-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DxGOi8kqpZKDZuY6cfP2Gkr7rubAyMn6lveWb46ScHF+oousaFK9oveTX/7SLR8u 3y0oc+UhNJhuEOTihN5p7A== 0000909654-96-000145.txt : 19960702 0000909654-96-000145.hdr.sgml : 19960702 ACCESSION NUMBER: 0000909654-96-000145 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960701 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CB BANCORP INC CENTRAL INDEX KEY: 0000891525 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 351866127 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-20742 FILM NUMBER: 96589459 BUSINESS ADDRESS: STREET 1: 126 EAST FOURTH ST CITY: MICHIGAN CITY STATE: IN ZIP: 46360 BUSINESS PHONE: 2198732800 MAIL ADDRESS: STREET 1: 126 E FOURTH ST CITY: MICHIGAN CITY STATE: IN ZIP: 46360 10KSB 1 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. 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 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 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 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 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.
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) 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.
4 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.
(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 --------- ------- ------- ---------- -------- ------- 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) =========================================================================================
5 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.
1996 1995 1994 -------------------- -------------------- ---------------------- Amortized Fair Amortized Fair Amortized Fair Cost Value Cost Value Cost Value -------------------------------------------------------------------- (In Thousands) 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 ====================================================================
6 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.
After One Year Within But Within One Year Five Years Amount Rate Amount Rate ------ ---- ------ ---- (In Thousands) (In Thousands) 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% ======================================================================
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:
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) ----------------------------------------------------------------------- Marketable equity securities $578 $620 $579 $581 $575 $575 =======================================================================
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 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.
1996 1995 1994 1993 1992 % of % of % of % of % of ---------------------------------------------------------------------------------------------------- Amount Total Amount Total Amount Total Amount Total Amount Total ------ ----- ------ ----- ------ ------ ------ ----- ------ ----- 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% ====================================================================================================
8 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.
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) 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 ===========================================================================================
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.
LOANS MATURING AFTER MARCH 31, 1997 ----------------------------------------------------------------------------------- Fixed Rate Adjustable Rate (In Thousands) Total ----------------------------------------------------------------------------------- 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 ====================================================================================
9 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.
At March 31, 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (Dollars In Thousands) 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
10 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 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.
At or for the Year Ended March 31, 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- --------------------------------------------------- (Dollars in Thousands) 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
March 31, --------------------------------------------------- Allowance at end of 1996 1995 period applicable to: Amount Percentage (1) Amount Percentage (1) ------ -------------- ------ -------------- 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.
12 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.
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 ------ -------- ---- ------ -------- ---- ------ -------- ---- 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.
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:
Amount ------ Maturity Period (In Thousands) --------------- 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 ============
13 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:
1996 1995 1994 ---- ---- ---- 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 %
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:
At or for the Year Ended March 31, 1996 ------------------------- (Dollars in Thousands) 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 %
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 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 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 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.
EXCESS ACTUAL REQUIRED (DEFICIENCY) ACTUAL REQUIRED CAPITAL CAPITAL AMOUNT PERCENT PERCENT ---------------------------------------------------------- (DOLLARS IN THOUSANDS) 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.
17 20 A reconciliation between regulatory capital and GAAP capital at March 31, 1996 in the accompanying consolidated financial statements is presented below:
Total Tangible Core Risk-based Capital Capital Capital ------------------------------------ (In thousands) 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 ======= ======= =======
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 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 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 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 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 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 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 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 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 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.
Date Net Book Value at Location Acquired March 31, 1996 -------- -------- -------------- 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.
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.
Positions Held With the Company Name Age(1) and/or the Bank ---- ------ --------------- 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
27 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 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 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 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 EX-13 2 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 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 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 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 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 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 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 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 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 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 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 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.
INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE (NPV) Net Portfolio Value ------------------- Change in Rates $ Amount $ Change % Change -------- -------- -------- -------- +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%
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 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 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. 15 CB BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS March 31, 1996 and 1995
- ------------------------------------------------------------------------------------------------------- 1996 1995 ---- ---- 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.
