FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------
(Mark one)
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended December 31, 1996, or
( ) Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from to
Commission file number: 0-20742
CB BANCORP, INC
Delaware 35-1866127
- -------------------------------- ----------------
(State or other jurisdiction (I.R.S. Employee
of incorporation or organization) Identification
Number)
126 E Fourth Street
- -------------------
Michigan City, Indiana 46360
- ---------------------- ----------
(Address of principal (Zip code)
executive office)
Registrant's telephone number, including area code: (219) 873-2800
--------------
Check whether the issuer (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 period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
(1) Yes X . No .
----- -----
(2) Yes X . No .
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APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
for the issuer's classes of common stock as of the latest practicable date.
Common Stock 1,162,279 Shares
------------ ----------------
(Class) (Outstanding)
CB BANCORP, INC.
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION PAGE
- ------- --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets, 1
December 31, 1996 and March 31, 1996
Consolidated Statements of Income, 2
Three and Nine Months Ended
December 31, 1996 and 1995
Consolidated Statements of Changes in Share- 3
holders' Equity, Nine Months Ended
December 31, 1996 and 1995
Consolidated Statements of Cash Flows, 4-5
Nine Months Ended December 31, 1996
and 1995
Notes to Financial Statements 6-13
Item 2. Management's Discussion and Analysis of 14-25
Financial Condition and Results of Operations.
PART II. OTHER INFORMATION
- -------- -----------------
Item 1 Legal Proceedings 26
Item 2-5 N/A 26
Item 6 Exhibits and Reports on Form 8-K 26
Signature Page 27
CB BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
Dec. 31, March 31,
1996 1996
----------- -----------
(In thousands)
ASSETS:
Cash and due from financial institutions $ 4,088 $ 4,755
Interest-earning deposits - Short Term 2,226 1,308
----------- -----------
Cash and cash equivalents 6,314 6,063
Securities available-for-sale (reported at fair value (Note 2) 648 621
Securities held-to-maturity (fair value: Dec. 31, 1996 - 5,939 5,675
$5,916; March 31, 1996 - $5,644) (Note 2)
Other Securities - Federal Home Loan Bank Stock (Note 2) 2,752 2,702
Mortgage-backed and related securities held-to-maturity (fair value:
Dec. 31, 1996 - $9,348; March 31, 1996 - $10,282) (Note 3) 9,239 10,192
Loans
Loans purchased under agreements to resell (Note 5) 101,511 80,031
Loans receivable 90,442 92,616
Less: Allowance for possible loan losses (2,309) (1,346)
----------- -----------
189,644 171,301
Mortgage loans held for sale 2,099 513
Accrued interest receivable 1,268 1,183
Premises and equipment, net 2,870 2,387
Investment in limited partnership (Note 8) 1,633 1,679
Other assets 4,147 3,069
----------- -----------
Total assets $226,553 $205,385
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities
Deposits $150,803 $137,047
Borrowed funds 53,000 45,124
Advance payment by borrowers for taxes and insurance 580 1,214
Obligation relative to limited partnership (Note 8) 1,468 1,450
Accrued expenses and other liabilities 694 1,718
------------ ------------
Total liabilities 206,545 186,553
Commitments and contingencies (Note 7)
Shareholders' equity
Serial preferred stock, no par value, 500,000
shares authorized; none outstanding
Common Stock: $.01 Par Value, 3,000,000 shares
authorized, 1,284,238 Shares Issued 13 13
Additional Paid-in capital 5,803 5,813
Retained earnings, substantially restricted 15,890 14,324
Less Treasury Stock: (Shares at cost: Dec. 31, 1996 - 121,959; (1,543) (1,082)
March 31, 1996 - 96,012)
Net unrealized net appreciation on securities available-for-sale 46 26
Less common stock acquired by employee stock ownership plan (193) (241)
Less common stock acquired by recognition and retention plan (8) (21)
----------- -----------
Total shareholders' equity 20,008 18,832
----------- -----------
Total liabilities and shareholders' equity $226,553 $205,385
=========== ===========
See accompanying notes to consolidated financial statements
1
CB BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED NINE MONTHS ENDED
December 31, December 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
(In thousands-except per share data)
Interest income:
Loans receivable $1,840 $1,931 $5,602 $5,623
Loans purchased under agreements to resell 1,931 1,576 5,487 3,780
Securities available-for-sale 8 54 23 161
Securities held-to-maturity 153 86 424 259
Mortgage-backed securities held-to-maturity 159 164 484 524
Other interest-earning deposits 12 17 22 55
----------- ----------- ----------- -----------
Total interest income 4,103 3,828 12,042 10,402
----------- ----------- ----------- -----------
Interest expense:
Deposits 1,474 1,385 4,154 3,765
Borrowed funds 570 558 1,801 1,369
----------- ----------- ----------- -----------
Total interest expense 2,044 1,943 5,955 5,134
----------- ----------- ----------- -----------
Net interest income 2,059 1,885 6,087 5,268
Less provision for loan losses 450 99 861 238
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 1,609 1,786 5,226 5,030
----------- ----------- ----------- -----------
Noninterest income:
Gain (loss) on sale of interest-earning assets 79 0 200 0
Commission income 19 25 68 73
Service charges and fees 133 127 392 374
Fees - loans purchased under agreements to resell 178 104 486 242
Late charges 6 6 20 17
Other 30 56 95 132
----------- ----------- ----------- -----------
Total noninterest income 445 318 1,261 838
----------- ----------- ----------- -----------
Noninterest expense:
Compensation and employee benefits 483 400 1,437 1,147
Occupancy and equipment 147 117 448 376
SAIF deposit insurance premium 73 67 943 194
Data processing fees 59 60 179 181
Telephone, postage and supplies 71 53 196 149
Advertising and promotion 28 24 93 70
Professional fees 80 40 215 113
Employee expense and payroll taxes 75 52 221 137
Other 119 86 398 280
----------- ----------- ----------- -----------
Total noninterest expense 1,135 899 4,130 2,647
----------- ----------- ----------- -----------
Income before taxes 919 1,205 2,357 3,221
Income tax expense 318 472 791 1,246
----------- ----------- ----------- -----------
Net income $ 601 $ 733 $1,566 $1,975
====== ====== ====== ======
Earnings per share (Note 6) $0.49 $0.58 $1.26 $1.57
Earnings per share assuming full dilution (Note 6) $0.49 $0.58 $1.26 $1.56
See accompanying notes to consolidated financial statements
2
CB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Unrealized Common Stock Total
Losses on Acquired by Share-
Nine Months Ended Retained Securities Common Paid in Treasury ------------- holders
Dec. 31, 1995 Earnings A.F.S. Stock Capital Stock ESOP RRP Equity
- -------------------------------------------------------------------------------------------------------------------------
(In Thousands)
Balance at April 1, 1995 $11,865 $ 2 $13 $5,822 $ (671) $(305) (48) $16,678
Net income 1,975 1,975
Issuance of treasury stock (75) 140 65
Purchase of treasury stock (554) (554)
Contribution to fund ESOP 48 48
Amortization of RRP contribution 23 23
Net change in unrealized 23 23
