<PAGE>
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, 1999
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 29, 1999: Common Stock - Authorized 15,000,000 shares at $0.01 par
value; issued and outstanding - 5,117,400
<PAGE>
TABLE OF CONTENTS
Item
Number Page
PART I - FINANCIAL INFORMATION
1. Financial Statements
Consolidated Statements of Condition
March 31, 1999 and December 31, 1998 4
Consolidated Statements of Income
Three months ended March 31, 1999 and 1998 5
Consolidated Statements of Changes in Stockholders' Equity For
the periods ended March 31, 1998, December 31, 1998, and
March 31, 1999 6
Consolidated Statements of Cash Flows
Three months ended March 31, 1999 and 1998 7
Notes to Consolidated Financial Statements 8
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
PART II - OTHER INFORMATION
1. Legal Proceedings 22
2. Changes in Securities 22
3. Defaults Upon Senior Securities 22
4. Submission of Matters to a Vote of Securities' Holders 22
5. Other Information 22
6. Exhibits and Reports on Form 8-K 22
Signatures 23
<PAGE>
Part I. Financial Information
Item I. Financial Statements
<PAGE>
COMSTOCK BANKCORP
CONSOLIDATED STATEMENTS OF CONDITION
As of March 31, 1999 and December 31, 1998
(Dollars in Thousands)
(Unaudited) (Audited)
March 30,1999 Dec. 31, 1998
Assets:
Cash and Due from Banks (Non-Interest $7,280 $9,843
Bearing)
Fed Funds and Overnight Mutual Funds Sold 8,684 17,214
Interest-bearing Deposits in Domestic
Financial Institutions 622 791
Trading Account Securities 7 8
Securities Available for Sale 32,380 39,071
Federal Home Loan Bank Stock 855 843
Loans Held for Sale 10,420 15,088
Loans (Net of Deferred Fees) 141,934 126,734
Less: Allowance for Credit Losses 1,175 1,598
Net Loans 140,758 125,136
Premises and Equipment 7,637 7,263
Other Real Estate Owned 2,264 2,184
Accrued Interest Receivable 982 1,052
Other Assets 5,589 6,654
TOTAL ASSETS $217,478 $225,147
Liabilities and Stockholders' Equity:
Deposits:
Demand Deposits (Non-Interest Bearing) $32,679 $38,420
Savings, Money Market and NOW Accounts 70,605 69,764
Time Deposits Under $100,000 52,010 53,744
Time Deposits $100,000 and Over 32,744 34,318
Total Deposits 188,038 196,246
Line of Credit Payable 6,000 6,000
Accrued Interest Payable 245 281
Accounts Payable and Accrued Expenses 660 1,031
Income Taxes Payable 234 0
TOTAL LIABILITIES 195,177 203,558
Stockholders' Equity:
Common Stock-$0.01 par value, 15,000,000
shares authorized;
5,117,400 and 5,035,500 shares issued
and outstanding on
March 31, 1999 and December 31, 1998 51 50
(1)
Paid-in Surplus (1) 10,898 10,501
Retained Earnings 11,510 11,087
Common Stock in Treasury, at Cost,
Shares: 8,000 as of Dec. 31, 1998
And 0 as of March 31, 1999. 0 (63)
Accumulated Other Comprehensive Income:
'Unrealized Gain (Loss) on Securities
Available for Sale,
Net of Applicable Deferred Income Taxes (158) 14
TOTAL STOCKHOLDERS' EQUITY 22,301 21,589
TOTAL LIABILITIES AND STOCKHOLDERS' $217,478 $225,147
EQUITY
(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 BANKCORP
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 1999 and 1998
(Dollars in Thousands except per share amounts)
(Unaudited) (Unaudited)
Mar 31, 1999 Mar 31, 1998
Interest Income:
Interest and Fees on Loans $3,862 $4,142
Interest on Investments and
Trading Securities:
Taxable 405 290
Exempt from Federal Income Tax 113 83
Interest on Fed Funds Sold 98 125
Interest on Deposits with Banks 11 24
Total Interest Income 4,490 4,664
Interest Expense:
Interest on Deposits 1,590 1,645
Interest on Line of Credit 89 92
Total Interest Expense 1,678 1,737
Net Interest Income 2,812 2,927
Provision for Credit Losses 140 110
Net Interest Income after Credit 2,672 2,817
Loss Provision
Non-Interest Income:
Service Charges on Deposit 98 76
Accounts
Gain/(Loss) on Sale of Investment 41 (8)
Securities
Gain/(Loss) on Sale of Trading (1) 1
Securities
Other Income 71 56
Total Non-Interest Income 209 124
Non-Interest Expense:
Salaries and Employee Benefits 1,293 1,278
Occupancy Expense 197 222
Furniture and Equipment Expense 202 177
Other Operating Expenses 585 469
Total Non-Interest Expense 2,277 2,146
Income before Taxes 604 795
Provision for Income Taxes 118 194
NET INCOME $486 $601
Basic Earnings per Share (1) $0.10 $0.14
Diluted Earnings per Share (1) $0.10 $0.12
Other Comprehensive Income, Net of
Tax:
Unrealized Gains/(Losses) on
Securities:
Unrealized Holding ($145) ($5)
Gains/(Losses) Arising During
Period
Less: Reclassification for (27) 1
Gains/(Losses) Incl. in Income
Other Comprehensive Income ($172) ($4)
Comprehensive Income $314 $597
Other Comprehensive Income Basic $0.06 $0.13
Earnings per Share (1).
