SECURITY AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission File Number: 0-26650
CSB FINANCIAL GROUP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
United States 37-1336338
- --------------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Employer ID Number)
of incorporation or organization)
200 South Poplar, Centralia, Illinois 62801
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (618) 532-1918
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [ X ] NO [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Shares outstanding at May 1, 2000
- ----------------------------- ---------------------------------
Common Stock, Par Value $0.01 732,299
Contents
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
- Consolidated Balance Sheets
- Consolidated Statements of Income and Comprehensive Income
- Consolidated Statements of Cash Flows
- Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
CSB FINANCIAL GROUP, INC. and SUBSIDIARY
Consolidated Balance Sheets
March 31, 2000 and September 30, 1999
(in thousands, except share data)
(Unaudited)
March 31, September 30,
ASSETS 2000 1999
- ----------------------------------------------------------------------
Cash and cash equivalents ................ $ 1,444 $ 871
Securities:
Available for sale .................... 15,798 17,118
Nonmarketable equity securities ....... 216 216
Loans .................................... 30,110 29,142
Allowance for loan losses ................ (220) (222)
---------------------
Loans, net ................. 29,890 28,920
Premises and equipment ................... 659 683
Accrued interest receivable .............. 336 318
Intangible assets ........................ 509 539
Other assets ............................. 208 255
---------------------
Total assets ............... $ 49,060 $ 48,920
=====================
CSB FINANCIAL GROUP, INC. and SUBSIDIARY
Consolidated Balance Sheets
March 31, 2000 and September 30, 1999
(in thousands, except share data)
(Unaudited)
March 31, September 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
- -----------------------------------------------------------------------------------------
LIABILITIES:
Deposits:
Demand ................................................... $ 8,946 $ 8,563
Savings .................................................. 3,553 3,794
Time deposits > $100,000 ................................. 3,090 2,627
Other time deposits ...................................... 22,992 21,922
-------------------
Total deposits ................................... 38,581 36,906
-------------------
Advances from the Federal Home Loan Bank .................... - - 1,400
Other liabilities ........................................... 163 191
Deferred income taxes ....................................... 23 145
-------------------
Total liabilities ................................ 38,767 38,642
-------------------
COMMITMENTS, CONTINGENCIES AND CREDIT RISK
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; 100,000 shares authorized;
none issued .............................................. - - - -
Common stock, $0.01 par value; authorized 2,000,000 shares;
1,035,000 shares issued .................................. 10 10
Paid-in capital ............................................. 7,834 7,829
Retained earnings ........................................... 6,822 6,683
Accumulated other comprehensive income (loss) ............... (210) (53)
Unearned employee stock ownership plan shares ............... (150) (160)
Management recognition plan ................................. (496) (514)
-------------------
13,810 13,795
Less cost of treasury stock; 302,701 shares at March 31, 2000
and September 30, 1999 ................................... (3,517) (3,517)
-------------------
Total stockholders' equity ....................... 10,293 10,278
-------------------
Total liabilities and stockholders' equity ....... $ 49,060 $ 48,920
===================
See Notes to Consolidated Financial Statements.
CSB Financial Group, Inc.
Consolidated Statements of Income
Six Months Ended March 31, 2000 and 1999
(Unaudited, in thousands, except per share data)
Six
Months Ended
March 31,
----------------
2000 1999
----------------
Interest income:
Loans and fees on loans ...................................... $1,153 $1,094
Securities ................................................... 539 528
----------------
Total interest income ............................. 1,692 1,622
----------------
Interest expense:
Deposits ..................................................... 782 797
Borrowings ................................................... 36 - -
----------------
Total interest expense ............................ 818 797
----------------
Net interest income ............................... 874 825
Provision for loan losses ....................................... 17 36
----------------
Net interest income after provision for loan losses 857 789
----------------
Noninterest income:
Service charges on deposits .................................. 50 39
Gain on sale of securities, net .............................. 1 - -
Other ........................................................ 17 25
----------------
Total noninterest income .......................... 68 64
----------------
Noninterest expense:
Compensation and employee benefits ........................... 336 326
Occupancy and equipment ...................................... 52 47
Data processing .............................................. 84 73
Audit, legal and other professional .......................... 122 46
Other ........................................................ 171 178
----------------
Total noninterest expense ......................... 765 670
----------------
Income before income taxes ........................ 160 183
Income taxes .................................................... 21 54
----------------
Net income ........................................ $ 139 $ 129
================
Earnings per share
Basic ........................................................ $ 0.19 $ 0.18
================
Diluted ...................................................... $ 0.19 $ 0.18
================
Weighted average shares outstanding
Basic ........................................................ 722,941 717,178
=================
Diluted ...................................................... 747,187 728,356
=================
See Notes to Consolidated Financial Statements.
