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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: March 31, 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 May 1, 2023, the registrant had 2,680,625 shares of common stock, $6.25 par value per share, outstanding.

 

 

 

CSB BANCORP, INC.

FORM 10-Q

QUARTER ENDED March 31, 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

29

ITEM 3 –

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

35

ITEM 4 –

CONTROLS AND PROCEDURES

36

 

 

 

 

Part II - Other Information

 

ITEM 1 –

Legal Proceedings

37

ITEM 1A –

Risk Factors

37

ITEM 2 –

Unregistered Sales of Equity Securities and Use of Proceeds

37

ITEM 3 –

Defaults upon Senior Securities

37

ITEM 4 –

Mine Safety Disclosures

37

ITEM 5 –

Other Information

37

ITEM 6 –

Exhibits

38

 

Signatures

39

 

2

 

CSB BANCORP, INC.

PART I – FINANCIAL INFORMATION

ITEM 1. – FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

March 31,

 

 

December 31,

 

(Dollars in thousands, except per share data)

 

2023

 

 

2022

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

Cash and due from banks

 

$

16,965

 

 

$

19,911

 

Interest-earning deposits with banks

 

 

38,550

 

 

 

66,509

 

Total cash and cash equivalents

 

 

55,515

 

 

 

86,420

 

Securities

 

 

 

 

 

 

Available-for-sale, at fair value

 

 

149,269

 

 

 

150,069

 

Held-to-maturity (fair value 2023-$213,051; 2022-$211,954)

 

 

243,334

 

 

 

247,401

 

Equity securities

 

 

253

 

 

 

244

 

Restricted stock, at cost

 

 

1,760

 

 

 

3,430

 

Total securities

 

 

394,616

 

 

 

401,144

 

Loans held for sale

 

 

—

 

 

 

52

 

Loans

 

 

647,773

 

 

 

627,171

 

Less allowance for credit losses

 

 

6,307

 

 

 

6,838

 

Net loans

 

 

641,466

 

 

 

620,333

 

Premises and equipment, net

 

 

13,240

 

 

 

13,414

 

Bank-owned life insurance

 

 

24,878

 

 

 

24,709

 

Goodwill

 

 

4,728

 

 

 

4,728

 

Accrued interest receivable and other assets

 

 

8,951

 

 

 

8,308

 

TOTAL ASSETS

 

$

1,143,394

 

 

$

1,159,108

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

Noninterest-bearing

 

$

329,500

 

 

$

350,283

 

Interest-bearing

 

 

678,007

 

 

 

673,134

 

Total deposits

 

 

1,007,507

 

 

 

1,023,417

 

Short-term borrowings

 

 

29,813

 

 

 

32,550

 

Other borrowings

 

 

2,394

 

 

 

2,461

 

Allowance for credit losses on off-balance sheet commitments

 

 

430

 

 

 

—

 

Accrued interest payable and other liabilities

 

 

4,243

 

 

 

4,760

 

TOTAL LIABILITIES

 

 

1,044,387

 

 

 

1,063,188

 

SHAREHOLDERS' EQUITY

 

 

 

 

 

 

Common stock, $6.25 par value. Authorized 9,000,000 shares; issued
   2,980,602 shares; outstanding 2,680,625 shares in 2023 and 2,707,576 in 2022

 

 

18,629

 

 

 

18,629

 

Additional paid-in capital

 

 

9,815

 

 

 

9,815

 

Retained earnings

 

 

89,524

 

 

 

86,502

 

Treasury stock at cost: 299,977 shares in 2023 and 273,026 shares in 2022

 

 

(7,126

)

 

 

(6,107

)

Accumulated other comprehensive loss

 

 

(11,835

)

 

 

(12,919

)

TOTAL SHAREHOLDERS' EQUITY

 

 

99,007

 

 

 

95,920

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

$

1,143,394

 

 

$

1,159,108

 

 

See notes to unaudited consolidated financial statements.

3

 

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

(Dollars in thousands, except per share data)

 

2023

 

 

2022

 

INTEREST AND DIVIDEND INCOME

 

 

 

 

 

 

Loans, including fees

 

$

7,969

 

 

$

5,777

 

Taxable securities

 

 

2,012

 

 

 

1,281

 

Nontaxable securities

 

 

101

 

 

 

110

 

Other

 

 

545

 

 

 

74

 

Total interest and dividend income

 

 

10,627

 

 

 

7,242

 

INTEREST EXPENSE

 

 

 

 

 

 

Deposits

 

 

1,584

 

 

 

349

 

Short-term borrowings

 

 

66

 

 

 

12

 

Other borrowings

 

 

12

 

 

 

16

 

Total interest expense

 

 

1,662

 

 

 

377

 

NET INTEREST INCOME

 

 

8,965

 

 

 

6,865

 

CREDIT LOSS EXPENSE

 

 

 

 

 

 

Provision (recovery) for credit loss expense - loans

 

 

32

 

 

 

(300

)

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

 

 

(63

)

 

 

—

 

Total (recovery) provision for credit loss expense

 

 

(31

)

 

 

(300

)

NET INTEREST INCOME AFTER CREDIT LOSS EXPENSE

 

 

8,996

 

 

 

7,165

 

NONINTEREST INCOME

 

 

 

 

 

 

Service charges on deposit accounts

 

 

292

 

 

 

265

 

Trust services

 

 

258

 

 

 

264

 

Debit card interchange fees

 

 

521

 

 

 

495

 

Credit card fees

 

 

177

 

 

 

155

 

Gain on sale of loans, net

 

 

3

 

 

 

118

 

Earnings on bank owned life insurance

 

 

169

 

 

 

166

 

Unrealized gain or (loss) on equity securities, net

 

 

9

 

 

 

1

 

Other income

 

 

199

 

 

 

178

 

Total noninterest income

 

 

1,628

 

 

 

1,642

 

NONINTEREST EXPENSE

 

 

 

 

 

 

Salaries and employee benefits

 

 

3,294

 

 

 

3,155

 

Occupancy expense

 

 

282

 

 

 

272

 

Equipment expense

 

 

207

 

 

 

214

 

Professional and director fees

 

 

321

 

 

 

276

 

Financial institutions and franchise tax expense

 

 

192

 

 

 

195

 

Marketing and public relations

 

 

123

 

 

 

111

 

Software expense

 

 

399

 

 

 

333

 

Debit card expense

 

 

146

 

 

 

164

 

FDIC insurance expense

 

 

71

 

 

 

83

 

Provision for unfunded loan commitments

 

 

—

 

 

 

13

 

Other expenses

 

 

684

 

 

 

652

 

Total noninterest expense

 

 

5,719

 

 

 

5,468

 

Income before income taxes

 

 

4,905

 

 

 

3,339

 

FEDERAL INCOME TAX PROVISION

 

 

971

 

 

 

638

 