Other Comprehensive Income Diluted $0.06 $0.12
Earnings per Share
(1) Adjusted for two for one share exchange on June 16, 1997.
<PAGE>
COMSTOCK BANKCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For Periods Ended March 31, 1998, December 31, 1998, and March 31, 1999
(Dollars in Thousands)
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulated
Treasury Retained Other Total
Common Stock Paid-in Earnings Comprehensive Stockholders' Comprehensive
Stock (1) At Cost Surplus (1) (Deficit) Income Equity Income
Balances, December 31, $44 $0 $8,908 $6,628 $17 $15,597
1997
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 (4) (4) (4)
Reclassification
Adjustment
See Disclosure
(a) Below
Balances, March 31, 1998 $45 $0 $9,016 $7,229 $13 $16,303 $597
Net Income 3,858 3,858 3,858
Sale of Common Stock 5 1,485 1,490
Common Stock (63) (63)
Repurchase
Other Comprehensive
Income, Net of Tax
Unrealized
Gains/(Losses) on
Securities,
Net of 1 1 1
Reclassification
Adjustment
See Disclosure
(b) Below
Balances, December 31, $50 ($63) $10,501 $11,087 $14 $21,589 $4,456
1998
Net Income 486 486 486
Sale of Common Stock 1 397 398
Common Stock 63 (63)
Repurchase/Retired
Other Comprehensive
Income, Net of Tax
Unrealized
Gains/(Losses) on
Securities,
Net of (172) (172) (172)
Reclassification
Adjustment
See Disclosure
(c) Below
Balances, March 31, 1999 $51 $0 $10,898 $11,510 ($158) $22,301 $314
</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 ($5)
Less: reclassification adjustment for gains 1
included in net income
Net unrealized gains on securities ($4)
(b) Disclosure of reclassification amount:
Unrealized holding gains arising during period ($43)
Less: reclassification adjustment for gains 44
included in net income
Net unrealized gains on securities $1
(c) Disclosure of reclassification amount:
Unrealized holding gains arising during period ($145)
Less: reclassification adjustment for gains (27)
included in net income
Net unrealized gains on securities ($172)
[See accompanying notes to financial statements.]
<PAGE>
COMSTOCK BANKCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1999 and 1998
(Dollars in Thousands)
(Unaudited) (Unaudited)
Mar 31, 1999 Mar 31, 1998
Cash Flows from Operating Activities:
Net Income $486 $601
Adjustments to Reconcile Net Income to Net
Cash
Provided by Operating Activities:
Provision for Credit Losses 140 110
Depreciation and Amortization 219 155
Net (Gain) Loss on Sale of Available For 35 (8)
Sale Securities
Net (Gain) Loss on Sales of Trading (1) 1
Securities
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 96 (1)
Available for Sale
Net (Increase) Decrease in:
Accrued Interest Receivable 70 (45)
Other Assets 973 (15)
Loans Held For Sale 4,654 (5,628)
Net Increase (Decrease) in:
Accrued Interest Payable (36) (19)
Accounts Payable and Accrued Expenses (379) (341)
Income Taxes Payable 234 143
Net Cash Provided/(Used) by Operating $6,491 ($5,047)
Activities
Cash Flows from Investing Activities:
Net Change in Interest-Bearing Deposits in
Domestic
Financial Institutions 169 3
Proceeds from Sales of Available for Sale 1,463 1,583
Securities
Proceeds from Maturities of Available for 4,942 2,645
Sale Securities
Purchases of Available for Sale Securities 0 (5,227)
Proceeds from Maturities of Held to 0 567
Maturity Securities
Purchases of Held to Maturity Securities 0 0
Net Change in Loans Held to Maturity (15,748) (4,018)
Purchases of Premises and Equipment, Net (589) (125)
Purchase of FHLB Stock (12) (7)
Net Cash Provided/(Used) by Investing ($9,775) ($4,579)
Activities
Cash Flows from Financing Activities:
Net Change in Demand, Savings, NOW
and Money Market Accounts (4,900) 12,426
Net Change in Time Deposits (3,308) 2,246
Proceeds on Line of Credit Payable 0 0
Payments on Line of Credit Payable 0 0
Proceeds from Sale of Common Stock, Net 398 109
Purchase of Treasury Stock 0 0
Net Cash Provided/(Used) by Financing ($7,810) $14,781
Activities
Increase (Decrease) in Cash and Equivalents (11,094) 5,155
Cash and Equivalents:
Beginning of Period 27,057 19,317
End of Period $15,963 $24,472
[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, 1998 which is included in the Company's Registration
Statement on 10-KSB dated March 18, 1999 (Commission File No. 0-22391). The
results of operations for the three months ended March 31, 1999 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, 1999. .
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.
3. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June of 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"(SFAS
133). The standard is effective for fiscal years beginning after June 15,
1999. Earlier adoption is allowed at the beginning of any fiscal quarter after
the release of the statement. The standard establishes accounting and
reporting for derivative financial instruments and for hedging activities. It
requires that all derivatives be measured at fair value and to be recognized
as either assets or liabilities in the statement of financial position. The
standard allows for a one-time transfer of securities (Mulligan Rule) from the
Held to Maturity Portfolio to the Available for Sale or Trading Portfolios
without the penalties imposed by SFAS 115, "Accounting for Certain Investments
in Debt and Equity Securities". The transfer is allowed at the date of initial
application of the standard.
