax Expense (371) 139 ------------ ------------ Net Income $ (582) $ 473 ============ ============ Earnings Per Share $ (0.26) $ 0.21 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 STATEMENTS OF CASH FLOWS ($ in thousands) For the Three Months March 31, ----------------------------------- 2003 2002 ---------------- --------------- (unaudited) Cash Flows from Operating Activities: Net Income $ (582) $ 473 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities - Depreciation and amortization 104 97 Provision for Loan Loss 1,730 150 Federal Home Loan Bank stock Dividends (17) (22) Investment securities amortization (accretion), Net 77 13 Net Change in Loans Held for Resale (1,963) 1,195 Net Change in Interest receivable (59) (58) Interest payable 31 (57) Other assets (252) (134) Other liabilities (308) (156) ---------------- --------------- Net Cash Provided/(Used) by Operating Activities (1,239) 1,501 ---------------- --------------- Cash Flows from Investing Activities: Purchases of Securities Available for Sale/FHLB Stock (4,054) (4,097) Proceeds from Maturities of Securities Available for Sale 6,718 3,248 Net Change in Loans 4,745 7,877 Purchases of Premises and Equipment (41) (91) ---------------- --------------- Net Cash Provided by Investing Activities 7,368 6,937 Cash Flows from Financing Activities: Net change in Deposit Accounts (4,975) 536 Proceeds from Borrowing 214 1,242 Repayment of Federal Home Loan Bank Advances (260) (571) Dividends Paid (265) (269) Purchase of Stock - (237) ---------------- --------------- Net Cash Provided/(Used) by Financing Activities (5,286) 701 ---------------- --------------- Net Change in Cash and Cash Equivalents 843 9,139 Cash and Cash Equivalents - Beginning of Year 16,925 16,389 ---------------- --------------- End of Period $ 17,768 $ 25,528 ================ =============== The accompanying notes are an integral part of the condensed consolidated financial statements 5 COMBANC INC. AND SUBSIDIARY March 31, 2003 FORM 10-Q NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2003 Note 1, Basis of Presentation Certain information and note disclosures normally included in the Company's annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Form 10-K annual report for 2002 filed with the Securities and Exchange Commission. 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, 2003, are not necessarily indicative of those expected for the remainder of the year. The Condensed Consolidated Balance Sheet at December 31, 2002 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 three months ending March 31, 2003 and March 31, 2002 were 2,211,014 and 2,241,356 respectively. Note 3, Commitments to fund loans Outstanding commitments to originate loans were $18,336,000 and $21,943,000 at March 31, 2003 and December 31, 2002. Note 4, Allowance for Loan Losses Credit risk is the risk of loss from a customer default on a loan. The Bank has in place a process to identify and manage its credit risk. The process includes initial credit review and approval, periodic monitoring to measure compliance with credit agreements and internal credit policies, monitoring changes in the risk ratings of loans and leases, identification of problem loans and special procedures for the collection of problem loans. The risk of loss is difficult to quantify and is subject to fluctuations in values and general economic conditions and other factors. THE DETERMINATION OF THE ALLOWANCE FOR LOAN LOSSES IS A CRITICAL ACCOUNTING POLICY WHICH INVOLVES ESTIMATES AND MANAGEMENT'S JUDGMENT ON A NUMBER OF FACTORS SUCH AS NET CHARGE-OFFS, DELINQUENCIES IN THE LOAN PORTFOLIO AND GENERAL ECONOMIC CONDITIONS. The Bank considers the allowance for loan losses of $3,610,000 adequate to cover losses 6 COMBANC INC. AND SUBSIDIARY March 31, 2003 FORM 10-Q inherent in the loan portfolios as of March 31, 2003. However, no assurance can be given that the Bank will not, in any particular period, sustain loan losses that are sizeable in relation to the amount reserved, or that subsequent evaluations of the loan portfolio, in light of factors then prevailing, including economic conditions and the Bank's on-going credit review process, will not require significant increases in the allowance for loan losses. Among other factors, a protracted economic slowdown and/or a decline in commercial or residential real estate values in the Bank's markets may have an adverse impact on the adequacy of the allowance for loan losses by increasing credit risk and the risk of potential loss. Note 5, Effect of Accounting Changes On