# CSB Bancorp, Inc.: Form 10-Q for the period ended Jun 30, 2021

- Company: [CSB Bancorp, Inc.](/companies/csbb.md) (CIK 880417)
- Form: 10-Q
- Filed: 2021-08-09
- Accepted by EDGAR: Aug 9, 2021, 16:02 ET
- Period: 2021-06-30
- Accession: 0001564590-21-042603
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/880417/000156459021042603/csbb-10q_20210630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/880417/000156459021042603/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2021-04-01 to 2021-06-30 | $543.0k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2021-01-01 to 2021-06-30 | $1.1m | us-gaap:InterestExpense |
| Income tax | 3 months, 2021-04-01 to 2021-06-30 | $654.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2021-01-01 to 2021-06-30 | $1.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-04-01 to 2021-06-30 | $2.7m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2021-01-01 to 2021-06-30 | $5.6m | us-gaap:NetIncomeLoss |
| Operating cash flow | 6 months, 2021-01-01 to 2021-06-30 | $5.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2021-01-01 to 2021-06-30 | $1.2m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 6 months, 2021-01-01 to 2021-06-30 | $823.0k | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 6 months, 2021-01-01 to 2021-06-30 | $313.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Total assets | at 2021-06-30 | $1.13bn | us-gaap:Assets |
| Total liabilities | at 2021-06-30 | $1.03bn | us-gaap:Liabilities |
| Shareholders' equity | at 2021-06-30 | $96.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 26,640 characters.

The following management’s discussion and analysis focuses on the consolidated financial condition of the Company at June 30, 2021 as compared to December 31, 2020, and the consolidated results of operations for the three and six months ended June 30, 2021 compared to the same periods in 2020. 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 condensed 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 $1.1 billion at June 30, 2021 as compared to $1.0 billion at December 31, 2020. During the six months ended June 30, 2021, net loans decreased $57 million. Cash and cash equivalents, and securities increased $150 million. Deposits and short-term borrowings increased $96 million.

Net loans decreased $57 million, or 9%, as commercial real estate and construction loans decreased $4 million, or 2%, and residential real estate loans decreased $6 million, or 3%, from December 31, 2020. Commercial loans decreased $47 million, or 24%. Loans originated under SBA Paycheck Protection Program totaled $37 million during the first six months of 2021 and $92 million during 2020. Consumers continued to refinance their mortgage loans for historically low long-term fixed rates while home purchase activity remained robust despite limited inventory through the first half of 2021. Residential mortgage loan originations for the six months ended June 30, 2021 totaled $58.7 million, an increase from $55.9 million in originations during the six months ended June 30, 2020. Originations sold into the secondary market were $27 million and $22 million, respectively during the six months ended June 30, 2021 and June 30, 2020. The Bank originates and sells primarily fixed rate thirty-year mortgages into the secondary market.

The allowance for loan losses increased $40 thousand from the year ago quarter to $7.9 million. The Company has not early adopted CECL which has been delayed for smaller reporting companies. Year over year outstanding loan balances decreased 13% to $552 million at June 30, 2021. Net recoveries were $46 thousand, or an annualized -0.02% of average loans, in the current six-month period compared to the $77 thousand net charge-off, or 0.03% of average loans in the year-ago six-month period. At June 30, 2021, the allowance for total loans minus the SBA guaranteed Payroll Protection loans was 1.53%. We believe the allowance level is appropriate given the low level of problem loans and current composition of the overall loan portfolio in the current economic environment.

Nonperforming loans decreased $1.6 million to $2.8 million, or 0.50%, of total loans from $4.4 million, or 0.69%, a year ago. For the six months ended June 30, 2021, $321 thousand loans were placed on nonaccrual status, $348 thousand in paydowns, and the bank returned $1.6 million back to accrual status due to ongoing payment performance.

