CSB Bancorp, Inc. 10-K

ITEM 5. MARKET FOR REGISTRANT’ S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Information contained in the section captioned “Common Stock and Shareholder Information” included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference. PERFORMANCE GRAPH The following graph compares the yearly stock change and the cumulative total shareholder return on CSB’s Common Shares during the five-year period ended December 31, 2022, with the cumulative total return on the Standard and Poor’s 500 Stock Index and the NASDAQ Community Bank Stock Index. The comparison assumes $100 was invested on December 31, 2017, in CSB’s Common Shares and in each of the indicated indices and assumes reinvestment of dividends. 2017 2018 2019 2020 2021 2022 CSBB $ 100 $ 119 $ 130 $ 115 $ 128 $ 135 S & P 500 100 95 126 149 192 157 NASDAQ Bank 100 85 105 93 126 117 ISSUER PURCHASES OF EQUITY SECURITIES Period Total Number of Shares Purchased Average Price Paid Per Share Total number of Shares Purchased as Part of Publicly Announced Plans Maximum Number of Shares that May Yet be Purchased Under the Plan October 1, 2022 to October 31, 2022 — $ — — 102,344 November 1, 2022 to November 30, 2022 — — — 102,344 December 1, 2022 to December 31, 2022 — — — 102,344 On March 2, 2021, CSB filed a Current Report on Form 8-K with the SEC announcing that its Board of Directors approved a Stock Repurchase Program authorizing the repurchase of up to 5% of CSB’s common shares. Repurchases may be made periodically as market and business 13 conditions warrant, in the open market, through block purchases and in negotiated private transactions. The Stock Repurchase Program has no scheduled expiration date. CSB repurchased 10,448 Common Shares during 2022 and 24,326 Common Shares during 2021. ITEM 6. [RESERVED] 14 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 2022 FINANCIAL REVIEW INTRODUCTION CSB Bancorp, Inc. (the “Company” or “CSB”) was incorporated under the laws of the State of Ohio in 1991 and is a registered financial holding company. The Company’s wholly owned subsidiaries are The Commercial and Savings Bank (the “Bank”) and CSB Investment Services, LLC. The Bank is chartered under the laws of the State of Ohio and was organized in 1879. The Bank is a member of the Federal Reserve System, with deposits insured by the Federal Deposit Insurance Corporation, and its primary regulators are the Ohio Division of Financial Institutions and the Federal Reserve Board. The Company, through the Bank, provides retail and commercial banking services to its customers including checking and savings accounts, time deposits, cash management, safe deposit facilities, commercial loans, real estate mortgage loans, consumer loans, IRAs, night depository facilities, and trust and brokerage services. Its customers are located primarily in Holmes, Stark, Tuscarawas, Wayne, and portions of surrounding counties in Ohio. Economic activity in the Company’s market area declined moderately in the fourth quarter of 2022 after solid growth earlier in the year stemming from a continued recovery following the COVID-19 pandemic economic effects of 2020. Demand for goods and services slowed during the fourth quarter 2022 with households spending more on necessities and less on discretionary items. Supply chain challenges improved during the year. Consumer spending has softened due to inflation pressures and increased interest rates. Reported unemployment levels in December 2022 ranged from 2.9% to 4.0% in the four primary counties served by the Company. These levels increased from the December 2021 range of 2.0% to 3.5% in the four counties served by the Company. Labor demand remained solid as competition for workers has put upward pressure on labor costs. The local housing market continues to be strong with extremely low inventory levels. Residential construction has declined year over year with higher interest rates as the main factor reducing demand. FORWARD-LOOKING STATEMENTS Certain statements contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations are not related to historical results but are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks and uncertainties. Any forward-looking statements made by the Company herein and in future reports and statements are not guarantees of future performance. Actual results may differ materially from those in forward-looking statements because of various risk factors as discussed in this annual report. The Company does not undertake, and specifically disclaims, any obligation to publicly release the result of any revisions to any forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date of such statements. 15 FINANCIAL DATA The following table set forth certain selected consolidated financial information: (Dollars in thousands, except per share data) 2022 2021 2020 2019 2018 Statements of income: Total interest income $ 34,819 $ 29,529 $ 31,066 $ 32,461 $ 29,637 Total interest expense 2,496 2,012 2,913 4,062 2,886 Net interest income 32,323 27,517 28,153 28,399 26,751 Provision (recovery) for loan losses (895 ) (655 ) 1,650 1,140 1,316 Net interest income after provision (recovery) for loan losses 33,218 28,172 26,503 27,259 25,435 Noninterest income 6,711 7,325 6,935 5,428 4,758 Noninterest expense 23,393 22,093 20,342 19,769 18,518 Income before income taxes 16,536 13,404 13,096 12,918 11,675 Income tax provision 3,223 2,567 2,528 2,504 2,263 Net income $ 13,313 $ 10,837 $ 10,568 $ 10,414 $ 9,412 Per share of common stock: Basic earnings per share $ 4.91 $ 3.97 $ 3.85 $ 3.80 $ 3.43 Diluted earnings per share 4.91 3.97 3.85 3.80 3.43 Dividends 1.30 1.22 1.13 1.08 0.98 Book value 35.43 35.80 34.23 31.17 27.91 Average basic common shares outstanding 2,714,045 2,733,126 2,742,350 2,742,296 2,742,242 Average diluted common shares outstanding 2,714,045 2,733,126 2,742,350 2,742,296 2,742,242 Year-end balances: Loans, net $ 620,333 $ 541,536 $ 600,885 $ 544,616 $ 543,067 Securities 401,144 311,245 204,184 130,721 110,913 Total assets 1,159,108 1,144,239 1,031,632 818,683 731,722 Deposits 1,023,417 1,002,747 891,562 683,546 606,498 Borrowings 35,011 39,937 41,879 45,219 45,940 Shareholders’ equity 95,920 97,315 93,859 85,476 76,536 Average balances: Loans, net $ 580,454 $ 