-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FdZInwYPGYxxyX5bAzrf675w7p8YwTCXXoeLpwnieCExf7BGPftHi6N2o8IOB0l8 RGa3rBTri3cz8YTit5GGwg== 0000906318-97-000074.txt : 19971113 0000906318-97-000074.hdr.sgml : 19971113 ACCESSION NUMBER: 0000906318-97-000074 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CSB BANCORP INC /OH CENTRAL INDEX KEY: 0000880417 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 341687530 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21714 FILM NUMBER: 97716024 BUSINESS ADDRESS: STREET 1: 6 W JACKSON ST STREET 2: P O BOX 232 CITY: MILLERSBURG STATE: OH ZIP: 44654 BUSINESS PHONE: 3306749015 MAIL ADDRESS: STREET 1: 6 WEST JACKSON STREET CITY: MILLERSBURG STATE: OH ZIP: 44654 10-Q 1 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, 1997 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 West Jackson Street, 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 1,306,951 shares outstanding at November 4, 1997 FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1997 Part I - Financial Information ITEM 1 - FINANCIAL STATEMENTS (Unaudited) Page Consolidated Balance Sheets 3 Consolidated Statements of Income 4 Condensed Consolidated Statements of Changes in Shareholders' Equity 6 Condensed Consolidated Statements of Cash Flows 7 Notes to the Consolidated Financial Statements 8 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14 Part II - Other Information Other Information 18 Signatures 20 CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, December 31, 1997 1996 ASSETS Cash and noninterest-bearing deposits with banks $ 7,920,821 $ 7,647,790 Interest-bearing deposits with banks 151,768 5,669,966 Federal funds sold 6,813,000 17,000,000 ---------- ---------- Total cash and cash equivalents 14,885,589 30,317,756 Time deposits with banks 3,000,000 3,000,000 Securities available for sale, at fair value 30,059,775 14,890,413 Securities held to maturity (Estimated fair values of $53,413,141 in 1997 and $37,970,342 in 1996) 52,441,595 37,493,467 Total loans 174,038,575 165,141,298 Allowance for loan losses 2,273,329 2,120,845 ----------- ----------- Net loans 171,765,246 163,020,453 Premises and equipment, net 2,985,259 2,563,216 Accrued interest receivable and other assets 3,848,356 2,849,875 ----------- ----------- Total assets $278,985,820 $254,135,180 =========== =========== LIABILITIES Deposits Noninterest-bearing $ 20,803,513 $ 21,391,610 Interest-bearing 212,724,756 191,947,974 ----------- ----------- Total 233,528,269 213,339,584 Securities sold under agreements to repurchase 5,793,419 4,738,173 Federal Home Loan Bank borrowings 11,940,324 11,741,515 Accrued interest payable and other liabilities 1,122,892 889,428 Total liabilities 252,384,904 230,708,700 SHAREHOLDERS' EQUITY Common stock ($6.25 par value; 3,000,000 shares authorized; 1,310,151 and 1,298,372 shares issued in 1997 and 1996, respectively) 8,188,445 8,114,826 Additional paid-in capital 4,923,284 4,520,502 Retained earnings 13,464,733 10,818,500 Treasury stock at cost: 3,200 shares (56,000) (56,000) Unrealized gain on securities available for sale, net of tax 80,454 28,652 ---------- ----------- Total shareholders' equity 26,600,916 23,426,480 ---------- ----------- Total liabilities and shareholders' equity $278,985,820 $254,135,180 =========== ============
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 Interest income Interest and fees on loans $4,273,078 $3,900,343 $12,374,439 $11,696,904 Interest on securities Taxable 819,573 458,649 2,324,589 1,466,865 Nontaxable 395,625 252,924 1,017,624 750,632 Other interest income 125,928 202,470 586,325 465,765 --------- --------- ---------- ----------- Total interest income 5,614,204 4,814,386 16,302,977 14,380,166 --------- --------- ---------- ----------- Interest expense Interest on deposits 2,538,126 1,977,398 7,242,266 6,074,682 Other interest expense 243,387 181,044 722,473 403,747 --------- --------- --------- --------- Total interest expense 2,781,513 2,158,442 7,964,739 6,478,429 --------- --------- --------- --------- Net interest income 2,832,691 2,655,944 8,338,238 7,901,737 Provision for loan losses 99,819 100,000 300,243 300,000 --------- --------- --------- ---------- Net interest income after provision for loan losses 2,732,872 2,555,944 8,037,995 7,601,737 Other income Service charges on deposit accounts 180,225 155,493 516,006 457,955 Other operating income 179,106 134,201 393,530 361,090 Gain on sale of OREO - 116,090 - 116,090 Gain on sale of loans - - 220,176 - Security losses - (1,520) - (9,283) --------- --------- --------- --------- Total other income 359,331 404,264 1,129,712 925,852 --------- --------- --------- --------- Other expense Salaries and employee benefits 777,766 753,598 2,292,570 2,224,553 Occupancy expense 76,942 80,708 234,291 267,003 Equipment expense 121,134 125,913 343,083 344,090 Deposit insurance premiums 6,898 186 19,506 1,186 State franchise tax 87,078 78,630 256,189 220,380 Other operating expense 461,336 483,891 1,419,401 1,372,110 --------- -------- --------- --------- Total other expense 1,531,154 1,522,926 4,565,040 4,429,322 --------- --------- --------- ---------
