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 June 30, 1996 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 June 30, 1996, there were 3,447,160 outstanding common shares, with no par
value, of the Registrant.
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INDEX
COBANCORP INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Page
----
Consolidated balance sheets -- June 30, 1996 and December 31, 1995 3
Consolidated statements of income -- Three months ended June 30, 1996 4
and 1995 and six months ended June 30, 1996 and 1995
Consolidated statements of cash flows -- Six months ended June 30, 1996
and 1995
5
Notes to consolidated financial statements -- June 30, 1996 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION 12
SIGNATURES 13
EXHIBITS N/A
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COBANCORP INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, DECEMBER 31,
1996 1995
--------------- ---------------
ASSETS
Cash and due from banks $31,094,725 $26,611,296
Investment securities available-for-sale 186,355,806 129,466,384
Investment securities held-to-maturity 29,111,442 29,948,383
(market value $29,523,649 and $30,736,849)
Federal funds sold 0 2,900,000
Loans 331,199,642 320,508,725
Less allowance for loan losses 6,012,261 5,849,689
--------------- ---------------
Net loans 325,187,381 314,659,036
Bank premises and equipment, net 14,290,926 11,640,337
Accrued income and prepaid expenses 5,555,683 4,228,757
Other assets 19,487,534 10,076,157
--------------- ---------------
TOTAL ASSETS $611,083,497 $529,530,350
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand-noninterest bearing $82,159,484 $70,008,577
Demand-interest bearing 60,856,793 53,962,361
Savings and other time 391,015,637 328,163,756
--------------- ---------------
Total deposits 534,031,914 452,134,694
Short-term funds 23,940,569 22,453,980
Other liabilities 3,870,459 3,839,195
Employee stock ownership plan obligation 305,260 430,260
--------------- ---------------
TOTAL LIABILITIES 562,148,202 478,858,129
Shareholders' equity
Capital stock, no par value
5,000,000 shares authorized
3,447,160 shares issued and outstanding
at June 30, 1996 and December 31, 1995 5,896,098 5,896,098
Capital surplus 18,553,553 18,553,553
Retained earnings 27,188,047 25,337,492
Unrealized gain (loss) on available-for-sale
investment securities (net of income tax) (2,397,143) 1,315,338
Employee stock ownership plan obligation (305,260) (430,260)
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 48,935,295 50,672,221
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $611,083,497 $529,530,350
=============== ===============
See accompanying notes to consolidated financial statements.
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COBANCORP INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
JUNE 30, 1996
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1996 1995 1996 1995
---------------- ---------------- --------------- ----------------
INTEREST INCOME
Loans (including fees)
Taxable $7,530,935 $7,583,187 $14,823,531 $14,944,178
Tax-exempt 8,621 48,686 52,654 96,733
Investment securities
Taxable 2,523,349 1,465,094 4,205,587 2,842,094
Tax-exempt 900,223 985,921 1,930,675 1,958,809
Federal funds sold 99,166 15,434 287,613 17,062
---------------- ---------------- --------------- ----------------
TOTAL INTEREST INCOME 11,062,294 10,098,322 21,300,060 19,858,876
INTEREST EXPENSE
Deposits 4,186,094 3,883,971 8,145,467 7,235,124
Short-term borrowed funds 153,920 217,507 319,539 465,092
---------------- ---------------- --------------- ----------------
TOTAL INTEREST EXPENSE 4,340,014 4,101,478 8,465,006 7,700,216
---------------- ---------------- --------------- ----------------
NET INTEREST INCOME 6,722,280 5,996,844 12,835,054 12,158,660
PROVISION FOR LOAN LOSSES 40,000 60,000 100,000 120,000
---------------- ---------------- --------------- ----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,682,280 5,936,844 12,735,054 12,038,660
OTHER INCOME
Service charges on deposit accounts 788,306 477,582 1,422,645 937,197
Trust fees 351,000 327,500 702,000 667,500
Other 705,907 239,420 933,622 447,862
Securities gains 4,565 7,623 299,594 3,505
---------------- ---------------- --------------- ----------------
TOTAL OTHER INCOME 1,849,778 1,052,125 3,357,861 2,056,064
OTHER EXPENSES
Salaries, wages and benefits 2,799,226 2,277,578 5,441,387 4,606,927
Occupancy--net 434,461 372,488 863,492 759,430
Furniture and equipment 234,000 172,500 468,000 345,000
Taxes, other than income and payroll 180,008 147,280 360,919 296,867
FDIC insurance 21,995 250,185 42,737 500,370
Other 3,055,047 2,059,877 5,585,571 4,106,712
---------------- ---------------- --------------- ----------------
TOTAL OTHER EXPENSES 6,724,737 5,279,908 12,762,106 10,615,306
---------------- ---------------- --------------- ----------------
INCOME BEFORE INCOME TAXES 1,807,321 1,709,061 3,330,809 3,479,418
INCOME TAX EXPENSE 173,000 288,000 411,000 598,000
---------------- ---------------- --------------- ----------------
NET INCOME $1,634,321 $1,421,061 $2,919,809 $2,881,418
================ ================ =============== ================
NET INCOME PER SHARE $0.47 $0.41 $0.85 $0.84
DIVIDENDS PER SHARE $0.1600 $0.1456 $0.3100 $0.2816
See notes to consolidated financial statements.
