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CSB Bancorp, Inc. - Quarter Report: 2023 September (Form 10-Q)

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: September 30, 2023

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(g) 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 November 1, 2023, the registrant had 2,671,313 shares of common stock, $6.25 par value per share, outstanding.

 

 


 

CSB BANCORP, INC.

FORM 10-Q

QUARTER ENDED September 30, 2023

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

30

ITEM 3 –

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

38

ITEM 4 –

CONTROLS AND PROCEDURES

39

 

 

 

 

Part II - Other Information

 

ITEM 1 –

Legal Proceedings

40

ITEM 1A –

Risk Factors

40

ITEM 2 –

Unregistered Sales of Equity Securities and Use of Proceeds

40

ITEM 3 –

Defaults upon Senior Securities

40

ITEM 4 –

Mine Safety Disclosures

40

ITEM 5 –

Other Information

40

ITEM 6 –

Exhibits

41

 

Signatures

42

 

2


 

CSB BANCORP, INC.

PART I – FINANCIAL INFORMATION

ITEM 1. – FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

(Dollars in thousands, except per share data)

 

2023

 

 

2022

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

Cash and due from banks

 

$

20,409

 

 

$

19,911

 

Interest-earning deposits with banks

 

 

29,000

 

 

 

66,509

 

Total cash and cash equivalents

 

 

49,409

 

 

 

86,420

 

Securities

 

 

 

 

 

 

Available-for-sale, at fair value

 

 

145,330

 

 

 

150,069

 

Held-to-maturity (fair value 2023-$187,695; 2022-$211,954)

 

 

230,505

 

 

 

247,401

 

Equity securities

 

 

246

 

 

 

244

 

Restricted stock, at cost

 

 

1,561

 

 

 

3,430

 

Total securities

 

 

377,642

 

 

 

401,144

 

Loans held for sale

 

 

 

 

 

52

 

Loans

 

 

680,949

 

 

 

627,171

 

Less allowance for credit losses

 

 

6,691

 

 

 

6,838

 

Net loans

 

 

674,258

 

 

 

620,333

 

Premises and equipment, net

 

 

13,105

 

 

 

13,414

 

Bank-owned life insurance

 

 

25,229

 

 

 

24,709

 

Goodwill

 

 

4,728

 

 

 

4,728

 

Accrued interest receivable and other assets

 

 

12,227

 

 

 

8,308

 

TOTAL ASSETS

 

$

1,156,598

 

 

$

1,159,108

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

Noninterest-bearing

 

$

300,018

 

 

$

350,283

 

Interest-bearing

 

 

718,057

 

 

 

673,134

 

Total deposits

 

 

1,018,075

 

 

 

1,023,417

 

Short-term borrowings

 

 

30,734

 

 

 

32,550

 

Other borrowings

 

 

1,808

 

 

 

2,461

 

Allowance for credit losses on off-balance sheet commitments

 

 

492

 

 

 

141

 

Accrued interest payable and other liabilities

 

 

4,079

 

 

 

4,619

 

TOTAL LIABILITIES

 

 

1,055,188

 

 

 

1,063,188

 

SHAREHOLDERS' EQUITY

 

 

 

 

 

 

Common stock, $6.25 par value. Authorized 9,000,000 shares; issued
   
2,980,602 shares; outstanding 2,671,313 shares in 2023 and 2,707,576 in 2022

 

 

18,629

 

 

 

18,629

 

Additional paid-in capital

 

 

9,815

 

 

 

9,815

 

Retained earnings

 

 

94,614

 

 

 

86,502

 

Treasury stock at cost: 309,289 shares in 2023 and 273,026 shares in 2022

 

 

(7,481

)

 

 

(6,107

)

Accumulated other comprehensive loss

 

 

(14,167

)

 

 

(12,919

)

TOTAL SHAREHOLDERS' EQUITY

 

 

101,410

 

 

 

95,920

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

$

1,156,598

 

 

$

1,159,108

 

 

See notes to unaudited consolidated financial statements.

3


 

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

(Dollars in thousands, except per share data)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

INTEREST AND DIVIDEND INCOME

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

9,175

 

 

$

6,680

 

 

$

25,855

 

 

$

18,489

 

Taxable securities

 

 

1,910

 

 

 

1,780

 

 

 

5,867

 

 

 

4,721

 

Nontaxable securities

 

 

102

 

 

 

110

 

 

 

305

 

 

 

328

 

Other

 

 

531

 

 

 

586

 

 

 

1,520

 

 

 

863

 

Total interest and dividend income

 

 

11,718

 

 

 

9,156

 

 

 

33,547

 

 

 

24,401

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

2,772

 

 

 

559

 

 

 

6,484

 

 

 

1,252

 

Short-term borrowings

 

 

100

 

 

 

25

 

 

 

236

 

 

 

51

 

Other borrowings

 

 

9

 

 

 

12

 

 

 

31

 

 

 

43

 

Total interest expense

 

 

2,881

 

 

 

596

 

 

 

6,751

 

 

 

1,346

 

NET INTEREST INCOME

 

 

8,837

 

 

 

8,560

 

 

 

26,796

 

 

 

23,055

 

CREDIT LOSS EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

Provision (recovery) for credit loss expense - loans

 

 

13

 

 

 

(250

)

 

 

287

 

 

 

(895

)

Provision (recovery) for credit loss expense - off-balance sheet commitments

 

 

164

 

 

 

 

 

 

(1

)

 

 

 

Total provision (recovery) for credit loss expense

 

 

177

 

 

 

(250

)

 

 

286

 

 

 

(895

)

NET INTEREST INCOME AFTER CREDIT LOSS EXPENSE

 

 

8,660

 

 

 

8,810

 

 

 

26,510

 

 

 

23,950

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

332

 

 

 

321

 

 

 

924

 

 

 

875

 

Trust services

 

 

259

 

 

 

216

 

 

 

769

 

 

 

733

 

Debit card interchange fees

 

 

525

 

 

 

530

 

 

 

1,579

 

 

 

1,568

 

Credit card fees

 

 

166

 

 

 

170

 

 

 

535

 

 

 

516

 

Gain on sale of loans, net

 

 

47

 

 

 

49

 

 

 

106

 

 

 

314

 

Earnings on bank owned life insurance

 

 

179

 

 

 

170

 

 

 

520

 

 

 

504

 

Unrealized gain (loss) on equity securities, net

 

 

(11

)

 

 

(2

)

 

 

2

 

 

 

2

 

Other income

 

 

208

 

 

 

221

 

 

 

631

 

 

 

587

 

Total noninterest income

 

 

1,705

 

 

 

1,675

 

 

 

5,066

 

 

 

5,099

 

NONINTEREST EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

3,429

 

 

 

3,199

 

 

 

10,112

 

 

 

9,766

 

Occupancy expense

 

 

290

 

 

 

272

 

 

 

856

 

 

 

820

 

Equipment expense

 

 

199

 

 

 

193

 

 

 

595

 

 

 

604

 

Professional and director fees

 

 

366

 

 

 

555

 

 

 

1,073

 

 

 

1,161

 

Financial institutions tax

 

 

192

 

 

 

195

 

 

 

576

 

 

 

584

 

Marketing and public relations

 

 

124

 

 

 

141

 

 

 

383

 

 

 

362

 

Software expense

 

 

408

 

 

 

397

 

 

 

1,228

 

 

 

1,056

 

Debit card expense

 

 

179

 

 

 

201

 

 

 

494

 

 

 

550

 

FDIC insurance expense

 

 

131

 

 

 

93

 

 

 

380

 

 

 

251

 

Other expenses

 

 

716

 

 

 

699

 

 

 

2,105

 

 

 

2,033

 

Total noninterest expenses

 

 

6,034

 

 

 

5,945

 

 

 

17,802

 

 

 

17,187

 

Income before income taxes

 

 

4,331

 

 

 

4,540

 

 

 

13,774

 

 

 

11,862

 

FEDERAL INCOME TAX PROVISION

 

 

850

 

 

 

890

 

 

 

2,715

 

 

 

2,302

 

NET INCOME

 

$

3,481

 

 

$

3,650

 

 

$

11,059

 

 

$

9,560

 

Basic and diluted net earnings per share

 

$

1.30

 

 

$

1.35

 

 

$

4.12

 

 

$

3.52

 

 

See notes to unaudited consolidated financial statements

4


 

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

(Dollars in thousands)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net income

 

$

3,481

 

 

$

3,650

 

 

$

11,059

 

 

$

9,560

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 Unrealized losses arising during the period

 

 

(1,127

)

 

 

(5,189

)

 

 

(1,722

)

 

 

(15,334

)

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

 

 

50

 

 

 

64

 

 

 

143

 

 

 

237

 

Income tax effect

 

 

226

 

 

 

1,076

 

 

 

331

 

 

 

3,170

 

Other comprehensive loss

 

 

(851

)

 

 

(4,049

)

 

 

(1,248

)

 

 

(11,927

)

Total comprehensive income (loss)

 

$

2,630

 

 

$

(399

)

 

$

9,811

 

 

$

(2,367

)

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

 

 

Total

 

Three Months Ended September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

18,629

 

 

$

9,815

 

 

$

92,149

 

 

$

(7,137

)

 

$

(13,316

)

 

$

100,140

 

Net income

 

 

 

 

 

 

 

 

3,481

 

 

 

 

 

 

 

 

 

3,481

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(851

)

 

 

(851

)

Purchase of 9,012 treasury shares

 

 

 

 

 

 

 

 

 

 

 

(344

)

 

 

 

 

 

(344

)

Cash dividends declared, $0.38 per share

 

 

 

 

 

 

 

 

(1,016

)

 

 

 

 

 

 

 

 

(1,016

)

Balance, September 30, 2023

 

$

18,629

 

 

$

9,815

 

 

$

94,614

 

 

$

(7,481

)

 

$

(14,167

)

 

$

101,410

 

Nine Months Ended September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

18,629

 

 

$

9,815

 

 

$

86,502

 

 

$

(6,107

)

 

$

(12,919

)

 

$

95,920

 

Net income

 

 

 

 

 

 

 

 

11,059

 

 

 

 

 

 

 

 

 

11,059

 

Cumulative effect of adoption of ASU 2016-13

 

 

 

 

 

 

 

 

52

 

 

 

 

 

 

 

 

 

52

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,248

)

 

 

(1,248

)

Purchase of 36,263 treasury shares

 

 

 

 

 

 

 

 

 

 

 

(1,374

)

 

 

 

 

 

(1,374

)

Cash dividends declared, $1.12 per share

 

 

 

 

 

 

 

 

(2,999

)

 

 

 

 

 

 

 

 

(2,999

)

Balance, September 30, 2023

 

$

18,629

 

 

$

9,815

 

 

$

94,614

 

 

$

(7,481

)

 

$

(14,167

)

 

$

101,410

 

Three Months Ended September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

18,629

 

 

$

9,815

 

 

$

80,940

 

 

$

(5,719

)

 

$

(10,003

)

 

$

93,662

 

Net income

 

 

 

 

 

 

 

 

3,650

 

 

 

 

 

 

 

 

 

3,650

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,049

)

 

 

(4,049

)

Purchase of 10,448 treasury shares

 

 

 

 

 

 

 

 

 

 

 

(388

)

 

 

 

 

 

(388

)

Cash dividends declared, $0.33 per share

 

 

 

 

 

 

 

 

(894

)

 

 

 

 

 

 

 

 

(894

)

Balance, September 30, 2022

 

$

18,629

 

 

$

9,815

 

 

$

83,696

 

 

$

(6,107

)

 

$

(14,052

)

 

$

91,981

 

Nine Months Ended September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

18,629

 

 

$

9,815

 

 

$

76,715

 

 

$

(5,719

)

 

$

(2,125

)

 

$

97,315

 

Net income

 

 

 

 

 

 

 

 

9,560

 

 

 

 

 

 

 

 

 

9,560

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,927

)

 

 

(11,927

)

Purchase of 10,448 treasury shares

 

 

 

 

 

 

 

 

 

 

 

(388

)

 

 

 

 

 

(388

)

Cash dividends declared, $0.95 per share

 

 

 

 

 

 

 

 

(2,579

)

 

 

 

 

 

 

 

 

(2,579

)

Balance, September 30, 2022

 

$

18,629

 

 

$

9,815

 

 

$

83,696

 

 

$

(6,107

)

 

$

(14,052

)

 

$

91,981

 

See notes to unaudited consolidated financial statements.

