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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

☒

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

For the fiscal year ended December 31, 2022

OR

☐

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

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

Millersburg, Ohio

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

 

OTC Pink

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock as of June 30, 2022 of $38.00 per share on the OTC Stock Market, was $94.3 million.

The number of shares of Registrant’s Common Stock outstanding as of March 15, 2023 was 2,680,625.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of CSB Bancorp Inc.’s Proxy Statement for the 2023 Annual Meeting of Shareholders are incorporated by reference in Part III of this Form 10-K.

 

Auditor Firm Id:

74

Auditor Name:

S.R. Snodgrass, P.C.

Auditor Location:

Cranberry Township, PA

 

 

 

 

PART I

ITEM 1. BUSINESS.

General

CSB Bancorp, Inc. (“CSB”), is a registered financial holding company under the Bank Holding Company Act of 1956, as amended, and was incorporated under the laws of the State of Ohio in 1991. The Commercial and Savings Bank of Millersburg, Ohio (the “Bank”), an Ohio banking corporation chartered in 1879, is a wholly owned subsidiary of CSB. The Bank is a member of the Federal Reserve System, and its deposits are insured up to the maximum amount provided by law by the Federal Deposit Insurance Corporation (“FDIC”). The primary regulators of the Bank are the Federal Reserve Board and the Ohio Division of Financial Institutions. CSB Investment Services, LLC, an Ohio limited liability company (“CSB Investment”), is a wholly owned subsidiary of CSB that is licensed to engage in the business of insurance in the State of Ohio. In this Annual Report on Form 10-K, CSB and its subsidiaries are sometimes collectively referred to as the “Company.”

Cautionary Statement Regarding Forward-Looking Information

Certain statements contained in this Annual Report on Form 10-K, which are not statements of historical fact, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “anticipate”, “estimates”, “may”, “feels”, “expects”, “believes”, “plans”, “will”, “would”, “should”, “could” and similar expressions are intended to identify these forward-looking statements but are not the exclusive means of identifying such statements. Examples of forward-looking statements include: (i) projections of income or expense, earnings per share, the payment or non-payment of dividends, capital structure, and other financial items; (ii) statements of plans and objectives of the Company and of its management or Board of Directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially.

Other factors not currently anticipated may also materially and adversely affect the Company’s business, financial condition, results of operations, or cash flows. There can be no assurance that future results will meet expectations. While the Company believes that the forward-looking statements in this Annual Report on Form 10-K are reasonable, the reader should not place undue reliance on any forward-looking statement. In addition, these statements speak only as of the date made. The Company does not undertake, and expressly disclaims, any obligation to update or alter any statements whether as a result of new information, future events, or otherwise, except as may be required by applicable law.

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the forward-looking statements. The Company desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

Business Overview and Lending Activities

CSB operates primarily through the Bank and CSB Investment Services, LLC, providing a wide range of banking, trust, financial, and brokerage services to corporate, institutional, and individual customers throughout northeast Ohio. The Bank provides retail and commercial banking services to its customers, including checking and savings accounts, time deposits, IRAs, safe deposit facilities, personal loans, commercial loans, real estate mortgage loans, installment loans, night depository facilities, brokerage, and trust services.

The Bank provides residential real estate, commercial real estate, commercial, and consumer loans to customers located primarily in Holmes, Stark, Tuscarawas, Wayne, and portions of surrounding counties in Ohio. The Bank’s market area has historically exhibited relatively stable economic conditions. Economic activity slowed slightly in the fourth quarter of 2022 after growing modestly earlier in the year. Continued inflationary pressure led to households spending on necessities as opposed to discretionary items. Higher interest rates and increasing borrowing costs are also contributing to a slowing in loan demand. Reported unemployment levels in December 2022 ranged from 2.9% to 4.0% in the four primary counties served by the Bank. These levels increased from December 2021 in all four counties served by the Bank. Labor demand increased moderately in some sectors while wage pressures have eased somewhat over the past year. The local housing market continues to be strong with low inventory levels keeping home prices from declining. Construction costs remain high and higher interest rates have also contributed to slowing construction activity.

Certain risks are involved in providing loans, including, but not limited to, the borrowers’ ability and willingness to repay the debt. Before the Bank extends a new loan or renews an existing loan to a customer, these risks are assessed through a review of the borrower’s past and current credit history, the collateral being used to secure the transaction, if any, and other factors. For all commercial loan relationships greater than $500,000 the Bank’s internal credit department performs an annual risk rating review. In addition to this review, an independent, outside loan review firm is engaged to review a sample of watch list and adversely classified credits over $500,000 and a sample of commercial loan relationships greater than $1,000,000. The outside loan review will also assess management’s current credit grades and provide commentary with regard to assigned ratings and the need for a credit to be classified as a troubled debt restructuring, as well as assess management’s specific loan loss reserves for loans included in their sample that are considered to be impaired. In addition, any loan over $100,000 identified as a problem credit by management and/or the external loan review consultants is assigned to the Bank’s “loan watch list,” has a written action plan created specifically for the loan relationship and is subject to ongoing review at least quarterly by the Bank’s credit department and the assigned loan officer to ensure appropriate action is taken if deterioration continues.

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Commercial loan rates are variable and fixed and include operating lines of credit and term loans made to businesses, primarily based on their ability to repay the loan from the cash flow of the business. Business assets such as equipment, accounts receivable, and inventory typically secure such loans. When the borrower is not an individual, the Bank generally obtains the personal guarantee of the business owner. These loans typically involve larger loan balances, are generally dependent on the cash flow of the business, and thus may be subject to a greater extent to adverse conditions in the general economy or in a specific industry. Management reviews the borrower’s cash flows when deciding whether to grant the credit in order to evaluate whether estimated future cash flows will be adequate to service principal and interest of the new obligation in addition to existing obligations.

Commercial real estate loans are primarily secured by borrower-occupied business real estate and are dependent on the ability of the related business to generate adequate cash flow to service the debt. Commercial real estate loans are generally originated with a loan-to-value ratio of 80% of the lower of cost or appraised value. Commercial construction loans are secured by commercial real estate and in most cases the Bank also provides the permanent financing. The Bank monitors advances and the maximum loan to value ratio is typically limited to the lesser of 80% of cost or appraised value. Management performs much of the same analysis when deciding whether to grant a commercial real estate loan as when deciding whether to grant a commercial loan.

Residential real estate loans carry both fixed and variable rates and are secured by the borrower’s residence. Such loans are made based on the borrower’s ability to make repayment from employment and other income. Management assesses the borrower’s ability and willingness to repay the debt through review of credit history and ratings, verification of employment and other income, review of debt-to-income ratios, and other measures of repayment ability. The Bank generally makes these loans in amounts of 80% or less of the value of the collateral or up to 95% of collateral value with private mortgage insurance. An appraisal from a qualified real estate appraiser or an evaluation based on comparable market values is obtained for substantially all loans secured by real estate. Residential construction loans are secured by residential real estate that generally will be occupied by the borrower upon completion. The Bank usually makes the permanent loan at the end of the construction phase. Generally, construction loans are made in amounts of 80% or less of the value of the as-completed collateral.

Home equity lines of credit are made to individuals and are secured by second or first mortgages on the borrower’s residence. Loans are based on similar credit and appraisal criteria used for residential real estate loans; however, loans up to 90% of the value of the property may be approved for borrowers with excellent credit histories. These loans typically bear interest at variable rates and require minimum monthly payments of the accrued interest.

Installment loans to individuals include unsecured loans and loans secured by recreational vehicles (“RV’s”), automobiles, and other consumer assets. Consumer loans for the purchase of new RV’s and new automobiles generally do not exceed 125% of Dealer Invoice on RV’s or 110% of the Manufacturer’s Suggested Retail Price (MSRP) of an automobile. Loans for used RV’s and automobiles do not exceed 120% of the “clean trade-in value” as reported in the current “J.D. Power” used guides. Overdraft protection loans are unsecured personal lines of credit to individuals who have demonstrated good credit character with reasonably assured sources of income and satisfactory credit histories. Consumer loans generally involve more risk than residential mortgage loans because of the type and nature of collateral and, in certain types of consumer loans, absence of collateral. Since these loans are generally repaid from ordinary income of the individual or family unit, repayment may be adversely affected by job loss, divorce, ill health, or by a general decline in economic conditions. The Bank assesses the borrower’s ability and willingness to repay through a review of credit history, credit ratings, debt-to-income ratios, and other measures of repayment ability.

While CSB’s chief decision-makers monitor the revenue streams of the various financial products and services, operations are managed, and financial performance is evaluated on a Company-wide basis. Accordingly, all of the Company’s banking operations are considered by management to be aggregated in one reportable operating segment. For a discussion of the Company’s financial performance for the fiscal year ended December 31, 2022, see the Consolidated Financial Statements and Notes to the Consolidated Financial Statements found in Item 8 of this Annual Report on Form 10-K.

Employees

On December 31, 2022, the Company had 183 employees, 154 of which were employed on a full-time basis. CSB has no separate employees not also employed by the Bank. No employees are covered by collective bargaining agreements. Employees are provided benefit programs, some of which are contributory. Management considers its employee relations to be good.

Competition

The financial services industry is highly competitive. In its primary market area of Holmes, Stark, Tuscarawas, Wayne and surrounding Ohio counties, the Bank competes for new deposit dollars and loans with other commercial banks, including both large regional banks and smaller community banks, as well as savings and loan associations, credit unions, finance companies, insurance companies, brokerage firms, investment companies, private lenders, and technology-based providers of financial services (sometimes referred to as “fintech” companies).

Competition within the financial service industry continues to increase as a result of mergers between, and expansion of, financial service providers within and outside of the Company’s primary market areas. In addition, securities firms and insurance companies that have elected to become financial holding companies may acquire commercial banks and other financial institutions, which can create additional competitive pressure.

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Management believes the primary factors in competing for loans and deposits are interest rates, availability of services, quality of customer service, convenience, and name recognition. Some of the Company’s competitors may have greater resources and as such, higher lending limits, or fewer regulatory constraints and lower cost structures, all of which may adversely affect the Company’s ability to compete.

Investor Relations

The Company’s website address is www.csb1.com. The Company makes available its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports, free of charge on its website as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (the “SEC”). The Company also makes available through its website, other reports filed with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including its proxy statements and reports filed by officers and directors under Section 16(a) of the Exchange Act, as well as the Company’s Code of Ethics. References to our website in this Annual Report on Form 10-K are provided as a convenience and do not constitute, and should not be deemed, an incorporation by reference of the information contained on, or available through, the website, and such information should not be considered part of this Annual Report on Form 10-K.

In addition, the Company’s filings are available on the SEC’s website at www.sec.gov free of charge as soon as reasonably practicable after the Company has filed the above referenced reports.

Supervision and Regulation of CSB and the Bank

CSB and the Bank are subject to extensive regulation by federal and state regulatory agencies. The regulation of financial holding companies and their subsidiaries by bank regulatory agencies is intended primarily for the protection of consumers, depositors, borrowers, the deposit insurance funds of the FDIC (the “DIF”), and the banking system as a whole and not for the protection of shareholders.

CSB is a bank holding company that has registered with the Federal Reserve Board (“FRB”) as a financial holding company under the Bank Holding Company Act of 1956, as amended (the “BHC Act”). Pursuant to the Gramm-Leach-Bliley Act of 1999 (“GLBA”), a qualifying bank holding company may elect to become a financial holding company and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature and not otherwise permissible for a bank holding company, if: (i) the holding company is "well managed" and "well capitalized" and (ii) each of its subsidiary banks (a) is well capitalized under the Federal Deposit Insurance Corporation Act of 1991 prompt corrective action provisions, (b) is well managed, and (c) has at least a "satisfactory" rating under the Community Reinvestment Act (the “CRA”). CSB has been a financial holding company since 2005. No regulatory approval is required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the FRB. The financial holding company and its subsidiaries must continue to meet the above-described requirements in order to continue to engage in activities that are financial in nature without being subjected to regulatory action or restriction, which could include divestiture of the subsidiary or subsidiaries.

GLBA defines “financial in nature” to include securities underwriting, dealing, and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking; and activities that the FRB has determined to be closely related to banking. CSB is also subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, the Exchange Act, and the regulations rules and regulations promulgated thereunder, as administered by the SEC.

The Bank, as an Ohio state-chartered bank and member of the Federal Reserve System, is subject to regulation, supervision, and examination by the Ohio Division of Financial Institutions and the FRB. Because the FDIC insures its deposits, the Bank is also subject to certain FDIC regulations. The FDIC is an independent federal agency which insures the deposits, up to prescribed statutory limits, of federally insured banks and savings associations, and safeguards the safety and soundness of the financial institution industry. The Bank’s deposits are insured up to applicable limits by the DIF, and the Bank is subject to deposit insurance assessments to maintain the DIF. In addition, the Bank is subject to regulations promulgated by the Consumer Financial Protection Bureau (the “CFPB”), which was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended (the “Dodd-Frank Act”).

The earnings, dividends, and other aspects of the operations and activities of CSB and the Bank are affected by state and federal laws and regulations, and by policies of various regulatory authorities. These policies include, for example, statutory maximum lending rates, requirements on maintenance of reserves against deposits, domestic monetary policies of the FRB, United States fiscal and economic policies, international currency regulations, and monetary policies, certain restrictions on relationships with many phases of the securities business, and capital adequacy, and liquidity restraints.

The following information describes selected federal and state statutory and regulatory provisions that have, or could have, a material impact on the Company’s business. This discussion is qualified in its entirety by reference to the full text of the particular statutory or regulatory provisions contained or referenced herein.

Regulation of Bank Holding Companies

As a financial holding company, CSB’s activities are subject to regulation by the FRB. CSB is subject to regular examinations by the FRB and is required to file reports and such additional information as the FRB may require.

The FRB has extensive enforcement authority over bank holding companies, including the ability to assess civil money penalties, issue cease and desist orders, and require that a bank holding company divest subsidiaries (including subsidiary banks). The FRB may initiate enforcement

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actions for violations of laws and regulations, and for unsafe and unsound practices. Under FRB policies, a bank holding company is expected to act as a “source of strength” to its subsidiary banks and to commit resources to support those subsidiary banks. Under this policy, the FRB may require a bank holding company to contribute additional capital to an undercapitalized subsidiary bank.

The BHC Act requires the prior approval of the FRB in cases where a bank holding company proposes to acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank that is not already majority-owned by it, acquire all or substantially all of the assets of another bank or another financial or bank holding company, or merge or consolidate with any other financial or bank holding company.

Economic Growth, Regulatory Relief and Consumer Protection Act

On May 25, 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Regulatory Relief Act”) was signed into law. The Regulatory Relief Act repealed or modified certain provisions of the Dodd-Frank Act and eased regulations on all but the largest banks (those with consolidated assets in excess of $250 billion). Bank holding companies with consolidated assets of less than $100 billion, including CSB, are no longer subject to enhanced prudential standards. The Regulatory Relief Act also relieves bank holding companies and banks with consolidated assets of less than $100 billion, including CSB, from certain record-keeping, reporting and disclosure requirements. Certain other regulatory requirements applied only to banks with assets in excess of $50 billion and so did not apply to CSB even before the enactment of the Regulatory Relief Act.

 

Current Expected Credit Loss Model

In December 2019, the federal banking agencies issued a final rule to address regulatory treatment of credit loss allowances under the current expected loss (‘CECL”) models. The rule revised the federal banking agencies’ regulatory capital rules to identify which credit loss allowances under the CECL model are eligible for inclusion in regulatory capital and to provide banking organizations the option to phase in over three years the day-one adverse effects on regulatory capital that may result from the adoption of the CECL model. Concurrent with the enactment of the Coronavirus Aid, Relief, and Economic Security Act of 2020, as amended, federal banking agencies issued an interim final rule that delayed the estimated impact on regulatory capital resulting from the adoption of CECL. The interim final rule provided banking organizations that implemented CECL prior to the end of 2020 the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay. On August 26, 2020, the federal banking agencies issued a final rule that made certain technical changes to the interim final rule, including expanding the pool of eligible institutions. The bank is required to adopt the CECL model after January 1, 2023, since it is a smaller reporting company.

Regulatory Capital

The FRB adopted risk-based capital guidelines for bank holding companies and state member banks, designed to absorb losses. The guidelines provide a systematic analytical framework, which makes regulatory capital requirements sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposures expressly into account in evaluating capital adequacy and incentivizes holding liquid, low-risk assets. Capital levels as measured by these standards are also used to categorize financial institutions for purposes of certain Prompt Corrective Action regulatory provisions.

 

In July 2013, the United States banking regulators issued new capital rules applicable to smaller banking organizations which also implement certain of the provisions of the Dodd-Frank Act (the “Basel III Capital Rules”). Community banking organizations, including CSB, began transitioning to the new rules on January 1, 2015. The new minimum capital requirements became effective on January 1, 2015; while a new capital conservation buffer and deductions from common equity capital phased in from January 1, 2016 through January 1, 2019, and most deductions from common equity tier 1 capital phased in from January 1, 2015 through January 1, 2019.

The Basel III Capital Rules include (i) a minimum common equity tier 1 capital ratio of 4.5%, (ii) a minimum tier 1 capital ratio of 6.0%, (iii) a minimum total capital ratio of 8.0%, and (iv) a minimum leverage ratio of 4.0%.

Common equity for the common equity tier 1 capital ratio includes common stock (plus related surplus) and retained earnings, plus limited amounts of minority interests in the form of common stock, less the majority of certain regulatory deductions.

Tier 1 capital includes common equity as defined for the common equity tier 1 capital ratio, plus certain non-cumulative preferred stock and related surplus, cumulative preferred stock and related surplus, and trust preferred securities that have been grandfathered (but which are not permitted going forward), and limited amounts of minority interests in the form of additional tier 1 capital instruments, less certain deductions.

Tier 2 capital, which can be included in the total capital ratio, includes certain capital instruments (such as subordinated debt) and limited amounts of the allowance for loan and lease losses, subject to new eligibility criteria, less applicable deductions.

The deductions from common equity tier 1 capital include goodwill and other intangibles, certain deferred tax assets, mortgage-servicing assets above certain levels, gains on sale in connection with a securitization, investments in a banking organization’s own capital instruments, and investments in the capital of unconsolidated financial institutions (above certain levels).

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Under the guidelines, capital is compared to the relative risk related to the balance sheet. To derive the risk included in the balance sheet, one of several risk weights is applied to different balance sheet and off-balance sheet assets, primarily based on the relative credit risk of the counterparty. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The Basel III Capital Rules place restrictions on the payment of capital distributions, including dividends, and certain discretionary bonus payments to executive officers in the event the Company does not hold a capital conservation buffer of greater than 2.5% composed of common equity tier 1 capital above its minimum risk-based capital requirements, or if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% at the beginning of the quarter. Pursuant to the FRB’s Small Bank Holding Company Policy statement (“SBHC Policy”), as amended in September 2018, a bank holding company with assets of less than $3 billion and meeting certain other requirements is not required to comply with the consolidated capital requirements until such company exceeds $3 billion in assets or is otherwise determined by the FRB not to qualify as a small bank holding company. On December 31, 2022, CSB was deemed to be a small bank holding company under the SBHC Policy and was not required to comply with the FRB’s regulatory capital requirements. The Bank, however, must comply with the new capital requirements.

The implementation of the Basel III Capital Rules did not have a material impact on CSB’s or the Bank’s capital ratios.

Prompt Corrective Action

The federal banking agencies have established a system of “prompt corrective action” to resolve certain of the problems of undercapitalized institutions. This system is based on five capital level categories for insured depository institutions: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized”, and “critically undercapitalized.”

The federal banking agencies may (or in some cases must) take certain supervisory actions depending upon a bank’s capital level. For example, the banking agencies must appoint a receiver or conservator for a bank within 90 days after it becomes “critically undercapitalized” unless the bank’s primary regulator determines, with the concurrence of the FDIC, that other action would better achieve regulatory purposes. Banking operations otherwise may be significantly affected depending on a bank’s capital category. For example, a bank that is not “well capitalized” generally is prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market, and the holding company of any undercapitalized depository institution must guarantee, in part, specific aspects of the bank’s capital plan for the plan to be acceptable.

In order to be “well-capitalized,” a bank must have a minimum common equity tier 1 capital ratio of 6.5%, a total risk-based capital ratio of at least 10.0%, a tier 1 risk-based capital ratio of at least 8.0%, and a leverage ratio of at least 5.0%, and the bank must not be subject to any written agreement, order, capital directive, or prompt corrective action directive to meet and maintain a specific capital level for any capital measure.

As of December 31, 2022, the Bank met the ratio requirements in effect at that date to be deemed “well-capitalized.” See Note 12 – Regulatory Matters of the Notes to Consolidated Financial Statements, located in Item 8 Financial Statements and Supplementary Data of this 10-K. Management of the Company believes the Bank also meets the capital requirements to be deemed “well-capitalized” under the new guidelines.

Deposit Insurance

Substantially all of the deposits of the Bank are insured up to applicable limits by the DIF, and the Bank is assessed quarterly deposit insurance premiums to maintain the DIF. Insurance premiums for each insured institution are determined based upon the institution’s capital level and supervisory rating provided to the FDIC by the institution’s primary federal regulator and other information deemed by the FDIC to be relevant to the risk posed to the Deposit Insurance Fund by the institution. The assessment rate is then applied to the amount of the institution’s assessment base to determine the institution’s insurance premium. The deposit insurance assessment base is calculated on average assets less average tangible equity.

The FDIC assesses a quarterly deposit insurance premium on each insured institution based on risk characteristics of the insured institution and may also impose special assessments in emergency situations. The premiums fund the DIF. Pursuant to the Dodd-Frank Act, the FDIC has established reserve ratios. On June 30, 2019, the reserve ratios were met and the FDIC applied credits for banks with assets of less than $10 billion ("small bank credits") beginning September 30, 2019 through the June 2020 premium payment. The FDIC rules further changed the method of determining risk-based assessment rates for established banks with less than $10 billion in assets to better ensure that banks taking on greater risks pay more for deposit insurance than banks that take on less risk.

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As insurer, the FDIC is authorized to conduct examinations of, and to require reporting by, federally insured institutions. It also may prohibit any federally insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious threat to the Deposit Insurance Fund. The FDIC also has the authority to take enforcement actions against insured institutions. Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged or is engaging in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC or written agreement entered into with the FDIC.

The management of the Bank does not know of any practice, condition, or violation that might lead to termination of deposit insurance.

Limits on Dividends and Other Payments

There are various legal limitations on the extent to which subsidiary banks may finance or otherwise supply funds to their parent holding of credit to, or investments in the securities of, their bank holding companies. Subsidiary banks are also subject to collateral security requirements for any loan or extension of credit permitted by such exceptions.

