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, 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.)
1530 West River Road, North, 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, 1996, there were 3,447,160 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, 1996 and December 31, 1995 3
Consolidated statements of income -- Three months ended September 30, 1996 4
and 1995 and nine months ended September 30, 1996 and 1995
Consolidated statements of cash flows -- Nine months ended
September 30, 1996 and 1995 5
Notes to consolidated financial statements -- September 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
3
COBANCORP INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1996 1995
--------------- ---------------
ASSETS
Cash and due from banks $31,234,643 $26,611,296
Investment securities available-for-sale 166,241,141 129,466,384
Investment securities held-to-maturity 28,384,088 29,948,383
(market value $29,909,971 and $30,736,849)
Federal funds sold 1,500,000 2,900,000
Loans 333,733,774 320,508,725
Less allowance for loan losses 5,993,604 5,849,689
--------------- ---------------
Net loans 327,740,170 314,659,036
Bank premises and equipment, net 16,312,596 11,640,337
Accrued income and prepaid expenses 5,512,853 4,228,757
Other assets 17,372,004 10,076,157
--------------- ---------------
TOTAL ASSETS $594,297,495 $529,530,350
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand-noninterest bearing $80,046,328 $70,008,577
Demand-interest bearing 60,954,676 53,962,361
Savings and other time 374,350,366 328,163,756
--------------- ---------------
Total deposits 515,351,370 452,134,694
Short-term funds 23,759,011 22,453,980
Other liabilities 4,210,151 3,839,195
Employee stock ownership plan obligation 205,260 430,260
--------------- ---------------
TOTAL LIABILITIES 543,525,792 478,858,129
Shareholders' equity
Capital stock, no par value
5,000,000 shares authorized
3,447,160 shares issued and outstanding
at September 30, 1996 and December 31, 1995 5,896,098 5,896,098
Capital surplus 18,553,553 18,553,553
Retained earnings 28,266,548 25,337,492
Unrealized gain (loss) on available-for-sale
investment securities (net of income tax) (1,739,236) 1,315,338
Employee stock ownership plan obligation (205,260) (430,260)
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 50,771,703 50,672,221
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $594,297,495 $529,530,350
=============== ===============
See accompanying notes to consolidated financial statements.
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4
COBANCORP INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
SEPTEMBER 30, 1996
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1995 1996 1995
------------------ ------------------ -------------------- ------------------
INTEREST INCOME
Loans (including fees)
Taxable $7,707,210 $7,322,920 $22,530,741 $22,267,098
Tax-exempt 35,815 47,294 88,469 144,027
Investment securities
Taxable 2,313,507 1,575,562 6,519,094 4,417,656
Tax-exempt 800,155 1,027,269 2,730,830 2,986,078
Federal funds sold 36,393 70,514 324,006 87,576
------------------ ------------------ -------------------- ------------------
TOTAL INTEREST INCOME 10,893,080 10,043,559 32,193,140 29,902,435
INTEREST EXPENSE
Deposits 4,062,533 3,985,127 12,208,000 11,220,251
Short-term borrowed funds 165,448 190,789 484,987 655,881
------------------ ------------------ -------------------- ------------------
TOTAL INTEREST EXPENSE 4,227,981 4,175,916 12,692,987 11,876,132
------------------ ------------------ -------------------- ------------------
NET INTEREST INCOME 6,665,099 5,867,643 19,500,153 18,026,303
PROVISION FOR LOAN LOSSES 0 60,000 100,000 180,000
------------------ ------------------ -------------------- ------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,665,099 5,807,643 19,400,153 17,846,303
OTHER INCOME
Service charges on deposit accounts 756,742 459,877 2,179,387 1,397,074
Trust fees 359,000 321,250 1,061,000 988,750
Other 847,817 383,746 1,781,439 831,608
Securities gains (losses) (5,304) 240,607 294,290 244,112
------------------ ------------------ -------------------- ------------------
TOTAL OTHER INCOME 1,958,255 1,405,480 5,316,116 3,461,544
OTHER EXPENSES
Salaries, wages and benefits 2,806,366 2,309,876 8,247,753 6,916,803
Occupancy--net 460,922 396,120 1,324,414 1,155,550
Furniture and equipment 234,000 172,500 702,000 517,500
Taxes, other than income and payroll 143,127 148,617 504,046 445,484
FDIC insurance 265,479 (5,789) 308,216 494,581
Other 2,635,415 2,170,118 8,220,986 6,276,830
------------------ ------------------ -------------------- ------------------
TOTAL OTHER EXPENSES 6,545,309 5,191,442 19,307,415 15,806,748
------------------ ------------------ -------------------- ------------------
INCOME BEFORE INCOME TAXES 2,078,045 2,021,681 5,408,854 5,501,099
INCOME TAX EXPENSE 448,000 360,000 859,000 958,000
------------------ ------------------ -------------------- ------------------
NET INCOME $1,630,045 $1,661,681 $4,549,854 $4,543,099
================== ================== ==================== ==================
NET INCOME PER SHARE $0.47 $0.48 $1.32 $1.32
DIVIDENDS PER SHARE $0.1600 $0.1456 $0.4700 $0.4271
See notes to consolidated financial statements.
