CSB Bancorp, Inc. 10-Q

csbb-10q_20220930.htm UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 0-21714 CSB Bancorp, Inc. (Exact Name of Registrant as Specified in its Charter) Ohio 34-1687530 ( State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 91 North Clay Street , P.O. Box 232 Millersburg , OH 44654 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: ( 330 ) 674-9015 Securities registered pursuant to Section 12(g) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Shares, $6.25 par value CSBB OTCPink Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐ As of November 1, 2022, the registrant had 2,707,576 shares of common stock, $6.25 par value per share, outstanding. CSB BANCORP, INC. FORM 10-Q QUARTER ENDED September 30, 2022 Table of Contents Part I - Financial Information Page ITEM 1 – FINANCIAL STATEMENTS (Unaudited) 3 Consolidated Balance Sheets 3 Consolidated Statements of Income 4 Consolidated Statements of Comprehensive Income (Loss) 5 Consolidated Statements of Changes in Shareholders' Equity 6 Condensed Consolidated Statements of Cash Flows 7 Notes to Consolidated Financial Statements 8 ITEM 2 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 24 ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 32 ITEM 4 – CONTROLS AND PROCEDURES 33 Part II - Other Information ITEM 1 – Legal Proceedings 34 ITEM 1A – Risk Factors 34 ITEM 2 – Unregistered Sales of Equity Securities and Use of Proceeds 34 ITEM 3 – Defaults upon Senior Securities 34 ITEM 4 – Mine Safety Disclosures 34 ITEM 5 – Other Information 34 ITEM 6 – Exhibits 35 Signatures 36 2 CSB BANCORP, INC. PART I – FINANCIAL INFORMATION ITEM 1. – FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, December 31, (Dollars in thousands, except per share data) 2022 2021 ASSETS Cash and cash equivalents Cash and due from banks $ 20,859 $ 19,543 Interest-earning deposits in other banks 86,657 224,114 Total cash and cash equivalents 107,516 243,657 Securities Available-for-sale, at fair value 143,433 131,708 Held-to-maturity (fair value 2022-$ 214,721 ; 2021-$ 174,528 ) 252,362 174,808 Equity securities 249 115 Restricted stock, at cost 3,430 4,614 Total securities 399,474 311,245 Loans held for sale 200 231 Loans 609,971 549,154 Less allowance for loan losses 7,008 7,618 Net loans 602,963 541,536 Premises and equipment, net 13,455 13,866 Bank-owned life insurance 24,539 24,035 Goodwill 4,728 4,728 Deferred tax asset 159 325 Accrued interest receivable and other assets 8,796 4,616 TOTAL ASSETS $ 1,161,830 $ 1,144,239 LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Deposits Noninterest-bearing $ 338,043 $ 334,346 Interest-bearing 691,231 668,401 Total deposits 1,029,274 1,002,747 Short-term borrowings 34,199 36,530 Other borrowings 2,528 3,407 Accrued interest payable and other liabilities 3,848 4,240 Total liabilities 1,069,849 1,046,924 SHAREHOLDERS' EQUITY Common stock, $ 6.25 par value. Authorized 9,000,000 shares; issued 2,980,602 shares; outstanding 2,707,576 shares in 2022 and 2,718,024 in 2021 18,629 18,629 Additional paid-in capital 9,815 9,815 Retained earnings 83,696 76,715 Treasury stock at cost: 273,026 shares in 2022 and 262,578 shares in 2021 ( 6,107 ) ( 5,719 ) Accumulated other comprehensive loss ( 14,052 ) ( 2,125 ) Total shareholders' equity 91,981 97,315 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,161,830 $ 1,144,239 See notes to unaudited consolidated financial statements. 3 CSB BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands, except per share data) 2022 2021 2022 2021 INTEREST AND DIVIDEND INCOME Loans, including fees $ 6,680 $ 6,897 $ 18,489 $ 19,993 Taxable securities 1,780 677 4,721 1,840 Nontaxable securities 110 117 328 339 Other 586 114 863 228 Total interest and dividend income 9,156 7,805 24,401 22,400 INTEREST EXPENSE Deposits 559 450 1,252 1,496 Short-term borrowings 25 13 51 41 Other borrowings 12 17 43 59 Total interest expense 596 480 1,346 1,596 NET INTEREST INCOME 8,560 7,325 23,055 20,804 (RECOVERY OF) PROVISION FOR LOAN LOSSES ( 250 ) ( 210 ) ( 895 ) ( 655 ) Net interest income, after (recovery of) provision for loan losses 8,810 7,535 23,950 21,459 NONINTEREST INCOME Service charges on deposit accounts 321 250 875 676 Trust services 216 252 733 798 Debit card interchange fees 530 515 1,568 1,512 Credit card fees 170 127 516 341 Gain on sale of loans, net 49 270 314 1,174 Earnings on bank owned life insurance 170 163 504 457 Unrealized gain or (loss) on equity securities, net ( 2 ) 8 2 20 Other income 221 183 587 511 Total noninterest income 1,675 1,768 5,099 5,489 NONINTEREST EXPENSE Salaries and employee benefits 3,199 3,228 9,766 9,301 Occupancy expense 272 270 820 771 Equipment expense 193 170 604 519 Professional and director fees 555 180 1,161 831 Financial institutions and franchise tax expense 195 188 584 563 Marketing and public relations 141 147 362 324 Software expense 397 318 1,056 954 Debit card expense 201 181 550 524 Amortization of intangible assets — 11 — 33 FDIC insurance expense 93 130 251 358 Provision for unfunded loan commitments — 210 13 210 Other expenses 699 680 2,020 1,996 Total noninterest expense 5,945 5,713 17,187 16,384 Income before income taxes 4,540 3,590 11,862 10,564 FEDERAL INCOME TAX PROVISION 890 689 2,302 2,033 NET INCOME $ 3,650 $ 2,901 $ 9,560 $ 8,531 Basic and diluted net earnings per share $ 1.35 $ 1.06 $ 3.52 $ 3.12 See notes to unaudited consolidated financial statements 4 CSB BANCORP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2022 2021 2022 2021 Net income $ 3,650 $ 2,901 $ 9,560 $ 8,531 Other comprehensive income (loss) Unrealized (losses) arising during the period ( 5,189 ) ( 831 ) ( 15,334 ) ( 2,790 ) Amortization of discount on securities transferred to held-to-maturity 64 11 237 44 Income tax effect 1,076 172 3,170 577 Other comprehensive (loss) ( 4,049 ) ( 648 ) ( 11,927 ) ( 2,169 ) Total comprehensive income (loss) $ ( 399 ) $ 2,253 $ ( 2,367 ) $ 6,362 See notes to unaudited consolidated financial statements. 5 CSB BANCORP, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) (Dollars in thousands, except per share data) Common stock Additional paid-in capital Retained earnings Treasury stock Accumulated other comprehensive (loss) income Total Three Months Ended September 30, 2022 Balance, beginning of period $ 18,629 $ 9,815 $ 80,940 $ ( 5,719 ) $ ( 10,003 ) $ 93,662 Net income — — 3,650 — — 3,650 Other comprehensive loss — — — — ( 4,049 ) ( 4,049 ) Purchase of 10,448 treasury shares — — — ( 388 ) — ( 388 ) Cash dividends declared, $ 0.33 per share — — ( 894 ) — — ( 894 ) Balance, end of period $ 18,629 $ 9,815 $ 83,696 $ ( 6,107 ) $ ( 14,052 ) $ 91,981 Nine Months Ended September 30, 2022 Balance, beginning of period $ 18,629 $ 9,815 $ 76,715 $ ( 5,719 ) $ ( 2,125 ) $ 97,315 Net income — — 9,560 — — 9,560 Other comprehensive loss — — — — ( 11,927 ) ( 11,927 ) Purchase of 10,448 treasury shares — — — ( 388 ) — ( 388 ) Cash dividends declared, $ 0.95 per share — — ( 2,579 ) — — ( 2,579 ) Balance, end of period $ 18,629 $ 9,815 $ 83,696 $ ( 6,107 ) $ ( 14,052 ) $ 91,981 Three Months Ended September 30, 2021 Balance, beginning of period $ 18,629 $ 9,815 $ 73,196 $ ( 5,093 ) $ ( 535 ) $ 96,012 Net income — — 2,901 — — 2,901 Other comprehensive loss — — — — ( 648 ) ( 648 ) Purchase of 8,720 treasury shares — — — ( 331 ) — ( 331 ) Cash dividends declared, $ 0.31 per share — — ( 845 ) — — ( 845 ) Balance, end of period $ 18,629 $ 9,815 $ 75,252 $ ( 5,424 ) $ ( 1,183 ) $ 97,089 Nine Months Ended September 30, 2021 Balance, beginning of period $ 18,629 $ 9,815 $ 69,209 $ ( 4,780 ) $ 986 $ 93,859 Net income — — 8,531 — — 8,531 Other comprehensive loss — — — — ( 2,169 ) ( 2,169 ) Purchase of 16,826 treasury shares — — — ( 644 ) — ( 644 ) Cash dividends declared, $ 0.91 per share — — ( 2,488 ) — — ( 2,488 ) Balance, end of period $ 18,629 $ 9,815 $ 75,252 $ ( 5,424 ) $ ( 1,183 ) $ 97,089 See notes to unaudited consolidated financial statements. 6 CSB BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, (Dollars in thousands) 2022 2021 NET CASH FROM OPERATING ACTIVITIES $ 8,894 $ 9,148 CASH FLOWS FROM INVESTING ACTIVITIES Securities: Proceeds from repayments, available-for-sale 11,293 36,478 Proceeds from repayments, held-to-maturity 16,901 5,990 Purchases, available-for-sale ( 38,868 ) ( 35,196 ) Purchases, held-to-maturity ( 94,542 ) ( 48,258 ) Purchases, equity securities ( 131 ) — Redemption of FHLB stock 1,183 — Loan (originations) repayments, net ( 61,004 ) 63,021 Property, equipment, and software acquisitions ( 217 ) ( 1,734 ) Purchase of bank-owned life insurance — ( 2,000 ) Net cash (used in) provided by investing activities ( 165,385 ) 18,301 CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 26,527 77,067 Net (decrease) increase in short-term borrowings ( 2,331 ) 915 Repayment of other borrowings ( 879 ) ( 1,175 ) Cash dividends paid ( 2,579 ) ( 1,643 ) Purchase of treasury shares ( 388 ) ( 644 ) Net cash provided by financing activities 20,350 74,520 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ( 136,141 ) 101,969 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 243,657 181,652 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 107,516 $ 283,621 SUPPLEMENTAL DISCLOSURES Cash paid during the year for: Interest $ 1,351 $ 1,627 Income taxes 1,760 1,725 Noncash financing activities: Dividends declared — 845 See notes to unaudited consolidated financial statements. 