554,547 $ 601,419 $ 545,483 $ 529,522 Securities 388,827 231,285 129,508 112,290 118,511 Total assets 1,151,925 1,111,808 931,330 765,722 716,243 Deposits 1,012,629 969,009 788,904 636,441 589,646 Borrowings 40,218 42,600 48,358 44,478 51,014 Shareholders’ equity 94,850 96,145 90,247 81,548 73,002 Select ratios: Net interest margin, FTE basis 1 2.98 % 2.63 % 3.22 % 3.97 % 3.98 % Return on average total assets 1.16 0.97 1.13 1.36 1.31 Return on average shareholders’ equity 14.04 11.27 11.71 12.77 12.89 Average shareholders’ equity as a percent of average total assets 8.23 8.65 9.69 10.65 10.19 Net loan charge-offs (recoveries) as a percent of average loans (0.02 ) 0.00 0.06 0.01 0.19 Allowance for loan losses as a percent of loans at year-end 1.09 1.39 1.36 1.27 1.08 Shareholders’ equity as a percent of total year-end assets 8.28 8.50 9.10 10.44 10.46 Dividend payout ratio 2 26.48 30.73 29.35 28.42 28.57 ¹Net interest margin is shown on a fully taxable equivalent basis. 2 Dividend payout ratio is calculated as dividends declared as a percentage of net income. 16 RESULTS OF OPERATIONS Net Income CSB’s 2022 net income was $13.3 million compared to $10.8 million for 2021, an increase of 23%. Total revenue, net interest income plus noninterest income, increased $4.2 million, or 12%, over the prior year to a total of $39.0 million. The provision for loan losses decreased to a $895 thousand recovery as compared to a $655 thousand recovery for the prior year. Noninterest expense increased $1.3 million, or 6% and the provision for income tax increased $656 thousand over the prior year due to an increase in taxable income. Basic and diluted earnings per share were $4.91, up 24% from the prior year. The return on average assets was 1.16% in 2022 compared to 0.97% in 2021 and return on average equity was 14.04% in 2022 compared to 11.27% in 2021. Net Interest Income (Dollars in thousands) 2022 2021 Net interest income $ 32,323 $ 27,517 Taxable equivalent 1 145 154 Net interest income, FTE $ 32,468 $ 27,671 Net interest margin 2.97 % 2.61 % Taxable equivalent adjustment 1 0.01 0.02 Net interest margin, FTE 2.98 % 2.63 % ¹Taxable equivalent adjustments have been computed assuming a 21% tax rate in 2022, and 2021 (non-GAAP). Net interest income is the largest source of the Company’s revenue and consists of the difference between interest income generated on earning assets and interest expense incurred on liabilities (deposits, short-term and long-term borrowings). Volumes, interest rates, composition of interest-earning assets, and interest-bearing liabilities affect net interest income. Net interest income increased $4.8 million, or 17%, in 2022 compared to 2021. The increase was a result of a $5.3 million increase in interest income, partially offset by an increase of $484 thousand in interest expense. The FTE net interest margin increased to 2.98% from 2.63% in 2021. Interest income increased $5.3 million, or 18%, in 2022 compared to 2021 primarily due to an increase of $4.1 million, or 155%, in taxable securities interest income due to an increase in average balances of $158 million and an increase in yield of 56 basis points ("bps"). Interest income on interest-earning deposits mainly held at the Federal Reserve increased $1.4 million in 2022 compared to 2021 primarily due to a 139 basis points yield increase. Interest income on loans decreased $109 thousand primarily due to a decrease of 22 basis points in yield which was partially offset by an increase in loan volume of $25 million. The decrease in yield occurred as Payckeck Prtection Program ("PPP") loans were forgiven by the Small Business Administration ("SBA"), the bank recognized origination fees of $176 thousand in interest income in 2022 as compared to $2.8 million in 2021 on the forgiven PPP loans. Interest expense increased $484 thousand, or 24%, in 2022 as compared to 2021 primarily due to rate increases of 7 bps on deposits and 10 basis points on other borrowed funds. Average interest-bearing demand and savings deposit balances increased $16 million during the year as savings rates continued but at a lesser pace than the prior year as the increase in the money supply created by the government to offset pandemic economic decreases was being phased out to consumers and businesses. Average time deposit balances decreased $5.6 million, and the average interest rate decreased 18 bps. 17 The following table provides detailed analysis of changes in average balances, yield, and net interest income: AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN ANALYSIS 2022 2021 (Dollars in thousands) Average Balance 1 Interest Average Rate 2 Average Balance 1 Interest Average Rate 2 Interest-earning assets Interest-earning deposits in other banks $ 111,775 $ 1,703 1.52 % $ 259,789 $ 337 0.13 % Securities: Taxable 364,478 6,665 1.83 206,077 2,613 1.27 Tax exempt 4 24,349 553 2.27 25,208 577 2.28 Loans 3, 4 587,765 26,043 4.43 562,592 26,156 4.65 Total interest- earning assets 1,088,367 34,964 3.21 % 1,053,666 29,683 2.82 % Noninterest- earning assets Cash and due from banks 20,435 19,891 Bank premises and equipment, net 13,601 13,372 Other assets 36,833 32,924 Allowance for loan losses (7,311 ) (8,045 ) Total assets $ 1,151,925 $ 1,111,808 Interest-bearing liabilities Demand deposits $ 240,904 648 0.27 % $ 259,111 317 0.12 % Savings deposits 315,881 670 0.21 281,888 281 0.10 Time deposits 118,085 1,017 0.86 123,659 1,286 1.04 Borrowed funds 40,218 161 0.40 42,600 128 0.30 Total interest- bearing liabilities 715,088 2,496 0.35 % 707,258 2,012 0.28 % Noninterest-bearing liabilities and shareholders’ equity Demand deposits 337,759 304,351 Other liabilities 4,228 4,054 Shareholders’ equity 94,850 96,145 Total liabilities and equity $ 1,151,925 $ 1,111,808 Net interest income 4 32,468 27,671 FTE adjustment (145 ) (154 ) GAAP net interest income $ 32,323 $ 27,517 Net interest margin FTE 2.98 % 2.63 % Net interest spread 2.86 % 2.54 % ¹Average balances have been computed on an average daily basis. ²Average rates have been computed based on the amortized cost of the corresponding asset or liability. ³Average loan balances include nonaccrual loans. 4 Interest income is shown on a fully tax-equivalent basis (non-GAAP), reconciled to the GAAP amount at the bottom of the table. 