CSB Bancorp, Inc. 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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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: March 31, 2006
OR
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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
incorporation or organization)
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(I.R.S. Employer Identification Number) |
91 North Clay, 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) 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 registrant’s common stock, as of the latest
practicable date.
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| Common stock, $6.25 par value
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Outstanding at May 12, 2006: |
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2,519,733 common
shares |
CSB BANCORP, INC.
FORM 10-Q
QUARTER ENDED March 31, 2006
Table of Contents
CSB BANCORP, INC.
PART I — FINANCIAL INFORMATION
ITEM 1. — FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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March 31, |
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December 31, |
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2006 |
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2005 |
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ASSETS |
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Cash and due from banks |
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$ |
10,267,739 |
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$ |
14,785,250 |
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Interest-earning deposits in other banks |
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47,167 |
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124,726 |
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Federal funds sold |
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— |
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1,740,000 |
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Total cash and cash equivalents |
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10,314,906 |
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16,649,976 |
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Securities available-for-sale, at fair value |
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75,856,687 |
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78,273,248 |
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Restricted stock, at cost |
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2,984,900 |
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2,947,000 |
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Total securities |
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78,841,587 |
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81,220,248 |
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Loans held for sale |
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242,212 |
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— |
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Loans |
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221,123,243 |
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215,019,673 |
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Less allowance for loan losses |
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2,470,768 |
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2,445,494 |
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Net loans |
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218,652,475 |
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212,574,179 |
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Premises and equipment, net |
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7,587,163 |
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7,671,822 |
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Accrued interest receivable and other assets |
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3,138,328 |
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2,873,007 |
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Total Assets |
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$ |
318,776,671 |
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$ |
320,989,232 |
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LIABILITIES |
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Deposits |
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Noninterest-bearing |
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$ |
36,938,182 |
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$ |
41,807,069 |
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Interest-bearing |
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210,106,032 |
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213,595,648 |
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Total deposits |
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247,044,214 |
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255,402,717 |
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Short-term borrowings |
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32,307,224 |
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21,417,616 |
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Other borrowings |
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2,852,923 |
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8,067,840 |
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Accrued interest payable and other liabilities |
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1,580,626 |
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930,800 |
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Total liabilities |
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283,784,987 |
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285,818,973 |
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SHAREHOLDERS’ EQUITY |
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Common stock, $6.25 par value: Authorized 9,000,000
shares; issued 2,667,786 shares |
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16,673,667 |
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16,673,667 |
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Additional paid-in capital |
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6,416,440 |
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6,413,915 |
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Retained earnings |
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15,115,371 |
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14,752,250 |
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Treasury stock at cost- 100,381 shares in 2006 and
89,287 shares in 2005 |
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(2,322,410 |
) |
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(2,086,686 |
) |
Accumulated other comprehensive loss |
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(891,384 |
) |
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(582,887 |
) |
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Total shareholders’ equity |
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34,991,684 |
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35,170,259 |
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Total Liabilities and Shareholders’ Equity |
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$ |
318,776,671 |
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$ |
320,989,232 |
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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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March 31, |
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2006 |
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2005 |
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Interest income |
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Loans, including fees |
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$ |
3,822,504 |
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$ |
3,285,392 |
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Taxable securities |
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777,800 |
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519,329 |
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Nontaxable securities |
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101,823 |
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168,788 |
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Other |
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6,592 |
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670 |
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Total interest income |
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4,708,719 |
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3,974,179 |
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Interest expense |
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Deposits |
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1,166,920 |
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|
868,997 |
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Other |
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247,526 |
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176,478 |
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Total interest expense |
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1,414,446 |
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1,045,475 |
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Net interest income |
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3,294,273 |
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2,928,704 |
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Provision for loan losses |
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32,000 |
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105,999 |
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Net interest income after provision
for loan losses |
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3,262,273 |
