<PAGE> 1
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, 1993.
-----------------
[ ] 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.
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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 44035
- ------------------------------------------ ----------------------------
(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
- -----------------------------------------------------------------------------
(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 Ill of this Form 10-K or any amendment to
this Form 10-K. [ ]
COVER PAGE CONTINUED
page 1 of 91
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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 283,968 shares held by the
CoBancorp Inc. Employee Stock Ownership Plan and 185,046 shares held by
directors and executive officers of the Corporation) as of February 28,
1994:
Common Stock, no par value--$81,248,952
- ---------------------------------------
The number of shares outstanding of the issuer's classes of common stock
as of February 28, 1994:
Common Stock, no par value--3,270,702 shares
- --------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1993 Annual Report to Shareholders are
incorporated by reference in Parts II and IV of this report. Portions
of the Registrant's Proxy Statement for the annual shareholders'
meeting to be held April 20 1994, are incorporated by reference into
Part III.
The index to exhibits in this filing begins on page 29. Number of pages
included in this filing is 91.
2
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<TABLE>
COBANCORP INC.
FORM 10-K REPORT
TABLE OF CONTENTS
<CAPTION>
Item Page
- ---- ----
<S> <C> <C>
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
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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
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14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.............................................. 29
SIGNATURES
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SIGNATURES................................................. 31
</TABLE>
3
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PART I
------
ITEM 1. BUSINESS
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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-three (23) banking offices throughout
its market area of Lorain County and portions of Cuyahoga, Erie, Richland,
Huron, Delaware and Crawford Counties. The Bank also operates a consumer loan
office in Elyria and a loan production office in Franklin County. The Bank has
27 automated teller machines ("ATMs") and is a member of the MAC, Money Station
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, 1993, in the opinion of management, the Corporation
did not have any concentration of loans to similarly situated borrowers
exceeding 10% of total loans. 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, 1993, the Corporation and its subsidiary employed
approximately 277 full-time and 92 part-time employees. None of the employees
is represented by a union or collective bargaining group. Management considers
4
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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 as summarized in Note I on page 18 of the Registrant's
1993 Annual Report to Shareholders, which is incorporated herein by reference.
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 law
5
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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, 1993, the
Corporation and the Bank, respectively, had tier one leverage ratios of 7.90%
and 8.10%, 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 will apply 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 holding 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
7
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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 1992, 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, 1993,
the Bank's total capital-to-risk weighted assets ratio calculated under the
risk-based capital requirement was 14.93 percent, while the Bank's actual
risk-based capital was in excess of that required by $20,132,000.
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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<TABLE>
Executive Officers of the Registrant
------------------------------------
(as of March 1, 1994)
---------------------
<CAPTION>
Executive
Officer
Name Age Position Since
---- --- -------- ----------
<S> <C> <C> <C>
John S. Kreighbaum 47 President and Chief Executive
Officer 1991
Timothy W. Esson 44 Executive Vice President
and Treasurer 1980
James R. Bryden 51 Regional President/
North Central District 1987
Mary A. Barnes 49 Senior Vice President/
Branch Administration 1993
Dennis K. Miller 46 Senior Vice President/
Operations 1993
Kenneth E. Reiber 64 Senior Vice President/
Senior Trust Officer 1985
Robert J. Scott 45 Senior Vice President/
Chief Trust Operations Officer 1993
J. Sue Snyder 61 Senior Vice President/
Human Resources 1980
Bruce E. Stevens 45 Vice President/
Director, Commercial Lending 1993
Lois E. Gunning 65 Corporate Secretary 1987
</TABLE>
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:
<TABLE>
<CAPTION>
Caption Page
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<S> <C>
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
</TABLE>
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ITEM 2. PROPERTIES
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The principal office of CoBancorp Inc. and PremierBank & Trust is located
at 124 Middle Avenue, Elyria, Ohio. At December 31, 1993, the Bank owned 19 of
its banking facilities and leased the other 12 facilities. All but seven of
the offices are located in Lorain County, Ohio.
Through the Bank, the Corporation owns and operates 27 ATMs at various
branch offices and at six remote locations and is a member of the MAC and Money
Station ATM Networks, which provide their 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.
<TABLE>
<CAPTION>
Owned or Mortgage Lease
Office Location Leased Indebtedness Expiration
- --------------- -------- ------------ ----------
<S> <C> <C> <C>
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 1994
*38505 Chestnut Ridge Road Leased n/a May 1994
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 1994
*400 Clark Street ** 0
1407 East Avenue*** Leased n/a September 1994
Amherst
160 Cleveland Avenue Owned 0
938 North Leavitt Road Owned 0
Avon
36000 Detroit Road Leased n/a May 2011
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
</TABLE>
Continued
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<TABLE>
<CAPTION>
Owned or Mortgage Lease
Office Location Leased Indebtedness Expiration
- --------------- -------- ------------ ----------
<S> <C> <C> <C>
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
Shiloh
23 West Main Street Owned 0
Sunbury
*7735 State Route 37 and I-71 **** 0
Vermilion
4530 Liberty Avenue Owned 0
Westlake
801 Crocker Road Owned 0
Worthington***
100 East Campus View Blvd. Leased n/a October 1996
<FN>
* Remote ATM only
**Remote ATM located on premises of local manufacturing company
***Loan Production Office only
****Remote ATM located on premises of the Flying J Travel Plaza
</TABLE>
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 1993. 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
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
- ------------------------------------------------------------------------
MATTERS
-------
Reference is made to the "Market and Dividend Information" on page 25 of
the Registrant's 1993 Annual Report to Shareholders, which is incorporated
herein by reference, 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 I to the Consolidated Financial
Statements on page 18 of the Registrant's 1993 Annual Report to Shareholders
for information concerning dividend restrictions, which is incorporated herein
by reference.
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
Reference is made to the table entitled "Five Year Financial Summary" on
page 25 of the Registrant's 1993 Annual Report to Shareholders, 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 1993 of $492 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 on pages 8
through 24 of the Registrant's 1993 Annual Report to Shareholders, which are
incorporated herein by reference. All shares outstanding and per share data
have been adjusted for a four-for-three stock split in February 1994, a
four-for-three stock split in July 1993, a four percent stock dividend in 1992,
a three percent stock dividend in 1991 and a five percent stock dividend in
1989.
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Consolidated Selected Financial Data
------------------------------------
Reference is made to the table entitled "Five Year Financial Summary" on
page 25 of the Registrant's 1993 Annual Report to Shareholders, which is
incorporated herein by reference.
Performance Overview
--------------------
Net income for 1993 was $5,281,000, or $1.61 per share, compared to
$4,378,000, or $1.35 per share in 1992, and $3,254,000, or $1.01 per share in
1991. 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 1993 was 14.6 percent,
compared to 13.8 percent in 1992 and 11.3 percent in 1991. ROA measures how
effectively a corporation uses its assets to produce earnings. For 1993, return
on average assets was 1.10 percent. ROA was 1.01 percent in 1992 and .81 percent
in 1991. 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.
<TABLE>
Return on Equity and Assets
<CAPTION>
December 31
--------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Return on average assets 1.10% 1.01% .81%
Return on average equity 14.60 13.76 11.30
Dividend payout ratio 25.52 25.58 25.41
Ratio of average equity to average assets 7.53 7.34 7.17
</TABLE>
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 $23,713,000 in
1993, from $21,828,000 in 1992 and $18,968,000 in 1991. 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 5.39 percent in 1993 compared with 5.43 percent in 1992 and 5.13
percent for 1991.
Average earning assets, as a percentage of total assets, decreased
slightly to 91.7 percent this year compared to 92.0 percent in 1992 and 92.1
percent in 1991.
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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<TABLE>
AVERAGE CONSOLIDATED BALANCE SHEETS, NET INTEREST INCOME AND RATES
Fully taxable equivalent (in thousands of dollars)
<CAPTION>
1993 1992
-------------------------------------- --------------------------------------
Average Average
Daily Yield/ Daily Yield/
Balance Interest Rate Balance Interest Rate
--------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans (including fees)
Taxable $255,726 $23,383 9.14% $228,739 $22,610 9.88%
Tax-exempt 4,280 265 6.19 4,766 351 7.36
Investment securities
Taxable 123,028 8,099 6.58 128,156 10,067 7.86
Tax-exempt 51,630 4,420 8.56 28,999 2,800 9.66
Federal funds sold 5,297 155 2.93 8,200 278 3.39
---------- ---------- --------- ---------
Total interest-earning assets 439,961 36,322 8.26 398,860 36,106 9.05
Noninterest-earning assets:
Cash and due from banks 23,596 19,611
Bank premises and equipment 9,270 8,438
Other assets 12,557 11,529
Less allowance for loan losses (5,481) (5,088)
---------- ---------
Total assets $479,903 $433,350
========== =========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing transaction accounts $ 55,606 1,337 2.40% $ 41,883 1,323 3.16%
Savings 164,593 4,570 2.78 139,862 4,970 3.55
Time deposits 141,872 6,064 4.27 147,106 7,571 5.15
Short-term funds 24,721 638 2.58 18,154 585 3.22
---------- ---------- --------- ---------
Total interest-bearing liabilities 386,792 12,609 3.26 347,005 14,449 4.16
---------- ---------
Noninterest-bearing liabilities:
Demand deposits 51,983 49,187
Other liabilities 4,971 5,339
Shareholders' equity 36,157 31,819
---------- ---------
Total liabilities and
shareholders' equity $479,903 $433,350
========== =========
Net interest income $ 23,713 $21,657
========== =========
Net yield/rate on interest-earning
assets 5.39% 5.43%
========== ==========
</TABLE>
<TABLE>
AVERAGE CONSOLIDATED BALANCE SHEETS, NET INTEREST INCOME AND RATES
Fully taxable equivalent (in thousands of dollars)
<CAPTION>
1991
--------------------------------------
Average
Daily Yield/
Balance Interest Rate
--------- ----------- -----------
<S> <C> <C> <C>
Assets
Interest-earning assets:
Loans (including fees)
Taxable $224,698 $24,568 10.93%
Tax-exempt 5,211 562 10.78
Investment securities
Taxable 102,039 9,008 8.83
Tax-exempt 21,785 2,221 10.20
Federal funds sold 16,357 906 5.54
---------- ----------
Total interest-earning assets 370,090 37,265 10.07
Noninterest-earning assets:
Cash and due from banks 17,606
Bank premises and equipment 8,829
Other assets 9,563
Less allowance for loan losses (4,281)
----------
Total assets $401,807
==========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing transaction accounts $ 32,126 1,496 4.66%
Savings 110,227 5,261 4.77
Time deposits 152,855 9,983 6.53
Short-term funds 28,840 1,557 5.40
---------- ----------
Total interest-bearing liabilities 324,048 18,297 5.65
----------
Noninterest-bearing liabilities:
Demand deposits 43,839
Other liabilities 5,118
Shareholders' equity 28,802
----------
Total liabilities and
shareholders' equity $401,807
==========
Net interest income $ 18,968
==========
Net yield/rate on interest-earning
assets 5.13%
==========
<FN>
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 1993, 1992 and 1991.
</TABLE>
15
<PAGE> 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:
<TABLE>
Summary of Changes in Net Interest Income
<CAPTION>
1993 vs. 1992 1992 vs. 1991
Increase (Decrease) Due to (1) Increase (Decrease) Due to (1)
------------------------------ ------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans, net of unearned
income (2) $ 2,127 $(1,440) $ 687 $ (24) $(1,982) $(2,006)
Taxable investment
securities (403) (1,565) (1,968) 2,306 (1,246) 1,060
Nontaxable investment
securities 2,185 (566) 1,619 735 (156) 579
Federal funds sold (98) (25) (123) (452) (177) (629)
------- ------- ------- ------- ------- -------
Total interest-earning
assets 3,811 (3,596) 215 2,565 (3,561) (996)
Interest expense:
Interest-bearing
transaction
accounts 436 (422) 14 455 (629) (174)
Savings 923 (1,322) (399) 1,407 (1,698) (291)
Time deposits (123) (1,383) (1,506) (338) (2,074) (2,412)
Short-term funds 179 (126) 53 (591) (382) (973)
------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities 1,415 (3,253) (1,838) 933 (4,783) (3,850)
------- ------- ------- ------- ------- -------
Change in net
interest income $ 2,396 $ (343) $ 2,053 $ 1,632 $ 1,222 $ 2,854
======= ======= ======= ======= ======= =======
<FN>
(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.
