Executive Summary / Key Takeaways

• CSB Bancorp, Inc. (CSBB) is a community-focused financial holding company operating in Northeast Ohio, leveraging deep local ties as a key competitive advantage against larger regional banks.
• The company demonstrated solid financial performance in Q1 2025, reporting net income of $3.6 million ($1.37 per share), an increase from $2.9 million ($1.10 per share) in Q1 2024, primarily driven by a lower provision for credit losses.
• Loan and deposit growth continued in Q1 2025, with net loans increasing $23 million (3%) and deposits rising $26 million (2%) from year-end 2024, indicating ongoing customer relationships despite a competitive rate environment.
• CSBB maintains a strong capital position, with a tangible common equity to tangible assets ratio of 9.40% and all regulatory capital ratios exceeding well-capitalized standards as of March 31, 2025.
• While benefiting from local market presence, CSBB faces competitive pressure from larger, more technologically advanced institutions and fintech, necessitating strategic focus on efficiency and service delivery to maintain its market position.

A Community Bank's Resilience in a Shifting Landscape

CSB Bancorp, Inc. traces its roots back to 1879 with the founding of The Commercial and Savings Bank of Millersburg, Ohio. Over its long history, the organization has evolved into a financial holding company, encompassing the Bank and CSB Investment Services, LLC, to offer a broader range of banking, trust, financial, and brokerage services. This evolution has maintained a steadfast focus on Northeast Ohio, with operations concentrated in counties like Holmes, Medina, Stark, Tuscarawas, and Wayne. This deep regional presence and commitment to relationship banking form the bedrock of CSBB's strategy, differentiating it in a financial services industry increasingly dominated by scale and technology.

The current market environment presents a complex backdrop for regional banks. While inflation, as measured by the CPI, has moderated to 2.4% year-over-year at March 2025, it remains above the Federal Reserve's 2.0% target. Unemployment rates in Ohio and within CSBB's operating counties have seen increases, suggesting potential economic headwinds. This climate influences deposit costs, loan demand, and credit quality, requiring banks like CSBB to carefully manage their balance sheets and operational efficiency.

CSBB operates within a competitive landscape featuring both large regional players and other community banks. Major competitors like Huntington Bancshares (HBAN), Fifth Third Bancorp (FITB), and KeyCorp (KEY) possess significantly larger scale, broader geographic reach, and substantial investments in digital infrastructure. These larger institutions often benefit from greater operational efficiency and pricing power. For instance, HBAN and FITB demonstrate higher revenue growth rates and generally better profitability margins and ROE compared to CSBB, reflecting their scale and efficiency advantages. Their digital platforms enable faster processing and potentially lower operating costs per transaction, posing a challenge to CSBB's more traditional systems.

However, CSBB's strength lies in its community ties. Its localized presence and relationship-based underwriting can lead to higher customer loyalty and potentially lower default rates in specific niche lending areas like rural real estate, offering a qualitative advantage over the more transactional approach of larger banks. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, CSBB's established presence suggests a solid footing within its core operating areas. The company's investment in software, while a noninterest expense ($403 thousand in Q1 2025), is a necessary component in maintaining competitive service levels, though the competitive analysis indicates a lag in digital efficiency compared to larger rivals. This technological gap represents a vulnerability, potentially impacting customer acquisition costs and overall operational efficiency relative to peers.

Financial Performance and Operational Strength

CSB Bancorp delivered a robust performance in the first quarter of 2025. Net income reached $3.616 million, or $1.37 per diluted share, a notable increase from $2.933 million, or $1.10 per diluted share, in the same period of 2024. This 23% increase in net income was primarily attributable to a significantly lower provision for credit losses and off-balance sheet commitments, which totaled $402 thousand in Q1 2025 compared to $1.152 million in Q1 2024.

Net interest income also saw healthy growth, increasing by $533 thousand, or 5.8%, to $9.681 million for the quarter. This improvement was driven by higher average balances in loans and interest-earning deposits, despite volume decreases in taxable securities. The GAAP net interest margin expanded to 3.47% in Q1 2025 from 3.35% in Q1 2024. Interest expense rose by $192 thousand, or 6%, reflecting increased volumes and rates on money market and time deposit accounts as customers sought higher yields.

Noninterest income experienced a slight decrease of $76 thousand, or 4%, primarily due to a decline in trust services revenue, partially offset by increased earnings on bank-owned life insurance. Noninterest expenses rose by $339 thousand, or 6%, driven mainly by higher salaries and employee benefits, occupancy costs, and professional fees. This contributed to a modest increase in the efficiency ratio to 56.80% in Q1 2025 from 56.00% in Q1 2024.