CSB Financial Group, Inc.
Consolidated Statements of comprehensive income
Six Months Ended March 31, 2000 and 1999
(Unaudited, in thousands, except per share data)
Six
Months Ended
March 31,
-----------------
2000 1999
-----------------
Net income ................................................ $ 139 $ 129
Change in unrealized gain on securities available for sale,
net of tax of $(97) and $(31) .......................... (157) (51)
-----------------
Comprehensive income ...................................... $ (18) $ 78
=================
See Notes to Consolidated Financial Statements.
CSB Financial Group, Inc.
Consolidated Statements of Income
Three Months Ended March 31, 2000 and 1999
(Unaudited, in thousands, except per share data)
Three
Months Ended
March 31,
------------------
2000 1999
------------------
Interest income:
Loans and fees on loans ...................................... $ 582 $ 564
Securities ................................................... 266 254
------------------
Total interest income ............................. 848 818
------------------
Interest expense:
Deposits ..................................................... 392 392
Borrowings ................................................... 20 - -
------------------
Total interest expense ............................ 412 392
------------------
Net interest income ............................... 436 426
Provision for loan losses ....................................... 3 18
------------------
Net interest income after provision for loan losses 433 408
------------------
Noninterest income:
Service charges on deposits .................................. 24 19
Gain on sale of securities, net .............................. 1 - -
Other ........................................................ 9 10
------------------
Total noninterest income .......................... 34 29
------------------
Noninterest expense:
Compensation and employee benefits ........................... 167 157
Occupancy and equipment ...................................... 31 23
Data processing .............................................. 32 48
Audit, legal and other professional .......................... 78 15
Other ........................................................ 72 82
------------------
Total noninterest expense ......................... 380 325
------------------
Income before income taxes ........................ 87 112
Income taxes .................................................... 32 31
------------------
Net income ........................................ $ 55 $ 81
==================
Earnings per share
Basic ........................................................ $ 0.08 $ 0.11
===================
Diluted ...................................................... $ 0.07 $ 0.11
===================
Weighted average shares outstanding
Basic ........................................................ 723,249 717,349
===================
Diluted ...................................................... 751,273 728,527
===================
See Notes to Consolidated Financial Statements.
CSB Financial Group, Inc.
Consolidated Statements of comprehensive income
Three Months Ended March 31, 2000 and 1999
(Unaudited, in thousands, except per share data)
Three
Months Ended
March 31,
-----------------
2000 1999
-----------------
Net income ................................................. $ 55 $ 81
Change in unrealized gain on securities available for sale,
net of tax of $(59) and $(30) ........................... (97) (49)
----------------
Comprehensive income ....................................... $ (42) $ 32
================
See Notes to Consolidated Financial Statements.
CSB Financial Group, Inc.
Consolidated Statements of CASH FLOWS
Six Months Ended March 31, 2000 and 1999
(Unaudited, in thousands)
Six
Months Ended
March 31,
------------------
2000 1999
------------------
Cash Flows from Operating Activities:
Net income .......................................................... $ 139 $ 129
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses ........................................ 17 36
Provision for depreciation ....................................... 35 21
Deferred income taxes ............................................ (25) (4)
Amortization of intangible assets ................................ 30 31
Employee stock ownership plan compensation expense ............... 15 13
Management recognition plan compensation expense ................. 18 18
Gain on sale of securities ....................................... (1) - -
Amortization and accretion on securities ......................... 1 6
Change in assets and liabilities:
(Increase) in accrued interest receivable ...................... (18) (2)
Decrease in other assets ....................................... 47 50
(Decrease) in other liabilities ................................ (28) (28)
------------------
Net cash provided by operating activities ................ 230 270
------------------
Cash Flows from Investing Activities:
Securities available for sale:
Purchases ........................................................ (1,783) (3,453)
Proceeds from sales .............................................. 1,794 - -
Proceeds from maturities and paydowns ............................ 1,055 4,741
Proceeds from sales of nonmarketable equity securities .............. - - 4
(Increase) in loans ................................................. (987) (2,478)
Purchase of premises and equipment .................................. (11) (8)
------------------
Net cash provided by (used in) investing activities ...... 68 (1,194)
------------------
Cash Flows from Financing Activities:
Increase in deposits ................................................ $ 1,675 $ 1,323
Repayment of FHLB advances .......................................... (1,400) - -
Purchase of treasury stock .......................................... - - (5)
------------------
Net cash provided by financing activities ................ 275 1,318
------------------
Increase in cash and cash equivalents .................... 573 394
Cash and cash equivalents at beginning of period ....................... 871 1,542
------------------
Cash and cash equivalents at end of period ............................. $ 1,444 $ 1,936
==================
Supplemental Disclosures:
Cash paid for:
Interest ......................................................... $ 791 $ 797
Income taxes ..................................................... $ 9 $ 9
Change in gross unrealized gain/loss on securities available for sale $ (254) $ (82)
Change in deferred taxes on unrealized gain/loss on securities
available for sale ............................................... $ 97 $ 31
See Notes to Consolidated Financial Statements.
