<PAGE>
FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------
(Mark one)
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended September 30, 1996, or
( ) Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from to
Commission file number: 0-20742
CB BANCORP, INC
Delaware 35-1866127
- --------------------------------- ----------------
(State or other jurisdiction (I.R.S. Employee
of incorporation or organization) Identification
Number)
126 E Fourth Street
- -------------------
Michigan City, Indiana 46360
- ---------------------- -----
(Address of principal (Zip code)
executive office)
Registrant's telephone number, including area code:(219) 873-2800
--------------
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
(1) Yes X . No .
------ ------
(2) Yes X . No .
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of
shares outstanding for the issuer's classes of common stock as of
the latest practicable date.
Common Stock 1,162,263 Shares
-------------------- --------------------
(Class) (Outstanding)
<PAGE>
CB BANCORP, INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets, 1
September 30, 1996 and March 31, 1996
Consolidated Statements of Income, 2
Three and Six Months Ended
September 30, 1996 and 1995
Consolidated Statements of Changes in 3
Shareholders' Equity, Six Months Ended
September 30, 1996 and 1995
Consolidated Statements of Cash Flows, 4-5
Six Months Ended September 30, 1996
and 1995
Notes to Financial Statements 6-12
Item 2. Management's Discussion and Analysis 13-24
of Financial Condition and Results
of Operations.
PART II. OTHER INFORMATION
- ------- -----------------
Item 1 Legal Proceedings 25
Item 2-3 N/A 25
Item 4 Submission of Matters to a vote of 25
Security Holders
Item 5 N/A 26
Item 6 Exhibits and Reports on Form 8-K 26
Signature Page 27
</TABLE>
<PAGE>
CB BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 30, March 31,
1996 1996
----------- -----------
(In thousands)
<S> <C> <C>
ASSETS:
Cash and due from financial institutions $ 1,850 $ 4,755
Interest-earning deposits - Short Term 205 1,308
----------- -----------
Cash and cash equivalents 2,055 6,063
Securities available-for-sale (reported at fair value (Note 2) 631 621
Securities held-to-maturity (fair value: Sept. 30, 1996 - 6,743 5,675
$6,712; March 31, 1996 - $5,644) (Note 2)
Other Securities - Federal Home Loan Bank Stock (Note 2) 2,702 2,702
Mortgage-backed and related securities held-to-maturity (fair value:
Sept. 30, 1996 - $9,273; March 31, 1995 - $10,282) (Note 3) 9,202 10,192
Loans
Loans purchased under agreements to resell (Note 5) 78,422 80,031
Loans receivable 90,592 92,616
Less: Allowance for possible loan losses (1,866) (1,346)
----------- -----------
167,148 171,301
Mortgage loans held for sale 1,564 513
Accrued interest receivable 1,176 1,183
Foreclosed Real Estate 333 0
Premises and equipment, net 2,807 2,387
Investment in limited partnership (Note 8) 1,656 1,679
Other assets 3,991 3,069
----------- -----------
Total assets $200,008 $205,385
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities
Deposits $129,085 $137,047
Borrowed funds 44,000 45,124
Advance payment by borrowers for taxes and insurance 1,087 1,214
Obligation relative to limited partnership (Note 8) 1,468 1,450
Accrued expenses and other liabilities 4,988 1,718
------------ ------------
Total liabilities 180,628 186,553
Commitments and contingencies (Note 7)
Shareholders' equity
Serial preferred stock, no par value, 500,000
hares authorized; none outstanding
Common Stock: $.01 Par Value, 3,000,000 shares
authorized, 1,284,238 Shares Issued 13 13
Additional Paid-in capital 5,805 5,813
Retained earnings, substantially restricted 15,289 14,324
Less Treasury Stock: (Shares at cost: Sept. 30, 1996 - 121,975; (1,539) (1,082)
March 31, 1996 - 96,012)
Net unrealized net appreciation on securities available-for-sale 33 26
Less common stock acquired by employee stock ownership plan (209) (241)
Less common stock acquired by recognition and retention plan (12) (21)
----------- -----------
Total shareholders' equity 19,380 18,832
----------- -----------
Total liabilities and shareholders' equity $200,008 $205,385
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
1
<PAGE>
CB BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
September 30, September 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
(In thousands-except per share data)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $1,890 $1,880 $3,761 $3,692
Loans purchased under agreements to resell 1,774 1,442 3,557 2,204
Securities available-for-sale 8 54 15 107
Securities held-to-maturity 143 90 271 173
Mortgage-backed securities held-to-maturity 158 176 325 360
Other interest-earning deposits 4 18 10 38
----------- ----------- ----------- -----------
Total interest income 3,977 3,660 7,939 6,574
----------- ----------- ----------- -----------
Interest expense:
Deposits 1,359 1,291 2,680 2,380
Borrowed funds 602 525 1,231 811
----------- ----------- ----------- -----------
Total interest expense 1,961 1,816 3,911 3,191
----------- ----------- ----------- -----------
Net interest income 2,016 1,844 4,028 3,383
Less provision for loan losses 300 70 411 139
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 1,716 1,774 3,617 3,244
----------- ----------- ----------- -----------
Noninterest income:
Gain (loss) on sale on interest-earning assets 77 0 121 0
Commission income 23 22 49 48
Service charges and fees 133 121 259 247
Fees - loans purchased under agreements to resell 162 92 308 138
Late charges 7 5 14 11
Other 33 43 65 76
----------- ----------- ----------- -----------
Total noninterest income 435 283 816 520
----------- ----------- ----------- -----------
Noninterest expense:
Compensation and employee benefits 479 378 954 747
Occupancy and equipment 155 135 301 259
SAIF deposit insurance premium 801 63 870 127
Data processing fees 58 62 120 121
Telephone, postage and supplies 61 49 125 96
Advertising and promotion 29 25 65 46
Professional fees 72 36 134 73
Employee expense and payroll taxes 69 48 146 85
Other 108 61 279 194
----------- ----------- ----------- -----------
Total noninterest expense 1,832 857 2,994 1,748
----------- ----------- ----------- -----------
Income before taxes 319 1,200 1,439 2,016
Income tax expense 61 462 474 774
----------- ----------- ----------- -----------
Net income $258 $738 $965 $1,242
=========== =========== =========== ===========
Earnings per share (Note 6) $0.21 $0.58 $0.78 $0.98
Earnings per share assuming full dilution (Note 6) $0.21 $0.58 $0.78 $0.97
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
CB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized Common Stock Total
Losses on Acquired by Share-
Six Months Ended Retained Securities Common Paid in Treasury ----------- holders
Sept. 30, 1995 Earnings A.F.S Stock Capital Stock ESOP RRP Equity
- ------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1995 $11,865 $2 $13 $5,822 $(671) $(305) (48) $16,678
Net income 1,242 1,242
Issuance of treasury stock (16) 32 16
Purchase of treasury stock (545) (545)
Contribution to fund ESOP 32 32
Amortization of RRP contribution 16 16
