<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended March 31, 1996
Commission file number 0-20742
CB BANCORP, INC.
(Name of small business issuer in its charter)
Delaware 35-1866127
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
126 E. Fourth Street, Michigan City, Indiana 46360
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 873-2800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to item
405 of Regulation S-B contained herein, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. X
---
The issuer's revenues for its most recent fiscal year were $15,530,000.
The aggregate market value of the voting stock held by non-affiliates of
the registrant, i.e., persons other than directors and executive officers of the
registrant is 18,623,655 and is based upon the last sales price as quoted on the
NASDAQ Small-Capital Market for June 20, 1996.
The number of shares of the Common Stock of the registrant outstanding as
of March 31, 1996 was 1,188,226.
The Annual Report to Stockholders for the year ended March 31, 1996 is
incorporated by reference into Part II of this Form 10-KSB.
The Proxy Statement for the 1996 Annual Meeting of Stockholders is
incorporated by reference into Part III of this Form 10-KSB.
<PAGE> 2
INDEX
PART I
Item 1. Business............................................... 1
Item 2. Properties............................................. 27
Item 3. Legal Proceedings...................................... 27
Item 4. Submission of Matters to a Vote of Security
Holders................................................ 27
PART II
Item 5. Market for Registrant's Common Equity
Related Stockholder Matters............................ 28
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................. 28
Item 7. Financial Statements................................... 28
Item 8. Change in and Disagreements with
Accountants on Accounting and Financial
Disclosure............................................. 28
PART III
Item 9. Directors and Executive Officers of the
Registrant............................................. 28
Item 10. Executive Compensation................................. 28
Item 11. Security Ownership of Certain Beneficial
Owners and Management.................................. 29
Item 12. Certain Relationships and Related
Transactions........................................... 29
PART IV
Item 13. Exhibits and Reports on Form 8 K....................... 29
SIGNATURES........................................................ 31
<PAGE> 3
PART I
ITEM 1. BUSINESS
- -----------------
GENERAL
CB Bancorp, Inc. (the "Company" or "CB Bancorp") is a Delaware corporation which
was organized in 1992 by Community Bank, A Federal Savings Bank (the "Bank") for
the purpose of becoming a savings and loan holding company. The Company owns all
of the outstanding stock of the Bank issued on December 23, 1992, in connection
with the completion of its conversion from the mutual to the stock form of
organization (the "Conversion"). The Company issued 642,119 shares of Common
Stock at a price of $10.00 per share in the Conversion. All references to the
Company at or before December 23, 1992 refer to the Bank. Currently, the Company
does not transact any material business other than through its sole subsidiary,
the Bank. The Company retained approximately 50% of the net conversion proceeds
amounting to approximately $2.5 million which is invested in short-term
investment grade securities and, from time to time, purchased mortgage loans.
The Bank was organized in 1926 as an Indiana state chartered building and loan
association and later converted to a federal charter. More recently, in May,
1991, the Bank converted to a federal mutual savings bank and changed its name
to Community Bank, A Federal Savings Bank. Pursuant to the conversion, the Bank
became a federally chartered capital stock savings bank on December 23, 1992.
The Bank is a member of the Federal Home Loan Bank ("FHLB") System, and its
deposit accounts are insured to the maximum allowable amount by the Federal
Deposit Insurance Corporation ("FDIC"). The Bank is chartered and regulated by
the Office of Thrift Supervision ("OTS"), and the OTS is the Bank's primary
federal supervisory agency. As a non-diversified savings and loan holding
company, the Company has registered with the OTS and is subject to OTS
regulations, supervision and reporting requirements. At March 31, 1996, the
Company had assets of $205.4 million, deposits of $137.0 million, and
shareholders' equity of $18.8 million or 9.17% of total assets.
The Bank is a community-oriented financial institution offering a variety of
financial services to meet the needs of the local community. Its principal
business has been and continues to be attracting retail deposits from the
general public and investing those deposits, together with funds generated from
operations and borrowings, primarily in one- to four-family residential mortgage
loans and, to a lesser extent, in commercial real estate and consumer loans,
mortgage-backed securities, U.S. Government and federal agency securities and
other marketable securities. At March 31, 1996 one- to four-family residential
mortgage loans held for investment totaled $73.4 million or 78.9% of total loans
held for investment. In addition, at March 31, 1996 the Company held
approximately $80.0 million in one- to four-family residential mortgage loans
purchased under agreements to resell under its Mortgage Loan Reverse Repurchase
Program.
The Company operates out of the Bank's main office located at 126 E. Fourth
Street, Michigan City, Indiana. The Bank also conducts business out of its two
full service branch offices located at 3710 S. Franklin Street in Michigan City
and 801 Monroe Street, LaPorte, Indiana. The Company also established a loan
production/mortgage banking office in Merrillville, Indiana located at 701 E.
83rd Avenue, Merrillville, Indiana. The Bank's deposit-gathering base is
concentrated in the communities surrounding its offices while its lending base
extends throughout LaPorte and contiguous counties.
LENDING ACTIVITIES
Loan and Mortgage-Backed Securities Portfolio Compositions. The Company's loan
portfolio composition consists primarily of conventional fixed-rate and
adjustable-rate first mortgage loans secured by one- to four-family residences.
At March 31, 1996, the Company's gross mortgage loans outstanding were $85.4
million, of which $73.4 million were one- to four-family residential mortgage
loans. Of the one-to four-family residential mortgage loans outstanding at that
date,
1
<PAGE> 4
40.2% were variable-rate loans and 59.8% were fixed-rate loans. At that same
date, commercial real estate and multi-family mortgage loans totaled $8.2
million and $3.2 million, respectively. The remainder of the Company's mortgage
loans, which totaled $0.6 million or .63% of total loans outstanding at March
31, 1996, consisted of construction loans. The Company's construction loans
automatically convert to permanent loans upon completion of construction. Other
loans held by the Company, which primarily consist of consumer and commercial
loans, totaled $7.7 million or 8.2% of total gross loans at March 31, 1996.
At March 31, 1996, mortgage loans purchased under agreements to resell totaled
$80.0 million or 39% of the Company's total assets. The mortgage loans were
purchased pursuant to the Mortgage Loan Reverse Repurchase Program (the
"Program") and consisted entirely of one- to four-family residential loans.
These loans are primarily fixed-rate mortgage loans with terms of 30 years. The
loans are repurchased by the participants in the Program (for transfer to end
investors), usually within 30 days of origination. The Program is designed to
provide financing for the mortgage banking activities of the participants and to
provide the Company with a relatively high yield short-term investment vehicle
that allows the Company to better manage its interest rate risk. There currently
are seventy five active participants in the Program located throughout the
United States. The participants sell to the Company loans originated in their
home states as well as in other states in the Continental United States. The
Program is carried out pursuant to agreements with each participant, which
provide that the Company, at its option, will purchase whole mortgage loans,
which are then resold to the participant (for transfer to an end investor)
within 90 days. The Company also purchases interim construction loans under this
program with subsequent repurchase often extending beyond 90 days due to the
length of the construction period, typically six months or longer. At March 31,
1996, construction loan balances accounted for 36.8% of the Company's total
outstanding investment in the program. It is the Company's policy to purchase
loans only upon receipt of all specified documents evidencing that each loan
meets secondary market underwriting standards. In addition, the Company will
purchase only those loans for which a commitment has been received by an end
investor to purchase the loan upon the Company's resale of the loan to the
participant or when the Company has been provided with evidence that the
participant has a commitment from a recognized secondary market end investor to
purchase the loans that the participant sells to the Company.
The Company also invests in mortgage-backed securities. At March 31, 1996, net
mortgage-backed securities aggregated $10.2 million or 5.0% of total assets, of
which 42.9% were collateralized by ARMs and 57.1% were collateralized by
fixed-rate mortgage loans. At March 31, 1996, all of the mortgage-backed
securities in the Company's portfolio were insured or guaranteed by either the
Government National Mortgage Association ("GNMA") or the Federal Home Loan
Mortgage Corporation ("FHLMC") or the Federal National Mortgage Association's
("FNMA") or consisted of collateralized mortgage obligations ("CMOs")
collateralized by GNMA or FHLMC insured or guaranteed mortgage-backed
securities. Mortgage Backed Securities and collateralized mortgage obligations
are subject to prepayment and extension risk depending on the speed at which the
underlying collateral prepays. Under a range of prepayment scenarios, management
is of the opinion that the Company's portfolio of mortgage related securities
will provide reasonable returns without subjecting the Company to excessive
prepayment or extension risk.
SOURCE OF FUNDS
General. The Company's primary sources of funds are deposits, repayments on
loans and securities, and, to a lesser extent, FHLB-Indianapolis advances and
federal funds.
Deposits. The Company offers a variety of deposit accounts having a range of
interest rates and terms. Deposit products principally consist of passbook, NOW,
demand, money market and certificate accounts, Keogh accounts, and individual
retirement accounts ("IRA's"). The flow of deposits is influenced significantly
by general economic conditions, the restructuring of the thrift industry,
changes in prevailing interest rates and competition. The Company's deposits are
primarily obtained from LaPorte County, Indiana. The Company relies primarily on
customer service and long-standing relationships with customers to attract and
retain these deposits.
2
<PAGE> 5
The Company seeks to maintain a high level of stable core deposits by providing
extended hours of service -- both early and late -- through its branch offices
and drive-up facilities. When pricing deposits, consideration is given to local
competition, Treasury offerings and the need for funds. Management's strategy is
to price deposit rates moderately, offering neither the highest nor the lowest
rates, and to stratify the pricing system to manage the Company's interest rate
risk.
SUBSIDIARY
Community Financial Services, Incorporated ("Community Financial") is a
wholly-owned subsidiary of the Bank, incorporated in November 1986. Community
Financial originally engaged solely in the sale of tax deferred annuities. In
May, 1991,Community Financial expanded its activities to include the preparation
of federal and state income tax returns for individuals and small businesses and
the sale of credit life, disability and other insurance products. In May, 1994,
Community Financial directed the start-up of a securities broker-dealer. From
this, Community Brokerage Services, Incorporated was formed as a subsidiary
under the Community Financial corporate umbrella. Full broker-dealer securities
services were successfully introduced to the Company's customers as well as the
general public in November, 1994. 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. Terms of the partnership agreement allocate 99% of the
eligible tax credits and operating losses to the limited partner. At March 31,
1996, the Bank' s net investment in Community Financial totaled $598,000. For
the year ended March 31, 1996, Community Financial had net income of $8,400.
COMPETITION
The LaPorte County, Indiana area has a high density of financial institutions,
many of which are significantly larger and have greater financial resources than
the Company, and all of which are competitors of the Company to varying degrees.
The Company's competition for loans comes principally from commercial banks,
credit unions, savings and loan associations, savings banks, mortgage banking
companies and insurance companies. Its most direct competition has historically
come from savings and loan associations, savings banks, commercial banks, and
credit unions. The Company faces additional competition for deposits from
short-term money market funds and other corporate and government securities
funds. The Company also faces increased competition from other financial
institutions such as brokerage firms and insurance companies for deposits.
Competition has and may continue to increase as a result of the lifting of
restrictions on the interstate operations of financial institutions.
The Company is a community-oriented financial institution serving its market
area with a wide selection of residential loans and retail financial services.
Management considers the Company's reputation for financial strength and
customer service as its major competitive advantage in attracting and retaining
customers in its market area. Management also believes it benefits from its
community orientation.
PERSONNEL
As of March 31, 1996, the Company had 52 full-time employees and 13 part-time
employees. The employees are not represented by a collective bargaining unit,
and the Company considers its relationship with its employees to be good.
STATISTICAL DISCLOSURE
The following tables set forth selected financial information regarding the
business of the Company for the periods shown.
3
<PAGE> 6
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
A. The following tables set forth, at March 31, for the years ended as
indicated, the condensed average balance of interest-earning assets and
interest-bearing liabilities, the interest earned or accrued on such
amounts, and the average interest rates earned or paid thereon.
<TABLE>
<CAPTION>
1996 1995 1994
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
-------------------------------------------------------------------------------------------------
(Dollars In Thousands) (Dollars In Thousands) (Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net $ 148,078 $ 13,030 8.80 % $ 96,785 $ 7,801 8.06 % $ 129,788 $ 9,973 7.68 %
Mortgage-backed securities 10,356 689 6.65 10,833 653 6.03 10,515 624 5.93
Interest-earning deposits and
federal funds sold 1,025 67 6.54 3,995 177 4.43 2,694 88 3.27
Securities 9,036 566 6.26 10,966 568 5.18 6,189 331 5.35
------------------- ------------------ -------------------
Total interest-earning assets 168,495 14,352 8.52 122,579 9,199 7.50 149,186 11,016 7.38
Noninterest-earning assets 10,650 9,702 8,098
------------------------------------------------------------------------------------------------
Total assets $ 179,145 $ 132,281 $ 157,284
================================================================================================
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts $ 13,519 $ 301 2.23 % $ 11,556 $ 283 2.45 % $ 13,744 $ 301 2.19 %
Money market accounts 8,819 303 3.44 9,325 285 3.06 8,700 285 3.28
Passbook accounts 27,633 836 3.03 31,202 944 3.03 31,821 1,004 3.16
Certificate accounts 64,885 3,601 5.55 52,967 2,450 4.63 62,894 2,873 4.57
Borrowed funds 34,414 2,022 5.88 3,251 182 5.60 17,976 643 3.57
------------------- ------------------- -------------------
Total interest-bearing liabilities 149,270 7,063 4.73 108,301 4,144 3.83 135,135 5,106 3.78
Other liabilities (1) 12,297 7,952 7,941
------------------------------------------------------------------------------------------------
Total liabilities 161,567 116,253 143,076
Shareholders' equity 17,578 16,028 14,208
------------------------------------------------------------------------------------------------
Total liabilities &
shareholders' equity $ 179,145 $ 132,281 $ 157,284
================================================================================================
Net interest income/
interest rate spread (2) $ 7,289 3.79 % $ 5,055 3.67 % $ 5,910 3.60 %
================================================================================================
Net interest-earning assets/
net interest margin (3) $ 19,225 4.33 % $ 14,278 4.12 % $ 14,051 3.96 %
================================================================================================
Ratio of interest earning assets to
interest-bearing liabilities 112.88 % 113.18 % 110.40 %
================================================================================================
(1) Includes noninterest-bearing demand deposit accounts.
(2) Interest rate spread represents the difference between the average rate on interest-earning assets and the average cost of
interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average interest-earning assets.
</TABLE>
4
<PAGE> 7
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (continued)
B. The following table presents the extent to which changes in interest
rates and changes in the volume of interest- earning assets and
interest-bearing liabilities have affected the Company's interest income
and interest expense during the periods indicated. Information is provided
in each category with respect to (i) changes attributable to changes in
volume (changes in volume multiplied by prior rate), (ii) changes
attributable to changes in rate (changes in rate multiplied by prior
volume), and (iii) the net change. The changes attributable to the combined
impact of volume and rate have been allocated proportionately to the
changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
YEAR ENDED MARCH 31, YEAR ENDED MARCH 31,
1996 COMPARED TO YEAR 1995 COMPARED TO YEAR
ENDED MARCH 31, 1995 ENDED MARCH 31, 1994
INCREASE (DECREASE) INCREASE (DECREASE)
VOLUME RATE NET VOLUME RATE NET
--------- ------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans, net $ 4,458 771 5,229 $ (2,640) $ 468 $ (2,172)
Mortgage-backed securities (30) 66 36 19 10 29
Interest-earning deposits and
federal funds sold (170) 60 (110) 51 38 89
Securities (110) 108 (2) 248 (11) 237
-----------------------------------------------------------------------------------------
4,148 1,005 5,153 (2,322) 505 (1,817)
INTEREST-BEARING LIABILITIES
-----------------------------------------------------------------------------------------
NOW accounts 45 (27) 18 (51) 33 (18)
Money market accounts (16) 34 18 20 (20) 0
Passbook accounts (108) --- (108) (19) (41) (60)
Certificate accounts 610 541 1,151 (459) 36 (423)
Borrowed funds 1,831 9 1,840 (703) 242 (461)
-----------------------------------------------------------------------------------------
Total 2,362 557 2,919 (1,212) 250 (962)
-----------------------------------------------------------------------------------------
Change in net
interest income $ 1,786 448 2,234 $ (1,110) $ 255 $ (855)
=========================================================================================
</TABLE>
5
<PAGE> 8
II. INVESTMENT PORTFOLIO
SECURITIES
A. The amortized cost and fair market value of securities as of March 31
are set forth in the table below.
<TABLE>
<CAPTION>
1996 1995 1994
-------------------- -------------------- ----------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning deposits in
other financial institutions $1,308 $1,308 $983 $983 $1,044 $1,044
====================================================================
Securities Held-To-Maturity:
U.S. Government
agency securities $3,000 $2,970 $2,680 $2,612 $0 $0
U.S. Treasury
obligations 1,076 1,071 0 0
Corporate notes 2,675 2,674 2,733 2,735 0 0
--------------------------------------------------------------------
Total Securities Held-to-
Maturity $5,675 $5,644 $6,489 $6,418 $0 $0
--------------------------------------------------------------------
Investment Securities:
U.S. Government
agency securities $0 $0 $0 $0 $2,274 $2,249
U.S. Treasury
obligations 0 0 0 0 1,513 1,513
Corporate notes 0 0 0 0 3,383 3,361
--------------------------------------------------------------------
Total Investment Securities $0 $0 $0 $0 $7,170 $7,123
--------------------------------------------------------------------
Other Securities:
Federal Home Loan Bank
Stock, net 2,702 2,702 2,702 2,350 2,350 2,350
--------------------------------------------------------------------
Total $8,377 $8,346 $9,191 $8,768 $9,520 $9,473
====================================================================
</TABLE>
6
<PAGE> 9
II. INVESTMENT PORTFOLIO (continued)
B. The maturity distribution and weighted average interest rates of
securities held to maturity at March 31, 1996 are set forth in the
table below.
<TABLE>
<CAPTION>
After One Year
Within But Within
One Year Five Years
Amount Rate Amount Rate
------ ---- ------ ----
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury &
U.S. Governement $ 750 5.18% 2,250 5.93%
agency securities
Other Investments 1,267 6.68% 1,408 5.85%
----------------------------------------------------------------------
Total $ 2,017 6.12% 3,658 5.90%
======================================================================
</TABLE>
C. Excluding those holdings of the securities portfolio in U.S.
Treasury securities and U.S. Government agency securities and
Federal Home Loan Bank Stock, there were no investments in
securities of any one issuer which exceeded 10% of the
shareholders' equity of the Company at March 31, 1996.
SECURITIES AVAILABLE-FOR-SALE AND HELD FOR SALE
A. The amortized cost and fair value of securities as of March 31 are
summarized as follows:
<TABLE>
<CAPTION>
SECURITIES SECURITIES
AVAILABLE-FOR-SALE HELD FOR SALE
------------------ -------------
1996 1995 1994
-----------------------------------------------------------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
(In Thousands) (In Thousands) (In Thousands)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Marketable equity securities $578 $620 $579 $581 $575 $575
=======================================================================
</TABLE>
B. The maturity distribution and weighted average interest rates of
securities available for sale at March 31, 1996 are as follows:
All securities available-for-sale are equity securities.
C. There were no securities available-for-sale of any one issuer which
exceeded 10% of the shareholders' equity of the Company at March 31,
1996.
