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EXHIBIT (13)
1993 CoBancorp Inc. Annual Report to Shareholders
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BALANCE SHEETS CoBancorp Inc. and Subsidiary, PREMIERBank & Trust
December 31
1993 1992
------------ ------------
ASSETS Cash and due from banks $ 29,051,488 $ 24,768,842
Investment securities- (Market value
$156,485,497 in 1993 and $176,384,972
in 1992) 152,933,745 172,766,753
Federal funds sold 3,000,000 4,200,000
Loans 289,448,687 246,404,835
Less allowance for loan losses 5,226,401 5,214,700
------------ ------------
Net loans 284,222,286 241,190,135
Bank premises and equipment 10,563,830 8,326,273
Accrued income and prepaid expenses 3,433,018 4,491,292
Other assets 8,596,377 7,380,437
------------ ------------
TOTAL ASSETS $491,800,744 $463,123,732
============ ============
LIABILITIES Liabilities
AND Deposits
SHAREHOLDERS' Demand-noninterest bearing $ 59,208,379 $ 53,560,963
EQUITY Demand-interest bearing 58,858,055 50,241,459
Savings and other time 309,519,183 298,307,267
------------ -------------
Total deposits 427,585,617 402,109,689
Short-term funds 20,245,028 22,704,665
Other liabilities 3,131,672 2,742,338
Employee stock ownership plan
obligation 1,105,260 1,405,260
------------ ------------
Total liabilities 452,067,577 428,961,952
Shareholders' equity
Capital stock, no par value
3,500,000 shares authorized
3,268,488 shares issued and outstanding
(3,245,409 in 1992) 4,304,345 3,947,905
Capital surplus 16,623,320 16,623,320
Retained earnings 19,910,762 14,995,815
Employee stock ownership plan
obligation (1,105,260) (1,405,260)
------------ ------------
Total shareholders' equity 39,733,167 34,161,780
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $491,800,744 $463,123,732
============ ============
<FN>
See accompanying notes to consolidated financial statements.
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INCOME STATEMENTS CoBancorp Inc. and Subsidiary, PREMIERBank & Trust
Years Ended December 31
1993 1992 1991
------------ ------------ ------------
Interest Income
Loans (including fees)
Taxable $23,382,522 $22,610,054 $24,404,860
Tax-exempt 175,218 231,354 370,649
Investment securities
Taxable 8,099,418 10,163,273 9,103,925
Tax-exempt 2,916,890 1,752,190 1,369,776
Federal funds sold 155,215 277,865 906,652
------------ ------------ ------------
Total interest income 34,729,263 35,034,736 36,155,862
Interest Expense
Deposits 11,970,871 13,863,313 16,740,614
Short-term funds 638,295 584,517 1,556,864
------------ ------------ ------------
Total interest expense 12,609,166 14,447,830 18,297,478
------------ ------------ ------------
Net interest income 22,120,097 20,586,906 17,858,384
Provision for Loan and Real Estate Losses 920,000 2,800,000 2,500,000
------------ ------------ ------------
Net Interest Income After Provision for
Loan and Real Estate Losses 21,200,097 17,786,906 15,358,384
Other Income
Service charges on deposit accounts 1,586,405 1,572,571 1,394,775
Trust fees 1,149,262 1,021,835 929,787
Other 1,066,717 883,456 641,544
Security gains 665,373 565,728 142,005
------------ ------------ ------------
Total other income 4,467,757 4,043,590 3,108,111
Other Expenses
Salaries, wages and benefits 8,410,219 7,059,551 6,895,357
Occupancy-net 1,196,260 1,088,505 1,044,260
Furniture and equipment 546,415 495,217 811,105
Taxes, other than income and payroll 541,965 486,482 443,537
FDIC insurance 924,145 836,981 695,470
Other 7,668,251 6,355,964 4,562,159
------------ ------------ ------------
Total other expenses 19,287,255 16,322,700 14,451,888
------------ ------------ ------------
Income Before Income Taxes 6,380,599 5,507,796 4,014,607
Income Tax Expense (Credit)
Current 1,080,000 1,514,000 951,000
Deferred 20,000 (384,000) (190,000)
------------ ------------ ------------
1,100,000 1,130,000 761,000
------------ ------------ ------------
Net Income $5,280,599 $4,377,796 $3,253,607
============ ============ ============
Net Income Per Share (amounts reflect
four-for-three stock split in February
1994, four-for-three stock split in 1993,
four percent stock dividend in 1992 and
three percent stock dividend in 1991) $1.61 $1.35 $1.01
============ ============ ============
<FN>
See accompanying notes to consolidated financial statements.
