EXHIBIT 13

2002 Financial Review



INTRODUCTION

CSB Bancorp, Inc. (the Company) was incorporated under the laws of the State of Ohio in 1991 to become a one-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 regulated by the 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 and trust 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.



REGULATORY MATTERS

As disclosed in Note 10 to the consolidated financial statements, the Company and Bank entered into a Written Agreement in November 2000 with the Federal Reserve Bank of Cleveland and the Ohio Division of Financial Institutions which, among other things, required the Company and Bank to complete a review of the Board of Directors and Management; make improvements in the lending function including, but not limited to, policies and procedures, documentation, and a plan for the reduction of adversely classified assets; and prepare new policies and procedures for internal audit, internal controls, asset/liability management, trust, and information technology. The Written Agreement was terminated in June 2002.

SELECTED FINANCIAL DATA

The following table sets forth certain selected consolidated financial information.



|                                                                  | 2002                                          | 2001         | 2000         | 1999         | 1998        
|----------------------------------------------------------------- | --------------------------------------------- | ------------ | ------------ | ------------ | ------------
|                                                                  | (Dollars in thousands, except per share data)
|Statements of income:                                             |                                               |              |              |              |             
|Total interest income                                             | $   16,700                                    | $   21,656   | $   25,497   | $   23,707   | $   23,404  
|Total interest expense                                            | 6,467                                         | 11,471       | 12,782       | 11,682       | 11,563      
|Net interest income                                               | 10,233                                        | 10,185       | 12,715       | 12,025       | 11,841      
|Provision (credit) for loan losses                                | (587)                                         | 35           | 6,142        | 1,100        | 1,051       
|Net interest income after provision (credit) for loan losses      | 10,820                                        | 10,150       | 6,573        | 10,925       | 10,790      
|Non-interest income                                               | 2,037                                         | 1,976        | 2,019        | 2,063        | 1,616       
|Non-interest expenses                                             | 10,999                                        | 11,604       | 9,191        | 7,573        | 6,844       
|Income (loss) before income taxes                                 | 1,858                                         | 522          | (599)        | 5,415        | 5,562       
|Income tax provision (credit)                                     | (65)                                          | (537)        | (920)        | 1,149        | 1,331       
|Net Income                                                        | $     1,923                                   | $     1,059  | $        321 | $     4,266  | $     4,231 
|                                                                  |                                               |              |              |              |             
|Per share of common stock                                         |                                               |              |              |              |             
|Basic and diluted income                                          | $       0.73                                  | $       0.40 | $       0.12 | $       1.61 | $       1.60
|Dividends                                                         | 0.30                                          | 0.10         | 0.45         | 0.70         | 0.60        
|Book value                                                        | 12.83                                         | 12.46        | 12.02        | 12.49        | 11.65       
|                                                                  |                                               |              |              |              |             
|Average basic common shares outstanding                           | 2,630,931                                     | 2,625,241    | 2,628,998    | 2,651,910    | 2,637,011   
|                                                                  |                                               |              |              |              |             
|Average diluted common shares outstanding                         | 2,634,558                                     | 2,626.014    | 2,629,733    | 2,652,836    | 2,637,956   
|                                                                  |                                               |              |              |              |             
|Year-end balances:                                                |                                               |              |              |              |             
|Loans, net (includes held for sale)                               | $ 197,109                                     | $ 164,916    | $198,358     | $194,862     | $193,824    
|Securities                                                        | 73,088                                        | 92,607       | 96,550       | 105,387      | 89,368      
|Total assets                                                      | 304,713                                       | 306,345      | 325,212      | 326,546      | 317,502     
|Deposits                                                          | 239,976                                       | 251,430      | 268,583      | 269,939      | 265,747     
|Borrowings                                                        | 29,828                                        | 21,317       | 24,048       | 22,545       | 19,882      
|Shareholders' equity                                              | 33,742                                        | 32,721       | 31,540       | 33,202       | 30,860      
|                                                                  |                                               |              |              |              |             
|Average balances:                                                 |                                               |              |              |              |             
|Loans, net                                                        | $ 177,592                                     | $ 180,157    | $203,790     | $187,893     | $184,746    
|Securities                                                        | 80,176                                        | 90,538       | 100,216      | 99,993       | 82,406      
|Total assets                                                      | 295,399                                       | 314,153      | 325,880      | 322,022      | 296,239     
|Deposits                                                          | 235,080                                       | 260,677      | 264,795      | 268,881      | 246,961     
|Borrowings                                                        | 25,971                                        | 20,532       | 28,108       | 19,357       | 18,440      
|Shareholders' equity                                              | 33,382                                        | 31,921       | 32,083       | 32,454       | 29,402      
|                                                                  |                                               |              |              |              |             
|Selected ratios:                                                  |                                               |              |              |              |             
|Net yield on average interest-earning assets                      | 3.73%                                         | 3.45%        | 4.11%        | 3.96%        | 4.20%       
|Return on average total assets                                    | 0.65                                          | 0.34         | 0.10         | 1.32         | 1.43        
|Return on average shareholders' equity                            | 5.76                                          | 3.32         | 1.00         | 13.14        | 14.39       
|Average shareholders' equity as a percent of average total assets | 11.30                                         | 10.16        | 9.85         | 10.08        | 9.93        
|Net loan charge-offs as a percent of average loans                | 0.40                                          | 1.86         | 1.01         | 0.30         | 0.27        
|Allowance for loan losses as a percent of loans at year-end       | 1.35                                          | 2.38         | 3.62         | 1.72         | 1.46        
|Shareholders' equity as a percent of total year-end assets        | 11.07                                         | 10.68        | 9.70         | 10.17        | 9.72        









RESULTS OF OPERATIONS



Net Income

Net income totaled $1,923,000 in 2002, an increase of $864,000 from 2001. Net income per share was $0.73 and $0.40 for the years ended December 31, 2002 and 2001. Return on average assets was 0.65% in 2002, as compared to 0.34% in 2001, and return on average shareholders equity was 5.76% in 2002 compared to 3.32% in 2001.



Net income for 2001 was $1,059,000 or $0.40 per share, as compared to $321,000 or $0.12 per share for 2000. This equated to a return on average assets of 0.34% in 2001 and 0.10% in 2000, while the return on average shareholders equity for the same periods was 3.32% and 1.00%.



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 2002 was $16.7 million, decreasing $5.0 million from $21.7 million in 2001. Interest and fees on loans was $12.6 million, a decrease of $3.8 million, or 23.2%, from 2001, mostly attributable to the $5.5 million decrease in the average balance of loans and the decreased yield on loans of 184 basis points in 2002. Interest income on securities decreased $780,000, or 16.8%, to $3.8 million as compared to 2001 of $4.6 million, due primarily to the $10.4 million decrease in the average balance of securities in 2002 as compared to 2001. Other interest

income decreased $350,000 to $212,000 in 2002 compared to $562,000 in 2001, primarily as a result of a decrease in the average federal funds sold balance, from $17.9 million in 2001 to $13.1 million in 2002 and a decrease in the average yield from 3.11% in 2001 to 1.61% in 2002.



Interest income for 2001 was $21.7 million, decreasing $3.8 million from $25.5 million in 2000. Interest and fees on loans was $16.5 million, a decrease of $3.7 million, or 18.1%, from 2000, mostly attributable to the $21.5 million decrease in the average balance of loans and the decreased yield on loans of 84 basis points in 2001. Interest income on securities decreased $719,000, or 13.4%, to $4.6 million as compared to 2000 of $5.3 million, due primarily to the decrease in the average balance of securities in 2001 as compared to the previous year. Other interest income increased $529,000 to $562,000 in 2001 compared to $33,000 in 2000, primarily as a result of an increase in the average federal funds sold balance, from $522,000 in 2000 to $17.9 million in 2001, a result of a decrease in the loan portfolio.



Interest expense for 2002 was $6.5 million, a decrease of $5.0 million, or 43.6%, from 2001. The Companys interest expense on deposits decreased $5.0 million in 2002, due primarily to the decrease in deposit interest rates during 2002, as cost of deposits decreased to 2.78% in 2002, compared to 4.58% in 2001 and the average balance of time deposits decreased $33.1 million, or 20.7%. Interest expense on other borrowings decreased $51,000 due to the 96 basis point decrease in the cost of these funds in 2002 as compared to 2001.



Interest expense for 2001 was $11.5 million, a decrease of $1.3 million, or 10.3%, from 2000. The Companys interest expense on deposits decreased $503,000 in 2001, due primarily to the decrease in deposit interest rates during 2001, as cost of deposits decreased to 4.58% in 2001, compared to 4.76% in 2000. Interest expense on other borrowings decreased $808,000 due to the decreased use of federal funds purchased and the decrease in the cost of these funds by 188 basis points in 2001.



Net interest income for 2002 remained stable at $10.2 million. The $20.7 million decrease in average interest-earning assets was offset by a 28 basis point increase in the net interest margin as higher-earning loans comprised 66.0% of interest-earning assets in 2002 as compared to 63.2% in 2001. Net interest income for 2001 decreased from $12.7 million in 2000 to $10.2 million, a decrease of $2.5 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.



