-----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, OvYcjf3ZkOSOI9Ia/llO82KG5v+GWxx7NJ8goHhUPbO/zJM854EfHZ4XkCSrimZb Z2CAwErAIHVAcIAy/aMnxg== 0000906318-99-000118.txt : 19991115 0000906318-99-000118.hdr.sgml : 19991115 ACCESSION NUMBER: 0000906318-99-000118 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99749893 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, 1999 OR _____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-21714 CSB Bancorp, Inc. (Exact name of registrant as specified in its charter) Ohio 34-1687530 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 6 W. Jackson Street, P.O. Box 232, Millersburg, Ohio 44654 (Address of principal executive offices) (330) 674-9015 (Registrant's telephone number) Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. __X__ Yes _____ No Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Common stock, $6.25 par value Outstanding at November 3, 1999: 2,660,784 common shares CSB BANCORP, INC. FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 Table of Contents Part I - Financial Information ITEM 1 - FINANCIAL STATEMENTS Consolidated Balance Sheets Consolidated Statements of Income Condensed Consolidated Statements of Changes in Shareholders' Equity Condensed Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 3 - QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK Part II - Other Information Other Information Signatures CSB BANCORP, INC. CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, December 31, 1999 1998 ASSETS Cash and noninterest-bearing deposits with banks $ 8,631,251 $ 10,440,120 Interest-bearing deposits with banks 21,002 315,067 Federal funds sold 2,611,000 14,853,000 ------------ ------------ Total cash and cash equivalents 11,263,253 25,608,187 Securities available for sale, at fair value 29,760,843 27,115,456 Securities held to maturity (Fair values of $76,272,515 in 1999 and $63,981,883 in 1998) 76,690,327 62,252,682 Loans, net 187,802,534 193,823,995 Premises and equipment, net 8,656,449 5,372,876 Accrued interest receivable and other assets 4,410,253 3,328,722 ------------ ------------ Total assets $318,583,659 $317,501,918 ------------ ------------ LIABILITIES Deposits Noninterest-bearing $ 25,663,519 $ 27,359,102 Interest-bearing 239,028,464 238,387,456 ------------ ------------ Total deposits 264,691,983 265,746,558 Securities sold under repurchase agreements 11,073,530 9,770,519 Federal Home Loan Bank borrowings 8,917,955 10,111,119 Accrued interest payable and other liabilities 967,746 1,013,623 ------------ ------------ Total liabilities 285,651,214 286,641,819 SHAREHOLDERS' EQUITY Common stock, $6.25 par value: 9,000,000 shares authorized; 1999 2,660,784 shares issued; 1998 2,654,441 shares issued 16,629,902 16,590,255 Additional paid-in capital 6,216,145 5,963,191 Retained earnings 10,488,291 8,292,636 Treasury stock at cost: 1999-8,806 shares; 1998 6,400 shares (173,802) (56,000) Accumulated other comprehensive income (228,091) 70,017 ------------ ------------ Total shareholders' equity 32,932,445 30,860,099 ------------ ------------ Total liabilities and shareholders' equity $318,583,659 $317,501,918 ------------ ------------ ------------ ------------
CSB BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 Interest income Loans, including fees $ 4,394,227 $ 4,548,683 $13,097,901 $13,512,173 Taxable securities 821,609 641,923 2,266,678 2,061,092 Nontaxable securities 597,728 482,300 1,691,793 1,404,901 Other 155,361 199,753 559,897 416,224 ----------- ----------- ----------- ----------- Total interest income 5,968,925 5,872,659 17,616,269 17,394,390 ----------- ----------- ----------- ----------- Interest expense Deposits 2,719,659 2,685,993 8,204,672 7,853,680 Other 196,786 241,624 546,395 718,823 ----------- ----------- ----------- ----------- Total interest expense 2,916,445 2,927,617 8,751,067 8,572,503 ----------- ----------- ----------- ----------- Net interest income 3,052,480 2,945,042 8,865,202 8,821,887 Provision for loan losses 151,248 577,400 948,807 773,785 Net interest income after provision for loan losses 2,901,232 2,367,642 7,916,395 8,048,102 ----------- ----------- ----------- ----------- Other income Service charges on deposit accounts 202,744 175,693 582,991 535,682 Gain on sale of loans 703 6,011 304,035 9,540 Gain on sale of other real estate owned -- 77,579 -- 77,579 Other income 257,032 240,573 699,742 538,872 ----------- ----------- ----------- ----------- Total other income 460,479 499,856 1,586,768 1,161,673 ----------- ----------- ----------- ----------- Other expense Salaries and employee benefits 1,034,173 875,571 2,840,457 2,550,361 Occupancy expense 117,740 80,851 289,543 246,241 Equipment expense 91,413 118,139 279,362 362,307 State franchise tax 97,025 95,082 257,554 287,323 Other expense 601,276 506,082 1,815,268 1,574,095 ----------- ----------- ----------- ----------- Total other expense 1,941,627 1,675,725 5,482,184 5,020,327 ----------- ----------- ----------- ----------- Income before income taxes 1,420,084 1,191,773 4,020,979 4,189,448 Provision for income taxes 299,313 215,799 870,927 1,011,685 ----------- ----------- ----------- ----------- Net income $ 1,120,771 $ 975,974 $ 3,150,052 $ 3,177,763 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Basic and diluted earnings per common share $ 0.42 $ 0.37 $ 1.19 $ 1.21 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