November 25, 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN No. 45) which expands on the accounting guidance of Statements No. 5, 57 and 107 and incorporates without change the provisions of FASB Interpretation No. 34, which is being superseded. FIN No. 45, which is applicable to public and non-public entities, will significantly change current practice in the accounting for, and disclosure of, guarantees. Each guarantee meeting the characteristics described in FIN No. 45 is to be recognized and initially measured at fair value, which will be a change from current practice for most entities. In addition, guarantors will be required to make significant new disclosures, even if the likelihood of the guarantor making payments under the guarantee is remote, which represents another change from current general practice. FIN No. 45's disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002, while the initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company has changed its method of accounting and financial reporting for standby letters of credit by adopting the provisions of FIN No. 45 effective January 1, 2003. There was no material impact of the adoption on the financial statements. 7 COMBANC INC. AND SUBSIDIARY March 31, 2003 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 decreased 2.69% from $218,030,000 at December 31, 2002 to $212,171,000 at March 31, 2003. This is the result of a $4,915,000 decrease in loans and a $4,975,000 decrease in total deposits. Federal Funds sold increased $5,661,000 or 122.43% from December 31, 2002 to $10,285,000 at March 31, 2003 while Cash and Due from Banks decreased $4,818,000 or 39.17% from $12,301,000 at December 31, 2002 to $7,483,000 at March 31, 2003. Due to a clerical error at a correspondent bank on December 31, 2002, federal funds should have been $8,973,000 and Cash and Due from Banks were $7,952,000. The error was left unadjusted due to the external accountants' confirmation of the $4,624,000 in Federal Funds Sold. Although the confirmed balance was $4,624,000, interest was earned on the $8,973,000. Investment securities decreased $2,732,000 from $54,396,000 at December 31, 2002 to $51,664,000 at March 31, 2003. This decrease is the result of the cash flows and prepayments from the Mortgage-backed securities and an U.S. Agency Bond being called within the investment portfolio. Total gross loans decreased 3.51% or $4,915,000 from December 31, 2002 to $135,176,000 on March 31, 2003. Real estate loans decreased $2,107,000 or 1.96% from year-end to March 31, 2003 due to a continued demand for lower interest rate mortgage loans. As these loans are refinanced, the bank chooses to sell these mortgages, with servicing retained, to the Federal Home Loan Mortgage Corporation in order to be able to offer competitive mortgage rates to consumers. Commercial loans decreased 8.75% or $1,452,000 from $16,588,000 at December 31, 2002 to $15,136,000 at March 31, 2003. This decrease is primarily due to the higher risk that these loans carry in a sluggish economy. As these loans were refinanced, they were priced above the competition to encourage a controlled amount of runoff. Consumer installment loans decreased 9.96% or $1,175,000 from $11,795,000 at December 31, 2002 primarily due to the desire to reduce indirect auto loans which tend to be of higher risk in nature. The Allowance for Loan Losses, at March 31, 2003 was 2.67% of total loans compared to 1.46% at December 31, 2002. This $1,560,000 increase from December 31, 2002 is the result of a $1,730,000 provision and net charge offs of $170,000, increasing the Allowance for Loan Loss from $2,050,000 at December 31, 2002 to $3,610,000 at March 31, 2003. Due to a low coverage ratio of Allowance for Loan Losses (ALLL) to non accrual loans, 26% before an addition of $1,550,000 to the ALLL, 8 COMBANC INC. AND SUBSIDIARY March 31, 2003 FORM 10-Q management increased the provision by $1,550,000 improving the ratio to 45%. The addition of the $1,550,000 was also due to the continued high volume of $8,072,000 in nonaccrual loans that management continues to pursue legally. Of the $170,000 in net charge offs, $86,000 consisted of commercial and industrial loans, $54,000 consisted of consumer installment loans, and $30,000 consisted of construction and land development loans which are secured by real estate. Total deposits decreased $4,975,000 or 2.78% from $178,891,000 on December 31, 2002 to $173,916,000 on March 31, 2003. Noninterest bearing deposits decreased $2,673,000 from December 31, 2002 to March 31, 2003, while