##### 



EXHIBIT 13 (GRAPHICS) CSB Bancorp, Inc. Celebrating 125 Years of Serving Your Community 2004 Annual Report to shareholders




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(GRAPHICS) Financial Highlights | |
FOR THE YEAR ENDED DECEMBER 31 2004 2003 % Change
(Dollars in thousands, except per share data) | |
CONSOLIDATED RESULTS
Net interest income $11,200$10,7834%
Net interest income-
fully taxable-equivalent (FTE) basis 11,93911,765 1%
Noninterest income 2,6802,155 24%
Provision (credit) for loan losses 423 (51) NA
Noninterest expense 10,27810,799 -5%
Net income 2,5262,060 23%
AT YEAR-END
Loans $215,510$210,7962%
Assets 317,340306,180 4%
Deposits 247,951248,958 <-1%
Shareholders equity 36,20834,718 4%
Cash dividends declared 0.52 0.48 8%
Book value 13.6913.13 4%
Market price 20.0017.00 18%
Basic earnings per share 0.96 0.78 23%
Diluted earnings per share 0.95 0.78 22%
FINANCIAL PERFORMANCE
Return on average assets 0.81% 0.68%
Return on average equity 7.15% 6.00%
Net interest margin 3.83% 3.81%
Efficiency ratio 70.00% 83.00%
CAPITAL RATIOS
Risk-based capital: Tier 1 17.19%16.90%
Total 18.43%18.10%
Leverage 11.45% 11.20%




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(GRAPHICS) DEAR FELLOW
SHAREHOLDER: As you can see from the opposite
page listing our Financial Highlights,
CSB made good progress in 2004. We had
net income of $2,526,000 versus
$2,060,000 in 2003, a 22.6%
increase! Our basic earnings per
share improved from $0.78 in 2003 to
$0.96 in 2004, representing a 23.1%
year over year increase! On a diluted
share basis the earnings per share
increased 21.8% from $0.78 to $0.95.
Earnings enjoyed a wonderfully high
percentage increase in comparison with
prior years.
You may notice there is a $.01 difference between basic and diluted earnings per share.
Diluted earnings per share includes shares outstanding as well as those shares that could be issued
under currently outstanding stock options. This report highlights the Companys 125 years of service to Holmes and surrounding counties. I am
confident that the founders never envisioned the growth and changes of both the market and the
Bank. We are honored to be the current stewards of this legacy, and vow to sustain the positive
contributions of those who came before us. Return on Average Assets 2004 Financial Performance 2004 can be summarized by saying we made solid, steady progress toward achieving industry
targets. The historical graphs on this and the following pages reflect these trends. We had a long
way to come, and have elected to not try to get there overnight. We believe the 2004 earnings
improvements are sustainable, as evidenced by five consecutive quarterly increases in our Net
Interest Income  the core of our business! Our loan portfolio had modest growth, due in large part to our decision to resell out of market
loans that had previously been purchased. Additionally, there was a slowdown in home mortgage
refinancing. Deposits were down for the year, a rare occurrence for a bank. Early in the year we
decided not to actively renew a large block of high rate, maturing Certificates of Deposit. These
deposits were primarily from customers with whom we were not their primary bank, but had opened
these accounts at a time when the Bank was seeking time deposits. We will aggressively seek to
grow deposits, but prefer to build on existing relationships or acquire new ones. We remain visible, competitive and active in our marketplace, and have been fortunate to acquire
several significant new customers. Of equal importance, however, is the business that existing
customers brought back to us or allowed us to expand with them. As a result of all these efforts, your cash dividend increased in 2004 and the price per share
also rose during the period, an accomplishment we hope to replicate for years to come. The balance of my letter will discuss our results relative to industry targets; talk about
long-term strategies; describe a customer service initiative we are kicking off; provide a brief
forecast of our marketplace in 2005; and ask your support for an increase in the existing stock
option plan share provision to enable CSB to continue to attract and retain quality staff and
management.




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(GRAPHICS) Progress to Industry Benchmarks In our 2003 Annual Report to Shareholders, we emphasized moving the Company to reaching, and
subsequently exceeding, accepted industry performance standards. We specifically highlighted five
of those standards or ratios: Return on Assets, Return on Equity, Leverage Ratio, Efficiency Ratio
and Allowance for Loan Losses to Nonperforming Loans. Here is an update on how our 2004 results
contributed to meeting these targets: · Return on Average Assets (ROA):We made good progress toward our goal of exceeding a 1% ROA. Rising interest rates will
assist us in achieving this goal as we have more assets that
immediately reprice than liabilities. I believe we did, in a rate
environment that was flat most of the year, a very good job in
managing our balance sheet. · Return on Average Equity (ROE):We made steady improvement toward our target of double digit ROE. While we are blessed with
abundant capital, it does negatively impact this ratio. Youll see, in
the strategy section, our thoughts for this capital. · Leverage Ratio:This measure of bank soundness continues to improve. The regulatory minimum to be deemed well capitalized
is at 5%. Our ratio currently stands at 11.5%. · Efficiency Ratio (NIE/REV):Our strategies to control costs and improve this ratio are having the positive impact we wanted. The
lower, the better for this ratio. This critical measurement improved
by almost 10% in 2004, falling to 70.4%. We remain focused on
continuing this improvement in the coming year. · Allowance for Loan Losses to Nonperforming Loans:This measure ment of the Banks ability to provide for problem loans remains strong. The percentage of our allowance to total nonperforming loans declined slightly as a result of two older loans, which are in the process of foreclosure, being placed on nonperforming status. Investing in the Future As I mentioned earlier, we are blessed with an abundance of capital. This is a good thing!
Finding appropriate uses for this capital that significantly increase your return on investment is
our strategy. As you know by now, we have opened a Trust and Loan Production office in Wooster, Ohio. This
office will support the growth in our Wayne County trust business as well as provide us a local
platform to meet with business and consumer prospects. CSB has not opened a new, full-service
banking center since 1999. We intend to open at least one new office this year, and more if the
locations we seek and the right personnel to staff the offices are available. We will seek opportunities to further invest our capital with any final decision driven by the
goal of increasing the net return to you, the shareholder, consistent with safe and sound banking
practices. Vision for the Future In late January 2005, we held an all-employee meeting to kick-off a renewed focus on
providing outstanding customer service. While we strive to make every interaction with us a
positive one, there are processes that can be enhanced, eliminated, or supplemented that will
significantly improve overall customer satisfaction levels. Designed to mirror the strategies outlined in the book Raving Fans,our Company goal is quite
simple  provide every customer with a service experience that is incredibly positive, so much so
that our customers become raving fans! We have created internal Service Improvement Teams staffed by associates from all areas of the
Company. They are charged with correcting the barriers to providing extraordinary customer service
while simultaneously looking, and listening for, new ideas from both our employees and our
customers. While these efforts will be in progress as you read this letter, your input to us is vital to our
service improvement as well. If you experience a service issue with us that is less than what you
think is outstanding, please take a moment to let us know. Tell the banking center manager, or loan
officer, or drop me a note. Also, we have enclosed a card to record your feedback. Well take your
comments, review them, and if the Service Improvement Team feels there is an improvement
opportunity, well put it into place. This initiative is not about cutting expenses, reducing staff or eliminating services or products.
It is exclusively about raising the level of service you experience with our Bank, from the most
routine of transactions to the most complicated. We look forward to your assistance and feedback!




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(GRAPHICS) Marketplace Outlook for 2005 There is risk involved when attempting to predict the future. I reviewed my comments from last
year, and, buoyed by the lack of glaring errors, venture forward again. Holmes County continues to have the lowest unemployment rate in the State of Ohio. This is driven
by the success enjoyed by our three largest industries tourism, lumber and agriculture. We
believe these industries will have continued success this calendar year. We applaud the efforts of
our local elected officials in their efforts to reduce the economic impact of enacted Streamlined
Sales Tax initiatives, and will join with them to find ways to lessen the impact on local
businesses and governmental treasuries. The contiguous counties to Holmes continue to experience
less satisfactory trends. Nevertheless, we expect their performances to improve and will explore
opportunities to share in this growth. We expect interest rates to continue their recent increases. We believe that depositors can expect
higher returns on their deposits, and that borrowers will see increases in their variable rate
loans. We believe these increases will not be harmful to our customers or markets. Stock Option Plan Changes As detailed in the proxy statement you have received, we are asking for your approval to
increase the number of shares eligible for awards under the CSB Share Incentive Plan from 75,000
to 200,000 shares. There are several reasons for this proposal. First, as we grow and expand, attracting and
retaining experienced and qualified associates to staff our Company is a most difficult task. At
the current level, we have limited stock options available to share with both existing and new
associates. These awards provide long-term motivation for talented people to join and stay with
the CSB team. Second, our compensation strategy for all associates has three components  salary or hourly wages,
which pay individuals for performing their required tasks; cash bonuses for achieving performance
goals; and stock awards to provide long-term rewards for continued outstanding performance. There
are only 35,000 unissued shares remaining from the original program. Increasing the number of
shares will enable us to match compensation programs comparable to similar sized institutions. It is important to note that all awards are reviewed by the Boards Compensation Committee and
then submitted to the full Board for approval. As a result of this process, no individual award
occurs without passing the review of all Directors. Efficiency Ratio Allowance for Loan Losses to Nonperforming Loans Employees at Year End Closing Remarks During 2004, Robert Oswald retired after 45 plus years of service. On behalf of his fellow
employees, I want to thank Bob for his contributions and wish him good health and a happy
retirement. I believe we are making significant progress at CSB, while simultaneously maintaining a quality
balance sheet and community focus. These accomplishments are the result of 130 employees working
together to attain a common goal. I am honored to work beside them and look forward to expanding
our achievements and returning those results to you, the shareholder. /s/ JOHN J. LIMBERT JOHN J. LIMBERT
President & Chief Executive Officer




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(GRAPHICS) CSB THE COMMERCIAL & SAVINGS BANK CSB History Robert Long was born July 21,1809 in Lancaster County, PA. He settled in Nashville, Ohio in
1854 and opened a private bank in 1867 under the firm name of Long, Brown & Company. 1872 The First National Bank succeeded the Bank. Long was President. 1874 John Koch and Robert
Long formed the Bank of Millersburg. 1879 The name was changed to The Commercial Bank of Millersburg. It is under this charter that
the Bank operates today. 1888 Koch became President of the Bank and at that time the Bank was described as one of the solid
financial institutions in this part of the state. 1907 While Koch was President, the Bank moved into its present site. The Bank occupied the
left-hand corner of the building, half of the width it is now. 1911 B.C. Sill became President. 1913 The building was revamped and the Masonic Temple was constructed. The Koch name was added to the building. 1914 Mr. Sill was President and Walter Koch, son of John, was Vice President. E. A. Uhl was Cashier. Assets totaled $514,000. 1919 E.A. Uhl was promoted to President. 1933 The famous Bank Holiday occurred. President Franklin D. Roosevelt closed all banks for different lengths of time, in order to reorganize; the Bank was closed for three days. 1934 The Bank purchased its first branch office at Walnut Creek from a small private bank. This branch then closed in 1940. Early 1940s The Bank purchased the building for $50,000 and remodeled the space occupied by the
former Hudson Shoe Store. This space was added to the lobby, doubling the size. 1944 Assets totaled $2.7 million. 1958 H.R. Maxwell was appointed Chairman of the Board and President of the Bank. The exterior of the building was redone, adding black marble to the front of the remodeled. 1965 The citizens of Walnut Creek petitioned for the Bank to re-open in their town. The State Department of Banking rejected their petition. 1967 Walnut Creek residents again petitioned with $5,000,000 in business pledges and 375
persons vowing to support the local bank. Walnut Creek branch was reopened. 1972 Alvin Ruess retired from his position of Executive Vice President. 1974 The Bank recognized the need for drive-thru service and decided to build an auto bank in
Millersburg. South Clay opened in 1975. 1979 Winesburg Banking Center opened and the Bank celebrated its 100th anniversary. 1981 The Bank
installed its first in-house computer system. December, 1987 Charm Banking Center opened. One month later, January, 1988, Sugarcreek
Banking Center opened. 1989 The Bank established an Operations Center in Millersburg. Assets totaled $139,777,256. 1990 Renovation of the Main Office began. The brick exterior and green awnings brought new pride to the Bank and community. 1991 Clinton Commons Banking Center opened. 1992 Berlin Banking Center opened. CSB Bancorp, Inc. was formed and became the parent company of the Bank. Assets of the bank were $166 million. 1993 Vivian McClelland became the first woman elected to the Board of Directors. 1995 Arlie Rodhe retired from his position as Chairman of the Board of Directors. 1995 The Trust & Financial Service Division opened. 1998 Shreve Banking Center opened. 1999 Operations Center in Millersburg was built. 2003 John Limbert accepted the position of President and Chief Executive Officer. 2004 CSB Celebrates 125th Anniversary.




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(GRAPHICS) left-right RICK L GINTHER Senior Vice
President, Chief
Lending Officer JOHN J. LIMBERT President,
Chief Executive Officer PAULA J. MEILER Senior Vice
President, Chief
Financial Officer PAUL D. GREIG Senior Vice
President,
Chief Operations/
Information Officer Senior Management Board of Directors left-right DANIEL J. MILLER Physician
East Holmes Family Care, Inc. ROBERT K. BAKER Chairman of the Board Co-Owner and Controller Bakerwell, Inc. RONALD E. HOLTMAN Attorney Logee, Hostetler, Stutzman & Lehman J. THOMAS LANG Veterinarian, Dairy Farmer Spring Hill Farms, Inc. JOHN R. WALTMAN
Attorney Critchfield, Critchfield & Johnston JOHNJ. LIMBERT
President & Chief Executive Officer The Commercial & Savings Bank  EDDIE L. STEINER Vice President of Production            Smith Dairy Products Company JEFFREY A. ROBB, SR. President
Robb Companies, Inc. SAMUEL M. STEIMEL
Attorney Steimel Law Office




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2004 Financial Review 
 INTRODUCTION CSB Bancorp, Inc. (the Company) was incorporated under the laws of the State of Ohio in
1991 as a registered bank holding company for its wholly owned subsidiary, The Commercial and
Savings Bank (the Bank). 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, insured by the Federal
Deposit Insurance Corporation, and its primary Regulators are Ohio Division of Financial
Institutions and the Federal Reserve Bank. The Company, through the Bank, provides retail and commercial banking services to its customers
including checking and savings accounts, time deposits, safe deposit facilities, personal loans,
commercial loans, real estate mortgage loans, installment loans, IRAs, night depository facilities,
trust, and brokerage services. Its customers are located primarily in Holmes County and portions of
surrounding counties in Ohio. The general economic conditions in the Companys market area have
been sound. Unemployment statistics have generally been among the lowest in the State of Ohio and
the area has experienced stable to rising real estate values. The following discussion is presented to aid in understanding the Companys consolidated financial
condition and results of operations, and should be read in conjunction with the audited
consolidated financial statements and related notes. 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 and actual
results may differ materially from those in forward-looking statements because of various factors.
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. 8
    
    (CSB LOGO)




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2004 Financial Review 
 SELECTED FINANCIAL DATA The following table sets forth certain selected consolidated financial information. 2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(Dollars in thousands, except per share data)Statements of income:Total interest income
    
    $
    15,074
    
    
    $
    15,414
    
    
    $
    16,700
    
    
    $
    21,656
    
    
    $
    25,497Total interest expense
    
    
    3,874
    
    
    
    4,631
    
    
    
    6,467
    
    
    
    11,471
    
    
    
    12,782Net interest income
    
    
    11,200
    
    
    
    10,783
    
    
    
    10,233
    
    
    
    10,185
    
    
    
    12,715Provision (credit) for loan losses
    
    
    423
    
    
    
    (51
    )
    
    
    (587
    )
    
    
    35
    
    
    
    6,142Net interest income after provision (credit) for loan
losses
    
    
    10,777
    
    
    
    10,834
    
    
    
    10,820
    
    
    
    10,150
    
    
    
    6,573Noninterest income
    
    
    2,680
    
    
    
    2,155
    
    
    
    2,037
    
    
    
    1,976
    
    
    
    2,019Noninterest expenses
    
    
    10,278
    
    
    
    10,799
    
    
    
    10,999
    
    
    
    11,604
    
    
    
    9,191Income (loss) before income taxes
    
    
    3,179
    
    
    
    2,190
    
    
    
    1,858
    
    
    
    522
    
    
    
    (599
    )Income tax provision (credit)
    
    
    653
    
    
    
    130
    
    
    
    (65
    )
    
    
    (537
    )
    
    
    (920
    )Net income
    
    $
    2,526
    
    
    $
    2,060
    
    
    $
    1,923
    
    
    $
    1,059
    
    
    $
    321Per share of common stock:Basic income per share
    
    $
    0.96
    
    
    $
    0.78
    
    
    $
    0.73
    
    
    $
    0.40
    
    
    $
    0.12Diluted income per share
    
    
    0.95
    
    
    
    0.78
    
    
    