Management elected to adopt SFAS 133 as of October 1, 1998 and transferred all
securities held in the "held-to-maturity" portfolio to the "available for
sale" portfolio. The Company holds only minimal balances in derivatives that
are not designated as hedges and does not anticipate the adoption of SFAS 133
will have a material effect on the financial statements.
<PAGE>
4. RECENT DEVELOPMENTS
On January 13, 1999, the Company announced that it had signed a definitive
agreement to merge its holding company into that of First Security Corporation
(NASDAQ:FSCO). The value of the consideration on the day of announcement was
approximately $65,000,000, in a tax-free exchange of stock for all of
Comstock's outstanding common shares, including options and warrants. The
value will stay fixed as long as First Security's average stock price remains
between $18.70 and $24.05 during the 10 consecutive trading days preceding the
closing date. If the average First Security stock price is above or below
these levels during the actual measurement period, the total value of the
transaction may be higher or lower than $65 million to Comstock Shareholders.
The Company's Comstock Bank subsidiary is to be merged into First Security
Corporation's Nevada subsidiary, First Security Bank of Nevada.
The merger, which would be accounted for under purchase accounting, is
expected to close in June, 1999. The Boards of Directors of both companies
have approved the Agreement and Plan of Reorganization. Consummation of the
merger is subject to certain customary conditions, including among others, the
adoption of the Agreement and Plan of Reorganization by Comstock Bancorp
shareholders and receipt of regulatory approvals. The Directors of Comstock
Bancorp have entered into Shareholder Voting Agreements with First Security
Corporation pursuant to which such Directors agreed to vote their shares owned
of Comstock Bancorp in favor of the Agreement and Plan of Reorganization. The
Shareholder Voting Agreements were executed as a condition of and inducement
to First Security Corporation entering into the Agreement and Plan of
Reorganization.
On April 28, 1999, the Agreement and Plan of Reorganization was adopted by
Comstock Bancorp shareholders.
For additional information regarding the merger of Comstock Bancorp with and
into First Security Corporation, the Agreement and Plan of Reorganization, and
the Shareholder Voting Agreements, see Appendices A and B to the Proxy
Statement/Prospectus and the Form S-4 Registration Statement, as amended,
filed by First Security Corporation on March 23, 1999.
<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 Nevada. The Company also makes loans in 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 deteriorate, 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. 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 at 311,350 persons as
of July 1998 and is expected to continue to grow at a compounded annual rate
of 2% through the millennium to 323,928 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 at 51,860 as of July 1998 and is forecast to
grow at just under 3% through the millennium and at a 2.3% compounded annual
growth rate for the first five years of the next decade.
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.
<PAGE>
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 customer demands for products and services,
could affect the anticipated return on infrastructure investment.
Financial Condition
As of March 31, 1999, the Company's assets had decreased slightly from $225.1
million (measured as of December 31, 1998) to $217.5 million, a decrease of
$7.6 million. Using average assets rather than end of period figures, assets
decreased $4.1 million, from an average of $220.4 million in December of 1998
to an average of $216.3 million in March of 1999. 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 long term fixed rate residential mortgage 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 to be an appropriate asset for the Company's loan
portfolio and an appropriate match for the Company's liability structures.
Overall, loan volume decreased from $75.8 million of loan originations
representing 460 loans in the three months ended March 31, 1998 to $67.8
million representing 390 new loan originations in the three months ended March
31, 1999, a 10.7% decrease in dollar volume and a 15.2% decrease in number of
loans. Management believes that the decrease in both the number and dollar
volume of loans in 1999 versus the same 1998 period is due to increased
competition in both the commercial and residential markets, and loss of
commercial loan personnel as a result of the Company's pending merger with
First Security Corporation.
Northern Nevada community financial institutions continue to experience large
liquidity increases. As a result of the large liquidity infusion at local
financial institutions, coupled with the implementation of loan production
offices by large, out-of-state, banks and non-banks, competition for
commercial loans caused downward pressure on the Bank's interest margins and
fee structures. Furthermore, management has been reluctant 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. As a result, loan portfolio growth has
slowed. In response, management reduced time deposit rates to reduce excess
liquidity and deposit costs. Management believes that its posture on this
issue will pay off in the long-term.
The Real Estate Division originated 268 loans for a dollar volume of $40.4
million in the three months ended March 31, 1999 compared to 314 loans for a
dollar volume of $45.4 million in the same period of 1998. Management believes
the reduction in mortgage rates spurred refinancing activity in 1998. Since
rates have increased slightly from their 1998 lows, management believes the
slowdown in the refinance market for the first quarter of 1999 will likely
continue through the summer of 1999.
<PAGE>
According to public records, mortgage loan volume in Washoe County decreased
from $231.2 million in March of 1998 to $222.1 million in March of 1999; the
Company's market share decreased from 6.1% to 4.0%. In Carson City, for the
same period, volume rose by 6.9 % to $27.9 million from $26.0 million in March
of 1998. While volume rose, the Company's market share decreased from 8.82% to
5.20% due mainly to the volatility in loan volume generated in this relatively
small market.
