CSB Bancorp, Inc. 10-Q

10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 0-21714 CSB Bancorp, Inc. (Exact Name of Registrant as Specified in its Charter) Ohio 34-1687530 ( State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 91 North Clay Street , P.O. Box 232 Millersburg , OH 44654 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: ( 330 ) 674-9015 Securities registered pursuant to Section 12(g) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Shares, $6.25 par value CSBB OTCPink Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐ As of August 1, 2023, the registrant had 2,680,325 shares of common stock, $6.25 par value per share, outstanding. CSB BANCORP, INC. FORM 10-Q QUARTER ENDED June 30, 2023 Table of Contents Part I - Financial Information Page ITEM 1 – FINANCIAL STATEMENTS (Unaudited) 3 Consolidated Balance Sheets 3 Consolidated Statements of Income 4 Consolidated Statements of Comprehensive Income (Loss) 5 Consolidated Statements of Changes in Shareholders' Equity 6 Condensed Consolidated Statements of Cash Flows 7 Notes to Consolidated Financial Statements 8 ITEM 2 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 30 ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 38 ITEM 4 – CONTROLS AND PROCEDURES 39 Part II - Other Information ITEM 1 – Legal Proceedings 40 ITEM 1A – Risk Factors 40 ITEM 2 – Unregistered Sales of Equity Securities and Use of Proceeds 40 ITEM 3 – Defaults upon Senior Securities 40 ITEM 4 – Mine Safety Disclosures 40 ITEM 5 – Other Information 40 ITEM 6 – Exhibits 41 Signatures 42 2 CSB BANCORP, INC. PART I – FINANCI AL INFORMATION ITEM 1. – FINAN CIAL STATEMENTS CONSOLIDATED B ALANCE SHEETS (Unaudited) June 30, December 31, (Dollars in thousands, except per share data) 2023 2022 ASSETS Cash and cash equivalents Cash and due from banks $ 21,897 $ 19,911 Interest-earning deposits with banks 38,329 66,509 Total cash and cash equivalents 60,226 86,420 Securities Available-for-sale, at fair value 145,357 150,069 Held-to-maturity (fair value 2023-$ 203,979 ; 2022-$ 211,954 ) 238,222 247,401 Equity securities 257 244 Restricted stock, at cost 1,607 3,430 Total securities 385,443 401,144 Loans held for sale 184 52 Loans 664,605 627,171 Less allowance for credit losses 6,559 6,838 Net loans 658,046 620,333 Premises and equipment, net 13,240 13,414 Bank-owned life insurance 25,050 24,709 Goodwill 4,728 4,728 Accrued interest receivable and other assets 9,240 8,308 TOTAL ASSETS $ 1,156,157 $ 1,159,108 LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Deposits Noninterest-bearing $ 315,200 $ 350,283 Interest-bearing 706,471 673,134 Total deposits 1,021,671 1,023,417 Short-term borrowings 28,520 32,550 Other borrowings 1,862 2,461 Allowance for credit losses on off-balance sheet commitments 328 141 Accrued interest payable and other liabilities 3,636 4,619 TOTAL LIABILITIES 1,056,017 1,063,188 SHAREHOLDERS' EQUITY Common stock, $ 6.25 par value. Authorized 9,000,000 shares; issued 2,980,602 shares; outstanding 2,680,325 shares in 2023 and 2,718,024 in 2022 18,629 18,629 Additional paid-in capital 9,815 9,815 Retained earnings 92,149 86,502 Treasury stock at cost: 300,277 shares in 2023 and 273,026 shares in 2022 ( 7,137 ) ( 6,107 ) Accumulated other comprehensive loss ( 13,316 ) ( 12,919 ) TOTAL SHAREHOLDERS' EQUITY 100,140 95,920 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,156,157 $ 1,159,108 See notes to unaudited consolidated financial statements. 3 CSB BANCORP, INC. CONSOLIDATED STAT EMENTS OF INCOME (Unaudited) Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands, except per share data) 2023 2022 2023 2022 INTEREST AND DIVIDEND INCOME Loans, including fees $ 8,711 $ 6,032 $ 16,680 $ 11,809 Taxable securities 1,945 1,660 3,957 2,941 Nontaxable securities 102 108 203 218 Other 444 203 989 277 Total interest and dividend income 11,202 8,003 21,829 15,245 INTEREST EXPENSE Deposits 2,128 344 3,712 693 Short-term borrowings 70 14 136 26 Other borrowings 10 15 22 31 Total interest expense 2,208 373 3,870 750 NET INTEREST INCOME 8,994 7,630 17,959 14,495 CREDIT LOSS EXPENSE Provision (recovery) for credit loss expense - loans 242 ( 345 ) 274 ( 645 ) Recovery of credit loss expense - off-balance sheet commitments ( 102 ) — ( 165 ) — Total provision (recovery) for credit loss expense 140 ( 345 ) 109 ( 645 ) NET INTEREST INCOME AFTER CREDIT LOSS EXPENSE 8,854 7,975 17,850 15,140 NONINTEREST INCOME Service charges on deposit accounts 300 289 592 554 Trust services 252 253 510 517 Debit card interchange fees 533 543 1,054 1,038 Credit card fees 192 191 369 346 Gain on sale of loans, net 56 147 59 265 Earnings on bank owned life insurance 172 168 341 334 Unrealized gain or (loss) on equity securities, net 4 3 13 4 Other income 224 188 423 366 Total noninterest income 1,733 1,782 3,361 3,424 NONINTEREST EXPENSE Salaries and employee benefits 3,389 3,412 6,683 6,567 Occupancy expense 284 276 566 548 Equipment expense 189 197 396 411 Professional and director fees 386 330 707 606 Financial institutions and franchise tax expense 192 194 384 389 Marketing and public relations 136 110 259 221 Software expense 421 326 820 659 Debit card expense 169 185 315 349 FDIC insurance expense 178 75 249 158 Other expenses 705 669 1,389 1,334 Total noninterest expense 6,049 5,774 11,768 11,242 Income before income taxes 4,538 3,983 9,443 7,322 FEDERAL INCOME TAX PROVISION 894 774 1,865 1,412 NET INCOME $ 3,644 $ 3,209 $ 7,578 $ 5,910 Basic and diluted net earnings per share $ 1.36 $ 1.18 $ 2.82 $ 2.17 See notes to unaudited consolidated financial statements 4 CSB BANCORP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands) 2023 2022 2023 2022 Net income $ 3,644 $ 3,209 $ 7,578 $ 5,910 Other comprehensive loss Unrealized losses arising during the period ( 1,923 ) ( 3,607 ) ( 596 ) ( 10,145 ) Amortization of discount on securities transferred to held-to-maturity 48 75 94 173 Income tax effect 394 742 105 2,094 Other comprehensive loss ( 1,481 ) ( 2,790 ) ( 397 ) ( 7,878 ) Total comprehensive income (loss) $ 2,163 $ 419 $ 7,181 $ ( 1,968 ) See notes to unaudited consolidated financial statements. 5 CSB BANCORP, INC. CONSOLIDATED STATEMENTS OF CHA NGES IN SHAREHOLDERS’ EQUITY (Unaudited) (Dollars in thousands, except per share data) Common stock Additional paid-in capital Retained earnings Treasury stock Accumulated other comprehensive loss Total Three Months Ended June 30, 2023 Balance, beginning of period $ 18,629 $ 9,815 $ 89,524 $ ( 7,126 ) $ ( 11,835 ) $ 99,007 Net income — — 3,644 — — 3,644 Other comprehensive income — — — — ( 1,481 ) ( 1,481 ) Purchase of 300 treasury shares — — — ( 11 ) — ( 11 ) Cash dividends declared, $ 0.38 per share — — ( 1,019 ) — — ( 1,019 ) Balance, June 30, 2023 $ 18,629 $ 9,815 $ 92,149 $ ( 7,137 ) $ ( 13,316 ) $ 100,140 Six Months Ended June 30, 2023 Balance, beginning of period $ 18,629 $ 9,815 $ 86,502 $ ( 6,107 ) $ ( 12,919 ) $ 95,920 Net income — — 7,578 — — 7,578 Cumulative effect of adoption of ASU 2016-13 — — 52 — — 52 Other comprehensive loss — — — — ( 397 ) ( 397 ) Purchase of 27,251 treasury shares — — — ( 1,030 ) — ( 1,030 ) Cash dividends declared, $ 0.74 per share — — ( 1,983 ) — — ( 1,983 ) Balance, end of period $ 18,629 $ 9,815 $ 92,149 $ ( 7,137 ) $ ( 13,316 ) $ 100,140 Three Months Ended June 30, 2022 Balance, beginning of period $ 18,629 $ 9,815 $ 79,416 $ ( 5,719 ) $ ( 7,213 ) $ 94,928 Net income — — 3,209 — — 3,209 Other comprehensive loss — — — — ( 2,790 ) ( 2,790 ) Cash dividends declared, $ 0.62 per share — — ( 1,685 ) — - ( 1,685 ) Balance, June 30, 2022 $ 18,629 $ 9,815 $ 80,940 $ ( 5,719 ) $ ( 10,003 ) $ 93,662 Six Months Ended June 30, 2022 Balance, beginning of period $ 18,629 $ 9,815 $ 76,715 $ ( 5,719 ) $ ( 2,125 ) $ 97,315 Net income — — 5,910 — — 5,910 Other comprehensive loss — — — — ( 7,878 ) ( 7,878 ) Cash dividends declared, $ 0.62 per share — — ( 1,685 ) — — ( 1,685 ) Balance, end of period $ 18,629 $ 9,815 $ 80,940 $ ( 5,719 ) $ ( 10,003 ) $ 93,662 See notes to unaudited consolidated financial statements. 6 CSB BANCORP, INC. CONDENSED CONSOLIDATED S TATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, (Dollars in thousands) 2023 2022 NET CASH FROM OPERATING ACTIVITIES $ 6,194 $ 4,889 CASH FLOWS FROM INVESTING ACTIVITIES Securities: Proceeds from repayments, available-for-sale 4,350 8,541 Proceeds from repayments, held-to-maturity 9,118 11,255 Purchases, available-for-sale ( 492 ) ( 31,904 ) Purchases, held-to-maturity — ( 84,759 ) Purchases, equity securities — ( 131 ) Redemption of FHLB stock 1,823 — Loan originations, net ( 37,565 ) ( 33,231 ) Property, equipment, and software acquisitions ( 234 ) ( 174 ) Net cash used in investing activities ( 23,000 ) ( 130,403 ) CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in deposits ( 1,746 ) ( 9,634 ) Net decrease in short-term borrowings ( 4,030 ) ( 2,645 ) Repayment of other borrowings ( 599 ) ( 813 ) Cash dividends paid ( 1,983 ) ( 1,685 ) Purchase of treasury shares ( 1,030 ) — Net cash used in financing activities ( 9,388 ) ( 14,777 ) NET DECREASE IN CASH AND CASH EQUIVALENTS ( 26,194 ) ( 140,291 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 86,420 243,657 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 60,226 $ 103,366 SUPPLEMENTAL DISCLOSURES Cash paid during the year for: Interest $ 3,778 $ 756 Income taxes 2,650 1,050 See notes to unaudited consolidated financial statements. 7 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) N OTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying condensed consolidated financial statements include the accounts of CSB Bancorp, Inc. and its wholly-owned subsidiaries, The Commercial and Savings Bank (the “Bank”) and CSB Investment Services, LLC (together referred to as the “Company” or “CSB”). All significant intercompany transactions and balances have been eliminated in consolidation. The condensed consolidated financial statements have been prepared without audit. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present fairly the Company’s financial position at June 30, 2023, and the results of operations and changes in cash flows for the periods presented have been made. Certain information and footnote disclosures typically included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been omitted. The Annual Report for CSB for the year ended December 31, 2022, contains Consolidated Financial Statements and related footnote disclosures, which should be read in conjunction with the accompanying condensed Consolidated Financial Statements. The results of operations for the periods ended June 30, 2023 are not necessarily indicative of the operating results for the full year or any future interim period. Certain items in the prior-year financial statements were reclassified to conform to the current-year presentation. Such reclassifications had no effect on net income or shareholders’ equity. ALLOWANCE FOR CREDIT LOSSES - LOANS AND LEASES POLICY In connection with our adoption of ASU 2016-13, we made changes to our loan portfolio segments to align with the methodology applied in determining the allowance under CECL. Refer to Note 3 Loans, for further discussion of these portfolio segments. In addition to our existing segments, our new segmentation breaks out commercial lessors of buildings, and consumer indirect loans as well as separating consumer mortgage loans from home equity line of credit loans. The ACL is a valuation reserve established and maintained by charges against operating income and is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the ACL when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. The ACL is an estimate of expected credit losses, measured over the contractual life of a loan (adjusted for expected prepayment), that considers our historical loss experience, current conditions and forecasts of future economic conditions. Determination of an appropriate ACL is inherently subjective and may have significant changes from period to period. The methodology for determining the ACL has two main components: evaluation of expected credit losses for certain groups of homogeneous loans that share similar risk characteristics and evaluation of loans that do not share risk characteristics with other loans. The ACL for homogeneous loans is calculated using a life-time loss rate methodology with both a quantitative and a qualitative analysis that is applied on a quarterly basis. The ACL model is comprised of eight distinct portfolio segments: 1) Commercial and Industrial or C&I, 2) Commercial Real Estate, or CRE, 3) Commercial Lessors of Buildings, 4) Construction, 5) Consumer Mortgage, 6) Home Equity Line of Credit or HELOC, 7) Consumer Installment, and 8) Consumer Indirect loans. Each segment has a distinct set of risk characteristics monitored by management. We further evaluate the ACL at a disaggregated level which includes type of collateral, loan participations, non-owner occupied and our internal risk rating system for the commercial segments, and type of collateral and lien position, for the consumer segments. 8 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Historical credit loss experience is the basis for the estimation of expected credit losses. We apply historical loss rates to pools of loans with similar risk characteristics. After consideration of the historic loss calculation, management applies qualitative adjustments to reflect the current conditions and reasonable and supportable forecasts not already reflected in the historical loss information at the balance sheet date. Our reasonable and supportable forecast adjustment is based on the unemployment forecast and management judgment. For periods beyond our two-year reasonable and supportable forecast, we revert to the historical loss rate. The qualitative adjustments for current conditions are based upon changes in lending policies and practices, change in economic conditions, change in nature of the portfolio, experience and ability of lending staff, problem loan trends, quality of the bank’s loan review system, value of underlying collateral for collateral dependent loans, the existence of and changes in concentrations, and other external factors. These modified historical loss rates are multiplied by the outstanding principal balance of each loan to calculate a required reserve. A similar process is employed to calculate a reserve assigned to the portion of off-balance sheet commitments that we expect to fund, specifically unfunded loan commitments, and any needed reserve is recorded in other liabilities. The ACL for individual loans begins with the use of normal credit review procedures to identify whether a loan no longer shares similar risk characteristics with other pooled loans and therefore, should be individually assessed. We evaluate all commercial loans greater than $ 500 thousand that meet the following criteria: 1) when it is determined that foreclosure is probable, 2) substandard, doubtful and nonperforming loans when repayment is expected to be provided substantially through the operation or sale of the collateral, and 3) when it is determined by management that a loan does not share similar risk characteristics with other loans. Collateral values are discounted to consider disposition costs when appropriate. A specific reserve is established or a charge-off is taken if the fair value of the loan is less than the loan balance. Although we believe our process for determining the ACL appropriately considers all the factors that would likely result in credit losses, the process includes subjective elements and may be susceptible to significant change. To the extent actual losses are higher than management estimates, additional provision for credit losses could be required and could adversely affect our earnings or financial position in future periods. USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS In preparing the Consolidated Financial Statements, in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Consolidated Balance Sheets and reported amounts of revenues and expenses during each reporting period. Actual results could differ from those estimates. The most significant estimates susceptible to change in the near term relate to management’s determination of the allowance for credit losses and the fair value of financial instruments. ACCOUNTING PRONOUNCEMENTS ADOPTED IN 2023 In June 2016, the FASB issued ASU No. 2016-13, " Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" and subsequent related updates. This ASU replaces the incurred loss methodology for recognizing credit losses and requires businesses and other organizations to measure the current expected credit losses (CECL) on financial assets measured at amortized cost, including loans and held-to-maturity securities, net investments in leases, off-balance sheet credit exposures such as unfunded commitments, and other financial instruments. In addition, ASC 326 requires credit losses on available-for-sale debt securities to be presented as an allowance rather than as a write-down when management does not intend to sell or believes that it is not more likely than not they will be required to sell the debt securities. This guidance became effective on January 1, 2023 for the Bank. The results reported for periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable accounting standards. 9 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Bank adopted this guidance, and subsequent related updates, using the modified retrospective approach for all financial assets measured at amortized cost, including loans and held-to-maturity debt securities, available-for-sale debt securities and unfunded commitments. On January 1, 2023, the Bank recorded a cumulative effect increase to retained earnings of $ 52 thousand, net of tax, of which $ 442 thousand related to loans, offset by $ 390 thousand related to unfunded commitments, net of tax. There was no allowance for credit losses recorded for either available-for-sale or held-to-maturity debt securities. See Note 3 for further discussion on the adoption of CECL. The Bank adopted the provisions of ASC 326 related to presenting other-than-temporary impairment on available-for- sale debt securities prior to January 1, 2023 using the prospective transition approach, though no such charges had been recorded on the securities held by the Bank as of the date of adoption. The Bank expanded the pooling utilized under the legacy incurred loss method to include additional segmentation based on risk. The impact of the change from the incurred loss model to the current expected credit loss model is detailed below: January 1, 2023 (Dollars in thousands) Pre-adoption Adoption Impact As Reported Assets: ACL on loans Commercial and industrial $ 1,110 $ 658 $ 1,768 Commercial real estate 2,760 ( 541 ) 2,219 Commercial lessors of buildings — 974 974 Construction 803 ( 515 ) 288 Consumer mortgage 1,268 ( 580 ) 688 Home equity line of credit — 201 201 Consumer installment 233 ( 183 ) 50 Consumer indirect — 91 91 Unallocated 664 ( 664 ) — Total allowance for credit losses - loans 6,838 ( 559 ) $ 6,279 Liabilities: ACL for off-balance sheet commitments — 493 493 Total allowance for credit losses $ 6,838 ( 66 ) $ 6,772 The following table presents the Bank's loan portfolio, prior to the adoption of ASC 326, by category of loans and the impact of the change from the adoption of the standard: (Dollars in thousands) December 31, 2022 Adoption Impact Post Adoption January 1, 2023 Commercial and industrial $ 129,343 $ ( 2,209 ) $ 127,134 Commercial real estate 231,785 ( 70,625 ) 161,160 Commercial lessors of buildings — 83,728 83,728 Construction 55,318 ( 10,452 ) 44,866 Consumer mortgage 194,125 ( 44,338 ) 149,787 Home equity line of credit — 44,243 44,243 Consumer installment 16,387 ( 6,730 ) 9,657 Consumer indirect — 6,383 6,383 $ 626,958 $ — $ 626,958 Gross loans prior to deferred fees Deferred loan costs, net 213 — 213 Allowance for credit losses ( 6,838 ) 559 ( 6,279 ) Total net loans $ 620,333 $ 559 $ 620,892 10 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In March 2022, the FASB issued ASU 2022-02, “ Financial Instruments – Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures” . The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan. The guidance also requires disclosures about the performance of modified loans to borrowers experiencing financial difficulty in the 12 months following the modification. These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments to ASC 326 require that an entity disclose current period gross write-offs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance is only for entities that have adopted the amendments in Update 2016-13. This guidance has been adopted as of January 1, 2023 , however, there have been no reportable loan modifications during the six months ended June 30, 2023. 