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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, 2023

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 000-21714

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, 2023 of $38.88 per share on the OTC Stock Market, was $94.4 million.

The number of shares of Registrant’s Common Stock outstanding as of March 15, 2024 was 2,664,967.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of CSB Bancorp Inc.’s Proxy Statement for the 2024 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 bank 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 increased slightly in the fourth quarter of 2023. Demand for goods and services improved as steady sales were recorded during the fourth quarter 2023. Supply chain challenges improved during the year, creating less constrained inventories, and cost increases appear to be leveling off. Consumer spending has increased slightly. Reported unemployment levels in December 2023 ranged from 2.1% to 3.3% in the four primary counties served by the Company. These levels decreased from the December 2022 unemployment range of 2.9% to 4.0%. 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 softened again year over year with higher interest rates and building costs reducing demand, while nonresidential construction activity has improved since the prior year. Core deposit balances remain flat, and customers continue to move funds into higher yielding interest-bearing accounts. Commercial loan demand remained strong during 2023, residential mortgage demand was noticeably curtailed by effects of the interest rate environment, while other consumer loan demand was steady but began to soften during the fourth quarter.

 

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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 also assesses management’s current credit grades and provides commentary with regard to assigned ratings, as well as assesses 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.

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, 2023, see the Consolidated Financial Statements and Notes to the Consolidated Financial Statements found in Item 8 of this Annual Report on Form 10-K.

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Employees

On December 31, 2023, the Company had 185 employees, 161 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.

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 fund 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.

 

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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 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 credit 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 adopted the CECL model 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.

 

 

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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).

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, 2023, 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, 2023, 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.

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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 DIF 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. As of June 30, 2020, the FDIC’s designated reserve ratio (“DRR”) fell below the statutory minimum DRR of 1.35%, to 1.30%. As a result, the FDIC adopted a restoration plan requiring the restoration of the DRR to 1.35% within eight years (September 30, 2028). 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. In the FDIC’s most recent semiannual update for the Amended Restoration Plan in November 2023, the FDIC noted that increased loss provisions associated with the failures of Silicon Valley Bank, Signature Bank and First Republic Bank in 2023 that reduced the DIF balance, coupled with strong growth in insured deposits, resulted in the reserve ratio declining 15 basis points from 1.25% as of December 31, 2022 to 1.10% as of June 30, 2023. Despite the decline in the reserve ratio, the FDIC staff projected that the reserve ratio remains on track to reach the statutory minimum of 1.35% ahead of the deadline of September 30, 2028. As a result, the FDIC staff recommended no changes to the Amended Restoration Plan and all scheduled assessment rates were maintained.

On November 16, 2023, the FDIC adopted a final rule implementing a special assessment to recover the loss to the DIF arising from the protection of uninsured depositors following the failures of Silicon Valley Bank and Signature Bank. The assessment base for the special assessment is equal to an insured depository institution’s estimated uninsured deposits reported for the quarter ended December 31, 2022, adjusted to exclude the first $5 billion in estimated uninsured deposits. The FDIC will collect the special assessment at an annual rate of approximately 13.4 basis points, over eight quarterly assessment periods, beginning with the first quarter of 2024. Because the Bank’s uninsured deposits were less than $5 billion for the quarter ended December 31, 2022, the Bank will not be subject to this special assessment.

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 DIF. 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 company. Under applicable federal and state laws, a subsidiary bank may not, subject to certain limited exceptions, make loans or extensions of credit to, or investments in the securities of, its parent holding company. 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.

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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 against various parties. The following are just some of the consumer protection laws applicable to the Bank:

 

Equal Credit Opportunity Act: prohibits discrimination in any credit transaction on the basis of any of various criteria.
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.
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.

Community Reinvestment Act

The Community Reinvestment Act (“CRA”) requires depository institutions to assist in meeting the credit needs of their market areas, including low- and moderate-income areas, consistent with safe and sound banking practice. Under this Act, each institution is required to adopt a statement for each of its market areas describing the depository institution’s efforts to assist in its community’s credit needs. Depository institutions are periodically examined for compliance and assigned one of four ratings: outstanding, satisfactory, needs improvement, or substantial noncompliance. The rating assigned to a financial institution is considered in connection with various applications submitted by a financial institution or its holding company to its banking regulators, including applications to acquire another financial institution or to open a new branch office. In addition, all subsidiary banks of a financial holding company must maintain a satisfactory or outstanding rating in order for the financial holding company to avoid limitations on its activities. The Bank received a rating of “satisfactory" in its most recent CRA examination.

On October 24, 2023, the federal banking agencies, including the Federal Reserve Board, issued a final rule designed to strengthen and modernize the regulations implementing the CRA. The changes are designed to encourage banks to expand access to credit, investment and banking services in low- and moderate-income communities, adapt to changes in the banking industry, including mobile and internet banking, provide greater clarity and consistency in the application of the CRA regulations, and tailor CRA evaluations and data collection to bank size and type. The applicability date for the majority of the changes to the CRA regulations is January 1, 2026, and additional requirements will be applicable on January 1, 2027. CSB cannot predict the impact the changes to the CRA will have on its operations at this time.

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 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 Anti-Money Laundering Act of 2020 (the “AMLA”), which amends the Bank Secrecy Act of 1970 (the “BSA”), was enacted in January 2021. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; expands enforcement-related and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting BSA whistleblower initiatives and protections.

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

 

8


 

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.

On July 26, 2023, the SEC adopted final rules that require public companies to promptly disclose material cybersecurity incidents in a Current Report on Form 8-K and detailed information regarding their cybersecurity risk management, strategy, and governance on an annual basis in an Annual Report on Form 10-K. Companies are required to report on Form 8-K any cybersecurity incident they determine to be material within four business days of making that determination. See Item 1C “Cybersecurity” in Part I of this Form 10-K. These SEC rules, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.

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.

 

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.

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.

 

9


 

Executive and Incentive Compensation

Following the adoption of additional listing requirements in 2023 to comply with the Dodd-Frank Act and rules adopted by the SEC in October 2022, public companies listed on the NYSE or Nasdaq are now required 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. CSB adopted a clawback policy effective December 1, 2023, though it is not required to do so.

 

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 the 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 the 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, 2023:

 

 

 

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

 

$

9,010

 

 

 

2.00

 

%

$

9,100

 

 

 

2.04

 

%

$

 

 

 

 

%

$

 

 

 

 

%

$

18,110

 

 

 

2.02

 

%

U.S. Government agencies

 

 

8,000

 

 

 

0.34

 

 

 

6,000

 

 

 

0.65

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,000

 

 

 

0.47

 

 

Mortgage-backed securities of
   government agencies

 

 

29

 

 

 

2.57

 

 

 

542

 

 

 

2.70

 

 

 

3,834

 

 

 

1.41

 

 

 

67,874

 

 

 

2.44

 

 

 

72,279

 

 

 

2.39

 

 

Asset-backed securities of
   government agencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

548

 

 

 

6.46

 

 

 

 

 

 

 

 

 

548

 

 

 

6.46

 

 

State and political subdivisions

 

 

1,258

 

 

 

3.64

 

 

 

8,134

 

 

 

2.71

 

 

 

8,084

 

 

 

1.62

 

 

 

 

 

 

 

 

 

17,476

 

 

 

2.27

 

 

Corporate bonds

 

 

 

 

 

 

 

 

22,670

 

 

 

2.96

 

 

 

6,465

 

 

 

3.75

 

 

 

 

 

 

 

 

 

29,135

 

 

 

3.14

 

 

Total

 

$

18,297

 

 

 

1.39

 

%

$

46,446

 

 

 

2.44

 

%

$

18,931

 

 

 

2.45

 

%

$

67,874

 

 

 

2.44

 

%

$

151,548

 

 

 

2.31

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasuries

 

$

2,497

 

 

 

0.75

 

%

$

4,944

 

 

 

1.11

 

%

$

2,864

 

 

 

1.15

 

%

$

 

 

 

 

%

$

10,305

 

 

 

1.03

 

%

Mortgage-backed securities of
   government agencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

173

 

 

 

1.85

 

 

 

213,252

 

 

 

2.02

 

 

 

213,425

 

 

 

2.02

 

 

State and political subdivisions

 

 

 

 

 

 

 

 

220

 

 

 

1.32

 

 

 

1,868

 

 

 

2.14

 

 

 

461

 

 

 

1.20

 

 

 

2,549

 

 

 

1.90

 

 

Total

 

$

2,497

 

 

 

0.75

 

%

$

5,164

 

 

 

1.11

 

%

$

4,905

 

 

 

1.55

 

%

$

213,713

 

 

 

2.02

 

%

$

226,279

 

 

 

1.98

 

%

 

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%.

 

10


 

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, 2023:

 

 

 

Maturing

 

(Dollars in thousands)

 

One Year
or Less

 

 

One
Through
Five Years

 

 

Five Through Fifteen Years

 

 

After Fifteen
Years

 

 

Total

 

Commercial and industrial

 

$

64,547

 

 

$

56,665

 

 

$

27,222

 

 

$

3,691

 

 

$

152,125

 

Commercial real estate

 

 

904

 

 

 

16,656

 

 

 

42,193

 

 

 

130,949

 

 

 

190,702

 

Commercial lessors of buildings

 

 

369

 

 

 

1,058

 

 

 

19,008

 

 

 

62,252

 

 

 

82,687

 

Construction

 

 

3,722

 

 

 

522

 

 

 

6,344

 

 

 

38,626

 

 

 

49,214

 

Consumer mortgage

 

 

2

 

 

 

1,355

 

 

 

42,393

 

 

 

123,141

 

 

 

166,891

 

Home equity line of credit

 

 

1,546

 

 

 

12,403

 

 

 

29,320

 

 

 

 

 

 

43,269

 

Consumer installment

 

 

385

 

 

 

7,491

 

 

 

2,683

 

 

 

77

 

 

 

10,636

 

Consumer indirect

 

 

6

 

 

 

497

 

 

 

5,421

 

 

 

33

 

 

 

5,957

 

Total

 

$

71,481

 

 

$

96,647

 

 

$

174,584

 

 

$

358,769

 

 

$

701,481

 

 

The following is a schedule of fixed rate and variable rate loans due after one year from December 31, 2023.

 

(Dollars in thousands)

 

Fixed Rate

 

 

Variable Rate

 

Commercial and industrial

 

$

59,189

 

 

$

28,389

 

Commercial real estate

 

 

1,869

 

 

 

187,929

 

Commercial lessors of buildings

 

 

517

 

 

 

81,801

 

Construction

 

 

489

 

 

 

45,003

 

Consumer mortgage

 

 

44,921

 

 

 

121,968

 

Home equity line of credit

 

 

83

 

 

 

41,640

 

Consumer installment

 

 

9,333

 

 

 

918

 

Consumer indirect

 

 

5,951

 

 

 

 

 

 

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, 2023

 

(Dollars in thousands)

Net (Charge-offs) Recoveries

 

 

Average Loans

 

 

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

 

Commercial and industrial

$

181

 

 

$

141,811

 

 

 

0.13

%

Commercial real estate

 

9

 

 

 

175,699

 

 

 

0.01

%

Commercial lessors of buildings

 

 

 

 

82,690

 

 

 

0.00

%

Construction

 

 

 

 

45,779

 

 

 

0.00

%

Consumer mortgage

 

1

 

 

 

161,275

 

 

 

0.00

%

Home equity line of credit

 

 

 

 

42,838

 

 

 

0.00

%

Consumer installment

 

(26

)

 

 

10,444

 

 

 

-0.25

%

Consumer indirect

 

(35

)

 

 

6,257

 

 

 

-0.56

%

Total

$

130

 

 

$

666,793

 

 

 

0.02

%

 

 

 

December 31, 2022

 

(Dollars in thousands)

Net (Charge-offs) Recoveries

 

 

Average Loans

 

 

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

 

Commercial

$

(177

)

 

$

129,916

 

 

 

-0.14

%

Commercial real estate

 

(10

)

 

 

200,174

 

 

 

0.00

%

Residential real estate

 

3

 

 

 

180,740

 

 

 

0.00

%

Construction & land development

 

312

 

 

 

61,034

 

 

 

0.51

%

Consumer

 

(13

)

 

 

15,946

 

 

 

-0.08

%

Total

$

115

 

 

$

587,810

 

 

 

0.02

%

 

 

11


 

 

The following schedule is a breakdown of the allowance for credit losses allocated by type of loan and related ratios. While management’s periodic analysis of the adequacy of the allowance for credit 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 Credit Losses

 

(Dollars in thousands)

 

 

Allowance
Amount

 

 

Percentage
of Loans
in Each
Category
to Total
Loans

 

 

 

 

December 31, 2023

 

 

Commercial and industrial

 

$

1,737

 

 

 

21.7

 

%

Commercial real estate

 

 

1,637

 

 

 

27.2

 

 

Commercial lessors of buildings

 

 

1,200

 

 

 

11.8

 

 

Construction

 

 

333

 

 

 

7.0

 

 

Consumer mortgage

 

 

1,107

 

 

 

23.8

 

 

Home equity line of credit

 

 

288

 

 

 

6.2

 

 

Consumer installment

 

 

76

 

 

 

1.5

 

 

Consumer indirect

 

 

229

 

 

 

0.8

 

 

Total

 

$

6,607

 

 

 

100.0

 

%

 

 

Allocation of the Allowance for Loan Losses

 

(Dollars in thousands)

 

 

Allowance
Amount

 

 

Percentage
of Loans
in Each
Category
to Total
Loans

 

 

 

 

December 31, 2022

 

 

Commercial

 

$

1,110

 

 

 

20.6

 

%

Commercial real estate

 

 

2,760

 

 

 

37.0

 

 

Residential real estate

 

 

1,268

 

 

 

30.9

 

 

Construction & land development

 

 

803

 

 

 

8.9

 

 

Consumer

 

 

233

 

 

 

2.6

 

 

Unallocated

 

 

664

 

 

 

 

 

Total

 

$

6,838

 

 

 

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)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

Noninterest-bearing demand

 

$

314,956

 

 

$

337,759

 

 

N/A

 

 

N/A

 

 

Interest-bearing demand

 

 

251,626

 

 

 

240,904

 

 

 

1.02

 

%

 

0.27

 

%

Savings deposits

 

 

296,896

 

 

 

315,881

 

 

 

0.80

 

 

 

0.21

 

 

Time deposits

 

 

154,505

 

 

 

118,085

 

 

 

2.96

 

 

 

0.86

 

 

Total deposits

 

$

1,017,983

 

 

$

1,012,629

 

 

 

 

 

 

 

 

 

 

12


 

The Bank does not have any material deposits by foreign depositors. The total uninsured portion of all deposit accounts greater than $250 thousand was $254 million as of December 31, 2023, and $267 million as of December 31, 2022. The following is a schedule of maturities of time certificates of deposit in amounts greater than $250 thousand as of December 31, 2023:

 

(Dollars in thousands)

 

Time Deposits Greater than $250 Thousand

 

Three months or less

 

$

21,846

 

Over three through six months

 

 

13,365

 

Over six through twelve months

 

 

17,007

 

Over twelve months

 

 

6,379

 

Total

 

$

58,597

 

 

 

ITEM 1A. RISK FACTORS.

Not Applicable.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS.

Not applicable.

 

ITEM 1C. CYBERSECURITY

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. CSB Places a high priority and focus on securing the confidential information it receives and stores about its customers and associates and providing highly available systems.

