<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
(Amendment No. 2 to Current Report on Form 8-K
filed August 4, 1997)
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 1, 1997
PINNACLE FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Michigan 0-17937 38-2671129
(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification No.)
incorporation)
830 Pleasant Street, St. Joseph, Michigan 49085
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (616) 983-6311
Not Applicable
(Former name or former address, if changed since last report)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
The following financial statements of Indiana Federal Corporation are attached
as Exhibit 99.a:
Report of Ernst & Young LLP, Independent Auditors
Consolidated Statements of Condition of Indiana Federal Corporation and
Subsidiaries as of December 31, 1996 and 1995
Consolidated Statements of Income of Indiana Federal Corporation and
Subsidiaries for the years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity of Indiana Federal Corporation
and Subsidiaries for the years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows of Indiana Federal Corporation and
Subsidiaries for the years ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements of Indiana Federal Corporation and
Subsidiaries
The following financial statements of Indiana Federal Corporation are
attached as Exhibit 99.b:
Condensed Consolidated Statements of Financial Condition (unaudited) of Indiana
Federal Corporation and Subsidiaries as of March 31, 1997 and December 31, 1996
Condensed Consolidated Statements of Income (unaudited) of Indiana Federal
Corporation and Subsidiaries for the three months ended March 31, 1997 and 1996
Consolidated Statements of Cash Flows (unaudited) of Indiana Federal Corporation
and Subsidiaries for the three months ended March 31, 1997 and 1996
Notes to Condensed Consolidated Financial Statements (unaudited) of Indiana
Federal Corporation and Subsidiaries
<PAGE>
The following financial statements of CB Bancorp, Inc. are attached as
Exhibit 99.c:
Report of Crowe, Chizek and Company LLP, Independent Auditors
Consolidated Balance Sheets of CB Bancorp, Inc. and Subsidiary as of March 31,
1997 and 1996
Consolidated Statements of Income of CB Bancorp, Inc. and Subsidiary for the
years ended March 31, 1997, 1996 and 1995
Consolidated Statements of Changes in Shareholders' Equity of CB Bancorp,
Inc. and Subsidiary for the years ended March 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows of CB Bancorp, Inc. and Subsidiary for the
years ended March 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements of CB Bancorp, Inc. and Subsidiary
(b) PRO FORMA FINANCIAL INFORMATION.
The following unaudited Pro Forma combined financial statements are attached as
Exhibit 99.d:
Pinnacle Financial Services, Inc. and Indiana Federal Corporation Unaudited Pro
Forma Combined Statements of Income for the three months ended March 31, 1997
Pinnacle Financial Services, Inc. and Indiana Federal Corporation Unaudited Pro
Forma Combined Statements of Income for the three months ended March 31, 1996
Pinnacle Financial Services, Inc. and Indiana Federal Corporation Unaudited Pro
Forma Combined Statements of Income for the year ended December 31, 1996
Pinnacle Financial Services, Inc. and Indiana Federal Corporation Unaudited Pro
Forma Combined Statements of Income for the year ended December 31, 1995
Pinnacle Financial Services, Inc. and Indiana Federal Corporation Unaudited Pro
Forma Combined Statements of Income for the year ended December 31, 1994
Pinnacle Financial Services, Inc. and Indiana Federal Corporation Unaudited Pro
Forma Combined Balance Sheet at March 31, 1997
Notes to Pinnacle Financial Services, Inc. and Indiana Federal Corporation
Unaudited Pro Forma Combined Financial Statements
Pinnacle Financial Services, Inc. and CB Bancorp, Inc. Unaudited Pro Forma
Combined Statements of Income for the three months ended March 31, 1997
<PAGE>
Pinnacle Financial Services, Inc. and CB Bancorp, Inc. Unaudited Pro Forma
Combined Statements of Income for the three months ended March 31, 1996
Pinnacle Financial Services, Inc. and CB Bancorp, Inc. Unaudited Pro Forma
Combined Statements of Income for the year ended December 31, 1996
Pinnacle Financial Services, Inc. and CB Bancorp, Inc. Unaudited Pro Forma
Combined Statements of Income for the year ended December 31, 1995
Pinnacle Financial Services, Inc. and CB Bancorp, Inc. Unaudited Pro Forma
Combined Statements of Income for the year ended December 31, 1994
Pinnacle Financial Services, Inc. and CB Bancorp, Inc. Unaudited Pro Forma
Combined Balance Sheet at March 31, 1997
Notes to Pinnacle Financial Services, Inc. and CB Bancorp, Inc. Unaudited Pro
Forma Combined Financial Statements
Pinnacle Financial Services, Inc., Indiana Federal Corporation and CB Bancorp,
Inc. Unaudited Pro Forma Combined Statement of Income for the three months ended
March 31, 1997
Pinnacle Financial Services, Inc., Indiana Federal Corporation and CB Bancorp,
Inc. Unaudited Pro Forma Combined Statement of Income for the three months ended
March 31, 1996
Pinnacle Financial Services, Inc., Indiana Federal Corporation and CB Bancorp,
Inc. Unaudited Pro Forma Combined Statements of Income for the year ended
December 31, 1996
Pinnacle Financial Services, Inc., Indiana Federal Corporation and CB Bancorp,
Inc. Unaudited Pro Forma Combined Statements of Income for the year ended
December 31, 1995
Pinnacle Financial Services, Inc., Indiana Federal Corporation and CB Bancorp,
Inc. Unaudited Pro Forma Combined Statements of Income for the year ended
December 31, 1994
Pinnacle Financial Services, Inc., Indiana Federal Corporation and CB Bancorp,
Inc. Unaudited Pro Forma Combined Balance Sheet at March 31, 1997
Notes to Pinnacle Financial Services, Inc., Indiana Federal Corporation and CB
Bancorp, Inc. Unaudited Pro Forma Combined Financial Statements
<PAGE>
(c) EXHIBITS.
<TABLE>
<CAPTION>
Item 601
Regulation S-K
Exhibit Reference
Number Exhibit Description
----------------- -------------------
<S> <C>
(2)(a) Agreement and Plan of Merger dated as of November 14, 1996,
by and between Pinnacle Financial Services, Inc. and Indiana
Federal Corporation (without exhibits) (incorporated by
reference to Exhibit (2)(a)/(10)(a) of the Registration
Statement on Form S-4 of Pinnacle Financial Services, Inc.
(registration no. 333-19729)).
(2)(b) First Amendment to Agreement and Plan of Merger dated as of
February 27, 1997, by and between Pinnacle Financial
Services, Inc. and Indiana Federal Corporation (incorporated
by reference to Exhibit (10)(b) of the Annual Report on Form
10-K of Pinnacle Financial Services, Inc. for the year ended
December 31, 1996 (Commission file no. 0-17937)).
(2)(c) Agreement and Plan of Merger dated as of March 1, 1997, by
and between Pinnacle Financial Services, Inc. and CB
Bancorp, Inc. (incorporated by reference to Exhibit (10)(w) of
the Annual Report on Form 10-K of Pinnacle Financial
Services, Inc. for the year ended December 31, 1996
(Commission file no. 0-17937)).
(4)(a) Restated Articles of Incorporation of Pinnacle Financial
Services, Inc. as filed with the Department of Commerce of
the State of Michigan on December 6, 1996 (incorporated by
reference to Exhibit (3)(a)/(4)(a) of the Registration Statement
on Form S-4 of Pinnacle Financial Services, Inc.
(registration no. 333-19729)).
(4)(b) By-Laws of Pinnacle Financial Services, Inc. (incorporated
by reference to Exhibit (3)(b)/(4)(b) of the Registration
Statement on Form S-2 of Pinnacle Financial Services, Inc.
(registration no. 33-95974)).
<PAGE>
Item 601
Regulation S-K
Exhibit Reference
Number Exhibit Description
----------------- -------------------
(4)(c) Specimen certificate for Pinnacle Financial Services, Inc.
Common Stock (incorporated by reference to Exhibit (4)(c) of
the Registration Statement on Form S-2 of Pinnacle Financial
Services, Inc. (registration no. 33-95974)).
(23)(a) Consent of Ernst & Young LLP*
(23)(b) Consent of Crowe, Chizek and Company LLP*
(99) Registrant's press release dated August 4, 1997 regarding
the merger of Indiana Federal Corporation, a Delaware
corporation, with and into Registrant, and the merger of
CB Bancorp, Inc., a Delaware corporation, with and into
Registrant. (incorporated by reference to Exhibit
(99) of the Current Report on Form 8-K of Pinnacle
Financial Services Inc. dated August 1, 1997
(Commission file no 0-17937)).
(99)(a) Financial Statements of Indiana Federal Corporation*
(99)(b) Unaudited Financial Statements of Indiana Federal
Corporation*
(99)(c) Financial Statements of CB Bancorp, Inc.*
(99)(d) Unaudited Pro Forma Combined Financial Statements*
- --------------
* Filed herewith
</TABLE>
<PAGE>
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 hereunto duly authorized.
PINNACLE FINANCIAL SERVICES, INC.
Date: January 7, 1998 By: /s/ David W. Kolhagen
---------------------------------------
David W. Kolhagen
Senior Vice President and Treasurer
<PAGE>
23(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated February 28, 1997, with
respect to the consolidated financial statements of Indiana Federal
Corporation for the year ended December 31, 1996 included in the Current
Report on Form 8K/A of Pinnacle Financial Services, Inc.
/s/ Ernst & Young LLP
Chicago, Illinois
January 8, 1998
<PAGE>
23(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in Form 8-K/A of Pinnacle Financial
Services, Inc., of our report dated May 23, 1997 on the consolidated
financial statements of CB Bancorp, Inc. included in its Annual Report on
Form 10-KSB for the year ended March 31, 1997.
/s/ Crowe, Chizek and Company LLP
---------------------------------
Crowe, Chizek and Company LLP
South Bend, Indiana
January 7, 1998
<PAGE>
Exhibit 99(a)
Report of Ernst & Young LLP, Independent Auditors
Shareholders and Board of Directors
Indiana Federal Corporation
We have audited the accompanying consolidated statements of condition of
Indiana Federal Corporation and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Indiana Federal
Corporation and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements, in 1994, the
Corporation changed its method of accounting for investments and
mortgage-backed securities.
/s/ Ernst & Young LLP
- ------------------------------
Ernst & Young LLP
Chicago, Illinois
February 28, 1997
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Condition
Indiana Federal Corporation and Subsidiaries
December 31,
------------------------------
Assets 1996 1995
------------- -------------
<S> <C> <C>
Cash and cash equivalents:
Cash ............................................... $ 25,820,066 $ 22,894,745
Interest-bearing deposits in other institutions .... 66,473 178,207
Federal funds loaned ............................... -- 5,375,000
------------- -------------
Total cash and cash equivalents .................. 25,886,539 28,447,952
Investment securities available-for-sale (Note C) .... 86,432,613 72,672,893
Mortgage-backed securities available-for-sale (Note C) 43,281,163 26,737,343
Loans receivable, net (Note D) ....................... 621,583,734 522,692,957
Loans held for sale ................................... 1,969,697 16,044,609
Real estate held for sale, acquired through foreclosure 3,308,412 4,413,617
Office properties and equipment (Note E) ............. 10,476,611 10,919,615
Federal Home Loan Bank stock (Note G) ................ 8,173,300 7,739,700
Accrued interest receivable ........................... 5,558,283 5,005,115
Other assets .......................................... 30,154,326 26,659,289
------------- -------------
Total assets ..................................... $ 836,824,678 $ 721,333,090
============= =============
Liabilities and Shareholders' Equity
Deposits (Note F) .................................... $ 569,077,995 $ 532,895,925
Federal Home Loan Bank advances and other
borrowings (Note G) ............................... 192,799,821 114,105,475
Advance payments by borrowers for taxes and
insurance .......................................... 1,175,407 1,409,051
Other liabilities ..................................... 2,405,175 2,192,463
------------- -------------
Total liabilities ................................ 765,458,398 650,602,914
Shareholders' equity: (Note I)
Serial Preferred Stock, par value $.01 per share;
authorized: 5,000,000 shares; issued: none ...... -- --
Common Stock, par value $.01 per share;
authorized: 10,000,000 shares; issued:
1996-- 5,878,530 shares; 1995-- 5,823,946 shares . 58,785 58,239
Additional paid-in capital ......................... 27,729,839 27,428,077
Retained earnings .................................. 52,174,772 51,443,400
Treasury Stock, at cost:
1996-- 1,109,999 shares; 1995-- 1,103,000 shares . (8,754,075) (8,628,949)
Unrealized gains on available-for-sale
securities, net of tax ........................... 360,055 779,343
Guaranteed ESOP obligation (Note K) ............... (203,096) (349,934)
------------- -------------
Total shareholders' equity ....................... 71,366,280 70,730,176
------------- -------------
Total liabilities and shareholders' equity ....... $ 836,824,678 $ 721,333,090
============= =============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Income
Indiana Federal Corporation and Subsidiaries
Year Ended December 31,
------------------------------------------------
1996 1995 1994
------------------------------------------------
<S> <C> <C> <C>
Interest Income
Interest on loans .............................. $ 48,912,728 $ 46,895,003 $ 35,298,055
Interest and dividends on investment securities 5,565,122 6,356,988 5,861,053
Interest on mortgage-backed securities ......... 2,381,331 1,918,224 2,414,080
------------ ------------ ------------
Total interest income ........................ 56,859,181 55,170,215 43,573,188
Interest Expense
Interest on deposits (Note F) ................. 24,438,454 22,423,077 16,479,561
Interest on FHLB advances and other borrowings . 7,421,227 7,432,380 5,885,818
------------ ------------ ------------
Total interest expense ....................... 31,859,681 29,855,457 22,365,379
------------ ------------ ------------
Net interest income .......................... 24,999,500 25,314,758 21,207,809
Provision for Loan Losses ......................... 1,115,000 176,967 178,822
------------ ------------ ------------
Net interest income after
provision for loan losses .................... 23,884,500 25,137,791 21,028,987
Other Income
Commissions on sales of insurance and securities 1,654,691 1,137,694 1,099,411
Net gains (losses) on real estate owned ........ (495,244) (449,920) 33,789
Loss on sale of mortgage loans ................. (477,510) (60,673) (25,012)
Net gain on sale of securities ................. 55,059 439,715 69,991
Gain on sale of mortgage loan servicing ........ -- -- 400,378
Customer service fees .......................... 1,690,532 1,612,093 1,073,594
Other .......................................... 1,922,560 2,000,253 1,819,131
------------ ------------ ------------
Total other income ........................... 4,350,088 4,679,162 4,471,282
<PAGE>
<CAPTION>
Consolidated Statements of Income
Indiana Federal Corporation and Subsidiaries
(continued)
Year Ended December 31,
------------------------------------------------
1996 1995 1994
------------------------------------------------
<S> <C> <C> <C>
Other Expenses
Salaries and employee benefits ................. 8,823,947 8,955,214 7,407,078
Net occupancy expense .......................... 1,798,254 1,790,539 1,414,343
Furniture and equipment expense ................ 1,637,560 1,659,723 1,090,438
Federal insurance premiums ..................... 886,931 1,149,561 995,013
SAIF special assessment ........................ 2,825,551 -- --
Marketing ...................................... 638,036 691,695 648,695
Other general and administrative expenses ...... 5,841,084 5,948,070 3,616,070
------------ ------------ ------------
Total other expenses ....................... 22,451,363 20,194,802 15,171,637
Income before income taxes ................... 5,783,225 9,622,151 10,328,632
------------ ------------ ------------
Income tax expense (Note H) ....................... 1,160,700 2,317,861 3,066,357
------------ ------------ ------------
Net income ................................. $ 4,622,525 $ 7,304,290 $ 7,262,275
============ ============ ============
Earnings per share ................................ $ 0.96 $ 1.51 $ 1.50
============ ============ ============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Equity
Indiana Federal Corporation and Subsidiaries
Unrealized
Gains
(Losses) on
Additional Guaranteed Available-
Common Paid-in Retained Treasury ESOP For-Sale
Stock Capital Earnings Stock Obligation Securities Total
----- ------- -------- ----- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $56,400 $25,956,460 $44,297,680 ($6,694,344) ($526,418) $ -- $63,089,778
------------------------------------------------------------------------------------
Adjustment at January 1, 1994 for unrealized
gains (losses) on available-for-sale
securities, net of taxes 363,216 363,216
Change in unrealized gains (losses) on
available-for-sale securities, net of taxes (2,434,855) (2,434,855)
Issuance of 95,456 shares of common
stock upon exercise of stock options 955 842,101 843,056
Cash paid in lieu of fractional shares (4) (5,876) (5,880)
Net income for 1994 7,262,275 7,262,275
Payments made on guaranteed ESOP
obligation 116,484 116,484
Purchase of 97,000 shares of outstanding
common stock (1,534,421) (1,534,421)
Common stock dividends-- $.72 per share (3,384,815) (3,384,815)
------------------------------------------------------------------------------------
Balance at December 31, 1994 $57,351 $26,792,685 $48,175,140 ($8,228,765) ($409,934) ($2,071,639) $64,314,838
------------------------------------------------------------------------------------
Change in unrealized gains (losses) on
available-for-sale securities, net of taxes 2,850,982 2,850,982
Issuance of 88,810 shares of common
stock upon exercise of stock options 888 635,392 636,280
Net income for 1995 7,304,290 7,304,290
Payments made on guaranteed ESOP
obligation 60,000 60,000
Purchase of 24,799 shares of outstanding
common stock (400,184) (400,184)
Common stock dividends-- $.86 per share (4,036,030) (4,036,030)
------------------------------------------------------------------------------------
Balance at December 31, 1995 $58,239 $27,428,077 $51,443,400 ($8,628,949) ($349,934) $779,343 $70,730,176
------------------------------------------------------------------------------------
Change in unrealized gains (losses) on
available-for-sale securities, net of taxes (419,288) (419,288)
Issuance of 54,584 shares of common
stock upon exercise of stock options 546 301,762 302,308
Net income for 1996 4,622,525 4,622,525
Payments made on guaranteed ESOP
obligation 146,838 146,838
Purchase of 6,999 shares of outstanding
common stock (125,126) (125,126)
Common stock dividends-- $.82 per share (3,891,153) (3,891,153)
------------------------------------------------------------------------------------
Balance at December 31, 1996 $58,785 $27,729,839 $52,174,772 ($8,754,075)($203,096) $360,055 $71,366,280
===================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Indiana Federal Corporation and Subsidiaries
Year Ended December 31,
-------------------------------------------------------
1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income ....................................................... $ 4,622,525 $ 7,304,290 $ 7,262,275
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses ...................................... 1,115,000 176,967 178,822
Originations of loans held for sale ............................ (37,525,140) (47,354,734) (24,227,376)
Proceeds from loans sold ....................................... 41,342,511 32,407,338 30,121,564
Provision for depreciation and amortization .................... 2,150,799 2,261,164 1,140,591
Amortization of premiums and discounts, net .................... 10,602 (181,030) 186,461
Proceeds from sales of trading securities ...................... 10,154,220 1,974,760 13,610,921
Purchases of trading securities ................................ (10,170,626) (1,975,624) (13,553,200)
Deferred federal income taxes .................................. (944,813) (66,155) 689,204
(Increase) decrease in interest receivable on loans ............ (553,168) 405,905 (211,451)
Increase (decrease) in interest payable ........................ 358,092 330,711 (154,410)
Net gain on sale of securities ................................. (55,059) (439,715) (69,991)
Net losses (gains) on real estate owned ........................ 495,244 449,920 (33,789)
Net losses on sale of mortgage loans ........................... 477,510 60,673 25,012
Net change in other assets and liabilities ..................... (413,276) (4,979,302) (2,386,942)
------------- ------------- -------------
Net cash provided (used) by operating activities ............. 11,064,421 (9,624,832) 12,577,691
------------- ------------- -------------
Investing Activities
Available-for-sale investment securities:
Purchases ...................................................... (42,858,328) (28,542,626) (140,912,453)
Proceeds from settlement of sales ................................... 6,571,875 71,283,634 6,825,156
Proceeds from maturities ............................................ 8,928,946 2,500,000 80,470,222
Proceeds from principal payments .................................... 12,929,767 2,323,710 --
Held-to-maturity investment securities:
Principal payments ............................................. -- 1,879,652 --
Proceeds from maturities ............................................ -- 4,435,000 3,668,076
Available-for-sale mortgage-backed securities:
Purchases ...................................................... (11,792,294) -- --
Proceeds from settlement of sales .............................. -- -- 2,040,223
Principal payments ............................................. 5,081,239 3,500,000 8,826,291
Held-to-maturity mortgage-backed securities:
Proceeds from settlement of sales .............................. -- -- 80,633,683
Principal payments ............................................. -- 1,095,517 1,923,432
Purchase of Forrest Holdings Inc. preferred stock ................ (2,500,000) -- --
Purchases of Federal Home Loan Bank stock ........................ (433,600) -- --
Loan originations and principal payments on loans ................ (58,692,430) 18,643,745 (56,005,487)
Purchases of loans ............................................... (41,331,499) (2,877,000) (4,525,810)
Purchases of office properties and equipment ..................... (857,483) (1,437,963) (1,588,332)
Proceeds from sales of real estate ............................... 513,361 1,271,401 160,364
Payment for purchase of American Bancorp Inc.,
net of cash acquired ........................................... -- -- 5,170,054
Payment for purchase of NCB Corp., net of cash acquired .......... -- (6,841,388) --
------------- ------------- -------------
Net cash (used) provided by investing activities ............... (124,440,446) 67,233,682 (13,314,581)
------------- ------------- -------------
<PAGE>
<CAPTION>
Consolidated Statements of Cash Flows
Indiana Federal Corporation and Subsidiaries
(continued)
Year Ended December 31,
-------------------------------------------------------
1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
Financing Activities
Net increase (decrease) in non-certificate accounts .............. 14,912,356 (33,488,989) (14,745,352)
Net increase (decrease) in certificates of deposit ............... 21,008,687 14,455,311 30,756,131
Proceeds from Federal Home Loan Bank advances .................... 279,100,000 359,000,000 61,000,000
Repayments on Federal Home Loan Bank advances .................... (219,982,566) (334,747,809) (116,780,479)
Net increase (decrease) in other borrowings ...................... 19,723,750 (48,730,000) 53,112,500
Net increase (decrease) in advance payments by borrowers
for taxes and insurance ........................................ (233,644) (317,747) 53,440
Cash dividends ................................................... (3,891,153) (4,036,030) (3,384,815)
Cash paid in lieu of fractional shares from stock dividend ....... -- -- (5,880)
Purchases of treasury stock ...................................... (125,126) (400,184) (1,534,421)
Exercise of stock options ........................................ 302,308 569,280 557,066
------------- ------------- -------------
Net cash provided (used) by financing activities ............... 110,814,612 (47,696,168) 9,028,190
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents ................. (2,561,413) 9,912,682 8,291,300
------------- ------------- -------------
Cash and cash equivalents at beginning of year ................... 28,447,952 18,535,270 10,243,970
------------- ------------- -------------
Cash and cash equivalents at end of year ......................... $ 25,886,539 $ 28,447,952 $ 18,535,270
============= ============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows, continued
Year Ended December 31,
-----------------------------------------
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
Supplemental Disclosures of Cash Flow
Information -- Cash paid during the year for:
Interest:
Deposits ............................................ $24,177,426 $22,144,979 $16,570,589
Federal Home Loan Bank advances and other borrowings 7,324,163 7,379,767 5,949,266
----------- ----------- -----------
$31,501,589 $29,524,746 $22,519,855
Income taxes .......................................... $ 1,270,536 $ 2,705,000 $ 2,809,158
Supplemental Disclosures of Non-Cash
Investing Activity:
Loans transferred to real estate owned .................. $ -- $ 1,500,922 $ 3,367,619
Loans transferred to held for sale category due to
borrower conversion of adjustable-rate mortgage loans
to fixed-rate mortgage loans .......................... $ 262,016 $ 251,505 $ 682,664
Loans transferred to mortgage-backed securities ......... $ 9,780,031 $ -- $ --
Loans originated to finance the sale of real estate owned $ -- $ 962,500 $ --
=========== =========== ===========
See notes to consolidated financial statements
</TABLE>
Indiana Federal Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note A -- Summary of Significant Accounting Policies
Organization
Indiana Federal Corporation is a financial services holding company. The
Corporation's principal operating subsidiary is Indiana Federal Bank for
Savings. The Bank is principally engaged in the business of attracting
savings deposits from the general public and investing these funds, together
with borrowings and other funds, to originate one- to four-family residential
real estate loans, consumer loans, income-producing property real estate
loans, and commercial business loans. The Bank conducts its activities from a
network of 16 full-service banking centers and 3 loan production offices
located in Northwest Indiana.
Principles of Consolidation
The consolidated financial statements are comprised of the accounts of
Indiana Federal Corporation (the "Corporation") and its principal and
wholly-owned subsidiaries, Indiana Federal Bank for Savings (the "Bank"),
IndFed Mortgage Company, and IFB Investment Services, Inc. All significant
inter-company balances and transactions have been eliminated in
consolidation. Certain reclassifications have been made to the 1995 and 1994
financial statements to conform to the 1996 presentation.
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents represent highly liquid investments with a maturity of
three months or less when purchased.
Trading Account Assets, Investment
Securities, and Mortgage-Backed Securities
On January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." In accordance with the Statement, prior period
financial statements have not been restated to reflect the change in
accounting principle. Application of SFAS No. 115 resulted in the increase of
$363,216 in shareholders' equity as of January 1, 1994, representing the
recognition in shareholders' equity of unrealized appreciation, net of
deferred income taxes of $143,900, for the Corporation's investment in debt
and equity securities determined to be available-for-sale, previously carried
at amortized cost or lower of cost or market (LOCOM).
<PAGE>
The carrying amount of securities is dependent upon their classification
as held-to-maturity, trading, or available-for-sale. Management determines
the appropriate classification of debt securities at the time of purchase.
The accounting for securities in each of the three categories is as follows:
Trading account assets: Trading account assets are held for resale in
anticipation of short-term market movements. Trading account assets are
stated at fair value with unrealized holding gain (loss) recognized in the
income statement as trading account income.
Securities held-to-maturity and available-for-sale: Debt securities are
classified as held-to-maturity when the Corporation has the positive intent and
ability to hold the securities to maturity. Held-to-maturity securities are
stated at amortized cost.
Debt securities not classified as held-to-maturity or trading are
classified as available-for-sale. Available-for-sale securities are stated at
fair value, with the unrealized gains and losses, net of tax, reported in a
separate component of shareholders' equity.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
life of the security. Such amortization is included in interest income from
investments. Interest and dividends are included in interest income from
investments. Realized gains and losses, and declines in value judged to be
other-than-temporary are included in net securities gains (losses). Gains and
losses on sales of securities are determined by specifically identifying the
carrying amount of the securities sold.
On November 15, 1995, the FASB staff issued a Special Report, "A Guide
to Implementation of SFAS No. 115 on Accounting for Certain Investments in
Debt and Equity Securities." In accordance with provisions in that Special
Report, the Corporation chose to reclassify securities from held-to-maturity
to available-for-sale. At the date of transfer, the amortized cost of those
securities was $34,357,508 and the unrealized gain on those securities was
$696,873, which is included in shareholders' equity.
Non-Accrual Loans
A loan is classified as non-accrual and the accrual of interest on such
loan is discontinued when the contractual payment of principal or interest
has become 90 days past due or when management has serious doubts about
further collectibility of principal or interest, even though the loan
currently is performing. A loan may remain on accrual status if it is in the
process of collection and is either guaranteed or well secured. When a loan
is placed on non-accrual status, unpaid interest credited to income in the
current year is reversed and unpaid interest accrued in prior years is
charged against the allowance for interest on loans. Interest received on
non-accrual loans generally is either applied against principal or reported
as interest income, according to management's judgment as to the
collectibility of principal. Generally, loans are restored to accrual status
when the obligation is brought current, has performed in accordance with the
contractual terms for a reasonable period of time, and the ultimate
collectibility of the total contractual principal and interest is no longer
in doubt.
<PAGE>
Interest on Loans
Interest on loans is credited to income when earned. An allowance for
interest on loans is provided when management considers the collection of
these accounts doubtful.
Loan Fees
Loan origination and commitment fees and certain direct loan origination
costs related to loans or commitments originated are deferred and the net
amount amortized as an adjustment of the related loan's yield. The
Corporation is amortizing deferred amounts over the contractual life of the
related loans.
Loans Held for Sale
Loans held for sale are carried at the lower of aggregate cost or market
value.
Real Estate Held for Sale Acquired Through Foreclosure
Foreclosed assets are comprised of property acquired through a
foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure. A loan
is classified as in-substance foreclosure when the Corporation has taken
possession of the collateral regardless of whether formal foreclosure
proceedings take place.
Foreclosed assets initially are recorded at fair value at the date of
foreclosure establishing a new cost basis. After foreclosure, valuations are
periodically performed by management and the real estate is carried at the
lower of cost or fair value minus estimated costs to sell.
Depreciation and Amortization
Depreciation of office properties and equipment and amortization of
leasehold improvements are computed on a straight-line basis over the
estimated useful lives of the related assets.
Cost in Excess of the Fair Value of Net Assets Acquired
Cost in excess of the fair value of net assets acquired less liabilities
assumed in connection with the purchase of a branch facility is being charged
to operations over its estimated useful life using the straight-line method.
The branch purchase premium included in other assets amounted to $485,000 and
$606,000 at December 31, 1996 and 1995, respectively.
<PAGE>
In regard to the purchase of NCB Corporation, the Bank recorded goodwill
totaling $1,493,363 and a deposit base intangible totaling $1,089,771. At
December 31, 1996, the amount of goodwill and deposit base intangible
included in other assets is $1,308,785 and $791,389, respectively. In regard
to the purchase of American Bancorp, Inc., the Bank recorded goodwill
totaling $906,588 and a deposit base intangible totaling $1,600,000. At
December 31, 1996, the amount of goodwill and deposit base intangible
included in other assets was $785,700 and $1,142,872, respectively. The
goodwill is being amortized straight line over 15 years, while the deposit
base intangible is being amortized over 7 years.