NET INCOME

 

$

3,934

 

 

$

2,701

 

Basic and diluted net earnings per share

 

$

1.46

 

 

$

0.99

 

 

See notes to unaudited consolidated financial statements

4

 

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

(Dollars in thousands)

 

2023

 

 

2022

 

Net income

 

$

3,934

 

 

$

2,701

 

Other comprehensive income (loss)

 

 

 

 

 

 

 Unrealized gains (losses) arising during the period

 

 

1,327

 

 

 

(6,538

)

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

 

 

46

 

 

 

98

 

Income tax effect

 

 

(289

)

 

 

1,352

 

Other comprehensive income (loss)

 

 

1,084

 

 

 

(5,088

)

Total comprehensive income (loss)

 

$

5,018

 

 

$

(2,387

)

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 March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2022

 

$

18,629

 

 

$

9,815

 

 

$

86,502

 

 

$

(6,107

)

 

$

(12,919

)

 

$

95,920

 

Net income

 

 

—

 

 

 

—

 

 

 

3,934

 

 

 

—

 

 

 

—

 

 

 

3,934

 

Cumulative effect of adoption of ASU 2016-13

 

 

—

 

 

 

—

 

 

 

52

 

 

 

—

 

 

 

—

 

 

 

52

 

Other comprehensive income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,084

 

 

 

1,084

 

Purchase of 26,951 treasury shares

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1,019

)

 

 

—

 

 

 

(1,019

)

Cash dividends declared, $0.36 per share

 

 

—

 

 

 

—

 

 

 

(964

)

 

 

—

 

 

 

—

 

 

 

(964

)

Balance, March 31, 2023

 

$

18,629

 

 

$

9,815

 

 

$

89,524

 

 

$

(7,126

)

 

$

(11,835

)

 

$

99,007

 

Three Months Ended March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2021

 

$

18,629

 

 

$

9,815

 

 

$

76,715

 

 

$

(5,719

)

 

$

(2,125

)

 

$

97,315

 

Net income

 

 

—

 

 

 

—

 

 

 

2,701

 

 

 

—

 

 

 

—

 

 

 

2,701

 

Other comprehensive loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(5,088

)

 

 

(5,088

)

Balance, March 31, 2022

 

$

18,629

 

 

$

9,815

 

 

$

79,416

 

 

$

(5,719

)

 

$

(7,213

)

 

$

94,928

 

See notes to unaudited consolidated financial statements.

6

 

CSB BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

(Dollars in thousands)

 

2023

 

 

2022

 

NET CASH FROM OPERATING ACTIVITIES

 

$

2,784

 

 

$

881

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Securities:

 

 

 

 

 

 

Proceeds from repayments, available-for-sale

 

 

1,999

 

 

 

4,530

 

Proceeds from repayments, held-to-maturity

 

 

4,039

 

 

 

5,205

 

Purchases, available-for-sale

 

 

—

 

 

 

(22,872

)

Purchases, held-to-maturity

 

 

—

 

 

 

(76,712

)

Purchases, equity securities

 

 

—

 

 

 

(131

)

Redemption of FHLB stock

 

 

1,670

 

 

 

—

 

Loan (originations) repayments, net

 

 

(20,671

)

 

 

(18,716

)

Property, equipment, and software acquisitions

 

 

(29

)

 

 

(78

)

Net cash used in investing activities

 

 

(12,992

)

 

 

(108,774

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Net decrease in deposits

 

 

(15,910

)

 

 

(7,808

)

Net (decrease) increase in short-term borrowings

 

 

(2,737

)

 

 

2,363

 

Repayment of other borrowings

 

 

(67

)

 

 

(82

)

Cash dividends paid

 

 

(964

)

 

 

—

 

Purchase of treasury shares

 

 

(1,019

)

 

 

—

 

Net cash used in financing activities

 

 

(20,697

)

 

 

(5,527

)

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(30,905

)

 

 

(113,420

)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

 

86,420

 

 

 

243,657

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

55,515

 

 

$

130,237

 

SUPPLEMENTAL DISCLOSURES

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

Interest

 

$

1,640

 

 

$

381

 

Income taxes

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 March 31, 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 March 31, 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, 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 Real Estate, 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.

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

8

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 off-balance sheet commitments, specifically unfunded loan commitments and letters of credit, 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 prior to 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 quarter ended March 31, 2023.

11

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 2 – SECURITIES

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

 

(Dollars in thousands)

 

Amortized
cost

 

 

Gross
unrealized
gains

 

 

Gross
unrealized
losses

 

 

Fair value

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

23,174

 

 

$

—

 

 

$

(746

)

 

$

22,428

 

U.S. Government agencies

 

 

13,999

 

 

 

—

 

 

 

(1,149

)

 

 

12,850

 

Mortgage-backed securities of government agencies

 

 

75,653

 

 

 

31

 

 

 

(7,789

)

 

 

67,895

 

Asset-backed securities of government agencies

 

 

606

 

 

 

—

 

 

 

(35

)

 

 

571

 

State and political subdivisions

 

 

20,431

 

 

 

1

 

 

 

(660

)

 

 

19,772

 

Corporate bonds

 

 

28,715

 

 

 

—

 

 

 

(2,962

)

 

 

25,753

 

Total available-for-sale

 

 

162,578

 

 

 

32

 

 

 

(13,341

)

 

 

149,269

 

Held-to-maturity

 

 

 

 

 

 

 

 

 

 

 

 

U.S Treasury Securities

 

$

12,766

 

 

$

—

 

 

$

(930

)

 

$

11,836

 

Mortgage-backed securities of government agencies

 

 

227,996

 

 

 

50

 

 

 

(29,228

)

 

 

198,818

 

State and political subdivisions

 

 

2,572

 

 

 

6

 

 

 

(181

)

 

 

2,397

 

Total held-to-maturity

 

 

243,334

 

 

 

56

 

 

 

(30,339

)

 

 

213,051

 

Equity securities

 

 

185

 

 

 

68

 

 

 

—

 

 

 

253

 

Restricted stock

 

 

1,760

 

 

 

—

 

 

 

—

 

 

 

1,760

 

Total securities

 

$

407,857

 

 

$

156

 

 

$

(43,680

)

 

$

364,333

 

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 March 31, 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

 

$

7,956

 

 

$

7,798

 

Due after one through five years

 

 

62,410

 

 

 

58,490

 

Due after five through ten years

 

 

24,650

 

 

 

22,777

 

Due after ten years

 

 

67,562

 

 

 

60,204

 

Total debt securities available-for-sale

 

$

162,578

 

 

$

149,269

 

Held-to-maturity

 

 

 

 

 

 

Due in one year or less

 

$

2,498

 

 

$

2,446

 

Due after one through five years

 

 

7,419

 

 

 

6,907

 

Due after five through ten years

 

 

4,748

 

 

 

4,260

 

Due after ten years

 

 

228,669

 

 

 

199,438

 

Total debt securities held-to-maturity

 

$

243,334

 

 

$

213,051

 

 

Securities with a fair value of approximately $135.0 million and $110.1 million were pledged on March 31, 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 $1.3 million and $2.9 million on March 31, 2023 and December 31, 2022. The FHLB has redeemed approximately $1.6 million in stock during the first quarter at $100 par value per share. Federal Reserve Bank stock was $471 thousand on March 31, 2023 and December 31, 2022.