CSB BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 Balance at beginning of period $32,227,739 $29,485,593 $30,860,099 $27,274,480 Net income 1,120,771 975,974 3,150,052 3,177,763 Unrealized gains (losses) on available-for-sale securities arising during period, net of tax 19,912 88,784 (298,108) 89,145 ----------- ----------- ----------- ----------- Comprehensive income 1,140,683 1,064,758 2,851,944 3,266,908 Common stock issued under the dividend reinvestment program and 401(k) plan 62 148,300 292,601 684,564 Cash dividends ($.12 and $.36 per share in 1999; $.10 and $.30 per share in 1998) (317,777) (264,097) (953,937) (791,398) Purchase of treasury shares (118,262) -- (118,262) -- ----------- ----------- ----------- ----------- Balance at end of period $32,932,445 $30,434,554 $32,932,445 $30,434,554 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
CSB BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, 1999 1998 Net cash from operating activities $ 3,097,588 $ 4,466,152 Cash flows from investing activities Net change in time deposits with other institutions -- 1,000,000 Securities available for sale Proceeds from maturities 11,000,000 11,500,000 Purchases (14,021,120) (6,061,574) Securities held to maturity Proceeds from maturities, calls and repayments 7,460,000 7,179,734 Purchases (21,981,795) (7,986,984) Net change in loans (7,699,439) (11,414,523) Loan sale proceeds 13,042,706 979,540 Premises and equipment expenditures, net (3,518,548) (1,291,423) ------------- ------------- Net cash from investing activities (15,718,196) (6,095,230) Cash flows from financing activities Net change in deposits (1,054,575) 9,528,895 Net change in securities sold under repurchase agreements 1,303,011 320,038 Principal reductions on FHLB borrowings (1,193,164) (1,346,112) Shares issued for 401(k) plan 105,758 523,060 Cash dividends paid (767,094) (629,894) Purchase of treasury stock (118,262) -- ------------- ------------- Net cash from financing activities (1,724,326) 8,395,987 ------------- ------------- Net change in cash and cash equivalents (14,344,934) 6,766,909 Beginning cash and cash equivalents 25,608,187 14,335,042 ------------- ------------- Ending cash and cash equivalents $ 11,263,253 $ 21,101,951 ------------- ------------- ------------- ------------- Supplemental disclosures Interest paid $8,779,315 $ 8,580,996 Income taxes paid 982,000 975,000
CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Audited) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements include accounts of CSB Bancorp, Inc. and its wholly-owned subsidiary, The Commercial and Savings Bank (together referred to as the "Company" or "CSB"). All significant intercompany transactions and balances have been eliminated. These interim financial statements are prepared without audit and reflect all adjustments of a normal recurring nature which, in the opinion of management, are necessary to present fairly the consolidated financial position of CSB at September 30, 1999, and its results of operations and cash flows for the periods presented. The accompanying consolidated financial statements do not contain all financial disclosures required by generally accepted accounting principles that might otherwise be necessary in the circumstances. The Annual Report for CSB for the year ended December 31, 1998, contains consolidated financial statements and related notes which should be read in conjunction with the accompanying consolidated financial statements. The Company is engaged in the business of commercial and retail banking and trust services, with operations conducted through its main office and eight branches located in Millersburg, Ohio, and nearby communities. These communities are the source of substantially all deposit, loan and trust activities. The majority of the Company's income is derived from commercial and retail lending activities and investments in securities. While the Company's chief decision-makers monitor the revenue streams of the various Company products and services, operations are managed and financial performance is evaluated on a Company- wide basis. Accordingly, all of the Company's banking operations are considered by management to be aggregated in one reportable operating segment. To prepare financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, realization of deferred tax assets, fair value of certain securities and determination and carrying value of impaired loans are particularly subject to change. The allowance for loan losses is a valuation allowance, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance required based on past loan loss experience, known and inherent risks in the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged-off. NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Loan impairment is reported when full payment under the loan terms is not expected. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan's existing interest rate or at the fair value of collateral if repayment is expected solely from the collateral. Loans are evaluated for impairment when payments are delayed, typically 90 days or more, or when the internal grading system indicates a doubtful classification. Smaller-balance homogeneous loans are evaluated for impairment in total. Such loans include residential first-mortgage loans secured by one- to four-family residences, residential construction loans and automobile, home equity and other consumer loans less than $100,000. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. The Company records income tax expense based on the amount of tax due on its tax return plus deferred taxes computed based on the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, using enacted tax rates. Basic earnings per share ("EPS") is based on net income divided by the weighted average number of shares outstanding during the period. Diluted EPS shows the dilutive effect of additional common shares issuable under stock options. The weighted average number of shares outstanding for basic and diluted EPS computations were as follows: Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 Weighted average common shares outstanding (basic) 2,653,755 2,640,766 2,651,579 2,634,841 Dilutive effect of assumed exercise of stock options 926 1,001 950 95 Weighted average common shares outstanding (diluted) 2,654,681 2,641,767 2,652,529 2,635,797
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows. The new standard does not allow hedging of a security which is classified as held to maturity. Upon adoption of the standard, companies are allowed to transfer securities from held to maturity to available for sale if they wish to be able to hedge the securities in the future. The standard is effective for fiscal years beginning after June 15, 2000, with early adoption encouraged for any fiscal quarter beginning July 1, 1998, or later, with no retroactive application. Management does not expect the adoption of this standard to have a significant impact on the Company's financial statements. NOTE 2 - SECURITIES The amortized cost and fair values of securities are as follows: September 30, 1999 Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value Available for sale Debt securities U.S. Treasury securities $ 4,009,906 $ 18,414 $ -- $ 4,028,320 Obligations of U.S. government corporations and agencies 23,942,529 7,370 (371,376) 23,578,523 ----------- --------- ---------- --------- Total debt securities available for sale 27,952,435 25,784 (371,376) 27,606,843 Other securities 2,154,000 -- -- 2,154,000 ----------- --------- ---------- --------- Total securities available for sale $30,106,435 $ 25,784 $(371,376) $29,760,843 ----------- --------- ---------- --------- ----------- --------- ---------- --------- Held to maturity U.S. Treasury securities $ 5,109,580 $ 34,286 $ -- $ 5,143,866 Obligations of U.S. government corporations and agencies 20,499,495 3,002 (354,535) 20,147,962 Obligations of states and political subdivisions 51,081,252 437,713 (538,278) 50,980,687 ----------- --------- ---------- --------- Total debt securities held to maturity $76,690,327 $ 475,001 $(892,813) $76,272,515
NOTE 2 - SECURITIES (Continued) December 31, 1999 Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value Available for sale Debt securities U.S. Treasury securities $10,018,642 $ 96,670 $ -- $10,115,312 Obligations of U.S. government corporations and agencies 14,931,926 56,205 (46,787) 14,941,344 ----------- ---------- --------- ----------- Total debt securities 24,950,568 152,875 (46,787) 25,056,656 Other securities 2,058,800 -- -- 2,058,800 ----------- ---------- --------- ----------- Total securities available for sale $27,009,368 $ 152,875 $(46,787) $27,115,456 ----------- ---------- --------- ----------- ----------- ---------- --------- ----------- Held to maturity U.S. Treasury securities $10,124,422 $ 121,297 $ -- $10,245,719 Obligations of U.S. government corporations and agencies 9,501,449 21,675 (35,929) 9,487,195 Obligations of states and political subdivisions 42,626,811 1,667,490 (45,332) 44,248,969 ----------- ---------- --------- ----------- Total securities held to maturity $62,252,682 $1,810,462 $(81,261) $63,981,883 ----------- ---------- --------- ----------- ----------- ---------- --------- -----------
