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: SEPTEMBER 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 November 3, 1999:
2,660,784 common shares
<PAGE>
CSB BANCORP, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 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>
CSB BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
September 30, December 31,
1999 1998
<S> <C> <C>
ASSETS
Cash and noninterest-bearing
deposits with banks $ 8,631,251 $ 10,440,120
Interest-bearing deposits
with banks 21,002 315,067
Federal funds sold 2,611,000 14,853,000
------------ ------------
Total cash and cash equivalents 11,263,253 25,608,187
Securities available for sale,
at fair value 29,760,843 27,115,456
Securities held to maturity
(Fair values of $76,272,515 in
1999 and $63,981,883 in 1998) 76,690,327 62,252,682
Loans, net 187,802,534 193,823,995
Premises and equipment, net 8,656,449 5,372,876
Accrued interest receivable
and other assets 4,410,253 3,328,722
------------ ------------
Total assets $318,583,659 $317,501,918
------------ ------------
LIABILITIES
Deposits
Noninterest-bearing $ 25,663,519 $ 27,359,102
Interest-bearing 239,028,464 238,387,456
------------ ------------
Total deposits 264,691,983 265,746,558
Securities sold under
repurchase agreements 11,073,530 9,770,519
Federal Home Loan Bank
borrowings 8,917,955 10,111,119
Accrued interest payable
and other liabilities 967,746 1,013,623
------------ ------------
Total liabilities 285,651,214 286,641,819
SHAREHOLDERS' EQUITY
Common stock, $6.25 par value:
9,000,000 shares authorized;
1999 2,660,784 shares issued;
1998 2,654,441 shares issued 16,629,902 16,590,255
Additional paid-in capital 6,216,145 5,963,191
Retained earnings 10,488,291 8,292,636
Treasury stock at cost:
1999-8,806 shares;
1998 6,400 shares (173,802) (56,000)
Accumulated other comprehensive
income (228,091) 70,017
------------ ------------
Total shareholders' equity 32,932,445 30,860,099
------------ ------------
Total liabilities and
shareholders' equity $318,583,659 $317,501,918
------------ ------------
------------ ------------
</TABLE>
<PAGE>
<TABLE>
CSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income
Loans, including fees $ 4,394,227 $ 4,548,683 $13,097,901 $13,512,173
Taxable securities 821,609 641,923 2,266,678 2,061,092
Nontaxable securities 597,728 482,300 1,691,793 1,404,901
Other 155,361 199,753 559,897 416,224
----------- ----------- ----------- -----------
Total interest income 5,968,925 5,872,659 17,616,269 17,394,390
----------- ----------- ----------- -----------
Interest expense
Deposits 2,719,659 2,685,993 8,204,672 7,853,680
Other 196,786 241,624 546,395 718,823
----------- ----------- ----------- -----------
Total interest expense 2,916,445 2,927,617 8,751,067 8,572,503
----------- ----------- ----------- -----------
Net interest income 3,052,480 2,945,042 8,865,202 8,821,887
Provision for loan losses 151,248 577,400 948,807 773,785
Net interest income after
provision for loan losses 2,901,232 2,367,642 7,916,395 8,048,102
----------- ----------- ----------- -----------
Other income
Service charges on deposit
accounts 202,744 175,693 582,991 535,682
Gain on sale of loans 703 6,011 304,035 9,540
Gain on sale of other real
estate owned -- 77,579 -- 77,579
Other income 257,032 240,573 699,742 538,872
----------- ----------- ----------- -----------
Total other income 460,479 499,856 1,586,768 1,161,673
----------- ----------- ----------- -----------
Other expense
Salaries and employee benefits 1,034,173 875,571 2,840,457 2,550,361
Occupancy expense 117,740 80,851 289,543 246,241
Equipment expense 91,413 118,139 279,362 362,307
State franchise tax 97,025 95,082 257,554 287,323
Other expense 601,276 506,082 1,815,268 1,574,095
----------- ----------- ----------- -----------
Total other expense 1,941,627 1,675,725 5,482,184 5,020,327
----------- ----------- ----------- -----------
Income before income taxes 1,420,084 1,191,773 4,020,979 4,189,448
Provision for income taxes 299,313 215,799 870,927 1,011,685
----------- ----------- ----------- -----------
Net income $ 1,120,771 $ 975,974 $ 3,150,052 $ 3,177,763
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic and diluted earnings
per common share $ 0.42 $ 0.37 $ 1.19 $ 1.21
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
CSB BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Balance at beginning of period $32,227,739 $29,485,593 $30,860,099 $27,274,480
Net income 1,120,771 975,974 3,150,052 3,177,763
Unrealized gains (losses) on
available-for-sale securities
arising during period,
net of tax 19,912 88,784 (298,108) 89,145
----------- ----------- ----------- -----------
Comprehensive income 1,140,683 1,064,758 2,851,944 3,266,908
Common stock issued under
the dividend reinvestment
program and 401(k) plan 62 148,300 292,601 684,564
Cash dividends ($.12 and $.36