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 Income before federal income taxes 1,561,049 1,437,282 4,602,667 4,098,267 Provision for income taxes 408,700 365,000 1,292,401 1,172,800 --------- --------- --------- --------- Net income $1,152,349 $1,072,282 $3,310,266 $2,925,467 ========= ========= ========= ========= Earnings per common share $ 0.88 $ 0.83 $ 2.55 $ 2.27 =========== ======== ========== ========= Weighted average shares outstanding 1,304,234 1,289,130 1,300,690 1,287,440 =========== ========= ========== =========
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 Balance at beginning of period $25,444,972 $21,898,808 $23,426,480 $20,342,763 Net income 1,152,349 1,072,282 3,310,266 2,925,467 Common stock issued under the dividend reinvestment program and 401(k) plan 173,635 60,495 476,401 164,306 Cash dividends ($0.17 and $0.51 per share in 1997; $.125 and $.375 per share in 1996) (221,902) (161,149) (664,033) (482,748) Change in unrealized gain/loss on securities available for sale 51,862 8,783 51,802 (70,569) -------- --------- --------- --------- Balance at end of period $26,600,916 $22,879,219 $26,600,916 $22,879,219 ========== ========== ========== ===========
See notes to the consolidated financial statements. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, 1997 1996 Net cash from operating activities $ 2,779,919 $ 3,384,212 Investing activities Securities available for sale Proceeds from maturities 7,000,000 7,000,000 Purchases (21,959,913) (4,854,828) Securities held to maturity Proceeds from maturities, calls and repayments 9,181,211 7,805,766 Purchases (24,109,272) (4,607,588) Net increase in loans (19,629,433) (8,553,942) Loan sale proceeds 10,766,167 Purchase of premises and equipment, net (715,954) (267,992) Proceeds from sale of other real estate - 240,090 ----------- ---------- Net cash from investing activities (39,467,194) (3,238,494) ----------- ---------- Financing activities Net change in deposits 20,188,685 (6,414,867) Net change in repurchase agreements 1,055,246 (1,124,349) Advances on FHLB borrowings 1,289,309 8,628,494 Principal payments on FHLB borrowings (1,090,500) (166,033) Cash dividends paid, net of dividend reinvestment (476,115) (356,514) Shares issued for 401(k) Plan 288,483 38,072 ------------ ----------- Net cash from financing activities 21,255,108 604,803 ------------ ----------- Change in cash and cash equivalents (15,432,167) 750,521 Cash and cash equivalents at beginning of period 30,317,756 22,049,697 ----------- ----------- Cash and cash equivalents at end of period $ 14,885,589 $22,800,218 =========== ========== Supplemental disclosures Cash paid for income taxes $ 1,323,866 $ 1,064,000 Cash paid for interest 7,956,723 6,518,529
See notes to the consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements include accounts of CSB Bancorp, Inc. ("CSB" or "the Company") and its wholly-owned subsidiary, The Commercial and Savings Bank ("the Bank"). 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, 1997, and results of operations and cash flows for the periods presented. The accompanying consolidated financial statements do not contain all necessary 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, 1996, contains consolidated financial statements and related notes which should be read in conjunction with the accompanying consolidated financial statements. Allowance for Loan Losses: 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 loans that, in management's judgment, should be charged-off. Loan impairment is reported when full payment of principal and interest 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. 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 second mortgage loans less than $100,000. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. The carrying value of impaired loans is periodically adjusted to reflect cash payments, revised estimates of future cash flows and increases in the present value of expected cash flows due to the passage of time. Cash payments representing interest income are reported as such and other cash payments are reported as reductions in carrying value. Increases or decreases in carrying value due to changes in estimates of future payments or the passage of time are reported as reductions or increases in bad debt expense. NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Accounting Pronouncements: Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," revises accounting treatment for transfers of financial assets, such as loans and securities, and for distinguishing between sales and secured borrowings. SFAS No. 125 did not materially impact the Company's financial statements for any period presented. SFAS No. 128, "Earnings Per Share," is effective for financial statements issued after December 15, 1997 and simplifies the calculation of earnings per share (EPS) by replacing primary EPS with basic EPS. SFAS No. 128 will not impact the Company's EPS calculations. Income Taxes: The provision for income taxes is based upon the effective income tax rate expected to be applicable for the entire year. NOTE 2 - SECURITIES The amortized cost, gross unrealized gains and losses and estimated fair values of the securities, as presented in the consolidated balance sheet at September 30, 1997 and December 31, 1996 are as follows:
