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, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-21714 CSB Bancorp, Inc. (Exact name of registrant as specified in its charter) Ohio 34-1687530 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 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 1,303,041 shares outstanding at August 8,1997. FORM 10-Q QUARTER ENDED JUNE 30, 1997 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 18 Signatures 20 CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, December 31, 1997 1996 ASSETS Cash and noninterest-bearing deposits with banks $ 6,689,245 $ 7,647,790 Interest-bearing deposits with banks 168,277 5,669,966 Federal funds sold 5,450,000 17,000,000 ----------- ------------ Total cash and cash equivalents 12,307,522 30,317,756 Time deposits with banks 3,000,000 3,000,000 Securities available for sale, at fair value 30,941,056 14,890,413 Securities held to maturity (Estimated fair values of $53,448,149 in 1997 and $37,970,342 in 1996) 52,721,182 37,493,467 Total loans 166,800,843 165,151,298 Allowance for loan losses 2,223,924 2,120,845 ----------- ----------- Net loans 164,576,919 163,020,453 Premises and equipment, net 2,798,034 2,563,216 Accrued interest receivable and other assets 3,869,360 2,849,875 ----------- ----------- Total assets $270,214,073 $254,135,180 ============ =========== LIABILITIES Deposits Noninterest-bearing $ 21,322,910 $ 21,391,610 Interest-bearing 205,102,847 191,947,974 ----------- ----------- Total 226,425,757 213,339,584 Securities sold under agreements to repurchase 5,060,044 4,738,173 Federal Home Loan Bank borrowings 12,257,758 11,741,515 Accrued interest payable and other liabilities 1,025,542 889,428 ----------- ----------- Total liabilities 244,769,101 230,708,700 SHAREHOLDERS' EQUITY Common stock ($6.25 par value; 3,000,000 shares authorized; 1,306,241 and 1,298,372 shares issued in 1997 and 1996, respectively) 8,164,008 8,114,826 Additional paid-in capital 4,774,086 4,520,502 Retained earnings 12,534,286 10,818,500 Treasury stock at cost: 3,200 shares (56,000) (56,000) Unrealized gain on securities available for sale, net of tax 28,592 28,652 ---------- ---------- Total shareholders' equity 25,444,972 23,426,480 ---------- ---------- Total liabilities and shareholders' equity $270,214,073 $254,135,180 =========== ============= See notes to the consolidated financial statements. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 Interest income Interest and fees on loans $4,066,951 $3,868,580 $ 8,101,361 $7,796,561 Interest on securities Taxable 897,670 461,259 1,505,016 1,008,216 Nontaxable 344,309 252,096 621,999 497,708 Other interest income 148,649 171,972 460,397 263,295 --------- --------- ---------- --------- Total interest income 5,457,579 4,753,907 10,688,773 9,565,780 --------- --------- ---------- --------- Interest expense Interest on deposits 2,426,912 1,996,777 4,704,140 4,097,284 Other interest expense 240,058 137,945 479,086 222,703 --------- --------- ---------- --------- Total interest expense 2,666,970 2,134,722 5,183,226 4,319,987 --------- --------- ---------- --------- Net interest income 2,790,609 2,619,185 5,505,547 5,245,793 Provision for loan losses (Note 4) 98,736 100,000 200,424 200,000 -------- -------- ---------- --------- Net interest income after provision for loan losses 2,691,873 2,519,185 5,305,123 5,045,793 --------- --------- --------- ---------- Other income Service charges on deposit accounts 164,118 153,967 335,782 302,462 Other operating income 128,495 125,939 214,424 226,889 Gain on sale of loans 220,176 Security losses (6,069) (7,763) --------- --------- --------- ---------- Total other income 292,613 273,837 770,382 521,588 --------- --------- --------- ---------- Other expense Salaries and employee benefits 777,962 751,489 1,514,804 1,470,955 Occupancy expense 73,607 90,138 157,349 186,295 Equipment expense 114,026 112,657 221,949 218,177 State franchise tax 86,752 76,440 169,111 141,750 Other operating expense 488,802 459,905 970,674 889,219 --------- --------- ---------- ---------- Total other expense 1,541,149 1,490,629 3,033,887 2,906,396 --------- --------- ---------- ----------- See notes to the consolidated financial statements. CONSOLIDATED STATEMENTS OF INCOME (CONTINUED) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 Income before federal income taxes $1,443,337 $1,302,393 $3,041,618 $2,660,985 Provision for income taxes 460,001 413,200 883,701 807,800 ---------- --------- ---------- --------- Net income $ 983,336 $ 889,193 $2,157,917 $1,853,185 ========== ========= ========== ========= Earnings per common share $ .76 $ .69 $ 1.66 $ 1.44 ========== ========= ========== ========= Weighted average shares outstanding 1,301,402 1,287,512 1,298,845 1,286,586 ========== ========== ========== ========= See notes to the consolidated financial statements. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 Balance at beginning of period $24,518,736 $21,173,226 $23,426,480 $20,342,763 Net income 983,336 889,193 2,157,917 1,853,185 Common stock issued under the dividend reinvestment program and 401(k) plan 79,794 43,881 302,766 103,811 Cash dividends ($.170 and $.340 per share in 1997; $.125 and $.250 per share in 1996) (221,227) (160,920) (442,131) (321,599) Change in unrealized gain/loss on securities available for sale 84,333 (46,572) (60) (79,352) ---------- ----------- ----------- ----------- Balance at end of period $25,444,972 $21,898,808 $25,444,972 $21,898,808 =========== =========== ========== ============ See notes to the consolidated financial statements. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, 1997 1996 Net cash from operating activities $ 1,359,203 $ 2,310,067 Investing activities Securities available for sale Proceeds from maturities 3,000,000 4,000,000 Purchases (18,957,238) (3,457,641) Securities held to maturity Proceeds from maturities, calls and repayments 4,906,150 7,162,556 Purchases (20,118,784) (1,718,349) Net increase in loans (12,313,578) (3,559,544) Loan sale proceeds 10,766,167 Purchase of premises and equipment, net (437,076) (222,073) ------------ ---------- Net cash from investing activities (33,154,359) 2,204,949 ------------ ---------- Financing activities Net change in deposits 13,086,173 (9,224,952) Net change in repurchase agreements 321,871 (1,576,431) Change in FHLB borrowings 516,243 6,610,866 Cash dividends paid, net of dividend reinvestment (319,799) (238,310) Shares issued for 401(k) Plan 180,434 20,522 ---------- ---------- Net cash from financing activities 13,784,922 (4,408,305) ---------- ---------- Change in cash and cash equivalents (18,010,234) 106,711 Cash and cash equivalents at beginning of period 30,317,756 22,049,697 ---------- ---------- Cash and cash equivalents at end of period $ 12,307,522 $22,156,408 ========== ========== Supplemental disclosures Cash paid for income taxes $ 983,866 $ 705,000 Cash paid for interest 5,192,682 4,358,840 See notes to the consolidated financial statements. NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements include 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, 1997, and results of operations and cash flows for the periods presented. The accompanying consolidated financial statements do not contain all 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, 1996, contains consolidated financial statements and related notes which should be read in conjunction with the accompanying consolidated financial statements. Allowance for Loan Losses: The allowance for loan losses is a valuation allowance, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance required based on past loan loss experience, known and inherent risks in the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loans that, in management's judgement, should be charged-off. Loan impairment is reported when full payment of principal and interest under the loan terms is not expected. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan's existing interest rate, Loans are evaluated for impairment when payments are delayed, typically 90 days or more, or when the internal grading system indicates a doubtful classification. Smaller balance homogeneous loans are evaluated for impairment in total. Such loans include residential first mortgage loans secured by one- to four-family residences, residential construction loans and automobile, home equity and second mortgage loans less than $100,000. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. 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. NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Accounting Pronouncements: Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," revises accounting treatment for transfers of financial assets, such as loans and securities, and for distinguishing between sales and secured borrowings. SFAS No. 125 did not materially impact the Company's financial statements for the second quarter of 1997. SFAS No. 128, "Earnings Per Share," is effective for financial statements issued after December 15, 1997 and simplifies the calculation of earnings per share (EPS) by replacing primary EPS with basic EPS. SFAS No. 128 will not impact the Company's EPS calculations. 