<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, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
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COMBANC, INC.
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(Exact name of registrant as specified in its charter)
Delaware 34-1853493
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
230 E. Second St., P.O. Box 429, Delphos, Ohio 45833
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(Address of principal executive offices) (Zip Code)
(419) 695-1055
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date: 2,328,776 shares of the Bank's
common stock (no par value) were outstanding as of July 31, 2000.
Page 1 of 14
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COMBANC, INC. AND SUBSIDIARY
JUNE 30, 2000 FORM 10-Q
TABLE OF CONTENTS
<TABLE>
Page
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet 3
Consolidated Statement of Income 4
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
2
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COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
CONSOLIDATED BALANCE SHEET
($ in thousands)
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
------ -------------- --------------
(see notes)
<S> <C> <C>
Cash and Due from Banks $ 4,311 $ 7,457
Federal Funds Sold 1,005 83
-------------- --------------
Cash and Cash Equivalents 5,316 7,540
Investment Securities -
Available for Sale 45,608 46,067
Loans 167,973 161,958
Allowance for Loan Losses (1,151) (1,832)
-------------- --------------
Net Loans 166,822 160,126
Premises and Equipment 2,380 2,331
Other Assets 2,982 2,484
-------------- --------------
Total Assets $ 223,108 $ 218,548
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Deposits -
Noninterest Bearing $ 14,399 $ 16,437
Interest Bearing 153,149 153,283
-------------- --------------
Total Deposits 167,548 169,720
Other Liabilities 3,841 3,352
Short Term Borrowings 19,368 15,459
Long Term Debt 9,549 7,544
-------------- --------------
Total Liabilities 200,306 196,075
-------------- --------------
Commitments and Contingent Liabilities - -
Shareholders' Equity -
Common Stock - No Par Value
5,000,000 shares authorized, 2,376,000 issued
and 2,328,776 outstanding 1,237 1,237
Capital Surplus 1,513 1,513
Retained Earnings 21,502 20,834
Accumulated Other Comprehensive Loss (527) (533)
Treasury Stock - 47,224 and 27,000 shares at cost (923) (578)
-------------- --------------
Total Shareholders' Equity 22,802 22,473
-------------- --------------
Total Liabilities and Shareholders' Equity $ 223,108 $ 218,548
============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
CONSOLIDATED STATEMENT OF INCOME
($ in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
----------------------------------------
2000 1999
----------------- ------------------
<S> <C> <C>
Interest Income:
---------------
Interest and Fees on Loans $ 3,549 $ 3,142
Interest and Dividends on Investments -
Taxable 515 450
Tax-Exempt 153 168
Equity Securities - 13
Interest on Federal Funds Sold 5 11
Interest on Balances due from Depository Institutions - 3
----------------- ------------------
Total Interest Income 4,222 3,787
----------------- ------------------
Interest Expense:
----------------
Interest on Deposits 1,676 1,614
Interest on Short-term Borrowings 247 44
Interest on Long-Term Debt 137 22
----------------- ------------------
Total Interest Expense 2,060 1,680
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Net Interest Income 2,162 2,107
Provision for Loan Losses 105 90
----------------- ------------------
Net Interest Income after Provision for
Loan Losses 2,057 2,017
Other Income:
------------
Service Charges on Deposit Accounts 129 87
Other Operating Income 17 40
----------------- ------------------
Total Other Income 146 127
----------------- ------------------
Other Expenses
--------------
Salaries and Employee Benefits 805 664
Net Occupancy 109 130
Other Operating Expenses 431 448
----------------- ------------------
Total Other Expenses 1,345 1,242
----------------- ------------------
Income - before Income Tax Expense 858 902
------
Income Tax Expense 269 248
----------------- ------------------
Net Income $ 589 $ 654
----------
================= ==================
Earnings Per Share $ 0.25 $ 0.28
Cash Dividends Per Share $ 0.11 $ 0.10
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
CONSOLIDATED STATEMENT OF INCOME
($ in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Interest Income:
---------------
Interest and Fees on Loans $ 6,830 $ 6,148
Interest and Dividends on Investments -
Taxable 1,035 865
Tax-Exempt 305 335
Equity Securities 21 24
Interest on Federal Funds Sold 11 20
Interest on Balances due from Depository Institutions - 11
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Total Interest Income 8,202 7,403
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Interest Expense:
