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CSB Bancorp, Inc. - Quarter Report: 2022 June (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 0-21714

 

CSB Bancorp, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Ohio

34-1687530

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

91 North Clay Street, P.O. Box 232

Millersburg, OH

44654

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (330) 674-9015

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Shares, $6.25 par value

 

CSBB

 

OTCPink

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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes      No  

As of August 1, 2022, the registrant had 2,718,024 shares of common stock, $6.25 par value per share, outstanding.

 

 

 

 


 

 

CSB BANCORP, INC.

FORM 10-Q

QUARTER ENDED June 30, 2022

Table of Contents

 

 

 

Part I - Financial Information

 

 

 

Page

ITEM 1

FINANCIAL STATEMENTS (Unaudited)

3

 

Consolidated Balance Sheets

3

 

Consolidated Statements of Income

4

 

Consolidated Statements of Comprehensive Income (Loss)

5

 

Consolidated Statements of Changes in Shareholders' Equity

6

 

Condensed Consolidated Statements of Cash Flows

7

 

Notes to Consolidated Financial Statements

8

ITEM 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

24

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

32

ITEM 4

CONTROLS AND PROCEDURES

33

 

 

 

 

Part II - Other Information

 

ITEM 1

Legal Proceedings

34

ITEM 1A

Risk Factors

34

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

34

ITEM 3

Defaults upon Senior Securities

34

ITEM 4

Mine Safety Disclosures

34

ITEM 5

Other Information

34

ITEM 6

Exhibits

35

 

Signatures

36

 

2


 

 

CSB BANCORP, INC.

PART I – FINANCIAL INFORMATION

ITEM 1. – FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

June 30,

 

 

December 31,

 

(Dollars in thousands, except per share data)

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

18,901

 

 

$

19,543

 

Interest-earning deposits in other banks

 

 

84,465

 

 

 

224,114

 

Total cash and cash equivalents

 

 

103,366

 

 

 

243,657

 

Securities

 

 

 

 

 

 

 

 

Available-for-sale, at fair value

 

 

144,566

 

 

 

131,708

 

Held-to-maturity (fair value 2022-$223,686; 2021-$174,528)

 

 

248,261

 

 

 

174,808

 

Equity securities

 

 

251

 

 

 

115

 

Restricted stock, at cost

 

 

4,614

 

 

 

4,614

 

Total securities

 

 

397,692

 

 

 

311,245

 

Loans held for sale

 

 

428

 

 

 

231

 

Loans

 

 

582,185

 

 

 

549,154

 

Less allowance for loan losses

 

 

7,268

 

 

 

7,618

 

Net loans

 

 

574,917

 

 

 

541,536

 

Premises and equipment, net

 

 

13,615

 

 

 

13,866

 

Bank-owned life insurance

 

 

24,369

 

 

 

24,035

 

Goodwill

 

 

4,728

 

 

 

4,728

 

Deferred tax asset

 

 

2,284

 

 

 

325

 

Accrued interest receivable and other assets

 

 

5,379

 

 

 

4,616

 

TOTAL ASSETS

 

$

1,126,778

 

 

$

1,144,239

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

 

Noninterest-bearing

 

$

328,422

 

 

$

334,346

 

Interest-bearing

 

 

664,691

 

 

 

668,401

 

Total deposits

 

 

993,113

 

 

 

1,002,747

 

Short-term borrowings

 

 

33,885

 

 

 

36,530

 

Other borrowings

 

 

2,594

 

 

 

3,407

 

Accrued interest payable and other liabilities

 

 

3,524

 

 

 

4,240

 

Total liabilities

 

 

1,033,116

 

 

 

1,046,924

 

SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Common stock, $6.25 par value.  Authorized 9,000,000 shares; issued

   2,980,602 shares; outstanding 2,718,024 shares in 2022 and 2021

 

 

18,629

 

 

 

18,629

 

Additional paid-in capital

 

 

9,815

 

 

 

9,815

 

Retained earnings

 

 

80,940

 

 

 

76,715

 

Treasury stock at cost:  262,578 shares in 2022 and 2021

 

 

(5,719

)

 

 

(5,719

)

Accumulated other comprehensive loss

 

 

(10,003

)

 

 

(2,125

)

Total shareholders' equity

 

 

93,662

 

 

 

97,315

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

$

1,126,778

 

 

$

1,144,239

 

 

See notes to unaudited consolidated financial statements.

3


 

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(Dollars in thousands, except per share data)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

INTEREST AND DIVIDEND INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

6,032

 

 

$

6,231

 

 

$

11,809

 

 

$

13,096

 

Taxable securities

 

 

1,660

 

 

 

604

 

 

 

2,941

 

 

 

1,163

 

Nontaxable securities

 

 

108

 

 

 

111

 

 

 

218

 

 

 

222

 

Other

 

 

203

 

 

 

68

 

 

 

277

 

 

 

114

 

Total interest and dividend income

 

 

8,003

 

 

 

7,014

 

 

 

15,245

 

 

 

14,595

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

344

 

 

 

508

 

 

 

693

 

 

 

1,046

 

Short-term borrowings

 

 

14

 

 

 

15

 

 

 

26

 

 

 

28

 

Other borrowings

 

 

15

 

 

 

20

 

 

 

31

 

 

 

42

 

Total interest expense

 

 

373

 

 

 

543

 

 

 

750

 

 

 

1,116

 

NET INTEREST INCOME

 

 

7,630

 

 

 

6,471

 

 

 

14,495

 

 

 

13,479

 

(RECOVERY OF) PROVISION FOR LOAN LOSSES

 

 

(345

)

 

 

(475

)

 

 

(645

)

 

 

(445

)

Net interest income, after (recovery of) provision for loan losses

 

 

7,975

 

 

 

6,946

 

 

 

15,140

 

 

 

13,924

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

289

 

 

 

219

 

 

 

554

 

 

 

426

 

Trust services

 

 

253

 

 

 

264

 

 

 

517

 

 

 

546

 

Debit card interchange fees

 

 

543

 

 

 

526

 

 

 

1,038

 

 

 

997

 

Credit card fees

 

 

191

 

 

 

110

 

 

 

346

 

 

 

214

 

Gain on sale of loans, net

 

 

147

 

 

 

417

 

 

 

265

 

 

 

904

 

Earnings on bank owned life insurance

 

 

168

 

 

 

144

 

 

 

334

 

 

 

294

 

Unrealized gain or (loss) on equity securities, net

 

 

3

 

 

 

(1

)

 

 

4

 

 

 

12

 

Other income

 

 

188

 

 

 

164

 

 

 

366

 

 

 

328

 

Total noninterest income

 

 

1,782

 

 

 

1,843

 

 

 

3,424

 

 

 

3,721

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

3,412

 

 

 

3,044

 

 

 

6,567

 

 

 

6,073

 

Occupancy expense

 

 

276

 

 

 

247

 

 

 

548

 

 

 

501

 

Equipment expense

 

 

197

 

 

 

172

 

 

 

411

 

 

 

349

 

Professional and director fees

 

 

330

 

 

 

356

 

 

 

606

 

 

 

651

 

Financial institutions and franchise tax expense

 

 

194

 

 

 

187

 

 

 

389

 

 

 

375

 

Marketing and public relations

 

 

110

 

 

 

98

 

 

 

221

 

 

 

177

 

Software expense

 

 

326

 

 

 

336

 

 

 

659

 

 

 

636

 

Debit card expense

 

 

185

 

 

 

172

 

 

 

349

 

 

 

343

 

Amortization of intangible assets

 

 

 

 

 

11

 

 

 

 

 

 

22

 

FDIC insurance expense

 

 

75

 

 

 

120

 

 

 

158

 

 

 

228

 

Other expenses

 

 

669

 

 

 

647

 

 

 

1,334

 

 

 

1,316

 

Total noninterest expense

 

 

5,774

 

 

 

5,390

 

 

 

11,242

 

 

 

10,671

 

Income before income taxes

 

 

3,983

 

 

 

3,399

 

 

 

7,322

 

 

 

6,974

 

FEDERAL INCOME TAX PROVISION

 

 

774

 

 

 

654

 

 

 

1,412

 

 

 

1,344

 

NET INCOME

 

$

3,209

 

 

$

2,745

 

 

$

5,910

 

 

$

5,630

 

Basic and diluted net earnings per share

 

$

1.18

 

 

$

1.00

 

 

$

2.17

 

 

$

2.05

 

 

 

 

 

 

 

 

See notes to unaudited consolidated financial statements

 

4


 

 

 

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(Dollars in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income

 

$

3,209

 

 

$

2,745

 

 

$

5,910

 

 

$

5,630

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (losses) gains arising during the period

 

 

(3,607

)

 

 

1,649

 

 

 

(10,145

)

 

 

(1,958

)

Amortization of discount on securities transferred to held-to-maturity

 

 

75

 

 

 

16

 

 

 

173

 

 

 

32

 

Income tax effect

 

 

742

 

 

 

(350

)

 

 

2,094

 

 

 

405

 

Other comprehensive income (loss)

 

 

(2,790

)

 

 

1,315

 

 

 

(7,878

)

 

 

(1,521

)

Total comprehensive income (loss)

 

$

419

 

 

$

4,060

 

 

$

(1,968

)

 

$

4,109

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to unaudited consolidated financial statements.

5


 

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

 

(Dollars in thousands, except per share data)

 

Common

stock

 

 

Additional

paid-in

capital

 

 

Retained

earnings

 

 

Treasury

stock

 

 

Accumulated

other

comprehensive

(loss) income

 

 

Total

 

Three Months Ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

18,629

 

 

$

9,815

 

 

$

79,416

 

 

$

(5,719

)

 

$

(7,213

)

 

$

94,928

 

Net income

 

 

 

 

 

 

 

 

3,209

 

 

 

 

 

 

 

 

 

3,209

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,790

)

 

 

(2,790

)

Cash dividends declared, $0.62 per share

 

 

 

 

 

 

 

 

(1,685

)

 

 

 

 

 

 

 

 

(1,685

)

Balance, end of period

 

$

18,629

 

 

$

9,815

 

 

$

80,940

 

 

$

(5,719

)

 

$

(10,003

)

 

$

93,662

 

Six Months Ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

18,629

 

 

$

9,815

 

 

$

76,715

 

 

$

(5,719

)

 

$

(2,125

)

 

$

97,315

 

Net income

 

 

 

 

 

 

 

 

5,910

 

 

 

 

 

 

 

 

 

5,910

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,878

)

 

 

(7,878

)

Cash dividends declared, $0.62 per share

 

 

 

 

 

 

 

 

(1,685

)

 

 

 

 

 

 

 

 

(1,685

)

Balance, end of period

 

$

18,629

 

 

$

9,815

 

 

$

80,940

 

 

$

(5,719

)

 

$

(10,003

)

 

$

93,662

 

Three Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

18,629

 

 

$

9,815

 

 

$

71,271

 

 

$

(4,780

)

 

$

(1,850

)

 

$

93,085

 

Net income

 

 

 

 

 

 

 

 

2,745

 

 

 

 

 

 

 

 

 

2,745

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,315

 

 

 

1,315

 

Purchase of 8,106 treasury shares

 

 

 

 

 

 

 

 

 

 

 

(313

)

 

 

 

 

 

(313

)

Cash dividends declared, $0.30 per share

 

 

 

 

 

 

 

 

(820

)

 

 

 

 

 

 

 

 

(820

)

Balance, end of period

 

$

18,629

 

 

$

9,815

 

 

$

73,196

 

 

$

(5,093

)

 

$

(535

)

 

$

96,012

 

Six Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

18,629

 

 

$

9,815

 

 

$

69,209

 

 

$

(4,780

)

 

$

986

 

 

$

93,859

 

Net income

 

 

 

 

 

 

 

 

5,630

 

 

 

 

 

 

 

 

 

5,630

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,521

)

 

 

(1,521

)

Purchase of 8,106 treasury shares

 

 

 

 

 

 

 

 

 

 

 

(313

)

 

 

 

 

 

(313

)

Cash dividends declared, $0.60 per share

 

 

 

 

 

 

 

 

(1,643

)

 

 

 

 

 

 

 

 

(1,643

)

Balance, end of period

 

$

18,629

 

 

$

9,815

 

 

$

73,196

 

 

$

(5,093

)

 

$

(535

)

 

$

96,012

 

See notes to unaudited consolidated financial statements.