net depreciation of securities
available-for-sale
- -------------------------------------------------------------------------------------------------------------------------
Balance at Dec. 31, 1995 $13,840 $25 $13 $5,747 $(1,085) $(257) $(25) $18,258
=======================================================================================
Unrealized Common Stock Total
Losses on Acquired by Share-
Nine Months Ended Retained Securities Common Paid in Treasury ------------- holders
Dec. 31, 1996 Earnings A.F.S. Stock Capital Stock ESOP RRP Equity
- -------------------------------------------------------------------------------------------------------------------------
(In Thousands)
Balance at April 1, 1996 $14,324 $26 $13 $5,813 $(1,082) $(241) $(21) $18,832
Net income 1,566 1,566
Issuance of treasury stock (10) 19 9
Purchase of treasury stock (480) (480)
Contribution to fund ESOP 48 48
Amortization of RRP contribution 13 13
Net change in unrealized 20 20
net depreciation of securities
available-for-sale
- -------------------------------------------------------------------------------------------------------------------------
Balance at Dec. 31, 1996 $15,890 $46 $13 $5,803 $(1,543) $(193) $ (8) $20,008
=======================================================================================
See accompanying notes to consolidated financial statements
3
CB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
December 31,
-----------------------------
1996 1995
----------- -----------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,566 $1,975
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization 119 148
Provision for loan losses 861 238
(Gain) loss on sale of:
Interest earning assets (200) 0
Foreclosed Real Estate 1 0
Loans purchased under agreements to resell (804,324) (525,553)
Sale of loans purchased under agreements to resell 782,844 477,967
Mortgage loans originated for sale (12,715) 0
Proceeds from sales of mortgage loans held for sale 11,129 0
Amortization of RRP contribution 13 23
Change in accrued interest receivable (85) (394)
Change in other assets (1,078) 289
Change in accrued interest payable and other liabilities (1,024) 23
------------ ------------
Net cash from operating activities (22,893) (45,284)
CASH FLOWS FROM INVESTING ACTIVITIES
Principal collected on:
Mortgage-backed securities held-to-maturity 1,646 1,856
Securities available for sale 6 0
Purchase of:
Securities and mortgage backed securities held-to-maturity (3,719) (5,272)
Federal Home Loan Bank Stock (50) (202)
Proceeds from:
Maturities of securities held-to-maturity 2,756 5,894
Purchase of loans 0 (1,527)
Net change in loans 2,180 (3,662)
Net change in interest-earning deposits in other financial institutions 0 983
Investment in limited partnership 46 (41)
Proceeds from the sale of foreclosed real estate 333 67
Property and equipment purchases (637) (67)
------------ ------------
Net cash from investing activities 2,561 (1,971)
4
CB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
NINE MONTHS ENDED
December 31,
----------------------------
1996 1995
----------- -----------
(In thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 13,746 11,536
Net change in advances from
borrowers for taxes and insurance (634) (513)
New borrowings 1,260,326 1,354,570
Repayments of borrowed funds (1,252,432) (1,311,703)
Contribution to fund ESOP 48 65
Issuance of treasury stock 9 48
Purchase of treasury stock (480) (554)
----------- ------------
Net cash from financing activities 20,583 53,449
----------- ------------
Net change in cash and cash equivalents 251 6,194
Cash and cash equivalents at beginning of period 6,063 3,543
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $6,314 $9,737
=========== ============
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $5,846 $5,549
Income taxes 1,634 1,090
Noncash investing activities
Real estate acquired in settlement of loans $ 334 $0
See accompanying notes to financial statements
5
CB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-QSB and, therefore, do not
include all disclosures required by generally accepted accounting principles for
complete presentation of financial statements. In the opinion of management, the
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the consolidated balance
sheets of CB Bancorp, Inc., ("the Company"), and its wholly owned subsidiary,
Community Bank, A Federal Savings Bank ("the Bank"), as of December 31, 1996 and
March 31, 1996 and the consolidated statements of income, changes in
shareholders' equity and cash flows for the nine months ended December 31, 1996
and 1995. All significant intercompany transactions and balances are eliminated
in consolidation. The income reported for the three and nine months ended
December 31, 1996 is not necessarily indicative of the results that may be
expected for the full fiscal year. For other accounting policies refer to the
financial statements incorporated by reference in the Annual Report or Form
10-KSB for the fiscal year ended March 31, 1996.
Note 2 - Securities
The amortized cost and fair values of securities at December 31, 1996
are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- --------- --------- ---------
(In thousands)
Available-for-Sale
- ------------------
Marketable Equity securities $ 572 77 (1) 648
========= ========= ========= =========
Held-to-Maturity
----------------
U.S. Government and U.S. Government
agency securities $3,000 $ - $ (29) $2,971
Corporate notes 2,939 7 (1) 2,945
--------- ---------- ---------- ----------
Total $5,939 $ 7 $ (30) $5,916
========= ========== ========== ==========
Other Securities
----------------
Stock in Federal Home Loan Bank $2,752 $ - $ - $2,752
========= ========== ========== ==========
6
CB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 2 - Securities (continued)
The amortized cost and fair values of securities at March 31, 1996 are
as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- --------- --------- ---------
(In thousands)
Available-for-Sale
- ------------------
Marketable Equity securities 578 44 (1) 621
====== ======= ======= =======
Held-to-Maturity
----------------
U.S. Government and U.S. Government
agency securities $3,000 $ - $ (30) $2,970
Corporate notes 2,675 5 (6) 2,674
--------- ---------- ---------- ----------
Total $5,675 $ 5 $ (36) $5,644
========= ========== ========== ==========
Other Securities
----------------
Stock in Federal Home Loan Bank $2,702 $ - $ - $2,702
========= ========== ========== ==========
The amortized cost and fair value of debt securities at December 31,
1996, by contractual maturity, are shown below. Expected maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Dec. 31, 1996
----------------------
Amortized Fair
Cost Value
--------- ----------
(In thousands)
Due in one year or less ................. $2,446 $2,448
Due after one year through five years ... 3,493 3,468
--------- ----------
$5,939 $5,916
========= ==========
7
CB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 2 - Securities (continued)
There were no sales of securities available-for-sale during the nine
months ended December 31, 1996.
At December 31, 1996, there were no holdings of securities of any one issuer,
other than the U.S. government and its agencies and corporations, in amounts
greater than 10% of shareholders' equity.