Provision for Loan Losses
Provisions for loan losses are charged to income based on a periodic
review and evaluation of various factors affecting the value of loans
receivable, including the borrower's financial ability to pay, value of
collateral, current economic conditions, and the overall quality of the loan
portfolio. In 1995, the Corporation adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan." Under the new standard, the allowance
for losses related to loans that are identified for evaluation in accordance
with SFAS No. 114 is based on discounted cash flows using the loan's initial
effective interest rate or the fair value for certain collateral-dependent
loans. Prior to 1995, the allowance for loan losses related to these loans
was based on undiscounted cash flows or the fair value of the collateral for
collateral-dependent loans. At December 31, 1996 and 1995, the recorded
investment in loans that are considered impaired under Statement 114 was $6.5
and $6.3 million, respectively, of which $4.2 and $4.5 million were on a
non-accrual basis. Loans are considered non-accrual if the most likely
corrective action taken by the Bank will either be the repossession of the
collateral or the charge-off of the loan. The impaired loan balances at
December 31, 1996 and 1995 are net of specific reserve for loan losses
totaling $845,000 and $530,000, respectively. Management has determined,
based on anticipated discounted cash flows, that impaired loans with balances
of $2.6 million and $2.1 million, respectively, at December 31, 1996 and 1995
will be repaid in full with no loss incurred by the Bank. The average
recorded investment in impaired loans during the year ended December 31, 1996
and 1995, was $6.3 and $5.9 million, respectively. The Bank recognized
interest income on those impaired loans of $298,000 in 1996 and $425,000 in
1995 which included $197,000 and $322,000 of interest income recognized using
the cash basis method of income recognition. Management believes that the
allowance for loan losses is adequate to absorb potential losses in the
portfolio, however, future additions to the allowance may be necessary based
on changes in economic conditions. In addition, various regulatory agencies
periodically review the provision for loan losses. These agencies may require
that additions be made to allowance for loan losses based upon their judgment
of information available to them at the time of their examination. This
evaluation is inherently subjective as it requires material estimates
including the amount and timing of future cash flows expected to be received
on impaired loans that may be susceptible to significant change.
Earnings Per Share
Earnings per share are determined by dividing net income for the year by
the weighted-average number of shares of common stock and common stock
equivalents outstanding. Common stock equivalents assume exercise of stock
options, and the calculation assumes purchase of treasury stock with the
proceeds at the average market price for the period (when dilutive). Fully
diluted earnings per share equals the primary amount.
<PAGE>
Accounting for Mortgage Servicing Rights
In 1996, the Corporation adopted SFAS No. 122, "Accounting for Mortgage
Servicing Rights," which requires that a separate asset right to service
mortgage loans for others be recognized, regardless of how those servicing
rights are acquired. The effect of the adoption of this standard was not
material.
Accounting for Stock-Based Compensation
The Corporation accounts for its Stock Option Plan in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees." Under APB
Opinion No. 25, because the exercise price of the Corporation's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
SFAS No. 125
In June 1996, the Financial Accounting Standards Board (FASB) issued
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which addresses the accounting for transfers
and servicing of financial assets and extinguishments of liabilities. The
Corporation will apply SFAS No. 125 to transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996
and, based on current circumstances, does not believe the effect of adoption
will be material.
Stock Split
On April 21, 1994, the Corporation's Board of Directors declared a stock
split in the form of a three-for-two stock dividend to shareholders of record
as of May 17, 1994. All references to number of shares, except shares
authorized, and to per share information in the consolidated financial
statements, have been adjusted to reflect the stock split on a retroactive
basis.
<PAGE>
Employee Stock Ownership Plan
The Corporation has established an Employee Stock Ownership Plan
("ESOP") for its employees. Beginning January 1, 1994, the Corporation
prospectively adopted the American Institute of Certified Public Accountants
("AICPA") Statement of Position 93-6, "Employers' Accounting for Employee
Stock Ownership Plans." SOP 93-6 requires the recognition of compensation
expense for ESOP shares acquired after 1992 and not committed to be released
before the beginning of 1994, be measured based on the fair value of those
shares when committed to be released to employees, rather than based on their
original cost.
As of December 31, 1996, the ESOP had 29,706 shares acquired after
January 1, 1993 that are committed to be released beginning in 1997. The
adoption of SOP 93-6 had no impact on net income for the year ended December
31, 1995 and 1996. The effect of SOP 93-6 on net income in 1997 and beyond is
not determinable because it is based on future prices of the Corporation's
stock. Under SOP 93-6, dividends on the unallocated ESOP shares were reported
as a reduction of accrued interest on the ESOP borrowings rather than as a
reduction of retained earnings.
Loan Servicing Fees
The Corporation services mortgage loans for permanent investors under
servicing contracts. Fees earned for servicing loans owned by investors are
based on the outstanding principal balances of the loans being serviced, and
are recognized as income when the related mortgage payments are received.
Loan servicing costs are charged to expense as incurred.
Note B -- Mergers & Acquisitions
On November 14, 1996, the Corporation entered into an Agreement and Plan
of Merger ("Merger Agreement") with Pinnacle Financial Services, Inc.
("Pinnacle"), a bank and savings and loan holding company located in St.
Joseph, Michigan. The Merger Agreement provides for a "merger of equals" with
Pinnacle to be accounted for as a pooling of interests. Upon completion of
the Merger, (a) the Corporation will be merged with and into Pinnacle, with
Pinnacle being the surviving corporation, and (b) each issued and outstanding
share of common stock of the Corporation will be converted into one share of
common stock of Pinnacle. Conditions to the consummation of the merger
include, among other things, requisite and satisfactory stockholder and
regulatory approvals and the receipt of certain opinion and certificates. It
is anticipated the merger will occur in the second quarter of 1997.
With the execution of the Merger Agreement, Pinnacle (as issuer) and the
Corporation (as grantee) entered into the Pinnacle Stock Option Agreement
pursuant to which Pinnacle granted to the Corporation the Pinnacle Option. At
the same time, the Corporation (as issuer) and Pinnacle (as grantee) entered
into the IFC Stock Option Agreement, pursuant to which the Corporation
granted to Pinnacle the IFC Option. The Pinnacle Stock Option Agreement
provides for the purchase by the Corporation of 591,678 shares of Pinnacle
Common Stock at an exercise price of $24.625 per share. The IFC Stock Option
Agreement provides for the purchase by Pinnacle of 470,361 shares of the
Corporation Common Stock at an exercise price of $19.875 per share. The Stock
Option Agreements are intended to increase the likelihood that the Merger
will be consummated. The options would be eligible for exercise only upon the
occurrence of specific "Events" deemed detrimental to the merger process.
<PAGE>
On January 31, 1995, the Corporation acquired, for $8.2 million, NCB
Corporation ("NCB"), a bank holding company with total assets of
approximately $45.0 million with offices in Culver and Granger, Indiana. The
operations of NCB are included in the Corporation's Consolidated Statements
of Income from the acquisition date and reflect the application of the
purchase method of accounting. Under this method of accounting, the aggregate
cost to the Corporation of the acquisition was allocated to the assets
acquired and liabilities assumed, based on their estimated fair values as of
January 31, 1995.
On December 12, 1994, the Corporation acquired, for $7.1 million,
American Bancorp, Inc. ("ABI"), a bank holding company with total assets of
approximately $65.0 million with offices in North Judson, Knox, and San
Pierre, Indiana. The operations of ABI are included in the Corporation's
Consolidated Statements of Income from the acquisition date and reflect the
application of the purchase method of accounting. Under this method of
accounting, the aggregate cost to the Corporation of the acquisition was
allocated to the assets acquired and liabilities assumed, based on their
estimated fair values as of December 12, 1994.
Pro forma results of operations assuming the NCB acquisition had
occurred on January 1, 1995 would not differ materially from historical
results.
<PAGE>
Note C -- Securities
The amortized cost and fair values of investments in debt securities are as
follows:
<TABLE>
<CAPTION>
Available-For-Sale Securities
December 31, 1996
---------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. Government and agency securities $ 35,128,056 $ 410,074 ($ 190,859) $ 35,347,271
Collateralized mortgage obligations 23,974,110 6,090 (146,119) 23,834,081
Corporate debt securities 12,000,000 -- (33,390) 11,966,610
Asset-backed securities 14,472,949 64,347 (227,644) 14,309,652
Municipal securities 937,061 43,238 (5,300) 974,999
------------ ---------- ---------- ------------
Total investment securities 86,512,176 523,749 (603,312) 86,432,613
Mortgage-backed securities 42,605,384 803,360 (127,581) 43,281,163
------------ ---------- ---------- ------------
Total available-for-sale securities $129,117,560 $1,327,109 ($ 730,893) $129,713,776
============ ========== ========== ============
<CAPTION>
Available-For-Sale Securities
December 31, 1995
---------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
U.S. Government and agency securities $23,041,022 $ 747,625 $ -- $23,788,647
Collateralized mortgage obligations 33,039,197 118,469 (215,244) 32,942,422
Corporate debt securities 12,458,758 4,806 (103,691) 12,359,873
Asset-backed securities 1,998,129 81,871 -- 2,080,000
Municipal securities 1,444,488 58,725 (1,262) 1,501,951
Total investment securities 71,981,594 1,011,496 ( 320,197) 72,672,893
------------ ---------- ---------- ------------
Mortgage-backed securities 26,138,126 600,797 (1,580) 26,737,343
------------ ---------- ---------- ------------
Total available-for-sale securities $98,119,720 $1,612,293 ($321,777) $99,410,236
=========== ========== ========= ===========
</TABLE>
The amortized cost and estimated market value of debt securities at December
31, 1996, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<PAGE>
<TABLE>
<CAPTION>
Securities
available-for-sale
Estimated
Amortized Market
Cost Value
---- -----
<S> <C> <C>
Due in one year or less $ 8,740,858 $ 8,778,472
Due after one year through five years 15,589,959 15,565,808
Due after five years through ten years 26,816,621 26,969,418
Due after ten years 35,364,738 35,118,915
------------ ------------
Total investment securities 86,512,176 86,432,613
Mortgage-backed securities 42,605,384 43,281,163
------------ ------------
Total securities $129,117,560 $129,713,776
============ ============
</TABLE>
Proceeds from the sale of investments in debt securities (excluding trading
securities) for the years ended December 31, 1996, 1995, and 1994 were
$6,571,875, $71,283,634, and $8,865,379, respectively. Gross gains realized
on these sales were $82,908, $1,024,109 and $12,270 for 1996, 1995, and 1994,
respectively, and gross losses realized on these sales were $11,442,
$583,530, and $0 for 1996, 1995, and 1994, respectively, resulting in a tax
liability of $28,000, $175,000, and $5,000, respectively.
<PAGE>
Note D -- Loans Receivable
Loans receivable at December 31, 1996
and 1995 consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
1996 1996 1995 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Real estate loans:
One- to four-family residential ............. $ 287,655,315 $ 288,006,203 $ 278,679,552 $ 283,482,597
Agricultural ................................ 11,510,639 11,364,076 12,939,809 12,939,809
Income-producing property ................... 99,444,077 99,061,503 83,452,762 80,230,440
Construction, one- to four-family residential 20,775,389 20,779,754 13,369,811 13,386,421
Construction, income-producing property ..... 8,752,580 8,725,587 6,085,230 6,085,240
--------------------------------------------------------------------
Total real estate loans ................... 428,138,000 427,937,123 394,527,164 396,124,507
Consumer loans ................................. 120,125,790 120,641,042 82,762,062 82,893,129
Commercial loans ............................... 87,322,444 87,232,056 55,124,442 54,701,144
--------------------------------------------------------------------
635,586,234 635,810,221 532,413,668 533,718,780
Less:
Unearned discounts .......................... 59,339 -- 197,669 --
Undisbursed portion of loan proceeds ........ 7,829,987 7,829,987 3,932,784 3,932,784
Net deferred loan fees and costs ............ (1,344,617) -- (1,064,813) --
--------------------------------------------------------------------
Loans receivable .......................... 629,041,525 627,980,234 529,348,028 529,785,996
Allowance for loan losses ................... 7,457,791 -- 6,655,071 --
--------------------------------------------------------------------
Loans receivable, net ..................... $ 621,583,734 $ 627,980,234 $ 522,692,957 $ 529,785,996
====================================================================
Weighted-average interest rate ................. 8.45% 8.56%
====================================================================
</TABLE>
Credit is extended based on an evaluation of the borrower's financial
condition, the value of the collateral, and in the case of income-producing
property, the sufficiency of net cash flows from the property's operation to
service debt. When loans are made to businesses, personal guarantees may also
be required of major shareholders or partners.
<PAGE>
Loans collateralized by income-producing
property are used in the following industries:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------
1996 1995
-----------------------------------------------------------------------------
Dollars in thousands (000s) Recourse Non-recourse Total Recourse Non-recourse Total
-------- ------------ -------- -------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Land development $ 5,139 -- $ 5,139 $ 3,662 $ -- $ 3,662
Hotels/motels 16,906 3,117 20,023 11,750 4,130 15,880
Multi-family apartments 23,858 10,606 34,464 13,264 9,617 22,881
Shopping centers 2,920 6,644 9,564 2,090 7,952 10,042
Nursing homes 7,902 -- 7,902 6,237 -- 6,237
Office/warehouse 17,260 236 17,496 9,246 2,138 11,384
Mobile home parks 9,666 -- 9,666 15,180 -- 15,180
Medical/professional 3,922 21 3,943 4,189 83 4,272
------- -------- -------- ------- ------- -------
$87,573 $ 20,624 $108,197 $65,618 $23,920 $89,538
======= ======== ======== ======= ======= =======
</TABLE>
Loans collateralized by income-producing property
categorized by state consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------
1996 1995
Dollars in thousands (000s) Recourse Non-recourse Total Recourse Non-recourse Total
-------- ------------ -------- -------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Indiana $65,357 $ 11,651 $ 77,008 $47,570 $12,954 $60,524
Illinois 6,782 682 7,464 4,525 692 5,217
Michigan 9,325 3,434 12,759 7,865 3,464 11,329
Kentucky 860 -- 860 887 -- 887
Georgia 952 2,769 3,721 2,300 2,749 5,049
Florida 1,339 1,630 2,969 143 2,896 3,039
Ohio 970 458 1,428 301 1,165 1,466
Others 1,988 -- 1,988 2,027 -- 2,027
------- -------- -------- ------- ------- -------
$87,573 $ 20,624 $108,197 $65,618 $23,920 $89,538
======= ======== ======== ======= ======= =======
</TABLE>
<PAGE>
Note D -- Loans Receivable, continued
Changes in the allowance for loan losses
are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year ....... $ 6,655,071 $ 6,100,951 $ 5,355,599
Acquired from NCB Corporation ...... -- 756,611 --
Acquired from American Bancorp, Inc. -- -- 655,159
Provision for losses ............... 1,115,000 176,967 178,822
Charge-offs ........................ (443,822) (455,499) (180,386)
Recoveries ......................... 131,542 76,041 91,757
----------- ----------- -----------
Balance at end of year .......... $ 7,457,791 $ 6,655,071 $ 6,100,951
=========== =========== ===========
</TABLE>
Charge-offs include allowances for losses at the time loans are foreclosed
and transferred to real estate owned. At December 31, 1996, 1995, and 1994,
loans serviced for others were $146.0 million, $125.0 million, and $144.2
million, respectively. At December 31, 1996, the Bank had commitments to
originate and purchase loans of approximately $28.9 million, of which $4.7
million had fixed interest rates and available, but unfunded lines of credit
totaled $19.9 million. At December 31, 1995, commitments to originate and
purchase loans approximated $27.1 million of which $3.9 million had fixed
interest rates and available, but unfunded lines of credit totaled $27.6
million. The Bank uses the same credit policies in making commitments as it
does for on-balance sheet instruments. The Corporation had loans outstanding
of $6.6 million and $4.8 million at December 31, 1996 and 1995, respectively,
to developments in which a subsidiary of the Corporation is a limited
partner. These loans are secured by multi-family housing projects.
Note E -- Office Properties and Equipment
The following is a summary of office
properties and equipment accounts:
<TABLE>
<CAPTION>
Estimated Useful December 31,
(in years) 1996 1995
---------- ---- ----
<S> <C> <C> <C>
Cost:
Land -- $ 2,253,318 $ 2,223,864
Building 29.0 10,559,205 10,103,183
Parking lot improvements 10.0 194,172 194,172
Furniture and fixtures 6.4 9,462,394 10,691,293
---- ----------- -----------
22,469,089 23,212,512
Less allowances for depreciation 11,992,478 12,292,897
----------- -----------
$10,476,611 $10,919,615
=========== ===========
</TABLE>
<PAGE>
Depreciation expense was $1,300,487, $1,268,510, and $867,168 for 1996, 1995
and 1994, respectively.
Note F -- Deposits
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------
Weighted-Average Carrying Fair Carrying Fair
Deposits at December 31, 1996 Interest Rate Amount Value Amount Value
and 1995 consist of the following: 1996 1995 1996 1996 1995 1995
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Negotiable order of withdrawal (NOW accounts) 2.13% 2.11% $ 53,459,320 $ 53,459,320 $ 55,148,995 $ 55,148,995
Non-interest bearing ........................ -- -- 31,685,860 31,685,860 28,260,577 28,260,577
Passbook savings ............................ 3.13 2.93 55,966,713 55,966,713 43,914,645 43,914,645
Money market accounts
Demand ................................... 4.96 2.86 24,011,992 24,011,992 3,658,104 3,658,104
Prestige/Savers Edge statement accounts .. 2.86 2.87 58,798,241 58,798,241 78,027,449 78,027,449
---- ---- ------------ ------------ ------------ ------------
Total non-certificate accounts ......... 223,922,126 223,922,126 209,009,770 209,009,770
Certificates ................................ 5.71 5.69 251,703,615 251,805,927 237,425,096 238,809,995
Individual retirement accounts .............. 5.87 5.89 52,192,693 52,225,283 53,299,470 53,649,676
Negotiated interest rate certificates ....... 5.42 5.48 38,639,494 38,656,921 30,802,550 30,824,850
---- ---- ------------ ------------ ------------ ------------
Total certificate accounts ............. 342,535,802 342,688,131 321,527,116 323,284,521
Accrued interest payable .................... 2,620,067 2,620,067 2,359,039 2,359,039
---- ---- ------------ ------------ ------------ ------------
4.47% 4.36% $569,077,995 $569,230,324 $532,895,925 $534,653,330
==== ==== ============ ============ ============ ============
</TABLE>
The scheduled maturities of
certificate accounts are as follows:
<TABLE>
<CAPTION>
December 31,
------------
1996
------------
<S> <C>
Within one year $268,291,963
From one to two years 51,656,917
From two to three years 9,825,020
From three to four years 4,774,069
From four to five years 3,497,894
After five years 4,489,939
------------
$342,535,802
============
</TABLE>
<PAGE>
Note F -- Deposits, continued
Interest expense on deposits
consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
NOW accounts ............. $ 1,086,625 $ 1,079,320 $ 765,244
Passbooks ................ 1,620,929 1,331,900 736,295
Money market accounts .... 2,396,920 2,618,860 3,486,369
Certificate accounts ..... 19,333,980 17,392,997 11,491,653
----------- ----------- -----------
$24,438,454 $22,423,077 $16,479,561
=========== =========== ===========
</TABLE>
At December 31, 1996, the Bank had 512 deposit accounts, or approximately
$115.9 million, with balances greater than $100,000. At December 31, 1995,
the Bank had 440 deposit accounts, or approximately $94.4 million, with
balances greater than $100,000.
Note G -- Federal Home Loan Bank Advances and Other Borrowings
Borrowings at December 31, 1996
and 1995, consist of the following:
<TABLE>
<CAPTION>
Weighted-
Average
Year of Interest Carrying Fair Carrying Fair
Maturity Rate Amount Value Amount Value
---------------------------------------------------------------------------------------
1996 1995 1996 1996 1995 1995
---------- ---- ---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Federal Home Loan Bank
of Indianapolis:
1996 -- 5.88% $ -- $ -- $ 75,182,530 $ 75,242,460
1997 5.92% 5.96% 135,246,158 135,259,683 14,246,158 14,292,069
1998 5.92% 5.71% 22,750,963 22,684,985 14,450,999 14,450,049
1999 6.74% 6.73% 5,074,913 5,129,722 74,913 78,254
2000/2003 6.73% 6.73% 393,441 395,448 393,441 410,988
--------------------------------------------------------------------------------------
163,465,475 163,469,838 104,348,041 104,473,820
Reverse repurchase agreements 1996 -- 5.39% -- -- 9,407,500 9,407,500
1997 5.60% -- 9,131,250 9,131,250 -- --
Guaranteed ESOP obligation-- Note J 203,096 203,096 349,934 349,934
Federal funds purchased 1997 7.31% -- 20,000,000 20,000,000 -- --
--------------------------------------------------------------------------------------
Total Advances and Other Borrowings 6.08% 5.83% $192,799,821 $192,804,184 $114,105,475 $114,231,254
=======================================================================================
</TABLE>
<PAGE>
The Bank is required to maintain qualifying loans in its portfolio of at
least 170% of outstanding advances as collateral for advances from the
Federal Home Loan Bank of Indianapolis. The required amount at December 31,
1996, is approximately $278,000,000. In addition, Federal Home Loan Bank
stock is assigned as collateral on such advances. The Bank enters into sales
of securities with agreements to repurchase (reverse repurchase agreements)
that are treated as financings. Outstanding reverse repurchase agreements at
December 31, 1996, totaled $9.1 million. The collateral for these borrowings
at December 31, 1996, was U.S. Government securities with an aggregate
amortized cost of $9.2 million and market value of $9.1 million. The
securities underlying the agreements are delivered to the dealers that
arrange the transactions. The dealers agree to resell to the Bank the same
securities at the maturity of the agreements. All agreements are transacted
with dealers considered to be "primary dealers." The highest month-end
balances of reverse repurchase agreements were $27.8 million, $53.0 million
and $52.3 million for 1996, 1995 and 1994, respectively. The average
outstanding balances of reverse repurchase agreements were $11.4 million,
$18.0 million and $25.6 million for 1996, 1995 and 1994, respectively.
Note H -- Income Taxes
The Bank has qualified under provisions of the Internal Revenue Code that
permit it to deduct from taxable income an allowance for bad debts that
differs from the provision for such losses charged to income. Accordingly,
the Bank has base year tax reserves of approximately $9,210,000 for which no
provision for federal income taxes has been made. If, in the future, this
portion of retained earnings is used for any purpose other than to absorb bad
debt losses, or if the Bank fails to meet the tax requirements to qualify as
a savings and loan institution, federal income taxes may be imposed at the
then applicable rates. If federal income taxes had been provided, the
deferred tax liability would have been approximately $3,223,500.
<PAGE>
Note H -- Income Taxes, continued
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal ............. $ 1,465,572 $ 1,601,897 $ 1,595,725
State ............... 639,941 782,119 781,428
Deferred ............ (944,813) (66,155) 689,204
----------- ----------- -----------
$ 1,160,700 $ 2,317,861 $ 3,066,357
=========== =========== ===========
</TABLE>
A reconciliation of the statutory federal income tax rate to the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- ------ -----
<S> <C> <C> <C>
Statutory rate ..................... 35.0% 35.0% 35.0%
Increase (decrease) in income
tax resulting from:
Low income housing credit .......... (19.7) (12.0) (8.0)
Tax exempt interest on
earning assets .................. (1.5) (1.0) (1.0)
State taxes ........................ 6.2 5.4 5.8
Other .............................. 0.1 (3.3) (2.1)
------ ----- ----
Effective rate ..................... 20.1% 24.1% 29.7%
====== ===== =====
</TABLE>
<PAGE>
Significant components of the deferred tax liabilities and assets at December
31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Loan fees deferred for income tax
purposes ..................................... $ 1,104,268 $ 1,161,191
Depreciation ................................... 600,077 563,568
Stock dividends on FHLB stock .................. 255,850 238,452
Available-for-sale securities adjustment ....... 236,161 511,173
Accrued interest on mortgage loans ............. 93,849 106,930
Excess of tax accumulated provision
for losses over base year .................... 131,015 41,762
Deposit base intangible ........................ 822,061 918,355
Other .......................................... 580,938 492,432
----------- -----------
$ 3,824,219 $ 4,033,863
Deferred tax assets:
General valuation reserves ..................... 2,769,478 2,275,529
Net operating loss carry forward and tax credits 825,795 440,316
Other, net ..................................... 1,398,989 1,268,236
----------- -----------
4,994,262 3,984,081
----------- -----------
Net deferred (asset) liability .................... ($1,170,043) $ 49,782
=========== ===========
</TABLE>
Current and deferred income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Income taxes currently
(receivable) payable .................... $ 57,981 ($ 521,712)
Deferred income tax (asset) liability ...... (1,170,043) 49,782
========== ======
</TABLE>
Deferred income taxes result from temporary differences in the basis of assets
and liabilities for financial reporting and income taxes.
<PAGE>
The source of these temporary differences and their resulting effect on
income tax expense are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
General valuation allowance .......... ($493,949) ($433,119 $ 3,456
Excess of tax accumulated
provision for losses
over base year .................... 89,253 (394,863) 123,864
Purchase accounting adjustments ...... -- 585,953 --
Loan fees deferred for income
tax purposes ...................... (56,923) (158,448) 331,377
Depreciation ......................... 36,509 87,081 281,306
Other, net ........................... (519,703) 247,241 (50,799)
--------- --------- ---------
($944,813) ($ 66,155) $ 689,204
========= ========= =========
</TABLE>
Note I -- Shareholders' Equity and Regulatory Capital
The Bank is subject to various regulatory capital requirements
administered by the federal regulatory agencies. Failure to meet minimum
capital requirements can initiate certain mandatory--and possibly
additional--discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices. The Bank's
capital amounts and classification are also subject to qualitative judgments
by the regulators about components, risk weightings, and other factors.
<PAGE>
Note I -- Shareholders' Equity, continued
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set forth
in the table below) of core, tangible, and risk-based capital. Management
believes that, as of December 31, 1996, the Bank meets all capital adequacy
requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Office of
Thrift Supervision categorized the Bank as adequately capitalized under the
regulatory framework for prompt corrective action. To be categorized as
adequately capitalized, the Bank must maintain minimum core, tangible and
risk-based capital ratios as set forth in the table. No conditions or events
have occured since that notification that management believes have changed
the institution's category.
The Bank's actual capital amounts and ratios are also presented in the
table. No amount was required to be deducted from capital for interest-rate
risk.
Shareholders' Rights Plan
On February 26, 1992, the Corporation declared a distribution of one common
stock purchase right for each share of the Corporation's common stock
outstanding on March 6, 1992. Each right would initially entitle the
shareholder to purchase one share of the Corporation's common stock at an
exercise price of $30.00 per share, subject to adjustment. The rights are not
currently exercisable, but would become exercisable if certain events
occurred related to a person or group ("Acquiring Person") acquiring or
attempting to acquire 10% or more of the outstanding shares of common stock.
In the event that the rights become exercisable, each right (except for
rights beneficially owned by the Acquiring Person, which become null and
void) would entitle the holder to purchase, for the exercise price then in
effect, shares of the Corporation's common stock having a value of twice the
exercise price. The rights may be redeemed by the Board of Directors in
whole, but not in part, at a price of $.01 per right. The rights have no
voting or dividend privileges and are attached to, and do not trade
separately from, the common stock. In connection with the proposed merger
with Pinnacle, the Corporation intends to redeem the rights at a price of
$.01 per right or approximately $50,000.
<TABLE>
<CAPTION>
To Be Well-Capitalized
Under Prompt
For Capital Adequacy Corrective Action
Actual Purposes Provisions
---------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
----------- ------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
At Dec. 31, 1996:
Risk-based $55,594,427 9.78% $45,464,897 8.00% $56,816,121 10.00%
Core $49,443,445 6.01% $24,665,142 3.00% $41,108,570 5.00%
Tangible $49,443,445 6.01% $12,232,571 1.50% $20,554,285 2.50%
At. Dec. 31, 1995
Risk-based $58,849,581 12.97% $36,322,960 8.00% $45,403,700 10.00%
Core $53,416,120 7.48% $21,414,630 3.00% $35,691,050 5.00%
Tangible $48,255,481 6.81% $10,617,705 1.50% $17,696,175 2.50%
</TABLE>
<PAGE>
Note J -- Stock Option Plan
The Corporation has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," (APB 25) and
related interpretations in accounting for its employee stock options because,
as discussed below, the alternative fair value accounting provided for under
SFAS No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Corporation's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
The Corporation's stock option plan has authorized the grant of
incentive and non-qualified stock options to certain directors, officers, and
key employees. At December 31, 1996, there were 275,946 shares of common
stock available for future grant or award. All options granted have 10 year
terms and vest and become fully exercisable over a 5 year period from the
grant date.
<PAGE>
Pro forma information regarding net income and earnings per share is
required by SFAS 123, which also requires that the information be determined
as if the Corporation has accounted for its employee stock options granted
subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1995 and 1996, respectively: risk-free
interest rate of 6.5%; a dividend yield of 3.75%; volatility factors of the
expected market price of the Corporation's common stock of .216%; and a
weighted-average expected life of the option of 7 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Corporation's stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Corporation's pro forma information follows (in thousands except for earnings
per share information):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Pro forma net income $4,573,879 $7,303,890
Pro forma earnings
per share $ 0.95 $ 1.51
</TABLE>
Because Statement 123 is applicable only to options granted subsequent
to December 31, 1994, its pro forma effect will not be fully reflected until
2000.
