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, 1997
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 April 14, 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
March 31, 1997 and September 30, 1996
(in thousands, except share data)
ASSETS March 31, September 30,
1997 1996
- ---------------------------------------------------------------------------------------
(Unaudited) (Audited)
Cash and due from banks ....................................... $ 717 $ 598
Interest-bearing deposits ..................................... 2,183 4,168
-------------------
Cash and cash equivalents ....................... 2,900 4,766
Securities held to maturity ................................... - - 1,987
Securities available for sale ................................. 15,698 14,044
Nonmarketable equity securities ............................... 168 165
Securities purchased under agreements to resell ............... - - 300
Loans ......................................................... 27,551 27,048
Allowance for loan losses ..................................... (147) (117)
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Loans, net ...................................... 27,404 26,931
Premises and equipment ........................................ 606 594
Accrued interest receivable ................................... 320 331
Intangible assets ............................................. 691 722
Other assets .................................................. 209 176
------------------
Total assets .................................... $47,996 $50,016
==================
LIABILITIES:
Deposits:
Demand .................................................. $ 8,573 $ 8,754
Savings ................................................. 3,708 3,779
Time deposits > $100,000 ................................ 1,069 1,889
Other time deposits ..................................... 22,383 22,432
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Total deposits .................................. 35,733 36,854
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Other liabilities .......................................... 53 297
Deferred income taxes ...................................... 177 81
------------------
Total liabilities ............................... 35,963 37,232
------------------
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 ............................................ 8,133 7,586
Retained earnings .......................................... 5,959 5,794
Unrealized (loss) on securities available for sale, net of
income taxes ............................................ (24) (24)
Unearned employee stock ownership plan shares .............. (552) (582)
Management recognition plan ................................ (527) - -
------------------
12,999 12,784
Less cost of treasury stock; 1997 93,150 shares ............ (966) - -
------------------
Total stockholders' equity ...................... 12,033 12,784
------------------
Total liabilities and stockholders' equity ...... $47,996 $50,016
==================
See Notes to Consolidated Financial Statements.
CSB FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended March 31, 1997 and 1996
(Unaudited, in thousands, except per share data)
Six Months Ended
March 31,
------------------
1997 1996
------------------
Interest income:
Loans and fees on loans ...................................... $ 1,076 $ 909
Securities ................................................... 542 519
------------------
Total interest income ............................. 1,618 1,428
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Interest expense on deposits .................................... 812 639
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Net interest income ............................... 806 789
Provision for loan losses ....................................... 45 35
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Net interest income after provision for loan losses 761 754
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Noninterest income:
Service charges on deposits .................................. 38 22
Gain on sale of securities ................................... 39 2
Other ........................................................ 16 10
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Total noninterest income .......................... 93 34
------------------
Noninterest expense:
Compensation and employee benefits ........................... 310 246
Occupancy and equipment ...................................... 43 31
Data processing .............................................. 49 38
Audit, legal and other professional .......................... 67 61
SAIF deposit insurance ....................................... 10 32
Advertising .................................................. 12 13
Other ........................................................ 172 62
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Total noninterest expense ......................... 663 483
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Income before income taxes ........................ 191 305
Income taxes .................................................... 26 107
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Net income ........................................ $ 165 $ 198
==================
Earnings per share .............................................. $ 0.18 $ 0.21
==================
Weighted average shares outstanding ............................. 919,202 956,555
==================
See Notes to Consolidated Financial Statements.
