# CSB Bancorp, Inc.: Form 10-Q for the period ended Mar 31, 2020

- Company: [CSB Bancorp, Inc.](/companies/csbb.md) (CIK 880417)
- Form: 10-Q
- Filed: 2020-05-08
- Accepted by EDGAR: May 8, 2020, 16:53 ET
- Period: 2020-03-31
- Accession: 0001564590-20-023626
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/880417/000156459020023626/csbb-10q_20200331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/880417/000156459020023626/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2020-01-01 to 2020-03-31 | $901.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2020-01-01 to 2020-03-31 | $591.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-01-01 to 2020-03-31 | $2.5m | us-gaap:NetIncomeLoss |
| Operating cash flow | 3 months, 2020-01-01 to 2020-03-31 | $2.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2020-01-01 to 2020-03-31 | $551.0k | us-gaap:PaymentsToAcquireProductiveAssets |
| Total assets | at 2020-03-31 | $810.0m | us-gaap:Assets |
| Total liabilities | at 2020-03-31 | $722.4m | us-gaap:Liabilities |
| Shareholders' equity | at 2020-03-31 | $87.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 18,089 characters.

The following management’s discussion and analysis focuses on the consolidated financial condition of the Company at March 31, 2020 as compared to December 31, 2019, and the consolidated results of operations for the three month period ended March 31, 2020 compared to the same period in 2019. 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 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 were $810 million at March 31, 2020 as compared to $819 million at December 31, 2019. During the three month period ended March 31, 2020, net loans increased $4 million. Cash and cash equivalents, and securities decreased $12 million. Deposits and short-term borrowings decreased $11 million.

Net loans increased $4 million, or 1%, as combined commercial real estate and construction loans decreased $2 million, or -1%, and residential real estate loans increased $3 million, or 2%, from December 31, 2019. Commercial loans increased $3 million, or 2%, as business lines of credits drew based on normal seasonality. Consumers continued to refinance their mortgage loans for historically low long-term fixed rates while home purchase activity increased through the first half of March. Residential mortgage loan originations for the three months ended March 31, 2020 totaled $13 million, an increase from $12.5 million in originations during the three month period ended March 31, 2019. Originations sold into the secondary market were $4.2 million and $2.6 million, respectively during the three month periods ended March 31, 2020 and March 31, 2019. The Bank originates and sells primarily fixed-rate thirty year mortgages into the secondary market.

The allowance for loan losses increased $833 thousand from the year ago quarter to $7.1 million or 1.28% of total loans. The Company has not early adopted CECL which has been delayed for smaller reporting companies. Outstanding loan balances increased 1% to $555 million at March 31, 2020. Net charge-offs increased to $75 thousand, or an annualized 0.05% of average loans, in the current quarter compared to the $95 thousand recovery, or -0.07% in the year-ago quarter. We believe the allowance level is appropriate given the low level of problem loans and current composition of the overall loan portfolio.

Nonperforming loans increased to $4.4 million, or 0.79% of total loans from $3.2 million, or 0.58%, a year ago. The increase is a result of one commercial real estate credit facility for $1.5 million being placed on nonaccrual status during second quarter 2019. For the three months ending March 31, 2020 loans totaling $174 thousand were placed on nonaccrual status, there were $26 thousand in charge-downs recognized, and pay downs of $79 thousand were received.

*(Dollars in thousands)*

|  | March 31, 2020 | December 31, 2019 | March 31, 2019 |
| --- | ---: | ---: | ---: |
| Non-performing loans | $4,369 | $4,539 | 3,188 |
| Other real estate | 99 | 99 | 99 |
| Repossessed assets | — | 20 | 15 |
| Allowance for loan losses | 7,120 | 7,017 | 6,287 |
| Total loans | 555,320 | 551,632 | 548,220 |
| Allowance for loan losses as a percentage of total loans | 1.28% | 1.27% | 1.15% |
| Allowance for loan losses to total nonperforming loans | 1.6x | 1.5x | 2.0x |

The ratio of gross loans to deposits was 82.7% at March 31, 2020, compared to 80.7% at December 31, 2019.

