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Item 8. Financial Statements and Supplementary Data

2024-03-15 compared with 2023-03-16 · 446 added, 355 removed, 666 unchanged (55% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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

The management of CSB Bancorp, Inc.

is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended.

The Company’s internal control over financial reporting is designed to provide reasonable assurance that our published financial statements are fairly presented, in all material respects, in conformity with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted the required assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022.

Management’s assessment did not identify any material weaknesses in the Company’s internal control over financial reporting.

Management conducted the required assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023.

Management’s assessment did not identify any material weaknesses in the Company’s internal control over financial reporting.

In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 2013 Internal Control-Integrated Framework.

Based upon this assessment, management believes that the Company’s internal control over financial reporting is effective as of December 31, 2022.

Based upon this assessment, management believes that the Company’s internal control over financial reporting is effective as of December 31, 2023.

Senior Vice President,

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Chief Financial Officer

REPORT OF INDEPENDENT REGIS TERED PUBLIC ACCOUNTING FIRM

REP ORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

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We have audited the accompanying consolidated balance sheets of CSB Bancorp, Inc.

and subsidiaries (the “Company”) as of December 31, 2022 and 2021;

the related consolidated statements of income, comprehensive income, changes in shareholders’

equity, and cash flows for the years then ended;

and subsidiaries (the “Company”) as of December 31, 2023 and 2022;

the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the years then ended;

and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

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

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent, with respect to the Company, in accordance with U.S.

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The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

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The communication of critical audit matters does not alter, in any way, our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Crititcal Audit Matters (continued)

Allowance for Loan Losses (ALL) –

Qualitative Factors

Description of the Matter

The Company’s loan portfolio totaled $627 million as of December 31, 2022, and the associated ALL was $6.8 million.

As discussed in Notes 1 and 3 to the consolidated financial statements, determining the amount of the ALL requires significant judgment about the collectability of loans, which includes an assessment of historical loss experience within each risk category of loans, qualitative adjustment to those historical loss allocations, and testing of certain commercial loans for impairment.

Management applies qualitative adjustments to the historical loss rate to reflect the inherent losses that exist in the loan portfolio at the balance sheet date that are not reflected in the historical loss experience.

Qualitative adjustments are made based upon changes in lending policies and practices, economic conditions, changes in the loan portfolio mix, trends in loan delinquencies and classified loans, collateral values, concentrations of credit risk for the commercial loan

portfolios, and other specific industry factors.

We identified these qualitative adjustments within the ALL as critical audit matters because they involve a high degree of subjectivity and are highly difficult to estimate.

In turn, auditing management’s judgments regarding the qualitative factors applied in the ALL calculation involved a high degree of subjectivity.

How We Addressed the Matter in Our Audit

We gained an understanding of the Company’s process for establishing the ALL, including the qualitative adjustments made to the ALL.

We evaluated the design and tested the operating effectiveness of controls over the Company’s ALL process, which included, among others, management’s review and approval controls designed to assess the need and level of qualitative adjustments to the ALL, as well as the reliability of the data utilized to support management’s assessment.

To test the qualitative adjustments, we evaluated the appropriateness of management’s methodology and assessed whether all relevant risks were reflected in the ALL.

Regarding the measurement of the qualitative adjustments, we evaluated the completeness, accuracy, and relevance of the data and inputs utilized in management’s estimate.

For example, we compared the inputs and data used in the estimate to third-party macroeconomic data, and other internal and external data points, while considering the existence of new or contrary information.

Furthermore, we analyzed the changes in the components of the qualitative reserves relative to changes in the supporting external or internal data.

We assessed the reasonableness of the factors from both a directional perspective and from an overall magnitude perspective as compared to the underlying data.

We also compared the level of the Company’s ALL reserves to a peer group (adjusted for differences in credit quality) to gain additional evidence of the reasonableness of the magnitude of the ALL overall.

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

Allowance for Credit Losses (ACL) – Qualitative Adjustments

The Company’s loan portfolio totaled $701 million as of December 31, 2023, and the associated ACL was $6.6 million.

As discussed in Notes 1 and 3 to the consolidated financial statements, determining the amount of the ACL requires significant judgment about the expected future losses, which is based on a baseline lifetime loss rate, calculated using a weighted-average remaining maturities method, which is then adjusted for current qualitative conditions and reasonable and supportable forecasts.

Management applies these qualitative adjustments to the baseline lifetime loss rate to reflect changes in the current and forecasted environment, both internal and external, that are different from the conditions that existed during the historical loss calculation period.

We identified these qualitative adjustments within the ACL as critical audit matters because they involve a high degree of subjectivity.

While the determination of these qualitative adjustments includes analysis of observable data over the historical loss period, the judgments required to assess the directionality and magnitude of adjustments is highly subjective.

Auditing these complex judgments and assumptions involved especially challenging auditor judgment due to the nature of audit evidence and the nature and extent of effort required to address these matters.

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

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

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

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

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

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

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

Cranberry Township, Pennsylvania

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CONSOLIDATED B ALANCE SHEETS

At December 31, 2022 and 2021

December 31, 2023 and 2022

(Dollars in thousands, except per share data)

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Held-to-maturity;

fair value of $ 211,954 in 2022 and $ 174,528 in 2021

fair value of $ 194,730 in 2023 and $ 211,954 in 2022 ($ 0 credit loss allowance)

Equity securities

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Loans held for sale

Less allowance for loan losses

Less allowance for credit losses

Premises and equipment, net

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Accrued interest receivable and other assets

LIABILITIES AND SHAREHOLDERS’

LIABILITIES AND SHAREHOLDERS’ EQUITY

Noninterest-bearing

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Other borrowings

Allowance for credit losses on off-balance sheet commitments

Accrued interest payable and other liabilities

Total liabilities

SHAREHOLDERS’

SHAREHOLDERS’ EQUITY

Common stock, $ 6.25 par value.

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Accumulated other comprehensive loss

Total shareholders’

TOTAL LIABILITIES AND SHAREHOLDERS’

Total shareholders’ equity

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

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

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NET INTEREST INCOME

RECOVERY FOR LOAN LOSSES

Net interest income, after recovery for loan losses

CREDIT LOSS EXPENSE

Provision (recovery) for credit loss expense - loans

Provision for credit loss expense - off-balance sheet commitments

Total provision (recovery) for credit loss expense

NET INTEREST INCOME AFTER CREDIT LOSS EXPENSE

NONINTEREST INCOME

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Earnings on bank owned life insurance

Unrealized (loss) gain on equity securities

Unrealized gain (loss) on equity securities

Total noninterest income

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Debit card expense

Amortization of intangible assets

FDIC insurance expense

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Federal income tax provision

EARNINGS PER SHARE

Basic and diluted

Weighted average shares outstanding - basic and diluted

Earnings per share - basic and diluted

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

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(Dollars in thousands)

Other comprehensive loss

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

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

Other comprehensive income (loss)

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

Amortization of held-to-maturity discount resulting from transfer

Income tax effect at 21 %

Other comprehensive loss

Other comprehensive income (loss)

Total comprehensive income

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CONSOLIDATED STATEMENTS OF CHANGES IN

SHAREHOLDE RS’

SHAREHOLDE RS’ EQUITY

Years Ended December 31, 2023 and 2022

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Comprehensive

Income (Loss)

BALANCE AT DECEMBER 31, 2021

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BALANCE AT DECEMBER 31, 2022

Other comprehensive loss

Cumulative effect of adoption of ASU 2016-13

Other comprehensive income

Purchase of 37,638 treasury shares

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Depreciation and amortization of premises, equipment

Deferred income taxes

Recovery of provision for loan losses

Deferred income tax expense (benefit)

Provision for (recovery of) credit losses

Gain on sale of loans, net

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Redemption of restricted stock

Purchase of bank-owned life insurance

Loan (originations) and payments, net

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Purchases of software

Sale of property

Net cash used in investing activities

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Years Ended December 31, 2023 and 2022

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Net cash provided by financing activities

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

NET DECREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

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Cash paid during the year for:

Noncash investing activities:

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

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

NOTE 1 –

SUMMARY OF SIG NIFICANT ACCOUNTING POLICIES

NOTE 1 – SUMMARY OF SIG NIFICANT ACCOUNTING POLICIES

CSB Bancorp, Inc.

