UNITED STATES
SECURITY AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to __________________
Commission File Number: 0-26650
CSB FINANCIAL GROUP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
United States 37-1336338
- --------------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Employer ID Number)
of incorporation or organization)
200 South Poplar, Centralia, Illinois 62801
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (618) 532-1918
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES ( X ) NO ( )
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Shares outstanding at July 31, 1998
- ----------------------------- -----------------------------------
Common Stock, Par Value $0.01 820,870
<PAGE>
Contents
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
- Consolidated Statements of Financial Condition
- Consolidated Statements of Income
- Consolidated Statements of Cash Flows
- Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
CSB FINANCIAL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 1998 and September 30, 1997
(in thousands, except share data)
June 30, September 30,
1998 1997
- -------------------------------------------------------------------
ASSETS
Cash and cash equivalents ................ $ 2,047 $ 2,675
Securities:
Available for sale .................... 16,423 16,777
Nonmarketable equity securities ....... 215 210
Loans .................................... 26,550 27,299
Allowance for loan losses ................ (186) (165)
--------------------
Loans, net ................. 26,364 27,134
Loans held for sale ...................... 434 - -
Premises and equipment ................... 603 602
Accrued interest receivable .............. 409 290
Intangible assets ........................ 615 660
Other assets ............................. 108 186
--------------------
Total assets $47,218 $48,534
====================
See Notes to Unaudited Consolidated Financial Statements.
<PAGE>
CSB FINANCIAL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 1998 and September 30, 1997
(in thousands, except share data)
<TABLE>
June 30, September 30,
1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand .................................................. $ 8,674 $ 9,073
Savings ................................................. 3,547 3,395
Time deposits > $100,000 ................................ 1,317 1,085
Other time deposits ..................................... 22,328 23,033
------------------
Total deposits .................................. 35,866 36,586
------------------
Other liabilities .......................................... 157 52
Deferred income taxes ...................................... 242 244
------------------
Total liabilities ............................... 36,265 36,882
------------------
COMMITMENTS, CONTINGENCIES AND CREDIT RISK
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; 100,000 shares authorized;
none issued ............................................. - - - -
Common stock, $0.01 par value; authorized 2,000,000 shares;
1,035,000 shares issued ................................. 10 10
Paid-in capital ............................................ 7,822 7,813
Retained earnings .......................................... 6,315 6,039
Unrealized gain on available for sale securities, net of tax 108 110
Unearned employee stock ownership plan shares .............. (182) (202)
Management recognition plan ................................ (561) (589)
------------------
13,512 13,181
Less cost of treasury stock; 214,130 shares at June 30, 1998
and 132,775 shares at September 30, 1997 ................ (2,559) (1,529)
------------------
Total stockholders' equity ...................... 10,953 11,652
------------------
Total liabilities and stockholders' equity ...... $47,218 $48,534
==================
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
<PAGE>
CSB FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended June 30, 1998 and 1997
(Unaudited, in thousands, except per share data)
<TABLE>
Nine Months
Ended June 30,
-----------------
1998 1997
-----------------
<S> <C> <C>
Interest income:
Loans and fees on loans ...................................... $ 1,662 $ 1,621
Securities ................................................... 838 806
-----------------
Total interest income ............................. 2,500 2,427
-----------------
Interest expense on deposits .................................... 1,230 1,224
-----------------
Net interest income ............................... 1,270 1,203
Provision for loan losses ....................................... 45 67
-----------------
Net interest income after provision for loan losses 1,225 1,136
-----------------
Noninterest income:
Service charges on deposits .................................. 61 54
Gain on sale of securities, net .............................. 3 40
Gain on sale of loans, net ................................... 6 - -
Other ........................................................ 30 23
-----------------
Total noninterest income .......................... 100 117
-----------------
Noninterest expense:
Compensation and employee benefits ........................... 474 472
Occupancy and equipment ...................................... 63 67