*(Dollars in thousands)*

|  | June 30, 2021 | December 31, 2020 | June 30, 2020 |
| --- | ---: | ---: | ---: |
| Non-performing loans | $2,786 | $4,497 | $4,382 |
| Other real estate | — | — | 98 |
| Repossessed assets | — | — | — |
| Allowance for loan losses | 7,875 | 8,274 | 7,835 |
| Total loans | $552,030 | $609,159 | $636,799 |
| Allowance for loan losses as a percentage of total loans | 1.43% | 1.36% | 1.23% |
| Allowance for loan losses to total nonperforming loans | 2.8x | 1.8x | 1.7x |

The ratio of gross loans to deposits was 55.9% at June 30, 2021, compared to 68.3% at December 31, 2020.

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 $2.0 million within the available-for-sale and held-to-maturity portfolios as of June 30, 2021, was primarily the result of current market yields compared to the yields at the time the investments were purchased by the Company and not due to credit quality. As a result, all embedded security losses on June 30, 2021, are considered temporary and no impairment loss relating to these securities has been recognized.

Deposits increased $95 million, or 11%, from December 31, 2020 with noninterest-bearing deposits increasing approximately $31 million and interest-bearing deposit accounts increasing approximately $64 million. Total deposits as of June 30, 2021 are $987 million, or 21%, greater than June 30, 2020 deposit balances. On a year over year comparison, increases were recognized in noninterest-bearing demand deposits of $48 million, interest-bearing demand deposits of $68 million, money market accounts of $13 million, savings of $42 million, and time deposits remained stable. During 2020 and continuing into 2021, the Bank’s customers increased deposits through stimulus payments and cash conservation as a result of the COVID-19 pandemic.

Short-term borrowings consisting of overnight repurchase agreements with retail customers increased $1.3 million to $38 million at June 30, 2021 as compared to December 31, 2020 and other borrowings decreased $1 million as the Company repaid FHLB advances.

Total shareholders’ equity amounted to $96 million, or 8.5%, of total assets at June 30, 2021 an increase from $93.9 million December 31, 2020. The increase in shareholders’ equity during the six months ended June 30, 2021 was due to net income of $5.6 million partially offset by cash dividends of $1.6 million, other comprehensive loss of $1.5 million and the repurchase of treasury shares for $313 thousand. The Company and the Bank met all regulatory capital requirements at June 30, 2021.

### RESULTS OF OPERATIONS

### Three months ended June 30, 2021 and 2020

For the quarters ended June 30, 2021 and 2020, the Company recorded net income of $2.7 million and $2.6 million and $1.00 and $0.95 per share, respectively. The $139 thousand increase in net income for the period was primarily the result of a reversal of provision for loan losses of $475 thousand and a $202 thousand increase in noninterest income. The increases were partially offset by an increase in noninterest expenses of $681 thousand, a $541 thousand decrease in net interest income and a $33 thousand increase in the federal income tax provision. Return on average assets and return on average equity were 0.97% and 11.62%, respectively, for the three-month period of 2021, compared to 1.15% and 11.72%, respectively for the same quarter in 2020.

