UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
__X__ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: JUNE 30, 1999
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-21714
CSB Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Ohio 34-1687530
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
6 W. Jackson Street, P.O. Box 232, Millersburg, Ohio 44654
(Address of principal executive offices)
(330) 674-9015
(Registrant's telephone number)
Indicate by check mark whether the registrant (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.
__X__ Yes _____ No
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable
date.
Common stock, $6.25 par value Outstanding at August 4, 1999:
2,654,382 common shares
<PAGE>
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
Table of Contents
Part I - Financial Information
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheets
Consolidated Statements of Income
Condensed Consolidated Statements of Changes in
Shareholders' Equity
Condensed Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3 - QUALITATIVE AND QUANTITATIVE DISCLOSURE
ABOUT MARKET RISK
Part II - Other Information
Other Information
Signatures
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
June 30, December 31,
1999 1998
<S> <C> <C>
ASSETS
Cash and noninterest-bearing
deposits with banks $ 11,654,964 $ 10,440,120
Interest-bearing deposits
with banks 149,208 315,067
Federal funds sold 12,683,000 14,853,000
------------ ------------
Total cash and cash equivalents 24,487,172 25,608,187
Securities available for sale,
at fair value 30,702,494 27,115,456
Securities held to maturity
(Fair values of $71,697,213
in 1999 and $63,981,883 in 1998) 72,004,469 62,252,682
Loans, net 185,157,300 193,823,995
Premises and equipment, net 7,579,640 5,372,876
Accrued interest receivable
and other assets 3,749,320 3,328,722
------------ ------------
Total assets $323,680,395 $317,501,918
LIABILITIES
Deposits
Noninterest-bearing $ 24,141,921 $ 27,359,102
Interest-bearing 245,729,222 238,387,456
------------ ------------
Total deposits 269,871,143 265,746,558
Securities sold under
repurchase agreements 11,373,290 9,770,519
Federal Home Loan Bank
borrowings 9,174,461 10,111,119
Accrued interest payable and
other liabilities 1,033,762 1,013,623
------------ ------------
Total liabilities 291,452,656 286,641,819
SHAREHOLDERS' EQUITY
Common stock, $6.25 par value:
9,000,000 shares authorized;
1999 2,660,783 shares issued;
1998 2,654,441 shares issued 16,629,894 16,590,255
Additional paid-in capital 6,216,091 5,963,191
Retained earnings 9,685,757 8,292,636
Treasury stock at cost:
6,400 shares (56,000) (56,000)
Accumulated other comprehensive
income (248,003) 70,017
------------ ------------
Total shareholders' equity 32,227,739 30,860,099
------------ ------------
Total liabilities and
shareholders' equity $323,680,395 $317,501,918
------------ ------------
------------ ------------
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income
Loans, including fees $4,264,065 $4,568,582 $ 8,703,674 $ 8,963,490
Taxable securities 762,553 672,465 1,445,069 1,419,169
Nontaxable securities 558,419 467,097 1,094,065 922,601
Other 242,973 112,265 404,536 216,471
---------- ---------- ----------- -----------
Total interest income 5,828,010 5,820,409 11,647,344 11,521,731
Interest expense
Deposits 2,768,829 2,606,214 5,485,013 5,167,687
Other 131,637 232,980 349,609 477,199
---------- ---------- ----------- -----------
Total interest expense 2,900,466 2,839,194 5,834,622 5,644,886
---------- ---------- ----------- -----------
Net interest income 2,927,544 2,981,215 5,812,722 5,876,845
Provision for loan losses 149,604 98,735 797,559 196,385
---------- ---------- ----------- -----------
Net interest income after provision
for loan losses 2,777,940 2,882,480 5,015,163 5,680,460
---------- ---------- ----------- -----------
Other income
Service charges on deposit
accounts 198,215 178,610 380,247 359,989
Gain on sale of loans 680 3,529 303,332 3,529
Other income 255,377 161,799 442,710 298,299