There were no sales of investment securities during the first nine months of 1999 or 1998. The amortized cost and fair values of debt securities at September 30, 1999, by contractual maturity, are shown below. Available-for-sale securities Held-to-maturity securities Amortized Fair Amortized Fair Cost Value Cost Value Due in one year or less $ 4,008,184 $ 4,020,195 $ 7,072,021 $ 7,104,146 Due from one to five years 23,944,351 23,586,648 30,354,470 30,044,955 Due from five to ten years -- -- 25,963,034 25,690,132 Due after ten years -- -- 13,300,802 13,433,282 ----------- ----------- ----------- ----------- $27,952,435 $27,606,843 $76,690,327 $76,272,515 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES Loans consisted of the following: September 30, 1999 December 31, 1998 Commercial $ 84,698,830 $ 86,971,202 Commercial real estate 33,383,721 33,136,841 Residential real estate 30,858,172 33,684,743 Residential real estate loans held for sale 18,975,087 23,636,259 Installment and credit card 18,306,124 16,992,208 Construction 5,662,484 3,154,733 ------------ ------------ Subtotal 191,884,418 197,575,986 Allowance for loan losses (3,356,233) (2,887,721) Net deferred loan fees (725,651) (864,270) ------------ ------------ $187,802,534 $193,823,995
During the first nine months of 1999, the Company received $13.0 million in proceeds from mortgage loan sales. A gain of $304,000 was recognized on these sales. Activity in the allowance for loan losses for the nine months ended September 30, 1999 and 1998 is as follows: 1999 1998 Beginning balance $2,887,721 $2,349,039 Provision for loan losses 948,807 773,785 Charge-offs (509,547) (516,732) Recoveries 29,252 43,087 ---------- ---------- Balance - September 30 $3,356,233 $2,649,179
Impaired loans at September 30, 1999 and December 31, 1998 are as follows: September 30, December 31, 1999 1998 Loans with no allowance for loan losses allocated $ 778,349 $ 141,509 Loans with allowance for loan losses allocated 1,798,435 1,453,837 Amount of allowance allocated 378,659 412,284
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) Impaired loans for the nine months ended September 30, 1999 and 1998 are as follows: 1999 1998 Average of impaired loans $2,423,928 $1,498,000 Interest income recognized during impairment 122,778 58,945 Cash basis interest income recognized 108,661 57,994 NOTE 4 - FEDERAL HOME LOAN BANK BORROWINGS The Company borrows from the Federal Home Loan Bank (FHLB) to fund certain fixed-rate residential real estate loans. At September 30, 1999, the Company had 189 outstanding borrowings from the FHLB. These borrowings carry fixed interest rates ranging from 5.60% to 7.15% and maturities of 10, 15, and 20 years. Monthly principal and interest payments are due on the borrowings. In addition, a principal curtailment of 10% of the outstanding principal balance is due on the anniversary date of each borrowing. FHLB borrowings are collateralized by the Company's FHLB stock and a blanket pledge on $13.4 million of qualifying mortgage loans at September 30, 1999. NOTE 5 COMMITMENTS, OFF-BALANCE SHEET RISK, AND CONTINGENCIES The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet customer financing needs. These financial instruments include commitments to make or purchase loans, undisbursed lines of credit, undisbursed credit card balances and letters of credit. The Company's exposure to credit loss in case of nonperformance by the other party to the financial instrument is represented by the contractual amount of those instruments. The Company follows the same credit policy to make such commitments as it uses for those loans recorded on the balance sheet. September 30, December 31, 1999 1998 Fixed Variable Fixed Variable Rate Rate Rate Rate Commitments to make loans (at market rates) $ 332,645 $ 1,025,000 $1,230,165 $ 1,326,760 Unused lines of credit and letters of credit 3,029,228 35,799,553 3,105,699 28,532,674
NOTE 5 - COMMITMENTS, OFF-BALANCE SHEET RISK, AND CONTINGENCIES (Continued) Since many commitments to make loans expire without being used, the aforementioned amounts do not necessarily represent future cash commitments. Collateral obtained relating to these commitments is determined using management's credit evaluation of the borrower and may include real estate, vehicles, business assets, deposits and other items. The Company sold $13.0 million in residential mortgage loans during the first nine months of 1999. The Company has agreed to repurchase individual loans if they become delinquent by greater than ninety days. A recourse obligation has been established by management based on past loan loss experience, and other factors. This liability is not material. Occasionally, various contingent liabilities arise that are not recorded in the financial statements, including claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, ultimate disposition of these matters is not expected to have a material affect on financial condition or results of operations. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion focuses on the consolidated financial condition of CSB Bancorp, Inc. (the Company) at September 30, 1999, compared to December 31, 1998, and the consolidated results of operations for the quarterly and year-to-date periods ending September 30, 1999 compared to the same periods in 1998. The purpose of this discussion is to provide the reader with a more thorough understanding of the consolidated financial statements. This discussion should be read in conjunction with the interim consolidated financial statements and related footnotes. FORWARD-LOOKING STATEMENTS Certain statements contained in this report that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties. When used herein, the terms "anticipates", "plans", "expects", "believes", and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. The Company's actual results, performance or achievements may materially differ from those expressed or implied in the forward- looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, and rapidly changing technology affecting financial services. The Company does not undertake, and specifically disclaims any obligation, to publicly revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. FINANCIAL CONDITION Total assets were $318.6 million at September 30, 1999, compared to $317.5 million at December 31, 1998, representing an increase of $1.1 million or 0.3%. Total securities increased approximately $17.1 million, or 19.1%, during the nine months. Since one of the primary functions of the securities portfolio is to provide a source of liquidity, it is structured such that security maturities and cash flows satisfy the Company's liquidity needs and asset-liability management requirements. At September 30, 1999, approximately 10.6% of the securities portfolio matures within one year. Net loans decreased $6.0 million, or 3.1%, to $187.8 million. This decrease was a result of the $13.0 million sale of residential real estate loans previously identified as held for sale. Commercial loans decreased $2.3 million, or 2.6%, primarily as a result of reduced demand for such loans in the local market area during the period. Residential real estate loans decreased $7.5 million since December 31, 1998, as a result of the aforementioned sale. As a percentage of loans, the allowance for loan losses was 1.75% at September 30, 1999 and 1.46% at December 31, 1998. Loans past due more than 90 days and loans placed on nonaccrual status, were approximately $1.8 million, or 0.94% of total loans at September 30, 1999, compared to $1.5 million, or 0.76% of loans at December 31, 1998. These credits are considered in management's analysis of the allowance for loan losses. Premises and equipment increased $3.3 million, or 61.1%, during the first nine months of 1999. This was primarily due to the construction of the new operations center, which was completed in the third quarter of 1999. At September 30, 1999, the ratio of net loans to deposits was 71.0%, compared to 72.9% at the end of 1998. This decrease is due primarily to the $13.0 million loan sale. Total shareholders' equity was increased in part by year-to-date net income of $3.2 million, less $954,000 of cash dividends declared. The cash dividend represents 30.3% of net income for the first nine months of 1999. Also contributing to capital was the dividend reinvestment program and the purchase of stock by the Company's 401(k) retirement plan. As a result of these programs, equity increased approximately $293,000 during the first nine months of 1999. The Company and its subsidiary met all regulatory capital requirements at September 30, 1999. The Company's ratio of total capital to risk-weighted assets was 17.5% at September 30, 1999, while Tier 1 risk-based capital ratio was 16.2%. Regulatory minimums call for a total risk-based capital ratio of 8.0%, at least one-half of which must be Tier 1 capital. The Company's leverage ratio was 10.3% at September 30, 1999, which exceeds the regulatory minimum of 3.0% to 5.0%. RESULTS OF OPERATIONS Net income for the nine months ended September 30, 1999 was $3.2 million, or $1.19 per share, substantially the same as the $3.2 million, or $1.21 per share earned during the same period last year. Third quarter net income was $1.1 million, or $0.42 per share, in 1999, compared to $976,000, or $0.37 per share, for the third quarter of 1998, an increase of $145,000, or 14.8%. The primary factor contributing to the three month increase was a decrease in the provision for loan loss of $426,000, which was partially offset by an increase in other expense of $266,000. Net interest income was $8.9 million for the first nine months of 1999, a $43,000 increase from the same period of 1998. Interest and fees on loans decreased $414,000, or 3.1%, which resulted primarily from the sale of $13.0 million in mortgage loans during the first nine months. Also, as the loan sale proceeds were invested in securities from federal funds