CSB Bancorp (CSBB) 10-Q 2018 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

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

For the quarterly period ended: June 30, 2018

OR

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

Commission file number:0-21714

CSB Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Ohio	34-1687530
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

91 North Clay, P.O. Box 232, Millersburg, Ohio 44654

(Address of principal executive offices)

(330)674-9015

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule12b-2 of the Exchange Act. (Check one):

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule12b-2 of the Securities Exchange Act of 1934(§240.12b-2 of this chapter).

Emerging growth company    ☐

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

Indicate the number of shares outstanding of the registrant’s common stock, as of the latest practicable date.

Common stock, $6.25 par value	Outstanding at August 1, 2018:
	2,742,242 common shares

CSB BANCORP, INC.

FORM10-Q

QUARTER ENDED JUNE  30, 2018

Table of Contents

	Page
ITEM 1 – FINANCIAL STATEMENTS (Unaudited)
Consolidated Balance Sheets		3
Consolidated Statements of Income		4
Consolidated Statements of Comprehensive Income		5
Condensed Consolidated Statements of Changes in Shareholders’ Equity		6
Condensed Consolidated Statements of Cash Flows		7
Notes to Consolidated Financial Statements		8
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		28
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		35
ITEM 4 – CONTROLS AND PROCEDURES		36
Part II—Other Information
ITEM 1 – Legal Proceedings		37
ITEM 1A – Risk Factors		37
ITEM 2 – Unregistered Sales of Equity Securities and Use of Proceeds		37
ITEM 3 – Defaults upon Senior Securities		37
ITEM 4 – Mine Safety Disclosures		37
ITEM 5 – Other Information		37
ITEM 6 – Exhibits		38
Signatures		39

2

CSB BANCORP, INC.

PART I – FINANCIAL INFORMATION

ITEM 1. – FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands)	June 30, 2018			December 31, 2017
ASSETS
Cash and cash equivalents
Cash and due from banks	$	14,956		$	17,255
Interest-earning deposits in other banks		28,275			19,165
Total cash and cash equivalents		43,231			36,420
Securities
Available-for-sale, at fair value		90,808			97,663
Held-to-maturity (fair value 2018-$21,173; 2017-$25,491)		21,882			25,758
Equity Securities		94			89
Restricted stock, at cost		4,614			4,614
Total securities		117,398			128,124
Loans held for sale		100			246
Loans		535,427			516,830
Less allowance for loan losses		5,918			5,604
Net loans		529,509			511,226
Premises and equipment, net		9,563			9,244
Core deposit intangible		217			268
Goodwill		4,728			4,728
Bank-owned life insurance		13,384			13,218
Accrued interest receivable and other assets		5,169			3,589
TOTAL ASSETS	$	723,299		$	707,063
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Deposits
Noninterest-bearing	$	178,343		$	173,671
Interest-bearing		416,730			409,588
Total deposits		595,073			583,259
Short-term borrowings		44,155			39,480
Other borrowings		8,827			11,409
Accrued interest payable and other liabilities		2,666			2,383
Total liabilities		650,721			636,531
SHAREHOLDERS’ EQUITY
Common stock, $6.25 par value. Authorized 9,000,000 shares; issued 2,980,602 shares; outstanding (shares 2018 and 2017—2,742,242)		18,629			18,629
Additionalpaid-in capital		9,815			9,815
Retained earnings		50,736			47,535
Treasury stock at cost (shares 2018 and 2017—238,360)		(4,784	)		(4,784	)
Accumulated other comprehensive loss		(1,818	)		(663	)
Total shareholders’ equity		72,578			70,532
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	723,299		$	707,063

See notes to unaudited consolidated financial statements.

3

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in thousands, except per share data)	2018		2017			2018		2017
INTEREST AND DIVIDEND INCOME
Loans, including fees	$	6,515	$	5,584		$	12,654	$	11,033
Taxable securities		594		598			1,197		1,196
Nontaxable securities		152		174			313		339
Other		83		57			129		91
Total interest and dividend income		7,344		6,413			14,293		12,659
INTEREST EXPENSE
Deposits		560		307			1,014		574
Short-term borrowings		84		35			138		57
Other borrowings		48		121			100		216
Total interest expense		692		463			1,252		847
NET INTEREST INCOME		6,652		5,950			13,041		11,812
PROVISION FOR LOAN LOSSES		324		845			648		685
Net interest income, after provision for loan losses		6,328		5,105			12,393		11,127
NONINTEREST INCOME
Service charges on deposit accounts		300		268			584		559
Trust services		217		152			436		359
Debit card interchange fees		323		296			636		584
Gain on sale of loans, net		60		61			137		103
Earnings on bank owned life insurance		85		86			166		184
Unrealized gain or loss on equity securities		—		—			4		—
Other income		183		197			350		377
Total noninterest income		1,168		1,060			2,313		2,166
NONINTEREST EXPENSES
Salaries and employee benefits		2,718		2,472			5,355		4,931
Occupancy expense		214		214			434		424
Equipment expense		160		171			316		341
Professional and director fees		239		234			551		403
Financial institutions and franchise tax expense		142		127			284		258
Marketing and public relations		119		89			239		167
Software expense		221		203			434		413
Debit card expense		126		141			242		271
Amortization of intangible assets		25		29			50		58
FDIC insurance expense		72		52			147		103
Provision (reversal) for unfunded loan commitments		—		(540	)		—		—
Other expenses		583		496			1,104		965
Total noninterest expenses		4,619		3,688			9,156		8,334
Income before income taxes		2,877		2,477			5,550		4,959
FEDERAL INCOME TAX PROVISION		553		751			1,062		1,503
NET INCOME	$	2,324	$	1,726		$	4,488	$	3,456
Basic and diluted net earnings per share	$	0.85	$	0.63		$	1.64	$	1.26

See notes to unaudited consolidated financial statements

4

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2018			2017			2018			2017
Net income	$	2,324		$	1,726		$	4,488		$	3,456
Other comprehensive (loss) income
Unrealized (losses) gains arising during the period		(156	)		916			(1,467	)		1,386
Amounts reclassified from accumulated other comprehensive loss,held-to-maturity		20			26			41			58
Income tax effect		29			(321	)		300			(492	)
Other comprehensive (loss) income		(107	)		621			(1,126	)		952
Total comprehensive income	$	2,217		$	2,347		$	3,362		$	4,408

See notes to unaudited consolidated financial statements.

5

CSB BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands, except per share data)	2018			2017			2018			2017
Balance at beginning of period	$	71,019		$	66,927		$	70,532		$	65,415
Net income		2,324			1,726			4,488			3,456
Other comprehensive (loss) income		(107	)		621			(1,126	)		952
Cash dividends declared		(658	)		(548	)		(1,316	)		(1,097	)
Balance at end of period	$	72,578		$	68,726		$	72,578		$	68,726
Cash dividends declared per share	$	0.24		$	0.20		$	0.48		$	0.40

See notes to unaudited consolidated financial statements.

6

CSB BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
(Dollars in thousands)	2018			2017
NET CASH FROM OPERATING ACTIVITIES	$	4,023		$	3,024
CASH FLOWS FROM INVESTING ACTIVITIES
Securities:
Proceeds from repayments,available-for-sale		6,151			11,187
Proceeds from repayments,held-to-maturity		5,956			1,447
Purchases,available-for-sale		(992	)		(9,243	)
Purchases,held-to-maturity		(2,029	)		(4,700	)
Loan originations, net of repayments		(18,938	)		(22,820	)
Property, equipment, and software acquisitions		(639	)		(293	)
Proceeds from sale of other real estate		30			—
Net cash used in investing activities		(10,461	)		(24,422	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits		11,814			6,319
Net change in short-term borrowings		4,675			8,190
Proceeds from other borrowings		—			10,000
Repayment of other borrowings		(2,582	)		(604	)
Cash dividends paid		(658	)		(549	)
Net cash provided by financing activities		13,249			23,356
NET INCREASE IN CASH AND CASH EQUIVALENTS	$	6,811		$	1,958
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		36,420			36,838
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	43,231		$	38,796
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest	$	1,276		$	836
Income taxes		1,110			2,160
Noncash financing activities:
Dividends declared		658			548

See notes to unaudited consolidated financial statements.

