1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(x) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1994
COMMISSION FILE NUMBER 0-10161
FIRST BANCORPORATION OF OHIO
(Exact name of registrant as specified in its charter)
OHIO 34-1339938
(State or other jursidiction of (IRS Employer Identification
incorporation or organization) Number)
106 SOUTH MAIN STREET, AKRON, OHIO 44308
(Address of Principal Executive Offices)
(216) 384-8000
(Telephone Number)
SHARES OF COMMON STOCK, AS OF JUNE 30, 1994
27,151,892
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
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FIRST BANCORPORATION OF OHIO
PART I - FINANCIAL STATEMENTS
ITEM 1 FINANCIAL STATEMENTS
- - - ---------------------------
The following statements included in the quarterly unaudited report to
shareholders are incorporated by reference:
Consolidated Balance Sheets as of June 30, 1994,
December 31, 1993 and June 30, 1993
Consolidated Statements of Income for the six months
ended June 30, 1994 and 1993
Consolidated Statements of Changes in Shareholders'
Equity for the year ended December 31, 1993 and for
the six months ended June 30, 1994
Consolidated Statements of Cash Flows for the six
months ended June 30, 1994 and 1993
Notes to Consolidated Financial Statements as of
June 30, 1994, December 31, 1993 and June 30, 1993
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FIRST BANCORPORATION OF OHIO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- - - ---------------------------------------------
(In thousands)
------------------------------------------------
June 30, December 31, June 30,
----------------- ------------ -----------
1994 1993 1993
- - - -----------------------------------------------------------------------------------------------------------------
ASSETS
Investment securities $ 1,401,807 1,340,213 1,314,483
Federal funds sold 5,528 68,050 61,320
Loans less unearned income 2,807,587 2,631,216 2,590,649
Less allowance for possible loan losses 33,122 32,338 31,014
--------------------- ---------- ---------
Net loans 2,774,465 2,598,878 2,559,635
--------------------- ---------- ---------
Total earning assets 4,181,800 4,007,141 3,935,438
Cash and due from banks 195,138 225,226 175,373
Premises and equipment, net 74,232 71,271 70,021
Accrued interest receivable and other assets 79,260 76,645 95,631
--------------------- ---------- ---------
$ 4,530,430 4,380,283 4,276,463
===================== ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand-non-interest bearing $ 656,890 692,597 598,321
Demand-interest bearing 320,489 329,150 300,244
Savings 1,411,392 1,403,784 1,375,842
Certificates and other time deposits 1,345,303 1,318,068 1,386,568
--------------------- ---------- ---------
Total deposits 3,734,074 3,743,599 3,660,975
Securities sold under agreements to repurchase
and other borrowings 342,089 187,584 168,290
--------------------- ---------- ---------
Total funds 4,076,163 3,931,183 3,829,265
Accrued taxes, expenses, and other liabilities 26,039 31,940 45,087
--------------------- ---------- ---------
Total liabilities 4,102,202 3,963,123 3,874,352
Shareholders' equity:
Series preferred stock, without par value:
authorized and unissued 3,500,000 shares - - -
Common stock, without par value:
authorized 40,000,000 shares; issued 27,151,892,
27,131,492 and 13,550,521 shares, respectively 87,849 84,241 42,339
Surplus - - 41,183
Net unrealized holding gains(losses)
on available for sale securities (9,492) - -
Retained earnings 349,871 332,919 318,589
--------------------- ---------- ----------
Total shareholders' equity 428,228 417,160 402,111
--------------------- ---------- ----------
$ 4,530,430 4,380,283 4,276,463
===================== ========= ==========
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FIRST BANCORPORATION OF OHIO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- - - ---------------------------------------------
(In thousands except per share data)
-------------------------------------------------------
Quarter Ended Six Months Ended
June 30, June 30,
-------------------------------------------------------
1994 1993 1994 1993
- - - ----------------------------------------------------------------------------------------------------------------------------
Interest income:
Interest and fees on loans $ 55,260 55,518 108,306 110,373
Interest and dividends on securities:
Taxable 17,846 18,943 34,595 38,740
Exempt from Federal income taxes 1,834 1,928 3,792 3,842
Interest on Federal funds sold 701 770 1,434 1,223
--------- ------- ------- -------
Total interest income 75,641 77,159 148,127 154,178
--------- ------- ------- -------
Interest expense:
Interest on deposits:
Demand-interest bearing 1,914 1,831 3,715 3,730
Savings 8,649 9,518 17,074 19,453
Certificates and other time deposits 13,100 14,784 25,849 30,284
Interest on securities sold under agreements
to repurchase and other borrowings 2,378 1,699 4,188 3,358
--------- ------- ------- -------
Total interest expense 26,041 27,832 50,826 56,825
--------- ------- ------- -------
Net interest income 49,600 49,327 97,301 97,353