Note 3 - Mortgage-Backed and Related Securities
The carrying value and fair value of mortgage-backed and related
securities held-to-maturity as presented on the balance sheets are summarized as
follows:
December 31, 1996
-----------------------------------------------------------
Principal Unamortized Unearned Carrying Fair
Balance Premiums Discounts Value Value
-----------------------------------------------------------
(In Thousands)
GNMA certificates $ 3,309 $ 6 $ (5) $ 3,310 $ 3,375
FHLMC certificates 4,678 - (2) 4,676 4,708
FNMA certificates 900 - (10) 890 901
Collateralized mortgage
obligations 365 - (2) 363 364
-----------------------------------------------------------
Total $ 9,252 $ 6 $ (19) $ 9,239 $ 9,348
===========================================================
March 31, 1996
-----------------------------------------------------------
Principal Unamortized Unearned Carrying Fair
Balance Premiums Discounts Value Value
-----------------------------------------------------------
(In Thousands)
GNMA certificates $ 3,600 $ 9 $ (10) $ 3,599 $ 3,646
FHLMC certificates 4,892 3 (6) 4,889 4,914
FNMA certificates 880 - (8) 872 886
Collateralized mortgage
obligations 834 1 (3) 832 836
-----------------------------------------------------------
Total $10,206 $ 13 $ (27) $10,192 $10,282
===========================================================
8
CB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 3 - Mortgage-Backed and Related Securities (continued)
Gross unrealized gains and losses on mortgage-backed and related
securities held-to-maturity are as follows:
Dec. 31, 1996 March 31, 1996
------------------------ ------------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealize Unrealized
Gains Losses Gains Losses
---------- ---------- ---------- ----------
(In thousands)
GNMA certificates $ 65 $ - $ 53 $ (7)
FHLMC certificates 40 (8) 72 (47)
FNMA certificates 11 - 14 -
Collateralized mortgage
obligations 2 (1) 4 -
---------- ---------- ---------- ----------
Total $ 118 $ (9) $ 143 $ (54)
========== ========== ========== ==========
The Company did not sell any mortgage-backed and related securities
held-to-maturity during the nine months ended December 31, 1996 and during the
nine months ended December 31, 1995.
Note 4 - Concentrations of Credit Risk
The Company grants real estate and consumer loans including education,
home improvement and other consumer loans primarily in LaPorte and Porter
counties of Indiana. Substantially all loans are secured by consumer assets and
real estate. Loans purchased under agreements to resell are residential mortgage
loans secured by one to four family residences located throughout the United
States.
Note 5 - Loans Purchased Under Agreements to Resell
The Company purchases residential mortgage loans from various mortgage
companies prior to sale of these loans by the mortgage companies in the
secondary market. The Company purchases such loans from mortgage companies at
par, net of certain fees, and later sells them back to the mortgage companies at
the same amount and without recourse provisions. The Company records interest
income on the loans during the funding period and the Company records fee income
(recorded as noninterest income) received from the mortgage company for each
loan when resold. Purchase money and refinance mortgage loans are generally held
no more than 90 days by the Company and typically are resold within 30 days.
Construction loan mortgages purchased, are held for the duration of the
construction period which is typically six months or longer. With regard to the
interim construction loans in the pipeline, the Company recognizes that there
may be credit risk due to possible change in the borrower's financial condition
during the interim construction period. The Company had
9
CB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 5 - Loans Purchased Under Agreements to Resell (continued)
approximately $32.7 million of interim construction loans in the pipeline at
December 31, 1996 as compared to $29.4 million at March 31, 1996.
NOTE 6 - Earnings Per Common Share
Earnings per common and common equivalent share were computed by
dividing net income by the weighted-average number of shares of common stock and
common stock equivalents outstanding. Employee and Director stock options are
considered common stock equivalents. The weighted-average number of shares
outstanding for the calculation of earnings per common and common stock
equivalent share for the three months ended December 31, 1996 and 1995 was
1,237,895 and 1,254,192, respectively. The weighted-average number of shares
outstanding for the calculation of fully-diluted earnings per common and common
stock equivalent share for the three months ended December 31, 1996 and 1995 was
1,238,077 and 1,254,613, respectively.
The weighted-average number of shares outstanding for the calculation
of earnings per common and common stock equivalent share for the nine months
ended December 31, 1996 and 1995 was 1,241,567 and 1,261,923, respectively. The
weighted-average number of shares outstanding for the calculation of
fully-diluted earnings per common and common stock equivalent share for the nine
months ended December 31, 1996 and 1995 was 1,246,235 and 1,267,356,
respectively.
Note 7 - Commitments and Contingencies
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to make loans,
standby letters of credit and unused lines of credit. The Company's exposure to
credit loss, in the event of nonperformance by the other party to the financial
instrument for commitments to make loans, standby letters of credit and unused
lines of credit, is represented by the contractual amount of those instruments.
The Company follows the same credit policy to make such commitments as it
follows for those loans recorded in the financial statements. At December 31,
1996, and March 31, 1996, the Company had commitments to make loans totaling
$558,000 and $137,000 respectively and standby letters of credit and unused
lines of credit totaling $6.7 million and $5.4 million, respectively. In
addition, the Company's undisbursed portion of construction loans in the
repurchase program totaled $12.0 million at December 31, 1996 and $12.4 million
at March 31, 1996. Outstanding commitments to make loans at December 31, 1996
consisted of nine single family mortgage loans, consisting of three adjustable
rate loans totalling $215,000 and six fixed rate loans totalling $343,000. Since
commitments to make loans and to fund lines and letters of credit
10
CB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 7 - Commitments and Contingencies (continued)
may expire without being used, the amounts do not necessarily represent future
cash commitments.
Note 8 - Affordable Housing Tax Credit Project
The Company, through the Bank's subsidiary, Community Financial
Services, Incorporated, has a 99% limited partner interest in Pedcor
Investments-1994-XX, L.P. which was formed for the construction, ownership, and
management of an 80 unit apartment project located in Michigan City, Indiana.
Financing consists of a $2,550,000 first mortgage loan funded with tax exempt
bonds.
The Bank is the lead lender in the debt financing arrangement and has guaranteed
through letters of credit $1,550,000 of the debt financing, which represents the
Bank's share of the mortgage loan. The remaining portion of the debt financing
is guaranteed by participating lenders through letters of credit in amounts
proportional to their loan amounts. The Bank and other lending institutions have
as their security a first mortgage lien and assignment of rents and leases on
the apartment complex. As of December 31, 1996, Community Financial has invested
$1,633,000 in the limited partnership. Community Financial contributed $165,000
in cash to the partnership while the remaining $1,468,000 was funded by
short-term tax-exempt notes backed by a letter of credit issued by the Bank.
