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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the fiscal year ended December 31, 1994.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from _______________ to _______________.
Commission file number 0-13166.
COBANCORP INC.
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(Exact name of registrant as specified in its charter)
Ohio 34-1465382
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
124 Middle Avenue
Elyria, Ohio 44035
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 216-329-8000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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(Title of class)
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 periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
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The aggregate market value, computed using the closing bid quotation as
reported by the Nasdaq National Market System, of the voting stock held by
nonaffiliates of the registrant (exclusive of 259,897 shares held by the
CoBancorp Inc. Employee Stock Ownership Plan and 199,390 shares held by
directors and executive officers of the Corporation) as of January 31, 1995:
Common Stock, no par value--$67,485,000
The number of shares outstanding of the issuer's classes of common stock as of
January 31, 1995:
Common Stock, no par value--3,330,970 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the annual
shareholders' meeting to be held April 19, 1995, are incorporated by
reference into Part III.
The index to exhibits in this filing begins on page 29.
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COBANCORP INC.
FORM 10-K REPORT
TABLE OF CONTENTS
Item Page
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PART I
1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . 4
Description of Business . . . . . . . . . . . . . . . . . 4
Competition . . . . . . . . . . . . . . . . . . . . . . . 5
Regulation . . . . . . . . . . . . . . . . . . . . . . . . 5
Examination and Supervision . . . . . . . . . . . . . . . 6
Federal Reserve System . . . . . . . . . . . . . . . . . . 8
Insurance of Deposits . . . . . . . . . . . . . . . . . . 8
Community Reinvestment Act . . . . . . . . . . . . . . . . 8
Executive Officers of the Registrant . . . . . . . . . . . 9
Supplemental Financial Data . . . . . . . . . . . . . . . 10
2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . 11
3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . 12
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . 13
PART II
5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . 13
6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . 13
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . 13
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . 28
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . 28
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . 28
11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . 28
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . 28
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . 28
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . 29
SIGNATURES
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . 31
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PART I
ITEM 1. BUSINESS
Description of Business
CoBancorp Inc. (the "Corporation"), headquartered in Elyria, Ohio, is
a one-bank holding company registered with the Federal Reserve System whose
principal asset is the common stock of its wholly owned commercial bank
subsidiary, PREMIERBank & Trust (the "Bank").
The Corporation was organized under Ohio law in November 1983 and
remained inactive until September 8, 1984. On that date, the Bank's
shareholders became Corporation shareholders in a tax-free and regulatory
reorganization. This transaction was accounted for as a pooling of interests.
As a bank holding company, the Corporation is exclusively engaged and
intends to continue to engage in the management of the Bank. The Bank was
chartered by the State of Ohio in 1926 and is a member bank of the Federal
Reserve System. The Bank operates twenty-six (26) banking offices throughout
its market area of Lorain County and portions of Cuyahoga, Erie, Richland,
Huron, Delaware, Franklin and Crawford Counties. The Bank also operates a loan
production office in Franklin County. The Bank has 29 automated teller
machines ("ATMs") and is a member of the MAC and Plus ATM networks. As a
member bank of the Federal Reserve System, the Bank's deposits are insured by
the Federal Deposit Insurance Corporation (the "FDIC") to the extent permitted
by law. The Bank is subject to primary regulation by the Federal Reserve and
the Ohio Department of Commerce, Division of Banking. The Bank is also subject
to regulation by the FDIC. The Corporation's activities as a bank holding
company are regulated by the Federal Reserve, and the Corporation's corporate
governance is determined by Ohio law.
The Bank provides commercial and retail banking services to
individual, business, institutional and governmental customers. These services
include personal and commercial checking accounts, savings and time deposit
accounts, personal and business loans, a credit card system and safe deposit
facilities.
The Trust Department of the Bank performs complete trust
administrative functions and offers agency and trust services to individuals,
partnerships, corporations, institutions and municipalities.
As of December 31, 1994, in the opinion of management, the Corporation
did not have any concentration of loans to similarly situated borrowers. There
were no foreseeable losses relating to other interest-earning nonloan assets.
The Bank is not significantly affected by seasonal activity or large
deposits of individual customers. The Bank is not engaged in operations in any
foreign country.
On December 31, 1994, the Corporation and its subsidiary employed
approximately 290 full-time and 79 part-time employees. None of the employees
is represented by a union or collective bargaining group. Management considers
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its relations with employees to be satisfactory. Employee benefit programs are
considered by management to be competitive with benefits provided by other
financial institutions and major employers within the normal operating area.
Competition
The Bank actively competes with other financial institutions in its
market area. Competition for savings comes principally from other commercial
banks, savings and loan associations, credit unions and brokerage house "money
market funds" located in its primary market area. The primary factors in
competing for savings are interest rates paid on deposits and convenience of
office hours and locations. During periods when money market rates are
relatively high, obligations offered by governments, government agencies and
other entities seeking funds add significantly to competition for savings.
The Bank's principal competition for loans is provided by other
commercial banks, savings and loan associations, mortgage companies and credit
unions. The primary factors in loan competition are interest rates, extent and
time interval of interest rate adjustments, origination charges and convenience
of office location for applications, closing and servicing.
Regulation
The Corporation is subject to regulation under the Bank Holding
Company Act of 1956, as amended (the "Act"). The Act requires the prior
approval of the Federal Reserve Board for a bank holding company to acquire or
hold more than a 5 percent voting interest in any bank, and restricts
interstate banking activities.
The Act restricts the Corporation's non-banking activities to those
which are closely related to banking. The Federal Reserve Board has determined
by regulation that the following activities are permissible for bank holding
companies and their subsidiaries. Some of these activities include the
following: making, acquiring or servicing loans or other extensions of credit;
trust company functions; leasing personal or real property; courier services;
management and consulting for other depository institutions; and real estate
appraising. The Corporation presently has no non-banking activities, but may
in the future engage in one or more of the non-banking activities identified
above.
The Corporation's cash revenues are derived from dividends paid by the
Bank, its subsidiary. These dividends are subject to various legal and
regulatory restrictions. Reference is made to Note H of the Registrant's 1994
Annual Report to Shareholders, which is contained in Exhibit 13e of this
filing.
Under the Act and regulations of the Federal Reserve Board pursuant
thereto, a bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with the extension of
credit.
The Bank is a stock-form commercial bank organized under the laws of
the State of Ohio, and its deposits are insured by the FDIC. The Bank derives
its lending, investment and other powers from the applicable provisions of Ohio
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law and the regulations of the Ohio Department of Banking (the "Banking
Department"), subject to limitation or other modification under applicable
federal laws and regulations of such agencies as the FDIC and the Federal
Reserve Board. The Bank is subject to periodic examination and supervision by
the Federal Reserve Board and the Banking Department.
The Banking Department regulates the Bank's internal organization as
well as its deposit, lending and investment activities. The Superintendent of
the Banking Department must approve changes to the Bank's Certificate of
Incorporation, establishing or relocating branch offices, mergers and the
issuance of additional stock. Many of the areas regulated by the Banking
Department are subject to similar regulation by the Federal Reserve Board.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDIC Improvement Act") covers a wide expanse of banking regulatory issues.