(the “Company”

or “CSB”) was incorporated in 1991 in the State of Ohio, and is a registered bank holding company.

The Company’s wholly-owned subsidiaries are The Commercial and Savings Bank of Millersburg, Ohio (the “Bank”) and CSB Investment Services, LLC.

(the “Company” or “CSB”) was incorporated in 1991 in the State of Ohio, and is a registered bank holding company.

The Company’s wholly-owned subsidiaries are The Commercial and Savings Bank of Millersburg, Ohio (the “Bank”) and CSB Investment Services, LLC.

The Company, through its subsidiaries, operates in one industry segment, the commercial banking industry.

The Bank, an Ohio-chartered bank organized in 1879, provides financial services through its sixteen Banking Centers located in Holmes, Stark, Tuscarawas and Wayne counties.

These communities are the source of a substantial majority of the Bank’s deposit, loan, and trust activities.

The majority of the Bank’s income is derived from commercial and retail lending activities, and investments in securities.

These communities are the source of a substantial majority of the Bank’s deposit, loan, and trust activities.

The majority of the Bank’s income is derived from commercial and retail lending activities, and investments in securities.

Its primary deposit products are checking, savings, and term certificate accounts.

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Actual results could differ from those estimates.

The most significant estimates susceptible to change in the near term relate to management’s determination of the allowance for loan losses and the fair value of financial instruments.

The most significant estimates susceptible to change in the near term relate to management’s determination of the allowance for credit losses and the fair value of financial instruments.

PRINCIPLES OF CONSOLIDATION

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Effective, March 26, 2020, the Federal Reserve reduced reserve requirements to zero for all depository institutions.

There were no required federal reserves included in “Cash and due from banks”

at December 31, 2022 or December 31, 2021.

There were no required federal reserves included in “Cash and due from banks” at December 31, 2023 or December 31, 2022.

When required, reserves are used to facilitate the implementation of monetary policy by the Federal Reserve System.

The required reserves are computed by applying prescribed ratios to the classes of average deposit balances.

These are held in the form of vault cash and depository amount held with the Federal Reserve Bank.

These are held in the form of vault cash and depository amounts held with the Federal Reserve Bank.

Federal law prohibits the Company from borrowing from the Bank unless the loans are secured by specific collateral.

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Securities designated as available-for-sale are carried at fair value with unrealized gains and losses on such securities, net of applicable income taxes, recognized as other comprehensive income or loss.

During 2021, approximately $ 77 million par value U.S.

Treasuries and mortgage-backed securities were transferred from available-for-sale to held-to-maturity.

Held-to-maturity securities are carried at their fair value on the date of transfer or at amortized cost if security purchases are designated as held-to-maturity.

Held-to-maturity securities are recorded at amortized cost.

Securities transferred from AFS to HTM are carried at their fair value on the date of transfer.

On December 31, 2023, 61 % of the total investment portfolio was classified as held-to-maturity.

The amortized cost of debt securities is adjusted for the accretion of discounts to maturity and the amortization of premiums to the earlier of a bond’s call date or maturity based on the interest method.

Such amortization and accretion is included in interest and dividends on securities.

Gains and losses on sales of securities are accounted for on a trade date basis, using the specific identification method, and are included in noninterest income.

Securities are periodically reviewed for other-than-temporary impairment based upon a number of factors, including, but not limited to:

the length of time and extent to which the market value has been less than cost, the financial condition of the underlying issuer, the receipt of principal and interest according to the contractual terms, the ability of the issuer to meet contractual obligations, the likelihood of the security’s ability to recover any decline in its market value and management’s intent, and ability to hold the security for a period of time sufficient to allow for a recovery in market value.

Among the factors considered in determining management’s intent and ability to hold the security, is a review of the Company’s capital adequacy, interest rate risk position, and liquidity.

The assessment of a security’s ability to recover any decline in market value, the ability of the issuer to meet contractual obligations, and management’s intent and ability to hold the security requires

considerable judgment.

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

EQUITY SECURITIES

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The Bank is required to maintain an investment in common stock of the FHLB and Federal Reserve Bank because the Bank is a member of the FHLB and the Federal Reserve System.

Loans that management has the intent and ability to hold for the foreseeable future, until maturity, or pay-off, generally are stated at their outstanding principal amount, adjusted for charge-offs, the allowance for loan losses, and any deferred loan fees or costs on originated loans.

Loans that management has the intent and ability to hold for the foreseeable future, until maturity, or pay-off, generally are stated at their outstanding principal amount, adjusted for charge-offs, the allowance for credit losses, and any deferred loan fees or costs on originated loans.

Interest is accrued based upon the daily outstanding principal balance.

Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield over the life of the related loan.

Interest income is not reported when full repayment is in doubt, typically when the loan is impaired, or payments are past due over 90 days.

All interest accrued, but not collected for loans placed on nonaccrual or charged-off is reversed against interest income.

Interest income is not reported when full repayment is in doubt, typically when the loan is individually evaluated, or payments are past due over 90 days.

All interest accrued, but not collected for loans placed on nonaccrual or charged-off is reversed and charged against interest income.

The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual.

Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

At origination, a determination is made whether a loan will be held in the Bank’s portfolio or is intended for sale in the secondary market.

Mortgage loans held for sale are recorded at the lower of the aggregate cost or fair value.

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The Bank recognizes gains and losses on sales of the loans held for sale when the sale is completed.

ALLOWANCE FOR CREDIT LOSSES

Loan and Leases Policy - In connection with our adoption of ASU 2016-13, we made changes to our loan portfolio segments to align with the methodology applied in determining the allowance under CECL.

Refer to Note 3 Loans, for further discussion of these portfolio segments.

In addition to our existing segments, our new segmentation breaks out commercial lessors of buildings, and consumer indirect loans as well as separating consumer mortgage loans from home equity line of credit loans.

The ACL is a valuation reserve established and maintained by charges against operating income and is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans.

Loans, or portions thereof, are charged off against the ACL when they are deemed uncollectible.

Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The ACL is an estimate of expected credit losses, measured over the contractual life of a loan (adjusted for expected prepayment), that considers our historical loss experience, current conditions and forecasts of future economic conditions.

Determination of an appropriate ACL is inherently subjective and may have significant changes from period to period.

