CSB Bancorp (CSBB) 10-K 2016 FY Annual report

Exhibit 13

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TABLE OF CONTENTS
2016 Financial Highlights 3
2016 Letter to Shareholders 4
Board of Directors 7
2016 Financial Review 8
Report on Management’s Assessment of Internal Control over Financial Reporting 23
Report of Independent Registered
Public Accounting Firm 24
Consolidated Balance Sheets 25
Consolidated Statements of Income 26
Consolidated Statements of
Comprehensive Income 27
Consolidated Statements of
Changes in Shareholders’ Equity 27
Consolidated Statements of Cash Flows 28
Notes to Consolidated Financial Statements 30
Officers of The Commercial and Savings Bank 60
Shareholders and General Inquiries 61
Banking Center Information 62
2 2016 Report to Shareholders | CSB Bancorp, Inc.

2016 FINANCIAL HIGHLIGHTS

For the Year Ended December 31	2016			2015			% CHANGE
(Dollars in thousands, except per share data)
CONSOLIDATED RESULTS
Net interest income		$    22,159			$    20,430			8%
Net interest income – fully taxable-equivalent (FTE) basis		22,531			20,758			9
Noninterest income		4,296			4,424			(3)
Provision for loan losses		493			389			27
Noninterest expense		16,255			15,796			3
Net income		6,738			6,022			12
ATYEAR-END
Loans, net		$  470,158			$  418,209			12%
Assets		669,978			650,314			3
Deposits		540,785			525,042			3
Shareholders’ equity		65,415			61,266			7
Cash dividends declared per share		0.78			0.76			3
Book value per share		23.85			22.35			7
Tangible book value per share		21.99			20.44			8
Market price per share		31.00			24.50			27
Basic and diluted earnings per share		2.46			2.20			12
FINANCIAL PERFORMANCE
Return on average assets		1.03	%		0.95	%
Return on average equity		10.44			10.07
Net interest margin, FTE		3.67			3.48
Efficiency ratio		60.14			62.37
CAPITAL RATIOS
Risk-based capital:
Common equity Tier 1		12.58	%		12.49	%
Tier 1		12.58			12.49
Total		13.67			13.52
Leverage		9.30			8.74

2016 Report to Shareholders  |  CSB Bancorp, Inc.

3

LETTER TO SHAREHOLDERS

DEAR FELLOW SHAREHOLDER:

2016 was a good year for CSB as we continued to grow and build momentum. Our progress was marked by a fifth consecutive year of record earnings. Total return on CSB stock amounted to 30% including the reinvestment of dividends.

These financial results are encouraging, yet we firmly believe that continued progress and improvement is vital to maintaining our momentum. We strive for consistent improvement in performance and capabilities. While significant investments or changing macroeconomic conditions tend to impact results for a period of time, our vision of enduring greatness keeps us focused on delivering shareholder value in a sustainable manner and conducting business for the long haul.

The balance of this letter reviews some highlights of the past year and initiatives we are focusing on for the future.

TRENDS BY THE NUMBERS:

Return on assets climbed above 1% in 2016 and return on equity exceeded 10% for the third consecutive year. Additional metrics reflect our consistency in performance and improving trends.

UNDERLYING FUNDAMENTALS

In last year’s shareholder letter, we reported loan growth was elusive for much of 2015 and we had responded by increasing our team of lenders and streamlining loan approval processes. These efforts, along with a steadily improving economy, resulted in 12% loan growth during 2016 with increases in all major categories. We will continue to focus on loan growth in 2017.

Credit quality remained acceptable and relatively stable during 2016. Total delinquent andnon-accrual balances again averaged well under 1%, and we posted a net recovery of 0.03% of total average balances. As we enter 2017, consumer and commercial credit categories are both performing acceptably. Credit risk is ever-present in banking and we manage it by disciplined underwriting and review, maintaining a diversified mix of loans, monitoring concentrations and correlated risks, and reserving for losses with consistent and appropriately conservative methodology.

Deposit balances increased 3% during 2016. Over the past eight years, our compound annual growth rate (CAGR) for deposits equates to 9.6%, while total deposits for FDIC-insured institutions in our four county area have exhibited a 2.8% CAGR. We focus on attracting core deposits, which we believe can best support steady growth and provide manageable cost of funds.

We believe we have considerable opportunity to gain additional market share. We hold 5% of FDIC-insured institution deposits in our four county market area, more than any other community bank and now sixth overall when including large regional and national banks. We also hold 12.5% of deposits in combined Holmes, Tuscarawas and Wayne counties, second only to a very large national bank with a 15% share. Stark County, where we have only one banking center and 0.1% of total deposits, also offers significant loan and deposit growth potential for our bank.

THE BANKING ENVIRONMENT AND OUR COMPANY’S POSTURE

Eight years of extremely low interest rates have created significant search for yield and volume in the banking industry, resulting in very strong competition for earning assets. We have maintained a relatively balanced interest rate risk posture throughout the period and will continue to avoid balance sheet strategies that create significant interest rate risk.

4               2016 Report to Shareholders  |  CSB Bancorp, Inc.

LETTER TO SHAREHOLDERS

Merger and acquisition activity remains a somewhat steady presence in the banking industry. The increased revenue generation and efficiencies that can be gained through acquired volume are primary drivers of much of this activity, with regulatory burden and leadership succession also factors. Several transactions have occurred in our area over the past two years.We view these transactions and the resulting market disruption as providing further opportunity for our organic growth and we are leveraging efforts accordingly. In addition, we remain open to the possibility of growing our Company through compelling transaction opportunities.

THE TRUMP EFFECT?

A sense of increased optimism about the economy and business conditions emerged with the results of November’s national election. Financial institution stock prices jumped 21% nationally in the three months following the election (CSB stock rose 6%). Expectations for lower taxes, increased spending on infrastructure, less regulation, and rising interest rates seem to be fueling optimism for bank stocks. Time will tell to what degree these anticipated conditions materialize. Our strategy is built on attracting and retaining great talent, developing superb capabilities, and executing with prudent business practices. As such, on a relative basis, we will not be dependent upon changes in regulatory or fiscal policies in order to meet our objectives.

BANKING CENTERS While most banking centers are experiencing a slow decline in transaction counts and branch visits per customer, our physical locations remain a key link to the customers and communities we serve. Location convenience continues to be one key determinant ofin-branch activity. We prefer to be located along mainstream consumer traffic patterns and we prefer to own our locations wherever practical. During 2016, we purchased our existing Charm location, relocated the downtown Wooster banking center from West Liberty Street to East Liberty Street, and made plans to consolidate our two leased Orrville locations
into one new banking center to be constructed on property we purchased in the 100 block of West High Street. We anticipate opening this new banking center in late 2017 or early 2018. DIGITAL WORLD We are closely monitoring and investing in various forms of financial technology. Our objective is to offer safe, convenient, and customer-friendly digital platforms that provide solutions to real needs, thus enhancing the CSB experience. Over the past year and a half, a team of CSB specialists completely redesigned our website. Launched in January 2017, the newcsb1.com provides significant functional upgrades for customers, shareholders, and prospective employees, and is built on a customizable platform that sets the stage for further enhancements. Other significant technology investments over the past several years include upgraded or new systems for core processing, digital content management, mortgage origination, consumer lending, loan processing, credit analysis, and corporate phone communications. These systems are solid and scalable to support continued growth.
	SENIOR MANAGEMENT OF THE COMMERCIAL & SAVINGS BANK
	Pictured Left to Right:
	BUD STEBBINS	PAULA MEILER	EDDIE STEINER
	Senior Vice President	Senior Vice President	President
	Senior Loan Officer	Chief Financial Officer	Chief Executive Officer
	ANDREA MILEY	BRETT GALLION
	Senior Vice President	Senior Vice President
	Senior Risk Officer	Senior Operations Officer
		Senior Information Officer

2016 Report to Shareholders  |  CSB Bancorp, Inc.              5

LETTER TO SHAREHOLDERS

  EDDIE STEINER     ROBERT BAKER THE CSB BRAND As we continue to grow in newer markets, we are focusing more intently on brand awareness. We are promoting our presence within each market, increasing familiarity with CSB and its people, and adding value through customer education. These brand building efforts highlight our local experts, customized services, high-touch technology, principled growth and community involvement. We are utilizing a blend of traditional messaging (e.g. billboards) and digital content messaging (e.g. social media) in these brand building efforts.   OUR PEOPLE The dedicated team members throughout the Company are the very essence of CSB. Our culture, our commitment to excellence, our foundation of dealing uprightly in all respects, and ultimately our success are all attributable to the efforts of these talented individuals. CSB team members do great things every day; their efforts are what make CSB noticeably different. We are proud to be associated with this talented group of individuals.   CONCLUDING REMARKS CSB is a strong community bank and continually improving. Our systems, talented people, and development initiatives are positioning us well for growth. Our board is fully engaged and we have a culture of excellence and good governance. We believe we are delivering value for our shareholders and we are working diligently to forge an enduring and rewarding future for the CSB’s stakeholders. We are grateful for the continued support of shareholders, employees, and the communities CSB serves. We consider it an extraordinary privilege to be part of The CSB Way and are thankful to provide this report on behalf of the entire CSB team.

EDDIE STEINER President and Chief Executive Officer	ROBERT “ROC” BAKER Chairman of the Board of Directors

6              2016 Report to Shareholders  |  CSB Bancorp, Inc.

BOARD OF DIRECTORS

Pictured Left to Right:
JOHN R. WALTMAN	ROBERT K. BAKER	JULIAN L. COBLENTZ
Attorney, Of Counsel, Critchfield, Critchfield & Johnson	Co-Owner and Controller, Bakerwell, Inc. Chairman, CSB Bancorp, Inc.	Vice President, Coblentz Distributing, Inc. Operations Manager, Walnut Creek Foods
JEFFERY A. ROBB, SR.	EDDIE L. STEINER	J. THOMAS LANG
CEO, Robb Companies, Inc. Robbco Marine/Ohio Yamaha	President, Chief Executive Officer, CSB Bancorp, Inc.	Veterinarian Dairy Farmer, Spring Hill Farms, Inc.
RONALD E. HOLTMAN
Retired Attorney

2016 Report to Shareholders  |  CSB Bancorp, Inc.

7

2016 FINANCIAL REVIEW

INTRODUCTION

CSB Bancorp, Inc. (the “Company” or “CSB”) was incorporated under the laws of the State of Ohio in 1991 and is a registered financial holding company. The Company’s wholly-owned subsidiaries are 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, with deposits insured by the Federal Deposit Insurance Corporation, and its primary regulators are the Ohio Division of Financial Institutions and the Federal Reserve Board.

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

Economic activity in the Company’s market area has been increasing at a modest but rather steady pace for the past eight years. The expansion has been most prevalent in small tomid-sized manufacturing and across various professional andnon-professional service sectors. Reported unemployment levels at December 2016 ranged from 3.4% to 5.2% in the four primary counties served by the Company. These levels are largely unchanged from December 2015. Many local employers report tight hiring conditions. Wage pressure has increased for entry level jobs in certain sectors such as banking and construction. The local housing market continues to improve. Unit sales and housing construction levels increased during 2016 with some observable price appreciation. Ohio’s shale gas industry reported an uptick in the number of permits issued and drilling rigs operating during 2016. The increased activity was supported by oil prices recovering from record lows in January 2016 as well as regional gas producers maintaining output near historic highs to fund cash and debt service requirements. The Company’s market is adjacent to areas of primary shale activity.

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. Anyforward-looking statements made by the Company herein and in future reports and statements are not guarantees of future performance. Actual results may differ materially from those in forward-looking statements because of various risk factors as discussed in this annual report and the Company’s Annual Report on Form10-K. The Company does not undertake, and specifically disclaims, any obligation to publicly release the result of any revisions to any forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date of such statements.

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

2016 FINANCIAL REVIEW

SELECTED FINANCIAL DATA

The following table sets forth certain selected consolidated financial information:

(Dollars in thousands, except share data)	2016			2015			2014			2013			2012
Statements of income:
Total interest income	$	23,632		$	21,997		$	21,656		$	21,138		$	20,584
Total interest expense		1,473			1,567			1,729			2,255			2,978
Net interest income		22,159			20,430			19,927			18,883			17,606
Provision for loan losses		493			389			643			840			823
Net interest income after provision for loan losses		21,666			20,041			19,284			18,043			16,783
Noninterest income		4,296			4,424			4,250			4,318			4,204
Noninterest expense		16,255			15,796			15,082			14,848			14,450
Income before income taxes		9,707			8,669			8,452			7,513			6,537
Income tax provision		2,969			2,647			2,568			2,273			1,990
Net income	$	6,738		$	6,022		$	5,884		$	5,240		$	4,547
Per share of common stock:
Basic income per share	$	2.46		$	2.20		$	2.15		$	1.91		$	1.66
Diluted income per share		2.46			2.20			2.15			1.91			1.66
Dividends		0.78			0.76			0.74			0.72			0.72
Book value		23.85			22.35			20.97			19.15			19.17
Average basic common shares outstanding		2,742,028			2,739,470			2,737,636			2,736,473			2,734,889
Average diluted common shares outstanding		2,742,028			2,742,108			2,739,078			2,738,477			2,735,141
Year-end balances:
Loans, net	$	470,158		$	418,209		$	406,522		$	374,040		$	360,000
Securities		132,372			166,402			143,038			151,535			134,754
Total assets		669,978			650,314			620,981			596,465			586,900
Deposits		540,785			525,042			500,075			480,933			475,443
Borrowings		61,127			62,063			61,580			61,130			56,664
Shareholders’ equity		65,415			61,266			57,450			52,411			52,453
Average balances:
Loans, net	$	443,862		$	407,517		$	400,876		$	369,889		$	338,441
Securities		147,649			151,181			145,065			138,976			132,567
Total assets		651,318			633,298			604,605			581,150			564,875
Deposits		519,941			505,913			479,330			468,395			453,526
Borrowings		64,528			65,515			67,657			57,882			57,735
Shareholders’ equity		64,524			59,799			55,529			52,787			51,384
Select ratios:
Net interest margin, tax equivalent basis		3.67	%		3.48	%		3.56	%		3.51	%		3.36	%
Return on average total assets		1.03			0.95			0.97			0.90			0.80
Return on average shareholders’ equity		10.44			10.07			10.60			9.93			8.85
Average shareholders’ equity as a percent of average total assets		9.91			9.44			9.18			9.08			9.10
Net loan charge-offs as a percent of average loans		(0.03	)		0.03			0.33			0.09			0.09
Allowance for loan losses as a percent of loans atyear-end		1.11			1.10			1.07			1.34			1.26
Shareholders’ equity as a percent of totalyear-end assets		9.76			9.42			9.25			8.79			8.94
Dividend payout ratio		31.71			34.55			34.42			37.60			43.30

2016 Report to Shareholders  |  CSB Bancorp, Inc.

9

2016 FINANCIAL REVIEW

RESULTS OF OPERATIONS

Net Income

CSB’s 2016 net income was $6.7 million compared to $6.0 million for 2015, representing an increase of 12%. Basic and diluted earnings per share were $2.46, up 12% from the prior year. The return on average assets was 1.03% in 2016 compared to 0.95% in 2015 and return on average equity was 10.44% in 2016 compared to 10.07% in 2015.