7
<PAGE> 10
III. LOAN PORTFOLIO
A. The following table sets forth the composition of the Company's mortgage and
other loan portfolios and mortgage-backed securities portfolios in dollar
amounts and in percentages at March 31. All dollars are in thousands.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
% of % of % of % of % of
----------------------------------------------------------------------------------------------------
Amount Total Amount Total Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ ------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans Receivable:
Mortgage loans:
One-to-four family $73,413 78.87% $74,385 83.90% $73,354 92.08% $75,515 92.86% $78,773 91.02%
Other mortgage loans
Commercial real estate 8,171 8.78% 6,160 6.95% 3,457 4.34% 3,513 4.32% 3,793 4.38%
Multi-family 3,242 3.48% 1,595 1.80% 623 0.78% 692 0.85% 2,019 2.33%
Land 0 0.00% 0 0.00% 10 0.01% 12 0.02% 3 0.00%
Construction 591 0.63% 2,428 2.74% 748 0.94% 40 0.05% 68 0.08%
----------------------------------------------------------------------------------------------------
Total mortgage loans $85,417 91.76% $84,568 95.39% $78,192 98.15% $79,772 98.10% $84,656 97.81%
----------------------------------------------------------------------------------------------------
Consumer & other loans:
Visa/Mastercard 389 0.42% 37 0.04%
Automobile 400 0.43% 362 0.41% 224 0.28% 373 0.46% 1,044 1.21%
Share 242 0.26% 233 0.26% 213 0.27% 303 0.37% 328 0.38%
Home Equity and Second Mtg 1,789 1.92% 1,273 1.44% 784 0.98% 703 0.86% 380 0.44%
Commercial and other 4,846 5.21% 2,182 2.46% 253 0.32% 169 0.21% 140 0.16%
----------------------------------------------------------------------------------------------------
Total Consumer & other Loans 7,666 8.24% 4,087 4.61% 1,474 1.85% 1,548 1.90% 1,892 2.19%
----------------------------------------------------------------------------------------------------
Gross loans receivable $93,083 100.00% $88,655 100.00% $79,666 100.00% $81,320 100.00% $86,548 100.00%
----------------------------------------------------------------------------------------------------
Less:
Loans in process 48 1,422 735 7 --
Unearned discounts, premiums
& deferred loan fees, net 419 443 433 377 351
----------------------------------------------------------------------------------------------------
Loans receivable $92,616 $86,790 $78,498 $80,936 $86,197
====================================================================================================
Mortgage loans purchased
under agreements to resell
One- to four-family $80,031 $25,179 $34,193 $29,240 $28,437
====================================================================================================
Mortgage Loans
held for sale $513
====================================================================================================
Mortgage-backed securities:
FHLMC certficates $4,892 $5,956 $4,969 $5,174 $4,506
GNMA certificates 3,600 2,924 3,249 3,297 3,299
FNMA certificates 880 970 -- -- --
CMOs 834 904 2,041 1,514 618
----------------------------------------------------------------------------------------------------
Total mtg-backed securities 10,206 10,754 10,259 9,985 8,423
----------------------------------------------------------------------------------------------------
Net premiums and discounts (14) (14) 16 23 24
----------------------------------------------------------------------------------------------------
Net mtg-backed securities $10,192 $10,740 $10,275 $10,008 $8,447
====================================================================================================
Mortgage loans:
Adjustable rate $34,362 40.23% $35,394 41.85% $27,762 35.50% $33,505 42.00% $44,978 53.13%
Fixed rate 51,055 59.77% 49,174 58.15% 50,430 64.50% 46,267 58.00% 39,678 46.87%
----------------------------------------------------------------------------------------------------
Total mortgage loans $85,417 100.00% $84,568 100.00% $78,192 100.00% $79,772 100.00% $84,656 100.00%
====================================================================================================
</TABLE>
8
<PAGE> 11
III. LOAN PORTFOLIO (CONTINUED)
B. LOAN MATURITY
The following table shows the maturity of the Company's loan and
mortgage-backed portfolio at March 31, 1996 Except for mortgage loans
purchased under agreements to resell and mortgage-backed securities,
loans are shown as being due in accordance with the contractual scheduled
principal repayments. Mortgage loans purchased under agreements to resell
are shown based upon contractual resale terms. Mortgage-backed securities
are shown as being due in accordance with contractual term to maturity
and do not include scheduled principal amortization.
<TABLE>
<CAPTION>
AT MARCH 31, 1996
-------------------------------------------------------------------------------------------
Mortgage
Loans Mortgage
Consumer Total Purchased Loans
and Loans Under Held Mortgage-
Mortgage Other Receivable Agreements For Backed
Loans Loans Gross To Resell Sale Securities Total
-------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Amounts due
Within 1 year $ 3,463 $ 5,039 $ 8,502 $ 80,031 $ 513 $ 637 $ 89,683
-------------------------------------------------------------------------------------------
After 1 year
1-3 years 7,828 1,588 9,416 -- 3,167 12,583
3-5 years 10,449 434 10,883 -- -- 10,883
5-10 years 21,460 554 22,014 -- 1,454 23,468
10-15 years 16,094 51 16,145 -- 560 16,705
Over 15 years 26,123 0 26,123 -- 4,374 30,497
-------------------------------------------------------------------------------------------
Total due after 1 year 81,954 2,627 84,581 -- 9,555 94,136
-------------------------------------------------------------------------------------------
Total Amounts Due $ 85,417 $ 7,666 $ 93,083 $ 80,031 $ 513 $ 10,192 $ 183,819
===========================================================================================
</TABLE>
The following table sets forth, at March 31, 1996, the dollar amount
of all loans and mortgage-backed securities due after March 31,
1997, and whether such loans and mortgage-backed securities have
fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
LOANS MATURING AFTER MARCH 31, 1997
-----------------------------------------------------------------------------------
Fixed Rate Adjustable Rate
(In Thousands) Total
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage loans $ 47,664 $ 34,290 $ 81,954
Non-mortgage loans 2,487 140 2,627
-----------------------------------------------------------------------------------
Total loans receivable 50,151 34,430 84,581
Mortgage-backed securities 5,181 4,374 9,555
-----------------------------------------------------------------------------------
Total loans receivable and
mortgage-backed securities $ 55,332 $ 38,804 $ 94,136
====================================================================================
</TABLE>
9
<PAGE> 12
III. LOAN PORTFOLIO (CONTINUED)
C. RISK ELEMENTS
1. NON-PERFORMING ASSETS
The following table sets forth information regarding non-performing
assets (nonperforming loans and real estate owned) at the dates
indicated. Interest income on consumer and other loans is accrued over
the term of the loan except when serious doubt exists as to the
collectibility of a loan, in which case the accrual of interest is
discontinued. Income is subsequently recognized only to the extent that
cash payments are received until, in management's judgment, the borrower
has the ability to make contractual interest and principal payments, in
which case the loan is returned to accrual status. Effective for fiscal
1992, the Company adopted a policy of placing all mortgage loans
delinquent 90 days or more on non-accrual status. At that time, all
accrued but uncollected interest on mortgage loans 90 days or more
delinquent was reversed. Effective for fiscal 1996, the Company adopted
SFAS 114 and 118 which establish accounting guidelines for impaired
loans. A loan is considered impaired when it is probable that all
principal and interest amounts will not be collected according to the
loan contract. SFAS 118 requires that loss allowances established on
impaired loans shall be determined by using the present value of
estimated future cash flows of the loan discounted at the loan's
effective interest rate.
<TABLE>
<CAPTION>
At March 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Accruing mortgage loans
delinquent more than 90 days $ -- $ -- $ -- $ -- $ --
Accruing consumer and other
loans delinquent more than
90 days 4 -- 6 8 61
Non-accruing mortgage
loans delinquent more than
90 days 523 463 394 196 642
Non-accruing consumer and
other loans delinquent
more than 90 days -- -- -- 4 3
-----------------------------------------------------------------------
Total loans delinquent
more than 90 days 527 463 400 208 706
Restructured loans 306 341 251 351 364
Impaired Loans 2,164 -- -- -- --
-----------------------------------------------------------------------
Total non-performing loans 2,997 804 651 559 1,070
Total real estate owned,
net of related reserves -- -- -- 44 9
-----------------------------------------------------------------------
Total non-performing assets $ 2,997 $ 804 $ 651 $ 603 $ 1,079
=======================================================================
At March 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars In Thousands)
Accruing mortgage loans delinquent
more than 90 days to total loans 0.00 % 0.00 % 0.00 % 0.00 % 0.00 %
Accruing consumer and other loans
delinquent more than 90 days to total loans 0.00 0.00 0.00 0.01 0.05
Non-accruing mortgage loans delinquent
more than 90 days to total loans 0.30 0.41 0.35 0.18 0.56
Non-accruing consumer and other loans
delinquent more than 90 days to total loans 0.00 0.00 0.00 0.00 0.00
Non-accrual loans to total loans 0.30 0.41 0.35 0.18 0.56
Restructured loans to total loans 0.18 0.30 0.22 0.32 0.32
Total non-performing assets to total loans 1.74 0.71 0.57 0.55 0.94
Total non-performing assets to total assets 1.46 0.56 0.45 0.44 0.78
Gross interest income that would have been
recorded if loans had been current in
accordance with original terms $206 $54 $50 $36 $67
Interest income from non-accruing loans
and restructured loans included in income $150 $22 $28 $18 $16
</TABLE>
10
<PAGE> 13
III. LOAN PORTFOLIO (CONTINUED)
C. RISK ELEMENTS (CONTINUED)
2. POTENTIAL PROBLEM LOANS
As of March 31, 1996, there were no loans where there are serious doubts
as to the ability of the borrower to comply with present loan repayment
terms which are not included in Section C.1 above. Consideration was
given to loans classified for regulatory purposes as loss, doubtful,
substandard, or special mention that have not been disclosed in Section
C.1 above.
3. FOREIGN OUTSTANDINGS
None
4. LOAN CONCENTRATIONS
The Company grants real estate and consumer loans including education,
home improvement and other consumer loans primarily in LaPorte and Porter
counties of Indiana. Substantially all loans are secured by consumer
assets and real estate. Loans secured by real estate mortgages make up
approximately 92% of the loan portfolio at March 31, 1996 and are
primarily secured by residential mortgages. Loans purchased under
agreements to resell are residential mortgages secured by one-to
four-family residences located throughout the continental United States.
D. OTHER INTEREST-EARNING ASSETS
There are no other interest-earning assets as of March 31, 1996
which would be required to be disclosed under Item III, Section C.1
or 2 of Guide 3 if such assets were loans and nonperforming.
11
<PAGE> 14
IV. SUMMARY OF LOAN LOSS EXPERIENCE
The allowance for loan losses is established through a provision for loan
losses based on management's evaluation of the risk inherent in its loan
portfolio and the general economy. Such evaluation, which includes a
review of all loans for which full collectibility may not be reasonably
assured, considers, among other matters, the estimated net realizable
value of the underlying collateral, economic conditions, historical loan
loss experience and other factors that warrant recognition in providing
for an adequate loan loss allowance.
The following table sets forth the Company's allowance for loan losses
at or for the dates indicated.
<TABLE>
<CAPTION>
At or for the Year
Ended March 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
---------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning $673 $595 $495 $228 $183
of period
Charge-offs:
Mortgage loans -- -- -- (11) --
Consumer and other
loans (125) -- (4) (6) (43)
Mortgage Loans purchased
under agreements to resell (221)
Recoveries:
Mortgage loans -- -- -- 5 --
Consumer and other
loans -- -- 1 1 5
---------------------------------------------------
Net charge-offs (346) 0 (3) (11) (38)
Provision for loan losses 1,020 78 103 278 83
---------------------------------------------------
Balance at end of period $1,347 $673 $595 $495 $228
===================================================
Ratio of allowance for
loan losses to total loans
receivable at end of period 0.78 % 0.59 % 0.52 % 0.45 % 0.20 %
Ratio of allowance for
loan losses to total
non-performing loans
at end of period 44.94 83.71 91.40 88.55 21.31
Ratio of net charge-offs
to average loans at the
end of period 0.23 0.00 0.00 0.01 0.04
</TABLE>
<TABLE>
<CAPTION>
March 31,
---------------------------------------------------
Allowance at end of 1996 1995
period applicable to: Amount Percentage (1) Amount Percentage (1)
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Mortgage Loans $ 500 49.34 % $ 300 74.29 %
Consumer Loans and other 447 4.43 171 3.59
Mortgage Loans purchased
under agreements to resell 200 46.23 77 22.12
Unallocated 200 0.00 125 0.00
---------------------------------------------------
TOTAL $ 1,347 100 % $ 673 100 %
====================================================
(1) Percent of type of loans in each category to total loans at the dates indicated.
</TABLE>
12
<PAGE> 15
V. DEPOSITS
The following table sets forth the distribution of the Company's deposit
accounts at the dates indicated and the weighted average nominal interest rates
on each category of deposits presented at year end. Management does not believe
that the use of year end balances instead of average balances resulted in any
material difference in the information presented. All dollars are in thousands.
<TABLE>
<CAPTION>
At March 31,
------------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Weighted Weighted Weighted
Percent Average Percent Average Percent Average
of Total Nominal of Total Nominal of Total Nominal
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
------ -------- ---- ------ -------- ---- ------ -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand accounts (1):
Money market $ 9,425 6.88 % 3.53 % 8,944 8.07 % 3.34 % $ 8,867 7.81 % 3.12 %
NOW and demand 30,980 22.61 1.03 19,660 17.73 1.42 17,808 15.69 1.57
---------------------- -------------------- --------------------
Total demand accounts 40,405 29.49 1.61 28,604 25.80 2.02 26,675 23.50 2.09
Passbook accounts 27,985 20.42 3.01 29,090 26.24 3.01 32,686 28.79 3.03
Certificate accounts:
Ninety-one days and
under 1,047 0.76 4.54 191 0.17 3.90 912 0.80 3.20
Six month 15,082 11.00 5.21 12,055 10.88 5.03 13,072 11.52 3.30
One year 11,154 8.14 5.06 8,873 8.00 5.20 6,552 5.77 3.46
Eighteen months 5,536 4.04 5.70 5,618 5.07 4.63 5,822 5.13 3.94
Two year 2,456 1.79 5.40 2,938 2.65 4.80 3,047 2.68 4.77
Three year 6,180 4.51 5.25 7,184 6.48 5.12 8,061 7.11 5.36
Four year 2,022 1.48 5.45 2,551 2.30 5.61 3,794 3.34 6.69
Five to ten year 4,764 3.48 5.95 3,999 3.61 5.90 3,532 3.11 6.40
IRA and Keogh accounts 7,320 5.34 5.64 6,971 6.29 5.64 7,312 6.44 4.81
Jumbo (2) 13,096 9.55 5.42 2,786 2.51 5.65 2,057 1.81 4.31
---------------------- -------------------- --------------------
Total certificate
accounts 68,657 50.09 5.37 53,166 47.96 5.22 54,161 47.71 4.46
---------------------- -------------------- ---------------------
TOTAL DEPOSITS $ 137,047 100.00 % 3.78 % 110,860 100.00 % 3.81 % $ 113,522 100.00 % 3.47 %
==========================================================================================
(1) At March 31, 1996, 1995 and 1994, total demand and NOW accounts included noninterest-bearing deposits of $16.6 million,
$7.1 million and $5.2 million, respectively.
(2) Certificates with deposit balances of $100,000 or more.
</TABLE>
At March 31, 1996, the Company had outstanding $32.1 million in jumbo
certifcates and other deposit accounts in amounts of $100,000 or more maturing
as follows:
<TABLE>
<CAPTION>
Amount
------
Maturity Period (In Thousands)
---------------
<S> <C>
Three months or less $ 26,794
Over three months through six months 2,223
Over six months through 12 months 2,032
Over 12 months 1,029
------------
TOTAL $ 32,078
============
</TABLE>
13
<PAGE> 16
VI. RETURN ON EQUITY AND ASSETS
The ratio of net income to average equity and average total assets and
certain other ratios are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Average total assets $ 179,145 $ 132,281 $ 157,284
Average equity $ 17,578 $ 16,028 $ 14,208
Net income $ 2,458 $ 1,660 $ 2,355
Cash dividends declared $ -- $ -- $ --
Return on average total assets 1.37 % 1.25 % 1.50 %
Return on average equity 13.98 % 10.36 % 16.58 %
Dividend payout percentage
(Dividends declared divided by net income) 0.00 % 0.00 % 0.00 %
Average equity to average total assets 9.81 % 12.12 % 9.03 %
</TABLE>
VII. SHORT-TERM BORROWINGS
During the fiscal year ended March 31, 1996, the Company utilized
short-term borrowings, primarily from the Federal Home Loan Bank of
Indianapolis and overnight Federal Funds, to meet the funding
requirements of the Mortgage Loan Reverse Repurchase Program. Information
regarding short term borrowing activity is provided as follows:
<TABLE>
<CAPTION>
At or for the Year Ended
March 31, 1996
-------------------------
(Dollars in Thousands)
<S> <C>
FHLB advances and line of credit:
Average balance outstanding $ 28,233
Maximum amount outstanding at any month-end during the period 47,230
Balance outstanding at end of period 38,124
Weighted average interest rate during the period 5.95 %
Weighted average interest rate at end of period 5.60 %
Federal funds purchased
Average balance outstanding $ 5,475
Maximum amount outstanding at any month-end during the period 7,000
Balance outstanding at end of period 7,000
Weighted average interest rate during the period 5.81 %
Weighted average interest rate at end of period 5.63 %
</TABLE>
At March 31, 1996 specific mortgage loans with a carrying value of
approximately $59,226,000 and specific mortgage-backed securities with a
carrying value of approximately $4,251,000 were pledged to the Federal
Home Loan Bank of Indianapolis to secure current and future advances. 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
specific collateral listed above. The Bank had borrowings of $124,355
against this line of credit at March 31, 1996.
At March 31, 1996, the Bank had $4,049,000 in outstanding letters of
credit issued through the Federal Home Loan Bank of Indianapolis. These
letters of credit are secured by the same collateral as the line of
credit mentioned above.
14
<PAGE> 17
REGULATION AND SUPERVISION
GENERAL
The Company, as a savings and loan holding company, is required to file
certain reports with, and otherwise comply with the rules and regulations of the
OTS under the Home Owners' Loan Act, as amended (the "HOLA"). In addition, the
activities of savings institutions, such as the Bank, are governed by the HOLA
and the Federal Deposit Insurance Act ("FDI Act").
The Bank is subject to extensive regulation, examination and supervision
by the OPTS, as its primary federal regulator, and the FDIC, as the deposit
insurer. The Bank is a member of the Federal Home Loan Bank ("FHLB") System and
its deposit accounts are insured up to applicable limits by the Savings
Association Insurance Fund ("SAIF") managed by the FDIC. The Bank must file
reports with the OTS and the FDIC concerning its activities and financial
condition in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other savings
institutions. The OTS and/or the FDIC conduct periodic examinations to test the
Bank's compliance with various regulatory requirements. This regulation and
supervision establishes a comprehensive framework of activities in which an
institution can engage and is intended primarily for the protection of the
insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such regulatory
requirements and policies, whether by the OTS, the FDIC or the Congress could
have a material adverse impact on the Company, the Bank, and their operations.
Certain of the regulatory requirements applicable to the Bank and to the Company
are referred to below or elsewhere herein. The description of statutory
provisions and regulations applicable to savings institutions and their holding
companies set forth in this Form 10-KSB does not purport to be a complete
description of such statutes and regulations and their effects on the Bank and
the Company.
HOLDING COMPANY REGULATION
The Company is a non diversified unitary savings and loan holding company
within the meaning of the HOLA. As a unitary savings and loan holding company,
the Company generally will not be restricted under existing laws as to the types
of business activities in which it may engage, provided that the Bank continues
to be a qualified thrift lender ("QTL"). Upon any non-supervisory acquisition by
the Company of another savings institution or Bank that meets the QTL test and
is deemed to be a savings institution by the OTS, the Company would become a
multiple savings and loan holding company (if the acquired institution is held
as a separate subsidiary) and would be subject to extensive limitations on the
types of business activities in which it could engage. The HOLA limits the
activities of a multiple savings and loan holding company and its non-insured
institution subsidiaries primarily to activities permissible for bank holding
companies under Section 4(c)(8) of the Bank Holding Company Act ("BHC Act"),
subject to the prior approval of the OTS, and activities authorized by OTS
regulation. Recently proposed legislation could restrict the activities of
unitary savings and loan holding companies to those permissible for multiple
savings and loan holding companies.
15
<PAGE> 18
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings institution or holding company thereof,
without prior written approval of the OTS: acquiring or retaining, with certain
exceptions, more than 5% of a nonsubsidiary company engaged in activities other
than those permitted by the HOLA; or acquiring or retaining control of a
depository institution that is not insured by the FDIC. In evaluating
applications by holding companies to acquire savings institutions, the OTS must
consider the financial and managerial resources and future prospects of the
company and institution involved, the effect of the acquisition on the risk to
the insurance funds, the convenience and needs of the community and competitive
factors.
The OTS is prohibited from approving any acquisition that would result in
a multiple savings and loan holding company controlling savings institutions in
more than one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions. The
states vary in the extent to which they permit interstate savings and loan
holding company acquisitions.
Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, HOLA does prescribe such restrictions on subsidiary
savings institutions, as described below. The Bank must notify the OTS 30 days
before declaring any dividend to the Company. In addition, the financial impact
of the holding company on its subsidiary institution is a matter that is
evaluated by the OTS and the agency has authority to order cessation of
activities or divestiture of subsidiaries deemed to pose a threat to the safety
and soundness of the institution.
