1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM_______________TO_______________.
COMMISSION FILE NUMBER 0-11011
CB FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MICHIGAN 38-2340045
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE JACKSON SQUARE, JACKSON, MICHIGAN 49201-1446
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (517) 788-2800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $7.50 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 SHORTER PERIOD THAT THE REGISTRANT HAS
BEEN REQUIRED TO FILE SUCH REPORTS); AND (2) HAS BEEN SUBJECT TO FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES _X_ NO__
AT SEPTEMBER 30, 1996, THERE WERE 2,801,053 SHARES OF THE REGISTRANT'S COMMON
STOCK OUTSTANDING WITH A $7.50 PAR VALUE.
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2
CB FINANCIAL CORPORATION
INDEX
Part I. Financial Information:
Item 1. Financial Statements
The following consolidated financial statements of CB
Financial Corporation and its subsidiaries included in this
report are:
Page
----
Consolidated Balance Sheet - September 30, 1996,
September 30, 1995 and December 31, 1995................................... 3
Consolidated Statement of Income - For the Three and Nine Months Ended
September 30, 1996 and 1995................................................. 4
Consolidated Statement of Cash Flow - For the Nine Months Ended
September 30, 1996 and 1995................................................. 5
Note to Consolidated Financial Statements................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, Liquidity, and Capital............................... 7
Part II. Other Information:
Item 6. Exhibit 10 and Report on Form 8-K................................... 11
SIGNATURE ............................................................................ 12
The following documents are filed as a part of this report:
Exhibit 10 Employment Agreement and Amendment Number 1 -
Supplemental Retirement Benefit Agreement
Exhibit 27 Financial Data Schedule
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CONSOLIDATED BALANCE SHEET (Unaudited)
(In Thousands) 09/30/96 09/30/95 12/31/95
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ASSETS:
Cash and Cash Equivalents:
Cash and Due from Banks $29,509 $34,927 $37,068
Money Market Assets 1,461 12,214 1,790
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Total Cash and Cash Equivalents 30,970 47,141 38,858
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Securities Available for Sale:
U.S. Treasury 57,194 37,745 161,390
U.S. Government Agencies 79,538 24,224 39,008
States and Political Subdivisions 10,158 0 11,186
Other 20 209 161
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Total Securities Available for Sale 146,910 62,178 211,745
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Securities Held to Maturity (Market value of $144,948) 0 145,810 0
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Loans:
Consumer Loans 169,594 113,924 120,678
Commercial Loans 204,063 171,086 177,921
Tax Exempt Loans 14,696 13,273 14,263
Real Estate Mortgage Loans 189,025 113,744 126,021
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Subtotal Loans 577,378 412,027 438,883
Reserve for Possible Loan Losses (4,240) (4,021) (3,934)
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Net Loans 573,138 408,006 434,949
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Bank Premises and Equipment, Net 14,135 15,800 15,350
Other Real Estate Owned 364 20 0
Income Earned Not Received 5,660 7,135 6,996
Goodwill and Premium on Core Deposits, Net 9,060 10,931 9,937
Other Assets 4,096 3,358 2,048
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TOTAL ASSETS $784,333 $700,379 $719,883
===================================================================================================================================
LIABILITIES:
Deposits:
Demand Deposits $108,089 $104,791 $110,459
Interest-Bearing Demand Deposits 126,545 143,643 141,591
Savings Deposits 125,957 122,308 130,254
Time Deposits 319,610 238,113 240,156
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Total Deposits 680,201 608,855 622,460
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Short-Term Interest Bearing Liabilities 12,990 698 6,515
Note Payable and Capital Leases 3,173 5,090 4,611
Accrued Expenses 4,428 4,516 3,868
Dividend Payable 840 840 840
Other Liabilities 5,852 3,918 4,131
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TOTAL LIABILITIES 707,484 623,917 642,425
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SHAREHOLDERS' EQUITY:
Preferred Stock-no par value, 100,000 shares authorized,
none outstanding 0 0 0
Common Stock-$7.50 par value, 5,000,000 shares authorized,
2,801,053 shares outstanding 21,008 21,008 21,008
Capital Surplus 8,073 8,073 8,073
Undivided Profits 48,787 46,798 46,730
Unrealized Gains(Losses) on Securities Available for Sale, Net of Tax Effect (1,019) 583 1,647
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TOTAL SHAREHOLDERS' EQUITY 76,849 76,462 77,458
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $784,333 $700,379 $719,883
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The accompanying notes are an integral part of this statement.