Payments of dividends by the Bank are limited by applicable state and federal laws and regulations. The ability of CSB to obtain funds for the payment of dividends and for other cash requirements is largely dependent on the amount of dividends that may be declared by the Bank. However, the FRB expects CSB to serve as a source of strength for the Bank and may require CSB to retain capital for further investment in the Bank, rather than pay dividends to CSB shareholders. Payment of dividends by the Bank may be restricted at any time at the discretion of its applicable regulatory authorities if they deem such dividends to constitute an unsafe or unsound banking practice. These provisions could have the effect of limiting CSB’s ability to pay dividends on its common shares.

FRB policy requires CSB to provide notice to the FRB in advance of the payment of a dividend to CSB’s shareholders under certain circumstances and states that insured banks and bank holding companies should generally only pay dividends out of current operating earnings. Additionally, The Ohio Revised Code, restricts the amount a Bank can dividend if the total amount of all dividends, including the proposed dividend, declared by the Bank in any calendar year exceeds the total of its retained net income of that year to date, combined with its retained net income of the two preceding years, unless the dividend is approved by the Ohio Division of Financial Institutions.

Consumer Protection Laws and Regulations

Banks are subject to regular examination to ensure compliance with federal statutes and regulations applicable to their business, including consumer protection statutes and implementing regulations. The Dodd-Frank Act established the CFPB, which has extensive regulatory and enforcement powers over consumer financial products and services. The CFPB has adopted numerous rules with respect to consumer protection laws, amending some existing regulations and adopting new ones, and has commenced enforcement actions. The following are just some of the consumer protection laws applicable to the Bank:

 

•
Community Reinvestment Act of 1977: imposes a continuing and affirmative obligation to fulfill the credit needs of its entire community, including low- and moderate-income neighborhoods.
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Equal Credit Opportunity Act: prohibits discrimination in any credit transaction on the basis of any of various criteria.
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Truth in Lending Act: requires that credit terms are disclosed in a manner that permits a consumer to understand and compare credit terms more readily and knowledgeably.
•
Fair Housing Act: makes it unlawful for a lender to discriminate in its housing-related lending activities against any person on the basis of any of certain criteria.
•
Home Mortgage Disclosure Act: requires financial institutions to collect data that enables regulatory agencies to determine whether the financial institutions are serving the housing credit needs of the communities in which they are located.
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Real Estate Settlement Procedures Act: requires that lenders provide borrowers with disclosures regarding the nature and cost of real estate settlements and prohibits abusive practices that increase borrowers’ costs.
•
Privacy provisions of the Gramm-Leach-Bliley Act: requires financial institutions to establish policies and procedures to restrict the sharing of non-public customer data with non-affiliated parties and to protect customer information from unauthorized access.

The banking regulators also use their authority under the Federal Trade Commission Act to take supervisory or enforcement action with respect to unfair or deceptive acts or practices by banks that may not necessarily fall within the scope of specific banking or consumer finance law.

Customer Privacy

Under the GLBA, federal banking agencies have adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to nonaffiliated third parties. These limitations require distribution of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to nonaffiliated third parties.

USA Patriot Act

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, as amended (the “Patriot Act”), and related regulations require regulated financial institutions to establish a program specifying procedures for obtaining

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identifying information from customers seeking to open new accounts and establish enhanced due diligence policies, procedures and controls designed to detect and report suspicious activity.

The Bank has established policies and procedures to be compliant with the requirements of the Patriot Act.

 

Office of Foreign Assets Control Regulation

The United States Treasury Department’s Office of Foreign Assets Control (“OFAC”) administers and enforces economic and trade sanctions against targeted foreign countries and regimes, under authority of various laws, including designated foreign countries, nationals and others. OFAC publishes lists of specially designated targets and countries. CSB is responsible for, among other things, blocking accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and financial transactions with them and reporting blocked transactions after their occurrence. Failure to comply with these sanctions could have serious financial, legal and reputational consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations.

 

Cybersecurity

In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish several lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing Internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption, and maintenance of the financial institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the financial institution or its critical service providers fall victim to this type of cyber-attack. If CSB fails to observe the regulatory guidance, it could be subject to various regulatory sanctions, including financial penalties.

 

In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents. These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.

 

In November 2021, federal banking agencies issued a final rule that became effective in May 2022 requiring banking organizations that experience a cybersecurity incident to notify certain entities. A cybersecurity incident occurs when actual or potential harm to the confidentiality, integrity, or availability of information or an information system occurs, or there is a violation or imminent threat of a violation to banking security policies and procedures. The affected bank must notify its respective federal regulator of the cybersecurity incident as soon as possible and no later than 36 hours after the bank determines a cybersecurity incident that rises to the level of a notification incident has occurred. These notifications are intended to promote early awareness of threats to banking organizations and will help banks react to those threats before they manifest into larger incidents. This rule also requires bank service providers to notify their bank organization customers of a cybersecurity incident that has caused, or is reasonably likely to cause, a material service disruption or degradation for four or more hours.

 

Furthermore, once final rules are adopted, the Cyber Incident Reporting for Critical Infrastructure Act, enacted in March 2022, will require certain covered entities to report a covered cyber incident to the U.S. Department of Homeland Security’s Cybersecurity & Infrastructure Security Agency (“CISA”) within 72 hours after it reasonably believes an incident has occurred. Separate reporting to CISA will also be required within 24 hours, if a ransom payment is made as a result of a ransomware attack.

 

State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements. CSB expects this trend of state-level activity in those areas to continue and is continually monitoring developments in the states in which our customers are located.

 

In the ordinary course of business, CSB relies on electronic communications and information systems to conduct its operations and to store sensitive data. CSB employs an in-depth, layered, defensive approach that leverages people, processes and technology to manage and maintain cybersecurity controls. CSB employs a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. Notwithstanding the strength of CSB’s defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures. While to date, CSB has not detected a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, CSB’s systems and those of its customers and third-party service providers are under constant threat and it is possible that CSB could experience a significant event in the future. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of internet banking, mobile banking and other technology-based products and services by us and our customers.

Effect of Environmental Regulation

Compliance with federal, state, and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect upon the capital expenditures, earnings, or competitive position of CSB or its subsidiaries. CSB believes the nature of the operations of its subsidiaries has little, if any, environmental impact. CSB, therefore, anticipates no material capital expenditures for environmental control facilities for its current fiscal year or for the foreseeable future.

8

CSB believes its primary exposure to environmental risk is through the lending activities of the Bank. In cases where management believes environmental risk potentially exists, the Bank mitigates environmental risk exposure by requiring environmental site assessments at the time of loan origination to confirm collateral quality as to commercial real estate parcels posing higher than normal potential for environmental impact, as determined by reference to present and past uses of the subject property and adjacent sites.

Executive and Incentive Compensation

Public companies will be required, once stock exchanges adopt additional listing requirements under the Dodd-Frank Act and rules adopted by the SEC in October 2022, to adopt and implement “clawback” procedures policies for incentive compensation payments and to disclose the details of the procedures which allow recovery of incentive compensation that was paid on the basis of erroneous financial information necessitating an accounting restatement due to material noncompliance with financial reporting requirements. This clawback policy is intended to apply to compensation paid within the three completed fiscal years immediately preceding the date the issuer is required to prepare a restatement a three-year look-back window of the restatement and would cover all executives (including former executives) who received incentive awards.

 

Future Legislation

Various and significant legislation affecting financial institutions and the financial industry is from time to time adopted by the U.S. Congress and state legislatures, and regulatory agencies frequently adopt or amend regulations. Such legislation and regulation may continue to change banking laws and regulations and the operating environment of CSB and its subsidiaries in substantial and unpredictable ways and could significantly increase or decrease costs of doing business, limit or expand permissible activities, or affect the competitive balance among financial institutions. The nature and extent of future legislative and regulatory changes affecting financial institutions remains very unpredictable.

Statistical Disclosures

The following schedules present, for the periods indicated, certain financial and statistical information of the Company as required under the SEC’s “Subpart 1400 of regulation S-K”, as amended on September 11, 2020, or a specific reference as to the location of required disclosures in Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) or Item 8 Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

Distribution of Assets, Liabilities, and Stockholders’ Equity; Interest Rates and Interest Differential

The information set forth under the heading, “Average Balance Sheets and Net Interest Margin Analysis” located in Item 7 MD&A is incorporated by reference herein.

The information set forth under the heading, “Rate/Volume Analysis of Changes in Income and Expense” located in Item 7 MD&A is incorporated by reference herein.

Investment Portfolio

The following is a schedule of maturities for each category of debt securities and the related weighted average yield of such securities as of December 31, 2022:

 

 

One Year or Less

 

 

After One Year
Through Five
Years

 

 

Maturing
After Five Years
Through Ten
Years

 

 

After Ten Years

 

 

Total

 

 

(Dollars in thousands)

 

Amortized
Cost

 

 

Yield

 

 

Amortized
Cost

 

 

Yield

 

 

Amortized
Cost

 

 

Yield

 

 

Amortized
Cost

 

 

Yield

 

 

Amortized
Cost

 

 

Yield

 

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasuries

 

$

4,992

 

 

 

0.58

 

%

$

18,202

 

 

 

2.02

 

%

$

—

 

 

 

—

 

%

$

—

 

 

 

—

 

%

$

23,194

 

 

 

1.71

 

%

U.S. Government agencies

 

 

—

 

 

 

—

 

 

 

13,999

 

 

 

0.47

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

13,999

 

 

 

0.47

 

 

Mortgage-backed securities of
   government agencies

 

 

1

 

 

 

3.94

 

 

 

973

 

 

 

2.63

 

 

 

7,468

 

 

 

2.77

 

 

 

69,235

 

 

 

2.10

 

 

 

77,677

 

 

 

2.18

 

 

Asset-backed securities of
   government agencies

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

633

 

 

 

5.57

 

 

 

—

 

 

 

—

 

 

 

633

 

 

 

5.57

 

 

State and political subdivisions

 

 

973

 

 

 

2.84

 

 

 

9,135

 

 

 

2.79

 

 

 

10,354

 

 

 

1.75

 

 

 

—

 

 

 

—

 

 

 

20,462

 

 

 

2.27

 

 

Corporate bonds

 

 

—

 

 

 

—

 

 

 

22,265

 

 

 

2.77

 

 

 

6,475

 

 

 

3.71

 

 

 

—

 

 

 

—

 

 

 

28,740

 

 

 

2.98

 

 

Total

 

$

5,966

 

 

 

0.95

 

%

$

64,574

 

 

 

2.06

 

%

$

24,930

 

 

 

2.66

 

%

$

69,235

 

 

 

2.10

 

%

$

164,705

 

 

 

2.13

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasuries

 

$

2,497

 

 

 

0.42

 

%

$

7,412

 

 

 

0.99

 

%

$

2,844

 

 

 

1.83

 

%

$

—

 

 

 

—

 

%

$

12,753

 

 

 

0.91

 

%

Mortgage-backed securities of
   government agencies

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

231

 

 

 

1.15

 

 

 

231,837

 

 

 

2.02

 

 

 

232,068

 

 

 

2.02

 

 

State and political subdivisions

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,686

 

 

 

2.08

 

 

 

894

 

 

 

1.54

 

 

 

2,580

 

 

 

1.90

 

 

Total

 

$

2,497

 

 

 

0.42

 

%

$

7,412

 

 

 

0.99

 

%

$

4,761

 

 

 

1.51

 

%

$

232,731

 

 

 

2.02

 

%

$

247,401

 

 

 

1.96

 

%

The weighted average yields are calculated using amortized cost of investments and are based on coupon rates for securities purchased at par value, and on effective interest rates considering amortization or accretion if securities were purchased at a premium or discount. The weighted average yield on tax-exempt obligations is presented on a tax-equivalent basis based on the Company’s marginal federal income tax rate of 21%.

 

9

Loan Portfolio

The following is a schedule of maturities of loans based on contract terms and assuming no amortization or prepayments, as of December 31, 2022:

 

 

 

Maturing

 

(Dollars in thousands)

 

One Year
or Less

 

 

One
Through
Five Years

 

 

Five Through Fifteen Years

 

 

After Fifteen
Years

 

 

Total

 

Commercial

 

$

55,120

 

 

$

49,638

 

 

$

22,265

 

 

$

2,320

 

 

$

129,343

 

Commercial real estate

 

 

3,321

 

 

 

20,289

 

 

 

47,884

 

 

 

160,291

 

 

 

231,785

 

Residential real estate

 

 

853

 

 

 

12,535

 

 

 

80,263

 

 

 

100,474

 

 

 

194,125

 

Construction & land development

 

 

764

 

 

 

11,413

 

 

 

4,745

 

 

 

38,396

 

 

 

55,318

 

Consumer

 

 

702

 

 

 

7,168

 

 

 

8,433

 

 

 

84

 

 

 

16,387

 

Total

 

$

60,760

 

 

$

101,043

 

 

$

163,590

 

 

$

301,565

 

 

$

626,958

 

The following is a schedule of fixed rate and variable rate loans due after one year from December 31, 2022.

 

(Dollars in thousands)

 

Fixed Rate

 

 

Variable Rate

 

Commercial

 

$

51,928

 

 

$

22,295

 

Commercial real estate

 

 

3,016

 

 

 

225,448

 

Residential real estate

 

 

49,380

 

 

 

143,892

 

Construction & land development

 

 

7,847

 

 

 

46,707

 

Consumer

 

 

15,061

 

 

 

624

 

For the year ended December 31, 2022, interest income recognized on impaired loans amounted to $50 thousand, while $73 thousand would have been recognized had the loans been performing under their contractual terms. For the year ended December 31, 2021, interest income recognized on impaired loans amounted to $147 thousand, while $265 thousand would have been recognized had the loans been performing under their contractual terms.

Impaired loans are comprised of commercial, commercial real estate, and residential real estate loans, and are carried at the present value of expected cash flows discounted at the loan’s effective interest rate or at fair value of the collateral if the loan is collateral dependent. A portion of the allowance for loan losses is allocated to impaired loans.

Smaller-balance homogeneous loans are evaluated for impairment in total. Such loans include residential first-mortgage loans secured by one to four-family residences, residential construction loans, automobile loans, home equity loans, and second-mortgage loans. These consumer loans are included in nonaccrual and past due disclosures above as well as impaired loans when they become nonperforming. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. When analysis of borrower operating results and financial condition indicates that underlying cash flows of the borrower’s business are not adequate to meet its debt service requirements, the loan is evaluated for impairment. Impaired loans or portions thereof, are charged-off when deemed uncollectible.

On December 31, 2022, no loans were identified for which management had serious doubts about the borrowers’ ability to comply with present loan repayment terms that are not included in the tables set forth above. On a monthly basis, the Company internally classifies certain loans based on various factors. On December 31, 2022, these amounts, including impaired and nonperforming loans, amounted to $16 million of substandard loans and no doubtful loans.

As of December 31, 2022, there was one concentration of loans greater than 10% of total loans that is not otherwise disclosed as a category of loans in the loan portfolio table set forth above. Loans to lessors of non-residential buildings totaled $73 million, or 12% of total loans as of December 31, 2022.

Summary of Loan Loss Experience

The following schedule presents an analysis of net charge-offs (recoveries) to average loans, and related ratios for the years ended December 31:

 

 

2022

 

2021

(Dollars in thousands)

Net (Charge-offs) Recoveries

 

 

Average Loans

 

 

Net (Charge-offs) Recoveries as a % of Average Loans

 

 

 

Net (Charge-offs) Recoveries

 

 

Average Loans

 

 

Net (Charge-offs) Recoveries as a % of Average Loans

 

 

Commercial

$

(177

)

 

$

129,916

 

 

 

-0.14

%

 

 

$

(4

)

 

$

148,512

 

 

 

0.00

%

 

Commercial real estate

 

(10

)

 

 

200,174

 

 

 

0.00

%

 

 

 

8

 

 

 

185,439

 

 

 

0.00

%

 

Residential real estate

 

3

 

 

 

180,740

 

 

 

0.00

%

 

 

 

25

 

 

 

173,006

 

 

 

0.01

%

 

Construction & land development

 

312

 

 

 

61,034

 

 

 

0.51

%

 

 

 

—

 

 

 

38,695

 

 

 

0.00

%

 

Consumer

 

(13

)

 

 

15,946

 

 

 

-0.08

%

 

 

 

(30

)

 

 

16,940

 

 

 

-0.18

%

 

Total

$

115

 

 

$

587,810

 

 

 

0.02

%

 

 

$

(1

)

 

$

562,592

 

 

 

0.00

%

 

 

10

The allowance for loan losses balance and provision charged to expense are determined by management based on periodic reviews of the loan portfolio, past loan loss experience, economic conditions, and various other circumstances subject to change over time. In making this judgment, management reviews selected large loans, as well as impaired loans, other delinquent, nonaccrual and problem loans, and loans to industries experiencing economic difficulties. The collectability of these loans is evaluated after considering current operating results and financial position of the borrower, estimated market value of collateral, guarantees and the Company’s collateral position versus other creditors. Judgments, which are necessarily subjective, as to the probability of loss and amount of such loss are formed on these loans, as well as other loans taken together.

The following schedule is a breakdown of the allowance for loan losses allocated by type of loan and related ratios. While management’s periodic analysis of the adequacy of the allowance for loan losses may allocate portions of the allowance for specific problem-loan situations, the entire allowance is available for any loan charge-offs that occur.

 

 

Allocation of the Allowance for Loan Losses

 

(Dollars in thousands)

 

 

Allowance
Amount

 

 

Percentage
of Loans
in Each
Category
to Total
Loans

 

 

Allowance
Amount

 

 

Percentage
of Loans
in Each
Category
to Total
Loans

 

 

 

 

December 31, 2022

 

 

December 31, 2021

 

 

Commercial

 

$

1,110

 

 

 

20.6

 

%

$

1,240

 

 

 

22.6

 

%

Commercial real estate

 

 

2,760

 

 

 

37.0

 

 

 

2,838

 

 

 

35.5

 

 

Residential real estate

 

 

1,268

 

 

 

30.9

 

 

 

992

 

 

 

30.6

 

 

Construction & land development

 

 

803

 

 

 

8.9

 

 

 

1,380

 

 

 

8.4

 

 

Consumer

 

 

233

 

 

 

2.6

 

 

 

421

 

 

 

2.9

 

 

Unallocated

 

 

664

 

 

 

 

 

 

747

 

 

 

 

 

Total

 

$

6,838

 

 

 

100.0

 

%

$

7,618

 

 

 

100.0

 

%

 

 

Deposits

The following is a schedule of average deposit amounts and average rates paid on each category for the periods indicated:

 

 

Average Amounts Outstanding
Year ended December 31,

 

 

Average Rate Paid
Year ended December 31,

(Dollars in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

Noninterest-bearing demand

 

$

337,759

 

 

$

304,351

 

 

N/A

 

 

N/A

 

 

Interest-bearing demand

 

 

240,904

 

 

 

259,111

 

 

 

0.27

 

%

 

0.12

 

%

Savings deposits

 

 

315,881

 

 

 

281,888

 

 

 

0.21

 

 

 

0.10

 

 

Time deposits

 

 

118,085

 

 

 

123,659

 

 

 

0.86

 

 

 

1.04

 

 

Total deposits

 

$

1,012,629

 

 

$

969,009

 

 

 

 

 

 

 

 

The Bank does not have any material deposits by foreign depositors. The total uninsured portion of all deposit accounts greater than $250 thousand was $267 million as of December 31, 2022, and $265 million as of December 31, 2021. The following is a schedule of maturities of time certificates of deposit in amounts greater than $250 thousand as of December 31, 2022:

 

(Dollars in thousands)

 

 

 

Three months or less

 

$

7,611

 

Over three through six months

 

 

4,539

 

Over six through twelve months

 

 

6,365

 

Over twelve months

 

 

9,574

 

Total

 

$

28,089

 

 

 

ITEM 1A. RISK FACTORS.

Not Applicable.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS.

Not applicable.

 

 

11

ITEM 2. PROPERTIES.

The Bank operates sixteen banking centers as noted below:

 

 

 

 

 

 

 

 

 

 

 

 

Location

 

Address

 

        Owned

 

        Leased

Walnut Creek

 

4980 Old Pump Street, Walnut Creek, Ohio 44687

 

X

 

 

Winesburg

 

2225 U.S. 62, Winesburg, Ohio 44690

 

X

 

 

Sugarcreek

 

127 South Broadway, Sugarcreek, Ohio 44681

 

X

 

 

Charm

 

4440 C.R. 70, Charm, Ohio 44617

 

X

 

 

Clinton Commons

 

2102 Glen Drive, Millersburg, Ohio 44654

 

 

 

X

Berlin

 

4587 S.R. 39 Suite B, Berlin, Ohio 44610

 

 

 

X

South Clay

 

91 South Clay Street, Millersburg, Ohio 44654

 

X

 

 

Shreve

 

333 West South Street, Shreve, Ohio 44676

 

X

 

 

Orrville

 

119 West High Street, Orrville, Ohio 44667

 

X

 

 

Gnadenhutten

 

100 South Walnut Street, Gnadenhutten, Ohio 44629

 

X

 

 

New Philadelphia

 

635 West High Avenue, New Philadelphia, Ohio 44663

 

X

 

 

North Canton

 

600 South Main Street, North Canton, Ohio 44720

 

X

 

 

Bolivar

 

11113 Fairoaks Road NE, Bolivar, Ohio 44612

 

 

 

X

Wooster

 

350 East Liberty Street, Wooster, Ohio 44691

 

X

 

 

Wooster

 

3562 Commerce Parkway, Wooster, Ohio 44691

 

X

 

 

Operations Center

 

91 North Clay Street, Millersburg, Ohio 44654

 

X

 

 

 

The Bank considers its physical properties to be in good operating condition and suitable for the purposes for which they are being used. All properties owned by the Bank are unencumbered by any mortgage or security interest and in management’s opinion, are adequately insured.

ITEM 3. LEGAL PROCEEDINGS.

In the normal course of business, CSB is subject to pending and threatened legal actions, including claims for which material relief or damages are sought. Although CSB is not able to predict the outcome of such actions, after reviewing pending and threatened actions, management believes that the outcome of any or all such actions will not have a material adverse effect on the results of operations, the financial position, or shareholders’ equity of CSB. Further, there are no material legal proceedings in which any director, executive officer, principal shareholder, or affiliate of CSB is a party or has a material interest that is adverse to CSB or the Bank.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

12

PART II

ITEM 5. MARKET FOR REGISTRANT’ S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Information contained in the section captioned “Common Stock and Shareholder Information” included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference.

PERFORMANCE GRAPH

The following graph compares the yearly stock change and the cumulative total shareholder return on CSB’s Common Shares during the five-year period ended December 31, 2022, with the cumulative total return on the Standard and Poor’s 500 Stock Index and the NASDAQ Community Bank Stock Index. The comparison assumes $100 was invested on December 31, 2017, in CSB’s Common Shares and in each of the indicated indices and assumes reinvestment of dividends.

