<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
--------------------------- --------------------
COMBANC, INC. AND SUBSIDIARY
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 34-1853493
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
230 E. Second St., P. O. Box 429, Delphos, Ohio 45833
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(419) 695-1055
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date: 2,374,466 shares of the Bank's
common stock (no par value) were outstanding as of June 30, 1999.
1 of 12 Pages
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COMBANC, INC. AND SUBSIDIARY
June 30, 1999 FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statement of Income
Three Months Ended June 30, 1999 and 1998 3
Six Months Ended June 30, 1999 and 1998 4
Balance Sheet
At June 30, 1999 and December 31, 1998 5
Statement of Cash Flows
Six Months Ended June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
In the opinion of management, all material adjustments necessary for a fair
presentation of the financial position and results of operations for the interim
periods presented have been made. All such adjustments were of a normal
recurring nature. The results of operations for the three months and the six
months ended June 30, 1999 and 1998 are not necessarily indicative of the
results of operations for the full year or any other interim period.
The financial statements included in this Form 10-Q should be read with
reference to the ComBanc Inc. 1998 Annual Report.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II.OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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<PAGE> 3
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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STATEMENT OF INCOME
($ in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
For the 2nd Quarter
Ended June 30
--------------------------
Increase
1999 1998 (Decrease)
---------- ---------- ------------
(see notes)
<S> <C> <C> <C>
Interest Income:
Interest and Fees on Loans $3,142 $2,778 $ 364
Interest and Dividends on Investments -
Taxable 450 556 (106)
Tax-Exempt 168 178 (10)
Equity Securities 13 11 2
Interest on Federal Funds Sold 11 45 (34)
Interest on Balances due from Depository Institutions 3 -- 3
------ ------ ------
Total Interest Income 3,787 3,568 219
------ ------ ------
Interest Expense:
Interest on Deposits 1,614 1,676 (62)
Interest on Borrowed Funds 66 -- 66
------ ------ ------
Total Interest Expense 1,680 1,676 4
------ ------ ------
Net Interest Income 2,107 1,892 215
Provision for Loan Losses 90 90 -
------ ------ ------
Net Interest Income after Provision for
Loan Losses 2,017 1,802 215
------ ------ ------
Other Income:
Service Charges on Deposit Accounts 87 77 10
Securities Gains -- -- --
Other Operating Income 40 38 2
------ ------ ------
Total Other Income 127 115 12
------ ------ ------
Other Expenses:
Salaries and Employee Benefits 664 584 80
Net Occupancy 130 112 18
Other Operating Expenses 448 371 77
------ ------ ------
Total Other Expenses 1,242 1,067 175
------ ------ ------
Income - before Federal Income Taxes 902 850 52
Applicable Federal Income Taxes 248 236 12
------ ------ ------
Net Income $ 654 $ 614 $ 40
====== ====== ======
Earnings Per Share $ 0.28 $ 0.26 $ 0.02
Cash Dividends Per Share $0.100 $0.085 $0.015
</TABLE>
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<PAGE> 4
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
-----------
STATEMENT OF INCOME
($ in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30
------------------------
Increase
1999 1998 (Decrease)
---------- ---------- ----------
(see notes)
<S> <C> <C> <C>
Interest Income:
Interest and Fees on Loans $6,148 $5,496 $ 652
Interest and Dividends on Investments -
Taxable 865 1,153 (288)
Tax-Exempt 335 354 (19)
Equity Securities 24 21 3
Interest on Federal Funds Sold 20 111 (91)
Interest on Balances due from Depository Institutions 11 -- 11
------ ------ ------
Total Interest Income 7,403 7,135 268
------ ------ ------
Interest Expense:
Interest on Deposits 3,186 3,364 (178)
Interest on Borrowed Funds 129 -- 129
------ ------ ------
Total Interest Expense 3,315 3,364 (49)
------ ------ ------
Net Interest Income 4,088 3,771 317
Provision for Loan Losses 180 180 --
------ ------ ------
Net Interest Income after Provision for
Loan Losses 3,908 3,591 317
------ ------ ------
Other Income:
Service Charges on Deposit Accounts 168 151 17
Securities Gains -- -- --
Other Operating Income 63 55 8
------ ------ ------
Total Other Income 231 206 25
------ ------ ------
Other Expenses:
Salaries and Employee Benefits 1,383 1,197 186
Net Occupancy 269 229 40
Other Operating Expenses 880 800 80
------ ------ ------
Total Other Expenses 2,532 2,226 306
------ ------ ------
Income - before Federal Income Taxes 1,607 1,571 36
Applicable Federal Income Taxes 460 431 29
------ ------ ------
Net Income $1,147 $1,140 $ 7