7 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying condensed consolidated financial statements include the accounts of CSB Bancorp, Inc. and its wholly-owned subsidiaries, The Commercial and Savings Bank (the “Bank”) and CSB Investment Services, LLC (together referred to as the “Company” or “CSB”). All significant intercompany transactions and balances have been eliminated in consolidation. The condensed consolidated financial statements have been prepared without audit. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present fairly the Company’s financial position at September 30, 2022, and the results of operations and changes in cash flows for the periods presented have been made. Certain information and footnote disclosures typically included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been omitted. The Annual Report for CSB for the year ended December 31, 2021, contains Consolidated Financial Statements and related footnote disclosures, which should be read in conjunction with the accompanying condensed Consolidated Financial Statements. The results of operations for the periods ended September 30, 2022 are not necessarily indicative of the operating results for the full year or any future interim period. Certain items in the prior-year financial statements were reclassified to conform to the current-year presentation. Such reclassifications had no effect on net income or shareholders’ equity. USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS In preparing the Consolidated Financial Statements, in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Consolidated Balance Sheets and reported amounts of revenues and expenses during each reporting period. Actual results could differ from those estimates. The most significant estimates susceptible to change in the near term relate to management’s determination of the allowance for loan losses and the fair value of financial instruments. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS ASU 2016-13 - Financial Instruments - Credit Losses . The Update and all subsequent ASU’s that modified Topic 326, requires that 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 Company expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. The cumulative-effect adjustment to retained earnings is required as of the beginning of the year of adoption. The Company has contracted with a third-party software vendor to assist with the development of the Bank’s approach for determining expected credit losses under the new guidance. The Company is actively working on preliminary test calculations, and data validation, as well as process and procedural documentation. In November 2019, the FASB deferred the effective date for ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASU’s. 8 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED) 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 2020-4 – Reference Rate Reform (Topic 848). This update provides temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. This Update is not expected to have a significant impact on the Company’s financial statements. ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures. The amendments in this update eliminate TDR accounting for entities that have adopted Update 2016-13, while enhancing disclosure requirements for certain loan modifications by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan. 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. The ASU also requires 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. Early adoption is permitted using prospective application, including adoption in an interim period where the guidance should be applied as of the beginning of the fiscal year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations. 9 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 2 – SECURITIES Securities consist of the following on September 30, 2022 and December 31, 2021: (Dollars in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair value September 30, 2022 Available-for-sale U.S. Treasury securities $ 23,214 $ — $ ( 1,033 ) $ 22,181 U.S. Government agencies 13,999 — ( 1,408 ) 12,591 Mortgage-backed securities of government agencies 70,077 7 ( 9,575 ) 60,509 Asset-backed securities of government agencies 672 — ( 16 ) 656 State and political subdivisions 22,725 — ( 1,313 ) 21,412 Corporate bonds 28,764 — ( 2,680 ) 26,084 Total available-for-sale 159,451 7 ( 16,025 ) 143,433 Held-to-maturity U.S Treasury Securities $ 12,740 $ — $ ( 1,209 ) $ 11,531 Mortgage-backed securities of government agencies 237,034 — ( 36,041 ) 200,993 State and political subdivisions 2,588 — ( 391 ) 2,197 Total held-to-maturity 252,362 — ( 37,641 ) 214,721 Equity securities 185 64 — 249 Restricted stock 3,430 — — 3,430 Total securities $ 415,428 $ 71 $ ( 53,666 ) $ 361,833 December 31, 2021 Available-for-sale U.S. Treasury securities $ 4,982 $ — $ ( 10 ) $ 4,972 U.S. Government agencies 13,999 — ( 327 ) 13,672 Mortgage-backed securities of government agencies 78,224 393 ( 843 ) 77,774 Asset-backed securities of government agencies 760 — ( 7 ) 753 State and political subdivisions 23,189 343 ( 201 ) 23,331 Corporate bonds 11,238 57 ( 89 ) 11,206 Total available-for-sale 132,392 793 ( 1,477 ) 131,708 Held-to-maturity U.S Treasury Securities $ 12,700 $ 32 $ ( 39 ) $ 12,693 Mortgage-backed securities of government agencies 159,916 504 ( 766 ) 159,654 State and political subdivisions 2,192 3 ( 14 ) 2,181 Total held-to-maturity 174,808 539 ( 819 ) 174,528 Equity securities 53 62 — 115 Restricted stock 4,614 — — 4,614 Total securities $ 311,867 $ 1,394 $ ( 2,296 ) $ 310,965 10 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 2 – SECURITIES (continued) The amortized cost and fair value of debt securities on September 30, 2022, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. (Dollars in thousands) Amortized cost Fair value Available-for-sale Due in one year or less $ 613 $ 612 Due after one through five years 68,797 64,025 Due after five through ten years 25,133 22,817 Due after ten years 64,908 55,979 Total debt securities available-for-sale $ 159,451 $ 143,433 Held-to-maturity Due in one year or less $ 2,496 $ 2,402 Due after one through five years 7,405 6,739 Due after five through ten years 3,894 3,275 Due after ten years 238,567 202,305 Total debt securities held-to-maturity $ 252,362 $ 214,721 Securities with a fair value of approximately $ 112.5 million and $ 103.0 million were pledged on September 30, 2022 and December 31, 2021, respectively, to secure public deposits, as well as other deposits and borrowings as required or permitted by law. Restricted stock primarily consists of investments in Federal Home Loan Bank of Cincinnati (FHLB) and Federal Reserve Bank stock. The Bank’s investment in FHLB stock amounted to approximately $ 2.9 million and $ 4.1 on September 30, 2022 and December 31, 2021. The FHLB is redeemed approximately $ 1.2 million in stock in July 2022 at $ 100 par value per share. Federal Reserve Bank stock was $ 471 thousand on September 30, 2022 and December 31, 2021. There were no proceeds from sales of securities for the three and nine-month period ended September 30, 2022 and 2021. All gains and losses recognized on equity securities during the three and nine-month period were unrealized. 11 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 2 – SECURITIES (continued) The following table presents gross unrealized losses and fair value of securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, on September 30, 2022 and December 31, 2021: Securities in a continuous unrealized loss position Less than 12 months 12 months or more Total (Dollars in thousands) Gross unrealized losses Fair value Gross unrealized losses Fair value Gross unrealized losses Fair value September 30, 2022 Available-for-sale U.S. Treasury Securities $ ( 1,033 ) $ 22,181 $ — $ — $ ( 1,033 ) $ 22,181 U.S. Government agencies — — ( 1,408 ) 12,591 ( 1,408 ) 12,591 Mortgage-backed securities of government agencies ( 1,584 ) 14,973 ( 7,991 ) 42,288 ( 9,575 ) 57,261 Asset-backed securities of government agencies — — ( 16 ) 656 ( 16 ) 656 State and political subdivisions ( 926 ) 18,816 ( 387 ) 2,371 ( 1,313 ) 21,187 Corporate bonds ( 2,562 ) 25,202 ( 118 ) 882 ( 2,680 ) 26,084 Held-to-maturity U.S. Treasury Securities — — ( 1,209 ) 11,531 ( 1,209 ) 11,531 Mortgage-backed securities of government agencies ( 20,326 ) 120,767 ( 15,715 ) 70,860 ( 36,041 ) 191,627 State and political subdivisions ( 181 ) 1,273 ( 210 ) 924 ( 391 ) 2,197 Total temporarily impaired securities $ ( 26,612 ) $ 203,212 $ ( 27,054 ) $ 142,103 $ ( 53,666 ) $ 345,315 December 31, 2021 Available-for-sale U.S. Treasury Securities $ ( 10 ) $ 4,972 $ — $ — $ ( 10 ) $ 4,972 U.S. Government agencies ( 69 ) 2,930 ( 258 ) 10,742 ( 327 ) 13,672 Mortgage-backed securities of government agencies ( 574 ) 43,595 ( 269 ) 12,653 ( 843 ) 56,248 Asset-backed securities of government agencies — — ( 7 ) 753 ( 7 ) 753 State and political subdivisions ( 201 ) 9,646 — — ( 201 ) 9,646 Corporate bonds ( 44 ) 5,710 ( 45 ) 955 ( 89 ) 6,665 Held-to-maturity — U.S. Treasury Securities ( 39 ) 9,837 — — ( 39 ) 9,837 Mortgage-backed securities of government agencies ( 766 ) 98,906 — — ( 766 ) 98,906 State and political subdivisions ( 14 ) 1,749 — — ( 14 ) 1,749 Total temporarily impaired securities $ ( 1,717 ) $ 177,345 $ ( 579 ) $ 25,103 $ ( 2,296 ) $ 202,448 There were 203 securities in an unrealized loss position on September 30, 2022, 61 of which were in a continuous loss position for twelve (12) months or more. There were 66 securities in an unrealized loss position on December 31, 2021, eleven ( 11 ) 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 in an unrealized loss position, 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. 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 September 30, 2022 and December 31, 2021, respectively. 