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2,822,705 |
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Non-interest income |
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Service charges on deposit
accounts |
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315,086 |
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|
212,555 |
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Gain on sale of securities |
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— |
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|
247,047 |
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Trust and financial services |
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|
92,242 |
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|
117,151 |
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Other income |
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203,115 |
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203,504 |
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Total non-interest income |
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610,443 |
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780,257 |
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Non-interest expenses |
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Salaries and employee benefits |
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1,491,005 |
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1,402,464 |
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Occupancy expense |
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171,213 |
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158,778 |
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Equipment expense |
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136,136 |
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123,488 |
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State franchise tax |
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109,200 |
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|
104,923 |
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Professional and director fees |
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174,020 |
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|
156,475 |
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Other expenses |
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666,236 |
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|
731,021 |
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Total non-interest expenses |
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2,747,810 |
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2,677,149 |
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Income before income taxes |
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1,124,906 |
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|
925,813 |
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Federal income tax provision |
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|
351,000 |
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|
259,000 |
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Net income |
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$ |
773,906 |
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$ |
666,813 |
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Basic and diluted earnings
per share |
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$ |
0.30 |
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$ |
0.25 |
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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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March 31, |
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2006 |
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2005 |
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Balance at beginning of period |
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$ |
35,170,259 |
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$ |
36,207,507 |
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Comprehensive income (loss): |
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Net income |
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773,906 |
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|
666,813 |
|
Change in net unrealized
loss, net of reclassification adjustments
and related income taxes ($158,774 and $378,457) |
|
|
(308,497 |
) |
|
|
(734,652 |
) |
|
|
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Total comprehensive income (loss) |
|
|
465,409 |
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(67,839 |
) |
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Issuance of 6 shares from treasury stock |
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|
121 |
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Stock-based compensation expense |
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2,525 |
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Purchase of 11,094 shares of treasury stock |
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(235,724 |
) |
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Cash dividends declared
($0.16 per share in 2006, and $0.14 per share in 2005)
|
|
|
(410,785 |
) |
|
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(370,295 |
) |
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Balance at end of period |
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$ |
34,991,684 |
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$ |
35,769,494 |
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|
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See notes to unaudited consolidated financial statements.
5.
CSB BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended |
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March 31, |
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2006 |
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2005 |
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Net cash from operating activities |
|
$ |
1,302,626 |
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|
$ |
677,680 |
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Cash flows from investing activities |
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Securities available-for-sale |
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Proceeds from maturities, calls and repayments |
|
|
1,928,276 |
|
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|
725,910 |
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Proceeds from sales |
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|
|
|
|
5,098,433 |
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Purchases |
|
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(1,589 |
) |
|
|
(99,891 |
) |
Purchase of FHLB stock |
|
|
(37,900 |
) |
|
|
(26,900 |
) |
Net change in loans |
|
|
(6,127,352 |
) |
|
|
(6,271,614 |
) |
Net change in loans held for sale |
|
|
(242,212 |
) |
|
|
|
|
Premises and equipment expenditures, net |
|
|
(68,810 |
) |
|
|
(327,277 |
) |
|
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|
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Net cash used for investing activities |
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|
(4,307,375 |
) |
|
|
(901,339 |
) |
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Cash flows from financing activities |
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Net change in deposits |
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(8,358,503 |
) |
|
|
(4,227,957 |
) |
Net change in short-term borrowings |
|
|
10,889,608 |
|
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|
4,928,379 |
|
Repayments of other borrowings |
|
|
(5,214,917 |
) |
|
|
(5,252,179 |
) |
Purchase of treasury shares |
|
|
(235,724 |
) |
|
|
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Cash dividends paid |
|
|
(410,785 |
) |
|
|
(343,845 |
) |
|
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Net cash used by financing activities |
|
|
(3,330,321 |
) |
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|
(4,895,602 |
) |
|
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Net change in cash and cash equivalents |
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|
(6,335,070 |
) |
|
|
(5,119,261 |
) |
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|
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Cash and cash equivalents at beginning of period |
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|
16,649,976 |
|
|
|
15,644,292 |
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|
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Cash and cash equivalents at end of period |
|
$ |
10,314,906 |
|
|
$ |
10,525,031 |
|
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Supplemental disclosures |
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Interest paid |
|
$ |
1,403,819 |
|
|
$ |
1,068,566 |
|
Income taxes paid |
|
|
100,000 |
|
|
$ |
— |
|
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 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 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, 2006, 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, 2005, 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, 2006
are not necessarily indicative of the operating results for the full year or any future interim
period.
STOCK-BASED COMPENSATION
The Company sponsors a stock-based compensation plans, administered by a committee, under which
incentive stock options may be granted periodically to certain employees. Effective
January 1, 2006, CSB adopted FASB Statement No. 123 (revised 2004), Share-Based Payment (FASB No.
123r), using the modified prospective application method. The modified prospective application
method applies to new awards, to any outstanding liability awards, and to awards modified,
repurchased, or cancelled after January 1, 2006. For all awards granted prior to January 1, 2006,
unrecognized compensation cost, on the date of adoption, will be recognized as an expense in future
periods. The results for prior periods have not been restated.