6


 

CSB BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Nine Months Ended
September 30,

 

(Dollars in thousands)

 

2023

 

 

2022

 

NET CASH FROM OPERATING ACTIVITIES

 

$

8,079

 

 

$

8,894

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Securities:

 

 

 

 

 

 

Proceeds from repayments, available-for-sale

 

 

7,088

 

 

 

11,293

 

Proceeds from repayments, held-to-maturity

 

 

16,798

 

 

 

16,901

 

Purchases, available-for-sale

 

 

(4,458

)

 

 

(38,868

)

Purchases, held-to-maturity

 

 

 

 

 

(94,542

)

Purchases, equity securities

 

 

 

 

 

(131

)

Redemption of FHLB stock

 

 

1,869

 

 

 

1,183

 

Loan originations, net

 

 

(53,895

)

 

 

(61,004

)

Property, equipment, and software acquisitions

 

 

(308

)

 

 

(217

)

Net cash used in investing activities

 

 

(32,906

)

 

 

(165,385

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Net (decrease) increase in deposits

 

 

(5,342

)

 

 

26,527

 

Net decrease in short-term borrowings

 

 

(1,816

)

 

 

(2,331

)

Repayment of other borrowings

 

 

(653

)

 

 

(879

)

Cash dividends paid

 

 

(2,999

)

 

 

(2,579

)

Purchase of treasury shares

 

 

(1,374

)

 

 

(388

)

Net cash (used in) provided by financing activities

 

 

(12,184

)

 

 

20,350

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(37,011

)

 

 

(136,141

)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

 

86,420

 

 

 

243,657

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

49,409

 

 

$

107,516

 

SUPPLEMENTAL DISCLOSURES

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

Interest

 

$

6,584

 

 

$

1,351

 

Income taxes

 

 

3,365

 

 

 

1,760

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 September 30, 2023, 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, 2022, 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 September 30, 2023 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.

ALLOWANCE FOR CREDIT LOSSES - LOANS AND LEASES POLICY

In connection with our adoption of ASU 2016-13, we made changes to our loan portfolio segments to align with the methodology applied in determining the allowance under CECL. Refer to Note 3 Loans, for further discussion of these portfolio segments. In addition to our existing segments, our new segmentation breaks out commercial lessors of buildings, and consumer indirect loans as well as separating consumer mortgage loans from home equity line of credit loans.

The ACL is a valuation reserve established and maintained by charges against operating income and is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the ACL when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. The ACL is an estimate of expected credit losses, measured over the contractual life of a loan (adjusted for expected prepayment), that considers our historical loss experience, current conditions and forecasts of future economic conditions. Determination of an appropriate ACL is inherently subjective and may have significant changes from period to period.

The methodology for determining the ACL has two main components: evaluation of expected credit losses for certain groups of homogeneous loans that share similar risk characteristics and evaluation of loans that do not share risk characteristics with other loans.

The ACL for homogeneous loans is calculated using a life-time loss rate methodology with both a quantitative and a qualitative analysis that is applied on a quarterly basis. The ACL model is comprised of eight distinct portfolio segments: 1) Commercial and Industrial or C&I, 2) Commercial Real Estate, or CRE, 3) Commercial Lessors of Buildings, 4) Construction, 5) Consumer Mortgage, 6) Home Equity Line of Credit or HELOC, 7) Consumer Installment, and 8) Consumer Indirect loans. Each segment has a distinct set of risk characteristics monitored by management. We further evaluate the ACL at a disaggregated level which includes type of collateral, loan participations, non-owner occupied and our internal risk rating system for the commercial segments, and type of collateral and lien position, for the consumer segments.

 

8


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Historical credit loss experience is the basis for the estimation of expected credit losses. We apply historical loss rates to pools of loans with similar risk characteristics. After consideration of the historic loss calculation, management applies qualitative adjustments to reflect the current conditions and reasonable and supportable forecasts not already reflected in the historical loss information at the balance sheet date. Our reasonable and supportable forecast adjustment is based on the unemployment forecast and management judgment. For periods beyond our two-year reasonable and supportable forecast, we revert to the historical loss rate. The qualitative adjustments for current conditions are based upon changes in lending policies and practices, change in economic conditions, change in nature of the portfolio, experience and ability of lending staff, problem loan trends, quality of the bank’s loan review system, value of underlying collateral for collateral dependent loans, the existence of and changes in concentrations, and other external factors. These modified historical loss rates are multiplied by the outstanding principal balance of each loan to calculate a required reserve. A similar process is employed to calculate a reserve assigned to the portion of off-balance sheet commitments that we expect to fund, specifically unfunded loan commitments, and any needed reserve is recorded in other liabilities.

The ACL for individual loans begins with the use of normal credit review procedures to identify whether a loan no longer shares similar risk characteristics with other pooled loans and therefore, should be individually assessed. We evaluate all commercial loans greater than $500 thousand that meet the following criteria: 1) when it is determined that foreclosure is probable, 2) substandard, doubtful and nonperforming loans when repayment is expected to be provided substantially through the operation or sale of the collateral, and 3) when it is determined by management that a loan does not share similar risk characteristics with other loans. Collateral values are discounted to consider disposition costs when appropriate. A specific reserve is established or a charge-off is taken if the fair value of the loan is less than the loan balance.

Although we believe our process for determining the ACL appropriately considers all the factors that would likely result in credit losses, the process includes subjective elements and may be susceptible to significant change. To the extent actual losses are higher than management estimates, additional provision for credit losses could be required and could adversely affect our earnings or financial position in future periods.

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 credit losses and the fair value of financial instruments.

ACCOUNTING PRONOUNCEMENTS ADOPTED IN 2023

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" and subsequent related updates. This ASU replaces the incurred loss methodology for recognizing credit losses and requires businesses and other organizations to measure the current expected credit losses (CECL) on financial assets measured at amortized cost, including loans and held-to-maturity securities, net investments in leases, off-balance sheet credit exposures such as unfunded commitments, and other financial instruments. In addition, ASC 326 requires credit losses on available-for-sale debt securities to be presented as an allowance rather than as a write-down when management does not intend to sell or believes that it is not more likely than not they will be required to sell the debt securities. This guidance became effective on January 1, 2023 for the Bank. The results reported for periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable accounting standards.

 

9


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Bank adopted this guidance, and subsequent related updates, using the modified retrospective approach for all financial assets measured at amortized cost, including loans and held-to-maturity debt securities, available-for-sale debt securities and unfunded commitments. On January 1, 2023, the Bank recorded a cumulative effect increase to retained earnings of $52 thousand, net of tax, of which $442 thousand related to loans, offset by $390 thousand related to unfunded commitments, net of tax. There was no allowance for credit losses recorded for either available-for-sale or held-to-maturity debt securities. See Note 3 for further discussion on the adoption of CECL.

The Bank adopted the provisions of ASC 326 related to presenting other-than-temporary impairment on available-for- sale debt securities on January 1, 2023 using the prospective transition approach, though no such charges had been recorded on the securities held by the Bank as of the date of adoption.

The Bank expanded the pooling utilized under the legacy incurred loss method to include additional segmentation based on risk. The impact of the change from the incurred loss model to the current expected credit loss model is detailed below:

 

 

January 1, 2023

 

(Dollars in thousands)

 

Pre-adoption

 

 

Adoption Impact

 

 

As Reported

 

Assets:

 

 

 

 

 

 

 

 

 

ACL on loans

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

1,110

 

 

$

658

 

 

$

1,768

 

Commercial real estate

 

 

2,760

 

 

 

(541

)

 

 

2,219

 

Commercial lessors of buildings

 

 

 

 

 

974

 

 

 

974

 

Construction

 

 

803

 

 

 

(515

)

 

 

288

 

Consumer mortgage

 

 

1,268

 

 

 

(580

)

 

 

688

 

Home equity line of credit

 

 

 

 

 

201

 

 

 

201

 

Consumer installment

 

 

233

 

 

 

(183

)

 

 

50

 

Consumer indirect

 

 

 

 

 

91

 

 

 

91

 

Unallocated

 

 

664

 

 

 

(664

)

 

 

 

Total allowance for credit losses - loans

 

 

6,838

 

 

 

(559

)

 

$

6,279

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

ACL for off-balance sheet commitments

 

 

 

 

 

493

 

 

 

493

 

Total allowance for credit losses

 

$

6,838

 

 

 

(66

)

 

$

6,772

 

The following table presents the Bank's loan portfolio, prior to the adoption of ASC 326, by category of loans and the impact of the change from the adoption of the standard:

(Dollars in thousands)

 

December 31, 2022

 

 

Adoption Impact

 

 

Post Adoption January 1, 2023

 

Commercial and industrial

 

$

129,343

 

 

$

(2,209

)

 

$

127,134

 

Commercial real estate

 

 

231,785

 

 

 

(70,625

)

 

 

161,160

 

Commercial lessors of buildings

 

 

 

 

 

83,728

 

 

 

83,728

 

Construction

 

 

55,318

 

 

 

(10,452

)

 

 

44,866

 

Consumer mortgage

 

 

194,125

 

 

 

(44,338

)

 

 

149,787

 

Home equity line of credit

 

 

 

 

 

44,243

 

 

 

44,243

 

Consumer installment

 

 

16,387

 

 

 

(6,730

)

 

 

9,657

 

Consumer indirect

 

 

 

 

 

6,383

 

 

 

6,383

 

 

 

$

626,958

 

 

$

 

 

$

626,958

 

Gross loans prior to deferred fees

 

 

 

 

 

 

 

 

 

Deferred loan costs, net

 

 

213

 

 

 

 

 

 

213

 

Allowance for credit losses

 

 

(6,838

)

 

 

559

 

 

 

(6,279

)

Total net loans

 

$

620,333

 

 

$

559

 

 

$

620,892

 

 

10


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In March 2022, the FASB issued ASU 2022-02, “Financial Instruments – Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures”. The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities 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. The guidance also requires disclosures about the performance of modified loans to borrowers experiencing financial difficulty in the 12 months following the modification.

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. Additionally, the amendments to ASC 326 require that an entity disclose 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. This guidance has been adopted as of January 1, 2023, however, there have been no reportable loan modifications during the nine months ended September 30, 2023.