<PAGE>
A summary of the Corporation's stock options activity, and related
information for the years ended December 31, follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price Options Exercise Price
------- ---------------- ------- --------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--beginning of
year 257,014 $12.20 303,316 $15.35 332,463 $ 6.80
Granted 50,500 20.54 82,025 16.66 76,248 16.49
Exercised 54,584 5.52 88,810 6.41 95,456 5.84
Forfeited 11,441 14.33 39,517 12.43 9,939 13.20
------------------------------------------------------------------------------------
Outstanding--end of year 241,489 $15.35 257,014 $12.20 303,316 $ 9.33
------------------------------------------------------------------------------------
Exercisable at end of year 147,740 $13.62 160,661 $10.52 147,740 $13.62
Weighted-average fair value
of options granted during
the year $ 4.83 $ 3.92
====================================================================================
</TABLE>
Exercise prices for options outstanding as of December 31, 1996, ranged from
$4.625 to $21.00. The weighted-average remaining contractual life of those
options is 7.1 years.
<PAGE>
Note K -- Retirement Plans
The Corporation has established a leveraged Employee Stock Ownership
Plan ("ESOP") in which all employees who attain minimum age and service
requirements are eligible to participate. The Corporation is to make
contributions on behalf of each participant at the rate of 1 percent of such
participant's total compensation. The Board of Directors may authorize
additional contributions at its discretion. The Corporation recorded expenses
related to these plans of $278,000, $407,000, and $402,000 for the years
ended December 31, 1996, 1995, 1994, respectively. The Corporation's 1996
contribution to the ESOP was $350,350 compared to $382,628 in 1995 and
$362,093 in 1994. The ESOP entered into a loan agreement to borrow up to
$1,200,000 from an unrelated financial institution to purchase shares of
common stock in the open market. The loan is unconditionally guaranteed by
the Corporation and an equivalent amount, which is comparable to unearned
compensation, is shown as a deduction of shareholders' equity. Both the
liability and the amount of shareholders' equity will be reduced in equal
amounts as the ESOP repays the borrowing. The ESOP will repay the loan, plus
interest, over a ten-year period using Corporation contributions.
At December 31, 1996 and 1995, the outstanding ESOP loan balance was
$203,096 and $349,934, respectively. The interest incurred on the ESOP loan
amounted to $18,950 in 1996, $31,250 in 1995, and $29,848 in 1994. Dividends
earned on unallocated shares are used to purchase additional shares of stock
for the ESOP. Dividends paid on the unallocated ESOP shares totaled $45,519
in 1996, $50,023 in 1995, and $53,780 in 1994. The table below summarizes
shares of Corporation Stock held by the ESOP.
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1995
------- ---------
<S> <C> <C>
Shares allocated to participants ............... 185,171 168,396
Unallocated shares:
Grandfathered under SOP 93-6 ................ 10,672 31,507
Unearned ESOP shares ........................ 29,706 24,004
-------- --------
Total ..................................... 225,549 223,907
======== ========
Fair value of unearned ESOP shares .......... $664,671 $510,085
======== ========
</TABLE>
The Corporation sponsors a stock-based deferred compensation plan for
directors, in which directors can defer fees and purchase phantom units on
the Corporation's common stock at $11.63. The amount charged to expense
related to this plan was $156,839, $162,199, and $54,198 in 1996, 1995, and
1994, respectively. At December 31, 1996, the directors had purchased 31,894
phantom units of which 8,903 were purchased in 1996. The Corporation has
purchased corporate-owned life insurance to partially fund its obligation
under this plan. The Corporation has a supplemental executive retirement plan
for certain senior executives. The plan provides for a retirement benefit
based on years of service and compensation levels. The Corporation has
purchased corporate-owned life insurance to partially fund its obligation
under this plan. The expense recognized in 1996 totaled $230,000 compared to
$25,000 in 1995 and $105,000 in 1994.
<PAGE>
Note L -- Quarterly Results of Operations
<TABLE>
<CAPTION>
1996 1995
-------------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
(unaudited) Dec. 31 Sept. 30 June 30 March 31 Dec. 31 Sept. 30 June 30 March 31
------------------------------------------------------ ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income .......$15,458,198 $14,545,647 $13,498,320 $13,357,016 $13,961,413 $13,649,808 $13,840,792 $13,718,202
Interest expense ...... 8,919,750 8,134,904 7,494,116 7,310,911 7,590,639 7,445,388 7,518,574 7,385,932
-------------------------------------------------------------------------------------------------------------
Net interest income ... 6,538,448 6,410,743 6,004,204 6,046,105 6,370,774 6,204,420 6,322,218 6,332,270
Provision for
loan losses........... 650,000 265,000 150,000 50,000 -- 2,357 30,459 144,151
Other income .......... 1,404,681 1,069,504 826,369 1,049,534 1,365,746 942,407 1,716,444 654,565
Other expense ......... 5,298,292 7,405,268 4,884,901 4,862,902 5,697,768 4,895,189 4,767,007 4,749,762
-------------------------------------------------------------------------------------------------------------
Income (loss) before
income taxes.......... 1,994,837 (190,021) 1,795,672 2,182,737 2,038,752 2,249,281 3,241,196 2,092,922
Income taxes .......... 573,700 (384,700) 425,600 546,100 182,216 571,260 1,012,315 552,070
-------------------------------------------------------------------------------------------------------------
Net income ............$ 1,421,137 $ 194,679 $ 1,370,072 $ 1,636,637 $ 1,856,536 $ 1,678,021 $2,228,881 $ 1,540,852
=============================================================================================================
Net earnings per share $ 0.29 $ 0.04 $ 0.29 $ 0.34 $ 0.39 $ 0.34 $ 0.46 $ 0.32
Dividends per share ...$ 0.18 $ 0.18 $ 0.18 $ 0.28 $ 0.165 $ 0.165 $ 0.165 $ 0.365
=============================================================================================================
</TABLE>
During the third quarter of 1996, the Corporation recognized $2.8 million of
other expense (.36 per share after tax effect) due to the recapitalization of
the SAIF. During the fourth quarter of 1995, the provision for income taxes
was reduced by $309,000 ($.07 per share) due to additional low-to-moderate
income housing credits.
<PAGE>
Note M -- Condensed Financial Information
(Parent company only):
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Statements of Condition
Assets:
Cash and cash equivalents ........................... $ 4,489,118 $ 1,911,553
Dividend receivable from Indiana Federal Bank ....... -- 3,727,205
Note receivable from IndFed Mortgage Company ........ 950,000 950,000
Investment in Forrest Holdings, Inc. ................ 2,500,000 --
Equity in net assets of Indiana Federal Bank ........ 54,375,624 54,195,463
Equity in net assets of IndFed Mortgage Company ..... 8,091,757 9,738,074
Equity in net assets of IFB Investment Services, Inc. 323,999 100,000
Other assets ........................................ 1,280,783 548,418
------------ ------------
$ 72,011,281 $ 71,170,713
============ ============
Liabilities and Shareholders' Equity:
Other liabilities ................................... $ 645,001 $ 440,537
Common stock ........................................ 58,785 58,239
Additional paid-in capital .......................... 27,729,839 27,428,077
Unrealized gains on available-for-sale securities ... 360,055 779,343
Retained earnings ................................... 52,174,772 51,443,400
Treasury stock at cost .............................. (8,754,075) (8,628,949)
Guaranteed ESOP obligation .......................... (203,096) (349,934)
------------ ------------
$ 72,011,281 $ 71,170,713
============ ============
<PAGE>
<CAPTION>
Years ended December 31,
--------------------------------------------
1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
Statements of Income
Equity in earnings of subsidiaries ................................ $ 4,819,850 $ 7,638,468 $ 7,646,392
Other income ...................................................... 300,843 134,510 55,451
------------ ------------ ------------
Total income ...................................................... 5,120,693 7,772,978 7,701,843
Miscellaneous operating expenses .................................. 611,368 684,938 634,226
Federal income tax benefit ........................................ (113,200) (216,250) (194,658)
------------ ------------ ------------
Total expense ..................................................... 498,168 468,688 439,568
------------ ------------ ------------
Net income ........................................................ $ 4,622,525 $ 7,304,290 $ 7,262,275
============ ============ ============
Earnings per share ................................................ $ 0.96 $ 1.51 $ 1.50
============ ============ ============
Statements of Cash Flow
Operating activities:
Net income ........................................................ $ 4,622,525 $ 7,304,290 $ 7,262,275
Adjustments to reconcile net income to net cash used
by operating activities:
Equity in earnings of subsidiaries ............................. (4,819,850) (7,638,468) (7,646,392)
Net change in other assets and liabilities ..................... (381,063) (230,616) (65,169)
------------ ------------ ------------
Net cash used by operating activities ............................. (578,388) (564,794) (449,286)
Investing activities:
Contribution of cash of Norcen Bank to Indiana Federal Bank ....... -- (1,312,904) --
Payment for purchase of Norcen Bank, net of cash acquired ......... -- (6,440,229) --
Payment for purchase of American Bancorp, Inc., net
of cash acquired ............................................... -- -- 5,170,054
Contribution of cash of American State Bank to Indiana Federal Bank -- --
(11,905,055)
Purchases of treasury shares at cost .............................. (125,126) (400,184) (1,534,421)
Dividends received ................................................ 9,469,924 14,839,785 11,927,699
------------ ------------ ------------
Net cash provided by investing activities ......................... 9,344,798 6,686,468 3,658,277
Financing activities:
Borrow funds to IndFed Mortgage Company ........................... -- (950,000) --
Purchase preferred stock of Forrest Holdings, Inc. ................ (2,500,000) -- --
Purchase common stock of IFB Investment Services, Inc. ............ -- (100,000) --
Capital contribution to IFB Investment Services, Inc. ............. (100,000) -- --
Purchase common stock of IndFed Mortgage Company .................. -- (1,000,000) --
Net proceeds from sale of stock ................................... 302,308 569,280 551,186
Cash dividends and other financing activities ..................... (3,891,153) (4,036,030) (3,384,815)
------------ ------------ ------------
Net cash used by financing activities ............................. (6,188,845) (5,516,750) (2,833,629)
------------ ------------ ------------
Increase in cash and cash equivalents ............................. 2,577,565 604,924 375,362
Cash and cash equivalents at beginning of year .................... 1,911,553 1,306,629 931,267
------------ ------------ ------------
Cash and cash equivalents at end of year .......................... $ 4,489,118 $ 1,911,553 $ 1,306,629
============ ============ ============
</TABLE>
<PAGE>
Note N -- Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Values of Financial Instruments,"
requires disclosure of information about the fair value of financial
instruments for which it is practicable to estimate a value, whether or not
recognized in the Statement of Condition. Whenever possible, quoted market
prices were used to develop fair values. In cases where quoted market prices
are not available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly affected by
the assumptions used, including the discount rate and estimates of future
cash flows. Therefore, in many cases the estimated fair values may not be
realized in an immediate sale of the instruments.
SFAS No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate of
the estimated fair value amounts is not intended to represent the underlying
value of the Corporation.
The carrying amounts and the estimated fair values are as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
------------------------------- -------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 25,886,539 $ 25,886,539 $ 28,447,952 $ 28,447,952
Investment and mortgage-
backed securities (Note C) 129,713,776 129,713,776 99,410,236 99,410,236
Loans held for sale 1,969,697 1,976,175 16,044,609 16,319,939
Accrued interest receivable 5,558,283 5,558,283 5,005,115 5,005,115
FHLB Stock 8,173,300 8,173,300 7,739,700 7,739,700
Loans receivable 621,583,734 627,980,234 522,692,957 529,785,995
------------ ------------ ------------ ------------
Total asset financial instruments $792,885,329 $799,288,307 $679,340,569 $686,708,937
============ ============ ============ ============
Liabilities:
Deposits (Note F) $569,077,995 $569,230,324 $532,895,925 $534,653,329
Federal Home Loan Bank advances
and other borrowings (Note G) 192,799,821 192,804,184 114,105,475 114,231,254
Advanced payments (escrows) 1,175,407 1,175,407 1,409,051 1,409,051
Interest Payable 412,983 412,983 315,918 315,918
------------ ------------ ------------ ------------
Total liability financial instruments $763,466,206 $763,622,898 $648,726,369 $650,609,552
============ ============ ============ ============
</TABLE>
The following methods and assumptions were used by the Bank in estimating its
fair value disclosures for financial instruments:
Cash and Cash Equivalents
The carrying amounts reported in the statement of condition for cash and
short-term instruments approximate those assets' fair values.
<PAGE>
Note N -- Fair Value of Financial Instruments, CONTINUED
Investment and Mortgage-Backed Securities
Fair values for investment securities and mortgage-backed securities are
based on quoted market prices, where available. If quoted market prices are
not available, fair values are based on quoted market prices of comparable
instruments.
Loans Receivable
For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying amounts. The fair
values of conventional one- to four-family fixed-rate mortgage loans are
based on quoted market prices of similar loans sold in conjunction with
securitization transactions, adjusted for differences in loan
characteristics. The fair values for consumer loans, income-producing
property loans, and commercial loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. The carrying amount of accrued
interest approximates its fair value.
Off-Balance-Sheet Instruments
The Bank's off-balance-sheet instruments consist primarily of loan
commitments. The fair value for such commitments is nominal.
Deposits
The fair value disclosed for interest-bearing and non-interest-bearing
checking accounts are, by definition, equal to the carrying amount. Fair
values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly
maturities on time deposits.
Short-Term Borrowings
The carrying amounts of federal funds purchased, borrowings under
repurchase agreements, and other short-term borrowings approximate their fair
values.
Long-Term Borrowings
The fair values of the Bank's advances from the FHLB are estimated using
discounted cash flow analyses, based on the Bank's current incremental
borrowing rates for similar types of borrowing arrangements.
<PAGE>
Community involvement
Indiana Federal officers, directors, and employees are active at many
levels of community service and charity. They are presently serving as
directors, officers, or members of the following:
American Cancer Society
Boy Scouts of America
<PAGE>
Exhibit 99(b)
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
INDIANA FEDERAL CORPORATION AND SUBSIDIARIES
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash $ 21,673,373 $ 25,820,066
Interest-earning deposits in other institutions 85,160 66,473
------------ ------------
Total Cash and Cash Equivalents 21,758,533 25,886,539
Investment securities:
Available-for-sale 84,534,351 86,432,613
Mortgage-backed securities:
Available-for-sale 41,637,500 43,281,163
Loans receivable 620,965,609 629,041,525
Allowance for loan losses (6,907,913) (7,457,791)
------------ ------------
Loans Receivable, Net 614,057,696 621,583,734
Loans held for sale 754,248 1,969,697
Real estate held for sale, acquired through foreclosure 1,013,828 3,308,412
Office properties and equipment 10,150,227 10,476,611
Federal Home Loan Bank stock 9,043,600 8,173,300
Accrued interest receivable 5,639,870 5,558,283
Goodwill and deposit base intangible 4,347,319 4,513,658
Investment in Section 42 properties 6,336,882 6,486,882
Investment in single premium life insurance policies 12,620,469 12,569,683
Other assets 7,029,870 6,584,103
------------ ------------
TOTAL ASSETS $818,924,393 $836,824,678
============ ============
</TABLE>
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
INDIANA FEDERAL CORPORATION AND SUBSIDIARIES
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
Deposits $550,388,778 $569,077,995
Federal Home Loan Bank advances
and other borrowings 191,298,392 192,799,821
Advance payments by borrowers for
taxes and insurance 2,486,697 1,175,407
Other liabilities 2,830,168 2,405,175
------------ ------------
TOTAL LIABILITIES 747,004,035 765,458,398
Shareholders' Equity
Serial Preferred Stock, par value $.01
per share; authorized: 5,000,000 shares;
none issued -- --
Common Stock, par value $.01 per share;
authorized: 10,000,000 shares; issued
1997--5,895,236 shares, 1996--5,878,530 shares 58,952 58,785
Additional paid-in capital 27,932,024 27,729,839
Unrealized gain (loss) on available-for-sale
securities, net of deferred income taxes (708,789) 360,055
Retained earnings 53,595,342 52,174,772
Treasury Stock, at cost - 1,109,000 shares (8,754,075) (8,754,075)
Guaranteed ESOP obligation (203,096) (203,096)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 71,920,358 71,366,280
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $818,924,393 $836,824,678
============ ============
</TABLE>
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
INDIANA FEDERAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
------------ -------------
<S> <C> <C>
Interest income:
Interest on loans $13,049,111 $11,691,030
Interest on mortgage-backed securities 748,933 460,958
Interest and dividends on investment securities 1,689,142 1,205,028
----------- -----------
Total Interest Income 15,487,186 13,357,016
Interest expense:
Interest on deposits 6,110,321 5,850,772
Interest on FHLB advances and other borrowings 2,635,670 1,460,139
----------- -----------
Total Interest Expense 8,745,991 7,310,911
----------- -----------
Net Interest Income 6,741,195 6,046,105
Provision for loan losses 240,000 50,000
----------- -----------
Net Interest Income After Provision for Loan Losses 6,501,195 5,996,105
Other income:
Commissions on sales of insurance and securities 452,149 363,450
Gain (loss) on sale of real estate owned (21,811) (2,046)
Gain (loss) on sale of mortgage loans 26,186 (17,670)
Gain (loss) on valuation of mortgage loans -- (195,071)
Gain (loss) on sale of securities -- (20,313)
Customer service fees 468,386 376,533
Other 900,637 544,651
----------- -----------
Total Other Income 1,825,547 1,049,534
Other expenses:
Salaries and employee benefits 2,532,669 2,208,142
Net occupancy expense 456,955 381,703
Furniture and equipment expense 353,166 424,974
Federal insurance premiums 76,560 262,500
Marketing 134,211 118,510
Other general and administrative expenses 1,469,121 1,467,073
----------- -----------
Total Other Expenses 5,022,682 4,862,902
----------- -----------
Income Before Income Taxes 3,304,060 2,182,737
Income Tax Expense 1,024,380 546,100
----------- -----------
Net Income $ 2,279,680 $ 1,636,637
=========== ===========
Amounts per common share:
Net Income $0.47 $0.34
===== =====
Cash Dividend Paid $0.18 $0.28
===== =====
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
INDIANA FEDERAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,279,680 $ 1,636,637
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses 240,000 50,000
Originations of loans held for sale (5,572,412) (9,673,832)
Cost of loans sold 6,787,861 4,034,355
Provision for depreciation and amortization 522,664 561,741
Amortization (accretion) of premiums and discounts, net (60,204) (160,995)
Proceeds from sales of trading securities -- 4,076,563
Purchases of trading securities -- (4,096,875)
Deferred federal income taxes (118,572) (167,819)
Increase (decrease) in interest receivable (81,587) 953,897
Decrease in interest payable 214,485 33,245
Net losses on sale of securities -- 20,313
Net losses on sale of real estate owned 21,811 2,046
Net (gains) losses on sale and valuation of mortgage loans (26,186) 212,741
Net change in other assets and liabilities 1,020,694 (2,593,738)
----------- -----------
Net Cash Provided (Used) by Operating Activities 5,228,234 (5,111,721)
----------- -----------
INVESTING ACTIVITIES
Purchase of Forrest Holdings, Inc. stock -- (2,500,000)
Purchase of FHLB stock (870,300) --
Principal payments on securities available-for-sale 2,483,214 4,635,000
Proceeds from maturities of securities available-for-sale 6,500,000 1,950,000
Purchase of securities available-for-sale (8,365,389) (3,475,768)
Principal payments on mortgage-backed securities
available-for-sale 1,153,684 1,025,225
Loan originations and principal payments on loans 8,075,916 (3,591,250)
Purchases of office properties and equipment (35,748) (486,067)
Proceeds from sale of real estate 456,184 146,695
----------- -----------
Net Cash Provided (Used) by Investing Activities 9,397,561 (2,296,165)
----------- -----------
FINANCING ACTIVITIES
Net decrease in non-certificate accounts (5,290,482) (1,923,053)
Net increase (decrease) in certificates of deposit (12,616,418) 15,906,943
Proceeds from Federal Home Loan Bank advances 60,000,000 10,000,000
Repayments on Federal Home Loan Bank advances (50,093,929) (32,626,213)
Net increase (decrease) in other borrowings (11,407,500) 3,591,250
Net increase in advance payments by borrowers
for taxes and insurance 1,311,290 1,405,611
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)
INDIANA FEDERAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
----------- -----------
<S> <C> <C>
FINANCING ACTIVITIES (Continued)
Cash dividends $ (859,114) $(1,327,550)
Exercise of stock options 202,352 96,678
----------- -----------
Net Cash Used by Financing Activities (18,753,801) (4,876,334)
----------- -----------
Decrease in Cash and Cash Equivalents (4,128,006) (12,284,220)
Cash and Cash Equivalents at Beginning of Year 25,886,539 28,447,952
----------- -----------
Cash and Cash Equivalents at End of Quarter $21,758,533 $16,163,732
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION - CASH PAID DURING THE PERIOD:
Interest:
Deposits $ 6,339,451 $ 5,777,123
Federal Home Loan Bank advances and other borrowings 2,621,025 1,493,384
----------- -----------
$ 8,960,476 $ 7,270,507
=========== ===========
Income Taxes $ 345,000 $ 500,000
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITY:
Loans transferred to held-for-sale category due to
borrower conversion of adjustable-rate mortgage
loans to fixed-rate mortgage loans $ 405,416 $ --
Loans originated to finance the sale of
real estate owned $ 1,838,400 $ --
</TABLE>
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
INDIANA FEDERAL CORPORATION AND SUBSIDIARIES
March 31, 1997
NOTE 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with instructions to Form 10-Q and Article
10 of regulation S-X. Accordingly, such statements do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three month period ended March 31, 1997 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1997.
NOTE 2 - Earnings Per Share
Earnings per share of common stock have been determined by dividing net
income for the period by the weighted average number of shares of common
stock equivalents outstanding. Common stock options in the calculation
assumes purchase of treasury stock with the option proceeds at the average
market price for the period (when dilutive).
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share.
Statement 128 is effective for both interim and annual financial statements
for periods ending after December 15, 1997. Earlier application is not
permitted. As a result, calendar year end companies will first report on the
new EPS basis in the fourth quarter ended December 1997. Subsequent to the
effective date, all prior-period EPS amounts (including EPS information in
interim financial statements, earnings summaries and selected financial data)
are required to be restated to conform to the provisions of Statement 128.
NOTE 3 - Reclassification
Certain amounts in the 1996 condensed consolidated financial statements have
been reclassified to conform with the 1997 presentation.
NOTE 4 - Mergers and Acquisitions
On November 14, 1996, the Corporation announced a merger of equals with
Pinnacle Financial Services, Inc. ("Pinnacle") of St. Joseph, Michigan. In
addition, on March 3, 1997, Pinnacle announced the acquisition of CB Bancorp,
Inc. of Michigan City, Indiana.
<PAGE>
The mergers, which are subject to regulatory and shareholder approval, are
expected to be completed by mid-year 1997. The merger will create a new bank
franchise with 50 branch locations in southwest Michigan and northwest
Indiana with assets of approximately $2.2 billion.
<PAGE>
EXHIBIT 99(c)
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
CB Bancorp, Inc. and Subsidiary
Michigan City, Indiana
We have audited the accompanying consolidated balance sheets of CB Bancorp,
Inc. and Subsidiary as of March 31, 1997 and 1996 and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the years ended March 31, 1997, 1996 and 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CB
Bancorp, Inc. and Subsidiary as of March 31, 1997 and 1996 and the results of
their operations and their cash flows for the years ended March 31, 1997,
1996 and 1995, in conformity with generally accepted accounting principles.
As discussed in Note 1, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," as of April 1, 1994.
