<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended March 31, 1998 Commission file number: 0-13166
CoBancorp Inc.
(Exact name of registrant as specified in its charter)
Ohio 34-1465382
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1530 West River Road North, Elyria, Ohio 44035
(Address of principal executive offices) (Zip Code)
(440) 329-8000
Registrant's telephone number, including area code
Not applicable
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter periods that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
As of March 31, 1998, there were 3,483,304 outstanding common shares, with no
par value, of the Registrant.
<PAGE> 2
INDEX
COBANCORP INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements
Page
<S> <C>
Consolidated balance sheets -- March 31, 1998 and December 31, 1997 3
Consolidated statements of income -- Three months ended March 31, 1998 and 1997 4
Consolidated statements of cash flows -- Three months ended March 31, 1998 and 1997 5
Consolidated statements of shareholders' equity -- Three months ended
March 31, 1998 and 1997 6
Notes to consolidated financial statements -- March 31, 1998 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
10
PART II. OTHER INFORMATION 15
SIGNATURES
16
EXHIBITS 17
</TABLE>
<PAGE> 3
COBANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1998 1997
------------------- --------------------
<S> <C> <C>
ASSETS
Cash and due from banks $29,849,863 $34,182,853
Investment securities available-for-sale 127,576,944 135,844,913
Investment securities held-to-maturity 16,529,520 18,894,513
(market value $16,859,983 and $19,235,340)
Federal funds sold 22,700,000 6,350,000
Loans 411,741,610 414,196,081
Less allowance for loan losses 4,184,299 4,167,136
------------------- --------------------
Net loans 407,557,311 410,028,945
Bank premises and equipment, net 19,150,070 19,410,126
Accrued income and prepaid expenses 5,143,964 4,935,600
Other assets 15,284,318 15,536,208
------------------- --------------------
TOTAL ASSETS $643,791,990 $645,183,158
=================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
Demand-noninterest bearing $82,260,820 $88,455,431
Demand-interest bearing 76,782,358 67,945,399
Savings and other time 400,915,612 404,394,900
------------------- --------------------
Total deposits 559,958,790 560,795,730
Short-term funds 16,874,015 18,120,541
Other liabilities 7,159,657 7,439,908
------------------- --------------------
TOTAL LIABILITIES 583,992,462 586,356,179
Shareholders' equity
Capital stock, no par value
5,000,000 shares authorized
3,483,304 shares issued and outstanding 6,738,310 6,566,517
Capital surplus 18,553,553 18,553,553
Retained earnings 33,322,787 32,642,995
Net unrealized gains on available-for-sale
investment securities (net of income tax) 1,184,878 1,063,914
------------------- --------------------
TOTAL SHAREHOLDERS' EQUITY 59,799,528 58,826,979
------------------- --------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $643,791,990 $645,183,158
=================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
COBANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
MARCH 31, 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1998 1997
--------------------- -------------------
<S> <C> <C>
INTEREST INCOME
Loans (including fees)
Taxable $9,516,433 $8,282,762
Tax-exempt 28,328 33,839
Investment securities
Taxable 1,464,603 1,992,982
Tax-exempt 750,568 790,092
Federal funds sold 182,419 37,391
--------------------- -------------------
TOTAL INTEREST INCOME 11,942,351 11,137,066
INTEREST EXPENSE
Deposits 4,559,463 4,037,682
Short-term borrowed funds 87,757 201,698
--------------------- -------------------
TOTAL INTEREST EXPENSE 4,647,220 4,239,380
--------------------- -------------------
NET INTEREST INCOME 7,295,131 6,897,686
PROVISION FOR LOAN LOSSES 75,000 75,000
--------------------- -------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 7,220,131 6,822,686
OTHER INCOME
Service charges on deposit accounts 736,948 757,466
Trust fees 450,000 413,750