18. 16
CB BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME March 31, 1996 and 1995 - ------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 ---- ---- ---- 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.
19. 17
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 ----- ------- -------- ----- ---- --- -------- ------ 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.
20. 18
CB BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended March 31, 1996, 1995 and 1994 - --------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 ---- ---- ---- 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) - ---------------------------------------------------------------------------------------------------------------------
(Continued) 21. 19
CB BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended March 31, 1996, 1995 and 1994 - ----------------------------------------------------------------------------------------------------------------- 1996 1995 1994 ---- ---- ---- 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.
22. 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. 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. 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. 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. 24
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 ---- ---- ---- 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 ========= ========= ========
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:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- 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 =========== ========== =========== ============ - -----------------------------------------------------------------------------------------------
(Continued) 27. 25
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 ---- ----- ------ ----- 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 ============ ========== ============ ============
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.
Amortized Fair Held-to-maturity: Cost Value ---------------- ---- ----- 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. - -----------------------------------------------------------------------------------------------
(Continued) 28. 26
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 -------- ---- ---- Equity securities $ 49,200 $ - $ (650)
Sales of securities held for sale during the year ended March 31, 1994, were as follows:
Gross Gross Proceeds Gain Loss -------- ---- ---- Debt securities $500,503 $ 503 $ -
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:
March 31, 1996 ------------------------------------------------------------------- Principal Unamortized Unearned Carrying Fair Balance Premiums Discounts Value Value ------- -------- --------- ----- ----- 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 =========== ========= ========= =========== ===========
March 31, 1995 ------------------------------------------------------------------- Principal Unamortized Unearned Carrying Fair Balance Premiums Discounts Value Value ------- -------- --------- ----- ----- 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 =========== ========= ========= =========== =========== - ------------------------------------------------------------------------------------------------
(Continued) 29. 27
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 ----- ------ ----- ------ 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) ========= ========= ========= =========
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:
1996 1995 ---- ---- 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 ============= ============= - --------------------------------------------------------------------------------------------------
(Continued) 30. 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:
Company 1996 1995 ------- ---- ---- 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 ============= ============
- -------------------------------------------------------------------------------- (Continued) 31. 29
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 ---- ---- ---- 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 =========== =========== ===========
Information regarding impaired loans is as follows for the year ending March 31, 1996:
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 Information regarding impaired loans at March 31, 1996 is as follows: 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 ===========
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:
1995 1994 ---- ---- 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. - ------------------------------------------------------------------------------------------------
(Continued) 32. 30
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 ---- ---- ---- 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:
1996 1995 1994 ---- ---- ---- Provision for losses $ - $ - $ - Other 8,961 11,038 9,254 ----------- ----------- ---------- $ 8,961 $ 11,038 $ 9,254 =========== =========== ==========
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:
1996 1995 ---- ---- 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. - --------------------------------------------------------------------------------------------
(Continued) 33. 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:
1996 1995 ---- ---- 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 ============ ============
NOTE 8 - PREMISES AND EQUIPMENT, NET Premises and equipment are stated at cost, less accumulated depreciation, and consist of the following at March 31:
1996 1995 ---- ---- 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 ============ ===========
- -------------------------------------------------------------------------------- (Continued) 34. 32
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 ---- ------ ------- ------ ------- 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% ============== ====== ============= ======
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:
1997 1998 1999 2000 2001 Thereafter ---- ---- ---- ---- ---- ---------- 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 =========== ========== ========== ========== ========== =========== - -------------------------------------------------------------------------------------------------
(Continued) 35. 33
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 ---- ---- ---- 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 =========== ============ ============
NOTE 10 - BORROWED FUNDS Borrowed funds at March 31 are summarized as follows:
1996 1995 ---- ---- 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 ============ ============
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:
March 31, 1996 --------------------------Weighted Average--------------------------- Maturity Interest Rate Amount -------- ------------- ------ 1997 5.59% $ 36,000,000 1998 5.76% 1,000,000 1999 5.67% 1,000,000 ------------ $ 38,000,000 ============
Information concerning borrowings under repurchase agreements for the years ended March 31 is summarized as follows:
1996 1995 ---- ---- 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 - ---------------------------------------------------------------------------------------------
(Continued) 36. 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:
1996 1995 1994 ---- ---- ---- 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 ============ =========== ===========
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. 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. 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:
Option Number of Options ----------------- Exercise Price 1996 1995 -------------- ---- ---- 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 ====== ======== ========
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. 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:
1996 1995 ---- ---- 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 ========= =========
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. 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:
Range of Option Number of Options ----------------- Exercise Price 1996 1995 -------------- ---- ---- 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 ====== ======
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.
