1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 1995 Commission file number: 0-13166
CoBancorp Inc.
(Exact name of registrant as specified in its charter)
Ohio 34-1465382
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
124 Middle Avenue, Elyria, Ohio 44035
(Address of principal executive offices) (Zip Code)
(216) 329-8000
Registrant's telephone number, including area code
Not applicable
Former name, former address and former fiscal year,
if changed since last report.
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
As of September 30, 1995, there were 3,446,596 outstanding common shares, with
no par value, of the Registrant.
2
INDEX
COBANCORP INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
Consolidated balance sheets -- September 30, 1995 and December 31, 1994 3
Consolidated statements of income -- Three months ended September 30, 1995
and 1994 and nine months ended September 30, 1995 and 1994 4
Consolidated statements of cash flows -- Nine months ended
September 30, 1995 and 1994 5
Notes to consolidated financial statements -- September 30, 1995 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION 14
SIGNATURES 15
EXHIBITS N/A
3
COBANCORP INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30 December 31
1995 1994
ASSETS ----------------- -----------------
Cash and due from banks $26,117,916 $29,271,444
Investment securities held-to-maturity 79,962,579 78,202,883
Investment securities available-for-sale 86,568,886 71,604,165
Federal funds sold 3,600,000 2,500,000
Loans 324,035,648 330,132,961
Less allowance for loan losses 5,930,230 5,616,859
----------------- -----------------
Net loans 318,105,418 324,516,102
Bank premises and equipment, net 11,271,350 10,585,653
Accrued income and prepaid expenses 5,214,720 3,980,626
Other assets 9,462,528 11,066,084
----------------- -----------------
TOTAL ASSETS $540,303,397 $531,726,957
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand-noninterest bearing $64,228,065 $69,649,373
Demand-interest bearing 49,332,126 55,965,771
Savings and other time 352,881,521 340,221,731
----------------- -----------------
Total deposits 466,441,712 465,836,875
Short-term funds 22,468,218 21,357,228
Other liabilities 3,102,736 2,770,882
Employee stock ownership plan obligation 692,760 780,260
----------------- -----------------
Total liabilities 492,705,426 490,745,245
Shareholders' equity
Capital stock, no par value
5,000,000 shares authorized
3,446,596 shares issued and outstanding
(3,409,311 at December 31, 1994) 5,884,258 5,182,737
Capital surplus 18,553,553 16,623,320
Retained earnings 23,995,713 22,868,953
Unrealized gain (loss) on available-for-sale
investment securities (net of income tax) (142,793) (2,913,038)
Employee stock ownership plan obligation (692,760) (780,260)
----------------- -----------------
Total shareholders' equity 47,597,971 40,981,712
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $540,303,397 $531,726,957
================= =================
See accompanying notes to consolidated financial statements
4
COBANCORP INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
SEPTEMBER 30, 1995
Three months ended Nine months ended
September 30 September 30
1995 1994 1995 1994
INTEREST INCOME
Loans (including fees)
Taxable $7,322,920 $6,913,548 $22,267,098 $19,787,805
Tax-exempt 47,294 40,112 144,027 120,599
Investment securities
Taxable 1,575,562 934,975 4,417,656 3,223,125
Tax-exempt 1,027,269 891,970 2,986,078 2,631,504
Federal funds sold 70,514 25,325 87,576 57,743
----------------- ----------------- ----------------- -----------------
Total interest income 10,043,559 8,805,930 29,902,435 25,820,776
INTEREST EXPENSE
Deposits 3,985,127 2,694,518 11,220,251 7,943,924
Short-term borrowed funds 190,789 175,360 655,881 453,296
----------------- ----------------- ----------------- -----------------
Total interest expense 4,175,916 2,869,878 11,876,132 8,397,220
----------------- ----------------- ----------------- -----------------
Net interest income 5,867,643 5,936,052 18,026,303 17,423,556
PROVISION FOR LOAN LOSSES 60,000 0 180,000 208,333
----------------- ----------------- ----------------- -----------------
Net interest income after
provision for loan losses 5,807,643 5,936,052 17,846,303 17,215,223
OTHER INCOME
Service charges on deposit accounts 459,877 488,715 1,397,074 1,325,363
Trust fees 321,250 324,999 988,750 974,997
Other 383,746 506,247 831,608 863,182
Securities gains 240,607 44,969 244,112 453,494
----------------- ----------------- ----------------- -----------------
Total other income 1,405,480 1,364,930 3,461,544 3,617,036
OTHER EXPENSES