 

 

 

2017

 

 

2018

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

CSBB

 

$

100

 

 

$

119

 

 

$

130

 

 

$

115

 

 

$

128

 

 

$

135

 

S & P 500

 

 

100

 

 

 

95

 

 

 

126

 

 

 

149

 

 

 

192

 

 

 

157

 

NASDAQ Bank

 

 

100

 

 

 

85

 

 

 

105

 

 

 

93

 

 

 

126

 

 

 

117

 

 

img41540282_0.jpg 

 

 

 

ISSUER PURCHASES OF EQUITY SECURITIES

 

Period

 

Total Number of Shares Purchased

 

 

Average Price Paid Per Share

 

 

Total number of Shares Purchased as Part of Publicly Announced Plans

 

 

Maximum Number of Shares that May Yet be Purchased Under the Plan

 

October 1, 2022 to October 31, 2022

 

 

—

 

 

$

—

 

 

 

—

 

 

 

102,344

 

November 1, 2022 to November 30, 2022

 

 

—

 

 

 

—

 

 

 

—

 

 

 

102,344

 

December 1, 2022 to December 31, 2022

 

 

—

 

 

 

—

 

 

 

—

 

 

 

102,344

 

On March 2, 2021, CSB filed a Current Report on Form 8-K with the SEC announcing that its Board of Directors approved a Stock Repurchase Program authorizing the repurchase of up to 5% of CSB’s common shares. Repurchases may be made periodically as market and business

13

conditions warrant, in the open market, through block purchases and in negotiated private transactions. The Stock Repurchase Program has no scheduled expiration date. CSB repurchased 10,448 Common Shares during 2022 and 24,326 Common Shares during 2021.

ITEM 6. [RESERVED]

 

 

 

 

14

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

 

2022 FINANCIAL REVIEW

INTRODUCTION

CSB Bancorp, Inc. (the “Company” or “CSB”) was incorporated under the laws of the State of Ohio in 1991 and is a registered financial holding company. The Company’s wholly owned subsidiaries are The Commercial and Savings Bank (the “Bank”) and CSB Investment Services, LLC. The Bank is chartered under the laws of the State of Ohio and was organized in 1879. The Bank is a member of the Federal Reserve System, with deposits insured by the Federal Deposit Insurance Corporation, and its primary regulators are the Ohio Division of Financial Institutions and the Federal Reserve Board.

The Company, through the Bank, provides retail and commercial banking services to its customers including checking and savings accounts, time deposits, cash management, safe deposit facilities, commercial loans, real estate mortgage loans, consumer loans, IRAs, night depository facilities, and trust and brokerage services. Its customers are located primarily in Holmes, Stark, Tuscarawas, Wayne, and portions of surrounding counties in Ohio.

Economic activity in the Company’s market area declined moderately in the fourth quarter of 2022 after solid growth earlier in the year stemming from a continued recovery following the COVID-19 pandemic economic effects of 2020. Demand for goods and services slowed during the fourth quarter 2022 with households spending more on necessities and less on discretionary items. Supply chain challenges improved during the year. Consumer spending has softened due to inflation pressures and increased interest rates. Reported unemployment levels in December 2022 ranged from 2.9% to 4.0% in the four primary counties served by the Company. These levels increased from the December 2021 range of 2.0% to 3.5% in the four counties served by the Company. Labor demand remained solid as competition for workers has put upward pressure on labor costs. The local housing market continues to be strong with extremely low inventory levels. Residential construction has declined year over year with higher interest rates as the main factor reducing demand.

FORWARD-LOOKING STATEMENTS

Certain statements contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations are not related to historical results but are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks and uncertainties. Any forward-looking statements made by the Company herein and in future reports and statements are not guarantees of future performance. Actual results may differ materially from those in forward-looking statements because of various risk factors as discussed in this annual report. The Company does not undertake, and specifically disclaims, any obligation to publicly release the result of any revisions to any forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date of such statements.

 

 

15

 

FINANCIAL DATA

 

The following table set forth certain selected consolidated financial information:

 

(Dollars in thousands, except per share data)

 

 

2022

 

 

 

2021

 

 

 

2020

 

 

 

2019

 

 

 

2018

 

 

Statements of income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total interest income

 

$

 

34,819

 

 

$

 

29,529

 

 

$

 

31,066

 

 

$

 

32,461

 

 

$

 

29,637

 

 

Total interest expense

 

 

 

2,496

 

 

 

 

2,012

 

 

 

 

2,913

 

 

 

 

4,062

 

 

 

 

2,886

 

 

Net interest income

 

 

 

32,323

 

 

 

 

27,517

 

 

 

 

28,153

 

 

 

 

28,399

 

 

 

 

26,751

 

 

Provision (recovery) for loan losses

 

 

 

(895

)

 

 

 

(655

)

 

 

 

1,650

 

 

 

 

1,140

 

 

 

 

1,316

 

 

Net interest income after provision (recovery) for loan losses

 

 

 

33,218

 

 

 

 

28,172

 

 

 

 

26,503

 

 

 

 

27,259

 

 

 

 

25,435

 

 

Noninterest income

 

 

 

6,711

 

 

 

 

7,325

 

 

 

 

6,935

 

 

 

 

5,428

 

 

 

 

4,758

 

 

Noninterest expense

 

 

 

23,393

 

 

 

 

22,093

 

 

 

 

20,342

 

 

 

 

19,769

 

 

 

 

18,518

 

 

Income before income taxes

 

 

 

16,536

 

 

 

 

13,404

 

 

 

 

13,096

 

 

 

 

12,918

 

 

 

 

11,675

 

 

Income tax provision

 

 

 

3,223

 

 

 

 

2,567

 

 

 

 

2,528

 

 

 

 

2,504

 

 

 

 

2,263

 

 

Net income

 

$

 

13,313

 

 

$

 

10,837

 

 

$

 

10,568

 

 

$

 

10,414

 

 

$

 

9,412

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per share of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

 

4.91

 

 

$

 

3.97

 

 

$

 

3.85

 

 

$

 

3.80

 

 

$

 

3.43

 

 

Diluted earnings per share

 

 

 

4.91

 

 

 

 

3.97

 

 

 

 

3.85

 

 

 

 

3.80

 

 

 

 

3.43

 

 

Dividends

 

 

 

1.30

 

 

 

 

1.22

 

 

 

 

1.13

 

 

 

 

1.08

 

 

 

 

0.98

 

 

Book value

 

 

 

35.43

 

 

 

 

35.80

 

 

 

 

34.23

 

 

 

 

31.17

 

 

 

 

27.91

 

 

Average basic common shares outstanding

 

 

 

2,714,045

 

 

 

 

2,733,126

 

 

 

 

2,742,350

 

 

 

 

2,742,296

 

 

 

 

2,742,242

 

 

Average diluted common shares outstanding

 

 

 

2,714,045

 

 

 

 

2,733,126

 

 

 

 

2,742,350

 

 

 

 

2,742,296

 

 

 

 

2,742,242

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year-end balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, net

 

$

 

620,333

 

 

$

 

541,536

 

 

$

 

600,885

 

 

$

 

544,616

 

 

$

 

543,067

 

 

Securities

 

 

 

401,144

 

 

 

 

311,245

 

 

 

 

204,184

 

 

 

 

130,721

 

 

 

 

110,913

 

 

Total assets

 

 

 

1,159,108

 

 

 

 

1,144,239

 

 

 

 

1,031,632

 

 

 

 

818,683

 

 

 

 

731,722

 

 

Deposits

 

 

 

1,023,417

 

 

 

 

1,002,747

 

 

 

 

891,562

 

 

 

 

683,546

 

 

 

 

606,498

 

 

Borrowings

 

 

 

35,011

 

 

 

 

39,937

 

 

 

 

41,879

 

 

 

 

45,219

 

 

 

 

45,940

 

 

Shareholders’ equity

 

 

 

95,920

 

 

 

 

97,315

 

 

 

 

93,859

 

 

 

 

85,476

 

 

 

 

76,536

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, net

 

$

 

580,454

 

 

$

 

554,547

 

 

$

 

601,419

 

 

$

 

545,483

 

 

$

 

529,522

 

 

Securities

 

 

 

388,827

 

 

 

 

231,285

 

 

 

 

129,508

 

 

 

 

112,290

 

 

 

 

118,511

 

 

Total assets

 

 

 

1,151,925

 

 

 

 

1,111,808

 

 

 

 

931,330

 

 

 

 

765,722

 

 

 

 

716,243

 

 

Deposits

 

 

 

1,012,629

 

 

 

 

969,009

 

 

 

 

788,904

 

 

 

 

636,441

 

 

 

 

589,646

 

 

Borrowings

 

 

 

40,218

 

 

 

 

42,600

 

 

 

 

48,358

 

 

 

 

44,478

 

 

 

 

51,014

 

 

Shareholders’ equity

 

 

 

94,850

 

 

 

 

96,145

 

 

 

 

90,247

 

 

 

 

81,548

 

 

 

 

73,002

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Select ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin, FTE basis1

 

 

 

2.98

 

%

 

 

2.63

 

%

 

 

3.22

 

%

 

 

3.97

 

%

 

 

3.98

 

%

Return on average total assets

 

 

 

1.16

 

 

 

 

0.97

 

 

 

 

1.13

 

 

 

 

1.36

 

 

 

 

1.31

 

 

Return on average shareholders’ equity

 

 

 

14.04

 

 

 

 

11.27

 

 

 

 

11.71

 

 

 

 

12.77

 

 

 

 

12.89

 

 

Average shareholders’ equity as a percent of average total assets

 

 

 

8.23

 

 

 

 

8.65

 

 

 

 

9.69

 

 

 

 

10.65

 

 

 

 

10.19

 

 

Net loan charge-offs (recoveries) as a percent of average loans

 

 

 

(0.02

)

 

 

 

0.00

 

 

 

 

0.06

 

 

 

 

0.01

 

 

 

 

0.19

 

 

Allowance for loan losses as a percent of loans at year-end

 

 

 

1.09

 

 

 

 

1.39

 

 

 

 

1.36

 

 

 

 

1.27

 

 

 

 

1.08

 

 

Shareholders’ equity as a percent of total year-end assets

 

 

 

8.28

 

 

 

 

8.50

 

 

 

 

9.10

 

 

 

 

10.44

 

 

 

 

10.46

 

 

Dividend payout ratio2

 

 

 

26.48

 

 

 

 

30.73

 

 

 

 

29.35

 

 

 

 

28.42

 

 

 

 

28.57

 

 

 

¹Net interest margin is shown on a fully taxable equivalent basis.

2Dividend payout ratio is calculated as dividends declared as a percentage of net income.

 

 

16

RESULTS OF OPERATIONS

 

Net Income

CSB’s 2022 net income was $13.3 million compared to $10.8 million for 2021, an increase of 23%. Total revenue, net interest income plus noninterest income, increased $4.2 million, or 12%, over the prior year to a total of $39.0 million. The provision for loan losses decreased to a $895 thousand recovery as compared to a $655 thousand recovery for the prior year. Noninterest expense increased $1.3 million, or 6% and the provision for income tax increased $656 thousand over the prior year due to an increase in taxable income. Basic and diluted earnings per share were $4.91, up 24% from the prior year. The return on average assets was 1.16% in 2022 compared to 0.97% in 2021 and return on average equity was 14.04% in 2022 compared to 11.27% in 2021.

Net Interest Income

 

(Dollars in thousands)

 

 

2022

 

 

 

2021

 

 

Net interest income

 

$

 

32,323

 

 

$

 

27,517

 

 

Taxable equivalent1

 

 

 

145

 

 

 

 

154

 

 

Net interest income, FTE

 

$

 

32,468

 

 

$

 

27,671

 

 

Net interest margin

 

 

 

2.97

 

%

 

 

2.61

 

%

Taxable equivalent adjustment1

 

 

 

0.01

 

 

 

 

0.02

 

 

Net interest margin, FTE

 

 

 

2.98

 

%

 

 

2.63

 

%

¹Taxable equivalent adjustments have been computed assuming a 21% tax rate in 2022, and 2021 (non-GAAP).

Net interest income is the largest source of the Company’s revenue and consists of the difference between interest income generated on earning assets and interest expense incurred on liabilities (deposits, short-term and long-term borrowings). Volumes, interest rates, composition of interest-earning assets, and interest-bearing liabilities affect net interest income. Net interest income increased $4.8 million, or 17%, in 2022 compared to 2021. The increase was a result of a $5.3 million increase in interest income, partially offset by an increase of $484 thousand in interest expense. The FTE net interest margin increased to 2.98% from 2.63% in 2021.

Interest income increased $5.3 million, or 18%, in 2022 compared to 2021 primarily due to an increase of $4.1 million, or 155%, in taxable securities interest income due to an increase in average balances of $158 million and an increase in yield of 56 basis points ("bps"). Interest income on interest-earning deposits mainly held at the Federal Reserve increased $1.4 million in 2022 compared to 2021 primarily due to a 139 basis points yield increase. Interest income on loans decreased $109 thousand primarily due to a decrease of 22 basis points in yield which was partially offset by an increase in loan volume of $25 million. The decrease in yield occurred as Payckeck Prtection Program ("PPP") loans were forgiven by the Small Business Administration ("SBA"), the bank recognized origination fees of $176 thousand in interest income in 2022 as compared to $2.8 million in 2021 on the forgiven PPP loans.

Interest expense increased $484 thousand, or 24%, in 2022 as compared to 2021 primarily due to rate increases of 7 bps on deposits and 10 basis points on other borrowed funds. Average interest-bearing demand and savings deposit balances increased $16 million during the year as savings rates continued but at a lesser pace than the prior year as the increase in the money supply created by the government to offset pandemic economic decreases was being phased out to consumers and businesses. Average time deposit balances decreased $5.6 million, and the average interest rate decreased 18 bps.

 

17

The following table provides detailed analysis of changes in average balances, yield, and net interest income:

AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN ANALYSIS

 

2022

 

 

 

2021

 

 

(Dollars in thousands)

 

Average
Balance 1

 

 

 

Interest

 

 

Average
Rate 2

 

 

 

 

Average
Balance 1

 

 

 

Interest

 

 

Average
Rate 2

 

 

Interest-earning
assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning
deposits in other banks

$

 

111,775

 

 

$

 

1,703

 

 

 

1.52

 

%

 

$

 

259,789

 

 

$

 

337

 

 

 

0.13

 

%

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

364,478

 

 

 

 

6,665

 

 

 

1.83

 

 

 

 

 

206,077

 

 

 

 

2,613

 

 

 

1.27

 

 

Tax exempt 4

 

 

24,349

 

 

 

 

553

 

 

 

2.27

 

 

 

 

 

25,208

 

 

 

 

577

 

 

 

2.28

 

 

Loans 3, 4

 

 

587,765

 

 

 

 

26,043

 

 

 

4.43

 

 

 

 

 

562,592

 

 

 

 

26,156

 

 

 

4.65

 

 

Total interest-
earning assets

 

 

1,088,367

 

 

 

 

34,964

 

 

 

3.21

 

%

 

 

 

1,053,666

 

 

 

 

29,683

 

 

 

2.82

 

%

Noninterest-
earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due
from banks

 

 

20,435

 

 

 

 

 

 

 

 

 

 

 

 

19,891

 

 

 

 

 

 

 

 

 

Bank premises
and equipment, net

 

 

13,601

 

 

 

 

 

 

 

 

 

 

 

 

13,372

 

 

 

 

 

 

 

 

 

Other assets

 

 

36,833

 

 

 

 

 

 

 

 

 

 

 

 

32,924

 

 

 

 

 

 

 

 

 

Allowance for loan
losses

 

 

(7,311

)

 

 

 

 

 

 

 

 

 

 

 

(8,045

)

 

 

 

 

 

 

 

 

Total assets

$

 

1,151,925

 

 

 

 

 

 

 

 

 

 

$

 

1,111,808

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing
liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

$

 

240,904

 

 

 

 

648

 

 

 

0.27

 

%

 

$

 

259,111

 

 

 

 

317

 

 

 

0.12

 

%

Savings deposits

 

 

315,881

 

 

 

 

670

 

 

 

0.21

 

 

 

 

 

281,888

 

 

 

 

281

 

 

 

0.10

 

 

Time deposits

 

 

118,085

 

 

 

 

1,017

 

 

 

0.86

 

 

 

 

 

123,659

 

 

 

 

1,286

 

 

 

1.04

 

 

Borrowed funds

 

 

40,218

 

 

 

 

161

 

 

 

0.40

 

 

 

 

 

42,600

 

 

 

 

128

 

 

 

0.30

 

 

Total interest-
bearing liabilities

 

 

715,088

 

 

 

 

2,496

 

 

 

0.35

 

%

 

 

 

707,258

 

 

 

 

2,012

 

 

 

0.28

 

%

Noninterest-bearing
   liabilities and
   shareholders’
   equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

 

337,759

 

 

 

 

 

 

 

 

 

 

 

 

304,351

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

4,228

 

 

 

 

 

 

 

 

 

 

 

 

4,054

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

94,850

 

 

 

 

 

 

 

 

 

 

 

 

96,145

 

 

 

 

 

 

 

 

 

Total liabilities
and equity

$

 

1,151,925

 

 

 

 

 

 

 

 

 

 

$

 

1,111,808

 

 

 

 

 

 

 

 

 

Net interest
income 4

 

 

 

 

 

 

32,468

 

 

 

 

 

 

 

 

 

 

 

 

27,671

 

 

 

 

 

FTE adjustment

 

 

 

 

 

 

(145

)

 

 

 

 

 

 

 

 

 

 

 

(154

)

 

 

 

 

GAAP net interest
income

 

 

 

 

$

 

32,323

 

 

 

 

 

 

 

 

 

 

$

 

27,517

 

 

 

 

 

Net interest margin
FTE

 

 

 

 

 

 

 

 

 

2.98

 

%

 

 

 

 

 

 

 

 

 

 

2.63

 

%

Net interest spread

 

 

 

 

 

 

 

 

 

2.86

 

%

 

 

 

 

 

 

 

 

 

 

2.54

 

%

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

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

³Average loan balances include nonaccrual loans.

4Interest income is shown on a fully tax-equivalent basis (non-GAAP), reconciled to the GAAP amount at the bottom of the table.

 

18

The following table compares the impact of changes in average rates and changes in average volumes on net interest income:

RATE/VOLUME ANALYSIS OF CHANGES IN INCOME AND EXPENSE¹

 

 

 

 

2022 v. 2021

 

 

 

 

Net Increase

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

(Decrease)

 

 

 

Volume

 

 

 

Rate

 

Increase (decrease) in interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning deposits in other banks

 

$

 

1,366

 

 

$

 

(2,255

)

 

$

 

3,621

 

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

 

4,052

 

 

 

 

2,904

 

 

 

 

1,148

 

Tax exempt 2

 

 

 

(24

)

 

 

 

(18

)

 

 

 

(6

)

Loans 2

 

 

 

(113

)

 

 

 

1,115

 

 

 

 

(1,228

)

Total interest income change 2

 

 

 

5,281

 

 

 

 

1,746

 

 

 

 

3,535

 

Increase (decrease) in interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

 

 

331

 

 

 

 

(49

)

 

 

 

380

 

Savings deposits

 

 

 

389

 

 

 

 

72

 

 

 

 

317

 

Time deposits

 

 

 

(269

)

 

 

 

(48

)

 

 

 

(221

)

Borrowed funds

 

 

 

33

 

 

 

 

(10

)

 

 

 

43

 

Total interest expense change

 

 

 

484

 

 

 

 

(35

)

 

 

 

519

 

Net interest income change 2

 

$

 

4,797

 

 

$

 

1,781

 

 

$

 

3,016

 

¹ Changes attributable to both volume and rate, which cannot be segregated, have been allocated based on the absolute value of the change due to volume and the change due to rate.

2 Interest income is shown on a fully tax-equivalent basis (non-GAAP).

Provision (Recovery) For Loan Losses

The provision (recovery) for loan losses is determined by management as the amount required to bring the allowance for loan losses to a level considered appropriate to absorb probable incurred net charge-offs inherent in the loan portfolio as of period end. During 2022 a recovery of credit losses of $895 thousand was recognized compared to a 2021 recovery of credit losses of $655 thousand. The recapture of provision for loan losses for the year primarily reflects the improvement in credit quality including the reduction of impaired and adversely classified loans, as well as the improvement in economic indicators including unemployment, residential real estate prices and consumer confidence. Nonperforming loans decreased $832 thousand from 2021 to 2022. See Financial Condition – Allowance for Loan Losses for additional discussion and information relative to the provision for loan losses.

Noninterest Income

 

 

 

YEAR ENDED DECEMBER 31

 

 

 

 

 

 

 

Change from 2021

 

 

 

(Dollars in thousands)

 

2022

 

 

 

Amount

 

 

%

 

 

 

2021

 

Service charges on deposit accounts

$

 

1,174

 

 

$

 

235

 

 

 

25

 

%

$

 

939

 

Trust services

 

 

954

 

 

 

 

(105

)

 

 

(10

)

 

 

 

1,059

 

Debit card interchange fees

 

 

2,105

 

 

 

 

55

 

 

 

3

 

 

 

 

2,050

 

Credit card fees

 

 

677

 

 

 

 

195

 

 

 

40

 

 

 

 

482

 

Gain on sale of loans, including MSRs

 

 

331

 

 

 

 

(1,118

)

 

 

(77

)

 

 

 

1,449

 

Earnings on bank-owned life insurance

 

 

674

 

 

 

 

55

 

 

 

9

 

 

 

 

619

 

Unrealized (loss) gain on equity securities

 

 

(3

)

 

 

 

(31

)

 

 

(111

)

 

 

 

28

 

Other

 

 

799

 

 

 

 

100

 

 

 

14

 

 

 

 

699

 

Total noninterest income

$

 

6,711

 

 

$

 

(614

)

 

 

(8

)

%

$

 

7,325

 

 

 

Noninterest income decreased $614 thousand, or 8%, in 2022 compared to the same period in 2021. Gain on sales of mortgage loans including mortgage servicing rights (“MSRs”) decreased $1.1 million due to fewer sales of real estate mortgage loans into the secondary market as many consumers took advantage of the large mortgage interest rate declines in 2021. The Bank sold $10 million in mortgage loans, including gains, in 2022 as compared to the sale of $47 million of loans in 2021. Trust service revenue decreased $105 thousand with market declines. Service charges on deposits, which are primarily customer overdraft fees, increased $235 thousand in 2022. Debit card interchange fees increased $55 thousand in 2022 compared to 2021 due to volume increases. Credit card interchange income increased $195 thousand as business credit card usage continued to increase. Earnings on bank owned life insurance increased $55 thousand.