11 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 2 – SECURITIES Securities consist of the following on June 30, 2023 and December 31, 2022: (Dollars in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair value June 30, 2023 Available-for-sale U.S. Treasury securities $ 23,153 $ — $ ( 828 ) $ 22,325 U.S. Government agencies 13,999 — ( 1,263 ) 12,736 Mortgage-backed securities of government agencies 73,271 2 ( 8,640 ) 64,633 Asset-backed securities of government agencies 583 — ( 35 ) 548 State and political subdivisions 20,401 — ( 1,043 ) 19,358 Corporate bonds 29,182 — ( 3,425 ) 25,757 Total available-for-sale 160,589 2 ( 15,234 ) 145,357 Held-to-maturity U.S. Treasury Securities $ 12,779 $ — $ ( 1,033 ) $ 11,746 Mortgage-backed securities of government agencies 222,878 — ( 32,966 ) 189,912 State and political subdivisions 2,565 — ( 244 ) 2,321 Total held-to-maturity 238,222 — ( 34,243 ) 203,979 Equity securities 185 72 — 257 Restricted stock 1,607 — — 1,607 Total securities $ 400,603 $ 74 $ ( 49,477 ) $ 351,200 December 31, 2022 Available-for-sale U.S. Treasury securities $ 23,194 $ — $ ( 969 ) $ 22,225 U.S. Government agencies 13,999 — ( 1,369 ) 12,630 Mortgage-backed securities of government agencies 77,677 72 ( 8,859 ) 68,890 Asset-backed securities of government agencies 633 — ( 15 ) 618 State and political subdivisions 20,462 — ( 985 ) 19,477 Corporate bonds 28,740 — ( 2,511 ) 26,229 Total available-for-sale 164,705 72 ( 14,708 ) 150,069 Held-to-maturity U.S Treasury Securities $ 12,753 $ — $ ( 1,136 ) $ 11,617 Mortgage-backed securities of government agencies 232,068 — ( 34,051 ) 198,017 State and political subdivisions 2,580 1 ( 261 ) 2,320 Total held-to-maturity 247,401 1 ( 35,448 ) 211,954 Equity securities 185 59 — 244 Restricted stock 3,430 — — 3,430 Total securities $ 415,721 $ 132 $ ( 50,156 ) $ 365,697 12 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 2 – SECURITIES (continued) The amortized cost and fair value of debt securities on June 30, 2023, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. (Dollars in thousands) Amortized cost Fair value Available-for-sale Due in one year or less $ 12,999 $ 12,692 Due after one through five years 57,688 53,435 Due after five through ten years 24,674 22,143 Due after ten years 65,228 57,087 Total debt securities available-for-sale $ 160,589 $ 145,357 Held-to-maturity Due in one year or less $ 2,499 $ 2,470 Due after one through five years 7,427 6,848 Due after five through ten years 4,733 4,140 Due after ten years 223,563 190,521 Total debt securities held-to-maturity $ 238,222 $ 203,979 Securities with a fair value of approximately $ 129.3 million and $ 110.1 million were pledged on June 30, 2023 and December 31, 2022, respectively, to secure public deposits, as well as other deposits and borrowings as required or permitted by law. Restricted stock primarily consists of investments in Federal Home Loan Bank of Cincinnati (FHLB) and Federal Reserve Bank stock. The Bank’s investment in FHLB stock amounted to approximately $ 1.1 million and $ 2.9 million on June 30, 2023 and December 31, 2022 . The FHLB has redeemed approximately $ 1.8 million in stock at $ 100 par value per share during the six month period ended June 30, 2023. Federal Reserve Bank stock was $ 471 thousand on June 30, 2023 and December 31, 2022. There were no proceeds from sales of securities for the three and six-month periods ended June 30, 2023, and 2022. All gains and losses recognized on equity securities during the three and six-month periods were unrealized. 13 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 2 – SECURITIES (continued) The following table presents gross unrealized losses and fair value of securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, on June 30, 2023 and December 31, 2022: Securities in a continuous unrealized loss position Less than 12 months 12 months or more Total (Dollars in thousands) Gross unrealized losses Fair value Gross unrealized losses Fair value Gross unrealized losses Fair value June 30, 2023 Available-for-sale U.S. Treasury securities $ ( 111 ) $ 3,877 $ ( 717 ) $ 18,448 $ ( 828 ) $ 22,325 U.S. Government agencies — — ( 1,263 ) 12,736 ( 1,263 ) 12,736 Mortgage-backed securities of government agencies ( 211 ) 9,487 ( 8,429 ) 52,250 ( 8,640 ) 61,737 Asset-backed securities of government agencies — — ( 35 ) 548 ( 35 ) 548 State and political subdivisions ( 98 ) 7,059 ( 945 ) 12,073 ( 1,043 ) 19,132 Corporate bonds ( 124 ) 867 ( 3,301 ) 24,890 ( 3,425 ) 25,757 Held-to-maturity U.S. Treasury Securities — — ( 1,033 ) 11,746 ( 1,033 ) 11,746 Mortgage-backed securities of government agencies ( 626 ) 15,424 ( 32,340 ) 174,488 ( 32,966 ) 189,912 State and political subdivisions ( 4 ) 410 ( 240 ) 1,911 ( 244 ) 2,321 Total impaired securities $ ( 1,174 ) $ 37,124 $ ( 48,303 ) $ 309,090 $ ( 49,477 ) $ 346,214 December 31, 2022 Available-for-sale U.S. Treasury securities $ ( 798 ) $ 17,405 $ ( 171 ) $ 4,820 $ ( 969 ) $ 22,225 U.S. Government agencies — — ( 1,369 ) 12,630 ( 1,369 ) 12,630 Mortgage-backed securities of government agencies ( 1,046 ) 16,188 ( 7,813 ) 44,519 ( 8,859 ) 60,707 Asset-backed securities of government agencies — — ( 15 ) 618 ( 15 ) 618 State and political subdivisions ( 189 ) 9,079 ( 796 ) 9,848 ( 985 ) 18,927 Corporate bonds ( 1,165 ) 13,502 ( 1,346 ) 12,727 ( 2,511 ) 26,229 Held-to-maturity — U.S. Treasury Securities — — ( 1,136 ) 11,617 ( 1,136 ) 11,617 Mortgage-backed securities of government agencies ( 9,733 ) 79,325 ( 24,318 ) 118,692 ( 34,051 ) 198,017 State and political subdivisions — — ( 261 ) 1,903 ( 261 ) 1,903 Total temporarily impaired securities $ ( 12,931 ) $ 135,499 $ ( 37,225 ) $ 217,374 $ ( 50,156 ) $ 352,873 There were 204 securities in an unrealized loss position on June 30, 2023 , 163 of which were in a continuous loss position for twelve (12) months or more. At least quarterly, the Company conducts a comprehensive security-level impairment assessment on the available-for-sale securities. Management believes the Company will fully recover the cost of these securities. It does not intend to sell these securities and likely will not be required to sell them before the anticipated recovery of the remaining amortized cost basis, which may be maturity. As a result, management concluded that these securities were not at a credit loss on June 30, 2023 and were not other than temporarily impaired on December 31, 2022, respectively. 14 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 2 – SECURITIES (continued) The Bank monitors the credit quality of held-to-maturity debt securities primarily through utilizing their credit rating. The Bank monitors the credit rating on a quarterly basis. There are no nonperforming held-to-maturity securities. As of June 30, 2023, no ACL was required for any held-to-maturity security. The majority of the securities are explicitly or implicitly guaranteed by the United States government, and any estimate of expected credit losses would be insignificant to the Bank. The following table summarizes the amortized cost of held-to maturity debt securities at June 30, 2023, aggregated by credit quality indicator: (Dollars in thousands) U.S. Treasury securities Mortgage- backed securities of government agencies State and political subdivisions June 30, 2023 Credit rating: AAA / AA / A $ 12,779 $ 222,878 $ 2,565 BBB / BB / B — — — Lower than B — — — Non-rated — — — Total $ 12,779 $ 222,878 $ 2,565 15 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 – LOANS The composition of net loans receivable as of June 30, 2023 and December 31, 2022: (Dollars in thousands) June 30, 2023 Commercial and industrial $ 146,567 Commercial real estate 166,579 Commercial lessors of buildings 85,062 Construction 46,022 Consumer mortgage 161,963 Home equity line of credit 41,464 Consumer installment 10,584 Consumer indirect 6,289 Total loans 664,530 Allowance for credit losses ( 6,559 ) Deferred loan costs, net 75 Net Loans $ 658,046 (Dollars in thousands) December 31, 2022 Commercial and industrial $ 129,343 Commercial real estate 231,785 Residential real estate 194,125 Construction & land development 55,318 Consumer 16,387 Total loans 626,958 Allowance for loan losses ( 6,838 ) Deferred loan costs, net 213 Total Loans * $ 620,333 * See Note 1 for reclassification of balances due to the adoption of ASC 326. Loan Origination/Risk Management The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of Risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions. Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Underwriting standards are designed to promote relationship banking rather than transactional banking. The Company’s management examines current and occasionally projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers; however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable, inventory, and equipment, and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. 16 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 – LOANS (CONTINUED) Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single industry. Management monitors and evaluates commercial real estate loans based on collateral, geography, and risk grade criteria. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied. With respect to loans to developers and builders that are secured by non-owner-occupied properties, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction and land development loans are underwritten utilizing independent appraisal reviews, sensitivity analysis of absorption and lease rates, and financial analysis of the developers and property owners. Construction and land development loans are generally based upon estimates of costs and value associated with the completed project. These estimates may be inaccurate. Construction and land development loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property, or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions, and the availability of long-term financing. The Company originates consumer loans utilizing a judgmental underwriting process. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed, jointly by line and staff personnel. This activity, coupled with relatively small loan amounts that are spread across many individual borrowers, mitigates risk. The Company maintains an independent credit department that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures. Loans serviced for others approximated $ 133.8 and $ 137.5 million on June 30, 2023 and December 31, 2022, respectively. 17 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 – LOANS (CONTINUED) Concentrations of Credit Nearly all the Company’s lending activity occurs within the state of Ohio, including the four counties of Holmes, Stark, Tuscarawas and Wayne, as well as other markets. The majority of the Company’s loan portfolio consists of commercial and commercial real estate loans. Credit concentrations, including commitments, as determined using North American Industry Classification Codes (NAICS), to the two largest industries compared to total loans on June 30, 2023, included $ 69.1 million, or 10 %, of total loans to lessors of non-residential buildings, and $ 35.4 million, or 5 %, of total loans to other animal food. These loans are generally secured by real property and equipment, with repayment expected from operational cash flow. Credit evaluation is based on a review of cash flow coverage of principal, interest payments, and the adequacy of the collateral received. Allowance for Credit Losses The following table details activity in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2023. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. For the three and six month periods in 2023 the increase in the provision for commercial and industrial loans primarily relates to the increase in loan volume. The change in provision for commercial lessors of buildings relates to the increase in loans graded special mention. The decrease in provision for commercial real estate loans is due to the payoff of one larger loan relationship with a specific allocation. (Dollars in thousands) Beginning Balance Impact of Adopting ASC 326 Charge-offs Recoveries Provisions (Reductions) Ending Balance Three Months Ended June 30, 2023 Commercial and industrial $ 1,821 $ — $ — $ 9 $ 289 $ 2,119 Commercial real estate 2,236 — — — ( 354 ) 1,882 Commercial lessors of buildings 965 — — — 272 1,237 Construction 271 — — — 12 283 Consumer mortgage 693 — — 1 20 714 Home equity line of credit 186 — — — ( 8 ) 178 Consumer installment 47 — ( 15 ) 5 15 52 Consumer indirect 88 — — 10 ( 4 ) 94 Unallocated — — — — — — $ 6,307 $ — $ ( 15 ) $ 25 $ 242 $ 6,559 Six Months Ended June 30, 2023 Commercial and industrial $ 1,110 $ 658 $ — $ 19 $ 332 $ 2,119 Commercial real estate 2,760 ( 541 ) — 1 ( 338 ) 1,882 Commercial lessors of buildings — 974 — — 263 1,237 Construction 803 ( 515 ) — — ( 5 ) 283 Consumer mortgage 1,268 ( 580 ) — 1 25 714 Home equity line of credit — 201 — — ( 23 ) 178 Consumer installment 233 ( 183 ) ( 23 ) 5 20 52 Consumer indirect — 91 ( 31 ) 34 — 94 Unallocated 664 ( 664 ) — — — — $ 6,838 $ ( 559 ) $ ( 54 ) $ 60 $ 274 $ 6,559 18 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 – LOANS (CONTINUED) Allowance for Loan Losses The following tables detail activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2022. (Dollars in thousands) Commercial and industrial Commercial Real Estate Residential Real Estate Construction & Land Development Consumer Unallocated Total Three Months Ended June 30, 2022 Beginning balance $ 1,169 $ 2,550 $ 1,039 $ 1,534 $ 382 $ 631 $ 7,305 (Recovery of) provision for loan losses 50 ( 129 ) 138 ( 239 ) 12 ( 177 ) ( 345 ) Charge-offs ( 8 ) — — — ( 3 ) ( 11 ) Recoveries 2 1 — 312 4 319 Net (charge-offs) recoveries ( 6 ) 1 — 312 1 308 Ending balance $ 1,213 $ 2,422 $ 1,177 $ 1,607 $ 395 $ 454 $ 7,268 Six Months Ended June 30, 2022 Beginning balance $ 1,240 $ 2,838 $ 992 $ 1,380 $ 421 $ 747 $ 7,618 (Recovery of) provision for loan losses ( 15 ) ( 417 ) 184 ( 85 ) ( 19 ) ( 293 ) ( 645 ) Charge-offs ( 18 ) — — — ( 24 ) ( 42 ) Recoveries 6 1 1 312 17 337 Net (charge-offs) recoveries ( 12 ) 1 1 312 ( 7 ) 295 Ending balance $ 1,213 $ 2,422 $ 1,177 $ 1,607 $ 395 $ 454 $ 7,268 19 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 – LOANS (CONTINUED) Age Analysis of Past-Due Loans Receivable and Nonperforming Loans The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past-due status. (Dollars in thousands) Current 30-60 Days Past Due 61-89 Days Past Due 90 Days + Past Due Total Past Due Total Loans June 30, 2023 Commercial and industrial $ 146,547 $ 20 $ — $ — $ 20 $ 146,567 Commercial real estate 166,579 — — — — 166,579 Commercial lessors of buildings 85,062 — — — — 85,062 Construction 46,022 — — — — 46,022 Consumer mortgage 161,657 264 42 — 306 161,963 Home equity line of credit 41,229 225 — 10 235 41,464 Consumer installment 10,417 150 17 — 167 10,584 Consumer indirect 6,289 — — — — 6,289 Total Loans $ 663,802 $ 659 $ 59 $ 10 $ 728 $ 664,530 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 June 30, 2023: (Dollars in thousands) Nonaccrual with no ACL Nonaccrual with ACL Total Nonaccrual Loans Past Due Over 90 Days Still Accruing Total Nonperforming June 30, 2023 Commercial and industrial $ 19 $ — $ 19 $ — $ 19 Commercial real estate 83 — 83 — 83 Commercial lessors of buildings — — — — — Construction — — — — — Consumer mortgage 64 — 64 — 64 Home equity line of credit — — — 10 10 Consumer installment 6 — 6 — 6 Consumer indirect 72 — 72 — 72 Total Loans $ 244 $ — $ 244 $ 10 $ 254 Interest income for the six months ended June 30, 2023 was $ 1 thousand on commercial real estate loans and $ 15 thousand on consumer mortage loans. Several of the consumer mortgage loans are at an amortized cost basis of $ 0 and all payments are being recognized as interest income. 20 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 – LOANS (CONTINUED) The following table presents the aging of past due loans and nonaccrual loans as of December 31, 2022: Accruing Loans (Dollars in thousands) Current 30-59 Days Past Due 60-89 Days Past Due 90 Days + Past Due Non- Accrual Total Past Due and Non- Accrual Total Loans December 31, 2022 Commercial and industrial $ 129,270 $ 70 $ 3 $ — $ — $ 73 $ 129,343 Commercial real estate 231,693 — — — 92 92 231,785 Residential real estate 193,794 95 137 — 99 331 194,125 Construction & land development 55,286 32 — — — 32 55,318 Consumer 16,091 103 128 — 65 296 16,387 Total Loans $ 626,134 $ 300 $ 268 $ — $ 256 $ 824 $ 626,958 Credit Quality Indicators The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes commercial loans individually by classifying the loans as to credit risk. This analysis includes all commercial loans before origination and an annual review of those with an outstanding commitment greater than $ 500 thousand. The Company uses the following definitions for risk ratings: Pass . Loans classified as pass (Cash Secured, Exceptional, Acceptable, Monitor, or Pass Watch) may exhibit a wide array of characteristics but at a minimum represent an acceptable risk to the Bank. Borrowers in this rating may have leveraged but acceptable balance sheet positions, satisfactory asset quality, stable to favorable sales and earnings trends, acceptable liquidity and adequate cash flow. Loans are considered fully collectible and require an average amount of administration. While generally adhering to credit policy, these loans may exhibit occasional exceptions that do not result in undue risk to the Bank. Borrowers are generally capable of absorbing setbacks, financial and otherwise, without the threat of failure. Special Mention . Assets assigned a Special Mention grade are not considered classified assets but are considered criticized. These assets exhibit potential weaknesses that, deserve management’s close attention. If left uncorrected, those potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. Loans in this rating warrant special attention but have not yet reached the point of concern for loss. These assets have deteriorated sufficiently to the point they would have difficulty refinancing elsewhere. Similarly, purchasers of the business would not be eligible for bank financing unless they represent a significantly stronger credit risk. Substandard . Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful . Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable. 21 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 – LOANS (CONTINUED) Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be pass rated loans. Based on the most recent analysis performed, the following tables present the recorded investment in non-homogeneous loans by internal risk rating system as of June 30, 2023 and December 31, 2022: Term Loans Amortized Costs Basis by Origination Year Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term (Dollars in thousands) 2023 2022 2021 2020 2019 Prior Total June 30, 2023 Commercial and industrial: Pass $ 12,814 $ 26,906 $ 15,664 $ 6,793 $ 4,679 $ 9,043 $ 60,060 $ — $ 135,959 Special mention — 458 — — 192 46 31 — 727 Substandard 50 2,768 480 3,072 823 2,589 99 — 9,881 Doubtful — — — — — — — — Total $ 12,864 $ 30,132 $ 16,144 $ 9,865 $ 5,694 $ 11,678 $ 60,190 $ — $ 146,567 YTD gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate: Pass $ 16,239 $ 24,425 $ 48,720 $ 13,410 $ 19,408 $ 28,739 $ 2,992 $ — $ 153,933 Special Mention — 469 658 404 — — — — 1,531 Substandard — — 918 636 475 9,086 — — 11,115 Doubtful — — — — — — — — — Total $ 16,239 $ 24,894 $ 50,296 $ 14,450 $ 19,883 $ 37,825 $ 2,992 $ — $ 166,579 YTD gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial lessors of buildings: Pass $ 2,489 $ 25,968 $ 25,480 $ 8,268 $ 4,392 $ 10,517 $ 1,747 $ — $ 78,861 Special Mention — 456 1,528 — 3,674 — — — 5,658 Substandard — — — 371 — 172 — — 543 Doubtful — — — — — — — — — Total $ 2,489 $ 26,424 $ 27,008 $ 8,639 $ 8,066 $ 10,689 $ 1,747 $ — $ 85,062 YTD gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Construction: Pass $ 7,539 $ 28,689 $ 663 $ 948 $ 376 $ 306 $ — $ — $ 38,521 Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Total $ 7,539 $ 28,689 $ 663 $ 948 $ 376 $ 306 $ — $ — $ 38,521 YTD gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Total Pass $ 39,081 $ 105,988 $ 90,527 $ 29,419 $ 28,855 $ 48,605 $ 64,799 $ — $ 407,274 Special Mention — 1,383 2,186 404 3,866 46 31 — 7,916 Substandard 50 2,768 1,398 4,079 1,298 11,847 99 — 21,539 Doubtful — — — — — — — — — Total $ 39,131 $ 110,139 $ 94,111 $ 33,902 $ 34,019 $ 60,498 $ 64,929 $ — $ 436,729 (Dollars in thousands) Pass Special Mention Substandard Doubtful Not Rated Total December 31, 2022 Commercial and industrial $ 119,353 $ 282 $ 7,927 $ — $ 1,781 $ 129,343 Commercial real estate 220,414 485 8,352 — 2,534 231,785 Construction & land development 40,640 6,655 — — 8,023 55,318 Total $ 380,407 $ 7,422 $ 16,279 $ — $ 12,338 $ 416,446 22 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 – LOANS (CONTINUED) The Company monitors the credit risk profile by payment activity for the loan classes listed below. Loans past due 90 days or more and loans on nonaccrual status are considered nonperforming. The following table presents the amortized cost in residential consumer loans based on payment activity: Term Loans Amortized Costs Basis by Origination Year Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term (Dollars in thousands) 2023 2022 2021 2020 2019 Prior Total June 30, 2023 Consumer mortgage: Performing $ 12,124 $ 34,356 $ 38,887 $ 34,347 $ 9,242 $ 32,943 $ — $ — $ 161,899 Nonperforming — — — — — 64 — — 64 Total $ 12,124 $ 34,356 $ 38,887 $ 34,347 $ 9,242 $ 33,007 $ — $ — $ 161,963 YTD gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Construction Performing $ 2,042 $ 3,665 $ 277 $ 1,270 $ 124 $ 123 $ — $ — $ 7,501 Nonperforming — — — — — — — — — Total $ 2,042 $ 3,665 $ 277 $ 1,270 $ 124 $ 123 $ — $ — $ 7,501 YTD gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Home equity line of credit: Performing $ — $ — $ — $ — $ — $ — $ 41,403 $ 51 $ 41,454 Nonperforming — — — — — — 10 — 10 Total $ — $ — $ — $ — $ — $ — $ 41,413 $ 51 $ 41,464 YTD gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer installment: Performing $ 3,634 $ 4,101 $ 1,536 $ 719 $ 259 $ 266 $ 63 $ — $ 10,578 Nonperforming — — 6 — — — — — 6 Total $ 3,634 $ 4,101 $ 1,542 $ 719 $ 259 $ 266 $ 63 $ — $ 10,584 YTD gross charge-offs $ — $ 9 $ 9 $ 3 $ 1 $ 1 $ — $ — $ 23 Consumer indirect: Performing $ 601 $ 1,256 $ 651 $ 621 $ 668 $ 2,420 $ — $ — $ 6,217 Nonperforming — — — — 21 51 — — 72 Total $ 601 $ 1,256 $ 651 $ 621 $ 689 $ 2,471 $ — $ — $ 6,289 YTD gross charge-offs $ — $ — $ — $ — $ — $ 31 $ — $ — $ 31 Total Performing $ 18,401 $ 43,378 $ 41,351 $ 36,957 $ 10,293 $ 35,752 $ 41,466 $ 51 $ 227,649 Nonperforming — — 6 — 21 115 10 — 152 Total $ 18,401 $ 43,378 $ 41,357 $ 36,957 $ 10,314 $ 35,867 $ 41,476 $ 51 $ 227,801 Consumer mortgages are substantially secured by one to four family owner occupied properties and consumer indirect loans are substantially secured by recreational vehicles. All nonperforming consumer loans are evaluated when placed on nonaccrual status and may be charged down based on the fair value less cost to sell if that value is lower than the outstanding balance. Modifications to Borrowers Experiencing Financial Difficulty Occasionally, the Bank modifies loans to borrowers in financial distress by providing – principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses. In some cases, the Bank may provide multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. There were no modifications of loans to borrowers in financial distress completed during the six months ended June 30, 2023. 