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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No.0-22391
COMSTOCK BANCORP
(Exact Name of Registrant as Specified in its Charter)
Nevada 86-0856406
(State or Other Jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
6275 Neil Road, Reno, Nevada 89511
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, Including Area Code: (702) 824-7100
NA
(Former name, former address and former fiscal year,
if changed since last report)
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 latest practicable date.
As of April 10, 1998: Common Stock - Authorized 15,000,000 shares at $0.01 par
value; issued and outstanding - 4,451,668
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Item
Number Page
PART I - FINANCIAL INFORMATION
1. Financial Statements
Consolidated Statements of Condition
March 31, 1998 and December 31, 1997. ................................ 4
Consolidated Statements of Income
Three months ended March 31, 1998 and 1997............................ 5
Consolidated Statements of Changes in Stockholders' Equity
For the periods ended March 31, 1997, December 31, 1997,
and March 31, 1998.................................................... 6
Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and 1997............................ 7
Notes to Consolidated Financial Statements.............................. 8
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations .......................................................... 11
PART II - OTHER INFORMATION
1. Legal Proceedings ...................................................... 21
2. Changes in Securities .................................................. 21
3. Defaults Upon Senior Securities ........................................ 21
4. Submission of Matters to a Vote of Securities' Holders.................. 21
5. Other Information ...................................................... 21
6. Exhibits and Reports on Form 8-K........................................ 21
Signatures .................................................................. 22
<PAGE>
Part I. Financial Information
Item I. Financial Statements
<PAGE>
COMSTOCK BANCORP
CONSOLIDATED STATEMENTS OF CONDITION
As of March 31, 1998 and December 31, 1997
(Dollars in Thousands)
(Unaudited) (Audited)
March 31, 1998 Dec. 31, 1997
Assets:
Cash and Due from Banks (Non-Interest Bearing) $13,428 $9,464
Fed Funds and Overnight Mutual Funds Sold 11,044 9,853
Interest-bearing Deposits in Domestic
Financial Institutions 1,489 1,492
Trading Account Securities 11 12
Securities Available for Sale 15,213 14,218
Securities Held to Maturity 10,068 10,636
December 31, 1997)
Federal Home Loan Bank Stock 795 788
Loans Held for Sale 19,574 13,946
Loans (Net of Deferred Fees) 126,253 122,235
Less: Allowance for Credit Losses 1,125 1,076
------- -------
Net Loans 144,702 135,105
------- -------
Premises and Equipment 7,630 7,710
Other Real Estate Owned 8 8
Accrued Interest Receivable 1,034 989
Other Assets 4,438 4,423
----- -----
TOTAL ASSETS $209,860 $194,698
======== ========
Liabilities and Stockholders' Equity:
Deposits:
Demand Deposits (Non-Interest Bearing) $36,235 $32,299
Savings, Money Market and NOW Accounts 69,407 60,917
Time Deposits Under $100,000 51,525 50,944
Time Deposits $100,000 and Over 29,307 27,642
------ ------
Total Deposits 186,474 171,802
------- -------
Line of Credit Payable 6,000 6,000
Accrued Interest Payable 302 321
Accounts Payable and Accrued Expenses 536 876
Income Taxes Payable 245 102
--- ---
TOTAL LIABILITIES 193,557 179,101
------- -------
Stockholders' Equity:
Common Stock-$0.01 par value, 15,000,000 shares authorized;
4,451,668 and 4,421,668 shares issued and outstanding on
March 31, 1998 and December 31, 1997 (1) 45 44
Paid-in Surplus (1) 9,016 8,908
Accumulated Other Comprehensive Income:
'Unrealized Gain (Loss) on Securities Available for Sale,
Net of Applicable Deferred Income Taxes 13 17
Retained Earnings 7,229 6,628
----- -----
TOTAL STOCKHOLDERS' EQUITY 16,303 15,597
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $209,860 $194,698
======== ========
(1) Adjusted for two for one share exchange and for change in par from
$.50 to $.01 on June 16, 1997. [See accompanying notes to financial
statements.]
<PAGE>
COMSTOCK BANCORP
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 1998 and 1997
(Dollars in Thousands except per share amounts)
(Unaudited) (Unaudited)
March 31, 1998 March 31, 1997
Interest Income:
Interest and Fees on Loans $4,142 $2,851
Interest on Investments and Trading Securities:
Taxable 290 230
Exempt from Federal Income Tax 83 54
Interest on Fed Funds Sold 125 146
Interest on Deposits with Banks 24 25
-- --
Total Interest Income 4,664 3,306
----- -----
Interest Expense:
Interest on Deposits 1,645 1,210
Interest on Line of Credit 92 0
-- -
Total Interest Expense 1,737 1,210
----- -----
Net Interest Income 2,927 2,096
Provision for Credit Losses 110 60
--- --
Net Interest Income after Credit Loss Provision 2,817 2,036
----- -----
Non-Interest Income:
Service Charges on Deposit Accounts 76 67
Gain/(Loss) on Sale of Investment Securities (8) (3)
Gain/(Loss) on Sale of Trading Securities 1 1
Other Income 56 15
-- --
Total Non-Interest Income 124 80
--- --
Non-Interest Expense:
Salaries and Employee Benefits 1,278 1,063
Occupancy Expense 222 151
Furniture and Equipment Expense 177 120
Other Operating Expenses 469 427
--- ---
Total Non-Interest Expense 2,146 1,761
----- -----
Income before Taxes 795 356
Provision for Income Taxes 194 91
--- --
NET INCOME $601 $265
==== ====
Basic Earnings per Share (1) $0.14 $0.06
===== =====
Diluted Earnings per Share (1) $0.12 $0.06
===== =====
Other Comprehensive Income, Net of Tax:
Unrealized Gains/(Losses) on Securities:
Unrealized Holding Gains/(Losses)
Arising During Period ($5) ($37)
Less: Reclassification for
Gains/(Losses) Included in Income 1 2
- -
Other Comprehensive Income ($4) ($35)
Comprehensive Income $597 $230
==== ====
Other Comprehensive Income Basic
Earnings per Share (1). $0.13 $0.05
===== =====
Other Comprehensive Income Diluted
Earnings per Share (1). $0.12 $0.05
===== =====
(1) Adjusted for two for one share exchange on June 16, 1997.
[See accompanying notes to financial statements and
Exhibit A-Computation of earnings per share.]