Terms of the partnership agreement allocate 99% of the eligible tax credits to
the Company. For the year ended March 31, 1996, the Company received $70,000 in
tax credits, which were the first tax credits received from the limited
partnership. For the nine months ended December 31, 1996, the Company recorded
$111,000 in anticipated tax credits from the limited partnership.
Note 9 - Allowance for Loan Losses
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Estimating the risk of loss and
the amount of loss on any loan is necessarily subjective. Accordingly, the
allowance is maintained by management at a level considered adequate to cover
losses that are currently anticipated. Management's periodic evaluation of the
adequacy of the allowance is based on the Company's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrowers ability to repay, the estimated value of any underlying
collateral, and current economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Company's allowance for losses on loans and foreclosed real estate. Such
agencies may require the Company to recognize additions to the allowances based
on their judgments of information available to them at the time of their
examination.
11
CB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 9 - Allowance for Loan Losses (continued)
Activity in the allowance for loan losses was as follows for the nine months
ended December 31 (In Thousands).
1996 1995
--------- ---------
Balance at March 31 $1,346 $ 672
Provision for loan losses 861 238
Charged-off loans (16) (3)
Recoveries 118 -
--------- ---------
Balance at Dec. 31 $2,309 $ 907
========= =========
Information regarding impaired loans is as follows for the nine months ended
December 31, 1996:
Average investment in impaired loans $2,853
Interest income recognized on impaired loans
including interest income recognized on cash basis 77
Interest income recognized on impaired loans on cash basis 67
Information regarding impaired loans at December 31, 1996 is as follows:
Balance of impaired loans $4,690
Less portion for which no allowance for loan losses is allocated (1,223)
-------
Portion of impaired loan balance for which an
allowance for loan losses is allocated $3,467
=======
Portion of allowance for loan losses allocated to impaired loan balance $ 629
=======
Of the total balance of impaired loans as of December 31, 1996, $1.6 million
relates to amounts associated with the Bennett Funding Group, Inc. and its
affiliate Aloha Capital Corporation (f.k.a. Bennett Leasing). Bennett Funding
Group, Inc. sought Chapter 11 Bankruptcy protection on March 29, 1996. Several
weeks later, Aloha Capital Corporation was placed into involuntary bankruptcy at
the request of the court appointed Bankruptcy Trustee for Bennett Funding Group,
Inc., who is now also the Bankruptcy Trustee for Aloha Capital Corporation. Per
the terms of the contractual arrangements, Bennett Funding Group, Inc. acts as
the servicing agent for the Company on one pool of leases purchased from that
entity, wherein, at December 31, 1996, $396,000 of principal remained to be
remitted to the Company over the course of the remaining scheduled lease
payments due from individual lessees. Similarly, at December 31, 1996, $1.2
million of principal remained to be remitted to the Company on three pools of
leases purchased from and serviced by Aloha Capital Corporation. Payment due the
Company on the four pools of leases were current at the time the respective
servicing companies were placed in bankruptcy. The Bankruptcy Trustee is
monitoring the lease payment billing and collection activities of the servicing
companies and is segregating the payments received from the individual lessees
but has not yet allowed the resumption of the payment stream due the Company.
Management believes that it is possible to recover 78.5% - 82% of the
outstanding principal balance over the remaining life of the leases. Management
can make no assurances as to the outcome of this matter, or if any of the
outstanding principal balance will be recovered. Management has allocated
$329,000 in specific loan loss reserves at December 31, 1996, for the Bennett
Funding Group, Inc., leases.
12
CB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 9 - Allowance for Loan Losses (continued)
Management has allocated $300,000 in specific loan loss reserves at December 31,
1996, for 23 single family construction loans, all located in the central
Indiana area, with a total balance outstanding of $2.5 million and total
unfunded commitments of $494,000 that are in workout situations. Twenty of these
loans are outstanding to a builder that is currently experiencing financial
difficulties and is in the process of filing Chapter 11 Bankruptcy. The
properties underlying these loans are in various stages of completion and
management has not yet determined the potential loss exposure on these loans.
The properties underlying the remaining three loans have a combined outstanding
balance of $1.2 million and construction is complete.
13
Management's Discussion and Analysis
of Plan of Operation
General
The Company's results of operations are dependent primarily on the
Bank. The Bank's primary source of earnings is its net interest income which is
the difference between the interest income earned on its loans, mortgage-backed
securities and investment portfolios less its cost of funds, consisting of the
interest paid on its deposits and borrowings. Operating results are also
affected by the types of lending engaged in, fixed-rate versus adjustable or
short-term, each of which has a different rate and fee structure. The Company's
operating expenses principally consist of employee compensation and benefits,
occupancy and equipment expenses, federal deposit insurance premiums and other
general and administrative expenses. The Company's results of operations are
also significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
Mortgage Loan Reverse Repurchase Program
In fiscal 1991, the Company instituted the Mortgage Loan Reverse
Repurchase Program (the "Program"). There are currently seventy-nine active
participants in the Program. The Mortgage Loan Reverse Repurchase Program is
carried out pursuant to agreements with each participant which provide for the
purchase at par (less certain fees paid to the participant by the borrower) of
whole mortgage loans by the Company, at its option, and the subsequent resale of
such loans to the Participant (for transfer to an end investor). Purchase money
and refinance mortgage loans are generally held no more than 90 days by the
Company and typically are resold within 30 days. Construction loan mortgages
acquired via the Program, are held for the duration of the construction loan
period, typically for six months or longer. At December 31, 1996, construction
loan balances totaled $32.7 million and accounted for 32.2% of the Company's
total outstanding investment in the Program. Construction loan balances totaled
$29.4 million at March 31, 1996. The Company records interest income on the
loans based on a rate of interest tied to the prime rate (as established from
time to time by a major Chicago-based financial institution) during the funding
period, and not the rates on individual loans, plus a fee (recorded as
noninterest income) collected from the Participant for each loan when that loan
is resold. It is the Company's policy to purchase under the Program only those
loans that comply with accepted secondary market underwriting standards. The
Company's Mortgage Loan Reverse Repurchase Program has been and is a key
contributor to the Company's efforts to maintain a strong net interest margin.
Management is aware that a decline in Program activity would negatively impact
the Company's profitability.
