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, 2000
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 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 July 27, 2000:
2,617,277 common shares
CSB BANCORP, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 2000
Table of Contents
Part I - Financial Information
Page
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)
| June 30, 2000 | December 31, 1999 |
| ASSETS | | |
| Cash and noninterest-bearing deposits with banks | $9,568,544 | $10,525,878 |
| Interest-bearing deposits with banks | 168,236 | 257,199 |
| Federal funds sold | -- | 2,484,000 |
| Total cash and cash equivalents | 9,736,780 | 13,267,077 |
| Securities available for sale, at fair value | 27,540,689 | 30,544,038 |
| Securities held to maturity (Fair values of $70,677,436 in 2000 and $73,631,014 in 1999) | 71,785,693 | 74,843,191 |
| Loans, net | 207,275,054 | 194,861,507 |
| Premises and equipment, net | 8,762,252 | 8,941,975 |
| Accrued interest receivable and other assets | 5,173,626 | 4,088,680 |
| Total assets | $330,274,094 | $326,546,468 |
| LIABILITIES | | |
| Deposits | | |
| Noninterest-bearing | $24,431,774 | $29,047,575 |
| Interest-bearing | 235,173,987 | 240,891,867 |
| Total deposits | 259,605,761 | 269,939,442 |
| Securities sold under repurchase agreements | 14,630,024 | 12,835,554 |
| Federal funds purchased | 14,550,000 | -- |
| Federal Home Loan Bank borrowings | 8,884,037 | 9,709,831 |
| Accrued interest payable and other liabilities | 1,093,126 | 859,963 |
| Total liabilities | 298,762,948 | 293,344,790 |
| SHAREHOLDERS' EQUITY | | |
| Common stock, $6.25 par value: 9,000,000 shares authorized; 2000 - 2,667,787 shares issued; 1999 - 2,667,791 shares issued | 16,673,667 | 16,673,693 |
| Additional paid-in capital | 6,525,553 | 6,387,800 |
| Retained earnings | 10,276,393 | 10,702,853 |
| Treasury stock at cost: 2000 - 48,771 shares; 1999 - 8,807 shares | (1,534,341) | (173,802) |
| Accumulated other comprehensive income (loss) | (430,126) | (388,866) |
| Total shareholders' equity | 31,511,146 | 33,201,678 |
| Total liabilities and shareholders' equity | $330,274,094 | $326,546,468 |
See accompanying notes to consolidated financial statements.
CSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| Three Months Ended | Six Months Ended |
| June 30 | June 30 |
| 2000 | 1999 | 2000 | 1999 |
| Interest income | | | | |
| Loans, including fees | $4,985,791 | $4,264,065 | $9,638,468 | $8,703,674 |
| Taxable securities | 732,543 | 762,553 | 1,512,630 | 1,445,069 |
| Nontaxable securities | 613,412 | 558,419 | 1,226,733 | 1,094,065 |
| Other | 2,318 | 242,973 | 14,055 | 404,536 |
| Total interest income | 6,334,064 | 5,828,010 | 12,391,886 | 11,647,344 |
| Interest expense | | | | |
| Deposits | 2,729,769 | 2,768,829 | 5,431,852 | 5,485,013 |
| Other | 389,137 | 131,637 | 680,170 | 349,609 |
| Total interest expense | 3,118,906 | 2,900,466 | 6,112,022 | 5,834,622 |
| Net interest income | 3,215,158 | 2,927,544 | 6,279,864 | 5,812,722 |
| Provision for loan losses | 2,688,384 | 149,604 | 2,919,097 | 797,559 |
| Net interest income after provision for loan losses | 526,774 | 2,777,940 | 3,360,767 | 5,015,163 |
| Other income | | | | |
| Service changes on deposit accounts | 222,970 | 198,215 | 409,836 | 380,247 |
| Gain on sale of loans | 5,326 | 680 | 19,764 | 303,332 |
| Trust and financial services | 96,248 | 87,605 | 215,510 | 144,045 |
| Other income | 193,056 | 167,772 | 335,786 | 298,665 |
| Total other income | 517,600 | 454,272 | 980,896 | 1,126,289 |
| Other expense | | | | |
| Salaries and employee benefits | 1,148,346 | 943,963 | 2,215,744 | 1,806,284 |
| Occupancy expense | 135,916 | 83,765 | 273,792 | 171,803 |
| Equipment expense | 109,143 | 87,696 | 217,021 | 187,949 |
| State franchise tax | 97,006 | 66,569 | 193,728 | 160,529 |
| Other expense | 790,345 | 616,926 | 1,501,709 | 1,213,992 |
| Total other expense | 2,280,756 | 1,798,919 | 4,401,994 | 3,540,557 |
| Income (loss) before income taxes | (1,236,382) | 1,433,293 | (60,331) | 2,600,895 |
| Provision for (benefit from) income taxes | (627,115) | 322,550 | (425,135) | 571,614 |
| Net income (loss) | $ (609,267) | $1,110,743 | $364,804 | $2,029,281 |
| Basic and diluted earnings (loss) per common share | $ (.22) | $ .42 | $ .15 | $ .77 |
| | | | |
See accompanying notes to consolidated financial statements.