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CASH FLOWS CoBancorp Inc. and Subsidiary, PREMIERBank & Trust
Years Ended December 31
1993 1992 1991
----------- ----------- -----------
Net income $ 5,280,599 $ 4,377,796 $ 3,253,607
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan and real estate losses 920,000 2,800,000 2,500,000
Provision for depreciation and amortization 1,026,158 849,721 1,118,648
Amortization of premiums less accretion of
discounts on investment securities 332,613 (35,558) (315,912)
(Increase) in refundable taxes (243,723)
Realized securities gains (665,373) (565,728) (142,005)
Provision (credit) for deferred income taxes 20,000 (384,000) (190,000)
Decrease in interest receivable 437,562 176,673 10,302
(Decrease) in interest payable (114,462) (315,036) (339,622)
(Increase) in other assets (567,817) (366,704) (2,244,452)
(Decrease) increase in other liabilities (2,123) (82,734) 1,021,333
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,423,434 6,454,430 4,671,899
INVESTING ACTIVITIES
Proceeds from sales of investment securities 54,757,889 16,418,877 23,396,793
Maturities of investment securities 56,155,855 30,880,815 21,304,023
Purchases of investment securities (89,259,979) (75,104,862) (67,567,961)
Net decrease in credit card receivables 397,988 437,287 271,168
Net (increase) decrease in longer-term loans (44,250,140) (25,231,062) 12,608,534
Principal payments received under leases 27,155
Purchases of premises and equipment,
net of retirements (3,167,403) (983,934) (91,707)
----------- ----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (25,365,790) (53,582,879) (10,051,995)
FINANCING ACTIVITIES
Net increase in demand deposits
and savings accounts 39,008,588 53,453,789 17,723,128
Net (decrease) increase in certificates
of deposit (13,532,659) (6,221,990) 4,218,543
Net (decrease) increase in short-term funds (2,459,637) 4,060,595 (22,468,497)
Cash dividends (1,347,730) (1,119,798) (826,590)
Dividend investment plan 288,757 221,385 155,207
Long-term incentive plan 67,683
----------- ----------- -----------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES 22,025,002 50,393,981 (1,198,209)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,082,646 3,265,532 (6,578,305)
Cash and cash equivalents at beginning of year 28,968,842 25,703,310 32,281,615
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $32,051,488 $28,968,842 $25,703,310
=========== =========== ===========
<FN>
See accompanying notes to consolidated financial statements.
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EQUITY CoBancorp Inc. and Subsidiary, PREMIERBank & Trust
Years Ended December 31, 1993, 1992 and 1991
Employee
Stock Owner-
Capital Capital Retained ship Plan
Stock Surplus Earnings Obligation Total
---------- ----------- ----------- ---------- -----------
Balance at December 31, 1990 $3,320,335 $14,000,000 $12,185,098 ($1,930,260) $27,575,173
Net income 3,253,607 3,253,607
Cash dividends-$0.26* per share (826,590) (826,590)
Reduction in employee stock ownership
plan obligation 250,000 250,000
Shares issued (15,564*) under dividend
investment plan 155,207 155,207
Three percent stock dividend 102,737 978,511 (1,081,248)
Transfer from retained earnings
to surplus 21,489 (21,489)
---------- ----------- ----------- ---------- -----------
Balance at December 31, 1991 3,578,279 15,000,000 13,509,378 (1,680,260) 30,407,397
Net income 4,377,796 4,377,796
Cash dividends-$0.34* per share (1,119,798) (1,119,798)
Reduction in employee stock ownership
plan obligation 275,000 275,000
Shares issued (17,687*) under
investment plan 221,385 221,385
Four percent stock dividend 148,241 1,623,320 (1,771,561)
---------- ----------- ----------- ---------- -----------
Balance at December 31, 1992 3,947,905 16,623,320 14,995,815 (1,405,260) 34,161,780
Net income 5,280,599 5,280,599
Cash dividends-$0.41 * per share . (1,347,730) (1,347,730)
Reduction in employee stock Ownership
plan obligation 300,000 300,000
Shares issued (18,292*) under dividend
investment plan 288,757 288,757
Shares issued (5,546*) under
long-term incentive plan 67,683 67,683
Adjustment to unrealized gains on
available-for-sale securities,
net of tax 982,078 982,078
---------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1993 $4,304,345 $16,623,320 $19,910,762 $(1,105,260) $39,733,167
========== =========== =========== =========== ===========
<FN>
* Restated for four-for-three stock split in February 1994, four-for-three stock
split in 1993, four percent stock dividend in 1992 and three percent stock
dividend in 1991. See accompanying notes to consolidated financial statements.
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NOTES CoBancorp Inc. and Subsidiary, PREMIERBank & Trust
Years Ended December 31, 1993, 1992 and 1991
NOTE A--ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements
include the accounts of CoBancorp Inc. and its wholly-owned subsidiary,
PREMIERBank & Trust. All material intercompany accounts and transactions have
been eliminated.
Securities Held-to-Maturity and Available-for-Sale: Management
determines the appropriate classification of debt securities at the time of
purchase and reevaluates such designation as of each balance sheet date. Debt
securities are classified as held-to-maturity when the Corporation has the
positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost.
