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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended:  SEPTEMBER 30, 2002

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

(I.R.S. Employer Identification Number)

incorporation or organization)

6 W. Jackson Street, 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) 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.

X

Yes

No

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 25, 2002:

 2,631,912 common shares

CSB BANCORP, INC.

FORM 10-Q

QUARTER ENDED September 30, 2002

Table of Contents

Part I - Financial Information

ITEM 1 - FINANCIAL STATEMENTS

Page

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Changes in Shareholders' Equity

Condensed Consolidated Statements of Cash Flows

Notes to the Consolidated Financial Statements

ITEM 2 -

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

ITEM 4 –

CONTROLS AND PROCEDURES

Part II - Other Information

Other Information

Signatures

CSB BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

See note to consolidated financial statements.

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

See note to consolidated financial statements.

CSB BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

See note to consolidated financial statements.

CSB BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See note to consolidated financial statements.

CSB BANCORP, INC.

NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements include CSB Bancorp, Inc. and its wholly-owned subsidiary, The Commercial & Savings Bank (together referred to as “the Company”).  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, 2002, 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 the Company for the year ended December 31, 2001, 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, 2002, are not necessarily indicative of the operating results for the full year or any future interim period.

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 it’s wholly-owned subsidiary, The Commercial & Savings Bank ("the Bank"), collectively referred to as “the Company”, at September 30, 2002, compared to December 31, 2001, and the consolidated results of operations for the nine month and quarterly periods ending September 30, 2002 compared to the same periods in 2001.  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 footnote.

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 t echnology 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 $293.9 million at September 30, 2002, compared to $306.3 million at December 31, 2001, representing a decrease of $12.4 million or 4.1%. Cash and cash equivalents decreased $13.5 million, or 38.9%, during the nine month period ending September 30, 2002, including a $15.6 million decrease in Federal funds sold. Total securities decreased approximately $18.7 million, or 20.2%, during the nine month period.  

The decreases in cash and cash equivalents and securities were primarily used to fund cash outflows for deposits which decreased $21.5 million, or 8.5%, during the nine month period.  This outflow was partially due to the continued maturity of higher rate certificates of deposit in a low, but competitive, rate environment. Securities sold under repurchase agreements decreased $1.4  million, or 9.5%,  during  the  nine  month  period  ended  September  30, 2002.  During the

CSB BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

second quarter of 2002, the Bank borrowed $10.0 million from the Federal Home Bank of Cincinnati for an 18-month term as part of a strategy of the Bank’s Asset/Liability Committee to take advantage of low cost funding alternatives in the current interest rate environment.

Net loans increased $21.5 million, or 13.1% during the nine month period ended September 30, 2002.  This increase was due to a combination of increased loan production within the Bank’s market area and loan participations with other banks.  The allowance for loan losses amounted to $3.1 million, or 1.62% of total loans, at September 30, 2002, compared to $4.0 million, or 2.38% of total loans at December 31, 2001.  The components of the change in the allowance for loan loss during the nine month period ended September 30, 2002, included a negative provision of $563,000 and net loan charge-offs of $395,000.  The negative provision resulted from significant progress made in reducing classified assets during the nine months ended September 30, 2002, including the successful workout of several large problem credits. Loans past due more than 90 days a nd loans placed on nonaccrual status were approximately $2.4 million, or 1.3% of total loans at September 30, 2002, compared to $3.3 million, or 1.9% of total loans at December 31, 2001.  

At September 30, 2002, the ratio of net loans to deposits was 81.1%, compared to 65.6% at the end of 2001. The increase in this ratio is due to the aforementioned loan growth and deposit shrinkage experienced during the nine months ended September 30, 2002.

Total shareholders’ equity increased to $33.7 million, or 11.45% of total assets, primarily due to year-to-date net income of $1.5 million less dividends declared of $526,000.  The Company and its subsidiary met all regulatory capital requirements at September 30, 2002.   