---------- ---------- ----------- -----------
Total other income 454,272 343,938 1,126,289 661,817
Other expense
Salaries and employee benefits 943,963 870,415 1,806,284 1,674,790
Occupancy expense 83,765 90,091 171,803 165,390
Equipment expense 87,696 129,978 187,949 244,168
State franchise tax 66,569 97,041 160,529 192,241
Other expense 616,926 572,053 1,213,992 1,068,013
---------- ---------- ----------- -----------
Total other expense 1,798,919 1,759,578 3,540,557 3,344,602
---------- ---------- ----------- -----------
Income before income taxes 1,433,293 1,466,840 2,600,895 2,997,675
Provision for income taxes 322,550 380,800 571,614 795,886
---------- ---------- ----------- -----------
Net income $ 1,110,743 $ 1,086,040 $ 2,029,281 $ 2,201,789
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Basic and diluted earnings
per common share $ .42 $ .41 $ .77 $ .84
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Balance at beginning of period $31,587,281 $28,542,717 $30,860,099 $27,274,480
Net income 1,110,743 1,086,040 2,029,281 2,201,789
Unrealized gains (losses) on
available-for-sale securities
arising during period,
net of tax (249,392) (7,021) (318,020) 361
---------- ---------- ----------- -----------
Comprehensive income 861,351 1,079,019 1,711,261 2,202,150
Common stock issued under
the dividend reinvestment
program and 401(k) plan 97,351 127,681 292,539 536,264
Cash dividends ($.12 and $.24
per share in 1999; $.10 and
$.20 per share in 1998) (318,244) (263,824) 636,160) (527,301)
---------- ---------- ----------- -----------
Balance at end of period $32,227,739 $29,485,593 $32,227,739 $29,485,593
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
1999 1998
<S> <C> <C>
Net cash from operating activities $ 2,439,221 $ 2,617,544
Cash flows from investing activities
Securities available for sale
Proceeds from maturities 9,000,000 7,000,000
Purchases (12,984,962) (4,003,044)
Securities held to maturity
Proceeds from maturities, calls and repayments 7,300,000 6,179,734
Purchases (17,098,498) (1,805,037)
Net change in loans (4,837,217) (7,745,245)
Loan sale proceeds 12,972,366 489,529
Premises and equipment expenditures, net (2,359,002) (695,557)
------------ ------------
Net cash from investing activities (8,007,313) (579,620)
------------ ------------
Cash flows from financing activities
Net change in deposits 4,124,585 1,648,865
Net change in securities sold under repurchase agreements 1,602,771 285,863
Principal reductions on FHLB borrowings (936,658) (1,060,734)
Shares issued for 401(k) plan 105,758 454,181
Cash dividends paid (449,379) (445,218)
------------ ------------
Net cash from financing activities 4,447,077 882,957
------------ ------------
Net change in cash and cash equivalents (1,121,015) 2,920,881
Beginning cash and cash equivalents 25,608,187 14,335,042
------------ ------------
Ending cash and cash equivalents $24,487,172 $17,255,923
------------ ------------
------------ ------------
Supplemental disclosures
Interest paid $ 5,838,988 $ 5,666,920
Income taxes paid 502,000 775,000
</TABLE>
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include
accounts of CSB Bancorp, Inc. and its wholly-owned subsidiary, The
Commercial and Savings Bank (together referred to as the "Company"
or "CSB"). All significant intercompany transactions and balances
have been eliminated.
These interim financial statements are prepared without audit and
reflect all adjustments of a normal recurring nature which, in the
opinion of management, are necessary to present fairly the
consolidated financial position of CSB at June 30, 1999, and its
results of operations and cash flows for the periods presented.
The accompanying consolidated financial statements do not contain
all financial disclosures required by generally accepted
accounting principles that might otherwise be necessary in the
circumstances. The Annual Report for CSB for the year ended
December 31, 1998, contains consolidated financial statements and
related notes which should be read in conjunction with the
accompanying consolidated financial statements.
