<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, 1994.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from _______________ to _______________.
Commission file number 0-13166.
COBANCORP INC.
-------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-1465382
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
124 Middle Avenue
Elyria, Ohio 44035
---------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip Code)
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 III of this Form 10-K or any amendment to
this Form 10-K. [ ]
<PAGE> 2
The aggregate market value, computed using the closing bid quotation as
reported by the Nasdaq National Market System, of the voting stock held by
nonaffiliates of the registrant (exclusive of 259,897 shares held by the
CoBancorp Inc. Employee Stock Ownership Plan and 199,390 shares held by
directors and executive officers of the Corporation) as of January 31, 1995:
Common Stock, no par value--$67,485,000
The number of shares outstanding of the issuer's classes of common stock as of
January 31, 1995:
Common Stock, no par value--3,330,970 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the annual
shareholders' meeting to be held April 19, 1995, are incorporated by
reference into Part III.
The index to exhibits in this filing begins on page 29.
2
<PAGE> 3
COBANCORP INC.
FORM 10-K REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
---- ----
PART I
<S> <C> <C>
1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . 4
Description of Business . . . . . . . . . . . . . . . . . 4
Competition . . . . . . . . . . . . . . . . . . . . . . . 5
Regulation . . . . . . . . . . . . . . . . . . . . . . . . 5
Examination and Supervision . . . . . . . . . . . . . . . 6
Federal Reserve System . . . . . . . . . . . . . . . . . . 8
Insurance of Deposits . . . . . . . . . . . . . . . . . . 8
Community Reinvestment Act . . . . . . . . . . . . . . . . 8
Executive Officers of the Registrant . . . . . . . . . . . 9
Supplemental Financial Data . . . . . . . . . . . . . . . 10
2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . 11
3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . 12
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . 13
PART II
5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . 13
6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . 13
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . 13
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . 28
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . 28
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . 28
11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . 28
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . 28
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . 28
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . 29
SIGNATURES
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
3
<PAGE> 4
PART I
ITEM 1. BUSINESS
Description of Business
CoBancorp Inc. (the "Corporation"), headquartered in Elyria, Ohio, is
a one-bank holding company registered with the Federal Reserve System whose
principal asset is the common stock of its wholly owned commercial bank
subsidiary, PREMIERBank & Trust (the "Bank").
The Corporation was organized under Ohio law in November 1983 and
remained inactive until September 8, 1984. On that date, the Bank's
shareholders became Corporation shareholders in a tax-free and regulatory
reorganization. This transaction was accounted for as a pooling of interests.
As a bank holding company, the Corporation is exclusively engaged and
intends to continue to engage in the management of the Bank. The Bank was
chartered by the State of Ohio in 1926 and is a member bank of the Federal
Reserve System. The Bank operates twenty-six (26) banking offices throughout
its market area of Lorain County and portions of Cuyahoga, Erie, Richland,
Huron, Delaware, Franklin and Crawford Counties. The Bank also operates a loan
production office in Franklin County. The Bank has 29 automated teller
machines ("ATMs") and is a member of the MAC and Plus ATM networks. As a
member bank of the Federal Reserve System, the Bank's deposits are insured by
the Federal Deposit Insurance Corporation (the "FDIC") to the extent permitted
by law. The Bank is subject to primary regulation by the Federal Reserve and
the Ohio Department of Commerce, Division of Banking. The Bank is also subject
to regulation by the FDIC. The Corporation's activities as a bank holding
company are regulated by the Federal Reserve, and the Corporation's corporate
governance is determined by Ohio law.
The Bank provides commercial and retail banking services to
individual, business, institutional and governmental customers. These services
include personal and commercial checking accounts, savings and time deposit
accounts, personal and business loans, a credit card system and safe deposit
facilities.
The Trust Department of the Bank performs complete trust
administrative functions and offers agency and trust services to individuals,
partnerships, corporations, institutions and municipalities.
As of December 31, 1994, in the opinion of management, the Corporation
did not have any concentration of loans to similarly situated borrowers. There
were no foreseeable losses relating to other interest-earning nonloan assets.
The Bank is not significantly affected by seasonal activity or large
deposits of individual customers. The Bank is not engaged in operations in any
foreign country.
On December 31, 1994, the Corporation and its subsidiary employed
approximately 290 full-time and 79 part-time employees. None of the employees
is represented by a union or collective bargaining group. Management considers
4
<PAGE> 5
its relations with employees to be satisfactory. Employee benefit programs are
considered by management to be competitive with benefits provided by other
financial institutions and major employers within the normal operating area.
Competition
The Bank actively competes with other financial institutions in its
market area. Competition for savings comes principally from other commercial
banks, savings and loan associations, credit unions and brokerage house "money
market funds" located in its primary market area. The primary factors in
competing for savings are interest rates paid on deposits and convenience of
office hours and locations. During periods when money market rates are
relatively high, obligations offered by governments, government agencies and
other entities seeking funds add significantly to competition for savings.
The Bank's principal competition for loans is provided by other
commercial banks, savings and loan associations, mortgage companies and credit
unions. The primary factors in loan competition are interest rates, extent and
time interval of interest rate adjustments, origination charges and convenience
of office location for applications, closing and servicing.
Regulation
The Corporation is subject to regulation under the Bank Holding
Company Act of 1956, as amended (the "Act"). The Act requires the prior
approval of the Federal Reserve Board for a bank holding company to acquire or
hold more than a 5 percent voting interest in any bank, and restricts
interstate banking activities.
The Act restricts the Corporation's non-banking activities to those
which are closely related to banking. The Federal Reserve Board has determined
by regulation that the following activities are permissible for bank holding
companies and their subsidiaries. Some of these activities include the
following: making, acquiring or servicing loans or other extensions of credit;
trust company functions; leasing personal or real property; courier services;
management and consulting for other depository institutions; and real estate
appraising. The Corporation presently has no non-banking activities, but may
in the future engage in one or more of the non-banking activities identified
above.
The Corporation's cash revenues are derived from dividends paid by the
Bank, its subsidiary. These dividends are subject to various legal and
regulatory restrictions. Reference is made to Note H of the Registrant's 1994
Annual Report to Shareholders, which is contained in Exhibit 13e of this
filing.
Under the Act and regulations of the Federal Reserve Board pursuant
thereto, a bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with the extension of
credit.
The Bank is a stock-form commercial bank organized under the laws of
the State of Ohio, and its deposits are insured by the FDIC. The Bank derives
its lending, investment and other powers from the applicable provisions of Ohio
5
<PAGE> 6
law and the regulations of the Ohio Department of Banking (the "Banking
Department"), subject to limitation or other modification under applicable
federal laws and regulations of such agencies as the FDIC and the Federal
Reserve Board. The Bank is subject to periodic examination and supervision by
the Federal Reserve Board and the Banking Department.
The Banking Department regulates the Bank's internal organization as
well as its deposit, lending and investment activities. The Superintendent of
the Banking Department must approve changes to the Bank's Certificate of
Incorporation, establishing or relocating branch offices, mergers and the
issuance of additional stock. Many of the areas regulated by the Banking
Department are subject to similar regulation by the Federal Reserve Board.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDIC Improvement Act") covers a wide expanse of banking regulatory issues.
The FDIC Improvement Act deals with the recapitalization of the Bank Insurance
Fund, with deposit insurance reform, including requiring the FDIC to establish
a risk-based premium assessment system, and with a number of other regulatory
and supervisory matters. The effective dates for the provisions of the FDIC
Improvement Act are staggered, some having already taken effect and others
taking effect at various times in the future. Regulations have been proposed
to implement this Act, but the full effects of the FDIC Improvement Act
generally on the financial services industry, and specifically on the
Corporation, cannot now be measured.
Examination and Supervision
Both the Banking Department and the Federal Reserve Board issue
regulations and require the filing of reports describing the activities and
financial condition of banks under their jurisdiction. Each regulatory body
conducts periodic examinations to test compliance with various regulatory
requirements and generally supervises the operations of such banks. This
supervision and regulation is intended primarily for the protection of
depositors.
The Federal Reserve Board may sanction any insured bank that does not
operate in accordance with Federal Reserve Board regulations, policies and
directives. Proceedings may be instituted against any insured bank, or any
trustee, director, officer or employee of the bank, that engages in unsafe and
unsound practices, including the violation of applicable laws and regulations.
The Federal Reserve Board may revalue assets of an institution, based upon
appraisals, and may require the establishment of specific reserves in amounts
equal to the difference between such revaluation and the book value of the
assets. In addition, the FDIC has the authority to terminate insurance of
accounts, after notice and hearing, upon a finding by the FDIC that the insured
institution is or has engaged in any unsafe or unsound practice that has not
been corrected, or is in an unsafe or unsound condition to continue operations,
or has violated any applicable law, regulation, rule or order of or condition
imposed by the FDIC.
Under Ohio law, the Superintendent of the Banking Department may also
issue an order to an Ohio-chartered banking institution to appear and explain
an apparent violation of law, to discontinue unsound or unsafe practices, and
to keep books and accounts as prescribed. Upon a finding by the Banking
Department that any director, trustee or officer of any banking organization
6
<PAGE> 7
has violated any law or duly enacted regulation, or has continued unauthorized
or unsafe practices in conducting the business of the banking organization
after having been notified by the Superintendent to discontinue such practices,
such director, trustee or officer may be removed from office after notice and
an opportunity to be heard.
Effective January 1, 1991, the Federal Reserve Board adopted core
capital requirements to be applicable to state member banks and bank holding
companies, which require a 3 percent core capital requirement for any
institution in the highest regulatory rating ("CAMEL rating") category. All
other banking organizations would be required to maintain levels 100 to 200
basis points higher, based on their particular circumstances. As of December
31, 1994, the Corporation and the Bank, respectively, had tier one leverage
ratios of 8.09% and 8.17%, which placed each in compliance with applicable core
capital requirements.
Failure to meet the capital requirements would mean that the insured
member bank would be treated as having inadequate capital, and such an insured
member bank would have to develop and file a plan with the Federal Reserve
Board describing the means and a schedule for achieving the minimum capital
requirements. In addition, such an insured member bank would not receive the
Federal Reserve Board's approval of any application that required the
consideration of capital adequacy, for instance, a branch application, unless
the Federal Reserve Board found that the bank had a reasonable plan to meet the
capital requirement within a reasonable period of time.
In March 1989, the Federal Reserve Board adopted a risk-based capital
rule which applies to all BIF-insured state-chartered banks that are members of
the Federal Reserve System ("state member banks"), such as the Bank. The rule
requires state member banks to maintain minimum capital levels based upon a
weighting of the assets according to risk. Under the new rule, qualifying
total risk-based capital equals the sum of Tier I and Tier II capital. Among
other items, Tier I capital is generally comprised of common stockholders'
equity, non-cumulative perpetual preferred stock and minority interests in the
equity account of consolidated subsidiaries, while Tier II capital generally
consists of allowances for loan and lease losses (limited to a percentage of
risk- weighted assets) and maturing capital instruments such as cumulative
perpetual preferred stock, convertible debt securities and subordinated debt.