RESULTS OF OPERATIONS

Net income for the nine months ended September 30, 2002, was $1.5 million, or $0.58                    per share, as compared to $804,000, or $0.31 per share during the same period in 2001.  The increase in net income for 2002 is primarily due to the aforementioned negative loan loss provision of $563,000 (compared to a $183,000 provision in 2001) and a $691,000 (52.1%) decrease in professional and director fees, offset by a $383,000 (4.9%) decrease in net interest income and a $375,000 decrease in the federal income tax credit.

A provision of $183,000 was made to the allowance for loan losses in 2001 based on management’s analysis.  Based on ongoing analysis and significant progress in the resolution of and reduction in classified assets, the Company removed $563,000 from the allowance for loan losses for the nine month period of the current year.  Non-interest income increased $73,000, or 4.9%, and non-interest expense decreased $652,000, or 7.4%.

CSB BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the quarter ended September 30, 2002, the Company recorded net income of $636,000, or $0.24 per share, as compared to $1.9 million, or $0.71 per share for the same period in 2001.  During the third quarter of 2001, a negative provision for loan losses of $2.5 million was recorded as a result of the resolution of a significant classified credit.  Also, net interest income for the three months ended September 30, 2002 increased $178,000, or 7.3%, while non-interest expenses decreased $193,000, or 6.6%, as compared to the same quarter in 2001.

Interest income for the nine months ended September 30, 2002 was  $12.6 million, a decrease of $4.3 million, or 25.4%, over the same period last year, including interest and fees on loans decreasing $3.6 million, or 27.7%, due to lower interest rates and lower average outstanding loans.  Interest on securities decreased $464,000, or 13.3%, as short term interest rates fell and certain callable securities were called. The proceeds from many of these called and matured securities were used to fund loan growth. Other interest income decreased $235,000 as interest rates were significantly lower on federal funds sold.  Interest income for the quarter ended September 30, 2002 was $4.1 million, a decrease of $1.2 million, or 22.1%, compared to the same period in 2001.  This decrease was due to the reasons previously noted.

Interest expense decreased $3.9 million, or 43.4%, to $5.1 million for the nine months ended September 30, 2002, compared to the nine months ended September 30, 2001.  Interest expense on deposits decreased $3.8 million, or 45.2%, from the same period as last year, while interest expense on other borrowings decreased $117,000.  The decrease in deposit interest expense was caused by the lower rates on transaction accounts and certificates of deposit which reflect the 475 basis points decrease in short term rates by the Federal Reserve during 2001.  Interest expense for the quarter ended September 30, 2002 was $1.5 million, a decrease of $1.3 million, or 47.1%, from the same period in 2001.

The Bank reported a negative provision for loan losses of $563,000 during the first nine months of 2002, as compared to a provision of $183,000 in the same nine month period of 2001.  The negative provision was determined based on management’s calculation of the allowance for loan losses, which includes provisions for classified loans, as well as a provision for the remainder of the portfolio based on historical data, including past charge-offs, and current economic trends.  As mentioned previously, substantial progress has been made throughout 2002 in reducing classified assets.  The Bank reported a negative provision for loan losses for the three months ended September 30, 2002 of $321,000, compared to $2.5 million for the same quarter last year for the reasons stated above.

Non-interest income increased $73,000, or 4.9%, during the nine months ended September 30, 2002 as compared to the same period in 2001.  The increase in non-interest income was essentially due to a $52,000 increase in gain on sale of securities.  Non-interest expenses decreased $652,000, or 7.4%, for the nine months ended September 30, 2002, compared to the same period in 2001.  Salaries and employee benefits increased $157,000, or 4.0%; occupancy expense decreased $21,000, or 4.4%; and other expenses decreased $135,000 or 5.6%. The aforementioned  $691,000  decrease  in  professional  and  director  fees resulted from significant

CSB BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

consulting and other professional costs incurred in 2001 relating to the Bank’s compliance with the Written Agreement. The $375,000 decrease in the federal income tax credit resulted from a corresponding change in income before income taxes.

