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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:  JUNE 30, 2003

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.

Yes

  (X)

No  (  )

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

 Yes  (   )

No  (X)

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 July 25, 2003:

 2,640,588 common shares

CSB BANCORP, INC.

FORM 10-Q

QUARTER ENDED June 30, 2003

Table of Contents

Part I - Financial Information

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 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 June 30, 2003, 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, 2002, 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 June 30, 2003, 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. (the Company) at June 30, 2003, compared to December 31, 2002, and the consolidated results of operations for the six month and quarterly periods ending June 30, 2003 compared to the same periods in 2002.  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 $305.1 million at June 30, 2003, compared to $304.7 million at December 31, 2002, representing an increase of $378,000 or 0.1%. Cash and cash equivalents decreased $6.0 million, or 26.5%, during the six month period ending June 30, 2003, including a $10.3 million decrease in Federal funds sold. Total securities decreased $5.1 million, or 7.0%, during the six month period.  

The decreases in cash and cash equivalents and securities were primarily used to fund the increase in the loan portfolio of $12.2 million, or 6.1%, during the six month period.  The decreases in the deposit portfolio of $6.7 million, or 2.8%, to $233.3 million and securities sold under repurchase agreements of $3.0 million, or 21.1%, were partially offset by an increase of $4.8 million in federal funds purchased and a $4.4 million, or 28.9%, increase in Federal Home Loan borrowings.

CSB BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net loans increased $12.2 million, or 6.1% during the six month period ended June 30, 2003.  This increase was due to a combination of increased loan demand and production within the Company’s market area and loan participations with other banks.  The allowance for loan losses amounted to $2.6 million, or 1.21% of total loans, at June 30, 2003, compared to $2.7 million, or 1.35% of total loans at December 31, 2002.  The components of the change in the allowance for loan loss during the six month period ended June 30, 2003, included a negative provision of $51,000 and net loan charge-offs of $95,000.  The negative provision resulted from significant progress made in reducing classified assets during the six months ended June 30, 2003. Loans past due more than 90 days and still accruing interest and loans placed on nonaccrual status, aggregated $1 .3 million, or 0.61% of total loans at June 30, 2003, compared to $1.7 million, or 0.86% of  total loans at December 31, 2002.  

At June 30, 2003, the ratio of net loans to deposits was 89.8%, compared to 82.1% at the end of 2002. The increase in this ratio is due to loan growth coupled with deposit shrinkage experienced during the six months ended June 30, 2003.

Total shareholders’ equity increased to $34.4 million, or 11.3% of total assets, primarily due to year-to-date net income of $1.2 million less dividends declared of $632,000.  The Company and its subsidiary met all regulatory capital requirements at June 30, 2003.   

RESULTS OF OPERATIONS

Net income for the six months ending June 30, 2003, was $1.2 million, or $0.44 per share, as compared to $881,000, or $0.33 per share during the same period in 2002.  The primary reason for this increase was the increase of $586,000 in net interest income to $5.5 million for the six months ended June 30, 2003.  Total non-interest expenses decreased $161,000, or 3.0%, as compared to the same six months of 2002.  These improvements in net income were partially offset by a decrease in the credit for loan loss of $191,000, or 78.9%, and a $48,000, or 4.5%, decrease in non-interest income.

For the quarter ended June 30, 2003, the Company recorded net income of $572,000, or $0.21 per share, as compared to net income of $505,000, or $0.19 per share, for the reasons previously discussed.  Non-interest income increased $66,000, or 13.5%, due to gains on loan sales and a gain on sale of other real estate owned (OREO).

Interest income for the six months ended June 30, 2003 was $7.9 million, a decrease of $589,000, or 6.9%, over the same period in 2002.  Interest on securities decreased $575,000, or 27.4%, as short term interest rates fell and certain callable securities were called.    Other interest

CSB BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

income decreased $104,000 as federal funds sold were reinvested in loan growth.  Interest income for the quarter ended June 30, 2003 was $3.9 million, a decrease of $234,000, or 5.6%, compared to the same period in 2002.  This decrease was due to the reasons previously noted.

Interest expense decreased $1.2 million to $2.4 million for the six months ended June 30, 2003, compared to the six months ended June 30, 2002.  Interest expense on deposits decreased $1.3 million, or 39.6%, from the same period as last year, while interest expense on other borrowings increased $136,000, or 48.5%.  The decrease in deposit interest expense was caused by the lower rates on transaction accounts and certificates of deposit, as well as an overall decrease in average interest-bearing deposit balances.   Interest expense for the quarter ended June 30, 2003 was $1.2 million, a decrease of $466,000, or 27.7%, from the same period in 2002.