There were no proceeds from sales of securities for the three-month period ended March 31, 2023 and 2022. All gains and losses recognized on equity securities during the three-month period 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 March 31, 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

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

(152

)

 

$

7,815

 

 

$

(594

)

 

$

14,613

 

 

$

(746

)

 

$

22,428

 

U.S. Government agencies

 

 

—

 

 

 

—

 

 

 

(1,149

)

 

 

12,850

 

 

 

(1,149

)

 

 

12,850

 

Mortgage-backed securities of government
   agencies

 

 

(35

)

 

 

4,870

 

 

 

(7,754

)

 

 

54,883

 

 

 

(7,789

)

 

 

59,753

 

Asset-backed securities of government
   agencies

 

 

—

 

 

 

—

 

 

 

(35

)

 

 

571

 

 

 

(35

)

 

 

571

 

State and political subdivisions

 

 

(37

)

 

 

5,411

 

 

 

(623

)

 

 

12,415

 

 

 

(660

)

 

 

17,826

 

Corporate bonds

 

 

(459

)

 

 

6,086

 

 

 

(2,503

)

 

 

19,667

 

 

 

(2,962

)

 

 

25,753

 

Held-to-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Securities

 

 

—

 

 

 

—

 

 

 

(930

)

 

 

11,836

 

 

 

(930

)

 

 

11,836

 

Mortgage-backed securities of government
   agencies

 

 

(172

)

 

 

7,370

 

 

 

(29,056

)

 

 

182,498

 

 

 

(29,228

)

 

 

189,868

 

State and political subdivisions

 

 

—

 

 

 

—

 

 

 

(181

)

 

 

1,977

 

 

 

(181

)

 

 

1,977

 

Total impaired securities

 

$

(855

)

 

$

31,552

 

 

$

(42,825

)

 

$

311,310

 

 

$

(43,680

)

 

$

342,862

 

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 temporarily impaired securities

 

$

(12,931

)

 

$

135,499

 

 

$

(37,225

)

 

$

217,374

 

 

$

(50,156

)

 

$

352,873

 

There were 190 securities in an unrealized loss position on March 31, 2023, 158 of which were in a continuous loss position for twelve (12) months or more. There were 200 securities in an unrealized loss position on December 31, 2022, 90 of which were in a continuous loss position for twelve (12) or more months. At least quarterly, the Company conducts a comprehensive security-level impairment assessment. The assessments are based on the nature of the securities, the extent and duration of the securities in an unrealized loss position, the extent and duration of the loss and management’s intent to sell or if it is more likely than not that management will be required to sell a security before recovery of its amortized cost basis, which may be maturity. Management believes the Company will fully recover the cost of these securities. It does not intend to sell these securities and likely will not be required to sell them before the anticipated recovery of the remaining amortized cost basis, which may be maturity. As a result, management concluded that these securities were not at a credit loss on March 31, 2023 and were not other than temporarily impaired on December 31, 2022, respectively.

 

14

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 2 – SECURITIES (continued)

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 March 31, 2023, no ACL was required for any held-to-maturity security. The following table summarizes the amortized cost of held-to maturity debt securities at March 31, 2023, aggregated by credit quality indicator:

 

(Dollars in thousands)

 

U.S. Treasury securities

 

 

Mortgage- backed securities of government agencies

 

 

State and political subdivisions

 

March 31, 2023

 

 

 

 

 

 

 

 

 

Credit rating:

 

 

 

 

 

 

 

 

 

AAA / AA / A

 

$

12,766

 

 

$

227,996

 

 

$

2,572

 

BBB / BB / B

 

 

—

 

 

 

—

 

 

 

—

 

Lower than B

 

 

—

 

 

 

—

 

 

 

—

 

Non-rated

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

12,766

 

 

$

227,996

 

 

$

2,572

 

 

15

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – LOANS

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

(Dollars in thousands)

 

March 31,
2023

 

Commercial and industrial

 

$

137,369

 

Commercial real estate

 

 

167,878

 

Commercial lessors of buildings

 

 

81,917

 

Construction

 

 

43,498

 

Consumer mortgage

 

 

157,316

 

Home equity line of credit

 

 

43,323

 

Consumer installment

 

 

9,951

 

Consumer indirect

 

 

6,374

 

Total loans

 

 

647,626

 

Allowance for credit losses

 

 

(6,307

)

Deferred loan costs, net

 

 

147

 

Net Loans

 

$

641,466

 

 

(Dollars in thousands)

 

December 31,
2022

 

Commercial

 

$

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

 

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 $135.0 and $137.5 million on March 31, 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 March 31, 2023, included $68.6 million, or 11%, of total loans to lessors of non-residential buildings, and $25.3 million, or 4%, of total loans to assisted living facilities for the elderly. These loans are generally secured by real property and equipment, with repayment expected from operational cash flow. Credit evaluation is based on a review of cash flow coverage of principal, interest payments, and the adequacy of the collateral received.

Allowance for Credit Losses

The following table details activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2023. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

(Dollars in thousands)

 

Beginning Balance

 

 

Impact of Adopting ASC 326

 

 

Charge-offs

 

 

Recoveries

 

 

Provisions (Reductions)

 

 

Ending Balance

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

1,110

 

 

$

658

 

 

$

—

 

 

$

10

 

 

$

43

 

 

$

1,821

 

Commercial real estate

 

 

2,760

 

 

 

(541

)

 

 

—

 

 

 

1

 

 

 

16

 

 

 

2,236

 

Commercial lessors of buildings

 

 

—

 

 

 

974

 

 

 

—

 

 

 

—

 

 

 

(9

)

 

 

965

 

Construction

 

 

803

 

 

 

(515

)

 

 

—

 

 

 

—

 

 

 

(17

)

 

 

271

 

Consumer mortgage

 

 

1,268

 

 

 

(580

)

 

 

—

 

 

 

—

 

 

 

5

 

 

 

693

 

Home equity line of credit

 

 

—

 

 

 

201

 

 

 

—

 

 

 

—

 

 

 

(15

)

 

 

186

 

Consumer installment

 

 

233

 

 

 

(183

)

 

 

(8

)

 

 

—

 

 

 

5

 

 

 

47

 

Consumer indirect

 

 

—

 

 

 

91

 

 

 

(31

)

 

 

24

 

 

 

4

 

 

 

88

 

Unallocated

 

 

664

 

 

 

(664

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

$

6,838

 

 

$

(559

)

 

$

(39

)

 

$

35

 

 

$

32

 

 

$

6,307

 

 

 

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 months ended March 31, 2022.