AVERAGE BALANCES, RATES AND YIELDS

(Dollars in thousands)

2002

2001

2000

Average

Average

Average

Balance (1)    Interest Rate (2)       Balance (1)  Interest Rate (2)        Balance (1)  Interest Rate (2)



|Interest-earning assets                                  |          |          |       |          |          |       |          |          |      
|-------------------------------------------------------- | -------- | -------- | ----- | -------- | -------- | ----- | -------- | -------- | -----
|Federal funds sold                                       | $ 13,131 | $    211 | 1.61% | $ 17,896 | $    557 | 3.11% | $    522 | $     31 | 5.94%
|Interest-earning deposits                                | 36       | 1        | 1.41  | 132      | 5        | 4.25  | 45       | 2        | 4.44 
|Securities:                                              |          |          |       |          |          |       |          |          |      
|Taxable                                                  | 34,722   | 6,659    | 4.78  | 40,403   | 2,222    | 5.50  | 48,929   | 2,895    | 5.92 
|Tax exempt                                               | 45,454   | 2,190    | 4,82  | 50,135   | 2,407    | 4.80  | 51,287   | 2,453    | 4.75 
|Loans (3)                                                | 181,147  | 12,639   | 6.98  | 186,665  | 16,465   | 8.82  | 208,192  | 20,115   | 9.66 
|                                                         |          |          |       |          |          |       |          |          |      
|Total interest-earning assets                            | 274,490  | 16,700   | 6.08  | 295,231  | 21,656   | 7.34  | 308,975  | 25,496   | 8.24 
|                                                         |          |          |       |          |          |       |          |          |      
|Noninterest-earning assets                               |          |          |       |          |          |       |          |          |      
|Cash and due from banks                                  | 10,591   |          |       | 10,246   |          |       | 10,163   |          |      
|Bank premises and
Equipment, net                         | 8,910    |          |       | 9,340    |          |       | 8,955    |          |      
|Other assets                                             | 4,963    |          |       | 5,844    |          |       | 2,189    |          |      
|Allowance for
loan losses                                | (3,555)  |          |       | (6,508)  |          |       | (4,402)  |          |      
|                                                         |          |          |       |          |          |       |          |          |      
|Total assets                                             | 295,399  |          |       | $314,153 |          |       | $325,880 |          |      
|                                                         |          |          |       |          |          |       |          |          |      
|Interest-bearing liabilities                             |          |          |       |          |          |       |          |          |      
|Demand deposits                                          | $ 44,456 | $   409  | 0.92% | $ 40,625 | $   634  | 1.56% | $ 37,840 | $   825  | 2.18%
|Savings deposits                                         | 35,759   | 355      | 0.99  | 33,508   | 696      | 2.08  | 35,663   | 1,016    | 2.85 
|Time deposits                                            | 126,981  | 5,000    | 3.94  | 160,098  | 9,387    | 5.86  | 161,913  | 9,379    | 5.79 
|Other borrowed funds                                     | 25,971   | 703      | 2.71  | 20,532   | 754      | 3.67  | 28,108   | 1,561    | 5.55 
|                                                         |          |          |       |          |          |       |          |          |      
|Total interest-bearing liabilities                       | 233,167  | 6,467    | 2.77  | 254,763  | 11,471   | 4.50  | 263,524  | 12,781   | 4.85 
|                                                         |          |          |       |          |          |       |          |          |      
|Noninterest-bearing liabilities
and shareholders' equity |          |          |       |          |          |       |          |          |      
|Demand deposits                                          | 27,884   |          |       | 26,446   |          |       | 29,379   |          |      
|Other liabilities                                        | 966      |          |       | 1,023    |          |       | 894      |          |      
|Shareholders' equity                                     | 33,382   |          |       | 31,921   |          |       | 32,083   |          |      
|                                                         |          |          |       |          |          |       |          |          |      
|Total liabilities and equity                             | 295,399  |          |       | 314,153  |          |       | $325,880 |          |      
|Net interest income                                      |          | 10,233   |       |          | 10,185   |       |          | $12,715  |      
|Net interest margin                                      |          |          | 3.73% |          |          | 3.45% |          |          | 4.11%



(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 nonaccruing loans.

RATE/VOLUME ANALYSIS OF CHANGES IN INCOME AND EXPENSE (1)(Dollars in thousands)



2002 v. 2001

2001 v. 2000





|                          | Change in
Income/
Expense | Volume
Effect | Rate
Effect | Change in
Income/
Expense | Volume
Effect | Rate
Effect
|------------------------- | ------------------------- | ------------- | ----------- | ------------------------- | ------------- | -----------
|Interest income           |                           |               |             |                           |               |            
|Federal funds sold        | $  (346)                  | $  (123)      | $  (223)    | $   526                   | $   534       | $     (8)  
|Interest-earning deposits | (4)                       | (3)           | (1)         | 3                         | 3             | ---        
|Securities:               |                           |               |             |                           |               |            
|Taxable                   | (563)                     | (291)         | (272)       | (673)                     | (479)         | (194)      
|Tax exempt                | (217)                     | (226)         | 9           | (46)                      | (55)          | 9          
|                          |                           |               |             |                           |               |            
|Loans                     | (3,826)                   | (474)         | (3,352)     | (3,650                    | (1,982)       | (1,668)    
|                          |                           |               |             |                           |               |            
|Total interest income     | (4,956)                   | (1,117)       | (3,839)     | (3,840)                   | (1,979)       | (1,861)    
|                          |                           |               |             |                           |               |            
|Interest Expense          |                           |               |             |                           |               |            
|Demand deposits           | (225)                     | 67            | (292)       | (191)                     | 67            | (258)      
|Savings deposits          | (341)                     | 50            | (391)       | (320)                     | (58)          | (262)      
|Time deposits             | (4,387)                   | (1,694)       | (2,693)     | 8                         | (91)          | 99         
|Other borrowed funds      | (51)                      | 173           | (224)       | (807)                     | (358)         | (449)      
|                          |                           |               |             |                           |               |            
|Total interest expense    | (5,004)                   | (1,404)       | (3,600)     | (1,310)                   | (440)         | (870)      
|                          |                           |               |             |                           |               |            
|Net Interest income       | $       48                | $    287      | $  (239)    | $(2,530)                  | $(1,530)      | $(991)     



(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:



2002 2001 2000



|                                             | 2002        | 2001        | 2000       
|-------------------------------------------- | ----------- | ----------- | -----------
|Net interest income                          | $10,232,966 | $10,185,459 | $12,715,383
|Taxable equivalent adjustment (1)            | 1,128,235   | 1,239,955   | 1,263,935  
|                                             |             |             |            
|Net interest income-fully taxable equivalent | $11,361,201 | $11,425,414 | $13,979,318
|                                             |             |             |            
|Net interest yield                           | 3.73%       | 3.45%       | 4.11%      
|Taxable equivalent adjustment (1)            | .41         | .42         | .41        
|                                             |             |             |            
|Net interest yield - taxable equivalent      | 4.14%       | 3.87%       | 4.52%      



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

Provision (Credit) for Loan Losses

During 2002, the Company reported a credit for loan losses of $587,000 compared to a provision for loan losses of $35,000 for 2001 and $6.1 million for 2000. The credit in 2002 resulted from the resolution and payoff of several 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 2002, including a $3.4 million decrease in impaired loans and a $1.4 million decrease in loans on nonaccrual of interest, also contributed to the 2002 credit for loan losses. As part of managements aggressive collection efforts, the Bank incurred approximately $135,000 of external collection costs in 2002, mostly representing legal and other professional fees. These costs are reported as non-interest expenses in the 2002 consolidated statement of income. See Financial Condition  Allowance for Loan Losses for additional discussion and information relative to the provision (credit) for loan losses.



Non-Interest Income

Total non-interest income increased by $61,000, or 3.1%, to $2.0 million in 2002. Increases of $75,000 in service charges on deposit accounts, $86,000 in securities gains, and $64,000 in other income were partially offset by a $48,000 decrease in trust and financial services, and an $84,000 decrease in gain on sale of loans.



Total non-interest income decreased by $43,000, or 2.1% from 2000, to $2.0 million in 2001. Decreases of $68,000 in service charges on deposit accounts and $78,000 in trust and financial services were partially offset by a $42,000 increase in gain on sale of loans, a $28,000 increase in security gains, and $36,000 increase in other non-interest income.



Non-Interest Expenses

Total non-interest expenses decreased $605,000, or 5.2%, during 2002. The largest component of non-interest expenses is salaries and employee benefits, which increased $274,000 or 5.2% in 2002. The increase was from normal salary adjustments and the rising costs of employee benefits.  Professional and director fees decreased to $868,000, a decrease of $766,000. This decrease was primarily due to the decrease in consulting, legal fees, and internal audit fees which had been incurred due to the Written Agreement and other regulatory matters.



Income Taxes

The credit for income taxes amounted to $65,000 in 2002, compared to $537,000 in 2001 and $920,000 in 2000. The credit in all three years resulted from a net loss before income taxes after consideration of non-taxable interest income.



FINANCIAL CONDITION

Total assets of the Company were $304.7 million at December 31, 2002, compared to $306.3 million at December 31, 2001, representing a decrease of $1.6 million, or 0.5%. Net loans increased $32.2 million with the loan growth funded by a $12.0 million decrease in cash and cash equivalents and a $19.5 million decrease in securities. An $11.5 million decrease in deposits was partially offset by a $9.0 million increase in Federal Home Loan Bank borrowings.