CSB Financial Group, Inc.
Notes to CONSOLIDATED Financial Statements
(in thousands, except per share data)
- --------------------------------------------------------------------------------
Note 1. Background Information
On October 5, 1995, CSB Financial Group, Inc. (the "Company") acquired all of
the outstanding shares of Centralia Savings Bank (the "Bank") upon the Bank's
conversion from a state chartered mutual savings bank to a state chartered
capital stock savings bank. Centralia Savings Bank is located in Marion County,
Illinois. The Company purchased 100% of the outstanding capital stock of the
Bank using 50% of the net proceeds from the Company's initial stock offering
which was completed on October 5, 1995. The Company sold 1,035,000 shares of
$0.01 par value common stock at a price of $8 per share, including 82,800 shares
purchased by the Bank's Employee Stock Ownership Plan ("ESOP"). The ESOP shares
were acquired by the Bank with proceeds from a Company loan totaling $662,400.
The gross proceeds of the offering were $8,280,000. After reducing gross
proceeds for conversion costs of $696,000, net proceeds totaled $7,584,000. The
Company's stock was traded on the NASDAQ Small Caps market under the symbol
"CSBF" until December 31, 1998, at which time the Company transferred the
quotation of its common stock to the OTC Bulletin Board under the same symbol.
The acquisition of the Bank by the Company was accounted for as a "pooling of
interests" under generally accepted accounting principles. The application of
the pooling of interests method records the assets and liabilities of the merged
entities on a historical cost basis with no goodwill or other intangible assets
being recorded.
Note 2. Basis of Presentation
The accompanying consolidated financial statements include the accounts of CSB
Financial Group, Inc., its wholly owned subsidiary, Centralia Savings Bank, the
Bank, and the Bank's wholly-owned subsidiary, Centralia SLA. Centralia SLA,
Inc.'s principal business activity is to provide insurance services. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The accompanying consolidated financial statements are unaudited
and should be read in conjunction with the consolidated financial statements and
notes thereto included in the Bank's annual report on Form 10-KSB for the year
ended September 30, 1999. The accompanying unaudited consolidated financial
statements have been prepared in accordance with the instructions for Form
10-QSB and, therefore, do not include information or footnotes necessary for a
complete presentation of financial condition, results of operations, and cash
flows in conformity with generally accepted accounting principles. In the
opinion of management of the Company, the unaudited consolidated financial
statements reflect all adjustments necessary to present fairly the financial
position of the Company at March 31, 2000, the results of operations for the
three months ended March 31, 2000 and 1999, and the results of operations and
cash flows for the six months ended March 31, 2000 and 1999. All adjustments to
the financial statements were normal and recurring in nature.
Operating results for the six months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending September 30,
2000.
Note 3. Earnings Per Share
Basic earnings per share ("EPS") is computed as net income available to common
stockholders divided by the weighted average common shares outstanding and
vested shares of the Management Recognition Plan.
Diluted EPS is computed as net income available to common stockholders divided
by the weighted average common shares outstanding, common stock equivalents, and
shares awarded under the Management Recognition Plan weighted to reflect the
portion of the period the shares were outstanding.
