UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q _X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: JUNE 30, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-21714 CSB Bancorp, Inc. (Exact name of registrant as specified in its charter) Ohio 34-1687530 (State or other (I.R.S. Employer jurisdiction of incorporation Identification Number) or organization) 6 W. Jackson Street, P.O. Box 232, Millersburg, Ohio 44654 (Address of principal executive offices) (330) 674-9015 (Registrant's telephone number) Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. _X_ Yes No Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Common stock, $6.25 par value Outstanding at August 7, 1996 644,346 common shares CSB BANCORP, INC. FORM 10-Q QUARTER ENDED JUNE 30, 1996 _______________________________________________________________ Part I - Financial Information ITEM 1 - FINANCIAL STATEMENTS (Unaudited) Page Consolidated Balance Sheets . . . . . . . . . . . . . . . . . .3 Consolidated Statements of Income . . . . . . . . . . . . . . .4 Condensed Consolidated Statements of Changes in Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . 6 Condensed Consolidated Statements of Cash Flows . . . . . . . .7 Notes to the Consolidated Financial Statements . . . . . . . . 8 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . 14 Part II - Other Information Other Information . . . . . . . . . . . . . . . . . . . . . . 19 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . .20 CSB BANCORP, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) _______________________________________________________________ June 30, December 31, 1996 1995 ASSETS Cash and noninterest-bearing deposits with banks $10,611,259 $11,449,174 Interest-bearing deposits with banks 6,045,149 2,000,523 Federal funds sold 5,500,000 8,600,000 ----------- ----------- Total cash and cash equivalents 22,156,408 22,049,697 Investment securities available for sale, at fair value (Note 2) 16,361,421 18,001,888 Investment securities held to maturity (Estimated fair values of $32,300,872 in 1996 and $37,377,956 in 1995) (Note 2) 32,159,271 36,638,817 Total loans (Note 3) 156,158,954 152,619,369 Allowance for loan losses (Note 4) 1,990,864 1,830,250 ----------- ----------- Net loans 154,168,090 150,789,119 Premises and equipment, net 2,683,203 2,669,430 Accrued interest receivable and other assets 3,028,668 3,061,292 ----------- ----------- Total assets $230,557,061 $233,210,243 ============ ============ LIABILITIES Deposits Noninterest-bearing deposits $21,962,795 $24,166,742 Interest-bearing deposits 175,067,746 182,088,751 ----------- ----------- Total deposits 197,030,541 206,255,493 Securities sold under agreements to repurchase 2,386,502 3,962,933 Federal Home Loan Bank borrowings (Note 5) 8,561,062 1,950,196 Accrued interest payable and other liabilities 680,148 698,858 ----------- ----------- Total liabilities 208,658,253 212,867,480 ----------- ----------- SHAREHOLDERS' EQUITY Common stock ($6.25 par value; 1,000,000 shares authorized; 645,946 and 644,278 shares issued in 1996 and 1995, respectively) 4,037,163 4,026,738 Additional paid-in capita 4,330,338 4,236,952 Retained earnings 13,597,356 12,065,770 Treasury stock at cost: 1,600 shares (56,000) (56,000) Unrealized gain/(loss) on investment securities available for sale, net of tax (10,049) 69,303 ----------- ----------- Total shareholders' equity 21,898,808 20,342,763 ----------- ----------- Total liabilities and shareholders' equity $230,557,061 $233,210,243 ============ ============ See notes to the consolidated financial statements. CSB BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - --------------------------------------------------------------- Three Months Ended Six Months Ended June 30, June 30, ------- ------- 1996 1995 1996 1995 ---- ---- ---- ---- Interest income Interest and fees on loans $3,868,580 $3,763,330 $7,796,561 $7,212,650 Interest on investment securities Taxable 461,259 466,795 1,008,216 898,189 Nontaxable 252,096 223,921 497,708 442,836 Other interest income 171,972 71,903 263,295 113,491 ---------- ---------- ---------- ---------- Total interest income 4,753,907 4,525,949 9,565,780 8,667,166 ---------- ---------- ---------- ---------- Interest expense Interest on deposits 1,996,777 1,978,409 4,097,284 3,684,699 Other interest expense 137,945 13,414 222,703 22,197 ---------- ---------- ---------- ---------- Total interest expense 2,134,722 1,991,823 4,319,987 3,706,896 ---------- ---------- ---------- ---------- Net