7

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying condensed consolidated financial statements include the accounts of CSB Bancorp, Inc. and its wholly-owned subsidiaries, The Commercial and Savings Bank (the “Bank”) and CSB Investment Services, LLC (together referred to as the “Company” or “CSB”). All significant intercompany transactions and balances have been eliminated in consolidation.

The condensed consolidated financial statements have been prepared without audit. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present fairly the Company’s financial position at June 30, 2018, and the results of operations and changes in cash flows for the periods presented have been made.

Certain information and footnote disclosures typically included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been omitted. The Annual Report for CSB for the year ended December 31, 2017, contains Consolidated Financial Statements and related footnote disclosures, which should be read in conjunction with the accompanying Consolidated Financial Statements. The results of operations for the periods ended June 30, 2018 are not necessarily indicative of the operating results for the full year or any future interim period.

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

ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

ASU2014-09Effective January 1, 2018, the Company adopted ASU2014-09Revenue from Contracts with Customers – Topic 606and all subsequent ASUs that modified ASC 606. The Company has elected to apply the standard utilizing the modified retrospective approach with a cumulative effect of adoption for the impact fromuncompleted contracts at the date of adoption. The adoption of this guidance did not result in a change to the accounting for any of thein-scope revenue streams; as such, no cumulative effect adjustments were recorded.

Management determined that the primary sources of revenue emanating from interest and dividend income on loans and securities along with noninterest revenue resulting from investment security gains, loan servicing, gains on the sale of loans, commitment fees, fees from financial guarantees, certain credit cards fees, and income on bank-owned life insurance are not within the scope of ASC 606. As a result, no changes were made during the period related to these sources of revenue, which cumulatively comprise 88 percent of the total revenue of the Company. Services within the scope of ASC 606 include income from fiduciary activities, service charges on deposit accounts, other service income, ATM fees, interchange fees, and gain on sale of OREO, net.

Service charges on deposit accounts – the Bank has contracts with its deposit customers where fees are charged if the account balance falls below predetermined levels defined as compensating balances. These agreements can be cancelled at any time by either the Bank or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Bank has an unconditional right to the fee consideration. The Bank also has transaction fees related to specific transactions or activities resulting from a customer request or activity that include overdraft fees, online banking fees, and other transaction fees. All of these fees are attributable to specific performance obligations of the Bank where the revenue is recognized at a defined point in time, completion of the requested service/transaction.

Fiduciary/trust fees – Typical contracts for trust services are based on a fixed percentage of the assets earned ratably over a defined period and billed on a monthly or quarterly basis. Fees charged to customers’ accounts are recognized as revenue over the period during which the Bank fulfills its performance obligation under the contract (i.e., holding client asset in a managed fiduciary trust account). For these accounts, the performance obligation of the Bank is typically satisfied by holding and managing the customer’s assets over time. Other fees related to specific customer requests are attributable to specific performance obligations of the Bank where the revenue is recognized at a defined point in time, completion of the requested service/transaction.

8

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Interchange fees – The Bank is a member of Visa U.S.A. Inc. and receives interchange fees as a result of customer usage of Bank issued debit cards. The bank’s performance obligation is to provide debit cards for customers to use as a method of payment. Fees received are allocated by Visa and are a percentage of the transaction amount and also vary by the merchant where the card was used. Fees are recognized daily the day after the transaction is processed.

Brokerage commissions – Brokerage commissions are based on a percentage of the initial investment. Commissions on transactions are recognized monthly on a trade-date basis as the performance obligation is satisfied at the point in time in which the trade is processed.

ASU2016-01 - Recognition and Measurement of Financial Assets and Financial Liabilities.This Update and subsequent ASU’s set 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. Upon adoption on January 1, 2018, the Company made aone-time cumulative effect adjustment from accumulated other comprehensive income to retained earnings of $29 thousand. The net effect was an increase to retained earnings. Additional income of $4 thousand was recorded in 2018, as a result of changes to the accounting for equity investments. We have included the related new disclosure requirements in Note 6.

ASU2016-02 – Leases.This Update and all subsequent ASU’s that modified Topic 842 set 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. Based on the Company’s preliminary analysis of its current portfolio, the impact to the Company’s balance sheet is estimated to result in less than a 1 percent increase in assets and liabilities. This Update is not expected to have a significant impact on the Company’s financial statements.

9

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS                

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. Early adoption is permitted for annual and interim periods beginning after December 15, 2018. We expect the Update will result in an increase in the allowance for credit losses for the estimated life of the financial asset, including an estimate for debt securities. The amount of the increase will be impacted by the portfolio composition and quality at the adoption date, as well as economic conditions and forecasts at that time. A cumulative-effect adjustment to retained earnings is required as of the beginning of the year of adoption. The Company expects to recognize aone-time cumulative effect adjustment to the allowance for loan losses, but cannot yet determine the magnitude of any suchone-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

ASU2017-04 - Simplifying the Test for Goodwill Impairment.The Update simplifies the goodwill impairment test. Under the new guidance, Step 2 of the goodwill impairment process that requires an entity to determine the implied fair value of its goodwill by assigning fair value to all its assets and liabilities is eliminated. Instead, the entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new guidance is effective for annual and interim goodwill tests performed in fiscal years beginning after December 15, 2019. Early adoption is permitted. This Update is not expected to have a material impact on the Company’s financial statements.

ASU2018-02 - Income Statement – Reporting Comprehensive Income. This guidance allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act. On December 31, 2017, the Company adopted this standard which resulted in a reclassification of $109 thousand between accumulated other comprehensive loss and retained earnings on the consolidated balance sheet.

10

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 – SECURITIES

Securities consist of the following at June 30, 2018 and December 31, 2017:

(Dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
June 30, 2018
Available-for-sale
U.S. Treasury security	$	993	$	—	$	1	$	992
U.S. Government agencies		8,350		—		259		8,091
Mortgage-backed securities of government agencies		45,948		24		1,233		44,739
Asset-backed securities of government agencies		1,104		—		3		1,101
State and political subdivisions		26,419		47		349		26,117
Corporate bonds		10,003		3		238		9,768
Totalavailable-for-sale		92,817		74		2,083		90,808
Held-to-maturity
U.S. Government agencies		9,479		4		452		9,031
Mortgage-backed securities of government agencies		12,403		14		275		12,142
Totalheld-to-maturity		21,882		18		727		21,173
Equity securities		53		41		—		94
Restricted stock		4,614		—		—		4,614
Total securities	$	119,366	$	133	$	2,810	$	116,689
December 31, 2017
Available-for-sale
U.S. Treasury security	$	999	$	—	$	1	$	998
U.S. Government agencies		8,350		—		121		8,229
Mortgage-backed securities of government agencies		50,136		146		581		49,701
Asset-backed securities of government agencies		1,168		1		—		1,169
State and political subdivisions		27,020		224		103		27,141
Corporate bonds		10,532		35		142		10,425
Totalavailable-for-sale		98,205		406		948		97,663
Held-to-maturity
U.S. Government agencies		9,477		16		228		9,265
Mortgage-backed securities of government agencies		11,581		95		145		11,531
State and political subdivisions		4,700		—		5		4,695
Totalheld-to-maturity		25,758		111		378		25,491
Equity securities		53		36		—		89
Restricted stock		4,614		—		—		4,614
Total securities	$	128,630	$	553	$	1,326	$	127,857

11

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 – SECURITIES(CONTINUED)

The amortized cost and fair value of debt securities at June 30, 2018, 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	$	5,068	$	5,060
Due after one through five years		16,684		16,467
Due after five through ten years		28,245		27,683
Due after ten years		42,820		41,598
Total debt securitiesavailable-for-sale	$	92,817	$	90,808
Held-to-maturity
Due in one year or less	$	—	$	—
Due after one through five years		481		485
Due after five through ten years		3,000		2,811
Due after ten years		18,401		17,877
Total debt securitiesheld-to-maturity	$	21,882	$	21,173

Securities with a fair value of approximately $96 million and $94 million were pledged at June 30, 2018 and December 31, 2017, respectively, to secure public deposits, as well as other deposits and borrowings as required or permitted by law.

