Edgar Filing: CSB BANCORP INC /OH

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2013

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-21714

CSB Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Ohio

34-1687530

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

91 North Clay, P.O. Box 232, Millersburg, Ohio 44654

(Address of principal executive offices)

(330) 674-9015

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of the registrant’s common stock, as of the latest practicable date.


Common stock, $6.25 par value		Outstanding at November 1, 2013:
		2,736,634 common shares

CSB BANCORP, INC.

FORM 10-Q

QUARTER ENDED September 30, 2013

Table of Contents


	Page

Part I – Financial Information

ITEM 1 – FINANCIAL STATEMENTS (Unaudited)
Consolidated Balance Sheets		3
Consolidated Statements of Income		4
Consolidated Statements of Comprehensive Income		5
Condensed Consolidated Statements of Changes in Shareholders’ Equity		6
Condensed Consolidated Statements of Cash Flows		7
Notes to Consolidated Financial Statements		8
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		26
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		32
ITEM 4 – CONTROLS AND PROCEDURES		33

Part II – Other Information

ITEM 1 – Legal Proceedings		34
ITEM 1A – Risk Factors		34
ITEM 2 – Unregistered Sales of Equity Securities and Use of Proceeds		34
ITEM 3 – Defaults upon Senior Securities		34
ITEM 4 – Mine Safety Disclosures		34
ITEM 5 – Other Information		34
ITEM 6 – Exhibits		35
Signatures		36

CSB BANCORP, INC.

PART I – FINANCIAL INFORMATION

ITEM 1. – FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	September 30, 2013			December 31, 2012
(Dollars in thousands)
ASSETS
Cash and cash equivalents
Cash and due from banks	$	16,683		$	21,485
Interest-earning deposits in other banks		31,437			45,393
Federal funds sold		499			—

Total cash and cash equivalents		48,619			66,878


Securities
Available-for-sale securities		102,453			129,291
Held-to-maturity securities		36,808			—
Restricted stock, at cost		5,463			5,463

Total securities		144,724			134,754


Loans held for sale		70			—

Loans		377,434			364,580
Less allowance for loan losses		5,077			4,580

Net loans		372,357			360,000


Premises and equipment, net		8,550			8,475
Core deposit intangible		793			894
Goodwill		4,728			4,728
Bank-owned life insurance		9,486			8,298
Accrued interest receivable and other assets		4,568			2,873


TOTAL ASSETS	$	593,895		$	586,900


LIABILITIES AND SHAREHOLDERS’ EQUITY

LIABILITIES
Deposits
Noninterest-bearing	$	117,925		$	104,147
Interest-bearing		362,936			371,296

Total deposits		480,861			475,443


Short-term borrowings		46,044			43,992
Other borrowings		12,511			12,672
Accrued interest payable and other liabilities		2,330			2,340

Total liabilities		541,746			534,447


SHAREHOLDERS’ EQUITY
Common stock, $6.25 par value. Authorized 9,000,000 shares; issued 2,980,602 shares; shares outstanding 2,736,634 in 2013 and 2,736,060 in 2012		18,629			18,629
Additional paid-in capital		9,964			9,974
Retained earnings		29,501			26,962
Treasury stock, at cost - 243,968 in 2013 and 244,542 shares in 2012		(4,958	)		(4,976	)
Accumulated other comprehensive (loss) income		(987	)		1,864

Total shareholders’ equity		52,149			52,453


TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	593,895		$	586,900

See notes to unaudited consolidated financial statements.

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands, except per share data)	2013		2012		2013		2012
INTEREST AND DIVIDEND INCOME
Loans, including fees	$	4,413	$	4,357	$	13,421	$	12,881
Taxable securities		669		638		1,835		2,074
Nontaxable securities		130		120		385		363
Other		23		32		67		112

Total interest and dividend income		5,235		5,147		15,708		15,430

INTEREST EXPENSE
Deposits		423		559		1,346		1,789
Short-term borrowings		18		22		50		71
Other borrowings		117		140		351		434

Total interest expense		558		721		1,747		2,294


NET INTEREST INCOME		4,677		4,426		13,961		13,136

PROVISION FOR LOAN LOSSES		210		206		630		617

Net interest income, after provision for loan losses		4,467		4,220		13,331		12,519


NONINTEREST INCOME
Service charges on deposit accounts		353		345		1,001		971
Trust services		201		175		641		503
Debit card interchange fees		198		195		566		590
Gain on sale of loans, net		67		169		283		362
Securities gain, net		149		—		159		—
Other		222		189		644		629

Total noninterest income		1,190		1,073		3,294		3,055

NONINTEREST EXPENSES
Salaries and employee benefits		2,028		1,985		6,119		5,909
Occupancy expense		245		280		758		767
Equipment expense		182		154		525		448
Professional and director fees		174		172		465		621
Franchise tax expense		147		138		440		415
FDIC insurance expense		90		83		262		238
Software expense		133		94		365		275
Marketing and public relations		89		83		274		235
Debit card expense		62		82		175		230
Amortization of intangible assets		34		37		101		103
Net cost of operation of other real estate		—		—		9		8
Other		450		420		1,363		1,383

Total noninterest expenses		3,634		3,528		10,856		10,632

Income before income taxes		2,023		1,765		5,769		4,942
FEDERAL INCOME TAX PROVISION		616		534		1,753		1,515


NET INCOME	$	1,407	$	1,231	$	4,016	$	3,427


Basic and diluted net earnings per share	$	0.52	$	0.45	$	1.47	$	1.25

See notes to unaudited consolidated financial statements.

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2013			2012			2013			2012

Net income	$	1,407		$	1,231		$	4,016		$	3,427


Other comprehensive (loss) income
Unrealized (losses) gains arising during the period		1,644			282			(2,428	)		1,093
Unrealized (losses) on held to maturity transfer		(1,733	)		—			(1,733	)		—
Reclassification adjustment for gains included in income		(149	)		—			(159	)		—

Net unrealized (losses) gains		(238	)		282			(4,320	)		1,093
Income tax effect		81			(96	)		1,469			(372	)

Other comprehensive (loss) income		(157	)		186			(2,851	)		721


Total comprehensive income	$	1,250		$	1,417		$	1,165		$	4,148

See notes to unaudited consolidated financial statements.

CSB BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands, except per share data)	2013			2012			2013			2012
Balance at beginning of period	$	51,391		$	51,176		$	52,453		$	49,429
Net income		1,407			1,231			4,016			3,427
Other comprehensive (loss) income		(157	)		186			(2,851	)		721
Stock options exercised, 574 shares		—			—			8			—
Cash dividends declared		(492	)		(492	)		(1,477	)		(1,476	)

Balance at end of period	$	52,149		$	52,101		$	52,149		$	52,101


Cash dividends declared per share	$	0.18		$	0.18		$	0.54		$	0.54

See notes to unaudited consolidated financial statements.