6


 

CSB BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Six Months Ended

June 30,

 

(Dollars in thousands)

 

2022

 

 

2021

 

NET CASH FROM OPERATING ACTIVITIES

 

$

4,889

 

 

$

5,684

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Securities:

 

 

 

 

 

 

 

 

Proceeds from repayments, available-for-sale

 

 

8,541

 

 

 

27,598

 

Proceeds from repayments, held-to-maturity

 

 

11,255

 

 

 

5,034

 

Purchases, available-for-sale

 

 

(31,904

)

 

 

(33,917

)

Purchases, held-to-maturity

 

 

(84,759

)

 

 

(20,851

)

Purchases, equity securities

 

 

(131

)

 

 

 

Loan (originations) repayments, net

 

 

(33,231

)

 

 

56,230

 

Property, equipment, and software acquisitions

 

 

(174

)

 

 

(1,222

)

Purchase of bank-owned life insurance

 

 

 

 

 

(2,000

)

Net cash (used in) provided by investing activities

 

 

(130,403

)

 

 

30,872

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Net (decrease) increase in deposits

 

 

(9,634

)

 

 

95,106

 

Net (decrease) increase in short-term borrowings

 

 

(2,645

)

 

 

1,260

 

Repayment of other borrowings

 

 

(813

)

 

 

(1,094

)

Cash dividends paid

 

 

(1,685

)

 

 

(823

)

Purchase of treasury shares

 

 

 

 

 

(313

)

Net cash (used in) provided by financing activities

 

 

(14,777

)

 

 

94,136

 

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

 

 

(140,291

)

 

 

130,692

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

 

243,657

 

 

 

181,652

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

103,366

 

 

$

312,344

 

SUPPLEMENTAL DISCLOSURES

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

Interest

 

$

756

 

 

$

1,137

 

Income taxes

 

 

1,050

 

 

 

1,375

 

Noncash financing activities:

 

 

 

 

 

 

 

 

Dividends declared

 

 

 

 

 

820

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to unaudited consolidated financial statements.

 

 

7


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying condensed consolidated financial statements include the accounts of CSB Bancorp, Inc. and its wholly-owned subsidiaries, The Commercial and Savings Bank (the “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 condensed 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 June 30, 2022, 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 (“GAAP”) have been omitted.  The Annual Report for CSB for the year ended December 31, 2021, contains Consolidated Financial Statements and related footnote disclosures, which should be read in conjunction with the accompanying condensed Consolidated Financial Statements.  The results of operations for the periods ended June 30, 2022 are not necessarily indicative of the operating results for the full year or any future interim period.

Certain items in the prior-year financial statements were reclassified to conform to the current-year presentation. Such reclassifications had no effect on net income or shareholders’ equity.

USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS

In preparing the Consolidated Financial Statements, in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Consolidated Balance Sheets and reported amounts of revenues and expenses during each reporting period. Actual results could differ from those estimates. The most significant estimates susceptible to change in the near term relate to management’s determination of the allowance for loan losses and the fair value of financial instruments.

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

ASU 2016-13 - Financial Instruments - Credit Losses. The Update and all subsequent ASU’s that modified Topic 326, requires that financial assets be presented at the net amount expected to be collected (i.e., net of expected credit losses), eliminating the probable recognition threshold for credit losses on financial assets measured at amortized cost. The measurement of expected credit losses should be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The Company expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. The cumulative-effect adjustment to retained earnings is required as of the beginning of the year of adoption. The Company has contracted with a third-party software vendor to assist with the development of the Bank’s approach for determining expected credit losses under the new guidance. The Company is actively working on preliminary test calculations, and data validation, as well as process and procedural documentation. In November 2019, the FASB deferred the effective date for ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASU’s.  

8


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED)

ASU 2017-04 - Simplifying the Test for Goodwill Impairment. The Update, and all subsequent ASU’s, simplifies the goodwill impairment test.  Under the new guidance, Step 2 of the goodwill impairment process that requires an entity to determine the implied fair value of its goodwill by assigning fair value to all its assets and liabilities is eliminated. Instead, the entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new guidance is effective for annual and interim goodwill tests performed in fiscal years beginning after December 15, 2019. Early adoption is permitted. In November 2019, the FASB deferred the effective date for ASC 350, Intangibles – Goodwill and Other, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. This Update is not expected to have a material impact on the Company’s financial statements.

ASU 2020-4 – Reference Rate Reform (Topic 848).  This update provides temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. This Update is not expected to have a significant impact on the Company’s financial statements.

ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures. The amendments in this update eliminate TDR accounting for entities that have adopted Update 2016-13, while enhancing disclosure requirements for certain loan modifications by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan. These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. The ASU also requires current-period gross write-offs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance is only for entities that have adopted the amendments in Update 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted using prospective application, including adoption in an interim period where the guidance should be applied as of the beginning of the fiscal year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

 

 

9


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 2 – SECURITIES

Securities consist of the following on June 30, 2022 and December 31, 2021:

 

(Dollars in thousands)

 

Amortized

cost

 

 

Gross

unrealized

gains

 

 

Gross

unrealized

losses

 

 

Fair value

 

June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

19,254

 

 

$

 

 

$

(574

)

 

$

18,680

 

U.S. Government agencies

 

 

13,999

 

 

 

 

 

 

(1,061

)

 

 

12,938

 

Mortgage-backed securities of government agencies

 

 

69,884

 

 

 

3

 

 

 

(6,668

)

 

 

63,219

 

Asset-backed securities of government agencies

 

 

711

 

 

 

 

 

 

(17

)

 

 

694

 

State and political subdivisions

 

 

22,759

 

 

 

14

 

 

 

(727

)

 

 

22,046

 

Corporate bonds

 

 

28,788

 

 

 

 

 

 

(1,799

)

 

 

26,989

 

Total available-for-sale

 

 

155,395

 

 

 

17

 

 

 

(10,846

)

 

 

144,566

 

Held-to-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S Treasury Securities

 

$

12,726

 

 

$

 

 

$

(831

)

 

$

11,895

 

Mortgage-backed securities of government agencies

 

 

233,357

 

 

 

8

 

 

 

(23,494

)

 

 

209,871

 

State and political subdivisions

 

 

2,178

 

 

 

 

 

 

(258

)

 

 

1,920

 

Total held-to-maturity

 

 

248,261

 

 

 

8

 

 

 

(24,583

)

 

 

223,686

 

Equity securities

 

 

185

 

 

 

66

 

 

 

 

 

 

251

 

Restricted stock

 

 

4,614

 

 

 

 

 

 

 

 

 

4,614

 

Total securities

 

$

408,455

 

 

$

91

 

 

$

(35,429

)

 

$

373,117

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

4,982

 

 

$

 

 

$

(10

)

 

$

4,972

 

U.S. Government agencies

 

 

13,999

 

 

 

 

 

 

(327

)

 

 

13,672

 

Mortgage-backed securities of government agencies

 

 

78,224

 

 

 

393

 

 

 

(843

)

 

 

77,774

 

Asset-backed securities of government agencies

 

 

760

 

 

 

 

 

 

(7

)

 

 

753

 

State and political subdivisions

 

 

23,189

 

 

 

343

 

 

 

(201

)

 

 

23,331

 

Corporate bonds

 

 

11,238

 

 

 

57

 

 

 

(89

)

 

 

11,206

 

Total available-for-sale

 

 

132,392

 

 

 

793

 

 

 

(1,477

)

 

 

131,708

 

Held-to-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S Treasury Securities

 

$

12,700

 

 

$

32

 

 

$

(39

)

 

$

12,693

 

Mortgage-backed securities of government agencies

 

 

159,916

 

 

 

504

 

 

 

(766

)

 

 

159,654

 

State and political subdivisions

 

 

2,192

 

 

 

3

 

 

 

(14

)

 

 

2,181

 

Total held-to-maturity

 

 

174,808

 

 

 

539

 

 

 

(819

)

 

 

174,528

 

Equity securities

 

 

53

 

 

 

62

 

 

 

 

 

 

115

 

Restricted stock

 

 

4,614

 

 

 

 

 

 

 

 

 

4,614

 

Total securities

 

$

311,867

 

 

$

1,394

 

 

$

(2,296

)

 

$

310,965

 

 

10


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 2 – SECURITIES (continued)

The amortized cost and fair value of debt securities on June 30, 2022, by contractual maturity, are shown below.  Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

(Dollars in thousands)

 

Amortized cost

 

 

Fair value

 

Available-for-sale

 

 

 

 

 

 

 

 

Due in one year or less

 

$

601

 

 

$

602

 

Due after one through five years

 

 

60,138

 

 

 

57,519

 

Due after five through ten years

 

 

30,018

 

 

 

28,069

 

Due after ten years

 

 

64,638

 

 

 

58,376

 

Total debt securities available-for-sale

 

$

155,395

 

 

$

144,566

 

Held-to-maturity

 

 

 

 

 

 

 

 

Due after one through five years

 

 

9,892

 

 

 

9,356

 

Due after five through ten years

 

 

3,892

 

 

 

3,479

 

Due after ten years

 

 

234,477

 

 

 

210,851

 

Total debt securities held-to-maturity

 

$

248,261

 

 

$

223,686

 

 

Securities with a fair value of approximately $119.1 million and $103.0 million were pledged on June 30, 2022 and December 31, 2021, respectively, to secure public deposits, as well as other deposits and borrowings as required or permitted by law.

Restricted stock primarily consists of investments in Federal Home Loan Bank of Cincinnati (FHLB) and Federal Reserve Bank stock.  The Bank’s investment in FHLB stock amounted to approximately $4.1 million on June 30, 2022 and December 31, 2021.  The FHLB is redeeming approximately $1.2 million stock in July 2022 at $100 par value per share. Federal Reserve Bank stock was $471 thousand on June 30, 2022 and December 31, 2021.

There were no proceeds from sales of securities for the three and six-month period ended June 30, 2022 and 2021. All gains and losses recognized on equity securities during the three and six-month period were unrealized.

