<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the
- - --- Securities Exchange Act of 1934
For the quarterly period ended March 31, 1995 or
--------------
- - --- Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
---------- -----------
Commission file number: 0-15984
-------------------------------------------------------
COMBANCORP
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
California 95-3737171
- - -----------------------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)
6001 E. Washington Blvd., City of Commerce, CA 90040
- - -----------------------------------------------------------------------------------------------------------------------
(Address of Principal executive offices) (Zip Code)
</TABLE>
(213) 724-8800
- - -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- - -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
As of March 31, 1995, there were 565,789 outstanding shares of the
issuer's Common Stock, no par value.
================================================================================
<PAGE> 2
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
ASSETS March 31, 1995 December 31, 1994
-------------- -----------------
<S> <C> <C>
Cash and due from banks - demand $ 6,563,575 $ 5,745,356
Federal funds sold 8,950,000 11,605,000
----------- -----------
Cash and cash equivalents 15,513,575 17,350,356
Interest-bearing deposits with
financial institutions 8,699,000 8,102,000
Investment in Federal Reserve
Bank Stock 120,000 120,000
Securities available for sale 18,356,764 16,830,404
Loans 24,689,143 25,809,010
Less:
Deferred loan fees and costs (48,657) (59,280)
Unearned discount on acquired loan (183,436) (285,827)
Reserve for possible loan losses (528,827) (498,827)
----------- -----------
Net loans 23,928,223 24,965,076
Premises and equipment, net 2,519,179 2,526,677
Other real estate owned 371,013 371,013
Accrued interest receivable and
other assets 790,406 922,922
----------- -----------
Total assets $70,298,160 $71,188,448
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand non-interest bearing $24,196,500 $23,439,082
Savings and other interest
bearing accounts 27,826,200 28,870,686
Time, $100,000 and over 3,837,403 4,329,934
Other time 7,940,891 8,259,595
----------- -----------
Total deposits 63,800,994 64,899,297
Accrued interest payable and
other liabilities 410,328 342,524
----------- -----------
Total liabilities 64,211,322 65,241,821
----------- -----------
Shareholders' equity:
Common stock 4,453,300 4,453,300
Retained earnings 1,638,192 1,609,002
Unrealized gain on securities
available for sale, net (4,654) (115,675)
----------- -----------
Total shareholders' equity 6,086,838 5,946,627
----------- -----------
Total liabilities and
shareholders' equity $70,298,160 $71,188,448
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
CONSOLIDATED STATEMENT OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three months
ended March 31,
----------------------------
1995 1994
---------- ----------
<S> <C> <C>
Interest income:
Interest on loans $ 791,817 $518,271
Interest on deposits with
financial institutions 123,172 71,720
Interest on securities 255,150 123,742
Interest on Federal funds sold 156,820 42,126
---------- --------
Total interest income 1,326,959 755,859
Interest expense on deposits 280,460 180,012
---------- --------
Net interest income 1,046,499 575,847
Provision for loan losses (30,000) (72,800)
---------- --------
Net interest income after provision
for loan losses 1,016,499 503,047
---------- --------
Other income:
Service charges and other income 177,311 135,992
---------- --------
Total other income 177,311 135,992
---------- --------
Other operating expenses:
Salaries and employee benefits 400,434 289,146
Occupancy expense 99,809 66,176
Equipment expense 39,084 24,897
Professional fees 46,831 23,833
Advertising expense 19,005 8,424
Business promotion 14,906 13,485
Stationery and supplies 35,906 19,946
Data processing 40,389 32,770
Other expenses 205,710 133,714
---------- --------
Total other operating expenses 902,074 612,391
---------- --------
Income before income taxes 291,736 26,648
Provision for income taxes 121,100 9,600
---------- --------
Net income $ 170,636 $ 17,048
========== ========
Per share:
Net income $ 0.30 $ 0.03
========== ========
Dividends $ 0.25 $ -
========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
COMBANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Period ended March 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 170,637 $ 17,048
Adjustments to reconcile net income to
net cash provided by operating activities:
Loss on sale of premises and equipment
and other real estate owned - 29,637
Depreciation and amortization 51,718 38,316
Provision for possible loan losses 30,000 72,800
Amortization of deferred loan fees (20,563) (15,978)
Net accretion of discount on securities (93,015) (96,784)
