CSB Bancorp, Inc. - Quarter Report: 2005 September (Form 10-Q)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

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

CSB Bancorp, Inc.

(Exact name of registrant as specified in its charter)

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

(Address of principal executive offices)

(330) 674-9015
(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

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

Yes o No þ

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

Common stock, $6.25 par value		Outstanding at October 30, 2005 2,644,952 common shares

 

 

CSB BANCORP, INC.
FORM 10-Q
QUARTER ENDED September 30, 2005

Table of Contents

		Page
Part I — Financial Information
ITEM 1 — FINANCIAL STATEMENTS (unaudited)
Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004			3
Consolidated Statements of Income for the three and nine months ended September 30, 2005 and 2004			4
Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2005 and 2004			5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004			6
Notes to Consolidated Financial Statements			7
ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			10
ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			15
ITEM 4 — CONTROLS AND PROCEDURES			16
Part II — Other Information
ITEM 1 — Legal Proceedings			17
2 - Unregistered Sales of Equity Securities and Use of Proceeds			17
3 - Defaults upon Senior Securities			17
4 - Submission of Matters to a Vote of Security Holders			17
5 - Other Information			17
6 - Exhibits			18
Signatures			19
Exhibit 11 Statement Regarding Computation of Per Share Earnings
Exhibit 31.1 302 Certification for CEO
Exhibit 31.2 302 Certification for CFO
Exhibit 32.1 906 Certification for CEO
Exhibit 32.2 906 Certification for CFO

CSB BANCORP, INC.

PART I — FINANCIAL INFORMATION

ITEM 1. — FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(Unaudited)

		September 30,				December 31,
		2005				2004
ASSETS
Cash and due from banks		$	11,938,439			$	12,501,954
Interest-bearing deposits with other banks			91,548				142,338
Federal funds sold			8,100,000				3,000,000
Total cash and cash equivalents			20,129,987				15,644,292
Securities available-for-sale, at fair value			69,239,311				73,438,070
Loans			218,576,725				218,084,479
Less allowance for loan loans			2,443,973				2,574,945
Net loans			216,132,752				215,509,534
Premises and equipment, net			7,803,867				7,709,439
Restricted stock, at cost			2,908,800				2,790,400
Accrued interest receivable and other assets			3,196,799				2,248,608
Total assets		$	319,411,516			$	317,340,343
LIABILITIES
Deposits
Noninterest-bearing		$	37,906,796			$	41,733,596
Interest-bearing			217,838,198				206,217,123
Total deposits			255,744,994				247,950,719
Securities sold under repurchase agreements			12,659,268				13,316,473
Federal Home Loan Bank borrowings			13,184,171				18,745,236
Federal funds purchased
Accrued interest payable and other liabilities			1,430,951				1,120,408
Total liabilities			283,019,384				281,132,836
SHAREHOLDERS’ EQUITY
Common stock, $6.25 par value: Authorized 9,000,000 shares; issued 2,667,786 shares			16,673,667				16,673,667
Additional paid-in capital			6,413,915				6,413,915
Retained earnings			14,217,302				13,358,321
Treasury stock at cost: 22,834 shares in 2005 and 22,824 shares in 2004			(627,290	)			(627,119	)
Accumulated other comprehensive income			(285,462	)			388,723
Total shareholders’ equity			36,392,132				36,207,507
Total liabilities and shareholders’ equity		$	319,411,516			$	317,340,343

See notes to unaudited consolidated financial statements.