Securities

Total securities decreased $19.5 million, or 21.1% from $92.6 million at year-end 2001 to $73.1 million at year-end 2002. Available-for-sale securities decreased $10.8 million while held-to-maturity securities decreased $8.9 million. The securities portfolio at year-end 2002 consisted of U.S. Treasuries, U.S. government corporations and agencies, obligations of state and political subdivisions and corporate securities. Restricted securities include Federal Home Loan Bank of Cincinnati (FHLB) stock which increased to $2.3 million through stock dividends during 2002.



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.



Securities classified as held-to-maturity are carried at amortized cost, and include securities that Management has the positive intent and ability to hold to maturity. Securities classified as available-for-sale include those that may be sold before maturity for liquidity, asset/liability management or other reasons.



Loans

Total loans amounted to $199.8 million at year-end 2002, compared to $168.9 million at year-end 2001, representing an increase of $30.9 million or 18.3%. The loan portfolio at year-end 2002 and 2001, comprised approximately 58% and 59%, respectively, of commercial and commercial real estate loans. The Company recorded an increase of $6.7 million, or 9.9%, in commercial loans; a $10.4 million, or 18.9%, increase in residential real estate loans; an increase of $10.5 million, or 33.7%, in commercial real estate loans; a decrease of $1.1 million, or 8.4%, in installment and credit card loans; and an increase of $4.2 million in construction loans.



The increase in commercial and commercial real estate loans was partially due to the Banks entering into several participation loan agreements with local and regional financial institutions. These loans are subject to the same underwriting standards as other commercial and commercial real estate loans in the Banks portfolio and were all performing at December 31, 2002.



Agriculture production loans and loans secured by farmland totaled approximately $1.1 million at year-end 2002, and are included in the commercial, commercial real estate and residential real estate categories. Credit card loans, which are primarily unsecured, totaled $2.4 million, or 1.2%, of loans at year-end 2002. Demand for commercial business loans, as well as both commercial and residential real estate loans, was stable in 2002. Management believes the Companys local service areas will experience continued economic strength and a continued need for these types of lending products in 2003.



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 amended, in the fourth quarter of 2000, the Allowance for Loan and Lease Losses Policy.  This 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 $2.7 million or 1.35% of total loans at year-end 2002, down from $4.0 million or 2.38% of total loans at year-end 2001. Net charge-offs for 2002 totaled $732,000, compared to $3.5 million in 2001 and $2.1 million in 2000. 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 chargeoffs in 2002. During the second quarter of 2001, the Company sold $7.5 million of commercial and commercial real estate loans that resulted in $1.6 million of the charge-offs in 2001. 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, were $1.7 million or 0.9% of loans at year-end 2002 compared to $3.3 million or 1.9% of loans at year-end 2001. Impaired loans decreased at year-end from $4.3 million in 2001 to $916,000 in 2002. 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 $270,000 to $9.1 million at year-end 2002 from $9.3 million at year-end 2001. The decrease in 2002 was due to depreciation exceeding the relatively low volume of equipment purchases. Other assets, including accrued interest receivable, decreased $2.1 million to $2.9 million at year end 2002 due in part to a $1.4 million reduction in net deferred tax assets.



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. As a result of this competition and the lower interest rate environment, total deposits decreased 4.6% to $240.0 million at year-end 2002, compared to $251.4 million at year-end 2001. Noninterest-bearing deposits increased $2.7 million, or 9.0%, to $32.4 million compared to $29.7 million at year-end 2001.  Interest-bearing deposits decreased $14.1 million or 6.4% at year-end 2002 compared to year-end 2001. Interest-bearing demand deposits increased $6.6 million, and statement and passbook savings increased $3.3 million. Certificates of deposit in excess of $100,000 decreased $3.3 million while other certificates of deposit decreased by $20.7 million.



Other Funding Sources

The Company obtains additional funds through securities sold under repurchase agreements and advances from the FHLB. These borrowings totaled $29.8 million at year-end 2002. These funding sources provided a net increase in cash of $8.5 million from year-end 2001 to 2002. A $10 million advance from the FHLB was partially offset by a $509,000 decrease in repurchase agreements and $980,000 of repayments of funds borrowed from the FHLB. The repurchase agreements are uninsured, so the Company pledges securities against these customer funds.

CAPITAL RESOURCES

Total shareholders equity increased from $32.7 million at December 31, 2001 to $33.7 million at December 31, 2002. This increase was primarily due to net income of $1.9 million, offset by dividends declared of $789,000. Because of the dividend reinvestment program, shareholders equity increased $120,000 in 2002 and $65,000 in 2001 as a portion of dividends declared were reinvested by shareholders in common stock.



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 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 $22.6 million at December 31, 2002, a decrease of $12.0 million from year-end 2001. Net income, securities available for sale, maturities/calls of securities held to maturity, and loan repayments also serve as sources of liquidity. Cash and cash equivalents and securities maturing within one year represent 11.0% of total assets at year-end 2002, as compared to 13.5% in 2001. Other sources of liquidity the Company could use to help to ensure funds are available when needed 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 2002 included the maturities and calls of securities totaling $39.9 million offset by $20.5 million in purchases, and net loan originations of $32.6 million. The Companys financing activities included $11.5 million of reductions in deposits, $509,000 reduction in repurchase agreements, and $10.0 million in proceeds from of FHLB advances partially offset by $980,000 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 2002 and 2001. 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.

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, 2002 and 2001:





|                                       |                     | 2002                   |               |                  
|-------------------------------------- | ------------------- | ---------------------- | ------------- | -----------------
|Change in Interest Rate
(Basis Points) | Net Interest
Income |                        | Dollar
Change | Percentage
Change
|                                       |                     | (Dollars in thousands) |               |                  
|+200                                   | $12,043             |                        | $  877        | 7.9%             
|+100                                   | 11,618              |                        | 452           | 4.0              
|0                                      | 11,166              |                        | 0             | 0.0              
|-100                                   | 10,853              |                        | (313)         | (2.8)            
|-200                                   | 10,544              |                        | (622)         | (5.6)            





|                                       |                     | 2001                   |               |                  
|-------------------------------------- | ------------------- | ---------------------- | ------------- | -----------------
|Change in Interest Rate
(Basis Points) | Net Interest
Income |                        | Dollar
Change | Percentage
Change
|                                       |                     | (Dollars in thousands) |               |                  
|+200                                   | $10,425             |                        | $  710        | 7.3%             
|+100                                   | 10,100              |                        | 385           | 4.0              
|0                                      | 9,715               |                        | 0             | 0.0              
|-100                                   | 9,577               |                        | (138)         | (1.4)            
|-200                                   | 9.755               |                        | 40            | 0.4              



Management reviews its rate shock position with the Board on a periodic basis. The Company was within all Board-approved limits at December 31, 2002 and 2001.



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 adjustablerate 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 disclosed the estimated fair value of its financial instruments at December 31, 2002 and 2001 in Note 13 to the consolidated financial statements. Fair value of the Companys financial instruments experienced modest changes in 2002. Estimated fair value of loans amounted to 102.0% of the carrying value in 2002, decreasing from 102.8% in 2001. The fair value of securities increased to 104.0% of carrying value in 2002, from 102.0% in 2001. Estimated fair value of time deposits decreased from 101.8% of carrying value in 2001 to 100.6% in 2002.



IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board issued a new pronouncement in December 2002 to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. While this pronouncement may impact future financial statement disclosures it is not expected to have a significant impact on the consolidated financial statements.  Management is unaware of any other recently issued, but not yet adopted, accounting pronouncements that will have a future impact on the consolidated financial statements of the Company.



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.



CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT

The Board of Directors of the Company, acting on the recommendation of the Audit Committee of the Board, determined to replace the Companys auditor, Crowe, Chizek and Company LLP (Crowe, Chizek), following the date of completion of the audit of financial statements and reports for the year ended December 31, 2000, and was effective as of March 31, 2001. The reports on the Companys financial statements for the year ended December 31, 2000 did not contain an adverse opinion or disclaimer of opinion nor was it qualified as to uncertainty, audit scope or accounting principles. During the year ended December 31, 2000, there were no disagreements with Crowe, Chizek on any matter of accounting principles or practices, financial disclosure, or auditing scope or procedure. The Company, on February 28, 2001, engaged Clifton Gunderson LLP as the principal accountant of the Company to audit the Companys financial statements. The financial statements for the years

ended December 31, 2002 and 2001 were audited by Clifton Gunderson LLP.



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, markdown or commission and may not represent actual transactions. The chart specifies cash dividends declared by the Company to its shareholders during 2002 and 2001. 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 Declared (1)
|------------------ | ------ | ------ | ----------------------
|March 31, 2002     | $20.00 | $16.75 | $                    
|June 30, 2002      | 19.85  | 18.75  | 262,952               
|September 30, 2002 | 19.15  | 17.00  | 263,191               
|December 31, 2002  | 17.50  | 16.05  | 263,026               
|                   |        |        |                       
|March 31, 2001     | 16.75  | $15.00 | $                    
|June 30, 2001      | 19.00  | 15.75  |                      
|September 30, 2001 | 16.95  | 13.10  |                      
|December 31, 2001  | 16.00  | 13.25  | 262,465               



(1) First quarter 2002 dividend of $0.05 was not approved by regulators until April 5, 2002. Therefore, it was considered   declared in second quarter. An additional $0.05 dividend was declared later in the second quarter.