 

Governance

Our Information Security (“IS”) Program consists of policies, procedures and guidelines to ensure the security, availability, and confidentiality of systems and customer information. The IS Program is led by our Information Security Officer (“ISO”) under the direction of the Chief Information Officer (“CIO”) and is subject to oversight by our IT Steering Committee. The IT Steering Committee is a cross-functional management committee with overall responsibilities for identifying and approving the IT Strategic plan, identifying and approving strategic technology based initiatives that improve/enhance the security posture and mitigation efforts of cybersecurity threats, monitoring of the technology infrastructure and systems, monitoring critical vendors, monitoring cybersecurity threats and issues, and conducting, reviewing, and monitoring IT based risk assessments. These efforts include the framework used to identify and prevent cyberattacks or breaches. The IT Steering Committee makes recommendations for approval of certain risk assessments, risk frameworks, and appropriate application of mitigation strategies and frameworks to the Board of Directors.

 

The Board of Directors oversees the IS Program in the following ways: (a) monitors and oversees the Company’s business and information technology operations necessary for its business plan, including projected growth, technology capacity, planning, operational execution, product development and management capacity, (b) reviews the Company’s framework(s) to prevent, detect, and respond to cyberattacks or breaches, as well as identifying areas of concern regarding possible vulnerabilities, and reviews policies pertaining to information security and cyber threats, taking into account the potential for external threats, internal threats, and threats arising from transaction and contractual relationships with trusted third party vendors, and (c) reviews the Company’s incident response, business continuity and disaster recovery planning and preparedness including processes, policies and procedures that are related to preparing for recovery or continuation of technology infrastructure which are vital to the Company. As part of the Board’s oversight, the Board receives frequent reports from the CIO and ISO including the summarization of new and emerging cybersecurity threats and trends and the effectiveness of our IS Program in mitigating cybersecurity threats among other items. In the event of an information security incident, our Incident Response Plan clarifies the steps for escalation according to the severity of the event.

 

The IS team is staffed primarily with internal associates, and we utilize third party service providers for extended coverage. We hire IS team members that have relevant information security experience or technology certifications and knowledge to implement and oversee the procedures and processes of our IS Program and to adequately manage and enforce our policies and procedures. Further, management involved in the cybersecurity process, possess the necessary skills and expertise to adequately manage and enforce our policies and procedures.

 

While all vendors are subject to our vendor management process, those with access to our data and data centers are subject to more rigorous initial and ongoing due diligence. This includes the reviews of Service Organization Control 2 ("SOC 2") reports, financial information, and other policies and procedures related to such third party vendors and their various programs, including vendor management.

 

13


 

Risk Management and Strategy

As part of the ongoing maintenance and development of our IS Program, we assess the various risks associated with the unauthorized access or loss of client information and the quality of security controls as prescribed by the Federal Financial Institutions Examinations Council and several other frameworks. The frameworks and our IS risk assessments are utilized to monitor and develop strategies to minimize risk to our information assets.

 

Our systems are monitored 24/7 for cybersecurity threats, and we utilize a variety of tools to reduce the risk of data breaches and cybersecurity events. We maintain an Incident Response Plan that outlines the steps to be taken in the event of an incident, which could include a potential or actual data breach. The plan identifies a designated team, including associates and third-party experts, responsible for incident response and summarizes the steps, including escalation protocol, for determining whether an event has occurred and the nature and scope of the event (if applicable). The plan also summarizes protocol for notifying impacted persons, which may include customers as well as other applicable agencies or persons, including law enforcement and regulatory authorities.

 

At least annually, we conduct a third-party information security audit focusing on internal and external network security protocols and penetration testing, as well as internally managed ad hoc testing as needed. Simulations and tabletop testing of our business continuity and Incident Response Plans are performed on a routine basis and assist with our associates’ familiarity and preparedness for an event. Any gaps or improvement areas identified by routine testing are addressed in a timely manner to help improve future testing and response.

 

The processes and controls related to data security are regularly tested by the IS department and Internal Audit. Additional internal security assessments may be performed at the request of the CISO, CIO, the Internal Auditor, Management or our Board. Audit and assessment results are presented to the Audit Committee of the Board, and to the IT Steering Committee.

 

At least annually, the IS Program, including its effectiveness, is reviewed by the Board. Annually, all associates participate in mandatory training related to the IS Program, including information security and its importance with respect to customer and associate privacy. All associates are required to participate in monthly bank wide phishing tests. Results from these tests are delivered to our Audit Committee of the Board of Directors.

 

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 the expanding use of internet banking, mobile banking and other technology-based products and services by the Company and its customers.

 

 

14


 

 

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.

15


 

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, 2023, 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, 2018, in CSB’s Common Shares and in each of the indicated indices and assumes reinvestment of dividends.

 

 

 

2018

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

2023

 

CSBB

 

$

100

 

 

$

109

 

 

$

97

 

 

$

108

 

 

$

114

 

 

$

115

 

S & P 500 Total Return

 

 

100

 

 

 

131

 

 

 

156

 

 

 

200

 

 

 

164

 

 

 

207

 

NASDAQ Community Bank Total Return

 

 

100

 

 

 

123

 

 

 

109

 

 

 

148

 

 

 

137

 

 

 

135

 

 

img42463803_0.jpg 

 

 

16


 

 

 

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, 2023 to October 31, 2023

 

 

 

 

$

 

 

 

 

 

 

66,081

 

November 1, 2023 to November 30, 2023

 

 

227

 

 

 

36.71

 

 

 

227

 

 

 

65,854

 

December 1, 2023 to December 31, 2023

 

 

1,148

 

 

 

37.55

 

 

 

1,148

 

 

 

64,706

 

 

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 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 37,638 Common Shares during 2023 and 10,448 Common Shares during 2022.

 

ITEM 6. [RESERVED]

 

 

 

 

17


 

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

 

 

2023 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 increased slightly in the fourth quarter of 2023. Demand for goods and services improved as steady sales were recorded during the fourth quarter 2023 with households spending more during the holidays. Supply chain challenges improved during the year, creating less constrained inventories, and costs appear to be leveling off. Consumer spending has increased slightly. Reported unemployment levels in December 2023 ranged from 2.1% to 3.3% in the four primary counties served by the Company. These levels decreased from the December 2022 range of 2.9% to 4.0% in the four counties served by the Company. Labor demand remained solid as competition for workers with specialized skills has put upward pressure on labor costs. The local housing market continues to be strong with extremely low inventory levels. Residential construction has softened again year over year with higher interest rates as the main factor reducing demand while nonresidential construction activity has improved since the prior year. Core deposits remain flat, and customers continue to move funds into interest-bearing accounts.

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.

 

NON-U.S. GAAP FINANCIAL MEASURES

Management’s Discussion and Analysis of Financial Condition and Results of Operations contains non-U.S. GAAP financial measures where management believes it to be helpful in understanding CSB’s results of operations or financial position. Where non-U.S. GAAP financial measures are used, the comparable U.S. GAAP financial measure, as well as the reconciliation to the comparable U.S. GAAP financial measure, can be found herein.

 

 

18


 

 

FINANCIAL DATA

 

The following table set forth certain selected consolidated financial information:

 

(Dollars in thousands, except per share data)

 

 

2023

 

 

 

2022

 

 

 

2021

 

 

 

2020

 

 

 

2019

 

 

Statements of income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total interest income

 

$

 

46,016

 

 

$

 

34,819

 

 

$

 

29,529

 

 

$

 

31,066

 

 

$

 

32,461

 

 

Total interest expense

 

 

 

9,875

 

 

 

 

2,496

 

 

 

 

2,012

 

 

 

 

2,913

 

 

 

 

4,062

 

 

Net interest income

 

 

 

36,141

 

 

 

 

32,323

 

 

 

 

27,517

 

 

 

 

28,153

 

 

 

 

28,399

 

 

Provision (recovery) for credit losses

 

 

 

442

 

 

 

 

(895

)

 

 

 

(655

)

 

 

 

1,650

 

 

 

 

1,140

 

 

Net interest income after provision (recovery) for credit losses

 

 

 

35,699

 

 

 

 

33,218

 

 

 

 

28,172

 

 

 

 

26,503

 

 

 

 

27,259

 

 

Noninterest income

 

 

 

6,744

 

 

 

 

6,711

 

 

 

 

7,325

 

 

 

 

6,935

 

 

 

 

5,428

 

 

Noninterest expense

 

 

 

24,060

 

 

 

 

23,393

 

 

 

 

22,093

 

 

 

 

20,342

 

 

 

 

19,769

 

 

Income before income taxes

 

 

 

18,383

 

 

 

 

16,536

 

 

 

 

13,404

 

 

 

 

13,096

 

 

 

 

12,918

 

 

Income tax provision

 

 

 

3,627

 

 

 

 

3,223

 

 

 

 

2,567

 

 

 

 

2,528

 

 

 

 

2,504

 

 

Net income

 

$

 

14,756

 

 

$

 

13,313

 

 

$

 

10,837

 

 

$

 

10,568

 

 

$

 

10,414

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per share of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

 

2,679,902.00

 

 

$

 

4.91

 

 

$

 

3.97

 

 

$

 

3.85

 

 

$

 

3.80

 

 

Diluted earnings per share

 

 

 

2,679,902.00

 

 

 

 

4.91

 

 

 

 

3.97

 

 

 

 

3.85

 

 

 

 

3.80

 

 

Dividends

 

 

 

1.50

 

 

 

 

1.30

 

 

 

 

1.22

 

 

 

 

1.13

 

 

 

 

1.08

 

 

Book value

 

 

 

40.43

 

 

 

 

35.43

 

 

 

 

35.80

 

 

 

 

34.23

 

 

 

 

31.17

 

 

Average basic common shares outstanding

 

 

 

2,679,902

 

 

 

 

2,714,045

 

 

 

 

2,733,126

 

 

 

 

2,742,350

 

 

 

 

2,742,296

 

 

Average diluted common shares outstanding

 

 

 

2,679,902

 

 

 

 

2,714,045

 

 

 

 

2,733,126

 

 

 

 

2,742,350

 

 

 

 

2,742,296

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year-end balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, net

 

$

 

694,797

 

 

$

 

620,333

 

 

$

 

541,536

 

 

$

 

600,885

 

 

$

 

544,616

 

 

Securities

 

 

 

368,153

 

 

 

 

401,144

 

 

 

 

311,245

 

 

 

 

204,184

 

 

 

 

130,721

 

 

Total assets

 

 

 

1,178,689

 

 

 

 

1,159,108

 

 

 

 

1,144,239

 

 

 

 

1,031,632

 

 

 

 

818,683

 

 

Deposits

 

 

 

1,027,427

 

 

 

 

1,023,417

 

 

 

 

1,002,747

 

 

 

 

891,562

 

 

 

 

683,546

 

 

Borrowings

 

 

 

37,597

 

 

 

 

35,011

 

 

 

 

39,937

 

 

 

 

41,879

 

 

 

 

45,219

 

 

Shareholders’ equity

 

 

 

107,939

 

 

 

 

95,920

 

 

 

 

97,315

 

 

 

 

93,859

 

 

 

 

85,476

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, net

 

$

 

660,265

 

 

$

 

580,454

 

 

$

 

554,547

 

 

$

 

601,419

 

 

$

 

545,483

 

 

Securities

 

 

 

385,666

 

 

 

 

388,827

 

 

 

 

231,285

 

 

 

 

129,508

 

 

 

 

112,290

 

 

Total assets

 

 

 

1,158,286

 

 

 

 

1,151,925

 

 

 

 

1,111,808

 

 

 

 

931,330

 

 

 

 

765,722

 

 

Deposits

 

 

 

1,017,983

 

 

 

 

1,012,629

 

 

 

 

969,009

 

 

 

 

788,904

 

 

 

 

636,441

 

 

Borrowings

 

 

 

34,526

 

 

 

 

40,218

 

 

 

 

42,600

 

 

 

 

48,358

 

 

 

 

44,478

 

 

Shareholders’ equity

 

 

 

100,452

 

 

 

 

94,850

 

 

 

 

96,145

 

 

 

 

90,247

 

 

 

 

81,548

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Select ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin, FTE basis1

 

 

 

3.32

 

%

 

 

2.98

 

%

 

 

2.63

 

%

 

 

3.22

 

%

 

 

3.97

 

%

Return on average total assets

 

 

 

1.27

 

 

 

 

1.16

 

 

 

 

0.97

 

 

 

 

1.13

 

 

 

 

1.36

 

 

Return on average shareholders’ equity

 

 

 

14.69

 

 

 

 

14.04

 

 

 

 

11.27

 

 

 

 

11.71

 

 

 

 

12.77

 

 

Average shareholders’ equity as a percent of average total assets

 

 

 

8.67

 

 

 

 

8.23

 

 

 

 

8.65

 

 

 

 

9.69

 

 

 

 

10.65

 

 

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

 

 

 

(0.02

)

 

 

 

(0.02

)

 

 

 

0.00

 

 

 

 

0.06

 

 

 

 

0.01

 

 

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

 

 

 

0.94

 

 

 

 

1.09

 

 

 

 

1.39

 

 

 

 

1.36

 

 

 

 

1.27

 

 

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

 

 

 

9.16

 

 

 

 

8.28

 

 

 

 

8.50

 

 

 

 

9.10

 

 

 

 

10.44

 

 

Dividend payout ratio2

 

 

 

27.20

 

 

 

 

26.48

 

 

 

 

30.73

 

 

 

 

29.35

 

 

 

 

28.42

 

 

 

1 Net interest margin is shown on a fully taxable equivalent, ("FTE") basis.

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

 

 

19


 

RESULTS OF OPERATIONS

 

Net Income

CSB’s 2023 net income was $14.8 million compared to $13.3 million for 2022, an increase of 11%. Total revenue, net interest income plus noninterest income, increased $3.9 million, or 10%, over the prior year to a total of $43 million. The provision for credit losses increased to a $442 thousand expense as compared to a $895 thousand recovery for the prior year. Noninterest expense increased $667 thousand, or 3% and the provision for income tax increased $404 thousand over the prior year due to an increase in taxable income. Basic and diluted earnings per share were $5.51, up 12% from the prior year. The return on average assets was 1.27% in 2023 compared to 1.16% in 2022 and return on average equity was 14.69% in 2023 compared to 14.04% in 2022.

Net Interest Income

(Dollars in thousands)

 

 

2023

 

 

 

2022

 

 

Net interest income

 

$

 

36,141

 

 

$

 

32,323

 

 

Taxable equivalent

 

 

 

133

 

 

 

 

145

 

 

Net interest income, FTE1

 

$

 

36,274

 

 

$

 

32,468

 

 

Net interest margin

 

 

 

3.31

 

%

 

 

2.97

 

%

Taxable equivalent adjustment

 

 

 

0.01

 

 

 

 

0.01

 

 

Net interest margin, FTE1

 

 

 

3.32

 

%

 

 

2.98

 

%

1 Taxable equivalent adjustments have been computed assuming a 21% tax rate in 2023, and 2022 (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). Changes in volume, interest rates, composition of interest-earning assets, and interest-bearing liabilities affect net interest income. Net interest income increased $3.8 million, or 12%, in 2023 compared to 2022. The increase was a result of a $11.2 million increase in interest income, partially offset by an increase of $7.4 million in interest expense. The FTE net interest margin increased to 3.32% from 2.98% in 2022.

Interest income increased $11.2 million, or 32%, in 2023 compared to 2022 primarily due to an increase of $9.7 million, or 37%, in interest and fees on loans due to an increase in average balances of $79 million and an increase in yield of 93 basis points ("bps"). Interest income on taxable securities increased $1.1 million due to a increase of 31 bps. Interest income on interest-earning deposits mainly held at the Federal Reserve increased $404 thousand in 2023 compared to 2022 primarily due to a 365 bps yield increase.

Interest expense increased $7.4 million, or 296%, in 2023 as compared to 2022 primarily due to rate increases of 75 bps on deposits and 69 bps on other borrowed funds. Average interest-bearing demand and savings deposit balances decreased $8 million during the year as the level of savings continued to decrease, 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 phased out to consumers and businesses. Average time deposit balances increased $36 million, and the average interest rate increased 210 bps.

