<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 March 31, 2000
-------------------------------------------------
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.
- --------------------------------------------------------------------------------
(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: 2,328,776 shares of the Bank's
common stock (no par value) were outstanding as of April 30, 2000.
Page 1 of 13
<PAGE> 2
COMBANC, INC. AND SUBSIDIARY
March 31, 2000 FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet 3
Consolidated Statement of Income 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures and Market Risk 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
<PAGE> 3
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
------------
CONSOLIDATED BALANCE SHEET
($ in thousands)
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
------ ------------ ------------
(see notes)
<S> <C> <C>
Cash and Due from Banks $ 4,482 $ 7,457
Federal Funds Sold 1,390 83
------------ ------------
Cash and Cash Equivalents 5,872 7,540
Investment Securities -
Available for Sale 45,520 46,067
Loans 165,057 161,958
Allowance for Loan Losses (1,776) (1,832)
------------ ------------
Net Loans 163,281 160,126
Premises and Equipment 2,402 2,331
Other Assets 2,651 2,484
------------ ------------
Total Assets $ 219,726 $ 218,548
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits -
Noninterest Bearing $ 15,556 $ 16,437
Interest Bearing 154,810 153,283
------------ ------------
Total Deposits 170,366 169,720
Other Liabilities 4,215 3,352
Short Term Borrowings 15,016 15,459
Long Term Debt 7,486 7,544
------------ ------------
Total Liabilities 197,083 196,075
------------ ------------
Commitments and Contingent Liabilities - -
Shareholders' Equity -
Common Stock - No Par Value
5,000,000 shares authorized, 2,376,000 issued
and 2,343,500 outstanding 1,237 1,237
Capital Surplus 1,513 1,513
Retained Earnings 21,168 20,834
Accumulated Other Comprehensive Loss (603) (533)
Treasury Stock - 32,500 and 27,000 shares at cost (672) (578)
------------ ------------
Total Shareholders' Equity 22,643 22,473
------------ ------------
Total Liabilities and Shareholders' Equity $ 219,726 $ 218,548
============ ============
</TABLE>
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
March 31
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Interest Income:
Interest and Fees on Loans $ 3,281 $ 3,006
Interest and Dividends on Investments -
Taxable 520 415
Tax-Exempt 152 167
Equity Securities 21 11
Interest on Federal Funds Sold 6 9
Interest on Balances due from Depository Institutions - 8
------------ ------------
Total Interest Income 3,980 3,616
------------ ------------
Interest Expense:
Interest on Deposits 1,636 1,572
Interest on Short-term Borrowings 222 63
Interest on Long-Term Debt 100 -
------------ ------------
Total Interest Expense 1,958 1,635
------------ ------------
Net Interest Income 2,022 1,981
Provision for Loan Losses 105 90
------------ ------------
Net Interest Income after Provision for
Loan Losses 1,917 1,891
Other Income:
Service Charges on Deposit Accounts 71 81
Other Operating Income 71 23
------------ ------------
Total Other Income 142 104
------------ ------------
Other Expenses:
Salaries and Employee Benefits 676 719
Net Occupancy 115 139
Other Operating Expenses 475 432
------------ ------------
Total Other Expenses 1,266 1,290
------------ ------------
Income - before Income Tax Expense 793 705
Income Tax Expense 199 212
------------ ------------
Net Income $ 594 $ 493
============ ============
Earnings Per Share $ 0.25 $ 0.21
Cash Dividends Per Share $ 0.11 $ 0.10
</TABLE>
4
<PAGE> 5
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months
March 31,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 594 $ 493
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities -
Depreciation 58 68
Provision for Loan Loss 105 90
Federal Home Loan Bank stock dividends (21) -
Investment Securities Amortization, Net 2 (291)
Change in Other Assets and Other Liabilities 660 1,550
------------ ------------
Net Cash Provided by Operating Activities 1,398 1,910
------------ ------------
Cash Flows from Investing Activities:
Purchases of Securities Available for Sale/FHLB Stock (56) (4,609)
Proceeds from Maturities of Securities
Available for Sale 494 4,907
Net Change in Loans (3,260) (5,663)
Purchases of Premises and Equipment (129) (6)
------------- ------------
Net Cash Used in Investing Activities (2,951) (5,371)
Cash Flows from Financing Activities:
Net change in Deposit Accounts 646 (2,094)
Proceeds from Borrowing 1,000 1,380
Repayment of Federal Home Loan Bank Advances (1,501) -
Dividends Paid (260) (237)
------------ ------------
Net Cash Provided by Financing Activities (115) (951)
------------ ------------
Net Change in Cash and Cash Equivalents (1,668) (4,412)
Cash and Cash Equivalents -
------------ ------------
Beginning of Year 7,540 7,962
------------ ------------
End of Period $ 5,872 $ 3,550
============ ============
</TABLE>
5
<PAGE> 6
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
-----------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 three months ended March 31, 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 at March 31, 2000 and March 31, 1999 was
2,348,396 and 2,376,000 respectively.
Note 3, Commitments to fund loans
Outstanding commitments to originate loans were $ 9,994,000 and $13,777,000 at
March 31, 2000 and December 31, 1999.
6
<PAGE> 7
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
Cash and due from banks decreased 40.0% from December 31, 1999 due to placement
of excess Year 2000 cash into loans and debt repayment.