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2005				2004				2005				2004
Interest income
Loans, including fees		$	3,730,451			$	3,017,681			$	10,558,039			$	8,968,176
Taxable securities			534,281				383,818				1,571,472				1,028,665
Non-taxable securities			160,315				363,553				486,913				1,176,470
Other			46,720				7,110				48,287				10,318
Total interest income			4,471,767				3,743,434				12,664,711				11,183,629
Interest expense
Deposits			1,102,453				794,678				2,965,344				2,418,174
Other			155,365				165,770				528,287				481,624
Total interest expense			1,257,818				960,448				3,493,631				2,899,798
Net interest income			3,213,949				2,811,714				9,171,080				8,283,831
Provision for loan losses			70,666				250,000				282,664				422,621
Net interest income after provision for loan losses			3,143,283				2,561,714				8,888,416				7,861,210
Non-interest income
Service charges on deposit accounts			230,162				232,594				676,906				626,078
Gain on sale of securities			—				559,156				247,047				585,016
Trust and financial services			113,021				77,553				351,057				285,536
Other income			194,929				213,088				597,220				656,306
Total non-interest income			538,112				1,082,391				1,872,230				2,152,936
Non-interest expenses
Salaries and employee benefits			1,424,205				1,377,792				4,174,377				3,925,133
Occupancy expense			168,936				160,867				514,583				481,698
Equipment expense			135,968				130,912				385,067				390,131
State franchise tax			106,801				107,255				319,379				312,273
Professional and director fees			187,126				189,749				495,124				562,141
Other expenses			685,986				706,702				2,131,186				2,052,001
Total non-interest expenses			2,709,022				2,673,277				8,019,716				7,723,377
Income before income taxes			972,373				970,828				2,740,930				2,290,769
Federal income tax provision			283,000				224,000				771,000				416,000
Net income		$	689,373			$	746,828			$	1,969,930			$	1,874,769
Basic and diluted earnings per share		$	0.26			$	0.28			$	0.74			$	0.71

See notes to unaudited consolidated financial statements.

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2005				2004				2005				2004
Balance at beginning of period		$	36,469,250			$	34,553,933			$	36,207,507			$	34,717,538
Comprehensive income (loss):
Net income			689,373				746,828				1,969,930				1,874,769
Change in net unrealized gain (loss), net of reclassification adjustments and related income taxes			(395,881	)			1,299,450				(674,185	)			695,434
Total comprehensive income			293,492				2,046,278				1,295,745				2,570,203
Issuance of shares from treasury (0 and 6 shares in 2005, 612 and 612 shares issued in 2004)							11,375				121				11,375
Purchase of treasury shares			(315	)							(355	)
Cash dividends declared ($0.14 and $0.42 per share in 2005, and $0.13 and $0.39 per share in 2004)			(370,295	)			(343,846	)			(1,110,886	)			(1,031,376	)
Balance at end of period		$	36,392,132			$	36,267,740			$	36,392,132			$	36,267,740

See notes to unaudited consolidated financial statements.

CSB BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		Nine Months Ended
		September 30,
		2005				2004
Net cash from operating activities		$	2,469,543			$	1,999,065
Cash flows from investing activities
Securities available-for-sale:
Proceeds from maturities, calls and repayments			3,839,926				17,957,850
Proceeds from sales			5,098,433				11,927,185
Purchases			(5,560,218	)			(31,951,741	)
Securities held to maturity:
Proceeds from maturities, calls and repayments			—				3,812,000
Net change in loans			(1,429,163	)			(1,880,998	)
Premises and equipment expenditures, net			(542,440	)			(278,746	)
Purchase of restricted stock			118,400				73,200
Net cash provided by (used for) investing activities			1,524,938				(341,250	)
Cash flows from financing activities
Net change in deposits			7,794,275				(9,388,568	)
Net change in securities sold under repurchase agreements			(657,205	)			1,015,524
Proceeds from FHLB borrowings			—				10,000,000
Principal reductions on FHLB borrowings, net			(5,561,065	)			(639,118	)
Purchase of treasury shares							(355	)
Cash dividends paid			(1,084,436	)			(992,978	)
Net cash provided by (used for) financing activities			491,214				(5,140	)
Net change in cash and cash equivalents			4,485,695				1,652,675
Cash and cash equivalents at beginning of period			15,644,292				17,201,381
Cash and cash equivalents at end of period		$	20,129,987			$	18,854,056
Supplemental disclosures
Interest paid		$	3,478,684			$	2,917,830
Income taxes paid			515,000				360,000
Non-cash investing activity-transfer of loans to OREO			625,000
Transfer of securities from held-to-maturity to available for sale							31,681,132

See notes to unaudited consolidated financial statements.

CSB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

The 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 September 30, 2005, 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 generally accepted accounting principles have been omitted. The Annual Report for CSB for the year ended December 31, 2004, 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 period ended September 30, 2005 are not necessarily indicative of the operating results for the full year or any future interim period.