Accretion of unearned discount on acquired loans (53,866) (9,237)
Net decrease in accrued income receivable
and other assets 40,320 27,991
Increase in taxes payable 32,445 11,766
Net increase (decrease) in accrued interest
payable and other liabilities 35,359 (3,729)
----------- -----------
Net cash provided by (used in) operating
activities 193,035 71,830
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest bearing
deposits with other financial institution (597,000) 384,000
Proceeds from maturities and calls of
securities available for sale 200,400 10,453,529
Purchases of securities available for sale (1,444,768) (10,258,597)
Net (increase) decrease in loans 1,081,282 (134,648)
Purchases of premises and equipment (29,980) (142,886)
----------- -----------
Net cash provided by investing activities (790,066) 301,398
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (1,098,303) 2,743,110
Dividends paid (141,447) -
----------- -----------
Net cash provided by financing activities (1,239,750) 2,743,110
----------- -----------
Increase (decrease) in cash and
cash equivalents (1,836,781) 3,116,338
CASH AND CASH EQUIVALENTS
Beginning of year 17,350,356 7,324,373
----------- -----------
End of year $15,513,575 $10,440,711
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
(unaudited)
Note 1. Basis of Presentation
The accounting and reporting policies of the Company and its
subsidiary are in accordance with generally accepted accounting principles and
conform to general practices within the banking industry. The financial
statements are prepared on the accrual basis of accounting with all significant
income and expense items accrued at the respective statement dates. The
financial statements include the accounts of the Company and its wholly-owned
subsidiary, Commerce National Bank (the "Bank"). All material intercompany
accounts and transactions have been eliminated.
In management's opinion, the accompanying financial statements reflect
all material adjustments (consisting only of normal recurring accruals)
necessary to a fair statement of the results for the interim periods presented.
The results for the interim period ended March 31, 1995, are not necessarily
indicative of the results which will be reported for the entire year.
Note 2. Income Per Share
Income per share is computed using the weighted average number of
shares of common stock and common stock equivalents outstanding. Stock options
are considered to be common stock equivalents, except when their effect would
be antidilutive or immaterial. The weighted average number of shares used to
compute income per share was 565,789 for each period presented.
Note 3. Reserve for Possible Loan Losses
On January 1, 1995, the Bank adopted FASB Statement No. 114,
Accounting by Creditors for Impairment of a Loan, as amended by FASB Statement
No. 118. There was no material effect on the Bank's financial statements.
Statement No. 114 generally requires impaired loans to be measured on the
present value of expected future cash flows discounted at the loan's effective
interest rate or, as an expedient, at the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent. A loan is
impaired when it is probable the creditor will be unable to collect all
contractual principal and interest payments due in accordance with the terms of
the loan agreement. At March 31, 1995, the Bank has classified $415,500 of its
loans as impaired with a specific loss reserve of $94,645. There was no impact
on the financial statements as a result of the adoption of Statement No. 114
as the existing allowance was adequate for this reserve.
Note 4. Securities Available for Sale
Effective January 1, 1995, the Bank adopted FASB Statement No. 119,
Disclosure About Derivative Financial Instruments and Fair Value of Financial
Instruments, which requires the Bank to make disclosures about the purposes of
the investment in derivative financial instruments and about
5
<PAGE> 6
how the instruments are reported in financial statements. At March 31, 1995,
the Bank had no material derivative financial instruments.
Note 5. Availability of Funds From Bank
Under Federal banking law, dividends declared by the Bank in any
calendar year may not, without the approval of the Comptroller of the Currency,
exceed the Bank's net income, as defined, for that year combined with its
retained net income for the preceding two years.
Federal banking law restricts the Bank from extending credit to the
Company in excess of 10 percent of the Bank's capital stock and surplus, as
defined. Any such extensions of credit are subject to strict collateral
requirements.
6
<PAGE> 7
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
The Company's consolidated balance sheet at March 31, 1995 reflected a
decrease of 1.3% in total assets and 1.7% in deposits from December 31, 1994.
As a result of continued slow loan demand, the Bank experienced a decrease of
4.3% in gross loans during this period.