</TABLE>
PROVISION FOR LOAN LOSSES
The total provision for loan and real estate losses was $920,000 in 1993,
$2,800,000 in 1992 and $2,500,000 in 1991. 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
<PAGE> 17
NONINTEREST INCOME
Total noninterest income of $4.5 million for 1993 increased $500,000, or
10.5 percent, when compared to 1992. This follows increases of 30.1 percent
during 1992 and 6.6 percent during 1991. Service charges on deposit accounts
represented $178,000 of the growth in 1992 due principally to growth in
transaction and savings deposit accounts coupled with price increases. Income
from trust activities increased in 1993, 1992 and 1991 primarily due to the
growth in assets under management. Total assets managed by the Trust
Department aggregated $220.0 million, $173.0 million and $151.5 million at
December 31, 1993, 1992 and 1991, respectively. Gains and losses on the sale
of investment securities also impact comparisons. Security transactions
resulted in gains of $665,000, $566,000 and $142,000 in 1993, 1992 and 1991,
respectively.
NONINTEREST EXPENSES
Noninterest expenses increased 18.2 percent in 1993, 12.9 percent in 1992
and 2.5 percent in 1991. The increase in 1993 can be attributed to higher
levels of expense relative to salaries, advertising, supplies and insurance.
Salaries, wages and benefits account for 43.6 percent of total noninterest
expense in 1993, compared to 43.2 percent in 1992 and 47.7 percent in 1991.
These increases are primarily attributable to increases in the number of
employees, the increased cost of benefits and merit raises. Also affecting the
increase in 1991 was a one-time cost of the finalization of the outsourcing
process of the electronic data processing activities of the Bank. In December
1993 there were 317 full-time equivalent employees, an increase of 12.8 percent
from the 281 full-time equivalent employees at December 1992, which was an
increase of 12.9 percent from the level of 249 full-time equivalent at December
1991.
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.
The income tax provision was $1,100,000 in 1993, compared with $1,130,000
in 1992 and $761,000 in 1991. The Corporation's effective tax rate was 20.8
percent in 1993, 20.5 percent in 1992 and 19.0 percent in 1991.
It has been determined that for the year ended December 31, 1993, 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
<PAGE> 18
FINANCIAL CONDITION
The consolidated financial condition of the Corporation and the Bank as of
December 31, 1993 and 1992 is presented in the comparative balance sheets on
page 8 of the Registrant's 1993 Annual Report to Shareholders, which 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 59.1 percent of average earning assets in 1993, and 58.5 percent
in 1992. Average loans outstanding increased 11.3 percent in 1993 and 1.6
percent in 1992.
The largest asset category in the loan portfolio was real estate mortgage
loans, which comprised 45.8 percent of total loans at the end of 1993.
Commercial and collateral loans totaled 42.4 percent of the portfolio and
installment loans comprised 10.8 percent of the portfolio. All other loans
were 1.0 percent of the portfolio. In 1992, commercial and collateral loans
were 44.3 percent of the loan portfolio, real estate mortgages were 40.5
percent, installment loans were 13.9 percent and other loans were 1.3 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:
<TABLE>
<CAPTION>
Loan Portfolio
December 31
----------------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Real estate $132,589 $ 99,761 $ 81,368 $ 77,420 $ 68,371
Installment 31,229 34,145 44,465 56,010 51,367
Commercial and collateral 122,699 109,169 93,694 101,751 94,955
All other 2,932 3,330 3,768 4,066 4,394
-------- -------- -------- -------- --------
Total (net of unearned
income) $289,449 $246,405 $223,295 $239,247 $219,087
======== ======== ======== ======== ========
</TABLE>
18
<PAGE> 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, 1993, 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):
<TABLE>
<CAPTION>
Loan Maturities and Sensitivity to Changes in Interest Rates
Within 1-5 After
1 year years 5 years Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Real estate $ 38,589 $ 37,602 $ 56,398 $132,589
Installment 13,053 15,906 2,270 31,229
Commercial and collateral 80,904 36,075 5,720 122,699
All other 0 0 2,932 2,932
-------- -------- -------- --------
$132,546 $ 89,583 $ 67,320 $289,449
======== ======== ======== ========
</TABLE>
Fixed rate loans maturing within one year and loans with adjustable rates
that reprice annually or more frequently (exclusive of scheduled repayments)
totaled $118,336,000 or 40.9 percent of the loan portfolio at December 31,
1993.
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."
Accordingly, securities available-for-sale are recorded at market value and the
unrecognized gain of $982,000 (net of tax) is included in shareholders'
equity. 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.
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
<PAGE> 20
The investment portfolio represented 39.7 percent of average earning assets
in 1993 and 39.4 percent in 1992. Average investment securities held increased
11.1 percent in 1993 compared to 1992. The tax-equivalent yield on the entire
portfolio was 7.17, 8.19 and 9.07 percent in 1993, 1992 and 1991,
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
market value of investment securities was higher than book value at December
31, 1993 and 1992. The decision to purchase securities is based upon the
assessment of current economic and financial trends. At December 31, 1993, the
investment portfolio had a total book value of $152.9 million compared with
$172.8 million at the previous year-end.
Summary information with respect to the securities portfolio at December
31 follows (in thousands of dollars):
<TABLE>
<CAPTION>
1993 Carrying Value
---------------------- 1992 1991
Held to Available 1993 Carrying Carrying
Maturity for Sale Yield Value Value
-------- -------- ----- -------- --------
<S> <C> <C> <C> <C> <C>
U.S. Treasury and other
U.S. Government agencies
Under 1 year $ 4,134 7.34%
1 to 5 years 17,943 6.58
------- -------- --------
Total 22,077 6.71 $ 52,778 $ 41,298
States of the U.S. and
political subdivisions
Under 1 year $ 3,006 6.02
1 to 5 years 23,219 5.58
5 to 10 years 35,780 6.14
Over 10 years 1,727 5.80
------- -------- --------
Total 63,732 5.92 37,508 23,876
Collateralized mortgage-
backed securities
Under 1 year 35,062 6.13
1 to 5 years 31,118 6.93
5 to 10 years
Over 10 years 506 9.20
------- -------- --------
Total 66,686 6.53 82,042 78,747
Other
Over 10 years 439 6.00 439 439
------- ------- -------- --------
Total $64,171 $88,763 $172,767 $144,360
======= ======= ======== ========
</TABLE>
The yield at December 31, 1993, 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
<PAGE> 21
FEDERAL FUNDS SOLD
Short-term federal funds sold are used to manage interest rate sensitivity
and to meet liquidity needs. During 1993, 1992 and 1991, these funds
represented approximately 1.2 percent, 2.1 percent and 4.4 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 13.4 percent in 1993, compared to 14.3 percent in 1992 and 5.2
percent in 1991. Average demand deposits (noninterest-bearing core deposits)
increased 5.7 percent in 1993 and 12.2 percent in 1992, following a decrease of
1.3 percent in 1991. These deposits represent approximately 13.1 and 13.9
percent of average core deposits in the last two years, respectively.
The Corporation's core deposit fund position has allowed management to
place less emphasis on purchased funds to support loans and investments.
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 decreased 30.1 percent in 1993 from 1992
levels, to 3.5 percent of average assets. This followed a decrease of 15.5
percent in 1992 from 1991 levels, to 5.7 percent of average assets in 1992.
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
<TABLE>
<CAPTION>
Years ended December 31
------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
AMOUNT
Noninterest bearing demand deposits $ 51,983 $ 49,187 $ 43,839
Interest bearing transaction accounts 55,607 41,883 32,126
Savings deposits 164,593 139,862 110,227
Time deposits 141,872 147,106 152,855
-------- -------- --------
$414,055 $378,038 $339,047
======== ======== ========
AVERAGE RATE FOR THE YEAR
Interest bearing transaction accounts 2.40% 3.16% 4.70%
Savings deposits 2.78 3.55 4.77
Time deposits 3.31 5.15 6.53
</TABLE>
21
<PAGE> 22
The maturity distribution of certificates of deposit of $100,000 or
more at December 31, 1993, was (in thousands of dollars):
Certificates of Deposit Over $100,000
<TABLE>
<S> <C>
Three months or less $10,357
Over three through six months 1,383
Over six through twelve months 735
Over twelve months 1,300
-------
$13,775
=======
</TABLE>
There were three other time deposits of $100,000 or more at December 31,
1993, which will mature in 1994 through 1995.
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 1993, these short-term funds increased slightly to 5.2 percent of average
assets compared to 4.2 percent in 1992.
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
<TABLE>
<CAPTION>
December 31
---------------------------------
1993 1992 1991
---- ---- ----
(in thousands of dollars)
<S> <C> <C> <C>
Amount outstanding at December 31 $ 4,453 $11,622 $ 8,583
Weighted average interest rate
at December 31 2.18% 2.75% 3.73%
Maximum amount outstanding at any
month's end during the year $19,462 $12,013 $24,049
Average amounts outstanding during year $11,416 $ 8,903 $20,086
Weighted average interest rate during year 2.59% 3.11% 5.42%
</TABLE>
22
<PAGE> 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, 1993, were $1,459,000, compared to
$2,540,000 at December 31, 1992 and $4,712,000 at December 31, 1991. The ratio
of the allowance for loan losses to nonperforming loans at December 31, 1993,
was 358.2 percent compared to 205.3 percent and 87.0 percent at December 31,
1992 and 1991, respectively. Total nonperforming loans as a percentage of
total loans decreased to 0.5 percent at December 31, 1993, compared to 1.0
percent at December 31, 1992 and 2.1 percent at December 31, 1991.
The following table summarizes nonaccrual, past due and restructured loans.
<TABLE>
<CAPTION>
December 31
-------------------------------------------------------------
1993 1992 1991 1990 1989
----- ---- ---- ---- ----
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Accruing loans past due
90 days or more as to
principal or interest:
Loans secured by real estate $ 58 $ 0 $ 214 $ 371 $ 423
Loans to individuals 57 108 81 255 222
Commercial and industrial loans 26 0 0 12 4
All other 0 0 730 0 0
------ ------ ------ ------ ------
$ 141 $ 108 $1,025 $ 638 $ 649
====== ====== ====== ====== ======
Nonaccrual loans:
Loans secured by real estate $ 518 $ 866 $2,371 $3,441 $1,158
Commercial and collateral 77 761 1,196 2,426 2,623
All other 723 805 120 326 0
------ ------ ------ ------ ------
$1,318 $2,432 $3,687 $6,193 $3,781
====== ====== ====== ====== ======
Restructured loans past due
30 days or more as to
principal or interest: $ 0 $ 0 $ 0 $ 0 $ 0
====== ====== ====== ====== ======
</TABLE>
23
<PAGE> 24
The effect of the nonaccrual loans, on a fully taxable-equivalent basis,
for the year ended December 31 was as follows:
<TABLE>
<CAPTION>
Year Ended
December 31, 1993
---------------------
(in thousands of dollars)
<S> <C>
Interest income that would have been recorded
under original terms $ 50
Interest income recorded during the
period 38
---
Net reduction in interest income $ 12
====
</TABLE>
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
<PAGE> 25
<TABLE>
The following table contains information relative to loan loss experience for
each of the five years in the period ended December 31, 1993.
<CAPTION>
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses at
beginning of year $5,215 $4,099 $4,644 $2,544 $2,230
Loans charged off:
Real estate 198 17 35 17
Installment 471 866 1,300 1,286 749
Credit card 91 128 71 88 69
Other 2 1 42 7
Commercial and collateral 1,384 1,838 2,839 1,039 855
------ ------ ------ ------ ------
2,146 2,850 4,287 2,420 1,690
Recoveries on loans charged off:
Real estate 51 2 1 3
Installment 330 555 795 477 331
Credit card 16 12 9 9 9
Other 12 24
Commercial and collateral 928 597 414 683 261
------ ------ ------ ------ ------
1,337 1,166 1,242 1,170 604
------ ------ ------ ------ ------
Net loans charged-off 809 1,684 3,045 1,250 1,086
Provision for loan losses 820 2,800 2,500 3,350 1,400
------ ------ ------ ------ ------
Allowance for loan losses at
end of year $5,226 $5,215 $4,099 $4,644 $2,544
====== ====== ====== ====== ======
Ratio of net charge-offs during
the year to average loans
outstanding during the year .31% .72% 1.32% .54% .52%
====== ====== ====== ====== ======
Ratio of allowance for loan
losses to total loans
at December 31 1.81% 2.12% 1.84% 1.94% 1.16%
====== ====== ====== ====== ======
</TABLE>
25
<PAGE> 26
<TABLE>
The following table shows an allocation of the allowance for loan losses
for each of the past five years (dollar amounts in thousands).