Total Residential Real Estate Lending
Three ---Number--- Volume (Mill $)
Months
Ended 1999 1998 1997 1999 1998 1997
March 31 268 314 185 $40.4 45.4 25.8
June 30 N/A 367 241 $N/A 51.0 35.4
September N/A 336 261 $N/A 48.1 36.2
December 31 N/A 352 280 $N/A 44.8 42.8
Total 268 1,369 967 $40.4 $189.3 $140.2
The Commercial Division originated 122 loans for $27.4 million in the three
months ended March 31, 1999 versus 146 loans for $30.5 million in same 1998
period. The company continues to hold commercial real estate loans in the Las
Vegas market.
For the month of March, 1999, the average balance of the Company's loan
portfolio was $152.0 million and the average total deposit balance was $182.3
million for an average loan/deposit ratio in excess of 83.7%. The average
balance for the same year earlier period was $142.2 million and the average
total deposit balance was $172.8 million for an average loan/deposit ratio of
82.6%. Even with the increase in the level of loans in the Company's loan
portfolios, loan interest income decreased by 2% or $63,000, (adjusted for
"additional interest" of $8,000 in 1999 and $124,000 in 1998 on a development
loan discussed below), over the same period of 1998 due to falling net
interest margins.
Management has noted over the past few years, that the larger banks in the
state began 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 both the
northern Nevada mortgage and commercial real estate market. Norwest Mortgage,
not a significant player in northern Nevada in 1994, is now the dominant
mortgage lender. 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 has sped up
the application, approval, and funding times in the real estate department.
Management believes that the technologies have improved the Company's
competitiveness in the marketplace by allowing very rapid loan approvals, and
by attracting realtor business due to reduced waiting time for the realtor
commission. The new technologies have also allowed 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, despite the processing streamlining,
because the Company must sell the mortgages in the secondary market, the
Company generally cannot compete on a price basis with the large national
mortgage banking enterprises or with players that can charge lower prices and
put the mortgages into their portfolios.
<PAGE>
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 remained benign, market interest rates, especially at the long end
of the maturity spectrum of the yield curve, fell throughout the summer months
of 1997, increasing demand for mortgage loans on the national level. While the
federal funds rate, administered by the Federal Reserve, remained steady for
the first nine months of 1998, rates along the remainder of the yield curve
fell. The major impact of this on the Company has been a refinance boom in the
mortgage markets and the stimulation of new housing purchases, which began in
the third quarter of 1997 and continued through 1998. In the first quarter of
1999, the company experienced a slow down in the refinance arena as rates
moved slightly higher, the pent-up demand to refinance at lower rates was
satisfied, and the larger portfolio lenders became more aggressive in their
unending need for higher volume.
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. The strategy is that 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
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, 1999 the Company had non-performing
(non-accruing) loans of approximately $359,000, comprised of three commercial
loans. The Company had $2.2 million of loans past due 90 days or more that
were still accruing, comprised of three notes for one construction and
development project. In April of 1999, two of the three notes were paid off
and the third was renewed. Documents have been revised to address a change in
ownership and a renewal on this project. The Company is fully collateralized
on the note. As of March 31, 1998, the Company had non-performing
(non-accruing) loans of approximately $2.6 million, comprised of the two fully
secured construction and development loans discussed below. At that time, the
Company had no loans past due 90 days or more that were still accruing. The
company currently has $2.28 million in "Other Real Estate Owned" consisting of
the two projects reported above as non-accruing. In July of 1998, the Company
completed the foreclosure on a project in Sparks for $1.59 million, which
contained 13 partially completed homes. Of the 13, four have been sold, five
have offers and acceptances , and the other four are complete and ready for
sale. In September, 1998, the Company foreclosed on a project for $784,000
containing 2 condominiums and 11 finished lots in Boulder, NV, in the Las
Vegas Area. The Company has developed a marketing plan for this project. An
offer on one condo has been accepted. The Company does expect to sustain some
loss of principal on these properties.
Deposit Volumes
As of March 31, 1999, the Company's deposit base had decreased from $196.2
million (measured as of December 31, 1998) to $188.0 million, a decrease of
$8.2 million (4.2%), as the Company reduced deposit yield offerings to reduce
liquidity and lower costs. Using average balances rather than end of period
figures, deposits decreased $9.2 million (4.7%), from an average of $196.2
million in December, 1998 to $187.0 million in March, 1999.
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 23.28% as of March 31, 1999, a decrease from
24.08% on March 31, 1998. 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).
<PAGE>
The FASB's accounting rules, beginning in 1994, required the Company to mark
to market a portfolio that could be sold prior to maturity. This accounting
policy is known as SFAS 115. In October of 1998, the Company adopted SFAS 133
and transferred all securities previously held in the "held-to-maturity"
portfolio to the "available-for-sale" portfolio. The Company's "available-
for-sale" portfolio, as of March 31, 1999, consists of $3 million in U.S.
Treasury and Agency securities, $11.9 million in FNMA and FHLMC
mortgage-backed pass through securities (non-derivative types), $8.6 million
in GNMA pass through securities, $8.9 million in tax exempt municipal bonds
and $855,000 in Federal Home Loan Bank stock. Management estimates that the
duration of the "available-for-sale" portfolio was approximately 2.58 years on
March 31, 1999. As of December 31, 1998, the value of the "available-for-
sale" portfolio was $21,000 above its book value. As of March 31, 1999, the
market value of the "available-for-sale" portfolio was $240,000 below book
value.