The Company is engaged in the business of commercial and retail
banking and trust services, with operations conducted through its
main office and eight branches located in Millersburg, Ohio, and
nearby communities. These communities are the source of
substantially all deposit, loan and trust activities. The
majority of the Company's income is derived from commercial and
retail lending activities and investments in securities.
While the Company's chief decision-makers monitor the revenue
streams of the various Company products and services, operations
are managed and financial performance is evaluated on a Company-
wide basis. Accordingly, all of the Company's banking operations
are considered by management to be aggregated in one reportable
operating segment.
To prepare financial statements in conformity with generally
accepted accounting principles, management makes estimates and
assumptions based on available information. These estimates and
assumptions affect amounts reported in the financial statements
and the disclosures provided, and future results could differ.
The allowance for loan losses, realization of deferred tax assets,
fair value of certain securities and determination and carrying
value of impaired loans are particularly subject to change.
The allowance for loan losses is a valuation allowance, increased
by the provision for loan losses and decreased by charge-offs less
recoveries. Management estimates the allowance required based on
past loan loss experience, known and inherent risks in the
portfolio, information about specific borrower situations and
estimated collateral values, economic conditions and other
factors. Allocations of the allowance may be made for specific
loans, but the entire allowance is available for any loan that, in
management's judgment, should be charged-off.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loan impairment is reported when full payment under the loan terms
is not expected. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the
present value of estimated future cash flows using the loan's
existing interest rate or at the fair value of collateral if
repayment is expected solely from the collateral. Loans are
evaluated for impairment when payments are delayed, typically 90
days or more, or when the internal grading system indicates a
doubtful classification.
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 other consumer
loans less than $100,000. Commercial loans and mortgage loans
secured by other properties are evaluated individually for
impairment.
The Company records income tax expense based on the amount of tax
due on its 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.
Basic earnings per share ("EPS") is based on net income divided by
the weighted average number of shares outstanding during the
period. Diluted EPS shows the dilutive effect of additional
common shares issuable under stock options. The weighted average
number of shares outstanding for basic and diluted EPS
computations were as follows:
<PAGE>
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding (basic) $2,652,314 $2,637,702 $2,650,473 $2,631,830
Dilutive effect of assumed
exercise of stock options 950 956 961 923
---------- ---------- ---------- ----------
Weighted average common
shares outstanding (diluted) 2,653,264 2,638,658 2,651,434 2,632,753
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<PAGE>
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair value.
Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. The key
criterion for hedge accounting is that the hedging relationship
must be highly effective in achieving offsetting changes in fair
value or cash flows. The new standard does not allow hedging of a
security which is classified as held to maturity. Upon adoption
of the standard, companies are allowed to transfer securities from
held to maturity to available for sale if they wish to be able to
hedge the securities in the future. The standard is effective for
fiscal years beginning after June 15, 2000, with early adoption
encouraged for any fiscal quarter beginning July 1, 1998, or
later, with no retroactive application. Management does not
expect the adoption of this standard to have a significant impact
on the Company's financial statements.