The
adoption of FASB No. 123r reduced net income by approximately
$2,525 for the three months ended
March 31, 2006. The following table illustrates the effect on net income and earnings per share if
CSB had applied the fair value recognition provisions to stock-based employee compensation during
the prior period presented. For purposes of this pro forma disclosure, the value of the options is
estimated using the Black-Scholes option-pricing model and amortized to expense over the options’
vesting period.
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March 31, |
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| |
|
2005 |
|
Net income, as reported |
|
$ |
666,813 |
|
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects |
|
|
2,800 |
|
|
|
|
|
Pro forma net income |
|
$ |
664,013 |
|
|
|
|
|
Earnings per share |
|
|
|
|
Basic — as reported |
|
$ |
.25 |
|
Basic — pro forma |
|
$ |
.25 |
|
Diluted — as reported |
|
$ |
.25 |
|
Diluted — pro forma |
|
$ |
.25 |
|
7.
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-continued
The pro
forma effects are computed using option pricing models, using the
following weighted-average assumptions as of grant date.
| |
|
|
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|
|
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| |
|
|
2004 |
|
|
|
2003 |
|
Risk-free interest rate |
|
|
3.34% |
|
|
|
2.75% |
|
|
|
|
|
|
|
|
|
|
Expected option life (years) |
|
|
3.5 |
|
|
|
6.4 |
|
|
|
|
|
|
|
|
|
|
Dividend yield |
|
|
2.60% |
|
|
|
2.50% |
|
As of March 31, 2006, there was approximately $17,800 of unrecognized compensation cost related to
unvested share-based compensation awards granted. That cost is expected to be recognized over the
next two years.
Options are granted to certain employees at prices equal to the market value of the stock on the
date the options are granted. The 2002 Plan authorizes the issuance of 75,000 shares. The Plan was
amended April 27, 2005 to authorize the issuance of 200,000 shares. The time period during which
any option is exercisable under the Plan is determined by the committee but shall not continue
beyond the expiration of ten years after the date the option is awarded. As of March 31, 2006,
there were 11,970 options outstanding under this Plan.
The fair value of each option is amortized into compensation expense on a straight-line basis
between the grant date for the option and each vesting date. CSB estimated the fair value of stock
options on the date of the grant using the Black-Scholes option pricing model. The model requires
the use of numerous assumptions, many of which are highly subjective in nature. There were no
options granted in the first quarter of 2006 or 2005.
NOTE 2
— SECURITIES
Securities consist of the following at March 31, 2006 and December 31, 2005:
March 31, 2006
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| |
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Gross |
|
|
Gross |
|
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Amortized |
|
|
unrealized |
|
|
unrealized |
|
|
Fair |
|
| |
|
Cost |
|
|
gains |
|
|
losses |
|
|
value |
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury security |
|
$ |
99,951 |
|
|
$ |
— |
|
|
$ |
1,326 |
|
|
$ |
98,625 |
|
Obligations of U.S.
government
corporations and agencies |
|
|
42,491,628 |
|
|
|
— |
|
|
|
956,620 |
|
|
|
41,535,008 |
|
Mortgage-backed securities |
|
|
25,919,257 |
|
|
|
342 |
|
|
|
577,172 |
|
|
|
25,342,427 |
|
Obligations of states and
political subdivisions |
|
|
8,390,031 |
|
|
|
192,620 |
|
|
|
2,183 |
|
|
|
8,580,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
76,900,867 |
|
|
|
192,962 |
|
|
|
1,537,301 |
|
|
|
75,556,528 |
|
Equity Securities |
|
|
305,965 |
|
|
|
171 |
|
|
|
5,977 |
|
|
|
300,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale |
|
|
77,206,832 |
|
|
|
193,133 |
|
|
|
1,543,278 |
|
|
|
75,856,687 |
|
Restricted stock |
|
|
2,984,900 |
|
|
|
— |
|
|
|
— |
|
|
|
2,984,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities |
|
$ |
80,191,732 |
|
|
$ |
193,133 |
|
|
$ |
1,543,278 |
|
|
$ |
78,841,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2
— SECURITIES- continued
December 31, 2005
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
| |
|
Amortized |
|
|
unrealized |
|
|
unrealized |
|
|
Fair |
|
| |
|
Cost |
|
|
gains |
|
|
losses |
|
|
Value |
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury security |
|
$ |
99,938 |
|
|
$ |
— |
|
|
$ |
1,313 |
|
|
$ |
98,625 |
|
Obligations of U.S.