Net income for 2015 was $6.0 million while basic and diluted earnings per share were $2.20 as compared to $5.9 million, or $2.15 per share, for the year ended December 31, 2014. Net income increased 2% during 2015 as compared to 2014 due primarily to a $503 thousand increase in total net interest income and $254 thousand decrease in the provision for loan losses. Partially offsetting the higher revenue were increases in noninterest expenses and federal income taxes. Return on average assets was 0.95% in 2015 compared to 0.97% in 2014 and return on average shareholders’ equity was 10.07% in 2015 as compared to 10.60% in 2014.

Net Interest Income

(Dollars in thousands)	2016			2015			2014
Net interest income	$	22,159		$	20,430		$	19,927
Taxable equivalent1		372			328			285
Net interest income, fully taxable equivalent	$	22,531		$	20,758		$	20,212
Net interest margin		3.61	%		3.42	%		3.51	%
Taxable equivalent adjustment1		0.06			0.06			0.05
Net interest margin-taxable equivalent		3.67	%		3.48	%		3.56	%

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

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

Net interest income increased $1.7 million, or 8%, in 2016 compared to 2015 primarily due to a 9% increase in average loan balances and a decrease of 3 basis points in the average rate paid on interest-bearing liabilities. The net interest margin increased to 3.61% from 3.42% in 2015.

Net interest income increased $503 thousand, or 3%, in 2015 compared to 2014 partially due to a 5% increase in average earning assets with increased average loan, investment, and cash balances. Additionally, the net interest margin decreased to 3.42% from 3.51% in 2014. The margin decrease was primarily due to increased cash balances throughout nine months of the year with loan growth returning during the fourth quarter of 2015.

Interest income increased $1.6 million, or 7%, in 2016 compared to 2015 due to a $37 million increase in average loan balances. The increase in average loan volume throughout the year helped mitigate the low interest rate environment. In 2016, interest rates paid on deposits hit their lowest point with the first increases to deposit rates starting in December 2016.

Interest income increased $341 thousand, or 2%, in 2015 compared to 2014 due to the $6 million increase in average loan balances, partially offset by a 1 basis point lower yield. Rates decreased on loans and securities categories with reduced rates on new and repriced assets due to lending competition and a lower interest rate environment. The increase in average loan volume helped mitigate the low interest rate environment. In 2015, average cash and securities balances to average gross earning assets rose 2% to 31%. Securities yields continued to decline in 2015 with new and reinvestment cash flows being deployed at lower rates.

Interest expense decreased $94 thousand, or 6%, in 2016 as compared to 2015 due to decreases in time deposits and other borrowed funds and a continued shift in the liability mix towards less expensive, noninterest bearing demand deposits. Total average time deposits continued to decline as customers anticipate rising interest rates.

Interest expense decreased $162 thousand, or 9%, in 2015 as compared to 2014 due to decreases in the cost of all categories of interest-bearing liabilities and a continued shift in the liability mix towards less expensive, noninterest bearing demand deposits, and savings accounts. Total average time deposits continued to decline with an emphasis on growing customers with multiple banking relationships, as opposed to single service time deposit customers.

10            2016 Report to Shareholders  |  CSB Bancorp, Inc.

2016 FINANCIAL REVIEW

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

AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN ANALYSIS

	2016							2015							2014
(Dollars in thousands)	Average Balance1			Interest		Average Rate2		Average Balance1			Interest		Average Rate2		Average Balance1			Interest		Average Rate2
Interest-earning assets
Federal funds sold	$	732		$	3		0.44%	$	982		$	2		0.23%	$	546		$	1		0.22%
Interest-earning deposits		16,946			107		0.63		32,395			94		0.29		16,356			42		0.26
Securities:
Taxable		119,701			2,598		2.17		129,700			2,790		2.15		128,973			2,857		2.22
Tax exempt		27,948			646		2.31		21,481			563		2.61		16,092			466		2.89
Loans3		448,941			20,278		4.52		412,147			18,548		4.50		405,973			18,290		4.51
Total interest-earning assets		614,268			23,632		3.85%		596,705			21,997		3.69%		567,940			21,656		3.81%
Noninterest-earning assets
Cash and due from banks		13,914							13,661							13,663
Bank premises and equipment, net		8,531							8,290							8,494
Other assets		19,684							19,272							19,605
Allowance for loan losses		(5,079	)						(4,630	)						(5,097	)
Total assets	$	651,318						$	633,298						$	604,605
Interest-bearing liabilities
Demand deposits	$	83,956			33		0.04%	$	77,689			27		0.03%	$	73,307			36		0.05%
Savings deposits		163,271			123		0.08		158,531			113		0.07		151,822			130		0.09
Time deposits		116,427			850		0.73		125,180			941		0.75		129,676			1,000		0.77
Borrowed funds		64,528			467		0.72		65,515			486		0.74		67,657			563		0.83
Total interest-bearing liabilities		428,182			1,473		0.34%		426,915			1,567		0.37%		422,462			1,729		0.41%
Noninterest-bearing liabilities and shareholders’ equity
Demand deposits		156,287							144,513							124,525
Other liabilities		2,325							2,071							2,089
Shareholders’ equity		64,524							59,799							55,529
Total liabilities and equity	$	651,318						$	633,298						$	604,605
Net interest income				$	22,159						$	20,430						$	19,927
Net interest margin							3.61%							3.42%							3.51%
Net interest spread							3.51%							3.32%							3.40%

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

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

 ³Average loan balances include nonaccrual loans.

2016 Report to Shareholders  |  CSB Bancorp, Inc.

11

2016 FINANCIAL REVIEW

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

RATE/VOLUME ANALYSIS CHANGES IN INCOME AND EXPENSE¹

	2016 v. 2015												2015 v. 2014
(Dollars in thousands)	Net Increase (Decrease)				Volume				Rate				Net Increase (Decrease)				Volume				Rate
Increase (decrease) in interest income:
Federal funds		$	1			$	(1	)		$	2			$	1			$	1			$	–
Interest-earning deposits			13				(98	)			111				52				46				6
Securities:
Taxable			(192	)			(217	)			25				(67	)			16				(83	)
Tax exempt			83				149				(66	)			97				141				(44	)
Loans			1,730				1,661				69				258				278				(20	)
Total interest income change			1,635				1,494				141				341				482				(141	)
Increase (decrease) in interest expense:
Demand deposits			6				2				4				(9	)			2				(11	)
Savings deposits			10				4				6				(17	)			5				(22	)
Time deposits			(91	)			(64	)			(27	)			(59	)			(34	)			(25	)
Other borrowed funds			(19	)			(7	)			(12	)			(77	)			(16	)			(61	)
Total interest expense change			(94	)			(65	)			(29	)			(162	)			(43	)			(119	)
Net interest income change		$	1,729			$	1,559			$	170			$	503			$	525			$	(22	)

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

Provision For Loan Losses

The provision for loan losses is determined by management as the amount required to bring the allowance for loan losses to a level considered appropriate to absorb probable future netcharge-offs inherent in the loan portfolio as of period end. The provision for loan losses was $493 thousand in 2016, $389 thousand in 2015, and $643 thousand in 2014. Higher provision expense in 2016 and 2015 reflects an increasing volume in the loan portfolio. See “Financial Condition – Allowance for Loan Losses” for additional discussion and information relative to the provision for loan losses.

Noninterest Income

	YEAR ENDED DECEMBER 31
	Change from 2015										Change from 2014
(Dollars in thousands)	2016			Amount				%			2015			Amount				%			2014
Service charges on deposit accounts		$	1,166		$	(37	)		(3.1	)%		$	1,203		$	(66	)		(5.2	)%		$	1,269
Trust services			861			1			0.0				860			49			6.0				811
Debit card interchange fees			1,087			99			10.0				988			78			8.6				910
Gain on sale of loans, including MSR’s			309			(54	)		(14.9	)			363			165			83.3				198
Earnings on bank-owned life insurance			276			6			2.2				270			6			2.3				264
Securities gains			1			(55	)		(98.2	)			56			(77	)		(57.9	)			133
Other			596			(88	)		(12.9	)			684			19			2.9				665
Total noninterest income		$	4,296		$	(128	)		(2.9	)%		$	4,424		$	174			4.1	%		$	4,250

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

2016 FINANCIAL REVIEW

Noninterest income decreased $128 thousand, or 3%, in 2016 compared to the same period in 2015. Gains on sales of mortgage loans including mortgage servicing rights (“MSRs”) decreased 15% due to decreasing sales of real estate mortgage loans into the secondary market and customers opting into variable rate mortgages that have been retained by the Bank. The Bank originated and sold $11 million in mortgage loans in 2016 as compared to the sale of $12 million of loans in 2015. Service charges on deposits, whichare primarily customer overdraft fees, decreased 3% in 2016, with a 6% decrease in overdraft fees due to improving consumerdeposit balances. Debit card interchange fees increased 10% in 2016 compared to 2015 due to increased volume.

Noninterest income increased $174 thousand, or 4%, in 2015 compared to the same period in 2014. Gains on sales of mortgage loans including MSRs increased 83% due to increasing unit sales of real estate and the extension of the low interest rate environment in 2015. The Bank originated and sold $12 million in mortgage loans in 2015 as compared to the sale of $6 million of loans in 2014. Service charges on deposits, which are primarily customer overdraft fees, decreased 5% in 2015, with a 6% decrease in overdraft fees due to increasing health of consumer deposit balances. Trust and brokerage services increased 6% as brokerage fees contained within trust services increased $54 thousand in 2015. The average market value of trust assets under management was $95 million in 2015 and 2014. During 2015,available-for-sale securities with gains of $56 thousand were sold.

Noninterest Expenses

	YEAR ENDED DECEMBER 31
				Change from 2015										Change from 2014
(Dollars in thousands)	2016			Amount				%			2015			Amount				%			2014
Salaries and employee benefits		$	9,354		$	535			6.1	%		$	8,819		$	498			6.0	%		$	8,321
Occupancy expense			973			(54	)		(5.3	)			1,027			13			1.3				1,014
Equipment expense			679			16			2.4				663			(52	)		(7.3	)			715
Professional and director fees			832			2			0.2				830			105			14.5				725
Financial institutions tax			427			27			6.8				400			39			10.8				361
Marketing and public relations			415			(4	)		(1.0	)			419			41			10.8				378
Software expense			799			(2	)		(0.2	)			801			74			10.2				727
Debit card expense			445			32			7.7				413			(8	)		(1.9	)			421
FDIC insurance			282			(75	)		(21.0	)			357			(1	)		(0.3	)			358
Amortization of intangible assets			121			(4	)		(3.2	)			125			(5	)		(3.8	)			130
Other			1,928			(14	)		(0.7	)			1,942			10			0.5				1,932
Total noninterest expenses		$	16,255		$	459			2.9	%		$	15,796		$	714			4.7	%		$	15,082

Noninterest expense increased $459 thousand, or 3%, in 2016 compared to 2015. Salaries and employee benefits increased $535 thousand due to base compensation increasing $436 thousand as a result of additional full-time employees and annual adjustments. Increases in 2016 included medical and dental expense rising $45 thousand and employment taxes rising $38 thousand. The capitalization of employee costs of loan originations contributed to a decrease in salary expense of $109 thousand. Debit card expense increased $32 thousand in 2016, with increased costs due to the migration to EMV chip cards. Debit cards are being issued with embedded chips that protect cardholder data. An increase in the Ohio Financial institutions tax was recognized as capital increased. Equipment expense increased $16 thousand in 2016, as compared to 2015, with small equipment replacement. The FDIC insurance assessment decreased $75 thousand, or 21%, due to a rate reduction starting July 1, 2016. Occupancy expense decreased primarily with a reduction of branch facility costs, which included a branch relocation and the purchase of a branch office that had been previously leased.

Noninterest expense increased $714 thousand, or 5%, in 2015 compared to 2014. Salaries and employee benefits increased $498 thousand due to base compensation increasing $277 thousand as a result of additional full-time employees and annual adjustments. Medical and dental expense increased $76 thousand in 2015. Capitalization of employee costs of loan originations contributed to an increase in expense of $34 thousand. Software expense increased $74 thousand in 2015, primarily due to a loss of earned software maintenance credits of approximately $37 thousand in 2014 that were not available to the Company in 2015. Additionally, the Company installed new loan input software and credit review software in late 2014, which increased software maintenance by $28 thousand annually in 2015. Equipment expense decreased $52 thousand in 2015, as compared to 2014, with a reduction of expense due to the purchase of copiers at the conclusion of a lease, a reduction in automobile expense with a decrease in mileage and gasoline costs, and a reduction in small equipment purchased in 2015, as compared to 2014. Professional and director fees increased $105 thousand, a result of the increase in outside service fees, with $110 thousand incurred during the first quarter to contract a professional firm to assist the Company with the assessment of market opportunities and long-term strategic goals.

2016 Report to Shareholders  |  CSB Bancorp, Inc.            13

2016 FINANCIAL REVIEW

Income Taxes

The provision for income taxes amounted to $3.0 million in 2016, $2.6 million in 2015, and $2.6 million in 2014, resulting in an effective rate of 30.6% in 2016, 30.5% in 2015, and 30.4% in 2014. The slight increase in the effective tax rate during 2016 as compared to 2015 was due primarily to increased income.

FINANCIAL CONDITION

Total assets of the Company were $670 million at December 31, 2016, compared to $650 million at December 31, 2015, representing an increase of $20 million, or 3%. Net loans increased $52 million, or 12%, while investment securities decreased $34 million, or 20%, and interest-earning deposits with other banks increased $2 million. Deposits and short-term borrowings increased $16 million and $144 thousand respectively, while other borrowings from the Federal Home Loan Bank (“FHLB”) decreased by $1 million, or 8%.

Securities

Total investment securities decreased $34 million, or 20%, to $132 million atyear-end 2016. CSB’s portfolio is primarily comprised of agency mortgage-backed securities, obligations of state and political subdivisions, other government agencies’ debt, and corporate bonds. Restricted securities consist primarily of FHLB stock.

The Company has no exposure to government-sponsored enterprise preferred stocks, collateralized debt obligations, or trust preferred securities. The Company’s municipal bond portfolio consists of both taxable andtax-exempt general obligation and revenue bonds. As of December 31, 2016, $26 million, or 87%, held an S&P or Moody’s investment grade rating and $4 million, or 13%, werenon-rated. The municipal portfolio includes a broad spectrum of counties, towns, universities, and school districts with 89% of the portfolio originating in Ohio, and 11% in Pennsylvania. Gross unrealized security losses within the portfolio were 1% of total securities at December 31, 2016, reflecting interest rate fluctuations, not credit downgrades.