Net change in unrealized 17 17
net depreciation of securities
available-for-sale
- ------------------------------------------------------------------------------------------------------------------------
Balance at Sept. 30, 1995 $13,107 $19 $13 $5,806 $(1,184) $(273) $(32) $17,456
=====================================================================================
<CAPTION>
Unrealized Common Stock Total
Losses on Acquired by Share-
Six Months Ended Retained Securities Common Paid in Treasury ----------- holders
Sept. 30, 1995 Earnings A.F.S Stock Capital Stock ESOP RRP Equity
- ------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1996 $14,324 $26 $13 $5,813 $(1,082) $(241) $(21) $18,832
Net income 965 965
Issuance of treasury stock (8) 14 6
Purchase of treasury stock (471) (471)
Contribution to fund ESOP 32 32
Amortization of RRP contribution 9 9
Net change in unrealized 7 7
net depreciation of securities
available-for-sale
- ------------------------------------------------------------------------------------------------------------------------
Balance at Sept. 30, 1996 $15,289 $33 $13 $5,805 $(1,539) $(209) $(12) $19,380
=======================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
CB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
September 30,
-----------------------------
1996 1995
----------- -----------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 965 $1,242
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization 67 126
Provision for loan losses 411 139
(Gain) loss on sale of:
Interest earning assets (121) 0
Loans purchased under agreements to resell (518,449) (359,885)
Sale of loans purchased under agreements to resell 520,059 321,744
Mortgage loans originated for sale (7,735) 0
Proceeds from sales of mortgage loans held for sale 6,684 0
Amortization of RRP contribution 9 16
Change in accrued interest receivable 7 (355)
Change in other assets (922) (5)
Change in accrued interest payable and other liabilities 3,270 311
------------ ------------
Net cash from operating activities 4,245 (36,667)
CASH FLOWS FROM INVESTING ACTIVITIES
Principal collected on:
Mortgage-backed securities held-to-maturity 1,134 1,198
Securities available for sale 2 0
Purchase of:
Securities and mortgage backed securities held-to-maturity (2,173) (3,772)
Proceeds from:
Maturities of securities held-to-maturity 959 3,713
Purchase of loans 0 (1,527)
Net change in loans 1,950 (2,882)
Net change in interest-earning deposits in other financial institutions 0 197
Investment in limited partnership 23 (25)
Proceeds from the sale of foreclosed real estate 0 3
Property and equipment purchases (520) (28)
------------ ------------
Net cash from investing activities 1,375 (3,123)
</TABLE>
4
<PAGE>
CB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
September 30,
----------------------------
1996 1995
----------- ----------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits (7,962) 10,563
Net increase (decrease) in advances from
borrowers for taxes and insurance (127) 224
New borrowings 862,891 969,274
Repayments of borrowed funds (863,997) (940,319)
Contribution to fund ESOP 32 32
Issuance of treasury stock 6 16
Purchase of treasury stock (471) (545)
------------ ------------
Net cash from financing activities (9,628) 39,245
------------ ------------
Net change in cash and cash equivalents (4,008) (545)
Cash and cash equivalents at beginning of period 6,063 3,543
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,055 $2,998
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $3,748 $2,701
Income taxes 1,114 605
Noncash investing activities
Real estate acquired in settlement of loans $ 334 $73
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
CB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-QSB and, therefore, do not
include all disclosures required by generally accepted accounting principles for
complete presentation of financial statements. In the opinion of management, the
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the consolidated balance
sheets of CB Bancorp, Inc., ("the Company"), and its wholly owned subsidiary,
Community Bank, A Federal Savings Bank ("the Bank"), as of September 30, 1996
and March 31, 1996 and the consolidated statements of income, changes in
shareholders' equity and cash flows for the three and six months ended September
30, 1996 and 1995. All significant intercompany transactions and balances are
eliminated in consolidation. The income reported for the three and six months
ended September 30, 1996 is not necessarily indicative of the results that may
be expected for the full fiscal year. For other accounting policies refer to the
financial statements incorporated by reference in the Annual Report or Form
10-KSB for the fiscal year ended March 31, 1996.
Note 2 - Securities
The amortized cost and fair values of securities at September 30, 1996
are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Available-for-Sale
- ------------------
Marketable Equity securities $ 577 56 (2) 631
============================================================
Held-to-Maturity
----------------
U.S. Government and U.S. Government
agency securities $3,750 $ - $ (33) $3,717
Corporate notes 2,993 5 (3) 2,995
------------ ------------ ------------ ----------
Total $6,743 $ 5 $ (36) $6,712
============================================================
Other Securities
----------------
Stock in Federal Home Loan Bank $2,702 $ - $ - $2,702
============================================================
</TABLE>
6
<PAGE>
CB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 2 - Securities (continued)
The amortized cost and fair values of securities at March 31, 1996 are
as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Available-for-Sale
- ------------------
Marketable Equity securities $ 578 44 (1) 621
============================================================
Held-to-Maturity
----------------
U.S. Government and U.S. Government
agency securities $3,000 $ - $ (30) $2,970
Corporate notes 2,675 5 (6) 2,674
---------- ---------- ---------- ----------
Total $5,675 $ 5 $ (36) $5,644
==========================================================
Other Securities
----------------
Stock in Federal Home Loan Bank $2,702 $ - $ - $2,702
==========================================================
</TABLE>
The amortized cost and fair value of debt securities at September 30,
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>
Sept. 30, 1996
------------------------
Amortized Fair
Cost Value
---------- ----------
(In thousands)
<S> <C> <C>
Due in one year or less ................. $2,988 $2,987
Due after one year through five years ... 3,755 3,725
---------- ----------
$6,743 $6,712
========================
</TABLE>
7
<PAGE>
CB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 2 - Securities (continued)
There were no sales of securities available-for-sale during the six
months ended September 30, 1996.
At September 30, 1996, there were no holdings of securities of any one issuer,
other than the U.S. government and its agencies and corporations, in amounts
greater than 10% of shareholders' equity.