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 - SECURITIES The amortized cost, gross unrealized gains and losses and estimated fair values of the securities, as presented in the consolidated balance sheet at June 30, 1997 and December 31, 1996 are as follows: June 30, 1997 Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value Available for sale Debt securities U.S. Treasury securities $21,010,230 $ 38,589 $ (6,381) $21,043,438 U.S. Government agencies 7,982,405 17,013 (6,900) 7,992,518 ---------- ------- --------- ---------- Total debt securities 28,992,635 56,602 (13,281) 29,035,956 Other securities 1,905,100 1,905,100 ---------- ------- --------- ----------- Total securities available for sale $30,897,735 $ 56,602 $ (13,281) $30,941,056 ========== ======= ========== ========= Held to maturity U.S. Treasury securities $14,081,783 $114,984 $ (14,767) $14,182,000 U.S. Government agencies 9,557,617 20,935 (6,900) 9,571,652 Obligations of state and political subdivisions 29,081,782 695,882 (83,167) 29,694,497 ---------- -------- --------- ---------- Total debt securities held to maturity $52,721,182 $831,801 $(104,384) $53,448,149 ========== ======== ========= ========== NOTE 2 - SECURITIES (Continued) December 31, 1996 Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value Available for sale Debt securities U.S. Treasury securities $11,025,400 $ 47,599 $ (186) $11,072,813 U.S. Government agencies 2,000,000 (4,000) 1,996,000 ---------- ------- ------- ---------- Total debt securities 13,025,400 47,599 (4,186) 13,068,813 Other securities 1,821,600 1,821,600 ---------- ------- --------- ---------- Total securities available for sale $14,847,000 $ 47,599 $ (4,186) $14,890,413 =========== ======== ========= ========== Held to maturity U.S. Treasury securities $11,030,882 $116,799 $ (9,947) $11,137,734 U.S. Government agencies 7,011,135 4,413 (6,361) 7,009,187 Obligations of state and political subdivisions 19,440,275 499,363 (127,342) 19,812,296 Mortgage-backed securities 11,175 (50) 11,125 ----------- -------- --------- ---------- Total debt securities held to maturity $37,493,467 $620,575 $(143,700) $37,970,342 =========== ======== ========== ============ 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 securities were sold during the first six months of 1997 or 1996. 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 debt securities at June 30, 1997, 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. NOTE 2 - SECURITIES (Continued) Estimated Amortized Fair Cost Value Available for sale Debt securities Due in one year or less $10,978,488 $11,000,312 Due in one to five years 18,014,147 18,035,644 ---------- ---------- Total debt securities available for sale $28,992,635 $29,035,956 ========== ========== Held to maturity Debt securities Due in one year or less $10,393,505 $10,424,917 Due in one to five years 18,662,114 18,910,006 Due in five to ten years 13,156,309 13,488,909 Due after ten years 10,509,254 10,624,317 ---------- ---------- Total debt securities held to maturity $52,721,182 $53,448,149 ========== ========== NOTE 3 - LOANS Total loans as presented on the balance sheet are comprised of the following classifications: June 30, 1997 December 31, 1996 Commercial $ 79,801,828 $ 73,404,483 Commercial real estate 24,339,622 22,991,254 Residential real estate 42,321,129 49,254,612 Installment and credit card 18,319,211 16,730,089 Construction 2,019,053 2,760,860 ------------ ----------- Total loans $166,800,843 $165,141,298 ============ ============ During the first six months of 1997, the Bank received $10,776,167 in proceeds from mortgage loan sales. A gain of $220,176 was recognized on this sale. No loans were sold during the first six months of 1996. NOTE 4 - ALLOWANCE FOR LOAN LOSSES A summary of activity in the allowance for loan losses for the six months ended June 30, 1997 and 1996 is as follows: 1997 1996 Balance - January 1 $2,120,845 $1,830,250 Loans charged off (124,835) (54,463) Recoveries 27,490 15,077 Provision for loan losses 200,424 200,000 --------- --------- Balance - June 30 $2,223,924 $1,990,864 ========= ========= Information regarding impaired loans at June 30, 1997 and December 31, 