CSB Bancorp, Inc. 10-Q
CSB BANCORP, INC.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: September 30, 2007
OR
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o |
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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)
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Ohio
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34-1687530 |
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(State or other jurisdiction of
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(I.R.S. Employer Identification Number) |
incorporation or organization) |
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91 North Clay, P.O. Box 232, Millersburg, Ohio 44654
(Address of principal executive offices)
(330) 674-9015
(Registrants telephone number)
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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer o Non-accelerated filer þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Indicate the number of shares outstanding of the registrants common stock, as of the latest
practicable date.
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Common stock, $6.25 par value
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Outstanding at November 12, 2007: |
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2,452,948 common shares |
CSB BANCORP, INC.
FORM 10-Q
QUARTER ENDED September 30, 2007
Table of Contents
CSB BANCORP, INC.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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September 30, |
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December 31, |
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2007 |
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2006 |
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ASSETS |
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Cash and due from banks |
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$ |
11,197,845 |
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$ |
12,643,440 |
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Interest-earning deposits in other banks |
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75,179 |
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9,748 |
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Federal funds sold |
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5,000,000 |
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Total cash and cash equivalents |
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11,273,024 |
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17,653,188 |
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Securities available-for-sale, at fair value |
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63,052,850 |
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67,135,126 |
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Restricted stock, at cost |
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3,105,900 |
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3,105,900 |
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Total securities |
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66,158,750 |
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70,241,026 |
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Loans |
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245,626,368 |
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232,431,938 |
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Less allowance for loan losses |
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2,554,489 |
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2,607,118 |
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Net loans |
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243,071,879 |
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229,824,820 |
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Premises and equipment, net |
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7,397,612 |
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7,390,182 |
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Accrued interest receivable and other assets |
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2,219,472 |
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2,130,631 |
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Total Assets |
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$ |
330,120,737 |
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$ |
327,239,847 |
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LIABILITIES |
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Deposits |
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Noninterest-bearing |
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$ |
42,329,684 |
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$ |
44,455,131 |
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Interest-bearing |
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211,264,649 |
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215,722,541 |
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Total deposits |
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253,594,333 |
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260,177,672 |
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Short-term borrowings |
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31,783,926 |
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28,022,077 |
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Other borrowings |
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7,107,511 |
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2,499,399 |
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Accrued interest payable and other liabilities |
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1,686,784 |
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1,470,379 |
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Total liabilities |
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294,172,554 |
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292,169,527 |
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SHAREHOLDERS EQUITY |
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Common stock, $6.25 par value: Authorized 9,000,000
shares; issued 2,667,786 shares |
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16,673,667 |
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16,673,667 |
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Additional paid-in capital |
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6,446,180 |
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6,427,765 |
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Retained earnings |
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17,552,129 |
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16,248,608 |
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Treasury stock at cost: 204,906 shares in 2007 and
168,605 shares in 2006 |
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(4,348,987 |
) |
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(3,696,102 |
) |
Accumulated other comprehensive loss |
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(374,806 |
) |
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(583,618 |
) |
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Total shareholders equity |
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35,948,183 |
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35,070,320 |
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Total Liabilities and Shareholders Equity |
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$ |
330,120,737 |
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$ |
327,239,847 |
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See notes to unaudited consolidated financial statements.
3.
CSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2007 |
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2006 |
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2007 |
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2006 |
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Interest income |
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Loans, including fees |
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$ |
4,633,268 |
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$ |
4,325,203 |
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$ |
13,433,102 |
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$ |
12,294,678 |
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Taxable securities |
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720,952 |
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735,071 |
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2,205,401 |
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2,272,037 |
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Nontaxable securities |
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62,931 |
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95,495 |
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198,060 |
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297,011 |
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Other |
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944 |
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297 |
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16,324 |
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7,136 |
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Total interest income |
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5,418,095 |
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5,156,066 |
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15,852,887 |
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14,870,862 |
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Interest expense |
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Deposits |
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1,608,916 |
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1,440,410 |
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4,763,015 |
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3,880,245 |
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Other |
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419,497 |
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421,566 |
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1,169,545 |
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1,129,321 |
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Total interest expense |
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2,028,413 |
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1,861,976 |
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5,932,560 |
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5,009,566 |
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Net interest income |
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3,389,682 |
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|
3,294,090 |
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|
|
9,920,327 |
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|
|
9,861,296 |
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Provision for loan losses |
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|
151,264 |
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|
75,000 |
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|
353,540 |
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|
221,667 |
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Net interest income after provision
for loan losses |
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|
3,238,418 |
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|
3,219,090 |
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|
9,566,787 |
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|
9,639,629 |
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Non-interest income |
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|
|
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|
|
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|
|
|
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Service charges on deposit
accounts |
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335,536 |
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|
325,029 |
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|
927,894 |
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|
977,755 |
|
Trust and financial services |
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|
188,598 |
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|
135,904 |
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|
|
544,873 |
|
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|
392,495 |
|
Insurance recovery |
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|
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|
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|
|
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|
186,526 |
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Credit card fee income |
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63,818 |
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73,349 |
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|
192,623 |
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|
219,915 |
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Debit card interchange |
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|
85,551 |
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55,322 |
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|
201,354 |
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|
154,426 |
|
Securities gains |
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|
|
|
|
|
|
|
|
5,430 |
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Other income |
|
|
88,778 |
|
|
|
86,738 |
|
|
|
251,573 |
|
|
|
234,401 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total non-interest income |
|
|
762,281 |
|
|
|
676,342 |
|
|
|
2,310,273 |
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|
|
1,978,992 |
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|
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|
|
|
|
|
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|
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|
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Non-interest expenses |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
1,485,842 |
|
|
|
1,538,491 |
|
|
|
4,327,845 |
|
|
|
4,459,994 |
|
Occupancy expense |
|
|
188,166 |
|
|
|
176,360 |
|
|
|
554,439 |
|
|
|
515,104 |
|
Equipment expense |
|
|
131,192 |
|
|
|
118,813 |
|
|
|
372,324 |
|
|
|
376,326 |
|
State franchise tax |
|
|
105,892 |
|
|
|
113,425 |
|
|
|
311,971 |
|
|
|
334,817 |
|
Professional and director fees |
|
|
147,009 |
|
|
|
171,042 |
|
|
|
453,151 |
|
|
|
519,494 |
|
Cash loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
236,526 |
|
Other expenses |
|
|
664,008 |
|
|
|
585,737 |
|
|
|
1,968,762 |
|
|
|
1,877,537 |
|
|
|
|
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|
|
|
|
|
|
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|
Total non-interest expenses |
|
|
2,722,109 |
|
|
|
2,703,868 |
|
|
|
7,988,492 |
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|
|
8,319,798 |
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|
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|
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|
Income before income taxes |
|
|
1,278,590 |
|
|
|
1,191,564 |
|
|
|
3,888,568 |
|
|
|
3,298,823 |
|
Federal income tax provision |
|
|
415,500 |
|
|
|
378,000 |
|
|
|
1,254,500 |
|
|
|
1,034,700 |
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|
|
|
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|
|
|
|
|
|
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|
Net income |
|
$ |
863,090 |
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|
$ |
813,564 |
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|
$ |
2,634,068 |
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|
$ |
2,264,123 |
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|
Basic and diluted earnings per share |
|
$ |
0.35 |
|
|
$ |
0.32 |
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$ |
1.07 |
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|
$ |
0.89 |
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|
|
|
|
|
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|
See notes to unaudited consolidated financial statements.
4.
CSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(Unaudited)
|
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|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
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Nine Months Ended |
|
|
|
September 30, |
|
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September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
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|
2006 |
|
Balance at beginning of period |
|
$ |
35,119,135 |
|
|
$ |
33,798,998 |
|
|
$ |
35,070,320 |
|
|
$ |
35,170,259 |
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
863,090 |
|
|
|
813,564 |
|
|
|
2,634,068 |
|
|
|
2,264,123 |
|
Change in net unrealized
loss, net of reclassification
adjustments and related
income taxes $207,217,
$387,845, $107,570, and
$(36,518), respectively |
|
|
402,244 |
|
|
|
752,875 |
|
|
|
208,812 |
|
|
|
(70,889 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
1,265,334 |
|
|
|
1,566,439 |
|
|
|
2,842,880 |
|
|
|
2,193,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 40 shares from treasury |
|
|
|
|
|
|
|
|
|
|
641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
7,165 |
|
|
|
2,525 |
|
|
|
18,415 |
|
|
|
7,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury shares |
|
|
(131 |
) |
|
|
(414,726 |
) |
|
|
(654,114 |
) |
|
|
(1,603,890 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared
($0.18 and $0.54 per share in
2007 and $0.16 and $0.48
per share in 2006) |
|
|
(443,320 |
) |
|
|
(399,916 |
) |
|
|
(1,329,959 |
) |
|
|
(1,213,858 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
35,948,183 |
|
|
$ |
34,553,320 |
|
|
$ |
35,948,183 |
|
|
$ |
34,553,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited consolidated financial statements.