Note 3 - Mortgage-Backed and Related Securities
The carrying value and fair value of mortgage-backed and related
securities held-to-maturity as presented on the balance sheets are summarized as
follows:
<TABLE>
<CAPTION>
September 30, 1996
-------------------------------------------------------------------
Principal Unamortized Unearned Carrying Fair
Balance Premiums Discounts Value Value
-------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
GNMA certificates $ 3,410 $ 7 $ (7) $ 3,410 $ 3,451
FHLMC certificates 4,367 1 (5) 4,363 4,376
FNMA certificates 928 - (11) 917 932
Collateralized mortgage
obligations 514 - (2) 512 514
------------------------------------------------------------------
Total $ 9,219 $ 8 $ (25) $ 9,202 $ 9,273
==================================================================
</TABLE>
<TABLE>
<CAPTION>
March 31, 1996
-------------------------------------------------------------------
Principal Unamortized Unearned Carrying Fair
Balance Premiums Discounts Value Value
------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
GNMA certificates $ 3,600 $ 9 $ (10) $ 3,599 $ 3,646
FHLMC certificates 4,892 3 (6) 4,889 4,914
FNMA certificates 880 - (8) 872 886
Collateralized mortgage
obligations 834 1 (3) 832 836
------------------------------------------------------------------
Total $10,206 $ 13 $ (27) $10,192 $10,282
==================================================================
</TABLE>
8
<PAGE>
CB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 3 - Mortgage-Backed and Related Securities (continued)
Gross unrealized gains and losses on mortgage-backed and related
securities held-to-maturity are as follows:
<TABLE>
<CAPTION>
Sept. 30, 1996 March 31, 1996
----------------------- ------------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains losses
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
GNMA certificates $ 43 $ (2) $ 54 $ (7)
FHLMC certificates 41 (28) 72 (47)
FNMA certificates 16 (1) 14 -
Collateralized mortgage
obligations 3 (1) 4 -
---------- ---------- ---------- ----------
Total $ 103 $ (32) $ 144 $ (54)
========================= ==========================
</TABLE>
The Company did not sell any mortgage-backed and related securities
held-to-maturity during the six months ended September 30, 1996 and during the
six months ended September 30, 1995.
Note 4 - Concentrations of Credit Risk
The Company grants real estate and consumer loans including education,
home improvement and other consumer loans primarily in LaPorte and Porter
counties of Indiana. Substantially all loans are secured by consumer assets and
real estate. Loans purchased under agreements to resell are residential mortgage
loans secured by one to four family residences located throughout the
continental United States.
Note 5 - Loans Purchased Under Agreements to Resell
The Company purchases residential mortgage loans from various mortgage
companies prior to sale of these loans by the mortgage companies in the
secondary market. The Company purchases such loans from mortgage companies at
par, net of certain fees, and later sells them back to the mortgage companies at
the same amount and without recourse provisions. The Company records interest
income on the loans during the funding period and the Company records fee income
(recorded as noninterest income) received from the mortgage company for each
loan when resold. Purchase money and refinance mortgage loans are generally held
no more than 90 days by the Company and typically are resold within 30 days.
Construction loan mortgages purchased, are held for the duration of the
construction period which is typically six months or longer. With regard to the
interim construction loans in the pipeline, the Company recognizes that there
may be credit risk due to possible change in the borrower's financial condition
during the interim construction period. The Company had
9
<PAGE>
CB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 5 - Loans Purchased Under Agreements to Resell (continued)
approximately $30.0 million of interim construction loans in the pipeline at
September 30, 1996 as compared to $29.4 million at March 31, 1996.
NOTE 6 - Earnings Per Common Share
Earnings per common and common equivalent share were computed by
dividing net income by the weighted-average number of shares of common stock and
common stock equivalents outstanding. Employee and Director stock options are
considered common stock equivalents. The weighted-average number of shares
outstanding for the calculation of earnings per common and common stock
equivalent share for the three months ended September 30, 1996 and 1995 was
1,244,474 and 1,267,070, respectively. The weighted-average number of shares
outstanding for the calculation of fully-diluted earnings per common and common
stock equivalent share for the three months ended September 30, 1996 and 1995
was 1,238,150 and 1,268,784, respectively.
The weighted-average number of shares outstanding for the calculation
of earnings per common and common stock equivalent share for the six months
ended September 30, 1996 and 1995 was 1,243,314 and 1,271,274, respectively. The
weighted-average number of shares outstanding for the calculation of
fully-diluted earnings per common and common stock equivalent share for the
three months ended September 30, 1996 and 1995 was 1,238,150 and 1,275,398,
respectively.
Note 7 - Commitments and Contingencies
The Company is a party to financial instruments with off balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to make loans,
standby letters of credit and unused lines of credit. The Company's exposure to
credit loss, in the event of nonperformance by the other party to the financial
instrument for commitments to make loans, standby letters of credit and unused
lines of credit, is represented by the contractual amount of those instruments.
The Company follows the same credit policy to make such commitments as it
follows for those loans recorded in the financial statements. At September 30,
1996, and March 31, 1996, the Company had commitments to make loans totaling
$292,000 and $137,000 respectively and standby letters of credit and unused
lines of credit totaling $6.6 million and $5.4 million, respectively. In
addition, the Company's undisbursed portion of construction loans in the
repurchase program totaled $13.4 million at September 30, 1996 and $12.4 million
at March 31, 1996. Outstanding commitments to make loans at September 30, 1996
consisted of five single family mortgage loans, consisting of two adjustable
rate loans totalling $99,000 and three fixed rate loans totalling $193,000.
Since commitments to make loans and to fund lines and letters of credit may
expire
10
<PAGE>
CB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 7 - Commitments and Contingencies (continued)
without being used, the amounts do not necessarily represent
future cash commitments.
Note 8 - Affordable Housing Tax Credit Project
The Company, through the Bank's subsidiary, Community Financial
Services, Incorporated, has a 99% limited partner interest in Pedcor
Investments-1994-XX, L.P. which was formed for the construction, ownership, and
management of an 80 unit apartment project located in Michigan City, Indiana.
Financing consists of a $2,550,000 first mortgage loan funded with tax exempt
bonds.
The Bank is the lead lender in the debt financing arrangement and has guaranteed
through letters of credit $1,550,000 of the debt financing, which represents the
Bank's share of the mortgage loan. The remaining portion of the debt financing
is guaranteed by participating lenders through letters of credit in amounts
proportional to their loan amounts. The Bank and other lending institutions have
as their security a first mortgage lien and assignment of rents and leases on
the apartment complex. As of September 30, 1996, Community Financial has
invested $1,656,000 in the limited partnership. Community Financial contributed
$188,000 in cash to the partnership while the remaining $1,468,000 was funded by
short-term tax-exempt notes backed by a letter of credit issued by the Bank.
Terms of the partnership agreement allocate 99% of the eligible tax credits to
the 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 partner.