<PAGE>
COMSTOCK BANCORP
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY For
Periods Ended March 31, 1997, December
31, 1997, and March 31, 1998
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
(Unaudited)
Accumulated
Retained Other Total
Common Paid-in Earnings Comprehensive Stockholders' Comprehensive
Stock (1) Surplus (1) (Deficit) Income Equity Income
Balances, December 31, 1996 $42 $8,184 $4,792 ($9) $13,009
Net Income 265 265 $265
Sale of Common Stock 50 50
Other Comprehensive Income, Net of Tax
Unrealized Gains/(Losses) on Securities,
Net of Reclassification Adjustment (35) (35) (35)
----------------------------------------------------------------------------------------
See Disclosure (a) Below
Balances, March 31, 1997 $42 $8,234 $5,057 ($44) $13,289 $230
Net Income 1,571 1,571 1,571
Sale of Common Stock 2 674 676
Other Comprehensive Income, Net of Tax
Unrealized Gains/(Losses) on Securities,
Net of Reclassification Adjustment 61 61 61
----------------------------------------------------------------------------------------
See Disclosure (b) Below
Balances, December 31, 1997 $44 $8,908 $6,628 $17 $15,597 $1,862
Net Income 601 601 601
Sale of Common Stock 1 108 109
Other Comprehensive Income, Net of Tax
Unrealized Gains/(Losses) on Securities,
Net of Reclassification Adjustment (4) (4) (4)
----------------------------------------------------------------------------------------
See Disclosure (c) Below
Balances, March 31, 1998 $45 $9,016 $7,229 $13 $16,303 $597
=== ====== ====== === ======= ====
</TABLE>
(1) Adjusted for two for one stock exchange and change in par from $.50 to $.01
on June 16, 1997.
(a) Disclosure of reclassification amount:
Unrealized holding gains arising during period ($37)
Less: reclassification adjustment for gains included in net income 2
Net unrealized gains on securities ($35)
(b) Disclosure of reclassification amount:
Unrealized holding gains arising during period $54
Less: reclassification adjustment for gains included in net income 7
Net unrealized gains on securities $61
(c) Disclosure of reclassification amount:
Unrealized holding gains arising during period ($5)
Less: reclassification adjustment for gains included in net income 1
Net unrealized gains on securities ($4)
[See accompanying notes to financial statements.]
<PAGE>
<TABLE>
<S> <C> <C>
COMSTOCK BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1998 and 1997
(Dollars in Thousands)
(Unaudited) (Unaudited)
March 31, 1998 March 31, 1997
Cash Flows from Operating Activities:
Net Income $601 $265
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Credit Losses 110 60
Depreciation and Amortization 155 141
Net (Gain) Loss on Sale of Available For Sale Securities (8) 3
Net (Gain) Loss on Sales of Trading Securities 1 (1)
Purchases of Trading Securities 0 0
Proceeds from Sales of Trading Securities 0 0
Amortization of Servicing Asset 0 0
Increase/(Decrease) in Deferred Taxes Due to Change in
Unrealized Gain or Loss on Securities Available for Sale (1) 18
Net (Increase) Decrease in:
Accrued Interest Receivable (45) 63
Other Assets (15) (57)
Loans Held For Sale (5,628) 2,433
Net Increase (Decrease) in:
Accrued Interest Payable (19) (21)
Accounts Payable and Accrued Expenses (341) (336)
Income Taxes Payable 143 110
--- ---
Net Cash Provided/(Used) by Operating Activities ($5,047) $2,678
Cash Flows from Investing Activities:
Net Change in Interest-Bearing Deposits in Domestic
Financial Institutions 3 (98)
Proceeds from Sales of Available for Sale Securities 1,583 163
Proceeds from Maturities of Available for Sale Securities 2,645 1,065
Purchases of Available for Sale Securities (5,227) (2,116)
Proceeds from Maturities of Held to Maturity Securities 567 0
Purchases of Held to Maturity Securities 0 (4,140)
Net Change in Loans Held to Maturity (4,018) (9,997)
Purchases of Premises and Equipment, Net (125) (649)
Purchase of FHLB Stock (7) 0
--- --
Net Cash Provided/(Used) by Investing Activities ($4,579) ($15,772)
Cash Flows from Financing Activities:
Net Change in Demand, Savings, NOW
and Money Market Accounts 12,426 1,821
Net Change in Time Deposits 2,246 9,643
Proceeds on Line of Credit Payable 0 0
Payments on Line of Credit Payable 0 0
Proceeds from Sale of Common Stock, Net 109 50
Cash Dividends Paid 0 0
- -
Net Cash Provided/(Used) by Financing Activities $14,781 $11,514
Increase (Decrease) in Cash and Equivalents 5,155 (1,580)
Cash and Equivalents:
Beginning of Period 19,317 20,331
------ ------
End of Period $24,472 $18,751
======= =======
</TABLE>
[See accompanying notes to financial statements.]
<PAGE>
Comstock Bancorp
Notes to Condensed Consolidated Financial Statements
1. ACCOUNTING POLICIES
Comstock Bancorp (the "Company") is a bank holding company formed in 1997
which became the parent company of Comstock Bank (the "Bank") on June 16,
1997 through a tax-free exchange of shares of the Bank for shares of the
Company. The Company's primary holding is Comstock Bank. The Bank provides
its range of services primarily to businesses and individuals in the
northern Nevada area, with some commercial lending in the Las Vegas market.
The Bank's principal activities include residential lending and commercial
and retail banking. References to the Company include the Bank unless
otherwise noted.
The accompanying unaudited consolidated financial statements have been
prepared in condensed format and therefore, do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. However, in the opinion of
management, all adjustments, consisting only of normal recurring
adjustments considered necessary for a fair presentation have been
reflected in the financial statements. The Company believes the disclosures
herein are adequate to make the information not misleading. These financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in Comstock Bancorp's Annual Report
to shareholders for the fiscal year ended December 31, 1997 which is
included in the Company's Registration Statement on 10-KSB dated March 6,
1998 (Commission File No. 0-22391). The results of operations for the three
months ended March 31, 1998 are not necessarily indicative of the results
to be expected for the full year. Certain reclassifications have been made
to prior period amounts to present them on a basis consistent with
classifications for the three months ended March 31, 1998. .
2. COMMITMENTS & CONTINGENT LIABILITIES
In the normal course of business, there are outstanding various commitments
and contingent liabilities, such as commitments to extend credit and
letters of credit, which are not reflected in the financial statements.
Management does not anticipate any material loss as a result of these
transactions.