Percentage of Annual Retirement Years of Service Benefit ---------------- ------- 10 25% 15 50% 20 75% 25 100%
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. 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:
1996 1995 1994 ---- ---- ---- 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 =========== =========== ===========
- -------------------------------------------------------------------------------- (Continued) 42. 40
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 ---- ---- ---- 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 =========== ============ ============
The components of the net deferred tax asset recorded in the consolidated balance sheets as of March 31 are as follows:
1996 1995 ---- ---- 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 =========== ========== - ----------------------------------------------------------------------------------------------
(Continued) 43. 41
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 ------- ------- ------- 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 ============= ============ ============= - -------------------------------------------------------------------------------------------
(Continued) 44. 42
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 ---- ---- ---- 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 ============ ========== ===========
NOTE 15 - OTHER NONINTEREST INCOME AND EXPENSE Other noninterest income and expense amounts for the years ended March 31 are summarized as follows:
1996 1995 1994 ---- ---- ---- 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 =========== ========== =========== - --------------------------------------------------------------------------------------------
(Continued) 45. 43
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 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 =========== ========== ===========
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:
1996 1995 ---- ---- 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 - - ------------------------------------------------------------------------------------------
(Continued) 46. 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. 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:
Balance - April 1, 1995 $ 367,013 New loans 169,998 Repayments (116,465) Other changes (59,433) --------- Balance - March 31, 1996 $ 361,113 =========
Other changes include adjustments for loans applicable to one reporting period that are excludable from the other reporting period. - -------------------------------------------------------------------------------- (Continued) 48. 46
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 ---- ---- 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 =========== ===========
CONDENSED STATEMENTS OF INCOME Years ended March 31, 1996, 1995 and 1994 1996 1995 1994 ---- ---- ---- 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 ========== ========== ========== - ------------------------------------------------------------------------------------------------
(Continued) 49. 47
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 ---- ---- 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 ============ =============
CONDENSED STATEMENTS OF INCOME Years ended March 31, 1996, 1995 and 1994 1996 1995 1994 ---- ---- ---- 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 =========== =========== =========== - ------------------------------------------------------------------------------------------------
(Continued) 50. 48
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 ---- ---- ---- 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 =========== =========== =========== - ------------------------------------------------------------------------------------------------------
(Continued) 51. 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.
Carrying Estimated Amount Fair Value ------ ---------- 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)
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. 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. 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.
Quarter Ended High Bid Low Bid Number of Shares Traded ------------- -------- ------- ----------------------- 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
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 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 EX-27 3
9 This schedule contains summary information extracted from the Form 10-KSB and is qualified in its entirety by reference to such financial statements. 0000891525 CB BANCORP, INC. 12-MOS MAR-31-1996 MAR-31-1996 4,754,811 1,308,112 0 0 620,948 18,568,904 18,628,000 173,160,450 1,346,328 205,384,936 137,047,131 44,338,121 1,717,500 3,450,000 0 0 5,826,200 13,005,984 205,384,936 13,030,079 1,255,060 66,742 14,351,881 5,040,273 7,062,678 7,289,203 1,020,000 0 3,609,084 3,838,139 3,838,139 0 0 2,458,210 1.95 1.94 4.33 523,000 4,000 306,000 2,164,000 672,276 345,948 0 1,346,328 1,146,328 0 200,000 Includes mortgage-backed securities Includes additional paid in capital Includes interest on mortgage-backed securities
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