    0.73
    
    
    
    0.40
    
    
    
    0.12Dividends
    
    
    0.52
    
    
    
    0.48
    
    
    
    0.30
    
    
    
    0.10
    
    
    
    0.45Book value
    
    
    13.69
    
    
    
    13.13
    
    
    
    12.83
    
    
    
    12.46
    
    
    
    12.02Average basic common shares outstanding
    
    
    2,644,582
    
    
    
    2,638,360
    
    
    
    2,630,931
    
    
    
    2,625,241
    
    
    
    2,628,998Average diluted common shares outstanding
    
    
    2,650,948
    
    
    
    2,641,887
    
    
    
    2,634,558
    
    
    
    2,626,014
    
    
    
    2,629,733Year-end balances:Loans, net (includes held for sale)
    
    $
    215,510
    
    
    $
    210,796
    
    
    $
    197,109
    
    
    $
    164,916
    
    
    $
    198,358Securities
    
    
    76,228
    
    
    
    67,773
    
    
    
    73,088
    
    
    
    92,607
    
    
    
    96,550Total assets
    
    
    317,340
    
    
    
    306,180
    
    
    
    304,713
    
    
    
    306,345
    
    
    
    325,212Deposits
    
    
    247,951
    
    
    
    248,958
    
    
    
    239,976
    
    
    
    251,430
    
    
    
    268,583FHLB borrowings
    
    
    18,745
    
    
    
    21,372
    
    
    
    29,828
    
    
    
    21,317
    
    
    
    24,048Shareholders equity
    
    
    36,208
    
    
    
    34,718
    
    
    
    33,742
    
    
    
    32,721
    
    
    
    31,540Average balances:Loans, net
    
    $
    214,330
    
    
    $
    206,685
    
    
    $
    177,592
    
    
    $
    180,157
    
    
    $
    203,790Securities
    
    
    73,342
    
    
    
    70,027
    
    
    
    80,176
    
    
    
    90,538
    
    
    
    100,216Total assets
    
    
    312,534
    
    
    
    302,601
    
    
    
    295,399
    
    
    
    314,153
    
    
    
    325,880Deposits
    
    
    241,674
    
    
    
    236,525
    
    
    
    235,080
    
    
    
    260,677
    
    
    
    264,795Borrowings
    
    
    34,540
    
    
    
    30,981
    
    
    
    25,971
    
    
    
    20,532
    
    
    
    28,108Shareholders equity
    
    
    35,332
    
    
    
    34,360
    
    
    
    33,382
    
    
    
    31,921
    
    
    
    32,083Selected ratios:Net interest margin
    
    
    3.83
    %
    
    
    3.81
    %
    
    
    3.73
    %
    
    
    3.45
    %
    
    
    4.11
    %Return on average total assets
    
    
    0.81
    
    
    
    0.68
    
    
    
    0.65
    
    
    
    0.34
    
    
    
    0.10Return on average shareholders equity
    
    
    7.15
    
    
    
    6.00
    
    
    
    5.76
    
    
    
    3.32
    
    
    
    1.00Average shareholders equity
as a percent of average total assets
    
    
    11.31
    
    
    
    11.35
    
    
    
    11.30
    
    
    
    10.16
    
    
    
    9.85Net loan charge-offs as a percent of average loans
    
    
    0.14
    
    
    
    0.09
    
    
    
    0.40
    
    
    
    1.86
    
    
    
    1.01Allowance for loan losses as a percent of loans at
year-end
    
    
    1.18
    
    
    
    1.15
    
    
    
    1.35
    
    
    
    2.38
    
    
    
    3.62Shareholders equity as a percent of total year-end
assets
    
    
    11.41
    
    
    
    11.34
    
    
    
    11.07
    
    
    
    10.68
    
    
    
    9.70
 (CSB LOGO)
    
    
    
    9




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2004 Financial Review  RESULTS OF OPERATIONS Net Income Net income for 2004 was $2,526,000, an increase of $466,000, or 22.6%, from 2003. Basic net
income per share was $0.96 and $0.78 for the years ended December 31, 2004 and 2003, respectively.
Diluted net income per share was $0.95 and $0.78 for the years ended December 31, 2004 and 2003,
respectively. Return on average assets was 0.81% in 2004, as compared to 0.68% in 2003, and return
on average shareholders equity was 7.15% in 2004 compared to 6.00% in 2003. Net income for 2003 was $2,060,000 or $0.78 per basic and diluted share, as compared to $1,923,000
or $0.73 per basic and diluted share for 2002. This equated to a return on average assets of 0.68% in 2003 and 0.65% in 2002, while the
return on average shareholders equity for the same
periods was 6.00% and 5.76%. Net Interest Income Net interest income is the largest component of the Companys net income and consists of
the difference between income generated on interest-earning assets and interest expense
incurred on interest-bearing liabilities. Volumes, interest rates and composition of
interest-earning assets and interest-bearing liabilities affect net interest income. Interest income for 2004 was $15.1 million, decreasing $0.3 million from $15.4 million in 2003.
Interest and fees on loans was $12.1 million, a decrease of $331,000, or 2.7%, from 2003,
attributable to the decreased yield on loans of 36 basis points in 2004 from 2003. Interest income
on securities decreased $15,000, or 0.5%, due primarily to the $10.0 million decrease in the
average balance of tax-exempt securities in 2004 as compared to 2003 and a 4 basis point decrease
in average yield on non-taxable securities from 2003 to 2004. Other interest income increased
$4,000 to $40,000 in 2004 compared to $36,000 in 2003, primarily as a result of an increase in the
average federal funds yield from 0.99% in 2003 to 1.77% in 2004. Interest income for 2003 was $15.4 million, decreasing $1.3 million from $16.7 million in 2002.
Interest and fees on loans was $12.5 million, a decrease of $186,000, or 1.5%, from 2002, mostly
attributable to the decreased yield on loans of 103 basis points in 2003. Interest income on
securities decreased $924,000, or 24.3%, to $2.9 million as compared to 2002 of $3.8 million, due
primarily to the $10.1 million decrease in the average balance of securities in 2003 as compared to
2002. Other interest income decreased $176,000 to $36,000 in 2003 compared to $212,000 in 2002,
primarily as a result of a decrease in the average federal funds sold balance, from $13.1 million
in 2002 to $3.6 million in 2003 and a decrease in the average yield from 1.61% in 2002 to 0.99% in
2003. Interest expense for 2004 was $3.9 million, a decrease of $757,000, or 16.3%, from 2003. The
Companys interest expense on deposits decreased $608,000 in 2004, due primarily to the continuing
decline in deposit interest rates during 2004, as cost of interest-bearing deposits decreased to
1.56% in 2004, compared to 1.87% in 2003 and the average balance of time deposits decreased $4.9
million, or 4.0%. Interest expense on other borrowings decreased $146,000 due to the 68 basis point
decrease in average rate paid in 2004 as compared to 2003. Interest expense for 2003 was $4.6 million, a decrease of $1.8 million, or 28.4%, from 2002. The
Companys interest expense on deposits decreased $1.9 million in 2003, due primarily to the
decrease in deposit interest rates during 2003, as cost of interest-bearing deposits decreased to
1.87% in 2003, compared to 2.78% in 2002 and the average balance of time deposits decreased $5.7 million, or
4.5%. Interest expense on other borrowings increased $79,000 due to the $5.0 million increase in average other borrowings, in 2003 as compared
to 2002. Net interest income for 2004 increased by $417,000 to $11.2 million. The $9.6 million increase in
average interest-earning assets was enhanced by a 2 basis point increase in the net interest yield
as rates declined faster on interest-bearing liabilities than interest-bearing assets. Net interest
income for 2003 was $10.8 million. The following tables provide detailed analysis of changes in average balances, yields, and net
interest income identifying that portion of the changes due to change in average volume versus
that portion due to change in average rates. 10
    
    (CSB LOGO)




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2004 Financial Review  AVERAGE BALANCES, RATES AND YIELDS(Dollars in thousands)2004
    
    
    
    2003
    
    
    
    2002Average
    
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    
    AverageBalance (1)
    
    
    interest
    
    
    Rate (2)
    
    
    
    Balance (1)
    
    
    Interest
    
    
    Rate (2)
    
    
    
    Balance (1)
    
    
    interest
    
    
    Rate (2)Interest-earning assetsFederal funds sold
    
    $
    2,263
    
    
    $
    40
    
    
    
    1.77
    %
    
    
    $
    3,591
    
    
    $
    35
    
    
    
    0.99
    %
    
    
    $
    13,131
    
    
    $
    211
    
    
    
    1.61
    %Interest-earning deposits
    
    
    43
    
    
    
    0
    
    
    
    0.47
    
    
    
    
    29
    
    
    
    1
    
    
    
    0.52
    
    
    
    
    36
    
    
    
    1
    
    
    
    1.41Securities:Taxable
    
    
    44,072
    
    
    
    1,502
    
    
    
    3.41
    
    
    
    
    30,806
    
    
    
    1,020
    
    
    
    3.31
    
    
    
    
    34,722
    
    
    
    1,659
    
    
    
    4.78Tax exempt
    
    
    29,270
    
    
    
    1,409
    
    
    
    4.81
    
    
    
    
    39,221
    
    
    
    1,905
    
    
    
    4.85
    
    
    
    
    45,454
    
    
    
    2,190
    
    
    
    4.82Loans(3)
    
    
    216,864
    
    
    
    12,123
    
    
    
    5.59
    
    
    
    
    209,231
    
    
    
    12,453
    
    
    
    5.95
    
    
    
    
    181,147
    
    
    
    12,639
    
    
    
    6.98Total interest-earning assets
    
    
    292,512
    
    
    
    15,074
    
    
    
    5.15
    
    
    
    
    282,878
    
    
    
    15,414
    
    
    
    5.45
    
    
    
    
    274,490
    
    
    
    16,700
    
    
    
    6.08Noninterest-earning assetsCash and due from banks
    
    
    11,734
    
    
    
    
    
    
    
    
    
    
    
    
    11,090
    
    
    
    
    
    
    
    
    
    
    
    
    10,591Bank premises and equipment,
net
    
    
    8,413
    
    
    
    
    
    
    
    
    
    
    
    
    8,847
    
    
    
    
    
    
    
    
    
    
    
    
    8,910Other assets
    
    
    2,409
    
    
    
    
    
    
    
    
    
    
    
    
    2,332
    
    
    
    
    
    
    
    
    
    
    
    
    4,963Allowance for loan losses
    
    
    (2,534
    )
    
    
    
    
    
    
    
    
    
    
    
    (2,546
    )
    
    
    
    
    
    
    
    
    
    
    
    (3,555
    )Total assets
    
    $
    312,534
    
    
    
    
    
    
    
    
    
    
    
    $
    302,601
    
    
    
    
    
    
    
    
    
    
    
    $
    295,399Interest-bearing liabilitiesDemand deposits
    
    $
    48,042
    
    
    $
    105
    
    
    
    0.22
    %
    
    
    $
    46,687
    
    
    $
    191
    
    
    
    0.41
    %
    
    
    $
    44,456
    
    
    $
    409
    
    
    
    0.92
    %Savings deposits
    
    
    42,904
    
    
    
    189
    
    
    
    0.44
    
    
    
    
    37,989
    
    
    
    199
    
    
    
    0.53
    
    
    
    
    35,759
    
    
    
    355
    
    
    
    0.99Time deposits
    
    
    116,418
    
    
    
    2,944
    
    
    
    2.53
    
    
    
    
    121,298
    
    
    
    3,459
    
    
    
    2.85
    
    
    
    
    126,981
    
    
    
    5,000
    
    
    
    3.94Other borrowed funds
    
    
    34,540
    
    
    
    636
    
    
    
    1.84
    
    
    
    
    30,981
    
    
    
    782
    
    
    
    2.52
    
    
    
    
    25,971
    
    
    
    703
    
    
    
    2.71Total interest-bearing liabilities
    
    
    241,904
    
    
    
    3,874
    
    
    
    1.60
    
    
    
    
    236,955
    
    
    
    4,631
    
    
    
    1.95
    
    
    
    
    233,167
    
    
    
    6,467
    
    
    
    2.77Noninterest-bearing liabilities
and shareholders equityDemand deposits
    
    
    34,310
    
    
    
    
    
    
    
    
    
    
    
    
    30,551
    
    
    
    
    
    
    
    
    
    
    
    
    27,884Other liabilities
    
    
    988
    
    
    
    
    
    
    
    
    
    
    
    
    735
    
    
    
    
    
    
    
    
    
    
    
    
    966Shareholders equity
    
    
    35,332
    
    
    
    
    
    
    
    
    
    
    
    
    34,360
    
    
    
    
    
    
    
    
    
    
    
    
    33,382Total liabilities and equity
    
    $
    312,534
    
    
    
    
    
    
    
    
    
    
    
    $
    302,601
    
    
    
    
    
    
    
    
    
    
    
    $
    295,399Net interest income
    
    
    
    
    
    $
    11,200
    
    
    
    
    
    
    
    
    
    
    
    $
    10,783
    
    
    
    
    
    
    
    
    
    
    
    $
    10,233Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.83
    %
    
    
    
    
    
    
    
    
    
    
    
    3.81
    %
    
    
    
    
    
    
    
    
    
    
    
    3.73
    %
   (1)
    
    Average balances have been computed on an average
daily basis.(2)
    
    Average rates have been computed based on the amortized cost of the corresponding asset or
liability.(3)
    
    Average loan balances include nonaccrual loans. (CSB LOGO)
    
    
    
    11




---



##### 



2004 Financial Review  RATE/VOLUME ANALYSIS
OF CHANGES IN INCOME AND EXPENSE (1)(Dollars in thousand)2004 v. 2003
    
    
    
    2003 v. 2002Change in
    
    
    
    
    
    
    
    
    
    
    
    Change inIncome/
    
    
    Volume
    
    
    Rate
    
    
    
    Income/
    
    
    Volume
    
    
    RateExpense
    
    
    Effect
    
    
    Effect
    
    
    
    Expense
    
    
    Effect
    
    
    EffectInterest IncomeFederal funds sold
    
    $
    5
    
    
    $
    (23
    )
    
    $
    28
    
    
    
    $
    (176
    )
    
    $
    (114
    )
    
    $
    (62
    )Interest-earning deposits
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    Securities:Taxable
    
    
    482
    
    
    
    452
    
    
    
    30
    
    
    
    
    (639
    )
    
    
    (172
    )
    
    
    (467
    )Tax exempt
    
    
    (496
    )
    
    
    (479
    )
    
    
    (17
    )
    
    
    
    (285
    )
    
    
    (303
    )
    
    
    18Loans
    
    
    (330
    )
    
    
    427
    
    
    
    (757
    )
    
    
    
    (186
    )
    
    
    1,672
    
    
    
    (1,858
    )Total interest income
    
    
    (340
    )
    
    
    377
    
    
    
    (717
    )
    
    
    
    (1,286
    )
    
    
    1,083
    
    
    
    (2,369
    )Interest ExpenseDemand deposits
    
    
    (86
    )
    
    
    3
    
    
    
    (89
    )
    
    
    
    (218
    )
    
    
    9
    
    
    
    (227
    )Savings deposits
    
    
    (10
    )
    
    
    22
    
    
    
    (32
    )
    
    
    
    (156
    )
    
    
    12
    
    
    
    (168
    )Time deposits
    
    
    (515
    )
    
    
    (123
    )
    
    
    (392
    )
    
    
    
    (1,541
    )
    
    
    (215
    )
    
    
    (1,326
    )Other borrowed funds
    
    
    (146
    )
    
    
    66
    
    
    
    (212
    )
    
    
    
    79
    
    
    
    126
    
    
    
    (47
    )Total interest expense
    
    
    (757
    )
    
    
    (32
    )
    
    
    (725
    )
    
    
    
    (1,836
    )
    
    
    (68
    )
    
    
    (1,768
    )Net interest income
    
    $
    417
    
    
    $
    409
    
    
    $
    8
    
    
    
    $
    550
    
    
    $
    1,151
    
    
    $
    (601
    )
   (1)
    
    Changes 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. The following table reconciles net interest income as shown in the financial statements to
taxable equivalent net interest income: 2004
    
    
    2003
    
    
    2002Net interest income
    
    $
    11,199,632
    
    
    $
    10,783,073
    
    
    $
    10,232,966Taxable equivalent adjustment (1)
    
    
    739,703
    
    
    
    981,555
    
    
    
    1,128,235Net interest
incomefully taxable equivalent
    
    $
    11,939,335
    
    
    $
    11,764,628
    
    
    $
    11,361,201Net interest yield
    
    
    3.83
    %
    
    
    3.81
    %
    
    
    3.73
    %Taxable equivalent adjustment (1)
    
    
    .25
    
    
    
    .35
    
    
    
    .41Net interest yield  taxable equivalent
    
    
    4.08
    %
    
    
    4.16
    %
    
    
    4.14
    %
   (1)
    
