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
SEPTEMBER 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 SEPTEMBER 30, 1994
27,162,171
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
2
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 September 30, 1994, December 31, 1993
and September 30, 1993
Consolidated Statements of Income for the nine months ended September
30, 1994 and 1993
Consolidated Statements of Changes in Shareholders' Equity for the year
ended December 31, 1993 and for the nine months ended September 30, 1994
Consolidated Statements of Cash Flows for the nine months ended September
30, 1994 and 1993
Notes to Consolidated Financial Statements as of September 30, 1994,
December 31, 1993 and September 30, 1993
Management's Discussion and Analysis of Financial Conditions as of
September 30, 1994, December 31, 1993 and September 30, 1993 and Results
of Operations for the quarter ended September 30, 1994 and 1993 and for
the year ended December 31, 1994
3
FIRST BANCORPORATION OF OHIO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
---------------------------------------
September December 31, September 30,
---------- ------------ ------------
1994 1993 1993
- - ----------------------------------------------------------------------------------------------------------
ASSETS
Investment securities 1,429,038 1,340,213 1,329,261
Federal funds sold 4,217 68,050 53,385
Loans less unearned income 3,031,910 2,631,216 2,618,853
Less allowance for possible loan losses 32,856 32,338 31,745
---------- ---------- ----------
Net loans 2,999,054 2,598,878 2,587,108
---------- ---------- ----------
Total earning assets 4,432,309 4,007,141 3,969,754
Cash and due from banks 210,172 225,226 211,855
Premises and equipment, net 75,601 71,271 70,864
Accrued interest receivable and other assets 84,497 76,645 89,929
---------- ---------- ----------
4,802,579 4,380,283 4,342,402
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand-non-interest bearing 689,276 692,597 631,632
Demand-interest bearing 332,896 329,150 308,105
Savings 1,363,905 1,403,784 1,381,608
Certificates and other time deposits 1,399,263 1,318,068 1,369,392
---------- ---------- ----------
Total deposits 3,785,340 3,743,599 3,690,737
Securities sold under agreements to repurchase
and other borrowings 557,456 187,584 190,640
---------- ---------- ----------
Total funds 4,342,796 3,931,183 3,881,377
Accrued taxes, expenses, and other liabilities 27,031 31,940 48,143
---------- ---------- ----------
Total liabilities 4,369,827 3,963,123 3,929,520
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 27,162,171,
27,131,492 and 27,109,771 shares, respectively 87,930 84,241 85,498
Surplus - - -
Net unrealized holding gains(losses)
on available for sale securities (13,319) - -
Retained earnings 358,141 332,919 327,384
---------- ---------- ----------
Total shareholders' equity 432,752 417,160 412,882
---------- ---------- ----------
4,802,579 4,380,283 4,342,402
========== ========== ==========
4
FIRST BANCORPORATION OF OHIO AND SUBSIDIARIES
AVERAGE CONSOLIDATED BALANCE SHEETS
- - ---------------------------------------------
(In thousands except ratios)
Quarters
---------------------------------------------------------
1994 1993
---------------------------------- ----------------------
3rd 2nd 1st 4th 3rd
- - -----------------------------------------------------------------------------------------------------------------------
ASSETS
Investment securities $1,405,024 1,355,589 1,331,962 1,339,650 1,325,184
Federal funds sold 5,407 56,033 92,105 108,832 80,382
Loans less unearned income 2,848,901 2,724,469 2,644,529 2,613,622 2,594,075
Less allowance for possible
loan losses 33,169 33,458 32,955 32,031 31,490
----------- ---------- ---------- ---------- ----------
Net loans 2,815,732 2,691,011 2,611,574 2,581,591 2,562,585
----------- ---------- ---------- ---------- ----------
Total earning assets 4,226,163 4,102,633 4,035,641 4,030,073 3,968,151
Cash and due from banks 188,910 186,358 217,196 223,430 219,538
Premises and equipment, net 74,670 72,826 71,169 70,850 70,159
Accrued interest receivable