As of December 31, 2002, CSB Bancorp, Inc. had approximately 1,219 shareholders and 2,630,258 outstanding shares of common stock.



TRANSFER AGENT

CSB Bancorp, Inc. acts as its own transfer agent for its common stock.



Winnie Ellis

CSB Bancorp, Inc.

6 West Jackson Street

Millersburg, Ohio 44654

Phone 330-674-9015 or 800-654-9015



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:



A. Lee Miller, 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 Wednesday, April 23, 2003 at 7:00 pm at the Companys Operations Center.



Report of Independent Auditors





Shareholders and Board of Directors

CSB Bancorp, Inc.

Millersburg, Ohio



We audited the accompanying consolidated balance sheets of CSB Bancorp, Inc. and subsidiary as of December 31, 2002 and 2001, and the related consolidated statements of income, shareholders equity, and cash flows for the years then ended. 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. The consolidated statements of income, shareholders equity, and cash flows for the year ended December 31, 2000 of CSB Bancorp, Inc. and subsidiary were audited by other auditors whose report dated March 14, 2001, expressed an unqualified opinion on those financial statements.



We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 2002 and 2001 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, 2002 and 2001, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.





Clifton Gunderson LLP

Toledo, Ohio

January 31, 2003

Consolidated Balance Sheets



|ASSETS                                                                                          | 2002          | 2001          
|----------------------------------------------------------------------------------------------- | ------------- | --------------
|CASH AND CASH EQUIVALENTS                                                                       |               |               
|Cash and due from banks                                                                         | $ 12,079,581  | $ 10,509,626  
|Interest-earning deposits in other banks                                                        | 192,115       | 185,893       
|Federal funds sold                                                                              | 10,293,000    | 23,853,000    
|                                                                                                |               |               
|Total cash and cash equivalents                                                                 | 22,564,696    | 34,548,519    
|                                                                                                |               |               
|SECURITIES                                                                                      |               |               
|Available-for-sale, at fair value                                                               | 22,671,668    | 33,448,120    
|Held-on-maturity, at amortized cost (fair value of
$50,756,761 in 2002 and $58,549,665 in 2001) | 47,822,882    | 56,675,126    
|Restricted stock, at cost                                                                       | 2,593,500     | 2,483,800     
|                                                                                                |               |               
|Total securities                                                                                | 73,088,050    | 92,607,046    
|                                                                                                |               |               
|LOANS                                                                                           | 199,809,915   | 168,935,136   
|Less allowance for loan losses                                                                  | 2,700,643     | 4,019,302     
|                                                                                                |               |               
|Net loans                                                                                       | 197,109,272   | 164,915,834   
|                                                                                                |               |               
|PREMISES AND EQUIPMENT, NET                                                                     | 9,070,238     | 9,340,570     
|                                                                                                |               |               
|ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS                                                    | 2,880,868     | 4,933,343     
|                                                                                                |               |               
|TOTAL ASSETS                                                                                    | $ 304,713,124 | $ 306,345,312 
|                                                                                                |               |               
|LIABILITIES AND SHAREHOLDERS EQUITY                                                            |               |               
|                                                                                                |               |               
|LIABILITIES                                                                                     |               |               
|Deposits:                                                                                       |               |               
|Noninterest-bearing                                                                             | $  32,397,210 | $   29,721,134
|Interest-bearing                                                                                | 207,578,723   | 221,708,596   
|                                                                                                |               |               
|Total deposits                                                                                  | 239,975,933   | 251,429,730   
|                                                                                                |               |               
|Securities sold under repurchase agreements                                                     | 14,448,384    | 14,957,025    
|Federal Home Loan Bank borrowings                                                               | 15,380,060    | 6,359,788     
|Accrued interest payable and other liabilities                                                  | 1,166,463     | 877,632       
|                                                                                                |               |               
|Total liabilities                                                                               | 270,970,840   | 273,624,175   
|                                                                                                |               |               
|SHAREHOLDERS EQUITY                                                                            |               |               
|Common stock, $6.25 par value. Authorized 9,000,000
shares; issued 2,667,786 shares             | $16,673,667   | $ 16,673,667  
|Additional paid-in capital                                                                      | 6,413,915     | 6,413,915     
|Retained earnings                                                                               | 11,621,292    | 10,571,152    
|Treasury stock at cost - 37,528 shares in 2002
and 39,077 shares in 2001                        | (1,088,312)   | (1,204,018)   
|Accumulated other comprehensive income                                                          | 121,722       | 266,421       
|                                                                                                |               |               
|Total shareholders' equity                                                                      | 33,742,284    | 32,721,137    
|                                                                                                |               |               
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                      | $ 304,713,124 | $ 306, 345,312









|INTEREST AND DIVIDEND INCOME                                  | 2002                | 2001            | 2000          
|------------------------------------------------------------- | ------------------- | --------------- | --------------
|                                                              |                     |                 |               
|Loans, including fees                                         | $12,639,261         | $ 16,465,458    | $ 20,115,631  
|Taxable securities                                            | 1,658,996           | 2,221,656       | 2,894,997     
|Non-taxable securities                                        | 2,190,103           | 2,406,972       | 2,453,521     
|Other                                                         | 211,435             | 562,273         | 32,725        
|                                                              |                     |                 |               
|Total interest and dividend income                            | 16,699,795          | 21,656,359      | 25,496,874    
|                                                              |                     |                 |               
|INTEREST EXPENSE                                              |                     |                 |               
|                                                              |                     |                 |               
|Deposits                                                      | 5,764,027           | 10,717,243      | 11,220,253    
|Other                                                         | 702,802             | 753,657         | 1,561,238     
|                                                              |                     |                 |               
|Total interest expense                                        | 6,466,829           | 11,470,900      | 12,781,491    
|                                                              |                     |                 |               
|Net interest income                                           | 10,232,966          | 10,185,459      | 12,715,383    
|                                                              |                     |                 |               
|PROVISION (CREDIT) FOR LOAN LOSSES                            | (586,521)           | 34,801          | 6,142,464     
|                                                              |                     |                 |               
|Net interest income, after provision
(credit) for loan losses | 10,819,487          | 10,150,658      | 6,572,919     
|                                                              |                     |                 |               
|NON-INTEREST INCOME                                           |                     |                 |               
|                                                              |                     |                 |               
|Service charges on deposit accounts                           | 807,206             | 732,705         | 800,964       
|Merchant fees                                                 | 212,109             | 243,225         | 252,319       
|Trust services                                                | 334,089             | 381,833         | 459,680       
|Securities gains                                              | 114,822             | 28,828          | 236           
|Gain on sale of loans                                         | 5,843               | 90,204          | 47,998        
|Other                                                         | 562,992             | 498,799         | 457,667       
|                                                              |                     |                 |               
|Total non-interest income                                     | 2,037,061           | 1,975,594       | 2,018,864     
|                                                              |                     |                 |               
|NON-INTEREST EXPENSES                                         |                     |                 |               
|                                                              |                     |                 |               
|Salaries and employee benefits                                | 5,554,344           | 5,279,958       | 4,429,679     
|Occupancy expense                                             | 622,037             | 645,607         | 541,537       
|Equipment expense                                             | 534,296             | 538,566         | 445,021       
|Franchise tax expense                                         | 377,274             | 358,546         | 381,276       
|Professional and director fees                                | 868,257             | 1,634,110       | 789,639       
|Other expenses                                                | 3,042,202           | 3,147,387       | 2,603,399     
|                                                              |                     |                 |               
|Total non-interest expenses                                   | 10,998,410          | 11,604,174      | 9,190,551     
|                                                              |                     |                 |               
|Income (loss) before income taxes                             | 1,858,138           | 522,078         | (598,768)     
|                                                              |                     |                 |               
|FEDERAL INCOME TAX CREDIT                                     | (65,000)            | (537,000)       | (919,661)     
|                                                              |                     |                 |               
|NET INCOME                                                    | $   1,923,138       | $   1,059,078   | $    320,893  
|                                                              |                     |                 |               
|NET INCOME PER SHARE                                          |                     |                 |               
|Basic and diluted                                             | $               .73 | $           .40 | $          .12



These consolidated financial statements should be read only in connection with the accompanying summary of significant accounting policies and notes to consolidated financial statements.