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

Loans

Total loans increased $53 million, or 12%, during 2016 with increases in all loan categories. Volume increases were recognized as follows: residential real estate loans increased $19 million, or 15%, commercial loans increased $11 million, or 9%, and commercial real estate loans increased $11 million, or 7%. Aided by low interest rates, business expansion and consumer borrowing continued to increase throughout 2016.

Attractive interest rates in the secondary market continued to drive consumer demand for longer-term1-4 family fixed rate residential mortgages during 2016. The Company sold $11 million of originated mortgages into the secondary market, as compared to $12 million in 2015. With the expansion of the mortgage loan originator team, the Company originated $36 million of portfolio mortgage loans, which were predominately variable rate in 2016 as compared to 2015 origination of $22 million for the Company’s portfolio. Demand for home equity loans improved in 2016, with balances increasing $5 million. Installment lending continued to improve with consumer loans increasing 44% on a year-over-year basis to $13 million at December 31, 2016. This growth is primarily from RV finance loans originated in northeast Ohio.

Management anticipates the Company’s local service areas will continue to exhibit modest economic growth in line with the past three years. Commercial and commercial real estate loans comprise approximately 62% and 64% of the total loan portfolio atyear-end 2016 and 2015, respectively. Residential real estate loans remained stable at approximately 30% of the total loan portfolio. Construction and land development loans rose to 5% of the total portfolio at December 31, 2016. The Company is well within the respective regulatory guidelines for investment in construction, development, and investment property loans that are not owner occupied.

Most of the Company’s lending activity is with customers primarily located within Holmes, Tuscarawas, Wayne, and Stark counties in Ohio. Credit concentrations, including commitments, as determined using North American Industry Classification Codes (NAICS), to the four largest industries compared to total loans at December 31, 2016, included $42 million, or 9%, of total loans to lessors ofnon-residential buildings or dwellings; $26 million, or 5%, of total loans to logging, sawmills, and timber tract operations; $20 million, or 4%, of total loans to lessors of residential real estate and $21 million, or 4%, of total loans to borrowers in the hotel, motel, and lodging business. These loans are generally secured by real property and equipment, with repayment expected from operational cash flow. Credit evaluation is based on a review of cash flow coverage of principal, interest payments, and the adequacy of the collateral received.

14            2016 Report to Shareholders  |  CSB Bancorp, Inc.

2016 FINANCIAL REVIEW

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

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

NONPERFORMING ASSETS	DECEMBER 31
(Dollars in thousands)	2016			2015
Nonaccrual loans
Commercial	$	425		$	177
Commercial real estate		497			796
Residential real estate		490			603
Construction & land development		–			–
Consumer		37			–
Loans past due 90 days or more and still accruing
Commercial		–			–
Commercial real estate		39			–
Residential real estate		196			105
Construction & land development		–			–
Total nonperforming loans		1,684			1,681
Other real estate owned		–			–
Total nonperforming assets	$	1,684		$	1,681
Nonperforming assets as a percentage of loans plus other real estate		0.35	%		0.40	%

Allowance for Loan Losses

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

2016 Report to Shareholders  |  CSB Bancorp, Inc.

15

2016 FINANCIAL REVIEW

ALLOWANCE FOR LOAN LOSSES	FOR THE YEAR ENDED
(Dollars in thousands)	2016			2015
Beginning balance of allowance for loan losses	$	4,662		$	4,381
Provision for loan losses		493			389
Charge-offs:
Commercial		260			94
Commercial real estate		50			61
Residential real estate & home equity		12			132
Construction & land development		–			–
Consumer		59			46
Deposit accounts		37			15
Credit cards		–			–
Total charge-offs		418			348
Recoveries:
Commercial		202			193
Commercial real estate		334			13
Residential real estate & home equity		5			18
Construction & land development		–			–
Consumer		1			10
Deposit accounts		12			6
Credit cards		–			–
Total recoveries		554			240
Net (recoveries) charge-offs		(136	)		108
Ending balance of allowance for loan losses	$	5,291		$	4,662
Net charge-offs as a percentage of average total loans		(0.03	)%		0.03	%
Allowance for loan losses as a percentage of total loans		1.11			1.10
Allowance for loan losses to total nonperforming loans		3.18	x		2.77	x
Components of the allowance for loan losses:
General reserves	$	4,562		$	4,273
Specific reserve allocations		729			389
Total allowance for loan losses	$	5,291		$	4,662

The allowance for loan losses totaled $5.3 million, or 1.11%, of total loans atyear-end 2016 as compared to $4.7 million, or 1.10%, of total loans atyear-end 2015. The Bank had net recoveries of $136 thousand for 2016 as compared to net charge-offs of $108 thousand in 2015.

The Company maintains an internal watch list on which it places loans where management’s analysis of the borrower’s operating results and financial condition indicates the borrower’s cash flows are inadequate to meet its debt service requirements and loans where there exists an increased risk that such a shortfall may occur. Nonperforming loans, which consist of loans past due 90 days or more and nonaccrual loans, aggregated $1.7 million, or 0.35% of loans atyear-end 2016 as compared to $1.7 million, or 0.4% of loans atyear-end 2015. Impaired loans were $7.2 million atyear-end 2016 as compared to $8.7 million atyear-end 2015. Impaired loans as a percentage of total loans declined from 2015 to 2016 and reflect economic stabilization in the Company’s market area. Management has assigned loss allocations to absorb the estimated losses on these impaired loans. These allocations are included in the total allowance for loan losses balance.

Other Assets

Net premises and equipment increased $540 thousand to $9 million atyear-end 2016 primarily because of the purchase of a branch facility that was previously leased in 2016. There was no other real estate owned at December 31, 2016 or 2015. At December 31, 2016, the Company recognized a net deferred tax asset of $603 thousand, as compared to a net deferred tax asset of $364 thousand at December 31, 2015.

16            2016 Report to Shareholders  |  CSB Bancorp, Inc.

2016 FINANCIAL REVIEW

Deposits

The Company’s deposits are obtained primarily from individuals and businesses located in its market area. For deposits, the Company must compete with products offered by other financial institutions, as well as alternative investment options. Demand and savings deposits increased for the year ended 2016, due to focused retail and business banking strategies to obtain more account relationships as well as customers reflecting their preference for shorter maturities.

	December 31				Change from 2015
(Dollars in thousands)	2016		2015		Amount			%
Noninterest-bearing demand	$	167,824	$	151,549	$	16,275			10.7	%
Interest-bearing demand		97,683		86,472		11,211			13.0
Traditional savings		95,275		93,523		1,752			1.9
Money market savings		67,894		74,232		(6,338	)		(8.5	)
Time deposits in excess of $250,000		13,102		13,834		(732	)		(5.3	)
Other time deposits		99,007		105,432		(6,425	)		(6.1	)
Total deposits	$	540,785	$	525,042	$	15,743			3.0	%

Other Funding Sources

The Company obtains additional funds through securities sold under repurchase agreements, overnight borrowings from the FHLB or other financial institutions, and advances from the FHLB. Short-term borrowings, consisting of securities sold under repurchase agreements, increased $144 thousand. Other borrowings, consisting of FHLB advances, decreased $1 million as the result of maturities and principal repayments.

CAPITAL RESOURCES

Total shareholders’ equity increased to $65.4 million at December 31, 2016, as compared to $61.3 million at December 31, 2015. This increase was primarily due to $6.7 million of net income which was partially offset by the payment of $2.1 million of cash dividends in 2016 and an increase in accumulated other comprehensive loss of $457 thousand. The Board of Directors approved a Stock Repurchase Program on July 7, 2005 that allowed the repurchase of up to 10% of the Company’s then-outstanding common shares. Repurchased shares are to be held as treasury stock and are available for general corporate purposes. At December 31, 2016, approximately 41 thousand shares could still be repurchased under the current authorized program. No shares were repurchased in 2016 or 2015.

Effective January 1, 2015, the Federal Reserve adopted final rules implementing Basel III and regulatory capital changes required by the Dodd-Frank Act. The rules apply to both the Company and the Bank. The rules established minimum risk-based and leverage capital requirements for all banking organizations.

The new rules include (a) a new common equity Tier 1 capital ratio of at least 4.5%, (b) a Tier 1 capital ratio of at least 6.0%, rather than the former 4.0%, (c) a minimum total capital ratio that remains at 8.0%, and (d) a minimum leverage ratio of 4%.

Under the guidelines, capital is compared to the relative risk related to the balance sheet. To derive the risk included in the balance sheet, one of several risk weights is applied to different balance sheet andoff-balance sheet assets primarily based on the relative credit risk of the counterparty. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The new rules also place restrictions on the payment of capital distributions, including dividends, and certain discretionary bonus payments to executive officers if the company does not hold a capital conservation buffer of greater than 2.5% composed of common equity Tier 1 capital above its minimum risk-based capital requirements, or if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% at the beginning of the quarter. The capital conservation buffer phases in starting on January 1, 2016, at .625%. The Company and Bank’s actual and required capital amounts are disclosed in Note 12 to the consolidated financial statements.

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

2016 Report to Shareholders  |  CSB Bancorp, Inc.

17

2016 FINANCIAL REVIEW

LIQUIDITY

	December 31						Change
(Dollars in millions)	2016			2015			from 2015
Cash and cash equivalents	$	37		$	38			$	(1	)
Unused lines of credit		66			52				14
Unpledged securities at fair market value		37			70				(33	)
	$	140		$	160			$	(20	)
Net deposits and short-term liabilities	$	533		$	516			$	17
Liquidity ratio		26.1	%		31.1	%
Minimum board approved liquidity ratio		20.0	%		20.0	%

Liquidity refers to the Company’s ability to generate sufficient cash to fund current loan demand, meet deposit withdrawals, pay operating expenses, and meet other obligations. Liquidity is monitored by CSB’s Asset Liability Committee. The Company was within all Board-approved limits at December 31, 2016 and 2015. Additional sources of liquidity include net income, loan repayments, the availability of borrowings, and adjustments of interest rates to attract deposit accounts.

As summarized in the Consolidated Statements of Cash Flows, the most significant investing activities for the Company in 2016 included net loan originations of $52 million, securities purchases of $37 million, offset by maturities and repayment of securities totaling $69 million. The Company’s financing activities included a $16 million increase in deposits, $2 million in cash dividends paid, and a $1 million net decrease in FHLB advances.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

Interest rate risk is monitored primarily through the use of an earnings simulation model. The model is highly dependent on various assumptions, which change regularly as the balance sheet and market interest rates change. The earnings simulation model projects changes in net interest income resulting from the effect of changes in interest rates. The analysis is performed quarterly over a twenty-four month horizon. The analysis includes two balance sheet models, one based on a static balance sheet and one on a dynamic balance sheet with projected growth in assets and liabilities. This analysis is performed by estimating the expected cash flows of the Company’s financial instruments using interest rates in effect atyear-end 2016 and 2015. Interest rate risk policy limits are tested by measuring the anticipated change in net interest income over atwo-year period. The tests assume a quarterly ramped 100, 200, 300, and 400 basis point increase and a 100 basis point decrease in 2016 in market interest rates as compared to a stable rate environment or base model. The following table reflects the change to interest income for the first twelve-month period of the twenty-four month horizon.

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

2016 FINANCIAL REVIEW

Net Interest Income at Risk

	December 31, 2016
	Change In  Interest Rates  (Basis Points)	Net  Interest  Income		Dollar        Change			Percentage Change	Board           Policy           Limits
(Dollars in thousands)	+ 400	$	25,519	$	1,889		8.0%		± 25%
	+ 300		25,063		1,433		6.1		± 15
	+ 200		24,577		947		4.0		± 10
	+ 100		24,092		462		2.0		±   5
	0		23,630		–		–
	– 100		22,841		(789	)	(3.3)		±   5
	December 31, 2015
	+ 400	$	23,360	$	1,624		7.5%		± 25%
	+ 300		22,957		1,221		5.6		± 15
	+ 200		22,500		764		3.5		± 10
	+ 100		22,071		335		1.5		±   5
	0		21,736		–		–
	– 100		21,172		(564	)	(2.6)		±   5
Management reviews Net Interest Income at Risk with the Board on a periodic basis. The Company was within all Board-approved limits at December 31, 2016 and 2015. Economic Value of Equity at Risk
		December 31, 2016
	Change In  Interest Rates  (Basis Points)			Percentage                           Change				Board           Policy           Limits
	+ 400				18.1	%			± 35%
	+ 300				14.9				± 30
	+ 200				11.0				± 20
	+ 100				6.1				± 15
	– 100				(7.6	)			± 15
		December 31, 2015
	+ 400				18.6	%			± 35%
	+ 300				15.6				± 30
	+ 200				11.8				± 20
	+ 100				6.9				± 15
	– 100				(9.8	)			± 15

2016 Report to Shareholders  |  CSB Bancorp, Inc.

19

2016 FINANCIAL REVIEW

The economic value of equity is calculated by subjecting theperiod-end balance sheet to changes in interest rates and measuring the impact of the changes on the values of the assets and liabilities. Hypothetical changes in interest rates are then applied to the financial instruments. Then 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.

Management periodically measures and reviews the Economic Value of Equity at Risk with the Board. At December 31, 2016, the market value of equity as a percent of base in a 400 basis point rising rate environment indicates an increase of 18.1% as compared to an increase of 18.6% as of December 31, 2015. The Company was within all Board-approved limits at December 31, 2016 and 2015.

SIGNIFICANT ASSUMPTIONS AND OTHER CONSIDERATIONS

The foregoing market risk 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 this should not be relied upon as being indicative of actual results. Further, the analysis does not contemplate all actions the Company may undertake in response to changes in interest rates.

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

FAIR VALUE MEASUREMENTS

The Company discloses the estimated fair value of its financial instruments at December 31, 2016 and 2015 in Note 15 to the consolidated financial statements.

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

The following table summarizes the Company’s loan commitments, including letters of credit, as of December 31, 2016:

	Amount of Commitment to Expire Per Period
(Dollars in thousands) Type of Commitment	Total Amount		Less than 1 year		1 to 3 Years		3 to 5 Years		Over 5 Years
Commercial lines of credit	$	105,215		$  90,474	$	–	$	1,107	$	13,634
Real estate lines of credit		45,787		1,814		4,017		6,524		33,432
Consumer lines of credit		611		611		–		–		–
Credit cards lines of credit		4,240		4,240		–		–		–
Overdraft privilege		6,910		6,910		–		–		–
Commercial real estate loan commitments		–		–		–		–		–
Letters of credit		972		945		–		27		–
Total commitments	$	163,735		$104,994	$	4,017	$	7,658	$	47,066

All lines of credit represent eitherfee-paid or legally binding loan commitments for the loan categories noted. Letters of credit are also included in the amounts noted in the table since the Company requires that each letter of credit be supported by a loan agreement. The commercial and consumer lines represent both unsecured and secured obligations. The real estate lines are secured by mortgages on residential property. It is anticipated that a significant portion of these lines will expire without being drawn upon.

