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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, 2003
-------------------------------------------------
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.)
229 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: 2,211,014 shares of the
ComBanc's common stock (no par value) were outstanding as of April 23, 2003.
PAGE 1 OF 19
March 31, 2003 FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
Item 4. Controls and Procedures 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Certifications 16
Exhibit 99.1 18
Exhibit 99.2 19
2
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
--------------
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands)
March 31, December 31,
ASSETS 2003 2002
----------------- -----------------
(unaudited)
Cash and Due from Banks $ 7,483 $ 12,301
Federal Funds Sold 10,285 4,624
----------------- -----------------
Cash and Cash Equivalents 17,768 16,925
Investment Securities -
Available for Sale 51,664 54,396
Loans Held for Resale 2,691 728
Loans 135,176 140,091
Allowance for Loan Losses (3,610) (2,050)
----------------- -----------------
Net Loans 131,566 138,041
Premises and Equipment 4,627 4,689
Other Assets 3,855 3,251
----------------- -----------------
Total Assets $ 212,171 $ 218,030
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest Bearing $ 13,417 $ 16,090
Interest Bearing 160,499 162,801
----------------- -----------------
Total Deposits 173,916 178,891
Other Liabilities 1,127 1,123
Short Term Borrowings 6,160 5,946
Long Term Debt 7,460 7,720
----------------- -----------------
Total Liabilities 188,663 193,680
----------------- -----------------
Commitments and Contingent Liabilities - -
Shareholders' Equity -
Common Stock - No Par Value
5,000,000 shares authorized, 2,376,000 issued
and 2,211,014 and 2,211,014 outstanding 1,237 1,237
Capital Surplus 1,513 1,513
Retained Earnings 22,524 23,371
Accumulated Other Comprehensive Income 951 946
Treasury Stock - 164,986 and 164,986 shares at cost (2,717) (2,717)
----------------- -----------------
Total Shareholders' Equity 23,508 24,350
----------------- -----------------
Total Liabilities and Shareholders' Equity $ 212,171 $ 218,030
================= =================
The accompanying notes are an integral part of the condensed consolidated
financial statements
3
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
-----------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
For the Three Months Ended
March 31,
----------------------------
(unaudited)
2003 2002
------------ ------------
Interest Income:
Interest and Fees on Loans $ 2,233 $ 2,839
Interest and Dividends on Investments -
Taxable 445 370
Tax-Exempt 147 163
Interest on Federal Funds Sold 20 58
Interest on Balances due from Depository Institutions - -
------------ ------------
Total Interest Income 2,845 3,430
------------ ------------
Interest Expense:
Interest on Deposits 835 1,304
Interest on Short-Term Borrowings 14 22
Interest on Long-Term Debt 114 142
------------ ------------
Total Interest Expense 963 1,468
------------ ------------
Net Interest Income 1,882 1,962
Provision for Loan Losses 1,730 150
------------ ------------
Net Interest Income after Provision for Loan Losses 152 1,812
Other Income:
Service Charges on Deposit Accounts 128 113
Gain on Sale of Loans 111 15
Other Operating Income 171 125
------------ ------------
Total Other Income 410 253
------------ ------------
Other Expenses:
Salaries and Employee Benefits 815 721
Net Occupancy 189 175
Other Operating Expenses 511 557
------------ ------------
Total Other Expenses 1,515 1,453
------------ ------------
Income - before Income Tax Expense (953) 612
Income Tax Expense (371) 139
------------ ------------
Net Income $ (582) $ 473
============ ============
Earnings Per Share $ (0.26) $ 0.21
Cash Dividends Per Share $ 0.12 $ 0.12
The accompanying notes are an integral part of the condensed consolidated
financial statements
4
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
-------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
For the Three Months
March 31,
-----------------------------------
2003 2002
---------------- ---------------
(unaudited)
Cash Flows from Operating Activities:
Net Income $ (582) $ 473
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities -
Depreciation and amortization 104 97
Provision for Loan Loss 1,730 150
Federal Home Loan Bank stock Dividends (17) (22)
Investment securities amortization (accretion), Net 77 13
Net Change in Loans Held for Resale (1,963) 1,195
Net Change in
Interest receivable (59) (58)
Interest payable 31 (57)
Other assets (252) (134)