At least 50 percent of the qualifying total risk-based capital must consist of
Tier I capital. Tier I capital is defined as the sum of Tier I capital
elements minus all intangible assets other than mortgage servicing rights.
Once risk-based capital is calculated, the rule then assigns each
balance sheet asset held by state member banks to one of four risk categories
(0%, 20%, 50% and 100%) based on the amount of credit risk associated with that
particular class of assets. For example, cash and U.S. Government securities
backed by the full faith and credit of the U.S. Government are assigned a 0%
risk weight while qualifying first mortgages on one- to four-family residential
loans are assigned a 50% risk weight. Assets not within a specific risk-based
category are assigned to the 100% risk-weight category. Indirect holdings of
pools of assets, for example mutual funds, are assigned the highest risk
category appropriate to the highest risk-weighted asset that the fund is
permitted to hold. Off-balance sheet items are included in risk-weighted
assets pursuant to a conversion formula. Assets not included for purposes of
calculating capital are not included in calculating risk-weighted assets. The
7
<PAGE> 8
book value of assets in each category is multiplied by the weighing factor
(from 0% to 100%) assigned to that category. The resulting weighted value from
each of the four risk categories are added together and this sum is the
risk-weighted assets total that, as adjusted, comprises the denominator of the
risk-based capital ratio. The state member bank's risk-based capital ratio is
then calculated by dividing its qualifying total risk-based capital base by its
risk-weighted assets.
The rule for calculating risk-based capital ratios took effect in
1989. At the end of 1994, state member banks are required to maintain
qualifying total capital equal to 8 percent of their risk-weighted assets and
off-balance sheet items. Banks that fail to meet the risk-based capital
requirements are required to file a capital plan with the Federal Reserve Board
describing the means and a schedule for achieving the minimum capital
requirements. In addition, any application that requires the consideration of
capital adequacy, such as a branch application, may not be approved by the
Federal Reserve Board unless the Federal Reserve Board finds that the bank has
a plan to meet the capital requirements within a reasonable period of time. At
December 31, 1994, the Bank's total capital-to-risk weighted assets ratio
calculated under the risk-based capital requirement was 14.34 percent, while
the Bank's actual risk-based capital was in excess of that required by
$21,059,000.
Federal Reserve System
Under Federal Reserve Board regulations, the Bank is required to
maintain reserves against its transaction accounts (primarily checking and NOW
accounts), non-personal money market deposit accounts, and non-personal time
deposits. Effective April 2, 1992, the Federal Reserve Board cut the reserve
requirement on transaction accounts from 12 percent to 10 percent. Effective
December 31, 1990, in addition, no reserves (subject to adjustment by the
Federal Reserve Board up to 9 percent) must be maintained on time deposits,
which include borrowings with original maturities of less than one and one-half
years. These amounts and percentages are subject to adjustment by the Federal
Reserve Board. Money market deposit accounts are subject to the reserve
requirement applicable to time deposits when held by an entity other than a
natural person.
Insurance of Deposits
Deposits in the Bank are insured by the Federal Deposit Insurance
Corporation (the "FDIC"), to the legal maximum. Under FIRREA, the deposits of
commercial banks continue to be insured to a maximum of $100,000 for each
insured depositor.
Community Reinvestment Act
Ratings of depository institutions under the Community Reinvestment
Act of 1977 ("CRA") must be disclosed. The disclosure will include both a
four-unit descriptive rating for all CRA examinations at banks and thrifts
after July 1, 1990, using terms such as satisfactory and unsatisfactory, and a
written evaluation of each institution's performance. At its most recent CRA
performance evaluation, the Bank received a satisfactory evaluation of its CRA
performance.
8
<PAGE> 9
Executive Officers of the Registrant
(as of March 1, 1995)
<TABLE>
<CAPTION>
Executive
Officer
Name Age Position Since
---- --- -------- ---------
<S> <C> <C> <C>
John S. Kreighbaum 48 President and Chief Executive
Officer 1991
Timothy W. Esson 45 Executive Vice President
and Treasurer 1980
James R. Bryden 52 Regional President/
North Central District 1987
Mary A. Barnes 50 Senior Vice President/
Branch Administration 1993
Dennis K. Miller 47 Senior Vice President/
Operations Manager 1993
Robert J. Scott 46 Senior Vice President/Director
of Investment Management
and Trust Services 1993
J. Sue Snyder 62 Senior Vice President/
Human Resources 1980
Bruce E. Stevens 46 Senior Vice President/
Director of Lending 1993
Lois E. Gunning 66 Corporate Secretary 1987
</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.
9
<PAGE> 10
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
------- ----
<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>
10
<PAGE> 11
ITEM 2. PROPERTIES
The principal office of CoBancorp Inc. and PREMIERBank & Trust is located
at 124 Middle Avenue, Elyria, Ohio. At December 31, 1994, the Bank owned 17
of its banking facilities and leased the other 16 facilities. All but eight
of the offices are located in Lorain County, Ohio.
Through the Bank, the Corporation owns and operates 29 ATMs at various
branch offices and at seven remote locations and is a member of the MAC
Network, which provides its members with regional ATM access, and the Plus
System ATM network, which provides its members with international access.
The following table sets forth certain information regarding the properties
of the Corporation and the Bank.
<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 1999
*38475 Chestnut Ridge Road Leased n/a November 1997
1000 North Abbe Road Owned 0
*Elyria Memorial Hospital
630 East River Street Leased n/a July 1996
Elyria United Methodist Home
807 West Avenue Leased n/a December 1999
*400 Clark Street ** 0
Amherst
160 Cleveland Avenue Owned 0
938 North Leavitt Road Owned 0
Avon
36000 Detroit Road Leased n/a May 2011
36815 Detroit Road Leased n/a November 1997
Avon Lake
33388 Walker Road Leased n/a March 1997
Columbia Station
26700 Royalton Road Owned 0
Crestline
350 North Seltzer Street Owned 0
Delaware
95 East William Street Owned 0
*1760 Columbus Pike (Wal-Mart) Leased n/a March 1999
</TABLE>
Continued
11
<PAGE> 12
<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
*291 South Main Street
(Station Square) Leased n/a March 1999
Sheffield Lake
4120 East Lake Road Leased n/a monthly
Shiloh
23 West Main Street Owned 0
Vermilion
4530 Liberty Avenue Owned 0
Westlake
801 Crocker Road Owned 0
Worthington
100 East Campus View Blvd.*** Leased n/a October 1996
2182 West Dublin-Granville Road Leased n/a April 1997
</TABLE>
* Remote ATM only
**Remote ATM located on premises of local manufacturing company
***Loan Production Office only
ITEM 3. LEGAL PROCEEDINGS
There is no pending litigation of a material nature in which the Corporation
or the Bank is involved and no such legal proceeding was terminated during the
fourth quarter of 1994. Furthermore, there is no material proceeding in which
any director, officer, or affiliate of the Registrant, or any associate of any
such director or officer, is a party, or has a material interest, adverse to the
Corporation or the Bank.
12
<PAGE> 13
As a part of its ordinary course of business, the Corporation and the Bank
are each a party to lawsuits (such as garnishment proceedings) involving claims
to the ownership of funds in particular accounts and involving the collection of
delinquent accounts. All such litigation is incidental to the business of the
Bank and the Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Reference is made to the table "Market and Dividend Information" which is
contained in this filing in Exhibit 13g, for information concerning the
principal market for Registrant's Common Stock, market prices, number of
shareholders and dividends, which is incorporated herein by reference. The high
and low bid prices quoted from the newspaper (prior to the Corporation's listing
on the Nasdaq National Market System in August 1993) reflect inter-dealer prices
without adjustments for retail markups, markdowns or commissions and may not
represent actual transactions. Reference is made to Note H to the Consolidated
Financial Statements which is contained in the Registrant's 1994 Annual Report
to Shareholders, filed as Exhibit 13e of this filing, for information concerning
dividend restrictions, which is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the table entitled "Financial Highlights," filed as
Exhibit 13h of this filing, which is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CoBancorp Inc. is a one-bank holding company with total consolidated assets
at year-end 1994 of $532 million. Its subsidiary, PREMIERBank & Trust, maintains
offices in Lorain County, as well as Cuyahoga, Erie, Huron, Richland, Delaware,
Crawford and Franklin Counties.
This section of the report provides a narrative discussion and analysis of
the consolidated financial condition and results of operations of CoBancorp Inc.
and PREMIERBank & Trust for the past three years. The supplemental financial
data included in this section should be read in conjunction with the
consolidated financial statements and related disclosures presented as Exhibits
13a through 13f and 13i of this filing, which are incorporated herein by
reference. All shares outstanding and per share data have been adjusted for
four-for-three stock splits in 1994 and 1993, a four percent stock dividend
in 1992 and a three percent stock dividend in 1991.
13
<PAGE> 14
Consolidated Selected Financial Data
Reference is made to the table entitled "Financial Highlights," filed as
Exhibit 13h of this filing, which is incorporated herein by reference.
Performance Overview
Net income for 1994 was $5,686,000, or $1.73 per share, compared to
$5,281,000, or $1.61 per share in 1993, and $4,378,000, or $1.35 per share
in 1992. Two key measures of performance in the banking industry are return
on average equity (ROE) and return on average assets (ROA). ROE is the
ratio of income earned to average shareholders' equity. ROE for 1994 was
14.3 percent, compared to 14.6 percent in 1993 and 13.8 percent in 1992. ROA
measures how effectively a corporation uses its assets to produce earnings.
For 1994, return on average assets was 1.15 percent. ROA was 1.10 percent
in 1993 and 1.01 percent in 1992. ROE and ROA have been positively impacted
by an upward trend in the net interest margin.
The following table sets forth operating and capital ratios of the
Corporation.
Return on Equity and Assets
<TABLE>
<CAPTION>
December 31
--------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Return on average assets 1.15% 1.10% 1.01%
Return on average equity 14.28 14.60 13.76
Dividend payout ratio 30.70 25.52 25.58
Ratio of average equity to average assets 8.06 7.53 7.34
</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 $25,756,000 in 1994, from $23,713,000 in
1993 and $21,828,000 in 1992. Reference is made to the "Summary of Changes in
Net Interest Income" on page 16 of this report for a detailed analysis of
factors affecting this trend in net interest income. Net interest margin, which
is net interest income divided by average earning assets, was 5.70 percent in
1994 compared with 5.39 percent in 1993 and 5.43 percent for 1992.
Average earning assets, as a percentage of total assets, decreased slightly
to 91.4 percent this year compared to 91.7 percent in 1993 and 92.0 percent in
1992.
The trends in various components of the balance sheet and their respective
yields and rates which affect interest income and expense are shown in the
following table.