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COBANCORP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
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.
RECLASSIFICATIONS: Certain amounts in the 1995 consolidated financial statements
have been reclassified to conform to the 1996 presentation.
NOTE B -- ACQUISITIONS
On April 2, 1996, PREMIERBank & Trust announced it had entered into a Letter of
Agreement with Jefferson Savings Bank, whereby PREMIERBank & Trust will purchase
the Ohio-chartered savings and loan located in Dublin, Ohio . The transaction is
subject to regulatory approval and is expected to close in the first quarter of
1997.
NOTE C -- LOANS
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 June 30, 1996, there were no loans that were considered to be impaired under
the Statement 114 criteria.
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COBANCORP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30
1996 1995
-------------- --------------
OPERATING ACTIVITIES
Net income $2,919,809 $2,881,418
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 100,000 120,000
Provision for depreciation and amortization 1,024,015 705,304
Accretion of discounts on purchased loans (38,978) (52,220)
Amortization of premiums less accretion of
discounts on held-to-maturity investment securities 84,437 1,996
Amortization of premiums less accretion of
discounts on available-for-sale investment securities (38,766) (180,401)
Realized securities (gains) on available-for-sale securities (299,594) (3,505)
(Increase) in interest receivable (738,304) (363,825)
Increase in interest payable 653,742 169,881
(Increase) in other assets (9,101,683) (642,284)
Increase in other liabilities 55,118 139,491
-------------- --------------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (5,380,204) 2,775,855
INVESTING AND LENDING ACTIVITIES
Proceeds from sales of available-for-sale
investment securities 35,860,679 11,869,428
Maturities of available-for-sale investment securities 752,505 2,889,062
Maturities of held-to-maturity investment securities 4,874,398 310,000
Purchases of held-to-maturity investment securities 0 (5,087,797)
Purchases of available-for-sale investment securities (102,915,931) (26,295,492)
Net decrease in credit card receivables 92,822 141,568
Net (increase) decrease in longer-term loans (10,682,189) 7,564,715
Purchases of premises and equipment,
net of retirements (3,334,439) (749,102)
-------------- --------------
NET CASH (USED) BY INVESTING ACTIVITIES (75,352,155) (9,357,618)
DEPOSIT AND FINANCING ACTIVITIES
Net increase (decrease) in demand deposits
and savings accounts 61,140,465 (31,321,057)
Net increase in certificates of deposit 20,757,354 48,270,449
Net increase (decrease) in short-term funds 1,486,589 (2,037,017)
Cash dividends (1,068,620) (967,092)
Dividend investment plan 0 253,375
Long-term incentive plan 0 259,442
-------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 82,315,788 14,458,100
-------------- --------------
Increase In Cash and Cash Equivalents 1,583,429 7,876,337
Cash and cash equivalents at beginning of period 29,511,296 31,771,444
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $31,094,725 $39,647,781
============== ==============
See accompanying notes to consolidated financial statements.
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COBANCORP INC.
JUNE 30, 1996
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 1.3 percent to $2,920,000 for the first
six months of 1996, from the $2,881,000 earned in the same period of 1995.
Earnings per share were $0.85, as compared to $0.84 per share in the first six
months of the prior year. The changes affecting net income are explained in
detail in the following sections.
NET INTEREST INCOME The net interest margin on a fully taxable-equivalent basis
was 5.12 percent for the first six months of 1996, compared to 5.35 percent one
year ago. Net interest income for the first six months of 1996 amounted to
$13,856,000 up significantly from $13,218,000 for the first half of 1995. 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 $638,000, or 4.8
percent, is due primarily to an increase in interest-earning assets. This
increase was partially offset by an increase in interest-bearing liabilities and
to slightly higher interest rates on those liabilities.
Average interest-earning assets were $538,862,000 and $491,852,000 for the first
six months of 1996 and 1995, respectively. Average interest-bearing liabilities
for the same periods were $462,747,000 and $425,926,000.