Investment securities decreased $547,000 since year end 1999. All investments
have been designated available for sale, and which could be sold for liquidity
or other reasons. These securities are reported at fair value with a net
unrealized appreciation (depreciation) included as a separate component of
shareholders' equity, net of tax.
Total loans increased 1.9% from year end 1999. Real estate loans increased 3.6%
from $97,040,000 at December 31, 1999 to $100,524,000 at March 31, 2000.
Total deposits increased $646,000.00 between December 31, 1999 and March 31,
2000. The Corporation continues to pay competitive rates on deposit accounts and
has continued to provide a variety of products on both personal and business
levels.
Other borrowed money includes funds borrowed from the Federal Home Loan Bank to
fund the bank's increased loan requests. These borrowed funds were reduced from
$23,003,000 at December 31, 1999 to $22,502,000 at March 31, 2000 with excess
cash that was available at year end 1999.
Total shareholder's equity grew by $170,000 since last quarter. This growth was
slightly reduced due to the purchase of treasury stock and the additional
depreciation in market value of investment securities.
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. The Bank's net interest income increased 1.4%, to $1,917,000 for the
quarter ended March 31, 2000 from $1,891,000 for the first quarter of 1999.
These increases were due to a slower increase in the cost of deposits compared
to the increase in earning asset yields during the first quarter of 2000 as well
as an increase in the average balance of real estate and commercial loans.
Investment securities income increased 17% to $693,000 in the first quarter of
2000 from 593,000 in the first quarter of 1999 due mainly to an increase in
yield.
7
<PAGE> 8
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
-----------
The provision for loan loss increased to $105,000 for the first quarter 2000
compared to $90,000 for the first quarter of 1999 due to an anticipated increase
in charge-offs for the year 2000.
Non-interest income for the three months ended March 31, 2000 increased 37% to
$142,000 from $104,000 in the first quarter of 1999. These increases were
largely attributable to an increase in fee income such as fees on loans.
Non-interest expense for the quarter decreased $24,000 to $1,266,000 from
$1,290,000 the previous quarter. Salaries and fringe benefits decreased due to
one less bi-weekly pay period in the first quarter of 2000. Occupancy expense
decreased during the quarter ended March 31, 2000 due to several fully
depreciated assets. Other expenses increased $43,000 to $475,000 from $432,000
mainly due to an increase in legal fees and ATM charges.
Earnings per share increased to 19% to .25 per share from .21 per share in 1999.
Per share earnings are computed based on 2,348,396 weighted-average number of
shares outstanding for first quarter 2000 and 2,376,000 weighted-average common
shares outstanding for first quarter 1999.
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 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.
8
<PAGE> 9
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
-----------
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 March 31, 2000 the Bank's liquid assets
amounted to $51,392,000, or 23% of total assets compared with 25% at December
31, 1999. Management considers its liquidity to be adequate to meet its normal
funding requirements.
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 March, 2000 to December 31, 1999.
Principal Amount Maturing in:
(Dollars in Thousands)
<TABLE>
<CAPTION>
First Years
Year 1 to 5 Thereafter Total
------- ------- ---------- --------
<S> <C> <C> <C> <C>
Comparison of 3/31/00 to 12/31/99
Total rate sensitive assets:
At December 31,1999 $54,513 $80,083 $73,538 $208,134
At March 31,2000 58,762 80,290 72,941 $211,993
------- ------- ------- --------
Increase (Decrease) 4,249 207 (597) 3,859
Total rate sensitive liabilities:
At December 31,1999 $96,834 $53,978 $25,474 $176,286
At March 31,2000 95,814 54,967 26,538 177,318
------- ------- ------- --------
Increase (Decrease) (1,020) 989 1,064 1,032
</TABLE>
9
<PAGE> 10
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
-----------
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.
10
<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 March 31, 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.
11
<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.
Date: May 5, 2000 /s/ Paul G. Wreede
-----------------------------
Paul G. Wreede
President, CEO, and Director
Date: May 5, 2000 /s/ Kathleen A. Miller
-----------------------------
Kathleen A. Miller
Senior Vice President & CFO
12
<PAGE> 13
Exhibit Index
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
13
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,482
<INT-BEARING-DEPOSITS> 26
<FED-FUNDS-SOLD> 1,390
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 45,520
<LOANS> 165,057
<ALLOWANCE> 1,776
<TOTAL-ASSETS> 219,726
<DEPOSITS> 170,366
<SHORT-TERM> 15,016
<LIABILITIES-OTHER> 4,215
<LONG-TERM> 7,486
0
0
<COMMON> 1,237
<OTHER-SE> 22,643
<TOTAL-LIABILITIES-AND-EQUITY> 219,726
<INTEREST-LOAN> 3,281
<INTEREST-INVEST> 693
<INTEREST-OTHER> 6
<INTEREST-TOTAL> 3,980
<INTEREST-DEPOSIT> 1,636
<INTEREST-EXPENSE> 1,958
<INTEREST-INCOME-NET> 2,022
<LOAN-LOSSES> 105
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,266
<INCOME-PRETAX> 793
<INCOME-PRE-EXTRAORDINARY> 594
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 594
<EPS-BASIC> 0.25
<EPS-DILUTED> 0.25
<YIELD-ACTUAL> 0
<LOANS-NON> 2,797
<LOANS-PAST> 329
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,832
<CHARGE-OFFS> 171
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 1,776
<ALLOWANCE-DOMESTIC> 1,776
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