11


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 2 – SECURITIES

Securities consist of the following on September 30, 2023 and December 31, 2022:

 

(Dollars in thousands)

 

Amortized
cost

 

 

Gross
unrealized
gains

 

 

Gross
unrealized
losses

 

 

Fair value

 

September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

23,133

 

 

$

 

 

$

(675

)

 

$

22,458

 

U.S. Government agencies

 

 

13,999

 

 

 

 

 

 

(1,151

)

 

 

12,848

 

Mortgage-backed securities of government agencies

 

 

74,457

 

 

 

2

 

 

 

(10,008

)

 

 

64,451

 

Asset-backed securities of government agencies

 

 

569

 

 

 

 

 

 

(17

)

 

 

552

 

State and political subdivisions

 

 

20,372

 

 

 

 

 

 

(1,573

)

 

 

18,799

 

Corporate bonds

 

 

29,158

 

 

 

 

 

 

(2,936

)

 

 

26,222

 

Total available-for-sale

 

 

161,688

 

 

 

2

 

 

 

(16,360

)

 

 

145,330

 

Held-to-maturity

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

10,292

 

 

$

 

 

$

(1,083

)

 

$

9,209

 

Mortgage-backed securities of government agencies

 

 

217,656

 

 

 

 

 

 

(41,334

)

 

 

176,322

 

State and political subdivisions

 

 

2,557

 

 

 

 

 

 

(393

)

 

 

2,164

 

Total held-to-maturity

 

 

230,505

 

 

 

 

 

 

(42,810

)

 

 

187,695

 

Equity securities

 

 

185

 

 

 

61

 

 

 

 

 

 

246

 

Restricted stock

 

 

1,561

 

 

 

 

 

 

 

 

 

1,561

 

Total securities

 

$

393,939

 

 

$

63

 

 

$

(59,170

)

 

$

334,832

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

23,194

 

 

$

 

 

$

(969

)

 

$

22,225

 

U.S. Government agencies

 

 

13,999

 

 

 

 

 

 

(1,369

)

 

 

12,630

 

Mortgage-backed securities of government agencies

 

 

77,677

 

 

 

72

 

 

 

(8,859

)

 

 

68,890

 

Asset-backed securities of government agencies

 

 

633

 

 

 

 

 

 

(15

)

 

 

618

 

State and political subdivisions

 

 

20,462

 

 

 

 

 

 

(985

)

 

 

19,477

 

Corporate bonds

 

 

28,740

 

 

 

 

 

 

(2,511

)

 

 

26,229

 

Total available-for-sale

 

 

164,705

 

 

 

72

 

 

 

(14,708

)

 

 

150,069

 

Held-to-maturity

 

 

 

 

 

 

 

 

 

 

 

 

U.S Treasury securities

 

$

12,753

 

 

$

 

 

$

(1,136

)

 

$

11,617

 

Mortgage-backed securities of government agencies

 

 

232,068

 

 

 

 

 

 

(34,051

)

 

 

198,017

 

State and political subdivisions

 

 

2,580

 

 

 

1

 

 

 

(261

)

 

 

2,320

 

Total held-to-maturity

 

 

247,401

 

 

 

1

 

 

 

(35,448

)

 

 

211,954

 

Equity securities

 

 

185

 

 

 

59

 

 

 

 

 

 

244

 

Restricted stock

 

 

3,430

 

 

 

 

 

 

 

 

 

3,430

 

Total securities

 

$

415,721

 

 

$

132

 

 

$

(50,156

)

 

$

365,697

 

 

12


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 2 – SECURITIES (continued)

The amortized cost and fair value of debt securities on September 30, 2023, 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

 

$

15,006

 

 

$

14,780

 

Due after one through five years

 

 

55,512

 

 

 

51,631

 

Due after five through ten years

 

 

24,135

 

 

 

21,304

 

Due after ten years

 

 

67,035

 

 

 

57,615

 

Total debt securities available-for-sale

 

$

161,688

 

 

$

145,330

 

Held-to-maturity

 

 

 

 

 

 

Due in one year or less

 

$

 

 

$

 

Due after one through five years

 

 

7,434

 

 

 

6,876

 

Due after five through ten years

 

 

5,138

 

 

 

4,295

 

Due after ten years

 

 

217,933

 

 

 

176,524

 

Total debt securities held-to-maturity

 

$

230,505

 

 

$

187,695

 

 

Securities with a fair value of approximately $129.1 million and $110.1 million were pledged on September 30, 2023 and December 31, 2022, 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 $1.0 million and $2.9 million on September 30, 2023 and December 31, 2022. The FHLB has redeemed approximately $1.9 million in stock at $100 par value per share during the nine month period ended September 30, 2023. Federal Reserve Bank stock was $471 thousand on September 30, 2023 and December 31, 2022.

There were no proceeds from sales of securities for the three and nine-month periods ended September 30, 2023, and 2022. All gains and losses recognized on equity securities during the three and nine-month periods were unrealized.

13


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 September 30, 2023 and December 31, 2022:

 

 

 

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

 

September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

 

 

$

 

 

$

(675

)

 

$

22,458

 

 

$

(675

)

 

$

22,458

 

U.S. Government agencies

 

 

 

 

 

 

 

 

(1,151

)

 

 

12,848

 

 

 

(1,151

)

 

 

12,848

 

Mortgage-backed securities of government
   agencies

 

 

(235

)

 

 

12,748

 

 

 

(9,773

)

 

 

51,513

 

 

 

(10,008

)

 

 

64,261

 

Asset-backed securities of government
   agencies

 

 

 

 

 

 

 

 

(17

)

 

 

552

 

 

 

(17

)

 

 

552

 

State and political subdivisions

 

 

(79

)

 

 

1,952

 

 

 

(1,494

)

 

 

16,622

 

 

 

(1,573

)

 

 

18,574

 

Corporate bonds

 

 

(1

)

 

 

492

 

 

 

(2,935

)

 

 

25,730

 

 

 

(2,936

)

 

 

26,222

 

Held-to-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

 

 

 

 

 

 

(1,083

)

 

 

9,209

 

 

 

(1,083

)

 

 

9,209

 

Mortgage-backed securities of government
   agencies

 

 

(356

)

 

 

8,080

 

 

 

(40,978

)

 

 

168,233

 

 

 

(41,334

)

 

 

176,313

 

State and political subdivisions

 

 

(21

)

 

 

393

 

 

 

(372

)

 

 

1,771

 

 

 

(393

)

 

 

2,164

 

Total securities with unrealized losses

 

$

(692

)

 

$

23,665

 

 

$

(58,478

)

 

$

308,936

 

 

$

(59,170

)

 

$

332,601

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

(798

)

 

$

17,405

 

 

$

(171

)

 

$

4,820

 

 

$

(969

)

 

$

22,225

 

U.S. Government agencies

 

 

 

 

 

 

 

 

(1,369

)

 

 

12,630

 

 

 

(1,369

)

 

 

12,630

 

Mortgage-backed securities of government
   agencies

 

 

(1,046

)

 

 

16,188

 

 

 

(7,813

)

 

 

44,519

 

 

 

(8,859

)

 

 

60,707

 

Asset-backed securities of government
   agencies

 

 

 

 

 

 

 

 

(15

)

 

 

618

 

 

 

(15

)

 

 

618

 

State and political subdivisions

 

 

(189

)

 

 

9,079

 

 

 

(796

)

 

 

9,848

 

 

 

(985

)

 

 

18,927

 

Corporate bonds

 

 

(1,165

)

 

 

13,502

 

 

 

(1,346

)

 

 

12,727

 

 

 

(2,511

)

 

 

26,229

 

Held-to-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

 

 

 

 

 

 

(1,136

)

 

 

11,617

 

 

 

(1,136

)

 

 

11,617

 

Mortgage-backed securities of government
   agencies

 

 

(9,733

)

 

 

79,325

 

 

 

(24,318

)

 

 

118,692

 

 

 

(34,051

)

 

 

198,017

 

State and political subdivisions

 

 

 

 

 

 

 

 

(261

)

 

 

1,903

 

 

 

(261

)

 

 

1,903

 

Total securities with unrealized losses

 

$

(12,931

)

 

$

135,499

 

 

$

(37,225

)

 

$

217,374

 

 

$

(50,156

)

 

$

352,873

 

 

 

14


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 2 – SECURITIES (continued)

 

There were 203 securities in an unrealized loss position on September 30, 2023, 183 of which were in a continuous loss position for twelve (12) months or more. Each quarter the Company conducts a comprehensive security-level impairment assessment on the securities portfolio. Management believes the Company will fully recover the cost of these securities. Unrealized losses on the Company’s fixed-rate debt securities are a result of interest rate increases. U.S. Treasury securities and investments in securities of U.S. government sponsored agency bonds comprise $100 million of total AFS securities. The remaining $45 million of non-agency debt securities is made up of Corporate Bonds and debt securities to State and Political Subdivisions. For non-agency debt securities, the Company verified the current credit ratings remain above investment grade. Non-rated debt securities total $5 million. Annually, management reviews the credit profile of each non-rated issue and assesses whether any impairment to the contractually obligated cash flow is likely to occur. Based on these reviews, management has concluded the underlying creditworthiness for each security remains sufficient to maintain required payment obligations and, therefore, no allowance for credit losses has been recorded. Management believes the value will recover as the securities approach maturity or market interest rates change.

The Bank monitors the credit quality of held-to-maturity debt securities primarily through utilizing their credit rating. The Bank monitors the credit rating on a quarterly basis. There are no nonperforming held-to-maturity securities. As of September 30, 2023, no ACL was required for any held-to-maturity security. The majority of the securities are explicitly or implicitly guaranteed by the United States government, and any estimate of expected credit losses would be insignificant to the Bank. The following table summarizes the amortized cost of held-to maturity debt securities at September 30, 2023, aggregated by credit quality indicator:

 

(Dollars in thousands)

 

U.S. Treasury securities

 

 

Mortgage- backed securities of government agencies

 

 

State and political subdivisions

 

September 30, 2023

 

 

 

 

 

 

 

 

 

Credit rating:

 

 

 

 

 

 

 

 

 

AAA / AA / A

 

$

10,292

 

 

$

217,656

 

 

$

2,557

 

BBB / BB / B

 

 

 

 

 

 

 

 

 

Lower than B

 

 

 

 

 

 

 

 

 

Non-rated

 

 

 

 

 

 

 

 

 

Total

 

$

10,292

 

 

$

217,656

 

 

$

2,557

 

 

15


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – LOANS

The composition of net loans receivable as of September 30, 2023 and December 31, 2022:

(Dollars in thousands)

 

September 30,
2023

 

Commercial and industrial

 

$

143,227

 

Commercial real estate

 

 

188,910

 

Commercial lessors of buildings

 

 

78,520

 

Construction

 

 

44,446

 

Consumer mortgage

 

 

167,419

 

Home equity line of credit

 

 

41,093

 

Consumer installment

 

 

11,197

 

Consumer indirect

 

 

6,168

 

Total loans

 

 

680,980

 

Allowance for credit losses

 

 

(6,691

)

Deferred loan fees, net

 

 

(31

)

Net Loans

 

$

674,258

 

 

(Dollars in thousands)

 

December 31,
2022

 

Commercial and industrial

 

$

129,343

 

Commercial real estate

 

 

231,785

 

Residential real estate

 

 

194,125

 

Construction & land development

 

 

55,318

 

Consumer

 

 

16,387

 

Total loans

 

 

626,958

 

Allowance for loan losses

 

 

(6,838

)

Deferred loan costs, net

 

 

213

 

Total Loans *

 

$

620,333

 

* See Note 1 for reclassification of balances due to the adoption of ASC 326.