18 The following table compares the impact of changes in average rates and changes in average volumes on net interest income: RATE/VOLUME ANALYSIS OF CHANGES IN INCOME AND EXPENSE¹ 2022 v. 2021 Net Increase (Dollars in thousands) (Decrease) Volume Rate Increase (decrease) in interest income: Interest-earning deposits in other banks $ 1,366 $ (2,255 ) $ 3,621 Securities: Taxable 4,052 2,904 1,148 Tax exempt 2 (24 ) (18 ) (6 ) Loans 2 (113 ) 1,115 (1,228 ) Total interest income change 2 5,281 1,746 3,535 Increase (decrease) in interest expense: Demand deposits 331 (49 ) 380 Savings deposits 389 72 317 Time deposits (269 ) (48 ) (221 ) Borrowed funds 33 (10 ) 43 Total interest expense change 484 (35 ) 519 Net interest income change 2 $ 4,797 $ 1,781 $ 3,016 ¹ Changes attributable to both volume and rate, which cannot be segregated, have been allocated based on the absolute value of the change due to volume and the change due to rate. 2 Interest income is shown on a fully tax-equivalent basis (non-GAAP). Provision (Recovery) For Loan Losses The provision (recovery) for loan losses is determined by management as the amount required to bring the allowance for loan losses to a level considered appropriate to absorb probable incurred net charge-offs inherent in the loan portfolio as of period end. During 2022 a recovery of credit losses of $895 thousand was recognized compared to a 2021 recovery of credit losses of $655 thousand. The recapture of provision for loan losses for the year primarily reflects the improvement in credit quality including the reduction of impaired and adversely classified loans, as well as the improvement in economic indicators including unemployment, residential real estate prices and consumer confidence . Nonperforming loans decreased $832 thousand from 2021 to 2022. See Financial Condition – Allowance for Loan Losses for additional discussion and information relative to the provision for loan losses. Noninterest Income YEAR ENDED DECEMBER 31 Change from 2021 (Dollars in thousands) 2022 Amount % 2021 Service charges on deposit accounts $ 1,174 $ 235 25 % $ 939 Trust services 954 (105 ) (10 ) 1,059 Debit card interchange fees 2,105 55 3 2,050 Credit card fees 677 195 40 482 Gain on sale of loans, including MSRs 331 (1,118 ) (77 ) 1,449 Earnings on bank-owned life insurance 674 55 9 619 Unrealized (loss) gain on equity securities (3 ) (31 ) (111 ) 28 Other 799 100 14 699 Total noninterest income $ 6,711 $ (614 ) (8 ) % $ 7,325 Noninterest income decreased $614 thousand, or 8%, in 2022 compared to the same period in 2021. Gain on sales of mortgage loans including mortgage servicing rights (“MSRs”) decreased $1.1 million due to fewer sales of real estate mortgage loans into the secondary market as many consumers took advantage of the large mortgage interest rate declines in 2021. The Bank sold $10 million in mortgage loans, including gains, in 2022 as compared to the sale of $47 million of loans in 2021. Trust service revenue decreased $105 thousand with market declines. Service charges on deposits, which are primarily customer overdraft fees, increased $235 thousand in 2022. Debit card interchange fees increased $55 thousand in 2022 compared to 2021 due to volume increases. Credit card interchange income increased $195 thousand as business credit card usage continued to increase. Earnings on bank owned life insurance increased $55 thousand. 19 Noninterest Expenses YEAR ENDED DECEMBER 31 Change from 2021 (Dollars in thousands) 2022 Amount % 2021 Salaries and employee benefits $ 13,446 $ 847 7 % $ 12,599 Occupancy expense 1,085 52 5 1,033 Equipment expense 781 67 9 714 Professional and director fees 1,551 367 31 1,184 Financial institutions tax 779 28 4 751 Marketing and public relations 551 90 20 461 Software expense 1,429 87 6 1,342 Debit card expense 734 24 3 710 FDIC insurance 345 (133 ) (28 ) 478 Amortization of intangible assets — (44 ) (100 ) 44 Other 2,692 (85 ) (3 ) 2,777 Total noninterest expenses $ 23,393 $ 1,300 6 % $ 22,093 Noninterest expense increased $1.3 million, or 6%, in 2022 compared to 2021. Salaries and employee benefits increased $847 thousand from increases in base and incentive compensation of $575 thousand. The capitalization of employee costs of loan originations increased the amount recognized in salary expense by $250 thousand in 2022, a result of decreased origination of commercial and mortgage loans. Professional and director fees increased $367 thousand primarily due to an increase in third party assistance with contracting the bank's core vendor, increase of $64 thousand in legal expenses related to loan collections, $50 thousand increase in audit and accounting fees, and $33 thousand increase in director's fees. Marketing and public relations expense increased $90 thousand, or 20%, with increasing market coverage. Software expense increased $87 thousand, or 6%, due to full-year implementation of a new mobile banking platform along with core software provider increases. Equipment expense increased $67 thousand in 2022, as compared to 2021, with increased depreciation expense and equipment maintenance contracts. Occupancy expense increased $52 thousand primarily from depreciation from branch renovations, property taxes and insurance. An increase of $28 thousand in the Ohio financial institutions tax was recognized as capital increased. Debit card expense increased $24 thousand in 2022 due to increased volume. The FDIC insurance assessment decreased $133 thousand, or 28%, with improved credit quality and increased earnings. Other expenses decreased $85 thousand, or 3%. Income Taxes The provision for income taxes amounted to $3.2 million in 2022 as compared to $2.6 million in 2021. The slight increase in 2022 resulted from an increase in income. The corporate statutory tax rate was 21% for 2022 and 2021. The effective tax rate in 2022 and 2021 approximates 19%. FINANCIAL CONDITION Total assets of the Company were $1.2 billion on December 31, 2022 compared to $1.1 billion on December 31, 2021, representing an increase of $15 million, or 1%. Net loans increased $79 million, or 15%, while investment securities increased $90 million, or 29%, and total cash and cash equivalents decreased $157 million, or 65%. Deposits increased $21 million and short-term borrowings decreased $4 million, while other borrowings from the Federal Home Loan Bank (“FHLB”) decreased by $946 thousand, or 28%. Securities Total investment securities increased $90 million, or 29%, to $401 million at year-end 2022. CSB’s portfolio is primarily comprised of agency mortgage-backed securities, obligations of state and political subdivisions, U.S. Treasury notes, other government agencies’ debt, and corporate bonds. Restricted securities consist primarily of FHLB stock. The Company has no exposure to government-sponsored enterprise preferred stocks, collateralized debt obligations, or trust preferred securities. The Company’s municipal bond portfolio consists of tax-exempt general obligation and revenue bonds. As of December 31, 2022, 73% of such bonds held an S&P or Moody’s investment grade rating, and 27% were non-rated local issues. The municipal portfolio includes a broad spectrum of counties, towns, universities, and school districts with 83% of the portfolio originating in Ohio, and 17% in Pennsylvania. Gross unrealized security losses within the portfolio were 13% of total securities on December 31, 2022, reflecting interest rate increases, not credit downgrades. During December 2021, investments with an amortized cost of approximately $79 million and a fair value of $77 million were transferred from available-for-sale to held-to-maturity as rising interest rates and a slowing of monthly cash payments were occurring. The transfer included $76 million of U.S. Government agency mortgage-backed securities and $3 million of U.S. Treasury notes. These bonds will still provide liquidity through pledging and for use as collateral against borrowings. No additional transfers to held to maturity were made in 2022, as bonds were assigned their held to maturity classification on their purchase date in 2022. 20 One of the primary functions of the securities portfolio is to provide a source of liquidity and it is structured such that maturities and cash flows provide a portion of the Company’s liquidity needs and asset/liability management requirements. Loans Total loans increased $78 million, or 14%, during 2022 with increases in all loan categories. Volume increases were recognized as follows: commercial loans including PPP loans increased $5 million, or 4%, during 2022, with PPP loan forgiveness of $4 million offsetting the increase. Remaining PPP loan balances were $359 thousand as of December 31, 2022. Construction and land development loans increased $9 million, or 20% as several commercial projects were under construction and consumer demand slowed for 1-4 family residential construction at year end. Residential real estate loans increased $26 million, or 15%. Commercial real estate loans increased $37 million, or 19%. Commercial real estate and construction loan demand remained strong, however there was a slowing of commercial loan growth with increased competition from private lenders and excess business liquidity remaining from government stimulus programs. The Company originated $69 million and $67 million of residential mortgage loans held in the portfolio, including residential construction, conventional 1-4 family, and equity line loans, which were predominately variable rate, in 2022 and 2021, respectively. The increase in interest rates slowed consumer demand for 1-4 family fixed-rate thirty-year residential mortgages which are sold into the secondary market as the Company sold $10 million of mortgages into the secondary market in 2022 as compared to $46 million in 2021. Demand for home equity loans strengthened in 2022, with balances increasing $7 million, as consumers opted to not refinance their lower fixed-rate mortgages. Installment loans increased $300 thousand. Management anticipates modest economic growth in the Company’s local service areas will continue to improve. Commercial and commercial real estate loans, in aggregate, comprise approximately 58% of the total loan portfolio at year-end 2022 and 2021. Residential real estate loans remained at 31% of the portfolio in 2022 and 2021. Construction and land development loans increased to 9% of the portfolio as loan demand for commercial construction projects increased by $7 million and residential construction loans increased by $2 million, year over year. The Company is well within the respective regulatory guidelines for investment in construction, development, and investment property loans that are not owner occupied. Most of the Company’s lending activity is with customers primarily located within Holmes, Stark, Tuscarawas and Wayne counties in Ohio. The majority of the Company’s loan portfolio consists of commercial and industrial and commercial real estate loans. See concentration of credit discussion included in Note 3 in the Notes to Consolidated Financial Statements. 21 Nonperforming Assets, Impaired Loans, and Loans Past Due 90 Days or More Nonperforming assets consist of nonaccrual loans, loans past due 90 days and still accruing, and other real estate acquired through or in lieu of foreclosure. Other impaired loans include certain loans internally classified as substandard or doubtful. Loans are placed on nonaccrual status when they become past due 90 days or more, or when mortgage loans are past due as to principal and interest 120 days or more, unless they are both well secured and in the process of collection. NONPERFORMING ASSETS DECEMBER 31 (Dollars in thousands) 2022 2021 Nonaccrual loans Commercial $ — $ 208 Commercial real estate 92 139 Residential real estate 99 367 Construction & land development — 329 Consumer 65 40 Loans past due 90 days or more and still accruing Commercial — 5 Total nonperforming loans 256 1,088 Other real estate owned — — Other repossessed assets — — Total nonperforming assets $ 256 $ 1,088 Nonaccrual loans to total loans 0.04 % 0.20 % Allowance for Loan Losses The allowance for loan losses is maintained at a level considered by management to be adequate to cover loan losses currently anticipated based on past loss experience, general economic conditions, changes in mix and size of the loan portfolio, information about specific borrower situations, and other factors and estimates which are subject to change over time. Management