CSB BANCORP, INC.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

o		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 þ     No o

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 o     No o

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):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o     No þ

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 May 13, 2011 :
		2,734,799 common shares

 

 

CSB BANCORP, INC.
FORM 10-Q
QUARTER ENDED March 31, 2011
Table of Contents

		Page
Part I — Financial Information
ITEM 1 — FINANCIAL STATEMENTS (Unaudited)
Consolidated Balance Sheets			3
Consolidated Statements of Income			4
Condensed Consolidated Statements of Changes in Shareholders’ Equity			5
Condensed Consolidated Statements of Cash Flows			6
Notes to the Consolidated Financial Statements			7
ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			22
ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			27
ITEM 4T — CONTROLS AND PROCEDURES			27
Part II — Other Information
ITEM 1 — Legal Proceedings			29
1A – Risk Factors			29
2 — Unregistered Sales of Equity Securities and Use of Proceeds			29
3 — Defaults upon Senior Securities			29
4 — Removed and Reserved			29
5 — Other Information			29
6 — Exhibits			30
Signatures			31
EX-11
EX-31.1
EX-31.2
EX-32.1
EX-32.2

CSB BANCORP, INC.

PART I — FINANCIAL INFORMATION

ITEM 1. — FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS
(Unaudited)

		March 31,				December 31,
(Dollars in thousands)		2011				2010
ASSETS
Cash and cash equivalents
Cash and due from banks		$	9,792			$	9,798
Interest-earning deposits in other banks			11,898				38,497
Federal funds sold			310				65
Total cash and cash equivalents			22,000				48,360
Securities
Available-for-sale, at fair value			83,085				75,204
Restricted stock, at cost			5,463				5,463
Total securities			88,548				80,667
Loans held for sale			20				—
Loans			322,017				315,647
Less allowance for loan losses			4,028				4,031
Net loans			317,989				311,616
Premises and equipment, net			7,754				7,878
Core deposit intangible			391				406
Goodwill			1,725				1,725
Bank-owned life insurance			2,987				2,961
Accrued interest receivable and other assets			3,947				3,443
TOTAL ASSETS		$	445,361			$	457,056
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Deposits
Noninterest-bearing		$	60,325			$	69,151
Interest-bearing			287,884				284,340
Total deposits			348,209				353,491
Short-term borrowings			28,382				32,018
Other borrowings			19,707				22,909
Accrued interest payable and other liabilities			1,606				1,484
Total liabilities			397,904				409,902
SHAREHOLDERS’ EQUITY
Common stock, $6.25 par value. Authorized 9,000,000 shares; issued 2,980,602 shares; outstanding 2,734,799 shares in 2011 and 2010			18,629				18,629
Additional paid-in capital			9,994				9,994
Retained earnings			23,077				22,673
Treasury stock at cost — 245,803 shares in 2011 and 2010			(5,015	)			(5,015	)
Accumulated other comprehensive income			772				873
Total shareholders’ equity			47,457				47,154
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	445,361			$	457,056

See notes to unaudited consolidated financial statements.

CSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

		Three Months Ended
		March 31,
(Dollars in thousands, except per share data)		2011				2010
INTEREST AND DIVIDEND INCOME
Loans, including fees		$	4,236			$	4,302
Taxable securities			595				751
Nontaxable securities			98				84
Other			17				19
Total interest and dividend income			4,946				5,156
INTEREST EXPENSE
Deposits			786				876
Other borrowings			226				399
Total interest expense			1,012				1,275
NET INTEREST INCOME			3,934				3,881
PROVISION FOR LOAN LOSSES			280				519
Net interest income, after provision for loan losses			3,654				3,362
NONINTEREST INCOME
Service charges on deposit accounts			245				269
Trust services			160				142
Debit card interchange fees			138				108
Gain on sale of loans, net			70				46
Other			148				166
Total noninterest income			761				731
NONINTEREST EXPENSES
Salaries and employee benefits			1,763				1,604
Occupancy expense			219				220
Equipment expense			120				126
Professional fees			159				154
Franchise tax expense			135				135
Software expense			91				95
Marketing and public relations			59				71
Amortization of intangible assets			15				16
Other expenses			559				620
Total noninterest expenses			3,120				3,041
Income before income taxes			1,295				1,052
FEDERAL INCOME TAX PROVISION			399				315
NET INCOME		$	896			$	737
Basic and diluted net income per share		$	0.33			$	0.27

See notes to unaudited consolidated financial statements.