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5
COBANCORP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30
1996 1995
------------------ --------------------
OPERATING ACTIVITIES
Net income $4,549,854 $4,543,099
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 100,000 180,000
Provision for depreciation and amortization 1,570,565 1,057,956
Accretion of discounts on purchased loans (61,850) (52,220)
Amortization of premiums less accretion of
discounts on held-to-maturity investment securities 140,487 (273,134)
Amortization of premiums less accretion of
discounts on available-for-sale investment securities 8,680 (1,119)
Realized securities (gains) on available-for-sale securities (294,290) (244,112)
(Increase) in interest receivable (737,324) (941,131)
Increase in interest payable 718,906 154,740
(Increase) in other assets (7,555,336) (318,329)
Increase in other liabilities 338,797 250,608
------------------ --------------------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (1,221,511) 4,356,358
INVESTING AND LENDING ACTIVITIES
Proceeds from sales of available-for-sale
investment securities 53,017,230 23,328,669
Maturities of available-for-sale investment securities 1,423,808 3,744,525
Maturities of held-to-maturity investment securities 8,928,643 3,540,445
Purchases of held-to-maturity investment securities 0 (7,799,022)
Purchases of available-for-sale investment securities (103,067,893) (34,823,329)
Net (increase) decrease in credit card receivables (6,863) 38,092
Net (increase) decrease in longer-term loans (13,121,572) 6,244,815
Purchases of premises and equipment,
net of retirements (5,698,034) (1,541,821)
------------------ --------------------
NET CASH (USED) BY INVESTING ACTIVITIES (58,524,681) (7,267,626)
DEPOSIT AND FINANCING ACTIVITIES
Net increase (decrease) in demand deposits
and savings accounts 50,645,513 (42,573,724)
Net increase in certificates of deposit 12,639,160 43,178,557
Net increase in short-term funds 1,305,031 1,110,990
Cash dividends (1,620,165) (1,486,108)
Dividend investment plan 0 368,583
Long-term incentive plan 0 259,442
------------------ --------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 62,969,539 857,740
------------------ --------------------
Increase (decrease) In Cash and Cash Equivalents 3,223,347 (2,053,528)
Cash and cash equivalents at beginning of period 29,511,296 31,771,444
------------------ --------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $32,734,643 $29,717,916
================== ====================
See accompanying notes to consolidated financial statements.
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COBANCORP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 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, CoBancorp Inc. announced it had entered into a Letter of
Agreement with Jefferson Savings Bank, whereby CoBancorp Inc. 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 September 30, 1996, there were no loans that were considered to be impaired
under the Statement 114 criteria.
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COBANCORP INC.
SEPTEMBER 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 0.15 percent to $4,550,000 for the
first nine months of 1996, from the $4,543,000 earned in the same period of
1995. Earnings per share were $1.32 for the first nine months of both 1996
and 1995. 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 5.14 percent for the first nine months of 1996, compared to 5.25
percent one year ago. Net interest income for the first nine months of 1996
amounted to $20,953,000 up significantly from $19,639,000 for the
comparable period in 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 $1,314,000,
or 6.7 percent, is due primarily to an increase in interest-earning assets.
This increase was partially offset by an increase in interest-bearing
liabilitiesand a decrease in the yield on interest earning asssets.
Average interest-earning assets were $539,982,000 and $495,826,000 for the
first nine months of 1996 and 1995, respectively. Average interest-bearing
liabilities for the same periods were $463,792,000 and $425,843,000.