12 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 – LOANS Loans consist of the following: (Dollars in thousands) September 30, 2022 December 31, 2021 Commercial 1 $ 135,975 $ 123,933 Commercial real estate 208,979 194,754 Residential real estate 190,029 168,247 Construction & land development 58,388 46,042 Consumer 16,339 16,074 Total loans before deferred costs 609,710 549,050 Deferred loan costs, net 261 104 Total Loans $ 609,971 $ 549,154 1 Includes $ 392 thousand and $ 4.6 million of Paycheck Protection Program loans on September 30, 2022, and December 31, 2021, respectively. Loan Origination/Risk Management The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions. Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Underwriting standards are designed to promote relationship banking rather than transactional banking. The Company’s management examines current and occasionally projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers; however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable, inventory, and equipment, and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single industry. Management monitors and evaluates commercial real estate loans based on collateral, geography, and risk grade criteria. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied. 13 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 – LOANS (CONTINUED) With respect to loans to developers and builders that are secured by non-owner-occupied properties, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction and land development loans are underwritten utilizing independent appraisal reviews, sensitivity analysis of absorption and lease rates, and financial analysis of the developers and property owners. Construction and land development loans are generally based upon estimates of costs and value associated with the completed project. These estimates may be inaccurate. Construction and land development loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property, or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions, and the availability of long-term financing. The Company originates consumer loans utilizing a judgmental underwriting process. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed, jointly by line and staff personnel. This activity, coupled with relatively small loan amounts that are spread across many individual borrowers, mitigates risk. The Company maintains an independent credit department that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures. Loans serviced for others approximated $ 139.2 and $ 142.1 million on September 30, 2022 and December 31, 2021, respectively. 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 Small Business Administration (“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 provides loans to small businesses who were affected by economic conditions as a result of COVID-19 to provide cash flow assistance to employers who maintain their payroll (including healthcare and certain related expenses), mortgage interest, rent, leases, utilities and interest on existing debt during the COVID-19 emergency. The Company had seven PPP loans with outstanding principal balances of $ 392 thousand as of September 30, 2022, and 76 PPP loans with balances of $ 4.6 million outstanding as of December 31, 2021. The PPP loans are 100 % guaranteed by the SBA and may be eligible for forgiveness by the SBA to the extent that the proceeds are used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up to 24 weeks after the loan is made as long as certain conditions are met regarding employee retention and compensation levels. PPP loans deemed eligible for forgiveness by the SBA will be repaid by the SBA to the Company. PPP loans are included in the Commercial loan category with no allowance for loan losses allocated. In accordance with the SBA terms and conditions on these PPP loans, as of September 30, 2022, the Company has received approximately $ 5.4 million in fees associated with the processing of these loans since the inception of the program. Upon funding of the loans, fees are deferred and amortized over the life of the loan with the unearned balance fully recognized at the time a loan is forgiven as an adjustment to yield in accordance with FASB ASC 310-20-25-2. For the nine months ended September 30, 2022, and 2021, interest and fee income recognized on PPP loans was $ 187 thousand and $ 2.7 million, respectively. For the three months ended September 30, 2022, and 2021, interest and fee income recognized on PPP loans was $ 25 thousand and $ 974 thousand, respectively. As of September 30, 2022, there was approximately $ 8 thousand in remaining unearned fees on PPP loans outstanding. 14 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 – LOANS (CONTINUED) Concentrations of Credit Nearly all the Company’s lending activity occurs within the state of Ohio, including the four counties of Holmes, Stark, Tuscarawas and Wayne, as well as other markets. The majority of the Company’s loan portfolio consists of commercial and commercial real estate loans. Credit concentrations, including commitments, as determined using North American Industry Classification Codes (NAICS), to the two largest industries compared to total loans on September 30, 2022, included $ 71.9 million, or 12 %, of total loans to lessors of non-residential buildings or dwellings, and $ 27.8 million, or 5 %, of total loans to assisted living facilities for the elderly. 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. The Company has identified industries that could be at a higher risk due to the COVID-19 pandemic. As of September 30, 2022, the total balance of loans, including commitments, identified to COVID-19 affected businesses was $ 37.9 million, with $ 27.8 million of those loans to assisted living facilities and $ 10.1 million to businesses in the hotel industry. Allowance for Loan Losses The following tables detail activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2022, and 2021. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. For the three and nine months ended September 30, 2022, the decrease in the provision for loan losses for commercial real estate loans was primarily due to the improvement in businesses affected by the COVID-19 pandemic as well as the reduction of loan balances to businesses affected by the pandemic. The decrease in the provision for construction and land development loans for the nine-month period was primarily related to the recovery of a prior loan charge off in the second quarter and the three-month period was due to a decrease in loan balances in the third quarter. The increase in provision for residential real estate loans is primarily due to loan growth. For the three and nine months ended September 30, 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 provision for all other categories for the three and nine-month periods is related to the improvement in economic conditions along with fewer delinquent and nonperforming loans and improvement in adversely classified loan balances. 15 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 – LOANS (CONTINUED) S ummary of Allowance for Loan Losses (Dollars in thousands) Commercial Commercial Real Estate Residential Real Estate Construction & Land Development Consumer Unallocated Total Three Months Ended September 30, 2022 Beginning balance $ 1,213 $ 2,422 $ 1,177 $ 1,607 $ 395 $ 454 $ 7,268 (Recovery of) provision for loan losses 45 ( 298 ) 111 ( 331 ) ( 137 ) 360 ( 250 ) Charge-offs ( 13 ) ( 12 ) — — ( 4 ) ( 29 ) Recoveries 4 — 1 — 14 19 Net (charge-offs) recoveries ( 9 ) ( 12 ) 1 — 10 ( 10 ) Ending balance $ 1,249 $ 2,112 $ 1,289 $ 1,276 $ 268 $ 814 $ 7,008 Nine Months Ended September 30, 2022 Beginning balance $ 1,240 $ 2,838 $ 992 $ 1,380 $ 421 $ 747 $ 7,618 (Recovery of) provision for loan losses 30 ( 715 ) 295 ( 416 ) ( 156 ) 67 ( 895 ) Charge-offs ( 31 ) ( 12 ) — — ( 28 ) ( 71 ) Recoveries 10 1 2 312 31 356 Net (charge-offs) recoveries ( 21 ) ( 11 ) 2 312 3 285 Ending balance $ 1,249 $ 2,112 $ 1,289 $ 1,276 $ 268 $ 814 $ 7,008 Three Months Ended September 30, 2021 Beginning balance $ 1,335 $ 3,404 $ 1,060 $ 767 $ 278 $ 1,031 $ 7,875 (Recovery of) provision for loan losses 9 ( 280 ) ( 32 ) 508 ( 9 ) ( 406 ) ( 210 ) Charge-offs — — — — ( 39 ) ( 39 ) Recoveries 5 — 2 — 12 19 Net (charge-offs) recoveries 5 — 2 — ( 27 ) ( 20 ) Ending balance $ 1,349 $ 3,124 $ 1,030 $ 1,275 $ 242 $ 625 $ 7,645 Nine Months Ended September 30, 2021 Beginning balance $ 1,739 $ 3,469 $ 1,156 $ 756 $ 352 $ 802 $ 8,274 (Recovery of) provision for loan losses ( 393 ) ( 346 ) ( 130 ) 519 ( 128 ) ( 177 ) ( 655 ) Charge-offs ( 25 ) — — — ( 39 ) ( 64 ) Recoveries 28 1 4 — 57 90 Net (charge-offs) recoveries 3 1 4 — 18 26 Ending balance $ 1,349 $ 3,124 $ 1,030 $ 1,275 $ 242 $ 625 $ 7,645 16 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 – LOANS (CONTINUED) The following table presents the balance in the allowance for loan losses and the ending loan balances by portfolio class, based on the impairment method as of September 30, 2022 and December 31, 2021: (Dollars in thousands) Commercial Commercial Real Estate Residential Real Estate Construction Consumer Unallocated Total September 30, 2022 Allowance for loan losses: Individually evaluated for impairment $ 196 $ — $ 1 $ — $ 4 $ 201 Collectively evaluated for impairment 1,053 2,112 1,288 1,276 264 814 6,807 Total ending allowance balance $ 1,249 $ 2,112 $ 1,289 $ 1,276 $ 268 $ 814 $ 7,008 Loans: Loans individually evaluated for impairment $ 322 $ 157 $ 688 $ — $ 126 $ 1,293 Loans collectively evaluated for impairment 