CSB BANCORP INC. 2022 FINANCIAL REVIEW
INTRODUCTION
CSB Bancorp, Inc. (the "Company" or "CSB") was incorporated under the laws of theState of Ohio in 1991 and is a registered financial holding company. The Company's wholly owned subsidiaries areThe Commercial andSavings Bank (the "Bank") andCSB Investment Services, LLC . The Bank is chartered under the laws of theState of Ohio and was organized in 1879. The Bank is a member of theFederal Reserve System , with deposits insured by theFederal Deposit Insurance Corporation , and its primary regulators are theOhio Division of Financial Institutions and theFederal Reserve Board . The Company, through the Bank, provides retail and commercial banking services to its customers including checking and savings accounts, time deposits, cash management, safe deposit facilities, commercial loans, real estate mortgage loans, consumer loans, IRAs, night depository facilities, and trust and brokerage services. Its customers are located primarily inHolmes ,Stark ,Tuscarawas ,Wayne , and portions of surrounding counties inOhio . Economic activity in the Company's market area declined moderately in the fourth quarter of 2022 after solid growth earlier in the year stemming from a continued recovery following the COVID-19 pandemic economic effects of 2020. Demand for goods and services slowed during the fourth quarter 2022 with households spending more on necessities and less on discretionary items. Supply chain challenges improved during the year. Consumer spending has softened due to inflation pressures and increased interest rates. Reported unemployment levels inDecember 2022 ranged from 2.9% to 4.0% in the four primary counties served by the Company. These levels increased from theDecember 2021 range of 2.0% to 3.5% in the four counties served by the Company. Labor demand remained solid as competition for workers has put upward pressure on labor costs. The local housing market continues to be strong with extremely low inventory levels. Residential construction has declined year over year with higher interest rates as the main factor reducing demand. FORWARD-LOOKING STATEMENTS Certain statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations are not related to historical results but are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks and uncertainties. Any forward-looking statements made by the Company herein and in future reports and statements are not guarantees of future performance. Actual results may differ materially from those in forward-looking statements because of various risk factors as discussed in this annual report. The Company does not undertake, and specifically disclaims, any obligation to publicly release the result of any revisions to any forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date of such statements. 15
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FINANCIAL DATA
The following table set forth certain selected consolidated financial information:
(Dollars in thousands, except per share data) 2022 2021 2020 2019 2018 Statements of income: Total interest income$ 34,819 $ 29,529 $ 31,066 $ 32,461 $ 29,637 Total interest expense 2,496 2,012 2,913 4,062 2,886 Net interest income 32,323 27,517 28,153 28,399 26,751 Provision (recovery) for loan losses (895 ) (655 ) 1,650 1,140 1,316 Net interest income after provision (recovery) for loan losses 33,218 28,172 26,503 27,259 25,435 Noninterest income 6,711 7,325 6,935 5,428 4,758 Noninterest expense 23,393 22,093 20,342 19,769 18,518 Income before income taxes 16,536 13,404 13,096 12,918 11,675 Income tax provision 3,223 2,567 2,528 2,504 2,263 Net income$ 13,313 $ 10,837 $ 10,568 $ 10,414 $ 9,412 Per share of common stock: Basic earnings per share$ 4.91 $ 3.97 $ 3.85 $ 3.80 $ 3.43 Diluted earnings per share 4.91 3.97 3.85 3.80 3.43 Dividends 1.30 1.22 1.13 1.08 0.98 Book value 35.43 35.80 34.23 31.17 27.91 Average basic common shares outstanding 2,714,045 2,733,126 2,742,350 2,742,296 2,742,242 Average diluted common shares outstanding 2,714,045 2,733,126 2,742,350 2,742,296 2,742,242 Year-end balances: Loans, net$ 620,333 $ 541,536 $ 600,885 $ 544,616 $ 543,067 Securities 401,144 311,245 204,184 130,721 110,913 Total assets 1,159,108 1,144,239 1,031,632 818,683 731,722 Deposits 1,023,417 1,002,747 891,562 683,546 606,498 Borrowings 35,011 39,937 41,879 45,219 45,940 Shareholders' equity 95,920 97,315 93,859 85,476 76,536 Average balances: Loans, net$ 580,454 $ 554,547 $ 601,419 $ 545,483 $ 529,522 Securities 388,827 231,285 129,508 112,290 118,511 Total assets 1,151,925 1,111,808 931,330 765,722 716,243 Deposits 1,012,629 969,009 788,904 636,441 589,646 Borrowings 40,218 42,600 48,358 44,478 51,014 Shareholders' equity 94,850 96,145 90,247 81,548 73,002 Select ratios: Net interest margin, FTE basis1 2.98 % 2.63 % 3.22 % 3.97 % 3.98 % Return on average total assets 1.16 0.97 1.13 1.36 1.31 Return on average shareholders' equity 14.04 11.27 11.71 12.77 12.89 Average shareholders' equity as a percent of average total assets 8.23 8.65 9.69 10.65 10.19 Net loan charge-offs (recoveries) as a percent of average loans (0.02 ) 0.00 0.06 0.01 0.19 Allowance for loan losses as a percent of loans at year-end 1.09 1.39 1.36 1.27 1.08 Shareholders' equity as a percent of total year-end assets 8.28 8.50 9.10 10.44 10.46 Dividend payout ratio2 26.48 30.73 29.35 28.42 28.57
¹Net interest margin is shown on a fully taxable equivalent basis. 2Dividend payout ratio is calculated as dividends declared as a percentage of net income.