per share in 1999; $.10 and
$.30 per share in 1998) (317,777) (264,097) (953,937) (791,398)
Purchase of treasury shares (118,262) -- (118,262) --
----------- ----------- ----------- -----------
Balance at end of period $32,932,445 $30,434,554 $32,932,445 $30,434,554
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
CSB BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1999 1998
<S> <C> <C>
Net cash from operating activities $ 3,097,588 $ 4,466,152
Cash flows from investing activities
Net change in time deposits with other institutions -- 1,000,000
Securities available for sale
Proceeds from maturities 11,000,000 11,500,000
Purchases (14,021,120) (6,061,574)
Securities held to maturity
Proceeds from maturities, calls and repayments 7,460,000 7,179,734
Purchases (21,981,795) (7,986,984)
Net change in loans (7,699,439) (11,414,523)
Loan sale proceeds 13,042,706 979,540
Premises and equipment expenditures, net (3,518,548) (1,291,423)
------------- -------------
Net cash from investing activities (15,718,196) (6,095,230)
Cash flows from financing activities
Net change in deposits (1,054,575) 9,528,895
Net change in securities sold under
repurchase agreements 1,303,011 320,038
Principal reductions on FHLB borrowings (1,193,164) (1,346,112)
Shares issued for 401(k) plan 105,758 523,060
Cash dividends paid (767,094) (629,894)
Purchase of treasury stock (118,262) --
------------- -------------
Net cash from financing activities (1,724,326) 8,395,987
------------- -------------
Net change in cash and cash equivalents (14,344,934) 6,766,909
Beginning cash and cash equivalents 25,608,187 14,335,042
------------- -------------
Ending cash and cash equivalents $ 11,263,253 $ 21,101,951
------------- -------------
------------- -------------
Supplemental disclosures
Interest paid $8,779,315 $ 8,580,996
Income taxes paid 982,000 975,000
</TABLE>
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited)
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 September 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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding (basic) 2,653,755 2,640,766 2,651,579 2,634,841
Dilutive effect of assumed
exercise of stock options 926 1,001 950 95
Weighted average common
shares outstanding (diluted) 2,654,681 2,641,767 2,652,529 2,635,797
</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>
NOTE 2 - SECURITIES
The amortized cost and fair values of securities are as follows:
<TABLE>
September 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 $ 4,009,906 $ 18,414 $ -- $ 4,028,320
Obligations of U.S. government
corporations and agencies 23,942,529 7,370 (371,376) 23,578,523
----------- --------- ---------- ---------
Total debt securities available
for sale 27,952,435 25,784 (371,376) 27,606,843
Other securities 2,154,000 -- -- 2,154,000
----------- --------- ---------- ---------
Total securities available
for sale $30,106,435 $ 25,784 $(371,376) $29,760,843
----------- --------- ---------- ---------
----------- --------- ---------- ---------
Held to maturity
U.S. Treasury securities $ 5,109,580 $ 34,286 $ -- $ 5,143,866
Obligations of U.S. government
corporations and agencies 20,499,495 3,002 (354,535) 20,147,962
Obligations of states and
political subdivisions 51,081,252 437,713 (538,278) 50,980,687
----------- --------- ---------- ---------
Total debt securities
held to maturity $76,690,327 $ 475,001 $(892,813) $76,272,515
</TABLE>
<PAGE>
NOTE 2 - SECURITIES (Continued)
<TABLE>
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 nine
months of 1999 or 1998.
The amortized cost and fair values of debt securities at September
30, 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 $ 4,008,184 $ 4,020,195 $ 7,072,021 $ 7,104,146
Due from one to five years 23,944,351 23,586,648 30,354,470 30,044,955
Due from five to ten years -- -- 25,963,034 25,690,132
Due after ten years -- -- 13,300,802 13,433,282
----------- ----------- ----------- -----------
$27,952,435 $27,606,843 $76,690,327 $76,272,515
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<PAGE>
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans consisted of the following:
<TABLE>
September 30, 1999 December 31, 1998
<S> <C> <C>
Commercial $ 84,698,830 $ 86,971,202
Commercial real estate 33,383,721 33,136,841
Residential real estate 30,858,172 33,684,743
Residential real estate
loans held for sale 18,975,087 23,636,259
Installment and credit
card 18,306,124 16,992,208
Construction 5,662,484 3,154,733
------------ ------------
Subtotal 191,884,418 197,575,986
Allowance for loan losses (3,356,233) (2,887,721)
Net deferred loan fees (725,651) (864,270)
------------ ------------
$187,802,534 $193,823,995
</TABLE>
During the first nine months of 1999, the Company received $13.0
million in proceeds from mortgage loan sales. A gain of $304,000
was recognized on these sales.