### Average Balance Sheets and Net Interest Margin Analysis

*(Dollars in thousands)*

| ASSETS | For the Three Months Ended June 30, 2021 Average balance1 | Interest | Average rate2 | 2020 Average balance1 | Interest | Average rate2 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest-earning deposits | $291,587 | $68 | 0.09% | $117,916 | $31 | 0.11% |
| Taxable securities | 193,252 | 604 | 1.25 | 99,353 | 481 | 1.95 |
| Tax-exempt securities 4 | 24,029 | 141 | 2.35 | 21,858 | 145 | 2.65 |
| Loans 3,4 | 564,997 | 6,239 | 4.43 | 621,710 | 7,110 | 4.60 |
| Total interest-earning assets | 1,073,865 | 7,052 | 2.63% | 860,837 | 7,767 | 3.63% |
| Noninterest-earning assets | 57,386 |  |  | 52,038 |  |  |
| **TOTAL ASSETS** | $1,131,251 |  |  | $912,875 |  |  |
| **LIABILITIES AND SHAREHOLDERS' EQUITY** |  |  |  |  |  |  |
| Interest-bearing demand deposits | $281,376 | $94 | 0.13% | $186,993 | 79 | 0.17% |
| Savings deposits | 276,746 | 70 | 0.10 | 215,644 | 70 | 0.13 |
| Time deposits | 124,436 | 345 | 1.11 | 126,475 | 523 | 1.66 |
| Borrowed funds | 44,956 | 34 | 0.30 | 51,748 | 47 | 0.37 |
| Total interest-bearing liabilities | 727,514 | 543 | 0.30% | 580,860 | 719 | 0.50% |
| Noninterest-bearing demand deposits | 305,459 |  |  | 238,876 |  |  |
| Other liabilities | 3,492 |  |  | 3,735 |  |  |
| Shareholders' Equity | 94,786 |  |  | 89,404 |  |  |
| **TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY** | $1,131,251 |  |  | $912,875 |  |  |
| Taxable equivalent net interest income, (Non-GAAP) |  | $6,509 |  |  | $7,048 |  |
| Tax equivalent adjustment 4 |  | (38) |  |  | (36) |  |
| Net interest income, (GAAP) |  | $6,471 |  |  | $7,012 |  |
| Net interest margin, (GAAP) |  |  | 2.42% |  |  | 3.27% |
| Tax equivalent adjustment 4 |  |  | 0.01 |  |  | 0.02 |
| Net interest margin-taxable equivalent, (Non-GAAP) |  |  | 2.43% |  |  | 3.29% |
| Taxable equivalent net interest spread |  |  | 2.33% |  |  | 3.13% |

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, which is a Non-GAAP measure and is reconciled to the GAAP measure at the bottom of the table.

Interest income for the quarter ended June 30, 2021, was $7 million representing a $717 thousand decrease, or a 9% decline, compared to the same period in 2020. This decrease was primarily due to average loan volume decreasing $57 million as well as average loan rates decreasing 17 basis points for the quarter ended June 30, 2021 as compared to the same period in 2020. Interest expense for the quarter ended June 30, 2021 was $543 thousand, a decrease of $176 thousand, or 24%, from the same quarter in 2020. The decrease in interest expense occurred primarily due to a decrease in rates on all liabilities for the quarter ended June 30, 2021, partially offset by increases in the average deposit balances.

For the quarter ended June 30, 2021, with stimulus programs, improving credit quality, and a decrease of outstanding loan balances, the bank recognized a negative (credit) provision of $475 thousand to the provision for loan losses, compared to a loss provision of $717 thousand for the same quarter in 2020. The Company’s provision for loan losses for the three months ended June 30, 2020, reflected the unknown COVID-19 pandemic and an elevated qualitative factor adjustment (“Q-factor”) under managements estimate of loss at that time. The recapture of provision for loan losses for the current quarter primarily reflects the decrease in loan balances, as well as the improvement in economic indicators including unemployment, residential real estate prices and consumer confidence over 2020. 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-offs and current economic trends.

Noninterest income for the quarter ended June 30, 2021, was $1.8 million, an increase of $202 thousand, or 12%, compared to the same quarter in 2020. The gain on the sale of mortgage loans to the secondary market decreased by $90 thousand for the quarter ended June 30, 2021 as fewer loans were sold into the secondary market due to decreasing inventories of homes available for sale and decreasing demand for mortgage rewrites. Debit card interchange income increased $126 thousand, or 32%, with greater fees generated from usage in the second quarter 2021. Earnings on bank owned life insurance increased $13 thousand for the second quarter 2021 a result of adding policies in 2020. Fees from trust and brokerage services amounted to $264 thousand for the second quarter 2021, an increase of $68 thousand, or 35%, as compared to the same quarter in 2020. Service charges on deposit accounts increased $8 thousand, or 4%, compared to the same quarter in 2020 primarily from a slight volume increase in overdraft fees.

