CSB BANCORP INC /OH MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-K)


2021 FINANCIAL REVIEW

INTRODUCTION

CSB Bancorp, Inc. (the "Company" or "CSB") was incorporated under the laws of
the State of Ohio in 1991 and is a registered financial holding company. The
Company's wholly owned subsidiaries are The Commercial and Savings Bank (the
"Bank") and CSB Investment Services, LLC. The Bank is chartered under the laws
of the State of Ohio and was organized in 1879. The Bank is a member of the
Federal Reserve System, with deposits insured by the Federal Deposit Insurance
Corporation, and its primary regulators are the Ohio Division of Financial
Institutions and the Federal 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, personal loans, commercial loans, real
estate mortgage loans, installment loans, IRAs, night depository facilities, and
trust and brokerage services. Its customers are located primarily in Holmes,
Stark, Tuscarawas, Wayne, and portions of surrounding counties in Ohio.

Economic activity in the Company's market area expanded moderately in the fourth
quarter of 2021 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 has been strong; however, supply chain challenges have
affected growth in many sectors of the economy. Consumer spending has increased
modestly, although in some sectors, limited inventory and higher prices have
deterred some buyers. Reported unemployment levels in December 2021 ranged from
2.0% to 3.5% in the four primary counties served by the Company. These levels
decreased from the December 2020 range of 2.7% to 5.2% 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 supply still relatively tight. Construction costs remain high as
continued supply chain disruptions have contributed to the increase.

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.


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FINANCIAL DATA
The following table set forth certain selected consolidated financial
information:
(Dollars in thousands, except
share data)                             2021              2020              2019              2018              2017
Statements of income:
Total interest income              $      29,529$      31,066$      32,461$      29,637$      26,440
Total interest expense                     2,012             2,913             4,062             2,886             1,988
Net interest income                       27,517            28,153            28,399            26,751            24,452
Provision (recovery) for loan
losses                                      (655 )           1,650             1,140             1,316             1,145
Net interest income after
provision (recovery) for loan
losses                                    28,172            26,503            27,259            25,435            23,307
Noninterest income                         7,325             6,935             5,428             4,758             4,340
Noninterest expense                       22,093            20,342            19,769            18,518            17,316
Income before income taxes                13,404            13,096            12,918            11,675            10,331
Income tax provision                       2,567             2,528             2,504             2,263             3,230
Net income                         $      10,837$      10,568$      10,414$       9,412$       7,101

Per share of common stock:
Basic earnings per share           $        3.97$        3.85$        3.80$        3.43$        2.59
Diluted earnings per share                  3.97              3.85              3.80              3.43              2.59
Dividends                                   1.22              1.13              1.08              0.98              0.84
Book value                                 35.80             34.23             31.17             27.91             25.72
Average basic common shares
outstanding                            2,733,126         2,742,350         2,742,296         2,742,242         2,742,242
Average diluted common shares
outstanding                            2,733,126         2,742,350         2,742,296         2,742,242         2,742,242

Year-end balances:
Loans, net                         $     541,536$     600,885$     544,616$     543,067$     511,226
Securities                               311,245           204,184           130,721           110,913           128,124
Total assets                           1,144,239         1,031,632           818,683           731,722           707,063
Deposits                               1,002,747           891,562           683,546           606,498           583,259
Borrowings                                39,937            41,879            45,219            45,940            50,889
Shareholders' equity                      97,315            93,859            85,476            76,536            70,532

Average balances:
Loans, net                         $     554,547$     601,419$     545,483$     529,522$     491,258
Securities                               231,285           129,508           112,290           118,511           131,512
Total assets                           1,111,808           931,330           765,722           716,243           692,859
Deposits                                 969,009           788,904           636,441           589,646           553,228
Borrowings                                42,600            48,358            44,478            51,014            68,255
Shareholders' equity                      96,145            90,247            81,548            73,002            68,738

