e10vq
Table of Contents

 
 
CSB BANCORP, INC.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2011
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-21714
CSB Bancorp, Inc.
 
(Exact name of registrant as specified in its charter)
     
Ohio   34-1687530
     
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer Identification Number)
91 North Clay, P.O. Box 232, Millersburg, Ohio 44654
 
(Address of principal executive offices)
(330) 674-9015
 
(Registrant’s telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ     No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o     No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer o  Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o     No þ
Indicate the number of shares outstanding of the registrant’s common stock, as of the latest practicable date.
     
Common stock, $6.25 par value
  Outstanding at May 13, 2011 :
 
  2,734,799 common shares
 
 

 


 

CSB BANCORP, INC.
FORM 10-Q
QUARTER ENDED March 31, 2011
Table of Contents
         
    Page  
Part I — Financial Information
 
       
       
 
       
    3  
 
       
    4  
 
       
    5  
 
       
    6  
 
       
    7  
 
       
    22  
 
       
    27  
 
       
    27  
 
       
Part II — Other Information
 
       
    29  
    29  
    29  
    29  
    29  
    29  
    30  
    31  
 EX-11
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

 


Table of Contents

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

3.


Table of Contents

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

4.


Table of Contents

CSB BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
                 
    Three Months Ended  
    March 31,  
(Dollars in thousands, except per share data)   2011     2010  
Balance at beginning of period
  $ 47,154     $ 45,822  
Comprehensive income:
               
Net income
    896       737  
Change in net unrealized gain (loss), net of reclassification adjustments and related income taxes of ($52) and $54, respectively
    (101 )     104  
 
           
Total comprehensive income
    795       841  
 
               
Cash dividends declared
($0.18 per share in 2011 and 2010)
    (492 )     (492 )
 
           
Balance at end of period
  $ 47,457     $ 46,171  
 
           
See notes to unaudited consolidated financial statements.

5.


Table of Contents

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

6.


Table of Contents

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed consolidated financial statements include the accounts of CSB Bancorp, Inc. and its wholly-owned subsidiaries, The Commercial and Savings Bank and CSB Investment Services, LLC (together referred to as the “Company” or “CSB”). All significant intercompany transactions and balances have been eliminated in consolidation.
The condensed consolidated financial statements have been prepared without audit. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present fairly the Company’s financial position at March 31, 2011, and the results of operations and changes in cash flows for the periods presented have been made.
Certain information and footnote disclosures typically included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted. The Annual Report for CSB for the year ended December 31, 2010, contains consolidated financial statements and related footnote disclosures, which should be read in conjunction with the accompanying consolidated financial statements. The results of operations for the periods ended March 31, 2011 are not necessarily indicative of the operating results for the full year or any future interim period.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends Subtopic 820-10 to clarify existing disclosures, require new disclosures, and includes conforming amendments to guidance on employers’ disclosures about postretirement benefit plan assets. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements.
In July 2010, FASB issued ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. ASU 2010-20 is intended to provide additional information to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The amendments in ASU 2010-20 encourage, but do not require, comparative disclosures for earlier reporting periods that ended before initial adoption. However, an entity should provide comparative disclosures for those reporting periods ending after initial adoption. The Company is currently evaluating the impact the adoption of this guidance will have on the Company’s financial position or results of operations.

7.


Table of Contents

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In December, 2010, the FASB issued ASU 2010- 28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. This ASU modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating an impairment may exist. The qualitative factors are consistent with the existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments in this update are effective for fiscal year, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Nonpublic entities may early adopt the amendments using the effective date for public entities. This ASU is not expected to have a significant impact on the Company’s financial statements.
In December 2010, the FASB issued ASU 2010- 29, Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments in this update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.
In April 2011, the FASB issued ASU 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. The amendments in this update provide additional guidance or clarification to help creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring. The amendments in this update are effective for the first interim or annual reporting period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. This ASU is not expected to have a significant impact on the Company’s financial statements.

8.


Table of Contents

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

9.


Table of Contents

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 — SECURITIES (CONTINUED)
The amortized cost and fair value of debt securities at March 31, 2011, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
                 
Due in one year or less
  $ 1,978     $ 1,988  
Due after one through five years
    7,487       7,633  
Due after five through ten years
    19,908       20,163  
Due after ten years
    52,473       53,243  
 
           
Total debt securities available-for-sale
  $ 81,846     $ 83,027  
 
           
Realized Gains and Losses
There were no sales of available-for-sale securities for the three month periods ending March 31, 2011 or 2010. Gains or losses on the sales of available-for-sale securities are recognized upon sale and are determined by the specific identification method.
At least quarterly, the Company conducts a comprehensive security-level impairment assessment. The assessments are based on the nature of the securities, the extent and duration of the securities, the extent and duration of the loss and management’s intent to sell or if it is more likely than not that management will be required to sell a security before recovery of its amortized cost basis, which may be maturity. Management believes the Company will fully recover the cost of these securities and it does not intend to sell these securities and likely will not be required to sell them before the anticipated recovery of the remaining amortized cost basis, which may be maturity. As a result, management concluded that these securities were not other -than-temporarily impaired at March 31, 2011 and has recognized the total amount of the impairment in other comprehensive income, net of tax.

