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CSB Bancorp, Inc. (CSBB)·Q2 2024 Earnings Summary

Executive Summary

  • EPS fell to $0.61 and net income to $1.615M driven by a sharp increase in provision expense tied to a single $6.4M commercial borrower placed on nonaccrual and reserved for $4.1M; PPNR was solid (+4% YoY), NIM held relatively steady, and expenses improved (efficiency ratio 54.2%) .
  • Net interest margin FTE was 3.28% (vs 3.37% in Q1 and 3.36% in Q4), with cost of deposits rising to 1.38% (1.31% in Q1, 1.16% in Q4), offset by higher loan yields and loan mix shift; average loans grew 1.7% QoQ and 8.4% YoY to $717.1M .
  • Credit metrics deteriorated: NPA ratio rose to 0.93% (0.05% in Q1), ACL/loans to 1.47% (1.00% in Q1), and net charge-offs to 0.14% annualized (0.04% in Q1), all due largely to the single identified relationship; overall portfolio quality otherwise described as acceptable .
  • The Board raised the quarterly dividend to $0.40 in August (from $0.39), signaling confidence despite near-term credit noise; management expects some credit deterioration as borrowers face inflation and high rates, with muted loan demand until rates ease .

What Went Well and What Went Wrong

  • What Went Well

    • PPNR grew to $4.852M (+4% YoY), reflecting resilient core earnings despite rate pressures and higher funding costs .
    • Net interest income was stable QoQ and only modestly lower YoY as mix shift toward loans and higher loan yields offset funding cost pressure (NIM FTE 3.28% vs 3.33% YoY) .
    • Expense discipline improved with the efficiency ratio at 54.22% (vs 56.00% in Q1 and 56.67% in Q4), helped by lower salaries/benefits YoY and stable operating costs .
    • Management quote: “Net interest margins remain pressured but have held within 2 basis points of last year’s first six months performance. Deposit balances are steady… Loan demand has slowed.” .

  • What Went Wrong

    • Provision expense rose to $2.889M due to a single $6.4M commercial relationship placed on nonaccrual and subsequently ceasing operations; a $4.1M specific reserve was established .
    • Asset quality metrics weakened: NPA/loans up to 0.93% (from 0.05% in Q1), ACL/loans to 1.47%, and net charge-offs to 0.14% annualized .
    • Deposit costs continued to rise (1.38% vs 1.31% in Q1, 1.16% in Q4) amid competitive funding and a prolonged high-rate environment, pressuring NIM .

Financial Results

MetricQ4 2023Q1 2024Q2 2024
EPS ($)$1.38 $1.10 $0.61
Net Income ($M)$3.697 $2.933 $1.615
Net Interest Income ($M)$9.345 $9.148 $8.925
Noninterest Income ($M)$1.678 $1.772 $1.741
Provision for Credit Losses ($M)$0.156 $1.152 $2.889
PPNR ($M)$4.765 $4.778 $4.852
NIM FTE (%)3.36% 3.37% 3.28%
Efficiency Ratio (%)56.67% 56.00% 54.22%
ROA (%)1.25% 1.02% 0.56%
ROE (%)14.22% 10.84% 5.89%
Total Interest & Dividend Income ($M)$12.469 $12.556 $12.503
Total Interest Expense ($M)$3.124 $3.408 $3.578
Cost of Deposits (%)1.16% 1.31% 1.38%
Average Loans ($M)$693.779 $705.294 $717.105
Average Deposits ($M)$1,028.207 $1,010.745 $1,016.569
Total Revenue (NII + Noninterest) ($M)$11.023 $10.920 $10.666

KPIs

  • Yield and Funding

    • Loan Yield (%) | 5.64 | 5.83 | 5.74
    • Overnight Funds Yield (%) | 5.54 | 5.36 | 5.57
    • Securities Yield (%) | 2.20 | 2.21 | 2.20

  • Asset Quality and Reserves

    • NPA / Loans (%) | 0.06 | 0.05 | 0.93
    • ACL / Loans (%) | 0.94 | 1.00 | 1.47
    • Net Charge-offs / Avg Loans (annualized, %) | 0.00 | 0.04 | 0.14

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Formal quantitative guidance2024None disclosedNone disclosedMaintained
Credit outlook (qualitative)Near-termMonitoring, acceptable overallExpect some deterioration given inflation and high rates; portfolio otherwise acceptable ex one relationshipDeteriorated
Dividend per shareQ3 2024$0.39 (Q2 declaration) $0.40Raised

Earnings Call Themes & Trends

Note: No earnings call transcript was furnished; themes are derived from management’s press releases.