Data processing .............................................. 78 70
Audit, legal and other professional .......................... 69 85
Other ........................................................ 277 281
-----------------
Total noninterest expense ......................... 961 975
-----------------
Income before income taxes ........................ 364 278
Income taxes .................................................... 88 61
-----------------
Net income ........................................ $ 276 $ 217
=================
Earnings per share
Basic ........................................................ $ 0.36 $ 0.24
=================
Diluted ...................................................... $ 0.34 $ 0.24
=================
Weighted average shares outstanding
Basic ........................................................ 774,912 887,312
=================
Diluted ...................................................... 804,252 912,112
=================
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
<PAGE>
CSB FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30, 1998 and 1997
(Unaudited, in thousands, except per share data)
<TABLE>
Three Months
Ended June 30,
-----------------
1998 1997
-----------------
<S> <C> <C>
Interest income:
Loans and fees on loans ...................................... $ 542 $ 545
Securities ................................................... 277 264
-----------------
Total interest income ............................. 819 809
-----------------
Interest expense on deposits .................................... 406 412
-----------------
Net interest income ............................... 413 397
Provision for loan losses ....................................... 15 22
-----------------
Net interest income after provision for loan losses 398 375
-----------------
Noninterest income:
Service charges on deposits .................................. 20 16
Gain on sale of securities ................................... - - 1
Gain on sale of loans ........................................ 4 - -
Other ........................................................ 8 7
-----------------
Total noninterest income .......................... 32 24
-----------------
Noninterest expense:
Compensation and employee benefits ........................... 150 162
Occupancy and equipment ...................................... 21 24
Data processing .............................................. 28 21
Audit, legal and other professional .......................... 14 18
Other ........................................................ 89 87
-----------------
Total noninterest expense ......................... 302 312
-----------------
Income before income taxes ........................ 128 87
Income taxes .................................................... 33 35
-----------------
Net income ........................................ $ 95 $ 52
=================
Earnings per share
Basic ........................................................ $ 0.12 $ 0.06
=================
Diluted ...................................................... $ 0.12 $ 0.06
=================
Weighted average shares outstanding
Basic ........................................................ 766,449 875,660
=================
Diluted ...................................................... 796,837 904,760
=================
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
<PAGE>
CSB FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended June 30, 1998 and 1997
(Unaudited, in thousands)
<TABLE>
Nine Months
Ended June 30,
------------------
1998 1997
------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income ................................................... $ 276 $ 217
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses ................................. 45 67
Provision for depreciation ................................ 27 27
Amortization of intangible assets ......................... 45 46
Employee stock ownership plan compensation expense ........ 29 60
Management recognition plan compensation expense .......... 28 22
Deferred income taxes ..................................... - - 97
Originations of loans held for sale ....................... (1,194) - -
Proceeds from loans held for sale ......................... 766 - -
Gain on sale of securities ................................ (3) (40)
Gain on sale of loans ..................................... (6) - -
Loss on the sale of other real estate owned ............... 3 - -
Amortization and accretion on securities .................. (1) 60
Change in assets and liabilities:
(Increase) decrease in accrued interest receivable ...... (119) 20
(Increase) decrease in other assets ..................... 50 (18)
(Decrease) increase in other liabilities ................ 105 (224)
------------------
Net cash provided by operating activities ......... 51 334
------------------
Cash Flows from Investing Activities:
Securities available for sale:
Purchases ................................................. (9,512) (6,772)
Proceeds from sales ....................................... 3,755 - -
Proceeds from maturities and paydowns ..................... 6,111 6,764
Securities held to maturity:
Proceeds from sales - - 369