CSB BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Unaudited)
| Three Months Ended | Six Months Ended |
| June 30 | June 30 |
| 2000 | 1999 | 2000 | 1999 |
| Balance at beginning of period | $32,927,259 | $31,587,281 | $33,201,678 | $30,860,099 |
| Net income (loss) | (609,267) | 1,110,743 | 364,804 | 2,029,281 |
| Other comprehensive income, net of tax | 47,908 | (249,392) | (41,260) | (318,020) |
| Comprehensive income (loss) | (561,359 | 861,351 | 323,544 | 1,711,261 |
| Common stock issued under the dividend reinvestment program and 401(k) plan |
-- |
97,351 |
-- |
292,539 |
| Cash dividends ($.15 and $.30 per share in 2000; $.12 and $.24 per share in 1999) |
(392,417) |
(318,244) |
(791,264) |
(636,160) |
| Purchase of treasury shares (18,395 and 47,100 shares in 2000) |
(570,156) |
-- |
(1,452,651) |
-- |
| Treasury shares used for the dividend reinvestment program (reissued 3,318 and 7,136 treasury shares), net of fractional shares retired |
107,819 |
-- |
229,839 |
-- |
| Balance at end of period | $31,511,146 | $32,227,739 | $31,511,146 | $32,227,739 |
| | | | |
See notes to the consolidated financial statements.
CSB BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended June 30, |
|
| 2000 | 1999 |
| Net cash from operating activities | $2,667,807 | $2,439,221 |
| Cash flows from investing activities | | |
| Securities available for sale | | |
| Proceeds from maturities | 3,000,000 | 9,000,000 |
| Purchases | -- | (12,984,962) |
| Securities held to maturity | | |
| Proceeds from maturities, calls and repayments | 3,450,000 | 7,300,000 |
| Purchases | (445,063) | (17,098,498) |
| Net change in loans | (16,792,795) | (4,837,217) |
| Loan sale proceeds | 1,482,500 | 12,972,366 |
| Premises and equipment expenditures, net | (63,665) | (2,359,002) |
| Net cash from investing activities | (9,369,023) | (8,007,313) |
| Cash flows from financing activities | | |
| Net change in deposits | (10,333,681) | 4,124,585 |
| Net change in securities sold under repurchase agreements | 1,794,470 | 1,602,771 |
| Net change in federal funds purchased | 14,550,000 | -- |
| Principal reductions on FHLB borrowings | (825,794) | (936,658) |
| Shares issued for 401(k) plan | -- | 105,758 |
| Cash dividends paid | (561,425) | (449,379) |
| Purchase of treasury shares | (1,452,651) | -- |
| Net cash from financial activities | 3,170,919 | 4,447,077 |
| Net change in cash and cash equivalents | (3,530,297) | (1,121,015) |
| Beginning cash and cash equivalents | 13,267,077 | 25,608,187 |
| Ending cash and cash equivalents | $9,736,780 | $24,487,172 |
| Supplemental disclosures | | |
| Interest paid | $6,100,766 | $5,838,988 |
| Income taxes paid | 305,000 | 502,000 |
See notes to the consolidated financial statements.
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 June 30, 2000, 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, 1999 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.
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.
See notes to the consolidated financial statements.
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 June 30, | Six Months Ended June 30, |
|
| 2000 | 1999 | 2000 | 1999 |
| Weighted average common shares outstanding (basic) | 2,618,998 | 2,652,314 | 2,651,637 | 2,650,473 |
| Dilutive effect of assumed exercise of stock options | -- | 950 | 848 | 961 |
| Weighted average common shares outstanding (diluted) | 2,618,998 | 2,653,264 | 2,652,485 | 2,651,434 |
| | | | |
Statement of Financial Standards ("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. SFAS No. 133 does not allow hedging of a security which is classified as held to maturity. Upon adoption of SFAS No. 133, 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. SFAS No. 133, as amended by SFAS No. 137, 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 SFAS No. 133 to have a significant impact on the Company's financial statements.