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

2016 FINANCIAL REVIEW

The following table summarizes the Company’s other contractual obligations, exclusive of interest, as of December 31, 2016:

	Payment Due by Period
(Dollars in thousands) Contractual Obligations	Total Amount		Less than 1 year		1 to 3 Years		3 to 5 Years		Over 5 Years
Total time deposits	$	112,109	$	57,670	$	42,839	$	11,600	$	–
Short-term borrowings		48,742		48,742		–		–		–
Other borrowings		12,385		10,730		923		477		255
Operating leases		305		152		153		–		–
Total obligations	$	173,541	$	117,294	$	43,915	$	12,077	$	255

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

CRITICAL ACCOUNTING POLICIES

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

The most significant accounting policies followed by the Company are presented in the Summary of Significant Accounting Policies. These policies, along with the other disclosures presented in the Notes to Consolidated Financial Statements and the 2016 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 other-than-temporary impairment of securities, allowance for loan losses, goodwill, and the fair value of financial instruments as the accounting areas that require the most subjective and complex estimates, assumptions and judgments and, as such, could be the most subject to revision as new information becomes available.

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

As previously noted in the section entitled Allowance for Loan Losses, management performs an 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.

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

The Company groups financial assets and financial liabilities measured at fair value in three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. Level I valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. Level II valuations are for instruments that trade in less active dealer or broker markets and incorporate values obtained for identical or comparable instruments. Level III valuations are derived from other valuation methodologies, including discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level III valuations incorporate certain assumptions and projections in determining the fair value assigned to each instrument.

2016 Report to Shareholders  |  CSB Bancorp, Inc.

21

2016 FINANCIAL REVIEW

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. Most assets and liabilities of the Company are monetary in nature. Therefore, interest rates have a more significant impact on the Company’s performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or magnitude as prices of goods and services. The liquidity, maturity structure, and quality of the Company’s assets and liabilities are critical to maintenance of acceptable performance levels.

COMMON STOCK AND SHAREHOLDER INFORMATION

Common shares of the Company are not traded on an established market. Shares are traded on the OTC market through broker/ dealers under the symbol “CSBB” and through private transactions. The table below represents the range of high and low prices paid for transactions known to the Company. Management does not have knowledge of prices paid on all transactions. Because of the lack of an established market, these prices may not reflect the prices at which stock would trade in an active market. These quotations reflect interdealer prices, withoutmark-up, mark-down, or commission and may not represent actual transactions. The table specifies cash dividends declared by the Company to its shareholders during 2016 and 2015. No assurances can be given that future dividends will be declared, or if declared, what the amount of any such dividends will be. Additional information concerning restrictions over the payment of dividends is included in Note 12 of the consolidated financial statements.

Quarterly Common Stock Price and Dividend Data

Quarter Ended	High			Low			Dividends Declared Per Share			Dividends   Declared
March 31, 2016		$	24.50		$	22.10		$	0.19		$	521,026
June 30, 2016			26.00			23.27			0.19			521,026
September 30, 2016			26.00			23.80			0.20			548,449
December 31, 2016			33.50			25.17			0.20			548,449
March 31, 2015		$	23.00		$	21.50		$	0.19	��	$	520,487
June 30, 2015			27.00			22.26			0.19			520,487
September 30, 2015			25.50			23.95			0.19			520,487
December 31, 2015			24.74			23.90			0.19			520,487

As of December 31, 2016, the Company had 1,234 shareholders of record and 2,742,242 outstanding shares of common stock.

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

REPORT ON MANAGEMENT’S ASSESSMENT OF

INTERNAL CONTROL OVER FINANCIAL REPORTING

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

Management is required by paragraph (c) of Rule13a-15 of the Securities Exchange Act of 1934, as amended, to assess the effectiveness of our internal control over financial reporting as of eachyear-end. In making this assessment, management used the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Management conducted the required assessment of the effectiveness of our internal control over financial reporting as of December 31, 2016. Based upon this assessment, management believes that our internal control over financial reporting is effective as of December 31, 2016.

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

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

2016 Report to Shareholders  |  CSB Bancorp, Inc.

23

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

CSB Bancorp, Inc.

We have audited the accompanying consolidated balance sheets of CSB Bancorp, Inc. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016. These consolidated financial statements are the responsibility of CSB Bancorp, Inc.’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. CSB Bancorp, Inc. is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of CSB Bancorp, Inc.’s internal control over financial reporting. Accordingly, we express no such opinion. 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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CSB Bancorp, Inc. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.

  

Cranberry Township, Pennsylvania

March 2, 2017

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

CONSOLIDATED BALANCE SHEETS

December 31, 2016 and 2015

(Dollars in thousands, except share data)	2016			2015
ASSETS
Cash and cash equivalents
Cash and due from banks	$	13,590		$	17,341
Interest-earning deposits in other banks		23,248			20,931
Total cash and cash equivalents		36,838			38,272
Securities
Available-for-sale, at fair value		103,875			127,969
Held-to-maturity; fair value of $23,444 in 2016 and $34,011 in 2015		23,883			33,819
Restricted stock, at cost		4,614			4,614
Total securities		132,372			166,402
Loans held for sale		–			47
Loans		475,449			422,871
Less allowance for loan losses		5,291			4,662
Net loans		470,158			418,209
Premises and equipment, net		8,749			8,209
Core deposit intangible		383			504
Goodwill		4,728			4,728
Bank-owned life insurance		10,361			10,085
Accrued interest receivable and other assets		6,389			3,858
TOTAL ASSETS	$	669,978		$	650,314
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Deposits
Noninterest-bearing	$	167,824		$	151,549
Interest-bearing		372,961			373,493
Total deposits		540,785			525,042
Short-term borrowings		48,742			48,598
Other borrowings		12,385			13,465
Accrued interest payable and other liabilities		2,651			1,943
Total liabilities		604,563			589,048
SHAREHOLDERS’ EQUITY
Common stock, $6.25 par value. Authorized 9,000,000 shares; issued 2,980,602 shares; outstanding 2,742,242 shares in 2016 and 2,740,996 in 2015		18,629			18,629
Additionalpaid-in capital		9,815			9,846
Retained earnings		42,629			38,030
Treasury stock at cost – 238,360 shares in 2016 and 239,606 in 2015		(4,784	)		(4,822	)
Accumulated other comprehensive loss		(874	)		(417	)
Total shareholders’ equity		65,415			61,266
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	669,978		$	650,314

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

2016 Report to Shareholders  |  CSB Bancorp, Inc.

25

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, 2016, 2015, and 2014

(Dollars in thousands, except per share data)	2016		2015		2014
INTEREST AND DIVIDEND INCOME
Loans, including fees	$	20,278	$	18,548	$	18,290
Taxable securities		2,598		2,790		2,857
Nontaxable securities		646		563		466
Other		110		96		43
Total interest and dividend income		23,632		21,997		21,656
INTEREST EXPENSE
Deposits		1,006		1,081		1,166
Short-term borrowings		73		71		77
Other borrowings		394		415		486
Total interest expense		1,473		1,567		1,729
NET INTEREST INCOME		22,159		20,430		19,927
PROVISION FOR LOAN LOSSES		493		389		643
Net interest income, after provision for loan losses		21,666		20,041		19,284
NONINTEREST INCOME
Service charges on deposit accounts		1,166		1,203		1,269
Trust services		861		860		811
Debit card interchange fees		1,087		988		910
Securities gains		1		56		133
Gain on sale of loans, net		309		363		198
Earnings on bank-owned life insurance		276		270		264
Other income		596		684		665
Total noninterest income		4,296		4,424		4,250
NONINTEREST EXPENSES
Salaries and employee benefits		9,354		8,819		8,321
Occupancy expense		973		1,027		1,014
Equipment expense		679		663		715
Professional and director fees		832		830		725
Financial institutions and franchise tax		427		400		361
Marketing and public relations		415		419		378
Software expense		799		801		727
Debit card expense		445		413		421
Amortization of intangible assets		121		125		130
FDIC insurance expense		282		357		358
Other expenses		1,928		1,942		1,932
Total noninterest expenses		16,255		15,796		15,082
Income before income taxes		9,707		8,669		8,452
FEDERAL INCOME TAX PROVISION		2,969		2,647		2,568
NET INCOME	$	6,738	$	6,022	$	5,884
NET INCOME PER SHARE
Basic	$	2.46	$	2.20	$	2.15
Diluted	$	2.46	$	2.20	$	2.15

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

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31, 2016, 2015, and 2014

(Dollars in thousands)	2016			2015			2014
Net income	$	6,738		$	6,022		$	5,884
Other comprehensive income (loss)
Unrealized gains (losses) arising during the period		(1,221	)		(551	)		1,612
Amounts reclassified from accumulated other comprehensive income,held-to-maturity		530			403			301
Income tax effect		235			50			(651	)
Reclassification adjustment for gains onavailable-for-sale securities included in net income		(1	)		(56	)		(133	)
Income tax effect		–			19			45
Other comprehensive income (loss)		(457	)		(135	)		1,174
Total comprehensive income	$	6,281		$	5,887		$	7,058

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Years Ended December 31, 2016, 2015 and 2014

(Dollars in thousands)	Common Stock			Additional Paid-In Capital				Retained Earnings				Treasury Stock				Accumulated Other Comprehensive Income (Loss)				Total
BALANCE AT DECEMBER 31, 2013		$	18,629		$	9,964			$	30,232			$	(4,958	)		$	(1,456	)		$	52,411
Net income			–			–				5,884				–				–				5,884
Other comprehensive income			–			–				–				–				1,174				1,174
Stock options issued, 2,771 shares			–			(80	)			–				87				–				7
Cash dividends declared, $0.74 per share			–			–				(2,026	)			–				–				(2,026	)
BALANCE AT DECEMBER 31, 2014		$	18,629		$	9,884			$	34,090			$	(4,871	)		$	(282	)		$	57,450
Net income			–			–				6,022				–				–				6,022
Other comprehensive loss			–			–				–				–				(135	)			(135	)
Stock options issued, 1,591 shares			–			(38	)			–				49				–				11
Cash dividends declared, $0.76 per share			–			–				(2,082	)			–				–				(2,082	)
BALANCE AT DECEMBER 31, 2015		$	18,629		$	9,846			$	38,030			$	(4,822	)		$	(417	)		$	61,266
Net income			–			–				6,738				–				–				6,738
Other comprehensive loss			–			–				–				–				(457	)			(457	)
Stock options issued, 1,246 shares			–			(31	)			–				38				–				7
Cash dividends declared, $0.78 per share			–			–				(2,139	)			–				–				(2,139	)
BALANCE AT DECEMBER 31, 2016		$	18,629		$	9,815			$	42,629			$	(4,784	)		$	(874	)		$	65,415

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

2016 Report to Shareholders  |  CSB Bancorp, Inc.

27

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2016, 2015, and 2014

(Dollars in thousands)	2016			2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	6,738		$	6,022		$	5,884
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises, equipment and software		905			916			928
Deferred income taxes		(4	)		83			175
Provision for loan losses		493			389			643
Gain on sale of loans, net		(309	)		(363	)		(198	)
Securities gains		(1	)		(56	)		(133	)
Security amortization, net of accretion		802			575			361
Secondary market loan sale proceeds		10,985			12,414			6,506
Originations of secondary market loansheld-for-sale		(10,682	)		(12,083	)		(6,383	)
Bank-owned life insurance		(276	)		(270	)		(264	)
Effects of changes in operating assets and liabilities:
Net deferred loan (fees) costs		(262	)		(89	)		(81	)
Accrued interest receivable		103			(184	)		45
Accrued interest payable		(4	)		(4	)		(12	)
Other assets and liabilities		(1,521	)		316			(308	)
Net cash provided by operating activities	$	6,967		$	7,666		$	7,163
CASH FLOWS FROM INVESTING ACTIVITIES
Securities:
Proceeds from repayments,available-for-sale	$	49,870		$	39,187		$	35,337
Proceeds from repayments,held-to-maturity		19,404			14,834			9,273
Purchases,available-for-sale		(27,741	)		(69,684	)		(34,893	)
Purchases,held-to-maturity		(8,998	)		(10,000	)		(3,000	)
Proceeds from sale of securities		1			1,576			2,483
Proceeds from redemption of restricted stock		–			–			849
Loan originations, net of repayments		(52,213	)		(6,023	)		(33,043	)
Purchase of residential real estate loans		–			(5,964	)		–
Proceeds from sale of other real estate		26			–			–
Property, equipment, and software acquisitions		(1,418	)		(611	)		(427	)
Net cash used in investing activities	$	(21,069	)	$	(36,685	)	$	(23,421	)

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

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2016, 2015, and 2014

(Dollars in thousands)	2016			2015			2014
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits	$	15,743		$	24,967		$	19,151
Net change in short-term borrowings		144			1,971			(2,044	)
Proceeds from other borrowings		–			–			5,000
Repayment of other borrowings		(1,080	)		(1,488	)		(2,506	)
Cash dividends paid		(2,139	)		(2,082	)		(2,026	)
Proceeds from stock options exercised		–			–			7
Net cash provided by financing activities	$	12,668		$	23,368		$	17,582
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(1,434	)		(5,651	)		1,324
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		38,272			43,923			42,599
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	36,838		$	38,272		$	43,923
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest	$	1,477		$	1,571		$	1,750
Income taxes		2,650			2,180			2,500
Noncash investing activities:
Transfer of loans to other real estate owned		72			–			–

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

2016 Report to Shareholders  |  CSB Bancorp, Inc.

29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

Significant accounting policies followed by the Company are presented below:

USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS

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

PRINCIPLES OF CONSOLIDATION

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

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

CASH AND CASH EQUIVALENTS

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

CASH RESERVE REQUIREMENTS

The Bank generally 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. There was no required reserve balance at December 31, 2016 and 2015.

SECURITIES

At the time of purchase all securities are evaluated and designated asavailable-for-sale orheld-to-maturity. Securities designated asavailable-for-sale are carried at fair value with unrealized gains and losses on such securities, net of applicable income taxes, recognized as other comprehensive income (loss). At December 31, 2016, 18% of the total investment portfolio was classified asheld-to-maturity. The volatility in interest rates that has occurred recently does not have as much impact on other comprehensive income as it would if the entire portfolio was included in theavailable-for sale category.Held-to-maturity securities are carried at their fair value on the date of transfer or at purchase value if security purchases are designated asheld-to-maturity.

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

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

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

Federal Home Loan Bank of Cincinnati reported profits for 2016 and 2015, remains in compliance with regulatory capital and liquidity requirements, continues to pay dividends on the stock and redeems its stock at par value. With consideration given to these factors, management concluded that the stock was not impaired at December 31, 2016 or 2015.