10.


Table of Contents

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 — SECURITIES (CONTINUED)
The following table presents gross unrealized losses and fair value of securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2011 and December 31, 2010:
                                                 
    Securities in a continuous unrealized loss position  
    Less than 12 months     12 months or more     Total  
    Gross             Gross             Gross        
    unrealized     Fair     unrealized     Fair     unrealized     Fair  
(Dollars in thousands)   losses     value     losses     value     losses     value  
March 31, 2011
                                               
Obligations of U.S. Corporations and agencies
  $ 299     $ 13,692     $     $     $ 299     $ 13,692  
Mortgage-backed securities in government sponsored entities
    111       7,945       9       394       120       8,339  
Obligations of state & political subdivisions
    35       2,569                   35       2,569  
Corporate bonds
    2       498                   2       498  
 
                                   
Total debt securities
    447       24,704       9       394       456       25,098  
Equity securities in financial institutions
                14       40       14       40  
 
                                   
Total temporarily impaired securities
  $ 447     $ 24,704     $ 23     $ 434     $ 470     $ 25,138  
 
                                   
 
                                               
December 31, 2010
                                               
Obligations of U.S. Corporations and agencies
  $ 306     $ 12,686     $     $     $ 306     $ 12,686  
Mortgage-backed securities in government sponsored entities
    14       4,032       14       493       28       4,525  
Obligations of state & political subdivisions
    46       2,561                   46       2,561  
Corporate bonds
    8       492                   8       492  
 
                                   
Total debt securities
    374       19,771       14       493       388       20,264  
Equity securities in financial institutions
                16       38       16       38  
 
                                   
Total temporarily impaired securities
  $ 374     $ 19,771     $ 30     $ 531     $ 404     $ 20,302  
 
                                   
There were twenty-three (23) securities in an unrealized loss position at March 31, 2011, three (3) of which were in a continuous loss position for twelve months or more. There were twenty-two (22) securities in an unrealized loss position at December 31, 2010, one (1) of which was in a continuous loss position for twelve months or more.

11.


Table of Contents

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 — LOANS
The Company grants commercial, commercial real estate, residential and consumer loans primarily to customers in Holmes, Tuscarawas, Wayne, Stark and contiguous counties in north central Ohio.
Loans consist of the following:
                 
(Dollars in thousands)   March 31, 2011     December 31, 2010  
Commercial
  $ 85,778     $ 78,540  
Commercial real estate
    105,839       104,829  
Residential real estate
    107,053       108,832  
Consumer
    6,850       6,715  
Construction & Land Development
    16,297       16,515  
 
           
Total loans before deferred costs
    321,817       315,431  
Deferred loan costs
    200       216  
 
           
Total Loans
  $ 322,017     $ 315,647  
 
           
Loan Origination/Risk Management
The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.
Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Underwriting standards are designed to promote relationship banking rather than transactional banking. The Company’s management examines current and occasionally projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and usually incorporate the personal guarantees of business owners; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.
Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type.
This diversity helps reduce the Company’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. In addition, management tracks the level of owner-occupied commercial real estate loans versus non- owner occupied loans. At March 31, 2011 approximately 87% of the outstanding principal balances of the Company’s commercial real estate loans were secured by owner-occupied properties.

12.


Table of Contents

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 — LOANS (CONTINUED)
With respect to loans to developers and builders that are secured by non-owner occupied properties, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction loans are underwritten utilizing independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the completed project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources or repayment for these types of loans may be pre-committed permanent loans from the Company or other approved long- term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.
The Company originates consumer loans utilizing a judgmental underwriting process. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed, jointly by lenders and loan support personnel. This activity, coupled with relatively small loan amounts spread across many individual borrowers, minimizes risk.
The Company utilizes an independent loan review vendor that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management and the Audit Committee of the Board of Directors. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.
Concentrations of Credit
Nearly all of the Company’s lending activity occurs within the State of Ohio, including the four counties of Holmes, Stark, Tuscarawas and Wayne, as well as other markets. The majority of the Company’s loan portfolio consists of owner occupied commercial real estate and commercial loans. As of March 31, 2011 and December 31, 2010, there were no concentrations of loans related to any single industry in excess of 8.4% and 6.2% respectively, of total loans.
The following table represents a summary of the activity in the allowance for loan losses for the three months ended March 31, 2011 and 2010:
                 
    Three Months Ended March 31,  
(Dollars in thousands)   2011     2010  
 
Beginning balance
  $ 4,031     $ 4,060  
Provision for loan losses
    280       519  
Loans charged-off
    (316 )     (289 )
Recoveries
    33       66  
 
           
Ending balance
  $ 4,028     $ 4,356  
 
           

13.