Consolidated Statements of Income

CSB Bancorp, Inc. and Subsidiary | Years Ended December 31, 2002, 2001, and 2000



|                             | Common Stock                 | Additional Paid-In Capital                                                                          | Retained Earnings                                                                                   | Treasury Stock | Accumulated Other Comprehensive Income (loss) | Total      
|---------------------------- | ---------------------------- | --------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | -------------- | --------------------------------------------- | -----------
|BALANCE AT DECEMBER 31, 1999 | $16,673,693                  | $6,387,800                                                                                          | $10,702,853                                                                                         | $(173,802)     | $(388,866)                                    | $33,201,678
|                             |                              |                                                                                                     | Comprehensive income:
Net income                                                                    |               |                                              | 320,893    
|                             |                              |                                                                                                     | Changes in net unrealized gain (loss), net of reclassification adjustments and related income taxes |               |                                              |           
|                             |                              |                                                                                                     | Total comprehensive income                                                                          |               |                                              |           
|                             |                              |                                                                                                     | Common stock transactions under
dividend reinvestment program                                       | (26)           | 34,498                                        |           
|                             |                              |                                                                                                     | Exercise of 1,800 stock options                                                                     |               | (8,383)                                       |           
|                             |                              |                                                                                                     | Cash dividends declared, $.45 per share                                                             |               |                                              | (1,183,730)
|                             |                              |                                                                                                     | Purchase of 48,842 treasury shares                                                                  |               |                                              |           
|BALANCE AT DECEMBER 31, 2000 | 16,673,667                   | 6,413,915                                                                                           | 9,840,016                                                                                           | (1,338,432)    | (49,232)                                      | 31,539,934 
|                             |                              |                                                                                                     | Comprehensive income:
Net income                                                                    |               |                                              | 1,059,078  
|                             |                              |                                                                                                     | Changes in net unrealized gain (loss), net of reclassification adjustments and related income taxes |               |                                              |           
|                             |                              |                                                                                                     | Total comprehensive income                                                                          |               |                                              |           
|                             |                              |                                                                                                     | Shares issued from treasury under
dividend reinvestment program                                     |               |                                              | (60,227)   
|                             |                              |                                                                                                     | Shares issued from treasury as
employee compensation                                                |               |                                              | (5,250)    
|                             |                              |                                                                                                     | Purchase of 11 treasury shares                                                                      |               |                                              |           
|                             |                              |                                                                                                     | Cash dividends declared, $.10 per share                                                             |               |                                              | (262,465)  
|                             | BALANCE AT DECEMBER 31, 2001 | 16,673,667                                                                                          | 6,413,915                                                                                           | 10,571,152     | (1,204,018)                                   | 266,421    
|                             |                              | Comprehensive income:
Net income                                                                    |                                                                                                    |               | 1,923,138                                     |           
|                             |                              | Changes in net unrealized gain (loss), net of reclassification adjustments and related income taxes |                                                                                                    |               |                                              |           
|                             |                              | Total comprehensive income                                                                          |                                                                                                    |               |                                              |           
|                             |                              | Shares issued from treasury under dividend reinvestment program                                     |                                                                                                    |               | (83,829)                                      | 203,434    
|                             |                              | Purchase of 5,013 treasury shares                                                                   |                                                                                                    |               |                                              | (87,728)   
|                             |                              | Cash dividends declared, $.30 per share                                                             |                                                                                                    |               | (789,169)                                     |           
|                             | BALANCE AT DECEMBER 31, 2002 | $16,673,667                                                                                         | $6,413,915                                                                                          | $11,621,292    | $(1,088,312)                                  | $121,722   



These consolidated financial statements should be read only in connection with the accompanying summary of significant accounting policies and notes to consolidated financial statements.

Consolidated Statements of Cash Flows

CSB Bancorp, Inc. and Subsidiary | Years Ended December 31, 2002, 2001, and 2000





|CASH FLOWS FROM OPERATING ACTIVITIES | 2002                                                                                                                                      | 2001                                                                           | 2000                        
|------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ----------------------------
|                                     | Net income                                                                                                                                | $1,923,138                                                                     | $1,059,078                  
|                                     | Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of
premises and equipment | 720,316                                                                        | 630,778                     
|                                     |                                                                                                                                           | Deferred income taxes                                                          | 1,426,542                   
|                                     |                                                                                                                                           | Provision (credit) for loan losses                                             | (586,521)                   
|                                     |                                                                                                                                           | Gain on sale of loans                                                          | (5,843)                     
|                                     |                                                                                                                                           | Securities gains                                                               | (114,822)                   
|                                     |                                                                                                                                           | Loss (gain) on sale of premises and equipment                                  | (1,762)                     
|                                     |                                                                                                                                           | Shares issued from treasury as employee compensation                           |                            
|                                     |                                                                                                                                           | Loss (gain) on sale of other real estate owned                                 | 3,350                       
|                                     |                                                                                                                                           | Security amortization and accretion                                            | 88,983                      
|                                     |                                                                                                                                           | Federal Home Loan Bank stock dividends                                         | (109,700)                   
|                                     |                                                                                                                                           | Secondary market loan sale proceeds                                            | 3,871,289                   
|                                     |                                                                                                                                           | Originations of secondary market loans held-for-sale                           | (3,865,446)                 
|                                     |                                                                                                                                           | Effects of changes in operating assets and liabilities:
Net deferred loan fees | (166,716)                   
|                                     |                                                                                                                                           |                                                                                | Accrued interest receivable 
|                                     |                                                                                                                                           |                                                                                | Accrued interest payable    
|                                     |                                                                                                                                           |                                                                                | Other assets and liabilities
|                                     | Net cash provided by operating activities                                                                                                 | 3,963,252                                                                      | 1,179,462                   





CASH FLOWS FROM INVESTING ACTIVITIES

|Securities available-for-sale:
Proceeds from maturities and repayments | 31,129,822   | 26,665,843   | 4,000,000  
|---------------------------------------------------------------------- | ------------ | ------------ | -----------
|Purchases                                                              | (20,497,528) | (34,770,000) |           
|Securities held-to-maturity:
Proceeds from maturities and repayments   | 8,803,000    | 12,630,000   | 6,328,950  
|Purchases                                                              |             |             | (969,782)  
|Proceeds from sale of loans                                            | 780,732      | 5,957,710    |           
|Loan originations, net of repayments                                   | (32,605,933) | 27,712,783   | (9,586,848)
|Proceeds from sale of other real estate                                | 327,486      | 90,952       | 69,895     
|Proceeds from sale of premises and equipment                           | 11,450       | 114,093      |           
|Property and equipment expenditures                                    | (459,672)    | (717,886)    | (807,918)  
|Purchase of other real estate                                          |             | (85,000)     |           
|Net cash provided by (used in) investing activities                    | (12,510,643) | 37,598,495   | (965,703)  





These consolidated financial statements should be read only in connection with the accompanying summary of significant accounting policies and notes to consolidated financial statements.





|CASH FLOWS FROM FINANCING ACTIVITIES                                                                                                                                                 | 2002          | 2001          | 2000        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------- | ------------- | ------------
|Net change in deposits                                                                                                                                                               | $(11,453,797) | $(17,153,189) | $(1,356,523)
|Net change in securities sold under repurchase agreements                                                                                                                            | (508,641)     | (626,502)     | 2,747,973   
|Federal Home Loan Bank borrowings:
Proceeds                                                                                                                                          | 10,000,000    |              |            
|Repayments                                                                                                                                                                           | (979,728)     | (2,105,039)   | (1,245,004) 
|Purchase of treasury shares                                                                                                                                                          | (87,728)      | (194)         | (1,507,230) 
|Stock options exercised                                                                                                                                                              |              |              | 30,117      
|Cash dividends paid                                                                                                                                                                  | (406,538)     | (197,136)     | (845,158)   
|Net cash used in financing activities                                                                                                                                                | (3,436,432)   | (20,082,060)  | (2,175,825) 
|NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS                                                                                                                                 | (11,983,823)  | 18,695,897    | 2,585,545   
|CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR                                                                                                                                       | 34,548,519    | 15,852,622    | 13,267,077  
|CASH AND CASH EQUIVALENTS AT
END OF YEAR                                                                                                                                             | $22,564,696   | $34,548,519   | $15,852,622 
|SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest                                                                                                                     | $6,651,003    | $11,622,133   | $12,710,710 
|Income taxes                                                                                                                                                                         | $            | $            | $438,350    
|Loans transferred from held-for-sale to portfolio                                                                                                                                    | $            | $            | $20,553,301 
|Non-cash investing activity  transfer
of loans to other real estate owned                                                                                                           | $385,000      | $            | $          
|Non-cash financing activity  payments of dividends
through issuance of treasury shares in 2002 and 2001,
and issuance of common shares in 2000, under
dividend reinvestment program | $119,605      | $65,329       | $338,572    





These consolidated financial statements should be read only in connection with the accompanying summary of significant accounting policies and notes to consolidated financial statements.

Summary of Significant Accounting Policies



CSB Bancorp, Inc. (the Company) was incorporated in 1991 in the State of Ohio as a one-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 branches 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 area involving the use of managements estimates and assumptions is 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 intercompany 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, 2002 and 2001 was $1,226,000 and $1,240,000, respectively.



SECURITIES

Securities are designated at the time of purchase as either held-to-maturity or available-for-sale. Securities designated as held-to-maturity are carried at their 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 classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums  and accretion of discounts to maturity. Such amortization and accretion is included in interest and dividends on securities.

Investment in Federal Home Loan Bank and Federal Reserve Bank stock is classified as a restricted security, 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.



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 writedowns are included in other operating expense, as are gains or losses upon sale and expenses related to maintenance of the properties.



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.



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 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.



|                                                                                                                                    | 2002       | 2001      
|----------------------------------------------------------------------------------------------------------------------------------- | ---------- | ----------
|Net income as reported                                                                                                              | $1,923,138 | $1,059,078
|Pro forma net income                                                                                                                | 1,904,729  | 1,032,078 
|Basic earnings per share as reported                                                                                                | .73        | .40       
|Pro forma basic earnings per share                                                                                                  | .72        | .39       
|Diluted earnings per share as reported                                                                                              | .73        | .40       
|Pro forma diluted earnings per share                                                                                                | .72        | .39       
|The pro forma effects are computed using option pricing methods,
Using the following weighted-average assumptions as of grant date. |            |           
|Risk-free interest rate                                                                                                             | 3.00%      | 3.50%     
|Expected option life                                                                                                                | 9.5 years  | 10.0 years
|Dividend yield                                                                                                                      | 2.50%      | 2.50%     





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.



