CSB Bancorp (CSBB) 10-K 2006 FY Annual report

Exhibit 13

2006Report to
SHAREHOLDERS

2006 Financial Highlights	3
2006 Letter to Shareholders	4
2006 Financial Review	10
Report of Independent Registered Public Accounting Firm	26
Consolidated Balance Sheets	27
Consolidated Statements of Income	28
Consolidated Statements of Shareholders’ Equity	29
Consolidated Statements of Cash Flows	30
Summary of Significant Accounting Policies	32
Notes to Consolidated Financial Statements	36
Officers of The Commercial & Savings Bank	50
General Information	51

2006 FINANCIAL HIGHLIGHTS
          For the years ended December 31, 2006 and 2005

Dollars in thousands, except per share data	2006			2005			% Change
Consolidated Results
Net interest income	$	13,168		$	12,546			5	%
Net interest income–fully taxable-equivalent (“FTE”) basis		13,377			12,879			4
Noninterest income		2,592			2,580			< 1
Provision for loan losses		302			283			7
Noninterest expense		10,915			10,803			1
Net income		3,110			2,873			8
At Year-end
Loans, net	$	229,825		$	212,574			8	%
Assets		327,240			320,989			2
Deposits		260,178			255,403			2
Shareholders’ equity		35,070			35,170			< –1
Cash dividends declared		0.64			0.56			14
Book value		14.03			13.64			3
Market price		19.00			21.00			– 10
Basic earnings per share		1.23			1.09			13
Diluted earnings per share		1.23			1.09			13
Financial Performance
Return on average assets		0.97	%		0.91	%
Return on average equity		8.95			7.92
Net interest margin		4.38			4.23
Efficiency ratio		68.35			69.88
Capital Ratios
Risk-based capital:
Tier 1		15.90	%		17.10	%
Total		17.10			18.20
Leverage		10.80			11.10

3

CSB Bancorp, Inc.

2006  LETTER TO SHAREHOLDERS

DEAR FELLOW SHAREHOLDER

     Our Company made excellent progress in its continuous improvement efforts during 2006 as earnings increased for the sixth consecutive year, credit quality remained at a very high level, and enhanced products and services were introduced for our customers.

FINANCIAL PERFORMANCE

     Final results for 2006 reflect a 7% increase in return on assets, 8% increase in net income, and 13% increases in return on equity and earnings per share. Core performance exceeded our stated goals of 1% ROA and 9% ROE for 2006; however, factoring in the isolated irregularity reported during the second quarter, year-end results were just shy of our ROA and ROE targets. Our efficiency ratio, leverage ratio, and the ratio of allowance for loan losses to total loans all met targeted objectives. The graphs accompanying this letter reflect our consistent improvement in virtually every area of operating performance.

SENIOR MANAGEMENT

Eddie L. Steiner	Rick L. Ginther	Paul D. Greig	Paula J. Meiler
President,	President,	(Seated)	Senior Vice President,
Chief Executive Officer,	Chief Executive Officer,	Senior Vice President,	Chief Financial Officer
CSB Bancorp, Inc.	The Commercial & Savings Bank	Chief Operations/Information Officer

CREDIT QUALITY AND ASSET GROWTH

     We have diligently managed credit risk within the loan portfolio and are very pleased that net charge-offs for 2006 were only .06% of average loan balances. This was our fourth consecutive year of net charge-offs below .20%. At year-end, the allowance for loan and lease losses provided 172% coverage of nonperforming asset balances. At the same time, we were able to grow total loans outstanding by 8% over the prior year-end. We intend to remain focused on exemplary credit underwriting practices while continually developing new loan relationships.

NEW AND GROWING PRODUCTS AND SERVICES

     Our electronic banking services experienced significant increases in customer usage during 2006 as customers clearly demonstrated appreciation for the convenience of managing their finances 24/7 with our Xpress Net Banking services. We expect continued growth of cash management and electronic banking services in

CLOSING PRICE per share	EARNINGS per share	ANNUAL DIVIDENDS per share	BOOK VALUE per share

4

2006Report to Shareholders

LETTER TO SHAREHOLDERS
continued

THE COMMERCIAL & SAVINGS BANK

2007, bolstered particularly by our recent successful introduction ofXpress Remote Deposit Capture. With this exciting new service, businesses make deposits by processing their customers’ checks through a digital scanner and transmitting an image of those checks via secure Internet access to our bank for processing. This technology will also facilitate our growth strategy of developing new business relationships in geographic market areas where we do not currently offer the convenience of a local banking center.

     Trust and Brokerage also experienced significant growth during 2006 with both operations registering double-digit increases in assets under management. Trust assets under management exceeded $64 million at fiscal year-end and have doubled in the past three years. Brokerage assets under management exceeded $37 million at year-end. Margins remain very tight for both of these operations. During 2006, we set in motion a series of initiatives to increase the profitability of these services and anticipate both areas will be accretive to earnings in 2007.

     Our efforts have proven that many consumers are willing to switch their banking and investment business to a provider that offers higher levels of service, demonstrates an understanding of and commitment to meeting their needs, and integrates the use of technology to make their banking and financial tasks easier and more convenient. We want to be the preferred provider of financial services for as many personal and business customers as possible and we are therefore committed to continually enhancing the products and services we offer.

EFFICIENCY	ALLOWANCE FOR
RATIO	LOAN LOSSES
(tax equivalent basis)	to nonperforming loans

2006Success

BUSINESS
DEVELOPMENT TEAM

Helping Our Partners Grow

Back row, L–R: Eric Strouse, Chris Rickly, Bud Stebbins, Colby Chamberlin, Jason Hummel Seated at desk: Ervin Yoder

Many years ago, when banks were open from 9:00 a.m. – 3:00 p.m. and business customers needed a loan or other financial service, they had to come to the bank during those hours.

Today, our Business Development Team spends the majority of their time out of the Bank working directly with customers at their places of business. This progressive approach allows team members to meet with customers and prospective customers when it is convenient for them, sometimes early in the morning or later in the evening.

We want business owners and organization leaders to rely on CSB for all of their financial service needs. Our goal is to maximize the value we bring to the customer relationship. We strive to understand customer goals and the markets they serve in order to provide effective guidance and the highest level of support. Call a member of CSB’s Business Development Team to experience the benefits of having the CSB team working to help you accomplish your business goals.

To contact our Business Development Team, please call330-674-9015or1-800-654-9015.

5

CSB Bancorp, Inc.

LETTER TO SHAREHOLDERS
continued

THE COMMERCIAL & SAVINGS BANK

2006Success

FREE & EASY
XPRESS BILLPAY

It’s time to start living Free & Easy

This was the slogan of our marketing campaign that introduced free Xpress BillPay to the market in May 2006. The campaign proved to be successful as through year-end, we increased the number of BillPay customers by 254%!

While we have offered Xpress BillPay for several years, there was always a monthly fee assessed. We have now made the service FREE for all CSB checking account customers who also have a debit card.

If you are not familiar with this service, Xpress BillPay allows you to pay bills online without ever having to leave home. Bills can be paid in a matter of minutes, any time of the day or night – even while on vacation. It’s fast and handy and customers have told us they absolutely love it!

To learn more about Xpress BillPay, visit our website atwww.csb1.com.

EXPANDING MARKET FOOTPRINT

     At the time of this writing, final construction and preparations are taking place for opening a new banking center during March 2007. Located near Orrville, Ohio on State Route 57, the new banking center will primarily serve the surrounding communities within a six to eight mile radius. Our investment in the greater Orrville area reflects our commitment to using new market development as one method of growing the bank. We will continue to seek new market opportunities where we can realize our performance objectives by gaining market share through our exceptional service, products and relationship management.

STOCK PERFORMANCE

     Our stock performance was disappointing in 2006 with a one year total rate of return of –7%. Still, over the past five years, our cumulative shareholder return totals 44%. We remain firmly committed to increasing shareholder value – it is one of the fundamental reasons we are in business.

     Total 2006 dividends of $.64 per share were 14% higher than the previous year. Over the past five-year period, we have returned 51% of earnings to shareholders in the form of dividends, and we expect to maintain similar dividend payout rates in the foreseeable future.

     We also continued our share repurchase plan during 2006, repurchasing approximately 3% of the shares that were outstanding at the beginning of the year. We anticipate continuing the share repurchase program during 2007 as an effective use of capital and as one means of continuing to increase the Company’s return on equity.

	return on
NET INTEREST	AVERAGE
margin	EQUITY

6

2006Report to Shareholders

LETTER TO SHAREHOLDERS
continued

THE COMMERCIAL & SAVINGS BANK

MISSION AND CORE STRATEGY

     Your board of directors and management team strongly believe that community banks will continue to play a vital role in the economic affairs of communities across this nation. We believe a significant number of customers prefer to deal with a locally owned bank, and that community banks with high standards of service to their customers will benefit from that preference for many years to come.

     Our mission as an independent community bank is to provide high quality financial services through valued employees, thereby meeting the needs of our customers and the diverse communities we serve, while generating profit and increasing value for our shareholders. Our underlying set of values places priority on our profit responsibility, customer service, our employee team, honesty, enjoyment and growth.

     Financially, our goal is to perform well above the Ohio public bank median in most performance measurements by the end of the three-year planning horizon. While we are taking a measured approach with incremental improvements, we are firmly committed to this goal. At present, we equal or exceed Ohio median performance for publicly held banks and thrifts in a number of key measurements, while acknowledging there is still considerable room for improvement. We welcome the challenge at hand.

     Toward that end, we have identified several components required to achieve our performance objectives. First, we must continue to become more efficient in every aspect of our operations while simultaneously enhancing

return on
AVERAGE	average
ASSETS	TOTAL ASSETS

New in2007

ORRVILLE AREA BANKING CENTER

Our Second Wayne County Banking Center

In the fall of 2006, we announced plans to open a full service banking center near Orrville, Ohio. The Orrville location is the first new full service banking center CSB has opened since 1998, when we entered Wayne County with a banking center in Shreve.

As this annual report goes to press, our new banking center will have officially opened for business at 461 Wadsworth Road, S.R. 57, Orrville, Ohio. Our entry in the Orrville area further entrenches CSB in the Wayne County market and fits perfectly within our corporate vision of sustainable growth while maintaining a strong community bank identity.

We are excited to have the opportunity to serve the people of Orrville and the surrounding communities. CSB has a long history of being an integral part of the communities it serves, and we certainly look forward to building and further developing relationships with personal and business customers, as well as civic and community groups in Orrville and the surrounding communities.

7

CSB Bancorp, Inc.

LETTER TO SHAREHOLDERS
continued

THE COMMERCIAL & SAVINGS BANK

New in2007

XPRESS REMOTE DEPOSIT CAPTURE

Business Banking Made Easy

A new service that will change the way many businesses handle their daily banking is now available through The Commercial & Savings Bank (CSB). Business customers can now, at their convenience, deposit checks electronically without coming to the bank.

CSB’s Xpress Remote Deposit Capture is simple and easy to use. A business can scan its customer checks from any office or store location in the United States and images of the checks are created and transmitted to CSB via a secure Internet site. Funds are then deposited electronically to the business’s CSB checking account. No more trips to the bank to deposit your checks.

Additional features offered with this new service include business acceptance of check payments over the phone and the processing of coupon payments for those businesses that utilize customer payment coupons.

For further information on CSB’s Xpress Remote Deposit Capture or any other Cash Management service, please contact our Cash Management staff at330-674-9015, toll-free at1-800-654-9015, or via e-mail atwebadmin@csb1.com.

our services. This focus on efficiency and enhanced services is necessary because our approach to serving market needs is and will continue to be relationship-driven. Second, we recognize that the current market area we serve, while economically diverse, stable and healthy, will not likely grow fast enough to provide, in and of itself, the long-term growth required to meet our goals. We are therefore committed to expanding beyond our current market areas, both geographically and with new banking products and services. In the long run, we need to leverage our status as a financial holding company, which permits us to grow beyond traditional banking into a number of related financial service areas.

     We believe each of the above strategic areas of emphasis will play an important role in the growth of our Company and in the creation of increased value for our shareholders. By serving our markets well and efficiently, the results will be satisfying for all of our constituents – shareholders, customers, employees and the communities we serve.