====== ====== ======
Earnings Per Share $ 0.48 $ 0.48 $ --
Cash Dividends Per Share $0.200 $0.170 $0.030
</TABLE>
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<PAGE> 5
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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BALANCE SHEET
($ in thousands, except par value)
(unaudited)
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
------ 1999 1998
---------- -----------
(see notes)
<S> <C> <C>
Cash and Due from Banks $ 4,126 $ 5,254
Federal Funds Sold 956 2,708
Investment Securities -
Available for Sale 43,567 41,965
Loans 155,201 142,410
Allowance for Loan Losses (1,890) (1,800)
--------- ---------
Net Loans 153,311 140,610
Premises and Equipment 2,396 2,446
Other Assets 2,372 1,678
--------- ---------
Total Assets $ 206,728 $ 194,661
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits -
Noninterest Bearing $ 13,888 $ 16,319
Interest Bearing 152,959 149,702
--------- ---------
Total Deposits 166,847 166,021
Other Liabilities 2,875 2,574
Other Borrowed Money 14,352 3,500
--------- ---------
Total Liabilities 184,074 172,095
--------- ---------
Shareholders' Equity -
Common Stock - No Par Value
5,000,000 shares authorized, 2,376,000 Issued
2,374,466 Outstanding 1,237 1,237
Capital Surplus 1,513 1,513
Retained Earnings 20,052 19,380
Accumulated Other Comprehensive Income (113) 436
Treasury Stock - 1,534 Shares (35) --
--------- ---------
Total Shareholders' Equity 22,654 22,566
--------- ---------
Total Liabilities and Shareholders' Equity $ 206,728 $ 194,661
========= =========
</TABLE>
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<PAGE> 6
THE COMMERCIAL BANK
DELPHOS, OHIO
-------------
STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 1,147 $ 1,140
Adjustments to Reconcile Net Income to
Net Cash from Operating Activities -
Depreciation 137 138
Provision for Loan Loss 180 180
(Increase)/Decrease in Other Assets (694) 137
Increase/(Decrease) in Other Liabilities 301 1,225
Net Realized Gains on Securities Available for Sale -- --
-------- --------
Net Cash Provided by Operating Activities 1,071 2,820
-------- --------
Cash Flows from Investing Activities:
Purchases of Securities Available for Sale (11,169) (7,730)
Proceeds from Sales of Securities Available for Sale -- --
Proceeds from Maturities of Securities
Available for Sale 8,983 6,788
Net (Increase)/Decrease in Customer Loans (12,791) (2,613)
Net Loans Charged Off (90) (79)
Capital Expenditures (87) (140)
-------- --------
Net Cash Used in Investing Activities (15,154) (3,774)
-------- --------
Cash Flows from Financing Activities:
Net Increase/(Decrease) in Deposit Accounts 826 (4,556)
Proceeds from Borrowing 10,852 --
Dividends Paid (475) (404)
-------- --------
Net Cash Provided by Financing Activities 11,203 (4,960)
-------- --------
Net Change in Cash and Cash Equivalents (2,880) (5,914)
Cash and Cash Equivalents -
Beginning of Year 7,962 17,251
-------- --------
End of Period $ 5,082 $ 11,337
======== ========
</TABLE>
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<PAGE> 7
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
-----------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
Note 1, Basis of Presentation
On April 13, 1998, shareholders of The Commercial Bank (the "Bank")
approved a Merger Agreement ("Agreement") pursuant to which ComBanc, Inc. (the
"Company") acquired all of the outstanding stock of the Bank as a result of the
exchange of shares between the shareholders of the Bank and the Company. After
the share exchange which became effective on August 31, 1998, the Bank survived
as a wholly-owned subsidiary of the Company and continues its operations as The
Commercial Bank. Under the terms of the Agreement, each one of the existing
outstanding shares of the Bank's common stock was exchanged for two of the
Company's common shares so that each existing shareholder of the Bank became a
shareholder of the Company, owning the same number and percentage of shares in
the Company as the Bank. The shares of the Company issued in connection with the
transaction were not registered under the Securities Act of 1933, as amended
(the "Act"), in reliance upon the exemption from registration set forth in
Section 3(a) (12) of the Act.
As a result of the transaction described above, the Company is the
successor issuer to the Bank pursuant to Rule 12g-3 promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"). The Bank is subject to the
informational requirements of the Exchange Act and in accordance with Section
12(I) thereof has timely filed reports and other information with the Board of
Governors of the Federal Reserve System ("FRS"). Such reports and other
information filed by the Bank with the FRS may be examined without charge at, or
copies obtained upon payment of prescribed fees from, the Securities Disclosure
Division, Board of Governors of the Federal Reserve System, Stop 153A,
Washington, D.C. 20551.