Restricted stock primarily consists of investments in Federal Home Loan Bank of Cincinnati (FHLB) and Federal Reserve Bank stock. The Bank’s investment in FHLB stock amounted to approximately $4.1 million at June 30, 2018 and December 31, 2017. Federal Reserve Bank stock was $471 thousand at June 30, 2018 and December 31, 2017.

There were no proceeds from sales of securities for the three or six month periods ending June 30, 2018 and 2017.

12

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 – SECURITIES (CONTINUED)

The following table presents gross unrealized losses and fair value of securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2018 and December 31, 2017:

	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
June 30, 2018Available-for-sale
U.S. Treasury security	$	1	$	992	$	—	$	—	$	1	$	992
U.S. Government agencies		56		1,944		203		6,147		259		8,091
Mortgage-backed securities of government agencies		460		25,360		773		17,787		1,233		43,147
Asset-backed securities of government agencies		3		1,101		—		—		3		1,101
State and political subdivisions		177		12,944		172		3,643		349		16,587
Corporate bonds		64		6,464		174		2,326		238		8,790
Held-to-maturity
U.S. Government agencies		44		1,956		408		6,591		452		8,547
Mortgage-backed securities of government agencies		142		7,325		133		2,846		275		10,171
Total temporarily impaired securities	$	947	$	58,086	$	1,863	$	39,340	$	2,810	$	97,426
December 31, 2017
Available-for-sale
U.S. Treasury security	$	1	$	998	$	—	$	—	$	1	$	998
U.S. Government agencies		46		3,804		75		4,425		121		8,229
Mortgage-backed securities of government agencies		145		16,872		436		17,259		581		34,131
State and political subdivisions		26		4,400		77		3,752		103		8,152
Corporate bonds		2		2,912		140		2,360		142		5,272
Held-to-maturity
U.S. Government agencies		15		1,985		213		6,785		228		8,770
Mortgage-backed securities of government agencies		18		1,818		127		3,116		145		4,934
State and political subdivisions		5		4,695		—		—		5		4,695
Total temporarily impaired securities	$	258	$	37,484	$	1,068	$	37,697	$	1,326	$	75,181

There were 119 securities in an unrealized loss position at June 30, 2018,thirty-six (36) of which were in a continuous loss position for twelve months or more. At least quarterly, the Company conducts a comprehensive security-level impairment assessment. The assessments are based on the nature of the securities, the extent and duration of the securities in an unrealized loss position, the extent and duration of the loss and management’s intent to sell or if it is more likely than not that management will be required to sell a security before recovery of its amortized cost basis, which may be maturity. Management believes the Company will fully recover the cost of these securities. It does not intend to sell these securities and likely will not be required to sell them before the anticipated recovery of the remaining amortized cost basis, which may be maturity. As a result, management concluded that these securities were not other-than-temporarily impaired at June 30, 2018.

13

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS

Loans consist of the following:

(Dollars in thousands)	June 30, 2018		December 31, 2017
Commercial	$	142,019	$	140,273
Commercial real estate		182,034		179,663
Residential real estate		162,184		157,172
Construction & land development		30,706		22,886
Consumer		17,918		16,306
Total loans before deferred costs		534,861		516,300
Deferred loan costs		566		530
Total Loans	$	535,427	$	516,830

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 andnon-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

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

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

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 and lease rates, and financial analysis of the developers and property owners. Construction and land development loans are generally based upon estimates of costs and value associated with the completed project. These estimates may be inaccurate.

14

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS(CONTINUED)

Construction and land development loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may 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. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed, jointly by line and staff personnel. This activity, coupled with relatively small loan amounts that are spread across many individual borrowers, minimizes risk.

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

Loans serviced for others approximated $85.4 million and $82.7 million at June 30, 2018 and December 31, 2017, respectively.

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 commercial real estate loans. As of June 30, 2018 and December 31, 2017, there were no concentrations of loans related to any single industry.

Allowance for Loan Losses

The following tables detail activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2018 and 2017. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

The increase in the provision for loan losses for the six months ended June 30, 2018 related to commercial loans was primarily due to the increase in substandard loans in this category. The decrease in the provision related to commercial real estate loans is due to the decrease of loan delinquencies in this category. The increase in the provision related to consumer loans is primarily due to the increase loan volume and charge-offs of loans in this category.

The increase in the provision for loan losses for the three months ended June 30, 2017 related to commercial loans was primarily due to the increase in the specific allocation related to two commercial relationships. The decrease in the provision related to residential real estate is due to the improvement in the historical losses of loans in this category. The increase in the provision for loan losses related to commercial real estate was due to the increase in the specific allocation for one relationship, the increase in nonaccrual loans in this category and the increase of special mention loan balances. The decrease in the provision for loan losses for the six months ended June 30, 2017 related to commercial loans was primarily due to the recovery of prior loan charge-offs from one relationship.

15

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS(CONTINUED)

Summary of Allowance for Loan Losses

(Dollars in thousands)	Commercial			Commercial Real Estate			Residential Real Estate			Construction & Land Development		Consumer			Unallocated			Total
Three months ended June 30, 2018
Beginning balance	$	1,884		$	1,699		$	1,196		$	244	$	188		$	422		$	5,633
Provision for loan losses		(31	)		(87	)		39			35		107			261			324
Charge-offs		(9	)		0			0			0		(36	)					(45	)
Recoveries		5			0			1			0		0						6
Net charge-offs		(4	)		0			1			0		(36	)					(39	)
Ending balance	$	1,849		$	1,612		$	1,236		$	279	$	259		$	683		$	5,918
Six months ended June 30, 2018
Beginning balance	$	1,813		$	1,735		$	1,273		$	237	$	175		$	371		$	5,604
Provision for loan losses		226			(61	)		(1	)		42		130			312			648
Charge-offs		(203	)		(62	)		(37	)		0		(46	)					(348	)
Recoveries		13			0			1			0		0						14
Net charge-offs		(190	)		(62	)		(36	)		0		(46	)					(334	)
Ending balance	$	1,849		$	1,612		$	1,236		$	279	$	259		$	683		$	5,918
Three months ended June 30, 2017
Beginning balance	$	1,704		$	1,538		$	1,303		$	184	$	165		$	560		$	5,454
Provision for loan losses		675			180			(47	)		38		18			(19	)		845
Charge-offs		(32	)		—			—			—		(2	)					(34	)
Recoveries		15			—			8			—		1						24
Net charge-offs		(17	)		—			8			—		(1	)					(10	)
Ending balance	$	2,362		$	1,718		$	1,264		$	222	$	182		$	541		$	6,289
Six months ended June 30, 2017
Beginning balance	$	2,207		$	1,264		$	1,189		$	178	$	141		$	312		$	5,291
Provision for loan losses		(156	)		454			67			44		47			229			685
Charge-offs		(40	)		—			—			—		(7	)		—			(47	)
Recoveries		351			—			8			—		1			—			360
Net charge-offs		311			—			8			—		(6	)		—			313
Ending balance	$	2,362		$	1,718		$	1,264		$	222	$	182		$	541		$	6,289

16

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS(CONTINUED)

The following table presents the balance in the allowance for loan losses and the ending loan balances by portfolio class and based on the impairment method as of June 30, 2018 and December 31, 2017:

(Dollars in thousands)	Commercial		Commercial Real Estate		Residential Real Estate		Construction		Consumer		Unallocated		Total
June 30, 2018
Allowance for loan losses:
Individually evaluated for impairment	$	4	$	46	$	16	$	—	$	—	$	—	$	66
Collectively evaluated for impairment		1,845		1,566		1,220		279		259		683		5,852
Total ending allowance balance	$	1,849	$	1,612	$	1,236	$	279	$	259	$	683	$	5,918
Loans:
Loans individually evaluated for impairment	$	1,096	$	3,458	$	1,374	$	—	$	—			$	5,928
Loans collectively evaluated for impairment		140,923		178,576		160,810		30,706		17,918				528,933
Total ending loans balance	$	142,019	$	182,034	$	162,184	$	30,706	$	17,918			$	534,861
December 31, 2017
Allowance for loan losses:
Individually evaluated for impairment	$	74	$	151	$	19	$	—	$	—	$	—	$	244
Collectively evaluated for impairment		1,739		1,584		1,254		237		175		371		5,360
Total ending allowance balance	$	1,813	$	1,735	$	1,273	$	237	$	175	$	371	$	5,604
Loans:
Loans individually evaluated for impairment	$	1,726	$	4,686	$	1,470	$	—	$	—			$	7,882
Loans collectively evaluated for impairment		138,547		174,977		155,702		22,886		16,306				508,418
Total ending loans balance	$	140,273	$	179,663	$	157,172	$	22,886	$	16,306			$	516,300