Other liabilities (308) (156)
---------------- ---------------
Net Cash Provided/(Used) by Operating Activities (1,239) 1,501
---------------- ---------------
Cash Flows from Investing Activities:
Purchases of Securities Available for Sale/FHLB Stock (4,054) (4,097)
Proceeds from Maturities of Securities
Available for Sale 6,718 3,248
Net Change in Loans 4,745 7,877
Purchases of Premises and Equipment (41) (91)
---------------- ---------------
Net Cash Provided by Investing Activities 7,368 6,937
Cash Flows from Financing Activities:
Net change in Deposit Accounts (4,975) 536
Proceeds from Borrowing 214 1,242
Repayment of Federal Home Loan Bank Advances (260) (571)
Dividends Paid (265) (269)
Purchase of Stock - (237)
---------------- ---------------
Net Cash Provided/(Used) by Financing Activities (5,286) 701
---------------- ---------------
Net Change in Cash and Cash Equivalents 843 9,139
Cash and Cash Equivalents -
Beginning of Year 16,925 16,389
---------------- ---------------
End of Period $ 17,768 $ 25,528
================ ===============
The accompanying notes are an integral part of the condensed consolidated
financial statements
5
COMBANC INC. AND SUBSIDIARY
March 31, 2003 FORM 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
Note 1, Basis of Presentation
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Form 10-K annual report for 2002 filed with the
Securities and Exchange Commission.
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 three months ended March 31, 2003, are not necessarily
indicative of those expected for the remainder of the year.
The Condensed Consolidated Balance Sheet at December 31, 2002 has been taken
from audited consolidated financial statements at that date.
Note 2, Earnings Per Share
Earnings 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 three months ending March 31, 2003
and March 31, 2002 were 2,211,014 and 2,241,356 respectively.
Note 3, Commitments to fund loans
Outstanding commitments to originate loans were $18,336,000 and $21,943,000 at
March 31, 2003 and December 31, 2002.
Note 4, Allowance for Loan Losses
Credit risk is the risk of loss from a customer default on a loan. The Bank has
in place a process to identify and manage its credit risk. The process includes
initial credit review and approval, periodic monitoring to measure compliance
with credit agreements and internal credit policies, monitoring changes in the
risk ratings of loans and leases, identification of problem loans and special
procedures for the collection of problem loans. The risk of loss is difficult to
quantify and is subject to fluctuations in values and general economic
conditions and other factors. THE DETERMINATION OF THE ALLOWANCE FOR LOAN LOSSES
IS A CRITICAL ACCOUNTING POLICY WHICH INVOLVES ESTIMATES AND MANAGEMENT'S
JUDGMENT ON A NUMBER OF FACTORS SUCH AS NET CHARGE-OFFS, DELINQUENCIES IN THE
LOAN PORTFOLIO AND GENERAL ECONOMIC CONDITIONS. The Bank considers the allowance
for loan losses of $3,610,000 adequate to cover losses
6
COMBANC INC. AND SUBSIDIARY
March 31, 2003 FORM 10-Q
inherent in the loan portfolios as of March 31, 2003. However, no assurance can
be given that the Bank will not, in any particular period, sustain loan losses
that are sizeable in relation to the amount reserved, or that subsequent
evaluations of the loan portfolio, in light of factors then prevailing,
including economic conditions and the Bank's on-going credit review process,
will not require significant increases in the allowance for loan losses. Among
other factors, a protracted economic slowdown and/or a decline in commercial or
residential real estate values in the Bank's markets may have an adverse impact
on the adequacy of the allowance for loan losses by increasing credit risk and
the risk of potential loss.
Note 5, Effect of Accounting Changes
On November 25, 2002, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN No. 45)
which expands on the accounting guidance of Statements No. 5, 57 and 107 and
incorporates without change the provisions of FASB Interpretation No. 34, which
is being superseded.
FIN No. 45, which is applicable to public and non-public entities, will
significantly change current practice in the accounting for, and disclosure of,
guarantees. Each guarantee meeting the characteristics described in FIN No. 45
is to be recognized and initially measured at fair value, which will be a change
from current practice for most entities. In addition, guarantors will be
required to make significant new disclosures, even if the likelihood of the
guarantor making payments under the guarantee is remote, which represents
another change from current general practice.
