# CSB Bancorp, Inc.: Form 10-Q for the period ended Mar 31, 2011

- Company: [CSB Bancorp, Inc.](/companies/csbb.md) (CIK 880417)
- Form: 10-Q
- Filed: 2011-05-13
- Accepted by EDGAR: May 13, 2011, 15:54 ET
- Period: 2011-03-31
- Accession: 0000950123-11-050106
- Inline XBRL: no
- Main document: https://www.sec.gov/Archives/edgar/data/880417/000095012311050106/l42708e10vq.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/880417/000095012311050106/

## Management's discussion and analysis

As filed, 14,539 characters.

The following discussion focuses on the consolidated financial condition of CSB Bancorp, Inc. and its subsidiaries (the “Company”) at March 31, 2011 as compared to December 31, 2010, and the consolidated results of operations for the three month period ended March 31, 2011 compared to the same periods in 2010. 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 $445.4 million at March 31, 2011, compared to $457.1 million at December 31, 2010, representing a decrease of $11.7 million, or 2.6%. Cash and cash equivalents decreased $26.4 million, or 54.5%, during the three-month period ending March 31, 2011, primarily as a result of increases in securities and loans. Securities increased $7.9 million, or 9.8%, during the first three months of 2011 as purchases were made within the US Government Agency portfolio and mortgage-backed securities issued by government sponsored agencies. Net loans increased $6.4 million, or 2.0%, while deposits decreased $5.3 million, or 1.5%, during the three-month period. Short-term borrowings of securities sold under repurchase agreement decreased $3.6 million and Federal Home Loan Bank advances decreased $3.2 million, during the period as advances matured and required amortized payments were made on outstanding advances at the Federal Home Loan Bank.

Net loans increased $6.4 million, or 2.0%, during the three-month period ended March 31, 2011. Commercial loans increased $7.2 million, or 9.2%, commercial real estate loans increased $1.0 million, or 1.0%, and home equity lines increased $192 thousand, or 1.0%, over December 31, 2010. Decreases were recognized in real estate mortgage loans of $2.1 million, or 2.9% and consumer installment loans of $135 thousand, or 2.0%. Consumers continued to refinance their mortgage loans for lower long-term rates offered in the secondary market. The allowance for loan losses amounted to $4.0 million or 1.25% of total loans at March 31, 2011 compared to $4.0 million or 1.28% of total loans at December 31, 2010.

22.

The allowance for loan losses as a percentage of total loans decreased at March 31, 2011 as compared to December 31, 2010. Outstanding loan balances increased 2.0% to $322 million at March 31, 2011 while net charge-offs of $283 thousand were partially offset by a provision of $280 thousand to the allowance for the three months ended March 31, 2011. Non-performing loans decreased $677 thousand or 15% from December 31, 2010, with improvement in both the past-due 90 days and still accruing and the non accrual loan categories.

*(Dollars in thousands)*

|  | March 31, 2011 | December 31, 2010 | March 31, 2010 |
| --- | ---: | ---: | ---: |
| Non-performing loans | $3,913 | $4,589 | $6,221 |
| Other real estate | 30 | 36 | 271 |
| Allowance for loan losses | 4,028 | 4,031 | 4,356 |
| Total loans | 322,017 | 315,647 | 310,899 |
| Allowance: loans | 1.25% | 1.28% | 1.40% |
| Allowance: non-performing loans | 1.0 x | 0.9 x | 0.7 x |

The ratio of gross loans to deposits was 92.5% at March 31, 2011, compared to 89.3% at December 31, 2010. The increase in this ratio is the result of increases in loan volume and decreases in deposits during the three months ended March 31, 2011.

The Company had net unrealized gains of $1.2 million within its securities portfolio at March 31, 2011, compared to net unrealized gains of $1.3 million at December 31, 2010. The Company has no exposure to government -sponsored enterprise preferred stocks, collateralized debt obligations or trust preferred securities. The Company holds 2 issues of nonagency collateralized mortgage obligations that have paid down to $980 thousand outstanding from an original face of $5.5 million. The Company has the ability and intent to hold the bonds until the recovery of their cost and there is no significant evidence to support an adverse change in the expected cash flows. Management has considered industry analyst reports, sector credit reports and the volatility within the bond market in concluding that the gross unrealized losses of $470 thousand within the total portfolio as of March 31, 2011, were primarily the result of customary and expected fluctuations in the bond market and not necessarily the expected cash flows of the individual securities. As a result, all security impairments detailed above on March 31, 2011, are considered temporary and no impairment loss relating to these securities has been recognized.