Provision for possible loan losses 844 1,914 2,167 3,879
--------- ------- ------- -------
Net interest income after provision
for possible loan losses 48,756 47,413 95,134 93,474
--------- ------- ------- -------
Other income:
Trust department income 2,441 2,415 5,957 4,863
Service charges on depositors' accounts 4,865 5,185 9,934 10,455
Credit card fees 2,117 1,893 3,994 3,686
Securities gains-net 3 (2) (25) (53)
Other operating income 3,790 4,599 8,202 8,356
--------- ------- ------- -------
Total other income 13,216 14,090 28,062 27,307
--------- ------- ------- -------
61,972 61,503 123,196 120,781
--------- ------- ------- -------
Other expenses:
Salaries, wages, pension and employee benefits 21,416 20,030 42,116 40,020
Net occupancy expense 3,224 2,789 6,775 5,800
Equipment expense 2,434 2,778 4,775 5,305
Other operating expense 13,557 14,346 26,900 28,082
--------- ------- ------- -------
Total other expenses 40,631 39,943 80,566 79,207
--------- ------- ------- -------
Income before Federal income taxes 21,341 21,560 42,630 41,574
Federal income taxes 6,354 6,606 12,758 12,634
--------- ------- ------- -------
Net income $ 14,987 14,954 29,872 28,940
========= ======= ======= =======
Per share data based on average number of
shares outstanding:
Net income $ .55 .55 1.10 1.07
Dividends paid $ .25 .21 .48 .41
Weighted average number of shares
outstanding 27,149,313 27,095,302 27,144,006 27,089,549
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FIRST BANCORPORATION OF OHIO AND SUBSIDIARIES
AVERAGE CONSOLIDATED BALANCE SHEETS
- - - ---------------------------------------------
(In thousands except ratios)
Quarters
---------------------------------------------------------------------
1994 1993
--------------------------- --------------------------------------
2nd 1st 4th 3rd 2nd
- - - -------------------------------------------------- -------------- ------------ -----------------------
ASSETS
Investment securities $ 1,355,589 1,331,962 1,339,650 1,325,184 1,308,658
Federal funds sold 56,033 92,105 108,832 80,382 94,452
Loans less unearned income 2,724,469 2,644,529 2,613,622 2,594,075 2,589,075
Less allowance for possible
loan losses 33,458 32,955 32,031 31,490 31,060
------------- -------------- ------------ ---------- ----------
Net loans 2,691,011 2,611,574 2,581,591 2,562,585 2,558,015
------------- -------------- ------------ ---------- ----------
Total earning assets 4,102,633 4,035,641 4,030,073 3,968,151 3,961,125
Cash and due from banks 186,358 217,196 223,430 219,538 173,587
Premises and equipment, net 72,826 71,169 70,850 70,159 70,005
Accrued interest receivable
and other assets 79,613 72,310 76,845 85,575 91,235
------------- -------------- ------------ ---------- ----------
$ 4,441,430 4,396,316 4,401,198 4,343,423 4,295,952
============= ============== ============ ========== ==========
LIABILITIES
Deposits:
Demand-non-interest bearing $ 660,406 669,283 695,585 636,964 589,648
Demand-interest bearing 330,969 327,349 320,077 311,823 307,534
Savings 1,427,135 1,415,099 1,395,470 1,377,627 1,366,361
Certificates and other time
deposits 1,330,020 1,319,825 1,339,329 1,382,244 1,407,982
------------- -------------- ------------ ---------- ----------
Total deposits 3,748,530 3,731,556 3,750,461 3,708,658 3,671,525
Securities sold under agreements to
repurchase and other borrowings 229,331 207,335 198,227 187,390 180,573
------------- -------------- ------------ ---------- ----------
Total funds 3,977,861 3,938,891 3,948,688 3,896,048 3,852,098
Accrued taxes, expenses and
other liabilities 37,087 36,812 38,291 42,241 47,693
------------- -------------- ------------ ---------- ----------
Total liabilities 4,014,948 3,975,703 3,986,979 3,938,289 3,899,791
SHAREHOLDERS' EQUITY 426,482 420,613 414,219 405,134 396,161
------------- -------------- ------------ ---------- ----------
$ 4,441,430 4,396,316 4,401,198 4,343,423 4,295,952
============= ============== ============ ========== ==========
RATIOS
Net income as a percentage of:
Average assets 1.35% 1.37% 1.05% 1.37% 1.40%
Average shareholders' equity 14.10% 14.35% 11.11% 14.68% 15.14%
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FIRST BANCORPORATION OF OHIO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- - - ----------------------------------------------------------
Year Ended December 31, 1993 and
Six Months Ended June 30, 1994
(In thousands)
------------------------------------------------------------------------
Net unrealized
holding gains
(losses) on Total
Common available for Retained Shareholders'
Stock Surplus sale securities Earnings Equity
-------- ------- ------------- -------- ------------
Balance at December 31, 1992 $42,659 40,371 - 300,845 383,875
Net Income - - - 55,560 55,560
Cash dividends ($.87 per share) - - - (23,486) (23,486)
Stock options exercised 1,211 - - - 1,211
Elimination of par value 40,371 (40,371) - - -
------- ------ ------ ------- -------
Balance at December 31, 1993 84,241 - - 332,919 417,160
Net Income - - - 29,872 29,872
Cash dividends ($.48 per share) - - - (12,920) (12,920)
Stock options exercised 3,608 - - - 3,608
Market adjustment investment securities - - (9,492) - (9,492)