     As always, we value your support as a shareholder of CSB Bancorp, Inc. and we look forward to seeing you at our annual meeting on April 25, 2007.

On behalf of the entire CSB team,

Eddie L. Steiner	Robert K. Baker
President and	Chairman,
Chief Executive Officer	Board of Directors

	average securities sold under
average	AGREEMENTS TO
DEPOSITS	REPURCHASE

8

2006Report to Shareholders

BOARD OF DIRECTORS

L-R, STANDING

John R. Waltman	Eddie L. Steiner	Jeffery A. Robb, Sr.	Samuel M. Steimel	J. Thomas Lang
Attorney,	President,	President,	Attorney,	Veterinarian, Dairy Farmer,
Critchfield, Critchfield & Johnston	Chief Executive Officer,	Robb Companies, Inc.	Steimel Law Office	Spring Hill Farms, Inc.
	CSB Bancorp, Inc.
	Chairman of the Board,
	The Commercial & Savings Bank
L-R, SEATED
	Robert K. Baker	Daniel J. Miller	Ronald E. Holtman
	Chairman of the Board,	Retired Physician,	Attorney,
	CSB Bancorp, Inc.	East Holmes Family Care, Inc.	Logee, Hostetler, Stutzman & Lehman
	Co-owner and Controller
	Bakerwell, Inc.

	NET LOAN	ALLOWANCE AS A	EMPLOYEES
average	CHARGE-OFFS	PERCENTAGE	AT YEAR END
NET LOANS	as a percent of average loans	of loans	(full-time equivalent)

9

CSB Bancorp, Inc.

2006FINANCIAL REVIEW

INTRODUCTION

     CSB Bancorp, Inc. (the “Company”) was incorporated under the laws of the State of Ohio in 1991 as a registered bank holding company for its wholly owned subsidiaries, The Commercial and Savings Bank (the “Bank”) and CSB Investment Services, LLC. 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, 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, safe deposit facilities, personal loans, commercial loans, real estate mortgage loans, installment loans, IRAs, night depository facilities, trust, and brokerage services. Its customers are located primarily in Holmes, Tuscarawas and Wayne counties in Ohio. The general economic conditions in the Company’s market area have been sound. Unemployment statistics have generally been among the lowest in the State of Ohio and the area has experienced stable to rising real estate values.

     The following discussion is presented to aid in understanding the Company’s consolidated financial condition and results of operations, and should be read in conjunction with the audited consolidated financial statements and related notes.

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 factors. 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.

10

2006Report to Shareholders

2006 FINANCIAL REVIEW
continued

SELECTED FINANCIAL DATA
The following table sets forth certain selected consolidated financial information:

	2006			2005			2004			2003			2002
				(Dollars in thousands, except per share data)
Statements of income:
Total interest income	$	20,045		$	17,358		$	15,074		$	15,414		$	16,700
Total interest expense		6,877			4,812			3,874			4,631			6,467
Net interest income		13,168			12,546			11,200			10,783			10,233
Provision (credit) for loan losses		302			283			423			(51	)		(587	)
Net interest income after provision (credit) for loan losses		12,866			12,263			10,777			10,834			10,820
Noninterest income		2,592			2,580			2,680			2,155			2,037
Noninterest expenses		10,915			10,803			10,278			10,799			10,999
Income before income taxes		4,543			4,041			3,179			2,190			1,858
Income tax provision (credit)		1,433			1,168			653			130			(65	)
Net income	$	3,110		$	2,873		$	2,526		$	2,060		$	1,923
Per share of common stock:
Basic income per share	$	1.23		$	1.09		$	0.96		$	0.78		$	0.73
Diluted income per share		1.23			1.09			0.95			0.78			0.73
Dividends		0.64			0.56			0.52			0.48			0.30
Book value		14.03			13.64			13.69			13.13			12.83
Average basic common shares outstanding		2,526,914			2,638,697			2,644,582			2,638,360			2,630,931
Average diluted common shares outstanding		2,532,592			2,642,301			2,650,948			2,641,887			2,634,558
Year-end balances:
Loans, net	$	229,825		$	212,574		$	215,510		$	210,796		$	197,109
Securities		70,241			81,220			76,228			67,773			73,088
Total assets		327,240			320,989			317,340			306,180			304,713
Deposits		260,178			255,403			247,951			248,958			239,976
Borrowings		30,521			29,485			32,062			21,372			29,828
Shareholders’ equity		35,070			35,170			36,208			34,718			33,742
Average balances:
Loans, net	$	222,952		$	218,187		$	214,330		$	206,685		$	177,592
Securities		74,994			71,866			73,342			70,027			80,176
Total assets		319,749			316,612			312,534			302,601			295,399
Deposits		247,543			249,007			241,674			236,525			235,080
Borrowings		35,824			30,083			34,540			30,981			25,971
Shareholders’ equity		34,766			36,290			35,332			34,360			33,382
Selected ratios:
Net interest margin		4.38	%		4.23	%		3.83	%		3.81	%		3.73	%
Return on average total assets		0.97			0.91			0.81			0.68			0.65
Return on average shareholders’ equity		8.95			7.92			7.15			6.00			5.76
Average shareholders’ equity as a percent of average total assets		10.87			11.46			11.31			11.35			11.30
Net loan charge-offs as a percent of average loans		0.06			0.19			0.14			0.09			0.40
Allowance for loan losses as a percent of loans at year-end		1.12			1.14			1.18			1.15			1.35
Shareholders’ equity as a percent of total year-end assets		10.72			10.96			11.41			11.34			11.07
Dividend payout ratio		51.89			51.47			54.44			61.48			41.04

11

CSB Bancorp, Inc.

2006 FINANCIAL REVIEW
continued

RESULTS OF OPERATIONS

Net Income

     Net income for 2006 was $3,110,000 an increase of $237,000 or 8.3% from 2005. Basic and diluted net income per share was $1.23 and $1.09 for the years ended December 31, 2006 and 2005, respectively. Return on average assets was 0.97% in 2006 compared to 0.91% in 2005, and return on average shareholders’ equity was 8.95% in 2006 compared to 7.92% in 2005.

     Net income for 2005 was $2,873,000 or $1.09 per basic and diluted share as compared to $2,526,000 or $0.96 per basic and $0.95 per diluted share for 2004. This equated to a return on average assets of 0.91% in 2005 and 0.81% in 2004, while the return on average shareholders’ equity for the same periods was 7.92% and 7.15%.

Net Interest Income

     Net interest income is the largest component of the Company’s net income and consists of the difference between income generated on interest-earning assets and interest expense incurred on interest-bearing liabilities. Volumes, interest rates and composition of interest-earning assets and interest-bearing liabilities affect net interest income.

     Interest income for 2006 was $20.0 million, increasing $2.7 million from $17.4 million in 2005. Interest and fees on loans was $16.6 million, an increase of $2.3 million, or 16.0%, from 2005. This increase was mainly attributable to an increased yield on loans of 88 basis points. Interest income on securities increased $521,000, a result of increased volume of average taxable investments, as well as an increase in yield of 53 basis points on the total portfolio from 2005 to 2006. Mortgage-backed securities were added to the portfolio to provide current cash flow as well as the ability to use the securities to secure public fund deposits and collateralize the increase in outstanding balances of customer repurchase agreements as customers expand their usage of cash management services offered by the Company. Other interest income declined $133,000, the result of the decreased average balances of federal funds sold maintained as growth in both loans and taxable securities were funded during 2006.

     Interest income for 2005 was $17.4 million, increasing $2.3 million, or 15.2%, from $15.1 million in 2004. Interest and fees on loans was $14.3 million, an increase of $2.2 million, or 18.3%, from 2004, attributable to the increased yield on loans of 91 basis points in 2005 from 2004. Interest income on securities decreased $43,000, or 1.5%, due primarily to decreased volume of tax-free investments from their sale and runoff in 2005. Other interest income increased $105,000, the result of the increased volume of funds maintained as interest rates rose on short-term investments throughout 2005.

     Interest expense for 2006 was $6.9 million, an increase of $2.1 million or 42.9%, from 2005. The Company’s interest expense on deposits increased $1.3 million in 2006, due primarily to a 65 basis point increase in the average rate paid on deposits, as short-term interest rates rose in 2006 partially offset by an average volume decrease of $2.5 million on interest bearing deposits in 2006. Interest expense on total borrowings rose $775,000 in 2006, primarily due to a $6.5 million average balance increase in customer repurchase agreements to $19.8 million in 2006 from $13.3 million in 2005, while average rates paid increased to 3.14% in 2006 from 0.81% in 2005.

     Interest expense for 2005 was $4.8 million, an increase of $938,000, or 24.2%, from 2004. The Company’s interest expense on deposits increased $890,000 in 2005, due primarily to the 39 basis point increase in average deposit interest rates during 2005, as short-term interest rates rose in 2005 coupled with an average volume increase of $3.8 million on interest bearing deposits in 2005. Interest expense on borrowings increased $48,000 due to the 43 basis point increase in average rates paid in 2005 as compared to 2004.

12

2006Report to Shareholders

2006 FINANCIAL REVIEW
continued

     Net interest income for 2006 increased by $622,000 to $13.2 million. The $4.3 million increase in average interest-earning assets was enhanced by a 15 basis point increase in the net interest margin as rates increased faster on interest-earning assets than interest-bearing liabilities. Net interest income for 2005 increased by $1.3 million to $12.5 million. The $3.9 million increase in average interest-earning assets was enhanced by a 40 basis point increase in the net interest margin as rates increased faster on interest-earning assets than interest-bearing liabilities.

     The following tables provide detailed analysis of changes in average balances, yields, and net interest income identifying that portion of the changes due to change in average volume versus that portion due to change in average rates.

	AVERAGE BALANCES, RATES AND YIELDS
	(Dollars in thousands)
	2006								2005								2004
	AVERAGE								AVERAGE								AVERAGE
	BALANCE(1)			INTEREST		RATE(2)			BALANCE(1)			INTEREST		RATE(2)			BALANCE(1)			INTEREST		RATE(2)
Interest-earning assets
Federal funds sold	$	250		$	11		4.28	%	$	3,848		$	145		3.77	%	$	2,263		$	40		1.77	%
Interest-earning deposits		18			1		9.44			36			1		1.39			43			0		0.47
Securities:
Taxable		66,951			3,006		4.49			57,930			2,243		3.87			44,072			1,502		3.41
Tax exempt		8,043			383		4.76			13,936			625		4.49			29,270			1,409		4.81
Loans(3)		225,445			16,644		7.38			220,655			14,344		6.50			216,864			12,123		5.59
Total interest-earning assets		300,707			20,045		6.67			296,405			17,358		5.86			292,512			15,074		5.15
Noninterest-earning assets
Cash and due from banks		11,027								11,821								11,734
Bank premises and equipment, net		7,864								8,323								8,413
Other assets		2,644								2,532								2,409
Allowance for loan losses		(2,493	)							(2,468	)							(2,534	)
Total assets	$	319,749							$	316,612							$	312,534
Interest-bearing liabilities
Demand deposits	$	46,096		$	232		0.50	%	$	49,021		$	192		0.39	%	$	48,042		$	105		0.22	%
Savings deposits		41,528			411		0.99			44,759			357		0.80			42,904			189		0.44
Time deposits		120,981			4,775		3.95			117,372			3,579		3.05			116,418			2,944		2.53
Other borrowed funds		35,824			1,459		4.07			30,083			684		2.27			34,540			636		1.84
Total interest-bearing liabilities		244,429			6,877		2.81			241,235			4,812		1.99			241,904			3,874		1.60
Noninterest-bearing liabilities and shareholders’ equity
Demand deposits		38,938								37,855								34,310
Other liabilities		1,616								1,232								988
Shareholders’ equity		34,766								36,290								35,332
Total liabilities and equity	$	319,749							$	316,612							$	312,534
Net interest income				$	13,168							$	12,546							$	11,200
Net interest margin							4.38	%							4.23	%							3.83	%
Net interest spread							3.86	%							3.87	%							3.55	%

(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.

13

CSB Bancorp, Inc.