23 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 – LOANS (CONTINUED) Impaired Loans The following impaired loan information relates to required disclosures under the previous incurred loan loss methodology and are only presented with prior period information. The following table presents the balance in the allowance for loan losses and the ending loan balances by portfolio class, based on the impairment method as of December 31, 2022: (Dollars in thousands) Commercial and industrial Commercial Real Estate Residential Real Estate Construction Consumer Unallocated Total December 31, 2022 Allowance for loan losses: Individually evaluated for impairment $ — $ — $ — $ — $ 4 $ — $ 4 Collectively evaluated for impairment 1,110 2,760 1,268 803 229 664 6,834 Total ending allowance balance $ 1,110 $ 2,760 $ 1,268 $ 803 $ 233 $ 664 $ 6,838 Loans: Loans individually evaluated for impairment $ 123 $ 113 $ 677 $ — $ 123 $ 1,036 Loans collectively evaluated for impairment 129,220 231,672 193,448 55,318 16,264 625,922 Total ending loans balance $ 129,343 $ 231,785 $ 194,125 $ 55,318 $ 16,387 $ 626,958 The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2022: (Dollars in thousands) Unpaid Principal Balance Recorded Investment with no Allowance Recorded Investment with Allowance Total recorded investment 1 Related Allowance December 31, 2022 Commercial and industrial $ 123 $ 124 $ — $ 124 $ — Commercial real estate 117 92 20 112 — Residential real estate 733 166 518 683 — Construction & land development — — — — — Consumer 127 6 121 127 4 Total impaired loans $ 1,101 $ 387 $ 659 $ 1,046 $ 4 1 Includes principal, accrued interest, unearned fees, and origination costs 24 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 – LOANS (CONTINUED) The following table presents the average recorded investment in impaired loans and related interest income recognized for the periods indicated. For the Three Months Ended June 30, For the Six Months Ended June 30, (Dollars in thousands) 2022 2022 Average recorded investment: Commercial and industrial $ 255 $ 261 Commercial real estate 200 212 Residential real estate 780 819 Construction & land development 109 55 Consumer 130 133 Average recorded investment in impaired loans $ 1,474 $ 1,480 Interest income recognized: Commercial and industrial $ 1 $ 2 Commercial real estate 2 4 Residential real estate 8 16 Construction & land development — — Consumer 2 4 Interest income recognized on a cash basis on impaired loans $ 13 $ 26 25 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 4 – SHORT-TERM BORROWINGS The following table provides additional detail regarding repurchase agreements and the related collateral accounted for as secured borrowings. Remaining Contractual Maturity Overnight and Continuous June 30, December 31, (Dollars in thousands) 2023 2022 Securities of U.S. Government Agencies and mortgage-backed securities of government agencies pledged, fair value $ 28,691 $ 32,775 Repurchase agreements 28,520 32,550 NOTE 5 – FAIR VALUE MEASUREMENTS The Company provides disclosures about assets and liabilities carried at fair value. The framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and lowest priority to unobservable inputs. The three broad levels of the fair value hierarchy are described below: Level I: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access. Level II: Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by corroborated or other means. If the asset or liability has a specified (contractual) term, the Level II input must be observable for substantially the full term of the asset or liability. Level III: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. 26 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 5 – FAIR VALUE MEASUREMENTS (CONTINUED) The following table presents the assets reported on the Consolidated Balance Sheets at their fair value on a recurring basis as of June 30, 2023 and December 31, 2022 by level within the fair value hierarchy. No liabilities are carried at fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Equity securities with readily determinable values and U.S. Treasury Notes are valued at the closing price reported on the active market on which the individual securities are traded. Obligations of U.S. government agencies, mortgage-backed securities, asset-backed securities, obligations of states and political subdivisions and corporate bonds are valued at observable market data for similar assets. Equity securities without readily determinable values are carried at amortized cost adjusted for impairment and observable price changes and are not included in the table below. (Dollars in thousands) Level I Level II Level III Total June 30, 2023 Assets: Securities available-for-sale U.S. Treasury securities $ 22,325 $ — $ — $ 22,325 U.S. Government agencies — 12,736 — 12,736 Mortgage-backed securities of government agencies — 64,633 — 64,633 Asset-backed securities of government agencies — 548 — 548 State and political subdivisions — 19,358 — 19,358 Corporate bonds — 25,757 — 25,757 Total available-for-sale securities $ 22,325 $ 123,032 $ — $ 145,357 Equity securities $ 211 $ — $ — $ 211 December 31, 2022 Assets: Securities available-for-sale U.S. Treasury securities $ 22,225 $ — $ — $ 22,225 U.S. Government agencies — 12,630 — 12,630 Mortgage-backed securities of government agencies — 68,890 — 68,890 Asset-backed securities of government agencies — 618 — 618 State and political subdivisions — 19,477 — 19,477 Corporate bonds — 26,229 — 26,229 Total available-for-sale securities $ 22,225 $ 127,844 $ — $ 150,069 Equity securities $ 198 $ — $ — $ 198 There were no assets reported at fair value and recorded on a nonrecurring basis on June 30, 2023, and December 31, 2022. 27 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 6 – FAIR VALUES OF FINANCIAL INSTRUMENTS The fair values of recognized financial instruments as of June 30, 2023 and December 31, 2022 are as follows: (Dollars in thousands) Carrying Value Level I Level II Level III Fair Value June 30, 2023 Financial assets Securities held-to-maturity $ 238,222 $ 11,746 $ 192,233 $ — $ 203,979 Loans held for sale 184 187 — — 187 Net loans 658,046 — — 626,195 626,195 Mortgage servicing rights 607 — — 607 607 Financial liabilities Deposits $ 1,021,671 $ 862,034 $ — $ 160,725 $ 1,022,759 Other borrowings 1,862 — — 1,750 1,750 December 31, 2022 Financial assets Securities held-to-maturity $ 247,401 $ 11,617 $ 200,337 $ — $ 211,954 Loans held for sale 52 55 — — 55 Net loans 620,333 — — 600,720 600,720 Mortgage servicing rights 621 — — 621 621 Financial liabilities Deposits $ 1,023,417 $ 905,335 $ — $ 114,478 $ 1,019,813 Other borrowings 2,461 — — 2,321 2,321 Other financial instruments carried at amortized cost include cash and cash equivalents, restricted stock, bank-owned life insurance, accrued interest receivable, short-term borrowings, and accrued interest payable, all of which have a Level I fair value that approximates their carrying value. The Company also has unrecognized financial instruments on June 30, 2023 and December 31, 2022 . These financial instruments relate to commitments to extend credit and letters of credit. The aggregate contract amount of such financial instruments was approximately $ 304 million on June 30, 2023 and $ 268 million on December 31, 2022. Such amounts are also considered to be the fair values. The fair value estimates of financial instruments are made at a specific point in time based on relevant market information. Since no ready market exists for a significant portion of the financial instruments, fair value estimates are largely based on judgments after considering such factors as future expected credit losses, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. 28 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 7- ACCUMULATED OTHER COMPREHENSIVE LOSS The following table presents the changes in accumulated other comprehensive loss by component net of tax for the three and six months ended June 30, 2023 and 2022: (Dollars in thousands) Pretax Tax Effect After-tax Three Months Ended June 30, 2023 Balance, beginning of period $ ( 14,981 ) $ 3,146 $ ( 11,835 ) Unrealized holding loss on available-for-sale securities arising during the period ( 1,923 ) 404 ( 1,519 ) Amortization of held-to-maturity discount resulting from transfer 48 ( 10 ) 38 Total other comprehensive loss ( 1,875 ) 394 ( 1,481 ) Balance, end of period $ ( 16,856 ) $ 3,540 $ ( 13,316 ) Six Months Ended June 30, 2023 Balance, beginning of period $ ( 16,354 ) $ 3,435 $ ( 12,919 ) Unrealized holding loss on available-for-sale securities arising during the period ( 596 ) 125 ( 471 ) Amortization of held-to-maturity discount resulting from transfer 94 ( 20 ) 74 Total other comprehensive loss ( 502 ) 105 ( 397 ) Balance, end of period $ ( 16,856 ) $ 3,540 $ ( 13,316 ) Three Months ended June 30, 2022 Balance, beginning of period $ ( 9,131 ) $ 1,918 $ ( 7,213 ) Unrealized holding loss on available-for-sale securities arising during the period ( 3,607 ) 757 ( 2,850 ) Amortization of held-to-maturity discount resulting from transfer 75 ( 15 ) 60 Total other comprehensive loss ( 3,532 ) 742 ( 2,790 ) Balance, end of period $ ( 12,663 ) $ 2,660 $ ( 10,003 ) Six Months Ended June 30, 2022 Balance, beginning of period $ ( 2,691 ) $ 566 $ ( 2,125 ) Unrealized holding loss on available-for-sale securities arising during the period ( 10,145 ) 2,130 ( 8,015 ) Amortization of held-to-maturity discount resulting from transfer 173 ( 36 ) 137 Total other comprehensive loss ( 9,972 ) 2,094 ( 7,878 ) Balance, end of period $ ( 12,663 ) $ 2,660 $ ( 10,003 ) 29 CSB BANCORP, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management’s discussion and analysis focuses on the consolidated financial condition of the Company on June 30, 2023 as compared to December 31, 2022, and the consolidated results of operations for the three and six months ended June 30, 2023 compared to the same periods in 2022. The purpose of this discussion is to provide the reader with a more thorough understanding of the Consolidated Financial Statements. This discussion should be read in conjunction with the interim condensed Consolidated Financial Statements and related footnotes contained in Part I, Item 1 of this Quarterly Report. FORWARD-LOOKING STATEMENTS Certain statements contained in this Quarterly Report are not historical facts but rather are forward-looking statements that are subject to certain risks and uncertainties. When used herein, the terms “anticipates”, “plans”, “expects”, “believes”, and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company’s actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, and rapidly changing technology affecting financial services. Other factors not currently anticipated may also materially and adversely affect the Company’s results of operations, cash flows, and financial position. There can be no assurance that future results will meet expectations. While the Company believes that the forward-looking statements in this report are reasonable, the reader should not place undue reliance on any forward-looking statement. The Company does not undertake, and specifically disclaims any obligation, to publicly revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except as may be required by applicable law. FINANCIAL CONDITION Total assets decreased to $1.15 billion at June 30, 2023 compared to $1.16 billion December 31, 2022. During the six months ended June 30, 2023, securities decreased $16 million, net loans increased $38 million, and cash and cash equivalents decreased $26 million. Deposits and short-term borrowings decreased $6 million. Net loans increased $38 million, or 14%, as construction loans decreased $8 million, or 14%, and residential real estate loans increased $12 million, or 8%, from December 31, 2022. Commercial and commercial real estate loans increased $36 million, or 14% compared to December 31, 2022. Consumer refinance activity slowed significantly on mortgage loans, home purchase activity remained stable despite limited inventory, and home equity line balances decreased by $3 million. Residential mortgage loan originations for the six months ended June 30, 2023 totaled $27 million, a decrease from $44 million in originations during the six months ended June 30, 2022. As interest rates continued to rise in 2023, more variable rate residential mortgage loans were originated for the portfolio. Originations sold into the secondary market were $2 million and $7 million, respectively during the six months ended June 30, 2023 and June 30, 2022. The Bank originates and sells primarily fixed rate thirty-year mortgages into the secondary market. The allowance for credit losses decreased $709 thousand from the year ago quarter to $6.6 million. The Company adopted CECL on January 1, 2023. Net recoveries were $6 thousand, or an annualized 0.00% of average loans, in the current six-month period compared to net recoveries of $295 thousand, or 0.10% of average loans in the year-ago six-month period. At June 30, 2023, the allowance for credit losses to total loans was 0.99%. We believe the allowance level is appropriate given the low level of problem loans and composition of the overall loan portfolio in the current economic environment. 30 CSB BANCORP, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Nonperforming loans decreased $2 thousand to $254 thousand, or 0.04%, of total loans from $256 thousand, or 0.04% of total loans, on December 31, 2022. For the six months ended June 30, 2023, $60 thousand in loans were placed on nonaccrual status, $70 thousand in paydowns were received, and $2 thousand in personal loans were charged-off due to non-payment. June 30, December 31, June 30, (Dollars in thousands) 2023 2022 2022 Non-performing loans $ 254 $ 256 $ 690 Other real estate — — — Repossessed assets — — — Allowance for credit/loan losses 6,559 6,838 7,268 Total loans $ 664,605 $ 627,171 $ 582,185 Allowance for credit/loan losses as a percentage of total loans 0.99 % 1.09 % 1.25 % Allowance for credit/loan losses to total nonperforming loans 25.8X 26.7X 10.5X The ratio of gross loans to deposits was 65.1% at June 30, 2023, compared to 61.3% at December 31, 2022. The Company has no exposure to government-sponsored enterprise preferred stocks, collateralized debt obligations, or trust preferred securities. Management has considered industry analyst reports, sector credit reports, and the volatility within the bond market in concluding that the gross unrealized losses of $49.5 million within the available-for-sale and held-to-maturity portfolios as of June 30, 2023, was primarily the result of current market yields compared to the yields at the time the investments were purchased by the Company and not due to credit quality. As a result, all embedded security losses on June 30, 2023, are considered temporary and no allowance for credit loss is necessary. The weighted average life of total debt securities was 5.30 years at June 30, 2023 as compared to 5.57 years at December 31, 2022. If interest rates declined 100 basis points, the weighted average life was estimated to fall to 5.20 years at June 30, 2023 and 5.10 years at December 31, 2022. If interest rates rose 100 basis points the weighted average life would be expected to increase to 5.31 years at June 30, 2023 and 6.01 years at December 31, 2022. Deposits decreased $2 million, or less than 1%, from December 31, 2022 with noninterest-bearing deposits decreasing approximately $35 million, or 10%, and interest-bearing deposit accounts increasing approximately $33 million, or 5%. Total deposits as of June 30, 2023 are $1.02 billion, or 3%, greater than June 30, 2022 deposit balances. On a year over year comparison, decreases were recognized in noninterest-bearing demand deposits of $13 million and savings of $18 million. Increases were recognized in interest bearing demand of $13 million, money market accounts of $5 million, and time deposits of $42 million. Deposit growth has stabilized with customers transfering funds into time certificates of deposit to take advantage of the increased interest rates. The estimated amount of uninsured deposits was $272 million, $267 million, and $262 million as of June 30, 2023, December 31, 2022, and June 30, 2022, respectively. Short-term borrowings consisting of overnight repurchase agreements with retail customers decreased $4 million, or 12%, to $29 million at June 30, 2023 as compared to December 31, 2022 and other borrowings decreased $599 thousand as the Company repaid FHLB advances. Total shareholders’ equity amounted to $100 million, or 8.7%, of total assets at June 30, 2023, an increase of $4 million, or 4%, from $96 million December 31, 2022. The increase in shareholders’ equity during the six months ended June 30, 2023 was due to net income of $7.6 million, accumulated other comprehensive loss (“AOCL”) of $397 thousand, less cash dividends of $2.0 million, and treasury stock repurchase of $1.0 million. An increase of U.S. Treasury rates during the six months ended June 30, 2023 caused the AOCL to increase as AFS securities are marked to fair market value. As interest rates increase, the fair value of AFS fixed-rate securities decrease with a corresponding net of tax increase recorded in the AOCL portion of equity. This remaining unrealized loss in securities is temporary and is adjusted monthly for additional interest rate fluctuations, principal paydowns, calls, and maturities. The Company and the Bank met all regulatory capital requirements at June 30, 2023. 31 CSB BANCORP, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Three months ended June 30, 2023 and 2022 For the quarters ended June 30, 2023 and 2022, the Company recorded net income of $3.6 million and $3.2 million and $1.36 and $1.18 per share, respectively. The $435 thousand increase in net income for the period was primarily the result of a $1.4 million increase in net interest income, offset by an increase in noninterest expenses of $275 thousand, and a decrease of $49 thousand in noninterest income. The total provision for credit losses was $140 thousand in 2023 compared to a recovery of $345 thousand for the three-month period in 2022, and the federal income tax provision increased $120 thousand. Return on average assets and return on average equity were 1.27% and 14.62%, respectively, for the three-month period of 2023, compared to 1.13% and 13.73%, respectively for the same quarter in 2022. Average Balance Sheets and Net Interest Margin Analysis For the Three Months Ended June 30, 2023 2022 (Dollars in thousands) Average balance 1 Interest Average rate 2 Average balance 1 Interest Average rate 2 ASSETS Interest-earning deposits $ 34,601 $ 444 5.15 % $ 99,122 $ 203 0.82 % Taxable securities 368,959 1,945 2.11 374,246 1,660 1.78 Tax-exempt securities 4 22,187 129 2.33 24,184 137 2.27 Loans 3,4 660,004 8,717 5.30 574,824 6,039 4.21 Total interest-earning assets 1,085,751 11,235 4.15 % 1,072,376 8,039 3.01 % Noninterest-earning assets 65,652 63,942 TOTAL ASSETS $ 1,151,403 $ 1,136,318 LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing demand deposits $ 248,775 $ 616 0.99 % $ 237,950 $ 56 0.09 % Savings deposits 299,957 590 0.79 307,234 75 0.10 Time deposits 141,001 922 2.62 118,232 213 0.72 Borrowed funds 31,765 80 1.01 41,663 29 0.28 Total interest-bearing liabilities 721,498 2,208 1.23 % 705,079 373 0.21 % Noninterest-bearing demand deposits 324,898 333,692 Other liabilities 5,049 3,797 Shareholders' Equity 99,958 93,750 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,151,403 $ 1,136,318 Taxable equivalent net interest income, (Non-GAAP) $ 9,027 $ 7,666 Tax equivalent adjustment 4 (33 ) (36 ) Net interest income, (GAAP) $ 8,994 $ 7,630 Net interest margin, (GAAP) 3.32 % 2.86 % Tax equivalent adjustment 4 0.01 0.01 Net interest margin-taxable equivalent, (Non-GAAP) 3.33 % 2.87 % Taxable equivalent net interest spread 2.92 % 2.80 % 1 Average balances have been computed on an average daily basis. 2 Average rates have been computed based on the amortized cost of the corresponding asset or liability. 3 Average loan balances include nonaccrual loans. 4 Interest income is shown on a fully tax-equivalent basis, which is a Non-GAAP measure and is reconciled to the GAAP measure at the bottom of the table. 