interest-bearing deposits decreased $2,302,000 during the period. Time deposit balances decreased $3,059,000, while interest-bearing checking accounts decreased $298,000 and money market and savings accounts increased $1,055,000 during this period. Short-term borrowings, which include Federal Home Loan Bank borrowings with original maturities of less than one year and repurchase agreements, increased $214,000 from December 31, 2002 to March 31, 2003. Of the $214,000 increase, Federal Home Loan Bank borrowings were unchanged while repurchase agreements increased $214,000. Long-term debt or borrowings with an original maturity of greater than one year from the Federal Home Loan Bank decreased $260,000 or 3.37% from December 31, 2002 to March 31, 2003. Total shareholders equity decreased 3.46% or $842,000 to $23,508,000 from December 31, 2002 to March 31, 2003. Included in the overall decrease were a decrease in retained earnings of $582,000 as a result of a first quarter net loss, $265,000 in dividends and a $5,000 increase in Net Unrealized Gains on available for sale securities. No Treasury Stock was repurchased in the first quarter of 2003. 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 $80,000 for the three months ended March 31, 2003 from a year ago. Total interest income decreased $585,000 to $2,845,000 from $3,430,000 for the three months ended March 31, 2003 over March 31, 2002. Interest and fees on loans decreased $606,000 or 21.35% 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, the repricing of portfolio loans and two additional rate cuts by the Federal Reserve in 2002. Taxable investment income increased $75,000 or 20.27% for the first three months of 2003 for a total of $445,000 compared to $370,000 for the first three months of 2002. This increase is due to the $17,508,000 increase in Mortgage-backed securities from March 31, 2002 to March 31, 2003. Interest on Federal Funds sold decreased from $58,000 for the first quarter ended March 31, 2002 to $20,000 for the first quarter ended March 31, 2003. This decrease is also the result of the two interest rate cuts by the Federal Reserve in 2002 and a decrease in average balance of Federal Funds Sold of $7,200,000. 9 COMBANC INC. AND SUBSIDIARY March 31, 2003 FORM 10-Q Non-interest income increased $157,000 or 62.06% for the three months ended March 31, 2003 from March 31, 2002. The increase was due in part to a $96,000 increase in the gain on the sale of real estate loans to the secondary market, an increase in Service Charges on Deposit Accounts of $15,000, and an increase in other operating income of $46,000. The provision for loan losses increased $1,580,000 for the three months ended March 31, 2003 compared to March 31, 2002. Management increased the provision for loan losses due to an increase in loan delinquencies. Due to local economic conditions, the increase in non-accrual loan balances of $4,814,000 and the charge-off of $194,000 management increased the provision by $1,580,000. Total interest expense decreased 34.40% or $505,000 from $1,468,000 for the three months ended March 31, 2002 to $963,000 for the three months ended March 31, 2003. Interest on deposits decreased $469,000 or 35.97% compared to the first three quarters of 2002. This decrease is the result of a decrease in certificate interest rates during 2001 and 2002 as well as a $9,328,000 decrease in the volume of time deposits from a year ago. Interest on short term borrowings decreased $8,000 and long term borrowings decreased $28,000. The decrease in short term borrowings is due to the decrease in interest rates on repurchase agreements and the decrease in long term borrowings is due to the decrease in interest rates and the decrease in long-term debt at the Federal Home Loan Bank of $2,085,000. Non-interest expense increased 4.27% or $62,000 to $1,515,000 for the three months ended March 31, 2003 compared to $1,453,000 for the three months ended March 31, 2002. Salaries and employee benefits increased $94,000 over the first quarter of 2002. This increase is due to an increase of $69,000 in group insurance costs and a $25,000 increase in employee salaries for the first three months of 2003 over the first three months of 2002. Other operating expenses have decreased $46,000 to $511,000 for the first three months of 2003 from $557,000 for the first three months of 2002. Included in this decrease is a decrease of $12,000 in advertising expense, a decrease of $6,000 in data processing fees, a decrease of $28,000 in printing and office supplies, a decrease of $18,000 in legal and professional fees, a decrease of $15,000 in other expense, while there was an increase in equipment expenses of $13,000. Net income decreased $1,055,000 or 223.04% from $473,000 for the three months ended March 31, 2002 to a net loss of $582,000 for the three months ended March 31, 2003. This net loss for the first quarter of 2003 is due to the significant increase in the provision in the amount of $1,580,000, where the provision was $150,000 for the first quarter of 2002 compared to $1,730,000 for the first quarter of 2003. 