and other assets 80,903 79,613 72,310 76,845 85,575
----------- ---------- ---------- ---------- ----------
$4,570,646 4,441,430 4,396,316 4,401,198 4,343,423
=========== ========== ========== ========== ==========
LIABILITIES
Deposits:
Demand-non-interest bearing $ 660,783 660,406 669,283 695,585 636,964
Demand-interest bearing 326,932 330,969 327,349 320,077 311,823
Savings 1,364,867 1,427,135 1,415,099 1,395,470 1,377,627
Certificates and other time
deposits 1,334,034 1,330,020 1,319,825 1,339,329 1,382,244
----------- ---------- ---------- ---------- ----------
Total deposits 3,686,616 3,748,530 3,731,556 3,750,461 3,708,658
Securities sold under agreements to
repurchase and other borrowings 424,404 229,331 207,335 198,227 187,390
----------- ---------- ---------- ---------- ----------
Total funds 4,111,020 3,977,861 3,938,891 3,948,688 3,896,048
Accrued taxes, expenses and
other liabilities 32,132 37,087 36,812 38,291 42,241
----------- ---------- ---------- ---------- ----------
Total liabilities 4,143,152 4,014,948 3,975,703 3,986,979 3,938,289
SHAREHOLDERS' EQUITY 427,494 426,482 420,613 414,219 405,134
----------- ---------- ---------- ---------- ----------
$4,570,646 4,441,430 4,396,316 4,401,198 4,343,423
=========== ========== ========== ========== ==========
RATIOS
Net income as a percentage of:
Average assets 1.31% 1.35% 1.37% 1.05% 1.37%
Average shareholders' equity 13.97% 14.10% 14.35% 11.11% 14.68%
5
FIRST BANCORPORATION OF OHIO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
---------------------------------------------
Quarter Ended Nine Months Ended
September 30, September 30,
------------------- ------------------------
1994 1993 1994 1993
- - ------------------------------------------------------------------------------------------------------------
Interest income:
Interest and fees on loans $60,139 54,360 168,445 164,733
Interest and dividends on securities:
Taxable 19,370 18,442 53,965 57,182
Exempt from Federal income taxes 1,909 1,971 5,701 5,813
Interest on Federal funds sold 123 642 1,557 1,865
------- ------- ------- -------
Total interest income 81,541 75,415 229,668 229,593
------- ------- ------- -------
Interest expense:
Interest on deposits:
Demand-interest bearing 1,963 1,836 5,678 5,566
Savings 8,566 9,460 25,640 28,913
Certificates and other time deposits 14,711 14,187 40,560 44,471
Interest on securities sold under agreements
to repurchase and other borrowings 5,099 1,609 9,287 4,967
------- ------- ------- -------
Total interest expense 30,339 27,092 81,165 83,917
------- ------- ------- -------
Net interest income 51,202 48,323 148,503 145,676
Provision for possible loan losses 1,158 1,653 3,325 5,532
------- ------- ------- -------
Net interest income after provision
for possible loan losses 50,044 46,670 145,178 140,144
------- ------- ------- -------
Other income:
Trust department income 2,506 2,322 8,463 7,185
Service charges on depositors' accounts 4,970 5,204 14,904 15,659
Credit card fees 2,179 2,447 6,173 6,133
Securities gains-net (51) 144 (76) 91
Other operating income 4,177 4,697 12,379 13,053
------- ------- ------- -------
Total other income 13,781 14,814 41,843 42,121
------- ------- ------- -------
63,825 61,484 187,021 182,265
------- ------- ------- -------
Other expenses:
Salaries, wages, pension and employee benefits 21,293 19,710 63,409 59,730
Net occupancy expense 3,278 3,141 10,053 8,941
Equipment expense 2,406 3,241 7,181 8,546
Other operating expense 15,532 13,053 42,432 41,135
------- ------- ------- -------
Total other expenses 42,509 39,145 123,075 118,352
------- ------- ------- -------
Income before Federal income taxes 21,316 22,339 63,946 63,913
Federal income taxes 6,263 7,350 19,021 19,984
------- ------- ------- -------
Net income $15,053 14,989 44,925 43,929
======== ======= ======= =======
Per share data based on average number of
shares outstanding:
Net income $ .55 .55 1.65 1.62
Dividends paid $ .25 .23 .73 .64
Weighted average number of shares
outstanding 27,154,851 27,103,755 27,147,647 27,094,337
6
FIRST BANCORPORATION OF OHIO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- - ----------------------------------------------------------