See notes to the consolidated financial statements.
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SECURITIES
The amortized cost and fair values of securities are as follows:
| June 30, 2000 |
|
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses |
Fair Value |
| Available for sale | | | | |
| Debt securities | | | | |
| U.S. Treasury securities | $1,001,341 | $ -- | $ (2,591) | $998,750 |
| Obligations of U.S. government corporations and agencies |
23,934,954 |
-- |
(646,279) |
23,288,675 |
| Mortgage-related securities | 1,000,000 | -- | (2,836) | 997,164 |
| Total debt securities available for sale |
25,936,295 |
-- |
(651,706) |
25,284,589 |
| Other securities | 2,256,100 | -- | -- | 2,256,100 |
| Total securities available for sale |
$28,192,395 |
$ -- |
$(651,706) |
$27,540,689 |
| Held to maturity | | | | |
| U.S. Treasury securities | $101,741 | $16,040 | $ -- | $117,781 |
| Obligations of U.S. government corporations and agencies |
20,497,975 |
212 |
(656,786) |
19,841,401 |
| Obligations of states and political subdivisions |
51,185,977 |
245,866 |
(713,589) |
50,718,254 |
| Total debt securities held to maturity |
$71,785,693 |
$262,118 |
$(1,370,375) |
$70,677,436 |
| | | | |
See notes to the consolidated financial statements.
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SECURITIES (Continued)
| December 31, 1999 |
|
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
| Available for sale | | | | |
| Debt securities | $4,005,693 | $3,420 | $ (90) | $4,009,023 |
| Obligations of U.S. government corporations and agencies |
23,939,139 |
1,112 |
(593,482) |
23,346,769 |
| Mortgage-related securities | 1,000,000 | -- | (154) | 999,846 |
| Total debt securities | 28,944,832 | 4,532 | (593,726) | 28,355,638 |
| Other securities | 2,188,400 | -- | -- | 2,188,400 |
| Total securities available for sale | $31,133,232 | $4,532 | $(593,726) | $30,544,038 |
| Held to maturity | | | | |
| U.S. Treasury securities | $3,104,636 | $15,309 | $ -- | $3,119,945 |
| Obligations of U.S. government corporations and agencies |
20,499,017 |
-- |
(569,065) |
19,929,952 |
| Obligations of states and political subdivisions |
51,239,538 |
228,859 |
(887,280) |
50,581,117 |
| Total securities held to maturity | $74,843,191 | $244,168 | $(1,456,345) | $73,631,014 |
| | | | |
There were no sales of securities during the first six months of 2000 or 1999.
The amortized cost and fair values of debt securities at June 30, 2000, by contractual maturity, are shown below.
| Available for sale | Held to maturity |
| Amortized Cost | Fair Value | Amortized Cost | Fair Value |
| Due in one year or less | $2,001,388 | $1,997,500 | $2,150,207 | $2,155,607 |
| Due from one to five years | 22,934,907 | 22,289,925 | 34,382,371 | 33,560,936 |
| Due from five to ten years | -- | -- | 28,614,950 | 28,094,825 |
| Due after ten years | -- | -- | 6,638,165 | 6,866,068 |
| Mortgage-related securities | 1,000,000 | 997,164 | -- | -- |
| $25,936,295 | $25,284,589 | $71,785,693 | $70,677,436 |
| | | | |
See notes to the consolidated financial statements.
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans consisted of the following:
| June 30, 2000 | December 31, 1999 |
| Commercial | $93,012,238 | $86,185,570 |
| Commercial real estate | 39,339,757 | 35,690,254 |
| Residential real estate | 54,420,730 | 31,511,348 |
| Residential real estate loans held for sale | -- | 20,533,301 |
| Installment and credit card | 18,932,460 | 17,644,690 |
| Construction | 7,543,274 | 7,446,805 |
| Subtotal | 213,248,459 | 199,011,968 |
| Allowance for loan losses | (5,245,516) | (3,418,797) |
| Net deferred loan fees | (727,889) | (731,664) |
| $207,275,054 | $194,861,507 |
| | |
During the first six months of 2000, the Company received $1.5 million in proceeds from mortgage loan sales. A gain of $19,764 was recognized on these sales. During the first six months, the Company reclassified $20.5 million in residential real estate loans to the long-term portfolio.