The methodology for determining the ACL has two main components:

evaluation of expected credit losses for certain groups of homogeneous loans that share similar risk characteristics and evaluation of individual loans that do not share risk characteristics with other loans.

The ACL for homogeneous loans is calculated using a life-time loss rate methodology with both a quantitative and a qualitative analysis that is applied on a quarterly basis.

The ACL model is comprised of eight distinct portfolio segments:

1) Commercial and Industrial or C&I, 2) Commercial Real Estate, or CRE, 3) Commercial Lessors of Buildings, 4) Construction, 5) Consumer Mortgage, 6) Home Equity Line of Credit or HELOC, 7) Consumer Installment, and 8) Consumer Indirect loans.

Each segment has a distinct set of risk characteristics monitored by management.

Historical credit loss experience is the basis for the estimation of expected credit losses.

We apply historical loss rates to pools of loans with similar risk characteristics.

After consideration of the historic loss calculation, management applies qualitative adjustments to reflect the current conditions and reasonable and supportable forecasts not already reflected in the historical loss information at the balance sheet date.

Our reasonable and supportable forecast adjustment is based on the unemployment forecast and management judgment.

For periods beyond our two-year reasonable and supportable forecast, we revert to the historical loss rate.

The qualitative adjustments for current conditions are based upon changes in lending policies and practices, change in economic conditions, change in nature of the portfolio, experience and ability of lending staff, problem loan trends, quality of the bank’s loan review system, value of underlying collateral for collateral dependent loans, the existence of and changes in concentrations, and other external factors.

These modified historical loss rates are multiplied by the outstanding principal balance of each loan to calculate a required reserve.

A similar process is employed to calculate a reserve assigned to the portion of off-balance sheet commitments that we expect to fund, specifically unfunded loan commitments, and any needed reserve is recorded in other liabilities.

The ACL for individual loans begins with the use of normal credit review procedures to identify whether a loan no longer shares similar risk characteristics with other pooled loans and therefore, should be individually assessed.

We evaluate all commercial loans greater than $ 500 thousand that meet the following criteria:

1) when it is determined that foreclosure is probable, 2) substandard, doubtful and nonperforming loans when repayment is expected to be provided substantially through the operation or sale of the collateral, and 3) when it is determined by management that a loan does not share similar risk characteristics with other loans.

Collateral values are discounted to consider disposal costs when appropriate.

A specific reserve is established or a charge-off is taken if the fair value of the loan is less than the loan balance.

Although we believe our process for determining the ACL appropriately considers all the factors that would likely result in credit losses, the process includes subjective elements and may be susceptible to significant change.

To the extent actual losses are higher than management estimates, additional provision for credit losses could be required and could adversely affect our earnings or financial position in future periods.

The ACL for off-balance sheet commitments is estimated on the likelihood and amount of funding under the same criteria used for loans under the ACL.

The ACL for off-balance sheet commitments is recorded in other liabilities in the Consolidated Balance Sheets.

HTM Securities - The allowance for HTM debt securities is estimated using a CECL methodology.

Any expected credit loss is recorded through the ACL on HTM securities and is deducted from the amortized cost basis on the balance sheet.

The majority of HTM securities are issued by U.S.

government entities and agencies.

These securities are either explicitly or implicitly guaranteed by the U.S.

government, are highly rated by major rating agencies, and have a long history of no credit losses.

Therefore there is no credit loss expectation on these securities.

AFS Securities - The AFS securities portfolio is evaluated on a quarterly basis for indicators of impairment.

Management reviews the amount of unrealized loss, the credit rating history, market trends of similar security classes, time remaining to maturity, and the source of principal and interest payments to identify securities which could potentially be impaired.

For those securities that management intends to sell before the recovery of their amortized cost basis, the difference between fair value and amortized cost is considered to be impaired and is recognized in provision for credit loss expense.

For those AFS securities that management does not intend to sell prior to expected recovery of the amortized cost basis, the credit portion of the impairment is recognized through the ACL on AFS securities, while the noncredit portion is recognized through the accumulated other comprehensive income or loss included in shareholders' equity.

Non-credit related impairment is a result of other factors, including changes in interest rates.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income.

Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed.

Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect borrowers’

ability to repay, estimated value of any underlying collateral, and prevailing economic conditions.

This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due.

Loans experiencing insignificant payment delays and payment shortfalls generally are not classified as impaired.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.

Impairment is measured on a loan-by-loan basis for commercial, commercial real estate, construction loans, and troubled debt restructurings by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.

Accordingly, the Company does not separately identify individual residential real estate or consumer loans for impairment disclosures.

Under the incurred loss methodology in 2022 and prior years, the allowance for loan losses was established as losses were estimated to have occurred through a provision for loan losses charged to income.

Loan losses were charged against the allowance when management believed the uncollectability of a loan balance was confirmed.

Subsequent recoveries, if any, were credited to the allowance.

The allowance for loan losses was evaluated on a regular basis by management and was based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect borrowers’ ability to repay, estimated value of any underlying collateral, and prevailing economic conditions.

This evaluation was inherently subjective as it required estimates that were susceptible to significant revision as more information became available.

OTHER REAL ESTATE OWNED

Other real estate acquired through or in lieu of foreclosure is initially recorded at fair value, less estimated costs to sell, and any loan balance in excess of fair value is charged to the allowance for loan losses.

Subsequent valuations are periodically performed and write-downs are included in noninterest expenses, as well as expenses related to maintenance of the properties.

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Depreciation and amortization are determined based on the estimated useful lives of the individual assets (typically 20 to 40 years for buildings and 3 to 10 years for equipment) and is computed using the straight-line method.

Leasehold improvements are amortized over the useful life of the asset, or lease

term, whichever is shorter.

Leasehold improvements are amortized over the useful life of the asset, or lease term, whichever is shorter.

Expenses for maintenance and repairs are charged against income as incurred.

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MORTGAGE SERVICING RIGHTS

Mortgage servicing rights (“MSRs”) represent the right to service loans for third party investors.

MSRs are recognized at fair value as a separate asset upon the sale of mortgage loans to a third-party investor with the servicing rights retained by the Company.

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The Company and its subsidiaries file a consolidated tax return.

Deferred income taxes are provided on temporary differences between financial statement and income tax reporting.

Deferred income taxes are recorded on temporary differences between financial statement and income tax reporting.

Temporary differences are differences between the amounts of assets and liabilities reported for financial statement purposes and their respective tax bases.

Deferred tax assets are recognized for temporary differences deductible in future years’

tax returns and for operating loss and tax credit carry forwards.

Deferred tax assets are recognized for temporary differences deductible in future years’ tax returns and for operating loss and tax credit carry forwards.

Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that some or all of the deferred tax assets will not be realized.

Deferred tax liabilities are recognized for temporary differences taxable in future years’

Deferred tax liabilities are recognized for temporary differences taxable in future years’ tax returns.

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

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

The unrealized loss on securities transferred from AFS to HTM at the date of transfer, is amortized over the remaining life of the securities as part of comprehensive income.

TRANSFERS OF FINANCIAL ASSETS

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Earnings per share, basic and diluted

SUBSEQUENT EVENTS

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

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

ASU 2016-13 - Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments .

The Update and all subsequent ASU’s that modified Topic 326, requires financial assets be presented at the net amount expected to be collected (i.e.

net of expected credit losses), eliminating the probable recognition threshold for credit losses on financial assets measured at amortized cost.