(Dollars in thousands)

 

Commercial

 

 

Commercial
Real Estate

 

 

Residential
Real Estate

 

 

Construction
& Land
Development

 

 

Consumer

 

 

Unallocated

 

 

Total

 

Three Months Ended March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,240

 

 

$

2,838

 

 

$

992

 

 

$

1,380

 

 

$

421

 

 

$

747

 

 

$

7,618

 

(Recovery of) provision for loan
   losses

 

 

(65

)

 

 

(288

)

 

 

46

 

 

 

154

 

 

 

(31

)

 

 

(116

)

 

 

(300

)

Charge-offs

 

 

(10

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(21

)

 

 

 

 

 

(31

)

Recoveries

 

 

4

 

 

 

—

 

 

 

1

 

 

 

—

 

 

 

13

 

 

 

 

 

 

18

 

Net (charge-offs) recoveries

 

 

(6

)

 

 

—

 

 

 

1

 

 

 

—

 

 

 

(8

)

 

 

 

 

 

(13

)

Ending balance

 

$

1,169

 

 

$

2,550

 

 

$

1,039

 

 

$

1,534

 

 

$

382

 

 

$

631

 

 

$

7,305

 

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

 

 

30-60
Days
Past
Due

 

 

61-89
Days
Past
Due

 

 

90 Days +
Past Due

 

 

Total Past Due

 

 

Total
Loans

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

137,318

 

 

$

51

 

 

$

—

 

 

$

—

 

 

$

51

 

 

$

137,369

 

Commercial real estate

 

 

167,878

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

167,878

 

Commercial lessors of buildings

 

 

81,917

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

81,917

 

Construction

 

 

43,467

 

 

 

31

 

 

 

—

 

 

 

—

 

 

 

31

 

 

 

43,498

 

Consumer mortgage

 

 

157,079

 

 

 

237

 

 

 

—

 

 

 

—

 

 

 

237

 

 

 

157,316

 

Home equity line of credit

 

 

43,074

 

 

 

162

 

 

 

87

 

 

 

—

 

 

 

249

 

 

 

43,323

 

Consumer installment

 

 

9,868

 

 

 

83

 

 

 

—

 

 

 

—

 

 

 

83

 

 

 

9,951

 

Consumer indirect

 

 

6,374

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

6,374

 

Total Loans

 

$

646,975

 

 

$

564

 

 

$

87

 

 

$

—

 

 

$

651

 

 

$

647,626

 

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 March 31, 2023:

(Dollars in thousands)

 

Nonaccrual with no ACL

 

 

Nonaccrual with ACL

 

 

Total Nonaccrual

 

 

Loans Past Due Over 90 Days Still Accruing

 

 

Total Nonperforming

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

2

 

 

$

—

 

 

$

2

 

 

$

—

 

 

$

2

 

Commercial real estate

 

 

87

 

 

 

—

 

 

 

87

 

 

 

—

 

 

 

87

 

Commercial lessors of buildings

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Consumer mortgage

 

 

73

 

 

 

—

 

 

 

73

 

 

 

—

 

 

 

73

 

Home equity line of credit

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Consumer installment

 

 

56

 

 

 

—

 

 

 

56

 

 

 

—

 

 

 

56

 

Consumer indirect

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total Loans

 

$

218

 

 

$

—

 

 

$

218

 

 

$

—

 

 

$

218

 

 

19

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

 

$

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.

 

 

20

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 March 31, 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

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

6,532

 

 

$

33,855

 

 

$

17,116

 

 

$

7,745

 

 

$

5,613

 

 

$

11,097

 

$

45,792

 

$

—

 

 

$

127,750

 

Special mention

 

 

—

 

 

 

21

 

 

 

—

 

 

 

—

 

 

 

22

 

 

 

—

 

 

244

 

 

—

 

 

 

287

 

Substandard

 

 

—

 

 

 

498

 

 

 

507

 

 

 

805

 

 

 

4

 

 

 

614

 

 

6,904

 

 

—

 

 

 

9,332

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

—

 

 

—

 

 

 

—

 

Total

 

$

6,532

 

 

$

34,374

 

 

$

17,623

 

 

$

8,550

 

 

$

5,639

 

 

$

11,711

 

$

52,940

 

$

—

 

 

$

137,369

 

Current period gross charge-offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

$

—

 

$

—

 

 

$

—

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

8,059

 

 

$

27,184

 

 

$

48,057

 

 

$

13,725

 

 

$

20,714

 

 

$

36,117

 

$

444

 

$

—

 

 

$

154,300

 

Special Mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

409

 

 

 

6,630

 

 

 

—

 

 

—

 

 

—

 

 

 

7,039

 

Substandard

 

 

—

 

 

 

—

 

 

 

933

 

 

 

642

 

 

 

479

 

 

 

4,485

 

 

—

 

 

—

 

 

 

6,539

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

—

 

 

—

 

 

 

—

 

Total

 

$

8,059

 

 

$

27,184

 

 

$

48,990

 

 

$

14,776

 

 

$

27,823

 

 

$

40,602

 

$

444

 

$

—

 

 

$

167,878

 

Current period gross charge-offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

$

—

 

$

—

 

 

$

—

 

Commercial lessors of buildings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

483

 

 

$

26,745

 

 

$

26,775

 

 

$

8,383

 

 

$

8,117

 

 

$

10,856

 

$

183

 

$

—

 

 

$

81,542

 

Special Mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

—

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

375

 

 

 

—

 

 

 

—

 

 

—

 

 

—

 

 

 

375

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

—

 

 

—

 

 

 

—

 

Total

 

$

483

 

 

$

26,745

 

 

$

26,775

 

 

$

8,758

 

 

$

8,117

 

 

$

10,856

 

$

183

 

$

—

 

 

$

81,917

 

Current period gross charge-offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

$

—

 

$

—

 

 

$

—

 

Construction:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

2,106

 

 

$

27,238

 

 

$

4,250

 

 

$

961

 

 

$

403

 

 

$

325

 

$

481

 

$

—

 

 

$

35,764

 

Special Mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

—

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

—

 

 

—

 

 

 

—

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

—

 

 

—

 

 

 

—

 

Total

 

$

2,106

 

 

$

27,238

 

 

$

4,250

 

 

$

961

 

 

$

403

 

 

$

325

 

$

481

 

$

—

 

 

$

35,764

 

Current period gross charge-offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

$

—

 

$

—

 

 

$

—

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

17,180

 

 

$

115,022

 

 

$

96,198

 

 

$

30,814

 

 

$

34,847

 

 

$

58,395

 

$

46,900

 

$

—

 