interest income 2,619,185 2,534,126 5,245,793 4,960,270 Provision for loan losses (Note 4) 100,000 100,000 200,000 200,000 ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 2,519,185 2,434,126 5,045,793 4,760,270 ---------- ---------- ---------- ---------- Other income Service charges on deposit accounts 153,967 143,945 302,462 275,907 Other operating income 125,939 117,813 226,889 180,771 Investment security losses (6,069) (7,763) ---------- ---------- ---------- ---------- Total other income 273,837 261,758 521,588 456,678 ---------- ---------- ---------- ---------- Other expense Salaries and employee benefits 751,489 780,036 1,470,955 1,422,834 Occupancy expense 90,138 89,169 186,295 180,802 Equipment expense 112,657 95,103 218,177 187,161 FDIC premiums 500 102,238 1,000 200,113 State franchise tax 76,440 64,277 141,750 126,634 Other operating expense 459,405 402,286 888,219 788,787 ---------- ---------- ---------- ---------- Total other expense 1,490,629 1,533,109 2,906,396 2,906,331 ---------- ---------- ---------- ---------- CSB BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (CONTINUED) (Unaudited) __________________________________________________________________ Three Months Ended Six Months Ended June 30, June 30, -------- -------- 1996 1995 1996 1995 ---- ---- ---- ---- Income before federal income taxes 1,302,393 1,162,775 2,660,985 2,310,617 Provision for income taxes 413,200 339,800 807,800 691,300 ---------- ---------- ---------- ---------- Net income $889,193 $822,975 $1,853,185 $1,619,317 ========== ========== ========== ========== Earnings per common share (Note 1) $1.38 $1.29 $2.88 $2.54 ========== ========== ========== ========== Weighted average shares outstanding 643,756 638,400 643,293 638,400 ========== ========== ========== ========== See notes to the consolidated financial statements. CSB BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) - ----------------------------------------------------------------- Three Months Ended Six Months Ended June 30, June 30, -------- -------- 1996 1995 1996 1995 ---- ---- ---- ---- Balance at beginning of period $21,173,226 $17,899,467 $20,342,763 $17,077,554 Net income 889,193 822,975 1,853,185 1,619,317 Common stock issued under the dividend reinvestment program and 401(k) plan 43,881 34,527 103,811 66,324 Cash dividends ($.25 and $.50 per share in 1996; $.20 and $.40 per share in 1995) (160,920) (127,783) (321,599) (255,463) Change in unrealized gain/loss on investment securities available for sale (46,572) 116,446 (79,352) 237,900 ----------- ----------- ----------- ----------- Balance at end of period $21,898,808 $18,745,632 $21,898,808 $18,745,632 =========== =========== =========== =========== See notes to the consolidated financial statements. CSB BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) _________________________________________________________________ Six Months Ended June 30, 1996 1995 Net cash from operating activities $2,310,067 $1,626,607 Investing activities Investment securities available for sale Proceeds from maturities 4,000,000 3,000,000 Purchases (3,457,641) (4,937,036) Investment securities held to maturity Proceeds from maturities, calls and repayments 7,162,556 6,720,000 Purchases (1,718,349) (5,849,178) Net increase in loans (3,559,544) (11,849,844) Loan sale proceeds 306,802 Purchase of premises and equipment, net (222,073) (90,469) ------------ ------------ Net cash from investing activities 2,204,949 (12,699,725) ------------ ------------- Financing activities Net change in deposits (9,224,952) 5,858,329 Net change in repurchase agreements and federal funds purchased (1,576,431) 375,189 FHLB borrowings 6,697,205 Principal payments on FHLB borrowings (86,339) Shares issued for 401(k) Plan 20,522 Cash dividends paid (238,310) (189,139) ------------ ------------ Net cash from financing activities (4,408,305) 6,044,379 ------------ ------------ Change in cash and cash equivalents 106,711 (5,028,739) Cash and cash equivalents at beginning of period 22,049,697 14,686,497 Cash and cash equivalents at end of period $22,156,408 $9,657,758 Supplemental disclosures Cash paid for income taxes $705,000 $758,351 Cash paid for interest 4,358,840 3,627,748 See notes to the consolidated financial statements. CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - ---------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements include the accounts of CSB Bancorp, Inc. ("CSB") and its wholly owned subsidiary, The Commercial and Savings Bank (the "Bank"). All significant intercompany transactions and balances have been eliminated. These interim financial statements are prepared without audit and reflect all adjustments of a normal recurring nature which, in the opinion of management, are necessary to present fairly the consolidated financial position of CSB at June 30, 1996, and its results of operations and cash flows for the periods presented. The accompanying consolidated financial statements do not purport to contain all the necessary financial disclosures required by generally accepted accounting principles that might otherwise be necessary in the circumstances. The Annual Report for CSB for the year ended December 31, 1995, contains consolidated financial statements and related notes which should be read in conjunction with the accompanying consolidated financial statements. The results of operations for the interim periods reported herein are not necessarily indicative of operations to be expected for the entire year. Allowance for Loan Losses: Allowances for losses on impaired loans are determined by calculating the present value of estimated future cash flows, discounted using the loan's effective interest yield. Allowances for losses on impaired loans that are collateral dependent are generally determined based on the estimated fair value of the underlying collateral. A loan is impaired when it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Smaller-balance homogenous loans are evaluated for impairment in total. Such loans include residential first mortgage loans secured by one- to four-family residences, residential construction loans and automobile, home equity and second mortgage loans. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. When analysis of borrower operating results and financial condition indicates that underlying cash flows of the borrower's business are not adequate to meet its debt service requirements, the loan is evaluated for impairment. Often this is associated with a delay or shortfall in payments of 30 days or more. Loans are generally moved to nonaccrual status when 90 days or more past due. These loans are often also considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible. The nature of disclosures for impaired loans is considered generally comparable to prior nonaccrual and renegotiated loans and nonperforming and past due asset disclosures. The carrying value of impaired loans is periodically adjusted to reflect cash payments, revised estimates of future cash flows and increases in the present value of expected cash flows due to the passage of time. Cash payments representing interest income are reported as such and other cash payments are reported as reductions in carrying value. Increases or decreases in carrying value due to changes in estimates of future payments or the passage of time are reported as reductions or increases in bad debt expense. Accounting Pronouncements: Statement of Financial Accounting Standards (SFAS) No. 122, "Accounting for Mortgage Servicing Rights", requires companies that engage in mortgage banking activities to recognize as separate assets rights to service mortgage loans for others. This statement was adopted by the Company on January 1, 1996. Since no loans were sold and no servicing rights were purchased during the first two quarters of 1996, the adoption of this pronouncement did not impact the Company's net income for the period. Income Taxes: The provision for income taxes is based upon the effective income tax rate expected to be applicable for the entire year. NOTE 2 - INVESTMENT SECURITIES The amortized cost, gross unrealized gains and losses and estimated fair values of the investment securities, as presented in the consolidated balance sheet at June 30, 1996 and December 31, 1995 are as follows: June 30, 1996 ---------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ----------------------------------------------------------- Available for sale Debt securities U.S. Treasury securities $11,985,257 $40,927 $(22,725) $12,003,459 U.S. Government agencies 3,009,890 1,672 (35,100) 2,976,462 ----------- ---------- --------- ----------- Total debt securities 14,995,147 42,599 (57,825) 14,979,921 Other securities 1,381,500 1,381,500 ----------- ---------- --------- ----------- Total investment securities available for sale $16,376,647 $42,599 $(57,825) $16,361,421 =========== ========== ========= =========== Held to maturity U.S. Treasury securities $6,051,220 $78,995 $(2,924) $6,127,291 U.S. Government