Debt securities not classified as held-to-maturity or trading and
marketable equity securities not classified as trading are classified as
available-for-sale. Available-for-sale securities are stated at fair value,
with the unrealized gains and losses, net of tax, reported in a separate
component of shareholders' equity.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest
income from investments. Interest and dividends are included in interest income
from investments. Realized gains and losses are included in net securities
gains (losses). The cost of securities sold is based on the specific
identification method.
Loans: Interest on loans is credited to earnings based upon the principal
amount outstanding.
Bank Premises and Equipment: Bank premises and equipment are stated at
cost less accumulated depreciation and amortization. Depreciation and
amortization are computed on straight-line and declining-balance methods, based
upon the following ranges of lives:
Years
-----
Buildings 10-40
Equipment and leasehold improvements 3-20
The asset account is relieved of the cost of the item and the allowance
for depreciation is charged with accumulated depreciation or amortization when
property is retired or otherwise disposed. Any resulting gain or loss is
reflected in operations concurrently. Costs of major additions and improvements
are capitalized. Expenditures for maintenance and repairs are charged to
operations as incurred.
Allowance for Loan Losses: The provision for loan losses charged to
operating expense and the adequacy of the allowance for loan losses are based
upon a continuing evaluation of the loan portfolio, prior years' loss
experience, current economic conditions and other pertinent factors.
Income Taxes: Certain items of income and expense are recognized in
taxable years other than those in which such amounts are recognized in the
financial statements. Provisions are made in the financial statements for any
deferred taxes that arise in recognition of these temporary differences in
accordance with FASB Statement No. 109, "Accounting for Income Taxes."
Effective January 1, 1993, the Corporation changed its method of accounting for
income taxes from FASB Statement No. 96 to FASB Statement No. 109, "Accounting
for Income Taxes." As permitted under the new rules, prior years' financial
statements have not been restated. The cumulative effect of adoption of FASB
Statement No. 109 was not material to the Corporation's results of operations
for the year ended December 31, 1993.
Cash Equivalents: Cash equivalents include amounts due from banks and
federal funds sold. Generally, federal funds are purchased and sold for periods
less than thirty days.
12
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Fair Values of Financial Instruments: FASB Statement No. 107, "Disclosures
about Fair Value of Financial Instruments," 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. In cases
where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
Statement No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirement. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the
Corporation.
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and short-term instruments approximate those assets' fair
Values.
Investment securities (including mortgage-backed securities): Fair
Values for investment securities are based on quoted market prices,
where available. If quoted market prices are not available, fair values
are based on quoted market prices of comparable instruments.
Loans receivable: For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values are based on
carrying values. The fair values for certain mortgage loans (e.g.,
one-to-four family residential), credit card loans, and other consumer
loans are based on quoted market prices of similar loans sold in
conjunction with securitization transactions, adjusted for differences
in loan characteristics. The fair values for other loans (e.g.,
commercial real estate and rental property mortgage loans, commercial
and industrial loans, financial institution loans, and agricultural
loans) are estimated using discounted cash flow analyses, using interest
rates currently being offered for loans with similar terms to borrowers
of similar credit quality. The carrying amount of accrued interest
approximates its fair value.
Deposit liabilities: The fair values disclosed for demand deposits
(e.g., interest and non-interest checking, passbook savings, and certain
types of money market accounts) are, by definition, equal to the amount
payable on demand at the reporting date (i.e., their carrying amounts).
The carrying amounts for variable-rate, fixed-term money market accounts
and certificates of deposit approximate their fair values at the
reporting date. Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest
rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits.
Short-term funds: The carrying amounts of the funds under repurchase
agreements and other short-term funds approximate their fair values.
Long-term borrowings: The carrying amounts of the Corporation's
long-term borrowings (other than deposits) approximate their fair
values.
Postretirement and Postemployment Benefits: In 1990, the FASB issued Statement
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." The provisions of Statement No. 106 were effective in 1993. The
financial statement impact of Statement No. 106 was not significant. In 1992,
the FASB issued Statement No. 112, "Employers' Accounting for Postemployment
Benefits." The Corporation is not required to implement the statement until the
first quarter of 1994. The financial statement impact of Statement No. 112 will
not be significant.
Segment of Business: The Corporation operates in the single industry of
banking. While the Corporation offers a wide range of services, they are all
deemed to be a part of commercial banking.
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Per Share Amounts: Earnings per share computations are based on the
average number of shares of capital stock outstanding during the year. All per
share amounts have been adjusted to reflect a four-for-three stock split in
February 1994, the four-for-three stock split in 1993, the four percent stock
dividend paid in 1992 and the three percent stock dividend paid in 1991.
Reclassifications: Certain amounts in the 1992 and 1991 consolidated
financial statements have been reclassified to conform to the 1993
presentation.
NOTE B--RESTRICTIONS ON CASH AND DUE FROM BANKS
PREMIERBank & Trust is required to maintain average reserve balances
with the Federal Reserve Bank. The average amount of those reserve balances for
the year ended December 31, 1993, was $2,273,000.