FEDERAL SAVINGS INSTITUTION REGULATION
CAPITAL REQUIREMENTS. The OTS capital regulations require savings
institutions to meet three minimum capital standards: a 1.5% tangible capital
ratio, a 3% leverage (core capital) ratio and an 8% risk-based capital ratio. In
addition, the prompt corrective action standards discussed below also establish,
in effect, a minimum 2% tangible capital standard, a 4% leverage (core) capital
ratio (3% for institutions receiving the highest rating on the CAMEL financial
institution rating system), and, together with the risk-based capital standard
itself, a 4% Tier I risk-based capital standard. Core capital is defined as
common stockholder's equity (including retained earnings), certain non
cumulative perpetual preferred stock and related surplus, and minority interest
in equity accounts of consolidated subsidiaries less intangibles other than
certain purchased mortgage servicing rights and credit card relationships. The
OTS regulations also require that, in meeting the leverage ratio, tangible and
risk-based capital standards, institutions must generally deduct investments in
and loans to subsidiaries engaged in activities not permissible for a national
bank.
The risk-based capital standard for savings institutions requires the
maintenance of Tier I (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of 4% and 8%, respectively.
In determining the amount of risk-weighted assets, all assets, including certain
off-balance sheet assets, are multiplied by a risk-weight of 0% to 100%, as
assigned by the OTS capital regulation based on the risks OTS believes are
inherent in the type of asset. The components of Tier I (core) capital are
equivalent to those discussed earlier. The components of supplementary capital
currently include cumulative preferred stock, long-term perpetual preferred
stock, mandatory convertible securities, subordinated debt and intermediate
preferred stock and the allowance
16
<PAGE> 19
for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets.
Overall, the amount of supplementary capital included as part of total capital
cannot exceed 100% of core capital.
The OTS regulatory capital requirements also incorporate an interest rate
risk component. Savings institutions with "above normal" interest rate risk
exposure are subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements. A savings institution's
interest rate risk is measured by the decline in the net portfolio value of its
assets (i.e., the difference between incoming and outgoing discounted cash flows
from assets, liabilities and off-balance sheet contracts) that would result from
a hypothetical 200 basis point increase or decrease in market interest rates
divided by the estimated economic value of the institution's assets. In
calculating its total capital under the risk-based capital rule, a savings
institution whose measured interest rate risk exposure exceeds 2% must deduct an
amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
institution's assets. The Director of the OTS may waive or defer a savings
institution's interest rate risk component on a case-by-case basis. A savings
institution with assets of less than $300 million and risk-based capital ratios
in excess of 12% is not subject to the interest rate risk component, unless the
OTS determines otherwise. For the present time the OTS has deferred
implementation of the interest rate risk component. If the Bank had been subject
to an interest rate risk capital component as of March 31, 1996, the Bank's
total risk-weighted capital would not have been subject to a deduction based on
interest rate risk. At March 31, 1996, the Bank met each of its capital
requirements, in each case on a fully phased-in basis.
<TABLE>
<CAPTION>
EXCESS
ACTUAL REQUIRED (DEFICIENCY) ACTUAL REQUIRED
CAPITAL CAPITAL AMOUNT PERCENT PERCENT
----------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Tangible $16,026 $3,072 $ 12,954 7.82% 1.50%
Core (Leverage) $16,026 $6,144 $ 9,882 7.82% 3.00%
Risk-based $17,191 $9,045 $ 8,146 15.20% 8.00%
-----------------
(1) Although the OTS capital regulations require savings institutions to meet a
1.5% tangible capital ratio and a 3% leverage (core) capital ratio, the
prompt corrective action standards discussed below also establish, in
effect, a minimum 2% tangible capital standard, a 4% leverage (core)
capital ratio (3% for institutions receiving the highest rating on the
CAMEL financial institution rating system), and, together with the
risk-based capital standard itself, a 4% Tier I risk-based capital
standard.
</TABLE>
17
<PAGE> 20
A reconciliation between regulatory capital and GAAP capital at March 31,
1996 in the accompanying consolidated financial statements is presented below:
<TABLE>
<CAPTION>
Total
Tangible Core Risk-based
Capital Capital Capital
------------------------------------
(In thousands)
<S> <C> <C> <C>
GAAP capital-originally reported
to regulatory authorities and on
accompanying consolidated
financial statements............... $16,025 $16,025 $16,025
Regulatory capital adjustments:
Investment in Non-includable
Subsidiaries..................... 0 0 0
Adjustment for net unrealized
gains (losses) on certain
available for sale securities...... 1 1 1
General valuation allowances.......
Other.............................. $ 0 $ 0 $ 1,165
------- ------- -------
Regulatory Capital............... $16,026 $16,026 $17,191
======= ======= =======
</TABLE>
PROMPT CORRECTIVE REGULATORY ACTION. Under the OTS prompt corrective
action regulations, the OTS is required to take certain supervisory actions
against undercapitalized institutions, the severity of which depends upon the
institution's degree of undercapitalization. Generally, a savings institution is
considered "well capitalized" if its ratio of total capital to risk-weighted
assets is at least 10%, its ratio of Tier I (core) capital to risk-weighted
assets is at least 6%, its ratio of core capital to total assets is at least 5%,
and it is not subject to any order or directive by the OTS to meet a specific
capital level. A savings institution generally is considered "adequately
capitalized" if its ratio of total capital to risk-weighted assets is at least
8%, its ratio of Tier I (core) capital to risk-weighted assets is at least 4%,
and its ratio of core capital to total assets is at least 4% (3% if the
institution receives the highest CAMEL rating). A savings institution that has a
ratio of total capital to weighted assets of less than 8%, a ratio of Tier I
(core) capital to risk-weighted assets of less than 4% or a ratio of core
capital to total assets of less than 4% (3% or less for institutions with the
highest examination rating) is considered to be "undercapitalized." A savings
institution that has a total risk-based capital ratio less than 6%, a Tier 1
risk-based capital ratio of less than 3% or a leverage ratio that is less than
3% is considered to be "significantly undercapitalized" and a savings
institution that has a tangible capital to assets ratio equal to or less than 2%
is deemed to be "critically undercapitalized." Subject to a narrow exception,
the banking regulator is required to appoint a receiver or conservator for an
institution that is "critically undercapitalized." The regulation also provides
that a capital restoration plan must be filed with the OTS within 45 days of the
date a savings institution receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." Compliance
with the plan must be guaranteed by any parent holding company. In addition,
numerous mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion. The OTS could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.
18
<PAGE> 21
INSURANCE OF DEPOSIT ACCOUNTS. Deposits of the Bank are presently insured
by the SAIF. Both the SAIF and the Bank Insurance Fund ("BIF"), the deposit
insurance fund that covers most commercial bank deposits, are statutorily
required to be recapitalized to a 1.25% of insured reserve deposits ratio. Until
recently, members of the SAIF and BIF were paying average deposit insurance
premiums of between 24 and 25 basis points. The BIF presently meets the required
reserve ratio, whereas the SAIF is not expected to meet or exceed the required
level until 2002 at the earliest. This situation is primarily due to the
statutory requirement that SAIF members make payments on bonds issued in the
late 1980s by the Financing Corporation ("FICO") to recapitalize the predecessor
to the SAIF.
The FDIC recently adopted a new assessment rate schedule of 0 to 27 basis
points for BIF members. Under that schedule, approximately 92% of BIF members
are expected to pay the lowest assessment rate of 0 basis points. With respect
to SAIF member institutions, the FDIC adopted a final rule retaining the
existing 23 to 31 basis point assessment rate applicable to SAIF member
institutions. As long as the premium differential continues, it may have adverse
consequences for SAIF members, including reduced earnings and an impaired
ability to raise funds in the capital markets. In addition, SAIF members, such
as the Bank could be placed at the substantial competitive disadvantage to BIF
members with respect to pricing of loans and deposits and the ability to achieve
lower operating costs.
Legislation has been proposed in Congress to mitigate the effect of the
BIF/SAIF premium disparity. Under the legislation a special assessment would be
imposed on the amount of deposits held by SAIF-member institutions, including
the Bank, to recapitalize the SAIF fund. The amount of the special assessment
would be left to the discretion of the FDIC but is generally estimated at
between 85 to 90 basis points of insured deposits. The legislation would also
require that the BIF and the SAIF be merged by January 1, 1998, provided that
subsequent legislation is enacted requiring savings associations to become
banks, and that the FICO payments be spread across all BIF and SAIF members. The
payment of the special assessment would have the effect of immediately reducing
the capital of SAIF-member institutions, net of any tax effect; however, it
would not affect the Bank's compliance with its regulatory capital requirements.
Management cannot predict whether legislation imposing such a fee will be
enacted, or, if enacted, the amount of any special assessment or when and
whether ongoing SAIF premiums will be reduced to a level equal to that of BIF
premiums. Management can also not predict whether or when the BIF and SAIF will
merge.
The Bank's assessment rate for the fiscal year ended March 31, 1996 was 23
basis points and the premium paid for this period was $263,397. A significant
increase in SAIF insurance premiums or a significant special assessment to
recapitalize the SAIF would likely have an adverse effect on the operating
expenses and results of operations of the Bank. Based on the Bank's deposit
insurance assessment base as of March 31, 1996, an 85 to 90 basis point fee to
recapitalize the SAIF would result in a $704,000 to $745,000 payment on an
after-tax basis.
Under FDICIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
19
<PAGE> 22
THRIFT RECHARTERING LEGISLATION. Bills have been introduced into Congress
which would eliminate the federal thrift charter. These bills would require that
all federal savings associations convert to national banks or state banks by no
later than January 1, 1998 and would treat all state savings associations as
state banks as of that date. All savings and loan holding companies would become
bank holding companies under the legislative proposals and would be subject to
the activities restrictions (with some activities grandfathered) applicable to
bank holding companies. The legislative proposals would also abolish the OTS;
savings associations would be regulated by the bank regulators depending upon
the type of bank charter selected. The Board of Governors of the Federal Reserve
System would be responsible for the regulation of savings and loan holding
companies. Management cannot predict whether or when this legislation will be
enacted. However, any such future legislation could eliminate the institution's
ability to engage in certain activities, have significantly adverse tax effects
and otherwise disrupt operations. See "Taxation."
LOANS TO ONE BORROWER. Under the HOLA, savings institutions are generally
subject to the limits on loans to one borrower applicable to national banks.
Generally, savings institutions may not make a loan or extend credit to a single
or related group of borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if such loan is secured by readily-marketable collateral, which is
defined to include certain financial instruments and bullion. At March 31, 1996,
the Bank's limit on loans to one borrower was $2,578,500. At March 31, 1996, the
Bank's largest aggregate outstanding balance of loans to one borrower totaled
$2,208,279. All loans to this borrower were current.
QTL TEST. The HOLA requires savings institutions to meet a QTL test. Under
the QTL test, a savings and loan association is required to maintain at least
65% of its "portfolio assets" (total assets less (i) specified liquid assets up
to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the
value of property used to conduct business) in certain "qualified thrift
investments" (primarily residential mortgages and related investments, including
certain mortgage-backed securities) in at least 9 months out of each 12 month
period.
A savings institution that fails the QTL test is subject to certain
operating restrictions and may be required to convert to a bank charter. As of
March 31, 1996, the Bank maintained 89.65% of its portfolio assets in qualified
thrift investments and, therefore, met the QTL test.
20
<PAGE> 23
LIMITATION ON CAPITAL DISTRIBUTIONS. OTS regulations impose limitations
upon all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another institution in a cash-out merger and other distributions charged
against capital. The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level. An institution that exceeds
all fully phased-in capital requirements before and after a proposed capital
distribution ("Tier 1 Bank") and has not been advised by the OTS that it is in
need of more than normal supervision, could, after prior notice but without
obtaining approval of the OTS, make capital distributions during a calendar year
equal to the greater of (i) 100% of its net earnings to date during the calendar
year plus the amount that would reduce by one-half its "surplus capital ratio"
(the excess capital over its fully phased-in capital requirements) at the
beginning of the calendar year or (ii) 75% of its net income for the previous
four quarters. Any additional capital distributions would require prior
regulatory approval. In the event the Bank's capital fell below its regulatory
requirements or the OTS notified it that it was in need of more than normal
supervision, the Bank's ability to make capital distributions could be
restricted. In addition, the OTS could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by the regulation, if the
OTS determines that such distribution would constitute an unsafe or unsound
practice. In December 1994, the OTS proposed amendments to its capital
distribution regulation that would generally authorize the payment of capital
distributions without OTS approval provided the payment does not make the
institution undercapitalized within the meaning of the prompt corrective action
regulation. However, institutions in a holding company structure would still
have a prior notice requirement. At March 31, 1996, the Bank was a Tier 1 Bank.
LIQUIDITY. The Bank is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a specified
percentage of its net withdrawable deposit accounts plus short-term borrowings.
This liquidity requirement is currently 5% but may be changed from time to time
by the OTS to any amount within the range of 4% to 10% depending upon economic
conditions and the savings flows of member institutions. OTS regulations also
require each member savings institution to maintain an average daily balance of
short-term liquid assets at a specified percentage (currently 1%) of the total
of its net withdrawable deposit accounts and borrowings payable in one year or
less. Monetary penalties may be imposed for failure to meet these liquidity
requirements. The Bank's liquidity and short-term liquidity ratios for March 31,
1996 were 7.68% and 1.89% respectively, which exceeded the then applicable
requirements. The Bank has never been subject to monetary penalties for failure
to meet its liquidity requirements.
ASSESSMENTS. Savings institutions are required to pay assessments to the
OTS to fund the agency's operations. The general assessment, paid on a
semi-annual basis, is computed upon the savings institution's total assets,
including consolidated subsidiaries, as reported in the Bank's latest quarterly
thrift financial report. The assessments paid by the Bank for the fiscal year
ended March 31, 1996 totaled $45,000.
BRANCHING. OTS regulations permit nationwide branching by federally
chartered savings institutions to the extent allowed by federal statute. This
permits federal savings institutions to establish interstate networks and to
geographically diversify their loan portfolios and lines of business. The OTS
authority preempts any state law purporting to regulate branching by federal
savings institutions.
21
<PAGE> 24
TRANSACTIONS WITH RELATED PARTIES. The Bank's authority to engage in
transactions with related parties or "affiliates" (e.g., any company that
controls or is under common control with an institution, including the Company
and its non-savings institution subsidiaries) is limited by Sections 23A and 23B
of the Federal Reserve Act ("FRA"). Section 23A limits the aggregate amount of
covered transactions with any individual affiliate to 10% of the capital and
surplus of the savings institution. The aggregate amount of covered transactions
with all affiliates is limited to 20% of the savings institution's capital and
surplus. Certain transactions with affiliates are required to be secured by
collateral in an amount and of a type described in Section 23A and the purchase
of low quality assets from affiliates is generally prohibited. Section 23B
generally provides that certain transactions with affiliates, including loans
and assets purchases, must be on terms and under circumstances, including credit
standards, that are substantially the same or at least as favorable to the
institution as those prevailing at the time for comparable transactions with
non-affiliated companies. In addition, savings institutions are prohibited from
lending to any affiliate that is engaged in activities that are not permissible
for bank holding companies and no savings institution may purchase the
securities of any affiliate other than a subsidiary.
The Bank's authority to extend credit to executive officers, directors and
10% shareholders, as well as entities such persons control, is governed by
Sections 22(g) and 22(h) of the FRA and Regulation O thereunder. Among other
things, such loans are required to be made on terms substantially the same as
those offered to unaffiliated individuals and to not involve more than the
normal risk of repayment. Regulation O also places individual and aggregate
limits on the amount of loans the Bank may make to such persons based, in part,
on the Bank's capital position and requires board approval procedures to be
followed.
ENFORCEMENT. Under FDICIA, the OTS has primary enforcement responsibility
over savings institutions and has the authority to bring actions against the
institution and all "institution-affiliated parties," including stockholders,
and any attorneys, appraisers and accountants who knowingly or recklessly
participate in wrongful action likely to have an adverse effect on an insured
institution. Formal enforcement action may range from the issuance of a capital
directive or cease and desist order to removal of officers and/or directors to
institution of receivership, conservatorship or termination of deposit
insurance. Civil penalties cover a wide range of violations and an amount to
$25,000 per day, or even $1 million per day in especially egregious cases. Under
the FDI Act, the FDIC has the authority to recommend to the Director of the OTS
enforcement action to be taken with respect to a particular savings institution.
If action is not taken by the Director, the FDIC has authority to take such
action under certain circumstances. Federal law establishes criminal penalties
for certain violations.
22
<PAGE> 25
STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking agencies have
developed Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") and a final rule which will implement safety and soundness
standards required under FDICIA. The Guidelines have been adopted by the Federal
Reserve Board and the FDIC and are expected to be adopted shortly by the other
agencies, including the OTS. The Guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems
at insured depository institutions before capital becomes impaired. The
standards set forth in the Guidelines address internal controls and information
systems; internal audit system; credit underwriting; loan documentation;
interest rate risk exposure; asset growth; and compensation, fees and benefits.
The agencies are also expected to adopt a proposed rule that proposes asset
quality and earnings standards which, if adopted in final, would be added to the
Guidelines. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard, as required by FDICIA. The final rule
establishes deadlines for the submission and review of such safety and soundness
compliance plans when such plans are required.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB System, which consists of 12 regional
FHLBs. The FHLB provides a central credit facility primarily for member
institutions. The Bank, as a member of the FHLB-Indianapolis, is required to
acquire and hold shares of capital stock in that FHLB in an amount at least
equal to 1% of the aggregate principal amount of its unpaid residential mortgage
loans and similar obligations at the beginning of each year, or 1/20 of its
advances (borrowings) from the FHLB-Indianapolis, whichever is greater. The Bank
was in compliance with this requirement, with an investment in FHLB-Indianapolis
stock at March 31, 1996, of $2,702,000. FHLB advances must be secured by
specified types of collateral and may be obtained primarily for the purpose of
providing funds for residential housing finance.
The FHLBs are required to provide funds to cover certain obligations on
bonds issued to fund the resolution of insolvent thrifts and to contribute funds
for affordable housing programs. These requirements could reduce the amount of
dividends that the FHLBs pay to their members and could also result in the FHLBs
imposing a higher rate of interest on advances to their members. For the years
ended March 31, 1996, 1995, and 1994, dividends from the FHLB-Indianapolis to
the Bank amounted to $194,000, $151,000, and $111,000, respectively. If
dividends were reduced, or interest on future FHLB advances increased, the
Bank's net interest income might also be reduced.
23
<PAGE>26
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for accounts aggregating $54.0 million or less
(subject to adjustment by the Federal Reserve Board) the reserve requirement is
3%; and for accounts greater that $54.0 million, the reserve requirement is $1.6
million plus 10% (subject to adjustment by the Federal Reserve Board between 8%
and 14%) against that portion of total transaction accounts in excess or $54.0
million. The first $4.2 million of otherwise reservable balances (subject to
adjustments by the Federal Reserve Board) are exempted from the reserve
requirements. The Bank is in compliance with the foregoing requirements. The
balances maintained to meet the reserve requirements imposed by the Federal
Reserve Board may be used to satisfy liquidity requirements imposed by the OTS.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
Historically, for federal income tax purposes, the Company has reported
its income and expenses on the accrual method of accounting and has filed
consolidated federal income tax returns on this basis. The Company is subject to
the rules of federal income taxation applicable to corporations. Generally, the
Internal Revenue Code of 1986, as amended (the "Code") requires that certain
corporations, including the Company, compute taxable income under the accrual
method of accounting. For its taxable year ending March 31, 1996, the Company
was subject to a maximum federal income tax rate of 34%.
Legislation is pending before Congress that would repeal, effective for
taxable years beginning after 1995, the bad debt deduction rules available to
thrift institutions such as the Bank, but would retain the experience method for
thrift institutions having assets with average adjusted bases of $500 million or
less. The proposed tax legislation would generally not require the recapture of
bad debt reserve deductions taken prior to 1988, but would require the recapture
of at least some of the bad debt reserve deductions taken by an affected thrift
institution after 1987. The balance of pre-1988 bad debt reserves would continue
to be subject to provisions of present law that require recapture in the case of
certain excess distributions to shareholders. Bad debt reserve deductions
required to be recaptured would generally be taken into account ratably over the
six-taxable year period beginning with the first taxable year beginning after
December 31, 1995. However, if an institution maintains its residential loans at
a level equal to the average level of such loans for a period preceding 1995,
the institution would be permitted to defer recapture of its reserves until
1998. The Bank is not able to predict whether or in what form the proposed tax
legislation will be enacted or the effect that such enactment would have on the
Bank's federal income tax liability. In addition, there may be an impact on
state and city income tax liability as a result of enactment of the proposed
legislation.
24
<PAGE> 27
BAD DEBT RESERVES
Savings institutions, such as the Bank, which meet certain definitional
tests primarily relating to their assets and the nature of their business
("qualifying thrifts") are permitted to establish a reserve for bad debts and to
make annual additions thereto, which additions may, within specified formula
limits, be deducted in computing their taxable income. As of March 31, 1996, the
Bank's bad debt reserve was approximately $2.1 million.