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, 1999, the Company had collateralized this line with
loans and securities giving the Bank approximately $26 million of borrowing
capacity. As of March 31, 1999, 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, leaving $20 million in unused borrowing
capacity. The same draw of $6 million was outstanding on March 31, 1998. The
Company also 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. FHLB, Union Bank of California, Pacific Coast Bankers Bank, First USA
and First Security Bank, are routinely used for the purchase or sale of
overnight Federal funds. In addition, the Company invests some of its
overnight liquidity in Federated Investors' Liquid Cash Trust, a highly
collateralized mutual fund of short-term bank qualified investments. 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, 1999, was 83.70%. 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.
Capital Base
The capital base for the Company increased by $712,000 during the three months
ended March 31, 1999, of which $486,000 was generated from profits, $398,000
was the result of exercised director and employee stock options and warrants,
and $172,000 was lost on the SFAS 115 mark-to-market adjustment on the
"available-for-sale" portfolio
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 September 30, 1998 for Comstock
Bank and Comstock Bancorp with December 31, 1992 minimum requirements:
<PAGE>
1992
Comstock Comstock Minimum
Bank Bancorp Requirements
Tier I (core 12.10% 13.96% 4.0%
capital)
Total capital 12.84% 14.69% 8.0%
Leverage ratio 9.05% 10.36% 3.0%
Year 2000 Compliance
General. The Company is aware of the enterprise-wide challenges that the
millennium change poses to its business operations in making information
processing and other service-related systems Year 2000 compliant. The Year
2000 risk involves computer programs and computer software that are not able
to perform without interruption into the Year 2000. If computer systems do not
correctly recognize the date change from December 31, 1999 to January 1, 2000,
computer applications that rely on the date field could fail or create
erroneous results. Such erroneous results could affect interest, payment or
due dates or cause the temporary inability to process transactions, send
invoices or engage in similar normal business activities. If the Company, its
suppliers and its borrowers do not address these issues, there could be a
material adverse impact on the Company's financial condition or results of
operations.
The Company's Year 2000 Project Plan incorporates the elements recommended by
the Federal Financial Institutions Examination Council (FFIEC) of which the
Company's primary regulatory agency, the Federal Deposit Insurance Corporation
(FDIC), is a member. The FFIEC Interagency Statement on the Year 2000 outlines
five management phases necessary to facilitate transition to the new century:
awareness, assessment, renovation, validation, and implementation.
State of Readiness.
Awareness. The Board of Directors and executive management are cognizant of
the Year 2000 challenge and have made a supportive commitment of resources to
address the matter along with the adoption of a Year 2000 Policy. A Year 2000
Project Committee has been established with a strategy to address all internal
and external system and service formulations. Vendors and servicers have been
contacted to determine their Year 2000 plans and gain their commitment to be
ready. Ongoing progress reports are being made by the Year 2000 project
Committee to the Company's Board of Directors. In addition, the Compliance
Manager for the Company performs ongoing review of the adequacy of Year 2000
Project assessments and plans, and reports the results of such monitoring to
the CRA/Audit & Compliance Committee of the Board of Directors.
Assessment. The Company has completed its assessment of its Year 2000
issues. The Company has identified critical business processes and automation
platforms, as well as examined how data transfers will be affected internally
and with outside organizations. This assessment includes both information
technology "IT" systems, as well as non-IT systems and services such as
security systems, HVAC, elevators, etc. Resource needs have been identified,
including appropriately skilled personnel, contractors, vendor support,
budgets and hardware capacity. Time frames and sequencing of Year 2000 efforts
have been established. Existing contingency plans have been evaluated, and are
being modified as needed in conjunction with the results of the Renovation and
Validation phases of the project. An assessment of credit risk from lending
customers has also been completed as a strategic part of the project phase.
High-risk, technology dependent borrowers are being diligently worked with and
monitored to mitigate any adverse impacts to the business borrower or the
Company.
<PAGE>
Renovation. According to the risk-based priorities established during the
Assessment Phase, hardware, software, databases and non-IT systems or services
will be converted, replaced or eliminated as necessary. Renovation work for
critical applications has been substantially completed. Vendor and servicer
renovation activities are being diligently monitored to ensure timely
fulfillment of Year 2000 assurances.
Validation. Testing and verification of network and PC systems, databases
and utilities by simulating data conditions for the Year 2000 (including
2/29/2000 leap year), began in September 1998. Successful Y2K testing of the
Company's primary mainframe systems including deposit, loan and general ledger
applications was substantially completed as of March 31, 1999 and fully
completed in April 1999. Testing on data exchanges with counterparties outside
the Company was substantially completed during the first quarter of 1999.
Contingency plans for mission critical systems have been developed and will be
finalized as the end of the second quarter of 1999.
Implementation. Renovated systems, data bases and utilities will be put
into production as soon as possible following their validation, with
completion scheduled no later than mid-1999 (assuming the Company's pending
merger with First Security Corporation is not complete by that date).
Implementation with servicers of critical systems is being monitored to ensure
timely completion. Contingency plans for critical systems will be simulated
and tested following their finalization at the end of the second quarter of
1999.