sold, interest on securities increased $492,000 and other interest income increased $144,000 for the first three quarters of 1999, compared to the same period of 1998. Net interest income for the third quarter of 1999 totaled $3.1 million, an increase of $107,000, or 3.6%, from $2.9 million in the third quarter of 1998. Income from taxable investments increased $180,000, or 28.0%, from the third quarter of 1998 to 1999, while income from nontaxable securities increased $115,000, or 23.9%, for the same period. Interest expense increased $179,000, or 2.1%, for the nine months ended September 30, 1999, compared to the nine months ended September 30, 1998. This increase was the result of increased volumes on interest-bearing accounts, which was partially offset by a reduction in cost of funds. For the third quarter of 1999 compared to the same period in 1998, interest expense remained substantially the same at $2.9 million. The provision for loan losses was $949,000 during the first nine months of 1999, an increase of $175,000, or 22.6%, from the provision for the comparable period in 1998. The provision for loan losses for the third quarter was $151,000, a decrease of $426,000, or 73.8%, from the same quarter in 1998. These provisions were made in recognition of management's analysis of impaired and nonaccrual loans, "watch list" loans and continued loan origination volume. Other income for the first nine months of 1999 increased approximately $425,000, primarily as a result of the $304,000 gain on the sale of loans in 1999 discussed above. Also contributing to the increase was a $161,000, or 29.9% increase in other income, primarily as a result of an increase in trust and financial services income. Other income for the third quarter of 1999 decreased $39,000, or 7.9%, as a result of $78,000 of gain on sale of other real estate owned in 1998. Other expenses increased $462,000, or 9.2%, for the nine months ended September 30, 1999, and $266,000, or 15.9%, for the three months ended September 30, 1999, compared to the same periods in 1998. Management continues to monitor the Company's efficiency ratio by maintaining increases in other operating costs at low levels. Salaries and employee benefits increased by 11.4% in the nine months and 18.1% for the third quarter, due primarily to normal merit increases and additional staffing in the lending area. These increases were partially offset by decreases in equipment expense and state franchise tax. The decrease in equipment expense was due in part to the full depreciation of several fixed assets during the current periods. State franchise tax is down for the nine month period, due to a $31,000 refund claim on previous years as a result of a recent court ruling. The provisions for income taxes of $871,000 for the nine months and $299,000 during the third quarter of 1999 reflected an effective rate of 21.7% and 21.1%, compared to effective rates of 24.1% and 18.1% for the same time periods in 1998. The change in effective rates resulted from changes in nontaxable interest income. YEAR 2000 ISSUE Certain statements contained in this section of Management's Discussion and Analysis of Financial Condition and Results of Operations that are not related to historical results are forward- looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involved a number of risks and uncertainties. Any forward-looking statements made by the Company herein and in future reports and statements are not guarantees of future performance and actual results may differ materially from those in forward-looking statements because of various factors. These factors include the ability of the Company and its key service providers, vendors, suppliers, customers and governmental entities to replace, modify or upgrade computer systems in ways that adequately address the Year 2000 issue discussed below. Special factors that might cause actual results to vary materially from the results anticipated include the ability to identify and correct all relevant computer codes and embedded chips, unanticipated difficulties or delays in the implementation of the Company's plans and the ability of third parties to adequately address their own Year 2000 issues. Many computer programs use only two digits to identify a year in the date field and were apparently designed and developed without considering the impact of the upcoming change in the century. Such programs could erroneously read entries for the Year 2000 as the Year 1900. This could result in major systems failures and miscalculations. Rapid and accurate data processing is essential to the operations of financial institutions, such as the Company. In 1997, the Company formed a Year 2000 Committee to assess the extent to which its information and technology, noninformation technology and its outside vendors may be adversely affected by the Year 2000 problems. Management has identified systems as mission critical or