Activity in the allowance for loan losses for the nine months
ended September 30, 1999 and 1998 is as follows:
<TABLE>
1999 1998
<S> <C> <C>
Beginning balance $2,887,721 $2,349,039
Provision for loan losses 948,807 773,785
Charge-offs (509,547) (516,732)
Recoveries 29,252 43,087
---------- ----------
Balance - September 30 $3,356,233 $2,649,179
</TABLE>
Impaired loans at September 30, 1999 and December 31, 1998 are as
follows:
<TABLE>
September 30, December 31,
1999 1998
<S> <C> <C>
Loans with no allowance for
loan losses allocated $ 778,349 $ 141,509
Loans with allowance for
loan losses allocated 1,798,435 1,453,837
Amount of allowance allocated 378,659 412,284
</TABLE>
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Impaired loans for the nine months ended September 30, 1999 and
1998 are as follows:
1999 1998
Average of impaired loans $2,423,928 $1,498,000
Interest income recognized
during impairment 122,778 58,945
Cash basis interest income
recognized 108,661 57,994
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 September
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 $13.4 million of qualifying
mortgage loans at September 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.
<TABLE>
September 30, December 31,
1999 1998
Fixed Variable Fixed Variable
Rate Rate Rate Rate
<S> <C> <C> <C> <C>
Commitments to make
loans (at market
rates) $ 332,645 $ 1,025,000 $1,230,165 $ 1,326,760
Unused lines of
credit and letters
of credit 3,029,228 35,799,553 3,105,699 28,532,674
</TABLE>
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 nine 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.
<PAGE>
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 September 30,
1999, compared to December 31, 1998, and the consolidated results
of operations for the quarterly and year-to-date periods ending
September 30, 1999 compared to the same periods 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 $318.6 million at September 30, 1999, compared
to $317.5 million at December 31, 1998, representing an increase
of $1.1 million or 0.3%. Total securities increased approximately
$17.1 million, or 19.1%, during the nine 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 September 30,
1999, approximately 10.6% of the securities portfolio matures
within one year.
Net loans decreased $6.0 million, or 3.1%, to $187.8 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 $2.3 million, or 2.6%, primarily
as a result of reduced demand for such loans in the local market
area during the period. Residential real estate loans decreased
$7.5 million since December 31, 1998, as a result of the
aforementioned sale. As a percentage of loans, the allowance for
loan losses was 1.75% at September 30, 1999 and 1.46% at December
31, 1998. Loans past due more than 90 days and loans placed on
nonaccrual status, were approximately $1.8 million, or 0.94% of
total loans at September 30, 1999, compared to $1.5 million, or
0.76% of loans at December 31, 1998. These credits are considered
in management's analysis of the allowance for loan losses.
Premises and equipment increased $3.3 million, or 61.1%, during
the first nine months of 1999. This was primarily due to the
construction of the new operations center, which was completed in
the third quarter of 1999.
At September 30, 1999, the ratio of net loans to deposits was
71.0%, 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 $3.2 million, less $954,000 of cash dividends
declared. The cash dividend represents 30.3% of net income for
the first nine 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 nine
months of 1999.
The Company and its subsidiary met all regulatory capital
requirements at September 30, 1999. The Company's ratio of total
capital to risk-weighted assets was 17.5% at September 30, 1999,
while Tier 1 risk-based capital ratio was 16.2%. 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 10.3% at September 30, 1999, which exceeds the
regulatory minimum of 3.0% to 5.0%.
RESULTS OF OPERATIONS
Net income for the nine months ended September 30, 1999 was $3.2
million, or $1.19 per share, substantially the same as the $3.2
million, or $1.21 per share earned during the same period last
year. Third quarter net income was $1.1 million, or $0.42 per
share, in 1999, compared to $976,000, or $0.37 per share, for the
third quarter of 1998, an increase of $145,000, or 14.8%. The
primary factor contributing to the three month increase was a
decrease in the provision for loan loss of $426,000, which was
partially offset by an increase in other expense of $266,000.
Net interest income was $8.9 million for the first nine months of
1999, a $43,000 increase from the same period of 1998. Interest
and fees on loans decreased $414,000, or 3.1%, which resulted
primarily from the sale of $13.0 million in mortgage loans during
the first nine months. Also, as the loan sale proceeds were
invested in securities from federal funds sold, interest on
securities increased $492,000 and other interest income increased
$144,000 for the first three quarters of 1999, compared to the
same period of 1998. Net interest income for the third quarter of
1999 totaled $3.1 million, an increase of $107,000, or 3.6%, from
$2.9 million in the third quarter of 1998. Income from taxable
investments increased $180,000, or 28.0%, from the third quarter
of 1998 to 1999, while income from nontaxable securities increased
$115,000, or 23.9%, for the same period.
