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 March 31, 1999
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 April 26, 1999
- ----------------------------- ------------------------------------
Common Stock, Par Value $0.01 732,299
<PAGE>
Contents
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
- Consolidated Balance Sheets
- Consolidated Statements of Income and Comprehensive 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
March 31, 1999 and September 30, 1998
(in thousands, except share data)
ASSETS March 31, September 30,
1999 1998
- ---------------------------------------------------------------------
(Unaudited) (Audited)
Cash and cash equivalents ................ $ 1,936 $ 1,542
Securities:
Available for sale .................... 15,555 16,931
Nonmarketable equity securities ....... 211 215
Loans .................................... 28,749 26,282
Allowance for loan losses ................ (196) (171)
---------------------
Loans, net ................. 28,553 26,111
Premises and equipment ................... 594 607
Accrued interest receivable .............. 306 304
Intangible assets ........................ 569 600
Other assets ............................. 63 113
---------------------
Total assets ............... $ 47,787 $ 46,423
=====================
<PAGE>
CSB FINANCIAL GROUP, INC. and SUBSIDIARY
Consolidated Balance Sheets
March 31, 1999 and September 30, 1998
(in thousands, except share data)
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, September 30,
1999 1998
- -----------------------------------------------------------------------------------------
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES:
Deposits:
Demand ................................................... $ 9,581 $ 8,543
Savings .................................................. 3,705 3,387
Time deposits > $100,000 ................................. 2,697 1,680
Other time deposits ...................................... 21,195 22,245
------------------
Total deposits ................................... 37,178 35,855
------------------
Other liabilities ........................................... 141 169
Deferred income taxes ....................................... 235 270
------------------
Total liabilities ................................ 37,554 36,294
------------------
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 ............................................. 7,826 7,823
Retained earnings ........................................... 6,513 6,384
Accumulated other comprehensive income ...................... 103 154
Unearned employee stock ownership plan shares ............... (170) (180)
Management recognition plan ................................. (533) (551)
------------------
13,749 13,640
Less cost of treasury stock; 302,701 shares at March 31, 1999
and 302,080 shares at September 30, 1998 ................. (3,516) (3,511)
------------------
Total stockholders' equity ....................... 10,233 10,129
------------------
Total liabilities and stockholders' equity ....... $47,787 $ 46,423
==================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CSB Financial Group, Inc.
Consolidated Statements of Income
Six Months Ended March 31, 1999 and 1998
(Unaudited, in thousands, except per share data)
<TABLE>
Six Months Ended
March 31,
-----------------
1999 1998
-----------------
<S> <C> <C>
Interest income:
Loans and fees on loans ...................................... $ 1,094 $ 1,120
Securities ................................................... 528 561
-----------------
Total interest income ............................. 1,622 1,681
-----------------
Interest expense on deposits .................................... 797 824
-----------------
Net interest income ............................... 825 857
Provision for loan losses ....................................... 36 30
-----------------
Net interest income after provision for loan losses 789 827
-----------------
Noninterest income:
Service charges on deposits .................................. 39 41
Gain on sale of securities, net .............................. - - 3
Gain on sale of loans, net ................................... - - 2
Other ........................................................ 25 22
-----------------
Total noninterest income .......................... 64 68
-----------------
Noninterest expense:
Compensation and employee benefits ........................... 326 324
Occupancy and equipment ...................................... 47 42
Data processing .............................................. 54 50
Audit, legal and other professional .......................... 46 55
Other ........................................................ 197 188
-----------------
Total noninterest expense ......................... 670 659
-----------------
Income before income taxes ........................ 183 236
Income taxes .................................................... 54 55
-----------------
Net income ........................................ $ 129 $ 181
=================
Earnings per share
Basic ........................................................ $ 0.18 $ 0.23
=================
Diluted ...................................................... $ 0.18 $ 0.22
=================
Weighted average shares outstanding
Basic ........................................................ 717,178 777,488
=================
Diluted ...................................................... 728,356 807,959
=================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CSB Financial Group, Inc.