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

NOTE 2 — SECURITIES

Securities consist of the following at September 30, 2005 and December 31, 2004:

September 30, 2005

						Gross				Gross
		Amortized				unrealized				unrealized				Fair
		cost				gains				losses				Value
Available-for-sale:
U.S. Treasury security		$	99,924				—			$	1,111			$	98,813
Obligations of U.S. government corporations and agencies			36,991,627			$	808				518,833				36,473,602
Obligations of states and political subdivisions			13,614,432				347,148				1,826				13,959,754
Mortgage-backed securities			18,703,499				7,442				258,190				18,452,751
Total Debt Securities			69,409,482				355,398				258,190				68,984,920
Equity Securities			262,348				—				7,957				254,391
Total available-for-sale		$	69,671,830			$	355,398			$	787,917			$	69,239,311

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 2 — SECURITIES (continued)

December 31, 2004

						Gross				Gross
		Amortized				unrealized				unrealized				Fair
		cost				gains				losses				Value
Available-for-sale:
U.S. Treasury security		$	101,551			$	32,277							$	133,828
Obligations of U.S. government corporations and agencies			39,458,087				38,527			$	282,074				39,214,540
Mortgage-backed securities			16,291,492				9,347				72,876				16,227,963
Obligations of states and political subdivisions			16,997,965				863,774				—				17,861,739
Total available-for-sale		$	72,849,095			$	943,925			$	354,950			$	73,438,070

NOTE 3 — RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“FAS No. 123R”). FAS No. 123R revised FAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. FAS No. 123R will require compensation costs related to share-based payment transactions to be recognized in the financial statement (with limited exceptions). The amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. Compensation cost will be recognized over the period that an employee provides service in exchange for the award.

In April, the Securities and Exchange Commission (“SEC”) adopted a new rule that amends the compliance dates for FAS No. 123R. The Statement requires that compensation cost relating to share-based payment transactions be recognized in financial statements and that this cost be measured based on the fair value of the equity or liability instruments issued. FAS No. 123R covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. The Company will adopt FAS No. 123R on January 1, 2006 and is currently evaluating the impact the adoption of the standard will have on the Company’s results of operations.

In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB No. 107”), Share-Based Payment, providing guidance on option valuation methods, the accounting for income tax effects of share-based payment arrangements upon adoption of FAS No. 123R, and the disclosures in Management’s Discussion and Analysis of Financial Condition and Results of Operations subsequent to the adoption. The Company will provide SAB No. 107 required

CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 3 — RECENT ACCOUNTING PRONOUNCEMENTS (continued)

disclosures upon adoption of FAS No. 123R on January 1, 2006 and does not expect the impact of the adoption of the standard to have a material effect on the Company’s financial condition, results of operations, and cash flows.

In December 2004, FASB issued Financial Accounting Standards No. 153 (“FAS No 153”), Exchanges of Nonmonetary Assets — An Amendment of APB Opinion No. 29. The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. FAS No. 153 amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of FAS No. 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Early application is permitted and companies must apply the standard prospectively. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.

In June 2005, the FASB issued Financial Accounting Standards No. 154 (“FAS No 154”), Accounting Changes and Errors Corrections, a replacement of APB Opinion No. 20 and FAS No. 3. The Statement applies to all voluntary changes in accounting principle changes the requirements for accounting for and reporting of a change in accounting principle. FAS No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impractical. APB Opinion No. 20 previously required that most voluntary changes in accounting principles be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. FAS No.154 improves the financial reporting because its requirements enhance the consistency of financial reporting between periods. The provisions of FAS No. 154 are effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.

CSB BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

The following discussion focuses on the consolidated financial condition of CSB Bancorp, Inc. and its subsidiary at September 30, 2005, compared to December 31, 2004, and the consolidated results of operations for the nine-month and quarterly periods ending September 30, 2005 compared to the same periods in 2004. The purpose of this discussion is to provide the reader with a more thorough understanding of the consolidated financial statements. This discussion should be read in conjunction with the interim consolidated financial statements and related footnotes.

FORWARD — LOOKING STATEMENTS

Certain statements contained in this report that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties. When used herein, the terms “anticipates,” “plans,” “expects,” “believes,” and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. The Company’s actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, and rapidly changing technology affecting financial services.

The Company does not undertake, and specifically disclaims any obligation, to publicly revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

FINANCIAL CONDITION

Total assets were $319.4 million at September 30, 2005, compared to $317.3 million at December 31, 2004, representing an increase of $2.1 million or .7%. Cash and cash equivalents increased $4.5 million or 28.7%, during the nine-month period ending September 30, 2005, due to a $.6 million decrease in cash and due from banks and a $5.1 million increase in Federal funds sold. Securities decreased $4.2 million or 5.7% during the first nine months of 2005 primarily as a result of the sale of $5.1 million of securities during the first quarter of 2005. Net loans increased $.6 million or .3% while deposits increased $7.8 million or 3.1% and Federal Home Loan Bank borrowings decreased $5.6 million (29.7%), during the nine-month period ended September 30, 2005.