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.

 

16


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – LOANS (CONTINUED)

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.

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 $132.2 and $137.5 million on September 30, 2023 and December 31, 2022, respectively.

 

17


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 September 30, 2023, included $62.9 million, or 9%, of total loans to lessors of non-residential buildings, and $39.6 million, or 6%, of total loans to manufacturers of animal food. 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.

Allowance for Credit Losses

The following table details activity in the allowance for credit losses ("ACL") by portfolio segment for the three and nine months ended September 30, 2023. 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 months ended in September 2023, the decrease in the provision for commercial and industrial loans primarily relates to the recovery of prior loan charge-offs, as well as the decrease in substandard loan balances in this loan category. The remaining provision changes for the quarter are primarily a result of changes in loan volume in each loan category.

For the nine month period in 2023, the decrease in provision for commercial real estate loans is due to the payoff of one larger loan relationship with a specific allocation. The increase in the provision for commercial lessors of buildings relates to the increase in loans graded special mention in this category. All other changes during the nine month period are related to loan volume changes.

 

(Dollars in thousands)

 

Beginning Balance

 

 

Impact of Adopting ASC 326

 

 

Charge-offs

 

 

Recoveries

 

 

Provisions (Recovery)

 

 

Ending Balance

 

Three Months Ended September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

2,119

 

 

$

 

 

$

 

 

$

147

 

 

$

(303

)

 

$

1,963

 

Commercial real estate

 

 

1,882

 

 

 

 

 

 

 

 

 

8

 

 

 

239

 

 

 

2,129

 

Commercial lessors of buildings

 

 

1,237

 

 

 

 

 

 

 

 

 

 

 

 

(11

)

 

 

1,226

 

Construction

 

 

283

 

 

 

 

 

 

 

 

 

 

 

 

(28

)

 

 

255

 

Consumer mortgage

 

 

714

 

 

 

 

 

 

 

 

 

 

 

 

61

 

 

 

775

 

Home equity line of credit

 

 

178

 

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

187

 

Consumer installment

 

 

52

 

 

 

 

 

 

(8

)

 

 

 

 

 

13

 

 

 

57

 

Consumer indirect

 

 

94

 

 

 

 

 

 

(35

)

 

 

7

 

 

 

33

 

 

 

99

 

Unallocated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

6,559

 

 

$

 

 

$

(43

)

 

$

162

 

 

$

13

 

 

$

6,691

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

1,110

 

 

$

658

 

 

$

 

 

$

166

 

 

$

29

 

 

$

1,963

 

Commercial real estate

 

 

2,760

 

 

 

(541

)

 

 

 

 

 

9

 

 

 

(99

)

 

 

2,129

 

Commercial lessors of buildings

 

 

 

 

 

974

 

 

 

 

 

 

 

 

 

252

 

 

 

1,226

 

Construction

 

 

803

 

 

 

(515

)

 

 

 

 

 

 

 

 

(33

)

 

 

255

 

Consumer mortgage

 

 

1,268

 

 

 

(580

)

 

 

 

 

 

1

 

 

 

86

 

 

 

775

 

Home equity line of credit

 

 

 

 

 

201

 

 

 

 

 

 

 

 

 

(14

)

 

 

187

 

Consumer installment

 

 

233

 

 

 

(183

)

 

 

(31

)

 

 

12

 

 

 

26

 

 

 

57

 

Consumer indirect

 

 

 

 

 

91

 

 

 

(66

)

 

 

34

 

 

 

40

 

 

 

99

 

Unallocated

 

 

664

 

 

 

(664

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

6,838

 

 

$

(559

)

 

$

(97

)

 

$

222

 

 

$

287

 

 

$

6,691

 

 

18


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – LOANS (CONTINUED)

Allowance for Loan Losses

The following tables detail activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2022.

(Dollars in thousands)

 

Commercial and industrial

 

 

Commercial
Real Estate

 

 

Residential
Real Estate

 

 

Construction
& Land
Development

 

 

Consumer

 

 

Unallocated

 

 

Total

 

Three Months Ended September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,213

 

 

$

2,422

 

 

$

1,177

 

 

$

1,607

 

 

$

395

 

 

$

454

 

 

$

7,268

 

(Recovery of) provision for loan
   losses

 

 

45

 

 

 

(298

)

 

 

111

 

 

 

(331

)

 

 

(137

)

 

 

360

 

 

 

(250

)

Charge-offs

 

 

(13

)

 

 

(12

)

 

 

 

 

 

 

 

 

(4

)

 

 

 

 

 

(29

)

Recoveries

 

 

4

 

 

 

 

 

 

1

 

 

 

 

 

 

14

 

 

 

 

 

 

19

 

Net (charge-offs) recoveries

 

 

(9

)

 

 

(12

)

 

 

1

 

 

 

 

 

 

10

 

 

 

 

 

 

(10

)

Ending balance

 

$

1,249

 

 

$

2,112

 

 

$

1,289

 

 

$

1,276

 

 

$

268

 

 

$

814

 

 

$

7,008

 

Nine Months Ended September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,240

 

 

$

2,838

 

 

$

992

 

 

$

1,380

 

 

$

421

 

 

$

747

 

 

$

7,618

 

(Recovery of) provision for loan
   losses

 

 

30

 

 

 

(715

)

 

 

295

 

 

 

(416

)

 

 

(156

)

 

 

67

 

 

 

(895

)

Charge-offs

 

 

(31

)

 

 

(12

)

 

 

 

 

 

 

 

 

(28

)

 

 

 

 

 

(71

)

Recoveries

 

 

10

 

 

 

1

 

 

 

2

 

 

 

312

 

 

 

31

 

 

 

 

 

 

356

 

Net (charge-offs) recoveries

 

 

(21

)

 

 

(11

)

 

 

2

 

 

 

312

 

 

 

3

 

 

 

 

 

 

285

 

Ending balance

 

$

1,249

 

 

$

2,112

 

 

$

1,289

 

 

$

1,276

 

 

$

268

 

 

$

814

 

 

$

7,008

 

 

19


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – LOANS (CONTINUED)

Age Analysis of Past-Due Loans Receivable and Nonperforming Loans

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past-due status.

(Dollars in thousands)

 

Current

 

 

30-59
Days
Past
Due

 

 

60-89
Days
Past
Due

 

 

90 Days +
Past Due

 

 

Total Past Due

 

 

Total
Loans

 

September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

143,026

 

 

$

184

 

 

$

17

 

 

$

 

 

$

201

 

 

$

143,227

 

Commercial real estate

 

 

188,576

 

 

 

334

 

 

 

 

 

 

 

 

 

334

 

 

 

188,910

 

Commercial lessors of buildings

 

 

78,520

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

78,520

 

Construction

 

 

44,446

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44,446

 

Consumer mortgage

 

 

166,980

 

 

 

394

 

 

 

45

 

 

 

 

 

 

439

 

 

 

167,419

 

Home equity line of credit

 

 

40,874

 

 

 

219

 

 

 

 

 

 

 

 

 

219

 

 

 

41,093

 

Consumer installment

 

 

11,044

 

 

 

121

 

 

 

20

 

 

 

12

 

 

 

153

 

 

 

11,197

 

Consumer indirect

 

 

6,168

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,168

 

Total Loans

 

$

679,634

 

 

$

1,252

 

 

$

82

 

 

$

12

 

 

$

1,346

 

 

$

680,980

 

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 90 days still accruing interest as of September 30, 2023:

(Dollars in thousands)

 

Nonaccrual with no ACL

 

 

Nonaccrual with ACL

 

 

Total Nonaccrual

 

 

Loans Past Due Over 90 Days Still Accruing

 

 

Total Nonperforming

 

September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

17

 

 

$

 

 

$

17

 

 

$

 

 

$

17

 

Commercial real estate

 

 

79

 

 

 

 

 

 

79

 

 

 

 

 

 

79

 

Commercial lessors of buildings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer mortgage

 

 

110

 

 

 

 

 

 

110

 

 

 

 

 

 

110

 

Home equity line of credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer installment

 

 

16

 

 

 

 

 

 

16

 

 

 

12

 

 

 

28

 

Consumer indirect

 

 

26

 

 

 

 

 

 

26

 

 

 

 

 

 

26

 

Total Loans

 

$

248

 

 

$

 

 

$

248

 

 

$

12

 

 

$

260

 

 

Interest income recognized on nonaccrual loans for the nine months ended September 30, 2023 was $1 thousand on commercial real estate loans and $22 thousand on consumer mortgage loans. Several of the consumer mortgage loans are at an amortized cost basis of $0 and all payments are being recognized as interest income.

 

 

20


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – LOANS (CONTINUED)

The following table presents the aging of past due loans and nonaccrual loans as of December 31, 2022:

 

 

 

 

 

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

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

129,270

 

 

$

70

 

 

$

3

 

 

$

 

 

$

 

 

$

73

 

 

$

129,343

 

Commercial real estate

 

 

231,693

 

 

 

 

 

 

 

 

 

 

 

 

92

 

 

 

92

 

 

 

231,785

 

Residential real estate

 

 

193,794

 

 

 

95

 

 

 

137

 

 

 

 

 

 

99

 

 

 

331

 

 

 

194,125

 

Construction & land development

 

 

55,286

 

 

 

32

 

 

 

 

 

 

 

 

 

 

 

 

32

 

 

 

55,318

 

Consumer

 

 

16,091

 

 

 

103

 

 

 

128

 

 

 

 

 

 

65

 

 

 

296

 

 

 

16,387

 

Total Loans

 

$

626,134

 

 

$

300

 

 

$

268

 

 

$

 

 

$

256

 

 

$

824

 

 

$

626,958

 

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.

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.