periodically reviews selected large loans, delinquent and other problem loans, and selected other loans. Collectability of these loans is evaluated by considering the current financial position and performance of the borrower, estimated market value of the collateral, the Company’s collateral position in relationship to other creditors, guarantees, and other potential sources of repayment. Management forms judgments, which are in part subjective, as to the probability of loss and the amount of loss on these loans as well as other loans taken together. The Company’s Allowance for Loan Losses Policy includes, among other items, provisions (recoveries) for classified loans, and a provision (recovery) for the remainder of the portfolio based on historical data, including past charge-offs. During 2022, $689 thousand in nonaccrual loans were collected, $226 thousand were charged-off, $93 thousand were returned to accrual, while $181 thousand new loans entered nonaccrual status. ALLOWANCE FOR LOAN LOSSES FOR THE YEAR ENDED (Dollars in thousands) 2022 2021 Net charge-offs (recoveries) as a percentage of average total loans (0.02 ) % — % Allowance for loan losses as a percentage of total loans 1.09 1.39 Allowance for loan losses to total nonacrrual loans 26.71 x 7.00 x Components of the allowance for loan losses: General reserves $ 6,834 $ 7,396 Specific reserve allocations 4 222 Total allowance for loan losses $ 6,838 $ 7,618 The allowance for loan losses totaled $6.8 million, or 1.09%, of total loans at year-end 2022 as compared to $7.6 million, or 1.39%, of total loans at year-end 2021. The Bank had net loan recoveries of $115 thousand in 2022 compared to net loan charge-offs of $1 thousand for 2021. The Company maintains an internal watch list on which it places loans where management’s analysis of the borrower’s operating results and financial condition indicates the borrower’s cash flows are inadequate to meet its debt service requirements and loans where there exists an increased risk that such a shortfall may occur. Nonperforming loans, which consist of loans past due 90 days or more and nonaccrual loans, aggregated $256 thousand, or 0.04%, of loans at year-end 2022 compared to $1.1 million, or 0.20%, of loans at year-end 2021. Impaired loans were $1 million at year-end 2022 as compared to $2 million at year-end 2021. Management has assigned loss allocations to absorb the estimated losses on impaired loans. These allocations are included in the total allowance for loan losses balance. 22 Other Assets Net premises and equipment decreased $452 thousand to $13.4 million at year-end 2022 with depreciation expense exceeding purchases. Total bank-owned life insurance increased from $24 million at year-end 2021 to $24.7 million at year-end 2022 with increasing cash surrender values. There was no other real estate owned on December 31, 2022 or 2021 . The Company recognized a net deferred tax asset of $3 million on December 31, 2022 compared to a net deferred tax asset of $325 thousand on December 31, 2021. The increase in the net deferred tax asset is a result of the increase in the gross unrealized losses on available-for-sale securities which is a result of rising interest rates during 2022. Deposits The Company’s deposits are obtained primarily from individuals and businesses located in its market area. For deposits, the Company must compete with products offered by other financial institutions, as well as alternative investment options. Demand and savings deposits increased for the year ended 2022, at a lesser growth trajectory following the trillions of government stimulus relief pumped into the economy during the COVID-19 pandemic. Market rates on deposits and cash management products increased throughout the year as liquidity decreased in the industry. December 31 Change from 2021 (Dollars in thousands) 2022 2021 Amount % Noninterest-bearing demand $ 350,283 $ 334,346 $ 15,937 5 % Interest-bearing demand 241,227 242,387 (1,160 ) — Traditional savings 194,918 191,836 3,082 2 Money market savings 118,908 112,803 6,105 5 Time deposits in excess of $250,000 28,089 26,213 1,876 7 Other time deposits 89,992 95,162 (5,170 ) (5 ) Total deposits $ 1,023,417 $ 1,002,747 $ 20,670 2 % Other Funding Sources The Company obtains additional funds through securities sold under repurchase agreements, overnight borrowings from the FHLB or other financial institutions, and advances from the FHLB. Short-term borrowings, consisting of securities sold under repurchase agreements, decreased $4 million. Other borrowings, consisting of FHLB advances, decreased $946 thousand as the result of principal repayments. All FHLB borrowings on December 31, 2022, have long term maturities with monthly amortizing payments. CAPITAL RESOURCES Total shareholders’ equity was $95.9 million at December 31, 2022 compared to $97.3 million on December 31, 2021. This decrease was primarily due to a $10.8 million accumulated other comprehensive loss recognized on the available-for-sale securities portfolio resulting from increasing interest rates. Dividends were paid of $3.5 million and $388 thousand treasury stock was repurchased in 2022, which was partially offset by net income of $13.3 million. The Board of Directors approved a Stock Repurchase Program on February 26, 2021, allowing the repurchase of up to 5% of the Company’s then-outstanding common shares. Repurchased shares are to be held as treasury stock and are available for general corporate purposes. On December 31, 2022, approximately 102 thousand shares could still be repurchased under the current authorized program. Shares repurchased during 2022 totaled 10,448 shares for $388 thousand and shares purchased in 2021 totaled 24,326 shares for $939 thousand. Effective January 1, 2015, the Federal Reserve adopted final rules implementing Basel III and regulatory capital changes required by the Dodd-Frank Act. The rules apply to both the Company and the Bank. The rules established minimum risk-based and leverage capital requirements for all banking organizations. The rules include: (a) a common equity tier 1 capital ratio of at least 4.5%, (b) a tier 1 capital ratio of at least 6.0%, (c) a minimum total capital ratio of at least 8.0%, and (d) a minimum leverage ratio of 4%. Under the guidelines, capital is compared to the relative risk related to the balance sheet. To derive the risk included in the balance sheet, one of several risk weights is applied to different balance sheet and off-balance sheet assets primarily based on the relative credit risk of the counterparty. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. The rules also place restrictions on the payment of capital distributions, including dividends, and certain discretionary bonus payments to executive officers if the company does not hold a capital conservation buffer of greater than 2.5% composed of common equity tier 1 capital above its minimum risk-based capital requirements. The Company and Bank’s actual and required capital amounts are disclosed in Note 12 to the consolidated financial statements. Dividends paid by the Bank to CSB are the primary source of funds available to the Company for payment of dividends to shareholders and for other working capital needs. The payment of dividends by the Bank to the Company is subject to restrictions by regulatory authorities, which generally limit dividends to current year net income and the prior two (2) years net retained earnings, as defined by regulation. In addition, dividend payments generally cannot reduce regulatory capital levels below the minimum regulatory guidelines discussed above. 23 LIQUIDITY December 31 (Dollars in thousands) 2022 2021 Change from 2021 Cash and cash equivalents $ 86,420 $ 243,657 $ (157,237 ) Unused lines of credit 122,062 107,054 15,008 Unpledged AFS securities at fair market value 134,401 108,158 26,243 $ 342,883 $ 458,869 $ (115,986 ) Net deposits and short-term liabilities $ 1,041,016 $ 1,016,821 $ 24,195 Liquidity ratio 32.9 % 47.6 % Minimum board approved liquidity ratio 20.0 % 20.0 % Liquidity refers to the Company’s ability to generate sufficient cash to fund current loan demand, meet deposit withdrawals, pay operating expenses, and meet other obligations. Liquidity is monitored by CSB’s Asset Liability Committee. The Company was within all Board-approved limits on December 31, 2022, and 2021. Additional sources of liquidity include net income, loan repayments, the availability of borrowings, and adjustments of interest rates to attract deposit accounts. As summarized in the Consolidated Statements of Cash Flows, the most significant investing activities for the Company in 2022 included net loan originations of $78 million and securities purchases of $144 million, offset by maturities and repayment of securities totaling $38 million. The Company’s financing activities included a $21 million increase in deposits, $4 million in cash dividends paid, and a $4 million decrease in short-term borrowings. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The most significant market risk the Company is exposed to is interest rate risk. The business of the Company and the composition of its balance sheet consist of investments in interest-earning assets (primarily loans and securities), which are funded by interest-bearing liabilities (deposits and borrowings). These financial instruments have varying levels of sensitivity to changes in the market rates of interest, resulting in market risk. None of the Company’s financial instruments are held for trading purposes. The Board of Directors establishes policies and operating limits with respect to interest rate risk. The Company manages interest rate risk regularly through its Asset Liability Committee. The Committee meets periodically to review various asset and liability management information including, but not limited to, the Company’s liquidity position, projected sources and uses of funds, interest rate risk position, and economic conditions. Interest rate risk is monitored primarily through the use of an earnings simulation model. The model is highly dependent on various assumptions, which change regularly as the balance sheet and market interest rates change. The earnings simulation model projects change in net interest income resulting from the effect of changes in interest rates. The analysis is performed quarterly over a twenty-four-month horizon. The analysis includes two (2) balance sheet models, one based on a static balance sheet and one on a dynamic balance sheet with projected growth in assets and liabilities. This analysis is performed by estimating the expected cash flows of the Company’s financial instruments using interest rates in effect at year-end 2022 and 2021. Interest rate risk policy limits are tested by measuring the anticipated change in net interest income over a two-year period. The tests assume quarterly ramped increases and decreases in market interest rates over twenty-four month hoizons, as compared to a stable rate environment or base model. The following table reflects the change to net interest income using a dynamic balance sheet for the first twelve-month periods of the twenty-four month horizon. Net Interest Income at Risk 24 December 31, 2022 Change In Interest Rates (Basis Points) Net Interest Income Dollar Change Percentage Change Board Policy Limits (Dollars in thousands) + 400 $ 38,810 $ 1,090 2.9 % ± 25 % + 300 38,581 861 2.3 ± 15 + 200 38,302 582 1.5 ± 10 + 100 38,003 283 0.8 ± 5 0 37,720 — — – 100 37,368 (352 ) (0.9 ) ± 5 – 200 36,869 (851 ) (2.3 ) ± 10 – 300 35,973 (1,747 ) (4.6 ) ± 15 – 400 35,519 (2,201 ) (5.8 ) ± 25 December 31, 2021 + 400 $ 28,632 $ 1,499 5.5 % ± 25 % + 300 28,283 1,150 4.2 ± 15 + 200 27,924 791 2.9 ± 10 + 100 27,523 390 1.4 ± 5 0 27,133 — — – 100 26,504 (629 ) (2.3 ) ± 5 – 200 25,714 (1,419 ) (5.2 ) ± 10 Management reviews Net Interest Income at Risk with the Board on a periodic basis. The Company was within all Board-approved limits at December 31, 2022 and 2021 for the first twelve-month periods of the twenty-four month horizon. Economic Value of Equity at Risk December 31, 2022 Change In Interest Rates (Basis Points) Percentage Change Board Policy Limits + 400 13.2 % ± 35 % + 300 11.2 ± 30 + 200 8.5 ± 20 + 100 4.8 ± 15 – 100 (6.3 ) ± 15 – 200 (14.5 ) ± 20 – 300 (25.4 ) ± 30 – 400 (39.4 ) ± 35 December 31, 2021 + 400 40.3 % ± 35 % + 300 33.0 ± 30 + 200 24.4 ± 20 + 100 13.8 ± 15 – 100 (18.4 ) ± 15 – 200 n/a ± 20 The economic value of equity is calculated by subjecting the period-end balance