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: MARCH 31, 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 May 10, 1999:
2,652,030 common shares
<PAGE>
CSB BANCORP, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 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 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Part II - Other Information
Other Information
Signatures
<PAGE>
<TABLE>
CSB BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, December 31,
1999 1998
<S> <C> <C>
ASSETS
Cash and noninterest-bearing
deposits with banks $ 8,064,444 $ 10,440,120
Interest-bearing deposits with
banks 13,979 315,067
Federal funds sold 27,015,000 14,853,000
------------ ------------
Total cash and cash equivalents 35,093,423 25,608,187
Securities available for sale,
at fair value 29,060,975 27,115,456
Securities held to maturity
(Fair values of $62,787,158 in
1999 and $63,981,883 in 1998) 61,402,837 62,252,682
Loans, net 179,969,328 193,823,995
Premises and equipment, net 6,320,529 5,372,876
Accrued interest receivable
and other assets 3,652,883 3,328,722
------------ ------------
Total assets $315,499,975 $317,501,918
------------ ------------
------------ ------------
LIABILITIES
Deposits
Noninterest-bearing $ 23,707,664 $ 27,359,102
Interest-bearing 242,439,772 238,387,456
------------ ------------
Total deposits 266,147,436 265,746,558
Securities sold under repurchase
agreements 7,133,244 9,770,519
Federal Home Loan Bank borrowings 9,538,273 10,111,119
Accrued interest payable and
other liabilities 1,093,741 1,013,623
------------ ------------
Total liabilities 283,912,694 286,641,819
SHAREHOLDERS' EQUITY
Common stock, $6.25 par value:
9,000,000 shares authorized;
1999 2,658,430 shares issued;
1998 2,654,441 shares issued 16,615,186 16,590,255
Additional paid-in capital 6,133,448 5,963,191
Retained earnings 8,893,257 8,292,636
Treasury stock at cost:
6,400 shares (56,000) (56,000)
Accumulated other comprehensive
income 1,390 70,017
------------ ------------
Total shareholders' equity 31,587,281 30,860,099
------------ ------------
Total liabilities and
shareholders' equity $315,499,975 $317,501,918
------------ ------------
------------ ------------
/TABLE
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
Interest income
Loans, including fees $4,439,609 $4,394,908
Taxable securities 682,516 746,704
Nontaxable securities 535,646 455,504
Other 161,562 104,206
--------- ----------
Total interest income 5,819,333 5,701,322
Interest expense
Deposits 2,716,183 2,561,473
Other 217,972 244,219
--------- ----------
Total interest expense 2,934,155 2,805,692
--------- ----------
Net interest income 2,885,178 2,895,630
Provision for loan losses 647,955 97,650
--------- ----------
Net interest income after
provision for loan losses 2,237,223 2,797,980
Other income
Service charges on deposit
accounts 182,032 181,379
Gain on sale of loans 302,652 ---
Other income 187,333 136,500
--------- ----------
Total other income 672,017 317,879
Other expenses
Salaries and employee benefits 862,321 804,375
Occupancy expense 88,039 75,299
Equipment expense 100,253 114,190
State franchise tax 93,960 95,200
Other expenses 597,066 495,960
--------- ----------
Total other expenses 1,741,639 1,585,024
--------- ----------
Income before income taxes 1,167,601 1,530,835
Provision for income taxes 249,064 415,086
--------- ----------
Net income $ 918,537 $1,115,749
--------- ----------
--------- ----------
Basic and diluted earnings per
common share (See Note 1) $ 0.35 $ 0.42
--------- ----------
--------- ----------
</TABLE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
Balance at beginning of period $30,860,099 $27,274,480
Net income 918,537 1,115,749
Unrealized gains (losses) on