FIN No. 45's disclosure requirements are effective for financial statements of
interim or annual periods ending after December 15, 2002, while the initial
recognition and initial measurement provisions are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002. The Company has
changed its method of accounting and financial reporting for standby letters of
credit by adopting the provisions of FIN No. 45 effective January 1, 2003. There
was no material impact of the adoption on the financial statements.
7
COMBANC INC. AND SUBSIDIARY
March 31, 2003 FORM 10-Q
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 decreased 2.69% from $218,030,000 at December 31, 2002 to
$212,171,000 at March 31, 2003. This is the result of a $4,915,000 decrease in
loans and a $4,975,000 decrease in total deposits.
Federal Funds sold increased $5,661,000 or 122.43% from December 31, 2002 to
$10,285,000 at March 31, 2003 while Cash and Due from Banks decreased $4,818,000
or 39.17% from $12,301,000 at December 31, 2002 to $7,483,000 at March 31, 2003.
Due to a clerical error at a correspondent bank on December 31, 2002, federal
funds should have been $8,973,000 and Cash and Due from Banks were $7,952,000.
The error was left unadjusted due to the external accountants' confirmation of
the $4,624,000 in Federal Funds Sold. Although the confirmed balance was
$4,624,000, interest was earned on the $8,973,000.
Investment securities decreased $2,732,000 from $54,396,000 at December 31, 2002
to $51,664,000 at March 31, 2003. This decrease is the result of the cash flows
and prepayments from the Mortgage-backed securities and an U.S. Agency Bond
being called within the investment portfolio.
Total gross loans decreased 3.51% or $4,915,000 from December 31, 2002 to
$135,176,000 on March 31, 2003. Real estate loans decreased $2,107,000 or 1.96%
from year-end to March 31, 2003 due to a continued demand for lower interest
rate mortgage loans. As these loans are refinanced, the bank chooses to sell
these mortgages, with servicing retained, to the Federal Home Loan Mortgage
Corporation in order to be able to offer competitive mortgage rates to
consumers. Commercial loans decreased 8.75% or $1,452,000 from $16,588,000 at
December 31, 2002 to $15,136,000 at March 31, 2003. This decrease is primarily
due to the higher risk that these loans carry in a sluggish economy. As these
loans were refinanced, they were priced above the competition to encourage a
controlled amount of runoff. Consumer installment loans decreased 9.96% or
$1,175,000 from $11,795,000 at December 31, 2002 primarily due to the desire to
reduce indirect auto loans which tend to be of higher risk in nature.
The Allowance for Loan Losses, at March 31, 2003 was 2.67% of total loans
compared to 1.46% at December 31, 2002. This $1,560,000 increase from December
31, 2002 is the result of a $1,730,000 provision and net charge offs of
$170,000, increasing the Allowance for Loan Loss from $2,050,000 at December 31,
2002 to $3,610,000 at March 31, 2003. Due to a low coverage ratio of Allowance
for Loan Losses (ALLL) to non accrual loans, 26% before an addition of
$1,550,000 to the ALLL,
8
COMBANC INC. AND SUBSIDIARY
March 31, 2003 FORM 10-Q
management increased the provision by $1,550,000 improving the ratio to 45%. The
addition of the $1,550,000 was also due to the continued high volume of
$8,072,000 in nonaccrual loans that management continues to pursue legally. Of
the $170,000 in net charge offs, $86,000 consisted of commercial and industrial
loans, $54,000 consisted of consumer installment loans, and $30,000 consisted of
construction and land development loans which are secured by real estate.
Total deposits decreased $4,975,000 or 2.78% from $178,891,000 on December 31,
2002 to $173,916,000 on March 31, 2003. Noninterest bearing deposits decreased
$2,673,000 from December 31, 2002 to March 31, 2003, while interest-bearing
deposits decreased $2,302,000 during the period. Time deposit balances decreased
$3,059,000, while interest-bearing checking accounts decreased $298,000 and
money market and savings accounts increased $1,055,000 during this period.
Short-term borrowings, which include Federal Home Loan Bank borrowings with
original maturities of less than one year and repurchase agreements, increased
$214,000 from December 31, 2002 to March 31, 2003. Of the $214,000 increase,
Federal Home Loan Bank borrowings were unchanged while repurchase agreements
increased $214,000. Long-term debt or borrowings with an original maturity of
greater than one year from the Federal Home Loan Bank decreased $260,000 or
3.37% from December 31, 2002 to March 31, 2003.