 

 

 

19

 

Noninterest Expenses

 

 

 

 

YEAR ENDED DECEMBER 31

 

 

 

 

 

 

 

 

Change from 2021

 

 

 

(Dollars in thousands)

 

 

2022

 

 

 

Amount

 

 

 

%

 

 

 

2021

 

Salaries and employee benefits

 

$

 

13,446

 

 

$

 

847

 

 

 

 

7

 

%

$

 

12,599

 

Occupancy expense

 

 

 

1,085

 

 

 

 

52

 

 

 

 

5

 

 

 

 

1,033

 

Equipment expense

 

 

 

781

 

 

 

 

67

 

 

 

 

9

 

 

 

 

714

 

Professional and director fees

 

 

 

1,551

 

 

 

 

367

 

 

 

 

31

 

 

 

 

1,184

 

Financial institutions tax

 

 

 

779

 

 

 

 

28

 

 

 

 

4

 

 

 

 

751

 

Marketing and public relations

 

 

 

551

 

 

 

 

90

 

 

 

 

20

 

 

 

 

461

 

Software expense

 

 

 

1,429

 

 

 

 

87

 

 

 

 

6

 

 

 

 

1,342

 

Debit card expense

 

 

 

734

 

 

 

 

24

 

 

 

 

3

 

 

 

 

710

 

FDIC insurance

 

 

 

345

 

 

 

 

(133

)

 

 

 

(28

)

 

 

 

478

 

Amortization of intangible assets

 

 

 

—

 

 

 

 

(44

)

 

 

 

(100

)

 

 

 

44

 

Other

 

 

 

2,692

 

 

 

 

(85

)

 

 

 

(3

)

 

 

 

2,777

 

Total noninterest expenses

 

$

 

23,393

 

 

$

 

1,300

 

 

 

 

6

 

%

$

 

22,093

 

 

Noninterest expense increased $1.3 million, or 6%, in 2022 compared to 2021. Salaries and employee benefits increased $847 thousand from increases in base and incentive compensation of $575 thousand. The capitalization of employee costs of loan originations increased the amount recognized in salary expense by $250 thousand in 2022, a result of decreased origination of commercial and mortgage loans. Professional and director fees increased $367 thousand primarily due to an increase in third party assistance with contracting the bank's core vendor, increase of $64 thousand in legal expenses related to loan collections, $50 thousand increase in audit and accounting fees, and $33 thousand increase in director's fees. Marketing and public relations expense increased $90 thousand, or 20%, with increasing market coverage. Software expense increased $87 thousand, or 6%, due to full-year implementation of a new mobile banking platform along with core software provider increases. Equipment expense increased $67 thousand in 2022, as compared to 2021, with increased depreciation expense and equipment maintenance contracts. Occupancy expense increased $52 thousand primarily from depreciation from branch renovations, property taxes and insurance. An increase of $28 thousand in the Ohio financial institutions tax was recognized as capital increased. Debit card expense increased $24 thousand in 2022 due to increased volume. The FDIC insurance assessment decreased $133 thousand, or 28%, with improved credit quality and increased earnings. Other expenses decreased $85 thousand, or 3%.

Income Taxes

The provision for income taxes amounted to $3.2 million in 2022 as compared to $2.6 million in 2021. The slight increase in 2022 resulted from an increase in income. The corporate statutory tax rate was 21% for 2022 and 2021. The effective tax rate in 2022 and 2021 approximates 19%.

FINANCIAL CONDITION

Total assets of the Company were $1.2 billion on December 31, 2022 compared to $1.1 billion on December 31, 2021, representing an increase of $15 million, or 1%. Net loans increased $79 million, or 15%, while investment securities increased $90 million, or 29%, and total cash and cash equivalents decreased $157 million, or 65%. Deposits increased $21 million and short-term borrowings decreased $4 million, while other borrowings from the Federal Home Loan Bank (“FHLB”) decreased by $946 thousand, or 28%.

Securities

Total investment securities increased $90 million, or 29%, to $401 million at year-end 2022. CSB’s portfolio is primarily comprised of agency mortgage-backed securities, obligations of state and political subdivisions, U.S. Treasury notes, other government agencies’ debt, and corporate bonds. Restricted securities consist primarily of FHLB stock.

The Company has no exposure to government-sponsored enterprise preferred stocks, collateralized debt obligations, or trust preferred securities. The Company’s municipal bond portfolio consists of tax-exempt general obligation and revenue bonds. As of December 31, 2022, 73% of such bonds held an S&P or Moody’s investment grade rating, and 27% were non-rated local issues. The municipal portfolio includes a broad spectrum of counties, towns, universities, and school districts with 83% of the portfolio originating in Ohio, and 17% in Pennsylvania. Gross unrealized security losses within the portfolio were 13% of total securities on December 31, 2022, reflecting interest rate increases, not credit downgrades.

During December 2021, investments with an amortized cost of approximately $79 million and a fair value of $77 million were transferred from available-for-sale to held-to-maturity as rising interest rates and a slowing of monthly cash payments were occurring. The transfer included $76 million of U.S. Government agency mortgage-backed securities and $3 million of U.S. Treasury notes. These bonds will still provide liquidity through pledging and for use as collateral against borrowings. No additional transfers to held to maturity were made in 2022, as bonds were assigned their held to maturity classification on their purchase date in 2022.

20

One of the primary functions of the securities portfolio is to provide a source of liquidity and it is structured such that maturities and cash flows provide a portion of the Company’s liquidity needs and asset/liability management requirements.

Loans

Total loans increased $78 million, or 14%, during 2022 with increases in all loan categories. Volume increases were recognized as follows: commercial loans including PPP loans increased $5 million, or 4%, during 2022, with PPP loan forgiveness of $4 million offsetting the increase. Remaining PPP loan balances were $359 thousand as of December 31, 2022. Construction and land development loans increased $9 million, or 20% as several commercial projects were under construction and consumer demand slowed for 1-4 family residential construction at year end. Residential real estate loans increased $26 million, or 15%. Commercial real estate loans increased $37 million, or 19%. Commercial real estate and construction loan demand remained strong, however there was a slowing of commercial loan growth with increased competition from private lenders and excess business liquidity remaining from government stimulus programs.

The Company originated $69 million and $67 million of residential mortgage loans held in the portfolio, including residential construction, conventional 1-4 family, and equity line loans, which were predominately variable rate, in 2022 and 2021, respectively. The increase in interest rates slowed consumer demand for 1-4 family fixed-rate thirty-year residential mortgages which are sold into the secondary market as the Company sold $10 million of mortgages into the secondary market in 2022 as compared to $46 million in 2021. Demand for home equity loans strengthened in 2022, with balances increasing $7 million, as consumers opted to not refinance their lower fixed-rate mortgages. Installment loans increased $300 thousand.

Management anticipates modest economic growth in the Company’s local service areas will continue to improve. Commercial and commercial real estate loans, in aggregate, comprise approximately 58% of the total loan portfolio at year-end 2022 and 2021. Residential real estate loans remained at 31% of the portfolio in 2022 and 2021. Construction and land development loans increased to 9% of the portfolio as loan demand for commercial construction projects increased by $7 million and residential construction loans increased by $2 million, year over year. The Company is well within the respective regulatory guidelines for investment in construction, development, and investment property loans that are not owner occupied.

Most of the Company’s lending activity is with customers primarily located within Holmes, Stark, Tuscarawas and Wayne counties in Ohio. The majority of the Company’s loan portfolio consists of commercial and industrial and commercial real estate loans. See concentration of credit discussion included in Note 3 in the Notes to Consolidated Financial Statements.

21

Nonperforming Assets, Impaired Loans, and Loans Past Due 90 Days or More

Nonperforming assets consist of nonaccrual loans, loans past due 90 days and still accruing, and other real estate acquired through or in lieu of foreclosure. Other impaired loans include certain loans internally classified as substandard or doubtful. Loans are placed on nonaccrual status when they become past due 90 days or more, or when mortgage loans are past due as to principal and interest 120 days or more, unless they are both well secured and in the process of collection.

 

NONPERFORMING ASSETS

 

 

DECEMBER 31

 

 

(Dollars in thousands)

 

 

2022

 

 

 

2021

 

 

Nonaccrual loans

 

 

 

 

 

 

 

 

 

Commercial

 

$

 

—

 

 

$

 

208

 

 

Commercial real estate

 

 

 

92

 

 

 

 

139

 

 

Residential real estate

 

 

 

99

 

 

 

 

367

 

 

Construction & land development

 

 

 

—

 

 

 

 

329

 

 

Consumer

 

 

 

65

 

 

 

 

40

 

 

 

 

 

 

 

 

 

 

 

 

Loans past due 90 days or more and still accruing

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

—

 

 

 

 

5

 

 

Total nonperforming loans

 

 

 

256

 

 

 

 

1,088

 

 

 

 

 

 

 

 

 

 

 

 

Other real estate owned

 

 

 

—

 

 

 

 

—

 

 

Other repossessed assets

 

 

 

—

 

 

 

 

—

 

 

Total nonperforming assets

 

$

 

256

 

 

$

 

1,088

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans to total loans

 

 

 

0.04

 

%

 

 

0.20

 

%

 

Allowance for Loan Losses

The allowance for loan losses is maintained at a level considered by management to be adequate to cover loan losses currently anticipated based on past loss experience, general economic conditions, changes in mix and size of the loan portfolio, information about specific borrower situations, and other factors and estimates which are subject to change over time. Management periodically reviews selected large loans, delinquent and other problem loans, and selected other loans. Collectability of these loans is evaluated by considering the current financial position and performance of the borrower, estimated market value of the collateral, the Company’s collateral position in relationship to other creditors, guarantees, and other potential sources of repayment. Management forms judgments, which are in part subjective, as to the probability of loss and the amount of loss on these loans as well as other loans taken together. The Company’s Allowance for Loan Losses Policy includes, among other items, provisions (recoveries) for classified loans, and a provision (recovery) for the remainder of the portfolio based on historical data, including past charge-offs.

 

During 2022, $689 thousand in nonaccrual loans were collected, $226 thousand were charged-off, $93 thousand were returned to accrual, while $181 thousand new loans entered nonaccrual status.

 

ALLOWANCE FOR LOAN LOSSES

FOR THE YEAR ENDED

 

 

(Dollars in thousands)

 

 

2022

 

 

 

2021

 

 

Net charge-offs (recoveries) as a percentage of average total loans

 

 

 

(0.02

)

%

 

 

—

 

%

Allowance for loan losses as a percentage of total loans

 

 

 

1.09

 

 

 

 

1.39

 

 

Allowance for loan losses to total nonacrrual loans

 

 

 

26.71

 

x

 

 

7.00

 

x

 

 

 

 

 

 

 

 

 

 

Components of the allowance for loan losses:

 

 

 

 

 

 

 

 

 

General reserves

 

$

 

6,834

 

 

$

 

7,396

 

 

Specific reserve allocations

 

 

 

4

 

 

 

 

222

 

 

Total allowance for loan losses

 

$

 

6,838

 

 

$

 

7,618

 

 

 

The allowance for loan losses totaled $6.8 million, or 1.09%, of total loans at year-end 2022 as compared to $7.6 million, or 1.39%, of total loans at year-end 2021. The Bank had net loan recoveries of $115 thousand in 2022 compared to net loan charge-offs of $1 thousand for 2021.

 

The Company maintains an internal watch list on which it places loans where management’s analysis of the borrower’s operating results and financial condition indicates the borrower’s cash flows are inadequate to meet its debt service requirements and loans where there exists an increased risk that such a shortfall may occur. Nonperforming loans, which consist of loans past due 90 days or more and nonaccrual loans, aggregated $256 thousand, or 0.04%, of loans at year-end 2022 compared to $1.1 million, or 0.20%, of loans at year-end 2021. Impaired loans were $1 million at year-end 2022 as compared to $2 million at year-end 2021. Management has assigned loss allocations to absorb the estimated losses on impaired loans. These allocations are included in the total allowance for loan losses balance.

22

Other Assets

Net premises and equipment decreased $452 thousand to $13.4 million at year-end 2022 with depreciation expense exceeding purchases. Total bank-owned life insurance increased from $24 million at year-end 2021 to $24.7 million at year-end 2022 with increasing cash surrender values. There was no other real estate owned on December 31, 2022 or 2021. The Company recognized a net deferred tax asset of $3 million on December 31, 2022 compared to a net deferred tax asset of $325 thousand on December 31, 2021. The increase in the net deferred tax asset is a result of the increase in the gross unrealized losses on available-for-sale securities which is a result of rising interest rates during 2022.

Deposits

The Company’s deposits are obtained primarily from individuals and businesses located in its market area. For deposits, the Company must compete with products offered by other financial institutions, as well as alternative investment options. Demand and savings deposits increased for the year ended 2022, at a lesser growth trajectory following the trillions of government stimulus relief pumped into the economy during the COVID-19 pandemic. Market rates on deposits and cash management products increased throughout the year as liquidity decreased in the industry.

 

 

 

 

December 31

 

 

 

Change from 2021

 

 

(Dollars in thousands)

 

 

2022

 

 

 

2021

 

 

 

Amount

 

 

 

%

 

 

Noninterest-bearing demand

 

$

 

350,283

 

 

$

 

334,346

 

 

$

 

15,937

 

 

 

 

5

 

%

Interest-bearing demand

 

 

 

241,227

 

 

 

 

242,387

 

 

 

 

(1,160

)

 

 

 

—

 

 

Traditional savings

 

 

 

194,918

 

 

 

 

191,836

 

 

 

 

3,082

 

 

 

 

2

 

 

Money market savings

 

 

 

118,908

 

 

 

 

112,803

 

 

 

 

6,105

 

 

 

 

5

 

 

Time deposits in excess of $250,000

 

 

 

28,089

 

 

 

 

26,213

 

 

 

 

1,876

 

 

 

 

7

 

 

Other time deposits

 

 

 

89,992

 

 

 

 

95,162

 

 

 

 

(5,170

)

 

 

 

(5

)

 

Total deposits

 

$

 

1,023,417

 

 

$

 

1,002,747

 

 

$

 

20,670

 

 

 

 

2

 

%

 

Other Funding Sources

The Company obtains additional funds through securities sold under repurchase agreements, overnight borrowings from the FHLB or other financial institutions, and advances from the FHLB. Short-term borrowings, consisting of securities sold under repurchase agreements, decreased $4 million. Other borrowings, consisting of FHLB advances, decreased $946 thousand as the result of principal repayments. All FHLB borrowings on December 31, 2022, have long term maturities with monthly amortizing payments.

CAPITAL RESOURCES

Total shareholders’ equity was $95.9 million at December 31, 2022 compared to $97.3 million on December 31, 2021. This decrease was primarily due to a $10.8 million accumulated other comprehensive loss recognized on the available-for-sale securities portfolio resulting from increasing interest rates. Dividends were paid of $3.5 million and $388 thousand treasury stock was repurchased in 2022, which was partially offset by net income of $13.3 million. The Board of Directors approved a Stock Repurchase Program on February 26, 2021, allowing the repurchase of up to 5% of the Company’s then-outstanding common shares. Repurchased shares are to be held as treasury stock and are available for general corporate purposes. On December 31, 2022, approximately 102 thousand shares could still be repurchased under the current authorized program. Shares repurchased during 2022 totaled 10,448 shares for $388 thousand and shares purchased in 2021 totaled 24,326 shares for $939 thousand.

Effective January 1, 2015, the Federal Reserve adopted final rules implementing Basel III and regulatory capital changes required by the Dodd-Frank Act. The rules apply to both the Company and the Bank. The rules established minimum risk-based and leverage capital requirements for all banking organizations. The rules include: (a) a common equity tier 1 capital ratio of at least 4.5%, (b) a tier 1 capital ratio of at least 6.0%, (c) a minimum total capital ratio of at least 8.0%, and (d) a minimum leverage ratio of 4%. Under the guidelines, capital is compared to the relative risk related to the balance sheet. To derive the risk included in the balance sheet, one of several risk weights is applied to different balance sheet and off-balance sheet assets primarily based on the relative credit risk of the counterparty. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. The rules also place restrictions on the payment of capital distributions, including dividends, and certain discretionary bonus payments to executive officers if the company does not hold a capital conservation buffer of greater than 2.5% composed of common equity tier 1 capital above its minimum risk-based capital requirements. The Company and Bank’s actual and required capital amounts are disclosed in Note 12 to the consolidated financial statements.

Dividends paid by the Bank to CSB are the primary source of funds available to the Company for payment of dividends to shareholders and for other working capital needs. The payment of dividends by the Bank to the Company is subject to restrictions by regulatory authorities, which generally limit dividends to current year net income and the prior two (2) years net retained earnings, as defined by regulation. In addition, dividend payments generally cannot reduce regulatory capital levels below the minimum regulatory guidelines discussed above.

 

23

 

LIQUIDITY

 

 

 

 

December 31

 

 

 

 

 

 

(Dollars in thousands)

 

 

2022

 

 

 

2021

 

 

 

Change
from 2021

 

 

Cash and cash equivalents

 

$

 

86,420

 

 

$

 

243,657

 

 

$

 

(157,237

)

 

Unused lines of credit

 

 

 

122,062

 

 

 

 

107,054

 

 

 

 

15,008

 

 

Unpledged AFS securities at fair market value

 

 

 

134,401

 

 

 

 

108,158

 

 

 

 

26,243

 

 

 

 

$

 

342,883

 

 

$

 

458,869

 

 

$

 

(115,986

)

 

Net deposits and short-term liabilities

 

$

 

1,041,016

 

 

$

 

1,016,821

 

 

$

 

24,195

 

 

Liquidity ratio

 

 

 

32.9

 

%

 

 

47.6

 

%

 

 

 

 

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 CSB’s Asset Liability Committee. The Company was within all Board-approved limits on December 31, 2022, and 2021. Additional sources of liquidity include net income, loan repayments, the availability of borrowings, and adjustments of interest rates to attract deposit accounts.

As summarized in the Consolidated Statements of Cash Flows, the most significant investing activities for the Company in 2022 included net loan originations of $78 million and securities purchases of $144 million, offset by maturities and repayment of securities totaling $38 million. The Company’s financing activities included a $21 million increase in deposits, $4 million in cash dividends paid, and a $4 million decrease in short-term borrowings.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The most significant market risk the Company is exposed to is interest rate risk. The business of the Company and the composition of its balance sheet consist of investments in interest-earning assets (primarily loans and securities), which are funded by interest-bearing liabilities (deposits and borrowings). These financial instruments have varying levels of sensitivity to changes in the market rates of interest, resulting in market risk. None of the Company’s financial instruments are held for trading purposes.

The Board of Directors establishes policies and operating limits with respect to interest rate risk. The Company manages interest rate risk regularly through its Asset Liability Committee. The Committee meets periodically to review various asset and liability management information including, but not limited to, the Company’s liquidity position, projected sources and uses of funds, interest rate risk position, and economic conditions.

Interest rate risk is monitored primarily through the use of an earnings simulation model. The model is highly dependent on various assumptions, which change regularly as the balance sheet and market interest rates change. The earnings simulation model projects change in net interest income resulting from the effect of changes in interest rates. The analysis is performed quarterly over a twenty-four-month horizon. The analysis includes two (2) balance sheet models, one based on a static balance sheet and one on a dynamic balance sheet with projected growth in assets and liabilities. This analysis is performed by estimating the expected cash flows of the Company’s financial instruments using interest rates in effect at year-end 2022 and 2021. Interest rate risk policy limits are tested by measuring the anticipated change in net interest income over a two-year period. The tests assume quarterly ramped increases and decreases in market interest rates over twenty-four month hoizons, as compared to a stable rate environment or base model. The following table reflects the change to net interest income using a dynamic balance sheet for the first twelve-month periods of the twenty-four month horizon.

 

Net Interest Income at Risk

24

 

December 31, 2022

 

 

 

Change In
 Interest Rates
 (Basis Points)

 

 

Net
Interest
Income

 

 

 

Dollar
Change

 

 

Percentage
Change

 

 

Board
Policy
Limits

 

(Dollars in thousands)

 

 

+ 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

 

 

 

+ 400

 

 

 

$

 

28,632

 

 

$

 

1,499

 

 

 

5.5

 

%

± 25

%

 

 

 

+ 300

 

 

 

 

 

28,283

 

 

 

 

1,150

 

 

 

4.2

 

 

± 15

 

 

 

 

+ 200

 

 

 

 

 

27,924

 

 

 

 

791

 

 

 

2.9

 

 

± 10

 

 

 

 

+ 100

 

 

 

 

 

27,523

 

 

 

 

390

 

 

 

1.4

 

 

± 5

 

 

 

 

 

0

 

 

 

 

 

27,133

 

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

– 100

 

 

 

 

 

26,504

 

 

 

 

(629

)

 

 

(2.3

)

 

± 5

 

 

 

 

– 200

 

 

 

 

 

25,714

 

 

 

 

(1,419

)

 

 

(5.2

)

 

± 10

 

Management reviews Net Interest Income at Risk with the Board on a periodic basis. The Company was within all Board-approved limits at December 31, 2022 and 2021 for the first twelve-month periods of the twenty-four month horizon.

Economic Value of Equity at Risk

 

 

December 31, 2022

Change In
Interest Rates
(Basis Points)

Percentage
Change

 

 

Board
Policy
Limits

 

 

+ 400

 

 

13.2

 

%

± 35

%

 

+ 300

 

 

11.2

 

 

± 30

 

 

+ 200

 

 

8.5

 

 

± 20

 

 

+ 100

 

 

4.8

 

 

± 15

 

 

– 100

 

 

(6.3

)

 

± 15

 

 

– 200

 

 

(14.5

)

 

± 20

 

 

– 300

 

 

(25.4

)

 

± 30

 

 

– 400

 

 

(39.4

)

 

± 35

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

+ 400

 

 

40.3

 

%

± 35

%

 

+ 300

 

 

33.0

 

 

± 30

 

 

+ 200

 

 

24.4

 

 

± 20

 

 

+ 100

 

 

13.8

 

 

± 15

 

 

– 100

 

 

(18.4

)

 

± 15

 

 

– 200

 

n/a

 

 

± 20

 

The economic value of equity is calculated by subjecting the period-end balance sheet to changes in interest rates and measuring the impact of the changes on the values of the assets and liabilities. Hypothetical changes in interest rates are then applied to the financial instruments. Then the cash flows and fair values are again estimated using these hypothetical rates. For the net interest income estimates, the hypothetical rates are applied to the financial instruments based on the assumed cash flows.

Management periodically measures and reviews the economic value of equity at risk with the Board. As of December 31, 2022, the percentage change of the market value of equity was outside of the board policy limit in the -400 basis point scenario and as of December 31, 2021, the percentage change was outside the board policy limits in the +200 through +400 basis point rate scenarios as well as the -100 basis point change. In the rising rate scenarios, the exceptions are positive as the market value of equity increases as interest rates increase. The technical fails have a favorable impact to equity in the rising rate scenarios. In the declining rate scenarios in 2022 and 2021, the duration of liabilities remains high and loan prepayment speeds increase causing decreases in the market value of equity of (39.4)% in the -400 basis point rate scenario as of December 31, 2022 and (18.4)% in the -100 basis point rate scenario as of December 31, 2021.

SIGNIFICANT ASSUMPTIONS AND OTHER CONSIDERATIONS

25

The above analysis is based on numerous assumptions, including relative levels of market interest rates, loan prepayments, and reactions of depositors to changes in interest rates and this should not be relied upon as being indicative of actual results. Further, the analysis does not contemplate all actions the Company may undertake in response to changes in interest rates.