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RESULTS OF OPERATIONS
Net Income CSB's 2022 net income was$13.3 million compared to$10.8 million for 2021, an increase of 23%. Total revenue, net interest income plus noninterest income, increased$4.2 million , or 12%, over the prior year to a total of$39.0 million . The provision for loan losses decreased to a$895 thousand recovery as compared to a$655 thousand recovery for the prior year. Noninterest expense increased$1.3 million , or 6% and the provision for income tax increased$656 thousand over the prior year due to an increase in taxable income. Basic and diluted earnings per share were$4.91 , up 24% from the prior year. The return on average assets was 1.16% in 2022 compared to 0.97% in 2021 and return on average equity was 14.04% in 2022 compared to 11.27% in 2021. Net Interest Income (Dollars in thousands) 2022 2021 Net interest income$ 32,323 $ 27,517 Taxable equivalent1 145 154 Net interest income, FTE$ 32,468 $ 27,671 Net interest margin 2.97 % 2.61 % Taxable equivalent adjustment1 0.01 0.02 Net interest margin, FTE 2.98 % 2.63 %
¹Taxable equivalent adjustments have been computed assuming a 21% tax rate in 2022, and 2021 (non-GAAP).
Net interest income is the largest source of the Company's revenue and consists of the difference between interest income generated on earning assets and interest expense incurred on liabilities (deposits, short-term and long-term borrowings). Volumes, interest rates, composition of interest-earning assets, and interest-bearing liabilities affect net interest income. Net interest income increased$4.8 million , or 17%, in 2022 compared to 2021. The increase was a result of a$5.3 million increase in interest income, partially offset by an increase of$484 thousand in interest expense. The FTE net interest margin increased to 2.98% from 2.63% in 2021. Interest income increased$5.3 million , or 18%, in 2022 compared to 2021 primarily due to an increase of$4.1 million , or 155%, in taxable securities interest income due to an increase in average balances of$158 million and an increase in yield of 56 basis points ("bps"). Interest income on interest-earning deposits mainly held at theFederal Reserve increased$1.4 million in 2022 compared to 2021 primarily due to a 139 basis points yield increase. Interest income on loans decreased$109 thousand primarily due to a decrease of 22 basis points in yield which was partially offset by an increase in loan volume of$25 million . The decrease in yield occurred as Payckeck Prtection Program ("PPP") loans were forgiven by theSmall Business Administration ("SBA"), the bank recognized origination fees of$176 thousand in interest income in 2022 as compared to$2.8 million in 2021 on the forgiven PPP loans. Interest expense increased$484 thousand , or 24%, in 2022 as compared to 2021 primarily due to rate increases of 7 bps on deposits and 10 basis points on other borrowed funds. Average interest-bearing demand and savings deposit balances increased$16 million during the year as savings rates continued but at a lesser pace than the prior year as the increase in the money supply created by the government to offset pandemic economic decreases was being phased out to consumers and businesses. Average time deposit balances decreased$5.6 million , and the average interest rate decreased 18 bps. 17
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The following table provides detailed analysis of changes in average balances, yield, and net interest income:
AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN ANALYSIS
2022 2021
Average Average Average Average
(Dollars in thousands) Balance 1 Interest Rate 2 Balance 1 Interest Rate 2
Interest-earning
assets
Interest-earning
deposits in other banks $ 111,775 $ 1,703 1.52 % $ 259,789 $ 337 0.13 %
Securities:
Taxable 364,478 6,665 1.83 206,077 2,613 1.27
Tax exempt 4 24,349 553 2.27 25,208 577 2.28