5.
CSB BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
Net cash from operating activities |
|
$ |
3,067,230 |
|
|
$ |
3,787,731 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Securities available-for-sale: |
|
|
|
|
|
|
|
|
Proceeds from maturities, calls and repayments |
|
|
6,529,688 |
|
|
|
8,715,847 |
|
Purchases |
|
|
(2,156,064 |
) |
|
|
(1,589 |
) |
Purchase of FHLB stock |
|
|
|
|
|
|
(116,700 |
) |
Proceeds from sale of other real estate |
|
|
59,096 |
|
|
|
412,500 |
|
Net change in loans |
|
|
(13,664,910 |
) |
|
|
(15,028,161 |
) |
Premises and equipment expenditures, net |
|
|
(461,715 |
) |
|
|
(187,576 |
) |
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(9,693,905 |
) |
|
|
(6,205,679 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net change in deposits |
|
|
(6,583,339 |
) |
|
|
(5,797,653 |
) |
Net change in short-term borrowings |
|
|
3,761,849 |
|
|
|
10,004,365 |
|
Proceeds from other borrowings |
|
|
5,000,000 |
|
|
|
|
|
Repayment of other borrowings |
|
|
(391,888 |
) |
|
|
(5,473,773 |
) |
Purchase of treasury shares |
|
|
(654,113 |
) |
|
|
(1,603,890 |
) |
Issuance of treasury shares |
|
|
641 |
|
|
|
|
|
Cash dividends paid |
|
|
(886,639 |
) |
|
|
(813,942 |
) |
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities |
|
|
246,511 |
|
|
|
(3,684,893 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(6,380,164 |
) |
|
|
(6,102,841 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
17,653,188 |
|
|
|
16,649,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
11,273,024 |
|
|
$ |
10,547,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
5,816,914 |
|
|
$ |
4,954,291 |
|
Income taxes paid |
|
|
1,560,000 |
|
|
|
655,000 |
|
Non-cash investing activity-transfer of loans to OREO |
|
|
|
|
|
|
39,560 |
|
See notes to unaudited consolidated financial statements.
6.
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed consolidated financial statements include the accounts of CSB Bancorp,
Inc. and its wholly-owned subsidiaries, The Commercial and Savings Bank and CSB Investment
Services, LLC (together referred to as the Company or CSB). All significant intercompany
transactions and balances have been eliminated in consolidation.
The condensed consolidated financial statements have been prepared without audit. In the opinion
of management, all adjustments (which include normal recurring adjustments) necessary to present
fairly the Companys financial position at September 30, 2007, and the results of operations and
changes in cash flows for the periods presented have been made.
Certain information and footnote disclosures typically included in financial statements prepared in
accordance with U.S. generally accepted accounting principles have been omitted. The Annual Report
for CSB for the year ended December 31, 2006, contains consolidated financial statements and
related footnote disclosures, which should be read in conjunction with the accompanying
consolidated financial statements. The results of operations for the period ended September 30,
2007 are not necessarily indicative of the operating results for the full year or any future
interim period.
7.
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 SECURITIES
Securities consist of the following at September 30, 2007 and December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
unrealized |
|
|
unrealized |
|
|
Fair |
|
September 30, 2007 |
|
Cost |
|
|
gains |
|
|
losses |
|
|
Value |
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury security |
|
$ |
99,930 |
|
|
$ |
1,109 |
|
|
$ |
|
|
|
$ |
101,039 |
|
Obligations of U.S.
government
corporations and agencies |
|
|
31,494,529 |
|
|
|
6,922 |
|
|
|
220,991 |
|
|
|
31,280,460 |
|
Mortgage-backed securities |
|
|
26,485,843 |
|
|
|
2,745 |
|
|
|
380,906 |
|
|
|
26,107,682 |
|
Obligations of states and
political subdivisions |
|
|
5,167,316 |
|
|
|
67,302 |
|
|
|
1,329 |
|
|
|
5,233,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
63,247,618 |
|
|
|
78,078 |
|
|
|
603,226 |
|
|
|
62,722,470 |
|
Equity Securities |
|
|
373,120 |
|
|
|
684 |
|
|
|
43,424 |
|
|
|
330,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale |
|
|
63,620,738 |
|
|
|
78,762 |
|
|
|
646,650 |
|
|
|
63,052,850 |
|
Restricted stock |
|
|
3,105,900 |
|
|
|
|
|
|
|
|
|
|
|
3,105,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities |
|
$ |
66,726,638 |
|
|
$ |
78,762 |
|
|
$ |
646,650 |
|
|
$ |
66,158,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
unrealized |
|
|
unrealized |
|
|
Fair |
|
December 31, 2006 |
|
Cost |
|
|
gains |
|
|
losses |
|
|
Value |
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury security |
|
$ |
99,992 |
|
|
$ |
|
|
|
$ |
172 |
|
|
$ |
99,820 |
|
Obligations of U.S.