 

 

21


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – LOANS (CONTINUED)

Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be pass rated loans. Based on the most recent analysis performed, the following tables present the recorded investment in non-homogeneous loans by internal risk rating system as of September 30, 2023 and December 31, 2022:

 

 

Term Loans Amortized Costs Basis by Origination Year

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term

 

 

 

 

(Dollars in thousands)

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

 

 

 

 

Total

 

September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

21,665

 

 

$

27,127

 

 

$

13,867

 

 

$

5,840

 

 

$

4,057

 

 

$

8,540

 

$

45,546

 

$

 

 

$

126,642

 

Special mention

 

 

16

 

 

 

19

 

 

 

651

 

 

 

178

 

 

 

90

 

 

 

352

 

 

7,248

 

 

 

 

 

8,554

 

Substandard

 

 

294

 

 

 

570

 

 

 

483

 

 

 

901

 

 

 

60

 

 

 

1,230

 

 

4,493

 

 

 

 

 

8,031

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

21,975

 

 

$

27,716

 

 

$

15,001

 

 

$

6,919

 

 

$

4,207

 

 

$

10,122

 

$

57,287

 

$

 

 

$

143,227

 

YTD gross charge-offs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

$

 

$

 

 

$

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

20,649

 

 

$

36,877

 

 

$

57,330

 

 

$

14,776

 

 

$

19,773

 

 

$

24,035

 

$

695

 

$

 

 

$

174,135

 

Special Mention

 

 

213

 

 

 

465

 

 

 

652

 

 

 

398

 

 

 

 

 

 

2,688

 

 

 

 

 

 

 

4,416

 

Substandard

 

 

 

 

 

 

 

 

902

 

 

 

 

 

 

471

 

 

 

8,986

 

 

 

 

 

 

 

10,359

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

20,862

 

 

$

37,342

 

 

$

58,884

 

 

$

15,174

 

 

$

20,244

 

 

$

35,709

 

$

695

 

$

 

 

$

188,910

 

YTD gross charge-offs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

$

 

$

 

 

$

 

Commercial lessors of buildings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

13,317

 

 

$

22,938

 

 

$

15,821

 

 

$

6,516

 

 

$

3,594

 

 

$

9,202

 

$

381

 

$

 

 

$

71,769

 

Special Mention

 

 

 

 

 

446

 

 

 

1,513

 

 

 

 

 

 

3,627

 

 

 

 

 

 

 

 

 

 

5,586

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

999

 

 

 

 

 

 

166

 

 

 

 

 

 

 

1,165

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

13,317

 

 

$

23,384

 

 

$

17,334

 

 

$

7,515

 

 

$

7,221

 

 

$

9,368

 

$

381

 

$

 

 

$

78,520

 

YTD gross charge-offs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

$

 

$

 

 

$

 

Construction:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

16,348

 

 

$

19,495

 

 

$

599

 

 

$

275

 

 

$

288

 

 

$

269

 

$

 

$

 

 

$

37,274

 

Special Mention

 

 

 

 

 

289

 

 

 

6

 

 

 

635

 

 

 

 

 

 

 

 

 

 

 

 

 

930

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

33

 

 

 

80

 

 

 

 

 

 

 

 

 

 

113

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

16,348

 

 

$

19,784

 

 

$

605

 

 

$

943

 

 

$

368

 

 

$

269

 

$

 

$

 

 

$

38,317

 

YTD gross charge-offs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

$

 

$

 

 

$

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

71,979

 

 

$

106,437

 

 

$

87,617

 

 

$

27,407

 

 

$

27,712

 

 

$

42,046

 

$

46,622

 

$

 

 

$

409,820

 

Special Mention

 

 

229

 

 

 

1,219

 

 

 

2,822

 

 

 

1,211

 

 

 

3,717

 

 

 

3,040

 

 

7,248

 

 

 

 

 

19,486

 

Substandard

 

 

294

 

 

 

570

 

 

 

1,385

 

 

 

1,933

 

 

 

611

 

 

 

10,382

 

 

4,493

 

 

 

 

 

19,668

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

72,502

 

 

$

108,226

 

 

$

91,824

 

 

$

30,551

 

 

$

32,040

 

 

$

55,468

 

$

58,363

 

$

 

 

$

448,974

 

 

(Dollars in thousands)

 

Pass

 

 

Special
Mention

 

 

Substandard

 

 

Doubtful

 

 

Not
Rated

 

 

Total

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

119,353

 

 

$

282

 

 

$

7,927

 

 

$

 

 

$

1,781

 

 

$

129,343

 

Commercial real estate

 

 

220,414

 

 

 

485

 

 

 

8,352

 

 

 

 

 

 

2,534

 

 

 

231,785

 

Construction & land development

 

 

40,640

 

 

 

6,655

 

 

 

 

 

 

 

 

 

8,023

 

 

 

55,318

 

Total

 

$

380,407

 

 

$

7,422

 

 

$

16,279

 

 

$

 

 

$

12,338

 

 

$

416,446

 

 

22


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – LOANS (CONTINUED)

The Company monitors the credit risk profile by payment activity for the loan classes listed below. Loans past due 90 days or more and loans on nonaccrual status are considered nonperforming. The following table presents the amortized cost in residential consumer loans based on payment activity:

 

 

Term Loans Amortized Costs Basis by Origination Year

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term

 

 

 

 

(Dollars in thousands)

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

 

 

 

 

Total

 

September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer mortgage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

19,430

 

 

$

35,098

 

 

$

38,086

 

 

$

33,815

 

 

$

9,080

 

 

$

31,800

 

$

 

$

 

 

$

167,309

 

Nonperforming

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

110

 

 

 

 

 

 

 

110

 

Total

 

$

19,430

 

 

$

35,098

 

 

$

38,086

 

 

$

33,815

 

 

$

9,080

 

 

$

31,910

 

$

 

$

 

 

$

167,419

 

YTD gross charge-offs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

$

 

$

 

 

$

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

3,422

 

 

$

1,736

 

 

$

270

 

 

$

576

 

 

$

83

 

 

$

42

 

$

 

$

 

 

$

6,129

 

Nonperforming

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

3,422

 

 

$

1,736

 

 

$

270

 

 

$

576

 

 

$

83

 

 

$

42

 

$

 

$

 

 

$

6,129

 

YTD gross charge-offs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

$

 

$

 

 

$

 

Home equity line of credit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

$

41,046

 

$

47

 

 

$

41,093

 

Nonperforming

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

$

41,046

 

$

47

 

 

$

41,093

 

YTD gross charge-offs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

$

 

$

 

 

$

 

Consumer installment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

5,410

 

 

$

3,476

 

 

$

1,187

 

 

$

603

 

 

$

211

 

 

$

208

 

$

74

 

$

 

 

$

11,169

 

Nonperforming

 

 

 

 

 

1

 

 

 

17

 

 

 

 

 

 

10

 

 

 

 

 

 

 

 

 

 

28

 

Total

 

$

5,410

 

 

$

3,477

 

 

$

1,204

 

 

$

603

 

 

$

221

 

 

$

208

 

$

74

 

$

 

 

$

11,197

 

YTD gross charge-offs

 

$

1

 

 

$

11

 

 

$

10

 

 

$

3

 

 

$

2

 

 

$

4

 

$

 

$

 

 

$

31

 

Consumer indirect:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

760

 

 

$

1,219

 

 

$

636

 

 

$

589

 

 

$

643

 

 

$

2,295

 

$

 

$

 

 

$

6,142

 

Nonperforming

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21

 

 

 

5

 

 

 

 

 

 

 

26

 

Total

 

$

760

 

 

$

1,219

 

 

$

636

 

 

$

589

 

 

$

664

 

 

$

2,300

 

$

 

$

 

 

$

6,168

 

YTD gross charge-offs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

66

 

$

 

$

 

 

$

66

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

29,022

 

 

$

41,529

 

 

$

40,179

 

 

$

35,583

 

 

$

10,017

 

 

$

34,345

 

$

41,120

 

$

47

 

 

$

231,842

 

Nonperforming

 

 

 

 

 

1

 

 

 

17

 

 

 

 

 

 

31

 

 

 

115

 

 

 

 

 

 

 

164

 

Total

 

$

29,022

 

 

$

41,530

 

 

$

40,196

 

 

$

35,583

 

 

$

10,048

 

 

$

34,460

 

$

41,120

 

$

47

 

 

$

232,006

 

Consumer mortgages are substantially secured by one to four family owner occupied properties and consumer indirect loans are substantially secured by recreational vehicles. All nonperforming consumer loans are evaluated when placed on nonaccrual status and may be charged down based on the fair value less cost to sell if that value is lower than the outstanding balance.

Modifications to Borrowers Experiencing Financial Difficulty

Occasionally, the Bank modifies loans to borrowers in financial distress by providing – principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

In some cases, the Bank may provide multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.

There were no modifications of loans to borrowers in financial distress completed during the nine months ended September 30, 2023.

23


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – LOANS (CONTINUED)

Impaired Loans

The following impaired loan information relates to required disclosures under the previous incurred loan loss methodology and are only presented with prior period information.

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 December 31, 2022:

 

(Dollars in thousands)

 

Commercial and industrial

 

 

Commercial
Real Estate

 

 

Residential
Real Estate

 

 

Construction

 

 

Consumer

 

 

Unallocated

 

 

Total

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for
   impairment

 

$

 

 

$

 

 

$

 

 

$

 

 

$

4

 

 

$

 

 

$

4

 

Collectively evaluated for
   impairment

 

 

1,110

 

 

 

2,760

 

 

 

1,268

 

 

 

803

 

 

 

229

 

 

 

664

 

 

 

6,834

 

Total ending allowance balance

 

$

1,110

 

 

$

2,760

 

 

$

1,268

 

 

$

803

 

 

$

233

 

 

$

664

 

 

$

6,838

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually
   evaluated for
   impairment

 

$

123

 

 

$

113

 

 

$

677

 

 

$

 

 

$

123

 

 

 

 

 

$

1,036

 

Loans collectively
   evaluated for
   impairment

 

 

129,220

 

 

 

231,672

 

 

 

193,448

 

 

 

55,318

 

 

 

16,264

 

 

 

 

 

 

625,922

 

Total ending loans balance

 

$

129,343

 

 

$

231,785

 

 

$

194,125

 

 

$

55,318

 

 

$

16,387

 

 

 

 

 

$

626,958

 

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

 

(Dollars in thousands)

 

Unpaid
Principal
Balance

 

 

Recorded
Investment
with no
Allowance

 

 

Recorded
Investment
with
Allowance

 

 

Total
recorded
investment
1

 

 

Related
Allowance

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

123

 

 

$

124

 

 

$

 

 

$

124

 

 

$

 

Commercial real estate

 

 

117

 

 

 

92

 

 

 

20

 

 

 

112

 

 

 

 

Residential real estate

 

 

733

 

 

 

166

 

 

 

518

 

 

 

683

 

 

 

 

Construction & land development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

127

 

 

 

6

 

 

 

121

 

 

 

127

 

 

 

4

 

Total impaired loans

 

$

1,101

 

 

$

387

 

 

$

659

 

 

$

1,046

 

 

$

4

 

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

24


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.

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

(Dollars in thousands)

 

2022

 

 

2022

 

Average recorded investment:

 

 

 

 

 

 

Commercial and industrial

 

$

255

 

 

$

258

 

Commercial real estate

 

 

173

 

 

 

198

 

Residential real estate

 

 

715

 

 

 

781

 

Construction & land development

 

 

 

 

 

164

 

Consumer

 

 

131

 

 

 

132

 

Average recorded investment in impaired loans

 

$

1,274

 

 

$

1,533

 

Interest income recognized:

 

 

 

 

 

 

Commercial and industrial

 

$

 

 

$

2

 

Commercial real estate

 

 

2

 

 

 

6

 

Residential real estate

 

 

7

 

 

 

23

 

Construction & land development

 

 

 

 

 

 

Consumer

 

 

2

 

 

 

6

 

Interest income recognized on a cash basis on impaired loans

 

$

11

 

 

$

37

 

 

 

25


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

 

 

September 30,

 

 

December 31,

 

(Dollars in thousands)

 

2023

 

 

2022

 

Securities of U.S. Government Agencies and mortgage-backed securities of
   government agencies pledged, fair value

 

$

30,911

 

 

$

32,755

 

Repurchase agreements

 

 

30,734

 

 

 

32,550

 

 

 

 

 

 

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.

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.