The FDIC Improvement Act deals with the recapitalization of the Bank Insurance
Fund, with deposit insurance reform, including requiring the FDIC to establish
a risk-based premium assessment system, and with a number of other regulatory
and supervisory matters. The effective dates for the provisions of the FDIC
Improvement Act are staggered, some having already taken effect and others
taking effect at various times in the future. Regulations have been proposed
to implement this Act, but the full effects of the FDIC Improvement Act
generally on the financial services industry, and specifically on the
Corporation, cannot now be measured.
Examination and Supervision
Both the Banking Department and the Federal Reserve Board issue
regulations and require the filing of reports describing the activities and
financial condition of banks under their jurisdiction. Each regulatory body
conducts periodic examinations to test compliance with various regulatory
requirements and generally supervises the operations of such banks. This
supervision and regulation is intended primarily for the protection of
depositors.
The Federal Reserve Board may sanction any insured bank that does not
operate in accordance with Federal Reserve Board regulations, policies and
directives. Proceedings may be instituted against any insured bank, or any
trustee, director, officer or employee of the bank, that engages in unsafe and
unsound practices, including the violation of applicable laws and regulations.
The Federal Reserve Board may revalue assets of an institution, based upon
appraisals, and may require the establishment of specific reserves in amounts
equal to the difference between such revaluation and the book value of the
assets. In addition, the FDIC has the authority to terminate insurance of
accounts, after notice and hearing, upon a finding by the FDIC that the insured
institution is or has engaged in any unsafe or unsound practice that has not
been corrected, or is in an unsafe or unsound condition to continue operations,
or has violated any applicable law, regulation, rule or order of or condition
imposed by the FDIC.
Under Ohio law, the Superintendent of the Banking Department may also
issue an order to an Ohio-chartered banking institution to appear and explain
an apparent violation of law, to discontinue unsound or unsafe practices, and
to keep books and accounts as prescribed. Upon a finding by the Banking
Department that any director, trustee or officer of any banking organization
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has violated any law or duly enacted regulation, or has continued unauthorized
or unsafe practices in conducting the business of the banking organization
after having been notified by the Superintendent to discontinue such practices,
such director, trustee or officer may be removed from office after notice and
an opportunity to be heard.
Effective January 1, 1991, the Federal Reserve Board adopted core
capital requirements to be applicable to state member banks and bank holding
companies, which require a 3 percent core capital requirement for any
institution in the highest regulatory rating ("CAMEL rating") category. All
other banking organizations would be required to maintain levels 100 to 200
basis points higher, based on their particular circumstances. As of December
31, 1994, the Corporation and the Bank, respectively, had tier one leverage
ratios of 8.09% and 8.17%, which placed each in compliance with applicable core
capital requirements.
Failure to meet the capital requirements would mean that the insured
member bank would be treated as having inadequate capital, and such an insured
member bank would have to develop and file a plan with the Federal Reserve
Board describing the means and a schedule for achieving the minimum capital
requirements. In addition, such an insured member bank would not receive the
Federal Reserve Board's approval of any application that required the
consideration of capital adequacy, for instance, a branch application, unless
the Federal Reserve Board found that the bank had a reasonable plan to meet the
capital requirement within a reasonable period of time.
In March 1989, the Federal Reserve Board adopted a risk-based capital
rule which applies to all BIF-insured state-chartered banks that are members of
the Federal Reserve System ("state member banks"), such as the Bank. The rule
requires state member banks to maintain minimum capital levels based upon a
weighting of the assets according to risk. Under the new rule, qualifying
total risk-based capital equals the sum of Tier I and Tier II capital. Among
other items, Tier I capital is generally comprised of common stockholders'
equity, non-cumulative perpetual preferred stock and minority interests in the
equity account of consolidated subsidiaries, while Tier II capital generally
consists of allowances for loan and lease losses (limited to a percentage of
risk- weighted assets) and maturing capital instruments such as cumulative
perpetual preferred stock, convertible debt securities and subordinated debt.
At least 50 percent of the qualifying total risk-based capital must consist of
Tier I capital. Tier I capital is defined as the sum of Tier I capital
elements minus all intangible assets other than mortgage servicing rights.
Once risk-based capital is calculated, the rule then assigns each
balance sheet asset held by state member banks to one of four risk categories
(0%, 20%, 50% and 100%) based on the amount of credit risk associated with that
particular class of assets. For example, cash and U.S. Government securities
backed by the full faith and credit of the U.S. Government are assigned a 0%
risk weight while qualifying first mortgages on one- to four-family residential
loans are assigned a 50% risk weight. Assets not within a specific risk-based
category are assigned to the 100% risk-weight category. Indirect holdings of
pools of assets, for example mutual funds, are assigned the highest risk
category appropriate to the highest risk-weighted asset that the fund is
permitted to hold. Off-balance sheet items are included in risk-weighted
assets pursuant to a conversion formula. Assets not included for purposes of
calculating capital are not included in calculating risk-weighted assets. The
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book value of assets in each category is multiplied by the weighing factor
(from 0% to 100%) assigned to that category. The resulting weighted value from
each of the four risk categories are added together and this sum is the
risk-weighted assets total that, as adjusted, comprises the denominator of the
risk-based capital ratio. The state member bank's risk-based capital ratio is
then calculated by dividing its qualifying total risk-based capital base by its
risk-weighted assets.
The rule for calculating risk-based capital ratios took effect in
1989. At the end of 1994, state member banks are required to maintain
qualifying total capital equal to 8 percent of their risk-weighted assets and
off-balance sheet items. Banks that fail to meet the risk-based capital
requirements are required to file a capital plan with the Federal Reserve Board
describing the means and a schedule for achieving the minimum capital
requirements. In addition, any application that requires the consideration of
capital adequacy, such as a branch application, may not be approved by the
Federal Reserve Board unless the Federal Reserve Board finds that the bank has
a plan to meet the capital requirements within a reasonable period of time. At
December 31, 1994, the Bank's total capital-to-risk weighted assets ratio
calculated under the risk-based capital requirement was 14.34 percent, while
the Bank's actual risk-based capital was in excess of that required by
$21,059,000.
Federal Reserve System
Under Federal Reserve Board regulations, the Bank is required to
maintain reserves against its transaction accounts (primarily checking and NOW
accounts), non-personal money market deposit accounts, and non-personal time
deposits. Effective April 2, 1992, the Federal Reserve Board cut the reserve
requirement on transaction accounts from 12 percent to 10 percent. Effective
December 31, 1990, in addition, no reserves (subject to adjustment by the
Federal Reserve Board up to 9 percent) must be maintained on time deposits,
which include borrowings with original maturities of less than one and one-half
years. These amounts and percentages are subject to adjustment by the Federal
Reserve Board. Money market deposit accounts are subject to the reserve
requirement applicable to time deposits when held by an entity other than a
natural person.
Insurance of Deposits
Deposits in the Bank are insured by the Federal Deposit Insurance
Corporation (the "FDIC"), to the legal maximum. Under FIRREA, the deposits of
commercial banks continue to be insured to a maximum of $100,000 for each
insured depositor.
Community Reinvestment Act
Ratings of depository institutions under the Community Reinvestment
Act of 1977 ("CRA") must be disclosed. The disclosure will include both a
four-unit descriptive rating for all CRA examinations at banks and thrifts
after July 1, 1990, using terms such as satisfactory and unsatisfactory, and a
written evaluation of each institution's performance. At its most recent CRA
performance evaluation, the Bank received a satisfactory evaluation of its CRA
performance.