Since the only asset of ComBanc is the investment in the Commercial
Bank, these financial statements reflect the consolidated activity for 1999
compared with the Bank only for 1998. A reader of these financial statements
should refer to the ComBanc Inc. 1998 Form 10K.
Note 2, Earnings per Share
Earnings per share on the 1998 income statements have been restated to
reflect the total outstanding shares as of the August 31, 1998 formation of
ComBanc, Inc. Both basic and diluted earnings per share are computed based on
the weighted-average number of shares outstanding.
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<PAGE> 8
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
-----------
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
ENTITY STATUS
On April 13, 1998, The Commercial Bank became a wholly-owned subsidiary of the
newly formed ComBanc, Inc., a one-bank holding company. Since ComBanc's only
significant asset is the investment in The Commercial Bank, the following
discussion will focus solely on the operations of The Commercial Bank.
CURRENT YEAR SECOND QUARTER VERSUS PRIOR YEAR SECOND QUARTER
Net interest income, the difference between interest earned on
interest-earning assets and interest expense incurred on interest-bearing
liabilities, is the most significant component of The Commercial Bank's
earnings. Net interest income is affected by changes in the volume and rates of
interest-earning assets and interest-bearing liabilities and the volume of
interest-earning assets funded with low cost deposits, noninterest-bearing
deposits and shareholders' equity. The Bank's net interest income increased 11%,
to $2,107,000 for the quarter ended June 30, 1999 from $1,892,000 for the second
quarter of 1998. The Bank's net interest income increased 8% to $4,088,000 for
the six months ended June 30, 1999 from $3,771,000 for the six months ended June
30, 1998. These increases were due principally to the widening of the yield/cost
spread due to a slower increase in the cost of deposits compared to the increase
in earning asset yields during 1999 over that spread in 1998 and the increase in
earning assets.
The provision for loan loss remained at $90,000, for the second quarter
1999 and 1998, and remained at $180,000 for the six months ended June 30, 1999
and 1998, respectively.
Non-interest income for the three months ended June 30, 1999 increased
10% to $127,000 from $115,000 in the second quarter of 1998. Non-interest income
increased 12%, to $231,000 from $206,000 for the six months ended June 30, 1999.
These increases were largely attributable to an increase in fee income such as
service charges on deposit accounts.
Non-interest expense for the quarter increased 16%, to $1,242,000 from
$1,067,000 the previous year. Non-interest expense for the six months ended June
30, 1999 increased 14%, to $2,532,000 from $2,226,000. Salaries and fringe
benefits increased 14% for the quarter ended June 30, 1999 and 16% for the six
months ended June 30, 1999.
Federal income taxes increased $12,000 for the quarter, to $248,000 from
$236,000 for the previous year. Federal income taxes increased $29,000 to
$460,000 from $431,000 for the six months ended June 30, 1999. These increases
were due to an overall increase in net income.
Earnings per share increased 8% to $.28 from $.26 for the quarter.
Earnings per share remained at .48 for the six months ended June 30, 1999 and
1998. Per share earnings are computed based on 2,374,786 weighted-average number
of shares outstanding for the second quarter 1999, 2,375,390 shares outstanding
for the six months ended June 30, 1999, and 2,376,000 shares outstanding for
both periods ending in 1998.
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<PAGE> 9
PART I - FINANCIAL INFORMATION CONTINUED
REGULATORY CAPITAL
The Federal Reserve Board's risk-based capital guidelines addressing the capital
adequacy of bank holding companies and banks (collectively, "banking
organizations") include a definition of capital and a framework for calculating
risk-weighted assets and off-balance sheet items to broad risk categories, as
well as minimum ratios to be maintained by banking organizations. A banking
organization's risk-based capital ratios are calculated by dividing its
qualifying capital by its risk-weighted assets.
Under the risk-based capital guidelines, there are two categories of
capital: core capital ("Tier 1") and supplemental capital ("Tier 2"),
collectively referred to as Total Capital. Tier 1 Capital includes common
stockholders' equity, qualifying perpetual preferred stock and minority interest
in equity accounts of consolidated subsidiaries. Tier 2 capital includes
perpetual preferred stock (to the extent ineligible for Tier 1), hybrid capital
instruments (i.e. perpetual debt and mandatory convertible securities) and
limited amounts of subordinated debt, intermediate-term preferred stock and the
allowance for credit losses.
The Federal Reserve Board's leverage constraint guidelines establish a
minimum ratio of Tier 1 Capital to quarterly average total assets ("Leverage
Ratio").
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") established five capital tiers for banks. Pursuant to that statute
the federal bank regulatory agencies have defined the five capital tiers for
banks. Under these regulations, a bank is defined to be well capitalized, the
highest tier, if it maintains a Tier 1 Capital ratio of at least 6 percent, a
Total Capital ratio of at least 10 percent and a Leverage Ratio of at least 5
percent.
