Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
2024 FINANCIAL REVIEW
INTRODUCTION
CSB Bancorp, Inc. (the “Company” or “CSB”) was incorporated under the laws of the State of Ohio in 1991 and is a registered financial holding company. The Company’s wholly owned subsidiaries are The Commercial and Savings Bank (the “Bank”) and CSB Investment Services, LLC. The Bank is chartered under the laws of the State of Ohio and was organized in 1879. The Bank is a member of the Federal Reserve System, with deposits insured by the Federal Deposit Insurance Corporation, and its primary regulators are the Ohio Division of Financial Institutions and the Federal Reserve Board.
The Company, through the Bank, provides retail and commercial banking services to its customers including checking and savings accounts, time deposits, cash management, safe deposit facilities, commercial loans, real estate mortgage loans, consumer loans, IRAs, night depository facilities, and trust and brokerage services. Its customers are located primarily in Holmes, Stark, Tuscarawas, Wayne, and portions of surrounding counties in Ohio.
Economic activity in the Company’s market area grew modestly in the fourth quarter of 2024. Demand for goods and services increased moderately as steady sales were recorded during the fourth quarter of 2024. Reported unemployment levels in December 2024 ranged from 2.9% to 4.6% in the four primary counties served by the Company. These levels increased from the December 2023 range of 2.1% to 3.3%. Labor demand remained solid as competition for workers with specialized skills has put upward pressure on labor costs. The local housing market continues to be strong with low inventory levels. Residential construction activity has increased modestly with stable interest rates and resolution of uncertainty after the election as the main factors increasing demand. Nonresidential construction activity has also improved since the prior year. Core deposits decreased slightly, and customers continue to move funds into higher yielding interest-bearing accounts.
FORWARD-LOOKING STATEMENTS
Certain statements contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations are not related to historical results but are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks and uncertainties. Any forward-looking statements made by the Company herein and in future reports and statements are not guarantees of future performance. Actual results may differ materially from those in forward-looking statements because of various risk factors as discussed in this annual report. The Company does not undertake, and specifically disclaims, any obligation to publicly release the result of any revisions to any forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date of such statements.
NON-U.S. GAAP FINANCIAL MEASURES
Management’s Discussion and Analysis of Financial Condition and Results of Operations contains non-U.S. generally accepted accounting principles ("GAAP") financial measures where management believes it to be helpful in understanding CSB’s results of operations or financial position. Where non-U.S. GAAP financial measures are used, the comparable U.S. GAAP financial measure, as well as the reconciliation to the comparable U.S. GAAP financial measure, can be found herein.
18
FINANCIAL DATA
The following table set forth certain selected consolidated financial information:
(Dollars in thousands, except per share data)
2024
2023
2022
2021
2020
Statements of income:
Total interest income
$
51,601
$
46,016
$
34,819
$
29,529
$
31,066
Total interest expense
14,748
9,875
2,496
2,012
2,913
Net interest income
36,853
36,141
32,323
27,517
28,153
Provision (recovery) for credit loss expense
7,031
442
(895
)
(655
)
1,650
Net interest income after provision (recovery) for credit loss expense
29,822
35,699
33,218
28,172
26,503
Noninterest income
7,102
6,744
6,711
7,325
6,935
Noninterest expense
24,589
24,060
23,393
22,093
20,342
Income before income taxes
12,335
18,383
16,536
13,404
13,096
Income tax provision
2,323
3,627
3,223
2,567
2,528
Net income
$
10,012
$
14,756
$
13,313
$
10,837
$
10,568
Per share of common stock:
Basic earnings per share
$
3.76
$
5.51
$
4.91
$
3.97
$
3.85
Diluted earnings per share
3.76
5.51
4.91
3.97
3.85
Dividends
1.58
1.50
1.30
1.22
1.13
Book value
43.33
40.43
35.43
35.80
34.23
Average basic common shares outstanding
2,661,308
2,679,902
2,714,045
2,733,126
2,742,350
Average diluted common shares outstanding
2,661,308
2,679,902
2,714,045
2,733,126
2,742,350
Year-end balances:
Loans, net
$
730,046
$
694,797
$
620,333
$
541,536
$
600,885
Securities
331,529
368,153
401,144
311,245
204,184
Total assets
1,191,500
1,178,689
1,159,108
1,144,239
1,031,632
Deposits
1,044,887
1,027,427
1,023,417
1,002,747
891,562
Borrowings
26,949
37,597
35,011
39,937
41,879
Shareholders’ equity
114,835
107,939
95,920
97,315
93,859
Average balances:
Loans, net
$
710,963
$
660,266
$
580,454
$
554,547
$
601,419
Securities
351,731
385,666
388,827
231,285
129,508
Total assets
1,181,417
1,158,286
1,151,925
1,111,808
931,330
Deposits
1,035,559
1,017,983
1,012,629
969,009
788,904
Borrowings
28,709
34,525
40,218
42,600
48,358
Shareholders’ equity
111,722
100,452
94,850
96,145
90,247
Select ratios:
Net interest margin, FTE basis 1
3.31
%
3.32
%
2.98
%
2.63
%
3.22
%
Return on average total assets
0.85
1.27
1.16
0.97
1.13
Return on average shareholders’ equity
8.96
14.69
14.04
11.27
11.71
Average shareholders’ equity as a percent of average total assets
9.46
8.67
8.23
8.65
9.69
Net loan charge-offs (recoveries) as a percent of average loans
0.87
(0.02
)
(0.02
)
