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 2022 net income of $3,650,000, or $1.35 per basic and diluted share, as compared to $2,901,000, or $1.06 per basic and diluted share, for the same period in 2021. Income before federal income tax amounted to $4,540,000, an increase of 26% over the same quarter in the prior year. For the nine month period ended September 30, 2022, net income totaled $9,560,000 compared to $8,531,000 for the same period last year, an increase of 12%.

Annualized returns on average common equity (“ROE”) and average assets (“ROA”) for the quarter were 15.24% and 1.25%, respectively, compared with 11.79% and 1.03% for the third quarter of 2021. For the nine month period ended September 30, 2022, ROE and ROA equated to 13.41% and 1.12%, as compared to 11.91% and 1.03% for the comparable period in 2021.

Eddie Steiner, President, and CEO stated, “Sustained high inflation has become public enemy number one in the national and global economy. Surveys show business confidence is at its lowest level since 2009, while consumer confidence has dropped to forty year lows. The Federal Reserve has accelerated its aggressive rate hike cycle with three increases of ¾% between June 15 and September 21. Another two similar hikes are expected by the end of the year, driving U.S. Prime rate to somewhere around 7.75%. Residential mortgage activity has slowed nationally and locally to half its year ago pace. Home construction in our market is still relatively strong although increased building costs are curtailing some construction and design decisions. Business loan demand is uneven, with significant construction and equipment projects continuing while at the same time many businesses are trying to conserve cash until pricing pressures and supply chain issues abate and the economic outlook stabilizes. U.S. layoff announcements are becoming more frequent, particularly at large companies and early stage development firms. Various sources of liquidity and capital funding appear to have entered a tightening phase. The probability of a recession within the next year has become more likely.”

Net interest income and noninterest income totaled $10.2 million during the quarter, an increase of $1.1 million, or 13%, from the prior year third quarter. Net interest income increased $1.2 million, or 17%, in the third quarter of 2022 compared to the same period in 2021.

Interest income on securities and overnight funds rose $1.6 million during third quarter 2022, as compared to third quarter 2021, primarily due to volume and rate increases in securities, and rate increases in overnight funds. Loan interest income including fees decreased $217 thousand, or 3%, during third quarter 2022 as compared to the same quarter in 2021. Loan yields for third quarter 2022 averaged 4.46%, a decrease of 56 basis points (“bps”) from the 2021 third quarter average of 5.02%. Average Paycheck Protection Program loans (“PPP”) declined $25 million from the prior year quarter. PPP loan interest and fees contributed 2 bps to the third quarter 2022 loan yield while contributing approximately 71 bps to the prior year’s third quarter. PPP loan fees recognized as interest income declined $883 thousand in third quarter 2022 compared to third quarter 2021.

The tax equivalent net interest margin was 3.12% compared to 2.87% for the linked second quarter 2022 and 2.77% for third quarter 2021.

With continuing improvement in credit quality and a small third quarter charge-off, a $250 thousand negative provision for loan losses was recognized for the quarter ended September 30, 2022, as compared to $210 thousand negative provision for the prior year third quarter. 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% during third quarter 2022, compared to third quarter of 2021. The decrease was primarily the result of a $221 thousand, or 82%, decline in gain on sale of mortgages to the secondary market, as mortgage rates rose, refinancing of mortgages slowed, and home purchases were limited by a lack of housing inventory for sale. Offsetting increases were recognized in service charges on deposit accounts, debit and credit card fee income, and earnings from bank owned life insurance values.

Noninterest expense increased 4% from third quarter 2021. Salary and employee benefit costs decreased $29 thousand, or 1%, compared to the prior year quarter, primarily resulting from decreases in compensation and benefits from fewer FTEs, partially offset by reduced credits from loan originations recognized in 2021. Professional and directors’ fees increased $375 thousand, primarily reflecting a consulting fee to renegotiate the core data processing software contract. Software expense increased $79 thousand related to additional software purchases. Telephone expense decreased $47 thousand compared to the prior year quarter due to a renegotiation of data lines. FDIC insurance expense decreased $37 thousand from the prior year quarter. The Company’s third quarter efficiency ratio decreased to 57.9% from 62.5%.

Federal income tax expense totaled $890 thousand in third quarter 2022, as compared to $689 thousand tax expense for the same quarter in 2021. The effective tax rate approximated 19% in both periods.

Average total assets during the quarter rose to $1.16 billion, an increase of $44 million, or 4%, above the same quarter of the prior year. Average securities balances of $398 million increased $164 million, or 70%, as compared to third quarter 2021, while average loan balances of $595 million increased $50 million, or 9%, from the prior year third quarter.

Average commercial loan balances for the quarter, including commercial real estate, increased $35 million, or 10%, from prior year levels. Excluding a $25 million decrease in average PPP loan balances, commercial loans increased $60 million year over year as construction loans were drawn and borrowers used term loans to fund equipment and other purchases. Average residential mortgage balances increased $9 million, or 7%, above the prior year’s quarter while home equity lines of credit increased $5 million from the prior year’s quarter with new originations and line draws. Average consumer credit balances decreased $1 million, or 5%, versus the same quarter of the prior year. Organic loan demand is being held somewhat in check by conservation of liquidity while borrowers try to outwait the peak of higher interest rates and any slowdown to come.

Nonperforming assets decreased from $1.3 million on September 30, 2021, to $685 thousand, or 0.11%, of total loans plus other real estate on September 30, 2022. Delinquent loan balances as of September 30, 2022, decreased to 0.26% of total loans as compared to 0.30% on September 30, 2021.

Net loan charge-offs recognized during third quarter 2022 were $10 thousand, or 0.01% annualized, compared to third quarter 2021 net loan charge-offs of $20 thousand. The allowance for loan losses amounted to 1.15% of total loans on September 30, 2022, as compared to 1.40% on September 30, 2021.

Average deposit balances grew on a quarter over prior year quarter comparison by $50 million, or 5%. For the third quarter 2022, the average cost of deposits amounted to 0.22%, as compared to 0.18% for the third quarter 2021. We expect the average cost of deposits to continue rising in the next several quarters. During third quarter 2022, increases in average deposit balances over the prior year quarter included noninterest-bearing demand accounts of $37 million and savings accounts of $32 million, while interest-bearing demand accounts decreased $10 million and time deposits decreased $9 million. The average balance of securities sold under repurchase agreement during the third quarter of 2022 decreased by $4 million, or 4%, compared to the average for the same period in the prior year.

Shareholders’ equity totaled $92 million at September 30, 2022, reflecting a decrease of $5.3 million, or 5.5%, relative to year-end 2021. The decrease in equity was due to a $12 million decrease in accumulated other comprehensive income related to the unrealized losses in available for sale securities and the payment of $2.6 million in dividends, partially offset by $9.6 million in net income. The average equity to assets ratio amounted to 8.20% on September 30, 2022, and 8.75% on September 30, 2021. The Company declared a quarterly dividend of $0.33 per share on August 3, 2022, payable September 20, 2022, producing an annualized yield of 3.4% based on the September 30, 2022, closing price of $39.00.

About CSB Bancorp, Inc.

CSB is a financial holding company headquartered in Millersburg, Ohio, with approximate assets of $1.2 billion as of September 30, 2022. 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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