Note 9 - Allowance for Loan Losses
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Estimating the risk of loss and
the amount of loss on any loan is necessarily subjective. Accordingly, the
allowance is maintained by management at a level considered adequate to cover
losses that are currently anticipated. Management's periodic evaluation of the
adequacy of the allowance is based on the Company's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrowers ability to repay, the estimated value of any underlying
collateral, and current economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Company's allowance for losses on loans and foreclosed real estate. Such
agencies may require the Company to recognize additions to the allowances based
on their judgments of information available to them at the time of their
examination.
11
<PAGE>
CB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 9 - Allowance for Loan Losses (continued)
Activity in the allowance for loan losses was as follows for the six months
ended September 30 (In Thousands).
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Balance at March 31 $1,347 $ 672
Provision for loan losses 411 139
Charged-off loans (9) (3)
Recoveries 117 -
-------- --------
Balance at Sept. 30 $1,866 $ 808
========== ==========
</TABLE>
12
<PAGE>
Management's Discussion and Analysis
of Plan of Operation
General
The Company's results of operations are dependent primarily on the
Bank. The Bank's primary source of earnings is its net interest income which is
the difference between the interest income earned on its loan, mortgage-backed
securities and investment portfolios less its cost of funds, consisting of the
interest paid on its deposits and borrowings. Operating results are also
affected by the types of lending engaged in, fixed-rate versus adjustable or
short-term, each of which has a different rate and fee structure. The Company's
operating expenses principally consist of employee compensation and benefits,
occupancy and equipment expenses, federal deposit insurance premiums and other
general and administrative expenses. The Company's results of operation are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
Mortgage Loan Reverse Repurchase Program
In fiscal 1991, the Company instituted the Mortgage Loan Reverse
Repurchase Program (the "Program"). There are currently seventy-nine active
participants in the Program. The Mortgage Loan Reverse Repurchase Program is
carried out pursuant to agreements with each participant which provide for the
purchase at par (less certain fees paid to the participant by the borrower) of
whole mortgage loans by the Company, at its option, and the subsequent resale of
such loans to the Participant (for transfer to an end investor). Purchase money
and refinance mortgage loans are generally held no more than 90 days by the
Company and typically are resold within 30 days. Construction loan mortgages
acquired via the Program, are held for the duration of the construction loan
period, typically for six months or longer. At September 30, 1996, construction
loan balances totaled $30.0 million and accounted for 38.2% of the Company's
total outstanding investment in the Program. The Company records interest income
on the loans based on a rate of interest tied to the prime rate (as established
from time to time by a major Chicago-based financial institution) during the
funding period, and not the rates on individual loans, plus a fee (recorded as
noninterest income) collected from the Participant for each loan when that loan
is resold. It is the Company's policy to purchase under the Program only those
loans that comply with accepted secondary market underwriting standards. The
Company's Mortgage Loan Reverse Repurchase Program has been and is a key
contributor to the Company's efforts to maintain a strong net interest margin.
Management is aware that a decline in Program activity would negatively impact
the Company's profitability.
Financial Condition
Total assets decreased $5.4 million or 2.6%, to $200.0 million at
September 30, 1996 from $205.4 million at March 31, 1996. The decrease is
primarily attributable to a $4.0 million or 66.1% de-
13
<PAGE>
crease in cash and cash equivalents related to the cash flow needs of the
Program, a $2.0 million decrease in the loans receivable portfolio resulting
from management's decision to sell a majority of the Company's single family
loan production and a $1.6 million decrease in loans purchased under agreements
to resell under the Program. Since its inception, the Program has caused the
level of the Company's assets and liabilities and capital ratios to
significantly fluctuate between periods. Management attributes this decrease to
higher mortgage interest rates which have resulted in a decrease in home
mortgage originations. Over this same time period, mortgage loans held for sale
increased $1.1 million or 204.9%; FHLB Stock and securities increased $1.1
million or 12.0%; other assets increased $0.9 million or 30.0% primarily
attributable to changes in the Company's income tax obligations and
mortgage-backed and related securities decreased $1.0 million or 9.7%.
Total borrowed funds decreased $1.1 million or 2.5%, to $44.0 million at
September 30, 1996 from $45.1 million at March 31, 1996. This decrease is
attributable to the decreased funding needs of the Program. Borrowed funds
outstanding at September 30, 1996 consist of $37 million in advances outstanding
with the Federal Home Loan Bank of Indianapolis, of which $35 million have
maturities of one year or less, and federal funds purchased of $7.0 million.
Deposits decreased $8.0 million or 5.8%, to $129.1 million at September 30,
1996, from $137.0 million at March 31, 1996. The decrease in deposits is also
primarily attributable to the decreased funding needs of the Program.
The primary objective of the Company's $19.2 million securities portfolio is to
contribute to profitability by providing a stable cash flow of dependable
earnings. The investment portfolio consists of U.S. Treasury and Agency
securities, short-term investment grade corporate notes and Federal Home Loan
Bank Stock. The Company also has investments in both variable and fixed rate
U.S. Government Agency mortgage-backed securities and collateralized mortgage
obligations. The Company's portfolio of securities contains no securities
classified by the Federal Banking Regulators as "High Risk Derivative
Securities".
Risk Elements
Non-performing Assets: Non-performing assets totaled $3.4 million at September
30, 1996, a increase of $406,000 from March 31, 1996. Loan loss reserves at
September 30, 1996 totaled $1.9 million or 54.8% of total nonperforming assets
and increased $519,000 from March 31, 1996.
At September 30, 1996, impaired assets included $1.6 million in principal due
the Company on four pools of small business equipment leases that the Company
acquired through contractual relationships entered into with Bennett Funding
Group, Inc. and its affiliate Aloha Capital Corporation (f.k.a. Bennett Leasing
Corporation). Bennett Funding Group, Inc. sought Chapter 11 Bankruptcy
protection on March 29, 1996. Several weeks later, Aloha Capital Corporation was
placed into involuntary bankruptcy at the request of the court appointed
Bankruptcy Trustee for
14
<PAGE>
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 September 30, 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
September 30, 1996, $1.2 million of principal remained to be remitted to the
Company on three pools of leases purchased from and serviced by Aloha Capital
Corporation. Payment due the Company on the four pools of leases were current at
the time the respective servicing companies were placed in bankruptcy. The
Bankruptcy Trustee is monitoring the lease payment billing and collection
activities of the servicing companies and is segregating the payments received
from the individual lessees but has not yet allowed the resumption of the
payment stream due the Company. Management can make no assurances as to the
outcome of this matter.
Also included in impaired loans are three single family first mortgage loans
totaling $865,000. Two of theses loans are construction loans, one of which is
currently in foreclosure and the Company has received a signed offer to purchase
the property for an amount above it's carrying value. The Company is in the
process of initiating foreclosure proceedings on the second construction loan.