<CAPTION>
Percent of Loans in Each
Amount Category to Total Loans
December 31 December 31
---------------------------------------------------- --------------------------------------------
1993 1992 1991 1990 1989 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate $ 406 $ 205 $ 166 $ 35 $ 74 46% 41% 36% 32% 31%
Installment 732 511 503 503 878 11 14 20 23 24
Commercial and
collateral 2,270 2,761 3,210 3,249 1,460 42 44 42 43 43
All other 124 180 86 58 93 1 1 2 2 2
Unallocated 1,694 1,558 134 799 39 n/a n/a n/a n/a n/a
------ ------ ------ ------ ------ ---- ---- ---- ---- ----
$5,226 $5,215 $4,099 $4,644 $2,544 100% 100% 100% 100% 100%
====== ====== ====== ====== ====== ==== ==== ==== ==== ====
</TABLE>
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:
<TABLE>
<CAPTION>
CAPTION PAGE
<S> <C>
Loan Maturities and Sensitivity to Changes in Interest Rates 19
Investment Securities Yield by Maturity Date 20
Certificates of Deposit Over $100,000 22
</TABLE>
LIQUIDITY
Liquidity is the ability to raise cash quickly and economically when funds
are needed. The need for funds primarily arises from deposit withdrawals and
demand for new loans. 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 82.7
percent of total average assets during 1993, and 81.6 percent during 1992.
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
<PAGE> 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, 1993, was $39.7 million, or $12.16 per share, compared with $34.2
million or $10.53 per share at December 31, 1992 and $30.4 million or $9.42 per
share at December 31, 1991. At December 31, 1993, the Corporation's leverage
ratio was 7.90 percent. The Corporation's risk-based capital ratios based on
Federal Reserve Board guidelines were 13.34 percent for Tier 1, or "core"
capital, and 14.60 percent for total qualifying capital. These ratios
substantially exceed the minimums that are currently in effect for bank holding
companies during 1993. These minimums are 4.00 percent and 8.00 percent for
Tier I and total qualifying capital, respectively. 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 "Market and Dividend Information" on page 25 of
the Registrant's 1993 Annual Report to Shareholders, 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 1993 were $0.41 per
share, compared to the $0.34 of dividends declared in 1992. Dividends for 1991
were $0.25 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
<PAGE> 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 pages 8 through 24 of the Registrant's 1993 Annual
Report to Shareholders, which is 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 21,
1994, 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.
28
<PAGE> 29
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 on pages 8 through
24 of the Registrant's 1993 Annual Report to Shareholders, which are
incorporated herein by reference:
Consolidated Balance Sheets at December 31, 1993 and 1992
Consolidated Statements of Income for the Years Ended December 31,
1993, 1992 and 1991
Consolidated Statements of Cash Flows for the Years Ended December 31,
1993, 1992 and 1991
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements
Report of Independent Auditors
Schedules I and II are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
(3) Listing of Exhibits
<TABLE>
<CAPTION>
Reg. S-K
Exhibit Page
Number Exhibit Hereof
-------- ------- ------
<S> <C> <C>
(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)
</TABLE>
29
<PAGE> 30
<TABLE>
<S> <C> <C>
(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)
(10h) Lease Agreement Between Lorain County Bank and N/A
Electronic Data Systems Corporation (filed as
Exhibit (10h) to the Form 10-K of the Registrant
for the year ended December 31, 1991, and incor-
porated 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, 34
Among CoBancorp Inc., PremierBank & Trust and
Timothy W. Esson
(10m) Amendment Dated February 1, 1994, to the Consulting 54
Agreement Among CoBancorp Inc., PremierBank & Trust
and Robert T. Bowman
(13) CoBancorp Inc. 1993 Annual Report to Shareholders 57
(except for those portions of such Annual Report
to Shareholders expressly incorporated by
reference into this Report, such Annual Report to
Shareholders is furnished solely for the information
of the Securities and Exchange Commission and shall
not be deemed a "filed" document)
(22) Subsidiaries of the Registrant 90
(23) Consent of Independent Auditors 91
</TABLE>
(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.
30
<PAGE> 31
[ERNST & YOUNG LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
Board of Directors
CoBancorp Inc.
We have audited the consolidated financial statements of CoBancorp Inc. and
subsidiary listed in the accompanying index to financial statements (Item
14(a)). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. As audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assesssing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
CoBancorp Inc. and subsidiary at December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles.
As discussed in Note A and R to the consolidated financial statements, in 1993
the corporation changed its methods of accounting for income taxes and
accounting for certain investments in debt and equity securities, respectively.
/s/ ERNST & YOUNG
ERNST & YOUNG
January 21, 1994
31
<PAGE> 32
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 29, 1994 By: /s/
------------------------------------
Timothy W. Esson
Executive Vice President
(Principal Financial Officer and
Principal Accounting Officer)
32
<PAGE> 33
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.
<TABLE>
<CAPTION>
Signature Capacity With Registrant Date
--------- ------------------------ ----
<S> <C> <C>
/s/ President and Chief
- ------------------------ Executive Officer, Director March 29, 1994
John S. Kreighbaum
/s/ Chairman, Director March 29, 1994
- ------------------------
Robert T. Bowman
/s/ Director March 29, 1994
- ------------------------
Theodore S. Altfeld
/s/ Director March 29, 1994
- ------------------------
Thomas E. Haywood
/s/ Director March 29, 1994
- ------------------------
Richard J. Stewart
/s/ Director March 29, 1994
- ------------------------
Larry D. Jones
/s/ Director March 29, 1994
- ------------------------
James N. Johnson
</TABLE>
33
<PAGE> 1
EXHIBIT (10l)
Employment Agreement Dated December 31, 1993, Among CoBancorp Inc., PremierBank
& Trust and Timothy W. Esson
34
<PAGE> 2
EMPLOYMENT AGREEMENT
--------------------
This AGREEMENT is made and entered into this 31st day of December,
1993, by and among CoBancorp Inc. (the "Holding Company") and its wholly owned
subsidiary PremierBank & Trust (the "Bank"), an Ohio-chartered, FDIC-insured
bank with its main office at 124 Middle Avenue, Elyria, Ohio, and Timothy W.
Esson (the "Executive"). Any reference to "FRB" herein shall mean the Board of
Governors of the Federal Reserve System and any reference to "FDIC" herein
shall mean the Federal Deposit Insurance Corporation. Any reference to
"Superintendent" herein shall mean the Ohio Superintendent of Banks. Any
reference herein to the "Employer" shall mean either or both of the Holding
Company and the Bank, as appropriate in a given case.
WHEREAS, the Executive has heretofore served in the position of
Executive Vice President of the Bank without any written contract; and
WHEREAS, the Board of Directors of the Bank and the Holding Company
wish to assure the Bank of the services of the Executive for the period
provided in this Agreement;
NOW THEREFORE, in consideration of the performance of the
responsibilities of the Executive and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:
1. Employment.
----------
(a) The Executive shall be employed as the Executive Vice
President of the Bank. As Executive Vice President, the Executive shall render
administrative and management services to the Bank such as are customarily
performed by persons situated in similar executive positions, all under the
supervision and direction of the President and Chief Executive Officer of the
Bank. The Executive shall perform such other duties as the President and Chief
1
<PAGE> 3
Executive Officer may from time to time reasonably direct. Failure to reelect
or appoint the Executive as Executive Vice President without the consent of the
Executive shall be deemed to be a termination of the Executive without cause.
(b) The Executive shall be furnished with a private
office, stenographic and other necessary secretarial assistance, and with such
other facilities, amenities and services as are appropriate for the Executive's
position as Executive Vice President of the Bank and adequate for the
performance of his duties hereunder.
2. Term
----
The initial term of employment under this Agreement shall be
for a period of two (2) years. Commencing on the first anniversary date of
this Agreement, and continuing at each anniversary date thereafter, the
Agreement shall automatically renew for one (1) additional year beyond the then
effective expiration date such that the then remaining term of this Agreement
shall be continuously two (2) years; provided, however, that the term of this
Agreement shall not be automatically extended for an additional year at any
anniversary date if written notice is provided to the Executive at least ten
(10) days and not more than twenty (20) days prior to such anniversary date of
the election of the Bank, acting through its Board of Directors, not to permit
the automatic extension. Such election shall not, however, affect the then
remaining term of this Agreement. Reference herein to the term of this
Agreement shall refer both to such initial term and such extended terms.
Unless sooner terminated as set forth herein, this contract shall terminate
when the Executive reaches age sixty-five (65).
3. Standards of Performance.
------------------------
Excluding periods of vacation and sick leave to which the
Executive is entitled, the Executive agrees to devote his best efforts and his
entire business time during regular business hours to the business and affairs
of the Bank and to discharge the responsibilities
2
<PAGE> 4
assigned to the Executive hereunder. The Executive may serve on corporate,
civic or charitable boards or committees and manage personal investments, so
long as such activities do not interfere in any material respect with the
performance of the Executive's responsibilities hereunder.
4. Base Salary.
-----------
(a) The Bank agrees to pay the Executive for the term of
this Agreement a salary of $106,000 per annum (hereinafter referred to as the
"Base Salary"). The Base Salary provided for herein shall be payable twice
monthly on or before the 15th day and on or before the last day of each month.
(b) Commencing with the calendar year during which the
Agreement is executed, the Salary and Benefits Committee of the Bank's Board of
Directors shall evaluate the Bank's progress and, with the recommendation and
evaluation of the Bank's President and Chief Executive Officer, past, present
and future attainments accomplished under the direction and control of the
Executive. At the end of each calendar year and in conjunction with the
recommendation of the Bank's President and Chief Executive Officer, the Salary
and Benefits Committee of the Board of Directors shall adjust the Base Salary
paid to the Executive for the next ensuing year. In respect of those years in
which the Executive receives an increase in Base Salary by virtue of this
Paragraph 4(b), such increase in Base Salary shall be considered part of the
Executive's Base Salary for purposes of this Agreement.
5. Participation in Retirement and Employee Benefit Plans.
------------------------------------------------------
(a) The Executive shall be entitled to participate in any
plan of the Bank relating to pension, thrift, deferred compensation,
profit-sharing, group life insurance, medical insurance, education
reimbursement or other retirement or employee benefits that the Bank may adopt
for the benefit of its executive employees.
3
<PAGE> 5
(b) In addition to the compensation provided to the
Executive pursuant to Paragraph 4 hereof, the Bank agrees to reimburse the
Executive for reasonable entertainment, travel, lodging and other miscellaneous
expenses, whether local or out-of-city, incurred on its behalf and directly
related to the performance of his duties as Executive Vice President of the
Bank. This reimbursement shall include the payment of reasonable expenses for
attending meetings of trade associations. The Executive shall submit an
itemized statement and satisfactory documentation of the expenses incurred.
The Bank further agrees during the term of this Agreement to provide the
Executive, for both business and personal use so long as he is actually working
for the Bank, every two (2) years during this Agreement, an automobile, and the
Bank shall be responsible for all expenses (including adequate insurance),
repairs and maintenance thereof. The Bank shall also include the Executive as
an insured under its liability insurance policies with coverage at least equal
to the coverage under its current liability insurance policies. The Executive
shall return the automobile to the Bank immediately when the Executive no
longer is employed by the Bank.
6. Vacations.
---------
The Executive shall be entitled, without loss of pay, to the
number of vacation days in each calendar year determined by the Salary and
Benefits Committee of the Board of Directors from time to time for its senior
executive officers, provided that:
(a) The Executive shall be entitled to an annual vacation
of not less than four (4) weeks per year.
(b) The timing of vacations shall be scheduled in a
reasonable manner by the Executive.