Crowe, Chizek and Company LLP
South Bend, Indiana
May 23, 1997
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
Cash and due from financial institutions......................................... $ 4,847,106 $ 4,754,811
Interest-bearing deposits in other financial institutions -- short term.......... 9,882,031 1,308,112
-------------- --------------
Cash and cash equivalents...................................................... 14,729,137 6,062,923
-------------- --------------
Securities available for sale.................................................... 672,059 620,948
Securities held to maturity (Fair value: $14,348,000 -- 1997;
$15,926,000 -- 1996)........................................................... 14,298,913 15,866,904
Federal Home Loan Bank stock at cost............................................. 2,751,700 2,702,000
Loans
Loans purchased under agreements to resell..................................... 95,275,680 80,031,250
Loans receivable............................................................... 90,315,402 92,616,450
Less: Allowance for loan losses................................................ (1,807,660) (1,346,328)
-------------- --------------
183,783,422 171,301,372
Mortgage loans held for sale..................................................... 914,050 512,750
Accrued interest receivable...................................................... 1,219,432 1,183,259
Premises and equipment, net...................................................... 2,920,274 2,387,382
Investment in limited partnership................................................ 1,566,215 1,678,573
Other assets..................................................................... 4,280,206 3,068,825
-------------- --------------
$ 227,135,408 $ 205,384,936
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Interest-bearing............................................................. $ 139,806,192 $ 120,408,041
Non-interest bearing......................................................... 10,003,301 17,852,856
-------------- --------------
Total deposits............................................................. 149,809,493 138,260,897
Borrowed funds................................................................. 53,283,553 45,124,355
Obligation due to limited partnership.......................................... 1,467,877 1,450,000
Accrued expenses and other liabilities......................................... 1,731,552 1,717,500
-------------- --------------
206,292,475 186,552,752
Shareholders' equity
Serial preferred stock, no par value, 500,000 shares authorized; none
outstanding.................................................................. -- --
Common stock, par value $.01 per share; shares authorized: 1,500,000; shares
issued: 1,284,238; shares outstanding: 1997 -- 1,161,997 and 1996 --
1,188,226.................................................................... 12,842 12,842
Additional paid-in capital..................................................... 5,865,528 5,813,358
Retained earnings -- substantially restricted.................................. 16,635,085 14,323,484
Less:
Treasury stock, 122,241 and 96,012 shares at cost at March 31, 1997 and 1996,
respectively............................................................... (1,550,290) (1,081,744)
Unearned common stock acquired by:
Employee stock ownership plan.............................................. (176,583) (240,794)
Recognition and retention plans............................................ (4,233) (20,708)
Net unrealized appreciation on securities available for sale, net of tax of
$39,738 in 1997 and $16,887 in 1996 60,584 25,746
-------------- --------------
20,842,933 18,832,184
-------------- --------------
$ 227,135,408 $ 205,384,936
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Interest income
Loans receivable
First mortgage loans................................................ $ 6,884,405 $ 6,949,705 $ 6,189,013
Consumer and other loans............................................ 627,028 628,236 260,463
Loans purchased under agreements to resell............................ 7,613,007 5,452,138 1,351,924
Securities -- taxable................................................. 594,933 565,940 567,883
Mortgage-backed and related securities -- taxable..................... 632,276 689,120 653,029
Other interest-bearing assets -- taxable.............................. 48,946 66,742 177,064
------------ ------------ ------------
16,400,595 14,351,881 9,199,376
Interest expense
Deposits.............................................................. 5,680,771 5,040,273 3,961,171
Borrowed funds........................................................ 2,453,616 2,022,405 182,559
------------ ------------ ------------
8,134,387 7,062,678 4,143,730
------------ ------------ ------------
NET INTEREST INCOME..................................................... 8,266,208 7,289,203 5,055,646
Provision for loan losses............................................... 1,191,000 1,020,000 78,000
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES..................... 7,075,208 6,269,203 4,977,646
Noninterest income
Gain (loss) on sales of mortgage loans held for sale.................. 269,739 1,478 --
Other................................................................. 1,493,603 1,176,542 995,084
------------ ------------ ------------
1,763,342 1,178,020 995,084
Noninterest expense
Salaries and employee benefits........................................ 1,941,387 1,561,595 1,493,024
Occupancy and equipment............................................... 593,536 512,476 512,394
SAIF deposit insurance premium........................................ 947,628 263,397 261,206
Other................................................................. 1,863,085 1,271,616 1,075,585
------------ ------------ ------------
5,345,636 3,609,084 3,342,209
------------ ------------ ------------
INCOME BEFORE INCOME TAXES.............................................. 3,492,914 3,838,139 2,630,521
Income tax expense...................................................... 1,181,313 1,379,929 970,274
------------ ------------ ------------
NET INCOME.............................................................. $ 2,311,601 $ 2,458,210 $ 1,660,247
------------ ------------ ------------
------------ ------------ ------------
Primary earnings per share.............................................. $ 1.86 $ 1.95 $ 1.29
Fully dilutive earnings per share....................................... 1.85 1.94 1.29
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
UNEARNED UNEARNED
COMMON COMMON
ADDITIONAL STOCK STOCK
COMMON PAID-IN RETAINED TREASURY ACQUIRED BY ACQUIRED BY
STOCK CAPITAL EARNINGS STOCK ESOP RRP
----------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE--APRIL 1, 1994............................. $ 12,842 $5,862,898 $10,205,027 $ (522,899) $(369,216) $ (89,675)
Adoption of SFAS No. 115 net of tax of $63......... -- -- -- -- -- --
Purchase of 22,000 shares of treasury stock........ -- -- -- (243,875) -- --
Issuance of 10,916 shares of treasury stock........ -- (41,038) -- 95,618 -- --
Contribution to fund ESOP.......................... -- -- -- -- 64,211 --
Amortization of RRP contribution................... -- -- -- -- -- 41,999
Net change in unrealized appreciation on securities
available for sale, net of tax of $1,131.......... -- -- -- -- -- --
Net income for the year ended March 31, 1995....... -- -- 1,660,247 -- -- --
----------- ----------- ---------- ---------- ----------- -----------
BALANCE--MARCH 31, 1995............................ 12,842 5,821,860 11,865,274 (671,156) (305,005) (47,676)
Purchase of 38,495 shares of treasury stock........ -- -- -- (557,427) -- --
Issuance of 13,583 shares of treasury stock........ -- (78,923) -- 146,839 -- --
Contribution to fund ESOP.......................... -- -- -- -- 64,211 --
Amortization of RRP contribution................... -- -- -- -- -- 26,968
Tax benefit related to stock plans................. -- 70,421 -- -- -- --
Net change in unrealized appreciation on securities
available for sale, net of tax of $15,693......... -- -- -- -- -- --
Net income for the year ended March 31, 1996 -- -- 2,458,210 -- -- --
----------- ----------- ---------- ---------- ----------- -----------
BALANCE--MARCH 31, 1996............................ 12,842 5,813,358 14,323,484 (1,081,744) (240,794) (20,708)
Purchase of 27,873 shares of treasury stock........ -- -- -- (487,572) -- --
Issuance of 1,644 shares of treasury stock......... -- (10,805) -- 19,026 -- --
Contribution to fund ESOP.......................... -- -- -- -- 64,211 --
Amortization of RRP contribution................... -- -- -- -- -- 16,475
Tax benefit related to stock plans................. -- 62,975 -- -- -- --
Net change in unrealized appreciation on securities
available for sale, net of tax of $22,851......... -- -- -- -- -- --
Net income for the year ended March 31, 1997....... -- -- 2,311,601 -- -- --
----------- ----------- ---------- ---------- ----------- -----------
BALANCE--MARCH 31, 1997............................ $ 12,842 $5,865,528 $16,635,085 $(1,550,290) $(176,583) $ (4,233)
----------- ----------- ---------- ---------- ----------- -----------
----------- ----------- ---------- ---------- ----------- -----------
<CAPTION>
NET UNREALIZED
APPRECIATION ON
SECURITIES
AVAILABLE TOTAL
FOR SALE, SHAREHOLDERS'
NET OF TAX EQUITY
--------------- -------------
<S> <C> <C>
BALANCE--APRIL 1, 1994............................. $ -- $15,098,977
Adoption of SFAS No. 115 net of tax of $63......... 96 96
Purchase of 22,000 shares of treasury stock........ -- (243,875)
Issuance of 10,916 shares of treasury stock........ -- 54,580
Contribution to fund ESOP.......................... -- 64,211
Amortization of RRP contribution................... -- 41,999
Net change in unrealized appreciation on securities
available for sale, net of tax of $1,131.......... 1,726 1,726
Net income for the year ended March 31, 1995....... -- 1,660,247
------- -------------
BALANCE--MARCH 31, 1995............................ 1,822 16,677,961
Purchase of 38,495 shares of treasury stock........ -- (557,427)
Issuance of 13,583 shares of treasury stock........ -- 67,916
Contribution to fund ESOP.......................... -- 64,211
Amortization of RRP contribution................... -- 26,968
Tax benefit related to stock plans................. -- 70,421
Net change in unrealized appreciation on securities
available for sale, net of tax of $15,693......... 23,924 23,924
Net income for the year ended March 31, 1996 -- 2,458,210
------- -------------
BALANCE--MARCH 31, 1996............................ 25,746 18,832,184
Purchase of 27,873 shares of treasury stock........ -- (487,572)
Issuance of 1,644 shares of treasury stock......... -- 8,221
Contribution to fund ESOP.......................... -- 64,211
Amortization of RRP contribution................... -- 16,475
Tax benefit related to stock plans................. -- 62,975
Net change in unrealized appreciation on securities
available for sale, net of tax of $22,851......... 34,838 34,838
Net income for the year ended March 31, 1997....... -- 2,311,601
------- -------------
BALANCE--MARCH 31, 1997............................ $ 60,584 $20,842,933
------- -------------
------- -------------
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------------- ------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................... $ 2,311,601 $ 2,458,210 $ 1,660,247
Adjustments to reconcile net income to net cash from operating
activities
Depreciation and amortization................................ 219,997 187,104 342,215
Provision for loan losses.................................... 1,191,000 1,020,000 78,000
(Gain) loss on sales of:
Mortgage loans held for sale............................... (269,739) (1,478) --
Securities available for sale.............................. -- -- 650
Foreclosed real estate..................................... 755 (16,731) (16,240)
Loans purchased under agreements to resell................... (1,111,965,098) (795,862,263) (453,339,372)
Sale of loans purchased under agreements to resell........... 1,096,720,668 741,010,220 462,353,515
Mortgage loans originated for sale........................... (15,669,346) (585,786) --
Proceeds from sales of mortgage loans held for sale.......... 15,537,785 74,514 --
Amortization of RRP contribution............................. 16,475 26,968 41,999
Change in:
Accrued interest receivable................................ (36,173) (396,855) (138,011)
Other assets............................................... (1,024,828) (370,009) (30,532)
Accrued expenses and other liabilities..................... 14,052 911,471 114,610
--------------- ------------- ---------------
Net cash from operating activities....................... (12,952,851) (51,544,635) 11,067,081
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in long term interest-bearing deposits in other
financial institutions....................................... -- 983,475 (885,276)
Net change in loans receivable................................. 1,095,951 (6,223,912) (5,717,413)
Proceeds from:
Sale of securities available for sale........................ -- -- 49,200
Maturities of securities held to maturity.................... 3,420,782 9,161,482 6,300,000
Principal collected on mortgage-backed securities............ 2,381,737 2,311,441 3,215,365
Sale of foreclosed real estate............................... 328,245 92,210 58,937
Purchase of:
Securities and mortgage-backed securities available for
sale....................................................... -- -- (53,324)
Securities and mortgage-backed securities held to maturity... (4,236,862) (10,104,120) (9,424,682)
Federal Home Loan Bank stock................................. (49,700) (351,600) --
Loans receivable............................................. -- -- (2,627,077)
Premises and equipment, net.................................. (743,977) (176,519) (134,506)
Investment in limited partnership.............................. 112,358 (153,573) (75,000)
--------------- ------------- ---------------
Net cash from investing activities........................... 2,308,534 (4,461,116) (9,293,776)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits......................................... $ 11,548,596 $ 26,189,663 $ (2,934,877)
Proceeds from borrowed funds................................... 326,879,583 1,709,466,300 238,718,275
Repayment of borrowed funds.................................... (318,720,385) (1,676,704,749) (239,100,610)
Net change in obligation due to limited partnership............ 17,877 -- --
Purchase of treasury stock..................................... (487,572) (557,427) (243,875)
Issuance of shares of treasury stock........................... 8,221 67,916 54,580
Contribution to fund ESOP...................................... 64,211 64,211 64,211
--------------- ------------- ---------------
Net cash from financing activities........................... 19,310,531 58,525,914 (3,442,296)
--------------- ------------- ---------------
Net change in cash and cash equivalents.......................... 8,666,214 2,520,163 (1,668,991)
Cash and cash equivalents at beginning of year................... 6,062,923 3,542,760 5,211,751
--------------- ------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 14,729,137 $ 6,062,923 $ 3,542,760
--------------- ------------- ---------------
--------------- ------------- ---------------
</TABLE>
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------------- ------------- ---------------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest..................................................... $ 8,029,751 $ 6,870,582 $ 4,147,503
Income taxes................................................. 1,810,000 1,618,449 885,250
Noncash investing activities
Transfer from:
Securities held for sale to securities available for
sale..................................................... $ -- $ -- $ 574,841
Mortgage-backed and related securities to mortgage-backed
and related securities held to maturity.................. -- -- 10,275,366
Transfer from investment securities to securities held to
maturity................................................... -- -- 7,170,481
Investment in/obligation due to limited partnership (Note
16)........................................................ -- -- 1,450,000
Real estate acquired in settlement of loans.................. 475,429 75,479 42,697
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial
statements include the accounts of CB Bancorp, Inc. and its wholly-owned
subsidiary. CB Bancorp, Inc. is a holding company located in Michigan City,
Indiana and owns all the outstanding stock of Community Bank, A Federal Savings
Bank ("the Bank") which owns all the outstanding stock of Community Financial
Services Inc. ("Community Financial"), (together referred to as "the Company").
Community Financial has a 99% limited partner interest in Pedcor
Investments-1994-XX, L.P. Community Financial also owns 100% of Community
Brokerage Services, Inc. ("Community Brokerage"). All significant inter-company
balances and transactions are eliminated in consolidation.
NATURE OF OPERATIONS AND INDUSTRY SEGMENT INFORMATION: The Bank operates in
the single industry of banking, including granting loans (primarily real estate
loans), accepting deposits, and other banking activities. Community Financial
offers various annuity and insurance programs and tax return preparation
services to Bank customers and others. Pedcor Investments-1994-XX, L.P. was
formed for the construction, ownership, and management of an 80 unit affordable
housing project in LaPorte County, Indiana. Community Brokerage is a full
service discount brokerage firm and is a member of the National Association of
Securities Dealers. The Company operates primarily in the banking industry which
accounts for more than 90% of its revenues, operating income and assets.
USE OF ESTIMATES: To prepare consolidated financial statements in
conformity with generally accepted accounting principles, management makes
estimates and assumptions based on available information. These estimates and
assumptions affect the amounts reported in the consolidated financial statements
and the disclosures provided, and future results could differ. The
collectibility of loans, allowance for loan losses, the determination and
carrying value of impaired loans, fair values of financial instruments,
securities valuations, the carrying value of loans purchased under agreements to
resell, the carrying value of loans held for sale, the realization of deferred
tax assets and status of contingencies are particularly subject to change in the
near term.
SECURITIES: On April 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 115, "ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES." The Company now classifies
securities into held to maturity, available for sale and trading categories.
Held to maturity securities are those which the Company has the positive intent
and ability to hold to maturity, and are reported at amortized cost. Available
for sale securities are those the Company may decide to sell if needed for
liquidity, asset-liability management or other reasons. Available for sale
securities are reported at fair value, with unrealized gains and losses included
as a separate component of shareholders' equity, net of tax. Trading securities
are bought principally for sale in the near term, and are reported at fair value
with unrealized gains and losses included in earnings. Securities are written
down to fair value when a decline in fair value is not temporary. Adoption of
SFAS No. 115 on April 1, 1994 increased shareholders' equity by $96, net of $63
tax effect.
Realized gains and losses resulting from the sale of securities are computed
by the specific identification method. Interest and dividend income, adjusted by
amortization of purchase premium or discount using the level yield method, is
included in earnings.
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
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
market. The Company held loans that were purchased under agreements to resell
from 66 of the 117 approved mortgage companies as of March 31, 1997. 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. As a result, no gains and losses are recorded at the resale
of loans. The Company records interest income on the loans during the funding
period and the Company records fee income received from the mortgage company for
each loan when the loan is sold. The Company uses the stated interest rate in
the agreement with each mortgage company for interest income recognition, and
not the interest rates on individual loans. The Company does not retain
servicing of the loans when they are 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 acquired are
held for the duration of the construction loan period, which is typically six
months or longer.
MORTGAGE LOANS HELD FOR SALE: Mortgage loans intended for sale are carried
at the lower of cost or estimated market value in the aggregate. Net unrealized
losses are recognized in a valuation allowance by charges to income.
INTEREST INCOME ON LOANS: Interest on loans is accrued over the term of the
loans based upon the principal outstanding. Management reviews loans delinquent
90 days or more to determine if the interest accrual should be discontinued.
When serious doubt exists as to the collectibility of a loan, the accrual of
interest is discontinued. Under SFAS No. 114, "ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN," as amended by SFAS No. 118, the carrying value of
impaired loans is periodically adjusted to reflect cash payments, revised
estimates of future cash flows, and increases in the present value of expected
cash flows due to the passage of time. Cash payments representing interest
income are reported as such and other cash payments are reported as reductions
in carrying value. Increases or decreases in carrying value due to changes in
estimates of future payments or the passage of time are reported as a component
of the provision for loan losses.
LOANS: Loans are reported at the principal balance outstanding, net of
deferred loan fees and costs, the allowance for loan losses, and charge-offs.
Interest income is reported on the interest method and includes amortization of
net deferred loan fees and costs over the loan term.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation
allowance, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance required
based on past loan loss experience, known and inherent risks in the portfolio,
information about specific borrower situations and estimated collateral values,
economic conditions, and other factors. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Company's allowances 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. Allocations of the allowance may be made for specific loans, but
the entire allowance is available for any loan that, in management's judgment,
should be charged-off.
SFAS No. 114 and No. 118 were adopted effective April 1, 1995 and require
recognition of loan impairment. Loans are considered impaired if full principal
or interest payments are not anticipated in accordance with the contractual loan
terms. Impaired loans are carried at the present value of expected
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
future cash flows discounted at the loan's effective interest rate or at the
fair value of the collateral if the loan is collateral dependent. A portion of
the allowance for loan losses is allocated to impaired loans. If these
allocations cause the allowance for loan losses to require increase, such
increase is reported as a component of the provision for loan losses. The effect
of adopting these standards was not material.
Smaller-balance homogeneous loans are evaluated for impairment in total.
Such loans include residential first mortgage loans secured by one-to-four
family residences, residential construction loans, and automobile, home equity
and second mortgage loans. Commercial loans and mortgage loans secured by other
properties are evaluated individually for impairment. When analysis of a
borrower's operating results and financial condition indicates that underlying
cash flows of the borrower's business are not adequate to meet its debt service
requirements, the loan is evaluated for impairment. Often this is associated
with a delay or shortfall in payments of 90 days or more. Commercial and
mortgage loans placed on nonaccrual are often considered for impairment.
Impaired loans, or portions thereof, are charged off when deemed uncollectible.
The nature of disclosures for impaired loans is considered generally comparable
to prior nonaccrual and renegotiated loans and non-performing and past-due asset
disclosures.
PREMISES AND EQUIPMENT: Premises and equipment of the Company are stated at
cost less accumulated depreciation. Premises are depreciated using the
straight-line method with useful lives ranging from twelve to fifty years, and
equipment is depreciated using the straight-line method with useful lives
ranging from four to twelve years. Land is carried at cost. These assets are
reviewed for impairment under SFAS No. 121 when events indicate the carrying
amount may not be recoverable. Maintenance and repairs are expensed and
improvements are capitalized.
FORECLOSED REAL ESTATE: Real estate properties acquired through, or in lieu
of, loan foreclosure are initially recorded at fair value at the date of
acquisition establishing a new cost basis. Any reduction to fair value from the
carrying value of the related loan at the time of acquisition is accounted for
as a loan loss and charged against the allowance for loan losses. After
acquisition, a valuation allowance is recorded through a charge to income for
the amount of estimated selling costs. Valuations are periodically performed by
management, and valuation allowances are adjusted through a charge to income for
changes in fair value or estimated selling costs. Foreclosed real estate
amounted to approximately $146,000 and $0 at March 31, 1997 and 1996, and is
included in other assets in the consolidated balance sheets.
SERVICING RIGHTS: Prior to adopting SFAS No. 122 on April 1, 1996,
servicing right assets were recorded only for purchased rights to service
mortgage loans. Subsequent to adopting this standard, servicing rights represent
both purchased rights and the allocated value of servicing rights retained on
loans originated in-house and sold. Servicing rights are expensed in proportion
to, and over the period of, estimated net servicing revenues. Impairment is
evaluated based on the fair value of the rights, using groupings of the
underlying loans as to interest rates and then, secondarily, as to geographic
and prepayment characteristics. Any impairment of a grouping is reported as a
valuation allowance. The impact of the adoption of SFAS No. 122 was not
material.
Excess servicing fees receivable is reported when a loan sale results in
servicing in excess of normal amounts, and is expensed over the life of the
servicing on the interest method.
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES: Income tax expense is the sum of the current year income tax
due or refundable and the change in deferred tax assets and liabilities.
Deferred tax assets and liabilities are the expected future tax consequences of
temporary differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
STOCK COMPENSATION: Expense for employee compensation under stock option
plans is based on Opinion 25, with expense reported only if options are granted
below market price at grant date. If applicable, proforma disclosures of net
income and earnings per share are provided as if the fair value method of
Financial Accounting Standard No. 123 was used for stock-based compensation.
FAIR VALUES OF FINANCIAL INSTRUMENTS: Fair values of financial instruments
are estimated using relevant market information and other assumptions, as more
fully disclosed separately. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company, in the
normal course of business, makes commitments to extend credit which are not
reflected in the consolidated financial statements. A summary of these
commitments is disclosed separately.
STATEMENT OF CASH FLOWS: For purposes of reporting cash flows, cash and
cash equivalents is defined as cash and due from financial institutions and
federal funds sold, as well as investments with original maturities under 90
days. Net cash flows are reported for long-term interest bearing deposits in
other financial institutions, customer loan and deposit transactions and
obligation due to limited partnership.
EARNINGS PER SHARE AND TREASURY STOCK: Earnings per common share is
computed by dividing net income by the weighted average number of common shares
outstanding and common share equivalents which would arise from considering
dilutive stock options. The weighted average number of shares for calculating
earnings per common share for the years ended March 31 is:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Primary.......................................................... 1,242,382 1,261,062 1,289,998
Fully diluted.................................................... 1,250,781 1,264,728 1,291,301
</TABLE>
RECLASSIFICATIONS: Some items in the prior consolidated financial
statements have been reclassified to conform with the current presentation.
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 2--SECURITIES
The amortized cost and fair value of securities available for sale are as
follows:
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Marketable equity securities.................................. $ 571,737 $ 101,188 $ (866) $ 672,059
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Marketable equity securities.................................. $ 578,315 $ 43,956 $ (1,323) $ 620,948
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>
The amortized cost and fair value of securities held to maturity are as
follows:
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DEBT SECURITIES COST GAINS LOSSES VALUE
- -------------------------------------------------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
U.S. Government and federal agencies.................... $ 3,000,000 $ -- $ (48,000) $ 2,952,000
Corporate notes......................................... 2,789,297 5,988 (2,285) 2,793,000
Mortgage-backed......................................... 8,509,616 102,517 (9,133) 8,603,000
------------- ----------- ----------- -------------
$ 14,298,913 $ 108,505 $ (59,418) $ 14,348,000
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DEBT SECURITIES COST GAINS LOSSES VALUE
- -------------------------------------------------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
U.S. Government and federal agencies.................... $ 3,000,000 $ -- $ (30,000) $ 2,970,000
Corporate notes......................................... 2,674,726 5,296 (6,022) 2,674,000
Mortgage-backed......................................... 10,192,178 143,374 (53,552) 10,282,000
------------- ----------- ----------- -------------
$ 15,866,904 $ 148,670 $ (89,574) $ 15,926,000
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 2--SECURITIES (CONTINUED)
The amortized cost and fair value of debt securities 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.
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------
AMORTIZED FAIR
COST VALUE
------------- -------------
<S> <C> <C>
Due in one year or less.................................................. $ 1,778,276 $ 1,777,000
Due after one year through five years.................................... 4,011,021 3,968,000
Mortgage-backed securities............................................... 8,509,616 8,603,000
------------- -------------
$ 14,298,913 $ 14,348,000
------------- -------------
------------- -------------
</TABLE>
There were no sales of securities during the years ended March 31, 1997 and
1996. Sales of securities available for sale during the year ended March 31,
1995 resulted in gross proceeds of $49,200 and gross losses of $650.
NOTE 3--LOANS
The Company has entered into agreements with mortgage companies in which the
Company purchases, at its discretion, mortgage loans from the 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. The interest income recorded is 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. Such loans are reviewed, prior to purchase, for
evidence that the loans are of secondary market quality or meet the Company's
internal underwriting guidelines. An assignment of the mortgage to the Company
is required. In addition, the Company either takes possession of the original
note and forwards such note to the end investor or the Company receives a
certified copy of the note and subsequently receives acknowledgment from the end
investor of receiving the original note. A commitment to purchase from an end
investor is required prior to purchase by the Company. In the event that the end
investor would not honor this commitment and the mortgage companies would not be
able to honor their repurchase obligations, the Company would then need to sell
these loans in the secondary market at the fair value of these loans. Purchase
money and refinance loans are generally held no more than 90 days by the Company
and are typically resold within 30 days. The Company also purchases interim
construction loans under this program and holds these loans for the duration of
the construction loan 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 additional credit risk due to possible change in the
borrower's financial condition during the interim construction period. The
Company had approximately $25,407,000 and $29,416,000 of interim construction
loans purchased under agreements to resell at March 31, 1997 and 1996.
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 3--LOANS (CONTINUED)
The mortgage companies from which individual mortgage loans have been
purchased under agreements to resell and the related amounts of such loans
outstanding are as follows at March 31:
<TABLE>
<CAPTION>
COMPANY 1997 1996
- ------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Company A................................................................ $ 5,172,843 $ 12,792,251
Company B................................................................ 8,611,206 8,614,313
Company C................................................................ 13,677,480 6,791,723
Company D................................................................ 8,336,445 5,023,314
Company E................................................................ 5,646,301 --
Company F................................................................ 5,619,318 3,058,493
Companies with balances between $1,000,000 and $5,000,000 (1997--16
companies; 1996--11 companies).......................................... 35,126,513 30,195,670
Other companies with balances less than $1,000,000....................... 13,085,574 13,555,486
------------- -------------
$ 95,275,680 $ 80,031,250
------------- -------------
------------- -------------
Loans receivable at March 31 are summarized as follows:
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
First mortgage loans (principally conventional)
Principal balances
Secured by one-to-four family residences............................. $ 69,601,991 $ 73,413,053
Secured by other properties.......................................... 10,850,459 11,412,555
Construction loans................................................... 544,995 591,450
------------- -------------
80,997,445 85,417,058
Loans in process....................................................... (236,431) (47,836)
Unearned discounts..................................................... (1,966) (993)
Net deferred loan origination fees..................................... (361,912) (417,599)
------------- -------------
80,397,136 84,950,630
Consumer and other loans
Principal balances
VISA/Master cards.................................................... -- 388,685
Automobile........................................................... 431,142 400,132
Home equity and second mortgage...................................... 2,852,797 1,789,185
Commercial........................................................... 6,092,907 4,532,775
Other................................................................ 541,420 555,043
------------- -------------
9,918,266 7,665,820
------------- -------------
$ 90,315,402 $ 92,616,450
------------- -------------
------------- -------------
</TABLE>
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995
NOTE 3--LOANS
Activity in the allowance for loan losses for the years ended March 31 is
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- ------------
<S> <C> <C> <C>
Balance at beginning of year.............................. $ 1,346,328 $ 672,276 $ 594,453
Provision charged to income............................... 1,191,000 1,020,000 78,000
Recoveries................................................ 251,906 -- --
Charge-offs............................................... (981,574) (345,948) (177)
-------------- -------------- ------------
Balance at end of year.................................. $ 1,807,660 $ 1,346,328 $ 672,276
-------------- -------------- ------------
-------------- -------------- ------------
</TABLE>
Impaired loans were as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Year end loans with no allowance for loan losses allocated.................... $ -- $ 500,942
Year end loans with allowance for loan losses allocated....................... 5,920,000 1,663,477
Amount of the allowance allocated............................................. 610,000 166,348
Average of impaired loans during the year..................................... 3,459,000 333,020
Interest income recognized during impairment.................................. 289,132 144,320
Cash-basis interest income recognized......................................... 224,887 128,339
</TABLE>
Nonaccrual and renegotiated loans for which interest has been reduced
totaled approximately $804,000 at March 31, 1995. Interest income that would
have been recorded under the original terms of such loans and the interest
income actually recognized at March 31, 1995 is summarized as follows:
<TABLE>
<CAPTION>
1995
---------
<S> <C>
Interest income that would have been recorded................................................ $ 54,000
Interest income recognized................................................................... (22,000)
---------
Interest income forgone...................................................................... $ 32,000
---------
---------
</TABLE>
The Bank is not committed to lend additional funds to debtors whose loans
have been modified.
Of the total balance of impaired loans as of March 31, 1997 and 1996,
approximately $1.2 million and $1.7 million relates to amounts associated with
Bennett Funding Group Inc. ("Bennett") and Aloha Capital Corporation ("Aloha"),
an affiliate of Bennett. The outstanding balance reflects a charge-off of
$433,000 during the year ended March 31, 1997 on the original balance of $1.7
million. The reason for the impairment classification is that Bennett recently
filed for Chapter 11 bankruptcy and Aloha was drawn into involuntary bankruptcy.
The Bank purchased numerous leases secured by small business equipment such as
copy and facsimile machines from Bennett and Aloha. The purchases total
approximately $396,000 from Bennett and $1.3 million from Aloha. Both companies
act as servicing agents to collect lease payments for the Bank. The Company has
negotiated a settlement, and the anticipated recovery is approximately 70% of
the original balance. The amount deemed to be uncollectible was $433,000 and was
charged off as discussed above. The portion of the allowance for loan losses
allocated to the above loans
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 3--LOANS (CONTINUED)
was approximately $61,000 at March 31, 1997 and $166,000 at March 31, 1996,
which is based on the present value of the anticipated cash flows of these
loans.
Also included in the impaired loan balance at March 31, 1997 are 65 single
family construction loans, all located in the state of Indiana, with a total
outstanding balance of $4.7 million and total unfunded commitments of $2.1
million. Eighteen of these loans, totaling $1.3 million, are outstanding to one
builder. The Company has allocated $308,000 of the allowance for loan losses to
these loans. Forty-one of these loans totaling $2.4 million are outstanding to
two affiliated companies, one of which is in bankruptcy. The Company has
allocated $125,000 of the allowance for loan losses to these loans. The
remaining 6 loans totaling $1.2 million are with three separate builders and the
Company has allocated $116,000 of the allowance for loan losses to these loans.
The Company continues to monitor the remaining construction loan portfolio for
credit risk as a part of its loan classification procedures.
NOTE 4--LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of these loans at
March 31 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Mortgage loan portfolios serviced for the Federal Home Loan Mortgage
Corporation............................................................... $ 1,265,900 $ 1,483,584
------------ ------------
------------ ------------
</TABLE>
Custodial escrow balances maintained in connection with the foregoing loan
servicing were approximately $30,000 and $35,000 at March 31, 1997 and 1996.
NOTE 5--PREMISES AND EQUIPMENT, NET
Premises and equipment are stated at cost, less accumulated depreciation,
and consist of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Land and land improvements.............................................. $ 388,485 $ 378,897
Buildings............................................................... 3,654,467 3,065,759
Furniture, fixtures, and equipment...................................... 1,501,995 1,376,963
Construction in progress................................................ 25,000 20,022
-------------- --------------
5,569,947 4,841,641
Accumulated depreciation and amortization............................... (2,649,673) (2,454,259)
-------------- --------------
$ 2,920,274 $ 2,387,382
-------------- --------------
-------------- --------------
</TABLE>
NOTE 6--DEPOSITS
The aggregate amount of deposits greater than $100,000 was approximately
$36,774,000 and $32,078,000 at March 31, 1997 and 1996.
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 6--DEPOSITS (CONTINUED)
At March 31, 1997, scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<S> <C>
1998 $73,768,000
1999 8,334,000
2000 4,122,000
2001 1,917,000
2002 and thereafter 1,229,000
----------
$89,370,000
----------
----------
</TABLE>
NOTE 7--BORROWED FUNDS
Borrowed funds at March 31 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Federal funds purchased.................................................. $ 7,000,000 $ 7,000,000
Advances from the Federal Home Loan Bank................................. 42,500,000 38,000,000
Line of credit with Federal Home Loan Bank............................... 3,783,553 124,355
------------- -------------
$ 53,283,553 $ 45,124,355
------------- -------------
------------- -------------
</TABLE>
Fixed rate and variable rate advances from the Federal Home Loan Bank at
March 31, 1997 amount to $2 million and $40.5 million.
Advances from the Federal Home Loan Bank consist of the following:
<TABLE>
<CAPTION>
MARCH 31, 1997
- ---------------------------------------------------------------------
WEIGHTED AVERAGE
MATURITY INTEREST RATE AMOUNT
- ----------------------------------- ----------------- -------------
<S> <C> <C>
1998 5.85% $ 41,500,000
1999 5.67% 1,000,000
-------------
$ 42,500,000
-------------
-------------
</TABLE>
Federal funds purchased represent overnight purchase of federal funds from
American National Bank, Chicago, Illinois.
At March 31, 1997 specific mortgage loans with a carrying value of
approximately $56,180,000 and specific mortgage-backed securities with a
carrying value of approximately $9,513,000 were pledged to the Federal Home Loan
Bank of Indianapolis to secure current and future advances from the Federal Home
Loan Bank. In addition, the Bank has a line of credit approved up to $5,000,000
with the Federal Home Loan Bank of Indianapolis. This line is secured by the
specific collateral listed above. The Bank had borrowings of $3,783,553 against
this line of credit at March 31, 1997. The line expires on October 31, 1997 and
has a variable rate of interest of 7.10% as of March 31, 1997.
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 7--BORROWED FUNDS (CONTINUED)
The Federal Home Loan Bank of Indianapolis has issued four irrevocable
direct pay letters of credit on behalf of the Bank totaling approximately
$4,049,000. These letters of credit are secured by the same collateral listed
above. The balance of these letters of credit at March 31, 1997 is $0.
Interest expense on borrowed funds for the years ended March 31 is
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ----------
<S> <C> <C> <C>
Advances from the FHLB.......................................... $ 2,005,621 $ 1,501,121 $ 64,876
Other........................................................... 447,995 521,284 117,683
------------ ------------ ----------
$ 2,453,616 $ 2,022,405 $ 182,559
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
NOTE 8--EMPLOYEE BENEFITS
EMPLOYEE PENSION PLAN: The Bank is part of a multi-employer defined benefit
pension plan covering substantially all employees. The plan is administered by
the directors of the Financial Institutions Retirement Fund. There is no
separate actuarial valuation of plan benefits nor segregation of plan assets
specifically for the Bank. As of June 30, 1996, the latest actuarial valuation,
the total plan assets exceeded the actuarially determined value of total vested
benefits. There was no pension plan expense or contribution for the years ended
March 31, 1997, 1996 and 1995. The administrative cost of the plan is charged to
expense and amounted to $1,052, $4,815 and $3,294 for the years ended March 31,
1997, 1996 and 1995.
