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

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: MARCH 31, 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)

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.

CSB BANCORP, INC.

FORM 10-Q

QUARTER ENDED MARCH 31, 2001

Table of Contents

Part I - Financial Information

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Changes in

Shareholders' Equity

Condensed Consolidated Statements of Cash Flows

Notes 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 notes to the consolidated financial statements.

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

See notes to the consolidated financial statements.

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)

See notes to the consolidated financial statements.

CSB BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See notes to the consolidated financial statements.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements include 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.

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 March 31, 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 period ended March 31, 2001, are not necessarily indicative of the operating results for the full year or any future interim period.

NOTE 2 - ACCOUNTING STANDARD IMPLEMENTED

Statement of Financial Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (Statement 133) establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other contracts and requires that an entity recognize all derivative assets or liabilities in the balance sheet and measure them at fair value. Statement 133 also provides an entity the opportunity at the date of initial adoption to transfer any held-to-maturity security into the available for sale category.

There was no impact on the consolidated financial statements of CSB as a result of adopting Statement 133 during the first quarter of 2001, as CSB does not hold any derivative instruments or conduct hedging activities.

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 March 31, 2001, compared to December 31, 2000, and the consolidated results of operations for the quarterly period ending March 31, 2001 compared to the same period 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 $316.6 million at March 31, 2001, compared to $325.2 million at December 31, 2000, representing a decrease of $8.6 million or 2.7%. Total securities decreased approximately $12.5 million during the quarter. 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 March 31, 2001, approximately 9% of the securities portfolio matures within one year. This amount would be in addition to federal funds sold and any callable securities which may be called.

CSB BANCORP, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net loans decreased $4.9 million, or 2.5% from December 31, 2000, to $193.4 million at March 31, 2001. Commercial loans decreased $2.7 million, or 3.2%, from December 31, 2000, partially due to $737,000 being classified as held for sale. Commercial real estate loans decreased $1.2 million, or 3.1%. This decrease was primarily the result of $5.2 million of performing and non-performing commercial real estate loans being transferred to the held for sale category. This transfer more than offset commercial real estate construction loans which became permanent loans. Construction loans in total decreased $6.6 million, or 87.2%. Installment loans decreased $2.0 million, or 11.2%.

The allowance for loan losses amounted to $5.8 million, or 2.89% of total loans, at March 31, 2001, compared to $7.5 million, or 3.61% or total loans at December 31, 2000. The components of the change in the allowance for loan loss during the quarter ended March 31, 2001, included a provision of $298,000 and net loan charge-offs of $2.0 million. Such charge-offs included $1.6 million relating to commercial real estate loans in anticipation of selling the loans. Such amount closely approximated the specific loan loss allowance provided for such loans. Consequently, there was no impact on the provision for loan loss for the quarter as a result of the transaction. Those loans have subsequently been sold.

Loans past due more than 90 days and loans placed on nonaccrual status, were approximately $3.4 million, or 1.70% of total loans at March 31, 2001, compared to $1.3 million, or 0.65% of loans at December 31, 2000. These credits are considered in management's analysis of the allowance for loan losses.

Premises and equipment, net and depreciation increased $288,000, or 3.1%, during the first quarter of 2001, due primarily to the acquisition of technology equipment in the normal course of business, which more than offset depreciation.

At March 31, 2001, the ratio of net loans to deposits was 73.4%, compared to 73.9% at the end of 2000.

Total shareholders' equity increased $420,000, or 1.3%, primarily due to year-to-date net income of $308,000.

The Company and its subsidiary met all regulatory capital requirements at March 31, 2001.

RESULTS OF OPERATIONS

Net income for the quarter ending March 31, 2001, was $308,000, or $0.12 per share, as compared to $974,000, or $0.37 per share during the same period last year, a decrease of $666,000, or 68.4%. The primary factors contributing to this decrease was a decrease in net interest income of $195,000 due to the Federal Reserve actions in the first quarter of 2001, and $727,000 increase in operating expenses, primarily as a result of additional staffing and professional fees relating to the Written Agreement previously entered into with the Company's regulators.

CSB BANCORP, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net interest income for the quarter ended March 31, 2001 was $2.9 million, a decrease of $195,000, or 6.4%, over the same period last year. Interest and fees on loans increased $132,000, or 2.8%. Interest on securities decreased $171,000, or 12.3%, as short term interest rates fell and callable securities were called.

Interest expense increased $168,000 to $3.2 million for the quarter ended March 31, 2001, compared to $3.0 million for the quarter ended March 31, 2000. Interest expense on deposits increased $201,000, or 7.4%, from the same period as last year. This increase was caused by the higher certificate of deposit rates paid in the latter part of 2000, to reflect the 175 basis points increase in short term rates by the Federal Reserve during 2000.

The provision for loan losses was $298,000 during the first quarter of 2001, an increase of $67,000 over the first quarter of 2000.

Other income increased $11,000 primarily as a result of the increase in gain on sale of loans during the 2001 period, as compared to the same period last year.

Other expenses increased $727,000, or 34.3%, for the three months ended March 31, 2001, compared to the same period in 2000. Salaries and employee benefits increased $217,000, or 20.3%; occupancy expense increased $7,000, or 4.8%; professional fees increased $362,000 due to additional expenses relating to the Written Agreement; and other expenses increased $166,000 or 25.2%. The credit for income taxes was $111,000 during the first quarter of 2001, as compared to a provision of $202,000 for the first quarter of 2000. The tax credit was less than the expected tax provision (based on 34% of income before taxes) of $67,000 due to tax-exempt income from loans and securities.

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 March 31, 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-Q

Quarter ended March 31, 2001

PART II - OTHER INFORMATION

(a) Exhibits:

(b) Reports on Form 8-K:

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