Other 487,098 315,435
Securities gains (losses) 15,977 (13,231)
--------------------- -------------------
TOTAL OTHER INCOME 1,690,023 1,473,420
OTHER EXPENSES
Salaries, wages and benefits 2,942,646 2,894,654
Occupancy--net 781,651 641,703
Furniture and equipment 300,047 263,562
Taxes, other than income and payroll 182,014 156,734
Data processing 766,542 714,730
Supplies, printing and postage 275,303 369,594
Outside services 267,275 272,312
Telephone 194,059 208,258
Amortization of intangibles 166,907 139,142
Other 1,148,153 1,068,193
--------------------- -------------------
TOTAL OTHER EXPENSES 7,024,597 6,728,882
--------------------- -------------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 1,885,557 1,567,224
INCOME TAX EXPENSE 415,213 280,642
INCOME BEFORE EXTRAORDINARY ITEM 1,470,344 1,286,582
EXTRAORDINARY ITEM--MERGER COSTS 163,562 0
--------------------- -------------------
NET INCOME $1,306,782 $1,286,582
===================== ===================
EARNINGS PER SHARE
NET INCOME PER SHARE BEFORE EXTRAORDINARY ITEM $0.422 $0.373
EFFECT OF EXTRAORDINARY ITEM ($0.047)
NET INCOME PER SHARE $0.375 $0.373
NET INCOME PER SHARE BEFORE EXTRAORDINARY ITEM--
ASSUMING DILUTION $0.416 $0.370
EFFECT OF EXTRAORDINARY ITEM ($0.046)
NET INCOME PER SHARE ASSUMING DILUTION $0.370 $0.370
DIVIDENDS PER SHARE $0.18 $0.17
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
COBANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1998 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,306,782 $ 1,286,582
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 75,000 75,000
Provision for depreciation and amortization 657,123 652,003
Amortization of premiums less accretion of discounts on purchased loans 52,973 16,152
Amortization of premiums less accretion of
discounts on held-to-maturity investment securities 19,619 37,345
Amortization of premiums less accretion of
discounts on available-for-sale investment securities 3,888 11,136
Realized securities (gains) losses on available-for-sale securities (15,977) 13,231
Realized losses on sale of loans 1,011 0
Realized (gains) on sale of fixed assets (50,457) 0
Decrease (increase) in interest receivable 208,499 (261,414)
(Decrease) in interest payable (129,318) (296,900)
(Increase) decrease in other assets (440,466) 480,837
(Decrease) increase in other liabilities (220,330) 550,128
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,468,347 2,564,100
INVESTING AND LENDING ACTIVITIES
Proceeds from sales of available-for-sale
investment securities 6,281,445 19,021,446
Maturities of available-for-sale investment securities 2,345,375 1,485,928
Maturities of held-to-maturity investment securities 11,848,494 975,631
Purchases of available-for-sale investment securities (9,662,820) (673,957)
Purchase of Jefferson Savings, net of cash received 0 (5,531,006)
Net decrease in credit card receivables 13,927 206,722
Net decrease (increase) in longer-term loans 2,331,740 (14,818,672)
Purchases of premises and equipment,
net of retirements (41,135) (1,904,766)
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING AND LENDING ACTIVITIES 13,117,026 (1,238,674)
DEPOSIT AND FINANCING ACTIVITIES
Net (decrease) in demand deposits and savings accounts (2,655,935) (1,328,200)
Net increase in certificates of deposit 1,789,299 1,368,486
Net (decrease) increase in short-term funds (1,246,526) 2,557,644
Increase in long-term debt 0 (500,000)
Repayment of long-term debt 0 101,880
Cash received from options exercised 171,794 0
Cash dividends (626,995) (587,150)
------------ ------------
NET CASH (USED IN) PROVIDED BY DEPOSIT AND FINANCING ACTIVITIES (2,568,363) 1,612,660
------------ ------------
Increase In Cash and Cash Equivalents 12,017,010 2,938,086
Cash and cash equivalents at beginning of period 40,532,853 34,855,395
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 52,549,863 $ 37,793,481
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
COBANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
Quarters ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