LOANS

Loans that management has the intent and ability to hold for the foreseeable future, until maturity, orpay-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 orcharged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

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

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the 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 collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect borrowers’ ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on acase-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 aloan-by-loan basis for commercial, commercial real estate, construction loans, and troubled debt restructurings by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

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

OTHER REAL ESTATE OWNED

Other real estate acquired through or in lieu of foreclosure is initially recorded at fair value, less estimated costs to sell, and any loan balance in excess of fair value is charged to the allowance for loan losses. Subsequent valuations are periodically performed and write-downs are included in noninterest expenses, as well as expenses related to maintenance of the properties. Gains or losses upon sale are recorded through noninterest income. There was no other real estate owned at December 31, 2016 and 2015.

PREMISES AND EQUIPMENT

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

2016 Report to Shareholders  |  CSB Bancorp, Inc.

31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

GOODWILL AND CORE DEPOSIT INTANGIBLE ASSETS

Goodwill is not amortized, but is tested at least annually for impairment in the fourth quarter or more frequently if indicators of impairment are present. The evaluation for impairment involves comparing the estimated current fair value of the reporting unit to its carrying value, including goodwill. If the estimated current fair value of a reporting unit exceeds its carrying value, no additional testing is required and an impairment loss is not recorded. The Company uses market capitalization and multiples of tangible book value methods to determine the estimated current fair value of its reporting unit. Based on this analysis no impairment was recorded in 2016 or 2015.

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

MORTGAGE SERVICING RIGHTS

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

BANK-OWNED LIFE INSURANCE

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

REPURCHASE AGREEMENTS

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

ADVERTISING COSTS

All advertising costs are expensed as incurred. Advertising expenses amounted to $215 thousand, $229 thousand, and $182 thousand for the years ended 2016, 2015, and 2014, respectively.

FEDERAL INCOME TAXES

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

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

STOCK-BASED COMPENSATION

The Company previously sponsored a stock-based compensation plan that expired in 2013. All outstanding awards at December 31, 2015 were exercised during the first quarter of 2016. There were no stock options outstanding at December 31, 2016. The Company recorded no stock-based compensation expense for 2016, 2015, or 2014.

COMPREHENSIVE INCOME

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

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

TRANSFERS OF FINANCIAL ASSETS

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

PER SHARE DATA

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

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

	2016			2015			2014
Weighted average common shares		2,980,602			2,980,602			2,980,602
Average treasury shares		(238,574	)		(241,132	)		(242,966	)
Total weighted average common shares outstanding (basic)		2,742,028			2,739,470			2,737,636
Dilutive effect of assumed exercise of stock options		–			2,638			1,442
Weighted average common shares outstanding (diluted)		2,742,028			2,742,108			2,739,078

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

There were no stock options outstanding at December 31, 2016 with 5,952 stock options outstanding at December 31, 2015.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

ASU2014-09 – Revenue from Contracts with Customers. The amendments in ASU2014-09 require an entity to recognize revenue upon the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this Update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and the FASB issued aone-year deferral for implementation, which results in new guidance being effective for annual and interim reporting periods beginning after December 15, 2017. For public entities with a calendaryear-end, the new guidance is effective in the quarter and year beginning January 1, 2018. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

ASU2016-01 – Recognition and Measurement of Financial Assets and Financial Liabilities. This Update sets forth targeted improvements to GAAP including, but not limited to, requiring an entity to recognize the changes in fair value of equity investments in the income statement, requiring public business entities to use the exit price when measuring the fair value of financial instruments for financial statement disclosure purposes, eliminating certain disclosures required by existing GAAP, and providing for additional disclosures. The Update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Update is not expected to have a significant impact on the Company’s financial position or results of operations.

ASU2016-02 – Leases. This Update sets forth a new lease accounting model for lessors and lessees. For lessees, virtually all leases will be required to be recognized on the balance sheet by recording aright-of-use asset. Subsequent accounting for leases varies depending on whether the lease is an operating lease or a finance lease. The accounting provided by a lessor is largely unchanged from that applied under the existing guidance. The ASU requires additional qualitative and quantitative disclosures with the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The Update is effective for fiscal years beginning after December 15, 2018, with early application permitted. We expect the Update will result in an increase in total assets and liabilities. The amount of the increase will be impacted by the leases outstanding at the time of adoption and their remaining term at that time. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

ASU2016-13 – Financial Instruments – Credit Losses. The Update requires that financial assets be presented at the net amount expected to be collected (i.e. net of expected credit losses), eliminating the probable recognition threshold for credit losses on financial assets measured at amortized cost. The measurement of expected credit losses should be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The Update is effective for annual and interim periods beginning after December 15, 2019.

2016 Report to Shareholders  |  CSB Bancorp, Inc.

33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Early adoption is permitted for annual and interim periods beginning after December 15, 2018. We expect the Update will result in an increase in the allowance for credit losses for the estimated life of the financial asset, including an estimate for debt securities. The amount of the increase will be impacted by the portfolio composition and quality at the adoption date, as well as economic conditions and forecasts at that time. A cumulative-effect adjustment to retained earnings is required as of the beginning of the year of adoption. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

ASU2016-15 – Classification of Certain Cash Receipts and Cash Payments. The amendments in this Update add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. Current guidance lacks consistent principles for evaluating the classification of cash payments and receipts in the statement of cash flows. FASB issued the ASU with the intent of reducing diversity in practice with respect to several types of cash flows. The amendments in this Update are effective using a retrospective transition approach for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.

ASU2016-19 – Technical Corrections and Improvements. This Update represents changes to clarify, correct errors, or make minor improvements to the Accounting Standards Codification. The amendments make the Accounting Standards Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. Most of the amendments in this Update do not require transition guidance and are effective upon issuance of this Update. This Update is not expected to have a significant impact on the Company’s financial statements.

ASU2017-03 – Accounting Changes and Error Corrections. This ASU adds an SEC paragraph to the Codification following an SEC Staff Announcement about applying Staff Accounting Bulletin Topic 11.M. Specifically, this announcement applies to: Revenue from Contracts with Customers, Leases, and Financial Instruments - Credit Losses. A registrant should evaluate ASUs that have not yet been adopted to determine the appropriate financial statement disclosures about the potential material effects of those ASUs on the financial statements when adopted. If a registrant does not know or cannot reasonably estimate the impact that adoption of the ASUs referenced in this announcement are expected to have on the financial statements, then in addition to making a statement to that effect, that registrant should consider additional qualitative financial statement disclosures to assist the reader in assessing the significance of the impact that the standard will have on the financial statements of the registrant when adopted. In this regard, the SEC staff expects the additional qualitative disclosures to include a description of the effect of the accounting policies that the registrant expects to apply, if determined, and a comparison to the registrant’s current accounting policies. Also, a registrant should describe the status of its process to implement the new standards and the significant implementation matters yet to be addressed. The amendments in this Update are effective immediately.

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.

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SECURITIES

Securities consisted of the following at December 31:

(Dollars in thousands)	Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
2016
Available-for-sale
U.S. Treasury security		$	1,001		$	–		$	–		$	1,001
U.S. Government agencies			6,500			–			98			6,402
Mortgage-backed securities of government agencies			56,187			239			589			55,837
Other mortgage-backed securities			65			–			–			65
Asset-backed securities of government agencies			1,312			–			46			1,266
State and political subdivisions			30,007			140			439			29,708
Corporate bonds			9,632			28			144			9,516
Equity securities			53			27			–			80
Totalavailable-for-sale			104,757			434			1,316			103,875
Held-to-maturity
U.S. Government agencies			9,472			17			396			9,093
Mortgage-backed securities of government agencies			14,411			141			201			14,351
Totalheld-to-maturity			23,883			158			597			23,444
Restricted stock			4,614			–			–			4,614
Total securities		$	133,254		$	592		$	1,913		$	131,933
2015
Available-for-sale
U.S. Treasury security		$	1,002		$	–		$	2		$	1,000
U.S. Government agencies			18,239			5			126			18,118
Mortgage-backed securities of government agencies			62,930			527			278			63,179
Other mortgage-backed securities			104			–			–			104
Asset-backed securities of government agencies			1,464			–			72			1,392
State and political subdivisions			24,924			418			41			25,301
Corporate bonds			18,912			7			108			18,811
Equity securities			53			11			–			64
Totalavailable-for-sale			127,628			968			627			127,969
Held-to-maturity
U.S. Government agencies			15,586			312			46			15,852
Mortgage-backed securities of government agencies			18,233			81			155			18,159
Totalheld-to-maturity			33,819			393			201			34,011
Restricted stock			4,614			–			–			4,614
Total securities		$	166,061		$	1,361		$	828		$	166,594

2016 Report to Shareholders  |  CSB Bancorp, Inc.

35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SECURITIES (CONTINUED)

The amortized cost and fair value of debt securities at December 31, 2016, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

(Dollars in thousands)	Amortized Cost		Fair Value
Available-for-sale
Due in one year or less	$	4,313	$	4,315
Due after one through five years		22,039		22,037
Due after five through ten years		23,715		23,452
Due after ten years		54,637		53,991
Total debt securitiesavailable-for-sale	$	104,704	$	103,795
Held-to-maturity
Due in one year or less	$	–	$	–
Due after one through five years		–		–
Due after five through ten years		3,474		3,334
Due after ten years		20,409		20,110
Total debt securitiesheld-to-maturity	$	23,883	$	23,444

Securities with a carrying value of approximately $94.8 million and $100.5 million were pledged at December 31, 2016 and 2015, respectively, to secure public deposits, as well as other deposits and borrowings as required or permitted by law.

Restricted stock primarily consists of investments in FHLB and Federal Reserve Bank stock. The Bank’s investment in FHLB stock amounted to $4.1 million at December 31, 2016 and 2015, respectively. Federal Reserve Bank stock was $471 thousand at December 31, 2016 and 2015.

The following table shows the proceeds from sales ofavailable-for-sale securities and the gross realized gains and losses on the sales of those securities that have been included in earnings as a result of the sales in 2016, 2015, and 2014.

(Dollars in thousands)	2016		2015		2014
Proceeds	$	1	$	1,576	$	2,483
Realized gains	$	1	$	56	$	133
Realized losses		–		–		–
Net securities gains	$	1	$	56	$	133

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SECURITIES (CONTINUED)

The following table presents gross unrealized losses, fair value of securities, aggregated by investment category, and length of time that individual securities have been in a continuous unrealized loss position, at December 31:

Securities in a Continuous Unrealized Loss Position

	Less Than 12 Months						12 Months Or More						Total
(Dollars in thousands)	Gross Unrealized Losses			Fair Value			Gross Unrealized Losses			Fair Value			Gross Unrealized Losses			Fair Value
2016
Available-for-sale
U.S. Government agencies		$	98		$	6,402		$	–		$	–		$	98		$	6,402
Mortgage-backed securities of government agencies			589			27,243			–			–			589			27,243
Asset-backed securities of government agencies			–			–			46			1,266			46			1,266
State and political subdivisions			439			19,328			–			–			439			19,328
Corporate bonds			33			3,593			111			1,889			144			5,482
Held-to-maturity
U.S. Government agencies			396			8,602			–			–			396			8,602
Mortgage-backed securities of government agencies			28			2,018			173			3,621			201			5,639
Total temporarily impaired securities		$	1,583		$	67,186		$	330		$	6,776		$	1,913		$	73,962
2015
Available-for-sale
U.S. Treasury security		$	2		$	1,000		$	–		$	–		$	2		$	1,000
U.S. Government agencies			67			9,172			59			4,941			126			14,113
Mortgage-backed securities of government agencies			278			20,231			–			–			278			20,231
Asset-backed securities of government agencies			72			1,392			–			–			72			1,392
State and political subdivisions			33			2,652			8			1,120			41			3,772
Corporate bonds			108			15,282			–			–			108			15,282
Held-to-maturity
U.S. Government agencies			46			5,954			–			–			46			5,954
Mortgage-backed securities of government agencies			155			12,994			–			–			155			12,994
Total temporarily impaired securities		$	761		$	68,677		$	67		$	6,061		$	828		$	74,738

There were 93 securities in an unrealized loss position at December 31, 2016, five of which were in a continuous loss position for twelve or more months. At least quarterly, the Company conducts a comprehensive security-level impairment assessment. The assessments are based on the nature of the securities, the extent and duration of the securities, the extent and duration of the loss, and management’s intent to sell or if it is more likely than not that management will be required to sell a security before recovery of its amortized cost basis, which may be maturity. Management believes the Company will fully recover the cost of these securities and it does not intend to sell these securities and likely will not be required to sell them before the anticipated recovery of the remaining amortized cost basis, which may be maturity. As a result, management concluded that these securities were not other-than-temporarily impaired at December 31, 2016.

2016 Report to Shareholders  |  CSB Bancorp, Inc.

37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – LOANS

Loans consisted of the following at December 31:

(Dollars in thousands)	2016		2015
Commercial	$	134,268	$	123,143
Commercial real estate		159,475		148,775
Residential real estate		144,489		125,775
Construction & land development		23,428		15,452
Consumer		13,308		9,268
Total loans before deferred costs		474,968		422,413
Deferred loan costs		481		458
Total loans	$	475,449	$	422,871

Loan Origination/Risk Management

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

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

Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single industry. Management monitors and evaluates commercial real estate loans based on collateral, geography, and risk grade criteria. In addition, management tracks the level of owner-occupied commercial real estate loans versusnon-owner occupied loans. At December 31, 2016 and 2015, approximately 77% and 76%, respectively, of the outstanding principal balance of the Company’s commercial real estate loans were secured by owner-occupied properties.

With respect to loans to developers and builders that are secured bynon-owner occupied properties, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction and land development loans are underwritten utilizing independent appraisal reviews, sensitivity analysis of absorption, lease rates, and financial analysis of developers and property owners. Construction and land development loans are generally based upon estimates of costs and value associated with the completed project. These estimates may be inaccurate. Construction and land development loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may bepre-committed permanent loans from approved long-term lenders, sales of developed property, or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored byon-site inspections and are considered to have higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions, and the availability of long-term financing.

The Company originates consumer loans utilizing a judgmental underwriting process. Policies and procedures are developed and modified, as needed, jointly by line and staff personnel to monitor and manage consumer loan risk. This activity, coupled with relatively small loan amounts that are spread across many individual borrowers, minimizes risk.

The Company maintains an independent loan review department that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – LOANS (CONTINUED)

Concentrations of Credit

Nearly all of the Company’s lending activity occurs within the State of Ohio, including the four counties of Holmes, Stark, Tuscarawas, and Wayne, as well as other markets. The majority of the Company’s loan portfolio consists of commercial and industrial and commercial real estate loans. As of December 31, 2016 and 2015, there were no concentrations of loans to any single industry.

Allowance for Loan Losses

The following table details activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2016, 2015, and 2014. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

During 2016, the largest increase in the provision for loan losses occurred in the commercial loan category. The increase was primarily due to the specific allocation related to one loan relationship along with charge-offs of loans in this category. The increase in the provision amounts allocated to the remaining loan categories, primarily relate to loan growth. The decrease in the provision amount allocated to the commercial real estate category is primarily due to the recovery of prior loan charge-offs.