Earnings appropriated for bad debt reserves and deducted for federal
income tax purposes cannot be used by the Bank to pay cash dividends to the
Company without the payment of income taxes by the Bank at the then current
income tax rate on the amount deemed distributed, which would include the amount
of any federal income taxes attributable to the distribution. Thus, any
dividends to the Company that would reduce amounts appropriated to the Bank's
bad debt reserves and deducted for federal income tax purposes could create a
tax liability for the Bank. The Bank does not intend to pay dividends that would
result in a recapture of its bad debt reserves.
CORPORATE ALTERNATIVE MINIMUM TAX
For taxable years beginning after December 31, 1986, the code imposes a
tax on alternative minimum taxable income ("AMTI") at a rate of 20%. The excess
of the bad debt reserve deduction using the percentage of taxable income method
over the deduction that would have been allowable under an experience method is
treated as a preference item for purposes of computing the AMTI. Only 90% of
AMTI can be offset by net operating losses. For taxable years beginning after
December 31, 1989, the adjustment to AMTI based on book income will be an amount
equal to 75% of the amount by which a corporation's adjusted current earnings
exceeds its AMTI (determined without regard to this preference and prior to
reduction for net operating losses). In addition, for taxable years beginning
after December 31, 1986, and before January 1, 1996, an environmental tax of
.12% of the excess AMTI (with certain modifications) over $2.0 million is
imposed on corporations whether or not an Alternative Minimum Tax ("AMT") is
paid. The Company was not subject to the AMT liability for the year ended March
31, 1996.
DISTRIBUTIONS
To the extent that (i) the Company's reserve for losses on qualifying real
property loans exceeds the amount that would have been allowed under an
experience method and (ii) the Company makes "non dividend" distributions to
stockholders that are considered to result in distributions from the excess bad
debt reserve or the supplemental reserve for losses on loans ("Excess
Distributions"), then an amount based on the amount distributed will be included
in the Company's taxable income. Non-dividend distributions including
distributions in excess of the Company's current or accumulated earnings and
profits, as calculated for federal income tax purposes, will not be considered
to result in distribution from the Company's bad debt reserves.
The amount of additional taxable income created from an Excess Distribution
is an amount that when reduced by the tax attributable to the income is equal to
the amount of the distribution. Thus, if certain portions of the Bank's
accumulated tax bad debt reserve are used for any purpose other than to absorb
qualified bad debt losses, such as for payment of dividends or other
distributions with respect to the Bank's capital stock (including distributions
upon redemption or liquidation), approximately one and one-half times the amount
so used would be includable in gross income for federal income tax purposes,
assuming a 34%
25
<PAGE> 28
corporate income tax rate (exclusive of state taxes). The Bank does not intend
to pay dividends that would result in a recapture of any portion of its bad debt
reserves.
DIVIDENDS RECEIVED DEDUCTION
The Company may exclude from its income 100% of dividends received from
the Bank as a member of the same affiliated group of corporations. The corporate
dividends received deduction is generally 70% in the case of dividends received
from unaffiliated corporations with which the Company and the Bank will not file
a consolidated tax return, except that if the Company and the Bank own more than
20% of the stock of a corporation distributing a dividend, 80% of any dividend
received may be deducted.
STATE AND LOCAL TAXATION
INDIANA TAXATION
The State of Indiana imposes an 8.5% franchise tax on the net income of
financial institutions (including thrifts), exempting them from gross income,
supplemental net income and intangible taxes. For franchise tax purposes,
"taxable income" generally means federal taxable income, subject to certain
adjustments including the addition of property taxes, income taxes and
charitable contributions, and the exclusion of actual bad debts incurred, net of
federal bad debt deduction. Other applicable Indiana taxes include sales, use
and property taxes.
DELAWARE TAXATION
As a Delaware holding company not earning income in Delaware, the Company is
exempted from Delaware corporate income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware. The Company is also
subject to an annual franchise tax imposed by the State of Delaware.
RECENT AND PROPOSED CHANGES IN ACCOUNTING RULES
Several new accounting standards have been issued by the FASB that
will apply in 1996. Statement of Financial Accounting Standards ("SFAS")
No. 121. "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of", requires a review of long-term assets
for impairment of recorded value and resulting write-downs if the value is
impaired. SFAS No. 122, "Accounting for Mortgage Servicing Rights",
requires recognition of an asset when servicing rights are retained on
in-house originated loans that are sold. SFAS No. 123, "Accounting for
Stock-Based Compensation" encourages, but does not require, entities to use
a "fair value based method" to account for stock-based compensation plans.
If the fair value accounting encouraged is not adopted, entities must
disclose the pro forma effect on net income and on earnings per share had
the accounting been adopted. These statements are not expected to have a
material effect on the Company's consolidated financial position or results
of operations.
26
<PAGE> 29
ITEM 2. PROPERTIES
- -------------------
The Company conducts its business through its main office and branch
facility located in Michigan City, Indiana, and a branch office in LaPorte,
Indiana, all of which are owned by the Company.
<TABLE>
<CAPTION>
Date Net Book Value at
Location Acquired March 31, 1996
-------- -------- --------------
<S> <C> <C>
EXECUTIVE & MAIN OFFICE
126 E. Fourth Street, Michigan City, IN 46360 1979 (1) $1,560,155.74
BRANCH OFFICES
3710 S. Franklin Street, Michigan City, IN 46360 1974 171,984.45
801 Monroe Street, LaPorte, IN 46350 1966 199,853.12
-------------
TOTAL $1,931,993.31
=============
(1) Construction completed during 1981.
</TABLE>
In addition, the Bank leases office space at 701 E. 83rd Avenue in
Merrillville, Indiana for the operation of a mortgage banking/origination
office.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Company is involved in various legal actions arising in the normal
course of its business. In the opinion of management, the resolutions of these
legal actions are, in the aggregate, not expected to have a material adverse
effect on the Company's results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITy Holders
- ------------------------------------------------------------
None.
ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the executive
officers of the Company who are not also Directors.
<TABLE>
<CAPTION>
Positions Held With the Company
Name Age(1) and/or the Bank
---- ------ ---------------
<S> <C> <C>
Daniel R. Buresh 37 Vice President and Controller
George L. Koehm 33 Vice President and Treasurer
Allen E. Jones 50 Assistant Vice President and Secretary
(1) At March 31, 1996
</TABLE>
27
<PAGE> 30
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- ----------------------------------------------------------------------
MATTERS.
--------
Information relating to the market for Company's common equity and related
stockholder matters appears under "Shareholder Information" in the Company's
1996 Annual Report to Stockholders on pages 55 and 56 and is incorporated herein
by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The above-captioned information appears under "Management's Discussion and
Analysis of Financial Condition and Results of Operation" in the Company's 1996
Annual Report to Stockholders on pages 2 through 13 and is incorporated herein
by reference.
ITEM 7. FINANCIAL STATEMENTS
- -----------------------------
The Consolidated Financial Statement of CB Bancorp, Inc. and its
subsidiaries, together with the report thereon by Crowe, Chizek and Company, LLP
appears in the Company's 1996 Annual Report to Stockholders on pages 17 through
53 and are incorporated herein by reference.
ITEM 8. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
The information relating to directors and executive officers of the
Company is incorporated herein by reference to the Company's Proxy Statement for
the Annual Meeting of Stockholders to be held on July 24, 1996 at pages 4
through 7.
Information concerning executive officers who are not directors is
contained in Part I of this report pursuant to paragraph (B) of Item 401 of
Regulation S-K in reliance on Instruction G.
ITEM 10. EXECUTIVE COMPENSATION.
- --------------------------------
The information relating to executive compensation is incorporated herein
by reference to the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on July 24, 1996 at pages 4 through 10.
28
<PAGE> 31
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The information relating to security ownership of certain beneficial
owners and management is incorporated herein by reference to the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on July 24, 1996 at
pages 3, 4, 5, and 6.
ITEM 12. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS.
- --------------------------------------------------------
The information relating to certain relationships and related transactions
is incorporated herein by reference to the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on July 24, 1996 at page 12.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
(1) Consolidated Financial Statements of the Company are incorporated by
reference to the following indicated pages of the 1996 Annual Report to
Shareholders.
Page
Report of Independent Auditors........................................... 17
Consolidated Balance Sheets as of
March 31, 1996 and 1995.............................................. 18
Consolidated Statements of Income for the years
ended March 31, 1996, 1995, and 1994................................. 19
Consolidated Statements of Changes in Shareholders'
Equity for the years ended March 31, 1996, 1995, and 1994............ 20
Consolidated Statements of Cash Flows for the years
ended March 31, 1996, 1995, and 1994................................. 21-22
Notes to Consolidated Financial Statements............................... 23-53
The remaining information appearing in the Annual Report to Shareholders
is not deemed to be filed as part of this report, except as expressly provided
herein.
(2) All schedules are omitted because they are not required or applicable,
or the required information is shown in the consolidated financial statements or
the notes thereto.
(3) Exhibits
(a) The following exhibits are filed as part of this report:
3.1 Certificate of incorporation *
29
<PAGE> 32
3.2 Bylaws *
10.1 Form of Employment Agreement between the Bank and Executive *
10.2 Form of Change in Control Agreement between the Company and the Bank and
Executive*
10.3 Community Bank, A Federal Savings Bank Employee Stock Ownership Plan and
Trust *
10.5 Community Bank, A Federal Savings Bank Recognition and Retention Plan and
Trust for Outside Directors **
10.6 Community Bank, A Federal Savings Bank Recognition Plan and Trust for
Officers and Employees **
10.7 Form of Employment 1992 Stock Option Plan **
10.8 Form of CB Bancorp, Inc. 1992 Stock Option Plan for Outside Directors **
10.9 Community Bank, A Federal Savings Bank Employee Retirement Plan *
10.10 Form of Community Bank, A Federal Savings Bank Outside Directors'
Consultation and Retirement Plan *
10.11 CB Bancorp, Inc. Directors' Deferred Compensation Plan ***
11.0 Computations of earnings per share ****
13.0 1996 Annual Report to Shareholders
21.0 Subsidiary information is incorporated herein by reference to "Part I -
Subsidiary"
22.0 Proxy Statement for 1996 Annual Meeting
(b) Reports on Form 8-K
There were no reports on form 8-K filed during fiscal year 1996.
27.0 Financial Data Schedule
- ----------------------------------------
* Incorporated herein by reference into this document from the Exhibits to
Form S-1, Registration Statement and any amendments thereto filed on
September 17, 1992, Registration No. 33-51882.
** Incorporated herein by reference into this document from the Proxy
Statement for the Annual Meeting of Shareholders held on July 28, 1993,
and filed in definitive form on June 17, 1993.
*** Incorporated into Fiscal 1994 10-KSB filed on June 27, 1994.
**** Incorporated herein by reference into this document from the 1996
Annual Report to Stockholders, page 26 (Note 1).
30
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CB BANCORP, INC.
By: /s/Joseph F. Heffernan
---------------------------------
Joseph F. Heffernan
Chief Executive Officer
President and Director
DATED: 6/27/96
-----------
Pursuant to the requirement of the Securities and Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.
/s/ Joseph F. Heffernan Chief Executive Officer, ________
- ----------------------- President and Director
Joseph F. Heffernan
/s/ Jon Bausbach Director ________
- -----------------------
Jon Bausbach
/s/ Ken O. Fryar Director ________
- -----------------------
Ken O. Fryar
/s/ Marvin Kominiarek Director ________
- -----------------------
Marvin Kominiarek
/s/ Robert Ott Director ________
- -----------------------
Robert Ott
/s/ J. Patrick Smith Director ________
- -----------------------
J. Patrick Smith
/s/ James Broad Director ________
- -----------------------
/s/ Allen Jones Secretary ________
- -----------------------
Allen Jones
<PAGE> 1
CB BANCORP, INC. AND SUBSIDIARY
- -------------------------------
1996 ANNUAL REPORT
TABLE OF CONTENTS
LETTER TO SHAREHOLDERS .......................................................1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ................................2
SUMMARY OF SELECTED FINANCIAL DATA ...........................................14
AVERAGE BALANCE SHEETS .......................................................15
RATE/VOLUME ANALYSIS .........................................................16
REPORT OF INDEPENDENT AUDITORS ...............................................17
CONSOLIDATED BALANCE SHEETS...................................................18
CONSOLIDATED STATEMENTS OF INCOME ............................................19
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY..........................................................20
CONSOLIDATED STATEMENTS OF CASH FLOWS.........................................21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...................................23
DIRECTORS AND OFFICERS .......................................................54
SHAREHOLDER INFORMATION ......................................................55
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
THE COMPANY'S BUSINESS
- ----------------------
CB Bancorp, Inc., ("Company") is a unitary thrift holding company headquartered
in Michigan City, Indiana. Its wholly owned subsidiary, Community Bank, A
Federal Savings Bank, ("Bank") has been and continues to be in the business of
attracting retail deposits from the general public and investing these deposits,
together with funds generated from operations and borrowings, primarily in
one-to four-family residential mortgage loans and loans purchased under
agreements to resell and, to a lesser extent, commercial and consumer loans,
mortgage-backed securities, U.S. Government and agency securities and other
marketable securities.
The Bank also operates a wholly owned subsidiary, Community Financial Services,
Inc., ("Community Financial") which offers tax return preparation services to
individuals and small businesses as well as tax-deferred annuities and life
insurance products to customers of the Bank and the general public. Community
Financial is also the 100% owner of Community Brokerage Services, Inc., a fully
registered securities broker-dealer, which offers full service brokerage
services to the general public. 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. Terms of the partnership agreement allocate 99% of the
eligible tax credits and operating losses to the limited partner.
The Company's results are primarily based on the Bank's results. The Bank's
operating results are dependent primarily on net interest income, the difference
between interest income earned on loans, securities, mortgage-backed and related
securities and the Company's cost of funds (interest paid to its depositors and
interest paid for borrowed funds).
Operating results are also affected by the provision for loan losses,
noninterest income, and expense items. Noninterest income primarily includes
earnings of the Bank's wholly owned subsidiary, Community Financial, gains and
losses from sale of interest-earning assets, and foreclosed assets and fee
income, including fees earned under the Bank's Mortgage Loan Reverse Repurchase
Program ("Program"). Noninterest expenses principally consist of employee
compensation and benefits, occupancy and equipment expenses, federal deposit
insurance premiums and other administrative expenses. Factors that significantly
impact operating results include general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
Other than those discussed in this document, management is unaware of any trends
or uncertainties that will have or that are reasonably likely to have a material
effect on the liquidity, capital resources, or operations of the issuer. In
addition, management is unaware of any recommendations by regulatory authorities
which, if implemented, would have such an effect.
The Company operates out of the Bank's main office located at 126 E. Fourth
Street, Michigan City, Indiana. The Bank also conducts business out of its two
full service branch offices located at 3710 S. Franklin Street in Michigan City
and 801 Monroe Street, LaPorte, Indiana. The Bank has also established a loan
production/mortgage banking office in Merrillville, Indiana located at 701 E.
83rd Avenue, Merrillville, Indiana. The Bank's deposit-gathering base is
concentrated in the communities surrounding its offices while its lending base
extends throughout LaPorte and contiguous counties. Also, through its Program,
the Bank funds and temporarily invests in one- to four-family mortgages
originated in various states throughout the continental United States by the
Program's participants.
2
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------------------------------
MORTGAGE LOAN REVERSE REPURCHASE PROGRAM
- ----------------------------------------
In the fiscal year 1991, the Company instituted the Mortgage Loan Reverse
Repurchase Program. Currently there are seventy-five active participants in the
Program of which the Company holds loans that were purchased under agreements to
resell. The Program is carried out pursuant to agreements with each participant
which provide for the purchase at par (less certain fees paid to the participant
by the borrower) of whole mortgage loans by the company, at its option, and the
subsequent resale of such loans to the Participant (for transfer to an end
investor). Purchase money and refinance mortgage loans are generally held no
more than 90 days by the Company and typically are resold within 30 days.
Construction loan mortgages acquired via the Program are held for the duration
of the construction loan period, typically for six months or longer. At March
31, 1996, construction loan balances totaled $29.4 million and accounted for
36.8% of the Company's total outstanding investment in the Program. The Company
records interest income on the loans based on a stated rate of interest tied to
the prime rate (as established from time to time by a major Chicago-based
financial institution) during the funding period, and not the rates on
individual loans, plus a fee (recorded as non-interest income) collected from
the Participant for each loan when resold. It is the Company's policy to
purchase under the Program only those loans that comply with accepted secondary
market underwriting standards and/or Community Bank's portfolio underwriting
criteria.
Based upon the current interest rate environment, management projects that the
Company's net interest margin will decline over the foreseeable future as the
Company's liabilities continue to reprice upwards. Management can make no
assurances with respect to the interest rate environment. The Company's Mortgage
Loan Reverse Repurchase Program has been and is a key contributor to the
Company's efforts to maintain a strong net interest margin. Management is aware
that a decline in Program activity would negatively impact the company's
profitability.
FINANCIAL CONDITION
- -------------------
TOTAL ASSETS AT MARCH 31,
1996 - $205.4 MILLION 1995 - $143.3 MILLION
(REPRESENTS AN INCREASE OF $62.1 MILLION OR 43.3%)
The year to year increase in total assets, was
primarily attributable to growth in the Company's
Mortgage Loan Repurchase Program and retail lending
programs, as follows.
MORTGAGE LOAN REVERSE REPURCHASE
PROGRAM LOANS OUTSTANDING AT MARCH 31,
1996 - $80.0 MILLION 1995 - $25.2 MILLION
(REPRESENTS AN INCREASE OF $54.8 MILLION OR 217%)
Increase is attributed to both lower mortgage rates
resulting in an increase in home mortgage originations
and refinancings for the 1996 fiscal year and an
increase in the number of mortgage companies
participating in the Program. Since its inception, the
Program has caused the level of the Company's assets
and liabilities to fluctuate between periods.
3
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------------------------------
LOANS RECEIVABLE AT MARCH 31,
1996 - $92.6 MILLION 1995 - $86.8 MILLION
(REPRESENTS AN INCREASE OF $5.8 MILLION OR 6.7%)
Increase primarily attributable to an increase in the
purchase and origination of multi-family, commercial
mortgage and non-mortgage loans.
SECURITIES PORTFOLIO AT MARCH 31,
1996 - $9.0 MILLION 1995 - $9.4 MILLION (REPRESENTS A
DECREASE OF $400.000 OR 4.26%) The primary objective of
the Company's securities portfolio is to contribute to
profitability, by providing a stable cash flow of
dependable earnings and available-for-sale securities
which provide a store of liquidity. The securities
portfolio consists of U. S. Government Agency Securities,
short-term investment grade corporate notes, marketable
equity securities and Federal Home Loan Bank Stock. The
Company also has investments in both variable and fixed
rate U.S. Government Agency mortgage-backed securities
totaling $10.2 million at March 31, 1996 and $10.7
million on March 31, 1995.
NON-PERFORMING ASSETS AT MARCH 31,
1996 - $2,997,000 1995 - $804,000
(REPRESENTS AN INCREASE OF $2.2 MILLION OR 272.8%)
Increase primarily attributable to the classification
of $2.2 million of loans and lease paper as impaired
as of March 31, 1996. Loan loss reserves at March 31,
1996 totaled $1.3 million, an increase of $674,000
or 100.1% over the prior fiscal year. This represents
45.3% of total nonperforming loans at March 31, 1996.
At March 31, 1996, impaired assets included $1.7 million in principal due the
company on four pools of small business equipment leases that the Company
acquired through contractual relationships entered into with Bennett Funding
Group, Inc. and its affiliate Aloha Capital Corporation (f.k.a. Bennett Leasing
Corporation). Bennett Funding Group, Inc. sought Chapter 11 Bankruptcy
protection on March 29, 1996. Several weeks later, Aloha Capital Corporation was
placed into involuntary bankruptcy at the request of the court appointed
Bankruptcy Trustee for Bennett Funding Group, Inc., who is now also the
Bankruptcy Trustee for Aloha Capital Corporation. Per the terms of the
contractual arrangements Bennett Funding Group, Inc. acts as the servicing agent
for the Company on the pool of leases purchased from that entity, wherein, at
March 31, 1996, $396,000 of principal remained to be remitted to the Company
over the course of the remaining scheduled lease payments due from individual
lessees. Similarly, at March 31, 1996, $1.3 million of principal remained to be
remitted to the Company on three pools of leases purchased from and serviced by
Aloha Capital Corporation. Payment due the Company on the four pools of leases
were current at the time the respective servicing companies were placed in
bankruptcy. The Bankruptcy Trustee is monitoring the lease payment billing and
collection
4
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------
activities of the servicing companies and is segregating the payments received
from individual lessees but has not yet allowed the resumption of the payment
stream due the Company.