CSB BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)

		Three Months Ended
		March 31,
(Dollars in thousands, except per share data)		2011				2010
Balance at beginning of period		$	47,154			$	45,822
Comprehensive income:
Net income			896				737
Change in net unrealized gain (loss), net of reclassification adjustments and related income taxes of ($52) and $54, respectively			(101	)			104
Total comprehensive income			795				841
Cash dividends declared ($0.18 per share in 2011 and 2010)			(492	)			(492	)
Balance at end of period		$	47,457			$	46,171

See notes to unaudited consolidated financial statements.

CSB BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		Three Months Ended
		March 31,
(Dollars in thousands, except per share data)		2011				2010
NET CASH FROM OPERATING ACTIVITIES		$	1,041			$	(113	)
CASH FLOWS FROM INVESTING ACTIVITES
Securities available-for-sale:
Proceeds from maturities and repayments			4,240				13,560
Purchases			(12,344	)			(6,551	)
Loan originations, net of repayments			(6,679	)			2,044
Proceeds from sale of other real estate			8				215
Property, equipment, and software acquisitions			(517	)			(7	)
Net cash provided by (used in) investing activities			(15,292	)			9,261
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits			(5,271	)			(3,256	)
Net change in short-term borrowings			(3,636	)			857
Repayments of other borrowings			(3,202	)			(12,728	)
Net cash provided by used in financing activities			(12,109	)			(15,127	)
NET DECREASE IN CASH AND CASH EQUIVALENTS			(26,360	)			(5,979	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			48,360				42,661
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	22,000			$	36,682
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest		$	1,042			$	1,403
Income taxes			50				250
Noncash investing activities:
Transfer of loans to other real estate owned			—				301

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 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 March 31, 2011, 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 have been omitted. The Annual Report for CSB for the year ended December 31, 2010, 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 periods ended March 31, 2011 are not necessarily indicative of the operating results for the full year or any future interim period.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends Subtopic 820-10 to clarify existing disclosures, require new disclosures, and includes conforming amendments to guidance on employers’ disclosures about postretirement benefit plan assets. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements.

In July 2010, FASB issued ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. ASU 2010-20 is intended to provide additional information to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The amendments in ASU 2010-20 encourage, but do not require, comparative disclosures for earlier reporting periods that ended before initial adoption. However, an entity should provide comparative disclosures for those reporting periods ending after initial adoption. The Company is currently evaluating the impact the adoption of this guidance will have on the Company’s financial position or results of operations.

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In December, 2010, the FASB issued ASU 2010- 28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. This ASU modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating an impairment may exist. The qualitative factors are consistent with the existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments in this update are effective for fiscal year, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Nonpublic entities may early adopt the amendments using the effective date for public entities. This ASU is not expected to have a significant impact on the Company’s financial statements.

In December 2010, the FASB issued ASU 2010- 29, Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments in this update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.

In April 2011, the FASB issued ASU 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. The amendments in this update provide additional guidance or clarification to help creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring. The amendments in this update are effective for the first interim or annual reporting period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. This ASU is not expected to have a significant impact on the Company’s financial statements.

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 2 — SECURITIES

Securities consist of the following at March 31, 2011 and December 31, 2010:

						Gross				Gross
		Amortized				unrealized				unrealized
(Dollars in thousands)		cost				gains				losses				Fair value
March 31, 2011
Available-for-sale:
U.S. Treasury security		$	100			$	—			$	—			$	100
Obligations of U.S. Government corporations and agencies			25,992				15				299				25,708
Mortgage-backed securites in government sponsored entities			42,323				1,270				120				43,473
Obligations of states and political subdivisions			12,431				352				35				12,748
Corporate bonds			1,000				—				2				998
Total debt securities			81,846				1,637				456				83,027
Equity securities in financial institutions			69				3				14				58
Total available-for-sale			81,915				1,640				470				83,085
Restricted stock			5,463				—				—				5,463
Total securities		$	87,378			$	1,640			$	470			$	88,548
December 31, 2010
Available-for-sale:
U.S. Treasury security		$	100			$	—			$	—			$	100
Obligations of U.S. Government corporations and agencies			20,009				8				306				19,711
Mortgage-backed securites in government sponsored entities			41,005				1,374				28				42,351
Obligations of states and political subdivisions			11,699				341				46				11,994
Corporate bonds			1,000				—				8				992
Total debt securities			73,813				1,723				388				75,148
Equity securities in financial institutions			69				3				16				56
Total available-for-sale			73,882				1,726				404				75,204
Restricted stock			5,463				—				—				5,463
Total securities		$	79,345			$	1,726			$	404			$	80,667

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 2 — SECURITIES (CONTINUED)

The amortized cost and fair value of debt securities at March 31, 2011, 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.