135,653 208,822 189,341 58,388 16,213 608,417 Total ending loans balance $ 135,975 $ 208,979 $ 190,029 $ 58,388 $ 16,339 $ 609,710 December 31, 2021 Allowance for loan losses: Individually evaluated for impairment $ 208 $ 9 $ 2 $ — $ 3 $ 222 Collectively evaluated for impairment 1,032 2,829 990 1,380 418 747 7,396 Total ending allowance balance $ 1,240 $ 2,838 $ 992 $ 1,380 $ 421 $ 747 $ 7,618 Loans: Loans individually evaluated for impairment $ 342 $ 291 $ 856 $ 329 $ 137 $ 1,955 Loans collectively evaluated for impairment 123,591 194,463 167,391 45,713 15,937 547,095 Total ending loans balance $ 123,933 $ 194,754 $ 168,247 $ 46,042 $ 16,074 $ 549,050 The following table presents loans individually evaluated for impairment by class of loans as of September 30, 2022 and December 31, 2021: (Dollars in thousands) Unpaid Principal Balance Recorded Investment with no Allowance Recorded Investment with Allowance Total recorded investment 1 Related Allowance September 30, 2022 Commercial $ 344 $ 126 $ 196 $ 322 $ 196 Commercial real estate 311 135 22 157 — Residential real estate 743 375 318 693 1 Construction & land development — — — — — Consumer 131 7 123 130 4 Total impaired loans $ 1,529 $ 643 $ 659 $ 1,302 $ 201 December 31, 2021 Commercial $ 354 $ 134 $ 208 $ 342 $ 208 Commercial real estate 433 233 59 292 9 Residential real estate 925 571 291 862 2 Construction & land development 646 330 — 330 — Consumer 141 23 119 142 3 Total impaired loans $ 2,499 $ 1,291 $ 677 $ 1,968 $ 222 1 Includes principal, accrued interest, unearned fees, and origination costs 17 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 – LOANS (CONTINUED) The following table presents the average recorded investment in impaired loans and related interest income recognized for the periods indicated. Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2022 2021 2022 2021 Average recorded investment: Commercial $ 255 $ 1,237 $ 258 $ 1,745 Commercial real estate 173 2,199 198 2,557 Residential real estate 715 822 781 822 Construction & land development — — 164 — Consumer 131 128 132 134 Average recorded investment in impaired loans $ 1,274 $ 4,386 $ 1,533 $ 5,258 Interest income recognized: Commercial $ — $ 3 $ 2 $ 22 Commercial real estate 2 20 6 71 Residential real estate 7 7 23 23 Construction & land development — — — — Consumer 2 2 6 6 Interest income recognized on a cash basis on impaired loans $ 11 $ 32 $ 37 $ 122 The following table presents the aging of past due loans and nonaccrual loans as of September 30, 2022 and December 31, 2021 by class of loans: Accruing Loans (Dollars in thousands) Current 30-59 Days Past Due 60-89 Days Past Due 90 Days + Past Due Non- Accrual Total Past Due and Non- Accrual Total Loans September 30, 2022 Commercial $ 135,762 $ 2 $ 15 $ — $ 196 $ 213 $ 135,975 Commercial real estate 208,629 132 82 — 136 350 208,979 Residential real estate 189,281 333 122 — 293 748 190,029 Construction & land development 58,313 — 75 — — 75 58,388 Consumer 16,117 161 — — 61 222 16,339 Total Loans $ 608,102 $ 628 $ 294 $ — $ 686 $ 1,608 $ 609,710 December 31, 2021 Commercial $ 123,698 $ 5 $ 17 $ 5 $ 208 $ 235 $ 123,933 Commercial real estate 194,615 — — — 139 139 194,754 Residential real estate 167,689 191 — — 367 558 168,247 Construction & land development 45,713 — — — 329 329 46,042 Consumer 15,863 171 — — 40 211 16,074 Total Loans $ 547,578 $ 367 $ 17 $ 5 $ 1,083 $ 1,472 $ 549,050 Troubled Debt Restructurings All troubled debt restructurings (“TDRs”) are individually evaluated for impairment and a related allowance is recorded, as needed. Loans whose terms have been modified as TDRs totaled $ 962 thousand as of September 30, 2022, and $ 1.3 million as of December 31, 2021, with $ 5 thousand of specific reserves allocated to those loans at September 30, 2022 and $ 14 thousand at December 31, 2021, respectively. On September 30, 2022, $ 932 thousand of the 18 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 – LOANS (CONTINUED) loans classified as TDRs were performing in accordance with their modified terms. The remaining $ 29 thousand were classified as nonaccrual. There were no loan modifications considered TDRs completed during the three and nine months ended September 30, 2022. Loan modifications considered TDRs completed during the three and nine months ended September 30, 2021, were as follows: (Dollars in thousands) Number of loans restructured Pre- Modification Recorded Investment Post- Modification Recorded Investment Three Months Ended September 30, 2021 Commercial 1 $ 66 $ 66 1 $ 66 $ 66 Nine Months Ended September 30, 2021 Commercial 4 $ 960 $ 960 Commercial real estate 2 1,686 1,686 Residential real estate 1 88 88 7 $ 2,734 $ 2,734 The loans restructured were modified by changing the monthly payment to interest only and modifying the maturity dates. None of the loans restructured in 2021 have defaulted in the nine months ended September 30, 2022. None of the loans restructured in 2020 defaulted in 2021. Mortgage loans in the process of foreclosure were $ 17 thousand on September 30, 2022, and there were none on December 31, 2021. There was no other real estate owned on September 30, 2022 and December 31, 2021. There were no repossessed assets on September 30, 2022 and December 31, 2021. Credit Quality Indicators The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes commercial loans individually by classifying the loans as to credit risk. This analysis includes all commercial loans before origination and an annual review of those with an outstanding commitment greater than $ 500 thousand. The Company uses the following definitions for risk ratings: Pass . Loans classified as pass (Cash Secured, Exceptional, Acceptable, Monitor, or Pass Watch) may exhibit a wide array of characteristics but at a minimum represent an acceptable risk to the Bank. Borrowers in this rating may have leveraged but acceptable balance sheet positions, satisfactory asset quality, stable to favorable sales and earnings trends, acceptable liquidity and adequate cash flow. Loans are considered fully collectible and require an average amount of administration. While generally adhering to credit policy, these loans may exhibit occasional exceptions that do not result in undue risk to the Bank. Borrowers are generally capable of absorbing setbacks, financial and otherwise, without the threat of failure. Special Mention . Assets assigned a Special Mention grade are not considered classified assets but are considered criticized. These assets exhibit potential weaknesses that, deserve management’s close attention. If left uncorrected, those potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. Loans in this rating warrant special attention but have not yet reached the point of concern for loss. These assets have deteriorated sufficiently to the point they would have difficulty refinancing elsewhere. Similarly, purchasers of the business would not be eligible for bank financing unless they represent a significantly stronger credit risk. 19 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 – LOANS (CONTINUED) Substandard . Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful . Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable. 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 annually 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 is as follows as of September 30, 2022 and December 31, 2021: (Dollars in thousands) Pass Special Mention Substandard Doubtful Not Rated Total September 30, 2022 Commercial $ 128,121 $ 1,481 $ 4,306 $ — $ 2,067 $ 135,975 Commercial real estate 195,891 1,344 8,452 — 3,292 208,979 Construction & land development 46,770 6,229 — — 5,389 58,388 Total $ 370,782 $ 9,054 $ 12,758 $ — $ 10,748 $ 403,342 December 31, 2021 Commercial $ 114,608 $ 5,959 $ 2,203 $ — $ 1,163 $ 123,933 Commercial real estate 176,547 7,313 10,186 — 708 194,754 Construction & land development 33,205 5,439 329 — 7,069 46,042 Total $ 324,360 $ 18,711 $ 12,718 $ — $ 8,940 $ 364,729 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 or more and loans on nonaccrual of interest status. NOTE 4 – SHORT-TERM BORROWINGS The following table provides additional detail regarding repurchase agreements and the related collateral accounted for as secured borrowings. Remaining Contractual Maturity Overnight and Continuous September 30, December 31, (Dollars in thousands) 2022 2021 Securities of U.S. Government Agencies and mortgage-backed securities of government agencies pledged, fair value $ 34,431 $ 36,737 Repurchase agreements 34,199 36,530 NOTE 5 – FAIR VALUE MEASUREMENTS The Company provides disclosures about assets and liabilities carried at fair value. The framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and lowest priority to unobservable inputs. The three broad levels of the fair value hierarchy are described below: Level I: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access. 