Select ratios:
Net interest margin, FTE basis              2.63   %          3.22   %          3.97   %          3.98   %          3.80   %
Return on average total assets              0.97              1.13              1.36              1.31              1.02
Return on average shareholders'
equity                                     11.27             11.71             12.77             12.89             10.33
Average shareholders' equity as
a percent of average total
assets                                      8.65              9.69             10.65             10.19              9.92
Net loan charge-offs
(recoveries) as a percent of
average loans                               0.00              0.06              0.01              0.19              0.17
Allowance for loan losses as a
percent of loans at year-end                1.39              1.36              1.27              1.08              1.08
Shareholders' equity as a
percent of total year-end assets            8.50              9.10             10.44             10.46              9.98
Dividend payout ratio                      30.73             29.35             28.42             28.57             32.45


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RESULTS OF OPERATIONS
Net Income
CSB's 2021 net income was $10.8 million compared to $10.6 million for 2020, an
increase of 3%. Total revenue, net interest income plus noninterest income,
decreased $246 thousand, or less than 1%, over the prior year to a total of
$34.8 million. The provision for loan losses decreased to a $655 thousand
recovery as compared to a provision for loan loss of $1.7 million for the prior
year. Expense increases include noninterest expenses of $1.8 million and an
increase in the provision for income tax of $39 thousand over the prior year due
to an increase in taxable income. Basic and diluted earnings per share were
$3.97, up 3% from the prior year. The return on average assets was 0.97% in 2021
compared to 1.13% in 2020 and return on average equity was 11.27% in 2021
compared to 11.71% in 2020.

CSB's 2020 net income was $10.6 million compared to $10.4 million for 2019, an
increase of 1%. Total revenue, net interest income plus noninterest income,
increased 4% over the prior year to a total of $35 million. The provision for
loan losses increased $510 thousand over the prior year. Expense increases
include noninterest expenses of $573 thousand and an increase in the provision
for income tax of $24 thousand over the prior year due to an increase in taxable
income. Basic and diluted earnings per share were $3.85, up 1% from the prior
year. The return on average assets was 1.13% in 2020 compared to 1.36% in 2019
and return on average equity was 11.71% in 2020 compared to 12.77% in 2019.

Net Interest Income

(Dollars in thousands)               2021           2020           2019
Net interest income              $   27,517$   28,153$   28,399
Taxable equivalent1                     154            148            157
Net interest income, FTE         $   27,671$   28,301$   28,556
Net interest margin                    2.61   %       3.20   %       3.95   %
Taxable equivalent adjustment1         0.02           0.02           0.02
Net interest margin, FTE               2.63   %       3.22   %       3.97   %


¹Taxable equivalent adjustments have been computed assuming a 21% tax rate in
2021, 2020 and 2019 (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 decreased $636 thousand, or 2%, in 2021 compared to 2020 as
excess borrower liquidity and Paycheck Protection Program ("PPP") loan
forgiveness led to a decrease in average loan balances of $47 million. Taxable
securities average yields dropped 47 basis points while nontaxable investment
yields dropped 46 basis points. The decrease in interest income was partially
offset by a decrease in interest expense of $901 thousand as the average rate
paid on interest bearing liabilities decreased 20 basis points in 2021. The FTE
net interest margin decreased to 2.63% from 3.22% in 2020.

Net interest income decreased $246 thousand, or 1%, in 2020 compared to 2019 as
managed and market rates fell in response to the Federal Reserve intervention to
support markets and supply liquidity in response to the COVID-19 pandemic. The
average rate earned on interest-earning deposits decreased 180 basis points as
CSB's overnight liquidity increased an average of $86 million on a year over
year basis. Taxable securities average yields dropped 78 basis points while
nontaxable investment yields dropped 17 basis points. Loan yields decreased 52
basis points. The net interest margin FTE decreased to 3.22% from 3.97% in 2019.

Interest income decreased $1.5 million, or 5%, in 2021 compared to 2020
primarily due to a decrease of $2.2 million in loan interest income as 2021
average loan balances were $47 million below the prior year. PPP loan average
loan balances were $24 million lower than the prior year as customers applied
for loan forgiveness from the SBA. Interest income on investments and
interest-earning deposits increased $693 thousand due to an increase in average
balances

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of $221 million over the prior year, as businesses and consumers increased their
savings balances and decreased spending retaining the monies received through
stimulus packages during 2020.