 

20


 

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

AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN ANALYSIS

 

2023

 

 

 

2022

 

 

(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

$

 

40,723

 

 

$

 

2,107

 

 

 

5.17

 

%

 

$

 

111,775

 

 

$

 

1,703

 

 

 

1.52

 

%

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

363,988

 

 

 

 

7,803

 

 

 

2.14

 

 

 

 

 

364,478

 

 

 

 

6,665

 

 

 

1.83

 

 

Tax exempt 4

 

 

21,678

 

 

 

 

506

 

 

 

2.33

 

 

 

 

 

24,349

 

 

 

 

553

 

 

 

2.27

 

 

Loans 3, 4

 

 

666,793

 

 

 

 

35,733

 

 

 

5.36

 

 

 

 

 

587,765

 

 

 

 

26,043

 

 

 

4.43

 

 

Total interest-
earning assets

 

 

1,093,182

 

 

 

 

46,149

 

 

 

4.22

 

%

 

 

 

1,088,367

 

 

 

 

34,964

 

 

 

3.21

 

%

Noninterest-
earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due
from banks

 

 

19,313

 

 

 

 

 

 

 

 

 

 

 

 

20,435

 

 

 

 

 

 

 

 

 

Bank premises
and equipment, net

 

 

13,189

 

 

 

 

 

 

 

 

 

 

 

 

13,601

 

 

 

 

 

 

 

 

 

Other assets

 

 

39,129

 

 

 

 

 

 

 

 

 

 

 

 

36,833

 

 

 

 

 

 

 

 

 

Allowance for credit losses on loans

 

 

(6,527

)

 

 

 

 

 

 

 

 

 

 

 

(7,311

)

 

 

 

 

 

 

 

 

Total assets

$

 

1,158,286

 

 

 

 

 

 

 

 

 

 

$

 

1,151,925

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing
liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

$

 

251,626

 

 

 

 

2,564

 

 

 

1.02

 

%

 

$

 

240,904

 

 

 

 

648

 

 

 

0.27

 

%

Savings deposits

 

 

296,896

 

 

 

 

2,362

 

 

 

0.80

 

 

 

 

 

315,881

 

 

 

 

670

 

 

 

0.21

 

 

Time deposits

 

 

154,505

 

 

 

 

4,573

 

 

 

2.96

 

 

 

 

 

118,085

 

 

 

 

1,017

 

 

 

0.86

 

 

Borrowed funds

 

 

34,525

 

 

 

 

376

 

 

 

1.09

 

 

 

 

 

40,218

 

 

 

 

161

 

 

 

0.40

 

 

Total interest-
bearing liabilities

 

 

737,552

 

 

 

 

9,875

 

 

 

1.34

 

%

 

 

 

715,088

 

 

 

 

2,496

 

 

 

0.35

 

%

Noninterest-bearing
   liabilities and
   shareholders’
   equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

 

314,956

 

 

 

 

 

 

 

 

 

 

 

 

337,759

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

5,326

 

 

 

 

 

 

 

 

 

 

 

 

4,228

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

100,452

 

 

 

 

 

 

 

 

 

 

 

 

94,850

 

 

 

 

 

 

 

 

 

Total liabilities
and equity

$

 

1,158,286

 

 

 

 

 

 

 

 

 

 

$

 

1,151,925

 

 

 

 

 

 

 

 

 

Net interest
income
4

 

 

 

 

 

 

36,274

 

 

 

 

 

 

 

 

 

 

 

 

32,468

 

 

 

 

 

FTE adjustment

 

 

 

 

 

 

(133

)

 

 

 

 

 

 

 

 

 

 

 

(145

)

 

 

 

 

GAAP net interest
income

 

 

 

 

$

 

36,141

 

 

 

 

 

 

 

 

 

 

$

 

32,323

 

 

 

 

 

Net interest margin
FTE

 

 

 

 

 

 

 

 

 

3.32

 

%

 

 

 

 

 

 

 

 

 

 

2.98

 

%

Net interest spread

 

 

 

 

 

 

 

 

 

2.88

 

%

 

 

 

 

 

 

 

 

 

 

2.86

 

%

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

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

3 Average loan balances include nonaccrual loans.

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

 

21


 

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

 

 

 

 

2023 v. 2022

 

 

 

 

Net Increase

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

(Decrease)

 

 

 

Volume

 

 

 

Rate

 

Increase (decrease) in interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning deposits in other banks

 

$

 

404

 

 

$

 

(3,676

)

 

$

 

4,080

 

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

 

1,138

 

 

 

 

(11

)

 

 

 

1,149

 

Tax exempt 2

 

 

 

(47

)

 

 

 

(61

)

 

 

 

14

 

Loans 2

 

 

 

9,690

 

 

 

 

4,235

 

 

 

 

5,455

 

Total interest income change 2

 

 

 

11,185

 

 

 

 

487

 

 

 

 

10,698

 

Increase (decrease) in interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

 

 

1,916

 

 

 

 

109

 

 

 

 

1,807

 

Savings deposits

 

 

 

1,692

 

 

 

 

(151

)

 

 

 

1,843

 

Time deposits

 

 

 

3,556

 

 

 

 

1,078

 

 

 

 

2,478

 

Borrowed funds

 

 

 

215

 

 

 

 

(62

)

 

 

 

277

 

Total interest expense change

 

 

 

7,379

 

 

 

 

974

 

 

 

 

6,405

 

Net interest income change 2

 

$

 

3,806

 

 

$

 

(487

)

 

$

 

4,293

 

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 Credit Losses on Loans

The provision (recovery) for credit losses on loans is determined by management as the amount required to bring the allowance for credit losses to a level considered appropriate to absorb an estimation of credit loss during the expected weighted average life of the loan. During 2023, a provision for credit loss expense for loans of $198 thousand was recognized compared to a 2022 recovery of credit losses for loans of $895 thousand. The recapture of provision for credit losses for the prior 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. A credit loss provision for off-balance sheet commitments of $244 thousand was recognized in 2023 as compared to a recovery of credit loss provision for off-balance sheet commitments of $128 thousand in 2022, which was included in other noninterest expenses. This provision is primarily the result of the adoption of ASU 2016-13, which is the Current Expected Credit Loss Model ("CECL"), to reserve against construction loan commitments, which will most likely be drawn as compared to 2022 when provisions for off-balance sheet items were provided primarily on impaired lines of credit. Nonperforming loans increased $140 thousand from 2022 to 2023. See Financial Condition – Allowance for Credit Losses for additional discussion and information relative to the provision for credit losses.

Noninterest Income

 

 

YEAR ENDED DECEMBER 31

 

 

 

 

 

 

 

Change from 2022

 

 

 

(Dollars in thousands)

 

2023

 

 

 

Amount

 

 

%

 

 

 

2022

 

Service charges on deposit accounts

$

 

1,209

 

 

$

 

35

 

 

 

3

 

%

$

 

1,174

 

Trust services

 

 

1,013

 

 

 

 

59

 

 

 

6

 

 

 

 

954

 

Debit card interchange fees

 

 

2,107

 

 

 

 

2

 

 

 

0

 

 

 

 

2,105

 

Credit card fees

 

 

701

 

 

 

 

24

 

 

 

4

 

 

 

 

677

 

Gain on sale of loans, including MSRs

 

 

161

 

 

 

 

(170

)

 

 

(51

)

 

 

 

331

 

Earnings on bank-owned life insurance

 

 

702

 

 

 

 

28

 

 

 

4

 

 

 

 

674

 

Unrealized (loss) gain on equity securities

 

 

15

 

 

 

 

18

 

 

 

(600

)

 

 

 

(3

)

Other

 

 

836

 

 

 

 

37

 

 

 

5

 

 

 

 

799

 

Total noninterest income

$

 

6,744

 

 

$

 

33

 

 

 

0.5

 

%

$

 

6,711

 

 

Noninterest income increased $33 thousand, or 0.5%, in 2023 compared to the same period in 2022. Trust service revenue increased $59 thousand with fair market value increases. Service charges on deposits, increased $35 thousand in 2023 primarily from fees on business accounts. Earnings on bank owned life insurance increased $28 thousand. Credit card interchange income increased $24 thousand as business credit card usage continued to increase. Gain on sales of mortgage loans including mortgage servicing rights (“MSRs”) decreased $170 thousand due to fewer

22


 

sales of real estate mortgage loans into the secondary market. The Bank sold $5 million in mortgage loans, including gains, in 2023 as compared to the sale of $10 million of loans in 2022.

 

 

 

 

Noninterest Expenses

 

 

 

YEAR ENDED DECEMBER 31

 

 

 

 

 

 

 

 

Change from 2022

 

 

 

(Dollars in thousands)

 

 

2023

 

 

 

Amount

 

 

 

%

 

 

 

2022

 

Salaries and employee benefits

 

$

 

13,673

 

 

$

 

227

 

 

 

 

2

 

%

$

 

13,446

 

Occupancy expense

 

 

 

1,138

 

 

 

 

53

 

 

 

 

5

 

 

 

 

1,085

 

Equipment expense

 

 

 

792

 

 

 

 

11

 

 

 

 

1

 

 

 

 

781

 

Professional and director fees

 

 

 

1,471

 

 

 

 

(80

)

 

 

 

(5

)

 

 

 

1,551

 

Financial institutions tax

 

 

 

767

 

 

 

 

(12

)

 

 

 

(2

)

 

 

 

779

 

Marketing and public relations

 

 

 

549

 

 

 

 

(2

)

 

 

 

(0

)

 

 

 

551

 

Software expense

 

 

 

1,651

 

 

 

 

222

 

 

 

 

16

 

 

 

 

1,429

 

Debit card expense

 

 

 

682

 

 

 

 

(52

)

 

 

 

(7

)

 

 

 

734

 

FDIC insurance

 

 

 

514

 

 

 

 

169

 

 

 

 

49

 

 

 

 

345

 

Other

 

 

 

2,823

 

 

 

 

131

 

 

 

 

5

 

 

 

 

2,692

 

Total noninterest expenses

 

$

 

24,060

 

 

$

 

667

 

 

 

 

3

 

%

$

 

23,393

 

 

Noninterest expense increased $667 thousand, or 3%, in 2023 compared to 2022. Salaries and employee benefits increased $227 thousand from increases in base salaries, medical, and other benefits. Software expense increased $222 thousand, or 16%, due to full-year implementation of a new analytical software and cyber security software. FDIC insurance increased $169 thousand due to increased rates. Professional and director fees decreased $80 thousand primarily due to a decrease in third party assistance with contracting the bank's core vendor that did not recur in 2023, partially offset by audit and accounting fees for the implementation of CECL. Other expenses increased $131 thousand, or 5%.

Income Taxes

The provision for income taxes amounted to $3.6 million in 2023 as compared to $3.2 million in 2022. The increase in 2023 resulted from an increase in taxable income. The corporate statutory tax rate was 21% for 2023 and 2022. The effective tax rate in 2023 and 2022 was 19.7% and 19.5%, respectively.

FINANCIAL CONDITION

Total assets of the Company were $1.2 billion on December 31, 2023 and 2022, representing an increase of $20 million, or 2%. Net loans increased $74 million, or 12%, while investment securities decreased $33 million, or 8%, and total cash and cash equivalents decreased $22 million, or 26%. Deposits increased $4 million and short-term borrowings increased $3 million, while other borrowings from the Federal Home Loan Bank (“FHLB”) decreased by $707 thousand, or 29%.

Securities

Total investment securities decreased $33 million, or 8%, to $368 million at year-end 2023, primarily related to principal repayments on mortgage-backed securities. 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, 2023, 97% of such bonds held an S&P or Moody’s investment grade rating, and 3% were non-rated local issues. The municipal portfolio includes a broad spectrum of counties, cities, universities, and school districts with 82% of the portfolio originating in Ohio, and 18% in Pennsylvania. Gross unrealized security losses within the portfolio were 11% of total securities on December 31, 2023, reflecting interest rate increases, not credit downgrades.

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 $74 million, or 12%, during 2023. Volume increases were recognized as follows: commercial loans increased $23 million, or 18%, during 2023. Construction and land development loans decreased $6 million, or 11% as several commercial projects were under

23


 

construction and consumer demand slowed for 1-4 family residential construction at year end. Residential real estate loans increased $16 million, or 8%. Commercial real estate loans increased $42 million, or 18%. Commercial real estate and construction loan demand remains strong, within the company's market footprint. At year-end 2023, commercial real estate is comprised mostly of owner occupied buildings, $191 million and $83 million of buildings held for investment and leased to others. Owner occupied buildings are mostly assisted living, light industrial, and warehouse buildings. Investment properties include commercial strip centers, medical and office buildings.

The Company originated $52 million and $69 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 2023 and 2022, 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 $5 million of mortgages into the secondary market in 2023 as compared to $10 million of mortgages into the secondary market in 2022. Demand for home equity loans declined in 2023, with balances decreasing $1 million, as rates rose. Installment loans increased $206 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 61% and 58% of the total loan portfolio at year-end 2023 and 2022, respectively. Residential real estate loans approximated 30-31% of the portfolio in 2023 and 2022. Construction and land development loans decreased from 9% to 7% of the portfolio; however a number of construction loans will fund in 2024. The Company is well within the respective regulatory guidelines for investment in construction, development, and investment property loans that are not owner occupied. The Company has very little exposure to commercial office space leased properties. See Note 3 - Loans for further discussion of Concentrations of Credit. 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.

Nonperforming Assets, Individually Evaluated 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. 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)

 

 

2023

 

 

 

2022

 

 

Nonaccrual loans

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

 

59

 

 

$

 

 

 

Commercial real estate

 

 

 

62

 

 

 

 

92

 

 

Commercial lessors of buildings

 

 

 

15

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

Consumer mortgage

 

 

 

172

 

 

 

 

99

 

 

Home equity line of credit

 

 

 

 

 

 

 

 

 

Consumer installment

 

 

 

49

 

 

 

 

9

 

 

Consumer indirect

 

 

 

39

 

 

 

 

56

 

 

 

 

 

 

 

 

 

 

 

 

Loans past due 90 days or more and still accruing

 

 

 

 

 

 

 

 

 

Total nonperforming loans

 

 

 

396

 

 

 

 

256

 

 

 

 

 

 

 

 

 

 

 

 

Other real estate owned

 

 

 

 

 

 

 

 

 

Other repossessed assets

 

 

 

 

 

 

 

 

 

Total nonperforming assets

 

$

 

396

 

 

$

 

256

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans to total loans

 

 

 

0.06

 

%

 

 

0.04

 

%

 

Allowance for Credit Losses

The allowance for credit losses ("ACL") is maintained at a level considered by management to be adequate to cover credit losses currently expected over the weighted average life of the loan pools. The ACL decreased by $159 thousand, or 3%, to $6.6 million on December 31, 2023 from $6.8 million on December 31, 2022. The decrease was primarily the result of the adoption of the CECL model under the Weighted Average Remaining Maturity historical loss method, ("WARM") that is based on the weighted average life loan pools. This method is similar to the incurred loss method utilized prior to the implementation of CECL. The weighted average life of the loan pools are calculated on an instrument level and incorporate prepayment speeds from a 12 month trailing period. Additionally, a two year economic forecast is made based on the Bloomberg Financial consensus. During 2023 decreases in the allowance were recognized in the WARM method (due to continuing recoveries)

24


 

and the Bloomberg financial forecast (due to the decrease in the prediction of a recession). The bank continues to maintain qualitative factors tied to changes in: the lending policy, economic conditions, lending credit management, delinquent and classified loans, and the value of collateral.

 

During 2023, $113 thousand in nonaccrual loans were collected, $40 thousand were charged-off, and $293 thousand new loans entered nonaccrual status.