------- ------ ------ ------- -------
Balance at June 30, 1994 $87,849 - (9,492) 349,871 428,228
======= ====== ====== ======= =======
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FIRST BANCORPORATION OF OHIO AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1994 and 1993
(In thousands)
---------------------------
1994 1993
---------------------------
Operating Activities
- - - --------------------
Net income $ 29,872 28,940
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 2,167 3,879
Provision for depreciation 3,500 3,301
Amortization of investment security premiums, net (102) 1,925
Amortization of income for lease financing (3,254) (1,060)
Loss on sales of investment securities, net 25 53
Deferred income taxes 78 (1,142)
(Increase) decrease in interest receivable (1,850) 1,459
Decrease in interest payable (81) (278)
Amortization of values ascribed to acquired intangibles 1,454 1,713
Other decreases (4,718) (8,235)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 27,091 30,555
Investing Activities
- - - --------------------
*Proceeds from sales of investment securities
held to maturity 1,099 6,609
Proceeds from sales of investment securities
available for sale 15,901 -
*Proceeds from maturities of investment securities
held to maturity 196,149 252,313
Proceeds from maturities of investment securities
available for sale 39,510 -
*Purchases of investment securities held to maturity (212,849) (240,884)
Purchases of investment securities available for sale (114,218) -
Net decrease in short-term investments 62,522 33,962
Net increase in loans (128,967) (51,663)
Purchases of assets to be leased (58,538) (13,862)
Principal payments received under leases 13,005 5,657
Purchases of premises and equipment (7,283) (5,520)
Sales of premises and equipment 822 1,319
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (192,847) (12,069)
Financing Activities
- - - --------------------
Net increase (decrease) in demand, NOW and
savings deposits (36,760) 1,988
Net increase (decrease) in time deposits 27,235 (42,936)
Net increase (decrease) in short-term borrowings 154,505 (6,887)
Cash dividends (12,920) (11,176)
Proceeds from exercise of stock options 3,608 471
---------- ----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 135,668 (58,540)
Decrease in cash and cash equivalents (30,088) (40,054)
Cash and cash equivalents at beginning of year 225,226 215,427
---------- ----------
Cash and cash equivalents at end of period $ 195,138 175,373
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- - - --------------------------------------------------
Cash paid during the year for:
Interest, net of amount capitalized $ 33,067 38,766
Income taxes 13,124 15,450
========== ==========
<FN>
*Note - The investment portfolio was not classified as held to maturity
or available for sale until fiscal year beginning 1994. The investment
securities cash flow information for fiscal year 1993 is classified as held to maturity
in the above analysis.
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8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - ------------------------------------------
(Unaudited)
June 30, 1994, December 31, 1993
and June 30, 1993
1. ACQUISITION
Great Northern Financial Corporation located in Barberton, Ohio was acquired on
April 22, 1994 in exchange for 1,882,440 shares of First Bancorporation of Ohio
common stock. The transaction was accounted for as a pooling-of-interests.
The accompanying consolidated financial statements for all periods presented
have been restated to account for the acquisition.
Details of the results of operations of the previously separate corporations for
the periods prior to combination are as follows:
Great
First Northern
Bancorporation Financial
Of Ohio Corporation Combined
-------- ----------- --------
FOR THE THREE MONTHS
ENDED MARCH 31, 1994
Interest income $ 65,955 6,531 72,486
Net interest income 45,006 2,695 47,701
Net income 14,073 812 14,885
FOR THE YEAR ENDED
DECEMBER 31, 1993
Interest income $277,720 26,869 304,589
Net interest income 184,489 10,230 194,719
Net income 55,205 319 55,524
FOR THE SIX MONTHS
ENDED JUNE 30, 1993
Interest income $140,778 13,400 154,178
Net interest income 92,485 4,868 97,353
Net income 27,445 1,495 28,940
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Average Consolidated Balance Sheet, Fully-tax Equivalent Interest Rates and Interest Differential (Dollars in thousands)
Quarters ended June 30,
------------------------------------------
1994
------------------------------------------
Average Average
Balance Interest Rate
- - - -------------------------------------------------------------------------------------------
ASSETS
Investment securities $ 1,355,589 20,598 6.09%
Federal funds sold 56,033 701 5.02%
Loans, net of unearned income 2,724,469 55,509 8.17%
Less allowance for possible loan losses 33,458
------------- --------- ----------
Net loans 2,691,011 55,509 8.27%
Cash and due from banks 186,358 - -
Other assets 152,439 - -
------------- ---------- ----------
Total assets $ 4,441,430 76,808 -
============= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand-