Total shareholders equity decreased 3.46% or $842,000 to $23,508,000 from
December 31, 2002 to March 31, 2003. Included in the overall decrease were a
decrease in retained earnings of $582,000 as a result of a first quarter net
loss, $265,000 in dividends and a $5,000 increase in Net Unrealized Gains on
available for sale securities. No Treasury Stock was repurchased in the first
quarter of 2003.
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 decreased $80,000 for the three months ended March
31, 2003 from a year ago.
Total interest income decreased $585,000 to $2,845,000 from $3,430,000 for the
three months ended March 31, 2003 over March 31, 2002. Interest and fees on
loans decreased $606,000 or 21.35% over the same time last year. This decrease
is due to the increased volume of real estate loans sold to FHLMC on the
secondary market, the repricing of portfolio loans and two additional rate cuts
by the Federal Reserve in 2002. Taxable investment income increased $75,000 or
20.27% for the first three months of 2003 for a total of $445,000 compared to
$370,000 for the first three months of 2002. This increase is due to the
$17,508,000 increase in Mortgage-backed securities from March 31, 2002 to March
31, 2003. Interest on Federal Funds sold decreased from $58,000 for the first
quarter ended March 31, 2002 to $20,000 for the first quarter ended March 31,
2003. This decrease is also the result of the two interest rate cuts by the
Federal Reserve in 2002 and a decrease in average balance of Federal Funds Sold
of $7,200,000.
9
COMBANC INC. AND SUBSIDIARY
March 31, 2003 FORM 10-Q
Non-interest income increased $157,000 or 62.06% for the three months ended
March 31, 2003 from March 31, 2002. The increase was due in part to a $96,000
increase in the gain on the sale of real estate loans to the secondary market,
an increase in Service Charges on Deposit Accounts of $15,000, and an increase
in other operating income of $46,000.
The provision for loan losses increased $1,580,000 for the three months ended
March 31, 2003 compared to March 31, 2002. Management increased the provision
for loan losses due to an increase in loan delinquencies. Due to local economic
conditions, the increase in non-accrual loan balances of $4,814,000 and the
charge-off of $194,000 management increased the provision by $1,580,000.
Total interest expense decreased 34.40% or $505,000 from $1,468,000 for the
three months ended March 31, 2002 to $963,000 for the three months ended March
31, 2003. Interest on deposits decreased $469,000 or 35.97% compared to the
first three quarters of 2002. This decrease is the result of a decrease in
certificate interest rates during 2001 and 2002 as well as a $9,328,000 decrease
in the volume of time deposits from a year ago. Interest on short term
borrowings decreased $8,000 and long term borrowings decreased $28,000. The
decrease in short term borrowings is due to the decrease in interest rates on
repurchase agreements and the decrease in long term borrowings is due to the
decrease in interest rates and the decrease in long-term debt at the Federal
Home Loan Bank of $2,085,000.
Non-interest expense increased 4.27% or $62,000 to $1,515,000 for the three
months ended March 31, 2003 compared to $1,453,000 for the three months ended
March 31, 2002. Salaries and employee benefits increased $94,000 over the first
quarter of 2002. This increase is due to an increase of $69,000 in group
insurance costs and a $25,000 increase in employee salaries for the first three
months of 2003 over the first three months of 2002. Other operating expenses
have decreased $46,000 to $511,000 for the first three months of 2003 from
$557,000 for the first three months of 2002. Included in this decrease is a
decrease of $12,000 in advertising expense, a decrease of $6,000 in data
processing fees, a decrease of $28,000 in printing and office supplies, a
decrease of $18,000 in legal and professional fees, a decrease of $15,000 in
other expense, while there was an increase in equipment expenses of $13,000.
Net income decreased $1,055,000 or 223.04% from $473,000 for the three months
ended March 31, 2002 to a net loss of $582,000 for the three months ended March
31, 2003. This net loss for the first quarter of 2003 is due to the significant
increase in the provision in the amount of $1,580,000, where the provision was
$150,000 for the first quarter of 2002 compared to $1,730,000 for the first
quarter of 2003.