NOTE C--INVESTMENT SECURITIES
The following is a summary of available-for-sale and held-to-maturity
securities:
Available-for-Sale Securities
------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ----------
December 31, 1993
U. S. Treasury and other
U. S. Government agencies $23,440,201 $ 840,402 $ 17,800 $24,262,803
Collateralized mortgage-
backed securities 63,834,806 1,027,321 361,925 64,500,202
----------- ---------- -------- -----------
$87,275,007 $1,867,723 $379,725 $88,763,005
=========== ========== ======== ===========
Held-to-Maturity Securities
------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
December 31, 1993
States of the U. S. and
political subdivisions $63,731,890 $3,711,951 $160,199 $67,283,642
Other 438,850 438,850
----------- ---------- -------- -----------
$64,170,740 $3,711,951 $160,199 $67,722,492
=========== ========== ======== ===========
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- -----------------------------------------------------------------------------------------------
The following is a summary of investment securities:
Investment Securities
-----------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
----- ---------- --------- -----------
December 31, 1992
U. S. Treasury and other
U. S. Government agencies $52,778,367 $1,451,549 $258,651 $53,971,265
States of the U. S. and
political subdivisions 37,507,552 1,015,455 274,289 38,248,718
Collateralized mortgage-
backed securities 82,041,984 2,019,721 335,566 83,726,139
Other 438,850 438,850
------------ ---------- -------- ------------
$172,766,753 $4,486,725 $868,506 $176,384,972
============ ========== ======== ============
Gross proceeds from sales of investment securities during 1993, 1992 and 1991
were $57,452,409, $16,731,943 and $24,123,461, respectively. For the same
periods, gross gains of $768,985, $565,728 and $204,492, and gross losses of
$103,612, $0 and $62,487 were realized, respectively. The net adjustment to
unrealized holding gains on available-for-sale securities included as a separate
component of shareholders' equity totaled $982,078 for 1993.
The amortized cost and estimated fair value of debt and marketable equity
securities at December 31, 1993, by contractual maturity, are shown below.
Mortgage-backed securities which may have prepayment provisions are assigned to
a maturity category based on estimated average life. Expected maturities will
differ from contractual maturities because the issuers of securities may have
the right to prepay obligations without prepayment penalties.
Available-for-Sale Securities
-----------------------------
Estimated
Fair
Cost Value
----------- -----------
Due in 1 year or less $31,542,117 $31,944,642
Due in 1 to 5 years 43,462,060 44,196,462
Due in 5 to 10 years 10,821,107 11,139,293
Due after 10 years 1,449,723 1,482,608
----------- -----------
$87,275,007 $88,763,005
=========== ===========
Held-to-Maturity Securities
-----------------------------
Estimated
Fair
Cost Value
----------- -----------
Due in 1 year or less $2,596,283 $2,647,411
Due in 1 to 5 years 13,322,912 14,019,675
Due in 5 to 10 years 29,328,994 30,974,331
Due after 10 years 18,922,551 20,081,075
---------- ----------
$64,170,740 $67,722,492
=========== ===========
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At December 31, 1993 and 1992, investment securities with a carrying
value of approximately $66,617,000 and $72,768,000, respectively, were
pledged as collateral to secure public deposits and for other purposes.
NOTE D--LOANS
The composition of the loan portfolio at December 31 was:
1993
---------------------------------
Carrying Fair
Amount Value
------------ ------------
Real estate $132,588,801 $135,869,400
Installment 31,228,831 32,308,912
Commercial and collateral 122,698,707 126,149,760
All other 2,932,348 2,932,348
------------ ------------
$289,448,687 $297,260,420
============ ============
1992
---------------------------------
Carrying Fair
Amount Value
------------ ------------
Real estate $99,760,867 $102,249,762
Installment 34,144,351 35,076,199
Commercial and collateral 109,169,282 111,141,381
All other 3,330,335 3,330,335
------------ -------------
$246,404,835 $251,797,677
============ ============
Included in commercial and collateral loans for 1993 and 1992 are $4,079,542
and $4,590,216, respectively, of tax-exempt industrial revenue development
bonds.
Transactions in the allowance for loan losses were:
1993 1992 1991
---------- ---------- ----------
Balance at January 1 $5,214,700 $4,098,578 $4,643,786
Provision for loan losses 820,000 2,800,000 2,500,000
Recoveries on loans
charged off 1,337,624 1,166,339 1,241,746
---------- ---------- ----------
7,372,324 8,064,917 8,385,532
Loans charged off (2,145,923) (2,850,217) (4,286,954)
--------- --------- ---------
Balance at December 31 $5,226,401 $5,214,700 $4,098,578
========== ========== ==========
At December 31, 1993, nonaccrual loans were $1,318,207, and other real estate
was $639,829. At December 31, 1992, the corresponding amounts were $2,431,929
and $1,018,188, respectively.
