CSB Bancorp, Inc. Reports Third Quarter Earnings

CSB Bancorp, Inc. (OTC Pink: CSBB):

Third Quarter Highlights

CSB Bancorp, Inc. (OTC Pink: CSBB) today announced third quarter 2021 net income of $2,901,000, or $1.06 per basic and diluted share, as compared to $2,800,000, or $1.02 per basic and diluted share, for the same period in 2020. Income before federal income tax amounted to $3,590,000, an increase of 3% over the same quarter in the prior year. For the nine-month period ended September 30, 2021, net income totaled $8,531,000 compared to $7,889,000 for the same period last year, an increase of 8%.

Annualized returns on average common equity (“ROE”) and average assets (“ROA”) for the quarter were 11.79% and 1.03%, respectively, compared with 12.19% and 1.14% for the third quarter of 2020.

Eddie Steiner, President and CEO stated, “Economic recovery from the COVID-19 pandemic continues, aided by significant levels of remaining liquidity from government stimulus. Almost 90% of the Paycheck Protection Program (“PPP”) loan balances we facilitated have received SBA forgiveness, and we expect the majority of remaining balances will also be forgiven. Organic loan demand has not rebounded to pre-pandemic levels, as borrower liquidity, uncertainty about the pace of recovery, supply chain disruptions, and waning refinance advantages are all affecting borrower appetite. The Federal Reserve has signaled it may begin tapering its large-scale purchases of treasuries and mortgage-backed securities before year-end, and the potential for short-term rates beginning to rise by the end of 2022. The job market remains strong in many sectors, with worker shortages and significant worker mobility widely reported.”

Net interest income and noninterest income totaled $9.1 million during the quarter, an increase of $190 thousand from the prior-year third quarter. Net interest income increased $284 thousand, or 4%, in the third quarter of 2021 compared to the same period in 2020.

Loan interest income including fees decreased $293 thousand, or 4%, during third quarter 2021 as compared to the same quarter in 2020. The decrease was mainly due to average total loan balances declining $90 million below the year ago quarter including average Paycheck Protection Program loans (“PPP”) declining $66 million from the prior year quarter. Loan yields for third quarter 2021 averaged 5.02%, an increase of 51 basis points from the 2020 third quarter average of 4.51%, The loan yield increase partially resulted from interest recovery on pay-offs of nonaccrual loans during the third quarter 2021 as related loan interest of $363 thousand was recognized compared to $21 thousand during the comparable third quarter 2020. Recognition of PPP loan interest and fee income was $125 thousand greater during the third quarter 2021 as compared to the prior year quarter.

The net interest margin was 2.77% compared to 3.04% for third quarter 2020. As discussed above, loan volume declined, offset with the positive impact from loan yield, volume increases within the securities account, and cost decreases on liabilities. Liquidity continues to affect the margin as the growth of lower yielding average overnight funds rose $104 million during the quarter over prior year quarter. The tax equivalency effect on the margin was 0.02% in the comparable third quarters.

With the decrease in outstanding loan balances and continuing improvement in credit quality, a reversal of $210 thousand was recognized to the provision for loan losses for the quarter ended September 30, 2021, as compared to $377 thousand loss provision for the prior year third quarter when the effect of Covid on future credit losses was not discernable. COVID factors have not significantly affected the Bank’s loan portfolio quality to date, and local businesses are beginning or restarting construction projects previously sidelined by a significant degree of COVID-related uncertainty.

Noninterest income decreased 5%, compared to third quarter of 2020. The decrease was primarily the result of a 52% decline in gain on sale of mortgages to the secondary market, as refinancing of mortgages slowed and home purchases were limited by a lack of housing inventory for sale. Offsetting increases were recognized in increases in debit and credit card fee income, earnings from bank owned life insurance values, and brokerage and trust income.

Noninterest expense increased 13% from third quarter 2020. Salary and employee benefit costs increased $269 thousand, or 9%, compared to the prior year quarter, primarily resulting from increases in base compensation and volume-based commissions. The provision for unfunded loan commitments increased $193 thousand compared to the prior year quarter primarily due to unfunded commercial loan construction commitments in the senior/assisted living sector of $5.2 million at September 30, 2021. Marketing and public relations increased by $51 thousand, or 53%, reflecting a return to normalized levels after the pandemic-related curtailment of activities in 2020. Software expense increased by $49 thousand, or 18%, reflecting investment in new platforms. FDIC insurance expense increased $39 thousand as the prior year quarter reflected the use of Small Bank Assessment Credits. Professional and directors’ fees decreased $52 thousand, or 22%, primarily reflecting a recovery of legal and collection costs, as a long-standing nonperforming collateral dependent loan exited the bank. The Company’s third quarter efficiency ratio increased to 62.5% compared to 56.3%.

Federal income tax expense totaled $689 thousand in third quarter 2021, as compared to $676 thousand tax expense for the same quarter in 2020. The effective tax rate approximated 19% in both periods.