CSB FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 1997 and 1996
(Unaudited, in thousands, except per share data)
Three Months Ended
March 31,
--------------------
1997 1996
--------------------
Interest income:
Loans and fees on loans ...................................... $ 541 $ 507
Securities ................................................... 180 162
--------------------
Total interest income ............................. 721 669
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Interest expense on deposits .................................... 398 318
--------------------
Net interest income ............................... 323 351
Provision for loan losses ....................................... 23 12
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Net interest income after provision for loan losses 300 339
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Noninterest income:
Service charges on deposits .................................. 19 11
Other ........................................................ 9 7
--------------------
Total noninterest income .......................... 28 18
--------------------
Noninterest expense:
Compensation and employee benefits ........................... 164 106
Occupancy and equipment ...................................... 24 16
Data processing .............................................. 23 12
Audit, legal and other professional .......................... 29 25
SAIF deposit insurance ....................................... (11) 16
Advertising .................................................. 7 7
Other ........................................................ 81 49
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Total noninterest expense ......................... 317 231
--------------------
Income before income taxes ........................ 11 126
Income taxes .................................................... (46) 46
--------------------
Net income ........................................ $ 57 $ 80
====================
Earnings per share .............................................. $ 0.06 $ 0.09
====================
Weighted average shares outstanding ............................. 899,936 955,191
====================
CSB FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended March 31, 1997 and 1996
(Unaudited, in thousands)
Six Months Ended
March 31,
--------------------
1997 1996
--------------------
Cash Flows from Operating Activities:
Net income ...................................................... $ 165 $ 198
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses .................................... 45 35
Provision for depreciation ................................... 16 10
Amortization of intangible assets ............................ 31 --
Employee stock ownership plan compensation expense ........... 39 60
Management recognition plan compensation expense ............. 11 --
Deferred income taxes ........................................ 96 --
Gain on sale of securities ................................... (39) (2)
Amortization and accretion on securities ..................... 41 9
Change in assets and liabilities:
(Increase) decrease in accrued interest receivable ......... 11 (47)
(Increase) decrease in other assets ........................ (33) 626
(Decrease) in other liabilities ............................ (244) (135)
---------------------
Net cash provided by operating activities ............ 139 754
---------------------
Cash Flows from Investing Activities:
Securities available for sale:
Purchases .................................................... (1,452) (2,246)
Proceeds from sales .......................................... 369 1,000
Proceeds from maturities and paydowns ........................ 1,414 --
Securities held to maturity:
Purchases .................................................... -- (100)
Nonmarketable equity securities:
Purchases of nonmarketable equity security ................... (3) --
(Increase) decrease in securities purchased under
agreements to resell ......................................... 300 (300)
(Increase) in loans receivable .................................. (518) (2,274)
Purchase of premises and equipment .............................. (28) (7)
---------------------
Net cash provided by (used in) investing activities .. 82 (3,927)
---------------------
Cash Flows from Financing Activities:
(Decrease) in deposits .......................................... $ (1,121) $(10,415)
Proceeds from sale of common stock, net of conversion expenses .. -- 6,920
Purchase of treasury stock ...................................... (966) --
---------------------
Net cash (used in) financing activities .............. (2,087) (3,495)
(Decrease) in cash and cash equivalents .............. (1,866) (6,668)
Cash and cash equivalents at beginning of period ................... 4,766 10,906
---------------------
Cash and cash equivalents at end of period ......................... $ 2,900 $ 4,238
=====================
Supplemental Disclosures:
Cash paid for:
Interest on deposits ....................................... $ 812 $ 639
Income taxes ............................................... $ 47 $ 57
Change in gross unrealized gain/loss on securities available
for sale ................................................... $ -- $ (37)
Change in deferred taxes on unrealized gain/loss on securities
available for sale ......................................... $ -- $ 14
Transfer of securities from held to maturity to available for
sale ....................................................... $ 1,987 $ 7,983
See 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. Centralia Savings Bank is located in Masson 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 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., 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, 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 March 31, 1997 the results of operations for the
three months ended March 31, 1997 and 1996, and the results of operations and
cash flows for the six months ended March 31, 1997 and 1996. All adjustments to
the financial statements were normal and recurring in nature.
Operating results for the three months and six months ended March 31, 1997 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 are determined by dividing net income for the period by the
weighted average number of shares of common stock and common stock equivalents
outstanding. Common stock equivalents assume exercise of stock options and use
of proceeds to purchase treasury stock at the average market price for the
period. Shares awarded under the management recognition plan are considered
outstanding as common stock equivalents at the issuance date. 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
$37,000 for the six months ended March 31, 1997. As of March 31, 1997, there
were 69,034 unallocated ESOP shares with a fair value of $785,262.