The measurement of expected credit losses should be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

The amount of any adjustment will be impacted by the portfolio composition and quality at the adoption date, as well as economic conditions and forecasts at that time.

The new current expected credit losses model ("CECL") will apply to the allowance for loan losses, available-for-sale and held-to-maturity debt securities, purchased financial assets with credit deterioration and certain off-balance sheet credit exposures.

Management has completed its implementation plan, segmentation and testing, and model validation.

The implementation plan included drafting of additional controls and policies to govern data uploads to its third-party vendor, balancing and reconciling, testing and auditing of inputs, and review and decision-making surrounding segmentation, methodologies, qualitative factor adjustments, and reasonable and supportable forecasts.

Parallel runs were processed during 2022 and the results were consistent with management's expectations.

The implementation plan is currently going through the Company's control structure and internal control testing is being performed.

As a result of adopting this standard, which is effective January 1, 2023, the Company has completed the calculation and is in the process of finalizing the qualitative factors, which will determine the total amount of the adjustment to the allowance for loan losses and the reserves for unfunded commitments.

These estimates are subject to further refinements based on ongoing evaluations of our model, methodologies, and judgments, as well as prevailing economic conditions and forecasts as of the adoption date.

The adoption of ASU 2016-13 is not expected to have a significant impact on our regulatory capital ratios.

The Company expects to record no allowance for credit losses related to AFS or HTM debt securities at the date of adoption, January 1, 2023, as the majority of the Company's debt securities are issued by U.S.

government entities and agencies and there is zero credit loss expectation on these securities.

ASU 2017-04 - Simplifying the Test for Goodwill Impairment.

The Update, and all subsequent ASU’s, simplifies the goodwill impairment test.

Under the new guidance, Step 2 of the goodwill impairment process that requires an entity to determine the implied fair value of its goodwill by assigning fair value to all its assets and liabilities is eliminated.

Instead, the entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value.

An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

The new guidance is effective for annual and interim goodwill tests performed in fiscal years beginning after December 15, 2019.

Early adoption is permitted.

In November 2019, the FASB deferred the effective date for ASC 350, Intangibles –

Goodwill and Other, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.

This Update is not expected to have a material impact on the Company’s financial statements.

ASU 2020-04 - Reference Rate Reform (Topic 848).

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic740):

Improvements to Income Tax Disclosure .

This new guidance is intended to enhance the transparency and decision usefulness of income tax disclosures.

The amendments in this Update address investor

requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information.

This Update also includes certain other amendments to improve the effectiveness of income tax disclosures.

It is effective for public business entities for annual periods beginning after December 15, 2024.

This update is not expected to have a significant impact on the Company's financial statements.

ACCOUNTING PRONOUNCEMENTS ADOPTED IN 2023

In June 2016, the FASB issued ASU No.

2016-13, " Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments" and subsequent related updates.

This ASU replaces the incurred loss methodology for recognizing credit losses and requires businesses and other organizations to measure the current expected credit losses (CECL) on financial assets measured at amortized cost, including loans and held-to-maturity securities, net investments in leases, off-balance sheet credit exposures such as unfunded commitments, and other financial instruments.

In addition, ASC 326 requires credit losses on available-for-sale debt securities to be presented as an allowance rather than as a write-down when management does not intend to sell or believes that it is not more likely than not they will be required to sell the debt securities.

This guidance became effective on January 1, 2023 for the Bank.

The results reported for periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable accounting standards.

The Bank adopted this guidance, and subsequent related updates, using the modified retrospective approach for all financial assets measured at amortized cost, including loans and held-to-maturity debt securities, available-for-sale debt securities and unfunded commitments.

On January 1, 2023, the Bank recorded a cumulative effect increase to retained earnings of $ 52 thousand, net of tax, of which $ 442 thousand related to loans, offset by $ 390 thousand related to unfunded commitments, net of tax.

There was no allowance for credit losses recorded for either available-for-sale or held-to-maturity debt securities.

See Note 3 for further discussion on the adoption of CECL.

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

The Bank expanded the pooling utilized under the legacy incurred loss method to include additional segmentation based on risk.

The impact of the change from the incurred loss model to the current expected credit loss model is detailed below:

January 1, 2023

(Dollars in thousands)

Adoption Impact

Commercial and industrial

Commercial real estate

Commercial lessors of buildings

Consumer mortgage

Home equity line of credit

Consumer installment

Consumer indirect

Total allowance for credit losses - loans

ACL for off-balance sheet commitments

Total allowance for credit losses

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

Commercial real estate

Commercial lessors of buildings

Consumer mortgage

Home equity line of credit

Consumer installment

Consumer indirect

Gross loans prior to deferred fees

Deferred loan costs, net

Allowance for credit losses

Total net loans

In January 2020, the FASB issued ASU 2020-04 - Reference Rate Reform (Topic 848).

This update provides temporary optional expedients and exceptions to the U.S.

6 unchanged sentences

Deferral of the Sunset Date of Topic 848 , which extends the sunset (or expiration) date of Accounting Standards Codification (ASC) Topic 848 to December 31, 2024.

This gives reporting entities two additional years to apply the accounting relief provided under ASC Topic 848 for matters related to reference

This gives reporting entities two additional years to apply the accounting relief provided under ASC Topic 848 for matters related to reference rate reform.

ASU 2022-06 is effective for all reporting entities immediately upon issuance and must be applied on a prospective basis.

This Update is not expected to have a significant impact on the Company’s financial statements.

ASU 2022-02, Financial Instruments –

Credit Losses (ASC 326):

This Update has been adopted and did no t have a significant impact on the Company’s financial statements.

In March 2022, the FASB issued ASU 2022-02, “ Financial Instruments – Credit Losses (ASC 326):

Troubled Debt Restructurings (TDRs) and Vintage Disclosures” .

1 unchanged sentence

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 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.

This Update is not expected to have a significant impact on the Company’s financial statements.

The guidance is only for entities that have adopted the amendments in Update 2016-13.

This guidance has been adopted as of January 1, 2023 , however, there have been no reportable loan modifications during the year ended December 31, 2023.

RECLASSIFICATION OF COMPARATIVE AMOUNTS

Certain comparative amounts from the prior years have been reclassified to conform to current year classifications.

Such classifications had no effect on net income or shareholders’

NOTE 2 –

Such classifications had no effect on net income or shareholders’ equity.

NOTE 2 – SECURITIES

Securities consisted of the following on December 31:

(Dollars in thousands)

Allowance for Credit Losses

Available-for-sale

47 unchanged sentences

Restricted stock primarily consists of investments in FHLB and Federal Reserve Bank stock.

The Bank’s investment in FHLB stock amounted to $ 2.9 million and $ 4.1 million on December 31, 2022, and 2021, respectively.

The Bank’s investment in FHLB stock amounted to $ 1.0 million and $ 2.9 million on December 31, 2023, and 2022, respectively.

Federal Reserve Bank stock was $ 471 thousand on December 31, 2023, and 2022.

There were no proceeds from sales of debt securities for the years ended December 31, 2023 and 2022.

Gains and (losses) recognized on equity securities on the consolidated statements of income of $( 3 ) thousand and $ 28 thousand, respectively for the years ended December 31, 2022 and 2021 were unrealized.