----------------
Interest on Deposits 3,312 3,186
Interest on Short-term Borrowings 469 107
Interest on Long-Term Debt 237 22
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Total Interest Expense 4,018 3,315
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Net Interest Income 4,184 4,088
Provision for Loan Losses 210 180
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Net Interest Income after Provision for
Loan Losses 3,974 3,908
Other Income:
------------
Service Charges on Deposit Accounts 200 168
Other Operating Income 88 63
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Total Other Income 288 231
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Other Expenses
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Salaries and Employee Benefits 1,481 1,383
Net Occupancy 224 269
Other Operating Expenses 906 880
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Total Other Expenses 2,611 2,532
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Income - before Income Tax Expense 1,651 1,607
------
Income Tax Expense 468 460
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Net Income $ 1,183 $ 1,147
----------
============= =============
Earnings Per Share $ 0.50 $ 0.48
Cash Dividends Per Share $ 0.22 $ 0.20
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
------------------------------
2000 1999
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<S> <C> <C>
Cash Flows from Operating Activities:
------------------------------------
Net Income $ 1,183 $ 1,147
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities -
Depreciation 116 137
Provision for Loan Loss 210 180
Federal Home Loan Bank stock dividends (21) -
Investment Securities Amortization, Net (3) -
Change in Other Assets and Other Liabilities (9) (393)
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Net Cash Provided by Operating Activities 1,476 1,071
------------- -------------
Cash Flows from Investing Activities:
------------------------------------
Purchases of Securities Available for Sale/FHLB Stock (444) (11,169)
Proceeds from Maturities of Securities
Available for Sale 933 8,983
Net Change in Loans (6,906) (12,881)
Purchases of Premises and Equipment (165) (87)
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Net Cash Used in Investing Activities (6,582) (15,154)
Cash Flows from Financing Activities:
------------------------------------
Net change in Deposit Accounts (2,172) 826
Proceeds from Borrowing 6,054 10,852
Repayment of Federal Home Loan Bank Advances (140)
Purchase of Treasury Stock (345) -
Dividends Paid (515) (475)
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Net Cash Provided by Financing Activities 2,882 11,203
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Net Change in Cash and Cash Equivalents (2,224) (2,880)
Beginning of Year 7,540 7,962
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End of Period $ 5,316 $ 5,082
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
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COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
Note 1, Basis of Presentation
The significant accounting policies followed by ComBanc, Inc. (Company) and its
wholly-owned subsidiary, The Commercial Bank (Bank), for interim financial
reporting are consistent with the accounting policies followed for annual
financial reporting. All adjustments which are, in the opinion of management,
necessary for a fair presentation of the results for the periods reported,
consisting only of normal recurring adjustments, have been included in the
accompanying unaudited consolidated condensed financial statements. The results
of operations for the six months ended June 30, 2000, are not necessarily
indicative of those expected for the remainder of the year.
The Consolidated Balance Sheet at December 31, 1999 has been taken from audited
consolidated financial statements at that date.
Note 2, Earnings Per Share
Earning per share on the income statement has been computed on the basis of
weighted-average number of shares of common stock outstanding. The
weighted-average shares outstanding for the six months ending June 30, 2000 and
June 30, 1999 were 2,338,829 and 2,375,390 respectively. The weighted-average
shares outstanding for the quarter ending June 30, 2000 and June 30, 1999 were
2,329,261 and 2,374,786 respectively.
Note 3, Commitments to fund loans
Outstanding commitments to originate loans were $11,908,000 and $13,777,000 at
June 30, 2000 and December 31, 1999.
The Bank has committed to the construction of a Corporate Center that will serve
as an operations and processing site for all offices. The approximate cost the
project, including furniture and equipment, is $2,500,000.00.
7
<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.
FINANCIAL CONDITION
Total assets increased 2.1% from $218,548,000 at December 31, 1999 to
$223,108,000 at June 30, 2000.