DEFERRED COMPENSATION PLAN: The Company implemented a deferred compensation
plan for its Board of Directors. Under the terms of the plan, directors may
elect to defer a portion of their fees which would be retained by the Company
with interest being credited to the participant's deferred balance. Upon
retirement, the participant would be entitled to receive the accumulated
deferred balance, paid over a specified number of years. The Company has
purchased insurance contracts on the lives of the participants in the deferred
compensation plan and has named the Bank as beneficiary. While no direct
contract exists between the deferred compensation plan and the life insurance
contracts, it is management's current intent that the proceeds from the
insurance contracts will be used as a funding source for the deferred
compensation plan. The cash surrender value of the life insurance was
approximately $1,474,000 and $1,426,000 at March 31, 1997 and 1996, and is
included in other assets. The income derived from the investment in life
insurance included in other income was approximately $48,000, $75,000 and
$68,000 for the years ended March 31, 1997, 1996 and 1995. At March 31, 1997 and
1996, the accrued liability for deferred fees was approximately $241,000 and
$152,000.
SUPPLEMENTAL RETIREMENT PLAN: The Bank maintains a supplemental retirement
plan for executive officers of the Bank for which the payment of benefits is
accelerated upon change of control of the Company. The Bank has purchased
insurance contracts on the lives of the participants in the supplemental
retirement plan and has named the Bank as beneficiary. While no direct contract
exists between the supplemental retirement plan and the life insurance
contracts, it is management's current intent that the proceeds from the
insurance contracts will be used as a funding source for the supplemental
retirement plan. For the years ended March 31, 1996 and 1995 the Bank recorded a
liability equal to the projected present value of the payment due at retirement
based on the projected remaining years of service using the projected unit
credit method. During the year ending March 31, 1997 the Bank funded the
liability to a
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 8--EMPLOYEE BENEFITS (CONTINUED)
secular trust. This trust is not under the Bank's control. The cash surrender
value of the life insurance was approximately $995,000 and $938,000 at March 31,
1997 and 1996, and is included in other assets. The income derived from the
investment in life insurance included in other income was approximately $57,000,
$59,000 and $52,000 for the years ended March 31, 1997, 1996 and 1995. The cost
of the plan charged to expense was approximately $39,000, $44,000 and $40,000
for the years ended March 31, 1997, 1996 and 1995, respectively. The accrued
liability to the Bank was approximately $0 and $203,000 at March 31, 1997 and
1996.
STOCK OPTION PLAN FOR OUTSIDE DIRECTORS: The Board of Directors of the
Company has adopted the CB Bancorp, Inc. 1992 Stock Option Plan for outside
directors (the "Directors' Plan") of the Company. Options for the purchase of
shares of common stock are authorized under the Directors' Plan. The option
exercise price must be at least 100% of the fair market value of the common
stock on the date of the grant, and the option term cannot exceed 10 years.
Eligible directors may exercise 100% of the options awarded to them.
Activity in the Directors' Plan for years ended March 31 is summarized as
follows:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
OPTION EXERCISE --------------------
PRICE 1997 1996
--------------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year....................................... $ 5.00 19,264 26,896
Options exercised.................................................. 5.00 -- (7,632)
----- --------- ---------
Balance at end of year............................................. $ 5.00 19,264 19,264
----- --------- ---------
----- --------- ---------
</TABLE>
RECOGNITION AND RETENTION PLANS (RRP): The Company has established the
Recognition and Retention Plans as a method of providing directors, officers and
other key employees of the Bank with a proprietary interest in the Company in a
manner designed to encourage such persons to remain with the Bank. The terms of
each RRP will be identical, only the participants and the number of shares
awarded to each participant vary. Eligible directors, officers and other key
employees of the Company will earn (i.e., become vested in) shares of common
stock covered by the award at a rate of 20% per year. The Bank contributed funds
to the RRP to enable the Plans to acquire in the aggregate 38,528 shares of
common stock. An expense of $16,475, $26,968 and $41,999 was recorded for these
Plans for the years ended March 31, 1997, 1996 and 1995.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP): The Bank maintains an ESOP for
eligible employees. Employees with 1,000 hours of employment with the Bank and
who have attained age 21 are eligible to participate. The ESOP borrowed funds
from the Company to purchase 89,896 shares of common stock. Collateral for the
loan is the common stock purchased by the ESOP. The loan is being repaid
principally from the Bank's discretionary contributions to the ESOP over a seven
year period ending in 1999, at a variable interest rate. The current interest
rate for the loan is 9.00%. Shares purchased by the ESOP will be held in a
suspense account for allocation among participants as the loan is repaid.
Contributions to the ESOP and shares released from the suspense account in
an amount proportional to the repayment of the ESOP loan are allocated among
ESOP participants on the basis of compensation in the year of allocation.
Benefits generally become 100% vested after five years of credited service.
Prior to the completion of five years of credited service, a participant who
terminates employment for reasons
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 8--EMPLOYEE BENEFITS (CONTINUED)
other than death, retirement (or early retirement), or disability will not
receive any benefit under the ESOP. Forfeitures will be reallocated among
remaining participating employees, in the same proportion as contributions.
Benefits may be payable in the form of stock or cash upon termination of
employment. The Bank's contributions to the ESOP are not fixed, so benefits
payable under the ESOP cannot be estimated.
The ESOP compensation expense was $64,211 for each of the years ended March
31, 1997, 1996 and 1995. The ESOP shares as of March 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Allocated shares..................................................................... 51,476 37,604
Shares released for allocation....................................................... -- 684
Unreleased shares.................................................................... 38,420 51,608
--------- ---------
89,896 89,896
--------- ---------
--------- ---------
</TABLE>
On April 1, 1994, the Bank adopted AICPA's Statement of Position 93-6 ("SOP
93- 6") EMPLOYERS' ACCOUNTING FOR EMPLOYEE STOCK OWNERSHIP PLANS. SOP 93-6
relates only to shares purchased by the ESOP after December 31, 1992. SOP 93-6
requires that the employer record compensation expense in an amount equal to the
fair value of shares committed to be released to employees from the ESOP, and
these shares become outstanding for earnings per share computations. Dividends
on allocated ESOP shares are recorded as a reduction of retained earnings;
dividends on unallocated shares are recorded as a reduction of debt and accrued
interest. SOP 93-6 did not affect the Bank's recognition of compensation expense
as all shares currently held by the Bank's ESOP were purchased prior to December
31, 1992. Therefore, for the shares currently held by the ESOP, the Bank will
continue to recognize compensation expense equal to the amount of cash
contributed to the ESOP. All shares held by the ESOP are considered outstanding
for earnings per share computations, and all dividends on ESOP shares are
recorded as a reduction of retained earnings.
STOCK OPTION PLAN: The Board of Directors of the Company adopted the CB
Bancorp, Inc. 1992 Incentive Stock Option Plan (the "Option Plan"). Options for
the purchase of shares of common stock are authorized under the Option Plan.
Officers and employees of the Company and its subsidiary are eligible to
participate in the Option Plan. The option exercise price must be at least 100%
of the fair market value of the common stock on the date of the grant, and the
option term cannot exceed 10 years. Eligible officers and employees of the
Company can exercise options awarded to them at a rate of 20% per year.
Activity in the Option Plan for years ended March 31 is summarized as
follows:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
RANGE OF OPTION --------------------
EXERCISE PRICE 1997 1996
--------------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year..................................... $5.00 - $8.50 80,473 86,424
Options exercised................................................ $ 5.00 (1,644) (5,951)
Options forfeited................................................ $ 5.00 (3,210) --
--------------- --------- ---------
Balance at end of year........................................... $ 5.00 - $8.50 75,619 80,473
--------------- --------- ---------
--------------- --------- ---------
</TABLE>
OUTSIDE DIRECTORS' CONSULTATION AND RETIREMENT PLAN: The Board of Directors
adopted the Outside Directors' Consultation and Retirement Plan (the "Directors
Consultation Plan"). The purpose of the
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 8--EMPLOYEE BENEFITS (CONTINUED)
Directors' Consultation Plan is to provide possible retirement benefits to
directors who are not officers or employees of the Company to ensure that the
Company will have their continued service and assistance, if annually contracted
for by the Board of Directors in the conduct of the Company's business in the
future. Effective April 1, 1996, the Board of Directors of the Bank approved the
Outside Directors' Emeritus Plan (the "Directors' Emeritus Plan") to replace the
Outside Directors' Consultation and Retirement Plan. The purpose of the
Directors' Emeritus Plan is to ensure that the Bank may, if the Board so
desires, have the continued service and assistance of directors who are not
officers or employees of the Bank in the conduct of the Bank's business in the
future. The Directors' Emeritus Plan provides that a participant will be
eligible, upon termination due to retirement, resignation, discharge, death,
disability or otherwise, to receive an amount equal to the most recently
received monthly board fee paid to the outside director prior to his termination
for a period of 48 months. Directors eligible to participate in the Directors'
Emeritus Plan consist of directors who are not active officers or employees of
the Bank, who have served as a director for at least three consecutive years and
have attained the age of 55. However, an outside director with three years of
continuous service whose termination is due to retirement and is prior to his
attaining age 55 will become eligible to receive benefits under the Directors'
Emeritus Plan when he reaches age 55. In addition, if an outside director with
three years of continuous service becomes disabled or dies prior to reaching age
55 or prior to his electing director emeritus status, he or his beneficiary
shall receive benefits under the Directors' Emeritus Plan. The resulting
liability from the Directors' Emeritus Plan approximates the liability accrued
under the Directors' Consultation Plan. An expense of approximately $33,000,
$37,000 and $80,000 was recorded for these plans for the years ended March 31,
1997, 1996 and 1995. The resulting liability to the Company was approximately
$244,000 and $211,000 at March 31, 1997 and 1996.
During the year ending March 31, 1997, the Company purchased insurance
contracts on the lives of the participants in the Directors' Emeritus Plan and
has named the Bank as beneficiary. While no direct contract exists between the
Directors' Emeritus Plan and the life insurance contracts, it is management's
current intent that the proceeds from the insurance contracts will be used as a
funding source for the Directors' Emeritus Plan. The cash surrender value of the
life insurance was approximately $250,000 at March 31, 1997, and is included in
other assets. There was no income derived from the investment in life insurance
for the year ending March 31, 1997.
NOTE 9--INCOME TAXES
The Company files consolidated income tax returns. Prior to April 1, 1996,
if certain conditions were met in determining taxable income, the Bank was
allowed a special bad debt deduction based on a percentage of taxable income
(previously 8%) or on specified experience formulas. The Bank used the
percentage-of-taxable-income method for the tax years ended March 31, 1996 and
1995. Tax legislation passed in August 1996 now requires the Company to deduct
bad debts for tax purposes based on actual loss experience and recapture the
excess bad debt reserve accumulated. The related amount of deferred tax
liability which must be recaptured is approximately $270,000 and is payable over
a six year period beginning no later than 1998.
<PAGE>
CB BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 9--INCOME TAXES (CONTINUED)
Income tax expense for the years ended March 31 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ----------
<S> <C> <C> <C>
Federal
Current....................................................... $ 977,293 $ 1,218,694 $ 754,847
Deferred...................................................... (92,946) (146,818) 41
------------ ------------ ----------
884,347 1,071,876 754,888
------------ ------------ ----------
State
Current....................................................... 302,253 363,345 236,603
Deferred...................................................... (5,287) (55,292) (21,217)
------------ ------------ ----------
296,966 308,053 215,386
------------ ------------ ----------
$ 1,181,313 $ 1,379,929 $ 970,274
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
Total income tax expense differed from the amounts computed by applying the
federal income tax rate of 34% in all periods presented to income before income
taxes as a result of the following for the years ended March 31:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ----------
<S> <C> <C> <C>
Income taxes at statutory rate............................................ $ 1,187,591 $ 1,304,967 $ 894,377
Tax effect of:
Non-taxable income...................................................... (6,570) (8,722) (10,828)
Increase in cash surrender value of life insurance...................... (35,846) (45,656) (40,798)
State tax, net of federal income tax effect............................. 195,998 203,315 142,155
Tax credits............................................................. (160,047) (70,000) --
Other items, net........................................................ 187 (3,975) (14,632)
------------ ------------ ----------
$ 1,181,313 $ 1,379,929 $ 970,274
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
The components of the net deferred tax asset recorded in the consolidated
balance sheets as of March 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets
Accumulated depreciation...................................................... $ 48,574 $ 41,359
Bad debts..................................................................... 446,952 265,804
Deferred compensation......................................................... -- 80,384
Deferred loan fees............................................................ 124,397 147,439
Other......................................................................... 40,321 4,130
---------- ----------
660,244 539,116
Deferred tax liabilities
FHLB stock dividend........................................................... (25,865) (25,865)
Affordable housing partnership................................................ (88,413) (48,745)
Other......................................................................... (39,737) (33,659)
---------- ----------
(154,015) (108,269)
Valuation allowance............................................................. -- --
---------- ----------
$ 506,229 $ 430,847
---------- ----------
---------- ----------
</TABLE>
<PAGE>
CB BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 9--INCOME TAXES (CONTINUED)
Shareholders' equity at March 31, 1997 includes approximately $1,308,000 for
which no deferred federal income tax liability has been recognized. This amount
represents an allocation of income to bad debt deductions for tax purposes only.
Reduction of amounts so allocated for purposes other than tax bad debt losses or
adjustments arising from carry back of net operating losses would create income
for tax purposes only, which would be subject to the then-current corporate
income tax rate. The unrecorded deferred income tax liability on the above
amount was approximately $445,000 at March 31, 1997.
NOTE 10--REGULATORY MATTERS
The Bank is subject to regulatory capital requirements administered by
federal regulatory agencies. Capital adequacy guidelines and prompt corrective
action regulations involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to qualitative
judgments by regulators about components, risk weightings, and other factors,
and the regulators can lower classifications in certain cases. Failure to meet
various capital requirements can initiate regulatory action that could have a
direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these
terms are not used to represent overall financial condition. If only adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements are:
<TABLE>
<CAPTION>
TIER 1
CAPITAL TO RISK- CAPITAL TO
WEIGHTED ASSETS ADJUSTED
TOTAL TIER 1 TOTAL ASSETS
--------- ----------- -------------
<S> <C> <C> <C>
Well capitalized....................................... 10% 6% 5%
Adequately capitalized................................. 8% 4% 3%
Under capitalized...................................... 6% 3% 3%
</TABLE>
At March 31, the Bank's actual capital levels (in millions) and minimum
required levels were:
<TABLE>
<CAPTION>
MINIMUM REQUIRED TO BE
MINIMUM REQUIRED FOR
WELL CAPITALIZED UNDER
CAPITAL ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION REGULATIONS
---------------------- ---------------------- ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
1997
Total capital (to risk weighted assets)............... $ 20.0 14.8% $ 10.8 8.0% $ 13.5 10.0%
Tier 1 (core) capital (to risk weighted assets)....... $ 18.4 13.6% $ 5.4 4.0% $ 8.1 6.0%
Tier 1 (core) capital (to adjusted total assets)...... $ 18.4 8.1% $ 6.8 3.0% $ 11.4 5.0%
Tangible capital (to adjusted total assets)........... $ 18.4 8.1% $ 3.4 1.5% N/A N/A
1996
Total capital (to risk weighted assets)............... $ 17.2 15.2% $ 9.0 8.0% $ 11.3 10.0%
Tier 1 (core) capital (to risk weighted assets)....... $ 16.0 14.2% $ 4.5 4.0% $ 6.8 6.0%
Tier 1 (core) capital (to adjusted total assets)...... $ 16.0 7.8% $ 6.1 3.0% $ 10.2 5.0%
Tangible capital (to adjusted total assets)........... $ 16.0 7.8% $ 3.1 1.5% N/A N/A
</TABLE>
<PAGE>
CB BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 10--REGULATORY MATTERS (CONTINUED)
At March 31, 1997 and 1996 the Bank was categorized as well capitalized.
Regulations of the Office of Thrift Supervision limit the amount of
dividends and other capital distributions that may be paid by a savings
institution without prior approval of the Office of Thrift Supervision. This
regulatory restriction is based on a three-tiered system with the greatest
flexibility being afforded to well-capitalized (Tier 1) institutions. The Bank
is currently a Tier 1 institution. Accordingly, the Bank can make, without prior
regulatory approval, distributions during a calendar year up to 100% of its net
income to date during the calendar year plus an amount that would reduce by
one-half its "surplus capital ratio" (the excess over its Fully Phased-in
Capital Requirements) at the beginning of the calendar year. Accordingly, at
March 31, 1997 approximately $4.8 million of the Bank's retained earnings is
potentially available for distribution.
NOTE 11--OTHER NONINTEREST INCOME AND EXPENSE
Other noninterest income and expense amounts for the years ended March 31
are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Other noninterest income
Commission income..................................................... $ 104,161 $ 115,426 $ 127,968
Service charges and fees.............................................. 550,535 506,034 539,137
Fees related to loans purchased under agreements to resell............ 689,030 369,410 163,984
Late charges.......................................................... 28,530 21,510 23,126
Other................................................................. 121,347 164,162 140,869
------------ ------------ ------------
$ 1,493,603 $ 1,176,542 $ 995,084
------------ ------------ ------------
------------ ------------ ------------
Other noninterest expense
Advertising and promotion............................................. $ 125,139 $ 97,203 $ 93,048
Data processing....................................................... 244,790 247,017 243,144
Insurance............................................................. 20,132 20,348 23,500
Professional fees..................................................... 368,008 174,265 159,707
Telephone, postage, and supplies...................................... 262,736 204,903 183,116
Employee expenses..................................................... 293,671 195,216 145,113
Other................................................................. 548,609 332,664 227,957
------------ ------------ ------------
$ 1,863,085 $ 1,271,616 $ 1,075,585
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
NOTE 12--COMMITMENTS AND CONTINGENCIES
As of March 1, 1996, the Company leased a branch office in Merrillville,
Indiana. Rent expense for the years ended March 31, 1997 and 1996 was
approximately $35,000 and $3,000. In accordance with the terms of the lease, the
Company provides liability insurance and pays repairs and maintenance costs. As
of March 31, 1997, the future annual rental commitments under non-cancelable
leases for four years total approximately $148,000, which includes $35,000 in
1998, $36,000 in 1999, $38,000 in 2000 and $39,000 in 2001.
<PAGE>
CB BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 12--COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet financing needs of its customers. These
financial instruments include commitments to make loans 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 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 March 31, the Company had outstanding commitments as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Fixed rate loans............................................................ $ 210,000 $ 137,000
Fixed rate unused lines of credit........................................... 626,000 107,000
Variable rate unused lines of credit........................................ 1,950,000 1,188,000
Unused letters of credit.................................................... 4,149,000 4,074,000
Undisbursed construction loans in repurchase program (variable rate)........ 12,419,000 12,412,000
</TABLE>
Since certain commitments to make loans, lines of credit and commitments to
fund loans in process expire without being used, the amounts do not necessarily
represent future cash commitments. In addition, commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract.
The Bank is required to have approximately $1,313,000 and $1,407,000 of cash
on hand or on deposit with the Federal Reserve Bank of Chicago to meet
regulatory reserve requirements at March 31, 1997 and 1996.
The Company is involved in various legal actions arising in the ordinary
course of business. In the opinion of management, the outcome of these matters
will not have material effect on the Company's consolidated financial condition
or results of operations.
Community Financial 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 LaPorte County, 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 $1,450,000 of the debt financing, which
represents the Bank's share of the mortgage loan funded with tax exempt bonds.
The remaining portion of the debt financing with tax exempt bonds is guaranteed
by participating lenders through letters of credit in amounts proportional to
their share of the mortgage loan. The Bank and other lending institutions have
as their security a first mortgage lien and an assignment of rents and leases on
the apartment complex. As of March 31, 1997, Community Financial has invested
$1,566,215, net of recording equity in the operating loss of $182,616 for the
fiscal year ended March 31, 1997, in the limited partnership. Community
Financial contributed $298,831 in cash to the partnership, including $70,258
contributed during the fiscal year ended March 31, 1997, while the remaining
$1,450,000 was funded by short-term tax-exempt notes backed by a letter of
credit issued by the Bank. At March 31, 1997, the obligation due to limited
partnership was $1,467,877 which represents the amount of principal and accrued
interest guaranteed through letters of credit. Terms of the partnership
agreement allocate
<PAGE>
CB BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 12--COMMITMENTS AND CONTINGENCIES (CONTINUED)
99% of the eligible tax credits to the limited partner. For the years ended
March 31, 1997 and 1996, the limited partner received approximately $160,000 and
$70,000 in tax credits from the limited partnership.
Under employment agreements with certain executive officers, certain events
leading to separation from the Company or the Bank could result in cash payments
totaling approximately $723,000 as of March 31, 1997. The agreements also
include provisions to continue to provide life, health and disability insurance
coverage for a period of two to three years.
NOTE 13--SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
The Company grants real estate, commercial and consumer loans, including
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 secured by real estate mortgages make up approximately 89% of
the loan portfolio at March 31, 1997 and are primarily secured by residential
mortgages. Loans purchased under agreements to resell are all residential
mortgage loans secured by one-to-four family residences located throughout the
United States.
NOTE 14--RELATED PARTY TRANSACTIONS
Certain directors and executive officers of the Company are loan customers
of the Company. A summary of the aggregate amount of related party loan activity
for those directors, executive officers and their affiliates who have loans
aggregating $60,000 or more are as follows:
<TABLE>
<S> <C>
Balance--April 1, 1996.................................... $ 361,113
New loans............................................... 20,000
Repayments.............................................. (15,566)
---------
Balance--March 31, 1997................................... $ 365,547
---------
---------
</TABLE>
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 15--PARENT COMPANY FINANCIAL STATEMENTS
Presented below are the condensed financial statements for the Parent
Company, CB Bancorp, Inc. CONDENSED BALANCE SHEETS
March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................... $ 1,781,930 $ 2,779,683
Securities available for sale........................................... 216,907 165,682
Investment in subsidiary................................................ 18,384,812 16,024,973
Loans purchased under agreements to resell.............................. 500,000 --
Other assets............................................................ 54,605 --
-------------- --------------
$ 20,938,254 $ 18,970,338
-------------- --------------
-------------- --------------
LIABILITIES $ 95,321 $ 138,154
SHAREHOLDERS' EQUITY 20,842,933 18,832,184
-------------- --------------
$ 20,938,254 $ 18,970,338
-------------- --------------
-------------- --------------
</TABLE>
CONDENSED STATEMENTS OF INCOME
Years ended March 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Income
Interest income.......................................... $ 86,483 $ 109,375 $ 91,677
Dividends from the Bank.................................. -- 600,000 600,000
Other income............................................. -- -- 1,900
------------- ------------- -------------
86,483 709,375 693,577
Expenses
Compensation............................................. 31,750 29,962 28,156
Other expenses........................................... 109,496 62,478 68,771
------------- ------------- -------------
141,246 92,440 96,927
------------- ------------- -------------
INCOME(LOSS) BEFORE INCOME TAX EXPENSE (54,763) 616,935 596,650
Income tax expense (benefit)............................... (23,276) 7,198 (1,424)
------------- ------------- -------------
INCOME(LOSS) BEFORE EQUITY IN INCOME OF BANK (31,487) 609,737 598,074
Equity in income of Bank................................... 2,343,088 1,848,473 1,062,173
------------- ------------- -------------
NET INCOME................................................. $ 2,311,601 $ 2,458,210 $ 1,660,247
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 15--PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
Years ended March 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................... $ 2,311,601 $ 2,458,210 $ 1,660,247
Adjustments to reconcile net income to net cash from
operating activities
Loans purchased under agreements to resell........... (500,000) -- (4,568,273)
Sale of loans purchased under agreements to resell... -- -- 5,123,647
Equity in income of Bank............................. (2,343,088) (1,848,473) (1,062,173)
Change in other assets............................... (8,293) 56,517 76,217
Change in other liabilities.......................... (42,833) 135,572 35,766
------------- ------------- -------------
Net cash from operating activities................. (582,613) 801,826 1,265,431
CASH FLOWS FROM INVESTING ACTIVITIES
Change in interest-earning deposits in financial
institutions........................................... -- 390,763 (390,763)
Purchase of securities available for sale................ -- (35,386) (125,466)
------------- ------------- -------------
Net cash from investing activities..................... -- 355,377 (516,229)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock............................... (487,572) (557,427) (243,875)
Issuance of shares of treasury stock..................... 8,221 67,916 54,580
Contribution to fund ESOP................................ 64,211 64,211 64,211
------------- ------------- -------------
Net cash from financing activities..................... (415,140) (425,300) (125,084)
------------- ------------- -------------
Net change in cash and cash equivalents.................... (997,753) 731,903 624,118
Cash and cash equivalents at beginning of period........... 2,779,683 2,047,780 1,423,662
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $ 1,781,930 $ 2,779,683 $ 2,047,780
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 16--FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table shows the estimated fair values and the related carrying
amounts of the Company's financial instruments at March 31, 1997 and 1996. Items
which are not financial instruments are not included.
<TABLE>
<CAPTION>
1997 1996
------------------------------ ------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and equivalents................... $ 14,729,000 $ 14,729,000 $ 6,063,000 $ 6,063,000
Securities available for sale.......... 672,000 672,000 621,000 621,000
Securities held to maturity............ 14,299,000 14,348,000 15,867,000 15,926,000
Federal Home Loan Bank stock........... 2,752,000 2,752,000 2,702,000 2,702,000
Loans, net of allowance for loan losses 183,783,000 184,245,000 171,301,000 171,967,000
Mortgage loans held for sale........... 914,000 914,000 513,000 513,000
Accrued interest receivable............ 1,219,000 1,219,000 1,183,000 1,183,000
Cash surrender value of life
insurance............................ 2,719,000 2,719,000 2,364,000 2,364,000
Financial Liabilities
Demand and savings deposits............ (60,439,000) (60,439,000) (69,604,000) (69,604,000)
Time deposits.......................... (89,370,000) (89,188,000) (68,657,000) (68,804,000)
Borrowed funds......................... (53,284,000) (53,270,000) (45,124,000) (45,114,000)
</TABLE>
For purposes of the above disclosures of estimated fair value, the following
assumptions were used as of March 31, 1997 and 1996. The estimated fair value
for cash and cash equivalents, Federal Home Loan Bank stock and accrued interest
receivable is considered to approximate cost. The estimated fair value for
securities is based on quoted market values for the individual securities or for
equivalent securities. The estimated fair value for loans and mortgage loans
held for sale is based on estimates of the rate the Company would charge for
similar such loans at March 31, 1997 and 1996, applied for the same time period
until estimated payment. The estimated fair value of cash surrender value of
life insurance is based on the proceeds that would be received upon redemption
of the policies at March 31, 1997 and 1996. The estimated fair value for demand
and savings deposits is based on their carrying value. The estimated fair value
for time deposits is based on estimates of the rate the Company would pay on
such deposits at March 31, 1997 and 1996, applied for the same time period until
maturity. The estimated fair value of borrowed funds is based on estimates of
the rate the Company would be charged for similar borrowings at March 31, 1997
and 1996, applied for the same payment schedule. The estimated fair value of
accrued interest payable and other financial instruments and off-balance-sheet
loan commitments approximate cost and are not considered significant for this
presentation.
While these estimates of fair value are based on management's judgment of
the most appropriate factors, there is no assurance that were the Company to
have disposed of such items at March 31, 1997 and 1996, the estimated fair
values would necessarily have been achieved at these dates, since market values
may differ depending on various circumstances. The estimated fair values at
March 31, 1997 and 1996 should not necessarily be considered to apply at
subsequent dates.
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 16--FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
In addition, other assets and liabilities of the Company that are not
defined as financial instruments are not included in the above disclosures, such
as property and equipment. Also, non-financial instruments typically not
recognized in financial statements nevertheless may have value but are not
included in the above disclosures. These include, among other items, the
estimated earnings power of core deposit accounts, the earnings potential of
loan servicing rights, the trained work force, customer goodwill, and similar
items.
NOTE 17--SAIF DEPOSIT INSURANCE PREMIUM
The deposits of the Bank are insured by the Savings Association Insurance
Fund ("SAIF"). A recapitalization plan signed into law on September 30, 1996
provided for a one-time assessment of 65.7 basis points applied to all SAIF
deposits as of March 31, 1995. Based on the Bank's deposits as of this date, a
one-time assessment of approximately $723,000 was paid and recorded as SAIF
deposit insurance premium expense for the fiscal year ended March 31, 1997.
NOTE 18--IMPACT OF NEW ACCOUNTING STANDARDS
SFAS No. 125, "ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS
AND EXTINGUISHMENT OF LIABILITIES," was issued by the Financial Accounting
Standards Board in 1996. It revises the accounting for transfers of financial
assets, such as loans and securities, and for distinguishing between sales and
secured borrowings. It is effective for some transactions in 1997 and others in
1998. The anticipated effect on the consolidated financial statements has not
yet been determined.
Also, in March 1997, the accounting requirements for calculating earnings
per share were revised. Basic earnings per share for the quarter ending December
31, 1997 and later will be calculated solely on average common shares
outstanding. Diluted earnings per share will reflect the potential dilution of
stock options and other common stock equivalents. All prior calculations will be
restated to be compatible to the new methods. As the Company has significant
dilution from stock options, the new calculation methods will increase future
basic earnings per share over what otherwise would have been reported, while
there will be little effect on diluted earnings per share.
NOTE 19--PROPOSED MERGER
Pursuant to the Agreement and Plan of Merger dated March 1, 1997 between the
Company and Pinnacle Financial Services, Inc. ("Pinnacle"), a Michigan
Corporation headquartered in St. Joseph, Michigan, the Company is to merge with
and into Pinnacle. The transaction is subject to the approval of the Company's
and Pinnacle's shareholders and various regulatory agencies.