14
<PAGE> 15
AVERAGE CONSOLIDATED BALANCE SHEETS, NET INTEREST INCOME AND RATES
Fully taxable equivalent (in thousands of dollars)
<TABLE>
<CAPTION>
1994 1993
------------------------------------ ---------------------------------------
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 $308,853 $27,108 8.78% $255,726 $23,383 9.14%
Tax-exempt 3,768 244 6.48 4,280 265 6.19
Investment securities
Taxable 69,585 4,406 6.33 123,028 8,099 6.58
Tax-exempt 67,368 5,425 8.05 51,630 4,420 8.56
Federal funds sold 2,439 101 4.14 5,297 155 2.93
-------- ------- -------- -------
Total interest-earning assets 452,013 37,284 8.25 439,961 36,322 8.26
Noninterest-earning assets:
Cash and due from banks 23,706 23,596
Bank premises and equipment 10,676 9,270
Other assets 13,422 12,557
Less allowance for loan losses (5,481) (5,481)
-------- --------
Total assets $494,336 $479,903
======== ========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing transaction accounts $53,760 1,104 2.05% $55,606 1,337 2.40%
Savings 174,097 4,044 2.32 164,593 4,570 2.78
Time deposits 140,050 5,743 4.10 141,872 6,064 4.27
Short-term funds 22,350 637 2.85 24,721 638 2.58
-------- ------- -------- ------
Total interest-bearing liabilities 390,257 11,528 2.95 386,792 12,609 3.26
Noninterest-bearing liabilities: ------- ------
Demand deposits 59,674 51,983
Other liabilities 4,586 4,971
Shareholders' equity 39,819 36,157
-------- --------
Total liabilities and
shareholders' equity $494,336 $479,903
======== ========
Net interest income $25,756 $23,713
======= =======
Net yield/rate on interest-earning assets 5.70% 5.39%
==== ====
<CAPTION>
1992
---------------------------------------------
Average
Daily Yield/
Balance Interest Rate
------- -------- ------
<S> <C> <C> <C>
Assets
Interest-earning assets:
Loans (including fees)
Taxable $228,739 $22,610 9.88%
Tax-exempt 4,766 351 7.36
Investment securities
Taxable 128,156 10,067 7.86
Tax-exempt 28,999 2,800 9.66
Federal funds sold 8,200 278 3.39
-------- -------
Total interest-earning assets 398,860 36,106 9.05
Noninterest-earning assets:
Cash and due from banks 19,611
Bank premises and equipment 8,438
Other assets 11,529
Less allowance for loan losses (5,088)
--------
Total assets $433,350
========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing transaction accounts $41,883 1,323 3.16%
Savings 139,862 4,970 3.55
Time deposits 147,106 7,571 5.15
Short-term funds 18,154 585 3.22
-------- -------
Total interest-bearing liabilities 347,005 14,449 4.16
Noninterest-bearing liabilities: -------
Demand deposits 49,187
Other liabilities 5,339
Shareholders' equity 31,819
Total liabilities and --------
shareholders' equity $433,350
========
Net interest income $21,657
=======
Net yield/rate on interest-earning assets 5.43%
====
</TABLE>
Notes: Nonaccrual loans are included in average loan balances. Interest
income and yields/rates are presented on a fully taxable-equivalent
basis using a tax rate of 34% in 1994, 1993 and 1992.
15
<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:
Summary of Changes in Net Interest Income
<TABLE>
<CAPTION>
1994 vs. 1993 1993 vs. 1992
Increase (Decrease) Due to (1) Increase (Decrease) Due to (1)
------------------------------ ------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans, net of unearned
income (2) $ 4,652 $ (946) $ 3,706 $ 2,127 $(1,440) $ 687
Taxable investment
securities (3,518) (175) (3,693) (403) (1,565) (1,968)
Nontaxable investment
securities 1,347 (342) 1,005 2,185 (566) 1,619
Federal funds sold (84) 30 (54) (98) (25) (123)
------- ------- ------- ------- ------- -------
Total interest-earning
assets 2,397 (1,433) 964 3,811 (3,596) 215
Interest expense:
Interest-bearing
transaction
accounts (47) (186) (233) 436 (422) 14
Savings 281 (807) (526) 923 (1,322) (399)
Time deposits (121) (200) (321) (123) (1,383) (1,506)
Short-term funds (64) 63 (1) 179 (126) 53
------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities 49 (1,130) (1,081) 1,415 (3,253) (1,838)
------- ------- ------- ------- ------- -------
Change in net
interest income $ 2,348 $ (303) $ 2,045 $ 2,396 $ (343) $ 2,053
======= ======= ======= ======= ======= =======
</TABLE>
(1) Changes in interest income not arising solely from rate or volume variances
are included in rate variances.
(2) Nonaccrual loans are included in average loan balances.
Provision for Loan Losses
The total provision for loan and real estate losses was $208,000 in 1994,
$920,000 in 1993 and $2,800,000 in 1992. Additional discussion regarding the
provision for loan losses and the allowance for loan losses is contained in this
report in the section entitled "Credit Quality and Experience" on page 23.
16
<PAGE> 17
Noninterest Income
Total noninterest income of $4,411,000 for 1994 decreased $56,000, or 1.3
percent, when compared to 1993. This follows increases of 10.5 percent during
1993 and 30.1 percent during 1992. Service charges on deposit accounts
represented $234,000 of the growth in 1994 due principally to growth in
transaction and savings deposit accounts coupled with price increases. Income
from trust activities increased in 1994, 1993 and 1992. Total assets managed by
the Trust Department aggregated $181.3 million, $220.0 million and $173.0
million at December 31, 1994, 1993 and 1992, respectively. Gains and losses on
the sale of investment securities also impact comparisons. Security
transactions resulted in gains of $454,000, $665,000 and $566,000 in 1994, 1993
and 1992, respectively.
Noninterest Expenses
Noninterest expenses increased 9.3 percent in 1994, a slower rate of growth
than the 18.2 percent in 1993 and 12.9 percent in 1992. The increase in 1994 can
be attributed to higher levels of expense relative to salaries and data
processing. Salaries, wages and benefits account for 44.1 percent of total
noninterest expense in 1994, compared to 43.6 percent in 1993 and 43.2 percent
in 1992. These increases are primarily attributable to increases in the number
of employees, the increased cost of benefits and merit raises. At December 31,
1994 there were 328 full-time equivalent employees, an increase of 2.8 percent
from the 319 full-time equivalent employees at December 31, 1993, which was an
increase of 13.5 percent from the level of 281 full-time equivalent at December
31, 1992.
Income Taxes
One element of the Corporation's tax planning is the implementation of
various investment and loan strategies to maximize after-tax profits. This
planning is an ongoing process which considers the levels of tax-exempt
securities and loans, investment securities gains or losses and allowable loan
loss deductions. The Corporation's effective income tax rate (income tax expense
divided by income before income taxes) is less than the statutory rate primarily
due to income on tax-exempt securities and loans. It should be recognized that
the yield on these types of assets is considerably less than on other
investments of the same maturity and risk. However, on a tax-equivalent basis,
the yields are comparable.
The income tax provision was $1,256,000 in 1994, compared with $1,100,000 in
1993 and $1,130,000 in 1992. The Corporation's effective tax rate was 18.1
percent in 1994, 17.2 percent in 1993 and 20.5 percent in 1992.
It has been determined that for the year ended December 31, 1994, a
valuation allowance is not required on any of the deferred tax assets recorded
due primarily to the earnings history of the Corporation and the significant
amount of federal income taxes paid in prior years.
17
<PAGE> 18
FINANCIAL CONDITION
The consolidated financial condition of the Corporation and the Bank as of
December 31, 1994 and 1993 is presented in the comparative balance sheets
contained in Exhibit 13a of this filing and is incorporated herein by reference.
The following discussions address key elements of financial condition, including
earning assets, the sources of funds supporting earnings assets, credit quality
and experience, asset and liability management and capital adequacy.
Earning Assets
Loans
Loans comprise the majority of the Corporation's earning assets,
representing 69.2 percent of average earning assets in 1994, and 59.1 percent in
1993. Average loans outstanding increased 20.2 percent in 1994 and 11.3 percent
in 1993.
The largest asset category in the loan portfolio was real estate mortgage
loans, which comprised 46.3 percent of total loans at the end of 1994.
Commercial and collateral loans totaled 41.3 percent of the portfolio and
installment loans comprised 11.6 percent of the portfolio. All other loans were
0.9 percent of the portfolio. In 1993, real estate mortgages were 45.9 percent
of the loan portfolio, commercial and collateral loans were 42.5 percent,
installment loans were 10.6 percent and other loans were 1.0 percent.
The mix within the commercial loan portfolio is diverse and represents loans
to a broad range of business interests, located primarily within the Bank's
defined market area, with no significant industry concentration. The
installment loan portfolio is composed principally of financing to individuals
for vehicles and consumer assets. The real estate portfolio is primarily
residential mortgages that can qualify for sale into the secondary market.
Loans by major category at the end of the last five years were as follows:
Loan Portfolio
<TABLE>
<CAPTION>
December 31
------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Real estate $152,695 $132,589 $ 99,761 $ 81,368 $ 77,420
Installment 38,364 31,229 34,145 44,465 56,010
Commercial and collateral 136,187 122,699 109,169 93,694 101,751
All other 2,887 2,932 3,330 3,768 4,066
Total (net of unearned -------- -------- -------- -------- --------
income) $330,133 $289,449 $246,405 $223,295 $239,247
======== ======== ======== ======== ========
</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, 1994, reported at the earliest of maturity
or repayment for fixed rate loans, and earliest repricing opportunity for
variable rate loans, with nonaccrual loans included in the "after 5 years"
category, are as follows (in thousands of dollars):
Loan Maturities and Sensitivity to Changes in Interest Rates
<TABLE>
<CAPTION>
Within 1-5 After
1 year years 5 years Total
------ ----- ------- -----
<S> <C> <C> <C> <C>
Real estate $ 38,643 $ 48,738 $ 65,314 $152,695
Installment 12,290 23,034 3,040 38,364
Commercial and collateral 97,061 36,176 2,950 136,187
All other 0 0 2,887 2,887
-------- -------- -------- --------
$147,994 $107,948 $ 67,320 $330,133
======== ======== ======== ========
</TABLE>
Fixed rate loans maturing within one year and loans with adjustable rates
that reprice annually or more frequently (exclusive of scheduled repayments)
totaled $121,742,000 or 36.9 percent of the loan portfolio at December 31,
1994.
Investment Securities
The investment portfolio is comprised of U. S. Treasury and other U. S.
Government agency-backed securities, collateralized mortgage-backed
securities, tax-exempt obligations of states and political subdivisions, and
certain other investments. The quality of obligations of states and
political subdivisions will be A, AA, or AAA, the majority of which will be
AA or AAA, as rated by a nationally recognized service. As a matter of
policy, in support of our service area, we may purchase certain unrated
bonds of local schools, townships and municipalities, provided they are of
reasonable credit risk.
On December 31, 1993, the Corporation adoped FASB Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
adoption did not have a material effect on results of operations and prior
years' financial statements were not restated. In anticipation of the
adoption of FASB Statement No. 115, securities netting to $87,275,000
(adjusted cost basis) were reclassified between the held-to-maturity and
available-for-sale portfolios in 1993. In accordance with Statement No.