Note 5. Stock Option Plan
At the annual stockholder's meeting on May 22, 1996, the Stock Option Plan
("SOP") was approved. The board has reserved an amount of stock equal to,
103,500 shares, or 10% of the common stock sold in the conversion for issuance
under the SOP. The options will be 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, 1997, 51,750 options had been granted.
The Board adopted the 1997 Nonqualified Stock Option Plan (SOP) effective
January 9, 1997. The Board has reserved up to 103,500 shares of common stock
under the SOP. The options will be 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, 1997, no options had been
granted.
Note 6. Management Recognition Plan
The Management Recognition Plan ("MRP") was approved with an effective date of
October 10, 1996 and amended on January 9, 1997. The MRP intends to purchase
with funds provided by the Company, whether in the open market or from the
Holding Company in the form of newly issued shares, 62,100 shares, or 6% of the
aggregate number of shares of Common Stock issued and sold in connection with
the Conversion for issuance to officers, directors, and employees of the Holding
Company. 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, 1997, 20,700 shares have been awarded to
officers, directors, and employees. MRP compensation expense was $11,000 for the
six months ended March 31, 1997. The bank accounts for its MRP in accordance
with Accounting Principle Board Statement 25. Compensation expense is recognized
over the vesting period for shares awarded under the plan.
Note 7. New Accounting Standards
Statement of Financial Accounting Standard No. 128, "Earnings per Share" (FAS
128), was issued in February 1997 by the Financial Accounting Standards Board.
The Statement replaces the presentation of primary earnings per share (EPS) with
a presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for entities with complex
capital structures. Basic EPS is computed as net income available to common
stockholders divided by the weighted average common shares outstanding. The
Statement is effective for financial statements issued for periods ending after
December 15, 1997. The Company does not believe the adoption of the Statement
will have a material impact on the consolidated financial statements.
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 March 31, 1997 and September 30, 1996,
cash and cash equivalents totaled $2.9 million and $4.8 million, respectively.
The decrease in cash and cash equivalents is due to the repurchase of treasury
shares and the maturity of the Bank's time deposits.
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 March 31,
1997, the Bank had no outstanding advances from the FHLB.
At March 31, 1997, the Bank had no outstanding commitments to originate loans.
Regulatory Capital
Federally insured savings associations such as the Bank are required to maintain
a minimum level of regulatory capital. The Corporation and its subsidiary have
capital ratios which substantially exceed all regulatory requirements. The
Corporation's capital ratios are shown below.
March 31, September 30, Minimum
1997 1996 Requirements
-------------------------------------
Total capital to risk weighted assets ........ 55.70% 60.30% 8.0%
Tier I capital to risk weighted assets ....... 55.00% 56.40% 4.0%
Tier I capital to average assets ............. 25.61% 27.72% 4.0%
Financial Condition
Total assets decreased $2,020,000 to $47,996,000 at March 31, 1997 from
$50,016,000 at September 30, 1996. Cash and cash equivalents comprise the
majority of the decrease with a decrease of $1,866,000. Cash and cash
equivalents decreased during the period due to the purchase of treasury stock
and the maturity of time deposits.
The increase in loans of $503,000 since September 30, 1996 was in the mortgage
and commercial real estate markets. This growth in loans is a result of
continued expansion into the commercial loan market started in early 1995.
The decrease in securities and securities purchased under agreements to resell
of $630,000 since September 30, 1996 was used to fund the increased loan demand.
Results of Operations
Three months ended March 31, 1997 compared to three months ended March 31, 1996
Net Income - The Company's net income for the three months ended March 31, 1997
was $59,000 compared to $80,000 for the three months ended March 31, 1996. The
decrease in net income resulted primarily from an increase in compensation costs
associated with the Employee Stock Option Plan, the Management Recognition Plan,
and the addition of personnel due to the acquisition of the Carlyle branch in
September 1996.