14
Financial Condition
Total assets increased $21.2 million or 10.3%, to $226.6 million at
December 31, 1996 from $205.4 million at March 31, 1996. The increase is
primarily attributable to a $21.5 million or 26.9% increase in loans purchased
under agreements to resell under the Program. Management attributes this
increase to an increase in mortgage refinancings and home mortgage originations
due to an increase in the number of mortgage companies participating in the
Program. Since its inception, the Program has caused the level of the Company's
assets and liabilities and capital ratios to significantly fluctuate between
periods. The $2.2 million decrease in loans receivable results from management's
decision to sell a majority of the Company's single family loan production. This
decision also resulted in a $1.6 million increase in Mortgage loans held for
sale. Over this same time period, FHLB Stock and securities increased $0.3
million or 3.8%; other assets increased $1.1 million or 35.1% primarily
attributable to changes in the Company's income tax obligations, and
mortgage-backed and related securities decreased $1.0 million or 9.4%. Premises
and equipment, net, increased $0.5 million or 20.6% due to the completion of
renovations at our LaPorte branch facility.
Total borrowed funds increased $7.9 million or 17.5%, to $53.0 million at
December 31, 1996 from $45.1 million at March 31, 1996. This increase is
attributable to the increased funding needs of the Program. Borrowed funds
outstanding at December 31, 1996 consist of $46.0 million in advances
outstanding with the Federal Home Loan Bank of Indianapolis, of which $45.0
million have maturities of one year or less, and federal funds purchased of $7.0
million.
Deposits increased $13.8 million or 10.0%, to $150.8 million at December 31,
1996, from $137.0 million at March 31, 1996. The increase in deposits is
primarily attributable to the company accepting institutional and public funds
deposits to meet the increased funding needs of the Program.
The primary objective of the Company's $18.6 million securities portfolio is to
contribute to profitability by providing a stable cash flow of dependable
earnings. The investment portfolio consists of U.S. Government Agency
securities, short-term investment grade corporate notes and Federal Home Loan
Bank Stock. The Company also has investments in both variable and fixed rate
U.S. Government Agency mortgage-backed securities and collateralized mortgage
obligations. The Company's portfolio of securities contains no securities
classified by the Federal Banking Regulators as "High Risk Derivative
Securities".
15
Risk Elements
Non-performing Assets: Non-performing assets totaled $5.4 million at December
31, 1996, an increase of $2.5 million from March 31, 1996. Loan loss reserves at
December 31, 1996 totaled $2.3 million or 42.4% of total non-performing assets
and increased $963,000 from March 31, 1996.
The increase in impaired loans is related to the construction loan segment of
the Company's Mortgage Loan Reverse Repurchase Program. At December 31, 1996,
the Company had 23 single family construction loans, all located in the central
Indiana area, with a total balance outstanding of $2.5 million and total
unfunded commitments of $494,000 that are in workout situations. Twenty of these
loans are outstanding to a builder that is currently experiencing financial
difficulties and is in the process of filing Chapter 11 Bankruptcy. The
properties underlying these loans are in various stages of completion and
management has not yet determined the potential loss exposure on these loans.
The properties underlying the remaining three loans have a combined outstanding
balance of $1.2 million and construction is complete. Management has allocated
$525,000, $300,000 of which is specific, to the allowance for loan losses
balance at December 31, 1996, for these 23 construction loans.
Also included in the December 31, 1996 impaired assets total, is $1.6 million in
principal due the Company on four pools of small business equipment leases that
the Company acquired through contractual relationships entered into with Bennett
Funding Group, Inc. and its affiliate Aloha Capital Corporation (f.k.a. Bennett
Leasing Corporation). Bennett Funding Group, Inc. sought Chapter 11 Bankruptcy
protection on March 29, 1996. Several weeks later, Aloha Capital Corporation was
placed into involuntary bankruptcy at the request of the court appointed
Bankruptcy Trustee for Bennett Funding Group, Inc., who is now also the
Bankruptcy Trustee for Aloha Capital Corporation. Per the terms of the
contractual arrangements, Bennett Funding Group, Inc. acts as the servicing
agent for the Company on one pool of leases purchased from that entity, wherein,
at December 31, 1996, $396,000 of principal remained to be remitted to the
Company over the course of the remaining scheduled lease payments due from
individual lessees. Similarly, at December 31, 1996, $1.2 million of principal
remained to be remitted to the Company on three pools of leases purchased from
and serviced by Aloha Capital Corporation. Payment due the Company on the four
pools of leases were current at the time the respective servicing companies were
placed in bankruptcy. The Bankruptcy Trustee is monitoring the lease payment
billing and collection activities of the servicing companies and is segregating
the payments received from the individual lessees but has not yet allowed the
resumption of the payment stream due the Company. Management believes that it
is possible to recover 78.5% - 82% of the outstanding principal balance over
the remaining life of the leases. Management can make no assurances as to
the outcome of this matter, or if any of the outstanding principal balance
will be recovered. Management has allocated $329,000 in specific loan loss
reserves at December 31, 1996, for the Bennett Funding Group, Inc., leases.
16
Schedule of Non-performing Asset
Dec. 31, March 31, Dec. 31,
1996 1996 1995
---------- ---------- ----------
(In Thousands)
Accruing mortgage loans
delinquent more than 90 days $ - $ - $ -
Accruing consumer and other
loans delinquent more than
90 days 1 4 3
Non-accruing mortgage loans
delinquent more than 90 days 466 523 1,245
Non-accruing consumer and
other loans delinquent more
than 90 days - - -
---------- ---------- ----------
Total loans delinquent more
than 90 days 467 527 1,248
Restructured loans 292 306 359
Impaired Loans 4,690 2,164 -
---------- ---------- ----------
Total non-performing loans 5,449 2,997 1,607
Total real estate owned,
net of related reserves 0 - 0
---------- ---------- ----------
Total non-performing assets $ 5,449 $ 2,997 $ 1,607
========== ========== ==========
Total non-performing assets
to total loans 2.84% 1.74% 1.77%
Total non-performing assets
to total assets 2.41 1.46 0.81
Total loan loss allowances
to non-performing assets 42.37 44.91 56.44
17
Interest Rate Sensitivity
The Company's primary strategy for controlling interest rate risk exposure, is
to maintain a high level of the Company's asset portfolios in interest rate
sensitive assets. Management has accomplished this objective through its
investment in the Loan Reverse Repurchase Program. Under the Program, the
Company purchases single family mortgage loans from select mortgage banking
firms on a short-term basis under agreements to resell and earns an adjustable
prime based return during the holding period. The Program has complemented the
Company's portfolio of adjustable rate loans held for investment which account
for approximately 36% of the loans receivable portfolio. In addition, the
Company has sought to lengthen the maturity of its interest-bearing liabilities
by emphasizing longer term certificates of deposit. The Company also has the
ability to obtain long-term advances from the Federal Home Loan Bank of
Indianapolis if such borrowings appear favorable under a particular interest
rate environment.