115, securities available-for-sale are recorded at market value and at December
31, 1994 and 1993, respectively, the unrecognized gain (loss) of $(2,913,000)
and $982,000 (net of tax) is included in shareholders' equity.
The portfolio accounting designations were made in order to attain the
objectives of the Corporation's investment portfolio, which are to generate
interest income, serve as a liquidity source and play an important role in
the management of the interest rate sensitivity of the Corporation.
Accordingly, securities purchased for the available-for-sale category are
those which may be sold prior to their maturity for purposes of bank asset
allocations, rate sensitivity or liquidity and, hence, tend to be more
liquid. Securities in the held-to-maturity category are purchased with the
intent and ability to hold them to maturity and are, therefore, carried at
amortized cost.
19
<PAGE> 20
The investment portfolio represented 30.3 percent of average earning assets
in 1994 and 39.7 percent in 1993. Average investment securities held
decreased 21.6 percent in 1994 compared to 1993. The tax-equivalent yield
on the entire portfolio was 7.18, 7.17 and 8.19 percent in 1994, 1993 and
1992, respectively. These investments provide a stable yet diversified
income stream and serve useful roles in liquidity and interest rate
sensitivity management. In addition, they serve as a source of collateral
for low-cost funding. The decision to purchase securities is based upon the
assessment of current economic and financial trends.
Summary information with respect to the securities portfolio at December 31
follows (in thousands of dollars):
<TABLE>
<CAPTION>
1994 Carrying Value
------------------- 1993 1992
Held to Available 1994 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 $ 3,491 $10,702 7.46% $ 4,134
1 to 5 years 2,000 16,539 6.43 17,943
------- ------- -------- --------
Total 5,491 27,241 6.87 22,077 $ 52,778
States of the U.S. and
political subdivisions
Under 1 year 3,803 6.12 3,006
1 to 5 years 26,701 5.41 23,219
5 to 10 years 41,385 1,084 5.33 35,780
Over 10 years 823 5.80 1,727
------- -------- --------
Total 72,712 5.41 63,732 37,508
Collateralized mortgage-
backed securities
Under 1 year 9,225 6.25 35,062
1 to 5 years 10,980 7.23 31,118
5 to 10 years 19,897 6.35
Over 10 years 1,918 6.79 506
------- -------- --------
Total 42,020 6.58 66,686 82,042
Other
Over 10 years 1,260 6.08 439 439
------- ------- -------- --------
Total $79,463 $70,345 $152,934 $172,767
======= ======= ======== ========
</TABLE>
The yield at December 31, 1994, was the combined rate for the
held-to-maturity and available-for-sale securities portfolios.
Mortgage-backed securities and other securities which may have prepayment
provisions are assigned to a maturity category based on estimated average life.
Securities with a call provision are assigned to a maturity category based on
call date. Yield represents the weighted average yield to maturity. The yield
on obligations of states and political subdivisions has been calculated on a
fully taxable equivalent basis, assuming a 34% tax rate.
20
<PAGE> 21
Federal Funds Sold
Short-term federal funds sold are used to manage interest rate sensitivity
and to meet liquidity needs. During 1994, 1993 and 1992, these funds
represented approximately 0.5 percent, 1.2 percent and 2.1 percent,
respectively, of average earning assets.
Sources of Funds
Deposits
The Corporation's major source of investable funds is core deposits from
retail and business customers. These core deposits consist of interest-bearing
and noninterest-bearing deposits, excluding certificates of deposit over
$100,000. Average interest-bearing core deposits, comprised of interest-bearing
checking accounts, savings, money market and other time accounts, grew 1.0
percent in 1994, compared to 13.4 percent in 1993 and 14.3 percent in 1992.
Average demand deposits (noninterest-bearing core deposits) increased 14.8
percent in 1994, 5.7 percent in 1993 and 12.2 percent in 1992. These deposits
represent approximately 14.6 and 13.1 percent of average core deposits in the
last two years, respectively.
Purchased funds include certificates of deposit over $100,000. These funds
are used to balance rate sensitivity and as a supplement to core deposits.
Average certificates of deposit over $100,000 increased 14.4 percent in 1994
from 1993 levels, to 3.9 percent of average assets. This followed a decrease of
30.1 percent in 1993 from 1992 levels, to 3.5 percent of average assets in 1993.
The following table presents the average amount of and the average rate
paid on each of the following deposit categories (dollar amounts in thousands).
Average Deposits
<TABLE>
<CAPTION>
Years ended December 31
------------------------------
Amount 1994 1993 1992
------ ---- ---- ----
<S> <C> <C> <C>
Noninterest bearing demand deposits $ 59,674 $ 51,983 $ 49,187
Interest bearing transaction accounts 53,760 55,607 41,883
Savings deposits 174,097 164,593 139,862
Time deposits 140,050 141,872 147,106
-------- -------- --------
$427,581 $414,055 $378,038
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Average Rate for the Year
-------------------------
<S> <C> <C> <C>
Interest bearing transaction accounts 2.05% 2.40% 3.16%
Savings deposits 2.32 2.78 3.55
Time deposits 4.11 4.27 5.15
</TABLE>
21
<PAGE> 22
The maturity distribution of certificates of deposit of $100,000 or more at
December 31, 1994, was (in thousands of dollars):
Certificates of Deposit Over $100,000
<TABLE>
<S> <C>
Three months or less $30,571
Over three through six months 1,818
Over six through twelve months 2,020
Over twelve months 2,488
-------
$36,897
=======
</TABLE>
There were five other time deposits of $100,000 or more at December 31,
1994, which will mature in 1995 through 1997.
Securities Sold Under Agreements to Repurchase and Other Borrowings
Other interest-bearing liabilities include securities sold under agreements
to repurchase, sweep accounts, federal funds purchased and notes payable TT&L.
In 1994, these short-term funds decreased slightly to 4.5 percent of average
assets compared to 5.2 percent in 1993.
The Corporation enters into sales of securities under agreements to
repurchase for periods up to 29 days, which are treated as financings and
reflected in the consolidated balance sheet as a liability.
The following table presents information related to securities sold under
agreements to repurchase (repurchase agreements).
Securities Sold Under Agreements to Repurchase
<TABLE>
<CAPTION>
December 31
--------------------------------------
1994 1993 1992
---- ---- ----
(in thousands of dollars)
<S> <C> <C> <C>
Amount outstanding at December 31 $ 1,873 $ 4,453 $11,622
Weighted average interest rate
at December 31 4.87% 2.18% 2.75%
Maximum amount outstanding at any
month's end during the year $ 6,314 $19,462 $12,013
Average amounts outstanding during year $ 4,573 $11,416 $ 8,903
Weighted average interest rate during year 3.70% 2.59% 3.11%
</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, 1994, were $409,000, compared to $1,459,000
at December 31, 1993 and $2,540,000 at December 31, 1992. The ratio of the
allowance for loan losses to nonperforming loans at December 31, 1994, was 13.73
times compared to 3.58 times and 2.05 times at December 31, 1993 and 1992,
respectively. Total nonperforming loans as a percentage of total loans
decreased to 0.1 percent at December 31, 1994, compared to 0.5 percent at
December 31, 1993 and 1.0 percent at December 31, 1992.
The following table summarizes nonaccrual, past due and restructured loans.
<TABLE>
<CAPTION>
December 31
------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(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 $ 3 $ 58 $ 0 $ 214 $ 371
Loans to individuals 48 57 108 81 255
Commercial and industrial loans 0 26 0 0 12
All other 0 0 0 730 0
------ ------ ------ ------ ------
$ 51 $ 141 $ 108 $1,025 $ 638
====== ====== ====== ====== ======
Nonaccrual loans:
Loans secured by real estate $ 358 $ 518 $ 866 $2,371 $3,441
Commercial and collateral 0 77 761 1,196 2,426
All other 0 723 805 120 326
------ ------ ------ ------ ------
$ 358 $1,318 $2,432 $3,687 $6,193
====== ====== ====== ====== ======
Restructured loans past due
30 days or more as to
principal or interest: $ 0 $ 0 $ 0 $ 0 $ 0
====== ====== ====== ====== ======
</TABLE>
23
<PAGE> 24
The effect of nonaccrual loans, on a fully taxable-equivalent basis, for the
year ended December 31 was as follows:
<TABLE>
<CAPTION>
Year Ended
December 31, 1994
-----------------
(in thousands of dollars)
<S> <C>
Interest income that would have been recorded
under original terms $ 18
Interest income recorded during the
period 7
----
Net reduction in interest income $ 11
====
</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
The following table contains information relative to loan loss experience
for each of the five years in the period ended December 31, 1994.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses at
beginning of year $5,226 $5,215 $4,099 $4,644 $2,544
Loans charged off:
Real estate 31 198 17 35
Installment 297 471 866 1,300 1,286
Credit card 61 91 128 71 88
Other 5 2 1 42 7
Commercial and collateral 38 1,384 1,838 2,839 1,039
------ ------ ------ ------ ------
432 2,146 2,850 4,287 2,420
Recoveries on loans charged off:
Real estate 33 51 2 1
Installment 246 330 555 795 477
Credit card 32 16 12 9 9
Other 1 12 24
Commercial and collateral 303 928 597 414 683
------ ------ ------ ------ ------
615 1,337 1,166 1,242 1,170
------ ------ ------ ------ ------
Net (recoveries) charge-offs (181) 809 1,684 3,045 1,250
Provision for loan losses 208 820 2,800 2,500 3,350
------ ------ ------ ------ ------
Allowance for loan losses at
end of year $5,617 $5,226 $5,215 $4,099 $4,644
====== ====== ====== ====== ======
Ratio of net (recoveries) charge-offs
during the year to average loans
outstanding during the year (0.66)% .31% .72% 1.32% .54%
====== ====== ====== ====== ======
Ratio of allowance for loan
losses to total loans
at December 31 1.70% 1.81% 2.12% 1.84% 1.94%
====== ====== ====== ====== ======
</TABLE>
25
<PAGE> 26
The following table shows an allocation of the allowance for loan losses for
each of the past five years (dollar amounts in thousands).
<TABLE>
<CAPTION>
Percent of Loans in Each
Amount Category to Total Loans
December 31 December 31
----------------------------------------------- -------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate $ 400 $ 406 $ 205 $ 166 $ 35 46% 46% 41% 36% 32%
Installment 1,204 732 511 503 503 12 11 14 20 23
Commercial and
collateral 2,749 2,270 2,761 3,210 3,249 41 42 44 42 43
All other 190 124 180 86 58 1 1 1 2 2
Unallocated 1,074 1,694 1,558 134 799 n/a n/a n/a n/a n/a
------ ------ ----- ------ ------ --- --- --- --- ---
$5,617 $5,226 $5,215 $4,099 $4,644 100% 100% 100% 100% 100%
====== ====== ====== ====== ====== === === === === ===
</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 demand for new loans and
deposit withdrawals. Stable core deposits and other interest-bearing funds are
all important components of liquidity. PREMIERBank & Trust's long-term
liquidity sources are a large core deposit base and a strong capital position.