Noninterest expenses for the quarter ended June 30, 2021 increased $681 thousand, or 14%, compared to the second quarter 2020. Salaries and employee benefits increased $368 thousand, or 14%, a result of a decrease in capitalization of approximately $262 thousand in salary and benefits expense to deferred loan origination costs related to new commercial and mortgage loan originations. Increases were recognized in base wage, social security benefits and incentive accruals. FDIC assessment amounted to $120 thousand as compared to $12 thousand in the second quarter 2020 due to small bank assessment credits being utilized in 2020. The Ohio financial institutions tax increased $16 thousand in the second quarter due to the Company’s increased capital base. Marketing and public relations expense increased $33 thousand, or 51%, primarily due to more events taking place after being cancelled due to COVID-19. Debit card expenses increased $26 thousand, or 18%, compared to the second quarter 2020 with increased volume. Software expense rose $77 thousand quarter over quarter with additional investment. Occupancy expense increased $3 thousand in 2021 over the second quarter 2020. Professional and director fees increased $74 thousand for the quarter ended June 30, 2021 as compared to the second quarter 2020. This increase resulted from an increase in collection legal fees, an increase in audit expense and an increase in director’s compensation.

Federal income tax expense increased $33 thousand, or 5%, for the quarter ended June 30, 2021 as compared to the second quarter 2020. The provision for income taxes was $654 thousand (effective rate of 19%) for the quarter ended June 30, 2021, compared to $621 thousand (effective rate of 19%) for the same quarter ended 2020.

### RESULTS OF OPERATIONS

### Six months ended June 30, 2021 and 2020

For the six months ended June 30, 2021 and 2020, the Company recorded net income of $5.6 million and $5.1 million and $2.05 and $1.86 per share, respectively. The $541 thousand increase in net income for the six-month period was primarily the result of a negative loan loss provision of $445 thousand for the period as compared to a loss provision of $895 thousand for the same period in 2020. Other income increased $737 thousand. The increases were partially offset by an increase of $955 thousand in noninterest expense, a $449 thousand decrease in net interest income, and an $132 thousand increase in the federal income tax provision. Return on average assets and return on average equity were 1.04% and 11.97%, respectively, for the six months ended June 30, 2021, compared to 1.19% and 11.60%, respectively for the same period in 2020.

### Average Balance Sheets and Net Interest Margin Analysis

*(Dollars in thousands)*

| ASSETS | For the Six Months Ended June 30, 2021 Average balance1 | Interest | Average rate2 | 2020 Average balance1 | Interest | Average rate2 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest-earning deposits in other banks | 247,638 | 114 | 0.09% | 96,867 | 270 | 0.56% |
| Taxable securities | 187,476 | 1,163 | 1.25 | 101,915 | 1,090 | 2.14 |
| Tax-exempt securities4 | 23,700 | 281 | 2.39 | 21,521 | 296 | 2.76 |
| Loans3,4 | 580,572 | 13,113 | 4.55 | 590,926 | 13,965 | 4.74 |
| Total earning assets | 1,039,386 | 14,671 | 2.85% | 811,229 | 15,621 | 3.86% |
| Other assets | 56,692 |  |  | 51,410 |  |  |
| **TOTAL ASSETS** | $1,096,078 |  |  | $862,639 |  |  |
| **LIABILITIES AND SHAREHOLDERS' EQUITY** |  |  |  |  |  |  |
| Interest-bearing demand deposits | $266,799 | $180 | 0.14% | $173,962 | $223 | 0.26% |
| Savings deposits | 269,826 | 140 | 0.10 | 208,546 | 198 | 0.19 |
| Time deposits | 123,584 | 726 | 1.18 | 126,837 | 1,083 | 1.72 |
| Other borrowed funds | 44,138 | 70 | 0.32 | 47,665 | 116 | 0.49 |
| Total interest bearing liabilities | 704,347 | 1,116 | 0.32% | 557,010 | 1,620 | 0.58% |
| Non-interest bearing demand deposits | 293,024 |  |  | 213,694 |  |  |
| Other liabilities | 3,850 |  |  | 3,688 |  |  |
| Shareholders' Equity | 94,857 |  |  | 88,247 |  |  |
| **TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY** | $1,096,078 |  |  | $862,639 |  |  |
| Taxable equivalent net interest income, (Non-GAAP) |  | $13,555 |  |  | $14,001 |  |
| Tax equivalent adjustment 4 |  | (76) |  |  | (73) |  |
| Net interest income, (GAAP) |  | $13,479 |  |  | $13,928 |  |
| Net interest margin, (GAAP) |  |  | 2.61% |  |  | 3.45% |
| Tax equivalent adjustment 4 |  |  | 0.02 |  |  | 0.02 |
| Net interest margin-taxable equivalent, (Non-GAAP) |  |  | 2.63% |  |  | 3.47% |
| Taxable equivalent net interest spread |  |  | 2.53% |  |  | 3.28% |

