# CSB Bancorp, Inc.: Form 10-Q for the period ended Mar 31, 2010

- Company: [CSB Bancorp, Inc.](/companies/csbb.md) (CIK 880417)
- Form: 10-Q
- Filed: 2010-05-14
- Accepted by EDGAR: May 14, 2010, 14:43 ET
- Period: 2010-03-31
- Accession: 0000950123-10-049564
- Inline XBRL: no
- Main document: https://www.sec.gov/Archives/edgar/data/880417/000095012310049564/l39773e10vq.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/880417/000095012310049564/

## Management's discussion and analysis

As filed, 12,894 characters.

The following discussion focuses on the consolidated financial condition of CSB Bancorp, Inc. and its subsidiaries (the “Company”) at March 31, 2010 as compared to December 31, 2009, and the consolidated results of operations for the quarter ended March 31, 2010 compared to the same period in 2009. 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 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 $435.6 million at March 31, 2010, compared to $450.7 million at December 31, 2009, representing a decrease of $15.0 million or 3.3%. Cash and cash equivalents decreased $6.0 million, or 14.0%, during the three-month period ending March 31, 2010, due to an $4.7 million decrease in deposits held at the Federal Reserve Bank and a $1.3 million decrease in cash and due from banks. Securities decreased $6.9 million or 9.2% during the first three months of 2010 primarily due to calls within the US Agency portfolio and principal repayments within the mortgage-backed securities portfolio. Net loans decreased $2.9 million, or 0.9%, while deposits decreased $3.3 million, or 1.0%, during the three-month period. Short-term borrowings of securities sold under repurchase agreement increased $857 thousand and Federal Home Loan Bank advances decreased $12.8 million, during the period as advances matured and required amortized payments were made on outstanding advances at the Federal Home Loan Bank.

Net loans decreased $2.9 million, or 0.9%, during the three-month period ended March 31, 2010. Commercial loans increased $821 thousand or 0.4% and home equity lines increased $1.0 million or 3.1% over December 31, 2009. Decreases were recognized in real estate mortgage loans of $3.2 million or 3.8% and consumer installment loans of $558 thousand or 7.3%. Consumers increased their refinancing of mortgage loans for lower rates offered in the secondary market. The allowance for loan losses amounted to $4.4 million or 1.40% of total loans at March 31, 2010 compared to $4.1 million or 1.29% of total loans at December 31, 2009.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The allowance for loan losses as a percentage of total loans increased at March 31, 2010 as compared to December 31, 2009 as the additional provision of $519 exceeded net charge-offs of $223 for the three months ended March 31, 2010 and outstanding loan balances decreased 1% to $310,899 at March 31, 2010. Non-performing loans have increased $2.1 million or 50% from December 31, 2009, primarily the result of the bank’s internal analysis of cash flows of one $2.5 million commercial real estate loan and related line being moved to nonaccrual status.

*(dollars in thousands)*

|  | March 31, 2010 | December 31, 2009 | March 31, 2009 |
| --- | ---: | ---: | ---: |
| Non-performing loans | $6,221 | $4,141 | $4,123 |
| Other real estate | 251 | 162 | 59 |
| Allowance for loan losses | 4,356 | 4,059 | 3,402 |
| Total loans | 310,899 | 313,482 | 319,425 |
| Allowance: loans | 1.40% | 1.29% | 1.07% |
| Allowance: non-performing loans | 0.7 x | 1.0 x | 0.8 x |

The ratio of gross loans to deposits was 95.3% at March 31, 2010, compared to 95.1% at December 31, 2009. The increase in this ratio is primarily the result of the decrease in deposits exceeding the decrease in loans during the three months ended March 31, 2009.

The Company recognized no gains or losses from the sales of securities for the first three months of 2010 as compared to recognizing gross gains on sales of available for sale securities of $151 (tax provision of $51) which was partially offset by the recognition of a $35 (tax benefit of $12) from other than temporary impairment of an equity investment during the quarter ended March 31, 2009. The Company had net unrealized gains of $1,775 within its securities portfolio at March 31, 2010, compared to net unrealized gains of $1,618 at December 31, 2009. Management has considered industry analyst reports, sector credit reports and the volatility within the bond market in concluding that the gross unrealized losses of $231 within the portfolio as of March 31, 2010, were primarily the result of customary and expected fluctuations in the bond market. As a result, all security impairments as of March 31, 2010, are considered temporary.

The Company has no exposure to government-sponsored enterprise preferred stocks, collateralized debt obligations or trust preferred securities and only an immaterial amount of nonagency collateralized mortgage obligations. Total gross unrealized security losses within the portfolio were an immaterial 0.3% of total available-for-sale securities at March 31, 2010, reflecting interest rate fluctuations, not credit downgrades.

Short-term borrowings increased $857 thousand from December 31, 2009 and other borrowings decreased $12.8 million as the Company used cash flows from investments to repay required maturities and monthly payments on advances from the Federal Home Loan Bank (“FHLB”).

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Deposits decreased $3.3 million, or 1% from December 31, 2009 with non-interest bearing deposits declining $1.4 million and interest-bearing deposit accounts decreasing $1.9 million. By deposit type, increases were recognized in interest-bearing checking accounts and money market savings accounts for the three-month period ended March 31, 2010.