4
<PAGE> 6
7. Termination of Employment.
-------------------------
(a) The Executive's employment under this Agreement may
be terminated at any time by the Board of Directors of either Employer. Except
as otherwise provided in this Agreement, any termination by the Board of
Directors other than for "cause" shall not prejudice the Executive's right to
receive:
(i) compensation in accordance with Paragraph
4 of this Agreement for the remaining term hereof, and
(ii) the other benefits provided by this
Agreement for the remaining term.
(b) The Executive shall have no right to receive
compensation or other benefits under this Agreement for any period after the
date of termination for cause. For purposes of this Agreement, termination for
"cause" shall mean only the following events:
(i) personal dishonesty:
(ii) incompetence;
(iii) material breach of any provision of this
Agreement;
(iv) breach of fiduciary duty involving
personal profit;
(v) intentional failure to perform stated
duties;
(vi) a material breach of the reasonable
policies and procedures for the operation of the Bank or the Holding Company
provided to the Executive by formal action of the Board of Directors of the
Bank or the Holding Company, respectively;
(vii) willful violation of any law, rule,
regulation (other than a law, rule or regulation relating to a traffic
violation or similar offense) or final cease-and-desist order; or
(viii) willful misconduct.
(c) (i) For purposes of Paragraph 7(b)(ii),
"incompetence" shall mean the Executive's inability to perform his duties
hereunder due to insufficient knowledge or skills; when determining
incompetence, the Board of Directors of the Bank and the Holding Company,
5
<PAGE> 7
respectively, shall, among other things, consider the Bank's CAMEL rating and
the Holding Company's BOPEC rating relative to the Ohio banking industry peer
group and measure the Executive' acts and omissions against standards then
prevailing in the Ohio banking industry.
(ii) For purposes of Paragraph 7(b)(vii) and
7(b)(viii), no act, or failure to act, on the Executive's part shall be
considered "willful"unless he has acted, or failed to act, with an absence of
good faith and without a reasonable belief that his action or failure to act
was in the best interest of the Bank.
(iii) For purposes of Paragraph 7(b)(vii), a
cease-and-desist order shall not become final until exhaustion or lapse of all
(administrative and judicial) appeal rights in relation thereto.
(d) The Executive shall not be deemed to have been
terminated for cause unless there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the entire membership of the appropriate Board of Directors at a
meeting of the Board of Directors called and held for the purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with his counsel, to be heard before the Board of Directors), finding
that in the good faith opinion of the Board of Directors the Executive was
guilty of conduct set forth above in the second sentence of this Paragraph 7(b)
and specifying the particulars thereof in detail. In no event will the
Executive be subject to termination for cause pursuant to Paragraph 7(b) (iii)
above unless the Executive shall have failed to cure, correct or prevent the
alleged breach within thirty (30) days after such resolution has been delivered
to the Executive.
(e) This Agreement may be terminated by the Executive at
any time upon ninety (90) days' written notice to the Bank or upon such shorter
period as may be agreed upon between the Executive and the Board of Directors
of the Bank. In the event of such
6
<PAGE> 8
termination, the Bank shall be obligated only to continue to pay the Executive
his salary up to the date of termination and those retirement and/or employee
benefits which have been earned or become payable up to the date of
termination.
(f) In the event the Executive's employment terminates by
reason of disability, the Bank shall be obligated only to continue to pay the
Executive his salary up to the date of termination and those retirement and/or
employee benefits which have been earned or become payable up to the date of
termination.
(g) If the Executive is removed from office and/or
permanently prohibited from participating in the conduct of the Holding
Company's affairs or the Bank's affairs by an order issued under Section
8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section
1818(e)(4) or (g)(1), all obligations of the Employer under this Agreement
shall terminate, as of the effective date of the order, but vested rights of
the contracting parties shall not be affected.
(h) If the Bank is declared insolvent by the
Superintendent (defined with reference to Sections 1113.03 and 1113.04 of the
OHIO REVISED CODE), all obligations under this Agreement shall terminate as of
the date of default, but vested rights of the contracting parties shall not be
affected.
(i) All obligations under this Agreement shall be
terminated, except to the extent determined that continuation of the contract
is necessary for the continued operation of the Bank, by the FRB or its
designee at the time the FDIC enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
Federal Deposit Insurance Act. Any rights of the parties that have already
vested, however, shall not be affected by such action.
7
<PAGE> 9
8. Suspension of Employment.
------------------------
(a) If the Executive is suspended and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a notice
served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. Section 1818(e)(3) or (g)(1), the Bank's obligations under this
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings.
(b) If the charges in the notice referenced in Paragraph
8(a) are dismissed, the Bank's Board of Directors may in its discretion:
(i) pay the Executive all or part of the
compensation withheld while its contract obligations were suspended, and
(ii) reinstate (in whole or in part) any of its
obligations which were suspended as required in subparagraph (a) above.
9. Disability.
----------
(a) The Bank may terminate the Executive's employment
after having established the Executive's disability. For purposes of this
Agreement, "disability" means a physical or mental infirmity which impairs the
Executive's ability to substantially perform his duties under this Agreement
and which results in the Executive becoming eligible for long-term disability
benefits under the Bank's group long-term disability plan. In the event the
Executive's employment is terminated by reason of the Executive's disability,
the Executive shall be entitled to all of the benefits provided under the
Bank's group disability plans.
(b) If any dispute arises as to whether the Executive is
or was physically or mentally unable to perform his duties pursuant to this
Agreement, or whether his disability has ceased and he is able to resume his
duties, the parties shall submit such questions to a licensed physician agreed
upon by the parties, or if the parties are unable to agree, to a licensed
physician appointed by the President of the Academy of Medicine of Cleveland,
Cleveland,
8
<PAGE> 10
Ohio, at the request of either party. The Executive shall submit to such
examinations and provide information as such physician may request and the
determination of such physician as to the Executive's physical or mental
condition shall be binding and conclusive on the parties. The Bank agrees to
pay the cost of any such physician and examinations.
10. Change in Control.
-----------------
(a) If during the term of this Agreement there is a
change in control of the Holding Company, in connection with which the
Executive's employment is involuntarily terminated within two (2) years after
the change in control other than for cause or pursuant to Paragraphs 7(e)
through 7(i) or 9, the Executive shall be entitled to a termination or
severance payment. This payment shall also be made in the case of the
Executive's voluntary termination of employment for Good Reason (as defined in
Paragraph 11, which shall not be considered a voluntary termination pursuant to
Paragraph 7(e)) in connection with, or within one (1) year after, a Change in
Control of the Holding Company. Such voluntary termination of employment for
Good Reason in connection with, or within one (1) year after, a Change in
Control of the Holding Company shall not constitute a termination under
Paragraph 7(b) hereof. The amount of this severance payment shall be the
greater of (i) the compensation and other benefits for the remaining term of
this Agreement provided to the Executive pursuant to Paragraph 4 of this
Agreement or (ii) the compensation and other benefits (as in effect prior to
any reduction thereto that constitutes "good reason" under Paragraph 11(b)
hereof) that would be payable to the Executive under Paragraph 4 hereof for a
period of two (2) years following the later of (a) the date of the change in
control or (b) the date of his involuntary termination or voluntary termination
for Good Reason under the first or second sentences, as the case may be, of
this Paragraph 10(a), without regard to the remaining term of this Agreement.
9
<PAGE> 11
(b) For purpose of this Agreement, a "change in control
of the Holding Company" shall mean:
(i) the acquisition by a person or persons
acting in concert of the power to vote ten percent (10%) or more of a class of
the Holding Company's voting securities or the acquisition by a person of the
power to direct the Holding Company's management or policies if the Board of
Directors of the Holding Company or the FRB has made a determination that such
acquisition constitutes or will constitute an acquisition of control of the
Holding Company (with control defined by reference to the FRB's Regulation 12
C.F.R. Part 225);
(ii) during any period of two (2) consecutive
years during the term of this Agreement, individuals who at the beginning of
such period constitute the Board of Directors of the Bank or the Holding
Company cease for any reason to constitute at least a majority thereof, unless
the election of each director who was not a director at the beginning of such
period has been approved in advance by directors representing at least
two-thirds (2/3) of the directors then in office who were directors at the
beginning of the period;
(iii) The Holding Company shall have merged into
or consolidated with another corporation, or merged another corporation in the
Holding Company, on a basis whereby less than fifty per cent (50%) of the total
voting power of the surviving corporation is represented by shares held by
former shareholders of the Holding Company prior to such merger or
consolidation;
(iv) The Holding Company shall have sold
substantially of its assets to another person. The term "person" refers to an
individual, corporation, partnership, trust, association, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization, or other entity.
10
<PAGE> 12
(c) Upon the Executive's non-voluntary termination of
employment within two (2) years after the occurrence of a Change in Control of
the Holding Company, the Bank will cause to be continued life, health and
disability coverage substantially identical to the coverage maintained by the
Bank for the Executive prior to his severance. Such coverage shall cease upon
the earlier of Executive's employment by another employer or twelve (12)
months.
11. Good Reason.
-----------
For purposes of this Agreement, "good reason" shall mean the
occurrence after a change in control of any of the events or conditions
described in subparagraphs (a) through (g) hereof without the Executive's
express written consent; provided the Executive's right to terminate his
employment pursuant to this Paragraph 11 shall not be affected by his
incapacity due to physical or mental illness:
(a) A change in the Executive's status, title, position
or responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, does not represent a promotion from his
status, title, position or responsibilities as in effect immediately prior
thereto; the assignment to the Executive of any duties or responsibilities
which, in the Executive's reasonable judgment, are inconsistent with such
status, title, position or responsibilities; or any removal of the Executive
from or failure to reappoint him to any of such positions, except in connection
with the termination of his employment for (i) disability, (ii) cause, (iii)
pursuant to subparagraphs 7(g) through 7(i), (iv) as a result of his death or
(v) by the Executive other than for good reason;
11
<PAGE> 13
(b) A reduction by the Bank in the Executive's Base
Salary as in effect on the date of a Change in Control of the Holding Company
or as the same may be increased from time to time;
(c) The relocation of the Bank's principal executive
offices to a location outside a 30-mile radius of Elyria, Ohio or the Bank's
requiring the Executive to be based at any place other than Elyria, Ohio,
except for reasonably required travel on the Bank's business which is not
materially greater than such travel requirements prior to the change in
control;
(d) The adverse and substantial alteration in the nature
and quality of the office space within which the Executive performs his duties,
including the size and location thereof, as well as the secretarial and
administrative support provided to the Executive;
(e) The failure by the Bank to continue to provide the
Executive with compensation and benefits provided for under this Agreement or
benefits substantially similar to those provided to him under any of the
employee benefit plans in which the Executive becomes a participant, or the
taking of any action by the Bank which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any material fringe
benefit enjoyed by him at the time of the change in control;
(f) Any material breach by the Bank of any provision of
this Agreement; and
(g) The failure of the Holding Company to obtain a
satisfactory agreement from any successor or assign of the Holding Company to
assume and agree to perform this Agreement, as contemplated in Paragraph 15
hereof.
12. Proprietary Information.
-----------------------
The Executive agrees that the knowledge of the business
activities and plans for business activities of the Bank and affiliates thereof
is a confidential, valuable, special and unique asset of the business of the
Bank and the Holding Company. During the term of his
12
<PAGE> 14
employment and for the period ending two (2) years following the termination of
his employment for any reason, the Executive will not disclose any knowledge of
the past, present, planned or considered business activities of the Bank or
affiliates thereof to any person, firm, corporation, or other entity for any
reason or purpose whatsoever. Notwithstanding the foregoing, the Executive may
disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the
business plans and activities of the Bank. In the event of a breach or
threatened breach by the Executive of the provisions of this Paragraph 12, the
Bank and/or the Holding Company will be entitled to an injunction restraining
the Executive from disclosing, in whole or in part, the knowledge of the past,
present, planned or considered business activities of the Bank or affiliates
thereof, or from rendering any services to any person, firm, corporation or
other entity to whom such knowledge, in whole or in part, has been disclosed or
is threatened to be disclosed. Nothing herein will be construed as prohibiting
the Bank and/or the Holding Company from pursuing any other remedies available
to the Bank for such breach or threatened breach, including the recovery of
damages from the Executive.