20 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Level II: Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by corroborated or other means. If the asset or liability has a specified (contractual) term, the Level II input must be observable for substantially the full term of the asset or liability. Level III: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The following table presents the assets reported on the Consolidated Balance Sheets at their fair value on a recurring basis as of September 30, 2022 and December 31, 2021 by level within the fair value hierarchy. No liabilities are carried at fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Equity securities with readily determinable values and U.S. Treasury Notes are valued at the closing price reported on the active market on which the individual securities are traded. Obligations of U.S. government agencies, mortgage-backed securities, asset-backed securities, obligations of states and political subdivisions and corporate bonds are valued at observable market data for similar assets. Equity securities without readily determinable values are carried at amortized cost adjusted for impairment and observable price changes and are not included in the table below. (Dollars in thousands) Level I Level II Level III Total September 30, 2022 Assets: Securities available-for-sale U.S. Treasury securities $ 22,181 $ — $ — $ 22,181 U.S. Government agencies — 12,591 — 12,591 Mortgage-backed securities of government agencies — 60,509 — 60,509 Asset-backed securities of government agencies — 656 — 656 State and political subdivisions — 21,412 — 21,412 Corporate bonds — 26,084 — 26,084 Total available-for-sale securities $ 22,181 $ 121,252 $ — $ 143,433 Equity securities $ 203 $ — $ — $ 203 December 31, 2021 Assets: Securities available-for-sale U.S. Treasury securities $ 4,972 $ — $ — $ 4,972 U.S. Government agencies — 13,672 — 13,672 Mortgage-backed securities of government agencies — 77,774 — 77,774 Asset-backed securities of government agencies — 753 — 753 State and political subdivisions — 23,331 — 23,331 Corporate bonds — 11,206 — 11,206 Total available-for-sale securities $ 4,972 $ 126,736 $ — $ 131,708 Equity securities $ 69 $ — $ — $ 69 There were no assets reported at fair value and recorded on a nonrecurring basis on September 30, 2022, and December 31, 2021. 21 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 6 – FAIR VALUES OF FINANCIAL INSTRUMENTS The fair values of recognized financial instruments as of September 30, 2022 and December 31, 2021 are as follows: (Dollars in thousands) Carrying Value Level I Level II Level III Fair Value September 30, 2022 Financial assets Securities held-to-maturity $ 252,362 $ 11,531 $ 203,190 $ — $ 214,721 Loans held for sale 200 205 — — 205 Net loans 602,963 — — 592,704 592,704 Mortgage servicing rights 636 — — 636 636 Financial liabilities Deposits $ 1,029,274 $ 912,971 $ — $ 112,680 $ 1,025,651 Other borrowings 2,528 — — 2,393 2,393 December 31, 2021 Financial assets Securities held-to-maturity $ 174,808 $ 12,693 $ 161,835 $ — $ 174,528 Loans held for sale 231 238 — — 238 Net loans 541,536 — — 548,317 548,317 Mortgage servicing rights 604 — — 604 604 Financial liabilities Deposits $ 1,002,747 $ 881,372 $ — $ 121,005 $ 1,002,377 Other borrowings 3,407 — — 3,431 3,431 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. The Company also has unrecognized financial instruments on September 30, 2022 and December 31, 2021. These financial instruments relate to commitments to extend credit and letters of credit. The aggregate contract amount of such financial instruments was approximately $ 267 million on September 30, 2022 and $ 248 million on December 31, 2021. Such amounts are also considered to be the fair values. The fair value estimates of financial instruments are made at a specific point in time based on relevant market information. Since no ready market exists for a significant portion of the financial instruments, fair value estimates are largely based on judgments after considering such factors as future expected credit losses, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. 22 CSB BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 7- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The following table presents the changes in accumulated other comprehensive income (loss) by component net of tax for the three and nine months ended September 30, 2022, and 2021: (Dollars in thousands) Pretax Tax Effect After-tax Three Months Ended September 30, 2022 Balance as of June 30, 2022 $ ( 12,663 ) $ 2,660 $ ( 10,003 ) Unrealized holding loss on available-for-sale securities arising during the period ( 5,189 ) 1,090 ( 4,099 ) Amortization of held-to-maturity discount resulting from transfer 64 ( 14 ) 50 Total other comprehensive loss ( 5,125 ) 1,076 ( 4,049 ) Balance, end of period $ ( 17,788 ) $ 3,736 $ ( 14,052 ) Nine Months Ended September 30, 2022 Balance, beginning of period $ ( 2,691 ) $ 566 $ ( 2,125 ) Unrealized holding loss on available-for-sale securities arising during the period ( 15,334 ) 3,220 ( 12,114 ) Amortization of held-to-maturity discount resulting from transfer 237 ( 50 ) 187 Total other comprehensive loss ( 15,097 ) 3,170 ( 11,927 ) Balance, end of period $ ( 17,788 ) $ 3,736 $ ( 14,052 ) Three Months ended June 30, 2021 Balance as of June 30, 2021 $ ( 677 ) $ 142 $ ( 535 ) Unrealized holding loss on available-for-sale securities arising during the period ( 831 ) 175 ( 656 ) Amortization of held-to-maturity discount resulting from transfer 11 ( 3 ) 8 Total other comprehensive loss ( 820 ) 172 ( 648 ) Balance, end of period $ ( 1,497 ) $ 314 $ ( 1,183 ) Nine Months Ended September 30, 2021 Balance, beginning of period $ 1,249 $ ( 263 ) $ 986 Unrealized holding loss on available-for-sale securities arising during the period ( 2,790 ) 586 ( 2,204 ) Amortization of held-to-maturity discount resulting from transfer 44 ( 9 ) 35 Total other comprehensive loss ( 2,746 ) 577 ( 2,169 ) Balance, end of period $ ( 1,497 ) $ 314 $ ( 1,183 ) 23 CSB BANCORP, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management’s discussion and analysis focuses on the consolidated financial condition of the Company on September 30, 2022 as compared to December 31, 2021, and the consolidated results of operations for the three and nine months ended September 30, 2022 compared to the same periods in 2021. The purpose of this discussion is to provide the reader with a more thorough understanding of the Consolidated Financial Statements. This discussion should be read in conjunction with the interim condensed Consolidated Financial Statements and related footnotes contained in Part I, Item 1 of this Quarterly Report. FORWARD-LOOKING STATEMENTS Certain statements contained in this Quarterly Report are not historical facts but rather are forward-looking statements that are subject to certain risks and uncertainties. When used herein, the terms “anticipates”, “plans”, “expects”, “believes”, and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company’s actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, and rapidly changing technology affecting financial services. Other factors not currently anticipated may also materially and adversely affect the Company’s results of operations, cash flows, and financial position. There can be no assurance that future results will meet expectations. While the Company believes that the forward-looking statements in this report are reasonable, the reader should not place undue reliance on any forward-looking statement. The Company does not undertake, and specifically disclaims any obligation, to publicly revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except as may be required by applicable law. FINANCIAL CONDITION Total assets increased to $1.16 billion at September 30, 2022 compared to $1.14 billion December 31, 2021. During the nine months ended September 30, 2022, securities increased $88 million, net loans increased $61 million, and cash and cash equivalents decreased $136 million. Deposits and short-term borrowings increased $24 million. Net loans increased $61 million, or 11%, as construction loans increased $12 million, or 27%, and residential real estate loans increased $22 million, or 13%, from December 31, 2021. Commercial and commercial real estate loans increased $30 million compared to December 31, 2021 including $4 million in PPP loan forgiveness from year end. PPP loans outstanding on September 30, 2022, were $392 thousand after the bank originated $129 million in PPP loans during 2020 and 2021. Consumer refinance activity slowed significantly on mortgage loans, home purchase activity remained stable despite limited inventory through the first nine months of 2022, and home equity line balances increased by $7 million. Residential mortgage loan originations for the nine months ended September 30, 2022 totaled $61 million, a decrease from $85 million in originations during the nine months ended September 30, 2021. As interest rates rose in 2022, more variable rate residential mortgage loans were originated for the portfolio, with nine-month originations of $48 million in 2022 and $38 million in 2021. Originations sold into the secondary market were $8 million and $36 million, respectively during the nine months ended September 30, 2022 and September 30, 2021. The Bank originates and sells primarily fixed rate thirty-year mortgages into the secondary market. The allowance for loan losses decreased $637 thousand from the year ago quarter to $7.0 million. The Company has not early adopted CECL which has been delayed for smaller reporting companies. Net recoveries were $285 thousand, or an annualized -0.07% of average loans, in the current nine-month period compared to net recoveries of $26 thousand, or -0.01% of average loans in the year-ago nine-month period. At September 30, 2022, the allowance for total loans was 1.15%. We believe the allowance level is appropriate given the low level of problem loans and composition of the overall loan portfolio in the current economic environment. 24 CSB BANCORP, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Non performing loans de creased $ 402 thousand to $ 6 86 thousand , or 0. 1 1 % , of total loans from $ 1.1 million, or 0. 