0.00
0.06
Allowance for credit losses on loans as a percent of loans at year-end
1.03
0.94
1.09
1.39
1.36
Shareholders’ equity as a percent of total year-end assets
9.64
9.16
8.28
8.50
9.10
Dividend payout ratio 2
42.02
27.20
26.48
30.73
29.35
1 Net interest margin is shown on a fully taxable equivalent, ("FTE") basis, (non-GAAP).
2 Dividend payout ratio is calculated as dividends declared as a percentage of net income.
19
RESULTS OF OPERATIONS
Net Income
CSB’s 2024 net income was $10.0 million compared to $14.8 million for 2023, a decrease of 32%. Total revenue, net interest income plus noninterest income, increased $1.1 million, or 2.5%, over the prior year to a total of $44 million. The provision for credit losses increased to $7.0 million as compared to $442 thousand for the prior year . Noninterest expense increased $529 thousand, or 2% and the provision for income tax decreased $1.3 million over the prior year due to a decrease in taxable income . Basic and diluted earnings per share were $3.76, down 32% from the prior year. The return on average assets was 0.85% in 2024 compared to 1.27% in 2023 and return on average equity was 8.96% in 2024 compared to 14.69% in 2023.
Net Interest Income
(Dollars in thousands)
2024
2023
Net interest income
$
36,853
$
36,141
Taxable equivalent
143
133
Net interest income, FTE 1
$
36,996
$
36,274
Net interest margin
3.30
%
3.31
%
Taxable equivalent adjustment
0.01
0.01
Net interest margin, FTE 1
3.31
%
3.32
%
1 Taxable equivalent adjustments have been computed assuming a 21% tax rate in 2024, and 2023 (non-GAAP).
Net interest income is the largest source of the Company’s revenue and consists of the difference between interest income generated on earning assets and interest expense incurred on liabilities (deposits, short-term and long-term borrowings). Changes in volume, interest rates, composition of interest-earning assets, and interest-bearing liabilities affect net interest income. Net interest income increased $712 thousand, or 2%, in 2024 compared to 2023. The increase was a result of a $5.6 million increase in interest income, partially offset by an increase of $4.9 million in interest expense. The FTE net interest margin decreased to 3.31% from 3.32% in 2023 .
Interest income increased $5.6 million, or 12%, in 2024 compared to 2023 primarily due to an increase of $5.8 million, or 16%, in interest and fees on loans from an increase in average balances of $52 million and an increase in yield of 42 basis points ("bps"). Interest income on taxable securities decreased $488 thousand due to a decrease in average balances of $31 million. Interest income on interest-earning deposits mainly held at the Federal Reserve increased $277 thousand in 2024 compared to 2023 primarily due to an increase in average balances of $5 million.
Interest expense increased $4.9 million, or 49%, in 2024 as compared to 2023 primarily due to shifts in volume from noninterest-bearing demand deposits and lower yielding interest-bearing demand deposits to higher yielding time deposits. Average noninterest-bearing demand and interest-bearing demand deposit balances decreased $57 million during the year and average time deposit balances increased $69 million, and the average interest rate paid on time deposits increased by 112 bps.
20
The following table provides detailed analysis of changes in average balances, yield, and net interest income:
AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN ANALYSIS
2024
2023
(Dollars in thousands)
Average
Balance 1
Interest
Average
Rate 2
Average
Balance 1
Interest
Average
Rate 2
Interest-earning
assets
Interest-earning
deposits in other banks
$
46,309
$
2,405
5.19
%
$
40,723
$
2,107
5.17
%
Securities:
Taxable
332,849
7,315
2.20
363,988
7,803
2.14
Tax exempt 4
18,882
435
2.30
21,678
506
2.33
Loans 3, 4
719,028
41,589
5.78
666,793
35,733
5.36
Total interest-
earning assets
1,117,068
51,744
4.63
%
1,093,182
46,149
4.22
%
Noninterest-
earning assets
Cash and due
from banks
18,302
19,313
Bank premises
and equipment, net
13,565
13,189
Other assets
40,547
39,129
Allowance for credit losses on loans
(8,065
)
(6,527
)
Total assets
$
1,181,417
$
1,158,286
Interest-bearing
liabilities
Demand deposits
$
227,842
2,053
0.90
%
$
251,626
2,564
1.02
%
Savings deposits
302,621
3,242
1.07
296,896
2,362
0.80
Time deposits
223,421
9,109
4.08
154,505
4,573
2.96
Borrowed funds
28,709
344
1.20
34,525
376
1.09
Total interest-
bearing liabilities
782,593
14,748
1.88
%
737,552
9,875
1.34
%
Noninterest-bearing
liabilities and
shareholders’
equity
Demand deposits
281,675
314,956
Other liabilities
5,427
5,326
Shareholders’ equity
111,722
100,452
Total liabilities
and equity
$
1,181,417
$
1,158,286
Net interest
income 4
36,996
36,274
FTE adjustment
(143
)
(133
)
GAAP net interest
income
$
36,853
$
36,141
Net interest margin
FTE
3.31
%
3.32
%
Net interest spread
2.75
%
2.88
%
1 Average balances have been computed on an average daily basis.
2 Average rates have been computed based on the amortized cost of the corresponding asset or liability.
3 Average loan balances include nonaccrual loans.
4 Interest income is shown on a fully tax-equivalent basis (non-GAAP), reconciled to the GAAP amount at the bottom of the table.