11


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 2 – SECURITIES (continued)

The following table presents gross unrealized losses and fair value of securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, on June 30, 2022 and December 31, 2021:

 

 

 

Securities in a continuous unrealized loss position

 

 

 

Less than 12 months

 

 

12 months or more

 

 

Total

 

(Dollars in thousands)

 

Gross

unrealized

losses

 

 

Fair

value

 

 

Gross

unrealized

losses

 

 

Fair

value

 

 

Gross

unrealized

losses

 

 

Fair

value

 

June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Securities

 

$

(574

)

 

$

18,680

 

 

$

 

 

$

 

 

$

(574

)

 

$

18,680

 

U.S. Government agencies

 

 

 

 

 

 

 

 

(1,061

)

 

 

12,938

 

 

 

(1,061

)

 

 

12,938

 

Mortgage-backed securities of government

   agencies

 

 

(3,598

)

 

 

39,008

 

 

 

(3,070

)

 

 

23,977

 

 

 

(6,668

)

 

 

62,985

 

Asset-backed securities of government

   agencies

 

 

 

 

 

 

 

 

(17

)

 

 

694

 

 

 

(17

)

 

 

694

 

State and political subdivisions

 

 

(608

)

 

 

15,444

 

 

 

(119

)

 

 

683

 

 

 

(727

)

 

 

16,127

 

Corporate bonds

 

 

(1,697

)

 

 

25,591

 

 

 

(102

)

 

 

898

 

 

 

(1,799

)

 

 

26,489

 

Held-to-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Securities

 

 

(536

)

 

 

9,356

 

 

 

(295

)

 

 

2,539

 

 

 

(831

)

 

 

11,895

 

Mortgage-backed securities of government

   agencies

 

 

(19,243

)

 

 

169,710

 

 

 

(4,251

)

 

 

32,048

 

 

 

(23,494

)

 

 

201,758

 

State and political subdivisions

 

 

(258

)

 

 

1,920

 

 

 

 

 

 

 

 

 

(258

)

 

 

1,920

 

Total temporarily impaired securities

 

$

(26,514

)

 

$

279,709

 

 

$

(8,915

)

 

$

73,777

 

 

$

(35,429

)

 

$

353,486

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Securities

 

$

(10

)

 

$

4,972

 

 

$

 

 

$

 

 

$

(10

)

 

$

4,972

 

U.S. Government agencies

 

 

(69

)

 

 

2,930

 

 

 

(258

)

 

 

10,742

 

 

 

(327

)

 

 

13,672

 

Mortgage-backed securities of government

   agencies

 

 

(574

)

 

 

43,595

 

 

 

(269

)

 

 

12,653

 

 

 

(843

)

 

 

56,248

 

Asset-backed securities of government

   agencies

 

 

 

 

 

 

 

 

(7

)

 

 

753

 

 

 

(7

)

 

 

753

 

State and political subdivisions

 

 

(201

)

 

 

9,646

 

 

 

 

 

 

 

 

 

(201

)

 

 

9,646

 

Corporate bonds

 

 

(44

)

 

 

5,710

 

 

 

(45

)

 

 

955

 

 

 

(89

)

 

 

6,665

 

Held-to-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Securities

 

 

(39

)

 

 

9,837

 

 

 

 

 

 

 

 

 

(39

)

 

 

9,837

 

Mortgage-backed securities of government

   agencies

 

 

(766

)

 

 

98,906

 

 

 

 

 

 

 

 

 

(766

)

 

 

98,906

 

State and political subdivisions

 

 

(14

)

 

 

1,749

 

 

 

 

 

 

 

 

 

(14

)

 

 

1,749

 

Total temporarily impaired securities

 

$

(1,717

)

 

$

177,345

 

 

$

(579

)

 

$

25,103

 

 

$

(2,296

)

 

$

202,448

 

There were 175 securities in an unrealized loss position on June 30, 2022, 31 of which were in a continuous loss position for twelve (12) months or more.  There were 66 securities in an unrealized loss position on December 31, 2021, eleven (11) of which were in a continuous loss position for twelve (12) or more months.  At least quarterly, the Company conducts a comprehensive security-level impairment assessment.  The assessments are based on the nature of the securities, the extent and duration of the securities in an unrealized loss position, the extent and duration of the loss and management’s intent to sell or if it is more likely than not that management will be required to sell a security before recovery of its amortized cost basis, which may be maturity. Management believes the Company will fully recover the cost of these securities.  It does not intend to sell these securities and likely will not be required to sell them before the anticipated recovery of the remaining amortized cost basis, which may be maturity.  As a result, management concluded that these securities were not other-than-temporarily impaired on June 30, 2022 and December 31, 2021, respectively.

 

12


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

 

NOTE 3 – LOANS

Loans consist of the following:

 

(Dollars in thousands)

 

June 30,

2022

 

 

December 31,

2021

 

Commercial 1

 

$

124,390

 

 

$

123,933

 

Commercial real estate

 

 

194,568

 

 

 

194,754

 

Residential real estate

 

 

179,987

 

 

 

168,247

 

Construction & land development

 

 

67,732

 

 

 

46,042

 

Consumer

 

 

15,270

 

 

 

16,074

 

Total loans before deferred costs

 

 

581,947

 

 

 

549,050

 

Deferred loan costs, net

 

 

238

 

 

 

104

 

Total Loans

 

$

582,185

 

 

$

549,154

 

1 Includes $1.6 million and $4.6 million of Paycheck Protection Program loans on June 30, 2022, and December 31, 2021, respectively.

Loan Origination/Risk Management

The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Underwriting standards are designed to promote relationship banking rather than transactional banking. The Company’s management examines current and occasionally projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers; however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable, inventory, and equipment, and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans, in addition to those of real estate loans.  These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single industry. Management monitors and evaluates commercial real estate loans based on collateral, geography, and risk grade criteria. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied.

13


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

NOTE 3 – LOANS (CONTINUED)

With respect to loans to developers and builders that are secured by non-owner-occupied properties, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success.  Construction and land development loans are underwritten utilizing independent appraisal reviews, sensitivity analysis of absorption and lease rates, and financial analysis of the developers and property owners.  Construction and land development loans are generally based upon estimates of costs and value associated with the completed project.  These estimates may be inaccurate.

Construction and land development loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property, or an interim loan commitment from the Company until permanent financing is obtained.  These loans are closely monitored by on-site inspections and are considered to have higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions, and the availability of long-term financing.

The Company originates consumer loans utilizing a judgmental underwriting process.  To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed, jointly by line and staff personnel.  This activity, coupled with relatively small loan amounts that are spread across many individual borrowers, mitigates risk.

The Company maintains an independent credit department that reviews and validates the credit risk program on a periodic basis.  Results of these reviews are presented to management.  The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.  

Loans serviced for others approximated $142.7 and $142.1 million on June 30, 2022 and December 31, 2021, respectively.

Paycheck Protection Program

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020, and provided over $2 trillion in economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”). As a qualified SBA lender, the Company was automatically authorized to originate PPP loans. The PPP provides loans to small businesses who were affected by economic conditions as a result of COVID-19 to provide cash flow assistance to employers who maintain their payroll (including healthcare and certain related expenses), mortgage interest, rent, leases, utilities and interest on existing debt during the COVID-19 emergency. The Company had 11 PPP loans with outstanding principal balances of $1.6 million as of June 30, 2022, and 76 PPP loans with balances of $4.6 million outstanding as of December 31, 2021. The PPP loans are 100% guaranteed by the SBA and may be eligible for forgiveness by the SBA to the extent that the proceeds are used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up to 24 weeks after the loan is made as long as certain conditions are met regarding employee retention and compensation levels. PPP loans deemed eligible for forgiveness by the SBA will be repaid by the SBA to the Company. PPP loans are included in the Commercial loan category with no allowance for loan losses allocated.

In accordance with the SBA terms and conditions on these PPP loans, as of June 30, 2022, the Company has received approximately $5.4 million in fees associated with the processing of these loans since the inception of the program. Upon funding of the loans, fees are deferred and amortized over the life of the loan with the unearned balance fully recognized at the time a loan is forgiven as an adjustment to yield in accordance with FASB ASC 310-20-25-2. For the six months ended June 30, 2022 and 2021, interest and fee income recognized on PPP loans was $149 thousand and $1.7 million, respectively. For the three months ended June 30, 2022, and 2021, interest and fee income recognized on PPP loans was $17 thousand and $691 thousand, respectively. As of June 30, 2022, there was approximately $32 thousand in remaining unearned fees on PPP loans outstanding.

14


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – LOANS (CONTINUED)

Concentrations of Credit

Nearly all the Company’s lending activity occurs within the state of Ohio, including the four counties of Holmes, Stark, Tuscarawas and Wayne, as well as other markets.  The majority of the Company’s loan portfolio consists of commercial and commercial real estate loans.   Credit concentrations, including commitments, as determined using North American Industry Classification Codes (NAICS), to the two largest industries compared to total loans on June 30, 2022, included $72 million, or 12%, of total loans to lessors of non-residential buildings or dwellings, and $33.2 million, or 6%, of total loans to assisted living facilities for the elderly. These loans are generally secured by real property and equipment, with repayment expected from operational cash flow. Credit evaluation is based on a review of cash flow coverage of principal, interest payments, and the adequacy of the collateral received.

The Company has identified industries that could be at a higher risk due to the COVID-19 pandemic. As of June 30, 2022, the total balance of loans, including commitments, identified to COVID-19 affected businesses was $46.7 million, with $33.2 million of those loans to assisted living facilities and $13.4 million to businesses in the hotel industry.

Allowance for Loan Losses

The following tables detail activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2022, and 2021.  Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

For the three and six months ended June 30, 2022, the decrease in the provision for loan losses for commercial real estate loans was primarily due to the improvement in businesses affected by the COVID-19 pandemic as well as the reduction of loan balances to businesses affected by the pandemic. The decrease in the provision for construction and land development loans was primarily related to the recovery of a prior loan charge off. The increase in provision for residential real estate loans is primarily due to loan growth. The increase for all other categories for the three-month period is related to current inflationary economic conditions.  

For the three months ended June 30, 2021, the decrease in the provision for loan losses for commercial loans was primarily related to a payoff of one loan. For the six months ended June 30, 2021, the decrease in the provision for commercial loans was primarily related to payoffs, partially offset by an increase in specific reserves. The decrease in provision for all other categories is related to the improvement in economic conditions along with fewer delinquent and nonperforming loans and improvement in classified loan balances.  