Table of Contents

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 — LOANS (CONTINUED)
The following table details activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2011. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
                                                         
                                    Construction              
            Commercial     Residential             & Land              
(Dollars in thousands)   Commercial     Real Estate     Real Estate     Consumer     Development     Unallocated     Total  
 
March 31, 2011
                                                       
Beginning balance
  $ 1,179     $ 1,183     $ 1,057     $ 80     $ 213     $ 319     $ 4,031  
Provision for possible loan losses
    11       330       69       33       (55 )     (108 )     280  
Charge-offs
    (204 )           (68 )     (44 )                 (316 )
Recoveries
    10             9       14                   33  
 
                                         
Net charge-offs
    (194 )           (59 )     (30 )                 (283 )
 
                                         
Ending balance
  $ 996     $ 1,513     $ 1,067     $ 83     $ 158     $ 211     $ 4,028  
 
                                         

14.


Table of Contents

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

15.


Table of Contents

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 — LOANS (CONTINUED)
The following table presents loans individually evaluated for impairment by class of loans as of March 31, 2011 and December 31, 2010:
                                                 
            Recorded     Recorded                    
    Unpaid     Investment     Investment     Total           Average  
    Principal     with no     with     Recorded     Related     Recorded  
(Dollars in thousands)   Balance     Allowance     Allowance     Investment     Allowance     Investment  
 
March 31, 2011
                                               
Commercial
  $ 553     $ 186     $ 264     $ 450     $ 101     $ 502  
Commercial real estate
    3,759       602       2,585       3,187       463       3,262  
Residential real estate
    65       48             48             48  
Construction & land development
    638       390             390             415  
 
                                   
Total impaired loans
  $ 5,015     $ 1,226     $ 2,849     $ 4,075     $ 564     $ 4,227  
 
                                   
 
                                               
December 31, 2010
                                               
Commercial
  $ 644     $ 51     $ 571     $ 622     $ 106     $ 571  
Commercial real estate
    1,047       109       777       886       132       1,631  
Residential real estate
    590       298             298             97  
Construction & land development
    683             440       440       92       483  
 
                                   
Total impaired loans
  $ 2,964     $ 458     $ 1,788     $ 2,246     $ 330     $ 2,782  
 
                                   
The following table presents the aging of past due and nonaccrual loans as of March 31, 2011 and December 31, 2010 by class of loans:
                                                         
                                    Total              
            30 - 59     60 - 89             Past Due              
            Days     Days     90 Days +     and     Non-     Total  
(Dollars in thousands)   Current     Past Due     Past Due     Past Due     Accruing     Accrual     Loans  
 
March 31, 2011
                                                       
Commercial
  $ 85,521     $ 118     $ 19     $ 100     $ 237     $ 20     $ 85,778  
Commercial real estate
    103,658       136       401       27       564       1,617       105,839  
Residential real estate
    103,943       779       582       242       1,603       1,507       107,053  
Consumer
    6,788       39       23             62             6,850  
Construction & land development
    15,894       3                   3       400       16,297  
 
                                         
Total Loans
  $ 315,804     $ 1,075     $ 1,025     $ 369     $ 2,469     $ 3,544     $ 321,817  
 
                                         
 
                                                       
December 31, 2010
                                                       
Commercial
  $ 78,235     $ 63     $ 160     $ 58     $ 281     $ 24     $ 78,540  
Commercial real estate
    100,914       2,156       114       26       2,296       1,619       104,829  
Residential real estate
    105,593       574       253       601       1,428       1,811       108,832  
Consumer
    6,580       69       66             135             6,715  
Construction & land development
    16,061       3                   3       451       16,515  
 
                                         
Total Loans
  $ 307,383     $ 2,865     $ 593     $ 685     $ 4,143     $ 3,905     $ 315,431  
 
                                         

16.


Table of Contents

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 — LOANS (CONTINUED)
Troubled Debt Restructurings
The Company has troubled debt restructurings of $4.5 million as of March 31, 2011, and $4.1 million as of December 31, 2010, with $328 thousand and $22 thousand of specific reserves allocated as of March 31, 2011 and December 31, 2010 respectively to customers whose loan terms have been modified in troubled debt restructurings.
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes commercial loans individually by classifying the loans as to credit risk. This analysis includes commercial loans with an outstanding balance greater than $275 thousand and is performed on an annual basis.
The Company uses the following definitions for risk ratings:
Pass. Loans classified as pass (Acceptable, Low Acceptable or Pass Watch) may exhibit a wide array of characteristics but at minimum represent an acceptable risk to the bank. Borrowers in this rating may have leveraged but acceptable balance sheet positions, satisfactory asset quality, and stable to favorable sales and earnings trends, acceptable liquidity and adequate cash flow. Loans are considered fully collectible and require an average amount of administration. While generally adhering to credit policy, these loans may exhibit occasional exceptions that do not result in undue risk to the Bank. Borrowers are generally capable of absorbing setbacks, financial and otherwise, without the threat of failure.
Special Mention. Loans classified as special mention have material weaknesses that deserve management’s close attention. If left uncorrected, these weaknesses may result in deterioration of the repayment prospects for the loan at some future date.
Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loans that do not meet the criteria for special mention, substandard or doubtful classification, when analyzed individually as part of the above described process are considered to be pass rated loans. As of March 31, 2011 and December 31, 2010, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

17.