Year Ended December 31, 1993 and
Nine Months Ended September 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 - - - 44,925 44,925
Cash dividends ($ .73 per share) - - - (19,703) (19,703)
Stock options exercised 3,689 - - - 3,689
Market adjustment investment securities - - (13,319) - (13,319)
------- ------ ------ ------- -------
Balance at September 30, 1994 $87,930 - (13,319) 358,141 432,752
======= ====== ====== ======= =======
7
FIRST BANCORPORATION OF OHIO AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1994 and 1993
- - ---------------------------------------------
(In thousands)
--------------------------
1994 1993
--------------------------
Operating Activities
- - --------------------
Net income $44,925 43,929
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 3,325 5,532
Provision for depreciation 5,659 4,966
Amortization of investment security premiums, net 1,496 3,934
Amortization of income for lease financing (5,939) (1,733)
(Gain) loss on sales of investment securities, net 76 (91)
Deferred income taxes 1,139 (1,531)
Increase in interest receivable (3,889) (35)
(Increase) decrease in interest payable 2,659 (167)
Amortization of values ascribed to acquired intangibles 3,039 2,554
Other increases (decreases) (8,647) 1,453
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 43,843 58,811
Investing Activities
- - --------------------
*Proceeds from sales of investment securities
held to maturity 5,134 22,261
Proceeds from sales of investment securities
available for sale 49,257 -
*Proceeds from maturities of investment securities
held to maturity 281,163 402,761
Proceeds from maturities of investment securities
available for sale 47,998 -
*Purchases of investment securities held to maturity (242,754) (423,627)
Purchases of investment securities available for sale (251,576) -
Net decrease in short-term investments 63,833 41,897
Net increase in loans (331,042) (71,547)
Purchases of assets to be leased (99,653) (24,913)
Principal payments received under leases 33,133 8,139
Purchases of premises and equipment (11,042) (8,239)
Sales of premises and equipment 1,053 1,530
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (454,496) (51,738)
Financing Activities
- - --------------------
Net increase (decrease) in demand, NOW and
savings deposits (39,454) 48,926
Net increase (decrease) in time deposits 81,195 (60,112)
Net increase in short-term borrowings 369,872 15,463
Cash dividends (19,703) (15,958)
Proceeds from exercise of stock options 3,689 1,036
---------- ----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 395,599 (10,645)
Decrease in cash and cash equivalents (15,054) (3,572)
Cash and cash equivalents at beginning of year 225,226 215,427
---------- ----------
Cash and cash equivalents at end of period $210,172 211,855
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- - --------------------------------------------------
Cash paid during the year for:
Interest, net of amount capitalized $51,145 57,967
Income taxes 18,524 22,250
========== ==========
<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.
8
First Bancorporation of Ohio
Notes to Consolidated Financial Statements
September 30, 1994
1. First Bancorporation of Ohio is a bank holding company whose principal
assets are the common stock of its wholly owned subsidiaries, First National
Bank of Ohio, The Old Phoenix National Bank of Medina, Elyria Savings & Trust
National Bank, The First National Bank in Massillon, Peoples National Bank,
Peoples Bank, N.A. and Life Savings Bank FSB. In addition First Bancorporation
of Ohio owns all of the common stock of FBOH Credit Life Insurance Company and
Bancorp Trust Co., N.A..
2. 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. First Bancorporation of Ohio adopted this
statement during the first quarter of 1994.
3. Management believes that the interim consolidated financial statements
reflect all adjustments consisting only of normal recurring accruals, necessary
for a fair presentation of the September 30, 1994 statement of condition and
the results of operations for the three months and nine months ended September
30, 1994 and 1993.