<PAGE>
<TABLE>
NOTE 2 - SECURITIES
The amortized cost and fair values of securities are as follows:
<CAPTION>
June 30, 1999
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale
Debt securities
U.S. Treasury securities $ 5,013,005 $ 26,331 $ --- $ 5,039,336
Obligations of U.S. government
corporations and agencies 23,943,550 16,098 (418,190) 23,541,458
----------- ---------- ---------- -----------
Total debt securities available
for sale 28,956,555 42,429 (418,190) 28,580,794
Other securities 2,121,700 --- --- 2,121,700
----------- ---------- ---------- -----------
Total securities available
for sale $31,078,255 $ 42,429 $(418,190) $30,702,494
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
Held to maturity
U.S. Treasury securities $ 5,114,561 $ 46,157 $ --- $ 5,160,718
Obligations of U.S. government
corporations and agencies 19,505,128 6,155 (407,854) 19,103,429
Obligations of states and
political subdivisions 47,384,780 506,802 (458,516) 47,433,066
----------- ---------- ---------- -----------
Total debt securities
held to maturity $72,004,469 $ 559,114 $(866,370) $71,697,213
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
<PAGE>
<TABLE>
December 31, 1998
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale
Debt securities
U.S. Treasury securities $10,018,642 $ 96,670 $ --- $10,115,312
Obligations of U.S. government
corporations and agencies 14,931,926 56,205 (46,787) 14,941,344
Total debt securities 24,950,568 152,875 (46,787) 25,056,656
Other securities 2,058,800 --- --- 2,058,800
Total securities available for sale $27,009,368 $ 152,875 $(46,787) $27,115,456
Held to maturity
U.S. Treasury securities $10,124,422 $ 121,297 $ --- $10,245,719
Obligations of U.S. government
corporations and agencies 9,501,449 21,675 (35,929) 9,487,195
Obligations of states and
political subdivisions 42,626,811 1,667,490 (45,332) 44,248,969
Total securities held to
maturity $62,252,682 $1,810,462 $(81,261) $63,981,883
</TABLE>
<TABLE>
There were no sales of investment securities during the first six months of 1999 or 1998.
The amortized cost and fair values of debt securities at June 30, 1999, by contractual maturity,
are shown below.
<CAPTION>
Available-for-sale securities Held-to-maturity securities
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due in one year or less $ 4,009,811 $ 4,027,929 $ 6,048,804 $ 6,095,707
Due from one to five years 24,946,744 24,552,865 30,045,600 29,717,742
Due from five to ten years --- --- 22,963,922 22,976,950
Due after ten years --- --- 12,946,143 12,906,814
----------- ----------- ----------- -----------
$28,956,555 $28,580,794 $72,004,469 $71,697,213
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans consisted of the following:
<CAPTION>
June 30, 1999 December 31, 1998
<S> <C> <C>
Commercial $ 85,845,110 $ 86,971,202
Commercial real estate 32,909,390 33,136,841
Residential real estate 30,863,349 33,684,743
Residential real estate
loans held for sale 17,500,979 23,636,259
Installment and credit card 17,399,503 16,992,208
Construction 4,621,324 3,154,733
------------ ------------
Subtotal 189,139,655 197,575,986
Allowance for loan losses (3,252,638) (2,887,721)
Net deferred loan fees (729,717) (864,270)
------------ ------------
$185,157,300 $193,823,995
</TABLE>
During the first six months of 1999, the Company received $13.0
million in proceeds from mortgage loan sales. A gain of $303,000
was recognized on these sales.
Activity in the allowance for loan losses for the six months ended
June 30, 1999 and 1998 is as follows:
1999 1998
Beginning balance $2,887,721 $2,349,039
Provision for loan losses 797,559 196,385
Charge-offs (443,915) (389,005)
Recoveries 11,273 16,391
---------- ----------
Balance - June 30 $3,252,638 $2,172,810
Impaired loans at June 30, 1999 and December 31, 1998 are as
follows:
June 30, December 31,
1999 1998
Loans with no allowance for
loan losses allocated $ 791,670 $ 141,509
Loans with allowance for
loan losses allocated 2,295,547 1,453,837
Amount of allowance allocated 542,842 412,284
<PAGE>
Impaired loans for the six months ended June 30, 1999 and 1998 are
as follows:
1999 1998
Average of impaired loans $2,347,500 $1,391,000
Interest income recognized
during impairment 82,596 35,301
Cash basis interest income
recognized 76,269 34,212
NOTE 4 - FEDERAL HOME LOAN BANK BORROWINGS
The Company borrows from the Federal Home Loan Bank (FHLB) to fund
certain fixed-rate residential real estate loans. At June 30,
1999, the Company had 189 outstanding borrowings from the FHLB.