CSB BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,
(Dollars in thousands)	2013			2012
NET CASH FROM OPERATING ACTIVITIES	$	4,912		$	4,388

CASH FLOWS FROM INVESTING ACTIVITIES
Securities:
Proceeds from repayments held-to-maturity		572			—
Proceeds from maturities and repayments available-for-sale		27,560			54,051
Purchases available-for-sale		(46,941	)		(65,222	)
Proceeds from sale of securities available-for-sale		4,309			—
Loan originations, net of repayments		(12,946	)		(28,702	)
Proceeds from sale of other real estate		18			26
Property, equipment, and software acquisitions		(1,127	)		(503	)
Purchase of bank-owned life insurance		(1,000	)		(5,000	)

Net cash used in investing activities		(29,555	)		(45,350	)


CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits		5,470			10,849
Net change in short-term borrowings		2,052			5,938
Repayments of other borrowings		(161	)		(2,423	)
Cash dividends		(985	)		(985	)
Proceeds from stock options exercised		8			—

Net cash provided by financing activities		6,384			13,379


NET DECREASE IN CASH AND CASH EQUIVALENTS		(18,259	)		(27,583	)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		66,878			82,258


CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	48,619		$	54,675


SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest	$	1,814		$	2,426
Income taxes		1,585			1,170
Noncash investing activities:
Transfer of securities from available-for-sale to held-to-maturity		38,930			—
Transfer of loans to other real estate owned		—			56
Noncash financing activities:
Dividends declared		492			492

See notes to unaudited consolidated financial statements.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying condensed consolidated financial statements include the accounts of CSB Bancorp, Inc. and its wholly-owned subsidiaries, The Commercial and Savings Bank (the “Bank”) and CSB Investment Services, LLC (together referred to as the “Company” or “CSB”). All significant intercompany transactions and balances have been eliminated in consolidation.

The condensed consolidated financial statements have been prepared without audit. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present fairly the Company’s financial position at September 30, 2013, and the results of operations and changes in cash flows for the periods presented have been made.

Certain information and footnote disclosures typically included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been omitted. The Annual Report for CSB for the year ended December 31, 2012, contains Consolidated Financial Statements and related footnote disclosures, which should be read in conjunction with the accompanying Consolidated Financial Statements. The results of operations for the period ended September 30, 2013 are not necessarily indicative of the operating results for the full year or any future interim period.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This Update requires that companies present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. The new requirements will take effect for public companies in fiscal years, and interim periods within those years, beginning after December 15, 2012. The Company adopted this ASU on January 1, 2013. The effect of adopting this ASU increased our disclosure surrounding reclassification items out of accumulated other comprehensive income.

In July 2013, the FASB issued ASU 2013-10, Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. The amendments in this Update permit the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to UST and LIBOR. The amendments also remove the restriction on using different benchmark rates for similar hedges. The amendments are effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. This ASU did not have a significant impact on the Company’s financial statements.

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This Update applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.

NOTE 2 – SECURITIES

Securities consist of the following at September 30, 2013 and December 31, 2012:


(Dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
September 30, 2013
Available-for-sale securities
U.S. Treasury securities	$	1,005	$	—	$	9	$	996
U.S. government agencies		23,998		10		590		23,418
Mortgage-backed securities		51,563		696		175		52,084
Asset-backed securities		2,764		22		—		2,786
States and political subdivisions		18,280		378		136		18,522
Corporate bonds		4,500		29		3		4,526
Equity securities		106		16		1		121

Total available-for-sale securities		102,216		1,151		914		102,453

Held-to-maturity securities
U.S. government agencies		15,169		—		583		14,586
Mortgage-backed securities		21,639		—		535		21,104

Total held-to-maturity securities		36,808		—		1,118		35,690

Restricted stock		5,463		—		—		5,463

Total securities	$	144,487	$	1,151	$	2,032	$	143,606


December 31, 2012
Available-for-sale securities
U.S. Treasury securities	$	100	$	—	$	—	$	100
U.S. government agencies		35,996		27		43		35,980
Mortgage-backed securities		66,933		2,107		1		69,039
Asset-backed securities		2,862		—		39		2,823
States and political subdivisions		16,194		701		12		16,883
Corporate bonds		4,313		112		28		4,397
Equity securities		69		9		9		69

Total available-for-sale securities		126,467		2,956		132		129,291
Restricted stock		5,463		—		—		5,463

Total securities	$	131,930	$	2,956	$	132	$	134,754

As of July 31, 2013, approximately $39 million par value U.S. government agency and U.S. agency mortgage-backed securities were transferred from Available for sale to Held to maturity. These bonds carried gross unrealized losses of $1.9 million at the transfer date. The bonds were transferred to provide stability to the other comprehensive income component in shareholders’ equity should interest rates continue to rise and to accurately reflect the strategic purpose of these investments.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 – SECURITIES (CONTINUED)

The amortized cost and fair value of debt securities at September 30, 2013, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


(Dollars in thousands)	Amortized cost		Fair value
Available-for-sale:
Due in one year or less	$	279	$	280
Due after one through five years		16,589		16,812
Due after five through ten years		26,318		25,955
Due after ten years		58,924		59,285

Total debt securities available-for-sale	$	102,110	$	102,332


Held-to-maturity:
Due in one year or less	$	—	$	—
Due after one through five years		—		—
Due after five through ten years		3,710		3,655
Due after ten years		33,098		32,035

Total debt securities held-to-maturity	$	36,808	$	35,690

Securities with a carrying value of approximately $89.5 million and $79.2 million were pledged at September 30, 2013 and December 31, 2012, respectively, to secure public deposits, as well as other deposits and borrowings as required or permitted by law.

Restricted stock primarily consists of investments in FHLB and Federal Reserve Bank stock. The Bank’s investment in FHLB stock amounted to approximately $5.0 million at September 30, 2013 and December 31, 2012. Federal Reserve Bank stock was $471 thousand at September 30, 2013 and December 31, 2012.

The following table shows the proceeds from sales of available-for-sale securities and the gross realized gains and losses on the sales of those securities that have been included in earnings as a result of the sales.


	Three months ended September 30,				Nine months ended September 30,
(Dollars in thousands)	2013		2012		2013		2012
Proceeds	$	3,809	$	—	$	4,309	$	—

Realized gains	$	149	$	—	$	159	$	—
Realized losses		—		—		—		—

Net securities gains	$	149	$	—	$	159	$	—

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 – SECURITIES (CONTINUED)

The following table presents gross unrealized losses and fair value of securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2013 and December 31, 2012:


	Securities in a continuous unrealized loss position
	Less than 12 months				12 months or more				Total
(Dollars in thousands)	Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value
September 30, 2013
Available-for-sale
U.S. Treasury securities	$	9	$	996	$	—	$	—	$	9	$	996
U.S. Government agencies		590		19,408		—		—		590		19,408
Mortgage-backed securities		175		22,096		—		—		175		22,096
State and political subdivisions		134		3,599		2		301		136		3,900
Corporate bonds		2		573		1		499		3		1,072
Equity securities		—		—		1		1		1		1
Held-to-maturity
U.S. Government agencies		583		14,586		—		—		583		14,586
Mortgage-backed securities		535		21,103		—		—		535		21,103

Total temporarily impaired securities	$	2,028	$	82,361	$	4	$	801	$	2,032	$	83,162


December 31, 2012
Available-for-sale
U.S. Government agencies	$	43	$	15,957	$	—	$	—	$	43	$	15,957
Mortgage-backed securities		1		344		—		—		1		344
Asset-backed securities		39		1,833		—		—		39		1,833
State and political subdivisions		12		1,737		—		—		12		1,737
Corporate bonds		4		366		24		975		28		1,341
Equity securities		—		—		9		45		9		45

Total temporarily impaired securities	$	99	$	20,237	$	33	$	1,020	$	132	$	21,257

There were sixty-eight (68) securities in an unrealized loss position at September 30, 2013, three (3) of which were in a continuous loss position for twelve months or more. At least quarterly, the Company conducts a comprehensive security-level impairment assessment. The assessments are based on the nature of the securities, the extent and duration of the securities in an unrealized loss position, the extent and duration of the loss and management’s intent to sell or if it is more likely than not that management will be required to sell a security before recovery of its amortized cost basis, which may be maturity. Management believes the Company will fully recover the cost of these securities. It does not intend to sell these securities and likely will not be required to sell them before the anticipated recovery of the remaining amortized cost basis, which may be maturity. As a result, management concluded that these securities were not other-than-temporarily impaired at September 30, 2013.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS

Loans consist of the following:


(Dollars in thousands)	September 30, 2013		December 31, 2012
Commercial	$	116,190	$	104,899
Commercial real estate		126,423		119,192
Residential real estate		112,819		110,412
Construction & land development		14,904		23,358
Consumer		6,838		6,480

Total loans before deferred costs		377,174		364,341
Deferred loan costs		260		239

Total Loans	$	377,434	$	364,580

Loan Origination/Risk Management

The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Underwriting standards are designed to promote relationship banking rather than transactional banking. The Company’s management examines current and occasionally projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. At September 30, 2013 and December 31, 2012, approximately 80% and 81%, respectively of the outstanding principal balance of the Company’s commercial real estate loans were secured by owner-occupied properties.