FORWARD-LOOKING STATEMENTS
The Company has made, and may continue to make, various forward-looking
statements with respect to interest rate sensitivity analysis, credit quality
and other financial and business matters for 2003 and, in certain instances,
subsequent periods. The Company cautions that these forward-looking statements
are subject to numerous assumptions, risks and uncertainties, and that
statements for periods subsequent to 2003 are subject to greater uncertainty
because of the increased likelihood of changes in underlying factors and
assumptions. Actual results could differ materially from forward-looking
statements. In addition to those factors previously disclosed by the Company and
those factors identified elsewhere
10
COMBANC INC. AND SUBSIDIARY
March 31, 2003 FORM 10-Q
herein, the following factors could cause actual results to differ materially
from such forward looking statements: Continued pricing pressures on loan and
deposit products, actions of competitors, changes in economic conditions, the
extent and timing of actions of the Federal Reserve, customer's acceptance of
the Company's products and services, the extent and timing of legislative and
regulatory actions and reforms, and changes in the interest rate environment
that reduce interest margins. The Company's forward-looking statements speak
only as the date on which such statements are made. By making any
forward-looking statements, the Company assumes no duty to update them to
reflect new, changing or unanticipated events or circumstances.
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
March 31, 2003 ComBanc, Inc. maintained a Tier I capital ratio of 16.71%, a
total capital ratio of 17.98% and a Tier I leverage ratio of 10.77%.
Based on the respective regulatory capital ratios at March 31, 2003, and 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, the Bank is well capitalized.
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
11
COMBANC INC. AND SUBSIDIARY
March 31, 2003 FORM 10-Q
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,
2003 the Bank's liquid assets amounted to $69,432,000 or 32.72% of total assets
compared with 32.71% at December 31, 2002. Management considers its liquidity to
be adequate to meet its normal funding requirements.
12
COMBANC INC. AND SUBSIDIARY
March 31, 2003 FORM 10-Q
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, 2002. The following table compares
rate sensitive assets and liabilities as of March 31, 2003 to December 31, 2002.
Principal Amount Maturing or Repricing in:
(Dollars in Thousands)
First Years
Year 1 to 5 Thereafter Total
----- ------- ---------- -----
Comparison of 03/31/03 to 12/31/02
Total rate sensitive assets:
At December 31, 2002 $66,518 $85,289 $48,238 $200,045
At March 31, 2003 73,540 78,045 48,472 200,057
Increase (Decrease) 7,022 (7,244) 234 12
Total rate sensitive liabilities:
At December 31, 2002 $77,208 $72,817 $26,440 $176,465
At March 31, 2003 77,959 71,476 24,684 174,119
Increase (Decrease) 751 (1,341) (1,756) (2,346)
Item 4 - Controls and Procedures
Within 90 days prior to the filing of this report, an evaluation was carried out
under the supervision and with the participation of the Company's management,
including our Chief Executive Officer and principal financial Officer, of the
effectiveness of our disclosure controls and procedures (as defined in Rules 13a
- - 14 (c) and 15d - 14 (c) of the Securities Exchange Act of 1934). Based on
their evaluation, our Chief Executive Officer and principal financial Officer
have concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms. Subsequent to the date of their evaluation,
our Chief Executive Officer and principal financial Officer have concluded that
there were no significant changes in the Company's internal controls or other
factors that could significantly affect its internal controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
13
COMBANC INC. AND SUBSIDIARY
March 31, 2003 FORM 10-Q
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, 2003, 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 Commercial 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.
Certifications
Exhibit 99.1. Certification Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Exhibit 99.2. Certification Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) There were no reports on 8-K filed during the quarter ended
March 31, 2003.
14
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 1, 2003 /s/ Paul G. Wreede
------------------
Paul G. Wreede
President, CEO, and Director
Date: May 1, 2003 /s/ Jason R. Thornell
---------------------
Jason R. Thornell
AVP/Controller
15
CERTIFICATIONS
I, Jason R. Thornell, Controller of the Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ComBanc, Inc
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a - 14 and 15d - 14) for the
registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which the quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 1, 2003
/s/ Jason R. Thornell
---------------------
Jason R. Thornell
AVP/Controller
16
CERTIFICATIONS
I, Paul G. Wreede, President and CEO of the Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ComBanc, Inc
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a - 14 and 15d - 14) for the
registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which the quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 1, 2003
/s/ Paul G. Wreede
------------------
Paul G. Wreede
President and CEO
17
10-Q EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX-99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002