CSB BANCORP INC /OH (Form: 10-K, Received: 03/25/2013 16:44:28)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark one)

x	ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES

EXCHANGE

ACT OF 1934

For the fiscal year ended December 31, 2012

¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT

OF 1934

For the transition period from to

Commission File No. 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 No.)

91 North Clay Street, Millersburg, Ohio 44654

(Address of principal executive offices) (Zip code)

Registrant’s telephone number, including area code (330) 674-9015

Securities registered under Section 12(b) of the Act: None

Securities registered under Section 12(g) of the Act:

Common Shares, $6.25 par value

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes x No

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. x 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 during the preceding 12 months. x Yes ¨ No

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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

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

¨ Yes x No

At June 30, 2012, the aggregate market value of the voting stock held by non-affiliates of the registrant, based on a share price of $18.17 per share (such price being the last trade price on such date) was $45.7 million.

At March 25, 2013, there were outstanding 2,736,060 of the registrant’s common shares, $6.25 par value.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of CSB Bancorp Inc.’s 2012 Annual Report to Shareholders.

Portions of CSB Bancorp Inc.’s Proxy Statement dated March 25, 2013.

PART I

I TEM 1. B USINESS .

General

CSB Bancorp, Inc. (“CSB”), is a registered financial holding company under the Bank Holding Company Act of 1956, as amended, and was incorporated under the laws of the State of Ohio in 1991. The Commercial and Savings Bank of Millersburg, Ohio (the “Bank”), an Ohio banking corporation chartered in 1879, is a wholly-owned subsidiary of the Company. The Bank is a member of the Federal Reserve system, and its deposits are insured up to the maximum amount provided by law by the Federal Deposit Insurance Corporation (“FDIC”). The primary regulators of the Bank are the Federal Reserve Board and the Ohio Division of Financial Institutions. In this Annual Report on form 10-K sometimes CSB and the Bank are collectively referred to as the “Company.”

Cautionary Statement Regarding Forward-Looking Information

Certain statements contained in this Annual Report on Form 10-K, which are not statements of historical fact, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “anticipate”, “estimates”, “may”, “feels”, “expects”, “believes”, “plans”, “will”, “would”, “should”, “could” and similar expressions are intended to identify these forward-looking statements but are not the exclusive means of identifying such statements. Examples of forward-looking statements include: (i) projections of income or expense, earnings per share, the payment or non-payment of dividends, capital structure and other financial items; (ii) statements of plans and objectives of the Company and or its management or Board of Directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. Factors that could cause or contribute to such differences include, without limitation, risks and uncertainties detailed from time to time in the Company’s filings with the SEC, including without limitation the risk factors disclosed in this Annual Report on Form 10-K.

Other factors not currently anticipated may also materially and adversely affect on the Company’s business, financial condition, results of operations or cash flows. There can be no assurance that future results will meet expectations. While the Company believes that the forward-looking statements in this Annual Report on Form 10-K are reasonable, the reader should not place undue reliance on any forward-looking statement. In addition, these statements speak only as of the date made. The Company does not undertake, and expressly disclaims, any obligation to update or alter any statements whether as a result of new information, future events or otherwise, except as may be required by applicable law.

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the forward-looking statements. The Company desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

Business Overview and Lending Activities

CSB operates primarily through the Bank and its other subsidiaries, providing a wide range of banking, trust, financial and brokerage services to corporate, institutional and individual customers throughout northeast Ohio. The Bank provides retail and commercial banking services to its customers, including checking and savings accounts, time deposits, IRAs, safe deposit facilities, personal loans, commercial loans, real estate mortgage loans, installment loans, night depository facilities, brokerage and trust services.

The Bank provides residential real estate, commercial real estate, commercial and consumer loans to customers located primarily in Holmes, Tuscarawas, Wayne, Stark and portions of surrounding counties in Ohio. The Bank’s market area has historically exhibited relatively stable economic conditions; however, a pronounced slowdown in economic activity has been evident since the latter half of 2008. Unemployment levels in Holmes County have generally been among the lowest in the State of Ohio, while the balance of the Bank’s market area typically experiences unemployment levels similar to the state average. Unemployment in the Bank’s market area peaked during 2010 and has improved steadily thereafter, with average unemployment at December 2012 approximately 45-50% lower than December 2010. Residential real estate values realized moderate reductions in value during the time period with most values continuing to be below the height of the market.

Certain risks are involved in providing loans, including, but not limited to, the borrowers’ ability and willingness to repay the debt. Before the Bank extends a new loan or renews an existing loan to a customer, these risks are assessed through a review of the borrower’s past and current credit history, the collateral being used to secure the transaction, the borrower’s character, and other factors. For all commercial loan relationships greater than $275,000, the Bank’s internal credit department performs an annual risk rating review. In addition to this review, an independent outside loan review firm is engaged to review all watch list and adversely classified credits, all commercial loan relationships greater than $750,000, a sample of commercial loan relationships less than $750,000, loans within an industry concentration and a sample of consumer/mortgage loans. In addition, any loan identified as a problem credit by management and/or the external loan review consultants is assigned to the Bank’s “loan watch list,” and is subject to ongoing review by the Bank’s credit department and the assigned loan officer to ensure appropriate action is taken when deterioration has occurred.

Commercial loan rates are variable as well as fixed, and include operating lines of credit and term loans made to small businesses, primarily based on their ability to repay the loan from the cash flow of the business. Business assets such as equipment, accounts receivable and inventory typically secure such loans. When the borrower is not an individual, the Bank generally obtains the personal guarantee of the business owner. As compared to consumer lending, which includes single-family residences, personal installment loans and automobile loans, commercial lending entails significant additional risks. These loans typically involve larger loan balances, are generally dependent on the cash flow of the business and thus, may be subject to a greater extent, to adverse conditions in the general economy or in a specific industry. Management reviews the borrower’s cash flows when deciding whether to grant the credit, in order to evaluate whether estimated future cash flows will be adequate to service principal and interest of the new obligation in addition to existing obligations.

Commercial real estate loans are primarily secured by borrower-occupied business real estate and are dependent on the ability of the related business to generate adequate cash flow to service the debt. Commercial real estate loans are generally originated with a loan-to-value ratio of 80% or less. Commercial construction loans are secured by commercial real estate and in most cases the Bank also provides the permanent financing. The Bank monitors advances and the maximum loan to value ratio is typically limited to the lesser of 90% of cost or 80% of appraisal. Management performs much of the same analysis when deciding whether to grant a commercial real estate loan as when deciding whether to grant a commercial loan.

Residential real estate loans carry both fixed and variable rates and are secured by the borrower’s residence. Such loans are made based on the borrower’s ability to make repayment from employment and other income. Management assesses the borrower’s ability and willingness to repay the debt through review of credit history and ratings, verification of employment and other income, review of debt-to-income ratios and other measures of repayment ability. The Bank generally makes these loans in amounts of 80% or less of the value of the collateral or up to 95% of collateral value with private mortgage insurance. An appraisal from a qualified real estate appraiser or an evaluation primarily based on tax value is obtained for substantially all loans secured by real estate. Residential construction loans are secured by residential real estate that generally will be occupied by the borrower upon completion. The Bank usually makes the permanent loan at the end of the construction phase. Generally, construction loans are made in amounts of 80% or less of the value of the collateral.

Home equity lines of credit are made to individuals and are secured by second or first mortgages on the borrower’s residence. Loans are based on similar credit and appraisal criteria used for residential real estate loans; however, loans up to 100% of the value of the property may be approved for borrowers with excellent credit histories. These loans typically bear interest at variable rates and require certain minimum monthly payments.

Installment loans to individuals include unsecured loans and loans secured by automobiles and other consumer assets. Consumer loans for the purchase of new automobiles generally do not exceed 100% of the purchase price of the automobile. Loans for used automobiles generally do not exceed average wholesale or trade-in values as stipulated in a recent auto-industry used-car price guide. Overdraft protection loans are unsecured personal lines of credit to individuals who have demonstrated good credit character with reasonably assured sources of income and satisfactory credit histories. Consumer loans generally involve more risk than residential mortgage loans because of the type and nature of collateral and, in certain types of consumer loans, absence of collateral. Since these loans are generally repaid from ordinary income of the individual or family unit, repayment may be adversely affected by job loss, divorce, ill health or by a general decline in economic conditions. The Bank assesses the borrower’s ability and willingness to make repayment through a review of credit history, credit ratings, debt-to-income ratios and other measures of repayment ability.

While CSB’s chief decision-makers monitor the revenue streams of the various financial products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the Company’s banking operations are considered by management to be aggregated in one reportable operating segment. For a discussion of CSB’s financial performance for the fiscal year ended December 31, 2012, see the Consolidated Financial Statements and Notes to the Consolidated Financial Statements found in Item 8 of this Annual Report on Form 10-K.

Employees

At December 31, 2012, CSB had 162 employees, 142 of which were employed on a full-time basis. CSB has no separate employees not also employed by the Bank. No employees are covered by collective bargaining agreements. Employees are provided benefit programs, some of which are contributory. Management considers its employee relations to be good.

Competition

The Bank operates in a highly competitive industry due, in part, to Ohio law permitting statewide branching by banks, savings and loan associations and credit unions. Ohio and federal law also permits nationwide interstate banking. In its primary market area of Holmes, Tuscarawas, Wayne, Stark and surrounding Ohio counties, the Bank competes for new deposit dollars and loans with several other commercial banks, including both large regional banks and smaller community banks, as well as savings and loan associations, credit unions, finance companies, insurance companies, brokerage firms and investment companies. The Bank believes its presence in the Holmes, Tuscarawas, Wayne and Stark County areas provides the Bank with a competitive advantage due to its ability to make loans and provide services to the local community.

Competition within the financial service industry continues to increase as a result of mergers between, and expansion of, financial service providers within and outside of the Bank’s primary market areas. In addition, the deregulation of the financial services industry (see the discussion of the Gramm-Leach-Bliley Act of 1999 (“GLBA”) in the section of this item captioned “Financial Modernization”) has allowed securities firms and insurance companies that have elected to become financial holding companies to acquire commercial banks and other financial institutions, which can create additional competitive pressure.

Investor Relations

The Company’s website address is www.csb1.com . The Company makes available its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports, free of charge on its website as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (the “SEC”). The Company also makes available through its website, other reports filed with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including its proxy statements and reports filed by officers and directors under Section 16(a) of the Exchange Act, as well as the Company’s Code of Ethics. The Company does not intend for information contained in its website to be incorporated by reference into this Annual Report on Form 10-K.

In addition, the Company’s filings with the SEC may be read and copied at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. These filings are also available on the SEC’s website at www.sec.gov free of charge as soon as reasonably practicable after the Company has filed the above referenced reports.

Supervision and Regulation of CSB and the Bank

CSB and the Bank are subject to extensive regulation by federal and state regulatory agencies. The regulation of financial holding companies and their subsidiaries by bank regulatory agencies is intended primarily for the protection of consumers, depositors, federal deposit insurance funds and the banking system as a whole and not for the protection of shareholders.

CSB is registered with the Federal Reserve Board (“FRB”) as a financial holding company under the Bank Holding Company Act, as amended (the “BHC Act”), and is subject to regulation, examination and supervision by the FRB under the BHC Act. CSB is also subject to the disclosure and regulatory requirements of the Securities Exchange Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder, as administered by the SEC.

The Bank, as an Ohio state-chartered bank and member of the Federal Reserve System, is subject to regulation, supervision, and examination by the Ohio Division of Financial Institutions and the FRB. Because the FDIC insures its deposits, the Bank is also subject to certain regulations of that federal agency. The FDIC is an independent federal agency which insures the deposits, up to prescribed statutory limits, of federally-insured banks and savings associations and safeguards the safety and soundness of the financial institution industry. The Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC and the Bank is subject to deposit insurance assessments to maintain the Deposit Insurance Fund.

The earnings, dividends and other aspects of the operations and activities of CSB and the Bank are affected by state and federal laws and regulations, and by policies of various regulatory authorities. These policies include, for example, statutory maximum lending rates, requirements on maintenance of reserves against deposits, domestic monetary policies of the FRB, United States fiscal and economic policies, international currency regulations and monetary policies, certain restrictions on relationships with many phases of the securities business and capital adequacy and liquidity restraints.

The following information describes selected federal and state statutory and regulatory provisions that have, or could have, a material impact on the Company’s business. This discussion is qualified in its entirety by reference to the full text of the particular statutory or regulatory provisions. These statutes and regulations are continually under review by the United States Congress and state legislatures and state and federal regulatory agencies. A change in statutes, regulations, or regulatory policies applicable to CSB and its subsidiaries could have a material effect on their respective businesses.

Dodd-Frank Wall Street Reform and Consumer Protection Act

Federal regulators continue to implement many provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which was signed into law by President Obama on July 21, 2010. The Dodd-Frank Act created many new restrictions and an expanded framework of regulatory oversight for financial institutions, including depository institutions. Currently, federal regulators are still in the process of drafting the implementing regulations for many portions of the Dodd-Frank Act. The Company is closely monitoring all relevant sections of the Dodd-Frank Act to ensure continued compliance with these regulatory requirements. The following discussion summarizes significant aspects of the Dodd-Frank Act that may affect the Company and the Bank:

•

the Consumer Financial Protection Bureau has been established and empowered to exercise broad regulatory, supervisory and enforcement authority with respect to both new and existing consumer financial protection laws;

•

the deposit insurance assessment base for federal deposit insurance has been expanded from domestic deposits to average assets less average tangible equity;

•

the Dodd-Frank Act instructs appropriate federal banking agencies to make the capital requirements for banks and savings and loan holding companies and insured depository institutions countercyclical so that the amount of capital required to be maintained increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness;

•

the prohibition on the payment of interest on business demand deposits has been repealed, thereby permitting depository institutions to pay interest on business transaction and other accounts;

•

permanently increases the $250,000 limit for FDIC deposit insurance;

•

financial holding companies, such as the Company, are required to be well-capitalized and well-managed and must continue to be both well-capitalized and well-managed in order to acquire banks located outside their home state;

•

the Dodd-Frank Act extended the application to most bank holding companies of the same leverage and risk-based capital requirements that apply to insured depository institutions, which, among other things, will disallow treatment of trust preferred securities as Tier 1 capital under certain circumstances;

•

new corporate governance requirements, which are generally applicable to most larger public companies, now require new compensation practices, including, but not limited to, providing shareholders the opportunity to cast a non-binding vote on executive compensation, to consider the independence of compensation advisors and new executive compensation disclosure requirements;

•

the Dodd-Frank Act amended the Electronic Fund Transfer Act to, among other things, give the FRB the authority to establish rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion and to enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer; and

•

increases authority of the FRB to examine financial holding companies and their non-bank subsidiaries.

Many aspects of the Dodd-Frank Act are still subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on the Company, its subsidiaries, their respective customers or the financial services industry more generally.

Regulation of Financial Holding Companies

As a bank holding company, which is also designated as a financial holding company under GLBA, CSB’s activities are subject to extensive regulation by the FRB. CSB is required to file reports with the FRB and provide such additional information as the FRB may require, and is subject to regular examination and inspection by the FRB.

The FRB has extensive enforcement authority over financial holding companies, including the ability to assess civil money penalties, issue cease and desist orders and require that a financial holding company divest subsidiaries (including subsidiary banks). The FRB may initiate enforcement actions for violations of laws and regulations, and for unsafe and unsound practices. Under FRB policies, a financial holding company is expected to act as a “source of strength” to its subsidiary banks and to commit resources to support those subsidiary banks. Under this policy, the FRB may require a financial holding company to contribute additional capital to an undercapitalized subsidiary bank.

The BHC Act requires the prior approval of the FRB in cases where a financial holding company proposes to acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank that is not already majority-owned by it, acquire all or substantially all of the assets of another bank or another financial or bank holding company, or merge or consolidate with any other financial or bank holding company.

The FRB also regulates and provides limitations on transactions between affiliates of a bank holding company, loans to directors and officers of bank affiliates, securities transactions and liability for losses incurred by commonly controlled banks in certain circumstances.

Financial Modernization

Pursuant to GLBA, a bank holding company may become a financial holding company if each of its subsidiary banks is “well-capitalized” under regulatory “prompt corrective action” provisions, is “well-managed,” and has at least a “satisfactory” rating under the Community Reinvestment Act (“CRA”) by filing a declaration with the FRB that the bank holding company wishes to become a financial holding company. CSB has been a financial holding company since 2005. No prior regulatory approval is required for a financial holding company to acquire certain companies, other than banks and savings associations, that are financial in nature as determined by the FRB.

GLBA defines “financial in nature” to include securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency activities; merchant banking activities; and activities that the FRB has determined to be closely related to banking. Bank subsidiaries of a financial holding company must continue to be well-capitalized and well-managed in order to continue to engage in activities that are financial in nature without regulatory actions or restrictions, which could include divestiture of the subsidiary or subsidiaries. In addition, a financial holding company or a bank subsidiary of a financial holding company may not acquire a company that is engaged in activities that are financial in nature unless each of the subsidiary banks of the financial holding company or bank has a CRA rating of satisfactory or better.

Regulatory Capital

The FRB has adopted risk-based capital guidelines for bank holding companies and state member banks. These capital guidelines are based on the “International Convergence of Capital Measurement and Capital Standards” (Basel I), published by the Basel Committee on Banking Supervision (the “Basel Committee”). The guidelines provide a systematic analytical framework, which makes regulatory capital requirements sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposures expressly into account in evaluating capital adequacy and minimizes disincentives to holding liquid, low-risk assets. Capital levels as measured by these standards are also used to categorize financial institutions for purposes of certain prompt corrective action regulatory provisions.

Under the guidelines, the minimum ratio of total capital to risk-weighted assets (including certain off-balance sheet items such as standby letters of credit) is 8%. At least half of the minimum total risk-based capital ratio (4%) must be composed of “Tier 1” risk-based capital, which consists of common shareholders’ equity, minority interests in certain equity accounts of consolidated subsidiaries and a limited amount of qualifying preferred stock and qualified trust preferred securities (although the Tier 1 capital treatment of trust preferred securities will be phased out under the Dodd-Frank Act in certain circumstances), less goodwill and certain other intangible assets, including the unrealized net gains and losses, after applicable taxes, on available-for-sale securities carried at fair value. The remainder of total risk-based capital (commonly known as “Tier 2” risk-based capital) may consist of certain amounts of hybrid capital instruments, mandatory convertible debt, subordinated debt, preferred stock not qualifying as Tier 1 capital, loan and lease loss allowance and net unrealized gains on certain available-for-sale equity securities, all subject to limitations established by the guidelines.

Under the guidelines, capital is compared to the relative risk related to the balance sheet. To derive the risk included in the balance sheet, one of four risk weights (0%, 20%, 50% and 100%) is applied to different balance sheet and off-balance sheet assets, primarily based on the relative credit risk of the counterparty. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The FRB has also established minimum leverage ratio guidelines for bank holding companies. The FRB guidelines provide for a minimum ratio of Tier 1 capital to average assets (excluding the loan and lease loss allowance, goodwill and certain other intangibles), or “leverage ratio,” of 3% for bank holding companies that meet certain criteria, including having the highest regulatory rating, and 4% for all other bank holding companies. The guidelines further provide that bank holding companies making acquisitions will be expected to maintain strong capital positions substantially above the minimum levels.

The FRB’s review of certain bank holding company transactions is affected by whether the applying bank holding company is “well-capitalized.” To be deemed “well-capitalized,” the bank holding company must have a Tier 1 risk-based capital ratio of at least 6%, a leverage ratio of at least 5% and a total risk-based capital ratio of at least 10%, and must not be subject to any written agreement, order, capital directive or prompt corrective action directive issued by the FRB to meet and maintain a specific capital level for any capital measure.

On June 7, 2012, the FRB approved proposed rules that would substantially amend the regulatory risk-based capital rules applicable to CSB and the Bank. The proposed rules implement the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. “Basel III” refers to two consultative documents released by the Basel Committee on Banking Supervision in December 2009, the rules text released in December 2010, and loss absorbency rules issued in January 2011, which include significant changes to bank capital, leverage and liquidity requirements. The proposed rules received extensive comments during a comment period that ran through October 2012. In November 2012, the federal bank regulatory agencies jointly stated that they do not expect any of the proposed rules to become effective on the original target date of January 1, 2013. Further guidance from the bank regulatory agencies is expected in early 2013.

The proposed rules include new risk-based capital and leverage ratios, which would be phased in from 2013 to 2019, and would refine the definition of what constitutes “capital” for purposes of calculating those ratios. The proposed new minimum capital level requirements applicable to CSB and the Bank under the proposals would be: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The proposed rules would also establish a “capital conservation buffer” of 2.5% above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital and would result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement would be phased in beginning in January 2016 at 0.625% of risk-weighted assets and would increase by that amount each year until fully implemented in January 2019.

Prompt Corrective Action

The federal banking agencies have established a system of “prompt corrective action” to resolve certain of the problems of undercapitalized institutions. This system is based on five capital level categories for insured depository institutions: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.”

The federal banking agencies may (or in some cases must) take certain supervisory actions depending upon a bank’s capital level. For example, the banking agencies must appoint a receiver or conservator for a bank within 90 days after it becomes “critically undercapitalized” unless the bank’s primary regulator determines, with the concurrence of the FDIC, that other action would better achieve regulatory purposes. Banking operations otherwise may be significantly affected depending on a bank’s capital category. For example, a bank that is not “well capitalized” generally is prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market, and the holding company of any undercapitalized depository institution must guarantee, in part, specific aspects of the bank’s capital plan for the plan to be acceptable.

In order to be “well-capitalized,” a bank must have total risk-based capital of at least 10%, Tier 1 risk-based capital of at least 6% and a leverage ratio of at least 5%, and the bank must not be subject to any written agreement, order, capital directive or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. As of December 31, 2012, the Bank meets the ratio requirements to be deemed “well-capitalized” according to the guidelines described above. See Note 12 of the Notes to Consolidated Financial Statements located on page 52 of CSB’s 2012 Annual Report, which is incorporated herein by reference.

Deposit Insurance

Substantially all of the deposits of the Bank are insured up to applicable limits by the Deposit Insurance Fund of the FDIC, and the Bank is assessed deposit insurance premiums to maintain the Deposit Insurance Fund. Insurance premiums for each insured institution are determined based upon the institution’s capital level and supervisory rating provided to the FDIC by the institution’s primary federal regulator and other information deemed by the FDIC to be relevant to the risk posed to the Deposit Insurance Fund by the institution. The assessment rate is then applied to the amount of the institution’s deposits to determine the institution’s insurance premium.

The FDIC issued final rules, effective April 2011 that changed the deposit insurance assessment base, as required by the Dodd-Frank Act. As adopted, the final rule changed the deposit insurance assessment base from domestic deposits to average assets less average tangible equity. The final rule also set a target size for the Deposit Insurance Fund at 2% of insured deposits and implements a lower assessment rate schedule when the fund reaches 1.15% and, in lieu of dividends, provides for a lower rate schedule when the reserve ratio reaches 2% and 2.5%. The final rule went into effect beginning with the second quarter of 2011. The change to the assessment base and assessment rates, as well as the Deposit Insurance Fund restoration time frame, has lowered the Company’s deposit insurance assessment and future assessments should continue to be favorable.

As insurer, the FDIC is authorized to conduct examinations of, and to require reporting by, federally-insured institutions. It also may prohibit any federally-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious threat to the Deposit Insurance Fund. The FDIC also has the authority to take enforcement actions against insured institutions. Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged or is engaging in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or written agreement entered into with the FDIC. The management of the Bank does not know of any practice, condition or violation that might lead to termination of deposit insurance.

Fiscal and Monetary Policies

The business and earnings of CSB are affected significantly by the fiscal and monetary policies of the United States Government and its agencies. CSB is particularly affected by the policies of the FRB, which regulates the supply of money and credit in the United States. These policies are used in varying degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits.

The monetary policies of the FRB have had a significant effect on the operating results of financial institutions in the past and are expected to continue to have significant effects in the future. In view of the changing conditions in the economy, the money markets and the activities of monetary and fiscal authorities, the Company can make no definitive predictions as to future changes in interest rates, credit availability or deposit levels.

Limits on Dividends and Other Payments

There are various legal limitations on the extent to which subsidiary banks may finance or otherwise supply funds to their parent holding companies. Under applicable federal and state laws, subsidiary banks may not, subject to certain limited exceptions, make loans or extensions of credit to, or investments in the securities of, their bank holding companies. Subsidiary banks are also subject to collateral security requirements for any loan or extension of credit permitted by such exceptions.