The terms of the agreement provide for a purchase price of $35.00 per CB
Bancorp, Inc. ("Company") share, payable in Pinnacle common stock. If Pinnacle's
average stock price exceeds $29.00, the Company's shareholders will receive
1.20690 Pinnacle shares per Company share. If Pinnacle's average stock price is
less than $23.00, the Company's shareholders will receive 1.52174 Pinnacle
shares per Company share. The agreement also provides that each option granted
by the Company to purchase shares of the Company's stock (including any options
that have been awarded, but have not yet been vested) which is outstanding and
unexercised immediately prior thereto shall be converted automatically into the
right to receive shares of Pinnacle common stock in an amount determined by
dividing the difference
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 19--PROPOSED MERGER (CONTINUED)
between the exchange value and the exercise price of such option by the average
price. At consummation, stock held by the Company in treasury will be canceled.
The agreement also provides that the shares of Pinnacle common stock to be
received by "affiliates" of the Company in the Merger shall not be sold,
pledged, transferred or, otherwise, disposed of for a period commencing thirty
days prior to the Merger and ending at the time of publication of financial
results covering at least thirty days of combined operations of Pinnacle and the
Company. The Agreement also limits the Company from entering into agreements or
operating in a manner other than in the ordinary course of business.
<PAGE>
Exhibit 99(d)
PRO FORMA COMBINED FINANCIAL INFORMATION
PINNACLE FINANCIAL SERVICES, INC.
AND INDIANA FEDERAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME SUMMARY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Pinnacle Financial Services, Inc. and Indiana Federal
Corporation Unaudited Pro Forma Combined Statement of Income Summary combines
the historical Consolidated Statements of Income of Pinnacle and IFC giving
effect to the IFC Merger, which will be accounted for as a "pooling-of-
interests," as if it had been effective as of the beginning of the earliest
period indicated and after giving effect to the pro forma adjustments described
in the Notes to Pinnacle Financial Services, Inc. and Indiana Federal
Corporation Unaudited Pro Forma Combined Financial Statements. For a description
of "pooling-of-interests" accounting with respect to the IFC Merger, see "THE
MERGERS--Anticipated Accounting Treatment." This information should be read in
conjunction with the historical consolidated financial statements of Pinnacle,
including the notes thereto, which are incorporated by reference in this Joint
Proxy Statement/Prospectus, the historical consolidated financial statements of
IFC, including the notes thereto, which are incorporated by reference in this
Joint Proxy Statement/Prospectus, and the condensed consolidated historical
financial data for Pinnacle and IFC and the other pro forma financial
information, including the notes thereto, which appear elsewhere in this Joint
Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE." The effect of the expected one-time merger and restructuring charges
of approximately $4.2 million (after-tax) have been reflected in the unaudited
pro forma combined balance sheet; however, since the expected merger and
restructuring charges are nonrecurring they have not been reflected in the
unaudited pro forma combined statements of income. (See "--Notes to Pinnacle
Financial Services, Inc. and Indiana Federal Corporation Unaudited Pro Forma
Combined Financial Statements" for details of the expected one-time merger and
restructuring charges.) The pro forma financial data do not give effect to any
anticipated cost savings in connection with the IFC Merger and are not
necessarily indicative of either the results that actually would have occurred
had the IFC Merger been consummated on the dates indicated or the results that
may be obtained in the future.
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
PINNACLE FINANCIAL SERVICES, INC.
AND INDIANA FEDERAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME SUMMARY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
-------------------------- ------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable................................... $ 26,025 $ 23,208 $ 98,466 $ 76,224 $ 58,042
Tax-exempt................................ 170 104 456 427 414
Interest and dividends on securities:
Taxable................................... 8,939 6,373 29,677 14,421 12,609
Tax-exempt................................ 277 286 1,136 973 1,093
Interest on federal funds sold.............. 110 106 474 343 267
Interest on due from banks interest
bearing................................... 31 438 619 277 116
------------ ------------ ------------ ---------- ----------
Total interest income................... 35,552 30,515 130,828 92,665 72,541
------------ ------------ ------------ ---------- ----------
INTEREST EXPENSE:
Interest on deposits........................ 13,857 13,250 54,974 38,516 27,795
Interest on securities sold under repurchase
agreements and other borrowings........... 5,904 3,350 16,578 9,490 6,432
------------ ------------ ------------ ---------- ----------
Total interest expense.................. 19,761 16,600 71,552 48,006 34,227
------------ ------------ ------------ ---------- ----------
Net interest income........................... 15,791 13,915 59,276 44,659 38,314
Provision for loan losses..................... 475 130 1,490 402 304
------------ ------------ ------------ ---------- ----------
Net interest income after provision for
loan losses........................... 15,316 13,785 57,786 44,257 38,010
------------ ------------ ------------ ---------- ----------
NON-INTEREST INCOME:
Other income................................ 3,658 2,420 10,950 8,475 8,093
Securities gains (losses), net.............. 59 214 708 790 134
------------ ------------ ------------ ---------- ----------
Total non-interest income............... 3,717 2,634 11,658 9,265 8,227
NON-INTEREST EXPENSE:
Salaries and benefits....................... 5,298 4,730 19,667 16,055 13,480
Occupancy and equipment..................... 1,842 1,709 7,106 5,494 4,423
Other non-interest expense.................. 4,072 4,175 22,634 13,282 10,383
------------ ------------ ------------ ---------- ----------
Total non-interest expense.............. 11,212 10,614 49,407 34,831 28,286
------------ ------------ ------------ ---------- ----------
Income before income tax expense.............. 7,821 5,805 20,037 18,691 17,951
Income tax expense............................ 2,571 1,724 6,262 4,928 5,399
Extraordinary items/accounting changes........ -- -- -- -- --
------------ ------------ ------------ ---------- ----------
Net income.................................. $ 5,250 $ 4,081 $ 13,775 $ 13,763 $ 12,552
------------ ------------ ------------ ---------- ----------
------------ ------------ ------------ ---------- ----------
NET INCOME PER SHARE:
Primary..................................... $ 0.48 $ 0.38 $ 1.29 $ 1.57 $ 1.45
Fully diluted............................... $ 0.48 $ 0.38 $ 1.29 $ 1.56 $ 1.45
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary..................................... 10,827,510 10,633,487 10,694,302 8,773,136 8,666,503
Fully diluted............................... 10,838,288 10,654,872 10,713,711 8,804,284 8,670,390
</TABLE>
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND INDIANA FEDERAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Pinnacle Financial Services, Inc. and Indiana Federal
Corporation Unaudited Pro Forma Combined Statement of Income combine the
historical Consolidated Statements of Income of Pinnacle and IFC giving effect
to the IFC Merger, which will be accounted for as a "pooling-of-interests," as
if it had been effective as of the beginning of the earliest period indicated
and after giving effect to the pro forma adjustments described in the Notes to
Pinnacle Financial Services, Inc. and Indiana Federal Corporation Unaudited Pro
Forma Combined Financial Statements. For a description of "pooling-of-interests"
accounting with respect to the IFC Merger, see "THE MERGERS--Anticipated
Accounting Treatment." This information should be read in conjunction with the
historical consolidated financial statements of Pinnacle, including the notes
thereto, which are incorporated by reference in this Joint Proxy
Statement/Prospectus, the historical consolidated financial statements of IFC,
including the notes thereto, which are incorporated by reference in this Joint
Proxy Statement/Prospectus, and the condensed consolidated historical financial
data for Pinnacle and IFC and the other pro forma financial information,
including the notes thereto, which appear elsewhere in this Joint Proxy
Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The
effect of the expected one time merger and restructuring charges of
approximately $4.2 million (after-tax) have been reflected in the unaudited pro
forma combined balance sheet; however, since the expected merger and
restructuring charges are nonrecurring they have not been reflected in the
unaudited pro forma combined statements of income. (See "--Notes to Pinnacle
Financial Services, Inc. and Indiana Federal Corporation Unaudited Pro Forma
Combined Financial Statements" for details of the expected one-time merger and
restructuring charges.) The pro forma financial data do not give effect to any
anticipated cost savings in connection with the IFC Merger and are not
necessarily indicative of either the results that actually would have occurred
had the IFC Merger been consummated on the dates indicated or the results that
may be obtained in the future.
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND INDIANA FEDERAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
------------------------------------------------------
PINNACLE IFC PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable............................................. $13,025 $13,001 $26,026
Tax-exempt.......................................... 122 48 170
Interest and dividends on securities:
Taxable............................................. 6,571 2,367 8,938
Tax-exempt.......................................... 273 4 277
Interest on federal funds sold........................ 43 67 110
Interest on due from banks interest bearing........... 31 -- 31
----------- ----------- -------------- ------------
Total interest income............................... 20,065 15,487 35,552
----------- ----------- -------------- ------------
INTEREST EXPENSE:
Interest on deposits.................................. 7,747 6,110 13,857
Interest on securities sold under repurchase
agreements and other borrowings..................... 3,268 2,636 5,904
----------- ----------- -------------- ------------
Total interest expense.............................. 11,015 8,746 19,761
----------- ----------- -------------- ------------
Net interest income................................... 9,050 6,741 15,791
Provision for loan losses............................. 235 240 475
----------- ----------- -------------- ------------
Net interest income, after provision for loan
losses.............................................. 8,815 6,501 15,316
----------- ----------- -------------- ------------
NON-INTEREST INCOME:
Other income.......................................... 1,832 1,826 3,658
Securities gains (losses), net........................ 59 -- 59
----------- ----------- -------------- ------------
Total non-interest income........................... 1,891 1,826 3,717
NON-INTEREST EXPENSE:
Salaries and benefits................................. 2,765 2,533 5,298
Occupancy and equipment............................... 1,032 810 1,842
Other non-interest expense............................ 2,392 1,680 4,072
----------- ----------- -------------- ------------
Total non-interest expense.......................... 6,189 5,023 11,212
----------- ----------- -------------- ------------
Income before income tax expense...................... 4,517 3,304 7,821
Income tax expense.................................... 1,547 1,024 2,571
Extraordinary items/accounting changes................ -- -- --
----------- ----------- -------------- ------------
Net income............................................ $ 2,970 $ 2,280 $ 5,250
----------- ----------- -------------- ------------
----------- ----------- -------------- ------------
NET INCOME PER SHARE:
Primary............................................... $0.50 $0.47 $0.48
Fully diluted......................................... $0.50 $0.47 $0.48
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary............................................... 5,978,640 4,848,870 10,827,510
Fully diluted......................................... 5,978,640 4,859,648 10,838,288
</TABLE>
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND INDIANA FEDERAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1996
------------------------------------------------------
PINNACLE IFC PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable............................................. $11,577 $11,631 $23,208
Tax-exempt.......................................... 44 60 104
Interest and dividends on securities:
Taxable............................................. 4,767 1,606 6,373
Tax-exempt.......................................... 264 22 286
Interest on federal funds sold........................ 90 16 106
Interest on due from banks interest bearing........... 416 22 438
----------- ----------- -------------- ------------
Total interest income............................... 17,158 13,357 30,515
----------- ----------- -------------- ------------
INTEREST EXPENSE:
Interest on deposits.................................. 7,399 5,851 13,250
Interest on securities sold under repurchase
agreements and other borrowings..................... 1,890 1,460 3,350
----------- ----------- -------------- ------------
Total interest expense.............................. 9,289 7,311 16,600
----------- ----------- -------------- ------------
Net interest income................................... 7,869 6,046 13,915
Provision for loan losses............................. 80 50 130
----------- ----------- -------------- ------------
Net interest income, after provision for loan
losses.............................................. 7,789 5,996 13,785
----------- ----------- -------------- ------------
NON-INTEREST INCOME:
Other income.......................................... 1,350 1,070 2,420
Securities gains (losses), net........................ 234 (20) 214
----------- ----------- -------------- ------------
Total non-interest income........................... 1,584 1,050 2,634
NON-INTEREST EXPENSE:
Salaries and benefits................................. 2,522 2,208 4,730
Occupancy and equipment............................... 902 807 1,709
Other non-interest expense............................ 2,327 1,848 4,175
----------- ----------- -------------- ------------
Total non-interest expense.......................... 5,751 4,863 10,614
----------- ----------- -------------- ------------
Income before income tax expense...................... 3,622 2,183 5,805
Income tax expense.................................... 1,178 546 1,724
Extraordinary items/accounting changes................ -- -- --
----------- ----------- -------------- ------------
Net income............................................ $ 2,444 $ 1,637 $ 4,081
----------- ----------- -------------- ------------
----------- ----------- -------------- ------------
NET INCOME PER SHARE:
Primary............................................... $0.42 $0.34 $0.38
Fully diluted......................................... $0.42 $0.34 $0.38
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary............................................... 5,873,358 4,760,179 10,633,487
Fully diluted......................................... 5,873,358 4,781,514 10,654,872
</TABLE>
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND INDIANA FEDERAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------
PINNACLE IFC PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable........................................... . $49,791 $48,675 $ 98,466
Tax-exempt.......................................... 218 238 456
Interest and dividends on securities:
Taxable............................................. 21,957 7,720 29,677
Tax-exempt.......................................... 1,064 72 1,136
Interest on federal funds sold........................ 410 64 474
Interest on due from banks interest bearing........... 529 90 619
----------- ----------- -------------- ------------
Total interest income............................... 73,969 56,859 130,828
----------- ----------- -------------- ------------
INTEREST EXPENSE:
Interest on deposits.................................. 30,536 24,438 54,974
Interest on securities sold under repurchase
agreements and other borrowings..................... 9,157 7,421 16,578
----------- ----------- -------------- ------------
Total interest expense.............................. 39,693 31,859 71,552
----------- ----------- -------------- ------------
Net interest income................................... 34,276 25,000 59,276
Provision for loan losses............................. 375 1,115 1,490
----------- ----------- -------------- ------------
Net interest income after provision for loan
losses.............................................. 33,901 23,885 57,786
----------- ----------- -------------- ------------
NON-INTEREST INCOME:
Other income.......................................... 6,655 4,295 10,950
Securities gains (losses), net........................ 653 55 708
----------- ----------- -------------- ------------
Total non-interest income........................... 7,308 4,350 11,658
NON-INTEREST EXPENSES:
Salaries and benefits................................. 10,843 8,824 19,667
Occupancy and equipment............................... 3,670 3,436 7,106
Other non-interest expense............................ 12,443 10,191 22,634
----------- ----------- -------------- ------------
Total non-interest expense.......................... 26,956 22,451 49,407
----------- ----------- -------------- ------------
Income before income tax expense...................... 14,253 5,784 20,037
Income tax expense.................................... 5,101 1,161 6,262
----------- ----------- -------------- ------------
Net income............................................ $ 9,152 $ 4,623 $ 13,775
----------- ----------- -------------- ------------
----------- ----------- -------------- ------------
NET INCOME PER SHARE:
Primary............................................... $1.55 $0.96 $1.29
Fully diluted......................................... $1.55 $0.96 $1.29
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary............................................... 5,899,453 4,794,849 10,694,302
Fully diluted......................................... 5,899,453 4,814,258 10,713,711
</TABLE>
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND INDIANA FEDERAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------
PINNACLE IFC PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable............................................... $29,542 $46,682 $76,224
Tax-exempt............................................ 214 213 427
Interest and dividends on securities:
Taxable............................................... 6,321 8,100 14,421
Tax-exempt............................................ 905 68 973
Interest on federal funds sold.......................... 257 86 343
Interest on due from banks.............................. 256 21 277
------------ ------------ ------------ ------------
Total interest income............................... 37,495 55,170 92,665
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Interest on deposits.................................... 16,093 22,423 38,516
Interest on securities sold under repurchase agreements
and other borrowings.................................. 2,058 7,432 9,490
------------ ------------ ------------ ------------
Total interest expense.............................. 18,151 29,855 48,006
------------ ------------ ------------ ------------
Net interest income..................................... 19,344 25,315 44,659
Provision for loan losses............................... 225 177 402
------------ ------------ ------------ ------------
Net interest income after provision for loan losses..... 19,119 25,138 44,257
------------ ------------ ------------ ------------
NON-INTEREST INCOME:
Other income............................................ 4,236 4,239 8,475
Securities gains (losses), net.......................... 350 440 790
------------ ------------ ------------ ------------
Total non-interest income........................... 4,586 4,679 9,265
NON-INTEREST EXPENSES:
Salaries and benefits................................... 7,100 8,955 16,055
Occupancy and equipment................................. 2,044 3,450 5,494
Other................................................... 5,492 7,790 13,282
------------ ------------ ------------ ------------
Total non-interest expense.......................... 14,636 20,195 34,831
------------ ------------ ------------ ------------
Income before income tax expense........................ 9,069 9,622 18,691
------------ ------------ ------------ ------------
Income tax expense...................................... 2,610 2,318 4,928
------------ ------------ ------------ ------------
Net income.............................................. $ 6,459 $ 7,304 $13,763
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET INCOME PER SHARE:
Primary................................................. $1.62 $1.51 $1.57
Fully diluted........................................... $1.62 $1.52 $1.56
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................................. 3,996,137 4,776,999 8,773,136
Fully diluted........................................... 3,996,137 4,808,147 8,804,284
</TABLE>
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND INDIANA FEDERAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994
------------------------------------------------------
PINNACLE IFC PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable............................................ $22,949 $35,093 $58,042
Tax-exempt......................................... 209 205 414
Interest and dividends on securities:
Taxable............................................ 4,626 7,983 12,609
Tax-exempt......................................... 998 95 1,093
Interest on federal funds sold......................... 110 157 267
Interest on due from banks............................. 76 40 116
------------ ------------ ------------ ------------
Total interest income................................ 28,968 43,573 72,541
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Interest on deposits................................... 11,316 16,479 27,795
Interest on securities sold under repurchase agreements
and other borrowings................................. 546 5,886 6,432
------------ ------------ ------------ ------------
Total interest expense............................... 11,862 22,365 34,227
------------ ------------ ------------ ------------
Net interest income.................................... 17,106 21,208 38,314
Provision for loan losses.............................. 125 179 304
------------ ------------ ------------ ------------
Net interest income after provision for loan losses.... 16,981 21,029 38,010
------------ ------------ ------------ ------------
NON-INTEREST INCOME:
Other income........................................... 3,692 4,401 8,093
Securities gains (losses), net......................... 64 70 134
------------ ------------ ------------ ------------
Total non-interest income............................ 3,756 4,471 8,227
NON-INTEREST EXPENSES:
Salaries and benefits.................................. 6,073 7,407 13,480
Occupancy and equipment................................ 1,918 2,505 4,423
Other.................................................. 5,123 5,260 10,383
------------ ------------ ------------ ------------
Total non-interest expense........................... 13,114 15,172 28,286
------------ ------------ ------------ ------------
Income before income tax expense....................... 7,623 10,328 17,951
------------ ------------ ------------ ------------
Income tax expense..................................... 2,333 3,066 5,399
------------ ------------ ------------ ------------
Net income............................................. $ 5,290 $ 7,262 $12,552
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET INCOME PER SHARE:
Primary................................................ $1.38 $1.50 $1.45
Fully diluted.......................................... $1.38 $1.50 $1.45
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................................ 3,821,904 4,844,599 8,666,503
Fully diluted.......................................... 3,821,904 4,848,486 8,670,390
</TABLE>
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND INDIANA FEDERAL CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Pinnacle Financial Services, Inc. and Indiana Federal
Corporation Unaudited Pro Forma Combined Balance Sheet combines the historical
Consolidated Balance Sheets of Pinnacle and IFC giving effect to the IFC Merger,
which will be accounted for as a "pooling-of-interests," as if it had been
effective on March 31, 1997. For a description of "pooling-of-interests"
accounting with respect to the IFC Merger, see "THE MERGERS--Anticipated
Accounting Treatment." This information should be read in conjunction with the
historical consolidated financial statements of Pinnacle, including the notes
thereto, which are incorporated by reference in this Joint Proxy
Statement/Prospectus, the historical consolidated financial statements of IFC,
including the notes thereto, which are incorporated by reference in this Joint
Proxy Statement/Prospectus, and the condensed consolidated historical financial
data for Pinnacle and the IFC and the other pro forma financial information,
including the notes thereto, which appear elsewhere in this Joint Proxy
Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The
effect of the expected one-time merger and restructuring charges of
approximately $4.2 million (after-tax) have been reflected in the unaudited pro
forma combined balance sheet; however, since the expected merger and
restructuring charges are nonrecurring they have not been reflected in the
unaudited pro forma combined statements of income. (See "--Notes to Pinnacle
Financial Services, Inc. and Indiana Federal Corporation Unaudited Pro Forma
Combined Financial Statements" for details of the expected one-time merger and
restructuring charges.) The pro forma financial data do not give effect to any
anticipated cost savings in connection with the IFC Merger and are not
necessarily indicative of either the results that actually would have occurred
had the IFC Merger been consummated on March 31, 1997 or the results that may be
obtained in the future.
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND INDIANA FEDERAL CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT MARCH 31, 1997
------------------------------------------------------
PINNACLE IFC PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Cash due from banks..................................... $ 25,904 $ 21,673 $ (4,796 ) $ 42,781
Federal funds sold...................................... -- -- --
Due from banks-interest bearing......................... 2,016 85 2,101
Investment securities................................... 412,925 126,172 539,097
Loans................................................... 615,024 620,966 1,235,990
Allowance for loan losses............................... (5,651) (6,908) (12,559)
Other assets............................................ 47,573 56,936 (1,049 ) 103,460
------------ ------------ ------------ ------------
Total assets........................................ $ 1,097,791 $ 818,924 $ (5,845 ) $ 1,910,870
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
LIABILITIES:
Deposits:
Non-interest-bearing demand deposits.................. $ 62,080 $ 28,972 $ $ 91,052
Interest-bearing demand deposits...................... 76,250 49,171 125,421
Savings deposits...................................... 272,663 139,936 412,599
Time deposits......................................... 346,929 332,310 679,239
------------ ------------ ------------ ------------
Total deposits...................................... 757,922 550,389 1,308,311
Securities sold under agreements to repurchase and
other borrowings.................................... 259,274 191,298 450,572
Other liabilities..................................... 5,305 5,317 (1,604 ) 9,018
------------ ------------ ------------ ------------
Total liabilities................................... 1,022,501 747,004 (1,604 (1) 1,767,901
STOCKHOLDERS' EQUITY:
Common stock............................................ 19,110 59 (59 (2) 19,110
Additional paid-in-capital.............................. 44,574 27,932 (8,661 (2) 63,845
(4,241 (1)
Retained earnings....................................... 16,354 53,595 (237 (2) 65,471
Net unrealized gain (loss) on securities-for-sale....... (4,748) (709) (5,457)
Less: Treasury stock & ESOP obligation.................. -- 8,957 (8,957 (2) --
------------ ------------ ------------ ------------
Total stockholders' equity.......................... 75,290 71,920 (4,241 ) 142,969
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity.......... $ 1,097,791 $ 818,924 $ (5,845 ) $ 1,910,870
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
PER SHARE DATA:
Shares outstanding...................................... 5,980,320 4,785,237 10,765,557
Book value per share.................................... $12.59 $15.03 $13.28
</TABLE>
<PAGE>
NOTES TO PINNACLE FINANCIAL SERVICES, INC., AND INDIANA FEDERAL CORPORATION
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) Reflects expected one-time merger and restructuring charges of approximately
$5.845 million (pre-tax) to be incurred in 1997 in connection with the
attainment of annualized pre-tax cost savings of approximately $3.5 million.
(While there can be no assurances that such cost savings will be realized,
they are expected to be realized primarily through reductions in staff,
elimination or consolidation of certain branches, consolidation of the
parties' banking and thrift businesses, the consolidation of certain
offices, data processing and other redundant back-office operations and
staff functions.) This is expected to result in a tax credit of $1.604
million from the one-time charges and a $4.241 million after-tax charge to
retained earnings in the pro forma condensed combined balance sheet.
The pro forma entries are displayed below:
<TABLE>
<S> <C> <C>
Debt--Retained earnings.............................. $4,241,000
Debt--other liabilities--taxes payable............... 1,604,000
Credit--Cash....................................... $4,796,000
Credit--Other assets--prepaid acquisition
charges.......................................... 1,049,000
</TABLE>
The following provides detail of the estimated pre-tax charges:
<TABLE>
<S> <C> <C>
Personnel............................................ $1,250,000
Benefit plans........................................ 1,760,000
Facilities and data processing....................... 900,000
Other Merger expenses................................ 1,935,000
---------
Total charges...................................... $5,845,000
---------
---------
</TABLE>
(2) Reflects accounting of the IFC Merger as a "pooling-of-interests," through
the exchange of 4,785,237 shares of Pinnacle Common Stock for an equivalent
number of shares of IFC Common Stock and the elimination of treasury stock.
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
PINNACLE FINANCIAL SERVICES, INC.
AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME SUMMARY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Pinnacle Financial Services, Inc. and CB Bancorp, Inc.
Unaudited Pro Forma Combined Statement of Income Summary combines the historical
Consolidated Statements of Income of Pinnacle and CB giving effect to the CB
Merger, which will be accounted for as a "pooling-of-interests," as if it had
been effective as of the beginning of the earliest period indicated and after
giving effect to the pro forma adjustments described in the Notes to Pinnacle
Financial Services, Inc. and CB Bancorp, Inc. Unaudited Pro Forma Combined
Financial Statements. For a description of "pooling-of-interests" accounting
with respect to the CB Merger, see "THE MERGERS--Anticipated Accounting
Treatment." This information should be read in conjunction with the historical
consolidated financial statements of Pinnacle, including the notes thereto,
which are incorporated by reference in this Joint Proxy Statement/ Prospectus,
the historical consolidated financial statements of CB, including the notes
thereto, which are incorporated by reference in this Joint Proxy
Statement/Prospectus, and the condensed consolidated historical financial data
for Pinnacle and CB and the other pro forma financial information, including the
notes thereto, which appear elsewhere in this Joint Proxy Statement/Prospectus.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The effect of the
expected one-time merger and restructuring charges of approximately $1.3 million
(after-tax) have been reflected in the unaudited pro forma combined balance
sheet; however, since the expected merger and restructuring charges are
nonrecurring they have not been reflected in the unaudited pro forma combined
statements of income. (See "--Notes to Pinnacle Financial Services, Inc. and CB
Bancorp, Inc. Unaudited Pro Forma Combined Financial Statements" for details of
the expected one-time merger and restructuring charges.) The pro forma financial
data do not give effect to any anticipated cost savings in connection with the
CB Merger and are not necessarily indicative of either the results that actually
would have occurred had the CB Merger been consummated on the dates indicated or
the results that may be obtained in the future.
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
PINNACLE FINANCIAL SERVICES, INC.
AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME SUMMARY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31*
------------------------ -------------------------------
1997 1996 1996 1995 1994
----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable.............................................. $17,057 $15,198 $64,486 $41,004 $30,722
Tax-exempt........................................... 126 50 239 241 242
Interest and dividends on securities:
Taxable.............................................. 6,867 5,078 23,199 7,601 5,754
Tax-exempt........................................... 273 264 1,064 905 998
Interest on federal funds sold......................... 69 96 434 270 290
Interest on due from banks............................. 32 422 539 301 96
----------- ----------- --------- --------- ---------
Total interest income................................ 24,424 21,108 89,961 50,322 38,102
----------- ----------- --------- --------- ---------
INTEREST EXPENSE:
Interest on deposits................................... 9,274 8,674 35,965 20,877 15,243
Interest on securities sold under repurchase agreements
and other borrowings................................. 3,920 2,544 11,611 3,503 730
----------- ----------- --------- --------- ---------
Total interest expense............................... 13,194 11,218 47,576 24,380 15,973
----------- ----------- --------- --------- ---------
Net interest income.................................... 11,230 9,890 42,385 25,942 22,129
Provision for loan losses.............................. 565 862 2,018 482 203
----------- ----------- --------- --------- ---------
Net interest income after provision for loan losses.... 10,665 9,028 40,367 25,460 21,926
----------- ----------- --------- --------- ---------
NON-INTEREST INCOME:
Other.................................................. 2,334 1,690 8,256 5,378 4,630
Securities gains (losses), net......................... 59 234 653 349 67
----------- ----------- --------- --------- ---------
Total non-interest income............................ 2,393 1,924 8,909 5,727 4,697
NON-INTEREST EXPENSE:
Salaries and benefits.................................. 3,269 2,937 12,695 8,613 7,573
Occupancy and equipment................................ 1,178 1,038 4,254 2,551 2,429
Other.................................................. 2,958 2,738 15,099 6,959 6,452
----------- ----------- --------- --------- ---------
Total non-interest expense........................... 7,405 6,713 32,048 18,123 16,454
Income before income tax expense....................... 5,653 4,239 17,228 13,064 10,169
Income tax expense..................................... 1,937 1,312 6,027 4,150 3,254
Extraordinary items/accounting changes................. -- -- -- -- --
----------- ----------- --------- --------- ---------
Net income............................................. $ 3,716 $ 2,927 $11,201 $ 8,914 $ 6,915
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
NET INCOME PER SHARE:**
Primary................................................ $0.49 $0.39 $1.49 $1.58 $1.26
Fully diluted.......................................... $0.49 $0.39 $1.49 $1.58 $1.26
WEIGHTED AVERAGE SHARES OUTSTANDING:**
Primary................................................ 7,566,956 7,495,156 7,504,112 5,636,604 5,498,235
Fully diluted.......................................... 7,566,956 7,495,156 7,504,112 5,636,604 5,498,235
</TABLE>
- --------------------------
* Historical information included above is presented on a calendar year basis
for Pinnacle and CB. As CB's fiscal year end is March 31, CB information for
each of the years ended December 31, 1996, 1995 and 1994 includes the fourth
quarter of the fiscal year preceding each such fiscal year and the first
three quarters of such fiscal year.