Cost of Compliance. Management does not expect the costs of bringing the
Company's systems into Year 2000 compliance will have a material adverse
effect on the Company's financial conditions, results of operations or
liquidity. Management has estimated the total cost of its Year 2000 compliance
effort at $764,000 of which $479,000 is renovation cost of hardware and
software and the remaining $285,000 is resource costs to manage and implement
the Company's Y2K project plan. To date $660,000 has been invested with
$104,000 remaining to be incurred on the project through March 31, 2000. These
estimates may not include the full cost of implementation.
Risks Related to Year 2000 Issues. Notwithstanding the Company's efforts,
there can be no assurance that potential systems interruptions or the cost
necessary to update the hardware, software and non-IT systems 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, (such
as power, telecommunications, etc.) do not successfully and timely achieve
Year 2000 compliance, the Company's business or operations could be adversely
affected. Having completed a diligent assessment of its commercial loan
portfolio, the Company believes, at this time, its loan risks are limited to a
few borrowers that the Company has assessed as being medium to high risk
(technology dependent companies) for a total of $2.05 million out of a
portfolio of more than $152 million. It is notable that each of these loans is
well collateralized, thereby mitigating the potential of loan losses. The
Company is working with the medium to high-risk borrowers in an ongoing manner
to minimize any adverse impacts to the business borrower or the Company. The
Company does not believe that this amount is material enough for the Company
to adjust its current methodology for making provisions to the allowance for
credit losses. In addition, the Company does not believe it will have
difficulty meeting cash demands.
Contingency Plans. The company maintains standard disaster recovery and
business resumption plans. The Company's contingency plans specific to the
Year 2000 have been developed in conjunction with system renovation and
testing results and will be finalized by the second quarter of 1999. The
Company is confident that its Year 2000 plan to address the issues associated
with the proper functions of the Company's computer systems before, at, and
after the turn of the century will meet the business challenges of entering
the new millennium.
<PAGE>
COMSTOCK BANCORP AND SUBSIDIARY
RESULTS OF OPERATIONS (Three Months Ended March 31, 1999 and 1998)
The Company earned $486,000 in the three months ended March 31,1999, a
decrease in post-tax earnings of 19% when compared to the $601,000 earned for
the three months ended March 31, 1998. On a basic per share basis, earnings
were $.10 through March 31, 1999 versus $.14 for the same period of 1998 (see
exhibit 11 for earnings per share computations). Return on average assets
(ROA) for the three months ended March 31, 1999 was .91% versus 1.25% for the
same 1998 period. Return on average equity (ROE) was 8.92% versus 15.30% in
the 1998 comparable period.
Management believes that the following items had the largest impacts on income
for the three month period ended March 31, 1999:
1.The receipt of `additional' interest from a development loan in the
Company's portfolio significantly augmented earnings in the 1998 period.
Under the terms of the loan, the Company collects normal interest
payments plus an additional $2,100 for each lot the developer sells. As
of March 31, 1999, 4 lots had been sold increasing interest income by
$8,400. In 1998, 440 lots were sold increasing interest income by
$815,900. Of that income $124,000 was realized in the first quarter. In
1997, 139 lots were sold and closed giving the Company "additional"
interest income of $292,000. Of the total 811 lots, 98 remained to be
sold.
Loan Interest Income ($000)
Three months ended March 31,1999
Three Months
1999 1998
Loan Interest Income $3,078 $3,141
Additional Interest Income $ 8 $ 124
2.Merger costs associated with the definitive agreement discussed on page
8, approximate $119,000 year to date, before tax. With these costs
excluded, management estimates that the Company would have earned
$565,000 for the three month period ended March 31, 1999 or $.11 per
share.
3.The Company's capital was significantly augmented in late 1998 when
options were exercised. As a result, the ROA and ROE was reduced as
capital leverage ratios increased.
4.Other non-interest rate related events also had a significant impact on
net income. Non-interest income increased by $85,000 for the three months
ended March 31, 1999 over the same period of 1998. The increase is the
result of rising deposit service charges generated by the addition of two
branch locations in 1997, fees earned on a new accounts receivable
servicing product, and gains recognized on the sale of investment
securities.
<PAGE>
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 in 1998 and stabilized in
1999. Furniture and equipment expenses rose $25,000 (14.1%) when
comparing the three months ended March 31, 1999 to the same 1998 period.
The deployment of capital for additional branches is a strategy that
enhances the Company's deposit acquisition capability. The investment of
capital in technological improvements targeted toward the Company's
commitment to small business customers and toward an increased
competitive presence is necessary to obtain a stable diverse customer
base and to move its deposit base further toward a core of relationship
customers and further away from dependence on a higher cost, non-core,
single relationship customer base. The Company successfully migrated from
its computer service bureau to an in-house system in October of 1997.
Deployment of electronic products and services has been scheduled for the
next several quarters with personal computer banking for small business
customers being the product most recently introduced. Such product
development is likely to be more rapid when the merger with First
Security is consummated.
Other operating expenses rose $116,000 (24.7%) in the three months ended
March 31, 1999 over the same 1998 period due to the merger costs
discussed above.
Management believes that, 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 implementation of high technology
products and services could significantly threaten the Company's core
deposits. Management views the Company's proposed merger with First
Security as both a defensive move and a strategic opportunity, because
the merger is anticipated to provide the company's customers with high
technology products and services which will both retain the existing
customers and attract new ones.
The Company provided $30,000 more to its loan loss reserve (Provision for
Credit Losses) in the first three months of 1999 than it did in the same
1998 periods. Such contributions are consistent with the Company's
strategy to build a commercial loan portfolio, which carries a higher
risk profile.