Short-term borrowings decreased $3.6 million from December 31, 2010 and other borrowings decreased $3.2 million as the Company used cash from interest- earning deposits in other banks to repay required maturities and monthly payments on advances from the Federal Home Loan Bank (“FHLB”).

Deposits decreased $5.3 million or 1.5% from December 31, 2010 with non-interest bearing deposits decreasing $8.8 million and interest-bearing deposit accounts increasing $3.5 million. By deposit type, increases were recognized in statement savings and passbooks and money market savings accounts for the period ended March 31, 2011.

Total shareholders’ equity amounted to $47.5 million, or 10.7%, of total assets, at March 31, 2011, compared to $47.2 million, or 10.3% of total assets, at December 31, 2010. The increase in shareholders’ equity during the three-months ended March 31, 2011 was due to net income of $896 thousand. The increase was partially offset by dividends declared of $492 thousand and a decrease in other comprehensive income of $101 thousand. The Company and its subsidiary bank met all regulatory capital requirements at March 31, 2011.

23.

### RESULTS OF OPERATIONS

### Three months ended March 31, 2011 and 2010

For the quarter ended March 31, 2011, the Company recorded net income of $896 thousand or $0.33 per share, as compared to net income of $737 thousand, or $0.27 per share for the quarter ended March 31, 2010. The $159 thousand increase in net income for the quarter was a result of a decrease in the provision for loan losses of $239 thousand, net interest income increasing $53 thousand and an increase in other income of $30 thousand. These gains were partially offset by an increase in noninterest expense of $79 thousand and an increase in the federal income tax provision of $84 thousand. Return on average assets and return on average equity were 0.80% and 7.67%, respectively, for the three-month period of 2011, compared to 0.67% and 6.44%, respectively for 2010.

### Average Balance Sheets and Net Interest Margin Analysis

*(Dollars in thousands)*

| ASSETS | For the three months ended March 31, 2011 Average balance | Average rate | 2010 Average balance | Average rate |
| --- | ---: | ---: | ---: | ---: |
| Due from banks-interest bearing | $23,321 | 0.30% | $31,185 | 0.25% |
| Federal funds sold | 90 | 0.11 | 186 | 0.11 |
| Taxable securities | 73,941 | 3.26 | 69,650 | 4.37 |
| Tax-exempt securities | 11,688 | 5.12 | 9,677 | 5.31 |
| Loans | 319,646 | 5.39 | 311,789 | 5.61 |
| Total earning assets | 428,686 | 4.74% | 422,487 | 5.00% |
| Other assets | 22,980 |  | 22,429 |  |
| **TOTAL ASSETS** | $451,666 |  | $444,916 |  |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY** |  |  |  |  |
| Interest bearing demand deposits | $52,341 | 0.08% | $53,946 | 0.08% |
| Savings deposits | 82,242 | 0.27 | 71,994 | 0.39 |
| Time deposits | 149,844 | 1.95 | 148,665 | 2.17 |
| Other borrowed funds | 53,092 | 1.73 | 69,901 | 2.31 |
| Total interest bearing liabilities | 337,519 | 1.22% | 344,506 | 1.50% |
| Non-interest bearing demand deposits | 65,147 |  | 52,381 |  |
| Other liabilities | 1,613 |  | 1,589 |  |
| Shareholders’ Equity | 47,387 |  | 46,440 |  |
| **TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY** | $451,666 |  | $444,916 |  |
| Taxable equivalent net interest spread |  | 3.52% |  | 3.50% |
| Taxable equivalent net interest margin |  | 3.78% |  | 3.78% |

Interest income for the quarter ended March 31, 2011, was $4.9 million representing a $210 thousand decrease, or 4.1% decline, compared to the same period in 2010. This decrease was primarily due to a decline in the average taxable investment yield of 1.11% to 3.26% for the quarter ended March 31, 2011 as compared to a taxable investment yield of 4.37% for the first quarter ended March 31, 2010. Additionally, average loan yields declined by 0.22% to 5.39% from 5.61% for the quarter ended March 31, 2011 as compared the first quarter 2010. Interest expense for the quarter ended March 31, 2011 was $1.0 million, a decrease of $263 thousand or 20.6%, from the same period in 2010. The decrease in interest expense occurred primarily due to decrease of 0.58% in interest rates paid on other borrowed funds representing FHLB advances combined with the maturity and payback of $16.8 million of average FHLB advances from the previous year.