Payments of dividends by the Bank are limited by applicable state and federal laws and regulations. The ability of CSB to obtain funds for the payment of dividends and for other cash requirements is largely dependent on the amount of dividends, which may be declared by the Bank. However, the FRB expects CSB to serve as a source of strength for the Bank and may require CSB to retain capital for further investment in the Bank, rather than pay dividends to CSB shareholders. Payment of dividends by the Bank may be restricted at any time at the discretion of its applicable regulatory authorities, if they deem such dividends to constitute an unsafe or unsound banking practice. These provisions could have the effect of limiting CSB’s ability to pay dividends on its common shares.

The FRB issued a policy statement that provides that insured banks and bank holding companies should generally only pay dividends out of current operating earnings. At December 31, 2012, approximately $6.2 million of the total shareholders’ equity of the Bank was available for payment to CSB without the prior approval of the applicable regulatory authorities. See Note 12 of the “Notes to Consolidated Financial Statements located on page 52 of CSB’s 2012 Annual Report.

Customer Privacy

Under the GLBA, federal banking agencies have adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to nonaffiliated third parties. These limitations require distribution of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to nonaffiliated third parties.

USA Patriot Act

In response to the events of September 11, 2001, the United and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “Patriot Act”) was signed into law in October, 2001. The Patriot Act gives the federal government powers to address terrorist threats through enhanced security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. Title III of the Patriot Act takes measures intended to encourage information sharing among federal banking agencies and law enforcement officials. Further, certain provisions of Title III impose affirmative obligations on a broad range of financial institutions to, among other things, establish a program specifying procedures for obtaining identifying information from customers seeking to open new accounts and establish enhanced due diligence policies, procedures and controls designed to detect and report suspicious activity. The Bank has established policies and procedures that are believed to be compliant with the requirements of the Patriot Act.

Corporate Governance

The Sarbanes-Oxley Act of 2002 (“SOX”) was signed into law on July 30, 2002. SOX contains important requirements for public companies with regard to financial disclosure and corporate governance. In accordance with section 302(a) of SOX, written certifications by CSB’s Chief Executive Officer and Chief Financial Officer are required to certify that CSB’s quarterly and annual reports filed with the SEC do not contain any untrue statement of a material fact or fail to state a material fact. CSB has also implemented a program designed to comply with Section 404 of SOX, which includes identification of significant processes and accounts, documentation of the design of control effectiveness over process and entity-level controls and testing of the operating effectiveness of key controls. Provisions of the Dodd-Frank Act provide a permanent exemption for smaller companies which have a public float of less than $75 million, from the SOX attestation requirement by the external accountants on internal controls. CSB is exempt from the requirement for external accountant attestation on internal controls. Management’s assessment of internal controls over financial reporting, which is located on page 23 of the CSB 2012 Annual Report, is incorporated by reference.

Effect of Environmental Regulation

Compliance with federal, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect upon the capital expenditures, earnings or competitive position of CSB or its subsidiaries. CSB believes the nature of the operations of its subsidiaries has little, if any, environmental impact. CSB, therefore, anticipates no material capital expenditures for environmental control facilities for its current fiscal year or for the foreseeable future.

CSB believes its primary exposure to environmental risk is through the lending activities of the Bank. In cases where management believes environmental risk potentially exists, the Bank mitigates environmental risk exposure by requiring environmental site assessments at the time of loan origination to confirm collateral quality as to commercial real estate parcels posing higher than normal potential for environmental impact, as determined by reference to present and past uses of the subject property and adjacent sites.

Executive and Incentive Compensation

In June 2010, the federal banking agencies issued joint interagency guidance on incentive compensation policies (the “Joint Guidance”) intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. This principles-based guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should: (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks; (ii) be compatible with effective internal controls and risk management; and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.

Pursuant to the Joint Guidance, the FRB will review as part of a regular, risk-focused examination process, the incentive compensation arrangements of financial institutions such as the Company. Such review will be tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination and deficiencies will be incorporated into the institution’s supervisory ratings, which can affect the institution’s ability to make acquisitions and take other actions. Enforcement actions may be taken against an institution if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and prompt and effective measures are not being taken to correct the deficiencies.

Future Legislation

Various and significant legislation affecting financial institutions and the financial industry is from time to time introduced by the U.S. Congress, as evidenced by the sweeping reforms in the Dodd-Frank Act adopted in 2010. Such legislation may continue to change banking statutes and the operating environment of CSB and its subsidiaries in substantial and unpredictable ways, and could significantly increase or decrease costs of doing business, limit or expand permissible activities or affect the competitive balance among financial institutions. With the enactment of the Dodd-Frank Act and the continuing implementation of final rules and regulations thereunder, the nature and extent of future legislative and regulatory changes affecting financial institutions remains very unpredictable.

Statistical Disclosures

The following schedules present, for the periods indicated, certain financial and statistical information of the Company as required under the SEC’s Industry Guide 3 “Statistical Disclosures by Bank Holding Companies,” or a specific reference as to the location of required disclosures in the Company’s 2012 Annual Report.

Distribution of Assets, Liabilities and Stockholders’ Equity; Interest Rates and Interest Differential

The information set forth under the heading “Average Balance Sheets and Net Interest Margin Analysis” located on page 11 of the Company’s 2012 Annual Report and is incorporated by reference herein.

The information set forth under the heading “Rate/Volume Analysis of Changes in Income and Expense” located on page 12 of the Company’s 2012 Annual Report and is incorporated by reference herein.

Investment Portfolio

The following is a schedule of the carrying value of securities at December 31:


(Dollars in thousands)
Securities available-for-sale, at fair value	2012		2011		2010
U.S. Treasury security	$	100	$	100	$	100
Obligations of U.S. government corporations and agencies		35,980		28,323		19,711
Mortgage-backed securities in government sponsored entities		69,039		76,332		42,351
Asset-backed securities in government sponsored entities		2,823		—		—
Obligations of states and political subdivisions		16,883		14,880		11,994
Corporate bonds		4,397		3,330		992
Equity securities in financial institutions		69		61		56

Total	$	129,291	$	123,026	$	75,204

The following is a schedule of maturities for each category of debt securities and the related weighted average yield of such securities as of December 31, 2012:


	One Year or Less					After One Year Through Five Years					Maturing After Five Years Through Ten Years					After Ten Years					Total
	Amortized Cost		Yield			Amortized Cost		Yield			Amortized Cost		Yield			Amortized Cost		Yield			Amortized Cost		Yield
(Dollars in thousands)
Available for sale:
U.S. Treasury	$	100		0.22	%	$	—		—	%	$	—		0.00	%	$	—		—	%	$	100		0.22	%
Obligations of U.S. Government corporations and agencies		—		—			6,000		0.76			16,000		1.47			13,996		1.40			35,996		1.32
Mortgage-backed securities in government sponsored entities		96		1.19			332		4.44			1,702		4.68			64,803		2.12			66,933		2.20
Asset-backed securities in government sponsored entities		—		—			—		—			—		0.00			2,862		1.55			2,862		1.55
Obligations of states and political subdivisions		215		6.06			5,791		4.70			7,862		4.70			2,326		5.19			16,194		4.79
Corporate bonds		—		—			4,313		2.39			—		—			—		—			4,313		2.39

Total	$	411		3.50	%	$	16,436		2.65	%	$	25,564		2.68	%	$	83,987		2.07	%	$	126,398		2.27	%

The weighted average yields are calculated using amortized cost of investments and are based on coupon rates for securities purchased at par value, and on effective interest rates considering amortization or accretion if securities were purchased at a premium or discount. The weighted average yield on tax-exempt obligations is presented on a tax-equivalent basis based on the Company’s marginal federal income tax rate of 34%.

Loan Portfolio

Total loans on the balance sheet are comprised of the following classifications at December 31:


(Dollars in thousands)	2012		2011		2010		2009		2008
Commercial	$	104,899	$	89,828	$	78,540	$	69,351	$	61,859
Commercial real estate		119,192		106,332		104,829		107,794		109,284
Residential real estate		110,412		103,518		108,832		114,882		125,149
Construction and land development		23,358		18,061		16,515		13,761		11,239
Consumer		6,480		6,216		6,715		7,464		8,677

Total loans	$	364,341	$	323,955	$	315,431	$	313,252	$	316,208

The following is a schedule of maturities of loans based on contract terms and assuming no amortization or prepayments, excluding real estate mortgage and installment loans, as of December 31, 2012:


	Maturing
(Dollars in thousands)	One Year or Less		One Through Five Years		After Five Years		Total
Commercial	$	49,148	$	24,217	$	31,534	$	104,899
Commercial real estate		4,859		11,992		102,341		119,192
Construction and land development		4,661		2,591		16,106		23,358

Total	$	58,668	$	38,800	$	149,981	$	247,449

The following is a schedule of fixed rate and variable rate commercial, commercial real estate and construction and land development loans due after one year from December 31, 2012.


(Dollars in thousands)	Fixed Rate		Variable Rate
Total commercial, commercial real estate and construction and land development loans due after one year	$	30,126	$	158,655

The following schedule summarizes nonaccrual, past due and restructured loans.


(Dollars in thousands)	2012		2011		2010		2009		2008
Loans accounted for on a nonaccrual basis	$	3,206	$	2,908	$	3,905	$	3,786	$	2,227
Accruing loans that are contractually past due 90 days or more as to interest or principal payments		131		581		685		355		416

Totals	$	3,337	$	3,489	$	4,590	$	4,141	$	2,643

The policy for placing loans on nonaccrual status is to cease accruing interest on loans when management believes that collection of interest is doubtful, when commercial loans are past due as to principal and interest 90 days or more or when mortgage loans are past due as to principal and interest 120 days or more, except that in certain circumstances interest accruals are continued on loans deemed by management to be well-secured and in process of collection. In such cases, loans are individually evaluated in order to determine whether to continue income recognition after 90 days beyond the due date. When loans are placed on nonaccrual, any accrued interest is charged against interest income. Consumer loans are not placed on nonaccrual but are charged-off after 90 days past due.

Information regarding impaired loans at December 31 is as follows:


(Dollars in thousands)	2012		2011		2010
Loans acquired with credit impairment	$	—	$	—	$	440
Total recorded investment of impaired loans		10,210		7,263		1,806
Less portion for which no allowance for loan loss is allocated		1,975		—		458
Portion of impaired loan balance for which an allowance for loan losses is allocated		8,235		7,263		1,788
Portion of allowance for loan losses allocated to the impaired loan balance at December 31		779		522		330

For the year ended December 31, 2012, interest income recognized on impaired loans amounted to $337 thousand, while $517 thousand would have been recognized had the loans been performing under their contractual terms. For the year ended December 31, 2011, interest income recognized on impaired loans amounted to $169 thousand, while $190 thousand would have been recognized had the loans been performing under their contractual terms. For the year ended December 31, 2010, interest income recognized on impaired loans amounted to $2 thousand while $175 thousand would have been recognized had the loans been performing under their contractual terms.

Impaired loans are comprised of commercial and commercial real estate loans, and are carried at the present value of expected cash flows discounted at the loan’s effective interest rate or at fair value of the collateral if the loan is collateral dependent. A portion of the allowance for loan losses is allocated to impaired loans.

Smaller-balance homogeneous loans are evaluated for impairment in total. Such loans include residential first-mortgage loans secured by one to four-family residences, residential construction loans, automobile loans, home equity loans and second-mortgage loans. Such loans are included in nonaccrual and past due disclosures above, but not in the impaired loan totals. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. When analysis of borrower operating results and financial condition indicates that underlying cash flows of the borrower’s business are not adequate to meet its debt service requirements, the loan is evaluated for impairment. Impaired loans, or portions thereof, are charged-off when deemed uncollectible.

At December 31, 2012, no loans were identified that management had serious doubts about the borrowers’ ability to comply with present loan repayment terms that are not included in in the tables set forth above. On a monthly basis, the Company internally classifies certain loans based on various factors. At December 31, 2012, these amounts, including impaired and nonperforming loans, amounted to $16.4 million of substandard loans and $0 doubtful loans.

As of December 31, 2012, there are no concentrations of loans greater than 10% of total loans that are not otherwise disclosed as a category of loans in the loan portfolio table set forth above.

Summary Of Loan Loss Experience

The following schedule presents an analysis of the allowance for loan losses, average loan data and related ratios for the years ended December 31:


(Dollars in thousands)	2012			2011			2010			2009			2008
LOANS
Average loans outstanding during period	$	342,868		$	318,781		$	313,549		$	317,254		$	262,933

ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period	$	4,082		$	4,031		$	4,060		$	3,394		$	2,586
Loans charged-off:
Commercial		(29	)		(487	)		(479	)		(320	)		(55	)
Commercial real estate		(283	)		(68	)		(187	)		(254	)		(10	)
Residential real estate		(106	)		(297	)		(488	)		(177	)		(19	)
Construction and land development		—			(41	)		(143	)		—			—
Consumer		(89	)		(121	)		(92	)		(134	)		(70	)

Total loans charged-off		(507	)		(1,014	)		(1,389	)		(885	)		(154	)

Recoveries of loans previously charged-off:
Commercial		16			38			93			55			6
Commercial real estate		—			—			—			86			4
Residential real estate		102			19			—			—			10
Construction and land development		—			—			—			—			—
Consumer		64			58			32			73			151

Total loan recoveries		182			115			125			214			171

Net loans (charged-off) recovered		(325	)		(899	)		(1,264	)		(671	)		17
Provision charged to operating expense		823			950			1,235			1,337			333
Addition from acquisition		—			—			—			—			458

Balance at end of period	$	4,580		$	4,082		$	4,031		$	4,060		$	3,394

Ratio of net charge-offs (recoveries) to average loans outstanding for period		0.09	%		0.28	%		0.40	%		0.21	%		(0.01	)%

The allowance for loan losses balance and provision charged to expense are determined by management based on periodic reviews of the loan portfolio, past loan loss experience, economic conditions and various other circumstances subject to change over time. In making this judgment, management reviews selected large loans, as well as impaired loans, other delinquent, nonaccrual and problem loans and loans to industries experiencing economic difficulties. The collectability of these loans is evaluated after considering current operating results and financial position of the borrower, estimated market value of collateral, guarantees and the Company’s collateral position versus other creditors. Judgments, which are necessarily subjective, as to the probability of loss and amount of such loss are formed on these loans, as well as other loans taken together.

The following schedule is a breakdown of the allowance for loan losses allocated by type of loan and related ratios. While management’s periodic analysis of the adequacy of the allowance for loan losses may allocate portions of the allowance for specific problem-loan situations, the entire allowance is available for any loan charge-offs that occur.


	Allocation of the Allowance for Loan Losses (Dollars in thousands)
	Allowance Amount		Percentage of Loans in Each Category to Total Loans			Allowance Amount		Percentage of Loans in Each Category to Total Loans			Allowance Amount		Percentage of Loans in Each Category to Total Loans			Allowance Amount		Percentage of Loans in Each Category to Total Loans			Allowance Amount		Percentage of Loans in Each Category to Total Loans
	December 31, 2012					December 31, 2011					December 31, 2010					December 31, 2009					December 31, 2008
Commercial	$	933		28.79	%	$	1,024		27.73	%	$	1,179		24.90	%	$	1,031		22.14	%	$	716		19.56	%
Commercial real estate		1,902		32.71			1,673		32.82			1,183		33.23			1,338		34.41			1,058		34.56
Residential real estate		1,096		30.30			894		31.95			1,057		34.50			1,140		36.68			1,244		39.58
Construction & land development		253		6.41			180		5.58			213		5.24			246		4.39			111		3.56
Consumer		76		1.79			78		1.92			80		2.13			77		2.38			94		2.74
Unallocated		320					233					319					228					171

Total	$	4,580		100.00	%	$	4,082		100.00	%	$	4,031		100.00	%	$	4,060		100.00	%	$	3,394		100.00	%

Deposits

The following is a schedule of average deposit amounts and average rates paid on each category for the periods indicated:


	Average Amounts Outstanding Year ended December 31						Average Rate Paid Year ended December 31
	2012		2011		2010		2012			2011			2010
(Dollars in thousands)
Noninterest-bearing demand	$	91,148	$	70,543	$	58,601		N/A			N/A			N/A
Interest-bearing demand deposits		63,346		53,896		51,990		0.08	%		0.08	%		0.08	%
Savings deposits		135,035		91,232		73,694		0.17			0.25			0.34
Time deposits		163,997		152,194		149,788		1.25			1.70			2.15

Total deposits	$	453,526	$	367,865	$	334,073

The Bank does not have any material deposits by foreign depositors.

The following is a schedule of maturities of time certificates of deposit in amounts of $100,000 or more as of December 31, 2012:


(Dollars in thousands)
Three months or less	$	9,123
Over three through six months		6,147
Over six through twelve months		18,290
Over twelve months		20,603

Total	$	54,163

Return On Equity and Assets


	2012			2011			2010
Return on average assets		0.80	%		0.78	%		0.78	%
Return on average shareholders’ equity		8.85			7.57			7.43
Dividend payout ratio		43.30			53.40			56.32
Average shareholders’ equity to average assets		9.10			10.33			10.56

Short-Term Borrowings

Short-term borrowings consist of securities sold under agreements to repurchase, short-term advances through Federal Home Loan Bank and federal funds purchased. Securities sold under agreements to repurchase generally mature one (1) day from the transaction date. Federal funds purchased generally have overnight terms. Information concerning short-term borrowings is summarized as follows:


(Dollars in thousands)	2012			2011			2010
Securities sold under agreements to repurchase, federal funds purchased and short-term advances at period-end	$	43,992		$	37,073		$	32,018
Weighted average interest rate at period-end		0.20	%		0.25	%		0.55	%
Maximum outstanding at any month-end during the year		43,992			37,073			33,629
Average amount outstanding		40,893			32,577			29,700
Weighted average rates during the year		0.22	%		0.43	%		0.68	%

I TEM 1A. R ISK F ACTORS .

Risks Relating to Economic and Market Conditions

Difficult market conditions and economic trends have adversely affected the financial services industry and the Company’s business.

Dramatic declines in real estate value, along with high unemployment, have disrupted the national credit and capital markets over the last several years. Although economic conditions have improved, certain sectors, such as real estate and manufacturing, remain weak and unemployment remains high. Local governments and many businesses are still in serious difficulty due to lower consumer spending and decreased liquidity in the credit markets.

Market conditions have also led to the failure and merger of a number of financial institutions. These failures, as well as projected future failures, have had a significant negative impact on the capitalization levels and of the Deposit Insurance Fund, which has led to a significant increase in deposit insurance premiums paid by financial institutions.

The Company’s success depends, to a certain extent, upon local and national economic and political conditions as well as governmental monetary policies. Conditions such as inflation, recession, unemployment, changes in interest rates, money supply and other factors beyond the Company’s control may adversely affect asset quality, deposit levels and loan demand and, therefore, the Company’s earnings. Because the Company has a significant amount of real estate loans, additional decreases in real estate values could adversely affect the value of property used as collateral and the Company’s ability to sell the collateral upon foreclosure. Adverse changes in the economy may also have a negative effect on the ability of borrowers to make timely repayments of their loans, which would have an adverse impact on the Company’s earnings. If during a period of reduced real estate values, the Company is required to liquidate the collateral securing loans to satisfy the debt or to increase its allowance for loan losses, it could materially reduce the Company’s profitability and adversely affect its financial condition. The substantial majority of the Company’s loans are to individuals and businesses located in Holmes, Tuscarawas, Wayne and Stark Counties in Ohio. Consequently, further significant declines in north central Ohio could have a material adverse effect on the Company’s business, financial condition or results of operations.

Changes in interest rates could adversely affect income and financial condition.

The Company’s earnings and financial condition are substantially dependent upon net interest income, which is the difference between interest earned from loans and investments and interest paid on deposits and borrowings. Market interest rates are largely beyond the Company’s control, and they fluctuate in response to general economic conditions and the policies of various governmental and regulatory agencies, in particular, the FRB. Changes in interest rates will influence the origination of loans, the purchase of investments and the level of prepayments on the Company’s loans and the receipt of payments on mortgage-backed securities resulting in fluctuations of income and cash flow. Changes in interest rates also can affect the value of loans, securities, mortgage servicing rights and assets under management. Although fluctuations in market interest rates are neither completely predictable nor controllable, the Company’s Asset Liability Committee (ALCO) meets periodically to monitor the Company’s interest rate sensitivity position and oversee the Company’s financial risk management by establishing policies and operating limits. If short-term interest rates remain at their historically low levels for a prolonged period of time the Company’s interest-earning assets could continue to reprice downward while the Company’s interest-bearing liability rates, especially customer deposit rates, could remain at current levels. This would adversely impact the Company’s net income and financial condition. During 2012, the Company’s net interest margin and spread tightened as the rate environment remained low, cash increased with a branch acquisition and was redeployed in low interest rate investments and market competition for loan growth through lower pricing accelerated. For more information, see Item 7a. Quantitative and Qualitative Disclosures about Market Risk in this Annual Report on Form 10-K, which summarizes the Company’s exposure to interest rate risk.

Defaults by another larger financial institution could adversely affect financial markets generally.

The commercial soundness of many financial institutions may be closely interrelated as a result of credit, trading, clearing or other relationships between institutions. As a result, concerns about, or a default or threatened default by, one institution could lead to significant market-wide liquidity and credit problems, losses or defaults by other institutions. This is sometimes referred to as “systemic risk” and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges, with which the Company and its subsidiaries interact on a daily basis, and therefore could adversely affect the Company’s business, financial condition or results of operations.

Risks Related to the Company’s Business

The Company’s exposure to credit risk could adversely affect its earnings and financial condition.

Credit risk is the risk of losing principal and interest income because borrowers fail to repay loans. The Company’s earnings may be negatively impacted if it fails to manage credit risk, as the origination of loans is an integral part of the Company’s business. Factors which may affect the ability of borrowers to repay loans include a slowing of the local economy in which the Company operates, a downturn in one or more business sectors in which the Company’s customers operate or a rapid increase in interest rates. All of the Company’s loan portfolios, particularly commercial real estate loans, may continue to be affected by the sustained economic weakness of the Company’s north central Ohio market and the impact of higher unemployment rates. There has been a slow improvement in the housing market across the Company’s footprint, reflecting a bottom to prices and excess inventories of houses beginning to be sold. A return to further declines in home values and reduced levels of home sales in the Company’s market may have a negative effect on the Company’s business, financial condition or results of operation.

The Company’s allowance for loan losses may be insufficient.

The Company maintains an allowance for loan losses that it believes is a reasonable estimate of known and inherent losses within the loan portfolio. The Company makes various assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans. Through a periodic review and consideration of the loan portfolio, management determines the amount of the allowance for loan losses by considering general market conditions, credit quality of the loan portfolio, the collateral supporting the loans and performance of customers relative to their financial obligations with us. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, which may be beyond the Company’s control, and these losses may exceed current estimates. The Company cannot fully predict the amount or timing of losses or whether the loss allowance will be adequate in the future. If the Company’s assumptions prove to be incorrect, the allowance for loan losses may not be sufficient to cover losses inherent in the Company’s loan portfolio, resulting in additions to the allowance. Excessive loan losses and significant additions to the Company’s allowance for loan losses could have a material adverse impact on the Company’s business, financial condition and results of operations. In addition, bank regulators periodically review the Company’s allowance for loan losses and may require the Company to increase its provision for loan losses or recognize further loan charge-offs. Any such increase in the Company’s allowance for loan losses or loan charge-offs as required by these regulatory authorities might have a material adverse effect on the Company’s business, financial condition or results of operations.

The Company has significant exposure to risks associated with commercial loans.

As of December 31, 2012, approximately 62% of the Company’s loan portfolio consisted of commercial loans. Commercial loans are generally viewed as having more inherent risk of default than residential mortgage or consumer loans. The repayment of these loans often depends on the successful operation of a business. These loans are more likely to be adversely affected by weak conditions in the economy. Also, the commercial loan balance per borrower is typically larger than that for residential mortgage loans and consumer loans, indicating higher potential losses on an individual loan basis. The deterioration of one or a few of these loans could cause a significant increase in nonperforming loans and a reduction in interest income. An increase in nonperforming loans could result in an increase in the provision for loans losses and an increase in loan charge-offs, both of which could have a material adverse effect on the Company’s business, financial condition and results of operations.

The Company is subject to liquidity risk.

The Company requires liquidity to meet its deposit and debt obligations as they come due. The Company’s access to funding sources in amounts adequate to finance its activities or on terms that are acceptable to it could be impaired by factors that affect it specifically or the financial services industry or economy generally. Factors that could reduce its access to liquidity sources include a downturn in the north central Ohio market, difficult credit markets or adverse regulatory actions. The Company’s access to deposits may also be affected by the liquidity needs of its depositors. In particular, a substantial majority of the Company’s liabilities are demand, savings, interest checking and money market deposits, which are payable on demand or upon several days’ notice, while by comparison, a substantial portion of its assets are loans, which cannot be called or sold in the same time frame. Although the Company historically has been able to replace maturing deposits and advances as necessary, it might not be able to replace such funds in the future, especially if a large number of its depositors sought to withdraw their accounts, regardless of the reason. A failure to maintain adequate liquidity could have a material adverse effect on the Company’s business, financial condition or results of operations. The Basel III proposal includes liquidity requirements. It is uncertain how or when those proposals may be implemented by the regulators and how these proposals will effect CSB.

The Company’s business strategy includes planned growth. The Company’s financial condition and results of operations could be negatively affected if the Company fails to grow or fails to manage its growth effectively.

The Company’s ability to grow successfully will depend on a variety of factors, including the continued availability of desirable business opportunities, its ability to integrate acquisitions and manage growth and the Company’s ability to raise capital. While the Company believes it has the management resources and systems in place to successfully manage future growth, there can be no assurance that growth opportunities will be available.

Failure to manage the Company’s growth effectively could have a material adverse effect on its business, future prospects, financial condition or results of operations and could adversely affect the Company’s ability to successfully implement its business strategy.

The Company may need to raise capital in the future, but capital may not be available when needed or at acceptable terms.

Federal and state banking regulators require the Company and the Bank to maintain adequate levels of capital to support its operations. In addition, in the future the Company may need to raise additional capital to support its business or to finance acquisitions, if any, or the Company may otherwise elect to raise additional capital in anticipation of future growth opportunities. Many financial institutions have sought to raise considerable amounts of capital in recent years in response to deterioration in their results of operations and financial condition. Such overall market demand for capital may diminish the Company’s ability to raise additional capital if and when it is needed.

The Company’s ability to raise additional capital for CSB or the Bank’s needs will depend on conditions at that time in the capital markets, overall economic conditions, CSB’s financial performance and condition, and other factors, many of which are outside our control. There is no assurance that, if needed, CSB will be able to raise additional capital on favorable terms or at all. An inability to raise additional capital may have a material adverse effect on our ability to expand operations, and on our financial condition, results of operations and future prospects.

Strong competition within the market in which the Company operates could reduce its ability to attract and retain business.

The Company will need to adjust to competition in both originating loans and attracting deposits. Competition in the financial services industry is intense, as the Company competes with securities dealers, finance and insurance companies, mortgage brokers and investment advisors. As a result of their size and ability to achieve economies of scale, certain of the Company’s competitors offer a broader range of products and services than we can offer. The Company’s ability to achieve its financial objectives will depend on its ability to deliver or expand product delivery systems and changes in technology required by customers. The increasingly competitive environment is, in part, a result of changes in regulation, changes in technology and product delivery systems and the accelerating pace of consolidation among financial service providers.

Unauthorized disclosure of sensitive or confidential client or customer information, whether through a breach of our computer systems or otherwise, could severely harm our business.

As part of the Company’s business, it collects, processes and retains sensitive and confidential client and customer information on behalf of the Company’s subsidiaries and other third parties. Despite the security measures the Company has in place, its facilities and systems, and those of the Company’s third-party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors or other similar events. If information security is breached, information can be lost or misappropriated, resulting in financial loss or costs to the Company or damages to others. Any security breach involving the misappropriation, loss or other unauthorized disclosure of confidential customer information, whether by the Company or by its vendors, could severely damage the Company’s reputation, expose it to the risks of litigation and liability or disrupt the Company’s operations and may have a material adverse effect on the Company’s business.

The Company may not be able to attract and retain skilled people.

The Company’s success depends, in large part, on its ability to attract and retain key people. Competition for the best people in most activities in which the Company engages can be intense, and the Company may not be able to retain or hire the people it wants or needs. In order to attract and retain qualified employees, the Company must compensate them at market levels. If the Company is unable to continue to attract and retain qualified employees, or do so at rates necessary to maintain its competitive position, the Company’s performance, including its competitive position, could suffer, and, in turn, adversely affect the Company’s business, financial condition or results of operations.

The Bank’s ability to pay dividends is subject to regulatory limitations which, to the extent the Company requires such dividends in the future, may affect its ability to pay dividends or repurchase its stock.

As a financial holding company, CSB is a separate legal entity from the Bank and does not have significant operations of its own. Dividends from the Bank provide a significant source of capital for CSB. The availability of dividends from the Bank is limited by various statutes and regulations. The FRB issued a policy statement that provides that insured banks and bank holding companies should generally only pay dividends out of current

operating earnings. It is possible, depending upon the financial condition of the Bank and other factors, that the FRB or Ohio Division of Financial Institutions, as the Bank’s primary regulators, could assert that the payment of dividends or other payments by the Bank are an unsafe or unsound practice. In the event the Bank is unable to pay dividends to CSB, CSB may not be able to pay its obligations as they become due, repurchase its stock, or pay dividends on its common stock. Consequently, the potential inability to receive dividends from the Bank could adversely affect CSB’s business, financial condition, results of operations or prospects.

The trading volume and price of the Company’s common shares can be volatile.

The Company’s common shares are very thinly traded and, therefore, susceptible to price swings. The Company’s common shares are traded on the Over the Counter Bulletin Board under the symbol “CSBB;” however, the investment community does not actively follow the Company’s common shares. Given the lower trading volume of the Company’s common shares, significant sales of the Company’s common shares, or the expectation of significant sales, could cause the Company’s share price to fall.

Risks Related to the Legal and Regulatory Environment

Legislative or regulatory changes or actions, or significant litigation, could adversely impact the Company or the businesses in which it is engaged.

The financial services industry is extensively regulated. The Company and its subsidiaries are subject to extensive state and federal regulation, supervision and legislation that govern almost all aspects of its operations. Laws and regulations may change from time to time and are primarily intended for the protection of consumers, depositors and the Deposit Insurance Fund, and not to benefit the Company’s shareholders. The impact of any changes to laws and regulations or other actions by regulatory agencies may negatively impact the Company or its ability to increase the value of its business. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution, the classification of assets by an institution and the adequacy of an institution’s allowance for loan losses. Additionally, actions by regulatory agencies or significant litigation against the Company could cause it to devote significant time and resources to defending the Company’s business and may lead to penalties that materially affect the Company and its shareholders.

As discussed earlier, comprehensive revisions to the regulatory capital framework were proposed by the FRB in June 2012. Included within those revisions is the Basel III, which specifically revises what qualifies as regulatory capital, raises minimum requirements and introduces the concept of additional capital buffers. The need to maintain more and higher quality capital as well as greater liquidity going forward could limit our business activities, including lending, and our ability to expand, either organically or through acquisitions. In addition, the new liquidity standards could require us to increase our holdings of highly liquid short-term investments, thereby reducing our ability to invest in longer-term assets even if longer-term assets are more desirable from a balance sheet management perspective.

Increases in FDIC insurance premiums may have a material adverse effect on our earnings.

The FDIC maintains the Deposit Insurance Fund to resolve the cost of bank failures. In 2011, the FDIC approved a final rule that changed the deposit insurance assessment base and assessment rate schedule, adopted a new large-bank pricing assessment scheme and set a target size for the Deposit Insurance Fund. The rule, as mandated by the Dodd-Frank Act, finalized a target size for the Deposit Insurance Fund at 2% of insured deposits. The final rule went into effect beginning with the second quarter of 2011.

The Company has a limited ability to control the amount of premiums we are required to pay for FDIC insurance. If there are additional financial institution failures or other significant legislative or regulatory changes, the FDIC may be required to increase assessment rates or take actions similar to those taken during 2009. Increases in FDIC insurance assessment rates may materially adversely affect the Company’s business, financial condition or results of operations.

The recently enacted Dodd-Frank Act may adversely impact the Company’s business, financial condition or results of operations.

On July 21, 2010, the Dodd-Frank Act was signed into law. . A detailed discussion regarding the Dodd-Frank Act can be found under the caption “Dodd-Frank Act” in Item 1 of this Annual Report on Form 10-K. The Dodd-Frank Act represents a comprehensive overhaul of the financial services industry within the U.S. There are a number of reform provisions that are likely to significantly impact the ways in which banks and bank holding companies do business

Among the provisions already implemented that have or may have an effect on the Company are the following:

•

the Consumer Financial Protection Bureau has been formed, which has broad powers to adopt and enforce consumer protection regulations;

•

the federal law prohibiting the payment of interest on commercial demand deposit accounts was eliminated effective July 21, 2011;

•

the standard maximum amount of deposit insurance per customer was permanently increased to $250,000, and non-interest bearing transaction accounts had unlimited insurance through December 31, 2012;

•

the assessment base for determining deposit insurance premiums has been expanded from domestic deposits to average assets minus average tangible equity;

•

public companies in all industries are now required to provide stockholders the opportunity to cast a non-binding advisory vote on executive compensation; and

•

the FRB has imposed on financial institutions with assets of $10 billion or more a cap on the debit card interchange fees the financial institutions may charge. Although the cap is not applicable to the Bank, it may have an adverse effect on the Bank as the debit cards issued by the Bank and other smaller banks, which have higher interchange fees, may become less competitive.

Additional provisions not yet implemented that may have an effect on the Company are the following:

•

new capital regulations for bank holding companies will be adopted, which may impose stricter requirements and trust preferred securities issued after May 19, 2010 will no longer constitute Tier I capital; and

•

new corporate governance requirements applicable generally to all public companies in all industries will require other new compensation practices and disclosure requirements, including requiring companies to “claw back” incentive compensation under certain circumstances, to consider the independence of compensation advisors and to make additional disclosures in proxy statements with respect to compensation matters.

As many provisions of the Dodd-Frank Act have not yet been implemented and will require interpretation and rule making, the ultimate effect on the Company cannot yet be determined. However, the implementation of certain provisions have already increased compliance costs and the implementation of future provisions will likely increase both compliance costs and fees paid to regulators, along with possibly restricting the operations of the Company.

The recent repeal of federal prohibitions on the payment of interest on demand deposits could increase our interest expense.

All federal prohibitions on the ability of financial institutions to pay interest on demand deposit accounts were repealed as part of the Dodd-Frank Act. As a result, financial institutions may offer interest on demand deposits to compete for clients. The Company does not yet know what interest rates other institutions may offer as market interest rates increase. The Company’s interest expense will increase and its net interest margin will decrease if the Company begins offering interest on demand deposits to attract new customers or maintain current customers, which could have a material adverse effect on the Company’s business, financial condition and results of operations.

Environmental liability associated with commercial lending could have a material adverse effect on our business, financial condition or results of operations.

A significant portion of the Company’s loan portfolio is secured by real property. During the ordinary course of business, the Company may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, the Company may be liable for remediation costs, as well as for personal injury and property damage.

Environmental laws may require the Company to incur substantial expenses and may materially reduce the affected property’s value or limit the Company’s ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase the Company’s exposure to environmental liability. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on the Company’s business, financial condition or results of operations.

The Company may be a defendant from time to time in the future in a variety of litigation and other actions, which could have a material adverse effect on its business, financial condition or results of operations.

The Company may be involved from time to time in the future in a variety of litigation arising out of its business. The Company’s insurance may not cover all claims that may be asserted against it, and any claims asserted against the Company, regardless of merit or eventual outcome, may harm its reputation. Should the ultimate judgments or settlements in any litigation exceed the Company’s insurance coverage, it could have a material adverse effect on the Company’s business, financial condition or results of operations. In addition, the Company may not be able to obtain appropriate types or levels of insurance in the future, nor may the Company be able to obtain adequate replacement policies with acceptable terms, if at all.

I TEM 1B. U NRESOLVED S TAFF C OMMENTS .

None.

I TEM 2. P ROPERTIES .

The Bank operates sixteen banking centers as noted below:


Location	Address	Owned		Leased
Walnut Creek	4980 Old Pump Street, Walnut Creek, Ohio 44687		X
Winesburg	2225 U.S. 62, Winesburg, Ohio 44690		X
Sugarcreek	127 South Broadway, Sugarcreek, Ohio 44681		X
Charm	4440 C.R.70, Charm, Ohio 44617				X
Clinton Commons	2102 Glen Drive, Millersburg, Ohio 44654				X
Berlin	4587 S.R.39 Suite B, Berlin, Ohio 44610				X
South Clay	91 South Clay Street, Millersburg, Ohio 44654		X
Shreve	333 West South Street, Shreve, Ohio 44676		X
Orrville	461 Wadsworth Road, Orrville, Ohio 44667				X
Orrville	330 West High Street, Orrville, Ohio 44667				X
Operations Center	91 North Clay Street, Millersburg, Ohio 44654		X
Gnadenhutten	100 South Walnut Street, Gnadenhutten, Ohio 44629		X
New Philadelphia	635 West High Avenue, New Philadelphia, Ohio 44663		X
North Canton	1210 North Main Street, North Canton, Ohio 44720		X
Wooster	305 West Liberty Street, Wooster, Ohio 44691				X
Wooster	3562 Commerce Parkway, Wooster, Ohio 44691		X

The Bank considers its physical properties to be in good operating condition and suitable for the purposes for which they are being used. All properties owned by the Bank are unencumbered by any mortgage or security interest and in management’s opinion, are adequately insured.

I TEM 3. L EGAL P ROCEEDINGS .

In the normal course of business, CSB is subject to pending and threatened legal actions, including claims for which material relief or damages sought are substantial. Although CSB is not able to predict the outcome of such actions, after reviewing pending and threatened actions, management believes that the outcome of any or all such actions will not have a material adverse effect on the results of operations or shareholders’ equity of CSB. Further, there are no material legal proceedings in which any director, executive officer, principal shareholder or affiliate of CSB is a party or has a material interest that is adverse to CSB or the Bank. None of the routine litigation in which CSB or the Bank is involved is expected to have a material adverse impact on the financial position or results of operations of CSB or the Bank.

I TEM 4. M INE S AFETY D ISCLOSURES .

Not applicable.

PART II

I TEM 5. M ARKET F OR R EGISTRANT ’ S C OMMON E QUITY A ND R ELATED S TOCKHOLDER M ATTERS .

Information contained in the section captioned “Common Stock and Shareholder Information” on page 22 of the Annual Report is incorporated herein by reference.

ISSUER PURCHASES OF EQUITY SECURITIES

None.

On July 7, 2005 CSB filed a Current Report on Form 8-K with the SEC 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.

PERFORMANCE GRAPH

The following graph compares the yearly stock change and the cumulative total shareholder return on CSB’s Common Shares during the five-year period ended December 31, 2012, with the cumulative total return on the Standard and Poor’s 500 Stock Index and the NASDAQ Community Bank Stock Index. The comparison assumes $100 was invested on December 31, 2007 in CSB’s Common Shares and in each of the indicated indices and assumes reinvestment of dividends.


	2007		2008		2009		2010		2011		2012
CSBB	$	100	$	89	$	94	$	101	$	114	$	120
S & P 500		100		62		79		91		93		108
NASDAQ Bank		100		83		67		75		70		82

LOGO

I TEM 6. S ELECTED F INANCIAL D ATA .

Information contained in the section captioned “Selected Financial Data” on page 9 of the Annual Report is incorporated herein by reference.

I TEM 7. M ANAGEMENT ’ S D ISCUSSION A ND A NALYSIS O F F INANCIAL C ONDITION A ND R ESULTS O F O PERATIONS .

Information contained in the section captioned “2012 Financial Review” on pages 8 through 22 of the Annual Report is incorporated herein by reference.

I TEM 7A. Q UANTITATIVE A ND Q UALITATIVE D ISCLOSURES A BOUT M ARKET R ISK .

Information contained in the section captioned “Quantitative and Qualitative Disclosures About Market Risk” on pages 18-20 of the Annual Report is incorporated herein by reference.

I TEM 8. F INANCIAL S TATEMENTS A ND S UPPLEMENTARY D ATA .

Information contained in the Consolidated Financial Statements and related notes and the Report of Independent Registered Public Accounting Firm thereon, on pages 24 through 59 of the Annual Report is incorporated herein by reference.

I TEM 9. C HANGES I N A ND D ISAGREEMENTS W ITH A CCOUNTANTS O N A CCOUNTING A ND F INANCIAL D ISCLOSURE .

None.

I TEM 9A. C ONTROLS A ND P ROCEDURES .

Evaluation Of Disclosure Controls And Procedures

With the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) was performed, as of the end of the period covered by this Annual Report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting

Management’s Assessment of Internal Control over Financial Reporting is contained in the Consolidated Financial Statements and related notes on page 23 of the Annual Report and is incorporated herein by reference. This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this filing.

Changes In Internal Control Over Financial Reporting

There have been no significant changes during the quarter ended December 31, 2012, in the Company’s internal controls over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) or in other factors that materially affected, or are reasonably likely to materially affect the internal control over financial reporting.

I TEM 9B. O THER I NFORMATION .

None

PART III

I TEM 10. D IRECTORS , E XECUTIVE O FFICERS AND C ORPORATE G OVERNANCE .

The information required by Item 401 of Regulation S-K concerning the directors of the Company and the nominees for election as directors of the Company at the Annual Meeting of Shareholders to be held on April 24, 2013 (the “2013 Annual Meeting”) is incorporated herein by reference from the information to be included under the caption “Proposal 1 – Election of Directors” in the Company’s definitive proxy statement relating to the 2013 Annual Meeting to be filed with the SEC (“2013 Proxy Statement”). The information required by Item 401 of Regulation S-K concerning the executive officers of the Company is incorporated herein by reference from the information to be included under the caption “Executive Officers” in the 2013 Proxy Statement.

Compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended.

The information required by Item 405 of Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2013 Proxy Statement.

Code of Ethics.

The Company has adopted a Code of Ethics that applies to its senior financial officers, including the Chief Executive Officer and Chief Financial Officer. The Company has posted its Code of Ethics on its website at www.csb1.com /invest_documents.asp. The Company plans to satisfy SEC disclosure requirements regarding any amendments to, or waiver of, the Code of Ethics relating to its Chief Executive Officer or Chief Financial Officer, and persons performing similar functions, by posting such information on the Company’s website or by making any necessary filings with the SEC. Any person may receive a copy of our Code of Ethics free of charge upon request by calling the Company during business hours or by sending a written request.

Procedures for Recommending Directors Nominees.

Information concerning the procedures by which shareholders may recommend nominees to the Company’s Board of Directors is incorporated herein by reference from the information to be included under the caption “Shareholder Nominations” in 2013 Proxy Statement. These procedures have not materially changed from those described in CSB’s definitive proxy materials for the 2013 Annual Meeting of Shareholders.

Audit Committee.

The information required by Items 407(d)(4) and (d)(5) of Regulation S-K is incorporated herein by reference from the disclosure to be included under the captions “Membership and Meetings of the Board and its Committees” and “Committees of the Board of Directors – Audit Committee” in the 2013 Proxy Statement.

I TEM 11. E XECUTIVE C OMPENSATION .

The information required by Item 402 of Regulation S-K is incorporated herein by reference from the disclosure to be included under the captions “Compensation Discussion and Analysis” and “Executive Compensation and Other Information” in the 2013 Proxy Statement.

The information required by Item 407(e)(4) of Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “Compensation Committee Interlocks and Insider Participation” in the 2013 Proxy Statement.

The information required by Item 407(e)(5) of Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “The Compensation Committee Report” in the 2013 Proxy Statement.

I TEM 12. S ECURITY O WNERSHIP O F C ERTAIN B ENEFICIAL O WNERS A ND M ANAGEMENT A ND R ELATED S TOCKHOLDER M ATTERS .

Equity Compensation Plan Information


	Number of shares of common stock to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of shares remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by stockholders		31,760	$	17.85		0
Equity compensation plans not approved by stockholders		—		—		—

Total		31,760	$	17.85		0

Security Ownership of Certain Beneficial Owners and Management

The information required by Item 403 of Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “Beneficial Ownership of Management and Certain Beneficial Owners” in the 2013 Proxy Statement.

I TEM 13. C ERTAIN R ELATIONSHIPS A ND R ELATED T RANSACTIONS , A ND D IRECTOR I NDEPENDENCE .

The information required by Item 404 of Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “Certain Relationships and Related Transactions” in the 2013 Proxy Statement. There were no relationships where transactions exceeded $120,000 for the year ended December 31, 2012.

The information required by Item 407(a) of Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “Membership and Meetings of the Board and its Committees” in the 2013 Proxy Statement.

I TEM 14. P RINCIPAL A CCOUNTANT F EES A ND S ERVICES .

The information required by this Item 14 is incorporated herein by reference from the disclosure to be included under the captions “Independent Registered Public Accounting Firm Fees” and “Audit Committee Procedures for Pre-Approval of Services by the Independent Public Accounting Firm” in the 2013 Proxy Statement.

PART IV

I TEM 15. E XHIBITS A ND F INANCIAL S TATEMENT S CHEDULES .

(a)(1) Financial Statements

The Consolidated Financial Statements (and report thereon) listed below are incorporated by reference from CSB Bancorp, Inc.’s 2012 Annual Report as noted:

Report of Independent Registered Public Accounting Firm (S.R. Snodgrass)-pg. 24.

Consolidated Balance Sheets at December 31, 2012 and 2011-pg. 25.

Consolidated Statements of Income for the years ended December 31, 2012, 2011and 2010–pg. 26.

Consolidated Statements of Comprehensive Income for the years ended December 31, 2012, 2011and 2010–pg. 27.

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2012, 2011and 2010–pg. 28.

Consolidated Statements of Cash flows for the years ended December 31, 2012, 2011and 2010–pgs. 29-30.

Notes to Consolidated Financial Statements–pgs. 31-59.

(a)(2) Financial Statement Schedules

All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and have been omitted.

(a)(3) Exhibits

The documents listed below are filed with this Annual Report on Form 10-K as exhibits or incorporated into this Annual Report on Form 10-K by reference as noted:


Exhibit Number		Description of Document

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

3.1.1		Amended form of Article Fourth of Amended Articles of Incorporation, as effective April 9, 1998 (incorporated by reference to registrant’s Annual Report on Form 10-K filed on March 30, 1999, Exhibit 3.1.1, film number 99579149).

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

3.2.1		Amended Article VIII 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		Form of Certificate of Common Shares of CSB Bancorp, Inc. (incorporated by reference to Registrant’s Form 10-SB).

10		Amended and Restated Separation Agreement and General Release between Rick L. Ginther and The Commercial and Savings Bank of Millersburg, Ohio (incorporated by reference to registrant’s Annual Report on Form 10-K filed on March 26, 2012, film number 12714232).

10.1		CSB Bancorp, Inc. Share Incentive Plan (incorporated by reference to registrant’s Form DEF 14A filing, filed on March 18, 2005, film number 08696769).

10.2		Employment Agreement between Paula Meiler and the Commercial and Savings Bank of Millersburg, Ohio.

10.3		Amendment to Employment Agreement between Paula Meiler and The Commercial & Savings Bank of Millersburg, Ohio.

13		CSB Bancorp, Inc. 2012 Annual Report to Shareholders

21		Subsidiaries of CSB Bancorp, Inc.

23.1		Consent of S.R. Snodgrass, A.C.

31.1		Section 302 Certification of Chief Executive Officer

31.2		Section 302 Certification of Chief Financial Officer

32.1		Section 906 Certification of Chief Executive Officer

32.2		Section 906 Certification of Chief Financial Officer

101		The following materials from CSB’s 2012 Annual Report to Shareholders formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets: (ii) Consolidated Statements of Income: (iii) Consolidated Statements of Comprehensive Income (iv) Consolidated Statements of Changes in Shareholders’ Equity: (v) Consolidated Statements of Cash Flows: and (vi) Notes to Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Date: March 25, 2013				/s/ Eddie L. Steiner
				Eddie L. Steiner, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 25, 2013.


Signatures		Title
/s/ Eddie L. Steiner Eddie L. Steiner		President and Chief Executive Officer

/s/ Paula J. Meiler Paula J. Meiler		Senior Vice President and Chief Financial Officer

/s/ Pamela S. Basinger Pamela S. Basinger		Vice President and Principal Accounting Officer

/s/ Robert K. Baker Robert K. Baker		Director

/s/ Ronald E. Holtman Ronald E. Holtman		Director

/s/ J. Thomas Lang J. Thomas Lang		Director

/s/ Daniel J. Miller Daniel J. Miller		Director

/s/ Jeffery A. Robb, Sr. Jeffery A. Robb, Sr.		Director

/s/ John R. Waltman John R. Waltman		Director

INDEX TO EXHIBITS


Exhibit Number		Description of Document

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

3.1.1		Amended form of Article Fourth of Amended Articles of Incorporation, as effective April 9, 1998 (incorporated by reference to registrant’s Annual Report on Form 10-K filed on March 30, 1999, Exhibit 3.1.1, film number 99579149).

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

3.2.1		Amended Article VIII 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		Form of Certificate of Common Shares of CSB Bancorp, Inc. (incorporated by reference to registrant’s Form 10-SB).

10		Amended and Restated Separation Agreement and General Release between Rick L. Ginther and The Commercial and Savings Bank of Millersburg, Ohio (incorporated by reference to registrant’s Annual Report on Form 10-K filed on March 26, 2012, film number 12714232).

10.1		CSB Bancorp, Inc. Share Incentive Plan (incorporated by reference to registrant’s Form DEF 14A filing, filed on March 18, 2005, film number 08696769).

10.2		Employment Agreement between Paula Meiler and the Commercial and Savings Bank of Millersburg, Ohio.

10.3		Amendment to Employment Agreement between Paula Meiler and The Commercial & Savings Bank of Millersburg, Ohio.

13		CSB Bancorp, Inc. 2012 Annual Report to Shareholders

21		Subsidiaries of CSB Bancorp, Inc.

23.1		Consent of S.R. Snodgrass, A.C.

31.1		Section 302 Certification of Chief Executive Officer

31.2		Section 302 Certification of Chief Financial Officer

32.1		Section 906 Certification of Chief Executive Officer

32.2		Section 906 Certification of Chief Financial Officer

101		The following materials from CSB’s 2012 Annual Report to Shareholders formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets: (ii) Consolidated Statements of Income: (iii) Consolidated Statements of Comprehensive Income (iv) Consolidated Statements of Changes in Shareholders’ Equity: (v) Consolidated Statements of Cash Flows: and (vi) Notes to Consolidated Financial Statements.

EXHIBIT 10.2

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”), made and entered into as of August 9, 2004 (the “Effective Date”), by and between THE COMMERCIAL AND SAVINGS BANK of Millersburg, an Ohio state bank with its principal office located at 6 West Jackson Street, Millersburg, Ohio 44654 (“Bank”), Paula Meiler, a resident of Ohio(“Employee”).

WITNESSETH:

WHEREAS, Bank is a state bank duly organized and validly existing under the laws of the State of Ohio and engages in banking activities; and

WHEREAS, Bank is a wholly-owned subsidiary of CSB Bancorp, Inc., an Ohio Corporation and a registered bank holding company (“CSB”); and

WHEREAS, Employee has knowledge, experience and expertise in the area of business of Bank and CSB, and Bank and CSB wish to obtain the benefits of Employee’s knowledge, experience and expertise; and

WHEREAS, Bank desires to employ Employee on the terms and subject to the conditions set forth herein, and Employee is willing to accept employment on such terms and conditions.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties, intending to be legally bound, agree as follows:

1. Employment.

1.1 Beginning on August 9, 2004, and subject to the terms and conditions set forth in this Agreement, Bank shall employ Employee to serve as Senior Vice President and Chief Financial Officer of Bank, and perform all services and duties customarily accompanying those positions. Finally, Bank (or CSB) may appoint Employee to such other offices as the Board of Directors determines, and Employee shall perform the duties of such other offices.

Employee shall devote Employee’s entire productive time, ability and attention to the business of Bank and CSB and shall not directly or indirectly render any services of a business, commercial or professional nature

to any other person or organization, whether for compensation or otherwise, without prior consent of the Board of Directors. The Employee will provide the Bank and CSB her best professional efforts and a minimum forty (40) to fifty (50) productive hours per week.

1.2 The parties acknowledge and agree that Employee shall also serve at the pleasure of the Board of Directors of CSB in the capacity of Senior Vice President and Chief Financial Officer for CSB subject to, and in accordance with, the terms of this Agreement, and the terms of this Agreement shall inure to the benefit of, and shall be enforceable by, CSB to the same extent as Bank. Employee shall not be entitled to additional compensation in conjunction with services provided to CSB or any affiliates or subsidiaries of CSB or Bank.

2. Compensation.

2.1 Base Salary . As consideration for Employee’s services as an employee hereunder, Bank agrees to pay Employee, and Employee agrees to accept, an annual base salary of $100,000 (“Base Salary”). The Base Salary, as so determined, shall be payable in equal biweekly installments. It is further understood and agreed that during the term of Employee’s status as an Employee, Employee shall be subject to the withholding of taxes as required by law and benefit contributions by employee. The Base Salary will be subject to an annual review commencing on July 1, 2005.

2.2 Benefits . Employee shall be entitled to participate in any insurance or other benefit plans now or hereafter provided or made available to employees of Bank generally; provided, however that nothing contained in this Agreement shall require Bank to establish, maintain or continue any such benefits already in existence or hereafter adopted for employees of Bank.

2.3 Vacation . Employee shall be entitled to annual vacation and leave time of four (4) weeks at full pay with no more than two (2) weeks to be taken consecutively without Board of Directors approval. Unused vacation time may not be carried from one year to another year, but may be forfeited annually by the Employee in exchange for compensation based on base annual salary.

2.4 Stock. Employee shall be granted an option to purchase up to one thousand (1,000) common shares of CSB common stock under the terms of the CSB share incentive plan {The “Stock Plan”). The option shall expire on August 9, 2009.

2.5 Relocation . Bank agrees to assist Employee in relocating to Holmes or Wayne County, Ohio and agrees to pay Employee’s reasonable and customary moving expenses from her current residence to Holmes or Wayne County, Ohio if such relocation occurs within thirty six (36) months of the Effective Date. Total reimbursement not to exceed $30,000.00

2.6 Bonus . Employee shall be eligible to receive an annual bonus of up to 20% of Base Salary at the discretion of the Board of Directors. The Board of Directors shall determine what percentage is to be paid at the meeting of the Board of Directors in February of each year, or, if the audited financial statements for CSB are not prepared at least seven (7) days before such meeting, at the meeting of the Board of Directors in March. In connection with the determination of Employee’s bonus, the Chief Executive Officer shall deliver to Employee a performance review.

3. Term and Termination.

3.1 Term . Employee shall be employed for a two (2) year term commencing on the Effective Date hereof, and ending on the second anniversary of the Effective Date, unless sooner terminated in accordance with the provisions of this Agreement, the initial term. Commencing at the expiration of the initial term and on each anniversary of this Agreement this Agreement shall automatically be extended for additional one (1) year terms unless either Bank or Employee notifies the other of its or her intent not to renew this Agreement at least sixty (60)days prior to the expiration of the then current term of the Agreement.

3.2 Termination.

(a) Death or Disability . If Employee dies or becomes disabled to the extent that Employee cannot perform her duties under this Agreement for a period of more than sixty (60) consecutive days (the “Disability Period”), this Agreement shall cease and terminate on the date of Employee’s death or conclusion of the Disability Period, as applicable.

(b) Termination for Cause . If this Agreement is terminated by Bank for Cause (as defined herein), this Agreement and the employment of Employee shall cease and terminate as of such date. “Cause” shall be defined as (i) commission of an act of dishonesty in the course of Employee’s duties hereunder; (ii) conviction (whether as a

result of a trial or plea, including a plea of nolo contendere) by a court of competent jurisdiction of a crime constituting a felony or conviction (whether as a result of a trial or plea, including a plea of nolo contendere) with respect to any act involving fraud, dishonesty, or moral turpitude; (iii) Employee’s continued, habitual intoxication or performance under the influence of controlled substances during working hours; (iv) frequent or extended, and unjustifiable (not as a result of incapacity or disability) absenteeism; or (v) Employee’s continued inability or refusal to perform the duties and responsibilities described in this Agreement, if (A) Bank shall have given Employee prior written notice of the reason therefor and (B) a period of thirty (30) days following receipt by Employee of such notice shall have lapsed and the matters which constitute or give rise to such Cause shall not have been cured or eliminated by Employee.

3.3 Termination Without Cause . Bank may terminate Employee’s employment and this Agreement at any time without Cause, by giving thirty (30) days advance notice in writing to Employee. Subject to the restrictions defined in this agreement, Employee shall also have the right to terminate this Agreement.

3.4 Employee’s Rights Upon Termination . In the event that this Agreement is terminated by Bank without Cause prior to August 9, 2006, Employee shall receive all Base Salary to be paid according to this Agreement through August 9, 2006 plus six (6) months Base Salary. Such amount shall be paid on an accelerated basis in a lump-sum on the termination date. Additionally, Employee shall be entitled to participate, in the employee benefits provided pursuant to Section 2.2 above for six (6) months from the termination date. In the event that this Agreement is terminated by Bank for Cause, Employee shall be entitled to receive all pay and benefits earned through the date of termination with any benefits being paid in arrears being pro rated through the date of termination.

4. Covenant Not to Compete . From August 9, 2004 and for a period of one (1) year following the termination of this Agreement for any reason, Employee shall not, without prior written consent of Bank, engage in any business activity, directly or indirectly, on her own behalf or as a partner, shareholder (except by ownership of less than five percent (5%) of the stock of a publicly-held bank or corporation), director, trustee, principal, agent, employee, consultant or otherwise, with any bank, thrift, savings and loan or credit union having an office or branch within a 25-mile radius of any of Bank’s offices or branches.

5. Confidential Information and Property of Bank .

5.1 Confidential Information . Employee acknowledges and agrees that in connection with his employment by Bank, Employee will have access to certain confidential and proprietary information owned by and related to Bank and CSB. For purposes of this Agreement, “Confidential Information” means any proprietary information of or related to Bank and CSB and their Affiliates and Customers, including but not limited to: (i) operations manuals and guidelines, marketing manuals and plans and business strategies, techniques and methodologies; (ii) financial information, including information set forth in internal records, files and ledgers, or incorporated in profit and loss statements, fiscal reports, sales reports and business plans; (iii) any and all active prospective mergers or acquisitions, and all financial data, pricing terms, information memoranda and due diligence reports relating thereto; (iv) all internal memoranda and other office records, including electronic and data processing files and records and financial information regarding customers and (v) any other information constituting a trade secret under governing trade secrets law.

5.2 Non-Disclosure of Confidential Information . Employee shall not at any time use, disclose or divulge any such Confidential Information to any third party, except: (i) in connection with the discharge of her duties hereunder; (ii) with the prior written consent of Bank which consent may be withheld in Bank’s sole discretion or (iii) to the extent necessary to comply with law or the valid order of a court of competent jurisdiction, in which event Employee shall notify Bank immediately prior to making such disclosure. Employee shall use her best efforts to prevent any such disclosure by others.

6. Remedies . Employee acknowledges that the services to be rendered by her are of a special, unique and extraordinary character and that it would be extremely difficult or impracticable to replace such services, that the provisions of this Agreement are of crucial importance to Bank and that any damage caused by the breach of this Agreement could result in irreparable harm to the business of Bank and CSB. Accordingly, Employee agrees to at all times to honor and comply with all of the provisions of this contract.

7. Change in Control.

7.1 Changes in Control . Upon the occurrence of a Change in Control of CSB (as herein defined) Bank shall provide Change in Control Benefits to Employee as set forth below, subject to the provisions of Section 7.2(c). A “Change in Control” for the purposes of this Agreement shall be deemed to have occurred if either (i) any person, together with its Affiliates or Associates, acquires beneficial ownership, directly or indirectly, of shares of CSB, entitling such person, together with such Affiliates or Associates, to cast more than one-third of the votes eligible to be cast at any meeting of shareholders of CSB, (ii) a change occurs in the acquisition of the ability to control the election of a majority of CSB’s directors, (iii) a change occurs in the acquisition of a controlling influence over the management or policies of CSB by any person or by persons acting as a “group” (within the meaning of Section 13(d) of the Securities Exchange Act of 1934) or (iv) during any period of two consecutive years, individuals (the “Continuing Directors”) who at the beginning of such period constitute the Board of Directors of CSB (the “Existing Board”) cease for any reason to constitute at least a majority thereof, provided that any individual whose election or nomination for election as member of the Existing Board was approved by a vote of at least a majority of the Continuing Directors then in office shall be considered a Continuing Director. For purposes of this definition, a person shall be deemed the “beneficial owner” of any shares of CSB (i) which such person or any of its Affiliates or Associates, as defined below, beneficially owns, directly or indirectly; (ii) which such person or any of its Affiliates or Associates, has directly or indirectly, (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (B) the right to vote pursuant to any agreement, arrangement or understanding or (iii) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of CSB. For purposes of this Agreement, a “person” shall mean any individual, firm, company, partnership, other entity or group, and the terms “Affiliate” or “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as of the date hereof Provided however, that a Change of Control shall not be deemed to have resulted from any transfer (i) to CSB, (ii) to a fiduciary for the benefit of the transferring owner or his spouse or lineal descendants or (iii) by will or by operation of the laws of descent and distribution.

7.2 Change in Control Benefits. The Change in Control benefits that Employee shall be entitled to receive in accordance with the provisions hereof are as follows:

(a) Employee shall receive her Base Salary for a two (2) year period following termination of employment pursuant to Section 7.2(c), below. Such Base Salary shall be paid periodically at the same frequency as prior to the termination of employment.

(b) Bank shall provide to Employee continued coverage for one (1) year under a health plan with benefits the same or similar to those Employee had with Bank prior to the Change in Control.

(c) Notwithstanding any other provision of this Agreement, no Change of Control benefits will be payable unless Employee’s employment is terminated either by Bank or Employee, with or without cause or for any reason, within ninety (90) days, either prior to or subsequent to, the occurrence of the Change of Control. Upon the occurrence of a Change of Control and for ninety (90) days thereafter, Employee may terminate her employment hereunder for any reason. No Change of Control benefits will be payable should termination occur as the result of a “For Cause” incident.

7.3 Tax Obligations . In the event that any Change in Control benefits which Employee is entitled to receive from Bank (either under this Agreement or otherwise) constitute an “excess parachute payment” as defined for the purposes of Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended (the “Code”), then such Change in Control benefits shall be reduced such that no “excess parachute payment” is received by Employee from Bank.

7.4 Mitigation of Benefits . Employee shall not be required to mitigate the amount of any paid Change in Control benefit by seeking other employment or otherwise, nor shall the amount of any Change in Control benefit be reduced by any compensation earned by Employee as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by Employee to Bank or for any other reason.

8. Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with respect to the transactions contemplated hereby and supersedes all prior agreements, arrangements and understandings of the parties with respect to the subject matter hereof No amendment or modification of this Agreement shall be valid or binding unless made in writing and signed by the parties hereto.

9. Notices . All notices and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service if served personally on the party (including without limitation service by overnight courier service) to whom notice is to be given, or on the third day after mailing if mailed to the party to whom notice is to be given, by first class mail, registered or certified, postage prepaid, at the address set forth below, or on the date of service if delivered by facsimile to the facsimile number then utilized by the party receiving the facsimile. All notices shall be addressed to the parties to be served as follows:

(a) If to Bank:

The Commercial and Savings Bank

6 West Jackson Street

Millersburg, Ohio 44654

Attn: John J. Limbert, President & C.E.O.

Copy to:

Thompson Hine LLP

One Columbus

10 West Broad St. Columbus, OH

43215-3435

Attn: Jeffrey E. Smith

(b) If to Employee:

Paula Meiler

30186 Mountz Rd.

Salem, OH 44460

10. Severability . If any provision of this Agreement shall be invalid or unenforceable, in whole or in part, then such provision shall be deemed to be modified or restricted to the extent and in the manner necessary to render the same valid and enforceable, and this

Agreement shall be construed and enforced to the maximum extent permitted by law.

11. Waiver . No waiver of any default or breach of this Agreement shall be deemed a continuing waiver or a waiver of any other breach or default.

12. Governing Law . This agreement shall be governed by and construed in accordance with the laws of the State of Ohio without regard to principles of conflicts of law.

13. Assignment . Employee may not assign any rights or obligations under this Agreement without the prior written consent of Bank. If Bank, or any entity resulting from any stock purchase, merger or consolidation with or into Bank, is merged with or consolidated into or with any other entity or entities, or if substantially all of the stock or operating assets of any of the aforementioned entities is sold or otherwise transferred to another entity, the provisions of this Agreement shall be binding upon and shall inure to the benefit of the continuing entity in, or the entity resulting from, such asset purchase, merger or consolidation, or the entity to which such assets are sold or transferred.

14. Headings; Gender . The headings contained in this Agreement are for reference purposes only and should not affect in any way the meaning or interpretation of this Agreement. When the context requires, the gender of all words used herein shall include the masculine, feminine and neuter.

15. Mutual Negotiation . Each party has been represented by counsel in drafting and negotiating this Agreement. This Agreement shall therefore be deemed to have been negotiated, prepared and drafted jointly hereto. This Agreement shall not be construed against any party as the sole drafter or author of the Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the Effective Date.

THE COMMERCIAL AND SAVINGS BANK, an Ohio state bank


		By: /s/ John J. Limbert
		Its: President and Chief Executive Officer

		EMPLOYEE


				/s/ Paula Meiler

EXHIBIT 10.3

AMENDMENT

EMPLOYMENT AGREEMENT DATED

AUGUST 9, 2004

BETWEEN

THE COMMERCIAL & SAVINGS BANK OF MILLERSBURG, OHIO (BANK)

AND

PAULA M. MEILER (EMPLOYEE)

Section 3.1 is Hereby Amended as follows:

Term. Beginning August 9, 2007 Employee shall be employed for a two (2) year term unless sooner terminated in accordance with the provisions of this Agreement. On each anniversary of this Amendment, the employment contract shall automatically be extended for an additional one (1) year term (each a ‘“Renewal Term”) unless either Bank or Employee notifies the other of its or her intent not to renew this Agreement at least sixty (60) days prior to the expiration of the then current term of the Agreement.


/s/ Rick L. Ginther				/s/ Paula Meiler
The Commercial & Savings Bank				Employee, Paula Meiler
By: Rick L. Ginther, President/CEO

Exhibit 13

LOGO

INTRODUCTION

CSB Bancorp, Inc. (the “Company” or “CSB”) was incorporated under the laws of the State of Ohio in 1991 and is a registered bank holding company. The Company’s wholly-owned subsidiaries are The Commercial and Savings Bank (the “Bank”) and CSB Investment Services, LLC, inactive. The Bank is chartered under the laws of the State of Ohio and was organized in 1879. The Bank is a member of the Federal Reserve System, with deposits insured by the Federal Deposit Insurance Corporation, and its primary regulators are the Ohio Division of Financial Institutions and the Federal Reserve Board.

The Company, through the Bank, provides retail and commercial banking services to its customers including checking and savings accounts, time deposits, cash management, safe deposit facilities, personal loans, commercial loans, real estate mortgage loans, installment loans, IRAs, night depository facilities and trust and brokerage services. Its customers are located primarily in Holmes, Tuscarawas, Wayne, Stark and portions of surrounding counties in Ohio.

The Company’s market area has historically exhibited relatively stable economic conditions; however, a pronounced slowdown in economic activity became evident in the latter half of 2008 and continued through mid 2010. Unemployment levels in Holmes County have generally been among the lowest in the State of Ohio, while the balance of the Company’s market area typically experiences unemployment levels similar to the state average. Unemployment in the Company’s market area peaked during 2010 and improved steadily thereafter, with average unemployment at December 2012 approaching historical norm. Residential real estate properties realized moderate reductions in value during the slowdown and most appraisals continue to be below their valuations at the height of the market.

FORWARD-LOOKING STATEMENTS

Certain statements contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations are not related to historical results, but are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks and uncertainties. Any forward-looking statements made by the Company herein and in future reports and statements are not guarantees of future performance, and actual results may differ materially from those in forward-looking statements because of various risk factors as discussed in this annual report and the Company’s annual report on Form 10-K. The Company does not undertake, and specifically disclaims, any obligation to publicly release the result of any revisions to any forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date of such statements.

8 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

LOGO

SELECTED FINANCIAL DATA

The following table sets forth certain selected consolidated financial information:


(Dollars in thousands)	2012			2011			2010			2009			2008
Statements of income:
Total interest income	$	20,584		$	20,018		$	20,390		$	22,105		$	20,621
Total interest expense		2,978			3,678			4,820			6,340			6,743

Net interest income		17,606			16,340			15,570			15,765			13,878
Provision for loan losses		823			950			1,235			1,337			333

Net interest income after provision for loan losses		16,783			15,390			14,335			14,428			13,545
Noninterest income		4,204			3,508			3,275			3,243			3,033
Noninterest expense		14,450			13,609			12,546			12,746			11,311

Income before income taxes		6,537			5,289			5,064			4,925			5,267
Income tax provision		1,990			1,602			1,568			1,534			1,730

Net income	$	4,547		$	3,687		$	3,496		$	3,391		$	3,537

Per share of common stock:
Basic income per share	$	1.66		$	1.35		$	1.28		$	1.24		$	1.43
Diluted income per share		1.66			1.35			1.28			1.24			1.43
Dividends		0.72			0.72			0.72			0.72			0.72
Book value		19.17			18.07			17.24			16.76			15.89
Average basic common shares outstanding		2,734,889			2,734,799			2,734,799			2,734,799			2,482,335
Average diluted common shares outstanding		2,735,141			2,734,838			2,734,799			2,734,799			2,482,335
Year-end balances:
Loans, net	$	360,000		$	320,100		$	311,616		$	309,423		$	312,897
Securities		134,754			128,489			80,667			80,621			81,888
Total assets		586,900			551,233			457,056			450,666			424,657
Deposits		475,443			443,553			353,491			329,486			305,453
Borrowings		56,664			56,234			54,927			73,774			73,889
Shareholders’ equity		52,453			49,429			47,154			45,822			43,468
Average balances:
Loans, net	$	338,441		$	314,670		$	309,121		$	313,726		$	260,132
Securities		132,567			93,851			77,967			75,597			70,680
Total assets		564,875			471,329			445,649			427,613			357,667
Deposits		453,526			367,865			334,073			304,902			257,478
Borrowings		57,735			52,717			62,951			75,734			60,472
Shareholders’ equity		51,384			48,674			47,081			45,184			38,308
Select ratios:
Net interest margin, tax equivalent basis		3.36	%		3.71	%		3.73	%		3.93	%		4.13	%
Return on average total assets		0.80			0.78			0.78			0.79			0.99
Return on average shareholders’ equity		8.85			7.57			7.43			7.51			9.23
Average shareholders’ equity as a percent of average total assets		9.10			10.33			10.56			10.57			10.71
Net loan charge-offs (recoveries) as a percent of average loans		0.09			0.28			0.40			0.21			(0.01	)
Allowance for loan losses as a percent of loans at year-end		1.26			1.26			1.28			1.29			1.07
Shareholders’ equity as a percent of total year-end assets		8.94			8.97			10.32			10.17			10.24
Dividend payout ratio		43.30			53.40			56.32			58.06			50.99

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 9

LOGO

RESULTS OF OPERATIONS

Net Income

CSB’s 2012 net income was $4.5 million while basic and diluted earnings per share were $1.66, as compared to $3.7 million or $1.35 per share for the year ended 2011. Net income increased 23.3% during 2012 as compared to 2011, due primarily to a $1.3 million increase in total net interest income and a $696 thousand increase in noninterest income. Partially offsetting the higher revenue were increases in noninterest expenses and federal income taxes. Return on average assets was 0.80% in 2012 compared to 0.78% in 2011, and return on average shareholders’ equity was 8.85% in 2012 as compared to 7.57% in 2011.

Net income for 2011 was $3.7 million, an increase of $191 thousand or 5.5% from 2010. Basic and diluted net income per share was $1.35 in 2011 as compared to $1.28 in 2010. Net income increased in 2011 primarily due to a $770 thousand increase in net interest income, a $233 thousand increase in other noninterest income and a decrease in provision for loan losses of $285 thousand. Partially offsetting the increase to net income was a $1.1 million increase in noninterest expenses. Return on average assets was 0.78% in 2011 and 2010, and return on average shareholders’ equity was 7.57% in 2011 as compared to 7.43% in 2010.

Net Interest Income


(Dollars in thousands)	2012			2011			2010
Net interest income	$	17,606		$	16,340		$	15,570
Taxable equivalent ⁽¹⁾		290			256			226

Net interest income, fully taxable equivalent	$	17,896		$	16,596		$	15,796

Net interest yield		3.31	%		3.65	%		3.68	%
Taxable equivalent adjustment ⁽¹⁾		0.05			0.06			0.05
Net interest yield-taxable equivalent		3.36	%		3.71	%		3.73	%

⁽¹⁾	Taxable equivalent adjustments have been computed assuming a 34% tax rate.

Net interest income is the largest source of the Company’s revenue and consists of the difference between interest income generated on earning assets and interest expense incurred on liabilities (deposits and short-term and long-term borrowings). Volumes, interest rates and composition of interest-earning assets and interest-bearing liabilities affect net interest income.

Interest income increased $566 thousand in 2012 as compared to 2011. The increase was primarily due to an increase in volume of $85 million in average earning assets. The interest rate yield on average assets declined 61 basis points during 2012.

Interest income decreased $372 thousand, or 1.8%, in 2011 as compared to 2010. This decrease was primarily due to the 34 basis point decrease on earning assets as interest rates remained at low levels in 2011.

Interest expense decreased $700 thousand, or 19.0%, for 2012 as compared to 2011, due to continued declines in average rates paid for interest bearing liabilities, from 1.05% in 2011 to 0.71% in 2012. Interest expense on deposits declined $541 thousand, even though average interest-bearing deposit balances increased by $65.1 million, or 21.9% in 2012 as compared to 2011. Interest expense on borrowed funds decreased by $159 thousand due to principal reductions and maturities of Federal Home Loan Bank (“FHLB”) advances, and lower interest rates remaining on outstanding borrowings.

Interest expense decreased $1.1 million, or 23.7% for 2011 as compared to 2010, due to a decline in the average rate paid for interest bearing liabilities from 1.42% in 2010 to 1.05% in 2011. Interest expense on deposits decreased $645 thousand, or 18.4% in 2011. The decrease in interest expense occurred even though the average balance of interest-bearing deposits and borrowed funds increased by $11.6 million or 3.4% in 2011 as compared to 2010. The increase in the average balances of interest-bearing deposits was partially from the Wooster branch acquisition in October 2011.

10 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

LOGO

The following table provides detailed analysis of changes in average balances, yield and net interest income:


	AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN ANALYSIS
	2012								2011								2010
(Dollars in thousands)	Average Balance ¹			Interest		Average Rate ²			Average Balance ¹			Interest		Average Rate ²			Average Balance ¹			Interest		Average Rate ²
Interest-earning assets
Federal funds sold	$	148		$	0		0.12	%	$	92		$	0		0.04	%	$	215		$	0		0.13	%
Interest-earning deposits		56,422			147		0.26	%		34,205			82		0.24	%		31,265			77		0.25	%
Securities:
Taxable		118,867			2,672		2.25	%		81,341			2,538		3.12	%		67,413			2,648		3.93	%
Tax exempt		13,700			486		3.55	%		12,510			421		3.37	%		10,554			354		3.36	%
Loans ³		342,868			17,279		5.05	%		318,781			16,977		5.33	%		313,549			17,311		5.52	%

Total interest-earning assets		532,005			20,584		3.87	%		446,929			20,018		4.48	%		422,996			20,390		4.82	%
Noninterest-earning assets
Cash and due from banks		12,399								11,094								9,535
Bank premises and equipment, net		8,630								8,040								8,301
Other assets		16,268								9,377								9,245
Allowance for loan losses		(4,427	)							(4,111	)							(4,428	)

Total assets	$	564,875							$	471,329							$	445,649

Interest-bearing liabilities
Demand deposits	$	63,346			50		0.08	%	$	53,896			44		0.08	%	$	51,990			42		0.08	%
Savings deposits		135,035			230		0.17	%		91,232			228		0.25	%		73,694			247		0.34	%
Time deposits		163,997			2,043		1.25	%		152,194			2,592		1.70	%		149,788			3,220		2.15	%
Borrowed funds		57,735			655		1.13	%		52,717			814		1.54	%		62,951			1,311		2.08	%

Total interest-bearing liabilities		420,113			2,978		0.71	%		350,039			3,678		1.05	%		338,423			4,820		1.42	%

Noninterest-bearing liabilities and shareholders’ equity
Demand deposits		91,148								70,543								58,601
Other liabilities		2,230								2,073								1,544
Shareholders’ equity		51,384								48,674								47,081

Total liabilities and equity	$	564,875							$	471,329							$	445,649

Net interest income				$	17,606							$	16,340							$	15,570

Net interest margin							3.31	%							3.65	%							3.68	%
Net interest spread							3.16	%							3.43	%							3.40	%

(1)	Average balances have been computed on an average daily basis.

(2)	Average rates have been computed based on the amortized cost of the corresponding asset or liability.

(3)	Average loan balances include nonaccrual loans.

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 11

LOGO

The following table compares the impact of changes in average rates and changes in average volumes on net interest income:


	RATE/VOLUME ANALYSIS OF CHANGES IN INCOME AND EXPENSE1
	2012 v. 2011								2011 v. 2010
(Dollars in thousands)	Net Increase (Decrease)			Volume		Rate			Net Increase (Decrease)			Volume			Rate
Increase (decrease) in interest income:
Interest-earning deposits	$	65		$	58	$	7		$	5		$	7		$	(2	)
Securities:
Taxable		134			845		(711	)		(110	)		434			(544	)
Tax exempt		65			42		23			67			66			1
Loans		302			1,216		(914	)		(334	)		279			(613	)

Total interest income change		566			2,161		(1,595	)		(372	)		786			(1,158	)

Increase (decrease) in interest expense:
Demand deposits		6			8		(2	)		2			2			0
Savings deposits		2			75		(73	)		(19	)		44			(63	)
Time deposits		(549	)		147		(696	)		(628	)		41			(669	)
Other borrowed funds		(159	)		57		(216	)		(497	)		(158	)		(339	)

Total interest expense change		(700	)		287		(987	)		(1,142	)		(71	)		(1,071	)

Net interest income	$	1,266		$	1,874	$	(608	)	$	770		$	857		$	(87	)

⁽¹⁾	Changes attributable to both volume and rate, which cannot be segregated, have been allocated based on the absolute value of the change due to volume and the change due to rate.

Provision For Loan Losses

The provision for loan losses is determined by management as the amount required to bring the allowance for loan losses to a level considered appropriate to absorb probable future net charge-offs inherent in the loan portfolio as of period end. The provision for loan losses was $823 thousand for 2012, $950 thousand for 2011 and $1.2 million for 2010. Lower provision expense in 2012 and 2011 reflects improving economic conditions which have led to a decrease in charge-offs and nonperforming loans. See “Financial Condition – Allowance for Loan Losses” below for additional discussion and information relative to the provision for loan losses.

Noninterest Income


	Year Ended December 31
	Change from 2011										Change from 2010
(Dollars in thousands)	2012		Amount			%			2011		Amount			%			2010
Service charges on deposit accounts	$	1,305	$	171			15.1	%	$	1,134	$	8			0.7	%	$	1,126
Trust services		671		(6	)		(0.9	)		677		22			3.4			655
Debit card interchange fees		797		166			26.3			631		124			24.5			507
Securities gain (loss)		—		(237	)		(100.0	)		237		89			60.1			148
Gain on sale of loans, including MSR’s		591		372			169.9			219		(23	)		(9.5	)		242
Other		840		230			37.7			610		13			2.2			597

Total noninterest income	$	4,204	$	696			19.8	%	$	3,508	$	233			7.1	%	$	3,275

12 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

LOGO

Noninterest income increased $696 thousand, or 19.8% for 2012 as compared to 2011. Service charges on deposits increased $171 thousand and debit card interchange fees increased $166 thousand in 2012 as compared to 2011, reflecting the increase in accounts following the fourth quarter 2011 Wooster branch acquisition. Trust services income decreased in 2012 as brokerage fees declined $36 thousand, or 20%, and trust revenue increased $30 thousand, or 6%. The average market value of trust assets under management during 2012 and 2011 was $75.7 million and $68.4 million, respectively. Gain on sale of loans increased in 2012 from 2011 due to volume increases in 1-4 family residential mortgages sold into the secondary market, reflecting a consumer refinancing wave due to historically low mortgage rates. There were no securities sold in 2012. Other income increased $230 thousand in 2012 over 2011 primarily from increases in cash surrender value of bank-owned life insurance of $124 thousand following an additional $5 million purchase of bank-owned life insurance during first quarter 2012, an increase of $28 thousand in all other credit card fee income and an increase of $10 thousand in noncustomer ATM usage in 2012 over 2011.

Noninterest income increased $233 thousand for 2011 as compared to 2010. The annual increase was due to a $124 thousand increase in debit card interchange fees as customers move towards electronic transactions and away from checks and other forms of payment. The Company anticipates some market-related long-term impact on its electronic banking fees in the future from caps on debit card interchange fees even though CSB is not directly subject to the new regulations. CSB recognized an $89 thousand increase in net securities gains as mortgage-backed securities were sold when prepayments increased on high coupon mortgages. Gains on sale of mortgage loans decreased as the volume of loans refinancing in 2011 was lower than 2010. Trust fees improved 3.4% for the year due to higher average trust assets.

Noninterest Expenses


	Year Ended December 31
	Change from 2011											Change from 2010
(Dollars in thousands)	2012		Amount			%			2011			Amount			%			2010
Salaries and employee benefits	$	7,960	$	501			6.7	%	$	7,459		$	579			8.4	%	$	6,880
Occupancy expense		1,025		135			15.2			890			82			10.1			808
Equipment expense		618		94			17.9			524			27			5.4			497
Professional and director fees		814		101			14.2			713			82			13.0			631
Franchise tax expense		542		(8	)		(1.5	)		550			14			2.6			536
Marketing and public relations		392		72			22.5			320			(2	)		(0.6	)		322
Software expense		391		18			4.8			373			3			0.8			370
Debit card expense		304		51			20.2			253			21			9.1			232
Amortization of intangible assets		140		62			79.5			78			15			23.8			63
FDIC insurance		328		(24	)		(6.8	)		352			(134	)		(27.6	)		486
Branch acquisition expense		8		(329	)		(97.6	)		337			337			N.M.			—
Net cost of operation of other real estate		33		58			N.M.			(25	)		(54	)		N.M.			29
Other		1,895		110			6.2			1,785			93			5.5			1,692

Total noninterest expenses	$	14,450	$	841			6.2	%	$	13,609		$	1,063			8.5	%	$	12,546

N.M., not a meaningful value

Noninterest expense increased $841 thousand, or 6.2% in 2012 as compared to 2011. Salaries and wages increased $449 thousand due to a full year increase in personnel costs of the acquired branches and annual adjustments to compensation with employee benefits expense increasing $52 thousand from increased health insurance and retirement benefit costs. Occupancy expense increased $135 thousand and equipment expense increased $94 thousand as both expenses reflected the increase in the number of branches for a full year in 2012 as compared to 2011. Professional and director fees increased $101 thousand reflecting employment search fees for the Chief Operating Officer and commercial lending positions as well as fees spent to review the Company’s computer operating system. FDIC deposit insurance expense decreased $24 thousand in 2012 as compared to 2011 due to a prior year change in the calculation which resulted in a decreased rate for a full year in 2012 as compared to a partial year in 2011. Other expenses increased $110 thousand primarily due to the cost of running a larger institution.

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 13

LOGO

Noninterest expense increased $1.1 million, or 8.5% in 2011 as compared to 2010. In 2011, salaries and employee benefits increased $579 thousand, or 8.4% for the period, a result of the increase in the number of full-time equivalent (“FTE”) employees to 154 at December 31, 2011, as compared to 140 FTE count at December 31, 2010. The increase in staff occurred with the acquisition of the two Wooster branches, additional payroll costs incurred with the related conversion and an increase in support staff necessary to run a larger company. Branch acquisition costs of $337 thousand recognized in 2011 included system conversion and operations integration charges that were expensed as incurred. FDIC insurance decreased by $134 thousand, due to a new calculation of FDIC insurance expense, effective April 1, 2011. Professional and directors fees increased $82 thousand, or 13.0%, which included employment search fees, telecommunication and data processing consulting. Occupancy expense increased $82 thousand, or 10.1% in 2011 as compared to 2010, of which $49 thousand was attributable to the new branch offices.

Income Taxes

The provision for income taxes amounted to $2.0 million in 2012 and $1.6 million in 2011 and 2010, an effective rate of 30.4% in 2012 compared to 30.3% in 2011 and 31.0% in 2010. The increase in the effective tax rate during 2012 as compared to 2011 is due primarily to a higher total income.

FINANCIAL CONDITION

Total assets of the Company were $586.9 million at December 31, 2012, compared to $551.2 million at December 31, 2011, representing an increase of $35.7 million, or 6.5%. Net loans increased $39.9, million or 12.5%, while investment securities increased $6.3 million, or 4.9% and interest-earning deposits with other banks decreased $24.3 million. Deposits increased $31.9 million, or 7.2%, while other borrowings from the FHLB decreased by $6.5 million, or 33.9%.

Securities

Total investment securities increased $6.3 million, or 4.9% to $134.8 million at year-end 2012. CSB’s portfolio is primarily comprised of agency mortgage-backed securities, other government agencies’ and corporations’ debt, and obligations of state and political subdivisions. Restricted securities consist primarily of FHLB stock. During 2012, increases occurred in government agency and corporation debt, asset-backed securities in government sponsored agencies, state and political subdivision securities and corporate bonds.

The Company has no exposure to government-sponsored enterprise preferred stocks, collateralized debt obligations or trust preferred securities. The Company’s municipal bond portfolio consists of both taxable and tax-exempt general obligation and revenue bonds. As of December 31, 2012, $10.8 million, or 64%, held an S&P or Moody’s investment grade rating and $6.1 million or 36% were non-rated. The municipal portfolio includes a broad spectrum of counties, towns, universities and school districts in Ohio. Total gross unrealized security losses within the portfolio were 0.1% of total available-for-sale securities at December 31, 2012, reflecting interest rate fluctuations, not credit downgrades.

One of the primary functions of the securities portfolio is to provide a source of liquidity and it is structured such that maturities and cash flows satisfy the Company’s liquidity needs and asset/liability management requirements.

Loans

Total loans increased $40.4 million, or 12.5% during 2012. Volume increases were recognized in commercial loans of $27.9 million, or 14.2%, residential real estate loans of $6.9 million, or 6.7% and construction loans of $5.3 million, or 29.3%. The addition of two seasoned commercial lenders in the Company’s newly expanded markets, low interest rates and customers in the Company’s business footprint expanding their businesses in 2012 led to the increases in construction and commercial loans.

As investment spreads tightened in the mortgage-backed securities market, the Company developed marketing campaigns for fifteen year, lower fee, fixed-rate, owner occupied loans which drove the $6.9 million increase in residential real estate loans. Attractive interest rates in the secondary market drove consumer demand for longer-term 1-4 family fixed rate residential mortgages during 2012 as the Company sold $20 million of originated mortgages into the secondary market. This demand for low fixed-rate mortgages included refinancing of the Company’s in-house mortgage portfolio. Demand for home equity loans continued in 2012, with balances increasing $4.2 million. Installment lending improved slightly with consumer loans increasing 4.2% on a year over year basis to $6.5 million at December 31, 2012.

14 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

LOGO

Management anticipates the Company’s local service areas will exhibit modest economic growth following an expansion period in 2012. Commercial and commercial real estate loans comprise approximately 61% of the total loan portfolio at year-end 2012 and 2011. Residential real estate decreased from 32% to approximately 30% between December 31, 2011 and December 31, 2012. Construction and land development loans increased from 5.6% to 6.4% of the total portfolio between 2011 and 2012. The Company is well within the respective regulatory guidelines for investment in construction development and investment property loans that are not owner occupied.

Most of the Company’s lending activity is with customers primarily located within Holmes, Tuscarawas, Wayne and Stark Counties in Ohio. Credit concentrations, including commitments, as determined using North American Industry Classification Codes (NAICS), to the four largest industries compared to total loans at December 31, 2012 included $25.1 million, or 6.9% of total loans to lessors of non-residential buildings or dwellings; $18.7 million, or 5.1% of total loans to lessors of residential real estate; $15.5 million, or 4.3% of total loans to borrowers in the hotel, motel and lodging business and $14.0 million, or 3.9% of total loans to logging, sawmills and timber tract operations. These loans are generally secured by real property and equipment, and repayment is expected from operational cash flow. Credit evaluation is based on an evaluation of cash flow coverage of principal and interest payments and the adequacy of the collateral received.

Nonperforming Assets, Impaired Loans and Loans Past Due 90 Days or More

Non-performing assets consist of non-accrual loans, loans past due 90 days and still accruing and other real estate acquired through or in lieu of foreclosure. Other impaired loans include certain loans that are internally classified as substandard or doubtful. Loans are placed on non-accrual status when they become past due 90 days or more, or when mortgage loans are past due as to principal and interest 120 days or more, unless they are both well secured and in the process of collection.


Non-Performing Assets	31-Dec
(Dollars in thousands)	2012			2011
Nonaccrual loans:
Commercial	$	483		$	13
Commercial real estate		1,745			1,526
Residential real estate		805			1,193
Construction & land development		173			176
Loans past due 90 days and still accruing:
Commercial		—			150
Commercial real estate		—			141
Residential real estate		131			282
Construction & land development		—			8

Total non-performing loans		3,337			3,489
Other real estate owned		25			10

Total non-performing assets	$	3,362		$	3,499

Non-performing assets as a percentage of loans plus other real estate		0.92	%		1.08	%

Allowance for Loan Losses

The allowance for loan losses is maintained at a level considered adequate to cover loan losses that are currently anticipated based on past loss experience, general economic conditions, changes in mix and size of the loan portfolio, information about specific borrower situations and other factors and estimates which are subject to change over time. Management periodically reviews selected large loans, delinquent and other problem loans and selected other loans. Collectability of these loans is evaluated by considering the current financial position and performance of the borrower, estimated market value of the collateral, the Company’s collateral position in relationship to other creditors, guarantees and other potential sources of repayment. Management forms judgments, which are in part subjective, as to the probability of loss and the amount of loss on these loans as well as other loans taken together. The Company’s Allowance for Loan Losses Policy includes, among other items, provisions for classified loans and a provision for the remainder of the portfolio based on historical data, including past charge-offs.

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 15

LOGO


Allowance For Loan Losses	For the Year Ended
(Dollars in thousands)	2012			2011
Beginning balance of allowance for loan losses	$	4,082		$	4,031
Provision for loan losses		823			950
Charge-offs:
Commercial		29			487
Commercial real estate		283			68
Residential real estate & home equity		106			297
Construction & land development		—			41
Consumer		39			86
Deposit accounts		50			35
Credit cards		—			—

Total charge-offs		507			1,014
Recoveries:
Commercial		16			38
Commercial real estate		—			—
Residential real estate & home equity		102			19
Construction & land development		—			—
Consumer		44			46
Deposit accounts		20			11
Credit cards		—			1

Total recoveries		182			115

Net charge-offs		325			899

Ending balance of allowance for loan losses	$	4,580		$	4,082

Net charge-offs as a percentage of average total loans		0.09	%		0.28	%
Allowance for loan losses as a percentage of total loans		1.26			1.26
Allowance for loan losses to total non-performing loans		1.37	x		1.17	x
Components of the allowance for loan losses:
General reserves	$	3,801		$	3,560
Specific reserve allocations		779			522

Total allowance for loan losses	$	4,580		$	4,082

The allowance for loan losses totaled $4.6 million, or 1.26%, of total loans at year-end 2012 as compared to $4.1 million, or 1.26% of total loans at year-end 2011. Net charge-offs for 2012 totaled $325 thousand as compared to net charge-offs of $899 thousand in 2011.

The Company maintains an internal watch list on which it places loans where management’s analysis of the borrower’s operating results and financial condition indicates that the borrower’s cash flows are inadequate to meet its debt service requirements and loans where there exists an increased risk that such a shortfall may occur. Nonperforming loans, which consist of loans past due 90 days or more and nonaccrual loans aggregated $3.3 million, or 0.9% of loans at year-end 2012 as compared to $3.5 million, or 1.1% of loans at year-end 2011. Impaired loans were $10.2 million at year-end 2012 as compared to $7.3 million at year-end 2011. The decrease in nonperforming loans reflects an improvement in the economy of the Company’s market area with decreasing unemployment levels and economic stabilization since 2011. Management has assigned loss allocations to absorb the estimated losses on these impaired loans, and these allocations are included in the total allowance for loan losses balance.

16 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

LOGO

Other Assets

Net premises and equipment decreased $38 thousand to $8.5 million at year-end 2012 primarily as depreciation exceeded the purchase of equipment and furniture in 2012. Other real estate owned at December 31, 2011 was $25 thousand as compared to $10 thousand owned at December 31, 2011. Bank-owned life insurance of $5 million was purchased on the lives of senior management during first quarter 2012. At December 31, 2012 the Company recognized a net deferred tax liability of $476 thousand as compared to a net deferred tax liability of $202 thousand at December 31, 2011. The change in the Company’s net deferred tax position resulted primarily from the increase in the net deferred liability related to the unrealized gain on securities available for sale and the usage of the net operating loss carry forward resulting from the acquisition of Indian Village Bancorp in 2008.

Deposits

The Company’s deposits are obtained primarily from individuals and businesses located in its market area. For deposits, the Company must compete with products offered by other financial institutions as well as alternative investment options. Demand and savings deposits increased for the year ended 2012, due to focused retail and business banking strategies to obtain more account relationships as well as customers reflecting their preference for shorter maturities.


	December 31				Change from 2011
(Dollars in thousands)	2012		2011		Amount			%
Noninterest-bearing demand	$	104,147	$	85,890	$	18,257			21.3	%
Interest-bearing demand		74,429		61,830		12,599			20.4
Traditional savings		67,957		57,517		10,440			18.2
Money market savings		70,837		65,787		5,050			7.7
Time deposits in excess of $100,000		54,163		60,090		(5,927	)		(9.9	)
Other time deposits		103,910		112,439		(8,529	)		(7.6	)

Total deposits	$	475,443	$	443,553	$	31,890			7.2	%

Other Funding Sources

The Company obtains additional funds through securities sold under repurchase agreements, overnight borrowings from the FHLB or other financial institutions and advances from the FHLB. Short-term borrowings, which consist of securities sold under repurchase agreements, increased $6.9 million, while other borrowings which consist of FHLB advances decreased $6.5 million due to maturities and required principal repayments during 2012.

CAPITAL RESOURCES

Total shareholders’ equity increased to $52.5 million at December 31, 2012 as compared to $49.4 million at December 31, 2011. This increase was primarily due to $4.5 million of net income in 2012, which was partially offset by the payment of cash dividends of $2.0 million. The Board of Directors announced a Stock Repurchase Program on July 7, 2005 that would allow the repurchase of up to 10% of the Company’s then-outstanding common shares. Repurchased shares are to be held as treasury stock and would be available for general corporate purposes. At December 31, 2012, approximately forty-one thousand shares could still be repurchased under the current authorized program. No shares were repurchased in 2012 or 2011.

Banking regulations have established minimum capital ratios for banks and bank holding companies. Therefore, the Company and the Bank must meet a risk-based capital requirement, which defines two tiers of capital and compares each to the Company’s “risk-weighted assets.” The Company’s assets and certain off-balance-sheet items, such as loan commitments, are each assigned a risk factor such that assets with potentially higher credit risk will require more capital support than assets with lower risk. These regulations require the Company to have a minimum total risk-based capital ratio of 8%, at least half of which must be Tier 1 capital. The Company’s Tier 1 capital is its shareholders’ equity before any unrealized gain or loss on securities available for sale, while total risk-based capital includes Tier 1 capital and a limited amount of the allowance for loan losses. In addition, a bank or bank holding company’s leverage ratio (which for the Company equals its shareholders’ equity before any unrealized gain or loss on securities available-for-sale, divided by average assets) must be maintained at a minimum of 4%. The Company and Bank’s actual and required capital amounts are disclosed in Note 12 to the consolidated financial statements.

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 17

LOGO

Dividends paid by the Bank to CSB are the primary source of funds available to the Company for payment of dividends to shareholders and for other working capital needs. The payment of dividends by the Bank to the Company is subject to restrictions by regulatory authorities, which generally limit dividends to current year net income and the prior two years net retained earnings, as defined by regulation. In addition, dividend payments generally cannot reduce regulatory capital levels below the minimum regulatory guidelines discussed above.

LIQUIDITY


	December 31						Change
(Dollars in millions)	2012			2011			from 2011
Cash and cash equivalents	$	67		$	82		$	(15	)
Unused lines of credit		41			31			10
Unpledged securities at fair market value		59			61			(2	)

	$	167		$	174		$	(7	)

Net deposits and short-term liabilities	$	444		$	420		$	24

Liquidity ratio		37.6	%		41.5	%
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. The Company’s liquidity ratio remained high in 2012 following the receipt of $61 million in cash through the Wooster branch acquisition in fourth quarter 2011. Liquidity is monitored by CSB’s Asset Liability Committee. The Company was within all Board-approved limits at December 31, 2012 and 2011. Additional sources of liquidity include net income, loan repayments, and adjustments of interest rates to attract deposit accounts.

As summarized in the consolidated statements of cash flows, the most significant investing activities for the Company in 2012 included net loan originations of $41 million and the maturities and calls of securities totaling $76 million, offset by $82 million in securities purchases and the $5 million purchase of bank-owned life insurance. The Company’s financing activities included a $32 million increase in deposits, a $7 million increase in securities sold under agreements to repurchase and a $6 million net repayment of FHLB advances.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The most significant market risk to which the Company is exposed is interest rate risk. The business of the Company and the composition of its balance sheet consist of investments in interest-earning assets (primarily loans and securities), which are funded by interest-bearing liabilities (deposits and borrowings). These financial instruments have varying levels of sensitivity to changes in the market rates of interest, resulting in market risk. None of the Company’s financial instruments are held for trading purposes.

The Board of Directors establishes policies and operating limits with respect to interest rate risk. The Company manages interest rate risk regularly through its Asset Liability Committee. The Committee meets on a monthly basis and reviews various asset and liability management information including, but not limited to, the Company’s liquidity position, projected sources and uses of funds, interest rate risk position and economic conditions.

Interest rate risk is monitored primarily through the use of an earnings simulation model. The model is highly dependent on various assumptions, which change regularly as the balance sheet and market interest rates change. The earnings simulation model projects changes in net interest income resulting from the effect of changes in interest rates. The analysis is performed quarterly 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. This analysis is performed by estimating the expected cash flows of the Company’s financial instruments using interest rates in effect at year-end 2012 and 2011. Interest rate risk policy limits are tested by measuring the anticipated change in net interest income over a two year period. The tests assume a quarterly ramped 100, 200, 300 and 400 basis point increase and a 100 basis point decrease in 2012 in market interest rates as compared to a stable rate environment or base model. The following table reflects the change to interest income for the first twelve month period of the twenty-four month horizon.

18 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

LOGO

Net Interest Income at Risk


	December 31, 2012
Change in Interest Rates (basis points)	Net Interest Income		Dollar Change			Percentage Change			Board Policy Limits
	(Dollars in thousands)
+400	$	19,420	$	1,762			10.0	%		+/-25	%
+300		18,982		1,324			7.5			+/-15
+200		18,507		849			4.8			+/-10
+100		18,053		395			2.2			+/-5
0		17,658		—			—
-100		17,483		(175	)		(1.0	)		+/-5

	December 31, 2011
+400	$	17,500	$	818			4.9	%		+/-25	%
+300		17,241		559			3.4			+/-15
+200		17,028		346			2.1			+/-10
+100		16,857		175			1.0			+/-5
0		16,682		—			—

Management reviews Net Interest Income at Risk with the Board on a periodic basis. The Company was within all Board-approved limits at December 31, 2012 and 2011.

Economic Value of Equity at Risk


	December 31, 2012
Change in Interest Rates (basis points)	Percentage Change			Board Policy Limits
+400		19.0	%		+/-35	%
+300		17.4			+/-30
+200		14.8			+/-20
+100		9.5			+/-15

	December 31, 2011
+400		-10.9	%		+/-35	%
+300		-4.6			+/-30
+200		-0.7			+/-20
+100		1.9			+/-15

The economic value of equity (EVE) is calculated by subjecting the period-end balance sheet to changes in interest rates and measuring the impact of the changes on the values of the assets and liabilities. Hypothetical changes in interest rates are then applied to the financial instruments, and the cash flows and fair values are again estimated using these hypothetical rates. For the net interest income estimates, the hypothetical rates are applied to the financial instruments based on the assumed cash flows.

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 19

LOGO

Management periodically measures and reviews the Economic Value of Equity at Risk with the Board. At December 31, 2012, the market value of equity as a percent of base in a 400 basis point rising rate environment indicates an increase of 19.0%, as compared to a decrease of 10.9% as of December 31, 2011. This positive change resulted from the Company using bank specific life data on nonmaturity deposits in 2012 as compared to the 2011 year-end Economic Value of Equity at Risk model using published Office of Thrift Supervision nonmaturity deposit life data. The Company’s specific nonmaturity deposit lives ran 4-10x the life of the OTS published report. The Company capped the deposit lives at 25-50% of their actual historical lives to analyze the Economic Value at Risk in 2012. The Company was within all Board-approved limits at December 31, 2012 and 2011.

SIGNIFICANT ASSUMPTIONS AND OTHER CONSIDERATIONS

The above analysis is based on numerous assumptions, including relative levels of market interest rates, loan prepayments and reactions of depositors to changes in interest rates, and should not be relied upon as being indicative of actual results. Further, the analysis does not necessarily contemplate all actions the Company may undertake in response to changes in interest rates.

U.S. Treasury securities, obligations of U.S. Government corporations and agencies and obligations of states and political subdivisions will generally repay at their stated maturity, or if callable prior to their final maturity date. Mortgage backed security payments increase when interest rates are low and decrease when interest rates rise. Many of the Company’s loans permit the borrower to prepay the principal balance prior to maturity without penalty. The likelihood of prepayment depends on a number of factors, including current interest rate and interest rate index (if any) on the loan, the financial ability of the borrower to refinance, the economic benefit to be obtained from refinancing, availability of refinancing at attractive terms, as well as economic and other factors in specific geographic areas which affect the sales and price levels of residential and commercial property. In a changing interest rate environment, prepayments may increase or decrease on fixed and adjustable rate loans depending on the current relative levels and expectations of future short-term and long-term interest rates. Prepayments on adjustable rate loans generally increase when long-term interest rates fall or are at historically low levels relative to short-term interest rates, thus making fixed rate loans more desirable. While savings and checking deposits generally may be withdrawn upon the customer’s request without prior notice, a continuing relationship with customers resulting in future deposits and withdrawals is generally predictable, resulting in a dependable and uninterrupted source of funds. Time deposits generally have early withdrawal penalties, which discourage customer withdrawal prior to maturity. Short-term borrowings have fixed maturities. Certain advances from the FHLB carry prepayment penalties and are expected to be repaid in accordance with their contractual terms.

FAIR VALUE MEASUREMENTS

The Company discloses the estimated fair value of its financial instruments at December 31, 2012 and 2011 in Note 15 to the consolidated financial statements.

OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS, AND CONTINGENT LIABILITIES AND COMMITMENTS

The following table summarizes the Company’s loan commitments, including letters of credit, as of December 31, 2012:


	Amount of Commitment to Expire Per Period
(Dollars in thousands) Type of Commitment	Total Amount		Less than 1 year		1 to 3 Years		3 to 5 Years		Over 5 Years
Commercial lines-of-credit	$	52,367	$	50,079	$	756	$	1,000	$	532
Real estate lines-of-credit		33,691		1,927		5,717		4,969		21,078
Consumer lines-of-credit		932		932		—		—		—
Credit cards lines-of-credit		3,330		3,330		—		—		—
Overdraft privilege		6,629		6,629		—		—		—
Commercial real estate loan commitments		8,880		130		4,500		2,200		2,050
Letters of credt		1,539		1,539		—		—		—

Total commitments	$	107,368	$	64,566	$	10,973	$	8,169	$	23,660

20 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

LOGO

As indicated in Note 10 to the consolidated financial statements, the Company had $107.4 million in total loan commitments at the end of 2012, with $65 million of that amount expiring within one year. All lines-of-credit represent either fee-paid or legally binding loan commitments for the loan categories noted. Letters of credit are also included in the amounts noted in the table since the Company requires that each letter of credit be supported by a loan agreement. The commercial and consumer lines represent both unsecured and secured obligations. The real estate lines are secured by mortgages on residential and nonresidential property. It is anticipated that a significant portion of these lines will expire without being drawn upon.

The following table summarizes the Company’s other contractual obligations, exclusive of interest, as of December 31, 2012:


	Payment Due by period
(Dollars in thousands) Contractual Obligations	Total Amount		Less than 1 year		1 to 3 Years		3 to 5 Years		Over 5 Years
Total time deposits	$	158,073	$	97,619	$	41,775	$	18,679	$	—
Short-term borrowings		43,992		43,992		—		—		—
Other borrowings		12,672		215		2,359		10,098		—
Operating leases		1,096		299		593		204		—

Total obligations	$	215,833	$	142,125	$	44,727	$	28,981	$	—

The other borrowings noted in the preceding table represent borrowings from the FHLB of Cincinnati. The notes require payment of interest on a monthly basis with principal due in monthly installments or at maturity, depending upon the issue. The obligations bear stated fixed interest rates and stipulate a prepayment penalty if the note’s interest rate exceeds the current market rate for similar borrowings at the time of repayment. As the notes mature, the Company evaluates the liquidity and interest rate circumstances, at that time to determine, whether to pay off or renew the note. The evaluation process typically includes the strength of current and projected customer loan demand, the Company’s federal funds sold or purchased position, projected cash flows from maturing investment securities, the current and projected market interest rate environment, local and national economic conditions and customer demand for the Company’s deposit product offerings.

CRITICAL ACCOUNTING POLICIES

The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles and follow general practices within the commercial banking industry. Application of these principles requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements. These estimates, assumptions, and judgments are based upon the information available as of the date of the financial statements.

The most significant accounting policies followed by the Company are presented in the Summary of Significant Accounting Policies. These policies, along with the other disclosures presented in the Notes to Consolidated Financial Statements and the 2012 Financial Review, provide information about how significant assets and liabilities are valued in the financial statements and how those values are determined. Management has identified the determination of other-than-temporary impairment on investment securities and the allowance for loan losses as the accounting areas that require the most subjective and complex estimates, assumptions and judgments and, as such, could be the most subject to revision as new information becomes available.

Securities are evaluated periodically to determine whether a decline in their value is other-than-temporary. Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine whether the loss in value is other-than-temporary. The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospect for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

As previously noted in the section entitled Allowance for Loan Losses, management performs analysis to assess the adequacy of its allowance for loan losses. This analysis encompasses a variety of factors including the potential loss exposure for individually reviewed loans, the historical loss experience, the volume of non-performing loans (i.e., loans in nonaccrual status or past due 90 days or more), the volume of loans past due, any significant changes in lending or loan review staff, an evaluation of current and future local and national economic conditions, any significant changes in the volume or mix of loans within each category, a review of the significant concentrations of credit and any legal, competitive or regulatory concerns.

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 21

LOGO

CSB accounts for business combinations using the acquisition method of accounting. Goodwill and intangible assets with indefinite useful lives are not amortized. Intangible assets with finite useful lives, consisting of core deposit intangibles, are amortized using accelerated methods over their estimated weighted-average useful lives, approximating ten years. Additional information is presented in Note 5, Core Deposit Intangible Asset.

IMPACT OF INFLATION AND CHANGING PRICES

The consolidated financial statements and related data presented herein have been prepared in accordance with U.S. generally accepted accounting principles, requiring measurement of financial position and results of operations primarily in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, most assets and liabilities of the Company are monetary in nature. Therefore, interest rates have a more significant impact on the Company’s performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as prices of goods and services. The liquidity, maturity structure and quality of the Company’s assets and liabilities are critical to maintenance of acceptable performance levels.

COMMON STOCK AND SHAREHOLDER INFORMATION

Common shares of the Company are not traded on an established market. Shares are traded on the over-the-counter-bulletin-board through broker/dealers under the symbol “CSBB” and through private transactions. The table below represents the range of high and low prices paid for transactions known to the Company. Management does not have knowledge of prices paid on all transactions. Because of the lack of an established market, these prices may not reflect the prices at which stock would trade in an active market. These quotations reflect interdealer prices, without mark-up, markdown or commission and may not represent actual transactions. The table specifies cash dividends declared by the Company to its shareholders during 2012 and 2011. No assurances can be given that future dividends will be declared, or if declared, what the amount of any such dividends will be. Additional information concerning restrictions over the payment of dividends is included in Note 12 of the consolidated financial statements.


Quarter Ended	High		Low		Dividends Declared
March 31, 2012	$	20.00	$	16.00	$	492,264
June 30, 2012		20.50		17.50		492,264
September 30, 2012		20.49		17.75		492,264
December 31, 2012		18.65		16.84		492,374
March 31, 2011	$	15.67	$	14.50	$	492,264
June 30, 2011		16.00		14.57		492,264
September 30, 2011		15.99		14.34		492,264
December 31, 2011		17.07		14.77		492,264

As of December 31, 2012, the Company had 1,329 known shareholders of record and 2,736,060 outstanding shares of common stock.

22 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

REPORT ON MANAGEMENT’S ASSESSMENT OF

INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of CSB Bancorp, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Management has designed our internal control over financial reporting to provide reasonable assurance that our published financial statements are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles.

Management is required by paragraph (c) of Rule 13a-15 of the Securities Exchange Act of 1934, as amended, to assess the effectiveness of our internal control over financial reporting as of each year-end. In making this assessment, management used the Internal Control-Integrated Framework issued in July 1994 by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Management conducted the required assessment of the effectiveness of our internal control over financial reporting as of December 31, 2012. Based upon this assessment, management believes that our internal control over financial reporting is effective as of December 31, 2012.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.



Eddie L Steiner		Paula J. Meiler
President, Chief Executive Officer		Senior Vice President, Chief Financial Officer

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 23

INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM REPORT

LOGO

Board of Directors and Shareholders

CSB Bancorp, Inc.

We have audited the accompanying consolidated balance sheets of CSB Bancorp, Inc. and subsidiaries (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CSB Bancorp, Inc. and subsidiaries as of December 31, 2012 and 2011, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

LOGO

Wexford, Pennsylvania

March 7, 2013

24 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

CSB BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2012 and 2011


(Dollars in thousands)	2012			2011
ASSETS
Cash and cash equivalents
Cash and due from banks	$	21,485		$	12,519
Interest-earning deposits in other banks		45,393			69,739

Total cash and cash equivalents		66,878			82,258

Securities
Available-for-sale, at fair value		129,291			123,026
Restricted stock, at cost		5,463			5,463

Total securities		134,754			128,489

Loans		364,580			324,182
Less allowance for loan losses		4,580			4,082

Net loans		360,000			320,100

Premises and equipment, net		8,475			8,513
Core deposit intangible		894			1,034
Goodwill		4,728			4,728
Bank-owned life insurance		8,298			3,068
Accrued interest receivable and other assets		2,873			3,043

TOTAL ASSETS	$	586,900		$	551,233

LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Deposits
Noninterest-bearing	$	104,147		$	85,890
Interest-bearing		371,296			357,663

Total deposits		475,443			443,553

Short-term borrowings		43,992			37,073
Other borrowings		12,672			19,161
Accrued interest payable and other liabilities		2,340			2,017

Total liabilities		534,447			501,804

SHAREHOLDERS’ EQUITY
Common stock, $6.25 par value. Authorized 9,000,000 shares; issued 2,980,602 shares; outstanding 2,736,060 shares in 2012 and 2,734,799 in 2011		18,629			18,629
Additional paid-in capital		9,974			9,994
Retained earnings		26,962			24,391
Treasury stock at cost—244,542 shares in 2012 and 245,803 in 2011		(4,976	)		(5,015	)
Accumulated other comprehensive income		1,864			1,430

Total shareholders’ equity		52,453			49,429

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	586,900		$	551,233

These consolidated financial statements should be read in connection with the accompanying summary of significant accounting policies and notes to the consolidated financial statements.

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 25

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, 2012, 2011 and 2010


(Dollars in thousands, except per share data)	2012		2011			2010
INTEREST AND DIVIDEND INCOME
Loans, including fees	$	17,279	$	16,977		$	17,311
Taxable securities		2,672		2,538			2,648
Nontaxable securities		486		421			354
Other		147		82			77

Total interest and dividend income		20,584		20,018			20,390

INTEREST EXPENSE
Deposits		2,323		2,864			3,509
Short-term borrowings		91		139			201
Other borrowings		564		675			1,110

Total interest expense		2,978		3,678			4,820

NET INTEREST INCOME		17,606		16,340			15,570
PROVISION FOR LOAN LOSSES		823		950			1,235

Net interest income, after provision for loan losses		16,783		15,390			14,335

NONINTEREST INCOME
Service charges on deposit accounts		1,305		1,134			1,126
Trust services		671		677			655
Debit card interchange fees		797		631			507
Securities gain, net		—		237			148
Gain on sale of loans, net		591		219			242
Other income		840		610			597

Total noninterest income		4,204		3,508			3,275

NONINTEREST EXPENSES
Salaries and employee benefits		7,960		7,459			6,880
Occupancy expense		1,025		890			808
Equipment expense		618		524			497
Professional and director fees		814		713			631
Franchise tax expense		542		550			536
Marketing and public relations		392		320			322
Software expense		391		373			370
Debit card expense		304		253			232
Amortization of intangible assets		140		78			63
FDIC insurance expense		328		352			486
Branch acquisition expense		8		337			—
Net cost of operation of other real estate		33		(25	)		29
Other expenses		1,895		1,785			1,692

Total noninterest expenses		14,450		13,609			12,546

Income before income taxes		6,537		5,289			5,064
FEDERAL INCOME TAX PROVISION		1,990		1,602			1,568

NET INCOME	$	4,547	$	3,687		$	3,496

NET INCOME PER SHARE
Basic	$	1.66	$	1.35		$	1.28

Diluted	$	1.66	$	1.35		$	1.28

These consolidated financial statements should be read in connection with the accompanying summary of significant accounting policies and notes to the consolidated financial statements.

26 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31, 2012, 2011 and 2010


(Dollars in thousands)	2012			2011			2010
Net income	$	4,547		$	3,687		$	3,496

Other comprehensive income
Unrealized gains (losses) arising during the period		657			1,081			(148	)
Income tax effect		(223	)		(368	)		50
Reclassification adjustment for gains on available for sale securities included in net income		—			(237	)		(148	)
Income tax effect		—			81			51

Other comprehensive income (loss)		434			557			(195	)

Total comprehensive income	$	4,981		$	4,244		$	3,301

These consolidated financial statements should be read in connection with the accompanying summary of significant accounting policies and notes to the consolidated financial statements.

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 27

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Years Ended December 31, 2012, 2011 and 2010


(Dollars in thousands)	Common stock		Additional paid-in capital			Retained earnings			Treasury stock			Accumulated other comprehensive income			Total
BALANCE AT December 31, 2009	$	18,629	$	9,994		$	21,146		$	(5,015	)	$	1,068		$	45,822
Net income		—		—			3,496			—			—			3,496
Other comprehensive loss		—		—			—			—			(195	)		(195	)
Cash dividends declared, $0.72 per share		—		—			(1,969	)		—			—			(1,969	)

BALANCE AT December 31, 2010	$	18,629	$	9,994		$	22,673		$	(5,015	)	$	873		$	47,154
Net income		—		—			3,687			—			—			3,687
Other comprehensive income		—		—			—			—			557			557
Cash dividends declared, $0.72 per share		—		—			(1,969	)		—			—			(1,969	)

BALANCE AT December 31, 2011	$	18,629	$	9,994		$	24,391		$	(5,015	)	$	1,430		$	49,429
Net income		—		—			4,547			—			—			4,547
Other comprehensive income		—		—			—			—			434			434
Stock options exercised, 1,261 shares		—		(20	)		(7	)		39			—			12
Cash dividends declared, $0.72 per share		—		—			(1,969	)		—			—			(1,969	)

BALANCE AT December 31, 2012	$	18,629	$	9,974		$	26,962		$	(4,976	)	$	1,864		$	52,453

These consolidated financial statements should be read in connection with the accompanying summary of significant accounting policies and notes to the consolidated financial statements.

28 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2012, 2011 and 2010


(Dollars in thousands)	2012			2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	4,547		$	3,687		$	3,496
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises, equipment and software		644			662			645
Deferred income taxes		(50	)		345			293
Provision for loan losses		823			950			1,235
Gain on sale of loans, net		(591	)		(219	)		(242	)
Securities gain, net		—			(237	)		(148	)
Security amortization, net of accretion		553			226			121
Secondary market loan sale proceeds		20,873			7,201			11,362
Originations of secondary market loans held-for-sale		(20,384	)		(7,019	)		(10,831	)
Effects of changes in operating assets and liabilities:
Net deferred loan costs		63			35			62
Accrued interest receivable		32			(134	)		100
Accrued interest payable		(47	)		(31	)		(109	)
Prepaid FDIC assessment		292			345			437
Other assets and liabilities		309			(37	)		(419	)

Net cash provided by operating activities	$	7,064		$	5,774		$	6,002

CASH FLOWS FROM INVESTING ACTIVITIES
Securities available-for-sale:
Proceeds from maturities and repayments	$	76,220		$	45,332		$	51,234
Proceeds from sale		—			3,244			3,359
Purchases		(82,382	)		(95,542	)		(54,909	)
Loan originations, net of repayments		(40,842	)		(1,065	)		(3,827	)
Net cash from acquisition		—			60,872			—
Proceeds from sale of other real estate		26			883			476
Property, equipment and software acquisitions		(953	)		(586	)		(103	)
Purchase of bank-owned life insurance		(5,000	)		—			—

Net cash provided by (used in) investing activities	$	(52,931	)	$	13,138		$	(3,770	)

These consolidated financial statements should be read in connection with the accompanying summary of significant accounting policies and notes to the consolidated financial statements.

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 29

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2012, 2011 and 2010


(Dollars in thousands)	2012			2011			2010
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits	$	32,021		$	15,648		$	24,084
Net change in short-term borrowings		6,919			5,055			3,254
Repayment of other borrowings		(6,489	)		(3,748	)		(21,902	)
Cash dividends paid		(1,969	)		(1,969	)		(1,969	)
Proceeds from stock options exercised		5			—			—

Net cash provided by financing activities		30,487			14,986			3,467

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(15,380	)		33,898			5,699
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	$	82,258		$	48,360		$	42,661

CASH AND CASH EQUIVALENTS AT END OF YEAR	$	66,878		$	82,258		$	48,360

SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest	$	3,155		$	3,769		$	5,206
Income taxes		1,690			1,525			1,310
Acquisition of noncash assets and liabilities:
Assets acquired		—			13,631			—
Liabilities assumed		—			74,503			—
Noncash investing activities:
Transfer of loans to other real estate owned		56			814			337

These consolidated financial statements should be read in connection with the accompanying summary of significant accounting policies and notes to the consolidated financial statements.

30 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CSB Bancorp, Inc. (the “Company” or “CSB”) was incorporated in 1991 in the State of Ohio, and is a registered bank holding company. The Company’s wholly-owned subsidiaries are The Commercial and Savings Bank of Millersburg, Ohio (the “Bank”) and CSB Investment Services, LLC. The Company, through its subsidiaries, operates in one industry segment; the commercial banking industry.

The Bank, an Ohio-chartered bank organized in 1879, provides financial services through its sixteen Banking Centers located in Holmes, Tuscarawas, Wayne and Stark Counties in Ohio and nearby communities. These communities are the source of substantially all deposit, loan and trust activities. The majority of the Bank’s income is derived from commercial and retail lending activities and investments in securities. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential real estate, commercial real estate, commercial and installment loans. Substantially, all loans are secured by specific items of collateral including business assets, consumer assets and real estate. Commercial loans are expected to be repaid from cash flow from business operations. Real estate loans are secured by both residential and commercial real estate.

Significant accounting policies followed by the Company are presented below:

USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS

In preparing consolidated financial statements in conformity with U.S. generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Consolidated Balance Sheets and reported amounts of revenues and expenses during each reporting period. Actual results could differ from those estimates. The most significant estimates susceptible to change in the near term relate to management’s determination of the allowance for loan losses and the fair value of financial instruments.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

The Bank has established a trust department and the assets held by the Bank in fiduciary or agency capacities for its customers are not included in the Consolidated Balance Sheets as such items are not assets of the Bank.

CASH AND CASH EQUIVALENTS

For purposes of the Consolidated Statements of Cash Flows, cash and cash equivalents include cash on hand and amounts due from banks which mature overnight or within ninety days.

CASH RESERVE REQUIREMENTS

The Bank is required by the Federal Reserve to maintain reserves consisting of cash on hand and noninterest-earning balances on deposit with the Federal Reserve Bank. The required reserve balance at December 31, 2012 and 2011 was $0 and $400,000, respectively.

SECURITIES

Securities designated as available-for-sale are carried at fair value with unrealized gains and losses on such securities, net of applicable income taxes, recognized as other comprehensive income (loss).

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity based on the interest method. Such amortization and accretion is included in interest and dividends on securities.

Gains and losses on sales of securities are accounted for on a trade date basis, using the specific identification method, and are included in non-interest income. Securities are periodically reviewed for other-than-temporary impairment based upon a number of factors, including, but not limited to, the length of time and extent to which the market value has been less than cost, the financial condition of the underlying issuer, the receipt of principal and interest according to the contractual terms, the ability of the issuer to meet contractual obligations, the likelihood of the security’s ability to recover any decline in its market value and management’s intent and ability to hold the security for a period of time sufficient to allow for a recovery in market value. Among the factors that are considered in determining management’s intent and ability to hold the security is a review of the Company’s capital adequacy, interest rate risk position and liquidity. The assessment of a security’s ability to recover any decline in market value, the ability of the issuer to meet contractual obligations and management’s intent and ability to hold the security requires considerable judgment. A decline in value that is considered to be other-than-temporary is recorded as a loss within non-interest income in the Consolidated Statements of Income.

Investments in Federal Home Loan Bank of Cincinnati (“FHLB”) and Federal Reserve Bank stock are classified as restricted stock, carried at cost, and evaluated for impairment. The Bank is required to maintain an investment in common stock of the FHLB and Federal Reserve Bank because the Bank is a member of the FHLB and the Federal Reserve System. We consider these stocks to be nonmarketable equity securities and carry them at cost.

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 31

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

While the Federal Home Loan Banks have been negatively impacted by the current economic conditions, the Federal Home Loan Bank of Cincinnati has reported profits for 2012 and 2011, remains in compliance with regulatory capital and liquidity requirements, continues to pay dividends on the stock and make redemptions at the par value. With consideration given to these factors, management concluded that the stock was not impaired at December 31, 2012 or 2011.

LOANS

Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or pay-off, generally are stated at their outstanding principal amount, adjusted for charge-offs, the allowance for loan losses and any deferred loan fees or costs on originated loans. Interest is accrued based upon the daily outstanding principal balance. Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield over the life of the related loan.

Interest income is not reported when full repayment is in doubt, typically when the loan is impaired or payments are past due over 90 days. All interest accrued but not collected for loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

At origination, a determination is made whether a loan will be held in the Bank’s portfolio or is intended for sale in the secondary market. Mortgage loans held for sale are recorded at the lower of the aggregate cost or fair value. Generally these loans are held for sale for less than three days. The Bank includes gains and losses on sales of the loans held for sale when the sale is completed.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial, commercial real estate, and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer loans for impairment disclosures.

OTHER REAL ESTATE OWNED

Other real estate acquired through or in lieu of foreclosure is initially recorded at fair value, less estimated costs to sell, and any loan balance in excess of fair value is charged to the allowance for loan losses. Subsequent valuations are periodically performed and write-downs are included in other operating expense, as are gains or losses upon sale and expenses related to maintenance of the properties. Other real estate owned amounted to $25 thousand and $10 thousand at December 31, 2012 and 2011, respectively.

32 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PREMISES AND EQUIPMENT

Premises and equipment is stated at cost less accumulated depreciation and amortization. Upon the sale or disposition of the assets, the difference between the depreciated cost and proceeds is charged or credited to income. Depreciation and amortization is determined based on the estimated useful lives of the individual assets (typically 20 to 40 years for buildings and 3 to 10 years for equipment) and is computed using the straight-line method.

GOODWILL AND CORE DEPOSIT INTANGIBLE ASSETS

Goodwill is not amortized, but is tested at least annually for impairment, in the fourth quarter or more frequently if indicators of impairment are present. The evaluation for impairment involves comparing the estimated current fair value of the reporting unit to its carrying value, including goodwill. If the estimated current fair value of a reporting unit exceeds its carrying value, no additional testing is required and an impairment loss is not recorded. CSB uses market capitalization and multiples of tangible book value methods to determine the estimated current fair value of its reporting unit. Based on this analysis no impairment was recorded in 2012 or 2011.

The core deposit intangible assets are assigned useful lives, which are amortized on an accelerated basis over their weighted average lives. The Company periodically reviews the intangible asset for impairment as events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

MORTGAGE SERVICING RIGHTS

Mortgage servicing rights (“MSRs”) represent the right to service loans for third party investors. MSRs are recognized as a separate asset upon the sale of mortgage loans to a third party investor with the servicing rights retained by CSB. Originated MSRs are recorded at allocated fair value at the time of the sale of the loans to the third party investor. MSRs are amortized in proportion to and over the estimated period of net servicing income. MSRs are carried at amortized cost, less a valuation allowance for impairment, if any. MSRs are evaluated on a discounted earnings basis to determine the present value of future earnings of the underlying serviced mortgages. All assumptions are reviewed annually or more frequently, if necessary, and adjusted to reflect current and anticipated market conditions.

BANK-OWNED LIFE INSURANCE

The cash surrender value of these policies is included as an asset on the Consolidated Balance Sheets and any increases in the cash surrender value are recorded as noninterest income on the Consolidated Statements of Income. In the event of the death of an insured individual under these policies, the Company would receive a death benefit, which would be recorded as non-interest income.

REPURCHASE AGREEMENTS

Substantially all securities sold under repurchase agreements represent amounts advanced by various customers. Securities owned by the Bank are pledged to cover those obligations, which securities are not deposits and are not covered by federal deposit insurance.

ADVERTISING COSTS

All advertising costs are expensed as incurred. Advertising expenses amounted to $190 thousand, $175 thousand and $169 thousand for the years ended 2012, 2011 and 2010 respectively.

FEDERAL INCOME TAXES

The Company and its subsidiaries file a consolidated tax return. Deferred income taxes are provided on temporary differences between financial statement and income tax reporting. Temporary differences are differences between the amounts of assets and liabilities reported for financial statement purposes and their tax bases. Deferred tax assets are recognized for temporary differences that will be deductible in future years’ tax returns and for operating loss and tax credit carry forwards. Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that some or all of the deferred tax assets will not be realized. Deferred tax liabilities are recognized for temporary differences that will be taxable in future years’ tax returns.

The Bank, domiciled in Ohio, is not currently subject to state and local income taxes.

STOCK-BASED COMPENSATION

The Company sponsors a stock-based compensation plan, administered by a committee, under which incentive stock options may be granted periodically to certain employees. The Company recorded no stock-based compensation expense for 2012, 2011 or 2010.

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 33

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

There was no income tax benefit recognized in the accompanying Consolidated Statements of Income related to stock-based compensation in 2012, 2011 or 2010. Shares issued in connection with stock option exercises were issued from available treasury shares in 2012.

As of December 31, 2012, there was no unrecognized compensation cost related to unvested share-based compensation awards granted. All shares are vested.

The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the option and each vesting date. CSB estimates the fair value of stock options on the date of the grant using the Black-Scholes option pricing model. The model requires the use of numerous assumptions, many of which are highly subjective in nature. There were no option grants for the years ended December 31, 2012 and 2011.

COMPREHENSIVE INCOME

The Company includes recognized revenue, expenses, gains and losses in net income. Although certain changes in assets and liabilities such as unrealized gains and losses on available-for-sale securities are reported as a separate component of the equity section of the Consolidated Balance Sheets, these items along with net income are components of comprehensive income.

TRANSFERS OF FINANCIAL ASSETS

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

PER SHARE DATA

Basic net income per share is computed based on the weighted average number of shares of common stock outstanding during each year. Diluted income per common share includes the dilutive effect of additional potential common shares issuable under stock options.

The weighted average number of common shares outstanding for basic and diluted earnings per share computations was as follows:


	2012			2011			2010
Weighted average common shares		2,980,602			2,980,602			2,980,602
Average treasury shares		(245,713	)		(245,803	)		(245,803	)

Total weighted average common shares outstanding (basic)		2,734,889			2,734,799			2,734,799
Dilutive effect of assumed exercise of stock options		252			39			—

Weighted average common shares outstanding (diluted)		2,735,141			2,734,838			2,734,799

Dividends per share are based on the number of shares outstanding at the declaration date.

There were 29,760 stock options to purchase common stock for $18.00 per share that were antidilutive at December 31, 2012 and 2011 and there were 39,945 stock options to purchase common stock for $15.00 to $18.00 per share that were antidilutive at December 31, 2010.

ACCOUNTING DEVELOPMENTS

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs . The amendments in this Update result in common fair value measurement and disclosure requirements in U.S. generally accepted accounting principles (“GAAP”) and International Financial Reporting Standards (“IFRSs”). Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The amendments in this Update are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. The Company has provided the necessary disclosure in Note 14.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income . The amendments in this Update improve the comparability, clarity, consistency, and transparency of financial reporting and increase the prominence of items reported in other comprehensive income. To increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. GAAP and IFRSs, the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. The amendments require that all non-owner changes in stockholders’ equity be presented either in

34 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. All entities that report items of comprehensive income, in any period presented, will be affected by the changes in this Update. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company has provided the necessary disclosure in the Statement of Comprehensive Income.

In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities . The amendments in this Update affect all entities that have financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement. The requirements amend the disclosure requirements on offsetting in Section 210-20-50. This information will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments in the scope of this Update. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. This ASU is not expected to have a significant impact on the Company’s financial statements.

In July, 2012, the FASB issued ASU 2012-02 , Intangibles – Goodwill and Other (Topic 350) – Testing Indefinite-Lived Intangible Assets for Impairment . ASU 2012-02 gives entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events or circumstances, an entity determines it is more likely than not that an indefinite-lived intangible asset is impaired, then the entity must perform the quantitative impairment test. If, under the quantitative impairment test, the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of that excess. Permitting an entity to assess qualitative factors when testing indefinite-lived intangible assets for impairment results in guidance that is similar to the goodwill impairment testing guidance in ASU 2011-08. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 (early adoption permitted). This ASU is not expected to have a significant impact on the Company’s financial statements.

In January 2013, the FASB issued ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities . The amendments clarify that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. An entity is required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the required disclosures retrospectively for all comparative periods presented. The effective date is the same as the effective date of Update 2011-11. This ASU is not expected to have a significant impact on the Company’s financial statements.

In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income . The amendments in this Update require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. The Company is currently evaluating the impact that these disclosures will have on its financial statements.

RECLASSIFICATION OF COMPARATIVE AMOUNTS

Certain comparative amounts from the prior years have been reclassified to conform to current year classifications. Such classifications had no effect on net income or shareholders’ equity.

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 35

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SECURITIES

Securities consist of the following at December 31:


(Dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
2012
Available-for-sale:
U.S. Treasury security	$	100	$	—	$	—	$	100
Obligations of U.S. Government corporations and agencies		35,996		27		43		35,980
Mortgage-backed securites in government sponsored entities		66,933		2,107		1		69,039
Asset-backed securities in government sponsored entities		2,862		—		39		2,823
Obligations of states and political subdivisions		16,194		701		12		16,883
Corporate bonds		4,313		112		28		4,397

Total debt securities		126,398		2,947		123		129,222
Equity securities in financial institutions		69		9		9		69

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

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

2011
Available-for-sale:
U.S. Treasury security	$	100	$	—	$	—	$	100
Obligations of U.S. Government corporations and agencies		28,263		83		23		28,323
Mortgage-backed securites in government sponsored entities		74,834		1,562		64		76,332
Obligations of states and political subdivisions		14,148		732		—		14,880
Corporate bonds		3,445		6		121		3,330

Total debt securities		120,790		2,383		208		122,965
Equity securities in financial institutions		69		3		11		61

Total available-for-sale		120,859		2,386		219		123,026
Restricted stock		5,463		—		—		5,463

Total securities	$	126,322	$	2,386	$	219	$	128,489

36 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SECURITIES (CONTINUED)

The amortized cost and fair value of securities at December 31, 2012, 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	$	411	$	417
Due after one through five years		16,436		16,787
Due after five through ten years		25,564		25,991
Due after ten years		83,987		86,027

Total debt securities available-for-sale	$	126,398	$	129,222

Securities with a carrying value of approximately $79.2 million and $70.4 million were pledged at December 31, 2012 and 2011, respectively, to secure public deposits, as well as other deposits and borrowings as required or permitted by law.

Restricted stock primarily consists of investments in FHLB and Federal Reserve Bank stock. The Bank’s investment in FHLB stock amounted to $5.0 million at December 31, 2012 and 2011. Federal Reserve Bank stock was $471 thousand at December 31, 2012 and 2011.

The following table shows the proceeds from sales of available-for-sale securities and the gross realized gains and losses on the sales of those securities that have been included in earnings as a result of the sales. There were no securities sold during 2012.


	For the Years ended December 31,
(Dollars in thousands)	2011		2010
Proceeds	$	3,244	$	3,359
Realized gains	$	237	$	148
Realized losses		—		—
Impairment losses		—		—

Net securities gains	$	237	$	148

The income tax provision applicable to realized gains amounted to $81 thousand in 2011 and $51 thousand in 2010. There were no tax benefits recognized from gross realized losses in 2011 or 2010.

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 37

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 December 31:


	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
2012
Obligations of U.S. Corporations and agencies	$	43	$	15,957	$	—	$	—	$	43	$	15,957
Mortgage-backed securities in government sponsored entities		1		344		—		—		1		344
Asset-backed securities in government sponsored entities		39		1,833		—		—		39		1,833
Obligations of states and political subdivisions		12		1,737		—		—		12		1,737
Corporate bonds		4		366		24		975		28		1,341

Total debt securities		99		20,237		24		975		123		21,212
Equity securities in financial institutions		—		—		9		45		9		45

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

2011
Obligations of U.S. Corporations and agencies	$	23	$	6,974	$	—	$	—	$	23	$	6,974
Mortgage-backed securities in government sponsored entities		63		16,794		1		192		64		16,986
Corporate bonds		49		2,397		72		428		121		2,825

Total debt securities		135		26,165		73		620		208		26,785
Equity securities in financial institutions		—		—		11		43		11		43

Total temporarily impaired securities	$	135	$	26,165	$	84	$	663	$	219	$	26,828

There were twenty-three (23) securities in an unrealized loss position at December 31, 2012, four (4) of which were in a continuous loss position for twelve or more months. At least quarterly, the Company conducts a comprehensive security-level impairment assessment. The assessments are based on the nature of the securities, the extent and duration of the securities, the extent and duration of the loss, management’s intent to sell or if it is more likely than not that management will be required to sell a security before recovery of its amortized cost basis, which may be maturity. Management believes the Company will fully recover the cost of these securities and it does not intend to sell these securities and likely will not be required to sell them before the anticipated recovery of the remaining amortized cost basis, which may be maturity. As a result, management concluded that these securities were not other-than-temporarily impaired at December 31, 2012 and has recognized the total amount of the impairment in accumulated other comprehensive income, net of tax.

38 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – LOANS

Loans consist of the following at December 31:


(Dollars in thousands)	2012		2011
Commercial	$	104,899	$	89,828
Commercial real estate		119,192		106,332
Residential real estate		110,412		103,518
Construction & land development		23,358		18,061
Consumer		6,480		6,216

Total loans before deferred costs		364,341		323,955
Deferred loan costs		239		227

Total Loans	$	364,580	$	324,182

Loan Origination/Risk Management

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

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

Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. At December 31, 2012 and 2011, approximately 81% and 89%, respectively of the outstanding principal balance of the Company’s commercial real estate loans were secured by owner-occupied properties.

With respect to loans to developers and builders that are secured by non-owner occupied properties, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction and land development loans are underwritten utilizing independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction and land development loans are generally based upon estimates of costs and value associated with the completed project. These estimates may be inaccurate. Construction and land development loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources or repayment for these types of loans may be pre-committed permanent loans from 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.

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 39

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – LOANS (CONTINUED)

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.

Concentrations of Credit

Nearly all of the Company’s lending activity occurs within the State of Ohio, including the four counties of Holmes, Stark, Tuscarawas and Wayne, as well as other markets. The majority of the Company’s loan portfolio consists of commercial and industrial and commercial real estate loans. As of December 31, 2012 and 2011, there were no concentrations of loans related to any single industry.

Allowance for Loan Losses

The following table details activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2012, 2011 and 2010. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.


(Dollars in thousands)	Commercial			Commercial Real Estate			Residential Real Estate			Construction & Land Development			Consumer			Unallocated			Total
December 31, 2012
Beginning balance, January 1	$	1,024		$	1,673		$	894		$	180		$	78		$	233		$	4,082
Provision for loan losses		(78	)		512			206			73			23			87			823
Charge-offs		(29	)		(283	)		(106	)		—			(89	)					(507	)
Recoveries		16			—			102			—			64						182

Net charge-offs		(13	)		(283	)		(4	)		—			(25	)					(325	)

Ending balance	$	933		$	1,902		$	1,096		$	253		$	76		$	320		$	4,580

December 31, 2011
Beginning balance, January 1	$	1,179		$	1,183		$	1,057		$	213		$	80		$	319		$	4,031
Provision for loan losses		294			558			115			8			61			(86	)		950
Charge-offs		(487	)		(68	)		(297	)		(41	)		(121	)					(1,014	)
Recoveries		38			—			19			—			58						115

Net charge-offs		(449	)		(68	)		(278	)		(41	)		(63	)					(899	)

Ending balance	$	1,024		$	1,673		$	894		$	180		$	78		$	233		$	4,082

December 31, 2010
Beginning balance, January 1	$	1,031		$	1,338		$	1,140		$	246		$	77		$	228		$	4,060
Provision for loan losses		534			32			405			110			63			91			1,235
Charge-offs		(479	)		(187	)		(488	)		(143	)		(92	)					(1,389	)
Recoveries		93			—			—			—			32						125

Net charge-offs		(386	)		(187	)		(488	)		(143	)		(60	)					(1,264	)

Ending balance	$	1,179		$	1,183		$	1,057		$	213		$	80		$	319		$	4,031

40 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – LOANS (CONTINUED)

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


(Dollars in thousands)	Commercial		Commercial Real Estate		Residential Real Estate		Construction & Land Development		Consumer		Unallocated		Total
2012
Allowance for loan losses:
Ending allowance balances attributable to loans:
Individually evaluated for impairment	$	85	$	522	$	172	$	—	$	—	$	—	$	779
Collectively evaluated for impairment		848		1,380		924		253		76		320		3,801

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

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

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

2011
Allowance for loan losses:
Ending allowance balances attributable to loans:
Individually evaluated for impairment	$	165	$	304	$	53	$	—	$	—	$	—	$	522
Collectively evaluated for impairment		859		1,369		841		180		78		233		3,560

Total ending allowance balance	$	1,024	$	1,673	$	894	$	180	$	78	$	233	$	4,082

Loans:
Loans individually evaluated for impairment	$	4,605	$	2,476	$	182	$	—	$	—			$	7,263
Loans collectively evaluated for impairment		85,223		103,856		103,336		18,061		6,216				316,692

Total ending loans balance	$	89,828	$	106,332	$	103,518	$	18,061	$	6,216			$	323,955

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 41

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – LOANS (CONTINUED)

The following table presents loans individually evaluated for impairment by class of loans as of December 31:


(Dollars in thousands)	Unpaid principal balance		Recorded investment with no allowance		Recorded investment with allowance		Total recorded investment		Related allowance		Average recorded investment		Interest Income recognized
2012
Commercial	$	4,315	$	—	$	4,329	$	4,329	$	85	$	4,123	$	167
Commercial real estate		4,906		1,723		2,849		4,572		522		4,396		152
Residential real estate		1,223		86		1,057		1,143		172		770		18
Construction & land development		173		166		—		166		—		167		—

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

2011
Commercial	$	4,605	$	—	$	4,605	$	4,605	$	165	$	2,890	$	91
Commercial real estate		2,621		—		2,476		2,476		304		2,924		78
Residential real estate		182		—		182		182		53		103		—
Construction & land development		—		—		—		—		—		—		—

Total impaired loans	$	7,408	$	—	$	7,263	$	7,263	$	522	$	5,917	$	169

2010
Commercial	$	644	$	51	$	571	$	622	$	106	$	571	$	2
Commercial real estate		1,047		109		777		886		132		1,631		—
Residential real estate		590		298		—		298		—		97		—
Construction & land development		683		—		440		440		92		483		—

Total impaired loans	$	2,964	$	458	$	1,788	$	2,246	$	330	$	2,782	$	2

42 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – LOANS (CONTINUED)

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


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

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

2011
Commercial	$	89,365	$	272	$	28	$	150	$	13	$	463	$	89,828
Commercial real estate		103,828		587		250		141		1,526		2,504		106,332
Residential real estate		100,297		1,443		303		282		1,193		3,221		103,518
Construction & land development		17,885		—		—		—		176		176		18,061
Consumer		5,985		194		29		8		—		231		6,216

Total Loans	$	317,360	$	2,496	$	610	$	581	$	2,908	$	6,595	$	323,955

Troubled Debt Restructurings

The Company had troubled debt restructurings of $8.7 million as of December 31, 2012, with $718 thousand of specific reserves allocated to customers whose loan terms have been modified in troubled debt restructurings. As of December 31, 2011, the Company had troubled debt restructurings of $8.5 million, with $516 thousand of specific reserves allocated.

Of the loans that were restructured in 2011, one loan in the amount of $54 thousand subsequently defaulted in 2012. Of the loans that were restructured in 2010, two loans totaling $199 thousand subsequently defaulted in 2011.

Loan modifications that are considered troubled debt restructurings completed during the year ended December 31:


(Dollars in thousands)	Number of loans restructured		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
2012
Commercial real estate		2	$	177	$	177
Residential real estate		9		798		798

Total Restructured Loans		11	$	975	$	975

2011
Commercial		2	$	4,440	$	4,440
Commercial real estate		2		372		372
Residential real estate		5		286		286

Total Restructured Loans		9	$	5,098	$	5,098

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 43

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – LOANS (CONTINUED)

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes commercial loans individually by classifying the loans as to credit risk. This analysis includes commercial loans with an outstanding balance greater than $275 thousand. 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 & 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 a material weakness that deserves management’s close attention. If left uncorrected, these weaknesses may result in deterioration of the repayment prospects for the loan or of the Bank’s credit position 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 Bank 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 $275 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 at December 31:


(Dollars in thousands)	Pass		Special mention		Substandard		Doubtful		Not rated		Total
2012
Commercial	$	92,123	$	5,854	$	6,637	$	—	$	285	$	104,899
Commercial real estate		102,602		5,671		8,459		—		2,460		119,192
Residential real estate		200		—		53		—		110,159		110,412
Construction & land development		18,063		2,750		1,244		—		1,301		23,358
Consumer		—		—		—		—		6,480		6,480

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

2011
Commercial	$	76,216	$	5,147	$	7,710	$	—	$	755	$	89,828
Commercial real estate		84,846		10,385		8,686		—		2,415		106,332
Residential real estate		1,151		—		61		—		102,306		103,518
Construction & land development		12,695		4,340		168		—		858		18,061
Consumer		—		—		—		—		6,216		6,216

Total	$	174,908	$	19,872	$	16,625	$	—	$	112,550	$	323,955

44 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – LOANS (CONTINUED)

Non-performing loans include loans past due 90 days and greater and loans on nonaccrual of interest status. The following table presents loans that are not rated, by class of loans as of December 31:


( Dollars in thousands)	Performing		Non-Performing		Total
2012
Commercial	$	285	$	—	$	285
Commercial real estate		2,460		—		2,460
Residential real estate		109,276		883		110,159
Construction & land development		1,294		7		1,301
Consumer		6,480		—		6,480

Total	$	119,795	$	890	$	120,685

2011
Commercial	$	755	$	—	$	755
Commercial real estate		2,415		—		2,415
Residential real estate		100,892		1,414		102,306
Construction & land development		850		8		858
Consumer		6,208		8		6,216

Total	$	111,120	$	1,430	$	112,550

Loans serviced for others approximated $60.2 million and $49.9 million at December 31, 2012 and 2011, respectively.

Mortgage Servicing Rights

For the years ended December 31, 2012 and 2011, the Company had outstanding mortgage servicing rights (“MSRs”) of $214 thousand and $167 thousand, respectively. No valuation allowance was recorded at December 31, 2012 or 2011 as the fair value of the MSRs exceeded their carrying value. On December 31, 2012, the Company had $52.7 million residential mortgage loans with servicing retained as compared to $44.3 million with servicing retained at December 31, 2011.

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 45

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – PREMISES AND EQUIPMENT

Premises and equipment consist of the following at December 31:


(Dollars in thousands)	2012		2011
Land and improvements	$	1,489	$	1,489
Buildings and improvements		9,422		9,422
Furniture and equipment		6,763		6,272
Leashold improvements		260		260

		17,934		17,443
Accumulated depreciation		9,459		8,930

Premises and equipment, net	$	8,475	$	8,513

The Bank leases certain office locations. Total rental expense under these leases approximated $298 thousand, $187 thousand, and $142 thousand in 2012, 2011 and 2010, respectively. Depreciation expense amounted to $567 thousand, $530 thousand and $527 thousand for the years ended December 31, 2012, 2011 and 2010, respectively.

Future minimum lease payments at December 31, 2012 were as follows:


(Dollars in thousands)
2013	$	299
2014		299
2015		294
2016		172
2017		32

Total	$	1,096

NOTE 5 – CORE DEPOSIT INTANGIBLE ASSETS

Core Deposit Intangible

No additional core deposit intangible was recorded in 2012, with $706 thousand recorded as a result of the acquisition of two branches in Wooster, Ohio in 2011. The core deposit intangible asset will be amortized over an estimated life of ten years. Amortization expense related to the core deposit intangible asset totaled $140 thousand, $78 thousand and $63 thousand in 2012, 2011 and 2010, respectively. The following table shows the core deposit intangible and the related accumulated amortization as of December 31:


(Dollars in thousands)	2012			2011			2010
Gross carrying amount	$	1,251		$	1,251		$	545
Accumulated amortization		(357	)		(217	)		(139	)

Net carrying amount	$	894		$	1,034		$	406

46 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – CORE DEPOSIT INTANGIBLE ASSETS (CONTINUED)

The estimated aggregate future amortization expense for the core deposit assets remaining as of December 31, 2012 is as follows:


(Dollars in thousands)	Core deposit amortization
2013	$	135
2014		129
2015		125
2016		121
2017		116
Thereafter		268

	$	894

NOTE 6 – INTEREST-BEARING DEPOSITS

Interest-bearing deposits at December 31 are as follows:


(Dollars in thousands)	2012		2011
Demand	$	74,429	$	61,830
Savings		138,794		123,304
Time deposits:
In excess of $100,000		54,163		60,090
Other		103,910		112,439

Total interest-bearing deposits	$	371,296	$	357,663

At December 31, 2012, stated maturities of time deposits were as follows:


(Dollars in thousands)
2013	$	97,619
2014		30,913
2015		10,862
2016		11,385
2017		7,294

Total	$	158,073

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 47

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 – BORROWINGS

Short-term borrowings

Short-term borrowings include overnight repurchase agreements, federal funds purchased and short-term advances through the FHLB. The outstanding balances and related information for short-term borrowings are summarized as follows:


(Dollars in thousands)	2012			2011
Balance at year-end	$	43,992		$	37,073
Average balance outstanding		40,893			32,577
Maximum month-end balance		43,992			37,073
Weighted-average rate at year-end		0.20	%		0.25	%
Weighted-average rate during the year		0.22			0.43

Average balances outstanding during the year represent daily average balances, and average interest rates represent interest expenses divided by the related average balances.

Other borrowings

The following table sets forth information concerning other borrowings:


(Dollars in thousands)	Maturity range				Weighted average interest			Stated interest rate range						At December 31,
Description	From		To		rate			From			To			2012		2011
Fixed rate		3/14/2012		12/21/2017		3.62	%		3.48	%		3.73	%		12,000		18,000
Fixed rate amortizing		1/1/2012		3/1/2017		6.01			4.80			7.15			672		1,161

															12,672		19,161

Maturities of other borrowings at December 31, 2012, are summarized as follows:


(Dollars in thousands) Year ending December 31	Amount		Weighted- average rate
2013	$	215		6.06	%
2014		2,190		3.91
2015		169		6.01
2016		96		5.84
2017		10,002		3.61

	$	12,672		3.75	%

Monthly principal and interest payments are due on the fixed rate amortizing borrowings; additionally a 10% principal curtailment is due on the borrowing’s anniversary date. FHLB borrowings are secured by a blanket collateral agreement. At December 31, 2012 the Company has the capacity to borrow an additional $41.1 million from the FHLB.

48 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 – INCOME TAXES

The provision for income taxes consists of the following for the years ended December 31:


(Dollars in thousands)	2012			2011		2010
Current	$	2,040		$	1,257	$	1,275
Deferred		(50	)		345		293

Total income tax provision	$	1,990		$	1,602	$	1,568

The income tax provision attributable to income from operations differs from the amounts computed by applying the statutory federal income tax rate of 34% to income before income taxes as follows:


(Dollars in thousands)	2012			2011			2010
Expected provision using statutory federal income tax rate	$	2,223		$	1,798		$	1,722
Tax-exempt income on state and municipal securities and political subdivision loans		(269	)		(169	)		(149	)
Interest expense associated with carrying certain state and municipal securities and political subdivision loans		6			8			9
Other		30			(35	)		(14	)

Total income tax provision	$	1,990		$	1,602		$	1,568

The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at December 31 are as follows:


(Dollars in thousands)	2012			2011
Allowance for loan losses	$	1,470		$	1,195
Net operating loss carryforward		598			727
Capital loss carryforward		35			35
Other		109			147

		2,212			2,104

Valuation allowance on deferred tax assets		(35	)		(35	)

Deferred tax assets		2,177			2,069

Premises and equipment		(399	)		(389	)
Federal Home Loan Bank stock dividends		(736	)		(736	)
Deferred loan fees		(173	)		(121	)
Unrealized gain on securities available for sale		(960	)		(736	)
Prepaid Expenses		(120	)		(83	)
Other		(265	)		(206	)

Deferred tax liabilities		(2,653	)		(2,271	)

Net deferred tax liability	$	(476	)	$	(202	)

The Company has a net operating loss tax carry-forward of approximately $1.8 million, as of December 31, 2012. The net operating loss carry-forward can be used to offset future taxable income and will begin to expire in tax year 2026.

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 49

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 – INCOME TAXES (CONTINUED)

The Company believes it is more likely than not that the benefit of deferred tax assets will be realized with the possible exception of the capital loss carry forward due to expire in 2014. A valuation allowance for the capital loss carry forward is reflected at December 31, 2012 and 2011. No additional valuation allowance is deemed necessary in view of certain tax strategies, coupled with the anticipated future taxable income as evidenced by the Company’s earnings potential.

There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. CSB recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Consolidated Statement of Income. With few exceptions, CSB is no longer subject to U.S. federal, state, or local income tax examinations by tax authorities for years prior to 2009.

NOTE 9 – EMPLOYEE BENEFITS

The Company sponsors a contributory 401(k) profit-sharing plan covering substantially all employees who meet certain age and service requirements. The Plan permits investment in the Company’s common stock subject to various limitations and provides for discretionary profit sharing and matching contributions. The discretionary profit sharing contribution is determined annually by the Board of Directors and amounted to 2.5% of each eligible participant’s compensation for 2012, 2011 and 2010, respectively. The Plan also provides for a 50% Company match of participant contributions up to a maximum of 2% of each participant’s annual compensation. Expense under the Plan amounted to approximately $270 thousand, $242 thousand and $199 thousand for 2012, 2011 and 2010, respectively.

The Company maintains a stock option plan. No stock options were granted during the three years presented.

The following summarizes stock options activity for the years ended December 31:


	2012					2011						2010
	Shares			Weighted average exercise price		Shares			Weighted average exercise price			Shares			Weighted average exercise price
Outstanding at beginning of year		39,620		$	17.49		39,945		$	17.48			40,195		$	17.47
Granted		—			—		—			—			—			—
Exercised		(4,650	)		16.05		—			—			—			—
Forfeited		(3,210	)		16.06		(325	)		(16.05	)		(250	)		(16.05	)

Outstanding at end of year		31,760			17.85		39,620			17.49			39,945			17.48

Options exercisable at year-end		31,760		$	17.85		39,620		$	17.49			39,945		$	17.48
Weighted-average fair value of options granted during year					N/A					N/A						N/A

Options outstanding at December 31, 2012 were as follows:


	Outstanding				Exercisable
Range of exercisable prices	Number		Weighted avereage remaining contractual life (years)		Number		Weighted average exercise price
$ 15.00		1,000		1.59		1,000	$	15.00
16.10		1,000		0.55		1,000		16.10
18.00		29,760		3.21		29,760		18.00

Outstanding at year-end		31,760		3.07		31,760	$	17.85

50 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – EMPLOYEE BENEFITS (CONTINUED)

The total intrinsic value of outstanding in-the-money stock options and outstanding in-the-money exercisable stock options was $4,480 and $7,852 at December 31, 2012 and 2011, respectively. There were 4,650 stock options exercised in 2012 and no stock options exercised in 2011 and 2010. There were no share awards vested in 2012 or 2011.

NOTE 10 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are primarily loan commitments to extend credit and letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amounts recognized in the Consolidated Balance Sheets. The contract amount of these instruments reflects the extent of involvement the Bank has in these financial instruments. The Bank’s exposure to credit loss in the event of the nonperformance by the other party to the financial instruments for loan commitments to extend credit and letters of credit is represented by the contractual amounts of these instruments. The Bank uses the same credit policies in making loan commitments as it does for on-balance sheet loans.

The following financial instruments whose contract amount represents credit risk were outstanding at December 31:


(Dollars in thousands)	2012		2011
Commitments to extend credit	$	105,829	$	90,845

Letters of credit	$	1,539	$	875

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral, obtained if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer. Collateral held varies but may include accounts receivable, recognized inventory, property, plant and equipment; and income-producing commercial properties.

Letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third party and are reviewed for renewal at expiration. All letters of credit outstanding at December 31, 2012 are due on demand or expire in 2013. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Company requires collateral supporting these commitments when deemed appropriate.

NOTE 11 – RELATED-PARTY TRANSACTIONS

In the ordinary course of business, loans are granted by the Company to executive officers, directors and their related business interests consistent with Federal Reserve Regulation O. The following is an analysis of activity of related-party loans for the year end December 31, 2012:


(Dollars in thousands)
Balance at beginning of year	$	3,651
New loans and advances		4,108
Repayments, including loans sold		1,541

Balance at end of year	$	6,218

Deposits from executive officers, directors and their related business interests at both December 31, 2012 and 2011 were approximately $10.5 million and $10.2 million.

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 51

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 – REGULATORY MATTERS

The Company (on a consolidated basis) and Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the following table) of Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Management believes, as of December 31, 2012 and 2011, that the Company and Bank met or exceeded all capital adequacy requirements to which they are subject.

As of December 31, 2012, the most recent notification from federal and state banking agencies categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized” an institution must maintain minimum total risk-based Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables. There are no known conditions or events since that notification that Management believes have changed the Bank’s category.

The actual capital amounts and ratios of the Company and Bank as of December 31, are presented in the following tables:


	Actual					Minimum required for capital adequacy purposes					Minimum required to be well capitalized under prompt corrective action regulations
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
2012
Total capital (to risk-weighted assets)
Consolidated	$	49,534		13.3	%	$	29,707		8.0	%	$	37,134		10.0	%
Bank		48,940		13.2			29,695		8.0			37,118		10.0
Tier I capital (to risk-weighted assets)
Consolidated		44,946		12.1			14,854		4.0			22,280		6.0
Bank		44,352		12.0			14,847		4.0			22,271		6.0
Tier I capital (to average assets)
Consolidated		44,946		7.9			22,794		4.0			28,493		5.0
Bank		44,352		7.8			22,788		4.0			28,485		5.0

	Actual					Minimum required for capital adequacy purposes					Minimum required to be well capitalized under prompt corrective action regulations
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
2011
Total capital (to risk-weighted assets)
Consolidated	$	46,300		14.2	%	$	26,133		8.0	%	$	32,667		10.0	%
Bank		45,517		13.9			26,114		8.0			32,643		10.0
Tier I capital (to risk-weighted assets)
Consolidated		42,220		12.9			13,067		4.0			19,600		6.0
Bank		41,437		12.7			13,057		4.0			19,586		6.0
Tier I capital (to average assets)
Consolidated		42,220		8.1			20,971		4.0			26,214		5.0
Bank		41,437		7.9			20,965		4.0			26,207		5.0

52 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 – REGULATORY MATTERS (CONTINUED)

The Company’s primary source of funds with which to pay dividends are dividends received from the Bank. The payment of dividends by the Bank to the Company is subject to restrictions by its regulatory agencies. These restrictions generally limit dividends to current year net income and prior two-years’ net retained earnings. Also, dividends may not reduce capital levels below the minimum regulatory requirements disclosed in the prior table. Under these provisions, at January 1, 2013, the Bank could dividend $6.2 million to the Company. The Company does not anticipate the financial need to obtain regulatory approval due to its current cash balances and ability to access the credit markets. Federal law prevents the Company from borrowing from the Bank unless loans are secured by specific obligations. Further, such secured loans are limited to an amount not exceeding ten percent of the Bank’s common stock and capital surplus.

NOTE 13 – CONDENSED PARENT COMPANY FINANCIAL INFORMATION

A summary of condensed financial information of the parent company as of December 31, 2012 and 2011 and for each of the three years in the period ended December 31, 2012 follows:


(Dollars in thousands)	2012		2011
CONDENSED BALANCE SHEETS
ASSETS
Cash deposited with subsidiary bank	$	388	$	535
Investment in subsidiary bank		51,858		48,652
Securities available-for-sale		69		60
Other assets		207		196

TOTAL ASSETS	$	52,522	$	49,443

LIABILITIES AND SHAREHOLDERS’ EQUITY
Total liabilities	$	69	$	14
Total shareholders’ equity		52,453		49,429

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	52,522	$	49,443


(Dollars in thousands)	2012			2011			2010
CONDENSED STATEMENTS OF INCOME
Interest on securities	$	2		$	1		$	1
Dividends from subsidiary		2,000			2,300			2,000

Total income		2,002			2,301			2,001
Operating expenses		354			336			483

Income before taxes and undistributed equity income of subsidiary		1,648			1,965			1,518
Income tax benefit		(120	)		(115	)		(164	)
Equity earnings in subsidiary, net of dividends		2,779			1,607			1,814

NET INCOME	$	4,547		$	3,687		$	3,496

COMPREHENSIVE INCOME	$	4,981		$	4,244		$	3,301

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 53

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 – CONDENSED PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)


(Dollars in thousands)	2012			2011			2010
CONDENSED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income	$	4,547		$	3,687		$	3,496
Adjustments to reconcile net income to cash provided by operations:
Equity earnings in subsidiary, net of dividends		(2,779	)		(1,607	)		(1,814	)
Change in other assets, liabilities		49			48			21

Net cash provided by operating activities		1,817			2,128			1,703

Cash flows from investing activities:
Purchase of investment securities		—			—			(4	)

Net cash used in investing activities		—			—			(4	)

Cash flows from financing activities:
Cash dividends paid		(1,969	)		(1,969	)		(1,969	)
Cash received from exercise of stock options		5			—			—

Net cash used in financing activities		(1,964	)		(1,969	)		(1,969	)

Increase (decrease) in cash		(147	)		159			(270	)
Cash at beginning of year		535			376			646

Cash at end of year	$	388		$	535		$	376

NOTE 14 – 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; inputs that are derived principally from or corroborated by observable market data by or other means including certified appraisals. 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.

54 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – FAIR VALUE MEASUREMENTS (CONTINUED)

The following table presents the assets reported on the consolidated statements of financial condition at their fair value as of December 31, 2012 and December 31, 2011, by level within the fair value hierarchy. No liabilities are carried at fair value. As required by the accounting standards, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Equity securities and U.S. Treasury Notes are valued at the closing price reported on the active market on which the individual securities are traded. Obligations of U.S. government corporations and agencies, mortgage-backed securities, asset-backed securities and obligations of states and political subdivisions are valued at observable market data for similar assets.


(Dollars in thousands)	Level I		Level II		Level III		Total
	December 31, 2012
Assets:
Securities available-for-sale
U.S. Treasury security	$	100	$	—	$	—	$	100
Obligations of U.S. government corporations and agencies		—		35,980		—		35,980
Mortgage-backed securities in government sponsored entities		—		69,039		—		69,039
Asset-backed securities in government sponsored entities		—		2,823		—		2,823
Obligations of states and political subdivisions		—		16,883		—		16,883
Corporate bonds		—		4,397		—		4,397

Total debt securities		100		129,122		—		129,222
Equity securities in financial institutions		69		—		—		69

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


	December 31, 2011
Assets:
Securities available-for-sale
U.S. Treasury security	$	100	$	—	$	—	$	100
Obligations of U.S. government corporations and agencies		—		28,323		—		28,323
Mortgage-backed securities in government sponsored entities		—		76,332		—		76,332
Obligations of states and political subdivisions		—		14,880		—		14,880
Corporate bonds		—		3,330		—		3,330

Total debt securities		100		122,865		—		122,965
Equity securities in financial institutions		61		—		—		61

Total available-for-sale securities	$	161	$	122,865	$	—	$	123,026

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 55

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – FAIR VALUE MEASUREMENTS (CONTINUED)

The following table presents the assets measured on a nonrecurring basis on the consolidated balance sheets at their fair value as of December 31, 2012 and December 31, 2011, by level within the fair value hierarchy. Impaired loans and other real estate that are collateral dependent 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; observable inputs, employed by certified appraisers, for similar assets classified as Level II inputs. In cases where valuation techniques included inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level III inputs.

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


(Dollars in thousands)	Level I		Level II		Level III		Total
		December 31, 2012
Assets measured on a nonrecurring basis:
Impaired loans	$	—	$	—	$	9,412	$	9,412
Other real estate owned		—		—		25		25
Mortgage servicing rights		—		—		214		214
		December 31, 2011
Assets measured on a nonrecurring basis:
Impaired loans	$	—	$	—	$	6,741	$	6,741
Other real estate owned		—		—		10		10
Mortgage servicing rights		—		—		167		167

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 3 inputs to determine fair value:


	Quantitative Information about Level 3 Fair Value Measurements
	Fair value		Valuation	Unobservable
(Dollars in thousands)	estimate		techniques	input	Range
		December 31, 2012
Impaired loans	$	7,260	Discounted cash flow	Remaining term Discount rate	4 mos to 29 yrs 7.5% to 12%
		2,152	Appraisal of collateral ^(1),(3)	Appraisal adjustments ⁽²⁾ Liquidation expense ⁽²⁾	-20% to -35% -10%
Other real estate owned		25	Appraisal of collateral ⁽¹⁾ , ⁽³⁾	Management discount for property type ⁽³⁾	0% to -67%
Mortgage servicing rights		214	Discounted cash flow	Remaining term Discount rate	24 mos to 30 yrs 1.5%

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

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

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

56 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 – FAIR VALUES OF FINANCIAL INSTRUMENTS

The estimated fair values of recognized financial instruments as of December 31 are as follows:


	2012
(Dollars in thousands)	Carrying Value		Level 1		Level II		Level III		Total Fair Value
Financial assets:
Cash and cash equivalents	$	66,878	$	66,878	$	—	$	—	$	66,878
Securities		129,291		8,164		120,100		1,027		129,291
Net loans		360,000		—		—		367,028		367,028
Bank-owned life insurance		8,298		8,298		—		—		8,298
Restricted stock		5,463		—		5,463		—		5,463
Accrued interest receivable		1,317		1,317		—		—		1,317
Financial liabilities:
Deposits	$	475,443	$	317,369	$	—	$	159,573	$	476,942
Short-term borrowings		43,992		43,992		—		—		43,992
Other borrowings		12,672		—		—		13,772		13,772
Accrued interest payable		135		135		—		—		135


	2011
(Dollars in thousands)	Carrying value		Fair value
Financial assets:
Cash and cash equivalents	$	82,258	$	82,258
Securities		123,026		123,026
Restricted Stock		5,463		5,463
Bank-owned life insurance		3,068		3,068
Loans, net		320,100		327,138
Accrued interest receivable		1,349		1,349
Financial liabilities:
Deposits	$	443,553	$	445,587
Short-term borrowings		37,073		37,073
Other borrowings		19,161		20,087
Accrued interest payable		182		182

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

Cash and cash equivalents; Accrued interest receivable; Short-term borrowings, Accrued interest payable

The fair value of the above instruments is considered to be carrying value.

Securities

The fair value of securities available-for-sale 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.

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 57

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 – FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

Net loans

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

Bank-owned life insurance

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

Restricted stock

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

Deposits

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

Other borrowings

The fair value of FHLB 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 December 31, 2012 and 2011. These financial instruments relate to commitments to extend credit and letters of credit. The aggregated contract amount of such financial instruments was approximately $107.4 million at December 31, 2012 and $91.7 million at December 31, 2011. Such amounts are also considered to be the estimated fair values.

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

58 2012 Annual Report to Shareholders | CSB Bancorp, Inc.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 – CONTINGENT LIABILITIES

In the normal course of business, the Company is subject to pending and threatened legal actions. Although, the company is not able to predict the outcome of such actions, after reviewing pending and threatened actions, management believes that the outcome of any or all such actions will not have a material adverse effect on the results of operations or shareholders’ equity of the Company.

The Company has an employment agreement with an officer. Upon the occurrence of certain types of termination of employment, the Company may be required to make specified severance payments if termination occurs within a specified period of time, generally two years from the date of the agreement, or pursuant to certain change in control transactions.

NOTE 17 – QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of selected quarterly financial data (unaudited) for the years ended December 31:


(Dollars in thousands)	Interest income		Net interest income		Net income		Basic earnings per share		Diluted earnings per share
2012
First quarter	$	5,132	$	4,313	$	1,055	$	0.39	$	0.39
Second quarter		5,151		4,397		1,141		0.41		0.41
Third quarter		5,148		4,426		1,231		0.45		0.45
Fourth quarter		5,153		4,470		1,120		0.41		0.41
2011
First quarter	$	4,946	$	3,934	$	896	$	0.33	$	0.33
Second quarter		5,003		4,096		973		0.35		0.35
Third quarter		4,958		4,098		998		0.37		0.37
Fourth quarter		5,111		4,212		820		0.30		0.30

2012 Annual Report to Shareholders | CSB Bancorp, Inc. 59

LOGO

EXHIBIT 21

SUBSIDIARIES OF CSB BANCORP, INC.

The Commercial and Savings Bank of Millersburg, Ohio, an Ohio-chartered commercial bank (100% owned).

CSB Investment Services, LLC, an Ohio limited liability company (100% owned).

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statement No. 333-130082 on Form S-8 of CSB Bancorp, Inc. and in the Registration Statement on Form S-8 of The Commercial & Savings Bank 401(k) Retirement Plan of our report dated March 7, 2013, relating to our audit of the consolidated financial statements included in the Annual Report on Form 10-K of CSB Bancorp, Inc. for the year ended December 31, 2012.

/s/ S.R. Snodgrass A.C.

Wexford, Pennsylvania

March 25, 2013

EXHIBIT 31.1

SECTION 302 CERTIFICATION

Chief Executive Officer

I, Eddie L. Steiner, certify that:

I have reviewed this annual report on Form 10-K of CSB Bancorp, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 25, 2013

/s/ Eddie L. Steiner

Eddie L. Steiner

President and Chief Executive Officer

EXHIBIT 31.2

SECTION 302 CERTIFICATION

Senior Vice President and Chief Financial Officer

I, Paula J. Meiler, certify that:

I have reviewed this annual report on Form 10-K of CSB Bancorp, Inc.;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 25, 2013

/s/ Paula J. Meiler

Paula J. Meiler

Senior Vice President and Chief Financial Officer

EXHIBIT 32.1

Certification Pursuant to

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of CSB Bancorp, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Eddie L. Steiner, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Eddie L. Steiner

Eddie L. Steiner

President and Chief Executive Officer

March 25, 2013

EXHIBIT 32.2

Certification Pursuant to

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of CSB Bancorp, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Paula J. Meiler, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Paula J. Meiler

Paula J. Meiler

Senior Vice President and Chief Financial Officer

March 25, 2013