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 December 31, 1996
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.
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(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
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(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 February 11, 1997
- ----------------------------- ---------------------------------------
Common Stock, Par Value $0.01 941,850
Contents
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
- Consolidated Statements of Financial Condition
- Consolidated Statements of 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
December 31, 1996 and September 30, 1996
(in thousands, except share data)
December September
ASSETS 31, 30,
1996 1996
- --------------------------------------------------------------------------------------
(Unaudited) (Audited)
Cash and due from banks ....................................... $ 915 $ 598
Interest-bearing deposits ..................................... 1,701 4,168
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Cash and cash equivalents ....................... 2,616 4,766
Securities held to maturity ................................... - 1,987
Securities available for sale ................................. 15,291 14,044
Nonmarketable equity securities ............................... 168 165
Securities purchased under agreements to resell ............... - 300
Loans ......................................................... 27,832 27,048
Allowance for loan losses ..................................... (131) (117)
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Loans, net ...................................... 27,701 26,931
Premises and equipment ........................................ 610 594
Accrued interest receivable ................................... 332 331
Intangible assets ............................................. 706 722
Other assets .................................................. 103 176
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Total assets .................................... $47,527 $50,016
======= =======
LIABILITIES:
Deposits:
Demand .................................................. $ 8,352 $ 8,754
Savings ................................................. 3,702 3,779
Time deposits > $100,000 ................................ 1,594 1,889
Other time deposits ..................................... 21,686 22,432
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Total deposits .................................. 35,334 36,854
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Other liabilities .......................................... 55 297
Deferred income taxes ...................................... 183 81
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Total liabilities ............................... 35,572 37,232
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COMMITMENTS, CONTINGENCIES AND CREDIT RISK
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; 100,000 shares authorized;
none issued and outstanding - - - -
Common stock, $0.01 par value; authorized 2,000,000 shares;
1,035,000 shares issued ................................. 10 10
Paid-in capital ............................................ 7,588 7,586
Retained earnings .......................................... 5,902 5,794
Unrealized (loss) on securities available for sale, net of
income taxes ............................................ (12) (24)
Unearned employee stock ownership plan shares .............. (567) (582)
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12,921 12,784
Less cost of treasury stock; 1996 93,150 shares ............ (966) - -
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Total stockholders' equity ...................... 11,955 12,784
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Total liabilities and stockholders' equity ...... $47,527 $50,016
======= =======
See Accompanying Notes to Consolidated Financial Statements.
CSB FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended December 31, 1996 and 1995
(Unaudited, in thousands, except per share data)
Three Months Ended
December 31,
-----------------
1996 1995
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Interest income:
Loans and fees on loans ...................................... $ 535 $ 402
Securities ................................................... 362 357
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Total interest income ............................. 897 759
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Interest expense on deposits .................................... 414 321
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Net interest income ............................... 483 438
Provision for loan losses ....................................... 22 23
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Net interest income after provision for loan losses 461 415
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Noninterest income:
Service charges on deposits .................................. 19 11
Gain on sale of securities ................................... 39 -
Other ........................................................ 7 5
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Total noninterest income .......................... 65 16
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Noninterest expense:
Compensation and employee benefits ........................... 146 96
Occupancy and equipment ...................................... 19 15
Data processing .............................................. 26 26
Audit, legal and other professional .......................... 38 36
SAIF deposit insurance ....................................... 21 16
Advertising .................................................. 5 6
Other ........................................................ 91 57
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Total noninterest expense ......................... 346 252
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Income before income taxes ........................ 180 179
Income taxes .................................................... 72 61
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Net income ........................................ $ 108 $ 118
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Earnings per share .............................................. $ 0.12 $ 0.12
======= =======
Weighted average shares outstanding ............................. 920,332 952,263
======= =======
See Accompanying Notes to Consolidated Financial Statements.