CAPITAL CAPITAL RETAINED COMPREHENSIVE COMPREHENSIVE
STOCK SURPLUS EARNINGS INCOME INCOME
------------------------------------------------------------------ --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996....................... $5,975,066 $18,553,553 $30,296,473 ($180,475)
Net income......................................... 1,286,582 $1,286,582
Other comprehensive income
Adjustment to unrealized gains (losses) on
available-for-sale securities, net of tax..... (848,557) (848,557)
----------
Total comprehensive income.................. $438,025
==========
Cash dividends ($0.17 per share)................... (587,150)
-----------------------------------------------------------
Balance at March 31, 1997.......................... $5,975,066 $18,553,553 $30,995,905 ($1,029,032)
========== =========== =========== ==========
Balance at December 31, 1997....................... $6,566,517 $18,553,553 $32,642,995 $1,063,914
Net income......................................... 1,306,782 $1,306,782
Other comprehensive income
Adjustment to unrealized gains (losses) on
available-for-sale securities, net of tax..... 120,964 120,964
----------
Total comprehensive income.................. $1,427,746
==========
Shares issued (7,777) under long-term incentive
plan............................................ 171,793
Cash dividends ($0.18 per share)................... (626,990)
-----------------------------------------------------------
Balance at March 31, 1998.......................... $6,738,310 $18,553,553 $33,322,787 $1,184,878
========== =========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 7
COBANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
NOTE A -- ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of CoBancorp Inc. (the Corporation) and its wholly-owned subsidiaries,
PREMIERBank & Trust (Premier) and Jefferson Savings Bank (Jefferson). All
material intercompany accounts and transactions have been eliminated.
BASIS OF PRESENTATION: The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. It is the opinion of management that all adjustments necessary for a
fair presentation have been made and that all adjustments were of a normal
recurring nature.
CASH EQUIVALENTS: For purpose of the Statements of Cash Flows, cash equivalents
include amounts due from banks and federal funds sold. Generally, federal funds
are purchased and sold for periods of less than thirty days.
RECLASSIFICATIONS: Certain amounts in the 1997 consolidated financial statements
have been reclassified to conform to the 1998 presentation.
NOTE B -- ACQUISITIONS
On February 27, 1997, the Corporation acquired all of the outstanding shares of
Jefferson, an Ohio-chartered savings association located in Jefferson, Ohio, for
cash in the amount of $6,733,000, with additional consideration of $649,000
attributable to certain favorable tax benefits (confirmed by an I.R.S. Private
Letter Ruling dated May 31, 1996). The transaction was accounted for under the
purchase method of accounting. The purchase price allocation resulted in a
write-up of assets to estimated fair value of approximately $2,432,000. This
amount included approximately $965,000 which was assigned to goodwill.
Jefferson's results of operations are included in the Corporation's consolidated
results of operations since the date of acquisition. Pro forma results of
operations have not been presented because the effect of the acquisition is not
material to the consolidated results of operations. Jefferson, with assets of
approximately $65 million as of March 31, 1998, operates four branch locations;
three in Madison County, Ohio and one in Lorain County, Ohio. Jefferson remains
a separate savings association subsidiary of the Corporation.
NOTE C -- LOANS
The Corporation applies the provisions of FASB Statement No. 114, "Accounting by
Creditors for Impairment of a Loan" (as amended by FASB Statement No. 118). At
March 31, 1998, and December 31, 1997, the Corporation did not have any impaired
loans outstanding for which a valuation allowance was required.