Due in one year or less		$	1,978			$	1,988
Due after one through five years			7,487				7,633
Due after five through ten years			19,908				20,163
Due after ten years			52,473				53,243
Total debt securities available-for-sale		$	81,846			$	83,027

Realized Gains and Losses

There were no sales of available-for-sale securities for the three month periods ending March 31, 2011 or 2010. Gains or losses on the sales of available-for-sale securities are recognized upon sale and are determined by the specific identification method.

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, 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 and 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 March 31, 2011 and has recognized the total amount of the impairment in other comprehensive income, net of tax.

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 March 31, 2011 and December 31, 2010:

		Securities in a continuous unrealized loss position
		Less than 12 months								12 months or more								Total
		Gross								Gross								Gross
		unrealized				Fair				unrealized				Fair				unrealized				Fair
(Dollars in thousands)		losses				value				losses				value				losses				value
March 31, 2011
Obligations of U.S. Corporations and agencies		$	299			$	13,692			$	—			$	—			$	299			$	13,692
Mortgage-backed securities in government sponsored entities			111				7,945				9				394				120				8,339
Obligations of state & political subdivisions			35				2,569				—				—				35				2,569
Corporate bonds			2				498				—				—				2				498
Total debt securities			447				24,704				9				394				456				25,098
Equity securities in financial institutions			—				—				14				40				14				40
Total temporarily impaired securities		$	447			$	24,704			$	23			$	434			$	470			$	25,138
December 31, 2010
Obligations of U.S. Corporations and agencies		$	306			$	12,686			$	—			$	—			$	306			$	12,686
Mortgage-backed securities in government sponsored entities			14				4,032				14				493				28				4,525
Obligations of state & political subdivisions			46				2,561				—				—				46				2,561
Corporate bonds			8				492				—				—				8				492
Total debt securities			374				19,771				14				493				388				20,264
Equity securities in financial institutions			—				—				16				38				16				38
Total temporarily impaired securities		$	374			$	19,771			$	30			$	531			$	404			$	20,302

There were twenty-three (23) securities in an unrealized loss position at March 31, 2011, three (3) of which were in a continuous loss position for twelve months or more. There were twenty-two (22) securities in an unrealized loss position at December 31, 2010, one (1) of which was in a continuous loss position for twelve months or more.

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 3 — LOANS

The Company grants commercial, commercial real estate, residential and consumer loans primarily to customers in Holmes, Tuscarawas, Wayne, Stark and contiguous counties in north central Ohio.

Loans consist of the following:

(Dollars in thousands)		March 31, 2011				December 31, 2010
Commercial		$	85,778			$	78,540
Commercial real estate			105,839				104,829
Residential real estate			107,053				108,832
Consumer			6,850				6,715
Construction & Land Development			16,297				16,515
Total loans before deferred costs			321,817				315,431
Deferred loan costs			200				216
Total Loans		$	322,017			$	315,647

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 and industrial 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 and industrial 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 and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and usually incorporate the personal guarantees of business owners; 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 and industrial 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 generally 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 more 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 market or 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 March 31, 2011 approximately 87% of the outstanding principal balances of the Company’s commercial real estate loans were secured by owner-occupied properties.

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 3 — LOANS (CONTINUED)

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 loans are underwritten utilizing independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the completed project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources or repayment for these types of loans may be pre-committed permanent loans from the Company or other 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 risks 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 lenders and loan support personnel. This activity, coupled with relatively small loan amounts spread across many individual borrowers, minimizes risk.

The Company utilizes an independent loan review vendor that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management and the Audit Committee of the Board of Directors. 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.

Concentrations of Credit

Nearly all of the Company’s lending activity occurs within the State of Ohio, including the four counties of Holmes, Stark, Tuscarawas and Wayne, as well as other markets. The majority of the Company’s loan portfolio consists of owner occupied commercial real estate and commercial loans. As of March 31, 2011 and December 31, 2010, there were no concentrations of loans related to any single industry in excess of 8.4% and 6.2% respectively, of total loans.