21
The following table compares the impact of changes in average rates and average volumes on net interest income:
RATE/VOLUME ANALYSIS OF CHANGES IN INCOME AND EXPENSE 1
2024 v. 2023
Net Increase
(Dollars in thousands)
(Decrease)
Volume
Rate
Increase (decrease) in interest income:
Federal Funds
$
21
$
21
$
—
Interest-earning deposits in other banks
277
288
(11
)
Securities:
Taxable
(488
)
(685
)
197
Tax exempt 2
(71
)
(65
)
(6
)
Loans 2
5,856
3,021
2,835
Total interest income change 2
5,595
2,580
3,015
Increase (decrease) in interest expense:
Demand deposits
(511
)
(214
)
(297
)
Savings deposits
880
61
819
Time deposits
4,536
2,810
1,726
Borrowed funds
(32
)
(69
)
37
Total interest expense change
4,873
2,588
2,285
Net interest income change 2
$
722
$
(8
)
$
730
1 Changes attributable to both volume and rate, which cannot be segregated, have been allocated based on the absolute value of the change due to volume and the change due to rate.
2 Interest income is shown on a fully tax-equivalent basis (non-GAAP).
Provision (Recovery) for Credit Losses on Loans and Off-Balance Sheet Commitments
The provision for credit losses on loans is determined by management as the amount required to bring the allowance for credit losses to a level considered appropriate to absorb an estimation of credit loss during the expected weighted average life of the loan. During 2024, a provision for credit loss expense on loans of $7.2 million was recognized compared to a provision of $198 thousand in 2023. A recovery for credit loss expense on off-balance sheet commitments of $213 thousand was recognized in 2024 as compared to a provision for credit loss expense for off-balance sheet commitments of $244 thousand in 2023. Nonperforming loans increased $1.3 million from 2023 to 2024. See Financial Condition – Allowance for Credit Losses for additional discussion and information relative to the provision for credit losses.
Noninterest Income
YEARS ENDED DECEMBER 31
Change from 2023
(Dollars in thousands)
2024
Amount
%
2023
Service charges on deposit accounts
$
1,156
$
(53
)
(4
)
%
$
1,209
Trust services
1,219
206
20
1,013
Debit card interchange fees
2,115
8
—
2,107
Credit card fees
643
(58
)
(8
)
701
Gain on sale of loans, including MSRs
281
120
75
161
Earnings on bank-owned life insurance
814
112
16
702
Unrealized gain on equity securities
8
(7
)
(47
)
15
Other
866
30
4
836
Total noninterest income
$
7,102
$
358
5
%
$
6,744
Noninterest income increased $358 thousand, or 5%, in 2024 compared to the same period in 2023. Trust services revenue increased $206 thousand with asset market value increases. Gain on sales of mortgage loans, including mortgage servicing rights ("MSRs") increased $120 thousand, as $9 million in loans were sold into the secondary market compared to $5 million in 2023. Earnings on bank owned life insurance increased $112 thousand, with the purchase of an additional $2 million of insurance. Credit card interchange income decreased $58 thousand due to an overall decline in volume. Service charges on deposit accounts decreased $53 thousand, as increases in monthly deposit account service charges were offset by decreases in non-sufficient funds ("NSF") charges.
22
Noninterest Expenses
YEARS ENDED DECEMBER 31
Change from 2023
(Dollars in thousands)
2024
Amount
%
2023
Salaries and employee benefits
$
13,623
$
(50
)
—
%
$
13,673
Occupancy expense
1,172
34
3
1,138
Equipment expense
863
71
9
792
Professional and director fees
1,565
94
6
1,471
Ohio financial institutions tax
864
97
13
767
Marketing and public relations
561
12
2
549
Software expense
1,709
58
4
1,651
Debit card expense
755
73
11
682
FDIC insurance
538
24
5
514
Other
2,939
116
4
2,823
Total noninterest expenses
$
24,589
$
529
2
%
$
24,060
Noninterest expense increased $529 thousand, or 2%, in 2024 compared to 2023. Salaries and employee benefits decreased $50 thousand as increases in base salaries were offset by decreases in employee profit sharing and incentive compensation. Ohio financial institutions tax expense increased $97 thousand, which is based on the increase in shareholders' equity. Professional and director fees increased $94 thousand, primarily from increases in legal expenses related to loan collection efforts. Other expenses increased $116 thousand, or 4%.
Income Taxes
The provision for income taxes amounted to $2.3 million in 2024 as compared to $3.6 million in 2023. The decrease in 2024 resulted from lower taxable income. The corporate statutory tax rate was 21% for 2024 and 2023. The effective tax rate in 2024 and 2023 was 18.8% and 19.7%, respectively.