Based on its review of the actual leases in the Company's possession, the
supporting bills of sale and appropriate U.C.C. filings, management believes the
cash flow from the acquired leases will resume when the bankruptcy trustee
verifies the Company's standing in this matter. However, management can make no
assurances about the outcome of this matter.
Also included in impaired loans are two single family construction loans
totaling $501,000. The loans, which were purchased through the Program, are
currently in foreclosure. The Company has a signed offer to purchase one of the
properties for an amount over its carrying value and continues to seek an offer
on the other property.
TOTAL LIABILITIES AT MARCH 31,
1996 - $186.6 MILLION 1995 - $126.7 MILLION
(REPRESENTS AN INCREASE OF $59.9 MILLION OR 47.3%)
This increase is primarily attributable to a $26.2
million or 23.6%increase in total deposits from $110.8
million at March 31, 1995 to $137.0 million at March 31,
1996 and a $32.7 million or 263.7% increase in borrowed
funds from $12.4 million at March 31, 1995 to $45.1
million at March 31, 1996. The growth in liabilities was
primarily due to the increased funding needs of the
Program and to fund growth in the loans receivable
portfolio.
The increase in total deposits was concentrated in certificates of deposits and
demand deposit account. Certificate balances increased $15.5 million or 29.1%,
primarily attributable to management's decision to utilize the public fund and
institutional deposit markets to meet the Company's funding needs. Management
has found these markets to be a reliable and attractively priced funding source
and will continue to take advantage of these funding sources as market
conditions warrant. Demand deposit accounts increased $9.5 million or 133.8%
primarily attributable to growth in the Program. More than 90% of the Company's
demand deposit balances are from mortgage companies that are participating in
the Company's Program. Consequently, the level of balances maintained in demand
deposits is directly related to activity in the Program.
Total borrowed funds at March 31, 1996, consist of $7 million in federal funds
purchased and $38.1 million in Federal Home Loan Bank advances, of which $36
million will mature in less than one year.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
- ---------------------------------------------------------------------------
GENERAL: Net income for the year ended March 31, 1996 was $2,458,000
compared to $1,660,000 in the prior year. This $798,000 increase in net
income is primarily attributable to increases in net interest income of
$2,234,000 or 44.2% and noninterest income of $183,000 or 18.4%.
5
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------------------------------
INTEREST INCOME FOR YEAR ENDED MARCH 31,
1996 - $14.4 MILLION 1995 - $9.2 MILLION
(REPRESENTS AN INCREASE OF $5.2 MILLION OR 56.0%)
This increase is attributable to increased activity
in the Company's Mortgage Loan Reverse Repurchase
Program and other lending activities which resulted
in a $45.9 million or 37.5% increase in average
interest earning assets from the prior fiscal year
to $168.5 million for the year ending March 31, 1996.
In addition, interest income generated by the Company's
interest earning assets also benefitted from higher
year over year yields on these assets.
Interest income earned under the Program increased $4.1 million or 303.3%
over the prior fiscal year. The average outstanding investment in the
Program increased from $16.0 million for the twelve months ended March 31,
1995 to $58.3 million for the twelve months ended March 31, 1996. The
increase in outstandings in the Program is attributable to increased
mortgage refinancing and purchase money mortgages due to lower mortgage
interest rates, increased construction lending within the Program, and an
expanded number of mortgage companies participating in the Program.
Although management is committed to continue growing the Program by
increasing the number of participants, no assurance can be given that the
level of outstandings held under the Program for the fiscal year March 31,
1996 will be maintained.
The increase in interest income is also attributable to growth in the
Company's loans receivable portfolio. Interest income on the loans
receivable portfolio increased $1.1 million or 17.5% over the prior fiscal
year. The average outstanding investment in the loans receivable portfolio
increased from $80.8 million at March 31, 1995 to $89.8 million at March
31, 1996. Growth in the loan receivable portfolio is attributable to the
origination and purchase of multi-family, construction, commercial mortgage
and non-mortgage loans.
Interest income on other interest earning assets decreased $110,000 or
62.3% as fewer assets were allocated to this category by management over
the course of the year because of asset allocations to more productive
resources.
INTEREST EXPENSE FOR YEAR ENDED MARCH 31,
1996 - $7.0 MILLION 1995 - $4.1 MILLION
(REPRESENTS AN INCREASE OF $2.9 MILLION OR 70.4%)
Increase primarily attributable to a $41.0 million or 37.8%
increase in average interest-bearing liabilities over the
prior fiscal year.This increase resulted from the increased
funding needs of the Program and loans receivable portfolio.
In the course of funding this Program management considers
the relevant costs of deposits and borrowings and acquires
the needed funds accordingly.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------------------------------
NET INTEREST INCOME FOR YEAR ENDED MARCH 31,
1996 - $7.3 MILLION 1995 - $5.1 MILLION
(REPRESENTS AN INCREASE OF $2.2 MILLION OR 44.2%)
Increase resulted from substantially higher outstandings
in the Company's Mortgage Loan Reverse Repurchase Program
and growth in the loans receivable portfolio. In addition,
management's efforts to profitably increase the level of
interest-earning assets also contributed to a 21 basis
point increase in the Company's net interest margin ratio
to 4.33% for the twelve months ended March 31, 1996 from
4.12% for the twelve months ended March 31, 1995.
PROVISION FOR LOAN LOSSES FOR YEAR ENDED MARCH 31,
1996 - $1,020,000 1995 - $78,000
(REPRESENTS AN INCREASE OF $942,000 OR 1,207.7%)
The 1996 provision for loan losses resulted from manage-
ment's continued evaluation of the loan portfolio,
national and regional economic indicators and of the
current regulatory and general economic environment.
The Company's allowance for loan losses increased to $1,347,000 at March
31, 1996 from $673,000 at March 31, 1995. Management's decision to
substantially increase the level of loan loss provisions was primarily
attributable to several factors: 1.) To replenish $346,000 of chargeoffs
against the loan reserves recorded in fiscal 1996, 2.) To build up the
level of reserves to properly reflect the Company's increased activity in
construction lending, commercial lending and consumer lending, and 3.) To
set-up specific reserves for the lease paper purchased from Bennett Funding
Group and Aloha Capital Corp. The Company will continue to monitor its
allowance for loan losses and make future loan loss provisions in
consideration of the amount and types of loans in its portfolio and as
economic conditions dictate.
NONINTEREST INCOME FOR YEAR ENDED MARCH 31,
1996 - $1.2 MILLION 1995 - $1.0 MILLION
(REPRESENTS AN INCREASE OF $178,000 OR 18.0%)
Increase is primarily attributable to a $205,000 increase
in fees related to the mortgage Loan Reverse Repurchase
Program and a $20,000 increase in other income. These
increases were partially offset by a $13,000 decrease
in commission income received by Community Financial
Services, Inc. from the sale of tax-deferred annuities
and a $33,000 decrease in other service charges and fees
due to the absence of a one time consulting fee of $92,000
relative to an affordable housing project that the Company
recorded in the prior fiscal year.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------------------------------
NONINTEREST EXPENSE FOR YEAR ENDED MARCH 31,
1966 - $3.6 MILLION 1995 - $3.3 MILLION
(REPRESENTS AN INCREASE OF $267,000 OR 8.0%)
Increase is attributable to: 1.) the start up costs of a
mortgage banking division in Merrillville, Indiana, which
began operations in February of 1996 and currently employs
a staff of seven individuals, 2.)expenses incurred related
to the acquisition efforts of a mortgage banking company
which were later terminated without the consummation of a
deal and 3.) higher legal costs than those of the prior
year.
INCOME TAX EXPENSE FOR YEAR ENDED MARCH 31,
1996 - $1.4 MILLION 1995 - $1.0 MILLION
(REPRESENTS AN INCREASE OF $410,000 OR 42.2%)
Income taxes increased primarily as a result of increased
earnings before income taxes.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 1995 AND 1994
- ---------------------------------------------------------------------------
GENERAL: Net income for the year ended March 31, 1995 was $1,660,000
compared to $2,355,000 in the prior year. This $695,000 decrease resulted
primarily from decreases in net interest income of $855,000 or 14.5% and
noninterest income of $280,000 or 22.0%.
INTEREST INCOME FOR YEAR ENDED MARCH 31,
1995 - $9.2 MILLION 1994 - $11.0 MILLION
(REPRESENTS A DECREASE OF $1.8 MILLION OR 16.5%)
This decrease was primarily attributable to a decrease in
activity in the Company's Mortgage Loan Reverse Repurchase
Program which resulted in a $26.6 million or 17.8% decrease
in average interest earning assets from the prior fiscal
year to $122.6 million at March 31, 1995.
Interest income earned under the Program decreased $2.2 million or 62.4%
over the prior fiscal year. The average outstanding investment in the
Program decreased from $50.6 million for the twelve months ended March 31,
1994 to $16.0 million for the twelve months ended March 31, 1995. An
increase in mortgage interest rates was primarily attributable to the
reduced activity in the Program.
Increases in interest income on securities and other interest-earning
assets of $326,000 or 77.8% and net loans receivable of $71,000 or 1.1%
helped to partially offset the decrease in total interest income realized
from the Program. These increases were attributable to the shifting of
funds from the Program to other interest-earning asset categories and
higher year over year yields on these assets.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------------------------------
INTEREST EXPENSE FOR YEAR ENDED MARCH 31,
1995 - $4.1 MILLION 1994 - $5.1 MILLION
(REPRESENTS A DECREASE OF $963,000 OR 18.9%)
Decrease was primarily attributable to a $26.8 million or
19.9% decrease in average interest-bearing liabilities
over the prior fiscal year. This decrease resulted from
the reduced funding needs of the Program as management
paid off short term borrowings and public fund deposits
with Program pay downs.
NET INTEREST INCOME FOR YEAR ENDED MARCH 31,
1995 - $5.1 MILLION 1994 - $5.9 MILLION
(REPRESENTS A DECREASE OF $854,000 OR 14.5%)
Decrease resulted from substantially lower outstandings
in the Company's Mortgage Loan Reverse Repurchase Program.
However, the decrease in net interest income as partially
offset by an increase in the Company's net interest rate
spread of 7 basis points to 3.67% for the year ended
March 31, 1995 and an increase in the net interest margin
of 16 basis points to 4.12% for the year ended March 31,
1995. The improvement in these ratios was a result of the
Company's interest-earning assets repricing upwards at a
slightly faster rate than interest-bearing liabilities
and a higher ratio of interest-earning assets to interest
-bearing liabilities ratio.
PROVISION FOR LOAN LOSSES FOR YEAR ENDED MARCH 31,
1995 - $78,000 1994 - $103,000
(REPRESENTS A DECREASE OF $25,000 OR 24.3%)
The 1995 provision for loan losses resulted from manage-
ment's continued evaluation of the loan portfolio,
national and regional economic indicators and of the
current regulatory and general economic environment.
The Company's allowance for loan losses increased to $673,000 at March 31,
1995 from $595,000 at March 31, 1994. The Company recorded less than two
hundred dollars of loan chargeoffs for the year ended March 31, 1995.
NONINTEREST INCOME FOR YEAR ENDED MARCH 31,
1995 - $1.0 MILLION 1994 - $1.3 MILLION
(REPRESENTS A DECREASE OF $280,000 OR 22.0%)
Decrease was primarily attributable to a $332,000 decrease
in fees related to the Mortgage Loan Reverse Repurchase
Program and a $41,000 decrease in commission income
received by Community Financial from the sale of tax-
deferred annuities. This decrease was
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------------------------------
partially offset by a $92,000 increase in service charges
and fees attributable to a one time affordable housing
consulting fee.
NONINTEREST EXPENSE FOR YEAR ENDED MARCH 31,
1995 - $3.3 million 1994 - $3.3 million
(represents an increase of $21,000 or 0.6%
Increase was attributable to a $39,000 increase in compen-
sation and benefit expenses due to normal salary increases
which were offset, in part, by decreases in other
noninterest expenses.
INCOME TAX EXPENSE FOR YEAR ENDED MARCH 31,
1995 - $1.0 MILLION 1994 - $1.4 MILLION
(REPRESENTS A DECREASE OF $436,000 OR 31.0%
Income taxes decreased primarily as a result of decreased
earnings before income taxes.
LIQUIDITY AND CAPITAL RESOURCE
- ------------------------------
The Company's primary sources of funds are deposits, proceeds from principal and
interest payments on loans, securities, mortgage-backed securities and advances
from the Federal Home Loan Bank ("FHLB") of Indianapolis. While maturities and
scheduled amortization of loans and mortgage-backed securities are a predictable
source of funds, deposit flows and mortgage prepayments are greatly influenced
by general interest rates, economic conditions, competition and other factors.
The Bank is required to maintain minimum levels of liquid assets as defined by
the Office of Thrift Supervision ("OTS") regulations. This requirement is based
upon a percentage of deposits and short-term borrowings, which may vary at the
direction of the OTS depending upon economic conditions and deposit flows. The
required ratio is currently 5.0%. The Bank's liquidity ratios were 7.7% and
11.4% at March 31, 1996 and 1995, respectively. Liquidity management for the
Company is both a daily and long-term function of the Company's management
strategy. Excess funds are generally invested in short-term investments,
including deposits in financial institutions. In the event that the Company
should require funds beyond its ability to generate them internally, additional
sources of funds are available via FHLB of Indianapolis advances and reverse
repurchase agreements.
Management structures the liquid asset portfolio and borrowing capacity of the
Company to meet the cash flow needs of operating, investing and financing
activities. The Company's liquid assets are cash and cash equivalents, which
include investments in highly liquid, short-term investments. At March 31, 1996
and 1995, cash and cash equivalents totalled $6.1 million and $3.5 million,
respectively. In addition, the Company maintains a $5.0 million line of credit
with the FHLB of Indianapolis to meet short term liquidity needs. The line of
credit had an outstanding balance of $124,000 at March 31, 1996.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------------------------------
Cash flows resulting from operating activities consisted primarily of net income
and activity under the Program. Cash flows provided by/(for) operating
activities were ($51.5) million, $11.1 million and ($2.1) million for the years
ended March 31, 1996, 1995 and 1994, respectively. The Company's primary
investing activities have been the purchase and repayment of securities;
mortgage-backed securities; and the purchase, origination, and repayment of
loans. Net cash flows provided for investing activities were ($4.5) million,
($9.3) million and ($1.4) million for the years ended March 31, 1996, 1995 and
1994, respectively. Net cash provided from/(for) financing activities, primarily
the borrowing and repayment of funds and net deposits, were $58.5 million,
($3.4) million and $3.3 million for the years ended March 31, 1996, 1995 and
1994, respectively.
For the years ended March 31, 1996, 1995 and 1994 the Company's single-family
mortgage loan purchases through the Program totaled $795.9 million, $453.3
million and $1,092.1 million, respectively. Sales of these loans over the same
respective time periods totalled $741.0 million, $462.4 million and $1,087.2
million. During the fiscal year ended March 31, 1996, the activity in the
Program increased significantly due to increases in refinancing, purchase money
mortgage and construction mortgage loan originations attributable to lower
mortgage interest rates. The increase in activity was also attributable to an
increase in the number of mortgage companies participating in the Program.
Management utilized FHLB advances and institutional and public fund deposits to
meet the Company's funding needs. The Company maintains borrowing capacity with
the FHLB-Indianapolis to meet the funding requirements of the Program as well as
the general liquidity needs of Company operations.
At March 31, 1996, the Company had outstanding commitments to originate loans
and fund unused lines of credit of $1.4 million, unused letters of credit of
$4.1 million and $12.4 million in commitments to fund the undisbursed balances
of Program construction loans. Management anticipates that sufficient funds will
be available to finance, on a timely basis, its short and long term loan
commitments. Certificates of deposit which are scheduled to mature in one year
or less at March 31, 1996 totalled $50.6 million. Management's pricing of
certificate offerings reflect the bank's funding needs and the availability of
other sources of funds (i.e., FHLB advances, etc.)
Shareholders' equity at March 31, 1996 was $18.8 million, an increase of $2.2
million or 12.9% over March 31, 1995, which represents net income for the twelve
months ended March 31, 1996 and the effects of treasury stock transactions, ESOP
loan repayment, the amortization of Recognition and Retention Program Shares
(RRP) acquisition costs, tax benefit related to stock plans and the net change
in unrealized appreciation on securities available-for-sale.
Under OTS capital requirements, at March 31, 1996, the Bank had:
- --- Tangible capital (shareholders' equity) of $16.0 million or 7.8% of
adjusted total assets thereby exceeding the 1.5% requirement of $3.1
million by $13.0 million.
- --- Core capital (tangible capital plus certain intangible assets) of
$16.0 million or 7.8% of adjusted total assets thereby exceeding the
3.0% requirement of $6.1 million by $9.9 million.
- --- Risk-based capital(core capital plus general valuation allowances)
of $17.2 million or 15.2% of risk-adjusted assets thereby exceeding
the 8.0% requirement of $9.0 million by $8.1 million.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------------------------------
At March 31, 1996, the Bank's capital exceeded all of the capital requirements
of the OTS.
ASSET/LIABILITY MANAGEMENT
- --------------------------
Asset/Liability Management is a daily function of the Company's management and
is continually changing in response to interest rate fluctuations. The matching
of assets and liabilities may be analyzed by examining the extent to which such
assets and liabilities are interest rate sensitive, and by monitoring the
Company's interest rate risk ("IRR") measures produced by the Office of Thrift
Supervision form the Bank's quarterly Thrift Financial Reports. Management
regularly measures the Bank's interest rate risk by monitoring the effect a 200
basis point instantaneous increase or decrease in market interest rates would
have on its net portfolio value ("NPV").
In 1990, the regulators adopted the interest-rate sensitivity approach as one
measure of interest-rate risk. This approach measures the projected changes in
NPV that would result if interest rates were to increase; instantaneously across
the yield curve; by 100, 200, 300 and 400 basis points; or if interest rates
were to decline by 100, 200, 300 and 400 basis points. Net portfolio value is
defined as the market value of assets less the market value of liabilities.
According to the "Interest Rate Risk Report," prepared by the Office of Thrift
Supervision as of March 31, 1996, after an adverse rate shock of +200 points,
the Bank's NPV of $22.8 million was projected to decline $1.4 million or 6.3%,
to $21.4 million. According to the OTS report, only 40% of thrifts nationwide
would have experienced a decline of 7.9% or less. Presented below, as of March
31, 1996, is an analysis of the Bank's interest rate risk as measured by changes
in NPV for instantaneous and substantial parallel shifts of 100 basis points in
market interest rates.
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE (NPV)
Net Portfolio Value
-------------------
Change
in Rates $ Amount $ Change % Change
-------- -------- -------- --------
<C> <C> <C> <C>
+400 bp 19,335 -3,498 -15%
+300 bp 20,396 -2,437 -11%
+200 bp 21,394 -1,439 - 6%
100 bp 22,269 - 564 - 2%
0 bp 22,833
-100 bp 22,868 35 0%
-200 bp 22,382 - 451 - 2%
-300 bp 22,090 - 743 - 3%
-400 bp 22,294 - 539 - 2%
</TABLE>
The Company's primary strategy for controlling interest rate risk exposure, is
to maintain a high level of the Company's asset portfolios in interest rate
sensitive assets. Management has accomplished this objective through its
investment in the Loan Reverse Repurchase Program. Under the Program, the
company purchases single family mortgage loans from select mortgage banking
firms on a short-term basis under agreements to resell and earn an adjustable
prime rate based return during the holding period. The Program has complemented
the Company's portfolio of adjustable rate mortgage loans held for investment
which account for 40.2% of all mortgage
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------------------------------
loans receivable. In addition, the Company has sought to lengthen the maturity
of its interest-bearing liabilities by emphasizing longer term certificates of
deposit. The Company also has the ability to obtain long-term advances from the
FHLB of Indianapolis if such borrowings appear favorable under a particular
interest rate environment.
IMPACT OF INFLATION AND CHANGING PRICES
- ---------------------------------------
The consolidated financial statements and notes thereto presented herein have
been prepared in accordance with generally accepted accounting principles
("GAAP") which require the measurement of financial position and operating
results in terms of historical dollars (except for securities
available-for-sale) without considering the changes in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of the Company's operations. Unlike most industrial
companies, nearly all the assets and liabilities of the Company are monetary in
nature. As a result, interest rates have a greater impact on the Company's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or the same extent as the price of
goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
- ----------------------------------
Several new accounting standards have been issued by the FASB that will apply in
1996. Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of, requires a review of long-term assets for impairment of recorded value and
resulting write-downs if the value is impaired. SFAS No. 122, Accounting for
Mortgage Servicing Rights, requires the recognition of an asset when servicing
rights are retained on in-house originated loans that are sold. SFAS No. 123,
Accounting for Stock-Based Compensation encourages, but does not require,
entities to use a "fair value based method" to account for stock-based
compensation plans. If the fair value accounting encouraged is not adopted,
entities must disclose the pro forma effect on net income and on earnings per
share had the accounting been adopted. These statements are not expected to have
a material effect on the Company's consolidated financial position or results of
operation.