The following table represents a summary of the activity in the allowance for loan losses for the three months ended March 31, 2011 and 2010:

		Three Months Ended March 31,
(Dollars in thousands)		2011				2010
Beginning balance		$	4,031			$	4,060
Provision for loan losses			280				519
Loans charged-off			(316	)			(289	)
Recoveries			33				66
Ending balance		$	4,028			$	4,356

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 3 — LOANS (CONTINUED)

The following table details activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2011. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

																		Construction
						Commercial				Residential								& Land
(Dollars in thousands)		Commercial				Real Estate				Real Estate				Consumer				Development				Unallocated				Total
March 31, 2011
Beginning balance		$	1,179			$	1,183			$	1,057			$	80			$	213			$	319			$	4,031
Provision for possible loan losses			11				330				69				33				(55	)			(108	)			280
Charge-offs			(204	)			—				(68	)			(44	)			—				—				(316	)
Recoveries			10				—				9				14				—				—				33
Net charge-offs			(194	)			—				(59	)			(30	)			—				—				(283	)
Ending balance		$	996			$	1,513			$	1,067			$	83			$	158			$	211			$	4,028

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 impairment method as of March 31, 2011 and December 31, 2010:

																		Construction
						Commercial				Residential								& Land
(Dollars in thousands)		Commercial				Real Estate				Real Estate				Consumer				Development				Unallocated				Total
March 31, 2011
Allowance for loan losses:
Ending allowance balances attributable to loans:
Individually evaluated for impairment		$	102			$	462			$	—			$	—			$	—			$	—			$	564
Collectively evaluated for impairment			894				1,051				1,067				83				158				211				3,464
Acquired with deteriorated credit quality			—				—				—				—				—				—				—
Total ending allowance balance		$	996			$	1,513			$	1,067			$	83			$	158			$	211			$	4,028
Loans:
Loans indvidually evaluated for impairment		$	450			$	3,187			$	48			$	—			$	—			$	—			$	3,685
Loans collectively evaluated for impairment			85,328				102,652				107,005				6,850				15,907				—				317,742
Loans acquired with deteriorated credit quality			—				—				—				—				390				—				390
Total ending loans balance		$	85,778			$	105,839			$	107,053			$	6,850			$	16,297			$	—			$	321,817
December 31, 2010
Allowance for loan losses:
Ending allowance balances attributable to loans:
Individually evaluated for impairment		$	106			$	132			$	—			$	—			$	—			$	—			$	238
Collectively evaluated for impairment			1,073				1,051				1,057				80				121				319				3,701
Acquired with deteriorated credit quality			—				—				—				—				92				—				92
Total ending allowance balance		$	1,179			$	1,183			$	1,057			$	80			$	213			$	319			$	4,031
Loans:
Loans indvidually evaluated for impairment		$	621			$	886			$	299			$	—			$	—			$	—			$	1,806
Loans collectively evaluated for impairment			77,919				103,943				108,533				6,715				16,075				—				313,185
Loans acquired with deteriorated credit quality			—				—				—				—				440				—				440
Total ending loans balance		$	78,540			$	104,829			$	108,832			$	6,715			$	16,515			$	—			$	315,431

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 March 31, 2011 and December 31, 2010:

						Recorded				Recorded
		Unpaid				Investment				Investment				Total								Average
		Principal				with no				with				Recorded				Related				Recorded
(Dollars in thousands)		Balance				Allowance				Allowance				Investment				Allowance				Investment
March 31, 2011
Commercial		$	553			$	186			$	264			$	450			$	101			$	502
Commercial real estate			3,759				602				2,585				3,187				463				3,262
Residential real estate			65				48				—				48				—				48
Construction & land development			638				390				—				390				—				415
Total impaired loans		$	5,015			$	1,226			$	2,849			$	4,075			$	564			$	4,227
December 31, 2010
Commercial		$	644			$	51			$	571			$	622			$	106			$	571
Commercial real estate			1,047				109				777				886				132				1,631
Residential real estate			590				298				—				298				—				97
Construction & land development			683				—				440				440				92				483
Total impaired loans		$	2,964			$	458			$	1,788			$	2,246			$	330			$	2,782

The following table presents the aging of past due and nonaccrual loans as of March 31, 2011 and December 31, 2010 by class of loans:

																		Total
						30 - 59				60 - 89								Past Due
						Days				Days				90 Days +				and				Non-				Total
(Dollars in thousands)		Current				Past Due				Past Due				Past Due				Accruing				Accrual				Loans
March 31, 2011
Commercial		$	85,521			$	118			$	19			$	100			$	237			$	20			$	85,778
Commercial real estate			103,658				136				401				27				564				1,617				105,839
Residential real estate			103,943				779				582				242				1,603				1,507				107,053
Consumer			6,788				39				23				—				62				—				6,850
Construction & land development			15,894				3				—				—				3				400				16,297
Total Loans		$	315,804			$	1,075			$	1,025			$	369			$	2,469			$	3,544			$	321,817
December 31, 2010
Commercial		$	78,235			$	63			$	160			$	58			$	281			$	24			$	78,540
Commercial real estate			100,914				2,156				114				26				2,296				1,619				104,829
Residential real estate			105,593				574				253				601				1,428				1,811				108,832
Consumer			6,580				69				66				—				135				—				6,715
Construction & land development			16,061				3				—				—				3				451				16,515
Total Loans		$	307,383			$	2,865			$	593			$	685			$	4,143			$	3,905			$	315,431

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 3 — LOANS (CONTINUED)

Troubled Debt Restructurings

The Company has troubled debt restructurings of $4.5 million as of March 31, 2011, and $4.1 million as of December 31, 2010, with $328 thousand and $22 thousand of specific reserves allocated as of March 31, 2011 and December 31, 2010 respectively to customers whose loan terms have been modified in troubled debt restructurings.

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.

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 March 31, 2011 and December 31, 2010, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 3 — LOANS (CONTINUED)

						Special
(Dollars in thousands)		Pass				Mention				Substandard				Doubtful				Not Rated				Total
March 31, 2011
Commercial		$	73,887			$	1,787			$	9,403			$	—			$	701			$	85,778
Commercial real estate			87,313				7,834				8,253				—				2,439				105,839
Residential real estate			1,377				—				358				—				105,318				107,053
Consumer			—				—				1				—				6,849				6,850
Construction & land development			10,921				3,052				954				—				1,370				16,297
Total		$	173,498			$	12,673			$	18,969			$	—			$	116,677			$	321,817
December 31, 2010
Commercial		$	65,371			$	3,843			$	9,252			$	—			$	74			$	78,540
Commercial real estate			78,191				9,982				8,188				—				8,468				104,829
Residential real estate			1,153				—				365				—				107,314				108,832
Consumer			—				—				2				—				6,713				6,715
Construction & land development			11,626				2,905				591				—				1,393				16,515
Total		$	156,341			$	16,730			$	18,398			$	—			$	123,962			$	315,431

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 March 31, 2011 and December 31, 2010. Non-performing loans include loans past due 90 days and greater and loans on nonaccrual of interest.

(Dollars in thousands)		Performing				Non-Performing				Total
March 31, 2011
Commercial		$	701			$	—			$	701
Commercial real estate			2,439				—				2,439
Residential real estate			103,568				1,750				105,318
Consumer			6,849				—				6,849
Construction & land development			1,360				10				1,370
Total		$	114,917			$	1,760			$	116,677
December 31, 2010
Commercial		$	74			$	—			$	74
Commercial real estate			8,468				—				8,468
Residential real estate			105,201				2,133				107,334
Consumer			6,713				—				6,713
Construction & land development			1,383				10				1,393
Total		$	121,839			$	2,143			$	123,982

Loans serviced for others approximated $50.6 million and $45.1 million at March 31, 2011 and December 31, 2010, respectively.

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:

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 4 — FAIR VALUE MEASUREMENTS (CONTINUED)

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; 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.

The following table presents the assets reported on the consolidated statements of financial condition at their fair value as of March 31, 2011 and December 31, 2010, by level within the fair value hierarchy. No liabilities are carried at fair value. As required by the accounting standards, 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 corporations and agencies, mortgage -backed securities and obligations of states and political subdivisions are valued at observable market data for similar assets.

(Dollars in thousands)		Level I				Level II				Level III				Total
		March 31, 2011
Assets:
Securities available-for-sale
U.S. Treasury security		$	100			$	—			$	—			$	100
Obligations of U.S. government corporations and agencies			—				25,708				—				25,708
Mortgage-backed securities in government sponsored entities			—				43,473				—				43,473
Obligations of states and political subdivisions			—				12,748				—				12,748
Corporate bonds			—				998				—				998
Total debt securities			100				82,927				—				83,027
Equity securities in financial institutions			58				—				—				58
Total available-for-sale securities		$	158			$	82,927			$	—			$	83,085
		December 31, 2010
Assets:
Securities available-for-sale
U.S. Treasury security		$	100			$	—			$	—			$	100
Obligations of U.S. government corporations and agencies			—				19,711				—				19,711
Mortgage-backed securities in government sponsored entities			—				42,351				—				42,351
Obligations of states and political subdivisions			—				11,994				—				11,994
Corporate bonds			—				992				—				992
Total debt securities			100				75,048				—				75,148
Equity securities in financial institutions			56				—				—				56
Total available-for-sale securities		$	156			$	75,048			$	—			$	75,204