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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8
AVERAGE CONSOLIDATED BALANCE SHEETS AND
SUMMARY OF NET INTEREST INCOME CHANGES
(RATE/VOLUME VARIANCE)
NINE MONTHS ENDED 9/30/96 VS. 9/30/95
(IN THOUSANDS OF DOLLARS)
CHANGE IN
INTEREST INCOME/EXPENSE DUE TO
AVG. BAL. CURRENT AVG. BAL. OLD ---------------------------------------
9/30/96 RATE 9/30/95 RATE VOLUME RATE BOTH TOTAL
------- ---- ------- ---- ------ ---- ---- -----
Taxable securities $134,565 6.46% $88,334 6.67% $2,316 ($141) ($73) $2,102
Nontaxable securities 70,371 7.84% 74,962 8.05% (277) (116) 7 (386)
Federal funds sold & s/t funds 7,171 5.94% 1,994 5.77% 224 3 9 236
Taxable loans:
Real estate loans 143,250 7.98% 152,045 7.98% (494) 1 (28) (521)
Commercial loans 136,220 9.43% 132,580 9.29% 287 147 (1) 433
Installment loans 41,747 10.24% 40,029 10.04% 140 61 3 204
Overdrafts 1,174 0.00% 254 0.00% 0 0 0 0
Quickline loans 193 16.58% 122 17.21% 9 (1) 0 8
Credit card loans 2,835 44.97% 2,710 40.11% 41 99 (1) 139
Nontaxable loans:
IRBs 2,456 7.29% 2,796 10.41% (27) (65) 8 (84)
--------- -------- ------ ----- ---- ------
TOTAL INTEREST-EARNING ASSETS 539,982 8.27% 495,826 8.45% 2,219 (12) (76) 2,131
Noninterest-earning assets
Cash and due from banks 27,933 24,112
Bank premises and equipment 14,014 10,821
Other assets 19,954 13,228
Less allowance for loan losses (6,000) (5,700)
---------- --------
55,901 42,461
---------- --------
Total assets $595,883 $538,287
========== ========
Interest-bearing transaction accts:
NOW/Advantage 50 63,101 1.83% 51,140 2.05% 187 (84) (21) 82
Savings accounts:
Savings 140,601 2.25% 131,775 2.32% 162 (75) (6) 81
IMMAs 22,910 2.02% 24,961 2.16% (32) (26) 2 (56)
Index 12,292 4.76% 0 0.00% 439 0 0 439
Time deposits:
Christmas/vacation club 1,205 3.90% 1,129 4.43% 3 (4) 0 (1)
CD under $100,000 133,074 5.37% 103,455 4.99% 1,125 289 82 1,496
CD over $100,000 (regular) 13,046 5.30% 14,570 6.23% (69) (101) 11 (159)
CD over $100,000 (public funds) 20,626 5.32% 44,487 6.09% (1,084) (259) 139 (1,204)
IRAs 35,827 5.37% 31,135 4.88% 176 115 18 309
Short-term borrowings:
Repurchase agreements 3,024 4.73% 3,581 5.22% (21) (13) 1 (33)
Fed funds purchased 2,181 5.41% 4,387 6.13% (101) (24) 11 (114)
Notes payable TT&L 1,952 5.17% 2,516 5.48% (23) (6) 1 (28)
Sweep 13,953 1.97% 12,707 2.16% 21 (18) 2 5
--------- -------- ------ ----- ---- ------
TOTAL INTEREST-BEARING LIABILITIES 463,792 3.64% 425,843 3.73% 783 (206) 240 817
------ ----- ---- ------
Noninterest-bearing liabilities
Demand deposits 77,090 62,742
Other liabilities 4,479 5,078
Shareholders' equity 50,522 44,624
----------- -----------
Total liabilities and
shareholders' equity $595,883 $538,287
=========== ===========
NET INTEREST INCOME 5.14% 5.25% $1,436 $194 ($316) $1,314
=============================================
YTD FTE net interest income (current year) $20,953
YTD FTE net interest income (prior year) 19,639
--------
Change in FTE net interest income $1,314
========
Presented on a fully taxable-equivalent basis, using year-to-date average
balances.