Nonmarketable equity securities:
Purchases of nonmarketable equity securities .............. (5) (45)
Decrease in securities purchased under agreements to resell .. - - 300
(Increase) decrease in loans ................................. 725 (199)
Proceeds from the sale of other real estate owned ............ 25 - -
Purchase of premises and equipment ........................... (28) (40)
------------------
Net cash provided by investing activities ......... 1,071 377
------------------
Cash Flows from Financing Activities:
(Decrease) in deposits ....................................... $ (720) $ (559)
Purchase of treasury stock ................................... (1,030) (966)
------------------
Net cash (used in) financing activities ........... (1,750) (1,525)
(Decrease) in cash and cash equivalents ........... (628) (814)
Cash and cash equivalents at beginning of period ................ 2,675 4,766
------------------
Cash and cash equivalents at end of period ...................... $ 2,047 $ 3,952
==================
Supplemental Disclosures:
Cash paid for:
Interest on deposits ...................................... $ 1,233 $ 1,223
Income taxes .............................................. $ 37 $ 47
Change in gross unrealized gain/loss on securities available
for sale .................................................. $ (4) $ 181
Change in deferred taxes on unrealized gain/loss on securities
available for sale ........................................ $ (2) $ 68
Transfer of securities from held to maturity to available for
sale ...................................................... $ - - $ 1,657
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
<PAGE>
CSB FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
Note 1. Background Information
On October 5, 1995, CSB Financial Group, Inc. (the "Company") acquired all of
the outstanding shares of Centralia Savings Bank (the "Bank") upon the Bank's
conversion from a state chartered mutual savings bank to a state chartered
capital stock savings bank. Centralia Savings Bank is located in Centralia,
Illinois and serves customers in Illinois counties of Clinton and Marion. The
Company purchased 100% of the outstanding capital stock of the Bank using 50% of
the net proceeds from the Company's initial stock offering which was completed
on October 5, 1995. The Company sold 1,035,000 shares of $0.01 par value common
stock at a price of $8 per share, including 82,800 shares purchased by the
Bank's Employee Stock Ownership Plan ("ESOP"). The ESOP shares were acquired by
the Bank with proceeds from a Company loan totaling $662,400. The gross proceeds
of the offering were $8,280,000. After reducing gross proceeds for conversion
costs of $696,000, net proceeds totaled $7,584,000. The Company's stock trades
on the NASDAQ Small Caps market under the symbol "CSBF".
The acquisition of the Bank by the Company was accounted for as a "pooling of
interests" under generally accepted accounting principles. The application of
the pooling of interests method records the assets and liabilities of the merged
entities on a historical cost basis with no goodwill or other intangible assets
being recorded.
Note 2. Basis of Presentation
The accompanying consolidated financial statements include the accounts of CSB
Financial Group, Inc., its wholly owned subsidiary, Centralia Savings Bank, the
Bank, and the Bank's wholly-owned subsidiary, Centralia SLA. Centralia SLA,
Inc.'s principal business activity is to provide insurance services. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The accompanying consolidated financial statements are unaudited
and should be read in conjunction with the consolidated financial statements and
notes thereto included in the Bank's annual report on Form 10-KSB for the year
ended September 30, 1997. The accompanying unaudited consolidated financial
statements have been prepared in accordance with the instructions for Form
10-QSB and, therefore, do not include information or footnotes necessary for a
complete presentation of financial condition, results of operations, and cash
flows in conformity with generally accepted accounting principles. In the
opinion of management of the Company, the unaudited consolidated financial
statements reflect all adjustments necessary to present fairly the financial
position of the Company at June 30, 1998 the results of operations for the three
months ended June 30, 1998 and 1997, and the results of operations and cash
flows for the nine months ended June 30, 1998 and 1997. All adjustments to the
financial statements were normal and recurring in nature.
Operating results for the nine months ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the year ending September 30,
1998.
Note 3. Earnings Per Share
Basic earnings per share ("EPS") is computed as net income available to common
stockholders divided by the weighted average common shares outstanding and
vested shares of the Management Recognition Plan.
Diluted EPS is computed as net income available to common stockholders divided
by the weighted average common shares outstanding, common stock equivalents, and
shares awarded under the Management Recognition Plan weighted to reflect the
portion of the period the shares were outstanding.
