# CSB Bancorp, Inc.: Form 10-Q for the period ended Mar 31, 2009

- Company: [CSB Bancorp, Inc.](/companies/csbb.md) (CIK 880417)
- Form: 10-Q
- Filed: 2009-05-14
- Accepted by EDGAR: May 14, 2009, 15:41 ET
- Period: 2009-03-31
- Accession: 0000950152-09-005232
- Inline XBRL: no
- Main document: https://www.sec.gov/Archives/edgar/data/880417/000095015209005232/l36508ae10vq.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/880417/000095015209005232/

## Management's discussion and analysis

As filed, 14,535 characters.

The following discussion focuses on the consolidated financial condition of CSB Bancorp, Inc. and its subsidiaries (the “Company”) at March 31, 2009 as compared to December 31, 2008, and the consolidated results of operations for the quarter ended March 31, 2009 compared to the same period in 2008. 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 $422.4 million at March 31, 2009, compared to $424.7 million at December 31, 2008, representing a decrease of $2.3 million or 0.5%. Cash and cash equivalents increased $6.8 million, or 53.4%, during the three-month period ending March 31, 2009, due to an $8.0 million increase in deposits held at the Federal Reserve Bank partially offset by a decrease in cash and due from banks. Securities decreased $11.3 million or 15.0% during the first three months of 2009 primarily due to calls within the US Agency portfolio and principal repayments within the mortgage-backed securities portfolio. Net loans increased $3.1 million, or 1.0%, while deposits decreased $862,000, or 0.3%, during the three-month period. Short-term borrowings of Federal funds purchased, securities sold under repurchase agreement and Federal Home Loan Bank borrowings decreased $2.5 million, while other borrowings decreased $408,000 during the period as required amortized payments were made on outstanding advances at the Federal Home Loan Bank.

Net loans increased $3.1 million, or 1.0%, during the three-month period ended March 31, 2009. Commercial loans increased $5.1 million or 2.8% and home equity lines increased $1.5 million or 5.6% over December 31, 2008. Decreases were recognized in real estate mortgage loans of $3.4 million or 3.5% and consumer installment loans of $300,000 or 3.4%. Consumers increased their refinancing of mortgage loans for lower rates offered in the secondary market. The allowance for loan losses amounted to $3,402,000, or 1.07% of total loans at March 31, 2009 compared to $3,394,000 or 1.07% of total loans at December 31, 2008.

12.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The allowance for loan losses as a percentage of total loans remained stable at March 31, 2009 as compared to December 31, 2008 as the additional provision of $241,000 exceeded net charge-offs of $233,000 for the three months ended March 31, 2009 and outstanding loan balances grew 1% to $319,425,000 for the three months ended March 31, 2009. Non-performing loans have increased $1,480,000 or 56% from December 31, 2008. The growth of total delinquent loans (including all nonperforming loans) has increased at a much lower rate with total delinquent loans increasing $187,000, or 3.2%, to $6,020,000 at March 31, 2009 from $5,833,000 at December 31, 2008. The majority of the increase in nonperforming loans results from delinquent loans acquired through the Indian Village business combination whose payment streams have deteriorated. However, total loan delinquency is only slightly increased in the three month period ended March 31, 2009 as compared to December 31, 2008.

*(dollars in thousands)*

|  | March 31, 2009 | December 31, 2008 | March 31, 2008 |
| --- | ---: | ---: | ---: |
| Non-performing loans | $4,123,091 | $2,642,728 | $431,000 |
| Other real estate | 59,000 | 79,000 | 0 |
| Allowance for loan losses | 3,401,888 | 3,393,685 | 2,690,830 |
| Total loans | 319,424,751 | 316,290,412 | 246,983,893 |
| Allowance: loans | 1.07% | 1.07% | 1.09% |
| Allowance: non-performing loans | .8 x | 1.3 x | 6.2 x |

The ratio of gross loans to deposits was 104.9% at March 31, 2009, compared to 103.5% at December 31, 2008. The increase in this ratio is primarily the result of loan growth combined with deposit shrinkage experienced during the three months ended March 31, 2009.