Salaries, wages and benefits 2,309,876 2,402,031 6,916,803 6,963,114
Occupancy--net 396,120 355,439 1,155,550 1,070,670
Furniture and equipment 172,500 153,619 517,500 432,658
Taxes, other than income and payroll 148,617 151,732 445,484 462,517
FDIC insurance (5,789) 239,816 494,581 719,077
Other 2,170,118 2,134,114 6,276,830 6,333,652
----------------- ----------------- ----------------- -----------------
Total other expenses 5,191,442 5,436,751 15,806,748 15,981,688
----------------- ----------------- ----------------- -----------------
Income before income taxes 2,021,681 1,864,231 5,501,099 4,850,571
INCOME TAX EXPENSE 360,000 322,000 958,000 814,000
----------------- ----------------- ----------------- -----------------
NET INCOME $1,661,681 $1,542,231 $4,543,099 $4,036,571
================= ================= ================= =================
NET INCOME PER SHARE $0.48 $0.45 $1.32 $1.17
DIVIDENDS PER SHARE $0.1500 $0.1262 $0.4271 $0.3762
See notes to consolidated financial statements
5
COBANCORP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30
1995 1994
-------------- --------------
OPERATING ACTIVITIES
Net income $4,543,099 $4,036,571
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 180,000 208,333
Provision for depreciation and amortization 1,057,956 867,090
Accretion of discounts on purchased loans (52,220) (339,901)
Amortization of premiums less accretion of
discounts on held-to-maturity investment securities (273,134) 11,467
Amortization of premiums less accretion of
discounts on available-for-sale investment securities (1,119) 35,887
Realized securities (gains) on held-to-maturity securities 0 0
Realized securities (gains) on available-for-sale securities (244,112) (453,494)
(Increase) in interest receivable (941,131) (468,369)
Increase in interest payable 154,740 118,870
(Increase) decrease in other assets (318,329) 134,454
Increase (decrease) in other liabilities 250,608 (597,926)
-------------- --------------
Net Cash Provided By Operating Activities 4,356,358 3,552,982
INVESTING AND LENDING ACTIVITIES
Proceeds from sales of held-to-maturity
investment securities 2,500,000 0
Proceeds from sales of available-for-sale
investment securities 20,828,669 37,794,541
Maturities of held-to-maturity investment securities 3,540,445 2,040,047
Maturities of available-for-sale investment securities 3,744,525 16,795,270
Purchases of held-to-maturity investment securities (7,799,022) (13,390,259)
Purchases of available-for-sale investment securities (34,823,329) (25,385,137)
Net decrease in credit card receivables 38,092 151,243
Net decrease (increase) in longer-term loans 6,244,815 (30,898,118)
Purchases of premises and equipment,
net of retirements (1,541,821) (806,371)
-------------- --------------
Net Cash Used By Investing Activities (7,267,626) (13,698,784)
DEPOSIT AND FINANCING ACTIVITIES
Net (decrease) increase in demand deposits
and savings accounts (42,573,724) 286,429
Net increase in certificates of deposit 43,178,557 6,283,815
Net increase in short-term funds 1,110,990 2,290,032
Cash dividends (1,486,108) (1,283,900)
Dividend investment plan 368,583 317,415
Long-term incentive plan 259,442 130,721
-------------- --------------
Net Cash Provided By Financing Activities 857,740 8,024,512
-------------- --------------
(Decrease) In Cash and Cash Equivalents (2,053,528) (2,121,290)
Cash and cash equivalents at beginning of period 31,771,444 32,051,488
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $29,717,916 $29,930,198
============== ==============
See accompanying notes to consolidated financial statements
6
COBANCORP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1995
NOTE A -- ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of CoBancorp Inc. and its wholly-owned subsidiary, PREMIERBank &
Trust. All material intercompany accounts and transactions have been
eliminated.
BASIS OF PRESENTATION: The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. It is the opinion of Management that all adjustments necessary for
a fair presentation have been made and that all adjustments were of a normal
recurring nature.
CASH EQUIVALENTS: For purpose of the Statements of Cash Flows, cash
equivalents include amounts due from banks and federal funds sold. Generally,
federal funds are purchased and sold for periods of less than thirty days.
PER SHARE AMOUNTS: All share and per share amounts have been adjusted to
reflect the three-percent stock dividend which was declared on July 17, 1995,
payable on September 1, 1995 to Shareholders of record on August 22, 1995, and
the four-for-three stock split in February 1994.
