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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 September 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
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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 October 31, 2000.
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COMBANC, INC. AND SUBSIDIARY
SEPTEMBER 30, 2000 FORM 10-Q
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Statement of Income 4
Condensed Consolidated Statement of Cash Flows 6
Notes to Condensed 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 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
2
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COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
CONDENSED CONSOLIDATED BALANCE SHEET
($ in thousands)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
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Cash and Due from Banks $ 4,776 $ 7,457
Federal Funds Sold 48 83
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Cash and Cash Equivalents 4,824 7,540
Investment Securities -
Available for Sale 44,882 46,067
Loans 169,138 161,958
Allowance for Loan Losses (1,272) (1,832)
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Net Loans 167,866 160,126
Premises and Equipment 2,387 2,331
Other Assets 2,963 2,484
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Total Assets $ 222,922 $ 218,548
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LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Deposits -
Noninterest Bearing $ 14,726 $ 16,437
Interest Bearing 157,774 153,283
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Total Deposits 172,500 169,720
Other Liabilities 4,660 3,352
Short Term Borrowings 11,973 15,459
Long Term Debt 10,355 7,544
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Total Liabilities 199,488 196,075
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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 21,905 20,834
Accumulated Other Comprehensive Loss (298) (533)
Treasury Stock - 47,224 and 27,000 shares at cost (923) (578)
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Total Shareholders' Equity 23,434 22,473
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Total Liabilities and Shareholders' Equity $ 222,922 $ 218,548
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</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
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COMBANC, INC AND SUBSIDIARY
DELPHOS, OHIO
CONDENSED CONSOLIDATED STATEMENT OF INCOME
($ in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
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2000 1999
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Interest Income:
Interest and Fees on Loans $ 3,684 $ 3,216
Interest and Dividends on Investments -
Taxable 510 466
Tax-Exempt 151 165
Equity Securities 55 11
Interest on Federal Funds Sold 2 3
Interest on Balances due from Depository Institutions 1 -
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Total Interest Income 4,403 3,861
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Interest Expense:
Interest on Deposits 1,800 1,567
Interest on Short-term Borrowings 353 164
Interest on Long-Term Debt 107 30
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Total Interest Expense 2,260 1,761
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Net Interest Income 2,143 2,100
Provision for Loan Losses 105 90
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Net Interest Income after Provision for
Loan Losses 2,038 2,010
Other Income:
Service Charges on Deposit Accounts 110 98
Other Operating Income 51 60
Gain on the Sale of Available for Sale Securities - 52
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Total Other Income 161 210
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Other Expenses
Salaries and Employee Benefits 682 728
Net Occupancy 113 127
Other Operating Expenses 491 427
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Total Other Expenses 1,286 1,282
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Income - before Income Tax Expense 913 938
Income Tax Expense 254 295
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Net Income $ 659 $ 643
================= ==================
Earnings Per Share $ 0.28 $ 0.27
Cash Dividends Per Share $ 0.11 $ 0.10
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
CONDENSED CONSOLIDATED STATEMENT OF INCOME
($ in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
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2000 1999
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Interest Income:
Interest and Fees on Loans $ 10,514 $ 9,364
Interest and Dividends on Investments -
Taxable 1,545 1,331
Tax-Exempt 456 500
Equity Securities 76 35
Interest on Federal Funds Sold 13 23
Interest on Balances due from Depository Institutions 1 11
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Total Interest Income 12,605 11,264
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Interest Expense:
Interest on Deposits 5,112 4,753
Interest on Short-term Borrowings 822 271
Interest on Long-Term Debt 344 52
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Total Interest Expense 6,278 5,076
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Net Interest Income 6,327 6,188
Provision for Loan Losses 315 270