available-for-sale
securities arising during period,
net of tax (68,627) 7,382
------------ -----------
Comprehensive income 849,910 1,123,131
Common stock issued under the dividend
reinvestment program and 401(k) plan 195,188 408,584
Cash dividends ($.12 per share in 1999;
$.10 per share in 1998) (317,916) (263,478)
------------ -----------
Balance at end of period $31,587,281 $28,542,717
------------ -----------
------------ -----------
/TABLE
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
Net cash from operating activities $1,109,746 $1,553,223
Cash flows from investing activities
Securities available for sale
Proceeds from maturities 5,000,000 5,000,000
Purchases (6,991,982) (2,963,189)
Securities held to maturity
Proceeds from maturities,
calls and repayments 6,100,000 3,879,734
Purchases (5,267,485) (203,268)
Net change in loans 525,842 (5,024,155)
Loan sale proceeds 12,972,366 ---
Premises and equipment expenditures,
net (1,031,280) (485,312)
----------- ------------
Net cash from investing activities 11,307,461 203,810
----------- ------------
Cash flows from financing activities
Net change in deposits 400,878 (2,788,498)
Net change in securities sold under
repurchase agreements (2,637,275) (1,014,997)
Principal reductions on FHLB
borrowings (572,846) (651,222)
Shares issued for 401(k) plan 100,999 326,084
Cash dividends paid (223,727) (180,977)
----------- ------------
Net cash from financing activities (2,931,971) (4,309,610)
----------- ------------
Net change in cash and cash
equivalents 9,485,236 (2,552,577)
Beginning cash and cash equivalents 25,608,187 14,335,042
----------- ------------
Ending cash and cash equivalents $35,093,423 $11,782,465
----------- ------------
----------- ------------
Supplemental disclosures
Interest paid $ 2,906,289 $ 2,793,939
Income taxes paid 312,000 ---
/TABLE
<PAGE>
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 March 31, 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:
<TABLE>
Three Months Ended March 31,
1999 1998
<S> <C> <C>
Weighted average common shares
outstanding (basic) 2,648,611 2,625,892
Dilutive effect of assumed
exercise of stock options 971 831
Weighted average common
shares outstanding (diluted) 2,649,582 2,626,723
</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, 1999, 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>
March 31, 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 $ 6,016,900 $ 61,616 $ --- $ 6,078,516
Obligations of U.S. government
corporations and agencies 20,951,668 53,506 (113,015) 20,892,159
----------- ---------- ---------- -----------
Total debt securities available
for sale 26,968,568 115,122 (113,015) 26,970,675
Other securities 2,090,300 --- --- 2,090,300
----------- ---------- ---------- -----------
Total securities available
for sale $29,058,868 $ 115,122 $(113,015) $29,060,975
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
Held to maturity
U.S. Treasury securities $ 6,120,527 $ 85,465 $ --- $ 6,205,992
Obligations of U.S. government
corporations and agencies 10,505,986 12,538 (87,901) 10,430,623
Obligations of states and
political subdivisions 44,776,324 1,432,865 (58,646) 46,150,543
----------- ---------- ---------- -----------
Total debt securities
held to maturity $61,402,837 $1,530,868 $(146,547) $62,787,158
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
<PAGE>
<TABLE>
NOTE 2 - SECURITIES (Continued)
<CAPTION>
December 31, 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 $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>
There were no sales of investment securities during the first three
months of 1999 or 1998.
The amortized cost and fair values of debt securities at March 31, 1999,
by contractual maturity, are shown below.