These borrowings carry fixed interest rates ranging from 5.60% to
7.15% and maturities of 10, 15, and 20 years. Monthly principal
and interest payments are due on the borrowings. In addition, a
principal curtailment of 10% of the outstanding principal balance
is due on the anniversary date of each borrowing. FHLB borrowings
are collateralized by the Company's FHLB stock and a blanket
pledge on $14.3 million of qualifying mortgage loans at June 30,
1999.
NOTE 5 COMMITMENTS, OFF-BALANCE SHEET RISK, AND CONTINGENCIES
The Company is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet customer
financing needs. These financial instruments include commitments
to make or purchase loans, undisbursed lines of credit,
undisbursed credit card balances and letters of credit. The
Company's exposure to credit loss in case of nonperformance by the
other party to the financial instrument is represented by the
contractual amount of those instruments. The Company follows the
same credit policy to make such commitments as it uses for those
loans recorded on the balance sheet.
June 30, December 31,
1999 1998
Fixed Variable Fixed Variable
Rate Rate Rate Rate
Commitments to make
loans (at market
rates) $ 320,905 $--- $1,230,165 $1,326,760
Unused lines of
credit and
letters of credit 1,641,379 34,252,298 3,105,699 28,532,674
NOTE 5 - COMMITMENTS, OFF-BALANCE SHEET RISK, AND CONTINGENCIES
(Continued)
Since many commitments to make loans expire without being used,
the aforementioned amounts do not necessarily represent future
cash commitments. Collateral obtained relating to these
commitments is determined using management's credit evaluation of
the borrower and may include real estate, vehicles, business
assets, deposits and other items.
The Company sold $13.0 million in residential mortgage loans
during the first six months of 1999. The Company has agreed to
repurchase individual loans if they become delinquent by greater
than ninety days. A recourse obligation has been established by
management based on past loan loss experience, and other factors.
This liability is not material.
Occasionally, various contingent liabilities arise that are not
recorded in the financial statements, including claims and legal
actions arising in the ordinary course of business. In the
opinion of management, after consultation with legal counsel,
ultimate disposition of these matters is not expected to have a
material affect on financial condition or results of operations.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion focuses on the consolidated financial
condition of CSB Bancorp, Inc. (the Company) at June 30, 1999,
compared to December 31, 1998, and the consolidated results of
operations for the quarterly period ending June 30, 1999 compared
to the same period in 1998. The purpose of this discussion is to
provide the reader with a more thorough understanding of the
consolidated financial statements. This discussion should be read
in conjunction with the interim consolidated financial statements
and related footnotes.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report that are not
historical facts are forward-looking statements that are subject
to certain risks and uncertainties. When used herein, the terms
"anticipates", "plans", "expects", "believes", and similar
expressions as they relate to the Company or its management are
intended to identify such forward-looking statements. The
Company's actual results, performance or achievements may
materially differ from those expressed or implied in the forward-
looking statements. Risks and uncertainties that could cause or
contribute to such material differences include, but are not
limited to, general economic conditions, interest rate
environment, competitive conditions in the financial services
industry, changes in law, governmental policies and regulations,
and rapidly changing technology affecting financial services.
The Company does not undertake, and specifically disclaims any
obligation, to publicly revise any forward-looking statements to
reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated
events.
FINANCIAL CONDITION
Total assets were $323.7 million at June 30, 1999, compared to
$317.5 million at December 31, 1998, representing an increase of
$6.2 million or 1.9%. Total securities increased approximately
$13.3 million during the six months. Since one of the primary
functions of the securities portfolio is to provide a source of
liquidity, it is structured such that security maturities and cash
flows satisfy the Company's liquidity needs and asset-liability
management requirements. At June 30, 1999, approximately 10.0% of
the securities portfolio matures within one year.
Net loans decreased $8.7 million, or 4.5%, to $185.2 million.
This decrease was a result of the $13.0 million sale of
residential real estate loans previously identified as held for
sale. Commercial loans decreased $1.1 million, or 1.3%, primarily
as a result of reduced demand for such loans in the local market
area. Residential real estate loans decreased $9.0 million after
the aforementioned sale.