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Executive Officers of the Registrant
(as of March 1, 1995)
Executive
Officer
Name Age Position Since
---- --- -------- ---------
John S. Kreighbaum 48 President and Chief Executive
Officer 1991
Timothy W. Esson 45 Executive Vice President
and Treasurer 1980
James R. Bryden 52 Regional President/
North Central District 1987
Mary A. Barnes 50 Senior Vice President/
Branch Administration 1993
Dennis K. Miller 47 Senior Vice President/
Operations Manager 1993
Robert J. Scott 46 Senior Vice President/Director
of Investment Management
and Trust Services 1993
J. Sue Snyder 62 Senior Vice President/
Human Resources 1980
Bruce E. Stevens 46 Senior Vice President/
Director of Lending 1993
Lois E. Gunning 66 Corporate Secretary 1987
Each of the above executive officers of the Corporation has been an
officer of the Registrant or its subsidiary, PREMIERBank & Trust, during the
past five years, except as follows. Mr. Kreighbaum joined the Corporation and
the Bank as President in January 1991. Mr. Kreighbaum most recently was the
President and Chief Executive Officer of The Delaware County Bank, Delaware,
Ohio, from 1986 through 1990. Mrs. Barnes joined the Corporation and the Bank
as Vice President in August 1991, and became Senior Vice President/Branch
Administration in June 1993. Prior to that, Mrs. Barnes was Vice President at
Delaware County Bank from 1987 to July 1991. Mr. Miller joined the Corporation
and the Bank in October 1992 as Vice President. In June 1993 he was made
Senior Vice President/Operations. Prior to joining CoBancorp Inc. and
PREMIERBank & Trust, Mr. Miller was Senior Vice President/Chief Auditor at First
Security Corporation of Kentucky from 1988 to October 1992. Mr. Scott joined
the Corporation and the Bank in March 1993. Prior to that, he was at Mid-State
Bank and Trust Company, Altoona, Pennsylvania since 1983. Mr. Stevens joined
the Corporation and the Bank in June 1992 as Vice President/Commercial Loan
Officer, and became Vice President/Director, Commercial Lending in May 1993.
Prior to joining CoBancorp Inc. and PREMIERBank & Trust, Mr. Stevens was Senior
Vice President, Loan Administration at a local commercial bank from 1974 to
1992.
There are no family relationships between any of the above executive
officers of the Corporation.
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Supplemental Financial Data
Numeric disclosure regarding the Corporation's business and
supplemental financial data concerning the Corporation and the Bank as described
below is incorporated herein by reference to the pages of this report set forth
opposite each specific caption:
Caption Page
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Average Consolidated Balance Sheets, Net Interest
Income and Rates 15
Summary of Changes in Net Interest Income 16
Investment Securities Carrying Value and Yield by Maturity Date 20
Loan Portfolio 18
Loan Maturities and Sensitivity to Changes in Interest Rates 19
Credit Quality and Experience 23
Deposits 21
Return on Equity and Assets 14
Securities Sold Under Agreements to Repurchase 22
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ITEM 2. PROPERTIES
The principal office of CoBancorp Inc. and PREMIERBank & Trust is located
at 124 Middle Avenue, Elyria, Ohio. At December 31, 1994, the Bank owned 17
of its banking facilities and leased the other 16 facilities. All but eight
of the offices are located in Lorain County, Ohio.
Through the Bank, the Corporation owns and operates 29 ATMs at various
branch offices and at seven remote locations and is a member of the MAC
Network, which provides its members with regional ATM access, and the Plus
System ATM network, which provides its members with international access.
The following table sets forth certain information regarding the properties
of the Corporation and the Bank.
Owned or Mortgage Lease
Office Location Leased Indebtedness Expiration
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Elyria
248 North Abbe Road Leased n/a March 2008
230 East Broad Street Owned 0
124 Middle Avenue Owned 0
1550 West River Road North Owned 0
*8703 West Ridge Road Leased n/a June 1999
*38475 Chestnut Ridge Road Leased n/a November 1997
1000 North Abbe Road Owned 0
*Elyria Memorial Hospital
630 East River Street Leased n/a July 1996
Elyria United Methodist Home
807 West Avenue Leased n/a December 1999
*400 Clark Street ** 0
Amherst
160 Cleveland Avenue Owned 0
938 North Leavitt Road Owned 0
Avon
36000 Detroit Road Leased n/a May 2011
36815 Detroit Road Leased n/a November 1997
Avon Lake
33388 Walker Road Leased n/a March 1997
Columbia Station
26700 Royalton Road Owned 0
Crestline
350 North Seltzer Street Owned 0
Delaware
95 East William Street Owned 0
*1760 Columbus Pike (Wal-Mart) Leased n/a March 1999
Continued
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Owned or Mortgage Lease
Office Location Leased Indebtedness Expiration
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Grafton
432 North Main Street Owned 0
Greenwich
13 Main Street Owned 0
Huron
410 Cleveland Road East Leased n/a May 1997
Lorain
3903 Pearl Avenue Leased n/a November 2000
North Ridgeville
38659 Center Ridge Road Owned 0
34210 Center Ridge Road Owned 0
Oberlin
49 South Main Street Owned 0
*Oberlin College (Wilder Hall) Leased n/a monthly
*291 South Main Street
(Station Square) Leased n/a March 1999
Sheffield Lake
4120 East Lake Road Leased n/a monthly
Shiloh
23 West Main Street Owned 0
Vermilion
4530 Liberty Avenue Owned 0
Westlake
801 Crocker Road Owned 0
Worthington
100 East Campus View Blvd.*** Leased n/a October 1996
2182 West Dublin-Granville Road Leased n/a April 1997
* Remote ATM only
**Remote ATM located on premises of local manufacturing company
***Loan Production Office only
ITEM 3. LEGAL PROCEEDINGS
There is no pending litigation of a material nature in which the Corporation
or the Bank is involved and no such legal proceeding was terminated during the
fourth quarter of 1994. Furthermore, there is no material proceeding in which
any director, officer, or affiliate of the Registrant, or any associate of any
such director or officer, is a party, or has a material interest, adverse to the
Corporation or the Bank.
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As a part of its ordinary course of business, the Corporation and the Bank
are each a party to lawsuits (such as garnishment proceedings) involving claims
to the ownership of funds in particular accounts and involving the collection of
delinquent accounts. All such litigation is incidental to the business of the
Bank and the Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Reference is made to the table "Market and Dividend Information" which is
contained in this filing in Exhibit 13g, for information concerning the
principal market for Registrant's Common Stock, market prices, number of
shareholders and dividends, which is incorporated herein by reference. The high
and low bid prices quoted from the newspaper (prior to the Corporation's listing
on the Nasdaq National Market System in August 1993) reflect inter-dealer prices
without adjustments for retail markups, markdowns or commissions and may not
represent actual transactions. Reference is made to Note H to the Consolidated
Financial Statements which is contained in the Registrant's 1994 Annual Report
to Shareholders, filed as Exhibit 13e of this filing, for information concerning
dividend restrictions, which is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the table entitled "Financial Highlights," filed as
Exhibit 13h of this filing, which is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CoBancorp Inc. is a one-bank holding company with total consolidated assets
at year-end 1994 of $532 million. Its subsidiary, PREMIERBank & Trust, maintains
offices in Lorain County, as well as Cuyahoga, Erie, Huron, Richland, Delaware,
Crawford and Franklin Counties.