CSB BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net loans increased $.6 million, or .3% during the nine-month period ended September 30, 2005. This increase was due to a combination of increased loan demand and production within the Company’s market area. The allowance for loan losses amounted to $2,444,000, or 1.12% of total loans at September 30, 2005, compared to $2,575,000 or 1.18% of total loans at December 31, 2004. The decrease in the allowance for loan losses as a percentage of total loans is largely due to the charge-off and transfer of two large problem credits in 2005. During the second quarter of 2005, property securing two commercial loans was obtained through foreclosure resulting in net loan charge-offs of $410,000 and a transfer of $625,000 to Other Real Estate owned. The components of the change in the allowance for loan losses during the nine-month period ended September 30, 2005 included a provision of $283,000 and net loan charge-offs of $414,000. Loans past due more than 90 days and still accruing interest and loans placed on nonaccrual status aggregated $783,000, or .36% of total loans at September 30, 2005, compared to $1,671,000 or 0.8% of total loans at December 31, 2004.

The ratio of net loans to deposits was 84.5% at September 30, 2005, compared to 86.9% at December 31, 2004. The decrease in this ratio is due to deposit growth exceeding loan growth during the nine months ended September 30, 2005.

The Company had net unrealized losses of $433,000 within its securities portfolio at September 30, 2005 compared to net unrealized gains of $167,000 at June 30, 2005 and net unrealized gains of $589,000 at December 31, 2004. Management has considered industry analyst reports, sector credit reports and the volatility within the bond market in concluding that the gross unrealized losses of $788,000 within the portfolio as of September 30, 2005 were primarily the result of customary and expected fluctuations in the bond market. As a result, all security impairments as of September 30, 2005 are considered temporary.

The decrease in Federal Home Loan Bank borrowings resulted from the repayment of a $5 million maturing advance. Other liquidity sources, consisting of securities sold under repurchase agreements and federal funds purchased, decreased a combined $.7 million.

Total shareholders’ equity amounted to $36.4 million or 11.4% of total assets, at September 30, 2005, compared to $36.2 million, or 11.4% of total assets, at December 31, 2004. The increase in shareholders’ equity during the nine months ended September 30, 2005 was due to net income of $1,970,000, partially offset by dividends declared of $1,111,000 and a decrease in unrealized gain on available-for-sale securities, net of tax, of $674,000. The Company and its subsidiary met all regulatory capital requirements at September 30, 2005.

CSB BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Three months ended September 30, 2005 and 2004

For the quarter ended September 30, 2005, the Company recorded net income of $689,000, or $.26 per share, as compared to net income of $747,000 or $.28 per share for the quarter ended September 30, 2004. The decrease in net income for the quarter of $58,000 was principally due to a decrease of $559,000 from gain on the sale of securities, a $36,000 increase in non-interest expenses, a $59,000 increase in federal income tax provision, offset by a $402,000 increase in net interest income and decrease of $179,000 to the provision for loan losses.

Interest income for the quarter ended September 30, 2005 was $4,472,000 representing a $728,000 increase or 19.5%, compared to the same period in 2004. This increase was primarily due to an increase in loan interest rates. Interest expense for the quarter ended September 30, 2005 was $1,258,000, an increase of $297,000, or 31.0%, from the same period in 2004. The increase in interest expense occurred due to an increase in the average rate paid on all interest-bearing liabilities.

The provision for loan losses for the quarter ended September 30, 2005 was $71,000, compared to a $250,000 provision for the same quarter in 2004. The provision for loan losses is determined based on management’s calculation of the allowance for loan losses, which includes provisions for classified loans, as well as for the remainder of the portfolio based on historical data, including past charge-offs, and current economic trends.

Non-interest income for the quarter ended September 30, 2005 was $538,000, a decrease of $544,000, or 50.3%, compared to the same quarter in 2004. This decrease was primarily due to the Company recognizing $559,000 in gain on sale of securities during the third quarter 2004 as compared to no gain recognized during 2005. These decreases were offset by an increase in trust and brokerage income of $65,000.