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

Unrealized gains and (losses) recognized on equity securities on the consolidated statements of income were $ 15 thousand and $( 3 ) thousand, respectively for the years ended December 31, 2023 and 2022.

The Bank monitors the credit quality of held-to-maturity debt securities primarily through utilizing their credit rating.

The Bank monitors the credit rating on a quarterly basis.

There are no nonperforming held-to-maturity securities.

As of December 31, 2023, no ACL was required for any held-to-maturity security.

The majority of the securities are explicitly or implicitly guaranteed by the United States government, and any estimate of expected credit losses would be insignificant to the Bank.

The following table summarizes the amortized cost of held-to maturity debt securities at December 31, 2023, aggregated by credit quality indicator:

(Dollars in thousands)

Treasury securities

Mortgage- backed securities of government agencies

State and political subdivisions

December 31, 2023

Credit rating:

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

Less Than 12 Months

8 unchanged sentences

Corporate bonds

Held-to-maturity

Treasury securities

Mortgage-backed securities of government

State and political subdivisions

Total temporarily impaired securities

Total temporarily impaired available-for-sale securities

Available-for-sale

10 unchanged sentences

Total temporarily impaired securities

There were 200 securities in an unrealized loss position on December 31, 2022, 90 of which were in a continuous loss position for twelve (12) or more months.

At least quarterly, the Company conducts a comprehensive security-level impairment assessment.

The assessments are based on the nature of the securities, the extent and duration of the securities, the extent and duration of the loss, and management’s intent to sell or if it is more likely than not that management will be required to sell a security before recovery of its amortized cost basis, which may be maturity.

Management believes the Company will fully recover the cost of these securities and it does not intend to sell these securities and likely will not be required to sell them before the anticipated recovery of the remaining amortized cost basis, which may be maturity.

As a result, management concluded that these securities were not other-than-temporarily impaired on December 31, 2022.

NOTE 3 –

There were 126 available-for-sale securities in an unrealized loss position on December 31, 2023, 114 of which were in a continuous loss position for twelve (12) months or more.

Each quarter the Company conducts a comprehensive security-level impairment assessment on the securities portfolio.

Management believes the Company will fully recover the cost of these securities.

Unrealized losses on the Company’s fixed-rate debt securities are a result of interest rate increases.

Treasury securities and investments in securities of U.S.

government sponsored agency bonds comprise $ 96 million of total AFS securities.

The remaining $ 44 million of non-agency debt securities is made up of Corporate Bonds and debt securities of State and Political Subdivisions.

For non-agency debt securities, the Company verified the current credit ratings remain above investment grade.

Non-rated debt securities total $ 10 million.

Annually, management reviews the credit profile of each non-rated issue and assesses whether any impairment to the contractually obligated cash flow is likely to occur.

Based on these reviews, management has concluded the underlying creditworthiness for each security remains sufficient to maintain required payment obligations and, therefore, no allowance for credit losses has been recorded.

Management believes the value will recover as the securities approach maturity or market interest rates decline.

NOTE 3 – LOANS

Loans consisted of the following on December 31:

(Dollars in thousands)

Commercial and industrial

Commercial real estate

Commercial lessors of buildings

Consumer mortgage

Home equity line of credit

Consumer installment

Consumer indirect

Allowance for credit losses

Deferred loan fees, net

(Dollars in thousands)

Commercial real estate

Residential real estate

Construction & land development

Total loans before deferred loan (fees) and costs

Deferred loan (fees) and costs

Allowance for loan losses

Deferred loan costs, net

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

Loan Origination/Risk Management

3 unchanged sentences

Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand their business.

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand their business.

Underwriting standards are designed to promote relationship banking rather than transactional banking.

The Company’s management examines current and occasionally projected cash flows to determine the ability of the borrower to repay their obligations as agreed.

Commercial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower.

3 unchanged sentences

In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans, in addition to those of real estate loans.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans.

These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.

1 unchanged sentence

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.

The properties securing the Company’s commercial real estate portfolio are diverse in terms of type.

This diversity helps reduce the Company’s exposure to adverse economic events that affect any single industry.

Management monitors and evaluates commercial real estate loans based on collateral, geography, and risk grade criteria.

With respect to loans to developers and builders secured by non-owner occupied properties, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success.

Construction and land development loans are underwritten utilizing independent appraisal reviews, sensitivity analysis of absorption, lease rates, and financial analysis of developers and property owners.

Construction and land development loans are underwritten utilizing independent appraisal reviews, lease rates, and financial analysis of developers and property owners.

Construction and land development loans are generally based upon estimates of costs and value associated with the completed project.

These estimates may be inaccurate.

These estimates may be

Construction and land development loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the project.

6 unchanged sentences

Results of these reviews are presented to management and the Audit Committee.

The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.

Paycheck Protection Program

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020 and provided over $2 trillion in economic relief to individuals and businesses impacted by the COVID-19 pandemic.

The CARES Act authorized the SBA to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”).

As a qualified SBA lender, the Company was automatically authorized to originate PPP loans.

The PPP provided loans to small businesses who were affected by economic conditions as a result of COVID-19 to provide cash flow assistance to employers who maintained their payroll (including healthcare and certain related expenses), mortgage interest, rent, leases, utilities and interest on existing debt during the COVID-19 emergency.

During 2021 and 2020, the

Company originated 1,351 PPP loans with principal balances of $ 128.9 million.

The PPP loans are 100 % guaranteed by the SBA and are eligible for forgiveness by the SBA to the extent that the proceeds were used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up to 24 weeks after the loan was made if certain conditions were met regarding employee retention and compensation levels.

The majority of PPP loans deemed eligible for forgiveness by the SBA have been repaid by the SBA to the Company.

As of December 31, 2022, the Company has received $ 128.5 million in loan forgiveness from the SBA.

The remaining $ 359 thousand of PPP loans are included in the Commercial loan category with no allowance for loan losses allocated.

The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.

Concentrations of Credit

Nearly all the Company’s lending activity occurs within the State of Ohio, including the four counties of Holmes, Stark, Tuscarawas, and Wayne, as well as other markets.

The majority of the Company’s loan portfolio consists of commercial and industrial and commercial real estate loans.

Credit concentrations, including commitments, as determined using North American Industry Classification Codes (NAICS), to the four largest industries compared to total loans at December 31, 2022, included $ 73 million, or 12 %, of total loans to lessors of non-residential buildings;

$ 26 million, or 4 %, of total loans to assisted living facilities for the elderly;

$ 17 million, or 3 %, of total loans to lessors of other real estate property;

and $ 17 million, or 3 %, of total loans to home centers (hardware stores).

Nearly all the Company’s lending activity occurs within the State of Ohio, including the four counties of Holmes, Stark, Tuscarawas, and Wayne, as well as other markets.

The majority of the Company’s loan portfolio consists of commercial and industrial and commercial real estate loans.

Credit concentrations, including commitments, as determined using North American Industry Classification Codes (NAICS), to the three largest industries compared to total loans at December 31, 2023, included $ 68 million, or 10 % of total loans to lessors of non-residential buildings;

$ 40 million, or 6 %, of total loans to animal food producers;

and $ 22 million, or 3 % of total loans to lessors of residential buildings.

The Company has less than 1 % of total loans outstanding to loans secured by commercial office space.