This section of the report provides a narrative discussion and analysis of
the consolidated financial condition and results of operations of CoBancorp Inc.
and PREMIERBank & Trust for the past three years. The supplemental financial
data included in this section should be read in conjunction with the
consolidated financial statements and related disclosures presented as Exhibits
13a through 13f and 13i of this filing, which are incorporated herein by
reference. All shares outstanding and per share data have been adjusted for
four-for-three stock splits in 1994 and 1993, a four percent stock dividend
in 1992 and a three percent stock dividend in 1991.
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Consolidated Selected Financial Data
Reference is made to the table entitled "Financial Highlights," filed as
Exhibit 13h of this filing, which is incorporated herein by reference.
Performance Overview
Net income for 1994 was $5,686,000, or $1.73 per share, compared to
$5,281,000, or $1.61 per share in 1993, and $4,378,000, or $1.35 per share
in 1992. Two key measures of performance in the banking industry are return
on average equity (ROE) and return on average assets (ROA). ROE is the
ratio of income earned to average shareholders' equity. ROE for 1994 was
14.3 percent, compared to 14.6 percent in 1993 and 13.8 percent in 1992. ROA
measures how effectively a corporation uses its assets to produce earnings.
For 1994, return on average assets was 1.15 percent. ROA was 1.10 percent
in 1993 and 1.01 percent in 1992. ROE and ROA have been positively impacted
by an upward trend in the net interest margin.
The following table sets forth operating and capital ratios of the
Corporation.
Return on Equity and Assets
December 31
--------------------------------
1994 1993 1992
---- ---- ----
Return on average assets 1.15% 1.10% 1.01%
Return on average equity 14.28 14.60 13.76
Dividend payout ratio 30.70 25.52 25.58
Ratio of average equity to average assets 8.06 7.53 7.34
Results of Operations
Net Interest Income
The Corporation's primary source of earnings is net interest income, which
is the difference between revenue generated from earning assets and the interest
cost of funding those assets. For discussion, net interest income is adjusted to
reflect the effect of the tax benefits of certain tax-exempt investments and
loans to compare with other sources of interest income. Net interest income on a
fully taxable-equivalent basis grew to $25,756,000 in 1994, from $23,713,000 in
1993 and $21,828,000 in 1992. Reference is made to the "Summary of Changes in
Net Interest Income" on page 16 of this report for a detailed analysis of
factors affecting this trend in net interest income. Net interest margin, which
is net interest income divided by average earning assets, was 5.70 percent in
1994 compared with 5.39 percent in 1993 and 5.43 percent for 1992.
Average earning assets, as a percentage of total assets, decreased slightly
to 91.4 percent this year compared to 91.7 percent in 1993 and 92.0 percent in
1992.
The trends in various components of the balance sheet and their respective
yields and rates which affect interest income and expense are shown in the
following table.
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AVERAGE CONSOLIDATED BALANCE SHEETS, NET INTEREST INCOME AND RATES
Fully taxable equivalent (in thousands of dollars)
1994 1993
------------------------------------ ---------------------------------------
Average Average
Daily Yield/ Daily Yield/
Balance Interest Rate Balance Interest Rate
----------- -------- -------- ------- -------- ------
Assets
Interest-earning assets:
Loans (including fees)
Taxable $308,853 $27,108 8.78% $255,726 $23,383 9.14%
Tax-exempt 3,768 244 6.48 4,280 265 6.19
Investment securities
Taxable 69,585 4,406 6.33 123,028 8,099 6.58
Tax-exempt 67,368 5,425 8.05 51,630 4,420 8.56
Federal funds sold 2,439 101 4.14 5,297 155 2.93
-------- ------- -------- -------
Total interest-earning assets 452,013 37,284 8.25 439,961 36,322 8.26
Noninterest-earning assets:
Cash and due from banks 23,706 23,596
Bank premises and equipment 10,676 9,270
Other assets 13,422 12,557
Less allowance for loan losses (5,481) (5,481)
-------- --------
Total assets $494,336 $479,903
======== ========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing transaction accounts $53,760 1,104 2.05% $55,606 1,337 2.40%
Savings 174,097 4,044 2.32 164,593 4,570 2.78
Time deposits 140,050 5,743 4.10 141,872 6,064 4.27
Short-term funds 22,350 637 2.85 24,721 638 2.58
-------- ------- -------- ------
Total interest-bearing liabilities 390,257 11,528 2.95 386,792 12,609 3.26
Noninterest-bearing liabilities: ------- ------
Demand deposits 59,674 51,983
Other liabilities 4,586 4,971
Shareholders' equity 39,819 36,157
-------- --------
Total liabilities and
shareholders' equity $494,336 $479,903
======== ========
Net interest income $25,756 $23,713
======= =======
Net yield/rate on interest-earning assets 5.70% 5.39%
==== ====
1992
---------------------------------------------
Average
Daily Yield/
Balance Interest Rate
------- -------- ------
Assets
Interest-earning assets:
Loans (including fees)
Taxable $228,739 $22,610 9.88%
Tax-exempt 4,766 351 7.36
Investment securities
Taxable 128,156 10,067 7.86
Tax-exempt 28,999 2,800 9.66
Federal funds sold 8,200 278 3.39
-------- -------
Total interest-earning assets 398,860 36,106 9.05
Noninterest-earning assets:
Cash and due from banks 19,611
Bank premises and equipment 8,438
Other assets 11,529
Less allowance for loan losses (5,088)
--------
Total assets $433,350
========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing transaction accounts $41,883 1,323 3.16%
Savings 139,862 4,970 3.55
Time deposits 147,106 7,571 5.15
Short-term funds 18,154 585 3.22
-------- -------
Total interest-bearing liabilities 347,005 14,449 4.16
Noninterest-bearing liabilities: -------
Demand deposits 49,187
Other liabilities 5,339
Shareholders' equity 31,819
Total liabilities and --------
shareholders' equity $433,350
========
Net interest income $21,657
=======
Net yield/rate on interest-earning assets 5.43%
====
Notes: Nonaccrual loans are included in average loan balances. Interest
income and yields/rates are presented on a fully taxable-equivalent
basis using a tax rate of 34% in 1994, 1993 and 1992.
15
16
The following table sets forth for the periods indicated a summary of the
changes in interest income and interest expense on a fully taxable-equivalent
basis resulting from changes in volume and changes in rates for the major
components of interest-earning assets and interest-bearing liabilities:
Summary of Changes in Net Interest Income
1994 vs. 1993 1993 vs. 1992
Increase (Decrease) Due to (1) Increase (Decrease) Due to (1)
------------------------------ ------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(In thousands of dollars)
Interest income:
Loans, net of unearned
income (2) $ 4,652 $ (946) $ 3,706 $ 2,127 $(1,440) $ 687
Taxable investment
securities (3,518) (175) (3,693) (403) (1,565) (1,968)
Nontaxable investment
securities 1,347 (342) 1,005 2,185 (566) 1,619
Federal funds sold (84) 30 (54) (98) (25) (123)
------- ------- ------- ------- ------- -------
Total interest-earning
assets 2,397 (1,433) 964 3,811 (3,596) 215
Interest expense:
Interest-bearing
transaction
accounts (47) (186) (233) 436 (422) 14
Savings 281 (807) (526) 923 (1,322) (399)
Time deposits (121) (200) (321) (123) (1,383) (1,506)
Short-term funds (64) 63 (1) 179 (126) 53
------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities 49 (1,130) (1,081) 1,415 (3,253) (1,838)
------- ------- ------- ------- ------- -------
Change in net
interest income $ 2,348 $ (303) $ 2,045 $ 2,396 $ (343) $ 2,053
======= ======= ======= ======= ======= =======
(1) Changes in interest income not arising solely from rate or volume variances
are included in rate variances.