Table of Contents

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 — LOANS (CONTINUED)
                                                 
            Special                          
(Dollars in thousands)   Pass     Mention     Substandard     Doubtful     Not Rated     Total  
 
March 31, 2011
                                               
Commercial
  $ 73,887     $ 1,787     $ 9,403     $     $ 701     $ 85,778  
Commercial real estate
    87,313       7,834       8,253             2,439       105,839  
Residential real estate
    1,377             358             105,318       107,053  
Consumer
                1             6,849       6,850  
Construction & land development
    10,921       3,052       954             1,370       16,297  
 
                                   
Total
  $ 173,498     $ 12,673     $ 18,969     $     $ 116,677     $ 321,817  
 
                                   
December 31, 2010
                                               
Commercial
  $ 65,371     $ 3,843     $ 9,252     $     $ 74     $ 78,540  
Commercial real estate
    78,191       9,982       8,188             8,468       104,829  
Residential real estate
    1,153             365             107,314       108,832  
Consumer
                2             6,713       6,715  
Construction & land development
    11,626       2,905       591             1,393       16,515  
 
                                   
Total
  $ 156,341     $ 16,730     $ 18,398     $     $ 123,962     $ 315,431  
 
                                   
Loans listed as not rated are either less than $275 thousand or are included in groups of homogeneous loans. The following table presents loans that are not rated by class of loans as of March 31, 2011 and December 31, 2010. Non-performing loans include loans past due 90 days and greater and loans on nonaccrual of interest.
                         
(Dollars in thousands)   Performing     Non-Performing     Total  
 
March 31, 2011
                       
Commercial
  $ 701     $     $ 701  
Commercial real estate
    2,439             2,439  
Residential real estate
    103,568       1,750       105,318  
Consumer
    6,849             6,849  
Construction & land development
    1,360       10       1,370  
 
                 
Total
  $ 114,917     $ 1,760     $ 116,677  
 
                 
December 31, 2010
                       
Commercial
  $ 74     $     $ 74  
Commercial real estate
    8,468             8,468  
Residential real estate
    105,201       2,133       107,334  
Consumer
    6,713             6,713  
Construction & land development
    1,383       10       1,393  
 
                 
Total
  $ 121,839     $ 2,143     $ 123,982  
 
                 
Loans serviced for others approximated $50.6 million and $45.1 million at March 31, 2011 and December 31, 2010, respectively.
NOTE 4 — FAIR VALUE MEASUREMENTS
The Company provides disclosures about assets and liabilities carried at fair value. The framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and lowest priority to unobservable inputs. The three broad levels of the fair value hierarchy are described below:

18.


Table of Contents

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 — FAIR VALUE MEASUREMENTS (CONTINUED)
Level I:     Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
 
Level II:     Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; inputs that are derived principally from or corroborated by observable market data by corroborated or other means. If the asset or liability has a specified (contractual) term, the Level II input must be observable for substantially the full term of the asset or liability.
 
Level III:     Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The following table presents the assets reported on the consolidated statements of financial condition at their fair value as of March 31, 2011 and December 31, 2010, by level within the fair value hierarchy. No liabilities are carried at fair value. As required by the accounting standards, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Equity securities and U.S. Treasury Notes are valued at the closing price reported on the active market on which the individual securities are traded. Obligations of U.S. government corporations and agencies, mortgage -backed securities and obligations of states and political subdivisions are valued at observable market data for similar assets.
                                 
(Dollars in thousands)   Level I     Level II     Level III     Total  
    March 31, 2011
Assets:
                               
Securities available-for-sale
                               
U.S. Treasury security
  $ 100     $     $     $ 100  
Obligations of U.S. government corporations and agencies
          25,708             25,708  
Mortgage-backed securities in government sponsored entities
          43,473             43,473  
Obligations of states and political subdivisions
          12,748             12,748  
Corporate bonds
          998             998  
 
                       
Total debt securities
    100       82,927             83,027  
Equity securities in financial institutions
    58                   58  
 
                       
Total available-for-sale securities
  $ 158     $ 82,927     $     $ 83,085  
 
                       
 
                               
    December 31, 2010
Assets:
                               
Securities available-for-sale
                               
U.S. Treasury security
  $ 100     $     $     $ 100  
Obligations of U.S. government corporations and agencies
          19,711             19,711  
Mortgage-backed securities in government sponsored entities
          42,351             42,351  
Obligations of states and political subdivisions
          11,994             11,994  
Corporate bonds
          992             992  
 
                       
Total debt securities
    100       75,048             75,148  
Equity securities in financial institutions
    56                   56  
 
                       
Total available-for-sale securities
  $ 156     $ 75,048     $     $ 75,204  
 
                       

19.