The following reflects earnings per share calculations for basic and diluted
methods:
For the Six
Months Ended
March 31,
------------------
2000 1999
------------------
Net income available to common shareholders ................. $ 139 $ 129
Basic diluted potential common shares:
Weighted average shares outstanding ...................... 713,005 710,968
Management recognition plan shares vested ................ 9,936 6,210
------------------
Basic average shares outstanding ............................ 722,941 717,178
------------------
Diluted potential common shares:
Management recognition plan shares granted, but not vested 7,452 11,178
Stock option equivalents ................................. 16,794 - -
------------------
Diluted average shares outstanding .......................... 747,187 728,356
------------------
Basic earnings per share .................................... $ 0.19 $ 0.18
==================
Diluted earnings per share .................................. $ 0.19 $ 0.18
==================
For The Three
Months Ended
March 31,
-------------------
2000 1999
-------------------
Net income available to common shareholders ................. $ 55 $ 81
Basic diluted potential common shares:
Weighted average shares outstanding ...................... 713,313 711,139
Management recognition plan shares vested ................ 9,936 6,210
-------------------
Basic weighted average shares outstanding ................... 723,249 717,349
-------------------
Diluted potential common shares:
Management recognition plan shares granted, but not vested 7,452 11,178
Stock option equivalents ................................. 20,572 - -
-------------------
Diluted average shares outstanding .......................... 751,273 728,527
===================
Basic earnings per share .................................... $ 0.08 $ 0.11
===================
Diluted earnings per share .................................. $ 0.07 $ 0.11
===================
Note 4. Employee Stock Ownership Plan
The ESOP acquired 82,800 shares of the Company's stock for future allocation to
employees as part of the mutual to stock conversion process. The purchase was
funded with a loan from the Company.
Shares are allocated to all eligible employees as the debt is repaid based on a
prorata share of total eligible compensation. Employees 21 or older with at
least 1,000 hours of service in a twelve month period are eligible to
participate. Benefits will vest over a five year period and in full after five
years of qualified service.
As shares are committed to be released from unallocated shares, the Bank
recognizes compensation expense equal to the current market price of the shares,
and the shares become outstanding for purposes of calculating earnings per
share. The Bank recognized compensation expense for the ESOP of $15 and $13 for
the six months ended March 31, 2000 and 1999, respectively.
Dividends received, if any, by the ESOP on unallocated shares will be used for
debt service.
In July 1997, the Company repurchased 41,400 shares of common stock from the
ESOP. The ESOP used the proceeds received from the repurchase to reduce
outstanding debt to the Company. The balance in unearned ESOP shares was reduced
by the cost of the shares sold to the Company. As of March 31, 2000 and
September 30, 1999, the ESOP held 18,785 and 20,021, respectively, of
non-committed shares with a fair value of $274 and $195, respectively.
Note 5. Stock Option Plan
The Company has a stock option plan (SOP) which was established in 1996 with
103,500 shares of common stock. The options are granted by a Committee,
comprised of directors, to key employees and directors based on their services.
The exercise price of options granted must be at least equal to the fair market
value of the common stock on the date the option is granted. The options granted
under the plan become exercisable at a rate of 20 percent per year commencing
one year after the grant date and 20 percent on each anniversary date for the
following four years. As of March 31, 2000, 61,750 options had been granted.
A Nonqualified Stock Option Plan (SOP) was established in 1997 with 103,500
shares of common stock. The options are granted by a committee, comprised of
directors, to key employees and directors based on their services. The exercise
price of the option granted must be at least equal to the fair market value of
the common stock on the date the option is granted. The terms of the options and
the exercise schedule are at the discretion of the committee and option
agreements need not be identical. As of March 31, 2000, no options had been
granted.
Note 6. Management Recognition Plan
The Management Recognition Plan ("MRP") was approved October 10, 1996 and
amended on January 9, 1997. Directors, officers, and employees become vested in
the shares of common stock awarded to them under the MRP at a rate of 20% per
year, commencing one year after the grant date, and 20% on the anniversary date
thereof for the following four years. As of March 31, 2000, 17,388 shares have
been awarded and remain outstanding to officers, directors, and employees. MRP
compensation expense was $18 for the six months ended March 31, 2000 and 1999.
Compensation expense is recognized over the vesting period for shares awarded
under the plan.
Note 7. Reclassifications
Certain reclassifications have been made to the balances for the period ending
March 31, 1999, with no effect on net income, to be consistent with the
classifications adopted for March 31, 2000.