During 2015, the increase in the provision for loan losses related to commercial loans was primarily due to an increase in the specific allowance related to impaired loans in this category. The decrease in the provision related to commercial real estate loans was due to the improved credit quality of loans in this category. The increase in the provision related to residential real estate loans was due to the increase in net charge-offs of loans in this category as well as the increase in loan volume.

During 2014, the increase in the provision for loan losses related to commercial loans was primarily due to the increase in the historical loss rate of loans in this category. The increase in the provision related to commercial real estate loans was affected by an increase in loan balances, offset by a decrease in impaired loans. The decrease in the provision related to residential real estate loans was affected by the decrease in the specific allocation amounts related to impaired residential real estate loans, as well as a decrease in the historical loss rates of the loans in this category. The decrease in the provision related to construction and consumer loans was due to the decrease in the historical loss rates in both of these categories.

Summary of Allowance for Loan Losses

(Dollars in thousands)	Commercial				Commercial   Real Estate				Residential   Real Estate				Construction   & Land Development				Consumer				Unallocated				Total
December 31, 2016
Beginning balance		$	1,664			$	1,271			$	1,086			$	123			$	86			$	432			$	4,662
Provision for loan losses			626				(291	)			110				55				113				(120	)			493
Charge-offs			(297	)			(50	)			(12	)			–				(59	)							(418	)
Recoveries			214				334				5				–				1								554
Net charge-offs			(83	)			284				(7	)			–				(58	)							136
Ending balance		$	2,207			$	1,264			$	1,189			$	178			$	141			$	312			$	5,291
December 31, 2015
Beginning balance		$	1,289			$	1,524			$	1,039			$	142			$	60			$	327			$	4,381
Provision for loan losses			285				(205	)			161				(19	)			62				105				389
Charge-offs			(109	)			(61	)			(132	)			–				(46	)							(348	)
Recoveries			199				13				18				–				10								240
Net charge-offs			90				(48	)			(114	)			–				(36	)							(108	)
Ending balance		$	1,664			$	1,271			$	1,086			$	123			$	86			$	432			$	4,662
December 31, 2014
Beginning balance		$	1,219			$	1,872			$	1,205			$	178			$	91			$	520			$	5,085
Provision for loan losses			1,047				23				(164	)			(36	)			(34	)			(193	)			643
Charge-offs			(1,005	)			(379	)			(27	)			–				(11	)							(1,422	)
Recoveries			28				8				25				–				14								75
Net charge-offs			(977	)			(371	)			(2	)			–				3								(1,347	)
Ending balance		$	1,289			$	1,524			$	1,039			$	142			$	60			$	327			$	4,381

2016 Report to Shareholders  |  CSB Bancorp, Inc.

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – LOANS (CONTINUED)

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

(Dollars in thousands)	Commercial			Commercial   Real Estate			Residential Real Estate			Construction   & Land Development			Consumer			Unallocated			Total
2016
Allowance for loan losses:
Ending allowance balances attributable to loans:
Individually evaluated for impairment		$	705		$	–		$	24		$	–		$	–		$	–		$	729
Collectively evaluated for impairment			1,502			1,264			1,165			178			141			312			4,562
Total ending allowance balance		$	2,207		$	1,264		$	1,189		$	178		$	141		$	312		$	5,291
Loans:
Loans individually evaluated for impairment		$	5,028		$	621		$	1,507		$	–		$	–					$	7,156
Loans collectively evaluated for impairment			129,240			158,854			142,982			23,428			13,308						467,812
Total ending loans balance		$	134,268		$	159,475		$	144,489		$	23,428		$	13,308					$	474,968
2015
Allowance for loan losses:
Ending allowance balances attributable to loans:
Individually evaluated for impairment		$	299		$	64		$	26		$	–		$	–		$	–		$	389
Collectively evaluated for impairment			1,365			1,207			1,060			123			86			432			4,273
Total ending allowance balance		$	1,664		$	1,271		$	1,086		$	123		$	86		$	432		$	4,662
Loans:
Loans individually evaluated for impairment		$	6,127		$	1,064		$	1,533		$	–		$	–					$	8,724
Loans collectively evaluated for impairment			117,016			147,711			124,242			15,452			9,268						413,689
Total ending loans balance		$	123,143		$	��148,775		$	125,775		$	15,452		$	9,268					$	422,413

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – LOANS (CONTINUED)

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

(Dollars in thousands)	Unpaid Principal Balance			Recorded Investment With No Allowance			Recorded Investment With Allowance			Total Recorded Investment			Related Allowance			Average Recorded Investment			Interest Income Recognized
2016
Commercial		$	5,476		$	1,690		$	3,354		$	5,044		$	705		$	6,609		$	241
Commercial real estate			796			600			21			621			–			786			10
Residential real estate			1,681			1,036			472			1,508			24			1,507			61
Construction & land development			–			–			–			–			–			–			–
Total impaired loans		$	7,953		$	3,326		$	3,847		$	7,173		$	729		$	8,902		$	312
2015
Commercial		$	6,541		$	5,832		$	301		$	6,133		$	299		$	5,972		$	230
Commercial real estate			1,265			670			393			1,063			64			1,420			18
Residential real estate			1,689			967			568			1,535			26			1,671			61
Construction & land development			–			–			–			–			–			–			–
						��
Total impaired loans		$	9,495		$	7,469		$	1,262		$	8,731		$	389		$	9,063		$	309
2014
Commercial		$	7,011		$	5,889		$	37		$	5,926		$	–		$	6,739		$	208
Commercial real estate			1,836			950			728			1,678			109			2,723			90
Residential real estate			1,721			885			730			1,615			75			1,796			61
Construction & land development			–			–			–			–			–			–			–
Total impaired loans		$	10,568		$	7,724		$	1,495		$	9,219		$	184		$	11,258		$	359

2016 Report to Shareholders  |  CSB Bancorp, Inc.

41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – LOANS (CONTINUED)

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

(Dollars in thousands)	Current			30-59 Days Past Due			60-89 Days Past Due			90 Days + Past Due			Nonaccrual			Total Past Due and Nonaccrual			Total Loans
2016
Commercial		$	133,630		$	151		$	62		$	–		$	425		$	638		$	134,268
Commercial real estate			158,504			435			–			39			497			971			159,475
Residential real estate			142,926			816			61			196			490			1,563			144,489
Construction & land development			23,428			–			–			–			–			–			23,428
Consumer			13,234			21			16			–			37			74			13,308
Total loans		$	471,722		$	1,423		$	139		$	235		$	1,449		$	3,246		$	474,968
2015
Commercial		$	122,760		$	34		$	172		$	–		$	177		$	383		$	123,143
Commercial real estate			147,920			–			59			–			796			855			148,775
Residential real estate			124,408			486			173			105			603			1,367			125,775
Construction & land development			15,452			–			–			–			–			–			15,452
Consumer			9,105			163			–			–			–			163			9,268
Total loans		$	419,645		$	683		$	404		$	105		$	1,576		$	2,768		$	422,413

Troubled Debt Restructurings

The Company had troubled debt restructurings (“TDRs”) of $6.4 million as of December 31, 2016, with $711 thousand of specific reserves allocated to customers whose loan terms have been modified in TDRs. As of December 31, 2015, the Company had TDRs of $7.6 million, with $26 thousand of specific reserves allocated. At December 31, 2016, $6 million of the loans classified as TDRs were performing in accordance with their modified terms. The remaining $394 thousand were classified as nonaccrual.

Loan modifications that are considered TDRs completed during the year ended December 31 were as follows:

(Dollars in thousands)	Number Of Loans Restructured		Pre-Modification Recorded Investment			Post-Modification Recorded Investment
2016
Commercial		4		$	3,607		$	3,607
Residential real estate		1			101			101
Total restructured loans		5		$	3,708		$	3,708
2015
Commercial		1		$	148		$	148
Residential real estate		5			307			307
Total restructured loans		6		$	455		$	455

The loans restructured were modified by changing the monthly payment to interest only and extending the maturity dates. No principal reductions were made. None of the loans restructured in 2015 subsequently defaulted in 2016. There was one residential real estate loan of $84 thousand restructured in 2014 that subsequently defaulted in 2015.

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – LOANS (CONTINUED)

Real Estate Loans in Foreclosure

The Company held no foreclosed real estate as of December 31, 2016, or December 31, 2015. Mortgage loans in the process of foreclosure were $448 thousand at December 31, 2016, and $89 thousand at December 31, 2015.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes commercial loans individually by classifying the loans as to credit risk. This analysis includes commercial loans with an outstanding balance greater than $300 thousand. This analysis is performed on an annual basis.

The Company uses the following definitions for risk ratings:

Pass. Loans classified as pass (Acceptable, Low Acceptable or Pass Watch) may exhibit a wide array of characteristics but at a minimum represent an acceptable risk to the Bank. Borrowers in this rating may have leveraged but acceptable balance sheet positions, satisfactory asset quality, stable to favorable sales and earnings trends, acceptable liquidity, and adequate cash flow. Loans are considered fully collectible and require an average amount of administration. While generally adhering to credit policy, these loans may exhibit occasional exceptions that do not result in undue risk to the Bank. Borrowers are generally capable of absorbing setbacks, financial and otherwise, without the threat of failure.

Special Mention.Loans classified as special mention have a material weakness that deserves management’s close attention. If left uncorrected, these weaknesses may result in deterioration of the repayment prospects for the loan or of the Bank’s credit position at some future date.

Substandard.Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, values, highly questionable, and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans. Loans listed as not rated are either less than $300 thousand or are included in groups of homogeneous loans. Based on the most recent analysis performed, the risk category of loans by class was as follows at December 31:

(Dollars in thousands)	Pass			Special Mention			Substandard			Doubtful			Not Rated			Total
2016
Commercial		$	116,739		$	6,874		$	9,704		$	–		$	951		$	134,268
Commercial real estate			149,630			4,168			4,766			–			911			159,475
Residential real estate			216			–			175			–			144,098			144,489
Construction & land development			17,183			981			504			–			4,760			23,428
Consumer			–			–			–			–			13,308			13,308
Total		$	283,768		$	12,023		$	15,149		$	–		$	164,028		$	474,968
2015
Commercial		$	112,229		$	3,100		$	7,044		$	–		$	770		$	123,143
Commercial real estate			141,621			2,742			3,150			–			1,262			148,775
Residential real estate			190			–			213			–			125,372			125,775
Construction & land development			11,015			944			–			–			3,493			15,452
Consumer			–			–			–			–			9,268			9,268
Total		$	265,055		$	6,786		$	10,407		$	–		$	140,165		$	422,413

2016 Report to Shareholders  |  CSB Bancorp, Inc.

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – LOANS (CONTINUED)

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

(Dollars in thousands)	Performing			Nonperforming			Total
2016
Commercial		$	951		$	–		$	951
Commercial real estate			911			–			911
Residential real estate			143,440			658			144,098
Construction & land development			4,760			–			4,760
Consumer			13,271			37			13,308
Total		$	163,333		$	695		$	164,028
2015
Commercial		$	770		$	–		$	770
Commercial real estate			1,262			–			1,262
Residential real estate			124,700			672			125,372
Construction & land development			3,493			–			3,493
Consumer			9,268			–			9,268
Total		$	139,493		$	672		$	140,165

Mortgage Servicing Rights

For the years ended December 31, 2016 and 2015, the Company had outstanding MSRs of $261 thousand and $246 thousand, respectively. No valuation allowance was recorded at December 31, 2016 or 2015, as the fair value of the MSRs exceeded their carrying value. On December 31, 2016, the Company had $61.8 million residential mortgage loans with servicing retained as compared to $59.9 million with servicing retained at December 31, 2015.

Total loans serviced for others approximated $85.9 million and $76.3 million at December 31, 2016 and 2015, respectively.

44

2016 Report to Shareholders  |  CSB Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – PREMISES AND EQUIPMENT

Premises and equipment consisted of the following at December 31:

(Dollars in thousands)	2016		2015
Land and improvements	$	1,607	$	1,559
Buildings and improvements		10,365		9,702
Furniture and equipment		6,346		8,031
Leasehold improvements		191		260
		18,509		19,552
Accumulated depreciation		9,760		11,343
Premises and equipment, net	$	8,749	$	8,209

The Bank leases certain office locations. Total rental expense under these leases approximated $191 thousand, $301 thousand, and $299 thousand in 2016, 2015, and 2014, respectively. Depreciation expense amounted to $690 thousand, $660 thousand, and $653 thousand for the years ended December 31, 2016, 2015, and 2014, respectively.

Future minimum lease payments at December 31, 2016 were as follows:

(Dollars in thousands)
2017	$	152
2018		82
2019		71
Total	$	305

NOTE 5 – CORE DEPOSIT INTANGIBLE ASSETS

Core Deposit Intangible

No additional core deposit intangible was recorded in 2016, 2015, or 2014. The core deposit intangible asset will be amortized over an estimated life of ten years. Amortization expense related to the core deposit intangible asset totaled $121 thousand, $125 thousand, and $130 thousand in 2016, 2015, and 2014, respectively. The following table shows the core deposit intangible and the related accumulated amortization as of December 31:

(Dollars in thousands)	2016			2015			2014
Gross carrying amount	$	1,251		$	1,251		$	1,251
Accumulated amortization		(868	)		(747	)		(622	)
Net carrying amount	$	383		$	504		$	629

2016 Report to Shareholders  |  CSB Bancorp, Inc.

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – CORE DEPOSIT INTANGIBLE ASSETS (CONTINUED)

The estimated aggregate future amortization expense for the core deposit assets remaining as of December 31, 2016 was as follows:

(Dollars in thousands)	Core Deposit Amortization
2017		$	116
2018			101
2019			63
2020			59
2021			44
		$	383

NOTE 6 – INTEREST-BEARING DEPOSITS

Interest-bearing deposits at December 31 were as follows:

(Dollars in thousands)	2016			2015
Demand		$	97,683		$	86,472
Savings			163,169			167,755
Time deposits:
In excess of $ 250,000			13,102			13,834
Other			99,007			105,432
Total interest-bearing deposits		$	372,961		$	373,493

At December 31, 2016, stated maturities of time deposits were as follows:

(Dollars in thousands)
2017	$	57,670
2018		27,439
2019		15,400
2020		5,336
2021		6,264
Total	$	112,109

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 – BORROWINGS

Short-term borrowings

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

(Dollars in thousands)	2016			2015
Balance atyear-end	$	48,742		$	48,598
Average balance outstanding		51,801			51,571
Maximummonth-end balance		55,642			54,462
Weighted-average rate atyear-end		0.16	%		0.14	%
Weighted-average rate during the year		0.14			0.14

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

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

	Remaining Contractual Maturity Overnight and Continuous
(Dollars in thousands)	December 31, 2016	December 31, 2015
Securities of U.S. Government agencies and mortgage-backed securities of government agencies pledged, fair value	$   48,866		$   48,791
Repurchase agreements	48,742		48,598

Other borrowings

The following table sets forth information concerning other borrowings:

	Maturity Range				Weighted Average Interest		Stated Interest     Rate Range				At December 31,
(Dollars in thousands)	From		To		Rate		From		To		2016		2015
Fixed-rate		12/20/17		12/21/17		3.61%		3.48%		3.73%	$	10,000	$	10,000
Fixed-rate amortizing		4/1/24		4/1/24		1.36		1.16		6.80		2,385		3,465
											$	12,385	$	13,465

Maturities of other borrowings at December 31, 2016, are summarized as follows for the years ended December 31:

(Dollars in thousands)	Amount		Weighted Average Rate
2017	$	10,730	3.44%
2018		534	1.16
2019		389	1.16
2020		279	1.16
2021 and beyond		453	1.16
	$	12,385	3.14%

Monthly principal and interest payments, as well as 10% – 20% principal curtailments on the borrowings’ anniversary dates are due on the fixed-rate amortizing borrowings. FHLB borrowings are secured by a blanket collateral agreement. At December 31, 2016 the Company had the capacity to borrow an additional $65.6 million from the FHLB.