Cash and due from banks decreased 42.2% or $3,146,000 from December 31, 1999.
Excess cash for year 2000 contingency was used to fund loan requests for the
first two quarters 2000.
Total gross loans increased 3.7% or $6,015,000 from December 31, 1999 to
$167,973,000 on June 30, 2000. Real estate loans increased $7,925,000 or 8.2%
from year end due to a strong local real estate market. Installment loans
decreased 7.4% to $25,039,000 from $27,037,000 at December 31, 1999 primarily
due to the desire to reduce indirect auto loans.
The Reserve for Loan Loss, at June 30, 2000, was .69% of total loans. The
$681,000 reduction in the reserve is due primarily to the charge off of a large
installment loan.
Total deposits decreased 1.3% from $169,720,000 on December 31, 1999 to
$167,548,000 on June 30, 2000. The majority of this decrease occurred in
non-interest bearing deposits, specifically, checking accounts. Certificate
balances have remained consistent. Management intends to maintain deposit levels
by offering competitive market rates and provide a variety of products on both
personal and business levels.
Short term borrowing from the Federal Home Loan Bank increased $3,909,000 or
25.3% since year end. Long term debt, or borrowings with a maturity of greater
than one year, from the Federal Home Loan Bank, increased $2,005,000 or 26.6%
since December 31, 1999. This money was used to fund the increased demand for
real estate loans.
Total shareholders equity increased $329,000 to $22,802,000. Included in the
overall increase was a $345,000 reduction in capital for the purchase of an
additional 20,224 shares of treasury stock since year end.
8
<PAGE> 9
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
RESULTS OF OPERATIONS
Net interest income, the difference between interest earned on interest-earning
assets and interest expense incurred on interest-bearing liabilities, is the
most significant component of The Commercial Bank's earnings. Net interest
income is affected by changes in the volume and rates of interest-earning assets
and interest-bearing liabilities and the volume of interest-earning assets
funded with low cost deposits, noninterest-bearing deposits and shareholders'
equity. Net interest income increased $96,000 for the six months ended June 30,
2000 from a year ago, and increased $55,000 for the quarter ended June 30, 2000
as compared to June 30, 1999.
Total interest income increased $435,000 to $4,222,000 from $3,787,000 for the
quarter ended June 30, 2000. Total interest income increased $799,000 to
$8,202,000 for the six months ended June 30, 2000 from $7,403,000 for the six
months ended June 30, 1999. Interest and fees on loans increased $682,000 or
11.1% over the same time last year. This increase is due to both the increased
volume of real estate loans as well as an increase in the overall market rates.
Taxable investment income increased 19.7% for the first half of 2000 for a total
of $1,035,000 compared to $865,000 for the first half of 1999 due primarily to
adjustments in variable rate investments.
Total interest expense increased 21.0% or $703,000 from $3,315,000 for the six
months ended June 30, 1999 to $4,018,000 for the six months ended June 30, 2000.
Interest on deposits increased $126,000 or 4.0% due to an increase in
certificate interest rates. Interest on short and long term borrowings increased
$362,000 and $215,000 respectively due to the increased volume to support loan
funding as well as increased interest rates. Interest expense for the quarter
increased $380,000 or 22.6% from the same period last year.
Total other income increased 25% for the six month period ending June 30, 2000
and 15% for the quarter ending June 30, 2000 from the same periods in 1999.
Additional income from service charges on interest checking and ATM and ACH
fees, as well as collection and fees on loans have attributed to the increase.
Non-interest expense increased 3.1% or $79,000 to $2,611,000 for the six months
ending June 30, 2000 compared to $2,532,000 in 1999. Non-interest expense
increased 8.3% for the quarter ending June 30, 2000. Salaries and benefits
increased $98,000 over the past six months mainly due to increased employee
salaries and an increase in insurance claims and cost. Net occupancy decreased
$45,000 over the past six months due to a decrease in depreciation expense and
maintenance on building and equipment. Other operating expenses have increased
$26,000 to $906,000 in June of 2000 from $880,000 in June of 1999 due mainly to
an increase in legal fees in connection with collection efforts.