U.S. Treasury securities, obligations of U.S. Government corporations and agencies, obligations of states and political subdivisions will generally repay at their stated maturity or if callable, prior to their final maturity date. Mortgage-backed security payments increase when interest rates are low and decrease when interest rates rise. Most of the Company’s loans permit the borrower to prepay the principal balance prior to maturity without penalty. The likelihood of prepayment depends on a number of factors: current interest rate and interest rate index (if any) on the loan, the financial ability of the borrower to refinance, the economic benefit to be obtained from refinancing, availability of refinancing at attractive terms, as well as economic conditions in specific geographic areas, which affect the sales and price levels of residential and commercial property. In a changing interest rate environment, prepayments may increase or decrease on fixed and adjustable-rate loans depending on the current relative levels and expectations of future short-term and long-term interest rates. Prepayments on adjustable-rate loans generally increase when long-term interest rates fall or are at historically low levels relative to short-term interest rates, thus making fixed rate loans more desirable. While savings and checking deposits generally may be withdrawn upon the customer’s request without prior notice, a continuing relationship with customers resulting in future deposits and withdrawals is generally predictable, leading to a dependable and uninterrupted source of funds. Time deposits generally have early withdrawal penalties, which discourage customer withdrawal prior to maturity. Short-term borrowings have fixed maturities. Certain advances from the FHLB carry prepayment penalties and are expected to be repaid in accordance with their contractual terms.

 

FAIR VALUE MEASUREMENTS

The Company discloses the estimated fair value of its financial instruments on December 31, 2022, and 2021 in Note 15 to the Consolidated Financial Statements.

OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS, AND CONTINGENT LIABILITIES AND COMMITMENTS

The following table summarizes the Company’s loan commitments, including letters of credit, as of December 31, 2022:

 

 

Amount of Commitment to Expire Per Period

 

(Dollars in thousands)
Type of Commitment

 

 

Total
Amount

 

 

 

Less than
1 year

 

 

 

1 to 3
Years

 

 

 

3 to 5
Years

 

 

 

Over 5
Years

 

Commercial lines of credit

 

$

 

152,607

 

 

$

 

129,332

 

 

$

 

18,363

 

 

$

 

4,847

 

 

$

 

65

 

Commercial real estate

 

 

 

4,416

 

 

 

 

4,366

 

 

 

 

—

 

 

 

 

50

 

 

 

 

—

 

Residential real estate lines of credit

 

 

 

77,855

 

 

 

 

2,912

 

 

 

 

10,066

 

 

 

 

14,937

 

 

 

 

49,940

 

Construction

 

 

 

16,268

 

 

 

 

12,973

 

 

 

 

3,295

 

 

 

 

—

 

 

 

 

—

 

Consumer lines of credit

 

 

 

596

 

 

 

 

596

 

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

Credit card lines

 

 

 

7,465

 

 

 

 

7,465

 

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

Overdraft privilege

 

 

 

7,215

 

 

 

 

7,215

 

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

Letters of credit

 

 

 

1,376

 

 

 

 

1,245

 

 

 

 

105

 

 

 

 

26

 

 

 

 

—

 

Total commitments

 

$

 

267,798

 

 

$

 

166,104

 

 

$

 

31,829

 

 

$

 

19,860

 

 

$

 

50,005

 

All lines of credit represent either fee-paid or legally binding loan commitments for the loan categories noted. Letters of credit are also included in the amounts noted in the table since the Company requires each letter of credit be supported by a loan agreement. The commercial and consumer lines represent both unsecured and secured obligations. The real estate lines are secured by mortgages on residential property. It is anticipated that a significant portion of these lines will expire without being drawn upon.

The following table summarizes the Company’s other contractual obligations, exclusive of interest, as of December 31, 2022:

 

 

Payment Due by Period

 

(Dollars in thousands)
Contractual Obligations

 

 

Total
Amount

 

 

 

Less
than 1
year

 

 

 

1 to 3
Years

 

 

 

3 to 5
Years

 

 

 

Over 5
Years

 

Total time deposits

 

$

 

118,081

 

 

$

 

66,598

 

 

$

 

49,606

 

 

$

 

1,877

 

 

$

 

—

 

Short-term borrowings

 

 

 

32,550

 

 

 

 

32,550

 

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

Other borrowings

 

 

 

2,461

 

 

 

 

707

 

 

 

 

837

 

 

 

 

457

 

 

 

 

460

 

Operating leases

 

 

 

326

 

 

 

 

92

 

 

 

 

178

 

 

 

 

56

 

 

 

 

—

 

Total obligations

 

$

 

153,418

 

 

$

 

99,947

 

 

$

 

50,621

 

 

$

 

2,390

 

 

$

 

460

 

The other borrowings noted in the preceding table represent borrowings from the FHLB. The notes require payment of interest on a monthly basis with principal due in monthly installments. The obligations bear stated fixed interest rates and stipulate a prepayment penalty if the note’s interest rate exceeds the current market rate for similar borrowings at the time of repayment. As the notes mature, the Company evaluates the liquidity and interest rate circumstances at that time to determine whether to pay off or renew the note. The evaluation process typically includes: the strength of current and projected customer loan demand, the Company’s federal funds sold or purchased position, projected cash flows from

26

maturing investment securities, the current and projected market interest rate environment, local and national economic conditions, and customer demand for the Company’s deposit product offerings.

CRITICAL ACCOUNTING POLICIES

The Company’s Consolidated Financial Statements are prepared in accordance with U.S. Generally Accepted Accounting Principles and follow general practices within the commercial banking industry. Application of these principles requires management to make estimates, assumptions, and judgments affecting the amounts reported in the financial statements. These estimates, assumptions, and judgments are based upon the information available as of the date of the financial statements.

The most significant accounting policies followed by the Company are presented in Note 1- Summary of Significant Accounting Policies. These policies, along with the other disclosures presented in the Notes to Consolidated Financial Statements and the 2022 Financial Review, provide information about how significant assets and liabilities are valued in the financial statements and how those values are determined. Management has identified the other-than-temporary impairment of securities, allowance for loan losses, goodwill, and the fair value of financial instruments as the accounting areas requiring the most subjective and complex estimates, assumptions, and judgments and, as such, could be the most subject to revision as new information becomes available.

Securities are evaluated periodically to determine whether a decline in their value is other-than-temporary. Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine whether the loss in value is other-than-temporary. The term “other-than-temporary” is not intended to indicate a permanent decline but indicates that the prospect for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

As previously noted in the section entitled Allowance for Loan Losses, management performs an analysis to assess the adequacy of its allowance for loan losses. This analysis encompasses a variety of factors including: the potential loss exposure for individually reviewed loans, the historical loss experience, the volume of nonperforming loans (i.e., loans in nonaccrual status or past due 90 days or more), and loans past due 30 to 89 days, any significant changes in lending or loan review staff, an evaluation of current and future economic conditions, any significant changes in the volume or mix of loans within each category, a review of the significant concentrations of credit, and any legal, competitive, or regulatory concerns.

The Company accounts for business combinations using the acquisition method of accounting. Goodwill and intangible assets with indefinite useful lives are not amortized. Intangible assets with finite useful lives are amortized using accelerated methods over their estimated weighted-average useful lives, approximating ten years.

The Company groups financial assets and financial liabilities measured at fair value in three (3) levels based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value. Level I valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. Level II valuations are for instruments traded in less active dealer or broker markets and incorporate values obtained for identical or comparable instruments. Level III valuations are derived from other valuation methodologies, including discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level III valuations incorporate certain assumptions and projections in determining the fair value assigned to each instrument.

IMPACT OF INFLATION AND CHANGING PRICES

The Consolidated Financial Statements and related data presented herein have been prepared in accordance with U.S. Generally Accepted Accounting Principles, requiring measurement of financial position, and results of operations primarily in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. Most assets and liabilities of the Company are monetary in nature. Therefore, interest rates have a more significant impact on the Company’s performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or magnitude as prices of goods and services. The liquidity, maturity structure, and quality of the Company’s assets and liabilities are critical to maintenance of acceptable performance levels.

COMMON STOCK AND SHAREHOLDER INFORMATION

Common shares of the Company are not traded on an established market. Shares are traded on the OTC market through broker/ dealers under the symbol “CSBB” and through private transactions. The table below represents the range of high and low prices paid for transactions known to the Company. Management does not have knowledge of prices paid on all transactions. Because of the lack of an established market, these prices may not reflect the prices at which stock would trade in an active market. These quotations reflect interdealer prices, without mark-up, mark-down, or commission and may not represent actual transactions. The table specifies cash dividends declared by the Company to its shareholders during 2022 and 2021. No assurances can be given that future dividends will be declared, or if declared, what the amount of any such dividends

27

will be. Additional information concerning restrictions over the payment of dividends is included in Note 12 of the Consolidated Financial Statements.

Quarterly Common Stock Price and Dividend Data

Quarter Ended

 

 

High

 

 

 

Low

 

 

 

Dividends
Declared
Per Share

 

 

 

Dividends
Declared

 

March 31, 2022

 

$

 

39.60

 

 

$

 

37.50

 

 

$

 

0.00

 

 

$

 

—

 

June 30, 2022

 

 

 

43.45

 

 

 

 

36.50

 

 

 

 

0.62

 

 

 

 

1,685,175

 

September 30, 2022

 

 

 

40.50

 

 

 

 

37.00

 

 

 

 

0.33

 

 

 

 

893,500

 

December 31, 2022

 

 

 

43.00

 

 

 

 

35.02

 

 

 

 

0.35

 

 

 

 

947,652

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2021

 

$

 

38.50

 

 

$

 

36.11

 

 

$

 

0.30

 

 

$

 

822,705

 

June 30, 2021

 

 

 

39.00

 

 

 

 

37.10

 

 

 

 

0.30

 

 

 

 

820,273

 

September 30, 2021

 

 

 

39.98

 

 

 

 

36.65

 

 

 

 

0.31

 

 

 

 

844,912

 

December 31, 2021

 

 

 

39.99

 

 

 

 

37.50

 

 

 

 

0.31

 

 

 

 

842,587

 

As of December 31, 2022, the Company had 1,082 shareholders of record and 2,707,576 outstanding shares of common stock.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Information contained in the section captioned, “Quantitative and Qualitative Disclosures about Market Risk” located in Item 7 MD&A is incorporated by reference herein.

 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

REPORT ON MANAGEMENT’S ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING

 

The management of CSB Bancorp, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is designed to provide reasonable assurance that our published financial statements are fairly presented, in all material respects, in conformity with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted the required assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022. Management’s assessment did not identify any material weaknesses in the Company’s internal control over financial reporting. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 2013 Internal Control-Integrated Framework. Based upon this assessment, management believes that the Company’s internal control over financial reporting is effective as of December 31, 2022.

 

 

 

 

 

 

 

img41540282_1.jpg 

 

 

 

img41540282_2.jpg 

Eddie L. Steiner

 

 

 

        Paula J. Meiler

President,

 

 

 

        Senior Vice President,

Chief Executive Officer

 

 

 

        Chief Financial Officer

 

 

 

28

 

img41540282_3.jpg 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of CSB Bancorp, Inc.

 

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of CSB Bancorp, Inc. and subsidiaries (the “Company”) as of December 31, 2022 and 2021; the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the years then ended; and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent, with respect to the Company, in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Audit Committee and that: (1) relate to accounts or disclosures that are material to the financial statements; and (2) involve our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter, in any way, our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

29

 

img41540282_4.jpg 

Crititcal Audit Matters (continued)

Allowance for Loan Losses (ALL) – Qualitative Factors

Description of the Matter

The Company’s loan portfolio totaled $627 million as of December 31, 2022, and the associated ALL was $6.8 million. As discussed in Notes 1 and 3 to the consolidated financial statements, determining the amount of the ALL requires significant judgment about the collectability of loans, which includes an assessment of historical loss experience within each risk category of loans, qualitative adjustment to those historical loss allocations, and testing of certain commercial loans for impairment. Management applies qualitative adjustments to the historical loss rate to reflect the inherent losses that exist in the loan portfolio at the balance sheet date that are not reflected in the historical loss experience. Qualitative adjustments are made based upon changes in lending policies and practices, economic conditions, changes in the loan portfolio mix, trends in loan delinquencies and classified loans, collateral values, concentrations of credit risk for the commercial loan
portfolios, and other specific industry factors.

We identified these qualitative adjustments within the ALL as critical audit matters because they involve a high degree of subjectivity and are highly difficult to estimate. In turn, auditing management’s judgments regarding the qualitative factors applied in the ALL calculation involved a high degree of subjectivity.

How We Addressed the Matter in Our Audit

We gained an understanding of the Company’s process for establishing the ALL, including the qualitative adjustments made to the ALL. We evaluated the design and tested the operating effectiveness of controls over the Company’s ALL process, which included, among others, management’s review and approval controls designed to assess the need and level of qualitative adjustments to the ALL, as well as the reliability of the data utilized to support management’s assessment. To test the qualitative adjustments, we evaluated the appropriateness of management’s methodology and assessed whether all relevant risks were reflected in the ALL.

Regarding the measurement of the qualitative adjustments, we evaluated the completeness, accuracy, and relevance of the data and inputs utilized in management’s estimate. For example, we compared the inputs and data used in the estimate to third-party macroeconomic data, and other internal and external data points, while considering the existence of new or contrary information. Furthermore, we analyzed the changes in the components of the qualitative reserves relative to changes in the supporting external or internal data. We assessed the reasonableness of the factors from both a directional perspective and from an overall magnitude perspective as compared to the underlying data. We also compared the level of the Company’s ALL reserves to a peer group (adjusted for differences in credit quality) to gain additional evidence of the reasonableness of the magnitude of the ALL overall.

 

We have served as the Company’s auditor since 2005.

 

img41540282_5.jpg 

 

Cranberry Township, Pennsylvania

March 16, 2023

30

 

CONSOLIDATED BALANCE SHEETS

At December 31, 2022 and 2021

 

(Dollars in thousands, except per share data)

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

Cash and due from banks

 

$

19,911

 

 

$

19,543

 

Interest-earning deposits in other banks

 

 

66,509

 

 

 

224,114

 

Total cash and cash equivalents

 

 

86,420

 

 

 

243,657

 

 

 

 

 

 

 

 

Securities

 

 

 

 

 

 

Available-for-sale, at fair value

 

 

150,069

 

 

 

131,708

 

Held-to-maturity; fair value of $211,954 in 2022 and $174,528 in 2021

 

 

247,401

 

 

 

174,808

 

Equity securities

 

 

244

 

 

 

115

 

Restricted stock, at cost

 

 

3,430

 

 

 

4,614

 

Total securities

 

 

401,144

 

 

 

311,245

 

 

 

 

 

 

 

 

Loans held for sale

 

 

52

 

 

 

231

 

 

 

 

 

 

 

 

Loans

 

 

627,171

 

 

 

549,154

 

Less allowance for loan losses

 

 

6,838

 

 

 

7,618

 

Net loans

 

 

620,333

 

 

 

541,536

 

 

 

 

 

 

 

 

Premises and equipment, net

 

 

13,414

 

 

 

13,866

 

Goodwill

 

 

4,728

 

 

 

4,728

 

Bank-owned life insurance

 

 

24,709

 

 

 

24,035

 

Accrued interest receivable and other assets

 

 

8,308

 

 

 

4,941

 

TOTAL ASSETS

 

$

1,159,108

 

 

$

1,144,239

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

Noninterest-bearing

 

$

350,283

 

 

$

334,346

 

Interest-bearing

 

 

673,134

 

 

 

668,401

 

Total deposits

 

 

1,023,417

 

 

 

1,002,747

 

 

 

 

 

 

 

 

Short-term borrowings

 

 

32,550

 

 

 

36,530

 

Other borrowings

 

 

2,461

 

 

 

3,407

 

Accrued interest payable and other liabilities

 

 

4,760

 

 

 

4,240

 

Total liabilities

 

 

1,063,188

 

 

 

1,046,924

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Common stock, $6.25 par value. Authorized 9,000,000 shares; issued
   2,980,602 shares; and outstanding 2,707,576 shares in 2022 and 2,718,024 in 2021

 

 

18,629

 

 

 

18,629

 

Additional paid-in capital

 

 

9,815

 

 

 

9,815

 

Retained earnings

 

 

86,502

 

 

 

76,715

 

Treasury stock at cost: 273,026 shares in 2022, 262,578 shares in 2021

 

 

(6,107

)

 

 

(5,719

)

Accumulated other comprehensive loss

 

 

(12,919

)

 

 

(2,125

)

Total shareholders’ equity

 

 

95,920

 

 

 

97,315

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

1,159,108

 

 

$

1,144,239

 

These consolidated financial statements should be read in connection with the accompanying notes to the consolidated financial statements.

 

 

31

 

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, 2022 and 2021

(Dollars in thousands, except per share data)

 

2022

 

 

2021

 

INTEREST AND DIVIDEND INCOME

 

 

 

 

 

 

Loans, including fees

 

$

26,015

 

 

$

26,124

 

Taxable securities

 

 

6,665

 

 

 

2,613

 

Nontaxable securities

 

 

436

 

 

 

455

 

Other

 

 

1,703

 

 

 

337

 

Total interest and dividend income

 

 

34,819

 

 

 

29,529

 

INTEREST EXPENSE

 

 

 

 

 

 

Deposits

 

 

2,335

 

 

 

1,884

 

Short-term borrowings

 

 

106

 

 

 

53

 

Other borrowings

 

 

55

 

 

 

75

 

Total interest expense

 

 

2,496

 

 

 

2,012

 

NET INTEREST INCOME

 

 

32,323

 

 

 

27,517

 

 

 

 

 

 

 

 

RECOVERY FOR LOAN LOSSES

 

 

(895

)

 

 

(655

)

Net interest income, after recovery for loan losses

 

 

33,218

 

 

 

28,172

 

NONINTEREST INCOME

 

 

 

 

 

 

Service charges on deposit accounts

 

 

1,174

 

 

 

939

 

Trust services

 

 

954

 

 

 

1,059

 

Debit card interchange fees

 

 

2,105

 

 

 

2,050

 

Credit card fees

 

 

677

 

 

 

482

 

Gain on sale of loans, net

 

 

331

 

 

 

1,449

 

Earnings on bank owned life insurance

 

 

674

 

 

 

619

 

Unrealized (loss) gain on equity securities

 

 

(3

)

 

 

28

 

Other income

 

 

799

 

 

 

699

 

Total noninterest income

 

 

6,711

 

 

 

7,325

 

NONINTEREST EXPENSES

 

 

 

 

 

 

Salaries and employee benefits

 

 

13,446

 

 

 

12,599

 

Occupancy expense

 

 

1,085

 

 

 

1,033

 

Equipment expense

 

 

781

 

 

 

714

 

Professional and director fees

 

 

1,551

 

 

 

1,184

 

Financial institutions tax

 

 

779

 

 

 

751

 

Marketing and public relations

 

 

551

 

 

 

461

 

Software expense

 

 

1,429

 

 

 

1,342

 

Debit card expense

 

 

734

 

 

 

710

 

Amortization of intangible assets

 

 

—

 

 

 

44

 

FDIC insurance expense

 

 

345

 

 

 

478

 

Other expenses

 

 

2,692

 

 

 

2,777

 

Total noninterest expenses

 

 

23,393

 

 

 

22,093

 

INCOME BEFORE INCOME TAXES

 

 

16,536

 

 

 

13,404

 

FEDERAL INCOME TAX PROVISION

 

 

3,223

 

 

 

2,567

 

NET INCOME

 

$

13,313

 

 

$

10,837

 

EARNINGS PER SHARE

 

 

 

 

 

 

Basic and diluted

 

$

4.91

 

 

$

3.97

 

These consolidated financial statements should be read in connection with the accompanying notes to the consolidated financial statements.

32

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31, 2022 and 2021

 

(Dollars in thousands)

 

2022

 

 

2021

 

Net income

 

$

13,313

 

 

$

10,837

 

Other comprehensive loss

 

 

 

 

 

 

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

 

 

(13,952

)

 

 

(2,050

)

Unrealized loss on securities transferred from available-for-sale to held-to-maturity

 

 

—

 

 

 

(1,976

)

Amortization of held-to-maturity discount resulting from transfer

 

 

289

 

 

 

86

 

Income tax effect at 21%

 

 

2,869

 

 

 

829

 

Other comprehensive loss

 

 

(10,794

)

 

 

(3,111

)

Total comprehensive income

 

$

2,519

 

 

$

7,726

 

These consolidated financial statements should be read in connection with the accompanying notes to the consolidated financial statements.

 

33

 

CONSOLIDATED STATEMENTS OF CHANGES IN

SHAREHOLDERS’ EQUITY

Years Ended December 31, 2022 and 2021

(Dollars in thousands, except per share data)

 

Common
Stock

 

 

Additional
Paid-In
Capital

 

 

Retained
Earnings

 

 

Treasury
Stock

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Total

 

BALANCE AT DECEMBER 31, 2020

 

$

18,629

 

 

$

9,815

 

 

$

69,209

 

 

$

(4,780

)

 

$

986

 

 

$

93,859

 

Net income

 

 

—

 

 

 

—

 

 

 

10,837

 

 

 

—

 

 

 

—

 

 

 

10,837

 

Other comprehensive loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(3,111

)

 

 

(3,111

)

Purchase of 24,326 treasury shares

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(939

)

 

 

—

 

 

 

(939

)

Cash dividends declared, $1.22 per share

 

 

—

 

 

 

—

 

 

 

(3,331

)

 

 

—

 

 

 

—

 

 

 

(3,331

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT DECEMBER 31, 2021

 

$

18,629

 

 

$

9,815

 

 

$

76,715

 

 

$

(5,719

)

 

$

(2,125

)

 

$

97,315

 

Net income

 

 

—

 

 

 

—

 

 

 

13,313

 

 

 

—

 

 

 

—

 

 

 

13,313

 

Other comprehensive loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(10,794

)

 

 

(10,794

)

Purchase of 10,448 treasury shares

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(388

)

 

 

—

 

 

 

(388

)

Cash dividends declared, $1.30 per share

 

 

—

 

 

 

—

 

 

 

(3,526

)

 

 

—

 

 

 

—

 

 

 

(3,526

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT DECEMBER 31, 2022

 

$

18,629

 

 

$

9,815

 

 

$

86,502

 

 

$

(6,107

)

 

$

(12,919

)

 

$

95,920

 

These consolidated financial statements should be read in connection with the accompanying notes to the consolidated financial statements.