Activity in the allowance for loan losses for the six months ended June 30, 2000 and 1999 is as follows:
| 2000 | 1999 |
| Beginning balance | $3,418,797 | $2,887,721 |
| Provision for loan losses | 2,919,097 | 797,559 |
| Charge-offs | (1,136,300) | (443,915) |
| Recoveries | 43,922 | 11,273 |
| Balance - June 30 | $5,245,516 | $3,252,638 |
| | |
During the second quarter of 2000, the Company's provision for loan losses totaled $2.7 million, resulting from continued growth in the Company's commercial lending, which represents a higher risk of loss than traditional one-to-four family mortgage lending; the rising interest rate environment, which has impacted the ability of some businesses to meet their scheduled loan payments in accordance with original loan terms; the current regulatory environment; and information obtained in the second quarter 2000 about specific borrower situations, which led to charge-offs and additional reserve requirements.
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, 2000, compared to December 31, 1999, and the consolidated results of operations for the quarterly and year-to-date periods ending June 30, 2000, compared to the same periods in 1999. 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 $330.3 million at June 30, 2000, compared to $326.5 million at December 31, 1999, representing an increase of $3.7 million or 1.1%. Total securities decreased approximately $6.1 million during the first six months. Proceeds from the maturities were used to fund loan growth. Net loans increased $12.4 million, or 6.4%, to $207.3 million. This increase was primarily a result of a $6.8 million, or 7.9%, increase in commercial loans and a $3.6 million, or 10.2% increase in commercial real estate loans. These increases were a result of good loan demand in the local market area.
See notes to the consolidated financial statements.
CSB BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION (continued)
As a percentage of loans, the allowance for loan losses was 2.46% at June 30, 2000, and 1.72% at December 31, 1999. As discussed in the notes to the financial statements, the allowance for loan losses is an estimate that encompasses known losses in the portfolio and management's judgment about the performance of individual credits. Changes in these factors impact the provision for loan losses. Loans past due more than 90 days and loans placed on nonaccrual status were approximately $1.6 million, or 0.76% of total loans at June 30, 2000, compared to $1.5 million, or 0.77% of loans at December 31, 1999. These credits are considered in management's analysis of the allowance for loan losses.
Premises and equipment decreased $180,000, or 2.0%, during the first six months of 2000 due to normal depreciation.
At June 30, 2000, the ratio of net loans to deposits was 79.8%, compared to 72.2% at the end of 1999. This increase is due primarily to the normal deposit activity in the first six months of the year, coupled with solid loan growth.
Total shareholders' equity decreased $1.7 million, or 5.1%, due primarily to the adoption of a stock buyback program during the first quarter. This resulted in the purchases of $1.5 million of treasury stock. Cash dividends declared of $791,000 also decreased equity. This amount was partially offset by year-to-date net income of $365,000. 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 $230,000 during the first half of 2000 from the reissuance of treasury shares.
The Company and its subsidiary met all regulatory capital requirements at June 30, 2000. The Company's ratio of total capital to risk-weighted assets was 15.52% at June 30, 2000, while Tier 1 risk-based capital ratio was 14.25%. 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 9.76% at June 30, 2000, which exceeds the regulatory minimum of 3% to 5%.
RESULTS OF OPERATIONS
Net income for the six months ended June 30, 2000, was $365,000, or $0.15 per share, compared to $2.0 million, or $0.77 per share earned during the same period last year, a decrease of $1.7 million or 82.0%. The primary factor contributing to the six month decrease was an increase in the provision for loan losses and in other expenses, which were partially offset by an increase in net interest income. For the three months ended June 30, 2000, the Company incurred a net loss of $609,000, or $0.22 per share, compared to net income of $1.1 million or $0.42 per share in the same period of 1999. This loss was due to the increased provision for loan losses as discussed below.
See notes to the consolidated financial statements.
CSB BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (continued)
Net interest income was $6.3 million for the first six months of 2000, a $467,000, or 8.0% increase over the same period last year. Interest and fees on loans increased $935,000, or 10.7%, during the first six months, primarily as a result of a $15.6 million increase in average loans as compared to the prior year. Interest income from securities increased $200,000 or 7.9%. These increases more than offset the $277,000, or 4.8%, increase in interest expense from the first six months of 2000, as compared to the same period in 1999. This increase was due to a $5.6 million increase in average total deposits and other borrowings and a slight increase in the cost of funds. Also, other interest income decreased $390,000, or 96.5%, as overnight funds were invested in loans and securities.
Net interest income for the quarter ended June 30, 2000, was $3.2 million, an increase of $288,000, or 9.8%, over the same period last year. Interest and fees on loans increased $722,000, or 16.9%, while other interest income decreased $241,000 for reasons noted above.