Core deposits are the most stable source of liquidity a bank can have due to
the long-term relationship with deposit customers. Core deposits averaged 82.6
percent of total average assets during 1994, and 82.7 percent during 1993.
Readily marketable assets, particularly short-term investments, provide
another source of liquidity. These funds can be quickly converted into cash to
meet short-term liquidity demands at minimal cost.
26
<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,
1994, was $41.0 million, or $12.38 per share, compared with $39.7 million or
$12.16 per share at December 31, 1993 and $34.2 million or $10.53 per share at
December 31, 1992. At December 31, 1994, the Corporation's leverage ratio was
8.09 percent. The Corporation's risk-based capital ratios based on Federal
Reserve Board guidelines were 13.04 percent for Tier 1, or "core" capital, and
14.29 percent for total qualifying capital. These ratios substantially exceed
the Federal Reserve Board's capital guidelines for well-capitalized
institutions, which are 6.00 percent for Tier 1 capital, 10.00 percent for total
qualifying capital, and 5.00 percent for leverage ratio. It is management's
intent to maintain a level of capitalization that allows the flexibility to take
advantage of opportunities that may arise in the future.
For additional discussion, see "Examination and Supervision," on pages
6 through 8 of this report.
Common Stock and Related Market Data
Common Stock
Reference is made to the table "Market and Dividend Information" which is
contained in this filing in Exhibit 13g, which is incorporated herein by
reference.
Dividends
CoBancorp Inc.'s dividend policy balances shareholders' return with the need
to retain an adequate capital level to support future growth opportunities.
Dividend payout has ranged from 25.4 to 49.5 percent of earnings over the last
five years. Dividends declared in 1994 were $0.53 per share, compared to the
$0.41 of dividends declared in 1993. Dividends for 1992 were $0.34 per share.
Financial Reporting and Changing Prices
Although inflation can have a significant effect on the financial condition
and operating results of banks, it is difficult to measure the impact as neither
the timing nor the magnitude of interest rate changes necessarily coincide with
changes in the consumer price index or any other index of inflation.
Inflation can impact the growth of total assets and result in a need to
increase capital at a faster than normal rate in order to maintain an
appropriate equity to assets ratio. This can result in a smaller proportion of
earnings paid out in the form of dividends.
27
<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 Exhibits 13a through 13f and 13i of this filing, which
are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the Corporation's Proxy Statement dated March 29, 1995,
and to information on page 9 of Part I of this report, for the information
required by Items 10 through 13, and which information is incorporated herein by
reference.
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 as Exhibits (13a)
through (13f) and (13i) to this filing, which are incorporated herein by
reference:
Consolidated Balance Sheets at December 31, 1994 and 1993
Consolidated Statements of Income for the Years Ended December 31, 1994,
1993 and 1992
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1993 and 1992
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Report of Independent Auditors
Quarterly Financial Information
Schedules I and II are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
(3) Listing of Exhibits
<TABLE>
<CAPTION>
Reg. S-K
Exhibit Page
Number Exhibit Hereof
------ ------- ------
<S> <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)
(10i) Amendment Dated February 1, 1992, to the Consulting N/A
Agreement Among LCB Bancorp, Inc., Lorain County Bank
and Robert T. Bowman (filed as Exhibit (10i) to the
Form 10-K of the Registrant for the year ended
December 31, 1992, and incorporated herein by
reference)
(10j) Amendment Dated December 3, 1992, to the Consulting N/A
Agreement Among CoBancorp Inc., Lorain County Bank
and Robert T. Bowman (filed as Exhibit (10j) to the
Form 10-K of the Registrant for the year ended
December 31, 1992, and incorporated herein by
reference)
(10k) LCB Bancorp, Inc. 1992 Long-Term Incentive Plan N/A
(filed as Exhibit (10k) to the Form 10-K of the
Registrant for the year ended December 31, 1992,
and incorporated herein by reference)
(10l) Employment Agreement Dated December 31, 1993, N/A
Among CoBancorp Inc., PremierBank Trust and
Timothy W. Esson (filed as Exhibit (10l) to the
Form 10-K of the Registrant for the year ended
December 31, 1993, and incorporated herein by
reference)
(10m) Amendment Dated February 1, 1994, to the Consulting N/A
Agreement Among CoBancorp Inc., PremierBank & Trust
and Robert T. Bowman (filed as Exhibit (10m) to the
Form 10-K of the Registrant for the year ended
December 31, 1993, and incorporated herein by
reference)
(10n) Amendment Dated December 15, 1994, to the Consulting
Agreement Among CoBancorp Inc., PremierBank & Trust
and Robert T. Bowman
(13a) CoBancorp Inc. Consolidated Balance Sheets at
December 31, 1994 and 1993
(13b) Consolidated Statements of Income for the Years
Ended December 31, 1994, 1993 and 1992
(13c) Consolidated Statements of Cash Flows for the
Years Ended December 31, 1994, 1993 and 1992
(13d) Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 1994, 1993 and 1992
(13e) Notes to Consolidated Financial Statements
(13f) Report of Independent Auditors
(13g) Market and Dividend Information
(13h) Financial Highlights
(13i) Quarterly Financial Information
(22) Subsidiaries of the Registrant
(23) Consent of Independent Auditors
(27) Financial Data Schedule
</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
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CoBancorp Inc.
Date: March 30, 1995 By: Timothy W. Esson
-----------------------------------------
Timothy W. Esson
Executive Vice President
(Principal Financial Officer
and Principal Accounting
Officer)
31
<PAGE> 32
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>
John S. Kreighbaum President and Chief
---------------------- Executive Officer, Director March 30, 1995
John S. Kreighbaum
Robert T. Bowman Chairman, Director March 30, 1995
----------------------
Robert T. Bowman
Garis F. Distelhorst Director March 30, 1995
----------------------
Garis F. Distelhorst
Michael B. Duffin Director March 30, 1995
----------------------
Michael B. Duffin
Theodore S. Altfeld Director March 30, 1995
----------------------
Theodore S. Altfeld
Thomas E. Haywood Director March 30, 1995
----------------------
Thomas E. Haywood
Richard J. Stewart Director March 30, 1995
----------------------
Richard J. Stewart
</TABLE>
32
<PAGE> 1
EXHIBIT (10n)
December 15, 1994
Mr. John S. Kreighbaum
President and Chief Executive Officer
PremierBank & 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,
1995, the term of the Agreement shall be extended to March 2, 1996.
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
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 John S. Kreighbaum
President and Chief President and Chief
Executive Officer Executive Officer
By:
Lois E. Gunning Lois E. Gunning
Corporate Secretary Corporate Secretary
<PAGE> 1
<TABLE>
EXHIBIT (13a)
COBANCORP INC. AND SUBSIDIARY, PREMIERBANK & TRUST
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31
1994 1993
------------ ------------
<S> <C> <C>
Assets Cash and due from banks............................................. $29,271,444 $29,051,488
Investment securities-(Market value $147,128,207
in 1994 and $156,485,497 in 1993).................................. 149,807,048 152,933,745
Federal funds sold.................................................. 2,500,000 3,000,000
Loans............................................................... 330,132,961 288,649,160
Less allowance for loan losses...................................... 5,616,859 5,226,401
------------ ------------
Net loans....................................................... 324,516,102 283,422,759
Bank premises and equipment, net.................................... 10,585,653 10,563,830
Accrued income and prepaid expenses................................. 3,980,626 3,433,018
Other assets........................................................ 11,066,084 9,395,904
------------ ------------
Total Assets................................................ $531,726,957 $491,800,744
============ ============
Liabilities Liabilities
and Deposits
Shareholders' Demand-noninterest bearing...................................... $69,649,373 $59,208,379
Equity Demand-interest bearing......................................... 55,965,771 58,858,055
Savings and other time.......................................... 340,221,731 309,519,183
------------ ------------
Total deposits................................................ 465,836,875 427,585,617
Short-term funds.................................................. 21,357,228 20,245,028
Other liabilities................................................. 2,770,882 3,131,672
Employee stock ownership plan obligation.......................... 780,260 1,105,260
------------ ------------
Total liabilities............................................. 490,745,245 452,067,577
Shareholders' equity
Capital stock, no par value
5,000,000 shares authorized
3,310,011 shares issued and outstanding
(3,268,488 in 1993).............................................. 5,182,737 4,304,345
Capital surplus................................................... 16,623,320 16,623,320
Retained earnings................................................. 22,868,953 18,928,684
Unrealized gain (loss) on available-for-sale
investment securities (net of income tax)....................... (2,913,038) 982,078
Employee stock ownership plan obligation.......................... (780,260) (1,105,260)
------------ ------------
Total shareholders' equity.................................... 40,981,712 39,733,167
------------ ------------
Total Liabilities and Shareholders' Equity.................. $531,726,957 $491,800,744
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
1
<PAGE> 1
EXHIBIT (13b)
COBANCORP INC. AND SUBSIDIARY, PREMIERBANK & TRUST
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
Years Ended December 31
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Interest Income
Loans (including fees)
Taxable....................................................... $27,108,064 $23,382,522 $22,610,054
Tax-exempt ................................................... 160,825 175,218 231,354
Investment securities
Taxable....................................................... 4,405,702 8,099,418 10,163,273
Tax-exempt.................................................... 3,580,522 2,916,890 1,752,190
Federal funds sold and other short-term funds................... 101,532 155,215 277,865
----------- ----------- -----------
Total interest income....................................... 35,356,645 34,729,263 35,034,736
Interest Expense
Deposits........................................................ 10,891,503 11,970,871 13,863,313
Short-term funds................................................ 636,854 638,295 584,517
----------- ----------- -----------
Total interest expense...................................... 11,528,357 12,609,166 14,447,830
----------- ----------- -----------
Net interest income....................................... 23,828,288 22,120,097 20,586,906
Provision for Loan and Real Estate Losses......................... 208,333 920,000 2,800,000
----------- ----------- -----------
Net Interest Income After Provision for
Loan and Real Estate Losses.............................. 23,619,955 21,200,097 17,786,906
Other Income
Service charges on deposit accounts............................. 1,820,807 1,586,405 1,572,571
Trust fees...................................................... 1,234,037 1,149,262 1,021,835
Other .......................................................... 902,351 1,066,717 883,456
Security gains ................................................. 454,219 665,373 565,728
----------- ----------- -----------
Total other income.......................................... 4,411,414 4,467,757 4,043,590
Other Expenses
Salaries, wages and benefits.................................... 9,301,485 8,410,219 7,059,551
Occupancy-net................................................... 1,406,883 1,196,260 1,088,505
Furniture and equipment......................................... 615,305 546,415 495,217
Taxes, other than income and payroll............................ 584,121 541,965 486,482
FDIC insurance.................................................. 965,612 924,145 836,981
Other........................................................... 8,216,267 7,668,251 6,355,964
----------- ----------- -----------
Total other expenses........................................ 21,089,673 19,287,255 16,322,700
----------- ----------- -----------
Income Before Income Taxes................................ 6,941,696 6,380,599 5,507,796
Income Tax Expense (Credit)
Current......................................................... 1,511,000 1,080,000 1,514,000
Deferred........................................................ (255,000) 20,000 (384,000)
----------- ----------- -----------
1,256,000 1,100,000 1,130,000
----------- ----------- -----------