Table of Contents

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 — 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 March 31, 2011, and December 31, 2010, 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. Premises include a building currently used for storage that has been written down to appraised value. The fair value of mortgage servicing rights is based on a valuation model that calculates the present value of estimated net servicing income. The valuation model incorporates assumptions based on management’s best judgment that are significant inputs to the discounting calculations. 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. 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.
                                 
(Dollars in thousands)   Level I   Level II   Level III   Total
    March 31, 2011
Assets measured on a nonrecurring basis:
                               
Impaired loans
          $ 3,511     $ 3,511  
Other real estate owned
                30       30  
Premises
                193       193  
Mortgage servicing rights
                164       164  
 
                               
    December 31, 2010
Impaired loans
          $ 1,916     $ 1,916  
Other real estate owned
                36       36  
Premises
                200       200  
Mortgage servicing rights
                155       155  
NOTE 5 — FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of recognized financial instruments as of March 31, 2011 and December 31, 2010 are as follows:
                                 
    2011   2010
    Carrying   Fair   Carrying   Fair
(Dollars in thousands)   value   value   value   value
Financial assets:
                               
Cash and cash equivalents
  $ 22,000     $ 22,000     $ 48,360     $ 48,360  
Securities
    88,548       88,548       80,667       80,667  
Loans, net
    317,989       322,450       311,616       316,474  
Accrued interest receivable
    1,443       1,443       1,215       1,215  
Financial liabilities:
                               
Deposits
  $ 348,209     $ 350,083     $ 353,491     $ 355,589  
Short-term borrowings
    28,382       28,382       32,018       32,018  
Other borrowings
    19,707       19,497       22,909       23,042  
Accrued interest payable
    195       195       213       213  

20.


Table of Contents

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 — FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
Loans, net
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.
Deposits and Other Borrowed Funds
The fair values of certificates of deposit and other borrowed funds are 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. Demand, savings, and money market deposit accounts are valued at the amount payable on demand as of year end.
The Company also has unrecognized financial instruments at March 31, 2011 and December 31, 2010. These financial instruments relate to commitments to extend credit and letters of credit. The aggregated contract amount of such financial instruments was approximately $72,777,000 at March 31, 2011 and $76,017,000 at December 31, 2010. 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.

21.


Table of Contents

CSB BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion focuses on the consolidated financial condition of CSB Bancorp, Inc. and its subsidiaries (the “Company”) at March 31, 2011 as compared to December 31, 2010, and the consolidated results of operations for the three month period ended March 31, 2011 compared to the same periods in 2010. The purpose of this discussion is to provide the reader with a more thorough understanding of the consolidated financial statements. This discussion should be read in conjunction with the interim consolidated financial statements and related footnotes.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report are not historical facts but rather are forward-looking statements that are subject to certain risks and uncertainties. When used herein, the terms “anticipates”, “plans”, “expects”, “believes”, and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. The Company’s actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, and rapidly changing technology affecting financial services.
The Company does not undertake, and specifically disclaims any obligation, to publicly revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
FINANCIAL CONDITION
Total assets were $445.4 million at March 31, 2011, compared to $457.1 million at December 31, 2010, representing a decrease of $11.7 million, or 2.6%. Cash and cash equivalents decreased $26.4 million, or 54.5%, during the three-month period ending March 31, 2011, primarily as a result of increases in securities and loans. Securities increased $7.9 million, or 9.8%, during the first three months of 2011 as purchases were made within the US Government Agency portfolio and mortgage-backed securities issued by government sponsored agencies. Net loans increased $6.4 million, or 2.0%, while deposits decreased $5.3 million, or 1.5%, during the three-month period. Short-term borrowings of securities sold under repurchase agreement decreased $3.6 million and Federal Home Loan Bank advances decreased $3.2 million, during the period as advances matured and required amortized payments were made on outstanding advances at the Federal Home Loan Bank.
Net loans increased $6.4 million, or 2.0%, during the three-month period ended March 31, 2011. Commercial loans increased $7.2 million, or 9.2%, commercial real estate loans increased $1.0 million, or 1.0%, and home equity lines increased $192 thousand, or 1.0%, over December 31, 2010. Decreases were recognized in real estate mortgage loans of $2.1 million, or 2.9% and consumer installment loans of $135 thousand, or 2.0%. Consumers continued to refinance their mortgage loans for lower long-term rates offered in the secondary market. The allowance for loan losses amounted to $4.0 million or 1.25% of total loans at March 31, 2011 compared to $4.0 million or 1.28% of total loans at December 31, 2010.

22.


Table of Contents

CSB BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The allowance for loan losses as a percentage of total loans decreased at March 31, 2011 as compared to December 31, 2010. Outstanding loan balances increased 2.0% to $322 million at March 31, 2011 while net charge-offs of $283 thousand were partially offset by a provision of $280 thousand to the allowance for the three months ended March 31, 2011. Non-performing loans decreased $677 thousand or 15% from December 31, 2010, with improvement in both the past-due 90 days and still accruing and the non accrual loan categories.
                         