20 %, on December 31, 202 1 . For the nine months ended September 30, 2022 , $ 82 thousand in loans were placed on n onaccrual status , $ 4 70 thousand in paydowns were received , and $ 10 thousand in personal loans were charged-off due to non-payment . September 30, December 31, September 30, (Dollars in thousands) 2022 2021 2021 Non-performing loans $ 686 $ 1,088 $ 1,320 Other real estate — — — Repossessed assets — — 33 Allowance for loan losses 7,008 7,618 7,645 Total loans $ 609,971 $ 549,154 $ 546,095 Allowance for loan losses as a percentage of total loans 1.15 % 1.39 % 1.40 % Allowance for loan losses to total nonperforming loans 10.2X 7.0X 5.8X The ratio of gross loans to deposits was 59.3% at September 30, 2022, compared to 54.8% at December 31, 2021 . The Company has no exposure to government-sponsored enterprise preferred stocks, collateralized debt obligations, or trust preferred securities. Management has considered industry analyst reports, sector credit reports, and the volatility within the bond market in concluding that the gross unrealized losses of $53.7 million within the available-for-sale and held-to-maturity portfolios as of September 30, 2022, was primarily the result of current market yields compared to the yields at the time the investments were purchased by the Company and not due to credit quality. As a result, all embedded security losses on September 30, 2022, are considered temporary and no impairment loss relating to these securities has been recognized. Deposits increased $27 million, or 3%, from December 31, 2021 with noninterest-bearing deposits increasing approximately $4 million, or 1%, and interest-bearing deposit accounts increasing approximately $23 million, or 3%. Total deposits as of September 30, 2022 are $1.03 billion, or 6%, greater than September 30, 2021 deposit balances. On a year over year comparison, increases were recognized in noninterest-bearing demand deposits of $34 million, money market accounts of $25 million, savings of $12 million, and declines in interest-bearing demand deposits of $2 million and time deposits by $8 million. Deposit growth has normalized following the Bank’s customers increasing deposits through stimulus payments and cash conservation as a result of the COVID-19 pandemic. Short-term borrowings consisting of overnight repurchase agreements with retail customers decreased $2 million, or 6%, to $34 million at September 30, 2022 as compared to December 31, 2021 and other borrowings decreased $879 thousand as the Company repaid FHLB advances. Total shareholders’ equity amounted to $92 million, or 7.9%, of total assets at September 30, 2022, a decrease of $5 million, or 5.5%, from $97 million December 31, 2021. The decrease in shareholders’ equity during the nine months ended September 30, 2022 was due to accumulated other comprehensive loss (“AOCL”) of $11.9 million, which was partially offset by net income of $9.6 million, less cash dividends of $2.6 million. Rapidly rising interest rates during 2022 have caused the AOCL to increase as AFS securities are marked to fair market value. As interest rates rise, the fair value of AFS fixed-rate securities decline with a corresponding net of tax decline recorded in the AOCL portion of equity. This unrealized loss in securities is temporary and is adjusted monthly for additional interest rate fluctuations, principal paydowns, calls, and maturities. The Company and the Bank met all regulatory capital requirements at September 30, 2022. RESULTS OF OPERATIONS Three months ended September 30, 2022, and 2021 For the quarters ended September 30, 2022 and 2021, the Company recorded net income of $3.7 million and $2.9 million and $1.35 and $1.06 per share, respectively. The $749 thousand increase in net income for the period was primarily the result of a $1.2 million increase in net interest income, offset by an increase in noninterest expenses of $232 thousand, and a decrease of $93 thousand in noninterest income. The recovery of provision for loan losses was $250 thousand in 2022 compared to $210 thousand for the three-month period in 2021, and the federal income tax provision increased $201 thousand. Return on average assets and return on average equity were 1.25% and 15.24%, respectively, for the three-month period of 2022, compared to 1.03% and 11.79%, respectively for the same quarter in 2021. 25 CSB BANCORP, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Average Balance Sheets and Net Interest Margin Analysis For the Three Months Ended September 30, 2022 2021 (Dollars in thousands) Average balance 1 Interest Average rate 2 Average balance 1 Interest Average rate 2 ASSETS Interest-earning deposits $ 101,460 $ 586 2.29 % $ 277,168 $ 114 0.16 % Taxable securities 373,290 1,780 1.89 207,459 677 1.29 Tax-exempt securities 4 24,627 139 2.24 26,377 148 2.23 Loans 3,4 594,820 6,687 4.46 545,420 6,905 5.02 Total interest-earning assets 1,094,197 9,192 3.33 % 1,056,424 7,844 2.95 % Noninterest-earning assets 65,326 59,390 TOTAL ASSETS $ 1,159,523 $ 1,115,814 LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing demand deposits $ 243,343 $ 151 0.25 % $ 253,190 $ 78 0.12 % Savings deposits 323,033 183 0.22 290,544 74 0.10 Time deposits 115,899 225 0.77 124,479 298 0.95 Borrowed funds 37,479 37 0.39 42,043 30 0.28 Total interest-bearing liabilities 719,754 596 0.33 % 710,256 480 0.27 % Noninterest-bearing demand deposits 340,576 304,196 Other liabilities 4,150 3,778 Shareholders' Equity 95,043 97,584 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,159,523 $ 1,115,814 Taxable equivalent net interest income, (Non-GAAP) $ 8,596 $ 7,364 Tax equivalent adjustment 4 (36 ) (39 ) Net interest income, (GAAP) $ 8,560 $ 7,325 Net interest margin, (GAAP) 3.10 % 2.75 % Tax equivalent adjustment 4 0.02 0.02 Net interest margin-taxable equivalent, (Non-GAAP) 3.12 % 2.77 % Taxable equivalent net interest spread 3.00 % 2.68 % 1 Average balances have been computed on an average daily basis. 2 Average rates have been computed based on the amortized cost of the corresponding asset or liability. 3 Average loan balances include nonaccrual loans. 4 Interest income is shown on a fully tax-equivalent basis, which is a Non-GAAP measure and is reconciled to the GAAP measure at the bottom of the table. Interest income for the quarter ended September 30, 2022, was $9.2 million representing a $1.4 million increase, or 17%, compared to the same period in 2021. This increase was primarily due to the additional volume and increased rates on taxable securities, as well as an increase in the rate earned on interest-earning deposits, partially offset by the decrease in loan interest rates in the comparable periods. Average loan rates decreased 56 basis points for the quarter ended September 30, 2022 as compared to the same period in 2021, primarily from PPP recognized loan fees declining from $909 thousand in 2021 to $24 thousand in 2022. Interest expense for the quarter ended September 30, 2022 was $596 thousand, an increase of $116 thousand, or 24%, from the same quarter in 2021. The increase in interest expense occurred primarily due to the increase in interest rates on savings and interest-bearing demand deposits as well as an increase in volume of savings accounts for the quarter ended September 30, 2022. 26 CSB BANCORP, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the quarter ended September 30, 2022, with improving credit quality and net loan recoveries, the bank recognized a recovery for loan losses of $250 thousand to the provision for loan losses, compared to a recovery for loan losses of $210 thousand for the same quarter in 2021. The recapture of provision for loan losses for the current quarter primarily reflects the sustained improvement in credit quality including the increase in loans graded as pass as well as a reduction of impaired loans. Economic indicators reflect improvement in residential real estate prices and low unemployment. The provision for loan losses is determined based on management’s calculation of the adequacy of the allowance for loan losses, which includes provisions for classified loans as well as for the remainder of the portfolio based on historical data, including past charge-offs and current economic trends. Noninterest income for the quarter ended September 30, 2022, was $1.7 million, a decrease of $93 thousand, or 5%, compared to the same quarter in 2021. The gain on the sale of mortgage loans into the secondary market decreased by $221 thousand, or 82%, for the quarter ended September 30, 2022 as fewer loans were sold into the secondary market due to decreasing demand for mortgage refinancing as interest rates increased and inventories of homes available for sale declined. Fees from trust and brokerage services amounted to $216 thousand for the third quarter 2022, a decrease of $36 thousand, or 14%, as compared to the same quarter in 2021. Credit card fee income increased $43 thousand, or 34%, as improvements to the card program have resulted in increased customer usage. Service charges on deposit accounts increased $71 thousand, or 28%, compared to the same quarter in 2021, primarily from increased customer overdraft fees. Debit card interchange income increased $15 thousand, or 3%, with greater fees generated from usage in the third quarter 2022 . Earnings on bank owned life insurance increased $7 thousand, or 4%, for the third quarter 2022. Noninterest expenses for the quarter ended September 30, 2022 increased $232 thousand, or 4%, compared to the third quarter 2021. Salaries and employee benefits decreased $29 thousand, or less than 1%, a result of fewer FTE’s due to open positions which was partially offset by reduced credits from loan originations compared