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CONSOLIDATED STATEMENT OF INCOME (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
(In Thousands Except Per Share Data) 1996 1995 1996 1995
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INTEREST INCOME:
Interest and Fees on Loans
Consumer Loans $3,710 $2,446 $9,865 $7,285
Commercial Loans 4,505 3,981 12,916 11,874
Tax Exempt Loans 213 223 678 687
Real Estate Mortgage Loans 3,517 2,380 9,470 6,698
Interest on Securities Available for Sale
U.S. Treasury 883 712 3,750 2,521
U.S. Government Agencies 1,349 495 3,812 1,575
States and Political Subdivisions 151 0 469 0
Other 2 1 6 4
Interest on Securities Held to Maturity 0 2,106 0 6,323
Interest on Money Market Assets 48 223 156 447
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Total Interest Income 14,378 12,567 41,122 37,414
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INTEREST EXPENSE:
Interest on Demand Deposits 693 930 2,100 3,135
Interest on Savings Deposits 940 790 2,801 2,292
Interest on Time Deposits 4,327 3,244 11,825 8,581
Interest on Other Liabilities 160 106 467 667
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Total Interest Expense 6,120 5,070 17,193 14,675
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NET INTEREST INCOME 8,258 7,497 23,929 22,739
Provision for Possible Loan Losses 573 165 1,418 508
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NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 7,685 7,332 22,511 22,231
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NON-INTEREST INCOME:
Trust Income 517 502 1,545 1,506
Service Charges on Deposit Accounts 874 721 2,489 1,965
Fees for Other Services to Customers 316 431 910 1,068
Securities Gains 114 1 491 30
Other Income 40 21 283 112
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Total Non-Interest Income 1,861 1,676 5,718 4,681
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NON-INTEREST EXPENSES:
Salaries and Wages 2,795 2,585 7,833 7,795
Employee Benefits 509 594 1,808 2,011
Occupancy Expenses 604 657 1,888 1,890
Furniture and Equipment Expenses 617 623 1,830 1,832
FDIC Insurance Premiums 1 (21) 4 628
Restructuring Charge 0 981 1,102 981
Other Operating Expenses 2,285 2,168 7,163 6,275
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Total Non-Interest Expenses 6,811 7,587 21,628 21,412
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Income Before Provision for Federal Income Tax 2,735 1,421 6,601 5,500
Provision for Federal Income Tax 840 410 2,022 1,657
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NET INCOME $1,895 $1,011 $4,579 $3,843
==================================================================================================================================
Per Share Data:
Net Income Per Common Share $0.67 $0.36 $1.63 $1.37
Average Number of Shares Outstanding 2,802,810 2,804,671 2,803,028 2,803,132
The accompanying notes are an integral part of this statement.