17

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS(CONTINUED)

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2018 and December 31, 2017:

(Dollars in thousands)	Unpaid Principal Balance		Recorded Investment with no Allowance		Recorded Investment with Allowance		Total Recorded Investment		Related Allowance
June 30, 2018
Commercial	$	2,722	$	1,093	$	4	$	1,097	$	4
Commercial real estate		3,656		3,145		319		3,464		46
Residential real estate		1,525		1,019		359		1,378		16
Total impaired loans	$	7,903	$	5,257	$	682	$	5,939	$	66
December 31, 2017
Commercial	$	3,352	$	1,329	$	399	$	1,728	$	74
Commercial real estate		4,826		3,117		1,566		4,683		151
Residential real estate		1,654		1,119		352		1,471		19
Total impaired loans	$	9,832	$	5,565	$	2,317	$	7,882	$	244

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

	Three months				Six months
	ended June 30,				ended June 30,
(Dollars in thousands)	2018		2017		2018		2017
Average recorded investment:
Commercial	$	1,190	$	2,794	$	1,491	$	3,505
Commercial real estate		2,700		3,600		3,595		2,019
Residential real estate		1,131		1,540		1,287		1,514
Average recorded investment in impaired loans	$	5,021	$	7,934	$	6,373	$	7,038
Interest income recognized:
Commercial	$	10	$	17	$	21	$	31
Commercial real estate		4		2		8		2
Residential real estate		12		15		26		30
Interest income recognized on a cash basis on impaired loans	$	26	$	34	$	55	$	63

18

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS(CONTINUED)

The following table presents the aging of past due loans and nonaccrual loans as of June 30, 2018 and December 31, 2017 by class of loans:

(Dollars in thousands)	Current		30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days + Past Due		Non-Accrual		Total Past Due and Non-Accrual		Total Loans
June 30, 2018
Commercial	$	141,180	$	43	$	75	$	—	$	721	$	839	$	142,019
Commercial real estate		178,927		55		—		—		3,052		3,107		182,034
Residential real estate		160,667		585		326		82		524		1,517		162,184
Construction & land development		30,706		—		—		—		—		—		30,706
Consumer		17,706		111		81		—		20		212		17,918
Total Loans	$	529,186	$	794	$	482	$	82	$	4,317	$	5,675	$	534,861
December 31, 2017
Commercial	$	138,908	$	148	$	65	$	—	$	1,152	$	1,365	$	140,273
Commercial real estate		175,062		177		—		40		4,384		4,601		179,663
Residential real estate		155,488		757		38		401		488		1,684		157,172
Construction & land development		22,886		—		—		—		—		—		22,886
Consumer		16,048		193		8		—		57		258		16,306
Total Loans	$	508,392	$	1,275	$	111	$	441	$	6,081	$	7,908	$	516,300

19

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS(CONTINUED)

Troubled Debt Restructurings

All troubled debt restructurings (“TDR’s) are individually evaluated for impairment and a related allowance is recorded, as needed. Loans whose terms have been modified as TDR’s totaled $2.8 million as of June 30, 2018, and $2.9 million as of December 31, 2017, with $38 thousand of specific reserves allocated to those loans for both periods. At June 30, 2018, $1.9 million of the loans classified as TDR’s were performing in accordance with their modified terms. Of the remaining $833 thousand, all were in nonaccrual of interest status.    

The Company held no other real estate at June 30, 2018 or December 31, 2017. Consumer mortgage loans in the process of foreclosure were $35 thousand at June 30, 2018 and $114 thousand at December 31, 2017.

(Dollars in thousands)	Number of loans restructured		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
For the three months ended June 30, 2018
Commercial		1	$	200	$	200
Total Restructured Loans		1	$	200	$	200
For the six months ended June 30, 2018
Commercial		1	$	200	$	200
Total Restructured Loans		1	$	200	$	200
For the three months ended June 30, 2017
Commercial Real Estate		4	$	288	$	288
Residential Real Estate		1		14		14
Total Restructured Loans		5	$	302	$	302
For the six months ended June 30, 2017
Commercial Real Estate		4	$	288	$	288
Residential Real Estate		1		14		14
Total Restructured Loans		5	$	302	$	302

The loans restructured were modified by changing the monthly payment to interest only and extending the maturity dates. No principal reductions were made. There was one commercial loan in the amount of $3.3 million that was restructured in the fourth quarter of 2016 that defaulted in the second quarter of 2017.

20

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS(CONTINUED)

Credit Quality Indicators

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

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

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

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Loans listed as not rated are either less than $300 thousand or are included in groups of homogeneous loans. Based on the most recent analysis performed, the risk category of loans by class is as follows as of June 30, 2018 and December 31, 2017:

(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Not Rated		Total
June 30, 2018
Commercial	$	119,590	$	4,850	$	16,564	$	—	$	1,015	$	142,019
Commercial real estate		164,149		8,834		7,858		—		1,193		182,034
Residential real estate		200		—		266		—		161,718		162,184
Construction & land development		26,614		—		—		—		4,092		30,706
Consumer		—		—		21		—		17,897		17,918
Total	$	310,553	$	13,684	$	24,709	$	—	$	185,915	$	534,861
December 31, 2017
Commercial	$	116,833	$	13,685	$	8,841	$	—	$	914	$	140,273
Commercial real estate		162,012		8,220		8,620		—		811		179,663
Residential real estate		205		—		470		—		156,497		157,172
Construction & land development		18,493		880		—		—		3,513		22,886
Consumer		—		—		57		—		16,249		16,306
Total	$	297,543	$	22,785	$	17,988	$	—	$	177,984	$	516,300

21

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – LOANS(CONTINUED)

The following table presents loans that are not rated by class of loans as of June 30, 2018 and December 31, 2017. Nonperforming loans include loans past due 90 days or more and loans on nonaccrual of interest status.    

(Dollars in thousands)	Performing		Non-Performing		Total
June 30, 2018
Commercial	$	1,015	$	—	$	1,015
Commercial real estate		1,193		—		1,193
Residential real estate		161,112		606		161,718
Construction & land development		4,092		—		4,092
Consumer		17,877		20		17,897
Total	$	185,289	$	626	$	185,915
December 31, 2017
Commercial	$	914	$	—	$	914
Commercial real estate		811		—		811
Residential real estate		155,608		889		156,497
Construction & land development		3,513		—		3,513
Consumer		16,249		57		16,306
Total	$	177,095	$	946	$	178,041

NOTE 4 – SHORT-TERM BORROWINGS

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

	Remaining Contractual Maturity
	Overnight and Continuous
	June 30,		December 31,
(Dollars in thousands)	2018		2017
Securities of U.S. Government Agencies and mortgage-backed securities of government agencies pledged, fair value	$	44,343	$	39,637
Repurchase agreements		44,155		39,480

NOTE 5 – FAIR VALUE MEASUREMENTS

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

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

22

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5- FAIR VALUE MEASUREMENTS(CONTINUED)

The following table presents the assets reported on the Consolidated Balance Sheets at their fair value on a recurring basis as of June 30, 2018 and December 31, 2017 by level within the fair value hierarchy. No liabilities are carried at fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Equity securities with readily determinable values and U.S. Treasury Notes are valued at the closing price reported on the active market on which the individual securities are traded. Obligations of U.S. government agencies, mortgage-backed securities, asset-backed securities, obligations of states and political subdivisions and corporate bonds are valued at observable market data for similar assets. Equity securities without readily determinable values are carried at amortized cost adjusted for impairment and observable price changes.