2016 Report to Shareholders  |  CSB Bancorp, Inc.

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 – INCOME TAXES

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

(Dollars in thousands)	2016			2015		2014
Current	$	2,973		$	2,564	$	2,393
Deferred		(4	)		83		175
Total income tax provision	$	2,969		$	2,647	$	2,568

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

(Dollars in thousands)	2016			2015			2014
Expected provision using statutory federal income tax rate	$	3,300		$	2,947		$	2,874
Tax-exempt income on state and municipal securities and political subdivision loans		(241	)		(216	)		(188	)
Interest expense associated with carrying certain state and municipal securities and political subdivision loans		5			4			4
Tax-exempt income on bank-owned life insurance		(94	)		(92	)		(90	)
Other		(1	)		4			(32	)
Total income tax provision	$	2,969		$	2,647		$	2,568

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

(Dollars in thousands)	2016			2015
Allowance for loan losses	$	1,957		$	1,743
Net operating loss carryforward		84			213
Unrealized loss on securitiesavailable-for-sale		450			215
Other		29			41
Deferred tax assets		2,520			2,212
Premises and equipment		(384	)		(359	)
Federal Home Loan Bank stock dividends		(609	)		(609	)
Deferred loan fees		(362	)		(326	)
Prepaid expenses		(182	)		(193	)
Other		(380	)		(361	)
Deferred tax liabilities		(1,917	)		(1,848	)
Net deferred tax asset	$	603		$	364

48

2016 Report to Shareholders  |  CSB Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 – INCOME TAXES (CONTINUED)

The Company has a net operating loss tax carryforward of approximately $248 thousand, as of December 31, 2016. The net operating loss carryforward can be used to offset future taxable income and will begin to expire in tax year 2026. No additional valuation allowance is deemed necessary in view of certain tax strategies, coupled with the anticipated future taxable income as evidenced by the Company’s earnings.

There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Consolidated Statements of Income. With few exceptions, the Company is no longer subject to U.S. federal, state, or local income tax examinations by tax authorities for years prior to 2013.

NOTE 9 – EMPLOYEE BENEFITS

The Company sponsors a contributory 401(k) profit-sharing plan (the “Plan”) covering substantially all employees who meet certain age and service requirements. The Plan permits investment in the Company’s common stock subject to various limitations and provides for discretionary profit sharing and matching contributions. The discretionary profit sharing contribution is determined annually by the Board of Directors and amounted to 3.00% in 2016 and 2.75% of each eligible participant’s compensation in 2015 and 2014. The Plan also provides for a 50% Company match of participant contributions up to a maximum of 2% of each participant’s annual compensation. Expense under the Plan amounted to approximately $338 thousand, $304 thousand, and $269 thousand for 2016, 2015, and 2014, respectively.

The Company’s stock option plan expired in 2013 and the last options outstanding were exercised in 2016. No stock options were granted nor did any share awards vest during the three years presented.

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

				2016								2015								2014
	Shares				Weighted Average Exercise Price				Shares				Weighted Average Exercise Price				Shares				Weighted Average Exercise Price
Outstanding at beginning of year		5,952				$	18.00			11,904				$	18.00			30,760				$	17.90
Granted		–					–			–					–			–					–
Exercised		(5,952	)				(18.00	)		(5,952	)				(18.00	)		(18,856	)				(17.84	)
Forfeited		–								–								–
Outstanding at end of year		–					–			5,952					18.00			11,904					18.00
Options exercisable atyear-end		–				$	–			5,952				$	18.00			11,904				$	18.00
Weighted-average fair value of options granted during year		N/A					N/A								N/A								N/A

There were no options outstanding at December 31, 2016. The total intrinsic value of outstandingin-the-money stock options and outstandingin-the-money exercisable stock options was $39 thousand at December 31, 2015.

2016 Report to Shareholders  |  CSB Bancorp, Inc.

49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – FINANCIAL INSTRUMENTS WITHOFF-BALANCE SHEET RISK

The Bank is party to financial instruments withoff-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 foron-balance sheet loans.

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

(Dollars in thousands)	2016		2015
Commitments to extend credit	$	162,763	$	136,293
Letters of credit		972		1,937

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.

Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on acase-by-case basis. The amount of collateral, obtained if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer. Collateral held varies but may include accounts receivable, recognized inventory, property, plant and equipment, and income-producing commercial properties.

Letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third-party and are reviewed for renewal at expiration. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Company requires collateral supporting these commitments when deemed appropriate.

NOTE 11 – RELATED-PARTY TRANSACTIONS

In the ordinary course of business, loans are made 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 years ended December 31:

(Dollars in thousands)	2016			2015
Balance at beginning of year	$	495		$	4,417
New loans and advances		84			69
Repayments, including loans sold		117			148
Changes in related parties1		(141	)		(3,843	)
Balance at end of year	$	321		$	495

¹The adjustment made in 2016 relates to the retirement of a senior management member and 2015 to the retirement of a director.

Deposits from executive officers, directors, and their related business interests at December 31, 2016 and 2015, were approximately $3.0 million and $2.5 million.

50

2016 Report to Shareholders  |  CSB Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 – REGULATORY MATTERS

The Company (on a consolidated basis) and Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certainoff-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 capital, Tier 1 capital and Common equity 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, 2016 and 2015, that the Company and Bank met or exceeded all capital adequacy requirements to which they are subject.

As of December 31, 2016, 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, Common equity Tier 1, and Tier 1 leverage ratios as set forth in the following tables. There are no known conditions or events since that notification that Management believes have changed the Bank’s category.

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

	Actual						Minimum Required For Capital Adequacy Purposes						Minimum Required To Be Well Capitalized Under Prompt Corrective Action
(Dollars in thousands)	Amount			Ratio			Amount			Ratio			Amount			Ratio
2016
Total capital to risk-weighted assets
Consolidated		$	66,545		13.7	%		$	38,936		8.0	%		$	48,670		10.0	%
Bank			65,420		13.5				38,925		8.0				48,656		10.0
Tier 1 capital to risk-weighted assets
Consolidated			61,246		12.6				29,202		6.0				38,936		8.0
Bank			60,121		12.4				29,194		6.0				38,925		8.0
Common equity Tier 1 capital to risk-weighted assets
Consolidated			61,246		12.6				21,901		4.5				31,635		6.5
Bank			60,121		12.4				21,895		4.5				31,626		6.5
Tier 1 capital to average assets
Consolidated			61,246		9.3				26,330		4.0				32,913		5.0
Bank			60,121		9.1				26,325		4.0				32,906		5.0
2015
Total capital to risk-weighted assets
Consolidated		$	61,210		13.5	%		$	36,226		8.0	%		$	45,283		10.0	%
Bank			60,151		13.3				36,216		8.0				45,270		10.0
Tier 1 capital to risk-weighted assets
Consolidated			56,540		12.5				27,170		6.0				36,226		8.0
Bank			55,481		12.3				27,162		6.0				36,216		8.0
Common equity Tier 1 capital to risk-weighted assets
Consolidated			56,540		12.5				20,377		4.5				29,434		6.5
Bank			55,481		12.3				20,371		4.5				29,425		6.5
Tier 1 capital to average assets
Consolidated			56,540		8.7				25,871		4.0				32,338		5.0
Bank			55,481		8.6				25,865		4.0				32,332		5.0

2016 Report to Shareholders  |  CSB Bancorp, Inc.

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 – REGULATORY MATTERS (CONTINUED)

The Company’s primary source of funds with which to pay dividends are dividends received from the Bank. The payment of dividends by the Bank to the Company is subject to restrictions by its regulatory agencies. These restrictions generally limit dividends to current year net income and priortwo-years’ net retained earnings. Also, dividends may not reduce capital levels below the minimum regulatory requirements disclosed in the prior table. Under these provisions, at January 1, 2017, the Bank could dividend $12.1 million to the Company. The Company does not anticipate the financial need to obtain regulatory approval due to its current cash balances and ability to access the credit markets. Federal law prevents the Company from borrowing from the Bank unless loans are secured by specific obligations. Further, such secured loans are limited to an amount not exceeding ten percent of the Bank’s common stock and capital surplus.

NOTE 13 – CONDENSED PARENT COMPANY FINANCIAL INFORMATION

A summary of condensed financial information of the parent company as of December 31, 2016 and 2015, and for each of the three years in the period ended December 31, 2016 follows:

(Dollars in thousands)	2016			2015
CONDENSED BALANCE SHEETS
ASSETS
Cash deposited with subsidiary bank	$	921		$	790
Investment in subsidiary bank		64,272			60,201
Securitiesavailable-for-sale		80			64
Other assets		195			218
TOTAL ASSETS	$	65,468		$	61,273
LIABILITIES AND SHAREHOLDERS’ EQUITY
Total liabilities	$	53		$	7
Total shareholders’ equity		65,415			61,266
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	65,468		$	61,273
(Dollars in thousands)	2016			2015			2014
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
Interest on securities	$	2		$	2		$	2
Dividends from subsidiary		2,450			2,400			2,400
Securities gains		–			35			–
Total income		2,452			2,437			2,402
Operating expenses		384			465			312
Income before taxes and undistributed equity income of subsidiary		2,068			1,972			2,090
Income tax benefit		(131	)		(146	)		(141	)
Equity earnings in subsidiary, net of dividends		4,539			3,904			3,653
NET INCOME	$	6,738		$	6,022		$	5,884
COMPREHENSIVE INCOME	$	6,281		$	5,887		$	7,058

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 – CONDENSED PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)

(Dollars in thousands)	2016			2015			2014
CONDENSED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income	$	6,738		$	6,022		$	5,884
Adjustments to reconcile net income to cash provided by operations:
Equity earnings in subsidiary, net of dividends		(4,539	)		(3,904	)		(3,653	)
Securities gain		–			(35	)		–
Change in other assets, liabilities		71			2			(111	)
Net cash provided by operating activities		2,270			2,085			2,120
Cash flows from investing activities:
Proceeds from sale of securities		–			88			–
Net cash provided by investing activities		–			88			–
Cash flows from financing activities:
Cash dividends paid		(2,139	)		(2,082	)		(2,026	)
Cash received from exercise of stock options		–			–			7
Net cash used in financing activities		(2,139	)		(2,082	)		(2,019	)
Increase in cash		131			91			101
Cash at beginning of year		790			699			598
Cash at end of year	$	921		$	790		$	699

NOTE 14 – FAIR VALUE MEASUREMENTS

The Company provides disclosures about assets and liabilities carried at fair value. The framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and lowest priority to unobservable inputs. The three broad levels of the fair value hierarchy are described below:

Level I:	Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level II:	Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; inputs that are derived principally from or corroborated by observable market data by or other means including certified appraisals. If the asset or liability has a specified (contractual) term, the Level II input must be observable for substantially the full term of the asset or liability.
Level III:	Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

2016 Report to Shareholders  |  CSB Bancorp, Inc.

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – FAIR VALUE MEASUREMENTS (CONTINUED)

The following table presents the assets reported on the consolidated statements of financial condition at their fair value as of December 31, 2016 and December 31, 2015, by level within the fair value hierarchy. No liabilities were carried at fair value. As required by the accounting standards, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Equity securities and U.S. Treasury Notes are valued at the closing price reported on the active market on which the individual securities are traded. Obligations of U.S. government corporations and agencies, mortgage-backed securities, asset-backed securities, obligations of states, and political subdivisions are valued at observable market data for similar assets.

(Dollars in thousands)	Level I		Level II		Level III			Total
Assets:	December 31, 2016
Securitiesavailable-for-sale
U.S. Treasury security	$	1,001	$	–		$	–	$	1,001
U.S. Government agencies		–		6,402			–		6,402
Mortgage-backed securities of government agencies		–		55,837			–		55,837
Other mortgage-backed securities		–		65			–		65
Asset-backed securities of government agencies		–		1,266			–		1,266
State and political subdivisions		–		29,708			–		29,708
Corporate bonds		–		9,516			–		9,516
Total debt securities		1,001		102,794			–		103,795
Equity securities		80		–			–		80
Totalavailable-for-sale securities	$	1,081	$	102,794		$	–	$	103,875
Assets:	December 31, 2015
Securitiesavailable-for-sale
U.S. Treasury security	$	1,000	$	–		$	–	$	1,000
U.S. Government agencies		–		18,118			–		18,118
Mortgage-backed securities of government agencies		–		63,179			–		63,179
Other mortgage-backed securities		–		104			–		104
Asset-backed securities of government agencies		–		1,392			–		1,392
State and political subdivisions		–		25,301			–		25,301
Corporate bonds		–		18,811			–		18,811
Total debt securities		1,000		126,905			–		127,905
Equity securities		64		–			–		64
Totalavailable-for-sale securities	$	1,064	$	126,905		$	–	$	127,969

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – FAIR VALUE MEASUREMENTS (CONTINUED)

The following table presents the assets measured on a nonrecurring basis on the consolidated balance sheets at their fair value as of December 31, 2016 and December 31, 2015, by level within the fair value hierarchy. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral securing the impaired loans include: quoted market prices for identical assets classified as Level I inputs; observable inputs, employed by certified appraisers, for similar assets classified as Level II inputs. In cases where valuation techniques included inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level III inputs.