34

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2022 and 2021

 

(Dollars in thousands)

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net income

 

$

13,313

 

 

$

10,837

 

Adjustments to reconcile net income to net cash provided by
   operating activities:

 

 

 

 

 

 

Depreciation and amortization of premises, equipment
   and software

 

 

960

 

 

 

890

 

Deferred income taxes

 

 

(135

)

 

 

(131

)

Recovery of provision for loan losses

 

 

(895

)

 

 

(655

)

Gain on sale of loans, net

 

 

(331

)

 

 

(1,449

)

Security amortization, net of accretion

 

 

1,066

 

 

 

1,288

 

Secondary market loan sale proceeds

 

 

10,100

 

 

 

46,783

 

Originations of secondary market loans held-for-sale

 

 

(9,034

)

 

 

(42,394

)

Earnings on bank-owned life insurance

 

 

(674

)

 

 

(619

)

Effects of changes in operating assets and liabilities:

 

 

 

 

 

 

Net deferred loan fees (costs)

 

 

(106

)

 

 

(386

)

Accrued interest receivable

 

 

(874

)

 

 

523

 

Accrued interest payable

 

 

61

 

 

 

(33

)

Other assets and liabilities

 

 

940

 

 

 

363

 

Net cash provided by operating activities

 

$

14,391

 

 

$

15,017

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Securities:

 

 

 

 

 

 

Proceeds from repayments, available-for-sale

 

$

15,917

 

 

$

47,925

 

Proceeds from repayments, held-to-maturity

 

 

21,827

 

 

 

8,660

 

Purchases, available-for-sale

 

 

(48,885

)

 

 

(46,267

)

Purchases, held-to-maturity

 

 

(94,541

)

 

 

(122,580

)

Purchases, equity securities

 

 

(131

)

 

 

—

 

Redemption of restricted stock

 

 

1,184

 

 

 

—

 

Purchase of bank-owned life insurance

 

 

—

 

 

 

(2,000

)

Loan originations and payments, net

 

 

(78,450

)

 

 

58,374

 

Purchases of premises and equipment

 

 

(366

)

 

 

(1,989

)

Purchases of software

 

 

(13

)

 

 

(108

)

Net cash used in investing activities

 

$

(183,458

)

 

$

(57,985

)

These consolidated financial statements should be read in connection with the accompanying notes to the consolidated financial statements.

35

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2022 and 2021

 

(Dollars in thousands)

 

2022

 

 

2021

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Net change in deposits

 

$

20,670

 

 

$

111,185

 

Net change in short-term borrowings

 

 

(3,980

)

 

 

(685

)

Repayment of other borrowings

 

 

(946

)

 

 

(1,257

)

Cash dividends paid

 

 

(3,526

)

 

 

(3,331

)

Purchase of treasury stock

 

 

(388

)

 

 

(939

)

Net cash provided by financing activities

 

$

11,830

 

 

$

104,973

 

 

 

 

 

 

 

 

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

 

 

(157,237

)

 

 

62,005

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

 

 

243,657

 

 

 

181,652

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT END OF YEAR

 

$

86,420

 

 

$

243,657

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

Interest

 

$

2,435

 

 

$

2,045

 

Income taxes

 

 

2,710

 

 

 

2,425

 

 

 

 

 

 

 

 

Noncash investing activities:

 

 

 

 

 

 

Transfer of securities from available-for-sale to held-to-maturity

 

 

—

 

 

 

77,194

 

These consolidated financial statements should be read in connection with the accompanying notes to the consolidated financial statements.

36

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CSB Bancorp, Inc. (the “Company” or “CSB”) was incorporated in 1991 in the State of Ohio, and is a registered bank holding company. The Company’s wholly-owned subsidiaries are The Commercial and Savings Bank of Millersburg, Ohio (the “Bank”) and CSB Investment Services, LLC. The Company, through its subsidiaries, operates in one industry segment, the commercial banking industry.

The Bank, an Ohio-chartered bank organized in 1879, provides financial services through its sixteen Banking Centers located in Holmes, Stark, Tuscarawas and Wayne counties. These communities are the source of a substantial majority of the Bank’s deposit, loan, and trust activities. The majority of the Bank’s income is derived from commercial and retail lending activities, and investments in securities. Its primary deposit products are checking, savings, and term certificate accounts. Its primary lending products are residential real estate, commercial real estate, commercial, and installment loans. Substantially, all loans are secured by specific items of collateral including business assets, consumer assets, and real estate. Commercial loans are expected to be repaid with cash flow from business operations. Real estate loans are secured by both residential and commercial real estate.

Significant accounting policies followed by the Company are presented below:

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 affecting the reported amounts of assets and liabilities as of the date of the Consolidated Balance Sheets and reported amounts of revenues and expenses during each reporting period. Actual results could differ from those estimates. The most significant estimates susceptible to change in the near term relate to management’s determination of the allowance for loan losses and the fair value of financial instruments.

PRINCIPLES OF CONSOLIDATION

The Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

The Bank has a trust department and the assets held by the Bank in fiduciary or agency capacities for its customers are not included in the Consolidated Balance Sheets as such items are not assets of the Bank.

CASH AND CASH EQUIVALENTS

For purposes of the Consolidated Statements of Cash Flows, cash and cash equivalents include cash on hand and amounts due from banks which mature overnight or within ninety days.

CASH RESERVE REQUIREMENTS

Effective, March 26, 2020, the Federal Reserve reduced reserve requirements to zero for all depository institutions. There were no required federal reserves included in “Cash and due from banks” at December 31, 2022 or December 31, 2021. When required, reserves are used to facilitate the implementation of monetary policy by the Federal Reserve System. The required reserves are computed by applying prescribed ratios to the classes of average deposit balances. These are held in the form of vault cash and depository amount held with the Federal Reserve Bank. Federal law prohibits the Company from borrowing from the Bank unless the loans are secured by specific collateral.

DEBT SECURITIES

At the time of purchase all debt securities are evaluated and designated as available-for-sale or held-to-maturity. Securities designated as available-for-sale are carried at fair value with unrealized gains and losses on such securities, net of applicable income taxes, recognized as other comprehensive income or loss. During 2021, approximately $77 million par value U.S. Treasuries and mortgage-backed securities were transferred from available-for-sale to held-to-maturity. Held-to-maturity securities are carried at their fair value on the date of transfer or at amortized cost if security purchases are designated as held-to-maturity. On December 31, 2022, 62% of the total investment portfolio was classified as held-to-maturity. The amortized cost of debt securities is adjusted for the accretion of discounts to maturity and the amortization of premiums to the earlier of a bond’s call date or maturity based on the interest method. Such amortization and accretion is included in interest and dividends on securities.

Gains and losses on sales of securities are accounted for on a trade date basis, using the specific identification method, and are included in noninterest income. Securities are periodically reviewed for other-than-temporary impairment based upon a number of factors, including, but not limited to: the length of time and extent to which the market value has been less than cost, the financial condition of the underlying issuer, the receipt of principal and interest according to the contractual terms, the ability of the issuer to meet contractual obligations, the likelihood of the security’s ability to recover any decline in its market value and management’s intent, and ability to hold the security for a period of time sufficient to allow for a recovery in market value. Among the factors considered in determining management’s intent and ability to hold the security, is a review of the Company’s capital adequacy, interest rate risk position, and liquidity. The assessment of a security’s ability to recover any decline in market value, the ability of the issuer to meet contractual obligations, and management’s intent and ability to hold the security requires

37

 

considerable judgment. A decline in value considered to be other-than-temporary, is recorded as a loss within noninterest income in the Consolidated Statements of Income.

 

EQUITY SECURITIES

Equity securities are held at fair value. Holding gains and losses are recorded in income. Dividends on equity securities are recognized as income when earned.

RESTRICTED STOCK

Investments in FHLB and Federal Reserve Bank stock are classified as restricted stock, carried at cost, and evaluated for impairment. The Bank is required to maintain an investment in common stock of the FHLB and Federal Reserve Bank because the Bank is a member of the FHLB and the Federal Reserve System.

LOANS

Loans that management has the intent and ability to hold for the foreseeable future, until maturity, or pay-off, generally are stated at their outstanding principal amount, adjusted for charge-offs, the allowance for loan losses, and any deferred loan fees or costs on originated loans. Interest is accrued based upon the daily outstanding principal balance. Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield over the life of the related loan.

Interest income is not reported when full repayment is in doubt, typically when the loan is impaired, or payments are past due over 90 days. All interest accrued, but not collected for loans placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

At origination, a determination is made whether a loan will be held in the Bank’s portfolio or is intended for sale in the secondary market. Mortgage loans held for sale are recorded at the lower of the aggregate cost or fair value. Generally, these loans are held for sale for less than three (3) days. The Bank recognizes gains and losses on sales of the loans held for sale when the sale is completed.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect borrowers’ ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans experiencing insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial, commercial real estate, construction loans, and troubled debt restructurings by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual residential real estate or consumer loans for impairment disclosures.

OTHER REAL ESTATE OWNED

Other real estate acquired through or in lieu of foreclosure is initially recorded at fair value, less estimated costs to sell, and any loan balance in excess of fair value is charged to the allowance for loan losses. Subsequent valuations are periodically performed and write-downs are included in noninterest expenses, as well as expenses related to maintenance of the properties. Gains or losses upon sale are recorded through noninterest income. There was no other real estate owned on December 31, 2022 or 2021.

PREMISES AND EQUIPMENT

Premises and equipment are stated at cost, less accumulated depreciation and amortization. Land is carried at cost. Depreciation and amortization are determined based on the estimated useful lives of the individual assets (typically 20 to 40 years for buildings and 3 to 10 years for equipment) and is computed using the straight-line method. Leasehold improvements are amortized over the useful life of the asset, or lease

38

 

term, whichever is shorter. Expenses for maintenance and repairs are charged against income as incurred. Costs of major additions and improvements are capitalized.

GOODWILL

Goodwill is not amortized, but is tested for impairment at least annually in the fourth quarter or more frequently if indicators of impairment are present. The evaluation for impairment involves comparing the current fair value of the reporting unit to the carrying value, including goodwill. If the current fair value of a reporting unit exceeds the carrying value, no additional testing is required, and an impairment loss is not recorded. The Company uses market capitalization and multiples of tangible book value methods, based on observable bank acquisitions in the state of Ohio, to determine the estimated current fair value of its reporting unit. Based on this analysis no impairment was recorded in 2022 or 2021.

MORTGAGE SERVICING RIGHTS

Mortgage servicing rights (“MSRs”) represent the right to service loans for third party investors. MSRs are recognized at fair value as a separate asset upon the sale of mortgage loans to a third-party investor with the servicing rights retained by the Company. Originated MSRs are recorded at allocated fair value at the time of the sale of the loans to the third-party investor. MSRs are amortized in proportion to and over the estimated period of net servicing income. MSRs are carried at amortized cost, less a valuation allowance for impairment, if any. MSRs are evaluated on a discounted earnings basis to determine the present value of future earnings of the underlying serviced mortgages. All assumptions are reviewed annually, or more frequently if necessary, adjusted to reflect current, and anticipated market conditions.

BANK-OWNED LIFE INSURANCE

The cash surrender value of bank-owned life insurance policies is included as an asset on the Consolidated Balance Sheets and any increases in the cash surrender value are recorded as noninterest income on the Consolidated Statements of Income. In the event of the death of an individual insured under these policies, the Company would receive a death benefit, which would be recorded as noninterest income.

REPURCHASE AGREEMENTS

Substantially all securities sold under repurchase agreements represent amounts advanced by various customers. Securities owned by the Bank are pledged to secure those obligations. Repurchase agreements are not deposits and are not covered by federal deposit insurance.

ADVERTISING COSTS

All advertising costs are expensed as incurred. Advertising expenses amounted to $178 thousand, $165 thousand for the years ended 2022 and 2021, respectively.

FEDERAL INCOME TAXES

The Company and its subsidiaries file a consolidated tax return. Deferred income taxes are provided on temporary differences between financial statement and income tax reporting. Temporary differences are differences between the amounts of assets and liabilities reported for financial statement purposes and their respective tax bases. Deferred tax assets are recognized for temporary differences deductible in future years’ tax returns and for operating loss and tax credit carry forwards. Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that some or all of the deferred tax assets will not be realized. Deferred tax liabilities are recognized for temporary differences taxable in future years’ tax returns.

The Bank, domiciled in Ohio, is not currently subject to state and local income taxes.

COMPREHENSIVE INCOME

The Company includes recognized revenue, expenses, gains, and losses in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the Consolidated Balance Sheets, net of tax, these items along with net income are components of comprehensive income.

TRANSFERS OF FINANCIAL ASSETS

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions constraining it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

39

 

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:

 

(Dollars in thousands, except per share data)

 

2022

 

 

2021

 

Weighted average common shares

 

 

2,980,602

 

 

 

2,980,602

 

Average treasury shares

 

 

(266,557

)

 

 

(247,476

)

Total weighted average common shares outstanding basic and diluted

 

 

2,714,045

 

 

 

2,733,126

 

Net income

 

$

13,313

 

 

$

10,837

 

Earnings per share, basic and diluted

 

 

4.91

 

 

 

3.97

 

 

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

ASU 2016-13 - Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. The Update and all subsequent ASU’s that modified Topic 326, requires financial assets be presented at the net amount expected to be collected (i.e. net of expected credit losses), eliminating the probable recognition threshold for credit losses on financial assets measured at amortized cost. The measurement of expected credit losses should be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The amount of any adjustment will be impacted by the portfolio composition and quality at the adoption date, as well as economic conditions and forecasts at that time. The new current expected credit losses model ("CECL") will apply to the allowance for loan losses, available-for-sale and held-to-maturity debt securities, purchased financial assets with credit deterioration and certain off-balance sheet credit exposures.

Management has completed its implementation plan, segmentation and testing, and model validation. The implementation plan included drafting of additional controls and policies to govern data uploads to its third-party vendor, balancing and reconciling, testing and auditing of inputs, and review and decision-making surrounding segmentation, methodologies, qualitative factor adjustments, and reasonable and supportable forecasts. Parallel runs were processed during 2022 and the results were consistent with management's expectations. The implementation plan is currently going through the Company's control structure and internal control testing is being performed.

As a result of adopting this standard, which is effective January 1, 2023, the Company has completed the calculation and is in the process of finalizing the qualitative factors, which will determine the total amount of the adjustment to the allowance for loan losses and the reserves for unfunded commitments. These estimates are subject to further refinements based on ongoing evaluations of our model, methodologies, and judgments, as well as prevailing economic conditions and forecasts as of the adoption date. The adoption of ASU 2016-13 is not expected to have a significant impact on our regulatory capital ratios.

The Company expects to record no allowance for credit losses related to AFS or HTM debt securities at the date of adoption, January 1, 2023, as the majority of the Company's debt securities are issued by U.S. government entities and agencies and there is zero credit loss expectation on these securities.

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

ASU 2020-04 - Reference Rate Reform (Topic 848). This update provides temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls "reference rate reform" if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients allowing them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extends the sunset (or expiration) date of Accounting Standards Codification (ASC) Topic 848 to December 31, 2024. This gives reporting entities two additional years to apply the accounting relief provided under ASC Topic 848 for matters related to reference

40

 

rate reform. ASU 2022-06 is effective for all reporting entities immediately upon issuance and must be applied on a prospective basis. This Update is not expected to have a significant impact on the Company’s financial statements.

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. 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 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. This Update is not expected to have a significant impact on the Company’s financial statements.

RECLASSIFICATION OF COMPARATIVE AMOUNTS

Certain comparative amounts from the prior years have been reclassified to conform to current year classifications. Such classifications had no effect on net income or shareholders’ equity.

41

 

NOTE 2 – SECURITIES

Securities consisted of the following on December 31:

 

(Dollars in thousands)

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

4,982

 

 

$

—

 

 

$

(10

)

 

$

4,972

 

U.S. Government agencies

 

 

13,999

 

 

 

—

 

 

 

(327

)

 

 

13,672

 

Mortgage-backed securities of government agencies

 

 

78,224

 

 

 

393

 

 

 

(843

)

 

 

77,774

 

Asset-backed securities of government agencies

 

 

760

 

 

 

—

 

 

 

(7

)

 

 

753

 

State and political subdivisions

 

 

23,189

 

 

 

343

 

 

 

(201

)

 

 

23,331

 

Corporate bonds

 

 

11,238

 

 

 

57

 

 

 

(89

)

 

 

11,206

 

Total available-for-sale

 

 

132,392

 

 

 

793

 

 

 

(1,477

)

 

 

131,708

 

Held-to-maturity

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

12,700

 

 

 

32

 

 

 

(39

)

 

 

12,693

 

Mortgage-backed securities of government agencies

 

 

159,916

 

 

 

504

 

 

 

(766

)

 

 

159,654

 

State and political subdivisions

 

 

2,192

 

 

 

3

 

 

 

(14

)

 

 

2,181

 

Total held-to-maturity

 

 

174,808

 

 

 

539

 

 

 

(819

)

 

 

174,528

 

Equity securities

 

 

53

 

 

 

62

 

 

 

—

 

 

 

115

 

Restricted stock

 

 

4,614

 

 

 

—

 

 

 

—

 

 

 

4,614

 

Total securities

 

$

311,867

 

 

$

1,394

 

 

$

(2,296

)

 

$

310,965

 

 

42

 

The amortized cost and fair value of debt securities on December 31, 2022, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

(Dollars in thousands)

 

Amortized
Cost

 

 

Fair
Value

 

Available-for-sale

 

 

 

 

 

 

Due in one year or less

 

$

5,966

 

 

$

5,790

 

Due after one through five years

 

 

64,574

 

 

 

60,342

 

Due after five through ten years

 

 

24,930

 

 

 

22,979

 

Due after ten years

 

 

69,235

 

 

 

60,958

 

Total debt securities available-for-sale

 

$

164,705

 

 

$

150,069

 

 

 

 

 

 

 

 

Held-to-maturity

 

 

 

 

 

 

Due in one year or less

 

$

2,497

 

 

$

2,418

 

Due after one through five years

 

 

7,412

 

 

 

6,794

 

Due after five through ten years

 

 

4,761

 

 

 

4,155

 

Due after ten years

 

 

232,731

 

 

 

198,587

 

Total debt securities held-to-maturity

 

$

247,401

 

 

$

211,954

 

Securities with a carrying value of approximately $110.1 million and $103.0 million were pledged on December 31, 2022, and 2021 respectively, to secure public deposits, as well as other deposits and borrowings as required or permitted by law.

 

Restricted stock primarily consists of investments in FHLB and Federal Reserve Bank stock. The Bank’s investment in FHLB stock amounted to $2.9 million and $4.1 million on December 31, 2022, and 2021, respectively. Federal Reserve Bank stock was $471 thousand on December 31, 2022, and 2021.

There were no proceeds from sales of debt securities for the years ended December 31, 2022 and 2021. Gains and (losses) recognized on equity securities on the consolidated statements of income of $(3) thousand and $28 thousand, respectively for the years ended December 31, 2022 and 2021 were unrealized.

 

43

 

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

 

 

 

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

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

(10

)

 

$

4,972

 

 

$

—

 

 

$

—

 

 

$

(10

)

 

$

4,972

 

U.S. Government agencies

 

 

(69

)

 

 

2,930

 

 

 

(258

)

 

 

10,742

 

 

 

(327

)

 

 

13,672

 

Mortgage-backed securities of government
   agencies

 

 

(574

)

 

 

43,595

 

 

 

(269

)

 

 

12,653

 

 

 

(843

)

 

 

56,248

 

Asset-backed securities of government
   agencies

 

 

—

 

 

 

—

 

 

 

(7

)

 

 

753

 

 

 

(7

)

 

 

753

 

State and political subdivisions

 

 

(201

)

 

 

9,646

 

 

 

—

 

 

 

—

 

 

 

(201

)

 

 

9,646

 

Corporate bonds

 

 

(44

)

 

 

5,710

 

 

 

(45

)

 

 

955

 

 

 

(89

)

 

 

6,665

 

Held-to-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

(39

)

 

 

9,837

 

 

 

—

 

 

 

—

 

 

 

(39

)

 

 

9,837

 

Mortgage-backed securities of government
   agencies

 

 

(766

)

 

 

98,906

 

 

 

—

 

 

 

—

 

 

 

(766

)

 

 

98,906

 

State and political subdivisions

 

 

(14

)

 

 

1,749

 

 

 

—

 

 

 

—

 

 

 

(14

)

 

 

1,749

 

Total temporarily impaired securities

 

$

(1,717

)

 

$

177,345

 

 

$

(579

)

 

$

25,103

 

 

$

(2,296

)

 

$

202,448

 

There were 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, 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 and it does not intend to sell these securities and likely will not be required to sell them before the anticipated recovery of the remaining amortized cost basis, which may be maturity. As a result, management concluded that these securities were not other-than-temporarily impaired on December 31, 2022.

44

 

NOTE 3 – LOANS

Loans consisted of the following on December 31:

 

(Dollars in thousands)

 

2022

 

 

2021

 

Commercial

 

$

129,343

 

 

$

123,933

 

Commercial real estate

 

 

231,785

 

 

 

194,754

 

Residential real estate

 

 

194,125

 

 

 

168,247

 

Construction & land development

 

 

55,318

 

 

 

46,042

 

Consumer

 

 

16,387

 

 

 

16,074

 

Total loans before deferred loan (fees) and costs

 

 

626,958

 

 

 

549,050

 

Deferred loan (fees) and costs

 

 

213

 

 

 

104

 

Total loans

 

$

627,171

 

 

$

549,154

 

Loan Origination/Risk Management

The Company has certain lending policies and procedures in place designed to maximize loan income within an acceptable level of risk. Management reviews and the Board of Directors 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 their 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. However, the cash flows of borrowers 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 or inventory, and generally incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

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

With respect to loans to developers and builders 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, lease rates, and financial analysis of 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 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 permanent financing from the Company. 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. Policies and procedures are developed and modified, as needed, by management to monitor and manage consumer loan risk. This activity, coupled with relatively small loan amounts spread across many individual borrowers, minimizes risk.

The Company engages an independent loan review vendor that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management and the Audit Committee. 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.

 

Paycheck Protection Program

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020 and provided over $2 trillion in economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the SBA to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”). As a qualified SBA lender, the Company was automatically authorized to originate PPP loans. The PPP provided loans to small businesses who were affected by economic conditions as a result of COVID-19 to provide cash flow assistance to employers who maintained their payroll (including healthcare and certain related expenses), mortgage interest, rent, leases, utilities and interest on existing debt during the COVID-19 emergency. During 2021 and 2020, the

45

 

Company originated 1,351 PPP loans with principal balances of $128.9 million. The PPP loans are 100% guaranteed by the SBA and are eligible for forgiveness by the SBA to the extent that the proceeds were used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up to 24 weeks after the loan was made if certain conditions were met regarding employee retention and compensation levels. The majority of PPP loans deemed eligible for forgiveness by the SBA have been repaid by the SBA to the Company. As of December 31, 2022, the Company has received $128.5 million in loan forgiveness from the SBA. The remaining $359 thousand of PPP loans are included in the Commercial loan category with no allowance for loan losses allocated.