RECLASSIFICATIONS: Certain amounts in the 1994 consolidated financial
statements have been reclassified to conform to the 1995 presentation.
NOTE B -- ACQUISITIONS
On October 10, 1995, PREMIERBank & Trust announced it had entered into a Letter
of Agreement with Bank One, Cleveland, N.A., whereby PREMIERBank & Trust will
purchase eleven (11) Lorain County branches of Bank One. The offices have
total deposits of approximately $125 million. The transaction is subject to
regulatory approval and is expected to close in the first quarter of 1996.
7
COBANCORP INC.
SEPTEMBER 30, 1995
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion focuses on information about CoBancorp Inc.'s
financial condition and results of operations which is not otherwise apparent
from the consolidated financial statements attached.
EARNINGS RESULTS Net income increased 12.5 percent to $4,543,000 for the
first nine months of 1995, from the $4,037,000 earned in the same period of
1994. Earnings per share increased to $1.32, up from $1.17 per share in the
first nine months of the prior year.
NET INTEREST INCOME The net interest margin on a fully taxable-equivalent
basis was 5.25 percent for the first nine months of 1995, compared to 5.60
percent one year ago. Net interest income for the first nine months of 1995
amounted to $19,639,000 compared to $18,841,000 in 1994. These amounts reflect
net interest income adjusted to a fully taxable-equivalent basis by recognizing
the tax effect of interest earned on tax-exempt securities and loans.
The increase in fully-taxable equivalent net interest income of $798,000, or
4.2 percent, is attributable primarily to an increase in earning assets and to
higher interest rates on those assets. These factors were partially offset by
an increase in interest-bearing liabilities and, to a lesser extent, an
increase in the cost of those liabilities.
Average interest-earning assets were $495,826,000 and $446,190,000 for the
first nine months of 1995 and 1994, respectively.
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:
8
SUMMARY OF NET INTEREST INCOME CHANGES
(RATE/VOLUME VARIANCE)
Nine months ended 9/30/95 vs. 9/30/94
(in thousands of dollars)
| Change in
| interest income/expense due to
Current Current Old Old| ---------------------------------------
volume rate volume rate| -Volume Rate Both TOTAL
------ ------- ------ ----| ------ ---- ---- ----
C> |
Taxable securities $88,334 6.67% $69,492 6.19%| $874 $252 $69 $1,195
Nontaxable securities 74,962 8.05% 65,942 8.06%| 545 (7) (1) 537
Federal funds sold & s/t funds 1,994 5.77% 2,143 3.55%| (4) 36 (1) 30
Taxable loans: |
Real estate loans 152,045 7.98% 145,123 8.14%| 421 (174) (8) 239
Commercial loans 132,580 9.29% 124,061 8.10%| 516 1,100 98 1,714
Installment loans 40,029 10.04% 32,477 10.54%| 595 (121) (29) 445
Overdrafts 254 0.00% 215 0.00%| 0 0 0 0
Quickline loans 122 17.21% 115 17.39%| 1 0 0 1
Credit card loans 2,710 40.11% 2,758 35.53%| (13) 94 (1) 80
Nontaxable loans: |
IRBs 2,796 10.41% 3,864 6.31%| (51) 119 (33) 35
------- ------- | ----- ----- ----- -----
Total interest-earning assets 495,826 8.45% 446,190 8.12%| 2,884 1,299 94 4,276
|
|
Interest-bearing transaction accts: |
NOW/Advantage 50 51,140 2.05% 53,417 2.06%| (35) (3) 0 (38)
Savings accounts: |
Savings 131,775 2.32% 144,739 2.36%| (229) (44) 4 (269)
IMMAs 24,961 2.16% 29,576 2.17%| (75) (2) 1 (76)
Time deposits: |
Christmas/vacation club 1,129 4.43% 2,696 3.97%| (47) 9 (5) (43)
CD under $100,000 103,455 4.99% 86,555 3.95%| 499 677 132 1,308
CD over $100,000 (regular) 14,570 6.23% 5,674 4.32%| 287 81 128 496
CD over $100,000 (public funds) 44,487 6.09% 11,327 3.58%| 887 213 624 1,724
IRAs 31,135 4.88% 29,929 4.30%| 39 129 5 173
Short-term borrowings: |
Repurchase agreements 3,581 5.22% 5,108 3.48%| (40) 66 (19) 7
Fed funds purchased 4,387 6.13% 1,729 4.22%| 84 25 39 148
Notes payable TT&L 2,516 5.48% 2,446 3.56%| 2 35 2 39
Sweep 12,707 2.16% 12,267 2.14%| 7 2 0 9
------- ------- | ----- ----- ----- -----
Total interest-bearing liabilities 425,843 3.73% 385,463 2.91%| 1,379 1,188 911 3,478
| ------ ----- ----- ------
Net interest income 5.25% 5.60%| $1,505 $111 ($817) $798
| ====== ===== ===== ======
YTD FTE net interest income (current year) $19,639
YTD FTE net interest income (prior year) 18,841
---------
Change in FTE net interest income $798
=========
Presented on a fully taxable-equivalent basis, using year-to-date average
balances.