As a percentage of loans, the allowance for loan losses was 1.72%
at June 30, 1999 and 1.47% at December 31, 1998. Loans past due
more than 90 days and loans placed on nonaccrual status, were
approximately $3.1 million, or 1.63% of total loans at June 30,
1999, compared to $1.5 million, or 0.86% of loans at December 31,
1998. These credits are considered in management's analysis of
the allowance for loan losses.
Premises and equipment increased $2.2 million, or 41.1%, during
the first six months of 1999. This was primarily due to the
construction of the new operations center, which should be
completed in the third quarter of 1999.
At June 30, 1999, the ratio of net loans to deposits was 68.6%,
compared to 72.9% at the end of 1998. This decrease is due
primarily to the $13.0 million loan sale.
Total shareholders' equity was increased in part by year-to-date
net income of $2.0 million, less $636,000 of cash dividends
declared. The cash dividend represents 31.3% of net income for
the first six months of 1999. Also contributing to capital was
the dividend reinvestment program and the purchase of stock by the
Company's 401(k) retirement plan. As a result of these programs,
equity increased approximately $293,000 during the first six
months of 1999.
The Company and its subsidiary met all regulatory capital
requirements at June 30, 1999. The Company's ratio of total
capital to risk-weighted assets was 17.2% at June 30, 1999, while
Tier 1 risk-based capital ratio was 16.0%. Regulatory minimums
call for a total risk-based capital ratio of 8.0%, at least one-
half of which must be Tier 1 capital. The Company's leverage
ratio was 10.1% at June 30, 1999, which exceeds the regulatory
minimum of 3% to 5%.
RESULTS OF OPERATIONS
Net income for the six months ended June 30, 1999 was $2.0
million, or $.77 per share, compared to $2.2 million, or $.84 per
share, earned during the same period last year, a decrease of
$173,000 or 7.8%. Second quarter net income was $1.1 million, or
$.42 per share, in 1999, compared to $1.1 million, or $.41 per
share, for the second quarter of 1998. The primary factor
contributing to the six month decrease was an increase in the
provision for loan loss and in other expenses, which were
partially offset by an increase in other income.
Net interest income was $5.8 million for the first six months of
1999, a 1.1% decrease from 1998. Interest and fees on loans
decreased $260,000, or 2.9%, which resulted primarily from the
sale of $13.0 million in mortgage loans during the first six
months. Also, as the loan sale proceeds and the deposit funds
were invested in securities from federal funds sold, interest on
securities increased $197,000 and other interest income increased
$188,000 for the first half of 1999, compared to the first half of
1998. Net interest income for the second quarter of 1999 totaled
$2.9 million, down 1.8% from $3.0 million in the second quarter
of 1998. Most of this decrease resulted from the reduction in
yield of the loan sale proceeds that were invested in investment
securities. Income from taxable investments increased $90,000, or
13.4%, from the second quarter of 1998 to 1999, while income from
nontaxable securities increased $91,000, or 19.6%, for the same
period.
Interest expense increased $190,000, or 3.4%, for the six months
ended June 30, 1999, compared to the six months ended June 30,
1998. This increase was the result of increased volumes on
interest-bearing accounts and slightly higher rates. For the
second quarter of 1999 compared to the same period in 1998,
interest expense increased $61,000, or 2.2%. This increase was
primarily volume related.
The provision for loan losses was $150,000 for the second quarter
of 1999 and $798,000 during the first half of 1999, increases of
$51,000, or 51.5%, and $601,000, or 306%, from the provisions for
comparable periods in 1998. These provisions were made in
recognition of management's analysis of impaired and nonaccrual
loans, "watch list" loans and continued loan origination volume.
Other income for the first half of 1999 increased approximately
$464,000, primarily as a result of the $303,000 gain on the sale
of loans in 1999 discussed above. Also contributing to the
increase was a $144,000, or 48.4% increase, in other income,
primarily as a result of an increase in trust and financial
services income. Other income for the second quarter of 1999
increased $110,000, or 32.1%.