These loans are generally secured by real property and equipment, with repayment expected from operational cash flow.

Credit evaluation is based on a review of cash flow coverage of principal, interest payments, and the adequacy of the collateral received.

Allowance for Loan Losses

The following table details activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2022, and 2021.

Credit evaluation is based on a review of cash flow coverage of principal and interest payments, and the adequacy of the collateral received.

Allowance for Credit Losses

The following table details activity in the allowance for credit losses ("ACL") by portfolio segment for the years ended December 31, 2023, and 2022.

Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

During 2023, ACL balances were affected by the adoption of ASC 326 which changed the methodology for calculating the allowance for credit losses.

These changes resulted in the addition of three new loan categories.

In addition to the new methodology changes, the decrease in the commercial real estate provision was primarily related to the payoff of one large loan relationship with a specific allocation and the improvement of other specifically evaluated loans.

The decrease in the provision for commercial and industrial loans was primarily due to the recovery of a prior loan charge off.

The increase in the provision for commercial lessors of buildings relates to the increase in loans graded special mention.

The increase in provision for consumer mortgages primarily relates to increased loan volume.

The increase in the consumer indirect category is due to the increase in charge-offs in this portfolio.

During 2022, the decrease in the provision (recovery) for loan losses for construction and land development and commercial real estate loans was primarily related to the improvement in loans to businesses that were negatively impacted by the COVID-19 pandemic, the reduction of impaired and adversely classified loans, as well as a large recovery received on a previously charged-off loan.

1 unchanged sentence

The provision related to residential real estate loans increased as a result of the growth in loan balances along with an increase in the general loss ratios due to elevated levels of economic uncertainty associated with increased inflation and higher interest rates.

During 2021, the increase in the provision for loan losses for construction and land development loans was primarily related to loans to assisted living facilities that have been affected by the COVID-19 pandemic.

The decrease in the provision related to commercial, commercial real estate and residential real estate loans was primarily related to the improvement in economic conditions along with fewer delinquent and nonperforming loans and improvement in adversely classified loans.

The provision related to consumer loans increased primarily as a result of the increase in historical losses of loans in this category.

Summary of Allowance for Loan Losses

Summary of Allowance for Credit Losses on Loans

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

(Dollars in thousands)

Beginning ALL Balance

Impact of Adopting ASC 326

Provisions (Recovery)

Ending ACL Balance

December 31, 2023

Beginning balance

Commercial and industrial

Commercial real estate

Commercial lessors of buildings

Consumer mortgage

Home equity line of credit

Consumer installment

Consumer indirect

Summary of Allowance for Loan Losses

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

(Dollars in thousands)

Beginning ALL Balance

(Recovery) Provision for Loan Losses

Net (charge-offs)

Ending balance

Net (Charge-offs) Recoveries

Ending ALL Balance

December 31, 2022

Beginning balance

(Recovery) provision for loan losses

Net (charge-offs)

Ending balance

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

(Dollars in thousands)

Allowance for loan losses:

Ending allowance balances

attributable to loans:

Individually evaluated for

Collectively evaluated for

Total ending allowance

Loans individually

evaluated for

Loans collectively

evaluated for

Total ending loans balance

Allowance for loan losses:

Ending allowance balances

attributable to loans:

Individually evaluated for

Collectively evaluated for

Total ending allowance

Loans individually

evaluated for

Loans collectively

evaluated for

Total ending loans balance

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

(Dollars in thousands)

Commercial real estate

1 unchanged sentence

Construction & land development

Total impaired loans

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)

Total Past Due

December 31, 2023

Commercial and industrial

Commercial real estate

Residential real estate

Construction & land development

Total impaired loans

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

Commercial lessors of buildings

Consumer mortgage

Home equity line of credit

Consumer installment

Consumer indirect

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

(Dollars in thousands)

Nonaccrual with no ACL

Nonaccrual with ACL

Total Nonaccrual

Loans Past Due Over 90 Days Still Accruing

Total Nonperforming

December 31, 2023

Commercial and industrial

Commercial real estate

Commercial lessors of buildings

Consumer mortgage

Home equity line of credit

Consumer installment

Consumer indirect

Interest income recognized on nonaccrual loans as of December 31, 2023 was $ 2 thousand on commercial real estate loans and $ 33 thousand on consumer mortgage loans.

Several consumer mortgage loans on nonaccrual are at an amortized cost basis of $ 0 and all payments are being recognized as interest income when received.

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

1 unchanged sentence

(Dollars in thousands)

Commercial real estate

Residential real estate

Construction & land development

December 31, 2022

Commercial real estate

1 unchanged sentence

Construction & land development

Troubled Debt Restructurings

The Company had troubled debt restructurings (“TDRs”) of $ 944 thousand as of December 31, 2022, with $ 4 thousand of specific reserves allocated to customers whose loan terms have been modified in TDRs.

On December 31, 2022, $ 916 thousand of the loans classified as TDRs were performing in accordance with their modified terms.

The remaining $ 28 thousand were classified as nonaccrual.

On December 31, 2021, the Company had TDRs of $ 1.3 million, with $ 14 thousand of specific reserves allocated.

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

(Dollars in thousands)

Loans Restructured

Pre-Modification

Recorded Investment

Post-Modification

Recorded Investment

Commercial Real Estate

Residential Real Estate

Total restructured loans

The loans restructured were modified by changing the monthly payment to interest only and extending the maturity dates.

No principal reductions were made.

No ne of the loans restructured in 2021 subsequently defaulted in 2022.

Real Estate Loans in Foreclosure

There was no other real estate owned on December 31, 2022, or 2021, respectively.

Mortgage loans in the process of foreclosure were $ 17 thousand on December 31, 2022.

There were no mortgage loans in the process of foreclosure on December 31, 2021.

Credit Quality Indicators

2 unchanged sentences

The Company analyzes commercial and commercial real estate loans individually by classifying the loans as to credit risk.

This analysis includes commercial loans with an outstanding balance greater than $ 500 thousand.

This analysis includes commercial loans with an outstanding exposure balance greater than $ 500 thousand.

This analysis is performed on an annual basis.

6 unchanged sentences

Special Mention.

Loans classified as special mention have a material weakness deserving of management’s close attention.

If left uncorrected, these weaknesses may result in deterioration of the repayment prospects for the loan or of the Bank’s credit position at some future date.

Loans classified as special mention have a material weakness deserving of management’s close attention.

If left uncorrected, these weaknesses may result in deterioration of the repayment prospects for the loan or of the Bank’s credit position at some future date.

Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.

3 unchanged sentences

Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be pass rated loans.

Loans listed as not rated are either less than $ 500 thousand or are included in groups of homogeneous loans.

Based on the most recent analysis performed, the risk category of loans by class was as follows on December 31:

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

Term Loans Amortized Costs Basis by Origination Year

Revolving Loans Amortized Cost Basis

Revolving Loans Converted to Term

(Dollars in thousands)

December 31, 2023

Commercial and industrial:

Special mention

YTD gross charge-offs

Commercial real estate:

Special Mention

YTD gross charge-offs

Commercial lessors of buildings:

Special Mention

YTD gross charge-offs

Commercial construction:

Special Mention

YTD gross charge-offs

Special Mention

YTD gross charge-offs

(Dollars in thousands)

December 31, 2022

Commercial real estate

Construction & land development

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)

December 31, 2023

Consumer mortgage:

Nonperforming

YTD gross charge-offs

Consumer construction:

Nonperforming

YTD gross charge-offs

Home equity line of credit:

Nonperforming

YTD gross charge-offs

Consumer installment:

Nonperforming

YTD gross charge-offs

Consumer indirect:

Nonperforming

YTD gross charge-offs

Nonperforming

Total YTD gross charge-offs

Consumer mortgages are substantially secured by one to four family owner occupied properties and consumer indirect loans are substantially secured by recreational vehicles.