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:
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AVERAGE CONSOLIDATED BALANCE SHEETS AND
SUMMARY OF NET INTEREST INCOME CHANGES
(RATE/VOLUME VARIANCE)
SIX MONTHS ENDED 6/30/96 VS. 6/30/95
(IN THOUSANDS OF DOLLARS)
| CHANGE IN
AVG. BAL. CURRENT AVG. BAL. OLD | INTEREST INCOME/EXPENSE DUE TO
----------------------------------
6/30/96 RATE 6/30/95 RATE | VOLUME RATE BOTH TOTAL
------- ---- ------- ---- ------ ---- ---- -----
|
|
Taxable securities $131,135 6.41% $83,240 6.83% | $1,636 ($175) ($101) $1,360
Nontaxable securities 72,481 8.07% 73,675 8.06% | (48) 5 0 (43)
Federal funds sold & s/t funds 9,362 6.08% 584 5.82% | 255 1 14 270
Taxable loans: |
Real estate loans 141,912 8.04% 154,350 7.96% | (460) 61 (35) (434)
Commercial loans 136,235 9.38% 135,205 9.30% | 82 55 (5) 132
Installment loans 41,077 10.11% 39,094 10.09% | 111 3 0 114
Overdrafts 1,164 0.00% 89 0.00% | 0 0 0 0
Quickline loans 182 16.48% 122 17.21% | 5 0 0 5
Credit card loans 2,806 41.48% 2,653 39.01% | 33 33 (2) 64
Nontaxable loans: |
IRBs 2,508 6.38% 2,840 10.32% | (17) (56) 7 (66)
-------- --------- ------ ----- ---- ------
TOTAL INTEREST-EARNING ASSETS 538,862 8.26% 491,852 8.50% | 1,597 (73) (122) 1,402
|
Noninterest-earning assets |
Cash and due from banks 28,986 23,361 |
Bank premises and equipment 13,271 10,688 |
Other assets 20,090 14,968 |
Less allowance for loan losses (5,989) (5,636) |
--------- ---------
56,358 43,381 |
--------- ---------
Total assets $595,220 $535,233 |
========= =========
|
Interest-bearing transaction accts: |
NOW/Advantage 50 62,851 1.83% 51,104 2.05% | 123 (56) (12) 55
Savings accounts: |
Savings 139,631 2.25% 135,266 2.32% | 59 (48) (1) 10
IMMAs 23,304 2.02% 25,494 2.16% | (22) (18) 1 (39)
Index 11,039 4.75% 0 0.00% 261 0 0 261
Time deposits: |
Christmas/vacation club 1,097 3.92% 1,078 3.90% | 0 0 0 0
CD under $100,000 133,233 5.45% 99,970 4.84% | 816 304 101 1,221
CD over $100,000 (regular) 13,313 5.39% 13,171 5.45% | 6 (4) 0 2
CD over $100,000 (public funds) 21,532 5.28% 44,493 6.11% | (692) (185) 95 (782)
IRAs 35,411 5.33% 31,052 4.93% | 111 63 9 183
Short-term borrowings: |
Repurchase agreements 3,145 4.74% 3,250 5.26% | (2) (8) (1) (11)
Fed funds purchased 2,090 5.26% 5,645 6.15% | (108) (25) 14 (119)
Notes payable TT&L 1,637 5.25% 2,211 5.74% | (16) (5) 0 (21)
Sweep 14,464 1.98% 13,192 2.15% | 14 (11) 1 4
--------- --------- ------- ------ ------- ------
TOTAL INTEREST-BEARING LIABILITIES 462,747 3.67% 425,926 3.64% | 550 7 207 764
------- ------ ------- ------
|
Noninterest-bearing liabilities |
Demand deposits 76,504 61,285 |
Other liabilities 5,254 4,416 |
Shareholders' equity 50,715 43,606 |
--------- ---------
Total liabilities and |
shareholders' equity $595,220 $535,233 |
========== =========
|
NET INTEREST INCOME 5.12% 5.35% | $1,047 ($80) ($329) $638
====== ====== ======= ======
YTD FTE net interest income (current year) $13,856
YTD FTE net interest income (prior year) 13,218
---------
Change in FTE net interest income $638
=========
Presented on a fully taxable-equivalent basis, using year-to-date average
balances.
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NET NONINTEREST EXPENSES Total net noninterest expense (total noninterest
expense less total noninterest income) has increased to $9,404,000 for the first
six months of 1996, compared to $8,559,000 the previous year. The increase in
expenses has been offset by increased income from service charges on deposit
accounts of $485,000 or 51.8% as compared to the same period last year. The Bank
continues to benefit from the results of a comphrehensive review of the Bank's
pricing structure in late 1995. Securities gains represented $300,000 in income
for the first six months of 1996, compared to a gain of $4,000 for the first
half of 1995. Trust fees were up 5 percent in 1996 at $702,000, versus $668,000
for the comparable period in 1995. For the first six months of 1996, salaries,
wages and benefits expense increased $834,000 over the same period for 1995.