<PAGE> 8
COBANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
NOTE D -- EARNINGS PER SHARE
The Corporation adopted Financial Accounting Standards Board (FASB) Statement
Number 128, "Earnings Per Share" effective December 31, 1997. Under FASB Number
128, earnings per share computations are based on the average number of shares
of capital stock outstanding during the year. Statement Number 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is similar to the previously reported
fully diluted earnings per share. All earnings per share amounts for all periods
have been presented, and where appropriate, restated to conform to Statement 128
requirements. Subsequent to March 31, 1998, the Corporation issued 97,425 shares
of common stock outstanding as a result of the exercise of stock options.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Quarter ended March 31
1998 1997
--------------------- ---------------------
<S> <C> <C>
Income before extraordinary item $1,470,344 $1,286,582
Extraordinary item (163,562)
--------------------- ---------------------
Net income $1,306,782 $1,286,582
===================== =====================
Denominator:
Denominator for basic earnings
per share--weighted average shares 3,481,800 3,453,824
Effect of dilutive employee stock options 54,028 26,199
--------------------- ---------------------
Denominator for diluted earnings per
share--adjusted weighted average shares
and assumed conversions 3,535,828 3,480,023
===================== =====================
Basic earnings per share:
Before extraordinary item $0.422 $0.373
Effect of extraordinary item (0.047)
--------------------- ---------------------
Earnings per common share $0.375 $0.373
===================== =====================
Diluted earnings per share:
Before extraordinary item $0.416 $0.370
Effect of extraordinary item (0.046)
--------------------- ---------------------
Earnings per common share $0.370 $0.370
===================== =====================
</TABLE>
<PAGE> 9
COBANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
NOTE E -- COMPREHENSIVE INCOME
As of January 1, 1998, the Corporation adopted Statement Number 130, "Reporting
Comprehensive Income". Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Corporation's shareholders' equity.
Statement 130 requires unrealized gains or losses on the Corporation's
available-for-sale securities, which prior to adoption were reported separately
in shareholders' equity, to be included in other comprehensive income. Prior
year financial statements have been reclassified to conform to the requirements
of Statement 130.
NOTE F -- DISCLOSING SEGMENT INFORMATION
Financial Accounting Standards Board Statement Number 131 requires the
Corporation to make disclosures about segments meeting specific criteria for
fiscal years beginning after December 15, 1997. The Corporation has adopted
Statement Number 131 as of January 1, 1998. According to the guidelines set
forth by this Statement, the Corporation is not required to apply Statement
Number 131 to interim financial statements in the initial year of adoption.
NOTE G -- PROPOSED MERGER AGREEMENT
On November 2, 1997, the Corporation entered into a definitive agreement to be
acquired by FirstMerit Corporation (FMER). Under the terms of the agreement,
each share of CoBancorp Inc. stock will be exchanged for $44.50 in cash or for
shares of common stock of FirstMerit with a market value per share of $44.50.
The shareholders of CoBancorp may elect to exchange their common stock for
either common stock of FirstMerit, or $44.50 in cash, provided that no less than
30 percent and no more than 49 percent of the total transaction will be paid in
cash. The Corporation recorded $164,000 of legal, investment advisory and
accounting expenses incurred in the first quarter of 1998 related to the
business combination with FirstMerit. Such expenses were recorded as an
extraordinary item in the consolidated financial statements. The legal merger is
expected to close on May 22, 1998, and was approved by CoBancorp Inc.'s
shareholders on March 3, 1998. Approval has been received from both the Federal
Reserve Board of Cleveland and the Office of the Comptroller of the Currency.
NOTE H -- YEAR 2000 DISCLOSURE
The Corporation uses outside providers for most of its data processing services.
In 1997, the Corporation formed an internal committee to address Year 2000
issues and their potential impact on the Corporation's business. As a result of
the Corporation entering into an agreement with FirstMerit whereby CoBancorp
will merge into FirstMerit with FirstMerit being the surviving corporation, it
is anticipated that all of CoBancorp's systems will be converted to FirstMerit's
systems.
<PAGE> 10
COBANCORP INC. AND SUBSIDIARIES
MARCH 31, 1998
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion focuses on information about CoBancorp Inc.'s financial
condition and results of operations which is not otherwise apparent from the
consolidated financial statements attached. In connection with any forward
looking statements made by the Registrant, the following disclosure is made:
Actual results could differ materially from any such forward looking statements
for a variety of factors including sharp and/or rapid changes in interest rates,
significant changes in the economy, or significant changes in accounting, tax or
regulatory practices or requirements.