September 30, 1997 Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value Available for sale Debt securities U.S. Treasury securities $18,016,370 $ 77,067 - $18,093,437 U.S. Government agencies 9,986,606 47,832 $ (3,000) 10,031,438 ---------- -------- ---------- ---------- Total debt securities 28,002,976 124,899 (3,000) 28,124,875 Other securities 1,934,900 - - 1,934,900 ---------- -------- ---------- ---------- Total securities available for sale $29,937,876 $ 124,899 $ (3,000) $30,059,775 ========== ========= ========== ========== Held to maturity U.S. Treasury securities $14,091,718 $ 136,571 $ (2,883) $14,225,406 U.S. Government agencies 6,549,906 3,508 (3,081) 6,550,333 Obligations of state and political subdivisions 31,799,971 943,573 (106,142) 32,637,402 ---------- --------- --------- ---------- Total debt securities held to maturity $52,441,595 $1,083,652 $(112,106) $53,413,141 ========== ========= ========= ==========
NOTE 2 - SECURITIES (Continued)
December 31, 1996 Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value Available for sale Debt securities U.S. Treasury securities $11,025,400 $ 47,599 $ (186) $11,072,813 U.S. Government agencies 2,000,000 - (4,000) 1,996,000 ---------- -------- -------- ---------- Total debt securities 13,025,400 47,599 (4,186) 13,068,813 Other securities 1,821,600 - - 1,821,600 Total securities available for sale $14,847,000 $ 47,599 $ (4,186) $14,890,413 ========== ======= ========== ========== Held to maturity U.S. Treasury securities $11,030,882 $116,799 $ (9,947) $11,137,734 U.S. Government agencies 7,011,135 4,413 (6,361) 7,009,187 Obligations of state and political subdivisions 19,440,275 499,363 (127,342) 19,812,296 Mortgage-backed securities 11,175 - (50) 11,125 ---------- -------- --------- ---------- Total debt securities held to maturity $37,493,467 $620,575 $(143,700) $37,970,342 ========== ======= ========= ========== /TABLE One agency security of $1,000,000 was transferred from the available-for-sale category to held-to-maturity during the first quarter of 1996. The transfer into held-to-maturity occurred at the fair value of the security on the date of the transfer, which approximated amortized cost. No securities were sold during the first nine months of 1997 or 1996. Losses on calls of securities held to maturity were $9,283 during the nine months ended September 30, 1996. The amortized cost and estimated fair values of debt securities at September 30, 1997, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay the debt obligations prior to their contractual maturities. NOTE 2 - SECURITIES (Continued) Estimated Amortized Fair Cost Value Available for sale Debt securities Due in one year or less $ 9,988,872 $10,007,680 Due in one to five years 18,014,104 18,117,195 ---------- ---------- Total debt securities available for sale $28,002,976 $28,124,875 ========== ========== Held to maturity Debt securities Due in one year or less $ 8,122,467 $ 8,141,105 Due in one to five years 17,835,413 18,111,900 Due in five to ten years 13,683,439 14,141,813 Due after ten years 12,800,276 13,018,323 ---------- ---------- Total debt securities held to maturity $52,441,595 $53,413,141 ========== ========== NOTE 3 - LOANS Total loans as presented on the balance sheet are comprised of the following classifications: September 30, 1997 December 31, 1996 Commercial $ 78,884,306 $ 73,404,483 Commercial real estate 29,486,485 22,991,254 Residential real estate 44,922,213 49,254,612 Installment and credit card 18,286,177 16,730,089 Construction 2,459,394 2,760,860 ----------- ----------- Total loans $174,038,575 $165,141,298 =========== =========== During the first nine months of 1997, the Bank received $10,776,167 in proceeds from residential mortgage loan sales. A gain of $220,176 was recognized on this sale. No loans were sold during the first nine months of 1996. NOTE 4 - ALLOWANCE FOR LOAN LOSSES A summary of activity in the allowance for loan losses for the nine months ended September 30, 1997 and 1996 is as follows: 1997 1996 Balance - January 1 $2,120,845 $1,830,250 Loans charged off (189,132) (82,248) Recoveries 41,373 20,718 Provision for loan losses 300,243 300,000 --------- --------- Balance - September 30 $2,273,329 $2,068,720 ========= ========= Information regarding impaired loans at September 30, 1997 and December 31, 1996 is as follows: September 