With respect to loans to developers and builders that are secured by non-owner occupied properties, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction and land development loans are underwritten utilizing independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction and land development loans are generally based upon estimates of costs and value associated with the completed project. These estimates may be inaccurate.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (CONTINUED)

Construction and land development loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

The Company originates consumer loans utilizing a judgmental underwriting process. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed, jointly by line and staff personnel. This activity, coupled with relatively small loan amounts that are spread across many individual borrowers, minimizes risk.

The Company maintains an independent loan review department that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.

Loans serviced for others approximated $59.0 million and $60.2 million at September 30, 2013 and December 31, 2012, respectively.

Concentrations of Credit

Nearly all of the Company’s lending activity occurs within the state of Ohio, including the four (4) counties of Holmes, Stark, Tuscarawas and Wayne, as well as other markets. The majority of the Company’s loan portfolio consists of commercial and industrial and commercial real estate loans. As of September 30, 2013 and December 31, 2012, there were no concentrations of loans related to any single industry.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (CONTINUED)

Allowance for Loan Losses

The following table details activity in the allowance for loan losses by portfolio segment for the three and nine month periods ended September 30, 2013 and 2012. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. The increase in the provision for possible loan losses related to commercial loans was affected by a qualitative adjustment for loans rated special mention, as well as changes in volume and credit quality of loans in this category. The provision for possible loan losses related to residential real estate increased during third quarter 2013 as a result of a increase in non performing loans within this category.


(Dollars in thousands)	Commercial			Commercial Real Estate			Residential Real Estate			Construction & Land Development		Consumer			Unallocated		Total
Three months ended September 30, 2013
Beginning balance, June 30, 2013	$	1,316		$	1,815		$	1,174		$	162	$	144		$	334	$	4,945
Provision for possible loan losses		27			(5	)		95			18		(48	)		123		210
Charge-offs		(54	)		—			(28	)		—		(9	)				(91	)
Recoveries		5			—			3			—		5					13

Net charge-offs		(49	)		—			(25	)		—		(4	)				(78	)

Ending balance	$	1,294		$	1,810		$	1,244		$	180	$	92		$	457	$	5,077


(Dollars in thousands)	Commercial			Commercial Real Estate			Residential Real Estate			Construction & Land Development			Consumer			Unallocated		Total
Nine months ended September 30, 2013
Beginning balance, December 31, 2012	$	933		$	1,902		$	1,096		$	253		$	76		$	320	$	4,580
Provision for possible loan losses		455			(41	)		162			(73	)		(10	)		137		630
Charge-offs		(112	)		(51	)		(28	)		—			(11	)				(202	)
Recoveries		18			—			14			—			37					69

Net charge-offs		(94	)		(51	)		(14	)		—			26					(133	)

Ending balance	$	1,294		$	1,810		$	1,244		$	180		$	92		$	457	$	5,077


(Dollars in thousands)	Commercial		Commercial Real Estate		Residential Real Estate			Construction & Land Development		Consumer			Unallocated			Total
Three months ended September 30, 2012
Beginning balance, June 30, 2012	$	896	$	1,927	$	1,051		$	217	$	64		$	316		$	4,471
Provision for possible loan losses		94		108		(45	)		85		46			(82	)		206
Charge-offs		—		—		—			—		(39	)					(39	)
Recoveries		2		—		10			—		11						23

Net charge-offs		2		—		10			—		(28	)					(16	)

Ending balance	$	992	$	2,035	$	1,016		$	302	$	82		$	234		$	4,661


(Dollars in thousands)	Commercial			Commercial Real Estate			Residential Real Estate			Construction & Land Development		Consumer			Unallocated		Total
Nine months ended September 30, 2012
Beginning balance, December 31, 2011	$	1,024		$	1,673		$	894		$	180	$	78		$	233	$	4,082
Provision for possible loan losses		(33	)		376			127			122		24			1		617
Charge-offs		(15	)		(14	)		(104	)		—		(70	)		—		(203	)
Recoveries		16			—			99			—		50			—		165

Net charge-offs		1			(14	)		(5	)		—		(20	)		—		(38	)

Ending balance	$	992		$	2,035		$	1,016		$	302	$	82		$	234	$	4,661

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (CONTINUED)

The following table presents the balance in the allowance for loan losses and the ending loan balances by portfolio segment and based on the impairment method as of September 30, 2013 and December 31, 2012:


(Dollars in thousands)	Commercial		Commercial Real Estate		Residential Real Estate		Construction & Land Development		Consumer		Unallocated		Total
September 30, 2013
Allowance for loan losses:
Ending allowance balances attributable to loans:
Individually evaluated for impairment	$	185	$	442	$	292	$	—	$	—	$	—	$	919
Collectively evaluated for impairment		1,109		1,368		952		180		92		457		4,158

Total ending allowance balance	$	1,294	$	1,810	$	1,244	$	180	$	92	$	457	$	5,077


Loans:
Loans individually evaluated for impairment	$	3,898	$	3,460	$	1,832	$	—	$	—			$	9,190
Loans collectively evaluated for impairment		112,292		122,963		110,987		14,904		6,838				367,984

Total ending loans balance	$	116,190	$	126,423	$	112,819	$	14,904	$	6,838			$	377,174


December 31, 2012
Allowance for loan losses:
Ending allowance balances attributable to loans:
Individually evaluated for impairment	$	85	$	522	$	172	$	—	$	—	$	—	$	779
Collectively evaluated for impairment		848		1,380		924		253		76		320		3,801

Total ending allowance balance	$	933	$	1,902	$	1,096	$	253	$	76	$	320	$	4,580


Loans:
Loans individually evaluated for impairment	$	4,315	$	4,573	$	1,137	$	166	$	—			$	10,191
Loans collectively evaluated for impairment		100,584		114,619		109,275		23,192		6,480				354,150

Total ending loans balance	$	104,899	$	119,192	$	110,412	$	23,358	$	6,480			$	364,341

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (CONTINUED)

The following table presents loans individually evaluated for impairment by class of loans as of September 30, 2013 and December 31, 2012:


(Dollars in thousands)	Unpaid Principal Balance		Recorded Investment with no Allowance		Recorded Investment with Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
September 30, 2013
Commercial	$	3,913	$	7	$	3,902	$	3,909	$	185	$	3,917	$	126
Commercial real estate		3,767		306		3,155		3,461		442		3,730		125
Residential real estate		1,942		583		1,237		1,820		292		1,270		29
Construction & land development		—		—		—		—		—		28		2

Total impaired loans	$	9,622	$	896	$	8,294	$	9,190	$	919	$	8,945	$	282

December 31, 2012
Commercial	$	4,315	$	—	$	4,329	$	4,329	$	85	$	4,123	$	167
Commercial real estate		4,906		1,723		2,849		4,572		522		4,396		152
Residential real estate		1,223		86		1,057		1,143		172		770		18
Construction & land development		173		166		—		166		—		167		—