(2) Nonaccrual loans are included in average loan balances.
Provision for Loan Losses
The total provision for loan and real estate losses was $208,000 in 1994,
$920,000 in 1993 and $2,800,000 in 1992. Additional discussion regarding the
provision for loan losses and the allowance for loan losses is contained in this
report in the section entitled "Credit Quality and Experience" on page 23.
16
17
Noninterest Income
Total noninterest income of $4,411,000 for 1994 decreased $56,000, or 1.3
percent, when compared to 1993. This follows increases of 10.5 percent during
1993 and 30.1 percent during 1992. Service charges on deposit accounts
represented $234,000 of the growth in 1994 due principally to growth in
transaction and savings deposit accounts coupled with price increases. Income
from trust activities increased in 1994, 1993 and 1992. Total assets managed by
the Trust Department aggregated $181.3 million, $220.0 million and $173.0
million at December 31, 1994, 1993 and 1992, respectively. Gains and losses on
the sale of investment securities also impact comparisons. Security
transactions resulted in gains of $454,000, $665,000 and $566,000 in 1994, 1993
and 1992, respectively.
Noninterest Expenses
Noninterest expenses increased 9.3 percent in 1994, a slower rate of growth
than the 18.2 percent in 1993 and 12.9 percent in 1992. The increase in 1994 can
be attributed to higher levels of expense relative to salaries and data
processing. Salaries, wages and benefits account for 44.1 percent of total
noninterest expense in 1994, compared to 43.6 percent in 1993 and 43.2 percent
in 1992. These increases are primarily attributable to increases in the number
of employees, the increased cost of benefits and merit raises. At December 31,
1994 there were 328 full-time equivalent employees, an increase of 2.8 percent
from the 319 full-time equivalent employees at December 31, 1993, which was an
increase of 13.5 percent from the level of 281 full-time equivalent at December
31, 1992.
Income Taxes
One element of the Corporation's tax planning is the implementation of
various investment and loan strategies to maximize after-tax profits. This
planning is an ongoing process which considers the levels of tax-exempt
securities and loans, investment securities gains or losses and allowable loan
loss deductions. The Corporation's effective income tax rate (income tax expense
divided by income before income taxes) is less than the statutory rate primarily
due to income on tax-exempt securities and loans. It should be recognized that
the yield on these types of assets is considerably less than on other
investments of the same maturity and risk. However, on a tax-equivalent basis,
the yields are comparable.
The income tax provision was $1,256,000 in 1994, compared with $1,100,000 in
1993 and $1,130,000 in 1992. The Corporation's effective tax rate was 18.1
percent in 1994, 17.2 percent in 1993 and 20.5 percent in 1992.
It has been determined that for the year ended December 31, 1994, a
valuation allowance is not required on any of the deferred tax assets recorded
due primarily to the earnings history of the Corporation and the significant
amount of federal income taxes paid in prior years.
17
18
FINANCIAL CONDITION
The consolidated financial condition of the Corporation and the Bank as of
December 31, 1994 and 1993 is presented in the comparative balance sheets
contained in Exhibit 13a of this filing and is incorporated herein by reference.
The following discussions address key elements of financial condition, including
earning assets, the sources of funds supporting earnings assets, credit quality
and experience, asset and liability management and capital adequacy.
Earning Assets
Loans
Loans comprise the majority of the Corporation's earning assets,
representing 69.2 percent of average earning assets in 1994, and 59.1 percent in
1993. Average loans outstanding increased 20.2 percent in 1994 and 11.3 percent
in 1993.
The largest asset category in the loan portfolio was real estate mortgage
loans, which comprised 46.3 percent of total loans at the end of 1994.
Commercial and collateral loans totaled 41.3 percent of the portfolio and
installment loans comprised 11.6 percent of the portfolio. All other loans were
0.9 percent of the portfolio. In 1993, real estate mortgages were 45.9 percent
of the loan portfolio, commercial and collateral loans were 42.5 percent,
installment loans were 10.6 percent and other loans were 1.0 percent.
The mix within the commercial loan portfolio is diverse and represents loans
to a broad range of business interests, located primarily within the Bank's
defined market area, with no significant industry concentration. The
installment loan portfolio is composed principally of financing to individuals
for vehicles and consumer assets. The real estate portfolio is primarily
residential mortgages that can qualify for sale into the secondary market.
Loans by major category at the end of the last five years were as follows:
Loan Portfolio
December 31
------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(In thousands of dollars)
Real estate $152,695 $132,589 $ 99,761 $ 81,368 $ 77,420
Installment 38,364 31,229 34,145 44,465 56,010
Commercial and collateral 136,187 122,699 109,169 93,694 101,751
All other 2,887 2,932 3,330 3,768 4,066
Total (net of unearned -------- -------- -------- -------- --------
income) $330,133 $289,449 $246,405 $223,295 $239,247
======== ======== ======== ======== ========
18
19
The maturity distribution and sensitivity to interest rates of the loan
portfolio are two factors in management's evaluation of the risk
characteristics of the portfolio and the future profitability of the
portfolio. Loans at December 31, 1994, reported at the earliest of maturity
or repayment for fixed rate loans, and earliest repricing opportunity for
variable rate loans, with nonaccrual loans included in the "after 5 years"
category, are as follows (in thousands of dollars):
Loan Maturities and Sensitivity to Changes in Interest Rates
Within 1-5 After
1 year years 5 years Total
------ ----- ------- -----
Real estate $ 38,643 $ 48,738 $ 65,314 $152,695
Installment 12,290 23,034 3,040 38,364
Commercial and collateral 97,061 36,176 2,950 136,187
All other 0 0 2,887 2,887
-------- -------- -------- --------
$147,994 $107,948 $ 67,320 $330,133
======== ======== ======== ========
Fixed rate loans maturing within one year and loans with adjustable rates
that reprice annually or more frequently (exclusive of scheduled repayments)
totaled $121,742,000 or 36.9 percent of the loan portfolio at December 31,
1994.
Investment Securities
The investment portfolio is comprised of U. S. Treasury and other U. S.
Government agency-backed securities, collateralized mortgage-backed
securities, tax-exempt obligations of states and political subdivisions, and
certain other investments. The quality of obligations of states and
political subdivisions will be A, AA, or AAA, the majority of which will be
AA or AAA, as rated by a nationally recognized service. As a matter of
policy, in support of our service area, we may purchase certain unrated
bonds of local schools, townships and municipalities, provided they are of
reasonable credit risk.
On December 31, 1993, the Corporation adoped FASB Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
adoption did not have a material effect on results of operations and prior
years' financial statements were not restated. In anticipation of the
adoption of FASB Statement No. 115, securities netting to $87,275,000
(adjusted cost basis) were reclassified between the held-to-maturity and
available-for-sale portfolios in 1993. In accordance with Statement No.