    March 31,   December 31,   March 31,
(Dollars in thousands)   2011   2010   2010
Non-performing loans
  $ 3,913     $ 4,589     $ 6,221  
Other real estate
    30       36       271  
Allowance for loan losses
    4,028       4,031       4,356  
Total loans
    322,017       315,647       310,899  
Allowance: loans
    1.25 %     1.28 %     1.40 %
Allowance: non-performing loans
    1.0 x     0.9 x     0.7 x
The ratio of gross loans to deposits was 92.5% at March 31, 2011, compared to 89.3% at December 31, 2010. The increase in this ratio is the result of increases in loan volume and decreases in deposits during the three months ended March 31, 2011.
The Company had net unrealized gains of $1.2 million within its securities portfolio at March 31, 2011, compared to net unrealized gains of $1.3 million at December 31, 2010. The Company has no exposure to government -sponsored enterprise preferred stocks, collateralized debt obligations or trust preferred securities. The Company holds 2 issues of nonagency collateralized mortgage obligations that have paid down to $980 thousand outstanding from an original face of $5.5 million. The Company has the ability and intent to hold the bonds until the recovery of their cost and there is no significant evidence to support an adverse change in the expected cash flows. Management has considered industry analyst reports, sector credit reports and the volatility within the bond market in concluding that the gross unrealized losses of $470 thousand within the total portfolio as of March 31, 2011, were primarily the result of customary and expected fluctuations in the bond market and not necessarily the expected cash flows of the individual securities. As a result, all security impairments detailed above on March 31, 2011, are considered temporary and no impairment loss relating to these securities has been recognized.
Short-term borrowings decreased $3.6 million from December 31, 2010 and other borrowings decreased $3.2 million as the Company used cash from interest- earning deposits in other banks to repay required maturities and monthly payments on advances from the Federal Home Loan Bank (“FHLB”).
Deposits decreased $5.3 million or 1.5% from December 31, 2010 with non-interest bearing deposits decreasing $8.8 million and interest-bearing deposit accounts increasing $3.5 million. By deposit type, increases were recognized in statement savings and passbooks and money market savings accounts for the period ended March 31, 2011.
Total shareholders’ equity amounted to $47.5 million, or 10.7%, of total assets, at March 31, 2011, compared to $47.2 million, or 10.3% of total assets, at December 31, 2010. The increase in shareholders’ equity during the three-months ended March 31, 2011 was due to net income of $896 thousand. The increase was partially offset by dividends declared of $492 thousand and a decrease in other comprehensive income of $101 thousand. The Company and its subsidiary bank met all regulatory capital requirements at March 31, 2011.

23.


Table of Contents

CSB BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended March 31, 2011 and 2010
For the quarter ended March 31, 2011, the Company recorded net income of $896 thousand or $0.33 per share, as compared to net income of $737 thousand, or $0.27 per share for the quarter ended March 31, 2010. The $159 thousand increase in net income for the quarter was a result of a decrease in the provision for loan losses of $239 thousand, net interest income increasing $53 thousand and an increase in other income of $30 thousand. These gains were partially offset by an increase in noninterest expense of $79 thousand and an increase in the federal income tax provision of $84 thousand. Return on average assets and return on average equity were 0.80% and 7.67%, respectively, for the three-month period of 2011, compared to 0.67% and 6.44%, respectively for 2010.
Average Balance Sheets and Net Interest Margin Analysis
                                 
    For the three months ended March 31,  
    2011     2010  
    Average     Average     Average     Average  
(Dollars in thousands)   balance     rate     balance     rate  
ASSETS
                               
Due from banks-interest bearing
  $ 23,321       0.30 %   $ 31,185       0.25 %
Federal funds sold
    90       0.11       186       0.11  
Taxable securities
    73,941       3.26       69,650       4.37  
Tax-exempt securities
    11,688       5.12       9,677       5.31  
Loans
    319,646       5.39       311,789       5.61  
 
                           
Total earning assets
    428,686       4.74 %     422,487       5.00 %
Other assets
    22,980               22,429          
 
                           
TOTAL ASSETS
  $ 451,666             $ 444,916          
 
                           
 
                               
LIABILITIES AND SHAREHOLDERS’ EQUITY
                               
Interest bearing demand deposits
  $ 52,341       0.08 %   $ 53,946       0.08 %
Savings deposits
    82,242       0.27       71,994       0.39  
Time deposits
    149,844       1.95       148,665       2.17  
Other borrowed funds
    53,092       1.73       69,901       2.31  
 
                           
Total interest bearing liabilities
    337,519       1.22 %     344,506       1.50 %
Non-interest bearing demand deposits
    65,147               52,381          
Other liabilities
    1,613               1,589          
Shareholders’ Equity
    47,387               46,440          
 
                           
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 451,666             $ 444,916          
 
                           
 
                               
Taxable equivalent net interest spread
            3.52 %             3.50 %
Taxable equivalent net interest margin
            3.78 %             3.78 %
Interest income for the quarter ended March 31, 2011, was $4.9 million representing a $210 thousand decrease, or 4.1% decline, compared to the same period in 2010. This decrease was primarily due to a decline in the average taxable investment yield of 1.11% to 3.26% for the quarter ended March 31, 2011 as compared to a taxable investment yield of 4.37% for the first quarter ended March 31, 2010. Additionally, average loan yields declined by 0.22% to 5.39% from 5.61% for the quarter ended March 31, 2011 as compared the first quarter 2010. Interest expense for the quarter ended March 31, 2011 was $1.0 million, a decrease of $263 thousand or 20.6%, from the same period in 2010. The decrease in interest expense occurred primarily due to decrease of 0.58% in interest rates paid on other borrowed funds representing FHLB advances combined with the maturity and payback of $16.8 million of average FHLB advances from the previous year.