The Company has in place a major Year 2000 Compliance project , which has
adopted the FFIEC's Year 2000 Readiness Date Guidelines, has completed the
assessment phase and is now in the renovation and testing phase. It is
anticipated that testing of all critical systems will be completed by
December 31, 1998. To date, confirmations have been received from the
Company's primary vendors that plans have been implemented to address the
Year 2000 issues. The Company has committed significant human resources to
the project. Since the major mainframe computer assets (Year 2000
compliant) were purchased in 1997, the ongoing labor costs for the project
are estimated to be approximately $321,000 for 1998 and 1999. However, the
Company is committed to allocate whatever resources are deemed necessary
for the successful and timely completion of the project, including
consultant fees where necessary and the purchase of new hardware and
sofstware where existing systems are found to be non-compliant.
Despite the Company's efforts, there can be no assurance that potential
systems interruptions or the cost necessary to update software will not
have a material adverse impact on the Company's business, financial
condition, results of operations and business prospects. In addition, the
Company has limited information concerning the compliance status of its
suppliers and customers. In the event that any of the Company's significant
suppliers do not successfully and timely achieve Year 2000 compliance, the
Company's business or operations could be adversely affected.
<PAGE>
The Bank owns a parcel of land adjacent to the headquarters building at
6275 Neil Road in Reno, Nevada, which was purchased in anticipation of
adding an additional facility to support future growth. The Bank has since
found other space at a lower cost. The parcel was offered for sale and is
now in escrow. The Company expects to realize a gain on sale of
approximately $150,000 with such gain expected to occur in the second or
third quarter of 1998.
3. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS 128). The Company adopted SFAS 128 for financial statements issued
for periods ending after December 15, 1997. All prior period earnings per
share figures are restated. Basic and diluted earnings per share figures
are required on the face of the income statement.
SFAS 128 replaces prior EPS reporting requirements by replacing primary
earnings per share with basic earning per share and by altering the
calculation of diluted EPS, which replaces fully diluted EPS. Basic EPS
excludes potential dilution and is calculated by dividing income available
to Common Stockholders by the weighted average number of outstanding common
shares. Diluted earnings per share reflect the potential dilution that
could occur if option or warrant contracts to issue common stock were
exercised.
4. CAPITAL STRUCTURE
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure"
(SFAS 129). The statement is effective for financial statement periods
ending after December 15, 1997. The statement is intended to consolidate
disclosures about capital structure into a single standard. The disclosure
includes the rights and privileges of the various securities outstanding,
the number of shares issued upon conversion, exercise, or satisfaction of
required conditions during the most recent annual fiscal period and any
subsequent interim period.
The company's disclosures will not be significantly different than
previously reported.
5. COMPRESHENSIVE INCOME
In June 1997, the FASB issued Statement for Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130). The standard is
effective for financial statements beginning after December 15, 1997 and
comparative statements of prior periods will include estimated
comprehensive income data.
SFAS 130 requires the presentation of the financial statements to include
the change in net income of the Company during the period, from
transactions and other events and circumstances derived from nonowner
sources. The Company will be required to report all components of
comprehensive income, together with the total amount, in the financial
statements in the period they are recognized. As an example, an item that
would be included in other comprehensive income, not included in net income
in the current period, would be unrealized gains and losses on securities
held as available for sale.
The Company does not anticipate that the adoption of SFAS 130 will have a
material effect on the Company's financial statements.
<PAGE>
6. SEGMENT REPORTING
In June of 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information"(SFAS 131). The standard is effective for fiscal years
beginning after December 15, 1997.
SFAS 131 requires public companies to report financial information by the
segments of the business. The Company will have no disclosure changes as a
result of this standard as the only business segment of the Company is
banking.
<PAGE>
COMSTOCK BANCORP AND SUBSIDIARY
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following financial review presents an analysis of the asset and
liability structure of the Company and a discussion of the results of
operations for each of the periods presented in the quarterly report and
sources of liquidity and capital resources. Certain statements under this
caption, "Management's Discussion and Analysis of Financial Condition and
Results of Operations", constitute `forward-looking statements' under the
Private Securities Litigation Reform Act of 1995.
Discussion of Forward-looking Statements
When used or incorporated by reference in disclosure documents, the words
"anticipate", "estimate", "expect", "project", "target", "goal", and
similar expressions are intended to identify forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933. Such
forward-looking statements are subject to certain risks, uncertainties and
assumptions, including those set forth below. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated,
estimated, expected or projected. These forward-looking statements speak
only as of the date of the document. The Company expressly disclaims any
obligation or undertaking to publicly release any updates or revisions to
any forward-looking statement contained herein to reflect any change in the
Company's expectation with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
Economic Conditions and Real Estate Risk. The Company's lending operations
are concentrated in northern and southern Nevada. As a result, the
financial condition and results of operations of the Company will be
subject to general economic conditions prevailing in these regions. If
economic conditions in these regions worsen, the Company may experience
higher default rates in its existing portfolio as well as a reduction in
the value of collateral securing individual loans. Separately, the
Company's ability to originate the volume of loans or achieve the level of
deposits currently anticipated could be affected. As a result, the
occurrence of any of these events could affect the accuracy of previously
made forward-looking statements.
Interest Rate Risk. The Company realizes income principally from the
differential or spread between the interest earned on loans, investments
and other interest-earning assets and the interest paid on deposits and
borrowings. Loan volumes and yields, as well as the volume of and rates on
investments, deposits and borrowings are affected by market interest rates.
Additionally, because of the terms and conditions of many of the Company's
loan documents and deposit accounts, and the nature of its investments, a
change in interest rates could also affect the duration of the loan
portfolio and/or the deposit base and/or the investment portfolio, which
could alter the Company's sensitivity to future changes in interest rates.
As a result, significant shifts in interest rates could affect the accuracy
of any forward-looking statements.
Expansion Plans. The Company has made a substantial investment in
facilities, computer hardware and computer software in anticipation that
demand for the resulting products and services will materialize. There is
no guarantee that the new products and services offered will be accepted or
that the technology purchased will not become obsolete prior to the
Company's realization of a positive return on its investment. As a result,
unanticipated changes in technology, or a misreading of consumer demands
for products and services, could affect the anticipated return on
infrastructure investment.
<PAGE>
Financial Condition
As of March 31, 1998, the Company's assets had grown from $194.7 million
(measured as of December 31, 1997) to $209.9 million, an increase of $15.2
million. Using average assets rather than end of period figures, growth was
$9.5 million, from an average of $190.2 million in December, 1997 to an
average of $199.7 million in March, 1998. Management believes that the
average asset measures are more indicative of asset size because of the
large volume of mortgage loan closings, which occur during the last few
days of each month. In addition, several title company clients' deposits
swell the last few days of the month, as loan closings tend to be
concentrated near month's end.