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CONSOLIDATED STATEMENT OF CASH FLOW (Unaudited) Nine Months Ended
September 30,
(In Thousands) 1996 1995
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
Cash Flows from Operating Activities:
Interest and Fees Received $48,165 $42,858
Interest Paid ($16,908) (14,013)
Cash Paid to Suppliers and Employees (17,887) (17,612)
Income Taxes Paid (2,210) (1,928)
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Net Cash Provided by Operating Activities 11,160 9,305
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Cash Flows from Investing Activities:
Proceeds from Sale of Securities Available for Sale 105,357 9,044
Proceeds from Maturities/Calls of Securities Available for Sale 22,800 25,000
Proceeds from Maturities/Calls of Securities Held to Maturity 0 1,560
Purchase of Securities Available for Sale (67,358) (5,000)
Net Increase in Loans (139,607) (19,259)
Net (Increase) Decrease in Other Real Estate Owned (364) 337
Proceeds from Sale of Premises and Equipment 711 0
Capital Expenditures (845) (952)
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Net Cash Provided (Used) by Investing Activities (79,306) 10,730
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Cash Flows from Financing Activities:
Repayment of Note Payable (1,425) (1,425)
Net Increase (Decrease) in Deposits and Short-Term Liabilities 64,217 (23,595)
Cash Dividends Paid (2,521) (2,521)
Payment of Capital Lease Obligations (13) (11)
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Net Cash Provided (Used) by Financing Activities 60,258 (27,552)
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Net Decrease in Cash and Cash Equivalents (7,888) (7,517)
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Cash and Cash Equivalents at Beginning of Year 38,858 54,658
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Cash and Cash Equivalents at End of Period $30,970 $47,141
============================================================================================================================
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net Income $4,579 $3,843
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Depreciation and Amortization 1,335 1,409
Amortization of Net Premium on Purchased Subsidiary 895 986
Amortization of Discount and Premiums on
Investment Securities, Net 485 753
Provision for Possible Loan Losses 1,418 508
Securities Gains (490) (30)
Decrease in Income Earned Not Received 1,336 56
(Increase) Decrease in Other Assets 927 212
Gain on Sale of Premises and Equipment (4) (33)
Increase (Decrease) in Interest Payable 284 680
Increase (Decrease) in Income Taxes Payable (188) (272)
Increase in Accrued Expenses 583 1,193
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Net Cash Provided by Operating Activities $11,160 $9,305
============================================================================================================================
The accompanying notes are an integral part of this statement.
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NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING AND REPORTING POLICIES
BASIS OF PRESENTATION
The accounting and reporting policies of CB Financial Corporation (the
"Corporation") and its subsidiaries are in accordance with generally
accepted accounting principles and conform to practice within the banking
industry.
The condensed consolidated financial statements included herein have
been prepared by the Corporation, without an audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements and the
notes contained in the 1995 Annual Report and Form 10-K to shareholders of
CB Financial Corporation filed with the Securities and Exchange Commission.
CONSOLIDATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
assure the fair presentation of financial condition and results of
operations. All material intercompany accounts and transactions have been
eliminated. All such adjustments are of a normal recurring nature.
LOANS
Effective January 1, 1995, the Corporation adopted Statement of
Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures." These Statements
require that impaired loans be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate
or, as a practical expedient, at the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent. The
adoption of these statements on January 1, 1995 had no significant impact on
the financial position or the results of operations of the Corporation.
Effective January 1, 1996, the Corporation adopted Statement of
Financial Accounting Standard No. 122, "Accounting for Mortgage Servicing
Rights." The statement requires capitalization of servicing rights on
mortgage loans, when the loans are to be sold and the servicing retained.
The adoption of this accounting standard did not have a material impact on
the Corporation's financial position or results of operations.
OTHER
Effective January 1, 1996, the Corporation adopted Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of." This new
accounting standard requires impairment losses on long-lived assets to be
recognized when an asset's book value exceeds its expected future cash flows
(undiscounted). The adoption of this accounting standard did not impact the
Corporation's financial position or results of operations.
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Part I: Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Corporation's financial condition and earnings
during the periods included in the accompanying consolidated financial
statements.
FINANCIAL CONDITION
A summary of the period changes in principal sources and uses of funds is shown
below in thousands of dollars.
CHANGE FROM DECEMBER 31, 1995
TO SEPTEMBER 30, 1996
Funding Sources:
Cash & Cash Equivalent $ 7,888
Investment Securities 60,799
Deposits 57,741
Short Term Interest Bearing Liabilities 6,476
Operating Activities 11,160
Sale of Premises & Equip. 711
--------
$ 144,775
========
Funding Uses:
Loans $ 139,607
Cash Dividends 2,521
Capital Expenditures 845
Repayment of Note and Capital Leases 1,438
Other Real Estate Owned 364
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Total Uses $ 144,775
========
The primary source of funds for loan growth was the sale and maturity of
investment securities available for sale, increase in deposits and decreased
cash and cash equivalent balances. Net loans increased $136.4 million as of
September 30, 1996 from the totals reported at December 31, 1995. Consumer
loans increased $48.9 million from the December 31, 1995 balance due to strong
demand for new automobiles and the entry of CB North into the indirect
automobile financing market. Commercial loans, excluding tax exempt loans,
were $204.1 million as of September 30, 1996, an increase of $26.1 million from
the $177.9 million at December 31, 1995 which reflects a focus on business
development of the small business market. Mortgage loans posted an increase of
$63.0 million through September 30, 1996 from the total of $126.0 million as of
December 31, 1995.