24.


Table of Contents

CSB BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The provision for loan losses for the quarter ended March 31, 2011, was $280 thousand, compared to a $519 thousand provision for the same quarter in 2010. The provision for loan losses is determined based on management’s calculation of the adequacy of the allowance for loan losses, which includes provisions for classified loans as well as for the remainder of the portfolio based on historical data including past charge-offs and current economic trends.
Non-interest income for the quarter ended March 31, 2011, was $761 thousand, an increase of $30 thousand, or 4.1%, compared to the same quarter in 2010. During the first quarter ended 2011, service charges on deposit accounts decreased $24 thousand or 8.9%, as consumers decreased their usage of overdraft products and maintained higher average deposit balances. The gain on the sale of mortgage loans to the secondary market increased to $70 thousand for the three month period ended March 31, 2011, from $46 thousand in the three-month period ended March 31, 2010. Refinancing activity has moderated and may continue to decline for the rest of 2011.
The Company sold no securities during the first quarter of 2011 or 2010.
Non-interest expenses for the quarter ended March 31, 2011 increased $79 thousand, or 2.6%, compared to the first quarter of 2010. Salaries and employee benefits increased $159 thousand, or 9.9%. Incentive and profit sharing accruals of $158 thousand were recorded for the quarter ending March 31, 2011 compared to no incentive and profit sharing accruals being recorded for the quarter ending March 31, 2010.
Occupancy and equipment expenses decreased $7 thousand in 2011 over the first quarter of 2010. Other operating expenses decreased $61 thousand primarily due to lower loan collection expense.
Federal income tax expense increased $84 thousand, or 26.7% for the quarter ended March 31, 2011 as compared to the first quarter of 2010. The provision for income taxes was $399 thousand (effective rate of 30.8%) for the quarter ended March 31, 2011, compared to $315 thousand (effective rate of 29.9%) for the quarter ended March 31, 2010. The increase in the effective tax rate resulted from improved income.
CAPITAL RESOURCES
The Federal Reserve Board (FRB) has established risk-based capital guidelines that must be observed by financial holding companies and banks. Failure to meet specified minimum capital requirements could result in regulatory actions by the Federal Reserve or Ohio Division of Financial Institutions that could have a material effect on the Company’s financial condition or results of operations. Management believes there were no material changes to Capital Resources as presented in CSB Bancorp’s annual report on Form 10-K for the year ended December 31, 2010, and as of March 31, 2011 the holding company and its bank meet all capital adequacy requirements to which they are subject.

25.


Table of Contents

CSB BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY
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 primary sources of liquidity are cash and cash equivalents, which totaled $22.0 million at March 31, 2011, a decrease of $26.4 million from $48.4 million at December 31, 2010. Net income, securities available-for-sale, and loan repayments also serve as sources of liquidity. Cash and cash equivalents and estimated principal cash flow and maturities on investments maturing within one year represent 10.5% of total assets as of March 31, 2011 compared to 13.7% of total assets at year-end 2010. Other sources of liquidity include, but are not limited to, purchase of federal funds, advances from the FHLB, adjustments of interest rates to attract deposits, and borrowing at the Federal Reserve discount window. Management believes that its sources of liquidity are adequate to meet cash flow obligations for the foreseeable future.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements (as such term is defined in applicable Securities and Exchange Commission rules) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

26.


Table of Contents

CSB BANCORP, INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the quantitative and qualitative disclosures about market risks as of March 31, 2011, from that presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010. Management performs a quarterly analysis of the Company’s interest rate risk. All positions are currently within the Company’s board-approved policy.
The following table presents an analysis of the estimated sensitivity of the Company’s annual net interest income to sudden and sustained 100, 200 and 300 basis point changes in market interest rates at March 31, 2011 and December 31, 2010. Due to the current low interest rate environment, particularly for short-term rates, the decreasing change is not calculated, and instead a 300 basis point rising rate environment is shown:
                         
March 31, 2011
(Dollars in thousands)        
Change in   Net        
interest rates   interest   Dollar   Percentage
(basis points)   income   change   change
+ 300
  $ 16,784     $ 205       1.2 %
+ 200
    16,612       33       0.2  
+ 100
    16,583       4       0.0  
0
    16,579              
- 100
    N/A       N/A       N/A  
                         
December 31, 2010
Change in   Net        
interest rates   interest   Dollar   Percentage
(basis points)   income   change   change
+ 300
  $ 16,275     $ 443       2.8 %
+ 200
    16,073       241       1.5  
+ 100
    15,906       74       0.5  
0
    15,832              
- 100
    N/A       N/A       N/A  
ITEM 4T — CONTROLS AND PROCEDURES
     With the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a -15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that:
  (a)   information required to be disclosed by the Company in this Quarterly Report on Form 10-Q would be accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure;
 
  (b)   information required to be disclosed by the Company in this Quarterly Report on Form 10-Q would be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and

27.