The components of the changes in loans are as follows:
<TABLE>
<CAPTION>
Increase (Decrease)
over December 31, 1994
----------------------
<S> <C>
Commercial loans (5.9%)
Real estate - construction (0.6%)
Real estate - primarily loans for
acquisition or improvement of
owner occupied offices and
industrial property (4.6%)
Real estate - mortgage loans
acquired (0.5%)
Installment loans (2.3%)
</TABLE>
The loan to deposit ratio at March 31, 1995 was 38.7%, compared to
39.8% at December 31, 1994. Non-performing loans (i.e, those past due 90 days
and/or on non-accrual) at March 31, 1995, amounted to approximately $577,500 as
compared to approximately $397,000 at December 31, 1994, a 45.5% increase. Of
the eight non-performing loans, one loan in the amount of $145,900, or 25.3% of
non-performing loans, was secured by real estate, and was taken into Other Real
Estate Owned on April 19, 1995. Three loans totaling $420,400, or 72.8% of
non-performing loans, are commercial loans. One of these loans in the amount
of $97,900 is secured by UCC filings on equipment, which management believes
provides adequate security to the Bank. This loan continues to make monthly
payments which are currently being applied to interest on a cash basis. Once
the interest is brought current, the Bank intends to rewrite this loan on a
fully amortized basis. The second commercial loan in the amount of $150,000 is
secured by approximately $200,000 in receivables, and the Bank has hired an
outside consultant to audit these accounts. The third commercial loan in the
amount of $172,600 is secured by a second trust deed and has been approved for
a renewal, subject to a current appraisal. The balance of non-performing loans
consists of an installment loan and three credit card receivables. Other Real
Estate Owned ("OREO") at March 31, 1995 remained at $371,000 as compared to
December 31, 1994. As of April 19, 1995, however, OREO increased to $516,900
with the addition of the aforementioned real estate secured loan in the amount
of $145,900.
7
<PAGE> 8
The allowance and provision for possible loan losses is a general
reserve established by management to absorb potential losses inherent in the
entire loan portfolio. The level and rate of additions to the allowance for
loan losses are based on a continuing analysis of the loan portfolio and at
March 31, 1995, reflected an amount which in management's judgment was adequate
for known and inherent losses. In evaluating the adequacy of the allowance,
management gives consideration to economic prospects and net worth of the
individual borrowers and guarantors, collateral evaluation, the nature and
amount of loans subject to adverse classification, the total size and mix of
the loan portfolio and such other factors that deserve recognition. The
allowance for loan losses aggregated $528,827 at March 31, 1995, or 2.1% of
outstanding loans, as compared to $498,827, or 1.9% of outstanding loans at
December 31, 1994. During the same period, the allowance for loan losses as a
percentage of non-performing loans was 91.6% and 125.6%, respectively.
Funds not required for lending activities at March 31, 1995 were
invested in U. S. Treasury and Agency securities, investment grade corporate
notes, municipal bonds, interest-bearing deposits with other financial
institutions and Federal funds sold. In order to increase investment yields,
Fed funds sold was reduced by approximately $2.7 million and securities
available for sale was increased by approximately $2.1 million during the first
quarter of 1995. The net unrealized loss on securities available for sale, net
of deferred taxes, included in shareholders' equity decreased from $115,675 at
December 31, 1994 to $4,654 at March 31, 1995, reflecting the decline in yields
during the first quarter of 1995, which increased the market value of these
securities from December 31, 1994.
Results of Operations
Net income for the quarter ended March 31, 1995 was $170,636, or $.30
per share, compared to $17,048, or $.03 per share, for the quarter ended March
31, 1994.
Net interest income for the quarter ended March 31, 1995 increased
approximately 81.7% over the comparable period in 1994 primarily due to the
increase of 25.7% in average interest earning assets and the increase in yield
on those assets from 6.2% during the first quarter of 1994 to 8.7% during the
first quarter of 1995. Interest expense increased approximately 55.8% over the
comparable period in 1994 due to the 27.4% increase in average interest-bearing
liabilities and the increase in cost of funds from 2.2% in 1994 to 2.8% in
1995. The annualized net interest margin on average earning assets increased
to 6.8% during the first quarter of 1995, compared to 4.7% during the
comparable period in 1994.
The provision for loan losses decreased $42,800 during the first
quarter 1995, compared to the comparable period in 1994, which primarily
reflects management's improved assessment of the potential risks in the loan
portfolio.
