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

First Quarter Highlights

CSB Bancorp, Inc. (OTC Pink: CSBB) today announced first quarter 2022 net income of $2,701,000, or $0.99 per basic and diluted share, as compared to $2,885,000, or $1.05 per basic and diluted share, for the same period in 2021. Income before federal income tax amounted to $3,339,000, a decrease of 7% over the same quarter in the prior year.

Annualized returns on average common equity (“ROE”) and average assets (“ROA”) for the quarter were 11.26% and 0.96%, respectively, compared with 12.33% and 1.10% for the first quarter of 2021.

Eddie Steiner, President, and CEO stated, “Residential mortgage applications declined during the quarter, as many homeowners have refinanced to lower rates, housing stock remains in tight supply, and fixed rate thirty-year mortgage rates have increased from 3.25% at December 31, 2021 to 4.75% at March 31, 2022. Business loan demand shows signs of strengthening, though held somewhat in check by significant borrower liquidity, supply chain disruptions, labor shortages, and inflation uncertainties. Deposit growth has remained strong, with our balances increasing 3% year over year.”

Net interest income and noninterest income totaled $8.5 million during the quarter, a decrease of $379 thousand, or 4% from the prior-year first quarter. Net interest income decreased $143 thousand, or 2%, in the first quarter of 2022 compared to the same period in 2021.

Loan interest income including fees decreased $1.1 million, or 16%, during first quarter 2022 as compared to the same quarter in 2021. The decrease was mainly due to average total loan balances declining $36 million below the year ago quarter including average Paycheck Protection Program loans (“PPP”) declining $61 million from the prior year quarter. Loan yields for first quarter 2022 averaged 4.19%, a decrease of 48 basis points (“bps”) from the 2021 first quarter average of 4.67%, PPP loan interest and fees contributed 10 bps to the first quarter 2022 loan yield while contributing 72 bps to the prior year’s first quarter. PPP loan fees recognized as interest income declined $771 thousand in first quarter 2022 compared to first quarter 2021.

The net interest margin was 2.60% compared to 2.48% for the linked fourth quarter 2021 and 2.85% for first quarter 2021. As discussed above, both loan volume and rate declined, partially offset with volume and yield increases within the securities account during first quarter 2022, and rate decreases on liabilities. Liquidity continues to play a factor on the margin, although average overnight funds declined $45 million on a quarter over prior year quarter comparison as we continue to deploy excess funds into marketable securities. The tax equivalency effect on the margin was 0.02% in first quarter 2022 and 2021.

With continuing improvement in credit quality, a $300 thousand negative provision for loan losses was recognized for the quarter ended March 31, 2022, as compared to $30 thousand loss provision for the prior year first 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 COVID-related uncertainty.

Noninterest income decreased 13% compared to first quarter of 2021. The decrease was primarily the result of a $369 thousand, or 76%, decline in gain on sale of mortgages to the secondary market as refinancing of mortgages slowed significantly on rising mortgage rates, and home purchases were limited by a lack of housing inventory for sale. Increases in service charges on deposit accounts, debit and credit card fee income, and earnings from bank owned life insurance values partially offset the decline in mortgage fee and sale income.

Noninterest expense increased 4% from first quarter 2021. Salary and employee benefit costs increased $126 thousand, or 4%, compared to the prior year quarter, primarily resulting from increases in compensation and reduced capitalization of deferred loan costs with less loan volume originated in first quarter 2022 as compared to first quarter 2021. Occupancy and equipment expense increased $55 thousand, or 13%, from 2021 primarily due to depreciation expense and increasing maintenance contracts. Marketing and public relations increased by $32 thousand, or 41%, reflecting a return to normalized levels after pandemic-related curtailment of activities in 2020-2021. Telephone expense decreased $39 thousand compared to the prior year quarter due to a renegotiation of data line contracts. FDIC insurance expense decreased $25 thousand from the prior year quarter. Professional and directors’ fees decreased $19 thousand, primarily reflecting a decline in collection legal fees. The Company’s first quarter efficiency ratio increased to 64.0% compared to 59.1%, in the same period of the prior year.

Federal income tax expense totaled $638 thousand in first quarter 2022, as compared to $690 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 $1.14 billion, an increase of $78 million, or 7%, above the same quarter of the prior year. Liquidity decreased as the Company’s average interest-bearing balances with banks decreased $45 million, to $158 million, as compared to the first quarter in 2021. Average loan balances of $560 million decreased $36 million, or 6%, from the prior year first quarter while average securities balances of $360 million increased $155 million, or 75%, as compared to first quarter 2021. Concurrent with the rise in market interest rates during first quarter 2022, approximately $100 million in investment securities were purchased and added to the investment portfolio, reducing overnight cash. Purchased investments included mortgage-backed instruments and short-term corporate and U.S. Treasury notes.

Average commercial loan balances for the quarter, including commercial real estate, decreased $27 million, or 7%, from prior year levels. Excluding a $61 million decrease in average PPP loan balances, commercial loans increased $34 million year over year as construction loans were drawn and borrowers used term loans to fund equipment and other purchases. Average residential mortgage balances decreased $5 million, or 3%, below the prior year’s quarter while home equity lines of credit decreased $3 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 12%, 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, dependent in large part on restoration of borrower confidence as pandemic uncertainty diminishes, as well as impacts of continuing inflation.

Nonperforming assets decreased from $3.1 million on March 31, 2021, to $1.2 million, or 0.21%, of total loans plus other real estate on March 31, 2022. Delinquent loan balances as of March 31, 2022, decreased to 0.24% of total loans as compared to 0.57% on March 31, 2021.

Net loan charge-offs recognized during first quarter 2022 were $13 thousand, or 0.01% of average loans annualized, compared to first quarter 2021 net loan recoveries of $34 thousand. The allowance for loan losses amounted to 1.29% of total loans on March 31, 2022, as compared to 1.43% on March 31, 2021.

Average deposit balances grew on a quarter over prior year quarter comparison by $75 million, or 8%. For the first quarter 2022, the average cost of deposits amounted to 0.14%, as compared to 0.24% for the first quarter 2021. During the first quarter 2022, increases in average deposit balances over the prior year quarter included noninterest-bearing demand accounts of $46 million and interest-bearing demand and savings accounts of $32 million, while time deposits decreased $3 million. The average balance of securities sold under repurchase agreement during the first quarter of 2022 increased by $2 million, or 5%, compared to the average for the same period in the prior year.

Shareholders’ equity totaled $94.9 million on March 31, 2022, with 2.7 million common shares outstanding. The average equity to assets ratio amounted to 8.54% on March 31, 2022, and 8.95% on March 31, 2021. The Company declared a quarterly dividend of $0.31 per share on April 6, 2022, payable April 26, 2022, producing an annualized yield of 3.1% based on the March 31, 2022, closing price of $39.60.

Cares Act and related events

CSB facilitated and funded $129 million of SBA emergency PPP loans in 2020 and 2021. As of March 31, 2022, $127 million has been received from the SBA in forgiveness. and approximately $49 thousand remains in unearned fees at March 31, 2022. All loans modified to businesses and consumers to deal with the uncertainty of the economy 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 March 31, 2022. CSB provides a wide 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.

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