Total impaired loans	$	10,617	$	1,975	$	8,235	$	10,210	$	779	$	9,456	$	337

The following table presents the aging of past due loans and nonaccrual loans as of September 30, 2013 and December 31, 2012 by class of loans:


(Dollars in thousands)	Current		30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days + Past Due		Non-Accrual		Total Past Due and Non- Accrual		Total Loans
September 30, 2013
Commercial	$	115,714	$	405	$	—	$	—	$	71	$	476	$	116,190
Commercial real estate		124,753		271		216		—		1,183		1,670		126,423
Residential real estate		110,681		767		257		36		1,078		2,138		112,819
Construction & land development		13,954		950		—		—		—		950		14,904
Consumer		6,616		137		85		—		—		222		6,838

Total Loans	$	371,718	$	2,530	$	558	$	36	$	2,332	$	5,456	$	377,174


December 31, 2012
Commercial	$	104,348	$	60	$	8	$	—	$	483	$	551	$	104,899
Commercial real estate		117,372		41		34		—		1,745		1,820		119,192
Residential real estate		108,574		472		430		131		805		1,838		110,412
Construction & land development		23,180		—		5		—		173		178		23,358
Consumer		6,325		132		23		—		—		155		6,480

Total Loans	$	359,799	$	705	$	500	$	131	$	3,206	$	4,542	$	364,341

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (CONTINUED)

Troubled Debt Restructurings

All troubled debt restructurings (“TDR’s) are individually evaluated for impairment and a related allowance is recorded, as needed. Loans whose terms have been modified as TDR’s totaled $8.2 million as of September 30, 2013, and $8.7 million as of December 31, 2012, with $823 thousand and $718 thousand of specific reserves allocated to those loans, respectively. At September 30, 2013, $7.5 million of the loans classified as TDR’s were performing in accordance with their modified terms. Of the remaining $736 thousand, all were in nonaccrual of interest status.

None of the loans that were restructured in 2011 or 2012 have subsequently defaulted in the three or nine month periods ended September 30, 2013 and 2012. Loan modifications that are considered TDR’s completed during the three and nine month periods ended September 30, 2013 and 2012 were as follows:


	For the Three Months Ended September 30, 2013
(Dollars in thousands)	Number of loans restructured		Pre- Modification Recorded Investment		Post- Modification Recorded Investment
Commercial		1	$	7	$	7
Residential Real Estate		2		188		188

Total Restructured Loans		3	$	195	$	195


	For the Nine Months Ended September 30, 2013
(Dollars in thousands)	Number of loans restructured		Pre- Modification Recorded Investment		Post- Modification Recorded Investment
Commercial		3	$	83	$	83
Residential Real Estate		2		188		188

Total Restructured Loans		5	$	271	$	271


	For the Three Months Ended September 30, 2012
(Dollars in thousands)	Number of loans restructured		Pre- Modification Recorded Investment		Post- Modification Recorded Investment
Commercial Real Estate		1	$	140	$	140
Residential Real Estate		5		333		333

Total Restructured Loans		6	$	473	$	473


	For the Nine Months Ended September 30, 2012
(Dollars in thousands)	Number of loans restructured		Pre- Modification Recorded Investment		Post- Modification Recorded Investment
Commercial Real Estate		1	$	140	$	140
Residential Real Estate		7		488		488

Total Restructured Loans		8	$	628	$	628

The loans restructured during the three and nine months ended September 30, 2013 and 2012 were modified by changing the monthly payment to interest only. No principal reductions were made.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (CONTINUED)

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes commercial loans individually by classifying the loans as to credit risk. This analysis includes commercial loans with an outstanding balance greater than $275 thousand and is performed on an annual basis.

The Company uses the following definitions for risk ratings:

Pass. Loans classified as pass (Acceptable, Low Acceptable or Pass Watch) may exhibit a wide array of characteristics but at minimum represent an acceptable risk to the Bank. Borrowers in this rating may have leveraged but acceptable balance sheet positions, satisfactory asset quality, and stable to favorable sales and earnings trends, acceptable liquidity and adequate cash flow. Loans are considered fully collectible and require an average amount of administration. While generally adhering to credit policy, these loans may exhibit occasional exceptions that do not result in undue risk to the Bank. Borrowers are generally capable of absorbing setbacks, financial and otherwise, without the threat of failure.

Special Mention. Loans classified as special mention have material weaknesses that deserve management’s close attention. If left uncorrected, these weaknesses may result in deterioration of the repayment prospects for the loan at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (CONTINUED)

Loans that do not meet the criteria for special mention, substandard or doubtful classification, when analyzed individually as part of the above described process are considered to be pass rated loans. As of September 30, 2013 and December 31, 2012, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:


(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Not Rated		Total
September 30, 2013
Commercial	$	100,746	$	9,850	$	5,170	$	—	$	424	$	116,190
Commercial real estate		111,168		7,553		5,879		—		1,823		126,423
Residential real estate		243		—		48		—		112,528		112,819
Construction & land development		11,598		—		2,040		—		1,266		14,904
Consumer		—		—		—		—		6,838		6,838

Total	$	223,755	$	17,403	$	13,137	$	—	$	122,879	$	377,174


December 31, 2012
Commercial	$	92,123	$	5,854	$	6,637	$	—	$	285	$	104,899
Commercial real estate		102,602		5,671		8,459		—		2,460		119,192
Residential real estate		200		—		53		—		110,159		110,412
Construction & land development		18,063		2,750		1,244		—		1,301		23,358
Consumer		—		—		—		—		6,480		6,480

Total	$	212,988	$	14,275	$	16,393	$	—	$	120,685	$	364,341

Loans listed as not rated are either less than $275 thousand or are included in groups of homogeneous loans. The following table presents loans that are not rated by class of loans as of September 30, 2013 and December 31, 2012. Non-performing loans include loans past due 90 days and greater and loans on nonaccrual of interest.


(Dollars in thousands)	Performing		Non-Performing		Total
September 30, 2013
Commercial	$	424	$	—	$	424
Commercial real estate		1,823		—		1,823
Residential real estate		111,462		1,066		112,528
Construction & land development		1,266		—		1,266
Consumer		6,838		—		6,838

Total	$	121,813	$	1,066	$	122,879


December 31, 2012
Commercial	$	285	$	—	$	285
Commercial real estate		2,460		—		2,460
Residential real estate		109,276		883		110,159
Construction & land development		1,294		7		1,301
Consumer		6,480		—		6,480

Total	$	119,795	$	890	$	120,685

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 4 – FAIR VALUE MEASUREMENTS

The Company provides disclosures about assets and liabilities carried at fair value. The framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and lowest priority to unobservable inputs. The three broad levels of the fair value hierarchy are described below:


Level I:		Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level II:		Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by corroborated or other means. If the asset or liability has a specified (contractual) term, the Level II input must be observable for substantially the full term of the asset or liability.
Level III:		Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 4 – FAIR VALUE MEASUREMENTS (CONTINUED)

The following table presents the assets reported on the consolidated statements of financial condition at their fair value as of September 30, 2013 and December 31, 2012, by level within the fair value hierarchy. No liabilities are carried at fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Equity securities and U.S. Treasury Notes are valued at the closing price reported on the active market on which the individual securities are traded. Obligations of U.S. government agencies, mortgage-backed securities, asset-backed securities, obligations of states and political subdivisions and corporate bonds are valued at observable market data for similar assets.