9
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 September 30, Year ended December 31,
----------------------------- --------------------------------
1994 1993
----------------------------- --------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
- - -------------------------------------------------------------------------------------------------------------------------
ASSETS
Investment securities $ 1,405,024 22,184 6.26% 1,324,035 82,205 6.21%
Federal funds sold 5,407 123 9.03% 88,585 2,692 3.04%
Loans, net of unearned income 2,848,901 60,349 8.40% 2,588,576 219,692 8.49%
Less allowance for possible loan losses 33,169 31,232
----------- --------- ---------- ---------
Net loans 2,815,732 60,349 8.50% 2,557,344 219,692 8.59%
Cash and due from banks 188,910 - - 216,195 - -
Other assets 155,573 - - 157,364 - -
----------- ---------- ---------- ----------
Total assets $ 4,570,646 82,656 - 4,343,523 304,589 -
=========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand-
non-interest bearing $ 660,783 - - 643,041 - -
Demand-
interest bearing 326,932 1,963 2.38% 311,069 7,371 2.37%
Savings 1,364,867 8,566 2.49% 1,368,368 37,650 2.75%
Certificates and other time deposits 1,334,034 14,711 4.38% 1,388,820 57,967 4.17%
----------- ---------- ---------- ----------
Total deposits 3,686,616 25,240 2.72% 3,711,298 102,988 2.77%
Federal funds purchased, securities sold
under agreements to repurchase and 424,404 5,099 4.77% 188,708 6,882 3.65%
other borrowings
Other liabilities 32,132 - 42,594 -
Shareholders' equity 427,494 - 400,923 -
----------- --------- ---------- ---------
Total liabilities and shareholders' equity $ 4,570,646 30,339 - 4,343,523 109,870 -
=========== ========= ========== =========
Total earning assets $ 4,226,163 82,656 7.76% 3,969,964 304,589 7.67%
=========== ========= ========== =========
Total interest bearing liabilities $ 3,450,237 30,339 3.49% 3,256,965 109,870 3.37%
=========== ========= ========== =========
Net yield on earning assets 52,317 4.91% 194,719 4.90%
========= ==== ========= ====
Interest rate spread 4.27% 4.30%
==== ====
Quarters ended September 30,
-----------------------------
1993
-----------------------------
Average Average
Balance Interest Rate
- - --------------------------------------------------------------------------------------
ASSETS
Investment securities 1,325,184 21,474 6.43%
Federal funds sold 80,382 642 3.17%
Loans, net of unearned income 2,594,075 54,724 8.37%
Less allowance for possible loan losses 31,490
---------- ---------
Net loans 2,562,585 54,724 8.47%
Cash and due from banks 219,538 - -
Other assets 155,734 - -
---------- ----------
Total assets 4,343,423 76,840 -
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand-
non-interest bearing 636,964 - -
Demand-
interest bearing 311,823 1,836 2.34%
Savings 1,377,627 9,460 2.72%
Certificates and other time deposits 1,382,244 14,187 4.07%
---------- ----------
Total deposits 3,708,658 25,483 2.73%
Federal funds purchased, securities sold
under agreements to repurchase and 187,390 1,609 3.41%
other borrowings
Other liabilities 42,241 -
Shareholders' equity 405,134 -
---------- ---------
Total liabilities and shareholders' equity 4,343,423 27,092 -
========== =========
Total earning assets 3,968,151 76,840 7.68%
========== =========
Total interest bearing liabilities 3,259,084 27,092 3.30%
========== =========
Net yield on earning assets 49,748 4.97%
========= ====
Interest rate spread 4.38%
====
<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.
10
RESULTS OF OPERATIONS
First Bancorporation of Ohio's net income for the quarter ended September 30,
1994 was $15,053,000 compared to $14,989,000 for the same period one year ago.
Earnings for the nine months ended September 30, 1994 were $44,925,000 an
increase of 2.3% compared to 1993's $43,929,000.
Return on average assets equaled 1.31% for the third quarter of 1994 compared
to 1.37% for the same quarter one year ago. The third quarter of 1994 return
on average equity was 13.97%. For the nine months ended September 30, 1994 and
1993 the return on average assets equaled 1.34% compared to 1.36% in 1993.