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NOTE E--BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31 were:
1993 1992
---------- ----------
Land and improvements $2,205,564 $1,873,888
Buildings 9,295,326 7,677,719
Equipment and leasehold
improvements 10,381,577 9,281,826
Construction in progress 59,263 0
----------- ----------
21,941,730 18,833,434
Less accumulated depreciation
and amortization 11,377,900 10,507,161
----------- ----------
$10,563,830 $8,326,273
=========== ==========
NOTE F--DEPOSITS
Time certificates of deposit with balances of $100,000 or more, principally
public and corporate funds, were $13,774,942 and $24,710,834 at December 31,
1993 and 1992, respectively. Interest expense on these deposits amounted to
$602,849, $970,122 and $1,744,808 for 1993, 1992 and 1991, respectively.
Total interest paid on deposits in 1993, 1992 and 1991 was $12,083,166,
$14,177,396 and $17,032,128, respectively.
The carrying amounts and fair values of deposits consisted of the following at
December 31. For deposits with no defined maturities, Statement 107 defines
fair value as the amount payable on demand.
1993
-----------------------------
Carrying Fair
Amount Value
----------- -----------
Demand--noninterest bearing $ 59,208,379 $ 59,208,379
Demand--interest bearing 58,858,055 58,858,055
Savings 177,432,128 177,432,128
Certificates of deposit 101,581,620 97,075,975
IRAs 30,505,435 29,626,862
------------ ------------
$427,585,617 $422,201,399
============ ============
1992
------------------------------
Carrying Fair
Amount Value
------------ ------------
Demand--noninterest bearing $ 53,560,963 $ 53,560,963
Demand--interest bearing 50,241,459 50,241,459
Savings 152,687,552 152,687,552
Certificates of deposit 118,389,211 114,233,660
IRAs 27,230,504 26,401,402
------------ ------------
$402,109,689 $397,125,036
============ ============
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NOTE G--REPURCHASE AGREEMENTS
The Bank enters into sales of securities under agreements to repurchase
(repurchase agreements) for periods of up to 29 days, which are treated as
financings; the obligation to repurchase securities sold is reflected as a
liability in the consolidated balance sheet. The dollar amount of securities
underlying the agreements remains in the respective asset accounts
(investments) and physical possession of the securities remains with the Bank.
Repurchase agreement information as of December 31, 1993, is summarized as
follows:
Assets Sold Repurchase Liability
---------------------------- -------------------------------
Carrying Market Carrying Interest
Amount Value Amount Rate
---------------------------- -------------------------------
U.S. Government agency securities $4,506,299 $4,587,619 $4,452,890 2.18%
============================ ===============================
NOTE H--CAPITAL STOCK
On June 21, 1993, the Corporation declared a four-for-three stock split, payable
on July 23, 1993, to shareholders of record July 15, 1993. The increase in the
number of shares outstanding as a result of the stock split was 609,619. Cash
was paid for any resulting fractional shares. On October 26, 1992, the
Corporation declared a stock dividend of four percent, payable to shareholders
of record November 30, 1992. The dividend was recorded at fair market value. The
increase in the number of shares outstanding as a result of the stock dividend
was 69,473. Cash was pald for any resulting fractional shares. On October 21,
1991, the Corporation declared a stock dividend of three percent, payable to
shareholders of record November 29, 1991. The dividend was recorded at fair
market value. The increase in the number of shares outstanding as a result of
the stock dividend was 50,144. Cash was paid for any resulting fractional
shares.
The Corporation adopted a dividend investment plan in 1987. The Plan allows
shareholders to elect to use their dividends to purchase shares of capital stock
at ninety-five percent of the fair market value of such stock as determined on
the dividend declaration date. During 1993, 13,719 shares were issued under the
Plan.
NOTE I--DIVIDEND RESTRICTION
The payment of dividends by member banks of the Federal Reserve System, without
prior Federal regulatory approval, is limited to the current year's net profits
as defined and the retalned net profits for the two preceding years. At December
31, 1993, approximately $9,618,000 was available to the subsidiary bank for the
payment of dividends without prior regulatory approval.
NOTE J--INCOME TAXES
Significant components of the Corporation' s deferred tax assets and
liabilities as of December 31, 1993 are as follows:
Deferred tax assets:
Provision for Loan Losses $ 945,340
Deferred Compensation 563,938
Nonaccrual Loan Interest 318,818
Other 35,379
-----------
1,863,475
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Deferred tax liabilities:
Tax over Book Depreciation 563,007
FASB Statement No. 115 505,919
Pension Costs 276,469
Insurance Costs 73,633
Other 119,276
------------
1,538,304
------------
Net deferred tax asset $ 325,171
============
The significant temporary differences giving rise to the deferred taxes
for 1992 and 1991 include the allowance for loan losses, depreciation and
pension costs.