1996 is as follows: June 30, December 31, 1997 1996 Balance of impaired loans $1,387,000 $961,000 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 $1,387,000 $961,000 Portion of allowance for loan losses allocated to the impaired loan balance $ 522,000 $336,000 Information regarding impaired loans is as follows for the six months ended June 30, 1997 and 1996: 1997 1996 Average investment in impaired loans $1,174,000 $271,000 Interest income recognized on impaired loans including interest income recognized on cash basis 35,849 None Interest income recognized on impaired loans on cash basis 30,851 None NOTE 5 - FEDERAL HOME LOAN BANK BORROWINGS At June 30, 1997, the Bank had 188 outstanding borrowings from the Federal Home Loan Bank (FHLB). These borrowings carry fixed interest rates ranging from 5.60% to 7.15% and maturities of 10, 15, and 20 years. 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 $18,387,000 of qualifying mortgage loans at June 30, 1997. 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, 1997 and December 31, 1996, the contract amount of these instruments, which primarily include commitments to extend credit and standby letters of credit, totaled approximately $36,219,000 and $30,111,000, 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. Occasionally, various contingent liabilities arise that are not recorded in the financial statements, including claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material affect on financial condition or results of operations. ITEM II - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion focuses on the consolidated financial condition of CSB Bancorp, Inc. (the Company) at June 30, 1997, compared to December 31, 1996, and the consolidated results of operations for the quarterly period ending June 30, 1997 compared to the same period in 1996. The purpose of this discussion is to provide the reader with a more thorough understanding of the consolidated financial statements. This discussion should be read in conjunction with the interim consolidated financial statements and related footnotes. Forward-looking statements contained in this discussion involve risks and uncertainties and are subject to change based on various important factors. Actual results could differ from those expressed or implied. 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 that would have such effect if implemented. FINANCIAL CONDITION Total securities increased approximately $31.3 million during the first half of 1997 as cash and federal funds sold resulting from deposit growth and loan sales, as discussed below, were invested in higher-yielding securities. Most of the securities purchased were short-term U.S. Treasury notes classified as available for sale and long-term obligations of state and political subdivisions classified as held to maturity. The Bank anticipates purchasing more securities issued by state and political subdivisions in the future to maximize the tax benefit to the Company. Since one of the primary functions of the securities portfolio is to provide a source of liquidity, it is structured such that security maturities and cash flows satisfy the Company's liquidity needs and asset-liability management requirements. At June 30, 1997, approximately 27% of the securities portfolio matures within one year. Commercial loans increased $6.4 million, or 8.7%, during the first two quarters of 1997. This increase was primarily a result of increased loan demand in the Company's service area as the local economy remains strong. These loans are generally variable-rate and based on the Prime rate. Commercial loans may be unsecured or collateralized by business or farm equipment and are generally of higher risk than residential mortgage loans. In late 1995, the Company began to originate fixed rate one- to four- family mortgage loans, utilizing a matched funds program using FHLB advances of similar maturity to establish an interest rate spread for the estimated duration of the loans. During the first half of 1997, management elected to sell approximately $11 million of the fixed-rate loans. A gain of $220,000 was realized on the sale and the funds were invested in securities. The Bank retained its fixed-rate borrowings from the FHLB to facilitate future fixed rate lending and mitigate volatile rate movements. Management will continue to originate fixed-rate loans, but does not anticipate new borrowings will be necessary in the near term to