government
corporations and agencies |
|
|
33,493,189 |
|
|
|
|
|
|
|
576,494 |
|
|
|
32,916,695 |
|
Mortgage-backed securities |
|
|
28,453,336 |
|
|
|
591 |
|
|
|
405,963 |
|
|
|
28,047,964 |
|
Obligations of states and
political subdivisions |
|
|
5,666,915 |
|
|
|
103,482 |
|
|
|
1,103 |
|
|
|
5,769,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
67,713,432 |
|
|
|
104,073 |
|
|
|
983,732 |
|
|
|
66,833,773 |
|
Equity Securities |
|
|
305,965 |
|
|
|
8,194 |
|
|
|
12,806 |
|
|
|
301,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale |
|
|
68,019,397 |
|
|
|
112,267 |
|
|
|
996,538 |
|
|
|
67,135,126 |
|
Restricted stock |
|
|
3,105,900 |
|
|
|
|
|
|
|
|
|
|
|
3,105,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities |
|
$ |
71,125,297 |
|
|
$ |
112,267 |
|
|
$ |
996,538 |
|
|
$ |
70,241,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
CSB BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion focuses on the consolidated financial condition of CSB Bancorp, Inc. and
its subsidiaries (the Company) at September 30, 2007 as compared to December 31, 2006, and the
consolidated results of operations for the quarterly period ending September 30, 2007 compared to
the same period in 2006. 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
Certain statements contained in this report are not historical facts but rather are forward-looking
statements that are subject to certain risks and uncertainties. When used herein, the terms
anticipates, plans, expects, believes, and similar expressions as they relate to the
Company or its management are intended to identify such forward-looking statements. The Companys
actual results, performance or achievements may materially differ from those expressed or implied
in the forward-looking statements. Risks and uncertainties that could cause or contribute to such
material differences include, but are not limited to, general economic conditions, interest rate
environment, competitive conditions in the financial services industry, changes in law,
governmental policies and regulations, and rapidly changing technology affecting financial
services.
The Company does not undertake, and specifically disclaims any obligation, to publicly revise any
forward-looking statements to reflect events or circumstances after the date of such statements or
to reflect the occurrence of anticipated or unanticipated events.
FINANCIAL CONDITION
Total assets were $330.1 million at September 30, 2007, compared to $327.2 million at December 31,
2006, representing an increase of $2.9 million or 0.9%. Cash and cash equivalents decreased $6.4
million, or 36.1%, during the nine-month period ending September 30, 2007, due to a $1.4 million
decrease in cash and due from banks and a $5.0 million decrease in Federal funds sold. Securities
decreased $4.1 million or 5.8% during the first nine months of 2007 primarily due to maturities and
principal repayments. Net loans increased $13.2 million, or 5.8%, while deposits decreased $6.6
million, or 2.5%, during the nine-month period. Short-term borrowings of Federal funds purchased,
securities sold under repurchase agreement and Federal Home Loan Bank borrowings increased $3.8
million, while other borrowings increased $4.6 million during the period as a liquidity source to
cover loan demand and decreased deposit balances.
Net loans increased $13.2 million, or 5.8%, during the nine-month period ended September 30, 2007.
This increase was due to a combination of increased loan demand and production within the Companys
market area. The increase in balances was concentrated in commercial loans of $9.6 million and
mortgage loans of $5.2 million, with a decline in consumer credit balances of $1.6 million. The
allowance for loan losses amounted to $2,554,000, or 1.04% of total loans at September 30, 2007
compared to $2,607,000 or 1.12% of total loans at December 31, 2006.
9.
CSB BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The decrease in the allowance for loan losses as a percentage of total loans is attributed to both
loan growth and the recognition of losses during the period. The components of the change in the
allowance for loan losses during the nine-month period ended September 30, 2007, included a
provision of $354,000 and net loan charge-offs of $459,000. Loans past due more than 90 days and
still accruing interest, and loans placed on nonaccrual status, aggregated $1,092,000, or 0.44% of
total loans at September 30, 2007, compared to $1,509,000 or 0.65% of total loans at December 31,
2006.
The ratio of gross loans to deposits was 96.9%, compared to 89.3% at December 31, 2006. The
increase in this ratio is due to loan growth coupled with deposit shrinkage experienced during the
nine months ended September 30, 2007.