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, which is a Non-GAAP measure and is reconciled to the GAAP measure at the bottom of the table.

Interest income for the six months ended June 30, 2021, was $14.6 million representing a $953 thousand decrease, or a 6% decline, compared to the same period in 2020. This decrease was primarily due to yield decreases as follows: 19 basis points in average loan rates, 89 basis points in average taxable security yields, and 47 basis points in interest-earning deposits in other banks for the period ended June 30, 2021 as compared to the same period in 2020. Interest expense for the six months ended June 30, 2021 was $1.1 million, a decrease of $504 thousand, or 31%, from the same period in 2020. The decrease in interest expense occurred primarily due to a decrease in rates on all interest-bearing liabilities for the six months ended June 30, 2021, partially offset by increases in the average balances.

For the six months ended June 30, 2021, the provision for loan losses was a credit (reversal) of provision of $445 thousand, compared to a provision of $895 thousand for the same period in 2020. For more discussion see Results of Operations, three months. 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-offs and current economic trends.

Noninterest income for the six months ended June 30, 2020, was $3.7 million, an increase of $737 thousand, or 25%, compared to the same period in 2020. The gain on the sale of mortgage loans to the secondary market increased $282 thousand to $904 thousand for the six months ended June 30, 2021. Debit card interchange income increased $221 thousand, or 29%, with increased card usage in the first six months of 2021. Earnings on bank owned life insurance policies increased $35 thousand for the period with the additional purchase of $2 million in policies in 2021. Service charges on deposit accounts decreased $75 thousand, or 15%, compared to the same period in 2020 primarily from decreases in overdraft fees. Fees from trust and brokerage services increased $119 thousand for the period.

Noninterest expenses for the six months ended June 30, 2021 increased $955 thousand, or 10%, compared to the same period in 2020. Salaries and employee benefits increased $429 thousand, or 8%, a result increased salary, with additions to lending staff, and reduced capital gain of deferred loan costs with less volume originated in commercial loans. Marketing and public relations expense decreased $16 thousand, or 8%, with marketing, brand recognition initiatives, and community support in the company’s market slowly increasing in volume due to increasing opportunities presenting after previous cancellations due to COVID-19. Debit card expenses increased $57 thousand, or 20%, compared to the prior period in 2020. Occupancy expense increased $37 thousand over the same period in 2020 with an increase in depreciation, maintenance, and supplies expense. Professional and director fees increased $40 thousand for the six months ended June 30, 2021 as compared to the same period in 2020.

Federal income tax expense increased $132 thousand, or 11%, for the six months ended June 30, 2021 as compared to the same period in 2020. The provision for income taxes was $1.3 million (effective rate of 19%) for the six months ended June 30, 2021, compared to $1.2 million (effective rate of 19%) for the same period ended 2020.

### CAPITAL RESOURCES

The Company maintained a strong capital position with tangible common equity to tangible assets of 8.1% at June 30, 2021 compared with 8.7% at December 31, 2020.