non-interest bearing $ 660,406 - -
Demand-
interest bearing 330,969 1,914 2.32%
Savings 1,427,135 8,649 2.43%
Certificates and other time deposits 1,330,020 13,100 3.95%
------------- ----------
Total deposits 3,748,530 23,663 2.53%
Federal funds purchased, securities sold
under agreements to repurchase and 229,331 2,378 4.16%
other borrowings
Other liabilities 37,087 -
Shareholders' equity 426,482 -
------------- ---------
Total liabilities and shareholders' equity $ 4,441,430 26,041 -
============= =========
Total earning assets $ 4,102,633 76,808 7.51%
============= =========
Total interest bearing liabilities $ 3,317,455 26,041 3.15%
============= =========
Net yield on earning assets 50,767 4.96%
========= ======
Interest rate spread 4.36%
======
Year ended December 31,
------------------------------------------
1993
----------------------------------------
Average Average
Balance Interest Rate
- - - ---------------------------------------------------------------------------------------------------
ASSETS
Investment securities $ 1,324,035 82,205 6.21%
Federal funds sold 88,585 2,692 3.04%
Loans, net of unearned income 2,588,576 219,692 8.49%
Less allowance for possible loan losses 31,232
------------ ---------
Net loans 2,557,344 219,692 8.59%
Cash and due from banks 216,195 - -
Other assets 157,364 - -
------------- ----------
Total assets $ 4,343,523 304,589 -
============= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand-
non-interest bearing 643,041 - -
Demand-
interest bearing 311,069 7,371 2.37%
Savings 1,368,368 37,650 2.75%
Certificates and other time deposits 1,388,820 57,967 4.17%
------------- ----------
Total deposits 3,711,298 102,988 2.77%
Federal funds purchased, securities sold
under agreements to repurchase and 188,708 6,882 3.65%
other borrowings
Other liabilities 42,594 -
Shareholders' equity 400,923 -
------------- ---------
Total liabilities and shareholders' equity $ 4,343,523 109,870 -
============= =========
Total earning assets $ 3,969,964 304,589 7.67%
============= =========
Total interest bearing liabilities $ 3,256,965 109,870 3.37%
============= =========
Net yield on earning assets 194,719 4.90%
========= =====
Interest rate spread 4.30%
=====
Quarters ended June 30,
------------------------------------------
1993
----------------------------------------
Average Average
Balance Interest Rate
- - - -----------------------------------------------------------------------------------------------------------
ASSETS
Investment securities $ 1,308,658 21,791 6.75%
Federal funds sold 94,452 770 3.31%
Loans, net of unearned income 2,589,075 55,837 8.75%
Less allowance for possible loan losses 31,060
---------- ---------
Net loans 2,558,015 55,837 8.85%
Cash and due from banks 173,587 - -
Other assets 161,240 - -
---------- ---------
Total assets $ 4,295,952 78,398 -
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand-
non-interest bearing $ 589,648 - -
Demand-
interest bearing 307,534 1,831 2.41%
Savings 1,366,361 9,518 2.83%
Certificates and other time deposits 1,407,982 14,784 4.26%
------------ ----------
Total deposits 3,671,525 26,133 2.89%
Federal funds purchased, securities sold
under agreements to repurchase and 180,573 1,699 3.82%
other borrowings
Other liabilities 47,693 -
Shareholders' equity 396,161 -
------------ ----------
Total liabilities and shareholders' equity $ 4,295,952 27,832 -
============ ==========
Total earning assets $ 3,961,125 78,398 8.03%
============ ==========
Total interest bearing liabilities $ 3,262,450 27,832 3.46%
============ ==========
Net yield on earning assets 50,566 5.12%
========== =====
Interest rate spread 4.57%
=====
<FN>
*Interest income on tax-exempt securities and loans have been adjusted to a fully taxable equivalent basis.
*Non-accrual loans have been included in the average balances.
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RESULTS OF OPERATIONS
First Bancorporation of Ohio's net income for the quarter ended June 30, 1994
was $14,987,000 compared to $14,954,000 for the same period one year ago.
Earnings for the six months ended June 30, 1994 were $29,872,000, an increase of
3.2% compared to 1993's $28,940,000.
Return on average assets equaled 1.35% for the second quarter of 1994
compared to 1.40% for the same quarter one year ago. The second quarter of
1994 return on average equity was 14.10%. For the six months ended June 30,
1994 and 1993 the return on average assets equaled 1.37%. Return on average
equity equaled 14.30% for the first six months of 1994 compared to 14.94% in
1993. The Corporation's performance as measured by return on average equity is
significantly affected by its strong capital base which provides a measure of
safety to shareholders and depositors.
On a per share basis, net income for the quarter ended June 30, 1994 and 1993
was $.55 per share. Net income for the six months ended June 30, 1994 was
$1.10 compared to 1993's per share total of $1.07. The components of change in
per share income for the quarters ended June 30, as well as the six months
ended June 30, 1994 and 1993 are summarized in the following table.