CSB FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended December 31, 1996 and 1995
(Unaudited, in thousands)
Three Months Ended
December 31,
-----------------
1996 1995
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Cash Flows from Operating Activities:
Net income ........................................................... $ 108 $ 118
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses ......................................... 22 23
Provision for depreciation ........................................ 6 5
Amortization of goodwill .......................................... 16 --
Employee stock ownership plan compensation expense ................ 17 --
Deferred income taxes ............................................. 95 29
Gain on sale of securities ........................................ (39) --
Amortization and accretion on securities .......................... 24 21
Change in assets and liabilities:
(Increase) decrease in accrued interest receivable .............. (1) (14)
Decrease in other assets ........................................ 73 606
(Decrease) in other liabilities ................................. (242) (100)
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Net cash provided by operating activities ................. 79 688
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Cash Flows from Investing Activities:
(Increase) decrease in securities purchased under agreements to resell 300 (300)
Purchase of securities available for sale ............................ (952) (2,901)
Purchase of securities held to maturity .............................. -- (100)
Proceeds from sales of securities held available for sale ............ 369 --
Proceeds from maturities of securities available for sale ............ 1,357 --
Proceeds from maturities of securities held to maturity .............. -- 500
Purchase of nonmarketable equity securities .......................... (3) --
(Increase) in loans receivable ....................................... (792) (1,474)
Purchase of premises and equipment ................................... (22) (5)
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Net cash provided by (used in) investing activities ....... 257 (4,280)
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(Continued)
CSB FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, (CONTINUED)
Three Months Ended December 31, 1996 and 1995
(Unaudited, in thousands)
Three Months Ended
December 31,
-----------------------
1996 1995
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Cash Flows from Financing Activities:
Increase (decrease) in stock conversion deposits ................ $ -- $ (9,193)
(Decrease) in deposits .......................................... (1,520) (1,248)
Proceeds from sale of common stock, net of conversion expenses .. -- 6,988
Purchase of treasury stock ...................................... (966) --
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Net cash provided by (used in) financing activities .. (2,486) (3,453)
(Decrease) increase in cash and cash equivalents ..... (2,150) (7,068)
Cash and cash equivalents at beginning of period ................... 4,766 10,906
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Cash and cash equivalents at end of period ......................... $ 2,616 $ 3,838
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Supplemental Disclosures:
Cash paid for:
Interest on deposits ....................................... $ 414 $ 321
Income taxes ............................................... $ -- $ --
Change in gross unrealized gain/loss on securities available
for sale ................................................... $ 19 $ 47
Change in deferred taxes on unrealized gain/loss on securities
available for sale ......................................... $ (7) $ (30)
Transfer of securities from held to maturity to available for
sale ....................................................... $ 1,987 $ 8,602
See Accompanying Notes to Consolidated Financial Statements.
CSB FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. 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 trades on the NASDAQ Small Caps market
under the symbol "CSBF".
The acquisition of the Bank by the Company is being 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. and its wholly owned subsidiary, Centralia Savings Bank.
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, 1996. 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 December 31, 1996 the results of operations for the
three months ended December 31, 1996 and 1995. All adjustments to the financial
statements were normal and recurring in nature.
Operating results for the three months ended December 31, 1996 are not
necessarily indicative of the results that may be expected for the year ending
September 30, 1997.
Note 3. Earnings Per Share
Earnings per share is computed based upon the weighted average common shares
outstanding during the period. Unallocated shares of the ESOP are not considered
outstanding.
Note 4. Employee Stock Ownership Plan
In connection with the conversion to the stock form of ownership, the Board of
Directors established an employee stock ownership plan (ESOP) for the exclusive
benefit of participating employees. Employees age 21 or older who have completed
one year of service are eligible to participate. Upon the issuance of the common
stock, the ESOP acquired 82,800 shares of $0.01 par value common stock at the
subscription price of $8 per share. The Bank makes contributions to the ESOP
equal to the ESOP's debt service less dividends received by the ESOP. All
dividends received by the ESOP are used to pay debt service. The ESOP shares
were pledged as collateral for its debt. As the debt is repaid, shares are
released from collateral and allocated to active employees, based on the ratio
of debt service paid to the total original principal plus the interest to be
paid. The Bank accounts for its ESOP in accordance with Statement of Position
93-6. As shares are released from collateral, the Bank reports compensation
expense equal to the current market price of the shares, and the shares become
outstanding for earnings-per-share calculations. ESOP compensation expense was
$16,986 for the three months ended December 31, 1996. As of December 31, 1996,
there were 70,832 unallocated ESOP shares with a fair value of $717,174.
CSB FINANCIAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The principal assets of the Company are its investment in the Bank's common
stock and the net proceeds from the sale of the Company's common stock in
connection with the conversion. 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, mortgage-backed 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 Bank'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 Bank are significantly influenced by general economic
conditions, 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 business strategy is to operate as a well capitalized, profitable and
independent community savings bank dedicated to financing home ownership and
consumer needs in its primary market area. The Bank 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 Bank 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.