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 common equity tier 1 (“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, 2020. As of June 30, 2021, 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 has not elected to opt-in to the CBLR framework as of June 30, 2021.

| Common Equity Tier 1 Capital To Risk Weighted Assets | Capital Ratios June 30, 2021 | December 31, 2020 |
| --- | ---: | ---: |
| Consolidated | 17.0% | 15.7% |
| Bank | 16.7% | 15.4% |
| Tier 1 Capital To Risk Weighted Assets Ratio |  |  |
| Consolidated | 17.0% | 15.7% |
| Bank | 16.7% | 15.4% |
| Total Capital To Risk Weighted Assets Ratio |  |  |
| Consolidated | 18.2% | 16.9% |
| Bank | 17.9% | 16.6% |
| Tier 1 Leverage Ratio |  |  |
| Consolidated | 8.1% | 8.7% |
| Bank | 8.0% | 8.5% |

### LIQUIDITY

*(Dollars in thousands)*

|  | June 30, 2021 | December 31, 2020 | Change |
| --- | ---: | ---: | ---: |
| Cash and cash equivalents | $312,343 | $181,652 | $130,691 |
| Available from FHLB | 106,400 | 101,616 | 4,784 |
| Unpledged AFS securities at fair market value | 132,109 | 130,702 | 1,407 |
|  | $550,852 | $413,970 | $136,882 |
| Net deposits and short-term liabilities | $964,239 | $870,498 | $93,741 |
| Liquidity ratio | 57.1% | 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 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 growth in core deposits was largely a result of PPP loan funds deposited into customer accounts and an increase in general customer liquidity due to reduced business investment and consumer spending during the COVID-19 pandemic.

### 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, 3,190 characters.

The COVID-19 pandemic 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, 2020. 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 a peak of approximately one million people on unemployment, or an unemployment rate of 17.6%, in Ohio during April of 2020. By June 2021, Ohio’s unemployment rate approximated 6%. The bank is based in Holmes County which is reporting the lowest unemployment rate in Ohio at 3.8% in June 2021. Of the counties within the bank’s footprint, Stark County reported the highest unemployment rate at 6.3% in June. With vaccination rates and government stimulus funds slowing, the Federal Reserve is projecting bottlenecks, hiring difficulties, and other constraints as well as the possibility that inflation could turn out to be higher and more persistent than expected. The effects of the pandemic on the economy have continue to diminish, but risks to the economy remain.

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 for the first twelve- month period. For the twenty-four month periods in the rising interest rate scenarios the increase in interest income is favorably above board policy limits.

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 June 30, 2021 and December 31, 2020. 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.

*June 30, 2021*

*(Dollars in thousands)*

| Change in Interest Rates (basis points) | Net Interest Income | Dollar Change | Percentage Change | Board Policy Limits |
| --- | ---: | ---: | ---: | --- |
| +400 | $28,153 | $3,040 | 12.1% | +/- 25% |
| +300 | 27,379 | 2,266 | 9.0 | +/-15 |
| +200 | 26,607 | 1,494 | 5.9 | +/-10 |
| +100 | 25,827 | 714 | 2.8 | +/-5 |
| 0 | 25,113 | — | — | — |
| -100 | 24,975 | (138) | (0.5) | +/-5 |
| -200 | 24,614 | (499) | (2.0) | +/-10 |
| **December 31, 2020** |  |  |  |  |
| +400 | $28,036 | $2,121 | 8.2% | +/- 25% |
| +300 | 27,495 | 1,580 | 6.1 | +/-15 |
| +200 | 26,969 | 1,054 | 4.1 | +/-10 |
| +100 | 26,430 | 515 | 2.0 | +/-5 |
| 0 | 25,915 | — | — | — |
| -100 | 25,767 | (148) | (0.6) | +/-5 |
| -200 | 25,414 | (501) | (1.9) | +/-10 |

35

CONTROLS AND PROCEDURES

## Controls and procedures

As filed, 1,842 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 June 30, 2021

## 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, 2020, 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 Aug 9, 2021.
Source: SEC EDGAR, the filing index for accession 0001564590-21-042603. Last ingested by Listed: Nov 2, 2026, 09:27 ET. No prices; not investment advice.