Note 8. New Accounting Standards
Accounting for Derivative Instruments and Hedging Activities Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133) establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivative depends on the intended use of the derivative
and the resulting designation. This Statement applies to all entities. FAS 133
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Earlier application is encouraged. The Statement is not to be applied
retroactively to financial statements of prior periods. In June 1999, Statement
of Financial Accounting Standard No. 137 was issued to extend the effective date
by one year to all fiscal quarters of fiscal years beginning after June 15,
2000. The Company does not believe the adoption of FAS 133, as amended by FAS
137, will have a material impact on the consolidated financial statements.
Accounting for Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise Statement of
Financial Accounting Standard No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise" (FAS 134) changes the way mortgage banking firms
account for certain securities and other interests they retain after
securitizing mortgage loans that were held for sale. The Statement is effective
for financial statements for the first fiscal quarter beginning after December
15, 1998. The Company does not securitize mortgages and is not a Mortgage
Banking Enterprise and therefore, FAS 134 will not have an impact on the
consolidated financial statements.
CSB Financial Group, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONs
( In thousands, except per share data)
- --------------------------------------------------------------------------------
General
The principal assets of the Company are its investment in the Bank's common
stock. The Company's principal revenue source is interest and dividends on its
investments. The principal business of the Bank consists of attracting deposits
from the general public and using these funds to originate mortgage loans
secured by one- to four-family residences located primarily in Centralia,
Illinois and surrounding areas. The Bank engages in various forms of consumer
and commercial lending and invests in mortgage-backed U.S. Government and
federal agency securities, local municipal issues, and interest-bearing
deposits. The Bank's profitability depends primarily on its net interest income,
which is the difference between the interest income it earns on its loans and
investment portfolio and its cost of funds, which consists mainly of interest
paid on deposits. Net interest income is affected by the relative amounts of
interest-earning assets, interest-bearing liabilities, and the interest rates
earned or paid on these balances.
The Company's profitability is also affected by the level of noninterest income
and expense. Noninterest income consists primarily of late charges and other
fees. Noninterest expense consists of salaries and benefits, occupancy related
expenses, deposit insurance premiums paid to the SAIF, and other operating
expenses.
The operations of the Company are significantly influenced by general economic
conditions and related monetary and fiscal policies of financial institutions'
regulatory agencies. Deposit flows and the cost of funds are influenced by
interest rates on competing investments and general market rates of interest.
Lending activities are affected by the demand for financing real estate and
other types of loans, which in turn is affected by the interest rates at which
such financing may be offered and other factors affecting loan demand and the
availability of funds.
Business Strategy
The Company's business strategy is to operate the bank as a well capitalized,
profitable and independent community savings bank dedicated to financing home
ownership and consumer needs in its primary market area. The Company has
implemented this strategy by: (1) closely monitoring the needs of customers and
providing quality service; (2) emphasizing consumer-oriented banking by
originating construction and permanent loans on residential and commercial real
estate and consumer loans, and by offering other financial services and
products; (3) improving and maintaining high asset quality; (4) maintaining
capital in excess of regulatory requirements; and (5) managing interest rate
risk by emphasizing the origination of loans with adjustable rates or shorter
terms and investments in short-term and liquid investments. The Company has
adopted various new business strategies intended to increase its presence in its
primary market area, thereby increasing its lending activities and sources of
income.
Merger
On January 26, 2000, the Company signed a definitive agreement with Midland
States Bancorp, Inc. Under the terms of the agreement, Midland States Bancorp,
Inc. has agreed to purchase all of the issued and outstanding shares of common
stock of CSB Financial Group, Inc. for an aggregate cash consideration of $11.7
million, or $16.00 per share, subject to certain adjustments. This transaction
is expected to be completed by July 31, 2000.
Liquidity and Capital Resources
The Company's primary sources of funds consists of deposits, repayment and
prepayment of loans, maturities of investments and interest-bearing deposits.
Scheduled repayments of loans and mortgage-backed securities and maturities of
investment securities are predictable, influenced by general interest rates,
economic conditions, and competition. The Company uses its liquidity resources
principally to fund existing and future loan commitments, to fund maturing
certificates of deposit and demand deposit withdrawals, to invest in other
interest-earning assets, to maintain liquidity, and to meet operating expenses.