Interest expense increased $218,000, or 7.5%, for the three months ended June 30, 2000, compared to the three months ended June 30, 1999, for reasons noted above.
During the second quarter of 2000, the Company's provision for loan losses totaled $2.7 million, an increase from $150,000 in the second quarter of 1999. The loan loss provision totaled $2.9 million for the six months ended June 30, 2000, up from $798,000 for the corresponding period in the previous year. This was a result of several factors, including continued growth in the Company's commercial lending, which represents a higher risk of loss than traditional one-to-four family mortgage lending; the rising interest rate environment, which has impacted the ability of some businesses to meet their scheduled loan payments in accordance with original loan terms; the current regulatory environment; and information obtained in the second quarter 2000 about specific borrower situations, which led to charge-offs and additional reserve requirements. Net charge-offs totaled $1.1 million for the first six months of 2000, compared to $433,000 for the same period in 1999.
Other income for the six months ended June 30, 2000, decreased approximately $145,000 as compared to the prior year, primarily as a result of a $284,000 decrease in gain on the sale of loans from the 1999 period. In the first quarter of 1999, $13.0 million of fixed rate mortgage loans were sold, resulting in a gain of $303,000. These loans had previously been identified as held for sale. Trust and financial services income increased $71,000, or 49.6%, due to increased activity in the department. Other income for the three months ended June 30, 2000, was $517,600, an increase of $63,000 or 13.9% over the same period in 1999. This increase was primarily due to the increases in service charge income and Trust and Financial Services revenues.
Other expenses increased $861,000, or 24.3%, for the six months ended June 30, 2000, compared to the same period in 1999. Salaries and employee benefits increased by $409,000 or 22.7%, due to normal merit increases and additional staffing in the lending department. Occupancy expense increased by $102,000, or 59.4%, due to the new Operations Center, which opened in the third quarter of 1999. Other expense for the three months ended June 30, 2000, amounted to $2.3 million, or increase of 26.8% for the same reasons as noted above.
See notes to the consolidated financial statements.
CSB BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 ISSUE
The Company experienced no disruption to its operations because of the Year 2000. Management will continue to monitor activity over the course of the year for possible effects on its operations and customers. Certain critical dates, as identified by the Company and regulators, fall in 2000. While these dates have been tested, the Company will review operations during these periods. Some of these dates fell in the first half of the year and no disruption of operations or systems occurred.
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, 2000 from that presented in the Company's Annual Report on Form 10-K for the year ended December 31, 1999.
CSB BANCORP, INC.
FORM 10-Q
Quarter ended June 30, 2000
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:
On April 12, 2000, the Company held the Annual Meeting of Shareholders at which shareholders voted upon the election of three (3) directors for Class I Nominees for three-year terms expiring in 2003. The results of the voting on these matters were as follows:
| Nominee | Votes for | Withheld |
| Daniel J. Miller | 2,081,016 | 142,171 |
| Samuel P. Riggle, Jr. | 2,073,665 | 149,523 |
| David C. Sprang | 2,072,683 | 150,505 |
| | |
The following are directors who were not up for election at the meeting and whose terms of office as directors continued after the meeting:
Douglas D. Akins
David W. Kaufman
J. Thomas Lang
H. Richard Maxwell
Samuel M. Steimel
F. Joanne Vincent
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 |
| 11 | Statement Regarding Computation of Per Share |
| 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.
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 10, 2000 /s/ Douglas D. Akins
Douglas D. Akins
President
Chief Executive Officer
Date: August 10, 2000 /s/ A. Lee Miller
A. Lee Miller
Senior Vice President
Chief Financial Officer
CSB BANCORP, INC.
Index to Exhibits
| Exhibit Number | Description of Document | Sequential Page |
| 11 | Statement Regarding Computation of Per Share Earnings | 19 |
| 27 | Financial Data Schedule | 20 |
| | |
CSB BANCORP, INC.
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
| Three Months Ended June 30, | Six Months Ended June 30, |
|
| 2000 | 1999 | 2000 | 1999 |
| Net income | $(609,267) | $1,110,743 | $364,804 | $2,029,281 |
| Average basic shares outstanding | 2,618,998 | 2,652,314 | 2,651,637 | 2,650,473 |
| Add: Effect of stock options | -- | 950 | 848 | 961 |
| Average diluted shares outstanding | 2,618,998 | 2,653,264 | 2,652,485 | 2,651,434 |
| Basic and diluted earnings per common share | $ (0.22) | $ 0.42 | $ 0.15 | $ 0.77 |
| | | | |