 

ALLOWANCE FOR CREDIT LOSSES

FOR THE YEAR ENDED

 

 

(Dollars in thousands)

 

 

2023

 

 

 

2022

 

 

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

 

 

 

(0.02

)

%

 

 

(0.02

)

%

Allowance for credit losses as a percentage of total loans

 

 

 

0.94

 

 

 

 

1.09

 

 

Allowance for credit losses to total nonacrrual loans

 

 

 

16.67

 

x

 

 

26.71

 

x

 

 

 

 

 

 

 

 

 

 

Components of the allowance for credit losses:

 

 

 

 

 

 

 

 

 

General reserves

 

$

 

6,546

 

 

$

 

6,834

 

 

Specific reserve allocations

 

 

 

61

 

 

 

 

4

 

 

Total allowance for credit losses

 

$

 

6,607

 

 

$

 

6,838

 

 

 

The allowance for credit losses on loans totaled $6.6 million, or 0.94% of total loans at year-end 2023 as compared to $6.8 million, or 1.09%, of total loans at year-end 2022. The Bank had net loan recoveries of $130 thousand in 2023, compared to $115 thousand in recoveries in 2022.

 

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 $396 thousand, or 0.06%, of loans at year-end 2023 compared to $256 thousand, or 0.04%, of loans at year-end 2022.

Other Assets

Net premises and equipment decreased $412 thousand to $13 million at year-end 2023 with depreciation expense exceeding purchases. Total bank-owned life insurance increased from $24 million at year-end 2022 to $25 million at year-end 2023 with increasing cash surrender values. There was no other real estate owned on December 31, 2023 or 2022. The Company recognized a net deferred tax asset of $2.6 million on December 31, 2023 compared to a net deferred tax asset of $3.0 million on December 31, 2022. The decrease is primarily due to an improvement in the net unrealized loss on securities.

 

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. Time deposits increased for the year ended 2023. Market rates on deposits and cash management products increased throughout the year as liquidity decreased in the industry.

 

 

 

 

December 31

 

 

 

Change from 2022

 

 

(Dollars in thousands)

 

 

2023

 

 

 

2022

 

 

 

Amount

 

 

 

%

 

 

Noninterest-bearing demand

 

$

 

301,697

 

 

$

 

350,283

 

 

$

 

(48,586

)

 

 

 

(14

)

%

Interest-bearing demand

 

 

 

256,621

 

 

 

 

241,227

 

 

 

 

15,394

 

 

 

 

6

 

 

Traditional savings

 

 

 

165,265

 

 

 

 

194,918

 

 

 

 

(29,653

)

 

 

 

(15

)

 

Money market savings

 

 

 

112,264

 

 

 

 

118,908

 

 

 

 

(6,644

)

 

 

 

(6

)

 

Time deposits in excess of $250,000

 

 

 

58,597

 

 

 

 

28,089

 

 

 

 

30,508

 

 

 

 

109

 

 

Other time deposits

 

 

 

132,983

 

 

 

 

89,992

 

 

 

 

42,991

 

 

 

 

48

 

 

Total deposits

 

$

 

1,027,427

 

 

$

 

1,023,417

 

 

$

 

4,010

 

 

 

 

0.4

 

%

 

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, increased $3 million. Other borrowings, consisting of FHLB advances, decreased $707 thousand as the result of principal repayments. The majority of FHLB borrowings on December 31, 2023, have long term maturities with monthly amortizing payments.

CAPITAL RESOURCES

Total shareholders’ equity was $107.9 million at December 31, 2023 compared to $95.9 million on December 31, 2022. This increase was primarily due to net income of $14.8 million and a $2.6 million accumulated other comprehensive gain recognized on the available-for-sale

25


 

securities portfolio resulting from decreasing interest rates. Dividends were paid of $4 million and $1.4 million treasury stock was repurchased in 2023. 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, 2023, approximately 102 thousand shares could still be repurchased under the current authorized program. Shares repurchased during 2023 totaled 37,638 shares for $1.4 million and shares purchased in 2022 totaled 10,448 shares for $388 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.

LIQUIDITY

 

 

 

December 31

 

 

 

 

 

 

(Dollars in thousands)

 

 

2023

 

 

 

2022

 

 

 

Change
from 2022

 

 

Cash and cash equivalents

 

$

 

64,077

 

 

$

 

86,420

 

 

$

 

(22,343

)

 

Unused lines of credit

 

 

 

128,198

 

 

 

 

122,062

 

 

 

 

6,136

 

 

Unpledged AFS securities at fair market value

 

 

 

127,387

 

 

 

 

134,401

 

 

 

 

(7,014

)

 

 

 

$

 

319,662

 

 

$

 

342,883

 

 

$

 

(23,221

)

 

Net deposits and short-term liabilities

 

$

 

1,051,156

 

 

$

 

1,041,016

 

 

$

 

10,140

 

 

Liquidity ratio

 

 

 

30.4

 

%

 

 

32.9

 

%

 

 

 

 

Minimum board approved liquidity ratio

 

 

 

20.0

 

%

 

 

20.0

 

%

 

 

 

 

 

Liquidity refers to the Company’s ability to generate sufficient cash to fund current loan demand, meet deposit withdrawals, pay operating expenses, and meet other obligations. Liquidity is monitored by CSB’s Asset Liability Committee. The Company was within all Board-approved limits on December 31, 2023, and 2022. 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 2023 included net loan originations of $74 million and securities purchases of $4 million, offset by maturities and repayment of securities totaling $38 million. The Company’s financing activities included a $4 million increase in deposits, $3 million increase in short-term borrowings, and $4 million in cash dividends paid.

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.

26


 

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 2023 and 2022. 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 horizons, 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

 

December 31, 2023

 

 

 

Change In
 Interest Rates
 (Basis Points)

 

 

Net
Interest
Income

 

 

 

Dollar
Change

 

 

Percentage
Change

 

 

Board
Policy
Limits

 

(Dollars in thousands)

 

 

+ 400

 

 

 

$

 

39,184

 

 

$

 

(266

)

 

 

(0.7

)

%

± 25

%

 

 

+ 300

 

 

 

 

 

39,264

 

 

 

 

(186

)

 

 

(0.5

)

 

± 15

 

 

 

+ 200

 

 

 

 

 

39,340

 

 

 

 

(110

)

 

 

(0.3

)

 

± 10

 

 

 

 

+ 100

 

 

 

 

 

39,394

 

 

 

 

(56

)

 

 

(0.1

)

 

± 5

 

 

 

 

 

0

 

 

 

 

 

39,450

 

 

 

 

 

 

 

 

 

 

 

 

 

 

– 100

 

 

 

 

 

39,201

 

 

 

 

(249

)

 

 

(0.6

)

 

± 5

 

 

 

 

– 200

 

 

 

 

 

38,951

 

 

 

 

(499

)

 

 

(1.3

)

 

± 10

 

 

 

 

– 300

 

 

 

 

 

38,718

 

 

 

 

(732

)

 

 

(1.9

)

 

± 15

 

 

 

 

– 400

 

 

 

 

 

38,494

 

 

 

 

(956

)

 

 

(2.4

)

 

± 25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

 

+ 400

 

 

 

$

 

38,810

 

 

$

 

1,090

 

 

 

2.9

 

%

± 25

%

 

 

 

+ 300

 

 

 

 

 

38,581

 

 

 

 

861

 

 

 

2.3

 

 

± 15

 

 

 

 

+ 200

 

 

 

 

 

38,302

 

 

 

 

582

 

 

 

1.5

 

 

± 10

 

 

 

 

+ 100

 

 

 

 

 

38,003

 

 

 

 

283

 

 

 

0.8

 

 

± 5

 

 

 

 

 

0

 

 

 

 

 

37,720

 

 

 

 

 

 

 

 

 

 

 

 

 

 

– 100

 

 

 

 

 

37,368

 

 

 

 

(352

)

 

 

(0.9

)

 

± 5

 

 

 

 

– 200

 

 

 

 

 

36,869

 

 

 

 

(851

)

 

 

(2.3

)

 

± 10

 

 

 

 

– 300

 

 

 

 

 

35,973

 

 

 

 

(1,747

)

 

 

(4.6

)

 

± 15

 

 

 

 

– 400

 

 

 

 

 

35,519

 

 

 

 

(2,201

)

 

 

(5.8

)

 

± 25

 

 

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, 2023 and 2022 for the first twelve-month periods of the twenty-four month horizon.

 

27


 

Economic Value of Equity at Risk

 

December 31, 2023

Change In
Interest Rates
(Basis Points)

Percentage
Change

 

 

Board
Policy
Limits

 

 

+ 400

 

 

15.9

 

%

± 35

%

 

+ 300

 

 

12.8

 

 

± 30

 

 

+ 200

 

 

9.2

 

 

± 20

 

 

+ 100

 

 

4.9

 

 

± 15

 

 

– 100

 

 

(6.2

)

 

± 15

 

 

– 200

 

 

(13.2

)

 

± 20

 

 

– 300

 

 

(22.5

)

 

± 30

 

 

– 400

 

 

(36.5

)

 

± 35

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

+ 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

 

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. 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, 2023 and 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. The technical fails in the declining rate scenarios in 2023 and 2022, are caused by the duration of liabilities remaining high and loan and investment securities prepayment speeds increasing. The simulation calculates decreases in the market value of equity of (36.5)% as of December 31, 2023 and (39.4)% in the -400 basis point rate scenario as of December 31, 2022.

SIGNIFICANT ASSUMPTIONS AND OTHER CONSIDERATIONS

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

28


 

The Company discloses the estimated fair value of its financial instruments on December 31, 2023, and 2022 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, 2023:

 

 

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

 

$

 

147,304

 

 

$

 

117,964

 

 

$

 

24,441

 

 

$

 

4,721

 

 

$

 

178

 

Commercial real estate

 

 

 

9,438

 

 

 

 

7,470

 

 

 

 

1,856

 

 

 

 

112

 

 

 

 

 

Home equity line of credit

 

 

 

81,903

 

 

 

 

2,869

 

 

 

 

13,727

 

 

 

 

14,129

 

 

 

 

51,178

 

Construction

 

 

 

22,782

 

 

 

 

13,202

 

 

 

 

9,580

 

 

 

 

 

 

 

 

 

Consumer lines of credit

 

 

 

646

 

 

 

 

646

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit card lines

 

 

 

8,158

 

 

 

 

8,158

 

 

 

 

 

 

 

 

 

 

 

 

 

Overdraft privilege

 

 

 

7,266

 

 

 

 

7,266

 

 

 

 

 

 

 

 

 

 

 

 

 

Letters of credit

 

 

 

4,379

 

 

 

 

3,983

 

 

 

 

385

 

 

 

 

11

 

 

 

 

 

Total commitments

 

$

 

281,876

 

 

$

 

161,558

 

 

$

 

49,989

 

 

$

 

18,973

 

 

$

 

51,356

 

 

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 home equity 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, 2023:

 

 

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

 

$

 

191,580

 

 

$

 

155,697

 

 

$

 

34,142

 

 

$

 

1,741

 

 

$

 

 

Short-term borrowings

 

 

 

35,843

 

 

 

 

35,843

 

 

 

 

 

 

 

 

 

 

 

 

 

Other borrowings

 

 

 

1,754

 

 

 

 

488

 

 

 

 

611

 

 

 

 

339

 

 

 

 

316

 

Operating leases

 

 

 

317

 

 

 

 

101

 

 

 

 

162

 

 

 

 

54

 

 

 

 

 

Total obligations

 

$

 

229,494

 

 

$

 

192,129

 

 

$

 

34,915

 

 

$

 

2,134

 

 

$

 

316

 

 

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 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 2023 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 allowance for credit losses and goodwill 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.

29


 

As previously noted in the section entitled Allowance for Credit Losses, management performs an analysis to assess the adequacy of its allowance for credit losses. This analysis encompasses a variety of factors including: the potential loss exposure for individually reviewed loans, the historical loss experience, changes in delinquent and classified loans, 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. Potential future earnings volatility is driven by CECL's life of loan loss and economic forecasts of unemployment, recession and future loan loss within the portfolio. Under stress testing performed by the Bank in 2023, the unemployment forecast models as the largest driver of credit loss provision volatility. When sustained unemployment is significantly increased to 10% over a two-year period, an additional provision of approximately $1.1 million would be required under current model assumptions. While the weighted average life of the loan portfolio has extended to just under five years, at December 31, 2023, stressing the CRE and residential mortgage portfolio's weighted average lives by less than one year, resulted in a minimal increase of less than $100 thousand to the allowance for credit losses.

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.

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 2023 and 2022. No assurances can be given that future dividends will be declared, or if declared, what the amount of any such dividends 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, 2023

 

$

 

42.80

 

 

$

 

36.00

 

 

$

 

0.36

 

 

$

 

965,025

 

June 30, 2023

 

 

 

40.75

 

 

 

 

35.32

 

 

 

 

0.38

 

 

 

 

1,018,524

 

September 30, 2023

 

 

 

39.13

 

 

 

 

35.05

 

 

 

 

0.38

 

 

 

 

1,015,099

 

December 31, 2023

 

 

 

40.85

 

 

 

 

36.18

 

 

 

 

0.38

 

 

 

 

1,014,577

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

As of December 31, 2023, the Company had 1,055 shareholders of record and 2,669,938 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 the MD&A is incorporated by reference herein.

 

30


 

 

 

 

 

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, 2023. 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, 2023.

 

 

 

 

 

 

img42463803_1.jpg 

 

 

 

img42463803_2.jpg 

Eddie L. Steiner

 

        Paula J. Meiler

President,

 

        Senior Vice President,

Chief Executive Officer

 

        Chief Financial Officer

 

 

 

31


 

 

img42463803_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, 2023 and 2022; 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, 2023 and 2022, 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.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company changed its method of accounting for credit losses effective January 1, 2023, due to the adoption of Accounting Standards Codification (ASC) Topic 326, Financial Instruments – Credit Losses.

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.

 

32


 

 

img42463803_4.jpg 

 

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.

Allowance for Credit Losses (ACL) – Qualitative Adjustments

The Company’s loan portfolio totaled $701 million as of December 31, 2023, and the associated ACL was $6.6 million. As discussed in Notes 1 and 3 to the consolidated financial statements, determining the amount of the ACL requires significant judgment about the expected future losses, which is based on a baseline lifetime loss rate, calculated using a weighted-average remaining maturities method, which is then adjusted for current qualitative conditions and reasonable and supportable forecasts. Management applies these qualitative adjustments to the baseline lifetime loss rate to reflect changes in the current and forecasted environment, both internal and external, that are different from the conditions that existed during the historical loss calculation period.

We identified these qualitative adjustments within the ACL as critical audit matters because they involve a high degree of subjectivity. While the determination of these qualitative adjustments includes analysis of observable data over the historical loss period, the judgments required to assess the directionality and magnitude of adjustments is highly subjective. Auditing these complex judgments and assumptions involved especially challenging auditor judgment due to the nature of audit evidence and the nature and extent of effort required to address these matters.

The primary procedures we performed to address this critical audit matter included:

Testing the design, implementation, and operating effectiveness of internal controls over the calculation of the allowance for credit losses, including the qualitative factor adjustments.

Testing the completeness and accuracy of the significant data points that management uses in their evaluation of the qualitative adjustments.

Testing the anchoring calculation that management completes to properly align the magnitude of the adjustments with the Company's historical loss data.

Evaluating the directional consistency and reasonableness of management's conclusions regarding basis points applied (whether positive or negative) based on the trends identified in the underlying data.

Testing the mathematical accuracy of the application of the qualitative adjustments to the loan segments within the ACL calculation.