115, securities available-for-sale are recorded at market value and at December
31, 1994 and 1993, respectively, the unrecognized gain (loss) of $(2,913,000)
and $982,000 (net of tax) is included in shareholders' equity.
The portfolio accounting designations were made in order to attain the
objectives of the Corporation's investment portfolio, which are to generate
interest income, serve as a liquidity source and play an important role in
the management of the interest rate sensitivity of the Corporation.
Accordingly, securities purchased for the available-for-sale category are
those which may be sold prior to their maturity for purposes of bank asset
allocations, rate sensitivity or liquidity and, hence, tend to be more
liquid. Securities in the held-to-maturity category are purchased with the
intent and ability to hold them to maturity and are, therefore, carried at
amortized cost.
19
20
The investment portfolio represented 30.3 percent of average earning assets
in 1994 and 39.7 percent in 1993. Average investment securities held
decreased 21.6 percent in 1994 compared to 1993. The tax-equivalent yield
on the entire portfolio was 7.18, 7.17 and 8.19 percent in 1994, 1993 and
1992, respectively. These investments provide a stable yet diversified
income stream and serve useful roles in liquidity and interest rate
sensitivity management. In addition, they serve as a source of collateral
for low-cost funding. The decision to purchase securities is based upon the
assessment of current economic and financial trends.
Summary information with respect to the securities portfolio at December 31
follows (in thousands of dollars):
1994 Carrying Value
------------------- 1993 1992
Held to Available 1994 Carrying Carrying
Maturity for Sale Yield Value Value
-------- --------- ----- -------- --------
U.S. Treasury and other
U.S. Government agencies
Under 1 year $ 3,491 $10,702 7.46% $ 4,134
1 to 5 years 2,000 16,539 6.43 17,943
------- ------- -------- --------
Total 5,491 27,241 6.87 22,077 $ 52,778
States of the U.S. and
political subdivisions
Under 1 year 3,803 6.12 3,006
1 to 5 years 26,701 5.41 23,219
5 to 10 years 41,385 1,084 5.33 35,780
Over 10 years 823 5.80 1,727
------- -------- --------
Total 72,712 5.41 63,732 37,508
Collateralized mortgage-
backed securities
Under 1 year 9,225 6.25 35,062
1 to 5 years 10,980 7.23 31,118
5 to 10 years 19,897 6.35
Over 10 years 1,918 6.79 506
------- -------- --------
Total 42,020 6.58 66,686 82,042
Other
Over 10 years 1,260 6.08 439 439
------- ------- -------- --------
Total $79,463 $70,345 $152,934 $172,767
======= ======= ======== ========
The yield at December 31, 1994, was the combined rate for the
held-to-maturity and available-for-sale securities portfolios.
Mortgage-backed securities and other securities which may have prepayment
provisions are assigned to a maturity category based on estimated average life.
Securities with a call provision are assigned to a maturity category based on
call date. Yield represents the weighted average yield to maturity. The yield
on obligations of states and political subdivisions has been calculated on a
fully taxable equivalent basis, assuming a 34% tax rate.
20
21
Federal Funds Sold
Short-term federal funds sold are used to manage interest rate sensitivity
and to meet liquidity needs. During 1994, 1993 and 1992, these funds
represented approximately 0.5 percent, 1.2 percent and 2.1 percent,
respectively, of average earning assets.
Sources of Funds
Deposits
The Corporation's major source of investable funds is core deposits from
retail and business customers. These core deposits consist of interest-bearing
and noninterest-bearing deposits, excluding certificates of deposit over
$100,000. Average interest-bearing core deposits, comprised of interest-bearing
checking accounts, savings, money market and other time accounts, grew 1.0
percent in 1994, compared to 13.4 percent in 1993 and 14.3 percent in 1992.
Average demand deposits (noninterest-bearing core deposits) increased 14.8
percent in 1994, 5.7 percent in 1993 and 12.2 percent in 1992. These deposits
represent approximately 14.6 and 13.1 percent of average core deposits in the
last two years, respectively.
Purchased funds include certificates of deposit over $100,000. These funds
are used to balance rate sensitivity and as a supplement to core deposits.
Average certificates of deposit over $100,000 increased 14.4 percent in 1994
from 1993 levels, to 3.9 percent of average assets. This followed a decrease of
30.1 percent in 1993 from 1992 levels, to 3.5 percent of average assets in 1993.
The following table presents the average amount of and the average rate
paid on each of the following deposit categories (dollar amounts in thousands).
Average Deposits
Years ended December 31
------------------------------
Amount 1994 1993 1992
------ ---- ---- ----
Noninterest bearing demand deposits $ 59,674 $ 51,983 $ 49,187
Interest bearing transaction accounts 53,760 55,607 41,883
Savings deposits 174,097 164,593 139,862
Time deposits 140,050 141,872 147,106
-------- -------- --------
$427,581 $414,055 $378,038
======== ======== ========
Average Rate for the Year
-------------------------
Interest bearing transaction accounts 2.05% 2.40% 3.16%
Savings deposits 2.32 2.78 3.55
Time deposits 4.11 4.27 5.15
21
22
The maturity distribution of certificates of deposit of $100,000 or more at
December 31, 1994, was (in thousands of dollars):
Certificates of Deposit Over $100,000
Three months or less $30,571
Over three through six months 1,818
Over six through twelve months 2,020
Over twelve months 2,488
-------
$36,897
=======
There were five other time deposits of $100,000 or more at December 31,
1994, which will mature in 1995 through 1997.
Securities Sold Under Agreements to Repurchase and Other Borrowings
Other interest-bearing liabilities include securities sold under agreements
to repurchase, sweep accounts, federal funds purchased and notes payable TT&L.
In 1994, these short-term funds decreased slightly to 4.5 percent of average
assets compared to 5.2 percent in 1993.
The Corporation enters into sales of securities under agreements to
repurchase for periods up to 29 days, which are treated as financings and
reflected in the consolidated balance sheet as a liability.
The following table presents information related to securities sold under
agreements to repurchase (repurchase agreements).
Securities Sold Under Agreements to Repurchase
December 31
--------------------------------------
1994 1993 1992
---- ---- ----
(in thousands of dollars)
Amount outstanding at December 31 $ 1,873 $ 4,453 $11,622
Weighted average interest rate
at December 31 4.87% 2.18% 2.75%
Maximum amount outstanding at any
month's end during the year $ 6,314 $19,462 $12,013
Average amounts outstanding during year $ 4,573 $11,416 $ 8,903
Weighted average interest rate during year 3.70% 2.59% 3.11%
22
23
Credit Quality and Experience
Nonperforming Loans
Inherent in the business of providing financial services is the risk
involved in extending credit. Management believes the objective of a sound
credit policy is to extend quality loans to customers while reducing risk
affecting shareholders' and depositors' investments. Risk reduction is achieved
through diversity of the loan portfolio as to type, borrower, and industry
concentration as well as sound credit policy guidelines and procedures.
Except for installment and credit cards, loans on which interest and/or
principal is 90 days or more past due are placed on nonaccrual status and any
previously accrued but uncollected interest is reversed. Such loans remain on a
cash basis for recognition of income until both interest and principal are
current. Installment and credit cards loans past due greater than 120 days are
charged off and previously accrued but uncollected interest is reversed.