Time deposits increased $79.5 million over the December 31, 1995 balance which
was offset by decreases in all other deposit categories of $21.7 million. The
increase in time account balances resulted from marketing efforts and pricing
strategy to attract additional funds and the migration of funds from demand and
savings accounts. Short term interest bearing liabilities including federal
funds purchased have increased $6.5 million from the December 31, 1995 balances
as funds from operating activities have increased.
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LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1996 there were no significant changes with
respect to the capital resources of the Corporation. Management feels that the
liquidity position of the Corporation as of September 30, 1996 is more than
adequate to meet its future cash flow needs. Management also closely monitors
capital levels to provide for normal business needs and to comply with
regulatory requirements. As summarized below, the Corporation's capital ratios
were well in excess of the regulatory requirements for classification as "Well
Capitalized":
Regulatory
Minimum for September 30,
"Well Capitalized" 1996 1995
------------------ ------- -------
Total Capital 10% 13.74% 18.45%
Tier I Capital 6 12.95 17.44
Tier I Leverage Ratio 5 9.11 10.00
RESULTS OF OPERATIONS
A summary of the period to period changes in the principal items included in
the consolidated statement of income is shown below in thousands of dollars,
and as a percent.
Comparison of Comparison of
Three Months Ended Nine Months Ended
September 30, 1996 & 1995 September 30, 1996 and 1995
-------------------------- ---------------------------
Interest Income $1,811 14.4% $3,708 9.9%
Interest Expense 1,050 20.7 2,518 17.2
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Net Interest Income 761 10.2 1,190 5.2
Provision for loan losses 408 247.3 910 179.1
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Net interest income after provision
for loan losses 353 4.8 280 1.3
Other Income 185 11.0 1,037 22.2
Restructuring Expense (981) 121 12.3
Other Expenses 205 3.1 95 .5
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Income before income tax 1,314 92.5 1,101 20.0
Income Tax Expense 430 104.9 365 22.0
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Net Income $ 884 87.4 736 19.2
==== =====
A summary of the components of the net interest margin computation on a tax
equivalent basis for the nine month periods ending September 30, 1996 and 1995
is presented in the following table:
9/30/96 9/30/95
Interest on Earning Assets 8.19% 8.11%
Interest on Interest Bearing Liabilities 4.16 3.84
Interest Expense Related to Earning Assets 3.38 3.13
Net Interest Margin 4.81 4.98
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NET INTEREST INCOME
Interest income increased $3,708,000 (9.9%) through September 30, 1996 over the
amount reported for the same period of 1995. Income on total loans improved
$6.4 million in 1996 over 1995 due to increase in volume which was offset by a
reduction in interest rates. Earnings for the securities portfolio declined
$2.4 million as a result of lower volume. Interest expense for the two
comparable periods increased $2,518,000 (17.2%) in 1996 due to higher deposit
balances, shift in deposit product mix and higher interest rates. Net interest
income increased $1,190,000 (5.2%) in 1996 over 1995.
PROVISION FOR LOAN LOSSES
The Corporation has adopted SFAS No.114, "Accounting by Creditors for
Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures," effective January
1, 1995. Under these Statements, a loan is considered impaired when it is
probable that all amounts due will not be collected according to the
contractual terms of the loan agreement. The Statements require that an
impaired loan be measured based on the present value of the expected future
cash flows discounted at the loan's effective interest rate, the observable
market price of the loan or the fair value of the collateral if the loan is
collateral dependent.
