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: JUNE 30, 2002
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 Number)
incorporation or organization)
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 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.
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 July 25, 2002:
2,631,914 common shares
CSB BANCORP, INC.
FORM 10-Q
QUARTER ENDED June 30, 2002
Table of Contents
Part I - Financial Information
ITEM 1 - FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets
3
Consolidated Statements of Income
4
Consolidated Statements of Changes in Shareholders' Equity
5
Condensed Consolidated Statements of Cash Flows
6
Notes to the Consolidated Financial Statements
7
ITEM 2 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
8
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
11
Part II - Other Information
Other Information
12
Signatures
14
CSB BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30,
December 31,
2002
2001
ASSETS
Cash and due from banks
$
10,426,394
$
10,509,626
Interest-bearing deposits with other banks
34,264
185,893
Federal funds sold
14,859,000
23,853,000
Total cash and cash equivalents
25,319,658
34,548,519
Securities available-for-sale, at fair value
25,179,458
35,931,920
Securities held-to-maturity (fair value of
$56,685,008 in 2002 and $58,549,665 in 2001)
54,081,698
56,675,126
Total securities
79,261,156
92,607,046
Loans, net of allowance for loan losses of
$3,755,546 in 2002 and $4,019,302 in 2001
177,730,257
164,915,834
Premises and equipment, net
9,083,718
9,040,612
Accrued interest receivable and other assets
4,511,570
5,233,301
Total assets
$
295,906,359
$
306,345,312
LIABILITIES
Deposits
Noninterest-bearing
$
25,959,829
$
29,721,134
Interest-bearing
206,537,938
221,708,596
Total deposits
232,497,767
251,429,730
Securities sold under repurchase agreements
13,360,809
14,957,025
Federal Home Loan Bank borrowings
15,721,387
6,359,788
Accrued interest payable and other liabilities
1,048,100
877,632
Total liabilities
262,628,063
273,624,175
SHAREHOLDERS' EQUITY
Common stock, $6.25 par value: Authorized 9,000,000
shares; issued 2,667,786 shares
16,673,667
16,673,667
Additional paid-in capital
6,413,915
6,413,915
Retained earnings
11,170,092
10,571,152
Treasury stock at cost: 37,456 shares in 2002 and
39,077 shares in 2001
(1,153,635)
(1,204,018)
Accumulated other comprehensive income
174,257
266,421
Total shareholders' equity
33,278,296
32,721,137
Total liabilities and shareholders' equity
$
295,906,359
$
306,345,312
See note to consolidated financial statements.
CSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2002
2001
2002
2001
Interest income
Loans, including fees
$
3,121,386
$
4,321,089
$
6,272,381
$
9,105,980
Taxable securities
440,348
491,500
967,032
1,105,821
Non-taxable securities
557,862
604,306
1,132,966
1,212,588
Other
51,827
169,960
113,494
193,129
Total interest income
4,171,423
5,586,855
8,485,873
11,617,518
Interest expense
Deposits
1,515,159
2,806,783
3,309,749
5,709,521
Other
168,993
192,502
279,740
450,594
Total interest expense
1,684,152
2,999,285
3,589,489
6,160,118
Net interest income
2,487,271
2,587,570
4,896,384
5,457,400
Provision (credit) for loan losses
(241,521)
2,410,767
(241,521)
2,708,963
Net interest income after provision
(credit) for loan losses
2,728,792
176,803
5,137,905
2,748,437
Non-interest income
Service charges on deposit
accounts
198,702
189,923
407,827
369,372
Gain on sale of securities
---
13,257
114,822
37,587
Trust and financial services
104,164
106,172
197,482
204,181
Other income
189,790
214,763
354,816
386,803
Total non-interest income
492,656
524,115
1,074,947
997,943
Non-interest expense
Salaries and employee benefits
1,348,246
1,342,365
2,700,814
2,626,885
Occupancy expense
139,123
179,085
288,490
323,549
Equipment expense
129,716
139,489
268,424
244,906
State franchise tax
94,536
83,921
186,832
159,071
Professional and director fees
232,272
332,566
438,603
747,382
Other expenses
774,918
950,590
1,534,348
1,774,835
Total non-interest expense
2,718,811
3,028,016
5,417,511
5,876,628
Income (loss) before income taxes
502,637
(2,327,098)
795,341
(2,130,248)
Federal income tax credit
2,221
969,586
85,906
1,080,422
Net income (loss)
$
504,858
$
(1,357,512)
$
881,247
$
(1,049,826)
Basic and diluted earnings (loss)
per share
$
0.19
$
(0.52)
$
0.33
$
(0.40)
See note to consolidated financial statements.
CSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
______________________________________________________________________________
Three Months Ended
Six Months Ended
June 30,
June 30,
2002
2001
2002
2001
Balance at beginning of period
$
32,842,970
$
31,959,520
$
32,721,137
$
31,539,934
Net income (loss)
504,858
(1,357,512)
881,247
(1,049,826)
Other comprehensive income
(loss), net of income tax
162,312
72,886
(92,164)
184,845
Total comprehensive income
667,170
(1,284,626)
789,083
(864,981)
(loss)
Dividends declared ($.10 per share)
(262,952)
---
(262,952)
---
Purchase of treasury shares
(5 and 9 shares in 2002 and 3
and 6 shares in 2001)
(82)
(47)
(162)
(106)
Treasury shares used for the
dividend reinvestment program
(reissued 1,630 shares)
31,190
---
31,190
---
Balance at end of period
$33,278,296
$30,674,847
$33,278,296
$30,674,847
See note to consolidated financial statements.
CSB BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
2002
2001
Net cash from operating activities
$
1,406,782
$
599,300
Cash flows from investing activities
Securities available-for-sale
Proceeds from maturities, calls and repayments
13,282,306
15,925,000
Proceeds form sales
3,125,516
--
Purchases
(5,632,731)
(16,770,000)
Securities held to maturity
Proceeds from maturities, calls and repayments
2,565,000
8,915,000
Purchases
---
---
Net change in loans
(12,497,988)
17,297,971
Premises and equipment expenditures, net
(210,758)
(452,733)
Net cash from investing activities
631,345
24,285,575
Cash flows from financing activities
Net change in deposits
(18,931,963)
(8,592,105)
Net change in securities sold under repurchase agreements
(1,596,216)
(3,748,443)
Proceeds from FHLB borrowings
10,000,000
---
Principal reductions on FHLB borrowings, net
(638,401)
(791,094)
Purchase of treasury shares
(162)
(106)
Cash dividends paid
(100,246)
---
Net cash from financing activities
(11,266,988)
(13,131,748)
Net change in cash and cash equivalents
(9,228,861)
11,753,127
Cash and cash equivalents at beginning of period
34,548,519
15,852,622
Cash and cash equivalents at end of period
$
25,319,658
$
27,605,749
Supplemental disclosures
Interest paid
$
3,729,175
$
5,768,140
Income taxes paid
---
---
See note to consolidated financial statements.
CSB BANCORP, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
______________________________________________________________________________
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 in consolidation.
The consolidated financial statements have been prepared without audit. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present fairly the Company’s financial position at June 30, 2002, and the results of operations and changes in cash flows for the periods presented have been made.
Certain information and footnote disclosures typically included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. The Annual Report for CSB for the year ended December 31, 2001, contains consolidated financial statements and related footnote disclosures which should be read in conjunction with the accompanying consolidated financial statements. The results of operations for the period ended June 30, 2002, are not necessarily indicative of the operating results for the full year or any future interim period.
CSB BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND 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 June 30, 2002, compared to December 31, 2001, and the consolidated results of operations for the six month and quarterly periods ending June 30, 2002 compared to the same periods in 2001. 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 footnote.
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 se rvices.
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 $295.9 million at June 30, 2002, compared to $306.3 million at December 31, 2001, representing a decrease of $10.4 million or 3.4%. Cash and cash equivalents decreased $9.2 million, or 26.7%, during the six month period ending June 30, 2002, including a $9.0 million decrease in Federal funds sold. Total securities decreased approximately $13.3 million, or 14.4%, during the six month period.
The decreases in cash and cash equivalents and securities were primarily used to fund cash outflows for deposits which decreased $18.9 million, or 7.5%, during the six month period. This outflow was partially due to the continued maturity of higher rate certificates of deposit in a low, but competitive, rate environment. Securities sold under repurchase agreements decreased $1.6 million, or 10.7%. During the second quarter of 2002, the Bank borrowed $10.0 million from the Federal Home Bank of Cincinnati for an 18-month term as part of a strategy
CSB BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
of the Asset/Liability Committee to take advantage of low cost funding alternatives during the current interest rate environment.