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Net Interest Income after Provision for
Loan Losses 6,012 5,918
Other Income:
Service Charges on Deposit Accounts 310 266
Other Operating Income 139 123
Realized Gain on Available for Sale Securities - 52
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Total Other Income 449 441
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Other Expenses
Salaries and Employee Benefits 2,163 2,111
Net Occupancy 337 396
Other Operating Expenses 1,397 1,307
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Total Other Expenses 3,897 3,814
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Income - before Income Tax Expense 2,564 2,545
Income Tax Expense 722 755
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Net Income $ 1,842 $ 1,790
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Earnings Per Share $ 0.79 $ 0.75
Cash Dividends Per Share $ 0.33 $ 0.30
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
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COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
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For the Nine Months Ended
September 30
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2000 1999
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Cash Flows from Operating Activities:
Net Income $ 1,842 $ 1,790
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities -
Depreciation 157 228
Provision for Loan Loss 315 270
Federal Home Loan Bank stock dividends (73) (33)
Investment Securities Amortization, Net (9) 82
Change in Other Assets and Other Liabilities 708 1,123
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Net Cash Provided by Operating Activities 2,940 3,460
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Cash Flows from Investing Activities:
Purchases of Securities Available for Sale/FHLB Stock (444) (20,346)
Proceeds from Maturities of Securities
Available for Sale 2,067 16,926
Net Change in Loans (8,055) (15,066)
Purchases of Premises and Equipment (213) (126)
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Net Cash Used in Investing Activities (6,645) (18,612)
Cash Flows from Financing Activities:
Net change in Deposit Accounts 2,780 (1,082)
Proceeds from Borrowing 3,145 14,484
Repayment of Federal Home Loan Bank Advances (3,820) (10)
Purchase of Treasury Stock (345) (180)
Dividends Paid (771) (712)
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Net Cash Provided by Financing Activities 989 12,500
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Net Change in Cash and Cash Equivalents (2,716) (2,652)
Beginning of Year 7,540 7,962
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End of Period $ 4,824 $ 5,310
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The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
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COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 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 condensed consolidated financial statements. The results
of operations for the nine months ended September 30, 2000, are not necessarily
indicative of those expected for the remainder of the year.
The Condensed 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 nine months ending September 30,
2000 and September 30, 1999 were 2,335,453 and 2,373,972 respectively. The
weighted-average shares outstanding for the quarter ending September 30, 2000
and September 30, 1999 were 2,328,776 and 2,371,182 respectively.
Note 3, Commitments to fund loans
Outstanding commitments to originate loans were $12,325,000 and $13,777,000 at
September 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.
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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 on the operations of The Commercial Bank.
FINANCIAL CONDITION
Total assets increased 2.0% from $218,548,000 at December 31, 1999 to
$222,922,000 at September 30, 2000.
Cash and due from banks decreased 36.0% or $2,681,000 from December 31, 1999.
Excess cash for year 2000 contingency was used to fund loan requests.
Total gross loans increased 4.4% or $7,180,000 from December 31, 1999 to
$169,138,000 on September 30, 2000. Real estate loans increased $9,151,000 or
9.4% from year end due to a strong local real estate market. Installment loans
decreased 9.3% to $24,529,000 from $27,039,000 at December 31, 1999 primarily
due to the desire to reduce indirect auto loans.
The Allowance for Loan Loss, at September 30, 2000, was .75% of total loans. The
$560,000 reduction in the allowance is due primarily to the charge off of a
large installment loan in the amount of $705,000. Management evaluated the
allowance at year end 1999 and determined that it was sufficiently funded for
this charge off.
Total deposits increased 1.6% from $169,720,000 on December 31, 1999 to
$172,500,000 on September 30, 2000. The majority of this increase occurred in
certificate balances which have increased $5,167,000 or 6.0% from December 31,
1999. 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 decreased $3,486,000 or
22.6% since year end. Long term debt, or borrowings with a maturity of greater
than one year, from the Federal Home Loan Bank, increased $2,811,000 or 37.3%
since December 31, 1999. This money was used to fund the increased demand for
real estate loans.