    Taxable equivalent adjustments have been computed
assuming a 34% tax rate. Provision (Credit) for Loan Losses During 2004, the Company reported a provision for loan losses of $423,000 compared to a
credit for loan losses of $51,000 for 2003 and a credit for loan losses of $587,000 for 2002.
The provision in 2004 represents managements calculation on an increasing loan portfolio and
specific reserves held on two larger commercial real estate loans in foreclosure at December
31, 2004. The credits to the provision in 2003 and 2002 resulted from the resolution and
payoff of certain large classified credits, as well as more aggressive collection procedures
and stronger underwriting standards. These factors contributed to an improved charge-off
experience rate which is a component of managements calculation of the allowance for loan
losses. The decrease in classified assets during 2003 and 2002, includes a $1.4 million
decrease in impaired loans and a $551,000 decrease in loans on nonaccrual of interest. As
part of managements aggressive collection efforts, the Bank incurred approximately $85,000
and $135,000 of external collection costs in 2003 and 2002, respectively, mostly representing
legal and other professional fees. These costs are reported as non-interest expenses in the
consolidated statement of income. See Financial Condition  Allowance for Loan Losses for
additional discussion and information relative to the provision (credit) for loan losses. Noninterest Income Total noninterest income increased $525,000, or 24.4%, to $2.7 million in 2004.
Increases included the gains on sale of securities of $588,000, and increases in service
charges on deposit accounts of $56,000, which represent increases in overdraft fees and
business checking fees. Gain on sale of other real estate owned decreased $115,000 and
merchant servicing fees declined $45,000 as the servicing of the merchant credit card
portfolio was sold to a third party servicer during December 2004. The sale of the portfolio
will have minimal net income effect in 2005 as merchant income was offset by merchant expense
in noninterest expense. Total noninterest income increased $118,000, or 5.8%, to $2.2 million in 2003. Increases of
$42,000 in trust and financial services, $118,000 gain on the sale of other real estate and
a $62,000 gain on the sale of loans were partially offset by decreases in securities gains
of $114,000, decreases in service charges on deposit accounts of $16,000 and a decrease in
merchant servicing of $4,000. 12
    
    (CSB LOGO)




---



##### 



2004 Financial Review  Noninterest Expenses Total noninterest expenses decreased $521,000, or 4.8%, during 2004. The largest component of
non-interest expenses is salaries and employee benefits, which decreased $266,000, or 4.8% in 2004.
The decrease relates to a severance package of $237,000 of salary benefits and $100,000 consulting
costs classified as professional fees to a former officer in 2003. Professional fees were also
reduced in 2004 by $42,000 in director fees and $27,000 in management search fees. Equipment
expense rose $25,000 with the installation of a new core processor and automated teller system in
2004. Total noninterest expenses decreased $199,000 or 1.8% during 2003. The largest component of
noninterest expenses is salaries and employee benefits, which decreased $38,000 or 0.7% in 2003.
The slight decrease relates to cost reduction efforts in officer salaries and a slight headcount
reduction which offset the normal salary adjustments and rising costs of employee benefits. Other
expenses reduced $200,000 including reductions in employee education and travel of $45,000,
decreases in advertising of $31,000 and postage of $31,000. Income Taxes The provision for income taxes amounted to $653,000 in 2004, compared to $130,000 in 2003 and
a credit of $65,000 in 2002. The provision in 2004 is partially attributable to rising taxable
income from the gain on the sale of tax free bonds. The provision in 2003, as compared to a credit
in 2002 was the direct result of a $332,000 increase in income before income taxes and a $285,000
decrease in tax-exempt securities interest income. The credit in 2002 resulted from a net loss
before income taxes after consideration of nontaxable interest income. FINANCIAL CONDITION Total assets of the Company were $317.3 million at December 31, 2004, compared to $306.2
million at December 31, 2003, representing an increase of $11.1 million, or 3.6%. Net loans
increased $4.7 million with the loan growth funded primarily by a $1.5 million increase in
securities sold under repurchase agreement and a $1.7 million decrease in federal funds sold. Securities Total securities increased $8.4 million, or 12.4% from $67.8 million at year-end 2003 to
$76.2 million at year-end 2004. During 2004 the Company liquidated its out of state tax free
portfolio previously classified as held-to-maturity. As a result of a change in executive
management and the implementation of a strategic initiative to grow both lending and public fund
relationships, the Company made a one-time reclassification of all held-to-maturity securities to
available-for-sale with the intent to classify all future security purchases as available-for-sale.
The action allows management the ability to enhance the diversity and usage of the securities
portfolio. The securities portfolio at year-end 2004 consisted of U.S. Treasury, U.S. government
corporations and agencies, and obligations of state and political subdivisions. Restricted
securities consist primarily of FHLB stock. Since one of the primary functions of the securities portfolio is to provide a source of
liquidity, it is structured such that maturities and cash flows satisfy the Companys liquidity
needs and asset/liability management requirements. Loans Total loans amounted to $218.1 million at year-end 2004, compared to $213.3 million at
year-end 2003, representing an increase of $4.8 million or 2.3%. The loan portfolio at December 31,
2004 was comprised of approximately 56% commercial and commercial real estate loans down from the
58% composition at December 31, 2003. The Company recorded an increase of $3.6 million or 4.9%
increase in commercial loans; a decrease of $5.5 million in commercial real estate loans, a $6.0
million or 8.2% increase in residential real estate, a $2.0 million or 16.3% decrease in consumer
credit and an increase of $2.5 million or 45.5% in construction loans. The decrease in commercial real estate loans was partially due to the Banks exiting several
participation loan agreements with local and regional financial institutions that had been
entered into during the year ended December 31, 2003. Agriculture production loans totaled approximately $1.1 million at year-end 2004, and are included
in the commercial, commercial real estate and residential real estate categories. Credit card
loans, which are primarily unsecured, totaled $2.5 million, or 1.1%, of loans at year-end 2004.
Demand for commercial business loans, as well as both commercial and residential real estate loans,
was stable in 2004 and 2003. There was increased consumer demand for home equity loans in 2004.
Management believes the Companys local service areas will experience continued economic strength
and a continued need for these types of lending products in 2005. Most of the Banks lending activity is with customers primarily located within Holmes County, Wayne
County, and the western portion of Tuscarawas County. Credit concentrations, as determined using
Standard Industrial Classification (SIC) codes, that exceeded 5% of total loans at December 31,
2004 included $16,552,000 or 7.6% of total loans to logging, sawmills and rough cut lumber
industries; $14,365,000 or 6.6% of total loans to borrowers in the hotel, motel and lodging
business; and $11,914,000 or 5.5% of total loans to owners of non-residential real estate. These
loans are generally secured by real property and equipment and repayment is expected from
operational cash flow. Credit losses arising from the Banks lending experience in all three
industries compare favorably with the Banks loss experience on its loan portfolio as a whole.
Credit evaluation is based on an evaluation of cash flow coverage of principal and interest
payments and the adequacy of the collateral received. (LOGO)
    
    
    
    13




---



##### 



2004 Financial Review  Allowance for Loan Losses The allowance for loan losses is maintained at a level considered 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. Collectibility
of these loans is evaluated by considering 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 subjective, as to the probability of loss and the amount of loss on
these loans as well as other loans taken together. The Banks Allowance for Loan and Lease Losses
Policy includes, among other items, provisions for classified loans and a provision for the
remainder of the portfolio and historical data, including past charge-offs. The allowance for loan losses totaled $2.6 million or 1.18% of total loans at year-end 2004,
compared with $2.5 million or 1.15% of total loans at year-end 2003. Net charge-offs for 2004 totaled $307,000, compared to $191,000 in 2003 and $732,000 in 2002.
Charge-offs of $147,000, $140,000 and $43,000 occurred in commercial loans, mortgage loans and
credit cards, respectively during 2004. A net recovery of approximately $24,000 occurred in
consumer loans in 2004. During the third and fourth quarters of 2002, the Company sold $1.3 million
of commercial and commercial real estate loans that resulted in $494,000 of the charge-offs in
2002. For many of the other loans that have been charged-off, Management is continuing collection
efforts, and future recoveries may occur. The Bank maintains an internal watch list, on which it places loans where managements analysis of
the borrowers operating results and financial condition indicates that 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 0.8 % of loans at year end 2004, as compared to $1.3 million or 0.6% of
loans at year-end 2003. Impaired loans were $1.2 million at year end 2004, as compared to $897,000
in 2003 and $916,000 in 2002. The increase from 2003 to 2004 was due primarily to the
classification of one commercial real estate credit that is currently in the process of
foreclosure. Management has assigned loss allocations to absorb the estimated losses on these
impaired loans, and these allocations are included in the total allowance for loan losses balance. Other Assets Net premises and equipment decreased $319,000 to $8.2 million at year-end 2004 from $8.6
million at year-end 2003. The decrease in 2004 was due to depreciation exceeding the relatively low
volume of equipment purchases. Other assets, including accrued interest receivable, decreased
$132,000 at year-end 2004 to $1.7 million largely due to a $210,000 decrease in net tax assets and
a $119,000 increase in accrued interest receivable. Deposits The Companys deposits are obtained 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 other investment options such as mutual funds. Total deposits decreased $1.0 million to
$248.0 million at year-end 2004 as compared to $249.0 million at year-end 2003. Noninterest-bearing
deposits increased $8.2 million, or 24.5%, to $41.7 million compared to $33.5 million at year-end
2003. Interest-bearing deposits decreased $9.2 million or 4.3% at year-end 2004 compared to
year-end 2003. Interest-bearing demand deposits decreased slightly to $50.2 million while the
establishment of a money market savings account increased overall savings balances by $5.6 million.
Time deposits in excess of $100,000 decreased $7.0 million while other certificates of deposit
decreased $5.9 million as consumers invested their monies in savings accounts, awaiting increasing
interest rates on their deposits. Other Funding Sources The Company obtains additional funds through securities sold under repurchase agreements and
advances from the FHLB. These borrowings totaled $32.1 million at year-end 2004, as compared to
$21.4 million at year-end 2003. These funding sources provided a net increase in cash of $10.7
million from year-end 2003 to 2004. A $10 million advance from the FHLB was used to purchase US
Agency securities during the first quarter 2004. The repurchase agreements are uninsured, so the
Company pledges securities against these customer funds. 14
    
    (LOGO)




---



##### 



2004 Financial Review 
 CAPITAL
RESOURCES

Total shareholders equity increased from $34.7 million at December 31, 2003 to $36.2
million at December 31, 2004. This increase was primarily due to net income of $2.5 million,
offset by dividends declared of $1.4 million. Shareholders equity increased $ 11,375 in
2004, $261,000 in 2003 and $120,000 in 2002 as a portion of dividends declared were
reinvested by shareholders in common stock under the Companys dividend reinvestment program
and shares were issued from the Companys treasury shares. Banking regulations have established minimum capital ratios for banks and bank holding
companies. Therefore, the Company and the Bank must meet a risk-based capital requirement,
which defines two tiers of capital and compares each to the Companys risk-weighted
assets. The Companys assets and certain off-balance-sheet items, such as loan commitments,
are each assigned a risk factor such that assets with potentially higher credit risk will
require more capital support than assets with lower risk. These regulations require the
Company to have a minimum total risk-based capital ratio of 8%, at least half of which must
be Tier 1 capital. The Companys Tier 1 capital is its shareholders equity before any
unrealized gain or loss on securities available for sale, while total risk-based capital
includes Tier 1 capital and a limited amount of the allowance for loan losses. In addition,
a bank or bank holding companys leverage ratio (which for the Company equals its
shareholders equity before any unrealized gain or loss on securities available for sale
divided by average assets) must be maintained at a minimum of 4%. The Companys and Banks
actual and required capital amounts are disclosed in Note 10 to the consolidated financial
statements. Dividends paid by the Companys bank subsidiary are the primary source of funds available to
the Company for payment of dividends to shareholders and for other working capital needs.
The payment of dividends by the Bank to the Company is subject to restrictions by regulatory
authorities, which generally limit dividends to current and prior two years retained
earnings, as defined by regulation. In addition, dividend payments generally cannot reduce
regulatory capital levels below the minimum regulatory guidelines discussed above. 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
$15.6 million at December 31, 2004 a decrease of $1.6 million from $17.2 million at December
31, 2003. 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 7.9% of total assets at year-end 2004, as compared to 8.5% of total assets at
year-end 2003. 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. As summarized in the consolidated statements of cash flows, the most significant investing
activities for the Company in 2004 included the maturities and calls of securities totaling
$25.9 million and sales of securities of $11.9 million offset by $48.9 million in securities
purchases, and net loan originations of $5.0 million. The Companys financing activities
included a $1.0 million decrease in deposits, a $1.5 million increase in repurchase
agreements, and $10.0 million in proceeds from FHLB advances offset by $767,000 in
repayments. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The most significant market risk to which the Company is exposed is interest rate
risk. The business of the Company and the composition of its balance sheet consists of
investments in interest-earning assets (primarily loans and securities), which are funded by
interest-bearing liabilities (deposits and borrowings). These financial instruments have
varying levels of sensitivity to changes in the market rates of interest, resulting in
market risk. None of the Companys financial instruments are held for trading purposes. The Company manages interest rate risk regularly through its Asset Liability Committee. The
Committee meets on a monthly basis and reviews various asset and liability management
information, including but not limited to, the Banks liquidity position, projected sources
and uses of funds, interest rate risk position and economic conditions. The Company monitors its interest rate risk through a sensitivity analysis, whereby it
measures potential changes in its future earnings and the fair values of its financial
instruments that may result from one or more hypothetical changes in interest rates. This
analysis is performed by estimating the expected cash flows of the Companys financial
instruments using interest rates in effect at year-end 2004 and 2003. For the fair value
estimates, the cash flows are then discounted to year-end to arrive at an estimated present
value of the Companys financial instruments. Hypothetical changes in interest rates are
then applied to the financial instruments, and the cash flows and fair values are again
estimated using these hypothetical rates. For the net interest income estimates, the
hypothetical rates are applied to the financial instruments based on the assumed cash flows.
The Company applies these interest rate shocks to its financial instruments up and down
200 basis points in 100 basis point increments. (CHART) 15




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##### 



2004 Financial Review 
 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 December 31, 2004 and 2003: 2004 Change inInterest Rates
    
    
    Net Interest
    Dollar
    Percentage(basis points)
    
    
    Income
    Change
    Change(Dollars in Thousands)+200
    
    
    
    
    
    $
    13,598
    
    
    $
    1,455
    
    
    
    12.0
    %+100
    
    
    
    
    
    
    12,812
    
    
    
    669
    
    
    
    5.50
    
    
    
    
    
    
    12,143
    
    
    
    0
    
    
    
    0.0-100
    
    
    
    
    
    
    11,526
    
    
    
    (617
    )
    
    
    (5.1
    )-200
    
    
    
    
    
    
    10,762
    
    
    
    (1,381
    )
    
    
    (11.4
    )
 2003 Change inInterest Rates
    
    
    Net Interest
    Dollar
    Percentage(basis points)
    
    
    Income
    Change
    Change(Dollars in Thousands)+200
    
    
    
    
    
    $
    12,094
    
    
    $
    1,152
    
    
    
    10.5
    %+100
    
    
    
    
    
    
    11,479
    
    
    
    537
    
    
    
    4.90
    
    
    
    
    
    
    10,942
    
    
    
    0
    
    
    
    0.0-100
    
    
    
    
    
    
    10,534
    
    
    
    (408
    )
    
    
    (3.7
    )-200
    
    
    
    
    
    
    9,965
    
    
    
    (977
    )
    
    
    (8.9
    )
 Management reviews its rate shock position with the Board on a periodic
basis. The Company was within all Board-approved limits at December 31, 2004 and
2003. SIGNIFICANT ASSUMPTIONS
AND OTHER CONSIDERATIONS
The above analysis is based on numerous assumptions, including relative levels
of market interest rates, loan prepayments and reactions of depositors to changes in
interest rates, and should not be relied upon as being indicative of actual results.
Further, the analysis does not necessarily contemplate all actions the Company may
undertake in response to changes in interest rates. Securities owned by the Company will generally repay at their stated maturity. Many of
the Companys loans permit the borrower to prepay the principal balance prior to
maturity without penalty. The likelihood of prepayment depends on a number of factors,
including current interest rate and interest rate index (if any) on the loan, the
financial ability of the borrower to refinance, the economic benefit to be obtained
from refinancing, availability of refinancing at attractive terms, as well as economic
and other factors in specific geographic areas which affect the sales and price levels
of residential property. In a changing interest rate environment, prepayments may
increase or decrease on fixed and adjustable rate loans depending on the current
relative levels and expectations of future short and long-term interest rates.
Prepayments on adjustable rate residential mortgage loans generally increase when
long-term interest rates fall or are at historically low levels relative to short-term
interest rates, thus making fixed rate loans more desirable. While savings and checking
deposits generally may be withdrawn upon the customers request without prior notice, a
continuing relationship with customers resulting in future deposits and withdrawals is
generally predictable, resulting in a dependable and uninterrupted source of funds. No
change in the rates on such deposits is assumed when market rates increase or decrease
100 basis points. When market rates increase or decrease 200 basis points, the analysis
assumes a corresponding 50 basis point change in the rates paid on such deposits.
Short-term borrowings have fixed maturities. Time deposits generally have early
withdrawal penalties, which discourage customer withdrawal prior to maturity. Certain
advances from the FHLB carry prepayment penalties and are expected to be repaid in
accordance with their contractual terms. FAIR VALUE OF FINANCIAL
INSTRUMENTS
The Company discloses the estimated fair value of its financial instruments at
December 31, 2004 and 2003 in Note 13 to the consolidated financial statements. Fair
value of the Companys financial instruments experienced modest changes in 2004.
Estimated fair value of loans amounted to 100.4% of the carrying value in 2004,
decreasing from 100.8% in 2003. The fair value of securities decreased to 100.0% of
carrying value in 2004, from 103.4% in 2003, as all securities were reclassified as
available-for-sale. Estimated fair value of deposits decreased slightly to 100.2% of
carrying value in 2004 from 100.5% in 2003. (CSB LOGO) 16