Loan Volume
The Company has two major lending departments, real estate and commercial.
The real estate department specializes in single family home mortgage
lending including construction loans for custom homes. The commercial
lending department makes short-term commercial loans including real estate
development loans, primarily residential land development. The loans made
by the real estate department are generally fixed rate with 15 or 30 year
maturities. Management does not believe such loans are an appropriate match
for the generally short-term deposit liabilities the Company acquires, due
to interest rate risk considerations. These loans are sold in the secondary
market. But, because the commercial loans generally carry a variable rate
or, if fixed in rate, generally have short maturities, management considers
such loans appropriate for the Company's loan portfolio.
Overall, loan volume (both real estate and commercial) increased from $47.4
million of loan originations representing 240 loans in the three months
ended March 31, 1997 to $75.8 million representing 460 new loan
originations in the three months ended March 31, 1998, a 59.9% increase in
dollar volume and a 91.7% increase in number of loans. Management believes
that the higher number of loans and higher dollar volume of 1998 versus the
same 1997 period is partly due to the severe weather conditions in early
1997 which included an unusually hard winter as well as substantial
flooding , and partly due to the heightened liquidity in the local
financial institutions. (The flooding was so severe in early January, 1997,
that there was a federal disaster declaration. Such a declaration for the
area had never happened in the Company's history.) Management also believes
that the increase in the number and dollar volume of loans in the first
quarter of 1998 is a result of three factors: 1) lower interest rates on
mortgage loans, 2) an enhanced consumer interest in refinancing on mortgage
loans and, 3) continued growth in the area's non-gaming economic activity.
Throughout 1997 and the first three months of 1998, northern Nevada
community financial institutions experienced large liquidity increases.
Management believes that recent acquisitions of Nevada financial
institutions by large out-of-state institutions created a significant
opportunity during 1997 for local institutions, including the Company, to
lure deposit customers away from the acquired institutions. As a result of
the large liquidity infusion at local community oriented financial
institutions, there has been downward pressure on the Bank's interest
margins and fee structures. Furthermore, management has refused to lower
traditional underwriting guidelines by reducing prices and terms to higher
risk credits, a practice it sees at the other local community financial
institutions with excess liquidity. Management believes that its posture on
this issue will pay off in the long-term.
The Northern Nevada Real Estate Division originated 314 loans for a dollar
volume of $45.4 million in the three months ended March 31, 1998 compared
to 171 loans for a dollar volume of $23.9 million in the same period of
1997. The statistics for the Southern Nevada Real Estate Division (Las
Vegas) were: zero loan originations in the three months ended March 31,
1998 versus 14 loans for $1.8 million for the same 1997 period . In April
1997, the Company closed the Las Vegas real estate office due to high
personnel turnover and low lending volumes.
<PAGE>
According to public records, while more than doubling mortgage loan volume
in Washoe County from $10.5 million in the first two months of 1997 to
$21.2 million through the first two months of 1998, the Company's market
share fell from 6.0% to 5.1% as it fell from third to fifth position. In
Carson City, over the same two months, volume rose by 49% to $2.9 million
from $1.9 million in the first two months of 1997. The Company's market
share decreased from 11.2% to 8.3% and its position in the market fell from
second to third.
Total Residential Real Estate Lending
Three Months ---Number--- Volume (Mill $)
Ended 1998 1997 1996 1998 1997 1996
----- ---- ---- ---- ---- ---- ----
March 31 314 185 349 $45.4 $ 25.8 $ 44.9
June 30 N/A 241 327 N/A $ 35.4 $ 44.4
September 30 N/A 261 289 N/A $ 36.2 $ 39.4
December 31 N/A 280 281 N/A $ 42.8 $ 41.5
--- --- --- ----- ------- --------
Total 314 967 1,246 $ 45.4 $140.2 $170.2
The Commercial Division originated 146 loans for $30.5 million in the three
months ended March 31, 1998 versus 55 loans for $21.7 million in same 1997
period. Despite the closure of the Las Vegas real estate office, the
commercial loan department continues to make commercial real estate loans
in the Las Vegas market as a result of continuing relationships with
borrowers, referrals, and as an overline lender with small commercial banks
in Las Vegas.
For the month of March, 1998, the average balance of the Company's loan
portfolio was $142.2 million and represented an average loan/deposit ratio
in excess of 82.6%. The average balance for the same year earlier period
was $102.0 million representing an average loan/deposit ratio of 75.7%. The
increase in the level of loans in the Company's loan portfolios caused loan
interest income to increase $915,000 (39.9%) in the three months ended
March 31, 1998 as compared to the same period of 1997, despite falling net
interest margins.
Management has noted that the larger banks in the state have begun intense
lending campaigns. This was in contrast to the withdrawal of the large
banks from the lending marketplace in the recession in the early part of
the decade. In addition, management notes that other smaller institutions
and some larger out of state institutions have entered the northern Nevada
mortgage market. Norwest Mortgage, not a significant player in northern
Nevada in 1994, is now the dominant mortgage lender with 13% of the Washoe
County market in the first two months of 1998, more than twice the market
share of the number two player. In Carson City, Norwest was not a market
share leader as late as early 1997. But, in the first two months of 1998,
Norwest controlled 12% of the Carson City market, significantly ahead of
the 8.7% market share of the number two institution. Such an increase in
competition has had a negative impact on the mortgage lending growth rates,
and also on the profit margins for these loans. In the third quarter of
1997, management began to implement technologies such as online
underwriting and credit scoring, which will significantly speed up the
application, approval, and funding times in the real estate department.
Management believes that the technologies will improve its competitiveness
in the marketplace by allowing very rapid loan approvals, perhaps even in
the field at time of first contact with the client and by attracting
realtor business by reducing the waiting time for the realtor commission.
The new technologies will also allow the process to be less people
intensive, thereby reducing costs for the Company which will show up either
directly to the bottom line, or in the form of higher volume if the cost
savings are passed on. Nevertheless, because the Company must sell the
mortgages in the secondary market, it generally cannot compete on a price
basis with the large national mortgage banking enterprises who can charge
lower prices and put the mortgages into their portfolios.
<PAGE>
Late in the first quarter of 1996, mortgage interest rates began to fall
and continued lower until February, 1997. This stimulated residential
mortgage activity. Loan origination volumes are dependent on interest rate
levels and an escalation of rates could adversely impact Company profits.