The provision for loan losses was a credit of $51,000 during the first six months of 2003, as compared to a credit of $242,000 in the same six month period of 2002.  The provision or credit for loan loss is 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 was made in reducing classified assets during 2003 and 2002.  The provision for loan losses for the quarter ended June 30, 2003 was $20,000, compared to a credit of $242,000 for the same quarter in 2002 for the reasons stated above.

Non-interest income decreased $48,000, or 4.5%, during the six months ended June 30, 2003 as compared to the same period in 2002.  The decrease in non-interest income was essentially due to a $115,000 gain on sale of securities recorded in the 2002 period offset by other aforementioned increases.  Non-interest expenses decreased $161,000, or 3.0%, for the six months ended June 30, 2003, compared to the same period in 2002.  Salaries and employee benefits decreased $51,000, or 1.9%; occupancy expense increased $42,000, or 14.5%; professional and director fees decreased $29,000, or 6.6%; and other expenses decreased $131,000 or 8.5%. The provision for income taxes was $134,000 during the first six months of 2003, as compared to a credit of $86,000 for the first six months of 2002.  

Non-interest income for the quarter ended June 30, 2003 was $559,000, an increase of $66,000 compared to the same quarter in 2002. Gains of $37,000 on loan sales were recognized in the first six months of 2003, as compared to $2,000 in the same period of the prior year.  Also, a gain of $36,000 was recognized in the second quarter of 2003 on the sale of OREO.  Non-interest expenses for the quarter ended June 30, 2003 decreased $55,000, or 2.0%, compared to last year’s period.  This decrease was due to reasons previously noted.

In July 2003, the Company’s CEO resigned effective immediately.  Under the terms of his employment agreement, as amended, the Company has agreed to provide certain post employment benefits, consisting of cash payments for severance and vacation pay, as well

CSB BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

as certain health care and retirement plan benefits.  The employment agreement also provides for future payments in exchange for consulting services, to be provided at the Company’s request, through February 2004.  As a result, the Company will record severance expense of $337,000 during the third quarter of 2003.  Such amount represents an estimate of total payments to be made under the agreement, including payments relating to consulting services, since the Company has not determined if such services will be requested prior to February 2004.  The impact will reduce third quarter net income $222,000 ($.08 per share).

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 June 30, 2003 from that presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002.  Management performs a quarterly analysis of the Company’s interest rate risk.  All positions are currently within the Board-approved policy limits.

CSB BANCORP, INC.

CONTROLS AND PROCEDURES

ITEM 4.    CONTROLS AND PROCEDURES

(a)  Disclosure controls and procedures.  The Chief Executive Officer and the Chief Financial Officer of the Company have carried out an evaluation of the effectiveness of the Company’s 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 within the time periods specified in the Commission’s rules and forms.  Based upon this evaluation, these officers  have concluded that as of June 30, 2003, the Company’s disclosure controls and procedures were adequate.  

(b)  Changes in internal control over financial reporting.  During the period covered by this report, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

CSB BANCORP, INC.

FORM 10-Q

Quarter ended June 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:

Our 2003 Annual Meeting of Shareholders was held on April 23, 2003.  Matters submitted to a vote of the security holders at the meeting was the election of three members to our Board of Directors, each to continue in office until the 2006 Annual Shareholders Meeting.

Nominee

 For

                   Against

Abstain

Ronald E. Holtman

1,794,880.9525

188,163.2864

0

Daniel J. Miller

1,594,996.1647

388,048.0742

0

Eddie L. Steiner

1,811,150.7291

171,893.5098

0

The following individuals continued as directors of CSB following the annual meeting of shareholders:

C. James Bess  

J. Thomas Lang

Robert K. Baker

Samuel M. Steimel

John R. Waltman

Jeffrey A. Robb, Sr

Item 5 -

Other Information:

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

FORM 10-Q

Quarter ended June 30, 2002

PART II - OTHER INFORMATION

Item 6 -

Exhibits and Reports on Form 8-K:

(a)

Exhibits:  

CSB BANCORP, INC.

FORM 10-Q

Quarter ended June 30, 2002

PART II - OTHER INFORMATION

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.

(Registrant)

Date:  August 7, 2003

/s/ JOHN J. LIMBERT

John J. Limbert

President

Chief Executive Officer

Date:  August 7, 2003

/s/ A. LEE MILLER

A. Lee Miller

Senior Vice President

Chief Financial Officer

CSB BANCORP, INC.

Index to Exhibits