 

 

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

 

 

img42463803_5.jpg 

 

Cranberry Township, Pennsylvania

March 15, 2024

33


 

CONSOLIDATED BALANCE SHEETS

December 31, 2023 and 2022

(Dollars in thousands, except per share data)

 

2023

 

 

2022

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

Cash and due from banks

 

$

24,463

 

 

$

19,911

 

Interest-earning deposits in other banks

 

 

39,614

 

 

 

66,509

 

Total cash and cash equivalents

 

 

64,077

 

 

 

86,420

 

 

 

 

 

 

 

Securities

 

 

 

 

 

 

Available-for-sale, at fair value

 

 

140,080

 

 

 

150,069

 

Held-to-maturity; fair value of $194,730 in 2023 and $211,954 in 2022 ($0 credit loss allowance)

 

 

226,279

 

 

 

247,401

 

Equity securities

 

 

259

 

 

 

244

 

Restricted stock, at cost

 

 

1,535

 

 

 

3,430

 

Total securities

 

 

368,153

 

 

 

401,144

 

 

 

 

 

 

 

Loans held for sale

 

 

 

 

 

52

 

 

 

 

 

 

 

Loans

 

 

701,404

 

 

 

627,171

 

Less allowance for credit losses

 

 

6,607

 

 

 

6,838

 

Net loans

 

 

694,797

 

 

 

620,333

 

 

 

 

 

 

 

Premises and equipment, net

 

 

13,002

 

 

 

13,414

 

Goodwill

 

 

4,728

 

 

 

4,728

 

Bank-owned life insurance

 

 

25,410

 

 

 

24,709

 

Accrued interest receivable and other assets

 

 

8,522

 

 

 

8,308

 

TOTAL ASSETS

 

$

1,178,689

 

 

$

1,159,108

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

Noninterest-bearing

 

$

301,697

 

 

$

350,283

 

Interest-bearing

 

 

725,730

 

 

 

673,134

 

Total deposits

 

 

1,027,427

 

 

 

1,023,417

 

 

 

 

 

 

 

Short-term borrowings

 

 

35,843

 

 

 

32,550

 

Other borrowings

 

 

1,754

 

 

 

2,461

 

Allowance for credit losses on off-balance sheet commitments

 

 

736

 

 

 

 

Accrued interest payable and other liabilities

 

 

4,990

 

 

 

4,760

 

Total liabilities

 

 

1,070,750

 

 

 

1,063,188

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Common stock, $6.25 par value. Authorized 9,000,000 shares; issued
   
2,980,602 shares; and outstanding 2,669,938 shares in 2023 and 2,707,576 in 2022

 

 

18,629

 

 

 

18,629

 

Additional paid-in capital

 

 

9,815

 

 

 

9,815

 

Retained earnings

 

 

97,297

 

 

 

86,502

 

Treasury stock at cost: 310,664 shares in 2023, 273,026 shares in 2022

 

 

(7,532

)

 

 

(6,107

)

Accumulated other comprehensive loss

 

 

(10,270

)

 

 

(12,919

)

Total shareholders’ equity

 

 

107,939

 

 

 

95,920

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

1,178,689

 

 

$

1,159,108

 

 

 

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

 

 

34


 

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, 2023 and 2022

(Dollars in thousands, except per share data)

 

2023

 

 

2022

 

INTEREST AND DIVIDEND INCOME

 

 

 

 

 

 

Loans, including fees

 

$

35,707

 

 

$

26,015

 

Taxable securities

 

 

7,803

 

 

 

6,665

 

Nontaxable securities

 

 

399

 

 

 

436

 

Other

 

 

2,107

 

 

 

1,703

 

Total interest and dividend income

 

 

46,016

 

 

 

34,819

 

INTEREST EXPENSE

 

 

 

 

 

 

Deposits

 

 

9,499

 

 

 

2,335

 

Short-term borrowings

 

 

336

 

 

 

106

 

Other borrowings

 

 

40

 

 

 

55

 

Total interest expense

 

 

9,875

 

 

 

2,496

 

NET INTEREST INCOME

 

 

36,141

 

 

 

32,323

 

 

 

 

 

 

 

CREDIT LOSS EXPENSE

 

 

 

 

 

 

Provision (recovery) for credit loss expense - loans

 

 

198

 

 

 

(895

)

Provision for credit loss expense - off-balance sheet commitments

 

 

244

 

 

 

 

Total provision (recovery) for credit loss expense

 

 

442

 

 

 

(895

)

NET INTEREST INCOME AFTER CREDIT LOSS EXPENSE

 

 

35,699

 

 

 

33,218

 

NONINTEREST INCOME

 

 

 

 

 

 

Service charges on deposit accounts

 

 

1,209

 

 

 

1,174

 

Trust services

 

 

1,013

 

 

 

954

 

Debit card interchange fees

 

 

2,107

 

 

 

2,105

 

Credit card fees

 

 

701

 

 

 

677

 

Gain on sale of loans, net

 

 

161

 

 

 

331

 

Earnings on bank owned life insurance

 

 

702

 

 

 

674

 

Unrealized gain (loss) on equity securities

 

 

15

 

 

 

(3

)

Other income

 

 

836

 

 

 

799

 

Total noninterest income

 

 

6,744

 

 

 

6,711

 

NONINTEREST EXPENSES

 

 

 

 

 

 

Salaries and employee benefits

 

 

13,673

 

 

 

13,446

 

Occupancy expense

 

 

1,138

 

 

 

1,085

 

Equipment expense

 

 

792

 

 

 

781

 

Professional and director fees

 

 

1,471

 

 

 

1,551

 

Financial institutions tax

 

 

767

 

 

 

779

 

Marketing and public relations

 

 

549

 

 

 

551

 

Software expense

 

 

1,651

 

 

 

1,429

 

Debit card expense

 

 

682

 

 

 

734

 

FDIC insurance expense

 

 

514

 

 

 

345

 

Other expenses

 

 

2,823

 

 

 

2,692

 

Total noninterest expenses

 

 

24,060

 

 

 

23,393

 

INCOME BEFORE INCOME TAXES

 

 

18,383

 

 

 

16,536

 

Federal income tax provision

 

 

3,627

 

 

 

3,223

 

NET INCOME

 

$

14,756

 

 

$

13,313

 

Weighted average shares outstanding - basic and diluted

 

 

2,679,902

 

 

 

2,714,045

 

Earnings per share - basic and diluted

 

$

5.51

 

 

$

4.91

 

 

 

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

35


 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31, 2023 and 2022

(Dollars in thousands)

 

2023

 

 

2022

 

Net income

 

$

14,756

 

 

$

13,313

 

Other comprehensive income (loss)

 

 

 

 

 

 

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

 

 

3,168

 

 

 

(13,952

)

Amortization of held-to-maturity discount resulting from transfer

 

 

187

 

 

 

289

 

Income tax effect at 21%

 

 

(706

)

 

 

2,869

 

Other comprehensive income (loss)

 

 

2,649

 

 

 

(10,794

)

Total comprehensive income

 

$

17,405

 

 

$

2,519

 

 

 

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

 

36


 

CONSOLIDATED STATEMENTS OF CHANGES IN

SHAREHOLDERS’ EQUITY

Years Ended December 31, 2023 and 2022

(Dollars in thousands, except per share data)

 

Common
Stock

 

 

Additional
Paid-In
Capital

 

 

Retained
Earnings

 

 

Treasury
Stock

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Total

 

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

 

Net income

 

 

 

 

 

 

 

 

14,756

 

 

 

 

 

 

 

 

 

14,756

 

Cumulative effect of adoption of ASU 2016-13

 

 

 

 

 

 

 

 

52

 

 

 

 

 

 

 

 

 

52

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,649

 

 

 

2,649

 

Purchase of 37,638 treasury shares

 

 

 

 

 

 

 

 

 

 

 

(1,425

)

 

 

 

 

 

(1,425

)

Cash dividends declared, $1.50 per share

 

 

 

 

 

 

 

 

(4,013

)

 

 

 

 

 

 

 

 

(4,013

)

BALANCE AT DECEMBER 31, 2023

 

$

18,629

 

 

$

9,815

 

 

$

97,297

 

 

$

(7,532

)

 

$

(10,270

)

 

$

107,939

 

 

 

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

37


 

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2023 and 2022

(Dollars in thousands)

 

2023

 

 

2022

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net income

 

$

14,756

 

 

$

13,313

 

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

 

 

 

 

 

 

Depreciation and amortization of premises, equipment
   and software

 

 

921

 

 

 

960

 

Deferred income tax expense (benefit)

 

 

293

 

 

 

(135

)

Provision for (recovery of) credit losses

 

 

198

 

 

 

(895

)

Gain on sale of loans, net

 

 

(161

)

 

 

(331

)

Security amortization, net of accretion

 

 

828

 

 

 

1,066

 

Secondary market loan sale proceeds

 

 

4,891

 

 

 

10,100

 

Originations of secondary market loans held-for-sale

 

 

(4,725

)

 

 

(9,034

)

Earnings on bank-owned life insurance

 

 

(702

)

 

 

(674

)

Effects of changes in operating assets and liabilities:

 

 

 

 

 

 

Net deferred loan fees (costs)

 

 

138

 

 

 

(106

)

Accrued interest receivable

 

 

(350

)

 

 

(874

)

Accrued interest payable

 

 

253

 

 

 

61

 

Other assets and liabilities

 

 

(715

)

 

 

940

 

Net cash provided by operating activities

 

$

15,625

 

 

$

14,391

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Securities:

 

 

 

 

 

 

Proceeds from repayments, available-for-sale

 

$

17,102

 

 

$

15,917

 

Proceeds from repayments, held-to-maturity

 

 

20,993

 

 

 

21,827

 

Purchases, available-for-sale

 

 

(4,457

)

 

 

(48,885

)

Purchases, held-to-maturity

 

 

 

 

 

(94,541

)

Purchases, equity securities

 

 

 

 

 

(131

)

Redemption of restricted stock

 

 

1,895

 

 

 

1,184

 

Loan (originations) and payments, net

 

 

(74,242

)

 

 

(78,450

)

Purchases of premises and equipment

 

 

(424

)

 

 

(366

)

Purchases of software

 

 

(2

)

 

 

(13

)

Sale of property

 

 

9

 

 

 

 

Net cash used in investing activities

 

$

(39,126

)

 

$

(183,458

)

 

 

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

38


 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Years Ended December 31, 2023 and 2022

(Dollars in thousands)

 

2023

 

 

2022

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Net change in deposits

 

$

4,010

 

 

$

20,670

 

Net change in short-term borrowings

 

 

3,293

 

 

 

(3,980

)

Repayment of other borrowings

 

 

(707

)

 

 

(946

)

Cash dividends paid

 

 

(4,013

)

 

 

(3,526

)

Purchase of treasury stock

 

 

(1,425

)

 

 

(388

)

Net cash provided by financing activities

 

$

1,158

 

 

$

11,830

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(22,343

)

 

 

(157,237

)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

 

 

86,420

 

 

 

243,657

 

CASH AND CASH EQUIVALENTS AT END OF YEAR

 

$

64,077

 

 

$

86,420

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

Interest

 

$

9,622

 

 

$

2,435

 

Income taxes

 

 

4,165

 

 

 

2,710

 

 

 

 

 

 

 

 

 

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

39


 

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 credit 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, 2023 or December 31, 2022. 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 amounts 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. Held-to-maturity securities are recorded at amortized cost. Securities transferred from AFS to HTM are carried at their fair value on the date of transfer. On December 31, 2023, 61% 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.

 

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.

40


 

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 credit 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 individually evaluated, or payments are past due over 90 days. All interest accrued, but not collected for loans placed on nonaccrual or charged-off is reversed and charged 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 CREDIT LOSSES

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

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

The methodology for determining the ACL has two main components: evaluation of expected credit losses for certain groups of homogeneous loans that share similar risk characteristics and evaluation of individual loans that do not share risk characteristics with other loans. The ACL for homogeneous loans is calculated using a life-time loss rate methodology with both a quantitative and a qualitative analysis that is applied on a quarterly basis. The ACL model is comprised of eight distinct portfolio segments: 1) Commercial and Industrial or C&I, 2) Commercial Real Estate, or CRE, 3) Commercial Lessors of Buildings, 4) Construction, 5) Consumer Mortgage, 6) Home Equity Line of Credit or HELOC, 7) Consumer Installment, and 8) Consumer Indirect loans. Each segment has a distinct set of risk characteristics monitored by management.

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

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

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

41


 

The ACL for off-balance sheet commitments is estimated on the likelihood and amount of funding under the same criteria used for loans under the ACL. The ACL for off-balance sheet commitments is recorded in other liabilities in the Consolidated Balance Sheets.

HTM Securities - The allowance for HTM debt securities is estimated using a CECL methodology. Any expected credit loss is recorded through the ACL on HTM securities and is deducted from the amortized cost basis on the balance sheet. The majority of HTM securities are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. Therefore there is no credit loss expectation on these securities.

AFS Securities - The AFS securities portfolio is evaluated on a quarterly basis for indicators of impairment. Management reviews the amount of unrealized loss, the credit rating history, market trends of similar security classes, time remaining to maturity, and the source of principal and interest payments to identify securities which could potentially be impaired. For those securities that management intends to sell before the recovery of their amortized cost basis, the difference between fair value and amortized cost is considered to be impaired and is recognized in provision for credit loss expense. For those AFS securities that management does not intend to sell prior to expected recovery of the amortized cost basis, the credit portion of the impairment is recognized through the ACL on AFS securities, while the noncredit portion is recognized through the accumulated other comprehensive income or loss included in shareholders' equity. Non-credit related impairment is a result of other factors, including changes in interest rates.

ALLOWANCE FOR LOAN LOSSES

Under the incurred loss methodology in 2022 and prior years, the allowance for loan losses was established as losses were estimated to have occurred through a provision for loan losses charged to income. Loan losses were charged against the allowance when management believed the uncollectability of a loan balance was confirmed. Subsequent recoveries, if any, were credited to the allowance.

The allowance for loan losses was evaluated on a regular basis by management and was 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 was inherently subjective as it required estimates that were susceptible to significant revision as more information became available.

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 credit 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, 2023 or 2022.

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 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 2023 or 2022.

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.

42


 

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 $196 thousand, $178 thousand for the years ended 2023 and 2022, respectively.

FEDERAL INCOME TAXES

The Company and its subsidiaries file a consolidated tax return. Deferred income taxes are recorded 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. The unrealized loss on securities transferred from AFS to HTM at the date of transfer, is amortized over the remaining life of the securities as part 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.

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)

 

2023

 

 

2022

 

Weighted average common shares

 

 

2,980,602

 

 

 

2,980,602

 

Average treasury shares

 

 

(300,700

)

 

 

(266,557

)

Total weighted average common shares outstanding basic and diluted

 

 

2,679,902

 

 

 

2,714,045

 

Net income

 

$

14,756

 

 

$

13,313

 

Earnings per share, basic and diluted

 

 

5.51

 

 

 

4.91

 

 

SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date these financial statements were issued.

 

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic740): Improvements to Income Tax Disclosure. This new guidance is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this Update address investor

43


 

requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This Update also includes certain other amendments to improve the effectiveness of income tax disclosures. It is effective for public business entities for annual periods beginning after December 15, 2024. This update is not expected to have a significant impact on the Company's financial statements.