(Dollars in thousands)	Level I		Level II		Level III		Total
June 30, 2018
Assets:
Securitiesavailable-for-sale
U.S. Treasury security	$	992	$	—	$	—	$	992
U.S. Government agencies		—		8,091		—		8,091
Mortgage-backed securities of government agencies		—		44,739		—		44,739
Asset-backed securities of government agencies		—		1,101		—		1,101
State and political subdivisions		—		26,117		—		26,117
Corporate bonds		—		9,768		—		9,768
Totalavailable-for-sale securities	$	992	$	89,816	$	—	$	90,808
Equity securities	$	48	$	—	$	46	$	94
December 31, 2017
Assets:
Securitiesavailable-for-sale
U.S. Treasury security	$	998	$	—	$	—	$	998
U.S. Government agencies		—		8,229		—		8,229
Mortgage-backed securities of government agencies		—		49,701		—		49,701
Asset-backed securities of government agencies		—		1,169		—		1,169
State and political subdivisions		—		27,141		—		27,141
Corporate bonds		—		10,425		—		10,425
Totalavailable-for-sale securities	$	998	$	96,665	$	—	$	97,663
Equity securities	$	89	$	—	$	—	$	89

The following table presents the assets measured on a nonrecurring basis on the Consolidated Balance Sheets at their fair value as of June 30, 2018 and December 31, 2017, by level within the fair value hierarchy. Impaired loans are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral that secure the impaired loans include: quoted market prices for identical assets classified as Level I inputs; and observable inputs, employed by certified appraisers, for similar assets classified as Level II inputs. In cases where valuation techniques included inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level III inputs.

23

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5- FAIR VALUE MEASUREMENTS(CONTINUED)

(Dollars in thousands)	Level I		Level II		Level III		Total
June 30, 2018
Assets measured on a nonrecurring basis:
Impaired loans	$	—	$	—	$	616	$	616
December 31, 2017
Assets measured on a nonrecurring basis:
Impaired loans	$	—	$	—	$	2,073	$	2,073

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)
June 30, 2018
Impaired loans	$	583	Discounted cash flow	Remaining term Discount rate		1.7 yrs to 27 yrs / (14.4 yrs) 3.5% to 7.5% / (5.1%)
		33	Appraisal of collateral (1)	Appraisal adjustments (2)Liquidation expense(2)		25% to 100% (85%) 10%
December 31, 2017
Impaired loans	$	551	Discounted cash flow	Remaining term Discount rate		4 mos to 24.5 yrs / (12.7 yrs) 4.4% to 7.5% /(5.3%)
		1,522	Appraisal of collateral (1)	Appraisal adjustments (2) Liquidation expense(2)		6% to 100% (7%) 10%

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

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

24

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 6 – FAIR VALUES OF FINANCIAL INSTRUMENTS

The fair values of recognized financial instruments as of June 30, 2018 and December 31, 2017 are as follows:

(Dollars in thousands)	Carrying Value		Level I		Level II		Level III		Fair Value
June 30, 2018
Financial assets
Cash and cash equivalents	$	43,231	$	43,231	$	—	$	—	$	43,231
Securitiesavailable-for-sale		90,808		992		89,816		—		90,808
Securitiesheld-to-maturity		21,882		—		21,173		—		21,173
Equity securities		94		48		—		46		94
Restricted stock		4,614		N/A		N/A		N/A		N/A
Loans held for sale		100		100		—		—		100
Net loans		529,509		—		—		524,812		524,812
Bank-owned life insurance		13,384		13,384		—		—		13,384
Accrued interest receivable		1,555		1,555		—		—		1,555
Mortgage servicing rights		270		—		—		270		270
Financial liabilities
Deposits	$	595,073	$	478,654	$	—	$	114,027	$	592,681
Short-term borrowings		44,155		44,155		—		—		44,155
Other borrowings		8,827		—		—		8,136		8,136
Accrued interest payable		66		66		—		—		66
December 31, 2017
Financial assets
Cash and cash equivalents	$	36,420	$	36,420	$	—	$	—	$	36,420
Securitiesavailable-for-sale		97,663		998		96,665		—		97,663
Securitiesheld-to-maturity		25,758		—		25,491		—		25,491
Equity securities		89		89		—		—		89
Restricted stock		4,614		N/A		N/A		N/A		N/A
Loans held for sale		246		246		—		—		246
Net loans		511,226		—		—		513,106		513,106
Bank-owned life insurance		13,218		13,218		—		—		13,218
Accrued interest receivable		1,545		1,545		—		—		1,545
Mortgage servicing rights		270		—		—		270		270
Financial liabilities
Deposits	$	583,259	$	473,467	$	—	$	110,224	$	583,691
Short-term borrowings		39,480		39,480		—		—		39,480
Other borrowings		11,409		—		—		10,365		10,365

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

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

The fair value of the above instruments is considered to be carrying value, classified as Level I in the fair value hierarchy.

25

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 6 – FAIR VALUES OF FINANCIAL INSTRUMENTS(CONTINUED)

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.

Equity investments with a readily determinable value are classified as Level I and equity investments without a readily determinable value are classified as Level III. The following table presents the carrying amount of equity investments without readily determinable fair values, the annual and cumulative amount of impairment, and the annual and cumulative amount of observable price changes for orderly transactions for the identical or a similar investment of the same issuer:

	June 30, 2018
(Dollars in thousands)	Year-to-Date		Life-to-Date
Amortized cost	$	44	$	44
Impairment		—		—
Observable price changes		2		2
Carrying value	$	46	$	46

Net loans

Effective first quarter 2018 the fair value of loans were determined using an exit price methodology as prescribed by ASU2016-01.The exit price estimation of fair value is based on the future value of expected cash flows. The projected cash flows are based on the contractual terms of the loans, adjusted for prepayments and use of a current market rate based on the relative credit risk of the loan. In addition, an incremental liquidity discount is applied. In comparison, loan fair values as of December 31, 2017 were estimated based on an entrance price methodology. As a result the fair value adjustments as of June 30, 2018 and December 31, 2017 are not comparable, classified as Level III.

Bank-owned life insurance

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

Restricted stock

Restricted stock includes Federal Home Loan Bank Stock and Federal Reserve Bank Stock. It is not practicable to determine the fair value of regulatory equity securities due to restrictions placed on their transferability.

Mortgage servicing rights

The fair value of mortgage servicing rights is based on a valuation model that calculates the present value of estimated net servicing income. The valuation model incorporates discounted cash flow and repayment assumptions based on management’s best judgment, classified as Level III.

Deposits

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

Other borrowings

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

26

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 6 – FAIR VALUES OF FINANCIAL INSTRUMENTS(CONTINUED)

The Company also has unrecognized financial instruments at June 30, 2018 and December 31, 2017. These financial instruments relate to commitments to extend credit and letters of credit. The aggregated contract

amount of such financial instruments was approximately $174.7 million at June 30, 2018 and $178.2 million at December 31, 2017. Such amounts are also considered to be the fair values.

The fair value estimates of financial instruments are made at a specific point in time based on relevant market information. 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 estimatesare subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates.

NOTE 7- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the changes in accumulated other comprehensive income (loss) by component net of tax for the three and six month periods ended June 30, 2018 and 2017:

(Dollars in thousands)	Pretax			Tax Effect			After-tax
Three months ended June 30, 2018
Balance as of March 31, 2018	$	(2,165	)	$	454		$	(1,711	)
Unrealized holding loss onavailable-for-sale securities arising during the period		(156	)		33			(123	)
Amortization ofheld-to-maturity discount resulting from transfer		20			(4	)		16
Total other comprehensive income		(136	)		29			(107	)
Balance as of June 30, 2018	$	(2,301	)	$	483		$	(1,818	)
Six months ended June 30, 2018
Balance as of December 31, 2017	$	(839	)	$	176		$	(663	)
Unrealized holding loss onavailable-for-sale securities arising during the period		(1,539	)		323			(1,216	)
Reclassify equity AOCI gain to retained earnings		36			(7	)		29
Amortization ofheld-to-maturity discount resulting from transfer		41			(9	)		32
Total other comprehensive income		(1,462	)		307			(1,155	)
Balance as of June 30, 2018	$	(2,301	)	$	483		$	(1,818	)
Three months ended June 30, 2017
Balance as of March 31, 2017	$	(821	)	$	278		$	(543	)
Unrealized holding gain onavailable-for-sale securities arising during the period		916			(312	)		604
Amortization ofheld-to-maturity discount resulting from transfer		26			(9	)		17
Total other comprehensive income		942			(321	)		621
Balance as of June 30, 2017	$	121		$	(43	)	$	78
Six months ended June 30, 2017
Balance as of December 31, 2016	$	(1,323	)	$	449		$	(874	)
Unrealized holding gain onavailable-for-sale securities arising during the period		1,386			(471	)		915
Amortization ofheld-to-maturity discount resulting from transfer		58			(21	)		37
Total other comprehensive income		1,444			(492	)		952
Balance as of June 30, 2017	$	121		$	(43	)	$	78

27

CSB BANCORP, INC.