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:



|                                                     | 2002      | 2001      | 2000     
|---------------------------------------------------- | --------- | --------- | ---------
|Weighted average common shares outstanding (basic)   | 2,630,931 | 2,625,241 | 2,628,998
|Dilutive effect of assumed exercise of stock options | 3,627     | 773       | 735      
|Weighted average common shares outstanding (diluted) | 2,634,558 | 2,626,014 | 2,629,733



Dividends per share are based on the number of shares outstanding at the declaration date.



RECLASSIFICATIONS

Certain reclassifications of 2001 and 2000 amounts have been made to conform with the 2002 presentation.



This information is an integral part of the accompanying consolidated financial statements.

Notes To Consolidated Financial Statements



NOTE 1 - SECURITIES

Securities consist of the following at December 31, 2002 and 2001:



|DECEMBER 31, 2002 | AmortizedCost                                                                | Gross Unrealized Gains | Gross Unrealized Losses | FairValue
|----------------- | ---------------------------------------------------------------------------- | ---------------------- | ----------------------- | ---------
|                  | Available-for-sale:
Obligations of U.S. government
corporations and agencies | $18,521,998            | $153,478                | $       
|                  | Mortgage-backed securities                                                   | 3,338,616              | 14                      |         
|                  | Corporate security                                                           | 626,626                | 30,936                  |         
|                  | Total available-for-sale                                                     | 22,487,240             | 184,428                 |         
|                  | Held-to-maturity:
U.S. Treasury security                                     | 101,644                | 34,575                  |         
|                  | Obligations of U.S. government
corporations and agencies                     | 7,000,912              | 183,148                 |         
|                  | Obligations of states and
political subdivisions                             | 40,720,326             | 2,716,156               |         
|                  | Total held-to-maturity                                                       | 47,822,882             | 2,933,879               |         
|                  | Restricted stock                                                             | 2,593,500              |                        |         
|                  | Total securities                                                             | $72,903,622            | $3,118,307              | $       





DECEMBER 31, 2001

|Available-for-sale:
Obligations of U.S. government
corporations and agencies | $32,044,452 | $402,000   | $2,500 | $32,443,952
|---------------------------------------------------------------------------- | ----------- | ---------- | ------ | -----------
|Mortgage-backed security                                                     | 1,000,000   | 4,168      |       | 1,004,168  
|Total available-for-sale                                                     | 33,044,452  | 406,168    | 2,500  | 33,448,120 
|Held-to-maturity:
U.S. Treasury security                                     | 101,685     | 21,753     |       | 123,438    
|Obligations of U.S. government
corporations and agencies                     | 8,002,596   | 282,090    |       | 8,284,686  
|Obligations of states and
political subdivisions                             | 48,570,845  | 1,575,495  | 4,799  | 50,141,541 
|Total held-to-maturity                                                       | 56,675,126  | 1,879,338  | 4,799  | 58,549,665 
|Restricted stock                                                             | 2,483,800   |           |       | 2,483,800  
|Total securities                                                             | $92,203,378 | $2,285,506 | $7,299 | $94,481,585



NOTE 1  SECURITIES (CONTINUED)

The amortized cost and fair value of securities at December 31, 2002, 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 Cost | Fair Value    
|-------------------------------------- | -------------- | --------------
|Available-for-sale:                    |                |               
|Due in one year or less                | $    2,002,179 | $    2,002,812
|Due after one through five years       | 17,146,445     | 17,330,226    
|Mortgage-backed securities             | 3,338,616      | 3,338,630     
|                                       |                |               
|Total available-for-sale               | $ 22,487,240   | $ 22,671,668  
|                                       |                |               
|Held-to-maturity:                      |                |               
|Due in one year or less                | $   9,099,255  | $   9,295,091 
|Due after one through five years       | 20,283,980     | 21,641,490    
|Due after five years through ten years | 18,338,003     | 19,683,961    
|Due after ten years                    | 101,644        | 136,219       
|                                       |                |               
|Total held-to-maturity                 | $ 47,822,882   | $ 50,756,761  



Gains from sales of securities in 2002 amounted to $114,822 (there were no losses from sales of securities). All securities gains in 2001 and 2000 resulted from securities called or settled by the issuer, except for a $13,877 gain in 2001 resulting from recovery of a previous impairment write-off.  There were no securities sold during 2001 and 2000.



Securities with a carrying value of approximately $39,552,000 and $54,090,000 were pledged at December 31, 2002 and 2001, 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 $2,323,500 and $2,213,800 at December 31, 2002 and 2001, respectively.



NOTE 2  LOANS

Loans consist of the following at December 31, 2002 and 2001:



|                            | 2002           | 2001          
|--------------------------- | -------------- | --------------
|Commercial                  | $   74,907,083 | $   68,180,330
|Commercial real estate      | 41,665,397     | 31,170,301    
|Residential real estate     | 65,652,751     | 55,227,953    
|Installment and credit card | 12,381,939     | 13,518,397    
|Construction                | 5,452,456      | 1,254,582     
|Deferred loan fees, net     | (249,711)      | (416,427)     
|                            |                |               
|Loans                       | $ 199,809,915  | $ 168,935,136 



The following represents a summary of the activity in the allowance for loan losses for the years ended December 31, 2002, 2001 and 2000:

|                                   | 2002         | 2001        | 2000       
|---------------------------------- | ------------ | ----------- | -----------
|Beginning balance                  | $  4,019,302 | $ 7,460,370 | $ 3,418,797
|Provision (credit) for loan losses | (586,521)    | 34,801      | 6,142,464  
|Loans charged-off                  | (1,165,247)  | (3,747,814) | (2,246,719)
|Recoveries                         | 433,109      | 271,945     | 145,828    
|                                   |              |             |            
|Ending balance                     | $ 2,700,643  | $ 4,019,302 | $ 7,460,370



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.

In 2001, the Bank reached an agreement to sell certain commercial and commercial real estate loans with an outstanding principal balance approximating $7,527,000. After recording a charge to the allowance for loan losses of $1,608,557, the Bank completed the sale in April 2001 resulting in proceeds of $5,957,710. There was no gain or loss recorded on the sale.



As a result of an increase in nonperforming 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 provision (credit) for loan losses of ($586,521) in 2002 and $34,801 in 2001.



Impaired loans were as follows:



|                                                           | 2002        | 2001        |            
|---------------------------------------------------------- | ----------- | ----------- | -----------
|Year-end loans with no allowance for loan losses allocated | $          | $   634,048 |            
|Year-end loans with allowance for loan losses allocated    | 915,705     | 3,669,122   |            
|Amount of the allowance allocated                          | 239,270     | 1,061,291   |            
|                                                           |             |             |            
|                                                           | 2002        | 2001        | 2000       
|Average of impaired loans during the year                  | $ 2,496,740 | $ 9,707,662 | $ 4,698,923
|Interest income recognized during impairment               | 105,169     | 787,279     | 471,341    
|Cash-basis interest income recognized                      | 105,169     | 766,353     | 376,832    



Non-performing 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, 2002 and 2001:



|                                                    | 2002          | 2001        | 
|--------------------------------------------------- | ------------- | ----------- | 
|Loans past due over 90 days still accruing interest | $            | $   119,000 | 
|Nonaccrual loans                                    | 1,721,000     | 3,159,000   | 



Loans serviced for others approximated $19,586,000 and $21,340,000 at December 31, 2002 and 2001, respectively.



NOTE 3  PREMISES AND EQUIPMENT

Premises and equipment consist of the following at December 31, 2002 and 2001:



|                            |  | 2002         | 2001        
|--------------------------- |  | ------------ | ------------
|Land and improvements       |  | $    989,877 | $    989,877
|Buildings and improvements  |  | 8,442,336    | 8,439,259   
|Furniture and equipment     |  | 5,389,169    | 5,068,133   
|Leasehold improvements      |  | 79,979       | 79,979      
|                            |  |              |             
|                            |  | 14,901,361   | 14,577,248  
|Accumulated depreciation    |  | 5,831,123    | 5,236,678   
|                            |  |              |             
|Premises and equipment, net |  | $ 9,070,238  | $ 9,340,570 



The Bank leases certain office locations. Total rental expense under these leases approximated $77,000, $67,000, and $66,000 in 2002, 2001, and 2000, respectively. Future minimum lease payments at December 31, 2002 are not material.