FINANCIAL CONDITION
Total assets of the Company were $1.2 billion on December 31, 2024 and 2023, representing an increase of $13 million, or 1%. Net loans increased $35 million, or 5%, while investment securities decreased $37 million, or 10%, and total cash and cash equivalents increased $9 million, or 15%. Deposits increased $17 million and short-term borrowings decreased $10 million, while other borrowings from the Federal Home Loan Bank (“FHLB”) decreased by $488 thousand.
Securities
Total investment securities decreased $37 million, or 10%, to $332 million at year-end 2024, primarily related to principal repayments on mortgage-backed securities. CSB’s portfolio is primarily comprised of agency mortgage-backed securities, obligations of state and political subdivisions, U.S. Treasury notes, other government agencies’ debt, and corporate bonds. Restricted securities consist primarily of FHLB stock.
The Company has no exposure to government-sponsored enterprise preferred stocks, collateralized debt obligations, or trust preferred securities. The Company’s municipal bond portfolio consists of tax-exempt general obligation and revenue bonds. As of December 31, 2024, 99% of such bonds held an S&P or Moody’s investment grade rating, and 1% were non-rated local issues. The municipal portfolio includes a broad spectrum of counties, cities, universities, and school districts with 77% of the portfolio originating in Ohio, and 23% in Pennsylvania. Gross unrealized security losses within the portfolio were 12% of total securities on December 31, 2024, reflecting interest rate increases, not credit downgrades.
One of the primary functions of the securities portfolio is to provide a source of liquidity and it is structured such that maturities and cash flows provide a portion of the Company’s liquidity needs and asset/liability management requirements.
Loans
Total loans increased $36 million, or 5%, during 2024. Volume increases were recognized as follows: commercial real estate buildings held for investment and leased to others increased $18 million, or 22%, construction loans increased $15 million, or 31%, residential real estate loans increased $11 million, or 6%, and home equity lines of credit increased $2 million, or 4%. Commercial and industrial loans decreased $8 million, or 5% during 2024, and consumer installment loans, including consumer indirect loans, also decreased $2 million, or 10%. At year-end 2024, commercial real estate is comprised mostly of owner occupied buildings of $191 million, and $101 million of buildings held for investment and leased to others. Owner occupied buildings are mostly light industrial, warehouse buildings and auto repair. Investment properties include healthcare buildings, retail strip centers, and residential investment properties.
23
The Company originated $58 million and $52 million of residential mortgage loans held in the portfolio, including residential construction, conventional 1-4 family, and equity line loans, which were predominately variable rate, in 2024 and 2023, respectively. The increase in interest rates slowed consumer demand for 1-4 family fixed-rate thirty-year residential mortgages which are sold into the secondary market, thus limiting the Company's mortgage sales to $9 million in 2024 and $5 million in 2023. Home equity loan balances increased $2 million during 2024 with demand improving as interest rates declined during the second half of the year.
Management anticipates modest economic growth in the Company’s local service areas will continue to improve. Commercial and commercial real estate loans, in aggregate, comprise approximately 59% and 61% of the total loan portfolio at year-end 2024 and 2023, respectively. Residential real estate loans approximated 30% of the portfolio in 2024 and 2023. Construction and land development loans increased from 7% to 9% of the portfolio. The Company is well within the respective regulatory guidelines for investment in construction, development, and investment property loans that are not owner occupied. The Company has very little exposure to commercial office space leased properties. See Note 3 - Loans for further discussion on Concentrations of Credit. Most of the Company’s lending activity is with customers primarily located within Holmes, Medina, Stark, Tuscarawas and Wayne counties in Ohio.
Nonperforming Assets, Individually Evaluated Loans, and Loans Past Due 90 Days or More
Nonperforming assets consist of nonaccrual loans, loans past due 90 days and still accruing, and other real estate acquired through or in lieu of foreclosure. Loans are placed on nonaccrual status when they become past due 90 days or more, or when mortgage loans are past due as to principal and interest 120 days or more, unless they are both well secured and in the process of collection.
NONPERFORMING ASSETS
DECEMBER 31
(Dollars in thousands)
2024
2023
Nonaccrual loans
Commercial and industrial
$
449
$
59
Commercial real estate
501
62
Commercial lessors of buildings
3
15
Construction
—
—
Consumer mortgage
80
172
Home equity line of credit
71
—
Consumer installment
48
49
Consumer indirect
67
39
Loans past due 90 days or more and still accruing
486
—
Total nonperforming loans
1,705
396
Other real estate owned
—
—
Other repossessed assets
14
—
Total nonperforming assets
$
1,719
$
396
Nonaccrual loans to total loans
0.17
%
0.06
%
Allowance for Credit Losses
The allowance for credit losses ("ACL") is maintained at a level considered by management to be adequate to cover credit losses currently expected over the weighted average life of the loan pools. The ACL increased by $1 million, or 15%, to $7.6 million on December 31, 2024, from $6.6 million on December 31, 2023. The additional ACL was primarily the result of the increase in the historical loss rate applied to the commercial and industrial loan portfolio as well as the increase in the average life of the loans. The Bank continues to maintain qualitative factors tied to changes in: the lending policy, economic conditions, lending credit management, delinquent and classified loans, and the value of collateral.