 

15


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

NOTE 3 – LOANS (CONTINUED)

Summary of Allowance for Loan Losses

 

(Dollars in thousands)

 

Commercial

 

 

Commercial

Real Estate

 

 

Residential

Real Estate

 

 

Construction

& Land

Development

 

 

Consumer

 

 

Unallocated

 

 

Total

 

Three Months Ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,169

 

 

$

2,550

 

 

$

1,039

 

 

$

1,534

 

 

$

382

 

 

$

631

 

 

$

7,305

 

(Recovery of) provision for loan losses

 

 

50

 

 

 

(129

)

 

 

138

 

 

 

(239

)

 

 

12

 

 

 

(177

)

 

 

(345

)

Charge-offs

 

 

(8

)

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

 

(11

)

Recoveries

 

 

2

 

 

 

1

 

 

 

 

 

 

312

 

 

 

4

 

 

 

 

 

 

 

319

 

Net (charge-offs) recoveries

 

 

(6

)

 

 

1

 

 

 

 

 

 

312

 

 

 

1

 

 

 

 

 

 

 

308

 

Ending balance

 

$

1,213

 

 

$

2,422

 

 

$

1,177

 

 

$

1,607

 

 

$

395

 

 

$

454

 

 

$

7,268

 

Six Months Ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,240

 

 

$

2,838

 

 

$

992

 

 

$

1,380

 

 

$

421

 

 

$

747

 

 

$

7,618

 

(Recovery of) provision for loan losses

 

 

(15

)

 

 

(417

)

 

 

184

 

 

 

(85

)

 

 

(19

)

 

 

(293

)

 

 

(645

)

Charge-offs

 

 

(18

)

 

 

 

 

 

 

 

 

 

 

 

(24

)

 

 

 

 

 

 

(42

)

Recoveries

 

 

6

 

 

 

1

 

 

 

1

 

 

 

312

 

 

 

17

 

 

 

 

 

 

 

337

 

Net (charge-offs) recoveries

 

 

(12

)

 

 

1

 

 

 

1

 

 

 

312

 

 

 

(7

)

 

 

 

 

 

 

295

 

Ending balance

 

$

1,213

 

 

$

2,422

 

 

$

1,177

 

 

$

1,607

 

 

$

395

 

 

$

454

 

 

$

7,268

 

Three Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,640

 

 

$

3,489

 

 

$

1,134

 

 

$

800

 

 

$

290

 

 

$

985

 

 

$

8,338

 

Provision for loan losses

 

 

(306

)

 

 

(86

)

 

 

(75

)

 

 

(33

)

 

 

(21

)

 

 

46

 

 

 

(475

)

Charge-offs

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

(17

)

 

 

 

 

 

 

(20

)

Recoveries

 

 

4

 

 

 

1

 

 

 

1

 

 

 

 

 

 

26

 

 

 

 

 

 

 

32

 

Net (charge-offs) recoveries

 

 

1

 

 

 

1

 

 

 

1

 

 

 

 

 

 

9

 

 

 

 

 

 

 

12

 

Ending balance

 

$

1,335

 

 

$

3,404

 

 

$

1,060

 

 

$

767

 

 

$

278

 

 

$

1,031

 

 

$

7,875

 

Six Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,739

 

 

$

3,469

 

 

$

1,156

 

 

$

756

 

 

$

352

 

 

$

802

 

 

$

8,274

 

Provision for loan losses

 

 

(421

)

 

 

(66

)

 

 

(98

)

 

 

11

 

 

 

(100

)

 

 

229

 

 

 

(445

)

Charge-offs

 

 

(6

)

 

 

 

 

 

 

 

 

 

 

 

(19

)

 

 

 

 

 

 

(25

)

Recoveries

 

 

23

 

 

 

1

 

 

 

2

 

 

 

 

 

 

45

 

 

 

 

 

 

 

71

 

Net (charge-offs) recoveries

 

 

17

 

 

 

1

 

 

 

2

 

 

 

 

 

 

26

 

 

 

 

 

 

 

46

 

Ending balance

 

$

1,335

 

 

$

3,404

 

 

$

1,060

 

 

$

767

 

 

$

278

 

 

$

1,031

 

 

$

7,875

 

 

16


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

NOTE 3 – LOANS (CONTINUED)

The following table presents the balance in the allowance for loan losses and the ending loan balances by portfolio class, based on the impairment method as of June 30, 2022 and December 31, 2021:

 

(Dollars in thousands)

 

Commercial

 

 

Commercial

Real Estate

 

 

Residential

Real Estate

 

 

Construction

 

 

Consumer

 

 

Unallocated

 

 

Total

 

June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

201

 

 

$

 

 

$

2

 

 

$

 

 

$

3

 

 

 

 

 

 

$

206

 

Collectively evaluated for impairment

 

 

1,012

 

 

 

2,422

 

 

 

1,175

 

 

 

1,607

 

 

 

392

 

 

 

454

 

 

 

7,062

 

Total ending allowance balance

 

$

1,213

 

 

$

2,422

 

 

$

1,177

 

 

$

1,607

 

 

$

395

 

 

$

454

 

 

$

7,268

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for

   impairment

 

$

330

 

 

$

251

 

 

$

701

 

 

$

 

 

$

130

 

 

 

 

 

 

$

1,412

 

Loans collectively evaluated for

   impairment

 

 

124,060

 

 

 

194,317

 

 

 

179,286

 

 

 

67,732

 

 

 

15,140

 

 

 

 

 

 

 

580,535

 

Total ending loans balance

 

$

124,390

 

 

$

194,568

 

 

$

179,987

 

 

$

67,732

 

 

$

15,270

 

 

 

 

 

 

$

581,947

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

208

 

 

$

9

 

 

$

2

 

 

$

 

 

$

3

 

 

 

 

 

 

$

222

 

Collectively evaluated for impairment

 

 

1,032

 

 

 

2,829

 

 

 

990

 

 

 

1,380

 

 

 

418

 

 

 

747

 

 

 

7,396

 

Total ending allowance balance

 

$

1,240

 

 

$

2,838

 

 

$

992

 

 

$

1,380

 

 

$

421

 

 

$

747

 

 

$

7,618

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for

   impairment

 

$

342

 

 

$

291

 

 

$

856

 

 

$

329

 

 

$

137

 

 

 

 

 

 

$

1,955

 

Loans collectively evaluated for

   impairment

 

 

123,591

 

 

 

194,463

 

 

 

167,391

 

 

 

45,713

 

 

 

15,937

 

 

 

 

 

 

 

547,095

 

Total ending loans balance

 

$

123,933

 

 

$

194,754

 

 

$

168,247

 

 

$

46,042

 

 

$

16,074

 

 

 

 

 

 

$

549,050

 

 

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2022 and December 31, 2021:

 

(Dollars in thousands)

 

Unpaid

Principal

Balance

 

 

Recorded

Investment

with no

Allowance

 

 

Recorded

Investment

with

Allowance

 

 

Total

recorded

investment1

 

 

Related

Allowance

 

June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

348

 

 

$

129

 

 

$

201

 

 

$

330

 

 

$

201

 

Commercial real estate

 

 

393

 

 

 

228

 

 

 

23

 

 

 

251

 

 

 

 

Residential real estate

 

 

754

 

 

 

420

 

 

 

286

 

 

 

706

 

 

 

2

 

Construction & land development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

134

 

 

 

8

 

 

 

126

 

 

 

134

 

 

 

3

 

Total impaired loans

 

$

1,629

 

 

$

785

 

 

$

636

 

 

$

1,421

 

 

$

206

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

354

 

 

$

134

 

 

$

208

 

 

$

342

 

 

$

208

 

Commercial real estate

 

 

433

 

 

 

233

 

 

 

59

 

 

 

292

 

 

 

9

 

Residential real estate

 

 

925

 

 

 

571

 

 

 

291

 

 

 

862

 

 

 

2

 

Construction & land development

 

 

646

 

 

 

330

 

 

 

 

 

 

330

 

 

 

 

Consumer

 

 

141

 

 

 

23

 

 

 

119

 

 

 

142

 

 

 

3

 

Total impaired loans

 

$

2,499

 

 

$

1,291

 

 

$

677

 

 

$

1,968

 

 

$

222

 

1Includes principal, accrued interest, unearned fees, and origination costs

17


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – LOANS (CONTINUED)

The following table presents the average recorded investment in impaired loans and related interest income recognized for the periods indicated.

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(Dollars in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Average recorded investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

255

 

 

$

1,979

 

 

$

261

 

 

$

2,002

 

Commercial real estate

 

 

200

 

 

 

2,337

 

 

 

212

 

 

 

2,738

 

Residential real estate

 

 

780

 

 

 

834

 

 

 

819

 

 

 

822

 

Construction & land development

 

 

109

 

 

 

 

 

 

55

 

 

 

 

Consumer

 

 

130

 

 

 

135

 

 

 

133

 

 

 

137

 

Average recorded investment in impaired loans

 

$

1,474

 

 

$

5,285

 

 

$

1,480

 

 

$

5,699

 

Interest income recognized:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

1

 

 

$

9

 

 

$

2

 

 

$

19

 

Commercial real estate

 

 

2

 

 

 

21

 

 

 

4

 

 

 

51

 

Residential real estate

 

 

8

 

 

 

8

 

 

 

16

 

 

 

16

 

Construction & land development

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

2

 

 

 

2

 

 

 

4

 

 

 

4

 

Interest income recognized on a cash basis on impaired loans

 

$

13

 

 

$

40

 

 

$

26

 

 

$

90

 

 

The following table presents the aging of past due loans and nonaccrual loans as of June 30, 2022 and December 31, 2021 by class of loans:

 

 

 

 

 

 

 

Accruing Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Current

 

 

30-59

Days

Past

Due

 

 

60-89

Days

Past

Due

 

 

90 Days +

Past Due

 

 

Non-

Accrual

 

 

Total

Past

Due

and

Non-

Accrual

 

 

Total

Loans

 

June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

124,166

 

 

$

22

 

 

$

 

 

$

1

 

 

$

201

 

 

$

224

 

 

$

124,390

 

Commercial real estate

 

 

194,419

 

 

 

11

 

 

 

 

 

 

 

 

 

138

 

 

 

149

 

 

 

194,568

 

Residential real estate

 

 

179,621

 

 

 

61

 

 

 

 

 

 

 

 

 

305

 

 

 

366

 

 

 

179,987

 

Construction & land development

 

 

67,656

 

 

 

76

 

 

 

 

 

 

 

 

 

 

 

 

76

 

 

 

67,732

 

Consumer

 

 

15,041

 

 

 

184

 

 

 

 

 

 

 

 

 

45

 

 

 

229

 

 

 

15,270

 

Total Loans

 

$

580,903

 

 

$

354

 

 

$

 

 

$

1

 

 

$

689

 

 

$

1,044

 

 

$

581,947

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

123,698

 

 

$

5

 

 

$

17

 

 

$

5

 

 

$

208

 

 

$

235

 

 

$

123,933

 

Commercial real estate

 

 

194,615

 

 

 

 

 

 

 

 

 

 

 

 

139

 

 

 

139

 

 

 

194,754

 

Residential real estate

 

 

167,689

 

 

 

191

 

 

 

 

 

 

 

 

 

367

 

 

 

558

 

 

 

168,247

 

Construction & land development

 

 

45,713

 

 

 

 

 

 

 

 

 

 

 

 

329

 

 

 

329

 

 

 

46,042

 

Consumer

 

 

15,863

 

 

 

171

 

 

 

 

 

 

 

 

 

40

 

 

 

211

 

 

 

16,074

 

Total Loans

 

$

547,578

 

 

$

367

 

 

$

17

 

 

$

5

 

 

$

1,083

 

 

$

1,472

 

 

$

549,050

 

Troubled Debt Restructurings

All troubled debt restructurings (“TDRs”) are individually evaluated for impairment and a related allowance is recorded, as needed.  Loans whose terms have been modified as TDRs totaled $1.1 million as of June 30, 2022, and $1.3 million as of December 31, 2021, with $5 thousand of specific reserves allocated to those loans at June 30, 2022 and $14 thousand at December 31, 2021, respectively.  On June 30, 2022, $1.1 million of the

18


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – LOANS (CONTINUED)

loans classified as TDRs were performing in accordance with their modified terms.  The remaining $33 thousand were classified as nonaccrual.  