Overall loan growth of consumer loans in 1995 and 1996 resulted from indirect
auto financing which provides increased profit opportunities along with the
potential for increased delinquencies and charge-offs. The banking industry as
a whole is experiencing an increase in delinquency and charge-offs of consumer
loans. This trend created a higher than historical loan delinquency and
charge-offs for CB Financial Corporation. Strategies have been initiated to
balance consumer loan growth while adhering to high credit standards and
aggressive collection efforts of delinquent loans.
The increase in the loan loss provision during the first nine months of 1996 of
$910,000 or 179.1% reflects increased loan volume and higher net charge offs
recorded in 1996. The reserve for possible loan losses as of September 30,
1996 and 1995 was $4,240,000 and $4,021,000, an increase of $219,000 or 5.4%.
Net loan charge offs for the nine month period ending September 30, 1996 and
1995 were $1,112,000 and $352,000, respectively. Expressed as a percent of
average loans outstanding, the average reserve for possible loan losses was
.77%, 1.00% and .98% as of September 30, 1996, September 30, 1995 and December
31, 1995, respectively. A new software package is in use to analyze coverage
by specific loan types. The Corporation's reserve for possible loan losses is
evaluated quarterly for adequate coverage. Based on historical and projected
performance within the loan portfolio management considers the reserve to be
adequate. When loan portfolios are compared, much of the loan growth
experienced over the past years has occurred in residential real estate loans,
many of which are being packaged for sale in the secondary market, eliminating
the need for reserves, also, this portion of the loan portfolio has a history
of very little losses which further negates the need for a reserve.
Nonperforming Loans are defined by the Corporation to include loans on which
interest is not being accrued, and restructured loans where interest rates have
been renegotiated at below market rates. For purposes of calculating an
impairment reserve in accordance with SFAS No. 114, the Corporation considers
non-accrual loans and loans 90 days or more past due (excluding small balance
homogeneous consumer loans and residential mortgage loans) where it is probable
that the Corporation will not collect all amounts due under the contractual
terms of the loan as meeting the statement's definition of impaired loans.
Loans classified as impaired totaled $1,416,000 at September 30, 1996,
$1,116,000 at September 30, 1995 and $1,331,000 at December 31, 1995. Large
balance impaired loans (generally those with balances of $100,000 or more)
accounted for $1,137,000 or 80.3 percent of total impaired loans at September
30, 1996. The loans classified as impaired are well collateralized and no
specific amount of the loan loss reserve has been allocated to the impaired
loans.
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The average balance of impaired loans was $1,307,000 for the nine month period
ending September 30, 1996. Interest income recognized during the time the
loans were impaired was $18,300 of which $11,500 was received on a cash basis.
The remaining performing loan portfolio was collectively evaluated for
impairment.
Total nonperforming assets which includes non-accrual loans, other real estate
owned and assets acquired through repossession were $1,556,000, $1,602,000 and
$1,697,000 at September 30, 1996, September 30, 1995 and December 31, 1995,
respectively. In addition to the loans classified as nonperforming, there are
other potential problem loans of $1,312,000 at September 30, 1996 that
management is closely monitoring the borrowers ability to comply with repayment
terms, but existing conditions do not warrant either a partial charge-off or
classification as non-performing.
OTHER INCOME
Total non-interest income amounted to $5,718,000 and $4,681,000 for the nine
months ended September 30, 1996 and 1995, respectively. Trust income was
$1,545,000 and $1,506,000 for each period, an increase of $39,000 which
resulted from a revised fee schedule in the fourth quarter, 1995. Service
charge income was $2,489,000 and $1,965,000, an increase of $524,000 in 1996
over 1995 due to a revised schedule of fees implemented in the second quarter,
1995. Security gains of $491,000 and $30,000 were recognized in the nine
months ended September 30, 1996 and 1995, respectively. Other income was
$283,000 and $112,000 at September 30, 1996 and 1995 which resulted from
additional gains on loans sold, the adoption of the Statement of Financial
Accounting Standard No. 122 and a litigation settlement of $100,000.