fund such originations. At June 30, 1997, there were no loans held for sale. Exclusive of the sale of fixed-rate loans, total loans increased approximately $12.6 million or 7.7% during the first six months of 1997. As a percentage of loans, the allowance for loan losses was 1.33% at June 30, 1997 and 1.28% at December 31, 1996. Impaired loans were approximately $1.4 million, or .84% of total loans, at June 30, 1997, compared to .58% of loans at December 31, 1996. Of the impaired loan balance at June 30, 1997, approximately $893,000 related to one creditor whose loans were restructured in early 1997 and are current at June 30, 1997. The other impaired loans were secured by mortgages on real estate and farm and business equipment. These credits are considered in management's analysis of the allowance for loan losses. The Bank made minor investments in premises and equipment during the first half of 1997. However, the Bank has purchased a tract of land in Wayne County with the intent to construct another branch office in late 1997. The Company also acquired land in 1995 to build an operation center in 1998. The Company currently leases space for its operations center. At June 30, 1997, the ratio of loans to deposits was 73.7%, compared to 77.4% at the end of 1996 as total deposits increased approximately $13.1 million, or 6.1%, during the first six months of 1997. Historically, the Bank has experienced a decline in overall deposit balances during the first half of the year. However, in 1997 the Bank received approximately $8.0 million of deposits as a result of a successful bond issue for a local school district. These funds are in a savings account that is expected to deplete gradually over the next two years. Also, aggressive pricing of certificates of deposit provided growth in deposit balances which management expects to continue through the end of the year. Total shareholders' equity was increased in part by year-to-date net income of $2.2 million, less $442,000 of cash dividends declared. The cash dividend represents 20.5% of net income for the first half of 1997. Also contributing to capital was the dividend reinvestment program (DRIP) and the purchase of stock by the Bank's 401(k) retirement plan which increased equity approximately $303,000 during the first half of 1997. The Company and its subsidiary meet all regulatory capital requirements and are considered to be "well capitalized" at June 30, 1997. The Company's ratio of total capital to risk-weighted assets was 15.42% at June 30, 1997, while Tier 1 risk-based capital ratio was 14.18%. Regulatory minimums call for a total risk-based capital ratio of 8%, at least one-half of which must be Tier 1 capital. The Company's leverage ratio was 9.68% at June 30, 1997, which exceeds the regulatory minimum of 3% to 5%. RESULTS OF OPERATIONS Net income for the six months ended June 30, 1997 was $2,158,000, or $1.66 per share, as compared to $1,853,000, or $1.44 per share earned during the same period last year, an increase of $305,000, or 16.5%. Second quarter net income was $983,000, or $.76 per share, in 1997, compared to $889,000, or $.69 per share for the second quarter of 1996. The primary factors contributing to these increases were increases in net interest income and other income. Net interest income was $5,506,000 for the first six months of 1997, a 4.9% increase from 1996. Interest and fees on loans increased $304,000, or 3.9%, which resulted primarily from a higher rate environment and somewhat from a higher volume of loans as the loan sale was not consummated until late March 1997. Also, as deposit funds were invested in securities and federal funds sold, interest on securities increased $621,000 and other interest income increased $197,000 for the first half of 1997, compared to the first half of 1996. Management anticipates using these liquid funds, primarily from federal funds sold and maturities of short-term investments, to fund higher yielding loans. Net interest income for the second quarter of 1997 totaled $2,791,000, up 6.5% from $2,135,000 in 1996. Most of this increase resulted from additional income from the investment purchases. Income from taxable investments increased $436,000 or 94.6% from the second quarter of 1996 to 1997, while income from nontaxable securities increased $92,000 or 36.6% for the same period. Interest expense increased $863,000 for the six months ended June 30, 1997, compared to the six months ended June 30, 