Total shareholders’ equity amounted to $46.2 million, or 10.6%, of total assets, at March 31, 2010, compared to $45.8 million, or 10.2% of total assets, at December 31, 2009. The increase in shareholders’ equity during the three months ended March 31, 2010 was due to net income of $737 and changes in accumulated other comprehensive income of $104. The increase was partially offset by dividends declared of $492. The Company and its subsidiary bank met all regulatory capital requirements at March 31, 2010.

### RESULTS OF OPERATIONS

### Three months ended March 31, 2010 and 2009

For the quarter ended March 31, 2010, the Company recorded net income of $737 or $0.27 per share, as compared to net income of $896, or $0.33 per share for the quarter ended March 31, 2009. The $159 decrease in net income for the quarter was principally due to the increase in the provision for loan losses of $278 for the quarter ended March 31, 2010. On a core basis, net interest income decreased $13, other income increased $51 (exclusive of the $116 gain on sale of securities in 2009) and other expenses decreased $88.

Interest income for the quarter ended March 31, 2010, was $5,156 representing a $424 decrease, or 7.6% decline, compared to the same period in 2009. This decrease was primarily due to a decline in the average loan yield of 0.29% to 5.61% for the quarter ended March 31, 2010 as compared to 5.90% for the first quarter ended March 31, 2009. Additionally, average loan volume declined by $6.5 million to $311,789 for the quarter ended March 31, 2010 as compared the first quarter 2009. Investment interest income decreased $121 as both investment volume and yield decreased in 2010 over the first quarter in 2009. Interest expense for the quarter ended March 31, 2010 was $1,275 a decrease of $411 or 24.4%, from the same period in 2009. The decrease in interest expense occurred due to decreases in interest rates across the board for the quarter ended March 31, 2010. During first quarter 2010, maturing time deposits continued to renew at interest rates that were lower.

The provision for loan losses for the quarter ended March 31, 2010, was $519, compared to a $241 provision for the same quarter in 2009. The provision for loan losses is determined based on management’s 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 March 31, 2010, was $731, a decrease of $65, or 8.2%, compared to the same quarter in 2009. During the quarter ended 2009, the Company recognized a gross gain of $151 on the sale of investments that was partially offset by the recording of an other than temporary impairment of $35 on equity securities. Trust and brokerage fees increased $27 on a year over year quarter as increases were recognized on the market value of assets under management.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Non-interest expenses for the quarter ended March 31, 2010, decreased $88, or 2.8%, compared to the first quarter of 2009. Salaries and employee benefits decreased $104, or 6.1%, primarily due to the decrease in incentive and profit sharing accruals in the quarter ended March 31, 2010. Occupancy and equipment expenses decreased $31 and other operating expenses increased $12. State franchise tax increased $25 due to the increased capital of the franchise.

Federal income tax expense decreased $109, or 25.7% for the quarter ended March 31, 2010 as compared to the first quarter of 2009. The provision for income taxes was $315 (effective rate of 29.9%) for the quarter ended March 31, 2010, compared to $424 (effective rate of 32.1%) for the quarter ended March 31, 2009. The decrease in the effective tax rate resulted from an increase in tax-exempt interest income.

### 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 Company’s financial condition or results of operations. Management believes there were no material changes to Capital Resources as presented in CSB Bancorp’s annual report on Form 10-K for the year ended December 31, 2009, and as of March 31, 2010 the holding company and its bank meet all capital adequacy requirements to which they are subject.

### 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 $36.7 million at March 31, 2010, a decrease of $6.0 million from $42.7 million at December 31, 2009. 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 12.3% of total assets as of March 31, 2010 compared to 15.0% of total assets at year-end 2009. 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.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

## Market risk

As filed, 1,283 characters.

There have been no material changes in the quantitative and qualitative disclosures about market risks as of March 31, 2010, from that presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009. Management performs a quarterly analysis of the Company’s interest rate risk. All positions are currently within the Company’s 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 and 200 basis point changes in market interest rates at March 31, 2010 and December 31, 2009:

### March 31, 2010

*(Dollars in Thousands)*

| Changes in Interest Rates (basis points) | Net Interest Income | Dollar Change | Percentage Change |
| ---: | ---: | ---: | ---: |
| +200 | 16,347 | $468 | 2.9% |
| +100 | 15,941 | 62 | 0.4 |
| 0 | 15,879 | 0 | 0.0 |
| -100 | N/A | N/A | N/A |
| -200 | N/A | N/A | N/A |

### December 31, 2009

*(Dollars in Thousands)*

| Changes in Interest Rates (basis points) | Net Interest Income | Dollar Change | Percentage Change |
| ---: | ---: | ---: | ---: |
| +200 | $17,287 | $849 | 5.2% |
| +100 | 16,739 | 301 | 1.8 |
| 0 | 16,438 | 0 | 0.0 |
| -100 | N/A | N/A | N/A |
| -200 | N/A | N/A | N/A |

19

CSB BANCORP, INC

## Controls and procedures

As filed, 1,807 characters.

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 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 SEC’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.

CSB BANCORP, INC

FORM 10-Q

Quarter ended March 31, 2010

## Risk factors

As filed, 155 characters.

There were no material changes to the Risk Factors described in Item 1A in the Company’s Annual Report on Form 10-K for the period ended December 31, 2009.

Filed May 14, 2010.
Source: SEC EDGAR, the filing index for accession 0000950123-10-049564. Last ingested by Listed: Nov 2, 2026, 09:27 ET. No prices; not investment advice.