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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 MARCH 31, 1997
/ / 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 .
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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
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AT MARCH 31, 1997, THERE WERE 2,801,053 SHARES OF THE REGISTRANT'S COMMON STOCK
OUTSTANDING WITH A $7.50 PAR VALUE.
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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
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Consolidated Balance Sheet - March 31, 1997,
March 31, 1996 and December 31, 1996........................... 3
Consolidated Statement of Income - For the Three Months Ended
March 31, 1997 and 1996......................................... 4
Consolidated Statement of Cash Flow - For the Three Months Ended
March 31, 1997 and 1996......................................... 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. Report on Form 8-K...................................... 11
SIGNATURE................................................................ 12
The following documents are filed as a part of this report:
Exhibit 27 Financial Data Schedule
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CONSOLIDATED BALANCE SHEET (Unaudited)
(In Thousands) 03/31/97 03/31/96 12/31/96
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ASSETS:
Cash and Cash Equivalents:
Cash and Due from Banks $35,906 $35,354 $44,719
Money Market Assets 1,878 1,768 6,744
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Total Cash and Cash Equivalents 37,784 37,122 51,463
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Securities Available for Sale:
U.S. Treasury 46,110 85,391 52,525
U.S. Government Agencies 69,863 88,696 74,900
States and Political Subdivisions 9,174 11,098 9,462
Other 0 163 0
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Total Securities Available for Sale 125,147 185,348 136,887
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Loans:
Consumer Loans 163,149 134,185 171,361
Commercial Loans 227,260 193,443 216,987
Tax Exempt Loans 16,278 15,081 15,972
Real Estate Mortgage Loans 213,120 142,033 204,701
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Subtotal Loans 619,807 484,742 609,021
Reserve for Possible Loan Losses (6,798) (3,689) (6,168)
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Net Loans 613,009 481,053 602,853
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Bank Premises and Equipment, Net 13,012 15,004 13,351
Other Real Estate Owned 701 0 438
Income Earned Not Received 5,505 6,671 5,711
Goodwill and Premium on Core Deposits, Net 8,476 9,644 8,768
Other Assets 5,960 3,745 5,566
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TOTAL ASSETS $809,594 $738,587 $825,037
====================================================================================================================================
LIABILITIES:
Deposits:
Demand Deposits $100,838 $106,059 $110,848
Interest-Bearing Demand Deposits 122,682 133,937 130,022
Savings Deposits 126,594 131,655 124,770
Time Deposits 359,191 272,684 370,164
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Total Deposits 709,305 644,335 735,804
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Short-Term Interest Bearing Liabilities 12,120 3,500 386
Note Payable and Capital Leases 2,214 4,132 2,694
Accrued Expenses 4,566 5,200 4,403
Dividend Payable 840 840 840
Other Liabilities 3,882 4,142 4,131
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TOTAL LIABILITIES 732,927 662,149 748,258
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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 49,213 47,805 48,372
Unrealized Gains(Losses) on Securities Available
for Sale, Net of Tax Effect (1,627) (448) (674)
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TOTAL SHAREHOLDERS' EQUITY 76,667 76,438 76,779
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $809,594 $738,587 $825,037
====================================================================================================================================
The accompanying notes are an integral part of this statement.
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CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended
March 31,
(In Thousands Except Per Share Data) 1997 1996
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INTEREST INCOME:
Interest and Fees on Loans
Consumer Loans $3,728 $2,908
Commercial Loans 4,910 4,075
Tax Exempt Loans 236 239
Real Estate Mortgage Loans 4,222 2,786
Interest on Investment Securities Available for Sale
U.S. Treasury 734 1,793
U.S. Government Agencies 1,166 1,067
States and Political Subdivisions 137 161
Other 0 2
Interest on Money Market Assets 22 56
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Total Interest Income 15,155 13,087
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INTEREST EXPENSE:
Interest on Demand Deposits 670 722
Interest on Savings Deposits 940 936
Interest on Time Deposits 4,817 3,587
Interest on Other Liabilities 287 141
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Total Interest Expense 6,714 5,386
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NET INTEREST INCOME 8,441 7,701
Provision for Possible Loan Losses 1,065 265
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NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 7,376 7,436
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NON-INTEREST INCOME:
Trust Income 527 474
Service Charges on Deposit Accounts 757 813
Fees for Other Services to Customers 326 298
Securities Gains (Losses) (10) 365
Other Income 72 128
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Total Non-Interest Income 1,672 2,078
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NON-INTEREST EXPENSES:
Salaries and Wages 2,565 2,386
Employee Benefits 609 708
Occupancy Expenses 639 647
Furniture and Equipment Expenses 578 594
FDIC Insurance Premiums 32 2
Other Operating Expenses 2,162 2,385
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Total Non-Interest Expenses 6,585 6,722
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Income Before Provision for Federal Income Tax 2,463 2,792
Provision for Federal Income Tax 782 876
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NET INCOME $1,681 $1,916
====================================================================================================================================
Per Share Data:
Net Income Per Common Share $0.60 $0.68
Average Number of Shares Outstanding 2,815,042 2,803,746
The accompanying notes are an integral part of this statement.