EARNINGS RESULTS Net income for the first quarter of 1998 was $1,470,000, or
$.422 per share exclusive of an extraordinary item of $164,000 for costs related
to the merger with FirstMerit Corporation, compared to $1,287,000 or $.373 per
share for the same period in 1997. The changes affecting net income are
explained in detail in the following sections.
NET INTEREST INCOME The net interest margin on a fully taxable-equivalent basis
was 5.34 percent for the first three months of 1998, compared to 5.30 percent
for the same period one year ago. Net interest income for the first three months
of 1998 amounted to $7,696,000, up significantly from $7,322,000 for the
comparable period in 1997. These amounts reflect net interest income adjusted to
a fully taxable-equivalent basis by recognizing the tax effect of interest
earned on tax-exempt securities and loans.
The increase in fully-taxable equivalent net interest income of $374,000, or 5.1
percent, is due primarily to an increase in loan interest income, including
fees, over the same period in 1997. This increase was offset by an increase in
interest-bearing liabilities. The Corporation also benefited from an increase in
the overall yield on earning assets, however the cost of interest-bearing
liabilities also increased slightly.
Average interest-earning assets were $573,800,000 and $550,261,000 for the first
three months of 1998 and 1997, respectively. Average interest-bearing
liabilities for the same periods were $493,533,000 and $479,181,000,
respectively.
The following table sets forth for the periods indicated a summary of the
changes in interest income and interest expense on a fully taxable-equivalent
basis resulting from changes in volume and changes in rates for the major
components of interest-earning assets and interest-bearing liabilities:
<PAGE> 11
SUMMARY OF NET INTEREST INCOME CHANGES
AND AVERAGE BALANCE SHEETS
(RATE/VOLUME VARIANCE)
THREE MONTHS ENDED 3/31/98 VS.3/31/97
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1998 1997 | CHANGE IN
--------------------------------------------- | INTEREST INCOME/EXPENSE DUE TO
AVERAGE AVERAGE AVERAGE AVERAGE | -------------------------------
BALANCE RATE BALANCE RATE | VOLUME RATE BOTH TOTAL
------- ---- ------- ---- | ------ ---- ---- -----
|
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Taxable securities $88,752 6.60% $120,538 6.62% | (519) (6) (9) (534)
Nontaxable securities 56,882 8.00% 60,187 7.96% | (65) 6 (1) (60)
Federal funds sold & s/t funds 14,622 4.99% 3,641 4.89% | 132 1 4 137
Taxable loans: |
Real estate loans 148,393 8.56% 162,479 7.86% | (273) 281 (26) (18)
Commercial loans 209,018 9.28% 150,704 9.55% | 1,374 (101) (25) 1,248
Installment loans 53,363 9.66% 46,137 9.98% | 178 (36) (6) 136
Overdrafts 510 0.00% 981 0.00% | 0 0 0 0
Checkmate loans 303 15.84% 223 17.94% | 4 (1) (1) 2
Credit card loans 62 1389.65% 3,079 43.75% | (325) 204 0 (121)
Nontaxable loans: |
Industrial Revenue Bonds (IRBs) 1,894 9.08% 2,292 8.94% | (9) 1 0 (8)
-------- -------- | ------ ------ ------ ------
TOTAL INTEREST-EARNING ASSETS 573,800 8.62% 560,281 8.42% | 497 349 (64) 782
|
Noninterest-earning assets: |
Cash and due from banks 31,902 32,447 |
Bank premises and equipment 19,485 19,427 |
Other assets 22,636 20,061 |
Less allowance for loan losses (4,170) (4,336) |
---------- -------- |
Total noninterest-earning assets 69,853 67,599 |
---------- -------- |
|
TOTAL ASSETS $643,653 $817,860 |
========== ========= |
|
|
Interest-bearing transaction accts: |
NOW/Advantage 50 $70,511 1.69% $70,187 1.60% | 1 16 1 18
Savings accounts: |
Savings 138,664 2.15% 141,142 2.21% | (14) (21) 2 (33)
IMMAs 16,327 1.99% 19,967 1.98% | (18) 0 0 (18)
Money Market Index accounts 18,456 5.07% 15,930 4.85% | 30 9 2 41
Time deposits: |
Christmas/vacation club 689 4.06% 699 4.01% | 0 0 0 0