All nonperforming consumer loans are evaluated when placed on nonaccrual status and may be charged down based on the fair value of the collateral less cost to sell, if that value is lower than the outstanding balance.

Modifications to Borrowers Experiencing Financial Difficulty

Occasionally, the Bank modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, and other-than-insignificant payment delay or interest rate reduction.

When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

In some cases, the Bank may provide multiple types of concessions on one loan.

Typically, one type of concession, such as a term extension, is granted initially.

If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.

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

Impaired Loans

The following impaired loan information relates to required disclosures under the previous incurred loan loss methodology and are only presented with prior period information.

The following table presents the balance in the allowance for loan losses and the ending loan balances by portfolio segment and impairment method at December 31, 2022:

(Dollars in thousands)

December 31, 2022

Allowance for loan losses:

Ending allowance balances

attributable to loans:

Individually evaluated for

Collectively evaluated for

Total ending allowance

Loans individually

evaluated for

Loans collectively

evaluated for

Total ending loans balance

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

(Dollars in thousands)

December 31, 2022

Commercial real estate

Residential real estate

Construction & land development

Management monitors the credit quality of residential real estate and consumer loans as homogenous groups.

These loans are evaluated based on delinquency status and included in the past due table in this section.

Nonperforming loans include loans past due 90 days and greater and loans on nonaccrual of interest status.

Total impaired loans

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

Real Estate Loans in Foreclosure

There was no other real estate owned on December 31, 2023, or 2022, respectively.

Mortgage loans in the process of foreclosure were $ 8 thousand on December 31, 2023 and $ 17 thousand on December 31, 2022.

Mortgage Servicing Rights

For the years ended December 31, 2023 and 2022, the Company had outstanding MSRs of $ 600 thousand and $ 621 thousand, respectively.

The capitalized additions of servicing rights is included in net gain on sale of loans on the consolidated statement of income.

No valuation allowance was recorded on December 31, 2022 or 2021, as the fair value of the MSRs exceeded their carrying value.

On December 31, 2022, the Company had $ 130.1 million residential mortgage loans with servicing retained as compared to $ 133.8 million with servicing retained on December 31, 2021.

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

The capitalized additions of servicing rights are included in net gain on sale of loans on the Consolidated Statements of Income.

No valuation allowance was recorded on December 31, 2023 or 2022, as the fair value of the MSRs approximates their carrying value.

On December 31, 2023, the Company had $ 124 million residential mortgage loans sold with servicing retained as compared to $ 130 million sold with servicing retained on December 31, 2022.

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

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

3 unchanged sentences

Valuation allowance

NOTE 4 –

PREMISES AND EQUIPMENT

NOTE 4 – PREMISES AND EQUIPMENT

Premises and equipment consisted of the following on December 31:

4 unchanged sentences

Leasehold improvements

Premises and equipment, cost

Accumulated depreciation

Premises and equipment, net

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

NOTE 5 –

Operating leases in which the Company is the lessee are recorded as operating lease Right of Use (“ROU”) assets and operating lease liabilities, included in other assets and other liabilities, respectively, on the consolidated balance sheets.

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

NOTE 5 – LEASES

The Company does not currently have any finance leases.

Operating lease ROU assets represent the right to use an underlying asset during the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease.

The Company elected to adopt the transition method, which uses a modified retrospective transition approach.

ROU assets and operating lease liabilities are recognized as of the date of adoption based on the present value of the remaining lease payments using a discount rate that represents the Company’s incremental borrowing rate at the date of initial application.

Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term and is recorded in occupancy and equipment expense in the consolidated statements of income and other comprehensive income.

The leases relate to bank branches with remaining lease terms of generally 2 to 5 years .

Certain lease arrangements contain extension options which are typically 5 years at the then fair market rental rates.

As these extension options are generally considered reasonably certain of exercise, they are included in the lease term.

As of December 31, 2022, operating lease ROU assets were $ 316 thousand, and liabilities were $ 307 thousand.

For the years ended December 31, 2022, and 2021, CSB recognized $ 107 thousand, and $ 105 thousand in operating lease cost respectively.

Certain lease arrangements contain extension options which are typically 2 to 5 years at the then fair market rental rates.

If these extension options are considered reasonably certain of exercise, they are included in the lease term.

As of December 31, 2023, operating lease ROU assets were $ 306 thousand, and lease liabilities were $ 299 thousand.

These amounts are included in other assets and other liabilities on the Consolidated Balance Sheets.

For the years ended December 31, 2023, and 2022, CSB recognized $ 112 thousand, and $ 107 thousand in operating lease cost respectively, which are included in occupancy expense on the Consolidated Statements of Income.

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

8 unchanged sentences

Present value of lease liabilities

NOTE 6 –

INTEREST-BEARING DEPOSITS

NOTE 6 – INTEREST-BEARING DEPOSITS

Interest-bearing deposits on December 31 were as follows:

5 unchanged sentences

(Dollars in thousands)

NOTE 7 –

NOTE 7 – BORROWINGS

Short-term borrowings

27 unchanged sentences

2029 and beyond

Monthly principal and interest payments, as well as 10 % –

20 % principal curtailments on the borrowings’

anniversary dates are due on the fixed-rate amortizing borrowings.

FHLB borrowings are secured by a blanket collateral agreement.

Total other borrowings

Monthly principal and interest payments, as well as 10 % – 20 % principal curtailments on the borrowings’ anniversary dates are due on the fixed-rate amortizing borrowings.

FHLB borrowings are secured by a blanket collateral agreement on all one-to-four family residential real estate loans.

On December 31, 2023, the Company had the capacity to borrow an additional $ 128 million from the FHLB.

NOTE 8 –

NOTE 8 – INCOME TAXES

Income tax expense was as follows:

9 unchanged sentences

(Dollars in thousands)

Allowance for loan losses

Allowance for credit losses

Unrealized loss on securities

5 unchanged sentences

Deferred tax liabilities

Net deferred tax asset (liability)

Net deferred tax asset

There is currently no liability for uncertain tax positions and no known unrecognized tax benefits.

2 unchanged sentences

federal, state, or local income tax examinations by tax authorities for years prior to 2020 .

NOTE 9 –

EMPLOYEE BENEFITS

The Company sponsors a contributory 401(k) profit-sharing plan (the “Plan”) covering substantially all employees who meet certain age and service requirements.

The Plan permits investment in the Company’s common stock subject to various limitations and provides for discretionary profit sharing and matching contributions.

The discretionary profit-sharing contribution is determined annually by the Board of Directors and amounted to 3 % in 2022 and 2021 of each eligible participant’s compensation.

NOTE 9 – EMPLOYEE BENEFITS

The Company sponsors a contributory 401(k) profit-sharing plan (the “Plan”) covering substantially all employees who meet certain age and service requirements.