Management regularly measures the Bank's interest rate risk by monitoring the
Company's interest rate risk ("IRR") measures produced by the Office of Thrift
Supervision from the Bank's quarterly thrift financial reports. In 1990, the
regulators adopted the interest-rate sensitivity approach as one measure of
interest-rate risk. This approach measures the projected changes in net
portfolio value ("NPV") that would result if interest rates were to increase by
100, 200, 300 and 400 basis points, or if interest rates were to decline by 100,
200, 300 and 400 basis points. Net portfolio value is defined by the market
value of assets less the market value of liabilities. According to the "Interest
Rate Risk Report," prepared by the Office of Thrift Supervision as of September
30, 1996 (most recent available), after an adverse rate shock of +200 basis
points, the Bank's NPV of $22.6 million was projected to decline $1.2 million or
5.4%, to $21.4 million. According to the OTS report, 80% of Thrifts nationwide
would have experienced an decline of more than 7.1%. Presented below, as of
September 30, 1996, is an analysis of the Bank's interest rate risk as measured
by changes in NPV for instantaneous and substantial parallel shifts of 100 basis
points in market interest rates.
Interest Rate Sensitivity of Net Portfolio Value (NPV)
Net Portfolio Value
-------------------
Change
in rates $ Amount $ Change % CHANGE
-------- --------- --------- ---------
+400 bp 19,737 -2,863 -13%
+300 bp 20,584 -2,016 - 9%
+200 bp 21,386 -1,214 - 5%
+100 bp 22,079 - 521 - 2%
0 bp 22,600
-100 bp 22,789 + 189 + 1%
-200 bp 22,308 - 292 - 1%
-300 bp 22,154 - 446 - 2%
-400 bp 22,387 - 213 - 1%
18
Comparison of Operating Results
Three Months Ended December 31 1996, Compared to Three Months
- -------------------------------------------------------------
Ended December 31, 1995
- -----------------------
General: The Company reported net income of $601,000 for the three month period
ended December 31, 1996 which represents an 18.0% decrease over the comparable
three-month period in 1995 in which the Company reported net income of $733,000.
The decrease in net income is primarily attributable to management's decision to
set aside $450,000 in loan loss provisions for the three month period ended
December 31, 1996 in comparison to $99,500 in loan loss provisions for the three
month period ended December 31, 1995.
Interest Income: Interest income increased $275,000 million or 7.2%, from $3.8
million at December 31, 1995, to $4.1 million at December 31, 1996. The increase
in interest income is primarily attributable to an increase in the Company's
outstandings in the Mortgage Loan Reverse Repurchase Program. The Company's
average outstanding investment in the Program increased $16.6 million or 25.1%,
from $66.1 million for the three months ended December 31, 1995 to $82.7 million
for the three months ended December 31, 1996. Over this same time period,
interest income on loans purchased under agreements to resell increased $355,000
or 22.5%. The increase in outstandings in the Program is attributable to an
increase in mortgage refinancings and home mortgage originations due to an
increase in the number of mortgage companies participating in the Program.
Interest Expense: Interest expense increased $101,000 or 5.2%, from $1.9 million
for the three months December 31, 1995, to $2.0 million for the three months
ended December 31, 1996. The increase is primarily attributable to an $89,000
or 6.4% increase in interest on deposits and a $12,000 or 2.2% increase in
interest on borrowings resulting from the increased funding needs of the
Program.
Net Interest Income: Net interest income before the provision for loan losses
increased by $174,000 or 9.2% from $1.9 million for the three months ended
December 31, 1995, to $2.1 million for the three months ended December 31, 1996.
This increase in net interest income over the prior year's quarter is primarily
attributable to management's efforts to profitably grow the Loan Reverse
Repurchase Program.
Provision for Loan Losses: The provision for loan losses increased $351,000 or
354.5%, from $99,000 for the three months ended December 31, 1995, to $450,000
for the three months ended December 31, 1996. Management's decision to increase
the provision reflects upon an increase in the Company's level of non-performing
assets and increased activity in construction lending, commercial lending and
consumer lending. The Company will continue to monitor its allowance for loan
losses and make future loan loss provisions in consideration of the amount and
types of loans in its portfolio and as economic conditions dictate.
19
Noninterest income: Noninterest income increased $127,000 or 39.9% to $445,000
for the three months ended December 31, 1996, from $318,000 for the three months
ended December 31, 1995. This increase was primarily attributable to a $74,000
or 71.2% increase in fees related to the repurchase program, and to $79,000 in
gains realized from the sale of single family mortgage loans.
Noninterest expense Noninterest expense increased $236,000 or 26.3% to $1.1
million for the three months ended December 31, 1996, from $899,000 for the same
time period in the prior year. The increase in noninterest expenses is primarily
attributable to increased personnel and occupancy expenses related to the
Company's newly established Mortgage Banking Division.
Income Tax Expense: Income tax expense decreased $154,000 or 32.6%, from
$472,000 for the three months ended December 31, 1995, to $318,000 for the three
months ended December 31, 1996. This decrease is primarily attributable to a
decrease in earnings.
Nine Months Ended December 31 1996, Compared to Nine Months Ended
December 31, 1995
General: The Company reported net income of $1,566,000 for the nine month period
ended December 31, 1996 which represents a 20.7% decrease over the comparable
nine-month period in 1995 in which the Company reported net income of $2.0
million. The decrease in net income is primarily attributable to a non-recurring
pre-tax charge of $723,000 resulting from legislation signed into law on
September 30, 1996 to recapitalize the Federal Deposit Insurance Corporation's
(FDIC) Savings Association Insurance Fund (SAIF). This one time, special
assessment reduced second quarter after tax earnings by $437,000 or $0.36 per
share. Earnings were also negatively impacted by management's decision to
increase loan loss provisions.
Interest Income: Interest income increased $1.6 million or 15.8%, from $10.4
million at December 31, 1995, to $12.0 million at December 31, 1996. The
increase in interest income is primarily attributable to an increase in the
Company's outstandings in the Mortgage Loan Reverse Repurchase Program. The
Company's average outstanding investment in the Program increased $29.9 million
or 47.5%, from $53.5 million for the nine months ended December 31, 1995 to
$78.9 million for the nine months ended December 31, 1996. Over this same time
period, interest income on loans purchased under agreements to resell increased
$1.4 million or 61.4%. The increase in outstandings in the Program is
attributable to an increase in mortgage refinancings and home mortgage
originations due to an increase in the number of mortgage companies
participating in the Program.
20
Interest Expense: Interest expense increased $821,000 or 16.0%, from $5.1
million for the nine months ended December 31, 1995, to $6.0 million for the
nine months ended December 31, 1996. The increase is primarily attributable to a
$432,000 or 31.6% increase in interest on borrowings and a $389,000 or 10.3%
increase in interest on deposits resulting from the increased funding needs of
the Program.