24
During 2024, $381 thousand in nonaccrual loans were collected, $5.9 million were charged-off, and $7.1 million new loans entered nonaccrual status.
ALLOWANCE FOR CREDIT LOSSES
FOR THE YEAR ENDED
(Dollars in thousands)
2024
2023
Net charge-offs (recoveries) as a percentage of average total loans
0.87
%
(0.02
)
%
Allowance for credit losses as a percentage of total loans
1.03
0.94
Allowance for credit losses to total nonaccrual loans
6.23
x
16.67
x
Components of the allowance for credit losses:
General reserves
$
7,595
$
6,546
Specific reserve allocations
—
61
Total allowance for credit losses
$
7,595
$
6,607
The ACL on loans totaled $7.6 million, or 1.03% of total loans at year-end 2024 as compared to $6.6 million, or 0.94%, of total loans at year-end 2023. The Bank had net credit losses of $6.3 million in 2024, compared to $130 thousand in recoveries in 2023. As previously disclosed during 2024, court liquidation continues on a $7 million commercial relationship that has been charged down by $6 million. Related to this loan, approximately $900 thousand remains in nonperforming assets with $400 thousand in auction proceeds held by the receiver and $500 thousand in commercial real estate (office building) remaining to be liquidated.
The Company maintains an internal watch list for loans where management’s analysis of the borrower’s operating results and financial condition indicates the borrower’s cash flows are inadequate to meet its debt service requirements and for loans where there exists an increased risk that a shortfall may occur. See the Credit Quality Indicators section of Note 3 to the Consolidated Financial Statements for additional information. Nonperforming loans, which consist of loans past due 90 days or more and nonaccrual loans, aggregated $1.7 million, or 0.23%, of loans at year-end 2024 compared to $396 thousand, or 0.06%, of loans at year-end 2023.
Other Assets
Net premises and equipment increased $1 million to $14 million at year-end 2024 with $2 million in capitalized purchases and $1 million in depreciation expense. Total bank-owned life insurance increased from $25 million at year-end 2023 to $28 million at year-end 2024, including a $2 million purchase of insurance and increasing cash surrender values. There was no other real estate owned on December 31, 2024 or 2023. The Company recognized a net deferred tax asset of $2.3 million on December 31, 2024, compared to a net deferred tax asset of $2.6 million on December 31, 2023. The decrease is primarily due to an improvement in the net unrealized loss on securities.
Deposits
The Company’s deposits are obtained primarily from individuals and businesses located in its market area. For deposits, the Company must compete with products offered by other financial institutions, as well as alternative investment options. Time deposits and money market savings account balances increased for the year ended 2024. Market rates on deposits and cash management products increased during the first half of the year before beginning to decrease in the second half of the year.
December 31
Change from 2023
(Dollars in thousands)
2024
2023
Amount
%
Noninterest-bearing demand
$
281,358
$
301,697
$
(20,339
)
(7
)
%
Interest-bearing demand
218,866
256,621
(37,755
)
(15
)
Traditional savings
161,354
165,265
(3,911
)
(2
)
Money market savings
140,056
112,264
27,792
25
Time deposits in excess of $250,000
80,384
58,597
21,787
37
Other time deposits
162,869
132,983
29,886
22
Total deposits
$
1,044,887
$
1,027,427
$
17,460
1.7
%
Other Funding Sources
The Company obtains additional funds through securities sold under repurchase agreements, overnight borrowings from the FHLB or other financial institutions, and advances from the FHLB. Short-term borrowings, consisting of securities sold under repurchase agreements, decreased $10 million. Other borrowings, consisting of FHLB advances, decreased $488 thousand as the result of principal repayments. The majority of FHLB borrowings on December 31, 2024, have long term maturities with monthly amortizing payments.
25
CAPITAL RESOURCES
Total shareholders’ equity was $114.8 million at December 31, 2024, compared to $107.9 million on December 31, 2023. This increase was primarily due to net income of $10.0 million and a $1.9 million decrease in the accumulated other comprehensive loss recognized on the available-for-sale securities portfolio, resulting from investment payment and maturities as well as decreasing interest rates. Dividends were paid of $4.2 million and $762 thousand of common shares were repurchased in 2024. The Board of Directors approved a Stock Repurchase Program on February 26, 2021, allowing the repurchase of up to 5% of the Company’s then-outstanding common shares. Repurchased shares are to be held as treasury stock and are available for general corporate purposes. On December 31, 2024, approximately 45 thousand shares could still be repurchased under the current authorized program. Shares repurchased during 2024 totaled 19,849 shares for $762 thousand and shares purchased in 2023 totaled 37,638 shares for $1.4 million .
Effective January 1, 2015, the Federal Reserve adopted final rules implementing Basel III and regulatory capital changes required by the Dodd-Frank Act. The rules apply to both the Company and the Bank. The rules established minimum risk-based and leverage capital requirements for all banking organizations. The rules include: (a) a common equity tier 1 capital ratio of at least 4.5%, (b) a tier 1 capital ratio of at least 6.0%, (c) a minimum total capital ratio of at least 8.0%, and (d) a minimum leverage ratio of 4%. Under the guidelines, capital is compared to the relative risk related to the balance sheet. To derive the risk included in the balance sheet, one of several risk weights is applied to different balance sheet and off-balance sheet assets primarily based on the relative credit risk of the counterparty. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. The rules also place restrictions on the payment of capital distributions, including dividends, and certain discretionary bonus payments to executive officers if the Company does not hold a capital conservation buffer of greater than 2.5% composed of common equity tier 1 capital above its minimum risk-based capital requirements. The Company and Bank’s actual and required capital amounts are disclosed in Note 12 to the Consolidated Financial Statements.