32 CSB BANCORP, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Interest income for the quarter ended June 30, 2023, was $11.2 million representing a $3.2 million increase, or 40%, compared to the same period in 2022. This increase was primarily due to increased volume and rates on loans and increased rates on interest-earning deposits, and taxable securities partially offset by the volume decrease in interest-earning deposits in the comparable period. Average interest-earning deposit rates increased 433 bps while loan rates increased 109 basis points, and taxable securities interest rates rose 33 bps for the quarter ended June 30, 2023 as compared to the same period in 2022 . The Federal Reserve raised managed interest rates 7 times and 350 bps during the 1 year period. Interest expense for the quarter ended June 30, 2023 was $2.2 million, an increase of $1.8 million, or 492%, from the same quarter in 2022. The increase in interest expense occurred primarily due to the increase in interest rates on all deposit types as well as an increase in volume of demand and time deposit accounts for the quarter ended June 30, 2023. For the quarter ended June 30, 2023, with improving credit quality and minimal loan charge-offs, the bank recognized net recoveries of $10 thousand, compared to $308 thousand net recoveries for the same quarter in 2022. The provision for credit losses for loans in the current quarter of $242 thousand, compared to a credit provision of $345 thousand in the second quarter 2022, reflects loan growth in 2023. The company recorded $102 thousand credit provision for off-balance credit exposure in 2023 compared to a $0 provision in the second quarter of 2022. This decrease results from a decline primarily in construction loans in 2023 compared to 2022. Economic indicators reflect a leveling off in residential real estate prices and low unemployment. The provision for credit losses is determined based on management’s calculation of the adequacy of the allowance for credit losses, which includes provisions for classified loans as well as for the remainder of the portfolio based on historical data, including past charge-offs and current economic trends. Noninterest income for the quarter ended June 30, 2023, was $1.7 million, a decrease of $49 thousand, or 3%, compared to the same quarter in 2022. The gain on the sale of mortgage loans into the secondary market decreased by $91 thousand, or 62%, for the quarter ended June 30, 2023 as fewer loans were sold into the secondary market due to decreasing demand for mortgage refinancing as interest rates increased and inventories of homes available for sale declined. Fees from trust and brokerage services amounted to $252 thousand for the second quarter 2023, a decrease of $1 thousand, or less than 1%, as compared to the same quarter in 2022. Service charges on deposit accounts increased $11 thousand, or 4%, compared to the same quarter in 2022, primarily from increased customer overdraft fees. Debit card interchange income decreased $10 thousand, or 2%, with less fees generated from usage in the second quarter 2023. Credit card fee income increased $1 thousand, or less than 1%, as improvements to the card program have resulted in increased customer usage. Earnings on bank owned life insurance increased $4 thousand, or 2%, for the second quarter 2023. Noninterest expenses for the quarter ended June 30, 2023 increased $275 thousand, or 5%, compared to the second quarter 2022. Salaries and employee benefits decreased $23 thousand, or less than 1%, a result the capitalization of salary and benefits due to increased loan originations compared to second quarter 2022. Occupancy and equipment expense increased $8 thousand, or 3%, in 2023 over the second quarter 2022 , primarily due to increases in property insurance. Software expense increased $95 thousand due to additional software purchases over second quarter 2022. Professional and director fees increased $56 thousand, or 17%, for the quarter ended June 30, 2023 as compared to the second quarter 2022, primarily due to an increase in audit and outside consulting fees. Marketing and public relations expense increased $26 thousand, or 24%. Data line and phone expense decreased $14 thousand, or 22%, with renegotiated contracts. Debit card expense decreased $16 thousand or 9%. FDIC insurance expense increased $103 thousand, or 137%, with the increase in insurance rates. Federal income tax expense increased $120 thousand, or 16%, for the quarter ended June 30, 2023 as compared to the second quarter 2022. The provision for income taxes was $894 thousand (effective rate of 19.7%) for the quarter ended June 30, 2023, compared to $774 thousand (effective rate of 19.4%) for the same quarter ended 2022. 33 CSB BANCORP, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Six months ended June 30, 2023, and 2022 For the six months ended June 30, 2023, and 2022, the Company recorded net income of $7.6 million and $5.9 million and $2.82 and $2.17 per share, respectively. The $1.7 million increase in net income for the six-month period was primarily the result of an increase in net interest income of $3.5 million, which was partially offset by an increase in the total provision for credit losses of $754 thousand, an increase in noninterest expenses of $526 thousand, and a reduction in noninterest income of $63 thousand. The federal income tax provision was $453 thousand higher during the six-month period in 2023. Return on average assets and return on average equity were 1.33% and 15.49%, respectively, for the six months ended June 30, 2023, compared to 1.05% and 12.48%, respectively for the same period in 2022. For the Six Months Ended June 30, 2023 2022 (Dollars in thousands) Average balance 1 Interest Average rate 2 Average balance 1 Interest Average rate 2 ASSETS Interest-earning deposits $ 41,087 $ 989 4.85 % $ 128,478 $ 277 0.43 % Taxable securities 372,394 3,957 2.14 354,411 2,941 1.67 Tax-exempt securities 4 22,140 258 2.35 24,745 277 2.26 Loans 3,4 648,760 16,692 5.19 567,671 11,823 4.20 Total interest-earning assets 1,084,381 21,896 4.07 % 1,075,305 15,318 2.87 % Noninterest-earning assets 64,859 62,147 TOTAL ASSETS $ 1,149,240 $ 1,137,452 LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing demand deposits $ 243,112 $ 1,121 0.93 % $ 237,816 $ 106 0.09 % Savings deposits 308,609 1,121 0.73 308,159 142 0.09 Time deposits 131,717 1,470 2.25 119,067 445 0.75 Borrowed funds 33,614 158 0.95 42,838 57 0.27 Total interest-bearing liabilities 717,052 3,870 1.09 % 707,880 750 0.21 % Noninterest-bearing demand deposits 328,254 330,228 Other liabilities 5,288 3,857 Shareholders' Equity 98,646 95,487 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,149,240 $ 1,137,452 Taxable equivalent net interest income, (Non-GAAP) $ 18,026 $ 14,568 Tax equivalent adjustment 4 (67 ) (73 ) Net interest income, (GAAP) $ 17,959 $ 14,495 Net interest margin, (GAAP) 3.34 % 2.72 % Tax equivalent adjustment 4 0.01 0.01 Net interest margin-taxable equivalent, (Non-GAAP) 3.35 % 2.73 % Taxable equivalent net interest spread 2.98 % 2.66 % 34 CSB BANCORP, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Interest income for the six months ended June 30, 2023, was $21.8 million representing a $6.6 million increase, or 43%, compared to the same period in 2022. This increase was primarily due to volume and yield increases on loans and taxable securities along with rate increases on overnight deposits in other banks for the period ended June 30, 2023, as compared to the same period in 2022. Interest expense for the six months ended June 30, 2023, was $3.9 million, an increase of $3.1 million, or 416%, from the same period in 2022. The increase in interest expense occurred primarily due to an increase in rates on all interest-bearing liabilities for the six months ended June 30, 2023. For the six months ended June 30, 2023, the provision for credit losses was $274 thousand, compared to a credit reversal of $645 thousand for the same period in 2022. For more discussion see Results of Operations, three months. The provision for loan losses is determined based on management’s calculation of the adequacy of the allowance for credit losses, which includes provisions for classified loans as well as for the remainder of the portfolio based on historical data, including past charge-offs and current economic trends. Noninterest income for the six months ended June 30, 2023, was $3.4 million, a decrease of $63 thousand, or 2%, compared to the same period in 2022. The gain on the sale of mortgage loans to the secondary market decreased $206 thousand to $59 thousand for the six months ended June 30, 2023, as increases in interest rates slowed mortgage loan refinancing. Service charges on deposit accounts increased $38 thousand, or 7%, compared to the same period in 2022 primarily from increases in overdraft fees, as well as increases in business service charges on deposit accounts. Credit card fee income increased $23 thousand, or 7% with growth in business credit card customers and interchange income . Debit card interchange income increased $16 thousand, or 2%. Earnings on bank owned life insurance policies increased $7 thousand for the period. Fees from trust and brokerage services declined $7 thousand for the period. Noninterest expenses for the six months ended June 30, 2023, increased $526 thousand, or 5%, compared to the same period in 2022. Salaries and employee benefits increased $116 thousand, or 2%, a result of increased salaries and medical benefits. Marketing and public relations expense increased $38 thousand, or 17%, with marketing, brand recognition initiatives, and community support in the company’s market slowly increasing in volume due to increasing opportunities presenting after previous cancellations due to COVID-19. Occupancy and equipment expenses increased $3 thousand over the same period in 2022 with an increase in maintenance and insurance expense. Professional and director fees increased $101 thousand for the six months ended June 30, 2023, as compared to the same period in 2022 with increased accounting and professional fees related to the audit function and CECL. Federal income tax expense increased $453 thousand, or 32%, for the six months ended June 30, 2023, as compared to the same period in 2022. The provision for income taxes was $1.9 million (effective rate of 19.8%) for the six months ended June 30, 2023, compared to $1.4 million (effective rate of 19.3%) for the same period ended 2022. 