The remaining loan, which is located in the Chicago area, totals $418,000. The
Company has initiated foreclosure proceedings on this property as a result of
the borrowers failure to keep the property taxes current. Based upon a 1993
appraised value of the property, this loan currently has a 71% loan to value
ratio.
<TABLE>
<CAPTION>
Schedule of Non-performing Asset
Sept. 30, March 31, Sept. 30,
1996 1996 1995
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Accruing mortgage loans
delinquent more than 90 days $ - $ - $ -
Accruing consumer and other
loans delinquent more than
90 days 3 4 4
Non-accruing mortgage loans
delinquent more than 90 days 260 523 357
Non-accruing consumer and
other loans delinquent more
than 90 days - - -
----------- ----------- -----------
Total loans delinquent more
than 90 days 263 527 361
Restructured loans 296 306 314
Impaired Loans 2,510 2,164 -
----------- ----------- -----------
Total non-performing loans 3,069 2,997 675
Total real estate owned,
net of related reserves 334 - 64
----------- ----------- -----------
Total non-performing assets $ 3,403 $ 2,997 $ 739
=========== =========== ===========
Total non-performing assets
to total loans 2.04% 1.74% 0.82%
Total non-performing assets
to total assets 1.70 1.46 0.40
Total loan loss allowances
to non-performing assets 54.83 44.91 109.20
</TABLE>
15
<PAGE>
Interest Rate Sensitivity
The Company's primary strategy for controlling interest rate risk exposure, is
to maintain a high level of the Company's asset portfolios in interest rate
sensitive assets. Management has accomplished this objective through its
investment in the Loan Reverse Repurchase Program. Under the Program, the
Company purchases single family mortgage loans from select mortgage banking
firms on a short-term basis under agreements to resell and earns an adjustable
prime based return during the holding period. The Program has complemented the
Company's portfolio of adjustable rate loans held for investment which account
for approximately 40% of the loans receivable portfolio. In addition, the
Company has sought to lengthen the maturity of its interest-bearing liabilities
by emphasizing longer term certificates of deposit. The Company also has the
ability to obtain long-term advances from the Federal Home Loan Bank of
Indianapolis if such borrowings appear favorable under a particular interest
rate environment.
Management regularly measures the Bank's interest rate risk by monitoring the
Company's interest rate risk ("IRR") measures produced by the Office of Thrift
Supervision from the Bank's quarterly thrift financial reports. In 1990, the
regulators adopted the interest-rate sensitivity approach as one measure of
interest-rate risk. This approach measures the projected changes in net
portfolio value ("NPV") that would result if interest rates were to increase by
100, 200, 300 and 400 basis points, or if interest rates were to decline by 100,
200, 300 and 400 basis points. Net portfolio value is defined by the market
value of assets less the market value of liabilities. According to the "Interest
Rate Risk Report," prepared by the Office of Thrift Supervision as of June 30,
1996 (most recent available), after an adverse rate shock of +200 basis points,
the Bank's NPV of $23.0 million was projected to decline $2.8 million or 12.0%,
to $20.2 million. According to the OTS report, 60% of Thrifts nationwide would
have experienced a decline of 14.8% or less. Presented below, as of June 30,
1996, is an analysis of the Bank's interest rate risk as measured by changes in
NPV for instantaneous and substantial parallel shifts of 100 basis points in
market interest rates.
<TABLE>
<CAPTION>
Interest Rate Sensitivity of Net Portfolio Value (NPV)
Net Portfolio Value
-------------------
Change
in rates $ Amount $ Change % CHANGE
-------- --------- --------- ---------
<S> <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 - 593 - 2%
</TABLE>
16
<PAGE>
COMPARISON OF OPERATING RESULTS
Three Months Ended September 30 1996, Compared to Three Months
- --------------------------------------------------------------
Ended September 30, 1995
- ------------------------
GENERAL: The Company reported net income of $258,000 for the three month period
ended September 30, 1996 which represents a 65.0% decrease over the comparable
three-month period in 1995 in which the Company reported net income of $738,000.
The decrease in net income is primarily attributable to a non-recurring pre-tax
charge of $723,000 resulting from legislation signed into law on September 30,
1996 to recapitalize the Federal Deposit Insurance Corporation's (FDIC) Savings
Association Insurance Fund (SAIF). This one time, special assessment reduced
second quarter after tax earnings by $437,000 or $0.36 per share. Earnings were
also negatively impacted by an increase in loan loss provisions.
INTEREST INCOME: Interest income increased $317,000 million or 8.7%, from $3.7
million at September 30, 1995, to $4.0 million at September 30, 1996. The
increase in interest income is primarily attributable to an increase in the
Company's outstandings in the Mortgage Loan Reverse Repurchase Program. The
Company's average outstanding investment in the Program increased $14.7 million
or 23.8%, from $61.8 million for the three months ended September 30, 1995 to
$76.5 million for the three months ended September 30, 1996. Over this same time
period, interest income on loans purchased under agreements to resell increased
$332,000 or 23.0%. The increase in outstandings in the Program is attributable
to an increase in mortgage refinancings and home mortgage originations as a
result of a decline in mortgage interest rates. The increase in activity is also
attributable to an increase in the number of mortgage companies participating in
the Program.
INTEREST EXPENSE: Interest expense increased $145,000 or 8.0%, from $1.8 million
for the three months September 30, 1995, to $2.0 million for the three months
September 30, 1996. The increase is primarily attributable to a $77,000 or 14.7%
increase in interest on borrowings and a $68,000 or 5.3% increase in interest on
deposits resulting from the increased funding needs of the Program.
NET INTEREST INCOME: Net interest income before the provision for loan losses
increased by $172,000 or 9.3% from $1.8 million for the three months ended
September 30, 1995, to $2.0 million for the three months ended September 30,
1996. This increase in net interest income over the prior year's quarter is
primarily attributable to management's efforts to profitably grow the Loan
Reverse Repurchase Program.
PROVISION FOR LOAN LOSSES: The provision for loan losses increased $230,000 or
328.6%, from $70,000 for the three months ended September 30, 1995, to $300,000
for the three months ended September 30, 1996. The increase in the provision
reflects an increase in the Company's level of nonperforming assets and
increased activity in construction lending, commercial lending and consumer
lending. The Company will continue to monitor its allowance for loan losses and
make future loan loss provisions in consideration of the amount and types of
loans in its portfolio and as economic conditions dictate.