Net Income................................................ $5,685,696 $5,280,599 $4,377,796
=========== =========== ===========
Net Income Per Share (amounts reflect
four-for-three stock splits in 1994 and
1993 and four percent stock dividend
in 1992)................................................. $1.73 $1.61 $1.35
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 1
EXHIBIT (13c)
COBANCORP INC. AND SUBSIDIARY, PREMIERBANK & TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............................................................. $5,685,696 $5,280,599 $4,377,796
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan and real estate losses........................... 208,333 920,000 2,800,000
Provision for depreciation and amortization......................... 1,211,917 1,026,158 849,721
Accretion of discounts on purchased loans........................... (491,577)
Amortization of premiums less accretion of
discounts on investment securities................................ (12,508) 332,613 (35,558)
Decrease (increase) in refundable taxes............................. 243,723 (243,723)
Realized securities gains........................................... (454,219) (665,373) (565,728)
(Credit) provision for deferred income taxes........................ (255,000) 20,000 (384,000)
(Increase) decrease in interest receivable.......................... (560,812) 437,562 176,673
Increase (decrease) in interest payable............................. 210,877 (114,462) (315,036)
(Increase) in other assets.......................................... (347,184) (567,817) (366,704)
Increase (decrease) in other liabilities............................ 50,087 (2,123) (82,734)
Net Cash Provided By ---------- ---------- ----------
Operating Activities.............................................. 5,489,333 6,423,434 6,454,430
INVESTING AND LENDING ACTIVITIES
Proceeds from sales of available-for-sale
investment securities ................................................ 38,295,166 54,757,889 16,418,877
Maturities of investment securities..................................... 20,980,426 56,155,855 30,880,815
Purchases of investment securities...................................... (61,583,860) (89,259,979) (75,104,862)
Net decrease in credit card receivables................................. 45,390 397,988 437,287
Net (increase) in longer-term loans..................................... (40,855,489) (44,250,140) (25,231,062)
Purchases of premises and equipment,
net of retirements.................................................... (1,031,599) (3,167,403) (983,934)
Net Cash Used By ---------- ---------- ----------
Investing Activities.............................................. (44,149,966) (25,365,790) (53,582,879)
DEPOSIT AND FINANCING ACTIVITIES
Net increase in demand deposits
and savings accounts.................................................. 7,587,826 39,008,588 53,453,789
Net increase (decrease) in certificates of deposit...................... 30,663,432 (13,532,659) (6,221,990)
Net increase (decrease) in short-term funds............................. 1,112,200 (2,459,637) 4,060,595
Cash dividends.......................................................... (1,745,427) (1,347,730) (1,119,798)
Dividend investment plan................................................ 446,715 288,757 221,385
Long-term incentive plan................................................ 315,843 67,683
---------- ---------- ----------
Net Cash Provided By
Financing Activities.............................................. 38,380,589 22,025,002 50,393,981
---------- ---------- ----------
(Decrease) Increase In
Cash and Cash Equivalents......................................... (280,044) 3,082,646 3,265,532
Cash and cash equivalents at beginning of year............................ 32,051,488 28,968,842 25,703,310
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.......................... $31,771,444 $32,051,488 $28,968,842
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 1
EXHIBIT (13d)
COBANCORP INC. AND SUBSIDIARY, PREMIERBANK & TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
CAPITAL CAPITAL RETAINED
STOCK SURPLUS EARNINGS
---------- ----------- -----------
<S> <C> <C> <C>
Balance at January 1, 1992................................... $3,578,279 $15,000,000 $13,509,378
Net income................................................. 4,377,796
Cash dividends-$0.34* per share............................ (1,119,798)
Reduction in employee stock ownership
plan obligation...........................................
Shares issued (17,687*) under dividend
investment plan........................................... 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
Net income................................................. 5,280,599
Cash dividends-$0.41* per share............................ (1,347,730)
Reduction in employee stock ownership
plan obligation...........................................
Shares issued (18,292*) under dividend
investment plan........................................... 288,757
Shares issued (5,546*) under
long-term incentive plan.................................. 67,683
Adjustment to unrealized gains on
available-for-sale securities, net of tax.................
---------- ----------- -----------
Balance at December 31, 1993................................. 4,304,345 16,623,320 18,928,684
Net income................................................. 5,685,696
Cash dividends-$0.5275 per share........................... (1,745,427)
Reduction in employee stock ownership
plan obligation...........................................
Shares issued (16,893) under dividend
investment plan........................................... 446,715
Shares issued (25,189*) under
long-term incentive plan.................................. 431,677
Adjustment to unrealized gains (losses) on
available-for-sale securities, net of tax.................
---------- ----------- -----------
Balance at December 31, 1994................................. $5,182,737 $16,623,320 $22,868,953
========== =========== ===========
</TABLE>
4
<PAGE> 2
<TABLE>
<CAPTION>
UNREALIZED
GAINS (LOSSES) EMPLOYEE
ON AVAILABLE- STOCK OWNER-
FOR-SALE SHIP PLAN
SECURITIES OBLIGATION TOTAL
------------- ------------ -----------
<S> <C> <C> <C>
Balance at January 1, 1992................................... ($1,680,260) $30,407,397
Net income................................................. 4,377,796
Cash dividends-$0.34* per share............................ (1,119,798)
Reduction in employee stock ownership
plan obligation........................................... 275,000 275,000
Shares issued (17,687*) under dividend
investment plan........................................... 221,385
Four percent stock dividend................................ ------------- ----------- -----------
Balance at December 31, 1992................................. (1,405,260) 34,161,780
Net income................................................. 5,280,599
Cash dividends-$0.41* per share............................ (1,347,730)
Reduction in employee stock ownership
plan obligation........................................... 300,000 300,000
Shares issued (18,292*) under dividend
investment plan........................................... 288,757
Shares issued (5,546*) under
long-term incentive plan.................................. 67,683
Adjustment to unrealized gains on
available-for-sale securities, net of tax................. $982,078 982,078
------------ ----------- -----------
Balance at December 31, 1993................................. 982,078 (1,105,260) 39,733,167
Net income................................................. 5,685,696
Cash dividends-$0.5275 per share........................... (1,745,427)
Reduction in employee stock ownership
plan obligation........................................... 325,000 325,000
Shares issued (16,893) under dividend
investment plan........................................... 446,715
Shares issued (25,189*) under
long-term incentive plan.................................. 431,677
Adjustment to unrealized gains (losses) on
available-for-sale securities, net of tax................. (3,895,116) (3,895,116)
------------ ----------- -----------
Balance at December 31, 1994................................. ($2,913,038) ($780,260) $40,981,712
============ =========== ===========
</TABLE>
*Restated for four-for-three stock splits in 1994 and 1993 and four percent
stock dividend in 1992.
See accompanying notes to consolidated financial statements.
5
<PAGE> 1
EXHIBIT (13e)
NOTES CoBancorp Inc. and Subsidiary, PREMIERBank & Trust
Years Ended December 31, 1994, 1993 and 1992
NOTE A - ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of CoBancorp Inc. (the Corporation) and its wholly-owned subsidiary,
PREMIERBank & Trust (the Bank). 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 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. There are no securities classified as
trading.
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.
Financial Instruments: Currently the Bank invests in on-balance sheet
financial instruments as part of the overall asset and liability management
process. The Bank does not buy and sell financial instruments for the purpose
of earning a profit due to changes in the market price of the instruments. No
off-balance sheet financial instruments, other than those disclosed in Note M,
have been used in the past.
Loans: Interest on loans is credited to earnings based upon the principal
amount outstanding.
<TABLE>
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 on the
following ranges of lives:
<CAPTION>
Years
-----
<S> <C>
Buildings 10-40
Equipment and leasehold improvements 3-20
</TABLE>
<PAGE> 2
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 is 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.
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.
FASB 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.
<PAGE> 3
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 noninterest 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 FASB Statement No. 106 were effective in 1993.
The financial statement impact of FASB Statement No. 106 was not significant.
In 1992, the FASB issued Statement No. 112, "Employers' Accounting for
Postemployment Benefits," which was effective in 1994. The financial statement
impact of FASB Statement No. 112 was not 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.
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 1994 and
1993, and a four percent stock dividend in 1992.
Reclassifications: Certain amounts in the 1993 and 1992 financial statements
have been reclassified to conform to the 1994 presentation.
<PAGE> 4
NOTE B - RESTRICTIONS ON CASH AND DUE FROM BANKS
PREMIERBank & Trust is required to maintain reserve balances with the Federal
Reserve Bank. The average amount of those reserve balances for the year ended
December 31, 1994, was $2,475,000.
<TABLE>
NOTE C - INVESTMENT SECURITIES
The following is a summary of available-for-sale and held-to-maturity
securities:
<CAPTION>
December 31, 1994 Available-for-Sale Securities
----------------------------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated Fair
Cost Gains Losses Value
-------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S.
Government agencies $28,505,524 $ 781 $1,264,863 $27,241,442
Collateralized mortgage-backed
securities 45,252,684 21,399 3,254,648 42,019,435
States of the U.S. and political
subdivisions 1,000,000 83,638 1,083,638
-------------- -------------- -------------- ----------------
$74,758,208 $105,818 $4,519,511 $70,344,515
============== ============== ============== ================
<CAPTION>
Held-to-Maturity Securities
----------------------------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated Fair
Cost Gains Losses Value
-------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S.
Government agencies $ 5,490,570 $ 177,320 $ 5,313,250
States of the U.S. and political
subdivisions 72,712,313 $416,336 2,917,857 70,210,792
Other 1,259,650 1,259,650
-------------- -------------- -------------- ----------------
$79,462,533 $416,336 $3,095,177 $76,783,692
============== ============== ============== ================
<CAPTION>
December 31, 1993 Available-for-Sale Securities
----------------------------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated Fair
Cost Gains Losses Value
-------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
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>
<PAGE> 5
<TABLE>
<CAPTION>
Held-to-Maturity Securities
----------------------------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated Fair
Cost Gains Losses Value
-------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
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>
Gross proceeds from sales of investment securities during 1994, 1993 and 1992
were $38,623,828, $57,452,409, and $16,731,943, respectively. For the same
periods, gross gains of $615,066, $768,985 and $565,728, and gross losses of
$160,847, $103,612 and $0 were realized, respectively. The net adjustment to
unrealized gains (losses) on available-for-sale securities, net of tax,
included as a separate component of shareholders' equity totaled ($3,895,116)
in 1994 and $982,078 in 1993.
The amortized cost and estimated fair value of debt and marketable equity
securities at December 31, 1994, by contractual maturity, are shown below.