Interest income decreased $1.4 million, or 4%, in 2020 compared to 2019 with a
$763 thousand decrease in interest income from overnight funds sold primarily to
the Federal Reserve due to a decline in average yield while balances grew as
businesses and consumers increased their savings rates with decreased spending
as well as retaining the monies received through stimulus packages during 2020.
Interest income on taxable securities declined $365 thousand and interest income
on nontaxable securities declined $68 thousand as the Federal Reserve
substantially reduced rates and increased their purchases of securities to
provide market liquidity. Loan yields decreased by 52 basis points as the prime
rate was lowered 125 basis points in the first quarter of 2020 following
decreases of 75 basis points during the third and fourth quarters of 2019.

Interest expense decreased $901 thousand, or 31%, in 2021 as compared to 2020
primarily due to rate decreases of 21 basis points on deposits and 9 basis
points on other borrowed funds. Average interest-bearing demand and savings
deposit balances increased $114 million during the year as savings rates
continued to accelerate with consumers and businesses reluctant to spend during
the ongoing pandemic uncertainty along with supply chain disruptions affecting
spending. Average time deposit balances decreased $2.1 million, and the average
interest rate decreased 55 basis points.

Interest expense decreased $1.1 million, or 28%, in 2020 as compared to 2019 due
to rate decreases of 31 basis points on deposits and 63 basis points on other
borrowed funds. Balances of all deposit types increased in the year as savings
rates accelerated with consumers and businesses reacting to the COVID-19
pandemic insecurity.

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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

                                                2021                                               2020                                              2019
                                 Average                        Average            Average                        Average            Average                        Average
(Dollars in thousands)          Balance 1        Interest       Rate 2            Balance 1        Interest       Rate 2            Balance 1        Interest       Rate 2
Interest-earning assets
Federal funds sold           $           -     $         -             -   %    $          -     $         -             -   %    $        250     $         5          2.00   %
Interest-earning deposits          259,789             337          0.13             140,438             366          0.26              54,573           1,124          2.06
Securities:
Taxable                            206,077           2,613          1.27             107,826           1,880          1.74              89,104           2,247          2.52
Tax exempt 4                        25,208             576          2.28              21,682             588          2.74              23,186             674          2.91
Loans 3, 4                         562,592          26,156          4.65             609,207          28,379          4.66             552,014          28,568          5.18
Total interest-earning
assets                           1,053,666          29,682          2.82   %         879,153          31,213          3.55   %         719,127          32,618          4.54   %
Noninterest-earning assets
Cash and due from banks             19,891                                            18,759                                            15,864
Bank premises and equipment,
net                                 13,372                                            12,493                                            11,297
Other assets                        32,924                                            28,713                                            25,965
Allowance for loan losses           (8,045 )                                          (7,788 )                                          (6,531 )
Total assets                 $   1,111,808$    931,330$    765,722

Interest-bearing liabilities
Demand deposits              $     259,111             317          0.12   %    $    203,010             390          0.19   %    $    135,313             593          0.44   %
Savings deposits                   281,888             281          0.10             223,785             339          0.15             189,520             915          0.48
Time deposits                      123,659           1,285          1.04             125,761           1,994          1.59             123,694           2,101          1.70
Borrowed funds                      42,600             128          0.30              48,358             189          0.39              44,478             453          1.02
Total interest-bearing
liabilities                        707,258           2,011          0.28   %         600,914           2,912          0.48   %         493,005           4,062          0.82   %
Noninterest-bearing
liabilities and
  shareholders' equity
Demand deposits                    304,351                                           236,348                                           187,914
Other liabilities                    4,054                                             3,821                                             3,255
Shareholders' equity                96,145                                            90,247                                            81,548
Total liabilities and equity $   1,111,808$    931,330$    765,722
Net interest income 4                               27,671                                            28,301                                            28,556
FTE adjustment                                        (154 )                                            (148 )                                            (157 )
GAAP net interest income                       $    27,517$    28,153$    28,399
Net interest margin FTE                                             2.63   %                                          3.22   %                                          3.97   %
Net interest spread                                                 2.54   %                                          3.07   %                                          3.72   %


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).