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 2003 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 2003 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 10 COMBANC INC. AND SUBSIDIARY March 31, 2003 FORM 10-Q 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 March 31, 2003 ComBanc, Inc. maintained a Tier I capital ratio of 16.71%, a total capital ratio of 17.98% and a Tier I leverage ratio of 10.77%. Based on the respective regulatory capital ratios at March 31, 2003, and 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, the Bank is well capitalized. 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 11 COMBANC INC. AND SUBSIDIARY March 31, 2003 FORM 10-Q 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, 2003 the Bank's liquid assets amounted to $69,432,000 or 32.72% of total assets compared with 32.71% at December 31, 2002. Management considers its liquidity to be adequate to meet its normal funding requirements. 12 COMBANC INC. AND SUBSIDIARY March 31, 2003 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, 2002. The following table compares rate sensitive assets and liabilities as of March 31, 2003 to December 31, 2002. Principal Amount Maturing or Repricing in: (Dollars in Thousands) First Years Year 1 to 5 Thereafter Total ----- ------- ---------- ----- Comparison of 03/31/03 to 12/31/02 Total rate sensitive assets: At December 31, 2002 $66,518 $85,289 $48,238 $200,045 At March 31, 2003 73,540 78,045 48,472 200,057 Increase (Decrease) 7,022 (7,244) 234 12 Total rate sensitive liabilities: At December 31, 2002 $77,208 $72,817 $26,440 $176,465 At March 31, 2003 77,959 71,476 24,684 174,119 Increase (Decrease) 751 (1,341) (1,756) (2,346) Item 4 - Controls and Procedures Within 90 days prior to the filing of this report, an evaluation was carried out under the supervision and with the participation of the Company's management, including our Chief Executive Officer and principal financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a - 14 (c) and 15d - 14 (c) of the Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive Officer and principal financial Officer have concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, our Chief Executive Officer and principal financial Officer have concluded that there were no significant changes in the Company's internal controls or other factors that could significantly affect its internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. 13 COMBANC INC. AND SUBSIDIARY March 31, 2003 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, 2003, 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 Commercial 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. Certifications Exhibit 99.1. Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 99.2. Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) There were no reports on 8-K filed during the quarter ended March 31, 2003. 14 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 1, 2003 /s/ Paul G. Wreede ------------------ Paul G. Wreede President, CEO, and Director Date: May 1, 2003 /s/ Jason R. Thornell --------------------- Jason R. Thornell AVP/Controller 15 CERTIFICATIONS I, Jason R. Thornell, Controller of the Company, certify that: 1. I have reviewed this quarterly report on Form 10-Q of ComBanc, Inc 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a - 14 and 15d - 14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 1, 2003 /s/ Jason R. Thornell --------------------- Jason R. Thornell AVP/Controller 16 CERTIFICATIONS I, Paul G. Wreede, President and CEO of the Company, certify that: 1. I have reviewed this quarterly report on Form 10-Q of ComBanc, Inc 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a - 14 and 15d - 14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 1, 2003 /s/ Paul G. Wreede ------------------ Paul G. Wreede President and CEO 17 10-Q EXHIBIT INDEX EXHIBIT NO. DESCRIPTION EX-99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 EX-99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002