Consolidated Statements of comprehensive income
Six Months Ended March 31, 1999 and 1998
(Unaudited, in thousands, except per share data)
Six Months
Ended March 31,
---------------
1999 1998
--------------
Net income ................................................ $ 129 $ 181
Change in unrealized gain on securities available for sale,
net of tax of $(31) and $9 ............................. (51) 14
Less: Reclassification adjustment, net of tax of $0 and $1 - - 2
---------------
(51) 16
---------------
Comprehensive income ...................................... $ 78 $ 197
===============
See Notes to Consolidated Financial Statements.
<PAGE>
CSB Financial Group, Inc.
Consolidated Statements of Income
Three Months Ended March 31, 1999 and 1998
(Unaudited, in thousands, except per share data)
<TABLE>
Three Months Ended
March 31,
-------------------
1999 1998
-------------------
<S> <C> <C>
Interest income:
Loans and fees on loans ...................................... $ 564 $ 552
Securities ................................................... 254 277
-------------------
Total interest income ............................. 818 829
-------------------
Interest expense on deposits .................................... 392 407
-------------------
Net interest income ............................... 426 422
Provision for loan losses ....................................... 18 15
-------------------
Net interest income after provision for loan losses 408 407
-------------------
Noninterest income:
Service charges on deposits .................................. 19 19
(Loss) on sale of securities, net ............................ - - (5)
Gain on sale of loans, net ................................... - - 2
Other ........................................................ 10 14
-------------------
Total noninterest income .......................... 29 30
-------------------
Noninterest expense:
Compensation and employee benefits ........................... 157 148
Occupancy and equipment ...................................... 23 21
Data processing .............................................. 29 25
Audit, legal and other professional .......................... 15 25
Other ........................................................ 101 96
-------------------
Total noninterest expense ......................... 325 315
-------------------
Income before income taxes ........................ 112 122
Income taxes .................................................... 31 38
-------------------
Net income ........................................ $ 81 $ 84
===================
Earnings per share
Basic ........................................................ $ 0.11 $ 0.11
===================
Diluted ...................................................... $ 0.11 $ 0.10
===================
Weighted average shares outstanding
Basic ........................................................ 717,349 777,542
===================
Diluted ...................................................... 728,527 808,752
===================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CSB Financial Group, Inc.
Consolidated Statements of comprehensive income
Three Months Ended March 31, 1999 and 1998
(Unaudited, in thousands, except per share data)
Three Months
Ended March 31,
----------------
1999 1998
----------------
Net income .................................................. $ 81 $ 84
Change in unrealized gain on securities available for sale,
net of tax of $(30) and $12 .............................. (49) 20
Less: Reclassification adjustment, net of tax of $0 and $(2) - - (3)
----------------
(49) 17
----------------
Comprehensive income ........................................ $ 32 $ 101
================
See Notes to Consolidated Financial Statements.
<PAGE>
CSB Financial Group, Inc.
Consolidated Statements of CASH FLOWS
Six Months Ended March 31, 1999 and 1998
(Unaudited, in thousands)
Six Months
Ended March 31,
----------------
1999 1998
----------------
Cash Flows from Operating Activities:
Net income ............................................. $ 129 $ 181
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses ........................... 36 30
Provision for depreciation .......................... 21 18
Deferred income taxes ............................... (4)
Amortization of intangible assets ................... 31 30
Employee stock ownership plan compensation expense .. 13 19
Management recognition plan compensation expense .... 18 19
Originations of loans held for sale ................. - - (653)
Proceeds from loans held for sale ................... - - 302
Gain on sale of securities .......................... - - (3)
Gain on sale of loans ............................... - - (2)
Loss on the sale of other real estate owned ......... - - 2
Amortization and accretion on securities ............ 6 1
Change in assets and liabilities:
(Increase) in accrued interest receivable ......... (2) (34)
Decrease in other assets .......................... 50 39
(Decrease) increase in other liabilities .......... (28) 75
----------------
Net cash provided by operating activities ... 270 24
----------------
Cash Flows from Investing Activities:
Securities available for sale:
Purchases ........................................... (3,453) (7,759)
Proceeds from sales ................................. - - 3,003
Proceeds from maturities and paydowns ............... 4,741 4,493
Proceeds from sales of nonmarketable equity securities . 4 - -
(Increase) in loans .................................... (2,478) (36)
Proceeds from the sale of other real estate owned ...... - - 26
Purchase of premises and equipment ..................... (8) (13)
----------------
Net cash (used in) investing activities ..... (1,194) (286)
----------------
(Continued)
<PAGE>
CSB Financial Group, Inc.