Return on average equity equaled 14.14% for the first nine months of 1994
compared to 14.85% 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 September 30, 1994 and
1993 was $.55 per share. Net income for the nine months ended September 30,
1994 was $1.65 compared to 1993's per share total of $1.62. The components of
change in per share income for the quarters ended September 30, as well as the
nine months ended September 30, 1994 and 1993 are summarized in the following
table.
- - ------------------------------------------------------------------------
CHANGES IN EARNINGS PER SHARE
Quarter Nine
Ended Months Ended
September 30, September 30,
1994 1994
- - ------------------------------------------------------------------------
Net ioncome for the quarter and
nine months ended
September 30, 1993 $.55 1.62
Increases (decreases)
attributable to:
Net interest income-
taxable equivalent .09 .09
Provision for possible
loan losses .02 .08
Other income (.04) (.01)
Other expenses (.12) (.17)
Federal income taxes-
taxable equivalent .05 .04
--- ----
Net change in net income - .03
---- ----
Net income for the quarter ended
September 30, 1994 $.55 1.65
==== ====
11
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 September 30, 1994 was
$52,317,000 compared to $49,748,000 for the same period one year ago, an
increase of $2,569,000 or 5.2%. For the nine months ended September 30, 1994,
net interest income FTE increased $2,441,000 to $152,038,000 from $149,597,000
a year ago.
As summarized in the schedule below, total interest income FTE increased
$5,816,000 for the quarter ended September 30, 1994. An increase in loan
volume accounted for $5,398,000 of the increase. In addition to the increase
in volume, higher market interest rates accounted for $863,000 of the total
increase. Higher market interest rates increased the yield on earning assets
from 7.38% to 7.76% for the quarters ending September 30, 1993 and 1994,
respectively. Similar to the fluctuation for the quarter ended September 30,
1994 an increase in loan volume accounted for $10,819,000 of the $12,290,000
volume increase for the nine month period ended September 30, 1994. Although
market interest rates increased during the third quarter of 1994, the lower
interest rate environment during the first two quarters of 1994 reduced the
increase in interest income due to volume by $12,600,000 for a total decrease
in interest income FTE of $311,000.
12
CHANGES IN NET INTEREST DIFFERENTIAL -
FULLY-TAX EQUIVALENT RATE/VOLUME ANALYSIS
(Dollars in thousands)
Quarters ended Sept. 30, Nine months ended Sept. 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 $1,261 (551) 710 2,573 (6,015) (3,442)
Loans 5,398 227 5,625 10,819 (7,380) 3,439
Federal funds sold (1,706) 1,187 (519) (1,102) 794 (308)
------ ----- ----- ------ ------ ------
Total interest income 4,953 863 5,816 12,290 (12,601) (311)
INTEREST EXPENSE
Interest on deposits:
Demand-interest bearing 91 36 127 349 (237) 112
Savings (80) (814) (894) 861 (4,134) (3,273)
Certificates and other
time deposits (532) 1,056 524 (1,809) (2,102) (3,911)
Federal funds purchased,
securities sold under
agreements to repurchase
and other borrowings 2,848 642 3,490 3,315 1,005 4,320
------ ----- ----- ------ ------ ------
Total interest expense 2,327 920 3,247 2,716 (5,468) (2,752)
------ ----- ----- ------ ------ ------
Net interest income $2,626 (57) 2,569 9,574 (7,133) 2,441
====== ===== ===== ====== ====== ======
Total interest expense increased $3,247,000 for the quarter ended September
30, 1994. An increase in the volume of federal funds purchased and other
borrowings accounted for $2,848,000 of the increase. In addition to the
increase in volume, higher market interest rates accounted for $920,000 of the
total increase. Lower market interest rates experienced during the first two
quarters of 1994 continued to have a significant impact on interest expense for
the nine month period ended September 30, 1994. Lower interest rates accounted
for a $5,468,000 decrease in interest expense for the nine month period.