Loans 3, 4 587,765 26,043 4.43 562,592 26,156 4.65
Total interest-
earning assets 1,088,367 34,964 3.21 % 1,053,666 29,683 2.82 %
Noninterest-
earning assets
Cash and due
from banks 20,435 19,891
Bank premises
and equipment, net 13,601 13,372
Other assets 36,833 32,924
Allowance for loan
losses (7,311 ) (8,045 )
Total assets $ 1,151,925 $ 1,111,808
Interest-bearing
liabilities
Demand deposits $ 240,904 648 0.27 % $ 259,111 317 0.12 %
Savings deposits 315,881 670 0.21 281,888 281 0.10
Time deposits 118,085 1,017 0.86 123,659 1,286 1.04
Borrowed funds 40,218 161 0.40 42,600 128 0.30
Total interest-
bearing liabilities 715,088 2,496 0.35 % 707,258 2,012 0.28 %
Noninterest-bearing
liabilities and
shareholders'
equity
Demand deposits 337,759 304,351
Other liabilities 4,228 4,054
Shareholders' equity 94,850 96,145
Total liabilities
and equity $ 1,151,925 $ 1,111,808
Net interest
income 4 32,468 27,671
FTE adjustment (145 ) (154 )
GAAP net interest
income $ 32,323 $ 27,517
Net interest margin
FTE 2.98 % 2.63 %
Net interest spread 2.86 % 2.54 %
¹Average balances have been computed on an average daily basis.
²Average rates have been computed based on the amortized cost of the
corresponding asset or liability.
³Average loan balances include nonaccrual loans.
4Interest income is shown on a fully tax-equivalent basis (non-GAAP), reconciled
to the GAAP amount at the bottom of the table.
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The following table compares the impact of changes in average rates and changes in average volumes on net interest income:
RATE/VOLUME ANALYSIS OF CHANGES IN INCOME AND EXPENSE¹
2022 v. 2021
Net Increase
(Dollars in thousands) (Decrease) Volume Rate
Increase (decrease) in interest income: Interest-earning deposits in other banks $ 1,366$ (2,255 ) $ 3,621 Securities: Taxable 4,052 2,904 1,148 Tax exempt 2 (24 ) (18 ) (6 ) Loans 2 (113 ) 1,115 (1,228 ) Total interest income change 2 5,281 1,746
3,535
Increase (decrease) in interest expense: Demand deposits 331 (49 ) 380 Savings deposits 389 72 317 Time deposits (269 ) (48 ) (221 ) Borrowed funds 33 (10 ) 43 Total interest expense change 484 (35 ) 519 Net interest income change 2 $ 4,797$ 1,781 $ 3,016 ¹ Changes attributable to both volume and rate, which cannot be segregated, have been allocated based on the absolute value of the change due to volume and the change due to rate. 2 Interest income is shown on a fully tax-equivalent basis (non-GAAP). Provision (Recovery) For Loan Losses The provision (recovery) for loan losses is determined by management as the amount required to bring the allowance for loan losses to a level considered appropriate to absorb probable incurred net charge-offs inherent in the loan portfolio as of period end. During 2022 a recovery of credit losses of$895 thousand was recognized compared to a 2021 recovery of credit losses of$655 thousand . The recapture of provision for loan losses for the year primarily reflects the improvement in credit quality including the reduction of impaired and adversely classified loans, as well as the improvement in economic indicators including unemployment, residential real estate prices and consumer confidence. Nonperforming loans decreased$832 thousand from 2021 to 2022. See Financial Condition - Allowance for Loan Losses for additional discussion and information relative to the provision for loan losses. Noninterest Income YEAR ENDED DECEMBER 31 Change from 2021 (Dollars in thousands) 2022 Amount % 2021
Service charges on deposit accounts