Non-interest expenses for the quarter ended September 30, 2005 increased $36,000, or 1.3%, compared to the third quarter of 2004. This increase was due primarily to the increase of $46,000 in salary and employee benefits with an overall increase in full-time equivalents and medical benefit expense.

Nine months ended September 30, 2005 and 2004

Net income for the nine months ending September 30, 2005, was $1,970,000 or $.74 per share, as compared to $1,875,000 or $.71 per share during the same period in 2004. Return on average assets and return on average equity were .84% and 7.24%, respectively, for the nine-month period of 2005 compared to .80% and 7.17%, respectively, for 2004.

CSB BANCORP, INC.

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

Net interest income was $9,171,000 for the nine months ended September 30, 2005, an increase of $887,000 or 10.7% from the same period last year. Total non-interest expenses increased $296,000 or 3.8%, for the nine-month period ended September 30, 2005, as compared to the same period in 2004, while non-interest income decreased $281,000, or 13.0%, primarily as a result of decreased gains on the sale of securities of $338,000. The provision for loan losses decreased $140,000 for the nine-month period ended September 30, 2005, as compared to same period in 2004.

Interest income for the nine months ended September 30, 2005, was $12,665,000, an increase of $1,481,000 or 13.2% from the same period in 2004. Interest income on loans increased $1,590,000 or 17.7% for the nine months ended September 30, 2005 as compared to the same period in 2004. This increase was primarily due to an increase of 82 basis points on average loan rates coupled with an overall increase in average gross loan balances of $5.5 million. Interest income on securities decreased $147,000, or 6.7%, as average investment balances declined $3.9 million and were used to fund loan growth.

Interest expense increased $594,000, or 20.5%, to $3,494,000 for the nine months ended September 30, 2005, compared to the nine months ended September 30, 2004. Interest expense on deposits increased $547,000 or 22.6%, from the same period of last year, while interest expense on other borrowings increased $47,000 or 9.7%. The increase in deposit interest expense was caused by the higher rates on all interest bearing deposit accounts, due to a rising interest rate environment. The net interest margin improved by 21 basis points for the nine-month period ended September 30, 2005, to 4.28% from 4.07% for the same period in 2004.

The provision for loan losses was $283,000 during the first nine months of 2005, compared to $423,000 in the same nine-month period in 2004. The provision for loan losses is determined based on management’s calculation 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 decreased $281,000, or 13.1%, during the nine months ended September 30, 2005, as compared to the same period in 2004. The decrease in non-interest income was primarily due to a decrease of $338,000 on sale of securities in 2005, partially offset by a $51,000 increase in service charges on deposit accounts. Non-interest expenses increased $296,000, or 3.8%, for the nine months ended September 30, 2005, compared to the same period in 2004. Salaries and employee benefits increased $249,000 or 6.3% as a result of increased staffing, and increased employee medical benefit costs. Professional and director fees decreased $67,000 or 11.9%, primarily as a result of discontinuing the use of several third-party consultants. Other expense increased $79,000 during the first nine months of 2005, partially as a

CSB BANCORP, INC.

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

result of two robberies at a branch office and the resulting increase security costs following those robberies. The bank has also recognized increased costs of the Trust Department expansion in Wooster, Ohio.

The provision for income taxes was $771,000 (effective rate of 28.1%) for the nine months ended September 30, 2005, compared to $416,000 (effective rate of 18.2%) for the nine months ended September 30, 2004. The increase in the effective tax rate resulted from a decrease in tax-exempt interest income as a portion of total income before income taxes.

LIQUIDITY

Liquidity refers to the Company’s ability to generate sufficient cash to fund current loan demand, meet deposit withdrawals, pay operating expenses and meet other obligations. The Company’s primary sources of liquidity are cash and cash equivalents, which totaled $20.1 million at September 30, 2005 an increase of $4.5 million from $15.6 million at December 31, 2004. Net income, securities available-for-sale, and loan repayments also serve as sources of liquidity. Cash and cash equivalents and securities maturing within one year represent 10.1% of total assets as of September 30, 2005 compared to 7.9% of total assets at year-end 2004. Other sources of liquidity include, but are not limited to, purchase of federal funds, advances from the FHLB, adjustments of interest rates to attract deposits, and borrowing at the Federal Reserve discount window. Management believes that its sources of liquidity are adequate to meet the needs of the Company.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements (as such term is defined in applicable Securities and Exchange Commission rules) that are reasonable likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

CONTRACTUAL OBLIGATIONS

During the first nine months of 2005, the Company’s contractual obligations have not changed materially from those discussed in the Company’s Annual Report of Form 10-K for the year ended December 31, 2004.