24.

The provision for loan losses for the quarter ended March 31, 2011, was $280 thousand, compared to a $519 thousand provision for the same quarter in 2010. 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, 2011, was $761 thousand, an increase of $30 thousand, or 4.1%, compared to the same quarter in 2010. During the first quarter ended 2011, service charges on deposit accounts decreased $24 thousand or 8.9%, as consumers decreased their usage of overdraft products and maintained higher average deposit balances. The gain on the sale of mortgage loans to the secondary market increased to $70 thousand for the three month period ended March 31, 2011, from $46 thousand in the three-month period ended March 31, 2010. Refinancing activity has moderated and may continue to decline for the rest of 2011.

The Company sold no securities during the first quarter of 2011 or 2010.

Non-interest expenses for the quarter ended March 31, 2011 increased $79 thousand, or 2.6%, compared to the first quarter of 2010. Salaries and employee benefits increased $159 thousand, or 9.9%. Incentive and profit sharing accruals of $158 thousand were recorded for the quarter ending March 31, 2011 compared to no incentive and profit sharing accruals being recorded for the quarter ending March 31, 2010.

Occupancy and equipment expenses decreased $7 thousand in 2011 over the first quarter of 2010. Other operating expenses decreased $61 thousand primarily due to lower loan collection expense.

Federal income tax expense increased $84 thousand, or 26.7% for the quarter ended March 31, 2011 as compared to the first quarter of 2010. The provision for income taxes was $399 thousand (effective rate of 30.8%) for the quarter ended March 31, 2011, compared to $315 thousand (effective rate of 29.9%) for the quarter ended March 31, 2010. The increase in the effective tax rate resulted from improved 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, 2010, and as of March 31, 2011 the holding company and its bank meet all capital adequacy requirements to which they are subject.

25.

### 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 $22.0 million at March 31, 2011, a decrease of $26.4 million from $48.4 million at December 31, 2010. 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 10.5% of total assets as of March 31, 2011 compared to 13.7% of total assets at year-end 2010. 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.

26.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

## Market risk

As filed, 1,434 characters.

There have been no material changes in the quantitative and qualitative disclosures about market risks as of March 31, 2011, from that presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010. 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, 200 and 300 basis point changes in market interest rates at March 31, 2011 and December 31, 2010. Due to the current low interest rate environment, particularly for short-term rates, the decreasing change is not calculated, and instead a 300 basis point rising rate environment is shown:

*March 31, 2011*

*(Dollars in thousands)*

| Change in interest rates (basis points) | Net interest income | Dollar change | Percentage change |
| --- | ---: | ---: | ---: |
| + 300 | $16,784 | $205 | 1.2% |
| + 200 | 16,612 | 33 | 0.2 |
| + 100 | 16,583 | 4 | 0.0 |
| 0 | 16,579 | — | — |
| - 100 | N/A | N/A | N/A |

*December 31, 2010*

| Change in interest rates (basis points) | Net interest income | Dollar change | Percentage change |
| --- | ---: | ---: | ---: |
| + 300 | $16,275 | $443 | 2.8% |
| + 200 | 16,073 | 241 | 1.5 |
| + 100 | 15,906 | 74 | 0.5 |
| 0 | 15,832 | — | — |
| - 100 | N/A | N/A | N/A |

## Controls and procedures

As filed, 1,076 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

27.

CSB BANCORP, INC.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

## Risk factors

As filed, 438 characters.

**ITEM 2-** 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 then outstanding. Repurchases will be made from time to time as market and business conditions warrant, in the open market, through block purchases and in negotiated private transactions.

Filed May 13, 2011.
Source: SEC EDGAR, the filing index for accession 0000950123-11-050106. Last ingested by Listed: Nov 2, 2026, 09:27 ET. No prices; not investment advice.