<PAGE>
** The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on an average price per share of Pinnacle Common Stock of $27.375 and a CB
Exchange Ratio of 1.2785 shares of Pinnacle Common Stock for each share of
CB Common Stock and each CB stock option converted in the CB Merger.
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
------------------------ -------------------------------
1997 1996 1996 1995 1994
----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary........................................... $0.50 $0.40 $1.51 $1.61 $1.28
Fully diluted..................................... $0.50 $0.40 $1.51 $1.61 $1.28
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary........................................... 7,478,001 7,404,327 7,414,242 5,544,729 5,404,352
Fully diluted..................................... 7,478,001 7,404,327 7,414,242 5,544,729 5,404,352
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
------------------------ -------------------------------
1997 1996 1996 1995 1994
----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary........................................... $0.47 $0.38 $1.43 $1.50 $1.19
Fully diluted..................................... $0.47 $0.38 $1.43 $1.50 $1.19
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary........................................... 7,869,088 7,803,658 7,809,353 5,948,657 5,817,111
Fully diluted..................................... 7,869,088 7,803,658 7,809,353 5,948,657 5,817,111
</TABLE>
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Pinnacle Financial Services, Inc. and CB Bancorp, Inc.
Unaudited Pro Forma Combined Statement of Income combine the historical
Consolidated Statements of Income of Pinnacle and CB giving effect to the CB
Merger, which will be accounted for as a "pooling-of-interests," as if it had
been effective as of the beginning of the earliest period indicated and after
giving effect to the pro forma adjustments described in the Notes to Pinnacle
Financial Services, Inc. and CB Bancorp, Inc. Unaudited Pro Forma Combined
Financial Statements. For a description of "pooling-of-interests" accounting
with respect to the CB Merger, see "THE MERGERS--Anticipated Accounting
Treatment." This information should be read in conjunction with the historical
consolidated financial statements of Pinnacle, including the notes thereto,
which are incorporated by reference in this Joint Proxy Statement/Prospectus,
the historical consolidated financial statements of CB, including the notes
thereto, which are incorporated by reference in this Joint Proxy
Statement/Prospectus, and the condensed consolidated historical financial data
for Pinnacle and CB and the other pro forma financial information, including the
notes thereto, which appear elsewhere in this Joint Proxy Statement/Prospectus.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The effect of the
expected one time merger and restructuring charges of approximately $1.3 million
(after-tax) have been reflected in the unaudited pro forma combined balance
sheet; however, since the expected merger and restructuring charges are
nonrecurring they have not been reflected in the unaudited pro forma combined
statements of income. (See "--Notes to Pinnacle Financial Services, Inc. and CB
Bancorp, Inc. Unaudited Pro Forma Combined Financial Statements" for details of
the expected one-time merger and restructuring charges.) The pro forma financial
data do not give effect to any anticipated cost savings in connection with the
CB Merger and are not necessarily indicative of either the results that actually
would have occurred had the CB Merger been consummated on the dates indicated or
the results that may be obtained in the future.
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------------------
PINNACLE CB PROFORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable............................................... $ 13,025 $ 4,032 $ 17,057
Tax-exempt............................................ 122 4 126
Interest and dividends on securities:
Taxable............................................... 6,571 296 6,867
Tax-exempt............................................ 273 -- 273
Interest on federal funds sold 43 26 69
Interest on due from banks interest bearing............. 31 1 32
------------ ------------ ----------- ------------
Total interest income................................. 20,065 4,359 24,424
------------ ------------ ----------- ------------
INTEREST EXPENSE:
Interest on deposits.................................... 7,747 1,527 9,274
Interest on securities sold under repurchase agreements
and other borrowings.................................. 3,268 652 3,920
------------ ------------ ----------- ------------
Total interest expense................................ 11,015 2,179 13,194
------------ ------------ ----------- ------------
Net interest income..................................... 9,050 2,180 11,230
Provision for loan losses............................... 235 330 565
------------ ------------ ----------- ------------
Net interest income, after provision for loan losses.... 8,815 1,850 10,665
------------ ------------ ----------- ------------
NON-INTEREST INCOME:
Other income............................................ 1,832 502 2,334
Securities gains (losses), net.......................... 59 -- 59
------------ ------------ ----------- ------------
Total non-interest income............................. 1,891 502 2,393
NON-INTEREST EXPENSE:
Salaries and benefits................................... 2,765 504 3,269
Occupancy and equipment................................. 1,032 146 1,178
Other non-interest expense.............................. 2,392 566 2,958
------------ ------------ ----------- ------------
Total non-interest expense............................ 6,189 1,216 7,405
Income before income tax expense........................ 4,517 1,136 5,653
Income tax expense...................................... 1,547 390 1,937
Extraordinary items/accounting changes.................. -- -- --
------------ ------------ ----------- ------------
Net income.............................................. $ 2,970 $ 746 $ 3,716
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
NET INCOME PER SHARE:*
Primary................................................. $ 0.50 $ 0.60 $ 0.49
Fully diluted........................................... $ 0.50 $ 0.60 $ 0.49
WEIGHTED AVERAGE SHARES OUTSTANDING*
Primary................................................. 5,978,640 1,241,938 346,378 7,566,956
Fully diluted........................................... 5,978,640 1,244,517 343,799 7,566,956
</TABLE>
<PAGE>
- ------------------------
* The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on an average price per share of Pinnacle Common Stock of $27.375 and a CB
Exchange Ratio of 1.2785 shares of Pinnacle Common Stock for each share of
CB Common Stock and each CB stock option converted in the CB Merger.
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
--------------------------------------------------
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary.............................................. $0.50 $0.60 $0.50
Fully diluted........................................ $0.50 $0.60 $0.50
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary.............................................. 5,978,640 1,241,938 257,423 7,478,001
Fully diluted........................................ 5,978,640 1,244,517 254,844 7,478,001
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
--------------------------------------------------
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary.............................................. $0.50 $0.60 $0.47
Fully diluted........................................ $0.50 $0.60 $0.47
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary.............................................. 5,978,640 1,241,938 648,510 7,869,088
Fully diluted........................................ 5,978,640 1,244,517 645,931 7,869,088
</TABLE>
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1996
-----------------------------------------------------
PINNACLE CB PROFORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable............................................... $ 11,577 $ 3,621 $ 15,198
Tax-exempt............................................ 44 6 50
Interest and dividends on securities:
Taxable............................................... 4,767 311 5,078
Tax-exempt............................................ 264 -- 264
Interest on federal funds sold 90 6 96
Interest on due from banks interest bearing............. 416 6 422
------------ ------------ ----------- ------------
Total interest income................................. 17,158 3,950 21,108
------------ ------------ ----------- ------------
INTEREST EXPENSE:
Interest on deposits.................................... 7,399 1,275 8,674
Interest on securities sold under repurchase agreements
and other borrowings.................................. 1,890 654 2,544
------------ ------------ ----------- ------------
Total interest expense................................ 9,289 1,929 11,218
------------ ------------ ----------- ------------
Net interest income..................................... 7,869 2,021 9,890
Provision for loan losses............................... 80 782 862
------------ ------------ ----------- ------------
Net interest income, after provision for loan losses.... 7,789 1,239 9,028
------------ ------------ ----------- ------------
NON-INTEREST INCOME:
Other income............................................ 1,350 340 1,690
Securities gains (losses), net.......................... 234 -- 234
------------ ------------ ----------- ------------
Total non-interest income............................. 1,584 340 1,924
NON-INTEREST EXPENSE:
Salaries and benefits................................... 2,522 415 2,937
Occupancy and equipment................................. 902 136 1,038
Other non-interest expense.............................. 2,327 411 2,738
------------ ------------ ----------- ------------
Total non-interest expense............................ 5,751 962 6,713
Income before income tax expense........................ 3,622 617 4,239
Income tax expense...................................... 1,178 134 1,312
Extraordinary items/accounting changes.................. -- -- --
------------ ------------ ----------- ------------
Net income.............................................. $ 2,444 $ 483 $ 2,927
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
NET INCOME PER SHARE:*
Primary................................................. $ 0.42 $ 0.38 $ 0.39
Fully diluted........................................... $ 0.42 $ 0.38 $ 0.39
WEIGHTED AVERAGE SHARES OUTSTANDING:*
Primary................................................. 5,873,358 1,258,867 362,931 7,495,156
Fully diluted........................................... 5,873,358 1,258,187 363,611 7,495,156
</TABLE>
<PAGE>
- ------------------------
* The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on an average price per share of Pinnacle Common Stock of $27.375 and a CB
Exchange Ratio of 1.2785 shares of Pinnacle Common Stock for each share of
CB Common Stock and each CB stock option converted in the CB Merger.
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1996
--------------------------------------------------
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary.............................................. $0.42 $0.38 $0.40
Fully diluted........................................ $0.42 $0.38 $0.40
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary.............................................. 5,873,358 1,258,867 272,102 7,404,327
Fully diluted........................................ 5,873,358 1,258,187 272,782 7,404,327
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1996
--------------------------------------------------
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary.............................................. $0.42 $0.38 $0.38
Fully diluted........................................ $0.42 $0.38 $0.38
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary.............................................. 5,873,358 1,258,867 671,433 7,803,658
Fully diluted........................................ 5,873,358 1,258,187 672,113 7,803,658
</TABLE>
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996*
-----------------------------------------------
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable................................................... $49,791 $14,695 $64,486
Tax-exempt................................................ 218 21 239
Interest and dividends on securities:
Taxable................................................... 21,957 1,242 23,199
Tax-exempt................................................ 1,064 -- 1,064
Interest on federal funds sold.............................. 410 24 434
Interest on due from banks.................................. 529 10 539
---------- ---------- ----------- ----------
Total interest income..................................... 73,969 15,992 89,961
---------- ---------- ----------- ----------
INTEREST EXPENSE:
Interest on deposits........................................ 30,536 5,429 35,965
Interest on securities sold under repurchase agreements and
other borrowings.......................................... 9,157 2,454 11,611
---------- ---------- ----------- ----------
Total interest expense.................................... 39,693 7,883 47,576
---------- ---------- ----------- ----------
Net interest income......................................... 34,276 8,109 42,385
Provision for loan losses................................... 375 1,643 2,018
---------- ---------- ----------- ----------
Net interest income after provision for loan losses......... 33,901 6,466 40,367
---------- ---------- ----------- ----------
NON-INTEREST INCOME:
Other....................................................... 6,655 1,601 8,256
Securities gains, net....................................... 653 -- 653
---------- ---------- ----------- ----------
Total non-interest income................................. 7,308 1,601 8,909
NON-INTEREST EXPENSES:
Salaries and benefits....................................... 10,843 1,852 12,695
Occupancy and equipment..................................... 3,670 584 4,254
Other....................................................... 12,443 2,656 15,099
---------- ---------- ----------- ----------
Total non-interest expense................................ 26,956 5,092 32,048
Income before income tax expense............................ 14,253 2,975 17,228
Income tax expense.......................................... 5,101 926 6,027
---------- ---------- ----------- ----------
Net income.................................................. $ 9,152 $ 2,049 $11,201
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
NET INCOME PER SHARE:**
Primary..................................................... $1.55 $1.64 $1.49
Fully diluted............................................... $1.55 $1.64 $1.49
WEIGHTED AVERAGE SHARES OUTSTANDING:**
Primary..................................................... 5,899,453 1,245,810 358,849(1) 7,504,112
Fully diluted............................................... 5,899,453 1,250,704 353,955(1) 7,504,112
</TABLE>
- ------------------------
* Historical information included above is presented on a calendar year basis
for Pinnacle and CB. As CB's fiscal year end is March 31, CB information for
each of the years ended December 31, 1996, 1995 and 1994 includes the fourth
quarter of the fiscal year preceding each such fiscal year and the first
three quarters of such fiscal year.
<PAGE>
** The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on an average price per share of Pinnacle Common Stock of $27.375 and a CB
Exchange Ratio of 1.2785 shares of Pinnacle Common Stock for each share of
CB Common Stock and each CB stock option converted in the CB Merger.
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary.............................................. $1.55 $1.64 $1.51
Fully diluted........................................ $1.55 $1.64 $1.51
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary.............................................. 5,899,453 1,245,810 268,979 7,414,242
Fully diluted........................................ 5,899,453 1,250,704 264,085 7,414,242
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary.............................................. $1.55 $1.64 $1.43
Fully diluted........................................ $1.55 $1.64 $1.43
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary.............................................. 5,899,453 1,245,810 664,090 7,809,353
Fully diluted........................................ 5,899,453 1,250,704 659,196 7,809,353
</TABLE>
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.,
AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995*
-----------------------------------------------------
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable............................................... $29,542 $11,462 $41,004
Tax-exempt............................................ 214 27 241
Interest and dividends on securities:
Taxable............................................... 6,321 1,280 7,601
Tax-exempt............................................ 905 -- 905
Interest on federal funds sold.......................... 257 13 270
Interest on due from banks interest bearing............. 256 45 301
------------ ------------ ----------- ------------
Total interest income............................... 37,495 12,827 50,322
------------ ------------ ----------- ------------
INTEREST EXPENSE:
Interest on deposits.................................... 16,093 4,784 20,877
Interest on securities sold under repurchase agreements
and other borrowings.................................. 2,058 1,445 3,503
------------ ------------ ----------- ------------
Total interest expense.............................. 18,151 6,229 24,380
------------ ------------ ----------- ------------
Net interest income..................................... 19,344 6,598 25,942
Provision for loan losses............................... 225 257 482
Net interest income after provision for loan losses..... 19,119 6,341 25,460
------------ ------------ ----------- ------------
NON-INTEREST INCOME:
Other income............................................ 4,236 1,142 5,378
Securities gains (losses), net.......................... 350 (1) 349
------------ ------------ ----------- ------------
Total non-interest income........................... 4,586 1,141 5,727
NON-INTEREST EXPENSES:
Salaries and benefits................................... 7,100 1,513 8,613
Occupancy and equipment................................. 2,044 507 2,551
Other non-interest expense.............................. 5,492 1,467 6,959
------------ ------------ ----------- ------------
Total non-interest expense.......................... 14,636 3,487 18,123
Income before income tax expense........................ 9,069 3,995 13,064
Income tax expense...................................... 2,610 1,540 4,150
------------ ------------ ----------- ------------
Net income.............................................. $ 6,459 $ 2,455 $ 8,914
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
NET INCOME PER SHARE:**
Primary................................................. $1.62 $1.94 $1.58
Fully diluted........................................... $1.62 $1.93 $1.58
WEIGHTED AVERAGE SHARES OUTSTANDING:**
Primary................................................. 3,996,137 1,265,353 375,114(1) 5,636,604
Fully diluted........................................... 3,996,137 1,273,276 367,191(1) 5,636,604
</TABLE>
- ------------------------
* Historical information included above is presented on a calendar year basis
for Pinnacle and CB. As CB's fiscal year end is March 31, CB information for
each of the years ended December 31, 1996, 1995
<PAGE>
and 1994 includes the fourth quarter of the fiscal year preceding each such
fiscal year and the first three quarters of such fiscal year.
** The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on an average price per share of Pinnacle Common Stock of $27.375 and a CB
Exchange Ratio of 1.2785 shares of Pinnacle Common Stock for each share of
CB Common Stock and each CB stock option converted in the CB Merger.
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary................................................ $ 1.62 $ 1.94 $ 1.61
Fully diluted.......................................... $ 1.62 $ 1.93 $ 1.61
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................................ 3,996,137 1,265,353 283,239 5,544,729
Fully diluted.......................................... 3,996,137 1,273,276 275,316 5,544,729
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary................................................ $ 1.62 $ 1.94 $ 1.50
Fully diluted.......................................... $ 1.62 $ 1.93 $ 1.50
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................................ 3,996,137 1,265,353 687,167 5,948,657
Fully diluted.......................................... 3,996,137 1,273,276 679,244 5,948,657
</TABLE>
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994*
------------------------------------------------
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable.................................................. $22,949 $7,773 $30,722
Tax-exempt............................................... 209 33 242
Interest and dividends on securities:
Taxable.................................................. 4,626 1,128 5,754
Tax-exempt............................................... 998 -- 998
Interest on federal funds sold............................. 110 180 290
Interest on due from banks................................. 76 20 96
---------- ---------- ------------ ----------
Total interest income.................................. 28,968 9,134 38,102
---------- ---------- ------------ ----------
INTEREST EXPENSE:
Interest on deposits....................................... 11,316 3,927 15,243
Interest on securities sold under repurchase agreements and
other borrowings......................................... 546 184 730
---------- ---------- ------------ ----------
Total interest expense................................. 11,862 4,111 15,973
---------- ---------- ------------ ----------
Net interest income........................................ 17,106 5,023 22,129
Provision for loan losses.................................. 125 78 203
---------- ---------- ------------ ----------
Net interest income after provision for loan losses........ 16,981 4,945 21,926
---------- ---------- ------------ ----------
NON-INTEREST INCOME:
Other income............................................... 3,692 938 4,630
Securities gains, net...................................... 64 3 67
---------- ---------- ------------ ----------
Total non-interest income.............................. 3,756 941 4,697
NON-INTEREST EXPENSES:
Salaries and benefits...................................... 6,073 1,500 7,573
Occupancy and equipment.................................... 1,918 511 2,429
Other...................................................... 5,123 1,329 6,452
---------- ---------- ------------ ----------
Total non-interest expense............................. 13,114 3,340 16,454
Income before income tax expense........................... 7,623 2,546 10,169
Income tax expense......................................... 2,333 921 3,254
---------- ---------- ------------ ----------
Net income................................................. $ 5,290 $1,625 $ 6,915
---------- ---------- ------------ ----------
---------- ---------- ------------ ----------
NET INCOME PER SHARE:**
Primary.................................................... $1.38 $1.26 $1.26
Fully diluted.............................................. $1.38 $1.26 $1.26
WEIGHTED AVERAGE SHARES OUTSTANDING:**
Primary.................................................... 3,821,904 1,292,293 384,038(1) 5,498,235
Fully diluted.............................................. 3,821,904 1,289,970 386,361(1) 5,498,235
</TABLE>
- ------------------------
* Historical information included above is presented on a calendar year basis
for Pinnacle and CB. As CB's fiscal year end is March 31, CB information for
each of the years ended December 31, 1996, 1995 and 1994 includes the fourth
quarter of the fiscal year preceding each such fiscal year and the first
three quarters of such fiscal year.
<PAGE>
** The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on an average price per share of Pinnacle Common Stock of $27.375 and a CB
Exchange Ratio of 1.2785 shares of Pinnacle Common Stock for each share of
CB Common Stock and each CB stock option converted in the CB Merger.
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994
------------------------------------------------
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary............................................... $1.38 $1.26 $1.28
Fully diluted......................................... $1.38 $1.26 $1.28
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary............................................... 3,821,904 1,292,293 290,155 5,404,352
Fully diluted......................................... 3,821,904 1,289,970 292,478 5,404,352
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994
------------------------------------------------
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary............................................... $1.38 $1.26 $1.19
Fully diluted......................................... $1.38 $1.26 $1.19
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary............................................... 3,821,904 1,292,293 702,914 5,817,111
Fully diluted......................................... 3,821,904 1,289,970 705,237 5,817,111
</TABLE>
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Pinnacle Financial Services, Inc. and CB Bancorp, Inc.
Unaudited Pro Forma Combined Balance Sheet combines the historical Consolidated
Balance Sheets of Pinnacle and CB giving effect to the CB Merger, which will be
accounted for as a "pooling-of-interests," as if it had been effective on March
31, 1997. For a description of "pooling-of-interests" accounting with respect to
the CB Merger, see "THE MERGERS--Anticipated Accounting Treatment." This
information should be read in conjunction with the historical consolidated
financial statements of Pinnacle, including the notes thereto, which are
incorporated by reference in this Joint Proxy Statement/Prospectus, the
historical consolidated financial statements of CB, including the notes thereto,
which are incorporated by reference in this Joint Proxy Statement/Prospectus,
and the condensed consolidated historical financial data for Pinnacle and the CB
and the other pro forma financial information, including the notes thereto,
which appear elsewhere in this Joint Proxy Statement/Prospectus. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The effect of the expected
one-time merger and restructuring charges of approximately $1.3 million
(after-tax) have been reflected in the unaudited pro forma combined balance
sheet; however, since the expected merger and restructuring charges are
nonrecurring they have not been reflected in the unaudited pro forma combined
statements of income. (See "--Notes to Pinnacle Financial Services, Inc. and CB
Bancorp, Inc. Unaudited Pro Forma Combined Financial Statements" for details of
the expected one-time merger and restructuring charges.) The pro forma financial
data do not give effect to any anticipated cost savings in connection with the
CB Merger and are not necessarily indicative of either the results that actually
would have occurred had the CB Merger been consummated on March 31, 1997 or the
results that may be obtained in the future.
<PAGE>
PINNACLE FINANCIAL SERVICES, INC
AND CB BANCORP, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PINNACLE CB
(AS (AS PRO FORMA PRO FORMA
REPORTED) REPORTED) ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Cash due from banks.................................... $ 25,904 $ 4,847 $ (1,500) $ 29,251
Federal funds sold..................................... -- -- --
Due from banks-interest bearing........................ 2,016 9,882 11,898
Investment securities.................................. 412,925 17,723 430,648
Loans.................................................. 615,024 186,505 801,529
Allowance for loan losses.............................. (5,651) (1,808) (7,459)
Other assets........................................... 47,573 9,986 57,559
------------ ------------ ----------- ------------
Total assets....................................... $1,097,791 $ 227,135 $ (1,500) $ 1,323,426
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
LIABILITIES:
Deposits:
Non-interest-bearing demand deposits................. $ 62,080 $ 10,003 $ 72,083
Interest-bearing demand deposits..................... 76,250 13,697 89,947
Savings deposits..................................... 272,663 36,739 309,402
Time deposits........................................ 346,929 89,370 436,299
------------ ------------ ----------- ------------
Total deposits..................................... 757,922 149,809 -- 907,731
Securities sold under agreements to repurchase and
other borrowings..................................... 259,274 53,284 312,558
Other liabilities...................................... 5,305 3,199 (180) 8,324
------------ ------------ ----------- ------------
Total liabilities.................................. 1,022,501 206,292 (180) 1,228,613
STOCKHOLDERS' EQUITY:
Common stock........................................... 19,110 13 (13) 19,110
Additional paid-in-capital............................. 44,574 5,866 (1,731) 48,709
Retained earnings...................................... 16,354 16,453 (1,320) 31,487
Net unrealized gain (loss) on securities-for-sale...... (4,748) 61 (4,687)
Less: Treasury stock................................... -- 1,550 (1,744) (194)
------------ ------------ ----------- ------------
Total stockholders' equity......................... 75,290 20,843 (1,320) 94,813
------------ ------------ ----------- ------------
Total liabilities and stockholders' equity......... $1,097,791 $ 227,135 $ (1,500) $ 1,323,426
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
PER SHARE DATA:*
Shares outstanding..................................... 5,980,320 1,161,997 426,202 7,568,519
Book value per share................................... $ 12.59 $ 17.94 $ 12.53
</TABLE>
- ------------------------
* The shares outstanding and the book value per share shown above are based on
an average price per share of Pinnacle Common Stock of $27.375 and a CB
Exchange Ratio of 1.2785 shares of Pinnacle Common Stock for each share of
CB Common Stock and each CB stock option converted in the CB Merger.
<PAGE>
The following table illustrates the effect on shares outstanding and book
value per share of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
------------------------------------------------
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Shares outstanding...................................... 5,980,320 1,161,997 337,254 7,479,571
Book value per share.................................... $12.59 $17.94 $12.68
</TABLE>
The following table illustrates the effect on shares outstanding and book
value per share of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
------------------------------------------------
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Shares outstanding...................................... 5,980,320 1,161,997 728,313 7,870,630
Book value per share.................................... $12.59 $17.94 $12.05
</TABLE>
<PAGE>
NOTES TO PINNACLE FINANCIAL SERVICES, INC., AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) Reflects additional shares issued assuming a CB Exchange Ratio of 1.2785
shares of Pinnacle Common Stock for each share of CB Common Stock and each
CB stock option converted in the CB Merger. The assumed CB Exchange Ratio
was calculated assuming an average price for Pinnacle Common Stock of
$27.375.
(2) Reflects expected one-time merger and restructuring charges of approximately
$1.5 million (pre-tax) and a tax credit of $180,000 to be incurred in 1997.
In addition, management believes there will be annualized pre-tax cost
savings of approximately $900,000 following the CB Merger. (While there can
be no assurances that such cost savings will be realized, they are expected
to be realized primarily through reductions in staff, consolidation of the
parties' banking and thrift businesses, the consolidation of certain
offices, data processing and other redundant back-office operations and
staff functions.)
The pro forma entries are displayed below:
<TABLE>
<S> <C> <C>
Debt--Retained earnings.............................. $1,320,000
Debt--other liabilities--taxes payable............... 180,000
Credit--Cash....................................... $1,500,000
</TABLE>
The following provides detail of the estimated pre-tax charges:
<TABLE>
<S> <C> <C>
Personnel............................................ $ 150,000
Benefit plans........................................ 200,000
Facilities and data processing....................... 100,000
Other Merger expenses................................ 1,050,000
---------
Total charges.................................... $1,500,000
---------
---------
</TABLE>
(3) Reflects accounting of the CB Merger as a "pooling-of-interests," through
the exchange of 1,588,199 shares of Pinnacle Common Stock for 1,161,997
shares of CB Common Stock and outstanding CB stock options and the
elimination of treasury stock.
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
PINNACLE FINANCIAL SERVICES, INC.,
INDIANA FEDERAL CORPORATION AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME SUMMARY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Pinnacle Financial Services, Inc., Indiana Federal Corporation
and CB Bancorp, Inc. Unaudited Pro Forma Combined Statement of Income Summary
combines the historical Consolidated Statements of Income of Pinnacle, IFC and
CB giving effect to each of the Mergers, which will be accounted for as
"pooling-of-interests," as if each of the Mergers had been effective as of the
beginning of the earliest period indicated and after giving effect to the pro
forma adjustments described in the Notes to Pinnacle Financial Services, Inc.,
Indiana Federal Corporation and CB Bancorp, Inc. Unaudited Pro Forma Combined
Financial Statements. For a description of "pooling-of-interests" accounting
with respect to the Mergers, see "THE MERGERS--Anticipated Accounting
Treatment." This information should be read in conjunction with the historical
consolidated financial statements of Pinnacle, including the notes thereto,
which are incorporated by reference in this Joint Proxy Statement/Prospectus,
the historical consolidated financial statements of IFC, including the notes
thereto, which are incorporated by reference in this Joint Proxy
Statement/Prospectus, the historical consolidated financial statements of CB
Bancorp, Inc., including the notes thereto, which are incorporated by reference
in this Joint Proxy Statement/Prospectus, and the condensed consolidated
historical financial data for Pinnacle, IFC and CB and the other pro forma
financial information, including the notes thereto, which appear elsewhere in
this Joint Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE." The effect of the expected one-time merger and restructuring
charges of approximately $5.5 million (after-tax) have been reflected in the
unaudited pro forma combined balance sheet; however, since the expected merger
and restructuring charges are nonrecurring they have not been reflected in the
unaudited pro forma combined statements of income. (See "--Notes to Pinnacle
Financial Services, Inc., Indiana Federal Corporation and CB Bancorp, Inc.
Unaudited Pro Forma Combined Financial Statements" for details of the expected
one-time merger and restructuring charges.) The pro forma financial data do not
give effect to any anticipated cost savings in connection with the Mergers and
are not necessarily indicative of either the results that actually would have
occurred had the Mergers been consummated on the dates indicated or the results
that may be obtained in the future.
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.,
INDIANA FEDERAL CORPORATION AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME SUMMARY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31,*
---------------------------- -------------------------------------------
1997 1996 1996 1995 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable................................ $30,057 $26,829 $113,161 $ 87,686 $65,815
Tax-exempt............................. 174 110 477 454 447
Interest and dividends on securities:
Taxable.............................. 9,235 6,684 30,919 15,701 13,737
Tax-exempt........................... 277 286 1,136 973 1,093
Interest on federal funds sold........... 136 112 498 356 447
Interest on due from banks interest
bearing................................ 32 444 629 322 136
------------- ------------- ------------- ------------- -------------
Total interest income.................. 39,911 34,465 146,820 105,492 81,675
------------- ------------- ------------- ------------- -------------
INTEREST EXPENSE:
Interest on deposits..................... 15,384 14,525 60,403 43,300 31,722
Interest on securities sold under
repurchase agreements and other
borrowings............................. 6,556 4,004 19,032 10,935 6,616
------------- ------------- ------------- ------------- -------------
Total interest expense................. 21,940 18,529 79,435 54,235 38,338
------------- ------------- ------------- ------------- -------------
Net interest income........................ 17,971 15,936 67,385 51,257 43,337
Provision for loan losses.................. 805 912 3,133 659 382
------------- ------------- ------------- ------------- -------------
Net interest income after provision for
loan losses.............................. 17,166 15,024 64,252 50,598 42,955
------------- ------------- ------------- ------------- -------------
NON-INTEREST INCOME:
Other.................................... 4,160 2,760 12,551 9,617 9,031
Securities gains (losses), net........... 59 214 708 789 137
------------- ------------- ------------- ------------- -------------
Total non-interest income.............. 4,219 2,974 13,259 10,406 9,168
NON-INTEREST EXPENSE:
Salaries and benefits.................... 5,802 5,145 21,519 17,568 14,980
Occupancy and equipment.................. 1,988 1,845 7,690 6,001 4,934
Other.................................... 4,638 4,586 25,290 14,749 11,712
------------- ------------- ------------- ------------- -------------
Total non-interest expense............. 12,428 11,576 54,499 38,318 31,626
------------- ------------- ------------- ------------- -------------
Income before income tax expense........... 8,957 6,422 23,012 22,686 20,497
Income tax expense....................... 2,961 1,858 7,188 6,468 6,320
Extraordinary items/accounting changes... -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Net income............................... $ 5,996 $ 4,564 $ 15,824 $ 16,218 $14,177
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
NET INCOME PER SHARE:**
Primary.................................. $0.48 $0.37 $1.29 $1.56 $1.37
Fully diluted............................ $0.48 $0.37 1.28 1.55 1.37
WEIGHTED AVERAGE SHARES OUTSTANDING:**
Primary.................................. 12,415,826 12,255,285 12,298,961 10,413,603 10,342,834
Fully diluted............................ 12,426,604 12,276,670 12,318,370 10,444,751 10,346,721
</TABLE>
- ------------------------
* Historical information included above is presented on a calendar year basis
for Pinnacle, IFC and CB. As CB's fiscal year end is March 31, CB
information for each of the years ended December 31, 1996, 1995 and 1994
includes the fourth quarter of the fiscal year preceding each such fiscal
year and the first three quarters of such fiscal year.