 

26


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 5 – FAIR VALUE MEASUREMENTS (CONTINUED)

The following table presents the assets reported on the Consolidated Balance Sheets at their fair value on a recurring basis as of September 30, 2023 and December 31, 2022 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

 

September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

22,458

 

 

$

 

 

$

 

 

$

22,458

 

U.S. Government agencies

 

 

 

 

 

12,848

 

 

 

 

 

 

12,848

 

Mortgage-backed securities of government agencies

 

 

 

 

 

64,451

 

 

 

 

 

 

64,451

 

Asset-backed securities of government agencies

 

 

 

 

 

552

 

 

 

 

 

 

552

 

State and political subdivisions

 

 

 

 

 

18,799

 

 

 

 

 

 

18,799

 

Corporate bonds

 

 

 

 

 

26,222

 

 

 

 

 

 

26,222

 

Total available-for-sale securities

 

$

22,458

 

 

$

122,872

 

 

$

 

 

$

145,330

 

Equity securities

 

$

211

 

 

$

 

 

$

 

 

$

211

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

22,225

 

 

$

 

 

$

 

 

$

22,225

 

U.S. Government agencies

 

 

 

 

 

12,630

 

 

 

 

 

 

12,630

 

Mortgage-backed securities of government agencies

 

 

 

 

 

68,890

 

 

 

 

 

 

68,890

 

Asset-backed securities of government agencies

 

 

 

 

 

618

 

 

 

 

 

 

618

 

State and political subdivisions

 

 

 

 

 

19,477

 

 

 

 

 

 

19,477

 

Corporate bonds

 

 

 

 

 

26,229

 

 

 

 

 

 

26,229

 

Total available-for-sale securities

 

$

22,225

 

 

$

127,844

 

 

$

 

 

$

150,069

 

Equity securities

 

$

198

 

 

$

 

 

$

 

 

$

198

 

 

There were no assets measured on a nonrecurring basis on September 30, 2023, and December 31, 2022.

 

27


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

NOTE 6 – FAIR VALUES OF FINANCIAL INSTRUMENTS

The estimated fair values of recognized financial instruments carried at amortized cost as of September 30, 2023 and December 31, 2022 are as follows:

(Dollars in thousands)

 

Carrying
Value

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Fair Value

 

September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held-to-maturity

 

$

230,505

 

 

$

9,209

 

 

$

178,486

 

 

$

 

 

$

187,695

 

Loans held for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loans

 

 

674,258

 

 

 

 

 

 

 

 

 

640,671

 

 

 

640,671

 

Mortgage servicing rights

 

 

601

 

 

 

 

 

 

 

 

 

601

 

 

 

601

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

1,018,075

 

 

$

840,637

 

 

$

 

 

$

179,008

 

 

$

1,019,645

 

Other borrowings

 

 

1,808

 

 

 

 

 

 

 

 

 

1,687

 

 

 

1,687

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held-to-maturity

 

$

247,401

 

 

$

11,617

 

 

$

200,337

 

 

$

 

 

$

211,954

 

Loans held for sale

 

 

52

 

 

 

55

 

 

 

 

 

 

 

 

 

55

 

Net loans

 

 

620,333

 

 

 

 

 

 

 

 

 

600,720

 

 

 

600,720

 

Mortgage servicing rights

 

 

621

 

 

 

 

 

 

 

 

 

621

 

 

 

621

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

1,023,417

 

 

$

905,335

 

 

$

 

 

$

114,478

 

 

$

1,019,813

 

Other borrowings

 

 

2,461

 

 

 

 

 

 

 

 

 

2,321

 

 

 

2,321

 

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 I fair value that approximates their carrying value. The Company also has unrecognized financial instruments on September 30, 2023 and December 31, 2022. These financial instruments relate to commitments to extend credit and letters of credit. The aggregate contract amount of such financial instruments was approximately $301 million on September 30, 2023 and $268 million on December 31, 2022. 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.

28


CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 7- ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table presents the changes in accumulated other comprehensive loss by component net of tax for the three and nine months ended September 30, 2023 and 2022:

(Dollars in thousands)

 

Pretax

 

 

Tax Effect

 

 

After-tax

 

Three Months Ended September 30, 2023

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

(16,856

)

 

$

3,540

 

 

$

(13,316

)

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

 

 

(1,127

)

 

 

237

 

 

 

(890

)

Amortization of held-to-maturity discount resulting from transfer

 

 

50

 

 

 

(11

)

 

 

40

 

Total other comprehensive loss

 

 

(1,077

)

 

 

226

 

 

 

(851

)

Balance, end of period

 

$

(17,933

)

 

$

3,766

 

 

$

(14,167

)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2023

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

(16,354

)

 

$

3,435

 

 

$

(12,919

)

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

 

 

(1,722

)

 

 

361

 

 

 

(1,361

)

Amortization of held-to-maturity discount resulting from transfer

 

 

143

 

 

 

(30

)

 

 

113

 

Total other comprehensive loss

 

 

(1,579

)

 

 

331

 

 

 

(1,248

)

Balance, end of period

 

$

(17,933

)

 

$

3,766

 

 

$

(14,167

)

 

 

 

 

 

 

 

 

 

 

Three Months ended September 30, 2022

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

(12,663

)

 

$

2,660

 

 

$

(10,003

)

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

 

 

(5,189

)

 

 

1,090

 

 

 

(4,099

)

Amortization of held-to-maturity discount resulting from transfer

 

 

64

 

 

 

(14

)

 

 

50

 

Total other comprehensive loss

 

 

(5,125

)

 

 

1,076

 

 

 

(4,049

)

Balance, end of period

 

$

(17,788

)

 

$

3,736

 

 

$

(14,052

)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2022

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

(2,691

)

 

$

566

 

 

$

(2,125

)

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

 

 

(15,334

)

 

 

3,220

 

 

 

(12,114

)

Amortization of held-to-maturity discount resulting from transfer

 

 

237

 

 

 

(50

)

 

 

187

 

Total other comprehensive loss

 

 

(15,097

)

 

 

3,170

 

 

 

(11,927

)

Balance, end of period

 

$

(17,788

)

 

$

3,736

 

 

$

(14,052

)

 

29


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 on September 30, 2023 as compared to December 31, 2022, and the consolidated results of operations for the three and nine months ended September 30, 2023 compared to the same periods in 2022. 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 decreased $2.5 million to $1.157 billion at September 30, 2023 compared to $1.159 billion December 31, 2022. During the nine months ended September 30, 2023, securities decreased $24 million, net loans increased $54 million, and cash and cash equivalents decreased $37 million. Deposits and short-term borrowings decreased $7 million.

Net loans increased $54 million, or 9%, as residential real estate loans increased $18 million, or 12%, from December 31, 2022. Commercial and commercial real estate loans increased $39 million, or 10% compared to December 31, 2022. Consumer refinance activity slowed significantly on mortgage loans, home purchase activity remained stable despite limited inventory, and home equity line balances decreased by $3 million. Residential mortgage loan originations for the nine months ended September 30, 2023 totaled $40 million, a decrease from $61 million in originations during the nine months ended September 30, 2022. As interest rates continued to rise in 2023, more variable rate residential mortgage loans were originated for the portfolio. Originations sold into the secondary market were $3 million and $8 million, respectively during the nine months ended September 30, 2023 and September 30, 2022. The Bank originates and sells primarily fixed rate thirty-year mortgages into the secondary market.

The allowance for credit losses decreased $317 thousand from the year ago quarter to $6.7 million. The Company adopted CECL on January 1, 2023. Net recoveries were $119 thousand, or an annualized (0.07)% of average loans, in the current nine-month period compared to net charge-offs of $10 thousand, or 0.01% of average loans in the year-ago nine-month period. At September 30, 2023, the allowance for credit losses to total loans was 0.98%. 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.

 

30


CSB BANCORP, INC.

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

 

Nonperforming loans increased $4 thousand to $260 thousand, or 0.04%, of total loans from $256 thousand, or 0.04% of total loans, on December 31, 2022. For the nine months ended September 30, 2023, $125 thousand in loans were placed on nonaccrual status, $99 thousand in paydowns were received, and $34 thousand in personal loans were charged-off due to non-payment.

 

 

 

September 30,

 

 

December 31,

 

 

September 30,

 

(Dollars in thousands)

 

2023

 

 

2022

 

 

2022

 

Non-performing loans

 

$

260

 

 

$

256

 

 

$

686

 

Other real estate

 

 

 

 

 

 

 

 

 

Repossessed assets

 

 

 

 

 

 

 

 

 

Allowance for credit/loan losses

 

 

6,691

 

 

 

6,838

 

 

 

7,008

 

Total loans

 

$

680,949

 

 

$

627,171

 

 

$

609,971

 

Allowance for credit/loan losses as a percentage of total loans

 

 

0.98

%

 

 

1.09

%

 

 

1.15

%

Allowance for credit/loan losses to total nonperforming loans

 

25.8X

 

 

26.7X

 

 

10.2X

 

The ratio of gross loans to deposits was 66.9% at September 30, 2023, compared to 61.3% at December 31, 2022.

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 $59.2 million within the available-for-sale and held-to-maturity portfolios as of September 30, 2023, 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 September 30, 2023, are considered temporary and no allowance for credit loss is necessary.

The weighted average life of total debt securities was 5.22 years at September 30, 2023 as compared to 5.57 years at December 31, 2022. If interest rates declined 100 basis points, the weighted average life was estimated to fall to 5.17 years at September 30, 2023 and 5.10 years at December 31, 2022. If interest rates rose 100 basis points the weighted average life would be expected to increase to 5.22 years at September 30, 2023 and 6.01 years at December 31, 2022.

Deposits decreased $5 million, or less than 1%, from December 31, 2022 with noninterest-bearing deposits decreasing approximately $50 million, or 14%, and interest-bearing deposit accounts increasing approximately $45 million, or 7%. Total deposits as of September 30, 2023 are $1.02 billion, or 1%, below September 30, 2022 deposit balances. On a year over year comparison, decreases were recognized in noninterest-bearing demand deposits of $38 million, savings of $28 million and money market accounts of $18 million. Increases were recognized in interest bearing demand accounts of $11 million, and time deposits of $61 million. Deposits have declined somewhat as customers use excess liquid funds and move funds into time certificates of deposit to take advantage of the increased interest rates. The estimated amount of uninsured deposits was $267 million, $267 million, and $286 million as of September 30, 2023, December 31, 2022, and September 30, 2022, respectively.

Short-term borrowings consisting of overnight repurchase agreements with retail customers decreased $2 million, or 6%, to $31 million at September 30, 2023 as compared to December 31, 2022 and other borrowings decreased $653 thousand as the Company repaid FHLB advances.

Total shareholders’ equity amounted to $101 million, or 8.8%, of total assets at September 30, 2023, an increase of $5 million, or 6%, from $96 million December 31, 2022. The increase in shareholders’ equity during the nine months ended September 30, 2023 was due to net income of $11.1 million, accumulated other comprehensive loss (“AOCL”) of $1.2 million, less cash dividends of $3.0 million, and treasury stock repurchase of $1.4 million. An increase of U.S. Treasury rates during the nine months ended September 30, 2023 caused the AOCL to increase as AFS securities are marked to fair market value. As interest rates increase, the fair value of AFS fixed-rate securities decrease with a corresponding net of tax increase recorded in the AOCL portion of equity. This remaining 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 September 30, 2023 as shown in the Capital Resources section of this report.

31


CSB BANCORP, INC.