<TABLE>
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 $ 4,005,982 $ 4,035,313 $ 6,054,790 $ 6,122,553
Due from one to five years 22,962,586 22,935,362 19,509,828 19,724,096
Due from five to ten years --- --- 21,776,642 22,446,929
Due after ten years --- --- 14,061,577 14,493,580
$26,968,568 $26,970,675 $61,402,837 $62,787,158
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
/TABLE
<PAGE>
<TABLE>
NOTE 3 LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans consisted of the following:
<CAPTION>
March 31, 1999 December 31, 1998
<S> <C> <C>
Commercial $ 85,431,465 $ 86,971,202
Commercial real estate 32,607,830 33,136,841
Residential real estate 31,526,905 33,684,743
Residential real estate
loans held for sale 14,630,971 23,636,259
Installment and credit card 16,312,111 16,992,208
Construction 3,660,226 3,154,733
------------ ------------
Subtotal 184,169,508 197,575,986
Allowance for loan losses (3,496,627) (2,887,721)
Net deferred loan fees (703,553) (864,270)
------------ ------------
$179,969,328 $193,823,995
------------ ------------
------------ ------------
</TABLE>
During the first three 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 three months
ended March 31, 1999 and 1998 is as follows:
<TABLE>
1999 1998
<S> <C> <C>
Beginning balance $2,887,721 $2,349,039
Provision for loan losses 647,955 97,650
Charge-offs 45,295 (23,267)
Recoveries 6,246 6,661
---------- ----------
Balance - March 31 $3,496,627 $2,430,083
---------- ----------
---------- ----------
</TABLE>
Impaired loans at March 31, 1999 and December 31, 1998 is as
follows:
<TABLE>
March 31, December 31,
1999 1998
<S> <C> <C>
Loans with no allowance for
loan losses allocated $ 677,658 $ 141,509
Loans with allowance for
loan losses allocated 2,544,126 1,453,837
Amount of allowance allocated 890,553 412,284
/TABLE
<PAGE>
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Impaired loans for the three months ended March 31, 1999 and 1998,
is as follows:
1999 1998
Average of impaired loans $2,408,565 $1,592,000
Interest income recognized
during impairment 36,000 18,000
Cash basis interest income
recognized 35,000 18,000
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 March 31,
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 March 31,
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.
<PAGE>
<TABLE>
March 31, December 31,
1999 1998
Fixed Variable Fixed Variable
Rate Rate Rate Rate
<S> <C> <C> <C> <C>
Commitments to make loans
(at market rates) $ 799,852 $ 1,530,000 $1,230,165 $
1,326,760
Unused lines of credit and
Letters of credit 2,642,067 32,583,596 3,105,699
28,532,674
</TABLE>
<PAGE>
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 three 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 March 31, 1999,
compared to December 31, 1998, and the consolidated results of
operations for the quarterly period ending March 31, 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 $315.5 million at March 31, 1999, compared to
$317.5 million at December 31, 1998, representing a decrease of
$2.0 million or 0.6%. Total securities increased approximately
$1.1 million during the quarter. 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 March 31, 1999, approximately 11.4%
of the securities portfolio matures within one year.
Total loans decreased $13.4 million, or 6.8%, to $184.2 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 $1.5 million, or 1.8%, primarily
as a result of reduced demand for such loans in the local market
area. Residential real estate loans, exclusive of the loan sale,
increased $1.2 million, or 2.1%.
As a percentage of loans, the allowance for loan losses was 1.90%
at March 31, 1999 and 1.47% at December 31, 1998. Loans past due
more than 90 days and loans placed on nonaccrual status, were
approximately $2.2 million, or 1.2% of total loans at March 31,
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 $948,000, or 17.6%, during the
first quarter 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 March 31, 1999, the ratio of net loans to deposits was 67.6%,
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 $919,000, less $318,000 of cash dividends declared.
The cash dividend represents 34.6% of net income for the first
quarter 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 $195,000 during the first quarter of 1999.
The Company and its subsidiary met all regulatory capital
requirements at March 31, 1999. The Company's ratio of total
capital to risk-weighted assets was 17.22% at March 31, 1999,
while Tier 1 risk-based capital ratio was 15.96%. Regulatory
minimums call for a total risk-based capital ratio of 8%, at least
one-half of which must be Tier 1 capital. The Company's leverage
ratio was 10.02% at March 31, 1999, which exceeds the regulatory
minimum of 3% to 5%.
RESULTS OF OPERATIONS
Net income for the quarter ending March 31, 1999, was $919,000, or
$0.35 per share, as compared to $1.1 million, or $0.42 per share
earned during the same period last year, a decrease of $197,000,
or 17.7%. The primary factors contributing to this 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 for the quarter ended March 31, 1999 was $2.9
million, substantially the same as the first quarter of 1998.
Interest and fees on loans increased $45,000, or 1.0%. Also, as
deposit funds were invested in securities, interest on securities
increased $16,000, and other interest income increased by $57,000,
primarily due to a higher balance in federal funds sold.
Interest expense increased $129,000 to $2.9 million for the
quarter ended March 31, 1999, compared to $2.8 million for the
quarter ended March 31, 1998. This increase was the result of
increased volumes on interest-bearing accounts and slightly higher
rates.