There were no loan modifications considered TDRs completed during the three and six months ended June 30, 2022.  Loan modifications considered TDRs completed during the three and six months ended June 30, 2021, were as follows:  

 

(Dollars in thousands)

 

Number of

loans

restructured

 

Pre-

Modification

Recorded

Investment

 

 

Post-

Modification

Recorded

Investment

 

Three Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

Commercial

 

3

 

$

894

 

 

$

894

 

Commercial real estate

 

1

 

 

386

 

 

 

386

 

 

 

4

 

$

1,280

 

 

$

1,280

 

Six Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

Commercial

 

3

 

 

894

 

 

 

894

 

Commercial real estate

 

2

 

 

1,686

 

 

 

1,686

 

Residential real estate

 

1

 

 

88

 

 

 

88

 

 

 

6

 

$

2,668

 

 

$

2,668

 

 

The loans restructured were modified by changing the monthly payment to interest only and modifying the maturity dates.

None of the loans restructured in 2021 have defaulted in the three months ended June 30, 2022.  None of the loans restructured in 2020 defaulted in 2021.   Mortgage loans in the process of foreclosure were $17 thousand on June 30, 2022, and there were none at December 31, 2021.

There was no other real estate owned on June 30, 2022 and December 31, 2021.  There were no repossessed assets on June 30, 2022 and December 31, 2021.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  The Company analyzes commercial loans individually by classifying the loans as to credit risk.  This analysis includes all commercial loans before origination and an annual review of those with an outstanding commitment greater than $500 thousand.  The Company uses the following definitions for risk ratings:

Pass.  Loans classified as pass (Cash Secured, Exceptional, Acceptable, Monitor, or Pass Watch) may exhibit a wide array of characteristics but at a minimum represent an acceptable risk to the Bank.  Borrowers in this rating may have leveraged but acceptable balance sheet positions, satisfactory asset quality, stable to favorable sales and earnings trends, acceptable liquidity and adequate cash flow.  Loans are considered fully collectible and require an average amount of administration.  While generally adhering to credit policy, these loans may exhibit occasional exceptions that do not result in undue risk to the Bank.  Borrowers are generally capable of absorbing setbacks, financial and otherwise, without the threat of failure.

Special Mention.  Assets assigned a Special Mention grade are not considered classified assets but are considered criticized.  These assets exhibit potential weaknesses that, deserve management’s close attention. If left uncorrected, those potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date.  Loans in this rating warrant special attention but have not yet reached the point of concern for loss.  These assets have deteriorated sufficiently to the point they would have difficulty refinancing elsewhere.  Similarly, purchasers of the business would not be eligible for bank financing unless they represent a significantly stronger credit risk.

19


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – LOANS (CONTINUED)

Substandard.  Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful.  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be pass rated loans.  Loans listed as not rated annually are either less than $500 thousand or are included in groups of homogeneous loans.  Based on the most recent analysis performed, the risk category of loans by class is as follows as of June 30, 2022 and December 31, 2021:

(Dollars in thousands)

 

Pass

 

 

Special

Mention

 

 

Substandard

 

 

Doubtful

 

 

Not

Rated

 

 

Total

 

June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

115,689

 

 

$

2,406

 

 

$

3,684

 

 

$

 

 

$

2,611

 

 

$

124,390

 

Commercial real estate

 

 

180,599

 

 

 

1,370

 

 

 

10,375

 

 

 

 

 

 

2,224

 

 

 

194,568

 

Construction & land development

 

 

53,323

 

 

 

6,156

 

 

 

 

 

 

 

 

 

8,253

 

 

 

67,732

 

Total

 

$

349,611

 

 

$

9,932

 

 

$

14,059

 

 

$

 

 

$

13,088

 

 

$

386,690

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

114,608

 

 

$

5,959

 

 

$

2,203

 

 

$

 

 

$

1,163

 

 

$

123,933

 

Commercial real estate

 

 

176,547

 

 

 

7,313

 

 

 

10,186

 

 

 

 

 

 

708

 

 

 

194,754

 

Construction & land development

 

 

33,205

 

 

 

5,439

 

 

 

329

 

 

 

 

 

 

7,069

 

 

 

46,042

 

Total

 

$

324,360

 

 

$

18,711

 

 

$

12,718

 

 

$

 

 

$

8,940

 

 

$

364,729

 

 

Management monitors the credit quality of residential real estate and consumer loans as homogenous groups.  These loans are evaluated based on delinquency status and included in the past due table in this section.  Nonperforming loans include loans past due 90 days or more and loans on nonaccrual of interest status.

 

NOTE 4 – SHORT-TERM BORROWINGS

The following table provides additional detail regarding repurchase agreements and the related collateral accounted for as secured borrowings.

 

 

 

Remaining Contractual Maturity

Overnight and Continuous

 

 

 

June 30,

 

 

December 31,

 

(Dollars in thousands)

 

2022

 

 

2021

 

Securities of U.S. Government Agencies and mortgage-backed securities of

   government agencies pledged, fair value

 

$

34,121

 

 

$

36,737

 

Repurchase agreements

 

 

33,885

 

 

 

36,530

 

 

 

 

 

 

NOTE 5 – FAIR VALUE MEASUREMENTS

The Company provides disclosures about assets and liabilities carried at fair value.  The framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and lowest priority to unobservable inputs. The three broad levels of the fair value hierarchy are described below:

 

Level I:

Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

20


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Level II:

Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by corroborated or other means.  If the asset or liability has a specified (contractual) term, the Level II input must be observable for substantially the full term of the asset or liability.

Level III:

Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The following table presents the assets reported on the Consolidated Balance Sheets at their fair value on a recurring basis as of June 30, 2022 and December 31, 2021 by level within the fair value hierarchy. No liabilities are carried at fair value.  Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.  Equity securities with readily determinable values and U.S. Treasury Notes are valued at the closing price reported on the active market on which the individual securities are traded. Obligations of U.S. government agencies, mortgage-backed securities, asset-backed securities, obligations of states and political subdivisions and corporate bonds are valued at observable market data for similar assets.  Equity securities without readily determinable values are carried at amortized cost adjusted for impairment and observable price changes and are not included in the table below.

 

(Dollars in thousands)

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

18,680

 

 

$

 

 

$

 

 

$

18,680

 

U.S. Government agencies

 

 

 

 

 

12,938

 

 

 

 

 

 

12,938

 

Mortgage-backed securities of government agencies

 

 

 

 

 

63,219

 

 

 

 

 

 

63,219

 

Asset-backed securities of government agencies

 

 

 

 

 

694

 

 

 

 

 

 

694

 

State and political subdivisions

 

 

 

 

 

22,046

 

 

 

 

 

 

22,046

 

Corporate bonds

 

 

 

 

 

26,989

 

 

 

 

 

 

26,989

 

Total available-for-sale securities

 

$

18,680

 

 

$

125,886

 

 

$

 

 

$

144,566

 

Equity securities

 

$

205

 

 

$

 

 

$

 

 

$

205

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

4,972

 

 

$

 

 

$

 

 

$

4,972

 

U.S. Government agencies

 

 

 

 

 

13,672

 

 

 

 

 

 

13,672

 

Mortgage-backed securities of government agencies

 

 

 

 

 

77,774

 

 

 

 

 

 

77,774

 

Asset-backed securities of government agencies

 

 

 

 

 

753

 

 

 

 

 

 

753

 

State and political subdivisions

 

 

 

 

 

23,331

 

 

 

 

 

 

23,331

 

Corporate bonds

 

 

 

 

 

11,206

 

 

 

 

 

 

11,206

 

Total available-for-sale securities

 

$

4,972

 

 

$

126,736

 

 

$

 

 

$

131,708

 

Equity securities

 

$

69

 

 

$

 

 

$

 

 

$

69

 

 

There were no assets reported at fair value and recorded on a nonrecurring basis on June 30, 2022 and December 31, 2021.


21


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

 

 

NOTE 6 – FAIR VALUES OF FINANCIAL INSTRUMENTS

The fair values of recognized financial instruments as of June 30, 2022 and December 31, 2021 are as follows:

 

(Dollars in thousands)

 

Carrying

Value

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Fair Value

 

June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held-to-maturity

 

$

248,261

 

 

$

11,895

 

 

$

211,791

 

 

$

 

 

$

223,686

 

Loans held for sale

 

 

428

 

 

 

433

 

 

 

 

 

 

 

 

 

433

 

Net loans

 

 

574,917

 

 

 

 

 

 

 

 

 

574,378

 

 

 

574,378

 

Mortgage servicing rights

 

 

644

 

 

 

 

 

 

 

 

 

644

 

 

 

644

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

993,113

 

 

$

875,812

 

 

$

 

 

$

114,881

 

 

$

990,693

 

Other borrowings

 

 

2,594

 

 

 

 

 

 

 

 

 

2,513

 

 

 

2,513

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held-to-maturity

 

$

174,808

 

 

$

12,693

 

 

$

161,835

 

 

$

 

 

$

174,528

 

Loans held for sale

 

 

231

 

 

 

238

 

 

 

 

 

 

 

 

 

238

 

Net loans

 

 

541,536

 

 

 

 

 

 

 

 

 

548,317

 

 

 

548,317

 

Mortgage servicing rights

 

 

604

 

 

 

 

 

 

 

 

 

604

 

 

 

604

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

1,002,747

 

 

$

881,372

 

 

$

 

 

$

121,005

 

 

$

1,002,377

 

Other borrowings

 

 

3,407

 

 

 

 

 

 

 

 

 

3,431

 

 

 

3,431

 

 

Other financial instruments carried at amortized cost include cash and cash equivalents, restricted stock, bank-owned life insurance, accrued interest receivable, short-term borrowings, and accrued interest payable, all of which have a level 1 fair value that approximates their carrying value. The Company also has unrecognized financial instruments on June 30, 2022 and December 31, 2021.  These financial instruments relate to commitments to extend credit and letters of credit.  The aggregate contract amount of such financial instruments was approximately $269 million on June 30, 2022 and $248 million on December 31, 2021.  Such amounts are also considered to be the fair values.

The fair value estimates of financial instruments are made at a specific point in time based on relevant market information.  Since no ready market exists for a significant portion of the financial instruments, fair value estimates are largely based on judgments after considering such factors as future expected credit losses, current economic conditions, risk characteristics of various financial instruments, and other factors.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision.  Changes in assumptions could significantly affect these estimates.

22


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 7- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the changes in accumulated other comprehensive income (loss) by component net of tax for the three and six months ended June 30, 2022 and 2021:

 

(Dollars in thousands)

 

Pretax

 

 

Tax Effect

 

 

After-tax

 

Three Months Ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2022

 

$

(9,131

)

 

$

1,918

 

 

$

(7,213

)

Unrealized holding loss on available-for-sale securities arising during

   the period

 

 

(3,607

)

 

 

757

 

 

 

(2,850

)

Amortization of held-to-maturity discount resulting from transfer

 

 

75

 

 

 

(15

)

 

 

60

 

Total other comprehensive loss

 

 

(3,532

)

 

 

742

 

 

 

(2,790

)

Balance, end of period

 

$

(12,663

)

 

$

2,660

 

 

$

(10,003

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

(2,691

)

 

$

566

 

 

$

(2,125

)

Unrealized holding loss on available-for-sale securities arising during

   the period

 

 

(10,145

)

 

 

2,130

 

 

 

(8,015

)

Amortization of held-to-maturity discount resulting from transfer

 

 

173

 

 

 

(36

)

 

 

137

 

Total other comprehensive loss

 

 

(9,972

)

 

 

2,094

 

 

 

(7,878

)

Balance, end of period

 

$

(12,663

)

 

$

2,660

 

 

$

(10,003

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2021

 

$

(2,342

)

 

$

492

 

 

$

(1,850

)

Unrealized holding gain on available-for-sale securities arising during

   the period

 

 

1,649

 

 

 

(346

)

 

 

1,303

 

Amortization of held-to-maturity discount resulting from transfer

 

 

16

 

 

 

(4

)

 

 

12

 

Total other comprehensive income

 

 

1,665

 

 

 

(350

)

 

 

1,315

 

Balance, end of period

 

$

(677

)

 

$

142

 

 

$

(535

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

1,249

 

 

$

(263

)

 

$

986

 

Unrealized holding loss on available-for-sale securities arising during

   the period

 

 

(1,958

)

 

 

411

 

 

 

(1,547

)

Amortization of held-to-maturity discount resulting from transfer

 

 

32

 

 

 

(6

)

 

 

26

 

Total other comprehensive loss

 

 

(1,926

)

 

 

405

 

 

 

(1,521

)

Balance, end of period

 

$

(677

)

 

$

142

 

 

$

(535

)

 

 

 

 

 

 

 

23


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 management’s discussion and analysis focuses on the consolidated financial condition of the Company at June 30, 2022 as compared to December 31, 2021, and the consolidated results of operations for the three and six months ended June 30, 2022 compared to the same periods in 2021. 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 condensed Consolidated Financial Statements and related footnotes contained in Part I, Item 1 of this Quarterly Report.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly 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 forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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. Other factors not currently anticipated may also materially and adversely affect the Company’s results of operations, cash flows, and financial position.  There can be no assurance that future results will meet expectations. While the Company believes that the forward-looking statements in this report are reasonable, the reader should not place undue reliance on any forward-looking statement.