 

$

399,356

 

Special Mention

 

 

—

 

 

 

21

 

 

 

—

 

 

 

409

 

 

 

6,652

 

 

 

—

 

 

244

 

 

—

 

 

 

7,326

 

Substandard

 

 

—

 

 

 

498

 

 

 

1,440

 

 

 

1,822

 

 

 

483

 

 

 

5,099

 

 

6,904

 

 

—

 

 

 

16,246

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

—

 

 

—

 

 

 

—

 

Total

 

$

17,180

 

 

$

115,541

 

 

$

97,638

 

 

$

33,045

 

 

$

41,982

 

 

$

63,494

 

$

54,048

 

$

—

 

 

$

422,928

 

 

(Dollars in thousands)

 

Pass

 

 

Special
Mention

 

 

Substandard

 

 

Doubtful

 

 

Not
Rated

 

 

Total

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

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

 

 

21

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – LOANS (CONTINUED)

The Company monitors the credit risk profile by payment activity for residential and consumer loan classes. 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

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer mortgage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

6,702

 

 

$

31,912

 

 

$

39,547

 

 

$

35,326

 

 

$

9,748

 

 

$

34,008

 

$

—

 

$

—

 

 

$

157,243

 

Nonperforming

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

73

 

 

—

 

 

—

 

 

 

73

 

Total

 

$

6,702

 

 

$

31,912

 

 

$

39,547

 

 

$

35,326

 

 

$

9,748

 

 

$

34,081

 

$

—

 

$

—

 

 

$

157,316

 

Current period gross charge-offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

$

—

 

$

—

 

 

$

—

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

614

 

 

$

5,257

 

 

$

282

 

 

$

1,320

 

 

$

126

 

 

$

135

 

$

—

 

$

—

 

 

$

7,734

 

Nonperforming

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

—

 

 

—

 

 

 

—

 

Total

 

$

614

 

 

$

5,257

 

 

$

282

 

 

$

1,320

 

 

$

126

 

 

$

135

 

$

—

 

$

—

 

 

$

7,734

 

Current period gross charge-offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

$

—

 

$

—

 

 

$

—

 

Home equity line of credit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

$

43,269

 

$

54

 

 

$

43,323

 

Nonperforming

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

—

 

 

—

 

 

 

—

 

Total

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

$

43,269

 

$

54

 

 

$

43,323

 

Current period gross charge-offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

$

—

 

$

—

 

 

$

—

 

Consumer installment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

1,632

 

 

$

4,859

 

 

$

1,812

 

 

$

929

 

 

$

353

 

 

$

303

 

$

63

 

$

—

 

 

$

9,951

 

Nonperforming

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

—

 

 

—

 

 

 

—

 

Total

 

$

1,632

 

 

$

4,859

 

 

$

1,812

 

 

$

929

 

 

$

353

 

 

$

303

 

$

63

 

$

—

 

 

$

9,951

 

Current period gross charge-offs

 

$

—

 

 

$

3

 

 

$

1

 

 

$

2

 

 

$

33

 

 

$

—

 

$

—

 

$

—

 

 

$

39

 

Consumer indirect:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

177

 

 

$

1,322

 

 

$

766

 

 

$

647

 

 

$

759

 

 

$

2,647

 

$

—

 

$

—

 

 

$

6,318

 

Nonperforming

 

 

—

 

 

 

—

 

 

 

7

 

 

 

—

 

 

 

—

 

 

 

49

 

 

—

 

 

—

 

 

 

56

 

Total

 

$

177

 

 

$

1,322

 

 

$

773

 

 

$

647

 

 

$

759

 

 

$

2,696

 

$

—

 

$

—

 

 

$

6,374

 

Current period gross charge-offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

31

 

$

—

 

$

—

 

 

$

31

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

8,511

 

 

$

38,093

 

 

$

42,125

 

 

$

36,902

 

 

$

10,860

 

 

$

36,958

 

$

43,332

 

$

54

 

 

$

216,835

 

Nonperforming

 

 

—

 

 

 

—

 

 

 

7

 

 

 

—

 

 

 

—

 

 

 

122

 

 

—

 

 

—

 

 

 

129

 

Total

 

$

8,511

 

 

$

38,093

 

 

$

42,132

 

 

$

36,902

 

 

$

10,860

 

 

$

37,080

 

$

43,332

 

$

54

 

 

$

216,964

 

 

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 quarter ended March 31, 2023.

22

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

 

 

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
investment1

 

 

Related
Allowance

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

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

23

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – LOANS (CONTINUED)

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

 

 

Three Months Ended
March 31,

 

(Dollars in thousands)

 

2022

 

Average recorded investment:

 

 

 

Commercial

 

$

264

 

Commercial real estate

 

 

222

 

Residential real estate

 

 

849

 

Construction & land development

 

 

329

 

Consumer

 

 

135

 

Average recorded investment in impaired loans

 

$

1,799

 

Interest income recognized:

 

 

 

Commercial

 

$

1

 

Commercial real estate

 

 

2

 

Residential real estate

 

 

8

 

Construction & land development

 

 

—

 

Consumer

 

 

2

 

Interest income recognized on a cash basis on impaired loans

 

$

13

 

 

 

24

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

 

 

 

March 31,

 

 

December 31,

 

(Dollars in thousands)

 

2023

 

 

2022

 

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

 

$

29,967

 

 

$

32,775

 

Repurchase agreements

 

 

29,813

 

 

 

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.

 

25

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 March 31, 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

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

22,428

 

 

$

—

 

 

$

—

 

 

$

22,428

 

U.S. Government agencies

 

 

—

 

 

 

12,850

 

 

 

—

 

 

 

12,850

 

Mortgage-backed securities of government agencies

 

 

—

 

 

 

67,895

 

 

 

—

 

 

 

67,895

 

Asset-backed securities of government agencies

 

 

—

 

 

 

571

 

 

 

—

 

 

 

571

 

State and political subdivisions

 

 

—

 

 

 

19,772

 

 

 

—

 

 

 

19,772

 

Corporate bonds

 

 

—

 

 

 

25,753

 

 

 

—

 

 

 

25,753

 

Total available-for-sale securities

 

$

22,428

 

 

$

126,841

 

 

$

—

 

 

$

149,269

 

Equity securities

 

$

207

 

 

$

—

 

 

$

—

 

 

$

207

 

 

 

 

 

 

 

 

 

 

 

 

 

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 reported at fair value and recorded on a nonrecurring basis on March 31, 2023, and December 31, 2022.