Interest expense increased $179,000, or 2.1%, for the nine months
ended September 30, 1999, compared to the nine months ended
September 30, 1998. This increase was the result of increased
volumes on interest-bearing accounts, which was partially offset
by a reduction in cost of funds. For the third quarter of 1999
compared to the same period in 1998, interest expense remained
substantially the same at $2.9 million.
The provision for loan losses was $949,000 during the first nine
months of 1999, an increase of $175,000, or 22.6%, from the
provision for the comparable period in 1998. The provision for
loan losses for the third quarter was $151,000, a decrease of
$426,000, or 73.8%, from the same quarter 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 nine months of 1999 increased
approximately $425,000, primarily as a result of the $304,000 gain
on the sale of loans in 1999 discussed above. Also contributing
to the increase was a $161,000, or 29.9% increase in other income,
primarily as a result of an increase in trust and financial
services income. Other income for the third quarter of 1999
decreased $39,000, or 7.9%, as a result of $78,000 of gain on sale
of other real estate owned in 1998.
Other expenses increased $462,000, or 9.2%, for the nine months
ended September 30, 1999, and $266,000, or 15.9%, for the three
months ended September 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 11.4% in the
nine months and 18.1% for the third quarter, 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 for the nine month period, due to a $31,000 refund
claim on previous years as a result of a recent court ruling. The
provisions for income taxes of $871,000 for the nine months and
$299,000 during the third quarter of 1999 reflected an effective
rate of 21.7% and 21.1%, compared to effective rates of 24.1% and
18.1% for the same time periods in 1998. The change in effective
rates resulted from changes in 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.
The results of the testing were satisfactory and no material
deficiencies were found.
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. The Company performed a risk
assessment of its loan portfolio and of certain loan customers.
The Company reviewed collateral and other sources of repayment to
determine that a borrower's lack of Year 2000 readiness would not
create a material loss due to business disruption. 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
and the Company's state of readiness. The Company also assessed
the Year 2000 preparedness of the local utilities and anticipates
no disruption of such services.
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 September 30, 1999, the Company had
incurred $25,000 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 $105,000 of internal
personnel costs through September 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 September 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 September 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:
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 Sequential
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.
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: November 10, 1999 /s/Douglas D. Akins
-----------------------
Douglas D. Akins
President
Chief Executive Officer
Date: November 10, 1999 /s/A. Lee Miller
-----------------------
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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income $1,120,771 $ 975,974 $3,150,052 $3,177,763
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Average basic
shares
outstanding 2,653,755 2,640,766 2,651,579 2,634,841
Add: Effect of
stock options 926 1,001 950 956
---------- ---------- ---------- ----------
Average diluted
shares
outstanding 2,654,681 2,641,767 2,652,529 2,635,797
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic and diluted
earnings per
common share $ 0.42 $ 0.37 $ 1.19 $ 1.21
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,631
<INT-BEARING-DEPOSITS> 21
<FED-FUNDS-SOLD> 2,611
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,761
<INVESTMENTS-CARRYING> 76,690
<INVESTMENTS-MARKET> 76,273
<LOANS> 191,159
<ALLOWANCE> 3,356
<TOTAL-ASSETS> 318,584
<DEPOSITS> 264,692
<SHORT-TERM> 11,074
<LIABILITIES-OTHER> 968
<LONG-TERM> 8,918
0
0
<COMMON> 16,630
<OTHER-SE> 16,302
<TOTAL-LIABILITIES-AND-EQUITY> 318,584
<INTEREST-LOAN> 13,098
<INTEREST-INVEST> 3,958
<INTEREST-OTHER> 560
<INTEREST-TOTAL> 17,616
<INTEREST-DEPOSIT> 8,205
<INTEREST-EXPENSE> 8,751
<INTEREST-INCOME-NET> 8,865
<LOAN-LOSSES> 949
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,482
<INCOME-PRETAX> 4,021
<INCOME-PRE-EXTRAORDINARY> 4,021
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,150
<EPS-BASIC> 1.19
<EPS-DILUTED> 1.19
<YIELD-ACTUAL> 3.96
<LOANS-NON> 935
<LOANS-PAST> 887
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,888
<CHARGE-OFFS> 520
<RECOVERIES> 29
<ALLOWANCE-CLOSE> 3,356
<ALLOWANCE-DOMESTIC> 2,850
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 506
</TABLE>