(Dollars in thousands)	Level I		Level II		Level III		Total
September 30, 2013
ASSETS:
Securities available-for-sale:
U.S. Treasury securities	$	996	$	—	$	—	$	996
U.S. Government agencies		—		23,418		—		23,418
Mortgage-backed securities		—		52,084		—		52,084
Asset-backed securities		—		2,786		—		2,786
States and political subdivisions		—		18,522		—		18,522
Corporate bonds		—		4,526		—		4,526
Equity securities		121		—		—		121

Total securities available-for-sale		1,117		101,336		—		102,453
Loans held for sale		70		—		—		70

Total Assets	$	1,187	$	101,336	$	—	$	102,523


December 31, 2012
ASSETS:
Securities available-for-sale:
U.S. Treasury securities	$	100	$	—	$	—	$	100
U.S. Government agencies		—		35,980		—		35,980
Mortgage-backed securities		—		69,039		—		69,039
Asset-backed securities		—		2,823		—		2,823
States and political subdivisions		—		16,883		—		16,883
Corporate bonds		—		4,397		—		4,397
Equity securities		69		—		—		69

Total securities available-for-sale		169		129,122		—		129,291

Total Assets	$	169	$	129,122	$	—	$	129,291

The following table presents the assets measured on a nonrecurring basis on the Consolidated Balance Sheets at their fair value as of September 30, 2013 and December 31, 2012, by level within the fair value hierarchy. Impaired loans and other real estate are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral that secure the impaired loans include: quoted market prices for identical assets classified as Level I inputs; and observable inputs, employed by certified appraisers, for similar assets classified as Level II inputs. In cases where valuation techniques included inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level III inputs.

The fair value of mortgage servicing rights is based on a valuation model that calculates the present value of estimated net servicing income. The valuation model incorporates discounted cash flow and repayment assumptions based on management’s best judgment. As a result, these rights are measured at fair value on a nonrecurring basis and are classified within Level III of the fair value hierarchy.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 4 – FAIR VALUE MEASUREMENTS (CONTINUED)


(Dollars in thousands)	Level I		Level II		Level III		Total
September 30, 2013
Assets measured on a nonrecurring basis:
Impaired loans	$	—	$	—	$	8,271	$	8,271
Mortgage servicing rights		—		—		228		228

December 31, 2012
Impaired loans	$	—	$	—	$	9,412	$	9,412
Other real estate owned		—		—		25		25
Mortgage servicing rights		—		—		214		214

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level III inputs to determine fair value:


	Quantitative Information about Level III Fair Value Measurements
	Fair Value		Valuation	Unobservable
	Estimate		Techniques	Input	Range
(Dollars in thousands)
September 30, 2013
Impaired loans	$	7,080	Discounted cash flow	Remaining term Discount rate	6 mos to 29 yrs 4.63% to 12%
		1,191	Appraisal of collateral (1), (3)	Appraisal adjustments (2) Liquidation expense (2)	-20% to -25% -10%
Mortgage servicing rights		228	Discounted cash flow	Remaining term Discount rate	15 mos to 30 yrs 1.5%

December 31, 2012
Impaired loans	$	7,260	Discounted cash flow	Remaining term Discount rate	4 mos to 29 yrs 7.5% to 12%
		2,152	Appraisal of collateral (1), (3)	Appraisal adjustments (2) Liquidation expense (2)	-20% to -35% -10%
Other real estate owned		25	Appraisal of collateral (1), (3)	Management discount for property type (3)	0% to -67%
Mortgage servicing rights		214	Discounted cash flow	Remaining term Discount rate	24 mos to 30 yrs 1.5%

(1)	Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various inputs which are not identifiable.

(2)	Appraisals may be adjusted by management for qualitative factors such as estimated liquidation expenses. The range of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

(3)	Includes qualitative adjustments by management and estimated liquidation expenses.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 – FAIR VALUES OF FINANCIAL INSTRUMENTS

The estimated fair values of recognized financial instruments as of September 30, 2013 and December 31, 2012 are as follows:


	Carrying								Total Fair
(Dollars in thousands)	Value		Level 1		Level II		Level III		Value
September 30, 2013
Financial assets:
Cash and cash equivalents	$	48,619	$	48,619	$	—	$	—	$	48,619
Securities, available for sale		102,453		1,117		101,336		—		102,453
Securities, held to maturity		36,808		—		35,690		—		35,690
Loans held for sale		70		70		—		—		70
Net loans		372,357		—		—		376,006		376,006
Bank-owned life insurance		9,486		9,486		—		—		9,486
Restricted stock		5,463		—		5,463		—		5,463
Accrued interest receivable		1,509		1,509		—		—		1,509
Financial liabilities:
Deposits	$	480,861	$	334,445	$	—	$	147,352	$	481,797
Short-term borrowings		46,044		46,044		—		—		46,044
Other borrowings		12,511		—		—		13,163		13,163
Accrued interest payable		122		122		—		—		122


	Carrying								Total Fair
(Dollars in thousands)	Value		Level 1		Level II		Level III		Value
December 31, 2012
Financial assets:
Cash and cash equivalents	$	66,878	$	66,878	$	—	$	—	$	66,878
Securities, available for sale		129,291		169		129,122		—		129,291
Net loans		360,000		—		—		367,028		367,028
Bank-owned life insurance		8,298		8,298		—		—		8,298
Restricted stock		5,463		—		5,463		—		5,463
Accrued interest receivable		1,317		1,317		—		—		1,317
Financial liabilities:
Deposits	$	475,443	$	317,369	$	—	$	159,573	$	476,942
Short-term borrowings		43,992		43,992		—		—		43,992
Other borrowings		12,672		—		—		13,772		13,772
Accrued interest payable		135		135		—		—		135

For purposes of the above disclosures of estimated fair value, the following assumptions are used:

Cash and cash equivalents; Loans held for sale; Accrued interest receivable; Short-term borrowings, and Accrued interest payable

The fair value of the above instruments is considered to be carrying value. Classified as Level I in the fair value hierarchy.

Securities

The fair value of securities available-for-sale and securities held-to-maturity which are measured on a recurring basis are determined primarily by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on securities’ relationship to other similar securities. Classified as Level I or Level II in the fair value hierarchy.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 – FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

Net loans

The fair value for loans is estimated by discounting future cash flows using current market inputs at which loans with similar terms and qualities would be made to borrowers of similar credit quality. Where quoted market prices were available, primarily for certain residential mortgage loans, such market rates were utilized as estimates for fair value. Fair value of non-accrual loans is based on carrying value, classified as Level III.

Bank-owned life insurance

The carrying amount of bank-owned life insurance is based on the cash surrender value of the policies and is a reasonable estimate of fair value, classified as Level I.

Regulatory stock

Regulatory stock includes Federal Home Loan Bank Stock and Federal Reserve Bank Stock. It is not practicable to determine the fair value of regulatory equity securities due to restrictions placed on their transferability. Fair value is based on carrying value, classified as Level II.

Deposits

The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rates are estimated using market rates currently offered for similar instruments with similar remaining maturities, resulting in a Level III classification. Demand, savings, and money market deposit accounts are valued at the amount payable on demand as of quarter end, resulting in a Level I classification.

Other borrowings

The fair value of Federal Home Loan Bank advances are estimated using a discounted cash flow analysis based on the current borrowing rates for similar types of borrowings, resulting in a Level III classification.

The Company also has unrecognized financial instruments at September 30, 2013 and December 31, 2012. These financial instruments relate to commitments to extend credit and letters of credit. The aggregated contract amount of such financial instruments was approximately $113.6 million at September 30, 2013 and $107.4 million at December 31, 2012. Such amounts are also considered to be the estimated fair values.