30, December 31, 1997 1996 Balance of impaired loans $1,384,000 $ 961,000 Less portion for which no allowance for loan losses is allocated 0 0 --------- ---------- Portion of impaired loan balance for which an allowance for credit losses is allocated $1,384,000 $ 961,000 ========= ========= Portion of allowance for loan losses allocated to the impaired loan balance $ 437,000 $ 336,000 ========= ========= Information regarding impaired loans is as follows for the nine months ended September 30, 1997 and 1996: 1997 1996 Average investment in impaired loans $1,173,000 $ 264,000 Interest income recognized on impaired loans including interest income recognized on cash basis 54,801 None Interest income recognized on impaired loans on cash basis 45,899 None NOTE 5 - FEDERAL HOME LOAN BANK BORROWINGS At September 30, 1997, the Bank had 188 outstanding borrowings from the Federal Home Loan Bank (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 FHLB stock and a blanket pledge on $17,910,000 of qualifying mortgage loans at September 30, 1997. NOTE 6 - CONCENTRATIONS OF CREDIT RISK AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Bank grants residential, consumer, and commercial loans to customers located primarily in Holmes and surrounding counties in Ohio. Most loans are secured by specific items of collateral including business assets, consumer assets and residences. The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet financing needs of its customers. The contract amount of these instruments is not included in the consolidated financial statements. At September 30, 1997 and December 31, 1996, the contract amount of these instruments, which primarily include commitments to extend credit and standby letters of credit, totaled approximately $31,474,000 and $30,111,000, respectively. Substantially, all committments and letters of credit carry adjustable rates of interest. Since many commitments to make loans expire without being used, the amount does not represent future cash commitments. The exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to make loans and lines and letters of credit is represented by the contractual amount of those instruments. CSB follows the same credit policy to make such commitments as is followed for those loans recorded in the financial statements. In management's opinion, these commitments represent normal banking transactions and no material losses are expected to result therefrom. Collateral obtained upon exercise of the commitments is determined using management's credit evaluations of the borrower and may include real estate and/or business or consumer assets. 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, the ultimate disposition of these matters is not expected to have a material effect on financial condition or results of operations. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion focuses on the consolidated financial condition of CSB Bancorp, Inc. (the Company) at September 30, 1997, compared to December 31, 1996, and the consolidated results of operations for the quarterly and nine month periods ending September 30, 1997, compared to the same periods in 1996. 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 contained in this discussion involve risks and uncertainties and are subject to change based on various important factors. Actual results could differ from those expressed or implied. The registrant is not aware of any trends, events or uncertainties that will have or are reasonably likely to have a material effect on the liquidity, capital resources or operations except as discussed herein. Also, the registrant is not aware of any current recommendations by regulatory authorities that would have such effect if implemented. FINANCIAL CONDITION Total securities increased approximately $30.1 million during the first nine months of 1997 as cash and federal funds sold resulting from deposit growth and loan sales, as discussed below, were deployed into investments, and federal funds were invested in higher-yielding securities. Most of the securities purchased were short-term U.S. Treasury notes classified as available for sale and long-term obligations of state and political subdivisions classified as held to maturity. Management anticipates purchasing more securities issued by state and political subdivisions in the future to maximize the tax benefit to the Company. 