Interest Income - Interest income increased for the three months ended March 31,
1997 by $52,000 to $721,000 from $669,000 for the three months ended March 31,
1996. This increase is a result of the increase in the volume of loans held by
the Bank due to continued focus on commercial and mortgage loan growth.
Interest Expense - Interest expense increased for the three months ended March
31, 1997 by $80,000 to $398,000 from $318,000 for the three months ended March
31, 1996. This increase results from an increase in the cost of funds associated
with time deposits purchased in the Carlyle branch acquisition.
Net Interest Income - Net interest income for the three months ended March 31,
1997 decreased by $28,000 to $323,000 from $351,000 for the three months ended
March 31, 1996. The decrease is attributable to an increase in the rates paid on
certificates of deposit associated with the Carlyle branch acquisition combined
with the sale of higher interest earning investments in the first quarter.
The increase in noninterest expense of $84,000 is attributable to an increase of
$56,000 in compensation and employee benefits expense related to the employee
stock option plan, Management Recognition Plan, and to the addition of personnel
due to the acquisition of the Carlyle branch in September 1996. Additionally,
the increase in noninterest expense is attributable to amortization expense of
intangible assets related to the Carlyle acquisition totaling $16,000.
The Company continues to fund the allowance for loan losses as they
conservatively monitor their portfolio. The provision for the three months ended
March 31, 1997 was $23,000 compared to $12,000 for the three months ended March
31, 1996.
Six months ended March 31, 1997 compared to six months ended March 31, 1996
Net Interest Income - Net interest income for the six months ended March 31,
1997 was $806,000 compared to $789,000 for the six months ended March 31, 1996.
The increase is attributable to an increased loan base associated with the
Carlyle branch acquisition on September 13, 1996. The decrease for the three
months ended March 31, 1997 as compared to the three months ended March 31, 1996
is due to the sale of higher interest earning assets in order to purchase
treasury stock and provide for repayment of matured time deposits.
Interest Income - Interest income increased $190,000 from $1,428,000 to
$1,618,000 or by 13.3%, during the six months of 1997 compared to the respective
period of 1996. This increase resulted from an increase in loan portfolio due to
the Carlyle branch acquisition combined with continued mortgage and commercial
loan growth.
Interest Expense - Interest expense increased $173,000 or 27%, to $812,000 for
the six months ended March 31, 1997 from $639,000 for the same period in 1996.
The increase was primarily attributable to the increase in the deposit base
associated with the Carlyle acquisition in September 1996.
Net Income -The Company's net income for the six months ended March 31, 1997 was
$167,000 compared to $198,000 for the six months ended March 31, 1996. The
decrease is a result of increased compensation expense associated with the
Employee Stock Option Plan, Management Recognition Plan, and the additional
personnel at the Carlyle branch. Amortization of intangible assets related to
the Carlyle branch acquisition also contributed to the decrease in net income.
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, 1997
and 1996, the provision for loan losses was $45,000 and $35,000, respectively.
Allowance for Loan Losses - The allowance for loan losses was $147,000 or .53%
of loans receivable at March 31, 1997, compared to $117,000, or .43% of loans
receivable at September 30, 1996. The level of nonperforming loans was 1.29% of
total loans at March 31, 1997 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.
Net charge-offs amounted to $7,000 during the second quarter of 1997 and
$15,000 during the first six months of 1997, compared to net charge-offs of
$33,000 during the second quarter of 1996 and for the first six months of 1996.
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, 1997 and September 30,
1996, management had not identified any loans as impaired.
The Bank's effective tax rate for the six months ended March 31, 1997 and 1996
was approximately 13.5% and 35.1%, respectively.
Nonperforming Assets
At March 31, 1997, the Bank had $356,000, of nonperforming assets, .74% 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:
None.
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 13, 1997 /s/ K. Gary Reynolds
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K. Gary Reynolds
Chief Executive Officer and Director
Date: May 13, 1997 /s/ Joanne Ticknor
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Joanne Ticknor
Secretary and Treasurer