17
<PAGE>
NONINTEREST INCOME: Noninterest income increased $152,000 or 53.7% to $435,000
for the three months ended September 30, 1996, from $283,000 for the three
months ended September 30, 1995. This increase was primarily attributable to a
$70,000 or 76.1% increase in fees related to the repurchase program, and to
$77,000 in gains realized from the sale of single family mortgage loans.
NONINTEREST EXPENSE: Noninterest expense increased $975,000 or 113.8% to $1.8
million for the three months ended September 30, 1996, from $857,000 for the
same time period in the prior year. The increase in noninterest expenses is
primarily attributable to a $738,000 increase in deposit insurance premiums
resulting from the one time assessment cited above, and increased personnel and
occupancy expenses related to the Company's newly established Mortgage Banking
Division.
INCOME TAX EXPENSE: Income tax expense decreased $401,000 or 86.8%, from
$462,000 for the three months ended September 30, 1995, to $61,000 for the three
months ended September 30, 1996. This decrease is primarily attributable to a
decrease in earnings.
Six Months Ended September 30 1996, Compared to Six Months Ended
- ----------------------------------------------------------------
September 30, 1995
- ------------------
GENERAL: The Company reported net income of $965,000 for the six month period
ended September 30, 1996 which represents a 22.3% decrease over the comparable
six-month period in 1995 in which the Company reported net income of $1.2
million. The decrease in net income is primarily attributable to a non-recurring
pre-tax charge of $723,000 resulting from legislation signed into law on
September 30, 1996 to recapitalize the Federal Deposit Insurance Corporation's
(FDIC) Savings Association Insurance Fund (SAIF). This one time, special
assessment reduced second quarter after tax earnings by $437,000 or $0.36 per
share. Earnings were also negatively impacted by an increase in loan loss
provisions.
INTEREST INCOME: Interest income increased $1.4 million or 20.8%, from $6.5
million at September 30, 1995, to $7.9 million at September 30, 1996. The
increase in interest income is primarily attributable to an increase in the
Company's outstandings in the Mortgage Loan Reverse Repurchase Program. The
Company's average outstanding investment in the Program increased $29.9. million
or 63.4%, from $47.1 million for the six months ended September 30, 1995 to
$77.0 million for the six months ended September 30, 1996. Over this same time
period, interest income on loans purchased under agreements to resell increased
$1.4 million or 61.4%. The increase in outstandings in the Program is
attributable to an increase in mortgage refinancings and home mortgage
originations as a result of a decline in mortgage interest rates. The increase
in activity is also attributable to an increase in the number of mortgage
companies participating in the Program.
18
<PAGE>
INTEREST EXPENSE: Interest expense increased $720,000 or 22.6%, from $3.2
- ----------------
million for the six months September 30, 1995, to $3.9 million for the six
months September 30, 1996. The increase is primarily attributable to a $420,000
or 51.8% increase in interest on borrowings and a $300,000 or 12.6% increase in
interest on deposits resulting from the increased funding needs of the Program.
NET INTEREST INCOME: Net interest income before the provision for loan losses
- -------------------
increased by $645,000 or 19.1% from $3.4 million for the six months ended
September 30, 1995, to $4.0 million for the six months ended September 30, 1996.
This increase in net interest income over the prior year's period is primarily
attributable to management's efforts to profitably grow the Loan Reverse
Repurchase Program.
PROVISION FOR LOAN LOSSES: The provision for loan losses increased $272,000 or
- -------------------------
195.7%, from $139,000 for the six months ended September 30, 1995, to $411,000
for the six months ended September 30, 1996. The increase in the provision
reflects an increase in the Company's level of nonperforming assets and
increased activity in construction lending, commercial lending and consumer
lending. The Company will continue to monitor its allowance for loan losses and
make future loan loss provisions in consideration of the amount and types of
loans in its portfolio and as economic conditions dictate.
NONINTEREST INCOME: Noninterest income increased $296,000 or 56.9% to $816,000
- ------------------
for the six months ended September 30, 1996, from $520,000 for the six months
ended September 30, 1995. This increase was primarily attributable to a $170,000
or 123.2% increase in fees related to the repurchase program, and to $121,000 in
gains realized from the sale of single family mortgage loans.
NONINTEREST EXPENSE: Noninterest expense increased $1.2 million or 71.3% to $3.0
- -------------------
million for the six months ended September 30, 1996, from $1.8 million for the
same time period in the prior year. The increase in noninterest expenses is
primarily attributable to a $743,000 increase in deposit insurance premiums
resulting from the one time assessment cited above, and increased personnel and
occupancy expenses related to the Company's newly established Mortgage Banking
Division.
INCOME TAX EXPENSE: Income tax expense decreased $300,000 or 38.8%, from
- ------------------
$774,000 for the six months ended September 30, 1995, to $474,000 for the six
months ended September 30, 1996. This decrease is primarily attributable to a
decrease in earnings.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Bank is required under applicable federal regulations to maintain a
liquidity ratio at certain specified levels which are subject to change.
Currently, a minimum of 5.0% of the combined total of deposits and short term
borrowings must be maintained in the form of liquid assets. At September 30,
1996 liquidity as measured for regulatory purposes was 6.3% as compared to a
ratio of 7.7% at March 31, 1996.
19
<PAGE>
Management structures the liquid asset portfolio and borrowing capacity of the
Company to meet the cash flow needs of operating, investing and financing
activities. The Company's net liquid assets are cash and cash equivalents, which
include investments in highly liquid investments. At September 30, 1996 cash and
cash equivalents totaled $2.1 million. In addition, the Company maintains a $5.0
million line of credit with the FHLB of Indianapolis to meet short term
liquidity needs.
Cash flows from operating activities consisted primarily of net income and
activity under the Program. Cash flows provided by/(for) operating activities
were $4.2 million and ($36.7) million for the six months ended September 30,
1996 and 1995, respectively. The Company's primary investing activities have
been the purchase and monitoring of securities and mortgage-backed securities
and the purchase, origination and repayment of loans. Net Cash flows provided
for investing activities were $1.4 million and ($3.1) million for the six months
ended September 30, 1996 and 1995, respectively. Cash flows from financing
activities consisted of deposit activity, new borrowings and the repayment of
borrowings. Net cash flow provided by/(for) financing activities were ($9.6)
million and $39.2 million for the six months ended September 30, 1996 and 1995.
Shareholders' equity at September 30, 1996 was $19.4 million, an increase of
$548,000 or 2.9% over March 31, 1996, which represents net income for the six
months ended September 30, 1996, adjustments for the Company's ESOP and
management recognition and retention plans, the purchase and issuance of
treasury stock and change in unrealized net appreciation on securities
available-for-sale.