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9
NET NONINTEREST EXPENSES Total net noninterest expense (total noninterest
expense less total noninterest income) has increased to $13,991,000 for the
first nine months of 1996, compared to $12,345,000 the previous year. The
increase in expenses has been partially offset by increased income from service
charges on deposit accounts of $782,000 or 56.0% as compared to the same period
last year. The Bank continues to benefit from the results of a comprehensive
review of the Bank's pricing structure in late 1995. Securities gains
represented $294,000 in income for the first nine months of 1996, compared to a
gain of $244,000 for the same period in 1995, this represents an increase of
20.6%. Trust fees were up 7.3 percent in 1996 at $1,061,000, versus $989,000
for the comparable period in 1995. For the first nine months of 1996, salaries,
wages and benefits expense increased $1,331,000 over the same period for 1995.
However, during 1996 the Bank added fourteen new branches and approximately 54
new employees. (Eleven branches were acquired in February of 1996).
At the beginning of 1996, the Federal Deposit Insurance Corpoartion (FDIC)
reduced rates for well-capitalized institution's (such as CoBancorp Inc.)
Bank Insurance Fund (BIF)-insured deposits to zero, from $0.23 per $100 of
insured deposits during 1995. This resulted in a decrease in FDIC insurance
expense of $430,000 in the first nine months of 1996 as compared to 1995. In
addition, the Bank has approximately $37 million of deposits insured by the FDIC
in the Savings Association Insurance Fund (SAIF). On September 30, 1996,
Congress enacted legislation to recapitalize SAIF. The legislation provided for
a one-time assessment of $0.657 per $100 of SAIF-insured deposits, for which the
Bank recored an expense of approximately $244,000 in the third quarter. During
1997, the insurance rate of SAIF-insured deposits will decline from the $0.23
per $100 currently assessed to $0.064 per $100.
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, 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 are, or could become, nonperforming. This "watch list" is reviewed
monthly and adjusted for changing conditions. Loans on the watch list at
September 30, 1996, totaled $6.3 million or 1.9 percent of total outstanding
loans.
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10
At September 30, 1996, the allowance for loan losses as a percentage of loans
was 1.80 percent and 1.83 percent at the same date in 1995. The provision for
loan losses was $100,000 in the nine months ended September 30, 1996, and
$180,000 for the nine months ended September 30, 1995.
The following table contains information relative to loan loss experience for
the nine months ended September 30, 1996, and the year ended December 31, 1995.
Nine months ended Year ended
September 30, 1996 December 31, 1995
($000) ($000)
------------------ -----------------
Allowance for loan losses at beginning of
period $ 5,850 $ 5,617
Loans charged off:
Real estate 20 2
Installment 351 510
Credit card 73 85
Other 0 4
Commercial and collateral 163 27
------- -------
607 628
Recoveries on loans charged off:
Real estate 5 3
Installment 247 318
Credit card 17 16
Other 0 2
Commercial and collateral 382 342
------- -------
651 681
Net charge-offs (recoveries) (44) (53)
Provision for loan losses 100 180
======= =======
Allowance for loan losses at end of
period $ 5,994 $ 5,850
======= =======
Ratio of allowance for loan losses to total
loans at end of period 1.80% 1.82%
======= =======
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NONPERFORMING LOANS Nonaccrual loans at September 30, 1996, totaled $611,000,
compared to $859,000 at December 31, 1995. The category of accruing loans past
due 90 days or more totaled $72,000 at September 30, 1996 and $106,000 at
December 31, 1995. The balance in the allowance for loan losses was $5,994,000
at September 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).
September 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 $ 0 $ 35
Commercial and industrial 7 0
Loans to individuals 65 71
---- ----
$ 72 $106
==== ====
Nonaccrual loans:
Loans secured by real estate $449 $783
Commercial and industrial 162 76
Loans to individuals 0 0
---- ----
$611 $859
==== ====
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CAPITAL At September 30, 1996, PREMIERBank and Trust's and CoBancorp's
risk-based capital ratios based on Federal Reserve Board guidelines were as
follows:
PREMIERBank COBANCORP Well-
& Trust Inc. Capitalized
minimums
----------- --------- -----------
Tier 1 "core" capital to risk-weighted assets 12.63% 12.95% 6.00%
Total capital to risk-weighted assets 13.88% 14.20% 10.00%
Tier 1 leverage ratio 7.65% 7.68% 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 1.11 percent for the first nine months of 1996,
compared to 1.15 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
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, 1996.
12
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COBANCORP INC.
SEPTEMBER 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
November 12, 1996
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