13. Indemnification.
---------------
(a) The Bank, using reasonable business judgment, shall
provide the Executive (including his heirs, executors and administrators) with
coverage under a directors' and officers' liability insurance policy (the "D&O
policy) at the Bank's expense, and the Employer shall indemnify the Executive
(and his heirs, executors and administrators) to the fullest extent permitted
under Ohio law for any deductible expense on the D&O policy reasonably incurred
by him in connection with or arising out of any action, suit or proceeding in
which he may be involved by reason of his having been an officer of the Bank or
the Holding Company (whether or not he continues to be an officer at the time
of incurring such expense),
13
<PAGE> 15
such expenses and liabilities to include, but not be limited to, judgments,
court costs and attorneys' fees and the cost of reasonable settlements, such
settlements to be approved by the Board of Directors of the Bank or the Holding
Company, if such action is brought against the Executive in his capacity as an
officer or director of the Bank or the Holding Company. Indemnification for
deductible expense shall not extend to matters for which the Executive has been
terminated for cause as defined in Paragraph 7(b).
(b) If the Bank does not provide the Executive with
coverage under a D&O policy, the Bank and the Holding Company shall indemnify
the Executive (and his heirs, executors and administrators) to the fullest
extent permitted under Ohio law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been an officer
of the Bank and/or the Holding Company (whether or not he continues to be an
officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorney's fees and the cost of reasonable settlements, such settlements to be
approved by the appropriate Board of Directors, if such action is brought
against the Executive in his capacity as an officer of the Bank and/or the
Holding Company. Indemnification for expense shall not extend to matters for
which the Executive has been terminated for cause as defined in Paragraph 7(b).
14. Payment of Legal Fees.
---------------------
All reasonable legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to this
Agreement shall be paid or reimbursed by the Bank, if the Executive is
successful or as may be determined to be appropriate by any arbitrator's award
based on the relative merits of the two(2) parties.
14
<PAGE> 16
15. Successors; Binding Agreement.
-----------------------------
(a) The Employer will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Holding Company or the
Bank, by an assumption agreement in form and substance satisfactory to the
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Employer would be required to perform it
if no such succession had taken place. Failure of the Employer to obtain such
assumption agreement prior to the effectiveness of any such succession shall be
a breach of this Agreement and shall entitle the Executive to compensation from
the Bank in the same amount and on the same terms that he would be entitled to
hereunder if he terminated his employment voluntarily in connection with, or
within one year after, a Change in Control of the Holding Company.
(b) This Agreement and all rights of the Executive
hereunder shall inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, successors, heirs, distributees, devisees,
legatees and permitted assigns.
16. No Assignments.
--------------
This Agreement is personal to each of the parties hereto, and,
except as provided in Paragraph 15, neither party may assign or delegate any of
its rights or obligations hereunder without first obtaining the written consent
of the other party.
17. Notices.
-------
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed, certified or registered mail, return receipt
requested, with postage prepaid, to the following addresses or to such other
address as either party may designate by like notice.
15
<PAGE> 17
A. If to the Bank, to:
President and Chief Executive Officer
PremierBank & Trust
124 Middle Avenue
Elyria, Ohio 44035
B. If to the Holding Company, to:
President and Chief Executive Officer
CoBancorp Inc.
124 Middle Avenue
Elyria, Ohio 44035
C. If to the Executive, to:
Timothy W. Esson
6601 Queens Way Drive
North Royalton, Ohio 44133
and to such other or additional person or persons as either party shall have
designated to the other party in writing by like notice.
18. Other Contracts.
---------------
Consistent with Paragraph 3 herein, the Executive shall not,
during the term of this Agreement, have any other employment except with the
prior approval of the Board of Directors of the Bank.
19. Amendments.
----------
No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties, except as herein otherwise
provided.
16
<PAGE> 18
20. Paragraph Headings.
------------------
The paragraph headings used in this Agreement are included
solely for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
21. Severability.
------------
The provisions of this Agreement shall be deemed severable and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof.
22. Governing Law.
-------------
This Agreement shall, except to the extent that Federal law
(including a law, rule, or regulation of the FRB or FDIC) shall be deemed to
apply, be governed by and construed and enforced in accordance with the laws of
Ohio.
23. Arbitration.
-----------
Except for the determination of disability provided for in
Paragraph 9, any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in accordance with
the rules of the American Arbitration Association then in effect. Judgement
may be entered on the arbitrator's award in any court having jurisdiction.
24. Safety and Soundness Limitation.
-------------------------------
Notwithstanding anything to the contrary in this Agreement, in
the event that the Bank is not at least an "adequately capitalized" institution
within the meaning of Regulation H or any successor regulation, prior to or as
a result of any severance or termination payment required under this Agreement,
the payment shall be deferred until the Bank could be an adequately capitalized
institution and shall be paid within ten (10) business days after the close of
the month in which capital compliance is achieved, so long as such payment does
not result
17
<PAGE> 19
in the Bank failing its regulatory capital requirements to be considered an
adequately capitalized institution.
25. Non-Solicitation.
----------------
(a) Upon any termination of Executive's employment
hereunder pursuant to Paragraph 7(e), Executive agrees for a period of two (2)
years following such termination he will not compete with the Holding Company
or the Bank in Lorain and Delaware Counties or solicit, divert or take away any
of the customers, business or patronage of the Bank or its respective
subsidiaries or affiliates.
(b) Executive hereby agrees that he shall not, for a
period of two (2) years after the date of Executive's termination of employment
with the Bank, serve as a director, employee, or officer of, consult, or
contract with any federally insured depository institution (or holding company
thereof) within Lorain and Delaware Counties, Ohio; both the Employer and the
Executive recognizing that such geographical limitation is reasonable, does not
include all areas where the Bank presently conducts business, and will not
prevent the Executive from meaningful employment opportunities elsewhere (for
example, Cuyahoga or Franklin Counties).
(c) Executive agrees that for two (2) years following
termination of employment pursuant to this Agreement, Executive shall not hire,
solicit or cause to be solicited for employment by the Executive or by any
third party any person who is, as of the date of such solicitation or who was
within the twelve (12) month period prior to the date of such solicitation, an
employee of the Bank or of any subsidiary or affiliate of the Bank.
(d) In the event of a breach or threatened breach by the
Executive of the provisions of this Paragraph 25, the Holding Company, the Bank
or any duly authorized officer
18
<PAGE> 20
of either, will be entitled to a temporary restraining order or injunction.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first hereinabove written.
PREMIERBANK & TRUST
Robert T. Bowman
------------------------------------
Chairman of the Board of Directors
COBANCORP INC.
Robert T. Bowman
------------------------------------
Chairman of the Board of Directors
Timothy W. Esson
------------------------------------
Timothy W. Esson (the "Executive")
FXG\0-3:0002-A.PRE
rrg
19
<PAGE> 1
EXHIBIT (10m)
Amendment dated February 1, 1994, to the Consulting Agreement Among CoBancorp
Inc., PremierBank & Trust and Robert T. Bowman
54
<PAGE> 2
[PREMIERBANK & TRUST LETTERHEAD]
February 1, 1994
Mr. John S. Kreighbaum
President and Chief Executive Officer
Premier Bank & Trust
124 Middle Avenue
Elyria, Ohio 44035
RE: CONSULTING AGREEMENT
Dear John:
This letter, when signed by you in your capacity as President and Chief
Executive Officer of PremierBank & Trust (the "Bank") and President and Chief
Executive Officer of CoBancorp Inc. (the "Holding Company"), will constitute an
amendment to the Consulting Agreement (the "Agreement") relating to my serving
as a consultant for the Bank and the Holding Company. Effective February 1,
1994, the term of the Agreement shall be extended an additional year.
If this letter correctly sets forth your agreement with respect to the subject
matter hereof, please execute the enclosed copy where indicated below and
return it to me.
Very truly yours,
Robert T. Bowman
------------------------------
Robert T. Bowman
RTB:lg
(continued on Page 2)
55
<PAGE> 3
Mr. John S. Kreighbaum
President and Chief Executive Officer
PremierBank & Trust
CoBancorp Inc.
February 1, 1994
The foregoing correctly sets forth our agreement with respect to the subject
matter hereof dated February 1, 1992.
CoBancorp Inc. PremierBank & Trust
By: John S. Kreighbaum By: John S. Kreighbaum
-------------------------- ----------------------------
John S. Kreighbaum John S. Kreighbaum
President and Chief Executive President and Chief Executive
Officer Officer
By: Lois E. Gunning By: Lois E. Gunning
-------------------------- ----------------------------
Lois E. Gunning Lois E. Gunning
Corporate Secretary Corporate Secretary
56
<PAGE> 1
EXHIBIT (13)
1993 CoBancorp Inc. Annual Report to Shareholders
57
<PAGE> 2
BALANCE SHEETS CoBancorp Inc. and Subsidiary, PREMIERBank & Trust
<TABLE>
December 31
1993 1992
------------ ------------
<S> <C> <C> <C>
ASSETS Cash and due from banks $ 29,051,488 $ 24,768,842
Investment securities- (Market value
$156,485,497 in 1993 and $176,384,972
in 1992) 152,933,745 172,766,753
Federal funds sold 3,000,000 4,200,000
Loans 289,448,687 246,404,835
Less allowance for loan losses 5,226,401 5,214,700
------------ ------------
Net loans 284,222,286 241,190,135
Bank premises and equipment 10,563,830 8,326,273
Accrued income and prepaid expenses 3,433,018 4,491,292
Other assets 8,596,377 7,380,437
------------ ------------
TOTAL ASSETS $491,800,744 $463,123,732
============ ============
LIABILITIES Liabilities
AND Deposits
SHAREHOLDERS' Demand-noninterest bearing $ 59,208,379 $ 53,560,963
EQUITY Demand-interest bearing 58,858,055 50,241,459
Savings and other time 309,519,183 298,307,267
------------ -------------
Total deposits 427,585,617 402,109,689
Short-term funds 20,245,028 22,704,665
Other liabilities 3,131,672 2,742,338
Employee stock ownership plan
obligation 1,105,260 1,405,260
------------ ------------
Total liabilities 452,067,577 428,961,952
Shareholders' equity
Capital stock, no par value
3,500,000 shares authorized
3,268,488 shares issued and outstanding
(3,245,409 in 1992) 4,304,345 3,947,905
Capital surplus 16,623,320 16,623,320
Retained earnings 19,910,762 14,995,815
Employee stock ownership plan
obligation (1,105,260) (1,405,260)
------------ ------------
Total shareholders' equity 39,733,167 34,161,780
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $491,800,744 $463,123,732
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
8
<PAGE> 3
INCOME STATEMENTS CoBancorp Inc. and Subsidiary, PREMIERBank & Trust
<TABLE>
<CAPTION>
Years Ended December 31
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Interest Income
Loans (including fees)
Taxable $23,382,522 $22,610,054 $24,404,860
Tax-exempt 175,218 231,354 370,649
Investment securities
Taxable 8,099,418 10,163,273 9,103,925
Tax-exempt 2,916,890 1,752,190 1,369,776
Federal funds sold 155,215 277,865 906,652
------------ ------------ ------------
Total interest income 34,729,263 35,034,736 36,155,862
Interest Expense
Deposits 11,970,871 13,863,313 16,740,614
Short-term funds 638,295 584,517 1,556,864
------------ ------------ ------------
Total interest expense 12,609,166 14,447,830 18,297,478
------------ ------------ ------------
Net interest income 22,120,097 20,586,906 17,858,384
Provision for Loan and Real Estate Losses 920,000 2,800,000 2,500,000
------------ ------------ ------------
Net Interest Income After Provision for
Loan and Real Estate Losses 21,200,097 17,786,906 15,358,384
Other Income
Service charges on deposit accounts 1,586,405 1,572,571 1,394,775
Trust fees 1,149,262 1,021,835 929,787
Other 1,066,717 883,456 641,544
Security gains 665,373 565,728 142,005
------------ ------------ ------------
Total other income 4,467,757 4,043,590 3,108,111
Other Expenses
Salaries, wages and benefits 8,410,219 7,059,551 6,895,357
Occupancy-net 1,196,260 1,088,505 1,044,260
Furniture and equipment 546,415 495,217 811,105
Taxes, other than income and payroll 541,965 486,482 443,537
FDIC insurance 924,145 836,981 695,470
Other 7,668,251 6,355,964 4,562,159
------------ ------------ ------------
Total other expenses 19,287,255 16,322,700 14,451,888
------------ ------------ ------------
Income Before Income Taxes 6,380,599 5,507,796 4,014,607
Income Tax Expense (Credit)
Current 1,080,000 1,514,000 951,000
Deferred 20,000 (384,000) (190,000)
------------ ------------ ------------
1,100,000 1,130,000 761,000
------------ ------------ ------------