- - - ---------------------------------------------------------------------------
Changes in Earnings per Share
Quarter Six
Ended Months Ended
June 30, June 30,
1994 1994
- - - ---------------------------------------------------------------------------
Net income for the quarter and
six months ended
June 30, 1993 $.55 1.07
Increases (decreases)
attributable to:
Net interest income-
taxable equivalent .01 (.01)
Provision for possible
loan losses .04 .06
Other income (.03) .03
Other expenses (.02) (.05)
Federal income taxes-
taxable equivalent - -
--- ---
Net change in net income - .03
--- ---
Net income for the quarter ended
June 30, 1994 $.55 1.10
==== ====
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NET INTEREST INCOME
Net interest income, the Corporation's principal source of earnings, is the
difference between the interest income generated by earning assets (primarily
loans and investment securities) and the total interest paid on interest
bearing funds (deposits and other borrowings). For the purpose of this
discussion, net interest income is presented on a fully-taxable equivalent
(FTE) basis, to provide a comparison among types of interest earning assets.
Interest on tax-free securities and tax-exempt loans has been restated as if
such interest was taxed at the statutory Federal income tax rate of 35%,
adjusted for the non-deductible portion of interest expense incurred to acquire
the tax-free assets.
Net interest income FTE for the quarter ended June 30, 1994 was $50,767,000
compared to $50,566,000 for the same period one year ago, an increase of
$201,000 or .9%. For the six months ended June 30, 1994, net interest income
FTE decreased $129,000 to $99,721,000 from $99,850,000 a year ago.
As summarized in the schedule below, total interest income FTE decreased
$1,590,000 for the quarter ended June 30, 1994. Lower interest rates accounted
for $4,581,000 of the decrease which was offset by a $2,991,000 increase due to
increased volumes. Lower market interest rates decreased the yield on earning
assets from 5.12% to 4.96% for the quarters ending June 30, 1994 and 1993. For
the six month period ended June 30, 1994 a 3.6% increase in earning assets
along with a shift from securities to loans accounted for an increase in
interest income FTE of $5,409,000; a lower interest rate environment reduced
the above noted increase by $11,538,000 for a total decrease in interest income
FTE of $6,128,000.
CHANGES IN NET INTEREST DIFFERENTIAL -
FULLY-TAX EQUIVALENT RATE/VOLUME ANALYSIS
(Dollars in thousands)
Quarters ended June 30, Six months ended June 30,
1994 and 1993 1994 and 1993
---------------------- ------------------------
Increase (Decrease) Increase (Decrease)
Interest Income/Expense Interest Income/Expense
----------------------- -----------------------
Yield Yield
Volume Rate Total Volume Rate Total
------- ------ ------ ------ ---- -----
INTEREST INCOME
Investment securities $ 713 (1,906) (1,193) 825 (4,978) (4,152)
Loans 2,759 (3,087) (328) 4,507 (6,694) (2,187)
Federal funds sold (481) 412 (69) 77 134 211
----- ----- ---- ----- ----- -----
Total interest income 2,991 (4,581) (1,590) 5,409 (11,537) (6,128)
INTEREST EXPENSE
Interest on deposits:
Demand-interest bearing 136 (53) 83 266 (281) (15)
Savings 368 (1,237) (869) 869 (3,248) (2,379)
Certificates and other
time deposits (768) (916) (1,684) (1,843) (2,592) (4,435)
Federal funds purchased,
securities sold under
agreements to repurchase
and other borrowings 506 173 679 832 (2) 830
---- ---- ---- ---- ----- -----
Total interest expense 242 (2,033) (1,791) 124 (6,123) (5,999)
---- ----- ----- ---- ------ -----
Net interest income $2,749 (2,548) 201 5,285 (5,414) (129)
===== ===== ===== ===== ===== ====
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12
Lower market interest rates continued to have a significant impact on
interest expense for both the quarter and six month periods ended June 30,
1994. For the quarter, lower interest rates reduced interest expense by
$2,033,000 while a decrease in the volume of certificates of deposits offset by
increases in savings, demand-interest bearing and other borrowings resulted in
a slight increase in interest expense of $242,000 for a total decrease of
$1,791,000. Similar to the fluctuations for the quarter ended June 30, 1994,
lower interest rates accounted for a $6,123,000 decrease in interest expense
for the six month period, while a decrease in the volume of certificates of
deposits was offset by increases in savings, demand-interest bearing and other
borrowings resulting in a slight increase in interest expense of $124,000 and a
total decrease in interest expense of $5,999,000.
NET INTEREST MARGIN
The net interest margin, net interest income FTE divided by average earning
assets, is affected by changes in the level of earning assets, the proportion
of earning assets funded by non-interest bearing liabilities, the interest rate
spread, and changes in the corporate tax rates. A meaningful comparison of the
net interest margin requires an adjustment for the changes in the statutory
Federal income tax rate noted above. The schedule below shows the relationship
of the tax equivalent adjustment and the net interest margin.