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 $627 thousand within the available-for-sale and held-to-maturity portfolios as of March 31, 2020, were primarily the result of customary and expected fluctuations in the bond market and not necessarily the expected cash flows of the individual securities. As a result, all embedded security impairments on March 31, 2020, are considered temporary and no impairment loss relating to these securities has been recognized.

Deposits decreased $12 million, or 2%, from December 31, 2019 with noninterest bearing deposits decreasing approximately $9 million and interest-bearing deposit accounts decreasing approximately $3 million. Total deposits as of March 31, 2020 are $64 million greater than March 31, 2019 deposit balances. On a year over year comparison, increases were recognized in noninterest-bearing demand deposits of $11 million, interest-bearing demand deposits of $38 million, money market accounts of $3 million, savings of $6 million, and time deposits of $6 million.

Short-term borrowings consisting of overnight repurchase agreements with retail customers increased $1 million to $41 million at March 31, 2020 as compared to December 31, 2019 and other borrowings decreased $124 thousand as the Company repaid FHLB advances.

Total shareholders’ equity amounted to $88 million, or 10.8%, of total assets at March 31, 2020 up from December 31, 2019. The increase in shareholders’ equity during the three months ending March 31, 2020 was due to net income of $2.5 million and an increase in accumulated other comprehensive income of $438 thousand offset by dividends declared of $768 thousand. The Company and the Bank met all regulatory capital requirements at March 31, 2020.

### RESULTS OF OPERATIONS

### Three months ended March 31, 2020 and 2019

For the quarters ended March 31, 2020 and 2019, the Company recorded net income of $2.5 million and $2.5 million and $0.91 and $0.93 per share, respectively. The $57 thousand decrease in net income for the period was primarily the result of a $95 thousand decrease in net interest income and an increase of $216 thousand in other noninterest expenses. The decreases were partially offset by an increase of $119 thousand in other noninterest income, a decrease in the provision for loan losses of $107 thousand and a $28 thousand decrease in federal income tax provision.

Return on average assets and return on average equity were 1.23% and 11.47%, respectively, for the three month period of 2020, compared to 1.41% and 13.20%, respectively for the same quarter in 2019.

### Average Balance Sheets and Net Interest Margin Analysis

*(Dollars in thousands)*

| ASSETS | For the Three Months Ended March 31, 2020 Average balance 1 | Interest | Average rate 2 | 2019 Average balance 1 | Interest | Average rate 2 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Federal funds sold | $— | $— | 0.00% | $400 | $3 | 2.53% |
| Interest-earning deposits | 75,817 | 239 | 1.27 | 26,442 | 172 | 2.64 |
| Taxable securities | 104,474 | 609 | 2.34 | 87,058 | 586 | 2.73 |
| Tax-exempt securities 4 | 21,186 | 151 | 2.87 | 23,132 | 170 | 2.98 |
| Loans 3,4 | 560,142 | 6,855 | 4.92 | 550,483 | 7,075 | 5.21 |
| Total interest-earning assets | 761,619 | 7,854 | 4.15% | 687,515 | 8,006 | 4.72% |
| Noninterest-earning assets | 50,790 |  |  | 42,666 |  |  |
| **TOTAL ASSETS** | $812,409 |  |  | $730,181 |  |  |
| **LIABILITIES AND SHAREHOLDERS' EQUITY** |  |  |  |  |  |  |
| Interest-bearing demand deposits | $160,932 | 143 | 0.36% | 118,844 | 113 | 0.39% |
| Savings deposits | 201,450 | 128 | 0.26 | 188,255 | 258 | 0.56 |
| Time deposits | 127,198 | 560 | 1.77 | 118,961 | 454 | 1.55 |
| Borrowed funds | 43,582 | 70 | 0.65 | 45,403 | 132 | 1.18 |
| Total interest-bearing liabilities | 533,162 | 901 | 0.68% | 471,463 | 957 | 0.82% |
| Noninterest-bearing demand deposits | 188,510 |  |  | 177,779 |  |  |
| Other liabilities | 3,647 |  |  | 2,901 |  |  |
| Shareholders' Equity | 87,090 |  |  | 78,038 |  |  |
| **TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY** | $812,409 |  |  | $730,181 |  |  |
| Taxable equivalent net interest income |  | $6,953 |  |  | $7,049 |  |
| Taxable equivalent net interest spread |  |  | 3.47% |  |  | 3.90% |
| Taxable equivalent net interest margin |  |  | 3.67% |  |  | 4.16% |

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.