2006 FINANCIAL REVIEW
continued

	RATE / VOLUME ANALYSIS OF CHANGES IN INCOME AND EXPENSE(1)
	(Dollars in thousands)
	2006 v. 2005								2005 v. 2004
	CHANGE IN								CHANGE IN
	INCOME/			VOLUME			RATE		INCOME/			VOLUME			RATE
	EXPENSE			EFFECT			EFFECT		EXPENSE			EFFECT			EFFECT
Interest Income
Federal funds sold	$	(134	)	$	(154	)	$	20	$	105		$	60		$	45
Interest-earning deposits		1			(2	)		3		1			1			—
Securities:
Taxable		763			405			358		741			537			204
Tax exempt		(243	)		(281	)		38		(784	)		(688	)		(96	)
Loans		2,300			354			1,946		2,221			245			1,976
Total interest income		2,687			322			2,365		2,284			155			2,129
Interest Expense
Demand deposits		39			(15	)		54		87			3			84
Savings deposits		54			(32	)		86		168			15			153
Time deposits		1,196			142			1,054		635			30			605
Other borrowed funds		776			234			542		48			(101	)		149
Total interest expense		2,065			329			1,736		938			(53	)		991
Net interest income	$	622		$	(7	)	$	629	$	1,346		$	208		$	1,138

(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.

The following table reconciles net interest income as shown in the financial statements to taxable equivalent net interest income:

	2006			2005			2004
Net interest income	$	13,167,461		$	12,545,579		$	11,199,632
Taxable equivalent adjustment(1)		209,890			333,531			739,703
Net interest income–fully taxable equivalent	$	13,377,351		$	12,879,110		$	11,939,335
Net interest yield		4.38	%		4.23	%		3.83	%
Taxable equivalent adjustment(1)		.07			.12			.25
Net interest yield – taxable equivalent		4.45	%		4.35	%		4.08	%

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

Provision for Loan Losses

     The Company reported a provision for loan losses of $302,000 in 2006 compared to a provision for loan losses of $283,000 in 2005 and a provision for loan losses of $423,000 in 2004. The provision in 2006 represents Management’s calculation on an increasing loan portfolio. There is no Other Real Estate Owned at December 31, 2006. See “Financial Condition – Allowance for Loan Losses” for additional discussion and information relative to the provision for loan losses.

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Noninterest Income

     Total noninterest income increased $11,000 in 2006. Increases included increases in service charges on deposit accounts of $241,000 or 23.3% due to full year implementation and customer usage of the overdraft privilege program. Additional fee increases were recognized in Trust services revenue with a $56,000 increase due to additional accounts and increased Trust Assets under management. Securities losses of $57,000 were realized in 2006 as compared to securities gains of $247,000 in 2005. In 2006, a minor restructuring of the securities portfolio produced realized losses of $57,000, as $4 million in low yielding US Agency issues were sold and $4 million in higher coupon US Agency mortgage-backed securities were purchased to provide improved interest revenue in 2007 and position longer-term fixed rate assets in front of anticipated reductions in the managed interest rates during 2007 by the Federal Reserve Board.

     Total noninterest income decreased $100,000 or 3.7% to $2.6 million in 2005 from 2004. The decrease was primarily from the reduction of gains on securities of $341,000 from 2004, which was partially offset by increases of $190,000 in service charges on deposit accounts. Of the $190,000 increase, $140,000 was the result of implementing an overdraft privilege product during fourth quarter 2005 which resulted in corresponding increases in NSF and overdraft fee income. Additional increases were realized in Trust services income with an increase of $98,000 in 2005 over 2004 due to additional accounts and increases in Trust assets managed by the Company. A satellite trust office was opened in Wooster during 2005 and the primary increase in trust assets and revenues was derived from the surrounding Wayne county market.

Noninterest Expenses

     Total noninterest expenses increased $112,000 or 1.0% during 2006. Salaries and employee benefits expense increased $215,000 or 3.8% a result of merit and incentive increases. Occupancy and equipment expenses declined $17,000 in 2006 from 2005. The decrease was primarily the result of reduced depreciation expense as fewer assets were purchased in 2006 and those assets purchased in previous years became fully depreciated during 2006. Professional and directors’ fees decreased $18,000 from 2005 to 2006. Within this category, decreases were recognized in legal and collection fees of $88,000, directors’ fees of $22,000, and audit and tax fees of $5,000. These decreases were partially offset by increases in other outside service fees for payment on the Overdraft Privilege services of $48,000, $16,000 for shareholder transfer agent services, and $22,000 in professional fees for management and board compensation issues. Other expenses declined $70,000 from 2005 and amounts greater than 1% of revenues are detailed below.

Other Expense

     Details of Other Expense follow:

(Dollars in thousands)	2006		2005		2004
Marketing and public relations	$	334	$	302	$	319
Telecommunications		221		275		244
Cash irregularity		237		—		—
Other		1,964		2,249		2,207
Total Other Expense	$	2,756	$	2,826	$	2,770

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continued

     Decreases in this category for 2006 were recognized in telecommunications expense of $54,000, FDIC assessment of $37,000 and employee education and relations of $63,000. These gains were partially offset by a $237,000 irregularity of cash assets discovered, recognized and reported in the second quarter of 2006 which remains the subject of an ongoing investigation. The Company’s insurance against this type of loss carries a $50,000 deductible and a loss claim is pending.

     Total noninterest expenses increased $525,000 or 5.1% during 2005 as compared to 2004. Salaries and employee benefits expense increased $420,000 in 2005 as compared to 2004. Increases of $295,000 were reflected in compensation, while increases to medical and other benefits approximated $125,000. Compensation increases were recognized in the Trust department with the addition of experienced personnel and staffing of the Wooster office. Additional expense was added with annual merit increases. Occupancy expense increased $35,000 during 2005, a result of $21,000 increase in maintenance and repair on owned buildings as well as the increase in rent expense of the Wooster Trust office on an annual basis. Other miscellaneous expenses increased $56,000 in 2005, mainly the result of increased security costs and the loss of cash following two (2) robberies at a banking center.

Income Taxes

     The provision for income taxes amounted to $1,433,000 in 2006 (effective rate of 31.5%), compared to $1,168,000 (effective rate of 28.9%) in 2005 and $653,000 (effective rate of 20.5%) in 2004. The increase in the provision in 2006 reflects increasing taxable revenues. The provision in 2005 is attributable to an overall increase in taxable revenues and the taxable income recognized from the gain on the sale of tax-free bonds. The provision in 2004 was partially attributable to rising taxable income from the gain on the sale of tax-free bonds.

FINANCIAL CONDITION

     Total assets of the Company were $327.2 million at December 31, 2006, compared to $321.0 million at December 31, 2005, representing an increase of $6.2 million or 1.9%. Net loans increased $17.2 million or 8.1% and the increase was funded by a decrease in securities of $11.0 million, coupled with increases of $4.8 million in deposits and $6.6 million in customer repurchase agreements while decreases were recorded in short-term and other borrowings from Federal Home Loan Bank and federal funds purchased.

Securities

     Total securities decreased $11.0 million or 13.5% from $81.2 million at year-end 2005 to $70.2 million at year-end 2006. During 2006, cash flow from security maturities and principal repayments on mortgage-backed securities was used to fund increasing loan demand allowing securities balances to drop. During January 2005, the Company liquidated tax-free bonds as part of the strategic initiative to grow both lending and public fund relationships. The Company made a one-time reclassification of all held-to-maturity securities to available-for-sale with the intent to classify all future security purchases as available-for-sale. This action provided management the ability to enhance the diversity and usage of the securities portfolio. The securities portfolio at year-end 2006 consisted of U.S. Treasury, U.S. government corporations and agencies, obligations of state and political subdivisions and common equities. Restricted securities consist primarily of FHLB stock. Total mortgage-backed securities increased $1.0 million from year-end 2005 to $28.0 million at year-end 2006. The increase in mortgage-backed securities occurred primarily during December 2006 as management purchased these securities following the sale of certain U.S. Agency bonds to provide increased interest income revenues and additional stabilization of the bank’s interest rate risk should the Federal Reserve Bank Board lower managed rates in 2007.

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

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2006 FINANCIAL REVIEW
continued

Loans

     Gross loans amounted to $232.4 million at year-end 2006, compared to $215.0 million at year-end 2005, representing an increase of $17.4 million or 8.1%. The loan portfolio at December 31, 2006 was comprised of approximately 55% commercial and commercial real estate loans, a decrease from the 57% composition at December 31, 2005. The Company recorded a decrease in commercial loans of $14.4 million or 20.6%, and an increase in commercial real estate loans of $20.0 million or 38.1%. Consumer installment and credit card balances decreased $1.0 million or 8.9%, while construction credits increased $5.5 million from year-end 2005.

     Agriculture production loans totaled approximately $1.1 million at year-end 2006, and are included in the commercial and commercial real estate categories. Credit card loans, which are primarily unsecured, totaled $2.4 million, or 1.0% of loans at year-end 2006.

     The Corporation’s market reflected increased demand for both commercial and residential real estate loans in 2006 following a stable market in 2005. There was continued consumer demand for home equity loans in 2006. Management believes the Company’s local service areas will experience continued economic strength and a continued need for these types of lending products in 2007.

     Most of the Bank’s lending activity is with customers primarily located within Holmes County, Wayne County, and the western portion of Tuscarawas County. Credit concentrations, as determined using Standard Industrial Classification (SIC) codes, to the three largest industries compared to total loans at December 31, 2006 included $12,159,000 or 5.2% of total loans to owners of nonresidential real estate; $11,465,000 or 4.9% of total loans to logging, sawmills and rough cut lumber industries; $11,036,000 or 4.8% of total loans to borrowers in the hotel, motel and lodging business. These loans are generally secured by real property and equipment and repayment is expected from operational cash flow. Credit losses arising from the Bank’s lending experience in all three industries compare favorably with the Bank’s loss experience on its loan portfolio as a whole. Credit evaluation is based on an evaluation of cash flow coverage of principal and interest payments and the adequacy of the collateral received.

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. Collectibility of these loans is evaluated by considering 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 subjective, as to the probability of loss and the amount of loss on these loans as well as other loans taken together. The Bank’s Allowance for Loan and Lease 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.

     The allowance for loan losses totaled $2.6 million or 1.12% of total loans at year-end 2006, compared with $2.4 million or 1.14% of total loans at year-end 2005. Net charge-offs for 2006 totaled $140,000, compared to $412,000 in 2005 and $307,000 in 2004. Net charge-offs of $31,000, $23,000, $61,000 and $25,000 occurred in commercial loans, mortgage loans, consumer loans, and credit cards, respectively, during 2006.

     The Bank 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.

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     Nonperforming loans, which consist of loans past due 90 days or more and nonaccrual loans aggregated $1.5 million, or 0.7% of loans at year-end 2006 as compared to $801,000 or 0.4% of loans at year-end 2005. Impaired loans were $988,000 at year-end 2006 as compared to $564,000 at year-end 2005. The increase in 2006 results from the addition of $667,000 (4 credits) while $244,000 in loans classified as impaired at December 2005 were removed either through payment or charge-off. The decrease from 2004 to 2005 was due primarily to the reclassification of one commercial real estate credit into other real estate and the liquidation of one commercial credit that was in foreclosure. 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.

Other Assets

     Net premises and equipment decreased $282,000 to $7.4 million at year-end 2006. The decrease in 2006 was due to depreciation exceeding the relatively low volume of equipment purchased. Other assets decreased $742,000 at year-end 2006, primarily from the liquidation of a commercial real estate property held in Other Real Estate Owned valued at $440,000 on December 31, 2005. There was no Other Real Estate Owned at December 31, 2006. Net deferred tax assets decreased $198,000 at December 2006 from $209,000 at year-end 2005.

Deposits

     The Company’s deposits are obtained 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 other investment options such as mutual funds. Total deposits increased $4.8 million to $260.2 million at year-end 2006 as compared to $255.4 million at year-end 2005. Noninterest-bearing deposits increased $2.6 million or 6.3% as compared to $41.8 million at year-end 2005. Interest-bearing deposits increased $2.1 million or 1.0% to $215.7 million at year-end 2006 as compared to year-end 2005. Interest-bearing demand deposits remained stable at $50.6 million at year-end 2006 as compared to $50.7 million at year-end 2005 while money market savings accounts decreased overall savings balances by $1.9 million and traditional savings deposits declined $4.5 million from year-end 2005. Time deposits in excess of $100,000 increased $2.7 million while other certificates of deposit increased $5.9 million as short-term interest rates rose throughout 2006 and consumers withdrew their monies from savings accounts and invested in higher rate certificates of deposit.