INSURANCE OF DEPOSIT ACCOUNTS
- -----------------------------
Deposits of the Bank are presently insured by the SAIF. Under proposed
legislation, a special assessment would be imposed on the amount of deposits
held by SAIF-member institutions, including the Bank, to recapitalize the SAIF
fund. The amount of the special assessment would be left to the discretion of
the FDIC but is generally estimated at between 85 to 90 basis points of insured
deposits. The payment of the special assessment would have the effect of
immediately reducing the capital of SAIF-member institutions, net of any tax
effect; however, it would not affect the Bank's compliance with its regulatory
capital requirements. Management cannot predict whether legislation imposing
such a fee will be enacted, or if enacted, the amount of any special assessment
or when and whether ongoing SAIF premiums will be reduced to a level equal to
that of BIF premiums. Management can also not predict whether or when the BIF
and SAIF will merger. The Bank's assessment rate for the fiscal year ended March
31, 1996 was 23 basis points and the premium paid for the period was $263,000.
Based on the Bank's deposit insurance assessment base as of March 31, 1996, an
85 to 90 basis point fee to recapitalize the SAIF would result in a $704,000 to
$745,000 payment on an after-tax basis.
13
<PAGE> 14
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, 1996 and 1995 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
years ended March 31, 1996, 1995 and 1994. These 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, 1996 and 1995 and the results of their operations and
their cash flows for the years ended March 31, 1996, 1995 and 1994, 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.
/s/ Crowe, Chizek and Company LLP
----------------------------------
Crowe, Chizek and Company LLP
South Bend, Indiana
May 17, 1996
- --------------------------------------------------------------------------------
17.
<PAGE> 15
CB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and 1995
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and due from financial institutions (Note 16) $ 4,754,811 $ 3,542,760
Interest-earning deposits in other financial institutions -
short term 1,308,112 -
------------- -------------
Cash and cash equivalents 6,062,923 3,542,760
Interest-earning deposits in other financial institutions - 983,475
Securities available-for-sale (Note 2) 620,948 581,331
Securities held-to-maturity (Fair value: $5,644,000
- 1996; $6,418,000 - 1995) (Note 2) 5,674,726 6,488,679
Other securities - Federal Home Loan Bank stock (Note 2) 2,702,000 2,350,400
Mortgage-backed and related securities held-to-maturity
(Fair value: $10,282,000 - 1996;$10,647,000 - 1995)
(Notes 3 and 10) 10,192,178 10,739,876
Loans
Loans purchased under agreements to resell (Note 4) 80,031,250 25,179,207
Loans receivable (Notes 4 and 10) 92,616,450 86,789,829
Less: Allowance for loan losses (Note 4) (1,346,328) (672,276)
------------- -------------
171,301,372 111,296,760
Mortgage loans held for sale 512,750 -
Accrued interest receivable (Note 7) 1,183,259 786,404
Premises and equipment, net (Note 8) 2,387,382 2,405,119
Investment in limited partnership (Note 16) 1,678,573 1,525,000
Other assets (Note 11) 3,068,825 2,644,088
------------- -------------
$ 205,384,936 $ 143,343,892
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits (Note 9) $ 137,047,131 $ 110,859,585
Borrowed funds (Note 10) 45,124,355 12,362,804
Advances from borrowers for taxes and insurance 1,213,766 1,211,649
Obligation relative to limited partnership (Note 16) 1,450,000 1,450,000
Accrued expenses and other liabilities 1,717,500 781,893
------------- -------------
186,552,752 126,665,931
Commitments and contingencies (Note 16)
Shareholders' equity (Notes 1, 11, 12 and 13)
Serial preferred stock, no par value, 500,000 shares
authorized; none outstanding - -
Common stock, $.01 par value, 1,500,000 shares
authorized; issued - 1,284,238 shares 12,842 12,842
Additional paid-in capital 5,813,358 5,821,860
Retained earnings - substantially restricted 14,323,484 11,865,274
Less:
Treasury stock, 96,012 and 71,100 shares at cost at
March 31, 1996 and 1995, respectively (1,081,744) (671,156)
Common stock acquired by:
Employee stock ownership plan (240,794) (305,005)
Recognition and retention plans (20,708) (47,676)
Net unrealized appreciation on securities available-for-sale,
net of tax 25,746 1,822
------------- -------------
Total shareholders' equity 18,832,184 16,677,961
------------- -------------
$ 205,384,936 $ 143,343,892
============= =============
- -------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
18.
<PAGE> 16
<TABLE>
<CAPTION>
CB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
March 31, 1996 and 1995
- -------------------------------------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income
Loans receivable
First mortgage loans $ 6,949,705 $ 6,189,013 $ 6,237,519
Consumer and other loans 628,236 260,463 140,946
Loans purchased under agreements to resell 5,452,138 1,351,924 3,594,757
Securities 565,940 567,883 330,806
Mortgage-backed and related securities 689,120 653,029 624,160
Other interest-earning assets 66,742 177,064 88,293
------------ ------------ ------------
14,351,881 9,199,376 11,016,481
Interest expense
Deposits (Note 9) 5,040,273 3,961,171 4,463,542
Borrowed funds (Note 10) 2,022,405 182,559 642,843
------------ ------------ ------------
7,062,678 4,143,730 5,106,385
------------ ------------ ------------
NET INTEREST INCOME 7,289,203 5,055,646 5,910,096
Provision for loan losses (Note 4) 1,020,000 78,000 103,000
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 6,269,203 4,977,646 5,807,096
Noninterest income
Gain (loss) on sale/disposal of interest-earning
assets, net (Note 14) 1,478 (650) 2,513
Loss from real estate operations (Note 5) (8,961) (11,038) (9,254)
Gain on sale of foreclosed real estate 16,731 16,240 28,725
Other (Note 15) 1,168,772 990,532 1,253,210
------------ ------------ ------------
1,178,020 995,084 1,275,194
Noninterest expense
Compensation and benefits (Note 11) 1,561,595 1,493,024 1,454,097
Occupancy and equipment 512,476 512,394 536,041
SAIF deposit insurance premium 263,397 261,206 265,984
Other (Note 15) 1,271,616 1,075,585 1,065,114
------------ ------------ ------------
3,609,084 3,342,209 3,321,236
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 3,838,139 2,630,521 3,761,054
Income tax expense (Note 12) 1,379,929 970,274 1,406,454
------------ ------------ ------------
NET INCOME $ 2,458,210 $ 1,660,247 $ 2,354,600
============ ============ ============
Earnings per common and common equivalent
share (Note 1) $ 1.95 $ 1.29 $ 1.82
Earnings per share-assuming full dilution
(Note 1) 1.94 1.29 1.80
- ------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
19.
<PAGE> 17
<TABLE>
<CAPTION>
CB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended March 31, 1996, 1995 and 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Common Common Net Unrealized
Stock Stock Appreciation
Additional Acquired Acquired on Securities Total
Common Paid-in Retained Treasury By By Available- Shareholders'
Stock Capital Earnings Stock ESOP RRP for-Sale Equity
----- ------- -------- ----- ---- --- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - APRIL 1, 1993 $ 6,421 $5,878,441 $7,856,848 $ - $(433,427) $(170,638) $ - $13,137,645
Purchase of shares of treasury stock
(Note 1) - - - (559,363) - - - (559,363)
Issuance of shares of treasury
stock (Note 1) - (15,543) - 36,464 - - - 20,921
Contribution to fund ESOP - - - - 64,211 - - 64,211
Amortization of RRP contribution - - - - - 80,963 - 80,963
100% stock dividend (Note 1) 6,421 - (6,421) - - - - -
Net income for the year
ended March 31, 1994 - - 2,354,600 - - - - 2,354,600
---------- ---------- ----------- ----------- --------- --------- -------- -----------
BALANCE - MARCH 31, 1994 12,842 5,862,898 10,205,027 (522,899) (369,216) (89,675) - 15,098,977
Adoption of SFAS No. 115 (Note 1),
net of tax - - - - - - 96 96
Purchase of shares of treasury stock
(Note 1) - - - (243,875) - - - (243,875)
Issuance of shares of
treasury stock (Note 1) - (41,038) - 95,618 - - - 54,580
Contribution to fund ESOP - - - - 64,211 - - 64,211
Amortization of RRP contribution - - - - - 41,999 - 41,999
Net change in unrealized appreciation
on securities available-for-sale, net
of tax - - - - - - 1,726 1,726
Net income for the year
ended March 31, 1995 - - 1,660,247 - - - - 1,660,247
---------- ---------- ----------- ----------- --------- --------- -------- -----------
BALANCE - MARCH 31,1995 12,842 5,821,860 11,865,274 (671,156) (305,005) (47,676) 1,822 16,677,961
Purchase of shares of treasury stock
(Note 1) - - - (557,427) - - - (557,427)
Issuance of shares of
treasury stock (Note 1) - (78,923) - 146,839 - - - 67,916
Contribution to fund ESOP - - - - 64,211 - - 64,211
Amortization of RRP contribution - - - - - 26,968 - 26,968
Tax benefit related to stock plans - 70,421 - - - - - 70,421
Net change in unrealized appreciation
on securities available-for-sale,
net of tax - - - - - - 23,924 23,924
Net income for the year - - - - - - - -
ended March 31, 1996 - - 2,458,210 - - - - 2,458,210
---------- ---------- ----------- ----------- --------- --------- -------- -----------
BALANCE - MARCH 31, 1996 $ 12,842 $5,813,358 $14,323,484 $(1,081,744) $(240,794) $ (20,708) $25,746 $18,832,184
========== ========== =========== =========== ========= ========= ======= ===========
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
20.
<PAGE> 18
<TABLE>
<CAPTION>
CB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31, 1996, 1995 and 1994
- ---------------------------------------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,458,210 $ 1,660,247 $ 2,354,600
Adjustments to reconcile net income to
net cash from operating activities
Depreciation and amortization 187,104 342,215 299,736
Provision for loan losses 1,020,000 78,000 103,000
(Gain) loss on sale of:
Interest-earning assets (1,478) 650 (2,513)
Foreclosed real estate (16,731) (16,240) (28,725)
Loans purchased under agreements to resell (795,862,263) (453,339,372) (1,092,109,959)
Sale of loans purchased under agreements
to resell 741,010,220 462,353,515 1,087,156,964
Mortgage loans originated for sale (585,786) - -
Proceeds from sales of mortgage loans held for sale 74,514 - -
Purchase of securities held for sale - - (574,841)
Proceeds from sale of securities held for sale - - 500,503
Amortization of RRP contribution 26,968 41,999 80,963
Change in:
Accrued interest receivable (396,855) (138,011) 57,194
Other assets (370,009) (30,532) (253,667)
Accrued interest payable and other liabilities 911,471 114,610 311,389
------------- ------------- ---------------
Net cash from operating activities (51,544,635) 11,067,081 (2,105,356)
CASH FLOWS FROM INVESTING ACTIVITIES
Principal collected on mortgage-backed securities 2,311,441 3,215,365 3,035,566
Purchase of:
Securities and mortgage-backed securities
available-for-sale - (53,324) -
Securities and mortgage-backed securities
held-to-maturity (10,104,120) (9,424,682) -
Federal Home Loan Bank stock (351,600) - (1,299,000)
Investment and mortgage-backed securities - - (8,481,499)
Proceeds from:
Maturities of securities held-to-maturity 9,161,482 6,300,000 -
Maturities of investment securities - - 2,550,000
Sale of securities available-for-sale 49,200 -
Purchase of loans - (2,627,077) -
Proceeds from sale of loans - - 128,534
Net change in loans (6,223,912) (5,717,413) 2,206,168
Proceeds from sale of foreclosed real estate 92,210 58,937 118,765
Net change in interest-earning deposits
in other financial institutions 983,475 (885,276) 1,585,801
Investment in limited partnership (153,573) (75,000) -
Purchase of life insurance contracts - - (1,245,000)
Purchase of premises and equipment (176,519) (134,506) (23,759)
------------- ------------- ---------------
Net cash from investing activities (4,461,116) (9,293,776) (1,424,424)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
21.
<PAGE> 19
<TABLE>
<CAPTION>
CB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31, 1996, 1995 and 1994
- -----------------------------------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits $ 26,187,546 $ (2,662,499) $ (1,623,898)
Proceeds from borrowed funds 1,709,466,300 238,718,275 498,073,464
Repayment of borrowed funds (1,676,704,749) (239,100,610) (492,448,826)
Net change in advance payments by
borrowers for taxes and insurance 2,117 (272,378) (222,729)
Purchase of treasury stock (557,427) (243,875) (559,363)
Issuance of shares of treasury stock 67,916 54,580 20,921
Contribution to fund ESOP 64,211 64,211 64,211
--------------- ------------- -------------
Net cash from financing activities 58,525,914 (3,442,296) 3,303,780
--------------- ------------- -------------
Net change in cash and cash equivalents 2,520,163 (1,668,991) (226,000)
Cash and cash equivalents at beginning of year 3,542,760 5,211,751 5,437,751
--------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 6,062,923 $ 3,542,760 $ 5,211,751
=============== ============= =============
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 6,870,582 $ 4,147,503 $ 5,121,674
Income taxes 1,618,449 885,250 1,477,320
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 relative to limited
partnership (Note 16) - 1,450,000 -
Real estate acquired in settlement of loans 75,479 42,697 45,897
- -----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
22.
<PAGE> 20
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Industry Segment Information:
- ------------------------------------------------------- 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") and Community
Financial Services Inc. ("Community Financial"), a wholly-owned subsidiary of
the Bank (together referred to as "the Company"). 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. 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 affordable housing project
in LaPorte County, Indiana. Community Financial also owns 100% of Community
Brokerage Services, Inc. ("Community Brokerage") which was chartered on
September 12, 1994. 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.
Basis of Reporting: The accompanying consolidated financial statements include
- ------------------
the accounts of CB Bancorp, Inc. and its wholly-owned subsidiary. All
significant inter-company balances and transactions have been eliminated in
consolidation.
Use of Estimates In Preparing Financial Statements: The preparation of
- --------------------------------------------------------
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Certain Significant Estimates: Areas involving the use of management's estimates
- -----------------------------
and assumptions include the allowance for loan losses, the realization of
deferred tax assets, fair values of securities and other financial instruments,
the determination and carrying value of impaired loans, the carrying value of
loans purchased under agreements to resell, the carrying value of mortgage loans
held for sale, the carrying value of foreclosed real estate, the determination
of other-than-temporary reductions in the fair value of securities, recognition
and measurement of loss contingencies and depreciation of premises and
equipment. Estimates that are more susceptible to change in the near term
include the allowance for loan losses, securities valuations, the carrying value
of loans purchased under agreements to resell, the carrying value of mortgage
loans held for sale and the realization of deferred tax assets.
- --------------------------------------------------------------------------------
(Continued)
23.
<PAGE> 21
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents: For purposes of reporting cash flows, cash and cash
- --------------------------
equivalents are defined to include the Company's cash on hand, balances due from
financial institutions and short-term interest-earning deposits in other
financial institutions with maturities of ninety days or less. The Company
reports net cash flows for customer loan transactions, deposit transactions,
advance payments by borrowers for taxes and insurance, and deposits made with
other financial institutions.
Securities and Mortgage-backed and Related 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, including mortgage-backed
and related 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 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. 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 market. The Company held loans that were
purchased under agreements to resell from 75 of the 90 approved mortgage
companies as of March 31, 1996. 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.
- --------------------------------------------------------------------------------
(Continued)
24.
<PAGE> 22
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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. All
mortgage loans delinquent 90 days or more are placed on non-accrual status.
Interest income on consumer and other loans is discontinued when serious doubt
exists as to the collectibility of a loan. Effective April 1, 1995, 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.
Loan Fees and Costs: Loan fees, net of direct origination costs, are deferred.
- -------------------
The net amount deferred is reported in the consolidated balance sheets as par
of loans and is recognized into interest income over the term of the loan using
the level yield method.
Allowance For Loan Losses: The allowance for loan losses is increased by charges
- -------------------------
to income and decreased by charge-offs (net of recoveries). Estimating the risk
of loss and the amount of loss on any loan is necessarily subjective.
Accordingly, the allowance is maintained by management at a level considered
adequate to cover losses that are currently anticipated. Management's periodic
evaluation of the adequacy of the allowance is based on the Company's past loan
loss experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Company's 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.
SFAS No. 114 and SFAS 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 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.
- --------------------------------------------------------------------------------
(Continued)
25.
<PAGE> 23
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 30 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.
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. 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.
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. Maintenance and repairs are expensed
and improvements are capitalized.
Income Taxes: The Company files annual consolidated federal and state income tax
- ------------
returns. Income tax expense is based upon the asset and liability method. The
asset and liability method requires the Company to record income tax expense
based on the amount of taxes due on its consolidated tax return plus deferred
taxes computed based on the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, using enacted tax rates.
Earnings Per Share, 100% Common Stock Dividend and Treasury Stock: Earnings per
- -----------------------------------------------------------------
common and common equivalent share were computed by dividing net income by the
weighted average number of shares of common stock and common stock equivalents
outstanding. Employee and Director stock options are considered common stock
equivalents. On January 19, 1994, the Board of Directors declared a 100% common
stock dividend which was distributed to shareholders of record as of February 9,
1994, increasing issued shares by 642,119 shares. The weighted-average number of
shares outstanding for the calculation of earnings per common and common
equivalent share was 1,261,062 for 1996, 1,289,998 for 1995 and 1,293,117 for
1994 as restated for the 1994 100% stock dividend. The weighted-average number
of shares outstanding for the calculation of fully-diluted earnings per share
was 1,264,728 for 1996, 1,291,301 for 1995 and 1,308,239 for 1994 as restated
for the 1994 100% stock dividend.
- --------------------------------------------------------------------------------
(Continued)
26.
<PAGE> 24
<TABLE>
<CAPTION>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- -----------------------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Treasury stock activity for the years ended March 31 is summarized as follows
(all numbers of shares restated for the 1994 100% stock dividend):
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Treasury stock at beginning of year 71,100 60,016 -
Shares of common stock purchased 38,495 22,000 64,200
Shares of common stock reissued (for
stock options exercised) (13,583) (10,916) (4,184)
--------- --------- --------
Treasury stock at end of year 96,012 71,100 60,016
========= ========= ========
</TABLE>
Reclassifications: Certain amounts appearing in the 1995 and 1994 consolidated
- -----------------
financial statements and notes thereto have been reclassified to conform with
the 1996 presentation.
NOTE 2 - SECURITIES
The amortized cost and fair value of securities at March 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Available-for-sale
------------------
Marketable equity securities $ 578,315 $ 43,956 $ (1,323) $ 620,948
=========== ========== =========== ===========
Held-to-maturity
----------------
U.S. Treasury and U.S.
Government agency securities $ 3,000,000 $ - $ (30,000) $ 2,970,000
Corporate notes 2,674,726 5,296 (6,022) 2,674,000
----------- ----------- ------ ------------
Total $ 5,674,726 $ 5,296 $ (36,022) $ 5,644,000
=========== ========== =========== ============
Other securities
-----------------
Stock in Federal Home Loan Bank $ 2,702,000 $ - $ - $ 2,702,000
=========== ========== =========== ============
- -----------------------------------------------------------------------------------------------
</TABLE>
(Continued)
27.
<PAGE> 25
<TABLE>
<CAPTION>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- -----------------------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
The amortized cost and fair value of securities at March 31, 1995 are as
follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Available-for-sale
------------------
Marketable equity securities $ 578,315 $ 11,620 $ (8,604) $ 581,331
============ ========== =========== ============
Held-to-maturity
----------------
U.S. Treasury and U.S.
Government agency securities $ 3,755,781 $ 137 $ (72,918) $ 3,683,000
Corporate notes 2,732,898 3,002 (900) 2,735,000
------------ ---------- ------------ ------------
Total $ 6,488,679 $ 3,139 $ (73,818) $ 6,418,000
============ ========== ============ ============
Other securities
----------------
Stock in Federal Home Loan Bank $ 2,350,400 $ - $ (400) $ 2,350,000
============ ========== ============ ============
</TABLE>
The amortized cost and estimated market value of debt securities at March 31,
1996, by contractual maturity, are shown below. Expected maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Fair
Held-to-maturity: Cost Value
---------------- ---- -----
<S> <C> <C>
Due in one year or less $ 2,016,946 $ 2,018,000
Due after one year through five years 3,657,780 3,626,000
------------ -----------
$ 5,674,726 $ 5,644,000
============ ===========
There were no sales of securities during the year ended March 31, 1996.
- -----------------------------------------------------------------------------------------------
</TABLE>
(Continued)
28.