to third quarter 2021. Occupancy and equipment expense increased $25 thousand, or 6%, in 2022 over the third quarter 2021, primarily due to increases in depreciation related to facility improvements and increased cost of building and equipment repairs and maintenance. Professional and director fees increased $375 thousand, or 208%, for the quarter ended September 30, 2022 as compared to the third quarter 2021, primarily due to consulting fees to renegotiate the renewal of the core data processing software contract, loan legal and collection expenses as compared to a recovery of loan collection expenses in 2021, and an increase in audit fees. Software expense increased $79 thousand due to additional software purchases. The Ohio Financial institutions tax increased $7 thousand, or 4%, in the third quarter due to the Company’s increased capital base . FDIC assessment amounted to $93 thousand as compared to $130 thousand in the third quarter 2021 due to improvement within nonperforming loans . Marketing and public relations expense declined $6 thousand, or 4%. Federal income tax expense increased $201 thousand, or 29%, for the quarter ended September 30, 2022 as compared to the third quarter 2021 . The provision for income taxes was $890 thousand (effective rate of 19.6%) for the quarter ended September 30, 2022, compared to $689 thousand (effective rate of 19.2%) for the same quarter ended 2021. RESULTS OF OPERATIONS Nine months ended September 30, 2022, and 2021 For the nine months ended September 30, 2022, and 2021, the Company recorded net income of $9.6 million and $8.5 million and $3.52 and $3.12 per share, respectively. The $1.0 million increase in net income for the nine-month period was primarily the result of an increase in net interest income of $2.3 million, which was partially offset by a reduction in noninterest income of $390 thousand and an increase in noninterest expenses of $803 thousand. A negative loan loss provision of $895 thousand for the period as compared to a smaller negative loss provision of $655 thousand for the same period in 2021 also contributed to increased net income for the nine months. The federal income tax provision was $269 thousand higher during the nine-month period in 2022. Return on average assets and return on average equity were 1.12% and 13.41%, respectively, for the nine months ended September 30, 2022, compared to 1.03% and 11.91%, respectively for the same period in 2021. 27 CSB BANCORP, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Nine Months Ended September 30, 2022 2021 (Dollars in thousands) Average balance 1 Interest Average rate 2 Average balance 1 Interest Average rate 2 ASSETS Interest-earning deposits in other banks 119,373 863 0.97 % 257,590 228 0.12 % Taxable securities 360,774 4,721 1.75 192,528 1,840 1.28 Tax-exempt securities 4 24,705 416 2.25 26,284 429 2.18 Loans 3,4 576,821 18,510 4.29 568,726 20,018 4.71 Total earning assets 1,081,673 24,510 3.03 % 1,045,128 22,515 2.88 % Other assets 63,217 57,579 TOTAL ASSETS $ 1,144,890 $ 1,102,707 LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing demand deposits $ 239,679 $ 257 0.14 % $ 262,213 $ 258 0.13 % Savings deposits 313,172 325 0.14 276,808 214 0.10 Time deposits 117,999 670 0.76 123,886 1,024 1.11 Other borrowed funds 41,032 94 0.31 43,432 100 0.31 Total interest bearing liabilities 711,882 1,346 0.25 % 706,339 1,596 0.30 % Non-interest bearing demand deposits 333,715 296,789 Other liabilities 3,956 3,803 Shareholders' Equity 95,337 95,776 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,144,890 $ 1,102,707 Taxable equivalent net interest income, (Non-GAAP) $ 23,164 $ 20,919 Tax equivalent adjustment 4 (109 ) (115 ) Net interest income, (GAAP) $ 23,055 $ 20,804 Net interest margin, (GAAP) 2.85 % 2.66 % Tax equivalent adjustment 4 0.01 0.02 Net interest margin-taxable equivalent, (Non-GAAP) 2.86 % 2.68 % Taxable equivalent net interest spread 2.78 % 2.58 % 28 CSB BANCORP, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Interest income for the nine months ended September 30, 2022, was $24.4 million representing a $2.0 million thousand increase, or 9%, compared to the same period in 2021. This increase was primarily due to volume and yield increases on taxable securities, yield increases on overnight deposits in other banks, and volume increases in average loan balances for the period ended September 30, 2022, as compared to the same period in 2021 . Offsetting these increases was a yield decrease on loans, primarily from PPP fees declining from $2.4 million in 2021 to $173 thousand in 2022. Year-to-date average PPP loan balances decreased from $26 million on September 30, 2021, to $1.8 million on September 30, 2022 , as loans were forgiven by the SBA. Interest expense for the nine months ended September 30, 2022, was $1.3 million, a decrease of $250 thousand, or 16%, from the same period in 2021. The decrease in interest expense occurred primarily due to a decrease in rates on time deposits for the nine months ended September 30, 2022, partially offset by an increase in the average balances and rates on savings deposits in 2022. For the nine months ended September 30, 2022, the provision for loan losses was a credit (reversal) of provision of $895 thousand, compared to a smaller credit provision of $655 thousand for the same period in 2021. For more discussion see Results of Operations, three months. The provision for loan losses is determined based on management’s calculation of the adequacy of the allowance for loan losses, which includes provisions for classified loans as well as for the remainder of the portfolio based on historical data, including past charge-offs and current economic trends. Noninterest income for the nine months ended September 30, 2022, was $5.1 million, a decrease of $390 thousand, or 7%, compared to the same period in 2021. The gain on the sale of mortgage loans to the secondary market decreased $860 thousand, or 73%, to $314 thousand for the nine months ended September 30, 2022, as increases in interest rates slowed mortgage loan refinancing. Debit card interchange income increased $56 thousand, or 4%. Earnings on bank owned life insurance policies increased $47 thousand, or 10%, for the period. Service charges on deposit accounts increased $199 thousand, or 29%, compared to the same period in 2021 primarily from increases in overdraft fees, as well as increases in business service charges on deposit accounts. Credit card fee income increased $175 thousand, or 51% with growth in business credit card customers and interchange income. Fees from trust and brokerage services decreased $65 thousand for the period. Noninterest expenses for the nine months ended September 30, 2022, increased $803 thousand, or 5%, compared to the same period in 2021. Salaries and employee benefits increased $465 thousand, or 5%, a result of increased salaries, with additions to lending staff, and reduced credits on deferred loan costs with less volume originated in commercial and mortgage loans. Occupancy and equipment expenses increased $134 thousand over the same period in 2021 with an increase in depreciation and maintenance expense. Professional and director fees increased $330 thousand, or 40%, for the nine months ended September 30, 2022, as compared to the same period in 2021, see three months ended results of operation. Software expense rose, $102 thousand, or 11%, with the addition of software. Marketing and public relations expense increased $38 thousand, or 12%, with marketing, brand recognition initiatives, and community support in the company’s market slowly increasing in volume due to increasing opportunities presenting after previous cancellations due to COVID-19. Federal income tax expense increased $269 thousand, or 13%, for the nine months ended September 30, 2022, as compared to the same period in 2021. The provision for income taxes was $2.3 million (effective rate of 19.4%) for the nine months ended September 30, 2022, compared to $2.0 million (effective rate of 19.2%) for the same period ended 2021. CAPITAL RESOURCES The Company maintained a strong capital position with tangible common equity to tangible assets of 7.5% at September 30, 2022 compared with 8.1% at December 31, 2021. Consistent with the Board of Director’s commitment to public confidence and safe and sound banking operations, capital targets and minimum risk-based capital ratios for CSB were established to maintain excess capital to well-capitalized standards. To be considered well-capitalized, an institution must have a total risk-based capital ratio of at least 10%, a tier 1 capital ratio of at least 8%, a leverage capital ratio of at least 5%, a 29 CSB BANCORP, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS common equity tier 1 (“ CET1 ”) ratio of at least 6.5% and must not be subject to any order or directive requiring the institution to improve its capital level. An adequately capitalized institution has a total risk-based capital ratio of at least 8%, a tier 1 capital ratio of at least 6%, a CET1 ratio of at least 4.5%, and a leverage ratio of at least 4%. Failure to meet specified minimum capital requirements could result in regulatory actions by the Federal Reserve or Ohio Division of Financial Institutions that could have a material effect on the Company’s financial condition or results of operations. Management believes there were no material changes to capital resources as presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. As of September 30, 2022, the Company and the Bank met all capital adequacy requirements to which they were subject. Capital Ratios September 