Net Interest Income: Net interest income before the provision for loan losses
increased by $819,000 or 15.5% from $5.3 million for the nine months ended
December 31, 1995, to $6.1 million for the nine months ended December 31, 1996.
This increase in net interest income over the prior year's period is primarily
attributable to management's efforts to profitably grow the Loan Reverse
Repurchase Program.
Provision for Loan Losses: The provision for loan losses increased $623,000 or
195.7%, from $238,000 for the nine months ended December 31, 1995, to $861,000
for the nine months ended December 31, 1996. The increase in the provision
reflects an increase in the Company's level of non-performing assets and
increased activity in construction lending, commercial lending and consumer
lending. The Company will continue to monitor its allowance for loan losses and
make future loan loss provisions in consideration of the amount and types of
loans in its portfolio and as economic conditions dictate.
Noninterest income: Noninterest income increased $423,000 or 50.5% to $1,261,000
for the nine months ended December 31, 1996, from $838,000 for the nine months
ended December 31, 1995. This increase was primarily attributable to a $244,000
or 100.8% increase in fees related to the repurchase program, and to $200,000 in
gains realized from the sale of single family mortgage loans.
Noninterest expense: Noninterest expense increased $1.5 million or 56.0% to $4.1
million for the nine months ended December 31, 1996, from $2.6 million for the
same time period in the prior year. The increase in noninterest expenses is
primarily attributable to a $723,000 increase in deposit insurance premiums
resulting from the one time assessment cited above, and increased personnel and
occupancy expenses related to the Company's newly established Mortgage Banking
Division.
Income Tax Expense: Income tax expense decreased $455,000 or 38.8%, from $1.2
million for the nine months ended December 31, 1995, to $791,000 for the nine
months ended December 31, 1996. This decrease is primarily attributable to a
decrease in earnings.
21
Liquidity and Capital Resources
The Bank is required under applicable federal regulations to maintain a
liquidity ratio at certain specified levels which are subject to change.
Currently, a minimum of 5.0% of the combined total of deposits and short term
borrowings must be maintained in the form of liquid assets. At December 31, 1996
liquidity as measured for regulatory purposes was 6.8% as compared to a ratio of
7.7% at March 31, 1996.
Management structures the liquid asset portfolio and borrowing capacity of the
Company to meet the cash flow needs of operating, investing and financing
activities. The Company's net liquid assets are cash and cash equivalents, which
include investments in highly liquid investments. At December 31, 1996 cash and
cash equivalents totaled $6.3 million. In addition, the Company maintains a
$5.0 million line of credit with the FHLB of Indianapolis to meet short-term
liquidity needs.
Cash flows from operating activities consisted primarily of net income and
activity under the Program. Net cash flows provided for operating activities
were ($22.9) million and ($45.3) million for the nine months ended December 31,
1996 and 1995, respectively. The Company's primary investing activities have
been the purchase and monitoring of securities and mortgage-backed securities
and the purchase, origination and repayment of loans. Net cash flows provided
from investing activities were $2.6 million and ($2.0) million for the nine
months ended December 31, 1996 and 1995, respectively. Cash flows from financing
activities consisted of deposit activity, new borrowings and the repayment of
borrowings. Net cash flow provided from financing activities were $20.6 million
and $53.4 million for the nine months ended December 31, 1996 and 1995.
Shareholders' equity at December 31, 1996 was $20.0 million, an increase of $1.2
million or 6.2% over March 31, 1996, which represents net income for the nine
months ended December 31, 1996, adjustments for the Company's ESOP and
management recognition and retention plans, the purchase and issuance of
treasury stock and change in unrealized net appreciation on securities
available-for-sale.
The Bank is subject to three capital standards pursuant to regulations of the
Office of Thrift Supervision: a 1.5% tangible capital standard, a 3% leverage
(core and capital) ratio and an 8% risk based capital standard. Under these
capital requirements, at December 31, 1996, the Bank had:
- - tangible capital of $17.6 million or 7.8% of total assets thereby exceeding
the 1.5% requirement ($3.4 million) by $14.2 million.
- - core capital (tangible capital plus certain intangible assets) of $17.6
million or 7.8% of total assets thereby exceeding the 3.0% requirement ($6.8
million) by $10.8 million.
- - risk-based capital (core capital plus allowance for loan losses) of
$19.3 million or 13.7% of risk-based assets thereby exceeding the 8.0%
requirement ($11.3 million) by $8.0 million.
22
Impact of New Accounting Standards
SFAS No. 125, Accounting for Transfer and Servicing of Financial Assets and
Extinguishment of Liabilities, provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
and requires a consistent application of a financial-components approach that
focuses on control. Under that approach, after a transfer of financial assets,
an entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred and derecognizes liabilities when extinguished. SFAS
No. 125 also supersedes SFAS No. 122, and requires that servicing assets and
liabilities be subsequently measured by amortization in proportion to and over
the period of estimated net servicing income or loss and requires assessment in
proportion to and over the period of estimated net servicing income or loss and
requires assessment for asset impairment or increased obligation based on their
fair values. SFAS No. 125 applies to transfers and extinguishments occurring,
after December 31, 1996, and early or retroactive application is not permitted.
This statement is not expected to have a material effect on the Company's
consolidated financial position or results of operations.
Legislative Matters
Recent Developments
- -------------------
On December 31, 1996, the President signed into law the Deposit
Insurance Funds Act of 1996(the "Funds Act") which, among other things, imposes
a special one-time assessment on SAIF member institutions, including the Bank,
to recapitalize the SAIF. As required by the Funds Act, the FDIC imposed a
special assessment of 65.7 basis points on SAIF assessable deposits held as
March 31, 1995 payable November 27, 1996. The special assessment was recognized
as an expense in the Company's second quarter of fiscal 1997 and is tax
deductible. The Bank took a charge of $723,000 as a result of the FDIC special
assessment.
The Funds Act also spreads the obligations for payment of the Financing
Corporation("FICO") bonds across all SAIF and BIF members. Beginning on January
1, 1997, BIF deposits will be assessed for FICO payments at a rate of 20% of the
rate assessed on SAIF deposits. Based on current estimates by the FDIC, BIF
deposits will be assessed a FICO payment of 1.3 basis points, while SAIF
deposits will pay an estimated 6.5 basis points on the FICO bonds. Full pro rata
sharing of the FICO payments between BIF and SAIF members will occur on the
earlier of January 1, 2000 or the date the BIF and SAIF are merged. The Funds
Act specifies that the BIF and SAIF will be merged on January 1, 1999 provided
no savings associations remain as of that time.
As a result of the Funds Act, the FDIC recently proposed to lower SAIF
assessments to 0 to 27 basis points effective January 1, 1997; a range
comparable to that of BIF members. However, SAIF members will continue to make
the higher FICO payments described above. Management cannot predict the level of
FDIC insurance assessments on an on-going basis whether the savings association
charter will be eliminated or whether the BIF and SAIF will eventually be
merged.