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##### 



2004 Financial Review 
 OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS, AND CONTINGENT LIABILITIES
AND COMMITMENTS  Amount of Commitment to Expire Per PeriodTotal

    Less than 1

    1-3

    3-5

    Over 5Type of Commitment
    
    Amount

    year

    Years

    Years

    Years(dollars in thousands)Commercial lines-of-credit
    
    $
    23,611
    
    
    $
    23,611Real estate lines-of-credit
    
    
    12,101
    
    
    
    60
    
    
    $
    79
    
    
    $
    247
    
    
    $
    11,715Consumer lines-of-credit
    
    
    675
    
    
    
    675Credit card lines-of-credit
    
    
    9,098
    
    
    
    9,098Letters of credit
    
    
    555
    
    
    
    555Total Commitments
    
    $
    46,040
    
    
    $
    33,999
    
    
    $
    79
    
    
    $
    247
    
    
    $
    11,715
 As indicated in the preceding table, the Bank had $46.0 million in total
loan commitments at the end of 2004, with $34.0 million of that amount expiring within
one year. All lines-of-credit represent either fee-paid or legally binding loan
commitments for the loan categories noted. Letters of credit are also included in the
amounts noted in the table since the Bank requires that each letter of credit be
supported by a loan agreement. The commercial and consumer lines represent both
unsecured and secured obligations. The real estate lines are secured by mortgages in
residential and nonresidential property. The credit card lines were all made on an
unsecured basis. It is anticipated that a significant portion of these lines will
expire without being drawn upon, particularly the credit card lines, which represent
the maximum amount available to all cardholders. The following table summarizes the Companys other contractual obligations as of December
31, 2004: Payment Due by PeriodTotal
    
    
    Less than
    
    
    1-3
    
    
    3-5
    
    
    Over 5Contractual Obligations
    
    Amount
    
    
    1 year
    
    
    Years
    
    
    Years
    
    
    Years(dollars in thousands)Long-term debt
    
    $
    18,745
    
    
    $
    10,677
    
    
    $
    6,044
    
    
    $
    787
    
    
    $
    1,237Capital leasesOperating leases
    
    
    156
    
    
    
    71
    
    
    
    69
    
    
    
    16Unconditional purchase obligationsOtherTotal Obligations
    
    $
    18,901
    
    
    $
    10,748
    
    
    $
    6,113
    
    
    $
    803
    
    
    $
    1,237
 The long-term debt noted in the preceding table represents borrowings from the
Federal Home Loan Bank of Cincinnati. The notes require payment of interest on a
monthly basis with principal due in monthly installments or at maturity, depending
upon the issue. The obligations bear stated fixed interest rates and stipulate a
prepayment penalty if the notes interest rate exceeds the current market rate for
similar borrowings at the time of repayment. As the notes mature, the Bank evaluates
the liquidity and interest-rate circumstances at that point in time to determine
whether to payoff or renew the note. The evaluation process typically includes: the
strength of current and projected customer loan demand, the Banks federal funds
sold or purchased position, projected cash flows from maturing investment
securities, the current and projected market interest rate environment, local and
national economic conditions, and customer demand for the Banks deposit product
offerings. As also indicated in the table, the Company had no capital leases or unconditional
purchase obligations as of December 31, 2004. (CSB LOGO) 17




---



##### 



2004 Financial Review 
 IMPACT OF RECENTLY ISSUED
ACCOUNTING PRONOUNCEMENTS
In March 2004, the Financial Accounting Standards Board ratified the consensus
reached by the Emerging Issues Task Force in Issue 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments (EITF 03-1).
EITF 03-1 provides guidance for determining when an investment is considered impaired,
whether impairment is other-than-temporary, and measurement of an impairment loss. At
December 31, 2004, the Company had gross unrealized losses of $355,000 relating to
available-for-sale securities. As disclosed in Note 1 to the consolidated financial
statements, management has considered various factors in concluding that the unrealized
losses are the result of customary and expected fluctuations in the bond market.
Furthermore, it is managements opinion the Bank has both the ability and intent to hold
such securities until maturity or until such time as the fair value of the security equals
or exceeds amortized cost. On March 9, 2004, the SEC issued Staff Accounting Bulletin No. 105, Application of
Accounting Principles to Loan Commitments (SAB 105). This bulletin was issued to inform
registrants of the SECs view that the fair value of the recorded loan commitments that
are required to follow derivative accounting under FAS 133, Accounting for Derivative
Instruments and Hedging Activities, should not consider the expected future cash flows
related to the associated servicing of the future loan. The provisions of SAB 105 must be
applied to loan commitments accounted for as derivatives that are entered into after March
31, 2004. The adoption of this Staff Accounting Bulletin did not have an impact on the
Companys consolidated financial statements since the Bank has not entered into loan
commitments that are required to follow derivative accounting under FAS 133. In December 2003, the Accounting Standards Executive Committee of the American Institute
of Certified Public Accountants issued AICPA Statement of Position No. 03-3, Accounting
for Certain Loans or Debt Securities Acquired in a Transfer (SOP 03-3), to address
accounting for differences between the contractual cash flows of certain loans and debt
securities and the cash flows expected to be collected when loans or debt securities are
acquired in a transfer and those cash flow differences are attributable, at least in part,
to credit quality. As such, SOP 03-3 applies to such loans and debt securities purchased
or acquired in purchase business combinations and does not apply to originated loans. SOP
03-3 is effective for loans and debt securities acquired in fiscal years beginning after
December 15, 2004, with early application encouraged. At the present time, the
implementation of SOP 03-3 is not expected to have a significant, if any, impact on the
Companys consolidated financial statements. The Company applies Accounting Principles Board Opinion No. 25 in accounting for stock
options and discloses the fair value of options granted as permitted by SFAS No. 123. No
stock-based employee compensation cost is reflected in net income, as all options granted
under those plans had an exercise price equal to the market value of the common stock at
date of grant. In December 2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (Revised), Share-Based Payments (FAS 123R),
which requires that the cost resulting from all share-based payment transactions be
recognized in the financial statements. FAS 123R also establishes fair value as the
measurement objective in accounting for share-based payment arrangements, including share
options. The Statement will require the Company to measure compensation expense based on
the grant-date fair value of options awarded over the period during which the recipient is
required to provide services in exchange for the award. The Company will be required to adopt the provisions of FAS 123R as of the interim
reporting period that begins July 1, 2005. FAS 123R applies to all options awarded after
the required effective date and to awards modified, repurchased, or cancelled after that
date. The cumulative effect of initially applying FAS 123R, if any, will be recognized as
of July 1, 2005. The Company has not yet determined the impact the adoption of FAS 123R
will have on its consolidated financial statements. SIGNIFICANT ACCOUNTING
POLICIES
The Companys consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America and follow
general practices within the commercial banking industry. Application of these principles
requires management to make estimates, assumptions, and judgments that affect the amounts
reported in the financial statements. These estimates, assumptions, and judgments are
based upon the information available as of the date of the financial statements. The most significant accounting policies followed by the Company are presented in the
Summary of Significant Accounting Policies. These policies, along with the other
disclosures presented in the Notes to Consolidated Financial Statements and the 2004
Financial Review, provide information about how significant assets and liabilities are
valued in the financial statements and how those values are determined. Management has
identified the determination of the allowance for loan losses as the accounting area that
requires the most subjective and complex estimates, assumptions, and judgments and, as
such, could be the most subject to revision as new information becomes available. As previously noted in the section entitled Allowance for Loan Losses, management performs
analysis to assess the adequacy of its allowance for loan losses. This analysis
encompasses a variety of factors including the potential loss exposure for individually
reviewed loans, the historical loss experience, the volume of non-performing loans (i.e.,
loans in nonaccrual status or past due 90 days or more), the volume of loans past due, any
significant changes in lending or loan review staff, an evaluation of current and future
local and national economic conditions, any significant changes in the volume or mix of
loans within each category, a review of the significant concentrations of credit, and any
legal, competitive, or regulatory concerns. (CSB LOGO) 18




---



##### 



2004 Financial Review 
 IMPACT OF INFLATION AND
CHANGING PRICES
The financial statements and related data presented herein have been prepared in accordance
with generally accepted accounting principles, requiring measurement of financial position and
results of operations primarily in terms of historical dollars without considering changes in the
relative purchasing power of money over time due to inflation. Unlike most industrial companies,
most assets and liabilities of the Company are monetary in nature. Therefore, interest rates have a
more significant impact on a financial institutions performance than the effects of general levels
of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude
as prices of goods and services. The liquidity, maturity structure and
quality of the Companys assets and liabilities are critical to maintenance of acceptable
performance levels. COMMON STOCK AND
SHAREHOLDER INFORMATION
Common shares of the Company are not traded on an established market. Shares are traded through
broker/dealers under the symbol CSBB.OB and through private transactions. The table below
represents the range of high and low prices paid for transactions known to the Company. Management
does not have knowledge of prices paid on all transactions. Because of the lack of an established
market, these prices may not reflect the prices at which stock would trade in an active market.
These quotations reflect inter-dealer prices, without mark-up, mark-down or commission and may not
represent actual transactions. The chart specifies cash dividends declared by the Company to its
shareholders during 2004 and 2003. No assurances can be given that dividends will be declared, or
if declared, what the amount of any such dividends will be. Additional information concerning
restrictions over the payment of dividends is included in Note 10 of the consolidated financial
statements. Quarter Ended
    
    High
    
    
    Low
    
    
    Dividends DeclaredMarch 31, 2004
    
    $
    18.00
    
    
    $
    17.00
    
    
    $
    343,765June 30, 2004
    
    
    18.50
    
    
    
    17.07
    
    
    
    343,765September 30, 2004
    
    
    20.25
    
    
    
    17.80
    
    
    
    343,845December 31, 2004
    
    
    21.00
    
    
    
    19.65
    
    
    
    343,846March 31, 2003
    
    $
    18.50
    
    
    $
    16.50
    
    
    $
    315,937June 30, 2003
    
    
    18.00
    
    
    
    17.00
    
    
    
    316,398September 30, 2003
    
    
    17.50
    
    
    
    15.50
    
    
    
    316,871December 31, 2003
    
    
    17.55
    
    
    
    17.00
    
    
    
    317,322
 As of December 31, 2004, the Company had approximately 1,190 shareholders and 2,644,962
outstanding shares of common stock. TRANSFER AGENT
Registrar and Transfer Company
Attn: Investor Relations
10 Commerce Drive
Cranford, NJ 07016
800-368-5948 ANNUAL AND OTHER REPORTS;
SHAREHOLDER AND GENERAL INQUIRIES
CSB Bancorp, Inc. is required to file an annual report on Form 10-K annually with the
Securities and Exchange Commission. Copies of the Form 10-K annual report and the Companys
quarterly reports may be obtained without charge by contacting: Paula J. Meiler, Chief Financial Officer
CSB Bancorp, Inc.
6 West Jackson Street
Millersburg, Ohio 44654
Phone 330-674-9015 or 800-654-9015 The annual meeting of shareholders is currently scheduled to be held on Wednesday, April 27,
2005 at 7:00 pm, at the Carlisle Inn in Walnut Creek, Ohio. (CSB LOGO) 19




---



##### 



Report of Independent Registered Public Accounting Firm 
 (CLIFTON GUNDERSON LLP LOGO) Shareholders and Board of
Directors CSB Bancorp, Inc.
Millersburg, Ohio We have audited the accompanying consolidated balance sheets of CSB Bancorp, Inc. and subsidiary as
of December 31, 2004 and 2003, and the related consolidated statements of income, shareholders
equity, and cash flows for each of the three years in the period ended December 31, 2004. These
consolidated financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of CSB Bancorp, Inc. and subsidiary as of December 31,
2004 and 2003, and the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2004, in conformity with accounting principles generally accepted
in the United States of America. (CLIFTON GUNDERSON LLP) Toledo, Ohio
January 27, 2005 (CSB LOGO) 20




---



##### 



Consolidated Balance Sheets 
 December 31, 2004 and 2003 2004
    
    
    2003ASSETSCASH AND CASH EQUIVALENTSCash and due from banks
    
    $
    12,501,954
    
    
    $
    12,327,227Interest-earning deposits in other banks
    
    
    142,338
    
    
    
    147,154Federal funds sold
    
    
    3,000,000
    
    
    
    4,727,000Total cash and cash equivalents
    
    
    15,644,292
    
    
    
    17,201,381SECURITIESAvailable-for-sale, at fair value
    
    
    73,438,070
    
    
    
    28,990,615Held-to-maturity, at amortized cost (fair value of $38,395,177 in 2003)
    
    
    
    
    
    
    36,092,027Restricted stock, at cost
    
    
    2,790,400
    
    
    
    2,690,600Total securities
    
    
    76,228,470
    
    
    
    67,773,242LOANS
    
    
    218,084,479
    
    
    
    213,254,462Less allowance for loan losses
    
    
    2,574,945
    
    
    
    2,458,864Net loans
    
    
    215,509,534
    
    
    
    210,795,598PREMISES AND EQUIPMENT, NET
    
    
    8,243,997
    
    
    
    8,563,276ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS
    
    
    1,714,050
    
    
    
    1,846,292TOTAL ASSETS
    
    $
    317,340,343
    
    
    $
    306,179,789LIABILITIES AND SHAREHOLDERS EQUITYLIABILITIESDeposits:Noninterest-bearing
    
    $
    41,733,596
    
    
    $
    33,539,061Interest-bearing
    
    
    206,217,123
    
    
    
    215,418,686Total deposits
    
    
    247,950,719
    
    
    
    248,957,747Securities sold under repurchase agreements
    
    
    13,316,473
    
    
    
    11,859,052Federal Home Loan Bank borrowings
    
    
    18,745,236
    
    
    
    9,512,481Accrued interest payable and other liabilities
    
    
    1,120,408
    
    
    
    1,132,971Total liabilities
    
    
    281,132,836
    
    
    
    271,462,251SHAREHOLDERS EQUITYCommon stock, $6.25 par value. Authorized 9,000,000
shares; issued 2,667,786 shares
    
    
    16,673,667
    
    
    
    16,673,667Additional paid-in capital
    
    
    6,413,915
    
    
    
    6,413,915Retained earnings
    
    
    13,358,321
    
    
    
    12,214,751Treasury stock at cost - 22,824 shares in 2004
and 23,436 shares in 2003
    
    
    (627,119
    )
    
    
    (645,938
    )Accumulated other comprehensive income
    
    
    388,723
    )
    
    
    61,143Total shareholders equity
    
    
    36,207,507
    
    
    
    34,717,538TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    317,340,343
    
    
    $
    306,179,789
 These consolidated financial statements should be read only in connection with the accompanying summary of significant accounting policies and
notes to consolidated financial statements. (CSB LOGO) 21




---



##### 



Consolidated Statements of IncomeYears Ended December 31, 2004, 2003 and 2002
 2004
    
    
    2003
    
    
    2002INTEREST AND DIVIDEND INCOMELoans, including fees
    
    $
    12,122,379
    
    
    $
    12,452,881
    
    
    $
    12,639,261Taxable securities
    
    
    1,501,812
    
    
    
    1,020,512
    
    
    
    1,658,996Nontaxable securities
    
    
    1,409,263
    
    
    
    1,905,372
    
    
    
    2,190,103Other
    
    
    40,094
    
    
    
    35,666
    
    
    
    211,435Total interest and dividend income
    
    
    15,073,548
    
    
    
    15,414,431
    
    
    
    16,699,795INTEREST EXPENSEDeposits
    
    
    3,237,803
    
    
    
    3,849,339
    
    
    
    5,764,027Other
    
    
    636,113
    
    
    
    782,019
    
    
    
    702,802Total interest expense
    
    
    3,873,916
    
    
    
    4,631,358
    
    
    
    6,466,829NET INTEREST INCOME
    
    
    11,199,632
    
    
    
    10,783,073
    
    
    
    10,232,966PROVISION (CREDIT) FOR LOAN LOSSES
    
    
    422,621
    
    
    