 

26

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

NOTE 6 – FAIR VALUES OF FINANCIAL INSTRUMENTS

The fair values of recognized financial instruments as of March 31, 2023 and December 31, 2022 are as follows:

(Dollars in thousands)

 

Carrying
Value

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Fair Value

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held-to-maturity

 

$

243,334

 

 

$

11,836

 

 

$

201,215

 

 

$

—

 

 

$

213,051

 

Loans held for sale

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Net loans

 

 

641,466

 

 

 

—

 

 

 

—

 

 

 

622,852

 

 

 

622,852

 

Mortgage servicing rights

 

 

606

 

 

 

—

 

 

 

—

 

 

 

606

 

 

 

606

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

1,007,507

 

 

$

879,886

 

 

$

—

 

 

$

128,398

 

 

$

1,008,284

 

Other borrowings

 

 

2,394

 

 

 

—

 

 

 

—

 

 

 

2,270

 

 

 

2,270

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 1 fair value that approximates their carrying value. The Company also has unrecognized financial instruments on March 31, 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 $265 million on March 31, 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.

27

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 months ended March 31, 2023 and 2022:

(Dollars in thousands)

 

Pretax

 

 

Tax Effect

 

 

After-tax

 

Three Months Ended March 31, 2023

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

(16,354

)

 

$

3,435

 

 

$

(12,919

)

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

 

 

1,327

 

 

 

(279

)

 

 

1,048

 

Amortization of held-to-maturity discount resulting from transfer

 

 

46

 

 

 

(10

)

 

 

36

 

Total other comprehensive income

 

 

1,373

 

 

 

(289

)

 

 

1,084

 

Balance, end of period

 

$

(14,981

)

 

$

3,146

 

 

$

(11,835

)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2022

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

(2,691

)

 

$

566

 

 

$

(2,125

)

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

 

 

(6,538

)

 

 

1,373

 

 

 

(5,165

)

Amortization of held-to-maturity discount resulting from transfer

 

 

98

 

 

 

(21

)

 

 

77

 

Total other comprehensive loss

 

 

(6,440

)

 

 

1,352

 

 

 

(5,088

)

Balance, end of period

 

$

(9,131

)

 

$

1,918

 

 

$

(7,213

)

 

28

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 March 31, 2023 as compared to December 31, 2022, and the consolidated results of operations for the three months ended March 31, 2023 compared to the same period 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 to $1.14 billion at March 31, 2023 compared to $1.16 billion December 31, 2022. During the three months ended March 31, 2023, securities decreased $7 million, net loans increased $21 million, and cash and cash equivalents decreased $31 million. Deposits and short-term borrowings decreased $19 million.

Net loans increased $21 million, or 3%, as construction loans decreased $11 million, or 20%, and residential real estate loans increased $8 million, or 3%, from December 31, 2022. Commercial and commercial real estate loans increased $25 million 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 $1 million. Residential mortgage loan originations for the three months ended March 31, 2023 totaled $11 million, a decrease from $17 million in originations during the three months ended March 31, 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 $52 thousand and $3 million, respectively during the three months ended March 31, 2023 and March 31, 2022. The Bank originates and sells primarily fixed rate thirty-year mortgages into the secondary market.

The allowance for credit losses decreased $1 million from the year ago quarter to $6.3 million. The Company adopted CECL on January 1, 2023. Net charge-offs were $4 thousand, or an annualized 0.00% of average loans, in the current three-month period compared to net charge-offs of $13 thousand, or 0.01% of average loans in the year-ago three-month period. At March 31, 2023, the allowance for credit losses to total loans was 0.97%. 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.

 

29

CSB BANCORP, INC.

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

 

Nonperforming loans decreased $38 thousand to $218 thousand, or 0.03%, of total loans from $256 thousand, or 0.04% of total loans, on December 31, 2022. For the three months ended March 31, 2023, $2 thousand in loans were placed on nonaccrual status, $38 thousand in paydowns were received, and $2 thousand in personal loans were charged-off due to non-payment.

 

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

(Dollars in thousands)

 

2023

 

 

2022

 

 

2022

 

Non-performing loans

 

$

218

 

 

$

256

 

 

$

1,181

 

Other real estate

 

 

—

 

 

 

—

 

 

 

—

 

Repossessed assets

 

 

—

 

 

 

—

 

 

 

—

 

Allowance for credit/loan losses

 

 

6,307

 

 

 

6,838

 

 

 

7,305

 

Total loans

 

$

647,773

 

 

$

627,171

 

 

$

567,375

 

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

 

 

0.97

%

 

 

1.09

%

 

 

1.29

%

Allowance for credit/loan losses to total nonperforming loans

 

28.9X

 

 

26.7X

 

 

6.2X

 

The ratio of gross loans to deposits was 64.3% at March 31, 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 $43.5 million within the available-for-sale and held-to-maturity portfolios as of March 31, 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 March 31, 2023, are considered temporary and no impairment loss relating to these securities has been recognized.

The effective duration of total debt securities was 4.25 years at March 31, 2023 as compared to 4.36 years at December 31, 2022. If interest rates declined 100 basis points, the effective duration was estimated to fall to 3.71 years at March 31, 2023 and 3.84 years at December 31, 2022. If interest rates rose 100 basis points the effective duration would be expected to increase to 4.74 years at March 31, 2023 and December 31, 2022.

Deposits decreased $16 million, or 2%, from December 31, 2022 with noninterest-bearing deposits decreasing approximately $21 million, or 6%, and interest-bearing deposit accounts increasing approximately $5 million, or 1%. Total deposits as of March 31, 2023 are $1.01 billion, or 1%, greater than March 31, 2022 deposit balances. On a year over year comparison, decreases were recognized in noninterest-bearing demand deposits of $6 million and savings of $8 million. Increases were recognized in interest bearing demand of $9 million, money market accounts of $10 million, and time deposits of $9 million. Deposit growth has normalized following the Bank’s customers increasing deposits through stimulus payments and cash conservation as a result of the COVID-19 pandemic.

Short-term borrowings consisting of overnight repurchase agreements with retail customers decreased $3 million, or 8%, to $30 million at March 31, 2023 as compared to December 31, 2022 and other borrowings decreased $67 thousand as the Company repaid FHLB advances.

Total shareholders’ equity amounted to $99 million, or 8.7%, of total assets at March 31, 2023, an increase of $3 million, or 3%, from $96 million December 31, 2022. The increase in shareholders’ equity during the three months ended March 31, 2023 was due to net income of $3.9 million, accumulated other comprehensive loss (“AOCL”) change of $1.1 million, less cash dividends of $964 thousand. A decline of U.S. Treasury rates in first quarter 2023 caused the AOCI to increase as AFS securities are marked to fair market value. As interest rates decline, the fair value of AFS fixed-rate securities rise with a corresponding net of tax decline 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 March 31, 2023.

30

CSB BANCORP, INC.