agencies 7,015,278 (64,603) 6,950,675 Obligations of state and political subdivisions 18,372,272 366,728 (230,605) 18,508,395 Mortgage-backed securities 720,501 (5,990) 714,511 ---------- ---------- --------- ----------- Total debt securities held to maturity $32,159,271 $445,723 $(304,122) $32,300,872 =========== ========== ========== =========== December 31, 1995 --------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value -------------------------------------------------- Available for Sale Debt Securities U.S. Treasury securities $11,005,578 $108,609 $(10,437) $11,103,750 Obligations of U.S. government corporations and agencies 6,003,206 8,064 (1,232) 6,010,038 ----------- ---------- --------- ----------- Total debt securities available for sale 17,008,784 116,673 (11,669) 17,113,788 Other securities 888,100 888,100 ----------- ---------- --------- ----------- Total investment securities available for sale $17,896,884 $116,673 (11,669) $18,001,888 =========== ========== ========= =========== Held to maturity U.S. Treasury securities $10,046,860 $223,210 $(1,927) $10,268,143 Obligation of U.S. government corporations and agencies 8,024,229 29,087 (3,566) 8,049,750 Obligations of states and political subdivisions 17,069,361 595,350 (86,483) 17,578,228 Mortgage-backed securities 1,498,367 (16,532) 1,481,835 ----------- ---------- --------- ----------- Total debt securities held to maturity $36,638,817 $847,647 $(108,508) $37,377,956 =========== ========== ========== =========== One agency security of $1,000,000 was transferred from the available-for-sale category to held-to-maturity during the first quarter of 1996. The transfer into held-to-maturity occurred at the fair value of the security on the date of the transfer, which approximated amortized cost. No investment securities were sold during the first six months of 1996 or 1995. Losses on calls of securities held to maturity were $7,763 during the six months ended June 30, 1996. The amortized cost and estimated fair values of investments in debt securities at June 30, 1996, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay the debt obligations prior to their contractual maturities. Estimated Amortized Fair Cost Value Available for sale Debt securities Due in one year or less $9,018,369 $9,044,063 Due in one to five year 5,976,778 5,935,858 ----------- ----------- Total debt securities available for sale $14,995,147 $14,979,921 =========== =========== Held to maturity Debt securities: Due in one year or less $6,098,071 $6,128,491 Due in one to five years 13,452,505 13,636,827 Due in five to ten years 9,250,297 9,218,566 Due after ten years 2,637,897 2,602,477 Mortgage-backed securities 720,501 714,511 ----------- ----------- Total debt securities held to maturity $32,159,271 $32,300,872 =========== =========== NOTE 3 - LOANS Total loans as presented on the balance sheet are comprised of the following classifications: June 30, 1996 December 31, 1995 ------------- ----------------- Commercial $70,694,870 $67,835,818 Commercial real estate 20,867,442 22,857,621 Residential real estate 46,853,454 43,994,813 Installment and credit card 16,295,902 15,453,681 Construction 1,447,286 2,477,436 ------------ ------------ Total loans $156,158,954 $152,619,369 ============ ============ NOTE 4 - ALLOWANCE FOR LOAN LOSSES A summary of activity in the allowance for loan losses for the six months ended June 30, 1996 and 1995 is as follows: 1996 1995 ---- ---- Balance - January 1 $1,830,250 $1,557,547 Loans charged off (54,463) (50,265) Recoveries 15,077 34,505 Provision for loan losses 200,000 200,000 ----------- ----------- Balance - June 30 $1,990,864 $1,741,787 ========== ========== Information regarding impaired loans at June 30, 1996 and December 31, 1995 is as follows: June 30, December 31, 1996 1995 -------- ------------ Balance of impaired loans $254,000 $228,000 Less portion for which no allowance for loan losses is allocated 0 0 -------- -------- Portion of impaired loan balance for which an allowance for credit losses is allocated $254,000 $228,000 ======== ======== Portion of allowance for loan losses allocated to the impaired loan balance $95,000 $40,000 ======== ======== Information regarding impaired loans is as follows for the six months ended June 30, 1996 and 1995: 1996 1995 ---- ---- Average investment in impaired loans for the quarter $271,000 $561,000 Interest income recognized on impaired loans including interest income recognized on cash basis during the quarter None None Interest income recognized on impaired loans on cash basis during the quarter None None CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - ----------------------------------------------------------------- NOTE 5 - FEDERAL HOME LOAN BANK BORROWINGS At June 30, 1996, the Bank had 125 outstanding borrowings from the Federal Home Loan Bank (FHLB) which were used to fund fixed-rate loans. These borrowings carry fixed interest rates ranging from 5.60% to 7.15% and maturities of 10, 15, and 20 years. The Bank matches each borrowing against a fixed rate mortgage loan with a similar maturity. Monthly principal and interest payments are due on the borrowings. In addition, a principal curtailment of 10% of the outstanding principal balance is due on the anniversary date of each borrowing. FHLB borrowings are collateralized by FHLB stock and a blanket pledge on $12,842,000 of qualifying mortgage loans at June 30, 1996. NOTE 6 - CONCENTRATIONS OF CREDIT RISK AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Bank grants residential, consumer, and commercial loans to customers located primarily in Holmes and surrounding counties in Ohio. Most loans are secured by specific items of collateral including business assets, consumer assets and residences. The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet financing needs of its customers. The contract amount of these instruments is not included in the consolidated financial statements. At June 30, 1996 and December 31, 1995, the contract amount of these instruments, which primarily include commitments to extend credit and standby letters of credit, totaled approximately $22,130,000 and $20,381,000, respectively. Since many commitments to make loans expire without being used, the amount does not represent future cash commitments. The exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to make loans and lines and letters of credit is represented by the contractual amount of those instruments. CSB follows the same credit policy to make such commitments as is followed for those loans recorded in the financial statements. In management's opinion, these commitments represent normal banking transactions and no material losses are expected to result therefrom. Collateral obtained upon exercise of the commitments is determined using management's credit evaluations of the borrower and may include real estate and/or business or consumer assets. CSB BANCORP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS - --------------------------------------------------------------- INTRODUCTION The following discussion focuses on the consolidated financial condition of CSB Bancorp, Inc. (the Company) at June 30, 1996, compared to December 31, 1995, and the consolidated results of operations for the quarterly period ending June 30, 1996 compared to the same period in 1995. The purpose of this discussion is to provide the reader with a more thorough understanding of the consolidated financial statements. This discussion should be read in conjunction with the interim consolidated financial statements and related footnotes. The registrant is not aware of any trends, events or uncertainties that will have or are reasonably likely to have a material effect on the liquidity, capital resources or operations except as discussed herein. Also, the Registrant is not aware of any current recommendations by regulatory authorities which would have such effect if implemented. The Company cautions that any forward looking statements contained in this report, in a report incorporated by reference to this report or made by management of the Company involve risks and uncertainties and are subject to change based on various important factors. Actual results could differ materially from those expressed or implied. FINANCIAL CONDITION Total assets decreased to $230,557,061 at June 30, 1996, compared to $233,210,243 at December 31, 1995. This decrease of $2,653,182, or approximately 1.1% is discussed below. The Company's cash and cash equivalents increased $106,711, from $22,049,697 at December 31, 1995 to $22,156,408 at June 30, 1996. Frequent changes in this component of assets is not uncommon and are primarily determined by the timing and volume of clearing items. Total investment securities decreased $6,120,013 from $54,640,705 at December 31, 1995 to $48,520,692 at June 30, 1996. Proceeds from maturities of securities were replaced with new securities or used to fund loan demand. Securities called by the issuer resulted in a loss of $7,763 in the