Net Income $5,280,599 $4,377,796 $3,253,607
============ ============ ============
Net Income Per Share (amounts reflect
four-for-three stock split in February
1994, four-for-three stock split in 1993,
four percent stock dividend in 1992 and
three percent stock dividend in 1991) $1.61 $1.35 $1.01
============ ============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
9
<PAGE> 4
CASH FLOWS CoBancorp Inc. and Subsidiary, PREMIERBank & Trust
<TABLE>
<CAPTION>
Years Ended December 31
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Net income $ 5,280,599 $ 4,377,796 $ 3,253,607
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan and real estate losses 920,000 2,800,000 2,500,000
Provision for depreciation and amortization 1,026,158 849,721 1,118,648
Amortization of premiums less accretion of
discounts on investment securities 332,613 (35,558) (315,912)
(Increase) in refundable taxes (243,723)
Realized securities gains (665,373) (565,728) (142,005)
Provision (credit) for deferred income taxes 20,000 (384,000) (190,000)
Decrease in interest receivable 437,562 176,673 10,302
(Decrease) in interest payable (114,462) (315,036) (339,622)
(Increase) in other assets (567,817) (366,704) (2,244,452)
(Decrease) increase in other liabilities (2,123) (82,734) 1,021,333
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,423,434 6,454,430 4,671,899
INVESTING ACTIVITIES
Proceeds from sales of investment securities 54,757,889 16,418,877 23,396,793
Maturities of investment securities 56,155,855 30,880,815 21,304,023
Purchases of investment securities (89,259,979) (75,104,862) (67,567,961)
Net decrease in credit card receivables 397,988 437,287 271,168
Net (increase) decrease in longer-term loans (44,250,140) (25,231,062) 12,608,534
Principal payments received under leases 27,155
Purchases of premises and equipment,
net of retirements (3,167,403) (983,934) (91,707)
----------- ----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (25,365,790) (53,582,879) (10,051,995)
FINANCING ACTIVITIES
Net increase in demand deposits
and savings accounts 39,008,588 53,453,789 17,723,128
Net (decrease) increase in certificates
of deposit (13,532,659) (6,221,990) 4,218,543
Net (decrease) increase in short-term funds (2,459,637) 4,060,595 (22,468,497)
Cash dividends (1,347,730) (1,119,798) (826,590)
Dividend investment plan 288,757 221,385 155,207
Long-term incentive plan 67,683
----------- ----------- -----------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES 22,025,002 50,393,981 (1,198,209)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,082,646 3,265,532 (6,578,305)
Cash and cash equivalents at beginning of year 28,968,842 25,703,310 32,281,615
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $32,051,488 $28,968,842 $25,703,310
=========== =========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
10
<PAGE> 5
EQUITY CoBancorp Inc. and Subsidiary, PREMIERBank & Trust
Years Ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
Employee
Stock Owner-
Capital Capital Retained ship Plan
Stock Surplus Earnings Obligation Total
---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1990 $3,320,335 $14,000,000 $12,185,098 ($1,930,260) $27,575,173
Net income 3,253,607 3,253,607
Cash dividends-$0.26* per share (826,590) (826,590)
Reduction in employee stock ownership
plan obligation 250,000 250,000
Shares issued (15,564*) under dividend
investment plan 155,207 155,207
Three percent stock dividend 102,737 978,511 (1,081,248)
Transfer from retained earnings
to surplus 21,489 (21,489)
---------- ----------- ----------- ---------- -----------
Balance at December 31, 1991 3,578,279 15,000,000 13,509,378 (1,680,260) 30,407,397
Net income 4,377,796 4,377,796
Cash dividends-$0.34* per share (1,119,798) (1,119,798)
Reduction in employee stock ownership
plan obligation 275,000 275,000
Shares issued (17,687*) under
investment plan 221,385 221,385
Four percent stock dividend 148,241 1,623,320 (1,771,561)
---------- ----------- ----------- ---------- -----------
Balance at December 31, 1992 3,947,905 16,623,320 14,995,815 (1,405,260) 34,161,780
Net income 5,280,599 5,280,599
Cash dividends-$0.41 * per share . (1,347,730) (1,347,730)
Reduction in employee stock Ownership
plan obligation 300,000 300,000
Shares issued (18,292*) under dividend
investment plan 288,757 288,757
Shares issued (5,546*) under
long-term incentive plan 67,683 67,683
Adjustment to unrealized gains on
available-for-sale securities,
net of tax 982,078 982,078
---------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1993 $4,304,345 $16,623,320 $19,910,762 $(1,105,260) $39,733,167
========== =========== =========== =========== ===========
<FN>
* Restated for four-for-three stock split in February 1994, four-for-three stock
split in 1993, four percent stock dividend in 1992 and three percent stock
dividend in 1991. See accompanying notes to consolidated financial statements.
</TABLE>
11
<PAGE> 6
NOTES CoBancorp Inc. and Subsidiary, PREMIERBank & Trust
Years Ended December 31, 1993, 1992 and 1991
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.
Securities Held-to-Maturity and Available-for-Sale: Management
determines the appropriate classification of debt securities at the time of
purchase and reevaluates such designation as of each balance sheet date. Debt
securities are classified as held-to-maturity when the Corporation has the
positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost.
Debt securities not classified as held-to-maturity or trading and
marketable equity securities not classified as trading are classified as
available-for-sale. Available-for-sale securities are stated at fair value,
with the unrealized gains and losses, net of tax, reported in a separate
component of shareholders' equity.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest
income from investments. Interest and dividends are included in interest income
from investments. Realized gains and losses are included in net securities
gains (losses). The cost of securities sold is based on the specific
identification method.
Loans: Interest on loans is credited to earnings based upon the principal
amount outstanding.
Bank Premises and Equipment: Bank premises and equipment are stated at
cost less accumulated depreciation and amortization. Depreciation and
amortization are computed on straight-line and declining-balance methods, based
upon the following ranges of lives:
<TABLE>
<CAPTION>
<S> <C>
Years
-----
Buildings 10-40
Equipment and leasehold improvements 3-20
</TABLE>
The asset account is relieved of the cost of the item and the allowance
for depreciation is charged with accumulated depreciation or amortization when
property is retired or otherwise disposed. Any resulting gain or loss is
reflected in operations concurrently. Costs of major additions and improvements
are capitalized. Expenditures for maintenance and repairs are charged to
operations as incurred.
Allowance for Loan Losses: The provision for loan losses charged to
operating expense and the adequacy of the allowance for loan losses are based
upon a continuing evaluation of the loan portfolio, prior years' loss
experience, current economic conditions and other pertinent factors.
Income Taxes: Certain items of income and expense are recognized in
taxable years other than those in which such amounts are recognized in the
financial statements. Provisions are made in the financial statements for any
deferred taxes that arise in recognition of these temporary differences in
accordance with FASB Statement No. 109, "Accounting for Income Taxes."
Effective January 1, 1993, the Corporation changed its method of accounting for
income taxes from FASB Statement No. 96 to FASB Statement No. 109, "Accounting
for Income Taxes." As permitted under the new rules, prior years' financial
statements have not been restated. The cumulative effect of adoption of FASB
Statement No. 109 was not material to the Corporation's results of operations
for the year ended December 31, 1993.
Cash Equivalents: Cash equivalents include amounts due from banks and
federal funds sold. Generally, federal funds are purchased and sold for periods
less than thirty days.
12
<PAGE> 7
Fair Values of Financial Instruments: FASB Statement No. 107, "Disclosures
about Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
Statement No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirement. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the
Corporation.
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and short-term instruments approximate those assets' fair
Values.
Investment securities (including mortgage-backed securities): Fair
Values for investment securities are based on quoted market prices,
where available. If quoted market prices are not available, fair values
are based on quoted market prices of comparable instruments.
Loans receivable: For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values are based on
carrying values. The fair values for certain mortgage loans (e.g.,
one-to-four family residential), credit card loans, and other consumer
loans are based on quoted market prices of similar loans sold in
conjunction with securitization transactions, adjusted for differences
in loan characteristics. The fair values for other loans (e.g.,
commercial real estate and rental property mortgage loans, commercial
and industrial loans, financial institution loans, and agricultural
loans) are estimated using discounted cash flow analyses, using interest
rates currently being offered for loans with similar terms to borrowers
of similar credit quality. The carrying amount of accrued interest
approximates its fair value.
Deposit liabilities: The fair values disclosed for demand deposits
(e.g., interest and non-interest checking, passbook savings, and certain
types of money market accounts) are, by definition, equal to the amount
payable on demand at the reporting date (i.e., their carrying amounts).
The carrying amounts for variable-rate, fixed-term money market accounts
and certificates of deposit approximate their fair values at the
reporting date. Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest
rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits.
Short-term funds: The carrying amounts of the funds under repurchase
agreements and other short-term funds approximate their fair values.
Long-term borrowings: The carrying amounts of the Corporation's
long-term borrowings (other than deposits) approximate their fair
values.
Postretirement and Postemployment Benefits: In 1990, the FASB issued Statement
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." The provisions of Statement No. 106 were effective in 1993. The
financial statement impact of Statement No. 106 was not significant. In 1992,
the FASB issued Statement No. 112, "Employers' Accounting for Postemployment
Benefits." The Corporation is not required to implement the statement until the
first quarter of 1994. The financial statement impact of Statement No. 112 will
not be significant.
Segment of Business: The Corporation operates in the single industry of
banking. While the Corporation offers a wide range of services, they are all
deemed to be a part of commercial banking.
13
<PAGE> 8
Per Share Amounts: Earnings per share computations are based on the
average number of shares of capital stock outstanding during the year. All per
share amounts have been adjusted to reflect a four-for-three stock split in
February 1994, the four-for-three stock split in 1993, the four percent stock
dividend paid in 1992 and the three percent stock dividend paid in 1991.
Reclassifications: Certain amounts in the 1992 and 1991 consolidated
financial statements have been reclassified to conform to the 1993
presentation.
NOTE B--RESTRICTIONS ON CASH AND DUE FROM BANKS
PREMIERBank & Trust is required to maintain average reserve balances
with the Federal Reserve Bank. The average amount of those reserve balances for
the year ended December 31, 1993, was $2,273,000.
NOTE C--INVESTMENT SECURITIES
The following is a summary of available-for-sale and held-to-maturity
securities:
<TABLE>
<CAPTION>
Available-for-Sale Securities
------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1993
U. S. Treasury and other
U. S. Government agencies $23,440,201 $ 840,402 $ 17,800 $24,262,803
Collateralized mortgage-
backed securities 63,834,806 1,027,321 361,925 64,500,202
----------- ---------- -------- -----------
$87,275,007 $1,867,723 $379,725 $88,763,005
=========== ========== ======== ===========
</TABLE>
<TABLE>
Held-to-Maturity Securities
------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1993
States of the U. S. and
political subdivisions $63,731,890 $3,711,951 $160,199 $67,283,642
Other 438,850 438,850
----------- ---------- -------- -----------
$64,170,740 $3,711,951 $160,199 $67,722,492
=========== ========== ======== ===========
</TABLE>
14
<PAGE> 9
<TABLE>
- -----------------------------------------------------------------------------------------------
The following is a summary of investment securities:
<CAPTION>
Investment Securities
-----------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
----- ---------- --------- -----------
<S> <C> <C> <C> <C>
December 31, 1992
U. S. Treasury and other
U. S. Government agencies $52,778,367 $1,451,549 $258,651 $53,971,265
States of the U. S. and
political subdivisions 37,507,552 1,015,455 274,289 38,248,718
Collateralized mortgage-
backed securities 82,041,984 2,019,721 335,566 83,726,139
Other 438,850 438,850
------------ ---------- -------- ------------
$172,766,753 $4,486,725 $868,506 $176,384,972
============ ========== ======== ============
</TABLE>
Gross proceeds from sales of investment securities during 1993, 1992 and 1991
were $57,452,409, $16,731,943 and $24,123,461, respectively. For the same
periods, gross gains of $768,985, $565,728 and $204,492, and gross losses of
$103,612, $0 and $62,487 were realized, respectively. The net adjustment to
unrealized holding gains on available-for-sale securities included as a separate
component of shareholders' equity totaled $982,078 for 1993.