The reasons for the difference between tax expense based on the statutory
rate of 34 percent in 1993, 1992 and 1991 and the effective tax rates
were:
1993 1992 1991
----------------- ------------------ ------------------
Tax expense at statutory rates $ 2,169,000 $ 1,873,000 $ 1,365,000
Reduction in taxes resulting from:
Tax-exempt interest (1,051,000) (675,000) (530,000)
Life insurance proceeds (164,000)
Other (18,000) (68,000) 90,000
------------------ ----------------- ------------------
$1,100,000 $ 1,130,000 $ 761,000
================== ================= ==================
The Corporation made income tax payments of approximately $1,634,000,
$1,310,000 and $780,000 during 1993, 1992 and 1991, respectively.
NOTE K--PENSION PLAN
The Corporation has a trusteed, noncontributory retirement plan
covering eligible employees. Pension benefits are based on employee'career
average compensation. The Bank's funding policy is to contibute sufficient
amounts to meet minimum funding requirements set forth by required laws plus
such additional amounts as the Bank may determine appropriate.
A summary of the components of pension expense for 1993 and credit for
1992 and 1991 is as follows:
1993 1992 1991
--------------- ----------------- ----------------
Service cost benefits earned
during the period $ 185,000 $ 149,000 $ 147,000
Interest cost on projected
benefit obligation 174,000 202,000 190,000
Return on plan assets (228,000) (308,000) (286,000)
Net amortization and deferral (51,000) (89,000) (74,000)
-------------- ------------------ ---------------
Net pension expense (credit) $ 80,000 $ (46,000) $ (23,000)
============== ================== ===============
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14
The funded status of the plan at December 31 was as follows:
1993 1992
----------- ----------
Actuarial present value of
accumulated benefit obligation
Vested $ 2,031,000 $ 1,636,000
Nonvested 137,000 120,000
----------- -----------
$ 2,168,000 $ 1,756,000
----------- -----------
----------- -----------
Actuarial present value of
projected benefit obligation $(2,832,000) $(2,217,000)
Plan assets at fair value 3,465,000 3,271,000
----------- -----------
Plan assets in excess of
projected benefit obligation 633,000 1,054,000
Unrecognized transition asset,
net of amortization (837,000) (931,000)
Unrecognized net loss 919,000 672,000
----------- -----------
Net pension asset included
in other assets $ 715,000 $ 795,000
----------- -----------
----------- -----------
The long-term rate of return used to determine the expected return on plan
assets included in net pension expense (credit) is 7 percent in 1993 and
8 percent in 1992 and 1991. The projected benefit obligation was determined
using an assumed discount rate of 7 percent in 1993 and 8 percent in 1992,
and an annual compensation increase of 5 percent in 1993 and 6 percent in 1992.
At December 31, 1993 and 1992, plan assets consisted primarily of money
market, equity and fixed income funds.
NOTE L--EMPLOYEE STOCK OWNERSHIP PLAN
The Corporation has a noncontributory employee stock ownership plan (ESOP)
that covers substantially all employees. The ESOP borrowed $2,680,260
(balance outstanding at December 31, 1993, was $1,105,260) under a
loan agreement expiring in 1996 with an unaffiliated bank to finance a
purchase of shares of the Corporation's capital stock for the Plan.
The loan agreement provides for the payment of interest at a fluctuating rate.
The rate of interest on the loan at December 31, 1993, was 5.50 percent.
Interest incurred on this loan obligation was $70,094, $88,103 and $141,361
in 1993, 1992 and 1991, respectively. At December 31,1993, 88,372 shares of the
Corporation's common stock owned by the ESOP were pledged as security for the
payment of principal and interest as provided in the loan agreement.
Payments of principal under this agreement are as follows:
1994 $ 325,000
1995 350,000
1996 430,260
----------
$1,105,260
----------
----------
It is anticipated that funds for servicing the loan agreement will be provided
essentially from contributions paid by the Corporation or its subsidiary to the
ESOP, from earnings attributable to such contributions and from cash dividends
paid to the ESOP on shares of the Corporation's capital stock which it owns.
Neither the Corporation nor its subsidiary has guaranteed the payments required
by the loan agreement nor made any commitment to make contributions to the ESOP
for this purpose. However, as required by generally accepted accounting
principles, the ESOP's obligation has been recorded on the Corporation's
consolidated balance sheet, with an offsetting reduction of shareholders'
equity.
20
15
Contributions by the Corporation and its subsidiary to the ESOP are reviewed by
the Board of Directors and are expensed in the year the contribution is
approved. These contributions were $267,600, $292,750 and $350,750 in 1993,
1992 and 1991, respectively.
Dividends received for shares owned by the ESOP amounted to $121,770, $106,605
and $84,010 in 1993, 1992 and 1991, respectively, and were used to service the
loan obligation.
NOTE M--RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank makes loans and enters into other
transactions with its directors, officers and entities having a specified
relationship to such directors and officers. Transactions entered into between
the Bank and such related parties have been and are in the ordinary course of
business made on substantially the same terms and conditions as transactions
with other parties. As of December 31, 1993 and 1992, the Bank had loans
outstanding to related parties of approximately $5,157,803 and $5,432,561,
respectively.