1996. Approximately $607,000 of this increase was the result of increased volumes on interest-bearing accounts and aggressive interest rates. Other interest expense increased $154,000, resulting from new borrowings from the FHLB during the second half of 1996. For the second quarter of 1997 compared to the same period in 1996, interest expense on deposits increased $430,000 or 21.5%, while interest expense on FHLB borrowings increased $102,000. These increases were primarily volume related, but were also affected by higher rates being paid for the funds. The provision for loan losses was $99,000 for the second quarter of 1997 and $200,000 during the first half of 1997, which matched the provisions for comparable periods in 1996. These provisions were made in recognition of continued loan origination volume, primarily in the commercial loan portfolio which typically carries a higher risk of loan loss. Other income for the first half of 1997 increased approximately $248,000, primarily as a result of the gain on the sale of loans discussed above and increased deposit service charge income. Noninterest income for the second quarter of 1997 was stable compared to the same period in 1996. Other expenses increased $51,000 or 3.1% for the three months ended June 30, 1997 and $128,000, or 4.4%, for the six months ended June 30, 1997, compared to the same periods in 1996. Management continues to monitor the Company's efficiency ratio by maintaining increases in other operating costs at low levels. Salaries and employee benefits increased by 3.5% in the second quarter and 3.0% for the six month period, and state franchise taxes increased as a result of 1996 earnings retention. Ohio's state franchise tax for financial institutions is based on the level of capital at the previous year-end. The provisions for income taxes of $460,000 for the second quarter and $884,000 during the first half of 1997 reflected an effective rate of 31.9% and 29.0%, which matched the comparable periods in 1996. FORM 10-Q Quarter ended June 30, 1997 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 9, 1997, the Company held the Annual Meeting of Shareholders at which shareholders voted upon the election of three (3) directors for Class I Nominees for three-year terms expiring in 2000. The results of the voting on these matters were as follows: Nominee Votes for Withheld Daniel J. Miller 1,004,427 5,176 Samuel P. Riggle, Jr. 1,004,427 5,176 David C. Sprang 1,004,506 5,097 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 J. Thomas Lang Vivian A. McClelland Samuel M. Steimel Item 5 - Other Information: There are no matters required to be reported under this item. FORM 10-Q Quarter ended June 30, 1997 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K: (a) Exhibits 3.1 Amended Articles of Incorporation of CSB Bancorp, Inc. (incorporated by reference to Registrant's 1994 Form 10-KSB). 3.2 Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to Registrant's Form 10-SB). 4 Form of Certificate of Common Shares of CSB Bancorp, Inc. (incorporated by reference to Registrant's Form 10-SB). 10 Leases for the Clinton Commons, Berlin and Charm Branch Offices of The Commercial and Savings Bank (incorporated by reference to Registrant's Form 10-SB). 11 Statement Regarding Computation of Per Share Earnings (reference is hereby made to Consolidated Statements of Income on page 5 hereof.) 27 Financial Data Schedule (b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter for which this report is filed. 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, 1997 /s/ Douglas D. Akins (Signature) Douglas D. Akins President and Chief Executive Officer Date: August 13, 1997 /s/ Pamela S. Basinger (Signature) Pamela S. Basinger Financial Officer Index to Exhibits Exhibit Sequential Number Description of Document Page 3.1 Amended Articles of Incorporation of CSB Bancorp, Inc. (incorporated by reference to Registrant's 1994 Form 10-KSB). 3.2 Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to Registrant's Form 10-SB). 4 Form of Certificate of Common Shares of CSB Bancorp, Inc. (incorporated by reference to Registrant's Form 10-SB). 10 Leases for the Clinton Commons, Berlin and Charm Branch Offices of The Commercial and Savings Bank (incorporated by reference to Registrant's Form 10-SB). 11 Statement Regarding Computation of Per Share Earnings (reference is hereby made to Consolidated Statements of Income on page 5 hereof.) 27 Financial Data Schedule