Other income increased approximately 30.4% during the first quarter of
1995 as compared to the same period in 1994. Many components increased by
nominal amounts, but the majority of the increase was due to service charges
attributable to the increase in the number of accounts. Other operating
expenses increased approximately 47.3% during the first quarter of 1995 over
the comparable period of 1994 due primarily to the 38.5% increase in salaries
and employee benefits due to the acquisition and staffing of the Bank's Downey
Branch and the costs associated with this acquisition, and the 53.8% increase
in other expenses due primarily to the increased FDIC assessment for the
acquired deposits
8
<PAGE> 9
related to the Downey Branch. Other operating expenses as a percentage of
total interest income decreased from 81.0% during the first quarter of 1994 to
68.0% during the first quarter of 1995.
Liquidity and Interest Rate Sensitivity
At March 31, 1995, total earning assets were $58.6 million, or 83.3%
of total assets. The Company's liquid assets were $35.2 million and consisted
of cash and due from banks, interest-bearing deposits with financial
institutions, unpledged securities maturing within one year and Federal funds
sold. The liquidity ratio (i.e., liquid assets to total deposits) was 55.2%
compared to 56.2% at December 31, 1994. The Bank has outstanding commitments
to lend in the amount of approximately $5.2 million at March 31, 1995, which
are expected to be funded by deposits. The Company has no other material
unrecorded commitments for funds.
Interest-bearing deposits with financial institutions at March 31,
1995 consisted exclusively of time certificates of deposit, of which 97.7%
mature within one year. The Company's securities available for sale consisted
primarily of U.S. treasury and agency obligations, corporate bonds, and bank
qualified municipal bonds, which were readily marketable. At March 31, 1995,
the book value of these securities exceeded their market value by approximately
$7,950. Securities totaling $400,000 were pledged to secure Treasury Tax and
Loan deposits and public funds. The Company's loan portfolio also was
relatively liquid with approximately 77.6% of the outstanding loans maturing
within one year or sensitive to changes in interest rates.
The Company believes that its position with respect to interest rate
fluctuations is favorable, in that the majority of the Company's loans bear a
floating rate of interest and the majority of its investments have short
maturities.
At March 31, 1995, the Company was in an asset sensitive position and
its 90 day gap, (i.e., the difference between assets and liabilities that
reprice in that period as a percentage of total assets) was 8% and its
cumulative gap was 30%. Generally, an asset sensitive position will result in
enhanced earnings in a rising interest rate environment and declining earnings
in a falling interest rate environment because larger volumes of assets than
liabilities will reprice. Conversely, a liability sensitive position will be
detrimental to earnings in a rising interest rate environment and will enhance
earnings in a falling interest rate environment.
9
<PAGE> 10
The Asset and Liability Maturity Repricing Schedule below sets forth
the distribution of repricing opportunities for the Company's interest earning
assets and liabilities, the interest sensitivity gap and the ratio of
cumulative gap to total assets.
INTEREST SENSITIVITY PERIOD
(in thousands)
<TABLE>
<CAPTION>
over over over
3 months 6 months 1 year
3 months through through through over
or less 6 months 1 year 5 years 5 years Total
-------- -------- ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Federal funds sold $ 8,950 - - - $ 8,950
Securities 7,548 1,370 2,687 6,598 274 18,477
Deposits with other institutions 4,050 2,368 2,082 199 - 8,699
Loans 17,842 510 1,158 3,718 1,461 24,689
TOTAL $38,390 4,248 5,927 10,515 1,735 $60,815
=======================================================================
Interest Bearing Liabilities:
Time Deposits:
a) TCD's less than $100M $ 4,049 1,742 1,811 338 1 $ 7,941
b) TCD's $100M and over 1,107 1,499 1,131 100 - 3,837
Savings 9,276 - - - - 9,276
Money Market 10,322 - - - - 10,322
Now Accounts 8,228 - - - - 8,228
TOTAL $32,982 3,241 2,942 438 - $39,604
-----------------------------------------------------------------------
Interest Sensitivity Gap:
Interval $ 5,408 $1,007 $2,985 $10,077 $ 1,735
Cumulative 5,408 $6,415 $9,400 $19,477 $21,212 $21,211
-----------------------------------------------------------------------
Ratio of cumulative gap
to total assets 8% 9% 13% 28% 30% 30%
</TABLE>
At March 31, 1995, the Company was entitled to borrow on a
collateralized basis at the discount window at the Federal Reserve Bank of San
Francisco. In addition, the Bank has available a Federal funds line of credit
in the amount of $1 million with one of its correspondent banks.
