CSB Bancorp, Inc. - Quarter Report: 2001 September (Form 10-Q)

CSB BANCORP, INC.

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: SEPTEMBER 30, 2001

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 Number)

incorporation 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 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.

__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 October 30, 2001:

2,624,367 common shares

FORM 10-Q

QUARTER ENDED September 30, 2001

Table of Contents

Part I - Financial Information

ITEM 1 - FINANCIAL STATEMENTS

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Changes in Shareholders' Equity

Condensed Consolidated Statements of Cash Flows

Note to the Consolidated Financial Statements

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Part II - Other Information

Other Information

Signatures

CSB BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

See accompanying note to consolidated financial statements.

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

See accompanying note to consolidated financial statements.

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)

See accompanying note to the consolidated financial statements.

CSB BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying note to the consolidated financial statements.

CSB BANCORP, INC.

NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements include the accounts of CSB Bancorp, Inc. and its wholly-owned subsidiary, The Commercial and Savings Bank (together referred to as the "Company" or "CSB"). All significant intercompany transactions and balances have been eliminated in consolidation.

The 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 Company's financial position at September 30, 2001, 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 generally accepted accounting principles have been omitted. The Annual Report for CSB for the year ended December 31, 2000, 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 periods ended September 30, 2001, are not necessarily indicative of the operating results for the full year or any future interim period.

CSB BANCORP, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 2 - 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 September 30, 2001, compared to December 31, 2000, and the consolidated results of operations for the nine month and quarterly periods ending September 30, 2001 compared to the same periods in 2000. 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 that are not historical facts 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 Company's 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 $320.1 million at September 30, 2001, compared to $325.2 million at December 31, 2000, representing a decrease of $5.1 million or 1.6%. Federal funds sold increased $23.5 million to $26.2 million at September 30, 2001. Total securities decreased $1.7 million during the nine month period ended September 30, 2001, including a $10.3 million decrease in the held-to-maturity category and a $8.6 million increase in the available for sale category. It is presently the Company's policy to classify all new securities purchases as available-for-sale. The Company manages its securities portfolio and federal funds sold position to meet liquidity needs and asset liability management requirements.

Net loans decreased $26.7 million, or 13.4% from December 31, 2000, to $171.7 million at September 30, 2001. Commercial loans decreased $12.0 million, or 14.1%, from December 31, 2000, partially due to $737,000 being sold during the nine month period. Commercial real estate loans decreased $5.3 million, or 13.7%, primarily as a result of $5.2 million of performing and non-performing commercial real estate loans being sold during the first nine months of 2001. This sale more than offset commercial real estate construction loans which became permanent loans. Total construction loans decreased $6.9 million, or 91.7%. Installment loans decreased $4.3 million, or 24.0%. Overall, the decrease in loans is attributed to the sale of commercial real estate loans and stricter underwriting standards.

The allowance for loan losses amounted to $4.6 million, or 2.63% of total loans, at September 30, 2001, compared to $7.5 million, or 3.61% of total loans at December 31, 2000. Management prepares an analysis of the loan portfolio and the corresponding allowance for loan and lease losses on a monthly basis. This analysis considers the mix of the portfolio, internal classification of loans, delinquencies, and other factors. During the quarter ended September 30, 2001, significant progress was made in certain large loan concentrations, which substantially reduced the amount of allowance required. This progress included the paydown, and in some cases, the payoff of loan concentrations. Problem loans, including loans past due more than 90 days and certain loans placed on nonaccrual status, were approximately $3.5 million, or 2.0% of total loans at September 30, 2001, compared to $1.3 million, or 0.65% of total loans at December 31, 2000. These credits are considered in management's analysis of the allowance for loan losses.

Net premises and equipment increased $38,000, or 0.4%, during the first nine months of 2001, due primarily to the acquisition of technology equipment in the normal course of business, which more than offset depreciation.

At September 30, 2001, the ratio of total loans to deposits was 66.2%, compared to 76.6% at the end of 2000.

Total shareholders' equity at September 30, 2001 increased $1.2 million, or 3.9%, compared to December 31, 2000, due to the nine month net income of $804,000, as well as the $416,000 change in the unrealized gain (loss), net of tax, on available-for-sale securities.