The Bank is subject to three capital standards pursuant to regulations of the
Office of Thrift Supervision: a 1.5% tangible capital standard, a 3% leverage
(core and capital) ratio and an 8% risk based capital standard. Under these
capital requirements, at September 30, 1996, the Bank had:
- - tangible capital of $17.0 million or 8.5% of total assets thereby exceeding
the 1.5% requirement ($3.0 million) by $14.0 million.
- - core capital (tangible capital plus certain intangible assets) of $17.0
million or 8.5% of total assets thereby exceeding the 3.0% requirement ($6.0
million) by $11.0 million.
- - risk-based capital (core capital plus allowance for loan losses) of $18.5
million or 14.6% of risk-based assets thereby exceeding the 8.0% requirement
($10.1 million) by $8.4 million.
20
<PAGE>
IMPACT OF NEW ACCOUNTING STANDARDS
- ----------------------------------
Several new accounting standards have been issued by the Financial Accounting
Standards Board that will apply in 1996. Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the impairment of long-lived assets
and for assets to be disposed of", requires a review of long term assets for
impairment of recorded value and resulting write-downs if 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. Statement of Financial Accounting Standards 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. SFAS No. 125, Accounting for Transfer and
Servicing of Financial Assets and Extinguishment of Liabilities, provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities and requires a consistent application
of a financial-components approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred and
derecognizes liabilities when extinguished. SFAS No. 125 also supersedes SFAS
No. 122, and requires that servicing assets and liabilities be subsequently
measured by amortization in proportion to and over the period of estimated net
servicing income or loss and requires assessment in proportion to and over the
period of estimated net servicing income or loss and requires assessment for
asset impairment or increased obligation based on their fair values. SFAS No.
125 applies to transfers and extinguishments occurring, after December 31, 1996,
and early or retroactive application is not permitted. These statements are not
expected to have a material effect on the Company's financial position or
results of operations.
LEGISLATIVE MATTERS
- -------------------
RECENT DEVELOPMENTS
- -------------------
On September 30, 1996, the President signed into law the Deposit
Insurance Funds Act of 1996(the "Funds Act") which, among other things, imposes
a special one-time assessment on SAIF member institutions, including the Bank,
to recapitalize the SAIF. As required by the Funds Act, the FDIC imposed a
special assessment of 65.7 basis points on SAIF assessable deposits held as
March 31, 1995 payable November 27, 1996. The special assessment was recognized
as an expense in the third quarter of 1996 and is tax deductible. The Bank took
a charge of $723,000 as a result of the FDIC special assessment.
The Funds Act also spreads the obligations for payment of the Financing
Corporation("FICO") bonds across all SAIF and BIF members. Beginning on January
1, 1997, BIF deposits will be assessed for FICO payments at a rate of 20% of the
rate assessed on SAIF deposits. Based on current estimates by the FDIC, BIF
deposits will be assessed a FICO payment of 1.3 basis points,
21
<PAGE>
while SAIF deposits will pay an estimated 6.5 basis points on the FICO bonds.
Full pro rata sharing of the FICO payments between BIF and SAIF members will
occur on the earlier of January 1, 2000 or the date the BIF and SAIF are merged.
The Funds Act specifies that the BIF and SAIF will be merged on January 1, 1999
provided no savings associations remain as of that time.
As a result of the Funds Act, the FDIC recently proposed to lower SAIF
assessments to 0 to 27 basis points effective January 1, 1997; a range
comparable to that of BIF members. However, SAIF members will continue to make
the higher FICO payments described above. Management cannot predict the level of
FDIC insurance assessments on an on-going basis whether the savings association
charter will be eliminated or whether the BIF and SAIF will eventually be
merged.
22
<PAGE>
AVERAGE BALANCE SHEETS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1996 AND 1995.
The following table sets forth certain information relating to the
consolidated statements of financial condition and reflects the yield on average
assets and the average cost of liabilities for the periods indicated. The yields
and costs include amortization of fees, discounts, and premiums which are
considered adjustments to yield.
<TABLE>
<CAPTION>
Average Balance Sheets
Yield Analysis
Three Months Ended Sept. 30, Three Months Ended Sept. 30,
---------------------- ---------------------
1996 1995
---------------------- ---------------------
Average Average
Average Yield/ Average Yield/
Balance(a) Interest Cost Balance(a) Interest Cost
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net $166,845 $3,664 8.78% $150,755 $3,322 8.81%
Mortgage-backed securities 9,507 158 6.65% 10,685 176 6.59%
Interest earning deposits and
federal funds sold 323 4 4.95% 1,005 18 7.16%
Securities 9,276 150 6.47% 8,477 144 6.79%
----- ----- ----- ----- ----- -----
Total interest-earning assets 185,951 3,977 8.55% 170,922 3,660 8.57%
Noninterest-earning assets (b) 11,618 ----- ----- 9,808 ----- -----
----- -----
Total assets $197,569 $180,730
================ ===============
Interest-bearing liabilities:
Deposits $123,098 $ 1,359 4.42% $115,619 $1,291 4.47%
Borrowed Funds 42,009 602 5.73% 33,629 525 6.24%
----- ----- ----- ----- ----- -----
Total interest-bearing liabilities 165,107 1,961 4.72% 149,248 1,816 4.87%
Noninterest-bearing liabilities (c) 13,055 ----- ----- 14,224 ----- -----
----- -----
Total liabilities 178,162 163,472
Stockholders' equity 19,407 17,258
----- -----
Total liabilities and equity $197,569 $180,730
================ ===============
Net interest income/ Net rate spread $2,016 3.83% $1,844 3.70%
====================== ======================
Net interest-earning assets/ net
interest rate margin $20,844 4.34% $21,674 4.32%
================ ============================= ===============
Ratio of average interest-earning assets
to average interest-bearing liabilities 1.13 X 1.15 X
</TABLE>
(a) Average balances, which are stated in thousands, are derived from average
daily balances.
(b) Includes average investment in life insurance policies of $2,247,000 and
$2,181,000 for the three months ended September 30, 1996 and September 30,
1995, respectively. The Company realized non-interest income of $28,000 and
$39,000 on it's outstanding investment in these policies over the same
respective time periods.
(c) Includes non-interest bearing deposit accounts.
23
<PAGE>
AVERAGE BALANCE SHEETS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1995.
The following table sets forth certain information relating to the
consolidated statements of financial condition and reflects the yield on average
assets and the average cost of liabilities for the periods indicated. The yields
and costs include amortization of fees, discounts, and premiums which are
considered adjustments to yield.
<TABLE>
<CAPTION>
Average Balance Sheets
Yield Analysis
Six Months Ended Sept 30, Six Months Ended Sept 30,
-------------------- -------------------
1996 1995
-------------------- -------------------
Average Average
Average Yield/ Average Yield/
Balance(a) Interest Cost Balance(a) Interest Cost
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net $167,542 $7,318 8.74% $135,048 $5,896 8.73%
Mortgage-backed securities 9,737 325 6.68% 10,894 360 6.61%
Interest earning deposits and
federal funds sold 402 10 4.98% 1,083 38 7.02%
Securities 9,040 286 6.33% 8,408 280 6.66%
----- ----- ----- ----- ----- -----
Total interest-earning assets 186,721 7,939 8.50% 155,433 6,574 8.46%
Noninterest-earning assets (b) 11,814 ----- ----- 10,201 ----- -----
----- -----
Total assets $198,535 $165,634
================ ===============
Interest-bearing liabilities:
Deposits $122,760 $ 2,680 4.37% $110,474 $2,380 4.31%
Borrowed Funds 43,527 1,231 5.66% 27,110 811 5.98%
----- ----- ----- ----- ----- -----
Total interest-bearing liabilities 166,287 3,911 4.70% 137,584 3,191 4.64%
Noninterest-bearing liabilities (c) 13,074 ----- ----- 11,023 ----- -----
----- -----
Total liabilities 179,361 148,607
Stockholders' equity 19,174 17,027
----- -----
Total liabilities and equity $198,535 $165,634
================ ==============
Net interest income/ Net rate spread $4,028 3.80% $3,383 3.82%
====================== ======================
Net interest-earning assets/ net
interest rate margin $20,434 4.31% $17,849 4.35%
================ ============== ============== ===============
Ratio of average interest-earning assets
to average interest-bearing liabilities 1.12 X 1.13 X
</TABLE>
(a) Average balances, which are stated in thousands, are derived from average
daily balances.
(b) Includes average investment in life insurance policies of $2,242,000 and
$2,172,000 for the six months ended September 30, 1996 and September 30,
1995, respectively. The Company realized non-interest income of $53,000 and
$57,000 on its outstanding investment in these policies over the same
respective time periods.
(c) Includes non-interest bearing deposit accounts.
24
<PAGE>
PART II OTHER INFORMATION
- ------- -----------------
Item 1. Legal Proceedings.
The Company is not involved in any legal proceedings of a material nature at
this time other than those occurring in the ordinary course of business which in
the aggregate involves amounts which are believed by management to be immaterial
to the financial condition of the Company.
Item 2. Changes in Securities.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a vote of Security Holders.
The annual meeting of CB Bancorp, Inc., was held on July 24, 1996. Provided
below is a list of those items voted on at the meeting including the votes cast
for, against, withheld, and abstained for each item. Total shares voted were
1,120,740.
Resolution #1 - Election of Directors
The following Directors were re-elected at the meeting.
<TABLE>
<CAPTION>
BROKER
FOR NON VOTES WITHHELD
--------- --------- --------
<S> <C> <C> <C>
Joseph F. Heffernan 1,114,860 - 5,880
James J. Broad 1,115,060 - 5,680
Robert V. Ott 1,113,940 - 6,800
</TABLE>
The following directors continued to serve in office after the meeting.
<TABLE>
<CAPTION>
NAME TERM OF OFFICE
- ------------------------ --------------
<S> <C>
Ken O. Fryar 1997
J. Patrick Smith 1997
Marvin Kominiarek, Jr. 1998
Jon R. Bausback 1998
Joseph F. Heffernan 1999
James J. Broad 1999
Robert V. Ott 1999
</TABLE>
Resolution #2 - Approval of an ammendment to the Company's certificate of
incorporation increasing the number of authorized shares of common stock from
1,500,000 to 3,000,000.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NONVOTES ABSTAIN
--- ------- -------- -------
<S> <C> <C> <C>
1,075,757 39,030 - 5,953
</TABLE>
25
<PAGE>
Resolution #3 - The ratification of Crowe Chizek and Company as
Independent Auditors of CB Bancorp, Inc. for the Fiscal Year
Ending March 31, 1997.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NONVOTES ABSTAIN
--- ------- -------- -------
<S> <C> <C> <C>
1,110,010 1,630 - 9,100
</TABLE>
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a). Exhibits
3.1 Certificate of Incorporation of CB Bancorp, Inc.*
3.2 Bylaws of CB Bancorp, Inc.*
27 Financial Data Schedule (filed herewith)
*Incorporated by reference to Registration Statement
of Form S-1, as amended, filed on September 11, 1992,
registration Number 33-51882.
(b). Reports on Form 8-K
None
26
<PAGE>
CB BANCORP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CB Bancorp, Inc.
Dated: By: /s/ Joseph F. Heffernan
------------- -----------------------------
Joseph F. Heffernan
President and Chief Executive
Officer
Dated: By: /s/ George L. Koehm
------------- -----------------------------
George L. Koehm
Vice President and Chief
Financial Officer
27
<PAGE>
CB BANCORP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CB Bancorp, Inc.
Dated: By:
-------------- -------------------------------
Joseph F. Heffernan
President and Chief Executive
Officer
Dated: By:
-------------- -------------------------------
George L. Koehm
Vice President and Chief
Financial Officer
28
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,055,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 631,000
<INVESTMENTS-CARRYING> 18,647,000
<INVESTMENTS-MARKET> 18,687,000
<LOANS> 170,578,000
<ALLOWANCE> 1,866,000
<TOTAL-ASSETS> 200,008,000
<DEPOSITS> 129,085,000
<SHORT-TERM> 43,087,000
<LIABILITIES-OTHER> 4,988,000
<LONG-TERM> 3,468,000
0
0
<COMMON> 5,818,000
<OTHER-SE> 13,562,000
<TOTAL-LIABILITIES-AND-EQUITY> 200,008,000
<INTEREST-LOAN> 3,664,000
<INTEREST-INVEST> 309,000
<INTEREST-OTHER> 4,000
<INTEREST-TOTAL> 3,977,000
<INTEREST-DEPOSIT> 1,359,000
<INTEREST-EXPENSE> 1,961,000
<INTEREST-INCOME-NET> 2,016,000
<LOAN-LOSSES> 300,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,832,000
<INCOME-PRETAX> 319,000
<INCOME-PRE-EXTRAORDINARY> 319,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 258,000
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
<YIELD-ACTUAL> 4.34
<LOANS-NON> 260,000
<LOANS-PAST> 3,000
<LOANS-TROUBLED> 296,000
<LOANS-PROBLEM> 2,510,000
<ALLOWANCE-OPEN> 1,573,000
<CHARGE-OFFS> 7,000
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,866,000
<ALLOWANCE-DOMESTIC> 1,412,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 454,000
</TABLE>