OTHER EXPENSES
Other non-interest expenses amounted to $21,628,000 and $21,412,000 for the
nine months ended September 30, 1996 and 1995, an increase of $216,000 or 1.0%.
The fluctuation of the major components of non-interest expenses are presented
below (in thousands of dollars and as a percent):
COMPARISON OF
NINE MONTHS ENDED
AMOUNT AMOUNT
AT AT AMOUNT PERCENT
9/30/96 9/30/95 VARIANCE VARIANCE
------- ------- -------- --------
Salaries & Employee Benefits $ 9,641 $ 9,806 $ (165) (1.7)%
Occupancy, Furniture & Equipment 3,718 3,722 (4) (.1)
Marketing, Advertising and
Public Relations 552 476 76 16.0
Stationery & Supplies 487 416 71 17.1
FDIC Premium Expense 4 628 (624) (99.4)
Postage Express and Freight 616 505 111 22.0
Merchant Bank Expense 660 590 70 11.9
Restructure Charge 1,102 981 121 12.3
Amortization of Goodwill and Premium
on Core Deposits 877 960 (83) (8.6)
Other Operating Expense 3,971 3,328 643 19.3
------- ------- ---
Total Non-Interest Expenses $ 21,628 $ 21,412 $ 216 1.0%
======== ======== ======
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The decrease in salaries and employee benefits is due to a reduction in average
FTE's of 14.7 at September 30, 1996 compared to September 30, 1995 which was
partially offset by increases due to normal performance evaluations. The
increase in marketing, advertising and public relations expenditures reflect
strategies to increase loans and introduce new deposit products to generate
additional accounts and balances.
The decline in FDIC premium expense reflects the reduction in the assessment
rate since the Bank Insurance Fund (BIF) was over funded. Other operating
expenses increased as a result of higher costs associated with greater volumes
such as loans, outsourcing messengers and the internal audit function,
telephone, consultant fees, etc. The increase in other operating expenses
which resulted from outsourcing messengers and the internal audit function were
offset by a reduction in salaries and employee benefits.
The corporation recorded a restructuring charge of $1.1 million in the second
quarter of 1996 and $981,000 in the third quarter of 1995. This charge in 1996
resulted from an extensive study of its retail delivery system over the past
twelve months. Based on recommendations of the study, some of the
corporation's delivery system facilities will experience relocation, closures
and enhancements over the next twelve months. The restructuring charge
consists primarily of costs to close six (6) financial centers including
personnel expenses related to rebuilding the retail delivery system. Two (2)
offices were closed in August, 1996. During September, 1996, three (3) offices
were consolidated with other nearby offices and one (1) was relocated from a
supermarket to a free-standing facility nearby. It is anticipated that this
restructuring charge will be recovered by the corporation through lower
operating costs over a 2-3 year period. The restructure charge of $981,000 in
the third quarter of 1995 resulted from an early retirement program offered to
employees.
APPLICABLE INCOME TAX
Applicable income tax expense is based on income, less that portion which is
exempt from federal taxation, taxed at the statutory federal income tax rate of
34%. The provision is further reduced to a lesser extent by other tax-exempt
items. The income tax provision reported in the accompanying financial
statements for the nine month periods ended September 30, 1996 and 1995 was
$2,022,000 and $1,657,000, an increase of $365,000, which reflects an increase
in operating income.
Part II. OTHER INFORMATION
Item 6. Exhibit and Report on Form 8-K:
(a) Exhibit 10: Employment Agreement and Amendment Number 1 -
Supplemental Retirement Benefit Agreement
(b) A Form 8-K Report was not filed during the three months ended
September 30, 1996.
(c) Exhibit 27: Financial Data Schedule
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Corporation has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
CB FINANCIAL CORPORATION
BY: /s/ A. Wayne Klump
------------------------
A. Wayne Klump
Senior Vice President
Chief Financial Officer
and Treasurer
Dated: November 13, 1996
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CB FINANCIAL
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
10 Employment Agreement and Amendment
Number 1 - Supplemental Retirement
Benefit Agreement
27 Financial Data Schedule
13