<PAGE>
The following reflects earnings per share calculations for basic and diluted
methods:
For the Nine Months
Ended June 30,
-------------------
1998 1997
------------------
Net income available to common shareholders ................. $ 276 $ 217
Basic diluted potential common shares:
Weighted average shares outstanding ...................... 769,530 885,656
Management recognition plan shares vested ................ 5,382 1,656
------------------
Basic average shares outstanding ............................ 774,912 887,312
------------------
Diluted potential common shares:
Management recognition plan shares granted, but not vested 13,248 16,974
Stock option equivalents ................................. 16,092 7,826
------------------
Diluted average shares outstanding .......................... 804,252 912,112
==================
Basic earnings per share .................................... $ 0.36 $ 0.24
==================
Diluted earnings per share .................................. $ 0.34 $ 0.24
==================
<TABLE>
For the Months
Ended June 30,
-------------------
1998 1997
-------------------
<S> <C> <C>
Net income available to common shareholders ................. $ 95 $ 52
Basic diluted potential common shares:
Weighted average shares outstanding ...................... 761,067 874,004
Management recognition plan shares vested ................ 5,382 1,656
-------------------
Basic weighted average shares outstanding ................... 766,449 875,660
-------------------
Diluted potential common shares:
Management recognition plan shares granted, but not vested 13,248 16,974
Stock option equivalents ................................. 17,140 12,126
-------------------
Diluted average shares outstanding .......................... 796,837 904,760
-------------------
Basic earnings per share .................................... $ 0.12 $ 0.06
-------------------
Diluted earnings per share .................................. $ 0.12 $ 0.06
===================
</TABLE>
Note 4. Employee Stock Ownership Plan
In conjunction with the conversion, an ESOP was created and 82,800 shares of the
Company's stock were purchased for future allocation to employees. The purchase
was funded with a loan from the Company.
<PAGE>
Shares are allocated to all eligible employees as the debt is repaid based on a
prorata share of total eligible compensation. Employees 21 or older with at
least 1,000 hours of service in a twelve month period are eligible to
participate. Benefits will vest over a five year period and in full after five
years of qualified service.
As shares are committed to be released from unallocated shares, the Bank
recognizes compensation expense equal to the current market price of the shares,
and the shares become outstanding for purposes of calculating earnings per
share. The Bank recognized compensation expense for the ESOP of $29 and $60 for
the nine months ended June 30, 1998 and 1997, respectively.
Dividends received, if any, by the ESOP on unallocated shares will be used for
debt service.
In July 1997, the Company repurchased 41,400 shares of common stock from the
ESOP. The ESOP used the proceeds received from the repurchase to reduce
outstanding debt to the Company. The balance in unearned ESOP shares was reduced
by the cost of the shares sold to the Company. As of June 30, 1998 and September
30, 1997, the ESOP held 23,143 and 25,108, respectively, of non-committed shares
with a fair value of $310 and $309, respectively.
Note 5. Stock Option Plan
At the annual stockholder's meeting on May 22, 1996, the Stock Option Plan
("SOP") was approved. The board has reserved an amount of stock equal to 103,500
shares or 10% of the common stock sold in the conversion for issuance under the
SOP. The options will be granted by a Committee, comprised of directors, to key
employees and directors based on their services. The exercise price of options
granted must be at least equal to the fair market value of the common stock on
the date the option is granted. The options granted under the plan become
exercisable at a rate of 20 percent per year commencing one year after the grant
date and 20 percent on each anniversary date for the following four years. As of
June 30, 1998, 61,750 options had been granted.
The Board adopted the 1997 Nonqualified Stock Option Plan (SOP) effective
January 9, 1997. The Board has reserved up to 103,500 shares of common stock
under the SOP. The options will be granted by a committee, comprised of
directors, to key employees and directors based on their services. The exercise
price of the option granted must be at least equal to the fair market value of
the common stock on the date the option is granted. The terms of the options and
the exercise schedule are at the discretion of the committee and option
agreements need not be identical. As of June 30, 1998, no options had been
granted.