The provision for loan losses was $648,000 during the first
quarter of 1999, an increase of $550,000 over the first quarter of
1998. This additional provision was made in recognition of an
increase in impaired and nonperforming loans and loans adversely
classified in the Company's loan review system.
Other income increased approximately $354,000 primarily as a
result of the gain on the sale of loans during the 1999 period.
In the first quarter of 1999, $13.0 million of fixed rate mortgage
loans were sold, resulting in a gain of $303,000. These loans had
previously been identified as held for sale.
Other expenses increased $157,000, or 9.9%, for the three months
ended March 31, 1999, compared to the same period in 1998.
Management continues to monitor the Company's efficiency ratio by
controlling increases in other operating costs. Salaries and
employee benefits increased by $58,000 or 7.2%, and other expenses
increased $101,000 or 20.4%. This increase was primarily due to
increases in the merchant credit card program, and trust and
financial services, which also increased other income. The
provision for income taxes of $249,000 during the first quarter of
1999 reflected an effective rate of 21.3%, as compared to 27.1%,
for the first quarter of 1998.
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 March 31, 1999, the Company had incurred
$20,000 of operating expenses and $39,000 of capital expenditures
for Year 2000 readiness. In addition to these costs, the Company
has estimated it has incurred $79,000 of internal personnel costs
through December 31, 1998.
Management is in the process of developing contingency plans for
mission-critical systems, where applicable. These contingency
plans include both remediation and business resumption plans.
These contingency plans will be based on the results of the above-
mentioned testing. The Company plans to complete the design of
contingency plans by June 30, 1999.
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 March 31, 1999
from that presented in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998.
<PAGE>
CSB BANCORP, INC.
FORM 10-Q
Quarter ended March 31, 1998
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:
There are no matters required to be reported under this item.
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
Number Description of Document
11 Statement Regarding Computation of Per Share Earnings
(reference is hereby made to Consolidated Statements of
Income on page 4 hereof.)
27 Financial Data Schedule
(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: May 12, 1999
/s/ Douglas D. Akins
---------------------
Douglas D. Akins
President
Chief Executive Officer
Date: May 12, 1999
/s/ A. Lee Miller
---------------------
A. Lee Miller
Senior Vice President
Chief Financial Officer
<PAGE>
Index to 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.)
27 Financial Data Schedule
<PAGE>
<TABLE>
CSB BANCORP, INC.
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
Net income $ 918,537 $1,115,749
Average basic shares outstanding 2,648,611 2,625,892
Add: Effect of stock options 971 831
Average diluted shares
outstanding 2,649,582 2,626,723
Basic and diluted earnings
per common share $ 0.35 $ 0.42
</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 STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,064
<INT-BEARING-DEPOSITS> 14
<FED-FUNDS-SOLD> 27,015
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,061
<INVESTMENTS-CARRYING> 61,403
<INVESTMENTS-MARKET> 62,787
<LOANS> 183,466
<ALLOWANCE> 3,497
<TOTAL-ASSETS> 315,500
<DEPOSITS> 266,147
<SHORT-TERM> 7,133
<LIABILITIES-OTHER> 1,094
<LONG-TERM> 9,538
0
0
<COMMON> 16,615
<OTHER-SE> 14,972
<TOTAL-LIABILITIES-AND-EQUITY> 315,500
<INTEREST-LOAN> 4,440
<INTEREST-INVEST> 1,218
<INTEREST-OTHER> 161
<INTEREST-TOTAL> 5,819
<INTEREST-DEPOSIT> 2,716
<INTEREST-EXPENSE> 2,934
<INTEREST-INCOME-NET> 2,885
<LOAN-LOSSES> 648
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,742
<INCOME-PRETAX> 1,168
<INCOME-PRE-EXTRAORDINARY> 1,168
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 919
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
<YIELD-ACTUAL> 3.88
<LOANS-NON> 1,582
<LOANS-PAST> 575
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,888
<CHARGE-OFFS> 45
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 3,497
<ALLOWANCE-DOMESTIC> 2,754
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 743
</TABLE>