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

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis focuses on the consolidated financial condition of the Company at June 30, 2018 as compared to December 31, 2017, and the consolidated results of operations for the three and six month periods ended June 30, 2018 compared to the same periods in 2017. The purpose of this discussion is to provide the reader with a more thorough understanding of the Consolidated Financial Statements. This discussion should be read in conjunction with the interim Consolidated Financial Statements and related footnotes contained in Part I, Item 1 of this Quarterly Report.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report are not historical facts but rather are forward-looking statements that are subject to certain risks and uncertainties. When used herein, the terms “anticipates”, “plans”, “expects”, “believes”, and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company’s actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, and rapidly changing technology affecting financial services. Other factors not currently anticipated may also materially and adversely affect the Company’s results of operations, cash flows, and financial position. There can be no assurance that future results will meet expectations. While the Company believes that the forward-looking statements in this report are reasonable, the reader should not place undue reliance on any forward-looking statement.

The Company does not undertake, and specifically disclaims any obligation, to publicly revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except as may be required by applicable law.

FINANCIAL CONDITION

Total assets were $723 million at June 30, 2018 as compared to $707 million at December 31, 2017. During the six month period ended June 30, 2018, net loans increased $18 million. Cash and cash equivalents, and securities decreased $4 million. On the liability side, deposits and repurchase agreements increased by $16 million.

Net loans increased $18 million, or 4%, during the six months ended June 30, 2018. The increase occurred as demand for both business and consumer loans within the bank’s markets continued. The bank has added lending and operations staff to accommodate the increase in demand. Commercial loans including commercial real estate loans increased $4 million, or 1%, while construction and land development loans increased $8 million, or 34%. Residential real estate loans increased $5 million, or 3%, and consumer loans increased $1 million, or 10%, from December 31, 2017. Home purchase activity has increased and consumers continued to refinance their mortgage loans for historically low long-term fixed rates. Residential mortgage loan originations for the six months ended June 30, 2018 were $31 million and for June 30, 2017 were $29 million. Originations sold into the secondary market were $5 million and $4 million, respectively during the six month periods ended June 30, 2018 and June 30, 2017. The Bank originates and sells primarily fixed-rate thirty year mortgages into the secondary market.

The allowance for loan losses as a percentage of total loans was 1.11% at June 30, 2018 as compared to 1.08% at December 31, 2017. Outstanding loan balances increased 4% to $535 million at June 30, 2018. The allowance for loan losses increased to $5.9 million at June 30, 2018 following a provision of $324 thousand and net charge-offs of $39 thousand for the current quarter.

28

CSB BANCORP, INC.

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

Nonaccrual loans decreased during the first six months of 2018. For the six months ending June 30, 2018 loans totaling $212 thousand were placed on nonaccrual status, there were $313 thousand in charge-downs recognized, and pay downs of $1.2 million were received. The decrease in nonaccrual loans was primarily due to the resolution of a $1.7 million credit facility.

	June 30,			December 31,			June 30,
(Dollars in thousands)	2018			2017			2017
Non-performing loans	$	4,399		$	6,522		$	6,036
Other real estate		—			—			—
Allowance for loan losses		5,918			5,604			6,289
Total loans		535,427			516,830			498,625
Allowance: Loans		1.11	%		1.08	%		1.26	%
Allowance:Non-performing loans		1.3	x		0.9	x		1.0	x

The ratio of gross loans to deposits was 90.0% at June 30, 2018, compared to 88.6% at December 31, 2017.

The Company has no exposure to government-sponsored enterprise preferred stocks, collateralized debt obligations, or trust preferred securities. Management has considered industry analyst reports, sector credit reports, and the volatility within the bond market in concluding that the gross unrealized losses of $2.8 million within theavailable-for-sale andheld-to-maturity portfolios as of June 30, 2018, were primarily the result of customary and expected fluctuations in the bond market and not necessarily the expected cash flows of the individual securities. As a result, all security impairments on June 30, 2018, are considered temporary and no impairment loss relating to these securities has been recognized.

Deposits increased $12 million, or 2%, from December 31, 2017 with noninterest bearing deposits increasing $5 million and interest-bearing deposit accounts increasing $7 million, or 2%. Total deposits as of June 30, 2018 are $48 million greater than June 30, 2017 deposit balances. On a year over year comparison, increases were recognized in noninterest-bearing demand deposits of $9 million, interest-bearing demand deposits of $25 million, savings of $8 million, and time deposits of $6 million while a decrease was recognized in money market accounts of $224 thousand.

Short-term borrowings consisting of overnight repurchase agreements with retail customers increased $5 million to $44 million at June 30, 2018 as compared to December 31, 2017 and other borrowings decreased $3 million as the Company repaid FHLB advances.

Total shareholders’ equity amounted to $72.6 million, or 10%, of total assets at June 30, 2018 up slightly from December 31, 2017. The increase in shareholders’ equity during the six months ending June 30, 2018 was due to net income of $4.5 million offset by an increase in accumulated other comprehensive loss of $1.1 million and dividends declared of $1.3 million. The Company and the Bank met all regulatory capital requirements at June 30, 2018.

RESULTS OF OPERATIONS

Three months ended June 30, 2018 and 2017

For the quarters ended June 30, 2018 and 2017, the Company recorded net income of $2.3 million and $1.7 million and $.85 and $.63 per share, respectively. The $598 thousand increase in net income for the quarter was primarily the result of a $702 thousand increase in net interest income, an increase of $108 thousand in other noninterest income, a decrease in the provision for loan losses of $521 thousand, and a $198 thousand reduction in federal income tax provision. The increases were partially offset by an increase of $931 thousand in other noninterest expenses.

Return on average assets and return on average equity were 1.30% and 12.94%, respectively, for the three month period of 2018, compared to 1.01% and 10.15%, respectively for the same quarter in 2017.

29

CSB BANCORP, INC.

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

Average Balance Sheets and Net Interest Margin Analysis

	For the three months ended June 30,
	2018					2017
(Dollars in thousands)	Average balance		Average rate			Average balance		Average rate
ASSETS
Interest-earning deposits in other banks	$	19,960		1.61	%	$	22,859		1.00	%
Federal funds sold		621		1.74			410		0.98
Taxable securities		93,170		2.57			101,158		2.37
Tax-exempt securities		26,096		2.92			32,073		3.26
Loans		534,852		4.89			490,359		4.57
Total earning assets		674,699		4.39	%		646,859		4.04	%
Other assets		41,203					39,544
TOTAL ASSETS	$	715,902				$	686,403
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing demand deposits	$	118,506		0.30	%	$	90,002		0.06	%
Savings deposits		181,097		0.33			170,438		0.17
Time deposits		116,824		1.11			111,637		0.79
Other borrowed funds		52,592		1.01			73,276		0.85
Total interest bearing liabilities		469,019		0.59	%		445,353		0.42	%
Non-interest bearing demand deposits		172,784					170,231
Other liabilities		2,060					2,635
Shareholders’ Equity		72,039					68,184
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	715,902				$	686,403
Taxable equivalent net interest spread				3.80	%				3.62	%
Taxable equivalent net interest margin				3.98	%				3.75	%

Interest income for the quarter ended June 30, 2018, was $7.3 million representing a $931 thousand increase, or a 15% improvement, compared to the same period in 2017. This increase was primarily due to average loan volume increasing $44 million for the quarter ended June 30, 2018 as compared to the second quarter 2017. Interest expense for the quarter ended June 30, 2018 was $692 thousand, an increase of $229 thousand, or 49%, from the same period in 2017. The increase in interest expense occurred primarily due to an increase in rate on all interest-bearing liabilities for the quarter ended June 30, 2018.