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CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)
Three Months Ended
March 31,
(In Thousands) 1997 1996
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
Cash Flows from Operating Activities:
Interest and Fees Received $17,142 $15,321
Interest Paid (6,723) (5,259)
Cash Paid to Suppliers and Employees (6,530) (6,191)
Income Taxes Paid (100) (75)
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Net Cash Provided by Operating Activities 3,789 3,796
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Cash Flows from Investing Activities:
Proceeds from Sale of Securities Available for Sale 6,991 71,694
Proceeds from Maturities/Calls of Securities Available for Sale 3,200 9,000
Purchase of Securities Available for Sale 0 (57,314)
Proceeds from Sale of Loans 5,178 3,910
Net (Increase) Decrease in Loans (16,396) (50,265)
Net (Increase) in Other Real Estate Owned (263) 0
Proceeds from Sale of Premises and Equipment 8 91
Capital Expenditures (101) (189)
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Net Cash Provided (Used) by Investing Activities (1,383) (23,073)
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Cash Flows from Financing Activities:
Repayment of Note Payable (475) (475)
Net Increase (Decrease) in Deposits and Short-Term Liabilities (14,765) 18,860
Cash Dividends Paid (840) (840)
Payment of Capital Lease Obligations (5) (4)
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Net Cash Provided (Used) by Financing Activities (16,085) 17,541
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Net Decrease in Cash and Cash Equivalents (13,679) (1,736)
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Cash and Cash Equivalents at Beginning of Year 51,463 38,858
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Cash and Cash Equivalents at End of Period $37,785 $37,122
====================================================================================================================================
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net Income $1,681 $1,916
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Depreciation and Amortization 424 447
Accretion of Net Discount on Purchased Subsidiary 296 301
Amortization of Discount and Premiums on
Investment Securities, Net 94 206
Provision for Possible Loan Losses 1,065 265
Securities (Gains) Losses 10 (365)
(Gains) on Sale of Loans (3) (13)
Decrease in Income Earned Not Received 206 325
(Increase) Decrease in Other Assets 96 635
(Gain) Loss on Sale of Premises and Equipment 5 (11)
Increase (Decrease) in Interest Payable (6) 141
Increase (Decrease) in Income Taxes Payable 682 801
Decrease in Accrued Expenses (761) (852)
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Net Cash Provided by Operating Activities $3,789 $3,796
====================================================================================================================================
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 1996 Form 10-K Report for 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 in the
consolidated financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 125 ("SFAS 125"), "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities" is effective for all transactions occurring after December 31,
1996. This Statement provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. This Statement did not have a material impact on the financial
statements of the Corporation.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share" and
Financial Accounting Standards No. 129 ("SFAS 129"), "Disclosure of Information
about Capital Structure". SFAS 128 establishes standards for computing and
presenting earnings per share. SFAS 129 establishes standards for disclosing
information about an entity's capital structure. These Statements are
effective for financial statements issued for periods ending after December 15,
1997. Management does not expect the adoption of these statements to have a
significant impact on the financial position and results of operations of the
Corporation.
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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, 1996
TO MARCH 31, 1997
Funding Sources:
Cash & Cash Equivalents $13,679
Investment Securities 10,191
Sale of Loans 5,178
Short-term Interest-Bearing Liabilities 11,734
Operating Activities 3,789
Sale of Premises & Equip. 8
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$44,579
=======
Funding Uses:
Loans $16,396
Deposits 26,499
Cash Dividends 840
Other Real Estate Owned 263
Capital Expenditures 101
Repayment of Note and Capital Leases 480
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Total Uses $44,579
=======
Total assets as of March 31, 1997 were $809.6 million compared to $825.0
million as of December 31, 1996, a reduction of $15.4 million. Deposits
totaled $709.3 million as of March 31, 1997 and $735.8 million at December 31,
1996, a decline of $26.5 million. In mid-December 1996, a corporate depositor
sold a subsidiary business and temporarily deposited $41.0 million with the
Corporation over year-end in a certificate of deposit which accounts for the
decline in total assets and deposits.