Total shareholders equity increased 4.3% or 961,000 to $23,434,000. 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 as well as a reduction
in the after tax unrealized loss on Available for Sale Securities.
8
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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 $139,000 for the nine months ended
September 30, 2000 from a year ago, and increased $43,000 for the quarter ended
September 30, 2000 as compared to September 30, 1999.
Total interest income increased $542,000 to $4,403,000 from $3,861,000 for the
quarter ended September 30, 2000. Total interest income increased $1,341,000, to
$12,605,000 for the nine months ended September 30, 2000 from $11,264,000 for
the nine months ended September 30, 1999. Interest and fees on loans increased
$1,150,000 or 12.3% 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 16.1% for the first nine
months of 2000 for a total of $1,545,000 compared to $1,331,000 for the first
nine months of 1999 due primarily to adjustments in variable rate investments.
Total interest expense increased 23.7% or $1,202,000 from $5,076,000 for the
nine months ended September 30, 1999 to $6,278,000 for the nine months ended
September 30, 2000. Interest on deposits increased $359,000 or 7.6% for the nine
month period due to an increase in certificate interest rates as well as an
eight million dollar increase in the volume of certificates from a year ago.
Interest on short and long term borrowings increased $551,000 and $292,000
respectively due to the increased volume to support loan funding as well as
increased interest rates. Interest expense for the quarter increased $499,000 or
28.3% from the same period last year.
Non-interest income decreased $49,000 for quarter ending September 30, 2000 from
September 30, 1999 due mainly to the securities gain of $52,000 that was
recorded in the third quarter of 1999 while no sales have occurred in the year
2000.
Non-interest expense increased 2.2% or $83,000 to $3,897,000 for the nine months
ending September 30, 2000 compared to $3,814,000 in 1999. Salaries and benefits
increased $52,000 over the past nine months mainly due to an increase in
insurance claims and cost. Net occupancy decreased $59,000 over the past nine
months due to a decrease in depreciation expense and maintenance on building and
equipment. Other operating expenses have increased $90,000 to $1,397,000 in
September of 2000 from $1,307,000 in September of 1999 due mainly to an increase
in legal fees in connection with collection efforts.
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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
September 30, 2000 ComBanc, Inc. maintained a Tier I capital ratio of 15.59 %,
total capital ratio of 16.43% and Tier I leverage ratio of 10.65%. The Bank
maintained a Tier I capital ratio of 10.45%, total capital ratio of 16.51% and
Tier I leverage ratio of 7.14%.
Based on the respective regulatory capital ratios at September 30, 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 September 30, 2000 the Bank's liquid assets
amounted to $ 49,706,000 or 22% of total assets compared with 25% at December
31, 1999. Management considers its liquidity to be adequate to meet its normal
funding requirements.
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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 September 30, 2000 to December 31,
1999.
Principal Amount Maturing or Repricing in:
(Dollars in Thousands)
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<CAPTION>
First Years
Year 1 to 5 Thereafter Total
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Comparison of 9/30/00 to 12/31/99
Total rate sensitive assets:
At December 31,1999 $54,513 $80,083 $73,538 $208,134
At September 30, 2000 58,330 82,719 73,044 214,093
Increase (Decrease) 3,817 2,636 (494) 5,959
Total rate sensitive liabilities:
At December 31,1999 $96,834 $53,978 $25,474 $176,286
At September 30, 2000 89,387 65,627 25,088 180,102
Increase (Decrease) (7,447) 11,649 (386) 3,816
</TABLE>
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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 September 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 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
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMBANC, INC.
Date: October 31, 2000 /s/ Paul G. Wreede
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Paul G. Wreede
President, CEO, and Director
Date: October 31, 2000 /s/ Kathleen A. Miller
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Kathleen A. Miller
Senior Vice President & CFO
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Exhibit Index
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Exhibit No. Description
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27 Financial Data Schedule
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