For the quarter ended June 30, 2018, the provision for loan losses was $324 thousand, compared to a provision of $845 thousand provision for the same quarter in 2017. For more discussion see Financial Condition. The provision for loan losses is determined based on management’s calculation of the adequacy of the allowance for loan losses, which includes provisions for classified loans as well as for the remainder of the portfolio based on historical data, including past charge-offs and current economic trends.

Noninterest income for the quarter ended June 30, 2018, was $1.2 million, an increase of $108 thousand, or 10%, compared to the same quarter in 2017. Service charges on deposit accounts increased $32 thousand, or 12%, compared to the same quarter in 2017 primarily from increases in overdraft fees. The gain on the sale of mortgage loans to the secondary market was stable at $60 thousand for the quarter ended June 30, 2018. Debit card interchange income increased $27 thousand, or 9%, with greater fee income in the second quarter of 2018. Fees from trust and brokerage services increased $65 thousand to $217 thousand for the second quarter 2018 as compared to the same quarter in 2017 following a realignment of both divisions in 2017.

30

CSB BANCORP, INC.

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

Noninterest expenses for the quarter ended June 30, 2018 increased $931 thousand, or 25%, compared to the second quarter of 2017. There was no provision for unfunded loan commitments in second quarter 2018 which was offset by a $540 thousand expense reversal for the quarter in 2017. Salaries and employee benefits increased $246 thousand, or 10%, a result of increases in employees, base salary, and other benefits. Marketing and public relations expense increased $30 thousand, or 34% primarily due to brand recognition initiatives and increased community support in the company’s market. Debit card expenses decreased $15 thousand, or 11%, compared to the second quarter 2017 due to the prior year replacement of all outstanding debit cards with EMV chip cards. Software expense rose $18 thousand quarter over quarter with additional investment. Occupancy expense was flat in 2018 over the second quarter of 2017. Professional and director fees increased $5 thousand for the quarter ended June 30, 2018 as compared to the second quarter 2017. The increase was primarily a result of increased legal fees for loan collections.

Federal income tax expense decreased $198 thousand, or 26%, for the quarter ended June 30, 2018 as compared to the second quarter of 2017. The provision for income taxes was $553 thousand (effective rate of 19%) for the quarter ended June 30, 2018, compared to $751 thousand (effective rate of 30%) for the same quarter ended 2017. The effective rate decreased as a result of the Tax Cuts and Jobs Act enacted on December 22, 2017.

RESULTS OF OPERATIONS

Six months ended June 30, 2018 and 2017

Net income for the six months ended June 30, 2018, was $4.5 million or $1.64 per share, as compared to $3.5 million or $1.26 per share during the same period in 2017. Return on average assets and return on average equity were 1.28% and 12.64%, respectively, for the six month period of 2018, compared to 1.03% and 10.34%, respectively for 2017.

Comparative net income increased as total interest and dividend income increased $1.6 million or 13% for the six month period in 2018 as compared to 2017. The provision for loan losses decreased $37 thousand, or 5%, during the same comparative period. Noninterest income increased $147 thousand, or 7%, to $2.3 million for the six month period ending in 2018 as compared to 2017. Noninterest expense increased to $9.2 million for the six months ended June 30, 2018, an increase of $822 thousand or 10% from the same period last year.

31

CSB BANCORP, INC.

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

Average Balance Sheet and Net Interest Margin Analysis

	For the six months ended June 30,
	2018					2017
(Dollars in thousands)	Average balance		Average rate			Average balance		Average rate
ASSETS
Due from banks-interest bearing	$	14,294		1.75	%	$	17,705		1.01	%
Federal funds sold		508		1.98			698		0.78
Taxable securities		94,449		2.56			101,932		2.37
Tax-exempt securities		27,419		2.90			31,373		3.30
Loans		531,107		4.81			485,534		4.59
Total earning assets		667,777		4.34	%		637,242		4.07	%
Other assets		40,421					39,413
TOTAL ASSETS	$	708,198				$	676,655
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest bearing demand deposits	$	117,475		0.26	%	$	86,169		0.06	%
Savings deposits		180,413		0.30			164,924		0.15
Time deposits		114,617		1.05			111,560		0.77
Other borrowed funds		52,708		0.91			65,781		0.84
Total interest bearing liabilities		465,213		0.54	%		428,434		0.40	%
Non-interest bearing demand deposits		169,071					168,727
Other liabilities		2,306					12,117
Shareholders’ Equity		71,608					67,377
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	708,198				$	676,655
Taxable equivalent net interest spread				3.80	%				3.67	%
Taxable equivalent net interest margin				3.97	%				3.80	%

Interest income on loans increased $1.6 million, or 15%, for the six months ended June 30, 2018, as compared to the same period in 2017. This increase was primarily due to an average loan volume increase of $46 million for the comparable six month periods. Interest income on securities decreased $25 thousand, or 2%, as the average volume of securities decreased $11 million, for the comparable six month periods. Interest income on fed funds sold and interest bearing deposits increased $38 thousand for the six months ended June 30, 2018 as the yield on fed funds sold and due from banks interest bearing balances increased 0.76%, compared to the same period in 2017.

Interest expense increased $405 thousand to $1.3 million for the six months ended June 30, 2018, compared to the same period in 2017. Interest expense on deposits increased $440 thousand, or 77%, from the same period as last year. Interest expense on short-term and other borrowings decreased $35 thousand, or 13%. The increase in interest expense has been caused by higher interest rates being paid on all deposits. Time deposits continue to renew at higher interest rates, and some depositors have moved monies to savings instruments anticipating higher interest rates. Competition for deposits appears to be increasing from a year ago with larger money center banks and community banks increasing rates offered for money market savings accounts. The net interest margin increased by 17 basis points for the six month period ended June 30, 2018, to 3.97%, from 3.80% for the same period in 2017. This margin increase is primarily the result of increased loan volume.

32

CSB BANCORP, INC.

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

The provision for loan losses was $648 thousand during the six months of 2018, compared to $685 thousand in the same six month period of 2017. The decrease in the provision for loan losses from a year ago reflects a 27% decrease in nonperforming loans to $4.4 million on a year over year basis. The provision for loan losses is determined based on management’s calculation of the adequacy of the allowance for loan losses, which includes provisions for classified loans as well as for the remainder of the portfolio based on historical data including past charge-offs and current economic trends.

Non-interest income increased $147 thousand during the six months ended June 30, 2018, as compared to the same period in 2017. Service charges on deposits increased $25 thousand from the same period in 2017 reflecting an increase in overdraft fees based on volume. Increases were recognized in gains on mortgage loans sold in the secondary market of $34 thousand, or 33%, trust and brokerage income of $77 thousand, or 21%, debit card interchange income of $52 thousand, or 9%, as a result of increased servicer revenue during the six months of 2018.

Non-interest expenses increased $822 thousand, or 10%, for the six months ended June 30, 2018, compared to the same period in 2017. Salaries and employee benefits increased $424 thousand, or 9%, primarily the result of salary, medical benefit, and retirement plan increases. Marketing and public relations expense increased $72 thousand, or 43%, primarily due to increased expenses related to brand recognition and community support in the company’s footprint in 2018. Professional fees increased $148 thousand, or 37%, as audit expense grew by $36 thousand on a year over year basis from the outsourcing of internal audit in 2017. Loan legal and collection fees were increased $73 thousand for the six month period ended June 30, 2018 with increased loan collection expense and a collection of prior period legal expenses in 2017. Software expense increased $21 thousand for the six month period in 2018 as compared to the same period in 2017. The Bank’s telephone and data line expense increased $7 thousand to $127 thousand for the six months ended 2018. Occupancy and equipment expense decreased $15 thousand, or 2%, reflecting a decrease in building lease expense and an increase in building rental income when compared to 2017.

The provision for income taxes of $1.1 million is $441 thousand lower for the six month period in 2018 compared to 2017 with the reduction in the effective rate resulting from the Tax Cuts and Jobs Act.

CAPITAL RESOURCES

The Company maintained a strong capital position with tangible common equity to tangible assets of 9.4% at June 30, 2018 compared with 9.3% at December 31, 2017.