TopicPrevious Mentions (Q4’23, Q1’24)Current Period (Q2’24)Trend
Interest rate/marginMargin steady to slightly higher; Fed cuts “later in 2024” expected; funding costs rising NIM FTE 3.28% (down 9 bps QoQ) as deposit costs rose; margin “within 2 bps” of last year’s first half Slight margin pressure
Loan demandContinued but softening; borrowers cautious awaiting lower rates “Loan demand has slowed”; businesses avoiding nonessential borrowing; home lending constrained by inventory and rates Weaker
Deposit mix/costsCost of deposits rising; shift into time deposits Cost of deposits 1.38%; time deposits +$76M YoY; NIBD down $48M YoY Cost up; mix toward time deposits
Credit qualityLow NPAs, low losses One $6.4M commercial credit to nonaccrual; $4.1M specific reserve; NPAs 0.93% Deteriorated due to single relationship
Operating efficiencyEfficiency ratio mid‑50s 54.22% (improved YoY/QoQ) Improving
Technology/operationsSoftware investments and upgrades increased expense Software expense slightly down YoY; operating costs contained Stable/slightly favorable
Regulatory costsFDIC assessment higher in 2023 FDIC assessment down $49K YoY; Ohio FIT up with capital Mixed

Management Commentary

  • “Net interest margins remain pressured but have held within 2 basis points of last year’s first six months performance. Deposit balances are steady, buoyed partially by savers taking advantage of higher rates. Loan demand has slowed… We expect some deterioration in credit conditions… Overall quality within our loan portfolio remains acceptable with the exception of one customer relationship for which a significant loss reserve has been established.” — Eddie Steiner, President & CEO .
  • “A previously identified commercial lending relationship totaling $6.4 million experienced credit deterioration and was placed on nonaccrual… The relationship has a specific reserve of $4.1 million within the combined total allowance for expected credit losses.” .
  • “The fully-taxable equivalent net interest margin was 3.28%… reflecting a declining net interest margin offset by a $12 million increase in average earning assets.” .

Q&A Highlights

  • No public earnings call transcript was furnished alongside Q2 materials; no Q&A disclosures available in filings/press release .

Estimates Context

  • Wall Street consensus (S&P Global) for Q2 2024 EPS and revenue was not available via our SPGI data access at this time due to request limits; as such, we cannot classify a beat or miss versus consensus. Values retrieved from S&P Global were unavailable due to access limits at query time.

Key Takeaways for Investors

  • Core earnings held up (PPNR +4% YoY) despite higher funding costs; cost control improved efficiency, offering cushion as rates stay elevated .
  • The quarter’s EPS decline was driven by a single commercial credit; absent this, underlying pre‑provision profitability and NIM performance appear resilient for a community bank in a high‑rate backdrop .
  • Funding remains competitive: deposit costs rose to 1.38% and mix continues shifting to higher‑cost time deposits; ongoing pricing discipline will be key to protecting NIM .
  • Credit risk bears monitoring: NPAs and ACL/loans spiked due to the identified borrower; watch for additional migration as management anticipates some deterioration in a still‑tight monetary environment .
  • Loan growth remains positive (+1.7% QoQ average loans), but demand is muted; volume likely re‑accelerates once rate cuts or clarity on the rate path emerge .
  • Capital remains solid (book value per share $41.43; equity/asset 9.49% avg), and dividend was raised to $0.40, signaling confidence in capital and earnings power through the cycle .
  • Near‑term stock drivers: resolution of the single credit, trends in deposit betas and NIM stabilization, and visibility on rate cuts; medium‑term, continued mix shift toward loans and expense discipline can support ROE recovery when credit costs normalize .