government
corporations and agencies |
|
|
42,991,204 |
|
|
|
4,376 |
|
|
|
765,254 |
|
|
|
42,230,326 |
|
Mortgage-backed securities |
|
|
27,368,053 |
|
|
|
14,166 |
|
|
|
376,262 |
|
|
|
27,005,957 |
|
Obligations of states and
political subdivisions |
|
|
8,392,840 |
|
|
|
242,499 |
|
|
|
1,943 |
|
|
|
8,633,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
78,852,035 |
|
|
|
261,041 |
|
|
|
1,144,772 |
|
|
|
77,968,304 |
|
Equity Securities |
|
|
304,376 |
|
|
|
6,080 |
|
|
|
5,512 |
|
|
|
304,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale |
|
|
79,156,411 |
|
|
|
267,121 |
|
|
|
1,150,284 |
|
|
|
78,273,248 |
|
Restricted stock |
|
|
2,947,000 |
|
|
|
— |
|
|
|
— |
|
|
|
2,947,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities |
|
$ |
82,103,411 |
|
|
$ |
267,121 |
|
|
$ |
1,150,284 |
|
|
$ |
81,220,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS
In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting (“FAS”) No. 155, Accounting for Certain Hybrid Instruments, as an amendment of FASB
Statements No. 133 and 140. FAS No. 155 allows financial instruments that have embedded
derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from
its host) if the holder elects to account for the whole instrument on a fair value basis. This
statement is effective for all financial instruments acquired or issued after the beginning of an
entity’s first fiscal year that begins after September 15, 2006. The adoption of this standard is
not expected to have a material effect on the Company’s results of operations or financial position
In March 2006, the FASB issued FAS No. 156, Accounting for Servicing of Financial Assets. This
Statement, which is an amendment to FAS No. 140, will simplify the accounting for servicing assets
and liabilities, such as those common with mortgage securitization activities. Specifically, FAS
No. 156 addresses the recognition and measurement of separately recognized servicing assets and
liabilities and provides an approach to simplify efforts to obtain hedge-like (offset) accounting.
FAS No. 156 also clarifies when an obligation to service financial assets should be separately
recognized as a servicing asset or a servicing liability, requires that a separately recognized
servicing asset or servicing liability be initially measured at fair value, if practicable, and
permits an entity with a separately recognized servicing asset or servicing liability to choose
either of the amortization or fair value methods for subsequent measurement. The provisions of FAS
No. 156 are effective as of the beginning of the first fiscal year that begins after September 15,
2006. The adoption of this standard is not expected to have a material effect on the Company’s
results of operations or financial position.
9.
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. and
its subsidiaries (the “Company”) at March 31, 2006 as compared to December 31, 2005, and the
consolidated results of operations for the quarterly period ending March 31, 2006 compared to the
same period in 2005. 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 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
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 $318.8 million at March 31, 2006, compared to $321.0 million at December 31,
2005, representing a decrease of $2.2 million or 0.7%. Cash and cash equivalents decreased $6.3
million, or 38.0%, during the three-month period ending March 31, 2006, due to a $4.6 million
decrease in cash and due from banks and a $1.7 million decrease in Federal funds sold. Securities
decreased $2.4 million or 2.9% during the quarter principally due to the maturity and pay-down of
securities. Net loans increased $6.1 million, or 2.9%. The increase is a result of seasonal credit
draws, growth in home equity line lending and a slowing of prepayments within the mortgage loan
portfolio. Total liabilities decreased $2.0 million or 0.7% during the quarter, as seasonal
deposit declines were offset with short-term borrowings.
10.
CSB BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net loans increased $6.1 million, or 2.9% during the three-month period ended March 31, 2006. The
allowance for loan losses amounted to $2,471,000, or 1.12% of gross loans at March 31, 2006,
compared to $2,445,000, or 1.14% of gross loans at December 31, 2005. The components of the change
in the allowance for loan losses during the three-month period ended March 31, 2006, included a
provision of $32,000 and net loan charge-offs of $7,000. Loans past due more than 90 days and
still accruing interest and loans placed on nonaccrual status aggregated $670,000, or 0.30% of
total loans at March 31, 2006 compared to $801,000, or 0.37% of total loans at December 31, 2005.
At March 31, 2006, the ratio of net loans to deposits was 88.6%, compared to 83.2% at December 31,
2005. The increase in this ratio is due to loan growth coupled with seasonal deposit shrinkage
experienced during the three months ended March 31, 2006.