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, 1997, approximately 23% of the securities portfolio matures within one year. Commercial loans increased $5.5 million, or 7.5%, during the first nine months of 1997. This increase was primarily a result of increased loan demand in the Company's service area as the local economy remains strong. These loans are generally variable-rate and based on the Prime rate. Commercial loans may be unsecured or collateralized by business or farm equipment and are generally of higher risk than residential mortgage loans. Commercial real estate loans increased $6.5 million, or 28.3%, during the first nine months of 1997. This increase was primarily due to additional variable-rate borrowings from existing loan customers on commercial real estate in the Company's market area. In late 1995, the Company began to originate fixed rate one-to-four family mortgage loans, utilizing a matched funds program using FHLB advances of similar maturity to establish an interest rate spread for the estimated duration of the loans. During the first nine months of 1997, management elected to sell approximately $10.8 million of the fixed-rate loans. A gain of $220,000 was realized on the sale and the funds were invested in securities. The Bank retained its fixed-rate borrowings from the FHLB to facilitate future fixed rate lending and mitigate volatile rate movements. Management will continue to originate fixed-rate loans, but does not anticipate new borrowings will be necessary in the near term to fund such originations. At September 30, 1997, there were no loans held for sale. Exclusive of the sale of fixed-rate loans, total loans increased approximately $19.6 million, or 12.0%, during the first nine months of 1997. As a percentage of loans, the allowance for loan losses was 1.31% at September 30, 1997 and 1.28% at December 31, 1996. Impaired loans were approximately $1.4 million, or .80% of total loans, at September 30, 1997, compared to .58% of loans at December 31, 1996. Of the impaired loan balance at September 30, 1997, approximately $890,000 related to one creditor whose loans were restructured in early 1997 and are current at September 30, 1997. The other impaired loans were secured by mortgages on real estate and farm and business equipment. These credits are considered in management's analysis of the allowance for loan losses. The Bank has purchased a tract of land in Wayne County, on which it is constructing another branch office, with a planned opening in the first quarter of 1998. The Company also acquired land in 1995 to build an operation center in 1998. The Company currently leases space for its operations center. At September 30, 1997, the ratio of loans to deposits was 74.5%, compared to 77.4% at the end of 1996, as total deposits increased approximately $20.2 million, or 9.5%, during the first nine months of 1997. In 1997, the Bank received approximately $8.0 million of deposits as a result of a successful bond issue for a local school district. These funds are in a savings account that is expected to deplete gradually over the next two years. Also, aggressive pricing of certificates of deposit provided growth in deposit balances which management expects to continue through the end of the year. Total shareholders' equity was increased in part by year-to-date net income of $3.3 million, less $664,000 of cash dividends declared. The cash dividend represents 20.1% of net income for the first nine months of 1997, compared to 16.5% for the same period in 1996. Also contributing to capital was the dividend reinvestment program (DRIP) and the purchase of stock by the Bank's 401(k) retirement plan, which increased equity approximately $476,000 during the first nine months of 1997. The Company and its subsidiary meet all regulatory capital requirements and are considered to be "well capitalized" at September 30, 1997. The Company's ratio of total capital to risk-weighted assets was 15.55% at September 30, 1997, while Tier 1 risk-based capital ratio was 14.32%. Regulatory minimums call for a total risk-based capital ratio of 8%, at least one-half of which must be Tier 1 capital. The Company's leverage ratio was 9.64% at September 30, 1997, which exceeds the regulatory minimum of 3% to 5%. RESULTS OF OPERATIONS Net income for the nine months ended September 30, 1997, was $3.3 million, or $2.55 per share, as compared to $2.9 million, or $2.27 per share, earned during the same period last year, an increase of $385,000 or 13.2%. Third quarter net income was $1.2 million, or $.88 per share, in 1997, compared to $1.1 million, or $.83 per share for the third quarter of 1996. The primary factors contributing to these increases were increases in net interest income and other income. Net interest income was $8.3 million for the first nine months of 1997, a 5.5% increase from 1996. Interest and fees on loans increased $678,000, or 5.8%, which resulted primarily from a higher rate environment and somewhat from a higher volume of loans as the loan sale was not consummated until late March, 1997. Also, as deposit funds were invested in securities and federal funds sold, interest on securities increased $1.1 million and other interest income increased $121,000 for the first nine months of 1997, compared to the first nine months of 1996. Management anticipates using liquid funds, primarily from federal funds sold and maturities of short-term investments, to fund higher yielding loans. Net interest income for the