 

ACCOUNTING PRONOUNCEMENTS ADOPTED IN 2023

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

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

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

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

 

 

 

January 1, 2023

 

(Dollars in thousands)

 

Pre-adoption

 

 

Adoption Impact

 

 

As Reported

 

Assets:

 

 

 

 

 

 

 

 

 

ACL on loans

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

1,110

 

 

$

658

 

 

$

1,768

 

Commercial real estate

 

 

2,760

 

 

 

(541

)

 

 

2,219

 

Commercial lessors of buildings

 

 

 

 

 

974

 

 

 

974

 

Construction

 

 

803

 

 

 

(515

)

 

 

288

 

Consumer mortgage

 

 

1,268

 

 

 

(580

)

 

 

688

 

Home equity line of credit

 

 

 

 

 

201

 

 

 

201

 

Consumer installment

 

 

233

 

 

 

(183

)

 

 

50

 

Consumer indirect

 

 

 

 

 

91

 

 

 

91

 

Unallocated

 

 

664

 

 

 

(664

)

 

 

 

Total allowance for credit losses - loans

 

 

6,838

 

 

 

(559

)

 

 

6,279

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

ACL for off-balance sheet commitments

 

 

 

 

 

493

 

 

 

493

 

Total allowance for credit losses

 

$

6,838

 

 

 

(66

)

 

$

6,772

 

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

 

44


 

(Dollars in thousands)

 

December 31, 2022

 

 

Adoption Impact

 

 

Post Adoption January 1, 2023

 

Commercial and industrial

 

$

129,343

 

 

$

(2,209

)

 

$

127,134

 

Commercial real estate

 

 

231,785

 

 

 

(70,625

)

 

 

161,160

 

Commercial lessors of buildings

 

 

 

 

 

83,728

 

 

 

83,728

 

Construction

 

 

55,318

 

 

 

(10,452

)

 

 

44,866

 

Consumer mortgage

 

 

194,125

 

 

 

(44,338

)

 

 

149,787

 

Home equity line of credit

 

 

 

 

 

44,243

 

 

 

44,243

 

Consumer installment

 

 

16,387

 

 

 

(6,730

)

 

 

9,657

 

Consumer indirect

 

 

 

 

 

6,383

 

 

 

6,383

 

 

 

 

626,958

 

 

 

 

 

 

626,958

 

Gross loans prior to deferred fees

 

 

 

 

 

 

 

 

 

Deferred loan costs, net

 

 

213

 

 

 

 

 

 

213

 

Allowance for credit losses

 

 

(6,838

)

 

 

559

 

 

 

(6,279

)

Total net loans

 

$

620,333

 

 

$

559

 

 

$

620,892

 

 

In January 2020, the FASB issued 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 rate reform. ASU 2022-06 is effective for all reporting entities immediately upon issuance and must be applied on a prospective basis. This Update has been adopted and did not have a significant impact on the Company’s financial statements.

In March 2022, the FASB issued ASU 2022-02, “Financial Instruments – Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures”. The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan. The guidance also requires disclosures about the performance of modified loans to borrowers experiencing financial difficulty in the 12 months following the modification.

These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments to ASC 326 require that an entity disclose current period gross write-offs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance is only for entities that have adopted the amendments in Update 2016-13. This guidance has been adopted as of January 1, 2023, however, there have been no reportable loan modifications during the year ended December 31, 2023.

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.

45


 

NOTE 2 – SECURITIES

Securities consisted of the following on December 31:

 

(Dollars in thousands)

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Allowance for Credit Losses

 

 

Fair
Value

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

18,110

 

 

$

 

 

$

(421

)

 

$

 

 

$

17,689

 

U.S. Government agencies

 

 

14,000

 

 

 

 

 

 

(848

)

 

 

 

 

 

13,152

 

Mortgage-backed securities of government agencies

 

 

72,279

 

 

 

98

 

 

 

(7,332

)

 

 

 

 

 

65,045

 

Asset-backed securities of government agencies

 

 

548

 

 

 

 

 

 

(25

)

 

 

 

 

 

523

 

State and political subdivisions

 

 

17,476

 

 

 

 

 

 

(890

)

 

 

 

 

 

16,586

 

Corporate bonds

 

 

29,135

 

 

 

6

 

 

 

(2,056

)

 

 

 

 

 

27,085

 

Total available-for-sale

 

 

151,548

 

 

 

104

 

 

 

(11,572

)

 

 

 

 

 

140,080

 

Held-to-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

10,305

 

 

 

 

 

 

(798

)

 

 

 

 

 

9,507

 

Mortgage-backed securities of government agencies

 

 

213,425

 

 

 

 

 

 

(30,534

)

 

 

 

 

 

182,891

 

State and political subdivisions

 

 

2,549

 

 

 

2

 

 

 

(219

)

 

 

 

 

 

2,332

 

Total held-to-maturity

 

 

226,279

 

 

 

2

 

 

 

(31,551

)

 

 

 

 

 

194,730

 

Equity securities

 

 

185

 

 

 

74

 

 

 

 

 

 

 

 

 

259

 

Restricted stock

 

 

1,535

 

 

 

 

 

 

 

 

 

 

 

 

1,535

 

Total securities

 

$

379,547

 

 

$

180

 

 

$

(43,123

)

 

$

 

 

$

336,604

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

23,194

 

 

$

 

 

$

(969

)

 

N/A

 

 

$

22,225

 

U.S. Government agencies

 

 

13,999

 

 

 

 

 

 

(1,369

)

 

N/A

 

 

 

12,630

 

Mortgage-backed securities of government agencies

 

 

77,677

 

 

 

72

 

 

 

(8,859

)

 

N/A

 

 

 

68,890

 

Asset-backed securities of government agencies

 

 

633

 

 

 

 

 

 

(15

)

 

N/A

 

 

 

618

 

State and political subdivisions

 

 

20,462

 

 

 

 

 

 

(985

)

 

N/A

 

 

 

19,477

 

Corporate bonds

 

 

28,740

 

 

 

 

 

 

(2,511

)

 

N/A

 

 

 

26,229

 

Total available-for-sale

 

 

164,705

 

 

 

72

 

 

 

(14,708

)

 

N/A

 

 

 

150,069

 

Held-to-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

12,753

 

 

 

 

 

 

(1,136

)

 

N/A

 

 

 

11,617

 

Mortgage-backed securities of government agencies

 

 

232,068

 

 

 

 

 

 

(34,051

)

 

N/A

 

 

 

198,017

 

State and political subdivisions

 

 

2,580

 

 

 

1

 

 

 

(261

)

 

N/A

 

 

 

2,320

 

Total held-to-maturity

 

 

247,401

 

 

 

1

 

 

 

(35,448

)

 

N/A

 

 

 

211,954

 

Equity securities

 

 

185

 

 

 

59

 

 

 

 

 

N/A

 

 

 

244

 

Restricted stock

 

 

3,430

 

 

 

 

 

 

 

 

N/A

 

 

 

3,430

 

Total securities

 

$

415,721

 

 

$

132

 

 

$

(50,156

)

 

N/A

 

 

$

365,697

 

 

46


 

The amortized cost and fair value of debt securities on December 31, 2023, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

(Dollars in thousands)

 

Amortized
Cost

 

 

Fair
Value

 

Available-for-sale

 

 

 

 

 

 

Due in one year or less

 

$

18,297

 

 

$

17,833

 

Due after one through five years

 

 

46,446

 

 

 

44,138

 

Due after five through ten years

 

 

18,931

 

 

 

17,157

 

Due after ten years

 

 

67,874

 

 

 

60,952

 

Total debt securities available-for-sale

 

$

151,548

 

 

$

140,080

 

 

 

 

 

 

 

Held-to-maturity

 

 

 

 

 

 

Due in one year or less

 

$

2,497

 

 

$

2,418

 

Due after one through five years

 

 

5,164

 

 

 

4,814

 

Due after five through ten years

 

 

4,905

 

 

 

4,359

 

Due after ten years

 

 

213,713

 

 

 

183,139

 

Total debt securities held-to-maturity

 

$

226,279

 

 

$

194,730

 

 

Securities with a carrying value of approximately $126 million and $110 million were pledged on December 31, 2023, and 2022 respectively, to secure public deposits, as well as other deposits and borrowings as required or permitted by law.

 

Restricted stock primarily consists of investments in FHLB and Federal Reserve Bank stock. The Bank’s investment in FHLB stock amounted to $1.0 million and $2.9 million on December 31, 2023, and 2022, respectively. Federal Reserve Bank stock was $471 thousand on December 31, 2023, and 2022.

There were no proceeds from sales of debt securities for the years ended December 31, 2023 and 2022. Unrealized gains and (losses) recognized on equity securities on the consolidated statements of income were $15 thousand and $(3) thousand, respectively for the years ended December 31, 2023 and 2022.

The Bank monitors the credit quality of held-to-maturity debt securities primarily through utilizing their credit rating. The Bank monitors the credit rating on a quarterly basis. There are no nonperforming held-to-maturity securities. As of December 31, 2023, no ACL was required for any held-to-maturity security. The majority of the securities are explicitly or implicitly guaranteed by the United States government, and any estimate of expected credit losses would be insignificant to the Bank. The following table summarizes the amortized cost of held-to maturity debt securities at December 31, 2023, aggregated by credit quality indicator:

 

(Dollars in thousands)

 

U.S. Treasury securities

 

 

Mortgage- backed securities of government agencies

 

 

State and political subdivisions

 

December 31, 2023

 

 

 

 

 

 

 

 

 

Credit rating:

 

 

 

 

 

 

 

 

 

AAA / AA / A

 

$

10,305

 

 

$

213,425

 

 

$

2,549

 

BBB / BB / B

 

 

 

 

 

 

 

 

 

Lower than B

 

 

 

 

 

 

 

 

 

Non-rated

 

 

 

 

 

 

 

 

 

Total

 

$

10,305

 

 

$

213,425

 

 

$

2,549

 

 

 

47


 

The following table presents gross unrealized losses, fair value of securities, aggregated by investment category, and length of time individual available-for-sale securities have been in a continuous unrealized loss position, on December 31 2023:

 

 

 

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

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

 

 

$

 

 

$

(421

)

 

$

17,689

 

 

$

(421

)

 

$

17,689

 

U.S. Government agencies

 

 

 

 

 

 

 

 

(848

)

 

 

13,152

 

 

 

(848

)

 

 

13,152

 

Mortgage-backed securities of government
   agencies

 

 

(3

)

 

 

1,909

 

 

 

(7,329

)

 

 

52,144

 

 

 

(7,332

)

 

 

54,053

 

Asset-backed securities of government
   agencies

 

 

 

 

 

 

 

 

(25

)

 

 

523

 

 

 

(25

)

 

 

523

 

State and political subdivisions

 

 

(28

)

 

 

1,783

 

 

 

(862

)

 

 

14,263

 

 

 

(890

)

 

 

16,046

 

Corporate bonds

 

 

 

 

 

 

 

 

(2,056

)

 

 

26,586

 

 

 

(2,056

)

 

 

26,586

 

Total temporarily impaired available-for-sale securities

 

$

(31

)

 

$

3,692

 

 

$

(11,541

)

 

$

124,357

 

 

$

(11,572

)

 

$

128,049

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

(798

)

 

$

17,405

 

 

$

(171

)

 

$

4,820

 

 

$

(969

)

 

$

22,225

 

U.S. Government agencies

 

 

 

 

 

 

 

 

(1,369

)

 

 

12,630

 

 

 

(1,369

)

 

 

12,630

 

Mortgage-backed securities of government
   agencies

 

 

(1,046

)

 

 

16,188

 

 

 

(7,813

)

 

 

44,519

 

 

 

(8,859

)

 

 

60,707

 

Asset-backed securities of government
   agencies

 

 

 

 

 

 

 

 

(15

)

 

 

618

 

 

 

(15

)

 

 

618

 

State and political subdivisions

 

 

(189

)

 

 

9,079

 

 

 

(796

)

 

 

9,848

 

 

 

(985

)

 

 

18,927

 

Corporate bonds

 

 

(1,165

)

 

 

13,502

 

 

 

(1,346

)

 

 

12,727

 

 

 

(2,511

)

 

 

26,229

 

Held-to-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

 

 

 

 

 

 

(1,136

)

 

 

11,617

 

 

 

(1,136

)

 

 

11,617

 

Mortgage-backed securities of government
   agencies

 

 

(9,733

)

 

 

79,325

 

 

 

(24,318

)

 

 

118,692

 

 

 

(34,051

)

 

 

198,017

 

State and political subdivisions

 

 

 

 

 

 

 

 

(261

)

 

 

1,903

 

 

 

(261

)

 

 

1,903

 

Total temporarily impaired securities

 

$

(12,931

)

 

$

135,499

 

 

$

(37,225

)

 

$

217,374

 

 

$

(50,156

)

 

$

352,873

 

 

There were 126 available-for-sale securities in an unrealized loss position on December 31, 2023, 114 of which were in a continuous loss position for twelve (12) months or more. Each quarter the Company conducts a comprehensive security-level impairment assessment on the securities portfolio. Management believes the Company will fully recover the cost of these securities. Unrealized losses on the Company’s fixed-rate debt securities are a result of interest rate increases. U.S. Treasury securities and investments in securities of U.S. government sponsored agency bonds comprise $96 million of total AFS securities. The remaining $44 million of non-agency debt securities is made up of Corporate Bonds and debt securities of State and Political Subdivisions. For non-agency debt securities, the Company verified the current credit ratings remain above investment grade. Non-rated debt securities total $10 million. Annually, management reviews the credit profile of each non-rated issue and assesses whether any impairment to the contractually obligated cash flow is likely to occur. Based on these reviews, management has concluded the underlying creditworthiness for each security remains sufficient to maintain required payment obligations and, therefore, no allowance for credit losses has been recorded. Management believes the value will recover as the securities approach maturity or market interest rates decline.

 

 

 

 

 

 

 

 

 

48


 

 

 

NOTE 3 – LOANS

Loans consisted of the following on December 31:

(Dollars in thousands)

 

2023

 

Commercial and industrial

 

$

152,125

 

Commercial real estate

 

 

190,702

 

Commercial lessors of buildings

 

 

82,687

 

Construction

 

 

49,214

 

Consumer mortgage

 

 

166,891

 

Home equity line of credit

 

 

43,269

 

Consumer installment

 

 

10,636

 

Consumer indirect

 

 

5,957

 

Total loans

 

 

701,481

 

Allowance for credit losses

 

 

(6,607

)

Deferred loan fees, net

 

 

(77

)

Net Loans

 

$

694,797

 

 

(Dollars in thousands)

 

2022

 

Commercial

 

$

129,343

 

Commercial real estate

 

 

231,785

 

Residential real estate

 

 

194,125

 

Construction & land development

 

 

55,318

 

Consumer

 

 

16,387

 

Total loans

 

 

626,958

 

Allowance for loan losses

 

 

(6,838

)

Deferred loan costs, net

 

 

213

 

Net loans *

 

$

620,333

 

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

 

Loan Origination/Risk Management

The Company has certain lending policies and procedures in place 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 and industrial 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 and industrial 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, 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

49


 

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.

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 three largest industries compared to total loans at December 31, 2023, included $68 million, or 10% of total loans to lessors of non-residential buildings; $40 million, or 6%, of total loans to animal food producers; and $22 million, or 3% of total loans to lessors of residential buildings. The Company has less than 1% of total loans outstanding to loans secured by commercial office space. 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 and interest payments, and the adequacy of the collateral received.

Allowance for Credit Losses

The following table details activity in the allowance for credit losses ("ACL") by portfolio segment for the years ended December 31, 2023, and 2022. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

During 2023, ACL balances were affected by the adoption of ASC 326 which changed the methodology for calculating the allowance for credit losses. These changes resulted in the addition of three new loan categories. In addition to the new methodology changes, the decrease in the commercial real estate provision was primarily related to the payoff of one large loan relationship with a specific allocation and the improvement of other specifically evaluated loans. The decrease in the provision for commercial and industrial loans was primarily due to the recovery of a prior loan charge off. The increase in the provision for commercial lessors of buildings relates to the increase in loans graded special mention. The increase in provision for consumer mortgages primarily relates to increased loan volume. The increase in the consumer indirect category is due to the increase in charge-offs in this portfolio.

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.