sheet to changes in interest rates and measuring the impact of the changes on the values of the assets and liabilities. Hypothetical changes in interest rates are then applied to the financial instruments. Then the cash flows and fair values are again estimated using these hypothetical rates. For the net interest income estimates, the hypothetical rates are applied to the financial instruments based on the assumed cash flows. Management periodically measures and reviews the economic value of equity at risk with the Board. As of December 31, 2022, the percentage change of the market value of equity was outside of the board policy limit in the -400 basis point scenario and as of December 31, 2021, the percentage change was outside the board policy limits in the +200 through +400 basis point rate scenarios as well as the -100 basis point change. In the rising rate scenarios, the exceptions are positive as the market value of equity increases as interest rates increase. The technical fails have a favorable impact to equity in the rising rate scenarios. In the declining rate scenarios in 2022 and 2021, the duration of liabilities remains high and loan prepayment speeds increase causing decreases in the market value of equity of (39.4)% in the -400 basis point rate scenario as of December 31, 2022 and (18.4)% in the -100 basis point rate scenario as of December 31, 2021. SIGNIFICANT ASSUMPTIONS AND OTHER CONSIDERATIONS 25 The above analysis is based on numerous assumptions, including relative levels of market interest rates, loan prepayments, and reactions of depositors to changes in interest rates and this should not be relied upon as being indicative of actual results. Further, the analysis does not contemplate all actions the Company may undertake in response to changes in interest rates. U.S. Treasury securities, obligations of U.S. Government corporations and agencies, obligations of states and political subdivisions will generally repay at their stated maturity or if callable, prior to their final maturity date. Mortgage-backed security payments increase when interest rates are low and decrease when interest rates rise. Most of the Company’s loans permit the borrower to prepay the principal balance prior to maturity without penalty. The likelihood of prepayment depends on a number of factors: current interest rate and interest rate index (if any) on the loan, the financial ability of the borrower to refinance, the economic benefit to be obtained from refinancing, availability of refinancing at attractive terms, as well as economic conditions in specific geographic areas, which affect the sales and price levels of residential and commercial property. In a changing interest rate environment, prepayments may increase or decrease on fixed and adjustable-rate loans depending on the current relative levels and expectations of future short-term and long-term interest rates. Prepayments on adjustable-rate loans generally increase when long-term interest rates fall or are at historically low levels relative to short-term interest rates, thus making fixed rate loans more desirable. While savings and checking deposits generally may be withdrawn upon the customer’s request without prior notice, a continuing relationship with customers resulting in future deposits and withdrawals is generally predictable, leading to a dependable and uninterrupted source of funds. Time deposits generally have early withdrawal penalties, which discourage customer withdrawal prior to maturity. Short-term borrowings have fixed maturities. Certain advances from the FHLB carry prepayment penalties and are expected to be repaid in accordance with their contractual terms. FAIR VALUE MEASUREMENTS The Company discloses the estimated fair value of its financial instruments on December 31, 2022, and 2021 in Note 15 to the Consolidated Financial Statements. OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS, AND CONTINGENT LIABILITIES AND COMMITMENTS The following table summarizes the Company’s loan commitments, including letters of credit, as of December 31, 2022: Amount of Commitment to Expire Per Period (Dollars in thousands) Type of Commitment Total Amount Less than 1 year 1 to 3 Years 3 to 5 Years Over 5 Years Commercial lines of credit $ 152,607 $ 129,332 $ 18,363 $ 4,847 $ 65 Commercial real estate 4,416 4,366 — 50 — Residential real estate lines of credit 77,855 2,912 10,066 14,937 49,940 Construction 16,268 12,973 3,295 — — Consumer lines of credit 596 596 — — — Credit card lines 7,465 7,465 — — — Overdraft privilege 7,215 7,215 — — — Letters of credit 1,376 1,245 105 26 — Total commitments $ 267,798 $ 166,104 $ 31,829 $ 19,860 $ 50,005 All lines of credit represent either fee-paid or legally binding loan commitments for the loan categories noted. Letters of credit are also included in the amounts noted in the table since the Company requires each letter of credit be supported by a loan agreement. The commercial and consumer lines represent both unsecured and secured obligations. The real estate lines are secured by mortgages on residential property. It is anticipated that a significant portion of these lines will expire without being drawn upon. The following table summarizes the Company’s other contractual obligations, exclusive of interest, as of December 31, 2022: Payment Due by Period (Dollars in thousands) Contractual Obligations Total Amount Less than 1 year 1 to 3 Years 3 to 5 Years Over 5 Years Total time deposits $ 118,081 $ 66,598 $ 49,606 $ 1,877 $ — Short-term borrowings 32,550 32,550 — — — Other borrowings 2,461 707 837 457 460 Operating leases 326 92 178 56 — Total obligations $ 153,418 $ 99,947 $ 50,621 $ 2,390 $ 460 The other borrowings noted in the preceding table represent borrowings from the FHLB. The notes require payment of interest on a monthly basis with principal due in monthly installments. The obligations bear stated fixed interest rates and stipulate a prepayment penalty if the note’s interest rate exceeds the current market rate for similar borrowings at the time of repayment. As the notes mature, the Company evaluates the liquidity and interest rate circumstances at that time to determine whether to pay off or renew the note. The evaluation process typically includes: the strength