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, 1999 and
1998. 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>
COMSTOCK BANCORP
CONSOLIDATED INTEREST RATE SENSITIVITY ANALYSIS
For the Three Months Ended March 31, 1999 and 1998
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate/
(Unaudited) Yield/ (Unaudited) Yield/ Total Volume Rate Volume
For Quarter Ended: Mar. 31, 1999 Rate Mar. 31, 1998 Rate Change Variance Variance Variance
Loans:
Loan Income $3,032,081 .38% $3,199,626 9.42% ($167,545) $207,052 ($351,829) ($22,767)
Loan Fees and
Servicing Income 848,935 941,998 (93,063) - - -
Total Loan, Servicing,
And Fee Income $3,881,106 10.73% $4,141,624 12.19% ($260,608) - - -
Investments:
Fed Funds and Mutual
Fund Income $97,545 4.58% $124,953 5.28% ($27,408) ($12,435) ($16,628) $1,655
Income from Investment
Securities 502,102 5.60% 364,494 5.72% 137,608 148,056 (7,430) (3,018)
Interest-Bearing
Deposit Income 11,348 6.81% 24,084 6.55% (12,736) (13,156) 952 (505)
Total Investment
Income $610,995 5.43% $513,531 5.64% $97,465 $121,388 ($19,350) $4,574
Trading Account Assets
And Other
Investments 16,347 7.73% 8,658 4.36% 7,689 571 6,678 440
EARNING ASSETS:
Total Interest
Income $3,643,077 7.65% $3,713,157 8.58% ($70,080) $328,440 ($371,179) ($27,341)
Total Interest, Servicing,
Fee, and Trading
Account Income $4,508,359 9.46% $4,663,813 10.78% ($155,455) - - -
Deposits:
Interest on Deposits:
Transaction Accounts $397,033 2.67% $457,002 3.35% ($59,970) $41,277 ($92,859) ($8,387)
Time and Savings
Deposits 1,191,639 5.05% 1,188,335 5.36% 3,304 78,626 (70,648) (4,674)
Total Deposit
Interest Expense $1,588,671 4.13% $1,645,337 4.59% ($56,666) $124,025 ($168,025) ($12,616)
BORROWED FUNDS:
Other Borrowed Funds $88,622 5.95% $91,949 6.22% ($3,327) $643 ($3,942) ($28)
Total Interest
Expense $1,677,294 4.19% $1,737,287 4.66% ($59,993) $126,242 ($173,618) ($12,616)
NET INTEREST
DIFFERENTIAL $1,965,783 3.45% $1,975,870 3.92% ($10,088) $202,198 ($197,560) ($14,725)
(Excludes fee income)
NET INTEREST
DIFFERENTIAL $2,831,065 5.27% $2,926,526 6.12% ($95,461) - - -
(Includes fee income)
</TABLE>
Notes to Interest Rate Sensitivity Analysis Table:
[1] The variance analysis above excludes non-interest rate sensitive earning
assets.
[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>
For the three month periods ended March 31, 1999 and 1998, the yield on loan
income is lower in 1999 than the same period of 1998. The yields on the fed
funds and mutual funds and investment securities are lower while yields on
interest-bearing deposits in other financial institutions are higher. The
rates on deposits and other borrowed funds for the three month period ended
March 31, 1999 are lower than the same period of 1998.
In the three month period ended March 31, 1999 compared to the same period of
1998, loan income decreased $167,000 of which $207,000 was the result of
increased portfolio balances and ($352,000) was the result of decreased yields
(without $8,000 of "additional interest" income for this period in 1999 and
$124,000 in 1998 yields would have been 8.36% in 1999 and 9.05% in the same
1998 period). For loan income the increase in the level of both commercial
loans held in portfolio and the real estate construction loans continue to
result in a positive volume variances. Fierce competition for loans has
resulted in reduced margins. Again, for this period, when loan fees and
servicing income are factored in, the result is a decrease of $260,000 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. 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 decreased from 12.19% to 10.73% in the three month period (the
decrease was from 11.83% to 10.71% excluding the "additional interest").
Income from fed funds and mutual fund investments decreased by $27,000 in the
three month period ended March 31, 199 over the same 1998 period. The decrease
was due to both decreased invested balances and decreased yields.
Lower yields on Investment Securities combined with an increase in the
invested balances netted the Company an increase of $138,000 for the three
month period ending March 31, 1999 over the same 1998 period.
Interest-bearing deposits with other financial institutions showed higher
yields and lower invested balances, which netted to a decrease of $13,000 in
income for three month period ended March 31, 1999 over the same period of
1998.
Total investment income increased 19% or $97,000 for the three month period as
a result of increased invested balances in investment securities.
The cost of interest sensitive liabilities was lower on all deposit accounts
for the three month periods ended March 31, 1999 over the same period of 1998
and was the result of increased balances combined with lower rates. For the
three month period, increased deposit balances contributed to $124,000 of
increased costs, with decreased rates contributing $168,000 to decreased
costs.
In summary, on the asset side, larger loan and investment securities portfolio
levels increased income by $355,000 while decreased yields in all portfolios
except interest-bearing deposits with other financial institutions resulted in
a decrease of $376,000 in income in the three months ended March 31, 1999 over
the same period of 1998. Decreased costs of deposits and other borrowed funds
of $60,000 resulted in a net interest income differential decrease, excluding
servicing fee income, of $10,000. With fee income included, the net interest
income differential decreased $95,000.