Consolidated Statements of Cash Flows, (continued)
Six Months Ended March 31, 1999 and 1998
(Unaudited, in thousands)
<TABLE>
Six Months
Ended March 31,
-----------------
1999 1998
-----------------
<S> <C> <C>
Cash Flows from Financing Activities:
Increase (decrease) in deposits ..................................... $ 1,323 $ (88)
Purchase of treasury stock .......................................... (5) (783)
-----------------
Net cash provided by (used in) financing activities ...... 1,318 (871)
Increase (decrease) in cash and cash equivalents ......... 394 (1,133)
Cash and cash equivalents at beginning of period ....................... 1,542 2,675
-----------------
Cash and cash equivalents at end of period ............................. $ 1,936 $ 1,542
=================
Supplemental Disclosures:
Cash paid for:
Interest on deposits ............................................. $ 797 $ 826
Income taxes ..................................................... $ 9 $ 21
Change in gross unrealized gain/loss on securities available for sale $ (82) $ 26
Change in deferred taxes on unrealized gain/loss on securities
available for sale ............................................... $ 31 $ 10
</TABLE>
See Notes to 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 Masson County,
Illinois. 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 was traded on the NASDAQ Small Caps market under the symbol
"CSBF" until December 31, 1998, at which time the Company transferred the
quotation of its common stock to the OTC Bulletin Board under the same symbol.
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, 1998. 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 March 31, 1999, the results of operations for the
three months ended March 31, 1999 and 1998, and the results of operations and
cash flows for the six months ended March 31, 1999 and 1998. All adjustments to
the financial statements were normal and recurring in nature.
Operating results for the six months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ending September 30,
1999.
Note 3. Comprehensive Income
Effective October 1, 1998, the Bank adopted FASB Statement No. 130, which was
issued in June 1997. Statement No. 130 establishes new rules for the reporting
and display of comprehensive income and its components, but has no effect on the
Bank's net income or total stockholders' equity. Statement No. 130 requires
unrealized gains and losses on the Bank's available-for-sale securities, which
prior to adoption were reported separately in stockholders' equity, to be
included in comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of Statement No. 130.
<PAGE>
Note 4. 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.
The following reflects earnings per share calculations for basic and diluted
methods:
<TABLE>
For the Six Months
Ended March 31,
-------------------
1999 1998
-------------------
<S> <C> <C>
Net income available to common shareholders ................. $ 129 $ 181
Basic diluted potential common shares:
Weighted average shares outstanding ...................... 710,968 773,762
Management recognition plan shares vested ................ 6,210 3,726
-------------------
Basic average shares outstanding ............................ 717,178 777,488
-------------------
Diluted potential common shares:
Management recognition plan shares granted, but not vested 11,178 14,904
Stock option equivalents ................................. - - 15,567
-------------------
Diluted average shares outstanding .......................... 728,356 807,959
-------------------
Basic earnings per share .................................... $ 0.18 $ 0.23
===================
Diluted earnings per share .................................. $ 0.18 $ 0.22
===================
For the Three Months
Ended March 31,
--------------------
Net income available to common shareholders ................. $ 81 $ 84
Basic diluted potential common shares:
Weighted average shares outstanding ...................... 711,139 773,816
Management recognition plan shares vested ................ 6,210 3,726
-------------------
Basic weighted average shares outstanding ................... 717,349 777,542
-------------------
Diluted potential common shares:
Management recognition plan shares granted, but not vested 11,178 14,904
Stock option equivalents ................................. - - 16,306
-------------------
Diluted average shares outstanding .......................... 728,527 808,752
-------------------
Basic earnings per share .................................... $ 0.11 $ 0.11
===================
Diluted earnings per share .................................. $ 0.11 $ 0.10
===================
</TABLE>
<PAGE>
Note 5. 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.