Nonperforming loans include loans accounted for on a nonaccrual basis,
accruing loans which are contractually past due 90 days or more as to principal
or interest payments and loans which have been renegotiated. Total
nonperforming loans at December 31, 1994, were $409,000, compared to $1,459,000
at December 31, 1993 and $2,540,000 at December 31, 1992. The ratio of the
allowance for loan losses to nonperforming loans at December 31, 1994, was 13.73
times compared to 3.58 times and 2.05 times at December 31, 1993 and 1992,
respectively. Total nonperforming loans as a percentage of total loans
decreased to 0.1 percent at December 31, 1994, compared to 0.5 percent at
December 31, 1993 and 1.0 percent at December 31, 1992.
The following table summarizes nonaccrual, past due and restructured loans.
December 31
------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(in thousands of dollars)
Accruing loans past due
90 days or more as to
principal or interest:
Loans secured by real estate $ 3 $ 58 $ 0 $ 214 $ 371
Loans to individuals 48 57 108 81 255
Commercial and industrial loans 0 26 0 0 12
All other 0 0 0 730 0
------ ------ ------ ------ ------
$ 51 $ 141 $ 108 $1,025 $ 638
====== ====== ====== ====== ======
Nonaccrual loans:
Loans secured by real estate $ 358 $ 518 $ 866 $2,371 $3,441
Commercial and collateral 0 77 761 1,196 2,426
All other 0 723 805 120 326
------ ------ ------ ------ ------
$ 358 $1,318 $2,432 $3,687 $6,193
====== ====== ====== ====== ======
Restructured loans past due
30 days or more as to
principal or interest: $ 0 $ 0 $ 0 $ 0 $ 0
====== ====== ====== ====== ======
23
24
The effect of nonaccrual loans, on a fully taxable-equivalent basis, for the
year ended December 31 was as follows:
Year Ended
December 31, 1994
-----------------
(in thousands of dollars)
Interest income that would have been recorded
under original terms $ 18
Interest income recorded during the
period 7
----
Net reduction in interest income $ 11
====
Allowance for Loan Losses and Loan Charge-Offs
The allowance for loan losses is the reserve maintained to cover losses that
may be incurred in the normal course of lending. The allowance for loan losses
is increased by provisions charged against income and recoveries of loans
previously charged off. The allowance is decreased by loans that are determined
uncollectible by management and charged against the allowance.
In determining the adequacy of the allowance for loan losses, management on
a regular basis evaluates and gives consideration to the following factors:
estimated future losses of significant loans including identified problem
credits; historical loss experience based on volume and types of loans; trends
in portfolio volume, maturity and composition; off-balance sheet credit risk;
volume and trends in delinquencies and nonaccruals; economic conditions in the
market area; and any other relevant factors that may be pertinent.
Potential problem loans are those loans which are on the Corporation's
"watch list." These loans exhibit characteristics that could cause the loans to
become nonperforming or require restructuring in the future. Periodically, and
at a minimum monthly, this "watch list" is reviewed and adjusted for changing
conditions.
24
25
The following table contains information relative to loan loss experience
for each of the five years in the period ended December 31, 1994.
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(In thousands of dollars)
Allowance for loan losses at
beginning of year $5,226 $5,215 $4,099 $4,644 $2,544
Loans charged off:
Real estate 31 198 17 35
Installment 297 471 866 1,300 1,286
Credit card 61 91 128 71 88
Other 5 2 1 42 7
Commercial and collateral 38 1,384 1,838 2,839 1,039
------ ------ ------ ------ ------
432 2,146 2,850 4,287 2,420
Recoveries on loans charged off:
Real estate 33 51 2 1
Installment 246 330 555 795 477
Credit card 32 16 12 9 9
Other 1 12 24
Commercial and collateral 303 928 597 414 683
------ ------ ------ ------ ------
615 1,337 1,166 1,242 1,170
------ ------ ------ ------ ------
Net (recoveries) charge-offs (181) 809 1,684 3,045 1,250
Provision for loan losses 208 820 2,800 2,500 3,350
------ ------ ------ ------ ------
Allowance for loan losses at
end of year $5,617 $5,226 $5,215 $4,099 $4,644
====== ====== ====== ====== ======
Ratio of net (recoveries) charge-offs
during the year to average loans
outstanding during the year (0.66)% .31% .72% 1.32% .54%
====== ====== ====== ====== ======
Ratio of allowance for loan
losses to total loans
at December 31 1.70% 1.81% 2.12% 1.84% 1.94%
====== ====== ====== ====== ======
25
26
The following table shows an allocation of the allowance for loan losses for
each of the past five years (dollar amounts in thousands).
Percent of Loans in Each
Amount Category to Total Loans
December 31 December 31
----------------------------------------------- -------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Real estate $ 400 $ 406 $ 205 $ 166 $ 35 46% 46% 41% 36% 32%
Installment 1,204 732 511 503 503 12 11 14 20 23
Commercial and
collateral 2,749 2,270 2,761 3,210 3,249 41 42 44 42 43
All other 190 124 180 86 58 1 1 1 2 2
Unallocated 1,074 1,694 1,558 134 799 n/a n/a n/a n/a n/a
------ ------ ----- ------ ------ --- --- --- --- ---
$5,617 $5,226 $5,215 $4,099 $4,644 100% 100% 100% 100% 100%
====== ====== ====== ====== ====== === === === === ===
Asset and Liability Management and Capital Adequacy
Interest Rate Sensitivity
Balance sheet structure and interest rate changes play important roles in
the growth of net interest income. PREMIERBank & Trust's Asset/Liability
Committee manages the overall rate sensitivity and mix of the balance sheet to
anticipate and minimize the effects of interest rate fluctuations and maintain a
consistent net interest margin. Refer to the following tables for additional
information regarding interest rate sensitivity:
Caption Page
------- ----
Loan Maturities and Sensitivity to Changes in Interest Rates 19
Investment Securities Yield by Maturity Date 20
Certificates of Deposit Over $100,000 22
Liquidity
Liquidity is the ability to raise cash quickly and economically when funds
are needed. The need for funds primarily arises from demand for new loans and
deposit withdrawals. Stable core deposits and other interest-bearing funds are
all important components of liquidity. PREMIERBank & Trust's long-term
liquidity sources are a large core deposit base and a strong capital position.
Core deposits are the most stable source of liquidity a bank can have due to
the long-term relationship with deposit customers. Core deposits averaged 82.6
percent of total average assets during 1994, and 82.7 percent during 1993.
Readily marketable assets, particularly short-term investments, provide
another source of liquidity. These funds can be quickly converted into cash to
meet short-term liquidity demands at minimal cost.
26
27
Capital Adequacy
Shareholders' equity is a stable, noninterest-bearing source of funds which
provides support for asset growth and is the primary component of capital.