Dividends paid by the Bank to CSB are the primary source of funds available to the Company for payment of dividends to shareholders and for other working capital needs. The payment of dividends by the Bank to the Company is subject to restrictions by regulatory authorities, which generally limit dividends to current year net income and the prior two (2) year's net retained earnings, as defined by regulation. In addition, dividend payments generally cannot reduce regulatory capital levels below the minimum regulatory guidelines discussed above.
LIQUIDITY
December 31
(Dollars in thousands)
2024
2023
Change
from 2023
Cash and cash equivalents
$
73,509
$
64,077
$
9,432
Unused lines of credit
126,334
128,198
(1,864
)
Unpledged AFS securities at fair market value
123,155
127,387
(4,232
)
$
322,998
$
319,662
$
3,336
Net deposits and short-term liabilities
$
1,068,413
$
1,051,156
$
17,257
Liquidity ratio
30.2
%
30.4
%
Minimum board approved liquidity ratio
20.0
%
20.0
%
Liquidity refers to the Company’s ability to generate sufficient cash to fund current loan demand, meet deposit withdrawals, pay operating expenses, and meet other obligations. Liquidity is monitored by CSB’s Asset Liability Committee. The Company was within all Board-approved limits on December 31, 2024, and 2023. Additional sources of liquidity include net income, loan repayments, the availability of borrowings, and adjustments of interest rates to attract deposit accounts.
As summarized in the Consolidated Statements of Cash Flows, the most significant investing activities for the Company in 2024 included net loan originations of $42 million and securities purchases of $15 million, offset by maturities and repayment of securities totaling $54 million. The Company’s financing activities included a $17 million increase in deposits, $10 million decrease in short-term borrowings, and $4 million in cash dividends paid.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The most significant market risk the Company is exposed to is interest rate risk. The business of the Company and the composition of its balance sheet consist of investments in interest-earning assets (primarily loans and securities), which are funded by interest-bearing liabilities (deposits and borrowings). These financial instruments have varying levels of sensitivity to changes in the market rates of interest, resulting in market risk. None of the Company’s financial instruments are held for trading purposes.
26
The Board of Directors establishes policies and operating limits with respect to interest rate risk. The Company manages interest rate risk regularly through its Asset Liability Committee. The Committee meets periodically to review various asset and liability management information including, but not limited to, the Company’s liquidity position, projected sources and uses of funds, interest rate risk position, and economic conditions.
Interest rate risk is monitored primarily through the use of an earnings simulation model. The model is highly dependent on various assumptions, which change regularly as the balance sheet and market interest rates change. The earnings simulation model projects change in net interest income resulting from the effect of changes in interest rates. The analysis is performed quarterly over a twenty-four-month horizon. The analysis includes two (2) balance sheet models, one based on a static balance sheet and one on a dynamic balance sheet with projected growth in assets and liabilities. This analysis is performed by estimating the expected cash flows of the Company’s financial instruments using interest rates in effect at year-end 2024 and 2023. Interest rate risk policy limits are tested by measuring the anticipated change in net interest income over a two-year period. The tests assume quarterly ramped increases and decreases in market interest rates over twenty-four month horizons, as compared to a stable rate environment or base model. The following table reflects the change to net interest income using a dynamic balance sheet for the first twelve-month periods of the twenty-four month horizon.
Net Interest Income at Risk
December 31, 2024
Change In
Interest Rates
(Basis Points)
Net
Interest
Income
Dollar
Change
Percentage
Change
Board
Policy
Limits
(Dollars in thousands)
+ 400
$
42,231
$
1,333
3.3
%
± 25
%
+ 300
41,902
1,004
2.5
± 15
+ 200
41,571
673
1.6
± 10
+ 100
41,237
339
0.8
± 5
0
40,898
—
—
– 100
40,432
(466
)
(1.1
)
± 5
– 200
40,089
(809
)
(2.0
)
± 10
– 300
39,553
(1,345
)
(3.3
)
± 15
– 400
38,988
(1,910
)
(4.7
)
± 25
December 31, 2023
+ 400
$
39,184
$
(266
)
(0.7
)
%
± 25
%
+ 300
39,264
(186
)
(0.5
)
± 15
+ 200
39,340
(110
)
(0.3
)
± 10
+ 100
39,394
(56
)
(0.1
)
± 5
0
39,450
—
—
– 100
39,201
(249
)
(0.6
)
± 5
– 200
38,951
(499
)
(1.3
)
± 10
– 300
38,718
(732
)
(1.9
)
± 15
– 400
38,494
(956
)
(2.4
)
± 25
Management reviews Net Interest Income at Risk with the Board on a periodic basis. The Company was within all Board-approved limits at December 31, 2024 and 2023 for the first twelve-month periods of the twenty-four month horizon.