35 CSB BANCORP, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAPITAL RESOURCES The Company maintained a strong capital position with tangible common equity to tangible assets of 8.3% at June 30, 2023 compared with 7.9% at December 31, 2022. Consistent with the Board of Director’s commitment to public confidence and safe and sound banking operations, capital targets and minimum risk-based capital ratios for CSB were established to maintain excess capital to well-capitalized standards. To be considered well-capitalized, an institution must have a total risk-based capital ratio of at least 10%, a tier 1 capital ratio of at least 8%, a leverage capital ratio of at least 5%, a common equity tier 1 (“CET1”) ratio of at least 6.5% and must not be subject to any order or directive requiring the institution to improve its capital level. An adequately capitalized institution has a total risk-based capital ratio of at least 8%, a tier 1 capital ratio of at least 6%, a CET1 ratio of at least 4.5%, and a leverage ratio of at least 4%. Failure to meet specified minimum capital requirements could result in regulatory actions by the Federal Reserve or Ohio Division of Financial Institutions that could have a material effect on the Company’s financial condition or results of operations. Management believes there were no material changes to capital resources as presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. As of June 30, 2023, the Company and the Bank met all capital adequacy requirements to which they were subject. Capital Ratios June 30, 2023 December 31, 2022 Total Capital To Risk Weighted Assets Ratio Consolidated 15.9 % 16.0 % Bank 15.8 15.9 Tier 1 Capital To Risk Weighted Assets Ratio Consolidated 15.0 15.1 Bank 14.9 14.9 Common Equity Tier 1 Capital To Risk Weighted Assets Consolidated 15.0 15.1 Bank 14.9 14.9 Tier 1 Leverage Ratio Consolidated 9.4 8.8 Bank 9.3 8.7 LIQUIDITY (Dollars in thousands) June 30, 2023 December 31, 2022 Change Cash and cash equivalents $ 60,226 $ 86,420 $ (26,194 ) Available from FHLB 131,044 122,062 8,982 Unpledged AFS securities at fair market value 118,275 134,401 (16,126 ) $ 309,545 $ 342,883 $ (33,338 ) Net deposits and short-term liabilities $ 1,023,729 $ 1,041,016 $ (17,287 ) Liquidity ratio 30.2 % 32.9 % (2.7 ) Minimum board approved liquidity ratio 20.0 % 20.0 % Liquidity refers to the Company’s ability to generate sufficient cash to fund current loan demand, meet deposit withdrawals, pay operating expenses, and meet other obligations. Liquidity is monitored by the Company’s Asset Liability Committee. Other sources of liquidity include, but are not limited to, purchases of federal funds, advances from the FHLB, adjustments of interest rates to attract deposits, brokered deposits, and borrowing at the Federal Reserve discount window. Management believes that its sources of liquidity are adequate to meet cash flow obligations for the foreseeable future. 36 CSB BANCORP, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Off-Balance Sheet Arrangements The Company does not have any off-balance sheet arrangements (as such term is defined in applicable Securities and Exchange Commission (the “Commission”) rules) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources. PER SHARE DATA Earnings per share is computed based on the weighted average number of shares of common stock outstanding during each year. The company currently maintains a simple capital structure, thus, there are no dilutive effects on earnings per share. The weighted average number of common shares outstanding for earnings per share computations was as follows: Three Months Ended Six Months Ended June 30, June 30, (Dollars in thousands, except per share data) 2023 2022 2023 2022 Net income $ 3,644 $ 3,209 $ 7,578 $ 5,910 Weighted average common shares outstanding 2,680,526 2,718,024 2,686,382 2,718,024 Earnings per share, basic and diluted 1.36 1.18 2.82 2.17 37 CSB BANCORP, INC. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ITEM 3 - QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK By June 2023, Ohio's unemployment rate declined to 3.4%. The bank based in Holmes County is reporting an unemployment rate of 3.0% in June 2023. Of the counties within the bank's footprint, Tuscarawas County reported the highest unemployment rate at 4.1% in June. Wayne County posted a low unemployment rate of 2.9% in June 2023. Many jobs within the Bank's market footprint continue to go unfilled. The rate of inflation, slowed to 3.1% at June 2023, following a high base rate in 2022. The rate continues to be above the Federal Reserve target rate of 2%, but has fallen from 8.5% in March 2022. The Federal Reserve continues to raise interest rates in an effort to stabilize prices with maximum employment. Credit quality in the Bank's loan portfolio is good, however risks to the economy remain with higher prices for goods and labor. Management performs a quarterly analysis of the Company’s interest rate risk over a twenty-four-month horizon. The analysis includes two balance sheet models, one based on a static balance sheet and one on a dynamic balance sheet with projected growth in assets and liabilities. All balance sheet positions, and interest rate projections are currently within the Company’s board-approved policy for both the twelve- month and twenty-four-month periods. The following table presents an analysis of the estimated sensitivity of the Company’s annual net interest income to sudden and sustained -400 through +400 basis point changes, in 100 basis point increments, in market interest rates at June 30, 2023 and December 31, 2022. The net interest income reflected is for the first twelve-month period of the modeled twenty-four-month horizon. The underlying balance sheet for illustrative purposes is dynamic with projected growth in assets and liabilities. June 30, 2023 (Dollars in thousands) Change in Interest Rates (basis points) Net Interest Income Dollar Change Percentage Change Board Policy Limits +400 $ 37,003 $ 124 0.3 % ± 25 % +300 37,020 141 0.4 ± 15 +200 36,977 98 0.3 ± 10 +100 36,921 42 0.1 ± 5 0 36,879 — — -100 36,764 (115 ) (0.3 ) ± 5 -200 36,407 (472 ) (1.3 ) ± 10 -300 36,024 (855 ) (2.3 ) ± 15 -400 35,514 (1,365 ) (3.7 ) ± 25 December 31, 2022 + 400 $ 38,810 $ 1,090 2.9 % ± 25 % + 300 38,581 861 2.3 ± 15 + 200 38,302 582 1.5 ± 10 + 100 38,003 283 0.8 ± 5 0 37,720 — — – 100 37,368 (352 ) (0.9 ) ± 5 – 200 36,869 (851 ) (2.3 ) ± 10 – 300 35,973 (1,747 ) (4.6 ) ± 15 – 400 35,519 (2,201 ) (5.8 ) ± 25 38 CSB BANCORP, INC. CONTROLS AND PROCEDURES ITEM 4 - CONTROL S AND PROCEDURES With the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that: (a) information required to be disclosed by the Company in this Quarterly Report on Form 10-Q would be accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure; (b) information required to be disclosed by the Company in this Quarterly Report on Form 10-Q would be recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms; and (c) the Company’s disclosure controls and procedures are effective as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that material information relating to the Company and its consolidated subsidiary is made known to them, particularly during the period for which the Company’s periodic reports, including this Quarterly Report on Form 10-Q, are being prepared. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There were no changes during the period covered by this Quarterly Report on Form 10-Q in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 39 CSB BANCORP, INC. FORM 10-Q Quarter ended June 30, 2023 PART II – OTHER INFORMATION ITEM 1 - LEGA L PROCEEDINGS. In the opinion of management there are no outstanding legal proceedings that are reasonably likely to have a material adverse effect on the company’s financial condition or results of operations. ITEM 1A - RI SK FACTORS. Not required for Smaller Reporting Companies. ITEM 2 - UNREGISTERED SALES OF EQUI TY SECURITIES AND USE OF PROCEEDS. (a) Not applicable (b) Not applicable (c) The following table provides information about repurchases of common stock by the Company during the quarter ended June 30, 2023: Period Total Number of Common Shares Purchased Average Price Paid per Common Share Total Number of Shares Purchased as Part of Publicly Announced Authorization Maximum Number of Remaining Shares that May be Purchased as Part of Publicly Announced Authorization April 1, 2023 - April 30, 2023 — — — 75,393 May 1, 2023 - May 31, 2023 — — — 75,393 June 1, 2023 - June 30, 2023 300 36.65 300 75,093 Total for quarter 300 36.65 — 300 75,093 On March 2, 2021, CSB Bancorp, Inc. filed Form 8-K with the Commission announcing that its Board of Directors approved a Stock Repurchase Program authorizing the repurchase of up to 5% of the Company’s common shares or 137,117 of the Company’s outstanding shares. Repurchases may be made from time to time as market and business conditions warrant, in the open market, through block purchases, and in negotiated private transactions. {10b5-1} ITEM 3 - DEFAULTS UPO N SENIOR SECURITIES. Not applicable. ITEM 4 - MINE SAF ETY DISCLOSURES. Not applicable. ITEM 5 - OTHER INFORMATION. Not applicable. 40 CSB BANCORP, INC. FORM 10-Q Quarter ended June 30, 2023 PART II – OTHER INFORMATION ITEM 6 - E xhibits. Exhibit Number Description of Document 3.1 Amended Articles of Incorporation of CSB Bancorp, Inc. (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed August 6, 2004, Exhibit 3.1, film number 04958544). 3.1.1 Amended form of Article Fourth of Amended Articles of Incorporation, as effective April 9, 1998 (incorporated by reference to registrant’s Annual Report on Form 10-K filed on March 30, 1999, Exhibit 3.1.1, film number 99579179) . 3.2 Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to the Registrant’s Form 10-SB). 3.2.1 Amended Article VIII of the Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to Registrant’s Form DEF 14a filed on March 25, 2009, Appendix A, film number 09703970). 3.2.2 Amended Article II of the Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to Registrant’s Form DEF 14a file on March 16, 2021, Appendix A, film number 21747059) . 3.2.3 Amended Article III of the Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to Regisrant's Form DEF 14a file on March 16, 2023, Appendix A, film number 23738842). 4.0 Description of Capital Stock (incorporated by reference to registrants Annual Report on Form 10-K filed on March 16, 2020, Exhibit 4.0, film number 20717009). 31.1 Rule 13a-14(a)/15d-14(a) Chief Executive Officer’s Certification. 31.2 Rule 13a-14(a)/15d-14(a) Chief Financial Officer’s Certification. 32.1 Section 1350 Chief Executive Officer’s Certification. 32.2 Section 1350 Chief Financial Officer’s Certification. 101 The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Net Loss and Comprehensive Loss , (iii) Consolidated Statements of Stockholders' Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). 41 CSB BANCORP, INC. SIGNA TURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CSB BANCORP, INC. (Registrant) Date: August 10, 2023 /s/ Eddie L. Steiner Eddie L. Steiner President Chief Executive Officer Date: August 10, 2023 /s/ Paula J. Meiler Paula J. Meiler Senior Vice President Chief Financial Officer 42