25 %$ 939 Trust services 954 (105 ) (10 ) 1,059 Debit card interchange fees 2,105 55 3 2,050 Credit card fees 677 195 40 482 Gain on sale of loans, including MSRs 331 (1,118 ) (77 ) 1,449 Earnings on bank-owned life insurance 674 55 9 619 Unrealized (loss) gain on equity securities (3 ) (31 ) (111 ) 28 Other 799 100 14 699 Total noninterest income$ 6,711 $ (614 ) (8 ) %$ 7,325 Noninterest income decreased$614 thousand , or 8%, in 2022 compared to the same period in 2021. Gain on sales of mortgage loans including mortgage servicing rights ("MSRs") decreased$1.1 million due to fewer sales of real estate mortgage loans into the secondary market as many consumers took advantage of the large mortgage interest rate declines in 2021. The Bank sold$10 million in mortgage loans, including gains, in 2022 as compared to the sale of$47 million of loans in 2021. Trust service revenue decreased$105 thousand with market declines. Service charges on deposits, which are primarily customer overdraft fees, increased$235 thousand in 2022. Debit card interchange fees increased$55 thousand in 2022 compared to 2021 due to volume increases. Credit card interchange income increased$195 thousand as business credit card usage continued to increase. Earnings on bank owned life insurance increased$55 thousand . 19
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Noninterest Expenses
YEAR ENDED DECEMBER 31
Change from 2021
(Dollars in thousands) 2022 Amount % 2021
Salaries and employee benefits $ 13,446 $ 847 7 % $ 12,599
Occupancy expense 1,085 52 5 1,033
Equipment expense 781 67 9 714
Professional and director fees 1,551 367 31 1,184
Financial institutions tax 779 28 4
751
Marketing and public relations 551 90 20 461 Software expense 1,429 87 6 1,342 Debit card expense 734 24 3 710 FDIC insurance 345 (133 ) (28 ) 478 Amortization of intangible assets - (44 ) (100 ) 44 Other 2,692 (85 ) (3 ) 2,777 Total noninterest expenses$ 23,393 $ 1,300 6 %$ 22,093 Noninterest expense increased$1.3 million , or 6%, in 2022 compared to 2021. Salaries and employee benefits increased$847 thousand from increases in base and incentive compensation of$575 thousand . The capitalization of employee costs of loan originations increased the amount recognized in salary expense by$250 thousand in 2022, a result of decreased origination of commercial and mortgage loans. Professional and director fees increased$367 thousand primarily due to an increase in third party assistance with contracting the bank's core vendor, increase of$64 thousand in legal expenses related to loan collections,$50 thousand increase in audit and accounting fees, and$33 thousand increase in director's fees. Marketing and public relations expense increased$90 thousand , or 20%, with increasing market coverage. Software expense increased$87 thousand , or 6%, due to full-year implementation of a new mobile banking platform along with core software provider increases. Equipment expense increased$67 thousand in 2022, as compared to 2021, with increased depreciation expense and equipment maintenance contracts. Occupancy expense increased$52 thousand primarily from depreciation from branch renovations, property taxes and insurance. An increase of$28 thousand in theOhio financial institutions tax was recognized as capital increased. Debit card expense increased$24 thousand in 2022 due to increased volume. TheFDIC insurance assessment decreased$133 thousand , or 28%, with improved credit quality and increased earnings. Other expenses decreased$85 thousand , or 3%. Income Taxes The provision for income taxes amounted to$3.2 million in 2022 as compared to$2.6 million in 2021. The slight increase in 2022 resulted from an increase in income. The corporate statutory tax rate was 21% for 2022 and 2021. The effective tax rate in 2022 and 2021 approximates 19%. FINANCIAL CONDITION Total assets of the Company were$1.2 billion onDecember 31, 2022 compared to$1.1 billion onDecember 31, 2021 , representing an increase of$15 million , or 1%. Net loans increased$79 million , or 15%, while investment securities increased$90 million , or 29%, and total cash and cash equivalents decreased$157 million , or 65%. Deposits increased$21 million and short-term borrowings decreased$4 million , while other borrowings from theFederal Home Loan Bank ("FHLB") decreased by$946 thousand , or 28%.