<PAGE> 26
<TABLE>
<CAPTION>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- ------------------------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
Sales of securities available-for-sale during the year ended March 31, 1995 were
as follows:
Gross Gross
Proceeds Gain Loss
-------- ---- ----
<S> <C> <C> <C>
Equity securities $ 49,200 $ - $ (650)
</TABLE>
Sales of securities held for sale during the year ended March 31, 1994, were as
follows:
<TABLE>
<CAPTION>
Gross Gross
Proceeds Gain Loss
-------- ---- ----
<S> <C> <C> <C>
Debt securities $500,503 $ 503 $ -
</TABLE>
NOTE 3 - MORTGAGE-BACKED AND RELATED SECURITIES
The carrying values and fair values of mortgage-backed and related securities
held-to-maturity as presented on the balance sheets are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1996
-------------------------------------------------------------------
Principal Unamortized Unearned Carrying Fair
Balance Premiums Discounts Value Value
------- -------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
GNMA certificates $ 3,600,363 $ 8,787 $ (9,750) $ 3,599,400 $ 3,646,000
FHLMC certificates 4,891,720 3,580 (6,302) 4,888,998 4,914,000
FNMA certificates 879,837 - (7,879) 871,958 886,000
Collateralized mortgage
obligations 833,925 473 (2,576) 831,822 836,000
----------- --------- --------- ----------- -----------
$10,205,845 $ 12,840 $ (26,507) $10,192,178 $10,282,000
=========== ========= ========= =========== ===========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1995
-------------------------------------------------------------------
Principal Unamortized Unearned Carrying Fair
Balance Premiums Discounts Value Value
------- -------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
GNMA certificates $ 2,923,684 $ 5,052 $ (15,718) $ 2,913,018 $ 2,922,000
FHLMC certificates 5,956,098 16,772 (10,369) 5,962,501 5,883,000
FNMA certificates 970,293 - (8,899) 961,394 951,000
Collateralized mortgage
obligations 903,477 1,627 (2,141) 902,963 891,000
----------- --------- --------- ----------- -----------
$10,753,552 $ 23,451 $ (37,127) $10,739,876 $10,647,000
=========== ========= ========= =========== ===========
- ------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
29.
<PAGE> 27
<TABLE>
<CAPTION>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------------------------
NOTE 3 - MORTGAGE-BACKED AND RELATED SECURITIES (Continued)
Gross unrealized gains and losses on mortgage-backed and related securities
held-to-maturity are as follows:
March 31, 1996 March 31, 1995
-------------- --------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
----- ------ ----- ------
<S> <C> <C> <C> <C>
GNMA certificates $ 53,136 $ (6,536) $ 34,932 $ (25,950)
FHLMC certificates 71,973 (46,971) 37,750 (117,251)
FNMA certificates 14,042 - - (10,394)
Collateralized mortgage obligations 4,223 (45) - (11,963)
--------- --------- --------- ---------
$ 143,374 $ (53,552) $ 72,682 $(165,558)
========= ========= ========= =========
</TABLE>
The Company did not sell any mortgage-backed and related securities during the
fiscal years ended March 31, 1996, 1995 and 1994.
NOTE 4 - LOANS
Loans receivable at March 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
First mortgage loans (principally conventional)
Principal balances
Secured by one-to-four family residences $ 73,413,053 $ 74,384,741
Secured by other properties 11,412,555 7,754,828
Construction loans 591,450 2,427,863
------- ---------
85,417,058 84,567,432
Loans in process (47,836) (1,421,700)
Unearned discounts (993) (10,241)
Net deferred loan origination fees (417,599) (432,487)
------------- -------------
Total first mortgage loans 84,950,630 82,703,004
Consumer and other loans
Principal balances
VISA/Master cards 388,685 37,252
Automobile 400,132 361,482
Home equity and second mortgage 1,789,185 1,272,581
Commercial 4,532,775 2,007,527
Other 555,043 407,983
------- -------
Total consumer and other loans 7,665,820 4,086,825
--------- ---------
$ 92,616,450 $ 86,789,829
============= =============
- --------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
30.
<PAGE> 28
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
NOTE 4 - LOANS (Continued)
The Company has entered into agreements with mortgage companies in which the
Company purchases, at its discretion, mortgage loans ("pipeline") 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. Such
loans are reviewed, prior to purchase, for evidence that the loans are of
secondary market quality and 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 credit risk due to possible change in the borrower's financial
condition during the interim construction period. The Company had approximately
$29,416,000 of interim construction loans in the pipeline at March 31, 1996.
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 1996 1995
------- ---- ----
<S> <C> <C>
Company A $ 12,792,251 $ 6,095,730
Company B 8,614,313 -
Company C 6,791,723 6,454,712
Company D 5,023,314 -
Companies with balances between $1,000,000 and
$5,000,000 (1996 - 12 companies; 1995 - 3 companies) 33,254,163 6,720,642
Other companies with balances less than $1,000,000 13,555,486 5,908,123
------------- ------------
$ 80,031,250 $ 25,179,207
============= ============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
31.
<PAGE> 29
<TABLE>
<CAPTION>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- ------------------------------------------------------------------------------------------------
NOTE 4 - LOANS (Continued)
Activity in the allowance for loan losses for the years ended March 31 is
summarized as follows:
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 672,276 $ 594,453 $ 494,653
Provision charged to income 1,020,000 78,000 103,000
Recoveries - - 846
Charge-offs (345,948) (177) (4,046)
--------- ----------- -----------
Balance at end of year $ 1,346,328 $ 672,276 $ 594,453
=========== =========== ===========
</TABLE>
Information regarding impaired loans is as follows for the year ending March 31,
1996:
<TABLE>
<CAPTION>
<S> <C>
Average investment in impaired loans $ 333,020
Interest income recognized on impaired loans
including interest income recognized on cash basis 144,320
Interest income recognized on impaired loans on cash basis 128,339
<CAPTION>
Information regarding impaired loans at March 31, 1996 is as follows:
<S> <C>
Balance of impaired loans $ 2,164,419
Less portion for which no allowance for loan losses is allocated (500,942)
-----------
Portion of impaired loan balance for which an
allowance for loan losses is allocated $ 1,663,477
===========
Portion of allowance for loan losses allocated to impaired loan balance $ 166,348
===========
</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 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Interest income that would have
been recorded $ 54,000 $ 50,000
Interest income recognized (22,000) (28,000)
---------- ----------
Interest income forgone $ 32,000 $ 22,000
========== ==========
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, 1996, $1,663,477 relates
to amounts associated with Bennett Funding Group Inc. ("Bennett") and Aloha
Capital Corporation ("Aloha"), an affiliate of Bennett. 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 portion of allowance for loan losses
allocated to the above loans is $166,348 which is based on the aging of the
underlying leases and the assumption of 90 days delay in payments.
- ------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
32.
<PAGE> 30
<TABLE>
<CAPTION>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------------------
NOTE 5 - FORECLOSED REAL ESTATE, NET
There was no foreclosed real estate at March 31, 1996 and 1995.
Activity in the allowance for losses for foreclosed real estate for the years
ended March 31 is summarized as follows:
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ - $ - $ 14,400
Provision for losses - - -
Charge-offs - - (14,400)
Recoveries - - -
----------- ----------- ----------
Balance at end of year $ - $ - $ -
=========== =========== ==========
Losses from real estate operations for the years ended March 31 are as follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Provision for losses $ - $ - $ -
Other 8,961 11,038 9,254
----------- ----------- ----------
$ 8,961 $ 11,038 $ 9,254
=========== =========== ==========
</TABLE>
NOTE 6 - 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>
1996 1995
---- ----
<S> <C> <C>
Mortgage loan portfolios serviced for the
Federal Home Loan Mortgage Corporation $1,483,584 $ 1,869,565
========== ===========
Custodial escrow balances maintained in connection with the foregoing loan
servicing were approximately $35,000 and $51,000 at March 31, 1996 and 1995,
respectively.
- --------------------------------------------------------------------------------------------
</TABLE>
(Continued)
33.
<PAGE> 31
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
NOTE 7 - ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at March 31 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Securities $ 64,940 $ 102,278
Mortgage-backed and related securities 74,146 71,576
Loans receivable and loans purchased under
agreements to resell 1,044,173 612,550
------------ ------------
$ 1,183,259 $ 786,404
============ ============
</TABLE>
NOTE 8 - PREMISES AND EQUIPMENT, NET
Premises and equipment are stated at cost, less accumulated depreciation, and
consist of the following at March 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land and land improvements $ 378,897 $ 375,620
Buildings 3,065,759 3,062,299
Furniture, fixtures, and equipment 1,376,963 1,232,873
Construction In Progress 20,022 -
------------ -----------
4,841,641 4,670,792
Accumulated depreciation and amortization (2,454,259) (2,265,673)
------------ -----------
$ 2,387,382 $ 2,405,119
============ ===========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
34.
<PAGE> 32
<TABLE>
<CAPTION>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------------------------
NOTE 9 - DEPOSITS
Deposits at March 31 are summarized as follows:
Weighted
Average Rate at 1 9 9 6 1 9 9 5
March 31, ------- -------
1996 Amount Percent Amount Percent
---- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Demand and NOW
accounts, including
noninterest-bearing
deposits of $ 16,639,090
in 1996 and $7,109,518
in 1995 1.03% $ 30,980,804 22.61% $ 19,659,348 17.73%
Money market accounts 3.53 9,424,860 6.88 8,944,562 8.07
Passbook accounts 3.01 27,984,565 20.42 29,089,724 26.24
-------------- ------ ------------- ------
68,390,229 49.91 57,693,634 52.04
Certificates of deposit:
3.00 to 3.99% 330,461 .24 3,986,661 3.60
4.00 to 5.99% 56,522,216 41.24 37,478,648 33.81
6.00 to 7.99% 11,804,225 8.61 11,666,198 10.52
8.00 to 9.99% - - 34,444 .03
-------------- ------ ------------- ------
68,656,902 50.09 53,165,951 47.96
-------------- ------ ------------- ------
$ 137,047,131 100.00% $ 110,859,585 100.00%
============== ====== ============= ======
</TABLE>
The aggregate amount of deposits with a minimum denomination of $100,000 was
approximately $32,078,000 and $18,252,000 at March 31, 1996 and 1995,
respectively.
At March 31, 1996, scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 Thereafter
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
3.00 to 3.99% $ 326,101 $ - $ 4,360 $ $ $
4.00 to 5.99% 44,363,322 7,313,875 3,625,784 586,414 563,773 69,048
6.00 to 7.99% 5,921,712 1,879,553 1,014,485 1,636,247 915,909 436,319
----------- ---------- ---------- ----------- ----------- -----------
$50,611,135 $9,193,428 $4,644,629 $2,222,661 $1,479,682 $ 505,367
=========== ========== ========== ========== ========== ===========
- -------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
35.
<PAGE> 33
<TABLE>
<CAPTION>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- ---------------------------------------------------------------------------------------------
NOTE 9 - DEPOSITS (Continued)
Interest expense on deposits for the years ended March 31 is summarized as
follows:
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Money market accounts $ 302,868 $ 284,966 $ 285,369
Passbook accounts 835,831 943,970 1,004,496
NOW accounts 300,517 282,527 300,772
Certificates of deposit 3,601,057 2,449,708 2,872,905
----------- ------------ ------------
$ 5,040,273 $ 3,961,171 $ 4,463,542
=========== ============ ============
</TABLE>
NOTE 10 - BORROWED FUNDS
Borrowed funds at March 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Federal funds purchased $ 7,000,000 $ 7,000,000
Advances from the Federal Home Loan Bank 38,000,000 4,000,000
Line of credit with Federal Home Loan Bank 124,355 1,362,804
------------ ------------
$ 45,124,355 $ 12,362,804
============ ============
</TABLE>
Fixed rate and variable rate advances from the Federal Home Loan Bank at March
31, 1996 amount to $4 million and $34 million, respectively.
Advances from the Federal Home Loan Bank consist of the following:
<TABLE>
<CAPTION>
March 31, 1996
--------------------------Weighted Average---------------------------
Maturity Interest Rate Amount
-------- ------------- ------
<S> <C> <C>
1997 5.59% $ 36,000,000
1998 5.76% 1,000,000
1999 5.67% 1,000,000
------------
$ 38,000,000
============
</TABLE>
Information concerning borrowings under repurchase agreements for the years
ended March 31 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Average balance during the period $ 72,329 $ 1,808
Average interest rate during the period 6.50% 6.20%
Maximum month-end balance during the period 1,760,000 30,000
- ---------------------------------------------------------------------------------------------
</TABLE>
(Continued)
36.
<PAGE> 34
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
NOTE 10 - BORROWED FUNDS (Continued)
The Company had no borrowings under repurchase agreements as of March 31, 1996
and 1995.
Federal funds purchased represent overnight purchase of federal funds from
American National Bank, Chicago, Illinois.
At March 31, 1996 specific mortgage loans with a carrying value of approximately
$59,226,000 and specific mortgage-backed securities with a carrying value of
approximately $4,251,000 were pledged to the Federal Home Loan Bank of
Indianapolis to secure current and future advances. 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 specific collateral listed above. The Bank
had borrowings of $124,355 against this line of credit at March 31, 1996.
The Bank has four irrevocable direct pay letters of credit with the Federal Home
Loan Bank of Indianapolis 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, 1996 is $0.
Interest expense on borrowed funds for the years ended March 31 is summarized as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Advances from the FHLB $ 1,501,121 $ 64,876 $ 500,336
Other 521,284 117,683 142,507
------------ ----------- -----------
$ 2,022,405 $ 182,559 $ 642,843
============ =========== ===========
</TABLE>
NOTE 11 - EMPLOYEE BENEFITS
Employee Pension Plan: The Bank is part of a multi-employer defined benefit
pension plan covering all qualified employees. The plan is administered by the
directors of the Financial Institutions Retirement Fund. There is no separate
valuation of plan benefits nor segregation of plan assets specifically for the
Bank. The plan is a multi-employer plan and separate actuarial valuations are
not made with respect to each employer nor are the plan assets so segregated.
However, as of June 30, 1995, the latest actuarial valuation, the total plan
assets exceeded the actuarially determined value of total vested benefits. The
cost of the plan is charged to expense and amounted to $4,815, $3,294 and $3,222
for the years ended March 31, 1996, 1995 and 1994, respectively.
- --------------------------------------------------------------------------------
(Continued)
37.
<PAGE> 35
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
NOTE 11 - EMPLOYEE BENEFITS (Continued)
Deferred Compensation Plan: In 1994, 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 Company 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 revenue 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 $1,426,000 and
$1,351,000 at March 31, 1996 and 1995, respectively, and is included in other
assets. At March 31, 1996 and 1995, the accrued liability for deferred fees was
approximately $152,000 and $85,000, respectively. The income derived from the
investment in life insurance included in other income was approximately $75,000
and $68,000 for the years ended March 31, 1996 and 1995, respectively.
Supplemental Retirement Plan: The Bank maintains a supplemental retirement plan
- -----------------------------
for executive officers of the Bank. The Company has purchased insurance
contracts on the lives of the participants in the supplemental retirement plan
and has named the Company 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 revenue from the insurance contracts will
be used as a funding source for the supplemental retirement plan. The Bank is
recording 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. The cash surrender value of the life insurance was
approximately $938,000 and $879,000 at March 31, 1996 and 1995, respectively,
and is included in other assets. The income derived from the investment in life
insurance included in other income was approximately $59,000, $52,000 and
$56,000 for the years ended March 31, 1996, 1995 and 1994, respectively. The
cost of the plan charged to expense was approximately $44,000, $40,000 and
$33,000 for the years ended March 31, 1996, 1995 and 1994, respectively. The
accrued liability to the Company was approximately $203,000 and $154,000 at
March 31, 1996 and 1995, respectively.
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 38,528
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. All 38,528
options were granted at an exercise price of $5 per share, restated for the 1994
100% stock dividend.
- --------------------------------------------------------------------------------
(Continued)
38.
<PAGE> 36
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
NOTE 11 - EMPLOYEE BENEFITS (Continued)
Activity in the Directors' Plan for years ended March 31 is summarized as
follows:
<TABLE>
<CAPTION>
Option Number of Options
-----------------
Exercise Price 1996 1995
-------------- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 5.00 26,896 36,528
Options exercised 5.00 (7,632) (9,632)
------ -------- --------
Balance at end of year $ 5.00 19,264 26,896
====== ======== ========
</TABLE>
Recognition and Retention Plans (RRP): In conjunction with the Bank's
- ------------------------------------------
conversion, 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 commencing immediately upon conversion. The Bank contributed
funds to the RRP to enable the Plans to acquire in the aggregate 38,528 shares
of common stock, restated for the 1994 stock dividend. An expense of $26,968,
$41,999 and $80,963 was recorded for these Plans for the years ended March 31,
1996, 1995, and 1994, respectively.
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, restated for the 1994 100%
stock dividend. 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 9.50%. 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 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.
- --------------------------------------------------------------------------------
(Continued)
39.
<PAGE> 37
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
NOTE 11 - EMPLOYEE BENEFITS (Continued)
The ESOP compensation expense was $64,211 for each of the years ended March 31,
1996, 1995 and 1994, respectively. The ESOP shares as of March 31 (adjusted for
the 100% stock dividend) were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Allocated shares 37,604 25,684
Shares released for allocation 684 350
Unreleased shares 51,608 63,862
--------- ---------
Total ESOP shares 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 impact 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 has adopted the CB
- -------------------
Bancorp, Inc. 1992 Incentive Stock Option Plan (the "Option Plan"). The number
of options authorized under the Plan is 89,892 shares of common stock, restated
for the 1994 100% stock dividend. 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. A total of 89,892 options were granted at an exercise price of $5
per share, restated for the 1994 100% stock dividend.
- --------------------------------------------------------------------------------
(Continued)
40.
<PAGE> 38
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
NOTE 11 - EMPLOYEE BENEFITS (Continued)
Activity in the Option Plan for years ended March 31 is summarized as follows:
<TABLE>
<CAPTION>
Range of Option Number of Options
-----------------
Exercise Price 1996 1995
-------------- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $5.00 - $8.50 86,424 87,708
Options exercised $5.00 (5,951) (1,284)
------ ------
Balance at end of year $5.00 - $8.50 80,473 86,424
====== ======
</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 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 bought by and annually contracted for by the Board of
Directors in the conduct of the Company's business in the future. These persons
will, if contracted for, be eligible, upon retirement, to receive an annual
benefit equal to a portion of the annual retainer fee, determined as of the
director's retirement date, set forth in the table below. The annual benefits
will be provided in monthly installments for the number of months a director has
agreed to provide consulting services after retirement from the Board, not to
exceed ten years. All benefits will cease upon a director's death. An expense of
approximately $37,000 and $80,000 was recorded for this plan for the years ended
March 31, 1996 and 1995. The resulting liability to the Company was
approximately $211,000 and $174,000 at March 31, 1996 and 1995 respectively.
<TABLE>
<CAPTION>
Percentage
of Annual
Retirement
Years of Service Benefit
---------------- -------
<S> <C>
10 25%
15 50%
20 75%
25 100%
</TABLE>
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, has 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. These directors
have provided, and will continue to provide, expertise in enabling the Bank to
experience successful growth and development.
- --------------------------------------------------------------------------------
(Continued)
41.
<PAGE> 39
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
NOTE 11 - EMPLOYEE BENEFITS (Continued)
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 obtained
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 obtaining 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.
NOTE 12 - INCOME TAXES
The Company files consolidated income tax returns. If certain conditions are met
in determining taxable income, the Bank is allowed a special bad debt deduction
based on a percentage of taxable income (presently 8%) or on specified
experience formulas. The Bank used the percentage-of-taxable-income method for
all years presented below.
Income tax expense for the years ended March 31 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal
Current $ 1,218,694 $ 754,847 $ 1,143,835
Deferred (146,818) 41 (64,857)
------------ ----------- ------------
1,071,876 754,888 1,078,978
----------- ----------- -----------
State
Current 363,345 236,603 346,797
Deferred (55,292) (21,217) (19,321)
------------ ----------- ------------
308,053 215,386 327,476
----------- ----------- -----------
Income tax expense $ 1,379,929 $ 970,274 $ 1,406,454
=========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
42.