Non-interest income for the quarter ended September 30, 2002 was $496,000, a decrease of $4,000 compared to the same quarter in 2001.  Non-interest expenses for the three month period decreased $193,000, or 6.6%, compared to last year’s period.  This decrease was due to reasons previously noted.

CSB BANCORP, INC.

QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

ITEM 3 QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

There have been no material changes in the quantitative and qualitative disclosures about market risks as of September 30, 2002 from that presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001.  Management performs a quarterly analysis of the Company’s interest rate risk.  All positions are currently within the Board-approved policy limits.

ITEM 4.  

CONTROLS AND PROCEDURES

The Chief Executive Officer and the Chief Financial Officer of the Company have reviewed, as of a date within ninety days of this filing, the disclosure controls and procedures that ensure that information relating to the Company required to be disclosed by the Company in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported in a timely and proper manner.  Based upon this review, the Company believes that there are adequate controls and procedures in place.  There are no significant changes in the internal controls or other factors that could affect the internal controls after the date of the evaluation.

CSB BANCORP, INC.

FORM 10-Q

Quarter ended September 30, 2002

PART II - OTHER INFORMATION

Item 1 -

Legal Proceedings:

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

Item 2 -

Changes in Securities and Use of Proceeds:

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

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.

FORM 10-Q

Quarter ended September 30, 2002

PART II - OTHER INFORMATION

Item 6 -

Exhibits and Reports on Form 8-K:

 (a)

Exhibits:

Exhibit

 Number

Description of Document

3.1

Amended Articles of Incorporation of CSB Bancorp, Inc. (incorporated by reference to the Company’s 1994 Form 10-KSB)  

3.1.1

Amended form of Article Fourth of Amended Articles of Incorporation, as effective April 9, 1998 (incorporated by reference to the Company’s 1998 Form 10-K)

3.2

Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to the Company’s Form 10-SB)

  11

Statement Regarding Computation of Per Share Earnings (reference is hereby made to Consolidated Statements of Income on page 4 hereof)

  99

CEO / CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

           the Sarbanes-Oxey Act of 2002

(b)

Reports on Form 8-K:  

Form 8-K dated July 10, 2002 containing a letter to shareholders that included an announcement of quarterly dividends to shareholders

Form 8-K dated July 24, 2002, as amended July 29, 2002, containing a quarterly report to shareholders that included financial statements for the period ended June 30, 2002

CSB BANCORP, INC.

SIGNATURES

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

CSB BANCORP, INC.

(the Company)

Date:  November 14, 2002

/s/ C. JAMES BESS

C. James Bess

President

Chief Executive Officer

Date:  November 14, 2002

/s/ A. LEE MILLER

A. Lee Miller

Senior Vice President

Chief Financial Officer

CSB BANCORP, INC.

CERTIFICATIONS

President and Chief Executive Officer

I, C. James Bess, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of CSB Bancorp, Inc.;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities Exchange Act of 1934 Rules 13a-14 and 15d-14) for the registrant and we have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within ninety days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

/s/ C. JAMES BESS

C. James Bess

President and

Chief Executive Officer

CSB BANCORP, INC.

Senior Vice President and Chief Financial Officer

I, A. Lee Miller, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of CSB Bancorp, Inc.;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities Exchange Act of 1934 Rules 13a-14 and 15d-14) for the registrant and we have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as    of a date within ninety days prior to the filing date of this quarterly report (the "Evaluation  Date"); and

c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.     The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

/s/ A. LEE MILLER

A. Lee Miller

Senior Vice President and

Chief Financial Officer

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)  

19

99

CEO/CFO Certification pursuant to Section 906 of

the Sarbanes-Oxley Act of 2002

20

CSB BANCORP, INC.

EXHIBIT 11

STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS

CSB BANCORP, INC.

EXHIBIT 99

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of CSB Bancorp, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, C. James Bess, President and Chief Executive Officer, and A. Lee Miller, Senior Vice President and Chief Financial Officer, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.