Other Funding Sources

     The Company obtains additional funds through securities sold under repurchase agreements and advances from the FHLB. These borrowings totaled $30.5 million at year-end 2006 as compared to $29.5 million at year-end 2005.

CAPITAL RESOURCES

     Total shareholders’ equity decreased from $35.2 million at December 31, 2005 to $35.1 million at December 31, 2006. This decrease was primarily due to cash dividends declared of $1.6 million and the repurchase of 79,318 shares of treasury stock for $1.6 million. Shareholders’ equity was increased $3.1 million for net income in 2006. 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 common shares outstanding. Repurchased shares are to be held as treasury stock and would be available for general corporate purposes.

     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

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2006Report to Shareholders

2006 FINANCIAL REVIEW
continued

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’s and Bank’s actual and required capital amounts are disclosed in Note 10 to the consolidated financial statements.

     Dividends paid by the Company’s bank subsidiary 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 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

     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 $17.7 million at December 31, 2006 an increase of $1.1 million from $16.6 million at December 31, 2005. Net income, securities available-for-sale, and loan repayments also serve as sources of liquidity. Cash and cash equivalents and securities maturing within one year represent 6.3% of total assets at year-end 2006, as compared to 7.7% of total assets at year-end 2005. 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 the needs of the Company.

     As summarized in the consolidated statements of cash flows, the most significant investing activities for the Company in 2006 included net loan originations of $17.6 million, the maturities and calls of securities totaling $12.9 million and sales of securities of $3.9 million offset by $5.8 million in securities purchases. The Company’s financing activities included a $4.8 million increase in deposits, a $6.6 million increase in repurchase agreements, and FHLB advance repayments of $5.6 million.

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continued

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 consists 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 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 Bank’s liquidity position, projected sources and uses of funds, interest rate risk position and economic conditions.

     The Company monitors its interest rate risk through a sensitivity analysis, whereby it measures potential changes in its future earnings and the fair values of its financial instruments that may result from one or more hypothetical changes in interest rates. This analysis is performed by estimating the expected cash flows of the Company’s financial instruments using interest rates in effect at year-end 2006 and 2005. For the fair value estimates, the cash flows are then discounted to year-end to arrive at an estimated present value of the Company’s financial instruments. 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. The Company applies these interest rate “shocks” to its financial instruments up and down 200 basis points in 100 basis point increments.

     The following table presents an analysis of the estimated sensitivity of the Company’s annual net interest income to sudden and sustained 100 basis point changes in market interest rates at December 31, 2006 and 2005:

2006
(Dollars in Thousands)
CHANGE IN
INTEREST RATES		NET INTEREST		DOLLAR			PERCENTAGE
(BASIS POINTS)		INCOME		CHANGE			CHANGE
	+200	$	14,165	$	682			5.1	%
	+100		13,767		284			2.1
	0		13,483		0			0.0
	–100		13,290		(193	)		(1.4	)
	–200		12,937		(546	)		(4.1	)

2005
(Dollars in Thousands)
CHANGE IN
INTEREST RATES		NET INTEREST		DOLLAR			PERCENTAGE
(BASIS POINTS)		INCOME		CHANGE			CHANGE
	+200	$	15,042	$	1,198			8.7	%
	+100		14,387		543			3.9
	0		13,844		0			0.0
	–100		13,383		(461	)		(3.3	)
	–200		12,741		(1,103	)		(8.0	)

     Management reviews its “rate shock” position with the Board on a periodic basis. The Company was within all Board-approved limits at December 31, 2006 and 2005.

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2006Report to Shareholders

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SIGNIFICANT ASSUMPTIONS AND OTHER CONSIDERATIONS

     The preceding 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.

     Securities owned by the Company will generally repay at their stated maturity. 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 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- and long-term interest rates. Prepayments on adjustable rate residential mortgage 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. No change in the rates on such deposits is assumed when market rates increase or decrease 100 basis points. When market rates increase or decrease 200 basis points, the analysis assumes a corresponding 50 basis point change in the rates paid on such deposits. Short-term borrowings have fixed maturities. Time deposits generally have early withdrawal penalties which discourage customer withdrawal prior to maturity. Certain advances from the FHLB carry prepayment penalties and are expected to be repaid in accordance with their contractual terms.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The Company discloses the estimated fair value of its financial instruments at December 31, 2006 and 2005 in Note 13 to the consolidated financial statements. Fair value of the Company’s financial instruments experienced modest changes in 2006. Estimated fair value of loans decreased slightly to 98.7% of carrying value in 2006 from 99.8% of carrying value in 2005. Estimated fair value of deposits remained stable at 99.8% of carrying value in both 2006 and 2005.

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

     The following table summarizes the Bank’s loan commitments, including letters of credit, as of December 31, 2006:

	AMOUNT OF COMMITMENT TO EXPIRE PER PERIOD
	(Dollars in Thousands)
	TOTAL		LESS THAN 1		1–3		4–5		OVER 5
Type of Commitment	AMOUNT		YEAR		YEARS		YEARS		YEARS
Commercial lines-of-credit	$	32,529	$	29,405	$	3,062			$	62
Real estate lines-of-credit		19,125		1,256		66	$	926		16,877
Consumer lines-of-credit		283		283
Credit card lines-of-credit		11,364		11,364
Overdraft Privilege		6,688		6,688
Letters of credit		882		202		625		55
Total Commitments	$	70,871	$	49,198	$	3,753	$	981	$	16,939

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     As indicated in the preceding table, the Bank had $ 70.9 million in total loan commitments at the end of 2006, with $49.2 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 Bank 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. The credit card lines were all made on an unsecured basis. It is anticipated that a significant portion of these lines will expire without being drawn upon, particularly the credit card lines, which represent the maximum amount available to all cardholders.

     The following table summarizes the Company’s other contractual obligations as of December 31, 2006:

	PAYMENT DUE BY PERIOD
	(Dollars in Thousands)
	TOTAL		LESS THAN 1		1–3		4–5		OVER 5
Contractual Obligations	AMOUNT		YEAR		YEARS		YEARS		YEARS
Total time deposits	$	125,749	$	100,392	$	19,030	$	6,289	$	38
Short-term borrowings		28,022		28,022
Other borrowings		2,499		476		786		570		667
Capital leases
Operating leases		365		81		154		123		7
Unconditional purchase obligations
Other
Total Obligations	$	156,635	$	128,971	$	19,970	$	6,982	$	712

     The other borrowings noted in the preceding table represents borrowings from the Federal Home Loan Bank 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 Bank evaluates the liquidity and interest-rate circumstances at that point in 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 Bank’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 Bank’s deposit product offerings.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“FAS”) No. 155,Accounting for Certain Hybrid Instruments, as an amendment of FASB Statements No. 133 and 140.FAS No. 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. This statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.

     In March 2006, the FASB issued FAS No. 156,Accounting for Servicing of Financial Assets.This statement, which is an amendment to FAS No. 140, will simplify the accounting for servicing assets and liabilities, such as those common with

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2006Report to Shareholders

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mortgage securitization activities. Specifically, FAS No. 156 addresses the recognition and measurement of separately recognized servicing assets and liabilities and provides an approach to simplify efforts to obtain hedge-like (offset) accounting. FAS No. 156 also clarifies when an obligation to service financial assets should be separately recognized as a servicing asset or a servicing liability; requires that a separately recognized servicing asset or servicing liability be initially measured at fair value, if practicable; and permits an entity with a separately recognized servicing asset or servicing liability to choose either of the amortization or fair value methods for subsequent measurement. The provisions of FAS No. 156 are effective as of the beginning of the first fiscal year that begins after September 15, 2006. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.

     In September 2006, the FASB issued FAS No. 157,Fair Value Measurements,which provides enhanced guidance for using fair value to measure assets and liabilities. The standard applies whenever other standards require or permit assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances. FAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.

     In June 2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”),Accounting for Uncertainty in Income Taxes.FIN 48 is an interpretation of FAS No. 109,Accounting for Income Taxes,and it seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. This Interpretation clarifies that management is expected to evaluate an income tax position taken or expected to be taken for likelihood of realization before recording any amounts for such position in the financial statement. FIN 48 also requires expanded disclosure with respect to income tax positions taken that are not certain to be realized. This Interpretation is effective for fiscal years beginning after December 15, 2006, and will require management to evaluate every open tax position that exists in every jurisdiction on the date of initial adoption. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s results of operations.

     In September 2006, the FASB reached consensus on the guidance provided by Emerging Issues Task Force Issue 06-4 (“EITF 06-4”),Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.The guidance is applicable to endorsement split-dollar life insurance arrangements, whereby the employer owns and controls the insurance policy, that are associated with a postretirement benefit. EITF 06-4 requires that for a split-dollar life insurance arrangement within the scope of the issue, an employer should recognize a liability for future benefits in accordance with FAS No. 106 (if, in substance, a postretirement benefit plan exists) or Accounting Principles Board Opinion No. 12 (if the arrangement is, in substance, an individual deferred compensation contract) based on the substantive agreement with the employee. EITF 06-4 is effective for fiscal years beginning after December 15, 2007. The adoption of this standard is not expected to have a material effect on the Company’s operations or financial position.

     In September 2006, the FASB reached consensus on the guidance provided by Emerging Issues Task Force Issue 06-5(“EITF 06-5”),Accounting for Purchases of Life Insurance—Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance.EITF 06-5 states that a policyholder should consider any additional amounts included in the contractual terms of the insurance policy other than the cash surrender value in determining the amount that could be realized under the insurance contract. EITF 06-5 also states that a policyholder should determine the amount that could be realized under the life insurance contract assuming the surrender of an individual-life by individual-life policy (or certificate by certificate in a group policy). EITF 06-5 is effective for fiscal years beginning after December 15, 2006. The adoption of this standard is not expected to have a material effect on the Company’s operations or financial position.

23

CSB Bancorp, Inc.

2006 FINANCIAL REVIEW
continued

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 2006 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 the allowance for loan losses as the accounting area that requires the most subjective and complex estimates, assumptions, and judgments and, as such, could be the most subject to revision as new information becomes available.

     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 nonperforming 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.

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 a financial institution’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.

24

2006Report to Shareholders

2006 FINANCIAL REVIEW
continued

COMMON STOCK AND SHAREHOLDER INFORMATION

     Common shares of the Company are not traded on an established market. Shares are traded through broker/dealers under the symbol “CSBB.OB” 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 inter-dealer prices, without mark-up, mark-down or commission and may not represent actual transactions. The chart specifies cash dividends declared by the Company to its shareholders during 2006 and 2005. No assurances can be given that 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 10 of the consolidated financial statements.

					DIVIDENDS
QUARTER ENDED	HIGH		LOW		DECLARED
March 31, 2006	$	21.25	$	20.50	$	410,785
June 30, 2006		20.87		20.00		403,158
September 30, 2006		20.75		18.70		399,916
December 31, 2006		20.25		18.00		399,888
March 31, 2005	$	21.40	$	19.85	$	370,295
June 30, 2005		21.15		20.05		370,295
September 30, 2005		22.55		20.35		370,296
December 31, 2005		25.00		21.00		367,760

As of December 31, 2006, the Company had 1,170 shareholders and 2,499,181 outstanding shares of common stock.

25

CSB Bancorp, Inc.

Report of
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
CSB Bancorp, Inc.

     We have audited the accompanying consolidated balance sheets of CSB Bancorp, Inc. and subsidiary as of December 31, 2006 and 2005, and the related consolidated statement of income, shareholders’ equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The accompanying consolidated financial statements of CSB Bancorp, Inc. and subsidiary as of December 31, 2004, and for the year ended December 31, 2004, were audited by other auditors whose report thereon dated January 27, 2005, expressed an unqualified opinion on those statements.