NET INTEREST MARGIN (IN THOUSANDS)
-------------------------------------------------------------------
Quarters Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
----------------------- -----------------
Net interest income per
financial statements $ 49,600 49,327 97,301 97,353
Tax equivalent adjustment 1,167 1,239 2,420 2,497
---------- --------- --------- ---------
Net interest income-FTE $ 50,767 50,566 99,721 99,850
========== ========= ========= =========
Average Earning
Assets $4,102,633 3,961,125 4,077,228 3,936,652
========== ========= ========= =========
Net Interest Margin 4.96% 5.12% 4.93% 5.11%
==== ==== ==== ====
The Tax Reform Act of 1986 reduced the tax benefit available to banks
acquiring tax exempt assets which has resulted in the reduction of the
tax-equivalent adjustment since the Act's adoption.
Average loans outstanding for the quarter ended June 30, 1994 increased 5.2%
to $2,724,469,000 compared to $2,589,075,000 for the same period one year ago.
For the six months ended June 30, 1994 average loans outstanding grew to
$2,684,704,000 from $2,573,537,000 in 1993. Average loans outstanding for the
second quarter and the first six months of 1994 equaled 66.4% and 65.8%,
respectively, of average earning assets.
12
13
Average certificates and other time deposits have decreased from 43.2% of
total interest bearing funds in the second quarter of 1993 to 40.1% in the
second quarter of 1994, while average savings deposits increased from 41.9% in
the second quarter of 1993 to 43.0% in the respective period in 1994. Interest
bearing deposits increased from 9.4% to 10.0% of interest bearing funds and
other borrowings increased from 5.5% to 6.9% of interest bearing funds.
Interest bearing liabilities funded 80.9% of average earning assets for the
second quarter of 1994 compared to 82.4% one year ago. Maximizing the use of
non interest liabilities helps reduce the cost of funds, thus improving the net
interest margin.
NON INTEREST INCOME
Non interest income for the quarter ended June 30, 1994 was $13,216,000
compared to $14,090,000 for the same period one year ago, a decrease of 6.2%.
For the six month period non interest income increased 2.8% from $27,307,000 in
1993 to $28,062,000 in 1994.
Other income excluding the effect of securities transactions increased 6.2%
for the quarter end and 2.7% for the six month period compared to the same
periods one year ago. Trust fees increased 22.5%, service charges on
depositors' accounts decreased 5.0%, credit card fees increased 8.4% and other
income decreased 1.8% for the six month period compared to one year ago. The
Corporation continues to examine new sources of non-interest income as well as
the current pricing of existing products and services which provide a source of
revenues not sensitive to the interest rate environment.
NON INTEREST EXPENSE
Non-interest expense was $40,631,000 for the second quarter of 1994 compared
to $39,943,000 for the same quarter of 1993, an increase of 1.7%. Non interest
expense for the six months ended June 30, 1994 totaled $80,566,000 compared to
$79,207,000 in 1993, an increase of 1.7%. Salaries and benefits increased 5.2%
for the six months ended June 30, 1994 compared to the same period one year
ago, or $42,116,000 compared to $40,020,000, and represented 52.3% of the first
six months total operating expenses compared to 50.5% in 1993.
Management is of the opinion that all necessary adjustments have been made to
the financial statements in order to fairly present the results of operations
of the Corporation for the six month periods ended June 30, 1994 and 1993.
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14
FINANCIAL CONDITIONS
INVESTMENT SECURITIES
In May 1993, the Financial Accounting Standards Board issued Statement No.
115, "Accounting for Certain Investments in Debt and Equity Securities". The
statement requires debt and equity securities to be classified as
held-to-maturity, available-for-sale, or trading. Securities classified as
held-to-maturity are measured at amortized or historical cost, securities
available-for-sale and trading at fair value. Adjustment to fair value of the
securities available-for-sale, in the form of unrealized holding gains and
losses, is excluded from earnings and reported as a net amount in a separate
component of shareholders' equity. Adjustment to fair value of securities
classified as trading is included in earnings. This statement becomes
effective in 1994.
To comply with SFAS #115, the Corporation placed its core investment
portfolio in held to maturity and its remaining investments into available for
sale. The core portfolio is held till maturity and should provide the
Corporation with earnings and liquidity over a relatively wide band of interest
rate movements. The available for sale portfolio represents those non-core
segments of the portfolio that under certain circumstances and interest rate
scenarios flexibility relative to disposition is prudent. The Corporation's
entire investment portfolio is considered to be of high quality and compliance
with SFAS #115 should not be interpreted to signal a change in the
Corporation's investment strategy of focusing on high quality investments that
provide earnings, liquidity and assist in asset/liability management. The
Corporation does not engage in the trading of investment securities.