CD under $100,000 172,344 5.60% 138,199 5.30% | 447 102 30 579
CD over $100,000 (regular) 17,425 5.61% 13,500 5.24% | 51 13 2 66
CD over $100,000 (public funds) 10,836 5.01% 15,308 5.10% | (56) (3) 1 (58)
IRAs 32,946 5.47% 36,952 5.67% | (56) (18) 2 (72)
Short-term borrowings: |
Repurchase agreements 1,785 4.76% 3,114 5.01% | (16) (2) 0 (18)
Fed funds purchased 171 5.85% 4,206 5.78% | (57) 1 (3) (59)
Notes payable TT&L 1,218 5.83% 2,385 4.65% | (13) 7 (4) (10)
Sweep 12,161 1.55% 17,593 1.71% | (23) (7) 2 (28)
-------- -------- | ------ ------ ------ ------
TOTAL INTEREST-BEARING LIABILITIES 493,533 3.81% 479,181 3.58% | 276 97 35 408
| ------ ------ ------ ------
|
Noninterest-bearing liabilities: |
Demand deposits 82,573 78,396 |
Other liabilities 7,572 5,141 |
Shareholders equity 59,975 55,142 |
---------- --------- |
TOTAL LIABILITIES AND |
SHAREHOLDERS' EQUITY $643,653 $817,860 |
========== ========= |
|
NET INTEREST MARGIN 5.34% 5.30% | $221 $252 ($99) $374
| ====== ====== ====== ======
|
YTD FTE net interest income (current year) $7,696
YTD FTE net interest income (prior year) 7,322
------
Change in FTE net interest income $374
======
</TABLE>
Note: Jefferson's average balances and income are included for one month in
1997. Purchase acct. balances excluded from loans. Presented on a fully
taxable-equivalent basis, using year-to-date average balances.
<PAGE> 12
NONINTEREST INCOME Total noninterest income, exclusive of securities gains,
increased $187,000 or 12.6 percent for the first three months of 1998 when
compared to the same period in 1997. Jefferson contributed approximately $41,000
of noninterest income, exclusive of securities gains for the first quarter of
1998. Income from trust activities steadily increased to $450,000 for the three
months ended March 31, 1998, up $36,000 from the prior year or 8.8 percent.
Security transactions resulted in net gains of $16,000 and net losses of $13,000
for the first quarter of 1998 and 1997, respectively. During September 1997,
Premier sold its office building located at 124 Middle Avenue, Elyria, Ohio, and
accounted for the transaction as a sales-leaseback agreement. A gain of
approximately $1,009,000 is being recognized over the life of the five year
lease. Approximately $50,000 of the deferred gain was realized during the first
quarter of 1998.
NONINTEREST EXPENSE For the first three months of 1998, salaries, wages and
benefits expense increased $48,000, or 1.7 percent over the same period for
1997. The Jefferson acquisition resulted in an increase of $123,000 in salaries,
wages and benefits expense over the prior period in 1997. This amount was offset
by a net $75,000 decrease in Premier's and CoBancorp's salaries, wages and
benefits expense due to attrition. During the first quarter of 1998, occupancy
and furniture and equipment expenses were $1,082,000 compared to $905,000 from
the previous year. The increase of approximately $176,000 over the same period
in 1997 was due to the monthly lease payment required under the terms of
Premier's sales-leaseback agreement as well as the addition of Jefferson in
March, 1997. Amortization expense increased to $167,000 as of March 31, 1998,
from $139,000 for the previous year, an increase of approximately $28,000 or 20
percent. This increase is a direct result of the amortization of purchased
goodwill, approximately $12,000, from the acquisition of Jefferson as well as
$16,000 of premium amortization of the mortgage servicing asset ($420,000 as of
March 31, 1998) which Premier recorded during the last quarter of 1997. During
the first quarter of 1998, the Corporation recorded as an extraordinary item
$164,000 of expenses incurred through March 31, 1998, related to legal,
investment and accounting advisory services related to the pending merger with
FirstMerit Corporation. These expenses are generally not tax-deductible.