(Dollars in thousands)	Level I			Level II			Level III			Total
Assets measured on a nonrecurring basis	December 31, 2016
Impaired loans		$	–		$	–		$	6,427		$	6,427
Assets measured on a nonrecurring basis	December 31, 2015
Impaired loans		$	–		$	–		$	8,335		$	8,335

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level III inputs to determine fair value:

Quantitative Information about Level III Fair Value Measurements

(Dollars in thousands)	Fair Value Estimate		Valuation Techniques		Unobservable Input	Range (Weighted Average)
					December 31, 2016
Impaired loans	$	5,331		Discounted cash flow	Remaining term Discount rate		6 mos to 29.9 yrs / (61.1 mos 3.1% to 12.0% / (4.9	)  %)
		1,097		Appraisal of collateral1	Appraisal adjustments2 Liquidation expense2		0% to –50% (–21.7 –10	%)  %
					December 31, 2015
Impaired loans	$	7,256		Discounted cash flow	Remaining term Discount rate		2 mos to 29.5 yrs / (55 mos 3.1% to 8.3% / (4.3	)  %)
		1,079		Appraisal of collateral1	Appraisal adjustments2Liquidation expense2		–20% to –30% (–26 –10	%)  %

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

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

2016 Report to Shareholders  |  CSB Bancorp, Inc.

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 – FAIR VALUES OF FINANCIAL INSTRUMENTS

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

	2016
(Dollars in thousands)	Carrying Value		Level I		Level II		Level III		Total Fair Value
Financial assets
Cash and cash equivalents	$	36,838	$	36,838	$	–	$	–	$	36,838
Securitiesavailable-for-sale		103,875		1,081		102,794		–		103,875
Securitiesheld-to-maturity		23,883		–		23,444		–		23,444
Restricted stock		4,614		4,614		–		–		4,614
Net loans		470,158		–		–		471,815		471,815
Bank-owned life insurance		10,361		10,361		–		–		10,361
Accrued interest receivable		1,409		1,409		–		–		1,409
Mortgage servicing rights		261		–		–		261		261
Financial liabilities
Deposits	$	540,785	$	428,676	$	–	$	112,642	$	541,318
Short-term borrowings		48,742		48,742		–		–		48,742
Other borrowings		12,385		–		–		12,511		12,511
Accrued interest payable		76		76		–		–		76
	2015
(Dollars in thousands)	Carrying Value		Level I		Level II		Level III		Total Fair Value
Financial assets
Cash and cash equivalents	$	38,272	$	38,272	$	–	$	–	$	38,272
Securitiesavailable-for-sale		127,969		1,064		126,905		–		127,969
Securitiesheld-to-maturity		33,819		–		34,011		–		34,011
Restricted stock		4,614		4,614		–		–		4,614
Loans held for sale		47		47		–		–		47
Net loans		418,209		–		–		420,181		420,181
Bank-owned life insurance		10,085		10,085		–		–		10,085
Accrued interest receivable		1,513		1,513		–		–		1,513
Mortgage servicing rights		246		–		–		246		246
Financial liabilities
Deposits	$	525,042	$	405,776	$	–	$	119,867	$	525,643
Short-term borrowings		48,598		48,598		–		–		48,598
Other borrowings		13,465		–		–		13,667		13,667
Accrued interest payable		80		80		–		–		80

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 – FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

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

Cash and cash equivalents; Loans held for sale; Accrued interest receivable; Mortgage servicing rights; Short-term borrowings, and Accrued interest payable

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

Securities

The fair value of securitiesavailable-for-sale and securitiesheld-to-maturity, which are measured on a recurring basis, are determined primarily by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on securities’ relationship to other similar securities. Classified as Level I or Level II in the fair value hierarchy.

Net loans

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

Bank-owned life insurance

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

Restricted stock

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

Deposits

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

Other borrowings

The fair value of FHLB advances are estimated using a discounted cash flow analysis based on the current borrowing rates for similar types of borrowings, resulting in a Level III classification.

The Company also had unrecognized financial instruments at December 31, 2016 and 2015. These financial instruments relate to commitments to extend credit and letters of credit. The aggregate contract amount of such financial instruments was approximately $163.7 million at December 31, 2016, and $138.2 million at December 31, 2015. Such amounts are also considered to be the estimated fair values.

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

2016 Report to Shareholders  |  CSB Bancorp, Inc.

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 – ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table presents the changes in accumulated other comprehensive (loss) income by component net of tax for the years ended December 31, 2016 and 2015.

(Dollars in thousands)	Pretax				Tax Effect				After-Tax				Affected Line Item in the Consolidated Statements of Income
Balance as of December 31, 2015		$	(631	)		$	214			$	(417	)
Unrealized holding loss onavailable-for-sale securities arising during the period			(1,221	)			415				(806	)
Amount reclassified for net gains included in net income			(1	)			–				(1	)		(a)
Amortization ofheld-to-maturity discount resulting from transfer			530				(180	)			350
Total other comprehensive loss			(692	)			235				(457	)
BALANCE AS OF DECEMBER 31, 2016		$	(1,323	)		$	449			$	(874	)
Balance as of December 31, 2014		$	(427	)		$	145			$	(282	)
Unrealized holding loss onavailable-for-sale securities arising during the period			(551	)			187				(364	)
Amount reclassified for net gains included in net income			(56	)			19				(37	)		(a) (b)
Amortization ofheld-to-maturity discount resulting from transfer			403				(137	)			266
Total other comprehensive loss			(204	)			69				(135	)
BALANCE AS OF DECEMBER 31, 2015		$	(631	)		$	214			$	(417	)

(a) Securities gain.

(b) Federal income tax provision.

58

2016 Report to Shareholders  |  CSB Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 – CONTINGENT LIABILITIES

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

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

NOTE 18 – QUARTERLY FINANCIAL DATA (UNAUDITED)

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

(Dollars in thousands, except per share data)	Interest Income		Net Interest Income		Net Income		Basic Earnings Per Share		Diluted Earnings Per Share
2016
First quarter		$  5,661		$  5,285		$  1,480		$  0.54		$  0.54
Second quarter		5,813		5,446		1,611		0.59		0.59
Third quarter		5,863		5,497		1,694		0.61		0.61
Fourth quarter		6,295		5,931		1,953		0.72		0.72
2015
First quarter		$  5,407		$  5,014		$  1,342		$  0.49		$  0.49
Second quarter		5,568		5,175		1,517		0.55		0.55
Third quarter		5,463		5,068		1,556		0.57		0.57
Fourth quarter		5,559		5,173		1,607		0.59		0.59
2014
First quarter		$  5,336		$  4,898		$  1,416		$  0.52		$  0.52
Second quarter		5,484		5,045		1,522		0.55		0.55
Third quarter		5,435		4,997		1,507		0.55		0.55
Fourth quarter		5,401		4,987		1,439		0.53		0.53

2016 Report to Shareholders  |  CSB Bancorp, Inc.

59

OFFICERS OF THE COMMERCIAL & SAVINGS BANK

JEFF M. AGNES Officer, Systems Administrator   PAMELA S. BASINGER Vice President, Financial Officer   DEBORAH S. BERNER Vice President, Retail Services Manager   PAMELA L. BROMUND Assistant Vice President, Loan Operations Supervisor   WENDY D. BROWN Assistant Vice President, Project Manager   C. DAWN BUTLER Vice President, Regional Bank Manager   BEVERLY A. CARR Operations Officer, Bank Operations Manager   COLBY CHAMBERLIN Vice President, Commercial Banker   PEGGY L. CONN Corporate Secretary   JENNIFER L. DEAM Officer, Electronic Services Manager   CHRISTOPHER J. DELATORE Vice President, Commercial Banker   DAVID J. DOLAN Vice President, Retail Lending Manager   CYNTHIA A. FERRY Assistant Vice President, Banking Center Manager   LORI S. FRANTZ Assistant Vice President, Banking Center Manager   BRETT A. GALLION Senior Vice President, Senior Operations Officer, Senior Information Officer JASON A. GASKELL Assistant Vice President, Commercial Banker   CARRIE A. GERBER Credit Officer   ERIC S. GERBER Assistant Vice President, Commercial Banker   AMI K. HAMMOND Officer, Banking Center Manager   MARC R. HARVEY Vice President, Organizational Development   JACKIE S. HAZEL Vice President, Trust Operations   BENJAMIN J. HERSHBERGER Assistant Vice President, Banking Center Manager   MARIE HULL-GREEN Vice President, Trust Officer   RANDALL S. JANSON Assistant Vice President, Banking Center Manager   JULIE A. JONES Vice President, Director Of Human Resources   STEPHEN K. KILPATRICK First Vice President, Senior Credit Officer   GINA K. MARSHALL Officer, Customer Service Center Manager   KEVIN J. MCALLISTER Vice President, Lead Trust Officer   ROBYN E. MCCLINTOCK Vice President, Regional Bank Manager   PAULA J. MEILER Senior Vice President, Chief Financial Officer ANDREA R. MILEY Senior Vice President, Senior Risk Officer   A. LEE MILLER Vice President, Cash Management & Special Projects, CRA Officer   EDWARD J. MILLER Vice President, Operation Services Manager, Security   MOLLY M. MOHR Assistant Vice President, Banking Center Manager   DANIEL L. MUSE Operations Officer   TODD R. NICOLAS Vice President, Commercial Banker   SHAWN E. OSWALD Vice President, Information Technology Director, OFAC Officer   AMY R. PATTERSON Assistant Vice President, Mortgage & Consumer Loan Services Manager   MELANIE S. RABER Officer, Commercial Loan Documentation Supervisor   LISA M. SCHONAUER Assistant Vice President, Banking Center Manager   REBECCA J. SHULTZ Assistant Vice President, Loan Officer   A. CLAY SINNETT Assistant Vice President, Commercial Banker   BUD STEBBINS Senior Vice President, Senior Loan Officer   EDDIE L. STEINER Chairman, President, Chief Executive Officer STEVEN J. STIFFLER Vice President, Commercial Banker   JULIE A. STITZLEIN Officer/BSA/AML, Compliance Analyst   ERIC D. STROUSE Vice President, Commercial Banker   ELAINE A. TEDROW Assistant Vice President, Banking Center Manager   JENNIFER M. THORPE Assistant Vice President, Senior Credit Analyst   WILLIAM R. TINLIN Vice President, Recovery, Right To Financial Privacy Officer   JEANETTE TROYER Assistant Vice President, Banking Center Manager   ASHLEY E. VAUGHN Officer, Banking Center Manager   ALICIA R. WALLACE Vice President, Commercial Banker   ALYSSA A. WALLER Assistant Vice President, Marketing Manager   MICHAEL D. WORKMAN Vice President, Mortgage Loan Officer, Small Business Lender   BRADLEY R. YODER Vice President, Commercial Banker   CRYSTAL R. YODER Operations Officer

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

SHAREHOLDERS AND GENERAL INQUIRIES

CORPORATE OFFICE
91 North Clay Street, Millersburg, Ohio	330.674.9015 or 800.654.9015

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

COMPUTERSHARE

Shareholder Services

P.O. Box 30170

College Station, Texas 77842-3170

800.368.5948

www.computershare.com/investor

PEGGY L. CONN

Corporate Secretary

CSB Bancorp, Inc.

91 North Clay Street

Millersburg, Ohio 44654

330.674.9015

800.654.9015

LEGAL COUNSEL

Vorys, Sater, Seymour and Pease LLP

52 East Gay Street

P.O. Box 1008

Columbus, Ohio 43216

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

STACY ANDERSON

Cetera Investment Executive

Cetera Rep on Demand on behalf of The Commercial & Savings Bank

330.763.2853

800.720.5848 (option 1, ext. 4)

stacy.anderson@ceterais.com

SWENEY CARTWRIGHT & CO.

17 South High Street, Suite 300

Columbus, Ohio 43215

800.334.7481

CSB Bancorp, Inc. is required to file an annual report on Form10-K annually with the Securities and Exchange Commission. A copy of our Annual Report on Form10-K is available on our website after it is filed with the SEC. Copies of the Form10-K Annual Report and the Company’s quarterly reports will be furnished, free of charge, to shareholders by written request to:

PAULA J. MEILER

Chief Financial Officer

CSB Bancorp, Inc.

91 North Clay Street

Millersburg, Ohio 44654

330.674.9015

800.654.9015

2016 Report to Shareholders  |  CSB Bancorp, Inc.

61

BANKING CENTER INFORMATION

THE COMMERCIAL & SAVINGS BANK
Information & Customer Service	330.674.9015 or 1.800.654.9015
24 Hour Online Phone Banking	330.674.2720 or 1.888.438.2720
24 Hour Online Banking, Billpay & Mobile	www.csb1.com
Loan Services 91 North Clay Street, Millersburg	330.674.9015 or 1.800.654.9015
Operations Center91 North Clay Street, Millersburg	330.674.9015
Investment Services91 South Clay Street, Millersburg	330.674.2397
Trust Services 91 North Clay Street, Millersburg	Holmes, Stark & Tuscarawas Counties 330.674.2397
Trust Services 405 East Liberty Street, Wooster	Wayne County330.263.1955
CSB BANKING CENTERS

HOLMES REGION
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
Millersburg Clinton Commons Banking Center2102 Glen Drive, Millersburg(Drive-Up ATM)	330.674.2265
Millersburg South Clay Banking Center91 South Clay Street, Millersburg(Drive-Up ATM)	330.674.0687
Walnut Creek Banking Center4980 Olde Pump Street, Walnut Creek(Walk-Up ATM)	330.893.2961
Winesburg Banking Center2225 U.S. 62, Winesburg(Drive-Up ATM)	330.359.5543
STARK REGION
North Canton Banking Center1210 North Main Street, North Canton(Drive-Up ATM)	330.497.0839
TUSCARAWAS REGION
Gnadenhutten Banking Center100 South Walnut Street, Gnadenhutten(Drive-Up ATM)	740.254.4313
New Philadelphia Banking Center635 West High Avenue, New Philadelphia(Drive-Up ATM)	330.308.4867
Sugarcreek Banking Center127 South Broadway, Sugarcreek(Drive-Up ATM)	330.852.4444
WAYNE REGION
Orrville Area Banking Center461 Wadsworth Road, Orrville(Drive-Up ATM)	330.682.8000
Orrville High Street Banking Center330 West High Street, Orrville(Drive-Up ATM)	330.682.8001
Shreve Banking Center333 West South Street, Shreve(Drive-Up ATM)	330.567.2226
Wooster Downtown Banking Center405 East Liberty Street, Wooster(Drive-Up ATM)	330.263.1955
Wooster Milltown Banking Center3562 Commerce Parkway, Wooster(Drive-Up ATM)	330.345.2031

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

CSB CSB BANCORP, INC.
Relationships
you can bank on.
In 2017 we will continue to build on our momentum towards excellence. We will aim to attract and retain great talent to serve as local experts in our markets. We will continue to enhance our capabilities to provide the best level of customized service and high-touch technology. And we will execute with prudent business practices and principled growth. Corporate citizenship and community involvement lie at the heart of our organization. We invite you and those within our markets into our network of relationships — among customers, employees, and shareholders — that contribute to the well-being and satisfaction of a community and its residents. Our strong community bank is laser focused on improvement and reaching toward enduring greatness.
2016 Report to Shareholders | CSB Bancorp, Inc. 63

CSB
CSB BANCORP, INC.
www.csb1.com