However, during this time the Bank added fourteen new branches and
approximately 54 new employees. (Eleven branches were acquired in February of
1996).
During 1995, the Federal Deposit Insurance Corporation (FDIC) rates on Bank
Insurance Fund (BIF) insured deposits were $0.23 per $100 of insured deposits.
As of year-end 1995, the Federal Deposit Insurance Corporation reduced rates on
Bank Insurance Fund (BIF) insured deposits to zero for well capitalized
institutions such as PREMIERBank and Trust. This resulted in a decrease in FDIC
insurance expense of $458,000 in the first half of 1996. The Bank has
approximately $37 million of deposits insured by the FDIC in the Savings
Association Insurance Fund (SAIF). These deposits were acquired from Savings and
Loan institutions and continue to be assessed $0.23 per $100 of insured
deposits.
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 June 30, 1996, 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. Loans on the watch list
at June 30, 1996, totaled $2.9 million or 0.9 percent of total outstanding
loans.
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At June 30, 1996, the allowance for loan losses as a percentage of loans was
1.82 percent and 1.83 percent at the same date in 1995. The provision for loan
losses was $100,000 in the six months ended June 30, 1996, and $120,000 for the
six months ended June 30, 1995.
The following table contains information relative to loan loss experience for
the six months ended June 30, 1996, and the year ended December 31, 1995.
Six months ended Year ended
June 30, 1996 December 31, 1995
($000) ($000)
---------------- ----------------
Allowance for loan losses at
beginning of period $5,850 $5,617
Loans charged off:
Real estate 21 2
Installment 176 510
Credit card 41 85
Other 2 4
Commercial and collateral 72 27
---------------- ----------------
312 628
Recoveries on loans charged off:
Real estate 1 3
Installment 174 318
Credit card 13 16
Other 1 2
Commercial and collateral 185 342
---------------- ----------------
374 681
Net charge-offs (recoveries) (62) (53)
Provision for loan losses 100 180
================ ================
Allowance for loan losses at end of period
$6,012 $5,850
================ ================
Ratio of allowance for loan losses to total
loans at end of period 1.82% 1.83%
================ ================
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NONPERFORMING LOANS Nonaccrual loans at June 30, 1996, totaled $596,000,
compared to $859,000 at December 31, 1995. The category of accruing loans past
due 90 days or more totaled $140,000 at June 30, 1996 and $106,000 at December
31, 1995. The balance in the allowance for loan losses was $6,012,000 at June
30, 1996 compared to $5,850,000 at December 31, 1995.
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).
June 30, 1996 December 31, 1995
($000) ($000)
-------------------- --------------------
Accruing loans past due 90 days or more as
to principal or interest:
Loans secured by real estate $ 25 $ 35
Commercial and industrial 93 0
Loans to individuals 22 71
-------------------- --------------------
$ 140 $ 106
==================== ====================
Nonaccrual loans:
Loans secured by real estate $ 427 $ 783
Commercial and industrial 167 76
Loans to individuals 2 0
==================== ====================
$ 596 $ 859
==================== ====================
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CAPITAL At June 30, 1996, PREMIERBank and Trust's and CoBancorp Inc.'s risk-
based capital ratios based on Federal Reserve Board guidelines were as follows:
PREMIERBank COBANCORP Well-capitalized
& Trust INC. minimums
----------- --------- ----------------
Tier 1 "core" capital to risk-weighted assets 12.39 % 12.66 % 6.00 %
Total capital to risk-weighted assets 13.64 % 13.92 % 10.00 %
Tier 1 leverage ratio 7.23 % 7.23% 5.00 %
These ratios substantially exceed the minimums which are in effect for banks
after the end of 1992, and also exceed the percentages required to be considered
"well-capitalized".
Return on average assets was 1.10 percent for the first six months of 1996,
compared to 1.13 percent for the same period in 1995.
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
The annual meeting of shareholders of CoBancorp, Inc. was held May 8,
1996, at 11:00 a.m., at the Lorain County Community College,
Classroom Conferencing Center, 1005 North Abbe Road, Elyria, Ohio 44035
in accordance with the notice of meeting and proxy statement mailed to
shareholders.
All matters proposed by management in the proxy statement were approved
by the shareholders. The change to the Long-Term Incentive Plan
proposed by a shareholder, which was opposed by management, was
defeated.
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 June 30, 1996.
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COBANCORP INC.
JUNE 30, 1996
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)
/s/ Timothy W. Esson
Timothy W. Esson
Executive Vice President and
Chief Financial Officer
August 12, 1996
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