NOTE 4  INTEREST-BEARING DEPOSITS

Interest-bearing deposits at December 31, 2002 and 2001 are as follows:



|                                                                          |  | 2002           | 2001          
|------------------------------------------------------------------------- |  | -------------- | --------------
|Demand                                                                    |  | $   50,785,182 | $   44,161,183
|Statement and passbook savings                                            |  | 37,976,444     | 34,686,712    
|Certificate of deposit                                                    |  |                |               
|In excess of $100,000                                                     |  | 28,747,123     | 32,086,238    
|Other                                                                     |  | 90,069,974     | 110,774,463   
|                                                                          |  |                |               
|Total interest-bearing deposits                                           |  | $ 207,578,723  | $ 221,708,596 
|                                                                          |  |                |               
|At December 31, 2002, stated maturities of time deposits were as follows: |  |                |               
|2003                                                                      |  | $  79,912,780  |               
|2004                                                                      |  | 22,312,966     |               
|2005                                                                      |  | 3,765,988      |               
|2006                                                                      |  | 4,166,365      |               
|2007 and beyond                                                           |  | 8,658,998      |               
|                                                                          |  |                |               
|Total                                                                     |  | $ 118,817,097  |               



NOTE 5  BORROWINGS

During 2002, the Bank borrowed $10,000,000 from the Federal Home Loan Bank under a secured note, with interest at 3.44%, due in November 2003. The Bank also borrows from the Federal Home Loan Bank to fund certain fixed-rate residential real estate loans. Such borrowings carry fixed interest rates ranging from 5.60% to 7.15% at December 31, 2002 and 2001, 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:



|2003       |  | $ 10,867,571 | 
|---------- |  | ------------ | 
|2004       |  | 767,247      | 
|2005       |  | 677,396      | 
|2006       |  | 568,442      | 
|2007       |  | 475,512      | 
|Thereafter |  | 2,023,892    | 
|           |  |              | 
|Total      |  | $ 15,380,060 | 



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 2002 and 2001 is as follows:



|                                          | 2002        | 2001        | 
|----------------------------------------- | ----------- | ----------- | 
|Average balance during the year           | $13,759,609 | $12,929,824 | 
|Average interest rate during the year     | .82%        | 2.11%       | 
|Maximum month-end balance during the year | $15,596,344 | $16,890,022 | 



NOTE 6  INCOME TAXES

The credit for income taxes consists of the following for the years ended December 31, 2002, 2001 and 2000:



|                        | 2002           | 2001        | 2000        
|----------------------- | -------------- | ----------- | ------------
|Current                 | $ (1,491,542)  | $ (972,642) | $    517,184
|Deferred                | 1,426,542      | 435,642     | (1,436,845) 
|                        |                |             |             
|Total income tax credit | $     (65,000) | $ (537,000) | $ (919,661) 



The significant components of the provision (credit) for deferred income taxes for the years ended December 31, 2002, 2001, and 2000, were as follows:



|                                                                             | 2002        | 2001      | 2000         
|---------------------------------------------------------------------------- | ----------- | --------- | -------------
|Tax effect of temporary differences, exclusive
of item listed below          | $   439,542 | $ 435,642 | $ (1,436,845)
|Impact of change in tax law  Job Creation
and Worker Assistance Act of 2002 | 987,000     |          |             
|                                                                             |             |           |              
|Total deferred income tax provision (credit)                                 | $ 1,426,542 | $ 435,642 | $ (1,436,845)



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 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:



|                                                                                                                 | 2002       | 2001        | 2000       
|---------------------------------------------------------------------------------------------------------------- | ---------- | ----------- | -----------
|Expected provision (credit) using statutory
federal income tax rate                                              | $ 631,800  | $  177,500  | $ (203,581)
|Tax-exempt income on state and municipal
securities and political subdivision loans                              | (756,400)  | (842,200)   | (850,171)  
|Interest expense associated with carrying
certain state and municipal securities
and political subdivision loans | 68,800     | 126,600     | 136,795    
|Other                                                                                                            | (9,200)    | 1,100       | (2,704)    
|                                                                                                                 |            |             |            
|Total income tax credit                                                                                          | $ (65,000) | $ (537,000) | $ (919,661)



The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at December 31, 2002 and 2001, are as follows:



|                                                 |  | 2002      | 2001       
|------------------------------------------------ |  | --------- | -----------
|Allowance for loan losses                        |  | $ 484,300 | $ 1,025,400
|Alternative minimum tax credit carryforwards     |  | 501,000   | 712,000    
|Net operating loss carryforward                  |  |          | 523,600    
|Other                                            |  | 37,200    | 64,800     
|                                                 |  |           |            
|Deferred tax assets                              |  | 1,022,500 | 2,325,800  
|                                                 |  |           |            
|Unrealized gain on securities available-for-sale |  | (62,705)  | (137,247)  
|Depreciation of premises and equipment           |  | (310,200) | (242,000)  
|Federal Home Loan Bank stock dividends           |  | (294,300) | (258,500)  
|Deferred loan fees                               |  | (63,800)  | (38,600)   
|Other                                            |  | (34,495)  | (40,453)   
|                                                 |  |           |            
|Deferred tax liabilities                         |  | (765,500) | (716,800)  
|                                                 |  |           |            
|Net deferred tax assets                          |  | $ 257,000 | $ 1,609,000





At December 31, 2002, the Company has available alternative minimum tax credit carryforwards of approximately $501,000 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, 2002 and 2001.



Refundable income taxes approximated $685,000 and $1,113,000 at December 31, 2002 and 2001, respectively, and are included in other assets in the accompanying consolidated balance sheets. Such refundable income taxes primarily result from carryback claims and the December 31, 2001 amount does not reflect the impact of the aforementioned Job Creation and Worker Assistance Act of 2002.



NOTE 7  EMPLOYEE BENEFITS

The Bank 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 3% of each eligible participants compensation for 2002, 2001 and 2000. 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 $197,000, $134,000 and $179,000 for 2002, 2001 and 2000, respectively.



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 ($16.05 per share) and the options expire 10 years from the grant date.



On March 1, 2001, the Board of Directors granted options to purchase 20,000 shares of common stock at an exercise price of $15 per share to an executive officer.



The following summarizes stock options activity for the years ended December 31, 2002 and 2001:



|                                 | 2002   | 2001                           
|-------------------------------- | ------ | -------------------------------
|                                 | Shares | Weighted Average
Exercise Price
|Outstanding at beginning of year | 20,000 | $ 15.00                        
|Granted                          | 14,660 | 16.05                          
|Exercised                        |       |                               
|                                 |        |                                
|Outstanding at end of year       | 34,660 | $ 15.44                        
|                                 |        |                                
|Options exercisable at year end  | 20,000 | $ 15.00                        





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, 2002 and 2001:



|                             | Contract Amount
|---------------------------- | ---------------
|                             | 2002           
|Commitments to extend credit | $48,290,000    
|                             |                
|Letter of Credit             | $185,000       



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, 2002, are due on demand or expire in 2003. 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 necessary.



NOTE 9  RELATED-PARTY TRANSACTIONS

In the ordinary course of business, loans are granted to executive officers, directors and their related business interests. The following is an analysis of activity of related-party loans for the years ending December 31, 2002 and 2001:



|                                 | 2002        | 2001       
|-------------------------------- | ----------- | -----------
|Balance at beginning of year     | $ 2,622,121 | $ 2,732,433
|New loans and advances           | 5,274,233   | 1,815,941  
|Repayments, including loans sold | (1,597,266) | (1,926,253)
|                                 |             |            
|Balance at end of year           | $ 6,299,088 | $ 2,622,121

Deposits from executive officers, directors and their related business interests at December 31, 2002 and 2001 were approximately $2,340,000 and $3,147,000, respectively.



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, 2002 and 2001, that the Company and Bank met all capital adequacy requirements to which they are subject.



As of December 31, 2002, 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, 2002 and 2001, are also presented in the following table (dollars in thousands):



|                                         | Actual   | Minimum Required
for Capital Adequacy Purposes | Minimum Required
to be Well Capitalized Under Prompt
Corrective Action Regulations
|---------------------------------------- | -------- | ---------------------------------------------- | ----------------------------------------------------------------------------------
|                                         | Amount   | Ratio                                          | Amount                                                                            
|As of December 31, 2002                  |          |                                                |                                                                                   
|Total capital (to risk-weighted assets)  |          |                                                |                                                                                   
|Consolidated                             | $ 36,080 | 18.3%                                          | $ 15,910                                                                          
|Bank                                     | 34,328   | 17.4                                           | 15,758                                                                            
|                                         |          |                                                |                                                                                   
|Tier I capital (to risk-weighted assets) |          |                                                |                                                                                   
|Consolidated                             | 33,615   | 17.1                                           | 7,955                                                                             
|Bank                                     | 31,863   | 16.2                                           | 7,879                                                                             
|                                         |          |                                                |                                                                                   
|Tier I capital (to average assets)       |          |                                                |                                                                                   
|Consolidated                             | 33,615   | 11.3                                           | 11,999                                                                            
|Bank                                     | 31,863   | 10.7                                           | 11,924                                                                            



|                                         | Actual   | Minimum Required
for Capital Adequacy Purposes | Minimum Required
to be Well Capitalized Under Prompt
Corrective Action Regulations
|---------------------------------------- | -------- | ---------------------------------------------- | ----------------------------------------------------------------------------------
|                                         | Amount   | Ratio                                          | Amount                                                                            
|As of December 31, 2001                  |          |                                                |                                                                                   
|Total capital (to risk-weighted assets)  |          |                                                |                                                                                   
|Consolidated                             | $ 34,792 | 18.6%                                          | $ 15,006                                                                          
|Bank                                     | 33,025   | 17.8                                           | 14,865                                                                            
|                                         |          |                                                |                                                                                   
|Tier I capital (to risk-weighted assets) |          |                                                |                                                                                   
|Consolidated                             | 32,448   | 17.3                                           | 7,503                                                                             
|Bank                                     | 30,681   | 16.5                                           | 7,433                                                                             
|                                         |          |                                                |                                                                                   
|Tier I capital (to average assets)       |          |                                                |                                                                                   
|Consolidated                             | 32,448   | 10.3                                           | 12,568                                                                            
|Bank                                     | 30,681   | 9.8                                            | 12,497                                                                            



On November 22, 2000, the Company and Bank entered into a Written Agreement with the Federal Reserve Bank of Cleveland and the Ohio Division of Financial Institutions which, among other things, required the Company and Bank to complete a review of the Board of Directors and Management; make improvements in the lending function including, but not limited to, policies and procedures, documentation, and a plan for the reduction of adversely classified assets; and prepare new policies and procedures for internal audit, internal controls, asset/liability management, trust, and information technology. Under the Written Agreement, the Company and Bank could not declare or pay dividends without prior written approval of the regulators. The Companys applications to declare a fourth quarter 2001 and a first quarter 2002 dividend were approved by its regulators.