30, 2022 December 31, 2021 Common Equity Tier 1 Capital To Risk Weighted Assets Consolidated 14.6 % 16.3 % Bank 14.5 % 16.0 % Tier 1 Capital To Risk Weighted Assets Ratio Consolidated 14.6 % 16.3 % Bank 14.5 % 16.0 % Total Capital To Risk Weighted Assets Ratio Consolidated 15.7 % 17.5 % Bank 15.5 % 17.3 % Tier 1 Leverage Ratio Consolidated 8.7 % 8.3 % Bank 8.6 % 8.2 % LIQUIDITY (Dollars in thousands) September 30, 2022 December 31, 2021 Change Cash and cash equivalents $ 107,516 $ 243,657 $ (136,141 ) Available from FHLB 115,780 107,054 8,726 Unpledged AFS securities at fair market value 123,600 108,158 15,442 $ 346,896 $ 458,869 $ (111,973 ) Net deposits and short-term liabilities $ 1,044,431 $ 1,016,821 $ 27,610 Liquidity ratio 33.2 % 45.1 % (11.9 ) % Minimum board approved liquidity ratio 20.0 20.0 Liquidity refers to the Company’s ability to generate sufficient cash to fund current loan demand, meet deposit withdrawals, pay operating expenses, and meet other obligations. Liquidity is monitored by the Company’s Asset Liability Committee. Other sources of liquidity include, but are not limited to, purchases of federal funds, advances from the FHLB, adjustments of interest rates to attract deposits, brokered deposits, and borrowing at the Federal Reserve discount window. Management believes that its sources of liquidity are adequate to meet cash flow obligations for the foreseeable future. Off-Balance Sheet Arrangements The Company does not have any off-balance sheet arrangements (as such term is defined in applicable Securities and Exchange Commission (the “Commission”) rules) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources. 30 CSB BANCORP, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PER SHARE DATA Earnings per share is computed based on the weighted average number of shares of common stock outstanding during each year. The company currently maintains a simple capital structure, thus, there are no dilutive effects on earnings per share. The weighted average number of common shares outstanding for earnings per share computations was as follows: Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands, except per share data) 2022 2021 2022 2021 Basic Earnings Per Share Net income $ 3,650 $ 2,901 $ 9,560 $ 8,531 Weighted average common shares 2,712,686 2,729,410 2,716,225 2,737,336 Basic Earnings Per Share 1.35 1.06 3.52 3.12 Diluted Earnings Per Share Net income $ 3,650 $ 2,901 $ 9,560 $ 8,531 Weighted average common shares 2,712,686 2,729,410 2,716,225 2,737,336 Diluted Earnings Per Share 1.35 1.06 3.52 3.12 31 CSB BANCORP, INC. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK By September 2022, Ohio’s unemployment rate approximated 3.8%. The bank is based in Holmes County which is reporting an unemployment rate of 2.5% in September 2022. Of the counties within the bank’s footprint, Stark County reported the highest unemployment rate at 3.7% in September. Many jobs within the Bank’s market footprint are going unfilled. The rising rate of inflation, which stood at 8.2% in September 2022, has become persistent and market interest rates have risen substantially during the first nine months of the year. Credit quality in the Bank’s loan portfolio has continued to improve, however risks to the economy remain with higher prices for goods and labor. Management performs a quarterly analysis of the Company’s interest rate risk over a twenty-four-month horizon. The analysis includes two balance sheet models, one based on a static balance sheet and one on a dynamic balance sheet with projected growth in assets and liabilities. All balance sheet positions, and interest rate projections are currently within the Company’s board-approved policy for both the twelve- month and twenty-four-month periods. The following table presents an analysis of the estimated sensitivity of the Company’s annual net interest income to sudden and sustained -200 through +400 basis point changes, in 100 basis point increments, in market interest rates at September 30, 2022 and December 31, 2021. The net interest income reflected is for the first twelve-month period of the modeled twenty-four-month horizon. The underlying balance sheet for illustrative purposes is dynamic with projected growth in assets and liabilities. September 30, 2022 (Dollars in thousands) Change in Interest Rates (basis points) Net Interest Income Dollar Change Percentage Change Board Policy Limits +400 $ 40,123 $ 1,190 3.1 % +/- 25 % +300 39,812 879 2.3 +/-15 +200 39,525 592 1.5 +/-10 +100 39,210 277 0.7 +/-5 0 38,933 — — — -100 38,496 (437 ) (1.1 ) +/-5 -200 37,711 (1,222 ) (3.1 ) +/-10 -300 36,633 (2,300 ) (5.9 ) +/-15 December 31, 2021 +400 $ 28,632 $ 1,499 5.5 % +/- 25 % +300 28,283 1,150 4.2 +/-15 +200 27,924 791 2.9 +/-10 +100 27,523 390 1.4 +/-5 0 27,133 — — — -100 26,504 (629 ) (2.3 ) +/-5 -200 25,714 (1,419 ) (5.2 ) +/-10 32 CSB BANCORP, INC. CONTROLS AND PROCEDURES ITEM 4 - CONTROLS AND PROCEDURES With the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that: (a) information required to be disclosed by the Company in this Quarterly Report on Form 10-Q would be accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure; (b) information required to be disclosed by the Company in this Quarterly Report on Form 10-Q would be recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms; and (c) the Company’s disclosure controls and procedures are effective as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that material information relating to the Company and its consolidated subsidiary is made known to them, particularly during the period for which the Company’s periodic reports, including this Quarterly Report on Form 10-Q, are being prepared. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There were no changes during the period covered by this Quarterly Report on Form 10-Q in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 33 CSB BANCORP, INC. FORM 10-Q Quarter ended September 30, 2022 PART II – OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS. In the opinion of management there are no outstanding legal proceedings that are reasonably likely to have a material adverse effect on the company’s financial condition or results of operations. ITEM 1A - RISK FACTORS. Not required for Smaller Reporting Companies. ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. (a) Not applicable (b) Not applicable (c) The following table provides information about repurchases of common stock by the Company during the quarter ended September 30, 2022: Period Total Number of Common Shares Purchased Average Price Paid per Common Share Total Number of Shares Purchased as Part of Publicly Announced Authorization Maximum Number of Remaining Shares that May be Purchased as Part of Publicly Announced Authorization July 1, 2022 - July 31, 2022 — — — 112,791 August 1, 2022 - August 31, 2022 10,448 $ 37.15 — 102,343 September 1, 2022 - September 30, 2022 — — — 102,343 Total for quarter 10,448 $ 37.15 — 102,343 On March 2, 2021, CSB Bancorp, Inc. filed Form 8-K with the Commission announcing that its Board of Directors approved a Stock Repurchase Program authorizing the repurchase of up to 5% of the Company’s common shares or 137,117 of the Company’s outstanding shares. Repurchases may be made from time to time as market and business conditions warrant, in the open market, through block purchases, and in negotiated private transactions. The Company repurchased no shares under the repurchase authorization during the quarterly period ended September 30, 2022. ITEM 3 - DEFAULTS UPON SENIOR SECURITIES. Not applicable. ITEM 4 - MINE SAFETY DISCLOSURES. Not applicable. ITEM 5 - OTHER INFORMATION. Not applicable. 34 CSB BANCORP, INC. FORM 10-Q Quarter ended September 30, 2022 PART II – OTHER INFORMATION ITEM 6 - Exhibits. Exhibit Number Description of Document 3.1 Amended Articles of Incorporation of CSB Bancorp, Inc. (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed August 6, 2004, Exhibit 3.1, film number 000-21714). 3.1.1 Amended form of Article Fourth of Amended Articles of Incorporation, as effective April 9, 1998 (incorporated by reference to registrant’s Annual Report on Form 10-K filed on March 30, 1999, Exhibit 3.1.1, file number 000-21714) . 3.2 Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to the Registrant’s Form 10-SB). 3.2.1 Amended Article VIII of the Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to Registrant’s Form DEF 14a filed on March 25, 2009, Appendix A, film number 09703970). 3.2.2 Amended Article II of the Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to Registrant’s Form DEF 14a file on March 16, 2021, Appendix A, file number 000-21714 . 4.0 Description of Capital Stock (incorporated by reference to registrants Annual Report on Form 10-K filed on March 16, 2020, Exhibit 4.0, file number 000-21714). 31.1 Rule 13a-14(a)/15d-14(a) Chief Executive Officer’s Certification. 31.2 Rule 13a-14(a)/15d-14(a) Chief Financial Officer’s Certification. 32.1 Section 1350 Chief Executive Officer’s Certification. 32.2 Section 1350 Chief Financial Officer’s Certification. 101 The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Net Loss and Comprehensive Loss , (iii) Consolidated Statements of Stockholders' Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags . 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). 35 CSB BANCORP, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CSB BANCORP, INC. (Registrant) Date: November 9, 2022 /s/ Eddie L. Steiner Eddie L. Steiner President Chief Executive Officer Date: November 9, 2022 /s/ Paula J. Meiler Paula J. Meiler Senior Vice President Chief Financial Officer 36