The Company had net unrealized losses of $568,000 within its securities portfolio at September 30,
2007, compared to net unrealized losses of $884,000 at December 31, 2006. Management has
considered industry analyst reports, sector credit reports and the volatility within the bond
market in concluding that the gross unrealized losses of $647,000 within the portfolio as of
September 30, 2007, were primarily the result of customary and expected fluctuations in the bond
market. As a result, all security impairments as of September 30, 2007, are considered temporary.
As of September 30, 2007, Management evaluated the three (3) private label CMOs held within the
investment portfolio for loans to borrowers with low FICO scores. Within this investment sector,
the Company has $4.7 million current value investments, original face of $6.5 million, with gross
unrealized losses of $28 thousand. All bonds are rated AAA on September 30, 2007, collateralized
primarily by 1-4 family mortgage loans and borrowers in a wide geographical dispersion. All credit
scores and loan to value ratios exceed sub prime status.
Short-term borrowings increased $3.8 million from December 31, 2006 and other borrowings increased
$4.6 million as the Company borrowed a $5 million longer-term advance from the Federal Home Loan
Bank (FHLB).
Total shareholders equity amounted to $35.9 million, or 10.9%, of total assets, at September 30,
2007, compared to $35.1 million, or 10.7% of total assets, at December 31, 2006. The increase in
shareholders equity during the nine months ended September 30, 2007 was due net income of
$2,634,000 and a decrease in unrealized losses on available-for-sale securities. These gains were
partially offset by purchases of $654,000 of treasury shares and dividends declared of
$1,330,000. The Company and its subsidiary bank met all regulatory capital requirements at
September 30, 2007.
RESULTS OF OPERATIONS
Three months ended September 30, 2007 and 2006
For the quarter ended September 30, 2007, the Company recorded net income of $863,000, or $0.35 per
share, as compared to net income of $814,000, or $0.32 per share for the quarter ended September
30, 2006. The $49,000 increase in net income for the quarter was principally due to a $96,000
increase in net interest income and an $86,000 increase in non-interest income. These gains were
offset by a $76,000 increase in the provision for loan losses, a $38,000 increase in the federal
income tax provision and a $18,000 increase in non-interest expenses.
10.
CSB BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest income for the quarter ended September 30, 2007, was $5,418,000, representing a $262,000
increase, or 5.1%, compared to the same period in 2006. This increase was primarily due to an
increase in loan volume and interest rates. Interest expense for the quarter ended September 30,
2007 was $2,028,000, an increase of $166,000, or 8.9%, from the same period in 2006. The increase
in interest expense occurred due to an increase in average rates paid across the board on deposits,
while borrowing rates declined from 4.37% to 4.24% for the quarter ended September 30, 2007.
During third quarter 2007, lower rate maturing time deposits renewed at interest rates that are
currently higher. Additionally, some customers continue to shift funds from lower yielding deposits
to higher yielding time deposits.
The provision for loan losses for the quarter ended September 30, 2007, was $151,000, compared to a
$75,000 provision for the same quarter in 2006. The provision for loan losses is determined based
on managements calculation of the adequacy of the allowance for loan losses, which includes
provisions for classified loans as well as for the remainder of the portfolio based on historical
data including past charge-offs and current economic trends.
Non-interest income for the quarter ended September 30, 2007, was $762,000, an increase of $86,000,
or 12.7%, compared to the same quarter in 2006. This increase was primarily due to increases in
Trust and brokerage fees of $53,000 a result of increased asset values and fees and a $30,000
increase in debit card interchange income. These gains were partially offset by a reduction of
$10,000 in other credit card fee income.
Non-interest expenses for the quarter ended September 30, 2007, increased $18,000, or 0.7%,
compared to the third quarter of 2006. This increase was due in part to increased occupancy and
equipment expenses from opening a new branch office in the Orrville, Ohio market as well as a
complete remodeling of the South Clay Street office in Millersburg to accommodate the consolidation
and closing of 6 West Jackson Street. Other increases in expenses were recorded in marketing and
an ATM debit card vendor conversion in the third quarter of 2007. Salaries and employee benefits
decreased $52,000, or 3.3%, primarily the result of increased third quarter 2006 bonus accruals.
Professional and directors fees decreased due to a lower number of outside directors as well as
reduced fees payable to a third party vendor in connection with the overdraft privilege program.