Rates began to increase in the first quarter of 1997 as speculation that
the Federal Reserve would increase the Federal Funds rate. In late March,
1997, the Federal Reserve did increase the Federal Funds rate by 25 basis
points, causing a similar rise in interest rates all along the yield curve.
However, because inflation has remained benign, market interest rates,
especially at the long end of the maturity spectrum of the yield curve,
fell throughout the summer months, increasing demand for mortgage loans on
the national level. Since the "Asian Crisis" last fall, inflation has
remained benign. While short-term interest rates have remained steady,
long-term rates continued to fall, culminating in a refinance boom in the
mortgage markets late last fall and continuing through the first three
months of 1998. The Company's mortgage business benefited from such lower
rates as described above.
In order to mitigate the possibility of adverse impacts from interest rate
movements, management has significantly expanded the Company's loan
portfolios with interest sensitive assets. This is an effort to provide the
Company a more stable income base. When interest rates rise and loan volume
declines in the mortgage business, income on the loan portfolio will rise
to offset the mortgage business decline. On the other hand, if rates
continue to fall, the lower interest income from the loan portfolio will be
offset by rising loan volume and fee income in the mortgage business.
Asset Quality
The Company's asset quality is often measured by its delinquencies and
non-performing assets. As of March 31, 1998 the Company had non-performing
(non-accruing) loans of approximately $2.6 million, comprised of two fully
secured construction and development loans totaling $2.5 million , four
commercial loans totaling $123,000 and one second mortgage at $12,000. One
of the fully secured construction loans had been in the hands of the
bankruptcy court. The court recently lifted a stay on the property and the
Company will be allowed to complete foreclosure proceedings and obtain
title to the property, at which time the Company's intent is to complete
the development plan and sell the individual homes. The Company had no
loans past due 90 days or more that were still accruing. As of March 31,
1998, the Company had an interest in one property, with a book value of
$8,000, taken as repayment on a loan. This asset is designated as "Other
Real Estate Owned" property. In the same period of 1997, the Company had no
properties taken in foreclosure.
As of March 31, 1997, the Company had non-performing (non-accruing) loans
of approximately $2.8 million, comprised of the same two fully secured
construction and development loans. At that time, the Company also had
$277,000 of loans past due 90 days or more that were still accruing.
Deposit Volumes
As of March 31, 1998, the Company's deposit base had grown from $171.8
million (measured as of December 31, 1997) to $186.5 million, an increase
of $14.7 million (8.6%). Using average balances rather than end of period
figures, deposits grew $9.6 million (5.7%), from an average of $167.0
million in December, 1997 to $176.6 million in March, 1998. The increase is
partially attributed to the addition of a fourth full service branch
location in February of 1997, a fifth full service branch location in July
of 1997, the continued influx of deposits transferred from the branches of
financial institutions recently acquired by large out-of-state companies,
and non-gaming economic growth. Management believes the deposit base will
continue to grow for two reasons: 1) the continued non-gaming economic
growth in the northern Nevada region and 2) management's strategic goal of
marketing to small business clients.
<PAGE>
Based on information available from the Nevada State Demographer and
internal Company population forecasts, the Company's Washoe County (Reno)
deposit service area is estimated to have grown by 2.2% in 1997 to 313,575
persons and is expected to continue to grow at a compounded annual rate of
2.1% through the millenium to 333,895 people. Growth rates are forecast at
1.9% for the first five years of the next decade. The Company's Carson City
deposit service area is estimated to have grown by slightly more than 3.0%
in 1997 to an estimated population of 50,387,and is forecast to grow at
just under 3% through the millenium and at a 2.3% compounded annual growth
rate for the first five years of the next decade.
Meanwhile, the state population is estimated to have grown by 3.6% in 1997
to an estimated 1.749 million people spurred by 4.1% growth in Las Vegas
(to 1.162 million). The Company forecasts state growth at 3.4% through the
millenium with Las Vegas as the catalyst with compounded annual growth of
nearly 4%. Early in the next decade, state growth is forecast to fall to a
compounded annual rate of 3% as Las Vegas' growth cools to an annual rate
of 3.4%. Based on its population forecasts, the Company believes that
Nevada will continue as one of the fastest growing states, if not the
fastest, throughout the period described above. As a locally managed
community banking organization, the Company is well positioned for such
growth.
Liquidity
Liquidity is the ability to meet current and future obligations through
liquidation or maturity of existing assets or the acquisition of additional
liabilities. Cash, short-term investments and lines of credit from other
financial institutions are the Company's primary sources of asset
liquidity. As a result of its loan and deposit growth, the Company's
liquidity, as measured by the ratio of cash, overnight investments less
required reserves to total liabilities, stood at 24.1% as of March 31,
1998, a decrease from 28.5% on March 31, 1997. The investment portfolio is
a principal source of secondary asset liquidity as is the ability to borrow
from the Federal Home Loan Bank of San Francisco (see Borrowing Capacity
below).
The FASB's accounting rules, beginning in 1994, required the Company to
mark to market a portfolio, which could be sold prior to maturity.
Management believes that this accounting policy, known as SFAS 115, has
skewed, and will continue to skew, Company investments toward the very
short end of the maturity spectrum in order to prevent large fluctuations
in the value of the "available-for-sale" portfolio. This has and will
continue to result in overall investment portfolio yields that are lower
than they otherwise would have been in the absence of the SFAS 115 rules.
The Company's "available-for-sale" portfolio consists of $4.6 million in
U.S. Treasury and Agency securities with various maturities of nine years
or less, $4.9 million in mortgage-backed securities (non-derivative types),
$5.7 million in tax exempt municipal bonds and $795,000 in Federal Home
Loan Bank stock. Management estimates that the duration of the
"available-for-sale" portfolio was approximately 2.5 years on March 31,
1998. Management believes the investments in the "available-for-sale"
portfolio should be of short duration so that "interest rate risk" is low
and capital fluctuations, as a result of the mark to market requirements of
SFAS 115, are manageable in the volatile interest rate environment in which
the Company is operating. As of December 31, 1997, the value of the
"available-for-sale" portfolio was $25,000 above its book value. As of
March 31, 1998, the market value of the "available-for-sale" portfolio was
$20,000 above book value.
The Company also has a $10.1 million book value portfolio of
"held-to-maturity" securities as defined by SFAS 115. These securities
cannot be sold in the normal course of business and must be held to
maturity. As of March 31, 1998, management estimates that the duration of
the portfolio was approximately 3.7 years. The market value was $66,000
above book value. In contrast, at December 31, 1997, the book value of this
portfolio was $10.6 million with an unrealized loss of $4,000.