    (51,000
    )
    
    
    (586,521
    )Net interest income, after provision
(credit) for loan losses
    
    
    10,777,011
    
    
    
    10,834,073
    
    
    
    10,819,487NONINTEREST INCOMEService charges on deposit accounts
    
    
    846,935
    
    
    
    790,587
    
    
    
    807,206Merchant fees
    
    
    163,086
    
    
    
    207,811
    
    
    
    212,109Trust services
    
    
    386,469
    
    
    
    375,929
    
    
    
    334,089Securities gains
    
    
    587,916
    
    
    
    1,068
    
    
    
    114,822Gain on sale of loans
    
    
    13,481
    
    
    
    68,267
    
    
    
    5,843Gain (loss) on sale of other real estate owned
    
    
    
    
    
    
    114,836
    
    
    
    (3,350
    )Other
    
    
    682,423
    
    
    
    596,855
    
    
    
    566,342Total noninterest income
    
    
    2,680,310
    
    
    
    2,155,353
    
    
    
    2,037,061NONINTEREST EXPENSESSalaries and employee benefits
    
    
    5,250,732
    
    
    
    5,516,584
    
    
    
    5,554,344Occupancy expense
    
    
    642,048
    
    
    
    647,157
    
    
    
    622,037Equipment expense
    
    
    515,267
    
    
    
    490,483
    
    
    
    534,296Franchise tax expense
    
    
    419,527
    
    
    
    408,544
    
    
    
    377,274Professional and director fees
    
    
    680,043
    
    
    
    894,314
    
    
    
    868,257Other expenses
    
    
    2,770,469
    
    
    
    2,842,235
    
    
    
    3,042,202Total noninterest expenses
    
    
    10,278,086
    
    
    
    10,799,317
    
    
    
    10,998,410Income before income taxes
    
    
    3,179,235
    
    
    
    2,190,109
    
    
    
    1,858,138FEDERAL INCOME TAX PROVISION (CREDIT)
    
    
    653,000
    
    
    
    130,000
    
    
    
    (65,000
    )NET INCOME
    
    $
    2,526,235
    
    
    $
    2,060,109
    
    
    $
    1,923,138NET INCOME PER SHAREBasic
    
    $
    .96
    
    
    $
    .78
    
    
    $
    .73Diluted
    
    $
    .95
    
    
    $
    .78
    
    
    $
    .73
 These consolidated financial statements should be read only in connection with the accompanying summary of significant accounting policies and notes to consolidated financial statements. (CSB LOGO) 22




---



##### 



Consolidated Statements of Shareholders EquityYears Ended December 31, 2004, 2003 and 2002
 Additional
    
    
    
    
    
    
    
    
    
    
    Accumulated otherCommon
    
    
    paid-in
    
    
    Retained
    
    
    Treasury
    
    
    comprehensivestock
    
    
    capital
    
    
    earnings
    
    
    stock
    
    
    income (loss)
    
    
    TotalBALANCE AT DECEMBER 31, 2001
    
    $
    16,673,667
    
    
    $
    6,413,915
    
    
    $
    10,571,152
    
    
    $
    (1,204,018
    )
    
    $
    266,421
    
    
    $
    32,721,137Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    1,923,138
    
    
    
    
    
    
    
    
    
    
    
    1,923,138Change in net unrealized gain (loss),
net of reclassification
adjustments and related
income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (144,699
    )
    
    
    (144,699
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,778,439Issuance of 6,562 shares from treasury under
dividend reinvestment program
    
    
    
    
    
    
    
    
    
    
    (83,829
    )
    
    
    203,434
    
    
    
    
    
    
    
    119,605Purchase of 5,013 treasury shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (87,728
    )
    
    
    
    
    
    
    (87,728
    )Cash dividends declared, $.30 per share
    
    
    
    
    
    
    
    
    
    
    (789,169
    )
    
    
    
    
    
    
    
    
    
    
    (789,169
    )BALANCE AT DECEMBER 31 , 2002
    
    
    16,673,667
    
    
    
    6,413,915
    
    
    
    11,621,292
    
    
    
    (1,088,312
    )
    
    
    121,722
    
    
    
    33,742,284Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    2,060,109
    
    
    
    
    
    
    
    
    
    
    
    2,060,109Change in net unrealized gain (loss),
net of reclassification
adjustments and related
income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (60,579
    )
    
    
    (60,579
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,995,530Issuance of 15,135 shares from treasury under
dividend reinvestment program
    
    
    
    
    
    
    
    
    
    
    (200,122
    )
    
    
    461,119
    
    
    
    
    
    
    
    260,997Purchase of 1,043 treasury shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,745
    )
    
    
    
    
    
    
    (18,745
    )Cash dividends declared, $.48 per share
    
    
    
    
    
    
    
    
    
    
    (1,266,528
    )
    
    
    
    
    
    
    
    
    
    
    (1,266,528
    )BALANCE AT DECEMBER 31, 2003
    
    
    16,673,667
    
    
    
    6,413,915
    
    
    
    12,214,751
    
    
    
    (645,938
    )
    
    
    61,143
    
    
    
    34,717,538Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    2,526,235
    
    
    
    
    
    
    
    
    
    
    
    2,526,235Change in net unrealized gain (loss), net
of reclassification adjustments and related
income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    327,580
    
    
    
    327,580Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,853,815Issuance of 612 shares from treasury under dividend
reinvestment program
    
    
    
    
    
    
    
    
    
    
    (7,444
    )
    
    
    18,819
    
    
    
    
    
    
    
    11,375Cash dividends declared, $.52 per share
    
    
    
    
    
    
    
    
    
    
    (1,375,221
    )
    
    
    
    
    
    
    
    
    
    
    (1,375,221
    )BALANCE AT DECEMBER 31, 2004
    
    $
    16,673,667
    
    
    $
    6,413,915
    
    
    $
    13,358,321
    
    
    $
    (627,119
    )
    
    $
    388,723
    
    
    $
    36,207,507
 These consolidated financial statements should be read only in connection with the accompanying summary of significant accounting policies and notes to consolidated financial statements. (CSB LOGO) 23




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##### 



Consolidated Statements of Cash FlowsYears Ended December 31, 2004, 2003 and 2002
 2004
    
    
    2003
    
    
    2002CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    2,526,235
    
    
    $
    2,060,109
    
    
    $
    1,923,138Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization of
premises and equipment
    
    
    760,009
    
    
    
    723,841
    
    
    
    720,316Deferred income taxes
    
    
    115,246
    
    
    
    (113,793
    )
    
    
    1,426,542Provision (credit) for loan losses
    
    
    422,621
    
    
    
    (51,000
    )
    
    
    (586,521
    )Gain on sale of loans
    
    
    (13,481
    )
    
    
    (68,267
    )
    
    
    (5,843
    )Securities gains
    
    
    (587,916
    )
    
    
    (1,068
    )
    
    
    (114,822
    )Gain on sale of premises and equipment
    
    
    
    
    
    
    
    
    
    
    (1,762
    )Loss (gain) on sale of other real estate owned
    
    
    
    
    
    
    (114,836
    )
    
    
    3,350Security amortization, net of accretion
    
    
    31,448
    
    
    
    14,764
    
    
    
    88,983Federal Home Loan Bank stock dividends
    
    
    (99,800
    )
    
    
    (97,100
    )
    
    
    (109,700
    )Secondary market loan sale proceeds
    
    
    1,281,531
    
    
    
    7,933,025
    
    
    
    3,871,289Originations of secondary market loans
held-for-sale
    
    
    (1,268,050
    )
    
    
    (7,864,758
    )
    
    
    (3,865,446
    )Effects of changes in operating assets and liabilities:Net deferred loan fees
    
    
    (104,489
    )
    
    
    (21,088
    )
    
    
    (166,716
    )Accrued interest receivable
    
    
    (118,785
    )
    
    
    320,468
    
    
    
    406,812Accrued interest payable
    
    
    (10,309
    )
    
    
    (41,701
    )
    
    
    (184,174
    )Other assets and liabilities
    
    
    (61,750
    )
    
    
    758,858
    
    
    
    557,806Net cash provided by operating activities
    
    
    2,872,510
    
    
    
    3,437,454
    
    
    
    3,963,252CASH FLOWS FROM INVESTING ACTIVITIESSecurities available-for-sale:Proceeds from maturities and repayments
    
    
    25,896,718
    
    
    
    38,128,846
    
    
    
    31,129,822Proceeds from sale
    
    
    11,928,699Purchases
    
    
    (48,940,043
    )
    
    
    (44,537,368
    )
    
    
    (20,497,528
    )Securities held-to-maturity:Proceeds from maturities and repayments
    
    
    3,812,000
    
    
    
    11,714,947
    
    
    
    8,803,000Proceeds from sale of loans
    
    
    
    
    
    
    
    
    
    
    780,732Loan originations, net of repayments
    
    
    (5,032,068
    )
    
    
    (13,614,238
    )
    
    
    (32,605,933
    )Proceeds from sale of other real estate
    
    
    
    
    
    
    169,000
    
    
    
    327,486Proceeds from sale of premises and equipment
    
    
    
    
    
    
    
    
    
    
    11,450Property and equipment expenditures
    
    
    (440,730
    )
    
    
    (216,879
    )
    
    
    (459,672
    )Net cash used in investing activities
    
    
    (12,775,424
    )
    
    
    (8,355,692
    )
    
    
    (12,510,643
    )
 These consolidated financial statements should be read only in connection with the accompanying summary of significant accounting policies and notes to consolidated financial statements. (CSB LOGO) 24




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##### 



Consolidated Statements of Cash FlowsYears Ended December 31, 2004, 2003 and 2002
 2004
    
    
    2003
    
    
    2002CASH FLOWS FROM FINANCING ACTIVITIESNet change in deposits
    
    $
    (1,007,028
    )
    
    $
    8,981,814
    
    
    $
    (11,453,797
    )Net change in securities sold under
repurchase agreements
    
    
    1,457,421
    
    
    
    (2,589,332
    )
    
    
    (508,641
    )Federal Home Loan Bank borrowings:Proceeds
    
    
    10,000,000
    
    
    
    5,000,000
    
    
    
    10,000,000Repayments
    
    
    (767,245
    )
    
    
    (10,867,579
    )
    
    
    (979,728
    )Purchase of treasury shares
    
    
    
    
    
    
    (18,745
    )
    
    
    (87,728
    )Cash dividends paid
    
    
    (1,337,323
    )
    
    
    (951,235
    )
    
    
    (406,538
    )Net cash provided by (used in) financing activities
    
    
    8,345,825
    
    
    
    (445,077
    )
    
    
    (3,436,432
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (1,557,089
    )
    
    
    (5,363,315
    )
    
    
    (11,983,823
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    17,201,381
    
    
    
    22,564,696
    
    
    
    34,548,519CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    15,644,292
    
    
    $
    17,201,381
    
    
    $
    22,564,696SUPPLEMENTAL DISCLOSURESCash paid during the year for:Interest
    
    $
    3,884,225
    
    
    $
    4,673,059
    
    
    $
    6,651,003Income taxes
    
    $
    550,000
    
    
    $
    20,000
    
    
    $Noncash investing activities:Transfer of loans to other real estate owned
    
    $
    
    
    
    $
    
    
    
    $
    385,000Transfer of securities from held-to-maturity
to available-for-sale
    
    $
    31,681,132
    
    
    $
    
    
    
    $Noncash financing activity  payments
of dividends through issuance of
treasury shares, under dividend
reinvestment program
    
    $
    11,375
    
    
    $
    260,997
    
    
    $
    119,605
 These consolidated financial statements should be read only in connection with the accompanying summary of significant accounting policies and notes to consolidated financial statements. (CSB LOGO) 25




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##### 



Summary of Significant Accounting Policies
 CSB Bancorp, Inc. (the Company) was incorporated in 1991 in the State of Ohio and is a
registered bank holding company for its wholly-owned subsidiary, The Commercial and Savings Bank
(the Bank). The Company, through its subsidiary, operates in one industry segment, the commercial
banking industry. The Bank, an Ohio-chartered bank organized in 1879, provides financial services through its Main
Office and eight Banking Centers located in Millersburg, Ohio, and nearby communities. These
communities are the source of substantially all deposit, loan and trust activities. The majority of
the Banks income is derived from commercial and retail lending activities and investments in
securities. Its primary deposit products are checking, savings, and term certificate accounts, and
its primary lending products are residential mortgage, commercial, and installment loans.
Substantially, all loans are secured by specific items of collateral including business assets,
consumer assets and real estate. Commercial loans are expected to be repaid from cash flow from
operations of business. Real estate loans are secured by both residential and commercial real
estate. Significant accounting policies followed by
the Company are presented below: USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS In preparing consolidated financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts
of revenues and expenses during each reporting period. Actual results could differ from those
estimates. The most significant estimate susceptible to change in the near term relates to
managements determination of the allowance for loan losses. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiary. All significant inter-company balances and transactions have been
eliminated in consolidation. The Bank has established a trust department and the assets held by the Bank in fiduciary or agency
capacities for its customers are not included in the consolidated balance sheets as such items are
not assets of the Bank. CASH AND CASH EQUIVALENTS For purposes of the consolidated statements of cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, and federal funds sold which mature overnight or
within three days. CASH RESERVE REQUIREMENTS The Bank is required by the Federal Reserve to maintain reserves consisting of cash on
hand and noninterest-earning balances on deposit with the Federal Reserve Bank. The required
reserve balance at December 31, 2004 and 2003 was $2,434,000 and $1,879,000, respectively. SECURITIES During 2004, the Bank transferred its held-to-maturity securities portfolio to the
available-for-sale classification, as more fully described in Note 1. Prior to the transfer,
securities designated as held-to-maturity were carried at amortized cost. Securities designated as
available-for-sale are carried at fair value with unrealized gains and losses, net of applicable
income taxes, on such securities recognized as other comprehensive income (loss). The amortized cost of debt securities is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization and accretion is included in interest and dividends on
securities. Investments in Federal Home Loan Bank and Federal Reserve Bank stock are classified as restricted
securities, carried at cost, and evaluated for impairment. Gains and losses on sales of securities
are accounted for on a completed transaction basis, using the specific identification method, and
are included in noninterest income. Securities are written down to fair value when a decline in
fair value is not temporary. (CSB LOGO) 26




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##### 



Summary of Significant Accounting Policies 
 LOANS
Loans that management has the intent and ability to hold for the foreseeable future or until
maturity or pay-off generally are stated at their outstanding principal amount, adjusted for
charge-offs, the allowance for loan losses and any deferred loan fees or costs on originated loans.
Interest is accrued based upon the daily outstanding principal balance. Loan origination fees and
certain direct origination costs are capitalized and recognized as an adjustment of the yield of
the related loan. Interest income is not reported when full repayment is in doubt, typically when the loan is
impaired or payments are past due over 90 days. All interest accrued but not collected for loans
that are placed on nonaccrual or charged-off is reversed against interest income. The interest on
these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return
to accrual. Loans are returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are reasonably assured. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established as losses are estimated to have occurred through
a provision for loan losses charged to income. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if
any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based upon
managements periodic review of the collectibility of the loans in light of historical experience,
the nature and volume of the loan portfolio, adverse situations that may affect the borrowers
ability to repay, estimated value of any underlying collateral and prevailing economic conditions.
This evaluation is inherently subjective as it requires estimates that are susceptible to
significant revision as more information becomes available. A loan is considered impaired when, based on current information and events, it is probable that
the Bank will be unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired. Management determines the
significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower, including the length
of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the
shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan
basis for commercial, commercial real estate, and construction loans by either the present value of
expected future cash flows discounted at the loans effective interest rate, the loans obtainable
market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.
Accordingly, the Bank does not separately identify individual consumer and residential loans
for impairment disclosures. OTHER REAL ESTATE OWNED
Other real estate acquired through or in lieu of foreclosure is initially recorded at the
lower of cost or fair value, less estimated costs to sell, and any loan balance in excess of fair
value is charged to the allowance for loan losses. Subsequent valuations are periodically performed
and write-downs are included in other operating expense, as are gains or losses upon sale and
expenses related to maintenance of the properties. There was no other real estate owned at December
31, 2004 and 2003. PREMISES AND EQUIPMENT
Premises and equipment is stated at cost less accumulated depreciation and amortization. Upon
the sale or disposition of the assets, the difference between the depreciated cost and proceeds is
charged or credited to income. Depreciation and amortization is determined based on the estimated
useful lives of the individual assets (typically 20 to 40 years for buildings and 3 to 10 years for
equipment) and is computed using both accelerated and straight-line methods. SERVICING
Mortgage servicing rights are recognized as an asset when acquired through sale of loans.
Capitalized servicing rights are reported in other assets and are amortized into noninterest income
in proportion to, and over the period of, the estimated future net servicing income of the
underlying loans. Servicing assets are evaluated for impairment based upon the fair value of the
rights as compared to amortized cost. Any impairment is recognized through a valuation allowance to
the extent that fair value is less than the capitalized amount. (CSB LOGO) 27