Mortgage-backed securities that 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 $ 2,475,398 $ 2,467,804
Due in 1 to 5 years 30,826,902 29,570,764
Due in 5 to 10 years 35,651,389 32,695,895
Due after 10 years 5,804,519 5,610,052
----------- -----------
$74,758,208 $70,344,515
=========== ===========
<CAPTION>
Held-to-Maturity Securities
--------------------------------
Estimated
Fair
Cost Value
----------- -----------
<S> <C> <C>
Due in 1 year or less $ 3,880,412 $ 3,906,465
Due in 1 to 5 years 14,890,732 14,890,509
Due in 5 to 10 years 37,717,345 36,077,233
Due after 10 years 22,974,044 21,909,485
----------- -----------
$79,462,533 $76,783,692
=========== ===========
</TABLE>
At December 31, 1994 and 1993, investment securities with a carrying value of
approximately $80,721,505 and $66,617,000, 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:
<PAGE> 6
<TABLE>
<CAPTION>
1994
--------------------------------
Estimated
Carrying Fair
Amount Value
----------- -----------
<S> <C> <C>
Real estate $152,695,507 $147,153,620
Installment 38,363,874 37,311,565
Commercial and collateral 136,186,623 140,746,508
All other 2,886,957 2,886,957
------------ ------------
$330,132,961 $328,098,650
============ ============
<CAPTION>
1993
--------------------------------
Estimated
Carrying Fair
Amount Value
----------- -----------
<S> <C> <C>
Real estate $132,476,130 $135,756,729
Installment 30,693,077 31,773,158
Commercial and collateral 122,547,605 125,998,658
All other 2,932,348 2,932,348
------------ ------------
$288,649,160 $296,460,893
============ ============
</TABLE>
Included in commercial and collateral loans for 1994 and 1993 are $2,946,474
and $4,079,542, respectively, of tax-exempt industrial revenue development
bonds.
<TABLE>
Transactions in the allowance for loan losses were:
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1 $5,226,401 $5,214,700 $4,098,578
Provision for loan losses 208,333 820,000 2,800,000
Recoveries on loans charged off 614,195 1,337,624 1,166,339
---------- ---------- ----------
6,048,929 7,372,324 8,064,917
Loans charged off (432,070) (2,145,923) (2,850,217)
---------- ---------- ----------
Balance at December 31 $5,616,859 $5,226,401 $5,214,700
========== ========== ==========
</TABLE>
At December 31, 1994, nonperforming loans were $408,735, and other real estate
was $49,570. At December 31, 1993, the corresponding amounts were $1,450,180
and $639,829, respectively.
<TABLE>
NOTE E - BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31 were:
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Land and improvements $ 2,218,060 $ 2,205,564
Buildings 9,528,425 9,295,326
Equipment and leasehold
improvements 11,214,728 10,381,577
Construction in progress 59,263
----------- -----------
22,961,213 21,941,730
Less accumulated depreciation
and amortization
(12,375,560) (11,377,900)
----------- -----------
$10,585,653 $10,563,830
=========== ===========
</TABLE>
<PAGE> 7
NOTE F - DEPOSITS
Time certificates of deposit with balances of $100,000 or more, principally
public and corporate funds, were $36,896,549 and $13,774,942 at December 31,
1994 and 1993, respectively. Interest expense on these deposits amounted to
$810,522, $602,849 and $970,122 for 1994, 1993 and 1992, respectively.
Total interest paid on deposits in 1994, 1993 and 1992 was $10,678,550,
$12,083,166 and $14,177,396, respectively.
The carrying amounts and fair values of deposits consisted of the following at
December 31. For deposits with no defined maturities, FASB Statement No. 107
defines fair value as the amount payable on demand.
<TABLE>
<CAPTION>
1994
--------------------------------
Estimated
Carrying Fair
Amount Value
----------- -----------
<S> <C> <C>
Demand - noninterest bearing $ 69,649,373 $ 69,649,373
Demand - interest bearing 55,965,771 55,965,771
Savings 177,471,243 177,471,243
Certificates of deposit 131,629,889 125,017,271
IRAs 31,120,599 29,231,997
------------ ------------
$465,836,875 $457,335,655
============ ============
<CAPTION>
1993
--------------------------------
Estimated
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>
NOTE G - CAPITAL STOCK
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. 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
<PAGE> 8
increase in the number of shares outstanding as a result of the stock dividend
was 69,473. Cash was paid for any resulting fractional shares.
The Corporation adopted a dividend investment plan in 1987. The plan allowed
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, 18,292 shares were
issued under the Plan. In April of 1994, the Corporation terminated the 1987
dividend investment plan and replaced it with a new plan, which allows
shareholders to elect to use all or part of their dividends to purchase shares
of capital stock at the fair market value of such stock as determined on the
dividend declaration date. Additionally, cash can be contributed directly to
the plan for the purchase of shares of capital stock with an annual limit of
$25,000. During 1994, a total of 16,893 shares were issued under the plans.
NOTE H - 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 retained net profits for the two preceding years. At
December 31, 1994, approximately $12,249,000 was available to the subsidiary
bank for the payment of dividends without prior regulatory approval.
<TABLE>
NOTE I - INCOME TAXES
Significant components of the Corporation's deferred tax assets and liabilities
as of December 31, are as follows:
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Deferred Tax Assets
FASB Statement No. 115 $1,500,655
Provision for Loan Losses 1,155,554 $ 945,340
Deferred Compensation 563,453 563,938
Nonaccrual Loan Interest 248,387 318,818
Other 80,216 35,379
------------ ------------
3,548,265 1,863,475
Deferred Tax Liabilities:
Tax over Book Depreciation 591,279 563,007
FASB Statement No. 115 505,919
Pension Costs 191,014 276,469
Insurance Costs 65,562 73,633
Other 113,672 119,276
------------ ------------
961,527 1,538,304
------------ ------------
Net deferred tax asset $2,586,738 $ 325,171
============ ============
</TABLE>
The reasons for the difference between tax expense based on the statutory rate
of 34 percent in 1994, 1993 and 1992 and the effective tax rates were:
<PAGE> 9
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Tax expense at statutory rates $2,360,000 $2,169,000 $1,873,000
Reduction in taxes resulting from:
Tax-exempt interest (1,272,000) (1,051,000) (675,000)
Other 168,000 (18,000) (68,000)
------------ ------------ ------------
$1,256,000 $1,100,000 $1,130,000
============ ============ ============
</TABLE>
The Corporation made income tax payments of approximately $975,000, $1,634,000
and $1,310,000 during 1994, 1993 and 1992, respectively.
NOTE J - PENSION PLAN
The Corporation has a trusteed, noncontributory retirement plan covering
eligible employees. Pension benefits are based on employees' career average
compensation. The Bank's funding policy is to contribute sufficient amounts to
meet minimum funding requirements set forth by required laws plus such
additional amounts as the Bank may determine appropriate.
<TABLE>
A summary of the components of pension expense for 1994 and 1993 and pension
credit for 1992 is as follows:
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Service cost benefits earned
during the period $229,680 $184,495 $149,213
Interest cost on projected benefit
obligation 192,763 174,274 202,103
Return on plan assets (226,203) (227,774) (308,321)
Net amortization and deferral
(43,104) (50,756) (88,996)
------------ ------------ ------------
Net pension expense (credit) $153,136 $ 80,239 $(46,001)
============ ============ ============
</TABLE>
<TABLE>
The funded status of the plan at December 31, 1994 and 1993 was as follows:
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Actuarial present value of
accumulated benefit obligation
Vested $ 2,283,084 $ 2,030,529
Nonvested 151,003 137,100
------------ ------------
$ 2,434,087 $ 2,167,629
============ ============
Actuarial present value of
projected benefit obligation $(3,151,832) $(2,778,133)
Plan assets at fair value 3,433,306 3,255,847
------------ ------------
Plan assets in excess of projected
benefit obligation 281,474 477,714
Unrecognized transition asset, net
of amortization
(744,269) (837,303)
Unrecognized net loss 1,024,600 1,074,530
------------ ------------
Net pension asset included in
other assets $ 561,805 $ 714,941
============ ============
</TABLE>
<PAGE> 10
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 1994 and 1993
and 8 percent in 1992. The projected benefit obligation was determined using
an assumed discount rate of 7 percent in 1994 and 1993 and 8 percent in 1992,
and an annual compensation increase of 5 percent in 1994 and 1993 and 6 percent
in 1992. At December 31, 1994 and 1993, plan assets consisted primarily of
money market, equity and fixed income funds.
NOTE K - EMPLOYEE STOCK OWNERSHIP PLAN
The Corporation has a noncontributory employee stock ownership plan (ESOP) that
covers substantially all employees. In 1986, the ESOP borrowed $2,680,260
(balance outstanding at December 31, 1994 was $780,260 of which $350,000 is due
in 1995 and $430,260 is due in 1996) 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 ESOP. The loan agreement provides for the payment of
interest at a fluctuating rate. The rate of interest on the loan at December
31, 1994 was 7.79 percent. Interest incurred on this loan obligation was
$61,104, $70,094 and $88,103 in 1994, 1993 and 1992, respectively. At December
31, 1994, 61,354 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.
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.
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 $165,375, $267,600 and $292,750 in 1994,
1993 and 1992, respectively.
Dividends received for shares owned by the ESOP amounted to $146,453, $121,770
and $106,605 in 1994, 1993 and 1992, respectively, and were used to service the
loan obligation.
NOTE L - 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
<PAGE> 11
with other parties. As of December 31, 1994 and 1993, the Bank had loans
outstanding to related parties of approximately $7,538,657 and $3,888,803,
respectively.
NOTE M - 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 certain 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.
<TABLE>
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, 1994 and 1993 was:
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Real estate $21,385,000 $20,143,000
Commercial and collateral 36,853,000 44,214,000
All other 18,070,000 13,613,000
------------ ------------
$76,308,000 $77,970,000
============ ============
</TABLE>
Most of the Bank's business activity is with customers located within the
Bank's defined market area. As of December 31, 1994, 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 N - SERVICE AGREEMENT
<TABLE>
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. During 1992 and 1993, these
payments were partially offset by amounts received by the Corporation for the
use of certain equipment and facilities by the data processor. Expense in
connection with the service agreement was $1,276,647 for 1994, $859,884 for
1993 and $705,392 for 1992. The approximate minimum annual base charges in
connection with this agreement are as follows:
<S> <C>
1995 $ 738,000
1996 624,000
-----------
$1,362,000
===========
</TABLE>
NOTE O - 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
<PAGE> 12
stock options, restricted stock or long-term performance awards based on
certain conditions. There were 184,889 shares of stock reserved and available
for distribution under the Plan. Stock options are exercisable at the fair
market value of the stock at the time of the grant. On January 21, 1992,
options which cover 120,408 shares of stock were granted by the Board of
Directors at a fair market value of $12.20 per share. During 1994, 20,336
options were exercised at $12.20 and 4,160 were exercised at $16.27. In 1993,
4,160 shares were exercised at $16.27. No options were granted in 1993. On
November 15, 1994, options which cover 46,017 shares of stock were granted by
the Board of Directors at a fair market of $22.75 per share. All shares and
per share amounts have been restated for four-for-three stock splits in 1994
and 1993 and a four percent stock dividend in 1992.