Total loans were $619.8 million and $609.0 million as of March 31, 1997 and
December 31, 1996, respectively, an increase of $10.8 million. Consumer loans
were $163.1 million and $171.4 million as of March 31, 1997 and December 31,
1996, a decline of $8.3 million. Commercial loans and tax-exempt loans totaled
$243.5 million and $233.0 million as of March 31, 1997 and December 31, 1996,
respectively, an increase of $10.5 million. Real estate mortgage loans
amounted to $213.1 million and $204.7 million as of March 31, 1997 and December
31, 1996, an
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increase of $8.4 million. The Corporation sells residential mortgage loans in
the secondary market on a nonrecourse basis. The amount of these loans sold as
of March 31, 1997 and 1996 were $5,175,000 and $3,898,000 which resulted in
gains of $3,000 and $13,000, respectively. The primary source of funds for
loan growth was the sale and maturity of securities available for sale of $10.2
million.
The reserve for possible loan losses was $6,798,000 as of March 31, 1997
compared to $6,168,000 as of December 31, 1996, an increase of $630,000. The
increase in the reserve reflects a higher provision for possible loan losses
primarily due to three commercial loans which became impaired during the three
month period ended March 31, 1997. The Corporation recorded specific reserves
of $620,000 on these impaired loans.
Demand deposits totaled $100.8 million and $110.8 million as of March 31, 1997
and December 31, 1996, respectively, a decrease of $10.0 million.
Interest-bearing demand deposits were $122.7 million and $130.0 million at
March 31, 1997 and December 31, 1997, a decline of $7.3 million. These
declines are attributable to seasonal fluctuations and the result of funds
moving to other interest-bearing deposits. Savings deposits increased $1.8
million at March 31, 1997 to $126.6 million from the $124.8 million reported at
December 31, 1996. At March 31, 1997 and December 31, 1996, time deposits were
$359.2 million and $370.2 million, respectively, a reduction of $11.0 million.
Excluding the $41.0 million in a short-term certificate of deposit over
year-end 1996, time deposits would have increased $30.0 million as of March 31,
1997. The increase in time deposits resulted from marketing and interest rate
pricing strategies focused on increasing these balances. Existing customers
have also taken advantage of higher interest rates on time deposits and shifted
funds from other deposit products offering lower interest rates.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that the Corporation has sufficient liquidity to meet
presently known cash flow requirements arising from ongoing business
transactions. During the first three months of 1997, there were no
significant changes with respect to the capital resources of the Corporation.
Management also closely monitors capital levels to provide for normal business
needs and to comply with regulatory requirements. The risk-based capital
ratios have decreased as a result of higher loan balances which are assigned a
higher risk factor for risk-based capital calculation purposes and lower
securities balances which have a lower risk classification. As summarized
below, the Corporation's capital ratios exceed the regulatory requirements for
classification as "Well Capitalized":
Regulatory
Minimum for March 31,
"Well Capitalized" 1997 1996
------------------ ----- -----
Total Capital 10% 13.6% 15.1%
Tier I Capital 6 12.4 14.3
Tier I Leverage Ratio 5 8.7 9.5
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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
Three Months Ended
March 31, 1997 & 1996
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Interest Income $2,068 15.8%
Interest Expense 1,328 24.7
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Net Interest Income 740 9.6
Provision for loan losses 800 301.9
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Net interest income after provision
for loan losses (60) (.8)
Other Income (406) (19.5)
Other Expenses 137 2.0
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Income before income tax (329) (11.8)
Income Tax Expense 94 10.7
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Net Income $ (235) (12.3)%
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A summary of the components of the net interest margin computation on a
tax equivalent basis for the three month period ending March 31, 1997 and 1996
is presented in the following table:
3/31/97 3/31/96
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Interest on Earning Assets 8.24% 8.15%
Interest on Interest Bearing Liabilities 4.40 4.08
Interest Expense Related to Earning Assets 3.62 3.31
Net Interest Margin 4.62 4.84
NET INTEREST INCOME
Interest income increased $2,068,000 or 15.8% through March 31, 1997 compared
to March 31, 1996 which resulted from an increase in loan volume offset by a
reduction in balances of securities available for sale. The change in the mix
within earning assets accounts for the slight increase of 9 basis points in the
effective yield on earning assets of 8.24% as of March 31, 1997 compared to
March 31, 1996. Interest expense for the two comparable periods increased
$1,328,000 or 24.7% in 1997 due to higher deposit balances and shift in deposit
product mix. Net interest income increased $740,000 or 9.6% as of March 31,
1997 compared to March 31, 1996.
PROVISION FOR LOAN LOSSES
The provision for possible loan losses was $1,065,000 and $265,000 as of March
31, 1997 and 1996, an increase
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of $800,000. During the third quarter of 1996 the Corporation experienced
deviations in credit underwriting standards for indirect consumer loans that
were originated in early 1996. This resulted in higher charge-offs and
delinquencies of consumer loans in the fourth quarter of 1996 (as previously
reported in the 1996 Form 10-K Report). Overall loan growth and expected
losses due to nonrecurring deviations in credit underwriting standards of
indirect consumer loans have led to higher charge-offs. Management currently
anticipates that this trend in higher consumer loan charge-offs will continue
through 1997. Net charge-offs of loans for the three months ended March 31,
1997 and 1996 were $435,000 and $509,000, respectively.