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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


                                                 2021 v. 2020                                     2020 v. 2019
                                    Net Increase                                     Net Increase
(Dollars in thousands)                (Decrease)         Volume         Rate           (Decrease)        Volume           Rate
Increase (decrease) in
interest income:
Federal funds                   $              -     $        -     $      -     $             (5 )   $       -     $       (5 )
Interest-earning deposits                    (29 )          155         (184 )               (758 )         224           (982 )
Securities:
Taxable                                      733          1,244         (511 )               (367 )         327           (694 )
Tax exempt                                   (12 )           81          (93 )                (86 )         (41 )          (45 )
Loans                                     (2,223 )       (2,167 )        (56 )               (189 )       2,672         (2,861 )
Total interest income change              (1,531 )         (687 )       (844 )             (1,405 )       3,182         (4,587 )
Increase (decrease) in
interest expense:
Demand deposits                              (73 )           69         (142 )               (203 )         130           (333 )
Savings deposits                             (58 )           58         (116 )               (576 )          52           (628 )
Time deposits                               (709 )          (22 )       (687 )               (107 )          33           (140 )
Other borrowed funds                         (61 )          (17 )        (44 )               (264 )          15           (279 )
Total interest expense change               (901 )           88         (989 )             (1,150 )         230         (1,380 )
Net interest income change      $           (630 )   $     (775 )$    145     $           (255 )   $   2,952$   (3,207 )



¹Changes 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.

Provision For Loan Losses
The provision 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 2021 a recovery of credit losses of $655 thousand was
recognized compared to a provision for loan losses of $1.7 million in 2020 and
$1.1 million provision in 2019. 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 $3.4 million from 2020 to
2021. 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 2020                        Change from 2019
(Dollars in thousands)              2021          Amount         %          2020          Amount        %           2019
Service charges on deposit
accounts                         $     939$      (64 )       (6 ) % $   1,003$     (249 )      (20 ) % $   1,252
Trust services                       1,059            163         18           896             (3 )       (0 )         899
Debit card interchange fees          2,050            389         23         1,661            180         12         1,481
Gain on sale of loans, including
MSRs                                 1,449           (502 )      (26 )       1,951          1,489        322           462
Earnings on bank-owned life
insurance                              619             97         19           522             76         17           446
Unrealized gain (loss) on equity
securities                              28             32        800            (4 )          (13 )     (144 )           9
Other                                1,181            275         30           906             27          3           879
Total noninterest income         $   7,325$      390          6   % $   6,935$    1,507         28   % $   5,428



Noninterest income increased $390 thousand, or 6%, in 2021 compared to the same
period in 2020. Debit card interchange fees increased $389 thousand in 2021
compared to 2020 due to volume increases. Credit card interchange income, which
is included in other income above, increased $149 thousand as business credit
card usage continued to increase. Earnings on bank owned life insurance
increased $97 thousand with the purchase of $2 million in policy

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values in 2021. Trust and brokerage service revenue increased $163 thousand.
Gains on sales of mortgage loans including mortgage servicing rights ("MSRs")
decreased $502 thousand due to fewer sales of real estate mortgage loans into
the secondary market as many consumers took advantage of the large interest rate
declines in 2020. The Bank sold $47 million in mortgage loans, including gains,
in 2021 as compared to the sale of $61 million of loans in 2020. Service charges
on deposits, which are primarily customer overdraft fees, decreased $64 thousand
in 2021.

Noninterest income increased $1.5 million, or 28%, in 2020 compared to the same
period in 2019. Gains on sales of mortgage loans including mortgage servicing
rights increased 322% due to increasing sales of real estate mortgage loans with
low fixed rate thirty-year maturities into the secondary market. The Bank sold
$61 million in mortgage loans, including gains, in 2020 as compared to the sale
of $20 million of loans in 2019. Service charges on deposits, decreased 20% in
2020. Debit card interchange fees increased 12% in 2020 compared to 2019 due to
volume increases. Earnings on bank owned life insurance increased $76 thousand
with the addition of $2 million in policy values in 2020. Trust and brokerage
service revenue decreased less than 1%.