NOTE P - COBANCORP INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
BALANCE SHEETS (Parent Company Only)
<TABLE>
<CAPTION>
December 31
1994 1993
-------------- --------------
<S> <C> <C>
Assets
Cash $ 223,351 $ 137,814
Investment in bank subsidiary 41,412,688 40,700,513
Other assets 125,933 100
-------------- --------------
Total Assets $41,761,972 $40,838,427
============== ==============
Liabilities and Shareholders'
Equity
Liabilities
Employee stock ownership plan
obligation $ 780,260 $ 1,105,260
-------------- --------------
Total Liabilities 780,260 1,105,260
Shareholders' Equity 40,981,712 39,733,167
-------------- --------------
Total Liabilities and
Shareholders' Equity $41,761,972 $40,838,427
============== ==============
</TABLE>
STATEMENTS OF INCOME (Parent Company Only)
<TABLE>
<CAPTION>
Years Ended December 31
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Income
Dividends from bank subsidiary $1,366,365 $1,250,749 $ 993,242
Other income 1,000
------------- ------------- -------------
Total income 1,367,365 1,250,749 993,242
Expenses 288,960 171,793 55,867
------------- ------------- -------------
Income Before Equity in
Undistributed Net Income of
Bank Subsidiary 1,078,405 1,078,956 937,375
Equity in Undistributed Net
Income of Bank Subsidiary 4,607,291 4,201,643 3,440,421
------------- ------------- -------------
Net Income $5,685,696 $5,280,599 $4,377,796
============= ============= =============
</TABLE>
<PAGE> 13
STATEMENTS OF CASH FLOWS (Parent Company Only)
<TABLE>
<CAPTION>
Years Ended December 31
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Operating Activities
Net Income $1,078,405 $1,078,956 $ 937,375
(Increase) in other assets (9,999) (100)
------------- ------------- -------------
Net Cash Provided by
Operating Activities 1,068,406 1,078,856 937,375
Financing Activities
Cash Dividends (1,745,427) (1,347,730) (1,119,798)
Dividend Investment Plan 446,715 288,757 221,385
Long-term Incentive Plan 315,843 67,683
------------- ------------- -------------
Net Cash Used by Financing
Activities (982,869) (991,290) (898,413)
------------- ------------- -------------
Increase in Cash and Cash
Equivalents 85,537 87,566 38,962
Cash and cash equivalents at
beginning of year 137,814 50,248 11,286
------------- ------------- -------------
Cash and Cash Equivalents at
End of Year $ 223,351 $ 137,814 $ 50,248
============= ============= =============
</TABLE>
NOTE Q - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information is contained on page 21.
<PAGE> 1
EXHIBIT (13f)
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 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
CoBancorp Inc. and subsidiary at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Note A to the consolidated financial statements, in 1993 the
Corporation changed its method of accounting for income taxes.
Cleveland, Ohio
January 20, 1995 ERNST & YOUNG LLP
<PAGE> 1
EXHIBIT (13g)
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 3,310,011 shares
outstanding, held among approximately 1,700 shareholders of record as of
December 31, 1994. 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 four-for-three stock splits in February 1994 and July 1993.
<TABLE>
<CAPTION>
Trading Ranges of Common Stock
Bid Prices Dividend Per Share
---------------------------------------------- ---------------------------------------
1994 1993 1994 1993
---------------------- --------------------- -------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $23.38 $32.00 $14.48 $15.19 $0.1275 $0.0900
Second Quarter 25.50 30.00 15.19 15.75 0.1300 0.0956
Third Quarter 25.00 31.75 15.82 18.56 0.1300 0.1050
Fourth Quarter 20.50 29.00 19.13 25.50 0.1400 0.1200
-------------------- -----------------
$0.5275 $0.4106
==================== =================
</TABLE>
<PAGE> 1
EXHIBIT (13h)
Consolidated Financial Highlights
<TABLE>
<CAPTION>
Dollars in thousands, except per share amounts 1994 1993 1992 1991 1990
=============================================================================================================================
<S> <C> <C> <C> <C> <C>
For the year ended December 31
Per common share:
Net income........................................... $1.73 $1.61 $1.35 $1.01 $0.57
Cash dividends ...................................... 0.53 0.41 0.34 0.25 0.28
Book value .......................................... 12.38 12.16 10.53 9.42 8.58
Gross operating income ................................. $39,768 $39,197 $39,078 $39,264 $40,333
Operating expenses ..................................... 32,826 32,816 33,570 35,249 38,820
-------- -------- -------- -------- --------
Income before income taxes ............................. 6,942 6,381 5,508 4,015 1,513
Federal income tax expense (credit) .................... 1,256 1,100 1,130 761 (320)
======== ======== ======== ======== ========
Net income ............................................. $5,686 $5,281 $4,378 $3,254 $1,833
======== ======== ======== ======== ========
-----------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data at December 31
Total assets ........................................... $531,727 $491,801 $463,124 $408,750 $406,013
Total investment securities ............................ 149,807 152,934 172,767 144,360 121,035
Total loans ............................................ 330,133 288,649 246,405 223,295 239,247
Total deposits ......................................... 465,837 427,586 402,110 354,878 332,936
Shareholders' equity ................................... 40,982 39,733 34,162 30,407 27,575
-----------------------------------------------------------------------------------------------------------------------------
Key Ratios
Return on average assets ............................... 1.15% 1.10% 1.01% 0.81% 0.46%
Return on average equity ............................... 14.28% 14.60% 13.76% 11.30% 6.67%
Total equity to assets ................................. 7.71% 8.08% 7.38% 7.44% 6.79%
Tier 1 risk-based capital .............................. 13.04% 13.34% 13.39% 12.78% 11.94%
Total capital (risk-based) ............................. 14.29% 14.60% 14.65% 14.04% 13.20%
Non-performing loans to total assets ................... 0.08% 0.29% 0.55% 1.19% 1.69%
Net charge-offs (recoveries) to total loans ............ (0.06)% 0.28% 0.68% 1.36% 0.52%
Delinquencies to total loans ........................... 0.44% 0.95% 1.85% 3.99% 6.06%
</TABLE>
All share and per share amounts have been adjusted for four-for-three stock
splits in 1994 and 1993, a four percent stock dividend in 1992 and a three
percent stock dividend in 1991.
<PAGE> 1
EXHIBIT (13i)
Quarterly Financial Information
The following is a summary of unaudited quarterly results of operations for the
years 1994, 1993 and 1992:
<TABLE>
<CAPTION>
First Second Third Fourth Full Year
1994 ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Interest income $8,394,404 $8,620,442 $8,805,930 $9,535,869 $35,356,645
Interest expense 2,742,931 2,784,411 2,869,878 3,131,137 11,528,357
Net interest income 5,651,473 5,836,031 5,936,052 6,404,732 23,828,288
Provision for loan losses 125,000 83,333 0 0 208,333
Security gains 291,131 117,394 44,969 725 454,219
Net overhead 4,350,613 4,350,743 4,116,790 4,314,332 17,132,478
Income before income taxes 1,466,991 1,519,349 1,864,231 2,091,125 6,941,696
Net income 1,216,991 1,277,349 1,542,231 1,649,125 5,685,696
Net income per common share 0.36 0.38 0.46 0.53 1.73
Dividends paid per common share 0.1275 0.1300 0.1300 0.1400 0.5275
1993
Interest income $8,614,197 $8,706,940 $8,759,519 $8,648,607 $34,729,263
Interest expense 3,185,375 3,193,055 3,300,071 2,930,665 12,609,166
Net interest income 5,428,822 5,513,885 5,459,448 5,717,942 22,120,097
Provision for loan losses 600,000 250,000 50,000 20,000 920,000
Security gains 140,716 340,756 100,673 83,228 665,373
Net overhead 3,752,133 3,788,369 3,962,098 3,982,271 15,484,871
Income before income taxes 1,217,405 1,816,272 1,548,023 1,798,899 6,380,599
Net income 1,006,405 1,433,272 1,306,023 1,534,899 5,280,599
Net income per common share 0.31 0.44 0.40 0.46 1.61
Dividends paid per common share 0.0900 0.0956 0.1050 0.1200 0.4106
1992
Interest income $8,608,318 $8,812,088 $8,843,964 $8,770,366 $35,034,736
Interest expense 3,744,579 3,717,012 3,614,780 3,371,459 14,447,830
Net interest income 4,863,739 5,095,076 5,229,184 5,398,907 20,586,906
Provision for loan losses 850,000 800,000 950,000 200,000 2,800,000
Security gains 387,410 19,372 158,946 0 565,728
Net overhead 3,310,225 3,259,589 3,234,332 3,040,692 12,844,838
Income before income taxes 1,090,924 1,054,859 1,203,798 2,158,215 5,507,796
Net income 835,924 870,859 950,798 1,720,215 4,377,796
Net income per common share 0.26 0.27 0.29 0.53 1.35
Dividends paid per common share 0.0811 0.0865 0.0865 0.0865 0.3406
</TABLE>
All share and per share amounts have been adjusted for four-for-three stock
splits in 1994 and 1993 and a four percent stock dividend in 1992.
<PAGE> 1
EXHIBIT (22)
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Name State of Incorporation
---- ----------------------
<S> <C>
PremierBank & Trust Ohio
</TABLE>
<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 20, 1995, 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, 1994.
Ernst & Young LLP
Cleveland, Ohio
March 27, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF COBANCORP INC. AND SUBSIDIARY AND THE RELATED
STATEMENTS OF INCOME, SHAREHOLDERS' EQUITY AND CASH FLOWS, AS WELL AS THE
RELATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000745276
<NAME> COBANCORP INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 29,219
<INT-BEARING-DEPOSITS> 52
<FED-FUNDS-SOLD> 2,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 70,344
<INVESTMENTS-CARRYING> 79,463
<INVESTMENTS-MARKET> 76,784
<LOANS> 330,133
<ALLOWANCE> 5,617
<TOTAL-ASSETS> 531,727
<DEPOSITS> 465,837
<SHORT-TERM> 21,357
<LIABILITIES-OTHER> 3,551
<LONG-TERM> 0
<COMMON> 5,183
0
0
<OTHER-SE> 35,799
<TOTAL-LIABILITIES-AND-EQUITY> 40,982
<INTEREST-LOAN> 27,269
<INTEREST-INVEST> 7,986
<INTEREST-OTHER> 102
<INTEREST-TOTAL> 35,356
<INTEREST-DEPOSIT> 10,891
<INTEREST-EXPENSE> 11,528
<INTEREST-INCOME-NET> 23,828
<LOAN-LOSSES> 208
<SECURITIES-GAINS> 454
<EXPENSE-OTHER> 21,090
<INCOME-PRETAX> 6,942
<INCOME-PRE-EXTRAORDINARY> 6,942
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,686
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.73
<YIELD-ACTUAL> 5.70
<LOANS-NON> 358
<LOANS-PAST> 50
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,226
<CHARGE-OFFS> 432
<RECOVERIES> 614
<ALLOWANCE-CLOSE> 5,617
<ALLOWANCE-DOMESTIC> 4,543
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,074
</TABLE>