<PAGE>
Part II.
Item 1. Legal Proceedings.
Comstock Bank v. Raymond B. Graber, II, (Nevada Supreme Court; cases
No. 32194 and No. 33148): As reported in the Company's previous
periodic securities reports on Forms 10-Q and 10-K, this collection
action on a loan guarantee involves two Nevada Supreme Court appeals.
Both appeals deal with the same underlying factual background and have
been consolidated for argument and decision by the Nevada Supreme
Court. Comstock Bank has retained the firm of Beckley, Singleton,
Jemison, Cobeaga & List, and specifically, Rex A. Jemison and Daniel
F. Polsenberg thereof, to handle the Supreme Court appeals in this
matter. A pre-trial settlement conference yielded no compromises.
There were no significant changes in the status of this case during
this reporting period.
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: The Securities and Exchange Commission has
recently amended Rule 14a-4 to provide that with respect to a
shareholder proposal to be presented at an annual shareholders'
meeting other than pursuant to Rule 14a-8 (i.e., which is not to be
included in the registrant's proxy statement), the registrant's
management may exercise discretionary voting authority under proxies
solicited by it for the meeting, without mention of the proposal in
the proxy material, if it receives notice of the proposed non-Rule
14a- 8 shareholder action less than 45 days prior to the calendar
date its proxy materials were mailed for the prior year's annual
meeting. As this new provision applies to the Company, in the event
notice of a non-Rule 14a-8 shareholder proposal to be presented at
the Company's 1999 Annual Meeting of Shareholders is received by the
Company after March 12, 1999, the Company will be permitted to
exercise discretionary voting authority under proxies solicited by
it with respect to the 1999 Annual Meeting.
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 26
27. Financial Data Schedule 27
(b) Reports on Form 8-K. The Company filed a Form 8-K on January 15,
1999 to report that the Company had entered into an agreement to be
acquired by First Security Corporation in a merger transaction.
<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 30, 1999 /s/ Robert N. Barone
Robert N. Barone,
Chairman, CEO and Treasurer
(Principal Accounting and Financial
Officer)
Date: April 30, 1999 /s/ Larry A. Platz
Larry A. Platz,
President and Secretary
<PAGE>
COMSTOCK BANCORP
EXHIBIT 11
COMPUTATION OF CONSOLIDATED NET EARNINGS PER SHARE For the Three
Months Ended March 31, 1999 and 1998
(Unaudited) (Unaudited)
Mar 31, 1999 Mar 31, 1998
Net Income: $486,000 $601,000
Net Income per Common Share (assuming no dilution):
Weighted Avg. Shares 4,918,192 4,430,168
Outstanding:
Basic Earnings per Share: $.10 $.14
Net Income per Common and Common
Equivalent Shares:
Adjusted Weighted Avg. Number of
Shares Outstd. After Giving 4,963,906 4,910,603
Effect to the Conversion of
Options and Warrants:
Diluted Earnings per Share: $.10 $.12
<PAGE>
COMSTOCK BANCORP
EXHIBIT 27
FOR THE THREE MONTHS ENDED MARCH 31, 1999
FINANCIAL DATA SCHEDULE
$ in Thousands
Cash and Due from Banks (Non-Interest Bearing) $7,280
Interest-bearing Deposits in Domestic Financial Institutions 622
Fed funds and Overnight Mutual Funds Sold 8,684
Trading Account Securities 7
Investment and Mortgage back Securities Held for Sale 32,380
Investment and Mortgage back Securities Held to Maturity - Carrying Value 0
Investment and Mortgage back Securities Held to Maturity - Market Value 0
Loans 152,354
Allowance for Credit Losses 1,175
Total Assets 217,478
Deposits 188,037
Short-term borrowings 0
Other Liabilities 1,139
Long-term debt 6,000
Preferred stock - mandatory redemption 0
Preferred stock - no mandatory redemption 0
Common Stock 51
Other Stockholders Equity 22,250
Total Liabilities and Stockholders Equity 217,478
Interest and Fees on Loans 3,862
Interest and Dividends on Investments 518
Other Interest Income 108
Total Interest Income 4,489
Interest on Deposits 1,589
Total Interest Expense 1,677
Net Interest Income 2,812
Provision for Loan Losses 140
Investment Securities Gains/Losses 41
Other Expense 2,277
Income/Loss Before Income Tax 604
Income/Loss Before Extraordinary Items 604
Extraordinary Items , Less Tax 0
Cumulative Change in Accounting Principles 0
Net Income or Loss 486
<PAGE>
Earnings Per Share - Primary 0.10
Earnings Per Share - Fully Diluted 0.10
Net Yield - interest earning assets - actual 9.35%
Loans on Non-accrual 359
Accruing Loans past due 90 Days or More 2,245
Troubled Debt Restructuring 0
Potential Loan Problems 0
Allowance for Loan Losses - Beginning of Period 1,598
Total Charge-Offs 571
Total Recoveries 8
Allowance for Loan Losses - End of Period 1,175
Loan Loss Allowance allocated to Domestic Loans 1,175
Loan Loss Allowance allocated to Foreign Loans 0
Loan Loss Allowance - Unallocated 0
<PAGE>