     We conducted our audit 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

     In our opinion, the 2006 consolidated financial statements referred to above present fairly, in all material respects, the financial position of CSB Bancorp, Inc. and subsidiary as of December 31, 2006 and 2005, and the results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

Wexford, Pennsylvania
March 7, 2007

26

2006Report to Shareholders

CONSOLIDATED BALANCE SHEETS
December 31, 2006 & 2005

	2006			2005
ASSETS
Cash and cash equivalents
Cash and due from banks	$	12,643,440		$	14,785,250
Interest-earning deposits in other banks		9,748			124,726
Federal funds sold		5,000,000			1,740,000
Total cash and cash equivalents		17,653,188			16,649,976
Securities
Available-for-sale, at fair value		67,135,126			78,273,248
Restricted stock, at cost		3,105,900			2,947,000
Total securities		70,241,026			81,220,248
Loans		232,431,938			215,019,673
Less allowance for loan losses		2,607,118			2,445,494
Net loans		229,824,820			212,574,179
Premises and equipment, net		7,390,182			7,671,822
Accrued interest receivable and other assets		2,130,631			2,873,007
Total Assets	$	327,239,847		$	320,989,232
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Noninterest-bearing	$	44,455,131		$	41,807,069
Interest-bearing		215,722,541			213,595,648
Total deposits		260,177,672			255,402,717
Short-term borrowings		28,022,077			21,417,616
Other borrowings		2,499,399			8,067,840
Accrued interest payable and other liabilities		1,470,379			930,800
Total liabilities		292,169,527			285,818,973
Shareholders’ Equity
Common stock, $6.25 par value. Authorized 9,000,000 shares; issued 2,667,786 shares		16,673,667			16,673,667
Additional paid-in capital		6,427,765			6,413,915
Retained earnings		16,248,608			14,752,250
Treasury stock at cost – 168,605 shares in 2006 and 89,287 shares in 2005		(3,696,102	)		(2,086,686	)
Accumulated other comprehensive loss		(583,618	)		(582,887	)
Total shareholders’ equity		35,070,320			35,170,259
Total Liabilities and Shareholders’ Equity	$	327,239,847		$	320,989,232

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

27

CSB Bancorp, Inc.

CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2006, 2005 & 2004

	2006			2005		2004
INTEREST AND DIVIDEND INCOME
Loans, including fees	$	16,643,728		$	14,343,888	$	12,122,379
Taxable securities		3,006,055			2,243,081		1,501,812
Nontaxable securities		382,479			624,911		1,409,263
Other		12,490			145,395		40,094
Total interest and dividend income		20,044,752			17,357,275		15,073,548
INTEREST EXPENSE
Deposits		5,418,616			4,128,130		3,237,803
Short-term borrowings		1,265,850			331,540		117,127
Other borrowings		192,825			352,026		518,986
Total interest expense		6,877,291			4,811,696		3,873,916
NET INTEREST INCOME		13,167,461			12,545,579		11,199,632
PROVISION FOR LOAN LOSSES		301,667			282,664		422,621
Net interest income, after provision for loan losses		12,865,794			12,262,915		10,777,011
NONINTEREST INCOME
Service charges on deposit accounts		1,278,842			1,037,377		846,935
Merchant fees		31,132			19,080		163,086
Trust services		540,299			484,468		386,469
Securities gain (loss)		(56,800	)		247,047		587,916
Gain on sale of loans		12,078			23,502		13,481
Gain (loss) on sale of other real estate owned		(25,640	)		10,000		—
Other		812,015			759,015		682,423
Total noninterest income		2,591,926			2,580,489		2,680,310
NONINTEREST EXPENSES
Salaries and employee benefits		5,885,857			5,671,149		5,250,732
Occupancy expense		685,728			677,067		642,048
Equipment expense		498,517			524,112		515,267
Franchise tax expense		430,050			427,435		419,527
Professional and director fees		658,843			677,252		680,043
Marketing and public relations		333,753			302,331		318,992
Cash irregularity		236,547			—		—
Telecommunications		221,223			274,618		243,742
Other expenses		1,964,097			2,248,801		2,207,735
Total noninterest expenses		10,914,615			10,802,765		10,278,086
Income before income taxes		4,543,105			4,040,639		3,179,235
FEDERAL INCOME TAX PROVISION		1,433,000			1,168,000		653,000
NET INCOME	$	3,110,105		$	2,872,639	$	2,526,235
NET INCOME PER SHARE
Basic	$	1.23		$	1.09	$	.96
Diluted	$	1.23		$	1.09	$	.95

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

28

2006Report to Shareholders

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Years Ended December 31, 2006, 2005 & 2004

			ADDITIONAL								ACCUMULATED OTHER
	COMMON		PAID-IN		RETAINED			TREASURY			COMPREHENSIVE
	STOCK		CAPITAL		EARNINGS			STOCK			INCOME (LOSS)			TOTAL
BALANCE AT DECEMBER 31, 2003	$	16,673,667	$	6,413,915	$	12,214,751		$	(645,938	)	$	61,143		$	34,717,538
Comprehensive income:
Net income		—		—		2,526,235			—			—			2,526,235
Change in net unrealized gain, net of reclassification adjustments and related income tax expense		—		—		—			—			327,580			327,580
Total comprehensive income															2,853,815
Issuance of 612 shares from treasury under dividend reinvestment program		—		—		(7,444	)		18,819			—			11,375
Cash dividends declared, $.52 per share		—		—		(1,375,221	)		—			—			(1,375,221	)
BALANCE AT DECEMBER 31, 2004		16,673,667		6,413,915		13,358,321			(627,119	)		388,723			36,207,507
Comprehensive income:
Net income		—		—		2,872,639			—			—			2,872,639
Change in net unrealized loss, net of reclassification adjustments and related income taxes benefit		—		—		—			—			(971,610	)		(971,610	)
Total comprehensive income															1,901,029
Issuance of 6 shares from treasury		—		—		(64	)		185			—			121
Purchase of 66,469 treasury shares		—		—		—			(1,459,752	)		—			(1,459,752	)
Cash dividends declared, $.56 per share		—		—		(1,478,646	)		—			—			(1,478,646	)
BALANCE AT DECEMBER 31, 2005		16,673,667		6,413,915		14,752,250			(2,086,686	)		(582,887	)		35,170,259
Comprehensive income:
Net income		—		—		3,110,105			—			—			3,110,105
Change in net unrealized loss, net of reclassification adjustments and related income tax benefit		—		—		—			—			(731	)		(731	)
Total comprehensive income															3,109,374
Stock-based compensation expense		—		13,850		—			—						13,850
Purchase of 79,318 treasury shares		—		—		—			(1,609,416	)		—			(1,609,416	)
Cash dividends declared, $.64 per share		—		—		(1,613,747	)		—			—			(1,613,747	)
BALANCE AT DECEMBER 31, 2006	$	16,673,667	$	6,427,765	$	16,248,608		$	(3,696,102	)	$	(583,618	)	$	35,070,320

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

29

CSB Bancorp, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2006, 2005 & 2004

	2006			2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	3,110,105		$	2,872,639		$	2,526,235
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises, equipment and software		692,461			758,310			760,009
Deferred income taxes		198,675			408,837			115,246
Provision for loan losses		301,667			282,664			422,621
Gain on sale of loans		(12,078	)		(23,502	)		(13,481	)
Securities (gain) loss		56,800			(247,047	)		(587,916	)
Gain (loss) on sale of other real estate owned		25,640			(10,000	)		—
Security amortization, net of accretion		47,328			83,699			31,448
Federal Home Loan Bank stock dividends		(158,900	)		(156,600	)		(99,800	)
Secondary market loan sale proceeds		1,231,578			2,868,967			1,281,531
Originations of secondary market loans held-for-sale		(1,219,500	)		(2,845,465	)		(1,268,050	)
Stock compensation expense		13,850			—			—
Effects of changes in operating assets and liabilities:
Net deferred loan fees		21,130			(39,536	)		(104,489	)
Accrued interest receivable		(82,270	)		(201,106	)		(118,785	)
Accrued interest payable		106,691			41,649			(10,309	)
Other assets and liabilities		485,803			125,107			(61,750	)
Net cash provided by operating activities	$	4,818,980		$	3,918,616		$	2,872,510
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available-for-sale:
Proceeds from maturities and repayments	$	12,867,830		$	15,056,944		$	25,896,718
Proceeds from sale		3,943,200			5,094,640			11,928,699
Purchases		(5,778,145	)		(26,295,553	)		(48,940,043	)
Securities held-to-maturity:
Proceeds from maturities and repayments		—			—			3,812,000
Loan originations, net of repayments		(17,606,716	)		2,067,227			(5,032,068	)
Proceeds from sale of other real estate		454,000			195,000			—
Property, equipment and software expenditures		(283,749	)		(624,692	)		(440,730	)
Net cash used in investing activities	$	(6,403,580	)	$	(4,506,434	)	$	(12,775,424	)

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

30

2006Report to Shareholders

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31 , 2006 , 2005 & 2004

	2006			2005			2004
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits	$	4,774,955		$	7,451,998		$	(1,007,028	)
Net change in short-term borrowings		—			5,000,000			—
Net change in securities sold under repurchase agreements		6,604,461			3,101,143			1,457,421
Federal Home Loan Bank borrowings:
Proceeds		—			—			10,000,000
Repayments		(5,568,441	)		(10,667,396	)		(767,245	)
Purchase of treasury shares		(1,609,416	)		(1,459,752	)		—
Cash dividends paid		(1,613,747	)		(1,822,491	)		(1,337,323	)
Net cash provided by financing activities	$	2,587,812		$	1,593,502		$	8,345,825
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		1,003,212			1,005,684			(1,557,089	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		16,649,976			15,644,292			17,201,381
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	17,653,188		$	16,649,976		$	15,644,292
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest	$	6,770,600		$	4,770,048		$	3,884,225
Income taxes		965,000			665,000			550,000
Noncash investing activities:
Transfer of loans to other real estate owned		39,640			625,000			—
Transfer of securities from held-to-maturity to available-for-sale		—			—			31,681,132
Noncash financing activity – payments of dividends through issuance of treasury shares, under dividend reinvestment program	$	—		$	—		$	11,375

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

31

CSB Bancorp, Inc.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     CSB Bancorp, Inc. (the Company) was incorporated in 1991 in the State of Ohio and is a registered bank holding company for its wholly-owned subsidiaries, The Commercial and Savings Bank (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 ten Banking Centers located in Millersburg, 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 mortgage, 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 operations of business. 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 balance sheet and reported amounts of revenues and expenses during each reporting period. Actual results could differ from those estimates. The most significant estimate susceptible to change in the near term relates to management’s determination of the allowance for loan losses.

PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany 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, amounts due from banks, and federal funds sold which mature overnight or within three 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, 2006 and 2005 was $2,780,000 and $2,809,000, respectively.

SECURITIES

     During 2004, the Bank transferred its held-to-maturity securities portfolio to the available-for-sale classification, as more fully described in Note 1. Prior to the transfer, securities designated as held-to-maturity were carried at amortized cost. Securities designated as available-for-sale are carried at fair value with unrealized gains and losses, net of applicable income taxes, on such securities 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.

     Investments in Federal Home Loan Bank and Federal Reserve Bank stock are classified as restricted securities, carried at cost, and evaluated for impairment.

     Gains and losses on sales of securities are accounted for on a trade date basis, using the specific identification method, and are included in noninterest income. Securities are written down to fair value when a decline in fair value is not other than temporary.

32

2006Report to Shareholders

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
continued

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.

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 uncollectibility 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 collectibility 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 Bank 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 Bank does not separately identify individual consumer and residential loans for impairment disclosures.

OTHER REAL ESTATE OWNED

     Other real estate acquired through or in lieu of foreclosure is initially recorded at the lower of cost or 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. There was no other real estate owned at December 31, 2006. Other real estate owned amounted to $440,000 at December 31, 2005.

PREMISES AND EQUIPMENT

     Premises and equipment are stated at cost less accumulated depreciation and amortization. Upon the sale or disposition of such 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 both accelerated and straight-line methods.

33

CSB Bancorp, Inc.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
continued

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 are not deposits and not covered by federal deposit insurance.

ADVERTISING COSTS

     All advertising costs are expensed as incurred.