NOTE N--FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Loan commitments are made to accommodate the financial needs of the Bank's
customers. Standby letters of credit commit the Bank to make payments on behalf
of customers when certaln specified future events occur. Both arrangements have
credit risk essentially the same as that involved in extending loans to
customers and are subject to the Bank's normal credit policies. Collateral
(e.g., securities, receivables, inventory or equipment) is obtained based on
management's credit assessment of the customer.
The Bank's maximum potential obligation to extend credit for loan commitments
(unfunded loans and unused lines of credit) and standby letters of credit at
December 31, 1993 and 1992 was:
1993 1992
----------- -----------
Real estate $20,143,000 $11,651,000
Commercial and collateral 44,214,000 40,915,000
All other 13,613,000 12,293,000
----------- -----------
$77,970,000 $64,859,000
=========== ===========
Most of the Bank's business activity is with customers located within the
Bank's defined market area. As of December 31, 1993, the Bank had no
significant concentrations of credit risk in its loan portfolio. The Bank also
has no exposure to highly leveraged transactions and no foreign credits in its
loan portfolio.
NOTE O--LEASES
In 1991, the Corporation entered into an agreement to purchase information
technology services from a data processing company. This agreement has a term
of five years and may be renewed for successive terms of five years each. The
agreement provides for payment of a monthly charge based on the number of
application and transaction accounts maintained. These payments are partially
offset by amounts to be received by the Corporation for the use of certain
equipment and facilities by the data processor. Lease expense was $859,884 for
1993 and $705,392 for 1992. The approximate minimum payments in connection with
this agreement are as follows:
1994 $ 725,000
1995 738,000
1996 624,000
----------
$2,087,000
==========
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16
NOTE P--LONG-TERM INCENTIVE PLAN
On January 21, 1992, the Board of Directors of the Corporation adopted
a long-term incentive plan ("Plan") for officers and key employees of the
Corporation. Under the terms of the Plan, eligible employees may be granted
stock options, restricted stock or long-term performance awards based on
certain conditions. There are 179,342 shares of stock reserved and available
for distribution under the Plan. Stock options are exercisable based on the
falr market value of the stock at the time of the grant. On January 21, 1992,
options which cover 123,876 shares of stock were granted by the Board of
Directors with a fair market value of $12.20 per share, of which 5,546 shares
were exercised at $12.20 per share in 1993. All shares and per share amounts
have been restated for a four-for-three stock split in February 1994, the
four-for-three stock split in 1993 and the four percent stock dividend in 1992.
No options were granted in 1993.
NOTE Q--ACQUISITIONS
On December 2, 1993, the Bank entered into an agreement to acquire
certain assets and assume certain liabilities representing the Worthington,
Ohio branch office of Jefferson Savings Bank, Dublin, Ohio. The transaction is
expected to close in the first quarter of 1994.
NOTE R - ACCOUNTING CHANGES
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." As permitted under the Statement, the
Corporation has elected to adopt the provisions of the new standard as December
31, 1993. In accordance with the Statement, prior period financial statements
have not been restated to reflect the change in accounting principle. The
effect as of December 31, 1993, of adopting Statement 115, was to increase
shareholders' equity by $982,000 (net of $506,000 in deferred income taxes)
reflecting the net unrealized holding gain on securities classified as
available-for-sale previously carried at amortized cost.
NOTE S--COBANCORP INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
BALANCE SHEETS (Parent Company Only)
December 31
1993 1992
----------- -----------
Assets
Cash $ 137,814 $ 50,248
Investment in bank subsidiary 40,700,513 35,516,792
Other assets 100 0
----------- -----------
Total Assets $40,838,427 $35,567,040
=========== ===========
Liabilities and Shareholders' Equity
Liabilities
Employee stock ownership plan obligation $ 1,105,260 $ 1,405,260
----------- -----------
Total Liabilities 1,105,260 1,405,260
Shareholders' Equity 39,733,167 34,161,780
----------- -----------
Total Liabilities and
Shareholders' Equity $40,838,427 $35,567,040
=========== ===========
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17
STATEMENTS OF INCOME (Parent Company Only)
Years Ended December 31
1993 1992 1991
------------- ------------ ------------
Income
Dividends from bank subsidiary $1,250,749 $993,242 $756,756
Expenses 171,793 55,867 89,432
------------- ------------ ------------
Income Before Equity in
Undistributed Net Income of Bank Subsidiary 1,078,956 937,375 667,324
Equity in Undistributed Net
Income of Bank Subsidiary 4,201,643 3,440,421 2,586,283
------------- ------------ ------------
Net Income $5,280,599 $4,377,796 $3,253,607
============= ============ ============
STATEMENTS OF CASH FLOWS (Parent Company Only)
Years Ended December 31
1993 1992 1991
------------- ------------ ------------
Operating Activities
Net income $1,078,956 $937,375 $667,324
(Increase) in other assets (100) 0 0
------------- ------------ ------------
Net Cash Provided by
Operating Activities 1,078,856 937,375 667,324
Financing Activities
Cash dividends (1,347,730) (1,119,798) (826,590)
Dividend investment plan 288,757 221,385 155,207
Long-term incentive plan 67,683 0 0
------------- ------------ ------------
Net Cash Used by Financing
Activities (991,290) (898,413) (671,383)
------------- ------------ ------------
Increase (Decrease) in Cash
and Cash Equivalents 87,566 38,962 (4,059)
Cash and cash equivalents at beginning of year 50,248 11,286 15,345
------------- ------------ ------------
Cash and Cash Equivalents
at End of Year $137,814 $50,248 $11,286
============= ============ ============
NOTE T - SUBSEQUENT EVENT
On January 18, 1994, the Corporation declared a four-for-three stock split,
payable on February 22, 1994, to shareholders of record February 1, 1994. The
increase in the number of shares outstanding as a result of the stock split was
817,255. Cash was paid for any resulting fractional shares. Accordingly, all
share and per share amounts have been adjusted retroactively to reflect the
stock split.