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 $13 and $19 for
the six months ended March 31, 1999 and 1998, 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 March 31, 1999 and
September 30, 1998, the ESOP held 21,284 and 22,529, respectively, of
non-committed shares with a fair value of $192 and $281, respectively.
Note 6. 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
March 31, 1999, 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 March 31, 1999, no options had been
granted.
Note 7. 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 March 31, 1999, 17,388 shares have been awarded and
remain outstanding to officers, directors, and employees. MRP compensation
expense was $18 and $19 for the six months ended March 31, 1999 and 1998,
respectively. The bank accounts for its MRP in accordance with Accounting
Principles Board Statement 25. Compensation expense is recognized over the
vesting period for shares awarded under the plan.
<PAGE>
Note 8. New Accounting Standards
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.
Accounting for Derivative Instruments and Hedging Activities Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133) establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivative depends on the intended use of the derivative
and the resulting designation. This statement applies to all entities. FAS 133
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Earlier application is encouraged. The statement is not to be applied
retroactively to financial statements of prior periods. The Company does not
believe the adoption of FAS 133 will have a material impact on the consolidated
financial statements.
<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 March 31, 1999 and September 30, 1998,
cash and cash equivalents totaled $1.9 million and $1.5 million, respectively.
The decrease in cash and cash equivalents is due to an increase in the Company's
investment in municipal securities and an increase in mortgage lending.
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 March 31,
1999, the Bank had no outstanding advances from the FHLB.
At March 31, 1999, the Bank had $2.2 million 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
1999 1998 Requirements
---------------------------------------
Total capital to risk weighted assets 42.1% 46.2% 8.0%
Tier I capital to risk weighted assets 41.3% 45.3% 4.0%
Tier I capital to average assets 20.1% 19.8% 4.0%
Financial Condition
Total assets increased $1,364 to $47,787 at March 31, 1999 from $46,423 at
September 30, 1998. The increase resulted from an increase of $394 in cash and
cash equivalents due to calls and maturities of investments and a net increase
in deposit accounts of $1,323, offset by an increase in loans of $2,467.
Gross loans have increased $2,467 from $26,282 at September 30, 1998 to $28,749
at March 31, 1999. The growth in the loan portfolio is comprised primarily of
mortgage lending. As the Company continues to see growth in mortgage lending,
alternative sources of funding are evaluated. The Bank continues to focus their
efforts in the expansion of the commercial loan market and continues to
originate commercial loans which meet prudent underwriting standards.
Securities decreased $1,380 since September 30, 1998. The decrease is due to
calls and maturities of U.S. Treasury securities and an overall decline in
market values. All securities are held as available for sale.
Results of Operations
Three months ended March 31, 1999 compared to three months ended March 31, 1998
Net Income - The Company's net income for the three months ended March 31, 1999
was $81 compared to $84 for the three months ended March 31, 1998. The decrease
in net income resulted primarily from a decrease in interest income recognized
on securities.
Interest Income - Interest income decreased for the three months ended March 31,
1999 by $11 to $818 from $829 for the three months ended March 31, 1998. The
decrease is due to decreasing yields on the average balance of interest earning
assets for the respective periods due to current market conditions.