Securities
Total investment securities increased$90 million , or 29%, to$401 million at year-end 2022. CSB's portfolio is primarily comprised of agency mortgage-backed securities, obligations of state and political subdivisions,U.S. Treasury notes, other government agencies' debt, and corporate bonds. Restricted securities consist primarily of FHLB stock. The Company has no exposure to government-sponsored enterprise preferred stocks, collateralized debt obligations, or trust preferred securities. The Company's municipal bond portfolio consists of tax-exempt general obligation and revenue bonds. As ofDecember 31, 2022 , 73% of such bonds held an S&P or Moody's investment grade rating, and 27% were non-rated local issues. The municipal portfolio includes a broad spectrum of counties, towns, universities, and school districts with 83% of the portfolio originating inOhio , and 17% inPennsylvania . Gross unrealized security losses within the portfolio were 13% of total securities onDecember 31, 2022 , reflecting interest rate increases, not credit downgrades. DuringDecember 2021 , investments with an amortized cost of approximately$79 million and a fair value of$77 million were transferred from available-for-sale to held-to-maturity as rising interest rates and a slowing of monthly cash payments were occurring. The transfer included$76 million ofU.S. Government agency mortgage-backed securities and$3 million ofU.S. Treasury notes. These bonds will still provide liquidity through pledging and for use as collateral against borrowings. No additional transfers to held to maturity were made in 2022, as bonds were assigned their held to maturity classification on their purchase date in 2022. 20 -------------------------------------------------------------------------------- One of the primary functions of the securities portfolio is to provide a source of liquidity and it is structured such that maturities and cash flows provide a portion of the Company's liquidity needs and asset/liability management requirements.
Loans
Total loans increased$78 million , or 14%, during 2022 with increases in all loan categories. Volume increases were recognized as follows: commercial loans including PPP loans increased$5 million , or 4%, during 2022, with PPP loan forgiveness of$4 million offsetting the increase. Remaining PPP loan balances were$359 thousand as ofDecember 31, 2022 . Construction and land development loans increased$9 million , or 20% as several commercial projects were under construction and consumer demand slowed for 1-4 family residential construction at year end. Residential real estate loans increased$26 million , or 15%. Commercial real estate loans increased$37 million , or 19%. Commercial real estate and construction loan demand remained strong, however there was a slowing of commercial loan growth with increased competition from private lenders and excess business liquidity remaining from government stimulus programs. The Company originated$69 million and$67 million of residential mortgage loans held in the portfolio, including residential construction, conventional 1-4 family, and equity line loans, which were predominately variable rate, in 2022 and 2021, respectively. The increase in interest rates slowed consumer demand for 1-4 family fixed-rate thirty-year residential mortgages which are sold into the secondary market as the Company sold$10 million of mortgages into the secondary market in 2022 as compared to$46 million in 2021. Demand for home equity loans strengthened in 2022, with balances increasing$7 million , as consumers opted to not refinance their lower fixed-rate mortgages. Installment loans increased$300 thousand . Management anticipates modest economic growth in the Company's local service areas will continue to improve. Commercial and commercial real estate loans, in aggregate, comprise approximately 58% of the total loan portfolio at year-end 2022 and 2021. Residential real estate loans remained at 31% of the portfolio in 2022 and 2021. Construction and land development loans increased to 9% of the portfolio as loan demand for commercial construction projects increased by$7 million and residential construction loans increased by$2 million , year over year. The Company is well within the respective regulatory guidelines for investment in construction, development, and investment property loans that are not owner occupied. Most of the Company's lending activity is with customers primarily located withinHolmes ,Stark ,Tuscarawas andWayne counties inOhio . The majority of the Company's loan portfolio consists of commercial and industrial and commercial real estate loans. See concentration of credit discussion included in Note 3 in the Notes to Consolidated Financial Statements. 