Interest income for the quarter ended March 31, 2020, was $7.8 million representing a $151 thousand decrease, or a 2% decline, compared to the same period in 2019. This decrease was primarily due to average loan rates decreasing 29 basis points partially offset by a volume increase of $10 million for the quarter ended March 31, 2020 as compared to the first quarter 2019. Interest expense for the quarter ended March 31, 2020 was $901 thousand, a decrease of $56 thousand, or 6%, from the same period in 2019. The decrease in interest expense occurred primarily due to a decrease in rates on all deposit liabilities except time deposits for the quarter ended March 31, 2020.

For the quarter ended March 31, 2020, the provision for loan losses was $178 thousand, compared to a provision of $285 thousand provision for the same quarter in 2019. At December 31, 2019 the allowance had an unallocated reserve portion that was allocated during first quarter 2020 including a qualitative factor for the developing Covid-19 pandemic. For more discussion see Financial Condition. 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-ffs and current economic trends.

Noninterest income for the quarter ended March 31, 2020, was $1.3 million, an increase of $119 thousand, or 10%, compared to the same quarter in 2019. Earnings on bank owned life insurance increased $46 thousand for the first quarter 2020 a result of adding policies in 2019. The gain on the sale of mortgage loans to the secondary market increased by $35 thousand for the quarter ended March 31, 2020 as additional loan volume was sold into the secondary market. Debit card interchange income increased $28 thousand, or 8%, with greater fees generated from usage in the first quarter of 2020. Fees from trust and brokerage services increased $6 thousand to $230 thousand for the first quarter 2020 as compared to the same quarter in 2019. Service charges on deposit accounts decreased $1 thousand, or less than 1%, compared to the same quarter in 2019 primarily from a volume decrease in overdraft fees.

Noninterest expenses for the quarter ended March 31, 2020 increased $216 thousand, or 5%, compared to the first quarter of 2019. Salaries and employee benefits increased $126 thousand, or 4%, a result of increases in employees, base salary, and other benefits. The Ohio financial institutions tax increased $18 thousand in the first quarter due to the Company’s increased capital base. Marketing and public relations expense increased $10 thousand, or 9%, primarily due to brand recognition initiatives and the opening of a new banking center. Debit card expenses increased $13 thousand, or 10%, compared to the first quarter 2019 with increased volume. Software expense rose $9 thousand quarter over quarter with additional investment. Occupancy expense increased $16 thousand in 2020 over the first quarter of 2019. Professional and director fees decreased $9 thousand for the quarter ended March 31, 2020 as compared to the first quarter 2019.

Federal income tax expense decreased $28 thousand, or 5%, for the quarter ended March 31, 2020 as compared to the first quarter of 2019. The provision for income taxes was $591 thousand (effective rate of 19%) for the quarter ended March 31, 2020, compared to $619 thousand (effective rate of 19%) for the same quarter ended 2019.

### CAPITAL RESOURCES

The Company maintained a strong capital position with tangible common equity to tangible assets of 10.3% at March 31, 2020 compared with 9.9% at December 31, 2019.

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 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, 2019. As of March 31, 2020 the Company and the Bank met all capital adequacy requirements to which they were subject.

During October 2019, the federal banking agencies adopted an optional community bank leverage ratio (“CBLR”). Depository institutions and depository institution holding companies, that have less than $10 billion in total consolidated assets and have a tier 1 leverage ratio of greater than 9 percent, are considered qualifying community banking organizations and are eligible to opt into the community bank leverage ratio framework. Additionally, such insured depository institutions are considered to have satisfied the risk-based and leverage capital requirements and will be considered well-capitalized under the rule, effective January 1, 2020. The Company met the well-capitalized ratios under the new standard at both March 31, 2020 and December 31, 2019, but has not elected to opt-in to the CBLR framework as of March 31, 2020.