<PAGE>
Borrowing Capacity
The Company maintains a secured line of credit at the Federal Home Loan
Bank of San Francisco (FHLB) which is available for up to 30% of the
Company's assets. As of March 31, 1998, the Company had collateralized this
line with loans and securities giving the Bank approximately $13 million of
borrowing capacity. The Company has a $2.5 million line of credit with
Union Bank of California to meet short term funding requirements. This line
has a $200,000 compensating balance. As of March 31, 1998, there was an
outstanding draw of $6 million on the FHLB line, $3 million with a maturity
in September of 2000 and $3 million with a maturity in January of 2000. The
Company also has a $30,000 line of credit with InterWest Bank for the cash
requirements of the holding company. As of March 31, 1998, there were no
outstanding balances on this line. Both the FHLB and Union Bank of
California are routinely used for the purchase or sale of overnight Federal
funds. Pacific Coast Bankers Bank has also been utilized for the sale of
Federal funds since December of 1997. The Company also has the ability to
borrow from the Federal Reserve Bank of San Francisco for short periods of
time.
Individual and commercial deposits are the Company's primary source of
funds for credit activities. The Company's end of period ratio of loans to
deposits, as of March 31, 1998, was 82.6%. Management believes that the
Company's liquidity sources are adequate to meet its current operating
needs and any additional needs that may be generated by lending activities.
Because management believes that it has excellent sources of liquidity, it
has been able to increase the Company's loan to deposit ratio and will
continue to try to push it toward the 85% or higher level if liquidity
permits and sound loans at acceptable spreads are available.
Capital Base
The capital base for the Company increased by $706,000 during the three
months ended March 31, 1998 of which $601,000 was generated from profits,
$109,000 was the result of exercised employee stock options and $4,000 was
lost on the SFAB 115 mark to market adjustment on the "available-for-sale"
portfolio. In March 1997, in conjunction with the formation of the holding
company (Comstock Bancorp), the Company called outstanding warrants to
purchase 103,400 shares of Common Stock at $7.73 per share. The warrant
holders were given the option to accept similar but more restrictive
warrants in Comstock Bancorp if approved by the shareholders of Comstock
Bank at the annual meeting held on May 28, 1997. By the May 16, 1997 call
date, 77,000 of the 103,400 shares were exercised. As a result of the
conversion of Bank stock to Company stock on a 1 for 2 basis, the remaining
warrants to purchase 26,400 shares of Bank stock were converted to warrants
to purchase 52,800 shares of Bancorp stock at $3.86 per share. Such stock,
when and if issued, will carry restrictions regarding its resalability.
Capital Adequacy
As of December 31, 1990, a regulatory risk-based capital adequacy standard
became effective. The risk-based capital requirements were phased in over a
period of two years with the final implementation effective on December 31,
1992. In addition, the regulatory agencies have continued the process of
fine tuning the capital standards to meet their current policy objectives,
and it is likely that the standards will undergo further change. The table
below compares the risk-based capital ratios as of March 31, 1998 for
Comstock Bank and Comstock Bancorp with December 31, 1992 minimum
requirements:
Comstock Comstock 1992 Minimum
Bank Bancorp Requirements
Tier I (core capital) 10.72% 10.76% 4.0%
Total capital 11.47% 11.50% 8.0%
Leverage ratio 8.23% 8.34% 3.0%
<PAGE>
COMSTOCK BANCORP AND SUBSIDIARY
RESULTS OF OPERATIONS (Three Months Ended March 31, 1998 and 1997)
The company earned $601,000 in the three months ended March 31,1998, an
increase in post-tax earnings of 127.0% when compared to the $265,000
earned for the three months ended March 31, 1997. On a per share basis,
earnings were $.14 through March 31, 1998 versus $.06 for the same period
of 1997 (see exhibit (a) 11 for earnings per share computations). Return on
average assets for the three months ended March 31, 1998 was 1.25% versus
.73% for the same 1997 period. Return on average equity was 15.30% versus
8.12% in the 1997 comparable period.
Management believes that the following items had the largest impacts on
income for the three month period ended March 31, 1998:
1. Lower interest rates on mortgage loans spurred an increase in
mortgage refinancing as well as home buying. Real estate mortgage
loan originations increased 90% to $45.4 million in the three
months ended March 31, 1998 versus $23.9 million in the same 1997
period. In addition, the 1997 quarter was depressed by flooding in
Reno.
2. The increase in loan originations contributed to higher average
loan balances outstanding providing an increase in both interest
and loan fee income. For the first three months of 1998 the loan
portfolio balance averaged $137.3 million compared to $99.5 for
the same period of 1997.
3. First quarter earnings were augmented by the receipt of
`additional' interest from a development loan in the Company's
portfolio. Under the terms of the loan, the Company collects
normal interest payments plus an additional $2,100 for each lot
the developer sells. In the first quarter 59 lots were sold,
producing "additional interest" income of $123,900. In the first
three months of 1997, 30 lots were sold, adding $63,000 in
additional pre-tax income. As of March 31, 1998, 459 lots remain
to be sold in the 811 lot project.
Loan Interest Income ($000)
Three months ended March 31
1998 1997
Loan Interest Income $3,140 $2,287
Additional Interest Income $124 $63
4. Non-interest rate related events also had a significant impact on
net income. Non-interest income increased by $44,000 for the three
months ended March 31, 1998 over the same period of 1997, as a
result of increased deposit service charges generated by the
addition of two branch locations in 1997, as a result of fees
earned on a new accounts receivable servicing product and due to
dividend income realized on various life insurance policies owned
by the Bank.
The Company committed a significant amount of resources for
expansion in 1997. As a result of the new Galena and Sparks
branches, the lease and remodel of the new operations center, and
a partial remodel of the headquarters building, occupancy expenses
rose $71,000 (47.3%), and furniture and equipment expenses rose
$57,000 (47.0%) when comparing the three months ended March 31,
1998 to the same 1997 period. The deployment of capital for
additional branches is a strategy that enhances the Company's
deposit acquisition capability. Management believes that the
Company needs a strong presence in northern Nevada to continue on
the growth path of the recent past.
<PAGE>
As a precautionary measure, the Company provided $50,000 more to
its loan loss reserve (Provision for Credit Losses) in the first
three months of 1998 than it did in the same 1997 period, largely
due to the increase in traditional commercial loans held in
portfolio.