 

 

 

 

Summary of Allowance for Credit Losses on Loans

The following table details activity in the allowance for credit losses on loans during the year ended December 31 2023:

50


 

(Dollars in thousands)

 

Beginning ALL Balance

 

 

Impact of Adopting ASC 326

 

 

Charge-offs

 

 

Recoveries

 

 

Provisions (Recovery)

 

 

Ending ACL Balance

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

1,110

 

 

$

658

 

 

$

 

 

$

181

 

 

$

(212

)

 

$

1,737

 

Commercial real estate

 

 

2,760

 

 

 

(541

)

 

 

 

 

 

9

 

 

 

(591

)

 

 

1,637

 

Commercial lessors of buildings

 

 

 

 

 

974

 

 

 

 

 

 

 

 

 

226

 

 

 

1,200

 

Construction

 

 

803

 

 

 

(515

)

 

 

 

 

 

 

 

 

45

 

 

 

333

 

Consumer mortgage

 

 

1,268

 

 

 

(580

)

 

 

 

 

 

1

 

 

 

418

 

 

 

1,107

 

Home equity line of credit

 

 

 

 

 

201

 

 

 

 

 

 

 

 

 

87

 

 

 

288

 

Consumer installment

 

 

233

 

 

 

(183

)

 

 

(46

)

 

 

20

 

 

 

52

 

 

 

76

 

Consumer indirect

 

 

 

 

 

91

 

 

 

(66

)

 

 

31

 

 

 

173

 

 

 

229

 

Unallocated

 

 

664

 

 

 

(664

)

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

6,838

 

 

$

(559

)

 

$

(112

)

 

$

242

 

 

$

198

 

 

$

6,607

 

Summary of Allowance for Loan Losses

The following table details activity in the allowance for loan losses by portfolio segment for the year ended December 31, 2022:

(Dollars in thousands)

 

Beginning ALL Balance

 

 

(Recovery) Provision for Loan Losses

 

 

Charge-offs

 

 

Recoveries

 

 

Net (Charge-offs) Recoveries

 

 

Ending ALL Balance

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

1,240

 

 

$

47

 

 

$

(227

)

 

$

50

 

 

$

(177

)

 

$

1,110

 

Commercial real estate

 

 

2,838

 

 

 

(68

)

 

 

(13

)

 

 

3

 

 

 

(10

)

 

 

2,760

 

Residential real estate

 

 

992

 

 

 

273

 

 

 

 

 

 

3

 

 

 

3

 

 

 

1,268

 

Construction & land development

 

 

1,380

 

 

 

(889

)

 

 

 

 

 

312

 

 

 

312

 

 

 

803

 

Consumer

 

 

421

 

 

 

(175

)

 

 

(48

)

 

 

35

 

 

 

(13

)

 

 

233

 

Unallocated

 

 

747

 

 

 

(83

)

 

 

 

 

 

 

 

 

 

 

 

664

 

Total

 

$

7,618

 

 

$

(895

)

 

$

(288

)

 

$

403

 

 

$

115

 

 

$

6,838

 

Age Analysis of Past-Due Loans Receivable and Nonperforming Loans

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

(Dollars in thousands)

 

Current

 

 

30-59
Days
Past
Due

 

 

60-89
Days
Past
Due

 

 

90 Days +
Past Due

 

 

Total Past Due

 

 

Total
Loans

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

151,964

 

 

$

111

 

 

$

50

 

 

$

 

 

$

161

 

 

$

152,125

 

Commercial real estate

 

 

190,702

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

190,702

 

Commercial lessors of buildings

 

 

82,687

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

82,687

 

Construction

 

 

49,214

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

49,214

 

Consumer mortgage

 

 

166,411

 

 

 

307

 

 

 

173

 

 

 

 

 

 

480

 

 

 

166,891

 

Home equity line of credit

 

 

42,955

 

 

 

33

 

 

 

281

 

 

 

 

 

 

314

 

 

 

43,269

 

Consumer installment

 

 

10,602

 

 

 

25

 

 

 

9

 

 

 

 

 

 

34

 

 

 

10,636

 

Consumer indirect

 

 

5,821

 

 

 

52

 

 

 

84

 

 

 

 

 

 

136

 

 

 

5,957

 

Total Loans

 

$

700,356

 

 

$

528

 

 

$

597

 

 

$

 

 

$

1,125

 

 

$

701,481

 

 

 

 

 

 

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 90 days still accruing interest as of December 31, 2023:

51


 

(Dollars in thousands)

 

Nonaccrual with no ACL

 

 

Nonaccrual with ACL

 

 

Total Nonaccrual

 

 

Loans Past Due Over 90 Days Still Accruing

 

 

Total Nonperforming

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

59

 

 

$

 

 

$

59

 

 

$

 

 

$

59

 

Commercial real estate

 

 

62

 

 

 

 

 

 

62

 

 

 

 

 

 

62

 

Commercial lessors of buildings

 

 

15

 

 

 

 

 

 

15

 

 

 

 

 

 

15

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer mortgage

 

 

172

 

 

 

 

 

 

172

 

 

 

 

 

 

172

 

Home equity line of credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer installment

 

 

49

 

 

 

 

 

 

49

 

 

 

 

 

 

49

 

Consumer indirect

 

 

39

 

 

 

 

 

 

39

 

 

 

 

 

 

39

 

Total Loans

 

$

396

 

 

$

 

 

$

396

 

 

$

 

 

$

396

 

 

Interest income recognized on nonaccrual loans as of December 31, 2023 was $2 thousand on commercial real estate loans and $33 thousand on consumer mortgage loans. Several consumer mortgage loans on nonaccrual are at an amortized cost basis of $0 and all payments are being recognized as interest income when received.

 

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

 

 

 

 

 

Accruing Loans

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Current

 

 

30-59
Days
Past Due

 

 

60-89
Days
Past Due

 

 

90 Days +
Past Due

 

 

Nonaccrual

 

 

Total Past
Due and
Nonaccrual

 

 

Total
Loans

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

129,270

 

 

$

70

 

 

$

3

 

 

$

 

 

$

 

 

$

73

 

 

$

129,343

 

Commercial real estate

 

 

231,693

 

 

 

 

 

 

 

 

 

 

 

 

92

 

 

 

92

 

 

 

231,785

 

Residential real estate

 

 

193,794

 

 

 

95

 

 

 

137

 

 

 

 

 

 

99

 

 

 

331

 

 

 

194,125

 

Construction & land development

 

 

55,286

 

 

 

32

 

 

 

 

 

 

 

 

 

 

 

 

32

 

 

 

55,318

 

Consumer

 

 

16,091

 

 

 

103

 

 

 

128

 

 

 

 

 

 

65

 

 

 

296

 

 

 

16,387

 

Total loans

 

$

626,134

 

 

$

300

 

 

$

268

 

 

$

 

 

$

256

 

 

$

824

 

 

$

626,958

 

Credit Quality Indicators

The Company categorizes 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 exposure 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. Based on the most recent analysis performed, the following tables present the recorded investment in non-homogeneous loans by internal risk rating system:

52


 

 

 

Term Loans Amortized Costs Basis by Origination Year

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term

 

 

 

 

(Dollars in thousands)

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

 

 

 

 

Total

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

32,037

 

 

$

25,996

 

 

$

12,196

 

 

$

5,207

 

 

$

3,388

 

 

$

7,112

 

$

45,423

 

$

 

 

$

131,359

 

Special mention

 

 

76

 

 

 

225

 

 

 

522

 

 

 

33

 

 

 

33

 

 

 

65

 

 

3,872

 

 

 

 

 

4,826

 

Substandard

 

 

782

 

 

 

2,968

 

 

 

1,021

 

 

 

1,017

 

 

 

106

 

 

 

1,416

 

 

8,630

 

 

 

 

 

15,940

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

32,895

 

 

$

29,189

 

 

$

13,739

 

 

$

6,257

 

 

$

3,527

 

 

$

8,593

 

$

57,925

 

$

 

 

$

152,125

 

YTD gross charge-offs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

$

 

$

 

 

$

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

22,206

 

 

$

38,696

 

 

$

54,830

 

 

$

12,233

 

 

$

19,543

 

 

$

21,938

 

$

647

 

$

 

 

$

170,093

 

Special Mention

 

 

241

 

 

 

1,380

 

 

 

2,292

 

 

 

2,496

 

 

 

 

 

 

322

 

 

 

 

 

 

 

6,731

 

Substandard

 

 

1,150

 

 

 

 

 

 

888

 

 

 

 

 

 

466

 

 

 

11,374

 

 

 

 

 

 

 

13,878

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

23,597

 

 

$

40,076

 

 

$

58,010

 

 

$

14,729

 

 

$

20,009

 

 

$

33,634

 

$

647

 

$

 

 

$

190,702

 

YTD gross charge-offs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

$

 

$

 

 

$

 

Commercial lessors of buildings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

18,353

 

 

$

22,762

 

 

$

15,455

 

 

$

6,429

 

 

$

3,543

 

 

$

8,934

 

$

360

 

$

 

 

$

75,836

 

Special Mention

 

 

 

 

 

436

 

 

 

1,687

 

 

 

 

 

 

3,578

 

 

 

 

 

 

 

 

 

 

5,701

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

989

 

 

 

 

 

 

161

 

 

 

 

 

 

 

1,150

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

18,353

 

 

$

23,198

 

 

$

17,142

 

 

$

7,418

 

 

$

7,121

 

 

$

9,095

 

$

360

 

$

 

 

$

82,687

 

YTD gross charge-offs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

$

 

$

 

 

$

 

Commercial construction:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

24,119

 

 

$

14,855

 

 

$

576

 

 

$

272

 

 

$

281

 

 

$

256

 

$

 

$

 

 

$

40,359

 

Special Mention

 

 

 

 

 

258

 

 

 

43

 

 

 

635

 

 

 

 

 

 

 

 

 

 

 

 

 

936

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

30

 

 

 

80

 

 

 

 

 

 

 

 

 

 

110

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

24,119

 

 

$

15,113

 

 

$

619

 

 

$

937

 

 

$

361

 

 

$

256

 

$

 

$

 

 

$

41,405

 

YTD gross charge-offs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

$

 

$

 

 

$

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

96,715

 

 

$

102,309

 

 

$

83,057

 

 

$

24,141

 

 

$

26,755

 

 

$

38,240

 

$

46,430

 

$

 

 

$

417,647

 

Special Mention

 

 

317

 

 

 

2,299

 

 

 

4,544

 

 

 

3,164

 

 

 

3,611

 

 

 

387

 

 

3,872

 

 

 

 

 

18,194

 

Substandard

 

 

1,932

 

 

 

2,968

 

 

 

1,909

 

 

 

2,036

 

 

 

652

 

 

 

12,951

 

 

8,630

 

 

 

 

 

31,078

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

98,964

 

 

$

107,576

 

 

$

89,510

 

 

$

29,341

 

 

$

31,018

 

 

$

51,578

 

$

58,932

 

$

 

 

$

466,919

 

YTD gross charge-offs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

$

 

$

 

 

$

 

 

(Dollars in thousands)

 

Pass

 

 

Special
Mention

 

 

Substandard

 

 

Doubtful

 

 

Not
Rated

 

 

Total

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

119,353

 

 

$

282

 

 

$

7,927

 

 

$

 

 

$

1,781

 

 

$

129,343

 

Commercial real estate

 

 

220,414

 

 

 

485

 

 

 

8,352

 

 

 

 

 

 

2,534

 

 

 

231,785

 

Construction & land development

 

 

40,640

 

 

 

6,655

 

 

 

 

 

 

 

 

 

8,023

 

 

 

55,318

 

Total

 

$

380,407

 

 

$

7,422

 

 

$

16,279

 

 

$

 

 

$

12,338

 

 

$

416,446

 

 

53


 

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

 

 

Term Loans Amortized Costs Basis by Origination Year

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term

 

 

 

 

(Dollars in thousands)

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

 

 

 

 

Total

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer mortgage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

24,521

 

 

$

34,798

 

 

$

35,802

 

 

$

32,259

 

 

$

8,931

 

 

$

30,408

 

$

 

$

 

 

$

166,719

 

Nonperforming

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

172

 

 

 

 

 

 

 

172

 

Total

 

$

24,521

 

 

$

34,798

 

 

$

35,802

 

 

$

32,259

 

 

$

8,931

 

 

$

30,580

 

$

 

$

 

 

$

166,891

 

YTD gross charge-offs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

$

 

$

 

 

$

 

Consumer construction:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

5,463

 

 

$

1,477

 

 

$

264

 

 

$

483

 

 

$

81

 

 

$

41

 

$

 

$

 

 

$

7,809

 

Nonperforming

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

5,463

 

 

$

1,477

 

 

$

264

 

 

$

483

 

 

$

81

 

 

$

41

 

$

 

$

 

 

$

7,809

 

YTD gross charge-offs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

$

 

$

 

 

$

 

Home equity line of credit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

$

43,223

 

$

46

 

 

$

43,269

 

Nonperforming

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

$

43,223

 

$

46

 

 

$

43,269

 

YTD gross charge-offs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

$

 

$

 

 

$

 

Consumer installment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

5,705

 

 

$

3,067

 

 

$

981

 

 

$

513

 

 

$

118

 

 

$

184

 

$

68

 

$

 

 

$

10,636

 

Nonperforming

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

5,705

 

 

$

3,067

 

 

$

981

 

 

$

513

 

 

$

118

 

 

$

184

 

$

68

 

$

 

 

$

10,636

 

YTD gross charge-offs

 

$

2

 

 

$

12

 

 

$

19

 

 

$

5

 

 

$

2

 

 

$

6

 

$

 

$

 

 

$

46

 

Consumer indirect:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

858

 

 

$

1,086

 

 

$

622

 

 

$

568

 

 

$

607

 

 

$

2,128

 

$

 

$

 

 

$

5,869

 

Nonperforming

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

81

 

 

 

4

 

 

 

 

 

 

 

88

 

Total

 

$

858

 

 

$

1,089

 

 

$

622

 

 

$

568

 

 

$

688

 

 

$

2,132

 

$

 

$

 

 

$

5,957

 

YTD gross charge-offs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

66

 

$

 

$

 

 

$

66

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

36,547

 

 

$

40,428

 

 

$

37,669

 

 

$

33,823

 

 

$

9,737

 

 

$

32,761

 

$

43,291

 

$

46

 

 

$

234,302

 

Nonperforming

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

81

 

 

 

176

 

 

 

 

 

 

 

260

 

Total

 

$

36,547

 

 

$

40,431

 

 

$

37,669

 

 

$

33,823

 

 

$

9,818

 

 

$

32,937

 

$

43,291

 

$

46

 

 

$

234,562

 

Total YTD gross charge-offs

 

$

2

 

 

$

12

 

 

$

19

 

 

$

5

 

 

$

2

 

 

$

72

 

$

 

$

 

 

$

112

 

 

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

 

Modifications to Borrowers Experiencing Financial Difficulty

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

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

There were no modifications of loans to borrowers in financial distress completed during the year ended December 31, 2023.

 

 

54


 

Impaired Loans

The following impaired loan information relates to required disclosures under the previous incurred loan loss methodology and are only presented with prior period information. The following table presents the balance in the allowance for loan losses and the ending loan balances by portfolio segment and impairment method at December 31, 2022:

(Dollars in thousands)

 

Commercial

 

 

Commercial
Real Estate

 

 

Residential
Real Estate

 

 

Construction
& Land
Development

 

 

Consumer

 

 

Unallocated

 

 

Total

 

December 31, 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

 

 

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

 

(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

 

December 31, 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

 

 

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

 

Real Estate Loans in Foreclosure

There was no other real estate owned on December 31, 2023, or 2022, respectively. Mortgage loans in the process of foreclosure were $8 thousand on December 31, 2023 and $17 thousand on December 31, 2022.

 

Mortgage Servicing Rights

For the years ended December 31, 2023 and 2022, the Company had outstanding MSRs of $600 thousand and $621 thousand, respectively. The capitalized additions of servicing rights are included in net gain on sale of loans on the Consolidated Statements of Income. No valuation allowance was recorded on December 31, 2023 or 2022, as the fair value of the MSRs approximates their carrying value. On December 31, 2023, the Company had $124 million residential mortgage loans sold with servicing retained as compared to $130 million sold with servicing retained on December 31, 2022.