Liquidity and Capital Resources
The Bank'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 Bank 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 Bank's liquidity needs for the immediate future.
A portion of the Bank'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 Bank's operating, investing, lending and financing
activities during any given period. At December 31, 1996 and September 30, 1996,
cash and cash equivalents totaled $2.6 million and $4.8 million, respectively.
Liquidity management is both a daily and long-term function of business
management. If the Bank requires funds beyond its ability to generate them
internally, the Bank may borrow additional funds from the FHLB. At December 31,
1996, the Bank had no outstanding advances from the FHLB.
At December 31, 1996, the Bank had $380,000 in outstanding commitments to
originate loans. The Bank anticipates that it will have sufficient funds
available to meet its current loan origination commitments.
Regulatory Capital
Federally insured savings associations such as the Bank are required to maintain
a minimum level of regulatory capital. The capital regulations require
institutions to have tangible capital equal to 1.5% of total adjusted assets (as
defined by regulation), a minimum core capital ratio of 4% of adjusted total
assets, and a risk-based capital ratio of 8% of risk-based assets (as defined by
regulation). The risk-based capital requirement is calculated based on the
credit risk presented by both on-balance-sheet assets and off-balance-sheet
commitments and obligations. Assets are assigned a credit-risk weighting based
upon their relative risk ranging from 0% for assets backed by the full faith and
credit of the United States or that pose no credit risk to the institution to
100% for assets such as delinquent or repossessed assets. As of December 31,
1996, the Bank was in compliance with all of these capital requirements.
Financial Condition
Total assets decreased $2,489,000 to $47,527,000 at December 31, 1996 from
$50,016,000 at September 30, 1996. Cash and cash equivalents decreased
$2,150,000. Cash and cash equivalents decreased during the first quarter due to
the purchase of treasury stock and the maturity of time deposits.
The increase in loans of $784,000 since September 30, 1996 was primarily
commercial real estate. This growth in loans was due to expansion into the
commercial loan market in early 1995.
The decrease in securities of $737,000 since September 30, 1996 was due to the
repurchase of treasury stock combined with a decrease in time deposits.
Results of Operations
Three months ended
Net Income - The Company's net income for the three months ended December 31,
1996 was $108,000 compared to $118,000 for the three months ended December 31,
1995. The decrease in net income resulted primarily from an increase in
compensation costs associated with the Employee Stock Option Plan and the
addition of personnel due to the acquisition of the Carlyle branch in September
1996.
The increase in noninterest expense of $94,000 is attributable to an increase of
$50,000 in compensation and employee benefits expense related to the employee
stock option plan and to the addition of personnel due to the acquisition of the
Carlyle branch in September 1996 and $34,000 in other nonoperating expenses. The
increase in other nonoperating expenses was primarily attributable to
amortization of goodwill from the Carlyle acquisition.
Net Interest Income - Net interest income for the three months ended December
31, 1996 increased by $45,000 to $483,000 from $438,000 for the three months
ended December 31, 1995. The increase is attributable to an increase in the
yield on interest earning assets combined with an increased loan base due to the
acquisition of the Carlyle branch in September 1996.
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 three months ended December 31,
1996 and 1995, the provision for loan losses was $22,000 and $23,000,
respectively.
Allowance for Loan Losses - The allowance for loan losses was $131,000 or .47%
of loans receivable at December 31, 1996, compared to $117,000, or .43% of loans
receivable at September 30, 1996. The level of non-performing loans was 1.33% of
total loans at December 31, 1996 compared to .93% as of September 30, 1996.
Based on current reserve levels in relation to total loans receivable and
classified assets and the diligent effort put forth by management to address
problem loan situations in recent years, management believes its reserves are
currently adequate.
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 December 31, 1996 and September
30, 1996, management had not identified any loans as impaired.
The Bank's effective tax rate for the three months ended December 31, 1996 and
1995 was approximately 40% and 34%, respectively.
Nonperforming Assets
At December 31, 1996, the Bank had $371,000, of nonperforming assets, .78% of
total assets. On September 30, 1996, the Bank had $252,000 of nonperforming
assets, .50% 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
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8K
Exhibits:
None.
Reports on Form 8K:
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: February 13 1997 /s/ K. Gary Reynolds
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K. Gary Reynolds
Chief Executive Officer and Director
Date: February 13 1997 /s/ Joanne Ticknor
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Joanne Ticknor
Secretary and Treasurer