The fair value estimates of financial instruments are made at a specific point in time based on relevant market information. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument over the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Since no ready market exists for a significant portion of the financial instruments, fair value estimates are largely based on judgments after considering such factors as future expected credit losses, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 6 – ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table presents the changes in accumulated other comprehensive income by component net of tax for the three and nine months ended September 30, 2013:


(Dollars in thousands)	Pretax			Tax (Expense) Benefit			After-tax			Affected Line Item in the Consolidated Statements of Income
Balance as of June 30, 2013	$	(1,258	)	$	428		$	(830	)
Unrealized holding gain on available-for-sale securities arising during the period		1,346			(457	)		889
Amount reclassified for net gains included in net income		149			(51	)		98		(a) (b)
Unrealized loss on securities transferred from Available-for-Sale to Held-to-Maturity		(1,915	)		651			(1,264	)
Amortization of Held-to-maturity discount resulting from transfer		182			(62	)		120

Total other comprehensive loss		(238	)		81			(157	)

Balance as of September 30, 2013	$	(1,496	)	$	509		$	(987	)


Balance as of December 31, 2012	$	2,824		$	(960	)	$	1,864
Unrealized holding loss on available-for-sale securities arising during the period		(2,746	)		934			(1,812	)
Amount reclassified for net gains included in net income		159			(54	)		105		(a) (b)
Unrealized loss on securities transferred from Available-for-Sale to Held-to-Maturity		(1,915	)		651			(1,264	)
Amortization of Held-to-maturity discount resulting from transfer		182			(62	)		120

Total other comprehensive loss		(4,320	)		1,469			(2,851	)

Balance as of September 30, 2013	$	(1,496	)	$	509		$	(987	)

(a)	Securities gain, net

(b)	Federal income tax provision

CSB BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis focuses on the consolidated financial condition of the Company at September 30, 2013 as compared to December 31, 2012, and the consolidated results of operations for the three and nine month periods ended September 30, 2013 compared to the same periods in 2012. The purpose of this discussion is to provide the reader with a more thorough understanding of the Consolidated Financial Statements. This discussion should be read in conjunction with the interim Consolidated Financial Statements and related footnotes contained in Part I, Item 1 of this Quarterly Report.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report are not historical facts but rather are forward-looking statements that are subject to certain risks and uncertainties. When used herein, the terms “anticipates”, “plans”, “expects”, “believes”, and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company’s actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, and rapidly changing technology affecting financial services. Other factors not currently anticipated may also materially and adversely affect the Company’s results of operations, cash flows and financial position. There can be no assurance that future results will meet expectations. While the Company believes that the forward-looking statements in this report are reasonable, the reader should not place undue reliance on any forward-looking statement.

The Company does not undertake, and specifically disclaims any obligation, to publicly revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except as may be required by applicable law.

FINANCIAL CONDITION

Total assets were $593.9 million at September 30, 2013, compared to $586.9 million at December 31, 2012, representing an increase of $7 million, or 1%. This growth was funded by a deposit increase of $5.4 million, or 1%, during the nine month period ended September 30, 2013 to $481 million. Cash and cash equivalents decreased $18 million, or 27%, during the nine months ending September 30, 2013, as a result of funding a $13 million increase in loans and a $10 million increase in securities.

During the third quarter 2013, the Company reclassified $39 million of U.S. Agency and U.S. Agency collateralized mortgage backed obligations from Available for Sale to Held to Maturity. The Company considers the Held to Maturity classification to be more appropriate in a rising interest rate environment as other comprehensive income is no longer negatively impacted by the decline in value on specific bonds as the Company has the ability and the intent to hold the longer-term Agency debt securities and the mortgage-backed securities to maturity. On the date of transfer, the $1.9 million gross unrealized loss became a discount to the carrying value of the bonds while the net of tax unrealized loss remained in shareholders’ equity in other comprehensive income. The effect on interest income of the accretion of the discount on the bonds is basically offset by the amortization of the other comprehensive loss over the life of the bonds.

Net loans increased $12 million, or 3%, during the nine months ended September 30, 2013. Commercial loans including commercial real estate loans increased $19 million, or 8%, while construction and land development loans decreased $8 million, or 36%, with several construction projects transferring to

CSB BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

permanent financing during the nine month period. Home equity lines increased $1 million, or 3%, real estate mortgage loans increased $1 million, or 2%, and consumer loans increased slightly over December 31, 2012. Consumers continued to refinance their mortgage loans for lower long-term rates. During 2012 and the first nine months of 2013 the Bank originated and retained some fifteen-year fixed-rate mortgage loans for its portfolio. Residential mortgage originations for the nine months ended September 30, 2013 were $20 million as compared to $26 million for the prior year nine month period. The Bank originates and sells fixed rate thirty year mortgages into the secondary market.

The allowance for loan losses as a percentage of total loans was 1.35% at September 30, 2013, an increase from 1.26% at December 31, 2012. Outstanding loan balances increased 4% to $377 million at September 30, 2013. A provision of $630 thousand, partially offset by net charge-offs of $133 thousand, increased the allowance for loan losses for the nine months ended September 30, 2013.


	September 30,			December 31,			September 30,
(Dollars in thousands)	2013			2012			2012
Non-performing loans	$	2,368		$	3,337		$	3,662
Other real estate		—			25			51
Allowance for loan losses		5,077			4,580			4,661
Total loans		377,434			364,580			352,748
Allowance: loans		1.35	%		1.26	%		1.32	%
Allowance: non-performing loans		2.1 x			1.4 x			1.3 x

The ratio of gross loans to deposits was 78% at September 30, 2013, compared to 77% at December 31, 2012. The increase in this ratio is the result of loan volume increases outpacing increases in deposits during the nine months ended September 30, 2013.

The Company had a net unrealized gain of $237 thousand within its available for sale portfolio, partially offset by a net unrealized loss of $1.1 million within its held to maturity portfolio at September 30, 2013, compared to net unrealized gains of $2.8 million at December 31, 2012. 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 million within the available for sale and held to maturity portfolios as of September 30, 2013, were primarily the result of customary and expected fluctuations in the bond market and not necessarily the expected cash flows of the individual securities. As a result, all security impairments detailed above on September 30, 2013, are considered temporary and no impairment loss relating to these securities has been recognized.

Deposits increased $5 million, or 1%, from December 31, 2012 with non-interest bearing deposits increasing $13.8 million and interest-bearing deposit accounts decreasing $8.4 million. Total deposits as of September 30, 2013 are $27 million above September 30, 2012 deposit balances. On a year over year comparison, increases were recognized in non-interest bearing demand deposits, interest bearing demand deposits and statement and passbook savings accounts for the period ended September 30, 2013.

Short-term borrowings consisting of overnight repurchase agreements with retail customers increased $2 million from December 31, 2012 and other borrowings decreased $161 thousand as the Company used cash from interest-earning deposits in other banks to repay required maturities and monthly payments on advances from the FHLB.

Total shareholders’ equity amounted to $52.0 million, or 8.8% of total assets, at September 30, 2013, compared to $52.5 million, or 8.9% of total assets, at December 31, 2012. The decrease in shareholders’ equity during the nine months ending September 30, 2013 was due to other comprehensive income decreasing $3 million and dividends declared of $1.5 million, which were partially offset by net income of $4 million. The Company and the Bank met all regulatory capital requirements at September 30, 2013.

CSB BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Three months ended September 30, 2013 and 2012

For the quarter ended September 30, 2013, the Company recorded net income of $1.4 million or $0.52 per share, as compared to net income of $1.2 million, or $0.45 per share for the quarter ended September 30, 2012. The $176 thousand increase in net income for the quarter was a result of net interest income increasing $251 thousand and noninterest income increasing $117 thousand. These gains were partially offset by an increase in noninterest expense of $106 thousand and an increase in the federal income tax provision of $82 thousand. Return on average assets and return on average equity were 0.96% and 10.79%, respectively, for the three month period of 2013, compared to 0.86% and 9.41%, respectively for the same quarter in 2012.