Other operating expenses rose $42,000 (9.9%) in the three months
ended March 31, 1998 over the same 1997 period. The increase was
the result of amortization costs on software and data
communication charges, both associated with the development of the
Bank's in-house data processing functions. The Company committed a
significant amount of resources for technological modernization in
1997. The Company successfully migrated from its computer service
bureau to an in-house system in October, 1997. Deployment of
electronic products and services has been scheduled for the next
several quarters. An increase in legal costs also contributed to
the increased expenses.
Management believes that, in order to effectively compete in the
rapidly changing technological world, the Company must be able to
deliver its products and services in an electronic format.
Management believes that the pace of change is so rapid that
delays in modernizing its systems could significantly threaten the
Company's core deposits. Furthermore, it is management's view that
many northern Nevadans would prefer to bank with a community bank
if it offered products and services similar to those offered by
large financial institutions. The Company has targeted small
business and individual relationship banking as a strategic goal.
Thus, management considers the rapid deployment of capital for
technological modernization as both a defensive move and a
strategic opportunity.
Capital investments of nearly $2 million (including both branch
expansion and technology) have an initial start-up period in which
there are zero or negative returns. Because of the volume of such
investments in 1997, management believes that the ROA and ROE are
likely to be lower for the immediate future than they otherwise
would have been and believes that the period of digestion is at
least through the end of 1998.
The following Interest Rate Sensitivity Analysis Table provides a picture
of income and interest sensitivity for selected categories in a comparative
format for the three month periods ended March 31, 1998 and 1997. The
tables show the interest sensitive assets and liabilities, their yields,
the difference in income, and the amount of the difference due to volume
change, rate change, and the combination of volume and rate change.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMSTOCK BANCORP
CONSOLIDATED INTEREST RATE SENSITIVITY ANALYSIS
For the Three Months Ended March 31, 1998 and 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Rate/
(Unaudited) Yield/ (Unaudited) Yield/ Total Volume Rate Volume
For Quarter Ended: Mar. 31, 1998 Rate Mar. 31, 1997 Rate Change Variance Variance Variance
- ------------------------------------------------------------------------------------------------------------------------------------
Loans:
Loan Income $3,199,626 9.42% $2,287,005 9.29% $912,621 $868,590 $31,911 $12,120
Loan Fees and
Servicing Income 941,998 563,530 378,467 - - -
------- ------- -------
Total Loan, Servicing,
And Fee Income 4,141,624 12.19% 2,850,535 11.58% 1,291,089 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Investments:
Fed Funds and Mutual
Fund Income 124,953 5.28% 146,562 5.38% (21,609) (19,268) (2,695) 354
Income from
Investment Securities 364,494 5.72% 283,429 5.99% 81,065 98,404 (12,870) (4,468)
Interest-Bearing
Deposit Income 24,084 6.55% 25,097 6.64% (1,013) (704) (318) 9
------ ------ ------- ----- ----- -
Total Investment Income 513,531 5.64% 455,088 5.81% 58,443 74,008 (13,388) (2,177)
Trading Account Assets
And Other Investments 8,658 4.36% 805 0.81% 7,853 796 3,550 3,508
- ------------------------------------------------------------------------------------------------------------------------------------
EARNING ASSETS:
Total Interest Income $3,713,157 8.58% $2,742,093 8.42% $971,064 $942,599 $18,523 $9,942
Total Interest, Servicing,
Fee, and Trading
Account Income $4,663,813 10.78% $3,306,428 10.16% $1,357,385 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Deposits:
Interest on Deposits:
Transaction Accounts $457,002 3.35% $342,484 3.28% $114,518 105,325 7,030 2,162
Time and Savings
Deposits 1,188,335 5.36% 867,467 5.16% 320,868 274,763 35,015 11,091
--------- ------- ------- ------- ------ ------
Total Deposit
Interest Expense 1,645,337 4.59% 1,209,951 4.44% 435,386 378,974 42,958 13,455
- ------------------------------------------------------------------------------------------------------------------------------------
BORROWED FUNDS:
Other Borrowed Funds 91,949 6.22% 0 0.00% $91,949 $0 $0 $91,949
------ - -------
Total Interest Expense $1,737,287 4.66% $1,209,951 4.44% $527,336 $444,615 $60,492 $22,229
- ------------------------------------------------------------------------------------------------------------------------------------
NET INTEREST
- -----------------------------
DIFFERENTIAL $1,975,870 3.92% $1,532,142 3.99% $443,728 $497,983 ($41,969) ($12,286)
(Excludes fee income)
NET INTEREST
DIFFERENTIAL $2,926,526 6.12% $2,096,477 5.72% $830,049 - - -
(Includes fee income)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to Interest Rate Sensitivity Analysis Table:
[1] The variance analysis above excludes non-interest rate sensitive earning
assets and borrowed funds.
[2] "Yield/Rate" is the interest income or interest expense, annualized,
divided by the average respective outstanding balance for the period.
[3] "Total Change" represents the change in the interest income or interest
expense between the respective periods.
[4] "Volume Variance" equals the change in average volumes (balances) between
the periods times the previous period interest rate.
[5] "Rate Variance" equals the change in yields or rates between the periods
times the previous period average balance.
[6] "Rate/Volume Variance" reflects the change in interest income or interest
expense attributable to simultaneous changes in both rates and volumes between
the respective time periods.
<PAGE>
The comparison of interest sensitive assets between the three month periods
ended March 31, 1997 and 1998 shows higher yields in loan income both
before fees and when fees are included. The yields on fed funds and mutual
funds, on the investment portfolio and on interest bearing deposits are
lower in the three month period ended March 31, 1998 than the same period
of 1997. The comparison of interest sensitive liabilities for the three
month periods show an increase in rates in all deposit accounts.
For loan income the increase in the level of both commercial loans held in
portfolio and the real estate loans held for sale resulted in a positive
volume variance. For the three months ended March 31, 1998 compared to the
same period of 1997, loan income increased $913,000 of which $869,000 was
due to larger portfolio balances and $32,000 to increased yields ($124,000
of "additional interest" income discussed above contributed to the yield
increase, the yield without the "additional interest" would have been
9.05%). Again, for this period, when loan fees and servicing income are
factored in, the result is an increase of $1,291,000 in total loan,
servicing and fee income. Because the Company is a large originator and
seller of mortgage loans, fee income plays a major role in Company
earnings, because when the Company sells loans, all of the deferred fee
income on the sold loans is immediately recognized as income. Total loan
and fee income yields increased from 11.58% to 12.19% in the three month
period.
Income from Fed Funds and Mutual Funds decreased by ($22,000) in the three
month period ended March 31, 1998 over the same 1997 period. The decrease
is the largely the result of reduced invested balances.