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, except as may be required by applicable law.

FINANCIAL CONDITION

Total assets remained constant at $1.1 billion at June 30, 2022 compared to December 31, 2021. During the six months ended June 30, 2022, securities increased $86 million, net loans increased $33 million, and cash and cash equivalents decreased $140 million. Deposits and short-term borrowings decreased $12 million.

Net loans increased $33 million, or 6%, as construction loans increased $22 million, or 47%, and residential real estate loans increased $12 million, or 7% from December 31, 2021. Commercial and commercial real estate loans were flat compared to December 31, 2021 including $3 million in PPP loan forgiveness from year end. PPP loans outstanding at June 30, 2022 were $1.6 million after the bank originated $129 million in PPP loans during 2020 and 2021. Consumer refinance activity slowed significantly on mortgage loans, home purchase activity remained stable despite limited inventory through the first six months of 2022, and home equity line originations increased by $5 million. Residential mortgage loan originations for the six months ended June 30, 2022 totaled $44 million, a decrease from $59 million in originations during the six months ended June 30, 2021. Originations sold into the secondary market were $7 million and $27 million, respectively during the six months ended June 30, 2022 and June 30, 2021. The Bank originates and sells primarily fixed rate thirty-year mortgages into the secondary market.

The allowance for loan losses decreased $607 thousand from the year ago quarter to $7.3 million. The Company has not early adopted CECL which has been delayed for smaller reporting companies. Net recoveries were $295 thousand, or an annualized 0.21% of average loans, in the current six-month period compared to net recoveries of $46 thousand, or 0.01% of average loans in the year-ago six-month period. At June 30, 2022, the allowance for total loans was 1.25%. We believe the allowance level is appropriate given the low level of problem loans and composition of the overall loan portfolio in the current economic environment.  


24


CSB BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Nonperforming loans decreased $398 thousand to $690 thousand, or 0.12%, of total loans from $1.1 million, or 0.20%, on December 31, 2021. For the six months ended June 30, 2022, $50 thousand in loans were placed on nonaccrual status, $436 thousand in paydowns were received, and $10 thousand in personal loans were charged-off due to non-payment.

 

 

 

June 30,

 

 

December 31,

 

 

June 30,

 

(Dollars in thousands)

 

2022

 

 

2021

 

 

2021

 

Non-performing loans

 

$

690

 

 

$

1,088

 

 

$

2,786

 

Other real estate

 

 

 

 

 

 

 

 

 

Repossessed assets

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

 

7,268

 

 

 

7,618

 

 

 

7,875

 

Total loans

 

$

582,185

 

 

$

549,154

 

 

$

552,030

 

Allowance for loan losses as a percentage of total loans

 

 

1.25

%

 

 

1.39

%

 

 

1.43

%

Allowance for loan losses to total nonperforming loans

 

10.5X

 

 

7.0X

 

 

2.8X

 

 

The ratio of gross loans to deposits was 58.6% at June 30, 2022, compared to 54.8% at December 31, 2021.

The Company has no exposure to government-sponsored enterprise preferred stocks, collateralized debt obligations, or trust preferred securities. Management has considered industry analyst reports, sector credit reports, and the volatility within the bond market in concluding that the gross unrealized losses of $35.4 million within the available-for-sale and held-to-maturity portfolios as of June 30, 2022, was primarily the result of current market yields compared to the yields at the time the investments were purchased by the Company and not due to credit quality. As a result, all embedded security losses on June 30, 2022, are considered temporary and no impairment loss relating to these securities has been recognized.

Deposits decreased $10 million, or less than 1%, from December 31, 2021 with noninterest-bearing deposits decreasing approximately $6 million, or 2%, and interest-bearing deposit accounts decreasing approximately $4 million, or less than 1%. Total deposits as of June 30, 2022 are $993 million, or less than 1%, greater than June 30, 2021 deposit balances. On a year over year comparison, increases were recognized in noninterest-bearing demand deposits of $26 million, money market accounts of $17 million, savings of $12 million, and declines in interest-bearing demand deposits of $41 million and time deposits by $8 million. Deposit growth has normalized following the Bank’s customers increasing deposits through stimulus payments and cash conservation as a result of the COVID-19 pandemic.

Short-term borrowings consisting of overnight repurchase agreements with retail customers decreased $3 million, or 7%, to $34 million at June 30, 2022 as compared to December 31, 2021 and other borrowings decreased $813 thousand as the Company repaid FHLB advances.  

Total shareholders’ equity amounted to $94 million, or 8.3%, of total assets at June 30, 2022, a decrease of $4 million, or 3.8%, from $97 million December 31, 2021. The decrease in shareholders’ equity during the six months ended June 30, 2022 was due to accumulated other comprehensive loss (“AOCL”) of $8 million, which was partially offset by net income of $5.9 million, less cash dividends of $1.7 million. Rapidly rising interest rates during 2022 have caused the AOCL to increase as AFS securities are marked to fair market value. As interest rates rise, the fair value of AFS fixed-rate securities decline with a corresponding net of tax decline recorded in the AOCL portion of equity. This unrealized loss in securities is temporary and is adjusted monthly for additional interest rate fluctuations, principal paydowns, calls, and maturities. The Company and the Bank met all regulatory capital requirements at June 30, 2022.

RESULTS OF OPERATIONS

Three months ended June 30, 2022 and 2021

For the quarters ended June 30, 2022 and 2021, the Company recorded net income of $3.2 million and $2.7 million and $1.18 and $1.00 per share, respectively. The $464 thousand increase in net income for the period was primarily the result of a $1.2 million increase in net interest income, offset by an increase in noninterest expenses of $384 thousand, and a decrease of $61 thousand in noninterest income. The recovery of provision for loan losses was $345 thousand in 2022 compared to $475 thousand for the three-month period in 2021, and the federal income tax provision increased $120 thousand. Return on average assets and return on average equity were 1.13% and 13.73%, respectively, for the three-month period of 2022, compared to 0.97% and 11.62%, respectively for the same quarter in 2021.

25


CSB BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Average Balance Sheets and Net Interest Margin Analysis

 

 

 

For the Three Months Ended June 30,

 

 

 

2022

 

 

2021

 

(Dollars in thousands)

 

Average

balance1

 

 

Interest

 

 

Average

rate2

 

 

Average

balance1

 

 

Interest

 

 

Average

rate2

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning deposits

 

$

99,122

 

 

$

203

 

 

 

0.82

%

 

$

291,587

 

 

$

68

 

 

 

0.09

%

Taxable securities

 

 

374,246

 

 

 

1,660

 

 

 

1.78

 

 

 

193,252

 

 

 

604

 

 

 

1.25

 

Tax-exempt securities 4

 

 

24,184

 

 

 

137

 

 

 

2.27

 

 

 

24,029

 

 

 

141

 

 

 

2.35

 

Loans 3,4

 

 

574,824

 

 

 

6,039

 

 

 

4.21

 

 

 

564,997

 

 

 

6,239

 

 

 

4.43

 

Total interest-earning assets

 

 

1,072,376

 

 

 

8,039

 

 

 

3.01

%

 

 

1,073,865

 

 

 

7,052

 

 

 

2.63

%

Noninterest-earning assets

 

 

63,942

 

 

 

 

 

 

 

 

 

 

 

57,386

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

1,136,318

 

 

 

 

 

 

 

 

 

 

$

1,131,251

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS'

   EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

$

237,950

 

 

$

56

 

 

 

0.09

%

 

$

281,376

 

 

$

94

 

 

 

0.13

%

Savings deposits

 

 

307,234

 

 

 

75

 

 

 

0.10

 

 

 

276,746

 

 

 

70

 

 

 

0.10

 

Time deposits

 

 

118,232

 

 

 

213

 

 

 

0.72

 

 

 

124,436

 

 

 

345

 

 

 

1.11

 

Borrowed funds

 

 

41,663

 

 

 

29

 

 

 

0.28

 

 

 

44,956

 

 

 

34

 

 

 

0.30

 

Total interest-bearing liabilities

 

 

705,079

 

 

 

373

 

 

 

0.21

%

 

 

727,514

 

 

 

543

 

 

 

0.30

%

Noninterest-bearing demand deposits

 

 

333,692

 

 

 

 

 

 

 

 

 

 

 

305,459

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

3,797

 

 

 

 

 

 

 

 

 

 

 

3,492

 

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

93,750

 

 

 

 

 

 

 

 

 

 

 

94,786

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS'

   EQUITY

 

$

1,136,318

 

 

 

 

 

 

 

 

 

 

$

1,131,251

 

 

 

 

 

 

 

 

 

Taxable equivalent net interest income, (Non-GAAP)

 

 

 

 

 

$

7,666

 

 

 

 

 

 

 

 

 

 

$

6,509

 

 

 

 

 

Tax equivalent adjustment 4

 

 

 

 

 

 

(36

)

 

 

 

 

 

 

 

 

 

 

(38

)

 

 

 

 

Net interest income, (GAAP)

 

 

 

 

 

$

7,630

 

 

 

 

 

 

 

 

 

 

$

6,471

 

 

 

 

 

Net interest margin, (GAAP)

 

 

 

 

 

 

 

 

 

 

2.86

%

 

 

 

 

 

 

 

 

 

 

2.42

%

Tax equivalent adjustment 4

 

 

 

 

 

 

 

 

 

 

0.01

 

 

 

 

 

 

 

 

 

 

 

0.01

 

Net interest margin-taxable equivalent, (Non-GAAP)

 

 

 

 

 

 

 

 

 

 

2.87

%

 

 

 

 

 

 

 

 

 

 

2.43

%

Taxable equivalent net interest spread

 

 

 

 

 

 

 

 

 

 

2.80

%

 

 

 

 

 

 

 

 

 

 

2.33

%

1 Average balances have been computed on an average daily basis.

2 Average rates have been computed based on the amortized cost of the corresponding asset or liability.

3 Average loan balances include nonaccrual loans.

4 Interest income is shown on a fully tax-equivalent basis, which is a Non-GAAP measure and is reconciled to the GAAP measure at the bottom of the table.