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

 

RESULTS OF OPERATIONS

Three months ended March 31, 2023 and 2022

For the quarters ended March 31, 2023 and 2022, the Company recorded net income of $3.9 million and $2.7 million and $1.46 and $0.99 per share, respectively. The $1.2 million increase in net income for the period was primarily the result of a $2.1 million increase in net interest income, offset by an increase in noninterest expenses of $251 thousand, and a decrease of $14 thousand in noninterest income. The recovery of provision for credit losses was $31 thousand in 2023 compared to $300 thousand for the three-month period in 2022, and the federal income tax provision increased $333 thousand. Return on average assets and return on average equity were 1.39% and 16.39%, respectively, for the three-month period of 2023, compared to 0.96% and 11.26%, respectively for the same quarter in 2022.

 

Average Balance Sheets and Net Interest Margin Analysis

 

 

 

For the Three Months Ended March 31,

 

 

 

 

2023

 

 

 

2022

 

 

(Dollars in thousands)

 

Average
balance1

 

 

Interest

 

 

Average
rate2

 

 

 

Average
balance1

 

 

Interest

 

 

Average
rate2

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning deposits

 

$

47,644

 

 

$

545

 

 

 

4.64

 

%

 

$

158,161

 

 

$

74

 

 

 

0.19

 

%

Taxable securities

 

 

375,867

 

 

 

2,012

 

 

 

2.17

 

 

 

 

334,357

 

 

 

1,281

 

 

 

1.55

 

 

Tax-exempt securities 4

 

 

22,093

 

 

 

129

 

 

 

2.37

 

 

 

 

25,311

 

 

 

140

 

 

 

2.24

 

 

Loans 3,4

 

 

637,392

 

 

 

7,975

 

 

 

5.07

 

 

 

 

560,440

 

 

 

5,784

 

 

 

4.19

 

 

Total interest-earning assets

 

 

1,082,996

 

 

 

10,661

 

 

 

3.99

 

%

 

 

1,078,269

 

 

 

7,279

 

 

 

2.74

 

%

Noninterest-earning assets

 

 

64,037

 

 

 

 

 

 

 

 

 

 

60,329

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

1,147,033

 

 

 

 

 

 

 

 

 

$

1,138,598

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

$

237,387

 

 

$

505

 

 

 

0.86

 

%

 

$

237,680

 

 

$

49

 

 

 

0.08

 

%

Savings deposits

 

 

317,357

 

 

 

532

 

 

 

0.68

 

 

 

 

309,094

 

 

 

68

 

 

 

0.09

 

 

Time deposits

 

 

122,329

 

 

 

547

 

 

 

1.81

 

 

 

 

119,912

 

 

 

232

 

 

 

0.78

 

 

Borrowed funds

 

 

35,483

 

 

 

78

 

 

 

0.89

 

 

 

 

44,027

 

 

 

28

 

 

 

0.26

 

 

Total interest-bearing liabilities

 

 

712,556

 

 

 

1,662

 

 

 

0.95

 

%

 

 

710,713

 

 

 

377

 

 

 

0.22

 

%

Noninterest-bearing demand deposits

 

 

331,648

 

 

 

 

 

 

 

 

 

 

326,725

 

 

 

 

 

 

 

 

Other liabilities

 

 

5,510

 

 

 

 

 

 

 

 

 

 

3,918

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

97,319

 

 

 

 

 

 

 

 

 

 

97,242

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

$

1,147,033

 

 

 

 

 

 

 

 

 

$

1,138,598

 

 

 

 

 

 

 

 

Taxable equivalent net interest
   income, (Non-GAAP)

 

 

 

 

$

8,999

 

 

 

 

 

 

 

 

 

$

6,902

 

 

 

 

 

Tax equivalent adjustment 4

 

 

 

 

 

(34

)

 

 

 

 

 

 

 

 

 

(37

)

 

 

 

 

Net interest income, (GAAP)

 

 

 

 

$

8,965

 

 

 

 

 

 

 

 

 

$

6,865

 

 

 

 

 

Net interest margin, (GAAP)

 

 

 

 

 

 

 

 

3.36

 

%

 

 

 

 

 

 

 

 

2.58

 

%

Tax equivalent adjustment 4

 

 

 

 

 

 

 

 

0.01

 

 

 

 

 

 

 

 

 

 

0.02

 

 

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

 

 

 

 

 

 

 

 

3.37

 

%

 

 

 

 

 

 

 

 

2.60

 

%

Taxable equivalent net interest spread

 

 

 

 

 

 

 

 

3.04

 

%

 

 

 

 

 

 

 

 

2.52

 

%

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

31

CSB BANCORP, INC.

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

 

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

3 Average loan balances include nonaccrual loans.

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

Interest income for the quarter ended March 31, 2023, was $10.6 million representing a $3.4 million increase, or 47%, compared to the same period in 2022. This increase was primarily due to the additional increased rates earned on interest-earning deposits, loans, and taxable securities partially offset by the volume decrease in interest-earning deposits in the comparable periods. Average interest-earning deposit rates increased 445 bps while loan rates increased 88 basis points, and taxable securities interest rates rose 62 bps for the quarter ended March 31, 2023 as compared to the same period in 2022. The Federal Reserve raised managed interest rates 8 times and 450 bps during the 1 year period. Interest expense for the quarter ended March 31, 2023 was $1.7 million, an increase of $1.3 million, or 341%, from the same quarter in 2022. The increase in interest expense occurred primarily due to the increase in interest rates on savings and interest-bearing demand deposits as well as an increase in volume of savings and time accounts for the quarter ended March 31, 2023.

For the quarter ended March 31, 2023, with improving credit quality and minimal loan charge-offs, the bank recognized net charge-offs of $4 thousand, compared to $13 thousand net charge-offs for the same quarter in 2022. The provision for credit losses for loans for the current quarter of $32 thousand, compared against a recovery of $300 thousand in the first quarter 2022 reflects a stabilization of credit quality in 2023. The company recovered $63 thousand provision for off-balance credit exposure in 2023 compared to a $13 thousand provision for unfunded loan losses in the first quarter of 2022. This decrease results from a decline primarily in construction loans in 2023 compared to 2022. Economic indicators reflect a leveling off of 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.

32

CSB BANCORP, INC.

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

 

Noninterest income for the quarter ended March 31, 2023, was $1.6 million, a decrease of $14 thousand, or 1%, compared to the same quarter in 2022. The gain on the sale of mortgage loans into the secondary market decreased by $115 thousand, or 98%, for the quarter ended March 31, 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 $258 thousand for the first quarter 2023, a decrease of $6 thousand, or 2%, as compared to the same quarter in 2022. Service charges on deposit accounts increased $27 thousand, or 10%, compared to the same quarter in 2022, primarily from increased customer overdraft fees. Debit card interchange income increased $26 thousand, or 5%, with greater fees generated from usage in the first quarter 2023. Credit card fee income increased $22 thousand, or 14%, as improvements to the card program have resulted in increased customer usage. Earnings on bank owned life insurance increased $3 thousand, or 2%, for the first quarter 2023.