23
Average Balance Sheets for the Three Months Ended December 31,
1996 and 1995.
The following table sets forth certain information relating to the
consolidated statements of financial condition and reflects the yield on
average assets and the average cost of liabilities for the periods indicated.
The yields and costs include amortization of fees, discounts, and premiums
which are considered adjustments to yield.
Average Balance Sheets
Yield Analysis
Three Months Ended Dec. 31, Three Months Ended Dec. 31,
------------------------------- -------------------------------
1996 1995
------------------------------- -------------------------------
Average Average
Average Yield/ Average Yield/
Balance(a) Interest Cost Balance(a) Interest Cost
Interest-earning assets:
Loans, net $172,297 $3,771 8.75% $157,315 $3,507 8.92%
Mortgage-backed securities 9,405 159 6.76% 10,002 164 6.56%
Interest earning deposits and
federal funds sold 970 12 4.95% 1,001 17 6.79%
Securities 10,099 161 6.38% 8,291 140 6.75%
--------- --------- --------- --------- --------- ---------
Total interest-earning assets 192,771 4,103 8.51% 176,609 3,828 8.67%
Noninterest-earning assets (b) 14,470 --------- --------- 11,277 --------- ---------
--------- ---------
Total assets $207,241 $187,886
======== ========
Interest-bearing liabilities:
Deposits $131,361 $ 1,474 4.49% $121,380 $1,385 4.56%
Borrowed Funds 40,340 570 5.65% 35,294 558 6.32%
--------- --------- --------- --------- --------- ---------
Total interest-bearing liabilities 171,701 2,044 4.76% 156,674 1,943 4.96%
Noninterest-bearing liabilities (c) 15,738 --------- --------- 13,305 --------- ---------
--------- ---------
Total liabilities 187,439 169,979
Stockholders' equity 19,802 17,907
--------- ---------
Total liabilities and equity $207,241 $187,886
========= =========
Net interest income/Net rate spread $2,059 3.75% $1,885 3.71%
========= ========= ========= ========
Net interest-earning assets/net
interest rate margin $21,070 4.27% $19,935 4.27%
========= ========= ========= ========
Ratio of average interest-earning
assets to average interest-bearing
liabilities 1.12 X 1.13 X
(a) Average balances, which are stated in thousands, are derived from average
daily balances.
(b) Includes average investment in life insurance policies of $2,426,000 and
$2,309,000 for the three months ended December 31, 1996 and December 31,
1995, respectively. The Company realized non-interest income of $26,000 and
$33,000 on it's outstanding investment in these policies over the same
respective time periods.
(c) Includes non-interest bearing deposit accounts.
24
Average Balance Sheets for the Nine Months Ended December 31,
1996 and 1995.
The following table sets forth certain information relating to the
consolidated statements of financial condition and reflects the yield on average
assets and the average cost of liabilities for the periods indicated. The yields
and costs include amortization of fees, discounts, and premiums which are
considered adjustments to yield.
Average Balance Sheets
Yield Analysis
Nine Months Ended Dec. 31, Nine Months Ended Dec. 31,
------------------------------- -------------------------------
1996 1995
------------------------------- -------------------------------
Average Average
Average Yield/ Average Yield/
Balance(a) Interest Cost Balance(a) Interest Cost
Interest-earning assets:
Loans, net $169,127 $11,089 8.74% $142,558 $9,403 8.79%
Mortgage-backed securities 9,626 484 6.70% 10,617 524 6.55%
Interest earning deposits and
federal funds sold 591 22 4.96% 1,093 55 6.68%
Securities 9,393 447 6.35% 8,293 420 6.72%
--------- --------- --------- --------- --------- ---------
Total interest-earning assets 188,737 12,042 8.51% 162,561 10,402 8.49%
Noninterest-earning assets (b) 12,149 --------- --------- 9,093 --------- ---------
--------- ---------
Total assets $200,886 $171,654
========= =========
Interest-bearing liabilities:
Deposits $125,627 $ 4,154 4.41% $114,175 $3,765 4.38%
Borrowed Funds 42,465 1,801 5.65% 29,023 1,369 6.26%
--------- --------- --------- --------- --------- ---------
Total interest-bearing liabilities 168,092 5,955 4.72% 143,198 5,134 4.76%
Noninterest-bearing liabilities (c) 13,466 --------- --------- 11,190 --------- ---------
--------- ---------
Total liabilities 181,558 154,388
Stockholders' equity 19,328 17,266
--------- ---------
Total liabilities and equity $200,886 $171,654
========= =========
Net interest income/ Net rate spread $6,087 3.78% $5,268 3.73%
========= ========= ========= =========
Net interest-earning assets/ net
interest rate margin $20,645 4.28% $19,363 4.30%
========= ========= ========= =========
Ratio of average interest-earning
assets to average interest-bearing
liabilities 1.12 X 1.14 X
(a) Average balances, which are stated in thousands, are derived from average
daily balances.
(b) Includes average investment in life insurance policies of $2,418,000 and
$2,183,000 for the six months ended December 31, 1996 and December 31, 1995,
respectively. The Company realized non-interest income of $79,000 and
$101,000 on its outstanding investment in these policies over the same
respective time periods.
(c) Includes non-interest bearing deposit accounts.
25
PART II OTHER INFORMATION
- ------- -----------------
Item 1. Legal Proceedings.
The Company is not involved in any legal proceedings of a material nature at
this time other than those occurring in the ordinary course of business which in
the aggregate involves amounts which are believed by management to be immaterial
to the financial condition of the Company.
Item 2. Changes in Securities.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a). Exhibits
3.1 Certificate of Incorporation of CB Bancorp,
Inc.*
3.2 Bylaws of CB Bancorp, Inc.*
10.1 Amended and restated employee agreement
between CB Bancorp, Inc. and Joseph F.
Heffernan dated November 29, 1996.
27 Financial Data Schedule (filed herewith)
*Incorporated by reference to Registration Statement
of Form S-1, as amended, filed on September 11, 1992,
registration Number 33-51882.
(b). Reports on Form 8-K
None
26
CB-BANCORP, INC.
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.
CB Bancorp, Inc.
Dated: __________ By: /s/ Joseph F. Heffernan
______________________________
Joseph F. Heffernan
President and Chief Executive
Officer
Dated: __________ By: /s/ George L. Koehm
______________________________
George L. Koehm
Vice President and Chief Financial
Officer
Dated: __________ By: /s/ Daniel R. Buresh
______________________________
Daniel R. Buresh
Vice President, Controller and
Principal Accounting Officer
27