Note 6. Management Recognition Plan
The Management Recognition Plan ("MRP") was approved with an effective date of
October 10, 1996 and amended on January 9, 1997. The MRP intends to purchase
with funds provided by the Company, whether in the open market or from the
Holding Company in the form of newly issued shares, 62,100 shares, or 6% of the
aggregate number of shares of Common Stock issued and sold in connection with
the Conversion for issuance to officers, directors, and employees of the Holding
Company. Directors, officers, and employees become vested in the shares of
common stock awarded to them under the MRP at a rate of 20% per year, commencing
one year after the grant date, and 20% on the anniversary date thereof for the
following four years. As of June 30, 1998, 18,630 shares have been awarded to
officers, directors, and employees. MRP compensation expense was $28 and $22 for
the nine months ended June 30, 1998 and 1997, respectively. The bank accounts
for its MRP in accordance with Accounting Principle Board Statement 25.
Compensation expense is recognized over the vesting period for shares awarded
under the plan.
<PAGE>
Note 7. New Accounting Standards
Reporting Comprehensive Income Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income," was issued in July 1997 by the Financial
Accounting Standards Board. The Standard establishes reporting of comprehensive
income for general purpose financial statements. Comprehensive income is defined
as the change in equity of a business enterprise during a period and all other
events and circumstances from nonowner sources. In addition to an enterprise's
net income, change in equity components under comprehensive income reporting
would also include such items as the net change in unrealized gain or loss on
available for sale securities and foreign currency translation adjustments. The
Standard is effective for financial statement periods beginning after December
15, 1997. The Company does not believe the adoption of the Standard will have a
material impact on the consolidated financial statements.
Disclosures about Segments of an Enterprise and Related Information Statement of
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (FAS 131), was issued in July 1997 by the
Financial Accounting Standards Board. The Standard requires the Corporation to
disclose the factors used to identify reportable segments including the basis of
organization, differences in products and services, geographic areas, and
regulatory environments. FAS 131 additionally requires financial results to be
reported in the financial statements for each reportable segment. The Standard
is effective for financial statement years beginning after December 15, 1997.
The Statement is not expected to have a significant impact on the Company's
current business segment disclosures.
<PAGE>
CSB FINANCIAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
General
The principal assets of the Company are its investment in the Bank's common
stock and the net proceeds from the sale of the Company's common stock in
connection with the conversion. The Company's principal revenue source is
interest and dividends on its investments. The principal business of the Bank
consists of attracting deposits from the general public and using these funds to
originate mortgage loans secured by one- to four-family residences located
primarily in Centralia, Illinois and surrounding areas. The Bank engages in
various forms of consumer and commercial lending and invests in mortgage-backed
U.S. Government and federal agency securities, local municipal issues, and
interest-bearing deposits. The Bank's profitability depends primarily on its net
interest income, which is the difference between the interest income it earns on
its loans and investment portfolio and its cost of funds, which consists mainly
of interest paid on deposits. Net interest income is affected by the relative
amounts of interest-earning assets, interest-bearing liabilities, and the
interest rates earned or paid on these balances.
The Bank's profitability is also affected by the level of noninterest income and
expense. Noninterest income consists primarily of late charges and other fees.
Noninterest expense consists of salaries and benefits, occupancy related
expenses, deposit insurance premiums paid to the SAIF, and other operating
expenses.
The operations of the Bank are significantly influenced by general economic
conditions and related monetary and fiscal policies of financial institutions'
regulatory agencies. Deposit flows and the cost of funds are influenced by
interest rates on competing investments and general market rates of interest.
Lending activities are affected by the demand for financing real estate and
other types of loans, which in turn is affected by the interest rates at which
such financing may be offered and other factors affecting loan demand and the
availability of funds.