LOANS AND ALLOWANCE FOR LOAN LOSSES In determining the adequacy of the allowance
for loan losses, management evaluates past loan loss experience, present and
anticipated economic conditions and the credit worthiness of its borrowers. The
allowance for loan losses is increased by provisions charged against income and
recoveries of loans previously charged off. The allowance is decreased by loans
that are determined uncollectable by management and charged against the
allowance.
Potential problem loans are those loans which are on the Corporation's "watch
list." These loans are, or could become, nonperforming. This "watch list" is
reviewed monthly and adjusted for changing conditions. Loans on the watch list
at March 31, 1998, totaled $6.6 million, or 1.6 percent of total outstanding
loans.
At March 31, 1998, and December 31, 1997, the Corporation did not have any
impaired loans outstanding for which a valuation allowance was required under
Statement 114 criteria.
At March 31, 1998, the allowance for loan losses as a percentage of loans was
1.02 percent compared to 1.01 percent at December 31, 1997. The provision for
loan losses was $75,000 in the three months ended March 31, 1998, and $75,000
for the three months ended March 31, 1997.
<PAGE> 13
The following table contains information relative to the Corporation's loan loss
experience for the three months ended March 31, 1998, and the year ended
December 31, 1997 (in thousands of dollars).
<TABLE>
<CAPTION>
Three months ended Year ended
March 31, 1998 December 31, 1997
--------------------------- -------------------------
<S> <C> <C>
Allowance for loan losses at beginning of
period $4,168 $4,092
Jefferson allowance acquired 501
Loans charged off:
Real estate 36
Installment 102 593
Credit card 2 82
Other 5 175
Commercial and collateral 209
--------------------------- -------------------------
109 1,095
Recoveries on loans charged off:
Real estate 1 146
Installment 34 197
Credit card 4 35
Other 1 2
Commercial and collateral 10 65
--------------------------- -------------------------
50 445
Net charge-offs 59 650
Provision for loan losses 75 225
=========================== =========================
Allowance for loan losses at end of period
$4,184 $4,168
=========================== =========================
Ratio of allowance for loan losses to total
loans at end of period 1.02% 1.01%
=========================== =========================
</TABLE>
NONPERFORMING ASSETS Nonaccrual loans at March 31, 1998, totaled $1,766,000
compared to $2,584,000 at December 31, 1997. The category of accruing loans past
due 90 days or more totaled $25,000 at March 31, 1998 and $64,000 at December
31, 1997. Additionally, there was $107,000 in other real estate owned. The
balance in the allowance for loan losses was $4,184,000 at March 31, 1998,
compared to $4,168,000 at December 31, 1997.
Loans other than installment loans on which interest and/or principal is 90 days
or more past due are placed on nonaccrual status and any previously accrued but
uncollected interest is reversed from income. Such loans remain on a cash basis
for recognition of income until both interest and principal are current.
Installment loans past due greater than 120 days are charged off and previously
accrued but uncollected interest is reversed from income.
<PAGE> 14
The following table summarizes nonaccrual and past due loans (in thousands of
dollars).
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
------------------------- -------------------------
<S> <C> <C>
Accruing loans past due 90 days or more as
to principal or interest:
Loans secured by real estate $ 0 $ 0
Commercial and industrial 0 0
Loans to individuals 25 64
------------------------- -------------------------
$25 $ 64
========================= =========================
Nonaccrual loans:
Loans secured by real estate $1,530 $2,206
Commercial and industrial 187 352
Loans to individuals 49 26
------------------------- -------------------------
$1,766 $2,584
========================= =========================
</TABLE>
CAPITAL At March 31, 1998, Premier's and CoBancorp's risk-based capital ratios
based on Federal Reserve Board guidelines were as follows:
<TABLE>
<CAPTION>
Well
PremierBank CoBancorp capitalized
& Trust Inc. minimums
------- ---- --------
<S> <C> <C> <C>
Tier 1 "core" capital to risk-weighted assets 11.22 % 12.42 % 6.00 %
Total capital to risk-weighted assets 12.16 % 13.41 % 10.00 %
Tier 1 leverage ratio 7.71 % 8.26 % 5.00 %
</TABLE>
These ratios substantially exceed the minimums which are in effect for banks and
bank holding companies, and also exceed the percentages required to be
considered "well-capitalized".