The Company and its subsidiary met all minimum regulatory capital requirements at September 30, 2001.

RESULTS OF OPERATIONS

Net income for the nine months ending September 30, 2001, was $804,000, or $0.31 per share, as compared to net income of $1.1 million, or $0.41 per share during the same period last year, a decrease of $277,000 or 25.6%. For the quarter ended September 30, 2001, the Company had net income of $1.9 million, or $0.71 per share, for the reasons previously discussed.

Interest income for the nine months ended September 30, 2001 was $16.9 million, a decrease of $2.0 million, or 10.8%, over the same period last year, including interest and fees on loans decreasing $1.9 million, or 12.5%. Interest on securities decreased $565,000, or 14.0%, as short term interest rates fell and certain callable securities were called. Other interest income increased $387,000 as the average federal fund sold position was higher during the current period. Interest income for the quarter ended September 30, 2001 was $5.3 million, a decrease of $1.3 million, or 19.3%, compared to the same period in 2000. This decrease was due to the reasons previously noted.

Interest expense decreased $439,000, or 4.6% to $9.0 million for the nine months ended September 30, 2001, compared to the nine months ended September 30, 2000. Interest expense on deposits increased $110,000, or 1.3%, from the same period as last year, while interest expense on other borrowings decreased by $549,000, or 47.2%. The decrease in interest expense on other borrowings is due to the payoff of a $1.0 million FHLB advance and the reduction in other advances. Interest expense for the quarter ended September 30, 2001 was $2.9 million, a decrease of $487,000, or 14.5%, from the same period in 2000.

The provision for loan losses was $183,000 during the first nine months of 2001, a decrease of $3.4 million over the same period of 2000. The provision is determined based on management's calculation of the allowance for loan losses, which, as noted previously, includes provisions for classified loans, as well as provision for the remainder of the portfolio based on historical data, including past charge-offs. The provision for loan losses for the three months ended September 30, 2001 was $(2.5) million, compared to $616,000 for the same quarter last year. During the third quarter of 2001, significant progress was made in the resolution of non-performing loans. This resulted in a negative provision due to specific loan losses no longer being required.

Other income increased $37,000, or 2.6%, during the nine months ended September 30, 2001 as compared to the same period in 2000. Other expenses increased $2.1 million, or 32.3%, for the nine months ended September 30, 2001, compared to the same period in 2000. Salaries and employee benefits increased $523,000, or 15.3%; occupancy expense increased $71,000, or 17.3%; professional fees increased $859,000 primarily due to additional expenses relating to the Written Agreement; and other expenses increased $667,000 or 33.4%. The credit for income taxes was $397,000 during the first nine months of 2001, as compared to a credit of $314,000 for the first nine months of 2000.

Other income for the quarter ended September 30, 2001 was $500,000, an increase of $20,000 compared to the same quarter in 2000. Other expenses for the three month period increased $674,000, or 30.0%, compared to last year's period. This increase was due to reasons previously noted.

CSB BANCORP, INC.

QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

ITEM 3 QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

There have been no material changes in the quantitative and qualitative disclosures about market risks as of September 30, 2001 from that presented in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. Management performs a quarterly analysis of the Company's interest rate risk. All positions are currently within the Board-approved policy limits.

CSB BANCORP, INC.

FORM 10

Quarter ended September 30, 2001

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings:

There are no matters required to be reported under this item.

Item 2 - Changes in Securities and Use of Proceeds:

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:

Our 2001 annual meeting of shareholders was held on July 25, 2001. The only matter submitted to a vote of the security holders at the meeting was the election of three directors to our board of directors, each to continue in office until the year 2004. As permitted under Ohio law, cumulative voting was used by shareholders in the election of directors at the meeting. The cumulative voting results are set forth below. There were no abstentions or broker non-votes with respect to any candidate.

The following individuals continued as directors of CSB following the annual meeting of shareholders.

C. James Bess

Ronald E. Holtman

J. Thomas Lang

Daniel J. Miller

Edward Steiner

F. Joanne Vincent

Robert K. Baker

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) Exhibits:

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.

Index to Exhibits

CSB BANCORP, INC.

EXHIBIT 11

STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS