The Quarterly
CSBB Q2 2017 10-Q

CSB Bancorp Inc (CSBB) SEC Quarterly Report (10-Q) for Q3 2017

CSBB 2017 10-K
CSBB Q2 2017 10-Q CSBB 2017 10-K
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: September 30, 2017

OR

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  ☒    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  ☒    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):

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company

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

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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, 2017:
2,742,242 common shares

Table of Contents

CSB BANCORP, INC.

FORM 10-Q

QUARTER ENDED September 30, 2017

Table of Contents

Part I - Financial Information

Page

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

27

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

34

ITEM 4 – CONTROLS AND PROCEDURES

35
Part II - Other Information

ITEM 1 – Legal Proceedings

36

ITEM 1A – Risk Factors

36

ITEM 2 – Unregistered Sales of Equity Securities and Use of Proceeds

36

ITEM 3 – Defaults upon Senior Securities

36

ITEM 4 – Mine Safety Disclosures

36

ITEM 5 – Other Information

36

ITEM 6 – Exhibits

37

Signatures

38

2

Table of Contents

CSB BANCORP, INC.

PART I – FINANCIAL INFORMATION

ITEM 1. – FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(Unaudited)

September 30, December 31,

(Dollars in thousands)

2017 2016

ASSETS

Cash and cash equivalents

Cash and due from banks

$ 15,592 $ 13,590

Interest-earning deposits in other banks

29,780 23,248

Total cash and cash equivalents

45,372 36,838

Securities

Available-for-sale, at fair value

98,048 103,875

Held-to-maturity (fair value 2017-$26,431; 2016-$23,444)

26,475 23,883

Restricted stock, at cost

4,614 4,614

Total securities

129,137 132,372

Loans held for sale

1,108 -  

Loans

509,458 475,449

Less allowance for loan losses

5,436 5,291

Net loans

504,022 470,158

Premises and equipment, net

8,906 8,749

Core deposit intangible

296 383

Goodwill

4,728 4,728

Bank-owned life insurance

13,131 10,361

Accrued interest receivable and other assets

4,124 6,389

TOTAL ASSETS

$ 710,824 $ 669,978

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES

Deposits

Noninterest-bearing

$ 167,563 $ 167,824

Interest-bearing

404,063 372,961

Total deposits

571,626 540,785

Short-term borrowings

45,057 48,742

Other borrowings

21,596 12,385

Accrued interest payable and other liabilities

2,707 2,651

Total liabilities

640,986 604,563

SHAREHOLDERS' EQUITY

Common stock, $6.25 par value. Authorized 9,000,000 shares; issued 2,980,602 shares; outstanding (shares 2017 and 2016 - 2,742,242)

18,629 18,629

Additional paid-in capital

9,815 9,815

Retained earnings

46,250 42,629

Treasury stock at cost (shares 2017 and 2016 - 238,360)

(4,784 (4,784

Accumulated other comprehensive loss

(72 (874

Total shareholders' equity

69,838 65,415

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$ 710,824 $ 669,978

See notes to unaudited consolidated financial statements.

3

Table of Contents

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,

(Dollars in thousands, except per share data)

2017 2016 2017 2016

INTEREST AND DIVIDEND INCOME

Loans, including fees

$ 5,907 $ 5,042 $ 16,940 $ 14,750

Taxable securities

599 634 1,796 2,032

Nontaxable securities

171 163 509 482

Other

89 24 180 73

Total interest and dividend income

6,766 5,863 19,425 17,337

INTEREST EXPENSE

Deposits

368 249 942 758

Short-term borrowings

49 19 106 55

Other borrowings

145 98 361 296

Total interest expense

562 366 1,409 1,109

NET INTEREST INCOME

6,204 5,497 18,016 16,228

PROVISION FOR LOAN LOSSES

280 164 965 493

Net interest income, after provision for loan losses

5,924 5,333 17,051 15,735

NONINTEREST INCOME

Service charges on deposit accounts

287 301 847 867

Trust services

122 213 481 657

Debit card interchange fees

298 270 882 803

Gain on sale of loans, net

94 71 197 221

Earnings on bank owned life insurance

86 70 270 207

Securities gains

-   1 -   1

Other income

167 169 543 428

Total noninterest income

1,054 1,095 3,220 3,184

NONINTEREST EXPENSES

Salaries and employee benefits

2,531 2,319 7,462 6,945

Occupancy expense

236 229 660 707

Equipment expense

143 170 485 513

Professional and director fees

257 221 660 584

Financial institutions and franchise tax expense

131 107 394 320

Marketing and public relations

91 94 259 322

Software expense

219 203 633 587

Debit card expense

139 120 410 338

Amortization of intangible assets

29 30 87 91

FDIC insurance expense

58 57 160 222

Other expenses

452 444 1,410 1,416

Total noninterest expenses

4,286 3,994 12,620 12,045

Income before income taxes

2,692 2,434 7,651 6,874

FEDERAL INCOME TAX PROVISION

826 740 2,329 2,089

NET INCOME

$ 1,866 $ 1,694 $ 5,322 $ 4,785

Basic and diluted net earnings per share

$ 0.68 $ 0.61 $ 1.94 $ 1.74

See notes to unaudited consolidated financial statements

4

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CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,

(Dollars in thousands)

2017 2016 2017 2016

Net income

$ 1,866 $ 1,694 $ 5,322 $ 4,785

Other comprehensive income (loss)

Unrealized (losses) gains arising during the period

(255 128 1,132 1,455

Amounts reclassified from accumulated other comprehensive income, held-to-maturity

27 175 84 491

Income tax effect

78 (103 (414 (661

Reclassification adjustment for gains on available-for-sale securities included in net income

-   (1 -   (1

Income tax effect

-   -   -   -  

Other comprehensive income (loss)

(150 199 802 1,284

Total comprehensive income

$ 1,716 $ 1,893 $ 6,124 $ 6,069

See notes to unaudited consolidated financial statements.

5

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CSB BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,

(Dollars in thousands, except per share data)

2017 2016 2017 2016

Balance at beginning of period

$ 68,726 $ 64,407 $ 65,415 $ 61,266

Net income

1,866 1,694 5,322 4,785

Other comprehensive income (loss)

(150 199 802 1,284

Stock options exercised 1,246 shares issued in 2016

-   -   -   7

Cash dividends declared

(604 (549 (1,701 (1,591

Balance at end of period

$ 69,838 $ 65,751 $ 69,838 $ 65,751

Cash dividends declared per share

$ 0.22 $ 0.20 $ 0.62 $ 0.58

See notes to unaudited consolidated financial statements.

6

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CSB BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Nine Months Ended
September 30,

(Dollars in thousands)

2017 2016

NET CASH FROM OPERATING ACTIVITIES

$ 4,812 $ 6,206

CASH FLOWS FROM INVESTING ACTIVITIES

Securities:

Proceeds from repayments, held-to-maturity

2,156 18,302

Proceeds from repayments, available-for-sale

15,818 38,139

Purchases, available-for-sale

(9,243 (22,217

Purchases, held-to-maturity

(4,700 (7,000

Proceeds from sale of available-for-sale securities

-   1

Loan originations, net of repayments

(34,774 (40,480

Property, equipment, and software acquisitions

(805 (1,055

Net cash used in investing activities

(31,548 (14,310

CASH FLOWS FROM FINANCING ACTIVITIES

Net change in deposits

30,841 (2,802

Net change in short-term borrowings

(3,685 2,369

Proceeds from other borrowings

10,000 -  

Repayment of other borrowings

(789 (989

Cash dividends paid

(1,097 (1,042

Net cash provided by (used in) financing activities

35,270 (2,464

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

$ 8,534 $ (10,568

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

36,838 38,272

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$ 45,372 $ 27,704

SUPPLEMENTAL DISCLOSURES

Cash paid during the year for:

Interest

$ 1,393 $ 1,124

Income taxes

2,920 1,900

Noncash financing activities:

Dividends declared

604 549

See notes to unaudited consolidated financial statements.

7

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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, 2017, 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, 2016, 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, 2017 are not necessarily indicative of the operating results for the full year or any future interim period.

Certain items in the prior-year financial statements were reclassified to conform to the current-year presentation.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

ASU 2014-09 - Revenue from Contracts with Customers. The amendments in ASU 2014-09 require an entity to recognize revenue upon the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this Update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. FASB issued a one-year deferral for implementation, for public entities with a calendar year-end, the new guidance is effective in the quarter and year beginning January 1, 2018. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities, we do not expect the new standard, or any of the amendments, to result in a material change from our current accounting for revenue because the majority of the Company's financial instruments are not within the scope of Topic 606. However, we do expect that the standard will result in new disclosure requirements, which are currently being evaluated.

ASU 2016-01 - Recognition and Measurement of Financial Assets and Financial Liabilities. This Update sets forth targeted improvements to GAAP including, but not limited to, requiring an entity to recognize the changes in fair value of equity investments in the income statement, requiring public business entities to use the exit price when measuring the fair value of financial instruments for financial statement disclosure purposes, eliminating certain disclosures required by existing GAAP, and providing for additional disclosures. The Update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

ASU 2016-02 – Leases. This Update sets forth a new lease accounting model for lessors and lessees. For lessees, virtually all leases will be required to be recognized on the balance sheet by recording a right-of-use asset. Subsequent accounting for leases varies depending on whether the lease is an operating lease or a finance lease. The accounting provided by a lessor is largely unchanged from that applied under the existing guidance. The ASU requires additional qualitative and quantitative disclosures with the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The Update is effective for fiscal years beginning after December 15, 2018, with early application permitted. Based on the Company's preliminary analysis of its current portfolio, the impact to the Company's balance sheet is estimated to result in less than a 1 percent increase in assets and liabilities. This Update is not expected to have a significant impact on the Company's financial statements.

8

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CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED)

ASU 2016-13 - Financial Instruments - Credit Losses. The Update requires that financial assets be presented at the net amount expected to be collected (i.e. net of expected credit losses), eliminating the probable recognition threshold for credit losses on financial assets measured at amortized cost. The measurement of expected credit losses should be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The Update is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted for annual and interim periods beginning after December 15, 2018. We expect the Update will result in an increase in the allowance for credit losses for the estimated life of the financial asset, including an estimate for debt securities. The amount of the increase will be impacted by the portfolio composition and quality at the adoption date, as well as economic conditions and forecasts at that time. A cumulative-effect adjustment to retained earnings is required as of the beginning of the year of adoption. The Company expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

ASU 2016-15 - Classification of Certain Cash Receipts and Cash Payments. The amendments in this Update add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. Current guidance lacks consistent principles for evaluating the classification of cash payments and receipts in the statement of cash flows. FASB issued the ASU with the intent of reducing diversity in practice with respect to several types of cash flows. The amendments in this Update are effective using a retrospective transition approach for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently evaluating the impact the adoption of the standard will have on the Company's statement of cash flows.

ASU 2017-04 - Simplifying the Test for Goodwill Impairment. The Update simplifies the goodwill impairment test. Under the new guidance, Step 2 of the goodwill impairment process that requires an entity to determine the implied fair value of its goodwill by assigning fair value to all its assets and liabilities is eliminated. Instead, the entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new guidance is effective for annual and interim goodwill tests performed in fiscal years beginning after December 15, 2019. Early adoption is permitted. This Update is not expected to have a material impact on the Company's financial statements.

9

Table of Contents

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 – SECURITIES

Securities consist of the following at September 30, 2017 and December 31, 2016:

(Dollars in thousands) Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair value

September 30, 2017

Available-for-sale

U.S. Treasury security

$ 999 $ -   $ 1 $ 998

U.S. Government agencies

8,350 -   50 8,300

Mortgage-backed securities of government agencies

50,452 340 286 50,506

Asset-backed securities of government agencies

1,198 -   4 1,194

State and political subdivisions

27,166 385 74 27,477

Corporate bonds

9,580 70 167 9,483

Equity securities

53 37 -   90

Total available-for-sale

97,798 832 582 98,048

Held-to-maturity

U.S. Government agencies

9,475 21 153 9,343

Mortgage-backed securities of government agencies

12,300 170 96 12,374

State and political subdivisions

4,700 14 -   4,714

Total held-to-maturity

26,475 205 249 26,431

Restricted stock

4,614 -   -   4,614

Total securities

$ 128,887 $ 1,037 $ 831 $ 129,093

December 31, 2016

Available-for-sale

U.S. Treasury security

$ 1,001 $ -   $ -   $ 1,001

U.S. Government agencies

6,500 -   98 6,402

Mortgage-backed securities of government agencies

56,187 239 589 55,837

Other mortgage-backed securities

65 -   -   65

Asset-backed securities of government agencies

1,312 -   46 1,266

State and political subdivisions

30,007 140 439 29,708

Corporate bonds

9,632 28 144 9,516

Equity securities

53 27 -   80

Total available-for-sale

104,757 434 1,316 103,875

Held-to-maturity

U.S. Government agencies

9,472 17 396 9,093

Mortgage-backed securities of government agencies

14,411 141 201 14,351

Total held-to-maturity

23,883 158 597 23,444

Restricted stock

4,614 -   -   4,614

Total securities

$ 133,254 $ 592 $ 1,913 $ 131,933

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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, 2017, 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

$ 3,190 $ 3,208

Due after one through five years

18,798 18,917

Due after five through ten years

26,083 26,271

Due after ten years

49,674 49,562

Total debt securities available-for-sale

$ 97,745 $ 97,958

Held-to-maturity

Due in one year or less

$ 4,700 $ 4,714

Due after one through five years

477 498

Due after five through ten years

3,000 2,914

Due after ten years

18,298 18,305

Total debt securities held-to-maturity

$ 26,475 $ 26,431

Securities with a fair value of approximately $101 million and $95 million were pledged at September 30, 2017 and December 31, 2016, 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 Federal Home Loan Bank of Cincinnati (FHLB) and Federal Reserve Bank stock. The Bank's investment in FHLB stock amounted to approximately $4.1 million at September 30, 2017 and December 31, 2016. Federal Reserve Bank stock was $471 thousand at September 30, 2017 and December 31, 2016.

There were no proceeds from sales of securities for the three or nine month periods ending September 30, 2017. There were proceeds received and gains recognized of $1 thousand on the conversion of restricted stock in the nine month period ending September 30, 2016.

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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, 2017 and December 31, 2016:

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, 2017

Available-for-sale

U.S. Treasury security

$ 1 $ 998 $ -   $ -   $ 1 $ 998

U.S. Government agencies

10 3,840 40 4,460 50 8,300

Mortgage-backed securities of government agencies

245 20,128 41 2,316 286 22,444

Asset-backed securities of government agencies

-   -   4 1,194 4 1,194

State and political subdivisions

9 1,693 65 2,961 74 4,654

Corporate bonds

-   -   167 2,333 167 2,333

Held-to-maturity

U.S. Government agencies

32 3,966 121 4,879 153 8,845

Mortgage-backed securities of government agencies

3 2,011 93 3,274 96 5,285

Total temporarily impaired securities

$ 300 $ 32,636 $ 531 $ 21,417 $ 831 $ 54,053

December 31, 2016

Available-for-sale

U.S. Government agencies

$ 98 $ 6,402 $ -   $ -   $ 98 $ 6,402

Mortgage-backed securities of government agencies

589 27,243 -   -   589 27,243

Asset-backed securities of government agencies

-   -   46 1,266 46 1,266

State and political subdivisions

439 19,328 -   -   439 19,328

Corporate bonds

33 3,593 111 1,889 144 5,482

Held-to-maturity

U.S. Government agencies

396 8,602 -   -   396 8,602

Mortgage-backed securities of government agencies

28 2,018 173 3,621 201 5,639

Total temporarily impaired securities

$ 1,583 $ 67,186 $ 330 $ 6,776 $ 1,913 $ 73,962

There were forty-six securities in an unrealized loss position at September 30, 2017, twenty (20) 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, 2017.

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CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS

Loans consist of the following:

(Dollars in thousands)

September 30, 2017 December 31, 2016

Commercial

$ 137,459 $ 134,268

Commercial real estate

177,588 159,475

Residential real estate

153,281 144,489

Construction & land development

23,915 23,428

Consumer

16,686 13,308

Total loans before deferred costs

508,929 474,968

Deferred loan costs

529 481

Total Loans

$ 509,458 $ 475,449

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.

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.

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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 $79.8 million and $85.9 million at September 30, 2017 and December 31, 2016, 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 commercial real estate loans. As of September 30, 2017 and December 31, 2016, there were no concentrations of loans related to any single industry.

Allowance for Loan Losses

The following tables detail activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2017 and 2016. 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 loan losses for the three months ended September 30, 2017 related to commercial loans was primarily due to the increase in historical losses of loans in this category. The decrease in the provision related to commercial real estate loans was due to the decrease in the specific impairment amount related to one loan relationship. The decrease in the provision related to residential real estate loans is due to the decrease of loan delinquencies in this category.

The increase in the provision for loan losses related to commercial loans for the nine months ended September 30, 2017 was due to the increase in the historical loss rate and the increase of special mention loans in this category. The increase in the provision related to commercial real estate loans was due to the increase in nonaccrual loans in this category and the increase of adversely classified loan balances.

The changes in the provision for loan losses for the three and nine months ended September 30, 2016 related to commercial loans were primarily due to charge-offs of loans in this category as well as an increase in the specific reserve for one commercial relationship. The decrease in the provision related to commercial real estate loans for the nine month period in 2016 was primarily due to a recovery of a prior charge-off. The increase in the provision for consumer loans during the three and nine month periods of 2016 relates to charge-offs of loans in this category as well as the increase in loan volume.

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CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (CONTINUED)

Summary of Allowance for Loan Losses

(Dollars in thousands)

Commercial Commercial
Real Estate
Residential
Real Estate
Construction
& Land
Development
Consumer Unallocated Total

Three months ended September 30, 2017

Beginning balance

$ 2,362 $ 1,718 $ 1,264 $ 222 $ 182 $ 541 $ 6,289

Provision for loan losses

881 (88 (53 21 (5 (476 280

Charge-offs

(1,138 -   -   -   -   (1,138

Recoveries

4 -   -   -   1 5

Net charge-offs

(1,134 -   -   -   1 (1,133

Ending balance

$ 2,109 $ 1,630 $ 1,211 $ 243 $ 178 $ 65 $ 5,436

Nine months ended September 30, 2017

Beginning balance

$ 2,207 $ 1,264 $ 1,189 $ 178 $ 141 $ 312 $ 5,291

Provision for loan losses

725 366 14 65 42 (247 965

Charge-offs

(1,178 -   -   -   (7 (1,185

Recoveries

355 -   8 -   2 365

Net charge-offs

(823 -   8 -   (5 (820

Ending balance

$ 2,109 $ 1,630 $ 1,211 $ 243 $ 178 $ 65 $ 5,436

Three months ended September 30, 2016

Beginning balance

$ 2,376 $ 1,262 $ 1,095 $ 127 $ 110 $ 186 $ 5,156

Provision for loan losses

77 63 50 24 74 (124 164

Charge-offs

(261 (38 -   -   (47 (346

Recoveries

27 -   1 -   -   28

Net charge-offs

(234 (38 1 -   (47 (318

Ending balance

$ 2,219 $ 1,287 $ 1,146 $ 151 $ 137 $ 62 $ 5,002

Nine months ended September 30, 2016

Beginning balance

$ 1,664 $ 1,271 $ 1,086 $ 123 $ 86 $ 432 $ 4,662

Provision for loan losses

797 (117 57 28 98 (370 493

Charge-offs

(276 (50 -   -   (48 (374

Recoveries

34 183 3 -   1 221

Net charge-offs

(242 133 3 -   (47 (153

Ending balance

$ 2,219 $ 1,287 $ 1,146 $ 151 $ 137 $ 62 $ 5,002

15

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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 class and based on the impairment method as of September 30, 2017 and December 31, 2016:

(Dollars in thousands)

Commercial Commercial
Real Estate
Residential
Real Estate
Construction
& Land
Development
Consumer Unallocated Total

September 30, 2017

Allowance for loan losses:

Individually evaluated for impairment

$ 5 $ 20 $ 24 $ -   $ -   $ -   $ 49

Collectively evaluated for impairment

2,104 1,610 1,187 243 178 65 5,387

Total ending allowance balance

$ 2,109 $ 1,630 $ 1,211 $ 243 $ 178 $ 65 $ 5,436

Loans:

Loans individually evaluated for impairment

$ 1,241 $ 3,703 $ 1,486 $ -   $ -   $ 6,430

Loans collectively evaluated for impairment

136,218 173,885 151,795 23,915 16,686 502,499

Total ending loans balance

$ 137,459 $ 177,588 $ 153,281 $ 23,915 $ 16,686 $ 508,929

December 31, 2016

Allowance for loan losses:

Individually evaluated for impairment

$ 705 $ -   $ 24 $ -   $ -   $ -   $ 729

Collectively evaluated for impairment

1,502 1,264 1,165 178 141 312 4,562

Total ending allowance balance

$ 2,207 $ 1,264 $ 1,189 $ 178 $ 141 $ 312 $ 5,291

Loans:

Loans individually evaluated for impairment

$ 5,028 $ 621 $ 1,507 $ -   $ -   $ 7,156

Loans collectively evaluated for impairment

129,240 158,854 142,982 23,428 13,308 467,812

Total ending loans balance

$ 134,268 $ 159,475 $ 144,489 $ 23,428 $ 13,308 $ 474,968

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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, 2017 and December 31, 2016:

(Dollars in thousands)

Unpaid
Principal
Balance
Recorded
Investment
with no
Allowance
Recorded
Investment
with
Allowance
Total
Recorded
Investment
Related
Allowance

September 30, 2017

Commercial

$ 2,868 $ 1,238 $ 5 $ 1,243 $ 5

Commercial real estate

3,901 3,653 51 3,704 20

Residential real estate

1,667 1,095 392 1,487 24

Total impaired loans

$ 8,436 $ 5,986 $ 448 $ 6,434 $ 49

December 31, 2016

Commercial

$ 5,476 $ 1,690 $ 3,354 $ 5,044 $ 705

Commercial real estate

796 600 21 621 -  

Residential real estate

1,681 1,036 472 1,508 24

Total impaired loans

$ 7,953 $ 3,326 $ 3,847 $ 7,173 $ 729

The following table presents the average recorded investment in impaired loans and related interest income recognized for the periods indicated.

Three months
ended September 30,
Nine months
ended September 30,
(Dollars in thousands) 2017 2016 2017 2016

Average recorded investment:

Commercial

$ 3,084 $ 6,389 $ 3,376 $ 6,393

Commercial real estate

4,712 660 2,934 799

Residential real estate

1,370 1,460 1,471 1,504

Average recorded investment in impaired loans

$ 9,166 $ 8,509 $ 7,781 $ 8,696

Interest income recognized:

Commercial

$ 10 $ 54 $ 41 $ 176

Commercial real estate

7 3 9 9

Residential real estate

13 15 43 44

Interest income recognized on a cash basis on impaired loans

$ 30 $ 72 $ 93 $ 229

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CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (CONTINUED)

The following table presents the aging of past due loans and nonaccrual loans as of September 30, 2017 and December 31, 2016 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, 2017

Commercial

$ 136,544 $ 28 $ -   $ 144 $ 743 $ 915 $ 137,459

Commercial real estate

173,989 160 -   40 3,399 3,599 177,588

Residential real estate

151,684 914 108 68 507 1,597 153,281

Construction & land development

23,915 -   -   -   -   -   23,915

Consumer

16,561 87 9 1 28 125 16,686

Total Loans

$ 502,693 $ 1,189 $ 117 $ 253 $ 4,677 $ 6,236 $ 508,929

December 31, 2016

Commercial

$ 133,630 $ 151 $ 62 $ -   $ 425 $ 638 $ 134,268

Commercial real estate

158,504 435 -   39 497 971 159,475

Residential real estate

142,926 816 61 196 490 1,563 144,489

Construction & land development

23,428 -   -   -   -   -   23,428

Consumer

13,234 21 16 -   37 74 13,308

Total Loans

$ 471,722 $ 1,423 $ 139 $ 235 $ 1,449 $ 3,246 $ 474,968

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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 $3.1 million as of September 30, 2017, and $6.4 million as of December 31, 2016, with $24 thousand and $711 thousand of specific reserves allocated to those loans, respectively. At September 30, 2017, $2.0 million of the loans classified as TDR's were performing in accordance with their modified terms. Of the remaining $1.1 million, all were in nonaccrual of interest status.    

The Company held no foreclosed real estate as of September 30, 2017, or December 31, 2016. Consumer mortgage loans in the process of foreclosure were $154 thousand at September 30, 2017 and $448 thousand at December 31, 2016.

The following table presents loans restructured during the three and nine month periods ended September 30, 2017 and 2016.

(Dollars in thousands)

Number of
loans
restructured
Pre-
Modification
Recorded
Investment
Post-
Modification
Recorded
Investment

For the three months ended September 30, 2017

Residential Real Estate

1 $ 38 $ 38

Total Restructured Loans

1 $ 38 $ 38

For the nine months ended September 30, 2017

Commercial Real Estate

4 $ 288 $ 288

Residential Real Estate

2 52 52

Total Restructured Loans

6 $ 340 $ 340

For the three months ended September 30, 2016

Residential Real Estate

-   $ -   $ -  

Total Restructured Loans

-   $ -   $ -  

For the nine months ended September 30, 2016

Residential Real Estate

3 $ 327 $ 327

Total Restructured Loans

3 $ 327 $ 327

The restructured loans were modified by changing the monthly payment to interest only. No principal reductions were made. There was one commercial loan in the amount of $3.3 million that was restructured in the fourth quarter of 2016 that has defaulted in 2017. None of the loans that were restructured in 2015 have subsequently defaulted in the nine month period ended September 30, 2016.

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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 $300 thousand. This analysis 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 a minimum represent an acceptable risk to the Bank. Borrowers in this rating may have leveraged but acceptable balance sheet positions, satisfactory asset quality, 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 not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Loans listed as not rated are either less than $300 thousand or are included in groups of homogeneous loans. Based on the most recent analysis performed, the risk category of loans by class is as follows as of September 30, 2017 and December 31, 2016:

(Dollars in thousands)

Pass Special
Mention
Substandard Doubtful Not Rated Total

September 30, 2017

Commercial

$ 115,301 $ 16,167 $ 5,130 $ -   $ 861 $ 137,459

Commercial real estate

160,677 9,933 6,744 -   234 177,588

Residential real estate

208 -   183 -   152,890 153,281

Construction & land development

18,171 1,410 -   -   4,334 23,915

Consumer

-   -   -   -   16,686 16,686

Total

$ 294,357 $ 27,510 $ 12,057 $ -   $ 175,005 $ 508,929

December 31, 2016

Commercial

$ 116,739 $ 6,874 $ 9,704 $ -   $ 951 $ 134,268

Commercial real estate

149,630 4,168 4,766 -   911 159,475

Residential real estate

216 -   175 -   144,098 144,489

Construction & land development

17,183 981 504 -   4,760 23,428

Consumer

-   -   -   -   13,308 13,308

Total

$ 283,768 $ 12,023 $ 15,149 $ -   $ 164,028 $ 474,968

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CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS (CONTINUED)

The following table presents loans that are not rated by class of loans as of September 30, 2017 and December 31, 2016. Nonperforming loans include loans past due 90 days or more and loans on nonaccrual of interest status.    

(Dollars in thousands)

Performing Non-Performing Total

September 30, 2017

Commercial

$ 861 $ -   $ 861

Commercial real estate

234 -   234

Residential real estate

152,315 575 152,890

Construction & land development

4,334 -   4,334

Consumer

16,657 29 16,686

Total

$ 174,401 $ 604 $ 175,005

December 31, 2016

Commercial

$ 951 $ -   $ 951

Commercial real estate

911 -   911

Residential real estate

143,440 658 144,098

Construction & land development

4,760 -   4,760

Consumer

13,271 37 13,308

Total

$ 163,333 $ 695 $ 164,028

NOTE 4 – SHORT-TERM BORROWINGS

The following table provides additional detail regarding repurchase agreements accounted for as secured borrowings.

Remaining Contractual Maturity
Overnight and Continuous

(Dollars in thousands)

September 30,
2017
December 31,
2016

Securities of U.S. Government Agencies and mortgage-backed securities of government agencies pledged, fair value

$ 45,234 $ 48,866

Repurchase agreements

45,057 48,742

NOTE 5 – 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5- FAIR VALUE MEASUREMENTS (CONTINUED)

The following table presents the assets reported on the Consolidated Balance Sheets at their fair value as of September 30, 2017 and December 31, 2016 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, 2017

Assets:

Securities available-for-sale

U.S. Treasury security

$ 998 $ -   $ -   $ 998

U.S. Government agencies

-   8,300 -   8,300

Mortgage-backed securities of government agencies

-   50,506 -   50,506

Asset-backed securities of government agencies

-   1,194 -   1,194

State and political subdivisions

-   27,477 -   27,477

Corporate bonds

-   9,483 -   9,483

Total debt securities

998 96,960 -   97,958

Equity securities

90 -   -   90

Total available-for-sale securities

$ 1,088 $ 96,960 $ -   $ 98,048

December 31, 2016

Assets:

Securities available-for-sale

U.S. Treasury security

$ 1,001 $ -   $ -   $ 1,001

U.S. Government agencies

-   6,402 -   6,402

Mortgage-backed securities of government agencies

-   55,837 -   55,837

Other mortgage-backed securities

-   65 -   65

Asset-backed securities of government agencies

-   1,266 -   1,266

State and political subdivisions

-   29,708 -   29,708

Corporate bonds

-   9,516 -   9,516

Total debt securities

1,001 102,794 -   103,795

Equity securities

80 -   -   80

Total available-for-sale securities

$ 1,081 $ 102,794 $ -   $ 103,875

The following table presents the assets measured on a nonrecurring basis on the Consolidated Balance Sheets at their fair value as of September 30, 2017 and December 31, 2016, by level within the fair value hierarchy. Impaired loans 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.

22

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5- FAIR VALUE MEASUREMENTS (CONTINUED)

(Dollars in thousands)

Level I Level II Level III Total

September 30, 2017

Assets measured on a nonrecurring basis:

Impaired loans

$ -   $ -   $ 6,381 $ 6,381

December 31, 2016

Assets measured on a nonrecurring basis:

Impaired loans

$ -   $ -   $ 6,427 $ 6,427

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
Estimate

Valuation
Techniques

Unobservable

Input

Range (Weighted Average)

(Dollars in thousands)

September 30, 2017

Impaired loans

$ 2,120 Discounted cash flow Remaining term Discount rate

7 mo to 29.8 yrs (182 months)

3.5% to 9.8% (4.9%)

4,261 Appraisal of collateral  (1)

Appraisal adjustments  (2)

Liquidation expense  (2)

0% to -25% (-20%)

-10%

December 31, 2016

Impaired loans

$ 5,330 Discounted cash flow Remaining term Discount rate 6 mos to 29.9 yrs / (61.1 mos) 3.1% to 12.0% / (4.9%)
1,097 Appraisal of collateral  (1)

Appraisal adjustments  (2)

Liquidation expense (2)

0% to -50% (-21.7%)

-10%

(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. The range of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

23

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CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 6 – FAIR VALUES OF FINANCIAL INSTRUMENTS

The estimated fair values of recognized financial instruments as of September 30, 2017 and December 31, 2016 are as follows:

(Dollars in thousands)

Carrying
Value
Level I Level II Level III Fair Value

September 30, 2017

Financial assets

Cash and cash equivalents

$ 45,372 $ 45,372 $ -   $ -   $ 45,372

Securities available-for-sale

98,048 1,088 96,960 -   98,048

Securities held-to-maturity

26,475 -   26,431 -   26,431

Restricted stock

4,614 4,614 -   -   4,614

Loans held for sale

1,108 1,108 -   -   1,108

Net loans

504,022 -   -   507,303 507,303

Bank-owned life insurance

13,131 13,131 -   -   13,131

Accrued interest receivable

1,701 1,701 -   -   1,701

Mortgage servicing rights

266 -   -   266 266

Financial liabilities

Deposits

$ 571,626 $ 459,054 $ -   $ 112,960 $ 572,014

Short-term borrowings

45,057 45,057 -   -   45,057

Other borrowings

21,596 -   -   20,734 20,734

Accrued interest payable

92 92 -   -   92

December 31, 2016

Financial assets

Cash and cash equivalents

$ 36,838 $ 36,838 $ -   $ -   $ 36,838

Securities available-for-sale

103,875 1,081 102,794 -   103,875

Securities held-to-maturity

23,883 -   23,444 -   23,444

Restricted stock

4,614 4,614 -   -   4,614

Net loans

470,158 -   -   471,815 471,815

Bank-owned life insurance

10,361 10,361 -   -   10,361

Accrued interest receivable

1,409 1,409 -   -   1,409

Mortgage servicing rights

261 -   -   261 261

Financial liabilities

Deposits

$ 540,785 $ 428,676 $ -   $ 112,642 $ 541,318

Short-term borrowings

48,742 48,742 -   -   48,742

Other borrowings

12,385 -   -   12,511 12,511

Accrued interest payable

76 76 -   -   76

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.

24

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CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 6 – FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

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.

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.

Restricted stock

Restricted 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 I.

Mortgage servicing rights

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, classified as Level III.

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, 2017 and December 31, 2016. These financial instruments relate to commitments to extend credit and letters of credit. The aggregated contract amount of such financial instruments was approximately $177.8 million at September 30, 2017 and $163.7 million at December 31, 2016. Such amounts are also considered to be the 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.

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CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 7- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the changes in accumulated other comprehensive income (loss) by component net of tax for the three and nine month periods ended September 30, 2017 and 2016:

(Dollars in thousands)

Pretax Tax Effect After-tax

Three months ended September 30, 2017

Balance as of June 30, 2017

$ 121 $ (43 $ 78

Unrealized holding gain on available-for-sale securities arising during the period

(255 87 (168

Reclassify gain included in income

-   -   -  

Amortization of held-to-maturity discount resulting from transfer

27 (9 18

Total other comprehensive income (loss)

(228 78 (150

Balance as of September 30, 2017

$ (107 $ 35 $ (72

Nine months ended September 30, 2017

Balance as of December 31, 2016

$ (1,323 $ 449 $ (874

Unrealized holding gain on available-for-sale securities arising during the period

1,132 (385 747

Reclassify gain included in income

-   -   -  

Amortization of held-to-maturity discount resulting from transfer

84 (29 55

Total other comprehensive income (loss)

1,216 (414 802

Balance as of September 30, 2017

$ (107 $ 35 $ (72

Three months ended September 30, 2016

Balance as of June 30, 2016

$ 1,012 $ (344 $ 668

Unrealized holding gain on available-for-sale securities arising during the period

128 (43 85

Reclassify gain included in income

(1 -   (1

Amortization of held-to-maturity discount resulting from transfer

175 (60 115

Total other comprehensive income (loss)

302 (103 199

Balance as of September 30, 2016

$ 1,314 $ (447 $ 867

Nine months ended September 30, 2016

Balance as of December 31, 2015

$ (631 $ 214 $ (417

Unrealized holding gain on available-for-sale securities arising during the period

1,455 (494 961

Reclassify gain included in income

(1 -   (1

Amortization of held-to-maturity discount resulting from transfer

491 (167 324

Total other comprehensive income (loss)

1,945 (661 1,284

Balance as of September 30, 2016

$ 1,314 $ (447 $ 867

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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, 2017 as compared to December 31, 2016, and the consolidated results of operations for the three and nine month periods ended September 30, 2017 compared to the same periods in 2016. 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 $711 million at September 30, 2017 as compared to $670 million at December 31, 2016. During the nine month period ended September 30, 2017, net loans increased $34 million. Cash, cash equivalents, and securities increased $5 million. On the liability side, deposits and repurchase agreements increased by $27 million.

Net loans increased $34 million, or 7%, during the nine months ended September 30, 2017. The increase occurred as demand for both business and consumer loans within the bank's markets continued. The bank has added lending and operations staff to accommodate the increase in demand. Commercial loans including commercial real estate loans increased $21 million, or 7%, while construction and land development loans increased $487 thousand, or 2%. Residential real estate loans increased $9 million, or 6%, and consumer loans increased $3 million, or 25% from December 31, 2016. Home purchase activity has increased and consumers continued to refinance their mortgage loans for lower long-term fixed rates. Residential mortgage loan originations for the nine months ended September 30, 2017 and 2016 were $44 million and $48 million, respectively. Originations sold into the secondary market were $7 million and $6 million, respectively during the nine month periods ended September 30, 2017 and September 30, 2016. The Bank originates and sells primarily fixed-rate thirty year mortgages into the secondary market.

The allowance for loan losses as a percentage of total loans was 1.07% at September 30, 2017 as compared to 1.11% at December 31, 2016. Outstanding loan balances increased 7% to $509 million at September 30, 2017. A provision of $965 thousand and net charge-offs of $820 thousand, increased the allowance for loan losses to $5.4 million at September 30, 2017.

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CSB BANCORP, INC.

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

Nonaccrual loans increased during the first nine months of 2017. For the nine months ending September 30, 2017 loans totaling $6.1 million were placed on nonaccrual status, there were $1.0 million charge-downs recognized, and pay downs of $1.8 million were received. The increase in nonaccrual loans was primarily due to two lending relationships comprised of several loans. Management continues to work through the resolution of the two credit facilities.

September 30, December 31, September 30,

(Dollars in thousands)

2017 2016 2016

Non-performing loans

$ 4,930 $ 1,684 $ 2,816

Other real estate

-   -   33

Allowance for loan losses

5,436 5,291 5,002

Total loans

509,458 475,449 463,211

Allowance: Loans

1.07 1.11 1.08

Allowance: Non-performing loans

1.1x 3.1x 1.8 x

The ratio of gross loans to deposits was 89.1% at September 30, 2017, compared to 87.9% at December 31, 2016.

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 $1 million within the available-for-sale and held-to-maturity portfolios as of September 30, 2017, 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 on September 30, 2017, are considered temporary and no impairment loss relating to these securities has been recognized.

Deposits increased $31 million, or 6%, from December 31, 2016 with noninterest bearing deposits decreasing $261 thousand and interest-bearing deposit accounts increasing $31 million. Total deposits as of September 30, 2017 are $49 million greater than September 30, 2016 deposit balances. On a year over year comparison, increases were recognized in noninterest-bearing demand deposits, interest-bearing demand, savings, and money market savings accounts.

Short-term borrowings consisting of overnight repurchase agreements with retail customers decreased $4 million to $45 million at September 30, 2017 as compared to December 31, 2016 and other borrowings increased $9 million as the Company obtained a $10 million long-term advance and repaid FHLB advances with required monthly amortization.

Total shareholders' equity amounted to $70 million, or 9.8%, of total assets, at September 30, 2017, compared to $65 million, or 9.8%, of total assets, at December 31, 2016. The increase in shareholders' equity during the nine months ending September 30, 2017 was due to net income of $5 million and other comprehensive income of $802 thousand, partially offset by dividends declared of $2 million. The Company and the Bank met all regulatory capital requirements at September 30, 2017.

RESULTS OF OPERATIONS

Three months ended September 30, 2017 and 2016

For the quarters ended September 30, 2017 and 2016, the Company recorded net income of $1.9 million and $1.7 million and $.68 and $.61 per share, respectively. The $172 thousand increase in net income for the quarter was primarily the result of a $707 thousand increase in net interest income. The increase was partially offset by an increase in other noninterest expenses of $292 thousand, an increase in the provision for loans losses of $116 thousand, and an increase in the tax provision of $86 thousand. Return on average assets and return on average equity were 1.05% and 10.62%, respectively, for the three month period of 2017, compared to 1.03% and 10.29%, respectively for the same quarter in 2016.

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CSB BANCORP, INC.

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

Average Balance Sheets and Net Interest Margin Analysis

For the three months ended September 30,
2017 2016

(Dollars in thousands)

Average
balance
Average
rate
Average
balance
Average
rate

ASSETS

Interest-earning deposits in other banks

$ 25,144 1.37 $ 13,847 0.66

Federal funds sold

493 1.29 690 0.52

Taxable securities

100,111 2.37 116,220 2.17

Tax-exempt securities

31,741 3.24 28,933 3.51

Loans

504,943 4.65 456,865 4.40

Total earning assets

662,432 4.11 616,555 3.84

Other assets

39,608 37,080

TOTAL ASSETS

$ 702,040 $ 653,635

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-bearing demand deposits

$ 107,459 0.16 $ 83,699 0.04

Savings deposits

171,559 0.20 162,561 0.07

Time deposits

111,741 0.85 115,925 0.72

Other borrowed funds

70,761 1.09 65,933 0.71

Total interest bearing liabilities

461,520 0.48 428,118 0.34

Non-interest bearing demand deposits

168,436 157,643

Other liabilities

2,347 2,403

Shareholders' Equity

69,737 65,471

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$ 702,040 $ 653,635

Taxable equivalent net interest spread

3.63 3.50

Taxable equivalent net interest margin

3.77 3.61

Interest income for the quarter ended September 30, 2017, was $6.8 million representing a $903 thousand increase, or a 15% improvement, compared to the same period in 2016. This increase was primarily due to average loan volume increasing $48 million for the quarter ended September 30, 2017 as compared to the third quarter 2016. The volume of taxable securities declined $16 million on a year over year comparison, resulting in a decrease in interest income of $95 thousand from the volume reduction. Interest expense for the quarter ended September 30, 2017 was $562 thousand, an increase of $196 thousand, or 54%, from the same period in 2016. The increase in interest expense occurred primarily due to an increase in rate on all interest-bearing liabilities for the quarter ended September 30, 2017.

For the quarter ended September 30, 2017, the provision for loan losses was $280 thousand, compared to a provision of $164 thousand for the same quarter in 2016. For more discussion see Results of Operations for the nine months ended September 30. 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.

Noninterest income for the quarter ended September 30, 2017, was $1.1 million, a decrease of $41 thousand, or 4%, compared to the same quarter in 2016. Service charges on deposit accounts decreased $14 thousand, or 5%, compared to the same quarter in 2016 primarily from decreases in overdraft fees. The gain on the sale of mortgage loans to the secondary market increased to $94 thousand for the quarter ending September 30, 2017, from $71 thousand in the same quarter in 2016. Debit card interchange income increased $28 thousand, or 10%, with greater fee income in the third quarter of 2017 Fees from trust and brokerage services decreased $91 thousand to $122 thousand for the third quarter 2017 as compared to the same quarter in 2016 due to the realignment of both divisions, the use of representative on demand in the brokerage division in 2017 with decreased commissions, as well as a decrease of assets under management.

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CSB BANCORP, INC.

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

Noninterest expenses for the quarter ended September 30, 2017 increased $292 thousand, or 7%, compared to the third quarter of 2016. Salaries and employee benefits increased $212 thousand, or 9%, a result of increases in employees, base salary, medical, and other benefits. Debit card expenses increased $19 thousand, or 16%, compared to the third quarter 2016 due to the replacement of all outstanding debit cards with EMV chip cards. Software expense rose $16 thousand quarter over quarter with additional investment. Occupancy expense increased $7 thousand in 2017 over the third quarter of 2016. Professional and director fees increased $36 thousand for the quarter ended September 30, 2017 as compared to the third quarter 2016. The increase resulted from an increase in internal audit fees and legal fees for loan collections, partially offset by a decrease in other outside service fees.

Federal income tax expense increased $86 thousand, or 12%, for the quarter ended September 30, 2017 as compared to the third quarter of 2016. The provision for income taxes was $826 thousand (effective rate of 30.7%) for the quarter ended September 30, 2017, compared to $740 thousand (effective rate of 30.4%) for the same quarter ended 2016.

RESULTS OF OPERATIONS

Nine months ended September 30, 2017 and 2016

Net income for the nine months ended September 30, 2017, was $5.3 million or $1.94 per share, as compared to $4.8 million or $1.74 per share during the same period in 2016. Return on average assets and return on average equity were 1.04% and 10.44%, respectively, for the nine month period of 2017, compared to 0.99% and 9.99%, respectively for 2016.

Comparative net income increased as total interest and dividend income increased $2 million or 12% for the nine month period in 2017 as compared to 2016. The provision for loan losses increased $472 thousand or 96% during the same comparative period. Noninterest income increased $36 thousand to $3.2 million, or 1%, for the nine month period ending in 2017 as compared to 2016. Noninterest expense increased to $12.6 million for the nine months ended September 30, 2017, an increase of $575 thousand or 5% from the same period last year.

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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,
2017 2016
(Dollars in thousands) Average
balance
Average
rate
Average
balance
Average
rate

ASSETS

Due from banks-interest bearing

$ 20,212 1.16 $ 13,886 0.68

Federal funds sold

629 0.85 558 0.48

Taxable securities

101,319 2.37 124,398 2.18

Tax-exempt securities

31,497 3.27 27,737 3.55

Loans

492,075 4.61 443,977 4.45

Total earning assets

645,732 4.08 610,556 3.85

Other assets

39,478 36,451

TOTAL ASSETS

$ 685,210 $ 647,007

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest bearing demand deposits

$ 94,621 0.10 $ 82,973 0.04

Savings deposits

168,998 0.17 164,140 0.07

Time deposits

111,647 0.79 117,266 0.73

Other borrowed funds

69,957 0.89 65,017 0.72

Total interest bearing liabilities

445,223 0.42 429,396 0.34

Non-interest bearing demand deposits

169,131 151,479

Other liabilities

2,684 2,136

Shareholders' Equity

68,172 63,996

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$ 685,210 $ 647,007

Taxable equivalent net interest spread

3.66 3.51

Taxable equivalent net interest margin

3.79 3.61

Interest income on loans increased $2 million, or 15%, for the nine months ended September 30, 2017, as compared to the same period in 2016. This increase was primarily due to an average loan volume increase of $48 million for the comparable nine month periods. Interest income on securities decreased $209 thousand, or 8%, as the average volume of securities decreased $19 million, for the comparable nine month periods. Interest income on fed funds sold and interest bearing deposits increased $107 thousand for the nine months ended September 30, 2017 as the yield on fed funds sold and due from banks interest bearing balances increased 0.48%, compared to the same period in 2016.

Interest expense increased $300 thousand to $1.4 million for the nine months ended September 30, 2017, compared to the same period in 2016. Interest expense on deposits increased $184 thousand, or 24%, from the same period as last year. Interest expense on short-term and other borrowings increased $116 thousand, or 33%. The increase in interest expense has been caused by higher interest rates being paid on all deposits and borrowings. Additionally, during the comparable nine month periods, the Company grew non-interest bearing deposits by $7 million in 2017. Time deposits continue to renew at higher interest rates, and some depositors have moved monies to savings instruments anticipating higher interest rates. Competition for deposits appears to be increasing from a year ago with larger money center banks and community banks increasing rates offered for money market savings accounts. The net interest margin increased by 18 basis points for the nine month period ended September 30, 2017, to 3.79%, from 3.61% for the same period in 2016. This margin increase is primarily the result of increased loan volume.

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CSB BANCORP, INC.

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

The provision for loan losses was $965 thousand during the nine months of 2017, compared to $493 thousand in the same nine month period of 2016. The increase in the provision for loan losses from a year ago reflects an increase in nonperforming loans. Early stage loan delinquency has decreased and net loan losses were reflected in both nine month periods. 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 $36 thousand during the nine months ended September 30, 2017, as compared to the same period in 2016. Debit card interchange income increased $79 thousand, or 10%, as a result of increased servicer revenue during the nine months of 2017. Trust services declined $176 thousand during the nine months ended September 30, 2017 compared to the same period in 2016. Brokerage fees within the line declined by $106 thousand during this time as the Company reorganized both brokerage and trust and used the brokerage platform's representative on demand during the first half of 2017 which provided reduced commissions. The Company has returned to an in-house brokerage representative during the third quarter of 2017. A loss on asset retirement of $64 thousand was recognized in other income during the nine month period in 2016. Service charges on deposits decreased $20 thousand from the same period in 2016 reflecting a decrease in overdraft fees based on volume. A decrease was recognized in gains on mortgage loans sold in the secondary market on a year over year basis as more loans were originated and retained for portfolio.

Non-interest expenses increased $575 thousand, or 5%, for the nine months ended September 30, 2017, compared to the same period in 2016. Salaries and employee benefits increased $517 thousand, or 7%, primarily the result of salary and medical benefit increases. Professional fees increased $76 thousand, or 13%, as audit expense grew by $120 thousand on a year over year basis from the outsourcing of internal audit in 2017. The financial institutions tax expense increased $74 thousand on a year over year basis as capital increased. Debit card expenses increased $72 thousand, or 21%, primarily due to the new issuance of cards with EMV chips. Software expense increased $46 thousand for the nine month period in 2017 as compared to the same period in 2016. Occupancy and equipment expense decreased $75 thousand, or 6%, reflecting a decrease in building lease expense and an increase in building rental income when compared to 2016. Marketing and public relations expense decreased $63 thousand, or 20%, primarily due to expenses related to redesign of the company's website in 2016. FDIC assessment decreased $62 thousand as the fee calculation changed third quarter 2016. Loan legal and collection fees decreased $13 thousand for the nine month period ended September 30, 2017 with the collection of prior period legal expenses.

The provision for income taxes of $2.3 million increased in 2017 from 2016 with a slight increase to the effective rate of 30.4% for the nine months ended September 30, 2017 as compared to 2016.

CAPITAL RESOURCES

The Company maintained a strong capital position with tangible common equity to tangible assets of 9.2% at September 30, 2017 compared with 9.1% at December 30, 2016.

Effective January 1, 2015 the Federal Reserve adopted final rules implementing Basel III and regulatory capital changes required by the Dodd-Frank Act. The rules apply to both the Company and the Bank. The rules established minimum risk-based and leverage capital requirements for all banking organizations. The quality of capital will be provided by the new measurement of Tier 1 capital called common equity tier 1 or ("CET1"). Effective with the March 31, 2015 Call Report the Bank selected the opt-out election for accumulated other comprehensive income ("AOCI"). This election will neutralize the effects of unrealized gains and losses from available-for-sale securities and other elements of the AOCI account for regulatory capital purposes.

Consistent with the Board of Director's commitment to public confidence and safe and sound banking operations, capital targets and minimum risk-based capital ratios for CSB were established to maintain excess capital to well-capitalized standards. To be considered well-capitalized, an institution must have a

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CSB BANCORP, INC.

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

total risk-based capital ratio of at least 10%, a tier 1 capital ratio of at least 8%, a leverage capital ratio of at least 5%, a CET1 ratio of at least 6.5%, and must not be subject to any order or directive requiring the institution to improve its capital level. An adequately capitalized institution has a total risk-based capital ratio of at least 8%, a tier 1 capital ratio of at least 6%, a CET1 ratio of at least 4.5%, and a leverage ratio of at least 4%.

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, 2016. As of September 30, 2017 the Company and the Bank met all capital adequacy requirements to which they were subject.

September 30, 2017 December 31, 2016

Common Equity Tier 1 Capital To Risk Weighted Assets

Consolidated

12.6 12.6

Bank

12.4 12.4

Tier 1 Capital To Risk Weighted Assets Ratio

Consolidated

12.6 12.6

Bank

12.4 12.4

Total Capital To Risk Weighted Assets Ratio

Consolidated

13.7 13.7

Bank

13.4 13.5

Tier 1 Leverage Ratio

Consolidated

9.3 9.3

Bank

9.2 9.1

LIQUIDITY

(Dollars in millions)

September 30, 2017 December 31, 2016 Change

Cash and cash equivalents

$ 45 $ 37 $ 8

Unused lines of credit

76 66 10

Unpledged AFS securities at fair market value

30 37 (7

$ 151 $ 140 $ 11

Net deposits and short-term liabilities

$ 560 $ 533 $ 27

Liquidity ratio

27.0  26.1  0.9

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, brokered 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 was 27.0% and 26.1% at September 30, 2017 and December 31, 2016.

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.

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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, 2017, from the disclosures presented in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

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. Minor variances with net interest income exceeding the board approved policy are being projected in the September 2017 dynamic balance sheet simulation coupled with immediate rate shocks. All other balance sheet positions and interest rate projections 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 increments, in market interest rates at September 30, 2017 and December 31, 2016. The net interest income reflected is for the first twelve month period of the modeled twenty-four month horizon. The underlying balance sheet for illustrative purposes is dynamic with projected growth in assets and liabilities.

September 30, 2017
(Dollars in thousands)

Change in

Interest Rates

(basis points)

Net
Interest
Income
Dollar
Change
Percentage
Change
Board
Policy Limits
+400 $ 27,727 $ 2,003 7.8  +/-25
+300 27,266 1,542 6.0 +/-15
+200 26,768 1,044 4.1 +/-10
+100 26,259 535 2.1 +/-5
0 25,724 -   -   -  
-100 25,038 (686 (2.7 +/-5
December 31, 2016
+400 $ 25,519 $ 1,889
8.0

+/-25
+300 25,063 1,433 6.1 +/-15
+200 24,577 947 4.0 +/-10
+100 24,092 462 2.0 +/-5
0 23,630 -   -   -  
-100 22,841 (789 (3.3 +/-5

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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.

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CSB BANCORP, INC.

FORM 10-Q

Quarter ended September 30, 2017

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, 2016.
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 repurchases were made during the quarterly period ended September 30, 2017.
ITEM 3- DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4- MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5- OTHER INFORMATION.
Not applicable.

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CSB BANCORP, INC.

FORM 10-Q

Quarter ended September 30, 2017

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). (P)
  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, 2017 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.

(P) Paper Exhibits

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Table of Contents

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 9, 2017

/s/ Eddie L. Steiner

Eddie L. Steiner
President
Chief Executive Officer
Date: November 9, 2017

/s/ Paula J. Meiler

Paula J. Meiler
Senior Vice President
Chief Financial Officer

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