CSB BANCORP, INC.

ITEM 3 QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the quantitative and qualitative disclosures about market risks as of September 30, 2005 from that presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004. Management performs a quarterly analysis of the Company’s interest rate risk. All positions are currently within the Board-approved policy.

The following table presents an analysis of the estimated sensitivity of the Company’s annual net interest income to sudden and sustained 100 basis point changes in market interest rates at September 30, 2005 and December 31, 2004:

		September 30, 2005
Changes in
Interest Rates		Net Interest		Dollar		Percentage
(basis points)		Income		Change		Change
(Dollars in Thousands)
+200		$14,819		$1,420		10.6%
+100		14,040		641		4.8
0		13,399		0		0.0
-100		12,821		(578)		(4.3)
-200		12,080		(1,319)		(9.8)

		December 31, 2004
Changes in
Interest Rates		Net Interest		Dollar		Percentage
(basis points)		Income		Change		Change
(Dollars in Thousands)
+200		$13,598		$1,455		12.0%
+100		12,812		669		4.9
0		12,143		0		0.0
-100		11,526		(617)		(5.1)
-200		10,762		(1,381)		(11.4)

CSB BANCORP, INC.

ITEM 4 CONTROLS AND PROCEDURES

With the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that:

(a) information required to be disclosed by the Company in this Quarterly Report on Form 10-Q would be accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure;

(b) information required to be disclosed by the Company in this Quarterly Report on Form 10-Q would be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and

(c) the Company’s disclosure controls and procedures are effective as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that material information relating to the Company and its consolidated subsidiary is made known to them, particularly during the period for which our periodic reports, including this Quarterly Report on Form 10-Q, are being prepared.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes during the period covered by this Quarterly Report on Form 10-Q in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting

CSB BANCORP, INC.
FORM 10-Q
Quarter ended September 30, 2005

PART — II OTHER INFORMATION

Item 1 — Legal Proceedings:

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

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds:

Issuer Purchase of Equity Securities

Maximum

Total Number of

Number of Shares

Total Number

Average

Shares Purchased

that May Yet be

of Shares

Price Paid

as Part of Publicly

Purchased Under

Period

Purchased

Per Share

Announced Plans

the Plan

July 1, 2005 to July 31, 2005

4.00

$

21.05

4.00

264,492

August 1, 2005 to August 31, 2005

8.51

21.53

8.51

264,483

September 1, 2005 to September 30, 2005

None

None

None

264,483

On July 7, 2005 CSB Bancorp, Inc. filed Form 8-k with the Securities and Exchange Commission announcing that its Board of Directors approved a Stock Repurchase Program authorizing the repurchase of up to 10% of the Company’s common shares outstanding. Repurchases will be made from time to time as market and business conditions warrant, in the open market, through block purchases and in negotiated private transactions.

Item 3 — Defaults Upon Senior Securities:

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

Item 4 — Submission of Matters to a Vote of Security Holders:

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

Item 5 — Other Information:

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

CSB BANCORP, INC.
FORM 10-Q
Quarter ended September 30, 2005
PART — II OTHER INFORMATION (continued)

Item 6 -

Exhibits:

		Exhibit
		Number				Description of Document
			11			Statement Regarding Computation of Per Share Earnings (reference is hereby made to Consolidated Statements of Income on page 4 hereof.)
			31.1			Rule 13a-14(a)/15d-14(a) CEO’s Certification
			31.2			Rule 13a-14(a)/15d-14(a) CFO’s Certification
			32.1			Section 1350 CEO’s Certification
			32.2			Section 1350 CFO’s Certification

CSB BANCORP, INC.

SIGNATURES

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

CSB BANCORP, INC.
Index to Exhibits

Exhibit				Sequential
Number		Description of Document		Page
11		Statement Regarding Computation of Per Share Earnings (reference is hereby made to Consolidated Statements of Income on page 4 hereof.)
31.1		Rule 13a-14(a)/15d-14(a) CEO’s Certification
31.2		Rule 13a-14(a)/15d-14(a) CFO’s Certification
32.1		Section 1350 CEO’s Certification
32.2		Section 1350 CFO’s Certification