Noninterest expenses for the quarter ended March 31, 2023 increased $251 thousand, or 5%, compared to the first quarter 2022. Salaries and employee benefits increased $139 thousand, or 4%, a result of increases to base salary and benefits compared to first quarter 2022. Occupancy and equipment expense increased $3 thousand, or 1%, in 2023 over the first quarter 2022, primarily due to small equipment purchases. Software expense increased $66 thousand due to additional software purchases over first quarter 2022 Professional and director fees increased $45 thousand, or 17%, for the quarter ended March 31, 2023 as compared to the first quarter 2022, primarily due to an increase in audit and outside consulting fees. Marketing and public relations expense increased $12 thousand, or 11%. Telephone and data line expense decreased $21 thousand, or 33%, with renegotiated contracts. Debit card expense decreased $18 thousand or 11%. Federal income tax expense increased $333 thousand, or 52%, for the quarter ended March 31, 2023 as compared to the first quarter 2022. The provision for income taxes was $971 thousand (effective rate of 19.8%) for the quarter ended March 31, 2023, compared to $638 thousand (effective rate of 19.1%) for the same quarter ended 2022.

CAPITAL RESOURCES

The Company maintained a strong capital position with tangible common equity to tangible assets of 8.3% at March 31, 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 March 31, 2023, the Company and the Bank met all capital adequacy requirements to which they were subject.

33

CSB BANCORP, INC.

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

 

 

 

Capital Ratios

 

 

 

 

March 31,
2023

 

 

December 31,
2022

 

 

Total Capital To Risk Weighted Assets Ratio

 

 

 

 

 

 

 

Consolidated

 

 

16.0

 

%

 

16.0

 

%

Bank

 

 

15.9

 

 

 

15.9

 

 

 

 

 

 

 

 

 

Tier 1 Capital To Risk Weighted Assets Ratio

 

 

 

 

 

 

 

Consolidated

 

 

15.1

 

 

 

15.1

 

 

Bank

 

 

15.0

 

 

 

14.9

 

 

 

 

 

 

 

 

 

Common Equity Tier 1 Capital To Risk Weighted Assets

 

 

 

 

 

 

 

Consolidated

 

 

15.1

 

 

 

15.1

 

 

Bank

 

 

15.0

 

 

 

14.9

 

 

 

 

 

 

 

 

 

Tier 1 Leverage Ratio

 

 

 

 

 

 

 

Consolidated

 

 

9.2

 

 

 

8.8

 

 

Bank

 

 

9.1

 

 

 

8.7

 

 

 

LIQUIDITY

 

(Dollars in thousands)

 

March 31,
2023

 

 

December 31,
2022

 

 

Change

 

 

Cash and cash equivalents

 

$

55,515

 

 

$

86,420

 

 

$

(30,905

)

 

Available from FHLB

 

 

124,480

 

 

 

122,062

 

 

 

2,418

 

 

Unpledged AFS securities at fair market value

 

 

142,259

 

 

 

134,401

 

 

 

7,858

 

 

 

$

322,254

 

 

$

342,883

 

 

$

(20,629

)

 

Net deposits and short-term liabilities

 

$

1,031,113

 

 

$

1,041,016

 

 

$

(9,903

)

 

Liquidity ratio

 

 

31.3

 

%

 

32.9

 

%

 

 

 

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.

34

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

 

March 31,

 

(Dollars in thousands, except per share data)

2023

 

2022

 

Net income

$

3,934

 

$

2,701

 

Weighted average common shares outstanding

 

2,692,304

 

 

 

2,718,024

 

Earnings per share, basic and diluted

 

1.46

 

 

 

0.99

 

 

35

CSB BANCORP, INC.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

By March 2023, Ohio's unemployment rate approximated 4.0%. The bank based in Holmes County is reporting an unemployment rate of 3.5% in March 2023. Of the counties within the bank's footprint, Tuscarawas County reported the highest unemployment rate at 4.4% in March. Many jobs within the Bank's market footprint continue to go unfilled. The rate of inflation, which stood at 5.0% in March 2023, is above the Federal Reserve target rate of 2%, but has fallen from 8.5% in March 2022. Interest rates have risen substantially during 2022 and 2023. Credit quality in the Bank's loan portfolio has continued to improve, however risks to the economy remain with higher prices for goods and labor.

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

The following table presents an analysis of the estimated sensitivity of the Company’s annual net interest income to sudden and sustained -400 through +400 basis point changes, in 100 basis point increments, in market interest rates at March 31, 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.

 

March 31, 2023

(Dollars in thousands)

 

Change in
Interest Rates
(basis points)

 

 

Net Interest
Income

 

 

Dollar
Change

 

 

Percentage
Change

 

 

Board Policy
Limits

 

+400

 

 

$

38,165

 

 

$

550

 

 

 

1.5

 

%

± 25

 %

+300

 

 

 

38,076

 

 

 

461

 

 

 

1.2

 

 

± 15

 

+200

 

 

 

37,923

 

 

 

308

 

 

 

0.8

 

 

± 10

 

+100

 

 

 

37,763

 

 

 

148

 

 

 

0.4

 

 

± 5

 

0

 

 

 

37,615

 

 

 

—

 

 

 

—

 

 

 

 

-100

 

 

 

37,401

 

 

 

(214

)

 

 

(0.6

)

 

± 5

 

-200

 

 

 

36,919

 

 

 

(696

)

 

 

(1.9

)

 

± 10

 

-300

 

 

 

36,425

 

 

 

(1,190

)

 

 

(3.2

)

 

± 15

 

-400

 

 

 

35,959

 

 

 

(1,656

)

 

 

(4.4

)

 

± 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

 

 

35

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.

36

CSB BANCORP, INC.

FORM 10-Q

Quarter ended March 31, 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 March 31, 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

 

January 1, 2023 - January 31, 2023

 

 

—

 

 

 

—

 

 

 

—

 

 

 

102,344

 

February 1, 2023 - February 28, 2023

 

 

26,951

 

 

$

37.80

 

 

 

26,951

 

 

 

75,393

 

March 1, 2023 - March 31, 2023

 

 

—

 

 

 

—

 

 

 

—

 

 

 

75,393

 

Total for quarter

 

 

26,951

 

 

$

37.80

 

 

 

26,951

 

 

 

75,393

 

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.

37

CSB BANCORP, INC.

FORM 10-Q

Quarter ended March 31, 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 Regisrant'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 March 31, 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).

 

38

 

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:

 

May 15, 2023

/s/ Eddie L. Steiner

 

 

 

Eddie L. Steiner

 

 

 

President

 

 

 

Chief Executive Officer

 

 

 

 

 

 

 

 

Date:

 

May 15, 2023

/s/ Paula J. Meiler

 

 

 

Paula J. Meiler

 

 

 

Senior Vice President

 

 

 

Chief Financial Officer

 

39
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