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

 

RESULTS OF OPERATIONS

Three months ended September 30, 2023 and 2022

For the quarters ended September 30, 2023 and 2022, the Company recorded net income of $3.5 million and $3.7 million and $1.30 and $1.35 per share, respectively. The $169 thousand decrease in net income for the period was primarily the result of the provision for credit losses of $177 thousand compared to the recovery for credit losses in the prior year period of $250 thousand. The increase of $277 thousand in net interest income and $30 thousand increase in noninterest income was offset by an increase in noninterest expenses of $89 thousand. The federal income tax provision decreased $40 thousand. Return on average assets and return on average equity were 1.19% and 13.63%, respectively, for the three-month period of 2023, compared to 1.25% and 15.24%, respectively for the same quarter in 2022.

 

Average Balance Sheets and Net Interest Margin Analysis

 

 

 

For the Three Months Ended September 30,

 

 

 

 

2023

 

 

 

2022

 

 

(Dollars in thousands)

 

Average
balance
1

 

 

Interest

 

 

Average
rate
2

 

 

 

Average
balance
1

 

 

Interest

 

 

Average
rate
2

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning deposits

 

$

38,669

 

 

$

531

 

 

 

5.45

 

%

 

$

101,460

 

 

$

586

 

 

 

2.29

 

%

Taxable securities

 

 

360,868

 

 

 

1,910

 

 

 

2.10

 

 

 

 

373,290

 

 

 

1,780

 

 

 

1.89

 

 

Tax-exempt securities 4

 

 

21,859

 

 

 

130

 

 

 

2.36

 

 

 

 

24,627

 

 

 

139

 

 

 

2.24

 

 

Loans 3,4

 

 

675,283

 

 

 

9,181

 

 

 

5.39

 

 

 

 

594,820

 

 

 

6,687

 

 

 

4.46

 

 

Total interest-earning assets

 

 

1,096,679

 

 

 

11,752

 

 

 

4.25

 

%

 

 

1,094,197

 

 

 

9,192

 

 

 

3.33

 

%

Noninterest-earning assets

 

 

65,350

 

 

 

 

 

 

 

 

 

 

65,326

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

1,162,029

 

 

 

 

 

 

 

 

 

$

1,159,523

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

$

256,223

 

 

$

689

 

 

 

1.07

 

%

 

$

243,343

 

 

$

151

 

 

 

0.25

 

%

Savings deposits

 

 

292,706

 

 

 

662

 

 

 

0.90

 

 

 

 

323,033

 

 

 

183

 

 

 

0.22

 

 

Time deposits

 

 

169,766

 

 

 

1,420

 

 

 

3.32

 

 

 

 

115,899

 

 

 

225

 

 

 

0.77

 

 

Borrowed funds

 

 

35,618

 

 

 

110

 

 

 

1.23

 

 

 

 

37,479

 

 

 

37

 

 

 

0.39

 

 

Total interest-bearing liabilities

 

 

754,313

 

 

 

2,881

 

 

 

1.52

 

%

 

 

719,754

 

 

 

596

 

 

 

0.33

 

%

Noninterest-bearing demand deposits

 

 

301,440

 

 

 

 

 

 

 

 

 

 

340,576

 

 

 

 

 

 

 

 

Other liabilities

 

 

4,982

 

 

 

 

 

 

 

 

 

 

4,150

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

101,294

 

 

 

 

 

 

 

 

 

 

95,043

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

$

1,162,029

 

 

 

 

 

 

 

 

 

$

1,159,523

 

 

 

 

 

 

 

 

Taxable equivalent net interest
   income, (Non-GAAP)

 

 

 

 

$

8,871

 

 

 

 

 

 

 

 

 

$

8,596

 

 

 

 

 

Tax equivalent adjustment 4

 

 

 

 

 

(34

)

 

 

 

 

 

 

 

 

 

(36

)

 

 

 

 

Net interest income, (GAAP)

 

 

 

 

$

8,837

 

 

 

 

 

 

 

 

 

$

8,560

 

 

 

 

 

Net interest margin, (GAAP)

 

 

 

 

 

 

 

 

3.20

 

%

 

 

 

 

 

 

 

 

3.10

 

%

Tax equivalent adjustment 4

 

 

 

 

 

 

 

 

0.01

 

 

 

 

 

 

 

 

 

 

0.02

 

 

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

 

 

 

 

 

 

 

 

3.21

 

%

 

 

 

 

 

 

 

 

3.12

 

%

Taxable equivalent net interest spread

 

 

 

 

 

 

 

 

2.73

 

%

 

 

 

 

 

 

 

 

3.00

 

%

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.

 

32


CSB BANCORP, INC.

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

 

Interest income for the quarter ended September 30, 2023, was $11.7 million representing a $2.6 million increase, or 22%, compared to the same period in 2022. This increase was primarily due to increased volume and rates on loans and increased rates on interest-earning deposits, and taxable securities partially offset by the volume decrease in interest-earning deposits in the comparable period. Average interest-earning deposit rates increased 316 basis points while loan rates increased 93 basis points, and taxable securities interest rates rose 21 basis points for the quarter ended September 30, 2023 as compared to the same period in 2022. The Federal Reserve raised managed interest rates 6 times and 225 basis points during the 1 year period. Interest expense for the quarter ended September 30, 2023 was $2.9 million, an increase of $2.3 million, or 383%, from the same quarter in 2022. The increase in interest expense occurred primarily due to the increase in interest rates on all deposit types as well as an increase in volume of demand and time deposit accounts for the quarter ended September 30, 2023.

For the quarter ended September 30, 2023, with improving credit quality and minimal loan charge-offs, the bank recognized net recoveries of $119 thousand, compared to $10 thousand net charge-offs for the same quarter in 2022. The provision for credit losses for loans in the current quarter of $13 thousand, compared to a credit provision of $250 thousand in the third quarter 2022, reflects loan growth in 2023. The company recorded $164 thousand credit provision for off-balance credit exposure in 2023 compared to a $0 provision in the third quarter of 2022. This increase results from an increase primarily in commercial construction loans in 2023 compared to 2022. Economic indicators reflect a leveling off in residential real estate prices and low unemployment. The provision for credit losses is determined based on management’s calculation of the adequacy of the allowance for credit 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 September 30, 2023, was $1.7 million, an increase of $30 thousand, or 2%, compared to the same quarter in 2022. The gain on the sale of mortgage loans into the secondary market decreased by $2 thousand, or 4%, for the quarter ended September 30, 2023 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 $259 thousand for the third quarter 2023, an increase of $43 thousand, or 20%, as compared to the same quarter in 2022. Service charges on deposit accounts increased $11 thousand, or 3%, compared to the same quarter in 2022, primarily from increased customer fees, partially offset by a decline in customer overdraft fees.. Debit card interchange income decreased $5 thousand, or less than 1%, with less fees generated from usage in the third quarter 2023. Credit card fee income decreased $4 thousand, or 2%. Earnings on bank owned life insurance increased $9 thousand, or 5%, for the third quarter 2023.

Noninterest expenses for the quarter ended September 30, 2023 increased $89 thousand, or 2%, compared to the third quarter 2022. Salaries and employee benefits increased $230 thousand, or 7%, a result increases in headcount and base salary compared to third quarter 2022. Occupancy and equipment expense increased $24 thousand, or 5%, in 2023 over the third quarter 2022, primarily due to increases in rooftop air conditioner repair. Software expense increased $11 thousand due to additional software purchases over third quarter 2022. Professional and director fees decreased $189 thousand, or 34%, for the quarter ended September 30, 2023 as compared to the third quarter 2022, primarily reflecting a consulting fee in 2022 to renegotiate the core data processing software contract. Marketing and public relations expense decreased $17 thousand, or 12%. Data line and phone expense increased $2 thousand, or 4%, as renegotiated contracts have stabilized. Debit card expense decreased $22 thousand or 11%. FDIC insurance expense increased $38 thousand, or 41%, with the increase in insurance rates. Federal income tax expense decreased $40 thousand, or 4%, for the quarter ended September 30, 2023 as compared to the third quarter 2022. The provision for income taxes was $850 thousand (effective rate of 18.2%) for the quarter ended September 30, 2023, compared to $890 thousand (effective rate of 19.6%) for the same quarter ended 2022.

 

 

33


CSB BANCORP, INC.

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

 

RESULTS OF OPERATIONS

 

Nine months ended September 30, 2023, and 2022

 

For the nine months ended September 30, 2023, and 2022, the Company recorded net income of $11.1 million and $9.6 million and $4.12 and $3.52 per share, respectively. The $1.5 million increase in net income for the nine-month period was primarily the result of an increase in net interest income of $3.7 million, which was partially offset by an increase in the total provision for credit losses of $1.2 million, an increase in noninterest expenses of $615 thousand, and a reduction in noninterest income of $33 thousand. The federal income tax provision was $413 thousand higher during the nine-month period in 2023. Return on average assets and return on average equity were 1.28% and 14.85%, respectively, for the nine months ended September 30, 2023, compared to 1.12% and 13.41%, respectively for the same period in 2022.

 

 

 

For the Nine Months Ended September 30,

 

 

 

 

2023

 

 

 

2022

 

 

(Dollars in thousands)

 

Average
balance
1

 

 

Interest

 

 

Average
rate
2

 

 

 

Average
balance
1

 

 

Interest

 

 

Average
rate
2

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning deposits

 

$

40,272

 

 

$

1,520

 

 

 

5.05

 

%

 

$

119,373

 

 

$

863

 

 

 

0.97

 

%

Taxable securities

 

 

368,510

 

 

 

5,867

 

 

 

2.13

 

 

 

 

360,774

 

 

 

4,721

 

 

 

1.75

 

 

Tax-exempt securities 4

 

 

22,045

 

 

 

387

 

 

 

2.35

 

 

 

 

24,705

 

 

 

416

 

 

 

2.25

 

 

Loans 3,4

 

 

657,698

 

 

 

25,874

 

 

 

5.26

 

 

 

 

576,821

 

 

 

18,510

 

 

 

4.29

 

 

Total interest-earning assets

 

 

1,088,525

 

 

 

33,648

 

 

 

4.13

 

%

 

 

1,081,673

 

 

 

24,510

 

 

 

3.03

 

%

Noninterest-earning assets

 

 

65,024

 

 

 

 

 

 

 

 

 

 

63,217

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

1,153,549

 

 

 

 

 

 

 

 

 

$

1,144,890

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

$

247,530

 

 

$

1,810

 

 

 

0.98

 

%

 

$

239,679

 

 

$

257

 

 

 

0.14

 

%

Savings deposits

 

 

303,250

 

 

 

1,784

 

 

 

0.79

 

 

 

 

313,172

 

 

 

325

 

 

 

0.14

 

 

Time deposits

 

 

144,539

 

 

 

2,890

 

 

 

2.67

 

 

 

 

117,999

 

 

 

670

 

 

 

0.76

 

 

Borrowed funds

 

 

34,289

 

 

 

267

 

 

 

1.04

 

 

 

 

41,032

 

 

 

94

 

 

 

0.31

 

 

Total interest-bearing liabilities

 

 

729,608

 

 

 

6,751

 

 

 

1.24

 

%

 

 

711,882

 

 

 

1,346

 

 

 

0.25

 

%

Noninterest-bearing demand deposits

 

 

319,218

 

 

 

 

 

 

 

 

 

 

333,715

 

 

 

 

 

 

 

 

Other liabilities

 

 

5,185

 

 

 

 

 

 

 

 

 

 

3,956

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

99,538

 

 

 

 

 

 

 

 

 

 

95,337

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

$

1,153,549

 

 

 

 

 

 

 

 

 

$

1,144,890

 

 

 

 

 

 

 

 

Taxable equivalent net interest
   income, (Non-GAAP)

 

 

 

 

$

26,897

 

 

 

 

 

 

 

 

 

$

23,164

 

 

 

 

 

Tax equivalent adjustment 4

 

 

 

 

 

(101

)

 

 

 

 

 

 

 

 

 

(109

)

 

 

 

 

Net interest income, (GAAP)

 

 

 

 

$

26,796

 

 

 

 

 

 

 

 

 

$

23,055

 

 

 

 

 

Net interest margin, (GAAP)

 

 

 

 

 

 

 

 

3.29

 

%

 

 

 

 

 

 

 

 

2.85

 

%

Tax equivalent adjustment 4

 

 

 

 

 

 

 

 

0.01

 

 

 

 

 

 

 

 

 

 

0.01

 

 

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

 

 

 

 

 

 

 

 

3.30

 

%

 

 

 

 

 

 

 

 

2.86

 

%

Taxable equivalent net interest spread

 

 

 

 

 

 

 

 

2.89

 

%

 

 

 

 

 

 

 

 

2.78

 

%

 

 

34


CSB BANCORP, INC.