Similar to the fluctuation for the quarter ended September 30, 1994 an increase
in the volume of federal funds purchased and other borrowings accounted for
$3,315,000 of the $2,716,000 volume increase for the nine month period ended
September 30, 1994. The net decrease in interest expense for the nine months
was $2,752,000.
NET INTEREST MARGIN
The net interest margin, net interest income FTE divided by average earning
assets, is affected by changes in the level of earnings 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.
13
NET INTEREST MARGIN (IN THOUSANDS)
Quarters Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
---------------------- --------------------
Net interest income per
financial statements $ 51,202 48,323 148,503 145,676
Tax equivalent adjustment 1,115 1,425 3,535 3,921
---------- --------- --------- ---------
Net interest income-FTE $ 52,317 49,748 152,038 149,597
========== ========= ========= =========
Average Earning
Assets $4,226,163 3,968,151 4,151,698 3,958,284
========== ========= ========= =========
Net Interest Margin 4.91% 4.97% 4.90% 5.05%
==== ==== ==== ====
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 September 30, 1994 increased
9.8% to $2,848,901,000 compared to $2,594,075,000 for the same period one year
ago. For the nine months ended September 30, 1994 average loans outstanding
grew to $2,758,207,000 from $2,581,831,000 in 1993. Average loans outstanding
for the third quarter and the first nine months of 1994 equaled 67.4% and
66.4%, respectively, of average earning assets.
Average certificates and other time deposits have decreased from 42.4% of
total interest bearing funds in the third quarter of 1993 to 38.7% in the third
quarter of 1994, while average savings deposits decreased from 42.3% in the
third quarter of 1993 to 39.6% in the respective period in 1994. Interest
bearing deposits decreased from 9.6% to 9.5% of interest bearing funds and
other borrowings increased from 5.7% to 12.3% of interest bearing funds.
Interest bearing liabilities funded 81.6% of average earning assets for the
third quarter of 1994 compared to 82.1% 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 September 30, 1994 was $13,781,000
compared to $14,814,000 for the same period one year ago, a decrease of 7.0%.
For the nine month period non-interest income decreased .7% from $42,121,000 in
1993 to $41,843,000 in 1994.
Other income excluding the effect of securities transactions decreased 5.7%
for the quarter end and .3% for the nine month period compared to the same
periods one year ago. Trust fees increased 17.8%, service charges on
depositors' accounts decreased 4.8%, credit card fees increased .7% and other
income decreased 5.2% for the nine 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.
14
NON-INTEREST EXPENSE
Non-interest expense was $42,509,000 for the third quarter of 1994 compared
to $39,145,000 for the same quarter of 1993, an increase of 8.6%. Non-interest
expense for the nine months ended September 30, 1994 totaled $123,075,000
compared to $118,352,000 in 1993, an increase of 4.0%. Salaries and benefits
increased 6.2% for the nine months ended September 30, 1994 compared to the
same period one year ago, or $63,409,000 compared to $59,730,000, and
represented 51.5% of the first nine months total operating expenses compared to
50.5% in 1993.