Lower yields on Investment Securities combined with an increase in the
invested balances netted the Company an increase of $81,000 for the three
month period ending March 31, 1998 over the same 1997 period.
Interest bearing deposits with other financial institutions showed lower
yields and lower invested balances, which netted to a decrease of $1,000 in
income for three month period.
Overall, total investment income increased by 12.7% or $58,000 for the
three month period as a result of increased invested balances in Investment
Securities.
The cost of interest sensitive liabilities was higher on all deposit
accounts for the three month period ended March 31, 1998 over the same
period of 1997 and was the result of an influx of deposits from the
institutions acquired by out-of-state companies as well as the addition of
two new branch offices. Increased deposit balances contributed to $379,000
of increased costs, while increased rates contributed to $43,000 of
increased costs.
In summary, on the asset side, larger loan and investment securities
portfolio levels increased income by $967,000 in the three months ended
March 31, 1998 over the same period of 1997. When fee income is included,
the increase in income for total earning assets, in the three month period
in 1998 over 1997 is $1,357,000. When the increased costs of deposits and
other borrowed funds of $527,000 for the three month period is taken into
account, the Company's net interest income differential, excluding
servicing and fee income, increased $444,000. With fee income included, the
net interest income differential increased $830,000 for the three month
period ending March 31, 1998.
<PAGE>
Part II.
Item 1. Legal Proceedings.
The Company is subject to minor pending and threatened legal
actions which arise out of the normal course of business and,
in the opinion of management and the Company's counsel, except
as discussed below, the disposition of these claims will not
have a material adverse affect on the financial position of
the Company.
The Company has been in litigation with Raymond B. Graber, II
("Graber") since 1991 as discussed in the Company's 10KSB
filed March 20, 1998. In February, 1998, the District Court
entered an order confirming in part, and vacating in part, the
award of the arbitrator. The Court also indicated its
intention of awarding Graber his attorneys' fees, and
established a briefing schedule to address that issue. As of
April 16, 1998, no judgment had been entered by the Court and
no award of fees had been made. The Company has filed a notice
of appeal from the District Court's order, and the Company's
counsel anticipates that Graber will cross-appeal. Any
resolution of the appeals will likely take at least 2 years.
Although the outcome of this litigation cannot be predicted
with precision, the Company's counsel believes that the
Company's maximum exposure in the case is approximately
$430,000, even assuming all of Graber's requested damages and
attorneys' fees are awarded to him and that such a judgment is
upheld on appeal.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. Not Applicable.
Item 4. Submission of Matters to a Vote of Securities Holders. None.
Item 5. Other Information. Not applicable.
Item 6. (a) Exhibits. The following exhibits are filed with or
incorporated by reference into this Form 10-QSB (numbering
corresponds to Exhibit Table in Item 601 of Regulation S-K):
No. Exhibit Page
--- ------- ----
11. Computation of per share earnings 23
27. Financial Data Schedule 24
(b) Form 8-K was filed on January 14, 1998. The Company
announced that it has been granted authority by its Board of
Directors to acquire up to 5% of the Company's outstanding
common stock. The shares may be purchased at prevailing market
prices from time to time during the twelve month period
beginning December 22, 1997. The purchases are at management's
discretion and will depend upon management's judgment of
market conditions.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, The registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COMSTOCK BANCORP
Date: April 29, 1998 /s/ Robert N. Barone
-------------- --------------------
Robert N. Barone,
Chairman, CEO and Treasurer
(Principal Accounting and Financial Officer)
Date: April 29, 1998 /s/ Larry A. Platz
-------------- ------------------
Larry A. Platz,
President and Secretary
<PAGE>
COMSTOCK BANCORP
EXHIBIT 11
COMPUTATION OF CONSOLIDATED NET INCOME PER SHARE
FOR THE THREE MONTHS ENDED MARCH 31
1998 1997
Net Income: $600,748 $264,616
Net Income per Common Share (assuming no dilution):
Weighted Avg. Shares Outstd.: 4,430,168 4,238,918
Basic Earnings per Share: $0.14 $0.06
Net Income per Common and Common Equivalent
Shares:
Adjusted Weighted Avg. Number of Shares 4,910,602 4,628,296
Outstd. After Giving Effect to the Conversion
of Options and Warrants:
Diluted Earnings per Share: $0.12 $0.06
<PAGE>
COMSTOCK BANCORP
EXHIBIT 27
FOR THE THREE MONTHS ENDED MARCH 31, 1998
FINANCIAL DATA SCHEDULE
$ in Thousands
Cash and Due from Banks (Non-Interest Bearing) $13,428
Interest-bearing Deposits in Domestic Financial Institutions 1,489
Fed funds and Overnight Mutual Funds Sold 11,044
Trading Account Securities 11
Investment and Mortgage back Securities Held for Sale 16,008
Investment and Mortgage back Securities Held to Maturity -
Carrying Value 10,068
Investment and Mortgage back Securities Held to Maturity -
Market Value 10,104
Loans 145,827
Allowance for Credit Losses 1,125
Total Assets 209,860
Deposits 186,474
Short-term borrowings 0
Other Liabilities 1,082
Long-term debt 6,000
Preferred stock - mandatory redemption 0
Preferred stock - no mandatory redemption 0
Common Stock 45
Other Stockholders Equity 16,258
Total Liabilities and Stockholders Equity 209,860
Interest and Fees on Loans 4,142
Interest and Dividends on Investments 373
Other Interest Income 149
Total Interest Income 4,664
Interest on Deposits 1,645
Total Interest Expense 1,737
Net Interest Income 2,927
Provision for Loan Losses 110
Inestment Securities Gains/Losses (8)
Other Expense 2,146
Income/Loss Before Income Tax 795
Income/Loss Before Extraordinary Items 795
Extraordinary Items, Less Tax 0
Cumulative Change in Accounting Principles 0
Net Income or Loss 601
Earnings Per Share - Primary .14
Earnings Per Share - Fully Diluted .12
Net Yield - interest earning assets - actual 8.60%
Loans on Non-accrual 2,572
Accruing Loans past due 90 Days or More 0
Troubled Debt Restructuring 13
Potential Loan Problems 0
Allowance for Loan Losses - Beginning of Period 1,076
Total Charge-Offs 61
Total Recoveries 0
Allowance for Loan Losses - End of Period 1,125
Loan Loss Allowance allocated to Domestic Loans 1,125
Loan Loss Allowance allocated to Foreign Loans 0
Loan Loss Allowance - Unallocated 0
<PAGE>