The reserve for possible loan losses as of March 31, 1997 and 1996 was
$6,798,000 and $3,689,000, respectively, an increase of $3,109,000. The higher
reserve reflects the loan growth and higher delinquencies experienced by the
Corporation as well as anticipated levels of net charge-offs. Expressed as a
percent of loans outstanding, the reserve for possible loan losses was 1.10%,
.76% and 1.01% as of March 31, 1997, March 31, 1996 and December 31, 1996,
respectively.
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. Total non-accrual loans as of March
31, 1997 amounted to $1,182,000. Loans 90 days or more past due and still
accruing interest were $1,178,000 as of March 31, 1997. These loans are
well-secured and in the process of collection. Total nonperforming assets which
includes non-accrual loans, other real estate owned and assets acquired
through repossession were $2,199,000, $2,002,000 and $2,621,000 at March 31,
1997, March 31, 1996 and December 31, 1996, respectively.
For purposes of calculating an impairment reserve in accordance with SFAS No.
114, the Corporation considers non-accrual loans, loans 90 days or more past
due (excluding small balance homogeneous consumer loans) and loans where it is
probable that all principal and interest payments due will not be made in
accordance with the notes' original contractual terms as meeting the
Statement's definition of impaired loans. Impaired loans totaled $3,126,000 at
March 31, 1997, $ 1,219,000 at March 31, 1996 and $958,000 at December 31,
1996. Large balance impaired loans (generally those with balances of $100,000
or more) accounted for $3,002,000 or 96.1 percent of total impaired loans at
March 31, 1997. The impairment reserve on $2,483,000 of impaired loans
included in the reserve for possible loan losses amounted to $626,000 at March
31, 1997. There were $643,000 of impaired loans for which no reserve was
allocated. The average balance of impaired loans was $1,803,000 for the three
month period ending March 31, 1997. Interest income recognized during the time
the loans were impaired was $70,400 with $62,500 received in cash. The
remaining performing loan portfolio was collectively evaluated for impairment.
OTHER INCOME
Total non-interest income amounted to $1,672,000 and $2,078,000 for the three
months ended March 31, 1997 and 1996, respectively, a decline of $406,000.
Security losses of $10,000 were recorded in the first quarter of 1997 compared
to gains of $365,000 for the same quarter of 1996, an overall difference of
$375,000.
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OTHER EXPENSES
Other non-interest expenses amounted to $6,585,000 and $6,722,000 for the three
months ended March 31, 1997 and 1996, a reduction of $137,000 or 2.0%. The
fluctuation of the major components of non-interest expenses are presented
below (in thousands of dollars and as a percent):
Comparison of
Three Months Ended
March 31, 1997 & 1996
---------------------
Salaries & employee benefits $ 80 2.6%
Occupancy, furniture & equipment (24) (1.9)
Marketing, advertising and
public relations (202) (67.3)
Stationery & Supplies 39 42.0
FDIC Premium Expense 30 202.3
Other Operating Expense (60) (3.0)
----- -----
Total Non-Interest Expenses $(137) (2.0)%
===== =====
The increase in salaries and employee benefits is due to normal performance
evaluations and hiring replacement staff at higher salaries which was offset by
a reduction of 11.5 FTE employees as of March 31, 1997 compared to March 31,
1996. Greater marketing, advertising and public relations expenses were
recorded in the first quarter of 1996 to introduce new deposit products to
generate additional accounts and balances. The increase in FDIC premium
expense reflects a special assessment effective January 1, 1997 to service the
debt on the Financing Corporation (FICO) bonds of 1.3 basis points on deposits
which is not tied to the FDIC risk classification and a change in the risk
classification for one of the subsidiary banks.
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 reduction in the 1997 income tax provision reported in the
accompanying financial statements for the three month periods ended March 31,
1997 and 1996 reflect the decrease in operating revenue.
Part II. OTHER INFORMATION
Item 6. Exhibit and Report on Form 8-K:
(a) A Form 8-K Report was filed on February 4, 1997, to report an
Agreement and Plan of Merger on January 27, 1997 between CB Financial
Corporation and Citizens Banking Corporation (Citizens) whereby
Citizens will acquire all of the outstanding shares of common stock
of CB Financial Corporation.
(b) 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
Treasurer
Dated: May 13, 1997
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EXHIBIT INDEX
Exhibit
No. Description
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27 Financial Data Schedule