Other expenses increased $39,000, or 2.2%, for the three months
ended June 30, 1999 and $196,000, or 5.9%, for the six months
ended June 30, 1999, compared to the same periods in 1998.
Management continues to monitor the Company's efficiency ratio by
maintaining increases in other operating costs at low levels.
Salaries and employee benefits increased by 8.4% in the second
quarter and 7.9% for the six month period, due primarily to normal
merit increases and additional staffing in the lending area. These
increases were partially offset by decreases in equipment expense
and state franchise tax. The decrease in equipment expense was due
in part to the full depreciation of several fixed assets during
the current periods. State franchise tax is down due to a $31,000
refund claim on previous years as a result of a recent court
ruling. The provisions for income taxes of $323,000 for the second
quarter and $572,000 during the first half of 1999 reflected an
effective rate of 22.5% and 22.0%, compared to effective rates of
26.0% and 26.6% for the same time periods in 1998. The decrease
in effective rates resulted from increased nontaxable interest
income.
YEAR 2000 ISSUE
Certain statements contained in this section of Management's
Discussion and Analysis of Financial Condition and Results of
Operations that are not related to historical results are forward-
looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements involved a number
of risks and uncertainties. Any forward-looking statements made
by the Company herein and in future reports and statements are not
guarantees of future performance and actual results may differ
materially from those in forward-looking statements because of
various factors. These factors include the ability of the Company
and its key service providers, vendors, suppliers, customers and
governmental entities to replace, modify or upgrade computer
systems in ways that adequately address the Year 2000 issue
discussed below. Special factors that might cause actual results
to vary materially from the results anticipated include the
ability to identify and correct all relevant computer codes and
embedded chips, unanticipated difficulties or delays in the
implementation of the Company's plans and the ability of third
parties to adequately address their own Year 2000 issues.
Many computer programs use only two digits to identify a year in
the date field and were apparently designed and developed without
considering the impact of the upcoming change in the century.
Such programs could erroneously read entries for the Year 2000 as
the Year 1900. This could result in major systems failures and
miscalculations. Rapid and accurate data processing is essential
to the operations of financial institutions, such as the Company.
In 1997, the Company formed a Year 2000 Committee to assess the
extent to which its information and technology, noninformation
technology and its outside vendors may be adversely affected by
the Year 2000 problems. Management has identified systems as
mission critical or nonmission critical. Vendors of all mission-
critical systems have been contacted regarding the status of the
renovation and validation of the systems. The Company completed
all testing on mission-critical applications as of March 31, 1999.
In addition to reviewing its own systems, the Company also
recognizes it could incur losses if loan payments are delayed due
to Year 2000 problems affecting any of the Company's significant
borrowers or impairing the payroll systems of large employers in
the Company's primary market area. Because the Company's loan
portfolio is diversified with regard to individual borrowers and
types of businesses, and the Company's primary market area is not
significantly dependent on one employer or industry, the Company
does not expect any significant or prolonged Year 2000-related
difficulties. In addition, the Company is providing information
to its customers about the Year 2000 issue.
Management established a budget of $250,000 for costs associated
with completing the comprehensive Year 2000 plan. This includes
hardware and software upgrades, testing, training and other out-
of-pocket expenses. The budget does not include in-house
personnel costs. Through June 30, 1999, the Company had incurred
$21,000 of operating expenses and $44,000 of capital expenditures
for Year 2000 readiness. In addition to these costs, the Company
has estimated it has incurred $92,000 of internal personnel costs
through June 30, 1999.
Management developed contingency plans for mission-critical
systems, where applicable. These contingency plans include both
remediation and business resumption plans. These contingency
plans are based on the results of the above-mentioned testing.
The Company completed the design of contingency plans by June 30,
1999. Management will continue to concentrate its efforts on the
testing of its contingency planning and on customer awareness
programs.