Capital Resources
The Company is currently exempt from the Federal Reserve Board's
risk-based capital guidelines because consolidated assets are under $150
million. However, the Bank is subject to the risk-based capital guidelines
adopted by the Office of the Comptroller of the Currency. These guidelines
require the Bank to maintain a minimum ratio of total capital-to-risk-weighted
assets of 8% (of which at least 4% must consist of tier I capital), and a
leverage ratio of at least 3%. At March 31, 1995, the Bank had a total
capital-to-risk-weighted assets ratio of 18.9%, with a tier I capital ratio of
17.7%, and a leverage ratio of 7.9%.
10
<PAGE> 11
The Bank excludes the impact of the net unrealized gains on securities
available for sale, net of deferred taxes in its regulatory capital ratios.
Recent Accounting Developments
In December 1991, the FASB issued Statement No. 107, Disclosures about
Fair Value of Financial Instruments. Statement 107 requires disclosure of fair
value information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. The
disclosures include the methods and assumptions used to estimate the fair value
if quoted market prices are not used. Statement 107 will first be required for
the Company's fiscal year that ends December 31, 1995.
On January 1, 1995, the Bank adopted FASB Statement No. 114,
Accounting by Creditors for Impairment of a Loan, as amended by FASB Statement
No. 118. There was no material effect on the Bank's financial statements.
Statement No. 114 generally requires impaired loans to be measured on the
present value of expected future cash flows discounted at the loan's effective
interest rate or, as an expedient, at the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent. A loan is
impaired when it is probable the creditor will be unable to collect all
contractual principal and interest payments due in accordance with the terms of
the loan agreement. At March 31, 1995, the Bank has classified $415,500 of its
loans as impaired with a specific loss reserve of $94,645. There was no impact
on the financial statements as a result of the adoption of Statement No. 114 as
the existing allowance was adequate for this reserve.
Effective January 1, 1995, the Bank adopted FASB Statement No. 119,
Disclosure About Derivative Financial Instruments and Fair Value of Financial
Instruments, which requires the Bank to make disclosures about the purposes of
the investment in derivative financial instruments and about how the
instruments are reported in financial statements. At March 31, 1995, the Bank
had no material derivative financial instruments.
11
<PAGE> 12
PART II. OTHER INFORMATION
Items 1 - 5.
Inapplicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Inapplicable
(b) Reports on Form 8-K
The registrant filed no reports on Form 8-K during the quarter
ended March 31, 1995.
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.
COMBANCORP
Date: May 10, 1995 By: /s/ RICHARD F. DEMERJIAN
----------------------------------
Richard F. Demerjian
Chief Executive Officer
Date: May 10 , 1995 By: /s/ ESTHER G. WILSON
----------------------------------
Esther G. Wilson
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 6,563,575
<INT-BEARING-DEPOSITS> 8,699,000
<FED-FUNDS-SOLD> 8,950,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,356,764
<INVESTMENTS-CARRYING> 120,000
<INVESTMENTS-MARKET> 0
<LOANS> 24,689,143
<ALLOWANCE> 528,827
<TOTAL-ASSETS> 70,298,160
<DEPOSITS> 63,800,994
<SHORT-TERM> 0
<LIABILITIES-OTHER> 410,328
<LONG-TERM> 0
<COMMON> 4,453,300
0
0
<OTHER-SE> 1,633,538
<TOTAL-LIABILITIES-AND-EQUITY> 70,298,160
<INTEREST-LOAN> 791,817
<INTEREST-INVEST> 535,142
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,326,959
<INTEREST-DEPOSIT> 280,460
<INTEREST-EXPENSE> 280,460
<INTEREST-INCOME-NET> 1,046,499
<LOAN-LOSSES> 30,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 902,074
<INCOME-PRETAX> 291,736
<INCOME-PRE-EXTRAORDINARY> 291,736
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 170,636
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