first six months of 1996. During the first six months of 1996, the Company purchased additional stock of the Federal Home Loan Bank of Cincinnati to increase its borrowing capacity to fund residential loan demand. The Company's mortgage-backed securities portfolio is comprised of two U.S. Government agency issued REMICs (Real Estate Mortgage Investment Conduits) with total unamortized premiums of approximately $3,000 at June 30, 1996. The risk of early repayment of these REMICs would not have a significant impact on the Company's earnings. The Company's investment in structured notes is limited to $1 million in "multistep bonds", the interest rate of which periodically increases to predetermined levels throughout the life of the security, unless called by issuer. At June 30, 1996, the ratio of gross loans to deposits was 79.3%, as compared to 74.0% at the end of 1995. The increase in this ratio resulted from continued loan demand within our local market area and a $9.2 million decrease in total deposits during the period. Historically, deposit balances have fallen somewhat during the first part of the year. Management believes this is due, in part, to the influence of the tourism and farming industries in the Company's market area, both of which tend to generate more cash in the summer months. Management desires to keep the loan-to-deposit ratio between 75 and 80%. Commercial loans increased $2,859,052 or 4.2% from $67,835,818 at December 31, 1995, to $70,694,870 at June 30, 1996 as commercial demand remained strong within our local service area. Commercial real estate loans decreased $1,990,179 or 8.7%, while residential real estate loans increased approximately $2,858,641 or 6.5% at June 30, 1996, compared to December 31, 1995. This increase was comprised of loans secured by one- to four-family dwellings originated in the Company's market area. Late in 1995, the Company began to originate fixed rate mortgage loans, utilizing a matched funds program using Federal Home Loan Bank advances of similar maturities to establish a fixed interest rate spread for the estimated duration of the loans. Loans originated under this program totaled approximately $6.7 million in the first six months of 1996. Management expects to continue this type of lending during the remainder of the year, up to approximately $10 million. Installment and credit card loans increased $842,221 from $15,453,681 at December 31, 1995 to $16,295,902 at June 30, 1996. This increase resulted from Management's intention to increase this portion of the portfolio through additional advertising and promotion with local auto dealerships. Construction loans are down from $2,477,436 at December 31, 1995 to $1,447,286 at June 30, 1996. This is due to the fact that as homes are finished, they are transferred from construction loans into regular real estate mortgages and have not been replaced by new construction originations. As a percentage of loans, the allowance for loan losses was 1.27% at June 30, 1996 and 1.20% at December 31, 1995. Loans past due more than 90 days, plus loans placed on nonaccrual status, were approximately $641,919 or .41% of outstanding balances as of June 30, 1996, compared to $571,000 or .37% of total loans at December 31, 1995. The relative stability of this ratio is the result of generally stable economic conditions. One problem credit represents approximately 44% of this total. This credit, as well as other nonperforming and impaired loans, have been considered in Management's analysis of allowance for loan losses. The allowance for loan losses was 310% of nonperforming loans at June 30, 1996, compared to 320% at December 31, 1995. Net premises and equipment remained relatively stable at $2,683,203 on June 30, 1996, compared to $2,669,430 on December 31, 1995, as purchases approximated depreciation expense. Other components of the asset side of the balance sheet also remained relatively stable. Total deposits decreased $9,224,952 to $197,030,541 at June 30, 1996, compared to $206,255,493 at December 31, 1995. Noninterest-bearing balances were down approximately $2,203,947. Interest-bearing deposit balances were down approximately $7,021,005. This decrease was a result of a deposit promotion that the Bank ran on one-year certificates of deposit during 1995, which was not repeated in 1996. As a result, some customers that took advantage of those higher 1995 promotional rates did not renew at the Bank's rate structure in 1996. Management anticipates deposit growth during