ITEM 3 QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no material changes in the quantitative and
qualitative disclosures about market risks as of June 30, 1999
from that presented in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998.
<PAGE>
FORM 10-Q
Quarter ended June 30, 1999
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings:
There are no matters required to be reported under this item.
Item 2 - Changes in Securities:
There are no matters required to be reported under this item.
Item 3 - Defaults Upon Senior Securities:
There are no matters required to be reported under this item.
Item 4 - Submission of Matters to a Vote of Security Holders:
On April 14, 1999, the Company held the Annual Meeting of
Shareholders at which shareholders voted upon the election of
three (3) directors for Class I Nominees for three-year terms
expiring in 2002. The results of the voting on these matters were
as follows:
Nominee Votes for Withheld
Douglas D. Akins 2,260,781 7,454
J. Thomas Lang 2,251,494 9,324
F. Joanne Vincent 2,245,667 15,151
The following are directors who were not up for election at the
meeting and whose terms of office as directors continued after the
meeting:
David W. Kaufman
H. Richard Maxwell
Daniel J. Miller
Samuel P. Riggle, Jr.
David C. Sprang
Samuel M. Steimel
Item 5 - Other Information:
There are no matters required to be reported under this item.
Item 6 - Exhibits and Reports on Form 8-K:
(a) Exhibits:
Exhibit Sequential
Number Description of Document Page
11 Statement Regarding Computation of
Per Share Earnings (reference is
hereby made to Consolidated Statements
of Income on Page 4 hereof.) 21
27 Financial Data Schedule 22
(b) Reports on Form 8-K: No reports on
Form 8-K were filed during the
quarter for which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CSB BANCORP, INC.
------------------------------
(Registrant)
Date: August 4, 1999 /s/---------------------------
Douglas D. Akins
President
Chief Executive Officer
Date: August 4, 1999 /s/---------------------------
A. Lee Miller
Senior Vice President
Chief Financial Officer
<PAGE>
<TABLE>
CSB BANCORP, INC.
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income $1,110,743 $1,086,040 $2,029,281 $2,201,789
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Average basic shares outstanding 2,652,314 2,637,702 2,650,473 2,631,830
Add: Effect of stock options 950 956 961 923
---------- ---------- ---------- ----------
Average diluted shares outstanding 2,653,264 2,638,658 2,651,434 2,632,753
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic and diluted earnings
per common share $ 0.42 $ 0.41 $ 0.77 $ 0.84
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL DOCUMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 11,655
<INT-BEARING-DEPOSITS> 149
<FED-FUNDS-SOLD> 12,683
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,702
<INVESTMENTS-CARRYING> 72,004
<INVESTMENTS-MARKET> 71,697
<LOANS> 188,410
<ALLOWANCE> 3,253
<TOTAL-ASSETS> 323,680
<DEPOSITS> 269,871
<SHORT-TERM> 11,373
<LIABILITIES-OTHER> 1,034
<LONG-TERM> 9,174
0
0
<COMMON> 16,630
<OTHER-SE> 15,598
<TOTAL-LIABILITIES-AND-EQUITY> 323,680
<INTEREST-LOAN> 8,704
<INTEREST-INVEST> 2,539
<INTEREST-OTHER> 404
<INTEREST-TOTAL> 11,647
<INTEREST-DEPOSIT> 5,485
<INTEREST-EXPENSE> 5,835
<INTEREST-INCOME-NET> 5,813
<LOAN-LOSSES> 798
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,541
<INCOME-PRETAX> 2,601
<INCOME-PRE-EXTRAORDINARY> 2,601
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,029
<EPS-BASIC> .77
<EPS-DILUTED> .77
<YIELD-ACTUAL> 3.88
<LOANS-NON> 1,353
<LOANS-PAST> 787
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,888
<CHARGE-OFFS> 444
<RECOVERIES> 11
<ALLOWANCE-CLOSE> 3,253
<ALLOWANCE-DOMESTIC> 2,773
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 480
</TABLE>