The balance sheet continued to expand, with total assets growing by $27 million to $1.22 billion at March 31, 2025, compared to $1.19 billion at December 31, 2024. This growth was fueled by increases in net loans ($23 million, or 3%) and cash and cash equivalents ($15 million). The loan portfolio diversification includes commercial and industrial, commercial real estate, construction, and various consumer loans, with concentrations noted in lessors of non-residential buildings (11%), manufacturers of animal food (5%), and hotels (4%). Management employs specific underwriting standards and monitoring for these segments, including independent appraisal reviews and sensitivity analysis for construction loans, to mitigate inherent risks.

Credit quality metrics remained favorable. Nonperforming loans decreased slightly to $1.60 million, or 0.21% of total loans, at March 31, 2025, down from $1.70 million, or 0.23%, at December 31, 2024. Net charge-offs were minimal at $29 thousand for the quarter. The allowance for credit losses on loans increased by $379 thousand to $8.0 million, primarily attributed by management to the increase in loan volume. Management believes the current allowance level is appropriate given the portfolio's composition and economic conditions.

Deposit growth remained positive, increasing by $26 million, or 2%, from year-end 2024, reaching $1.07 billion. This growth reflects customers shifting funds into interest-bearing accounts like money markets and time deposits to capture higher rates. Estimated uninsured deposits stood at $262 million as of March 31, 2025.

Capital Strength and Outlook

CSB Bancorp maintains a robust capital position, comfortably exceeding all regulatory requirements for a well-capitalized institution. The consolidated total risk-based capital ratio was 16.50%, Tier 1 capital ratio was 15.40%, Common Equity Tier 1 (CET1) ratio was 15.40%, and the Tier 1 leverage ratio was 10.10% at March 31, 2025. These ratios reflect a strong buffer against potential economic downturns and support future growth initiatives.

Liquidity remains adequate, monitored by the Asset Liability Committee. Available sources include cash and cash equivalents ($88.5 million), available FHLB advances ($127.5 million), and unpledged available-for-sale securities ($117.2 million). Management believes these sources are sufficient to meet foreseeable obligations.

Shareholders' equity increased by $3.5 million during the quarter, benefiting from net income and other comprehensive income, partially offset by cash dividends and share repurchases. The company actively manages its capital structure, repurchasing 8,542 shares in Q1 2025 under its existing program. Demonstrating confidence and commitment to shareholders, the Board of Directors recently increased the quarterly cash dividend by $0.01 to $0.41 per share.

While specific quantitative forward guidance was not provided, the company's outlook is implicitly tied to its ability to continue generating loan and deposit growth in its target markets, manage interest rate risk effectively (as indicated by its sensitivity analysis showing limited impact within board-approved limits), and control credit quality amidst potentially rising unemployment. The competitive environment, particularly the need to keep pace with technological advancements by larger rivals, remains a key factor influencing future operational efficiency and market share.

Risks and Challenges

Investing in CSBB, like any financial institution, involves risks. General economic conditions, including changes in unemployment and inflation, can impact loan demand, credit quality, and deposit stability. The interest rate environment poses a significant market risk, affecting net interest margin and the value of the securities portfolio, as evidenced by the current unrealized losses on available-for-sale and held-to-maturity securities, although management deems these temporary and not credit-related.

Competitive conditions in the financial services industry are intense. Larger banks with greater resources and technological capabilities can exert pressure on pricing and market share. Rapidly changing technology requires ongoing investment to remain competitive, potentially impacting the efficiency ratio if not managed effectively. Changes in governmental policies and regulations could also affect operations and profitability. While CSBB's loan portfolio is diversified across types and industries, concentrations in specific commercial real estate segments warrant careful monitoring.

Conclusion

CSB Bancorp, Inc. presents a picture of a well-capitalized community bank executing its strategy effectively within its defined Northeast Ohio market. The first quarter of 2025 demonstrated solid profitability, driven by controlled credit costs and growth in core banking activities. The company's strong capital and liquidity positions provide a stable foundation.

The investment thesis for CSBB rests on its ability to leverage its deep community relationships and local market expertise to drive continued, albeit potentially modest, growth in loans and deposits. While facing inherent challenges from larger, more technologically advanced competitors and broader economic uncertainties, CSBB's conservative approach to credit, robust capital levels, and commitment to shareholder returns through dividends and buybacks offer a degree of resilience. Investors should monitor trends in loan growth, deposit costs, asset quality, and the company's ability to manage operational efficiency in the face of ongoing technological evolution in the banking sector.