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 industrial and commercial real estate loans. Credit concentrations, including commitments, as determined using North American Industry Classification Codes (NAICS), to the four largest industries compared to total loans at December 31, 2022, included $73 million, or 12%, of total loans to lessors of non-residential buildings; $26 million, or 4%, of total loans to assisted living facilities for the elderly; $17 million, or 3%, of total loans to lessors of other real estate property; and $17 million, or 3%, of total loans to home centers (hardware stores). 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 Loan Losses

The following table details activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2022, and 2021. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

During 2022, the decrease in the provision (recovery) for loan losses for construction and land development and commercial real estate loans was primarily related to the improvement in loans to businesses that were negatively impacted by the COVID-19 pandemic, the reduction of impaired and adversely classified loans, as well as a large recovery received on a previously charged-off loan. The decrease in the provision for consumer loans was primarily related to the tightening of underwriting guidelines pertaining to the RV portfolio along with a decline in RV loan balances and fewer consumer loan charge-offs in 2022. The provision related to residential real estate loans increased as a result of the growth in loan balances along with an increase in the general loss ratios due to elevated levels of economic uncertainty associated with increased inflation and higher interest rates.

During 2021, the increase in the provision for loan losses for construction and land development loans was primarily related to loans to assisted living facilities that have been affected by the COVID-19 pandemic. The decrease in the provision related to commercial, commercial real estate and residential real estate loans was primarily related to the improvement in economic conditions along with fewer delinquent and nonperforming loans and improvement in adversely classified loans. The provision related to consumer loans increased primarily as a result of the increase in historical losses of loans in this category.

Summary of Allowance for Loan Losses

 

(Dollars in thousands)

 

Commercial

 

 

Commercial
Real Estate

 

 

Residential
Real Estate

 

 

Construction
& Land
Development

 

 

Consumer

 

 

Unallocated

 

 

Total

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,240

 

 

$

2,838

 

 

$

992

 

 

$

1,380

 

 

$

421

 

 

$

747

 

 

$

7,618

 

(Recovery) provision for loan losses

 

 

47

 

 

 

(68

)

 

 

273

 

 

 

(889

)

 

 

(175

)

 

 

(83

)

 

 

(895

)

Charge-offs

 

 

(227

)

 

 

(13

)

 

 

—

 

 

 

—

 

 

 

(48

)

 

 

 

 

 

(288

)

Recoveries

 

 

50

 

 

 

3

 

 

 

3

 

 

 

312

 

 

 

35

 

 

 

 

 

 

403

 

Net (charge-offs)
   recoveries

 

 

(177

)

 

 

(10

)

 

 

3

 

 

 

312

 

 

 

(13

)

 

 

 

 

 

115

 

Ending balance

 

$

1,110

 

 

$

2,760

 

 

$

1,268

 

 

$

803

 

 

$

233

 

 

$

664

 

 

$

6,838

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,739

 

 

$

3,469

 

 

$

1,156

 

 

$

756

 

 

$

352

 

 

$

802

 

 

$

8,274

 

(Recovery) provision for loan losses

 

 

(495

)

 

 

(639

)

 

 

(189

)

 

 

624

 

 

 

99

 

 

 

(55

)

 

 

(655

)

Charge-offs

 

 

(35

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(95

)

 

 

 

 

 

(130

)

Recoveries

 

 

31

 

 

 

8

 

 

 

25

 

 

 

—

 

 

 

65

 

 

 

 

 

 

129

 

Net (charge-offs)
   recoveries

 

 

(4

)

 

 

8

 

 

 

25

 

 

 

—

 

 

 

(30

)

 

 

 

 

 

(1

)

Ending balance

 

$

1,240

 

 

$

2,838

 

 

$

992

 

 

$

1,380

 

 

$

421

 

 

$

747

 

 

$

7,618

 

 

46

 

 

The following table presents the balance in the allowance for loan losses and the ending loan balances by portfolio segment and impairment method as of December 31:

(Dollars in thousands)

 

Commercial

 

 

Commercial
Real Estate

 

 

Residential
Real Estate

 

 

Construction
& Land
Development

 

 

Consumer

 

 

Unallocated

 

 

Total

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balances
   attributable to loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balances
   attributable to loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for
   impairment

 

$

208

 

 

$

9

 

 

$

2

 

 

$

—

 

 

$

3

 

 

$

—

 

 

$

222

 

Collectively evaluated for
   impairment

 

 

1,032

 

 

 

2,829

 

 

 

990

 

 

 

1,380

 

 

 

418

 

 

 

747

 

 

 

7,396

 

Total ending allowance
   balance

 

$

1,240

 

 

$

2,838

 

 

$

992

 

 

$

1,380

 

 

$

421

 

 

$

747

 

 

$

7,618

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually
   evaluated for
   impairment

 

$

342

 

 

$

291

 

 

$

856

 

 

$

329

 

 

$

137

 

 

 

 

 

$

1,955

 

Loans collectively
   evaluated for
   impairment

 

 

123,591

 

 

 

194,463

 

 

 

167,391

 

 

 

45,713

 

 

 

15,937

 

 

 

 

 

 

547,095

 

Total ending loans balance

 

$

123,933

 

 

$

194,754

 

 

$

168,247

 

 

$

46,042

 

 

$

16,074

 

 

 

 

 

$

549,050

 

 

47

 

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

(Dollars in thousands)

 

Unpaid
Principal
Balance

 

 

Recorded
Investment
With No
Allowance

 

 

Recorded
Investment
With
Allowance

 

 

Total
Recorded
Investment 1

 

 

Related
Allowance

 

 

Average
Recorded
Investment

 

 

Interest
Income
Recognized

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

123

 

 

$

124

 

 

$

—

 

 

$

124

 

 

$

—

 

 

$

327

 

 

$

7

 

Commercial real estate

 

 

117

 

 

 

92

 

 

 

20

 

 

 

112

 

 

 

—

 

 

 

118

 

 

 

4

 

Residential real estate

 

 

733

 

 

 

166

 

 

 

518

 

 

 

683

 

 

 

—

 

 

 

758

 

 

 

31

 

Construction & land development

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

123

 

 

 

—

 

Consumer

 

 

127

 

 

 

6

 

 

 

121

 

 

 

127

 

 

 

4

 

 

 

130

 

 

 

8

 

Total impaired loans

 

$

1,101

 

 

$

387

 

 

$

659

 

 

$

1,046

 

 

$

4

 

 

$

1,456

 

 

$

50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

354

 

 

$

134

 

 

$

208

 

 

$

342

 

 

$

208

 

 

$

1,397

 

 

$

23

 

Commercial real estate

 

 

433

 

 

 

233

 

 

 

59

 

 

 

292

 

 

 

9

 

 

 

1,945

 

 

 

85

 

Residential real estate

 

 

925

 

 

 

571

 

 

 

291

 

 

 

862

 

 

 

2

 

 

 

826

 

 

 

31

 

Construction & land development

 

 

646

 

 

 

330

 

 

 

—

 

 

 

330

 

 

 

—

 

 

 

330

 

 

 

—

 

Consumer

 

 

141

 

 

 

23

 

 

 

119

 

 

 

142

 

 

 

3

 

 

 

132

 

 

 

8

 

Total impaired loans

 

$

2,499

 

 

$

1,291

 

 

$

677

 

 

$

1,968

 

 

$

222

 

 

$

4,630

 

 

$

147

 

 

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

 

The following table presents the aging of accruing past due and nonaccrual loans by class of loans as of December 31:

 

 

 

 

 

 

Accruing Loans

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Current

 

 

30-59
Days
Past Due

 

 

60-89
Days
Past Due

 

 

90 Days +
Past Due

 

 

Nonaccrual

 

 

Total Past
Due and
Nonaccrual

 

 

Total
Loans

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

123,698

 

 

$

5

 

 

$

17

 

 

$

5

 

 

$

208

 

 

$

235

 

 

$

123,933

 

Commercial real estate

 

 

194,615

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

139

 

 

 

139

 

 

 

194,754

 

Residential real estate

 

 

167,689

 

 

 

191

 

 

 

—

 

 

 

—

 

 

 

367

 

 

 

558

 

 

 

168,247

 

Construction & land development

 

 

45,713

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

329

 

 

 

329

 

 

 

46,042

 

Consumer

 

 

15,863

 

 

 

171

 

 

 

—

 

 

 

—

 

 

 

40

 

 

 

211

 

 

 

16,074

 

Total loans

 

$

547,578

 

 

$

367

 

 

$

17

 

 

$

5

 

 

$

1,083

 

 

$

1,472

 

 

$

549,050

 

 

Troubled Debt Restructurings

The Company had troubled debt restructurings (“TDRs”) of $944 thousand as of December 31, 2022, with $4 thousand of specific reserves allocated to customers whose loan terms have been modified in TDRs. On December 31, 2022, $916 thousand of the loans classified as TDRs were performing in accordance with their modified terms. The remaining $28 thousand were classified as nonaccrual. On December 31, 2021, the Company had TDRs of $1.3 million, with $14 thousand of specific reserves allocated.

48

 

There were no loan modifications considered TDRs completed during the year ended December 31, 2022.The following table represents the loan modification considered TDRs completed during the year ended December 31, 2021:

 

(Dollars in thousands)

 

Number Of
Loans Restructured

 

 

Pre-Modification
Recorded Investment

 

 

Post-Modification
Recorded Investment

 

2021

 

 

 

 

 

 

 

 

 

Commercial

 

 

4

 

 

$

960

 

 

$

960

 

Commercial Real Estate

 

 

2

 

 

 

1,686

 

 

 

1,686

 

Residential Real Estate

 

 

1

 

 

 

159

 

 

 

159

 

Consumer

 

 

1

 

 

 

13

 

 

 

13

 

Total restructured loans

 

 

8

 

 

$

2,818

 

 

$

2,818

 

The loans restructured were modified by changing the monthly payment to interest only and extending the maturity dates. No principal reductions were made. None of the loans restructured in 2021 subsequently defaulted in 2022.

Real Estate Loans in Foreclosure

There was no other real estate owned on December 31, 2022, or 2021, respectively. Mortgage loans in the process of foreclosure were $17 thousand on December 31, 2022. There were no mortgage loans in the process of foreclosure on December 31, 2021.

Credit Quality Indicators

The Company categorizes commercial and commercial real estate 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 and commercial real estate loans individually by classifying the loans as to credit risk. This analysis includes commercial loans with an outstanding balance greater than $500 thousand. This analysis is performed on an annual basis.

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 collectable 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. Loans classified as special mention have a material weakness deserving of management’s close attention. If left uncorrected, these weaknesses may result in deterioration of the repayment prospects for the loan or of the Bank’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses jeopardizing the liquidation of the debt. They are characterized by the distinct possibility that the Bank 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 existing facts, conditions, values, highly questionable, and improbable.

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

 

(Dollars in thousands)

 

Pass

 

 

Special
Mention

 

 

Substandard

 

 

Doubtful

 

 

Not
Rated

 

 

Total

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

114,608

 

 

$

5,959

 

 

$

2,203

 

 

$

—

 

 

$

1,163

 

 

$

123,933

 

Commercial real estate

 

 

176,547

 

 

 

7,313

 

 

 

10,186

 

 

 

—

 

 

 

708

 

 

 

194,754

 

Construction & land development

 

 

33,205

 

 

 

5,439

 

 

 

329

 

 

 

—

 

 

 

7,069

 

 

 

46,042

 

Total

 

$

324,360

 

 

$

18,711

 

 

$

12,718

 

 

$

—

 

 

$

8,940

 

 

$

364,729

 

 

49

 

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

 

Mortgage Servicing Rights

For the years ended December 31, 2022 and 2021, the Company had outstanding MSRs of $621 thousand and $604 thousand, respectively. The capitalized additions of servicing rights is included in net gain on sale of loans on the consolidated statement of income. No valuation allowance was recorded on December 31, 2022 or 2021, as the fair value of the MSRs exceeded their carrying value. On December 31, 2022, the Company had $130.1 million residential mortgage loans with servicing retained as compared to $133.8 million with servicing retained on December 31, 2021.

Total loans serviced for others approximated $137.5 million and $142.1 million on December 31, 2022, and 2021, respectively.

 

The following summarizes mortgage servicing rights capitalized and amortized during each year:

(Dollars in thousands)

2022

 

 

2021

 

Beginning of year

$

604

 

 

$

488

 

Capitalized additions

 

97

 

 

 

224

 

Amortization

 

(80

)

 

 

(108

)

Valuation allowance

 

—

 

 

 

—

 

End of year

$

621

 

 

$

604

 

 

NOTE 4 – PREMISES AND EQUIPMENT

Premises and equipment consisted of the following on December 31:

 

(Dollars in thousands)

 

2022

 

 

2021

 

Land and improvements

 

$

2,550

 

 

$

2,550

 

Buildings and improvements

 

 

14,459

 

 

 

14,420

 

Furniture and equipment

 

 

6,922

 

 

 

6,621

 

Leasehold improvements

 

 

329

 

 

 

329

 

 

 

 

24,260

 

 

 

23,920

 

Accumulated depreciation

 

 

10,846

 

 

 

10,054

 

Premises and equipment, net

 

$

13,414

 

 

$

13,866

 

Depreciation expense amounted to $818 thousand, $753 thousand for the years ended December 31, 2022, and 2021, respectively.

 

NOTE 5 – LEASES

Operating leases in which the Company is the lessee are recorded as operating lease Right of Use (“ROU”) assets and operating lease liabilities, included in other assets and other liabilities, respectively, on the consolidated balance sheets. The Company does not currently have any finance leases. Operating lease ROU assets represent the right to use an underlying asset during the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. The Company elected to adopt the transition method, which uses a modified retrospective transition approach. ROU assets and operating lease liabilities are recognized as of the date of adoption based on the present value of the remaining lease payments using a discount rate that represents the Company’s incremental borrowing rate at the date of initial application.

Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term and is recorded in occupancy and equipment expense in the consolidated statements of income and other comprehensive income. The leases relate to bank branches with remaining lease terms of generally 3 to 5 years. Certain lease arrangements contain extension options which are typically 5 years at the then fair market rental rates. As these extension options are generally considered reasonably certain of exercise, they are included in the lease term.

 

As of December 31, 2022, operating lease ROU assets were $316 thousand, and liabilities were $307 thousand. For the years ended December 31, 2022, and 2021, CSB recognized $107 thousand, and $105 thousand in operating lease cost respectively.

The following table summarizes other information related to our operating leases:

 

December 31, 2022

 

 

 

 

Weighted-average remaining lease term - operating leases in years

 

 

3.2

 

 

Weighted-average discount rate - operating leases

 

 

3.15

 

%

 

50

 

 

The following table presents aggregate lease maturities and obligations as of December 31, 2022:

 

(Dollars in thousands)

 

 

 

December 31, 2022

 

 

 

2023

 

$

96

 

2024

 

 

105

 

2025

 

 

74

 

2026

 

 

46

 

2027

 

 

6

 

2028 and thereafter

 

 

—

 

Total lease payments

 

 

327

 

Less: interest

 

 

20

 

Present value of lease liabilities

 

$

307

 

 

NOTE 6 – INTEREST-BEARING DEPOSITS

Interest-bearing deposits on December 31 were as follows:

 

(Dollars in thousands)

 

2022

 

 

2021

 

Demand

 

$

241,227

 

 

$

242,387

 

Savings

 

 

313,826

 

 

 

304,639

 

Time deposits:

 

 

 

 

 

 

$250,000 and greater

 

 

28,839

 

 

 

26,213

 

Other

 

 

89,242

 

 

 

95,162

 

Total interest-bearing deposits

 

$

673,134

 

 

$

668,401

 

 

On December 31, 2022, stated maturities of time deposits were as follows:

 

(Dollars in thousands)

 

 

 

2023

 

$

66,598

 

2024

 

 

41,712

 

2025

 

 

5,960

 

2026

 

 

1,934

 

2027

 

 

1,877

 

Total

 

$

118,081

 

 

NOTE 7 – BORROWINGS

Short-term borrowings

Short-term borrowings include overnight repurchase agreements, federal funds purchased, and short-term advances through the FHLB. The outstanding balances and related information for short-term borrowings are summarized as follows:

 

(Dollars in thousands)

 

2022

 

 

 

2021

 

 

Balance at year-end

 

$

32,550

 

 

 

$

36,530

 

 

Average balance outstanding

 

 

37,367

 

 

 

 

38,680

 

 

Maximum month-end balance

 

 

39,073

 

 

 

 

39,665

 

 

Weighted-average rate at year-end

 

 

0.80

 

%

 

 

0.12

 

%

Weighted-average rate during the year

 

 

0.28

 

 

 

 

0.14

 

 

Average balances outstanding during the year represent daily average balances; average interest rates represent interest expenses divided by the related average balances.

51

 

The following table provides additional detail regarding the collateral pledged to secure repurchase agreements accounted for as secured borrowings:

 

 

Remaining Contractual Maturity
Overnight and Continuous

 

(Dollars in thousands)

 

December 31,
2022

 

 

December 31,
2021

 

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

 

$

32,775

 

 

$

36,737

 

Repurchase agreements

 

 

32,550

 

 

 

36,530

 

Other borrowings

The following table sets forth information concerning other borrowings:

 

 

 

Maturity Range

 

Weighted
Average
Interest

 

 

Stated Interest
Rate Range

 

 

At December 31,

 

(Dollars in thousands)

 

From

 

To

 

Rate

 

 

From

 

 

To

 

 

2022

 

 

2021

 

Fixed-rate amortizing

 

4/1/24

 

6/1/37

 

 

1.94

%

 

 

1.16

%

 

 

2.01

%

 

$

2,461

 

 

$

3,407

 

 

Maturities of other borrowings on December 31, 2022, are summarized as follows for the years ended December 31:

 

(Dollars in thousands)

 

Amount

 

 

Weighted
Average
Rate

 

 

2023

 

$

707

 

 

 

1.87

 

%

2024

 

 

488

 

 

 

1.94

 

 

2025

 

 

349

 

 

 

1.98

 

 

2026

 

 

262

 

 

 

1.98

 

 

2027

 

 

195

 

 

 

1.99

 

 

2028 and beyond

 

 

460

 

 

 

1.99

 

 

 

 

$

2,461

 

 

 

1.94

 

%

Monthly principal and interest payments, as well as 10% – 20% principal curtailments on the borrowings’ anniversary dates are due on the fixed-rate amortizing borrowings. FHLB borrowings are secured by a blanket collateral agreement. On December 31, 2022, the Company had the capacity to borrow an additional $122 million from the FHLB.

NOTE 8 – INCOME TAXES

Income tax expense was as follows:

 

(Dollars in thousands)

 

2022

 

 

2021

 

Current

 

$

3,358

 

 

$

2,698

 

Deferred

 

 

(135

)

 

 

(131

)

Total income tax provision

 

$

3,223

 

 

$

2,567

 

Effective tax rates were 19.5% and 19.2% for 2022 and 2021 and differ from the federal statutory rate of 21% applied to income before taxes due to the following:

 

(Dollars in thousands)

 

2022

 

 

2021

 

Expected provision using statutory federal income tax rate

 

$

3,473

 

 

$

2,815

 

Effect of bond and loan tax-exempt income

 

 

(113

)

 

 

(121

)

Bank owned life insurance income

 

 

(141

)

 

 

(130

)

Other

 

 

4

 

 

 

3

 

Total income tax provision

 

$

3,223

 

 

$

2,567

 

 

52

 

 

The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities on December 31 were as follows:

 

(Dollars in thousands)

 

2022

 

 

2021

 

Allowance for loan losses

 

$

1,534

 

 

$

1,698

 

Unrealized loss on securities

 

 

3,434

 

 

 

565

 

Other

 

 

35

 

 

 

50

 

Deferred tax assets

 

 

5,003

 

 

 

2,313

 

Premises and equipment

 

 

(598

)

 

 

(683

)

Federal Home Loan Bank stock dividends

 

 

(268

)

 

 

(376

)

Deferred loan fees

 

 

(288

)

 

 

(267

)

Prepaid expenses

 

 

(188

)

 

 

(157

)

Other

 

 

(602

)

 

 

(505

)

Deferred tax liabilities

 

 

(1,944

)

 

 

(1,988

)

Net deferred tax asset (liability)

 

$

3,059

 

 

$

325

 

There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Consolidated Statements of Income. With few exceptions, the Company is no longer subject to U.S. federal, state, or local income tax examinations by tax authorities for years prior to 2019.

NOTE 9 – EMPLOYEE BENEFITS

The Company sponsors a contributory 401(k) profit-sharing plan (the “Plan”) covering substantially all employees who meet certain age and service requirements. The Plan permits investment in the Company’s common stock subject to various limitations and provides for discretionary profit sharing and matching contributions. The discretionary profit-sharing contribution is determined annually by the Board of Directors and amounted to 3% in 2022 and 2021 of each eligible participant’s compensation. Beginning in 2018, the Plan provided for a 100% Company match up to a maximum of 4% of eligible compensation. The Company auto enrolls all eligible new hires into the Plan. Expense under the Plan amounted to approximately $735 thousand and $615 thousand for 2022 and 2021, respectively.

The Company sponsors a non-qualified deferred compensation plan covering eligible officers. Expense under the plan amounted to $3 thousand and $0.6 thousand in 2022 and 2021, respectively.

 

NOTE 10 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are primarily loan commitments to extend credit and letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amounts recognized in the Consolidated Balance Sheets. The contract amount of these instruments reflects the extent of involvement the Bank has in these financial instruments. The Bank’s exposure to credit loss in the event of the nonperformance by the other party to the financial instruments for loan commitments to extend credit and letters of credit is represented by the contractual amounts of these instruments. The Bank uses the same credit policies in making loan commitments as it does for on-balance sheet loans.

The following financial instruments whose contract amount represents credit risk were outstanding on December 31:

 

(Dollars in thousands)

 

2022

 

 

2021

 

Commitments to extend credit

 

$

266,422

 

 

$

246,838

 

Letters of credit

 

 

1,376

 

 

 

964

 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Consumer commitments generally have fixed expiration dates and commercial commitments are generally due on demand and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral, obtained if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer. Collateral held varies but may include residential real estate, accounts receivable, recognized inventory, property, plant and equipment, and income-producing commercial properties.

53

 

Letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third party and are reviewed for renewal at expiration. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Company requires collateral supporting these commitments when deemed appropriate.

The Company had $0 reserve for unfunded loan commitments as of December 31, 2022 and $128 thousand as of December 31, 2021. The decrease in the reserve for unfunded loan commitments was due to a construction project that was completed and fully drawn.

NOTE 11 – RELATED-PARTY TRANSACTIONS

In the ordinary course of business, loans are made by the Bank to executive officers, directors, their immediate family members, and their related business interests consistent with Federal Reserve Regulation O and GAAP definition of related parties.

The following is an analysis of activity of related-party loans for the years ended December 31:

 

(Dollars in thousands)

 

2022

 

 

2021

 

Balance at beginning of year

 

$

46

 

 

$

84

 

New loans and advances

 

 

319

 

 

 

11

 

Repayments, including loans sold

 

 

33

 

 

 

49

 

Balance at end of year

 

$

332

 

 

$

46

 

Deposits from executive officers, directors, their immediate family members, and their related business interests on December 31, 2022, and 2021 were approximately $6.2 million and $6.2 million.