<PAGE> 40
<TABLE>
<CAPTION>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- ----------------------------------------------------------------------------------------------
NOTE 12 - INCOME TAXES (Continued)
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:
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income taxes at statutory rate $ 1,304,967 $ 894,377 $ 1,278,758
Tax effect of:
Non-taxable income (8,722) (10,828) (12,684)
Increase in cash surrender value of
life insurance (45,656) (40,798) (31,878)
State tax, net of federal income tax
effect 203,315 142,155 216,134
Tax credits (70,000) - -
Other items, net (3,975) (14,632) (43,876)
------------ ------------ ------------
Income tax expense $ 1,379,929 $ 970,274 $ 1,406,454
=========== ============ ============
</TABLE>
The components of the net deferred tax asset recorded in the consolidated
balance sheets as of March 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets
Accumulated depreciation $ 41,359 $ 32,307
Bad debts 265,804 8,223
Deferred compensation 80,384 61,014
Deferred loan fees 147,439 171,217
Other 4,130 4,891
----------- ----------
539,116 277,652
Deferred tax liabilities
FHLB stock dividend (25,865) (25,865)
Affordable housing partnership (48,745) -
Other (33,659) (6,163)
------------ ----------
(108,269) (32,028)
Valuation allowance - -
----------- ----------
Net deferred tax asset $ 430,847 $ 245,624
=========== ==========
- ----------------------------------------------------------------------------------------------
</TABLE>
(Continued)
43.
<PAGE> 41
<TABLE>
<CAPTION>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------------------
NOTE 12 - INCOME TAXES (Continued)
Shareholders' equity at March 31, 1996 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, 1996.
NOTE 13 -CAPITAL STANDARDS
Federal regulations require savings banks to have minimum regulatory tangible
capital equal to 1.5% of total assets, a 3% core capital ratio and an 8%
risk-based capital ratio. Failure to meet a capital requirement exposes the Bank
to regulatory sanctions, including limitation on asset growth.
The Bank, at March 31, 1996 meets the regulatory tangible capital, core capital
and the risk-based capital requirements. At March 31, 1996, the Bank's
regulatory tangible capital was $16,026,000, or 7.80% of total assets; core
capital was $16,026,000 or 7.80% of total assets; and risk-based capital was
$17,191,000 or 15.20% of total risk-adjusted assets.
The following is a reconciliation of capital under generally accepted accounting
principles (GAAP) to regulatory capital for the Bank at March 31, 1996:
Tangible Core Risk-Based
Capital Capital Capital
------- ------- -------
<S> <C> <C> <C>
GAAP capital $ 16,024,973 $ 16,024,973 $ 16,024,973
Additional capital items
General valuation
allowances - limited 1,000 1,000 1,166,000
Other 27 27 27
------------- ------------ -------------
Regulatory capital - computed 16,026,000 16,026,000 17,191,000
Minimum capital requirement 3,072,000 6,144,000 9,045,000
------------- ------------ -------------
Regulatory capital - excess $ 12,954,000 $ 9,882,000 $ 8,146,000
============= ============ =============
- -------------------------------------------------------------------------------------------
</TABLE>
(Continued)
44.
<PAGE> 42
<TABLE>
<CAPTION>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------------------
NOTE 13 - CAPITAL STANDARDS (Continued)
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,
1996 approximately $4,464,000 of the Bank's retained earnings is potentially
available for distribution.
NOTE 14 - GAINS AND LOSSES ON SALES OF INTEREST-EARNING ASSETS, NET
Gains and losses for the years ended March 31 are summarized as follows:
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net realized gain on sale of securities
held for sale $ - $ - $ 503
Net realized loss on sale of securities
available-for-sale - (650) -
Net realized gain on sales of first
mortgage loans - - 2,010
Net realized gain on sales of mortgage
loans held for sale 1,478 - -
------------ ---------- -----------
$ 1,478 $ (650) $ 2,513
============ ========== ===========
</TABLE>
NOTE 15 - OTHER NONINTEREST INCOME AND EXPENSE
Other noninterest income and expense amounts for the years ended March 31 are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OTHER NONINTEREST INCOME
Commission income $ 115,426 $ 127,968 $ 168,620
Service charges and fees 506,034 539,137 447,378
Fees related to loans purchased
under agreements to resell 369,410 163,984 496,410
Late charges 21,510 23,126 28,311
Other 156,392 136,317 112,491
----------- ---------- -----------
$ 1,168,772 $ 990,532 $ 1,253,210
=========== ========== ===========
- --------------------------------------------------------------------------------------------
</TABLE>
(Continued)
45.
<PAGE> 43
<TABLE>
<CAPTION>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- ------------------------------------------------------------------------------------------
NOTE 15 - OTHER NONINTEREST INCOME AND EXPENSE (Continued)
OTHER NONINTEREST EXPENSE
<S> <C> <C> <C>
Advertising and promotion $ 97,203 $ 93,048 $ 81,452
Data processing 247,017 243,144 246,641
Insurance 20,348 23,500 38,538
Professional fees 174,265 159,707 159,264
Telephone, postage, and supplies 204,903 183,116 162,966
Employee expenses 195,216 145,113 132,207
Other 332,664 227,957 244,046
----------- ---------- -----------
$ 1,271,616 $1,075,585 $ 1,065,114
=========== ========== ===========
</TABLE>
NOTE 16 - COMMITMENTS AND CONTINGENCIES
As of March 1, 1996, the Company leased a branch office in Merrillville,
Indiana. Rent expense for the year ended March 31, 1996 was approximately
$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,
1996, the future annual rental commitments under non-cancelable leases for five
years total approximately $183,000, which includes $35,000 in 1997 and 1998,
$36,000 in 1999, $38,000 in 2000 and $39,000 in 2001.
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>
1996 1995
---- ----
<S> <C> <C>
Fixed rate loans $ 137,000 $ 325,000
Variable rate loans - 679,000
Fixed rate unused lines of credit 107,000 655,000
Variable rate unused lines of credit 1,188,000 436,000
Unused letters of credit 4,074,000 4,360,000
Undisbursed construction loans in
repurchase program (variable rate) 12,412,000 -
- ------------------------------------------------------------------------------------------
</TABLE>
(Continued)
46.
<PAGE> 44
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
NOTE 16 - COMMITMENTS AND CONTINGENCIES (Continued)
Fixed rate commitments and lines of credit at March 31, 1996 are at current
rates, ranging primarily from 6.875% to 9.00% (loans) and 16.00% to 19.00%
(lines of credit). The fixed rate commitments and unused lines of credit are
primarily for terms ranging from 60 days to two years.
Variable rate lines of credit at March 31, 1996 are at current rates, ranging
from 9.25% to 10.75%. The letters of credit are based primarily on the 1-year
U.S. Treasury note plus 300 basis points, with one additional letter of credit
based on the national prime rate of interest plus 100 basis points.
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 $800,000 and $625,000 of cash on hand
or on deposit with the Federal Reserve Bank of Chicago to meet regulatory
reserve requirements at March 31, 1996 and 1995, respectively.
The deposits of savings associations such as the Bank are presently insured by
the Saving Association Insurance Fund ("SAIF"). A recapitalization plan under
consideration by the Treasury Department, the FDIC, the OTS and the Congress
reportedly provides for a one-time assessment of .85% to .90% to be imposed on
all deposits insured by the SAIF in order to recapitalize the SAIF. No assurance
can be given, however, as to whether such a recapitalization plan will be
implemented. Based on the Company's deposits at March 31, 1996 in the amount of
$137.0 million, the Company's share of a one-time assessment of approximately
87.5 basis points would be approximately $1.2 million.
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. The remaining portion of the
debt financing is guaranteed by participating lenders through letters of credit
in amounts proportional to their loan amounts. The Bank and other lending
institutions have as their security a first mortgage lien and an assignment of
rents and leases on the apartment complex. As of March 31, 1996, Community
Financial has invested $1,678,573 in the limited partnership. Community
Financial contributed $228,573 in cash to the partnership while the remaining
$1,450,000 was funded by short-term tax-exempt notes backed by a letter of
credit issued by the Bank. Terms of the partnership agreement allocate 99% of
the eligible tax credits to the limited partner. For the year ended March 31,
1996, the limited partner received $70,000 in tax credits, which were the first
tax credits received from the limited partnership.
- --------------------------------------------------------------------------------
(Continued)
47.
<PAGE> 45
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
NOTE 17 - 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 92% of the
loan portfolio at March 31, 1996 and are primarily secured by residential
mortgages. Loans purchased under agreements to resell are residential mortgage
loans secured by one-to-four family residences located throughout the United
States.
NOTE 18 - RELATED PARTY TRANSACTIONS
Certain directors and executive officers of the Company are loan customers. 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>
<CAPTION>
<S> <C>
Balance - April 1, 1995 $ 367,013
New loans 169,998
Repayments (116,465)
Other changes (59,433)
---------
Balance - March 31, 1996 $ 361,113
=========
</TABLE>
Other changes include adjustments for loans applicable to one reporting period
that are excludable from the other reporting period.
- --------------------------------------------------------------------------------
(Continued)
48.
<PAGE> 46
<TABLE>
<CAPTION>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- ------------------------------------------------------------------------------------------------
NOTE 19 - SUBSIDIARY FINANCIAL STATEMENTS
Presented below are the condensed financial statements for the Bank's
wholly-owned subsidiary, Community Financial Services, Inc.
CONDENSED BALANCE SHEETS
March 31, 1996 and 1995
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 391,462 $ 515,800
Investment in limited partnership 1,678,573 1,525,000
Other assets (4,827) 7,151
----------- -----------
$ 2,065,208 $ 2,047,951
=========== ===========
LIABILITIES
Obligation relative to limited partnership 1,450,000 1,450,000
Other liabilities 17,619 86,878
----------- -----------
1,467,619 1,536,878
SHAREHOLDER'S EQUITY 597,589 511,073
----------- -----------
$ 2,065,208 $ 2,047,951
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
Years ended March 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating income
Fees and commission income $ 126,301 $ 134,650 $ 173,476
Other income 14,908 4,280 211
---------- ----------- ----------
141,209 138,930 173,687
Operating expense
Compensation 70,306 63,181 42,930
Other expenses 172,965 74,600 16,141
---------- ----------- ----------
243,271 137,781 59,071
---------- ----------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (102,062) 1,149 114,616
Income tax expense (benefit) (110,427) 490 48,711
---------- ----------- ----------
NET INCOME $ 8,365 $ 659 $ 65,905
========== ========== ==========
- ------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
49.
<PAGE> 47
<TABLE>
<CAPTION>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- ------------------------------------------------------------------------------------------------
NOTE 20 - PARENT COMPANY FINANCIAL STATEMENTS
Presented below are the condensed financial statements for the Parent Company,
CB Bancorp, Inc.
CONDENSED BALANCE SHEETS
March 31, 1996 and 1995
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,779,683 $ 2,047,780
Interest-earning deposits in financial institutions - 390,763
Securities available-for-sale 165,682 130,296
Investment in subsidiary 16,024,973 14,147,322
Other assets - 56,517
------------ -------------
$ 18,970,338 $ 16,772,678
============ =============
LIABILITIES $ 138,154 $ 94,717
SHAREHOLDERS' EQUITY 18,832,184 16,677,961
------------ -------------
$ 18,970,338 $ 16,772,678
============ =============
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
Years ended March 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income
Interest income $ 109,375 $ 91,677 $ 121,010
Dividends from the Bank 600,000 600,000 -
Other income - 1,900 7,700
----------- ----------- -----------
709,375 693,577 128,710
Expenses
Compensation 29,962 28,156 20,665
Other expenses 62,478 68,771 84,329
----------- ----------- -----------
92,440 96,927 104,994
----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE 616,935 596,650 23,716
Income tax expense (benefit) 7,198 (1,424) 9,763
----------- ----------- -----------
INCOME BEFORE EQUITY IN INCOME OF BANK 609,737 598,074 13,953
Equity in income of Bank 1,848,473 1,062,173 2,340,647
----------- ----------- -----------
NET INCOME $ 2,458,210 $ 1,660,247 $ 2,354,600
=========== =========== ===========
- ------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
50.
<PAGE> 48
<TABLE>
<CAPTION>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------------------
NOTE 20 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS Years ended
March 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,458,210 $ 1,660,247 $ 2,354,600
Adjustments to reconcile net income to net
cash from operating activities
Loans purchased under agreements to
resell - (4,568,273) (22,320,404)
Sale of loans purchased under agreements
to resell - 5,123,647 21,765,030
Equity in income of Bank (1,848,473) (1,062,173) (2,340,646)
Change in other assets 56,517 76,217 (115,816)
Change in other liabilities 135,572 35,766 40,081
----------- ----------- -----------
Net cash from operating activities 801,826 1,265,431 (617,155)
CASH FLOWS FROM INVESTING ACTIVITIES
Change in interest-earning deposits in
financial institutions 390,763 (390,763) 395,000
Purchase of securities available-for-sale (35,386) (125,466) -
----------- ----------- -----------
Net cash from investing activities 355,377 (516,229) 395,000
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock (557,427) (243,875) (559,363)
Issuance of shares of treasury stock 67,916 54,580 20,921
Contribution to fund ESOP 64,211 64,211 64,211
----------- ----------- -----------
Net cash from financing activities (425,300) (125,084) (474,231)
----------- ----------- -----------
Net change in cash and cash equivalents 731,903 624,118 (696,386)
Cash and cash equivalents at beginning of period 2,047,780 1,423,662 2,120,048
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,779,683 $ 2,047,780 $ 1,423,662
=========== =========== ===========
- ------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
51.
<PAGE> 49
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 prescribes that the Company
disclose the estimated fair value of its financial instruments. The following
table shows those values and the related carrying amounts at March 31, 1996 for
the Company. Items which are not financial instruments are not included.
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
------ ----------
<S> <C> <C>
Cash and equivalents $ 6,062,923 $ 6,062,923
Securities available-for-sale 620,948 620,948
Securities held-to-maturity 5,674,726 5,644,000
Federal Home Loan Bank stock 2,702,000 2,702,000
Mortgage-backed and related securities
held-to-maturity 10,192,178 10,282,000
Loans 171,301,372 171,967,000
Mortgage loans held for sale 512,750 513,000
Demand and savings deposits (68,390,229) (68,390,000)
Time deposits (68,656,902) (68,804,000)
Borrowed funds (45,124,355) (45,114,000)
</TABLE>
For purposes of the above disclosures of estimated fair value, the following
assumptions were used as of March 31, 1996. The estimated fair value for cash
and cash equivalents and interest-earning deposits is considered to approximate
cost. The estimated fair value for securities and mortgage-backed and related
securities is based on quoted market values for the individual securities or for
equivalent securities. The estimated fair value for loans is based on estimates
of the rate the Company would charge for similar such loans at March 31, 1996,
applied for the same time period until estimated payment. The estimated fair
value for demand and savings deposits is based on their carrying value. The
estimated fair value for certificates of deposit is based on estimates of the
rate the Company would pay on such deposits at March 31, 1996, applied for the
same time period until maturity. The estimated fair value of accrued interest
receivable and 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, 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, 1996
should not necessarily be considered to apply at subsequent dates.
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.
- -------------------------------------------------------------------------------
(Continued)
52.
<PAGE> 50
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS
March 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
NOTE 22 - IMPACT OF NEW ACCOUNTING STANDARDS
Several new accounting standards have been issued by the FASB that will apply in
1996. Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of", requires a review of long-term assets for impairment of recorded value and
resulting write-downs if the value is impaired. SFAS No. 122, "Accounting for
Mortgage Servicing Rights", requires recognition of an asset when servicing
rights are retained on in-house originated loans that are sold. SFAS No. 123,
"Accounting for Stock-Based Compensation" encourages, but does not require,
entities to use a "fair value based method" to account for stock-based
compensation plans. If the fair value accounting encouraged is not adopted,
entities must disclose the pro forma effect on net income and on earnings per
share had the accounting been adopted. These statements are not expected to have
a material effect on the Company's consolidated financial position or results of
operations.
- --------------------------------------------------------------------------------
53.
<PAGE> 51
CB BANCORP, INC. AND SUBSIDIARY
Shareholder Information
ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of shareholders will be held at the Michigan City Holiday
Inn, 5820 S. Franklin, Michigan City, Indiana on July 24, 1996 at 10:00 a.m.
COMMON SHARES
CB Bancorp, Inc., common stock is listed and traded on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") Small-Cap Market
under the symbol CBCO. Stock price quotations are published in daily newspapers
including the Wall Street Journal. As of March 31, 1996, CB Bancorp, Inc. had
approximately 260 holders of record of the Company's shares, not including those
investors holding the Company's stock in street name.
STOCK PRICES
The following table sets forth the common share prices and number of shares
traded during the 8 quarters ended March 31, 1996.
<TABLE>
<CAPTION>
Quarter Ended High Bid Low Bid Number of Shares Traded
------------- -------- ------- -----------------------
<S> <C> <C> <C>
June 30, 1994 13 1/4 10 1/4 379,702
September 30, 1994 12 3/4 11 1/2 471,474
December 31, 1994 12 10 197,539
March 31, 1995 11 1/4 10 1/2 100,647
June 30, 1995 12 3/4 11 1/4 90,493
September 30, 1995 15 1/4 12 1/2 302,837
December 31, 1995 17 3/4 15 1/4 188,720
March 31, 1996 19 17 1/4 153,347
</TABLE>
REGISTRAR AND STOCK TRANSFER AGENT
Inquiries regarding stock transfer, registration, lost certificates or changes
in name and/or address should be directed to the stock transfer agent and
registrar in writing.
ATTN: Investor Relations
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
NASDAQ MARKET MAKERS
As of March 31, 1996 the following firms were market makers in the Company's
shares:
Capital Resources, Inc. Sherwood Securities Corp.
Herzog, Heine, Geduld, Inc. Stifel Nicolaus & Co.
Howe, Barnes & Johnson, Inc. The Ohio Company
Natcity Investments, Inc.
FORM 10-KSB
A copy of CB Bancorp, Inc.'s Form 10-KSB (Annual Report), filed with the
Securities and Exchange Commission, may be obtained by writing to Mr. George
L.Koehm, Vice President and Treasurer, CB Bancorp, Inc., 126 E. Fourth Street,
Michigan City, Indiana 46360.
55
<PAGE> 52
CB BANCORP, INC. AND SUBSIDIARY
SHAREHOLDER INFORMATION (CONTINUED)
CORPORATE OFFICE CB Bancorp, Inc.
126 E. Fourth Street
P.O. Box 363
Michigan City, Indiana 46360
INDEPENDENT AUDITORS Crowe, Chizek and Company, LLP
330 East Jefferson Blvd.
P.O. Box 7
South Bend, Indiana 46624
CORPORATE COUNSEL C.T. Kitowski
126 W. Fourth Street
Michigan City, Indiana 46360
SPECIAL COUNSEL Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Suite 500
Washington, D.C. 20016
COMMUNITY BANK, A FEDERAL SAVINGS BANK
OFFICES
Main Office 126 E. Fourth Street
Michigan City, Indiana 46360
(219) 873-2800
Southside Office 3710 S. Franklin Street
Michigan City, Indiana 46360
(219) 879-3326
LaPorte Office 801 Monroe Street
LaPorte, Indiana 46350
(219) 362-6195
Merrillville Loan Office 701 E. 83rd Ave. Suite E
Merrillville, Indiana 46410
(219) 791-9171
56
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary information extracted from the Form 10-KSB and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000891525
<NAME> CB BANCORP, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,754,811
<INT-BEARING-DEPOSITS> 1,308,112
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 620,948
<INVESTMENTS-CARRYING> 18,568,904<F1>
<INVESTMENTS-MARKET> 18,628,000
<LOANS> 173,160,450
<ALLOWANCE> 1,346,328
<TOTAL-ASSETS> 205,384,936
<DEPOSITS> 137,047,131
<SHORT-TERM> 44,338,121
<LIABILITIES-OTHER> 1,717,500
<LONG-TERM> 3,450,000
0
0
<COMMON> 5,826,200<F2>
<OTHER-SE> 13,005,984
<TOTAL-LIABILITIES-AND-EQUITY> 205,384,936
<INTEREST-LOAN> 13,030,079
<INTEREST-INVEST> 1,255,060<F3>
<INTEREST-OTHER> 66,742
<INTEREST-TOTAL> 14,351,881
<INTEREST-DEPOSIT> 5,040,273
<INTEREST-EXPENSE> 7,062,678
<INTEREST-INCOME-NET> 7,289,203
<LOAN-LOSSES> 1,020,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,609,084
<INCOME-PRETAX> 3,838,139
<INCOME-PRE-EXTRAORDINARY> 3,838,139
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,458,210
<EPS-PRIMARY> 1.95
<EPS-DILUTED> 1.94
<YIELD-ACTUAL> 4.33
<LOANS-NON> 523,000
<LOANS-PAST> 4,000
<LOANS-TROUBLED> 306,000
<LOANS-PROBLEM> 2,164,000
<ALLOWANCE-OPEN> 672,276
<CHARGE-OFFS> 345,948
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,346,328
<ALLOWANCE-DOMESTIC> 1,146,328
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 200,000
<FN>
<F1> Includes mortgage-backed securities
<F2> Includes additional paid in capital
<F3> Includes interest on mortgage-backed securities
</FN>
</TABLE>