Management believes that loan repayments and other sources of funds will be
adequate to meet the Company's liquidity needs for the immediate future.
A portion of the Company's liquidity consists of cash and cash equivalents,
which include investments in highly liquid, short-term deposits. The level of
these assets is dependent on the Company's operating, investing, lending, and
financing activities during any given period. At March 31, 2000 and September
30, 1999, cash and cash equivalents totaled $1,444 million and $871,
respectively. The increase in cash and cash equivalents is due to an increase in
deposits and the sale of investment securities to repay borrowings and fund loan
growth.
Liquidity management is both a daily and long-term function of business
management. If the Company requires funds beyond its ability to generate them
internally, the Company may borrow additional funds from the FHLB. At March 31,
2000, the Company had no outstanding advances from the FHLB.
At March 31, 2000, the Company had $1.8 million of outstanding commitments on
revolving lines of credit.
Regulatory Capital
Federally insured savings associations are required to maintain a minimum level
of regulatory capital. The Company and its subsidiary have capital ratios which
substantially exceed all regulatory requirements. The Company's capital ratios
are shown below.
March 31, September 30, Minimum
2000 1999 Requirements
--------------------------------------
Total capital to risk weighted assets 39.1% 43.9% 8.0%
Tier I capital to risk weighted assets 38.2% 42.9% 4.0%
Tier I capital to average assets 20.3% 20.3% 4.0%
Financial Condition
Total assets increased $140 to $49,060 at March 31, 2000 from $48,920 at
September 30, 1999. The increase resulted from an increase of $573 in cash and
cash equivalents due to sales, calls and maturities of investments and a net
increase in deposit accounts of $1,675, offset by an increase in loans of $970
and repayment of FHLB Advances of $1,400.
Gross loans have increased $968 from $29,142 at September 30, 1999 to $30,110 at
March 31, 2000. The growth in the loan portfolio is comprised primarily of
commercial lending.
Securities decreased $1,320 since September 30, 1999. The decrease is due to
maturities of U.S. Treasury securities, sale of mortgage backed securities and
an overall decline in market values. All securities are held as available for
sale.
Results of Operations
Three months ended March 31, 2000 compared to three months ended March 31, 1999
Net Income - The Company's net income for the three months ended March 31, 2000
was $55 compared to $81 for the three months ended March 31, 1999. The principal
cause of the decrease in net income resulted from an increase in professional
fees related to the pending sale of the Company. This decrease was mitigated by
a modest increase in net interest margin and a slight reduction of other
noninterest expense.
Interest Income - Interest income increased for the three months ended March 31,
2000 by $30 to $848 from $818 for the three months ended March 31, 1999. The
increase is due to consistent yields and an increase in the average balance of
interest earning assets for the respective periods.
Interest Expense - Interest expense increased for the three months ended March
31, 2000 by $20 to $412 from $392 for the three months ended March 31, 1999. The
increase in interest expense is solely attributed to interest expense on
borrowed funds that were not necessary in 1999.
Net Interest Income - Net interest income for the three months ended March 31,
2000 increased by $10 to $436 from $426 for the three months ended March 31,
1999. The increase is attributable to the increase in the Company's average
balance of loans for the respective period.
Noninterest Expense - Noninterest expense increased for the three months ended
March 31, 2000 by $55 to $380 from $325 for the three months ended March 31,
1999. Compensation cost increased for the quarter by $10 and audit, legal and
other professional costs increased $63. These increases were partially offset by
a $16 decrease in data processing expenses and a $10 decrease in other
noninterest expense.
Six months ended March 31, 2000 compared to six months ended March 31, 1999
Net Income -The Company's net income for the six months ended March 31, 2000 was
$139 compared to $129 for the six months ended March 31, 1999. The increase is
mainly attributable to an increase in net interest income, offset by an increase
in noninterest expenses.
Interest Income - Interest income increased $70 from $1,622 to $1,692 or by
4.32%, during the six months ended March 31, 2000 compared to the respective
period of 1999. This increase resulted from an increase in the average balance
of interest earning assets and a consistent yield.
Interest Expense - Interest expense increased $21 or 2.63%, to $818 for the six
months ended March 31, 2000 from $797 for the same period in 1999. The increase
in interest expense on borrowings of $36 was offset by a decrease in interest
expense on deposits of $15 due to decreasing cost of funds which is consistent
with market conditions.
