Rapid expansion of an indirect auto lending program backfired at CB Financial Corp., leading it to restate its earnings downward.

Last year $826.2 million-asset bank established relationships with new dealers, extended its indirect lending program to northern Michigan-and cranked out $87 million of indirect auto loans, up 177.1% from 1995.

But chargeoffs grew even faster, jumping 226.2% to $1.1 million, according to the bank.

"We went out and developed a number of new dealers," said bank chief executive officer Brian D. Bell. "This was where the bad paper was generated."

The chargeoffs forced the bank to boost its loan-loss reserve 36.2%, to $6.2 million, or 1.01% of loans outstanding.

That $1.6 million charge, plus additional operating expense adjustments, caused the bank to restate its 1996 earnings at $5 million, down 29.2% from the previously unaudited figure.

CB Financial, which is planning to merge with Citizens Banking Corp. through a pooling of interests, was compelled to dump the bad paper to smooth the way for the merger. The merger is expected to close at the end of the second quarter.

CB Financial said it is shutting four branches this year in an ongoing effort to cut costs. The banking company has 39 branches in southern and northern Michigan. - James B. Arndorfer

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