At March 31, 1998, Jefferson Savings' regulatory capital ratios based on the
Office of Thrift Supervision requirements were as follows:
<TABLE>
<CAPTION>
Well-
Jefferson Required capitalized
Savings Minimums Minimums
------- -------- --------
<S> <C> <C> <C>
Tangible Equity 11.28 % 1.50 % n/a
Tier 1 "core" capital to risk-weighted assets 17.62 % n/a 6.00 %
Core Capital 11.28 % 3.00 % 5.00 %
Risk-based capital to risk weighted assets 18.78 % 8.00 % 10.00 %
</TABLE>
<PAGE> 15
PART II. OTHER INFORMATION
Except as set forth below, the items of Part II are inapplicable or the answers
thereto are negative and, accordingly, no reference is made to said items in
this report.
Item 4--Submission of matters to a vote of security holders
On March 3, 1998, a special meeting of shareholders of CoBancorp Inc.
was held to ask shareholders to adopt the Agreement of Affiliation and
Plan of Merger dated November 2, 1997, by and between FirstMerit
Corporation and CoBancorp. At that meeting, the merger was approved by
CoBancorp Inc.'s shareholders.
Item 6--Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Form 8-K:
The Corporation did not file an 8-K report during the quarter
ended March 31, 1998.
<PAGE> 16
COBANCORP INC. AND SUBSIDIARIES
MARCH 31, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COBANCORP INC.
(Registrant)
/s/ Timothy W. Esson
Timothy W. Esson
Executive Vice President and
Chief Financial Officer
May 15, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF COBANCORP INC. AND SUBSIDIARIES AS OF MARCH 31,
1998, AND THE RELATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE QUARTER THEN
ENDED 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 28,456
<INT-BEARING-DEPOSITS> 1,394
<FED-FUNDS-SOLD> 22,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 127,577
<INVESTMENTS-CARRYING> 16,530
<INVESTMENTS-MARKET> 16,860
<LOANS> 411,742
<ALLOWANCE> 4,184
<TOTAL-ASSETS> 643,792
<DEPOSITS> 559,959
<SHORT-TERM> 16,874
<LIABILITIES-OTHER> 7,160
<LONG-TERM> 0
0
0
<COMMON> 6,738
<OTHER-SE> 53,061
<TOTAL-LIABILITIES-AND-EQUITY> 643,792
<INTEREST-LOAN> 9,545
<INTEREST-INVEST> 2,215
<INTEREST-OTHER> 182
<INTEREST-TOTAL> 11,942
<INTEREST-DEPOSIT> 4,559
<INTEREST-EXPENSE> 4,647
<INTEREST-INCOME-NET> 7,295
<LOAN-LOSSES> 75
<SECURITIES-GAINS> 16
<EXPENSE-OTHER> 7,025
<INCOME-PRETAX> 1,886
<INCOME-PRE-EXTRAORDINARY> 1,471
<EXTRAORDINARY> 164
<CHANGES> 0
<NET-INCOME> 1,307
<EPS-PRIMARY> .375
<EPS-DILUTED> .370
<YIELD-ACTUAL> 5.34
<LOANS-NON> 1,766
<LOANS-PAST> 25
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,168
<CHARGE-OFFS> 109
<RECOVERIES> 50
<ALLOWANCE-CLOSE> 4,184
<ALLOWANCE-DOMESTIC> 4,173
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 11
</TABLE>