23
18
REPORT OF INDEPENDENT AUDITORS
Board of Directors
CoBancorp Inc.
We have audited the accompanying consolidated balance sheets of CoBancorp Inc.
and subsidiary as of December 31, 1993 and 1992 and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1993. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CoBancorp Inc.
and subsidiary at December 31, 1993 and 1992 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Notes A and R to the consolidated financial statements, in 1993
the Corporation changed its methods of accounting for income taxes and
accounting for certaln investments in debt and equity securities, respectively.
ERNST & YOUNG
Cleveland, Ohio
January 21, 1994 /s/ Ernst & Young
24
19
FINANCIAL SUMMARY
Financial Condition at Year End
- -----------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
------------ ------------ ------------ ------------ ------------
Assets $491,800,744 $463,123,732 $408,749,723 $406,012,614 $400,516,741
Cash and due from banks 29,051,488 24,768,842 18,703,310 17,381,615 22,647,868
Investment securities 152,933,745 172,766,753 144,360,297 121,035,235 134,416,256
Loans 289,448,687 246,404,835 223,294,937 239,247,001 219,086,562
Deposits 427,585,617 402,109,689 354,877,890 332,936,219 335,575,640
Employee stock ownership
plan obligation 1,105,260 1,405,260 1,680,260 1,930,260 2,155,260
Shareholders' equity 39,733,167 34,161,780 30,407,397 27,575,173 26,253,440
Operations For The Year
- -----------------------------------------------------------------------------------------------------
Gross operating income $39,197,020 $39,078,326 $39,263,973 $40,333,317 $38,880,575
Operating expenses 32,816,421 33,570,530 35,249,366 38,820,425 36,175,400
------------ ------------ ------------ ------------ ------------
Income before income taxes 6,380,599 5,507,796 4,014,607 1,512,892 2,705,175
Federal incorne tax expense
(credit) 1,100,000 1,130,000 761,000 (320,000) (30,000)
------------ ------------ ------------ ------------ ------------
Net income $5,280,599 $4,377,796 $3,253,607 $1,832,892 $2,735,175
============ ============ ============ ============ ============
- -----------------------------------------------------------------------------------------------------
Cash dividends $1,347,730 $1,119,798 $826,590 $907,961 $775,305
Common shares outstanding 3,268,488 3,245,410 3,229,092 3,213,958 3,194,362
Net income per share $1.61 $1.35 $1.01 $0.57 $0.86
Dividends per share 0.41 0.34 0.25 0.28 0.24
Book value per share 12.16 10.53 9.42 8.58 8.22
All per share amounts have been adjusted for a four-for-three stock split in
February 1994, a four-for-three stock split in 1993, a four percent stock
dividend in 1992, a three percent stock dividend in 1991 and a five percent
stock dividend in 1989.
MARKET AND DIVIDEND INFORMATION
All common shares of CoBancorp Inc. are voting shares and are traded on the
Nasdaq National Market System. There are currently 3,268,488 shares outstanding,
held among approximately 1,700 shareholders of record as of December 31, 1993.
Beginning in August 1993, prices are the high and low closing prices as reported
by Nasdaq. Prior to that time, prices are the high and low bid quotations taken
from those published weekly by a newspaper of general circulation in Lorain
County. All per-share amounts have been adjusted for a four-for-three stock
split in February 1994, a four-for-three stock split in July 1993 and a four
percent stock dividend in December 1992.
Trading Ranges of Common Stock
Bid Prices Dividend Per Share
------------------------------------- -----------------------
1993 1992 1993 1992
---------------- ---------------- ------- -------
First Quarter $14.48 $15.19 $12.03 $12.58 $0.0900 $0.0811
Second Quarter 15.19 15.75 12.71 13.25 0.0956 0.0865
Third Quarter 15.82 18.56 13.25 13.52 0.1050 0.0865
Fourth Quarter 19.13 25.50 13.52 14.48 0.1200 0.0865
------- -------
$0.4106 $0.3406
======= =======
25