21 -------------------------------------------------------------------------------- Nonperforming Assets, Impaired Loans, and Loans Past Due 90 Days or More Nonperforming assets consist of nonaccrual loans, loans past due 90 days and still accruing, and other real estate acquired through or in lieu of foreclosure. Other impaired loans include certain loans internally classified as substandard or doubtful. Loans are placed on nonaccrual status when they become past due 90 days or more, or when mortgage loans are past due as to principal and interest 120 days or more, unless they are both well secured and in the process of collection. NONPERFORMING ASSETS DECEMBER 31 (Dollars in thousands) 2022 2021 Nonaccrual loans Commercial $ -$ 208 Commercial real estate 92 139 Residential real estate 99 367 Construction & land development - 329 Consumer 65 40 Loans past due 90 days or more and still accruing Commercial - 5 Total nonperforming loans 256 1,088 Other real estate owned - - Other repossessed assets - - Total nonperforming assets$ 256 $ 1,088 Nonaccrual loans to total loans 0.04 % 0.20 % Allowance for Loan Losses The allowance for loan losses is maintained at a level considered by management to be adequate to cover loan losses currently anticipated based on past loss experience, general economic conditions, changes in mix and size of the loan portfolio, information about specific borrower situations, and other factors and estimates which are subject to change over time. Management periodically reviews selected large loans, delinquent and other problem loans, and selected other loans. Collectability of these loans is evaluated by considering the current financial position and performance of the borrower, estimated market value of the collateral, the Company's collateral position in relationship to other creditors, guarantees, and other potential sources of repayment. Management forms judgments, which are in part subjective, as to the probability of loss and the amount of loss on these loans as well as other loans taken together. The Company's Allowance for Loan Losses Policy includes, among other items, provisions (recoveries) for classified loans, and a provision (recovery) for the remainder of the portfolio based on historical data, including past charge-offs. During 2022,$689 thousand in nonaccrual loans were collected,$226 thousand were charged-off,$93 thousand were returned to accrual, while$181 thousand new loans entered nonaccrual status. ALLOWANCE FOR LOAN LOSSES FOR THE YEAR
ENDED
(Dollars in thousands) 2022
2021
Net charge-offs (recoveries) as a percentage of average total loans
(0.02 ) % - %
Allowance for loan losses as a percentage of total loans 1.09 1.39
Allowance for loan losses to total nonacrrual loans 26.71 x
7.00 x
Components of the allowance for loan losses: General reserves$ 6,834 $ 7,396 Specific reserve allocations 4
222
Total allowance for loan losses$ 6,838
The allowance for loan losses totaled$6.8 million , or 1.09%, of total loans at year-end 2022 as compared to$7.6 million , or 1.39%, of total loans at year-end 2021. The Bank had net loan recoveries of$115 thousand in 2022 compared to net loan charge-offs of$1 thousand for 2021. The Company maintains an internal watch list on which it places loans where management's analysis of the borrower's operating results and financial condition indicates the borrower's cash flows are inadequate to meet its debt service requirements and loans where there exists an increased risk that such a shortfall may occur. Nonperforming loans, which consist of loans past due 90 days or more and nonaccrual loans, aggregated$256 thousand , or 0.04%, of loans at year-end 2022 compared to$1.1 million , or 0.20%, of loans at year-end 2021. Impaired loans were$1 million at year-end 2022 as compared to$2 million at year-end 2021. Management has assigned loss allocations to absorb the estimated losses on impaired loans. These allocations are included in the total allowance for loan losses balance. 22 -------------------------------------------------------------------------------- Other Assets Net premises and equipment decreased$452 thousand to$13.4 million at year-end 2022 with depreciation expense exceeding purchases. Total bank-owned life insurance increased from$24 million at year-end 2021 to$24.7 million at year-end 2022 with increasing cash surrender values. There was no other real estate owned onDecember 31, 2022 or 2021. The Company recognized a net deferred tax asset of$3 million onDecember 31, 2022 compared to a net deferred tax asset of$325 thousand onDecember 31, 2021 . The increase in the net deferred tax asset is a result of the increase in the gross unrealized losses on available-for-sale securities which is a result of rising interest rates during 2022.
Deposits
The Company's deposits are obtained primarily from individuals and businesses
located in its market area. For deposits, the Company must compete with products
offered by other financial institutions, as well as alternative investment
options. Demand and savings deposits increased for the year ended 2022, at a
lesser growth trajectory following the trillions of government stimulus relief
pumped into the economy during the COVID-19 pandemic. Market rates on deposits
and cash management products increased throughout the year as liquidity
decreased in the industry.
December 31 Change from 2021
(Dollars in thousands) 2022 2021 Amount %
Noninterest-bearing demand $ 350,283 $ 334,346 $ 15,937 5 %
Interest-bearing demand 241,227 242,387 (1,160 ) -
Traditional savings 194,918 191,836 3,082 2
Money market savings 118,908 112,803 6,105 5
Time deposits in excess of $250,000 28,089 26,213 1,876 7
Other time deposits 89,992 95,162 (5,170 ) (5 )
Total deposits $ 1,023,417 $ 1,002,747 $ 20,670 2 %
Other Funding Sources
The Company obtains additional funds through securities sold under repurchase
agreements, overnight borrowings from the FHLB or other financial institutions,
and advances from the FHLB. Short-term borrowings, consisting of securities sold
under repurchase agreements, decreased $4 million . Other borrowings, consisting
of FHLB advances, decreased $946 thousand as the result of principal repayments.