In a June 17, 2002 letter, the Federal Reserve Bank of Cleveland and the Ohio Division of Financial Institutions informed the Company that the Written Agreement was terminated effective June 14, 2002.



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 agency. 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 $2,038,000 was available for dividends on January 1, 2003, without the need to obtain the approval of the State of Ohio Division of Financial Institutions.



NOTE 11  CONDENSED PARENT COMPANY FINANCIAL INFORMATION

A summary of condensed financial information of the parent company as of December 31, 2002 and 2001 and for each of the three years in the period ended December 31, 2002 are as follows:



|CONDENSED BALANCE SHEETS                      |               | 2002           | 2001           
|--------------------------------------------- | ------------- | -------------- | ---------------
|ASSETS                                        |               |                |                
|Cash deposited with subsidiary bank           |               | $   1,406,200  | $   1,157,951  
|Investment in subsidiary bank                 |               | 31,989,558     | 30,954,063     
|Security held-to-maturity                     |               | 498,743        | 498,555        
|Other assets                                  |               | 110,809        | 110,568        
|                                              |               |                |                
|Total assets                                  |               | $ 34,005,310   | $ 32,721,137   
|                                              |               |                |                
|LIABILITIES AND SHAREHOLDERS EQUITY          |               |                |                
|Liability  dividends payable                 |               | $      263,026 | $             
|Shareholders equity:                         |               |                |                
|Common stock                                  |               | 16,673,667     | 16,673,667     
|Additional paid-in capital                    |               | 6,413,915      | 6,413,915      
|Retained earnings                             |               | 11,621,292     | 10,571,152     
|Treasury stock                                |               | (1,088,312)    | (1,204,018)    
|Accumulated other comprehensive income        |               | 121,722        | 266,421        
|                                              |               |                |                
|Total shareholders equity                    |               | 33,742,284     | 32,721,137     
|                                              |               |                |                
|Total liabilities and shareholders equity    |               | $ 34,005,310   | $ 32,721,137   
|                                              |               |                |                
|                                              |               |                |                
|CONDENSED STATEMENTS OF INCOME                | 2002          | 2001           | 2000           
|Interest on security                          | $      24,837 | $ 24,837       | $ 24,837       
|Dividends from subsidiary                     | 789,169       | 262,465        | 1,183,855      
|                                              |               |                |                
|Total Income                                  | 814,006       | 287,302        | 1,208,692      
|                                              |               |                |                
|Operating expenses                            | 107,670       | 130,429        | 74,223         
|Income before taxes and undistributed         |               |                |                
|equity income of subsidiary                   | 706,336       | 156,873        | 1,134,469      
|                                              |               |                |                
|Income tax benefit                            | 36,608        | 44,346         | 25,236         
|Equity income in subsidiary, net of dividends | 1,180,194     | 857,859        | (838,812)      
|                                              |               |                |                
|Net income                                    | $ 1,923,138   | $ 1,059,078    | $ 320,893      



NOTE 11  CONDENSED PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)



|CONDENSED STATEMENTS OF CASH FLOW                    | 2002        | 2001        | 2000       
|---------------------------------------------------- | ----------- | ----------- | -----------
|Cash flows from operating activities:                |             |             |            
|Net income                                           | $ 1,923,138 | $ 1,059,078 | $ 320,893  
|Adjustments to reconcile net income to               |             |             |            
|cash provided by operations:                         |             |             |            
|Shares issued from treasury as
employee compensation |            | 3,802       |           
|Security accretion                                   | (188)       | (187)       | (187)      
|Equity income in subsidiary,
net of dividends        | (1,180,194) | (857,859)   | 838,812    
|Change in other assets                               | (241)       | (19,102)    | (3,494)    
|                                                     |             |             |            
|Net cash from operating activities                   | 742,515     | 185,732     | 1,156,024  
|                                                     |             |             |            
|Cash flows from financing activities:                |             |             |            
|Purchase of treasury shares                          | (87,728)    | (194)       | (1,507,230)
|Stock options exercised                              |            |            | 30,117     
|Cash dividends paid                                  | (406,538)   | (197,136)   | (845,158)  
|                                                     |             |             |            
|Net cash from financing activities                   | (494,266)   | (197,330)   | (2,322,271)
|                                                     |             |             |            
|Net change in cash                                   | 248,249     | (11,598)    | (1,166,247)
|                                                     |             |             |            
|Cash at beginning of year                            | 1,157,951   | 1,169,549   | 2,335,796  
|                                                     |             |             |            
|Cash at end of year                                  | $ 1,406,200 | $ 1,157,951 | $ 1,169,549



NOTE 12  OTHER COMPREHENSIVE INCOME

The components of other comprehensive income and related tax effects are as follows for the years ended December 31, 2002, 2001 and 2000:



|                                                                           | 2002        | 2001      | 2000     
|-------------------------------------------------------------------------- | ----------- | --------- | ---------
|Unrealized holding gains (losses) on available-for-sale
securities         | $ (104,419) | $ 507,089 | $ 514,603
|Less reclassification adjustment for securities gains
recognized in income | (114,822)   | (28,828)  |         
|                                                                           |             |           |          
|Net unrealized holding gains (losses)                                      | (219,241)   | 478,261   | 514,603  
|                                                                           |             |           |          
|Tax effect                                                                 | (74,542)    | 162,608   | 174,969  
|                                                                           |             |           |          
|Other comprehensive income (loss)                                          | $ (144,699) | $ 315,653 | $ 315,653





























NOTE 13  FAIR VALUES OF FINANCIAL INSTRUMENTS

The estimated fair values of recognized financial instruments as of December 31, 2002 and 2001, are as follows (dollars in thousands):



|                                               | 2002             | 2001      
|---------------------------------------------- | ---------------- | ----------
|                                               | Carrying Amounts | Fair Value
|Financial assets:                              |                  |           
|Cash and cash equivalents                      | $ 22,565         | $ 22,565  
|Securities                                     | 73,088           | 76,022    
|Loans, net                                     | 197,109          | 201,040   
|                                               |                  |           
|Total                                          | $ 292,762        | $ 299,627 
|                                               |                  |           
|Financial liabilities:                         |                  |           
|Deposits                                       | $ 239,976        | $ 241,373 
|Securities sold under agreements to repurchase | 14,448           | 14,448    
|Federal Home Loan Bank borrowings              | 15,380           | 17,341    
|                                               |                  |           
|Total                                          | $ 269,804        | $ 273,162 



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 Bank also has unrecognized financial instruments at December 31, 2002 and 2001. These financial instruments relate to commitments to extend credit and letters of credit. The contract amount of such financial instruments approximated to $48,475,000 at December 31, 2002 and $50,263,000 at December 31, 2001. 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 loan 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.



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 federal funds purchased and securities sold under repurchase agreements is determined to be the carrying amount since these financial instruments represent obligations which are due on demand. The fair value of borrowed funds 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 Bank has entered into employment agreements with various officers. Upon the occurrence of certain types of termination of employment, the Bank 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, 2002 and 2001:



|               | Interest Income | Net Interest Income | Net Income (Loss) | Basic and Diluted Earnings per Common Share
|-------------- | --------------- | ------------------- | ----------------- | -------------------------------------------
|2002           |                 |                     |                   |                                            
|First quarter  | $ 4,314,450     | $ 2,409,113         | $ 376,389         | $ .14                                      
|Second quarter | 4,171,423       | 2,487,271           | 504,858           | .19                                        
|Third quarter  | 4,126,898       | 2,609,171           | 635,657           | .24                                        
|Fourth quarter | 4,087,024       | 2,727,411           | 406,234           | .16                                        
|               |                 |                     |                   |                                            
|2001           |                 |                     |                   |                                            
|First quarter  | 6,030,663       | 2,869,830           | 307,686           | .12                                        
|Second quarter | 5,586,855       | 2,587,570           | (1,357,512)       | (0.52)                                     
|Third quarter  | 5,298,180       | 2,431,148           | 1,856,052         | 0.71                                       
|Fourth quarter | 4,740,661       | 2,296,911           | 252,852           | 0.09                                       



This information is an integral part of the accompanying consolidated financial statements.