Average Balance Sheets and Net Interest Margin Analysis


	For the three months ended September 30,
	2013					2012
	Average		Average			Average		Average
(Dollars in thousands)	balance		rate			balance		rate
ASSETS
Interest-earning deposits in other banks	$	32,481		0.28	%	$	49,930		0.25	%
Federal funds sold		297		0.20			241		0.17
Taxable securities		122,035		2.17			123,565		2.05
Tax-exempt securities		16,515		4.73			14,675		4.93
Loans		374,579		4.69			347,682		5.00

Total earning assets		545,907		3.86	%		536,093		3.87	%
Other assets		36,293					33,049

TOTAL ASSETS	$	582,200				$	569,142


LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing demand deposits	$	70,384		0.06	%	$	63,263		0.07	%
Savings deposits		142,069		0.09			138,415		0.16
Time deposits		148,301		1.01			161,998		1.21
Other borrowed funds		59,044		0.91			59,198		1.08

Total interest bearing liabilities		419,798		0.53	%		422,874		0.68	%
Non-interest bearing demand deposits		108,599					91,815
Other liabilities		2,058					2,390
Shareholders’ Equity		51,745					52,063

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	582,200				$	569,142


Taxable equivalent net interest spread				3.33	%				3.19	%
Taxable equivalent net interest margin				3.46	%				3.34	%

Interest income for the quarter ended September 30, 2013, was $5.2 million representing an $88 thousand increase, or a 1.7% improvement, compared to the same period in 2012. This increase was primarily due to average loan volume increasing $27 million for the quarter ended September 30, 2013 as compared to the third quarter 2012. Interest expense for the quarter ended September 30, 2013 was $558 thousand, a decrease of $163 thousand, or 23%, from the same period in 2012. The decrease in interest expense occurred primarily due to a decrease of 0.14% in interest rates paid on interest-bearing deposits which decreased from 0.6% in 2012 to 0.5% in 2013 and a rate decrease of .17% on all other borrowings which declined from 1.1% in 2012 to 0.9% for the quarter ended September 30, 2013.

The provision for loan losses for the quarter ended September 30, 2013 was $210 thousand, compared to a $206 thousand provision for the same quarter in 2012. 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.

CSB BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Noninterest income for the quarter ended September 30, 2013, was $1.2 million, an increase of $117 thousand, or 11%, compared to the same quarter in 2012. Service charges on deposit accounts increased $8 thousand, or 2%, compared to the same quarter in 2012. Debit card interchange income increased $3 thousand, or 2%, with greater customer usage. Fees from trust and brokerage services increased $26 thousand to $201 thousand for the third quarter 2013 as compared to the same quarter in 2012. The gain on the sale of mortgage loans to the secondary market decreased to $67 thousand for the quarter ending September 30, 2013, from $169 thousand in the quarter ended September 30, 2012. Mortgage originations decreased during the quarter as secondary market mortgage refinancings have declined with higher mortgage interest rates.

Noninterest expenses for the quarter ended September 30, 2013 increased $106 thousand, or 3%, compared to the third quarter of 2012. Salaries and employee benefits increased $43 thousand, or 2%. Occupancy and equipment expenses decreased $7 thousand in 2013 over the third quarter of 2012. Other expenses increased $30 thousand, or 7%, compared to the third quarter 2012.

Federal income tax expense increased $82 thousand, or 15%, for the quarter ended September 30, 2013 as compared to the third quarter of 2012. The provision for income taxes was $616 thousand (effective rate of 30%) for the quarter ended September 30, 2013, compared to $534 thousand (effective rate of 30%) for the quarter ended September 30, 2012. The increase in the expense resulted from improved income.

RESULTS OF OPERATIONS

Nine months ended September 30, 2013 and 2012

Net income for the nine months ended September 30, 2013, was $4.0 million or $1.47 per share, as compared to $3.4 million or $1.25 per share during the same period in 2012. Return on average assets and return on average equity were 0.93% and 10.18%, respectively, for the nine month period of 2013, compared to 0.82% and 8.95%, respectively for 2012.

Comparative net income increased as net interest income improved to $14 million for the nine months ended September 30, 2013, an increase of $825 thousand or 6% from the same period last year. Total noninterest income rose $239 thousand or 8% to $3.3 million. The provision for loan losses increased $13 thousand or 2% during the same comparative period. These improvements were partially offset by higher noninterest expenses for the nine month period ending in 2013 as compared to 2012.

Interest income on loans increased $540 thousand, or 4%, for the nine months ended September 30, 2013, as compared to the same period in 2012. This increase was primarily due to an average volume increase of $36 million for the comparable nine month periods. Interest income on securities decreased $217 thousand, or 9%, as the average volume of securities increased $4 million for the comparable nine month periods. Interest income on fed funds sold and interest bearing deposits decreased $45 thousand for the nine months ended September 30, 2013 as the average fed funds sold and due from banks interest bearing balances decreased $27 million, compared to the same period in 2012.

CSB BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Average Balance Sheet and Net Interest Margin Analysis


	For the nine months ended September 30,
	2013					2012
	Average		Average			Average		Average
(Dollars in thousands)	balance		rate			balance		rate
ASSETS
Due from banks-interest bearing	$	31,327		0.28	%	$	57,898		0.26	%
Federal funds sold		207		0.19			150		0.09
Taxable securities		119,692		2.05			118,200		2.34
Tax-exempt securities		16,461		4.74			14,078		5.22
Loans		374,369		4.80			338,272		5.10

Total earning assets		542,056		3.93	%		528,598		3.95	%
Other assets		34,517					32,712

TOTAL ASSETS	$	576,573				$	561,310


LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest bearing demand deposits	$	70,604		0.06	%	$	62,054		0.08	%
Savings deposits		140,149		0.10			133,585		0.18
Time deposits		152,365		1.06			165,725		1.27
Other borrowed funds		57,082		0.94			58,122		1.16

Total interest bearing liabilities		420,200		0.56	%		419,486		0.73	%
Non-interest bearing demand deposits		101,554					88,693
Other liabilities		2,055					2,007
Shareholders’ Equity		52,764					51,124

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	576,573				$	561,310


Taxable equivalent net interest spread				3.37	%				3.22	%
Taxable equivalent net interest margin				3.50	%				3.37	%

Interest expense decreased $547 thousand to $1.7 million for the nine months ended September 30, 2013, compared to the nine months ended September 30, 2012. Interest expense on deposits decreased $443 thousand, or 25%, from the same period as last year, while interest expense on short-term and other borrowings decreased $104 thousand or 21%. The decrease in interest expense has been caused by lower interest rates being paid across the board on interest-bearing deposit accounts and borrowings. Additionally, during the comparable nine month periods, the Company grew non-interest bearing deposits in 2013. Time deposits continue to renew at lower interest rates, and some depositors have moved monies to savings instruments anticipating higher rates than time deposits. Competition for deposits appears to be decreasing from a year ago with larger money center banks reducing the premium paid for term deposits. The net interest margin increased by 13 basis points for the nine month period ended September 30, 2013, to 3.50%, from 3.37% for the same period in 2012. This margin increase is primarily the result of decreased interest expense and the change in the asset mix from overnight funds to loans.

The provision for loan losses was $630 thousand during the nine months of 2013, compared to $617 thousand in the same nine month period of 2012. 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.

Non-interest income increased $239 thousand, or 8%, during the nine months ended September 30, 2013, as compared to the same period in 2012. Debit card interchange income decreased $24 thousand or 4% as a result of decreased servicer revenue during the first nine months of 2013. Service charges on deposits increased $30 thousand from the same period in 2012 reflecting the increase in fees based on transaction activity.

CSB BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Decreases were recognized in gains on mortgage loans sold in the secondary market on a year over year basis as refinancing activity decreased with rising mortgage rates.