Interest income for the quarter ended June 30, 2022, was $8 million representing a $989 thousand increase, or 14%, compared to the same period in 2021. This increase was primarily due to the additional volume and increased rates on taxable securities, as well as an increase in the rate earned on interest-earning deposits, partially offset by the decrease in loan interest rates in the comparable periods. Average loan rates decreased 22 basis points for the quarter ended June 30, 2022 as compared to the same period in 2021, primarily from PPP fees declining from $552 thousand in 2021 to $17 thousand in 2022. Interest expense for the quarter ended June 30, 2022 was $373 thousand, a decrease of $170 thousand, or 31%, from the same quarter in 2021. The decrease in interest expense occurred primarily due to the decrease in interest rates and the volume of time deposit accounts along with the decrease in rates on interest-bearing demand deposits for the quarter ended June 30, 2022.

 


26


CSB BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

For the quarter ended June 30, 2022, with improving credit quality and net loan recoveries, the bank recognized a recovery for loan losses of $345 thousand to the provision for loan losses, compared to a recovery for loan losses of $475 thousand for the same quarter in 2021. The recapture of provision for loan losses for the current quarter primarily reflects the sustained improvement in credit quality including the increase in loans graded as pass as well as a reduction of impaired loans, along with net recoveries during the quarter of $308 thousand. Economic indicators reflect improvement in residential real estate prices and low unemployment. 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.

Noninterest income for the quarter ended June 30, 2022, was $1.8 million, a decrease of $61 thousand, or 3%, compared to the same quarter in 2021. The gain on the sale of mortgage loans into the secondary market decreased by $270 thousand, or 65%, for the quarter ended June 30, 2022 as fewer loans were sold into the secondary market due to decreasing demand for mortgage refinancing as interest rates increased and inventories of homes available for sale declined. Fees from trust and brokerage services amounted to $253 thousand for the second quarter 2022, a decrease of $11 thousand, or 4%, as compared to the same quarter in 2021. Service charges on deposit accounts increased $70 thousand, or 32%, compared to the same quarter in 2021, primarily from increased customer overdraft fees. Debit card interchange income increased $17 thousand, or 3%, with greater fees generated from usage in the second quarter 2022. Credit card fee income increased $81 thousand, or 74% as improvements to the card program have resulted in increased customer usage. Earnings on bank owned life insurance increased $24 thousand, or 17%, for the second quarter 2022.

Noninterest expenses for the quarter ended June 30, 2022 increased $384 thousand, or 7%, compared to the second quarter 2021. Salaries and employee benefits increased $368 thousand, or 12%, a result of increases in base wages and retirement accruals recognized in second quarter 2022 as compared to second quarter 2021. FDIC assessment amounted to $75 thousand as compared to $120 thousand in the second quarter 2021 due to improvement within nonperforming loans.  Marketing and public relations expense increased $12 thousand, or 12%, primarily due to new opportunities and more events taking place after being cancelled due to COVID-19. Occupancy and equipment expense increased $54 thousand, or 13%, in 2022 over the second quarter 2021, primarily due to increases in depreciation related to facility improvements and increased cost of building and equipment repairs and maintenance. The Ohio financial institutions tax increased $7 thousand, or 4%, in the second quarter due to the Company’s increased capital base.   Professional and director fees decreased $26 thousand, or 7%, for the quarter ended June 30, 2022 as compared to the second quarter 2021, as a result of fewer loan collection expenses.

Federal income tax expense increased $120 thousand, or 18%, for the quarter ended June 30, 2022 as compared to the second quarter 2021. The provision for income taxes was $774 thousand (effective rate of 19.4%) for the quarter ended June 30, 2022, compared to $654 thousand (effective rate of 19.2%) for the same quarter ended 2021.

RESULTS OF OPERATIONS

Six months ended June 30, 2022, and 2021

For the six months ended June 30, 2022, and 2021, the Company recorded net income of $5.9 million and $5.6 million and $2.17 and $2.05 per share, respectively. The $280 thousand increase in net income for the six-month period was primarily the result of an increase in net interest income of $1.0 million, which was partially offset by a reduction in noninterest income of $297 thousand and an increase in noninterest expenses of $571 thousand. A negative loan loss provision of $645 thousand for the period as compared to a smaller negative loss provision of $445 thousand for the same period in 2021 also contributed to increased net income for the six months. The federal income tax provision was $68 thousand higher during the six-month period in 2022. Return on average assets and return on average equity were 1.05% and 12.48%, respectively, for the six months ended June 30, 2022, compared to 1.04% and 11.97%, respectively for the same period in 2021.

27


CSB BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

 

For the Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

(Dollars in thousands)

 

Average

balance1

 

 

Interest

 

 

Average

rate2

 

 

Average

balance1

 

 

Interest

 

 

Average

rate2

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning deposits in other banks

 

 

128,478

 

 

 

277

 

 

 

0.43

%

 

 

247,638

 

 

 

114

 

 

 

0.09

%

Taxable securities

 

 

354,411

 

 

 

2,941

 

 

 

1.67

 

 

 

187,476

 

 

 

1,163

 

 

 

1.25

 

Tax-exempt securities4

 

 

24,745

 

 

 

277

 

 

 

2.26

 

 

 

23,700

 

 

 

281

 

 

 

2.39

 

Loans3,4

 

 

567,671

 

 

 

11,823

 

 

 

4.20

 

 

 

580,572

 

 

 

13,113

 

 

 

4.55

 

Total earning assets

 

 

1,075,305

 

 

 

15,318

 

 

 

2.87

%

 

 

1,039,386

 

 

 

14,671

 

 

 

2.85

%

Other assets

 

 

62,147

 

 

 

 

 

 

 

 

 

 

 

56,692

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

1,137,452

 

 

 

 

 

 

 

 

 

 

$

1,096,078

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

$

237,816

 

 

$

106

 

 

 

0.09

%

 

$

266,799

 

 

$

180

 

 

 

0.14

%

Savings deposits

 

 

308,159

 

 

 

142

 

 

 

0.09

 

 

 

269,826

 

 

 

140

 

 

 

0.10

 

Time deposits

 

 

119,067

 

 

 

445

 

 

 

0.75

 

 

 

123,584

 

 

 

726

 

 

 

1.18

 

Other borrowed funds

 

 

42,838

 

 

 

57

 

 

 

0.27

 

 

 

44,138

 

 

 

70

 

 

 

0.32

 

Total interest bearing liabilities

 

 

707,880

 

 

 

750

 

 

 

0.21

%

 

 

704,347

 

 

 

1,116

 

 

 

0.32

%

Non-interest bearing demand deposits

 

 

330,228

 

 

 

 

 

 

 

 

 

 

 

293,024

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

3,857

 

 

 

 

 

 

 

 

 

 

 

3,850

 

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

95,487

 

 

 

 

 

 

 

 

 

 

 

94,857

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

$

1,137,452

 

 

 

 

 

 

 

 

 

 

$

1,096,078

 

 

 

 

 

 

 

 

 

Taxable equivalent net interest income, (Non-GAAP)

 

 

 

 

 

$

14,568

 

 

 

 

 

 

 

 

 

 

$

13,555

 

 

 

 

 

Tax equivalent adjustment 4

 

 

 

 

 

 

(73

)

 

 

 

 

 

 

 

 

 

 

(76

)

 

 

 

 

Net interest income, (GAAP)

 

 

 

 

 

$

14,495

 

 

 

 

 

 

 

 

 

 

$

13,479

 

 

 

 

 

Net interest margin, (GAAP)

 

 

 

 

 

 

 

 

 

 

2.72

%

 

 

 

 

 

 

 

 

 

 

2.61

%

Tax equivalent adjustment 4

 

 

 

 

 

 

 

 

 

 

0.01

 

 

 

 

 

 

 

 

 

 

 

0.02

 

Net interest margin-taxable equivalent, (Non-GAAP)

 

 

 

 

 

 

 

 

 

 

2.73

%

 

 

 

 

 

 

 

 

 

 

2.63

%

Taxable equivalent net interest spread

 

 

 

 

 

 

 

 

 

 

2.66

%

 

 

 

 

 

 

 

 

 

 

2.53

%

28


CSB BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

 

Interest income for the six months ended June 30, 2022, was $15.2 million representing a $650 thousand increase, or 4%, compared to the same period in 2021. This increase was primarily due to volume and yield increases on taxable securities along with yield increases on overnight deposits in other banks for the period ended June 30, 2022, as compared to the same period in 2021. Offsetting these increases was the decrease in average loan balances and the average interest earned on loans, primarily from PPP fees declining from $1.5 million in 2021 to $150 thousand in 2022. Average PPP loan balances decreased from $39 million at June 30 2021 to $1.6 million on June 30, 2022 as loans were forgiven by the SBA. Interest expense for the six months ended June 30, 2022, was $750 thousand, a decrease of $366 thousand, or 33%, from the same period in 2021. The decrease in interest expense occurred primarily due to a decrease in rates on all interest-bearing liabilities for the six months ended June 30, 2022, partially offset by an increase in the average balances of savings deposits in 2022.

For the six months ended June 30, 2022, the provision for loan losses was a credit (reversal) of provision of $645 thousand, compared to a smaller credit provision of $445 thousand for the same period in 2021. For more discussion see Results of Operations, three months. 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.

Noninterest income for the six months ended June 30, 2022, was $3.4 million, a decrease of $297 thousand, or 8%, compared to the same period in 2021. The gain on the sale of mortgage loans to the secondary market decreased $639 thousand to $265 thousand for the six months ended June 30, 2022, as increases in interest rates slowed mortgage loan refinancing.  Debit card interchange income increased $41 thousand, or 4%.  Earnings on bank owned life insurance policies increased $40 thousand for the period. Service charges on deposit accounts increased $128 thousand, or 30%, compared to the same period in 2021 primarily from increases in overdraft fees, as well as increases in business service charges on deposit accounts. Credit card fee income increased $132 thousand, or 62% with growth in business credit card customers and interchange income. Fees from trust and brokerage services decreased $29 thousand for the period.

Noninterest expenses for the six months ended June 30, 2022, increased $571 thousand, or 5%, compared to the same period in 2021.   Salaries and employee benefits increased $494 thousand, or 8%, a result of increased salaries, with additions to lending staff, and reduced credits on deferred loan costs with less volume originated in commercial loans. Marketing and public relations expense increased $44 thousand, or 25%, with marketing, brand recognition initiatives, and community support in the company’s market slowly increasing in volume due to increasing opportunities presenting after previous cancellations due to COVID-19. Occupancy and equipment expenses increased $109 thousand over the same period in 2021 with an increase in depreciation and maintenance expense.  Professional and director fees decreased $45 thousand for the six months ended June 30, 2022, as compared to the same period in 2021.

Federal income tax expense increased $68 thousand, or 5%, for the six months ended June 30, 2022, as compared to the same period in 2021. The provision for income taxes was $1.4 million (effective rate of 19.3%) for the six months ended June 30, 2022, compared to $1.3 million (effective rate of 19.3%) for the same period ended 2021.

CAPITAL RESOURCES

The Company maintained a strong capital position with tangible common equity to tangible assets of 7.9% at June 30, 2022 compared with 8.1% at December 31, 2021.