Total loans serviced for others including commercial loans, approximated $132 million and $138 million on December 31, 2023, and 2022, respectively.

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

55


 

(Dollars in thousands)

2023

 

 

2022

 

Beginning of year

$

621

 

 

$

604

 

Capitalized additions

 

47

 

 

 

97

 

Amortization

 

(68

)

 

 

(80

)

Valuation allowance

 

 

 

 

 

End of year

$

600

 

 

$

621

 

 

NOTE 4 – PREMISES AND EQUIPMENT

Premises and equipment consisted of the following on December 31:

 

(Dollars in thousands)

 

2023

 

 

2022

 

Land and improvements

 

$

2,540

 

 

$

2,550

 

Buildings and improvements

 

 

14,698

 

 

 

14,459

 

Furniture and equipment

 

 

6,642

 

 

 

6,922

 

Leasehold improvements

 

 

329

 

 

 

329

 

Premises and equipment, cost

 

 

24,209

 

 

 

24,260

 

Accumulated depreciation

 

 

11,207

 

 

 

10,846

 

Premises and equipment, net

 

$

13,002

 

 

$

13,414

 

 

Depreciation expense amounted to $826 thousand and $818 thousand for the years ended December 31, 2023, and 2022, 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.

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. The leases relate to bank branches with remaining lease terms of generally 2 to 5 years. Certain lease arrangements contain extension options which are typically 2 to 5 years at the then fair market rental rates. If these extension options are considered reasonably certain of exercise, they are included in the lease term.

 

As of December 31, 2023, operating lease ROU assets were $306 thousand, and lease liabilities were $299 thousand. These amounts are included in other assets and other liabilities on the Consolidated Balance Sheets. For the years ended December 31, 2023, and 2022, CSB recognized $112 thousand, and $107 thousand in operating lease cost respectively, which are included in occupancy expense on the Consolidated Statements of Income.

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

 

December 31, 2023

 

 

Weighted-average remaining lease term - operating leases in years

 

2.8

 

 

Weighted-average discount rate - operating leases

 

2.69

 

%

 

The following table presents aggregate lease maturities and obligations as of December 31, 2023:

 

(Dollars in thousands)

 

 

 

December 31, 2023

 

 

 

2024

 

$

101

 

2025

 

 

82

 

2026

 

 

79

 

2027

 

 

45

 

2028

 

 

10

 

2029 and thereafter

 

 

 

Total lease payments

 

 

317

 

Less: interest

 

 

18

 

Present value of lease liabilities

 

$

299

 

 

56


 

NOTE 6 – INTEREST-BEARING DEPOSITS

Interest-bearing deposits on December 31 were as follows:

 

(Dollars in thousands)

 

2023

 

 

2022

 

Demand

 

$

256,621

 

 

$

241,227

 

Savings

 

 

277,529

 

 

 

313,826

 

Time deposits:

 

 

 

 

 

 

$250,000 and greater

 

 

59,347

 

 

 

28,839

 

Other

 

 

132,233

 

 

 

89,242

 

Total interest-bearing deposits

 

$

725,730

 

 

$

673,134

 

 

On December 31, 2023, stated maturities of time deposits were as follows:

 

(Dollars in thousands)

 

 

 

2024

 

$

155,697

 

2025

 

 

30,442

 

2026

 

 

3,700

 

2027

 

 

1,282

 

2028

 

 

459

 

Total

 

$

191,580

 

 

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)

 

2023

 

 

 

2022

 

 

Balance at year-end

 

$

35,843

 

 

 

$

32,550

 

 

Average balance outstanding

 

 

32,478

 

 

 

 

37,367

 

 

Maximum month-end balance

 

 

37,479

 

 

 

 

39,073

 

 

Weighted-average rate at year-end

 

 

1.18

 

%

 

 

0.80

 

%

Weighted-average rate during the year

 

 

1.03

 

 

 

 

0.28

 

 

 

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

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,
2023

 

 

December 31,
2022

 

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

 

$

36,002

 

 

$

32,775

 

Repurchase agreements

 

 

35,843

 

 

 

32,550

 

 

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

 

 

2023

 

 

2022

 

Fixed-rate amortizing

 

4/1/24

 

6/1/37

 

 

1.97

%

 

 

1.16

%

 

 

2.01

%

 

$

1,754

 

 

$

2,461

 

 

57


 

 

Maturities of other borrowings on December 31, 2023, are summarized as follows for the years ended December 31:

(Dollars in thousands)

 

Amount

 

 

Weighted
Average
Rate

 

 

2024

 

$

488

 

 

 

1.94

 

%

2025

 

 

349

 

 

 

1.98

 

 

2026

 

 

262

 

 

 

1.98

 

 

2027

 

 

195

 

 

 

1.99

 

 

2028

 

 

144

 

 

 

1.99

 

 

2029 and beyond

 

 

316

 

 

 

1.99

 

 

Total other borrowings

 

$

1,754

 

 

 

1.97

 

%

 

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 all one-to-four family residential real estate loans. On December 31, 2023, the Company had the capacity to borrow an additional $128 million from the FHLB.

NOTE 8 – INCOME TAXES

Income tax expense was as follows:

(Dollars in thousands)

 

2023

 

 

2022

 

Current

 

$

3,334

 

 

$

3,358

 

Deferred

 

 

293

 

 

 

(135

)

Total income tax provision

 

$

3,627

 

 

$

3,223

 

 

Effective tax rates were 19.7% and 19.5% for 2023 and 2022 and differ from the federal statutory rate of 21% applied to income before taxes due to the following:

(Dollars in thousands)

 

2023

 

 

2022

 

Expected provision using statutory federal income tax rate

 

$

3,860

 

 

$

3,473

 

Effect of bond and loan tax-exempt income

 

 

(104

)

 

 

(113

)

Bank owned life insurance income

 

 

(147

)

 

 

(141

)

Other

 

 

18

 

 

 

4

 

Total income tax provision

 

$

3,627

 

 

$

3,223

 

 

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)

 

2023

 

 

2022

 

Allowance for credit losses

 

$

1,485

 

 

$

1,534

 

Unrealized loss on securities

 

 

2,730

 

 

 

3,434

 

Other

 

 

225

 

 

 

35

 

Deferred tax assets

 

 

4,440

 

 

 

5,003

 

Premises and equipment

 

 

(554

)

 

 

(598

)

Federal Home Loan Bank stock dividends

 

 

(95

)

 

 

(268

)

Deferred loan fees

 

 

(312

)

 

 

(288

)

Prepaid expenses

 

 

(205

)

 

 

(188

)

Other

 

 

(640

)

 

 

(602

)

Deferred tax liabilities

 

 

(1,806

)

 

 

(1,944

)

Net deferred tax asset

 

$

2,634

 

 

$

3,059

 

 

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 2020.

58


 

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 3.25% in 2023 and 3.00% in 2022 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 $809 thousand and $735 thousand for 2023 and 2022, respectively.

The Company sponsors a non-qualified deferred compensation plan covering eligible officers. Expense under the plan amounted to $6 thousand and $3 thousand in 2023 and 2022, 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)

 

2023

 

 

2022

 

Commitments to extend credit

 

$

277,553

 

 

$

266,422

 

Letters of credit

 

 

4,379

 

 

 

1,376

 

 

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.

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 $736 thousand allowance for credit losses for unfunded loan commitments as of December 31, 2023 and $0 as of December 31, 2022. The increase in the ACL for unfunded loan commitments was primarily due to construction projects that have not been 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)

 

2023

 

 

2022

 

Balance at beginning of year

 

$

332

 

 

$

46

 

New loans and advances

 

 

23

 

 

 

319

 

Repayments, including loans sold

 

 

50

 

 

 

33

 

Balance at end of year

 

$

305

 

 

$

332

 

 

Deposits from executive officers, directors, their immediate family members, and their related business interests on December 31, 2023, and 2022 were approximately $9.3 million and $6.2 million.

59


 

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, 2023 and 2022, the Company and Bank met or exceeded all capital adequacy requirements to which they are subject.

As of December 31, 2023, 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.

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

 

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital to risk-weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

120,824

 

 

 

16.3

 

%

 

$

59,480

 

 

 

8.0

 

%

 

$

74,349

 

 

 

10.0

 

%

Bank

 

 

120,184

 

 

 

16.2

 

 

 

 

59,446

 

 

 

8.0

 

 

 

 

74,308

 

 

 

10.0

 

 

Tier 1 capital to risk-weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

113,481

 

 

 

15.3

 

 

 

 

44,610

 

 

 

6.0

 

 

 

 

59,480

 

 

 

8.0

 

 

Bank

 

 

112,841

 

 

 

15.2

 

 

 

 

44,585

 

 

 

6.0

 

 

 

 

59,446

 

 

 

8.0

 

 

Common equity tier 1 capital to
   risk-weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

113,481

 

 

 

15.3

 

 

 

 

33,457

 

 

 

4.5

 

 

 

 

48,327

 

 

 

6.5

 

 

Bank

 

 

112,841

 

 

 

15.2

 

 

 

 

33,439

 

 

 

4.5

 

 

 

 

48,300

 

 

 

6.5

 

 

Tier 1 leverage ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

113,481

 

 

 

9.6

 

 

 

 

47,340

 

 

 

4.0

 

 

 

 

59,175

 

 

 

5.0

 

 

Bank

 

 

112,841

 

 

 

9.5

 

 

 

 

47,324

 

 

 

4.0

 

 

 

 

59,155

 

 

 

5.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

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, 2024, the Bank could dividend $26.5 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

60


 

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.

NOTE 13 – CONDENSED PARENT COMPANY FINANCIAL INFORMATION

A summary of condensed financial information of the parent company as of December 31, 2023, and 2022, and for each of the two years in the period ended December 31, 2023, follows:

(Dollars in thousands)

 

2023

 

 

2022

 

CONDENSED BALANCE SHEETS

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Cash deposited with subsidiary bank

 

$

271

 

 

$

805

 

Investment in subsidiary bank

 

 

107,299

 

 

 

94,749

 

Equity securities

 

 

259

 

 

 

244

 

Other assets

 

 

174

 

 

 

162

 

TOTAL ASSETS

 

$

108,003

 

 

$

95,960

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Total liabilities

 

$

64

 

 

$

40

 

Total shareholders’ equity

 

 

107,939

 

 

 

95,920

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

108,003

 

 

$

95,960

 

(Dollars in thousands)

 

2023

 

 

2022

 

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

 

 

 

Dividends on securities

 

$

9

 

 

$

7

 

Dividends from subsidiary

 

 

5,200

 

 

 

3,950

 

Unrealized gain (loss) on equity securities

 

 

15

 

 

 

(3

)

Total income

 

 

5,224

 

 

 

3,954

 

Operating expenses

 

 

391

 

 

 

407

 

Income before taxes and undistributed equity
   income of subsidiary

 

 

4,833

 

 

 

3,547

 

Income tax benefit

 

 

74

 

 

 

86

 

Equity earnings in subsidiary, net of dividends

 

 

9,849

 

 

 

9,680

 

NET INCOME

 

$

14,756

 

 

$

13,313

 

COMPREHENSIVE INCOME

 

$

17,405

 

 

$

2,519

 

 

(Dollars in thousands)

 

2023

 

 

2022

 

CONDENSED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

14,756

 

 

$

13,313

 

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

 

 

 

 

 

 

Equity earnings in subsidiary, net of dividends

 

 

(9,849

)

 

 

(9,680

)

Change in other assets and liabilities

 

 

(3

)

 

 

(27

)

Net cash provided by operating activities

 

 

4,904

 

 

 

3,606

 

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

 

 

(4,013

)

 

 

(3,526

)

Purchase of treasury stock

 

 

(1,425

)

 

 

(388

)

Net cash used in financing activities

 

 

(5,438

)

 

 

(3,914

)

Decrease in cash

 

 

(534

)

 

 

(439

)

Cash at beginning of year

 

 

805

 

 

 

1,244

 

Cash at end of year

 

$

271

 

 

$

805

 

 

61


 

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, 2023, and December 31, 2022, 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,
2023

 

 

 

 

Securities available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

17,689

 

 

$

 

 

$

 

 

$

17,689

 

U.S. Government agencies

 

 

 

 

 

13,152

 

 

 

 

 

 

13,152

 

Mortgage-backed securities of government
   agencies

 

 

 

 

 

65,045

 

 

 

 

 

 

65,045

 

Asset-backed securities of government agencies

 

 

 

 

 

523

 

 

 

 

 

 

523

 

State and political subdivisions

 

 

 

 

 

16,586

 

 

 

 

 

 

16,586

 

Corporate bonds

 

 

 

 

 

27,085

 

 

 

 

 

 

27,085

 

Total available-for-sale securities

 

$

17,689

 

 

$

122,391

 

 

$

 

 

$

140,080

 

Equity securities

 

$

213

 

 

$

 

 

$

 

 

$

213

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

62


 

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:

 

 

2023

 

 

 

 

Carrying

 

 

 

 

 

 

 

 

 

 

 

Total Fair

 

(Dollars in thousands)

 

 

Value

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Value

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held-to-maturity

 

$

 

226,279

 

 

$

9,507

 

 

$

185,223

 

 

$

 

 

$

194,730

 

Net loans

 

 

 

694,797

 

 

 

 

 

 

 

 

 

663,510

 

 

 

663,510

 

Mortgage servicing rights

 

 

 

600

 

 

 

 

 

 

 

 

 

600

 

 

 

600

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

 

1,027,427

 

 

$

835,847

 

 

$

 

 

$

193,126

 

 

$

1,028,973

 

Other borrowings

 

 

 

1,754

 

 

 

 

 

 

 

 

 

1,546

 

 

 

1,546

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

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.

 

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, 2023, and 2022:

(Dollars in thousands)

 

Pretax

 

 

Tax Effect

 

 

After-Tax

 

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

)

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

 

 

3,168

 

 

 

(666

)

 

 

2,502

 

Amortization of held-to-maturity discount resulting
   from transfer

 

 

187

 

 

 

(40

)

 

 

147

 

Total other comprehensive income

 

 

3,355

 

 

 

(706

)

 

 

2,649

 

 

 

 

 

 

 

 

 

 

 

BALANCE AS OF DECEMBER 31, 2023

 

$

(12,999

)

 

$

2,729

 

 

$

(10,270

)

 

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.

63


 

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, 2023, 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 2023 internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

None.

 

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

Not applicable.

64


 

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 24, 2024 (the “2024 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 2024 Annual Meeting to be filed with the SEC (the “2024 Proxy Statement”) no later than 120 days after December 31, 2023. 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 2024 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 2024 Proxy Statement.

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 2024 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 2024 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 2024 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 2024 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 2024 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 2024 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 2024 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 2024 Proxy Statement.

65


 

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

31

 

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

32

 

Consolidated Balance Sheets on December 31, 2022 and 2021

34

 

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

35

 

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

36

 

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

37

 

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

39

 

Notes to Consolidated Financial Statements

40

 

(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.

66


 

(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).

 

 

3.2.2

 

Amendment to Article III, Section 3, to the Code of Regulations of CSB Bancorp, Inc., (incorporated by reference to the registrant's Form DEF 14A filed on March 16, 2023, Exhibit 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 With Embedded Linkbase Documents

 

 

 

104

 

The cover page for the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, has been formatted in Inline XBRL and contained in Exhibit 101

* Filed herewith.

** Furnished herewith.

+ Indicates management contract or compensatory plan.

67


 

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 15, 2024

 

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 15, 2024.

 

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/ Stephen E. Schillig

 

Director

Stephen E. Schillig

 

 

 

 

 

 

 

 

68