of current and projected customer loan demand, the Company’s federal funds sold or purchased position, projected cash flows from 26 maturing investment securities, the current and projected market interest rate environment, local and national economic conditions, and customer demand for the Company’s deposit product offerings. CRITICAL ACCOUNTING POLICIES The Company’s Consolidated Financial Statements are prepared in accordance with U.S. Generally Accepted Accounting Principles and follow general practices within the commercial banking industry. Application of these principles requires management to make estimates, assumptions, and judgments affecting the amounts reported in the financial statements. These estimates, assumptions, and judgments are based upon the information available as of the date of the financial statements. The most significant accounting policies followed by the Company are presented in Note 1- Summary of Significant Accounting Policies. These policies, along with the other disclosures presented in the Notes to Consolidated Financial Statements and the 2022 Financial Review, provide information about how significant assets and liabilities are valued in the financial statements and how those values are determined. Management has identified the other-than-temporary impairment of securities, allowance for loan losses, goodwill, and the fair value of financial instruments as the accounting areas requiring the most subjective and complex estimates, assumptions, and judgments and, as such, could be the most subject to revision as new information becomes available. Securities are evaluated periodically to determine whether a decline in their value is other-than-temporary. Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine whether the loss in value is other-than-temporary. The term “other-than-temporary” is not intended to indicate a permanent decline but indicates that the prospect for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized. As previously noted in the section entitled Allowance for Loan Losses, management performs an analysis to assess the adequacy of its allowance for loan losses. This analysis encompasses a variety of factors including: the potential loss exposure for individually reviewed loans, the historical loss experience, the volume of nonperforming loans (i.e., loans in nonaccrual status or past due 90 days or more), and loans past due 30 to 89 days, any significant changes in lending or loan review staff, an evaluation of current and future economic conditions, any significant changes in the volume or mix of loans within each category, a review of the significant concentrations of credit, and any legal, competitive, or regulatory concerns. The Company accounts for business combinations using the acquisition method of accounting. Goodwill and intangible assets with indefinite useful lives are not amortized. Intangible assets with finite useful lives are amortized using accelerated methods over their estimated weighted-average useful lives, approximating ten years. The Company groups financial assets and financial liabilities measured at fair value in three (3) levels based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value. Level I valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. Level II valuations are for instruments traded in less active dealer or broker markets and incorporate values obtained for identical or comparable instruments. Level III valuations are derived from other valuation methodologies, including discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level III valuations incorporate certain assumptions and projections in determining the fair value assigned to each instrument. IMPACT OF INFLATION AND CHANGING PRICES The Consolidated Financial Statements and related data presented herein have been prepared in accordance with U.S. Generally Accepted Accounting Principles, requiring measurement of financial position, and results of operations primarily in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. Most assets and liabilities of the Company are monetary in nature. Therefore, interest rates have a more significant impact on the Company’s performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or magnitude as prices of goods and services. The liquidity, maturity structure, and quality of the Company’s assets and liabilities are critical to maintenance of acceptable performance levels. COMMON STOCK AND SHAREHOLDER INFORMATION Common shares of the Company are not traded on an established market. Shares are traded on the OTC market through broker/ dealers under the symbol “CSBB” and through private transactions. The table below represents the range of high and low prices paid for transactions known to the Company. Management does not have knowledge of prices paid on all transactions. Because of the lack of an established market, these prices may not reflect the prices at which stock would trade in an active market. These quotations reflect interdealer prices, without mark-up, mark-down, or commission and may not represent actual transactions. The table specifies cash dividends declared by the Company to its shareholders during 2022 and 2021. No assurances can be given that future dividends will be declared, or if declared, what the amount of any such dividends 27 will be. Additional information concerning restrictions over the payment of dividends is included in Note 12 of the Consolidated Financial Statements. Quarterly Common Stock Price and Dividend Data Quarter Ended High Low Dividends Declared Per Share Dividends Declared March 31, 2022 $ 39.60 $ 37.50 $ 0.00 $ — June 30, 2022 43.45 36.50 0.62 1,685,175 September 30, 2022 40.50 37.00 0.33 893,500 December 31, 2022 43.00 35.02 0.35 947,652 March 31, 2021 $ 38.50 $ 36.11 $ 0.30 $ 822,705 June 30, 2021 39.00 37.10 0.30 820,273 September 30, 2021 39.98 36.65 0.31 844,912 December 31, 2021 39.99 37.50 0.31 842,587 As of December 31, 2022, the Company had 1,082 shareholders of record and 2,707,576 outstanding shares of common stock. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Information contained in the section captioned, “Quantitative and Qualitative Disclosures about Market Risk” located in Item 7 MD&A is incorporated by reference herein.