Consistent with the Board of Director’s commitment to public confidence and safe and sound banking operations, capital targets and minimum risk-based capital ratios for CSB were established to maintain excess capital to well-capitalized standards. To be considered well-capitalized, an institution must have a total risk-based capital ratio of at least 10%, a tier 1 capital ratio of at least 8%, a leverage capital ratio of at least 5%, a common equity tier 1 (“CET1”) ratio of at least 6.5% and must not be subject to any order or directive requiring the institution to improve its capital level. An adequately capitalized institution has a total risk-based capital

29


CSB BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

ratio of at least 8%, a tier 1 capital ratio of at least 6%, a CET1 ratio of at least 4.5%, and a leverage ratio of at least 4%.

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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. As of June 30, 2022, the Company and the Bank met all capital adequacy requirements to which they were subject.

 

 

Capital Ratios

 

 

 

June 30,

2022

 

 

December 31,

2021

 

Common Equity Tier 1 Capital To Risk Weighted Assets

 

 

 

 

 

 

 

 

Consolidated

 

 

15.0

%

 

 

16.3

%

Bank

 

 

14.8

%

 

 

16.0

%

 

 

 

 

 

 

 

 

 

Tier 1 Capital To Risk Weighted Assets Ratio

 

 

 

 

 

 

 

 

Consolidated

 

 

15.0

%

 

 

16.3

%

Bank

 

 

14.8

%

 

 

16.0

%

 

 

 

 

 

 

 

 

 

Total Capital To Risk Weighted Assets Ratio

 

 

 

 

 

 

 

 

Consolidated

 

 

16.1

%

 

 

17.5

%

Bank

 

 

15.9

%

 

 

17.3

%

 

 

 

 

 

 

 

 

 

Tier 1 Leverage Ratio

 

 

 

 

 

 

 

 

Consolidated

 

 

8.7

%

 

 

8.3

%

Bank

 

 

8.5

%

 

 

8.2

%

 

LIQUIDITY

 

(Dollars in thousands)

 

June 30,

2022

 

 

December 31,

2021

 

 

Change

 

 

Cash and cash equivalents

 

$

103,366

 

 

$

243,657

 

 

$

(140,291

)

 

Available from FHLB

 

 

110,470

 

 

 

107,054

 

 

 

3,416

 

 

Unpledged AFS securities at fair market value

 

 

127,099

 

 

 

108,158

 

 

 

18,941

 

 

 

 

$

340,935

 

 

$

458,869

 

 

$

(117,934

)

 

Net deposits and short-term liabilities

 

$

1,010,376

 

 

$

1,016,821

 

 

$

(6,445

)

 

Liquidity ratio

 

 

33.7

 

%

 

45.1

 

%

 

(11.4

)

%

Minimum board approved liquidity ratio

 

 

20.0

 

 

 

20.0

 

 

 

 

 

 

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. Liquidity is monitored by the Company’s Asset Liability Committee. Other sources of liquidity include, but are not limited to, purchases of federal funds, advances from the FHLB, adjustments of interest rates to attract deposits, brokered 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

The Company does not have any off-balance sheet arrangements (as such term is defined in applicable Securities and Exchange Commission (the “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.


30


CSB BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

PER SHARE DATA

Earnings per share is computed based on the weighted average number of shares of common stock outstanding during each year.  The company currently maintains a simple capital structure, thus, there are no dilutive effects on earnings per share.

The weighted average number of common shares outstanding for earnings per share computations was as follows:

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

June 30,

 

(Dollars in thousands, except per share data)

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Basic Earnings Per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

 

3,209

 

 

 

$

 

2,745

 

 

 

$

 

5,910

 

 

 

$

 

5,630

 

Weighted average common shares

 

 

 

2,718,024

 

 

 

 

 

2,740,390

 

 

 

 

 

2,718,024

 

 

 

 

 

2,741,365

 

Basic Earnings Per Share

 

$

 

1.18

 

 

 

$

 

1.00

 

 

 

$

 

2.17

 

 

 

$

 

2.05

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

 

3,209

 

 

 

$

 

2,745

 

 

 

$

 

5,910

 

 

 

$

 

5,630

 

Weighted average common shares

 

 

 

2,718,024

 

 

 

 

 

2,740,390

 

 

 

 

 

2,718,024

 

 

 

 

 

2,741,365

 

Diluted Earnings Per Share

 

$

 

1.18

 

 

 

$

 

1.00

 

 

 

$

 

2.17

 

 

 

$

 

2.05

 

 

 

31


CSB BANCORP, INC.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

 

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

By June 2022, Ohio’s unemployment rate approximated 4.5%.  The bank is based in Holmes County which is reporting an unemployment rate of 3.0% in June 2022.  Of the counties within the bank’s footprint, Stark County reported the highest unemployment rate at 4.2% in June. Many jobs within the Bank’s market footprint are going unfilled.  The rising rate of inflation, which stood at 9.1% in June 2022, has become persistent and market interest rates have risen substantially during the first six months of the year. Credit quality in the Bank’s loan portfolio has continued to improve, however risks to the economy remain with higher prices for goods and labor.   

Management performs a quarterly analysis of the Company’s interest rate risk over a twenty-four-month horizon. The analysis includes two balance sheet models, one based on a static balance sheet and one on a dynamic balance sheet with projected growth in assets and liabilities. All balance sheet positions, and interest rate projections are currently within the Company’s board-approved policy for both the twelve- month and twenty-four-month periods.

The following table presents an analysis of the estimated sensitivity of the Company’s annual net interest income to sudden and sustained -200 through +400 basis point changes, in 100 basis point increments, in market interest rates at June 30, 2022 and December 31, 2021. The net interest income reflected is for the first twelve-month period of the modeled twenty-four-month horizon. The underlying balance sheet for illustrative purposes is dynamic with projected growth in assets and liabilities.    

 

June 30, 2022

(Dollars in thousands)

 

 

Change in

Interest Rates

(basis points)

 

Net Interest

Income

 

 

Dollar

Change

 

 

Percentage

Change

 

 

Board Policy

Limits

 

 

+400

 

$

35,300

 

 

$

1,164

 

 

 

3.4

 

%

+/- 25

 

%

+300

 

 

35,014

 

 

 

878

 

 

 

2.6

 

 

+/-15

 

 

+200

 

 

34,726

 

 

 

590

 

 

 

1.7

 

 

+/-10

 

 

+100

 

 

34,422

 

 

 

286

 

 

 

0.8

 

 

+/-5

 

 

0

 

 

34,136

 

 

 

 

 

 

 

 

 

 

 

-100

 

 

33,696

 

 

 

(440

)

 

 

(1.3

)

 

+/-5

 

 

-200

 

 

32,811

 

 

 

(1,325

)

 

 

(3.9

)

 

+/-10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

 

+400

 

$

28,632

 

 

$

1,499

 

 

 

5.5

 

%

+/- 25

 

%

+300

 

 

28,283

 

 

 

1,150

 

 

 

4.2

 

 

+/-15

 

 

+200

 

 

27,924

 

 

 

791

 

 

 

2.9

 

 

+/-10

 

 

+100

 

 

27,523

 

 

 

390

 

 

 

1.4

 

 

+/-5

 

 

0

 

 

27,133

 

 

 

 

 

 

 

 

 

 

 

-100

 

 

26,504

 

 

 

(629

)

 

 

(2.3

)

 

+/-5

 

 

-200

 

 

25,714

 

 

 

(1,419

)

 

 

(5.2

)

 

+/-10

 

 

 

 

32


CSB BANCORP, INC.

CONTROLS AND PROCEDURES

 

 

ITEM 4 - CONTROLS AND PROCEDURES

With the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of its 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, the Company’s 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 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 the Company’s 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 the Company’s 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.

 

 

33


CSB BANCORP, INC.

FORM 10-Q

Quarter ended June 30, 2022

PART II – OTHER INFORMATION

 

 

 

In the opinion of management there are no outstanding legal proceedings that are reasonably likely to have a material adverse effect on the company’s financial condition or results of operations.

ITEM 1A - RISK FACTORS.

Not required for Smaller Reporting Companies.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

(a)

Not applicable

(b)

Not applicable

(c)

The following table provides information about repurchases of common stock by the Company during the quarter ended June 30, 2022:

 

Period

 

Total Number of Common Shares Purchased

 

 

Average Price Paid per Common Share

 

 

Total Number of Shares Purchased as Part of Publicly Announced Authorization

 

 

Maximum Number of Remaining Shares that May be Purchased as Part of Publicly Announced Authorization

 

April 1, 2022 - April 30, 2022

 

 

 

 

 

 

 

 

 

 

 

112,791

 

May 1, 2022 - May 31, 2022

 

 

 

 

 

 

 

 

 

 

 

112,791

 

June 1, 2022 - June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

112,791

 

Total for quarter

 

 

 

 

 

 

 

 

 

 

 

112,791

 

On March 2, 2021, CSB Bancorp, Inc. filed Form 8-K with the Commission announcing that its Board of Directors approved a Stock Repurchase Program authorizing the repurchase of up to 5% of the Company’s common shares or 137,117 of the Company’s outstanding shares. Repurchases may be made from time to time as market and business conditions warrant, in the open market, through block purchases, and in negotiated private transactions. The Company repurchased no shares under the repurchase authorization during the quarterly period ended June 30, 2022.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4 - MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5 - OTHER INFORMATION.

Not applicable.

34


CSB BANCORP, INC.

FORM 10-Q

Quarter ended June 30, 2022

PART II – OTHER INFORMATION

 

ITEM 6 - Exhibits.

 

Exhibit

Number

 

Description of Document

 

 

 

3.1

 

Amended Articles of Incorporation of CSB Bancorp, Inc. (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed August 6, 2004, Exhibit 3.1, film number 000-21714).

 

3.1.1

 

Amended form of Article Fourth of Amended Articles of Incorporation, as effective April 9, 1998 (incorporated by reference to registrant’s Annual Report on Form 10-K filed on March 30, 1999, Exhibit 3.1.1, file number 000-21714).

3.2

 

Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to the Registrant’s Form 10-SB).

 

 

 

3.2.1

 

Amended Article VIII of the Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to Registrant’s Form DEF 14a filed on March 25, 2009, Appendix A, film number 09703970).

 

3.2.2

 

Amended Article II of the Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to Registrant’s Form DEF 14a file on March 16, 2021, Appendix A, file number 000-21714.

 

 

 

4.0

 

Description of Capital Stock (incorporated by reference to registrants Annual Report on Form 10-K filed on March 16, 2020, Exhibit 4.0, file number 000-21714).

 

 

 

31.1

 

Rule 13a-14(a)/15d-14(a) Chief Executive Officer’s Certification.

 

 

 

31.2

 

Rule 13a-14(a)/15d-14(a) Chief Financial Officer’s Certification.

 

 

 

32.1

 

Section 1350 Chief Executive Officer’s Certification.

 

 

 

32.2

 

Section 1350 Chief Financial Officer’s Certification.

 

 

 

101

 

The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Net Loss and Comprehensive Loss , (iii) Consolidated Statements of Stockholders' Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

 

 

 

104

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

 

35


 

 

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:

 

August 9, 2022

/s/ Eddie L. Steiner

 

 

 

Eddie L. Steiner

 

 

 

President

 

 

 

Chief Executive Officer

 

 

 

 

 

 

 

 

Date:

 

August 9, 2022

/s/ Paula J. Meiler

 

 

 

Paula J. Meiler

 

 

 

Senior Vice President

 

 

 

Chief Financial Officer

 

 

36