9
<PAGE> 10
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
REGULATORY CAPITAL
The Federal Reserve Board's risk-based capital guidelines addressing the capital
adequacy of bank holding companies and banks (collectively, "banking
organizations") include a definition of capital and a framework for calculating
risk-weighted assets and off-balance sheet items to broad risk categories, as
well as minimum ratios to be maintained by banking organizations. A banking
organization's risk-based capital ratios are calculated by dividing its
qualifying capital by its risk-weighted assets.
Under the risk-based capital guidelines, there are two categories of capital:
core capital ("Tier 1") and supplemental capital ("Tier 2"), collectively
referred to as Total Capital. Tier 1 Capital includes common stockholders'
equity, qualifying perpetual preferred stock and minority interest in equity
accounts of consolidated subsidiaries. Tier 2 capital includes perpetual
preferred stock (to the extent ineligible for Tier 1), hybrid capital
instruments (i.e. perpetual debt and mandatory convertible securities) and
limited amounts of subordinated debt, intermediate-term preferred stock and the
allowance for credit losses.
The Federal Reserve Board's leverage constraint guidelines establish a minimum
ratio of Tier 1 Capital to quarterly average total assets ("Leverage Ratio").
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
established five capital tiers for banks. Pursuant to that statute the federal
bank regulatory agencies have defined the five capital tiers for banks. Under
these regulations, a bank is defined to be well capitalized, the highest tier,
if it maintains a Tier 1 Capital ratio of at least 6 percent, a Total Capital
ratio of at least 10 percent and a Leverage Ratio of at least 5 percent. At June
30, 2000 the bank maintained a Tier I capital ratio of 15.29%, total capital
ratio of 16.04% and Tier I leverage ratio of 10.51%.
Based on the respective regulatory capital ratios at March 31, 2000, 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, 2000 the Bank's liquid assets
amounted to $50,924,000 or 22.8% of total assets compared with 25% at December
31, 1999. Management considers its liquidity to be adequate to meet its normal
funding requirements.
10
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COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in the Company's quantitative and
qualitative market risks since December 31, 1999. The following table compares
rate sensitive assets and liabilities as of June 30, 2000 to December 31, 1999.
Principal Amount Maturing or Repricing in:
(Dollars in Thousands)
<TABLE>
<CAPTION>
First Years
Year 1 to 5 Thereafter Total
---- ------ ---------- -----
<S> <C> <C> <C> <C>
Comparison of 6/30/00 to 12/31/99
Total rate sensitive assets:
At December 31,1999 $54,513 $80,083 $73,538 $208,134
At June 30, 2000 58,007 82,528 74,098 214,633
Increase (Decrease) 3,494 2,445 560 6,449
Total rate sensitive liabilities:
At December 31,1999 $96,834 $53,978 $25,474 $176,286
At June 30, 2000 98,220 59,317 24,546 182,083
Increase (Decrease) 1,386 5,339 (928) 5,797
</TABLE>
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.
11
<PAGE> 12
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, 2000, 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 4 - Submission of Matters to a Vote of Security Holders
The Annual meeting was held April 10, 2000. The following Directors were elected
to terms expiring in 2001.
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
Gary A. DeWyer 1,731,419 9,216
Richard R. Thompson 1,731,055 9,580
Dwain I. Metzger 1,730,355 10,280
C. Stanley Strayer 1,731,755 8,880
Paul G. Wreede 1,723,927 16,708
Ronald R. Elwer 1,730,955 9,680
</TABLE>
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) Form 8-K was filed during the quarter ended March 31, 2000, to reflect
the change in accounting firms.
(c) Exhibit 27. Financial Data Schedule.
12
<PAGE> 13
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 3, 2000 -----------------------------
Paul G. Wreede
President, CEO, and Director
/s/ Kathleen A. Miller
Date: August 3, 2000 -----------------------------
Kathleen A. Miller
Senior Vice President & CFO
13
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Exhibit Index
Exhibit No. Description
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27 Financial Data Schedule
14