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##### 



Summary of Significant Accounting Policies 
 REPURCHASE AGREEMENTS
Substantially all securities sold under repurchase agreements represent amounts
advanced by various customers. Securities are pledged to cover those obligations,
which are not deposits and not covered by federal deposit insurance. ADVERTISING COSTS
All advertising costs are expensed as incurred. FEDERAL INCOME TAXES
Deferred income taxes are provided on temporary differences between financial
statement and income tax reporting. Temporary differences are differences between the
amounts of assets and liabilities, reported for financial statement purposes and their
tax bases. Deferred tax assets are recognized for temporary differences that will be
deductible in future years tax returns and for operating loss and tax credit
carryforwards. Deferred tax assets are reduced by a valuation allowance if it is
deemed more likely than not that some or all of the deferred tax assets will not be
realized. Deferred tax liabilities are recognized for temporary differences that will
be taxable in future years tax returns. The Bank is not currently subject to state and local income taxes. STOCK-BASED COMPENSATION
Employee compensation expense under stock option plans is reported if options
are granted below market price at the grant date. Pro forma disclosures of
compensation cost of stock-based awards have been determined using the fair value
method that considers the time value of the option considering the volatility of the
Companys stock and the risk-free interest rate over the expected life of the option
using a Black-Scholes valuation model. Had compensation cost for stock options been
measured using FASB Statement No. 123, net income and earnings per share would have
been the pro forma amounts indicated below. The pro forma effect may increase in the
future if more options are granted. 2004
    
    
    2003
    
    
    2002Net income as reported
    
    $
    2,526,235
    
    
    $
    2,060,109
    
    
    $
    1,923,138Pro forma net income
    
    
    2,469,434
    
    
    
    2,031,391
    
    
    
    1,904,729Basic earnings per share as reported
    
    
    .96
    
    
    
    .78
    
    
    
    .73Pro forma basic earnings per share
    
    
    .93
    
    
    
    .77
    
    
    
    .72Diluted earnings per share as reported
    
    
    .95
    
    
    
    .78
    
    
    
    .73Pro forma diluted earnings per share
    
    
    .93
    
    
    
    .77
    
    
    
    .72
 The pro forma effects are
computed using option pricing models, using the following
weighted-average assumptions as of grant date. 2004

    
    2003

    
    2002Risk-free interest rate
    
    
    3.34
    %
    
    
    2.75
    %
    
    
    3.00
    %Expected option life (years)
    
    
    3.5
    
    
    
    6.4
    
    
    
    9.5Dividend yield
    
    
    2.6
    %
    
    
    2.5
    %
    
    
    2.5
    %
 In December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (Revised), Share-Based Payments (FAS 123R),
which requires that the cost resulting from all share-based payment transactions be
recognized in the financial statements. FAS 123R also establishes fair value as the
measurement objective in accounting for share-based payment arrangements, including
share options. The Statement will require the Company to measure compensation expense
based on the grant-date fair value of options awarded over the period during which the
recipient is required to provide services in exchange for the award. The Company will be required to adopt the provisions of FAS 123R as of the interim
reporting period that begins July 1, 2005. FAS 123R applies to all options awarded
after the required effective date and to awards modified, repurchased, or cancelled
after that date. The cumulative effect of initially applying FAS 123R, if any, will be
recognized as of July 1, 2005. The Company has not yet determined the impact the
adoption of FAS 123R will have on its consolidated financial statements. (CSB LOGO) 28




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##### 



Summary of Significant Accounting Policies 
 COMPREHENSIVE INCOME
Accounting principles generally require that recognized revenue, expenses, gains and losses
be included in net income. Although certain changes in assets and liabilities, such as unrealized
gains and losses on available-for-sale securities, are reported as a separate component of the
equity section of the balance sheet, such items, along with net income, are components of
comprehensive income. TRANSFERS OF FINANCIAL ASSETS
Transfers of financial assets are accounted for as sales, when control over the assets has
been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets
have been isolated from the Company, (2) the transferee obtains the right (free of conditions that
constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and
(3) the Bank does not maintain effective control over the transferred assets through an agreement
to repurchase them before their maturity. PER SHARE DATA
Basic net income per share is computed based on the weighted average number of shares of
common stock outstanding during each year, after restatement for stock dividends. Diluted income
per common share includes the dilutive effect of additional potential common shares issuable under
stock options. The weighted average number of common shares outstanding for basic and diluted earnings per share
computations were as follows; 2004
    
    
    2003
    
    
    2002Weighted average common shares outstanding (basic)
    
    
    2,644,582
    
    
    
    2,638,360
    
    
    
    2,630,931Dilutive effect of assumed exercise of stock options
    
    
    6,366
    
    
    
    3,527
    
    
    
    3,627Weighted average common shares outstanding (diluted)
    
    
    2,650,948
    
    
    
    2,641,887
    
    
    
    2,634,558
 Dividends per share are based on the number of shares outstanding at the declaration date. (CSB LOGO) 29




---



##### 



Notes to Consolidated Financial Statements 
 NOTE 1  SECURITIES
Securities consist of the following at December 31, 2004 and 2003: Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Faircost
    
    
    gains
    
    
    losses
    
    
    valueDecember 31, 2004Available-for-sale:U.S. Treasury security
    
    $
    101,551
    
    
    $
    32,277
    
    
    
    
    
    
    $
    133,828Obligations of U.S. government
corporations and agencies
    
    
    39,458,087
    
    
    
    38,527
    
    
    $
    282,074
    
    
    
    39,214,540Mortgage-backed securities
    
    
    16,291,492
    
    
    
    9,347
    
    
    
    72,876
    
    
    
    16,227,963Obligations of states and
political subdivisions
    
    
    16,997,965
    
    
    
    863,774
    
    
    
    
    
    
    
    17,861,739Total available-for-sale
    
    
    72,849,095
    
    
    
    943,925
    
    
    
    354,950
    
    
    
    73,438,070Restricted stock
    
    
    2,790,400
    
    
    
    
    
    
    
    
    
    
    
    2,790,400Total securities
    
    $
    75,639,495
    
    
    $
    943,925
    
    
    $
    354,950
    
    
    $
    76,228,470December 31, 2003Available-for-sale:Obligations of U.S. government
corporations and agencies
    
    $
    24,018,719
    
    
    $
    73,383
    
    
    $
    7,872
    
    
    $
    24,084,230Mortgage-backed securities
    
    
    4,263,078
    
    
    
    4,782
    
    
    
    7,600
    
    
    
    4,260,260Corporate security
    
    
    616,177
    
    
    
    29,948
    
    
    
    
    
    
    
    646,125Total available-for-sale
    
    
    28,897,974
    
    
    
    108,113
    
    
    
    15,472
    
    
    
    28,990,615Held-to-maturity:U.S. Treasury security
    
    
    101,599
    
    
    
    32,557
    
    
    
    
    
    
    
    134,156Obligations of U.S. government
corporations and agencies
    
    
    1,000,000
    
    
    
    11,875
    
    
    
    
    
    
    
    1,011,875Obligations of states and
political subdivisions
    
    
    34,990,428
    
    
    
    2,258,718
    
    
    
    
    
    
    
    37,249,146Total held-to-maturity
    
    
    36,092,027
    
    
    
    2,303,150
    
    
    
    
    
    
    
    38,395,177Restricted stock
    
    
    2,690,600
    
    
    
    
    
    
    
    
    
    
    
    2,690,600Total securities
    
    $
    67,680,601
    
    
    $
    2,411,263
    
    
    $
    15,472
    
    
    $
    70,076,392
 (CSB LOGO) 30




---



##### 



Notes to Consolidated Financial Statements 
 NOTE 1  SECURITIES
(continued)

The amortized cost and fair value of securities at December 31, 2004, by contractual
maturity, are shown below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call or prepayment
penalties. Amortized
    
    
    Faircost
    
    
    valueAvailable-for-sale:Due in one year or less
    
    $
    9,496,833
    
    
    $
    9,520,215Due after one through five years
    
    
    29,243,748
    
    
    
    29,832,991Due after five years through ten years
    
    
    21,154,937
    
    
    
    21,157,167Due after ten years
    
    
    12,953,577
    
    
    
    12,927,697Total available-for-sale
    
    $
    72,849,095
    
    
    $
    73,438,070
 Securities with a carrying value of approximately $51,710,000 and $47,526,000 were
pledged at December 31, 2004 and 2003, respectively, to secure public deposits, as well as
other deposits and borrowings as required or permitted by law. Restricted stock primarily consists of investments in Federal Home Loan Bank of Cincinnati and
Federal Reserve Bank of Cleveland stock. The Banks investment in Federal Home Loan Bank stock
amounted to $2,520,400 and $2,420,600 at December 31, 2004 and 2003, respectively. During the third quarter of 2004, the Company transferred its entire held-to-maturity securities
portfolio, with an amortized cost of $31,681,132, to the available-for-sale category resulting in
unrealized gains of $1,639,462. The portfolio was almost entirely comprised of state and political
subdivision issues (i.e., municipal securities). The transfer was prompted by the Banks difficulty
securing public fund deposits with out-of-state municipal securities, as well as changes in
executive management over the past two years, and will enable management to enhance the diversity
and usage of the securities portfolio going forward. Subsequent to the transfer, the Bank sold all
out-of-state municipal securities from the portfolio, with an amortized cost of $10,701,432,
resulting in a gain on sale of $559,157. Gross gains realized from sales or recovery of previous impairment write-offs of securities
available-for-sale amounted to $587,916 in 2004, $1,068 in 2003, and $114,822 in 2002, with the
income tax provision applicable to such gains amounting to $199,891 in 2004, $363 in 2003, and
$39,039 in 2002. There were no gross realized losses in 2004, 2003 and 2002. (CSB LOGO) 31




---



##### 



Notes to Consolidated Financial Statements 
 NOTE 1  SECURITIES (continued)
The following table presents gross unrealized losses and fair value of securities, aggregated
by investment category and length of time that individual securities have been in a continuous
unrealized loss position, at December 31, 2004 and 2003: Securities in a Continuous Unrealized Loss PositionLess
Than 12 Months
    
    

12
Months or More
    
    

TotalUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fairloss
    
    

value
    
    

loss
    
    

value
    
    

loss
    
    

value2004Obligations of U.S. Government
corporations and agencies
    
    $
    253,805
    
    
    $
    29,240,789
    
    
    $
    28,269
    
    
    $
    3,979,056
    
    
    $
    282,074
    
    
    $
    33,219,845Mortgage-backed securities
    
    
    65,250
    
    
    
    8,847,373
    
    
    
    7,626
    
    
    
    1,954,414
    
    
    
    72,876
    
    
    
    10,801,787Total temporarily
impaired securities
    
    $
    319,055
    
    
    $
    38,088,162
    
    
    $
    35,895
    
    
    $
    5,933,470
    
    
    $
    354,950
    
    
    $
    44,021,6322003Obligations of U.S. Government
corporations and agencies
    
    $
    7,872
    
    
    $
    5,487,658
    
    
    $
    
    
    
    $
    
    
    
    $
    7,872
    
    
    $
    5,487,658Mortgage-backed securities
    
    
    7,600
    
    
    
    3,582,507
    
    
    
    
    
    
    
    
    
    
    
    7,600
    
    
    
    3,582,507Total temporarily
impaired securities
    
    $
    15,472
    
    
    $
    9,070,165
    
    
    $
    
    
    
    $
    
    
    
    $
    15,472
    
    
    $
    9,070,165
 There were twenty-three securities in an unrealized loss position at December 31, 2004, four
of which were in a continuous unrealized loss position for twelve months or more. Management has
considered industry analyst reports, sector credit reports and volatility in the bond market in
concluding that the unrealized losses as of December 31, 2004 were primarily the result of
customary and expected fluctuations in the bond market. As a result, all security impairments as of
December 31, 2004 are considered temporary. NOTE 2  LOANS
Loans consist of the following at December 31, 2004 and 2003: 2004
    
    
    2003Commercial
    
    $
    77,231,142
    
    
    $
    73,558,796Commercial real estate
    
    
    43,743,785
    
    
    
    49,160,157Residential real estate
    
    
    78,861,767
    
    
    
    72,944,329Installment and credit card
    
    
    10,273,257
    
    
    
    12,250,616Construction
    
    
    8,033,519
    
    
    
    5,503,312Deferred loan fees, net
    
    
    (58,991
    )
    
    
    (162,748
    )Loans
    
    $
    218,084,479
    
    
    $
    213,254,462
 The following represents a summary of the activity in the allowance for loan losses for the years ended December 31, 2004, 2003 and 2002: 2004
    
    
    2003
    
    
    2002Beginning balance
    
    $
    2,458,864
    
    
    $
    2,700,643
    
    
    $
    4,019,302Provision (credit) for loan losses
    
    
    422,621
    
    
    
    (51,000
    )
    
    
    (586,521
    )Loans charged-off
    
    
    (434,055
    )
    
    
    (337,533
    )
    
    
    (1,165,247
    )Recoveries
    
    
    127,515
    
    
    
    146,754
    
    
    
    433,109Ending balance
    
    $
    2,574,945
    
    
    $
    2,458,864
    
    
    $
    2,700,643
 32 (CSB LOGO)




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##### 



Notes to Consolidated Financial Statements 
 NOTE 2  LOANS
(continued)

During 2002, the Bank sold certain commercial and commercial real estate loans with an
outstanding principal balance aggregating approximately $1,275,000 and received total proceeds of
$780,732, with a charge to the allowance for loan losses of approximately $494,000. There was no
gain or loss recorded on the sales. As a result of an increase in non-operating loans during 2000 and a regulatory examination
performed in the second quarter of 2000, management analyzed certain of its credits, resulting in
increased loan charge-offs and specific and general allocation of its allowance for loan losses,
which caused an increase in the provision for loan losses during the year. Certain of these credits
were favorably resolved during 2002 and 2001, resulting in actual loan charge-offs being less than
the specific allocations provided. As a result of these favorable outcomes, the Bank recognized a
credit for loan losses of $51,000 in 2003 and $586,521 in 2002. Impaired loans were as follows for December 31, 2004 and 2003: 2004
    
    
    2003Year-end loans with no allowance for loan losses allocatedYear-end loans with allowance for loan losses allocated
    
    $
    1,198,408
    
    
    $
    897,370Amount of the allowance allocated
    
    
    388,415
    
    
    
    250,781
 2004
    
    
    2003
    
    
    2002Average of impaired loans during the year
    
    $
    823,793
    
    
    $
    1,135,417
    
    
    $
    2,496,740Interest income recognized during impairment
    
    
    24,105
    
    
    
    51,740
    
    
    
    105,169Cash-basis interest income recognized
    
    
    23,415
    
    
    
    51,039
    
    
    
    105,169
 Nonperforming loans, including certain impaired loans and smaller balance homogenous loans
such as residential mortgage and consumer loans that are collectively evaluated for impairment,
were as follows at December 31, 2004 and 2003: 2004
    
    
    2003Loans past due over 90 days still accruing interest
    
    $
    119,000
    
    
    $
    175,000Nonaccrual loans
    
    
    1,552,368
    
    
    
    1,170,000
 Loans serviced for others approximated $22,789,000 and $25,598,000 at December 31, 2004 and 2003, respectively. NOTE 3  PREMISES AND
EQUIPMENT

Premises and equipment consist of the following at December 31, 2004 and 2003: 2004
    
    
    2003Land and improvements
    
    $
    1,007,927
    
    
    $
    1,007,927Buildings and improvements
    
    
    8,388,882
    
    
    
    8,406,896Furniture and equipment
    
    
    6,000,967
    
    
    
    5,565,389Leasehold improvements
    
    
    79,979
    
    
    
    79,97915,477,775
    
    
    
    15,060,191Accumulated depreciation
    
    
    7,233,758
    
    
    
    6,496,915Premises and equipment, net
    
    $
    8,243,997
    
    
    $
    8,563,276
 The Bank leases certain office locations. Total rental expense under these leases approximated
$71,400, $72,000, and $77,000 in 2004, 2003, and 2002, respectively. Future minimum lease payments
at December 31, 2004 aggregate $156,200 and are due as follows: 2005, $71,400; 2006, $49,200; 2007,
$20,000; and 2008, $15,600. (CSB LOGO) 33




---



##### 



Notes to Consolidated Financial Statements  NOTE 4  INTEREST-BEARING DEPOSITS Interest-bearing deposits at December 31, 2004 and 2003 are as follows: 2004
    
    
    2003Demand
    
    $
    50,215,416
    
    
    $
    50,873,110Savings
    
    
    43,285,120
    
    
    
    38,924,341Time deposits:In excess of $100,000
    
    
    30,616,776
    
    
    
    37,579,321Other
    
    
    82,099,811
    
    
    
    88,041,914Total interest-bearing deposits
    
    $
    206,217,123
    
    
    $
    215,418,686At December 31, 2004, stated maturities of time
deposits were as follows:2005
    