the balance of 1996 and may consider a new deposit promotion. Total shareholders' equity of $21,898,808 at June 30, 1996 was 7.65% greater than the balance of $20,342,763 on December 31, 1995. Contributing to this increase was year-to-date net income of $1,853,185 less $321,599 of cash dividends declared. The dividend represents 17.4% of net income for the first half of 1996, compared to 15.8% for the first half of 1995. The unrealized gain on investment securities available for sale was $69,303 at December 31, 1995, and changed to an unrealized loss of ($10,049) at June 30, 1996. Also contributing to the equity increase was the dividend reinvestment program, whereby shareholders may elect to purchase additional shares of the Company's stock in lieu of receiving their cash dividends, and the purchase of stock by the Company's 401(k) retirement plan. As a result of these programs, equity increased $103,811 during the first half of 1996. The Company and its subsidiary meet all regulatory requirements. Its ratio of total capital to risk-weighted assets was 16.84% at June 30, 1996, while its Tier I risk-based capital ratio was 15.59%. Regulatory minimums call for a total risk-based capital ratio of 8%, at least half of which must be Tier I capital. The Company's leverage ratio of 9.50% at June 30, 1996 exceeded the regulatory minimum of 3% to 5%. RESULTS OF OPERATIONS Net income for the six months ending June 30, 1996 was $1,853,185 or 14.4% greater than the $1,619,317 earned during the same period last year. Net income per share basis was $2.88 through June 30, 1996, compared to $2.54 per share for the six months ended June 30, 1995. Net income of $889,193, or $1.38 per share, for the second quarter of 1996 was 8.0% higher than net income for the second quarter of 1995, which was $822,975 or $1.29 per common share. Net interest income for the six months ending June 30, 1996 was $5,245,793, up $285,523 or 5.76% from $4,960,270 in the same period of 1995. The main factor affecting this increase was an increase in interest and fees on loans of $583,911, or 8.1%, which resulted from increased loan volumes and a higher rate environment during 1996 compared to the same time period in 1995. In addition, interest on taxable investment securities increased $110,027, or 12.25% for the first half of 1996, compared to the first half of 1995. This increase resulted primarily from more favorable yields in 1996 than in 1995 and the Company purchasing securities with maturities of one to two years in this higher rate environment. Other interest income increased from $113,491 at June 30, 1995, to $263,295 at June 30, 1996. This increase was largely the result of greater balances in federal funds sold in a higher rate environment. Interest expense increased $613,091, or 16.5% to $4,319,987 at June 30, 1996, compared to $3,706,896 for the same period of 1995. This increase was the result of the higher rate environment on interest-bearing accounts, even with lower deposit volumes. Included in this increase was a sharp increase in other interest expense from $22,197 through June 30, 1995, to $222,703 on June 30, 1996. The primary component of this increase was $179,363 interest expense resulting from new borrowings in 1996 from the Federal Home Loan Bank of Cincinnati, Ohio (FHLB). CSB's borrowings from FHLB are for a specific time period at a specific rate, and were used to fund fixed rate, 1-to-4 family residential real estate loans as previously discussed. These same trends were noted in the second quarter of 1996 as net interest income increased 3.4%, from $2,534,126 in the second quarter of 1995 to $2,619,185 in 1996. This resulted from increased loan volumes and a rising rate environment throughout 1996, which benefits the Company since its interest-earning assets reprice quicker than do its interest-bearing liabilities. While the level of net interest income for the remainder of the year depends on future interest rate environment that cannot be predicted with certainty, Management expects quarterly net interest income to remain relatively stable during the remainder of the year. The provision for loan losses was $100,000 and $200,000 for the quarter and six months ending June 30, 1996, respectively, which is the same for the comparable periods in 1995. While indications of loan portfolio quality remain relatively stable, management recorded these provisions due to growth in the loan origination volumes, primarily in the commercial portfolio. Total other income increased $12,079 or 4.6% in the second quarter of 1996, and $64,910 or 14.2% for the first half of 1996, compared to the same periods of 1995. These increases resulted from increased service charge income, fee income and trust services income from the trust department established in 1995, and other increased miscellaneous fees from a growing customer base. Total other expense decreased $42,480, or 2.8% in the second quarter of 1996, as compared to the second quarter of 1995 and remained relatively unchanged for the first six months of 1996 compared to the same period in 1995. Salaries and employee benefits, occupancy expense and equipment expense experienced little change in both the quarter and six months ending June 30, 1996, compared to the same periods in 1995. Other operating expense increased $57,119 for the quarter ending June 30, 1996, as compared to June 30, 1995, and increased $99,432 for the first six months ended June 30, 1996, as compared to the same first six months of 1995, which resulted from a number of small increases including employee education, data processing supplies, automated teller machine and various other expenses. These increases were partially offset by a decrease in Federal Deposit Insurance Corporation (FDIC) premiums of $101,738 for the quarter and $199,113 for the six months ended June 30, 1996. In 1996, the Bank's rate for deposit insurance was reduced to the statutory minimum of $500 per quarter. During most of the first six months of 1995, such premiums were $.23 per $100 of deposits. The provision for income tax of $413,200 for the second quarter of 1996, for an effective tax rate of 31.7%, and $807,800 during the first half of 1996, which reflected an effective rate of 30.4%. These rates are slightly higher than the 29.2% and 29.9% effective rates for the same periods in 1995 as nontaxable income comprised a smaller portion of total operating income. The Company has continued to purchase selected nontaxable securities in late 1995 and 1996 when the taxable equivalent yield compares favorably to taxable securities, considering maturity and any credit risk. CSB BANCORP, INC. FORM 10-Q Quarter ended June 30, 1996 PART II - OTHER INFORMATION - --------------------------------------------------------------- Item 1 - Legal Proceedings: There are no matters required to be reported under this item. Item 2 - Changes in Securities: There are no matters required to be reported under this item. Item 3 - Defaults Upon Senior Securities: There are no matters required to be reported under this item. Item 4 - Submission of Matters to a Vote of Security Holders: On April 10, 1996, the Company held the Annual Meeting of Shareholders at which shareholders voted upon the election of two (2) directors for Class I Nominees for a term expiring in 1999. The results of the voting on these matters were as follows: Nominee Votes for Withheld ------- --------- -------- J. Thomas Lang 531,011 675 Vivian A. McClelland 530,401 1,315 On November 16, 1995, Mr. William F. Hill notified the Company that he decided not to pursue reelection as a director. On the same date, the Board of Directors, pursuant to the Company's Regulations, voted to decrease the number of directors from ten to nine. The following are directors who were not up for election at the meeting and whose terms of office as directors continued after the meeting Douglas D. Akins David W. Kaufman H. Richard Maxwell Daniel J. Miller Samuel P. Riggle, Jr. David C. Sprang Samuel M. Steimel Item 5 - Other Information: There are no matters required to be reported under this item. Item 6 - Exhibits and Reports on Form 8-K: (a) Exhibit 11, Statement re: computation of per share earnings. (Reference is hereby made to Consolidated Statements of Income on page 4, hereof.) (b) Exhibit 27, Financial Data Schedule (c) No reports on Form 8-K filed during the quarter for which this report is filed. CSB BANCORP, INC. SIGNATURES - ----------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CSB BANCORP, INC. (Registrant) Date: August 13, 1996 /S/Douglas D. Akins (Signature) Douglas D. Akins President and Chief Executive Officer Date: August 13, 1996 /S/Robert D. Oswald (Signature) Robert D. Oswald Senior Vice President and Cashier CSB BANCORP, INC. Index to Exhibits ________________________________________________________________ Exhibit 11, Statement re: computation of per share earnings. (Reference is hereby made to Consolidated Statements of Income on page 4, hereof.) Exhibit 27, Financial Data Schedule