The book value and market value of investment securities
classified as held-to-maturity are as follows:
June 30,
---------------------------------------------
1994
----------------------------------------------
Gross Gross
Book Unrealized Unrealized Market
Value Gains Losses Value
---------------------------------------------
U.S. Treasury securities
and U.S. Government agency
obligations $542,266 1,068 8,772 534,562
Obligations of state and
political subdivisions 155,787 1,884 203 157,468
Mortgage-backed
securities 116,408 1,313 346 117,375
Other securities 49,921 91 80 49,932
------- ----- ----- -------
$864,382 4,356 9,401 859,337
===================================================================================
Book Market
Value Value
-----------------------------------------------------------------------------------
Due in one year or less $199,895 200,765
Due after one year through five years 404,661 401,380
Due after five years through ten years 90,143 89,212
Due after ten years 169,683 167,980
------- -------
$864,382 859,337
====================================================================================
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The book value and market value of investment securities
classified as available-for-sale are as follows:
June 30,
----------------------------------------------
1994
----------------------------------------------
Gross Gross
Book Unrealized Unrealized Market
Value Gains Losses Value
---------------------------------------------
U.S. Treasury securities
and U.S. Government agency
obligations $382,793 236 12,175 370,854
Obligations of state and
political subdivisions - - - -
Mortgage-backed
securities 119,743 192 2,260 117,675
Other securities 49,495 150 749 48,896
------- ----- ----- -------
$552,031 578 15,184 537,425
===================================================================================
Book Market
Value Value
-----------------------------------------------------------------------------------
Due in one year or less $ 2,508 2,497
Due after one year through five years 109,543 106,678
Due after five years through ten years 17,135 16,687
Due after ten years 422,845 411,563
------- -------
$552,031 537,425
====================================================================================
The book value and market value of investment securities including
mortgage-backed securities and derivatives at June 30, 1994, by contractual
maturity, are shown above. Expected maturities will differ from contractual
maturities based on the issuers' right to call or prepay obligations with or
without call or prepayment penalties.
The carrying value of investment securities pledged to secure trust and
public deposits and for purposes required or permitted by law amounted to
approximately $714,143,000 at June 30, 1994, $612,802,000 at December 31, 1993
and $570,769,000 at June 30, 1993.
As noted in prior periods, securities with remaining maturities over five
years reflected in the foregoing schedule consist largely of mortgage and asset
backed securities. This is part of a strategy to maximize future earnings.
While the contractual maturities of these mortgages and asset backed securities
are beyond five years, these instruments provide periodic principal payments
and include securities with adjustable interest rates, reducing the interest
rate risk associated with longer term investments.
LOANS
Total loans outstanding at June 30, 1994 amounted to $2,807,587,000 compared
to $2,631,216,000 at December 31, 1993 and $2,590,649,000 at June 30, 1993.
Loan demand was somewhat stronger during the first quarter as uncertainty about
the economy and interest rates continued. Loans showed an increase since year
end 1993 of $176,371,000 for an annualized growth rate of approximately 14%.
The loan to deposit ratio at June 30, 1994 equaled 75.2% compared to 70.3% and
70.8% at December 31, 1993 and June 30, 1993, respectively.
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16
ASSET QUALITY
Total non performing assets (non-accrual and restructured and other real estate
owned) amounted to $19,670,000 at June 30, 1994 or .70% of total loans
outstanding. At December 31, 1993 non performing assets equaled .84% of total
loans or $21,973,000 compared to .70% or $30,142,000 at June 30, 1993.
(In thousands)
----------------------------------
June December June
30, 31, 30,
1994 1993 1993
- - - -------------------------------------------------------
Non-accrual loans $13,958 9,927 10,295
Restructured loans 2,611 5,882 5,421
Other real estate owned 3,101 6,164 14,426
------- ------ ------
$19,670 21,973 30,142
====== ====== ======
Past due loans
(90 days or more) $ 2,821 2,830 6,723
======= ====== ======
Total non-performing
assets as a percent of
total loans .70% .84% 1.16%
======= ====== ======
As of this report, there were no loans outstanding which in total could be
considered a concentration of lending in any particular industry or group of
industries. Most of the Corporation's business activity is with customers
located within the state of Ohio.
ALLOWANCE FOR LOAN LOSSES
The allowance for possible loan losses at June 30, 1994 amounted to $33,122,000
or 1.18% of total loans outstanding compared to $32,338,000 or 1.23% at
December 31, 1993 and $31,014,000 at June 30, 1993 or 1.20%.
(In thousands)
------------------------------
June December June
30, 31, 30,
1994 1993 1993
- - - -----------------------------------------------------------
Balance at beginning
of year $32,338 29,695 29,695
Provision charged to
operating expenses 2,167 7,238 3,879
Loans charged off 3,628 8,594 4,346
Recoveries on loans
previously charged
off 2,245 3,999 1,786
------- ------ -----
$33,122 32,338 31,014
======= ====== ======
Net charge offs as a percent
of average loans .10% .18% .20%
Allowance for possible
loan losses:
As a percent of loans
outstanding at end of
period 1.18% 1.23% 1.20%
As a multiple of net
charge offs 11.88X 7.04X 6.01X
The Credit Risk Management Division of the Corporation is responsible for
determining the adequacy of the allowance for possible loan losses through
internal review, analysis of delinquency trends and ratios, changes in the
composition and level of various loan categories, historical loss experience,
and current economic conditions.