Average total assets during the quarter rose to $1.12 billion, an increase of $136 million, or 14%, above the same quarter of the prior year. Liquidity increased as the Company’s average interest-bearing balances with banks increased $104 million, to $277 million, as compared to the third quarter in 2020. Average loan balances of $545 million decreased $90 million, or 14%, from the prior year third quarter while average securities balances of $234 million increased $115 million, or 98%, as compared to third quarter 2020.

Average commercial loan balances for the quarter, including commercial real estate, decreased $78 million, or 18%, from prior year levels. Excluding a $66 million decrease in average PPP loan balances, commercial loans decreased $12 million year over year as borrowers reduced outstanding commercial balances and delayed further borrowings, partially through use of stimulus monies. Average residential mortgage balances decreased $1 million, or 1%, below the prior year’s quarter, while home equity lines of credit decreased $7 million from the prior year’s quarter as balances were paid down or refinanced into low-rate term mortgages. Average consumer credit balances decreased $2 million, or 11%, versus the same quarter of the prior year. Increased organic loan demand continues to be largely dependent on the pace at which excess liquidity is absorbed by businesses and households and restoration of borrower confidence as pandemic uncertainty diminishes.

Nonperforming assets decreased $2.8 million from September 30, 2020 to $1.3 million, or 0.24%, of total loans plus other real estate on September 30, 2021. Delinquent loan balances as of September 30, 2021 decreased to 0.30% of total loans as compared to 0.71% on September 30, 2020.

Net loan charge-offs recognized during third quarter 2021 were $20 thousand, or 0.01% annualized, compared to third quarter 2020 net loan recoveries of $143 thousand. The allowance for loan losses amounted to 1.40% of total loans on September 30, 2021 as compared to 1.33% on September 30, 2020.

Average deposit balances grew on a quarter over prior year quarter comparison by $139 million, or 17%. For the third quarter 2021, the average cost of deposits amounted to 0.18%, as compared to 0.30% for the third quarter 2020. During the third quarter 2021, increases in average deposit balances over the prior year quarter included noninterest-bearing demand accounts of $51 million and interest-bearing demand and savings accounts of $88 million, while time deposits decreased less than $1 million. The average balance of securities sold under repurchase agreement during the third quarter of 2021 decreased by $3 million, or 7%, compared to the average for the same period in the prior year.

Shareholders’ equity totaled $97.1 million on September 30, 2021 with 2.7 million common shares outstanding. The average equity to assets ratio amounted to 8.75% on September 30, 2021 and 9.33% on September 30, 2020. The Company declared a third quarter dividend of $0.31 per share, producing an annualized yield of 3.2% based on the September 30, 2021 closing price of $39.25.

Cares Act and related events

A third major stimulus bill was signed into law on March 11, 2021 adding additional emergency relief to the March 2020 Cares Act and to the Consolidated Appropriations Act, 2021. The American Rescue Plan Act of 2021 also expanded eligibility and added an additional $7 billion in funds to the SBA’s PPP emergency relief programs.

CSB facilitated and funded $129 million of these government assistance loans in 2020 and 2021. As of September 30, 2021, $112 million has been received from the SBA in forgiveness. and approximately $620 thousand remains in unearned fees.

During 2020, the Company also extended loan modifications to qualifying commercial and consumer loan customers to deal with the uncertainty of the economy. Customers could request relief from their total payment or place their obligation on interest-only for a period of 3-4 months, with maturities extended on these modified loans. All loans granted relief during 2020 and 2021 have entered repayment.

About CSB Bancorp, Inc.

CSB is a financial holding company headquartered in Millersburg, Ohio, with approximate assets of $1.1 billion as of September 30, 2021. CSB provides a complete range of banking and other financial services to consumers and businesses through its wholly owned subsidiary, The Commercial and Savings Bank, with sixteen banking centers in Holmes, Wayne, Tuscarawas, and Stark counties and Trust offices located in Millersburg, North Canton, and Wooster, Ohio.

Forward-Looking Statement

This release contains forward-looking statements relating to present or future trends or factors affecting the banking industry, and specifically the financial condition and results of operations, including without limitation, statements relating to the earnings outlook of the Company, as well as its operations, markets, and products. Actual results could differ materially from those indicated. Among the important factors that could cause results to differ materially are interest rate changes, softening in the economy, which could materially impact credit quality trends and the ability to generate loans, changes in the mix of the Company’s business, competitive pressures, changes in accounting, tax or regulatory practices or requirements and those risk factors detailed in the Company’s periodic reports and registration statements filed with the Securities and Exchange Commission. The Company undertakes no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this release.

NOTES:

(a) - Net Interest income on a fully tax-equivalent ("FTE") basis restates interest on tax-exempt securities and loans as if such interest were subject to federal income tax at the statutory rate. Net interest income on an FTE basis differs from net interest income under U.S. generally accepted accounting principles.

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