The Company recognized gross gains on sales of available for sale securities of $151,000 (tax provision of $51,000) which was partially offset by the recognition of a $35,000 (tax benefit of $11,900) from other than temporary impairment of an equity investment during the quarter ended March 31, 2009. There were no sales or impairments recognized on securities for the three month period ending March 31, 2008. The Company had net unrealized gains of $1,003,000 within its securities portfolio at March 31, 2009, compared to net unrealized gains of $218,000 at December 31, 2008. Management has considered industry analyst reports, sector credit reports and the volatility within the bond market in concluding that the gross unrealized losses of $397,000 within the portfolio as of March 31, 2009, were primarily the result of customary and expected fluctuations in the bond market. As a result, all security impairments as of March 31, 2009, are considered temporary.

Management continues to evaluate the four (4) private label CMOs held within the investment portfolio for any deterioration of investment quality. As of March 31, 2009, within this investment sector, the Company has $3.3 million current value investments, original face of $7.5 million, with gross unrealized losses of $277,000. All bonds are investment grade as of March 31, 2009, collateralized primarily by 1-4 family mortgage loans and borrowers in a wide geographical dispersion. All credit scores and loan to value ratios exceed sub prime status.

Short-term borrowings decreased $2.5 million from December 31, 2008 and other borrowings decreased $407,000 as the Company used cash flows from investments to repay required monthly payments on advances from the Federal Home Loan Bank (“FHLB”).

13.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Deposits decreased $862,000, or 0.3% from December 31, 2008 with non-interest bearing deposits declining $6.4 million and interest-bearing deposit accounts increasing $5.5 million. By deposit type, increases were recognized in money market savings accounts and all time deposits for the three-month period ended March 31, 2009.

Total shareholders’ equity amounted to $44.4 million, or 10.5%, of total assets, at March 31, 2009, compared to $43.5 million, or 10.2% of total assets, at December 31, 2008. The increase in shareholders’ equity during the three months ended March 31, 2009 was due to net income of $896,000 and changes in accumulated other comprehensive income of $518,000. The increase was partially offset by dividends declared of $492,000. The Company and its subsidiary bank met all regulatory capital requirements at March 31, 2009.

### RESULTS OF OPERATIONS

### Three months ended March 31, 2009 and 2008

For the quarter ended March 31, 2009, the Company recorded net income of $896,000, or $0.33 per share, as compared to net income of $1,002,000, or $0.41 per share for the quarter ended March 31, 2008. The $106,000 decrease in net income for the quarter was principally due the sale of the credit card portfolio for an after tax gain of $172,000 in 2008. On a core basis, net interest income increased $514,000, other income increased $102,000 increase (exclusive of the $$261,000 gain on sale of credit cards in 2008) while the provision for income taxes decreased $74,000 These increases to income were partially offset by an increase of $400,000 on other expenses and a $134,000 increase in the provision for loan losses.

Interest income for the quarter ended March 31, 2009, was $5,579,000, representing a $296,000 increase, or 5.6%, compared to the same period in 2008. This increase was primarily due to an increase in average loan volume of $64.0 million which was partially offset by a decline in average loan yield of 5.92% for the quarter ended March 31, 2009 as compared to 6.96% for the first quarter ended March 31, 2008. Investment interest income increased $107,000 as both investment volume and yield increased in 2009 over the first quarter in 2008 Interest expense for the quarter ended March 31, 2009 was $1,686,000, a decrease of $218,000, or 11.4%, from the same period in 2008. The decrease in interest expense occurred due to decreases in interest rates across the board for the quarter ended March 31, 2009. During first quarter 2009, maturing time deposits renewed at interest rates that were lower.

The provision for loan losses for the quarter ended March 31, 2009, was $241,000, compared to a $107,000 provision for the same quarter in 2008. 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, 2009, was $796,000, a decrease of $159,000, or 16.7%, compared to the same quarter in 2008. During the quarter ended March 31, 2008 the Company recognized a gain on sale of their outstanding credit card portfolio of $261,000. During the quarter ended 2009, the Company recognized a gross gain of $151,000 on the sale of investments which was partially offset by the recording of an other than temporary impairment of $35,000 on equity securities. Trust and brokerage fees decreased $74,000 on a year over year quarter as declines were recognized in both the number of accounts and the market value of assets under management.