NOTE 12 – REGULATORY MATTERS

The Company (on a consolidated basis) and Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and Bank’s financial performance. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines involving quantitative measures of the assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the following table) of Total capital, Tier 1 capital and Common equity tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Management believes as of December 31, 2022 and 2021, the Company and Bank met or exceeded all capital adequacy requirements to which they are subject.

As of December 31, 2022, the most recent notification from federal and state banking agencies categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized” an institution must maintain minimum Total risk-based, Tier 1 risk-based, Common equity Tier 1, and Tier 1 leverage ratios as set forth in the following tables. There are no known conditions or events since that notification that Management believes have changed the Bank’s category.

54

 

The actual capital amounts and ratios of the Company and Bank as of December 31 are presented in the following tables:

 

 

 

Actual

 

 

 

Minimum
Required For
Capital Adequacy
Purposes

 

 

 

Minimum Required
To Be Well Capitalized
Under Prompt
Corrective Action

 

 

(Dollars in thousands)

 

Amount

 

 

Ratio

 

 

 

Amount

 

 

Ratio

 

 

 

Amount

 

 

Ratio

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital to risk-weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

110,949

 

 

 

16.0

 

%

 

$

55,339

 

 

 

8.0

 

%

 

$

69,174

 

 

 

10.0

 

%

Bank

 

 

109,778

 

 

 

15.9

 

 

 

 

55,315

 

 

 

8.0

 

 

 

 

69,144

 

 

 

10.0

 

 

Tier 1 capital to risk-weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

104,111

 

 

 

15.1

 

 

 

 

41,505

 

 

 

6.0

 

 

 

 

55,339

 

 

 

8.0

 

 

Bank

 

 

102,940

 

 

 

14.9

 

 

 

 

41,486

 

 

 

6.0

 

 

 

 

55,315

 

 

 

8.0

 

 

Common equity tier 1 capital to
   risk-weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

104,111

 

 

 

15.1

 

 

 

 

31,128

 

 

 

4.5

 

 

 

 

44,963

 

 

 

6.5

 

 

Bank

 

 

102,940

 

 

 

14.9

 

 

 

 

31,115

 

 

 

4.5

 

 

 

 

44,943

 

 

 

6.5

 

 

Tier 1 leverage ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

104,111

 

 

 

8.8

 

 

 

 

47,370

 

 

 

4.0

 

 

 

 

59,213

 

 

 

5.0

 

 

Bank

 

 

102,940

 

 

 

8.7

 

 

 

 

47,358

 

 

 

4.0

 

 

 

 

59,197

 

 

 

5.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital to risk-weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

101,999

 

 

 

17.5

 

%

 

$

46,615

 

 

 

8.0

 

%

 

$

58,268

 

 

 

10.0

 

%

Bank

 

 

100,547

 

 

 

17.3

 

 

 

 

46,599

 

 

 

8.0

 

 

 

 

58,248

 

 

 

10.0

 

 

Tier 1 capital to risk-weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

94,712

 

 

 

16.3

 

 

 

 

34,961

 

 

 

6.0

 

 

 

 

46,615

 

 

 

8.0

 

 

Bank

 

 

93,260

 

 

 

16.0

 

 

 

 

34,949

 

 

 

6.0

 

 

 

 

46,599

 

 

 

8.0

 

 

Common equity tier 1 capital to
   risk-weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

94,712

 

 

 

16.3

 

 

 

 

26,221

 

 

 

4.5

 

 

 

 

37,875

 

 

 

6.5

 

 

Bank

 

 

93,260

 

 

 

16.0

 

 

 

 

26,212

 

 

 

4.5

 

 

 

 

37,861

 

 

 

6.5

 

 

Tier 1 leverage ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

94,712

 

 

 

8.3

 

 

 

 

45,441

 

 

 

4.0

 

 

 

 

56,801

 

 

 

5.0

 

 

Bank

 

 

93,260

 

 

 

8.2

 

 

 

 

45,433

 

 

 

4.0

 

 

 

 

56,791

 

 

 

5.0

 

 

The Company’s primary source of funds with which to pay dividends, are dividends received from the Bank. The payment of dividends by the Bank to the Company is subject to restrictions by its regulatory agencies. These restrictions generally limit dividends to current year net income and prior two-years’ net retained earnings. Also, dividends may not reduce capital levels below the minimum regulatory requirements disclosed in the prior table. Under these provisions, on January 1, 2023, the Bank could dividend $23.3 million to the Company. The Company does not anticipate the financial need to obtain regulatory approval to pay dividends. Federal law prevents the Company from borrowing from the Bank unless loans are secured by specific obligations. Further, such secured loans are limited to an amount not exceeding ten percent of the Bank’s common stock and capital surplus.

55

 

NOTE 13 – CONDENSED PARENT COMPANY FINANCIAL INFORMATION

A summary of condensed financial information of the parent company as of December 31, 2022, and 2021, and for each of the two years in the period ended December 31, 2022, follows:

 

 

(Dollars in thousands)

 

2022

 

 

2021

 

CONDENSED BALANCE SHEETS

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Cash deposited with subsidiary bank

 

$

805

 

 

$

1,244

 

Investment in subsidiary bank

 

 

94,749

 

 

 

95,863

 

Securities available-for-sale

 

 

244

 

 

 

115

 

Other assets

 

 

162

 

 

 

143

 

TOTAL ASSETS

 

$

95,960

 

 

$

97,365

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Total liabilities

 

$

40

 

 

$

50

 

Total shareholders’ equity

 

 

95,920

 

 

 

97,315

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

95,960

 

 

$

97,365

 

 

 

(Dollars in thousands)

 

2022

 

 

2021

 

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

 

 

 

Dividends on securities

 

$

7

 

 

$

3

 

Dividends from subsidiary

 

 

3,950

 

 

 

4,150

 

Unrealized (loss) gain on equity securities

 

 

(3

)

 

 

28

 

Total income

 

 

3,954

 

 

 

4,181

 

Operating expenses

 

 

407

 

 

 

341

 

Income before taxes and undistributed equity
   income of subsidiary

 

 

3,547

 

 

 

3,840

 

Income tax benefit

 

 

(86

)

 

 

(65

)

Equity earnings in subsidiary, net of dividends

 

 

9,680

 

 

 

6,932

 

NET INCOME

 

$

13,313

 

 

$

10,837

 

COMPREHENSIVE INCOME

 

$

2,519

 

 

$

7,726

 

 

(Dollars in thousands)

 

2022

 

 

2021

 

CONDENSED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

13,313

 

 

$

10,837

 

Adjustments to reconcile net income to cash provided by operations:

 

 

 

 

 

 

Equity earnings in subsidiary, net of dividends

 

 

(9,680

)

 

 

(6,932

)

Change in other assets, liabilities

 

 

(27

)

 

 

(22

)

Net cash provided by operating activities

 

 

3,606

 

 

 

3,883

 

Cash flows from investing activities

 

 

 

 

 

 

Purchase of equity securities

 

 

(131

)

 

 

—

 

Net cash used in investing activities

 

 

(131

)

 

 

—

 

Cash flows from financing activities

 

 

 

 

 

 

Cash dividends paid

 

 

(3,526

)

 

 

(3,331

)

Purchase of treasury stock

 

 

(388

)

 

 

(939

)

Net cash used in financing activities

 

 

(3,914

)

 

 

(4,270

)

Decrease in cash

 

 

(439

)

 

 

(387

)

Cash at beginning of year

 

 

1,244

 

 

 

1,631

 

Cash at end of year

 

$

805

 

 

$

1,244

 

 

56

 

NOTE 14 – FAIR VALUE MEASUREMENTS

The Company provides disclosures about assets and liabilities carried at fair value. The framework provides a fair value hierarchy prioritizing 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 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 observable for the asset or liability; inputs derived principally from or corroborated by observable market data by or other means including certified appraisals. If the asset or liability has a specified (contractual) term, the Level II input must be observable for substantially the full term of the asset or liability.

Level III:

 

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

 

The following table presents the assets reported on the consolidated statements of financial condition at their fair value on a recurring basis as of December 31, 2022, and December 31, 2021, by level within the fair value hierarchy. No liabilities were carried at fair value. As required by the accounting standards, 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.

 

(Dollars in thousands)

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Assets:

 

 

 

 

December 31,
2022

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

December 31,
2021

 

 

 

 

Securities available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

4,972

 

 

$

—

 

 

$

—

 

 

$

4,972

 

U.S. Government agencies

 

 

—

 

 

 

13,672

 

 

 

—

 

 

 

13,672

 

Mortgage-backed securities of government
   agencies

 

 

—

 

 

 

77,774

 

 

 

—

 

 

 

77,774

 

Asset-backed securities of government agencies

 

 

—

 

 

 

753

 

 

 

—

 

 

 

753

 

State and political subdivisions

 

 

—

 

 

 

23,331

 

 

 

—

 

 

 

23,331

 

Corporate bonds

 

 

—

 

 

 

11,206

 

 

 

—

 

 

 

11,206

 

Total available-for-sale securities

 

$

4,972

 

 

$

126,736

 

 

$

—

 

 

$

131,708

 

Equity securities

 

$

69

 

 

$

—

 

 

$

—

 

 

$

69

 

 

57

 

There were no assets measured on a nonrecurring basis as of December 31, 2022, and 2021, respectively. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral securing the impaired loans include: quoted market prices for identical assets classified as Level I inputs; observable inputs, employed by certified appraisers, for similar assets classified as Level II inputs. In cases where valuation techniques included unobservable inputs and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level III inputs.

 

 

 

 

 

 

NOTE 15 – FAIR VALUES OF FINANCIAL INSTRUMENTS

The estimated fair values of recognized financial instruments carried at amortized cost as of December 31 were as follows:

 

 

 

2022

 

 

 

 

Carrying

 

 

 

 

 

 

 

 

 

 

 

Total Fair

 

(Dollars in thousands)

 

 

Value

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Value

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

 

 

Carrying

 

 

 

 

 

 

 

 

 

 

 

Total Fair

 

(Dollars in thousands)

 

 

Value

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Value

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held-to-maturity

 

$

 

174,808

 

 

$

12,693

 

 

$

161,835

 

 

$

—

 

 

$

174,528

 

Loans held for sale

 

 

 

231

 

 

 

238

 

 

 

—

 

 

 

—

 

 

 

238

 

Net loans

 

 

 

541,536

 

 

 

—

 

 

 

—

 

 

 

548,317

 

 

 

548,317

 

Mortgage servicing rights

 

 

 

604

 

 

 

—

 

 

 

—

 

 

 

604

 

 

 

604

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

 

1,002,747

 

 

$

881,372

 

 

$

—

 

 

$

121,005

 

 

$

1,002,377

 

Other borrowings

 

 

 

3,407

 

 

 

—

 

 

 

—

 

 

 

3,431

 

 

 

3,431

 

Other financial instruments carried at amortized cost include cash and cash equivalents, restricted stock, bank-owned life insurance, accrued interest receivable, short-term borrowings, and accrued interest payable, all of which have a level 1 fair value that approximates their carrying value.

 

58

 

NOTE 16 – ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table presents the changes in accumulated other comprehensive (loss) income by component net of tax for the years ended December 31, 2022, and 2021:

 

(Dollars in thousands)

 

Pretax

 

 

Tax Effect

 

 

After-Tax

 

BALANCE AS OF DECEMBER 31, 2020

 

$

1,249

 

 

$

(263

)

 

$

986

 

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

 

 

(2,050

)

 

 

432

 

 

 

(1,618

)

Unrealized loss on securities transferred from available-for-sale to held to maturity

 

 

(1,976

)

 

 

415

 

 

 

(1,561

)

Amortization of held-to-maturity discount resulting
   from transfer

 

 

86

 

 

 

(18

)

 

 

68

 

Total other comprehensive loss

 

 

(3,940

)

 

 

829

 

 

 

(3,111

)

 

 

 

 

 

 

 

 

 

 

BALANCE AS OF DECEMBER 31, 2021

 

$

(2,691

)

 

$

566

 

 

$

(2,125

)

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

 

 

(13,952

)

 

 

2,930

 

 

 

(11,022

)

Amortization of held-to-maturity discount resulting
   from transfer

 

 

289

 

 

 

(61

)

 

 

228

 

Total other comprehensive loss

 

 

(13,663

)

 

 

2,869

 

 

 

(10,794

)

 

 

 

 

 

 

 

 

 

 

BALANCE AS OF DECEMBER 31, 2022

 

$

(16,354

)

 

$

3,435

 

 

$

(12,919

)

 

NOTE 17 – CONTINGENT LIABILITIES

In the normal course of business, the Company is subject to pending and threatened legal actions. Although, the Company is not able to predict the outcome of such actions, after reviewing pending and threatened actions, management believes that the outcome of any or all such actions will not have a material adverse effect on the results of operations or shareholders’ equity of the Company.

The Company has an employment agreement with an officer. Upon the occurrence of certain types of termination of employment, the Company may be required to make specified severance payments if termination occurs within a specified period of time, generally two years from the date of the agreement, or pursuant to certain change in control transactions.

NOTE 18– QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of selected quarterly financial data (unaudited) for the years ended December 31:

 

(Dollars in thousands, except per share data)

 

Interest
Income

 

 

Net
Interest
Income

 

 

Net
Income

 

 

Basic and Diluted
Earnings
Per Share

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

First quarter

 

$

7,242

 

 

$

6,865

 

 

$

2,701

 

 

$

0.99

 

Second quarter

 

 

8,003

 

 

 

7,630

 

 

 

3,209

 

 

 

1.18

 

Third quarter

 

 

9,156

 

 

 

8,560

 

 

 

3,650

 

 

 

1.35

 

Fourth quarter

 

 

10,418

 

 

 

9,268

 

 

 

3,753

 

 

 

1.39

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

First quarter

 

$

7,581

 

 

$

7,008

 

 

$

2,885

 

 

$

1.05

 

Second quarter

 

 

7,014

 

 

 

6,471

 

 

 

2,745

 

 

 

1.00

 

Third quarter

 

 

7,805

 

 

 

7,325

 

 

 

2,901

 

 

 

1.06

 

Fourth quarter

 

 

7,129

 

 

 

6,713

 

 

 

2,306

 

 

 

0.85

 

 

 

 

59

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

With the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) was performed, as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective.

Internal Control over Financial Reporting

Information contained in the Report On Management’s Assessment of Internal Control Over Financial Reporting in Item 8 of this Annual Report on Form 10-K is incorporated herein by reference

Changes in Internal Control over Financial Reporting

There have been no changes during the quarter ended December 31, 2022, in the Company’s internal controls over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) that have materially affected, or are reasonably likely to materially affect, CSB’s 2022 internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

None.

 

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

Not applicable.

60

 

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.

The information required by Item 401 of Regulation S-K concerning the directors of the Company and the nominees for election as directors of the Company at the Annual Meeting of Shareholders to be held on April 26, 2023 (the “2023 Annual Meeting”), is incorporated herein by reference from the information to be included under the captions “Proposal One – Election of Directors,” “Nominees for Election of Directors,” and “Directors Continuing in Office” in the Company’s definitive proxy statement relating to the 2023 Annual Meeting to be filed with the SEC (the “2023 Proxy Statement”) no later than 120 days after December 31, 2022. The information required by Item 401 of Regulation S-K concerning the executive officers of the Company is incorporated herein by reference from the information to be included under the caption “Executive Officers” in the 2023 Proxy Statement.

Code of Ethics

The Company has adopted a Code of Ethics that applies to its principal officers, including the Chief Executive Officer and Chief Financial Officer. The Company has posted its Code of Ethics on its website at www.csb1.com; select Investor Relations/Corporate Governance/Governance Documents. The Company plans to satisfy SEC disclosure requirements regarding any amendments to, or waiver of, the Code of Ethics relating to its Chief Executive Officer or Chief Financial Officer, and persons performing similar functions, by posting such information on the Company’s website or by making any necessary filings with the SEC. Any person may receive a copy of our Code of Ethics free of charge upon request by calling the Company during business hours or by sending a written request.

Procedures for Recommending Director Nominees

Information concerning the procedures by which shareholders may recommend nominees to the Company’s Board of Directors can be found under the caption, “Shareholder Recommendations” in the 2023 Proxy Statement. This is a new proposal, if approved, to amend the code of regulations to conform with the Commision's newly adopted Rule 14a-19 of the Exchange Act. Shareholders will be required to comply with the amended nomination procedure as described under Propasal Three - Approve the Amendment to Article III, Section 3 of our code of regulations.

Audit Committee

The information required by Items 407(d)(4) and (d)(5) of Regulation S-K is incorporated herein by reference from the disclosure to be included under the sections, “Membership and Meetings of the Board and its Committees” and the subsection, “Committees of the Board of Directors – Audit Committee” in the 2023 Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by Item 402 of Regulation S-K is incorporated herein by reference from the disclosure to be included under the sections, “Discussion of Executive Compensation Programs” and, “Executive Compensation and Other Information” and the subsection, “Directors’ Compensation” under the section captioned, “Membership and Meetings of the Board and its Committees” in the 2023 Proxy Statement.

The information required by Item 407(e)(4) of Regulation S-K is incorporated herein by reference from the disclosure to be included under the section, “Compensation Committee Interlocks and Insider Participation” in the 2023 Proxy Statement.

The information required by Item 407(e)(5) of Regulation S-K is incorporated herein by reference from the disclosure to be included under the section, “The Compensation Committee Report” in the 2023 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Equity Compensation Plan Information

None.

Security Ownership of Certain Beneficial Owners and Management

The information required by Item 403 of Regulation S-K is incorporated herein by reference from the disclosure to be included under the section, “Beneficial Ownership of Management and Certain Beneficial Owners” in the 2023 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information required by Item 404 of Regulation S-K is incorporated herein by reference from the disclosure to be included under the section, “Certain Relationships and Related Transactions” in the 2023 Proxy Statement.

The information required by Item 407(a) of Regulation S-K is incorporated herein by reference from the disclosure to be included under the section, “Membership and Meetings of the Board and its Committees” in the 2023 Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by this Item 14 is incorporated herein by reference from the disclosure to be included under the section, “Independent Registered Public Accounting Firm Fees” and subsection, “Audit Committee Procedures for Pre-Approval of Services by the Independent Public Accounting Firm” in the 2023 Proxy Statement.

61

 

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

 

a.
The following documents are filed as part of this report and included under Item 8:

 

(1)

Financial Statements

29

 

Report of Independent Registered Public Accounting Firm (S.R. Snodgrass)

30

 

Consolidated Balance Sheets on December 31, 2022 and 2021

32

 

Consolidated Statements of Income for the years ended December 31, 2022 and 2021

33

 

Consolidated Statements of Comprehensive Income for the years ended December 31, 2022 and 2021

34

 

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2022 and 2021

35

 

Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021

36

 

Notes to Consolidated Financial Statements

38

 

(2)
Financial Statement Schedules

All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and have been omitted.

 

(3)
Exhibits

The documents listed in the Index to Exhibits that immediately precedes the "Signatures" pages of this Annual Report on Form 10-K are filed or furnished with this Annual Report on Form 10-K as exhibits or incorporated into this Annual Report on Form 10-K by reference.

 

b.
Exhibits Required by Item 601 of Regulation S-K.

 

 

c.
Financial Statement Schedules

Certain schedules have been omitted because the required information is included in the consolidated financial statements and notes thereto or because they are not applicable or not required.

 

ITEM 16. FORM 10-K SUMMARY.

None.

62

 

(a)(3) Exhibits

The documents listed below are filed with this Annual Report on Form 10-K as exhibits or incorporated into this Annual Report on Form 10-K by reference as noted:

 

Exhibit

Number

 

Description of Document

 

 

 

3.1

 

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

 

 

3.1.1

 

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

 

 

3.2

 

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

 

 

3.2.1

 

Amendment to Article VIII to the Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to registrant’s Form DEF 14A filed on March 25, 2009, Appendix A, file number 000-21714).

 

 

4

 

Description of Capital Stock (incorporated by reference to registrant’s Annual Report on Form 10-K filed on March 16, 2020, Exhibit 4, file number 000-21714).

 

 

10.1+

 

CSB Bancorp, Inc. Share Incentive Plan (incorporated by reference to registrant’s Form DEF 14A, filed on March 18, 2005, Appendix A, file number 000-21714).

 

 

10.2+

 

Employment Agreement between Paula Meiler and the Commercial and Savings Bank of Millersburg, Ohio (incorporated by reference to registrant’s Annual Report on Form 10-K filed on March 25, 2013, Exhibit 10.2, file number 000-21714).

 

 

10.3+

 

Amendment to Employment Agreement between Paula Meiler and The Commercial & Savings Bank of Millersburg, Ohio (incorporated by reference to registrant’s Annual Report on Form 10-K filed on March 25, 2013, Exhibit 10.3, file number 000-21714).

 

 

10.4+

 

CSB Bancorp, Inc. Annual Incentive Plan (incorporated by reference to registrant’s Annual Report on Form 10-K filed on March 23, 2017, Exhibit 10.4, file number 000-21714).

 

 

 

10.5+

 

The Commercial & Savings Bank Deferred Compensation Plan (incorporated by reference to Registrant’s Current Report on Form 8-K filed on December 26, 2019, Exhibit 10.1 file number 000-21714).

 

 

21*

 

Subsidiaries of CSB Bancorp, Inc.

 

 

23.1*

 

Consent of S.R. Snodgrass, P.C.

 

 

31.1*

 

Section 302 Certification of Chief Executive Officer

 

 

31.2*

 

Section 302 Certification of Chief Financial Officer

 

 

32.1**

 

Section 906 Certification of Chief Executive Officer

 

 

32.2**

 

Section 906 Certification of Chief Financial Officer

 

 

101.INS

 

 Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

104

 

The cover page for the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, has been formatted in Inline XBRL and contained in Exhibit 101

* Filed herewith.

** Furnished herewith.

+ Indicates management contract or compensatory plan.

63

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

 

 

 

 

 

/s/ Eddie L. Steiner

Date: March 16, 2023

 

Eddie L. Steiner, President and Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 16, 2023.

 

Signatures

 

Title

 

 

/s/ Eddie L. Steiner

 

President and Chief Executive Officer

Eddie L. Steiner

 

 

 

 

/s/ Paula J. Meiler

 

Senior Vice President and Chief Financial Officer

Paula J. Meiler

 

 

 

 

/s/ Pamela S. Basinger

 

Vice President and Principal Accounting Officer

Pamela S. Basinger

 

 

 

 

/s/ Robert K. Baker

 

Director

Robert K. Baker

 

 

 

 

/s/ Vikki G. Briggs

 

Director

Vikki G. Briggs

 

 

 

 

/s/ Julian L. Coblentz

 

Director

Julian L. Coblentz

 

 

 

 

/s/ Cheryl M. Kirkbride

 

Director

Cheryl M. Kirkbride

 

 

 

 

/s/ Jeffery A. Robb, Sr.

 

Director

Jeffery A. Robb, Sr.

 

 

 

 

 

 

 

 

64