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

Consistent with the Board of Director’s commitment to public confidence and safe and sound banking operations, capital targets and minimum risk-based capital ratios for CSB were established to maintain excess capital to well-capitalized standards. To be considered well-capitalized, an institution must have a total risk-based capital ratio of at least 10%, a tier 1 capital ratio of at least 8%, a leverage capital ratio of at least 5%, a CET1 ratio of at least 6.5%, and must not be subject to any order or directive requiring the institution to improve its capital level. An adequately capitalized institution has a total risk-based capital ratio of at least 8%, a tier 1 capital ratio of at least 6%, a CET1 ratio of at least 4.5%, and a leverage ratio of at least 4%.

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CSB BANCORP, INC.

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

Failure to meet specified minimum capital requirements could result in regulatory actions by the Federal Reserve or Ohio Division of Financial Institutions that could have a material effect on the Company’s financial condition or results of operations. Management believes there were no material changes to capital resources as presented in the Company’s Annual Report on Form10-K for the year ended December 31, 2017. As of June 30, 2018 the Company and the Bank met all capital adequacy requirements to which they were subject.

	Capital Ratios
	June 30, 2018			December 31, 2017
Common Equity Tier 1 Capital To Risk Weighted Assets
Consolidated		12.9	%		12.7	%
Bank		12.7	%		12.5	%
Tier 1 Capital To Risk Weighted Assets Ratio
Consolidated		12.9	%		12.7	%
Bank		12.7	%		12.5	%
Total Capital To Risk Weighted Assets Ratio
Consolidated		14.0	%		13.8	%
Bank		13.8	%		13.6	%
Tier 1 Leverage Ratio
Consolidated		9.7	%		9.3	%
Bank		9.6	%		9.2	%

LIQUIDITY

(Dollars in millions)	June 30, 2018			December 31, 2017			Change
Cash and cash equivalents	$	43		$	36		$	7
Unused lines of credit		86			82			4
Unpledged AFS securities at fair market value		16			31			(15	)
	$	145		$	149		$	(4	)
Net deposits and short-term liabilities	$	566		$	557		$	9
Liquidity ratio		25.6	%		26.8	%		(1.2	)
Minimum board approved liquidity ratio		20.0	%		20.0	%		—

Liquidity refers to the Company’s ability to generate sufficient cash to fund current loan demand, meet deposit withdrawals, pay operating expenses, and meet other obligations. Liquidity is monitored by the Company’s Asset Liability Committee. Other sources of liquidity include, but are not limited to, purchases of federal funds, advances from the FHLB, adjustments of interest rates to attract deposits, brokered deposits, and borrowing at the Federal Reserve discount window. Management believes that its sources of liquidity are adequate to meet cash flow obligations for the foreseeable future.

The liquidity ratio was 25.6% and 26.8% at June 30, 2018 and December 31, 2017.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have anyoff-balance sheet arrangements (as such term is defined in applicable Securities and Exchange Commission (the “Commission”) rules) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.

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CSB BANCORP, INC.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the quantitative and qualitative disclosures about market risks as of June 30, 2018, from the disclosures presented in the Company’s Annual Report on Form10-K for the fiscal year ended December 31, 2017.

Management performs a quarterly analysis of the Company’s interest rate risk over a twenty-four month horizon. The analysis includes two balance sheet models, one based on a static balance sheet and one on a dynamic balance sheet with projected growth in assets and liabilities. Minor variances with net interest income exceeding the board approved policy are being projected in the June 2018 dynamic balance sheet simulation coupled with immediate rate shocks. All other balance sheet positions and interest rate projections are currently within the Company’s board-approved policy.

The following table presents an analysis of the estimated sensitivity of the Company’s annual net interest income to sudden and sustained-200 through +400 basis point changes, in 100 basis point increments, in market interest rates at June 30, 2018 and-100 through +400 basis point changes at December 31, 2017. The net interest income reflected is for the first twelve month period of the modeled twenty-four month horizon. The underlying balance sheet for illustrative purposes is dynamic with projected growth in assets and liabilities.    

June 30, 2018
(Dollars in thousands)
Change in Interest Rates (basis points)	Net Interest Income		Dollar Change			Percentage Change			Board Policy Limits
+400	$	30,512	$	1,946			6.8	%		+/-25	%
+300		30,078		1,512			5.3			+/-15
+200		29,622		1,056			3.7			+/-10
+100		29,121		555			1.9			+/-5
0		28,566		—			—			—
-100		28,059		(507	)		(1.8	)		+/-5
-200		27,408		(1,158	)		(4.1	)		+/-10
December 31, 2017
+400	$	28,329	$	1,889			6.2	%		+/-25	%
+300		27,944		1,433			4.8			+/-15
+200		27,552		947			3.3			+/-10
+100		27,123		462			1.7			+/-5
0		26,663		—			—			—
-100		25,996		(667	)		(2.5	)		+/-5

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CSB BANCORP, INC.

CONTROLS AND PROCEDURES

ITEM 4 - CONTROLS AND PROCEDURES

With the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Quarterly Report on Form10-Q. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that:

(a) information required to be disclosed by the Company in this Quarterly Report on Form10-Q would be accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure;

(b) information required to be disclosed by the Company in this Quarterly Report on Form10-Q would be recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms; and

(c) the Company’s disclosure controls and procedures are effective as of the end of the period covered by this Quarterly Report on Form10-Q to ensure that material information relating to the Company and its consolidated subsidiary is made known to them, particularly during the period for which the Company’s periodic reports, including this Quarterly Report on Form10-Q, are being prepared.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes during the period covered by this Quarterly Report on Form10-Q in the Company’s internal control over financial reporting (as defined in Rule13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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CSB BANCORP, INC.

FORM10-Q

Quarter ended June  30, 2018

PART II – OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS.

In the opinion of management there are no outstanding legal proceedings that are reasonably likely to have a material adverse effect on the company’s financial condition or results of operations.

ITEM 1A - RISK FACTORS.

There have been no material changes to the Company’s risk factors from those disclosed in the Company’s Annual Report on Form10-K for the fiscal year ended December 31, 2017.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

On July 7, 2005 CSB Bancorp, Inc. filed Form8-K with the Commission announcing that its Board of Directors approved a Stock Repurchase Program authorizing the repurchase of up to 10% of the Company’s common shares then outstanding. Repurchases may be made from time to time as market and business conditions warrant, in the open market, through block purchases, and in negotiated private transactions. No repurchases were made during the quarterly period ended June 30, 2018.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4 - MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5 - OTHER INFORMATION.

Not applicable.

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CSB BANCORP, INC.

FORM10-Q

Quarter ended June 30, 2018

PART II – OTHER INFORMATION

ITEM 6 - Exhibits.

Exhibit Number	Description of Document
3.1	Amended Articles of Incorporation of CSB Bancorp, Inc. (incorporated by reference to the Registrant’s Quarterly Report on Form10-Q filed August 6, 2004, Exhibit 3.1, film number 04958544).
3.2	Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to the Registrant’s Form10-SB).
3.2.1	Amended Article VIII of the Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to Registrant’s Form DEF 14a filed on March 25, 2009, Appendix A, film number 09703970).
4.0	Specimen stock certificate (incorporated by reference to Registrant’s Form10-SB)(P).
11	Statement Regarding Computation of Per Share Earnings.
31.1	Rule13a-14(a)/15d-14(a) Chief Executive Officer’s Certification.
31.2	Rule13a-14(a)/15d-14(a) Chief Financial Officer’s Certification.
32.1	Section 1350 Chief Executive Officer’s Certification.
32.2	Section 1350 Chief Financial Officer’s Certification.
101	The following materials from the Company’s Quarterly Report on Form10-Q for the quarter ended June 30, 2018 formatted in XBRL (extensible Business Reporting Language): (i) Consolidated Balance Sheets: (ii) Consolidated Statements of Income: (iii) Consolidated Statements of Comprehensive Income: (iv) Condensed Consolidated Statements of Changes in Shareholders’ Equity: (v) Condensed Consolidated Statements of Cash Flows: and (vi) Notes to Consolidated Financial Statements.

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CSB BANCORP, INC.

INDEX TO EXHIBITS

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CSB BANCORP, INC.
	(Registrant)
Date: August 9, 2018	/s/ Eddie L. Steiner
	Eddie L. Steiner
	President
	Chief Executive Officer
Date: August 9, 2018	/s/ Paula J. Meiler
	Paula J. Meiler
	Senior Vice President
	Chief Financial Officer

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