Business Strategy
The business strategy is to operate as a well capitalized, profitable and
independent community savings bank dedicated to financing home ownership and
consumer needs in its primary market area. The Bank has implemented this
strategy by: (1) closely monitoring the needs of customers and providing quality
service; (2) emphasizing consumer-oriented banking by originating construction
and permanent loans on residential and commercial real estate and consumer
loans, and by offering other financial services and products; (3) improving and
maintaining high asset quality; (4) maintaining capital in excess of regulatory
requirements; and (5) managing interest rate risk by emphasizing the origination
of loans with adjustable rates or shorter terms and investments in short-term
and liquid investments. The Bank has adopted various new business strategies
intended to increase its presence in its primary market area, thereby increasing
its lending activities and sources of income.
Liquidity and Capital Resources
The Bank's primary sources of funds consists of deposits, repayment and
prepayment of loans, maturities of investments and interest-bearing deposits.
Scheduled repayments of loans and mortgage-backed securities and maturities of
investment securities are predictable, influenced by general interest rates,
economic conditions, and competition. The Bank uses its liquidity resources
principally to fund existing and future loan commitments, to fund maturing
certificates of deposit and demand deposit withdrawals, to invest in other
interest-earning assets, to maintain liquidity, and to meet operating expenses.
Management believes that loan repayments and other sources of funds will be
adequate to meet the Bank's liquidity needs for the immediate future.
<PAGE>
A portion of the Bank's liquidity consists of cash and cash equivalents, which
include investments in highly liquid, short-term deposits. The level of these
assets is dependent on the Bank's operating, investing, lending, and financing
activities during any given period. At June 30, 1998 and September 30, 1997,
cash and cash equivalents totaled $2,047 and $2,675, respectively. The decrease
in cash and cash equivalents is due to a decrease in demand deposits and a
decrease in time deposits less than $100,000.
Liquidity management is both a daily and long-term function of business
management. If the Bank requires funds beyond its ability to generate them
internally, the Bank may borrow additional funds from the FHLB. At June 30,
1998, the Bank had no outstanding advances from the FHLB.
At June 30, 1998, the Bank had $440 of outstanding commitments to originate
loans.
Regulatory Capital
Federally insured savings associations such as the Bank are required to maintain
a minimum level of regulatory capital. The Corporation and its subsidiary have
capital ratios which substantially exceed all regulatory requirements. The
Corporation's capital ratios are shown below.
March 31, September 30, Minimum
1998 1997 Requirements
-------------------------------------
Total capital to risk weighted assets ... 48.90% 51.17% 8.0%
Tier I capital to risk weighted assets .. 48.03% 50.40% 4.0%
Tier I capital to average assets ........ 21.37% 22.94% 4.0%
Financial Condition
Total assets decreased $1,316 to $47,218 at June 30, 1998 from $48,534 at
September 30, 1997. The principal cause of this decrease was a decrease of $628
in cash and cash equivalents, a decrease in securities available for sale of
$350 and a decrease in loans held for portfolio of $770. These decreases were
partially offset by an increase in loans held for sale of $434.
The decrease in the loan portfolio occurred in the commercial, installment and
home equity areas. For the nine months ended June 30, 1998, the Company
originated $1,194 of mortgage loans for sale in the secondary market. The Bank
continues to focus on the expansion of its commercial loan portfolio and
originates commercial loans which meet prudent underwriting standards.
The decrease in assets were funded by a decrease in demand deposits of $399 and
a decrease in time deposits less than $100,000 of $705.
The Company acquired 81,355 shares of treasury stock in the nine months ended
June 30, 1998 for $1,030.
The decrease in the investment securities relates to governmental securities,
however the portfolio continues to consist primarily of U.S. Government and
agency securities. All securities are held as available for sale.
Results of Operations
Three months ended June 30, 1998 compared to three months ended June 30, 1997
Net Income - The Company's net income for the three months ended June 30, 1998
was $95 compared to $52 for the three months ended June 30, 1997. The increase
in net income resulted primarily from an increase in net interest income, an
increase in other income, a decrease in the provision for loan loss and a
decrease in other expenses. The decrease in other expenses is principally
attributable to a decrease in compensation and employee benefits. Compensation
and employee benefits expense is declining as a result of the Company's
redemption of shares held by the Employee Stock Option Plan.