The Plan permits investment in the Company’s common stock subject to various limitations and provides for discretionary profit sharing and matching contributions.

The discretionary profit-sharing contribution is determined annually by the Board of Directors and amounted to 3.25 % in 2023 and 3.00 % in 2022 of each eligible participant’s compensation.

Beginning in 2018, the Plan provided for a 100 % Company match up to a maximum of 4 % of eligible compensation.

3 unchanged sentences

Expense under the plan amounted to $ 6 thousand and $ 3 thousand in 2023 and 2022, respectively.

NOTE 10 –

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

NOTE 10 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.

2 unchanged sentences

The contract amount of these instruments reflects the extent of involvement the Bank has in these financial instruments.

The Bank’s exposure to credit loss in the event of the nonperformance by the other party to the financial instruments for loan commitments to extend credit and letters of credit is represented by the contractual amounts of these instruments.

The Bank uses the same credit policies in making loan commitments as it does for on-balance sheet loans.

6 unchanged sentences

Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.

The Company evaluates each customer’s credit worthiness on a case-by-case basis.

The amount of collateral, obtained if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer.

The Company evaluates each customer’s credit worthiness on a case-by-case basis.

The amount of collateral, obtained if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer.

Collateral held varies but may include residential real estate, accounts receivable, recognized inventory, property, plant and equipment, and income-producing commercial properties.

2 unchanged sentences

The Company requires collateral supporting these commitments when deemed appropriate.

The Company had $ 0 reserve for unfunded loan commitments as of December 31, 2022 and $ 128 thousand as of December 31, 2021.

The decrease in the reserve for unfunded loan commitments was due to a construction project that was completed and fully drawn.

NOTE 11 –

RELATED-PARTY TRANSACTIONS

The Company had $ 736 thousand allowance for credit losses for unfunded loan commitments as of December 31, 2023 and $ 0 as of December 31, 2022.

The increase in the ACL for unfunded loan commitments was primarily due to construction projects that have not been completed and fully drawn.

NOTE 11 – RELATED-PARTY TRANSACTIONS

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

6 unchanged sentences

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

NOTE 12 –

REGULATORY MATTERS

NOTE 12 – REGULATORY MATTERS

The Company (on a consolidated basis) and Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies.

Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and Bank’s financial performance.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines involving quantitative measures of the assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.

2 unchanged sentences

Management believes as of December 31, 2023 and 2022, the Company and Bank met or exceeded all capital adequacy requirements to which they are subject.

As of December 31, 2022, the most recent notification from federal and state banking agencies categorized the Bank as “well capitalized”

under the regulatory framework for prompt corrective action.

To be categorized as “well capitalized”

an institution must maintain minimum Total risk-based, Tier 1 risk-based, Common equity Tier 1, and Tier 1 leverage ratios as set forth in the following tables.

There are no known conditions or events since that notification that Management believes have changed the Bank’s category.

As of December 31, 2023, the most recent notification from federal and state banking agencies categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action.

To be categorized as “well capitalized” an institution must maintain minimum Total risk-based, Tier 1 risk-based, Common equity Tier 1, and Tier 1 leverage ratios as set forth in the following tables.

There are no known conditions or events since that notification that Management believes have changed the Bank’s category.

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

14 unchanged sentences

Tier 1 leverage ratio

The Company’s primary source of funds with which to pay dividends, are dividends received from the Bank.

The payment of dividends by the Bank to the Company is subject to restrictions by its regulatory agencies.

These restrictions generally limit dividends to current year net income and prior two-years ’

net retained earnings.

These restrictions generally limit dividends to current year net income and prior two-years ’ net retained earnings.

Also, dividends may not reduce capital levels below the minimum regulatory requirements disclosed in the prior table.

1 unchanged sentence

The Company does not anticipate the financial need to obtain regulatory approval to pay dividends.

Federal law prevents the Company from borrowing from the Bank unless loans are secured by specific obligations.

Further, such secured loans are limited to an amount not exceeding ten percent of the Bank’s common stock and capital surplus.

NOTE 13 –

CONDENSED PARENT COMPANY FINANCIAL INFORMATION

Federal law prevents the Company from borrowing from

the Bank unless loans are secured by specific obligations.

Further, such secured loans are limited to an amount not exceeding ten percent of the Bank’s common stock and capital surplus.

NOTE 13 – CONDENSED PARENT COMPANY FINANCIAL INFORMATION

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

3 unchanged sentences

Investment in subsidiary bank

Securities available-for-sale

LIABILITIES AND SHAREHOLDERS’

Equity securities

LIABILITIES AND SHAREHOLDERS’ EQUITY

Total liabilities

Total shareholders’

TOTAL LIABILITIES AND SHAREHOLDERS’

Total shareholders’ equity

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

(Dollars in thousands)

2 unchanged sentences

Dividends from subsidiary

Unrealized (loss) gain on equity securities

Unrealized gain (loss) on equity securities

Operating expenses

7 unchanged sentences

Cash flows from operating activities

Adjustments to reconcile net income to cash provided by operations:

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

Equity earnings in subsidiary, net of dividends

Change in other assets, liabilities

Change in other assets and liabilities

Net cash provided by operating activities

9 unchanged sentences

Cash at end of year

NOTE 14 –

FAIR VALUE MEASUREMENTS

NOTE 14 – FAIR VALUE MEASUREMENTS

The Company provides disclosures about assets and liabilities carried at fair value.

36 unchanged sentences

Equity securities

There were no assets measured on a nonrecurring basis as of December 31, 2022, and 2021, respectively.

Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves.

Techniques used to value the collateral securing the impaired loans include:

quoted market prices for identical assets classified as Level I inputs;

observable inputs, employed by certified appraisers, for similar assets classified as Level II inputs.

In cases where valuation techniques included unobservable inputs and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level III inputs.

NOTE 15 –

FAIR VALUES OF FINANCIAL INSTRUMENTS

NOTE 15 – FAIR VALUES OF FINANCIAL INSTRUMENTS

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

2 unchanged sentences

Securities held-to-maturity

Loans held for sale

Mortgage servicing rights

9 unchanged sentences

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

NOTE 16 –

ACCUMULATED OTHER COMPREHENSIVE LOSS

NOTE 16 – ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table presents the changes in accumulated other comprehensive (loss) income by component net of tax for the years ended December 31, 2023, and 2022:

3 unchanged sentences

securities arising during the period

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

Amortization of held-to-maturity discount resulting

2 unchanged sentences

BALANCE AS OF DECEMBER 31, 2022

Unrealized holding loss on available-for-sale

Unrealized holding gain on available-for-sale

securities arising during the period

1 unchanged sentence

from transfer

Total other comprehensive loss

Total other comprehensive income

BALANCE AS OF DECEMBER 31, 2023

NOTE 17 –

CONTINGENT LIABILITIES

NOTE 17 – CONTINGENT LIABILITIES

In the normal course of business, the Company is subject to pending and threatened legal actions.

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

equity of the Company.

The Company has an employment agreement with an officer.

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

NOTE 18–

QUARTERLY FINANCIAL DATA (UNAUDITED)

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

(Dollars in thousands, except per share data)

Basic and Diluted

First quarter

Second quarter

Third quarter

Fourth quarter

First quarter

Second quarter

Third quarter

Fourth quarter

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

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data