Net loans increased $12.8 million, or 7.8% during the six month period ended June 30, 2002. This increase was due to a combination of increased loan demand and production within the Company’s market area and loan participations with other banks. The allowance for loan losses amounted to $3.8 million, or 2.07% of total loans, at June 30, 2002, compared to $4.0 million, or 2.38% of total loans at December 31, 2001. The components of the change in the allowance for loan loss during the six month period ended June 30, 2002, included a negative provision of $242,000 and net loan charge-offs of $21,000. The negative provision resulted from significant progress made in reducing classified assets during the six months ended June 30, 2002. Loans past due more than 90 days and loans placed on nonaccrual status, were approximately $2.7 million, or 1.5% of total loans at June 30, 2002 , compared to $3.3 million, or 1.9% of loans at December 31, 2001.
At June 30, 2002, the ratio of net loans to deposits was 76.4%, compared to 65.6% at the end of 2001. The increase in this ratio is primarily due to loan growth and deposit shrinkage experienced during the six months ended June 30, 2002.
Total shareholders’ equity increased to $33.3 million, or 11.2% of total assets, primarily due to year-to-date net income of $881,000 less dividends declared of $263,000. The Company and its subsidiary met all regulatory capital requirements at June 30, 2002.
RESULTS OF OPERATIONS
Net income for the six months ending June 30, 2002, was $881,000, or $0.33 per share, as compared to a net loss of $1.0 million, or ($0.40) per share during the same period in 2001. The primary reason for this difference relates to the provision (credit) for loan losses. During the first six months of 2001, it was necessary, based on management’s analysis, to provide $2.7 million to the allowance for loan losses. Based on ongoing analysis and significant progress in the resolution and reduction in classified assets, the Company removed $242,000 from the allowance for the six month period of the current year. While net interest income decreased $561,000, or 10.3%, non-interest income increased $77,000, or 7.7%, and non-interest expense decreased $459,000, or 7.8%. For the quarter ended June 30, 2002, the Company recorded net income of $505,000, or $0.19 per share, as compar ed to a net loss of $1.4 million, or -$0.52 per share, for the reasons previously discussed.
Interest income for the six months ended June 30, 2002 was $8.5 million, a decrease of $3.1 million, or 27.0%, over the same period last year, including interest and fees on loans decreasing $2.8 million, or 31.1%, due to lower interest rates and lower average outstanding loans. Interest on securities decreased $218,000, or 9.4%, as short term interest rates fell and certain callable
CSB BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
securities were called. Other interest income decreased $80,000 as interest rates were significantly lower on federal funds sold. Interest income for the quarter ended June 30, 2002 was $4.2 million, a decrease of $1.4 million, or 25.3%, compared to the same period in 2001. This decrease was due to the reasons previously noted.
Interest expense decreased $2.6 million to $3.6 million for the six months ended June 30, 2002, compared to the six months ended June 30, 2001. Interest expense on deposits decreased $2.4 million, or 42.0%, from the same period as last year, while interest expense on other borrowings decreased by $171,000, or 37.9%. The decrease in deposit interest expense was caused by the lower rates on transaction accounts and certificates of deposit which reflect the 475 basis points decrease in short term rates by the Federal Reserve during 2001. Interest expense for the quarter ended June 30, 2002 was $1.7 million, a decrease of $1.3 million, or 43.8%, from the same period in 2001.
The provision for loan losses was a credit of $242,000 during the first six months of 2002, as compared to a provision of $2.7 million in the same six month period of 2001. This provision is determined based on management’s calculation of the allowance for loan losses, which includes provisions for classified loans, as well as a provision for the remainder of the portfolio based on historical data, including past charge-offs, and current economic trends. As mentioned previously, substantial progress was made in reducing classified assets during the second quarter of 2002. The provision for loan losses for the three months ended June 30, 2002 was a credit of $242,000, compared to a provision of $2.4 million for the same quarter last year for the reasons stated above.
Non-interest income increased $77,000, or 7.7%, during the six months ended June 30, 2002 as compared to the same period in 2001. The increase in non-interest income was essentially due to a $77,000 increase in gain on sale of securities. Non-interest expenses decreased $459,000, or 7.8%, for the six months ended June 30, 2002, compared to the same period in 2001. Salaries and employee benefits increased $74,000, or 2.8%; occupancy expense decreased $35,000, or 10.8%; professional fees decreased $309,000; and other expenses decreased $240,000 or 13.5%. The credit for income taxes was $86,000 during the first six months of 2002, as compared to a credit of $1.1 million for the first six months of 2001.