<PAGE>
Interest Income - Interest income increased for the three months ended June 30,
1998 by $10 to $819 from $809 for the three months ended June 30, 1997. The
increase is due to an increase in the average balance of the security portfolio.
Interest Expense - Interest expense decreased for the three months ended June
30, 1998 by $6 to $406 from $412 for the three months ended June 30, 1997. This
decrease in interest expense is attributable to the decline in time deposits
less than $100,000. Management continues to price deposit products in order to
remain competitive in the local economy and manage its interest rate risk
exposure.
Net Interest Income - Net interest income after the provision for loan loss for
the three months ended June 30, 1998 increased by $23 to $398 from $375 for the
three months ended June 30, 1997.
Noninterest expense decreased for the three months ended June 30, 1998 by $10 to
$302 from $312 for the three months ended June 30, 1997. The principal reason
for the decrease is the decrease in compensation and employee benefits for the
quarter of $12.
Nine months ended June 30, 1998 compared to nine months ended June 30, 1997
Net Income -The Company's net income for the nine months ended June 30, 1998 was
$276 compared to $217 for the nine months ended June 30, 1997. Net income
continues to increase as a result of the Company's increase in net interest
income. The increase in net interest income is a result of an increase in
mortgage lending as well as increased yields on existing adjustable rate
mortgage loans and an increase in the Company's average balance of investment
securities. Results for the nine months ended June 30, 1997 also include gains
on the sale of securities of $40 as management realigned the investment
portfolio. Excluding investment gains realized during 1998 and 1997, the
Company's net income rose approximately 54% for the nine month period ended June
30, 1998.
Interest Income - Interest income increased $73 from $2,427 to $2,500, or by
3.0% during the nine months of 1998 compared to the respective period of 1997.
This increase resulted from an increase in the mortgage portfolio as well as
increased yields on existing adjustable rate mortgage loans, combined with an
increase in the Company's average balance of investment securities.
Interest Expense - Interest expense increased $6 or 0.5%, to $1,230 for the nine
months ended June 30, 1998 from $1,224 for the same period in 1997. The increase
is attributable to the increase in the Company's time deposits. However, this
increase was more than offset by a decrease in demand deposits.
Net Interest Income - Net interest income for the nine months ended June 30,
1998 was $1,270 compared to $1,203 for the nine months ended June 30, 1997. The
increase is attributable to the increase in mortgage loans during the quarter as
well as increased yields on existing adjustable rate mortgage loans combined
with an increase in the Company's average balance of investment securities.
Provision for Loan Losses - The allowance for loan losses is established through
a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and the general economy. Such evaluation
considers numerous factors including, general economic conditions, loan
portfolio composition, prior loss experience, the estimated fair value of the
underlying collateral and other factors that warrant recognition in providing
for an adequate loan loss allowance. During the nine months ended June 30, 1998
and 1997, the provision for loan losses was $45 and $67, respectively.
Allowance for Loan Losses - The allowance for loan losses was $186 or .70% of
loans receivable at June 30, 1998, compared to $165, or .60% of loans receivable
at September 30, 1997. The level of nonperforming loans was 2.01% of total loans
at June 30, 1998 compared to 1.00% as of June 30, 1997. Based on current balance
of the allowance for loan losses in relation to total loans receivable and
classified assets and the diligent effort put forth by management to address
problem loan situations in recent years, management considers that the balance
in the allowance for loan losses at June 30, 1998 is adequate.
Total charge-offs amounted to $27 during the first nine months of fiscal year
1998 while total recoveries amounted to $3 during the same period. This,
compared to total charge-offs of $29 during the first nine months of 1997 and
total recoveries of $1 during the same period.