Federal income tax expense increased $38,000, or 10.0% for the quarter ended September 30, 2007 as
compared to the third quarter of 2006. The provision for income taxes was $416,000 (effective rate
of 32.5%) for the three months ended September 30, 2007, compared to $378,000 (effective rate of
31.7%) for the three months ended September 30, 2006. The increase in the effective tax rate
resulted from a decrease in tax-exempt interest income as a portion of total income before income
taxes.
Nine months ended September 30, 2007 and 2006
Net income for the nine months ending September 30, 2007, was $2,634,000, or $1.07 per share, as
compared to $2,264,000 or $0.89 per share during the same period in 2006. Return on average assets
and return on average equity were 1.08% and 9.92%, respectively, for the nine-month period of 2007,
compared to .95% and 8.69%, respectively for 2006.
Net interest income increased $59,000 or 0.6% to $9,920,000 for the nine months ended September
30, 2007 s compared to the same period in 2006. Comparative net income grew because of an
equivalent increase in non-interest income of $331,000 and a $331,000 decrease in non-interest
expenses compared to the same period in 2006. The improvements in net income were partially offset
by an increase to the provision to loan losses of $132,000.
11.
CSB BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest income for the nine months ended September 30, 2007, was $15,853,000 an increase of
$982,000 or 6.6% from the same period in 2006. Interest income on loans increased $1,138,000, or
9.3%, for the nine months ended September 30, 2007, as compared to the same period in 2006. This
increase was primarily due to an increase in average gross loan balances of $15.6 million coupled
with an interest rate increase of 16 basis points for the comparable nine-month periods. Interest
income on securities decreased $166,000, or 6.4%, as average investment balances decreased $8.1
million.
Interest expense increased $923,000 to $5,933,000 for the nine months ended September 30, 2007,
compared to the nine months ended September 30, 2006. Interest expense on deposits increased
$883,000, or 22.8%, from the same period as last year, while interest expense on other borrowings
increased $40,000 or 3.6%. The increase in interest expense has been caused by higher interest
rates being paid across the board on interest-bearing deposit accounts and short-term borrowings.
Lower rate time deposits continue to renew at higher interest rates and some depositors have moved
monies from lower yielding saving instruments to higher rate short-term time deposits and the
competition for deposits continues to increase. The net interest margin declined by 10 basis
points for the nine-month period ended September 30, 2007, to 4.36%, from 4.46% for the same period
in 2006.
The provision for loan losses was $354,000 during the first nine months of 2007, compared to
$222,000 in the same nine-month period of 2006. The provision or credit for loan losses is
determined based on managements calculation of the adequacy of the allowance for loan losses,
which includes provisions for classified loans as well as for the remainder of the portfolio based
on historical data including past charge-offs and current economic trends.
Non-interest income increased $331,000, or 16.7%, during the nine months ended September 30, 2007,
as compared to the same period in 2006. The increase in non-interest income was partially due to
the recovery of an insurance claim of $187,000 resulting from a prior period cash irregularity.
Trust and brokerage fees increased $152,000, or 38.8%, from the same period in 2006 while service
charges on deposits declined $50,000 or 5.1% as customers used the overdraft privilege product less
frequently in 2007 as compared to 2006, following the products introduction.
Non-interest expenses decreased $331,000, or 4.0%, for the nine months ended September 30, 2007,
compared to the same period in 2006. The cash irregularity of $237,000 occurred during the
nine-month period ended September 30, 2006. Salaries and employee benefits decreased $132,000, or
3.0%, primarily due to managerial staff decreases during 2007 and lower overall bonuses paid
during the first quarter of 2007. Professional and directors fees decreased due to a lower number
of outside directors as well as reduced fees payable to a third party vendor in connection with the
overdraft privilege program. Occupancy and telephone expense have increased during the first
nine-months of 2007 as compared with 2006 due to the opening of the Orrville area branch and
remodeling and consolidation of the Millersburg downtown offices.
The provision for income taxes was $1,255,000 (effective rate of 32.3%) for the nine months ended
September 30, 2007, compared to $1,035,000 (effective rate of 31.4%) for the nine months ended
September 30, 2006. The increase in the effective tax rate resulted from a decrease in tax-exempt
interest income as a portion of total income before income taxes.
12.
CSB BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAPITAL RESOURCES
The Federal Reserve Board (FRB) has established risk-based capital guidelines that must be observed
by financial holding companies and banks. Failure to meet specified minimum capital requirements
could result in regulatory actions by the Federal Reserve or Ohio Division of Financial
Institutions that could have a material effect on the Companys financial condition or results of
operations. Management believes there were no material changes to Capital Resources as presented in
CSB Bancorps annual report on Form 10-K for the year ended December 31, 2006, and as of September
30, 2007 the holding company and its bank meet all capital adequacy requirements to which they are
subject.