Based on the respective regulatory capital ratios at June 30, 1999, the
Bank is well capitalized, based on the definitions in the regulations issued by
the Federal Reserve Board and the other federal bank regulatory agencies setting
forth the general capital requirements mandated by FDICIA.
LIQUIDITY
The liquidity of a banking institution reflects its ability to provide
funds to meet loan requests, to accommodate possible outflows in deposits and to
take advantage of interest rate market opportunities. Funding of loan requests,
providing for liability outflows, and management of interest rate fluctuations
require continuous analysis in order to match the maturities of specific
categories of short-term loans and investments with specific types of deposits
and borrowings. Bank liquidity is thus normally considered in terms of the
nature and mix of the banking institution's sources and uses of funds.
Liquid assets consist of cash and due from banks, federal funds sold,
and securities available for sale. At June 30, 1999 the Bank's liquid assets
amounted to $48,649,000, or 24% of total assets compared with 26% at December
31, 1998.
Management considers its liquidity to be adequate to meet its normal
funding requirements.
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<PAGE> 10
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
------------
PART I - FINANCIAL INFORMATION CONTINUED
YEAR 2000 SOFTWARE INITIATIVE
Management has initiated a bank-wide assessment, remediation and
conversion program to address the effect of the year 2000 on the Corporation's
information systems and application software. The Corporation's Year 2000
project contains assessment, renovation, validation and implementation phrases.
A substantial majority of the significant application software utilized by the
Corporation is via the use of third party data processors and management is
working with the vendors to ensure that the software will operate properly in
the year 2000. At this time, the estimated cost to remediate the Bank's year
2000 issues is not expected to be material.
A contingency plan has been established for critical business system
application to mitigate potential problems/delays associated with either new
system replacements or established vendor delivery dates.
The corporation, however, continues to bear some risk related to the
Year 2000 issue and could be adversely affected, if other entities (i.e.,
vendors) not affiliated with the Corporation do not appropriately address their
own Year 2000 compliance issues.
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<PAGE> 11
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
------------
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Commercial Bank, at any given time, is involved in a number of
lawsuits initiated by The Commercial Bank as a plaintiff, intending to collect
upon delinquent accounts, to foreclose upon real property, or to seize and sell
personal property pledged as security for any such account. Combanc, Inc. is
involved in no legal proceedings.
At June 30, 1999, The Commercial Bank was involved in a number of such
cases as a party-plaintiff, and occasionally, as a party-defendant due to its
joinder as a lien holder, either by mortgage or by judgment lien. In the
ordinary case, The Commercial Bank's security and value of its lien is not
threatened, except through bankruptcy or loss of value of the collateral should
sale result in insufficient proceeds to satisfy the judgment.
Management and the Board are not aware of any additional potential
claims against the Bank which have not been disclosed herein.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 11. Statement regarding computation of earnings per share is
contained in Part I, Item 2.
(b) There were no reports on 8-K filed during the quarter ended June 30,
1999.
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<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMBANC, INC.
/s/ Paul G. Wreede
Date: August 11, 1999 ----------------------------------
Paul G. Wreede
President, CEO, and Director
/s/ Kathleen A. Miller
Date: August 11, 1999 ----------------------------------
Kathleen A. Miller
Senior Vice President & CFO
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<PAGE> 13
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COMBANC,
INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET AT JUNE 30 ,1999 AND THE
CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,126
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 956
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 43,567
<LOANS> 155,201
<ALLOWANCE> 1,890
<TOTAL-ASSETS> 206,728
<DEPOSITS> 166,847
<SHORT-TERM> 12,352
<LIABILITIES-OTHER> 2,875
<LONG-TERM> 2,000
0
0
<COMMON> 1,237
<OTHER-SE> 21,417
<TOTAL-LIABILITIES-AND-EQUITY> 206,728
<INTEREST-LOAN> 6,148
<INTEREST-INVEST> 1,224
<INTEREST-OTHER> 31
<INTEREST-TOTAL> 7,403
<INTEREST-DEPOSIT> 3,186
<INTEREST-EXPENSE> 3,315
<INTEREST-INCOME-NET> 4,088
<LOAN-LOSSES> 180
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,532
<INCOME-PRETAX> 1,607
<INCOME-PRE-EXTRAORDINARY> 1,607
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,147
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.48
<YIELD-ACTUAL> 0
<LOANS-NON> 614
<LOANS-PAST> 502
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,800
<CHARGE-OFFS> 121
<RECOVERIES> 31
<ALLOWANCE-CLOSE> 1,890
<ALLOWANCE-DOMESTIC> 1,890
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