<PAGE>
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely. The
allowance is an amount that management believes will be adequate to absorb
losses on existing loans that may become uncollectible, based on evaluation of
the collectibility of loans and prior loss experience. The evaluation also takes
into consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans and
current economic conditions that may affect the borrowers' ability to pay. While
management uses the best information available to make its evaluation, future
adjustments to the allowance may be necessary if there are significant changes
in economic conditions. In addition, regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses, and may require the Bank to make additions to the allowance based on
their judgment about information available to them at the time of their
examinations.
Loans are considered impaired when, based on current information and events, it
is probable that the Bank will not be able to collect all amounts due. The
portion of the allowance for loan losses applicable to impaired loans has been
computed based on the present value of the estimated future cash flows of
interest and principal discounted at the loan's effective interest rate or on
the fair value of the collateral for collateral dependent loans. The entire
change in present value of expected cash flows of impaired loans or of
collateral value is reported as bad debt expense in the same manner in which
impairment initially was recognized or as a reduction in the amount of bad debt
expense that otherwise would be reported. As of June 30, 1998 and September 30,
1997, management had not identified any loans as impaired.
Nonperforming Assets
At June 30, 1998, the Bank had $534, of nonperforming assets, representing 1.13%
of total assets. On September 30, 1997, the Bank had $413 of nonperforming
assets, representing .85% of total assets.
Impact on Inflation and Changing Prices
The unaudited consolidated financial statements and related data presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and results of
operations in terms of historical dollars without considering changes in the
relative purchasing power of money over time because of inflation. Unlike most
industrial companies, virtually all of the assets and liabilities of the Company
are monetary in nature. As a result, interest rates have a more significant
impact on the Company's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services.
Year 2000 Compliance
The Year 2000 compliance issue exists because many computer systems and
applications currently use two-digit fields to designate a year. As the century
date change occurs, date-sensitive systems may either fail or not operate
properly unless the underlying programs are modified or replaced.
The Bank has initiated a program to assure that all computer applications will
be Year 2000 compliant. This program includes the monitoring and testing of the
Bank's outside data processing provider and other vendors Year 2000 compliance
progress.
The Bank is continuing to assess the extent of programming changes required to
address this issue. Although final cost estimates have not been determined,
management projects approximately $150,000 will be expended to become Year 2000
compliant. It is not expected that these expenses will have a material adverse
impact on the Company and the Bank's financial condition, liquidity, or results
of operations.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8K
Exhibits:
None.
Reports on Form 8K:
None.
<PAGE>
SIGNATURES
Pursuant to the requirement 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 Financial Group, Inc.
Date: AUGUST 13, 1998 /s/ K. Gary Reynolds
---------------------------- -----------------------------------
K. Gary Reynolds
Chief Executive Officer and Director
Date: AUGUST 13, 1998 /s/ Joanne Ticknor
---------------------------- -------------------------------------
Joanne Ticknor
Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1998 10-QSB OF CSB FINANCIAL GROUP, INC. 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> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,047
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,423
<INVESTMENTS-CARRYING> 215
<INVESTMENTS-MARKET> 215
<LOANS> 26,550
<ALLOWANCE> 186
<TOTAL-ASSETS> 47,218
<DEPOSITS> 35,866
<SHORT-TERM> 0
<LIABILITIES-OTHER> 399
<LONG-TERM> 0
0
0
<COMMON> 10
<OTHER-SE> 10,943
<TOTAL-LIABILITIES-AND-EQUITY> 47,218
<INTEREST-LOAN> 1,662
<INTEREST-INVEST> 838
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<INTEREST-TOTAL> 2,500
<INTEREST-DEPOSIT> 1,230
<INTEREST-EXPENSE> 1,230
<INTEREST-INCOME-NET> 1,270
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<INCOME-PRETAX> 364
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<EPS-PRIMARY> .36
<EPS-DILUTED> .34
<YIELD-ACTUAL> 0
<LOANS-NON> 534
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<ALLOWANCE-OPEN> 165
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</TABLE>