Non-interest expenses increased $224 thousand, or 2%, for the nine months ended September 30, 2013, compared to the same period in 2012. The Bank’s FDIC deposit premium increased $24 thousand to $262 thousand for the nine months ended 2012 reflecting an increase in assets for the nine months ended September 30, 2013 as compared to 2012. Salaries and employee benefits increased $210 thousand, or 4%, primarily the result of salary increases. Professional fees decreased $156 thousand, or 25%, as certain employment search fees for Chief Operating Officer and commercial lending positions, as well as fees spent to review the Company’s computer operating system in 2012 did not recur in 2013. Occupancy and equipment expense increased $68 thousand, or 6%, reflecting the increase in depreciation and maintenance as compared to 2012.

The provision for income taxes was $1.8 million (effective rate of 30%) for the nine months ended September 30, 2013, compared to $1.5 million (effective rate of 31%) for the nine months ended September 30, 2012.

CAPITAL RESOURCES

The Board of Governors of the Federal Reserve System (the “Federal Reserve”) has established risk-based capital guidelines that must be observed by financial holding companies and banks. 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, 2012. As of September 30, 2013 the Company and the Bank met all capital adequacy requirements to which they were subject.

LIQUIDITY


(Dollars in millions)	September 30, 2013			December 31, 2012			Change
Cash and cash equivalents	$	49		$	67		$	(18	)
Unused lines of credit		44			41			3
Unpledged securities at fair market value		37			59			(22	)

	$	130		$	167		$	(37	)

Net deposits and short-term liabilities	$	462		$	444		$	18

Liquidity ratio		28.2	%		37.6	%
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 and borrowing at the Federal Reserve discount window. Management believes that its sources of liquidity are adequate to meet cash flow obligations for the foreseeable future.

The liquidity ratio declined to 28.2% at September 30, 2013, from 37.6% at December 31, 2012 as a result of the third quarter transfer of bonds from available for sale to held to maturity. Approximately one-third of the bonds in the transfer were not pledged. These unpledged held to maturity bonds will become the first bonds pledged for future requirements and ultimately improve the current liquidity ratio.

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.

CSB BANCORP, INC.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the quantitative and qualitative disclosures about market risks as of September 30, 2013, from the disclosures presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

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. Although the limits set by the board under a static balance sheet assumption were minimally exceeded on December 31, 2012 due to the volume of liquidity held by the Bank, all positions are currently within the Company’s board-approved policy.

The following table presents an analysis of the estimated sensitivity of the Company’s annual net interest income to sudden and sustained 100 through 400 basis point changes, in 100 basis point changes, in market interest rates at September 30, 2013 and December 31, 2012. The net interest income reflected is for the first twelve months of the modeled twenty-four month period.


(Dollars in thousands)
September 30, 2013
Change in interest rates (basis points)		Net interest income		Dollar change			Percentage change			Board Policy Limits
	+ 400	$	20,871	$	2,125			11.3	%		+/–25
	+ 300		20,382		1,636			8.7			+/–15
	+ 200		19,804		1,058			5.6			+/–10
	+ 100		19,128		382			2.0			+/–5
	0		18,746		—			—
	– 100		18,382		(364	)		(2.0	)		+/–5
	– 200		N/A		N/A			N/A


December 31, 2012
Change in interest rates (basis points)		Net interest income		Dollar change			Percentage change			Board Policy Limits
	+ 400	$	19,420	$	1,762			10.0	%		+/–25
	+ 300		18,982		1,324			7.5			+/–15
	+ 200		18,507		849			4.8			+/–10
	+ 100		18,053		395			2.2			+/–5
	0		17,658		—			—
	– 100		17,483		(175	)		(1.0	)		+/–5
	– 200		N/A		N/A			N/A

CSB BANCORP, INC.

CONTROLS AND PROCEDURES

ITEM 4 – CONTROLS AND PROCEDURES

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.

CSB BANCORP, INC.

FORM 10-Q

Quarter ended September 30, 2013

PART II – OTHER INFORMATION

ITEM 1 –

LEGAL PROCEEDINGS.

In the opinion of management there are no outstanding legal proceedings that are reasonably likely to have a material adverse effect on the company’s financial condition or results of operations.

ITEM 1A –

RISK FACTORS.

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, 2012.

ITEM 2 –

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

On July 7, 2005 CSB Bancorp, Inc. filed Form 8-K with the Commission announcing that its Board of Directors approved a Stock Repurchase Program authorizing the repurchase of up to 10% of the Company’s common shares then outstanding. Repurchases may be made from time to time as market and business conditions warrant, in the open market, through block purchases and in negotiated private transactions. No repurchase were made during the quarterly period ended September 30, 2013.

ITEM 3 –

DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4 –

MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5 –

OTHER INFORMATION.

Not applicable.

CSB BANCORP, INC.

FORM 10-Q

Quarter ended September 30, 2013

PART II – OTHER INFORMATION

ITEM 6 –

Exhibits.


Exhibit Number		Description of Document

3.1		Amended Articles of Incorporation of CSB Bancorp, Inc. (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed August 6, 2004, Exhibit 3.1, film number 04958544).

3.2		Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to the Registrant’s Form 10-SB).

3.2.1		Amended Article VIII of the Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to Registrant’s Form DEF 14a filed on March 25, 2009, Appendix A, film number 09703970).

4.0		Specimen stock certificate (incorporated by reference to Registrant’s Form 10-SB).

11		Statement Regarding Computation of Per Share Earnings.

31.1		Rule 13a-14(a)/15d-14(a) Chief Executive Officer’s Certification.

31.2		Rule 13a-14(a)/15d-14(a) Chief Financial Officer’s Certification.

32.1		Section 1350 Chief Executive Officer’s Certification.

32.2		Section 1350 Chief Financial Officer’s Certification.

101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 formatted in XBRL (extensible Business Reporting Language): (i) Consolidated Balance Sheets: (ii) Consolidated Statements of Income: (iii) Consolidated Statements of Comprehensive Income: (iv) Condensed Consolidated Statements of Changes in Shareholders’ Equity: (v) Condensed Consolidated Statements of Cash Flows: and (vi) Notes to Consolidated Financial Statements.

CSB BANCORP, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


				CSB BANCORP, INC.
				(Registrant)

Date: November 13, 2013				/s/ Eddie L. Steiner
				Eddie L. Steiner
				President
				Chief Executive Officer

Date: November 13, 2013				/s/ Paula J. Meiler
				Paula J. Meiler
				Senior Vice President
				Chief Financial Officer

CSB BANCORP, INC.

INDEX TO EXHIBITS


Exhibit Number		Description of Document

3.1		Amended Articles of Incorporation of CSB Bancorp, Inc. (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed August 6, 2004, Exhibit 3.1, film number 04958544).

3.2		Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to the Registrant’s Form 10-SB).

3.2.1		Amended Article VIII of the Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to Registrant’s Form DEF 14a filed on March 25, 2009, Appendix A, film number 09703970).

4.0		Specimen stock certificate (incorporated by reference to Registrant’s Form 10-SB).

11		Statement Regarding Computation of Per Share Earnings.

31.1		Rule 13a-14(a)/15d-14(a) Chief Executive Officer’s Certification.

31.2		Rule 13a-14(a)/15d-14(a) Chief Financial Officer’s Certification.

32.1		Section 1350 Chief Executive Officer’s Certification.

32.2		Section 1350 Chief Financial Officer’s Certification.

101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 formatted in XBRL (extensible Business Reporting Language): (i) Consolidated Balance Sheets: (ii) Consolidated Statements of Income: (iii) Consolidated Statements of Comprehensive Income: (iv) Condensed Consolidated Statements of Changes in Shareholders’ Equity: (v) Condensed Consolidated Statements of Cash Flows: and (vi) Notes to Consolidated Financial Statements.