The Company had net unrealized losses of $1,350,000 within its investment portfolio at March 31,
2006 as compared against unrealized losses of $883,000 at December 31, 2005. Management has
considered industry analyst reports, sector credit reports and volatility in the bond market in
concluding that the unrealized losses as of March 31, 2006 were primarily the result of customary
and expected fluctuations in the bond market. As a result, all security impairments as of March
31, 2006 are considered temporary.
The decrease in other borrowings of $5.2 million resulted from the maturity of existing Federal
Home Loan advances, which have been reborrowed from the Federal Home Loan Bank as short-term
borrowings.
Total shareholders’ equity amounted to $35.0 million, or 11.0% of total assets, at March 31, 2006,
compared to $35.2 million, or 11.0% of total assets, at December 31, 2005. The decrease in
shareholders’ equity during the three months ended March 31, 2006 was principally due to dividends
declared of $411,000, an unrealized loss on securities, net of tax, of $308,000, the repurchase of
treasury stock of $236,000, which was offset by net income of $774,000. Through its share
repurchase program the Company repurchased 11,094 shares of treasury stock during the quarter ended
March 31, 2006. The Company and its subsidiaries met all regulatory capital requirements at March
31, 2006.
11.
CSB BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended March 31, 2006 and 2005
For the quarter ended March 31, 2006, the Company recorded net income of $774,000 or $.30 per
share, as compared to $667,000 or $.25 per share for the quarter ended March 31, 2005. The
increase in net income for the quarter of $107,000 was principally due to a $366,000 increase in
net interest income, offset by decreases in non-interest income of $170,000, an increase in
non-interest expenses of $71,000 and an increase of $92,000 in the federal income tax provision.
Interest income for the quarter ended March 31, 2006 of $4.7 million represents an increase of
$735,000, or 18.5%, compared to the same period in 2005. Interest income on loans increased
$537,000 over the first quarter of 2005, which was primarily due to an increase of 118 basis points
in average loan rates partially offset by a $6.4 million decrease in average gross loan balances.
The increase in interest income on securities of $192,000 was due to increases in average balances
of securities of $8.0 million and increases of 72 basis points in average rates on taxable
securities and increases of 50 basis points in average taxable equivalent rates on nontaxable
securities over the first quarter of 2005. Interest expense for the quarter ended March 31, 2006
was $1,414,000, an increase of $369,000, or 35.3%, from the same period in 2005. The increase in
interest expense occurred due to both increases in rate and average volume of interest-bearing
liabilities. The average balance of interest-bearing liabilities rose $2.1 million with an average
rate increase of 60 basis points to 2.36% for the quarter ended March 31, 2006 as compared to the
quarter ended March 31, 2005. Average interest-bearing deposits increased $4.6 million over the
first quarter of 2005, while average interest bearing liabilities decreased $2.5 million over the
same period.
The provision for loan losses for the quarter ended March 31, 2006 was $32,000, compared to a
$106,000 provision for the same quarter in 2005. The provision for loan losses is determined based
on management’s calculation 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 March 31, 2006 of $611,000 represents a decrease of
$170,000 or 21.8%, compared to the same quarter in 2005. This reduction was primarily due to a
decrease in the gain on the sale of securities of $247,000, a decrease in trust and brokerage
income of $25,000, offset by increases of $103,000 in fees on deposits. The increases in deposit
fees were a result of the consumer and small business customer use of fee-based products, primarily
an overdraft privilege program that was implemented during the fourth quarter of 2005.
Non-interest expenses for the quarter ended March 31, 2006 increased $71,000 or 2.6%, compared to
the first quarter of 2005. This increase was due primarily to the increase in salaries and
employee benefit expense of $89,000 resulting from additional expense for executive bonuses and
annual employee compensation increases. The Company recognized stock-based compensation expense
under FAS 123(R) of $2,500 for the quarter ended March 31, 2006. Professional and director fees
increased $18,000 primarily due to expenses related to engagement of an outside consultant to
perform a management compensation review as well as increases in director fees. Other expense
decreased during the first
12.
CSB BANCORP, INC.
quarter of 2006 due to a reduction in security personnel costs and cash
losses related to two robberies at a branch office in 2005.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY
Liquidity refers to the Company’s ability to generate sufficient cash to fund current loan demand,
meet deposit withdrawals, pay operating expenses and meet other obligations. The Company’s primary
sources of liquidity are cash and cash equivalents, which totaled $10.3 million at March 31, 2006 a
decrease of $6.3 million from $16.6 million at December 31, 2005. Net income, securities
available-for-sale, and loan repayments also serve as sources of liquidity. Cash and cash
equivalents and securities maturing within one year represent 5.6% of total assets as of March 31,
2006 compared to 7.7% of total assets at year-end 2005. 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 both short and long-term liquidity
needs of the Company.