27
Economic Value of Equity at Risk
December 31, 2024
Change In
Interest Rates
(Basis Points)
Percentage
Change
Board
Policy
Limits
+ 400
(5.4
)
%
± 35
%
+ 300
(3.6
)
± 30
+ 200
(2.0
)
± 20
+ 100
(0.7
)
± 15
– 100
(0.8
)
± 15
– 200
(2.8
)
± 20
– 300
(7.6
)
± 30
– 400
(15.9
)
± 35
December 31, 2023
+ 400
15.9
%
± 35
%
+ 300
12.8
± 30
+ 200
9.2
± 20
+ 100
4.9
± 15
– 100
(6.2
)
± 15
– 200
(13.2
)
± 20
– 300
(22.5
)
± 30
– 400
(36.5
)
± 35
The economic value of equity is calculated by subjecting the period-end balance sheet to changes in interest rates and measuring the impact of the changes on the values of the assets and liabilities. Hypothetical changes in interest rates are then applied to the financial instruments. The cash flows and fair values are again estimated using these hypothetical rates. For the net interest income estimates, the hypothetical rates are applied to the financial instruments based on the assumed cash flows.
Management periodically measures and reviews the economic value of equity at risk with the Board. As of December 31, 2024, the Company was within all policy limits set by the Board. As of December 31, 2023, the percentage change of the market value of equity was outside of the board policy limit in the -400 basis point scenario. The technical fail in the declining rate scenario in 2023 was caused by the duration of liabilities remaining high and loan and investment prepayment speeds increasing.
SIGNIFICANT ASSUMPTIONS AND OTHER CONSIDERATIONS
The above analysis is based on numerous assumptions, including relative levels of market interest rates, loan prepayments, and reactions of depositors to changes in interest rates and this should not be relied upon as being indicative of actual results. Further, the analysis does not contemplate all actions the Company may undertake in response to changes in interest rates.
U.S. Treasury securities, obligations of U.S. Government corporations and agencies, obligations of states and political subdivisions will generally repay at their stated maturity or if callable, prior to their final maturity date. Mortgage-backed security payments increase when interest rates are low and decrease when interest rates rise. Most of the Company’s loans permit the borrower to prepay the principal balance prior to maturity without penalty. The likelihood of prepayment depends on a number of factors: current interest rate and interest rate index (if any) on the loan, the financial ability of the borrower to refinance, the economic benefit to be obtained from refinancing, availability of refinancing at attractive terms, as well as economic conditions in specific geographic areas, which affect the sales and price levels of residential and commercial property. In a changing interest rate environment, prepayments may increase or decrease on fixed and adjustable-rate loans depending on the current relative levels and expectations of future short-term and long-term interest rates. Prepayments on adjustable-rate loans generally increase when long-term interest rates fall or are at historically low levels relative to short-term interest rates, thus making fixed rate loans more desirable. While savings and checking deposits generally may be withdrawn upon the customer’s request without prior notice, a continuing relationship with customers resulting in future deposits and withdrawals is generally predictable, leading to a dependable and uninterrupted source of funds. Time deposits generally have early withdrawal penalties, which discourage customer withdrawal prior to maturity. Short-term borrowings have fixed maturities. Certain advances from the FHLB carry prepayment penalties and are expected to be repaid in accordance with their contractual terms.
FAIR VALUE MEASUREMENTS
The Company discloses the estimated fair value of its financial instruments on December 31, 2024, and 2023 in Note 15 to the Consolidated Financial Statements.
28
OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS, AND CONTINGENT LIABILITIES AND COMMITMENTS
The following table summarizes the Company’s loan commitments, including letters of credit, as of December 31, 2024:
Amount of Commitment to Expire Per Period
(Dollars in thousands)
Type of Commitment
Total
Amount
Less than
1 year
1 to 3
Years
3 to 5
Years
Over 5
Years
Commercial lines of credit
$
136,929
$
112,382
$
20,156
$
4,166
$
225
Commercial real estate
12,712
9,317
3,290
105
—
Home equity line of credit
87,048
5,802
13,886
15,772
51,588
Construction
32,051
15,095
16,956
—
—
Consumer lines of credit
636
636
—
—
—
Credit card lines
8,489
8,489
—
—
—
Overdraft privilege
7,225
7,225
—
—
—
Letters of credit
3,979
3,701
278
—
—
Total commitments
$
289,069
$
162,647
$
54,566
$
20,043
$
51,813
All lines of credit represent either fee-paid or legally binding loan commitments for the loan categories noted. Letters of credit are also included in the amounts noted in the table since the Company requires each letter of credit be supported by a loan agreement. The commercial and consumer lines represent both unsecured and secured obligations. The home equity lines are secured by mortgages on residential property. It is anticipated that a significant portion of these lines will expire without being drawn upon.