<PAGE>
** The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on the IFC Exchange Ratio, an average price per share of Pinnacle Common
Stock of $27.375 and a CB Exchange Ratio of 1.2785 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
-------------------------- ----------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary............................. $0.49 $0.38 $1.30 $1.57 $1.38
Fully diluted....................... $0.49 $0.37 $1.29 $1.57 $1.38
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary............................. 12,326,871 12,164,456 12,209,091 10,321,728 10,248,951
Fully diluted....................... 12,337,649 12,185,841 12,228,500 10,352,876 10,252,838
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
-------------------------- ----------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary............................. $0.47 $0.36 $1.26 $1.51 $1.33
Fully diluted....................... $0.47 $0.36 $1.25 $1.51 $1.33
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary............................. 12,717,958 12,563,787 12,604,202 10,725,656 10,661,710
Fully diluted....................... 12,728,736 12,585,172 12,623,611 10,756,804 10,665,597
</TABLE>
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.,
INDIANA FEDERAL CORPORATION AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Pinnacle Financial Services, Inc., Indiana Federal Corporation
and CB Bancorp, Inc. Unaudited Pro Forma Combined Statement of Income combine
the historical Consolidated Statements of Income of Pinnacle, IFC and CB giving
effect to each of the Mergers, which will be accounted for as
"pooling-of-interests," as if each of the Mergers had been effective as of the
beginning of the earliest period indicated and after giving effect to the pro
forma adjustments described in the Notes to Pinnacle Financial Services, Inc.,
Indiana Federal Corporation and CB Bancorp, Inc. Unaudited Pro Forma Combined
Financial Statements. For a description of "pooling-of-interests" accounting
with respect to the Mergers, see "THE MERGERS--Anticipated Accounting
Treatment." This information should be read in conjunction with the historical
consolidated financial statements of Pinnacle, including the notes thereto,
which are incorporated by reference in this Joint Proxy Statement/Prospectus,
the historical consolidated financial statements of IFC, including the notes
thereto, which are incorporated by reference in this Joint Proxy
Statement/Prospectus, the historical consolidated financial statements of CB,
including the notes thereto, which are incorporated by reference in this Joint
Proxy Statement/Prospectus and the condensed consolidated historical financial
data for Pinnacle, IFC and CB and the other pro forma financial information,
including the notes thereto, which appear elsewhere in this Joint Proxy
Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The
effect of the expected one time merger and restructuring charges of
approximately $5.5 million (after-tax) have been reflected in the unaudited pro
forma combined balance sheet; however, since the expected merger and
restructuring charges are nonrecurring they have not been reflected in the
unaudited pro forma combined statements of income. (See "--Notes to Pinnacle
Financial Services, Inc., Indiana Federal Corporation and CB Bancorp, Inc.
Unaudited Pro Forma Combined Financial Statements" for details of the expected
one-time merger and restructuring charges.) The pro forma financial data do not
give effect to any anticipated cost savings in connection with the Mergers and
are not necessarily indicative of either the results that actually would have
occurred had the Mergers been consummated on the dates indicated or the results
that may be obtained in the future.
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.,
INDIANA FEDERAL CORPORATION AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
--------------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable............................................... $13,025 $13,001 $4,032 $30,058
Tax-exempt............................................ 122 48 4 174
Interest and dividends on securities:
Taxable............................................... 6,571 2,367 296 9,234
Tax-exempt............................................ 273 4 -- 277
Interest on federal funds sold.......................... 43 67 26 136
Interest on due from banks interest bearing............. 31 -- 1 32
------------ ------------ ------------ ------------ ------------
Total interest income............................... 20,065 15,487 4,359 39,911
------------ ------------ ------------ ------------ ------------
INTEREST EXPENSE:
Interest on deposits.................................... 7,747 6,110 1,527 15,384
Interest on securities sold under repurchase agreements
and other borrowings.................................. 3,268 2,636 652 6,556
------------ ------------ ------------ ------------ ------------
Total interest expense.............................. 11,015 8,746 2,179 21,940
------------ ------------ ------------ ------------ ------------
Net interest income....................................... 9,050 6,741 2,180 17,971
Provision for loan losses................................. 235 240 330 805
------------ ------------ ------------ ------------ ------------
Net interest income after provision for loan losses....... 8,815 6,501 1,850 17,166
------------ ------------ ------------ ------------ ------------
NON-INTEREST INCOME:
Other income............................................ 1,832 1,826 502 4,160
Securities gains, net................................... 59 -- -- 59
------------ ------------ ------------ ------------ ------------
Total non-interest income........................... 1,891 1,826 502 4,219
NON-INTEREST EXPENSES:
Salaries and benefits................................... 2,765 2,533 504 5,802
Occupancy and equipment................................. 1,032 810 146 1,988
Other................................................... 2,392 1,680 566 4,638
------------ ------------ ------------ ------------ ------------
Total non-interest expense.......................... 6,189 5,023 1,216 12,428
------------ ------------ ------------ ------------ ------------
Income before income tax expense........................ 4,517 3,304 1,136 8,957
Income tax expense...................................... 1,547 1,024 390 2,961
------------ ------------ ------------ ------------ ------------
Net income.............................................. $ 2,970 $ 2,280 $ 746 $ 5,996
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
NET INCOME PER SHARE:*
Primary................................................. $0.50 $0.47 $0.60 $0.48
Fully diluted........................................... 0.50 0.47 0.60 0.48
WEIGHTED AVERAGE SHARES OUTSTANDING:*
Primary................................................. 5,978,640 4,848,870 1,241,938 346,378 12,415,826
Fully diluted........................................... 5,978,640 4,859,648 1,244,517 343,799 12,426,604
</TABLE>
<PAGE>
- ------------------------
* The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on the IFC Exchange Ratio, an average price per share of Pinnacle Common
Stock of $27.375 and a CB Exchange Ratio of 1.2785 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
--------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary................................. $0.50 $0.47 $0.60 $0.49
Fully diluted........................... $0.50 $0.47 $0.60 $0.49
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................. 5,978,640 4,848,870 1,241,938 257,423 12,326,871
Fully diluted........................... 5,978,640 4,859,648 1,244,517 254,844 12,337,649
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
--------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary................................. $0.50 $0.47 $0.60 $0.47
Fully diluted........................... $0.50 $0.47 $0.60 $0.47
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................. 5,978,640 4,848,870 1,241,938 648,510 12,717,958
Fully diluted........................... 5,978,640 4,859,648 1,244,517 645,931 12,728,736
</TABLE>
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.,
INDIANA FEDERAL CORPORATION AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1996
--------------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable............................................... $11,577 $11,631 $3,621 $26,829
Tax-exempt............................................ 44 60 6 110
Interest and dividends on securities:
Taxable............................................... 4,767 1,606 311 6,684
Tax-exempt............................................ 264 22 -- 286
Interest on federal funds sold.......................... 90 16 6 112
Interest on due from banks interest bearing............. 416 22 6 444
------------ ------------ ------------ ------------ ------------
Total interest income............................... 17,158 13,357 3,950 34,465
------------ ------------ ------------ ------------ ------------
INTEREST EXPENSE:
Interest on deposits.................................... 7,399 5,851 1,275 14,525
Interest on securities sold under repurchase agreements
and other borrowings.................................. 1,890 1,460 654 4,004
------------ ------------ ------------ ------------ ------------
Total interest expense.............................. 9,289 7,311 1,929 18,529
------------ ------------ ------------ ------------ ------------
Net interest income....................................... 7,869 6,046 2,021 15,936
Provision for loan losses................................. 80 50 782 912
------------ ------------ ------------ ------------ ------------
Net interest income after provision for loan losses....... 7,789 5,996 1,239 15,024
------------ ------------ ------------ ------------ ------------
NON-INTEREST INCOME:
Other income............................................ 1,350 1,070 340 2,760
Securities gains, net................................... 234 (20) -- 214
------------ ------------ ------------ ------------ ------------
Total non-interest income........................... 1,584 1,050 340 2,974
NON-INTEREST EXPENSES:
Salaries and benefits................................... 2,522 2,208 415 5,145
Occupancy and equipment................................. 902 807 136 1,845
Other................................................... 2,327 1,848 411 4,586
------------ ------------ ------------ ------------ ------------
Total non-interest expense.......................... 5,751 4,863 962 11,576
------------ ------------ ------------ ------------ ------------
Income before income tax expense........................ 3,622 2,183 617 6,422
Income tax expense...................................... 1,178 546 134 1,858
------------ ------------ ------------ ------------ ------------
Net income.............................................. $ 2,444 $ 1,637 $ 483 $ 4,564
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
NET INCOME PER SHARE:*
Primary................................................. $0.42 $0.34 $0.38 $0.37
Fully diluted........................................... 0.42 0.34 0.38 0.37
WEIGHTED AVERAGE SHARES OUTSTANDING:*
Primary................................................. 5,873,358 4,760,129 1,258,867 362,931 12,255,285
Fully diluted........................................... 5,873,358 4,781,514 1,258,187 363,611 12,276,670
</TABLE>
<PAGE>
- ------------------------
* The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on the IFC Exchange Ratio, an average price per share of Pinnacle Common
Stock of $27.375 and a CB Exchange Ratio of 1.2785 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1996
--------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary................................. $0.42 $0.34 $0.38 $0.38
Fully diluted........................... $0.42 $0.34 $0.38 $0.37
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................. 5,873,358 4,760,129 1,258,867 272,102 12,164,456
Fully diluted........................... 5,873,358 4,781,514 1,258,187 272,782 12,185,841
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1996
--------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary................................. $0.42 $0.34 $0.38 $0.36
Fully diluted........................... $0.42 $0.34 $0.38 $0.36
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................. 5,873,358 4,760,129 1,258,867 671,433 12,563,787
Fully diluted........................... 5,873,358 4,781,514 1,258,187 672,113 12,585,172
</TABLE>
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.,
INDIANA FEDERAL CORPORATION AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996*
--------------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable............................................... $49,791 $48,675 $14,695 $113,161
Tax-exempt............................................ 218 238 21 477
Interest and dividends on securities:
Taxable............................................... 21,957 7,720 1,242 30,919
Tax-exempt............................................ 1,064 72 -- 1,136
Interest on federal funds sold.......................... 410 64 24 498
Interest on due from banks interest bearing............. 529 90 10 629
------------ ------------ ------------ ------------ ------------
Total interest income............................... 73,969 56,859 15,992 146,820
------------ ------------ ------------ ------------ ------------
INTEREST EXPENSE:
Interest on deposits.................................... 30,536 24,438 5,429 60,403
Interest on securities sold under repurchase agreements
and other borrowings.................................. 9,157 7,421 2,454 19,032
------------ ------------ ------------ ------------ ------------
Total interest expense.............................. 39,693 31,859 7,883 79,435
------------ ------------ ------------ ------------ ------------
Net interest income....................................... 34,276 25,000 8,109 67,385
Provision for loan losses................................. 375 1,115 1,643 3,133
------------ ------------ ------------ ------------ ------------
Net interest income after provision for loan losses....... 33,901 23,885 6,466 64,252
------------ ------------ ------------ ------------ ------------
NON-INTEREST INCOME:
Other income............................................ 6,655 4,295 1,601 12,551
Securities gains, net................................... 653 55 -- 708
------------ ------------ ------------ ------------ ------------
Total non-interest income........................... 7,308 4,350 1,601 13,259
NON-INTEREST EXPENSES:
Salaries and benefits................................... 10,843 8,824 1,852 21,519
Occupancy and equipment................................. 3,670 3,436 584 7,690
Other................................................... 12,443 10,191 2,656 25,290
------------ ------------ ------------ ------------ ------------
Total non-interest expense.......................... 29,956 22,451 5,092 54,499
------------ ------------ ------------ ------------ ------------
Income before income tax expense........................ 14,253 5,784 2,975 23,012
Income tax expense...................................... 5,101 1,161 926 7,188
------------ ------------ ------------ ------------ ------------
Net income.............................................. $ 9,152 $ 4,623 $ 2,049 $ 15,824
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
NET INCOME PER SHARE:**
Primary................................................. $1.55 $0.96 $1.64 $1.29
Fully diluted........................................... 1.55 0.96 1.64 1.28
WEIGHTED AVERAGE SHARES OUTSTANDING:**
Primary................................................. 5,899,453 4,794,849 1,245,810 358,849(1) 12,298,961
Fully diluted........................................... 5,899,453 4,814,258 1,250,704 353,955(1) 12,318,370
</TABLE>
- ------------------------
* Historical information included above is presented on a calendar year basis
for Pinnacle, IFC and CB. As CB's fiscal year end is March 31, CB
information for each of the years ended December 31, 1996, 1995 and 1994
includes the fourth quarter of the fiscal year preceding each such fiscal
year and the first three quarters of such fiscal year.
<PAGE>
** The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on the IFC Exchange Ratio, an average price per share of Pinnacle Common
Stock of $27.375 and a CB Exchange Ratio of 1.2785 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary................................. $1.55 $0.96 $1.64 $1.30
Fully diluted........................... $1.55 $0.96 $1.64 $1.29
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................. 5,899,453 4,794,849 1,245,810 268,979 12,209,091
Fully diluted........................... 5,899,453 4,814,258 1,250,704 264,085 12,228,500
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary................................. $1.55 $0.96 $1.64 $1.26
Fully diluted........................... $1.55 $0.96 $1.64 $1.25
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................. 5,899,453 4,794,849 1,245,810 664,090 12,604,202
Fully diluted........................... 5,899,453 4,814,258 1,250,704 659,196 12,623,611
</TABLE>
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.,
INDIANA FEDERAL CORPORATION AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995*
-----------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable........................................ $29,542 $46,682 $11,462 $ 87,686
Tax-exempt..................................... 214 213 27 454
Interest and dividends on securities:
Taxable........................................ 6,321 8,100 1,280 15,701
Tax-exempt..................................... 905 68 -- 973
Interest on federal funds sold..................... 257 86 13 356
Interest on due from banks interest bearing........ 256 21 45 322
---------- ---------- ---------- ----------- ----------
Total interest income............................ 37,495 55,170 12,827 105,492
---------- ---------- ---------- ----------- ----------
INTEREST EXPENSE:
Interest on deposits............................... 16,093 22,423 4,784 43,300
Interest on securities sold under repurchase
agreements and other borrowings.................. 2,058 7,432 1,445 10,935
---------- ---------- ---------- ----------- ----------
Total interest expense........................... 18,151 29,855 6,229 54,235
---------- ---------- ---------- ----------- ----------
Net interest income................................ 19,344 25,315 6,598 51,257
Provision for loan losses.......................... 225 177 257 659
---------- ---------- ---------- ----------- ----------
Net interest income after provision for loan
losses........................................... 19,119 25,138 6,341 50,598
---------- ---------- ---------- ----------- ----------
NON-INTEREST INCOME:
Other income....................................... 4,236 4,239 1,142 9,617
Securities gains (losses), net..................... 350 440 (1) 789
---------- ---------- ---------- ----------- ----------
Total non-interest income........................ 4,586 4,679 1,141 10,406
---------- ---------- ---------- ----------- ----------
NON-INTEREST EXPENSES:
Salaries and benefits.............................. 7,100 8,955 1,513 17,568
Occupancy and equipment............................ 2,044 3,450 507 6,001
Other.............................................. 5,492 7,790 1,467 14,749
---------- ---------- ---------- ----------- ----------
Total non-interest expense....................... 14,636 20,195 3,487 38,318
---------- ---------- ---------- ----------- ----------
Income before income tax expense................... 9,069 9,622 3,995 22,686
Income tax expense................................. 2,610 2,318 1,540 6,468
---------- ---------- ---------- ----------- ----------
Net income......................................... $ 6,459 $ 7,304 $ 2,455 $ 16,218
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
NET INCOME PER SHARE:**
Primary.......................................... $1.62 $1.51 $1.94 $1.56
Fully diluted.................................... 1.62 1.52 1.93 1.55
WEIGHTED AVERAGE SHARES OUTSTANDING:**
Primary.......................................... 3,996,137 4,776,999 1,265,353 375,114(1) 10,413,603
Fully diluted.................................... 3,996,137 4,808,147 1,273,276 367,191(1) 10,444,751
</TABLE>
- ------------------------------
* Historical information included above is presented on a calendar year basis
for Pinnacle, IFC and CB. As CB's fiscal year end is March 31, CB
information for each of the years ended December 31, 1996, 1995 and 1994
includes the fourth quarter of the fiscal year preceding each such fiscal
year and the first three quarters of such fiscal year.
** The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on the IFC Exchange Ratio, an average price per share of Pinnacle Common
Stock of $27.375 and a CB Exchange Ratio of 1.2785 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.,
INDIANA FEDERAL CORPORATION AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and fully
diluted) of an average price per share of Pinnacle Common Stock of $29.00 or
higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common Stock for
each share of CB Common Stock and each CB stock option converted in the CB
Merger.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary...................................... $ 1.62 $ 1.53 $ 1.94 $ 1.57
Fully diluted................................ $ 1.62 $ 1.52 $ 1.93 $ 1.57
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary...................................... 3,996,137 4,776,999 1,265,353 283,239 10,321,728
Fully diluted................................ 3,996,137 4,808,147 1,273,276 275,316 10,352,876
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and fully
diluted) of an average price per share of Pinnacle Common Stock of $23.00 or
lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common Stock for each
share of CB Common Stock and each CB stock option converted in the CB Merger.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary...................................... $ 1.62 $ 1.53 $ 1.94 $ 1.51
Fully diluted................................ $ 1.62 $ 1.52 $ 1.93 $ 1.51
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary...................................... 3,996,137 4,776,999 1,265,353 687,167 10,725,656
Fully diluted................................ 3,996,137 4,808,147 1,273,276 679,244 10,756,804
</TABLE>
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.,
INDIANA FEDERAL CORPORATION AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994*
--------------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable............................................... $22,949 $35,093 $7,773 $65,815
Tax-exempt............................................ 209 205 33 447
Interest and dividends on securities:
Taxable............................................... 4,626 7,983 1,128 13,737
Tax-exempt............................................ 998 95 -- 1,093
Interest on federal funds sold.......................... 110 157 180 447
Interest on due from banks.............................. 76 40 20 136
------------ ------------ ------------ ------------ ------------
Total interest income............................... 28,968 43,573 9,134 81,675
INTEREST EXPENSE:
Interest on deposits.................................... 11,316 16,479 3,927 31,722
Interest on securities sold under repurchase agreements
and other borrowings.................................. 546 5,886 184 6,616
------------ ------------ ------------ ------------ ------------
Total interest expense.............................. 11,862 22,365 4,111 38,338
------------ ------------ ------------ ------------ ------------
Net interest income....................................... 17,106 21,208 5,023 43,337
Provision for loan losses................................. 125 179 78 382
------------ ------------ ------------ ------------ ------------
Net interest income after provision for loan losses....... 16,981 21,029 4,945 42,955
------------ ------------ ------------ ------------ ------------
NON-INTEREST INCOME:
Other income............................................ 3,692 4,401 938 9,031
Securities gains (losses), net.......................... 64 70 3 137
------------ ------------ ------------ ------------ ------------
Total non-interest income........................... 3,756 4,471 941 9,168
NON-INTEREST EXPENSES:
Salaries and benefits................................... 6,073 7,407 1,500 14,980
Occupancy and equipment................................. 1,918 2,505 511 4,934
Other non-interest expense.............................. 5,123 5,260 1,329 11,712
------------ ------------ ------------ ------------ ------------
Total non-interest expense.......................... 13,114 15,172 3,340 31,626
------------ ------------ ------------ ------------ ------------
Income before income tax
expense............................................... 7,623 10,328 2,546 20,497
Income tax expense...................................... 2,333 3,066 921 6,320
------------ ------------ ------------ ------------ ------------
Net income.............................................. $ 5,290 $ 7,262 $1,625 $14,177
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
NET INCOME PER SHARE:**
Primary................................................. $1.38 $1.50 $1.26 $1.37
Fully diluted........................................... 1.38 1.50 1.26 1.37
WEIGHTED AVERAGE SHARES OUTSTANDING:**
Primary................................................. 3,821,904 4,844,599 1,292,293 384,038 (1) 10,342,834
Fully diluted........................................... 3,821,904 4,848,486 1,289,970 386,361 (1) 10,346,721
</TABLE>
- ------------------------------
* Historical information included above is presented on a calendar year basis
for Pinnacle, IFC and CB. As CB's fiscal year end is March 31, CB
information for each of the years ended December 31, 1996, 1995 and 1994
includes the fourth quarter of the fiscal year preceding each such fiscal
year and the first three quarters of such fiscal year.
** The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on the IFC Exchange Ratio, an average price per share of Pinnacle Common
Stock of $27.375 and a CB Exchange Ratio of 1.2785 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<PAGE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994
--------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary................................. $1.38 $1.50 $1.26 $1.38
Fully diluted........................... $1.38 $1.50 $1.26 $1.38
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary................................. 3,821,904 4,844,599 1,292,293 290,155 10,248,951
Fully diluted........................... 3,821,904 4,848,486 1,289,970 292,478 10,252,838
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994
--------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary................................. $1.38 $1.50 $1.26 $1.33
Fully diluted........................... $1.38 $1.50 $1.26 $1.33
WEIGHTED AVERAGES SHARES OUTSTANDING:
Primary................................. 3,821,904 4,844,599 1,292,293 702,914 10,661,710
Fully diluted........................... 3,821,904 4,848,486 1,289,970 705,237 10,665,597
</TABLE>
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.,
INDIANA FEDERAL CORPORATION AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Pinnacle Financial Services, Inc., Indiana Federal Corporation
and CB Bancorp, Inc. Unaudited Pro Forma Combined Balance Sheet combines the
historical Consolidated Balance Sheets of Pinnacle, IFC and CB giving effect to
each of the Mergers, which will be accounted for as "pooling-of-interests," as
if each of the Mergers had been effective on March 31, 1997. For a description
of "pooling-of-interests" accounting with respect to the Mergers, see "THE
MERGERS--Anticipated Accounting Treatment." This information should be read in
conjunction with the historical consolidated financial statements of Pinnacle,
including the notes thereto, which are incorporated by reference in this Joint
Proxy Statement/Prospectus, the historical consolidated financial statements of
IFC, including the notes thereto, which are incorporated by reference in this
Joint Proxy Statement/Prospectus, the historical consolidated financial
statements of CB, including the notes thereto, which are incorporated by
reference in this Joint Proxy Statement/Prospectus, and the condensed
consolidated historical financial data for Pinnacle, IFC and CB and the other
pro forma financial information, including the notes thereto, which appear
elsewhere in this Joint Proxy Statement/Prospectus. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE." The effect of the expected one-time merger and
restructuring charges of approximately $5.5 million (after-tax) have been
reflected in the unaudited pro forma combined balance sheet; however, since the
expected merger and restructuring charges are nonrecurring they have not been
reflected in the unaudited pro forma combined statements of income. (See
"--Notes to Pinnacle Financial Services, Inc., Indiana Federal Corporation and
CB Bancorp, Inc. Unaudited Pro Forma Combined Financial Statements" for details
of the expected one-time merger and restructuring charges.) The pro forma
financial data do not give effect to any anticipated cost savings in connection
with the Mergers and are not necessarily indicative of either the results that
actually would have occurred had the Mergers been consummated on March 31, 1997
or the results that may be obtained in the future.
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.,
INDIANA FEDERAL CORPORATION AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT MARCH 31, 1997
--------------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash due from banks.................... $25,904 $21,673 $4,847 $(6,296) $46,128
Federal funds sold..................... -- -- -- --
Due from banks-interest bearing........ 2,016 85 9,882 11,983
Investment securities.................. 412,925 126,172 17,723 556,820
Loans.................................. 615,024 620,966 186,505 1,422,495
Allowance for loan losses.............. (5,651) (6,908) (1,808) (14,367)
Other assets........................... 47,573 56,936 9,986 (1,049) 113,446
------------ ------------ ------------ ----------- -------------
Total assets......................... $1,097,791 $818,924 $227,135 $(7,345) $2,136,505
------------ ------------ ------------ ----------- -------------
------------ ------------ ------------ ----------- -------------
LIABILITIES:
Deposits:
Non-interest-bearing demand deposits... $62,080 $28,972 $10,003 $101,055
Interest-bearing demand deposits....... 76,250 49,171 13,697 139,118
Savings deposits....................... 272,663 139,936 36,739 449,338
Time deposits.......................... 346,929 332,310 89,370 768,609
------------ ------------ ------------ ----------- -------------
Total deposits....................... 757,922 550,389 149,809 -- 1,458,120
Securities sold under agreements to
repurchase and other borrowings........ 259,274 191,298 53,284 503,856
Other liabilities...................... 5,305 5,317 3,199 (1,784) 12,037
------------ ------------ ------------ ----------- -------------
Total liabilities.................... 1,022,501 747,004 206,292 (1,784) 1,974,013
Stockholders' Equity:
Common stock........................... 19,110 59 13 (72) 19,110
Additional paid-in-capital............. 44,574 27,932 5,866 (10,392) 67,980
Retained earnings...................... 16,354 53,595 16,453 (5,561) 80,604
(237 (3)
Net unrealized gain (loss) on
securities-for-sale.................. (4,748) (709) 61 (5,396)
Less: Treasury stock & ESOP obli-
gation................................. -- 8,957 1,550 (10,701) (194)
------------ ------------ ------------ ----------- -------------
Total stockholders' equity............. 75,290 71,920 20,843 (5,561) 162,492
------------ ------------ ------------ ----------- -------------
Total liabilities and stockholders'
equity................................. $1,097,791 $818,924 $227,135 $(7,345) $2,136,505
------------ ------------ ------------ ----------- -------------
------------ ------------ ------------ ----------- -------------
PER SHARE DATA:*
Shares outstanding..................... 5,980,320 4,785,237 1,161,997 426,202 12,353,756
Book value per share................... $12.59 $15.03 $17.94 $13.15
</TABLE>
- ------------------------
* The shares outstanding and the book value per share shown above are based on
the IFC Exchange Ratio, an average price per share of Pinnacle Common Stock
of $27.375 and a CB Exchange Ratio of
<PAGE>
1.2785 shares of Pinnacle Common Stock for each share of CB Common Stock and
each CB stock option converted in the CB Merger.
The following table illustrates the effect on shares outstanding and book
value per share of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Shares outstanding........................ 5,980,320 4,785,237 1,161,997 337,254 12,264,808
Book value per share...................... $ 12.59 $ 15.03 $ 17.94 $ 13.25
</TABLE>
The following table illustrates the effect on shares outstanding and book
value per share of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Shares outstanding........................ 5,980,320 4,785,237 1,161,997 728,313 12,655,867
Book value per share...................... $ 12.59 $ 15.03 $ 17.94 $ 12.84
</TABLE>
<PAGE>
NOTES TO PINNACLE FINANCIAL SERVICES, INC.,
INDIANA FEDERAL CORPORATION AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) Reflects additional shares issued assuming a CB Exchange Ratio of 1.2785
shares of Pinnacle Common Stock for each share of CB Common Stock and each
CB stock option converted in the CB Merger. The assumed CB Exchange Ratio
was calculated assuming an average price for Pinnacle Common Stock of
$27.375.
(2) Reflects expected one-time merger and restructuring charges of approximately
$7.345 million (pre-tax) and a tax credit of $1.784 million to be incurred
in 1997. In addition management believes there will be annualized pre-tax
cost savings of approximately $4.4 million following the Mergers. (While
there can be no assurances that such cost savings will be realized, they are
expected to be realized primarily through reductions in staff, consolidation
of certain branches, consolidation of the parties' banking and thrift
businesses, the consolidation of certain offices, data processing and other
redundant back-office operations and staff functions.) This is expected to
result in a tax credit of $1.784 million from the one-time charges and a
$5.561 million after-tax charge to retained earnings in the pro forma
condensed combined balance sheet.
The pro forma entries are displayed below:
<TABLE>
<S> <C> <C>
Debt--Retained earnings.......................................... $5,561,000
Debt--Other liabilities--taxes payable........................... 1,784,000
Credit--Cash................................................... $6,296,000
Credit--Other assets--prepaid acquisition charges.............. 1,049,000
</TABLE>
The following provides detail of the estimated pre-tax charges:
<TABLE>
<S> <C> <C>
Personnel........................................................ $1,400,000
Benefit plans.................................................... 1,960,000
Facilities and data processing................................... 1,000,000
Other Merger expenses............................................ 2,985,000
---------
Total charges.................................................. $7,345,000
---------
---------
</TABLE>
(3) Reflects accounting of the IFC Merger as a "pooling-of-interests," through
the exchange of 4,785,237 shares of Pinnacle Common Stock for an equivalent
number of shares of IFC Common Stock and the elimination of treasury stock.
Reflects accounting of the CB Merger as a "pooling-of-interest," through the
exchange of 1,588,199 shares of Pinnacle Common Stock for 1,161,997 shares
of CB Common Stock and outstanding CB stock options.