| Common Equity Tier 1 Capital To Risk Weighted Assets | Capital Ratios March 31, 2020 | December 31, 2019 |
| --- | ---: | ---: |
| Consolidated | 14.5 | 14.3 |
| Bank | 14.3 | 14.1 |
| Tier 1 Capital To Risk Weighted Assets Ratio |  |  |
| Consolidated | 14.5 | 14.3 |
| Bank | 14.3 | 14.1 |
| Total Capital To Risk Weighted Assets Ratio |  |  |
| Consolidated | 15.7 | 15.5 |
| Bank | 15.5 | 15.3 |
| Tier 1 Leverage Ratio |  |  |
| Consolidated | 10.2 | 10.0 |
| Bank | 10.1 | 9.9 |

### LIQUIDITY

*(Dollars in millions)*

|  | March 31, 2020 | December 31, 2019 | Change |
| --- | ---: | ---: | ---: |
| Cash and cash equivalents | $96 | $102 | $(6) |
| Available from FHLB | 100 | 97 | 3 |
| Unpledged AFS securities at fair market value | 46 | 61 | (15) |
|  | $242 | $260 | $(18) |
| Net deposits and short-term liabilities | $652 | $673 | $(21) |
| Liquidity ratio | 37.2 | 38.6 |  |
| 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 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.

The liquidity ratio was 37.2% and 38.6% at March 31, 2020 and December 31, 2019.

### 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.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

## Market risk

As filed, 2,910 characters.

COVID-19 added market risk disclosure which should be read with the disclosures presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019. While 2020 began with increased loan demand and strong employment, the economic picture reversed sharply as coronavirus wreaked havoc and became the lead story by mid-March. A series of emergency health orders for public safety curtailed nonessential activity and had the effect of shutting down vast swaths of Ohio’s economy, resulting in more than 8% of Ohio’s active workforce filing for unemployment during the last two weeks of March alone. We anticipate that second quarter will be very difficult for many small businesses, organizations and households, and are focused on working to address the financial needs within our primary market areas during this extraordinarily challenging health crisis. This pandemic may affect the Company’s employee base which has been dispersed amongst different buildings and home to ensure no one department could be disrupted by illness. The lack of economic activity, layoffs, and illness among businesses may have a material adverse effect on the Company’s business.

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.

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 March 31, 2020 and December 31, 2019. 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.

*March 31, 2020*

*(Dollars in thousands)*

| Change in Interest Rates (basis points) | Net Interest Income | Dollar Change | Percentage Change | Board Policy Limits |
| --- | ---: | ---: | ---: | --- |
| +400 | $26,615 | $(675) | (2.5) | +/- 25% |
| +300 | 26,980 | (310) | (1.1) | +/-15 |
| +200 | 26,969 | (321) | (1.2) | +/-10 |
| +100 | 27,087 | (203) | (0.7) | +/-5 |
| 0 | 27,290 | — | — | — |
| -100 | 27,177 | (113) | (0.4) | +/-5 |
| -200 | 26,800 | (490) | (1.8) | +/-10 |
| **December 31, 2019** |  |  |  |  |
| +400 | $30,266 | $1,481 | 5.1 | +/- 25% |
| +300 | 29,958 | 1,173 | 4.2 | +/-15 |
| +200 | 29,599 | 814 | 3.0 | +/-10 |
| +100 | 29,208 | 423 | 1.5 | +/-5 |
| 0 | 28,785 | — | — | — |
| -100 | 27,955 | (830) | (2.9) | +/-5 |
| -200 | 26,767 | (2,018) | (7.0) | +/-10 |

29

CONTROLS AND PROCEDURES

## Controls and procedures

As filed, 1,843 characters.

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.

FORM 10-Q

Quarter ended March 31, 2020

## Risk factors

As filed, 333 characters.

There have been no material changes to the Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, other than the COVID-19 developments previously discussed under Item 3 - Quantitative and Qualitative Disclosures About Market Risk in Part I of this report.

Filed May 8, 2020.
Source: SEC EDGAR, the filing index for accession 0001564590-20-023626. Last ingested by Listed: Nov 2, 2026, 09:27 ET. No prices; not investment advice.