nonmission critical. Vendors of all mission- critical systems have been contacted regarding the status of the renovation and validation of the systems. The Company completed all testing on mission-critical applications as of March 31, 1999. The results of the testing were satisfactory and no material deficiencies were found. In addition to reviewing its own systems, the Company also recognizes it could incur losses if loan payments are delayed due to Year 2000 problems affecting any of the Company's significant borrowers or impairing the payroll systems of large employers in the Company's primary market area. The Company performed a risk assessment of its loan portfolio and of certain loan customers. The Company reviewed collateral and other sources of repayment to determine that a borrower's lack of Year 2000 readiness would not create a material loss due to business disruption. Because the Company's loan portfolio is diversified with regard to individual borrowers and types of businesses, and the Company's primary market area is not significantly dependent on one employer or industry, the Company does not expect any significant or prolonged Year 2000-related difficulties. In addition, the Company is providing information to its customers about the Year 2000 issue and the Company's state of readiness. The Company also assessed the Year 2000 preparedness of the local utilities and anticipates no disruption of such services. Management established a budget of $250,000 for costs associated with completing the comprehensive Year 2000 plan. This includes hardware and software upgrades, testing, training and other out- of-pocket expenses. The budget does not include in-house personnel costs. Through September 30, 1999, the Company had incurred $25,000 of operating expenses and $44,000 of capital expenditures for Year 2000 readiness. In addition to these costs, the Company has estimated it has incurred $105,000 of internal personnel costs through September 30, 1999. Management developed contingency plans for mission-critical systems, where applicable. These contingency plans include both remediation and business resumption plans. These contingency plans are based on the results of the above-mentioned testing. The Company completed the design of contingency plans by June 30, 1999. Management will continue to concentrate its efforts on the testing of its contingency planning and on customer awareness programs. ITEM 3 QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK There have been no material changes in the quantitative and qualitative disclosures about market risks as of September 30, 1999 from that presented in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. FORM 10-Q Quarter ended September 30, 1999 PART II - OTHER INFORMATION Item 1 - Legal Proceedings: There are no matters required to be reported under this item. Item 2 - Changes in Securities: There are no matters required to be reported under this item. Item 3 - Defaults Upon Senior Securities: There are no matters required to be reported under this item. Item 4 - Submission of Matters to a Vote of Security Holders: There are no matters required to be reported under this item. Item 5 - Other Information: There are no matters required to be reported under this item. Item 6 - Exhibits and Reports on Form 8-K: (a) Exhibits: Exhibit Number Description of Document Sequential Page 11 Statement Regarding Computation of Per Share Earnings (reference is hereby made to Consolidated Statements of Income on Page 4 hereof.) 21 27 Financial Data Schedule 22 (b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter for which this report is filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CSB BANCORP, INC. (Registrant) Date: November 10, 1999 /s/Douglas D. Akins ----------------------- Douglas D. Akins President Chief Executive Officer Date: November 10, 1999 /s/A. Lee Miller ----------------------- A. Lee Miller Senior Vice President Chief Financial Officer CSB BANCORP, INC. EXHIBIT 11 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 Net income $1,120,771 $ 975,974 $3,150,052 $3,177,763 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Average basic shares outstanding 2,653,755 2,640,766 2,651,579 2,634,841 Add: Effect of stock options 926 1,001 950 956 ---------- ---------- ---------- ---------- Average diluted shares outstanding 2,654,681 2,641,767 2,652,529 2,635,797 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Basic and diluted earnings per common share $ 0.42 $ 0.37 $ 1.19 $ 1.21 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
EX-27 2
9 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 8,631 21 2,611 0 29,761 76,690 76,273 191,159 3,356 318,584 264,692 11,074 968 8,918 0 0 16,630 16,302 318,584 13,098 3,958 560 17,616 8,205 8,751 8,865 949 0 5,482 4,021 4,021 0 0 3,150 1.19 1.19 3.96 935 887 0 0 2,888 520 29 3,356 2,850 0 506
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