Non-interest income for the quarter ended June 30, 2002 was $493,000, a decrease of $31,000 compared to the same quarter in 2001. Non-interest expenses for the three month period decreased $309,000, or 10.2%, compared to last year’s period. This decrease was due to reasons previously noted.
CSB BANCORP, INC.
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
______________________________________________________________________________
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 June 30, 2002 from that presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001. Management performs a quarterly analysis of the Company’s interest rate risk. All positions are currently within the Board-approved policy limits.
CSB BANCORP, INC.
FORM 10-Q
Quarter ended June 30, 2002
PART II - OTHER INFORMATION
Item 1 -
Legal Proceedings:
There are no matters required to be reported under this item.
Item 2 -
Changes in Securities and Use of Proceeds:
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:
Our 2002 Annual Meeting of Shareholders was held on April 24, 2002. Matters submitted to a vote of the security holders at the meeting was the election of two members to our Board of Directors, each to continue in office until the 2005 Annual Shareholders Meeting and the adoption and approval of the proposed Share Incentive Plan.
Nominee
For
Against
Abstain
Robert K. Baker
2,015,879.1475
148,663.3426
0
Thomas Lang
1,667,396.0918
497,146.3983
0
The following individuals continued as directors of CSB following the annual meeting of shareholders:
C. James Bess
Ronald E. Holtman
Daniel J. Miller
Edward Steiner
Samuel M. Steimel
John R. Waltman
Jeffrey A. Robb, Sr.
For
Against
Abstain
Share Incentive Plan
1,456,156.6508
703,080.7651
5,305.0742
Item 5 -
Other Information:
There are no matters required to be reported under this item.
CSB BANCORP, INC.
FORM 10-Q
Quarter ended June 30, 2002
PART II - OTHER INFORMATION
______________________________________________________________________________
Item 6 -
Exhibits and Reports on Form 8-K:
(a)
Exhibits:
Exhibit
Number
Description of Document
3.1
Amended Articles of Incorporation of CSB Bancorp, Inc. (incorporated by reference to Registrant’s 1994 Form 10-KSB)
3.1.1
Amended form of Article Fourth of Amended Articles of Incorporation, as effective April 9, 1998 (incorporated by reference to Registrant’s 1998 Form 10-K)
3.2
Code of Regulations of CSB Bancorp, Inc. (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 4 hereof.)
(b)
Reports on Form 8-K:
Form 8-K dated April 11, 2002, containing a letter to shareholders that included an announcement of quarterly dividends to shareholders.
Form 8-K dated April 19, 2002, containing a quarterly report to shareholders that included financial statements for the period ended March 31, 2002.
Form 8-K dated June 20, 2002, containing a press release stating that the Written Agreement by the State of Ohio Division of Financial Institutions and Federal Reserve Bank of Cleveland dated November 11, 2000 had been terminated.
CSB BANCORP, INC.
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: August 14, 2002
/s/ C. JAMES BESS
C. James Bess
President
Chief Executive Officer
Date: August 14, 2002
/s/ A. LEE MILLER
A. Lee Miller
Senior Vice President
Chief Financial Officer
CSB BANCORP, INC.
Index to Exhibits
Exhibit
Sequential
Number
Description of Document
Page
11
Statement Regarding Computation of Per Share Earnings (reference is hereby made to Consolidated Statements of Income on page 4 hereof.)
16
CSB BANCORP, INC.
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Three Months Ended
Six Months Ended
June 30,
June 30,
2002
2001
2002
2001
Basic Earnings Per Share
Net income (loss)
$
504,858
$
(1,357,512)
$
881,247
$
(1,049,826)
Weighted average
common shares
2,629,518
2,624,374
2,629,520
2,624,375
Basic Earnings (Loss)
Per Share
$
0.19
$
(0.52)
$
0.33
$
(0.40)
Diluted Earnings Per Share
Net income (loss)
$
504,858
$
(1,357,512)
$
881,247
$
(1,049,826)
Weighted average
common shares
2,629,518
2,624,374
2,629,520
2,624,375
Weighted average effect of
assumed stock options
4,455
6,889
4,076
13,481
Total
2,633,973
2,631,262
2,633,596
2,637,856
Diluted Earnings (Loss)
Per Share
$
0.19
$
(0.52)
$
0.33
$
(0.40)