Noninterest Expenses

                                                                    YEAR ENDED DECEMBER 31
                                                    Change from 2020                          Change from 2019
(Dollars in thousands)             2021          Amount          %           2020          Amount          %           2019
Salaries and employee
benefits                       $   12,599$      892           8   % $   11,707$       44           0   % $   11,663
Occupancy expense                   1,033             80           8            953            121          15            832
Equipment expense                     714             57           9            657             86          15            571
Professional and director
fees                                1,184           (100 )        (8 )        1,284            (48 )        (4 )        1,332
Financial institutions tax            751             67          10            684             72          12            612
Marketing and public
relations                             461             63          16            398           (137 )       (26 )          535
Software expense                    1,342            241          22          1,101            163          17            938
Debit card expense                    710             89          14            621             67          12            554
Telecommunications expense            377            (42 )       (10 )          419             35           9            384
FDIC insurance                        478            275         135            203            105         107             98
Amortization of intangible
assets                                 44            (16 )       (27 )           60             (3 )        (5 )           63
Provision for unfunded loan
commitments                           103             86         506             17             17         n/a              -
Other                               2,297             59           3          2,238             51           2          2,187
Total noninterest expenses     $   22,093$    1,751           9   % $   20,342$      573           3   % $   19,769



Noninterest expense increased $1.8 million, or 9%, in 2021 compared to 2020.
Salaries and employee benefits increased $892 thousand from increases in base
compensation of $554 thousand and incentive compensation of $183 thousand. The
capitalization of employee costs of loan originations increased the amount
recognized in salary expense by $82 thousand in 2021, a result of decreased
origination of commercial and mortgage loans. The FDIC insurance assessment
increased $275 thousand, or 135%, a result of the increase in asset size and the
expiration of small bank assessment credits. Software expense increased $241
thousand, or 22%, due to implementation of a new mobile banking platform along
with core software provider increases. Debit card expense increased $89 thousand
in 2021 due to increased volume. An increase of $67 thousand in the Ohio
financial institutions tax was recognized as capital increased. Occupancy
expense increased $80 thousand primarily from branch renovations. Equipment
expense increased $57 thousand in 2021, as compared to 2020, with increased
depreciation expense and equipment maintenance contracts. The provision for
unfunded loan commitments increased $86 thousand due to unfunded construction
loans to assisted living / retirement facilities that have been negatively
affected by COVID-19. Other expenses increased $59 thousand, or 3%. Professional
and director fees decreased $100 thousand primarily due to a decrease in legal
expenses related to loan collections. Telecommunications expense decreased $42
thousand in 2021 over 2020 as data lines were replaced with more effective and
cost-efficient means.

Noninterest expense increased $573 thousand, or 3%, in 2020 compared to 2019.
Salaries and employee benefits increased $44 thousand due to base compensation
increasing $449 thousand due to additional full-time employees and annual
adjustments. The capitalization of employee costs of loan originations decreased
the amount of recognized salary expense by $660 thousand and $217 thousand, in
2020 and 2019 respectively. Other increases in 2020 include retirement benefits
and incentive compensation of $16 thousand and medical and dental expense rising
$32 thousand.

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Employment taxes decreased $16 thousand with refunds within Ohio workmen's
compensation. Professional and director fees decreased $48 thousand primarily
due to a decrease in outside audit and accounting fees. Telecommunications
expense increased $35 thousand in 2020 over 2019 with additional back-up
redundancy added to the core systems. Debit card expense increased $67 thousand
in 2020 due to increased volume. An increase in the Ohio financial institutions
tax was recognized as capital increased. Equipment expense increased $86
thousand in 2020, as compared to 2019, with increased depreciation expense with
the replacement of ATMs, PC's and laptops, and branch market expansion. The FDIC
insurance assessment increased $105 thousand, or 107%, as small bank "credits"
expired. Occupancy expense increased $121 thousand, or 15% with the expansion of
the branch footprint. Other expenses increased $51 thousand, or 2%.

Income Taxes
The provision for income taxes amounted to $2.6 million in 2021, $2.5 million in
2020, and $2.5 million in 2019. The slight increase in 2021 and 2020 resulted
from an increase in income. The corporate statutory tax rate was 21% for 2021,
2020, and 2019. The effective tax rate in 2021, 2020, and 2019 approximates 19%.

FINANCIAL CONDITION
Total assets of the Company were $1.1 billion on December 31, 2021, compared to
$1 billion at December 31, 2020, representing an increase of $113 million, or
11%. Net loans decreased $59 million, or 10%, while investment securities
increased $107 million, or 52%, and total cash and cash equivalents increased
$62 million. Deposits increased $111 million and short-term borrowings decreased
$685 thousand, while other borrowings from the Federal Home Loan Bank ("FHLB")
decreased by $1.3 million, or 27%.