14.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Non-interest expenses for the quarter ended March 31, 2009, increased $400,000, or 14.7%, compared to the first quarter of 2008. Salaries and employee benefits increased $171,000, or 11.1%, primarily due to the acquisition of three branch offices in the Indian Village merger, merit increases, and increased medical and retirement benefits. Occupancy and equipment expenses increased $54,000 and other operating expenses increased $169,000 primarily the result of the Indian Village acquisition. Federal deposit insurance premiums increased for the quarter ended March 31, 2009 as compared to the same period in the prior year. This increase is primarily attributable to an increase in the rates charged to financial institutions by the FDIC. The FDIC implemented a special assessment of 20 basis points taking effect on April 1, 2009 that will apply to assessments for the second quarter of 2009 and thereafter. We anticipate a significant increase in our assessment expense in 2009 as a result of the increase. It is possible that certain legislation, if passed in the future, could reduce the special assessment to 10 basis points or lower.

Federal income tax expense decreased $74,000, or 14.9% for the quarter ended March 31, 2009 as compared to the first quarter of 2008. The provision for income taxes was $424,000 (effective rate of 32.1%) for the quarter ended March 31, 2009, compared to $498,000 (effective rate of 33.2%) for the quarter ended March 31, 2008. 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, 2008, and as of March 31, 2009 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 $19.6 million at March 31, 2009, an increase of $6.8 million from $12.7 million at December 31, 2008. 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 11.9% of total assets as of March 31, 2009 compared to 6.6% of total assets at year-end 2008. 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.

15.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

## Market risk

As filed, 1,269 characters.

There have been no material changes in the quantitative and qualitative disclosures about market risks as of March 31, 2009, from that presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008. 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, 2009 and December 31, 2008:

### March 31, 2009

*(Dollars in Thousands)*

| Changes in Interest Rates (basis points) | Net Interest Income | Dollar Change | Percentage Change |
| ---: | ---: | ---: | ---: |
| +200 | 16,063 | $674 | 4.4% |
| +100 | 15,777 | 388 | 2.5 |
| 0 | 15,389 | 0 | 0.0 |
| -100 | N/A | N/A | N/A |
| -200 | N/A | N/A | N/A |

### December 31, 2008

*(Dollars in Thousands)*

| Changes in Interest Rates (basis points) | Net Interest Income | Dollar Change | Percentage Change |
| ---: | ---: | ---: | ---: |
| +200 | $16,084 | $651 | 4.2% |
| +100 | 15,786 | 353 | 2.3 |
| 0 | 15,433 | 0 | 0.0 |
| -100 | 15,532 | 99 | 0.6 |
| -200 | N/A | N/A | N/A |

16.

## Controls and procedures

As filed, 3,463 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.

17.

FORM 10-Q

Quarter ended March 31, 2009

PART II — OTHER INFORMATION

| ITEM 1 — | LEGAL PROCEEDINGS |
| --- | --- |
|  | There are no matters required to be reported under this item. |
| **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

| Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans | Maximum Number of Shares that May Yet be Purchased Under the Plan |
| --- | ---: | ---: | ---: | ---: |
| January 1, 2009 to January 31, 2009 | — | — | — | 41,471 |
| February 1, 2009 to February 28, 2009 | — | — | — | 41,471 |
| March 1, 2009 to March 31, 2009 | — | — | — | 41,471 |

|  |  |
| --- | --- |
|  | 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. |
| **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 |

18.

CSB BANCORP, INC.

FORM 10-Q

Quarter ended March 31, 2009

Filed May 14, 2009.
Source: SEC EDGAR, the filing index for accession 0000950152-09-005232. Last ingested by Listed: Nov 2, 2026, 09:27 ET. No prices; not investment advice.