Interest Expense - Interest expense decreased for the three months ended March
31, 1999 by $15 to $392 from $407 for the three months ended March 31, 1998. The
deposit portfolio has remained relatively consistent, however current market
conditions have caused a decline in cost of funds. Management continues to price
deposit products in order to remain competitive in the local economy.
Net Interest Income - Net interest income for the three months ended March 31,
1999 increased by $4 to $426 from $422 for the three months ended March 31,
1998. The increase is attributable to the increase in the Company's average
balance of loans for the respective period.
Noninterest expense increased for the three months ended March 31, 1999 by $10
to $325 from $315 for the three months ended March 31, 1998. Compensation cost
increased for the quarter by $9. This increase was offset by a decrease in
audit, legal and other professional costs of $10.
<PAGE>
Six months ended March 31, 1999 compared to six months ended March 31, 1998
Net Income -The Company's net income for the six months ended March 31, 1999 was
$129 compared to $181 for the six months ended March 31, 1998. The decrease is
mainly attributable to a decrease in net interest income. The decrease in net
interest income is a result of current market conditions. Results for the six
months ended March 31, 1998 also include gains on the sale of securities of $3
as management realigned the investment portfolio.
Interest Income - Interest income decreased $59 from $1,681 to $1,622 or by
3.51%, during the six months ended March 31, 1999 compared to the respective
period of 1998. This decrease resulted from a decrease in the investment
portfolio, combined with a decrease in current market rates.
Interest Expense - Interest expense decreased $27 or 3.28%, to $797 for the six
months ended March 31, 1999 from $824 for the same period in 1998. The decrease
is attributable to the decrease in the Company's other time deposits, however
the deposit portfolio has remained relatively consistent.
Net Interest Income - Net interest income for the six months ended March 31,
1999 was $825 compared to $857 for the six months ended March 31, 1998. The
decrease is attributable to an increase in loans and deposits during the quarter
combined with a decrease in the Company's average balance of securities and
decreasing market rates.
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 six months ended March 31, 1999
and 1998, the provision for loan losses was $36 and $30, respectively.
Allowance for Loan Losses - The allowance for loan losses was $196 or .68% of
loans receivable at March 31, 1999, compared to $171, or .65% of loans
receivable at September 30, 1998. The level of nonperforming loans was 1.31% of
total loans at March 31, 1999 compared to 1.56% as of September 30, 1998. Based
on current reserve levels 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 believes its reserves are currently
adequate.
Net charge-offs amounted to $11 during the first six months of fiscal year 1999,
compared to net charge-offs of $13 during the first six months of fiscal year
1998.
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 March 31, 1999 and September 30,
1998, management had not identified any loans as impaired.
<PAGE>
Nonperforming Assets
At March 31, 1999, the Bank had $378, of nonperforming assets, representing .79%
of total assets. On September 30, 1998, the Bank had $410 of nonperforming
assets, representing .88% 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.
<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: May 5, 1999 /s/ K. Gary Reynolds
------------------------ ------------------------------------
K. Gary Reynolds
Chief Executive Officer and Director
Date: May 5, 1999 /s/ Joanne Ticknor
------------------------ ------------------------------------
Joanne Ticknor
Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 31,
1999 FORM 10-Q 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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,936
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,555
<INVESTMENTS-CARRYING> 211
<INVESTMENTS-MARKET> 211
<LOANS> 28,749
<ALLOWANCE> 196
<TOTAL-ASSETS> 47,787
<DEPOSITS> 37,178
<SHORT-TERM> 0
<LIABILITIES-OTHER> 376
<LONG-TERM> 0
0
0
<COMMON> 10
<OTHER-SE> 10,223
<TOTAL-LIABILITIES-AND-EQUITY> 47,787
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<INCOME-PRETAX> 183
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<EPS-PRIMARY> .18
<EPS-DILUTED> .18
<YIELD-ACTUAL> 0
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