Capital adequacy refers to the level of capital required to sustain capital
growth over time and to absorb losses on risk assets. It is management's intent
to maintain a level of capitalization that allows the flexibility to take
advantage of opportunities that may arise. Shareholders' equity at December 31,
1994, was $41.0 million, or $12.38 per share, compared with $39.7 million or
$12.16 per share at December 31, 1993 and $34.2 million or $10.53 per share at
December 31, 1992. At December 31, 1994, the Corporation's leverage ratio was
8.09 percent. The Corporation's risk-based capital ratios based on Federal
Reserve Board guidelines were 13.04 percent for Tier 1, or "core" capital, and
14.29 percent for total qualifying capital. These ratios substantially exceed
the Federal Reserve Board's capital guidelines for well-capitalized
institutions, which are 6.00 percent for Tier 1 capital, 10.00 percent for total
qualifying capital, and 5.00 percent for leverage ratio. It is management's
intent to maintain a level of capitalization that allows the flexibility to take
advantage of opportunities that may arise in the future.
For additional discussion, see "Examination and Supervision," on pages
6 through 8 of this report.
Common Stock and Related Market Data
Common Stock
Reference is made to the table "Market and Dividend Information" which is
contained in this filing in Exhibit 13g, which is incorporated herein by
reference.
Dividends
CoBancorp Inc.'s dividend policy balances shareholders' return with the need
to retain an adequate capital level to support future growth opportunities.
Dividend payout has ranged from 25.4 to 49.5 percent of earnings over the last
five years. Dividends declared in 1994 were $0.53 per share, compared to the
$0.41 of dividends declared in 1993. Dividends for 1992 were $0.34 per share.
Financial Reporting and Changing Prices
Although inflation can have a significant effect on the financial condition
and operating results of banks, it is difficult to measure the impact as neither
the timing nor the magnitude of interest rate changes necessarily coincide with
changes in the consumer price index or any other index of inflation.
Inflation can impact the growth of total assets and result in a need to
increase capital at a faster than normal rate in order to maintain an
appropriate equity to assets ratio. This can result in a smaller proportion of
earnings paid out in the form of dividends.
27
28
The results of operations can also be affected by the impact of inflation
on current interest rates. Intermediate to long-term interest rates tend to
increase in an inflationary environment, thereby affecting the market value of
long-term fixed rate assets. Higher short-term rates tend to increase funding
costs. In addition, noninterest expenses are more directly impacted by current
inflation rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to Exhibits 13a through 13f and 13i of this filing, which
are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the Corporation's Proxy Statement dated March 29, 1995,
and to information on page 9 of Part I of this report, for the information
required by Items 10 through 13, and which information is incorporated herein by
reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Schedules
The following consolidated financial statements appear as Exhibits (13a)
through (13f) and (13i) to this filing, which are incorporated herein by
reference:
Consolidated Balance Sheets at December 31, 1994 and 1993
Consolidated Statements of Income for the Years Ended December 31, 1994,
1993 and 1992
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1993 and 1992
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Report of Independent Auditors
Quarterly Financial Information
Schedules I and II are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
(3) Listing of Exhibits
Reg. S-K
Exhibit Page
Number Exhibit Hereof
------ ------- ------
(3) Articles of Incorporation and Bylaws N/A
(filed as Exhibit (3) to the Form 10-K of the
Registrant for the year ended December 31, 1984,
incorporated herein by reference)
(10a) Executive Supplemental Income Agreement N/A
(filed as Exhibit (10) to the Form 10-K of the
Registrant for the year ended December 31, 1985,
incorporated herein by reference)
(10b) Directors Deferred Income Plan (filed as Exhibit (10b) N/A
to the Form 10-K of the Registrant for the year
ended December 31, 1986, incorporated herein by reference)
(10d) Employment Agreement Among LCB Bancorp, Inc., N/A
Lorain County Bank and John S. Kreighbaum
(filed as Exhibit (10d) to the Form 10-K of the
Registrant for the year ended December 31, 1990,
incorporated herein by reference)
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(10e) Consulting Agreement Among LCB Bancorp, Inc., N/A
Lorain County Bank and Robert T. Bowman (filed as
Exhibit (10e) to the Form 10-K of the Registrant
for the year ended December 31, 1991, and
incorporated herein by reference)
(10g) Agreement for Information Technology Services N/A
Between Electronic Data Systems Corporation and
LCB Bancorp, Inc. with Addenda (filed as Exhibit (10g)
to the Form 10-K of the Registrant for the year
ended December 31, 1991, and incorporated herein
by reference)
(10i) Amendment Dated February 1, 1992, to the Consulting N/A
Agreement Among LCB Bancorp, Inc., Lorain County Bank
and Robert T. Bowman (filed as Exhibit (10i) to the
Form 10-K of the Registrant for the year ended
December 31, 1992, and incorporated herein by
reference)
(10j) Amendment Dated December 3, 1992, to the Consulting N/A
Agreement Among CoBancorp Inc., Lorain County Bank
and Robert T. Bowman (filed as Exhibit (10j) to the
Form 10-K of the Registrant for the year ended
December 31, 1992, and incorporated herein by
reference)
(10k) LCB Bancorp, Inc. 1992 Long-Term Incentive Plan N/A
(filed as Exhibit (10k) to the Form 10-K of the
Registrant for the year ended December 31, 1992,
and incorporated herein by reference)
(10l) Employment Agreement Dated December 31, 1993, N/A
Among CoBancorp Inc., PremierBank Trust and
Timothy W. Esson (filed as Exhibit (10l) to the
Form 10-K of the Registrant for the year ended
December 31, 1993, and incorporated herein by
reference)
(10m) Amendment Dated February 1, 1994, to the Consulting N/A
Agreement Among CoBancorp Inc., PremierBank & Trust
and Robert T. Bowman (filed as Exhibit (10m) to the
Form 10-K of the Registrant for the year ended
December 31, 1993, and incorporated herein by
reference)
(10n) Amendment Dated December 15, 1994, to the Consulting
Agreement Among CoBancorp Inc., PremierBank & Trust
and Robert T. Bowman
(13a) CoBancorp Inc. Consolidated Balance Sheets at
December 31, 1994 and 1993
(13b) Consolidated Statements of Income for the Years
Ended December 31, 1994, 1993 and 1992
(13c) Consolidated Statements of Cash Flows for the
Years Ended December 31, 1994, 1993 and 1992
(13d) Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 1994, 1993 and 1992
(13e) Notes to Consolidated Financial Statements
(13f) Report of Independent Auditors
(13g) Market and Dividend Information
(13h) Financial Highlights
(13i) Quarterly Financial Information
(22) Subsidiaries of the Registrant
(23) Consent of Independent Auditors
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the last quarter of the Registrant's
latest fiscal year.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CoBancorp Inc.
Date: March 30, 1995 By: Timothy W. Esson
-----------------------------------------
Timothy W. Esson
Executive Vice President
(Principal Financial Officer
and Principal Accounting
Officer)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the date indicated.
Signature Capacity With Registrant Date
--------- ------------------------ ----
John S. Kreighbaum President and Chief
---------------------- Executive Officer, Director March 30, 1995
John S. Kreighbaum
Robert T. Bowman Chairman, Director March 30, 1995
----------------------
Robert T. Bowman
Garis F. Distelhorst Director March 30, 1995
----------------------
Garis F. Distelhorst
Michael B. Duffin Director March 30, 1995
----------------------
Michael B. Duffin
Theodore S. Altfeld Director March 30, 1995
----------------------
Theodore S. Altfeld
Thomas E. Haywood Director March 30, 1995
----------------------
Thomas E. Haywood
Richard J. Stewart Director March 30, 1995
----------------------
Richard J. Stewart
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