The amortized cost and estimated fair value of debt and marketable equity
securities at December 31, 1993, by contractual maturity, are shown below.
Mortgage-backed securities which may have prepayment provisions are assigned to
a maturity category based on estimated average life. Expected maturities will
differ from contractual maturities because the issuers of securities may have
the right to prepay obligations without prepayment penalties.
<TABLE>
<CAPTION>
Available-for-Sale Securities
-----------------------------
Estimated
Fair
Cost Value
----------- -----------
<S> <C> <C>
Due in 1 year or less $31,542,117 $31,944,642
Due in 1 to 5 years 43,462,060 44,196,462
Due in 5 to 10 years 10,821,107 11,139,293
Due after 10 years 1,449,723 1,482,608
----------- -----------
$87,275,007 $88,763,005
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Held-to-Maturity Securities
-----------------------------
Estimated
Fair
Cost Value
----------- -----------
<S> <C> <C>
Due in 1 year or less $2,596,283 $2,647,411
Due in 1 to 5 years 13,322,912 14,019,675
Due in 5 to 10 years 29,328,994 30,974,331
Due after 10 years 18,922,551 20,081,075
---------- ----------
$64,170,740 $67,722,492
=========== ===========
</TABLE>
15
<PAGE> 10
At December 31, 1993 and 1992, investment securities with a carrying
value of approximately $66,617,000 and $72,768,000, respectively, were
pledged as collateral to secure public deposits and for other purposes.
NOTE D--LOANS
The composition of the loan portfolio at December 31 was:
<TABLE>
<CAPTION>
1993
---------------------------------
Carrying Fair
Amount Value
------------ ------------
<S> <C> <C>
Real estate $132,588,801 $135,869,400
Installment 31,228,831 32,308,912
Commercial and collateral 122,698,707 126,149,760
All other 2,932,348 2,932,348
------------ ------------
$289,448,687 $297,260,420
============ ============
</TABLE>
<TABLE>
<CAPTION>
1992
---------------------------------
Carrying Fair
Amount Value
------------ ------------
<S> <C> <C>
Real estate $99,760,867 $102,249,762
Installment 34,144,351 35,076,199
Commercial and collateral 109,169,282 111,141,381
All other 3,330,335 3,330,335
------------ -------------
$246,404,835 $251,797,677
============ ============
</TABLE>
Included in commercial and collateral loans for 1993 and 1992 are $4,079,542
and $4,590,216, respectively, of tax-exempt industrial revenue development
bonds.
Transactions in the allowance for loan losses were:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1 $5,214,700 $4,098,578 $4,643,786
Provision for loan losses 820,000 2,800,000 2,500,000
Recoveries on loans
charged off 1,337,624 1,166,339 1,241,746
---------- ---------- ----------
7,372,324 8,064,917 8,385,532
Loans charged off (2,145,923) (2,850,217) (4,286,954)
--------- --------- ---------
Balance at December 31 $5,226,401 $5,214,700 $4,098,578
========== ========== ==========
</TABLE>
At December 31, 1993, nonaccrual loans were $1,318,207, and other real estate
was $639,829. At December 31, 1992, the corresponding amounts were $2,431,929
and $1,018,188, respectively.
16
<PAGE> 11
NOTE E--BANK PREMISES AND EQUIPMENT
<TABLE>
Bank premises and equipment at December 31 were:
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Land and improvements $2,205,564 $1,873,888
Buildings 9,295,326 7,677,719
Equipment and leasehold
improvements 10,381,577 9,281,826
Construction in progress 59,263 0
----------- ----------
21,941,730 18,833,434
Less accumulated depreciation
and amortization 11,377,900 10,507,161
----------- ----------
$10,563,830 $8,326,273
=========== ==========
</TABLE>
NOTE F--DEPOSITS
Time certificates of deposit with balances of $100,000 or more, principally
public and corporate funds, were $13,774,942 and $24,710,834 at December 31,
1993 and 1992, respectively. Interest expense on these deposits amounted to
$602,849, $970,122 and $1,744,808 for 1993, 1992 and 1991, respectively.
Total interest paid on deposits in 1993, 1992 and 1991 was $12,083,166,
$14,177,396 and $17,032,128, respectively.
The carrying amounts and fair values of deposits consisted of the following at
December 31. For deposits with no defined maturities, Statement 107 defines
fair value as the amount payable on demand.
<TABLE>
<CAPTION>
1993
-----------------------------
Carrying Fair
Amount Value
----------- -----------
<S> <C> <C>
Demand--noninterest bearing $ 59,208,379 $ 59,208,379
Demand--interest bearing 58,858,055 58,858,055
Savings 177,432,128 177,432,128
Certificates of deposit 101,581,620 97,075,975
IRAs 30,505,435 29,626,862
------------ ------------
$427,585,617 $422,201,399
============ ============
</TABLE>
<TABLE>
<CAPTION>
1992
------------------------------
Carrying Fair
Amount Value
------------ ------------
<S> <C> <C>
Demand--noninterest bearing $ 53,560,963 $ 53,560,963
Demand--interest bearing 50,241,459 50,241,459
Savings 152,687,552 152,687,552
Certificates of deposit 118,389,211 114,233,660
IRAs 27,230,504 26,401,402
------------ ------------
$402,109,689 $397,125,036
============ ============
</TABLE>
17
<PAGE> 12
NOTE G--REPURCHASE AGREEMENTS
The Bank enters into sales of securities under agreements to repurchase
(repurchase agreements) for periods of up to 29 days, which are treated as
financings; the obligation to repurchase securities sold is reflected as a
liability in the consolidated balance sheet. The dollar amount of securities
underlying the agreements remains in the respective asset accounts
(investments) and physical possession of the securities remains with the Bank.
Repurchase agreement information as of December 31, 1993, is summarized as
follows:
<TABLE>
<CAPTION>
Assets Sold Repurchase Liability
---------------------------- -------------------------------
<S> <C> <C> <C> <C>
Carrying Market Carrying Interest
Amount Value Amount Rate
---------------------------- -------------------------------
U.S. Government agency securities $4,506,299 $4,587,619 $4,452,890 2.18%
============================ ===============================
</TABLE>
NOTE H--CAPITAL STOCK
On June 21, 1993, the Corporation declared a four-for-three stock split, payable
on July 23, 1993, to shareholders of record July 15, 1993. The increase in the
number of shares outstanding as a result of the stock split was 609,619. Cash
was paid for any resulting fractional shares. On October 26, 1992, the
Corporation declared a stock dividend of four percent, payable to shareholders
of record November 30, 1992. The dividend was recorded at fair market value. The
increase in the number of shares outstanding as a result of the stock dividend
was 69,473. Cash was pald for any resulting fractional shares. On October 21,
1991, the Corporation declared a stock dividend of three percent, payable to
shareholders of record November 29, 1991. The dividend was recorded at fair
market value. The increase in the number of shares outstanding as a result of
the stock dividend was 50,144. Cash was paid for any resulting fractional
shares.
The Corporation adopted a dividend investment plan in 1987. The Plan allows
shareholders to elect to use their dividends to purchase shares of capital stock
at ninety-five percent of the fair market value of such stock as determined on
the dividend declaration date. During 1993, 13,719 shares were issued under the
Plan.
NOTE I--DIVIDEND RESTRICTION
The payment of dividends by member banks of the Federal Reserve System, without
prior Federal regulatory approval, is limited to the current year's net profits
as defined and the retalned net profits for the two preceding years. At December
31, 1993, approximately $9,618,000 was available to the subsidiary bank for the
payment of dividends without prior regulatory approval.
NOTE J--INCOME TAXES
Significant components of the Corporation' s deferred tax assets and
liabilities as of December 31, 1993 are as follows:
Deferred tax assets:
Provision for Loan Losses $ 945,340
Deferred Compensation 563,938
Nonaccrual Loan Interest 318,818
Other 35,379
-----------
1,863,475
18
<PAGE> 13
Deferred tax liabilities:
Tax over Book Depreciation 563,007
FASB Statement No. 115 505,919
Pension Costs 276,469
Insurance Costs 73,633
Other 119,276
------------
1,538,304
------------
Net deferred tax asset $ 325,171
============
The significant temporary differences giving rise to the deferred taxes
for 1992 and 1991 include the allowance for loan losses, depreciation and
pension costs.
The reasons for the difference between tax expense based on the statutory
rate of 34 percent in 1993, 1992 and 1991 and the effective tax rates
were:
<TABLE>
<CAPTION>
1993 1992 1991
----------------- ------------------ ------------------
<S> <C> <C> <C>
Tax expense at statutory rates $ 2,169,000 $ 1,873,000 $ 1,365,000
Reduction in taxes resulting from:
Tax-exempt interest (1,051,000) (675,000) (530,000)
Life insurance proceeds (164,000)
Other (18,000) (68,000) 90,000
------------------ ----------------- ------------------
$1,100,000 $ 1,130,000 $ 761,000
================== ================= ==================
</TABLE>
The Corporation made income tax payments of approximately $1,634,000,
$1,310,000 and $780,000 during 1993, 1992 and 1991, respectively.
NOTE K--PENSION PLAN
The Corporation has a trusteed, noncontributory retirement plan
covering eligible employees. Pension benefits are based on employee'career
average compensation. The Bank's funding policy is to contibute sufficient
amounts to meet minimum funding requirements set forth by required laws plus
such additional amounts as the Bank may determine appropriate.
A summary of the components of pension expense for 1993 and credit for
1992 and 1991 is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
--------------- ----------------- ----------------
<S> <C> <C> <C>
Service cost benefits earned
during the period $ 185,000 $ 149,000 $ 147,000
Interest cost on projected
benefit obligation 174,000 202,000 190,000
Return on plan assets (228,000) (308,000) (286,000)
Net amortization and deferral (51,000) (89,000) (74,000)
-------------- ------------------ ---------------
Net pension expense (credit) $ 80,000 $ (46,000) $ (23,000)
============== ================== ===============
</TABLE>
19
<PAGE> 14
The funded status of the plan at December 31 was as follows:
<TABLE>
<CAPTION>
1993 1992
----------- ----------
<S> <C> <C>
Actuarial present value of
accumulated benefit obligation
Vested $ 2,031,000 $ 1,636,000
Nonvested 137,000 120,000
----------- -----------
$ 2,168,000 $ 1,756,000
----------- -----------
----------- -----------
Actuarial present value of
projected benefit obligation $(2,832,000) $(2,217,000)
Plan assets at fair value 3,465,000 3,271,000
----------- -----------
Plan assets in excess of
projected benefit obligation 633,000 1,054,000
Unrecognized transition asset,
net of amortization (837,000) (931,000)
Unrecognized net loss 919,000 672,000
----------- -----------
Net pension asset included
in other assets $ 715,000 $ 795,000
----------- -----------
----------- -----------
</TABLE>
The long-term rate of return used to determine the expected return on plan
assets included in net pension expense (credit) is 7 percent in 1993 and
8 percent in 1992 and 1991. The projected benefit obligation was determined
using an assumed discount rate of 7 percent in 1993 and 8 percent in 1992,
and an annual compensation increase of 5 percent in 1993 and 6 percent in 1992.
At December 31, 1993 and 1992, plan assets consisted primarily of money
market, equity and fixed income funds.
NOTE L--EMPLOYEE STOCK OWNERSHIP PLAN
The Corporation has a noncontributory employee stock ownership plan (ESOP)
that covers substantially all employees. The ESOP borrowed $2,680,260
(balance outstanding at December 31, 1993, was $1,105,260) under a
loan agreement expiring in 1996 with an unaffiliated bank to finance a
purchase of shares of the Corporation's capital stock for the Plan.
The loan agreement provides for the payment of interest at a fluctuating rate.
The rate of interest on the loan at December 31, 1993, was 5.50 percent.
Interest incurred on this loan obligation was $70,094, $88,103 and $141,361
in 1993, 1992 and 1991, respectively. At December 31,1993, 88,372 shares of the
Corporation's common stock owned by the ESOP were pledged as security for the
payment of principal and interest as provided in the loan agreement.
