2016 FINANCIAL HIGHLIGHTS

2016 Report to Shareholders  |  CSB Bancorp, Inc.

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LETTER TO SHAREHOLDERS

DEAR FELLOW SHAREHOLDER:

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

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

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

TRENDS BY THE NUMBERS:

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

UNDERLYING FUNDAMENTALS

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

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

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

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

THE BANKING ENVIRONMENT AND OUR COMPANY’S POSTURE

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

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

THE TRUMP EFFECT?

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

BOARD OF DIRECTORS

2016 Report to Shareholders  |  CSB Bancorp, Inc.

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2016 FINANCIAL REVIEW

INTRODUCTION

CSB Bancorp, Inc. (the “Company” or “CSB”) was incorporated under the laws of the State of Ohio in 1991 and is a registered financial holding company. The Company’s wholly-owned subsidiaries are The Commercial and Savings Bank (the “Bank”) and CSB Investment Services, LLC. The Bank is chartered under the laws of the State of Ohio and was organized in 1879. The Bank is a member of the Federal Reserve System, with deposits insured by the Federal Deposit Insurance Corporation, and its primary regulators are the Ohio Division of Financial Institutions and the Federal Reserve Board.

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

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

FORWARD-LOOKING STATEMENTS

Certain statements contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations are not related to historical results, but are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks and uncertainties. Any forward-looking statements made by the Company herein and in future reports and statements are not guarantees of future performance. Actual results may differ materially from those in forward-looking statements because of various risk factors as discussed in this annual report and the Company’s Annual Report on Form 10-K. The Company does not undertake, and specifically disclaims, any obligation to publicly release the result of any revisions to any forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date of such statements.

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

2016 FINANCIAL REVIEW

SELECTED FINANCIAL DATA

The following table sets forth certain selected consolidated financial information:

2016 Report to Shareholders  |  CSB Bancorp, Inc.

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2016 FINANCIAL REVIEW

RESULTS OF OPERATIONS

Net Income

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

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

Net Interest Income

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

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

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

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

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

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

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

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

2016 FINANCIAL REVIEW

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

AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN ANALYSIS

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

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

 ³Average loan balances include nonaccrual loans.

2016 Report to Shareholders  |  CSB Bancorp, Inc.

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2016 FINANCIAL REVIEW

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

RATE/VOLUME ANALYSIS CHANGES IN INCOME AND EXPENSE¹

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

Provision For Loan Losses

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

Noninterest Income

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2016 Report to Shareholders  |  CSB Bancorp, Inc.

2016 FINANCIAL REVIEW

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

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

Noninterest Expenses

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

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

2016 FINANCIAL REVIEW

Income Taxes

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

FINANCIAL CONDITION

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

Securities

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

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

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

Loans

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

Attractive interest rates in the secondary market continued to drive consumer demand for longer-term 1-4 family fixed rate residential mortgages during 2016. The Company sold $11 million of originated mortgages into the secondary market, as compared to $12 million in 2015. With the expansion of the mortgage loan originator team, the Company originated $36 million of portfolio mortgage loans, which were predominately variable rate in 2016 as compared to 2015 origination of $22 million for the Company’s portfolio. Demand for home equity loans improved in 2016, with balances increasing $5 million. Installment lending continued to improve with consumer loans increasing 44% on a year-over-year basis to $13 million at December 31, 2016. This growth is primarily from RV finance loans originated in northeast Ohio.

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

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

14            2016 Report to Shareholders  |  CSB Bancorp, Inc.

2016 FINANCIAL REVIEW

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

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

Allowance for Loan Losses

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

2016 Report to Shareholders  |  CSB Bancorp, Inc.

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2016 FINANCIAL REVIEW

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

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

Other Assets

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

16            2016 Report to Shareholders  |  CSB Bancorp, Inc.

2016 FINANCIAL REVIEW

Deposits

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