third quarter of 1997 totaled $2.8 million, up 6.7% from $2.7 million in 1996. Most of this increase resulted from growth in interest earning assets. Income from taxable investments increased $361,000, or 78.7%, from the third quarter of 1996 to 1997, while income from nontaxable securities increased $143,000, or 56.4%, for the same period. Interest expense increased $1.5 million for the nine months ended September 30, 1997, compared to the nine months ended September 30, 1996. Approximately $1.2 million of this increase was the result of increased volumes on interest-bearing accounts and aggressive interest rates. Other interest expense increased $319,000, resulting from new borrowings from the FHLB during the second half of 1996. For the third quarter of 1997 compared to the same period in 1996, interest expense on deposits increased $561,000 or 28.4%, while interest expense on borrowings increased $62,000. These increases were primarily volume related, but were also affected by higher rates being paid for the funds. The provision for loan losses was $100,000 for the third quarter of 1997 and $300,000 during the first nine months of 1997, which matched the provisions for comparable periods in 1996. These provisions were made in recognition of continued loan origination volume, primarily in the commercial loan portfolio which typically carries a higher risk of loan loss. Other income for the first nine months of 1997 increased approximately $204,000, primarily as a result of the gain on the sale of loans discussed above and increased deposit service charge income. Noninterest income for the third quarter of 1997 decreased by $45,000, or 11.1%, due primarily to a $116,000 decrease in gain on sale of OREO, which was partially offset by a $45,000 increase in other operating income. Other expenses increased $136,000, or 3.1%, for the nine months ended September 30, 1997, but remained stable for the three months ended September 30, 1997, compared to the same period in 1996. 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 3.2% in the third quarter and 3.1% for the nine month period, and state franchise taxes increased as a result of 1996 earnings retention. Ohio's state franchise tax for financial institutions is based on the level of capital at the previous year-end. The provisions for income taxes of $409,000 for the third quarter and $1.3 million for the first nine months of 1997 reflected an effective rate of 26.2% and 28.1%, which matched the comparable periods in 1996. FORM 10-Q Quarter ended September 30, 1997 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 to be reported under this item. Item 5 - Other Information: There are no matters required to be reported under this item. FORM 10-Q Quarter ended September 30, 1997 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K: (a) Exhibits 3.1 Amended Articles of Incorporation of CSB Bancorp, Inc. (incorporated by reference to Registrant's 1994 Form 10-KSB). 3.2 Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to Registrant's Form 10-SB). 4 Form of Certificate of Common Shares of CSB Bancorp, Inc. (incorporated by reference to Registrant's Form 10-SB). 10 Leases for the Clinton Commons, Berlin and Charm Branch Offices of The Commercial and Savings Bank (incorporated by reference to Registrant's Form 10-SB). 11 Statement Regarding Computation of Per Share Earnings (reference is hereby made to Consolidated Statements of Income on page 5 hereof.) 27 Financial Data Schedule (b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter for which this report is filed. 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, 1997 /s/ Douglas D. Akins (Signature) Douglas D. Akins President Chief Executive Officer Date: November 10, 1997 /s/ A. Lee Miller (Signature) A. Lee Miller Senior Vice President Chief Financial Officer Index to Exhibits Exhibit Sequential Number Description of Document Page 3.1 Amended Articles of Incorporation of CSB Bancorp, Inc. (incorporated by reference to Registrant's 1994 Form 10-KSB). 3.2 Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to Registrant's Form 10-SB). 4 Form of Certificate of Common Shares of CSB Bancorp, Inc. (incorporated by reference to Registrant's Form 10-SB). 10 Leases for the Clinton Commons, Berlin and Charm Branch Offices of The Commercial and Savings Bank (incorporated by reference to Registrant's Form 10-SB). 11 Statement Regarding Computation of Per Share Earnings (reference is hereby made to Consolidated Statements of Income on page 5 hereof.) 27 Financial Data Schedule EX-27 2
9 THIS 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. 1000 9-MOS DEC-31-1997 SEP-30-1997 7,921 3,152 6,813 0 30,060 52,442 53,413 174,039 2,273 278,986 233,528 5,793 1,123 11,940 0 0 8,188 18,412 278,986 12,374 3,342 586 16,303 7,242 7,965 8,338 300 0 4,565 4,603 4,603 0 0 3,310 2.55 2.55 4.38 494 566 0 0 2,121 189 41 2,273 1,572 0 702
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