15
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:
September 30,
----------------------------------------------
1994
----------------------------------------------
Gross Gross
Book Unrealized Unrealized Market
Value Gains Losses Value
---------------------------------------------
U.S. Treasury securities
and U.S. Government agency
obligations $404,177 554 7,187 397,544
Obligations of state and
political subdivisions 150,548 1,752 491 151,809
Mortgage-backed
securities 102,722 1,451 1,645 102,528
Other securities 128,107 135 4,256 123,986
------- ----- ----- -------
$785,554 3,892 13,579 775,867
===================================================================================
Book Market
Value Value
-----------------------------------------------------------------------------------
Due in one year or less $217,015 217,156
Due after one year through five years 341,937 336,817
Due after five years through ten years 86,986 85,167
Due after ten years 139,616 136,727
------- -------
$785,554 775,867
====================================================================================
16
The book value and market value of investment securities
classified as available-for-sale are as follows:
September 30,
----------------------------------------------
1994
----------------------------------------------
Gross Gross
Book Unrealized Unrealized Market
Value Gains Losses Value
---------------------------------------------
U.S. Treasury securities
and U.S. Government agency
obligations $258,084 149 5,799 252,434
Obligations of state and
political subdivisions - - - -
Mortgage-backed
securities 120,683 118 3,442 117,359
Other securities 285,203 490 12,002 273,691
------- ----- ------ -------
$663,970 757 21,243 643,484
===================================================================================
Book Market
Value Value
-----------------------------------------------------------------------------------
Due in one year or less $ 68,255 67,979
Due after one year through five years 129,360 125,553
Due after five years through ten years 26,069 25,395
Due after ten years 440,286 424,557
------- -------
$663,970 643,484
====================================================================================
The book value and market value of investment securities including
mortgage-backed securities and derivatives at September 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 $828,920,000 at September 30, 1994, $612,802,000 at December 31,
1993 and $588,971,000 at September 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 September 30, 1994 amounted to $3,031,910,000
compared to $2,631,216,000 at December 31, 1993 and $2,618,853,000 at September
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 $400,694,000 for an annualized growth rate of
approximately 20%. The loan to deposit ratio at September 30, 1994 equaled
80.1% compared to 70.3% and 71.0% at December 31, 1993 and September 30, 1993,
respectively.
17
ASSET QUALITY
Total non performing assets (non-accrual and restructured and other real
estate owned) amounted to $17,250,000 at September 30, 1994 or .57% of total
loans outstanding. At December 31, 1993 non performing assets equaled .84% of
total loans or $21,973,000 compared to 1.05% or $27,368,000 at September 30,
1993.
(In thousands)
---------------------------------
September December September
30, 31, 30,
1994 1993 1993
- - ---------------------------------------------------------
Non-accrual loans $14,180 9,927 10,810
Restructured loans 1,857 5,882 4,974
Other real estate owned 1,213 6,164 11,122
------- ------ ------
$17,250 21,973 26,906
======= ====== ======
Past due loans
(90 days or more) $ 4,858 2,830 5,346
======= ====== ======
Total non-performing
assets as a percent of
total loans .57% .84% 1.03%
======= ====== ======
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 September 30, 1994 amounted to
$32,856,000 or 1.08% of total loans outstanding compared to $32,338,000 or
1.23% at December 31, 1993 and $31,745,000 at September 30, 1993 or 1.21%.
(In thousands)
------------------------------------
September December September
30, 31, 30,
1994 1993 1993
- - ------------------------------------------------------------------
Balance at beginning
of year $32,338 29,695 29,695
Provision charged to
operating expenses 3,325 7,238 5,532
Loans charged off 5,927 8,594 6,160
Recoveries on loans
previously charged off 3,120 3,999 2,678
------- ------ ------
$32,856 32,338 31,745
======= ====== ======
Net charge offs as a percent
of average loans .14% .18% .18%
Allowance for possible
loan losses:
As a percent of loans
outstanding at end of
period 1.08% 1.23% 1.21%
As a multiple of net
charge offs 8.75X 7.04X 6.82X
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.
18
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On August 16, 1994, the Corporation filed a Form 8-K regarding its entering
into an Agreement of Affiliation and Plan of Merger dated as of August 10, 1994
("Agreement") with The CIVISTA Corporation ("CIVISTA"), a savings and loan
holding corporation headquartered in Canton, Ohio, whereby CIVISTA would merge
with and into the Corporation. Under the terms of the Agreement, FBOH will
exchange 1.723 shares of FBOH common stock for each share of outstanding
CIVISTA common stock. A Form S-4 Registration Statement was declared effective
by the Securities and Exchange Commission on November 2, 1994 and the
Prospectus and Joint Proxy Statement contained therein was mailed to the
shareholders of the Corporation and CIVISTA for the Special Meeting of
Shareholders, both to be held on December 15, 1994. Assuming certain
conditions are met, including regulatory approval and the approval of the
shareholders of the Corporation and CIVISTA, it is currently contemplated that
the merger will be effected in the first quarter of 1995.
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: November 10, 1994