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DEPOSITS
The following schedule illustrates the change in composition of the average
balances of deposits and average rates paid for the noted periods.
(Dollars in Thousands)
Six Months Ended and Year Ended
-----------------------------------------------------------
June 30, December 31, June 30,
1994 1993 1993
---------------- ------------------ -------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
- - - -------------------------------------------------------------------------------------------
Demand deposits -
non-interest bearing $653,873 - 643,041 - 558,206 -
Demand deposits -
interest bearing 328,292 2.28% 311,069 2.37% 304,765 2.47%
Savings deposits 1,421,141 2.42 1,368,368 2.75 1,348,777 2.91
Certificates and other
time deposits 1,324,927 3.93 1,388,820 4.17 1,419,378 4.30
--------- --------- ---------
$3,728,233 2.52 3,711,298 2.77 3,631,126 2.97
========== ========= =========
The following table summarizes the certificates and other time deposits in
amounts of $100,000 or more as of June 30, 1994 by time remaining until
maturity.
Amount
-----------------------------------------------
Maturing in:
Under 3 months $ 85,863
3 to 12 months 36,614
Over 12 months 42,688
------
$165,165
========
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CAPITAL RESOURCES
Shareholders' equity at June 30, 1994 totaled $428,228,000 compared to
$417,160,000 at December 31, 1993 and $402,111,000 at June 30, 1993.
The following table reflects the various measures of capital:
- - - ------------------------------------------------------------------------------------
As Of As Of As Of
June 30, 1994 December 30, 1993 June 30, 1993
- - - ------------------------------------------------------------------------------------
In millions
Total equity $428,228 9.45% 417,160 9.52% 402,111 9.40%
Common equity 428,228 9.45% 417,160 9.52% 402,111 9.40%
Tangible common
equity (a) 408,623 9.06% 398,093 9.13% 381,385 8.96%
Tier 1 capital
(b) 418,847 14.79% 406,850 15.17% 390,900 14.41%
Total risk-based
capital (c) 451,969 15.96% 439,188 16.38% 422,004 15.56%
Leverage (d) 418,847 9.45% 406,850 9.27% 390,900 9.12%
<FN>
(a) Common equity less all intangibles; computed as a ratio to total assets
less intangible assets.
(b) Shareholders equity less goodwill; computed as a ratio to risk-adjusted
assets, as defined in the 1992 risk-based capital guidelines.
(c) Tier 1 capital plus qualifying loan loss allowance, computed
as a ratio to risk-adjusted assets, as defined in the 1992 risk-based
capital guidelines.
(d) Tier 1 capital; computed as a ratio to the latest quarters average assets
less goodwill.
The risk-based capital guidelines issued by the Federal Reserve Bank in 1988
require banks to maintain capital equal to 8% of risk-adjusted assets effective
December 31, 1993. At June 30, 1994 the Corporation's risk-based capital
equaled 15.96% of risk adjusted assets, far exceeding the minimum guidelines.
The cash dividend of $.25 paid in the second quarter has an indicated annual
rate of $1.00 per share.
18
19
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held on April 14, 1993. The election
of eight Class II Directors, was the only proposal to come before the
shareholders. All of the Directors nominated were elected and each of the
proposals passed the necessary vote required. The results of this voting are
as follows:
A. Election of Class III Directors
Votes
Name of Director Votes For Withheld
Robert M. Carter 20,194,966 411,265
Robert G. Merzweiler 20,202,119 404,112
Justin T. Rogers, Jr. 20,192,782 413,449
Those Directors whose term of office continued after the Annual Meeting were:
Class I Directors: Richard L. Hardgrove, Philip A. Lloyd, II, Gilbert H. Neal,
Roger T. Read, Del Spitzer; Class II Directors: John C. Blickle, Richard A.
Chenoweth, Elizabeth A. Dalton, Howard L. Flood, Terry L. Haines, Clifford J.
Isroff, David B. Jones, Stephen E. Myers.
ITEM 5. OTHER INFORMATION
On September 28, 1993 the Corporation entered into a definitive agreement
for the acquisition of Great Northern Financial Corporation of Barberton, Ohio.
This acquisition was completed on April 22, 1994.
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20
PART II - OTHER INFORMATION - CONTINUED
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No Form 8-K was filed during the period for which this report was filed.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FIRST BANCORPORATION OF OHIO
(Registrant)
By: /s/Gary J. Elek
--------------------------------
Signature
Senior Vice President/Treasurer
Authorized to sign for the
Corporation
By: /s/Gary J. Elek
--------------------------------
Signature
GARY J. ELEK
Senior Vice President/Treasurer
Principal Financial Officer and
Principal Accounting Officer
Date: August 12, 1994
20