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

 

Interest income for the nine months ended September 30, 2023, was $33.5 million representing a $9.1 million increase, or 37%, compared to the same period in 2022. This increase was primarily due to volume and yield increases on loans and taxable securities along with rate increases on interest-earning deposits in other banks for the period ended September 30, 2023, as compared to the same period in 2022. Interest expense for the nine months ended September 30, 2023, was $6.8 million, an increase of $5.4 million, or 402%, from the same period in 2022. The increase in interest expense occurred primarily due to an increase in rates on all interest-bearing liabilities for the nine months ended September 30, 2023, as well as a shift in balances into higher rate time deposits.

 

For the nine months ended September 30, 2023, the provision for credit losses was $287 thousand, compared to a credit reversal of $895 thousand for the same period in 2022. 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 credit 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 nine months ended September 30, 2023, was $5.1 million, a decrease of $33 thousand, or less than 1%, compared to the same period in 2022. The gain on the sale of mortgage loans to the secondary market decreased $208 thousand to $106 thousand for the nine months ended September 30, 2023, as increases in interest rates slowed mortgage loan refinancing. Service charges on deposit accounts increased $49 thousand, or 6%, compared to the same period in 2022 primarily from increases in business service charges on deposit accounts and customer nsf fees. Credit card fee income increased $19 thousand, or 4% with growth in business credit card customers and interchange income. Debit card interchange income increased $11 thousand, or less than 1%. Earnings on bank owned life insurance policies increased $16 thousand for the period. Fees from trust and brokerage services increased $36 thousand for the period.

 

Noninterest expenses for the nine months ended September 30, 2023, increased $615 thousand, or 4%, compared to the same period in 2022. Salaries and employee benefits increased $346 thousand, or 4%, a result of increased salaries and medical benefits. Software increased $172 thousand, or 16%, with investment in enhanced reporting software. FDIC assessment rose $129 thousand, or 51%, a result of increasing rates set by the FDIC in 2002 for 2023. Marketing and public relations expense increased $21 thousand, or 6%, 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 $27 thousand over the same period in 2022 with an increase in maintenance expense. Professional and director fees decreased $88 thousand for the nine months ended September 30, 2023, as compared to the same period in 2022 as an IT consulting fee did not recur in 2023 which was partially offset with increases in audit function and CECL.

 

Federal income tax expense increased $413 thousand, or 18%, for the nine months ended September 30, 2023, as compared to the same period in 2022. The provision for income taxes was $2.7 million (effective rate of 19.7%) for the nine months ended September 30, 2023, compared to $2.3 million (effective rate of 19.4%) for the same period ended 2022.

35


CSB BANCORP, INC.

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

 

CAPITAL RESOURCES

The Company maintained a strong capital position with tangible common equity to tangible assets of 8.4% at September 30, 2023 compared with 7.9% at December 31, 2022.

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 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, 2022. As of September 30, 2023, the Company and the Bank met all capital adequacy requirements to which they were subject.

 

 

Capital Ratios

 

 

 

 

September 30,
2023

 

 

December 31,
2022

 

 

Total Capital To Risk Weighted Assets Ratio

 

 

 

 

 

 

 

Consolidated

 

 

16.1

 

%

 

16.0

 

%

Bank

 

 

16.0

 

 

 

15.9

 

 

 

 

 

 

 

 

 

Tier 1 Capital To Risk Weighted Assets Ratio

 

 

 

 

 

 

 

Consolidated

 

 

15.1

 

 

 

15.1

 

 

Bank

 

 

15.1

 

 

 

14.9

 

 

 

 

 

 

 

 

 

Common Equity Tier 1 Capital To Risk Weighted Assets

 

 

 

 

 

 

 

Consolidated

 

 

15.1

 

 

 

15.1

 

 

Bank

 

 

15.1

 

 

 

14.9

 

 

 

 

 

 

 

 

 

Tier 1 Leverage Ratio

 

 

 

 

 

 

 

Consolidated

 

 

9.5

 

 

 

8.8

 

 

Bank

 

 

9.4

 

 

 

8.7

 

 

 

LIQUIDITY

 

(Dollars in thousands)

 

September 30,
2023

 

 

December 31,
2022

 

 

Change

 

 

Cash and cash equivalents

 

$

49,409

 

 

$

86,420

 

 

$

(37,011

)

 

Available from FHLB

 

 

124,045

 

 

 

122,062

 

 

 

1,983

 

 

Unpledged AFS securities at fair market value

 

 

123,340

 

 

 

134,401

 

 

 

(11,061

)

 

 

$

296,794

 

 

$

342,883

 

 

$

(46,089

)

 

Net deposits and short-term liabilities

 

$

1,027,414

 

 

$

1,041,016

 

 

$

(13,602

)

 

Liquidity ratio

 

 

28.9

 

%

 

32.9

 

%

 

(4.0

)

 

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.

36


CSB BANCORP, INC.

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

 

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.

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

 

 

Nine Months Ended

 

September 30,

 

 

September 30,

 

(Dollars in thousands, except per share data)

2023

 

2022

 

2023

 

 

2022

 

Net income

$

3,481

 

$

3,650

 

$

11,059

 

$

9,560

 

Weighted average common shares outstanding

 

2,675,967

 

 

 

2,712,686

 

 

 

2,682,872

 

 

 

2,716,225

 

Earnings per share, basic and diluted

 

1.30

 

 

 

1.35

 

 

 

4.12

 

 

 

3.52

 

 

37


CSB BANCORP, INC.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

By September 2023, Ohio's unemployment rate had stabilized at 3.4%. The bank based in Holmes County is reporting an unemployment rate of 2.5% in September 2023. Of the counties within the bank's footprint, Stark County reported the highest unemployment rate at 3.5% in September. Tuscarawas and Wayne Counties posted a lower unemployment rates of 3.2% and 2.7% in September 2023. Many jobs within the Bank's market footprint continue to go unfilled. The rate of inflation, increased to 3.7% on a year over year basis at September 2023, following a high base rate in 2022. The rate continues to be above the Federal Reserve target rate of 2%, but has fallen from 8.5% in March 2022. The Federal Reserve continues to raise interest rates in an effort to stabilize prices with maximum employment. Credit quality in the Bank's loan portfolio is good, 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 -400 through +400 basis point changes, in 100 basis point increments, in market interest rates at September 30, 2023 and December 31, 2022. 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.

 

September 30, 2023

(Dollars in thousands)

 

Change in
Interest Rates
(basis points)

 

 

Net Interest
Income

 

 

Dollar
Change

 

 

Percentage
Change

 

 

Board Policy
Limits

 

+400

 

 

$

37,686

 

 

$

537

 

 

 

1.4

 

%

± 25

 %

+300

 

 

 

37,640

 

 

 

491

 

 

 

1.3

 

 

± 15

 

+200

 

 

 

37,495

 

 

 

346

 

 

 

0.9

 

 

± 10

 

+100

 

 

 

37,324

 

 

 

175

 

 

 

0.5

 

 

± 5

 

0

 

 

 

37,149

 

 

 

 

 

 

 

 

 

 

-100

 

 

 

36,701

 

 

 

(448

)

 

 

(1.2

)

 

± 5

 

-200

 

 

 

35,696

 

 

 

(1,453

)

 

 

(3.9

)

 

± 10

 

-300

 

 

 

34,841

 

 

 

(2,308

)

 

 

(6.2

)

 

± 15

 

-400

 

 

 

33,673

 

 

 

(3,476

)

 

 

(9.4

)

 

± 25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

+ 400

 

 

$

38,810

 

 

$

1,090

 

 

 

2.9

 

%

± 25

 %

+ 300

 

 

 

38,581

 

 

 

861

 

 

 

2.3

 

 

± 15

 

+ 200

 

 

 

38,302

 

 

 

582

 

 

 

1.5

 

 

± 10

 

+ 100

 

 

 

38,003

 

 

 

283

 

 

 

0.8

 

 

± 5

 

 

0

 

 

 

37,720

 

 

 

 

 

 

 

 

 

 

– 100

 

 

 

37,368

 

 

 

(352

)

 

 

(0.9

)

 

± 5

 

– 200

 

 

 

36,869

 

 

 

(851

)

 

 

(2.3

)

 

± 10

 

– 300

 

 

 

35,973

 

 

 

(1,747

)

 

 

(4.6

)

 

± 15

 

– 400

 

 

 

35,519

 

 

 

(2,201

)

 

 

(5.8

)

 

± 25

 

 

38


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.

39


CSB BANCORP, INC.

FORM 10-Q

Quarter ended September 30, 2023

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 September 30, 2023:

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

 

July 1, 2023 - July 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

75,093

 

August 1, 2023 - August 31, 2023

 

 

8,880

 

 

 

37.60

 

 

 

 

8,880

 

 

 

66,213

 

September 1, 2023 - September 30, 2023

 

 

132

 

 

 

36.26

 

 

 

 

132

 

 

 

66,081

 

Total for quarter

 

 

9,012

 

 

 

73.86

 

 

 

 

9,012

 

 

 

66,081

 

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.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4 - MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5 - OTHER INFORMATION.

Not applicable.

40


CSB BANCORP, INC.

FORM 10-Q

Quarter ended September 30, 2023

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 04958544).

 

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, film number 99579179).

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, film number 21747059).

3.2.3

 

Amended Article III of the Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to Registrant's Form DEF 14a file on March 16, 2023, Appendix A, film number 23738842).

 

 

 

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, film number 20717009).

 

 

 

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 September 30, 2023, 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).

 

41


 

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:

 

November 13, 2023

/s/ Eddie L. Steiner

 

 

 

Eddie L. Steiner

 

 

 

President

 

 

 

Chief Executive Officer

 

 

 

 

 

 

 

 

Date:

 

November 13, 2023

/s/ Paula J. Meiler

 

 

 

Paula J. Meiler

 

 

 

Senior Vice President

 

 

 

Chief Financial Officer

 

42