LIQUIDITY
Liquidity refers to the Companys ability to generate sufficient cash to fund current loan demand,
meet deposit withdrawals, pay operating expenses and meet other obligations. The Companys primary
sources of liquidity are cash and cash equivalents, which totaled $11.3 million at September 30,
2007, a decrease of $6.4 million from $17.7 million at December 31, 2006. Net income, securities
available-for-sale, and loan repayments also serve as sources of liquidity. Cash and cash
equivalents and estimated principal cash flow and maturities on investments maturing within one
year represent 9.6% of total assets as of September 30, 2007 compared to 6.3% of total assets at
year-end 2006. Other sources of liquidity include, but are not limited to, purchase of federal
funds, advances from the FHLB, adjustments of interest rates to attract deposits, and borrowing at
the Federal Reserve discount window. Management believes that its sources of liquidity are
adequate to meet cash flow obligations for the foreseeable future.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements (as such term is defined in applicable Securities
and Exchange Commission rules) that are reasonably likely to have a current or future material
effect on our financial condition, results of operations, liquidity, capital expenditures or
capital resources.
CONTRACTUAL OBLIGATIONS
During the first nine months of 2007, the Companys contractual obligations have not changed
materially from those discussed in the Companys Annual Report of Form 10-K for the year ended
December 31, 2006.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued FAS No. 157, Fair Value Measurements, which provides enhanced
guidance for using fair value to measure assets and liabilities. The standard applies whenever
other standards require or permit assets or liabilities to be measured at fair value. The Standard
does not expand the use of fair value in any new circumstances. FAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. Early adoption is permitted. The adoption of this standard is not
expected to have a material effect on the Companys results of operations or financial position.
13.
CSB BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS-(continued)
In February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an amendment of FASB Statement No. 115, which provides all
entities with an option to report selected financial assets and liabilities at fair value. The
objective of the FAS No. 159 is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in earnings caused by measuring related assets and liabilities
differently without having to apply the complex provisions of hedge accounting. FAS No. 159 is
effective as of the beginning of an entitys first fiscal year beginning after November 15, 2007.
Early adoption is permitted as of the beginning of a fiscal year that begins on or before November
15, 2007 provided the entity also elects to apply the provisions of FAS No. 157, Fair Value
Measurements. The adoption of this standard is not expected to have a material effect on the
Companys results of operations or financial position.
In June 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in
Income Taxes. FIN 48 is an interpretation of FAS No. 109, Accounting for Income Taxes, and it seeks
to reduce the diversity in practice associated with certain aspects of measurement and recognition
in accounting for income taxes. In addition, FIN No. 48 requires expanded disclosure with respect
to the uncertainty in income taxes and is effective for fiscal years beginning after December 15,
2006. The Company is currently evaluating the impact the adoption of the standard will have on the
Companys results of operations.
14.
CSB BANCORP, INC.
ITEM 3 QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the quantitative and qualitative disclosures about market
risks as of September 30, 2007, from that presented in the Companys Annual Report on Form 10-K for
the fiscal year ended December 31, 2006. Management performs a quarterly analysis of the Companys
interest rate risk. All positions are currently within the Companys board-approved policy.
The following table presents an analysis of the estimated sensitivity of the Companys annual net
interest income to sudden and sustained 100 basis point changes in market interest rates at
September 30, 2007 and December 31, 2006:
September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in |
|
|
|
|
|
|
Interest Rates |
|
Net Interest |
|
Dollar |
|
Percentage |
(basis points) |
|
Income |
|
Change |
|
Change |
|
|
(Dollars in Thousands) |
|
|
|
|
+200
|
|
$ |
13,998 |
|
|
$ |
433 |
|
|
|
3.2 |
% |
+100
|
|
|
13,736 |
|
|
|
171 |
|
|
|
1.3 |
|
0
|
|
|
13,565 |
|
|
|
0 |
|
|
|
0.0 |
|
-100
|
|
|
13,419 |
|
|
|
(146 |
) |
|
|
(1.1 |
) |
-200
|
|
|
13,140 |
|
|
|
(425 |
) |
|
|
(3.1 |
) |
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in |
|
|
|
|
|
|
Interest Rates |
|
Net Interest |
|
Dollar |
|
Percentage |
(basis points) |
|
Income |
|
Change |
|
Change |
|
|
(Dollars in Thousands) |
|
|
|
|
+200
|
|
$ |
14,165 |
|
|
$ |
682 |
|
|
|
5.1 |
% |
+100
|
|
|
13,767 |
|
|
|
284 |
|
|
|
2.1 |
|
0
|
|
|
13,483 |
|
|
|
0 |
|
|
|
0.0 |
|
-100
|
|
|
13,290 |
|
|
|
(193 |
) |
|
|
(1.4 |
) |
-200
|
|
|
12,937 |
|
|
|
(546 |
) |
|
|
(4.1 |
) |
15.