The following table summarizes the Company’s other contractual obligations, exclusive of interest, as of December 31, 2024:
Payment Due by Period
(Dollars in thousands)
Contractual Obligations
Total
Amount
Less
than 1
year
1 to 3
Years
3 to 5
Years
Over 5
Years
Total time deposits
$
243,253
$
212,968
$
29,390
$
895
$
—
Short-term borrowings
25,683
25,683
—
—
—
Other borrowings
1,266
349
457
250
210
Operating leases
206
72
124
10
—
Total obligations
$
270,408
$
239,072
$
29,971
$
1,155
$
210
The other borrowings noted in the preceding table represent borrowings from the FHLB. The notes require payment of interest on a monthly basis with principal due in monthly installments. The obligations bear stated fixed interest rates and stipulate a prepayment penalty if the note’s interest rate exceeds the current market rate for similar borrowings at the time of repayment. As the notes mature, the Company evaluates the liquidity and interest rate circumstances at that time to determine whether to pay off or renew the note. The evaluation process typically includes: the strength of current and projected customer loan demand, the Company’s federal funds sold or purchased position, projected cash flows from maturing investment securities, the current and projected market interest rate environment, local and national economic conditions, and customer demand for the Company’s deposit product offerings.
CRITICAL ACCOUNTING ESTIMATES
The Company’s Consolidated Financial Statements are prepared in accordance with U.S. Generally Accepted Accounting Principles and follow general practices within the commercial banking industry. Application of these principles requires management to make estimates, assumptions, and judgments affecting the amounts reported in the financial statements. These estimates, assumptions, and judgments are based upon the information available as of the date of the financial statements.
The most significant accounting policies followed by the Company are presented in Note 1 to the Consolidated Financial Statements. These policies, along with the other disclosures presented in the Notes to Consolidated Financial Statements and the 2024 Financial Review, provide information about how significant assets and liabilities are valued in the financial statements and how those values are determined. Management has identified the allowance for credit losses and goodwill as the accounting areas requiring the most subjective and complex estimates, assumptions, and judgments, and as such, could be the most subject to revision as new information becomes available.
29
As previously noted in the section entitled Allowance for Credit Losses, management performs an analysis to assess the adequacy of its allowance for credit losses using the current expected credit loss (CECL) model. This analysis encompasses a variety of factors including: the potential loss exposure for individually reviewed loans, the historical loss experience, changes in delinquent and classified loans, any significant changes in lending or loan review staff, an evaluation of current and future economic conditions, any significant changes in the volume or mix of loans within each category, a review of the significant concentrations of credit, and any legal, competitive, or regulatory concerns. Potential future earnings volatility is driven by CECL's life of credit loss and economic forecasts of unemployment, recession and future credit loss within the portfolio. Under stress testing performed by the Bank in 2024, the unemployment forecast models as the largest driver of credit loss provision volatility. When sustained unemployment is significantly increased to 10% over a two-year period, an additional provision of approximately $1.4 million would be required under current model assumptions. While the weighted average life of the loan portfolio has extended to five years, at December 31, 2024, stressing the commercial real estate, lessors of buildings and residential mortgage portfolios' weighted average lives by 10%, or an increase of 6 months, resulted in a minimal increase of $124 thousand to the allowance for credit losses.
The Company accounts for business combinations using the acquisition method of accounting. Goodwill and intangible assets with indefinite useful lives are not amortized. Intangible assets with finite useful lives are amortized using accelerated methods over their estimated weighted-average useful lives, approximating ten years.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and related data presented herein have been prepared in accordance with U.S. Generally Accepted Accounting Principles, requiring measurement of financial position, and results of operations primarily in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. Most assets and liabilities of the Company are monetary in nature. Therefore, interest rates have a more significant impact on the Company’s performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or magnitude as prices of goods and services. The liquidity, maturity structure, and quality of the Company’s assets and liabilities are critical to maintenance of acceptable performance levels.
COMMON STOCK AND SHAREHOLDER INFORMATION
Common shares of the Company are not traded on an established market. Shares are traded on the OTC market through broker/ dealers under the symbol “CSBB” and through private transactions. The table below represents the range of high and low prices paid for transactions known to the Company. Management does not have knowledge of prices paid on all transactions. Because of the lack of an established market, these prices may not reflect the prices at which stock would trade in an active market. These quotations reflect interdealer prices, without mark-up, mark-down, or commission and may not represent actual transactions. The table specifies cash dividends declared by the Company to its shareholders during 2024 and 2023. No assurances can be given that future dividends will be declared, or if declared, what the amount of any such dividends will be. Additional information concerning restrictions over the payment of dividends is included in Note 12 of the Consolidated Financial Statements.
Quarterly Common Stock Price and Dividend Data
Quarter Ended
High
Low
Dividends
Declared
Per Share
Dividends
Declared
March 31, 2024
$
40.90
$
35.46
$
0.39
$
1,039,337
June 30, 2024
41.00
37.17
0.39
1,039,227
September 30, 2024
40.00
37.00
0.40
1,063,810
December 31, 2024
39.50
36.02
0.40
1,061,406
March 31, 2023
$
42.80
$
36.00
$
0.36
$
965,025
June 30, 2023
40.75
35.32
0.38
1,018,524
September 30, 2023
39.13
35.05
0.38
1,015,099
December 31, 2023
40.85
36.18
0.38
1,014,577
As of December 31, 2024, the Company had 1,023 shareholders of record and 2,650,089 outstanding shares of common stock.
30
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information contained in the section captioned, “Quantitative and Qualitative Disclosures about Market Risk” located in the MD&A is incorporated by reference herein.