Table of Contents

CSB BANCORP, INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4T — CONTROLS AND PROCEDURES (CONTINUED)
  (c)   the Company’s disclosure controls and procedures are effective as of the end of the period covered by this Quarterly Report on Form 10- Q to ensure that material information relating to the Company and its consolidated subsidiary is made known to them, particularly during the period for which our periodic reports, including this Quarterly Report on Form 10-Q, are being prepared.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes during the period covered by this Quarterly Report on Form 10-Q in our internal control over financial reporting (as defined in Rule 13a- 15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

28.


Table of Contents

CSB BANCORP, INC.
FORM 10-Q
Quarter ended March 31, 2011
PART II — OTHER INFORMATION
ITEM 1-   LEGAL PROCEEDINGS

There are no matters required to be reported under this item.
ITEM 1A-   RISK FACTORS

There are no matters required to be reported under this item.
ITEM 2-   On July 7, 2005 CSB Bancorp, Inc. filed Form 8-k with the Securities and Exchange Commission announcing that its Board of Directors approved a Stock Repurchase Program authorizing the repurchase of up to 10% of the Company’s common shares then outstanding. Repurchases will be made from time to time as market and business conditions warrant, in the open market, through block purchases and in negotiated private transactions.
ITEM 3-   DEFAULTS UPON SENIOR SECURITIES:

There are no matters required to be reported under this item.
ITEM 4-   REMOVED AND RESERVED:
ITEM 5-   OTHER INFORMATION:

There are no matters required to be reported under this item.

29.


Table of Contents

CSB BANCORP, INC.
FORM 10-Q
Quarter ended March 31, 2011
PART II — OTHER INFORMATION
Item 6   -Exhibits:
     
Exhibit    
Number   Description of Document
 
   
3.1
  Amended Articles of Incorporation of CSB Bancorp, Inc. (incorporated by reference to Registrant’s Form 10-KSB for the Fiscal Year ended December 31, 1994).
 
   
3.1.1
  Amended form of Article Fourth of Amended Articles of Incorporation, as effective April 9, 1998 (incorporated by reference to Registrant’s Form 10-K for the Fiscal Year ended December 31, 1998).
 
   
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 for the Fiscal Year ended December 31, 2008).
 
   
4.0
  Specimen stock certificate (incorporated by reference to Registrant’s Form 10-SB).
 
   
11
  Statement Regarding Computation of Per Share Earnings (reference is hereby made to Consolidated Statements of Income on page 4 hereof).
 
   
31.1
  Rule 13a-14(a)/15d-14(a) CEO’s Certification
 
   
31.2
  Rule 13a-14(a)/15d-14(a) CFO’s Certification
 
   
32.1
  Section 1350 CEO’s Certification
 
   
32.2
  Section 1350 CFO’s Certification

30.


Table of Contents

CSB BANCORP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
         
  CSB BANCORP, INC.
(Registrant)
 
 
Date: May 13, 2011  /s/ Eddie L. Steiner    
  Eddie L. Steiner   
  President
Chief Executive Officer 
 
 
     
Date: May 13, 2011  /s/ Paula J. Meiler    
  Paula J. Meiler    
  Senior Vice President
Chief Financial Officer 
 

31.


Table of Contents

         
CSB BANCORP, INC.
INDEX TO EXHIBITS
     
Exhibit    
Number   Description of Document
 
   
3.1
  Amended Articles of Incorporation of CSB Bancorp, Inc. (incorporated by reference to Registrant’s Form 10-KSB for the Fiscal Year ended December 31, 1994).
 
   
3.1.1
  Amended form of Article Fourth of Amended Articles of Incorporation, as effective April 9, 1998 (incorporated by reference to Registrant’s Form 10-K for the Fiscal Year ended December 31, 1998).
 
   
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 for the Fiscal Year ended December 31, 2008).
 
   
4.0
  Specimen stock certificate (incorporated by reference to Registrant’s Form 10-SB).
 
   
11
  Statement Regarding Computation of Per Share Earnings (reference is hereby made to Consolidated Statements of Income on page 4 hereof).
 
   
31.1
  Rule 13a-14(a)/15d-14(a) CEO’s Certification
 
   
31.2
  Rule 13a-14(a)/15d-14(a) CFO’s Certification
 
   
32.1
  Section 1350 CEO’s Certification
 
   
32.2
  Section 1350 CFO’s Certification

32.