FEDERAL INCOME TAXES

     The Company and the Bank 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 carryforwards. 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 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. Effective January 1, 2006, CSB adopted FASB Statement No . 123 (revised 2004), “Share-Based Payment” (FASB No. 123r), using the modified prospective application method. The modified prospective application method applies to new awards, to any outstanding liability awards, and to awards modified, repurchased, or cancelled after January 1, 2006. For all awards granted prior to January 1, 2006, unrecognized compensation cost, on the date of adoption, will be recognized as an expense in future periods. The results for prior periods have not been restated .

     The adoption of FASB No. 123r reduced net income by $13,850 for the year ended December 31, 2006 .The following table illustrates the effect on net income and earnings per share if CSB had applied the fair value recognition provisions to stock-based employee compensation during the prior periods presented. For purposes of this pro forma disclosure, the value of the options is estimated using the Black-Scholes option-pricing model and amortized to expense over the options’ vesting period.

     Pro forma disclosures of compensation cost of stock-based awards have been determined using the fair value method that considers the time value of the option considering the volatility of the Company’s stock and the risk-free interest rate over the expected life of the option using a Black-Scholes valuation model. Had compensation cost for stock options been measured using Statement of Financial Accounting Standards No.123r “Share-Based Payment”, net income and earnings per share would have been the pro forma amounts indicated below. The pro forma effect may increase in the future if more options are granted.

	2005		2004
Net income as reported	$	2,872,639	$	2,526,235
Pro forma net income		2,867,223		2,469,434
Basic earnings per share as reported		1.09		.96
Pro forma basic earnings per share		1.09		.93
Diluted earnings per share as reported		1.09		.95
Pro forma diluted earnings per share		1.09		.93

The pro forma effects are computed using option pricing models, using the following weighted-average assumptions as of grant date:

	2006			2005		2004
Risk-free interest rate		4.57	%		N/A		3.34	%
Dividend yield		3.56	%				2.60	%
Volatility		9.00	%				37.00	%
Expected option life	3.0 yrs.					3.5 yrs.

34

2006Report to Shareholders

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
continued

     As of December 31, 2006, there was approximately $43,000 of unrecognized compensation cost related to unvested share-based compensation awards granted. That cost is expected to be recognized over the next three years .

     Options are granted to certain employees at prices equal to the market value of the stock on the date the options are granted. The 2002 Plan authorizes the issuance of 75,000 shares. The Plan was amended April 27, 2005 to authorize the issuance of 200,000 shares. The time period during which any option is exercisable under the Plan is determined by the committee but shall not continue beyond the expiration of ten years after the date the option is awarded.

     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 estimated 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. Options granted were 29,760, 0, and 1,000 for the years ended December 31, 2006, 2005, and 2004, respectively.

COMPREHENSIVE INCOME

     Generally accepted U.S. accounting principles require that recognized revenue, expenses, gains and losses be included 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 balance sheet, such 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 Bank 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 were as follows:

	2006			2005			2004
Weighted average common shares outstanding		2,667,786			2,667,786			2,667,786
Average treasury shares		(140,872	)		(29,089	)		(23,204	)
Total weighted average common shares outstanding (basic)		2,526,914			2,638,697			2,644,582
Dilutive effect of assumed exercise of stock options		5,678			3,604			6,366
Weighted average common shares outstanding (diluted)		2,532,592			2,642,301			2,650,948

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

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.

35

CSB Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SECURITIES

     Securities consist of the following at December 31, 2006 and 2005:

			GROSS		GROSS
	AMORTIZED		UNREALIZED		UNREALIZED		FAIR
	COST		GAINS		LOSSES		VALUE
December 31, 2006
Available-for-sale:
U.S. Treasury security	$	99,992	$	—	$	172	$	99,820
Obligations of U.S. Government corporations and agencies		33,493,189		—		576,494		32,916,695
Mortgage-backed securities		28,453,336		591		405,963		28,047,964
Obligations of states and political subdivisions		5,666,915		103,482		1,103		5,769,294
Total debt securities		67,713,432		104,073		983,732		66,833,773
Equity securities		305,965		8,194		12,806		301,353
Total available-for-sale		68,019,397		112,267		996,538		67,135,126
Restricted stock		3,105,900		—		—		3,105,900
Total securities	$	71,125,297	$	112,267	$	996,538	$	70,241,026
December 31, 2005
Available-for-sale:
U.S. Treasury security	$	99,938	$	—	$	1,313	$	98,625
Obligations of U.S. Government corporations and agencies		42,991,204		4,376		765,254		42,230,326
Mortgage-backed securities		27,368,053		14,166		376,262		27,005,957
Obligations of states and political subdivisions		8,392,840		242,499		1,943		8,633,396
Total debt securities		78,852,035		261,041		1,144,772		77,968,304
Equity securities		304,376		6,080		5,512		304,944
Total available-for-sale		79,156,411		267,121		1,150,284		78,273,248
Restricted stock		2,947,000		—		—		2,947,000
Total securities	$	82,103,411	$	267,121	$	1,150,284	$	81,220,248

36

2006Report to Shareholders

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
continued

	AMORTIZED		FAIR
	COST		VALUE
Available-for-sale:
Due in one year or less	$	3,008,046	$	2,993,333
Due after one through five years		37,306,656		36,829,510
Due after five years through ten years		3,846,063		3,749,516
Due after ten years		23,552,667		23,261,414
Total available-for-sale	$	67,713,432	$	66,833,773

     Securities with a carrying value of approximately $52,567,000 and $60,148,000 were pledged at December 31, 2006 and 2005, respectively, to secure public deposits, as well as other deposits and borrowings as required or permitted by law.

     Restricted stock primarily consists of investments in Federal Home Loan Bank of Cincinnati and Federal Reserve Bank of Cleveland stock. The Bank’s investment in Federal Home Loan Bank stock amounted to $2,835,900 and $2,677,000 at December 31, 2006 and 2005, respectively.

     During the third quarter of 2004, the Company transferred its entire held-to-maturity securities portfolio, with an amortized cost of $31,681,132, to the available-for-sale category resulting in unrealized gains of $1,639,462. The portfolio was almost entirely comprised of state and political subdivision issues (i.e., municipal securities). The transfer was prompted by the Bank’s difficulty securing public fund deposits with out-of-state municipal securities, and enabled management to enhance and diversify the securities portfolio going forward. Subsequent to the transfer, the Bank sold all out-of-state municipal securities from the portfolio, with an amortized cost of $10,701,432, resulting in a gain on sale of $559,157.

     Gross gains realized from sales of previous impairment write-offs of securities available-for-sale amounted to $0 in 2006, $247,047 in 2005, and $587,916 in 2004, with the income tax provision applicable to such gains amounting to $0 in 2006, $84,000 in 2005, and $200,000 in 2004. Gross realized losses of $56,800 from sales of securities available-for-sale were realized in 2006. There were no gross realized losses in 2005 or 2004 . The income tax credit applicable to the loss recognized in 2006 amounted to $19,000.

37

CSB Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
continued

NOTE 1 – 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, 2006 and 2005:

	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
	LOSSES		VALUE		LOSSES		VALUE		LOSSES		VALUE
2006
Obligations of U.S. Government corporations and agencies	$	5,620	$	1,994,380	$	570,874	$	30,922,315	$	576,494	$	32,916,695
Mortgage-backed securities		34,629		7,768,042		371,334		15,384,068		405,963		23,152,110
Obligations of states and political subdivisions		—		—		1,103		250,313		1,103		250,313
U.S. Treasury security		—		—		172		99,820		172		99,820
Total debt securities		40,249		9,762,422		943,483		46,656,516		983,732		56,418,938
Equity securities		145		1,445		12,661		128,500		12,806		129,945
Total temporarily impaired securities	$	40,394	$	9,763,867	$	956,144	$	46,785,016	$	996,538	$	56,548,883
2005
Obligations of U.S. Government corporations and agencies	$	118,828	$	12,375,473	$	646,426	$	27,850,477	$	765,254	$	40,225,950
Mortgage-backed securities		175,196		10,604,264		201,066		7,595,041		376,262		18,199,305
Obligations of states and political subdivisions		1,943		249,793		—		—		1,943		249,793
U.S. Treasury security		1,313		98,625		—		—		1,313		98,625
Total debt securities		297,280		23,328,155		847,492		35,445,518		1,144,772		58,773,673
Equity securities		5,512		135,650		—		—		5,512		135,650
Total temporarily impaired securities	$	302,792	$	23,463,805	$	847,492	$	35,445,518	$	1,150,284	$	58,909,323

     There were thirty-nine securities in an unrealized loss position at December 31, 2006, thirty-one of which were in a continuous loss position for twelve months or more. Management reviews these securities quarterly Management has. considered industry analyst reports, sector credit reports and volatility in the bond market in concluding that the unrealized losses as of December 31, 2006 were primarily the result of customary and expected fluctuations in the bond market. As a result, all security impairments as of December 31, 2006 are considered temporary.

NOTE 2 – LOANS

     Loans consist of the following at December 31, 2006 and 2005:

	2006		2005
Commercial	$	55,512,802	$	69,922,000
Commercial real estate		72,706,863		52,660,795
Residential real estate		85,933,260		78,722,274
Installment and credit card		10,509,913		11,539,910
Construction		7,735,618		2,120,081
Deferred loan costs, net		33,482		54,613
Total Loans	$	232,431,938	$	215,019,673

38

2006Report to Shareholders

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
continued

NOTE 2 – LOANS(Continued)

     The following represents a summary of the activity in the allowance for loan losses for the years ended December 31, 2006, 2005 and 2004:

	2006			2005			2004
Beginning balance	$	2,445,494		$	2,574,945		$	2,458,864
Provision for loan losses		301,667			282,664			422,621
Loans charged-off		(309,644	)		(575,556	)		(434,055	)
Recoveries		169,601			163,441			127,515
Ending balance	$	2,607,118		$	2,445,494		$	2,574,945

Impaired loans were as follows for December 31, 2006 and 2005:

	2006		2005
Year-end loans with no allowance for loan losses allocated	$	—	$	61,338
Year-end loans with allowance for loan losses allocated		987,897		502,246
Amount of the allowance allocated		326,705		174,394

	2006		2005		2004
Average of impaired loans during the year	$	700,202	$	576,907	$	823,793
Interest income recognized during impairment		25,717		2,764		24,105
Cash-basis interest income recognized		24,762		472		23,415

     Nonperforming loans, including certain impaired loans and smaller balance homogenous loans such as residential mortgage and consumer loans that are collectively evaluated for impairment, were as follows at December 31, 2006 and 2005:

	2006		2005
Loans past due over 90 days still accruing interest	$	—	$	168,438
Nonaccrual loans		1,508,577		632,868

Loans serviced for others approximated $20,675,900 and $21,034,000 at December 31, 2006 and 2005, respectively.

NOTE 3 – PREMISES AND EQUIPMENT

     Premises and equipment consist of the following at December 31, 2006 and 2005:

	2006		2005
Land and improvements	$	1,007,927	$	1,007,927
Buildings and improvements		8,616,211		8,576,855
Furniture and equipment		5,453,248		5,208,855
Leasehold improvements		79,979		79,979
		15,157,365		14,873,616
Accumulated depreciation		7,767,183		7,201,794
Premises and equipment, net	$	7,390,182	$	7,671,822

     The Bank leases certain office locations. Total rental expense under these leases approximated $87,000, $84,000, and $71,400 in 2006, 2005, and 2004, respectively. Future minimum lease payments at December 31, 2006 aggregate $365,000 and are due as follows: 2007, $81,400; 2008, $81,600; 2009, $72,000; 2010, $73,100; 2011, $49,900; and 2012, $7,000.

39

CSB Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
continued

NOTE 4 – INTEREST-BEARING DEPOSITS

     Interest-bearing deposits at December 31, 2006 and 2005 are as follows:

	2006		2005
Demand	$	50,602,872	$	50,729,989
Savings		39,370,654		45,734,653
Time deposits:
In excess of $100,000		32,304,548		29,623,053
Other		93,444,467		87,507,953
Total interest-bearing deposits	$	215,722,541	$	213,595,648

     At December 31, 2006, stated maturities of time deposits were as follows:

2007	$	100,391,500
2008		14,698,987
2009		4,331,480
2010		4,236,687
2011		2,052,205
2012 and beyond		38,156
Total	$	125,749,015

NOTE 5 – BORROWINGS

Short-term borrowings

     Short-term borrowings include overnight repurchase agreements, Federal funds purchased and a $5,000,000 short-term advance through the Federal Home Loan Bank (FHLB). The outstanding balances and related information for short-term borrowings are summarized as follows:

	2006			2005
Balance at year-end	$	28,022,077		$	21,417,616
Average balance outstanding		32,974,064			20,243,476
Maximum month-end balance		41,468,292			29,467,123
Weighted-average rate at year-end		3.71	%		1.54	%
Weighted-average rate during the year		3.84			1.64
Other borrowings

The following table sets forth information concerning other borrowings:

	MATURITY RANGE				WEIGHTED AVERAGE			STATED INTEREST RATE						AT DECEMBER 31,
Description	From		To		INTEREST RATE			From			To			2006		2005
—     —
Fixed rate		3/03/06		3/03/06		2.15	%		2.15	%		2.15	%	$	—	$	5,000,000
Fixed rate amortizing		1/01/07		3/01/17		6.45			5.60			7.15			2,499,399		3,067,840
														$	2,499,399	$	8,067,840

Maturities of other borrowings at December 31, 2006, are summarized as follows:

YEAR ENDING DECEMBER 31,	AMOUNT		WEIGHTED-AVERAGE RATE
2007	$	475,513		6.42	%
2008		417,127		6.42
2009		369,517		6.42
2010		322,234		6.42
2011		247,456		6.47
2012 and beyond		667,552		6.48
	$	2,499,399		6.44	%

     Monthly principal and interest payments are due on the 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, 2006 the Company has the capacity to borrow an additional $55.3 million from the FHLB.

40

2006Report to Shareholders

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
continued

NOTE 6 – INCOME TAXES

     The provision for income taxes consists of the following for the years ended December 31, 2006, 2005 and 2004:

	2006		2005		2004
Current	$	1,234,325	$	759,163	$	537,754
Deferred		198,675		408,837		115,246
Total income tax provision	$	1,433,000	$	1,168,000	$	653,000

     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:

	2006			2005			2004
Expected provision using statutory federal income tax rate	$	1,544,700		$	1,373,800		$	1,080,900
Tax-exempt income on state and municipal securities and political subdivision loans		(138,600	)		(218,400	)		(474,500	)
Interest expense associated with carrying certain state and municipal securities and political subdivision loans		11,800			14,300			24,700
Other		15,100			(1,700	)		21,900
Total income tax provision	$	1,433,000		$	1,168,000		$	653,000

     The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at December 31, 2006 and 2005, are as follows:

	2006			2005
Allowance for loan losses	$	626,600		$	524,000
Alternative minimum tax credit carryforwards		—			296,000
Unrealized loss on securities available-for-sale		300,650			300,275
Other		26,950			24,225
Deferred tax assets		954,200			1,144,500
Depreciation of premises and equipment		(334,200	)		(389,800	)
Federal Home Loan Bank stock dividends		(459,600	)		(405,600	)
Deferred loan fees		(81,700	)		(68,300	)
Other		(68,200	)		(72,000	)
Deferred tax liabilities		(943,700	)		(935,700	)
Net deferred tax assets	$	10,500		$	208,800

     The Company had no available alternative minimum tax credit carry forwards at December 31, 2006. Tax credit carry forwards of approximately $296,000 were utilized during 2006 as the computed regular tax exceeded the alternative minimum tax.

     The Company believes it is more likely than not that the benefit of deferred tax assets will be realized. Consequently, no valuation allowance for deferred tax assets is deemed necessary at December 31, 2006 and 2005 in view of certain tax strategies, coupled with the anticipated future taxable income as evidenced by the Company’s earnings potential.

41

CSB Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
continued

NOTE 6 – INCOME TAXES(Continued)

     The Company’s 2001 and 2002 consolidated federal income tax returns are currently under examination by the Internal Revenue Service. On January 6, 2006 the Company received correspondence that the Joint Committee of Taxation had taken no exception to the conclusions the Internal Revenue Service reached for the tax periods ended December 1996 through December 2002. The case has been forwarded to the IRS Appeals Office for closing. Based on the closing numbers provided by the IRS and interest estimates, Management believes there will be no adverse material impact on the Company’s consolidated financial statements.

NOTE 7 – 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 investing 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 2006, 2% for 2005 and 1% of each eligible participant’s compensation for 2004. The Plan also provides for a 50% Bank match of participant contributions up to a maximum of 2% of each participant’s annual compensation. Expense under the Plan amounted to approximately $232,000, $159,000, and $111,000 for 2006, 2005, and 2004, respectively.

     During 2006, the Board of Directors granted options to various executive officers of the Company, including options to purchase 29,760 shares of the Company’s common shares at an exercise price of $18.00 per share through March 2016. There were no stock options granted during 2005. During 2004, the Board of Directors granted options to another executive officer to purchase 1,000 shares at an exercise price of $19.00 per share through August 9, 2009. During 2003, the Board of Directors granted options to various executive officers of the Company, including options to purchase 10,000 shares of the Company’s common shares at an exercise price of $17.75 per share through May 19, 2008 to one executive officer, and options to purchase 1,000 shares each to two other officers at an exercise price of $17.50 per share through July 31, 2008. Effective December 31, 2002, the Board of Directors granted to various officers and employees of the Bank, options to purchase a total of 14,660 shares of common stock under the Company’s Share Incentive Plan, with those options exercisable on the anniversary of the grant date in annual 20% increments. The exercise price for the options is the December 31, 2002 market price of $16.05 per share and the options expire 10 years from the grant date.

     The following summarizes stock options activity for the years ended December 31, 2006, 2005 and 2004:

	2006						2005						2004
				WEIGHTED						WEIGHTED						WEIGHTED
				AVERAGE						AVERAGE						AVERAGE
				EXERCISE						EXERCISE						EXERCISE
	SHARES			PRICE			SHARES			PRICE			SHARES			PRICE
Outstanding at beginning of year		21,970		$	17.09			42,820		$	16.09			42,485		$	16.02
Granted		29,760			18.00			—			—			1,000			19.00
Exercised		—			—			—			—			—			—
Forfeited		(485	)		(16.05	)		(20,850	)		(15.04	)		(665	)		(16.05	)
Outstanding at end of year		51,245		$	17.63			21,970		$	17.09			42,820		$	16.09
Options exercisable at year-end		19,788		$	17.20			18,361		$	17.29			36,964		$	16.10
Weighted-average fair value of options granted during year				$	1.26						N/A					$	2.94

42

2006Report to Shareholders

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
continued

NOTE 7 – EMPLOYEE BENEFITS(Continued)

     Options outstanding at December 31, 2006 were as follows:

	OUTSTANDING				EXERCISABLE
			WEIGHTED AVERAGE				WEIGHTED
			REMAINING				AVERAGE
RANGE OF			CONTRACTUAL LIFE				EXERCISE
EXERCISABLE PRICES	NUMBER		(YEARS)		NUMBER		PRICE
$16.05		8,485		5.92		6,788	$	16.05
17.50		2,000		1.56		2,000		17.50
17.75		10,000		1.37		10,000		17.75
18.00		29,760		9.12		—		—
19.00		1,000		2.57		1,000		19.00
Outstanding at year-end		51,245		3.01		19,788	$	17.20

NOTE 8 – 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, 2006 and 2005:

	CONTRACT AMOUNT
	2006		2005
Commitments to extend credit	$	69,989,000	$	58,527,000
Letters of credit	$	882,000	$	541,000

     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 Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral, obtained if deemed necessary by the Bank 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 Bank 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, 2006, are due on demand or expire in 2007. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Bank requires collateral supporting these commitments when deemed appropriate .

43

CSB Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
continued

NOTE 9 – RELATED-PARTY TRANSACTIONS

     In the ordinary course of business, loans are granted by the Bank 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 ending December 31, 2006:

	CONTRACT AMOUNT
	2006
Balance at beginning of year	$	6,160,817
New loans and advances		423,142
Repayments, including loans sold		(1,436,501	)
Balance at end of year	$	5,147,458

     Deposits from executive officers, directors and their related business interests at December 31, 2006 and 2005 were approximately $3,803,000 and $4,927,000, respectively.

NOTE 10 – 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, 2006 and 2005, that the Company and Bank met or exceeded all capital adequacy requirements to which they are subject.

     As of December 31, 2006, 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 conditions or events since that notification that Management believes have changed the Bank’s category.

44

2006Report to Shareholders

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
continued

NOTE 10 – REGULATORY MATTERS(Continued)

     The actual capital amounts and ratios of the Company and Bank as of December 31, 2006 and 2005, are also presented in the following table (dollars in thousands):

											MINIMUM REQUIRED
						MINIMUM REQUIRED					TO BE WELL-CAPITALIZED
						FOR CAPITAL					UNDER PROMPT CORRECTIVE
	ACTUAL					ADEQUACY PURPOSES					ACTION REGULATIONS
	AMOUNT		RATIO			AMOUNT		RATIO			AMOUNT		RATIO
As of December 31, 2006
Total capital (to risk-weighted assets)
Consolidated	$	38,259		17.7	%	$	17,337		8.0	%	$	21,671		10.0	%
Bank		35,460		16.4			17,298		8.0			21,623		10.0
Tier I capital (to risk-weighted assets)
Consolidated		35,652		16.5			8,668		4.0			13,002		6.0
Bank		32,853		15.2			8,649		4.0			12,974		6.0
Tier I capital (to average assets)
Consolidated		35,652		11.1			12,816		4.0			16,020		5.0
Bank		32,853		10.3			12,781		4.0			15,976		5.0
As of December 31, 2005
Total capital (to risk-weighted assets)
Consolidated	$	38,196		18.2	%	$	16,772		8.0	%	$	20,965		10.0	%
Bank		35,562		17.0			16,766		8.0			20,957		10.0
Tier I capital (to risk-weighted assets)
Consolidated		35,750		17.1			8,386		4.0			12,579		6.0
Bank		33,116		15.8			8,383		4.0			12,574		6.0
Tier I capital (to average assets)
Consolidated		35,750		11.1			12,905		4.0			16,131		5.0
Bank		33,116		10.3			12,869		4.0			16,087		5.0

     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 above. Under these provisions, at January 1, 2007, the Bank would need to obtain the approval of the State of Ohio Division of Financial Institutions to move additional monies to the Company. The Company does not anticipate the financial need to obtain this 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 10 percent of the Bank’s common stock and capital surplus.

45

CSB Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
continued

NOTE 11 – CONDENSED PARENT COMPANY FINANCIAL INFORMATION

     A summary of condensed financial information of the parent company as of December 31, 2006 and 2005 and for each of the three years in the period ended December 31, 2006 are as follows:

CONDENSED BALANCE SHEETS

	2006			2005
Assets
Cash deposited with subsidiary bank	$	1,793,833		$	1,620,795
Investment in subsidiary bank		32,271,581			32,528,304
Securities available-for-sale		805,281			816,179
Other assets		199,625			204,981
Total assets	$	35,070,320		$	35,170,259
Liabilities and Shareholders’ Equity
Shareholders’ equity:
Common stock		16,673,667			16,673,667
Additional paid-in capital		6,427,765			6,413,915
Retained earnings		16,248,608			14,752,250
Treasury stock		(3,696,102	)		(2,086,686	)
Accumulated other comprehensive income		(583,618	)		(582,887	)
Total shareholders’ equity		35,070,320			35,170,259
Total liabilities and shareholders’ equity	$	35,070,320		$	35,170,259

CONDENSED STATEMENTS OF INCOME

	2006			2005			2004
Interest on securities	$	27,230		$	25,273		$	24,837
Dividends from subsidiary		3,600,000			3,910,886			1,375,221
Total income		3,627,230			3,936,159			1,400,058
Operating expenses		377,769			377,211			157,521
Income before taxes and undistributed equity income of subsidiary		3,249,461			3,558,948			1,242,537
Income tax benefit		125,000			128,000			54,000
Equity income in subsidiary, net of dividends		(264,356	)		(814,309	)		1,229,698
Net income	$	3,110,105		$	2,872,639		$	2,526,235

46

2006Report to Shareholders

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
continued

NOTE 11 – CONDENSED PARENT COMPANY FINANCIAL INFORMATION(Continued)

CONDENSED STATEMENTS OF CASH FLOWS

	2006			2005			2004
Cash flows from operating activities:
Net income	$	3,110,105		$	2,872,639		$	2,526,235
Adjustments to reconcile net income to cash provided by operations:
Security accretion		(187	)		(187	)		(187	)
Software amortization		6,667			5,000			—
Equity income in subsidiary, net of dividends		264,356			814,309			(1,229,698	)
Stock compensation expense		13,850			—			—
Change in other assets, liabilities		3,000			(73,879	)		(17,000	)
Net cash provided by operating activities		3,397,791			3,617,882			1,279,350
Cash flows from investing activities:
Purchase of investment securities		(1,590	)		(304,376	)		—
Purchase of software		—			(20,000	)		—
Net cash used in investing activities		(1,590	)		(324,376	)		—
Cash flows from financing activities:
Purchase of treasury shares		(1,609,416	)		(1,459,752	)		—
Cash dividends paid		(1,613,747	)		(1,822,491	)		(1,337,323	)
Net cash used in financing activities		(3,223,163	)		(3,282,243	)		(1,337,323	)
Net change in cash		173,038			11,263			(57,973	)
Cash at beginning of year		1,620,795			1,609,532			1,667,505
Cash at end of year	$	1,793,833		$	1,620,795		$	1,609,532

NOTE 12 – OTHER COMPREHENSIVE INCOME (LOSS)

     The components of other comprehensive income (loss) and related tax effects are as follows for the years ended December 31, 2006, 2005 and 2004:

	2006			2005			2004
Unrealized holding losses on available-for-sale securities	$	(57,908	)	$	(1,225,090	)	$	(555,212	)
Unrealized holding gains on held-to-maturity securities transferred to the available-for-sale category		—			—			1,639,462
Less reclassification adjustment for securities losses (gains) recognized in income		56,800			(247,047	)		(587,916	)
Net unrealized holding gains (losses)		(1,108	)		(1,472,137	)		496,334
Federal income tax provision (benefit)		(377	)		(500,527	)		168,754
Other comprehensive income (loss)	$	(731	)	$	(971,610	)	$	327,580

47

CSB Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
continued

NOTE 13 – FAIR VALUES OF FINANCIAL INSTRUMENTS

     The estimated fair values of recognized financial instruments as of December 31, 2006 and 2005, are as follows:

	2006				(Dollars in Thousands)	2005
	CARRYING		FAIR			CARRYING		FAIR
	AMOUNTS		VALUE			AMOUNTS		VALUE
Financial assets:
Cash and cash equivalents	$	17,653	$	17,653		$	16,650	$	16,650
Securities		70,241		70,241			81,220		81,220
Loans, net		229,825		226,830			212,574		212,139
Accrued Interest Receivable		1,414		1,414			1,389		1,389
Financial liabilities:
Deposits	$	260,178	$	259,702		$	255,403	$	255,053
Short-term borrowings		28,022		28,022			21,418		21,418
Other borrowings		2,499		2,515			8,068		7,998
Accrued Interest Payable		350		350			244		244

     For purposes of the above disclosures of estimated fair value, the following assumptions were used. Estimated fair value for cash and due from banks was considered to be carrying value. Estimated fair value of securities was based on quoted market values for the individual securities or equivalent securities. Fair value for loans was estimated for portfolios of loans with similar financial characteristics. Fair value of loans was estimated by discounting future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for similar anticipated maturities. Fair value of non-accrual loans was based on carrying value.

     Fair value of core deposits, including demand deposits, savings accounts and certain money market deposits, was the amount payable on demand. Fair value of fixed-maturity certificates of deposit was estimated using the rates offered at December 31, 2006 and 2005, for deposits of similar remaining maturities. Estimated fair value does not include the benefit that results from low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market. Overnight federal funds purchased and securities sold under repurchase agreement, classified as short-term borrowings, are valued at carrying value as they represent liabilities that are due on demand. Other borrowings with terms greater than one year are fair valued based upon a discounted cash flow approach. Estimated fair value of accrued interest was determined to be the carrying amounts since these financial instruments generally represent obligations that are due on demand.

     The Company also has unrecognized financial instruments at December 31, 2006 and 2005. These financial instruments relate to commitments to extend credit and letters of credit. The aggregated contract amount of such financial instruments was approximately $70,871,000 at December 31, 2006 and $59,100,000 at December 31, 2005. Such amounts are also considered to be the estimated fair values.

48

2006Report to Shareholders

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
continued

NOTE 13 – FAIR VALUES OF FINANCIAL INSTRUMENTS(Continued)

     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 .

NOTE 14 – CONTINGENT LIABILITIES

     In the normal course of business, the Company and its subsidiary may be involved in various legal actions, but in the opinion of management and its legal counsel, the ultimate disposition of such matters is not expected to have a material adverse effect on the consolidated financial statements.

     The Company has entered into employment agreements with various officers. 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 15 – QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following is a summary of selected quarterly financial data (unaudited) for the years ended December 31, 2006 and 2005:

							BASIC		DILUTED
	INTEREST		NET INTEREST		NET		EARNINGS		EARNINGS
	INCOME		INCOME		INCOME		PER SHARE		PER SHARE
2006
First quarter	$	4,708,719	$	3,294,273	$	773,906	$	.30	$	.30
Second quarter		5,006,077		3,272,933		676,653		.27		.27
Third quarter		5,156,066		3,294,090		813,564		.32		.32
Fourth quarter		5,173,890		3,306,165		845,982		.34		34
2005
First quarter	$	3,974,179	$	2,928,704	$	666,813	$	.25	$	.25
Second quarter		4,218,725		3,028,387		613,744		.23		.23
Third quarter		4,471,807		3,213,989		689,373		.26		.26
Fourth quarter		4,692,564		3,374,499		902,709		.35		.35

49

CSB Bancorp, Inc.

OFFICERS OF THE COMMERCIAL & SAVINGS BANK

Linda C. Amos
Assistant Vice President/Mortgage Loan Officer

Becky A. Baker
Assistant Vice President/Banking Center Manager

Pamela S. Basinger
Vice President/Financial Officer

Deborah S. Berner
Vice President/Marketing, Public Relations

Pamela L. Bromund
Assistant Vice President/Loan Operations Supervisor

C. Dawn Butler
Vice President/Banking Center Manager

Beverly A. Carr
Operations Officer, Deposit Processing

Colby M. Chamberlin
Vice President/Commercial Lender

Dale J. Clinton
Vice President/Internal Auditor

G. Gail Cochran
Assistant Vice President/Executive Loan Secretary

Peggy L. Conn
Corporate Secretary

Marianne Davis
Assistant Cashier/Banking Center Manager

Paula S. Foy
Vice President

Rick L. Ginther
President/CEO of The Commercial & Savings Bank

Loretta Gray
Assistant Cashier/Assistant Banking Center Manager

Paul D. Greig
Senior Vice President/Chief Operation/Information Officer

Marcella K. Hawkins
Assistant Vice President/Trust Officer

Julie A. Jones
Vice President/Director of Human Resources

Stephen K. Kilpatrick
First Vice President/ Senior Credit Officer

Betty C. Lyon
Assistant Vice President/Banking Center Manager

Jason R. McCulloch
Assistant Vice President/Brokerage Manager

Sherry A. McRobie
Assistant Cashier/Banking Center Manager

Paula J. Meiler
Senior Vice President/Chief Financial Officer

A. Lee Miller
Vice President/Cash Management & Special Projects

Edward J. Miller
Vice President/Banking Center Services

Daniel L. Muse
Operations Officer

Lisa M. Nelson
Assistant Vice President, Banking Center Manager

Pamela S. Null
Vice President/Compliance Officer

Shawn E. Oswald
Vice President/Information System Director

Chris S. Rickly
Assistant Vice President/Commercial Lender

Thomas S. Rumbaugh
Vice President/Trust Officer

Rebecca J. Shultz
Assistant Vice President/Loan Officer

Scott A. Stallman
Operations Officer

Harland L. Stebbins
First Vice President/Senior Loan Officer

Eddie L. Steiner
Chairman, The Commercial & Savings Bank President/CEO of CSB Bancorp, Inc.

Eric D. Strouse
Vice President/Commercial Lender

Ronald L. Stutzman
Assistant Vice President/Banking Center Manager

Jennifer M. Thorpe
Assistant Vice President/Senior Credit Analyst

William R. Tinlin
Vice President/Recovery/Security

Brian D. Troyer
Assistant Vice President/Trust Operations

Marsha Walker
Assistant Vice President/Banking Center Manager

I. Milton Wayland
Assistant Vice President/Loan Officer

Jane C. Whitmer
Assistant Cashier/Assistant Banking Center Manager

Ervin C. Yoder
Vice President/Business Development Officer

50

2006Report to Shareholders

GENERAL INFORMATION

THE COMMERCIAL & SAVINGS BANK

Information & Customer Service	330-674-9015 or 1-800-654-9015
24 Hour Xpress Phone Banking	330-674-2720 or 1-888-438-2720
Loan Services91 N. Clay, Millersburg	Personal Loans 330-763-2823
	Business Loans 330-763-2822
Trust & Investment Services91 N. Clay, Millersburg	Holmes & Tuscarawas County 330-674-2397
Trust & Investment Services146 E. Liberty, Suite 230, Wooster	Wayne County 330-264-0334
24 Hour Xpress Net Banking & BillPay	www.csb1.com
CSB BANKING CENTERS
Millersburg Banking Centers
Clinton Commons2102 Glen Dr. (Drive-Up ATM)		330-674-2265
Jackson6 W. Jackson		330-674-9015
South Clay91 S. Clay (Drive-Up ATM)		330-674-0687
Berlin Banking Center4587 S.R. 39, Berlin (Drive-Up ATM)		330-893-3565
Charm Banking Center4440 C.R. 70, Charm (Walk-Up ATM)		330-893-3323
Orrville Area Banking Center461 Wadsworth Road, Orrville (Drive-Up ATM)		330-682-8000
Shreve Banking Center333 W. South, Shreve (Drive-Up ATM)		330-567-2226
Sugarcreek Banking Center127 S. Broadway, Sugarcreek (Drive-Up ATM)		330-852-4444
Walnut Creek Banking Center4980 Olde Pump, Walnut Creek (Walk-Up ATM)		330-893-2961
Winesburg Banking Center2225 U.S. 62, Winesburg (Drive-Up ATM)		330-359-5543

SHAREHOLDER & GENERAL INQUIRIES	Stock Listing Common Symbol:CSBB.OB
Corporate Office91 N. Clay, Millersburg	330-674-9015

If you have questions regarding your CSB Bancorp, Inc. stock, please contact:

Registrar and Transfer Company
Attn: Investor Relations
10 Commerce Drive
Cranford, New Jersey 07016
800-368-5948
www.rtco.com

Legal Counsel
Bricker & Eckler LLP
100 South Third Street
Columbus, Ohio 43215

If you are interested in purchasing shares of CSB Bancorp, Inc., you may contact your local broker or one of the following:

Jay McCulloch
Investment Executive
Infinex Financial Group
Located at The Commercial & Savings Bank
91 North Clay Street
P.O. Box 50
Millersburg, Ohio 44654
330-674-2397• 800-654-9015

George Geissbuhler
Sweney Cartwright & Co.
17 South High Street, Suite 300
Columbus, Ohio 43215
800-334-7481

Linda Reall
Capital Securities of America, Inc.
150 Grand Trunk Avenue
Hartville, Ohio 44632
800-494-9497

CSB Bancorp, Inc. is required to file an annual report on Form 10-K annually with the Securities and Exchange Commission. Copies of the Form 10-K annual report and the Company’s quarterly reports may be obtained without charge by contacting:

Paula J. Meiler
Chief Financial Officer
CSB Bancorp, Inc.
91 North Clay Street
Millersburg, Ohio 44654
330-674-9015• 800-654-9015

The annual meeting of shareholders is currently scheduled to be held on Wednesday, April 25, 2007 at 7:00 pm, at the Carlisle Inn in Walnut Creek, Ohio.