9
Average Consolidated Balance Sheets, Net Interest Income and Rates
Nine months ended September 30, 1995 Nine months ended September 30, 1994
Average Interest Average Interest
Daily (Annual- Yield/ Daily (Annual- Yield/
Balance ized) Rate Balance ized) Rate
---------------------- ------ ---------------------- ------
(In thousands of dollars) (In thousands of dollars)
ASSETS
Interest-earning assets
Loans (including fees) (1)
Taxable $327,740 $29,571 9.02% $304,749 $26,285 8.63%
Tax-exempt 2,796 291 (2) 10.41% (2) 3,864 244 (2) 6.31% (2)
Investment securities
Taxable 88,334 5,892 6.67% 69,492 4,299 6.19%
Tax-exempt 74,962 6,032 (2) 8.05% (2) 65,942 5,316 (2) 8.06% (2)
Federal funds sold 1,994 115 5.77% 2,143 76 3.55%
------------ ------------ ------------ -----------
Total interest-earning assets 495,826 41,901 (2) 8.45% (2) 446,190 36,220 (2) 8.12% (2)
Noninterest-earning assets
Cash and due from banks 24,112 23,167
Bank premises and equipment 10,821 10,692
Other assets 13,228 12,912
Less allowance for loan losses (5,700) (5,428)
------------ ------------
42,461 41,343
------------ ------------
Total assets $538,287 $487,533
============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing transaction accounts $51,140 1,047 2.05% $53,417 1,098 2.06%
Savings 156,736 3,600 2.30% 174,315 4,062 2.33%
Time deposits 194,776 10,354 5.32% 136,182 5,461 4.01%
Short-term borrowings 23,191 869 3.75% 21,549 601 2.79%
------------ ------------ ------------ -----------
Total interest-bearing liabilities 425,843 15,870 3.73% 385,463 11,222 2.91%
------------ -----------
Noninterest-bearing liabilities
Demand deposits 62,742 58,052
Other liabilities 5,078 4,404
Shareholders' equity 44,624 39,614
Total liabilities and ------------ ------------
shareholders' equity $538,287 $487,533
============ ============
Net interest income $26,031 $24,998
============ ===========
Net yield/rate on interest earning assets 5.25% (2) 5.60% (2)
(1) Nonaccrual loans are included in average loan balance.
(2) Presented on a fully tax equivalent basis using a tax rate of 34%.
10
NET NONINTEREST EXPENSES Total net noninterest expense (total noninterest
expense less total noninterest income) has decreased slightly to $12,345,000
for the first nine months of 1995, compared to $12,365,000 the previous year.
However, exclusive of net securities gains and losses, net noninterest expenses
decreased by $229,000 from the first nine months of last year. During the last
quarter of 1994, the Corporation began a project, using the expertise of a
national consulting firm, to analyze operating efficiencies and bank pricing
and procedures. The benefits from this project are beginning to positively
impact the Corporation's results of operations, as reflected in the $46,000
decrease in salaries, wages and benefits in the first nine months of 1995, in
spite of the addition of three branches. Occupancy and furniture and equipment
costs have increased approximately 11.3 percent or $170,000 compared to last
year. However, these increased expenses have been offset by increased income
from service charges on deposits, and decreases in administrative expenses.
The provision for loan losses decreased to $180,000 for the first nine months
of 1995, compared to $208,000 for the same period last year. This reflects the
continuing emphasis on asset quality.
During the third quarter of 1995, the Federal Deposit Insurance Corporation
lowered rates on Bank Insurance Fund (BIF) insured deposits from approximately
23 cents per $100 of insured deposits to approximately 4 cents per $100, and
refunded part of the premiums banks had paid to insure deposits under the BIF.
PREMIERBank & Trust received a refund of $263,000 for its second and third
quarter 1995 premiums. This refund was recorded as a reduction of FDIC
insurance expense in the third quarter.