Payments of principal under this agreement are as follows:
<TABLE>
<CAPTION>
<S> <C>
1994 $ 325,000
1995 350,000
1996 430,260
----------
$1,105,260
----------
----------
</TABLE>
It is anticipated that funds for servicing the loan agreement will be provided
essentially from contributions paid by the Corporation or its subsidiary to the
ESOP, from earnings attributable to such contributions and from cash dividends
paid to the ESOP on shares of the Corporation's capital stock which it owns.
Neither the Corporation nor its subsidiary has guaranteed the payments required
by the loan agreement nor made any commitment to make contributions to the ESOP
for this purpose. However, as required by generally accepted accounting
principles, the ESOP's obligation has been recorded on the Corporation's
consolidated balance sheet, with an offsetting reduction of shareholders'
equity.
20
<PAGE> 15
Contributions by the Corporation and its subsidiary to the ESOP are reviewed by
the Board of Directors and are expensed in the year the contribution is
approved. These contributions were $267,600, $292,750 and $350,750 in 1993,
1992 and 1991, respectively.
Dividends received for shares owned by the ESOP amounted to $121,770, $106,605
and $84,010 in 1993, 1992 and 1991, respectively, and were used to service the
loan obligation.
NOTE M--RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank makes loans and enters into other
transactions with its directors, officers and entities having a specified
relationship to such directors and officers. Transactions entered into between
the Bank and such related parties have been and are in the ordinary course of
business made on substantially the same terms and conditions as transactions
with other parties. As of December 31, 1993 and 1992, the Bank had loans
outstanding to related parties of approximately $5,157,803 and $5,432,561,
respectively.
NOTE N--FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Loan commitments are made to accommodate the financial needs of the Bank's
customers. Standby letters of credit commit the Bank to make payments on behalf
of customers when certaln specified future events occur. Both arrangements have
credit risk essentially the same as that involved in extending loans to
customers and are subject to the Bank's normal credit policies. Collateral
(e.g., securities, receivables, inventory or equipment) is obtained based on
management's credit assessment of the customer.
The Bank's maximum potential obligation to extend credit for loan commitments
(unfunded loans and unused lines of credit) and standby letters of credit at
December 31, 1993 and 1992 was:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Real estate $20,143,000 $11,651,000
Commercial and collateral 44,214,000 40,915,000
All other 13,613,000 12,293,000
----------- -----------
$77,970,000 $64,859,000
=========== ===========
</TABLE>
Most of the Bank's business activity is with customers located within the
Bank's defined market area. As of December 31, 1993, the Bank had no
significant concentrations of credit risk in its loan portfolio. The Bank also
has no exposure to highly leveraged transactions and no foreign credits in its
loan portfolio.
NOTE O--LEASES
In 1991, the Corporation entered into an agreement to purchase information
technology services from a data processing company. This agreement has a term
of five years and may be renewed for successive terms of five years each. The
agreement provides for payment of a monthly charge based on the number of
application and transaction accounts maintained. These payments are partially
offset by amounts to be received by the Corporation for the use of certain
equipment and facilities by the data processor. Lease expense was $859,884 for
1993 and $705,392 for 1992. The approximate minimum payments in connection with
this agreement are as follows:
<TABLE>
<S> <C>
1994 $ 725,000
1995 738,000
1996 624,000
----------
$2,087,000
==========
</TABLE>
21
<PAGE> 16
NOTE P--LONG-TERM INCENTIVE PLAN
On January 21, 1992, the Board of Directors of the Corporation adopted
a long-term incentive plan ("Plan") for officers and key employees of the
Corporation. Under the terms of the Plan, eligible employees may be granted
stock options, restricted stock or long-term performance awards based on
certain conditions. There are 179,342 shares of stock reserved and available
for distribution under the Plan. Stock options are exercisable based on the
falr market value of the stock at the time of the grant. On January 21, 1992,
options which cover 123,876 shares of stock were granted by the Board of
Directors with a fair market value of $12.20 per share, of which 5,546 shares
were exercised at $12.20 per share in 1993. All shares and per share amounts
have been restated for a four-for-three stock split in February 1994, the
four-for-three stock split in 1993 and the four percent stock dividend in 1992.
No options were granted in 1993.
NOTE Q--ACQUISITIONS
On December 2, 1993, the Bank entered into an agreement to acquire
certain assets and assume certain liabilities representing the Worthington,
Ohio branch office of Jefferson Savings Bank, Dublin, Ohio. The transaction is
expected to close in the first quarter of 1994.
NOTE R - ACCOUNTING CHANGES
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." As permitted under the Statement, the
Corporation has elected to adopt the provisions of the new standard as December
31, 1993. In accordance with the Statement, prior period financial statements
have not been restated to reflect the change in accounting principle. The
effect as of December 31, 1993, of adopting Statement 115, was to increase
shareholders' equity by $982,000 (net of $506,000 in deferred income taxes)
reflecting the net unrealized holding gain on securities classified as
available-for-sale previously carried at amortized cost.
NOTE S--COBANCORP INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
BALANCE SHEETS (Parent Company Only)
<TABLE>
December 31
1993 1992
----------- -----------
<S> <C> <C>
Assets
Cash $ 137,814 $ 50,248
Investment in bank subsidiary 40,700,513 35,516,792
Other assets 100 0
----------- -----------
Total Assets $40,838,427 $35,567,040
=========== ===========
Liabilities and Shareholders' Equity
Liabilities
Employee stock ownership plan obligation $ 1,105,260 $ 1,405,260
----------- -----------
Total Liabilities 1,105,260 1,405,260
Shareholders' Equity 39,733,167 34,161,780
----------- -----------
Total Liabilities and
Shareholders' Equity $40,838,427 $35,567,040
=========== ===========
</TABLE>
22
<PAGE> 17
STATEMENTS OF INCOME (Parent Company Only)
<TABLE>
<CAPTION>
Years Ended December 31
1993 1992 1991
------------- ------------ ------------
<S> <C> <C> <C>
Income
Dividends from bank subsidiary $1,250,749 $993,242 $756,756
Expenses 171,793 55,867 89,432
------------- ------------ ------------
Income Before Equity in
Undistributed Net Income of Bank Subsidiary 1,078,956 937,375 667,324
Equity in Undistributed Net
Income of Bank Subsidiary 4,201,643 3,440,421 2,586,283
------------- ------------ ------------
Net Income $5,280,599 $4,377,796 $3,253,607
============= ============ ============
STATEMENTS OF CASH FLOWS (Parent Company Only)
Years Ended December 31
1993 1992 1991
------------- ------------ ------------
Operating Activities
Net income $1,078,956 $937,375 $667,324
(Increase) in other assets (100) 0 0
------------- ------------ ------------
Net Cash Provided by
Operating Activities 1,078,856 937,375 667,324
Financing Activities
Cash dividends (1,347,730) (1,119,798) (826,590)
Dividend investment plan 288,757 221,385 155,207
Long-term incentive plan 67,683 0 0
------------- ------------ ------------
Net Cash Used by Financing
Activities (991,290) (898,413) (671,383)
------------- ------------ ------------
Increase (Decrease) in Cash
and Cash Equivalents 87,566 38,962 (4,059)
Cash and cash equivalents at beginning of year 50,248 11,286 15,345
------------- ------------ ------------
Cash and Cash Equivalents
at End of Year $137,814 $50,248 $11,286
============= ============ ============
</TABLE>
NOTE T - SUBSEQUENT EVENT
On January 18, 1994, the Corporation declared a four-for-three stock split,
payable on February 22, 1994, to shareholders of record February 1, 1994. The
increase in the number of shares outstanding as a result of the stock split was
817,255. Cash was paid for any resulting fractional shares. Accordingly, all
share and per share amounts have been adjusted retroactively to reflect the
stock split.
23
<PAGE> 18
REPORT OF INDEPENDENT AUDITORS
Board of Directors
CoBancorp Inc.
We have audited the accompanying consolidated balance sheets of CoBancorp Inc.
and subsidiary as of December 31, 1993 and 1992 and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1993. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CoBancorp Inc.
and subsidiary at December 31, 1993 and 1992 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Notes A and R to the consolidated financial statements, in 1993
the Corporation changed its methods of accounting for income taxes and
accounting for certaln investments in debt and equity securities, respectively.
ERNST & YOUNG
Cleveland, Ohio
January 21, 1994 /s/ Ernst & Young
24
<PAGE> 19
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Financial Condition at Year End
- -----------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets $491,800,744 $463,123,732 $408,749,723 $406,012,614 $400,516,741
Cash and due from banks 29,051,488 24,768,842 18,703,310 17,381,615 22,647,868
Investment securities 152,933,745 172,766,753 144,360,297 121,035,235 134,416,256
Loans 289,448,687 246,404,835 223,294,937 239,247,001 219,086,562
Deposits 427,585,617 402,109,689 354,877,890 332,936,219 335,575,640
Employee stock ownership
plan obligation 1,105,260 1,405,260 1,680,260 1,930,260 2,155,260
Shareholders' equity 39,733,167 34,161,780 30,407,397 27,575,173 26,253,440
Operations For The Year
- -----------------------------------------------------------------------------------------------------
Gross operating income $39,197,020 $39,078,326 $39,263,973 $40,333,317 $38,880,575
Operating expenses 32,816,421 33,570,530 35,249,366 38,820,425 36,175,400
------------ ------------ ------------ ------------ ------------
Income before income taxes 6,380,599 5,507,796 4,014,607 1,512,892 2,705,175
Federal incorne tax expense
(credit) 1,100,000 1,130,000 761,000 (320,000) (30,000)
------------ ------------ ------------ ------------ ------------
Net income $5,280,599 $4,377,796 $3,253,607 $1,832,892 $2,735,175
============ ============ ============ ============ ============
- -----------------------------------------------------------------------------------------------------
Cash dividends $1,347,730 $1,119,798 $826,590 $907,961 $775,305
Common shares outstanding 3,268,488 3,245,410 3,229,092 3,213,958 3,194,362
Net income per share $1.61 $1.35 $1.01 $0.57 $0.86
Dividends per share 0.41 0.34 0.25 0.28 0.24
Book value per share 12.16 10.53 9.42 8.58 8.22
</TABLE>
All per share amounts have been adjusted for a four-for-three stock split in
February 1994, a four-for-three stock split in 1993, a four percent stock
dividend in 1992, a three percent stock dividend in 1991 and a five percent
stock dividend in 1989.
MARKET AND DIVIDEND INFORMATION
All common shares of CoBancorp Inc. are voting shares and are traded on the
Nasdaq National Market System. There are currently 3,268,488 shares outstanding,
held among approximately 1,700 shareholders of record as of December 31, 1993.
Beginning in August 1993, prices are the high and low closing prices as reported
by Nasdaq. Prior to that time, prices are the high and low bid quotations taken
from those published weekly by a newspaper of general circulation in Lorain
County. All per-share amounts have been adjusted for a four-for-three stock
split in February 1994, a four-for-three stock split in July 1993 and a four
percent stock dividend in December 1992.
<TABLE>
<CAPTION>
Trading Ranges of Common Stock
Bid Prices Dividend Per Share
------------------------------------- -----------------------
1993 1992 1993 1992
---------------- ---------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $14.48 $15.19 $12.03 $12.58 $0.0900 $0.0811
Second Quarter 15.19 15.75 12.71 13.25 0.0956 0.0865
Third Quarter 15.82 18.56 13.25 13.52 0.1050 0.0865
Fourth Quarter 19.13 25.50 13.52 14.48 0.1200 0.0865
------- -------
$0.4106 $0.3406
======= =======
</TABLE>
25
<PAGE> 1
EXHIBIT (22)
Subsidiaries of the Registrant
------------------------------
Name State of Incorporation
---- ----------------------
PremierBank & Trust Ohio
90
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-56464) pertaining to The CoBancorp Inc. 1992 Long-Term
Incentive Plan of our report dated January 21, 1994, with respect to the
consolidated financial statements of CoBancorp Inc. and subsidiary included in
the Annual Report (Form 10-K) for the year ended December 31, 1993.
Ernst & Young
-----------------------------
Ernst & Young
Cleveland, Ohio
March 29, 1994
91