    $
    45,954,9742006
    
    
    35,262,8352007
    
    
    21,272,0202008
    
    
    6,837,5162009 and beyond
    
    
    3,389,242Total
    
    $
    112,716,587
 NOTE 5  BORROWINGS During 2004, the Bank borrowed $10,000,000 from the Federal Home Loan Bank under two
secured notes, with $5,000,000 maturing March 2005 and $5,000,000 maturing March 2006, with
interest at 1.58% and 2.15%, respectively. During 2003, the Bank borrowed $5,000,000 from the
Federal Home Loan Bank under a secured note, with interest at 2.08%, which matures in April
2005. The Bank also borrowed from the Federal Home Loan Bank to fund certain fixed-rate
residential real estate loans during the mid-1990s. Such borrowings carry fixed interest rates
ranging from 5.60% to 7.15% at December 31, 2004, with 10, 15 or 20 year maturities. Monthly
principal and interest payments are due on the borrowings. In addition, a principal curtailment
of 10% of outstanding principal balance is due on the anniversary date of each borrowing. Future estimated principal payments on Federal Home Loan Bank borrowings, including
curtailments, are as follows: 2005
    
    $
    10,677,3962006
    
    
    5,568,4422007
    
    
    475,5122008
    
    
    417,1272009
    
    
    369,517Thereafter
    
    
    1,237,242Total
    
    $
    18,745,236
 Federal Home Loan Bank borrowings are collateralized by the Banks Federal Home Loan Bank
stock and certain qualifying mortgage loans. Securities sold under agreements to repurchase generally mature within three months from the
transaction date. Physical control is maintained for all securities sold under repurchase
agreements. Information concerning securities sold under agreements to repurchase for 2004 and
2003 is as follows: 2004
    
    
    2003Average balance during the year
    
    $
    12,986,890
    
    
    $
    14,107,116Average interest rate during the year
    
    
    .49
    %
    
    
    .61
    %Maximum month-end balance during the year
    
    $
    13,693,003
    
    
    $
    13,737,563
 34
    
    (CSB LOGO)




---



##### 



Notes to Consolidated Financial Statements  NOTE 6  INCOME TAXES The provision (credit) for income taxes consists of the following for the years ended December
31, 2004, 2003 and 2002: 2004
    
    
    2003
    
    
    2002Current
    
    $
    537,754
    
    
    $
    243,793
    
    
    $
    (1,491,542
    )Deferred
    
    
    115,246
    
    
    
    (113,793
    )
    
    
    1,426,542Total income tax provision (credit)
    
    $
    653,000
    
    
    $
    130,000
    
    
    $
    (65,000
    )
 The significant components of the provision (credit) for deferred income taxes for the years
ended December 31, 2004, 2003, and 2002, were as follows: 2004
    
    
    2003
    
    
    2002Tax effect of temporary differences, exclusive of item listed below
    
    $
    115,246
    
    
    $
    (113,793
    )
    
    $
    439,542Impact of change in tax law  Job Creation and Worker Assistance Act of 2002
    
    
    
    
    
    
    
    
    
    
    987,000Total deferred income tax provision (credit)
    
    $
    115,246
    
    
    $
    (113,793
    )
    
    $
    1,426,542
 The enactment on March 9, 2002 of the Job Creation and Worker Assistance Act of 2002 enabled the Company to carryback net operating losses for a
period of five years, as opposed to the normal two-year carryback period. Consequently, refundable income taxes at December 31, 2001 were increased
and deferred tax assets decreased approximately $987,000 as a result of this tax law change. The income tax provision (credit) attributable to income from operations differs from the amounts computed by applying the statutory federal income
tax rate of 34% to income before income taxes as follows: 2004
    
    
    2003
    
    
    2002Expected provision using statutory federal income tax rate
    
    $
    1,080,900
    
    
    $
    744,600
    
    
    $
    631,800Tax-exempt income on state and municipal
securities and political subdivision loans
    
    
    (474,500
    )
    
    
    (662,900
    )
    
    
    (756,400
    )Interest expense associated with carrying
certain state and municipal securities
and political subdivision loans
    
    
    24,700
    
    
    
    41,400
    
    
    
    68,800Other
    
    
    21,900
    
    
    
    6,900
    
    
    
    (9,200
    )Total income tax provision (credit)
    
    $
    653,000
    
    
    $
    130,000
    
    
    $
    (65,000
    )
 The tax effects of temporary differences that give rise to deferred tax assets and deferred
tax liabilities at December 31, 2004 and 2003, are as follows: 2004
    
    
    2003Allowance for loan losses
    
    $
    550,900
    
    
    $
    381,400Alternative minimum tax credit carryforwards
    
    
    660,200
    
    
    
    772,000Net operating loss carryforward
    
    
    
    
    
    
    31,600Other
    
    
    30,500
    
    
    
    30,100Deferred tax assets
    
    
    1,241,600
    
    
    
    1,215,100Unrealized gain on securities available-for-sale
    
    
    (200,252
    )
    
    
    (31,498
    )Depreciation of premises and equipment
    
    
    (452,800
    )
    
    
    (406,100
    )Federal Home Loan Bank stock dividends
    
    
    (361,500
    )
    
    
    (326,700
    )Deferred loan fees
    
    
    (85,600
    )
    
    
    (20,800
    )Other
    
    
    (23,448
    )
    
    
    (28,002
    )Deferred tax liabilities
    
    
    (1,123,600
    )
    
    
    (813,100
    )Net deferred tax assets
    
    $
    118,000
    
    
    $
    402,000
 The Company had available at December 31, 2004, alternative minimum tax credit
carryforwards of approximately $660,200 which may be utilized in the future to the extent
computed regular tax exceeds the alternative minimum tax. The Company believes it is more likely than not that the benefit of deferred tax assets
will be realized. Consequently, no valuation allowance for deferred tax assets is deemed
necessary at December 31, 2004 and 2003. The Companys 2001 and 2002 consolidated federal income tax returns are currently under
examination by the Internal Revenue Service. Management of the Company and the exam agent
have had correspondence regarding certain matters identified during the exam. Management does
not believe final resolution of these matters will have a significant adverse impact on the
Companys consolidated financial statements. (CSB LOGO)
    
    
    35




---



##### 



Notes to Consolidated Financial Statements  NOTE 7  EMPLOYEE BENEFITS The Company sponsors a contributory 401(k) profit-sharing plan covering substantially all
employees who meet certain age and service requirements. The Plan permits investing in the
Companys common stock subject to various limitations and provides for discretionary profit
sharing and matching contributions. The discretionary profit sharing contribution is determined
annually by the Board of Directors and amounted to 1% of each eligible participants
compensation for 2004, and 3% of each eligible participants compensation for 2003 and 2002. The
Plan also provides for a 100% Bank match of participant contributions up to a maximum of 2% of
each participants annual compensation. Expense under the Plan amounted to $111,000, $164,000
and $197,000 for 2004, 2003 and 2002, respectively. During 2003, the Board of Directors granted options to various executive officers of the
Company, including options to purchase 10,000 shares of the Companys common shares at an
exercised price of $17.75 per share through May 19, 2008 to one executive officer, and options
to purchase 1,000 shares each to two other officers at an exercise price of $17.50 per share
through July 31, 2008. During 2004, the Board of Directors granted options to another executive
officer to purchase 1,000 shares at an exercise price of $19.00 per share through August 9,
2009. Effective December 31, 2002, the Board of Directors granted to various officers and employees of
the Bank, options to purchase a total of 14,660 shares of common stock under the Companys Share
Incentive Plan. The options are exercisable on the anniversary of the grant date in annual 20%
increments. The exercise price for the options is the December 31, 2002 market price of $16.05
per share and the options expire 10 years from the grant date. None of the options were
exercised in 2004. The following summarizes stock options activity for the years ended December 31, 2004, 2003 and
2002: 2004
    
    
    2003
    
    
    2002Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at beginning of year
    
    
    42,485
    
    
    $
    16.02
    
    
    
    34,660
    
    
    $
    15.44
    
    
    
    20,000
    
    
    $
    15.00Granted
    
    
    1,000
    
    
    
    19.00
    
    
    
    12,000
    
    
    
    17.71
    
    
    
    14,660
    
    
    
    16.05ExercisedForfeited
    
    
    (665
    )
    
    
    (16.05
    )
    
    
    (4,175
    )
    
    
    (16.05
    )Outstanding at end of year
    
    
    42,820
    
    
    $
    16.09
    
    
    
    42,485
    
    
    $
    16.02
    
    
    
    34,660
    
    
    $
    15.44Options exercisable at year end
    
    
    36,964
    
    
    $
    16.10
    
    
    
    34,097
    
    
    $
    15.93
    
    
    
    20,000
    
    
    $
    15.00Weighted-average fair
value of options granted during year
    
    
    
    
    
    $
    2.94
    
    
    
    
    
    
    $
    1.51
    
    
    
    
    
    
    $
    2.33
 Options outstanding at December 31, 2004 were as follows: OUTSTANDING
    
    
    EXERCISABLEWeightedAverage

    
    
    
    
    
    WeightedRange of
    
    
    
    
    
    
    Remaining

    
    
    
    
    
    AverageExercisable
    
    
    
    
    
    
    Contractual Life

    
    
    
    
    
    ExercisePrices
    
    
    Number
    
    
    (Years)

    
    Number
    
    
    Price$
    15.00
    
    
    
    20,000
    
    
    
    1.17
    
    
    
    20,000
    
    
    $
    15.0016.05
    
    
    
    9,820
    
    
    
    8.00
    
    
    
    3,964
    
    
    
    16.0517.50
    
    
    
    2,000
    
    
    
    3.58
    
    
    
    2,000
    
    
    
    17.5017.75
    
    
    
    10,000
    
    
    
    3.42
    
    
    
    10,000
    
    
    
    17.7519.00
    
    
    
    1,000
    
    
    
    4.58
    
    
    
    1,000
    
    
    
    19.50Outstanding at year end
    
    
    
    
    
    
    42,820
    
    
    
    
    
    
    
    36,964
    
    
    $
    16.10
 36
    
    (CSB LOGO)




---



##### 



Notes to Consolidated Financial Statements  NOTE 8  FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Bank is party to financial instruments with off-balance sheet risk in the

normal course of business to meet the financing needs of its customers. These
financial instruments are primarily loan commitments to extend credit and letters of
credit. These instruments involve, to varying degrees, elements of credit risk in
excess of the amounts recognized in the consolidated balance sheets. The contract
amount of these instruments reflects the extent of involvement the Bank has in these
financial instruments. The Banks exposure to credit loss in the event of the nonperformance by the other
party to the financial instruments for loan commitments to extend credit and letters
of credit is represented by the contractual amounts of these instruments. The Bank
uses the same credit policies in making loan commitments as it does for on-balance
sheet loans. The following financial instruments whose contract amount represents credit risk were
outstanding at December 31, 2004 and 2003: Contract amount2004
    
    
    2003Commitments to extend credit
    
    $
    45,485,000
    
    
    $
    46,714,000Letters of credit
    
    $
    555,000
    
    
    $
    368,000
 Commitments to extend credit are agreements to lend to a customer as long as there
is no violation of any condition established in the contract. Commitments generally have
fixed expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon, the total
commitment amount does not necessarily represent future cash requirements. The Bank
evaluates each customers credit worthiness on a case-by-case basis. The amount of
collateral obtained if deemed necessary by the Bank upon extension of credit is based on
managements credit evaluation of the customer. Collateral held varies but may include
accounts receivable; inventory; property, plant and equipment; and income-producing
commercial properties. Letters of credit are written conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party and are reviewed for renewal at expiration.
All letters of credit outstanding at December 31, 2004, are due on demand or expire in
2005. The credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers. The Bank requires collateral supporting
these commitments when deemed appropriate. NOTE 9  RELATED-PARTY TRANSACTIONS In the ordinary course of business, loans are granted by the Bank to executive
officers, directors and their related business interests consistent with Federal Reserve
Regulation O.The following is an analysis of activity of related-party loans for the years
ending December 31, 2004 and 2003: 2004
    
    
    2003Balance at beginning of year
    
    $
    6,516,219
    
    
    $
    6,299,088New loans and advances
    
    
    1,416,546
    
    
    
    5,056,942Repayments, including loans sold
    
    
    (1,615,646
    )
    
    
    (4,839,811
    )Balance at end of year
    
    $
    6,317,119
    
    
    $
    6,516,219
 Deposits from executive officers, directors and their related business interests
at December 31, 2004 and 2003 were approximately $3,001,000 and $4,217,000,
respectively. (CSB LOGO)
    
    
    37




---



##### 



Notes to Consolidated Financial Statements  NOTE 10  REGULATORY MATTERS The Company (on a consolidated basis) and Bank are subject to various regulatory capital
requirements administered by the federal and state banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly additional discretionary,
actions by regulators that, if undertaken, could have a direct material effect on the Companys
and Banks financial statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Company and Bank must meet specific capital guidelines that
involve quantitative measures of the assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. The capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk weightings, and
other factors. Prompt corrective action provisions are not applicable to bank holding
companies. Quantitative measures established by regulation to ensure capital adequacy require the Company
and Bank to maintain minimum amounts and ratios (set forth in the table below) of total and
Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of
Tier 1 capital to average assets (as defined). Management believes, as of December 31, 2004 and
2003, that the Company and Bank met or exceeded all capital adequacy requirements to which they
are subject. As of December 31, 2004, the most recent notification from federal and state banking agencies
categorized the Bank as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, an institution must maintain minimum
total-risk based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following
tables. There are no conditions or events since that notification that management believes have
changed the Banks category. The actual capital amounts and ratios of the Company and Bank as of December 31, 2004
and 2003, are also presented in the following table (dollars in thousands): Minimum required
    
    
    
    Minimum required to be wellfor capital
    
    
    
    capitalized under promptActual
    
    
    
    adequacy purposes
    
    
    
    corrective action regulationsAmount
    
    
    Ratio
    
    
    
    Amount
    
    
    Ratio
    
    
    
    Amount
    
    
    RatioAs of December 31, 2004Total capital (to risk-weighted assets)Consolidated
    
    $
    38,410
    
    
    
    18.4
    %
    
    
    $
    16,673
    
    
    
    8.0
    %
    
    
    $
    N/A
    
    
    
    N/ABank
    
    
    36,505
    
    
    
    17.5
    
    
    
    
    16,656
    
    
    
    8.0
    
    
    
    
    20,820
    
    
    
    10.0
    %Tier I capital (to risk-weighted assets)Consolidated
    
    
    35,835
    
    
    
    17.2
    
    
    
    
    8,336
    
    
    
    4.0
    
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    33,930
    
    
    
    16.3
    
    
    
    
    8,328
    
    
    
    4.0
    
    
    
    
    12,492
    
    
    
    6.0Tier I capital (to average assets)Consolidated
    
    
    35,835
    
    
    
    11.5
    
    
    
    
    12,522
    
    
    
    4.0
    
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    33,930
    
    
    
    10.9
    
    
    
    
    12,497
    
    
    
    4.0
    
    
    
    
    15,121
    
    
    
    5.0As of December 31, 2003Total capital (to risk-weighted assets)Consolidated
    
    $
    37,112
    
    
    
    18.1
    %
    
    
    $
    16,381
    
    
    
    8.0
    %
    
    
    $
    N/A
    
    
    
    N/ABank
    
    
    35,159
    
    
    
    17.4
    
    
    
    
    16,210
    
    
    
    8.0
    
    
    
    
    20,262
    
    
    
    10.0
    %Tier I capital (to risk-weighted assets)Consolidated
    
    
    34,653
    
    
    
    16.9
    
    
    
    
    8,190
    
    
    
    4.0
    
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    32,700
    
    
    
    16.1
    
    
    
    
    8,105
    
    
    
    4.0
    
    
    
    
    12,157
    
    
    
    6.0Tier I capital (to average assets)Consolidated
    
    
    34,653
    
    
    
    11.2
    
    
    
    
    12,335
    
    
    
    4.0
    
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    32,700
    
    
    
    10.7
    
    
    
    
    12,249
    
    
    
    4.0
    
    
    
    
    15,311
    
    
    
    5.0
 The Companys primary source of funds with which to pay dividends is dividends
received from the Bank. The payment of dividends by the Bank to the Company is subject to
restrictions by its regulatory agencies. These restrictions generally limit dividends to
current and prior two-years retained earnings. Also, dividends may not reduce capital
levels below the minimum regulatory requirements disclosed above. Under these provisions,
approximately $2,016,000 was available for dividends on January 1, 2005, without the need
to obtain the approval of the State of Ohio Division of Financial Institutions. 38
    
    (CSB LOGO)




---



##### 



Notes to Consolidated Financial Statements 
 NOTE 11  CONDENSED PARENT COMPANY FINANCIAL INFORMATION A summary of condensed financial information of the parent company as of December 31, 2004
and 2003 and for each of the three years in the period ended December 31, 2004 are as follows: CONDENSED BALANCE SHEETS
    