CSB BANCORP, INC.
ITEM 4 CONTROLS AND PROCEDURES
With the participation of our management, including our Chief Executive Officer and Chief Financial
Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined
in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of
the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded that:
(a) information required to be disclosed by the Company in this Quarterly Report on Form 10-Q would
be accumulated and communicated to the Companys management, including its Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure;
(b) information required to be disclosed by the Company in this Quarterly Report on Form 10-Q would
be recorded, processed, summarized and reported within the time periods specified in the SECs
rules and forms; and
(c) the Companys disclosure controls and procedures are effective as of the end of the period
covered by this Quarterly Report on Form 10-Q to ensure that material information relating to the
Company and its consolidated subsidiary is made known to them, particularly during the period for
which our periodic reports, including this Quarterly Report on Form 10-Q, are being prepared.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes during the period covered by this Quarterly Report on Form 10-Q in our
internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act)
that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
16.
CSB BANCORP, INC.
FORM 10-Q
Quarter ended September 30, 2007
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
There are no matters required to be reported under this item.
ITEM 1A RISK FACTORS
There were no material changes to the Risk Factors described in
Item 1A in the Companys Annual Report on Form 10-K for the
period ended December 31, 2006.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There are no matters required to be reported under this item.
Issuer Purchase of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum |
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Number of Shares |
|
|
Total Number |
|
Average |
|
Shares Purchased |
|
that May Yet be |
|
|
of Shares |
|
Price Paid |
|
as Part of Publicly |
|
Purchased Under |
Period |
|
Purchased |
|
Per Share |
|
Announced Plans |
|
the Plan |
|
July 1, 2007 to
July 31, 2007 |
|
None |
|
None |
|
None |
|
|
82,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 1, 2007 to
August 31, 2007 |
|
|
8 |
|
|
$ |
17.00 |
|
|
|
8 |
|
|
|
82,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 1, 2007 to
September 30, 2007 |
|
None |
|
None |
|
None |
|
|
82,368 |
|
On July 7, 2005 CSB Bancorp, Inc. filed Form 8-k with the Securities and Exchange
Commission announcing that its Board of Directors approved a Stock Repurchase Program
authorizing the repurchase of up to 10% of the Companys common shares then outstanding.
Repurchases will be made from time to time as market and business conditions warrant, in
the open market, through block purchases and in negotiated private transactions.
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:
There are no matters required to be reported under this item
Item 5 Other Information:
There are no matters required to be reported under this item
17.
CSB BANCORP, INC.
FORM 10-Q
Quarter ended September 30, 2007
PART II OTHER INFORMATION
Item 6 Exhibits:
|
|
|
Exhibit |
|
|
Number |
|
Description of Document |
|
|
|
11
|
|
Statement Regarding Computation of Per Share Earnings (reference
is hereby made to Consolidated Statements of Income on page 4 hereof.) |
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) CEOs Certification |
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) CFOs Certification |
|
|
|
32.1
|
|
Section 1350 CEOs Certification |
|
|
|
32.2
|
|
Section 1350 CFOs Certification |
18.
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: November 12, 2007
|
|
/s/ Eddie L. Steiner
Eddie L. Steiner
|
|
|
|
|
President |
|
|
|
|
Chief Executive Officer |
|
|
|
|
|
|
|
Date: November 12, 2007
|
|
/s/ Paula J. Meiler |
|
|
|
|
|
|
|
|
|
Paula J. Meiler |
|
|
|
|
Senior Vice President |
|
|
|
|
Chief Financial Officer |
|
|
19.
CSB BANCORP, INC.
Index to Exhibits
|
|
|
|
|
Exhibit |
|
|
|
Sequential |
Number |
|
Description of Document |
|
Page |
|
|
|
|
|
11
|
|
Statement Regarding Computation of Per Share Earnings
(reference is hereby made to Consolidated Statements of Income on
page 4 hereof.) |
|
|
|
|
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) CEOs Certification |
|
|
|
|
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) CFOs Certification |
|
|
|
|
|
|
|
32.1
|
|
Section 1350 CEOs Certification |
|
|
|
|
|
|
|
32.2
|
|
Section 1350 CFOs Certification |
|
|
20.