All FHLB borrowings on December 31, 2022 , have long term maturities with monthly
amortizing payments.
CAPITAL RESOURCES
Total shareholders' equity was $95.9 million at December 31, 2022 compared to
$97.3 million on December 31, 2021 . This decrease was primarily due to a $10.8
million accumulated other comprehensive loss recognized on the
available-for-sale securities portfolio resulting from increasing interest
rates. Dividends were paid of $3.5 million and $388 thousand treasury stock was
repurchased in 2022, which was partially offset by net income of $13.3 million .
The Board of Directors approved a Stock Repurchase Program on February 26, 2021 ,
allowing the repurchase of up to 5% of the Company's then-outstanding common
shares. Repurchased shares are to be held as treasury stock and are available
for general corporate purposes. On December 31, 2022 , approximately 102 thousand
shares could still be repurchased under the current authorized program. Shares
repurchased during 2022 totaled 10,448 shares for $388 thousand and shares
purchased in 2021 totaled 24,326 shares for $939 thousand .
Effective January 1, 2015 , the Federal Reserve adopted final rules implementing
Basel III and regulatory capital changes required by the Dodd-Frank Act. The
rules apply to both the Company and the Bank. The rules established minimum
risk-based and leverage capital requirements for all banking organizations. The
rules include: (a) a common equity tier 1 capital ratio of at least 4.5%, (b) a
tier 1 capital ratio of at least 6.0%, (c) a minimum total capital ratio of at
least 8.0%, and (d) a minimum leverage ratio of 4%. Under the guidelines,
capital is compared to the relative risk related to the balance sheet. To derive
the risk included in the balance sheet, one of several risk weights is applied
to different balance sheet and off-balance sheet assets primarily based on the
relative credit risk of the counterparty. The capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors. The rules also place
restrictions on the payment of capital distributions, including dividends, and
certain discretionary bonus payments to executive officers if the company does
not hold a capital conservation buffer of greater than 2.5% composed of common
equity tier 1 capital above its minimum risk-based capital requirements. The
Company and Bank's actual and required capital amounts are disclosed in Note 12
to the consolidated financial statements.
Dividends paid by the Bank to CSB are the primary source of funds available to
the Company for payment of dividends to shareholders and for other working
capital needs. The payment of dividends by the Bank to the Company is subject to
restrictions by regulatory authorities, which generally limit dividends to
current year net income and the prior two (2) years net retained earnings, as
defined by regulation. In addition, dividend payments generally cannot reduce
regulatory capital levels below the minimum regulatory guidelines discussed
above.
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LIQUIDITY
December 31
Change
(Dollars in thousands) 2022 2021 from 2021
Cash and cash equivalents $ 86,420 $ 243,657 $ (157,237 )
Unused lines of credit 122,062 107,054 15,008
Unpledged AFS securities at fair market value 134,401 108,158 26,243
$ 342,883 $ 458,869 $ (115,986 )
Net deposits and short-term liabilities $ 1,041,016 $ 1,016,821 $ 24,195
Liquidity ratio 32.9 % 47.6 %
Minimum board approved liquidity ratio 20.0 % 20.0 %
Liquidity refers to the Company's ability to generate sufficient cash to fund current loan demand, meet deposit withdrawals, pay operating expenses, and meet other obligations. Liquidity is monitored by CSB's Asset Liability Committee. The Company was within all Board-approved limits onDecember 31, 2022 , and 2021. Additional sources of liquidity include net income, loan repayments, the availability of borrowings, and adjustments of interest rates to attract deposit accounts. As summarized in the Consolidated Statements of Cash Flows, the most significant investing activities for the Company in 2022 included net loan originations of$78 million and securities purchases of$144 million , offset by maturities and repayment of securities totaling$38 million . The Company's financing activities included a$21 million increase in deposits,$4 million in cash dividends paid, and a$4 million decrease in short-term borrowings.
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