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 three months of 2006, the Company’s contractual obligations have not changed
materially from those discussed in the Company’s Annual Report of Form 10-K for the year ended
December 31, 2005.
13.
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 March 31, 2006 from that presented in the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2005. Management performs a quarterly analysis of the
Company’s interest rate risk. All positions are currently within the Board-approved policy.
The following table presents an analysis of the estimated sensitivity of the Company’s annual net
interest income to sudden and sustained 100 basis point changes in market interest rates at March
31, 2006 and December 31, 2005:
March 31, 2006
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Changes in |
|
|
|
|
|
|
| Interest Rates |
|
Net Interest |
|
Dollar |
|
Percentage |
| (basis points) |
|
Income |
|
Change |
|
Change |
| (Dollars in Thousands) |
| |
+200 |
|
|
$ |
14,229 |
|
|
$ |
856 |
|
|
|
6.4 |
% |
| |
+100 |
|
|
|
13,756 |
|
|
|
384 |
|
|
|
2.9 |
|
| |
0 |
|
|
|
13,373 |
|
|
|
0 |
|
|
|
0.0 |
|
| |
-100 |
|
|
|
13,058 |
|
|
|
(315 |
) |
|
|
(2.4 |
) |
| |
-200 |
|
|
|
12,582 |
|
|
|
(791 |
) |
|
|
(5.9 |
) |
December 31, 2005
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Changes in |
|
|
|
|
|
|
| Interest Rates |
|
Net Interest |
|
Dollar |
|
Percentage |
| (basis points) |
|
Income |
|
Change |
|
Change |
| (Dollars in Thousands) |
| |
+200 |
|
|
$ |
15,042 |
|
|
$ |
1,198 |
|
|
|
8.7 |
% |
| |
+100 |
|
|
|
14,387 |
|
|
|
544 |
|
|
|
3.9 |
|
| |
0 |
|
|
|
13,844 |
|
|
|
0 |
|
|
|
0.0 |
|
| |
-100 |
|
|
|
13,383 |
|
|
|
(461 |
) |
|
|
(3.3 |
) |
| |
-200 |
|
|
|
12,741 |
|
|
|
(1,103 |
) |
|
|
(8.0 |
) |
14.
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 disclosed by the Company in this Quarterly Report on Form 10-Q would be
accumulated and communicated to the Company’s 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 Securities
and Exchange Commission’s rules and forms; and
(c) the Company’s 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.
15.
CSB BANCORP, INC.
FORM 10-Q
Quarter ended March 31, 2006
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 CSB’s Annual Report on Form 10-K for the
period ended December 31, 2005.
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 |
| |
January 1, 2006 to
January 31, 2006 |
|
None |
|
None |
|
None |
|
|
198,027 |
|
February 1, 2006 to
February 28, 2006 |
|
|
11,094 |
|
|
$ |
21.25 |
|
|
|
11,094 |
|
|
|
186,933 |
|
March 1, 2006 to
March 31, 2006 |
|
None |
|
None |
|
None |
|
|
186,933 |
|
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 Company’s common shares 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.
16.
CSB BANCORP, INC.
FORM 10-Q
Quarter ended March 31, 2006
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) CEO’s Certification |
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) CFO’s Certification |
|
|
|
32.1
|
|
Section 1350 CEO’s Certification |
|
|
|
32.2
|
|
Section 1350 CFO’s Certification |
17.
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: May 12, 2006
|
|
/s/ Eddie L. Steiner |
|
|
|
|
|
|
|
|
|
Eddie L. Steiner |
|
|
|
|
President |
|
|
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
Date: May 12, 2006
|
|
/s/ Paula J. Meiler |
|
|
|
|
|
|
|
|
|
Paula J. Meiler |
|
|
|
|
Senior Vice President |
|
|
|
|
Chief Financial Officer |
|
|
18.
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.) |
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31.1
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Rule 13a-14(a)/15d-14(a) CEO’s Certification |
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31.2
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Rule 13a-14(a)/15d-14(a) CFO’s Certification |
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32.1
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Section 1350 CEO’s Certification |
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32.2
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Section 1350 CFO’s Certification |
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19.