Securities

Total investment securities increased $107 million, or 52%, to $311 million at
year-end 2021. 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 of December 31, 2021, 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 82% of the portfolio originating in Ohio, and 18% in
Pennsylvania. Gross unrealized security losses within the portfolio were less
than 1% of total securities on December 31, 2021, reflecting interest rate
fluctuations, not credit downgrades.

During December 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 of U.S. Government
agency mortgage-backed securities and $3 million of U.S.Treasury notes. These
bonds will still provide liquidity through pledging and for use as collateral
against borrowings.

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 decreased $60 million, or 10%, during 2021 with decreases in
commercial loans, residential real estate and consumer loans. Volume decreases
were recognized as follows: commercial loans including PPP loans decreased $68
million, or 35%, during 2021, with PPP loan forgiveness comprising $66 million
of the decrease. Remaining PPP loan balances were $4.6 million as of December
31, 2021. Construction and land development loans increased $10 million, or 28%
as several commercial projects were under construction and consumer demand
increased for 1-4 family residential construction at year end. Residential real
estate loans decreased $9 million, or 5%. Commercial real estate loans increased
$8 million, or 4%. Commercial real estate and construction loan demand resumed,
however there was a slowing of commercial loan growth with increased competition
from private lenders and excess business liquidity remaining from government
stimulus programs.

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The Company originated $53 million and $76 million of portfolio mortgage loans,
which were predominately variable rate, in 2021 and 2020, respectively.
Attractive interest rates in the secondary market also continued to drive
consumer demand for longer-term 1-4 family fixed rate residential mortgages as
the Company sold $46 million of originated mortgages into the secondary market
in 2021 as compared to $59 million in 2020. Demand for home equity loans
declined in 2021, with balances decreasing $5 million, as outstanding loan
balances were paid down, or balances were refinanced into new first mortgages at
lower fixed rates. Installment loans declined $2 million with consumer loans
decreasing from a slowdown in the Company's origination of Recreational Vehicle
finance loans.

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% and 62% of the total loan portfolio at
year-end 2021 and 2020, respectively. Residential real estate loans increased to
31% in 2021 from 29% of the total loan portfolio in 2020. Construction and land
development loans increased to 8% of the portfolio as loan demand for commercial
construction projects increased by $10 million and residential construction
loans increased by $483 thousand, 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
within Holmes, Stark, Tuscarawas and Wayne counties in Ohio. 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.

                                       26


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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)                                             2021          2020
Nonaccrual loans
Commercial                                                      $     208$   1,225
Commercial real estate                                                139         2,205
Residential real estate                                               367           688
Construction & land development                                       329   

317

Consumer                                                               40   

13


Loans past due 90 days or more and still accruing
Commercial                                                              5             -
Residential real estate                                                 -            49
Total nonperforming loans                                           1,088         4,497

Other real estate owned                                                 -             -
Other repossessed assets                                                -             -
Total nonperforming assets                                      $   1,088$   4,497

Nonperforming assets as a percentage of loans plus other real
estate and repossessed assets                                        0.20   %      0.74   %



During 2021, $2.1 million in nonaccrual loans were collected, $1.6 million were
returned to accrual, while $357 thousand entered nonaccrual status.

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 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

                                       27

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Allowance for Loan Losses Policy includes, among other items, provisions for
classified loans, and a provision for the remainder of the portfolio based on
historical data, including past charge offs.


ALLOWANCE FOR LOAN LOSSES                                    FOR THE YEAR ENDED
(Dollars in thousands)                                         2021          2020
Beginning balance of allowance for loan losses              $   8,274$   7,017
Provision for loan losses                                        (655 )       1,650
Charge-offs:
Commercial                                                         35            77
Commercial real estate                                              -           138
Residential real estate & home equity                               -       

15

Construction & land development                                     -           312
Consumer                                                           95           100
Total charge-offs                                                 130           642
Recoveries:
Commercial                                                         31           130
Commercial real estate                                              8            41
Residential real estate & home equity                              25             3
Consumer                                                           65            75
Total recoveries                                                  129           249
Net charge-offs                                                     1           393
Ending balance of allowance for loan losses                 $   7,618     $ 