Net Interest Income - Net interest income for the six months ended March 31,
2000 was $874 compared to $825 for the six months ended March 31, 1999. The
increase is attributable to an increase in loans and deposits during the period
combined with a slight increase in the net interest margin.
Noninterest Expense - Noninterest expense increased for the six months ended
March 31, 2000 by $95 to $765 from $670 for the six months ended March 31, 1999.
Audit, legal and other professional costs increased $76 due to the pending
merger. In addition, compensation costs increased $10 and data processing costs
increased $11. These increases were partially offset by a $7 decrease in other
noninterest expense.
Provision for Loan Losses - The allowance for loan losses is established through
a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and the general economy. Such evaluation
considers numerous factors including, general economic conditions, loan
portfolio composition, prior loss experience, the estimated fair value of the
underlying collateral and other factors that warrant recognition in providing
for an adequate loan loss allowance. During the six months ended March 31, 2000
and 1999, the provision for loan losses was $17 and $36, respectively.
Allowance for Loan Losses - The allowance for loan losses was $220 or .73% of
loans receivable at March 31, 2000, compared to $222, or .76% of loans
receivable at September 30, 1999. The level of nonperforming loans was .40% of
total loans at March 31, 2000 compared to .70% as of September 30, 1999. Based
on the relationship of the allowance for loan losses to total loans and
classified assets and the focus on identifying and resolving problem loan
situations, management believes the allowance for loan losses is adequate.
Net charge-offs amounted to $19 during the first six months of fiscal year 2000,
compared to net charge-offs of $11 during the first six months of fiscal year
1999.
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely. The
allowance is an amount that management believes will be adequate to absorb
losses on existing loans that may become uncollectible, based on evaluation of
the collectibility of loans and prior loss experience. The evaluation also takes
into consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans and
current economic conditions that may affect the borrowers' ability to pay. While
management uses the best information available to make its evaluation, future
adjustments to the allowance may be necessary if there are significant changes
in economic conditions. In addition, regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses, and may require the Bank to make additions to the allowance based on
their judgment about information available to them at the time of their
examinations.
Loans are considered impaired when, based on current information and events, it
is probable that the Bank will not be able to collect all amounts due. The
portion of the allowance for loan losses applicable to impaired loans has been
computed based on the present value of the estimated future cash flows of
interest and principal discounted at the loan's effective interest rate or on
the fair value of the collateral for collateral dependent loans. The entire
change in present value of expected cash flows of impaired loans or of
collateral value is reported as bad debt expense in the same manner in which
impairment initially was recognized or as a reduction in the amount of bad debt
expense that otherwise would be reported. As of March 31, 2000 and September 30,
1999, management had not identified any loans as impaired.
Nonperforming Assets
At March 31, 2000, the Bank had $121, of nonperforming assets, representing .25%
of total assets. On September 30, 1999, the Bank had $205 of nonperforming
assets, representing .42% of total assets.
Impact on Inflation and Changing Prices
The unaudited consolidated financial statements and related data presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and results of
operations in terms of historical dollars without considering changes in the
relative purchasing power of money over time because of inflation. Unlike most
industrial companies, virtually all of the assets and liabilities of the Company
are monetary in nature. As a result, interest rates have a more significant
impact on the Company's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is, from time to time, a party to legal proceedings arising
in the ordinary course of its business, including legal proceedings to enforce
its rights against borrowers. The Company is not currently a party to any legal
proceedings which could reasonably be expected to have a material adverse effect
on the consolidated financial condition or operations of the Company.
In May 1999, a shareholder of CSB Financial Inc. filed a class action
lawsuit in a Delaware court against the Company, its top executive and its
directors for breach of fiduciary duty for failure to put an acquisition offer
to shareholder vote. The class action is seeking buyout of current shares at
$14.75 (offered purchase price).
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8K
Exhibits:
None.
Reports on Form 8K:
Form 8K was filed on January 27, 2000 announcing that CSB Financial
Group, Inc. had signed a definitive Merger Agreement providing for
Midland States Bancorp's acquisition of CSB Financial Group, Inc.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CSB Financial Group, Inc.
Date: May 15, 2000 /s/ K. Gary Reynolds
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K. Gary Reynolds
Chief Executive Officer and Director
Date: May 15, 2000 /s/ Joanne Ticknor
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Joanne Ticknor
Secretary and Treasurer