    2004
    
    
    2003AssetsCash deposited with subsidiary bank
    
    $
    1,609,532
    
    
    $
    1,667,505Investment in subsidiary bank
    
    
    34,303,146
    
    
    
    32,765,194Security
    
    
    528,399
    
    
    
    498,930Other assets
    
    
    110,275
    
    
    
    103,231Total assets
    
    $
    36,551,352
    
    
    $
    35,034,860Liabilities and Shareholders EquityLiability  dividends payable
    
    $
    343,845
    
    
    $
    317,322Shareholders equity:Common stock
    
    
    16,673,667
    
    
    
    16,673,667Additional paid-in capital
    
    
    6,413,915
    
    
    
    6,413,915Retained earnings
    
    
    13,358,321
    
    
    
    12,214,751Treasury stock
    
    
    (627,119
    )
    
    
    (645,938
    )Accumulated other comprehensive income
    
    
    388,723
    
    
    
    61,143Total shareholders equity
    
    
    36,207,507
    
    
    
    34,717,538Total liabilities and shareholders equity
    
    $
    36,551,352
    
    
    $
    35,034,860
 CONDENSED STATEMENTS OF INCOME
    
    2004
    
    
    2003
    
    
    2002Interest on security
    
    $
    24,837
    
    
    $
    24,837
    
    
    $
    24,837Dividends from subsidiary
    
    
    1,375,221
    
    
    
    1,266,528
    
    
    
    789,169Total income
    
    
    1,400,058
    
    
    
    1,291,365
    
    
    
    814,006Operating expenses
    
    
    157,521
    
    
    
    104,471
    
    
    
    107,670Income before taxes and undistributed equity income of subsidiary
    
    
    1,242,537
    
    
    
    1,186,894
    
    
    
    706,336Income tax benefit
    
    
    54,000
    
    
    
    37,000
    
    
    
    36,608Equity income in subsidiary, net of dividends
    
    
    1,229,698
    
    
    
    836,215
    
    
    
    1,180,194Net income
    
    $
    2,526,235
    
    
    $
    2,060,109
    
    
    $
    1,923,138
 (CSB LOGO) 39




---



##### 



Notes to Consolidated Financial Statements 
 NOTE 11  CONDENSED PARENT COMPANY FINANCIAL INFORMATION (continued) CONDENSED STATEMENTS OF CASH FLOWS
    
    2004
    
    
    2003
    
    
    2002Cash flows from operating activities:Net income
    
    $
    2,526,235
    
    
    $
    2,060,109
    
    
    $
    1,923,138Adjustments to reconcile net income to cash provided by operations:Security accretion
    
    
    (187
    )
    
    
    (187
    )
    
    
    (188
    )Equity income subsidiary, net of dividends
    
    
    (1,229,698
    )
    
    
    (836,215
    )
    
    
    (1,180,194
    )Change in other assets
    
    
    (17,000
    )
    
    
    7,578
    
    
    
    (241
    )Net cash from operating activities
    
    
    1,279,350
    
    
    
    1,231,285
    
    
    
    742,515Cash flows from financing activities:Purchase of treasury shares
    
    
    
    
    
    
    (18,745
    )
    
    
    (87,728
    )Cash dividends paid
    
    
    (1,337,323
    )
    
    
    (951,235
    )
    
    
    (406,538
    )Net cash from financing activities
    
    
    (1,337,323
    )
    
    
    (969,980
    )
    
    
    (494,266
    )Net change in cash
    
    
    (57,973
    )
    
    
    261,305
    
    
    
    248,249Cash at beginning of year
    
    
    1,667,505
    
    
    
    1,406,200
    
    
    
    1,157,951Cash at end of year
    
    $
    1,609,532
    
    
    $
    1,667,505
    
    
    $
    1,406,200
 NOTE 12  OTHER COMPREHENSIVE INCOME The components of other comprehensive income and related tax effects are as follows for the
years ended December 31, 2004, 2003 and 2002: 2004
    
    
    2003
    
    
    2002Unrealized holding losses on
available-for-sale securities
    
    $
    (555,212
    )
    
    $
    (90,719
    )
    
    $
    (104,419
    )Unrealized holding gains on held-to-maturity
securities transferred to the available-for-sale category
    
    
    1,639,462Less reclassification adjustment for securities
gains recognized in income
    
    
    (587,916
    )
    
    
    (1,068
    )
    
    
    (114,822
    )Net unrealized holding gains (losses)
    
    
    496,334
    
    
    
    (91,787
    )
    
    
    (219,241
    )Tax effect
    
    
    168,754
    
    
    
    (31,208
    )
    
    
    (74,542
    )Other comprehensive income (loss)
    
    $
    327,580
    
    
    $
    (60,579
    )
    
    $
    (144,699
    )
 (CSB LOGO) 40




---



##### 



Notes to Consolidated Financial Statements 
 NOTE 13  FAIR VALUES OF FINANCIAL INSTRUMENTS The estimated fair values of recognized financial instruments as of December 31, 2004 and
2003, are as follows (dollars in thousands): 2004
    
    
    2003Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fairamounts
    
    
    value
    
    
    amounts
    
    
    valueFinancial assets:Cash and cash equivalents
    
    $
    15,644
    
    
    $
    15,644
    
    
    $
    17,201
    
    
    $
    17,201Securities
    
    
    76,228
    
    
    
    76,228
    
    
    
    67,773
    
    
    
    70,076Loans, net Total
    
    
    215,510
    
    
    
    216,374
    
    
    
    210,796
    
    
    
    212,543Total
    
    $
    307,382
    
    
    $
    308,246
    
    
    $
    295,770
    
    
    $
    299,820Financial liabilities:Deposits
    
    $
    247,951
    
    
    $
    248,526
    
    
    $
    248,958
    
    
    $
    250,223Securities sold under agreements to repurchase
    
    
    13,316
    
    
    
    13,316
    
    
    
    11,859
    
    
    
    11,859Federal Home Loan Bank borrowings
    
    
    18,745
    
    
    
    18,862
    
    
    
    9,512
    
    
    
    9,808Total
    
    $
    280,012
    
    
    $
    280,704
    
    
    $
    270,329
    
    
    $
    271,890
 The preceding summary does not include accrued interest receivable, accrued interest
payable, and other liabilities which are also considered financial instruments. The estimated fair
value of such items is considered to be their carrying amount. The Company also has unrecognized financial instruments at December 31, 2004 and 2003. These
financial instruments relate to commitments to extend credit and letters of credit. The aggregate
contract amount of such financial instruments was approximately to $46,040,000 at December 31, 2004
and $47,082,000 at December 31, 2003. Such amounts are also considered to be the estimated fair
values. The following methods and assumptions were used to estimate the fair value of each class of
financial instruments shown above: Cash and cash equivalents Fair value is determined to be the carrying amount for these items (which include cash on
hand, due from banks, and federal funds sold) because they represent cash or mature in 90 days or
less and do not represent unanticipated credit concerns. Securities The fair value of securities (both available-for-sale and held-to-maturity) is determined
based on quoted market prices of the individual securities or, if not available, estimated fair
value was obtained by comparison to other known securities with similar risk and maturity
characteristics. Such value does not consider possible tax ramifications or estimated transaction
costs. Loans Fair value for loans was estimated for portfolios of loans with similar financial
characteristics. For adjustable rate loans, which reprice at least annually and generally possess
low risk characteristics, the carrying amount is believed to be a reasonable estimate of fair
value. For fixed rate loans, the fair value is estimated based on secondary market quotes from
various dealers, considering weighted average rates and terms of the portfolio, adjusted for
credit and interest rate risk inherent in the loans. Fair value for nonperforming loans is based
on recent appraisals or estimated discounted cash flows. The estimated value of credit card loans
is based on existing loans and does not include the value that relates to estimated cash flows
from new loans generated from existing cardholders over the remaining life of the portfolio. Deposit liabilities The fair value of core deposits, including demand deposits, savings accounts, and certain
money market deposits, is the amount payable on demand. The fair value of fixed-maturity
certificates of deposit is estimated using the rates offered at year end for deposits of similar
remaining maturities. The estimated fair value does not include the benefit that results from the
low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the
marketplace. (CSB LOGO) 41




---



##### 



Notes to Consolidated Financial Statements 
 NOTE 13  FAIR VALUES OF FINANCIAL INSTRUMENTS (continued) Other financial instruments The fair value of commitments to extend credit and letters of credit is determined to be the
contract amount since these financial instruments generally represent commitments at existing
rates. The fair value of securities sold under agreements to repurchase is determined to be the
carrying amount since these financial instruments represent obligations, which are due on demand.
The fair value of Federal Home Loan Bank borrowings is determined based on a discounted cash flow
analysis. The fair value estimates of financial instruments are made at a specific point in time based on
relevant market information. These estimates do not reflect any premium or discount that could
result from offering for sale at one time the entire holdings of a particular financial instrument
over the value of anticipated future business and the value of assets and liabilities that are not
considered financial instruments. Since no ready market exists for a significant portion of the
financial instruments, fair value estimates are largely based on judgments after considering such
factors as future expected credit losses, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and therefore, cannot be determined with
precision. Changes in assumptions could significantly affect these estimates. NOTE 14  CONTINGENT LIABILITIES In the normal course of business, the Company and its subsidiary may be involved in
various legal actions, but in the opinion of management and its legal counsel, the ultimate
disposition of such matters is not expected to have a material adverse effect on the
consolidated financial statements. The Company has entered into employment agreements with various officers. Upon the occurrence of
certain types of termination of employment, the Company may be required to make specified
severance payments if termination occurs within a specified period of time, generally two years
from the date of the agreement, or pursuant to certain change in control transactions. NOTE 15  QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of selected quarterly financial data (unaudited) for the years
ended December 31, 2004 and 2003: Basic
    
    
    DilutedNet
    
    
    
    
    
    
    earnings
    
    
    earningsInterest
    
    
    interest
    
    
    Net
    
    
    per
    
    
    perincome
    
    
    income
    
    
    income
    
    
    share
    
    
    share2004First quarter
    
    $
    3,668,033
    
    
    $
    2,695,785
    
    
    $
    521,451
    
    
    $
    0.20
    
    
    $
    0.20Second quarter
    
    
    3,743,434
    
    
    
    2,776,332
    
    
    
    606,490
    
    
    
    0.23
    
    
    
    0.23Third quarter
    
    
    3,772,162
    
    
    
    2,811,714
    
    
    
    746,828
    
    
    
    0.28
    
    
    
    0.28Fourth quarter
    
    
    3,889,919
    
    
    
    2,915,801
    
    
    
    651,466
    
    
    
    0.25
    
    
    
    0.242003First quarter
    
    $
    3,959,148
    
    
    $
    2,732,834
    
    
    $
    597,832
    
    
    $
    0.23
    
    
    $
    0.23Second quarter
    
    
    3,937,783
    
    
    
    2,749,329
    
    
    
    571,614
    
    
    
    0.21
    
    
    
    0.21Third quarter
    
    
    3,814,367
    
    
    
    2,673,319
    
    
    
    338,685
    
    
    
    0.13
    
    
    
    0.13Fourth quarter
    
    
    3,703,133
    
    
    
    2,627,591
    
    
    
    551,978
    
    
    
    0.21
    
    
    
    0.21
 (CSB LOGO) 42




---



##### 



(PHOTOS OF THE COMMERCIAL & SAVINGS BANK) Officers of The Commercial &Savings Bank
 Assistant
Vice
President/Mortgage
LINDA C.AMOS            Loan Officer
   WILLIAM D. ARNOLD            Vice
President/Banking
Center Manager REBECCA A. BAKER            Assistant
Vice
President/Banking
Center Manager Assistant
Vice
President/Financial
PAMELAS. BASINGER            Officer
   Vice
President/Retail
DEBORAH S. BERNER            Services
   Assistant
Vice President/Loan
Operations
PAMELA L. BROMUND            Supervisor
   C. DAWN BUTLER            Assistant
Vice
President/Banking
Center Manager COLBY M. CHAMBERLIN . . . Vice
President/Retail/Sma
ll Business Lending
Supervisor Vice
President/Internal
DALE J. CLINTON            Auditor
   Corporate
PEGGY L. CONN            Secretary
   PAULAS. FOY            Vice
President/Banking
Center Manager REBECCA J. FRYBARGER            Assistant
Vice
President/Banking
Center Manager RICKL. GINTHER            Senior Vice
President/Chief
Lending
Officer LORETTAGRAY            Assistant
Cashier/Assistant
Banking Center
Manager PAUL D. GREIG . . . Senior
Vice
President/Chief
Operation/Informatio
n Officer Assistant
Vice
President/Trust
MARCELLA K. HAWKINS            Officer
   Vice
President/Director
of Human
JULIE A. JONES            Resources
   First Vice
President/ Credit
and Loan
STEPHEN K. KILPATRICK            Administration
   President/Chief
Executive
JOHN J. LIMBERT            Officer
   Assistant
Vice
President/Brokerage
JASON R. MCCULLOCH            Manager
   Sr. Vice
President/Chief
Financial
PAULA J. MEILER            Officer
   Vice
President/Cash
Management &
Special
A. LEE MILLER            Projects
   DANIEL L. MUSE            Operations
Officer SHAWN E. OSWALD            Vice
President/Informatio
n System
Director Vice
President/Trust
THOMAS S. RUMBAUGH            Officer
   Assistant
Vice President/Loan
REBECCA J. SHULTZ            Officer
   Operations
SCOTT A. STALLMAN            Officer
   Vice
President/Commercial
HARLAND L. STEBBINS            Lender
   Vice
President/Commercial
ERIC D. STROUSE            Lender
   Banking
RONALD L. STUTZMAN            Center Manager
   DOUGLAS W. THIESSEN            Vice
President/Compliance
Officer WILLIAM R. TINLIN            Vice
President/Recovery/Security BRIAN D. TROYER            Assistant
Vice
President/Trust
Operations A. MIEKE TUERPITZ            Assistant
Cashier/Banking
Center Manager Assistant
Vice President/Loan
I. MILTON WAYLAND            Officer
   Assistant
Vice President/IRA
KERRIE L. WEAVER            Administrator
   Assistant
Cashier/Assistant
Banking Center
JANE C. WHITMER            Manager
   Vice
President/Business
Development
ERVIN C. YODER            Officer
  




---



##### 



(CSB LOGO) The Commercial & Savings Bank Information & Customer Service330-674-9015 or 1-800-654-9015
24 Hour Xpress Phone Banking330-674-2720 or 1-888-438-2720
Loan Services Holmes & Tuscarawas County6 W. Jackson, Millersburg .. Consumer Loans330-763-2823 Commercial Loans330-763-2822 Loan Services Wayne County146 E. Liberty, Suite 230, Wooster ................... 330-264-0334
Trust & Investment Services Holmes & Tuscarawas County91 N. Clay, Millersburg .. 330-674-2397
Trust & Investment Services Wayne County146 E. Liberty, Suite 230, Wooster ..... 330-264-0334
24 Hour Xpress Net Banking & BillPay ............................................ WWW.csbl.com Banking Centers Millersburg Banking Centers Main Office 6 W. Jackson ................................................ 330-763-2820 Clinton Commons 2102 Glen Dr. (Drive-Up ATM) ............................ 330-674-2265 South Clay 91 S. Clay (Drive-Up ATM) .................................... 330-674-0687 Berlin Banking Center 4587 S.R. 39,Berlin (Drive-Up ATM) ............... 330-893-3565 Charm Banking Center 4440 C.R.70, Charm (Walk-UpATM) ................... 330-893-3323 Shreve Banking Center333 W. South St., Shreve (Drive-Up ATM) ........... 330-567-2226 Sugarcreek Banking Center127 S. Broadway, Sugarcreek (Drive-Up ATM) .... 330-852-4444 Walnut Creek Banking Center4980 Olde Pump, Walnut Creek (Walk-Up ATM) .. 330-893-2961 Winesburg Banking Center2225 U.S. 62, Winesburg (Drive-Up ATM) ......... 330-359-5543 Shareholder and General Inquiries Stock Listing Common Symbol: CSBB.OB If you have questions regarding your            If you are interested in purchasing shares of CSB Bancorp, Inc.,
CSB Bancorp, Inc. stock, please contact: you may contact your local broker or one of the following:
Registrar and Transfer Company            Jay McCulloch            Linda Reall
Attn: Investor Relations            Investment Executive            Capital Securities of America, Inc.
10 Commerce Drive            PrimeVest Financial Services, Inc. 150 Grand Trunk Avenue
Cranford, New Jersey 07016 Located at The Commercial & Savings Bank            Hartville, Ohio 44632
(800)368-5948 91 North Clay Street (800)494-9497
www.rtco.com            P.O. Box 50
Millersburg, Ohio 44654
(330) 674-2397
(800) 654-9015
General Counsel            George Geissbuhler
Thompson Mine LLP            Sweney Cartwright & Co.
One Columbus 17 South High Street, Suite 300
10 West Broad Street            Columbus, Ohio 43215
Columbus, Ohio 43215-3435 (800) 334-7481 Member mootVisit CSB on the web: www.csbl.com FDK