11
LOANS AND ALLOWANCE FOR LOAN LOSSES On January 1, 1995, the Corporation
adopted FASB Statement No. 114, "Accounting by Creditors for Impairment of a
Loan" (as amended by FASB Statement No. 118). Under this accounting standard,
the allowance for loan losses includes an evaluation of certain loans that are
identified under Statement No. 114 based on discounted cash flows using the
loan's initial effective interest rate or the fair value of the collateral for
certain loans which are collateral dependent. The adoption of this accounting
standard had no material effect on the financial position or results of
operations of the Corporation. At September 30, 1995, there were no loans that
were considered to be impaired under Statement 114. The allowance for loan
losses, therefore, included no allocation for such loans.
In determining the adequacy of the allowance for loan losses, management
evaluates past loan loss experience, present and anticipated economic
conditions and the credit worthiness of its borrowers. 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.
Potential problem loans are those loans which are on the Bank's "watch list."
These loans exhibit characteristics that could cause the loans to become
nonperforming or require restructuring in the future. This "watch list" is
reviewed monthly and adjusted for changing conditions.
At September 30, 1995, the allowance for loan losses as a percentage of loans
was 1.83 percent and 1.76 percent at the same date in 1994. The provision for
loan losses was $180,000 in the nine months ended September 30, 1995, and
$208,000 for the same period of 1994.
12
The following table contains information relative to loan loss experience for
the nine months ended September 30, 1995, and the year ended December 31, 1994.
Nine months ended Year ended
September 30, 1995 December 31, 1994
($000) ($000)
------------------- -----------------
Allowance for loan losses at beginning of period $5,617 $5,226
Loans charged off:
Real estate 5 31
Installment 372 296
Credit card 61 61
Other 5
Commercial and collateral 38
------ ------
442 431
Recoveries on loans charged off:
Real estate 255 33
Installment 219 245
Credit card 35 32
Other 0 1
Commercial and collateral 66 303
------ ------
575 614
Net charge-offs (recoveries) (133) (183)
Provision for loan losses 180 208
------ ------
Allowance for loan losses at end of period
$5,930 $5,617
====== ======
Ratio of allowance for loan losses to
total loans at end of period 1.83% 1.70%
====== ======
13
NONPERFORMING LOANS Nonaccrual loans were comparable to year-end 1994 levels,
and at September 30, 1995, totaled $364,000, compared to $358,000 at December
31, 1994. The category of accruing loans past due 90 days or more totaled
$95,000 at September 30, 1995 and $51,000 at December 31, 1994. The balance in
the allowance for loan losses was $5,930,000 at September 30, 1995 compared to
$5,617,000 at December 31, 1994.
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 from income. Such
loans remain on a cash basis for recognition of income until both interest and
principal are current. Installment and credit card loans past due greater than
120 days are charged off and previously accrued but uncollected interest is
reversed from income.
The following table summarizes nonaccrual and past due loans (in thousands of
dollars).
September 30, 1995 December 31, 1994
($000) ($000)
------------------ -----------------
Accruing loans past due 90 days or more as to
principal or interest:
Loans secured by real estate $ 40 $ 3
Commercial and industrial 0 0
Loans to individuals 55 48
---- ----
$ 95 $ 51
==== ====
Nonaccrual loans:
Loans secured by real estate $221 $ 358
Commercial and industrial 143 0
---- ----
$364 $ 358
==== ====
14
CAPITAL At September 30, 1995, PREMIERBank and Trust's risk-based capital
ratios based on Federal Reserve Board guidelines were as follows:
Tier 1 "core" capital to risk-weighted assets 14.10 percent
Total capital to risk-weighted assets 15.36 percent
Tier 1 leverage ratio 8.43 percent
These ratios substantially exceed the minimums which are in effect for banks
after the end of 1992.
Return on average assets was 1.15 percent for the first nine months of 1995,
compared to 1.13 percent for the same period in 1994. Return on average equity
was 13.57 percent for the first nine months of 1995, compared to 13.93
percent for the first nine months of 1994.
PART II. OTHER INFORMATION
Except as set forth below, the items of Part II are inapplicable or the answers
thereto are negative and, accordingly, no reference is made to said items in
this report.
Item 4--Submission of matters to a vote of security holders
None.
Item 6--Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) The registrant was not required to file any reports on Form
8-K during the quarter ended September 30, 1995.
15
COBANCORP INC.
SEPTEMBER 30, 1995
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COBANCORP INC.
(Registrant)
Timothy W. Esson
Executive Vice President and
Chief Financial Officer
November 13, 1995