8,274

Net charge-offs as a percentage of average total loans              -   %      0.06   %
Allowance for loan losses as a percentage of total loans         1.39       

1.36

Allowance for loan losses to total nonperforming loans           7.00   x   

1.84 x


Components of the allowance for loan losses:
General reserves                                            $   7,396     $ 

8,244

Specific reserve allocations                                      222       

30

Total allowance for loan losses                             $   7,618     $ 

8,274




The allowance for loan losses totaled $7.6 million, or 1.39%, of total loans at
year-end 2021 as compared to $8.3 million, or 1.36%, of total loans at year-end
2020. The allowance for loan losses as a percentage of total loans excluding the
$4.6 million PPP loans, which are fully guaranteed by the SBA is 1.40%
(non-GAAP) as of December 31, 2021. The Bank had net charge-offs of $1 thousand
for 2021 as compared to net charge-offs of $393 thousand for 2020.

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 $1.1 million, or 0.20%, of loans
at year-end 2021 as compared to $4.5 million, or 0.74%, of loans at year-end
2020. Impaired loans were $2 million at year-end 2021 as compared to $6.3
million at year-end 2020. 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.

Other Assets
Net premises and equipment increased $1.2 million to $13.9 million at year-end
2021 with renovations to several banking locations and the replacement of
laptops and personal computers. Total bank-owned life insurance increased from
$21 million at year-end 2020 to $24 million at year-end 2021 as additional
policies were purchased totaling $2 million along with $619 thousand of
increases in the cash surrender value. There was no other real estate owned on
December 31, 2021, or 2020. The Company recognized a net deferred tax asset of
$325 thousand on December 31, 2021, as compared to a deferred tax liability of
$153 thousand on December 31, 2020.

                                       28

——————————————————————————–

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 2021, due to
continued government stimulus relief along with reduced spending during the
COVID-19 pandemic. Market rates on deposits and cash management products
decreased throughout the year as liquidity increased.

                                                December 31                  Change from 2020
(Dollars in thousands)                     2021             2020            Amount           %
Noninterest-bearing demand            $     334,346$   272,051$      62,295         23   %
Interest-bearing demand                     242,387         243,467            (1,080 )        -
Traditional savings                         191,836         154,899            36,937         24
Money market savings                        112,803          97,813            14,990         15
Time deposits in excess of $250,000          26,213          23,378             2,835         12
Other time deposits                          95,162          99,954            (4,792 )       (5 )
Total deposits                        $   1,002,747$   891,562$     111,185         12   %



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 $685 thousand. Other borrowings,
consisting of FHLB advances, decreased $1.3 million as the result of principal
repayments. All FHLB borrowings on December 31, 2021, have long term maturities
with monthly amortizing payments.

CAPITAL RESOURCES
Total shareholders' equity increased to $97.3 million on December 31, 2021, as
compared to $93.9 million on December 31, 2020. This increase was primarily due
to $10.8 million of net income which was partially offset by the payment of $3.3
million of cash dividends in 2021. 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, 2021, approximately 113 thousand shares could still be repurchased under the
current authorized program. Shares repurchased during 2021 totaled 24,326 in the
amount of $939 thousand and no shares were repurchased in 2020.

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 13
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.



                                       29

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LIQUIDITY

                                                           December 31
                                                                                         Change
(Dollars in thousands)                                2021              2020           from 2020
Cash and cash equivalents                        $     243,657$   181,652$     62,005
Unused lines of credit                                 107,054          101,616             5,438

Unpledged AFS securities at fair market value 108,158 130,702

           (22,544 )
                                                 $     458,869$   413,970$     44,899
Net deposits and short-term liabilities          $   1,016,821$   870,498$    146,323
Liquidity ratio                                           45.1   %         47.6   %          -2.5   %
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 on December 31, 2021, and 2020.
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 2021 included net loan repayments of $58
million and securities purchases of $169 million, offset by maturities and
repayment of securities totaling $57 million. The Company's financing activities
included a $111 million increase in deposits, $3 million in cash dividends paid,
and a $1 million decrease in repayment of other borrowings.

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